UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
☒ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March
31, 2015
☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________
to _______________
Commission File No.: 000-49752
Legend Oil and Gas, Ltd.
(Exact name of registrant as specified
in its charter)
Colorado |
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84-1570556 |
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(State or other jurisdiction of
incorporation
or organization) |
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(IRS Employer
Identification No.) |
555 North Point Center East,
Suite 410
Alpharetta, Georgia, 30022
(Address of principal executive offices)
(678) 366-4587
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 19, 2015, the registrant had 878,400,629
shares of its common stock, par value $0.001 per share, issued and outstanding.
LEGEND OIL AND GAS, LTD.
FORM 10-Q
For the Quarterly Period ended March
31, 2014
Table of Contents
EXPLANATORY NOTE
Unless otherwise indicated or the context otherwise requires,
all references in this Quarterly Report on Form 10-Q (“Report”) to “we,” “us,” “our,”
“Legend” and the “Company” are to Legend Oil and Gas, Ltd., a Colorado corporation, and references in this
Report to “Legend Canada” are to Legend Energy Canada, Ltd., a wholly-owned subsidiary of the Company, which was placed
into bankruptcy during 2014. All references to “Wi2Wi” are to Wi2Wi Corporation, formerly International Sovereign Energy
Corp., an Alberta, Canada corporation. Unless otherwise indicated, references herein to “$” or “dollars”
are to United States dollars. All references in this Current Report to “CA$” are to Canadian dollars. All financial
information with respect to the Company has been presented in United States dollars in accordance with U.S generally accepted accounting
principles.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS
We desire to take advantage of the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995. This Report contains a number of forward-looking statements
that reflect management’s current views and expectations with respect to our business, strategies, future results and events,
and financial performance. All statements made in this Report other than statements of historical fact, including statements that
address operating performance, the economy, events or developments that management expects or anticipates will or may occur in
the future, including statements related to revenues, profitability, adequacy of funds from operations, and cash flows and financing
are forward-looking statements. In particular, the words such as “believe,” “expect,” “intend,”
“anticipate,” “estimate,” “may,” “will,” “can,” “plan,”
“predict,” “could,” “future,” variations of such words, and similar expressions identify forward-looking
statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is
not forward-looking.
Readers should not place undue reliance on these forward-looking
statements, which are based on management’s current expectations and projections about future events, are not guarantees
of future performance, are subject to risks, uncertainties and assumptions and apply only as of the date of this Report. Our actual
results, performance or achievements could differ materially from historical results as well as the results expressed in, anticipated
or implied by these forward-looking statements.
In particular, our business, including our financial condition
and results of operations and our ability to continue as a going concern may be impacted by a number of factors, including, but
not limited to, the following:
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• |
Our ability to pay off our Senior Secured Debentures to Hillair Capital Investments, L.P.; |
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• |
Our ability to fund our 2015 drilling and development plan; |
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• |
Our ability to obtain buyers on terms favorable to us, in the event that we were to seek to sell certain of our oil and gas interests; |
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• |
Our
ability to retain the services of our Chief Executive Officer, President, Chief Financial Officer and other key employees,
the loss of which could materially impair our business plan; |
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• |
Changes in estimates of our crude oil and natural gas reserves and depletion rates; |
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• |
Our ability to control or reduce operating expenses and manage unforeseen costs; |
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• |
Our reliance on third-party contractors in performing the majority of our operations, which could make management of our drilling and production efforts inefficient or unprofitable; |
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• |
Our ability to maintain our existing property leases and acquire rights on properties that we desire; |
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• |
Changes in commodity prices for crude oil and natural gas; |
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• |
Environmental risks from operations of our wells; |
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Our ability to compete successfully against larger, well-funded, established oil and gas companies; |
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Our ability to comply with the many regulations to which our business is subject; and |
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Dilutive and other adverse effects on our existing shareholders and our stock price arising from future securities issuances. |
For a more detailed discussion of some of the factors
that may affect our business, results and prospects, see our Annual Report on Form 10-K for the year ended December 31, 2014
filed with the Securities and Exchange Commission on April 15, 2015, as well as various disclosures made by us in our other reports
filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information, future events or otherwise.
PART I – FINANCIAL INFORMATION
ITEM 1 |
CONSOLIDATED FINANCIAL STATEMENTS |
Legend Oil and Gas, Ltd.
CONSOLIDATED BALANCE SHEETS
(unaudited)
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March 31, |
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December 31, |
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2015 |
|
2014 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
|
$ |
142,607 |
|
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$ |
701,848 |
|
Restricted cash |
|
|
85,000 |
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|
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85,000 |
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Accounts receivable |
|
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53,125 |
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72,406 |
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Prepaid interest |
|
|
389,999 |
|
|
|
— |
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Total current assets |
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670,731 |
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859,254 |
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Property, plant and equipment - net |
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436,768 |
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453,375 |
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Oil and gas properties – net (full cost method) |
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996,722 |
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3,639,916 |
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Total assets |
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$ |
2,104,221 |
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$ |
4,952,545 |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current Liabilities |
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Accounts payable |
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$ |
295,047 |
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$ |
52,413 |
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Accounts payable-related party |
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407,000 |
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577,000 |
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Accrued interest |
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5,983 |
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50,427 |
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Current portion of long term debt |
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6,062,475 |
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409,856 |
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Total current liabilities |
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6,770,505 |
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1,089,696 |
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Embedded derivative liabilities |
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7,680,000 |
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1,128,667 |
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Long term debt, net of debt discount of $53,924 and $0, respectively |
|
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43,855 |
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6,119,245 |
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Asset retirement obligations |
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108,585 |
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202,586 |
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Total liabilities |
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14,602,945 |
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8,540,194 |
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Stockholders’ Deficit |
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Series A Convertible Preferred Stock - 600 shares authorized; $0.001 par value; 600 issued and outstanding, |
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— |
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— |
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Preferred stock – 99,999,400 shares authorized; $0.001 par value; 0 shares issued and outstanding |
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— |
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— |
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Common stock – 1,000,000,000 shares authorized; $0.001 par value;187,583,273 shares issued and outstanding, |
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187,583 |
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187,583 |
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Additional paid-in capital |
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27,227,181 |
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27,227,181 |
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Accumulated deficit |
|
|
(39,913,489 |
) |
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(31,002,413 |
) |
Total stockholders’ deficit |
|
|
(12,498,724 |
) |
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(3,587,649 |
) |
Total liabilities and stockholders’ deficit |
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$ |
2,104,221 |
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$ |
4,952,545 |
|
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
Legend Oil and Gas, Ltd.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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For the Three Months Ended |
| |
March 31,
2015 | |
March 31,
2014 |
| |
| |
|
Oil and gas revenue | |
$ | 170,015 | | |
$ | 293,471 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
General and administrative | |
| 657,255 | | |
| 511,859 | |
Production expenses | |
| 205,167 | | |
| 158,106 | |
Loss on sale of oil and gas properties | |
| 892,131 | | |
| — | |
Impairment of oil and gas properties | |
| 406,558 | | |
| — | |
Accretion of asset retirement obligation | |
| 2,385 | | |
| 14,674 | |
Depletion, depreciation, and amortization | |
| 56,284 | | |
| 158,162 | |
Total operating expenses | |
| 2,219,780 | | |
| 684,639 | |
| |
| | | |
| | |
Operating loss | |
| (2,049,765 | ) | |
| (391,168 | ) |
| |
| | | |
| | |
Other income (expense) | |
| | | |
| | |
| |
| | | |
| | |
Interest expense | |
| (309,978 | ) | |
| (451,385 | ) |
Change in fair value of embedded derivative liabilities | |
| (6,551,333 | ) | |
| 213,168 | |
| |
| | | |
| | |
Total other expense | |
| (6,861,311 | ) | |
| (396,379 | ) |
| |
| | | |
| | |
Net loss | |
$ | (8,911,076 | ) | |
$ | (787,547 | ) |
| |
| | | |
| | |
Net loss per common shares – basic and diluted | |
$ | (0.05 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | |
Weighted average number of common shares outstanding – basic and diluted | |
$ | 187,583,273 | | |
$ | 112,854,205 | |
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
Legend Oil and Gas, Ltd.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
(unaudited)
| |
For the Three Months Ended |
| |
March 31,
2015 | |
March 31,
2014 |
| |
| |
|
Net loss | |
$ | (8,911,076 | ) | |
$ | (787,547 | ) |
Other comprehensive loss | |
| | | |
| | |
Foreign currency translation adjustment | |
| — | | |
| 83,174 | |
Comprehensive loss | |
$ | (8,911,076 | ) | |
$ | (704,373 | ) |
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
Legend Oil and Gas, Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| |
For the Three Months Ended |
| |
March 31,
2015 | |
March 31,
2014 |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| |
|
| |
| |
|
Net loss | |
$ | (8,911,076 | ) | |
$ | (787,547 | ) |
Adjustments to reconcile net loss to cash flows provided by (used in) operating activities: | |
| | | |
| | |
Loss on sales of oil and gas properties | |
| 892,131 | | |
| — | |
Impairment of oil and gas properties | |
| 406,558 | | |
| — | |
Stock-based compensation | |
| — | | |
| 312,185 | |
Amortization of discounts on notes payable | |
| 26,252 | | |
| 400,765 | |
Accretion on asset retirement obligation | |
| 2,385 | | |
| 14,674 | |
Change in fair value of embedded derivative liabilities | |
| 6,551,333 | | |
| (213,168 | ) |
Depletion, depreciation, and amortization | |
| 56,284 | | |
| 158,162 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 19,281 | | |
| (303,723 | ) |
Prepaid expenses and other assets | |
| (389,999 | ) | |
| (101,582 | ) |
Accounts payable | |
| 246,808 | | |
| 208,476 | |
Accounts payable – related party | |
| (170,000 | ) | |
| — | |
Accrued interest | |
| (44,444 | ) | |
| — | |
Net cash flows used in operating activities - continuing operations | |
| (1,314,487 | ) | |
| (310,758 | ) |
Net cash flows provided by operating activities - discontinued operations | |
| — | | |
| 330,667 | |
Net
cash flows (used in) provided by operating activities | |
| (1,314,487 | ) | |
| 19,909 | |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| |
| | | |
| | |
Proceeds from sale of oil and gas properties | |
| 1,665,000 | | |
| — | |
Cash paid for oil and gas properties development costs | |
| (460,710 | ) | |
| — | |
Net cash flows provided by investing activities - continuing operations | |
| 1,204,290 | | |
| — | |
Net cash flows provided by investing activities - discontinued operations | |
| — | | |
| 399,697 | |
Net cash flows provided by investing activities | |
| 1,204,290 | | |
| 399,697 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| |
| | | |
| | |
Proceeds from notes payable | |
| 360,000 | | |
| — | |
Payments on notes payable | |
| (809,044 | ) | |
| — | |
Net cash flows used in investing activities - continuing operations | |
| (449,044 | ) | |
| — | |
Net cash flows used in investing activities - discontinued operations | |
| — | | |
| (565,741 | ) |
Net cash flows from financing activities | |
| (449,044 | ) | |
| (565,741 | ) |
| |
| | | |
| | |
Change in cash and cash equivalents before effect of exchange rate changes | |
| (559,241 | ) | |
| (146,135 | ) |
| |
| | | |
| | |
Effect of exchange rate changes | |
| — | | |
| 83,174 | |
Net change in cash and cash equivalents | |
| (559,241 | ) | |
| (62,961 | ) |
Cash and cash equivalents, beginning of period | |
| 701,848 | | |
| 64,283 | |
Cash and cash equivalents, end of period | |
$ | 142,607 | | |
$ | 1,322 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
Interest | |
$ | 572,851 | | |
$ | 50,620 | |
Taxes | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
NON-CASH INVESTING AND FINANCING ACTIVITIES | |
| | | |
| | |
| |
| | | |
| | |
Change in estimate of asset retirement obligation | |
$ | 85,856 | | |
$ | — | |
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
Legend Oil and Gas, Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
AND DESCRIPTION OF OPERATIONS
Description of Business
Legend Oil and Gas, Ltd. (the “Company”) is an
oil and gas exploration, development and production company. The Company’s oil and gas property interests are located
in the United States (in the States of Kansas and Oklahoma). The Company’s focus is on acquiring producing and non-producing
oil and gas interest and developing oil and gas properties that the Company currently owns. During the three months ended March
31, 2015, the Company sold its working interest in two properties locating in Kansas. The Company currently owns working interests
in two oil and gas properties, with one property located in Kansas and the second in Oklahoma.
