ITEM 1 - DESCRIPTION OF BUSINESS
HISTORY
EGPI Firecreek, Inc. (the “Company”, “EGPI”, “we”, “us” or “our”) was incorporated in the state of Nevada on October 4, 1995 as Sterling Market Positions, Inc. with 10,000,000 shares of $.001 par value common stock authorized. Effective June 24, 1999, the Company changed its name to Energy Producers, Inc. and increased its authorized common shares to 50,000,000 with a par value of $0.001. The Company’s principal place of business is 6564 Smoke Tree Lane, Scottsdale, AZ 85253.
On August 25, 1999, the Company was acquired by Energy Producers Group, Inc., and its wholly owned subsidiary, Producers Supply, Inc. The purpose of the acquisition and reverse merger was to become an oil and gas company, and later diversify. The Company focused its business on oil and gas exploration and acquiring existing production with proven reserves.
On December 31, 2005 the board of directors of the Company authorized the disposal of the Company’s wholly owned subsidiary marine sales segment assets and operations International Yacht Sales Group, Ltd. located in Torquay Devon, United Kingdom.
In March 2006 the Company through its wholly owned subsidiary Firecreek Petroleum, Inc, (“Firecreek”), began production and sale of natural gas from completed wells located in Sweetwater County, Wyoming.
On December 13, 2006, the Company increased its total authorized capital stock from 980,000,000 shares to 1,300,000,000.
On July 1, 2007 the Company through its wholly owned subsidiary Firecreek began production and sale of oil from the Fant Ranch Unit located in Knox County, Texas.
On July 3, 2008 the Company through its wholly owned subsidiary Firecreek began production and sale of oil and gas from the J.B. Tubb leasehold estate located in Ward County, Texas.
Effective on October 8, 2008 the Company affected a one (1) for two hundred (200) reverse stock split whereby, as of the Record Date, for every two hundred shares of common stock then owned, each shareholder received one share of common stock.
On October 30, 2008 the Company’s wholly owned subsidiary Firecreek sold its 50% undivided interest in the Ten Mile Draw natural gas leases in Sweetwater County, Wyoming.
On December 2, 2008 as a result of a default notice received October 24, 2008 on Promissory Notes and Debentures held by Dutchess Private Equities Fund, Ltd (“Dutchess”), all of the assets were transferred or disposed of.
On May 18, 2009, the Company entered into a Stock Acquisition Agreement relating to the assignment and sale of Firecreek Petroleum, Inc., a Delaware corporation (“FPI”).
On May 21, 2009 the Company acquired M3 Lighting, Inc. (“M3”) as a wholly owned subsidiary via reverse triangular merger with a subsidiary of the Company. The Company was determined to be the acquirer in the transaction for accounting purposes. M3 principally brings key Management, strategic relationships, and is a distributor of commercial and decorative lighting to the trade and direct to retailers. As part of the Merger the Company effected a name change for its wholly owned subsidiary Malibu Holding, Inc. to Energy Producers, Inc. (“EPI”) as a conduit for its oil and gas activities, and the Company commenced focusing on two lines of business.
On November 4, 2009 the Company acquired all of the issued and outstanding capital stock of South Atlantic Traffic Corporation, a Florida corporation (“SATCO”). SATCO has been in business since 2001 and has several offices throughout the Southeast United States. SATCO carries a variety of products and inventory geared primarily towards the transportation industry.
On December 31, 2009, the Company’s wholly owned subsidiary Energy Producers, Inc. acquired 50% working interests and corresponding 32% net revenue interests in oil and gas leases, reserves, and equipment located in Shackelford, Callahan, and Stephens counties, West Central Texas. The Company entered into a turnkey work program included for three wells located on the leases.
On March 3, 2010, the Company executed a Stock Purchase Agreement with the stockholders of Redquartz LTD a company formed and existing under the laws of the country of Ireland. Redquartz LTD has been in business for 45 years, is known internationally and is our entrance into the European markets with respect to Intelligent Traffic Systems (ITS) and the transportation industry. Redquartz LTD spun off its operations prior to the acquisition and was a development stage company at the time of the acquisition.
On June 11, 2010, the Company acquired all of the issued and outstanding stock of Chanwest Resources, Inc., a Texas corporation. Chanwest Resources, Inc. was formed in 2009 and has been engaged in ramping up operations including acquiring assets related to the servicing and construction, and activities related to the acquisition production and development for oil and gas.
On October 1, 2010 the Company entered into a Definitive Securities Purchase/Exchange Agreement with Terra Telecom, LLC. Terra is considered recognized as a leading provider of state-of-the-art communication technologies and a premier Alcatel-Lucent partner. Terra focused on delivering enterprise solutions while leading with voice services and offering full turn-key solutions that consist of voice, data, video and associated applications. On March 14, 2011, the company sold Terra Telecom, LLC.
On October 18, 2010, the Company increased its authorized common stock, par value $0.001 per share, to 3,000,000,000 from 1,300,000,000 and maintains 60,000,000 par value $0.001 per share of its authorized preferred stock.
On November 9, 2010, the Company affected a 1 share for 50 shares reverse split of its common stock split whereby, as of the Record Date, for every fifty shares of common stock then owned, each shareholder received one share of common stock. All amounts have been retroactively adjusted for all periods presented.
On February 4, 2011, the Company entered into an Agreement to acquire all 100% of Arctic Solar Engineering LLC, a Missouri limited liability company located at PO Box 4391, Chesterfield, MO 63006 and the owners of Membership Interests of the Arctic Solar Engineering LLC; The FATM Partnership, a Missouri Partnership, The Frederic Sussman Living Trust. Arctic Solar Engineering, LLC, is an integrator of Solar Thermal Energy technology. For further information please see our Current Report on Form 8-K filed on February 10, 2011, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
On March 2, 2011 the Company obtained a consent from the majority shareholders of the Company to amend the Articles of Incorporation to i) authorize the issuance of 2,500 shares of a new D Series Preferred Stock to acquire an interest in an oil and gas lease, and ii) for the Board of Directors to be able to authorize any and all capitalization of the Company going forward without the need for shareholder approval, and further authorized for the Board of Directors to set all rights, preferences, and designations, for and in behalf of any class of the Company’s common of preferred stock, and as may be required or as necessary in the best interest of the Company. The Company’s new business focus is on acquiring and exploiting oil and gas interests.
On March 14, 2011, the Company entered into and completed the closing of a Stock Purchase Agreement involving the sale of South Atlantic Traffic Corporation to Distressed Asset Acquisitions, Inc. For further information please see our Current Report on Form 8-K filed on March 18, 2011 and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
On March 14, 2011, the Company entered into and completed the closing of a Stock Purchase Agreement involving the sale of Oklahoma Telecom Holdings, Inc. an Oklahoma corporation, formerly known as Terra Telecom, LLC, an Oklahoma limited liability company and Terra Telecom, Inc. (“TTI”), to Distressed Asset Acquisitions, Inc. For further information please see our Current Report on Form 8-K filed on March 18, 2011 and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document. The Company was unable to obtain control of these acquired entities and as a result did not consolidate them in the financial statements. The Company owned its interest in these entities for less than a year before this interest was sold to a third party.
On July 7, 2011, the Company affected a 1 share for 500 shares reverse split of its common stock and all amounts have been retroactively adjusted for all periods presented.
On July 31, 2012 the Company sold oil and gas assets and interests in the J.B. Tubb Leasehold Estate via a Securities Purchase Agreement (“SPA) and Assignment and Bill of Sale with Mondial Ventures, Inc. (“Mondial” or “MNVN”). Mondial issued 14,000,000 shares of its common stock to the Company and assumed $450,000 debt for 37.5% working interest ("WI"), and corresponding 28.125% net revenue interest ("NRI") in the oil and gas interests. This includes pro rata oil & gas revenue and reserves in the North 40, and an additional rights agreement for the South 40 of the J.B. Tubb Leasehold Estate, respectively, and for all depths below the surface to at least 8500 ft. All related assets, fixtures, equipment, three well heads and three well bores are included according to the pro rata share held by Mondial. Currently, there are three wells in operation on the property.
On August 21, 2012 the Company filed a Certificate of Amendment to its Articles of Incorporation, increasing its authorized common stock, par value $0.001 per share, to 20,000,000 from 5,000,000 and is authorized to issue 60,002,500 shares of preferred stock which include rights and preferences for Series A through D stock.
On October 30, 2012 the Company entered into a Definitive Short Form Agreement with Mondial for development of 240 acre leases, reserves, three wells and equipment located in Callahan, Steven and Shackelford Counties, West Central Texas, which includes but is not limited to potential negotiations to buy out 50% partner interests, due diligence, an initial 3-D Seismic study reserve studies and roll over leases if necessary. The agreement is non-binding and the parties intend to finalize the agreement by executing a Definitive Long Form Agreement in the future. The parties had until November 6, 2012 to finalize this agreement but did not do so by that date. Both parties are still interested in pursuing this transaction in the future.
Overview
EGPI Firecreek Inc. was formerly known as Energy Producers, Inc., an oil and gas production company focusing on the recovery and development of oil and natural gas. The Company focused on oil and gas activities for development of interests held that were acquired in Texas and Wyoming for the production of oil and natural gas through December 2, 2008.
Based on our earlier initiation of a program to review domestic oil and gas prospects and targets in fiscal year 2005, we acquired non-operating oil and gas interests in a project under the prospect named Ten Mile Draw (“TMD”) located in Sweetwater County, Wyoming USA for the development and production of natural gas. We commenced with natural gas production beginning approximately March 2006 forward in the TMD. Later on in July, 2007, the Company acquired and began production of oil at the 2,000 plus acre Fant Ranch Unit in Knox County, Texas. We entered a rehabilitation program on the Fant Ranch in January 2008. This was followed by the acquisition and commencement of oil and gas production at the J.B. Tubb Leasehold Estate located in the Amoco Crawar Field in Ward County, Texas in March, 2008. Throughout 2008, the Company sought to continue expansion and growth for oil and gas development in its core projects area. This strategy was centered on rehabilitation and production enhancement techniques, utilizing modern management and technology applications in upgrading certain proven reserves. The Company successfully increased production and revenues derived from its properties and in late 2008, the Company then retired the majority (over 90%) of its debt through the disposition of those improved properties.
In early 2009, based on the continued economic downturn, credit decline, struggling financial markets and the implementation of the federal stimulus package for infrastructure projects, the Company embarked on two lines of business as a strategic plan in part then transitioning from an emphasis on the oil and gas focused business to that of an acquisition strategy focused on the transportation industry serving federal DOT and state/local DOT agencies and other potential targets based in the telecommunications and general construction industries. The acquisition strategy focused on vertical business integration. In May 2009, the Company acquired M3 Lighting Inc. (M3) as the flagship subsidiary with key additional management team to begin this process, and as a result on November 4, 2009, the Company acquired all of the capital stock of South Atlantic Traffic Corporation, a Florida corporation, which distributes a variety of products geared primarily towards the transportation industry where it derives its revenues.
Through 2009 we also continued our previous decisions to limit and wind down the historical pursuit of our oil and gas projects overseas in Central Asian and European countries. In late 2009 and continuing in 2010, the Company began pursuing a reentry to the oil and gas industry on a domestic basis as part of our strategic plans. On December 31, 2009, through our wholly-owned subsidiary, Energy Producers, Inc., we acquired interests in certain oil and gas leases, reserves and equipment located in West Central Texas for rehabilitation and development. Later on June 11, 2010 we acquired all of the capital stock of Chanwest Resources, Inc., a Texas Corporation, which is engaged in ramping up operations including acquiring assets related to the oil and gas servicing business.
Throughout 2010 we continued to develop both of our two line segments of operations. In addressing the ITS/DOT segment which would also include Telecommunication industry and other General Construction, we entered into several business opportunities that ultimately were not able to reach their full potential or one or more cases to be fully consummated. We first entered into an Agreement on January 15, 2010, to acquire all of the issued and outstanding capital stock of Southwest Signal, Inc., a Florida corporation (“SWSC”). Southwest Signal, Inc., was established in 2000 and is engaged in all facets of the United States Intelligent Transportation System / Department of Transportation Industry. This transaction did not consummate as our financial relationships failed to complete on proposed financing. Lack of available financing, and withdrawal of the factoring company in place for SATCO or the absence of a synergistic relationship as planned with Southwest Signal, Inc. to develop financing from cash flow growth began effecting its sales ability to effectuate or complete orders. On March 3, 2010, the Company did succeed in completing a Stock Purchase Agreement with the stockholders of Redquartz LTD, a company formed and existing under the laws of the country of Ireland. Redquartz LTD has been in business for 45 years, and known internationally. We believed the transaction and relationship would facilitate expanding our business relationships for the products sold by SATCO and other activities eventually planned relative to Intelligent Traffic Systems (ITS) and the transportation industry as well as our other segment of operations. In our continued efforts to attract new financing to the Company in behalf of its strategic plan, on July 22, 2010 we entered into a Definitive Stock Purchase Agreement with E-Views Safety Systems, Inc. The Agreement provided us with a “Dealer Agreement” with further rights to acquire up to 51% of E-Views. Founded in 1998, E-Views is a leading edge innovator and provider of patented advanced wireless "smart infrastructure" technologies that incorporate intelligent traffic, transit, and light rail systems with messaging and communications. We believe there are ongoing potentials with our business relationship with E-views. We have not acquired a percentage of E-views to date.
In October 2010, the Company executed a Securities Purchase / Exchange Agreement to acquire 100% of Terra Telecom, LLC, an Oklahoma limited liability company. Terra Telecom was considered recognized as a leading provider of state-of-the-art communication technologies and a premier Alcatel-Lucent partner. It was also considered a good opportunity for the Company due the potential for sales growth and associated cash flow anticipated. They served various sized companies and organizations that use and deploy communications systems, sales, service, and training while consolidating and optimizing the end user experience. The business acquisition was unable to be consolidated with the Company, nor was factoring and bridge financing proposed by lenders able to be completed satisfactorily to all interested parties, and the potential of this acquisition could not be realized. Thus the Company’s interests for both Terra and SATCO. have been sold as of March 14, 2011 (see further information listed under “the Business”, Management Discussion and Analysis, and elsewhere in this report and historical reports on Form 10-K).
Through Fiscal 2011, Fiscal 2012, and continuing for the Company has been concentrating on continuing the building of its oil and gas division, and secondarily considering restoring additional infrastructure for its ITS/DOT, Telecommunication and General Construction area of its business through new targets and prospects to maintain its business strategy for 2013.
For further information related to our history please see information in our Form 10K Reports filed on April 28, 2011 and April 15, 2010, respectively, along with filings on Form 10-Q and Form 8-K, as amended.
RECENT DEVELOPMENTS
On April 26, 2013 the Company, Mondial Ventures, Inc. (“Mondial”) and Success Oil Co., Inc. (“Success”) together (the “Parties”) extended a January 28, 2013 Agreement to further extend option (the “AEO”) relating to a Participation Agreement (Turnkey Drilling, Re Entry, and Multiple Wells) (“Participation Agreement”) dated July 31, 2012 between the Company, Mondial, and Success. Per the July 31, 2012 formal SPA and Assignment and Bill of Sale Agreement with Mondial, the Company was granted a 6 month option on a farm in agreement with regards to drilling of a series of wells on the South Forty (40) acres of the J. B. Tubb Lease, Ward County, Texas. The Agreement to extend option dated January 28, and again extended April 26, 2012 together in the aggregate calls for monthly payments of $2,022.76 beginning January 2013, for seven months, and effectively increasing the expiration date to at least July 26, 2013 unless modified in writing signed by the parties or there is a default not cured or waived. The AEO essentially extends a November 30, 2011 Participation Rights Agreement which allows for the Company’s Participation Agreement (see Exhibit 10.3 to a Current Report on Form 8-K filed on August 3, 2012) to also be extended, and modified and amended accordingly. The material terms modified and amended reflecting the Company’s rights, included on a best efforts basis to reduce the financing requirement overall pursued for Capital Expenditure (CAPEX) to drill a well to the Ellenberger formation on a turnkey basis in the approximate amount of One Million, Five Hundred Seventy Five Thousand ($1,575,000) dollars. Further Success acknowledges that EGPI and or its assignee shall be able to negotiate and or sell interests and or participation in the development of any additional well(s) and other terms as needed, on approval by Success. For further information please see Current Report on Form 8-K filed by the Company on August 9, 2012, and Exhibit 10.5 and 10.6 to a Current Report on Form 8-K filed by EGPI August 3, 2012.
The Company has been making presentations to asset-based lenders and other financial institutions for the purpose of acquiring additional projects and financing capital expenditures to build upon its infrastructure for its oil and gas operations in 2013. The Company throughout its first quarter of operations for 2013 has been pursuing projects for acquisition and development of select targeted oil and gas proved producing properties with revenues, having upside potential and prospects for enhancement, rehabilitation, and future development. These domestic focus prospects are primarily located in Texas, and in other core areas of the Permian Basin.
The Company is again pursuing on a lesser level certain international based oil and gas programs available and will Report progress when appropriate.
The Company’s goal is to build our revenues, asset base and cash flow; however, the Company makes no guarantees and can provide no assurances that it will be successful in these endeavors.
THE BUSINESS
The Company beginning May 20, 2009 and throughout fiscal years 2010, 2011, and 2012 has been building and integrating two line segments of operations and facilitating plans including i) development and redeployment of our oil and gas infrastructure which we are currently focused on building our oil and gas operations, and servicing related business activities for oil and gas domestically, and in 2013 will again pursue initially to a lesser extent international programs available to the Company through its historical consultants and advisory team, ii) generating business geared to Department of Transportation (DOT) application including Intelligent Lighting Systems (ITS) inventory and systems sales to DOT and also distribution of commercial decorative lighting to the trade and direct to retailers, and building infrastructure for Telecommunication Industry for deployment of communications systems, sales, service, and training . During fiscal 2011 the Company sold two of its business segments one of which was geared to Department of Transportation (DOT) application including Lighting Systems (ITS) inventory and systems sales to DOT, and the other was in behalf of our recent pursuits related to the Telecommunication Industry.
Oil and Gas Units (line segment of operations) Transitioning Stage
Our goal through this line of business is to become an independent oil and gas company engaged in the exploration, development and exploitation of crude oil and natural gas properties primarily in the United States. We have focused our activities on projects based in i) the Permian Basin areas of Texas, and ii) surrounding States and regions in the U.S. for activities related to oil and gas production, and related business and other opportunities.
Our business and our ability to acquire mineral rights, targeted rehabilitation projects with upside potential, and participate in drilling activities are due primarily to the relationships we have developed over the years with our operating partners, and key industry advisors. We believe that our competitive advantage first lies in our ability to locate good potential oil and gas property acquisitions, resource plays, and other business opportunities and interests located primarily in Texas and surrounding States. Secondly our historical contact base and strategic global consultant and advisors team puts us in touch with available oil and gas programs on the ground and suitable for partnering with finance companies for potential future growth.
Acquisition of 50% Oil and Gas Working Interests, Callahan, Stephens, and Shakelford Counties, Texas, Three Well Program
Effective December 31, 2009, the Company through its wholly owned subsidiary Energy Producers, Inc. (“Energy Producers” or “EPI”) closed an Acquisition Agreement including an Assignment of Interests in Oil and Gas Leases (the “Assignment”), with Whitt Oil & Gas, Inc., (“Whitt”) a Texas corporation acquiring 50% working interests and corresponding 32% net revenue interests in oil and gas leases representing the aggregate total of 240 acre leases, reserves, three wells, and equipment located in Callahan, Stephens, and Shakelford Counties, West Central Texas.
Purchase and Work Program Costs Associated With Our Acquired Interests in the Texas, Three Well Program
Pursuant to the Assignment, the Company’s wholly owned subsidiary Energy Producers, Inc. paid to Whitt the total of two hundred twenty five thousand ($225,000) dollars for the leases, equipment, and a turnkey work program included for three wells located on the leases. Of the $225,000 we allocated $163,500 for the leases and $61,500 for the existing equipment according to our share.
Whitt Oil and Gas, Inc. is the operator for Energy Producers non operated interests and commenced with 2010 work programs to rehabilitate the three wells which began in January 2010 with the goal to restore production and be online as soon as possible. The Assignment through closing is less all credited taxes including State, County, and or other due and owing by Whitt through the oil transfer effective date of December 1, 2009 to Energy Producers. Operations upon the transfer effective date will be handled by an Operating Agreement between Energy Producers and Whitt.
The 2009 and 2010 rehabilitation and enhancement programs included well repairs followed by frac treatment for each well, namely the McWhorter No. 1 Well with perforations in the Bend Conglomerate Formation at 4,060 to 4,068 feet, the Young No. 3 Well to produce at 2,530 feet depth in the Palo Pinto Lime, and the Boyett Well, to produce in the Caddo Lime at approximately 3,400 feet.
Our turnkey manager, partner, and project operator encountered an abundance of weather related and non reported down hole maintenance issues in its attempts in 2010 to bring one or more wells on line. For 2011 both the operator and Company having agreed, moved forward for the recompletion of the McWhorter and Boyette proven zones in their respective wells. Additional plans for 2011 included that upon completion of a successful recompletion program for the Young #1 well, which adjoins the McWhorter, to convert into a salt water disposal well to support the McWhorter production operations and economics. Upon operations concluding the recompletion program it was determined ultimately in the fourth quarter of 2011 that after several attempts of clearing fluid to complete all three wells that the reservoirs were not commercially productive in the zones. The Young #1 remains a good candidate for a salt water disposal well for projects going forward.
Proposed Sale of 50% Oil and Gas Working Interests, Callahan, Stephens, and Shackelford Counties, Texas
On October 30, 2012, the Company through its wholly owned subsidiary Energy Producers, Inc. (“EGPI”) entered into a Linear Short Form Agreement with Mondial Ventures, Inc. (“Mondial”) involving evaluation, and preparation for the proposed acquisition of certain oil and gas interests, subject to certain terms and requirements. The interests relating to 50% working interests and corresponding 32% net revenue interests in oil and gas leases representing the aggregate total of 240 acre leases, reserves, three wells, and equipment located in Callahan, Stephens, and Shakelford Counties, West Central Texas. The parties had until November 6, 2012 to finalize this agreement but did not do so by that date. Both parties are still interested in pursuing this transaction in the future.
Evaluation and Implementation Costs Associated with the Proposed Sale and Development of 50% Oil and Gas Working Interests, Callahan, Stephens, and Shakelford Counties, Texas
Acquisition evaluation and implementation costs total $175,000. The costs to be paid by Mondial is to buy out 50% partner interests, and other costs, including lease extensions if necessary, and to include a seismic study when total funds are available. The seismic study will focus on specific Barnett Shale formation characteristics that will assist in the drilling of one and possibly two Barnett horizontal wells or an equivalent of up to eight vertical wells on the Boyette lease at a proposed initial depth of approximately 5,200’ to 5,500’ feet. We are targeting the oil segment or phase of the Barnett Shale and have justified the seismic study.
Through Fiscal 2012, our focus has been on the potential of the Barnett Shale underlying the Boyett Lease. However, there are other opportunities that may exist besides the Barnett. The 3-D seismic that will be employed may show a heretofore unknown fault which would for example preclude a high-tech frac job, thus nullifying the development of the Barnett Shale. This is highly unlikely but it is a possibility. Additionally, this seismic will provide the Company and future partners with other opportunities in formations under the Boyett other than the Barnett. In a lease block of this size, it is unlikely that the Company will not identify an attractive oil and gas structure to be developed, but it is not guaranteed or assured.
Future Development and Work Program Costs Associated With 50% Oil and Gas Working Interests, Callahan, Stephens, and Shakelford Counties, Texas,
On successful seismic testing anticipated AFE for Barnet Horizonal Well program would be estimated to be $1,000,000 per horizontal well to be split between the partners for the AFE costs. Firecreek to come to terms of agreement regarding financing for the proposed drilling and development should the parties agree to further move forward after the Seismic study.
For additional information please see our Current Report on Form 8-K, as amended, filed on November 15, 2012. See also additional information listed in “Notes to the Consolidated Financial Statements” further in this Report.
The Material terms of Proposed Future Operating Agreement for the Completed Sale of 50% Oil and Gas Working Interests, Callahan, Stephens, and Shakelford Counties, Texas,
The Company has, subject to further change or modification, a standard AAPL form operating agreement with an independent contractor to operate for the proposed activities the subject properties on a contract basis for our share of Working Interests (50%). At the present time Whitt Oil and Gas, Inc. is the independent contractor for the Company (the “Independent Contractor” or “Operator”) and will be modified or changed to administer the Company’s proposed and pending interests. It will be expected that the operator when in place will furnish the monthly Lease Operation Expense and various activity reports to the Company. Upon successful commencement of production, run checks (payments) expected from future sales of oil and gas are to be sent to the operator from the purchasers for oil and gas produced. The designated gatherer for the oil the natural gas will be established. The independent contractor will be expected to administrate monthly activities, and after payment of management, consulting, and lease-operating expenses (LOE’s), will collect and compile the Joint Interest Billing (JIB) Statements and prepare those certain reports and financial statements related to production income and expenses for monthly delivery to Company’s accounting for compilation along with its share of the payment to be received according to its interests.
For additional information please see our Current Report on Form 8-K, as amended, filed on December 29, 2009 and January 6, 2009. See also additional information listed under the heading “Recent Developments”, “Description of Properties”, “Supplemental Oil and Gas Information” and listed in “Notes to the Consolidated Financial Statements” further in this Report.
Acquisition of 75% Working Interests, J.B. Tubb Leasehold Estate, AMOCO CRAWAR FIELD, Ward County, Texas
On March 1, 2011, we entered into a Series D Stock Purchase Agreement (“SPA”) with Dutchess Private Equities Fund, Ltd. (“Investors”) whereby contemporaneously with the execution and delivery of the Agreement(s) and Exhibits, the parties hereto are executing and delivering an Assignment and Bill of Sale (the “Assignment and Bill of Sale Agreement”) pursuant to which the Investors and its wholly-owned subsidiary Ginzoil, Inc, (“GZI”) agrees to sell to the Company’s wholly owned subsidiary unit Energy Producers, Inc. (“Energy Producers” or “EPI”) all assets of GZI as described in the preliminary Assignment and Bill of Sale and summarily as follows: Under the terms of the agreement, which shall be effective March 1, 2011, the Company’s wholly owned subsidiary Energy Producers, Inc. will acquire a majority 75% Working Interest and 56.25% corresponding Net Revenue Interest in the North 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field and oil and gas interests, including all related assets, fixtures, equipment, three well heads, three well bores, and pro rata oil & gas revenue and reserves for all depths below the surface to 8500 ft. The field is located in the Permian Basin and the Crawar Field in Ward County, Texas (12 miles west of Monahans & 30 miles west of Odessa in West Texas). Included in the transaction, Energy Producers will also acquire 75% Working Interest and 56.25% corresponding Net Revenue Interest in the Highland Production Company No. 2 well-bore located in the South 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field, oil and gas interests, pro rata oil & gas revenues and reserves with depth of ownership 4700 ft. to 4900 ft.
Purchase Costs Associated With Our Acquired Interests in the Texas, J.B. Tubb Leasehold Estate
Per our entry into the SPA with Dutchess, we agreed to authorize and issue and sell 2,500 shares of a new, to be authorized, Series D preferred stock to Investors with a face value of one thousand dollars ($1,000) per share, or a total in the aggregate value of $2,167,306. Pursuant to the SPA each share of Series D Preferred Stock shall be convertible, at the sole option of the Investor or holder thereof, into share(s) of the Corporation’s Common Stock (“Conversion Shares”). The Conversion Formula at the time of any noticed and converted shall mean that the number of Conversion Shares (common stock) to be received by the holder of Series D Preferred Stock in exchange for each share of Series D Preferred Stock that such holder intends to convert pursuant to this provision, where such number of Conversion Shares shall be equal to the greater of the number calculated by dividing the Purchase Commitment per share ($1000) by i) .003 per share, ii) one hundred and ten percent (110%) of the lowest VWAP for the three (3) days immediately preceding a Conversion Date. The preferred stock was valued at fair value by calculating the face value of the preferred stock, $2,500,000, subtracting a discount due to lack of marketability of 24.5%, yielding $1,887,500 value of the preferred stock and adding the value of the embedded derivative of $279,796. The derivative was valued based on the use of a multinomial lattice model with the following assumptions: annual volatility at 238%, 20% of default at maturity, and the holder would convert at 1.5 times the conversion price decreasing as it approaches maturity. The preferred shares include anti-dilution protection if any future issuances occur for a lower price. The total fair value of these preferred shares was computed to be $2,167,306, including the derivative liability. A portion of this value, $279,796, was bifurcated at the grant date and included in the derivative value. The Company has agreed to keep a sufficient number of its common shares on hand for future conversions as listed in Section 1 of the SPA.
2011 Work Program Costs Associated With Our Acquired Oil and Gas Interests in the Texas, J.B. Tubb Leasehold Estate
On May 9, 2011 the Company and its wholly owned subsidiary Energy Producers, Inc. (“EPI”) issued to TWL Investments a LLC, an Arizona limited liability company (“TWL”) a promissory note in the face amount of $210,000 (the “Note”). Both the Agreement and Promissory Note is listed on Exhibit 10.1 to our Current Report on Form 8-K filed on May 13, 2011, incorporated herein by reference.
On May 10, 2011 and in connection with the issuance of the Promissory Note herein listed above, the Company through its wholly owned subsidiary EPI entered into a “Turnkey Rework Agreement” with Success Oil Co., Inc. (“Success”) of Beverly Hills CA, also a licensed Texas operator, to perform such work programs on the interests owned by the Company’s wholly owned subsidiary in the A.J. Tubb Leasehold Estate, Amoco/Crawar field, Ward County, Texas (see Current Report on Form 8-k filed on March 7, 2011).
The Turnkey Rework Agreement included: i) Crawar #1 Well: Success drilled out the cement plug and cast iron bridge plug located at approximately 5,000 feet, and shall perforate the Glorieta payzone (in the North 40 acres of the J. B. Tubb Leasehold Estate) at intervals ranging from 3,800 feet to 4,000 feet, acidize and swab, ii) J. B. Tubb #18-1 Well. Success re-perforated existing Tubb pay-zone at interval 4,510 feet to 4,560 feet (plus or minus) to increase perforations to 6 shots per foot and then frac with gas gun, iii) Success agreed and understood that if the above described reworking costs exceeded $165,162, Success shall solely be responsible for such excess costs. A copy of the Turnkey Rework Agreement and Escrow Agreement are filed as exhibits 10.5, and 10.6 to our Current Report on Form 8-K filed on May 13, 2011.
On October 13, 2011 the Company and its wholly owned subsidiary Energy Producers, Inc. (EPI) modified the terms of its existing May 9, 2011 promissory note Agreement described and issued to TWL Investments a LLC, an Arizona limited liability company (TWL) (please see information contained in our Current Report on Form 8-K filed on May 13, 2011).
In December commenced with work programs including fracing procedures on its #18-1 well and Crawar #2 well bore for its interests owned in the J.B. Tubb Leasehold Estate. To accomplish finance for the work programs including fracing procedures the Company through non waiver participation agreement with Success Oil and other third parties, and including contribution of the Company’s escrow capital subsequently indirectly accomplished financing on a less than an oil industry standard basis i) at a payback on a 2 to 1 basis for the $196,183 less EPI’s existing escrow credit of $34,838 or $161,345 towards EPI’s share representing its 75% working interests on the Crawar #2 well bore, and ii) at a payback on a 1.5 for 1 basis for the $161,821 towards EPI’s share representing its 75% interests on the #18-1 well. Terms for the repayment of funds agreed as of December 13, 2011 between the Company and its EPI subsidiary, Success Oil Co., Inc., and TL Advisory Group, LLC are that EPI shall receive each month, fifty percent (50%) of the net amount it would otherwise be entitled to after LOE’s up to, but not to exceed, a maximum of Eighteen Thousand dollars $18,000 per month including any other revenues to which it would otherwise be entitled to from the lease until such time as all amounts pursuant to the funding of recent fracing work are fully paid after which EPI shall be entitled to all amounts otherwise due them under the Operating Agreement between Success and EPI.
The work programs were implemented to stimulate oil and gas production via high pressure Fracing techniques. Fracing processes penetrated the lower clearfork reservoir in the Crawar #2 well at 4,700’ to 4,900’ foot depth on the J.B. Tubb lease. The well has a geological composite of dolomite. On the #18-1 well our operator set a plug at 4,250’ foot depth coming up pipe and perforating and fracing the upper clearfork reservoir at 4,112’ to 4,212”’ foot depth. The project initially was successful, however when approaching stabilization encountered sand intrusion problem that was determined via third party analysis to be attributed to a manufacturing process having defects with a resin coated sand product failing to hold. This was eventually resolved somewhat by additional treatment and procedures paid for in part by the fracing company responsible for the job elements. The fracing treatment result for both wells had a reasonable impact but overall has not yet reached the desired expectation for results to greatly improve overall production.
Sale of 37.5% Working Interests and Other Rights in J.B. Tubb Leasehold Estate, Amoco Crawar Field, Ward County, Texas
On July 31, 2012, through our wholly owned subsidiary Energy Producers, Inc. (“Investors” or “EGPI”), the Company entered into a Stock Purchase Agreement (“SPA”) with Mondial Ventures, Inc. whereby the parties delivered an Assignment and Bill of Sale (the “Assignment and Bill of Sale Agreement”) pursuant to which the Company delivered assets as described in the Assignment and Bill of Sale summarily as follows: Under the terms of the agreement, effective July 31, 2012, the Company i) sold a 37.5% Working Interest and 28.125% corresponding Net Revenue Interest in the North 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field and oil and gas interests, including all related assets, fixtures, equipment, three well heads, three well bores, and pro rata oil & gas revenue and reserves for all depths below the surface to at least 8500 ft. The field is located in the Permian Basin and the Crawar Field in Ward County, Texas (12 miles west of Monahans & 30 miles west of Odessa in West Texas), ii) also sold and assigned 37.5% Working Interest and 28.125% corresponding Net Revenue Interest in the Highland Production Company No. 2 well-bore located in the South 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field, oil and gas interests, pro rata oil & gas revenues and reserves with depth of ownership 4700 ft. to 4900 ft in well bore and 3800 ft. to 4000 ft in well bore, and iii) delivered a Participation Agreement (Turnkey Drilling, Re Entry, and Multiple Wells) granting certain rights in and to interests for additional development in the J.B. Tubb Leasehold Estate. For further information please see our Current Report on Form 8-K filed on August 3, 2012.
Terms Associated With Sale of 37.5% Working Interests and Other Rights in the Texas, J.B. Tubb Leasehold Estate
Per our entry into the SPA with Mondial, the Company received 14,000,000 shares of Mondial Ventures, Inc. common restricted stock. In addition, Mondial assumed four hundred fifty thousand dollars ($450,000) debt on the books of the Company held by TWL Investments, a LLC according to its Agreement and terms, as amended. Assumption of the four hundred and fifty thousand dollar ($450,000) pro rata portion of debt by Mondial carry identical terms as of the date of even per an Agreement effective as of July 1, 2012 by and between the Company a Nevada corporation, and its wholly owned subsidiary Energy Producers Inc., also a Nevada corporation, and TWL Investments, a LLC, an Arizona limited liability company, each a “Party” and collectively (the “Parties”). For further reference and to view the Agreement as amended, please see Agreement Regarding Promissory Note of May 9, 2012, listed on Exhibit 10.10 to a Current Report on Form 8-K filed with the Securities and Exchange Commission on August 3, 2012.
2012 Work Program Costs Associated With Our Oil and Gas Interests After Sale of 37.5% Working Interests and Other Rights in the Texas, J.B. Tubb Leasehold Estate
In accordance with the terms of a the Company’s July 31, 2012 Securities Purchase Agreements with Mondial, capital expenditures in the amount of $80,000 were delivered via an Escrow Agreement requirement established in behalf of a Turnkey Rework Agreement and an Oil and Gas Participation Agreement (Turnkey Drilling, Re Entry, and Multiple Wells) dated July 31, 2012 between the Company’s wholly owned subsidiary Energy Producers, Inc., Mondial Ventures, Inc., and Success Oil Co., Inc. The Escrow for the Turnkey Rework Agreement provided for Success Oil Co., Inc. (“Success”) of Beverly Hills CA, a licensed Texas operator, and operator and partner for the Company and Mondial, to perform a work program perforating the Glorieta payzone (in the South 40 acres of the J. B. Tubb Leasehold Estate) at intervals ranging from 3,800 feet to 4,000 feet, and included additionally to acidize and swab on the J.B. Tubb Leasehold Estate Crawar #2 well.
The work program was designed and implemented by Success Oil Co., Inc. our operator and partner to generate oil and gas production targeted in the Glorieta horizon. The well has a geological composite of dolomite and the resulting well resulted in both oil and gas production with 40% oil cut to water ratio. Initial flush production for the first month as total gross for the well was encouraging at a gross of approximately 1700 barrels of oil and 3.9 million cubic feet gas of which the Company’s share is according to its working and net revenue interests. The result for the Crawar #2 perforation into the Glorieta to date has had a reasonable result impact but overall has not yet reached the desired expectation for results as there needs to be a fracing procedure performed to open the fluid in the dolomite rock. The Company believes if it makes this approximate capital expenditure estimated at $150,000 that this will increase and stabilize productions.
Future Development Contemplated
J.B. Tubb Leasehold Estate, located in the Amoco Crawar Field, Ward County, Texas
As of December 2012, operations have requested the Company to consider a conventional frac to be performed to open up the rock to increase fluid entry and the expectation to increase production levels for oil and gas from the Glorieta formation on the Crawar #2 of the J.B. Tubb Leasehold Estate, and most often a standard procedure required for Devonian rock. The required capital expenditure for this work program AFE turnkey is approximately $150,000 and is in planning to be performed in early 2013 with a good and reasonable expectation to substantially increase production levels and averages for the well formation.
