The accompanying notes are an integral part of these unaudited financial statements
NOTES TO FINANCIAL STATEMENTS
October 31, 2012
(UNAUDITED)
NOTE 1 ORGANIZATION AND DESCRIPTION OF BUSINESS
Liberty Energy Corp. (f/k/a DMA Minerals Inc., the Company) was incorporated on June 6, 2006 under the laws of the State of Nevada. The Company is currently an exploration stage company under the provisions of Accounting Standards Codification (ASC) No. 915,
Development Stage Entities
. Since inception, the Company has produced almost no revenues and will continue to report as an exploration stage company until significant revenues are produced. The Companys principal activity is the exploration and development of oil and gas properties. Properties are located in the United States of America and Bulgaria.
The Companys success will depend in large part on its ability to obtain and develop oil and gas interests within the United States. There can be no assurance that oil and gas properties obtained by the Company will contain reserves or that properties with reserves will be profitable to extract. The Company will be subject to local and national laws and regulations which could impact the Companys ability to execute its business plan.
NOTE 2 GOING CONCERN
The financial statements of the Company have been prepared assuming that future issuances of the Companys equity or debt securities will be required in order for the Company to continue to finance its operations and continue as a going concern. The Companys present revenues are insufficient to meet operating expenses. Continuing as a going concern, the Company contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses since its inception and requires capital for its future operational activities. The Company's ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Companys plan of operations, and its transition to profitable operations is necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. The accompanying interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the Companys opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended October 31, 2012 are not necessarily indicative of the results for the full years. While management of the Company believes that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited combined financial statements and the footnotes thereto for the periods ended July 31, 2012 filed in our Annual Report on Form 10K filed on November 13, 2012.
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses.
Recent Accounting Pronouncements
Recently issued accounting pronouncements will have no significant impact on the Company and its reporting methods.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
8
LIBERTY ENERGY CORP.
(f/k/a DMA MINERALS INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
October 31, 2012
(UNAUDITED)
Net Loss per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. As the Company is in a net loss position, there are no outstanding potentially dilutive securities that would cause diluted earnings per share to differ from basic earnings per share.
Oil and Gas Properties
The Company follows the full-cost method of accounting for oil and natural gas properties. Under this method, all costs incurred in the exploration, acquisition and development, including unproductive wells, are capitalized in separate cost centers for each country. Such capitalized costs include contract and concessions acquisition, geological, geophysical, and other exploration work, drilling, completing and equipping oil and gas wells, constructing production facilities and pipelines, and other related costs.
The capitalized costs of oil and gas properties in each cost center are amortized on a composite unit of production method based on future gross revenues from proved reserves. Sales or other dispositions of oil and gas properties are normally accounted for as adjustments of capitalized costs. A gain or loss is not recognized in income unless a significant portion of a cost centers reserves is involved. Capitalized costs associated with acquisition and evaluation of unproved properties are excluded from amortization until it is determined whether proved reserves can be assigned to such properties or until the value of the properties is impaired. If the net capitalized costs of oil and gas properties in a cost center exceed an amount equal to the sum of the present value of estimated future net revenues from proved oil and gas reserves in the cost center and the lower of cost or fair value of properties not being amortized, both adjusted for income tax effects, such excess is charged to expense.
Capitalized costs associated with acquisition and evaluation of unproved properties are excluded from amortization until it is determined whether proved reserves can be assigned to such properties or until the value of the properties is impaired.
Revenue and Cost Recognition
The Company uses the sales method of accounting for natural gas and oil revenues. Under this method, revenues are recognized based on the actual volumes of gas and oil sold to purchasers. The volume sold may differ from the volumes to which the Company is entitled based on our interest in the properties. Costs associated with production are expensed in the period incurred
.