In April 2015, the Company acquired Black Diamond Energy
Holdings LLC, a Delaware limited liability company (“Black Diamond”). Black Diamond is a trucking and oil and gas services
company that operates in North Dakota.
On May 1, 2015, the Board of
Directors approved an amendment to the Company’s Articles of Incorporation. The amendment removed restrictions which
prohibited the holder of the Company’s Convertible Preferred Stock from converting and holding more than 19.99% of the
Company’s outstanding common stock. Legend’s sole preferred stockholder converted its convertible perpetual
preferred stock of 600 shares on that same date need to disclose resulting ownership of company to common stock totaling 600
million shares. The preferred stockholder now owns
approximately 63% of the Company’s common stock.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company, and our wholly-owned subsidiary Legend Energy Canada Ltd. ("Legend Canada"). Intercompany transactions and balances have been eliminated in consolidation.
Basis of Presentation
The accompanying consolidated financial statements of the
Company, have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”)
and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited
financial statements and notes thereto contained in Legend’s latest Annual Report filed with the SEC on Form 10-K. In the
opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for the interim periods presented have been reflected herein. The results of operations
for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements
that would substantially duplicate disclosures contained in the audited financial statements for the most recent fiscal year, as
reported in the Form 10-K filed with the SEC on April 6, 2015, have been omitted.
Use of Estimates
The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported
amounts of revenues and expenses during the reporting period. Management’s judgments and estimates in these areas are
to be based on information available from both internal and external sources, including engineers, geologists, consultants and
historical experience in similar matters. The more significant reporting areas impacted by management’s judgments and
estimates are fair values of the Company’s equity-linked instruments, accruals related to oil and gas sales and expenses, estimates
of future oil and gas reserves, estimates used in the impairment of oil and gas properties, and the estimated future timing and
cost of asset retirement obligations.
Actual results could differ from the estimates as additional
information becomes known. The carrying values of oil and gas properties are particularly susceptible to change in the near term. Changes
in the future estimated oil and gas reserves or the estimated future cash flows attributable to the reserves that are utilized
for impairment analysis could have a significant impact on the future results of operations.
Accounts Receivable
Accounts receivable typically consist of oil and gas receivables,
and are presented on the consolidated balance sheets net of allowances for doubtful accounts. We establish provisions for losses
on accounts receivable for estimated uncollectible accounts and regularly review collectability and establish or adjust the allowance
as necessary using the specific identification method. Account balances that are deemed uncollectible are charged off against the
allowance. No allowance for doubtful accounts was necessary as of March 31, 2015 and 2014.
Comprehensive Income
For operations outside of the U.S. that prepare financial
statements in currencies other than U.S. dollars, the Company translates the financial statements into U.S. dollars. Results of
operations and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated
at end of period exchange rates, except for equity transactions and advances not expected to be repaid in the foreseeable future,
which are translated at historical costs. The effects of exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are accumulated as a separate component in other comprehensive income (loss). Accumulated other comprehensive
income (loss) consists entirely of foreign currency translation adjustments for the three month period ended March 31, 2014. There
were no foreign currency translation adjustments for the three month period ended March 31, 2015.
Full Cost Method of Accounting for Oil and Gas Properties
We have elected to utilize the full cost method of
accounting for our oil and gas activities. In accordance with the full cost method of accounting, all costs associated with
the acquisition, exploration, and development of oil and gas reserves, including directly related overhead costs and related
asset retirement costs are capitalized into a cost center. Our cost centers consist of the Canadian cost center and the
United States cost center.
All capitalized costs of oil and gas properties within each
cost center, including the estimated future costs to develop proved reserves, are amortized on the unit-of-production method using
estimates of proved reserves. Excluded from this amortization are costs associated with unevaluated properties, including capitalized
interest on such costs. Unevaluated property costs are transferred to evaluated property costs at such time as wells are completed
on the properties or management determines that these costs have been impaired.
Oil and gas properties without estimated proved reserves
are not amortized until proved reserves associated with the properties can be determined or until impairment occurs. The cost of
these properties is assessed quarterly, on a field-by-field basis, to determine whether the properties are recorded at the lower
of cost or fair market value.
Sales of oil and gas properties are accounted for as adjustments
of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between
capitalized costs and proved reserves of oil and gas attributable to a cost center, in which case the gain or loss is recognized
in income. In determining whether adjustments to capitalized costs result in a significant alteration, capitalized costs within
the cost center are allocated between the reserves sold and reserves retained on the same basis used to compute amortization, unless
there are substantial economic differences between the properties sold and those retained. When economic differences between properties
sold and those retained exist, capitalized costs within the cost center are allocated on the basis of the relative fair values
of the properties in determining whether adjustments to capitalized costs result in a significant alteration.
In the three months ended March 31, 2015, Legend sold two
of its properties (McCune and Piqua), resulting in a loss on the sale of $892,131.
Full Cost Ceiling Test
At the end of each quarterly reporting period, the cost of
oil and gas properties in each cost center are subject to a “ceiling test” which basically limits capitalized costs
to the sum of the estimated future net revenues from proved reserves, discounted at 10% per annum to present value, based
on current economic and operating conditions, at the end of the period, plus the cost of properties not being amortized, plus the
lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related
to book and tax basis differences of the properties. If the cost of oil and gas properties exceeds the ceiling, the excess is reflected
as a non-cash impairment charge to earnings. The impairment charge is permanent and not reversible in future periods, even though
higher oil and gas prices in the future may subsequently and significantly increase the ceiling amount. There were no impairment
charges for each of the period ended March 31, 2015 and 2014.
Asset Retirement Obligation
We record the fair value of a liability for an asset retirement
obligation in the period in which the asset is acquired and a corresponding increase in the carrying amount of the related long-lived
asset if a reasonable estimate of fair value can be made. The associated asset retirement cost capitalized as part of the related
asset is allocated to expense over the asset’s useful life. If the liability is settled for an amount other than the recorded
amount, a gain or loss is recognized. The asset retirement obligation is recorded at its estimated fair value and accretion is
recognized over time as the discounted liability is accreted to its expected settlement value. Fair value is determined by using
the expected future cash outflows discounted at our credit-adjusted risk-free interest rate.
Oil and Gas Revenue Recognition
The Company uses the sales method of accounting for its oil
and gas revenue recognition. Revenue from production on properties in which the Company shares an economic interest with other
owners is recognized on the basis of our interest. Revenues are reported on a gross basis for the amounts received before taking
into account production taxes, royalties, and transportation costs, which are reported as production expenses. Under the sales
method, revenues are recognized based on the actual volumes of gas and oil sold to purchasers at a fixed or determinable price,
when delivery has occurred and title has transferred, and if collectability of the revenue is probable. Delivery occurs and title
is transferred when production has been delivered to a purchaser’s pipeline or truck. The volume sold may differ from the
volumes we are entitled to, based on our individual interest in the property. The Company utilizes a third-party marketer to sell
oil and gas production in the open market. As a result of the requirements necessary to gather information from purchasers or various
measurement locations, calculate volumes produced, perform field and wellhead allocations and distribute and disburse funds to
various working interest partners and royalty owners, the collection of revenues from oil and gas production may take up to 45
days following the month of production. Therefore, the Company may make accruals for revenues and accounts receivable based on
estimates of our share of production. Since the settlement process may take 30 to 60 days following the month of actual production,
our financial results may include estimates of production and revenues for the related time period. The Company will record any
differences between the actual amounts ultimately received and the original estimates in the period they become finalized.
