Notes to the Unaudited Condensed Consolidated Financial Statements
Note 1 Organization, Principal Activities and Basis of Presentation
Eagle Mountain Corporation (“Eagle”) (formerly known as USmart Mobile Device Inc. (“USmart”)) and its subsidiaries are referred to herein collectively and on a consolidated basis as the “Company” or “we”, “us” or “our” or similar terminology.
The Company was incorporated under the laws of the State of Delaware on September 17, 2002 and was previously known as ACL Semiconductors Inc. The Company acquired Atlantic Components Limited, a Hong Kong incorporated company (“Atlantic”) through a reverse-acquisition that was effective September 30, 2003. On September 28, 2012, the Company acquired Jussey Investments Limited, a company incorporated in British Virgin Islands (“Jussey”). The subsidiaries were held for disposal since March 31, 2014 and officially disposed on September 30, 2014, the Company disposed all of the equity interest held in ACL International Holdings Limited (“ACL Holdings”).
After the disposal, the Company was still engaged in the sales and distribution of smartphones, electronic products and components in Hong Kong Special Administrative Region (“Hong Kong”) and the People’s Republic of China (“China” or the “PRC”).
On April 24, 2015, the Company amended its Certificate of Incorporation to change its corporate name to Eagle Mountain Corporation. Subsequently, on June 5, 2015 the Company and Eagle Mountain Ltd., a Belize corporation (the “Assignor”), entered into an Assignment and Assumption Agreement (the “Assumption Agreement”), pursuant to which the Assignor assigned to the Company certain debts and assets, including (1) a controlling interest in Shale Oil International Inc. (OTC:PINK-SHLE), and its 100% owned subsidiary, Texas Shale Oil Inc., which collectively own a strategic oil and gas model (intellectual property) covering several thousand square miles of prospective oil and gas exploration and development acres in Louisiana, Texas and Mexico, as well as various related geophysical, geological, engineering and geochemical data sets; (2) an opportunity to participate in and finance a trans-oil pipeline project, and (3) an agreement for a strategic cooperation regarding an integrated energy project and an opportunity to purchase and refurbish a refinery. Mr. Ehud Amir, the Chairman of the Board of the Company’s Board of Directors, and the Company’s Chief Operating Officer, is the CEO of Assignor. Mr. Amir is also a co-founder of Texas Shale Oil Inc., a wholly owned subsidiary of the Company’s 85.39% controlled subsidiary, Shale Oil International Inc. In addition, Mr. Ronald Cormick, the Company’s Chief Executive Officer, is the President and Director of Texas Shale Oil Inc. and President and CEO of Shale Oil International Inc. Mr. Larry Eastland, a member of the Company’s Board of Directors, is also director and Chairman of Shale Oil International Inc.
As a result of entering into the Assignment and Assumption Agreement, the Company changed its business focus and discontinued its operation in the sales and distribution of smartphones, electronic products and components. The Company now operates in the natural resources, EPC (Engineering, Procurement, and Construction) and oil & gas sector.
On July 17, 2015 the Company filed a Certificate of Amendment with the Secretary of State of the State of Delaware to effect the increase in authorized shares of common stock and a reverse stock split. Upon filing of the Certificate of Amendment, the Company’s authorized common stock was increased to 500,000,000 shares and every eighteen shares of the Company’s issued and outstanding common stock was automatically converted into one issued and outstanding share of common stock, without any change in par value per share. The reverse stock split was applied to all shares of the Company’s common stock outstanding immediately prior to July 17, 2015, as well as the number of shares of common stock available for issuance under the Company’s equity incentive plans. In addition, the reverse stock split will effect a reduction in the number of shares of common stock issuable upon the conversion of shares of preferred stock or upon the exercise of stock options or warrants outstanding immediately prior to the effectiveness of the reverse stock split. No fractional shares were issued as a result of the reverse stock split. Stockholders who would otherwise be entitled to receive a fractional share had their factional shares rounded up to the nearest whole number.
