UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
______________________
FORM 10-Q
______________________
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September
30, 2015
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission File No.: 000-49752
Legend Oil and Gas, Ltd.
(Exact name of registrant as specified
in its charter)
Colorado |
84-1570556 |
(State or other jurisdiction of
incorporation or organization) |
(IRS Employer
Identification No.) |
555 Northpoint Center East, Suite 400
Alpharetta, GA 30022
(Address of principal executive offices)
(678) 366-4587
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☐ |
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
☒ |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 20, 2015, the registrant had 936,083,273
shares of its common stock, par value $0.001 per share, issued and outstanding.
LEGEND OIL AND GAS, LTD.
FORM 10-Q
For the Quarterly Period ended September
30, 2015
Table
of Contents
EXPLANATORY NOTE
Unless otherwise indicated or the context otherwise requires, all references in this Quarterly Report on Form 10-Q ("Report")
to "we," "us," "our," "Legend" and the "Company" are to Legend Oil and Gas, Ltd., a Colorado corporation, and references in
this Report to "Legend Canada" are to Legend Energy Canada, Ltd., a wholly-owned subsidiary of the Company. All references
to "Wi2Wi" are to Wi2Wi Corporation, formerly International Sovereign Energy Corp., an Alberta, Canada corporation. Unless
otherwise indicated, references herein to "$" or "dollars" are to United States dollars. All references in this Current Report
to "CA$" are to Canadian dollars. All financial information with respect to the Company has been presented in United States
dollars in accordance with U.S generally accepted accounting principles.
CAUTIONARY NOTICE REGARDING
FORWARD-LOOKING STATEMENTS
We desire to take advantage of the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995. This Report contains a number of forward-looking statements
that reflect management’s current views and expectations with respect to our business, strategies, future results and events,
and financial performance. All statements made in this Report other than statements of historical fact, including statements that
address operating performance, the economy, events or developments that management expects or anticipates will or may occur in
the future, including statements related to revenues, profitability, adequacy of funds from operations, and cash flows and financing
are forward-looking statements. In particular, the words such as “believe,” “expect,” “intend,”
“anticipate,” “estimate,” “may,” “will,” “can,” “plan,”
“predict,” “could,” “future,” variations of such words, and similar expressions identify forward-looking
statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is
not forward-looking.
Readers should
not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections
about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions and apply only
as of the date of this Report. Our actual results, performance or achievements could differ materially from historical results
as well as the results expressed in, anticipated or implied by these forward-looking statements.
In particular, our business, including our financial
condition and results of operations and our ability to continue as a going concern may be impacted by a number of factors, including,
but not limited to, the following:
|
• |
Our ability to pay off our Senior Secured Convertible Debentures to Hillair Capital Investments, L.P (“Hillair”); |
|
• |
Our ability to fund our 2015 drilling and development plan; |
|
• |
Our ability to obtain buyers on terms favorable to us, in the event that we were to seek to sell certain of our oil and gas interests; |
|
• |
Our
loss of any major customer or customers; |
|
• |
Our
ability to manage adverse environmental matters that could result as part of our crude oil hauling business or from our oil
and gas properties; |
|
• |
Our
ability to manage potential regulatory matters from the U.S. Department of Transportation or other government agencies that
could hinder our ability to operate; |
|
• |
Our ability to retain the services of our President and Chief Financial Officer, and other key personnel, the loss of which could materially impair our business plan; |
|
• |
Changes in estimates of our crude oil and natural gas reserves and depletion rates; |
|
• |
Our ability to control or reduce operating expenses and manage unforeseen costs; |
|
• |
Our reliance on third-party contractors in performing the majority of our operations, which could make management of our drilling and production efforts inefficient or unprofitable; |
|
• |
Our ability to maintain our existing property leases and acquire rights on properties that we desire; |
|
• |
Changes in commodity prices for crude oil and natural gas; |
|
• |
Environmental risks from operations of our wells; |
|
• |
Our ability to compete successfully against larger, well-funded, established oil and gas companies; |
|
• |
Our ability to comply with the many regulations to which our business is subject; and |
|
• |
Dilutive and other adverse effects on our existing shareholders and our stock price arising from future securities issuances. |
For a more detailed discussion of some of the
factors that may affect our business, results and prospects, see our Annual Report on Form 10-K for the year ended December 31,
2014 filed with the Securities and Exchange Commission on April 6, 2015, as well as various disclosures made by us in our other
reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
PART I – FINANCIAL INFORMATION
ITEM 1
CONSOLIDATED FINANCIAL
STATEMENTS
Legend Oil and Gas, Ltd.
CONSOLIDATED
BALANCE SHEETS
(unaudited)
| |
September 30, | |
December 31, |
| |
2015 | |
2014 |
| |
| |
|
ASSETS | |
| |
|
Current Assets | |
| |
|
Cash and cash equivalents | |
$ | 567,266 | | |
$ | 701,848 | |
Restricted cash | |
| 85,000 | | |
| 85,000 | |
Accounts receivable | |
| 207,498 | | |
| 72,406 | |
Prepaid expenses | |
| 239,199 | | |
| — | |
Prepaid interest | |
| 147,609 | | |
| — | |
Other current assets | |
| 264,575 | | |
| — | |
Total Current Assets | |
| 1,511,147 | | |
| 859,254 | |
| |
| | | |
| | |
Property, plant and equipment net | |
| 4,327,896 | | |
| 453,375 | |
Oil and gas properties – net (full cost method) | |
| 1,301,289 | | |
| 3,639,916 | |
| |
| | | |
| | |
Total Assets | |
$ | 7,140,332 | | |
$ | 4,952,545 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts payable | |
$ | 1,248,419 | | |
$ | 52,413 | |
Accounts payable-related party | |
| — | | |
| 577,000 | |
Accrued interest | |
| 232,001 | | |
| 50,427 | |
Short term debt | |
| 11,033,868 | | |
| — | |
Convertible debt | |
| 1,271,531 | | |
| — | |
Current portion of long term debt | |
| — | | |
| 409,856 | |
Common stock payable | |
| 334,559 | | |
| — | |
Other current liabilities | |
| 7,157 | | |
| — | |
Total Current Liabilities | |
| 14,127,535 | | |
| 1,089,696 | |
| |
| | | |
| | |
Embedded derivative liabilities | |
| — | | |
| 1,128,667 | |
Long term debt, net of debt discount of $0 and $53,924, respectively | |
| — | | |
| 6,119,245 | |
Asset retirement obligations | |
| 121,913 | | |
| 202,586 | |
Total Liabilities | |
| 14,249,448 | | |
| 8,540,194 | |
| |
| | | |
| | |
Stockholders’ Deficit | |
| | | |
| | |
Preferred stock – 99,999,400 shares authorized; $0.001 par value; 0 shares issued and outstanding | |
| — | | |
| — | |