Stock-based Compensation
The Company measures compensation cost for stock-based awards
at fair value and recognize it as compensation expense over the service period for awards expected to vest. Stock-based compensation
expense is also recognized upon cancellation of awards that were initially expected to vest. Compensation cost (a non-cash expense)
is recorded as a component of general and administrative expenses in the consolidated statements of operations, net of an estimated
forfeiture rate.
The Black-Scholes option pricing model is used to estimate
the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions,
including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of
estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis
and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data
and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight
to place on historical experience is a matter of judgment, based on relevant facts and circumstances.
The Company estimates volatility by considering the historical
stock volatility. The Company has opted to use the simplified method for estimating expected term, which is generally equal to
the midpoint between the vesting period and the contractual term.
Net Loss Per Common Share
The computation of basic net loss per common share is based
on the weighted average number of shares that were outstanding during the period, including contingently redeemable common stock.
The computation of diluted net loss per common share is based on the weighted average number of shares used in the basic net loss
per share calculation plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common
shares outstanding. Potentially dilutive common shares include warrants to purchase shares of common stock (0 and 32,413,067 for
the three months ended March 31, 2015 and 2014 respectively) and preferred stock convertible into shares of common stock (600,000,000
and 0 for the three month periods ended March 31, 2015 and 2014, respectively).
Derivative Financial Instruments
The Company evaluates financial instruments for freestanding
or embedded derivatives. Derivative instruments that do not qualify for permanent equity classification as the instruments have
been determined not to be indexed to the Company’s stock are recorded as liabilities at fair value, with changes in value
recognized as other income (expense) in the consolidated statements of operations in the period of change. Derivative liabilities
are categorized as either short-term or long-term based upon management’s estimates as to when the derivative instrument
may be realized or based upon the holder’s ability to realize the instrument.
Fair Value Measurements
The Company measures fair value as an exit price, representing
the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in
pricing an asset or liability. We utilize a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair
value as follows:
Level 1: Observable market inputs such as quoted prices in
active markets;
Level 2: Observable market inputs, other than the quoted
prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs where there is little or no
market data, which require the reporting entity to develop its own assumptions.
The carrying amounts of financial assets and liabilities
such as cash, accounts receivable and accounts payable approximate their fair values (determined based on level 1 inputs in the
fair value hierarchy) due to the short term nature of these instruments.
Recently Issued Accounting Pronouncements
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation
of Debt Issuance Costs. ASU 2015-03 amends previous guidance to require that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent
with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in
this ASU. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously
issued. The Company expects that the affected amounts on its balance sheets will be reclassified within the balance sheets
to conform to this standard. The Company does not expect that the adoption of this ASU will have a material impact on its
financial statements.
Subsequent Events
The Company has evaluated all transactions through the date
the consolidated financial statements were issued for subsequent event disclosure consideration.
NOTE 3 – GOING CONCERN
The accompanying consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal
course of business. The Company has incurred a loss from continuing operations of $8,911,076 for the three months ended March
31, 2015, had negative working capital of $6,099,774 and an accumulated deficit of $39,913,489 at March 31, 2015. Additionally,
the Company is dependent upon obtaining additional debt and/or equity financing to roll-out and scale its planned principal business
operations. Further, we believe the acquisition of Black Diamond, more fully described in Note 13, SUBSEQUENT EVENTS,
will enhance the overall performance of the consolidated operations and cash flows. These factors raise substantial doubt about
the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters consist
principally of seeking additional debt and/or equity financing combined with expected cash flows from current oil and gas assets
held and additional oil and gas assets that it may acquire. There can be no assurance that the Company’s efforts will be
successful. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
NOTE 4 - OIL AND GAS PROPERTIES
The amount
of capitalized costs related to oil and gas properties and the amount of related accumulated depletion, depreciation, and amortization
are as follows:
|
|
March 31,
2015 |
|
December 31, 2014 |
Oil and Gas properties, subject to amortization |
|
$ |
1,429,117 |
|
|
$ |
3,948,679 |
|
Accumulated depletion, depreciation, amortization,
and impairment |
|
|
432,395 |
|
|
|
(308,763 |
) |
Net oil and gas properties, subject to amortization |
|
|
996,722 |
|
|
|
3,639,916 |
|
Oil and gas properties, not subject to amortization |
|
|
— |
|
|
|
— |
|
Total oil and gas properties, net |
|
$ |
996,722 |
|
|
$ |
3,639,916 |
|
During the three months ended March 31, 2015, the Company
sold its Piqua property for approximately $1.5 million, and its McCune property for $165,000. As the sale significantly altered the relationship between the Company's capitalized costs and its total proved reserves, we recorded a loss on the sale of approximately
$892,131. The Company disbursed the proceeds to Hillair Capital Investments
LP, the mortgage holder, in the amounts described in Note 9.
During the three months ended March 31, 2015, the Company
acquired working interests in the Van Pelt lease for $100,000. The Company incurred development costs on the Van Pelt lease of
$360,710 during the three months ended March 31, 2015. At March 31, 2015, the Company determined that the property was impaired
and recorded a loss on impairment of $410,710 which reduced the Van Pelt lease to its estimated realizable value of $50,000.
On January 28, 2014, the Company sold its Inga
property located in British Columbia, Canada for net proceeds of CA$435,000 (USD $450,316). The proceeds from the sale were
accounted for as an adjustment to the capitalized costs in the Canadian cost center with no gain or loss recognized.
NOTE 5 – ASSET RETIREMENT OBLIGATION
The following
table reconciles the value of the asset retirement obligation for the three months ended March 31, 2015 and March 31, 2014:
| |
March 31,
2015 | |
March 31,
2014 |
Opening balance, January 1 | |
$ | 202,586 | | |
$ | 1,533,121 | |
Purchase of oil and gas property | |
| 87,411 | | |
| — | |
Accretion expense | |
| 2,385 | | |
| 14,674 | |
Sale of oil and gas properties | |
| (183,797 | ) | |
| — | |
Foreign currency translation | |
| — | | |
| (50,619 | ) |
Ending balance, March 31 | |
$ | 108,585 | | |
$ | 1,497,176 | |
NOTE 6 – RELATED PARTY TRANSACTIONS
During the three-month period ended
March 31, 2015, the related party amounts due to Northpoint Energy Partners, of which our CEO is a principal, were reduced by payments
of $170,000, with a balance due them of $407,000.
NOTE 7 – NOTE PAYABLE TO BANK
On April 25, 2014, the Company received a Notice of Intention
to Enforce Security from the Bank of Canada relating to a revolving credit facility. Under the notice, the Bank stated that it
intended to enforce its rights against Legend Canada under the CA$6,000,000 ($8.35 million USD) Acknowledgement of Debt Revolving
Demand Credit Agreement, dated August 15, 2011; the General Assignment of Book Debts, dated October 19, 2011; the CAD$25,000,000
($33 million USD) Fixed and Floating Charge Demand Debenture; the Pledge Agreement
dated October 19, 2011; and the Negative Pledge and Undertaking dated October 19, 2011. The
bridge demand loan that was in place in prior periods was retired in July 2013.
During the quarter ended September 30, 2014, the Company
placed its wholly owned subsidiary, Legend Canada, into the Canadian bankruptcy system. The bankruptcy estate of Legend Canada
owned oil and gas properties in Western Canada (Berwyn, Medicine River, Boundary Lake, and Wildmere in Alberta, and Clarke Lake
and Inga in British Columbia). Legend Canada was placed under the control of KPMG Inc., as Trustee, in the bankruptcy proceedings.
The Company has written off all assets and liabilities of Legend Canada, resulting in income from discontinued operations at the
parent level of Legend Oil and Gas, Ltd. as it no longer controls, nor has responsibility for any operations or asset dispositions
of Legend Canada. In August 2014, the Company and Bank executed a Mutual Release and Discharge in consideration for $250,000 and
the note was fully retired.
NOTE 8 – NOTES PAYABLE
NWTR
On January 23, 2014,
the Company entered into an Agreement and Plan of Merger with New Western Energy Corporation (“NWTR”). On April 1,
2014, the Company issued a note payable for cash proceeds of $75,000 to NWTR. The significant terms of the agreement were that
if the planned merger was terminated, or the merger did not occur by December 31, 2014, the Company was obligated to repay the
$75,000 within 60 days of such termination, or on February 28, 2015, whichever came first. There was no interest due and payable
on this note.
In May 2014, the merger
was terminated by mutual consent. As a result, the Company became obligated to repay the $75,000 to NWTR. During the year ended
December 31, 2014, the Company repaid $10,000 of this amount, and had a balance of $65,000 outstanding as of December 31, 2014.
On January 6, 2015,
the Company and NWT R entered into a settlement agreement whereby the Company
agreed to repay NWTR $10,000 on or before January 7, 2015, with the remainder payable commencing February 15, 2015, in five (5)
monthly installments of $9,168. The Company made total payments of $29,168 on the balance owed to NWTR during the three months
ended March 31, 2015. At March 31, 2015, the amount due on this note was $35,832. This note has no interest provision.
RIG PURCHASE AGREEMENT
The Company purchased
a drilling rig at a purchase price of $465,000. This asset purchase was financed through a down payment of $150,000, and a note
payable of $315,000, at 6%, per annum, with monthly payments of $18,343, including principal and interest, through April 2016.
The Company made total payments of $55,029 of which $51,063 was principal and $3,966 was interest. The balance due on this note
is $230,317 at March 31, 2015.
COMMUNITY TRUST BANK
In October 2014, the
Company entered into an agreement with Community Trust Bank, for a loan in the amount of $85,100 at 2.4% per annum with regular
monthly payments of $1,508 of principal and interest through September 2015 and one balloon payment of $70,400 in October 2015.
