NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED MARCH 31, 2013 AND MARCH 31, 2012
1. Organization of the Company and Significant Accounting Principles
The Company was incorporated in the State of Nevada October 1995. Effective October 13, 2004 the Company, previously known as Energy Producers Inc., changed its name to EGPI Firecreek, Inc.
Prior to December 2008, the Company held interests in various gas & oil wells located in the Wyoming and Texas area. In December 2008, the Company’s major creditor, Dutchess Private Equities Ltd. (Dutchess), foreclosed on the assets of the Company. As a result, all of the Company’s oil and gas properties were transferred to Dutchess in satisfaction of debt owed.
In October 2008, the Company effected a 1 share for 200 shares reverse split of its common stock and all amounts have been retroactively adjusted.
In May 2009 the Company acquired M3 Lighting, Inc. (“M3”) as a wholly owned subsidiary via reverse triangular merger. The Company was determined to be the acquirer in the transaction for accounting purposes. M3 is a distributor of commercial and decorative lighting to the trade and direct to retailers. As part of the Merger the Company effected a name change for its wholly owned subsidiary Malibu Holding, Inc. to Energy Producers, Inc. (“EPI”) as a conduit for its oil and gas activities.
In November 2009 the Company acquired all of the issued and outstanding capital stock of South Atlantic Traffic Corporation, a Florida corporation (“SATCO”). SATCO has been in business since 2001 and has several offices throughout the Southeast United States. SATCO carries a variety of products and inventory geared primarily towards the transportation industry. SATCO offers transportation products ranging from loop sealant, traffic signal equipment, traffic and light poles, data/video systems and Intelligent Traffic Systems (ITS) surveillance systems. SATCO works closely with Department of Transportation (DOT) agencies, local traffic engineers, contractors, and consultants to customize high quality traffic control systems.
In December 2009, the Company’s wholly owned subsidiary Energy Producers, Inc. acquired 50% working interests and corresponding 32% net revenue interests in oil and gas leases, reserves, and equipment located in West Central Texas. The Company entered into a turnkey work program included for three wells located on the leases.
On March 3, 2010, the Company executed a Stock Purchase Agreement with the stockholders of Redquartz LTD (“Sellers” or “RQTZ”), a company formed and existing under the laws of the country of Ireland, whereas the Company agreed to issue 100,000 shares of its restricted common stock valued at USD $2,500 in exchange for 100% of the issued and outstanding shares of common stock, par value $0.01 per share, of RQTZ. All assets and liabilities, other than the Shareholder Notes Payable, of the RQTZ were transferred to the prior owners of Redquartz. The Notes Payable represent a debt burden to RQTZ of USD $4,464,262. This obligation is based in Euros and converted to our functional currency the dollar. Redquartz LTD was inactive in the first and second quarter of 2010 and had no income and expense that would affect the financial statements of the Company and therefore no pro-forma is necessary.
On June 11, 2010, the Company acquired all of the issued and outstanding stock of Chanwest Resources, Inc., (“Chanwest or CWR”) a Texas corporation. In the course of this acquisition, Chanwest stockholders exchanged all outstanding common shares for the Company’s common shares and other provisions. Chanwest Resources, Inc. was formed in 2009 and has been engaged in ramping up operations including acquiring assets related to the servicing and construction, and activities related to the acquisition, production and development for oil and gas. Chanwest has formed strategic alliances and brought key management with over 40 years experience in all facets of the oil and gas industry, to be implemented on day one of our acquisition thereof. Chanwests’ first phase of operations include Construction and Trucking, services for drill site preparation to clear and lay pipeline (gathering systems) for operators. Chanwest operations can provide for services to maintain lease roads, set power poles and clean up oilfield spills. Chanwest works with operators or lease owners by purchase order or contract with major oil fields.
On October 1, 2010 EGPI Firecreek, Inc. the Company entered into a Definitive Securities Purchase/Exchange Agreement with Terra Telecom, LLC. (“Terra"). Terra is considered recognized as a leading provider of state-of-the-art communication technologies and a premier Alcatel-Lucent partner. They currently serve various sized companies and organizations that use and deploy communications systems, sales, service, and training while consolidating and optimizing the end user experience. Its goal is to provide customers value and integrity in each of these opportunities. Since 1980, Terra has focused on delivering enterprise solutions while leading with voice services and offering full turn-key solutions that consist of voice, data, video and associated applications. As of December 31, 2010, the Company has not assumed control of this acquisition. As a result, this company is not consolidated in the financial statements as of December 31, 2010. On March 14, 2011, the Company sold its interest in Terra to Distressed Asset Acquisitions, Inc.
On October 18, 2010, the Company filed a Certificate of Amendment to its Articles of Incorporation, increasing its authorized common stock, par value $0.001 per share, to 3,000,000,000 from 1,300,000,000 and is authorized to issue 60,000,000 shares of preferred stock that has a par value of $0.001 per share.
On November 9, 2010, the Company affected a 1 share for 50 shares reverse split of its common stock and all amounts have been retroactively adjusted for all periods presented.
On February 4, 2011, the Company entered into an Agreement to acquire all 100% of Arctic Solar Engineering LLC, a Missouri limited liability company located at PO Box 4391, Chesterfield, MO 63006 and the owners of Membership Interests of the Arctic Solar Engineering LLC; The FATM Partnership, a Missouri Partnership, The Frederic Sussman Living Trust. Arctic Solar Engineering, LLC, is an integrator of Solar Thermal Energy technology. For further information please see our Current Report on Form 8-K filed on February 10, 2011, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
On March 2, 2011 the Company obtained a consent from the majority shareholders of the Company to amend the Articles of Incorporation to i) authorize the issuance of 2,500 shares of a new D Series Preferred Stock, and ii) for the Board of Directors to be able to authorize any and all capitalization of the Company going forward without the need for shareholder approval, and further authorized for the Board of Directors to set all rights, preferences, and designations, for and in behalf of any class of the Company’s common of preferred stock, and as may be required or as necessary in the best interest of the Company.
On March 14, 2011, the Company entered into and completed the closing of a Stock Purchase Agreement involving the sale of South Atlantic Traffic Corporation to Distressed Asset Acquisitions, Inc. For further information please see our Current Report on Form 8-K filed on March 18, 2011 and in the section on The Business”, and Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
On March 14, 2011, the Company entered into and completed the closing of a Stock Purchase Agreement involving the sale of Oklahoma Telecom Holdings, Inc. an Oklahoma corporation, formerly known as Terra Telecom, LLC., an Oklahoma limited liability company and Terra Telecom, Inc. (TTI”), to Distressed Asset Acquisitions, Inc. For further information please see our Current Report on Form 8-K filed on March 18, 2011 and in the section on The Business”, and Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.
On July 7, 2011, the Company filed a Certificate of Amendment to its Articles of Incorporation, increasing its authorized common stock, par value $0.001 per share, to 5,000,000,000 from 3,000,000,000 and is authorized to issue 60,000,000 shares of preferred stock that has a par value of $0.001 per share.
On July 7, 2011, the Company affected a 1 share for 500 shares reverse split of its common stock and all amounts have been retroactively adjusted for all periods presented.
On January 24, 2013, the Company affected a 1 share for 4,000 shares reverse split of its common stock and all amounts have been retroactively adjusted for all periods presented.
Consolidation -
the accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company balances have been eliminated.
The financial information included in this quarterly report should be read in conjunction with the consolidated financial statements and related notes thereto in our Form 10-K for the year ended December 31, 2012.
Use of Estimates
- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make reasonable estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses at the date of the consolidated financial statements and for the period they include. Actual results may differ from these estimates.
Revenue and Cost Recognition-
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-
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Oil and gas: Revenue is recognized from oil and gas sales in the period of delivery. Settlement on sales occurs anywhere from two weeks to two months after the delivery date. The Company recognizes revenue when an arrangement exists, the product has been delivered, the sales price is fixed or determinable, and collectability is reasonably assured.
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-
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Oilfield services: Revenue from services is recognized when an arrangement exists, the services are rendered, the sales price is fixed or determinable, and collectability is reasonably assured.
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-
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Product sales/installation: Revenue from product sales or installation pertaining to solar panels and equipment are recognized when an arrangement exists, the product is delivered or installed, the sales price is fixed or determinable, and collectability is reasonably assured.
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Cash Equivalents -
The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents. There were no cash equivalents as of March 31, 2013 or December 31, 2012.
Accounts Receivable -
The Company extends credit to its customers in the normal course of business and performs ongoing credit evaluations of its customers, maintaining allowances for potential credit losses which, when realized, have been within management's expectations. The allowance method is used to account for uncollectible amounts. The evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. Allowance for doubtful accounts was $9,635 at March 31, 2013 and $9,635 at March 31, 2012.
Inventory -
Inventories consist of merchandise purchased for resale and are stated at the lower of cost or market using the first-in, first-out (FIFO) method.