Series A convertible preferred stock - 600 shares authorized; $0.001 par value; 0 and 600 shares issued and outstanding, respectively | |
| — | | |
| — | |
Common stock – 1,000,000,000 shares authorized; $0.001 par value;
878,400,629 and 187,583,273 shares issued and outstanding, respectively | |
| 878,400 | | |
| 187,583 | |
Additional paid-in capital | |
| 34,743,105 | | |
| 27,227,181 | |
Accumulated deficit | |
| (42,730,621 | ) | |
| (31,002,413 | ) |
Total Stockholders’ Deficit | |
| (7,109,116 | ) | |
| (3,587,649 | ) |
| |
| | | |
| | |
Total Liabilities and Stockholders’ Deficit | |
$ | 7,140,332 | | |
$ | 4,952,545 | |
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
Legend Oil and Gas, Ltd.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
| |
For the Three Months Ended | |
For the Nine Months Ended |
| |
September 30, 2015 | |
September 30, 2014 | |
September 30, 2015 | |
September 30, 2014 |
| |
| |
| |
| |
|
Service revenue | |
$ | 1,148,708 | | |
$ | — | | |
$ | 3,474,466 | | |
$ | — | |
Oil and gas revenue | |
| 81,843 | | |
| 217,868 | | |
| 322,569 | | |
| 624,275 | |
Total Revenue | |
| 1,230,551 | | |
| 217,868 | | |
| 3,797,035 | | |
| 624,275 | |
| |
| | | |
| | | |
| | | |
| | |
Operating Expenses: | |
| | | |
| | | |
| | | |
| | |
Cost of service revenue | |
| 1,071,639 | | |
| — | | |
| 2,195,184 | | |
| — | |
Production expenses | |
| 115,780 | | |
| 73,413 | | |
| 398,826 | | |
| 262,923 | |
General and administrative | |
| 337,211 | | |
| 2,389,630 | | |
| 3,475,403 | | |
| 3,719,589 | |
Depletion, depreciation, and amortization | |
| 250,984 | | |
| 64,000 | | |
| 526,405 | | |
| 263,512 | |
Accretion of asset retirement obligations | |
| 13,328 | | |
| — | | |
| 18,113 | | |
| 31,723 | |
Impairment of oil and gas property | |
| — | | |
| 151,199 | | |
| 452,277 | | |
| 580,649 | |
Loss on sale of oil and gas properties | |
| — | | |
| — | | |
| 892,131 | | |
| — | |
(Gain) on disposal of property, plant and equipment | |
| (9,455 | ) | |
| — | | |
| (9,455 | ) | |
| — | |
Total Operating Expenses | |
| 1,779,487 | | |
| 2,678,242 | | |
| 7,948,884 | | |
| 4,858,396 | |
| |
| | | |
| | | |
| | | |
| | |
Operating Loss | |
| (548,936 | ) | |
| (2,460,374 | ) | |
| (4,151,849 | ) | |
| (4,234,121 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other Income (Expense): | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (430,765 | ) | |
| (265,988 | ) | |
| (1,134,296 | ) | |
| (1,605,226 | ) |
Loss on conversion of debt | |
| — | | |
| (62,741 | ) | |
| — | | |
| (62,741 | ) |
Change in fair value of embedded derivative liabilities | |
| — | | |
| (231,212 | ) | |
| (6,551,333 | ) | |
| 1,161,284 | |
Other income (expense) | |
| 33,571 | | |
| — | | |
| 109,270 | | |
| — | |
Total Other Income (Expense) | |
| (397,194 | ) | |
| (559,941 | ) | |
| (7,576,359 | ) | |
| (506,683 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss from continuing operations | |
| (946,130 | ) | |
| (3,020,315 | ) | |
| (11,728,208 | ) | |
| (4,740,804 | ) |
Income from discontinued operations | |
| — | | |
| 3,312,742 | | |
| — | | |
| 3,312,742 | |
Net income (loss) | |
$ | (946,130 | ) | |
$ | 292,427 | | |
$ | (11,728,208 | ) | |
$ | (1,428,062 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic net income (loss) per common shares | |
$ | (0.00 | ) | |
$ | 0.00 | | |
$ | (0.02 | ) | |
$ | (0.01 | ) |
Diluted net income (loss) per common shares | |
$ | (0.00 | ) | |
$ | 0.00 | | |
$ | (0.02 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding: | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 878,400,629 | | |
| 164,810,840 | | |
| 582,612,256 | | |
| 152,563,277 | |
Diluted | |
| 878,400,629 | | |
| 435,082,264 | | |
| 582,612,256 | | |
| 152,563,277 | |
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
Legend Oil and Gas, Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| |
For the Nine Months Ended |
| |
September 30, 2015 | |
September 30, 2014 |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| |
|
Net loss | |
$ | (11,728,208 | ) | |
$ | (1,428,062 | ) |
Income from discontinued operations | |
| — | | |
| (3,312,742 | ) |
Loss from continuing operations | |
| (11,728,208 | ) | |
| (4,740,804 | ) |
Adjustments to reconcile net loss to cash flows used in operating activities: | |
| | | |
| | |
Stock-based compensation | |
| — | | |
| 835,665 | |
Depletion, depreciation, and amortization | |
| 526,405 | | |
| 263,512 | |
Accretion on asset retirement obligation | |
| 18,113 | | |
| 31,723 | |
Impairment of oil and gas properties | |
| 452,277 | | |
| 580,649 | |
Loss on sale of oil and gas properties | |
| 892,131 | | |
| — | |
Gain on disposal of property, plan and equipment | |
| (9,455 | ) | |
| — | |
Amortization of discounts on notes payable | |
| 373,771 | | |
| 184,135 | |
Change in fair value of embedded derivative liabilities | |
| 6,551,333 | | |
| (1,161,284 | ) |
Loss on conversion of debt | |
| — | | |
| 62,741 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 928,537 | | |
| (12,182 | ) |
Prepaid expenses and other assets | |
| (348,430 | ) | |
| 45,877 | |
Prepaid interest | |
| — | | |
| 64,225 | |
Other current assets | |
| (103,821 | ) | |
| 3,740 | |
Inventory | |
| 207,437 | | |
| — | |
Accounts payable | |
| 486,876 | | |
| (222,810 | ) |
Accounts payable-related party | |
| (577,171 | ) | |
| — | |
Other current liabilities | |
| (83,169 | ) | |
| — | |
Accrued interest payable | |
| 181,574 | | |
| — | |
Net cash flows from operating activities - continuing operations | |
| (2,231,800 | ) | |
| (4,064,813 | ) |
Net cash flows provided by operating activities - discontinued operations | |
| — | | |
| — | |
Net cash flows used in operating activities | |
| (2,231,800 | ) | |
| (4,064,813 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Proceeds from sale of oil and gas properties | |
| 1,665,000 | | |
| 450,318 | |
Proceeds from sale of property, plant and equipment | |
| 21,355 | | |
| — | |
Cash paid for the purchase of Black Diamond Energy Holdings, net cash received of $435,339 | |
| (1,064,661 | ) | |
| — | |
Cash paid for oil and gas properties development costs | |
| (585,295 | ) | |
| (206,843 | ) |
Cash paid for equipment | |
| (487,468 | ) | |
| — | |
Net cash flows provided by (used in) investing activities - continuing operations | |
| (451,069 | ) | |
| 243,475 | |
Net cash flows provided by investing activities - discontinued operations | |
| — | | |
| — | |
Net cash flows provided by (used in) investing activities | |
| (451,069 | ) | |
| 243,475 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from short term convertible debt | |
| 1,200,000 | | |
| — | |
Proceeds from short term debt | |
| 2,310,000 | | |
| — | |
Proceeds from notes payable | |
| — | | |
| 5,043,916 | |
Payments on short term debt | |
| (961,713 | ) | |
| — | |
Payments on notes payable | |
| — | | |
| (10,000 | ) |
Net cash flows provided by investing activities - continuing operations | |
| 2,548,287 | | |
| 5,033,916 | |
Net cash flows provided by used in investing activities - discontinued
operations | |
| — | | |
| — | |
Net cash flows provided by financing activities | |
| 2,548,287 | | |
| 5,033,916 | |
| |
| | | |
| | |
Change in cash and cash equivalents before effect of exchange rate changes | |
| (134,582 | ) | |
| 1,212,578 | |
Effect of exchange rate changes | |
| — | | |
| 110,586 | |
Net change in cash and cash equivalents | |
| (134,582 | ) | |
| 1,323,164 | |
Cash and cash equivalents, beginning of period | |
| 701,848 | | |
| 64,283 | |