This note is secured by a certificate of deposit in the amount of $85,000 currently classified as restricted cash. The Company
made total payments of $4,037 on the principal balance of the loan. The balance due on this note is $78,363
at March 31, 2015.
NOTE 9 – CONVERTIBLE DEBT
JMJ Capital
During 2013, the Company
received proceeds of $125,000 under a note payable agreement with JMJ Capital. The note provides for borrowings of up to $300,000,
is repayable beginning April 2014, and carries an original issue discount of 10%. No interest accrues on the note principal if
borrowings are repaid within 90 days from the date advanced. If repaid within 90 days, a one-time interest charge of 12% accrues.
The conversion price of the note is the lesser of $0.05 or 60% of the lowest trade price of the Company’s common stock for
25 days prior to the conversion. On the day of issuance, the note was convertible into 5,339,558 shares of common stock. The intrinsic
value of the beneficial conversion feature was determined to be $124,430. As a result, the discount of the note, including original
issue discount, totaled $136,930 which was amortized over the term of the note.
During the three months ended March
31, 2014, the Company borrowed an additional $30,000 from JMJ under the above note payable agreement. The Company received net
proceeds of $26,500.
During the year ended December 31, 2014, JMJ converted $100,000 of the outstanding principal and $7,520 in accrued interest
into 20,755,608 shares of the Company’s common stock. The Company also paid $12,500 of the outstanding principal balance.
As of March 31, 2015, the balance on the JMJ note payable was $0. The Company recorded $2,475 in interest expense related to the amortization of the debt discount
for the three months ended March 31, 2014.
Hillair Capital Investments
Beginning in
July 2013, the Company entered into a series of debentures with Hillair Capital Investments, L.P. (“Hillair”) to finance the
growth of Legend’s oil and gas operations. These debentures totaled approximately $6 million, and had various
derivative instruments including conversion features and warrants, all with down-round protection. In October 2014, the
Company engaged in discussions with Hillair to consolidate all debentures into one debenture with a fixed maturity
date.
On November 13,
2014, the Company and Hillair entered into a debt and warrant restructuring agreement. All of the existing debt outstanding
and accrued interest owed to Hillair was restructured and consolidated into one new debenture (the “Restructured
Debenture”). The Restructured Debenture has a face value of $6,060,000, with an original issue discount of $60,000,
carries an interest rate of 8.5% per annum and is due and payable in one payment on March 1, 2016. Further, in exchange for
warrants to purchase an aggregate of 474,258,441 shares of the Company’s common stock currently held by Hillair;
Hillair agreed to purchase 600 shares of convertible preferred stock with at a price of $1,000 per share, for a total amount
of $600,000 in cash proceeds received in November 2014.
During the three months ended, March 31, 2015, the Company received
$1,425,000 in net cash proceeds from the sale of its Piqua oil and gas properties. As a condition to secure the security interest
in the property held by Hillair, the Company paid the full amount of the proceeds against the principal and accrued interest balances
on the Restructured Debenture. Hillair applied $713,429 as a reduction in principal balance, $50,111 as a reduction of accrued
interest, $568,885 as a deposit to apply against accrued interest for the year ending December 31, 2015 and a prepayment penalty
of $142,686. Interest expense for the three months ended March 31, 2015 was $128,775 which reduced the deposit for interest to
$389,999. The Company amortized $19,437 of debt discount as additional interest expense for the three months ended March 31, 2015.
At March 31, 2015, the principal balance of the Restructured Debenture was $5,346,571.
On January
21, 2015, the Company issued an 8.5% Senior Secured Debenture (the “Debenture”) to Hillair
Capital Investments, L.P. in the aggregate amount of $400,000 payable on or before March 1, 2016. The Company has interest
payments due to Hillair on the aggregate outstanding principal amount of the Debenture at the rate of 8.5% per annum,
payable quarterly on March 1, June 1, September 1 and December 1, beginning on June 1, 2015, After transaction fees of
$40,000 which were reduced from the proceeds of the Debenture to Hillair, the net proceeds received by the Company were
$360,000. The expenses were recorded as a debt discount and are being amortized over
the term of the Debenture. During the three months ended March 31, 2105, the Company amortized $6,815 of the debt discount
and recorded $5,667 in accrued interest.
NOTE 10 – EMBEDDED DERIVATIVE LIABILITIES
The following table is a reconciliation of embedded derivative
liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended
March 31, 2015 and 2014:
| |
March 31, 2015 | |
March 31, 2014 |
Beginning balance | |
$ | 1,128,667 | | |
$ | 1,161,284 | |
Changes in fair value | |
| 6,551,333 | | |
| (213,168 | ) |
Ending balance | |
$ | 7,680,000 | | |
$ | 948,116 | |
At December 31, 2014,
the Company determined the non-dilution provision embedded into the convertible perpetual preferred stock resulted in a derivative
liability with a fair value of $2,324,184 on the date of issuance. On May 1, 2015, Hillair converted this preferred stock into
600 million shares of the Company¹s common stock at $0.001 per share with a fair value of $7,680,000 based on the market price
on the conversion date. As a result of the conversion of all of the Company’s outstanding Series A Convertible Preferred
Stock on May 1, 2015, the Company determined that the embedded derivatives had a value of $7,680,000 at March 31, 2015. Accordingly,
the Company increased the carrying value of $1,128,667 to $ 7,680,000 and recorded a corresponding change in fair value of this
embedded derivative on the statement of operations for the three months ended March 31, 2015.
During the three months ended March 31, 2014, the Company
valued the embedded derivative liabilities of conversion features in convertible notes payable using a Black-Scholes model. A summary
of quantitative information with respect to valuation methodology, estimated using a Black-Scholes model, and significant unobservable
inputs used for the Company’s embedded derivative liabilities for the three months ended March 31, 2014 is as follows:
Expected dividend yield | |
| — | |
Strike price | |
$ | .0001-.001 | |
Expected stock price volatility | |
| 100 | % |
Risk-free interest rate | |
| 0.13 | |
Expected term (in years) | |
| 0.67 | |
NOTE 11 – STOCKHOLDERS’ EQUITY (DEFICIT)
Convertible Preferred Stock
At March 31, 2015, the Company had issued and
outstanding 600 shares of its convertible preferred stock. This convertible, preferred stock has a 0% dividend
rate. The shares of preferred stock are convertible into 600 million shares of the Company¹s common stock at $0.0001 per
share, and has a non-dilution provision. The shares were converted to common stock in May 2015.
Common stock issuances
In January 2014, the Company issued 4,763,333 shares of common stock to Northpoint Energy Partners LLC in exchange for consulting
services. The stock had a fair value of $309,617. The fair value of the common stock was determined using the closing price
of the shares on the settlement date.
In March 2014, the Company issued 1,220,798 shares of common stock with a fair value
of $51,746 to Hillair in payment of accrued interest on convertible debt agreements. The fair value of the common stock was
determined using the closing price of the shares on the settlement date.
Stock Incentive Plan
On May 15, 2014, the Company created the 2014 Stock Incentive
Plan and reserved 40,000,000 shares of common stock for issuance thereunder. The 2014 Stock Incentive Plan also provides the issuance
of stock awards and grant of options to purchase shares of the Company’s common stock. The Company did not issue any stock
options or warrants during the periods ended March 31, 2015 or 2014. All common stock reserved under this plan has been issued
as of the date of this report to either employees, contractors or financial partners of the Company.
In May 2015, we submitted an information statement
signed by a majority of the shareholders of the Company. The information statement included the ratification of a 2015 Stock
Incentive Plan to include 100 million common shares. Further, that information statement ratified the ability of the Company
to effect a reverse stock split in the range of 1:10 to 1:100. Such reverse split has not been determined at this time, and
will be appropriately determined at a future meeting of our Board of Directors.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
The Company leases office space on a month-to-month basis,
with monthly rental payments due of approximately $1,500.
The Company is not aware of any pending or threatened legal
proceedings, nor is the Company aware of any pending or threatened legal proceedings, effecting any current officer, director or
control shareholder, or their affiliates.
As part of its regular operations, the Company may become
party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning
its’ commercial operations, products, employees and other matters. Although the Company can give no assurance about the outcome
of these or any other pending legal and administrative proceedings and the effect such outcomes may have on the Company, the Company
believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or
covered by insurance, will not have a material adverse effect on the Company’s financial condition or results of operations.
The Company owes $12,266 in property taxes,
penalties, and interest to the state of North Dakota from operations during the year 2012. We entered into a payment plan with
the state of North Dakota whereby we pay them $500 per month until the above balance is fully repaid.
On October 28, 2013, RR Donnelly & Sons Company filed
a complaint against the Company seeking to collect $68,913, plus interest for services rendered on or before November
30, 2012. This claim has been satisfactorily resolved between the parties, and Legend is remitting approximately $2,500 per month
in settlement of this claim, until such balance is fully repaid. During the three months ended March 31, 2015, the Company made
principal payments of $7,500. The Company recorded interest of $1,554 on the settlement liability for the three months ended March
31, 2015. As of March 31, 2015, the Company had a principal balance of $64,660 outstanding on the settlement liability.
NOTE 13 – DISCONTINUED OPERATIONS
On May 9, 2014, the Bank of Canada was granted a
Consent Receivership Order in Canada, whereby the Bank appointed a receiver to take all legally appropriate means to recover
the amounts Legend Canada defaulted on, including the managing of its assets, potential sales of its assets and other
strategic measures to appropriately remediate the amounts due to the Bank.
In August 2014, the Company and Bank signed a Mutual Release
and Discharge. The Company paid the Bank $250,000 and obtained a release which, among other things, stipulated that the Bank immediately
release the guaranty of the Bank’s debt by Legend US, and the Uniform Commercial Code (“UCC”) filing placed by
the Bank on Legend US (the parent company guarantee). All such releases were obtained as of December 31, 2014. During the three
months ended March 31, 2015 and 2014, Legend Canada did not have ongoing operations. Accordingly, the Company has not recorded
income from discontinued operations for the three months ended March 31 2015 or 2014.