Prepaid Expenses -
Prepaid expenses are recorded at cost for payments for goods and services purchased during an accounting period but not used or consumed during that accounting period. The costs are amortized over time as the benefit is received onto the income statement.
Oil and Gas Activities
- The Company uses the successful efforts method of accounting for oil and gas producing activities. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs, are expensed. Development costs, including the costs to drill and equip development wells, and successful exploratory drilling costs to locate proved reserves are capitalized.
Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. A determination of whether a well has found proved reserves is made shortly after drilling is completed. The determination is based on a process which relies on interpretations of available geologic, geophysic, and engineering data. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made. If an exploratory well requires a major capital expenditure before production can begin, the cost of drilling the exploratory well will continue to be carried as an asset pending determination of whether proved reserves have been found only as long as: i) the well has found a sufficient quantity of reserves to justify its completion as a producing well if the required capital expenditure is made and ii) drilling of the additional exploratory wells is under way or firmly planned for the near future. If drilling in the area is not under way or firmly planned, or if the well has not found a commercially producible quantity of reserves, the exploratory well is assumed to be impaired, and its costs are charged to expense.
In the absence of a determination as to whether the reserves that have been found can be classified as proved, the costs of drilling such an exploratory well is not carried as an asset for more than one year following completion of drilling. If, after that year has passed, a determination that proved reserves exist cannot be made, the well is assumed to be impaired, and its costs are charged to expense. Its costs can, however, continue to be capitalized if a sufficient quantity of reserves is discovered in the well to justify its completion as a producing well and sufficient progress is made in assessing the reserves and the well’s economic and operating feasibility.
The impairment of unamortized capital costs is measured at a lease level and is reduced to fair value if it is determined that the sum of expected future net cash flows is less than the net book value. The Company determines if impairment has occurred through either adverse changes or as a result of the annual review of all fields. During 2010 after conducting an impairment analysis, the Company did not record impairment as the fair value of our reserves exceeded our net book value.
Asset Retirement Obligations (“ARO”).
The estimated costs of restoration and removal of facilities are accrued. The fair value of a liability for an asset's retirement obligation is recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depreciated with the related long-lived asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. For all periods presented, estimated future costs of abandonment and dismantlement are included in the full cost amortization base and are amortized as a component of depletion expense. At March 31, 2013 and December 31, 2012, the ARO of $12,074 and $11,789 is included in liabilities and fixed assets.
Development costs of proved oil and gas properties, including estimated dismantlement, restoration and abandonment costs and acquisition costs, are depreciated and depleted on a field basis by the units-of-production method using proved developed and proved reserves, respectively. The costs of unproved oil and gas properties are generally combined and impaired over a period that is based on the average holding period for such properties and the Company's experience of successful drilling.
Costs of retired, sold or abandoned properties that make up a part of an amortization base (partial field) are charged to accumulated depreciation, depletion and amortization if the units-of-production rate is not significantly affected. Accordingly, a gain or loss, if any, is recognized only when a group of proved properties (entire field) that make up the amortization base has been retired, abandoned or sold.
Stock-Based Compensation -
The Company estimates the fair value of share-based payment awards made to employees and directors, including stock options, restricted stock and employee stock purchases related to employee stock purchase plans, on the date of grant
using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense ratably over the requisite service periods. We estimate the fair value of each share-based award using the Black-Scholes option pricing model. The Black-Scholes model is highly complex and dependent on key estimates by management. The estimates with the greatest degree of subjective judgment are the estimated lives of the stock-based awards and the estimated volatility of our stock price. The Black-Scholes model is also used for our valuation of warrants.
Earnings Per Common Share -
Basic earnings per common share is calculated based upon the weighted average number of common shares outstanding for the period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and dilutive common share equivalents (convertible notes and interest on the notes, stock awards and stock options) outstanding during the period. Dilutive earnings per common share reflects the potential dilution that could occur if options to purchase common stock were exercised for shares of common stock. Basic and diluted EPS are the same as the effect of our potential common stock equivalents would be anti-dilutive.
Fair Value Measurements -
On January 1, 2008, the Company adopted guidance which defines fair value, establishes a framework for using fair value to measure financial assets and liabilities on a recurring basis, and expands disclosures about fair value measurements. Beginning on January 1, 2009, the Company also applied the guidance to non-financial assets and liabilities measured at fair value on a non-recurring basis, which includes goodwill and intangible assets. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
Level 1 - Valuation is based upon unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2 - Valuation is based upon quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable in the market.
Level 3 - Valuation is based on models where significant inputs are not observable. The unobservable inputs reflect the Company's own assumptions about the inputs that market participants would use.
The following table presents assets and liabilities that are measured and recognized at fair value as of March 31, 2013 on a recurring and non-recurring basis:
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Gains
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Description
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Level 1
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Level 2
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Level 3
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(Losses)
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Derivatives (recurring)
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$
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-
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|
|
$
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-
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|
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$
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643,956
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|
|
$
|
(6,271)
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|
The Company has derivative liabilities as a result of 2012 convertible promissory notes that include embedded derivatives. These assets were valued with the assistance of a valuation consultant and consisted of level 3 valuation techniques.
The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2012 on a recurring and non-recurring basis:
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Gains
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Description
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|
Level 1
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Level 2
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|
|
Level 3
|
|
|
(Losses)
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|
Derivatives (recurring)
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$
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-
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|
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$
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-
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|
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$
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637,635
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|
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$
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(88,959)
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|
The Company has derivative liabilities as a result of convertible promissory notes that include embedded derivatives. These liabilities were valued with the assistance of a valuation consultant and consisted of level 3 valuation techniques.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and long-term debt. The estimated fair value of cash, accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments. The carrying value of long-term debt also approximates fair value since their terms are similar to those in the lending market for comparable loans with comparable risks. None of these instruments are held for trading purposes.
Fixed Assets
-
Fixed assets are stated at cost. Depreciation expense is computed using the straight-line method over the estimated
useful life of the asset. The following is a summary of the estimated useful lives used in computing depreciation expense:
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Office equipment
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3 years
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Computer hardware & software
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3 years
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|
Improvements & furniture
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5 years
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Well equipment
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7 years
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Expenditures for major repairs and renewals that extend the useful life of the asset are capitalized. Minor repair expenditures are charged to expense as incurred.
Impairment of Long-Lived Assets -
The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment ("ASC 360-10"). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.
Goodwill and Other Intangible Assets
-
The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
There were no intangible assets at March 31, 2013 or December 31, 2012.
Foreign Currency Translation and Transaction and translation
- The financial position at present for the Company’s foreign subsidiary Redquartz, LLC, established under the laws of the Country of Ireland are determined using (U.S. dollars) reporting currency as the functional currency. All exchange gains and losses from remeasurement of monetary assets and liabilities that are not denominated in U.S. dollars are recognized currently in other comprehensive income. All transactional gains and losses are part of income or loss from operations (if and when incurred) will be pursuant to current accounting literature. The Company’s functional currency is the U.S dollar. We have an obligation related to our acquisition of Redquartz as discussed in Note 7 which is denominated in Euro’s. The change in currency valuation from our reporting this obligation in U.S dollars is reported as a component of other comprehensive income consistent with the relevant accounting literature.
Income taxes -
The Company accounts for income taxes using the asset and liability method, which requires the establishment of deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the
Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent deferred tax assets may not be recoverable after consideration of the future reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income.
The Company uses a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance requires the Company to recognize tax benefits only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in our tax returns that do not meet these recognition and measurement standards.
Derivative Financial Instruments -
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re−valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option−based derivative financial instruments, the Company uses the Black−Scholes model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non−current based on whether or not net−cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Recently Adopted and Recently Enacted Accounting Pronouncements
In January 2010, the FASB issued FASB ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements,” which is now codified under FASB ASC Topic 820, “Fair Value Measurements and Disclosures.” This ASU will require additional disclosures regarding transfers in and out of Levels 1 and 2 of the fair value hierarchy, as well as a reconciliation of activity in Level 3 on a gross basis (rather than as one net number). The ASU also provides clarification on disclosures about the level of disaggregation for each class of assets and liabilities and on disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. FASB ASU No. 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures requiring a reconciliation of activity in Level 3. Those disclosures will be effective for interim and annual periods beginning after December 15, 2010. The adoption of the portion of this ASU effective after December 15, 2009, as well as the portion of the ASU effective after December 15, 2010, did not have an impact on our consolidated financial position, results of operations or cash flows.
In April 2010, the FASB issued FASB ASU No. 2010-17, “Milestone Method of Revenue Recognition,” which is now codified under FASB ASC Topic 605, “Revenue Recognition.” This ASU provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions. Consideration which is contingent upon achievement of a milestone in its entirety can be recognized as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. A milestone should be considered substantive in its entirety, and an individual milestone may not be bifurcated. An arrangement may include more than one milestone, and each milestone should be evaluated individually to determine if it is substantive. FASB ASU No. 2010-17 was effective on a prospective basis for milestones achieved in fiscal years (and interim periods within those years) beginning on or after June 15, 2010, with early adoption permitted.