Cash and cash equivalents, end of period | |
| 567,266 | | |
| 1,387,447 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
Interest | |
$ | 5,453 | | |
$ | 17,628 | |
Taxes | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
NON-CASH INVESTING AND FINANCING ACTIVITIES: | |
| | | |
| | |
Change in estimate of asset retirement obligations | |
$ | 85,856 | | |
$ | 36,157 | |
Accrual of oil and gas development costs | |
$ | 251,505 | | |
$ | — | |
Fair value of derivative liability extinguished upon conversion of preferred stock to common stock | |
$ | 7,680,000 | | |
$ | 1,162,750 | |
Conversion of preferred stock to common stock | |
$ | 600,000 | | |
$ | — | |
Debt and common stock issued/to be issued for the purchase of Black Diamond Energy Holdings | |
$ | 3,715,300 | | |
$ | — | |
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
Legend Oil and Gas Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
NOTE 1 – ORGANIZATION
AND DESCRIPTION OF OPERATIONS
Description of Business
Legend Oil and Gas, Ltd. (the
“Company”) has two operating segments which include an oil and gas exploration, development and production
company and an oil and gas trucking company.
The Company’s oil and gas
property interests are located in the United States (in the States of Kansas and Oklahoma). The Company’s focus is on
acquiring producing and non-producing oil and gas interests and developing oil and gas properties that the Company currently
owns. During the nine months ended September 30, 2015, the Company sold its working interests in two properties located in
Kansas. The Company currently owns working interests in two oil and gas properties, with one property located in Kansas and
the second in Oklahoma.
In April 2015, the Company acquired Black
Diamond Energy Holdings LLC, a Delaware limited liability company (“Black Diamond”). Black Diamond is a trucking and
oil and gas services company that operates in North Dakota.
On May 1, 2015, the Board of Directors
approved an amendment to the Company’s Articles of Incorporation. The amendment removed restrictions which prohibited the
holder of the Company’s Convertible Preferred Stock from converting and holding more than 19.99% of the Company’s
outstanding common stock. Legend’s sole preferred stockholder converted its convertible perpetual preferred stock of 600
shares into common stock totaling 600 million shares. The preferred stockholder now owns approximately 63% of the Company’s
common stock.
Subsequent to September 30, 2015,
the Company sold its remaining oil and gas properties and no longer participates in oil and gas producing activities.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation
The
consolidated financial statements for 2014 include the accounts of the Company, and our wholly-owned subsidiary Legend Energy
Canada Ltd. (“Legend Canada”) for 2014 activity. The consolidated financial statements for the nine months ended September
30, 2015 include the accounts of the Company and our wholly owned subsidiary, Black Diamond and its wholly-owned subsidiaries
Maxxon Energy, LLC and Treeline Diesel Center, LLC, for the period since acquisition (April 4, 2015) through September 30, 2015.
Legend Canada amounts have been deconsolidated due to their discontinued operations and bankruptcy as more fully described in
Note 16. Intercompany transactions and balances have been eliminated in consolidation.
Basis of Presentation
The accompanying consolidated financial
statements of the Company, have been prepared in accordance with generally accepted accounting principles in the United States
of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read
in conjunction with the audited financial statements and notes thereto contained in Legend’s latest Annual Report filed with
the SEC on Form 10-K and the Form 8-K/A filed on June 19, 2015. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the interim
periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the
results to be expected for the full year. Notes to the financial statements that would substantially duplicate disclosures contained
in the audited financial statements for the most recent fiscal year, as reported in the Form 10-K filed with the SEC on April 6,
2015, have been omitted.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and the reported amounts of revenues and expenses during the reporting period. Management’s judgments and estimates
in these areas are to be based on information available from both internal and external sources, including engineers, geologists,
consultants and historical experience in similar matters. The more significant reporting areas impacted by management’s
judgments and estimates are fair values of the Company’s equity-linked instruments, accruals related to oil and gas sales
and expenses, estimates of future oil and gas reserves, estimates used in the impairment of oil and gas properties, and the
estimated future timing and cost of asset retirement obligations.
Actual results could differ from the
estimates as additional information becomes known. The carrying values of oil and gas properties are particularly susceptible
to change in the near term. Changes in the future estimated oil and gas reserves or the estimated future cash flows attributable
to the reserves that are utilized for impairment analysis could have a significant impact on the future results of operations.
Accounts Receivable
Accounts receivable typically
consist of oil and gas receivables, as well as customer receivables, and are presented on the consolidated balance sheets net
of allowances for doubtful accounts. The Company establishes provisions for losses on accounts receivable for estimated
uncollectible accounts and regularly reviews collectability and establishes or adjusts the allowance as necessary using the
specific identification method. Account balances that are deemed uncollectible are charged off against the allowance. No
allowance for doubtful accounts was deemed necessary by management at September 30, 2015 or December 31, 2014.
Comprehensive Income
For operations outside of the U.S. that
prepare financial statements in currencies other than U.S. dollars, the Company translates the financial statements into U.S. dollars.
Results of operations and cash flows are translated at average exchange rates during the period, and assets and liabilities are
translated at end of period exchange rates, except for equity transactions and advances not expected to be repaid in the foreseeable
future, which are translated at historical costs. The effects of exchange rate fluctuations on translating foreign currency assets
and liabilities into U.S. dollars are accumulated as a separate component in other comprehensive income (loss). Accumulated other
comprehensive income (loss) consists entirely of foreign currency translation adjustments for the three and nine-month period ended
September 30, 2014. There were no foreign currency translation adjustments for the three and nine-month period ended September
30, 2015.
Inventory
Inventories consist
primarily of diesel truck parts for repairs to the Company’s fleet and for third parties. Inventories are stated at the
lower of cost or market, using the average cost method. Cost includes the purchase price of the inventory from our vendors.
All items are considered raw materials related to service repairs. For the nine months ended September 30, the Company wrote
off inventories of approximately $130,000 to cost of service revenue because the Company expected no future sale of the
inventories.