SUBSEQUENT EVENTS
On April 2, 2015, the Company entered into a Securities
Purchase Agreement with Hillair Capital Investments, L.P. (“Purchaser”) pursuant to which it issued an Original
Issue Discount Senior Secured Debenture (the “Debenture”) to the Purchaser in the aggregate amount of $2,499,975,
payable in full on May 16, 2016. After taking into account the original issue discount and legal and diligence fees of $100,000
reimbursed to the Purchaser, the net proceeds received by the Company were $1,950,000.
On April 3, 2015, the Company entered into an Membership
Interest Purchase Agreement with Sher Trucking, LLC (“Sher”), Albert Valentin (“Valentin”)
and Steven Wallace (“Wallace”), which made up all of the members of Black Diamond to purchase all of the outstanding
membership interests of Black Diamond. The Company paid $1,500,000 in cash to Sher; issued a secured
promissory note to Sher in the amount of $2,854,000; issued 90,817,356 shares of the Company’s common
stock to Valentin, valued at $535,824; agreed to issue 57,682,644 shares of Company common stock to Wallace valued at $340,328
which, as of this report date, has not been issued by mutual agreement between Wallace and the Company, as such common stock issued
may change as a result of the working capital adjustment discussed below.
The Company also paid $125,000 to Sher after closing as an
advance against an anticipated purchase price adjustment related to the working capital changes of Black Diamond.
The purchase price is subject to an adjustment based on the
amount of net working capital of Black Diamond at closing. In the event the net working capital is either greater than or less
than the estimated net working capital at closing, Sher and Wallace will share the positive or negative adjustment. Any adjustment
for Sher will be in cash. Any adjustment for Wallace will be in shares of the Company common stock or warrants.
The principal amount of the note bears interest at five percent
(5%) per annum and is due and payable in full on April 3, 2016. The note is secured by certain rolling stock trucks and trailers
owned by subsidiaries of Black Diamond.
On April 28,
2015, the Company entered into a Securities Purchase Agreement with the Hillair Capital Investments, L.P.
pursuant to which it issued an Original Issue Discount Senior Secured Convertible Debenture (the “ New
Debenture”) to the Hillair in the aggregate amount of $840,000, payable in full on May 16, 2016. The Debenture is
convertible into up to 28,000,000 shares of Common Stock at a conversion price of $0.03 per share. After taking into account
the original issue discount of $90,000 and legal and diligence fees of $50,000 reimbursed to Hillair, the net proceeds
received by the Company was $700,000.
The repayment of the New Debenture is
secured by a mortgage, security agreement and financing statement in Kansas granting a lien in certain leases and leasehold estates
and any other applicable property of the Company in Kansas to secure the obligations of the Company to the Hillair evidenced
by the New Debenture.
On May 1, 2015, Hillair converted all
of the Company’s preferred stock it held into 600 million shares of the Company’s common stock.
ITEM 2 |
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis is based upon our
consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States, and should be read in conjunction with our financial statements and related notes. We incorporate by reference into
this Report our audited consolidated financial statements for the years ended December 31, 2014 and 2013. The preparation of these
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. In addition, the following discussion
and analysis contains forward-looking statements that involve risks and uncertainties, including, but not limited to, those discussed
in “Forward Looking Statements,” and elsewhere in this Report.
The following management’s discussion and analysis
is intended to assist in understanding the principal factors affecting our results of operations, liquidity, capital resources
and contractual cash obligations. This discussion should be read in conjunction with our consolidated financial statements which
are incorporated by reference herein, information about our business practices, significant accounting policies, risk factors,
and the transactions that underlie our financial results, which are included in various parts of this filing.
For ease of presentation in the following discussions of
“Comparison of Results” and “Liquidity and Capital Resources”, we round dollar amounts to the nearest thousand
dollars (other than average prices per barrel and per share amounts).
Overview of Business
We are an oil and gas exploration, development and
production company as well as a last mile oil trucking/hauling company. Our oil and gas property interests are located in
the United States (in the states of Kansas and Oklahoma). Our oil trucking hauling business is based in North Dakota.
Our business focus on the oil and gas side of the
business is to acquire producing and non-producing oil and gas right interests and develop oil and gas properties that we own
or in which we have a leasehold interest need to incorporate trucking business strategy. We also anticipate pursuing the
acquisition of leaseholds and sites within other geographic areas that meet our general investment guidelines and targets.
The majority of our operational duties are outsourced to consultants and independent contractors, including for drilling,
maintaining and operating our wells, and we maintain a limited in-house employee base.
Our
business focus on the oil trucking and hauling business is to grow within North Dakota and the Bakken region, where significant
growth in the oil and gas exploration business is growing, and expected to continue its growth.
Our Company was incorporated under the laws of the State
of Colorado on November 27, 2000 under the name “SIN Holdings, Inc.” On November 29, 2010, we changed our
name to Legend Oil and Gas, Ltd. Our only subsidiary is Legend Canada, which was formed in Alberta, Canada on July 28, 2011
to acquire the Wi2Wi assets. Neither we nor Legend Canada are reporting issuers in any province of Canada.
Results of Operations
The following is a discussion of our consolidated results
of operations, financial condition and capital resources. You should read this discussion in conjunction with our Consolidated
Financial Statements and the Notes thereto contained elsewhere in this Form 10-Q. Comparative results of operations for the periods
indicated are discussed below.
The following table sets forth certain of our oil and gas
operating information for the three months ended March 31, 2015, and March 31, 2014, respectively.
| |
Three Months Ended March 31, | |
| |
|
| |
2015 | |
2014 | |
$ Change | |
% Change |
Production Data : | |
| | | |
| | | |
| | | |
| | |
Oil production (bbl) | |
| 4,473 | | |
| 1,217 | | |
| 3,256 | | |
| 268 | % |
Average daily oil production (bbl/d) | |
| 49 | | |
| 14 | | |
| 35 | | |
| 268 | % |
Natural gas production (mcf) | |
| — | | |
| 38,065 | | |
| (38,065 | ) | |
| — | |
Average daily natural gas production (mcf/d) | |
| — | | |
| 423 | | |
| (423 | ) | |
| — | |
Natural gas liquids production (bbl) | |
| — | | |
| 55 | | |
| (55 | ) | |
| — | |
Average daily natural gas liquids production (bbl/d) | |
| — | | |
| 1 | | |
| (1 | ) | |
| — | |
Total BOE | |
| 4,473 | | |
| 7,616 | | |
| (3,143 | ) | |
| -41 | % |
Total BOE/d | |
| 49 | | |
| 85 | | |
| (36 | ) | |
| -41 | % |
Revenue Data: | |
| | | |
| | | |
| | | |
| | |
Oil revenue ($) | |
| 170,015 | | |
| 112,000 | | |
| 58,015 | | |
| 52 | % |
Average realized oil sales price ($/bbl) | |
| 38 | | |
| 92 | | |
| (54 | ) | |
| -59 | % |
Gas revenue ($) | |
| — | | |
| 178,000 | | |
| (178,000 | ) | |
| — | |
Average realized gas sales price ($/mcf) | |
| — | | |
| 5 | | |
| (5 | ) | |
| — | |
Natural gas liquids revenue ($) | |
| — | | |
| 4,000 | | |
| (4,000 | ) | |
| — | |
Average realized natural gas liquids price ($/bbl) | |
| — | | |
| 67 | | |
| (67 | ) | |
| — | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Production expenses | |
| 205,167 | | |
| 158,106 | | |
| 47,167 | | |
| 30 | % |
Average production expenses ($/boe) | |
| 46 | | |
| 21 | | |
| 25 | | |
| 119 | % |
Operating Margin ($/boe) | |
| (12 | ) | |
| 18 | | |
| (30 | ) | |
| -167 | % |
Depreciation, depletion, and amortization | |
| 56,284 | | |
| 158,162 | | |
| (101,716 | ) | |
| -64.4 | % |
Production and Revenue
Revenues
| |
Three Months Ended March 31, | |
|
| |
2015 | |
2014 | |
$ Change | |
% Change |
Product revenues: | |
| |
| |
| |
|
Crude oil sales | |
$ | 170,015 | | |
$ | 112,000 | | |
| 58,015 | | |
| 52 | % |
Natural gas sales | |
| — | | |
| 178,000 | | |
| (178,000 | ) | |
| — | |
Natural gas liquids sales | |
| — | | |
| 4,000 | | |
| (4,000 | ) | |
| — | |
Product revenues | |
$ | 170,015 | | |
$ | 294,000 | | |
$ | (123,985 | ) | |
| -42 | % |
Production
| |
Three Months Ended March 31, | |
| |
|
| |
2015 | |
2014 | |
Change | |
Percent Change |
Sales Volume : | |
| |
| |
| |
|
Crude Oil(bbl) | |
| 4,473 | | |
| 1,217 | | |
| 3,256 | | |
| 268 | % |
Natural Gas(mcf) | |
| 0 | | |
| 38,065 | | |
| (38,065 | ) | |
| — | |
Natural Gas Liquids(bbl) | |
| 0 | | |
| 55 | | |
| (55 | ) | |
| — | |
Total BOE | |
| 4,473 | | |
| 7,616 | | |
| (3,143 | ) | |
| -41 | % |
* Oil and natural gas were combined by converting natural
gas to oil equivalent on the basis of 6 mcf of gas = 1 boe.
The increase in oil volumes is largely due to the development
of the Piqua and Volunteers and Landers properties in the year ended December 31, 2104. Natural gas volume decreases were due to
asset sales and the production of the Company’s properties being solely oil in the three months ended March 31, 2015. The
decrease in liquids is reflective of the asset sales and decreased gas production.