As part of the SPA with Mondial, on July 31, 2012 we entered into an Oil and Gas Participation Agreement (Turnkey Drilling, Re Entry, and Multiple Wells) and principally located on the South 40 of the J.G. Tubb Leasehold Estate, whereby Success Oil Co., Inc granted to us, under certain circumstances listed therein the participation agreement, a right of first refusal for certain drilling and development, and recently entered into an Agreement to Extend Option, now twice further extended through at least July 26, 2012 (see “Recent Developments” this report). We will pursue financing for Capital Expenditure on a best efforts basis (CAPEX) to drill a minimum of one new Ellenburger Well in the amount one million five hundred seventy five thousand ($1,575,000) dollars and up to three new wells with Mondial, and additional multiple wells that can be partnered or self financed up to approximately 14 locations, with reasonable consideration for cost adjustment based on then market conditions, see further this section. Success acknowledges that the Company and or its assignee shall be able to negotiate and or sell interests and or participation in the development of any additional well(s) under terms of the original Participation Agreement, on a best efforts basis, with such partner sharing an interest equivalent to its proportionate funding of such project(s), and or other terms of negotiation as may be agreeable by the Company and such proposed partner, if any, including any modification of this Agreement or the original participation agreement held by EGPI amended as of June 19, 2012, and extended through July 26, 2013, as long as it is formally reviewed and approved in a writing by Success.
The following formations are currently available for oil & gas drilling considerations, including obtaining one or more variances in the North 40 and South 40 acreage of the J.B. Tubb Leasehold Estate which include: Glorietta, Upper Clearfork, Tubbs, Lower Clearfork, Witchita Albany, Fusselman, Wolfcamp, Detrital Zone, Devonian, Lower Permian, Waddell, and Ellenburger formations with two additional potential locations for Ellenburger on the South 40 and one on the North 40. The Company along with its partners anticipates drilling a series of wells on the J.B. Tubb Leasehold Estate/Amoco Crawar Field, South 40 according to certain rights and option programs discussed herein. In addition to the South 40 prospects via option programs and participation rights discussed herein, there are three remaining potential prospects located on the North 40 owned by the Company to be developed in the Devonian, Waddell and additional Ellenburger locations away from existing wells at depths of 7,100’, 7,800’ and 8,350’ respectively.
Our objective for 2013 would be to drill the first well in the Ellenburger formation located on the South 40 of the JB Tubb Leasehold estate which geologically is updip. To note, the CRAWAR Field that the JB Tubb Leasehold Estate is a faulted anticline with multiple producing horizons. The Ellenburger formation is good potential as our target for drilling sets along a fault plane increasing viability noted by Certified Geologist below the Wolfcamp at appx 6,200’ and therefore Ellenburger viable at approximately 8,300’-8,400’ feet. The Ellenburger capital expenditure for $1.575 to $1.6 million on a Turnkey basis. The second and third wells located on the South 40 for additional drilling and development would be drilling a well in the Waddel formation to 7,700 -7,900’ foot depth. The CAPEX for the Waddel formation is estimated at $1.0 to $1.475 million Turnkey. Thereafter, we would drill to the Wolfcamp formation at approximately 6,200’ foot depth. The Wolfcamp CAPEX estimate is at $1.0 to $1.21 million Turnkey and under the terms of the Participation Agreement held by the Company and co interests. The Company and its partners are working on financing for the above listed and the capital expenditure for additional development of multiple wells. Although the Company feels these plans to obtain financing for one well or multiple well financing will be successful there can be no assurance that the Company will succeed with these plans.
Unless one million five hundred seventy five thousand ($1,575,000) dollars in CAPEX of the aggregate amount of three million six hundred thousand ($3,600,000) dollars in CAPEX is raised by the Company or assign for the drilling of not less than one but up to three new wells by participation, earn in, sale, or other method on the South 40 of the J.B. Tubb Leasehold Estate, and acceptable to Success during the term of the newly reinstated Agreement, then the newly reinstated Agreement, unless terms are either modified and or mutually extended in a writing by the parties thereto, will otherwise expire on July 26, 2013 (see also information under “Recent Developments” in this report), leaving the Company with the remaining potential for the North 40 development.
Competition
The oil and gas industry is highly competitive. As a new independent domestic producer entering the oil and gas business, the Company will not initially own and may never own any refining or retail outlets and may have little control over the price it will receive for planned crude oil production. Although management has established relationships in its proposed acquisition activities, significant competition by individual producers and operators or major oil companies exists. Integrated and independent companies and individual producers and operators are active bidders for desirable oil and gas properties. Many of these competitors have greater financial resources than the Company currently has now or may have in the near future.
Sales and Marketability
Oil and Gas Working Interests, Three Well Program, Callahan, Stephens, and Shackelford Counties, West Central Texas, and Working Interests in J.B. Tubb Leasehold Estate, AMOCO CRAWAR FIELD, Ward County, Texas
Our oil production is expected to be sold at prices tied to the spot oil markets. Our natural gas production is expected to be sold under short-term contracts and priced based on first of the month index prices or on daily spot market prices. We rely on our operating partner to market and sell our production. Our operating partner Whitt Oil and Gas, Inc. and Success Oil Co., Inc. are both privately owned exploration and production companies. We do not believe the loss of any single operator would have a material adverse effect on our wholly owned subsidiary Energy Producers, Inc. as a whole.
Historically the marketability of our crude oil has not posed a problem for us. Crude oil can be easily sold wherever it is produced in the state(s) that the operations are conducted subject to the transportation cost. For example, the crude oil produced by the Company’s then subsidiary via certain of its oil and gas interests which were disposed of on December 2, 2008 which had previously been transported by truck. During 2011 we will again expect to commence sales of oil via truck and via pipeline for natural gas. Overall, natural gas can be considered more difficult to sell since transportation requires a pipeline. In some of the areas that we have previously pursued or expect to pursue new drilling activity for natural gas in the future, there can be delays because of the unavailability of a pipeline. No assurance can be given that natural gas wells drilled, if any, will be placed on line in a timely manner after the well is drilled and completed.
Texas Regulations
Any oil undertaking with the State of Texas requires obtaining necessary permits and approvals from the Railroad Commission of Texas (“RRC”). Once a lease is obtained an operator’s agreement must be on file with the RRC. Federal regulations including those governed by the Environmental Protection Agency must also be strictly followed (see additional discussion addressing the regulatory environment governing oil & gas drilling and production found under “Business Risks”; “Governmental Regulation”). We believe our operators through the date of this Report, both previous and current, have obtained and or filed all necessary permits and reports to operate the wells and maintain compliance associated with the Company’s interests in Fant Ranch Unit, and J.B. Tubb Leasehold Estate held by Firecreek prior to December 3, 2008, and thereafter though our Energy Producers, Inc. subsidiary via our acquisition of the Whitt Oil and Gas, Inc. three well program interests on December 31, 2009 forward.
Entry and Eventual Stability In The Oil And Gas Business Will Be Dependent Largely On Our Ability To Acquire Significant Amounts of Financing
The Company’s entry and eventual stability in the oil and gas business, through Energy Producers or though one or more subsidiary interests, will be dependent largely on the ability to continuously acquire significant financing amounts, and other potential financing providers, to carry out and implement its plans (see “Management Discussion and Analysis”, “Business Risks”, and “Liquidity and Capital Resources” sections).
The Company and its Energy Producers unit are presently in different stages of review and discussion, gathering data and information, and any available reports on other potential field acquisitions, work over programs, and new drilling projects, located in Texas, Louisiana, New Mexico, and other productive regions and areas in the U.S., and in late 2012 and 2013 to a lesser extent, again internationally. However, no assurances can be given by the Company that it will be successful in pursuing these other prospects and programs.
Successful negotiations for acquisitions, confidentiality, timing and the Company’s financial capabilities will continue to play a significant role in any success of both current and future operations for the Company activities, including its subsidiary operations, and/or any future planned subsidiary or special purpose entity (SPE) operations which may exist in the future.
From time to time Management will examine oil and gas operations in other geographical areas for potential acquisition and joint venture development.
Financial Information about Segments and Geographic Areas
We have not segregated our operations into geographic areas given the fact that all of our proposed production activities for closed transactions to date occur within the Permian Basin of West Central Texas.
Acquisition of 100% of Chanwest Resources, Inc.
On June 11, 2010, the Company acquired all of the issued and outstanding stock of Chanwest Resources, Inc, (“Chanwest or CWR”) a Texas corporation. In the course of this acquisition, Chanwest stockholders exchanged all outstanding common shares for the Company’s common shares. For further information please see our Current Report on Form 8-K filed on June 16, 2010, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
Purchase costs for the Acquisition of Chanwest Resources, Inc.
The acquisition was accomplished via a Stock Purchase Agreement effective on June 1, 2010, and the Company subsequently issued its restricted common stock valued at USD $95,000, in exchange for 100% of the issued and outstanding shares of common stock, with a no par value designation per share, of CWR. All assets and liabilities, including Shareholder Notes Payable, of the CWR are included with the subsidiary unit in the initial amount of $252,161. Chanwest Resources, Inc. was essentially inactive in the first and second quarter of 2010 having a minor amount of income and expense that would substantially affect the consolidated financial statements of the Company. In the years 2011 and 2012 Chanwest Resources, Inc. did not earn any revenue and incurred general and administrative expenses.
Business of Chanwest Resources, Inc.
Chanwest Resources, Inc. was formed in 2009. Since its formation through the present, CWR through its principles have ramped up operations acquiring assets related to the servicing, construction, production and development for oil and gas. Chanwest has formed strategic alliances and brought key management with over 40 years experience in all facets of the oil and gas industry. Plans for three phases of operations and expansion are underway. Chanwests’ first phase of operations through one or more of its segments include Construction and Trucking, with a complement of assets which will be deployed providing related services used for hauling equipment, delivery and spreading of rock, iron ore, dirt and gravel, used in lease roads, firewall’s, tank pads, and drill sites. Chanwest will provide services for drill site preparation to clear and lay pipeline (gathering systems) for operators. Chanwest operations can provide for services to maintain lease roads, set power poles and clean up oilfield spills. Chanwest works with operators or lease owners by purchase order or contract with major oil fields. Additional services planned for Chanwest include marketing for its workover rig having pulling capacity for wells to 6000’ feet depth. It will be used with a crew on our own leases in our second phase of operations planned, along with our current status of workover rig for hire to operators.
Chanwest was not able to achieve its target for financing in 2011. Upon revising estimates and delays encountered during Fiscal 2012, the Company believes for 2013 fiscal operations that if Chanwest can obtain an additional $330,000 or more in financing for operations, it will be able to seed growth to generate approximately 2 million in gross revenues from operations over the next year from consummation of such financing.
For its third phase of operations the Chanwest will work alongside Energy Producers subsidiary unit operations to evaluate potential for acquisitions and development strategies for the production of oil and gas operations, initially working towards acquiring strategic rehabilitation targets in and around Abilene and other areas in Texas.
Acquisition of 100% of Arctic Solar Engineering, LLC
On February 4, 2011, the Company entered into an Agreement to acquire all 100% of Arctic Solar Engineering LLC, a Missouri limited liability company located at PO Box 4391, Chesterfield, MO 63006 (the “Company”), and the owners of Membership Interests of the Arctic Solar Engineering LLC; The FATM Partnership, a Missouri Partnership, The Frederic Sussman Living Trust. Arctic Solar Engineering, LLC, is an integrator of Solar Thermal Energy technology. For further information please see our Current Report on Form 8-K filed on February 10, 2011, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
Purchase Costs for the Acquisition of Arctic Solar Engineering, LLC
The acquisition was effected via a stock for stock exchange and purchase agreement between Arctic Solar Engineering, LLC, FATM Partnership, and Fredrick Sussman Living Trust, (the “Sellers”) and EGPI Firecreek, Inc. (the “Purchaser”). The Sellers exchanged 100 % of their ownership interests in the three (3) selling entities for 12,000 shares of our restricted common stock. In addition, the Purchase Agreement contains an “Earn-out Provision “ which requires cash and/or stock payments based on financial performance over a period of 36 months. In each twelve (12) month period, the Sellers are entitled to 50% of the Company’s audited net income after taxes; payable in 50% cash and 50% restricted common stock, ten (10) days after the filing of the annual audited report. This stock Earn-out consideration will be valued at 90% of the last trade price on the filing date for the calendar year of operations.
The Business of Arctic Solar Engineering, LLC
Arctic Solar Engineering, LLC (“ASE”) engages in the design/build, integration, and installation of thermal solar systems for residential and commercial sites in the United States. It serves the thermal solar space heating and cooling, and water heating needs of new construction and retrofits. Arctic Solar Engineering, LLC integrates solar thermal energy technology patented over 30 years ago by Daimler Aerospace in Germany. This technology is used throughout Germany, other parts of Europe, Asia and the Middle East.
Solar thermal energy is the most efficient and economical method of capturing and using renewable thermal energy created by the sun every day of the year. ASE’s solar collector technology is used to capture all visible and non-visible wave lengths of sunlight and convert it into energy at a 90 percent efficiency rate. Energy created by ASE’s solar thermal energy systems store that energy in water, or other similarly inexpensive storage mediums, and then use that energy in its direct form to heat water, heat space and cool spaces.
ASE’s competitive advantage is product knowledge and knowledge of how water-based energy systems work and can be successfully implemented to reduce an average building’s energy consumption by up to 70%. Also, because of ASE’s solar thermal energy systems, there are no real local competitors and competition is very limited on a national basis. However, the market demand for renewable energy is growing at a dramatic rate.
ASE had previously announced that that it has filed a patent for their unique cooling fin design. The patent pending cooling fins provide radiant cooling as part of an alternative energy solution.
ASE's Solar Thermal Energy System was recently installed in the Chesterfield, MO, City Hall. The system consisted of 110 solar thermal arrays and an 8000 gallon thermal mass energy storage tank, which has a name plate capacity of 82 kilowatts and an estimated annual production of 110 megawatt hours. Energy savings to the City are expected to pay back 100% of the City's investment within 7 years, which will eventually equate to zero costs to the city for energy produced by the system.
As of March 12, 2012, the Company in an effort to assist growth and development plans for Arctic Solar Engineering, LLC entered discussions and a letter of intent with W2 Energy, Inc. regarding a potential 51% purchase of ASE from the Company. W2 Energy, Inc. develops renewable energy technologies and applies it to new generation power systems. The business potentials pursued with W2 Energy, Inc. were not consummated or continued during Fiscal 2012, and the Company is evaluating prospects and potentials for both new plans and in the absence of new plans or prospects, discontinuing operations for Arctic Solar Engineering, LLC, placing its overall operations on hold with status pending outcome of review and evaluation expected to conclude by end of second quarter 2013.
Signalization and Lighting Units (line segment of operations) Geared to the Transportation Industry (DOT and ITS)
Completion of Merger Acquisition with M3 Lighting, Inc.
On May 21, 2009, EGPI Firecreek, Inc., a Nevada corporation (the “Company” or “Registrant”), Asian Ventures Corp., a Nevada corporation (the “Subsidiary”), M3 Lighting, Inc., a Nevada corporation (“M3”), and Strategic Partners Consulting, L.L.C., a Georgia limited liability company (“Strategic Partners”) executed and closed a Plan and Agreement of Triangular Merger (the “Plan of Merger”), whereby M3 merged into the Subsidiary, a wholly-owned subsidiary of the Company (the “Merger”).
Purchase Costs of the Merger Acquisition with M3 Lighting, Inc. (M3)
Effective May 22, 2009, the Company effected via a triangular merger between M3, and Asian Ventures Corp. (a wholly-owned subsidiary of the Company), whereby M3 was merged into Asian Ventures and whereupon Asian Ventures changed its name to M3 Lighting, Inc. In the course of this acquisition by a wholly owned subsidiary of our Company, M3 stockholders exchanged all outstanding common shares for EGPI common shares, and all M3 common shares were cancelled.M3 had no operations and therefore the Company did not receive a step up in basis pursuant to SFAS 141R as M3 did not meet the definition of a business. The value of this transaction was based upon the cash and net assets acquired at cost basis. Further information can be found along with copy of the Plan of Merger attached as an exhibit to our Current Report on Form 8-K, filed with the Commission on May 27, 2009, as amended. Amendment No. 1 and No. 2 to the May 27, 2009 current Report on Form 8-K were filed on June 24 and August 4, 2009, respectively.
The Strategy of M3 Lighting, Inc. (M3)
Through its then managements experience, knowledge and contacts in the lighting and DOT industry, M3 created a business plan to create a vertical rollup and stream of acquisitions targeted strategically for the Company that included manufacturers, distributors and contractors. M3 was unsuccessful in its strategy to acquire a series of businesses in this industry and during the year ended December 31, 2011 was inactive. Further information can be found along with copy of the Plan of Merger attached as an exhibit to our Current Report on Form 8-K, filed with the Commission on May 27, 2009, as amended. Amendment No. 1 and No. 2 to the May 27, 2009 current Report on Form 8-K were filed on June 24 and August 4, 2009, respectively. During 2011 and 2012 there were no operations in effect related to M3 Lighting, Inc. and the Company does not anticipate plans near term for these operations to be re deployed. M3 is inactive and does not generate any revenue for the Company.
Acquisition of South Atlantic Traffic Corporation (SATCO)
Effective as of November 4, 2009, the Company entered into a stock purchase agreement pursuant to which it acquired all of the issued and outstanding capital stock of South Atlantic Traffic Corporation, a Florida corporation (“SATCO”). In the course of this acquisition, SATCO stockholders exchanged all outstanding common shares for cash consideration, the Company’s common shares and sellers’ notes. SATCO has been in business since 2001 and has several offices throughout the Southeast United States. A copy of the Agreement was attached as an exhibit to our Current Report filed with the Commission on November 12, 2009.The acquisition has been accounted for as a purchase under accounting principles generally accepted in the United States (GAAP). Under the purchase method of accounting, in accordance with Statement of Financial Accounting Standards No. 141(R), Business Combinations, the assets and liabilities of SATCO are recorded as of the acquisition date at their respective fair values, and consolidated with the Company’s assets and liabilities.
Purchase Costs for the Acquisition of South Atlantic Traffic Corporation. (SATCO)
The acquisition was effected via a stock purchase agreement between SATCO and EGPI. In the course of this acquisition, SATCO stockholders exchanged all outstanding common shares for $600,000 cash consideration, 2,908,000 EGPI common shares valued at $174,480 that included a contingent equity make whole liability provision valued at $988,720, and $295,173 in notes to the sellers’ all together in the aggregate totaling $2,058,373. For the cash consideration paid to SATCO, SATCO and the Company by its further entry into a Continuing Guarantee and Waiver, entered into an accounts receivable based credit facility (Loan) (also known as Factor and Security Agreement) with Creative Capital Associates, Inc., Silver Spring Maryland (proposal and term sheet), in conjunction with Benefactor Funding Corp. a Colorado corporation (factor lender). This factoring line has been paid off, retired and cancelled prior to the date of this Report.
The Disposition of SATCO
On March 14, 2011, the Company entered into and completed the closing of a Stock Purchase Agreement (the “Purchase Agreement”) involving the sale of South Atlantic Traffic Corporation (“Satco”), a wholly-owned subsidiary which provides variety of products geared primarily towards the transportation industry, to Distressed Asset Acquisitions, Inc. For further information please see our Current Report on Form 8-K filed on March 18, 2011 and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
Acquisition of Redquartz LTD, (RQTZ)
On March 3, 2010, the Company executed a Stock Purchase Agreement with the stockholders of Redquartz LTD, a company formed and existing under the laws of the country of Ireland.
Purchase Costs for the Acquisition of Redquartz LTD (RQTZ)
The Company issued 100,000 shares of its restricted common stock in exchange for 100% of the issued and outstanding shares of common stock, par value $0.01 per share, of the Company. All assets and liabilities, other than the Shareholder Notes Payable, of the company were transferred to the Sellers. The Shareholder Notes Payable acquired in the acquisition issued by Redquartz LTD in the aggregate total 3,252,055 Euros, or $4,464,400 U.S. dollars.
Redquartz LTD (RQTZ)
Redquartz LTD has been in business for 45 years, is known internationally and is our entrance into the European markets with respect to Intelligent Traffic Systems (ITS) and the transportation industry as well as expanding our relationship recently established with Cordil, Inc. for the products sold by South Atlantic Traffic Corporation (SATCO), formerly a wholly owned subsidiary of the Company. For further information please see our Current Report on Form 8-K filed on March 11, 2010. Subsequent to the acquisition of Redquartz, LTD, the Company’s Intelligent Traffic Systems related business has ceased and its SATCO subsidiary has been sold. Redquartz is inactive and does not generate any revenue for the Company.
Acquisition of Terra Telecom, LLC.
On October 1, 2010, EGPI Firecreek, Inc. (“Purchaser”) executed a Securities Purchase / Exchange Agreement (“SPA”) with the owners (“Sellers”) of Terra Telecom, LLC, an Oklahoma limited liability company, located at 4510 South 86th East Ave, Tulsa, Oklahoma, 74145 ( “Terra”) to acquire all of the outstanding stock of Terra, and 100% of the total LLC membership units existing thereof. All assets and liabilities of Terra, other than information listed in the SPA are considered to be transferred to the Purchaser. For more information on Terra, please see our Current Report on Form 8-K, Form 8-K/A (amendment no. 1), and Form 8-K/A (amendment no. 2) filed on October 7, 2010, December 7, 2010, and March 22, 2011, respectively, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
Purchase Costs for the Acquisition of Terra Telecom, LLC (Terra)
The acquisition was effected on October 1, 2010 via a securities purchase/exchange agreement between Terra and EGPI. In the course of this acquisition, Terra security owners exchanged all outstanding security interests for 2,443 EGPI common shares. A portion of these shares is due on the acquisition date and the remaining pertains to contingent consideration as provided by the earn-out provisions of the agreement. This earn-out provision states that for a period of twenty-four months following the effective date, the owners of Terra will be entitled to receive payment in the form of additional common shares based upon the financial performance of Terra. The acquisition of Terra is not reflected in the accompanying financial statements of the Company due to the fact that the Company did not obtain control of the assets and liabilities of Terra or have operational control of the Terra leading up until the subsequent disposition on March 14, 2011. As a result of these facts and the fact that the business was subsequently shut down and entered bankruptcy, no earn-out is owed by the Company.
The Business of Terra
Our consideration was based on the fact that Terra was then considered recognized as a leading provider of state-of-the-art communication technologies and a premier Alcatel-Lucent partner. They served various sized companies and organizations that use and deploy communications systems, sales, service, and training while consolidating and optimizing the end user experience. Terra’s goal was to provide customers value and integrity in each of these opportunities. Since 1980, Terra focused on delivering enterprise solutions while leading with voice services and offering full turn-key solutions that consist of voice, data, and video and associated applications.
Terra is believed to have developed into an industry leader in value creation for each of their clients and stakeholders. In 2006 Terra relocated its company headquarters to a 25,000 square foot facility in Tulsa, Oklahoma. This facility provided Terra the space to continue growth and the ability to manage operations throughout the nation. Terra Telecom worked with the United Nations delivering Alcatel voice products to several countries and the Texas Dept. of Transportation, which we believed would bolster the growth opportunities to EGPI Firecreek, Inc.’s related segments of operations, through Terra’s various ITS/DOT opportunities in place with Alcatel products. For further information please see our Current Report on Form 8-K filed on March 18, 2011 and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
The Disposition of Terra
On March 14, 2011, the Company entered into and completed the closing of a Stock Purchase Agreement involving the sale of Oklahoma Telecom Holdings, Inc., formerly known as Terra Telecom, LLC, a wholly-owned subsidiary which provides state-of-the-art communication technologies to various sized companies and organizations that use and deploy communications systems, sales, service, and training while consolidating and optimizing the end user experience., to Distressed Asset Acquisitions, Inc. For further information please see our Current Report on Form 8-K filed on March 18, 2011 and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
As noted herein Recent Developments regarding exiting our signalization line of business, the Company has been building new infrastructure for its oil and gas operations in 2012 and further we are again considering expanding and supporting our growth potential by development of its line of operations related to our recent acquisition strategy focused on the transportation industry serving federal DOT and state/local DOT agencies and or acquisition potentials having a presence in the telecommunications and general construction industries. There is no assurance we will continue into the signalization, telecommunications, and general construction line of business, and if we were to continue that such line would ultimately be successful.
ITEM 1A.
ITEM 1A. RISK FACTORS
RISKS RELATED TO OUR BUSINESS
We incurred historical losses and have a working capital deficit. As a result, we may not be able to generate profits, support our operations, or establish a return on invested capital.
We had a net loss on continuing operations in the fiscal year ended December 31, 2012 of $5,430,135 and a net loss on continuing operation in fiscal year ended December 31, 2011 of $4,374,398. As of December 31, 2012, we had a working capital deficit of $6,827,673. In addition, we expect to increase our infrastructure and operating expenses to fund our anticipated growth. As a result, we may not be able to generate profits in 2013 or thereafter and may not be able to support our operations or otherwise establish a return on invested capital. We cannot assure you that any of our business strategies will be successful or that significant revenues or profitability will ever be achieved or, if they are achieved, that they can be consistently sustained or increased on a quarterly or annual basis.
We Expect Our Operating Losses To Continue
The Company expects to incur increased operating expenses during fiscal year 2013. The amount of net losses and the time required for the Company to reach and sustain profitability are uncertain. The likelihood of the Company’s success must be considered in light of the problems, expenses, difficulties, and delays frequently encountered in connection with a new business, including, but not limited to, uncertainty as to development and acquisitions and the time required for the Company’s planned production to become available in the marketplace. There can be no assurance that the Company will ever generate increased product revenue or achieve profitability at all or on any substantial basis.
Our Level Of Indebtedness May Affect Our Business.
Our level of indebtedness could have important consequences for our operations, including:
We may need to use a large portion of our cash flow to repay principal and pay interest on our current and anticipated debt, which will reduce the amount of funds available to finance our operations and other business activities;
Our debt level may make us vulnerable to economic downturns and adverse developments in our businesses and markets; and
Our debt level may limit our ability to pursue other business opportunities, borrow money for operations or capital expenditures in the future or implement our business strategy.
We expect to obtain the funds to pay our expenses and to pay principal and interest on our debt by utilizing cash flow from operations. Our ability to meet these payment obligations will depend on our future financial performance, which will be affected by financial, business, economic and other factors. We will not be able to control many of these factors, such as economic conditions in the markets in which we operate. We cannot be certain that our future cash flow from operations will be sufficient to allow us to pay principal and interest on our debt and meet our other obligations. If cash flow from operations is insufficient, we may be required to refinance all or part of our existing debt, sell assets, and borrow more money or issue additional equity.
We have a limited amount of cash and are likely to require additional capital to continue our operations.
We have a limited amount of available cash and will likely require additional capital to successfully implement our business plan; There can be no assurance that we will be able to obtain additional funding when needed, or that such funding, if available, will be obtainable on terms acceptable to us. In the event that our operations do not generate sufficient cash flow, or we cannot obtain additional funds if and when needed, we may be forced to curtail or cease our activities, which would likely result in the loss to investors of all or a substantial portion of their investment.
Production Risks
All of the Company’s current and proposed oil and gas activities would be subject to the risks normally incident to the exploration for, and development and production of, natural gas and crude oil. These include, but are not limited to, blowouts, cratering and fires, each of which could result in damage to life and property. In accordance with customary industry practices, the Company plans to maintain future insurance for its proposed operations against some, but not all, of the risks. Losses and liabilities arising from such events could reduce revenues and increase costs to the Company to the extent not covered by insurance.
Risks And Uncertainties Can Impact Our Growth
There are several risks and uncertainties, including those relating to the Company’s ability to raise money and grow its business and potential difficulties in integrating new acquisitions for the oil and gas sector of operations, especially as they pertain to foreign markets and market conditions. These risks and uncertainties can materially affect the results predicted. Other risks include the Company’s limited operating history, the limited financial resources, domestic or global economic conditions, activities of competitors and the presence of new or additional competition, and changes in federal or state laws and conditions of equity markets.
The Company’s future operating results over both the short and long term will be subject to annual and quarterly fluctuations due to several factors, some of which are outside the control of the Company. These factors include but are not limited to fluctuating market demand for our services, and general economic conditions.
Governmental Regulation
Effect of Probable Governmental Regulation on the Business Domestically and in Foreign Countries
As we expand our efforts to develop our business, we will have to remain attentive to relevant federal and state regulations. We intend to comply fully with all laws and regulations, and the constraints of federal and state restrictions could impact the success of our efforts.
Our oil and gas business and services may become established in multiple states and foreign countries. These jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each such state and foreign country. New legislation or the application of laws and regulations from jurisdictions in this area could have a detrimental effect upon our business. We cannot predict the impact, if any, that future regulatory changes or developments may have on our business, financial condition, or results of operation.
The Company and its current and future operations are subject to federal, state and local laws, and regulations and ordinances relating to the production and sale of oil and gas. Some of the laws that the Company is subject to include the Clean Air Act, the Clean Water Act, and the Endangered Species Act. Other laws and regulations include laws governing allowable rates of production, well spacing, air emissions, water discharges, marketing, pricing, taxes, and use restrictions and other laws relating to the petroleum industry. For example, coal bed methane wells are being highly regulated for disposing of produced fresh water on the surface. The EPA is requiring that the fresh water meet more stringent standards than before, and can require the water be injected underground making drilling these wells potentially uneconomical. As another example, Governmental regulation may delay drilling in areas that have endangered species. Therefore, if the Company were to undertake a drilling program in such an area by a proposed development project in the future, no assurance could be given that such delays would not become more expensive. Regulations may have a negative financial impact on us depending on the compliance costs.
Any failure to obtain, or delays in obtaining regulatory approvals by the Company or its operators, could delay or adversely affect the Company’s ability to generate revenues. These laws and regulations could impose substantial liabilities for the Company if it fails to comply. Further, there can be no assurance that the Company through its contract operators will be able to obtain necessary regulatory approvals for any of its future activities including those which may be proposed for the further development of oil and gas. Although the Company does not anticipate problems satisfying any of the regulations involved, the Company cannot foresee the possibility of new regulations, which could adversely affect the business of the Company.
Environmental regulations and taxes imposed by state governments in a jurisdiction wherein oil and gas properties are located impose a burden on the cost of production. Of the gross production revenues, severance and ad valorem taxes in Wyoming for oil and gas amount to approximately 12%.
Environmental requirements do have a substantial impact upon the energy industry. Generally, these requirements do not appear to affect the proposed Company operations any differently, or to any greater or lesser extent, than other companies in the domestic industry as a whole. The Company will establish policies and procedures for compliance with environmental laws and regulations affecting its proposed operations. The Company believes that compliance with environmental laws and regulations will not have a material adverse effect on the Company’s operations or financial condition. There can be no assurances, however, that changes in or additions to laws or regulations regarding the protection of the environment will not have such an impact in the future.
At this time no regulatory or additional regulatory approvals are necessary and, to the best knowledge of the officers, we have complied with all laws, rules and regulations.
Cost And Effects Of Compliance With Environmental Laws
Our business will be subject to regulation under the state and federal laws regarding environmental protection and hazardous substances control with respect to its current and future oil and gas operations. We are unaware of any bills currently pending in Congress that could change the application of such laws so that they would affect us.
Risk Factors Affecting Our Future Results Of Operations For The Company
Due to the Company’s limited operating history, it is difficult to predict future revenues accurately. This may result in one or more future quarters where the Company’s financial results may fall below the expectation of management and investors. However firmly management may believe in its prospects, the Company could fail. Operating results may vary, depending upon a number of factors, many of which are outside the Company’s control. Material factors expected to impact the Company’s operating results include, legal costs associated with registration of options and other filing requirements, expansion activities, increased interest and expenses for borrowings and possible hiring of additional full time employees. Every investor should evaluate the risks, uncertainties, expenses and difficulties frequently encountered by companies in the early stage of development. The past performance of the Company cannot be used to predict the future performance.
Lack Of Experience
Certain of our management may only devote a small percentage of their time to Company business. This lack of specific training, and experience for integration of the oil and gas sector coupled with working in the regulatory environment and less than full time effort in certain cases will probably cause management to miss opportunities that more experienced managers would recognize and take advantage of. Management’s decisions and choices may not be well thought out and operations and earnings and ultimate financial success may suffer irreparable harm. Additionally, these individuals have not previously worked together. If senior executives and managers are unable to work effectively as a team, business operations could be considerably disrupted.
Oil And Gas Prices Fluctuate Widely, And Low Prices For An Extended Period Of Time Are Likely To Have A Material Adverse Impact On Our Business
Our revenues, operating results, financial condition and ability to borrow funds or obtain additional capital depend substantially on prevailing prices for natural gas and, to a lesser extent, oil. Declines in oil and natural gas prices may materially adversely affect our financial condition, liquidity, ability to obtain financing and operating results. Lower oil and gas prices also may reduce the amount of oil and gas that we can produce economically. Historically, oil and gas prices and markets have been volatile, with prices fluctuating widely, and they are likely to continue to be volatile.
Prices for oil and natural gas are subject to wide fluctuations in response to relatively minor changes in the supply of and demand for oil and gas, market uncertainty and a variety of additional factors that are beyond our control. These factors include:
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The domestic and foreign supply of oil and natural gas.
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The level of consumer product demand.
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Weather conditions.
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Political conditions in oil producing regions, including the Middle East.
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The ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls.
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The price of foreign imports.
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Actions of governmental authorities.
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Domestic and foreign governmental regulations.
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The price, availability and acceptance of alternative fuels.
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Overall economic conditions.
These factors make it impossible to predict with any certainty the future prices of oil and gas.
Drilling natural gas and oil wells is a high-risk activity.
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the results of exploration efforts and the acquisition, review and analysis of the seismic data
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the availability of sufficient capital resources to us and the other participants for the drilling of the prospects
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the approval of the prospects by other participants after additional data has been compiled
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economic and industry conditions at the time of drilling, including prevailing and anticipated prices for natural gas and oil and the availability of drilling rigs and crews
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our financial resources and results; and
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the availability of leases and permits on reasonable terms for the prospects.
These projects may not be successfully developed and the wells, if drilled, may not encounter reservoirs of commercially productive natural gas or oil.
Reserve estimates depend on many assumptions that may prove to be inaccurate. Any material inaccuracies in our reserve estimates or underlying assumptions could cause the quantities and net present value of our reserves to be overstated.
Reserve engineering is a subjective process of estimating underground accumulations of natural gas and crude oil that cannot be measured in an exact manner. The process of estimating quantities of proved reserves is complex and inherently uncertain, and the reserve data included in this document are only estimates. The process relies on interpretations of available geologic, geophysic, engineering and production data. As a result, estimates of different engineers may vary. In addition, the extent, quality and reliability of this technical data can vary. The differences in the reserve estimation process are substantially due to the geological conditions in which the wells are drilled. The process also requires certain economic assumptions, some of which are mandated by the Securities and Exchange Commission, such as natural gas and oil prices. Additional assumptions include drilling and operating expenses, capital expenditures, taxes and availability of funds. The accuracy of a reserve estimate is a function of:
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the quality and quantity of available data;
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the interpretation of that data;
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the accuracy of various mandated economic assumptions; and
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the judgment of the persons preparing the estimate.
Results of drilling, testing and production subsequent to the date of an estimate may justify revising the original estimate. Accordingly, initial reserve estimates often vary from the quantities of natural gas and crude oil that are ultimately recovered, and such variances may be material. Any significant variance could reduce the estimated quantities and present value of our reserves.
Our future performance depends on our ability to find or acquire additional natural gas and oil reserves that are economically recoverable.
In general, the production rate of natural gas and oil properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Unless we successfully replace the reserves that we produce, our reserves will decline, eventually resulting in a decrease in natural gas and oil production and lower revenues and cash flow from operations. Our future natural gas and oil production is, therefore, highly dependent on our level of success in finding or acquiring additional reserves. We may not be able to replace reserves through our exploration, development and exploitation activities or by acquiring properties at acceptable costs. Low natural gas and oil prices may further limit the kinds of reserves that we can develop economically. Lower prices also decrease our cash flow and may cause us to decrease capital expenditures.
Exploration, development and exploitation activities involve numerous risks that may result in dry holes, the failure to produce natural gas and oil in commercial quantities and the inability to produce discovered reserves fully. We are continually identifying and evaluating opportunities to acquire natural gas and oil properties. We may not be able to consummate any acquisition successfully, to acquire producing natural gas and oil properties that contain economically recoverable reserves, or to integrate the properties into our operations profitably.
Seasonality
Demand for natural gas has historically been seasonal, with peak demand and typically higher prices occurring during the colder winter months.
Our growth is materially dependent upon the success of our drilling program. Drilling for natural gas and oil involves numerous risks, including the risk that no commercially productive natural gas or oil reservoirs will be encountered. The cost of drilling, completing and operating wells is substantial and uncertain, and drilling operations may be curtailed, delayed or cancelled as a result of a variety of factors beyond our control, including:
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unexpected drilling conditions, pressure or irregularities in formations;
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equipment failures or accidents;
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adverse weather conditions;
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compliance with governmental requirements; and
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shortages or delays in the availability of drilling rigs or crews and the delivery of equipment.
Our future drilling activities may not be successful and, if unsuccessful, such failure will have an adverse affect on our future results of operations and financial condition. Our overall drilling success rate or our drilling success rate for activity within a particular geographic area may decline. We may ultimately not be able to lease or drill identified or budgeted prospects within our expected time frame, or at all. We may not be able to lease or drill a particular prospect because, in some cases, we identify a prospect or drilling location before seeking an option or lease rights in the prospect or location. Similarly, our drilling schedule may vary from our capital budget. The final determination with respect to the drilling of any scheduled or budgeted wells will be dependent on a number of factors, including:
Regulation of Oil and Natural Gas Exploration and Production
Exploration and production operations are subject to various types of regulation at the federal, state and local levels. This regulation includes requiring permits to drill wells, maintaining bonding requirements to drill or operate wells, and regulating the location of wells, the method of drilling and casing wells, the surface use and restoration of properties on which wells are drilled, and the plugging and abandoning of wells. Our operations are also subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units or proration units, the density of wells that may be drilled in a given field and the unitization or pooling of oil and natural gas properties. Some states allow the forced pooling or integration of tracts to facilitate exploration while other states rely on voluntary pooling of lands and leases. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells, generally prohibiting the venting or flaring of natural gas and impose certain requirements regarding the ratability of production. The effect of these regulations is to limit the amounts of oil and natural gas we can produce from our wells, and to limit the number of wells or the locations where we can drill. Because these statutes, rules and regulations undergo constant review and often are amended, expanded and reinterpreted, we are unable to predict the future cost or impact of regulatory compliance. The regulatory burden on the oil and gas industry increases the cost of doing business and, consequently, affects profitability. We do not believe, however, that we are affected differently by these regulations than others in the industry.
We have limited control over the activities on properties we do not operate.