If an entity elects early adoption, and the period of adoption is not the beginning of its fiscal year, the entity should apply this ASU retrospectively from the beginning of the year of adoption. This ASU did not have any effect on the timing of revenue recognition and our consolidated results of operations or cash flows.
In December 2010, the FASB issued FASB ASU No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts,” which is now codified under FASB ASC Topic 350, “Intangibles - Goodwill and Other.” This ASU provides amendments to Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not a goodwill impairment exists. When determining whether it is more likely than not an impairment exists, an entity should consider whether there are any adverse qualitative factors, such as a significant deterioration in market conditions, indicating an impairment may exist. FASB ASU No. 2010-28 is effective for fiscal years (and interim periods within those years) beginning after December 15, 2010. Early adoption is not permitted. Upon adoption of the amendments, an entity with reporting units having carrying amounts which are zero or negative is required to assess whether is it more likely than not the reporting units’ goodwill is impaired. If the entity determines impairment exists, the entity must perform Step 2 of the goodwill impairment test for that reporting unit or units. Step 2 involves allocating the fair value of the reporting unit to each asset and liability, with the excess being implied goodwill. An impairment loss results if the amount of recorded goodwill exceeds the implied goodwill. Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption. This ASU is did not have an impact on our consolidated financial position, results of operations or cash flows.
2. Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying consolidated financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company has experienced substantial losses, maintains a negative working capital and capital deficits, which raise substantial doubt about the Company's ability to continue as a going concern.
The Company is working to manage its current liabilities while it continues to make changes in operations to improve its cash flow and liquidity position. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon the Company’s ability to generate revenue from the sale of its services and the cooperation of the Company’s note holders to assist with obtaining working capital to meet operating costs in addition to our ability to raise funds.
3. Common Stock Transactions
During the quarter ended March 31, 2013, the board approved a 1:4000 reverse stock split. This reverse stock split has been recognized in these financial statements.
During the quarter ended March 31, 2013, the Company recorded an amount of $27,024 to additional paid in capital related to imputed interest related to loans that did not carry a market rate of interest or were non-interest bearing.
4. Preferred Stock Series
Series A preferred stock
: Series A preferred stock has a par value of $0.001 per share and no stated dividend preference. The Series A is convertible into common stock at a conversion ratio of one preferred share for one common share. Preferred A has liquidation preference over Preferred B stock and common stock.
Series B preferred stock
: Series B preferred stock has a par value of $0.001 per share and no stated dividend preference. The Series B is convertible into common stock at a conversion ratio of one preferred share for one common share. The Series B has liquidation preference over Preferred C stock and common stock.
Series C preferred stock
: The Preferred C stock has a stated value of $.001 and no stated dividend rate and is non-participatory. The Series C has liquidation preference over common stock. Effective May 20, 2009 i) Voting Rights for each share of Series C Preferred Stock shall have 21,200 votes on the election of directors of the Company and for all other purposes, and, ii) regarding Conversion to Common Shares, Series C have no right to convert to common or any other series of authorized shares of the Company.
Series D preferred stock:
Effective March 2, 2011 EGPI Firecreek, Inc. (the “Company”) obtained consent from the majority shareholders of the Company to amend the Articles of Incorporation to i) authorize the issuance of 2,500 shares of a new D Series Preferred Stock. The Series D preferred stock include 2.5 million shares authorized, par value $.001, and each share of Series D Preferred Stock is convertible into common shares, where such number of shares shall be equal to the greater of the number calculated by dividing the Purchase Commitment per share ($1,000) by 1) $0.003 per share, or 2) one hundred and ten percent (110%) of the lowest VWAP for the three (3) days immediately preceding a Conversion Date.
During the three months ended March 31, 2013, there were no transactions involving preferred stock.
5. Fixed Assets
The following is a detailed list of fixed assets:
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|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
|
Property and equipment
|
|
$
|
540,307
|
|
|
$
|
540,307
|
|
|
Well equipment
|
|
|
118,163
|
|
|
|
118,163
|
|
|
Accumulated depreciation
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|
|
(241,193
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)
|
|
|
(218,401
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)
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|
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Fixed assets - net
|
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$
|
417,277
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|
|
$
|
440,069
|
|
Depreciation expense was $22,820 and $25,654 for the three months ended March 31, 2013 and 2012, respectively.
6.
Oil and Gas
|
Oil and Gas Properties:
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
|
Oil and gas properties - proved reserves
|
|
$
|
944,181
|
|
|
$
|
944,181
|
|
|
Development costs
|
|
|
203,646
|
|
|
|
203,646
|
|
|
Accumulated depletion
|
|
|
(255,651
|
)
|
|
|
(254,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas properties - net
|
|
$
|
892,176
|
|
|
$
|
892,839
|
|
Depletion expense was $663and $43,725 for three months ended March 31, 2013 and March 31, 2012, respectively.
7. Options & Warrants Outstanding
All options and warrants granted are recorded at fair value using a Black-Scholes model at the date of the grant. There is no formal stock option plan for employees.
There was no warrant activity during the three months ended March 31, 2013 and no warrants were outstanding at December 31, 2012.
A listing of options and warrants outstanding at March 31, 2013 is as follows. Option and warrants outstanding and their attendant exercise prices have been adjusted for the 1 for 200 reverse split and the 1 for 50 reverse split of the common stock discussed in Note 1.
8. Note Receivable
On March 14, 2011, the company received a promissory note from the sale of its interest in Terra to a third party. The value of this promissory note is $50,000 and is due 1 year from the date of issuance, along with accrued interest at the rate of 9%. The note includes an optional provision to extend for one additional twelve month period. An Allowance for Doubtful Accounts of $50,000 has been established for this receivable.
On March 14, 2011, the company received a promissory note from the sale of a subsidiary, SATCO, to a third party. The value of this promissory note is $50,000 and is due 1 year from the date of issuance, along with accrued interest at the rate of 9%. The note includes an optional provision to extend for one additional twelve month period. An allowance for doubtful accounts of $50,000 has been established for this receivable.
9. Income Tax Provision
Deferred income tax assets and liabilities consist of the following at March 31, 2013:
|
Deferred Tax asset
|
|
$
|
3,782,492
|
|
|
Valuation allowance
|
|
|
(3,782,492)
|
|
|
Net deferred tax assets
|
|
|
-
|
|
The Company estimates that it has an NOL carryfoward of approximately $10,807,121 that begins to expire in 2027.
After evaluating any potential tax consequence from our former subsidiary and our own potential tax uncertainties, the Company has determined that there are no material uncertain tax positions that have a greater than 50% likelihood of reversal if the Company were to be audited. The Company believes that it is current with all payroll and other statutory taxes. Our tax return for the years ended December 31, 2004 to December 31, 2012 may be subject to IRS audit.
12. Related Party Transactions
Through May 31, 2009 the Secretary of EGPI Firecreek, Inc provided office space for the Company’s Scottsdale office free of charge. June 1, 2009 Energy Producers, Inc, a 100% owned subsidiary of the Company entered into a month to month lease for the same office space at a rate of $1,400 per month. January 1, 2013, the Company entered into a month-to-month for the same office space at a rate of $2,000 per month. There is an unpaid balance of $6,000 at March 31, 2013.
In addition Energy Producers, Inc. also has an Administrative Service Agreement with Melvena Alexander, CPA , which is 100% owned by Melvena Alexander, officer and shareholder of the Company, to provide services to the Company. The agreement is an open-ended, annually renewable contract for payments of $4,600 per month. The contract expired December 31,2012 with a balance due of $11,125 at March 31, 2013 and December 31, 2012.
The Company had a Service Agreement with Global Media Network USA, Inc. a company 100% owned By Dennis Alexander, to provide the services of Dennis Alexander to the Company. The contract terminated May 31, 2009 and there is no outstanding balance remaining.
The above referenced contract was superseded by a month-to-month contract between Energy Producers, Inc., a 100% owned subsidiary of the Company, and Dennis Alexander, an officer and director of the Company, at a monthly payment of $15,000. There was a balance due on this contract of $221,650 and $200,050 at March 31, 2013 and December 31, 2012.
The Company had a Service Agreement with Tirion Group, Inc., which was owned by Rupert C. Johnson, a former director of the Company. The contract was terminated in 2007 and Mr. Johnson severed his connection to the Company in 2008. However, there is unpaid balance of $43,000 remaining at March 31, 2013 and December 31, 2012.
During 2010, Robert Miller, a director of the Company, made unsecured, non-interest bearing advances to M3 Lighting, Inc. a 100% owned subsidiary of the Company, for working capital of $1,500 which remains unpaid at March 31, 2013 and December 31, 2012.