Commodity Prices Realized
| |
Three Months Ended March 31, | |
| |
|
| |
2015 | |
2014 | |
Change | |
Percent Change |
Sales Price: | |
| |
| |
| |
|
Crude Oil($/bbl) | |
$ | 37.69 | | |
| 91.70 | | |
| (54.01 | ) | |
| -59 |
% |
Natural Gas($/mcf) | |
| — | | |
| 4.68 | | |
| (4.68 | ) | |
| | | |
% |
Natural Gas Liquids($/bbl) | |
| — | | |
| 66.93 | | |
| (66.93 | ) | |
| | | |
% |
The average price per barrel received by Legend during the
first quarter of 2015 was $38 compared to $92 for the first quarter of 2014, reflective of the prices the Company receives in the
Kansas area. The natural gas prices reflect the considerably stronger gas price environment in 2014. Liquids pricing is linked
to the oil pricing environment, which leads to the increase in liquids prices. The prices we receive for our oil and natural gas
production are determined by the market and heavily influence our revenue, profitability, access to capital and future rate of
growth.
Lease Operating Expenses
Operating expenses increased on an absolute basis to $205,167
in the first quarter of 2015 from $158,106 in the first quarter of 2014. The increase is due to the Company having additional field
personnel in three months ended March 31, 2015 compared to the three months ended March 31, 2014. Lease operating expenses consist
of day-to-day operational expenses for production of oil and maintenance and repair expenses for the wells and property.
General and Administrative Expenses
General and administrative expenses include: professional
fees; management fees; travel expenses; office and administrative expenses; and marketing and SEC filing expenses. General and
administrative expenses increased to $657,255 for the first quarter of 2015, as compared to $511,859 for the same period in 2014,
a $145,396 increase. The period-to-period increase is largely due to higher professional fees and salaries.
| |
Three months ended March 31, | |
| |
|
| |
2015 | |
2014 | |
$ Change | |
% Change |
General and administrative expenses | |
| |
| |
| |
|
Professional Fees | |
$ | 200,000 | | |
$ | 312,000 | | |
$ | (112,000 | ) | |
| -36 | % |
Salaries and benefits | |
| 239,000 | | |
| 136,000 | | |
| 103,000 | | |
| 76 | % |
Office and administration | |
| 218,000 | | |
| 60,000 | | |
| 158,000 | | |
| 263 | % |
Stock based compensation | |
| — | | |
| 4,000 | | |
| (4,000 | ) | |
| — | % |
Total | |
$ | 657,000 | | |
$ | 512,000 | | |
$ | 145,000 | | |
| 283 | % |
Depletion, depreciation, amortization and
impairment
The Company incurred $56,284 for depreciation, depletion,
and amortization for the three months ended March 31, 2015 ($158,162 in first quarter 2014), reflective of the bankruptcy of Legend
Canada, and the elimination of gas producing properties of the Company in 2014. The Company also incurred $406,558 in impairment
charges for the first quarter of 2015 compared to $0 in the first quarter of 2014. The impairment was a result of an assessment
of the performance of the Company’s Van Pelt lease and management’s decision to impair the lease to its net realizable
value.
Accretion expense
For the three months ended March 31, 2015 the company had
accretion expense of $2,385 ($14,674 in first quarter 2014) related to the Company’s asset retirement obligations.
Interest expense
Interest expense was $309,978 for the three months ended
March 31, 2015 ($451,385 in three months ended March 31, 2014). The decrease in interest expenses is due to lower debt discount
amortization of $26,252 in the three months ended March 31, 2015 compared to $400,765 in the three months ended March 31, 2015.
Net loss
The Company recorded a net loss of $8,911,077 in first three
months of 2015, as compared to the net loss of $787,547 in the corresponding period in 2014. The increase in the loss is mainly
due to the recording of a loss of $6,551,333 for the change in fair value of the embedded derivative liability, as well as the loss on sale of both the Piqua and McCune properties in the first quarter
of 2015 in the aggregate amount of $892,131.
Liquidity and Capital Resources
Liquidity
We have incurred net operating losses and operating
cash flow deficits over the last two years, continuing through 2015. We are in the early stages of acquisition and development
of oil and gas leaseholds, trucking business ,and we have been funded primarily by a combination of equity issuances and borrowing
under loan agreements and to a lesser extent by operating cash flows, to execute on our business plan for the acquisition, exploration,
development and production of oil and gas reserves. .On April 3,
2015, we acquired Black Diamond/Maxxon, which is a last mile oil trucking/hauling business. We believe this entity will
operate cash flow positive and add to the cash flow availability assisting in funding overall corporate operations. At
March 31, 2015, we had cash and cash equivalents totaling $142,607. The Company expects that it will need between $500,000 and
$750,000 to fund operations for the next 12 months.
The Company may seek additional financing to fund operations.
However, such financings may not be available and the terms of the financing may be available only on unfavorable terms.
The uncertainties relating to the Company’s ability
to repay the obligations Hillair (and to execute the Company’s business plan) continue to raise substantial doubt about the
Company’s ability to continue as a going concern. These financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that
could result should the Company be unable to continue as a going concern.
The following table summarizes our cash flows from
continuing operations for the three months ended March 31, 2015 and March 31, 2014, respectively:
| |
For the Three Months Ended March 31, |
| |
2015 | |
2014 |
Net cash provided by (used in) operating activities | |
$ | (1,314,487 | ) | |
$ | (310,758 | ) |
Net cash provided by investing activities | |
| 1,204,290 | | |
| — | |
Net cash used in financing activities | |
| (449,044 | ) | |
| — | |
Effect of exchange rate changes | |
| — | | |
| 83,174 | |
Cash flows from discontinued operations | |
| — | | |
| 164,623 | |
Net decrease in cash during period | |
$ | (559,241 | ) | |
$ | (62,961 | ) |
Cash from Operating Activities
Cash used in operating activities was $1,314,487 for the
three months ended March 31, 2015, as compared to cash provided by operating activities of $19,909 in the three months ended March
31, 2014. The increase in cash used is due to the higher operating and administrative costs of the Company.
Cash from Investing Activities
Cash provided by investing activities for the three months
ended March 31, 2015 was $1,204,290 as compared to cash used in investing activities of $450,316 during the three months ended
March 31, 2014. The change is due to the Company receiving proceeds from the sale of their oil and gas properties.
Cash from Financing Activities
Total net cash used in financing activities in the three
months ended March 31, 2015 was $449,044, as compared to $565,700 in the three months ended March 31, 2014. The change is due to
the Company making payments on its outstanding debt.
Total net cash used in the three months ended March 31, 2015 and
2014 was $449,044 and 62,961 respectively.
Planned Capital Expenditures
As funds allow, we plan to resume our drilling program on
the Kansas properties.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements.
ITEM 4 |
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and
Procedures
Our
management evaluated, with the participation of our President and our Chief Financial Officer, 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 Securities Exchange
Act of 1934, as amended) as of the end of the period covered by this Report. Based on this evaluation, our President and
our Chief Financial Officer concluded that our disclosure controls and procedures are not effective to ensure that information
we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, (i) is
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s
rules and forms, and (ii) is accumulated and communicated to our management, as appropriate, to allow timely decisions regarding
required disclosure.
Such conclusion
was reached based on the following material deficiencies noted by management:
a)
We have a lack of segregation of duties due to the small size of the Company.
b)
Lack of controls that provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposal of the Company’s assets that could have a material effect on the financial statements.
c)
In approximately June 2014, the Company hired a Chief Restructuring Officer, now the Chief Executive Officer (CEO), as well as
a new Chief Financial Officer (CFO). In their work with the Company since their commencing service, they identified multiple
material weaknesses in internal control by prior management, and have been working to cure those deficiencies. The CEO and
CFO expect that any material weaknesses in internal control will be mitigated by December 31, 2015.
Management
has hired a corporate Controller and is integrating the accounting staff of Black Diamond/Maxxon, which will significantly enhance
internal control for the Company.
Our
disclosure controls and procedures include components of our internal control over financial reporting and, as such, are designed
to provide reasonable assurance that such information is accumulated and communicated to our management. Management’s
assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance
that the control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that
the control system’s objectives will be met (see the section below in this Item 4 entitled Limitations on the Effectiveness
of Internal Controls).
Changes in Internal Controls Over Financial
Reporting
There have been no changes in our internal controls over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended) that occurred
during the three months ended March 31, 2014, that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Limitations on the Effectiveness of Internal
Controls
Our management does not expect that our disclosure controls
and procedures or our internal controls over financial reporting will necessarily prevent all fraud and material error. Our disclosure
controls and procedures are designed to provide reasonable assurance of achieving our objectives and our President and Chief Financial
Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design
of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people,
or by management override of the internal control. The design of any system of controls is also based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate.
PART II - OTHER INFORMATION
In May 2015, we were served with a complaint related to the
termination of Marshall Diamond-Goldberg, former President, Chief Operating Officer and member of the Board of Directors. Mr. Diamond-Goldberg
asserts various positions in his complaint, most significantly his termination without cause. Upon consultation with our counsel,
we firmly believe the claim is without merit as his termination was for actual default on his contractor agreement’s terms
and conditions. We do not believe the claim will result in a material impact on the financial position or results of operations
of Legend.
No material changes.
ITEM 2 |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 3 |
DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4 |
CONTROLS AND PROCEDURES |
None.
None.
The exhibits listed in the accompanying index to exhibits
are filed or incorporated by reference as part of this Report.
Certain of the agreements filed as exhibits to this Report
contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties
to the agreement. These representations and warranties:
|
• |
may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements; |
|
|
|
|
• |
may apply standards of materiality that differ from those of a reasonable investor; and |
|
|
|
|
• |
were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances. |
Accordingly, these representations and warranties may not
describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors
should not rely on them as statements of fact.