Income Taxes
The Company accounts for its income taxes in accordance with ASC No. 740, "Income Taxes". Under Statement 740, a liability method is used whereby deferred tax assets and liabilities are determined based on temporary differences between basis used for financial reporting and income tax reporting purposes. Income taxes are provided based on tax rates in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not, that the Company will not realize the tax assets through future operations.
The Companys federal tax returns for the years ended 2006 through 2011 are open to examination. At October 31, 2012, the Company evaluated its open tax years in all known jurisdictions. Based on this evaluation, the Company did not identify any uncertain tax positions. The Company accounts for interest and penalties relating to uncertain tax positions in the current period statement of operations as necessary.
Fair Value of Financial Instruments
U.S. GAAP establishes a fair value hierarchy which has three levels based on the reliability of the inputs to determine the fair value. These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Companys financial instruments consist primarily of cash, oil and gas properties, accounts payables and notes payable. The carrying values of these financial instruments approximate their respective fair values as they are either short-term in nature or carry interest rates that approximate market rates. The Company evaluates its embedded conversion
9
LIBERTY ENERGY CORP.
(f/k/a DMA MINERALS INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
October 31, 2012
(UNAUDITED)
features contained within their convertible notes for derivative treatment. The Companys derivative liabilities at October 31, 2012 are considered Level 2 financial instruments.
NOTE 4 - UNEVALUATED OIL AND GAS PROPERTIES
On October 1, 2009, the Company entered into a lease purchase and sale agreement with Trius Energy LLC, a Texas corporation, to acquire four oil and gas leases in Texas for $125,000. The interests consist of a 100% WI (Working Interest) at a 75% NRI (Net Revenue Interest) in the Dahlstrom Lease, 2% WI at 75% NRI in the Ratliff Lease and 100% WI at a 70% NRI in the Lockhart Project, consisting of two leases, the Anton Lease (1 tract) and Alexander Lease (3 tracts).
The Anton Lease lapsed on January 9, 2011 this tract had 1 shut-in well. It was determined by the Company after discussions with their operators, geologists and based on historical data, that it would not be cost effective to pursue the well therefore the lease was allowed to lapse. In connection with the lapse $3,512 of leasehold cost were written off as of July 31, 2012.
The remaining leases lapsed on July 25, 2012. It was determined by the Company after discussions with their operators, geologists and based on historical data that it would not be cost effective to pursue the leases and existing wells therefore the lease was allowed to lapse. In connection with the lapse, $690,397 of leasehold cost was written off. The Company also accrued payable for $23,280 for the plugging and abandonment of wells associated with these properties as of July 31, 2012.
Bulgaria
On September 22, 2009, the Company entered into a purchase and sales agreement with William C. Athens, of Tulsa, Oklahoma. The Company agreed to acquire a total of 1/16
th
of 1% of 8/8ths ORRI (overriding royalty interest) in the A-Lovech exploration block in Bulgaria for a total price of $400,000. The payments and assignments are payable in four separate $100,000 closings to take place approximately 30 days apart, from the date of execution of the agreement.
Mr. Athens passed away between the date the contract was executed and full payment was made, completion of the contract was delayed pending notification from his estate. On April 28, 2011, Ms. Susan W. Athens, the executor for the estate of Mr. William C. Athens, executed an agreement to terminate the purchase and sale agreement between Liberty Energy Corp. and William C. Athens. Under the terms of the agreement Liberty Energy Corp. shall retain the 1/64th of the 1% interest in the A-Lovech exploration block and Mr. Athens estate shall retain the $100,000 which was forwarded to Mr. Athens for this acquisition. Oil and gas properties and notes payable were both reduced by $300,000 in accordance with the revised agreement.
Langold Acquisition
On February 22, 2012, the Company entered into and closed a three year lease assignment agreement with Langold Enterprises Limited (an entity with some cross ownership and common principal manager of Asia-Pacific, the Companys primary source of capital) pertaining to certain interests in oil and gas properties in Bastrop, Caldwell and Eastland Counties, Texas. The interests which were assigned to the Company are three year leases to the following properties:
A 100% working interest in 2 separate properties equaling approximately 300 acres of exploration property located in Bastrop Town Tract, Abstract No. 11, Bastrop County, TX and the T. J. Hardeman Survey A 203, in Bastrop County, Texas.