Other companies operate some of the properties in which we have an interest. We have limited ability to influence or control the operation or future development of these non-operated properties or the amount of capital expenditures that we are required to fund with respect to them. The failure of an operator of our wells to perform operations adequately, an operator’s breach of the applicable agreements or an operator’s failure to act in ways that are in our best interest could reduce our production and revenues. Our dependence on the operator and other working interest owners for these projects and our limited ability to influence or control the operation and future development of these properties could materially adversely affect the realization of our targeted returns on capital in drilling or acquisition activities and lead to unexpected future costs.
Requirement For Additional Capital
The Company believes that additional debt or equity financing will be necessary to develop its planned activities through the next twelve to twenty four months. However, no assurance can be given that all or a significant portion of any debt or equity financing will be consummated, or that any changes in the Company’s operations and expansion plans would not consume available resources more rapidly than anticipated. The Company will need substantial funding to support the long-term expansion, development, and marketing of its business and subsidiary operations.
To the extent that the Company’s capital resources, including the proceeds of any offering, are insufficient to meet current or planned requirements, the Company will continue to seek additional funds through equity or debt financing, collaborative, or other arrangements with corporate partners, and from other sources, which may have the effect of diluting the holdings of existing shareholders. The Company has no effective or approved current arrangement with respect to such additional financing that is either secured or finalized at this time. Even though the Company has existing prospects for general or project financing, the outcome may change, be delayed, or may not be conclusive, therefore financing is not assured or guaranteed. Financing to be potentially obtained from prospects is not assured or guaranteed until actually consummated and financing actually provided.
Need For Expansion
The Company expects expansion will be required to address potential growth. This need for expansion will continue to place a significant strain on the management and financial resources of the Company. Failure to manage growth could disrupt the operations and ultimately prevent the Company from generating expected revenues. The Company’s business strategy includes entering into business partnerships and may include acquiring future businesses, such as, existing production or products, technology and acquisitions related to oil and gas or other resources, oil and gas field operations, and engineering. Other areas of future operations may include real estate, land and commercial development, technology and facilities, and fuel cell technology. The Company may be unable to complete suitable business partnerships and acquisitions on commercially reasonable terms, if at all. Competition could impair the Company’s ability to pursue these aspects successfully of this business strategy.
Business partnerships or acquisitions could disrupt ongoing business, distract management and employees and increase expenses. If the Company makes an acquisition, it could face difficulties assimilating that company’s personnel and operations. Key personnel of the acquired company may decide not to work for the Company. Acquisition of additional services or technologies also involves risk of incompatibility and lack of integration into existing operations. If the Company finances the acquisitions by issuing equity securities, this could dilute existing stockholders positions. Additionally, funding instruments may have rights, preferences or privileges senior to, or more favorably than, those of the Company’s stockholders.
Limited Financial Data
As a result of its limited operating history, the Company has limited historical financial data upon which to forecast revenues and results of operation. The actual effect of these factors on the price of stock will be difficult to assess. Results of operation may fall well below the expectations of securities analysts and investors, and the trading price of the Company’s common stock may drop.
Estimating Inaccuracies
There are numerous uncertainties inherent in estimating quantities of proven reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the Company. Reserve engineering is a subjective process of estimating underground accumulations of crude oil, condensate and natural gas liquids that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the amount and quality of data and of engineering and geological interpretation. Estimates by different engineers may vary. Results of drilling, testing and production after the date of an estimate may justify revision of such estimates. Reserve estimates are often different from the quantities ultimately recovered including the continual possibility of failure to find oil or gas and the drilling of a dry hole, and concentrations of oil in unexpected differing amounts on certain holes or targets drilled.
Declining Reserves
Volumes of proposed oil and gas reserves acquired by the Company will decline as reserves are depleted. Reserve volumes generated from future activities of the Company are highly dependent upon the level of success in acquiring or finding additional reserves.
Key Officers Management Services Were Provided By Outside Consulting Firms, And Individuals Contributing Additional Key Officers Management Services, During Fiscal Year Ended December 31, 2012 and continuing into 2013.
Key management services were provided by outside consulting firms owned by key Officers and/or current Directors, or through other outside arrangements Such Officers and Directors include Dennis R. Alexander, Chairman, CEO and CFO, Melvena Alexander, Co-Treasurer, Secretary and Comptroller through December 31, 2012, David H. Ray, Executive Vice President, Director, and Co-Treasurer, through November 15, 2012, and Brandon D. Ray, Executive Vice President of Finance and Director, through October 1, 2012. Other key services were provided by four or more, Executive Officers, Directors, consultants and advisors, and various subcontractors, which managed the business of the Company. These include one or more of the following named Officers or Directors, namely, Larry W. Trapp (through November 1, 2011), Executive Vice President, and Director, Mike Trapp, Director. Accordingly, the loss of the services of any key individual or other person or individual filling a key role from time to time could have an effect on the development of the Company’s business. The Company may hire future employees and additional employees not provided through outside consulting firms, and depend on their services, the loss of which may affect the development of the Company’s business and could adversely affect the conduct of our business. The Company has not applied for key-man life insurance and the Company has not obtained insurance covering the possibility that any of its key officers and management personnel might become disabled or otherwise unable to render services to the Company. The success of the Company is also dependent upon its ability to attract, contract with and retain highly qualified technical, managerial and marketing personnel. The Company faces competition for such personnel from other companies, many of which have significantly greater resources than the Company. There can be no assurance that the Company will be able to recruit and retain such personnel.
Officers And Directors Beneficially Own, Vote, Or Represent Up To Approximately 64.86% Of the Company’s Issued and Outstanding Common and Series C Preferred Stock
The executive officers and directors of the Company currently beneficially own, vote, or represent up to approximately 64.86% of our outstanding common stock, which includes and voting power through issuance in the aggregate of 1,079,999 shares of our Series C Preferred Stock. As a result these stockholders may, as a practical matter, be able to influence all matters requiring stockholder approval including the election of directors, merger or consolidation and the sale of all or substantially all of our assets. This concentration of ownership may delay, deter or prevent acts that would result in a change of control, which in turn could reduce the market price of our common stock.
Penny Stock As A Risk
Definition And Rule Reference: The Securities and Exchange Commission has adopted Rule 3a51-1 of General Rules and Regulations, Promulgated under the Securities and Exchange Act of 1934, which established the definition of a “penny stock”, for the purposes relevant to the Company, as any equity security that has a market price of less than $5.00 per share, or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that broker or dealer approve a person’s account for transactions in penny stocks; and, (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
Future sales of our Shares of Common Stocks in the public market could lower our share price.
We may sell additional Shares of Common Stock in subsequent offerings. We may also issue additional Shares of Common Stock to finance future acquisitions, including acquisitions larger than those we have done in the past. We cannot predict the size of future issuances of our Shares of Common Stock or the effect, if any, that future issuances and sales of our Shares of Common Stock will have on the market price of our Shares of Common Stock. Sales of substantial amounts of Shares of Common Stock, or the perception that such sales could occur, may adversely affect prevailing market prices for our Shares of Common Stock.
Obligations And Contingencies
The Company is liable for future restoration and abandonment costs associated with oil and gas properties owned or newly acquired by the Company. These costs include future site restoration and plugging costs of wells. The cost of future abandonment of producing wells has not been determined the date of this report. Management believes that these costs will not have a material adverse effect upon its financial position or results of operations.
Other
The Company’s corporate parent operations during fiscal year ended 2012 did not retain any employees. Individual consulting firms owned by four key officers/directors along with four or more additional key officers/directors contributing time and effort managed the day-to-day operations of our Company. We have accounting consultants, legal consultants, oil and gas technical team consultants and engineers available for project purposes on a part time basis; one advisor assists us with project evaluations and business development, information and research, technical writing and presentation. The Company will consider full time employees upon sufficient capitalization and cash flow which may include accounting systems and data processing coordinator, oil and gas staff analyst and coordinator, financing officer; assistant to executive officers, and other. Future performance will be substantially dependent on the continued services of management and the ability to retain and motivate them. The loss of the services of any officers or senior managers could affect activities of our business and its operations until additional personnel can be retained and trained to perform some of the management tasks. At the present time the Company does not have long-term employment agreements with any key personnel and does not maintain any life insurance policies.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
The Company may participate in the drilling of a well or wells if it is able to successfully acquire attractive oil and gas leases with substantially proven undeveloped reserves, a preferred majority or suitable working interest being available, and can obtain or provide financing or market an interest on terms acceptable to the Company.
Oil and Gas Properties, Leases, and Interests
I Acquisition of 50% Oil and Gas Working Interests, Callahan, Stephens, and Shakelford Counties, West Central Texas
On December 22, 2009, the Company through its wholly owned subsidiary Energy Producers, Inc. entered into an Agreement for the Assignment of Interests in Oil and Gas Leases (“Assignment”), with Whitt Oil & Gas, Inc., (“Whitt”) a Texas corporation acquiring 50% working interests and corresponding 32% net revenue interests in oil and gas leases, reserves, and equipment. The leases, equipment, and a turnkey work program relate to three wells located on the leases representing the aggregate total of 240 Acres in Shackelford, Callahan, and Stephens counties, West Central Texas. The program also includes the right but not the obligation to drill four more wells in the future. The acquired leases and the property to which they relate are identified below:
1. That certain Oil, Gas and Mineral Lease dated September 17, 2007, by and between Eugene Bell, Lessor, and E & D Bell, LLC, Lessee and that certain Oil, Gas and Mineral Lease dated September 17, 2007, by and between Harold Elledge, Lessor, and E & D Bell, LLC, Lessee each covering the following two (2) parcels of land in Callahan County, Texas:
Tract I: Being 40 acres as near as is practicable in the form of a square around the LCS Production of McWhorter #1 well, Callahan County, Texas.
Tract II: Being 40 acres as near as is practicable in the form of a square around the Ratex Energy, Inc. No. 3 Young well, Callahan County, Texas.
2. Those two certain Oil and Gas Leases dated December 18, 2009, by and between Juanita B. Boyett Trust, Jearl Silas Boyett, Executor, Lessor, and Whitt Oil &. Gas, Inc., Lessee, to the extent, and to the extent only, that said lease covers all of the Southeast One-fourth (SE/4) of Section 55, B.A.L., A-2746, Stephens and Shackelford Counties, Texas.
The following wells are located on the leases identified, above:
1.
McWhorter No. Well, Texas Lease I.D. 27348, Callahan County, Texas.
2.
Young No. 3 Well, Texas Lease I.D. 26519, Callahan County, Texas.
3.
Boyett Well, Texas, API #42-417-37567, Shackelford County, Texas.
A mineral interest is the ownership of rights to gas, oil, or other minerals as they naturally occur in place, at or below the surface of a tract of land. Ownership of the minerals carries with it the right to make such reasonable use of the surface as may be necessary to explore for and produce the minerals. Only the mineral owner (or fee owner) may execute an oil or gas lease conveying his interest in a tract of land. Severance: The owner of all rights to a tract of land (vertically or horizontally). In horizontal severance, for example, if he chooses to sell all or part of the mineral rights, two distinct estates are created: the surface rights to the tract of land and the mineral rights to the same tract. The two estates may change hands independently of each other. Severed minerals rights may be restricted as to mineral type, or limited by depth, (in which case the landowner retains the rights to minerals other than those severed, and to depth intervals other than those severed.)
The Company attempts to maintain all of its operating wells in good working condition. Whitt Oil and Gas, Inc. (Whitt) a Texas corporation, and licensed operator, is familiar with the oil and gas business in the area. Whitt will operate the Company’s interests in the properties overseeing production and maintenance activities for its oil wells, equipment and other development activities for the leases.
The Material terms of the Operating Agreement with the Company include:
Whitt is an independent contractor and operates the subject properties on a contract basis pursuant to the AAPL form operating agreement according to our share of Working Interests (50%) with a $350 per producing well per month overhead fee and $250.00 pumper fee per well (presently for 3 wells) respectively plus electricity and other intangible repair items. All other charges whether by Whitt, an affiliate of Whitt or third parties will be the responsibility of the working interest owners of the properties. Whitt will furnish the monthly Lease Operation Expense and various activity reports to the Company’s wholly owned subsidiary Energy Producers, Inc. Upon successful commencement of production, run checks (payments) expected from future sales of oil and gas are to be sent to the operator from the purchasers for oil and gas produced. Conoco is initially designated as the gatherer for the oil. Whitt is to administrate monthly activities, and after payment of management, consulting, and lease-operating expenses (LOE’s), it collects and compiles the Joint Interest Billing (JIB) Statements and prepares certain reports and financial statements related to production income and expenses for monthly delivery to Company’s accounting for compilation along with its share of the payment to be received according to its interests.
In 2009 and 2010 rehabilitation and enhancement programs were implemented included well repairs followed by frac treatment for each well, namely the McWhorter No. 1 Well with perforations in the Bend Conglomerate Formation at 4,060 to 4,068 feet, the Young No. 3 Well to produce at 2,530 feet depth in the Palo Pinto Lime, and the Boyett Well, to produce in the Caddo Lime at approximately 3,400 feet. Upon operations concluding the recompletion program it was ultimately determined in the fourth quarter of 2011 that after several attempts of clearing fluid to complete all three wells that the reservoirs were not commercially productive in the zones. The Young #1 remains a good candidate for a salt water disposal well for projects going forward.
For 2012 the Company is now advancing its planning for in-depth technical evaluations to be conducted on the two undeveloped Barnett Shale locations situated on the Boyette lease at the 5,500 ft. depth. Recent successes in the local Barnett wells have encouraged both management and its operator, to advance the timing on the Barnett evaluation. The seismic study will focus on specific Barnett Shale formation characteristics that will assist in the drilling of two Barnett horizontal wells. There have been recent Barnett wells in the area that have been productive in the oil segment / phase of the Barnett Shale that have justified the seismic study. The onsite seismic work is expected to commence within 90 days. Upon successful seismic testing the estimated costs or Authorization for Expenditure (AFE) for Barnet Horizontal Well program will be approximately $750,000 per each horizontal well considered to be drilled.
Listing for the Equipment items related to the wells on the leases are as follows:
*Recoverable Equipment Inventory
Young Lease (Callahan County)
2 x 210 BBL oil tanks w/connections
1 x 4 x 20’ oil and gas separator
1- American 80 pump jack w/20 hp electric motor
4,000’ D&T-7000# 2 3/8 tubing
4,000’ ¾ rods
4,000’ 4 ½” casing
1-200 bbl open top F.g. water tank
2500’ 2” poly flow line
Well head, I.H. pump, associated equipment
McWhorter Lease (Callahan County)
1-210 bbl oil tank
1-Oilwell 57 pump jack w/20 hp electric motor
4000’ D&T-7000# 2 3/8” tubing
4000’ 3/4” rods
4000’ 4 ½” casing
Well head, D.H. pump, associated equipment
Boyett Lease (Shackelford County)
1-Oilwell 57 pump jack w/20 hp electric motor
3500’ D&T 7000# 2 3/8” tubing
3500’ ¾” rods
3500’ 4 ½” casing
1-210 bbl oil & water tank
Well head, D. H. pump and associated equipment
/1 Subject to accumulated depreciation and depletion (see Footnote 7. Fixed Assets -net) in the notes the consolidated financial statements further listed in this document.
II. (a) Acquisition of 75% Oil and Gas Working Interests in the J.B. Tubb Leasehold Estate/Amoco Crawar Field, Ward County, Texas, and (b) Subsequent Sale of 50% of the Company’s Working Interests
On March 1, 2011 the Company’s through its wholly owned subsidiary Energy Producers, Inc. (“EPI”) acquired all assets of Ginzoil Inc., (“GZI”) a wholly owned subsidiary of Dutchess Private Equities Fund, Ltd., (Investors”) as described in the preliminary Assignment and Bill of Sale and summarily as follows: Under the terms of the agreement, which shall be effective March 1, 2011, EPI acquired a majority 75% Working Interest and 56.25% corresponding Net Revenue Interest in the North 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field and oil and gas interests, including all related assets, fixtures, equipment, three well heads, three well bores, and pro rata oil & gas revenue and reserves for all depths below the surface to 8500 ft. The field is located in the Permian Basin and the Crawar Field in Ward County, Texas (12 miles west of Monahans & 30 miles west of Odessa in West Texas). Included in the transaction, EPI will also acquire 75% Working Interest and 56.25% corresponding Net Revenue Interest in the Highland Production Company No. 2 well-bore located in the South 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field, oil and gas interests, pro rata oil & gas revenues and reserves with depth of ownership 4700 ft. to 4900 ft. As consideration for the transaction the Company agreed to authorize and issue and sell to Investors 2,500 shares of a new, to be authorized, Series D preferred stock to Investors for one thousand dollars ($1,000) per share, or a total in the aggregate stated value of two million five hundred thousand ($2,500,000) dollars.
Pursuant to the SPA each share of Series D Preferred Stock shall be convertible, at the sole option of the Investor or holder thereof, into share(s) of the Corporation’s Common Stock (“Conversion Shares”). The Conversion Formula at the time of any noticed and converted shall mean that the number of Conversion Shares (common stock) to be received by the holder of Series D Preferred Stock in exchange for each share of Series D Preferred Stock that such holder intends to convert pursuant to this provision, where such number of Conversion Shares shall be equal to the greater of the number calculated by dividing the Purchase Commitment per share ($1000) by i) .003 per share, ii) one hundred and ten percent (110%) of the lowest VWAP for the three (3) days immediately preceding a Conversion Date. The Company has agreed to keep a sufficient number of its common shares on hand for future conversions as listed in Section 1 of the SPA. The preferred stock was valued at fair value based on the use of a multinomial lattice model with computed the following assumptions: annual volatility at 238%, 20% of default at maturity, and the holder would convert at 1.5 times the conversion price decreasing as it approaches maturity. The total fair value of these preferred shares was computed to be $2,167,306.
For additional information please see the Section in “The Business” under the sub heading “2011 Work Program and Finance Costs Associated With Our Acquired Oil and Gas Interests in the Texas, J.B. Tubb Leasehold Estate.”
The acquired leases and the property to which they relate are identified below:
North 40 acres: J.B. TUBB “18-1”, being the W1/2 of the NW1/4 of Section 18, Block B-20, Public School Lands, Ward County, Texas, containing Forty (North 40) acres only (also listed as Exhibit “A” to Exhibit 10.1 in our Current Report on Form 8-K filed on March 7, 2011, incorporated herein by reference.
Well-bore loated on South 40 acres: The Highland Production Company (Crawar) #2 well-bore, API No. 42-475-33611, located on the J.B. Tubb Lease in W ½ of the NW ¼ of Sec. 18, Block B-20, Public School Lands, Ward County, Texas at 1787 FNL and 853 FWL being on the South Forty (40) acres of the J. B. Tubb Lease, Ward County, Texas.
The following wells are located on the leases identified, above:
*Highland Production Company(Crawar) #2 well-bore only, with depth of ownership 4700’ to 4900’ft. in well bore, described as: The Highland Production Company (Crawar) #2 well-bore, located on the J.B. Tubb Lease in W ½ of the NW ¼ of Sec. 18, Block B-20, Public School Lands, Ward County, Texas at 1787 FNL and 853 FWL being on the South Forty (40) acres of the J. B. Tubb Lease, Ward County, Texas.
A mineral interest is the ownership of rights to gas, oil, or other minerals as they naturally occur in place, at or below the surface of a tract of land. Ownership of the minerals carries with it the right to make such reasonable use of the surface as may be necessary to explore for and produce the minerals. Only the mineral owner (or fee owner) may execute an oil or gas lease conveying his interest in a tract of land. Severance: The owner of all rights to a tract of land (vertically or horizontally). In horizontal severance, for example, if he chooses to sell all or part of the mineral rights, two distinct estates are created: the surface rights to the tract of land and the mineral rights to the same tract. The two estates may change hands independently of each other. Severed minerals rights may be restricted as to mineral type, or limited by depth, (in which case the landowner retains the rights to minerals other than those severed, and to depth intervals other than those severed.)
The Company attempts to maintain all of its operating wells in good working condition. Success Oil Co., Inc. (Success) a Texas corporation, and licensed operator, is familiar with the oil and gas business in the area. Success will operate the Company’s interests in the properties overseeing production and maintenance activities for its oil wells, equipment and other development activities for the leases.
The Material terms of the Operating Agreement through July 30, 2012 with the Company include (see update to Operating Agreement later this section):
Success is an independent contractor and operates the subject properties on a contract basis pursuant to the AAPL form operating agreement according to our share of Working Interests (75%) with a $550 per producing well per month overhead fee and $500.00 pumper fee per well (presently for 3 wells) respectively plus electricity, chemical treatment, and other intangible repair items. All other charges whether by Success, an affiliate of Success or third parties will be the responsibility of the working interest owners of the properties. Success will furnish the monthly Lease Operation Expense and various activity reports to the Company’s wholly owned subsidiary Energy Producers, Inc. Upon production being sold, run checks (payments) expected from future sales of oil and gas are to be sent to the operator from the purchasers for oil and gas produced. Sunoco is initially designated as the gatherer for the oil and Targa Midstream for the natural gas. Success is to administrate monthly activities, and after payment of management, consulting, and lease-operating expenses (LOE’s), it collects and compiles the Joint Interest Billing (JIB) Statements and prepares certain reports and financial statements related to production income and expenses for monthly delivery to Company’s accounting for compilation along with its share of the payment to be received according to its interests.
Listing for the Equipment items related to the wells on the leases on the J.B. Tubb Leasehold Estate (RRC #33611) Amoco/ Crawar field are as follows:
The following is the current & present equipment list that Energy Producers Inc. will acquire 75% ownership rights, on the J.B. Tubb property: 2 (Two) 500 barrels metal tanks, 1(One) 500 barrel cement salt water tank- (open top), 1 (One) heater treater/oil & gas separator, all flow lines, on the north forty acres, well-heads, 2 (two) Christmas tree valve systems on well-heads, 3 (Three) well heads, three wells (well-bores). Model 320D Pumpjack Serial No. E98371M/456604, One (1) Fiberglass lined heater-treater, One (1) Test pot, Tubing string Rods and down hole pump.
Allocation of Purchase Price for J.B. Tubb Leasehold Estate Working and Corresponding Net Revenue Interests, Amoco/Crawar Field, Ward County, Texas.
III. The Sale and Disposition of 37.5% Oil and Gas Working Interests in the J.B. Tubb Leasehold Estate/Amoco Crawar Field, Ward County, Texas
On July 31, 2012, The Company through our wholly owned subsidiary Energy Producers, Inc. (the “Company” or “EGPI”) entered into an Agreement with Mondial Ventures, Inc. (“Mondial”) as the assignee of CUBO Energy PLC regarding the closing of an Assignment and Bill of Sale and Stock Purchase Agreement (“SPA”). The interests acquired from EGPI were part of our oil and gas interests and various rights held in the J.B. Tubb Leasehold Estate located outside of Odessa Texas in Ward and Jones County. The Agreement included entering into a Participation Agreement (Turnkey Drilling, Re Entry, and Multiple Wells) granting certain rights in and to interests for additional development on the J.B. Tubb Leasehold Estate. The Company presently owns 37.5% working interest ("WI"), 28.125% net revenue interest ("NRI") in the oil and gas interests, and pro rata oil & gas revenue and reserves for all depths below the surface to at least 8500 ft. including all related assets, fixtures, equipment, three well heads and three well bores. The field is located in the Permian Basin and the Crawar Field, directly adjacent to property operated by Chevron Corporation in Ward County, Texas (12 miles southeast of Monahans and 30 miles west of Odessa in West Texas).
For additional information please see the Section in “The Business” under the sub heading “2012 Work Program Costs Associated With Our Oil and Gas Interests After Sale of 37.5% Working Interests and Other Rights in the Texas, J.B. Tubb Leasehold Estate.”
The acquired leases and the property to which they relate are identified below:
North 40 acres: J.B. TUBB “18-1”, being the W1/2 of the NW1/4 of Section 18, Block B-20, Public School Lands, Ward County, Texas, containing Forty (North 40) acres only (also listed as Exhibit “A” to Exhibit 10.1 in our Current Report on Form 8-K filed on March 7, 2011, incorporated herein by reference.
Well-bore loated on South 40 acres: The Highland Production Company (Crawar) #2 well-bore, API No. 42-475-33611, located on the J.B. Tubb Lease in W ½ of the NW ¼ of Sec. 18, Block B-20, Public School Lands, Ward County, Texas at 1787 FNL and 853 FWL being on the South Forty (40) acres of the J. B. Tubb Lease, Ward County, Texas.
The following wells are located on the leases identified, above:
*Highland Production Company(Crawar) #2 well-bore only, with depth of ownership 4700’ to 4900’ft. in well bore, and 3800’ to 4,000’ in well bore, described as: The Highland Production Company (Crawar) #2 well-bore, located on the J.B. Tubb Lease in W ½ of the NW ¼ of Sec. 18, Block B-20, Public School Lands, Ward County, Texas at 1787 FNL and 853 FWL being on the South Forty (40) acres of the J. B. Tubb Lease, Ward County, Texas.
The Company attempts to maintain all of its operating wells in good working condition. Success Oil Co., Inc. (Success) a Texas corporation, and licensed operator, is familiar with the oil and gas business in the area. Success will operate the Company’s interests in the properties overseeing production and maintenance activities for its oil wells, equipment and other development activities for the leases.
The Material terms of the Operating Agreement as of July 31, 2013 with the Company include:
Success is an independent contractor and operates the subject properties on a contract basis pursuant to the AAPL form operating agreement according to our share of Working Interests (37.5%) with a $225 for our share per producing well per month overhead fee and $250.00 pumper fee per our share per well (presently for 3 wells) respectively plus electricity, chemical treatment, and other intangible repair items. All other charges whether by Success, an affiliate of Success or third parties will be the responsibility of the working interest owners of the properties. Success will furnish the monthly Lease Operation Expense and various activity reports to the Company’s wholly owned subsidiary Energy Producers, Inc. Upon production being sold, run checks (payments) expected from future sales of oil and gas are to be sent to the operator from the purchasers for oil and gas produced. Sunoco is initially designated as the gatherer for the oil and Targa Midstream for the natural gas. Success is to administrate monthly activities, and after payment of management, consulting, and lease-operating expenses (LOE’s), it collects and compiles the Joint Interest Billing (JIB) Statements and prepares certain reports and financial statements related to production income and expenses for monthly delivery to Company’s accounting for compilation along with its share of the payment to be received according to its interests.
Listing for the Equipment items related to the wells on the leases on the J.B. Tubb Leasehold Estate (RRC #33611) Amoco/ Crawar field are as follows:
The following is the current & present equipment list that Energy Producers Inc. will acquire 75% ownership rights, on the J.B. Tubb property: 2 (Two) 500 barrels metal tanks, 1(One) 500 barrel cement salt water tank- (open top), 1 (One) heater treater/oil & gas separator, all flow lines, on the north forty acres, well-heads, 2 (two) Christmas tree valve systems on well-heads, 3 (Three) well heads, three wells (well-bores). Model 320D Pumpjack Serial No. E98371M/456604, One (1) Fiberglass lined heater-treater, One (1) Test pot, Tubing string Rods and down hole pump.
Allocation of Purchase Price for J.B. Tubb Leasehold Estate Working and Corresponding Net Revenue Interests, Amoco/Crawar Field, Ward County, Texas.
Reserves- Oil and Gas Properties, Leases, and Interests Located in Ward, Callahan, Stephens, and Shakelford Counties, West Central Texas
Harper & Associates, Inc. completed the subject petroleum reserve report on May 1, 2013, in preparation for the US Form 10-K for Fiscal Year Ended December 31, 2012, to be filed by EGPI Firecreek, Inc. (“EGPI”). The evaluated properties are located in Shackelford and Ward Counties, Texas. Net oil and gas reserves herein represent a 100 percent portion of EGPI’s total reserves. The reserve estimations comply with the definitions of the U.S. Security Exchange Commission. Reserves are classified proved developed producing (“PDP”), behind-pipe (“PBP”) and undeveloped (“PUD”). Proved reserves are those reported where the level of certainty is at least 90 percent probable that the quantities actually recovered will equal or exceed the estimates. Also considered are probable undeveloped (“PbUD”) reserves. Probable reserves are those reported where the level of certainty is at least 50 percent probable and that the quantities actually recovered will equal or exceed the estimates reserves. Proved and probable quantities were determined using all geologic and engineering methods and procedures as considered necessary under the circumstances to prepare the report.
A summary of our conclusion with respect to EGPI net reserves and cumulative future cash flow (before U.S. federal income tax), undiscounted and discounted at 10% percent per year is as follows:
RESERVE SUMMARY
Reserves and economic results for each reserve class are attached, along with a one-line summary. Individual well reserves are presented herein.
*Revenue is net of severance and ad valorem taxes.
ECONOMIC DISCLOSURES
All assumptions, lease descriptions and holdings, ownership, historical prices, operating lease cost, well planned investments and past production were appropriately presented by the Company. Interests were accepted as represented.
Price Parameters. The Company’s 12-month average oil price is $88.45 and benchmark price is $94.71 per barrel of oil. The Company’s 12-month average gas price is $3.15 and benchmark price is $2.75 per MCF of gas. Oil and gas revenue for a lease is based on the average of the monthly 2012 prices. Prices are not escalated. BTU content, fuel and shrinkage for gas production and the quality of oil production are considered.
Cost Parameters. Well operating expenses are based on the knowledge and experience of our staff in the oil and gas operations of the subject counties. Expenses are recurring monthly values including G&A. Operating expenses and investments are not escalated. Production severance and ad valorem taxes are deducted from revenue.
Discount Factors. Discount factors are calculated at mid-year, compounded annually, and applied to yearly lump sum revenues, expenses and investments.
RESERVE DISCLOSURES
Reserve Estimation Uncertainties. The determination of the reserves is based on a petroleum engineering evaluation, supported by an independent geologic interpretation that involved direct and indirect characterization and estimates of reservoir properties. These properties are derived from data available at the time of preparation. One should not construe that the reserve quantities are exact. As additional data becomes available or well operating conditions change, the likely oil, condensate or gas recovery of a reservoir may change, and consequently reserve quantities change.
Regulation Effects. Reserves are based on the monthly quantities that can be produced above a lease economic limit, i.e. the “costs” attributed to a lease in the operation of the downhole and surface equipment. Regulations of government agencies that increase those “costs” will cause a reserve reduction. Possible changes to the current government regulations are not considered in the economic limits herein.
Reserve Evaluation Usage. Reserve estimates compile with the definitions of the U. S. Security Exchange Commission (“SEC”). The reserves and dollars reported herein are not determined for the following purposes: 1) litigation, 2) loan basis, and 3) market value estimate.
There are numerous uncertainties inherent in estimating quantities of proved reserves. The reserves and reservoir predictions are estimates only. There are numerous uncertainties in the estimation of interpretation parameters, including factors such as product prices, product demand, subsurface heterogeneities, and other variables, that are beyond the control of the authors of the report as well as the owners of the subject properties. The estimates in the appraisal are based on various assumptions relating to rates of future production, timing and amount of development expenditures, oil and gas prices, and the results of planned development work. Actual future production rates and volumes, revenues, taxes, operating expenses, development expenditures, and quantities of recoverable oil and gas reserves may vary substantially from those assumed in the estimates. Any significant change in these assumptions, including changes that result from variances between projected and actual results, could materially and adversely affect future reserve estimates. In addition, such reserves may be subject to downward or upward revision based upon production history, results of future development, prevailing oil prices, and other factors.
Reservoir engineering and geological interpretation are a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate, performance prediction, or geological analysis is a function of the quality of the available data and of engineering and geological interpretation and judgment. In addition, the impacts of various drilling, completion, and production practices on productivity can be estimated but not fully defined or quantified. As a result, estimates and analyses by different engineers and geoscientists may vary.
Wells And Acreage
In the oil and gas industry and as used herein, the word “gross” well or acre is a well or acre in which a working interest is owned; the number of gross wells is the total number of wells in which a working interest is owned. A “net” well or acre is deemed to exist when the sum of fractional ownership working interests in gross wells or acres equals one. The number of net wells or acres is the sum of the fractional working interests owned in gross wells or acres.
Set forth below is information respecting the developed and undeveloped acreage owned by the Company in Ward, Callahan, Stephens and Shackelford Counties, Texas, as of December 31, 2011.
Our Corporate offices are located in Scottsdale, Arizona, and our wholly-owned subsidiary Firecreek Petroleum, maintained an office in Fort Worth, Texas, but moved its operations primarily to Scottsdale, Arizona during second quarter of operations in 2006. Please see also “Certain Relationships and Related Transactions” for further discussion.
As of June 1, 2009 the Company’s operations for Energy Producers, Inc. are located at 6564 Smoke Tree Lane, Scottsdale, Arizona 85253. The Secretary, Comptroller, and shareholder of the Company provides approximately 1431 square feet being utilized for the Company charging $1,400 a month on a contracted basis through December 31, 2012 and $2,000 a month as of January 1, 2013 forward renewed through the CEO and shareholder of the Company. Prior to June 1, 2009, the CEO and shareholder of the Company provided corporate office space through May 31, 2009 at no charge. In the event that our facilities in Scottsdale should, for any reason, become unavailable, we believe that alternative facilities are available at competitive rates. Please see “Certain Relationships and Related Transactions” for further discussion.
Exploration and Production
The Company, in addition to its present plans contemplated for the J.B. Tubb Leasehold Estate we are working to successfully acquire attractive oil and gas leases with substantially proven undeveloped reserves. This envisions having a majority or suitable working interest being available, and that can be obtained on financing or market an interestf terms that are feasible and acceptable to the Company.
As discussed in the section on the Business, the Company is in preparation to contract for a 3-D Seismic contract covering the Boyette property in Shackelford County, Texas. The seismic study will focus on specific Barnett Shale formation characteristics that will assist in the drilling of one and possibly two Barnett horizontal wells or an equivalent of up to eight vertical wells on the Boyette lease at a proposed initial depth of approximately 5,200’ to 5,500’ feet. We are targeting the oil segment or phase of the Barnett Shale and have justified the seismic study. The onsite seismic work is expected to commence as soon as practicable.
Properties and Equipment-M3 Lighting, Inc. (M3), a Wholly Owned Subsidiary of the Company
As of May 22, 2009 through February 2011 our headquarters for the Company’s Eastern based operations and M3 were located at 3400 Peachtree Road, Suite 111 Atlanta, Georgia 30326,.The space was provided free of charge for all of 2010 and the two months of 2011 and as a result, no fees were paid. Please see “Certain Relationships and Related Transactions” for further discussion.
Property and Equipment-South Atlantic Traffic Corporation, (SATCO), a Wholly Owned Subsidiary of the Company
SATCO headquarters were located at 3400 Peachtree Road, Suite 111 Atlanta, Georgia 30326, with additional satellite offices in offices in Cocoa, FL / Englewood, FL / Woodstock, GA / Charlotte, NC and Fayetteville NC. The Georgia and North Carolina offices were closed during the year 2010. A Florida office was closed in January 2011. The Company had non-cancelable operating leases, primarily for remaining office space and certain office equipment. The operating leases generally contain renewal options for periods ranging from three months to two years and require the Company to pay all executory costs such as maintenance and insurance. Rental expense for operating leases was approximately $68,728, $39,755 and $0 the years ended December 31, 2009, 2010 and 2011, respectively. The leases have been settled and terminated as of December 31, 2010.
Please see also “Certain Relationships and Related Transactions” for further discussion.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the financial condition or results of operations of the Company.
In October 2010 we received notice of a lawsuit filed against the Company by St. George Investments, LLC relating to certain Agreements entered on January 15th, 2010 by EGPI Firecreek Inc. and St. George Investments LLC which include: i) Note Purchase Agreement, ii) Convertible Promissory Note, iii) Judgment by Confession and iv) Registration Rights Agreement. St. George Investments LLC believes that EGPI Firecreek is in breach of terms agreed upon pursuant to the aforementioned agreements and sought damages totaling $262,585 (includes principal, interest and all penalties/fees pursuant to plaintiff's initial disclosures dated 3/28/11). In July 2011, the Company and St. George Investments LLC entered into a settlement agreement where the Company agreed to pay $202,000 on various payment terms beginning with $10,000 on signing of agreement, followed by five payments beginning August through December 2011, and thereafter payments for 18 months in the amount of $6,158. St. George now claims EGPI defaulted on the payment schedule and entered a Confession of Judgment. On September 23, 2011, EGPI Firecreek, Inc. received notice that St. George Investments LLC had filed a second lawsuit arising out of the same claims. The Company is moving to set aside the Confession of Judgment on this basis and is answering and vigorously defending the second lawsuit. As of January 31, 2012, the Company entered into a Settlement Agreement with St. George Investments, LLC whereas among other terms due the Company agreed to two principal options for settlement with summary terms as follows: 1. A settlement payment in the total aggregate amount of $200,000 with $20,000 due January 21, 2012, and $10,000 per month thereafter on the 21st of each month thereafter going forward until paid or 2. A payment balloon of $100,000 paid by April 21, 2012 less $30,000 in payments as credited or $70,000 total upon which the Company or its parties shall have no further obligation to make settlement payments or pay any other amounts to St. George Investments, LLC thereafter. The Company having negotiated settlement payment is current in its payment through October 21, 2012 in accordance with recent modifications to forbearance agreements (for the August payment) having negotiated a stock payment for June and July 2012 and recently for August 2012. The Company did not timely make its August 2012 payment but has been in communication with St. George Investments, LLC as to its current position with both parties now agreed to a current status based on resumption of payments due for August 2012 by resuming payments on May 31, 2013. The entire amount owed is accrued in notes payable in the financial statements.
In November 2010, EGPI Firecreek Inc and South Atlantic Traffic Corp., a former wholly owned subsidiary of the Company, received a lawsuit from two of the former owners of SATCO, Mr. Jesse Joyner and Mr. James Stewart Hall. Mr. Joyner and Mr. Hall have subsequently resigned from their positions with the company. On December 17, 2010, EGPI Firecreek Inc. filed its answer to the claim and filed a counterclaim against Mr. Joyner and Mr. Hall. As of August 2011 and through April 2012, the Company is in settlement negotiations and believes the matter will be resolved for less than the amount currently accrued and included in notes payable and accrued interest, which are the subject of the lawsuit. SATCO was sold to Distressed Asset Acquisitions, Inc. in March 2012. As of July 2012 the case has been settled for $177,000 on scheduled payments over three years. The Company has made seven payments of just under $5,000 each, is current through January 2013 and due for February and March 2013, and has negotiated to bring current on two payments due May 8, 2013.