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
LEGEND OIL AND GAS, LTD. |
|
|
|
Dated: May 20, 2015 |
|
By: |
/s/ Andrew S. Reckles |
|
|
|
Andrew S. Reckles |
|
|
|
Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
Dated: May 20, 2015 |
|
By: |
/s/ Warren S. Binderman |
|
|
|
Warren S. Binderman |
|
|
|
President and Chief Financial Officer |
|
|
|
(Principal Accounting and Financial Officer) |
EXHIBIT
INDEX
25
Legend Oil and Gas, Ltd. 10-Q
EXHIBIT 10.1
April 3, 2015
Mr. Steven Wallace
________________
________________
Dear Steve:
This will confirm the understanding
between you and Legend Oil and Gas, Ltd. (the “Company”) that notwithstanding Section 2.01(c) of that certain
Membership Interest Purchase Agreement dated the date hereof (the “Agreement”) among Sher Trucking, LLC, Albert
Valentin, you and the Company to the effect that you will receive 57,682,644 shares of Common Stock of the Company (the “Shares”)
at Closing:
(1) You will have the option to instead
receive Warrants to purchase 57,682,644 shares of Common Stock (the “Warrants”) upon written notice to the Company
received by the Company not later than 4:00 pm Eastern time on April 24, 2015 (the “Expiration Time”). Such
warrants shall have a five year term and an exercise price of $.001 per share and shall be in the form attached hereto as Exhibit
A.
(2) In the event that you exercise
such option, the Company will issue the Warrants to you by the close of business on the second business day following receipt of
such exercise notice.
(3) In the event that the Company has
not received your written exercise notice by the Expiration Time and the Shares have not previously been issued to you, it will
issue the Shares to you by the close of business on April 28, 2015.
(3) Except to the extent modified herein,
the Agreement shall continue in full force and effect.
|
|
Legend Oil and Gas, Ltd. |
|
|
|
|
|
By: |
/s/ |
|
|
Name: |
Andrew Reckles |
|
|
Title: |
Chief Executive Officer |
Agreed this 3rd day of |
|
April, 2015: |
|
|
|
|
|
|
|
Steven Wallace |
|
Legend Oil and Gas, Ltd. 10-Q
EXHIBIT 10.2
April 1st, 2015
Mr. Albert Valentin
8684 Franklin Drive
Eagle Mountain, UT 84005
Dear Al:
This letter agreement (the
“Agreement”) sets forth the understanding between Legend Oil & Gas, Ltd. (the “Company”)
and you regarding the Company employing you to serve as Executive Vice President of Legend, Chief Executive Officer of Maxxon Energy
(a wholly owned subsidiary of the Company), and a member of the Board of Directors of the Company during the term hereof. This
Agreement shall be effective on the date that it is executed by you in the space provided for your signature below.
| I. | EMPLOYMENT AND APPOINTMENT OF EXECUTIVE VICE PRESIDENT OF LEGEND, CEO OF MAXXON ENERGY AND BOARD
MEMBER OF LEGEND |
The Company affirms
that it has employed you to serve as Executive Vice President of the Company and Chief Executive Officer of Maxxon Energy, and
appointed you as a member of the Board of Directors of the Company, subject to the terms and conditions of this Agreement, with
the title, compensation and other descriptions set forth herein.
The term of your
employment shall be effective on this date and shall be twelve (12) months from and after the date hereof (the “Term”)
unless sooner terminated as more fully provided in Section V hereof. Each twelve-month period of the Term beginning on the date
hereof shall be hereinafter referred to as a “Contract Year”.
| III. | SCOPE AND LOCATION OF SERVICES |
Your ordinary course
duties as Executive Vice President of Legend and Chief Executive Officer of Maxxon Energy will involve managing the Company’s
wholly owned subsidiary Maxxon Energy, LLC, and you shall have such duties, authority and responsibility as shall be determined
and are assigned to you by Mr. Andrew Reckles, CEO of the Company (the “CEO”) . Further, during the Term, you
shall also serve as a member of the Board of Directors of the Company. Finally, during the Term, you shall devote such time as
is necessary to perform such duties and responsibilities. You shall perform your duties and responsibilities hereunder either at
the offices of the Company, or other such locations as are appropriate to perform your specific functions.
As base compensation
(“Base Compensation”) for your services, the Company shall pay you $16,666.66 per month (every 15 days) in two
equal payments of $8,333.33 for the period beginning April 3, 2015, subject to usual and customary tax withholding. The Base Compensation
shall be increased 20% on an annual basis. However, the Base Compensation may not be decreased during the Term
Additional Compensation.
In addition to the
Base Compensation you will receive additional compensation (the “Additional Compensation”) as follows:
(1) EBITDA
Annual Bonus. Starting in calendar year 2015, an annual bonus of twenty percent (20%) of your Base Compensation for each year
payable on February 15 of the following year in the event that EBITDA generated by Maxxon Energy for the applicable year increased
twenty-five percent (25%) or more over the prior year’s EBITDA. Such EBITDA Annual Bonus shall be payable either in common
stock of the Company or cash or a combination thereof, at the option of the Manager, and shall be subject to usual and customary
tax withholding.
(2) Quarterly Volume Bonus. Starting
in the second quarter of calendar year 2015, to the extent that the number of barrels of oil transported by Maxxon Energy in any
fiscal quester increases 25% or more over the prior fiscal quarter (the “Target Volume Increase”), a quarterly
bonus payment of $5,000 shall be paid within thirty (30) days after the end of each fiscal quarter in which the Target Volume Increase
was achieved, subject to usual and customary tax withholding.
(3) You shall be entitled to participate
in the health and dental coverage program that is offered by the Company, subject to the eligibility requirements of such plan,
with all premium costs of such coverage paid by the Company.
(4) The Company shall pay the reasonable
expenses of airfare and travel expenses with respect to travel to and from your home.
(5) The Company shall pay the reasonable
expenses of housing while you are in North Dakota.
(6) The Company shall agree to pay any
potential tax liability for your 2015 Federal Income Taxes resulting from the issuance of the shares of the Company’s common
stock being issued to you pursuant to the purchase of your membership units in Black Diamond Energy Holdings, LLC.
The Company shall
pay directly or reimburse you, upon receipt of periodic billings, for all reasonable out-of-pocket expenses incurred in connection
with this Agreement and the engagement hereunder, including, but not limited to, travel, lodging and other charges customarily
recoverable as out-of-pocket expenses. In addition, the Company shall pay you for your reasonable legal fees incurred in the review
of this Agreement.
| A. | Termination of Your Position. |
The Term and your
employment with the Company hereunder may be terminated by the Company and you at any time upon mutual agreement of the Company
and you or by you or the Company as provided in this Section V. Except as hereinafter provided in this Section V, upon termination
of your employment during the Term, you shall be entitled to the compensation and benefits described in Section IV hereof through
the Termination Date.
| B. | Expiration of the Term for Cause or Without Good Reason. |
Your employment
hereunder may be terminated by the Company for “Cause”, as such term is hereinafter defined, or by you with
“Good Reason”, as such term is hereinafter defined. If your employment is terminated by the Company for Cause or by
you without Good Reason, you shall be entitled to receive: (i) any accrued but unpaid Base Compensation which shall be paid on
the “Termination Date”, as hereinafter defined, within one (1) week following the Termination Date; (ii) any
earned but unpaid Quarterly Bonus with respect to any completed calendar/fiscal quarter immediately preceding the Termination Date,
which shall be paid on the otherwise applicable payment provided; and (iii) reimbursement for unreimbursed business expenses properly
incurred by you including, without limitation, health insurance costs as provided in Section IV hereof.
For purposes of
this Agreement, “Cause” shall mean:
(1)
your willful failure to perform your duties and responsibilities (other than any such failure resulting from incapacity due to
physical or mental illness);
(2)
your willful failure to comply with any valid and legal directive of the Manager of the Company;
(3)
your willful engagement in dishonesty, illegal conduct or gross misconduct, which is, in each case, materially injurious to the
Company;
(4)
your embezzlement, misappropriation or fraud related to your employment with the Company;
(5)
your conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony (or state law equivalent) or a crime
that constitutes a misdemeanor involving moral turpitude, if such felony or other crime is work-related, materially impairs your
ability to perform services for the Company or results in material/reputational or financial harm to the Company; or
(6)
your willful unauthorized disclosure of “Confidential Information”, as hereinafter defined.
For purposes of
this provision, no act or failure to act on your part shall be considered “willful” unless it is done, or omitted to
be done, by you in bad faith or without reasonable belief that your action or omission was in the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Manager or upon the advice
of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best
interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board
of Directors of the Company or upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by you in good faith and in the best interests of the Company.
For purposes of
this Agreement, “Good Reason” shall mean the occurrence of any of the following, in each case during the Term
without your written consent: (i) any material breach by the Company of any material provision of this Agreement including, without
limitation, failure to pay you any of the Base Compensation or Additional Compensation provided for herein within five (5) business
days of the due date thereof and a material, adverse change in your authority, duties or responsibilities (other than temporarily
while you are physically or mentally incapacitated or as required by applicable law), and (ii) any Change in Control.
For purposes of
this Agreement, “Change in Control” shall mean the occurrence of any of the following: (x) one person (or more
than one person acting as a group) acquires ownership of stock of the Company that, together with the stock held by such person
or group, constitutes more than 50% of the voting power of the stock of the Company; (y) the sale of all or substantially all of
the Company’s assets; or (z) the merger or consolidation of the Company with another person, firm or entity that is not currently
an affiliate of the Company.
| C. | Without Cause or for Good Reason. |
The Term and your
employment hereunder may be terminated by you for Good Reason or by the Company without Cause. In the event of such termination,
you shall be entitled to receive one full year’s worth of the Base Compensation and Additional Compensation provided for
in Section IV hereof just as if your employment hereunder had continued for one full year beyond the termination date.