EAGLE MOUNTAIN CORPORATION AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 1 Organization, Principal Activities and Basis of Presentation (continued)
The aforementioned Assumption Agreement resulted in a change of control in the Company under the terms of the certificates of designation for each of the Series B, C and D preferred stock, each series automatically converted into shares of the Company’s common stock upon the amendment to the Company’s certificate of incorporation becoming effective as set out above. As a result, the holders of 638,509 shares of Class D and 2,050,000 shares of Class C preferred stock, converted those shares into 268,850,900 shares of our common stock effective July 17, 2015. These shares were issued on August 24, 2015. The holder of 8,000,000 shares of Class B preferred stock surrendered 40,000,000 shares of common stock upon conversion, which shares were exchanged for 8,000,000 shares of Series E preferred stock.
Financial Statements Presented
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2016, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 as filed with the Securities and Exchange Commission on September 12, 2016.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial reporting and in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited consolidated financial statements contained in this report reflect all adjustments that are normal and recurring in nature and considered necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The year-end balance sheet data was derived from audited financial statements, and may not include all disclosures required by GAAP. The results of operations for the interim period are not necessarily indicative of the results expected for the full year. These unaudited, consolidated financial statements, footnote disclosures and other information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
Principal of Consolidation
These consolidated financial statements include the accounts of Eagle Mountain Corp. and its 85.39% controlled subsidiary,
Shale Oil International Inc. (OTC: PINK-SHLE), as well as Shale Oil International’s 100% owned subsidiary, Texas Shale Oil Inc.
All intercompany balances and transactions have been eliminated in consolidation.
Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities, debt discounts and common stock issued for assets, services or in settlement of obligations.
EAGLE MOUNTAIN CORPORATION AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 2 Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
For purposes of reporting within the statements of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents
Accounting for subsidiaries
A subsidiary is an entity controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiary acquired of during the year are included in the income statement from the effective date of acquisition. Where necessary, adjustments are made to the financial statements of subsidiary to bring its accounting policies into line with those used by the Company. All intra-company transactions, balances, income and expenses are eliminated on consolidation. Minority interest in the net assets of consolidated subsidiary are identified separately from the Company’s equity therein. Minority interests consist of the amount of those interests at the date of original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s share of changes in equity are allocated against the interests of the Company except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.
Business combinations
All business combinations are accounted for under the purchase method. The cost of an acquisition is measured at the fair value of the assets given and liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities assumed in a business combination (including contingent liabilities) are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill. At December 31, 2015, we had no recorded goodwill. The interest of minority shareholders in the acquisition is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognized.
Oil and gas properties
We use the successful efforts method of accounting for oil and gas properties. Under that method:
|
a.
|
Geological and geophysical costs and the costs of carrying and retaining undeveloped properties are charged to expense when incurred since they do not result in the acquisition of assets.
|
|
b.
|
Costs incurred to drill exploratory wells and exploratory-type stratigraphic test wells that do not find proved reserves are charged to expense when it is determined that the wells have not found proved reserves.
|
|
c.
|
Costs incurred to acquire properties and drill development-type stratigraphic test wells, successful exploratory wells, and successful exploratory-type stratigraphic wells are capitalized.
|
|
d.
|
Capitalized costs of wells and related equipment are amortized, depleted, or depreciated using the unit-of-production method.
|
|
e.
|
Costs of unproved properties are assessed periodically to determine if an impairment loss should be recognized.
|
EAGLE MOUNTAIN CORPORATION AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 2 Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. During the three months ended March 31, 2016 and during the year ended December 31 2015, there was no impairment of long-lived assets.
Intangible assets
Identifiable intangible assets are recognized when the Company controls the assets, it is probable that future economic benefits attributed to the asset will flow to the Company and the cost of the asset can be reliably measured. The economic or useful life of an intangible asset is based on an estimate made by management and is subject to change under certain market conditions.
Impairment tests were performed as, and update the test between annual tests if events or circumstances occur that indicate an impairment might be existed.
Identifiable intangible assets having indefinite useful economic lives supported by clearly identifiable cash flows are not subject to regular periodic amortization. Instead, in accordance with ASC subtopic 350-30, general intangibles other than goodwill the carrying amount of the intangible is tested for impairment annually, and again between annual tests if events or circumstances warrant such a test. An impairment loss is recognized if the carrying amount exceeds the fair value. Furthermore, amortization of the asset commences when evidence suggests that its useful economic life is no longer deemed indefinite.