Prepaid
Expense
Prepaid
expenses consist primarily of prepaid insurance premium and prepaid interest expense. The Company amortize the prepayment over
usage period.
Property and Equipment
Property and equipment is stated at
cost and depreciated using the straight-line method over 5 years. Repairs and maintenance are charged to expense as incurred.
Repairs to trucks and trailers that include new equipment that will either increase the value of the equipment or extend the
useful life of the equipment are capitalized and depreciated using the straight-line method over 5 years. The Company has
estimated salvage values on all equipment at 10% of the equipment’s original cost. The cost and accumulated
depreciation of property and equipment retired or otherwise disposed of are eliminated from the respective accounts and any
resulting gain or loss is included in operating expenses.
Long-lived assets, such as property and
equipment to be held and used in operations, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Long-lived assets are grouped at the lowest level at which identifiable
cash flows are largely independent when assessing impairment. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which
the carrying amount of the asset exceeds the fair value of the asset. Recoverability of long-lived assets is dependent upon, among
other things, the Company’s ability to continue to achieve profitability in order to meet its obligations when they become
due. In the opinion of management, based upon current information, the carrying amount of long-lived assets will be recovered by
future cash flows generated through the use of such assets over their respective estimated useful lives.
Full Cost Method of Accounting for Oil and Gas Properties
We have elected to utilize the full cost
method of accounting for our oil and gas activities. In accordance with the full cost method of accounting, all costs associated
with the acquisition, exploration, and development of oil and gas reserves, including directly related overhead costs and related
asset retirement costs are capitalized into a cost center. Our cost centers consist of the Canadian cost center and the United
States cost center.
All capitalized costs of oil and gas properties
within each cost center, including the estimated future costs to develop proved reserves, are amortized on the unit-of-production
method using estimates of proved reserves. Excluded from this amortization are costs associated with unevaluated properties, including
capitalized interest on such costs. Unevaluated property costs are transferred to evaluated property costs at such time as wells
are completed on the properties or management determines that these costs have been impaired.
Oil and gas properties without estimated
proved reserves are not amortized until proved reserves associated with the properties can be determined or until impairment occurs.
The cost of these properties is assessed quarterly, on a field-by-field basis, to determine whether the properties are recorded
at the lower of cost or fair market value.
Sales of oil and gas properties are accounted
for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the
relationship between capitalized costs and proved reserves of oil and gas attributable to a cost center, in which case the gain
or loss is recognized in income. In determining whether adjustments to capitalized costs result in a significant alteration, capitalized
costs within the cost center are allocated between the reserves sold and reserves retained on the same basis used to compute amortization,
unless there are substantial economic differences between the properties sold and those retained. When economic differences between
properties sold and those retained exist, capitalized costs within the cost center are allocated on the basis of the relative
fair values of the properties in determining whether adjustments to capitalized costs result in a significant alteration.
For the nine months ended September 30,
2015, Legend sold two of its properties (McCune and Piqua), resulting in a loss on the sale of $892,131.
Full Cost Ceiling Test
At the end of each quarterly
reporting period, the cost of oil and gas properties in each cost center are subject to a “ceiling test” which
basically limits capitalized costs to the sum of the estimated future net revenues from proved reserves, discounted at
10% per annum to present value, based on current economic and operating conditions, at the end of the period, plus the
cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs
being amortized, less the income tax effects related to book and tax basis differences of the properties. If the cost of oil
and gas properties exceeds the ceiling, the excess is reflected as a non-cash impairment charge to earnings. The impairment
charge is permanent and not reversible in future periods, even though higher oil and gas prices in the future may
subsequently and significantly increase the ceiling amount. For the nine months ended September 30, 2015, the Company
recognized impairment loss of $452,277 on its Van Pelt lease. For the nine months ended September 30, 2014, the Company
recognized impairment on its Canadian oil and gas properties.
Asset Retirement Obligation
We record the fair value of a liability
for an asset retirement obligation in the period in which the asset is acquired and a corresponding increase in the carrying amount
of the related long-lived asset if a reasonable estimate of fair value can be made. The associated asset retirement cost capitalized
as part of the related asset is allocated to expense over the asset’s useful life. If the liability is settled for an amount
other than the recorded amount, a gain or loss is recognized. The asset retirement obligation is recorded at its estimated fair
value and accretion is recognized over time as the discounted liability is accreted to its expected settlement value. Fair value
is determined by using the expected future cash outflows discounted at our credit-adjusted risk-free interest rate.
Oil and Gas Revenue Recognition
The Company uses the sales method of accounting
for its oil and gas revenue recognition. Revenue from production on properties in which the Company shares an economic interest
with other owners is recognized on the basis of our interest. Revenues are reported on a gross basis for the amounts received before
taking into account production taxes, royalties, and transportation costs, which are reported as production expenses. Under the
sales method, revenues are recognized based on the actual volumes of gas and oil sold to purchasers at a fixed or determinable
price, when delivery has occurred and title has transferred, and if collectability of the revenue is probable. Delivery occurs
and title is transferred when production has been delivered to a purchaser’s pipeline or truck. The volume sold may differ
from the volumes we are entitled to, based on our individual interest in the property. The Company utilizes a third-party marketer
to sell oil and gas production in the open market. As a result of the requirements necessary to gather information from purchasers
or various measurement locations, calculate volumes produced, perform field and wellhead allocations and distribute and disburse
funds to various working interest partners and royalty owners, the collection of revenues from oil and gas production may take
up to 45 days following the month of production. Therefore, the Company may make accruals for revenues and accounts receivable
based on estimates of our share of production. Since the settlement process may take 30 to 60 days following the month of actual
production, our financial results may include estimates of production and revenues for the related time period. The Company will
record any differences between the actual amounts ultimately received and the original estimates in the period they become finalized.
Oil Hauling and Service Revenue Recognition
Our wholly-owned subsidiary, Black
Diamond, recognizes revenue based on the relative transit time of the freight transported and as other services are provided.
Accordingly, a portion of the total revenue that will be billed to the customer once a load is delivered is recognized in each
reporting period based on the percentage of the freight pickup and delivery service that has been completed at the end of the
reporting period. The Company records revenues on the gross basis at amounts charged to its customers because the Company is the
primary obligor, a principal in the transaction, it invoices its customers and retains all credit risks, and maintains discretion
over pricing. Additionally, the Company is responsible for the selection of third-party transportation providers. Independent
contractor providers of revenue equipment are classified as purchased transportation expense in the consolidated statements of
operations.
Black Diamond also has a service center
which performs repairs and maintenance to our fleet of tractors and trailers, as well as repair and maintenance for independent
third party operators. Revenue for third party repairs and corresponding cost of repairs is recorded at the time the repairs are
completed.
Stock-Based Compensation
The Company measures compensation cost
for stock-based awards at fair value and recognize it as compensation expense over the service period for awards expected to vest.
Stock-based compensation expense is also recognized upon cancellation of awards that were initially expected to vest. Compensation
cost (a non-cash expense) is recorded as a component of general and administrative expenses in the consolidated statements of operations,
net of an estimated forfeiture rate.