April 1, 2010 the Company signed a 9% unsecured note with Bob Joyner a former officer and shareholder, for $27,000. The note matures June 30, 2011, and the unpaid balance at March 31, 2013 and December 31, 2012 was $21,700.
Chanwest Resources, Inc, a 100% owned subsidiary of the Company billed Petrolind Drilling, Inc a company in which David Taylor, a director and share holder of the Company, has a substantial interest. The invoice of $9,635 was still outstanding at March 31, 2013 and a full valuation allowance was recorded for this receivable.
Willoil Consulting, LLC also gave unsecured non-interest bearing advances to Chanwest Resources, Inc. of $17,825. Willoil Consulting LLC is a company in which David Taylor is a managing member with 80% control. The funds have not been repaid as of March 31, 2013.
Relative to the May 21, 2009 acquisition of M3 Lighting, Inc. the Company approved an Administrative Services Agreement (ASA), and amended terms thereof, with Strategic Partners Consulting, LLC (SPC).Two of the Company’s officers, directors and shareholders, David H. Ray, Director and Executive Vice President and Treasurer of the Company since May 21, 2009 and Brandon D. Ray Director and Executive Vice President of Finance of the Company, are also owners and managers of SPC. Information is listed in Exhibit 10.1 to a Current Report on form 8-K, Amendment No. 1, filed on June 23, 3009. The ASA initiated on November 4, 2009, in accordance with its terms thereof, and was billed at the rate of $20,833.33 per month. The ASA contract was canceled June 8, 2010. During the three months ending March 31, 2013, the Company made no payments to SPC, with a balance payable due in the amount of approximately $46,208.
Effective May 9, 2011 the Company entered into a Promissory Note with a company controlled by a director of the Company in the amount of $210,000, and amended December 9, 2011 to $315,625. The terms of the note are for 14% interest, with principal and interest all due on or before May 9, 2013. The loan is collateralized with the oil and gas leases held in our subsidiary Energy Producers, Inc. Additional borrowings and compounded interest have brought the balance due to $595,875 at March 31, 2013.
The Company’s subsidiary Arctic Solar Engineers issued promissory notes to various individuals for working capital, all maturing in 2020 at an interest rate of 2%. Additional interest expense was imputed on these loans due to the fact that the interest rate was below market. Of these loans, $5,000 was owed to the former CEO of Arctic Solar Engineering, LLC, who is currently a director of the Company.
During the year ended December 31, 2012, the Company borrowed funds from Mondial Ventures, Inc. and repaid a portion of the amount due, leaving a remaining balance of $14,000 at December 31, 2012.
13. Notes Payable
At March 31, 2013, the Company was liable on the following Promissory notes:
(see notes to the accompanying table)
|
Date of
|
|
|
|
Date Obligation
|
|
Interest
|
|
|
Balance Due
|
|
|
Obligation
|
|
Notes
|
|
Matures
|
|
Rate (%)
|
|
|
3/31/13 ($)
|
|
|
7/1/2012
|
|
|
26
|
|
6/30/2015
|
|
|
12
|
|
|
$
|
242,731
|
|
|
12/18/2012
|
|
|
28
|
|
9/1/20
|
|
|
8
|
|
|
|
25,000
|
|
|
3/25/2012
|
|
|
4
|
|
12/27/2012
|
|
|
18
|
*
|
|
|
194.658
|
|
|
11/4/2009
|
|
|
11
|
|
11/4/2012
|
|
|
9
|
|
|
|
459,373
|
|
|
7/1/2012
|
|
|
25
|
|
6/30/2012
|
|
|
12
|
|
|
|
58,460
|
|
|
1/25/2012
|
|
|
24
|
|
1/25/2013
|
|
|
12
|
|
|
|
41,004
|
|
|
5/30/2010
|
|
|
2
|
|
12/31/2011
|
|
|
8
|
|
|
|
55,870
|
|
|
3/1/2012
|
|
|
9
|
|
See footnote 10
|
|
|
8
|
|
|
|
512,500
|
|
|
3/15/2012
|
|
|
23
|
|
9/15/2012
|
|
|
8
|
|
|
|
20,950
|
|
|
7/26/2010
|
|
|
5
|
|
7/26/2012
|
|
|
10
|
|
|
|
118,974
|
|
|
8/10/2012
|
|
|
6
|
|
8/1082012
|
|
|
10
|
|
|
|
42,708
|
|
|
8/31/2011
|
|
|
7
|
|
5/31/2012
|
|
|
8
|
|
|
|
25,000
|
|
|
8/8/2011
|
|
|
8
|
|
5/31/2012
|
|
|
8
|
|
|
|
25,000
|
|
|
7/11/2011
|
|
|
1
|
|
7/1/2013
|
|
|
18
|
|
|
|
109,000
|
|
|
2/15/2010
|
|
|
3
|
|
2/15/2010
|
|
|
8
|
|
|
|
201,500
|
|
|
2/18/2010
|
|
|
3
|
|
12/1/2010
|
|
|
4
|
|
|
|
141,350
|
|
|
3/3/2010
|
|
|
10
|
|
3/31/12
|
|
|
10
|
|
|
|
786,815
|
|
|
3/4/2011
|
|
|
12
|
|
9/8/2011
|
|
|
14
|
|
|
|
133,247
|
|
|
3/4/2011
|
|
|
12
|
|
9/22/2011
|
|
|
14
|
|
|
|
100,000
|
|
|
8/1/2010
|
|
|
13
|
|
12/3/2020
|
|
|
2
|
|
|
|
137,000
|
|
|
3/24/2010
|
|
|
13
|
|
12/31/2020
|
|
|
2
|
|
|
|
42,000
|
|
|
8/1/2010
|
|
|
13
|
|
12/31/2020
|
|
|
2
|
|
|
|
5,000
|
|
|
8/1/2010
|
|
|
13
|
|
12/31/2020
|
|
|
2
|
|
|
|
5,000
|
|
|
5/31/2011
|
|
|
14
|
|
5/31/2013
|
|
|
8
|
|
|
|
172,190
|
|
|
6/9/2011
|
|
|
15
|
|
5/9/2012
|
|
|
14
|
|
|
|
595,875
|
|
|
6/1/2011
|
|
|
16
|
|
12/1/2011
|
|
|
8
|
|
|
|
36,652
|
|
|
8/11/2011
|
|
|
17
|
|
4/11/2012
|
|
|
12
|
|
|
|
12,500
|
|
|
10/28/2011
|
|
|
18
|
|
10/28/2012
|
|
|
12
|
|
|
|
33,000
|
|
|
8/12/2011
|
|
|
19
|
|
2/12/2012
|
|
|
10
|
|
|
|
1,000
|
|
|
9/12/2011
|
|
|
20
|
|
3/12/2012
|
|
|
8
|
|
|
|
25,000
|
|
|
9/3/2011
|
|
|
21
|
|
3/3/2012
|
|
|
8
|
|
|
|
4,130
|
|
|
10/1/2011
|
|
|
22
|
|
6/30/2012
|
|
|
6
|
|
|
|
5,974
|
|
|
10/19/2012
|
|
|
27
|
|
4/19/2014
|
|
|
8
|
|
|
|
15,000
|
|
|
Unamortized Discount
|
|
|
|
|
|
|
|
|
|
|
|
(21,029
|
)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
3,996,779
|
|
Notes:
Other than as described at Notes 1, 6, 7, 8, 9, 17, 18, 19, 22, 23, 24, and 25 none of the other notes had conversion options.
Note 1: On January 15, 2010, the Company issued an $86,000 Convertible Promissory Note (“Convertible Note”) and a registration rights agreement (“RRA”) to an investor for making a $1,000,000 cash loan. The Convertible Note has no specified interest rate and was scheduled to mature six months from the closing date. At the investor’s option, the outstanding principal amount, including all accrued and unpaid interest and fees, may be converted into shares of common stock at the conversion price, which is 75% of the
lower of (a) $0.08 per share; or (b) the lowest three-day common stock volume weighted average price during the prior twenty business days. In addition, if the Company sells common shares or securities convertible into common shares, the Conversion Price shall become the lower of: (a) the conversion price in effect immediately prior to the sale of securities; or (b) the conversion price of the securities sold.
The RRA provides both mandatory and piggyback registration rights. The Company was obligated to (a) file a registration statement for 40,000 common shares (subject to adjustment) no later than 14 days after the closing date, and (b) have it declared effective no later than the earlier of (i) five days after the SEC notifies the Company that it may be declared effective or (ii) 90 days from the closing date. The Company was obligated to pay the investor a penalty of $100 for each day that it is late in meeting these obligations. The Company’s registration statement was filed late and on March 18, 2010 it was withdrawn.
Upon occurrence of an Event of Default (various specified events), the Lender may (a) declare the unpaid principal balance and all accrued and unpaid interest thereon immediately due and payable; (b) at anytime after January 31, 2010, immediately draw on the LOC to satisfy EGPI’s obligations; and (c) interest will accrue at the rate of 18%.