The ASC gives entities the option to first assess qualitatively whether it is more likely than not (more than 50 percent) that the asset is impaired. The qualitative assessment test can be performed on some or all of the assets, or the entity can bypass the qualitative test and perform the quantitative test. If it is not more likely than not that the asset is impaired, the entity does not have to calculate the fair value of the intangible asset and perform the quantitative impairment test. If it is more likely than not that the asset is impaired, the entity must perform the quantitative impairment test and calculate the fair value of an indefinite-lived intangible asset.
If performing the qualitative assessment, the entity needs to identify and consider those events and circumstances that, individually or in the aggregate, most significantly affect an indefinite-lived intangible asset’s fair value.
During the three months ended March 31, 2016, we recognized $507,875 impairment of the intangible asset due to no revenue being recognized to support cash flows.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, receivables, payables, and amounts due to related party. The carrying amount of cash, receivables and payables approximates fair value because of the short-term nature of these items. The carrying amount of the notes payable approximates fair value as the individual borrowings bear interest at market interest rates.
EAGLE MOUNTAIN CORPORATION AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 2 Summary of Significant Accounting Policies (continued)
Stock-based Compensation
The Company’s stock option expenses are recorded in accordance with ASC 718, Compensation — Stock Compensation, and ASC 505, Equity.
The fair value of the stock option is estimated using the Black-Scholes model. The Company’s expected volatility assumption is based on the historical volatility of Company’s stock or the expected volatility of similar entities. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
Stock-based compensation expense is recognized based on awards expected to vest, and there were no estimated forfeitures as the Company has a short history of issuing options. ASC 718-10 requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.
Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
Loss per Common Share
Basic loss per share includes no dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
The Company had the following potential common stock equivalents at March 31, 2016:
Series E Convertible Preferred Stock
|
40,000,000
|
Convertible notes
|
500,000
|
Since the Company reported a net loss at March 31, 2016, the effect of considering any common stock equivalents, if outstanding, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.
Revenue Recognition
The Company's revenue recognition policies are in compliance with FASB ASC 605 Revenue Recognition (formerly SEC Staff Accounting Bulletin (SAB) 104). Revenue is recognized when services are rendered to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
Reclassification
Certain reclassifications have been made to the prior period’s financial statements to conform to the current period’s presentation.
EAGLE MOUNTAIN CORPORATION AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 2 Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Note 3 Going Concern
The Company has incurred net losses since a change of business in early 2015, and had a working capital deficit of $2,597,515 at March 31, 2016 and $3,060,658 at December 31, 2015. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. The Company expects cash flows from operating activities to improve, primarily as a result of an increase in revenue, although there can be no assurance thereof. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If we fail to generate positive cash flow or obtain additional financing, when required, we may have to modify, delay, or abandon some or all of our business and expansion plans.
Note 4 Discontinued Operations
On June 5, 2015, Eagle Mountain Corporation (the “Company”) executed an assignment and assumption agreement (the “Assumption Agreement”) with Eagle Mountain Ltd., a Belize corporation (the “Assignor”). Pursuant to the Assumption Agreement, the Company acquired certain agreements and assets and assumed debts in the aggregate amount of $1,327,017 from the Assignor. In consideration, the Company issued the Assignor and/or its assignees 8,000,000 shares of a newly designated Series B Convertible Preferred Stock, 2,050,000 shares of a newly designated Series C Convertible Preferred Stock, 100,000 shares of a newly designed Series D Convertible Preferred Stock and 50,000,000 shares of common stock.