In December 2010 the Company received a lawsuit notice on behalf of our former Terra Telecom (“Terra”) subsidiary from Source Capital Group Inc (“Source”) seeking a judgment for amounts allegedly owed it from Terra in the total aggregate amount of $81,492 plus pre and post judgment interest. In June 2011, the Company filed a motion to dismiss for lack of personal jurisdiction. Additionally, the Company also filed a motion to dismiss for Sources’ failure to state a claim. In response to that motion, Source has now, as of July, 2011, dismissed its assumption argument. On October 14th, 2011, EGPI Firecreek Inc. received notice from Source Capital’s legal representation that they were seeking to withdrawal as counsel for plaintiffs in this matter. The Company believes that this development with further strengthen our position in defense of this matter and will ultimately result in the granting of our pending motions to dismiss. As of April 2013 there has been no communications received further in this matter.
In February 2011 the Company received a lawsuit notice on behalf of our Terra Telecom (“Terra”) subsidiary from Nu-Horizons Electronics (“Nu-Horizons”) seeking judgment for amounts allegedly owed it from Terra in the total aggregate amount of $196,620. The Company believes that it is not liable, and intends to file appeal to remove it from the motion for judgment. The Company will vigorously defend its position. As of April 2013, the Company has not received further communications with respect to Nu-Horizons.
In May 2011 the Company received a lawsuit by Edelweiss Enterprises Inc. dba The Small Business Money Store (“SMBS”) seeking a judgment to collect amounts allegedly owed it relating to an account receivable factoring agreement, to the former subsidiary SATCO, in the total aggregate amount of $48,032. The Company believes that it is not liable, and will vigorously defend its position. In July 2012 the Company attended an arbitration hearing and in August was awarded a dismissal of the case by the Arbitrator. The Plaintiff then appealed and since the appeal the matter has been settled and dismissed for a payment of $5,000 cash and 275,000 shares of the Company’s restricted common stock, which both have been tendered as of the date of this filing.
In August 2011, the Company received a lawsuit notice on behalf of our wholly owned subsidiary Energy Ventures One Inc whereas Contegra Construction Company LLC (“CCC”) is seeking a judgment to collect amounts owed it relating to a promissory note in the amount of $157,767, which includes interest and late fees. The amount is recorded as a liability in the financial statements.
In August 2011, the Company received a lawsuit notice on behalf of itself and our wholly owned subsidiary Energy Ventures One Inc. and Arctic Solar, LLC by Masters Equipment Services, Inc. (“Masters”) seeking a judgment to collect amounts allegedly owed it relating to a promissory note in the amount of $110,153, including interest and late fees. The Company is one of several parties named in the proceeding and is prepared to vigorously defend its position. In July 2012, the Company negotiated a settlement of this case for $22,000 at the rate of $2,000 per month beginning October 2012. The promissory note is recorded as a liability in the financial statements. The Company has made its first payment of $2,000 and is current at September 30, 2012 but has fallen behind in payments since, and will attempt to resume as soon as practicable.
In January, 2012 a lawsuit was filed in the Middlesex County, Massachusetts Superior Court by Joshua White, against Terra Telecom and the Company. Mr. White was a former employee of Terra Telecom and not the Company. Mr. White alleges the Company should be liable to him for the acts of Terra Telecom. A Motion to Dismiss has been filed for lack of jurisdiction on behalf of the Company, which the Company believes will be granted. In any event the Company believes it has no liability and will defend vigorously if, for some reason, the Motion to Dismiss is not granted. The Company sold its interest in Terra Telecom in March of 2011. On August 3, 2012 the Motion to Dismiss was granted by the Justice of the Superior Court.
In February 2012 the Company received a lawsuit notice on behalf of itself by Morrell Saffa Craige, PC (“Morrell”) seeking the recovery of legal fees in the approximate sum of $25,000 owed to the Plaintiff in connection with its successful defense of a lawsuit styled Thermo Credit, LLC v. EGPI, et al. The Company owes the above fees and intends on paying the bill in full. The amount is recorded in the financial statements in accounts payable.
In May 2012 a lawsuit was filed in the Clark County, Nevada District Court by Lakeview Consulting, LLC (“Lakeview”), against the Company and other various Does 1-V and Roes corporations V1-X. Lakeview alleges the Company failed or refused to convert shares on a Convertible Note in the amount of $35,000 and therefore the sum plus interest, damages, etc. The Company is one of several parties named in the proceeding and is prepared to vigorously defend its position. The Company entered negotiations for settlement and has recently made its first payment, and current for the period ended September 30, 2012, but has fallen behind on all subsequent payments. The Company has negotiated for a payment to be made by May 15, 2013. The amount is recorded as a liability in the financial statements.
In October 2012 the Company received a lawsuit behalf of Solaire Power Technologies, LLC, a subsidiary of our wholly owned subsidiary Arctic Solar Engineering LLC. Robert T Short (“RTS”) , the Plaintiff, is claiming personal injuries and damages relating to alleged fall from the City of Dardene Prairie building, in the City of Dardene Prairie MO, Solaire is one of several parties named in the proceeding. Solaire denies all liability, and is prepared to vigorously defend its position. There is no further activity related to this matter that we are aware of as as of April 2013.
ITEM 4.
ITEM 4.
Removed and reserved.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE AND DIVIDENDS OF COMPANY
The Company became available for quotation on the over-the-counter, NASDAQ NQB Pink Sheets initially January 20, 2000. As of March 14, 2003, the Company’s common stock began trading on the over-the-counter market and prices are reported on the OTC Bulletin Board under the symbol “EFIR.” The market price of our common stock is subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market, and other factors, over many of which we have little or no control. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance.
The high and low sales prices for each full quarterly period for the last three complete fiscal years, as reported by the OTC Bulletin Board National Quotation Bureau are set forth below. Such quotations represent prices between dealers, do not include retail markup, markdown or commission, and do not represent actual transactions.
*Reflects Prices for the Period - After a One for Five Hundred (1:500) Reverse Stock Split Effective July 7, 2011.
*Reflects Prices for the Period - After a One for Fifty (1:50) Reverse Stock Split Effective November 9, 2010.
As of March 31, 2012, the Company had issued and outstanding 19,042,939,184 shares of its common stock held by approximately 3,738 holders of record, no shares of Series A or B preferred stock outstanding, 1,087,143 shares of its Series C preferred stock issued and outstanding at $0.001 par value for each of the Series of Preferred, 2,480 shares of its Series D preferred stock issued and outstanding, at $0.001 par value for each of the Series of Preferred, and no shares of non-voting common stock issued and outstanding.
We have never declared dividends or paid cash dividends on our common stock and our board of directors does not intend to distribute dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.
Securities Authorized for Issuance Under Equity Compensation Plans.
The following information is provided for the period ended December 31, 2012, with respect to compensation plans (including individual compensation arrangements) under which equity securities of the issuer are authorized for issuance, aggregated as follows:
(i)
All compensation plans previously approved by security holders; and
(ii)
All compensation plans not previously approved by security holders.
Equity Compensation Plan Information
1a.) Information listed under column (a), (b) and (c) reflects adjustment for 1:200 post reverse split (one (1) share for two hundred (200)) share basis, effective on October 8, 2008, a 1:50 post reverse split (one (1) share for fifty (50) share basis, effective on November 9, 2010, and a 1:500 post reverse split (one (1) share for five hundred (500) share basis, effective on July 7, 2011.
(*) Information listed for column (b) in the table above represents the exercise or strike price for each option or warrant.
(**) The final Total listed for column (b) in the table above represents the weighted average exercise price for all options and warrants listed and noted (2), through (11) in the table only.
(1) Omitted.
(2) The Company provided warrants to a lender and various consultants during 2005. For further information regarding terms of these warrants to purchase underlying shares of the Company’s common stock issued, please see our Registration Statement on Form SB-2, as amended, and incorporated herein by reference.
(3) Represents historical options issued by the Company. For further information regarding terms for these options, please see information furnished in our Form 10-KSB, Amendment No. 3, filed on October 4, 2002, and incorporated herein by reference. As of November 30, 2007 these options have expired.
(4) Represents options issued by the Company as part of the Firecreek Petroleum, Inc. acquisition which vested, becoming available for exercise February 9, 2005. For terms of these options, please see information furnished in a Current Report on Form 8-K/A (Amendment No. 2), filed on September 16, 2004, and incorporated herein by reference. As of February 9, 2009, these options have expired.
(5) The strike price for the Tirion warrant is 80% of the average of the then lowest three closing bids for the previous 30 days from the date the warrants are exercised. For further information regarding terms of the warrant please see our Registration Statement on Form SB-2, as amended, and incorporated herein by reference. As of May 19, 2007 these warrants have expired.
(6) On March 14, 2006 the Company notified the holders of the warrants that they must exercise their warrants for cash or the Warrants will be cancelled without further notice, 30 days following such notice thereof.
(7) Represents an assignment of 3,350,000 shares underlying warrants held by DLM Asset Management, Inc. to Tirion Group, Inc. on February 14, 2006. As of June 14, 2010 these warrants have expired.
(8) Represents warrants issued by the Company in behalf of an extension and amendment of a Corporate Advisory Agreement with Steven Antebi, dated January 30, 2006. For further information regarding the terms of the extension and amendment of a Corporate Advisory Agreement, and corresponding warrant agreement please see a Current Report on Form 8-K/A, filed on February 3, 2006, incorporated herein by reference. As of January 30, 2009, these warrants have expired.
(9) Represents options issued by the Company on behalf of an Advisory Service Agreement with Joseph M. Vasquez dated March 1, 2006. For further information regarding the terms of the option agreements please see an amended Current Report on Form 8-K/A, filed on March 17, 2006, incorporated herein by reference. These options expired on March 1, 2009.
(10) On February 1, 2009, the Company entered into an Advisory Service Agreement with Joseph M. Vazquez. As part of the terms of the Agreement the Company issued to Mr. Vasquez three year warrants to purchase 500,000 shares at $1.00 per share exercise price for the underlying common shares. These options have expired on February 1, 2012.
(11) Represents shares of our Common Stock issuable upon the exercise of outstanding three-year warrants. The Warrants issued by the Company were a part of additional consideration for the issuance of three short term 6 month $50,000 secured convertible promissory notes to institutional investors on December 22, 2009. The exercise price for shares of common stock underlying the Warrants is set at $1.00 per share. The Warrants immediately vest on the issue date expiring three (3) years thereafter. Summary information the promissory note issuances are incorporated in a Current Report listed under item 8.01 Other Information on Form 8-K, filed on December 29, 2009. These options expired on December 22, 2012.
(12) Represents shares of our Common Stock issuable upon the exercise of outstanding three-year warrants. The Warrants issued by the Company were a part of additional consideration for the issuance of three short term 6 month $50,000 secured convertible promissory notes to institutional investors on December 22, 2009. The exercise price for shares of common stock underlying the Warrants is set at $1.25 per share. The Warrants immediately vest on the issue date expiring three (3) years thereafter. Summary information the promissory note issuances are incorporated in a Current Report listed under item 8.01 Other Information on Form 8-K, filed on December 29, 2009. These options expired on December 22, 2012.
(13) Pursuant to an Engagement Letter Agreement with Vincent & Rees L.P. and a General Consulting Agreement with Chienn Consulting Company, LLC the Company granted to each entity, a cashless option to purchase 0.5% of the Company’s common stock for $10,000 (“the Option”). Terms for the option: The option will vest on September 1, 2010 and shall expire three (2.5) years from the date thereof. The cap for the option shall be $150,000. The options were cancelled by notice to the company on May 4, 2011 by Vincent & Rees, L.P. and Chienn Consulting Company, LLC.
RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the registrant has issued unregistered securities to the persons, as described below. None of these transactions involved any underwriters, underwriting discounts or commissions, except as specified below, or any public offering, and the registrant believes that each transaction was exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder. All recipients had adequate access, though their relationships with the registrant, to information about the registrant.
Required information has been furnished in current Report(s) on Form 8-K filings and other reports, as amended, during the period covered by this Report and additionally as listed and following:
(*)(**) On November 7, by consent of the Board of Directors, the Registrant approved the following issuances of its restricted common stock, par value $0.001 per share, to the following person for services rendered.
(*) Issuances are approved, subject to such persons agreeing in writing to i) comply with applicable securities laws and regulations and make required disclosures; and ii) be solely and entirely responsible for their own personal, Federal, State, and or relevant single or multi jurisdictional income taxes, as applicable.
(**) $200,000 worth of common stock in the immediately preceding table was used primarily in consideration of services rendered to the Company.
(1)
Steven Antebi provides other Business Consulting and advisory services, and is not currently a director, or officer of the Registrant.
(***) The shares of common stock were issued pursuant to an exemption from registration as provided by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”). All such certificates representing the shares issued by the Company shall bear the standard 1933 Act restrictive legend restricting resale.
(****) The shares are to be included for registration in a registration statement on a best efforts basis by the Registrant in accordance with the terms of agreement.
I. (i) (ii) On August 20, 2012, by majority consent of the Board of Directors and Shareholders, the Company approved the following issuances of its restricted common, par value $0.001 per share for common and preferred, to the following persons in consideration of services rendered, including for and as incentive to continue to assist and provide services to the Company or its subsidiaries.
(Note 1): Series C preferred stock: The Preferred C stock has a stated value of $.001 and no stated dividend rate and is non-participatory. The Series C has liquidation preference over common stock. Effective May 20, 2009 i) Voting Rights for each share of Series C Preferred Stock shall have 21,200 votes on the election of directors of the Company and for all other purposes, and, ii) regarding Conversion to Common Shares, Series C have no right to convert to common or any other series of authorized shares of the Company. We have only used a nominal par value for our listed valuation which is subject to further adjustment. As example only: During the year ended December 31, 2011, 72,856 shares of Series C preferred stock were issued for services rendered. The preferred stock was valued at $75,000 based on an estimate of fair market value on the date of grant. The holders of Series C preferred stock represent a controlling voting interest in the Company. As a result, a determination of the control premium was determined to estimate the value of the shares. The control premium is based on publicly traded companies or comparable entities which have been recently acquired in arm’s length transactions.
(i) Issuances are approved, subject to such persons being entirely responsible for their own personal, Federal, State, and or relevant single or multi jurisdictional income taxes, as applicable. Unless otherwise indicated, each person named in the table above has the sole voting and investment power with respect to his shares of our common and or preferred stock beneficially owned.
(ii) All of the financing proceeds (see also Note 1) in the immediately preceding table was used as listed in the table above primarily in consideration of bonus for services rendered and or in exchange for accrued services rendered to the Company and/or one or more of its subsidiaries, and incentive.
(1)
* Global Media Network USA, Inc. is 100% owned by Dennis R. Alexander who provides day to day operational services and business consulting services to the Company, EGPI Firecreek, Inc., Energy Producers, Inc., and is a shareholder, Chairman, director, and an officer (CEO, CFO) of the Company.
(2)
**David H. Ray, for business and consulting, accounting, and advisory services; Mr. Ray is a shareholder indirectly through Strategic Partners Consulting, LLC, a director, and an officer (Executive Vice President and Treasurer) of the Company.
(3)
**Brandon D. Ray, for business, and consulting and financial advisory services; He is a shareholder indirectly though Strategic Partners Consulting, LLC. , and an officer, (Executive Vice President of Finance) and director of the Company.
(4)
**Strategic Partners Consulting, LLC, is indirectly owned by David H. Ray (66.7%) and Brandon D. Ray (33.3%) providing for each of their day to day operational services and business provisions, accounting, and financial advisory.
(5)
David A. Taylor is a shareholder and a director of the Company, and an officer and director of Chanwest Resources, Inc., a wholly owned subsidiary of the Company.
(6)
BVR, Inc. is indirectly owned by Billy V. Ray Jr. and Jonathan Ray. BVR, Inc. Mr. Ray, and Jonathan Rayare shareholders and not an officer or director of the Company.
(7)
Mike Trapp is a director of the Company. Mr. Trapp is also a shareholder.
(iii) Each share of Series C preferred stock shall have 21,200 votes on the election of our directors and for all other purposes.
II. (i) (ii) (iii) On August 27, 2012, by majority consent of the Board of Directors, the Company approved the following issuances of its restricted common, par value $0.001 per share for common and preferred, to the following persons in consideration of bonus for services rendered and or in exchange for accrued services rendered to the Company and/or one or more of its subsidiaries, and incentive.
(i) Issuances are approved, subject to such persons being entirely responsible for their own personal, Federal, State, and or relevant single or multi jurisdictional income taxes, as applicable. Unless otherwise indicated, each person named in the table above has the sole voting and investment power with respect to his shares of our common and or preferred stock beneficially owned.
(ii) $600,000 of the financing proceeds in the immediately preceding table was used as listed in the table above primarily in consideration of bonus for services rendered and or in exchange for accrued services rendered to the Company and/or one or more of its subsidiaries, and incentive.
(iii) Further restrictions are imposed on the common restricted share issuances such that it is agreed unless approved by the Board of Directors by its written consent, such shares issued to each and every person or entity shall not be hypothecated, sold, exchanged, or otherwise disposed of for a period of 7 months from the effective date of issuance which is August 27, 2012, but transfers to family members are allowed as gifts as long as these further restrictions are disclosed and followed.
(1)
Mr. Jeffrey M. Proper, Esq., for legal advisory and consulting services; Mr. Proper is a shareholder and is not a director or officer of the Company.
(2)
Mr. Thomas J. Richards, for business and consulting and advisory services, and loans to the Company; Mr. Richards is a shareholder and an advisor of the Company and is not a director or officer.
(3)
Mr. Larry W. Trapp, for business and consulting and advisory services, and loans to the Company; He is a shareholder, and formerly an officer and director of the Company and EPI through November 1, 2011.
(4)
Melvena Alexander, for day to day operational services and business provisions; Mrs. Alexander is a shareholder, and an officer (Secretary, Comptroller, and Co Treasurer) of the Company.
(5)
Joanne M. Sylvanus provides accounting and advisory services to the Company, and is a shareholder of the Company.
(6)
* Global Media Network USA, Inc. is 100% owned by Dennis R. Alexander who provides day to day operational services and business consulting services to the Company, EGPI Firecreek, Inc., Energy Producers, Inc., and is a shareholder, Chairman, director, and an officer (CEO, CFO) of the Company.
(7)
**David H. Ray, for business and consulting, accounting, and advisory services; Mr. Ray is a shareholder indirectly through Strategic Partners Consulting, LLC, a director, and an officer (Executive Vice President and Treasurer) of the Company.
(8)
**Brandon D. Ray, for business, and consulting and financial advisory services; He is a shareholder indirectly though Strategic Partners Consulting, LLC. , and an officer, (Executive Vice President of Finance) and director of the Company.
(9)
**Strategic Partners Consulting, LLC, is indirectly owned by David H. Ray (66.7%) and Brandon D. Ray (33.3%) providing for each of their day to day operational services and business provisions, accounting, and financial advisory.
(10)
***David A. Taylor is a shareholder and a director of the Company, and an officer and director of Chanwest Resources, Inc., a wholly owned subsidiary of the Company.
(11)
***Willoil Consulting, LLC is indirectly owned by David A. Taylor. Subject shares are to be issued upon completion of pending transaction with David Killian.
(12)
Frederic Sussman is a consultant of the Company for Arctic Solar and Engineering, LLC.; Mr. Sussman is a shareholder and is not a director or officer of the Company.
(iii) The shares of common stock were issued pursuant to an exemption from registration as provided by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”). All such certificates representing the shares issued by the Company shall bear the standard 1933 Act restrictive legend restricting resale.
I. (*)(**) On February 4, 2011, by majority consent of the Board of Directors, the Registrant approved the following issuances of its restricted common stock, par value $0.001 per share, to the following persons for and behalf of consideration for the Acquisition of Arctic Solar Engineering, LLC membership interests.
(*)
Issuances are approved, subject to such persons agreeing in writing to i) comply with applicable securities laws and regulations and make required disclosures; and ii) be solely and entirely responsible for their own personal, Federal, State, and or relevant single or multi jurisdictional income taxes, as applicable.
(**)
$49,800 worth of common stock in the immediately preceding table was used primarily in consideration of Acquisition of Sierra Pipeline, LLC Membership Interests.
(1)
Daniel Mark O’Neal is a shareholder, and not currently an affiliate, director, or officer of the Registrant. He provides business and consulting services to Arctic Solar Engineering, LLC.
(2)
Alvie M. Smith is a shareholder, and not currently an affiliate, director, or officer of the Registrant. He provides business and consulting services to Arctic Solar Engineering, LLC.
(3)
The Frederic Sussman Living Trust, Frederic Sussman, Trustee is a shareholder, and not currently an affiliate, director, or officer of the Registrant. Frederic Sussman manages day to day operations for Arctic Solar Engineering, LLC.
(***)
The shares of common stock were issued pursuant to an exemption from registration as provided by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”). All such certificates representing the shares issued by the Company shall bear the standard 1933 Act restrictive legend restricting resale.
(*)(**) On May 10, 2010, by majority consent of the Board of Directors, the Company approved the following issuances of its restricted common stock, par value $0.001 per share, to the following person for and behalf of consideration as follows:
(*) Issuances when approved, will be subject to such persons agreeing in writing to i) comply with applicable securities laws and regulations and make required disclosures; and ii) be solely and entirely responsible for their own personal, Federal, State, and or relevant single or multi jurisdictional income taxes, as applicable.
(**) $20,000 worth of common stock in the immediately preceding table used primarily in consideration of advances made for working capital requirements for the Company’s wholly owned subsidiary M3 Lighting, Inc.
(1) The above named individual is not an affiliate, director, or officer of the Registrant.
(***) The shares of common stock are to be issued pursuant to an exemption from registration as provided by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”). All such certificates representing the shares issued by the Company shall bear the standard 1933 Act restrictive legend restricting resale.
I. (*)(**) On January 12, 2010, by majority consent of the Board of Directors, the Registrant approved the following issuances of its restricted common stock, par value $0.001 per share, to the following persons for and behalf of consideration as follows:
(*) Issuances are approved, subject to such persons agreeing in writing to i) comply with applicable securities laws and regulations and make required disclosures; and ii) be solely and entirely responsible for their own personal, Federal, State, and or relevant single or multi jurisdictional income taxes, as applicable.
(**) $50,004 worth of common stock in the immediately preceding table was used primarily in consideration of working capital requirements for the Company’s wholly owned subsidiary South Atlantic Traffic Corporation (SATCO).
(1) The above named individuals are not affiliates, directors, or officers of the Registrant.
***) The shares of common stock were issued pursuant to an exemption from registration as provided by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”). All such certificates representing the shares issued by the Company shall bear the standard 1933 Act restrictive legend restricting resale.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not Applicable
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summary Results Of Operations
Overview
You should read the following discussion and analysis in conjunction with the audited Consolidated Financial Statements and Notes thereto, and the other financial data appearing elsewhere in this Annual Report.
The information set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) expected changes in the Company’s revenues and profitability, (ii) prospective business opportunities and (iii) the Company’s strategy for financing its business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to the plans, objectives and expectations of the Company for future operations. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this report should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. In light of these risks and uncertainties, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. The foregoing review of important factors should not be construed as exhaustive. The Company undertakes no obligation to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The Company has been focused on oil and gas activities for development of interests held that were acquired in Texas and Wyoming for the production of oil and natural gas through December 2, 2008. The Company throughout 2008 was seeking to continue expansion and growth for oil and gas development in its core projects. EGPI Firecreek Inc. was formerly known as Energy Producers, Inc., an oil and gas production company focusing on the recovery and development of oil and natural gas. This strategy is centered on rehabilitation and production enhancement techniques, utilizing modern management and technology applications in upgrading certain proven reserves. Historically in its 2005 fiscal year, the Company initiated a program to review domestic oil and gas prospects and targets. As a result, EGPI acquired non-operating oil and gas interests in a project titled Ten Mile Draw (“TMD”) located in Sweetwater County, Wyoming USA for the development and production of natural gas. In July, 2007, the Company acquired and began production of oil at the 2,000 plus acre Fant Ranch Unit in Knox County, Texas. This was followed by the acquisition and commencement in March, 2008 of oil and gas production at the J.B. Tubb Leasehold Estate located in the Amoco Crawar Field in Ward County, Texas. The Company as a result, successfully increased oil and gas production and revenues derived from its properties. and in late 2008, the Company was able to retire over 90% of its debt through the disposition of those improved properties.
In early 2009, based on the economic downturn, struggling financial markets and the implementation of the federal stimulus package for infrastructure projects, the Company embarked on a transition from an emphasis on the oil and gas focused business to that of an acquisition strategy focused on the transportation industry serving federal DOT and state/local DOT agencies. In addition, the acquisition targets being reviewed by the Company also had a presence in the telecommunications and general construction industries. The acquisition strategy focuses on vertically integrating manufacturing entities, distributors and construction groups. In May 2009, the Company acquired M3 Lighting Inc. (M3) as the flagship subsidiary with key additional management team to begin this process, and as a result on November 4, 2009, the Company acquired all of the capital stock of South Atlantic Traffic Corporation, a Florida corporation, which distributes a variety of products geared primarily towards the transportation industry where it derives its revenues.
Through 2009 and in addition to activities discussed above, we continued our previous decisions to limit and wind down the historical pursuit of our oil and gas projects overseas in Central Asian and European countries and sold off our then oil and gas subsidiary unit Firecreek Petroleum, Inc., but did retain certain first right of refusal to overseas projects (see discussion further in this report). In late 2009 and in 2010, the Company began pursuing a reentry to the oil and gas industry on a domestic basis as the Company’s second line of business and which was part of our ongoing strategic plans. On December 31, 2009, the Company, through its wholly-owned subsidiary, Energy Producers, Inc., effectively acquired a 50% working interest and corresponding 32% revenue interest in certain oil and gas leases, reserves and equipment located in West Central Texas (see additional information in the Section on “The Business”, “Recent Developments”, “Description of Properties” and elsewhere in this document.
In early 2010 again as a part of our business strategy for a line of business focusing on the transportation industry serving Federal DOT and state/local DOT agencies the Company entered into a pending agreement to acquire all of the issued and outstanding capital stock of Southwest Signal, Inc., a Florida corporation. Southwest Signal, Inc. was established in 2000 and is engaged in all facets of the United States Intelligent Traffic Systems (ITS) / Department of Transportation (DOT) Industry activities. Ultimately this acquisition was never consummated due to a failed financial arrangement. In addition, working side by side at the time of SWSC to implement our strategy for SATCO and pair the activities of the two units due the similar nature of business, on March 3, 2010, the Company executed a Stock Purchase Agreement with the stockholders of Redquartz LTD, a company formed and existing under the laws of the country of Ireland. Redquartz LTD business had been active for 45 years, is known internationally and we sought this acquisition as our entrance into the European markets with respect to Intelligent Traffic Systems (ITS) and the transportation industry as well as expanding our relationship recently established with an overseas entity business relationship with the principals of Redquartz, known as Cordil, Inc., to assist for the products sold by South Atlantic Traffic Corporation (SATCO), a wholly owned subsidiary of the Company. For further information please see our Current Report on Form 8-K filed on March 11, 2010, and as provided elsewhere in this document. The Redquartz LTD business unit purchased by the Company had no assets and resulted in additional debt burden to the Company.
Toward further development of our oil and gas line of business, in June 2010, the Company acquired all of the issued and outstanding stock of Chanwest Resources, Inc., (“Chanwest or CWR”) a Texas corporation. In the course of this acquisition, Chanwest stockholders exchanged all outstanding common shares for the Company’s common shares. Chanwest will provide services for drill site preparation to clear and lay pipeline (gathering systems) for operators. Chanwest operations can provide for services to maintain lease roads, set power poles and clean up oilfield spills. Chanwest works with operators or lease owners by purchase order or contract with major oil fields. The Company will continue to work with Chanwest to develop its plans for new growth for 2011 (see additional information in the Section on “The Business” and in our Current Report on Form 8-K filed on June 16, 2010, and information contained in our Form 10-Q filed November 22, 2010, and elsewhere in this document.
In July 2010 the Company toward addressing growth possibilities for the ITS/DOT line of business entered into a Definitive Stock Purchase Agreement with E-Views Safety Systems, Inc. ("E-Views") to be operated through its new subsidiary unit EGPI Firecreek Acquisition Company, Inc. Initially the Company has a “Dealer Agreement” with rights to acquire up to 51% of E-Views (see Exhibit 10.1 and 10.2 to our Report on Form 10-Q for the period ended June 30, 2010 filed on August 20, 2010, incorporated herein by reference). The Stock Purchase Agreement provides for up to a 51% interest in E-Views and exclusive distribution and sales rights in various states. The Company has initially solidified rights for the states of Alabama, Florida, Louisiana and North Carolina. They have also obtained international rights in the countries of Ireland and the United Kingdom. These states were initially chosen because of our subsidiary Southern Atlantic Traffic Corporation's, established clientele, and therefore potential abilities to penetrate these markets with E-Views patented technology and state-of-the-art products. Although there is still potential for this transaction; we were not able to implement the strategic plan to incrementally acquire E-Views stock interests.
In October 2010, the Company (“Purchaser”) executed a Securities Purchase / Exchange Agreement (“SPA”) with the owners (“Sellers”) of Terra Telecom, LLC, an Oklahoma limited liability company, located at 4510 South 86th East Ave, Tulsa, Oklahoma, 74145 ( “Terra”) to acquire all of the outstanding stock of Terra, and 100% of the total LLC membership units existing thereof. For more information on Terra, please see our Current Report on Form 8-K and Exhibit 10.1 thereto filed on August 7, 2010, as amended.
Terra Telecom was considered recognized as a leading provider of state-of-the-art communication technologies and a premier Alcatel-Lucent partner. They served various sized companies and organizations that use and deploy communications systems, sales, service, and training while consolidating and optimizing the end user experience. In 2006 Terra relocated its company headquarters to a 25,000 square foot facility in Tulsa, Oklahoma. This facility provides Terra the space to continue growth and the ability to manage operations throughout the nation. Terra Telecom worked with the United Nations delivering Alcatel voice products to several countries and the Texas Dept. of Transportation, which will bring opportunities to the Company’s SATCO and M3 units and other current or future planned ITS/DOT related activities. Terra’s various ITS/DOT opportunities in place with Alcatel products. Terra employed approximately 50. The acquisition of Terra ultimately failed due to lack of a completed funding which was to be concluded on or about February 24th, 2011. The funding that was in process for its initial order was stopped due to the actions of IRS seizure of escrow deposit funds in transit from the former Principals of Terra to the deposit account of the lender which was the requirements for the initial funding to begin. Because the funding did not begin, Terra was not able to maintain its dealership guarantees for product delivery which were pulled from clients’ orders.
Further regarding Terra, the Company from the time of execution of the Agreement did not have or assume control of the Terra entity’s assets, including bank accounts, nor did it establish or have effective or permanent management control of the entity. Since the economic downturn lenders have become intensely difficult to satisfy which in many cases can jeopardize transaction completions, due the time loss of substantial and excessive due diligence processes, including backing out of signed closing processes.
Overall due to economic factors we entered extreme financial turbulence in the latter half to end of Q4 2010 for our new business strategy. Some of these economic factors included our subsidiary operations for SATCO being on hold numerous times (unable to complete or take on new sales) with the inability to make some or all product deliveries and installations (jobs), not being able to pay suppliers for order deliveries, and other obstacles including some suppliers backing down on agreements negotiated with negotiated terms being met by SATCO. These issues over time eventually generated an unstable environment for both South Atlantic Traffic Corporation and all entities or pending acquisitions or activities related to Intelligent Traffic Systems (ITS) / Department of Transportation (DOT) Industry serving federal DOT and state/local DOT agencies, and telecommunications industries for deployment of communications systems, sales, and/or service. The Company management and advisors reached the conclusion in late February 2011, that it was unlikely that SATCO or Terra would be able to continue operations and on March 14, 2011 sold its interests in both entities to Distressed Asset Acquisitions, Inc. We believe that if the financing established for Terra would have closed, it would have improved the cash flow status of the Company that could also have also directly and indirectly assisted our SATCO unit to rebuild and quickly re-structure and solve many of its problems and renewed growth potential. As delays were incurred time and time again from potential lenders and financial entities, realizing the potential of SATCO became less and less of a possibility. For more information please see our Current Report on Form 8-K filed on March 18, 2011.
In an effort to establish an alternative energy division, in February 2011, the Company entered into an Agreement to acquire all 100% of Arctic Solar Engineering LLC, a Missouri limited liability company located at PO Box 4391, Chesterfield, MO 63006 (the “Company”), and the owners of Membership Interests of the Arctic Solar Engineering LLC and its member interests as an integrator of Solar Thermal Energy technology. Solar Thermal Energy (“STE”) is believed to be the most efficient and economical method of capturing and using renewable thermal energy created by the sun every day of the year. The solar collectors that are used capture all visible and non-visible wave lengths of sun light and covert the light into energy at 90% efficiency. Energy created by ASE’s STE Systems store that energy in water (or other similarly inexpensive storage mediums) and then use that energy in its direct form to heat water, heat space and cool spaces. According to the US Department of Energy, this accounts for 70% of all energy used in commercial and residential structures in the United States. Through 2012 a deal Arctic Solar Engineering LLC had pursued with W2 Energy, Inc. failed to consummate in a 50-50 joint venture, and since has been inactive throughout the year. We are evaluating remaining potentials or any future for this division with a view to complete the review by end of second quarter 2013.
In September 2010 the Company entered into a term sheet and subsequently later in March of 2011, entered into a Series D Stock Purchase Agreement (“SPA”) with Dutchess Private Equities Fund, Ltd. (“Investors”) pursuant to which the Investors and its wholly-owned subsidiary Ginzoil, Inc, (GZI) agreed to sell to the Company’s wholly owned subsidiary unit Energy Producers, Inc. (“EPI”) a majority 75% Working Interest and 56.25% corresponding Net Revenue Interest in the North 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field and oil and gas interests, including all related assets, fixtures, equipment, three well heads, three well bores, and pro rata oil & gas revenue and reserves for all depths below the surface to 8,500 ft. The field is located in the Permian Basin and the Crawar Field in Ward County, Texas (12 miles west of Monahans & 30 miles west of Odessa in West Texas). Included in the transaction, EPI will also acquire 75% Working Interest and 56.25% corresponding Net Revenue Interest in the Highland Production Company No. 2 well-bore located in the South 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field, oil and gas interests, pro rata oil & gas revenues and reserves with depth of ownership 4700 ft. to 4900 ft. For further discussion see the Section on “Recent Developments”, “The Business”, and elsewhere in this document.
On July 31, 2012, the Company entered into and completed the closing of a Stock Purchase Agreement involving the sale of oil and gas interests to Mondial Ventures, Inc., assignee of CUBO Energy PLC. The interests sold were in our J.B. Tubb Leasehold Estate along and included our entering into a Participation Agreement (Turnkey Drilling, Re Entry, and Multiple Wells) granting certain rights in and to interests for additional development on the J.B. Tubb Leasehold Estate. For further information please see our Current Report on Form 8-K filed on August 3, 2012 and elsewhere in this report in the section on the Business.
On October 30, 2012, the Company through our wholly owned subsidiary Energy Producers, Inc. (“EGPI”) and Mondial Ventures, Inc. as the assignee of CUBO Energy PLC entered into a Linear Short Form Agreement involving the development and acquisition of oil and gas interests subject to certain requirements. The interests relating to 50% working interests and corresponding 32% net revenue interests in oil and gas leases representing the aggregate total of 240 acre leases, reserves, three wells, and equipment located in Callahan, Stephens, and Shackelford Counties, West Central Texas. For further information see the section on the “Business” listed in this Report.
The Company is again pursuing to a lesser extent oil and gas programs on an international basis.
The Company has been making presentations to asset-based lenders and other financial institutions for the purpose of (i) expanding and supporting our growth potential by i) to a lesser extent rebuilding for the time being, the development of its line of business operations similar to it former activities related to ITS/DOT and telecommunications industries, and (ii) building new infrastructure for its oil and gas operations in 2013. The Company throughout its first quarter of operations for 2011 has been pursuing projects for acquisition and development of select targeted oil and gas proved producing properties with revenues, having upside potential and prospects for enhancement, rehabilitation, and future development. These prospects are primarily located in Eastern Texas, and in other core areas of the Permian Basin.
The Company’s goal is to rebuild our revenue base and cash flow; however, the Company makes no guarantees and can provide no assurances that it will be successful in these endeavors.
One of the ways our plans for growth could be altered if current opportunities now available become unavailable:
The Company would need to identify, locate, or address replacing current potential acquisitions or strategic alliances with new prospects or initiate other existing available projects that may have been planned for later stages of growth and the Company may therefore not be ready to activate. This process can place a strain on the Company. New acquisitions, business opportunities, and alliances, take time for review, analysis, inspections and negotiations. The time taken in the review activities is an unknown factor, including the business structuring of the project and related specific due diligence factors.
General
The Company historically derived its revenues primarily from retail sales of oil and gas field inventory equipment, service, and supply items primarily in the southern Arkansas area, and from acquired interests owned in revenue producing oil wells, leases, and equipment located in Olney, Young County, Texas. The Company disposed of these two segments of operations in 2003. The Company acquired a marine vessel sales brokerage and charter business, International Yacht Sales Group, Ltd. of Great Britain in December 2003 later disposing of its operations in late 2005. The Company focused on oil and gas activities for development of interests held that were acquired in Wyoming (the Ten Mile Draw (TMD) prospect) and two programs in Texas, (the Fant Ranch unit, and J.B. Tubb Leasehold Estate) for the production of oil and natural gas through October 30 and December 2, 2008 the dates of disposal respectively. In 2009 we disposed of our wholly owned subsidiary Firecreek Petroleum, Inc. (see further information in this report and in our current Report on Form 8-K filed May 20, 2009, incorporated herein by reference). We account for or have accounted for these segments as discontinued operations in the consolidated statements of operations for the related fiscal year. The Company is continuing to evaluate and clean up non productive segments and infrastructure as delineated below. Through 2011 and 2012 have refocused on building its oil and gas operations domestically, and in 2013 plans will include to a lesser extent pursuing potential internationally based oil and gas programs.
Sale/Assignment of 100% Stock of FPI Subsidiary
Having disposed of all of the assets of FPI, on May 18, 2009, the Company and Firecreek Global, Inc., entered into a Stock Acquisition Agreement effective the 18th day of May, 2009, relating to the Assignee’s acquisition of all of the issued and outstanding shares of the capital stock of Firecreek Petroleum, Inc., a Delaware corporation. Moreover, included and inherent in the Assignment was all of the Company’s debt held in the FPI subsidiary. In addition, the Company, and Assignee executed a right of first refusal agreement attached as Exhibit to the Agreement, granting to the Company the right of first refusal, for a period of two (2) years after Closing, to participate in certain overseas projects in which Assignee may have or obtain rights related to Assignors’ previous activities in certain areas of the world. For further information please see our current Report on Form 8-K filed on May 20, 2009, incorporated herein by reference.