Upon occurrence of a Trigger event: (a) the outstanding principal amount will increase by 25%; and (b) interest will accrue at the rate of 18%. The Trigger Event effects shall not be applied more than two times. There are various Trigger Events, including (a) the five-day common stock VWAP declines below $0.04; (b) the ten-day average daily trading volume declines below $5,000; (c) a judgment against EGPI in excess of $100,000; (d) failure to file a registration statement on time; (e) failure to cause a registration statement to become effective on time; (f) events of default; and (g) insufficient authorized common shares.
During the first quarter of 2010, the Company tripped two trigger events and incurred resulting penalties and incremental debt obligation. These events increased the outstanding principal amount of the Convertible Note by approximately $22,000 and $27,000 of trigger penalties.
It was determined that the Convertible Note’s conversion option, plus other existing equity instruments (warrants outstanding; see Notes 2 and 7 below) of the Company, were required to be (re)classified as derivative liabilities as of January 15, 2010, because (a) the Convertible Note provides conversion price protection; and (b) the quantity of shares issuable pursuant to the conversion option is indeterminate. The conversion option and the related instruments were initially valued at $63,080 (expected term of 0.5 years; risk-free rate of 0.15%; and volatility of 95%) and this amount was recorded as a note discount and derivative liability. The derivative liabilities were then marked to the market to an aggregate value of $16,158 (expected term of 0.3 years; risk-free rate of 0.16%; and volatility of 95%) at December 31, 2010.
On May 12, 2010, the parties to the Convertible Note executed a Waiver of Trigger Event, which stipulated: (1) the principal outstanding on the Convertible Note was fixed at $147,500 as of May 12, 2010; (2) the remaining impact of the trigger events and failure to register the shares was waived; (3) the interest rate was reset at 9%; (4) the number of shares issuable under the conversion option was capped at 150 million shares; (5) the repricing provision of the conversion option was eliminated; and (6) the maturity date of the note was revised to August 15, 2010. In addition, if the market price of the Company’s common stock declines such that the conversion option would be capped at the agreed 150 million shares, the repayment date is accelerated and the outstanding balance on the note is immediately due and payable. As a result of the above, the conversion option and related instruments were revalued as of May 12, 2010 and were reclassified to paid-in-capital (equity) in the amount of $50,303 (expected term of 0.3 years; risk-free rate of 0.16%; and volatility of 95%).
Effective August 3, 2010 the Company entered into a Promissory Note in the amount of $153,046 with an entity that had acquired and then exchanged the Debt described above. The terms of the Promissory Note are for 8% interest, with principal and interest all due on or before August 3, 2012. In July 2011 a judgment was issued for $202,000 to be paid over two years with no interest, except if there is a default, then interest of 18% will accrue. As a result of defaults by the Company under the agreed upon settlement terms, another settlement agreement was entered into on January 31, 2012. This settlement required the payment of monthly amounts of $10,000 by the Company over 18 months and no default interest is owed until the Company defaults on a payment under these newly agreed upon terms. Default interest of 18% will accrue in the event of default. A total of $40,000 in payments were issued during the three months ended March 31, 2012, reducing the balance of the amount due to $149,000.
Note 2: As of December 31, 2012, $55,870 was recorded as a liability under this line of credit. During the three months ended March 31,2013 no additional borrowings were made and no payments were made leaving a balance of $55,870 at the period end.
Note 3: As of March 31,2013 the company had a promissory note of $201,500 for which no payments were made during the period. The company also had a promissory note of $142,958 for which no payments were made during the period and included $4,208 in accrued interest added to the principal value of the note.
Note 4: As of March 31,2013 we had received cash proceeds for the aggregate amount of $194,658, which is payable in principal and interest with rates 18%. No payments were made in the period.
Note 5: On July 26, 2010, we issued a $165,000 secured convertible promissory note that is convertible at the election of the holder any time after issuance, or upon an Event of Default, or when due in 24 months on July 26, 2012. While the notes have become due and are not repaid in full, there was no Event of Default as of December 31, 2012, or thereafter. The Company evaluated the note on the date of issuance and determined that the shares issuable pursuant to the conversion option were indeterminate and therefore this conversion option and all other dilutive securities would be classified as a derivative liability as of July 26, 2010. This note also contains conversion price reset provisions which also factor into the derivative value. The July 26, 2010 value of the conversion option of $165,000 was recorded as a note discount, to be amortized over the life of the note, and derivative liability. For the year ended December 31, 2012, the debt discount was fully amortized with $106,988 being recognized during the period. No payments were made during the three months ended March 31, 2013.
Note 6: On August 10, 2010, we issued a $35,000 convertible promissory note that is convertible at the election of the holder any time after issuance, or upon an Event of Default, or when due in 24 months on August 10, 2012. The Company evaluated the note on the date of issuance and determined that, because the shares issuable pursuant to the convertible note are indeterminate, the conversion option associated with this note is deemed to be a derivative liability. This note also contains conversion price reset provisions which also factor into the derivative value. The August 10, 2010 value of the note of $35,000 was recorded as a note discount, to be amortized over the life of the note, and derivative liability. The note was in default during the year ended December 31, 2012 and the company settled with the note holder to pay $42,708. For the year ended December 30, 2012, the Company recognized note discount amortization of $25,996. The discount is amortized using the effective interest method. No payments were made in the quarter ended March 31,2013.
Note 7: On August 8, 2011, we issued a $ 25,000 convertible promissory note that is convertible at the election of the holder any time after issuance, or upon an Event of Default, or when due in 9 months on May 8, 2012. The Company evaluated the note and determined that, because the shares issuable pursuant to the convertible note are indeterminate, the conversion option associated with this note is deemed to be a derivative liability. This note also contains conversion price reset provisions which also factor into the derivative value. The August 8, 2011 value of the note of $25,000 was recorded as a note discount, to be amortized over the life of the note, and derivative liability. For the year ended December 31, 2012, the Company recognized note discount amortization of $25,000. The discount is amortized using the effective interest method. The note was fully converted into common stock during the year ended December 31, 2012.
Note 8: On August 31, 2011, we issued a $25,000 convertible promissory note that is convertible at the election of the holder any time after issuance, or upon an Event of Default, or when due in 9 months on May 31, 2012. The Company evaluated the note and determined that, because the shares issuable pursuant to the convertible note are indeterminate, the conversion option associated with this note is deemed to be a derivative liability. This note also contains conversion price reset provisions which also factor into the derivative value. The August 31, 2011 value of the note of $25,000 was recorded as a note discount, to be amortized over the life of the note, and derivative liability. For the year ended December 31, 2012, the Company recognized note discount amortization of $25,000. The discount is amortized using the effective interest method. On November 15, 2011, the Company issued an additional $25,000 convertible promissory note with the same terms and conditions, with a due date of August 17, 2012. The Company recognized note discount amortization of $25,000 in 2012. The notes are past due, but the Company has not been placed in default as of the date of this filing.
Note 9: On March 1, 2010 and monthly thereafter, we issued non-interest bearing, convertible notes for services, renewable annually until paid through conversions. The total debt owing under these agreements is $512,500 to two firms for services provided. These notes can be converted at 50% of the closing price of the stock on the day preceding the conversion date. The Company evaluated the note and determined that, because the shares issuable pursuant to the July 26, 2010 convertible note are indeterminate, the conversion option associated with this note is deemed to be a derivative liability. No payments were made in the quarter ended March 31,2013.
Note 10: For the period ended December 31, 2012 we have additional balance on debt obligations owed totaling $786,875, related to the acquisition of a subsidiary in March 2010.
Note 11: Promissory notes totaling $295,173, which were issued in conjunction with the acquisition of SATCO. An additional legal settlement for $176,000 was also incurred as a result of the SATCO acquisition. Payments of $ 9,833 were made in the quarter ended March 31,2013.
Note 12: Accounts Payable of $141,581 due to Contegra Construction by Energy Ventures One, Inc, a Company subsidiary was converted to a Note Payable in March 2011. The amount remaining to be paid on this promissory note was $133,247 at March 31,2013. Energy Ventures One also has a Line of Credit with Masters Equipment, Inc. with a balance due of $100,000 at March 31,2013.
Note 13: The Company’s subsidiary Arctic Solar Engineering, LLC issued promissory notes to various individuals for working capital, all maturing in 2020 at an interest rate of 2%. Additional interest expense was imputed on these loans due to the fact that the interest rate was below market.
Note 14: In the quarter ended March31,2013, we received no cash proceeds for these debt obligations of $172,190 and no payments were made.
Note 15: Effective May 9, 2011 the Company entered into a Promissory Note in the amount of $210,000, and amended December 9, 2011 to $315,625. Amended again July 31, 2012 to $997,551. The terms of the note are for 14% interest, with principal and interest all due on or before May 9, 2013. A portion of this loan was assumed by the purchaser of the interest in the Company’s oil and gas leases in the amount of $450,000. The loan is collateralized with the oil and gas leases held in our subsidiary Energy Producers, Inc.