A 100% working interest in 5 separate properties equaling approximately 622 acres of exploration property located in Sampson Connell Survey, A-63, Caldwell County, TX, the G. W. James Survey, Caldwell County, TX, the Jasper Gilbert Survey, Caldwell County, TX and the A100 Evans, Wistar, Caldwell County, TX.
A 100% working interest in an approximately 5 acre oil and gas property called the Dillon Hall property located in the Gerron Hinds League in Caldwell County, Texas. The Dillon Hall property is not currently producing, and though it holds an existing well, that well requires a work-over to be put back into production.
A 100% working interest in a property equaling approximately 112 acres of exploration property located in the N. W. 1/4 of Section 24, Block 2, H & C. R. R. Co., Survey, Eastland County, TX.
In consideration for the above leases the Company issued 24,155,435 restricted shares of our common stock to Langold, a non-US shareholder as of July 31, 2012. The restricted shares were valued equal the volume weighted average of the closing price (the
10
LIBERTY ENERGY CORP.
(f/k/a DMA MINERALS INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
October 31, 2012
(UNAUDITED)
VWAP) of Common Stock for the ten (10) Banking Days immediately preceding the execution of the assignment, as quoted on Google Finance or other source of stock quotes as agreed to by the parties. The original value assigned these shares and the leaseholds was $3.3 million. It was determined that due to the relationship between Langold and Asia-Pacific this transaction was not arms length but rather was related party. The Company corrected the error in its July 31, 2012 financial statements and the shares issued and the leasehold costs were recorded at the price paid by Langold on their original three year lease acquisition from the land owners. That price paid was $20,000 cash plus 1,800,000 shares of restricted Liberty Energy stock which was valued at $243,932 for a total consideration of $263,932.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company may from time to time be involved in legal proceedings arising from the normal course of business. There are no pending or threatened legal proceedings as of October 31, 2012.
On March 1, 2012, we entered into a consulting agreement with Peter Gawith for a period of three years, ending February 28, 2015. Mr. Gawith will provide consulting services in regards to our Companys management and operations. Pursuant to the agreement, Mr. Gawith will receive a share remuneration of 25,000 shares on a quarterly basis during the term of the agreement. Effective September 1, 2012, we issued 25,000 shares of common stock for the services provided for the three month quarter. The Company recorded the shares at the market price on the issue date of $0.06 for a total consulting expense of $1,500. Mr. Gawith is also entitled to $500 per day that he works on the Companys business, none of which has been earned or paid pursuant to this contract.
NOTE 6 RELATED PARTY TRANSACTIONS
Our Company has entered into Consulting Agreements with Daniel Martinez-Atkinson and Ian Spowart on an ongoing basis, dated the 12th day of February, 2010, whereby the Company has agreed to retain Daniel Martinez-Atkinson to the position of Chief Financial Officer and Ian Spowart to the position of Chief Executive Officer of our Company. The agreements may be terminated with 30 days notice. As compensation, the agreements provide for monthly payments of US$5,000 to Daniel Martinez-Atkinson and US$6,500 to Ian Spowart. On July 1, 2011 the directors thought it to be in the best interest of the Company to enter into an Amended Consulting Agreement with Daniel Martinez-Atkinson to increase the consulting fee to $5,500 from July 1, 2011. On June 1, 2012 the directors thought it to be in the best interest of the Company to enter into an Amended Consulting Agreement with Ian Spowart to decrease the consulting fee to $3,500 from June 1, 2012.
Daniel Martinez-Atkinson and Ian A. Spowart, the officers and directors of the Company may, in the future, become involved in other business opportunities as they become available, thus they may face a conflict in selecting between the Company and their other business opportunities. The Company has not formulated a policy for the resolution of such conflicts.