2009 Merger Acquisition with M3 Lighting, Inc.
On May 21, 2009, EGPI Firecreek, Inc., a Nevada corporation (the “Company” or “Registrant”), Asian Ventures Corp., a Nevada corporation (the “Subsidiary”), M3 Lighting, Inc., a Nevada corporation (“M3”), and Strategic Partners Consulting, L.L.C., a Georgia limited liability company (“Strategic Partners”) executed and closed a Plan and Agreement of Triangular Merger (the “Plan of Merger”), whereby M3 merged into the Subsidiary, a wholly-owned subsidiary of the registrant (the “Merger”). M3 was unsuccessful in its strategy to acquire a series of businesses in this industry and during the year ended December 31, 2011 was inactive. Further Further information can be found along with copy of the Plan of Merger attached as an exhibit to our Current Report on Form 8-K, filed with the Commission on May 27, 2009, as amended. Amendment No. 1 and No. 2 to the May 27, 2009 current Report on Form 8-K were filed on June 24 and August 4, 2009, respectively, and additional information can be found in our Form 10-K annual report filed on April 15, 2010, and incorporated herein by reference.
Completion of South Atlantic Traffic Corporation (SATCO) Acquisition
Effective as of November 4, 2009, the Company acquired all of the issued and outstanding capital stock of South Atlantic Traffic Corporation, a Florida corporation (“SATCO”). In the course of this acquisition, SATCO stockholders exchanged all outstanding common shares for cash consideration, the Company’s common shares and sellers’ notes. SATCO has been in business since 2001 and has several offices throughout the Southeast United States. Please see further discussion and information listed in “The Business”, “Description of Properties”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere in this document.
Completion of Acquisition of 50% Oil and Gas Working Interests, Callahan, Stephens, and Shakelford Counties, Texas, Three Well Program
Effective December 31, 2009, the Company through its wholly owned subsidiary Energy Producers, Inc. closed an Acquisition Agreement including an Assignment of Interests in Oil and Gas Leases (the “Assignment”), with Whitt Oil & Gas, Inc., (“Whitt”) a Texas corporation acquiring 50% working interests and corresponding 32% net revenue interests in oil and gas leases representing the aggregate total of 240 acre leases, reserves, three wells, and equipment located in Callahan, Stephens, and Shakelford Counties, West Central Texas. Please see further discussion and information listed in “The Business” and “Description of Properties” and the “Overview” to the Management Discussion and Analysis sections of this report.
Completion of Redquartz LTD Acquisition
On March 3, 2010, the Company acquired Redquartz LTD, a company formed and existing under the laws of the country of Ireland. Redquartz LTD has been in business for 45 years, is known internationally and is our entrance into the European markets with respect to Intelligent Traffic Systems (ITS) and the transportation industry as well as expanding our relationship recently established with Cordil, Inc. for the products sold by South Atlantic Traffic Corporation (SATCO), a wholly owned subsidiary of the Company. Subsequent to the acquisition of Redquartz, LTD, the Company’s Intelligent Traffic Systems related business has ceased and its SATCO subsidiary has been sold. Redquartz is inactive and does not generate any revenue for the Company. For further information please see our Current Report on Form 8-K filed on March 11, 2010, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
Completion of Chanwest Resources, Inc. Acquisition
On June 11, 2010, the Company acquired all of the issued and outstanding stock of Chanwest Resources, Inc., (“Chanwest or CWR”) a Texas corporation. Chanwest Resources, Inc. was formed in 2009 and has been engaged in ramping up operations including acquiring assets related to the servicing, construction, production and development for oil and gas. For further information please see our Current Report on Form 8-K filed on June 16, 2010, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
Completion and Entry into a Definitive Agreement with Terra Telecom, LLC.
On October 1, 2010, EGPI Firecreek, Inc. (“Purchaser”) executed a Securities Purchase / Exchange Agreement (“SPA”) with the owners (“Sellers”) of Terra Telecom, LLC, an Oklahoma limited liability company, located at 4510 South 86th East Ave, Tulsa, Oklahoma, 74145 ( “Terra”) to acquire all of the outstanding stock of Terra, and 100% of the total LLC membership units existing thereof. All assets and liabilities of Terra, other than information listed in the SPA are considered to be transferred to the Purchaser. The acquisition of Terra is not reflected in the accompanying financial statements of the Company due to the fact that the Company did not obtain control of the assets and liabilities of Terra or have operational control of the Terra leading up until the subsequent disposition on March 14, 2011. As a result of these facts and the fact that the business was subsequently shut down and entered bankruptcy, no earn-out is owed by the Company. For more information on Terra, please see our Current Report on Form 8-K, Form 8-K/A (amendment no. 1), and Form 8-K/A (amendment no. 2) filed on October 7, 2010, December 7, 2010, and March 22, 2011, respectively, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
Completion and Entry into a Definitive Agreement with Arctic Solar Engineering, LLC.
On February 4, 2011, the Company entered into an Agreement to acquire all 100% of Arctic Solar Engineering LLC, a Missouri limited liability company located at PO Box 4391, Chesterfield, MO 63006 (the “Company”), and the owners of Membership Interests of the Arctic Solar Engineering LLC; The FATM Partnership, a Missouri Partnership, The Frederic Sussman Living Trust. Arctic Solar Engineering, LLC, is an integrator of Solar Thermal Energy technology. For further information please see our Current Report on Form 8-K filed on February 10, 2011, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
Completion and Entry into a Definitive Agreement with with Dutchess Private Equities Fund, Ltd..
On March 1, 2011, the Company entered into a Series D Stock Purchase Agreement (“SPA”) with Dutchess Private Equities Fund, Ltd. (“Investors”) pursuant to which the Investors and its wholly-owned subsidiary Ginzoil, Inc, (GZI) agreed to sell to the Company’s wholly owned subsidiary unit Energy Producers, Inc. (“EPI”), a majority 75% Working Interest and 56.25% corresponding Net Revenue Interest in the North 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field and oil and gas interests, including all related assets, fixtures, equipment. For further information please see our Current Report on Form 8-K filed on March 7, 2011, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
Completion and Entry into a Definitive Agreement with Mondial Ventures, Inc. for Sale of Oil and Gas Interests and Rights in J.B. Tubb Leasehold Estate, Ward and Jones County Texas
On July 31, 2012, the Company through our wholly owned subsidiary Energy Producers, Inc. (“EGPI”) and Mondial Ventures, Inc. as the assignee of CUBO Energy PLC entered into and completed the closing of an Assignment and Bill of Sale and Stock Purchase Agreement (“SPA”). The interests sold were oil and gas interests in the J.B. Tubb Leasehold Estate located outside of Odessa Texas in Ward and Jones County. The Agreement included our entering into a Participation Agreement (Turnkey Drilling, Re Entry, and Multiple Wells) granting certain rights in and to interests for additional development on the J.B. Tubb Leasehold Estate. The Company presently owns 37.5% working interest ("WI"), 28.125% net revenue interest ("NRI") in the oil and gas interests, and pro rata oil & gas revenue and reserves for all depths below the surface to at least 8500 ft. including all related assets, fixtures, equipment, three well heads and three well bores. The field is located in the Permian Basin and the Crawar Field, directly adjacent to property operated by Chevron Corporation in Ward County, Texas (12 miles southeast of Monahans and 30 miles west of Odessa in West Texas). For further information see the section on the “Business” and “Description of Properties” listed in this Report.
Completion and Entry into a Definative Short Form Agreement with Mondal Ventures, Inc. for Evaluation and Potential Acquisition of 50% Oil and Gas Working Interests, Callahan, Stephens, and Shakelford Counties, Texas
On October 30, 2012, the Company through our wholly owned subsidiary Energy Producers, Inc. (“EGPI”) and Mondial Ventures, Inc. as the assignee of CUBO Energy PLC entered into a Linear Short Form Agreement involving the development and acquisition of oil and gas interests subject to certain requirements. The interests relating to 50% working interests and corresponding 32% net revenue interests in oil and gas leases representing the aggregate total of 240 acre leases, reserves, three wells, and equipment located in Callahan, Stephens, and Shackelford Counties, West Central Texas. For further information see the section on the “Business” listed in this Report.
The Company expects to incur an increase in operating expenses during the next year from commencing activities related to its plans for the Company’s oil and gas business through EPI, oil and gas services business through CWR, alternative energy business division through Arctic Solar Engineering, LLC, and including any new or pending acquisitions discussed herein, and those business activities and developments whether ongoing or to be concluded, as related to our M3, SATCO, and Terra strategy and operations, and ongoing potential acquisitions, including new or pending acquisitions related to signalization and lighting geared to the transportation industry. The amount of net losses and the time required for the Company to reach and maintain profitability are uncertain at this time. There is a likelihood that the Company will encounter difficulties and delays encountered with business subsidiary operations, including, but not limited to uncertainty as to development and the time and timing required for the Company’s plans to be fully implemented, governmental regulatory responses to the Company’s plans, fluctuating markets and corresponding spikes, or dips in our products demand, currency exchange rates between countries, acquisition and development pricing, related costs, expenses, offsets, increases, and adjustments. There can be no assurance that the Company will ever generate significant revenues or achieve profitability at all or on any substantial basis.
RESULTS OF OPERATIONS - December 31, 2012 Compared to December 31, 2011
Total revenues from oil and gas production were $161,016 in fiscal year 2012, of which $36,858 was attributed to discontinued operations. Total revenues from continuing operations were $124,157 in fiscal year 2012. The revenue in fiscal year 2011 pertained to oil and gas production activities of $246,350 and sales and installation of solar electricity generating equipment of $47,367. The revenue decrease pertaining to oil and gas production pertains to the sale of a half interest in the Tubb property.
General administrative expenses used in calculating income from continuing operations were $2,555,097 in 2012 compared to $2,136,451 in 2011. The Company has treated the General and Administrative expenses of the sold Tubb lease interest as a discontinued component and included these expenses in the loss from discontinued operations.
Following is a breakdown of general and administrative costs for this period versus a year ago:
Detail of general & administrative expenses:
Advertising and Promotion costs of $11,929 were used for investor relations and market awareness.
Administration Costs of $39,717 were used for office and general operating expenses .
Consulting Fees of $434,356 were incurred for consulting and advisory fees for business management activities.
Professional Fees of $1,179,156,were incurred in regards to legal costs, audit costs, securing financing, and the acquisition of leads and contacts with regard to possible new business ventures and includes data acquisition costs, technical work, and engineering reports.
Travel costs used $207 for business trips.
After deducting general and administrative expense, and interest expenses, the Company experienced a loss from continuing operations of $5,430,135 in 2012 as compared to a loss from continuing operations of $4,374,398 in fiscal 2011.
Interest expense for fiscal year 2012 was $1,339,698 compared to$1,302,257 in fiscal year 2011. Losses from the discontinued oil leases were included in the loss from discontinued operations of $655,077 in fiscal year 2012. The financial results of SATCO are included in the loss from discontinued operations of $602,885 in fiscal year 2011.
The Company incurred a net loss of $6,085,212 in fiscal year 2012 compared to net loss of $4,977,283, in fiscal year 2011.
Fully diluted income (loss) per share was ($0.00) loss per share in fiscal year 2012 compared to loss of ($0.29) per share in fiscal 2011.
LIQUIDITY AND CAPITAL RESOURCES
Cash on hand at December 31, 2012 was $401 compared to $2,696 at the beginning of the year. The Company had working capital deficit of $6,827,673 at December 31, 2012 compared to a working capital deficit of $5,604,396 at December 31, 2011.
Cash used by operating activities was $373,468 for the year ended December 31, 2012, compared with $627,760 used for the year ended December 31, 2011.
The Company received new loans in fiscal year 2012 of $1,064,664 compared to $844,021 in fiscal year 2011 by issuing promissory notes.
Total assets decreased to $1,333,508 at December 31, 2012 compared to $2,704,748 at the beginning of the year mainly as a result of the disposal of half of the Tubb oil and gas leases.
Shareholders’ equity decreased to a deficit of $7,362,078 at December 31, 2012 from $4,678,508 at December 31, 2011.
Finally, we recorded a net loss during 2012 of $6,085,212 compared with a net loss during 2011 of $4,977,283.
The Company must generally undertake certain ongoing expenditures in connection with rebuilding, expanding and developing its oil and gas business and related acquisition activity and its business acquisition activities, and for various past and present legal, accounting, consulting, and technical review, and to perform due diligence for the acquisition and development programs for both lines of business; furthering research for new and ongoing business prospects, and in pursuing capital financing for its existing available rights and proposed operations.
For financing activities in 2012, management obtained $1,064,664 by issuing Promissory Notes. Proceeds were used for acquisitions and working capital.
Management has estimated that cost for initially paying down certain of the Company’s recent debt, providing necessary working capital, and activating development of its current plans for domestic oil and gas segment operations, alternative energy division, acquisition and development, and its rebuilding proposed for Telecom, ITS / DOT business operations and activities, acquisition and developments, will initially require a minimum of $3,500,000 to $7,500,000 to a maximum of $8,000,000 to $10 million during the first six to twelve months of fiscal 2013.
Financing our full expansion and development plans for our oil and gas operations could require up to $50,000,000 or more. The Company may elect to reduce or increase its requirement as circumstances dictate. We may elect to revise these plans and requirements for funds depending on factors including; changes in acquisition and development estimates; interim corporate and project finance requirements; unexpected timing of markets as to cyclical aspects as a whole; currency and exchange rates; project availability with respect to interest and timing factors indicated from parties representing potential sources of capital; structure and status of our strategic alliances, potential joint venture partners, and or our targeted acquisitions and or interests.
The Company cannot predict that it will be successful in obtaining funding for its plans or that it will achieve profitability in fiscal 2013.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EGPI FIRECREEK, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND DECEMBER 31, 2011
F - 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of EGPI Firecreek, Inc.
We have audited the accompanying consolidated balance sheets of EGPI Firecreek, Inc. (the “Company”) as of December 31, 2012 and December 31, 2011 and the related consolidated statements of operations, changes in shareholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of EGPI Firecreek, Inc. (the “Company”) as of December 31, 2012 and 2011, and the results of its operations, cash flows, and changes in shareholders’ deficit for the years then ended described above in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
May 9, 2013
F - 2
EGPI Firecreek, Inc.
Consolidated Balance Sheets
As of December 31, 2012 and December 31, 2011
See the notes to the consolidated financial statements
F - 3
EGPI Firecreek, Inc.
Consolidated Balance Sheets
As of December 31, 2012 and December 31, 2011
See the notes to the consolidated financial statements.
F - 4
EGPI Firecreek, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2012 and December 31, 2011
See the notes to the consolidated financial statements.
F - 5
EGPI Firecreek, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2012 and December 31, 2011
F - 6
EGPI Firecreek, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2012 and December 31, 2011
Continued
See the notes to the consolidated financial statements.
F - 7
EGPI Firecreek, Inc.
Consolidated Statement of Changes in Shareholders’ Deficit
For the period from December 31, 2010 to December 31, 2012
See the notes to the consolidated financial statements.
F - 8
EGPI Firecreek, Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and December 31, 2010
1.
Organization of the Company and Significant Accounting Principles
The Company was incorporated in the State of Nevada in October 1995. Effective October 13, 2004 the Company, previously known as Energy Producers Inc., changed its name to EGPI Firecreek, Inc.
Prior to December 2008, the Company held interests in various gas & oil wells located in the Wyoming and Texas area. In December 2008, the Company’s major creditor, Dutchess Private Equities Ltd. (Dutchess), foreclosed on the assets of the Company. As a result, all of the Company’s oil and gas properties were transferred to Dutchess in satisfaction of debt owed.
In October 2008, the Company effected a 1 share for 200 shares reverse split of its common stock and all amounts have been retroactively adjusted.
In May 2009 the Company acquired M3 Lighting, Inc. (“M3”) as a wholly owned subsidiary via reverse triangular merger. The Company was determined to be the acquirer in the transaction for accounting purposes. M3 is a distributor of commercial and decorative lighting to the trade and direct to retailers. As part of the Merger the Company effected a name change for its wholly owned subsidiary Malibu Holding, Inc. to Energy Producers, Inc. (“EPI”) as a conduit for its oil and gas activities.
In November 2009 the Company acquired all of the issued and outstanding capital stock of South Atlantic Traffic Corporation, a Florida corporation (“SATCO”). SATCO has been in business since 2001 and has several offices throughout the Southeast United States. SATCO carries a variety of products and inventory geared primarily towards the transportation industry. SATCO offers transportation products ranging from loop sealant, traffic signal equipment, traffic and light poles, data/video systems and Intelligent Traffic Systems (ITS) surveillance systems. SATCO works closely with Department of Transportation (DOT) agencies, local traffic engineers, contractors, and consultants to customize high quality traffic control systems.
In December 2009, the Company’s wholly owned subsidiary Energy Producers, Inc. acquired 50% working interests and corresponding 32% net revenue interests in oil and gas leases, reserves, and equipment located in West Central Texas. The Company entered into a turnkey work program included for three wells located on the leases.
On March 3, 2010, the Company executed a Stock Purchase Agreement with the stockholders of Redquartz LTD (“Sellers” or “RQTZ”), a company formed and existing under the laws of the country of Ireland, whereas the Company agreed to issue 100,000 shares of its restricted common stock valued at USD $2,500 in exchange for 100% of the issued and outstanding shares of common stock, par value $0.01 per share, of RQTZ. All assets and liabilities, other than the Shareholder Notes Payable, of the RQTZ were transferred to the prior owners of Redquartz. The Notes Payable represent a debt burden to RQTZ of USD $4,464,262. This obligation is based in Euros and converted to our functional currency the dollar. Redquartz LTD was inactive in the first and second quarter of 2010 and had no income and expense that would affect the financial statements of the Company and therefore no pro-forma is necessary.
On June 11, 2010, the Company acquired all of the issued and outstanding stock of Chanwest Resources, Inc., (“Chanwest or CWR”) a Texas corporation. In the course of this acquisition, Chanwest stockholders exchanged all outstanding common shares for the Company’s common shares and other provisions. Chanwest Resources, Inc. was formed in 2009 and has been engaged in ramping up operations including acquiring assets related to the servicing and construction, and activities related to the acquisition, production and development for oil and gas. Chanwest has formed strategic alliances and brought key management with over 40 years experience in all facets of the oil and gas industry, to be implemented on day one of our acquisition thereof. Chanwests’ first phase of operations include Construction and Trucking, services for drill site preparation to clear and lay pipeline (gathering systems) for operators. Chanwest operations can provide for services to maintain lease roads, set power poles and clean up oilfield spills. Chanwest works with operators or lease owners by purchase order or contract with major oil fields.
On October 1, 2010 EGPI Firecreek, Inc. the Company entered into a Definitive Securities Purchase/Exchange Agreement with Terra Telecom, LLC. (“Terra"). Terra is considered recognized as a leading provider of state-of-the-art communication technologies and a premier Alcatel-Lucent partner. They currently serve various sized companies and organizations that use and deploy communications systems, sales, service, and training while consolidating and optimizing the end user experience. Its goal is to provide customers value and integrity in each of these opportunities. Since 1980, Terra has focused on delivering enterprise solutions while leading with voice services and offering full turn-key solutions that consist of voice, data, video and associated applications. As of December 31, 2010, the Company has not assumed control of this acquisition. As a result, this company is not consolidated in the financial statements as of December 31, 2010.
On October 18, 2010, the Company filed a Certificate of Amendment to its Articles of Incorporation, increasing its authorized common stock, par value $0.001 per share, to 3,000,000,000 from 1,300,000,000 and is authorized to issue 60,000,000 shares of preferred stock that has a par value of $0.001 per share.
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On November 9, 2010, the Company affected a 1 share for 50 shares reverse split of its common stock and all amounts have been retroactively adjusted for all periods presented.
On February 4, 2011, the Company entered into an Agreement to acquire all 100% of Arctic Solar Engineering LLC, a Missouri limited liability company located at PO Box 4391, Chesterfield, MO 63006 and the owners of Membership Interests of the Arctic Solar Engineering LLC; The FATM Partnership, a Missouri Partnership, The Frederic Sussman Living Trust. Arctic Solar Engineering, LLC, is an integrator of Solar Thermal Energy technology. For further information please see our Current Report on Form 8-K filed on February 10, 2011, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
On March 2, 2011, the Company obtained a consent from the majority shareholders of the Company to amend the Articles of Incorporation to i) authorize the issuance of 2,500 shares of a new D Series Preferred Stock to acquire an interest in an oil and gas lease from Dutchess Private Equities Fund, Ltd., and ii) for the Board of Directors to be able to authorize any and all capitalization of the Company going forward without the need for shareholder approval, and further authorized for the Board of Directors to set all rights, preferences, and designations, for and in behalf of any class of the Company’s common or preferred stock, and as may be required or as necessary in the best interest of the Company.
On March 14, 2011, the Company entered into and completed the closing of a Stock Purchase Agreement involving the sale of South Atlantic Traffic Corporation to Distressed Asset Acquisitions, Inc. For further information please see our Current Report on Form 8-K filed on March 18, 2011 and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
On March 14, 2011, the Company entered into and completed the closing of a Stock Purchase Agreement involving the sale of Oklahoma Telecom Holdings, Inc. an Oklahoma corporation, formerly known as Terra Telecom, LLC., an Oklahoma limited liability company and Terra Telecom, Inc. (“TTI”), to Distressed Asset Acquisitions, Inc. For further information please see our Current Report on Form 8-K filed on March 18, 2011 and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
On July 7, 2011, the Company filed a Certificate of Amendment to its Articles of Incorporation, increasing its authorized common stock, par value $0.001 per share, to 5,000,000,000 from 3,000,000 and is authorized to issue 60,000,000 shares of preferred stock that has a par value of $0.001 per share.
On July 7, 2011, the Company affected a 1 share for 500 shares reverse split of its common stock and all amounts have been retroactively adjusted for all periods presented.
Consolidation- the accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company balances have been eliminated.
Use of Estimates- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make reasonable estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses at the date of the consolidated financial statements and for the period they include. Actual results may differ from these estimates.
Revenue and Cost Recognition-
Ø Oil and gas: Revenue is recognized from oil and gas sales at such time as the oil and gas is delivered to the buyer. Settlement on sales occurs anywhere from two weeks to two months after the delivery date. The Company recognizes revenue when an arrangement exists, the product has been delivered, the sales price is fixed or determinable, and collectability is reasonably assured.
Ø Oilfield services: Revenue from services is recognized when an arrangement exists, the services are rendered, the sales price is fixed or determinable, and collectability is reasonably assured.
Ø Product sales/installation: Revenue from product sales or installation pertaining to solar panels and equipment are recognized with an arrangement exists, the product is delivered or installed, the sales price is fixed or determinable, and collectability is reasonably assured.
Cash Equivalents-The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents. There were no cash equivalents as of December 31, 2012 and 2011.
Accounts Receivable-The Company extends credit to its customers in the normal course of business and performs ongoing credit evaluations of its customers, maintaining allowances for potential credit losses which, when realized, have been within management's expectations. The allowance method is used to account for uncollectible amounts. The evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. Allowance for doubtful accounts was $118,473 at December 31, 2011 . There were no outstanding receivables at December 31, 2012.
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Inventory-Inventories consist of merchandise purchased for resale and are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Inventories were acquired with the acquisition of Arctic Solar Engineering, LLC and were sold during the period.
Prepaid Expenses-Prepaid expenses are recorded at cost for payments for goods and services purchased during an accounting period but not used or consumed during that accounting period. The costs are amortized over time as the benefit is received.
Oil and Gas Activities -The Company uses the successful efforts method of accounting for oil and gas producing activities. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs, are expensed. Development costs, including the costs to drill and equip development wells, and successful exploratory drilling costs to locate proved reserves are capitalized.
Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. A determination of whether a well has found proved reserves is made shortly after drilling is completed. The determination is based on a process which relies on interpretations of available geologic, geophysic, and engineering data. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made. If an exploratory well requires a major capital expenditure before production can begin, the cost of drilling the exploratory well will continue to be carried as an asset pending determination of whether proved reserves have been found only as long as: i) the well has found a sufficient quantity of reserves to justify its completion as a producing well if the required capital expenditure is made and ii) drilling of the additional exploratory wells is under way or firmly planned for the near future. If drilling in the area is not under way or firmly planned, or if the well has not found a commercially producible quantity of reserves, the exploratory well is assumed to be impaired, and its costs are charged to expense.
In the absence of a determination as to whether the reserves that have been found can be classified as proved, the costs of drilling such an exploratory well is not carried as an asset for more than one year following completion of drilling. If, after that year has passed, a determination that proved reserves exist cannot be made, the well is assumed to be impaired, and its costs are charged to expense. Its costs can, however, continue to be capitalized if a sufficient quantity of reserves is discovered in the well to justify its completion as a producing well and sufficient progress is made in assessing the reserves and the well’s economic and operating feasibility.
The impairment of unamortized capital costs is measured at a lease level and is reduced to fair value if it is determined that the sum of expected future net cash flows is less than the net book value. The Company determines if impairment has occurred through either adverse changes or as a result of the annual review of all fields. During 2012 after conducting an impairment analysis, the Company recorded impairment of $204,476 as the PV 10 value of our reserves exceeded our cost. The company also impaired development costs incurred during the year of $322,689 that did not result in bringing additional reserves into production.
Asset Retirement Obligations (“ARO”- The estimated costs of restoration and removal of facilities are accrued. The fair value of a liability for an asset's retirement obligation is recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depreciated with the related long-lived asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. For all periods presented, estimated future costs of abandonment and dismantlement are included in the full cost amortization base and are amortized as a component of depletion expense. At December 31, 2012 and 2011, the ARO of $11,789 and $21,861 is included in liabilities and fixed assets.
Development costs of proved oil and gas properties, including estimated dismantlement, restoration and abandonment costs and acquisition costs, are depreciated and depleted on a field basis by the units-of-production method using proved developed and proved reserves, respectively. The costs of unproved oil and gas properties are generally combined and impaired over a period that is based on the average holding period for such properties and the Company's experience of successful drilling.
Costs of retired, sold or abandoned properties that make up a part of an amortization base (partial field) are charged to accumulated depreciation, depletion and amortization if the units-of-production rate is not significantly affected. Accordingly, a gain or loss, if any, is recognized only when a group of proved properties (entire field) that make up the amortization base has been retired, abandoned or sold.
Stock-Based Compensation- The Company estimates the fair value of share-based payment awards made to employees and directors, including stock options, restricted stock and employee stock purchases related to employee stock purchase plans, on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense ratably over the requisite service periods. We estimate the fair value of each share-based award using the Black-Sholes option pricing model. The Black-Sholes model is highly complex and dependent on key estimates by management. The estimates with the greatest degree of subjective judgment are the estimated lives of the stock-based awards and the estimated volatility of our stock price. The Black-Sholes model is also used for our valuation of warrants.
Earnings Per Common Share-Basic earnings per common share is calculated based upon the weighted average number of common shares outstanding for the period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and dilutive common share equivalents (convertible notes and interest on the notes, stock awards and stock options) outstanding during the period. Dilutive earnings per common share reflects the potential dilution that could occur if options to purchase common stock were exercised for shares of common stock. Basic and diluted EPS are the same as the effect of our potential common stock equivalents would be anti-dilutive.
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Derivative Financial Instruments -The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. The Company utilizes various types of financing to fund our business needs, including convertible debts with conversion features and other instruments not indexed to our stock. The convertible notes include fluctuating conversion rates as well as conversion price reset provisions. The Company uses a lattice model for valuation of the derivative. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and then re-valued at each reporting date, with changes in the fair value reported in income in accordance with ASC 815. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net cash settlement of the derivative instrument could be required within the 12 months of the balance sheet date.
Fair Value Measurements - On January 1, 2008, the Company adopted guidance which defines fair value, establishes a framework for using fair value to measure financial assets and liabilities on a recurring basis, and expands disclosures about fair value measurements. Beginning on January 1, 2009, the Company also applied the guidance to non-financial assets and liabilities measured at fair value on a non-recurring basis, which includes goodwill and intangible assets. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
Level 1 - Valuation is based upon unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2 -Valuation is based upon quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable in the market.
Level 3 - Valuation is based on models where significant inputs are not observable. The unobservable inputs reflect the Company's own assumptions about the inputs that market participants would use.
The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2011 on a recurring and non-recurring basis:
The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2012 on a recurring and non-recurring basis:
The Company had goodwill and intangible assets as a result of the 2009 business combinations discussed throughout this form 10-K. These assets were valued with the assistance of a valuation consultant and consisted of level 3 valuation techniques.
The Company has derivative liabilities as a result of 2011 convertible promissory notes that include embedded derivatives. These liabilities were valued with the assistance of a valuation consultant and consisted of level 3 valuation techniques.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and long-term debt. The estimated fair value of cash, accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments. The carrying value of long-term debt also approximates fair value since their terms are similar to those in the lending market for comparable loans with comparable risks. None of these instruments are held for trading purposes.
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Fixed Assets- Fixed assets are stated at cost. Depreciation expense is computed using the straight-line method over the estimated useful life of the asset. The following is a summary of the estimated useful lives used in computing depreciation expense:
Expenditures for major repairs and renewals that extend the useful life of the asset are capitalized. Minor repair expenditures are charged to expense as incurred.
Impairment of Long-Lived Assets-The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment ("ASC 360-10"). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires that those assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
Goodwill and Other Intangible Assets - The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The Company’s evaluation of goodwill and intangible assets completed during the year ended December 31, 2011 pertaining to Arctic Solar Engineering, LLC resulted in an impairment of goodwill of $22,119 and an impairment of intangibles of $309,816. As of December 31, 2012, there was no goodwill or intangible asset balances to assess or impairment.
As of December 31, 2011 the Company’s, amortizable intangible assets consist of trade names, customer contracts, patents and Non-compete clause. These intangibles were being amortized on a straight-line basis over their estimated useful lives of 3-5 years. For the years ending December 31, 2011and 2012 the Company recorded amortization of our intangibles of $88,569 and $0, respectively. Note 15 includes the balances of all intangibles as of December 31, 2011 and 2012. The useful lives pertaining to the intangible assets amortized are as follows:
Intangibles acquired in acquisition of Arctic Solar Engineering, Inc.
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Intangibles disposed of pertaining to SATCO
Foreign Currency Translation and Transaction and translation - The financial position at present for the Company’s foreign subsidiary Redquartz LLC, established under the laws of the Country of Ireland are determined using (U.S. dollars) reporting currency as the functional currency. All exchange gains and losses from remeasurement of monetary assets and liabilities that are not denominated in U.S. dollars are recognized currently in other comprehensive income. All transactional gains and losses are part of income or loss from operations (if and when incurred) will be pursuant to current accounting literature. The Company’s functional currency is the U.S dollar. We have an obligation related to our acquisition of Red Quartz as discussed in Note 7 which is denominated in Euro’s. The change in currency valuation from our reporting this obligation in U.S dollars is reported as a component of other comprehensive income consistent with the relevant accounting literature.
Income taxes- The Company accounts for income taxes using the asset and liability method, which requires the establishment of deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent deferred tax assets may not be recoverable after consideration of the future reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income.
The Company uses a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance requires the Company to recognize tax benefits only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in our tax returns that do not meet these recognition and measurement standards.
Recent accounting pronouncements - In May 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This update clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This update is effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011, which for the Company is January 1, 2012.
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles - Goodwill and Other” (ASU 2011-08). ASU 2011-08 allows a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the two-step impairment test would be performed. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and early adoption is permitted.
2. Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying consolidated financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company has experienced substantial losses, maintains a negative working capital and capital deficits, which raise substantial doubt about the Company's ability to continue as a going concern.
The Company is working to manage its current liabilities while it continues to make changes in operations to improve its cash flow and liquidity position. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon the Company’s ability to generate revenue from the sale of its services and the cooperation of the Company’s note holders to assist with obtaining working capital to meet operating costs in addition to our ability to raise funds.
3. Common Stock Transactions and Reverse Stock Split
During the year ended December 31, 2012, the Company issued 6,524,735 shares of common stock for services that were expensed and valued at $913,012 based upon the closing price of the Company’s common stock at the date of grant.
During the year ended December 31, 2012, the holder converted 6 shares of Preferred D stock by issuing 16,250,000 shares of common stock. The conversion was executed outside of the terms of the convertible preferred stock and a loss of $1,131 resulted.
During the year ended December 31, 2012, the Company granted 12,402,302,372 shares in common stock to extinguish debt of $652,089 resulting in a loss on extinguishment of debt of $1,185,683 based upon the closing price of the Company’s common stock at the grant date less the carrying value of the debt that was exchanged. Only a portion of the total shares were issued during the year. The remaining shares that remain unissued are recorded in common stock subscribed as of December 31, 2012.
During the year ended December 31, 2012, the Company recorded an additional amount of $501,090 to additional paid in capital related to the fair market value of the conversion of debts that were included in the derivative liability on the conversion date. The Company also recorded $89,578 in imputed interest as an increase to additional paid in capital related to loans that did not carry a market rate of interest or were non-interest bearing.
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During the year ended December 31, 2011, the Company issued 2,181,259 shares of common stock for services that were expensed in the current year in the amount of $30,251. The value of the shares expensed in the prior year reduced the amount of common stock subscribed by $10,656 in the current period. All shares issued were valued based upon the closing price of the Company’s common stock at the date of grant.
During the year ended December 31, 2011, the Company granted $3,022,076 in common stock to extinguish debt of $1,640,063 resulting in a loss on extinguishment of debt of $1,382,440 based upon the closing price of the Company’s common stock at the grant date less the carrying value of the debt that was exchanged. Only a portion of the total shares were issued during the year. 96,050,259 common shares were issued during the year ended December 31, 2011. The remaining common shares to be issued have a fair value of $46,770 and are recorded in common stock subscribed as of December 31, 2011.
During the year ended December 31, 2011, the Company granted 12,000 shares of common stock as payment to acquire Arctic Solar Engineering, LLC. The fair value of these shares was recorded based on the closing price of the Company’s common stock on the date of closing, resulting in a value of $49,800. During the year ended December 31, 2011, these shares were issued.
During the year ended December 31, 2011, the Company issued 2,443 shares of common stock valued at $23,052. A portion of these shares, 1,200, was granted in the prior period and recorded in common stock subscribed in the amount of $18,000. The remaining portion was granted in the year ended December 31, 2011. The stock was valued based upon the closing price of the Company’s common stock at the grant date.
During the year ended December 31, 2011, the holder converted 10 shares of its series D preferred stock by issuing 1,298,701 common shares. The conversion was executed outside of the terms of the convertible preferred stock and a gain of $14,242 resulted.
During the year ended December 31, 2011, the Company recorded an additional amount of $603,401 to additional paid in capital related to the fair market value of the conversion of debts that were included in the derivative liability on the conversion date. The Company also recorded $49,149 in imputed interest as an increase to additional paid in capital related to loans that did not carry a market rate of interest or were non-interest bearing.
On July 7, 2011 the Company affected a 1 share for 500 shares reverse split of its common stock and all amounts have been retroactively adjusted for all periods presented.
4. Preferred Stock Series A, B, C and D Transactions
Series A preferred stock: Series A preferred stock has a par value of $0.001 per share and no stated dividend preference. The Series A is convertible into common stock at a conversion ratio of one preferred share for one common share. Preferred A has liquidation preference over Preferred B stock and common stock.
Series B preferred stock: Series B preferred stock has a par value of $0.001 per share and no stated dividend preference. The Series B is convertible into common stock at a conversion ratio of one preferred share for one common share. The Series B has liquidation preference over Preferred C stock and common stock.
Series C preferred stock: The Preferred C stock has a stated value of $.001 and no stated dividend rate and is non-participatory. The Series C has liquidation preference over common stock. Effective May 20, 2009 i) Voting Rights for each share of Series C Preferred Stock shall have 21,200 votes on the election of directors of the Company and for all other purposes, and, ii) regarding Conversion to Common Shares, Series C have no right to convert to common or any other series of authorized shares of the Company.
During the year ended December 31, 2010, the Company issued 9,286 shares of its Series C preferred stock to consultants for services rendered. The value assigned to this issuance is $162,000 based on an estimate of the fair market value on the issuance date. The holders of Series C preferred stock represent a controlling voting interest in the Company. As a result, a determination of the control premium was determined to estimate the value of the shares. The control premium is based on publicly traded companies or comparable entities which have been recently acquired in arm’s length transactions. The Company performed the valuation with the assistance of a valuations expert.
During the year ended December 31, 2011, 72,856 shares of Series C preferred stock were issued for services rendered. The preferred stock was valued at $75,000 based on an estimate of fair market value on the date of grant. The holders of Series C preferred stock represent a controlling voting interest in the Company. As a result, a determination of the control premium was determined to estimate the value of the shares. The control premium is based on publicly traded companies or comparable entities which have been recently acquired in arm’s length transactions. The Company performed the valuation with the assistance of a valuations expert.
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Series D preferred stock: Effective March 2, 2011 EGPI Firecreek, Inc. (the “Company”) obtained consent from the majority shareholders of the Company to amend the Articles of Incorporation to i) authorize the issuance of 2,500 shares of a new D Series Preferred Stock. There are 2.5 million Series D preferred stock authorized for issuance, par value $.001, and each share of Series D Preferred Stock is convertible into common shares, where such number of shares shall be equal to the greater of the number calculated by dividing the Purchase Commitment per share ($1,000) by 1) $0.003 per share, or 2) one hundred and ten percent (110%) of the lowest VWAP for the three (3) days immediately preceding a Conversion Date. The 2,500 shares authorized have been issued to purchase an interest in a producing oil and gas property. The preferred stock was valued at fair value by calculating the face value of the preferred stock, $2,500,000, subtracting a discount due to lack of marketability of 24.5%, yielding $1,887,500 value of the preferred stock and adding the value of the embedded derivative of $279,796. The derivative was valued based on the use of a multinomial lattice model with the following assumptions: annual volatility at 238%, 20% of default at maturity, and the holder would convert at 1.5 times the conversion price decreasing as it approaches maturity. The preferred shares include anti-dilution protection if any future issuances occur for a lower price. The total fair value of these preferred shares was computed to be $2,167,306, including the derivative liability. A portion of this value, $279,796, was bifurcated at the grant date and included in the derivative value. This portion pertains to the anti-dilution protection and is marked to market each period as a component of the derivative value.