Note 16: Effective June 1, 2011 the Company entered into a Promissory Note in the amount of $39,000. The terms of the note are for 8% interest only, with principal and interest all due on or before December 1, 2011. Effective September 2, 2011, the Company entered into an additional Promissory Note in the amount $20,500 with same terms due on or before March 2 2012. Also on September 28, 2011, the Company entered into an additional Promissory Note in the amount of $8,000, same terms, due on or before March 28, 2012. A fourth Promissory Note of $17,500 entered into on October 24, 2011 under the same terms, brings the total owed to $85,000 at December 31, 2011. A total of $36,652 of this debt remains at March 31, 2013.
Note 17: Effective August 11, 2011, the Company entered into a Convertible Promissory Note in the amount of $10,000. The terms of the note are 12% interest, with principal and interest all due on or before August 11, 2012. October 28, 2011, the Company entered into a Convertible Promissory Note in the amount of $17,000. The terms of the note are 12% interest, with principal and interest all due on or before June 11, 2012. On or after the maturity date, the notes may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 50% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the notes and determined that because the shares issuable pursuant to the August 11, 2011 convertible note are indeterminate, the conversion option associated with this note is deemed a derivative liability. This note also contains conversion price reset provisions which factor into the derivative value. The August 11, 2011 and October 28, 2011 values of the notes of $10,000 and $17,000 were recorded as a note discount, to be amortized over the life of the note, and derivative liability. For the year ended December 31, 2012, the Company recognized note discount amortization of $17,000. The discount is amortized using the effective interest method. During the quarter ended March 31, 2013, no payments were made.
Note 18: Effective September 12, 2012, the Company entered into a Convertible Promissory Note in the amount of $33,000. The terms of the note are 6% interest, with principal and interest all due on or before June 12, 2013. On or after the maturity date, the note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 70% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the note and determined that the shares issuable are indeterminate, the conversion option associated with this note is deemed a derivative liability. The September 14, 2012 value of the note of $33,000 was recorded as a note discount to be amortized over the life of the note and derivative liability. For the quarter ended March 31, 2013, the Company recognized note discount amortization of $10,578. The discount is amortized using the effective interest rate.
Note 19: Effective August 12, 2011 the Company entered into a Convertible Promissory Note in the amount of $50,000. The terms of the note are for 10% interest, with principal and interest all due on or before February 12, 2012. On, or after, the maturity date, the note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 50% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the note, and determined that because the shares issuable are indeterminate, the conversion option associated with this note is deemed a derivative liability. The August 12, 2011 value of the note of $50,000 was recorded as a note discount to be amortized over the life of the note, and derivative liability. The balance as of March 31, 2013 is $1,000.
Note 20: Effective September 12, 2011 the Company entered into a Convertible Promissory Note in the amount of $25,000. The terms of the note are for 8% interest, with principal and interest all due on or before March 12, 2012. On or after the maturity date, the note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 50% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the note and determined that because issuable shares are indeterminate, the conversion option associated with this note is deemed a derivative liability. The discount has been fully amortized using the effective interest method.
Note 21: Effective September 3, 2011 the Company entered into an Unsecured Promissory Note in the amount of $20,000. The terms of the note are for 8% per annum interest. During the year ended December 31, 2012 , the Company settled $15,870 of the debt leaving a balance of $4,130 at March 31, 2013.
Note 22: Effective October 1, 2011, the Company entered into a Convertible Promissory Note in the amount of $11,250. The terms of the note are for 6% interest with principal and interest due on demand. The note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 50% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the note and determined that because the shares issuable are indeterminate, the conversion option associated with this note is deemed a derivative liability. The October 1, 2011 value of the note of $11,250 was recorded as a note discount to be amortized over the life of the note and derivative liability. For the three months ended December 31, 2011, the Company recognized note discount amortization of $11,250. The discount is amortized using the effective interest method.
Note 23: Effective January 27, 2012, the Company entered into a Promissory Note in the amount of $13,700. The terms of the note are for interest of 12% with principal and interest due on or before July 27, 2012. Effective March 1,2012 the Company entered into an additional Promissory Notse in the amount of $10,000and $19,000 with the same terms, due on or before September 1, 2012. During the quarter ended March 31,2013, the Company paid $6,000 of the debt , leaving a balance of $ 20,950 at March 31, 2013.
Note 24: Effective January 25, 2012, the Company entered into a Convertible Promissory Note in the amount of $50,000. The terms of the note are for interest of 12% with principal and interest due on or before January 25, 2013. The note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 60% discount to the fair market value of the stock at the time of conversion. The Company evaluated the note and determined that because the shares issuable are indeterminate, the conversion option associated with this note is deemed a derivative liability. The January 25,2012 value of the note of $50,000 was recorded as a note discount to be amortized over the life of the note and derivative liability. On March 28, 2012 an additional note for $20,000 was issued bearing the same terms. For the year ended December 31, 2012, the Company recognized note discount of $18,465. The discount is amortized using the effective interest method.
Note 25: Effective July 1, 2012, the Company’s subsidiary, Energy Producers ,Inc. entered into a Promissory Note in the amount of $60,130. The principal is due on or before June 30, 2015 with default interest at 12%. In the year ended December 31, 2012, the Company has paid $1,670 leaving a balance of $58,460. No payments were made in the quarter ended March 31, 2013.
Note 26: Effective July 1, 2012, the Company’s subsidiary Energy Producers, Inc. entered into a Promissory Note in the amount of $242.731. The principal is due on or before June 30, 2015, with default interest at 12%.
Note 27: Effective October 19, 2012, the Company entered into a Promissory Note in the amount of $15,000. The terms of the note are 8% interest, with principal and interest due on or before April,19, 2014.
Note 28: Effective December 18, 2012, the Company entered into a Promissory Note in the amount of $25,000. The terms of the note are 8% interest, with principal and interest due on or before September 19,2013. The promissory note is convertible into common stock of the Company using a conversion rate that is 45% of the average of the lowest three trading prices over the last 20 trading days. The total debt discount pertaining to this promissory note is $12,054. The Company recognized $4,018 in amortization of this discount for the quarter ended March 31, 2013.
Although a portion of our debt is not due within 12 months, given our working capital deficit and cash positions and our ability to service the debt on a long term basis is questionable, the notes are all effectively in default and treated as current liabilities.
14. Capital Lease Obligation
During the year ended December 31, 2010, the Company entered into a lease for equipment which included the promise to make monthly payments of $5,000 for 12 months with a bargain purchase option at the end of the lease. This lease is accounted for as a capital lease in which the present value of the future payments is recorded as a liability of $56,872. The discount rate is 10%. As of March 31, 2013, there were no payments made on this lease and the entire balance is classified as a current liability.
15. Derivative Liability
The Company evaluated the conversion feature embedded in the convertible notes to determine if such conversion feature should be bifurcated from its host instrument and accounted for as a freestanding derivative. Due to the note not meeting the definition of a conventional debt instrument because it contained a diluted issuance provision, the convertible notes were accounted for in accordance with ASC 815. According to ASC 815, the derivatives associated with the convertible notes were recognized as a discount to the debt instrument, and the discount is being amortized over the life of the note and any excess of the derivative value over the note payable value is recognized as additional expense at issuance date.
The Company also issued 2,500 series D convertible preferred stock which included reset provisions which are considered derivatives in accordance with ASC 815. The fair market value of these reset provisions were bifurcated and recorded as derivative liabilities.
Further, and in accordance with ASC 815, the embedded derivatives are revalued at each balance sheet date and marked to fair value with the corresponding adjustment as a gain or loss on change in fair value of derivatives” in the consolidated statement of operations. As of December 31, 2012, the fair value of the embedded derivatives included on the accompanying consolidated balance sheet was $637,685. As of March 31, 2013, the fair value of the embedded derivatives included on the accompanying consolidated balance sheet was $643,956. During the three months ended March 31, 2013, the Company recognized a loss on change in fair value of derivative liability totaling $6,271.