The Black-Scholes option pricing model
is used to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective
assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the
measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant
analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external
data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate
weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances.
The Company estimates volatility by considering
the historical stock volatility. The Company has opted to use the simplified method for estimating expected term, which is generally
equal to the midpoint between the vesting period and the contractual term.
Net Income (Loss) Per Common Share
The computation of basic net loss per common
share is based on the weighted average number of shares that were outstanding during the period, including contingently redeemable
common stock. The computation of diluted net loss per common share is based on the weighted average number of shares used in the
basic net loss per share calculation plus the number of common shares that would be issued assuming the exercise of all potentially
dilutive common shares outstanding. Potentially dilutive common shares include warrants to purchase shares of common stock and convertible debentures.
| |
| For the Three Months Ended | | |
| For the Nine Months Ended | |
| |
| 9/30/2014 | | |
| 9/30/2014 | |
| |
| 2015 | | |
| 2014 | | |
| 2015 | | |
| 2014 | |
| |
| | | |
| | | |
| | | |
| | |
Numerator: | |
| | | |
| | | |
| | | |
| | |
Net income (loss) available to common shareholders | |
$ | (946,130 | ) | |
$ | 292,427 | | |
$ | (11,728,208 | ) | |
$ | (1,428,062 | ) |
Effect of common stock equivalents | |
| | | |
| | | |
| | | |
| | |
Add: interest expense on convertible debt | |
| — | | |
| 25,206 | | |
| — | | |
| — | |
Less: tax effect of decrease interest expense | |
| — | | |
| (8,822 | ) | |
| — | | |
| — | |
Net income (loss) adjusted for common stock equivalents | |
| (946,130 | ) | |
| 308,811 | | |
| (11,728,208 | ) | |
| (1,428,062 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted average shares - basic | |
| 878,400,629 | | |
| 164,810,840 | | |
| 582,612,256 | | |
| 152,563,277 | |
Dilutive effect of common stock equivalents: | |
| | | |
| | | |
| | | |
| | |
Options | |
| — | | |
| 225,471,424 | | |
| — | | |
| — | |
Convertible Debt | |
| — | | |
| 44,800,000 | | |
| — | | |
| — | |
Weighted average shares – diluted | |
| 878,400,629 | | |
| 435,082,264 | | |
| 582,612,256 | | |
| 152,563,277 | |
Net income (loss) per share – basic | |
$ | (0.00 | ) | |
$ | 0.00 | | |
$ | (0.02 | ) | |
$ | (0.01 | ) |
Net income (loss) per share – diluted | |
$ | (0.00 | ) | |
$ | 0.00 | | |
$ | (0.02 | ) | |
$ | (0.01 | ) |
Potentially dilutive of common stock equivalents: | |
| | | |
| | | |
| | | |
| | |
Options | |
| — | | |
| — | | |
| — | | |
| 165,795,901 | |
Convertible Debt | |
| 46,533,333 | | |
| — | | |
| 46,533,333 | | |
| 20,348,718 | |
Common stock payable | |
| 57,682,644 | | |
| — | | |
| 57,682,644 | | |
| — | |
Derivative Financial Instruments
The Company evaluates financial instruments
for freestanding or embedded derivatives. Derivative instruments that do not qualify for permanent equity classification as the
instruments have been determined not to be indexed to the Company’s stock are recorded as liabilities at fair value, with
changes in value recognized as other income (expense) in the consolidated statements of operations in the period of change. Derivative
liabilities are categorized as either short-term or long-term based upon management’s estimates as to when the derivative
instrument may be realized or based upon the holder’s ability to realize the instrument.
Fair Value Measurements
The Company measures fair value as an
exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market
participants would use in pricing an asset or liability. We utilize a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value as follows:
Level 1: Observable market inputs such
as quoted prices in active markets;
Level 2: Observable market inputs, other
than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs where there
is little or no market data, which require the reporting entity to develop its own assumptions.
The carrying amounts of financial assets
and liabilities such as cash, accounts receivable and accounts payable approximate their fair values (determined based on level
1 inputs in the fair value hierarchy) due to the short term nature of these instruments.
Recently Issued Accounting Pronouncements
In April 2015, the FASB issued ASU No.
2015-03, Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03
amends previous guidance to require that debt issuance costs related to a recognized debt liability be presented in the balance
sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and
measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The standard is effective for financial
statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption
is permitted for financial statements that have not been previously issued. The Company expects that the affected amounts on its
balance sheets will be reclassified within the balance sheets to conform to this standard. The Company does not expect that the
adoption of this ASU will have a material impact on its financial statements.
Subsequent Events
The Company has evaluated all transactions
through the date the consolidated financial statements were issued for subsequent event disclosure consideration.
NOTE 3 – GOING CONCERN
The accompanying consolidated
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company has incurred a loss from continuing operations of
approximately $11.73 million for the nine months ended September 30, 2015, had negative working capital of approximately
$12.5 million, and stockholders’ deficit of approximately $7.1 million at September 30, 2015.
Additionally, the Company is dependent upon obtaining additional debt and/or equity financing to roll-out and scale its
planned principal business operations. These factors raise substantial doubt about the Company’s ability to continue as
a going concern.
Management’s plans in
regard to these matters consist principally of seeking additional debt and/or equity financing or restructuring its existing
debt combined with expected cash flows from its trucking operations and its current oil and gas assets held. There can be no assurance that the Company’s efforts will be successful. The
financial statements do not include any adjustments that may result from the outcome of this uncertainty.
NOTE 4 – ACQUISITION OF BLACK DIAMOND
On April 3, 2015, the Company
entered into a Membership Interest Purchase Agreement (“MIPA”) with Sher Trucking, LLC (“Sher”), Albert
Valentin (“Valentin”) and Steven Wallace (“Wallace”), which made up all of the members of Black Diamond
to purchase all of the outstanding membership interests of Black Diamond. The Company paid $1,500,000 in cash to Sher; issued a
secured promissory note to Sher in the amount of $2,854,000; issued 90,817,356 shares of the Company’s common stock to Valentin,
valued at $526,741; agreed to issue 57,682,644 shares of the Company’s common stock to Wallace valued at $334,559 which was
issued in November 2015. The common stock due Wallace has been recorded as common stock payable in the accompanying financial statements
at September 30, 2015.
The principal amount of the note
to Sher bears interest at five percent (5%) per annum and is due and payable in full on April 3, 2016. The note is secured by certain
rolling stock trucks and trailers owned by subsidiaries of Black Diamond.
The Company also paid $125,000
to Sher after closing as an advance against an anticipated purchase price adjustment related to the working capital changes of
Black Diamond. The post-closing payment has been recorded as a prepaid deposit and will be included into the final purchase price
upon the final agreed upon working capital adjustments.
The purchase price is subject
to an adjustment based on the amount of net working capital of Black Diamond at closing. In the event the net working capital
is either greater than or less than the estimated net working capital at closing, Sher and Wallace will share the positive or
negative adjustment. Any adjustment for Sher will be in cash. Any adjustment for Wallace will be a reduction of or increase to
the common stock payable to Wallace. This adjustment is in the process of being adjudicated per the MIPA. Any amounts due to or
from Sher are unknown at the date of the issuance of these financial statements.