The Company classified the series D preferred stock in temporary equity. This classification is due to the fact that the shares are redeemable at the option of the holder, the Company is permitted to settle the redemption amount in cash or by delivery of a variable number of its common shares with an equivalent value, and there is no limit on the number of shares that could potentially be issuable under this agreement.
During the year ended December 31, 2012, the Company converted 6 shares of its series D preferred stock by issuing 16,250,000 common shares. The conversion was executed outside of the terms of the convertible preferred stock and a loss of $1,131 resulted.
5. Fixed Assets
The following is a detailed list of fixed assets:
During the year ended December 31, 2012, the Company disposed of $56,662 in well equipment as part of the sale of partial interests in oil and gas leases.
During the year ended December 31, 2011, the Company acquired $113,325 in well equipment as part of the acquisition of the Tubb oil and gas interest. See notes 6 and 9 for additional details of this acquisition.
Depreciation expense was $97,894 and $ 98,615 for the year ended December 31, 2012 and 2011, respectively.
6.
Oil and Gas
Oil and gas related activity for the years ended December 31, 2012 and 2011 is as follows:
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On March 1, 2011, the Company acquired a 75% working interest and 56.25% net revenue interest in oil and gas reserves of $2,053,981 by issuing 2,500 shares of its series D preferred stock. This interest is in the J.B. Tubb Leasehold Estate/Amoco Crawar field located in the Permian Basin in Ward County, Texas (“Tubb property”). See note 9 for additional details of this acquisition. During the year ended December 31, 2012, the Company impaired the Tubb oil and gas reserves in the amount of $211,891 and impaired the capitalized development costs incurred by $322,689. During the year ended December 31, 2011, the Company impaired the oil and gas reserves in the amount of $163,500 pertaining to its Whitt property that was originally acquired in 2009.
Depletion expense was $248,697 and $112,293 for the years ended December 31, 2012 and 2011, respectively.
The company paid $565,420 and $165,162 in development costs during the year ended December 31, 2012 and 2011 to bring additional reserves into production. An impairment of $322,689 pertaining to these development costs were impaired due to the fact that the development costs for that project did not bring new reserves into production.
On July 31, 2012, the Company completed a Purchase Agreement whereby EGPI Firecreek, Inc., through its wholly owned subsidiary, Energy Producers, Inc, would sell one half (50%) of it’s holdings in the Tubb oil and gas leases. The loss on disposal is $595,684 and is recognized in the financial statements on the sale date. The sale was completed with Mondial Ventures, Inc. a related party. The company received 14,000,000 shares of Mondial common stock and Mondial assumed $450,000 of debt. The cost of the assets sold totaled $1,051,950 and included oil and gas reserves and related well equipment.
7. Options & Warrants Outstanding
All options and warrants granted are recorded at fair value using a Black-Scholes model at the date of the grant for those warrants issued during the year ended December 31, 2009. There is no formal stock option plan for employees. The warrants issued during the years ended December 31, 2011 and 2010 were included in the fair value calculation of the derivative liability. This is due to the fact that an embedded derivative existed during this fiscal year that tainted the equity environment, causing all dilutive securities to be included in the derivative liability.
A listing of options and warrants outstanding at September 30, 2010 is as follows. Option and warrants outstanding and their attendant exercise prices have been adjusted for the 1 for 50 reverse split and the 1 for 500 reverse split of the common stock discussed in Note 1.
During the year ended December 31, 2011, an additional 8,617 warrants were issued to consultants. During this period, the warrants granted to the consultants were cancelled by the consultants. The warrants expire two and one half (2.5) years from the date of vesting. The total number of warrants cancelled totaled 9,676. During the year, the value of these warrants approximated $3,000. The remaining value of the 240 warrants are included in the derivative liability at December 31, 2011.
During the year ended December 31, 2012, all outstanding warrants were cancelled by consultants or expired. There were no warrants outstanding at December 31, 2012.
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8.
Acquisition of Artic Solar Engineering LLC and Chanwest Resources, Inc. (CWR)
For the year ended December 31, 2011
i)
On February 4, 2011, the Company entered into a stock exchange and purchase agreement between Arctic Solar Engineering, LLC, FATM Partnership, and Fredrick Sussman Living Trust, (the “Sellers”) and EGPI Firecreek, Inc. (the “Purchaser”). The Sellers exchanged 100 % of their ownership interests in the three (3) selling entities for 12,000 shares of our restricted common stock. In addition, the Purchase Agreement contains an “Earn-out Provision “ which requires cash and/or stock payments based on financial performance over a period of 36 months. In each twelve (12) month period, the Sellers are entitled to 50% of the Company’s audited net income after taxes; payable in 50% cash and 50% restricted common stock, ten (10) days after the filing of the annual audited report. This stock Earn-out consideration will be valued at 90% of the last trade price on the filing date for the calendar year of operations. There was no net income for any prior periods and no projected net income for future periods subject to the Earn-Out. This resulted in no accrual being recorded for the Earn-Out at December 31, 2011 and 2012.
The Agreement calls for the following material terms:
In addition to the Purchase Price, the Sellers shall, for a period of thirty-six (36) months following the Closing Date (the "EARN-OUT TERM"), be entitled to receive payment in the form of cash and additional shares of Restricted Common Stock (the “Earn-out Provision” or “Earn-out”) based upon the financial performance of the Company set forth below:
(a)
The Earn-out Provision will be based on the audited Net Income After Tax of the Company.
(b)
For each twelve month period during the Earn-out Term, the Sellers will be entitled to Fifty Percent (“50%”) of the Company’s Net Income After Tax payable half in Cash (the “Cash Earn-out Consideration”) and half in Restricted Common Stock of the Purchaser (the “Stock Earn-out Consideration”) Ten (“10”) Days after the filing date of the Purchaser’s audited annual report.
A breakdown of the purchase price for Arctic Solar Engineering, Inc. is as follows:
Pro Forma Information
The following summary presents unaudited pro forma consolidated results of operations as if the Arctic Solar Engineering, LLC acquisition described above had occurred on January 1, 2011. The unaudited pro forma consolidated results of operations combines the historical results of operations of the Company and Arctic Solar Engineering, LLC for the year ended December 31, 2011, and gives effect to certain adjustments, as noted in the section titled Supplemental Pro Forma Information.
The unaudited pro forma condensed results of operations has been prepared for comparative purposes only and does not purport to be indicative of the actual operating results that would have been recorded had the acquisitions actually taken place on January 1, 2011, and should not be taken as indicative of future consolidated operating results.
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9. Acquisition of interest in oil and gas property
I. Acquisition of 75% Oil and Gas Working Interests in the J.B. Tubb Leasehold Estate/Amoco Crawar Field, Ward County, Texas
On March 1, 2011 the Company, through its wholly owned subsidiary Energy Producers, Inc. (“EPI”), acquired all assets of Ginzoil Inc., (“GZI”) a wholly owned subsidiary of Dutchess Private Equities Fund, Ltd., (Investors”) as described in the preliminary Assignment and Bill of Sale and summarily as follows: Under the terms of the agreement, which shall be effective March 1, 2011, EPI acquired a majority 75% Working Interest and 56.25% corresponding Net Revenue Interest in the North 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field and oil and gas interests, including all related assets, fixtures, equipment, three well heads, three well bores, and pro rata oil & gas revenue and reserves for all depths below the surface to 8500 ft. The field is located in the Permian Basin and the Crawar Field in Ward County, Texas (12 miles west of Monahans & 30 miles west of Odessa in West Texas). Included in the transaction, EPI will also acquire 75% Working Interest and 56.25% corresponding Net Revenue Interest in the Highland Production Company No. 2 well-bore located in the South 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field, oil and gas interests, pro rata oil & gas revenues and reserves with depth of ownership 4700 ft. to 4900 ft. As consideration for the transaction the Company agreed to authorize and issue and sell to Investors 2,500 shares of a new, to be authorized, Series D preferred stock to Investors for one thousand dollars ($1,000) per share, or a total in the aggregate stated value of two million five hundred thousand ($2,500,000) dollars. The acquired leases and the property to which they relate are identified below:
North 40 acres: J.B. TUBB “18-1”, being the W1/2 of the NW1/4 of Section 18, Block B-20, Public School Lands, Ward County, Texas, containing Forty (North 40) acres only (also listed as Exhibit “A” to Exhibit 10.1 in our Current Report on Form 8-K filed on March 7, 2011, incorporated herein by reference.
Well-bore located on South 40 acres: The Highland Production Company (Crawar) #2 well-bore, API No. 42-475-33611, located on the J.B. Tubb Lease in W ½ of the NW ¼ of Sec. 18, Block B-20, Public School Lands, Ward County, Texas at 1787 FNL and 853 FWL being on the South Forty (40) acres of the J. B. Tubb Lease, Ward County, Texas.
The following wells are located on the leases identified, above:
Pursuant to the SPA each share of Series D Preferred Stock shall be convertible, at the sole option of the Investor or holder thereof, into share(s) of the Corporation’s Common Stock (“Conversion Shares”). The Conversion Formula at the time of any noticed and converted shall mean that the number of Conversion Shares (common stock) to be received by the holder of Series D Preferred Stock in exchange for each share of Series D Preferred Stock that such holder intends to convert pursuant to this provision, where such number of Conversion Shares shall be equal to the greater of the number calculated by dividing the Purchase Commitment per share ($1000) by i) .003 per share, ii) one hundred and ten percent (110%) of the lowest VWAP for the three (3) days immediately preceding a Conversion Date. The Company has agreed to keep a sufficient number of its common shares on hand for future conversions as listed in Section 1 of the SPA. The preferred stock was valued at fair value based on the use of a multinomial lattice model with computed the following assumptions: annual volatility at 238%, 20% of default at maturity, and the holder would convert at 1.5 times the conversion price decreasing as it approaches maturity. The total fair value of these preferred shares was computed to be $2,167,306.
Listing for the Equipment items related to the wells on the leases on the J.B. Tubb Leasehold Estate (RRC #33611) Amoco/ Crawar field are as follows:
The following is the current & present equipment list that Energy Producers Inc. will acquire 75% ownership rights, on the J.B. Tubb property: 2 (Two) 500 barrels metal tanks, 1(One) 500 barrel cement salt water tank- (open top), 1 (One) heater treater/oil & gas separator, all flow lines, on the north forty acres, well-heads, 2 (two) Christmas tree valve systems on well-heads, 3 (Three) well heads, three wells (well-bores). Model 320D Pumpjack Serial No. E98371M/456604, One (1) Fiberglass lined heater-treater, One (1) Test pot, Tubing string Rods and down hole pump.
*Success Oil Co., Inc. of California, and Texas Operator, visually inspected the equipment on the J.B. Tubb property RRC #33611 for the 75% Working Interests held by Energy Producers, Inc., wholly owned subsidiary of EGPI Firecreek, Inc. Based on Success Oil Co.’s determination of market value we determined the following allocations of the $2,500,000 purchase price paid based on our corresponding 75% working interests held by Energy Producers, Inc.
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Allocation of Purchase Price for J.B. Tubb Leasehold Estate Working and Corresponding Net Revenue Interests, Amoco/Crawar Field, Ward County, Texas.
10. Note Receivable
On March 14, 2011, the company received a promissory note from the sale of its interest in Terra to a third party. The Company entered into and completed the closing of a Stock Purchase Agreement involving the sale of Oklahoma Telecom Holdings, Inc. an Oklahoma corporation, formerly known as Terra Telecom, LLC., an Oklahoma limited liability company and Terra Telecom, Inc. (“TTI”), to Distressed Asset Acquisitions, Inc. The value of this promissory note is $50,000 and is due 1 year from the date of issuance, along with accrued interest at the rate of 9%. The note includes an optional provision to extend for one additional twelve month period. An allowance for doubtful accounts of $50,000 has been recorded for this receivable.
On March 14, 2011, the company received a promissory note from the sale of a subsidiary, SATCO, to a third party. The Company entered into and completed a definitive Stock Purchase Agreement whereby EGPI Firecreek, Inc. would sell 100% of the common shares of SATCO to Distressed Asset Acquisitions, Inc. The value of this promissory note is $50,000 and is due 1 year from the date of issuance, along with accrued interest at the rate of 9%. The note includes an optional provision to extend for one additional twelve month period. An allowance for doubtful accounts of $50,000 has been recorded for this receivable.
11. Income Tax Provision
Deferred income tax assets and liabilities consist of the following at December 31, 2011 and 2010:
The Company estimates that it has an NOL carry forward of approximately $10,642,428 that begins to expire in 2027.
After evaluating any potential tax consequence from our former subsidiary and our own potential tax uncertainties, the Company has determined that there are no material uncertain tax positions that have a greater than 50% likelihood of reversal if the Company were to be audited. The Company believes that it is current with all payroll and other statutory taxes. Our tax return for the years ended December 31, 2004 to December 31, 2012 may be subject to IRS audit.
12. Related Party Transactions
Through May 31, 2012 the Secretary of EGPI Firecreek, Inc provided office space for the Company’s Scottsdale office free of charge. June 1, 2009 Energy Producers, Inc, a 100% owned subsidiary of the Company entered into a month to month lease for the same office space at a rate of $1,400 per month. There remains an unpaid balance of $11,125 at December 31, 2012.
In addition Energy Producers Inc. also has an Administrative Service Agreement with Melvena Alexander, CPA , which is 100% owned by Melvena Alexander, officer and shareholder of the Company, to provide services to the Company. The agreement is an open-ended, annually renewable contract for payments of $4,600 per month. The contract is currently in force with a balance due of $33,270 at December 31, 2012.
The Company had a Service Agreement with Global Media Network USA, Inc. a company 100% owned By Dennis Alexander, to provide the services of Dennis Alexander to the Company. The contract terminated May 31, 2009 and there is an outstanding balance of $0 at December 31, 2012.
The above referenced contract was superseded by a month-to-month contract between Energy Producers, Inc., a 100% owned subsidiary of the Company, and Dennis Alexander, an officer and director of the Company, at a monthly payment of $15,000. There was a balance due on this contract of $200,050 at December 31, 2012.
The Company had a Service Agreement with Tirion Group, Inc., which was owned by Rupert C. Johnson, a former director of the Company. The contract was terminated in 2007 and Mr. Johnson severed his connection to the Company in 2008. However, there is unpaid balance of $43,000 remaining at December 31, 2012.
During 2010, Robert Miller, a director of the Company, made unsecured, non-interest bearing advances to M3 Lighting, Inc. a 100% owned subsidiary of the Company, for working capital of $ 1,500 which remains unpaid at December 31, 2012.
Chanwest Resources, Inc, a 100% owned subsidiary of the Company billed Petrolind Drilling, Inc a company in which David Taylor, a director and share holder of the Company, has a substantial interest. The invoice of $9,635 was still outstanding at December 31, 2011 and a full valuation allowance was recorded for this receivable.
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Willoil Consulting, LLC also gave unsecured non-interest bearing advances to Chanwest Resources, Inc. of $20,826. Willoil Consulting LLC. is a company in which David Taylor is a managing member with 80% control. The funds have not been repaid as of December 31, 2012.
Relative to the May 21, 2009 acquisition of M3 Lighting, Inc. the Company approved an Administrative Services Agreement (ASA), and amended terms thereof, with Strategic Partners Consulting, LLC (SPC).Two of the Company’s officers, directors and shareholders, David H. Ray, Director and Executive Vice President and Treasurer of the Company since May 21, 2009 and Brandon D. Ray Director and Executive Vice President of Finance of the Company, are also owners and managers of SPC. Information is listed in Exhibit 10.1 to a Current Report on form 8-K, Amendment No. 1, filed on June 23, 3009. The ASA initiated on November 4, 2009, in accordance with its terms thereof, and was billed at the rate of $20,833.33 per month. The ASA contract was canceled June 8, 2010. During the twelve months ending December 31, 2012, the Company paid $ 4,750 to SPC, with a balance payable due in the amount of approximately $46,208.
Effective May 9, 2011 the Company entered into a Promissory Note with a company controlled by a director of the Company in the amount of $210,000, and amended December 9, 2011 to $315,625. The terms of the note are for 14% interest, with principal and interest all due on or before May 9, 2013. The loan is collateralized with the oil and gas leases held in our subsidiary Energy Producers, Inc. Additional funds were obtained and on July 1, 2012 the note was amended and restated to $997,551 at 18% interest.
The Company’s subsidiary Arctic Solar Engineers issued promissory notes to various individuals for working capital, all maturing in 2020 at an interest rate of 2%. Additional interest expense was imputed on these loans due to the fact that the interest rate was below market. Of these loans, $5,000 was owed to the former CEO of Arctic Solar Engineering, LLC, who is currently a director of the Company.
During the year ended December 31, 2012, the Company borrowed funds from Mondial Ventures, Inc. and repaid a portion of the amount due, leaving a remaining balance of $14,000 at December 31, 2012.
On July 31, 2012, the Company completed a Purchase Agreement whereby EGPI Firecreek, Inc., through its wholly owned subsidiary, Energy Producers, Inc, would sell one half (50%) of it’s holdings in the Tubb oil and gas leases. The loss on disposal is $595,684 and is recognized in the financial statements on the sale date. The sale was completed with Mondial Ventures, Inc. a related party. The company received 14,000,000 shares of Mondial common stock and Mondial assumed $450,000 of debt. The cost of the assets sold totaled $1,051,950 and included oil and gas reserves and related well equipment.
13. Notes Payable
At December 31, 2012, the Company was liable on the following Promissory notes:
(See notes below to the accompanying table)
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* Compounded
Notes:
Other than as described at Notes 1, 6, 7, 8, 9, 17, 18, 19, and 22 none of the other notes had conversion options.
Note 1: On January 15, 2010, the Company issued an $86,000 Convertible Promissory Note (“Convertible Note”) and a registration rights agreement (“RRA”) to an investor for making a $1,000,000 cash loan. The Convertible Note has no specified interest rate and was scheduled to mature six months from the closing date. At the investor’s option, the outstanding principal amount, including all accrued and unpaid interest and fees, may be converted into shares of common stock at the conversion price, which is 75% of the lower of (a) $0.08 per share; or (b) the lowest three-day common stock volume weighted average price during the prior twenty business days. In addition, if the Company sells common shares or securities convertible into common shares, the Conversion Price shall become the lower of: (a) the conversion price in effect immediately prior to the sale of securities; or (b) the conversion price of the securities sold.
The RRA provides both mandatory and piggyback registration rights. The Company was obligated to (a) file a registration statement for 40,000 common shares (subject to adjustment) no later than 14 days after the closing date, and (b) have it declared effective no later than the earlier of (i) five days after the SEC notifies the Company that it may be declared effective or (ii) 90 days from the closing date. The Company was obligated to pay the investor a penalty of $100 for each day that it is late in meeting these obligations. The Company’s registration statement was filed late and on March 18, 2010 it was withdrawn.
Upon occurrence of an Event of Default (various specified events), the Lender may (a) declare the unpaid principal balance and all accrued and unpaid interest thereon immediately due and payable; (b) at anytime after January 31, 2010, immediately draw on the LOC to satisfy EGPI’s obligations; and (c) interest will accrue at the rate of 18%.
Upon occurrence of a Trigger event: (a) the outstanding principal amount will increase by 25%; and (b) interest will accrue at the rate of 18%. The Trigger Event effects shall not be applied more than two times. There are various Trigger Events, including (a) the five-day common stock VWAP declines below $0.04; (b) the ten-day average daily trading volume declines below $5,000; (c) a judgment against EGPI in excess of $100,000; (d) failure to file a registration statement on time; (e) failure to cause a registration statement to become effective on time; (f) events of default; and (g) insufficient authorized common shares.
During the first quarter of 2010, the Company tripped two trigger events and incurred resulting penalties and incremental debt obligation. These events increased the outstanding principal amount of the Convertible Note by approximately $22,000 and $27,000 of trigger penalties.
It was determined that the Convertible Note’s conversion option, plus other existing equity instruments (warrants outstanding; see Notes 2 and 7 below) of the Company, were required to be (re)classified as derivative liabilities as of January 15, 2010, because (a) the Convertible Note provides conversion price protection; and (b) the quantity of shares issuable pursuant to the conversion option is indeterminate. The conversion option and the related instruments were initially valued at $63,080 (expected term of 0.5 years; risk-free rate of 0.15%; and volatility of 95%) and this amount was recorded as a note discount and derivative liability. The derivative liabilities were then marked to the market to an aggregate value of $16,158 (expected term of 0.3 years; risk-free rate of 0.16%; and volatility of 95%) at December 31, 2010.
On May 12, 2010, the parties to the Convertible Note executed a Waiver of Trigger Event, which stipulated: (1) the principal outstanding on the Convertible Note was fixed at $147,500 as of May 12, 2010; (2) the remaining impact of the trigger events and failure to register the shares was waived; (3) the interest rate was reset at 9%; (4) the number of shares issuable under the conversion option was capped at 150 million shares; (5) the repricing provision of the conversion option was eliminated; and (6) the maturity date of the note was revised to August 15, 2010. In addition, if the market price of the Company’s common stock declines such that the conversion option would be capped at the agreed 150 million shares, the repayment date is accelerated and the outstanding balance on the note is immediately due and payable. As a result of the above, the conversion option and related instruments were revalued as of May 12, 2010 and were reclassified to paid-in-capital (equity) in the amount of $50,303 (expected term of 0.3 years; risk-free rate of 0.16%; and volatility of 95%).
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Effective August 3, 2010 the Company entered into a Promissory Note in the amount of $153,046 with an entity that had acquired and then exchanged the Debt described above. The terms of the Promissory Note are for 8% interest, with principal and interest all due on or before August 3, 2012. In July 2011 a judgment was issued for $202,000 to be paid over two years with no interest, except if there is a default, then interest of 18% will accrue. As a result of defaults by the Company under the agreed upon settlement terms, another settlement agreement was entered into on January 31, 2012. This settlement required the payment of monthly amounts of $10,000 by the Company over 18 months and no default interest is owed until the Company defaults on a payment under these newly agreed upon terms. Default interest of 18% will accrue in the event of default.
Note 2: As of December 31, 2011, $393,825 was recorded as a liability under this line of credit. During 2012, the Company settled $172,030 in debt for common stock, yielding a balance of $55,870 at the period end.
Note 3: For the year ended December 31, 2012 the company had a promissory note of $201,500 for which no payments were made during the period. The company also had a promissory note of $138,750 for which no payments were made during the period and included $13,300 in accrued interest added to the principal value of the note.
Note 4: During 2012 we received cash proceeds for the aggregate amount of $153,225, which is payable in principal and interest with rates 18%. This was in addition to $44,179 balance that was oustanding at December 31, 2011 with the same note holder.
Note 5: On July 26, 2010, we issued a $165,000 secured convertible promissory note that is convertible at the election of the holder any time after issuance, or upon an Event of Default, or when due in 24 months on July 26, 2012. While the notes have become due and are not repaid in full, there was no Event of Default as of December 31, 2012, or thereafter. The Company evaluated the note on the date of issuance and determined that the shares issuable pursuant to the conversion option were indeterminate and therefore this conversion option and all other dilutive securities would be classified as a derivative liability as of July 26, 2010. This note also contains conversion price reset provisions which also factor into the derivative value. The July 26, 2010 value of the conversion option of $165,000 was recorded as a note discount, to be amortized over the life of the note, and derivative liability. For the year ended December 31, 2012, the debt discount was fully amortized with $106,988 being recognized during the period.
Note 6: On August 10, 2010, we issued a $35,000 convertible promissory note that is convertible at the election of the holder any time after issuance, or upon an Event of Default, or when due in 24 months on August 10, 2012. The Company evaluated the note on the date of issuance and determined that, because the shares issuable pursuant to the convertible note are indeterminate, the conversion option associated with this note is deemed to be a derivative liability. This note also contains conversion price reset provisions which also factor into the derivative value. The August 10, 2010 value of the note of $35,000 was recorded as a note discount, to be amortized over the life of the note, and derivative liability. The note was in default during the year ended December 31, 2012 and the company settled with the note holder to pay $42,708. For the year ended December 30, 2012, the Company recognized note discount amortization of $25,996. The discount is amortized using the effective interest method.
Note 7: On August 8, 2011, we issued a $15,000 convertible promissory note that is convertible at the election of the holder any time after issuance, or upon an Event of Default, or when due in 9 months on May 8, 2012. The Company evaluated the note and determined that, because the shares issuable pursuant to the convertible note are indeterminate, the conversion option associated with this note is deemed to be a derivative liability. This note also contains conversion price reset provisions which also factor into the derivative value. The August 8, 2011 value of the note of $15,000 was recorded as a note discount, to be amortized over the life of the note, and derivative liability. For the year ended December 31, 2012, the Company recognized note discount amortization of $15,000. The discount is amortized using the effective interest method. The note was fully converted into common stock during the year ended December 31, 2012.
Note 8: On August 31, 2011, we issued a $25,000 convertible promissory note that is convertible at the election of the holder any time after issuance, or upon an Event of Default, or when due in 9 months on May 31, 2012. The Company evaluated the note and determined that, because the shares issuable pursuant to the convertible note are indeterminate, the conversion option associated with this note is deemed to be a derivative liability. This note also contains conversion price reset provisions which also factor into the derivative value. The August 31, 2011 value of the note of $25,000 was recorded as a note discount, to be amortized over the life of the note, and derivative liability. For the year ended December 31, 2012, the Company recognized note discount amortization of $25,000. The discount is amortized using the effective interest method. On November 15, 2011, the Company issued an additional $25,000 convertible promissory note with the same terms and conditions, with a due date of August 17, 2012. The Company recognized note discount amortization of $25,000 in 2012. The notes are past due, but the Company has not been placed in default as of the date of this filing.
Note 9: On March 1, 2010 and monthly thereafter, we issued non-interest bearing, convertible notes for services, renewable annually until paid through conversions. The total debt owing under these agreements is $482,500 to two firms for services provided. These notes can be converted at 50% of the closing price of the stock on the day preceding the conversion date. The Company evaluated the note and determined that, because the shares issuable pursuant to the July 26, 2010 convertible note are indeterminate, the conversion option associated with this note is deemed to be a derivative liability. During the year ended December 31, 2011, $90,000 of these notes were settled by the issuance of common stock.
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Note 10: For the period ended December 31, 2012 we have additional balance on debt obligations owed totaling $801,135, related to the acquisition of a subsidiary in March 2010. A total of $55,125 of this debt was settled by the issuance of stock during the year ended December 31, 2012.
Note 11: Promissory notes totaling $295,173, which were issued in conjunction with the acquisition of SATCO. An additional legal settlement for $176,000 was also incurred as a result of the SATCO acquisition.
Note 12: Accounts Payable of $141,581 due to Contegra Construction by Energy Ventures One, Inc, a Company subsidiary was converted to a Note Payable in March 2011. The amount remaining to be paid on this promissory note was $133,247 at December 31, 2012. Energy Ventures One also has a Line of Credit with Masters Equipment, Inc. with a balance due of $100,000 at December 31, 2012.
Note 13: The Company’s subsidiary Arctic Solar Engineering, LLC issued promissory notes to various individuals for working capital, all maturing in 2020 at an interest rate of 2%. Additional interest expense was imputed on these loans due to the fact that the interest rate was below market.
Note 14: For the year ended December 31, 2012, we have received cash proceeds for these debt obligations of $52,400 and settled $4,500 with common stock. A total of $124,290 in cash proceeds were recevied in the year ended December 31, 2011.
Note 15: Effective May 9, 2011 the Company entered into a Promissory Note in the amount of $210,000, and amended December 9, 2011 to $315,625. Amended again July 31, 2012 to $997,551. The terms of the note are for 14% interest, with principal and interest all due on or before May 9, 2013. A portion of this loan was assumed by the purchaser of the interest in the Company’s oil and gas leases in the amount of $450,000. The loan is collateralized with the oil and gas leases held in our subsidiary Energy Producers, Inc.
Note 16: Effective June 1, 2011 the Company entered into a Promissory Note in the amount of $39,000. The terms of the note are for 8% interest only, with principal and interest all due on or before December 1, 2011. Effective September 2, 2011, the Company entered into an additional Promissory Note in the amount $20,500 with same terms due on or before March 2 2012. Also on September 28, 2011, the Company entered into an additional Promissory Note in the amount of $8,000, same terms, due on or before March 28, 2012. A fourth Promissory Note of $17,500 entered into on October 24, 2011 under the same terms, brings the total owed to $85,000 at December 31, 2011. A total of $48,348 of this debt was settled with the Company’s common stock.
Note 17: Effective August 11, 2011, the Company entered into a Convertible Promissory Note in the amount of $10,000. The terms of the note are 12% interest, with principal and interest all due on or before August 11, 2012. October 28, 2011, the Company entered into a Convertible Promissory Note in the amount of $17,000. The terms of the note are 12% interest, with principal and interest all due on or before June 11, 2012. On or after the maturity date, the notes may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 50% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the notes and determined that because the shares issuable pursuant to the August 11, 2011 convertible note are indeterminate, the conversion option associated with this note is deemed a derivative liability. This note also contains conversion price reset provisions which factor into the derivative value. The August 11, 2011 and October 28, 2011 values of the notes of $10,000 and $17,000 were recorded as a note discount, to be amortized over the life of the note, and derivative liability. For the year ended December 31, 2012, the Company recognized note discount amortization of $17,000. The discount is amortized using the effective interest method. During the year ended December 31, 2012, $14,500 was converted into shares of the Company’s common stock.
Note 18: Effective September 12, 2012, the Company entered into a Convertible Promissory Note in the amount of $33,000. The terms of the note are 6% interest, with principal and interest all due on or before June 12, 2013. On or after the maturity date, the note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 70% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the note and determined that the shares issuable are indeterminate, the conversion option associated with this note is deemed a derivative liability. The September 14, 2012 value of the note of $33,000 was recorded as a note discount to be amortized over the life of the note and derivative liability. For the year ended December 31, 2012, the Company recognized note discount amortization of $8,090. The discount is amortized using the effective interest rate.
Note 19: Effective August 12, 2011 the Company entered into a Convertible Promissory Note in the amount of $50,000. The terms of the note are for 10% interest, with principal and interest all due on or before February 12, 2012. On, or after, the maturity date, the note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 50% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the note, and determined that because the shares issuable are indeterminate, the conversion option associated with this note is deemed a derivative liability. The August 12, 2011 value of the note of $50,000 was recorded as a note discount to be amortized over the life of the note, and derivative liability. The balance as of December 31, 2012 is $1,000.
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Note 20: Effective September 12, 2011 the Company entered into a Convertible Promissory Note in the amount of $25,000. The terms of the note are for 8% interest, with principal and interest all due on or before March 12, 2012. On or after the maturity date, the note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 50% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the note and determined that because issuable shares are indeterminate, the conversion option associated with this note is deemed a derivative liability. For the year ended December 31, 2012, the Company recognized note discount amortization of $25,000. The discount is amortized using the effective interest method.
Note 21: Effective September 3, 2011 the Company entered into an Unsecured Promissory Note in the amount of $20,000. The terms of the note are for 8% per annum interest. During the year ended December 31, 2012 , the Company settled $15,870 of the debt leaving a balance of $4,130 at December 31, 2012.
Note 22: Effective October 1, 2011, the Company entered into a Convertible Promissory Note in the amount of $11,250. The terms of the note are for 6% interest with principal and interest due on demand. The note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 50% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the note and determined that because the shares issuable are indeterminate, the conversion option associated with this note is deemed a derivative liability. The October 1, 2011 value of the note of $11,250 was recorded as a note discount to be amortized over the life of the note and derivative liability. For the three months ended December 31, 2011, the Company recognized note discount amortization of $11,250. The discount is amortized using the effective interest method.
Note 23: Effective January 27, 2012, the Company entered into a Promissory Note in the amount of $13,700. The terms of the note are for interest of 12% with principal and interest due on or before July 27, 2012. Effective March 1,2012 the Company entered into an additional Promissory Notse in the amount of $10,000and $19,000 with the same terms, due on or before September 1, 2012. During the year ended December 31, 2012, the Company settled $3,500 of the debt with common stock and repaid $12,500, leaving a balance of $26,950 at December 31, 2012.
Note 24: Effective January 25, 2012, the Company entered into a Convertible Promissory Note in the amount of $50,000. The terms of the note are for interest of 12% with principal and interest due on or before January 25, 2013. The note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 60% discount to the fair market value of the stock at the time of conversion. The Company evaluated the note and determined that because the shares issuable are indeterminate, the conversion option associated with this note is deemed a derivative liability. The January 25,2012 value of the note of $50,000 was recorded as a note discount to be amortized over the life of the note and derivative liability. On March 28, 2012 an additional note for $20,000 was issued bearing the same terms. For the year ended December 31, 2012, the Company recognized note discount of $18,465. The discount is amortized using the effective interest method.
Note 25: Effective July 1, 2012, the Company’s subsidiary, Energy Producers ,Inc. entered into a Promissory Note in the amount of $60,130. The principal is due on or before June 30, 2015 with default interest at 12%. In the year ended December 31,2012, the Company has paid $1,670 leaving a balance of $58,460.
Note 26: Effective July 1, 2012, the Company’s subsidiary Energy Producers, Inc. entered into a Promissory Note in the amount of $242.731. The principal is due on or before June 30, 2015, with default interest at 12%.
Note 27: Effective October 19, 2012, the Company entered into a Promissory Note in the amount of $15,000. The terms of the note are 8% interest , with principal and interest due on or before April,19, 2014.
Note 28: Effective December 18, 2012, the Company entered into a Promissory Note in the amount of $25,000. The terms of the note are 8% interest, with principal and interest due on or before September 19,2013. The promissory note is convertible into common stock of the Company using a conversion rate that is 45% of the average of the lowest three trading prices over the last 20 trading days. The total debt discount pertaining to this promissory note is $12,054. The Company recognized $1,339 in amortization of this discount for the year ended December 31, 2012.
Although a portion of our debt is not due within 12 months, given our working capital deficit and cash positions and our ability to service the debt on a long term basis is questionable, the notes are all effectively in default and treated as current liabilities.
14. Capital Lease Obligation
During the year ended December 31, 2010, the Company entered into a lease for equipment which included the promise to make monthly payments of $5,000 for 12 months with a bargain purchase option at the end of the lease. This lease is accounted for as a capital lease in which the present value of the future payments is recorded as a liability of $56,872. The discount rate is 10%. As of December 31, 2012, there were no payments made on this lease and the entire balance is classified as a current liability.
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15. Derivative Liability
The Company evaluated the conversion feature embedded in the convertible notes to determine if such conversion feature should be bifurcated from its host instrument and accounted for as a freestanding derivative. Due to the note not meeting the definition of a conventional debt instrument because it contained a diluted issuance provision, the convertible notes were accounted for in accordance with ASC 815. According to ASC 815, the derivatives associated with the convertible notes were recognized as a discount to the debt instrument, and the discount is being amortized over the life of the note and any excess of the derivative value over the note payable value is recognized as additional expense at issuance date.
The Company also issued 2,500 series D convertible preferred stock which included reset provisions which are considered derivatives in accordance with ASC 815. The fair market value of these reset provisions were bifurcated and recorded as derivative liabilities.
Further, and in accordance with ASC 815, the embedded derivatives are revalued at each balance sheet date and marked to fair value with the corresponding adjustment as a “gain or loss on change in fair value of derivatives” in the consolidated statement of operations. As of December 31, 2012, the fair value of the embedded derivatives included on the accompanying consolidated balance sheet was $637,685. During the year ended December 31, 2012, the Company recognized a loss on change in fair value of derivative liability totaling $115,325.
Key assumptions used in the valuation of derivative liabilities associated with the convertible notes at December 31, 2012 were as follows:
Ø The stock price would fluctuate with an annual volatility ranging from 264% to 520% based on the historical volatility for the company.
Ø An event of default would occur 5% of the time, increasing 0.10% per quarter to a maximum of 25%.
Ø Alternative financing for the convertible notes would be initially available to redeem the note 0% of the time and increase quarterly by 1% to a maximum of 20%.
Ø The trading volume would average $265,308 to $291,990 and would increase at 1% per quarter.
Ø The holder would automatically convert the notes at a stock price of the greater of the initial exercise price multiplied by two and the market price for the convertible notes if the registration was effective and the company was not in default.
Key assumptions used in the valuation of derivative liabilities associated with the reset provisions of the series D preferred stock at December 31, 2011 were as follows:
Ø The stock price would fluctuate with an annual volatility ranging from 258% to 615% based on the historical volatility for the company.
Ø An event of default that requires the Company to redeem the stock would be 0% increasing 2% per period to a maximum of 20% at maturity.
Ø The Holder would automatically convert at a stock price of $0.0045 if the Company was not in default.
The Company classifies the fair value of these securities under level three of the fair value hierarchy of financial instruments. The fair value of the derivative liability was calculated using a lattice model that values the compound embedded derivatives based on a probability weighted discounted cash flow model. This model is based on future projections of the various potential outcomes. The embedded derivatives that were analyzed and incorporated into the model included the conversion feature with the full ratchet reset, and the redemption options.
The components of the derivative liability on the Company’s balance sheet at December 31, 2012 and 2011 are as follows:
The Company had the following changes in the derivative liability:
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16. Asset Retirement Obligation (ARO)
The ARO is recorded at fair value and accretion expense is recognized as the discounted liability is accreted to its expected settlement value. The fair value of the ARO liability is measured by using expected future cash outflows discounted at the Company’s credit adjusted risk free interest rate.
Amounts incurred to settle plugging and abandonment obligations that are either less than or greater than amounts accrued are recorded as a gain or loss in current operations. Revisions to previous estimates, such as the estimated cost to plug a well or the estimated future economic life of a well, may require adjustments to the ARO and are capitalized as part of the costs of proved oil and natural gas property.
The following table is a reconciliation of the ARO liability for continuing operations for the twelve months ended December 31, 2012 and 2011:
17. Discontinued Operations
On July 31, 2012, the Company completed a Purchase Agreement whereby EGPI Firecreek, Inc., through its wholly owned subsidiary, Energy Producers, Inc, would sell one half (50%) of it’s holdings in the Tubb oil and gas leases . The loss on disposal is $595,684 and is recognized in the financial statements on the sale date.
During the year ended December 31, 2012, the Company entered into a preliminary Agreement to sell 51% of it’s stock in Arctic Solar Engineering, LLC. Negotiations continue on the Agreement. Income on the discontinued portion is $32,567 and is recognized in the financial statements on the Agreement date. This income is primarily due to an insurance reimbursement that is recorded in other income.