Key assumptions used in the valuation of derivative liabilities associated with the convertible notes at December 31, 2012 and March 31, 2013 were as follows:
|
.
|
The stock price would fluctuate with an annual volatility ranging from 264% to 520% based on the historical volatility for the company.
|
|
.
|
An event of default would occur 5% of the time, increasing 0.10% per quarter to a maximum of 25%.
|
|
.
|
Alternative financing for the convertible notes would be initially available to redeem the note 0% of the time and increase quarterly by 1% to a maximum of 20%.
|
|
.
|
The trading volume would average $265,308 to $291,990 and would increase at 1% per quarter.
|
|
.
|
The holder would automatically convert the notes at a stock price of the greater of the initial exercise price multiplied by two and the market price for the convertible notes if the registration was effective and the company was not in default.
|
Key assumptions used in the valuation of derivative liabilities associated with the reset provisions of the series D preferred stock at December 31, 2012 and March 31, 2013 were as follows:
|
.
|
The stock price would fluctuate with an annual volatility ranging from 258% to 615% based on the historical volatility for the company.
|
|
.
|
An event of default that requires the Company to redeem the stock would be 0% increasing 2% per period to a maximum of 20% at maturity.
|
|
.
|
The Holder would automatically convert at a stock price of $0.0045 if the Company was not in default.
|
The Company classifies the fair value of these securities under level three of the fair value hierarchy of financial instruments. The fair value of the derivative liability was calculated using a lattice model that values the compound embedded derivatives based on a probability weighted discounted cash flow model. This model is based on future projections of the various potential outcomes. The embedded derivatives that were analyzed and incorporated into the model included the conversion feature with the full ratchet reset, and the redemption options.
The components of the derivative liability on the Company’s balance sheet at March 31, 2013 and December 31, 2012 are as follows:
|
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
|
Embedded conversion features - convertible promissory notes
|
|
$
|
639,264
|
|
|
$
|
632,456
|
|
|
Common stock warrants
|
|
|
-
|
|
|
|
-
|
|
|
Anti-dilution provisions of series D preferred stock
|
|
|
4,692
|
|
|
|
5,229
|
|
|
|
|
$
|
643,956
|
|
|
$
|
637,685
|
|
The Company had the following changes in the derivative liability:
|
Balance at December 31, 2012
|
|
$
|
637,685
|
|
|
Issuance of securities with embedded derivatives
|
|
|
-
|
|
|
Debt and preferred stock conversions
|
|
|
-
|
|
|
Derivative (gain) or loss due to mark to market adjustment
|
|
|
6,271
|
|
|
Balance at March 31, 2013
|
|
$
|
643,956
|
|
16. Intangible Assets
The company had $0 of intangible assets recorded as of March 31, 2013 and December 31, 2012. In the year ended December 31, 2011, all intangible assets were fully impaired.
17. Asset Retirement Obligation (ARO)
The ARO is recorded at fair value and accretion expense is recognized as the discounted liability is accreted to its expected settlement value. The fair value of the ARO liability is measured by using expected future cash outflows discounted at the Company’s credit adjusted risk free interest rate.
Amounts incurred to settle plugging and abandonment obligations that are either less than or greater than amounts accrued are recorded as a gain or loss in current operations. Revisions to previous estimates, such as the estimated cost to plug a well or the estimated future economic life of a well, may require adjustments to the ARO and are capitalized as part of the costs of proved oil and natural gas property.
The following table is a reconciliation of the ARO liability for continuing operations for the three months ended March 31, 2013 and December 31, 2012:
|
|
|
March 31,
2013
|
|
|
December31,
2012
|
|
|
Asset retirement obligation at the beginning of period
|
|
|
11,789
|
|
|
|
21,831
|
|
|
Liabilities incurred
|
|
|
-
|
|
|
|
-
|
|
|
Revisions to previous estimates
|
|
|
-
|
|
|
|
(3,860)
|
|
|
Dispositions
|
|
|
-
|
|
|
|
(8,644)
|
|
|
Accretion expense
|
|
|
285
|
|
|
|
2,432
|
|
|
Asset retirement obligation at the end of period
|
|
|
12,074
|
|
|
|
11,789
|
|
18. Discontinued Operations
During the year ended December 31, 2012, the Company entered into a preliminary Agreement to sell 51% of its stock in Arctic Solar Engineering, LLC. Negotiations continue on the Agreement. Income on the discontinued portion is $32,567 and is recognized in the financial statements on the Agreement date. This income is primarily due to an insurance reimbursement that is recorded in other income.
All assets and liabilities of Arctic Solar are segregated in the balance sheet and appropriately labeled as held for sale in 2012, and the quarter ended March 31,2013.
On July 31, 2012, the Company completed a Purchase Agreement whereby EGPI Firecreek, Inc., through its wholly owned subsidiary Energy Producers, Inc., would sell one half (50%) of its holdings in the Tubb oil and gas leases. The operations of the disposed portion are segregated in the statement of operations for the period ended March 31, 2012.
19. Professional Service Agreements
On March 1, 2010, the Company entered into two professional service agreements (the “Agreements”) which are intended to be automatically renewable annually. Aggregate fees pursuant to the Agreements are comprised of (a) $20,000 in cash per month which has been accrued through the period ended December 31, 2010; (b) a one-time issuance of 120,000 shares of restricted common stock; and (c) three-year warrants, which vest six months from the grant date, to purchase for $20,000 the lower of (i) shares of common stock representing 1% of the Company’s outstanding common stock; or (ii) shares of common stock representing a fair market value of $150,000. In addition, the vendors are entitled to convert any unpaid cash fees into common stock at a 50% discount to the fair market value of the stock on the date of conversion. On April 1, 2011 the contracts were renewed with aggregate fees of $30,000 per month which have been accrued through the period ended December 31, 2011. In this renewal, the warrants were cancelled no longer exercisable. All amounts accrued as part of the $30,000 monthly accrual are done so pursuant to convertible promissory notes due on demand. They are convertible at a 50% discount to the fair market value of the stock on the date of conversion. On April 1, 2012 the contracts were renewed with aggregate fees of $10,000 per month which have been accrued through the period ending March 31, 2013. Other terms remain the same.
20. Concentrations and Risk
Customers
During the three months ended March 31, 2013 and March 31, 2012, revenue generated under the top five customers accounted for 100% of the Company’s total revenue. Concentration with a single or a few customers may expose the Company to the risk of substantial losses if a single dominant customer stops conducting business with the Company. Moreover, the Company may be subject to the risks faced by these major customers to the extent that such risks impede such customers’ ability to stay in business and make timely payments.
21. Contingencies
In October 2010 we received notice of a lawsuit filed against the Company by St. George Investments, LLC relating to certain Agreements entered on January 15th, 2010 by EGPI Firecreek Inc. and St. George Investments LLC which include: i) Note Purchase Agreement, ii) Convertible Promissory Note, iii) Judgment by Confession and iv) Registration Rights Agreement. St. George Investments LLC believes that EGPI Firecreek is in breach of terms agreed upon pursuant to the aforementioned agreements and sought damages totaling $262,585 (includes principal, interest and all penalties/fees pursuant to plaintiff's initial disclosures dated 3/28/11). In July 2011, the Company and St. George Investments LLC entered into a settlement agreement where the Company agreed to pay $202,000 on various payment terms beginning with $10,000 on signing of agreement, followed by five payments beginning August through December 2011, and thereafter payments for 18 months in the amount of $6,158. St. George now claims EGPI defaulted on the payment schedule and entered a Confession of Judgment. On September 23, 2011, EGPI Firecreek, Inc. received notice that St. George Investments LLC had filed a second lawsuit arising out of the same claims. The Company is moving to set aside the Confession of Judgment on this basis and is answering and vigorously defending the second lawsuit. As of January 31, 2012, the Company entered into a Settlement Agreement with St. George Investments, LLC whereas among other terms due the Company agreed to two principal options for settlement with summary terms as follows: 1. A settlement payment in the total aggregate amount of $200,000 with $20,000 due January 21, 2012, and $10,000 per month thereafter on the 21
st
of each month thereafter going forward until paid or 2. A payment balloon of $100,000 paid by April 21, 2012 less $30,000 in payments as credited or $70,000 total upon which the Company or its parties shall have no further obligation to make settlement payments or pay any other amounts to St. George Investments, LLC thereafter. The Company having negotiated settlement payment is current in its payment through October 21, 2012 in accordance with recent modifications to forbearance agreements (for the August payment) having negotiated a stock payment for June and July 2012 and recently for August 2012. The Company did not timely make its August 2012 payment but has been in communication with St. George Investments, LLC as to its current position with both parties now agreed to a current status based on resumption of payments due for August 2012 by resuming payments on May 31, 2013. The entire amount owed is accrued in notes payable in the financial statements.
In November 2010, EGPI Firecreek Inc and South Atlantic Traffic Corp., a former wholly owned subsidiary of the Company, received a lawsuit from two of the former owners of SATCO, Mr. Jesse Joyner and Mr. James Stewart Hall. Mr. Joyner and Mr. Hall have subsequently resigned from their positions with the company. On December 17, 2010, EGPI Firecreek Inc. filed its answer to the claim and filed a counterclaim against Mr. Joyner and Mr. Hall. As of August 2011 and through April 2012, the Company is in settlement negotiations and believes the matter will be resolved for less than the amount currently accrued and included in notes payable and accrued interest, which are the subject of the lawsuit. SATCO was sold to Distressed Asset Acquisitions, Inc. in March 2012. As of July 2012 the case has been settled for $177,000 on scheduled payments over three years. The Company has made seven payments of just under $5,000 each, is current through January 2013 and due for February and March 2013, and has negotiated to bring current on two payments due May 8, 2013.