Your employment
hereunder shall terminate automatically upon your death during the Term, and the Company may terminate your employment on account
of your Disability. If your employment is terminated during the Term on account of your death or Disability, you (or your estate
and/or beneficiaries, as the case may be) shall be entitled to receive all of the Base Compensation and Additional Compensation
that would have accrued and be payable to you for the Contract Year in which your death or disability occurred. For purposes of
clarification, any Quarterly Bonus for the quarter in which your death or disability may occur shall be prorated to the date of
death or disability. For purposes of this Agreement, “Disability” shall mean your inability, due to physical
or mental incapacity, to substantially perform your duties and responsibilities under this Agreement for one hundred eighty (180)
days out of any three hundred sixty-five (365) days. Any question as to the existence of your Disability as to which you and the
Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to you and the Company.
If you and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two
physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing
to the Company and you shall be final and conclusive for all purposes of this Agreement.
Any termination
of your employment hereunder by the Company or by you during the Term (other than termination pursuant to Section IV.D. on account
of your death) shall be communicated by written notice of termination (“Notice of Termination”) to the other
party hereto in accordance with Section X.J. hereof. The Notice of Termination shall specify: (i) the termination provision of
this Agreement relied upon; (ii) to the extent applicable, the facts and circumstances claimed to provide a basis for termination
of your employment under the provision so indicated; and (iii) the applicable Termination Date.
You agree to keep
confidential all information obtained from the Company, and you will not disclose to any other person or entity, or use for any
purpose other than specified herein, any information pertaining to the Company or any affiliate thereof, which is either non-public,
confidential or proprietary in nature (“Information”) that you obtain or are given access to during the performance
of your duties and responsibilities hereunder. The foregoing is not intended to nor shall it be construed as prohibiting you from
disclosure pursuant to valid subpoena, order or other legal compulsion, but you shall not encourage, suggest, invite or request,
or assist in securing, any such subpoena, court order, or other legal compulsion, and you shall immediately give notice of any
such subpoena, court order, or legal compulsion to the Company. Furthermore, you may make reasonable disclosure of Information
to third parties to the extent necessary in connection with your performance of your duties and responsibilities hereunder. In
addition, you shall have the right to disclose to others in the normal course of business your involvement with the Company.
Information includes
data, plans, reports, schedules, drawings, accounts, records, calculations, specifications, flow sheets, computer programs, source
or object codes, results, models or any work product relating to the business of the Company, its subsidiaries, distributors, affiliates,
vendors, customers, employees, contractors and consultants.
| VII. | INDEMNIFICATION, ADVANCEMENT AND EXCULPATION |
The Company agrees
to indemnify, provide advancement to, and hold you harmless to the fullest extent lawful, from and against any claims, liabilities,
losses, damages and expenses (or any action, claim, suit or proceeding (an “Action”) in respect thereof, as
incurred, related to or arising out of or in connection with your services (whether occurring before, at or after the date hereof)
under the Agreement, whether or not resulting from your negligence (“Losses”), provided, however, that the Company
shall not be responsible for any Losses that arise out of or are based on any action of or failure to act by you to the extent
such Losses are determined, by a final, non-appealable judgment by a court or arbitral tribunal, to have resulted solely from your
gross negligence or willful misconduct.
The Company agrees
to reimburse and provide advancement to you for all expenses (including, without limitation, fees and expenses of counsel), including
all costs and expenses (including expenses of counsel) incurred by you to enforce your rights hereunder, as they are incurred in
connection with investigating, preparing, defending or settling any Action for which indemnification, advancement or contribution
has or is reasonably likely to be sought by you, whether or not in connection with litigation in which you are a named party; provided
that if any such reimbursement is determined by a final, non-appealable judgment by a court or arbitral tribunal, to have resulted
solely from your gross negligence or willful misconduct, you shall promptly repay such amount to the Company. The Company agrees
that you shall not have any personal liability to the Company for monetary damages for breach of fiduciary duty, provided that
this limitation shall not eliminate or limit the liability of you: (i) for any breach of your duty of loyalty to the Company, (ii)
for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (iii) for any
transaction from which you received an improper personal benefit. Notwithstanding the provisions hereof, the aggregate contribution
of you to all Losses shall not exceed the amount of Base Compensation actually received by you with respect to the services rendered
pursuant to the Agreement.
In addition to the
foregoing indemnification, advancement, and contribution rights, the Company agrees that you will be entitled to the benefit of
the most favorable indemnities provided by the Company to its other officers and directors, whether under the Company’s by-laws,
certificates of incorporation, by contract or otherwise.
The Company agrees
that it will not settle or compromise or consent to the entry of any judgment in, or otherwise seek to terminate any pending or
threatened Action in respect of which indemnification, advancement, or contribution may be sought hereunder (whether or not you
are a party to such Action) unless you have given your prior written consent, or the settlement, compromise, consent or termination
(i) includes an express unconditional release of you from all Losses arising out of such Action, and (ii) does not include any
admission or assumption of fault on your part.
Notwithstanding
anything in Section V of this Agreement to the contrary or inconsistent herewith, the provisions of this Section VII shall survive
termination of this Agreement for whatever reason and regardless of which party terminates this Agreement.
You are not aware
of any business relationship you have that creates a potential or actual conflict of interest with respect to the Company.
The Company represents
and warrants to you that it has taken all necessary corporate and other action necessary for it to enter in to this Agreement and
to enable you to perform your duties and responsibilities hereunder. Further, the Company represents and warrants to you that this
Agreement, when executed by you and the undersigned is a valid and binding agreement on the part of the Company enforceable in
accordance with its terms.
You represent and
warrant to the Company that your acceptance of your Executive Vice President of the Company and Chief Executive Officer of Maxxon
Energy and the performance of your duties and responsibilities hereunder will not conflict with or result in a violation of, a
breach of, or a default under any contract, agreement or understanding to which you are a party or are otherwise bound.
This Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof and supersedes any other prior communications, understandings
and agreements (both written and oral) between the parties with respect to the subject matter hereof.
This Agreement may
be modified, amended or supplemented only by a written agreement between the parties hereto. You will not be responsible for performing
any services not specifically described in this Agreement or in a subsequent writing signed by the parties.
This Agreement and
all controversies arising from or related to the performance hereunder shall be governed by, and construed in accordance with,
the laws of the State of Georgia without giving effect to such State’s conflicts of law principles.
If any portion of
this Agreement shall be determined to be invalid or unenforceable, the parties agree that the remainder shall be valid and enforceable
to the maximum extent possible.
This Agreement has
been and is made solely for the benefit of the Company and you and our respective successors and assigns, and no other person or
entity shall acquire or have any right under or by virtue of this Agreement.
Neither party may
assign or transfer its or his rights or obligations under this Agreement without the prior written consent of the other party.
Each party agrees
that no failure or delay by the other party in exercising any right, power or privilege hereunder will operate as a waiver thereof,
nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power
or privilege hereunder.
Captions and
headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement
is to be construed by reference to the caption or heading of any section or paragraph.
This Agreement
may be executed in separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute
one and the same instrument.
All notices required
or permitted to be delivered under this Agreement shall be sent, if to you, to the attention of you, and if to the Company, to
the attention of Andrew Reckles. All notices under this Agreement shall be sufficient if delivered by facsimile, electronic mail,
or overnight courier. Any notice shall be deemed to have been given only upon actual receipt. Mailed notices shall be addressed
as set forth below, or to such other name or address as may be given in writing to the other party.
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To you: |
Albert Valentin
8684 Franklin Drive
Eagle Mountain, UT
84005
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To the Company: |
Legend
Oil and Gas, Ltd.
555 North Point Center
East, Ste. 410
Alpharetta, GA 30022
Attn: Andrew Reckles
Email: andy@northpointep.com
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Please confirm
the foregoing is in accordance with your understanding by signing and returning a copy of this Agreement.
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Sincerely, |
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Legend Oil and Gas, Ltd. |
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By: |
/s/ |
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Name: |
Andrew Reckles |
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Title: |
CEO |
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Dated: |
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AGREED AND ACKNOWLEDGED: |
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Name: |
Albert Valentin |
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Dated: |
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Legend Oil and Gas, Ltd. 10-Q
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) OR RULE 15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED
I, Andrew S. Reckles, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Legend Oil and Gas, Ltd.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Andrew S. Reckles |
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Date: |
May 20, 2015 |
Andrew S. Reckles |
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Chief Executive Officer |
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Legend Oil and Gas, Ltd. 10-Q
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING OFFICER
PURSUANT TO RULE 13A-14(A) OR RULE 15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED
I, Warren S. Binderman, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Legend Oil and Gas, Ltd.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Warren S. Binderman |
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Date: |
May 20, 2015 |
Warren S. Binderman |
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President, Chief Financial Officer and Principal Accounting Officer |
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Legend Oil and Gas, Ltd. 10-Q
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER PURSUANT TO RULE 13A-14(B) OR 15D-14(B)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND TO 18 U.S.C. SECTION 1350
In connection with the quarterly report on Form
10-Q of Legend Oil and Gas, Ltd. (the “Company”) for the quarter ended March 31, 2015, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Andrew S. Reckles, as Chief Executive Officer of the
Company, and I, Warren S. Binderman, as President, Chief Financial Officer and Principal Accounting Officer of the Company, hereby
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best
of my knowledge:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
/s/ Andrew S. Reckles |
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Date: |
May 20, 2015 |
Andrew S. Reckles |
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Chief Executive Officer |
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/s/ Warren S. Binderman, CPA |
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Date: |
May 20, 2015 |
Warren S. Binderman, CPA |
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President, Chief Financial Officer and Principal Accounting Officer |
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The certifications
filed under this Exhibit 32.1 are not deemed “filed”
for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of
Legend Oil and Gas, Ltd. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether
made before or after the date hereof and irrespective of any general incorporation by reference language contained in any such
filing, except to the extent that Legend Oil and Gas, Ltd. specifically incorporates it by reference.
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