NOTE 7 CONVERTIBLE NOTES PAYABLE
On May 23, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises Inc. Pursuant to the Agreement, Asher Enterprises has agreed to purchase an 8% convertible note in the aggregate principal amount of $42,500. $40,000 was funded to the Company with the remaining $2,500 recorded as legal expenses charged by Ashers legal counsel. This convertible note together with any unpaid accrued interest is convertible into shares of common stock at the holders option 180 days from inception at a variable conversion price calculated as 58% of the market price defined as the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion date with no floor stated in the conversion feature. The convertible note, issued on May 23, 2012, is due on February 25, 2013 at an interest rate of 8% per annum. The derivative treatment would not become applicable until the Note becomes convertible on November 19, 2012. As the liability was known before the issuance of the financials the Company decided to record the derivative liability as of October 31, 2012.
Pursuant to ASC 815, Derivatives and Hedging ," the Company recognized the fair value of the embedded conversion feature of $60,284 as a derivative liability and a loss on the derivative liability of $17,784. The initial fair value of the derivative liability was determined using the Black Scholes option pricing model with a quoted market price of $0.04, a conversion price of $0.0174, expected volatility of 172%, no expected dividends, an expected term of 0.27 years and a risk-free interest rate of 0.16%. The discount on the convertible loan of $42,500 is accreted over the term of the convertible loan with $24,460 recorded as interest expense as of October 31, 2012.
11
LIBERTY ENERGY CORP.
(f/k/a DMA MINERALS INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
October 31, 2012
(UNAUDITED)
On July 12, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises Inc. Pursuant to the Agreement, Asher Enterprises has agreed to purchase an 8% convertible note in the aggregate principal amount of $32,500. $30,000 was funded to the Company with the remaining $2,500 recorded as legal expenses charged by Ashers legal counsel. This convertible note together with any unpaid accrued interest is convertible into shares of common stock at the holders option 180 days from inception at a variable conversion price calculated as 58% of the market price which means the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion date with no floor stated in the conversion feature. The convertible note, issued on July 12, 2012, is due on April 16, 2013 at an interest rate of 8% per annum. The Company will analyze whether the variable conversion price results in need of bifurcation of the conversion feature into a separate derivative liability valued at fair market value on the date the contingency of the conversion feature is settled which is 180 days from inception of the note.
NOTE 8 STOCK TRANSACTIONS
On July 19, 2010, the Company entered into a stock and warrant purchase agreement with Asia-Pacific Capital Ltd. Pursuant to which the investor agreed to lend up to $4,000,000 to the Company in multiple installments in exchange for units of the Company at unit price. The unit price means a price equal to the higher of either $ 0.50, or 90% of the volume-weighted average of the closing price of common stock, for the five days immediately preceding the date of receipt of notice from the Company for the advance of funds from Asia-Pacific Capital Ltd. Each unit shall consist of one share (restricted) of the common stock of the Company and one and a half share purchase warrant. Each warrant shall entitle Asia-Pacific Capital Ltd. to purchase one additional share of common stock, at an exercise price equal to 125% of the unit price at which the unit containing the warrant being exercised was issued, for a period of three (3) years from the date such warrant is issued.
On March 8, 2011, the Company entered into a letter agreement to amend the share issuance agreement entered into with Asia-Pacific Capital Ltd. on July 19, 2010. Pursuant to the terms of the share issuance agreement Asia-Pacific agreed to advance $4,000,000 to the Company and had the option to advance a further $4,000,000 once the initial amount had been exhausted. Pursuant to the terms of the letter agreement amending the original share issuance agreement Asia-Pacific has now committed to providing the Company with a total of $8,000,000 in advances despite the fact that the initial $4,000,000 has not yet been fully advanced. As of July 31, 2012 the Company has issued a total of 3,871,835 shares to Asia-Pacific for a total cash amount of $1,055,000 under the terms of the above mentioned agreement.