The following
tables summarize the purchase price and allocation of the purchase price to the net assets acquired:
Purchase price on April 4, 2015 | |
| | |
Cash paid | |
$ | 1,500,000 | |
Promissory note | |
| 2,854,000 | |
Fair value of common stock issued | |
| 861,300 | |
Total purchase price | |
$ | 5,215,300 | |
Fair value of net assets at April 4, 2015 | |
| | |
Cash | |
$ | 435,339 | |
Accounts receivable | |
| 1,063,629 | |
Inventory | |
| 207,437 | |
Prepaid and other current assets | |
| 199,132 | |
Property and equipment | |
| 3,855,721 | |
Total assets | |
| 5,761,258 | |
| |
| | |
Accounts payable | |
| (455,632 | ) |
Other current liabilities | |
| (90,326 | ) |
Total liabilities | |
| (545,958 | ) |
Net assets acquired | |
$ | 5,215,300 | |
Below are the condensed pro forma statements
of operations for Legend and Black Diamond presented as if the entities were combined for the nine-month period ended September
30, 2015:
| |
Historical Legend Oil and
Gas, Ltd | |
Historical Black Diamond Energy | |
Pro Forma Combined |
Revenue | |
$ | 322,569 | | |
$ | 6,289,056 | | |
$ | 6,611,625 | |
| |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | |
Cost of service revenue | |
| — | | |
| 3,989,227 | | |
| 3,989,227 | |
Production expenses | |
| 398,826 | | |
| — | | |
| 398,826 | |
General and administrative expenses | |
| 1,671,755 | | |
| 2,019,642 | | |
| 3,691,397 | |
Depletion, depreciation and amortization expense | |
| 119,454 | | |
| 683,238 | | |
| 802,692 | |
Accretion of asset retirement obligation | |
| 18,113 | | |
| — | | |
| 18,113 | |
Impairment of oil and gas properties | |
| 452,277 | | |
| — | | |
| 452,277 | |
Loss on sale of assets | |
| 892,131 | | |
| — | | |
| 892,131 | |
Total operating expenses | |
| 3,552,556 | | |
| 6,692,107 | | |
| 10,244,663 | |
| |
| | | |
| | | |
| | |
Net loss from operations | |
| (3,229,987 | ) | |
| (403,051 | ) | |
| (3,633,038 | ) |
| |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | |
Interest expense | |
| (1,133,187 | ) | |
| (648 | ) | |
| (1,133,835 | ) |
Change in fair value of embedded derivative liabilities | |
| (6,551,333 | ) | |
| — | | |
| (6,551,333 | ) |
Other Income | |
| 109,270 | | |
| 12,293 | | |
| 121,563 | |
Total other income (expense) | |
| (7,575,250 | ) | |
| 11,645 | | |
| (7,563,605 | ) |
| |
| | | |
| | | |
| | |
Net loss | |
$ | (10,805,237 | ) | |
$ | (391,406 | ) | |
$ | (11,196,643 | ) |
| |
| | | |
| | | |
| | |
Shares outstanding | |
| 787,583,273 | | |
| 90,817,356 | | |
| 878,400,629 | |
Net loss per common share | |
| (0.01 | ) | |
| — | | |
| (0.01 | ) |
NOTE 5 – PROPERTY AND EQUIPMENT
| |
September 30, | |
December 31, |
| |
2015 | |
2014 |
Drilling rig | |
$ | 465,000 | | |
$ | 465,000 | |
Trucks, trailers, and vehicles | |
| 4,101,695 | | |
| — | |
Furniture and equipment | |
| 228,496 | | |
| — | |
Property and equipment, at cost | |
| 4,795,191 | | |
| 465,000 | |
Accumulated depreciation | |
| (467,295 | ) | |
| (11,625 | ) |
Property and equipment, net | |
$ | 4,327,896 | | |
$ | 453,375 | |
The Company has assigned a useful life of 5 years to all assets and is depreciating them using the straight-line method less
estimated salvage costs. The Company recorded depreciation expense of $456,772 during the nine months ended September 30,
2015.
During
the nine months ended September 30, 2015, the Company acquired $3,855,721 in property and equipment through the
acquisition of Black Diamond. The Company also purchased $487,468 in additional property and equipment during the nine months
ended September 30, 2015. In September 2015, the Company sold equipment with a carrying value of approximately $11,900
to a third party for cash of $21,355. The Company recognized a gain from disposal of property and equipment of
$9,455.
NOTE 6 – OIL AND GAS PROPERTIES
The
amount of capitalized costs related to oil and gas properties and the amount of related accumulated depletion, depreciation, and
amortization are as follows:
| |
September 30, | |
December 31, |
| |
2015 | |
2014 |
Oil and gas properties, subject to amortization | |
$ | 1,307,082 | | |
$ | 3,948,679 | |
Accumulated depletion, depreciation and amortization | |
| (55,793 | ) | |
| (308,763 | ) |
Net oil and gas properties, subject to amortization | |
| 1,251,289 | | |
| 3,639,916 | |
Oil and gas properties, not subject to amortization | |
| 50,000 | | |
| — | |
Total oil and gas properties, net | |
$ | 1,301,289 | | |
$ | 3,639,916 | |
During
the nine months ended September 30, 2015, the Company sold its Piqua property for approximately $1.5 million, and its McCune property
for $165,000. As the sale significantly altered the relationship between the Company’s capitalized costs and its total proved
reserves, we recorded a loss on the sale of approximately $892,131. The Company disbursed the proceeds to Hillair Capital Investments
LP, the mortgage holder, in the amounts described in Note 11.
During the nine months ended
September 30, 2015, the Company acquired working interests in the Van Pelt lease for $100,000. The Company incurred
development costs on the Van Pelt lease of $402,277 during the nine months ended September 30, 2015. At June 30, 2015, the
Company determined that the property was impaired and recorded a loss on impairment of $452,277 which reduced the Van Pelt
lease to its estimated realizable value of $50,000.
During the nine months ended September
30, 2015, the Company incurred drilling and development costs on its Landers and Volunteer lease of $334,523.
During the nine months ended September 30,
2015, the Company recorded depletion expense of $69,633.
NOTE 7 – ASSET RETIREMENT OBLIGATION
The following table reconciles the
value of the asset retirement obligations for the nine months ended September 30, 2015 and 2014:
| |
September 30, | |
September 30, |
| |
2015 | |
2014 |
Opening balance, January 1 | |
$ | 202,586 | | |
$ | 196,767 | |
Additions for purchase of oil and gas properties | |
| 85,856 | | |
| 36,157 | |
Accretion expense | |
| 18,113 | | |
| 31,723 | |
Change in estimate | |
| (2,400 | ) | |
| — | |
Reductions for sales of oil and gas properties | |
| (182,242 | ) | |
| — | |
Ending balance, September 30 | |
$ | 121,913 | | |
$ | 264,647 | |
NOTE 8 – RELATED PARTY TRANSACTIONS
Prior to our CEO assuming any role in
the Company, including his former Chief Restructuring Officer duties, Northpoint Energy Partners (“NPE”), of which
our CEO is a principal, was engaged by the owners of Black Diamond to obtain a buyer for Black Diamond. Our Board of Directors
reviewed this agreement between NBE and the sellers, and deemed the acquisition by the Company to be appropriate, and negotiated
a brokerage fee with Northpoint of $225,000 to be paid by the Company.