Upon the closing, the Company changed its business from the sales and distribution of smartphones, electronic products and components to operations in the natural resources, EPC (Engineering, Procurement, and Construction) and oil & gas sector. The major classes of assets and liabilities from discontinued operations as of March 31, 2016 and December 31, 2015 are Nil included in the consolidated balance sheets, are as gathered from the records transferred to the Company, unaudited, and subject to further verification, are reported below as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
-
|
|
|
$
|
560,000
|
|
Costs of sales
|
|
|
-
|
|
|
|
480,000
|
|
Gross profit (loss)
|
|
|
-
|
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Selling and distribution costs
|
|
|
-
|
|
|
|
49,280
|
|
General and administrative expenses
|
|
|
-
|
|
|
|
181,363
|
|
Total operating expenses
|
|
|
-
|
|
|
|
230,643
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
-
|
|
|
|
(150,643
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
-
|
|
|
|
(150,643
|
)
|
EAGLE MOUNTAIN CORPORATION AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 5 Other Assets
(a)
|
Sale and Purchase Agreement with Pryme Oil and Gas LLC
|
On May 23, 2014 the Company’s 85.39% controlled subsidiary, Shale Oil International Inc. entered into a Sale and Purchase agreement with Pryme Oil and Gas LLC, a Texas corporation, (the “Seller”) where under the Company’s subsidiary, as “Purchaser”, will acquire 100% of the Seller’s working interests and net revenue interests in the oil and gas leases and areas of mutual interest held by Seller in the
AVOYELLES & ST. LANDRY PARISHES, LOUISIANA
, known as the Tuner Bayou Acreage (the “Acreage”). In addition, the Purchaser shall acquire the Seller’s working interest in the personal property, equipment and fixtures on the Acreage, as well as any available seismic, geologic, geophysical, geochemical, engineering, financial, prior drilling and production histories, legal and cultural information, reports, studies and data accumulated by Seller in the acquisition and development of the Acreage. In consideration for the acquisition, the Purchaser shall assume certain debts of the Seller, not to exceed $1,400,000, shall pay the Seller’s proportionate share of the installation of an artificial lift system on the Rosewood Plantation 21-H well (the “Workover”) within 30 days of the execution of the agreement, not to exceed $260,000, and shall agree to drill at least one Chalk well within 4 months of the completion of the aforementioned Workover. As at December 31, 2015 and 2014 the Company’s subsidiary has remitted deposits of $260,000 towards the required Workover fees.
Under the terms of the agreement, should the transaction fail to close for any reason, the $260,000 advance by the Company’s subsidiary may be converted into an unrestricted block of stock in Prime Energy Limited in equivalent value to the cash proceeds advanced, determined using a VWAP share price. As at the date of this report the transaction has not yet closed due to a change in economic conditions and certain legal matters which are being addressed by Pryme, however the Company and Pryme continue to work towards completion of the agreement as contemplated above.
Intangible assets totaling $2,031,500 reflected on the Company’s balance sheet represent certain acquired geologic, geophysical, geochemical and engineering data, land acquisition costs and certain associated technical expenses recorded at cost and held by the Company’s 85.39% controlled subsidiary, Shale Oil International Inc., and its wholly owned subsidiary, Texas Shale Oil Inc.
During the three months ended March 31, 2016, we recognized $507,875 impairment of the intangible asset.
Note 6 Deferred Revenue
In September 2015, the Company received $350,000 from a client in respect to an invoice issued with respect to certain consulting services to be rendered including the acquisition of engineering, geological and geophysical data and the completion of pre-feasibility work on a potential mining project in Panama. As at March 31, 2016 the Company had not yet completed the scope of work and has recorded the amount received as deferred revenue. Scope of work is expected to be completed when the client obtains a release from the Panamanian government for certain required data to complete the work in progress.
Note 7 Notes Receivable
During the year ended December 31, 2015, the Company provided $175,000 in operating capital to a third party in the form of a two-year note, bearing interest at 2% plus the USD Libor rate. The loan is unsecured.
On June 1, 2014, the Company’s subsidiary provided $83,450 to a third party in the form of a two-year note, bearing 6% interest per annum as a loan for working capital. The loan is unsecured.
EAGLE MOUNTAIN CORPORATION AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 8 Convertible Notes
1.
|
6% convertible Notes with various investors:
|
During the year ended December 31, 2015, the Company entered into various 6% convertible notes with investors, having a maturity date as of September 1, 2015 and with conversion prices varying from $0.05 to $0.10 per share. We received a total of $1,140,000 in respect of these convertible notes.
As at the date of issue, these convertible notes were considered to have a beneficial conversion feature (“BCF”) because the conversion price was less than the quoted market price at the time of issuance. The beneficial conversion feature resulting from the discounted conversion price compared to market price was valued on the date of issue to be $1,150,000, or the face value of the notes. This value was recorded as a discount on debt and offset to additional paid in capital. Amortization of the discount for the period ended December 31, 2015 was $1,140,000.
The notes became due and payable on September 1, 2015 and are now considered demand notes which continue to accrue interest at a rate of 6% per annum. As at March 31, 2016 all the notes issued have been converted to shares of common stock, save 2 original notes with face value of $50,000.