In December 2010 the Company received a lawsuit notice on behalf of our former Terra Telecom (“Terra”) subsidiary from Source Capital Group Inc (“Source”) seeking a judgment for amounts allegedly owed it from Terra in the total aggregate amount of $81,492 plus pre and post judgment interest. In June 2011, the Company filed a motion to dismiss for lack of personal jurisdiction. Additionally, the Company also filed a motion to dismiss for Sources’ failure to state a claim. In response to that motion, Source has now, as of July, 2011, dismissed its assumption argument. On October 14
th
, 2011, EGPI Firecreek Inc. received notice from Source Capital’s legal representation that they were seeking to withdrawal as counsel for plaintiffs in this matter. The Company believes that this development with further strengthen our position in defense of this matter and will ultimately result in the granting of our pending motions to dismiss. As of May 2013 there has been no communications received further in this matter.
In February 2011 the Company received a lawsuit notice on behalf of our Terra Telecom (“Terra”) subsidiary from Nu-Horizons Electronics (“Nu-Horizons”) seeking judgment for amounts allegedly owed it from Terra in the total aggregate amount of $196,620. The Company believes that it is not liable, and intends to file appeal to remove it from the motion for judgment. The Company will vigorously defend its position. As of May 2013, the Company has not received further communications with respect to Nu-Horizons.
In May 2011 the Company received a lawsuit by Edelweiss Enterprises Inc. dba The Small Business Money Store (“SMBS”) seeking a judgment to collect amounts allegedly owed it relating to an account receivable factoring agreement, to the former subsidiary SATCO, in the total aggregate amount of $48,032. The Company believes that it is not liable, and will vigorously defend its position. In July 2012 the Company attended an arbitration hearing and in August was awarded a dismissal of the case by the Arbitrator. The Plaintiff then appealed and since the appeal the matter has been settled and dismissed for a payment of $5,000 cash and 275,000 shares of the Company’s restricted common stock, which both have been tendered as of the date of this filing.
In August 2011, the Company received a lawsuit notice on behalf of our wholly owned subsidiary Energy Ventures One Inc whereas Contegra Construction Company LLC (“CCC”) is seeking a judgment to collect amounts owed it relating to a promissory note in the amount of $157,767, which includes interest and late fees. The amount is recorded as a liability in the financial statements.
In August 2011, the Company received a lawsuit notice on behalf of itself and our wholly owned subsidiary Energy Ventures One Inc. and Arctic Solar, LLC by Masters Equipment Services, Inc. (“Masters”) seeking a judgment to collect amounts allegedly owed it relating to a promissory note in the amount of $110,153, including interest and late fees. The Company is one of several parties named in the proceeding and is prepared to vigorously defend its position. In July 2012, the Company negotiated a settlement of this case for $22,000 at the rate of $2,000 per month beginning October 2012. The promissory note is recorded as a liability in the financial statements. The Company has made its first payment of $2,000 and is current at September 30, 2012 but has fallen behind in payments since, and will attempt to resume as soon as practicable.
In January, 2012 a lawsuit was filed in the Middlesex County, Massachusetts Superior Court by Joshua White, against Terra Telecom and the Company. Mr. White was a former employee of Terra Telecom and not the Company. Mr. White alleges the Company should be liable to him for the acts of Terra Telecom. A Motion to Dismiss has been filed for lack of jurisdiction on behalf of the Company, which the Company believes will be granted. In any event the Company believes it has no liability and will defend vigorously if, for some reason, the Motion to Dismiss is not granted. The Company sold its interest in Terra Telecom in March of 2011. On August 3, 2012 the Motion to Dismiss was granted by the Justice of the Superior Court.
In February 2012 the Company received a lawsuit notice on behalf of itself by Morrell Saffa Craige, PC (“Morrell”) seeking the recovery of legal fees in the approximate sum of $25,000 owed to the Plaintiff in connection with its successful defense of a lawsuit styled Thermo Credit, LLC v. EGPI, et al. The Company owes the above fees and intends on paying the bill in full. The amount is recorded in the financial statements in accounts payable.
In May 2012 a lawsuit was filed in the Clark County, Nevada District Court by Lakeview Consulting, LLC (“Lakeview”), against the Company and other various Does 1-V and Roes corporations V1-X. Lakeview alleges the Company failed or refused to convert shares on a Convertible Note in the amount of $35,000 and therefore the sum plus interest, damages, etc. The Company is one of several parties named in the proceeding and is prepared to vigorously defend its position. The Company entered negotiations for settlement and has recently made its first payment, and current for the period ended September 30, 2012, but has fallen behind on all subsequent payments. The Company has negotiated for a payment to be made by May 15, 2013. The amount is recorded as a liability in the financial statements.
In October 2012 the Company received a lawsuit behalf of Solaire Power Technologies, LLC, a subsidiary of our wholly owned subsidiary Arctic Solar Engineering LLC. Robert T Short (“RTS”) , the Plaintiff, is claiming personal injuries and damages relating to alleged fall from the City of Dardene Prairie building, in the City of Dardene Prairie MO, Solaire is one of several parties named in the proceeding. Solaire denies all liability, and is prepared to vigorously defend its position. There is no further activity related to this matter that we are aware of as as of May 2013.
As noted in our debt footnote above, we have certain notes that may become convertible in the future and potential result in further dilution to our common shareholders.
During the quarter ended March 31, 2013, the Company’s Board of Directors approved a 1:4,000 shares reverse stock split. Shares have not been reissued as of March 1, 2013, but the reverse split has been recognized in these financial statements
22. Subsequent Events
The Company has been making presentations to asset-based lenders and other financial institutions for the purpose of acquiring additional projects and financing capital expenditures to build upon its infrastructure for its oil and gas operations in 2013. The Company through May 31, 2013 has been pursuing projects for acquisition and development of select targeted oil and gas proved producing properties with revenues, having upside potential and prospects for enhancement, rehabilitation, and future development. These domestic focus prospects are primarily located in Texas, and in other core areas of the Permian Basin.
The Company is pursuing certain international based oil and gas programs available in West Africa and will Report progress when appropriate.
The Company’s goal is to build our revenues, asset base and cash flow; however, the Company makes no guarantees and can provide no assurances that it will be successful in these endeavors.
23. Segment Reporting
We classify our operations into two main business lines: (1) Solar Thermal Energy, and (2) Oil and Gas. This segmentation best describes our business activities and how we assess our performance. Information about the nature of these segment services, geographic operating areas and customers is described in the Company’s 2010 Annual Report. Summarized financial information by business segment for the three months ending March 31, 2013 is presented below. All segment revenues were derived from external customers. As more fully disclosed in the Company’s fiscal year 2010 Annual Report, we had no operations in these business segments until our acquisitions of Arctic Solar Engineering, LLC on February 4, 2011 (Solar Thermal Energy), and the beginning operations of Energy Producers, Inc. (Oil and Gas).
|
|
Discontinued
Operations
|
|
Solar Thermal
Energy
|
|
|
Oil & Gas
|
|
|
All Other (a)
|
|
|
Totals
|
|
|
Revenues
|
-
|
|
|
-
|
|
|
|
32,774
|
|
|
|
-
|
|
|
|
32,774
|
|
|
Depreciation & amortization
|
-
|
|
|
-
|
|
|
|
23,483
|
|
|
|
-
|
|
|
|
23,483
|
|
|
Income (loss) from operations
|
-
|
|
|
-
|
|
|
|
(72,012)
|
|
|
|
-
|
|
|
|
(72,012)
|
|
|
Interest expense
|
482
|
|
|
482
|
|
|
|
-
|
|
|
|
84,964
|
|
|
|
85,928
|
|
|
Segment assets
|
172
|
|
|
172
|
|
|
|
1,309,444
|
|
|
|
248
|
|
|
|
1,310,034
|
|
The following are reconciliations of reportable segment revenues, results of operations, assets and other significant items to the Company’s consolidated totals (amounts stated in thousands):
|
Three Months Ended March 31,
|
|
|
|
|
2013
|
|
|
Revenues:
|
|
|
|
|
Total for reportable segments
|
|
|
32,774
|
|
|
Corporate
|
|
|
-
|
|
|
|
|
|
32,774
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
Total for reportable segments
|
|
|
23,483
|
|
|
Corporate
|
|
|
-
|
|
|
|
|
|
23,483
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
Total for reportable segments
|
|
|
(72,012)
|
|
|
Corporate
|
|
|
-
|
|
|
|
|
|
(72,012)
|
|
|
Interest expense:
|
|
|
|
|
|
Total for reportable segments
|
|
|
964
|
|
|
Corporate
|
|
|
84,964
|
|
|
|
|
|
85,928
|
|
|
Segment assets:
|
|
|
|
|
|
Total for reportable segments
|
|
|
1,309,786
|
|
|
Corporate
|
|
|
248
|
|
|
|
|
|
1,310,034
|
|