On March 14, 2011, the Company entered into and completed a definitive Stock Purchase Agreement whereby EGPI Firecreek, Inc. would sell 100% of the common shares of SATCO to Distressed Asset Acquisitions, Inc.
The consideration being paid by Distressed Asset Acquisitions, Inc. consists of a $50,000 in the form of a promissory note (the “Purchase Price”). The promissory note is to be paid to the Company on or before March 14, 2012 in lawful money of the United States of America and in immediately available funds the principal sum of $50,000, together with interest on the unpaid principal of this Note from the date hereof at the interest rate of Nine Percent (9%). The Note can be extended for one additional twelve month period. The loss on disposal is $586,924 and is recognized in the financial statements on the disposal date.
Please refer to the Form 8-K filed with the SEC on March 18, 2011.
The results of discontinued operations is a net loss of $655,077 and $602,885 for the years ended December 31, 2012 and 2011 .
All assets and liabilities of SATCO are segregated in the balance sheet and appropriately labeled as held for sale in 2011. All assets and liabilities of Arctic Solar are segregated in the balance sheet and appropriately labeled as held for sale in 2012.
18. Professional Service Agreements
On March 1, 2010, the Company entered into two professional service agreements (the “Agreements”) which are intended to be automatically renewable annually. Aggregate fees pursuant to the Agreements are comprised of (a) $20,000 in cash per month which has been accrued through the period ended December 31, 2010; (b) a one-time issuance of 120,000 shares of restricted common stock; and (c) three-year warrants, which vest six months from the grant date, to purchase for $20,000 the lower of (i) shares of common stock representing 1% of the Company’s outstanding common stock; or (ii) shares of common stock representing a fair market value of $150,000. In addition, the vendors are entitled to convert any unpaid cash fees into common stock at a 50% discount to the fair market value of the stock on the date of conversion. On April 1, 2011 the contracts were renewed with aggregate fees of $30,000 per month which have been accrued through the period ended December 31, 2011. In this renewal, the warrants were cancelled no longer exercisable. All amounts accrued as part of the $30,000 monthly accrual are done so pursuant to convertible promissory notes due on demand. They are convertible at a 50% discount to the fair market value of the stock on the date of conversion. On April 1, 2012 the contracts were renewed with aggregate fees of $10,000 per month which have been accrued throught the period ending December 31, 2012. Other terms remain the same.
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19. Concentrations and Risk
Customers
During the year ended December 31, 2012, revenue generated under the top three customers accounted for 100% of the Company’s total revenue. Concentration with a single or a few customers may expose the Company to the risk of substantial losses if a single dominant customer stops conducting business with the Company. Moreover, the Company may be subject to the risks faced by these major customers to the extent that such risks impede such customers’ ability to stay in business and make timely payments.
20. Contingencies
The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the financial condition or results of operations of the Company.
In October 2010 we received notice of a lawsuit filed against the Company by St. George Investments, LLC relating to certain Agreements entered on January 15th, 2010 by EGPI Firecreek Inc. and St. George Investments LLC which include: i) Note Purchase Agreement, ii) Convertible Promissory Note, iii) Judgment by Confession and iv) Registration Rights Agreement. St. George Investments LLC believes that EGPI Firecreek is in breach of terms agreed upon pursuant to the aforementioned agreements and sought damages totaling $262,585 (includes principal, interest and all penalties/fees pursuant to plaintiff's initial disclosures dated 3/28/11). In July 2011, the Company and St. George Investments LLC entered into a settlement agreement where the Company agreed to pay $202,000 on various payment terms beginning with $10,000 on signing of agreement, followed by five payments beginning August through December 2011, and thereafter payments for 18 months in the amount of $6,158. St. George now claims EGPI defaulted on the payment schedule and entered a Confession of Judgment. On September 23, 2011, EGPI Firecreek, Inc. received notice that St. George Investments LLC had filed a second lawsuit arising out of the same claims. The Company is moving to set aside the Confession of Judgment on this basis and is answering and vigorously defending the second lawsuit. As of January 31, 2012, the Company entered into a Settlement Agreement with St. George Investments, LLC whereas among other terms due the Company agreed to two principal options for settlement with summary terms as follows: 1. A settlement payment in the total aggregate amount of $200,000 with $20,000 due January 21, 2012, and $10,000 per month thereafter on the 21st of each month thereafter going forward until paid or 2. A payment balloon of $100,000 paid by April 21, 2012 less $30,000 in payments as credited or $70,000 total upon which the Company or its parties shall have no further obligation to make settlement payments or pay any other amounts to St. George Investments, LLC thereafter. The Company having negotiated settlement payment is current in its payment through October 21, 2012 in accordance with recent modifications to forbearance agreements (for the August payment) having negotiated a stock payment for June and July 2012 and recently for August 2012. The Company did not timely make its August 2012 payment but has been in communication with St. George Investments, LLC as to its current position with both parties now agreed to a current status based on resumption of payments due for August 2012 by resuming payments on May 31, 2013. The entire amount owed is accrued in notes payable in the financial statements.
In November 2010, EGPI Firecreek Inc and South Atlantic Traffic Corp., a former wholly owned subsidiary of the Company, received a lawsuit from two of the former owners of SATCO, Mr. Jesse Joyner and Mr. James Stewart Hall. Mr. Joyner and Mr. Hall have subsequently resigned from their positions with the company. On December 17, 2010, EGPI Firecreek Inc. filed its answer to the claim and filed a counterclaim against Mr. Joyner and Mr. Hall. As of August 2011 and through April 2012, the Company is in settlement negotiations and believes the matter will be resolved for less than the amount currently accrued and included in notes payable and accrued interest, which are the subject of the lawsuit. SATCO was sold to Distressed Asset Acquisitions, Inc. in March 2012. As of July 2012 the case has been settled for $177,000 on scheduled payments over three years. The Company has made seven payments of just under $5,000 each, is current through January 2013 and due for February and March 2013, and has negotiated to bring current on two payments due May 8, 2013.
In December 2010 the Company received a lawsuit notice on behalf of our former Terra Telecom (“Terra”) subsidiary from Source Capital Group Inc (“Source”) seeking a judgment for amounts allegedly owed it from Terra in the total aggregate amount of $81,492 plus pre and post judgment interest. In June 2011, the Company filed a motion to dismiss for lack of personal jurisdiction. Additionally, the Company also filed a motion to dismiss for Sources’ failure to state a claim. In response to that motion, Source has now, as of July, 2011, dismissed its assumption argument. On October 14th, 2011, EGPI Firecreek Inc. received notice from Source Capital’s legal representation that they were seeking to withdrawal as counsel for plaintiffs in this matter. The Company believes that this development with further strengthen our position in defense of this matter and will ultimately result in the granting of our pending motions to dismiss. As of April 2013 there has been no communications received further in this matter.
In February 2011 the Company received a lawsuit notice on behalf of our Terra Telecom (“Terra”) subsidiary from Nu-Horizons Electronics (“Nu-Horizons”) seeking judgment for amounts allegedly owed it from Terra in the total aggregate amount of $196,620. The Company believes that it is not liable, and intends to file appeal to remove it from the motion for judgment. The Company will vigorously defend its position. As of April 2013, the Company has not received further communications with respect to Nu-Horizons.
In May 2011 the Company received a lawsuit by Edelweiss Enterprises Inc. dba The Small Business Money Store (“SMBS”) seeking a judgment to collect amounts allegedly owed it relating to an account receivable factoring agreement, to the former subsidiary SATCO, in the total aggregate amount of $48,032. The Company believes that it is not liable, and will vigorously defend its position. In July 2012 the Company attended an arbitration hearing and in August was awarded a dismissal of the case by the Arbitrator. The Plaintiff then appealed and since the appeal the matter has been settled and dismissed for a payment of $5,000 cash and 275,000 shares of the Company’s restricted common stock, which both have been tendered as of the date of this filing.
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In August 2011, the Company received a lawsuit notice on behalf of our wholly owned subsidiary Energy Ventures One Inc whereas Contegra Construction Company LLC (“CCC”) is seeking a judgment to collect amounts owed it relating to a promissory note in the amount of $157,767, which includes interest and late fees. The amount is recorded as a liability in the financial statements.
In August 2011, the Company received a lawsuit notice on behalf of itself and our wholly owned subsidiary Energy Ventures One Inc. and Arctic Solar, LLC by Masters Equipment Services, Inc. (“Masters”) seeking a judgment to collect amounts allegedly owed it relating to a promissory note in the amount of $110,153, including interest and late fees. The Company is one of several parties named in the proceeding and is prepared to vigorously defend its position. In July 2012, the Company negotiated a settlement of this case for $22,000 at the rate of $2,000 per month beginning October 2012. The promissory note is recorded as a liability in the financial statements. The Company has made its first payment of $2,000 and is current at September 30, 2012 but has fallen behind in payments since, and will attempt to resume as soon as practicable.
In January, 2012 a lawsuit was filed in the Middlesex County, Massachusetts Superior Court by Joshua White, against Terra Telecom and the Company. Mr. White was a former employee of Terra Telecom and not the Company. Mr. White alleges the Company should be liable to him for the acts of Terra Telecom. A Motion to Dismiss has been filed for lack of jurisdiction on behalf of the Company, which the Company believes will be granted. In any event the Company believes it has no liability and will defend vigorously if, for some reason, the Motion to Dismiss is not granted. The Company sold its interest in Terra Telecom in March of 2011. On August 3, 2012 the Motion to Dismiss was granted by the Justice of the Superior Court.
In February 2012 the Company received a lawsuit notice on behalf of itself by Morrell Saffa Craige, PC (“Morrell”) seeking the recovery of legal fees in the approximate sum of $25,000 owed to the Plaintiff in connection with its successful defense of a lawsuit styled Thermo Credit, LLC v. EGPI, et al. The Company owes the above fees and intends on paying the bill in full. The amount is recorded in the financial statements in accounts payable.
In May 2012 a lawsuit was filed in the Clark County, Nevada District Court by Lakeview Consulting, LLC (“Lakeview”), against the Company and other various Does 1-V and Roes corporations V1-X. Lakeview alleges the Company failed or refused to convert shares on a Convertible Note in the amount of $35,000 and therefore the sum plus interest, damages, etc. The Company is one of several parties named in the proceeding and is prepared to vigorously defend its position. The Company entered negotiations for settlement and has recently made its first payment, and current for the period ended September 30, 2012, but has fallen behind on all subsequent payments. The Company has negotiated for a payment to be made by May 15, 2013. The amount is recorded as a liability in the financial statements.
In October 2012 the Company received a lawsuit behalf of Solaire Power Technologies, LLC, a subsidiary of our wholly owned subsidiary Arctic Solar Engineering LLC. Robert T Short (“RTS”) , the Plaintiff, is claiming personal injuries and damages relating to alleged fall from the City of Dardene Prairie building, in the City of Dardene Prairie MO, Solaire is one of several parties named in the proceeding. Solaire denies all liability, and is prepared to vigorously defend its position. There is no further activity related to this matter that we are aware of as as of April 2013.
As noted in our debt footnote above, we have certain notes that may become convertible in the future and potential result in further dilution to our common shareholders.
21.
Subsequent Events
On April 26, 2013 the Company, Mondial Ventures, Inc. (“Mondial”) and Success Oil Co., Inc. (“Success”) together (the “Parties”) extended a January 28, 2013 Agreement to further extend option (the “AEO”) relating to a Participation Agreement (Turnkey Drilling, Re Entry, and Multiple Wells) (“Participation Agreement”) dated July 31, 2012 between the Company, Mondial, and Success effectively increasing the expiration date to at least July 26, 2013 unless modified in writing signed by the parties or there is a default not cured or waived.
The Company is in completion stage discussions with equity, asset-based lenders, and other financial institutions for the purpose of acquiring financing capital expenditures to build upon its infrastructure for its oil and gas operations including the J.B. Tubb Leasehold Estate and our interests located in Callahan, Stephens, and Shackelford Counties, Texas.
The Company is again pursuing certain international based oil and gas programs available and will Report progress when appropriate.
The Company’s goal is to build our revenues, asset base and cash flow; however, the Company makes no guarantees and can provide no assurances that it will be successful in these endeavors.
The Company is still in completion stages for a reverse stock split on a 1:4000 basis and expects to conclude as soon as practicable. For further information on this planned event please see our Current Report on Form 8-K, Item 8.01 filed on January 29, 2013.
Please also see “Recent Developments” at the top of this Report.
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22.
Segment Reporting
We classify our operations into two main business lines: (1) Solar Thermal Energy, and (2) Oil and Gas. This segmentation best describes our business activities and how we assess our performance. Summarized financial information by business segment for the years ended December 31, 2012 and December 31, 2011 is presented below. All segment revenues were derived from external customers. As more fully disclosed in the Company’s fiscal year 2010 Annual Report, we had no operations in these business segments until our acquisitions of Arctic Solar Engineering, LLC on February 4, 2011 (Solar Thermal Energy), and the beginning operations of Energy Producers, Inc. (Oil and Gas).
For the year ending December 31, 2012,
For the year ending December 31, 2011,
The following are reconciliations of reportable segment revenues, results of operations, assets and other significant items to the Company’s consolidated totals (amounts stated in thousands):
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Supplemental Oil and Gas Information (Unaudited)
Oil and Natural Gas Exploration and Production Activities
Oil and gas sales reflect the market prices of net production sold or transferred with appropriate adjustments for royalties, net profits interest, and other contractual provisions. Production expenses include lifting costs incurred to operate and maintain productive wells and related equipment including such costs as operating labor, repairs and maintenance, materials, supplies and fuel consumed. Production taxes include production and severance taxes. Depletion of oil and gas properties relates to capitalized costs incurred in acquisition, exploration, and development activities. Results of operations do not include interest expense and general corporate amounts. The results of operations for the company's oil and gas production activities are provided in the Company's related statements of operations.
Costs Incurred and Capitalized Costs
The costs incurred in oil and gas acquisition, exploration and development activities follow:
Results of operations (All United States Based):
Oil and Natural Gas Reserves and Related Financial Data
Information with respect to the Company’s oil and gas producing activities is presented in the following tables. Reserve quantities, as well as certain information regarding future production and discounted cash flows, were determined by Harper Associates, Inc. independent petroleum consultants based on information provided by the Company.
Oil and Natural Gas Reserve Data
The following tables present the Company’s independent petroleum consultants’ estimates of its proved oil and gas reserves. The Company emphasizes that reserves are approximations and are expected to change as additional information becomes available. Reservoir engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment.
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Proved reserves are estimated quantities of oil and gas, which geological and engineering data indicate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are included for reserves for which there is a high degree of confidence in their recoverability and they are scheduled to be drilled within the next five years.
Standardized Measure of Discounted Future Net Cash Inflows and Changes Therein
The following table presents a standardized measure of discounted future net cash flows relating to proved oil and gas reserves and the changes in standardized measure of discounted future net cash flows relating proved oil and gas were prepared in accordance with the provisions of ASC 932-235-555. Future cash inflows were computed by applying average prices of oil and gas for the last 12 months as of December 31, 2012 and current prices as of December 31, 2011 to estimated future production. Future production and development costs were computed by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. Future income tax expenses were calculated by applying appropriate year-end tax rates to future pretax cash flows relating to proved oil and gas reserves, less the tax basis of properties involved and tax credits and loss carryforwards relating to oil and gas producing activities. Future net cash flows are discounted at the rate of 10% annually to derive the standardized measure of discounted future cash flows. Actual future cash inflows may vary considerably, and the standardized measure does not necessarily represent the fair value of the Company’s oil and gas reserves.
The twelve month average prices for the year ended December 31, 2012 were adjusted to reflect applicable transportation and quality differentials on a well-by-well basis to arrive at realized sales prices used to estimate the Company’s reserves. The prices for the Company’s reserve estimates were as follows:
Changes in the future net cash inflows discounted at 10% per annum follow:
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ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A(T).
ITEM 9A(T). CONTROLS AND PROCEDURES
Evaluation of disclosure and controls and procedures:
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2012. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that there are material weaknesses in our disclosure controls and procedures and they were not effective for the following reasons:
·
In connection with the preparation of the Original Report, we identified a deficiency in our disclosure controls and procedures related to communication with the appropriate personnel involved with our 2012 audit. Finances permitting we are utilizing additional accounting consultants to assist us in improving our controls and procedures. We believe these measures will benefit us by reducing the likelihood of a similar event occurring in the future.
·
Due to our relatively small size and not having present operations, we do not have segregation of duties which is a deficiency in our disclosure controls. We do not presently have the resources to cure this deficiency.
Management's Report on Internal Control Over Financial Reporting
Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13-a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:
* pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
* provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and
* provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2012. In making this assessment, management used the criteria established in "Internal Control-Integrated Framework," issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this assessment, management believes that, as of December 31, 2012, the Company's internal control over financial reporting are not effective due to the material weaknesses noted on the previous page.
Management has not identified any change in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2012 and through the date of this report (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
Effective March 24, 2013 by majority consent of the EGPI Firecreek, Inc. (“EGPI” or the “Company”) shareholders of record at March 24, 2013 four (4) members were elected to the Company’s Board of Directors, consisting of four members that have previously served. The Directors shall hold their respective office until the Company’s Annual Meeting of Shareholders in 2014 or until their successors are duly elected and qualified. The members of the Company’s Board of Directors are as follows:
On March 24, 2013 by majority consent of the Board of Directors of EGPI Firecreek, Inc. (“EGPI” or the “Company”) the following officers were elected as officers of the Company, consisting of three (3) officers, one of which that has previously served. The officers of the Company are as follows:
Board Meeting
While the Board of Directors had no regularly scheduled physical meetings held during fiscal 2010, the Board of Directors business was conducted via Consent(s) to Action in Lieu of Meeting, held Electronically, Telephonically, or In Person, (the “Consent(s)”)). There were a total of seventy six (76) consents obtained during fiscal 2010 and all members of the then Board of Directors attended at least 75% of all meetings held by the above listed Consent(s).
COMMITTEES OF THE BOARD OF DIRECTORS
Effective on November 4, 2009, by unanimous consent, the Board of Directors of the Company approved, reconfirmed, and made certain changes to certain committees.
The directors approved the confirmation and or reinstatement of the following committees of the Company: The Audit Committee and a combined Nominating and Compensation and Stock Option Committee.
The Audit Committee shall consist of the following:
(1) The Audit Committee is composed initially of two members: Ms. Joanne Sylvanus (*), its Chairman, and Dennis Alexander, member.
i) The responsibilities of the Audit Committee include: (1) the recommendation of the selection and retention of the Company’s independent public accountants; (2) the review of the independence of such accountants; (3) to review and approve any material accounting policy changes affecting the Company’s operating results; (4) the review of the Company’s internal control system; (5) the review of the Company’s annual financial report to stockholders; and (6) the review of applicable interested party transactions.
The combined Nomination and the Compensation and Stock Option Committee shall consist of the following:
(2) The combined Nomination and the Compensation and Stock Option Committee are composed initially of three members: Mr. Mike Trapp, David Taylor, and Dennis Alexander, members.
i) The function of the Nominating Committee is to seek out qualified persons to act as members of the Company’s Board of Directors, and provide for compliance standards. The Nominating Committee seeks to identify director candidates based on input provided by a number of sources, including (a) the Nominating Committee members, (b) our other Directors, (c) our stockholders, and (d) third parties such as professional search firms. In evaluating potential candidates for director, the Nominating Committee considers the merits of each candidate’s total credentials.
ii) The function of the Compensation and Stock Option Committee is to review and recommend along with the Board of Directors, compensation and benefits for the executives of the Company, consultants, and administers and interprets the Company Stock Option Plan and the Directors Stock Option Plan and are authorized to grant options pursuant to the terms of these plans.
(*) A summary of Ms. Sylvanus’s work experience can be found in a Current Report on Form 8-K filed on January 23, 2007, incorporated herein by reference.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed M & K CPAS, PLLC, as the Company's independent certified public accountants for the fiscal year ending December 31, 2012 and December 31, 2013.
There have been no disagreements between the Company and the Auditors during the term of its relationship.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, CORPORATE GOVERNANCE
The directors, executive officers and significant employees of the Company as of March 24, 2013 are as follows:
Term for Directors: In accordance with Article 9.2 of the Company’s Bylaws: The members of the Board of Directors shall hold office until the first annual meeting of Stockholders and until their successors shall have been elected and qualified. At the first annual meeting of Stockholders and at each annual meeting thereafter the Stockholders shall elect Directors to hold office until the next succeeding annual meeting, except in the case of classification of the Directors. Each Director shall hold office for the term for which he is elected until his successor shall have been elected and qualified. The number of the directors may be fixed from time to time by resolution duly passed by our board. Our board has fixed the number of our directors at nine. Vacancies and newly created directorships resulting from any increase in the number of authorized directors may generally be filled by a majority of the directors then remaining in office. The directors elect officers annually.
Dennis R. Alexander and Deborah L. Alexander are married.
We may employ additional management personnel, as our board of directors deems necessary. We have not identified or reached an agreement or understanding with any other individuals to serve in management positions, but do not anticipate any problem in employing qualified staff.
A description of the business experience during the past several years for our directors and executive officer is set forth below:
Dennis R. Alexander has served as Chairman, CEO, and Chief Financial Officer of the Company (EGPI) since May 21, 2009, having served as Chairman, President and Chief Financial Officer of EGPI and Firecreek Petroleum, Inc. since February 10, 2007. He served as Chairman and Chief Financial Officer of EGPI and Firecreek Petroleum, Inc. since July 1, 2004 through February 9, 2007 having served as the President and Director of EGPI from May 18, 1999 to June 30, 2004. In September 1998 he was a founder, and from January 19, 1999 through its acquisition with EGPI served as President and Director of Energy Producers Group, Inc. From April 1997 through March 1998, served as CEO, Director, Consultant of Miner Communications, Inc., a media communications company. From April 26, 1997 through March, 1998 he was a director of Rockline, Inc., a private mining, resource company, and a founder of World Wide Bio Med, Inc., a private health-bio care, start up company. Since March 1996 to the present he has owned Global Media Network USA, Inc., which has included management consulting, advisory services. Mr. Alexander devotes approximately 60 to 80 hours per week minimum, and more as required, to the business of EGPI.
Michael Trapp has served as a Director of the Company since May 21, 2009 having been appointed as a Director of EGPI on December 3, 2008. A graduate of Rice Aviation he earned honors and honed his skills as an Airframe and Power Plant licensee working in the airline industry for many years. He recently owned his own mortgage company and is now a Senior Loan Officer for a multi-state lender in Mesa, Arizona. His strong technical and analytical skills will be a bonus in analyzing prospective projects which will enhance EGPI’s growth and asset base.
David Taylor has served as a Director of the Company since September 16, 2010. He is presently the President of Caddo International, Inc (fka Petrol Industries Inc) an oilfield service company in Oil City, Louisiana. Caddo provides operations for work over rigs and other oil field service equipment to work over wells located in the Caddo Pine Island Field and additionally maintains and oversees leases for owners. Caddo employs approximately 20 people. Mr. Taylor is also President of Chanwest Resources Inc. , (“CWR”), a wholly owned subsidiary of EGPI Firecreek, Inc.. CWR is an oilfield construction service company which operates in east Texas and North West Louisiana. Over the years Mr. Taylor has been a consultant through Willoil Consulting, LLC to several companies in Northeast Louisiana and East Texas dealing with day to day operations and Management issues in the Oil and Gas Industry. In addition Mr. Taylor has been a professional accountant in the Oil and Gas Industry for 40 years with services provided is several States in the US including Indiana, Illinois, Oklahoma, Kansas, Texas, California and Louisiana. He has been an officer and director of several public companies in the natural resource field providing. Mr. Taylors experience includes assisting turnaround situations in the oil and gas industry, and mergers and acquisitions in the public and private sector. Mr. Taylor is a resident of Shreveport, Louisiana.
Deborah L. Alexander has been appointed as Secretary and Treasurer of EGPI Firecreek, Inc. and its wholly owned subsidiary Energy Producers, Inc. as of January 24, 2012, and March 24, 2013 respectively. From 2004 to the present she has been involved in research and development related to authoring the development of a historical multi volume book series for public release. Prior to January 2007, Mrs. Alexander’s career includes eighteen years working in the film and video industry as a producer, photographer, and editor for television networks and affiliates, advertising agencies and corporate clientele. Over the years she built a video production business in Phoenix, Arizona eventually merging her video and film business into a recording, production and entertainment related business with additional services including, advertising and public relations, which grew to a small cap NASDAQ listed company; and clientele including Arizona Corporation Commission; a 10 part gas safety series that was approved by Congress for national distribution
Michael D. Brown was appointed to the Board of Directors of the Company on July 6, 2009. Mr. Brown was nominated by President George W. Bush as the first Under Secretary of Emergency Preparedness and Response (EP&R) in the newly created Department of Homeland Security in January 2003. Mr. Brown coordinated federal disaster relief activities including implementation of the Federal Response Plan, which authorized the response and recovery operations of 26 federal agencies and departments as well as the American Red Cross. Mr. Brown also provided oversight of the National Flood Insurance Program and the U.S. Fire Administration and initiated proactive mitigation activities. Prior to joining the Federal Emergency Management Agency, Mr. Brown practiced law in Colorado and Oklahoma, where he served as a Bar Examiner on Ethics and Professional Responsibility for the Oklahoma Supreme Court and as a Hearing Examiner for the Colorado Supreme Court. Mr. Brown had been appointed as a Special Prosecutor in police disciplinary matters. While attending law school, Mr. Brown was appointed by the Chairman of the Senate Finance Committee of the Oklahoma Legislature as the Finance Committee Staff Director, where he oversaw state fiscal issues. Mr. Brown’s background in state and local government also includes serving as an Assistant City Manager with Emergency Services Oversight and as a City Councilman. Mr. Brown holds a B.A. in Public Administration/Political Science from Central State University, Oklahoma. Mr. Brown received his J.D. from Oklahoma City University’s School of Law. He was an Adjunct Professor of Law for Oklahoma City University.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and directors, and persons who own more than ten percent of the Company’s Common Stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”). Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on current management’s review of the copies of such forms received by it from former management, the Company believes that, during the year ended December 31, 2012, its officers, directors, and greater than ten-percent beneficial owners complied with all applicable filing requirements.
Code of Ethics
On December 31, 2003, the Company adopted its Code of Ethics and Business Conduct that applies to all of the officers, directors and/or employees of the Company. The Code of Ethics is included and filed as Exhibit 14 to our Form-10KSB filed on April 27, 2004 incorporated herein for reference. The Code is posted on our website (www.egpifirecreek.com) currently in continuous stages of upgrade development/construction. We will disclose on our completed website any waivers of, or amendments to, our Code.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following tables summarize annual and long-term compensation paid to the Company’s Chief Executive Officer and the Company’s four other most highly compensated executive officers whose total annual salary and bonus compensation exceeded $100,000 who were serving as of December 31, 2012, for all services rendered to the Company and its subsidiaries during each of the last three fiscal years. The Company did not retain any employees and payments are made for services as available. Note: All other tables required to be reported have been omitted, as there has been no compensation awarded to, earned by or paid to any of the executives of the Company that is required to be reported other than what is stated below.
Summary Compensation Table 1/
1/
All shares are calculated on a post effective one share for fifty share (1:500) reverse split effective on July 7, 2011.
(*)
Please see “Certain Relationships and Related Transactions” for additional discussion on agreements with individual consulting firms.
2/
The balance of the amounts in the columns for 2011 for each of the following named executives D.R. Alexander, D.H. Ray, and Brandon Ray represents value for shares of Series C Preferred each received, respectively. For each of the named Executives, directly or indirectly owned or controlled by each of them, 17,857, 11,429, and 5,713 shares of Series C Preferred were received having a value of $18,392, $11,771, and $5,884, respectively.
The Series C Preferred value was unchanged at December 31, 2011 as these shares carry voting provisions only and are not convertible into shares of common stock.
A portion of the total amounts in the columns for 2012 for each of the following named executives D.R. Alexander, D.H. Ray, and Brandon Ray represents value for shares of Series C Preferred each received, respectively. For each of the named Executives, directly or indirectly owned or controlled by each of them, 200,000, 133,333, and 66,667 shares of Series C Preferred were received having a value of $13,600, $9,066, and $4,533, respectively.
The Series C Preferred value was unchanged at December 31, 2012 as these shares carry voting provisions only and are not convertible into shares of common stock.
3/
A portion of the total amounts in the columns for 2012 for each of the following named executives D.R. Alexander, D.H. Ray, Brandon Ray, and Melvena Alexander represents value for shares of restricted common stock, respectively. For each of the named Executives, directly or indirectly owned or controlled by each of them, 1,550,000,000, 466,900, 233,100, and 600,000,000 shares of restricted common stock were received having a value of $155,000, $46,690, $23,310, and $60,000 respectively.
The restricted share value was $0.00 at December 31, 2012 as the shares were further restricted by the Board for seven months from the date of issuance on August 27, 2012 as follows: Restrictions are imposed on the common restricted share issuances such that it is agreed unless approved by the Board of Directors by its written consent, such shares issued to each and every person or entity shall not be hypothecated, sold, exchanged, or otherwise disposed of for a period of 7 months from the effective date of issuance on August 27, 2012, but transfers to family members are allowed as gifts as long as these further restrictions are disclosed and followed. Through the seven month period there was no removal of restriction such as to create value to reflect at the end of the year for the listed shares to the named executives.
4/
D.R. Alexander and Melvena Alexander have been with the Company since 1999. Melvena Alexander passed away in January 2013.
5/
David Ray and Brandon Ray have been with the Company since May 2009, resigning on November 15, and October 1, 2012, respectively.
Employee Pension, Profit Sharing or Other Retirement Plans
The Company does not have a defined benefit, pension plan, profit sharing, or other retirement plan.
Director Compensation
As of February 4, 2000 each member of the Board of Directors, subject to approval of the Chairman and CEO, may be paid $500 per formal meeting plus certain expenses for out of State Directors incurred in connection with attendance at Board and Committee meetings. There are no agreements provided to Directors or individual agreements with any Director other than that presented in this paragraph, and the understanding that at minimum a traveling Director will be considered by the Chairman more favorably for reimbursement of expenses for travel and may, at the election of the Chairman, be paid $500 for attendance at a formal meeting. This determination by the Chairman to provide for either reimbursement or compensation for a formal meeting is principally to be based on the finances of the Company available at the time.
Employment Agreements
The Company does not have any employment agreements with its executive officers.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of the Company’s Securities by each person or group that is known by the Company to be the beneficial owner of more than five percent of its outstanding Securities, each director of the Company, each executive officer, and all directors and executive officers of the Company as a group as of March 31, 2012. Unless otherwise indicated, the company believes that the persons named in the table below, based on information furnished by such owners, have sole voting and investment power with respect to the Common Stock beneficially owned by them, where applicable.
Under securities laws, a person is considered to be the beneficial owner of securities owned by him (or certain persons whose ownership is attributed to him) and that can be acquired by him within 60 days from the date of this Form 10-K filing, including upon the exercise of options, warrants or convertible securities. The Company determined a beneficial owner’s percentage ownership by assuming that options, warrants or convertible securities that are held by him, but not those held by any other person, and which are exercisable within 60 days of the date of this Form 10-K filing, have been exercised or converted.
The information in the following table is based on 19,042,939,184 shares of common stock issued and outstanding as of March 31, 2012, with an additional 2,000,000,000 subscribed for issuance.
(1)
Unless otherwise indicated, each person named in the table above has the sole voting and investment power with respect to his shares of our common stock, beneficially owned.
(2)
Beneficial ownership is determined in accordance with the rules of the SEC.
(3)
David H. Ray and Brandon D. Ray are brothers. Messrs. David H. Ray and Brandon D. Ray own Strategic Partners Consulting, LLC, 66.67% and 33.33% amongst them, respectively.
(4)
See note 3, above.
(5)
Dennis R. Alexander is the son of Melvena Alexander.
(6)
Global Media Network USA, Inc. is indirectly owned by Dennis R. Alexander and also holds 217,857 shares of Series C Preferred, and 1,550,000,000 shares of common restricted stock.
(7)
Each share of Series C preferred stock shall have 21,200 votes on the election of our directors and for all other purposes.
(8)
Billy V. Ray Jr. is the Father of David H. Ray and Brandon D. Ray.
(9)
BVR, Inc. is indirectly owned by Billy V. Ray Jr. and also holds 20,000 shares of Series C Preferred. Mr. Ray is a shareholder and not an Officer or Director of the Company, who resigned effective October 1, 2012.
(10)
Includes 466,667,203 shares of common stock and146,667 shares of Series C Preferred owned indirectly, via investment control through Strategic Partners Consulting, LLC, by Mr. David H. Ray who resigned effective November 15, 2012.
(11)
Includes 233,333,601 shares of common stock and 73,332 shares of Series C Preferred owned indirectly, via investment control through Strategic Partners Consulting, LLC, by Mr. Brandon D. Ray.
(12)
Includes 1,550,000,000 and 400 shares of common stock and 2,143 and 217,857shares of Series C Preferred owned directly or indirectly through Global Media Network USA, Inc., (see note (6) above )) by Mr. Dennis Alexander.
(13)
Includes 1 shares of common stock and 200,000 shares of Series C Preferred owned directly by Mike Trapp who is an Officer, Director, and shareholder of the Company.
(14)
Includes 600,000,160 shares owned directly by Mrs. Melvena Alexander, an Officer and Shareholder of the Company and a subsidiary through December 31, 2012, and thereafter the Estate of Melvena Alexander.
(15)
Includes 250,000,200 shares owned directly by Mr. David Taylor along with 20,000 shares of Series C Preferred stock. Mr. Taylor is a Director of the Company, an Officer of a subsidiary of the Company, and shareholder.
(16)
Includes 250,000,180 shares owned indirectly by Mr. David Taylor through Willoil Consulting LLC who is a Director of the Company, an Officer of a subsidiary of the Company, and a shareholder.
(17)
Includes 2,000,000,000 shares owned directly by Steve Antebi a shareholder and advisor, and is not an officer or director of the Company or any subsidiary.
As indicated in the table above, certain of our executive officers and directors beneficially own, in the aggregate, approximately 64.86 percent of our outstanding common stock, which includes additional votes and voting power through issuance of 1,079,999 shares of the Company’s Series C Preferred Stock. As a result these stockholders may, as a practical matter, be able to influence all matters requiring stockholder approval including the election of directors, merger or consolidation and the sale of all or substantially all of our assets. This concentration of ownership may delay, deter or prevent acts that would result in a change of control, which in turn could reduce the market price of our common stock.
Other than as stated herein, there are no arrangements or understandings, known to us, including any pledge by any person of our securities:
·
The operation of which may at a subsequent date result in a change in control of the registrant; or
·
With respect to the election of directors or other matters.
(a) For all Persons in the preceding tables, and corresponding footnotes below: i) Options, warrants, and preferred stock as or if applicable, are included in calculations as to each person’s beneficial ownership position, and ii) All amounts are calculated on a post split one share for fifty shares (1:500) reverse stock split, effective on July 7, 2011.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Transactions with Executive Management; Fiscal Year Ended December 31, 2011, December 31, 2010, and December 31, 2009.
Please see “EXECUTIVE COMPENSATION” section of this document related to transactions in addition to those contained in this section including, consideration and other compensation for the following named executives: Dennis R. Alexander, Chairman, CEO, and Chief Financial Officer and Director, David H. Ray, Executive Vice President and Treasurer through November 15, 2012, Brandon D. Ray, Executive Vice President of Finance through October 1, 2012, and Melvena Alexander, Co Treasurer, Comptroller, and Secretary, through December 31, 2012.
Contracts
The Company has oral and month to month contracts with various entities (owned by related parties) to provide accounting, management, and other professional services. The entities, their owners and their amounts are as follows for the fiscal year ended December 31, 2010 listed in Table 1 below, and for the fiscal years ended December 31, 2010, and December 31, 2009 listed in Table 2 below.
Table 1
*Part of the amounts paid in 2012 for each of the above named Executives were for the unpaid accrual amounts due from 2011.
** For 2012, the contract amounts paid to Global Media Network USA, Inc. were in the aggregate $104,900 all of which was paid against prior year accruals. A contract month to month subject to adjustment is being charged at the rate of $15,000 per month plus approved expenses. No contract amounts were charged for October 2008 through May 30, 2009. Not listed in the above table, however reflected in the Accrued Balance listed in the table above, during 2012 Dennis Alexander exchanged $155,000 accrued compensation for shares of the Company’s common restricted stock with the additional caveat such could not be sold, transferred, hypothecated, or otherwise disposed of for a period of seven months from date of issuance. For further information please see table listed this section and our Current Report on Form 8-K filed August 28, 2012, incorporated herein by reference.
*** For 2012, the contract amounts paid to Melvena Alexander CPA were in the aggregate $12,375 that was paid against prior year accruals. A contract month to month subject to adjustment is being charged at the rate of $4,200 to 4,600 per month plus rent of $1400 per month for provision of the Scottsdale facilities provided, plus approved expenses. During 2012, Melvena Alexander CPA was additionally paid $12,375 for rent against the accrued rent balance with $11,125 balance of 2012 rent accruals. No contract amounts were charged for October 2008 through May 30, 2009. Not listed in the above table, however reflected in the Accrued Balance listed in the table above, during 2012 Ms. Alexander exchanged $60,000 accrued compensation for shares of the Company’s common restricted stock with the additional caveat such could not be sold, transferred, hypothecated, or otherwise disposed of for a period of seven months from date of issuance. For further information please see table listed this section and our Current Report on Form 8-K filed August 28, 2012, incorporated herein by reference.
(1)
Dennis R. Alexander, Chairman, CEO, and CFO, and is a shareholder of the Company.
(2)
Melvena Alexander, Secretary, Co Treasurer, Secretary and Comptroller, and is a shareholder of the Company. Ms. Alexander recently passed away in January 2013.
2009 Administrative Services Agreement
Relative to the May 21, 2009 acquisition of M3 Lighting, Inc. the Company approved an Administrative Services Agreement (ASA), and amended terms thereof, with Strategic Partners Consulting, LLC (SPC).Two of the Company’s officers, directors and shareholders, David H. Ray, Director and Executive Vice President and Treasurer of the Company since May 21, 2009 and Brandon D. Ray Director and Executive Vice President of Finance of the Company, are also owners and managers of SPC. Information is listed in Exhibit 10.1 to a Current Report on form 8-K, Amendment No. 1, filed on June 23, 2009. The ASA initiated on November 4, 2009, in accordance with its terms thereof, and was billed at the rate of $20,833.33 per month. The ASA contract was canceled June 8, 2010. During the twelve months ending December 31, 2011, the Company paid $31,000 to SPC, with a balance payable due in the amount of approximately $50,958. During the twelve months ending December 31, 2012, the Company paid $4,750 to SPC, with a balance payable due in the amount of $46,208.