2.
|
6% convertible note of $250,000 with an investor
|
On August 18, 2015, the Company entered into a 6% convertible note of $250,000, with an investor, having a maturity date as of September 1, 2015 with conversion prices at $0.10 per share. We received a total of $60,000 in respect of the convertible note.
During the period ended March 31, 2016, 2,500,000 shares were issued under this convertible note and we recorded $190,000 in unreceived funds under equity as subscription receivable.
Interest expenses:
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|
For the three months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
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Interest at contractual rate
|
|
|
3,665
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|
|
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-
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Totals
|
|
$
|
3,665
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|
|
$
|
-
|
|
Note 9 Agreement for Services and Stock Options
On January 4, 2016,
the Company entered into a one-year term Service Agreement with an independent consultant. Under the service agreement, the consultant
will provide qualified projects in accordance with the Company’s requirements and refer those projects to the Company for further consideration, clearance and/or prequalification
. In consideration for the services provided, the Company will pay
eight million (8,000,000) common
share stock options exercisable in full or in increments at $0.01 per option until January 2
nd
2020. At the Consultant’s decision, they may be registered in full or in part on the next Registration Statement on Form S-1 or S-8 that it files with the Securities and Exchange Commission.
As a result, the Company granted a total of 8,000,00 stock options which were fully vested on issue date.
The following table summarizes information concerning stock options outstanding as of March 31, 2016:
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Shares
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|
|
Weighted Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
-
|
|
|
|
-
|
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Granted
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|
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8,000,000
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|
|
$
|
0.01
|
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Vested
|
|
|
8,000,000
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
Unvested, at March 31, 2016
|
|
|
-
|
|
|
$
|
0.01
|
|
EAGLE MOUNTAIN CORPORATION AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 9 Agreement for Services and Stock Options (continued)
On January 4, 2016 the Company issued 8,000,000 shares of common stock in respect to the aforementioned option for cash proceeds of $80,000. There were no options outstanding as at March 31, 2016.
The Company recognized a consultant fee of $10,721,600 with respect to the issuance during the three months ended March 31, 2016.
On November 17, 2016, the independent consultant who exercised a stock option issued January 4, 2016 under the terms of a services agreement for a total of 8,000,000 shares at 0.01 per share entered into an agreement with the Company to cancel the shares and return them to treasury.
Valuation Assumptions
The Company accounts for share-based payments pursuant to ASC 718, “Stock Compensation” and, accordingly, the Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options and restricted stock awards using the Black-Scholes option pricing model. The fair value of stock options under the Black-Scholes model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates, volatility of the Company’s stock price and expected dividends.
Stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately under ASC 718 and EITF 96-18 when options are given for service without further recourse. The Company issued stock options to contractors to provide services to the Company during the fiscal year. However, the stock options have already been granted to the service providers and there is no claw back provision in the options if services are not performed. Under ASC 718 and EITF 96-18 these options were recognized as expense in the period issued because they were given as a form of compensation for services to be rendered with no recourse.
The following table presents the range of the weighted average fair value of options granted and the related assumptions used in the Black-Scholes model for stock option grants made during the three months ended March 31, 2016:
|
|
Options Granted
|
|
|
January 4, 2016
|
Fair value of options granted (a)
|
|
$
|
1.35
|
|
Assumptions used:
|
|
|
|
|
Expected life (years) (b)
|
|
|
1.00
|
|
Risk free interest rate (c)
|
|
|
0.57
|
%
|
Volatility (d)
|
|
|
318.90
|
%
|
Dividend yield (e)
|
|
|
0.00
|
%
|
|
a)
|
Fair Value
: The fair value of the Company's common stock was obtained from the closing price on the OTC Bulletin Board as of the dates of grant.
|
|
|
|
|
b)
|
Expected life
: The expected term of options granted is determined using the “shortcut” method allowed by SAB No.107. Under this approach, the expected term is presumed to be the mid-point between the vesting date and the end of the contractual term.
|
|
|
|
|
c)
|
Risk-free interest rate
: The rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected life of the options.
|
|
|
|
|
d)
|
Volatility:
The expected volatility of the Company’s common stock is calculated by using the historical daily volatility of the Company’s stock price calculated over a period of time representative of the expected life of the options.