On September 27, 2011 the Company issued a total of 50,000 shares of common stock to Asia-Pacific for cash in the amount of $0.50 per share for a total of $25,000.
On November 23, 2011, the Company amended the share issuance agreement to modify the share issuance agreement originally entered into with Asia-Pacific Capital Ltd. on July 19, 2010. The parties have agreed to amend the pricing mechanisms (the Unit Price) within the original agreement. The definition of the Unit Price in of the original agreement is deleted and replaced with Unit Price means a price equal 95% of the volume weighted average of the closing price (the VWAP) of Common Stock for the ten (10) Banking Days immediately preceding the date of the Notice, as quoted on Google Finance or other source of stock quotes as agreed to by the parties, but at no time less than $0.05 per share. Excluding the modifications to the Unit Price, the original agreement remains in full force and effect.
On February 22, 2012, the Company entered into and closed a lease assignment agreement with Langold Enterprises Limited pertaining to certain interests in oil and gas properties in Bastrop, Caldwell and Eastland Counties, Texas. In consideration for the above leases the Company issued 24,155,435 restricted shares of its common stock to Langold, a non-US shareholder. The restricted shares issued and the leasehold costs were each recorded at the price paid by Langold on their original three year lease acquisition from the land owners. That price paid was $20,000 cash plus 1,800,000 shares of restricted Liberty Energy stock which was valued at $243,932 for a total consideration of $263,932.. These shares were issued without a prospectus, in reliance on exemptions from registration found in Regulation S of the Securities Act of 1933, as amended.
On September 1, 2012, we issued 25,000 shares of common stock for the services provided for the three month quarter. The Company recorded the shares at the market price on the issue date of $0.06 for a total consulting expense of $1,500.
As of October 31, 2012 and as part of the agreement with its main investor, Asia-Pacific Capital Ltd., the Company issued 5,807,752 warrants. The warrants issued have an exercise price of $1.25 and are fully vested at the date of grant. The warrants
12
LIBERTY ENERGY CORP.
(f/k/a DMA MINERALS INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
October 31, 2012
(UNAUDITED)
have a term of three years and have an average remaining contractual life of 1.587 years as of October 31, 2012. As these warrants are so far out of the money no value was allocated to them. As of October 31, 2012 no warrants had been exercised.
NOTE 9 SUBSEQUENT EVENTS
The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The management of the Company determined that the following were certain reportable subsequent events to be disclosed as follows:
On November 19, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises Inc. Pursuant to the Agreement, Asher Enterprises has agreed to purchase an 8% convertible note in the aggregate principal amount of $27,500, $25,000 was funded to the Company with the remaining $2,500 recorded as legal expenses charged by Ashers legal counsel. This convertible note together with any unpaid accrued interest is convertible into shares of common stock at the holders option 180 days from inception at a variable conversion price calculated as 58% of the market price defined as the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion date with no floor stated in the conversion feature. The convertible note, issued on November 19, 2012, is due on August 21, 2013 at an interest rate of 8% per annum. The Company will analyze whether the variable conversion price results in need of bifurcation of the conversion feature into a separate derivative liability valued at fair market value on the date the contingency of the conversion feature is settled which is 180 days from inception of the note.
On December 3, 2012 Asher Enterprises elected to convert $15,000 of the principal Convertible Note of May 23, 2012 of $42,500 into 842,697 of shares of common stock at a conversion price of $0.0178 per share. The Company has a balance due of $27,500 remaining under the convertible note.
On December 11, 2012 Asher Enterprises elected to convert $12,000 of the principal Convertible Note of May 23, 2012 of $42,500 into 800,000 of shares of common stock at a conversion price of $0.0150 per share. The Company has a balance due of $15,500 remaining under the convertible note.
13