2009 Loans Made By Officers, Directors, Shareholders
During 2009, the Company’s President and Director and Shareholder, Michael Kocan, made loans to the Company to assist its new operations for South Atlantic Traffic Corporation. Total amount of loans made were $90,625.80. Interest due on the notes is at the rate of 6%. The Company has paid $55,000 on the notes and the remaining balance is $35,625.80 as of February 8, 2010 and are current at this date. The notes are due on demand.
Table 2
*Part of the amounts paid in 2011 for each of the above named Executives were for the unpaid accrual amounts due from 2010.
** For 2011, the contract amounts paid to Global Media Network USA, Inc. were in the aggregate $100,300 paid against prior year accruals. A month-to-month contract subject to adjustment is being charged at the rate of $15,000 per month plus approved expenses. No contract amounts were charged for October 2008 through May 30, 2009.
*** For 2011, the contract amounts paid to Melvena Alexander CPA were in the aggregate $15,375 paid against prior year accruals. A contract month to month subject to adjustment is being charged at the rate of $4,200 per month which includes rent for provision of the Scottsdale facilities provided, plus approved expenses. No contract amounts were charged for October 2008 through May 30, 2009.
(1)
Dennis R. Alexander, Chairman and CFO, and is a shareholder of the Company.
(2)
Melvena Alexander, Secretary and Comptroller, and is a shareholder of the Company
*2012 and Previous Related Party Transactions
*In addition to the below please also see additional information listed in our Current Report on Form 8-K filed August 28, 2012, incorporated herein by reference.
(*)(**) On November 7, by consent of the Board of Directors, the Registrant approved the following issuances of its restricted common stock, par value $0.001 per share, to the following person for services rendered.
(*) Issuances are approved, subject to such persons agreeing in writing to i) comply with applicable securities laws and regulations and make required disclosures; and ii) be solely and entirely responsible for their own personal, Federal, State, and or relevant single or multi jurisdictional income taxes, as applicable.
(**) $200,000 worth of common stock in the immediately preceding table was used primarily in consideration of services rendered to the Company.
(1)
Steven Antebi provides other Business Consulting and advisory services, and is not currently a director, or officer of the Registrant.
(***) The shares of common stock were issued pursuant to an exemption from registration as provided by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”). All such certificates representing the shares issued by the Company shall bear the standard 1933 Act restrictive legend restricting resale.
(****) The shares are to be included for registration in a registration statement on a best efforts basis by the Registrant in accordance with the terms of agreement.
(*) (**) On June 5, 2011, by majority consent of the Board of Directors, the Company approved the following issuances of its Series C preferred stock, par value $0.001 per share, to the following persons or entities for services rendered and as incentive.
(*) Issuances are approved, subject to such person being entirely responsible for his own personal, Federal, State, and or relevant single or multi jurisdictional income taxes, as applicable.
(**) $75,040 of the financing proceeds in the immediately preceding table was used primarily for services rendered and as an incentive to continue providing services and assistance to the Company.
(1)
Global Media Network USA, Inc. is owned and controlled by Dennir R. Alexander an Officer, Director, Shareholder of the Company.
(2)
BVR, Inc. is owned by Billy V. Ray Jr., a consultant, advisor, and shareholder of the Company.
(3)
Strategic Partners Consulting, LLC is owned and controlled 66.7% by David H. Ray, Officer, Director, and Shareholder of the Company, and, 33.33% by Brandon D. Ray, Officer, Director, and Shareholder of the Company.
(4)
David Taylor is a Director and Shareholder of the Company.
(***) The shares of preferred series C voting only and non convertible stock were issued pursuant to an exemption from registration as provided by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”). All such certificates representing the shares issued by the Company shall bear the standard 1933 Act restrictive legend restricting resale.
Unsecured, Demand Note Payable to John R. Taylor, President and Director, for loans made to Firecreek Petroleum, Inc. On May 18, 2009, the Company retired this debt in full with the spinoff of Firecreek Petroleum, Inc. via an Agreement for the Exchange of Common Stock, which included all the debt held in the subsidiary. Please see our Current Report on Form 8-K filed on May 20, 2009, incorporated herein by reference.
Unsecured, Demand Note Payable to George B. Faulder IV, former Vice-President and Director, for loans made to Firecreek Petroleum. On May 18, 2009, the Company retired this debt in full with the spinoff of Firecreek Petroleum, Inc. via an Agreement for the Exchange of Common Stock, which included all the debt held in the subsidiary. Please see our Current Report on Form 8-K filed on May 20, 2009, incorporated herein by reference.
During the twelve months ending December 31, 2010, the headquarters for the Company’s Eastern based operations and M3 were located at 3400 Peachtree Road, Suite 111 Atlanta, Georgia 30326, and were being provided on a co sharing basis free of charge by officers and shareholders of the Company. The approximate 1,000 square foot premises was provided free of charge until February 2011 when the space became unavailable. M3 has been inactive through 2012.
At December 31, 2010, our wholly owned subsidiary operations for the SATCO headquarters were located at 3400 Peachtree Road, Suite 111 Atlanta, Georgia 30326, with an additional satellite office in Cocoa, FL. The Company had a month-to-month cancelable operating lease for the Cocoa, FL office space. The operating lease was cancelled in January 2011 and the office was relocated to 3400 Peachtree Road, Suite 111 Atlanta, Georgia 30326. Rental expense for operating lease was approximately $34,128 and $11,017 for the years ended December 31, 2010 and 2009, respectively. SATCO was sold / disposed of in March 2011 with no further requirement for office space.
The Chief Executive Officer and shareholder of the Company provided corporate office space through 2007 and 2008 at no charge. There was no further agreement in place to pay for the premises. Through May 31, 2009 the premises continued to be provided free of charge. As of June 1, 2009 the Secretary, Comptroller, and shareholder of the Company charges $1400 per month, contracted quarterly, for approximately 1431 square feet being utilized for our Southwest headquarters located at 6564 Smoke Tree Lane, Scottsdale, Arizona 85253 through December 31, 2012. As of January 1, 2013 forward a new contract has been established via the Chief Executive Officer and shareholder of the Company at the rate of $2,000 a month renewable annually for five years. In the event that our facilities in Scottsdale should, for any reason, become unavailable, we believe that alternative facilities are available at competitive rates.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Audit Committee has adopted a policy regarding the retention of the independent auditors that requires pre-approval of all services by the Audit Committee or the Chairman of the Audit Committee. When services are pre-approved by the Chairman of the Audit Committee, notice of such approvals is given simultaneously to the other members of the Audit Committee or board of directors if Audit Committee is represented by only one member.
The Audit Committee has reviewed and discussed the fees paid to M&K CPAS, PLLC for the reports covering fiscal 2011 and 2010 audit, audit-related, tax and other services.
The Audit Committee has reviewed and discussed the audited financial statements with the Company’s management; and discussed with M&K CPA’S PLLC, independent auditors for the Company, the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended.
The fees billed to us by M&K CPAS, PLLC for services rendered related to the year ended December 31, 2011 and 2012 were $85,000 and $75,500.
Audit-Related Fees
M&K CPAS, PLLC did not bill us for any assurance or related services that were unrelated to the performance of the audit of the financial statements for the years ended 2012 and 2011.
Tax Fees
Since November 2009 M&K CPA’s PLLC has not provided any professional services for tax compliance, tax advice, and tax planning. Since The Company has prepared tax returns in house for 2011 and 2012.
Other Fees
No other fees were paid to M&K CPA’s PLLC.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibit No.
Description
2.1
Agreement for the Exchange of Common Stock, dated December 12, 2003 (relating to the acquisition of International Group Holdings, Inc.) (filed as Exhibit 2.1 to the Current Report on Form 8-K dated December 1, 2003, filed December 15, 2003 and incorporated herein by reference).
2.2
Agreement for the Exchange of Common Stock, dated June 29, 2004 (relating to acquisition of Firecreek Petroleum, Inc.) (filed as Exhibit 2.1 to Current Report on form 8-K dated June 24, 2004, filed July 15, 2004 and incorporated herein by reference).
2.3
Plan and Agreement of Triangular Merger Between the Company, Asian Ventures Corp., M3 Lighting, Inc., and Strategic Partners Consulting, LLC, dated May 21, 2009 (filed on Exhibit 2.1 with the Current Report on Form 8-K, as amended, filed on May 27, 2009, June 24, 2009 Amendment #1, and August 4, 2009 Amendment #2, respectively, incorporated herein by reference).
3.1
Articles of Amendment to Articles of Incorporation of EGPI Firecreek, Inc. (filed as Exhibit 99.1 to Current Report on Form 8-K dated Feb. 15, 2005, filed February 22, 2005 and incorporated herein by reference).
3.2
Correction of Articles of Amendment to Articles of Incorporation of EGPI Firecreek Inc., filed with the Nevada Secretary of State on May 12, 2005 (filed as Exhibit 3.3 to a Quarterly Report on Form 10-QSB, filed on May 17, 2005, incorporated herein by reference).
3.3
Amended By-Laws of Registrant, dated July 1, 2004 (filed as Exhibit 2.2 to Current Report on Form 8-K dated June 4, 2004, filed July 15, 2004, and incorporated herein by reference).
3.4
Articles of Amendment to Articles of Incorporation of EGPI Firecreek, Inc. (filed as Exhibit 3.1 to Current Report on Form 8-K filed on December 18, 2006 and incorporated herein by reference).
3.5
Certificate of Amendment to Articles of Incorporation of EGPI Firecreek, Inc. (filed as Appendix A to Definitive Information Statement on Form DEF 14C filed on September 28, 2010.)
3.6
Certificate of Amendment to Articles of Incorporation of EGPI Firecreek, Inc. (filed as Appendix A to Definitive Information Statement on Form DEF 14C filed on June 20, 2011.)
3.7
Stock purchase agreement Effective as of November 4, 2009, (relating to the acquisition of South Atlantic Traffic Corporation) (filed as Exhibits 10.1 through 10.8 to a Current Report on Form 8-K, as amended, filed on November 12, 2009, and January 22, 2010 Amendment #1, respectively, incorporated herein by reference).
3.8
Stock Purchase Agreement with Kevin J. Fitzgerals, Pamela W. Fitzgerald, and Southwest Signal, Inc. filed as Exhibit 10.1 through 10.9 to a Current Report on Form 8-K filed on January 22, 2010, and incorporated hereing by reference.
3.9
Stock Purchase Agreement with the Stockholders of Redquartz LTD filed as Exhibit 10.1 through 10.3 to a Current Report on Form 8-K filed on March 11, 2010, and incorporated herein by reference.
3.10
Stock Purchase Agreement with the Stockholders of Chanwest Resources, Inc. 2010 (filed as Exhibit 10.1 to Current Report on Form 8-K on June 6, 2010, and incorporated herein by reference).
3.11
Stock Purchase Agreement with E-Views Safety Systems, Inc. dated July 20, 2010 (filed as Exhibit 10.1 to Current Report on Form 10-Q filed on August 20, 2010, and incorporated herein by reference).
3.12
Dealer Agreement with E-Views Safety Systems, Inc. dated July 20, 2010 (filed as Exhibit 10.2 to Current Report on Form 10-Q filed on August 20, 2010, and incorporated herein by reference).
3.13
Stock Purchase Agreement with the Owners of Terra Telecom, LLC (filed as Exhibit 10.1 to Current Report on Form 8-K filed on October 7, 2010, as amended and filed on Form 8-K/A on December 7, 2010, and incorporated herein by reference).
3.14
Schedule of Buyers, Exhibit A to the Securities Purchase Agreement with the Owners of Terra Telecom, LLC (filed as Exhibit 10.2 to Current Report on Form 8-K filed on October 7, 2010, as first amended and filed on Form 8-K/A (Amendment No. 1) on December 7, 2010, and with second amendment filed on Form 8-K/A (Amendment No. 2) on March 22, 2011, and incorporated herein by reference.
3.15
Assignment and Bill of Sale and Securities Purchase Agreement with Mondial Ventures, Inc. assignee of CUBO Energy, PLC (filed as Exhibit 10.1 to a Current Report on Form 8-K, Amendment No. 1, and incorporated herein by reference.)
3.16
Certificate of Amendment to Articles of Incorporation of EGPI Firecreek, Inc. filed on August 28, 2013, Item 5.03 to our Current Report on Form 8-K and incorporated herein by reference.
4.1
Certificate of Designation with respect to Series C Preferred Stock, dated May 20, 2009 (filed as exhibit 4.1 to Current Report on Form 8-K dated May 27, 2009, and incorporated herein by reference).
5.1
Consent of Gersten, Savage, LLP (filed as Exhibit 5.1 to Registration Statement on Form SB-2/A filed on September 2, 2005 and incorporated herein by reference).
5.2
Consent of Independent Registered Public Accounting Firm, Donahue Associates, L.L.C. (filed as Exhibit 5.1 to Registration Statement on Form S-1/A filed on March 4, 2010 and incorporated herein by reference).
5.3
Consent of Vincent & Rees, L.C. (filed as Exhibit 5.2 to Registration Statement on Form S-1/A filed on March 4, 2010 and incorporated herein by reference).
5.4
Consent of Harper & Associates, Inc. filed herewith as an Exhibit to this report.
10.1
Securities Purchase Agreement dated May 18, 2005, between the Company and Tirion Group, Inc. (filed as an Exhibit to Current Report on Form 8-K dated May 26, 2005 and incorporated herein by reference).
10.2
Registration Rights Agreement dated May 18, 2005, between the Company and Tirion Group, Inc. (filed as an Exhibit to Current Report on Form 8-K dated May 26, 2005 and incorporated by reference).
10.3
Intellectual Property Security Agreement dated May 2, 2005, by and between the Company and AJW Partners and its affiliates (filed as an Exhibit on Form 10-QSB for the quarter ended March 31, 2005 and incorporated herein by reference).
10.4
Guaranty and Pledge Agreement dated May 2, 2005, between the Company, Greg Fryett, CEO of the Company, and AJW Partners and its affiliates (filed as an Exhibit to Form 10-QSB for the quarter ended March 31, 2005 and incorporated herein by reference).
10.5
Security Agreement dated May 2, 2005, between the Company and AJW Partners and its affiliates (filed as an Exhibit to Form 10-QSB for the quarter ended March 31, 2005 and incorporated herein by reference).
10.6
Form of Callable Secured Convertible Note to AJW Partners LLC, dated May 2, 2005 (filed as an Exhibit to Form 10-QSB for the quarter ended March 31, 2005 and incorporated herein by reference).
10.7
Form of Callable Secured Convertible Note to AJW Offshore Limited, dated May 2, 2005 (filed as an Exhibit to Form 10-QSB for the quarter ended March 31, 2005 and incorporated herein by reference).
10.8
Form of Callable Secured Convertible Note to AJW Qualified Partners, LLC, dated May 2, 2005 (filed as an Exhibit to Form 10-QSB for quarter ended March 31, 2005 and incorporated herein by reference).
10.9
Form of Callable Secured Convertible Note to New Millenium Capital Partners II, LLC, dated May 2, 2005, (filed as an Exhibit to Form 10-QSB for quarter ended March 31, 2005 and incorporated herein by reference).
10.10
Final Voting Agreement of EGPI Firecreek (filed as exhibit 99.3 to Current Report on Form 8-K dated April 5, 2005, filed April 7, 2005 and incorporated herein by reference).
10.11
Form of Stock Purchase Warrant issued to AJW Partners LLC, effective May 2, 2005, Form 10-QSB for the quarter ended March 31, 2005 and incorporated herein by reference).
10.12
Form of Stock Purchase Warrant issued to AJW Offshore Limited, effective May 2, 2005, Form 10-QSB for the quarter ended March 31, 2005 and incorporated herein by reference).
10.13
Form of Stock Purchase Warrant issued to AJW Qualified Partners, LLC, effective May 2, 2005, Form 10-QSB for the quarter ended March 31, 2005 and incorporated herein by reference).
10.14
Form of Stock Purchase Warrant to New Millenium Capital Partners II, LLC, effective May 2, 2005, Form 10-QSB for the quarter ended March 31, 2005 and incorporated herein by reference).
10.15
Fee Protector Agreement dated June 14, 2005, by and between the Company and DLM Asset Management, Inc. (filed as an Exhibit to the Current Report on Form 8-K/A dated June 20, 2005 and incorporated herein by reference).
10.16
Repurchase Agreement dated May 31, 2005, by and between the Company and AJW Partners (filed as an Exhibit to the Current Report on Form 8-K/A dated June 2, 2005 and incorporated herein by reference).
10.17
Callable Secured Convertible Note, dated May 18, 2005 issued to Tirion Group (filed as an Exhibit to Current Report on Form 8-K dated May 26, 2005 and incorporated herein by reference).
10.18
Stock Purchase Warrant, dated May 18, 2005 issued to Tirion Group (filed as an Exhibit to Current Report on Form 8-K dated May 26, 2005 and incorporated herein by reference).
10.19
Standard Office Lease between the Company and Camp Bowie Centre (filed as an Exhibit to Current Report on Form 8-K dated May 26, 2005 and incorporated herein by reference).
10.20
Securities Purchase Agreement, dated May 2, 2005, between the Company and AJW Partners and its affiliates (filed as an Exhibit to Form 10-QSB for the quarter ended March 31, 2005 and incorporated herein by reference).
10.21
Registration Rights Agreement, dated May 2, 2005, between the Company and AJW Partners and Affiliates (filed as an Exhibit to Form 10-QSB for the quarter ended March 31, 2005 and incorporated herein by reference).
10.22
Investment Agreement, dated as of June 28, 2005, by and between the Company and Dutchess Private Equities Fund, II, LP (filed as Exhibit 10.22 to Registration Statement on Form SB-2/A filed on September 2, 2005 and incorporated herein by reference).
10.23
Registration Rights Agreement, dated as of June 28, 2005, by and between the Company and Dutchess Private Equities Fund, II, L.P. (filed as Exhibit 10.23 to Registration Statement on Form SB-2/A filed on September 2, 2005 and incorporated herein by reference).
10.24
Placement Agent Agreement dated June 28, 2005, by and between the Company, U.S. Euro Securities and Dutchess Equities Fund II L.P. (filed as Exhibit 10.24 to Registration Statement on Form SB-2/A filed on September 2, 2005 and incorporated herein by reference).
10.25
Extension and Amendment of Corporate Advisory Agreement between the Company and Steven Antebi; dated June 13, 2005 (Replaces incorrect exhibit previously filed.) (filed as Exhibit 10.25 to Registration Statement on Form SB-2/A filed on September 2, 2005 and incorporated herein by reference).
10.26
Amendment to Investment Agreement, dated August 23, 2005 by and between the Company and Dutchess Private Equities Fund, II, LP (filed as Exhibit 10.26 to Registration Statement on Form SB-2/A filed on September 2, 2005 and incorporated herein by reference).
10.27
Amendment to Registration Rights Agreement, dated as of August 23, 2005, by and between the Company and Dutchess Private Equities Fund, II, L.P. (filed as Exhibit 10.27 to Registration Statement on Form SB-2/A filed on September 2, 2005 and incorporated herein by reference).
10.28
Extension and Amendment of Certain Provisions of Corporate Advisory Agreement between the Company and Steven Antebi, dated January 30, 2006 (filed as Exhibit 10.1 to Current Report on Form 8-K filed February 3, 2006 and incorporated herein by reference).
10.29
Warrant Certificate containing revised terms of previously issued warrant issued to Steven Antebi, dated July 12, 2005 (filed as Exhibit 10.4 to Current Report on Form 8-K filed on February 3, 2006 and incorporated herein by reference).
10.30
Business Relationship Letter Agreement between the Company, Firecreek, and The Sahara Group (filed on Exhibit 10.30 with the Report on Form 10-KSB filed on April 14, 2006 and incorporated herein by reference).
10.31
Annual Report on Form 10-KSB, filed on April 12, 2005, and incorporated herein by reference.
10.32
Oil and Gas Participation and Rights Agreement (the “Participation Agreement”) between the Company and Dutchess Private Equities Fund, Ltd. dated December 3, 2008 (filed on Exhibit 10.32 with the Report on Form 10-K filed on April 14, 2009 and incorporated herein by reference).
10.33
Advisory Services Agreement between EGPI Firecreek, Inc. and Joseph M. Vasquez dated February 1, 2009 (filed on Exhibit 10.33 with the Report on Form 10-K filed on April 14, 2009 and incorporated herein by reference).
10.34
Promissory Note Agreement between EGPI Firecreek, Inc. and Dutchess Private Equities Fund, Ltd., (filed on Exhibit 10.34 with the Report on Form 10-K filed on April 14, 2009 and incorporated herein by reference).
10.35
Current Report on Form 8-K, filed on December 3, 2008, incorporated herein by reference
10.36
Sale / Assignment of 100% of Firecreek Petroleum, Inc. subsidiary dated May 18, 2009 (filed as Exhibit 10.1through 10.5 to a Current Report on Form 8-K, filed on May 20, 2009, and incorporated herein by reference).
10.37
Modification and extension of Promissory Note Agreement between EGPI Firecreek, Inc. and Dutchess Private Equities Fund, Ltd., (filed in a Current Report on Form 8-K, filed on June 18, 2009, and incorporated herein by reference).
10.38
Promissory Note Agreement between the EGPI Firecreek, Inc. and Thomas J. Richards, (filed as Exhibit 10.1 to a Current Report on Form 8-K, filed on June 18, 2009, incorporated herein by reference).
10.39
Fee Agreement dated July 2, 2009, by and between the Company and Joseph Gourlay and Stewart Siller, (filed as Exhibit 10.1 to a Current Report on Form 8-K, filed on July 31, 2009, incorporated herein by reference).
10.40
Modification and Extension of Promissory Note Agreement between EGPI Firecreek, Inc. and Thomas J. Richards (filed as information in a Current Report on Form 8-K, filed on September 21, 2009, incorporated herein by reference).
10.41
Stock purchase agreement Effective as of November 4, 2009, (relating to the acquisition of South Atlantic Traffic Corporation) (filed as Exhibits 10.1 through 10.8 to a Current Report on Form 8-K, as amended, filed on November 12, 2009, and January 22, 2010 Amendment #1, respectively, incorporated herein by reference).
10.42
Factor Agreement for accounts receivable based credit facility financing dated November 3, 2009 (factor lender Creative Capital Associates, Inc. in conjunction with Benefactor Funding Corp. relating to the acquisition of South Atlantic Traffic Corporation) (filed as Exhibit 10.9 to a Current Report on Form 8-K, as amended, filed on November 12, 2009, incorporated herein by reference).
10.43
Pending Agreement dated January 15, 2010 (relating to the acquisition of all of the issued and outstanding capital stock of Southwest Signal, Inc.) (filed as Exhibit 10.1 to a Current Report on Form 8-K, filed on January 22, 2010, as amended, and February 8, 2010 Amendment #1, respectively, incorporated herein by reference).
10.44
Stock Purchase Agreement, dated March 3, 2010 (relating to the acquisition of Redquartz Ltd) (filed on Exhibits 10.1 to a Current Report on Form 8-K dated March 11, 2010, and incorporated herein by reference).
10.45
Pending Agreement between the Company and Don Tyner related to the Company’s acquisition of Membership Interests in Sierra Pipeline, LLC. dated December 18, 2009 (filed as an Exhibit 10.1 to Current Report on Form 8-K dated December 29,2009, as amended and filed on Form 8-K/A on January 6, 2010, and incorporated herein by reference)
10.46
Acquisition Agreement, between the Company and Whitt Oil and Gas, Inc. related to the Company’s acquisition of Interests in Oil and Gas Interests (Three Well Project), dated December 22, 2009 (filed as an Exhibit 10.3 to Current Report on Form 8-K dated December 29, 2009, as amended and filed on Form 8-K/A on January 6, 2010, and incorporated herein by reference).
10.47
Assignment of Leases, between the Company and Whitt Oil and Gas, Inc. related to the Company’s acquisition of Interests in Oil and Gas Interests (Three Well Project), dated December 22, 2009(filed as an Exhibit 10.4 to Current Report on Form 8-K dated December 29, 2009, as amended and filed on Form 8-K/A on January 6, 2010, and incorporated herein by reference).
10.48
Operating Agreement, Related to the Agreements between the Company and Whitt Oil and Gas, Inc. as to the Company’s acquisition of Interests in Oil and Gas Interests (Three Well Project), dated December 22, 2009 (filed as an Exhibit 10.5to Current Report on Form 8-K dated December 29, 2009, as amended and filed on Form 8-K/A on January 6, 2010, and incorporated herein by reference).
10.49
Recording Supplement to Operating Agreement, Related to the Agreements between the Company and Whitt Oil and Gas, Inc. as to the Company’s acquisition of Interests in Oil and Gas Interests (Three Well Project), dated December 22, 2009 (filed as an Exhibit 10.6 to Current Report on Form 8-K dated December 29, 2009, as amended and filed on Form 8-K/A on January 6, 2010, and incorporated herein by reference).
10.50
Assignment of ORRI Interests to Persons or Entities, further related to the Agreements between the Company and Whitt Oil and Gas, Inc. as to the Company’s acquisition of Interests in Oil and Gas Interests (Three Well Project), dated December 22, 2009 (filed as an Exhibit 10.7 to Current Report on Form 8-K dated December 29, 2009, as amended and filed on Form 8-K/A on January 6, 2010, and incorporated herein by reference).
10.51
Closing Instructions related to the Agreements between the Company and Whitt Oil and Gas, Inc. as to the Company’s acquisition of Interests in Oil and Gas Interests (Three Well Project), dated December 22, 2009 (filed as an Exhibit 10.8 to Current Report on Form 8-K dated December 29, 2009, as amended and filed on Form 8-K/A on January 6, 2010, and incorporated herein by reference).
10.52
Advisory Agreement between the Company and Steven Antebi dated December 9, 2009 (filed as an non attached Exhibit 10.9 to Current Report on Form 8-K dated December 29, 2009, as amended and filed on Form 8-K/A on January 6, 2010, and incorporated herein by reference).
10.53
Final Escrow Closing Authorization Letter Agreement and related disbursements dated December 31, 2009 between the Company and its wholly owned subsidiary EPI, and acting Escrow Counsel Fergus & Fergus, L.L.P in behalf of the transaction with Whitt Oil and Gas, Inc., (filed as Exhibit 10.10 to Current Report on Form 8-K/A on January 6, 2010, and incorporated herein by reference).
10.54
Note Purchase Agreement with St. George Investments, LLC, as of January 15, 2010 (filed as Exhibit 10.2 to Current Report on Form 8-K on January 22, 2010, and incorporated herein by reference).
10.55
Registration Rights Agreement with St. George Investments, LLC, as of January 15, 2010 (filed as Exhibit 10.3 to Current Report on Form 8-K on January 22, 2010, and incorporated herein by reference).
10.56
Secured Promissory Note Agreement with St. George Investments, LLC, as of January 15, 2010 (filed as Exhibit 10.4 to Current Report on Form 8-K on January 22, 2010, and incorporated herein by reference).
10.57
FUNDING AND LETTER OF CREDIT AGREEMENT dated the 15th day of January, 2010, by and between KEVIN J. FITZGERALD and PAMELA W. FITZGERALD, SOUTHWEST SIGNAL, INC., a Florida corporation, EGPI FIRECREEK, INC. and ST. GEORGE INVESTMENTS, LLC, an Illinois limited liability company (filed as Exhibit 10.5 to Current Report on Form 8-K on January 22, 2010, and incorporated herein by reference).
10.58
Bank of Tampa Commitment Letter For Irrevocable Letter of Credit, as of January 15, 2010 (filed as Exhibit 10.6 to Current Report on Form 8-K on January 22, 2010, and incorporated herein by reference).
10.59
Irrevocable Instructions for Letter of Credit from Southwest Signal, Inc. and Sellers, as of January 15, 2010 (filed as Exhibit 10.7 to Current Report on Form 8-K on January 22, 2010, and incorporated herein by reference).
10.60
Trust Account Instructions to the Funding and Letter of Credit Agreement from St. George Investments, LLC (filed as Exhibit 10.8 to Current Report on Form 8-K on January 22, 2010, and incorporated herein by reference).
10.61
Judgment By Confession, Exhibit to St. George Investments LLC Agreements, as of January 15, 2010 (filed as Exhibit 10.9 to Current Report on Form 8-K on January 22, 2010, and incorporated herein by reference).
10.62
Convertible Promissory Note with St. George Investments, LLC, as of January 15, 2010 (filed as Exhibit 10.10 to Current Report on Form 8-K/A on February 8, 2010, and incorporated herein by reference).
10.63
Patrick Kelly Promissory Note 1 Agreement to the Stock Purchase Agreement with Redquartz LTD, as of March 3, 2010 (filed as Exhibit 10.2 to Current Report on Form 8-K on March 11, 2010, and incorporated herein by reference).
10.64
Patrick Kelly Promissory Note 2 Agreement to the Stock Purchase Agreement with Redquartz LTD, as of March 3, 2010 (filed as Exhibit 10.3 to Current Report on Form 8-K on March 11, 2010, and incorporated herein by reference).
10.65
Stock Purchase Agreement with the Stockholders of Chanwest Resources, Inc. 2010 (filed as Exhibit 10.1 to Current Report on Form 8-K on June 6, 2010, and incorporated herein by reference).
10.66
Stock Purchase Agreement with E-Views Safety Systems, Inc. dated July 20, 2010 (filed as Exhibit 10.1 to Current Report on Form 10-Q filed on August 20, 2010, and incorporated herein by reference).
10.67
Dealer Agreement with E-Views Safety Systems, Inc. dated July 20, 2010 (filed as Exhibit 10.2 to Current Report on Form 10-Q filed on August 20, 2010, and incorporated herein by reference).
10.68
Stock Purchase Agreement with the Owners of Terra Telecom, LLC (filed as Exhibit 10.1 to Current Report on Form 8-K filed on October 7, 2010, as amended and filed on Form 8-K/A on December 7, 2010, and incorporated herein by reference).
10.69
Schedule of Buyers, Exhibit A to the Securities Purchase Agreement with the Owners of Terra Telecom, LLC (filed as Exhibit 10.2 to Current Report on Form 8-K filed on October 7, 2010, as first amended and filed on Form 8-K/A (Amendment No. 1) on December 7, 2010, and with second amendment filed on Form 8-K/A (Amendment No. 2) on March 22, 2011, and incorporated herein by reference.
10.70
Assignment and Bill of Sale with Ginzoil, Inc. filed as exhibit 10.1 to Current Report on Form 8-K filed on March 7, 2011, and as amended filed on Exhibit 10.1 to Form 8-K/A (Amendment No. 1) filed on May 24, 2011, and incorporated herein by reference. and incorporated herein by reference.
10.71
Series D Convertible Preferred Stock Purchase Agreement with Dutchess Private Equities Fund, Ltd. filed as Exhibit 10.2 to Current Report on Form 8-K filed on March 7, 2011, and incorporated herein by reference.
10.72
Certificate of Designations, Preferences and Rights of Series D Preferred Stock, $0.001 Par Value of EGPI Firecreek, Inc. filed as Exhibit 10.3 to Current Report on Form 8-K filed on March 7, 2011, and incorporated herein by reference.
10.73
Model Form Operating Agreement with Success Oil Co. Inc. (Operator) filed as Exhibit 10.4 to Current Report on Form 8-K filed on March 7, 2011, and as amended filed on Exhibit 10.2 to Form 8-K/A (Amendment No. 1) filed on May 24, 2011, and incorporated herein by reference.
10.74
Stock Purchase Agreement with Distressed Asset Acquisitions, Inc. Regarding all of the issued and outstanding stock of South Atlantic Traffic Corporation filed as Exhibit 10.1 to Current Report on Form 8-K filed on March 18, 2011, and incorporated herein by reference.
10.75
Promissory Note issued to EGPI Firecreek, Inc. from Distressed Asset Acquisition, Inc. filed as Exhibit 10.2 to Current Report on Form 8-K filed on March 18, 2011, and incorporated herein by reference.
10.76
Stock Purchase Agreement with Distressed Asset Acquisitions, Inc. Regarding all of the issued and outstanding stock of Oklahoma Telecom Holdings, Inc. F/K/A Terra Telecom, LLC, filed as Exhibit 10.1 to Current Report on Form 8-K filed on March 18, 2011, and incorporated herein by reference.
10.77
Promissory Note issued to EGPI Firecreek, Inc. from Distressed Asset Acquisition, Inc. filed as Exhibit 10.2 to Current Report on Form 8-K filed on March 18, 2011, and incorporated herein by reference.
10.78
Stock Purchase Agreement with Distressed Asset Acquisitions, Inc. Regarding all of the issued and outstanding stock of Terra Telecom, Inc, filed as Exhibit 10.3 to Current Report on Form 8-K filed on March 18, 2011, and incorporated herein by reference.
10.79
Promissory Note issued to EGPI Firecreek, Inc. from Distressed Asset Acquisition, Inc. filed as Exhibit 10.4 to Current Report on Form 8-K filed on March 18, 2011, and incorporated herein by reference.
10.80
Agreement and Promissory Note with TWL Investments a LLC filed as Exhibit 10.1 to Current Report on Form 8-K filed on May 13, 2011, and incorporated herein by reference.
10.81
Security Agreement with TWL Investments a LLC filed as Exhibit 10.2 to Current Report on Form 8-K filed on May 13, 2011, and incorporated herein by reference.
10.82
Collateral Assignment of Mineral Leases with TWL Investments a LLC filed as Exhibit 10.3 to Current Report on Form 8-K filed on May 13, 2011, and incorporated herein by reference.
10.83
Exclusive Option To Purchase with TWL Investments a LLC filed as Exhibit 10.4 to Current Report on Form 8-K filed on May 13, 2011, and incorporated herein by reference.
10.84
Turnkey Rework Agreement Security with TWL Investments a LLC filed as Exhibit 10.5 to Current Report on Form 8-K filed on May 13, 2011, and incorporated herein by reference.
10.85
Escrow Agreement with TWL Investments a LLC filed as Exhibit 10.6 to Current Report on Form 8-K filed on May 13, 2011, and incorporated herein by reference.
10.86
Equity Purchase Agreement with Southridge Partners II, LP filed as Exhibit 10.1 to Current Report on Form 8-K filed on September 9, 2011, and incorporated herein by reference.
10.87
Registration Rights Agreement with Southridge Partners II, LP filed as Exhibit 10.2 to Current Report on Form 8-K filed on September 9, 2011, and incorporated herein by reference.
10.88
Oil and Gas Purchase and Development Agreement (Linear Short Form Agreement) with CUBO Energy, PLC and Success Oil Co., Inc. filed as Exhibit 10.1 to Current Report on Form 8-K filed on March 7, 2012, and incorporated herein by reference.
10.89
Agreement to Extend Option between the Company and Success Oil Co., Inc. dated June 19, 2012 filed as Exhibit 10.3 to our Current Report on Form 8-K, Amendment No. 1, filed on August 3, 2012 and incorporated herein by reference.
10.90
Participation Agreement, Turnkey Drilling, Re Entry, and Multiple Wells between the Company, Mondial Ventures, Inc., and Success Oil Co., Inc. dated July 31, 2012, filed on Exhibit 10.2 to our Current Report on Form 8-K, Amendment No. 1, filed on August 3, 2012 and incorporated herein by reference.
10.91
Agreement regarding Promissory Note of May 9, 2011, Amendment No. 3, between the Company and TWL Investments, aLLC dated July 1, 2012, filed on Exhibit 10.8 to our Current Report on Form 8-K, Amendment No. 1, filed on August 3, 2012 and incorporated herein by reference.
10.92
Oil and Gas Purchase and Development Agreement (linear Short Form Agreement) with Mondial Ventures, Inc. assignee of CUBO Energy, PLC regarding interests located in Callahan, Stephens, and Shackelford Counties, West Central Texas filed as Exhibit 10.1 to Current Report on Form 8-K filed on November 14, 2012, and incorporated herein by reference.
10.93
Advisory Agreement between the Company and Steven Antebi effective November 7, 2012 filed as Exhibit 10.2 to our Current Report on Form 8-K filed on November 14, 2012, and incorporated herein by reference.
Code of Ethics filed on Exhibit 14 with the Report on Form 10-KSB filed on April 27, 2004, and incorporated herein by reference.
21.1
Updated List of Subsidiaries filed herewith as an Exhibit to this report.
31.1
Certification Pursuant to Section 302
32.1
Certification Pursuant to Section 906
99.1
Annual Report on Form 10-KSB/A, Amendment No. 3, for the fiscal year ended December 31, 2006, filed on April 11, 2008, and incorporated herein by reference.
99.2
Annual Report on Form 10-KSB/A, Amendment No. 1, for the fiscal year ended December 31, 2007, filed on July 24, 2008, and incorporated herein by reference.
99.3
Annual Report on Form 10-KSB/A, Amendment No. 4, for the fiscal year ended December 31, 2008, filed on March 23, 2010, incorporated herein by reference.
99.4
Annual Report on Form 10-K, for the fiscal year ended December 31, 2009, filed on April 15, 2010, incorporated herein by reference.
99.5
Annual Report on Form 10-K, for the fiscal year ended December 31, 2010, filed on April 28, 2011, Incorporated herein by reference.
99.6
Annual Report on Form 10-K, for the fiscal year ended December 31, 2011, filed on May 8, 2012, Incorporated herein by reference.
101 INS
XBRL Instance Document*.
101 SCH
XBRL Schema Document*
101 CAL
XBRL Calculation Linkbase Document*
101 DEF
XBRL Definition Linkbase Document*
101 LAB
XBRL Labels Linkbase Document*
101 PRE
XBRL Presentation Linkbase Document*
* The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
PART F/S FINANCIAL STATEMENTS
The financial statements of the Company as required by Item 310 of Regulation S-B are included in Part II, Item 8 of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on May 9, 2012 on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Dennis R Alexander
Chief Executive Officer and Chairman of
May 9, 2013
Dennis R Alexander
the Board of Directors, CFO
/s/ Michael Trapp
Director
May 9, 2013
Michael Trapp
/s/ David Taylor
Director
May 9, 2013
David Taylor
/s/ Michael D. Brown
Director
May 9, 2013
Michael D. Brown