|
|
|
|
|
e)
|
Dividend yield
: The dividend yield rate is not considered in the model, as the Company has not established a dividend policy for the stock.
|
EAGLE MOUNTAIN CORPORATION AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 9 Agreement for Services and Stock Options (continued)
Fair value hierarchy of the above assumptions can be categorized as follows:
(1)
|
Level 1 inputs include:
|
|
|
|
Fair value of common stock on date of grant- Obtained from the closing price of the Company’s common stock quoted on the OTC Bulletin Board as of the date of grant.
|
|
|
(2)
|
Level 2 inputs include:
|
|
|
|
Expected volatility- Based on historical volatility of the closing price of the Company’s common stock quoted on the OTC Bulletin Board.
|
|
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Risk-free rate- The risk-free rate of return reflects the interest rate for United States Treasury Note with similar time-to-maturity to that of the options.
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(3)
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Level 3 inputs include:
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Expected lives- The expected lives of options granted were derived from the output of the option valuation model and represented the period of time that options granted are expected to be outstanding.
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Note 10 Related Party Transactions
Transactions with Ronald Cormick, CEO, Officer and Director of the Company
During the three months ended March 31, 2016, the Company accrued $30,000 to Mr. Ronald Cormick as consulting fees allocated to exploration expenses. As of March 31, 2016, $17,920 remained on the balance sheet as accounts payable and accrued liabilities.
During the three months ended March 31, 2016, Mr. Ronald Cormick advanced $13,683 to the Company’s subsidiary TSO. As of March 31, 2016, $423,517 remained on the balance sheets as advances payable. (December 31, 2015, $409,834).
Transactions with Ehud Amir, COO, Officer and Director of the Company
During the three months ended March 31, 2016, the Company accrued $30,000 to Mr. Ehud Amir as consulting fees allocated to exploration expenses. As of March 31, 2016, $30,000 remained on the balance sheet as accounts payable and accrued liabilities.
During the three months ended March 31, 2016, Mr. Ehud Amir advanced $22,425 to the Company’s subsidiary TSO. As of March 31, 2016, $28,900 remained on the balance sheets as advances payable (December 31, 2015, $6,475).
Transactions with Larry Eastland, Director of the Company
During the three months ended March 31, 2016, the Company accrued $25,000 in consulting fees from Mr. Larry Eastland. As of March 31, 2016, $221,667 remained on the balance sheets as accounts payable and accrued liabilities (December 31, 2015 - $196,667).
EAGLE MOUNTAIN CORPORATION AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 11 Common Stock
On January 4, 2016 the Company issued 8,000,000 shares of common stock to a third party in respect of a share purchase agreement where under the purchaser had the option to acquire shares at a price of $0.01 per share. The Company received cash proceeds of $80,000 prior to the fiscal year end in respect of this share purchase agreement. No underwriters were utilized in connection with this sale of securities. (ref Note 9 - Agreement for Services and Stock Options)
On January 6, 2016 the Company issued a total of 50,000 shares to two individuals as part of a share transfer between two shareholders where under certain shares were returned to the company for cancellation and reissue. The new shares were issued prior to receipt of the canceled shares, which return and cancelation occurred January 23, 2016.
On January 21, 2016, the Company issued a total of 13,000,000 shares at $0.05 in respect to certain convertible notes entered into during fiscal 2015 which came due and payable September 1, 2015 to two individual investors.
On January 23, 2016 the Company issued 700,000 shares to an individual as part of a share transfer between two shareholders where under certain shares were returned to the company for cancellation and reissue. The new shares were issued concurrent to receipt of the canceled shares, which return and cancelation occurred January 23, 2016.
On January 23, 2016 the Company issued 2,000,000 shares to an individual as part of a share transfer between two shareholders where under certain shares were returned to the company for cancellation and reissue. The new shares were issued concurrent to receipt of the canceled shares, which return and cancelation occurred January 23, 2016.
On January 23, 2016 a shareholder of the Company returned a total of 8,895,000 common shares for reissue. Upon receipt the shares were canceled and returned to treasury pending instruction for reissue from the shareholder.