During the nine-month period
ended September 30, 2015, the related party amounts due to NPE were reduced by payments of $180,400, with additions for
brokerage fees on the acquisition of Black Diamond of $55,000, with a remaining balance due NPE of $451,600. In July 2015,
NPE agreed to forgive the payable of $451,600. During the nine months ended September 30, 2015, the Company reduced its
general and administrative expense by $451,600. As of September 30, 2015, there was no payable due to related party.
NOTE 9 – NOTE PAYABLE TO BANK
On April 25, 2014, the Company received
a Notice of Intention to Enforce Security from the Bank of Canada relating to a revolving credit facility. Under the notice, the
Bank stated that it intended to enforce its rights against Legend Canada under the CA$6,000,000 ($8.35 million USD) Acknowledgement
of Debt Revolving Demand Credit Agreement, dated August 15, 2011; the General Assignment of Book Debts, dated October 19, 2011;
the CAD$25,000,000 ($33 million USD) Fixed and Floating Charge Demand Debenture;
the Pledge Agreement dated October 19, 2011; and the Negative Pledge and Undertaking dated October 19, 2011. The
bridge demand loan that was in place in prior periods was retired in July 2013.
During the quarter ended September 30,
2014, the Company placed its wholly owned subsidiary, Legend Canada, into the Canadian bankruptcy system. The bankruptcy estate
of Legend Canada owned oil and gas properties in Western Canada (Berwyn, Medicine River, Boundary Lake, and Wildmere in Alberta,
and Clarke Lake and Inga in British Columbia). Legend Canada was placed under the control of KPMG Inc., as Trustee, in the bankruptcy
proceedings. The Company has written off all assets and liabilities of Legend Canada, resulting in income from discontinued operations
at the parent level of Legend Oil and Gas, Ltd. as it no longer controls, nor has responsibility for any operations or asset dispositions
of Legend Canada. In August 2014, the Company and Bank executed a Mutual Release and Discharge in consideration for $250,000 and
the note was fully retired.
NOTE 10 – NOTES PAYABLE
HILLAIR CAPITAL INVESTMENTS, L.P.- NONCONVERTIBLE NOTES
On
January 21, 2015, the Company issued an 8.5% Senior Secured Debenture (the “Debenture”) to Hillair
Capital Investments, L.P. in the aggregate amount of $400,000 payable on or before March 1, 2016. The Company has interest payments
due to Hillair on the aggregate outstanding principal amount of the Debenture at the rate of 8.5% per annum, payable quarterly
on March 1, June 1, September 1 and December 1, beginning on June 1, 2015, After transaction fees of $40,000 which were reduced
from the proceeds of the Debenture to Hillair, the net proceeds received by the Company were $360,000. The
expenses were recorded as a debt discount and are being amortized over the term of the Debenture. The Company amortized $24,889
of debt discount as additional interest expense for the nine months ended September 30, 2015. At September 30, 2015, the principal
balance of the Debenture was $400,000.
Beginning
in July 2013, the Company entered into a series of debentures with Hillair Capital Investments, L.P. (“Hillair”) to
finance the growth of Legend’s oil and gas operations. These debentures totaled approximately $6 million, and had various
derivative instruments including conversion features and warrants, all with down-round protection. In October 2014, the Company
engaged in discussions with Hillair to consolidate all debentures into one debenture with a fixed maturity date.
On November 13, 2014, the Company and
Hillair entered into a debt and warrant restructuring agreement. All of the existing debt outstanding and accrued interest owed
to Hillair was restructured and consolidated into one new debenture (the “Restructured Debenture”). The Restructured
Debenture has a face value of $6,060,000, with an original issue discount of $60,000, carries an interest rate of 8.5% per annum
and is due and payable in one payment on March 1, 2016. Further, in exchange for warrants to purchase an aggregate of 474,258,441
shares of the Company’s common stock currently held by Hillair. Hillair agreed to purchase 600 shares of convertible preferred
stock with at a price of $1,000 per share, for a total amount of $600,000 in cash proceeds received in November 2014. On
March 30, 2015, the Company received $1,425,000 in net cash proceeds from the sale of its
Piqua oil and gas properties. As a condition to secure the security interest in the property held by Hillair, the Company paid
the full amount of the proceeds against the principal and accrued interest balances on the Restructured Debenture. Hillair applied
$713,429 as a reduction in principal balance, $568,885 as a deposit to apply against accrued interest for the year ending December
31, 2015 and a prepayment penalty of $142,686. The Company amortized $34,557 of debt discount as additional interest expense for
the nine months ended September 30, 2015. At September 30, 2015, the principal balance of the Debenture was $5,346,571.
On
April 2, 2015, the Company entered into a Securities Purchase Agreement with Hillair pursuant to which it issued an 8%
Original Issue Discount Senior Secured Debenture to the Company in the aggregate amount of $2,499,975, payable in full on May
16, 2016. After taking into account the original issue discount and legal and diligence fees of $549,975 reimbursed to the
Hillair, the net proceeds received by the Company was $1,950,000. The Company amortized $242,794 of debt discount as
additional interest expense for the nine months ended September 30, 2015. At September 30, 2015, the principal balance of the
Debenture was $2,499,975.
SHER TRUCKING
On April 3, 2015, as part of
the Black Diamond acquisition, the Company entered into a secured promissory note with Sher Trucking in the amount of
$2,854,000, with an interest rate of 5% per annum, due in full on April 3, 2016. At September 30, 2015, the principal balance
of this note is $2,854,000.
NWTR
On
January 23, 2014, the Company entered into an Agreement and Plan of Merger with New Western Energy Corporation (“NWTR”).
On April 1, 2014, the Company issued a note payable for cash proceeds of $75,000 to NWTR. The significant terms of the agreement
were that if the planned merger was terminated, or the merger did not occur by December 31, 2014, the Company was obligated to
repay the $75,000 within 60 days of such termination, or on February 28, 2015, whichever came first. There was no interest due
and payable on this note.
In
May 2014, the merger was terminated by mutual consent. As a result, the Company became obligated to repay the $75,000 to NWTR.
During the year ended December 31, 2014, the Company repaid $10,000 of this amount, and had a balance of $65,000 outstanding as
of December 31, 2014.
On
January 6, 2015, the Company and NWTR entered into a settlement agreement whereby the Company agreed to repay NWTR $10,000 on or
before January 7, 2015, with the remainder payable commencing February 15, 2015, in five (5) monthly installments of $9,168. The
Company made total payments of $38,336 on the balance owed to NWTR during the nine months ended September 30, 2015, with the amount
due on this note of $26,664. This note has no interest provision.