On January 23, 2016, the Company issued a total of 2,500,000 shares of common stock to an investor. (Ref Note 8 – Convertible Notes 2)
On March 9, 2016 the Company issued 1,000,000 shares to a private individual in respect of a private placement at $0.10 per share for total cash proceeds of $100,000, of which $50,000 was received in the three months ended March 31, 2016 and $50,000 was provided as cash proceeds to TSO during fiscal 2014.
On March 10, 2016 the Company issued a total of 10,000,000 shares of common stock in respect of the acquisition of an engineering, construction and procurement project in the country of Cyprus. Subsequently the Company determined the services required in respect of the shares were unable to be fulfilled and the shares will be returned for cancelation during the 4
th
quarter of fiscal 2016.
The Company had
363,720,926
and 335,365,926 shares of common stock outstanding at March 31, 2016 and December 31, 2015.
EAGLE MOUNTAIN CORPORATION AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 12 Other Events
Entry into a material agreement
In January 2016 we announced the signing of a formal Heads of Agreement to pursue mutually beneficial management and financing projects in the oil, gas and natural resources industries with Shandong Pusheng Petrochemical Co., Ltd. (“SPPCL”).
Under the terms of the agreement, for the initial naphtha trading project, Eagle Mountain will provide sourcing, purchasing and management of transportation logistics for the oil, gas, and refined products to be delivered and sold into the Chinese market.
SPPCL is an international oil and gas trading and development company, globally engaged in a wide range of businesses in the oil industry, with extensive partnerships with many State-owned companies. The company has organized consortiums for multiple international projects in the oil, gas, petrochemical and mining industries.
Further in April of 2016 we announced a Joint-Venture Agreement between SPPCL and Eagle Mountain for oil, gas and petroleum products trading as well as an initial purchase order to purchase light naphtha through the established Joint Venture Company. The contract calls for Eagle Mountain to source and negotiate the purchase and delivery of approximately 300,000 metric tonnes of light naphtha per month for five years. At the time of the origination of the purchase order, light naphtha has been in the range of $330 to $380/tonne FOB U.S. Gulf Coast.
A subsidiary of Eagle Mountain based in Hong Kong to be formed will be joint-ventured 40/60 with a Hong-Kong subsidiary of Shandong Pusheng where the Irrevocable Documentary Letter of Credit (DLC) is established and ready to proceed with the first purchase during the early fall of 2016. Eagle Mountain is responsible for arranging the purchase and delivery of the naphtha. Shandong Pusheng is responsible for sale of the naphtha into the Southeast Asian markets, in cooperation with China’s state enterprises.
Note 13 Subsequent Events
Shares issued subsequent to fiscal year end
On April 5 the Company issued a total of 4,900,000 shares of common stock in respect of the acquisition of an engineering, construction and procurement project in the country of Cyprus. Under the terms of the agreement the Company has been assigned the rights to participate in a Memorandum of Understanding (“MOU”) amongst various parties granting the rights to develop an oil & gas complex including an LNG Processing Plant, Power Plant, Refinery, Oil Storage Depot and associated port facilities. The project are is located in Greek Cyprus on property owned by the Greek Orthodox Church which agreed to grant a 100-year lease. The parties to the MOU have access to certain gas fields located in the Eastern Mediterranean and Western Iraq.
n April 5 and April 7, 2016 respectively, the Company issued a total of 5,500,000 shares to an individual and a corporate entity as part of a share transfer between shareholders where under certain shares were returned to the company for cancellation on January 23, 2016, and subsequent reissue.
On May 5, 2016 the Company issued a total of 1,500,000 shares to five individuals as part of a share transfer between shareholders where under certain shares were returned to the company for cancellation on January 23, 2016, and subsequent reissue.
Departure of Director and Officer
On September 29, 2016, Mr. Ehud Amir tendered his resignation as Chairman and Director of Eagle Mountain Corporation, (the “Company”) effective immediately. His resignation was for personal reasons. Subsequently, the remaining Board members met and voted that in the best interests of the Company and Mr. Amir, his role as COO is hereby terminated with his duties absorbed by the CEO until a suitable replacement is found.
Cancelation of Shares Issued under Stock Option
On November 17, 2016, an independent consultant who exercised a stock option issued January 4, 2016 under the terms of a services agreement (Note 9 above) for a total of 8,000,000 shares at 0.01 per share entered into an agreement with the Company to cancel the shares and return them to treasury.