RIG PURCHASE AGREEMENT
The
Company purchased a drilling rig at a purchase price of $465,000. This asset purchase was financed through a down payment of
$150,000, and a note payable of $315,000, at 6%, per annum, with monthly payments of $18,343, including principal and
interest, through April 2016. The Company made total payments for the nine months ended September 30, 2015, of approximately
$165,000. Principal and interest paid during that period was approximately $158,000 and $7,000, respectively. The principal
balance of this note is $123,456 at September 30, 2015.
COMMUNITY TRUST BANK
In
October 2014, the Company entered into an agreement with Community Trust Bank, for a loan in the amount of $85,100 at 2.4%
per annum with regular monthly payments of $1,508 of principal and interest through September 2015 and one balloon payment of
$70,400 in October 2015. This note is secured by a certificate of deposit in the amount of $85,000 currently classified as
restricted cash. The Company made total payments during the three months ended September 30, 2015 of approximately $11,500 on
the principal balance of the loan. The principal balance of this note was $70,877
at September 30, 2015, and was fully paid in October 2015.
NOTE 11 – CONVERTIBLE DEBT
JMJ CAPITAL
During
2013, the Company received proceeds of $125,000 under a note payable agreement with JMJ Capital. The note provides for borrowings
of up to $300,000, is repayable beginning April 2014, and carries an original issue discount of 10%. No interest accrues on the
note principal if borrowings are repaid within 90 days from the date advanced. If repaid within 90 days, a one-time interest charge
of 12% accrues. The conversion price of the note is the lesser of $0.05 or 60% of the lowest trade price of the Company’s
common stock for 25 days prior to the conversion. On the day of issuance, the note was convertible into 5,339,558 shares of common
stock. The intrinsic value of the beneficial conversion feature was determined to be $124,430. As a result, the discount of the
note, including original issue discount, totaled $136,930 which was amortized over the term of the note.
During the three months ended March 31,
2014, the Company borrowed an additional $30,000 from JMJ under the above note payable agreement. The Company received net proceeds
of $26,500.
During the year ended December 31, 2014,
JMJ converted $100,000 of the outstanding principal and $7,520 in accrued interest into 20,755,608 shares of the Company’s
common stock. The Company also paid $12,500 of the outstanding principal balance. As of September 30, 2015, the balance on the
JMJ note payable was $0. The Company recorded $2,475 in interest expense related to the amortization of the debt discount for
the nine months ended September 30, 2015.
HILLAIR CAPITAL INVESTMENTS, L.P. CONVERTIBLE DEBT
On
April 28, 2015, the Company entered into a Securities Purchase Agreement with Hillair pursuant to which it issued
an 8% Original Issue Discount Senior Secured Convertible Debenture to the Company in the aggregate amount of $840,000, payable
in full on May 16, 2016. The debenture is convertible into up to 28,000,000 shares of Common Stock at a conversion price of $0.03
per share. After taking into account the original issue discount and legal and diligence fees of $50,000 reimbursed to the Purchaser,
the net proceeds received by the Company was $700,000. The Company amortized $22,969 of
debt discount as additional interest expense for the nine months ended September 30, 2015. At September 30, 2015, the principal
balance of the debenture was $840,000.
On
June 30, 2015, the Company entered into a Securities Purchase Agreement with Hillair pursuant to which it issued an
8% Original Issue Discount Senior Secured Convertible Debenture to the Company in the aggregate amount of $340,000, payable in
full on March 1, 2016. The debenture is convertible into up to 11,333,333 shares of Common Stock at a conversion price of $0.03
per share. After taking into account the original issue discount and legal and diligence fees of $40,000 reimbursed to the Purchaser,
the net proceeds received by the Company was $300,000. The Company amortized $15,020 of debt
discount as additional interest expense for the nine months ended September 30, 2015. At September 30, 2015, the principal balance
of the debenture was $340,000.
On
July 17, 2015, the Company entered into a Securities Purchase
Agreement with Hillair pursuant to which it issued an 8% Original Issue Discount Senior Secured Convertible Debenture to the
Company in the aggregate amount of $216,000, payable in full on March 1, 2016. The debenture is convertible into up to
7,200,000 shares of Common Stock at a conversion price of $0.03 per share. After taking into account the original issue
discount and legal and diligence fees of $16,000 reimbursed to Hillair, the net proceeds received by the Company was
$200,000. At September 30, 2015, the principal balance of the
debenture was $216,000.
The Hillair Debentures
are all secured by a lien in certain leases and leasehold
estates and any other applicable property of the Company in Kansas to secure the obligations of the Company to the Purchaser evidenced
by each Debenture.
NOTE 12 –
EMBEDDED DERIVATIVE LIABILITIES
The
following table is a reconciliation of embedded derivative liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the nine months ended September 30, 2015 and 2014:
| |
September 30, | |
September 30, |
| |
2015 | |
2014 |
Beginning balance | |
$ | 1,128,667 | | |
$ | 1,161,284 | |
Additional issuances | |
| — | | |
| 2,773,516 | |
Conversions | |
| (7,680,000 | ) | |
| — | |
Changes in fair value | |
| 6,551,333 | | |
| (1,161,284 | ) |
Ending balance | |
$ | — | | |
$ | 2,773,516 | |
At
December 31, 2014, the Company determined the non-dilution provision embedded into the convertible perpetual preferred stock resulted
in a derivative liability with a fair value of $2,324,184 on the date of issuance. On May 1, 2015, Hillair converted this preferred
stock into 600 million shares of the Company¹s common stock at $0.001 per share with a fair value of $7,680,000 based on
the market price on the conversion date. As a result of the conversion of all of the Company’s outstanding Series A Convertible
Preferred Stock on May 1, 2015, the Company no longer recorded any derivative liabilities at September 30, 2015. The entire embedded
derivative liability has been reclassified to both common stock and additional paid in capital as a result of the conversion to
600 million shares of common stock.
During
the nine months ended September 30, 2015 and 2014, the Company valued the embedded derivative liabilities of conversion features
in convertible notes payable using a Black-Scholes model. A summary of quantitative information with respect to valuation methodology,
estimated using a Black-Scholes model, and significant unobservable inputs used for the Company’s embedded derivative liabilities
for the nine months ended September 30, 2015 is as follows:
Expected dividend yield | |
| — | |
Strike price | |
| $ .0001-.001 | |
Expected stock price volatility | |
| 112 | % |
Risk-free interest rate | |
| 0.13 | |
Expected term (in years) | |
| 0.33 | |
NOTE 13 – STOCKHOLDERS’ EQUITY (DEFICIT)
Convertible Preferred Stock
As of December 31, 2014, the Company had
issued and outstanding 600 shares of its convertible preferred stock. This convertible preferred stock has a 0% dividend rate.
The shares of preferred stock are convertible into 600 million shares of the Company¹s common stock at $0.0001 per share,
and have a non-dilution provision. The shares were converted to 600 million shares of common stock in May 2015.
Common Stock Issuances
In April 2015, the Company issued
90,817,356 shares of common stock to Albert Valentin as part of its purchase of Black Diamond. The stock had a fair value of $526,741.
The fair value of the common stock was determined using the closing price of the shares on the settlement date.
In March 2014, the Company issued
1,220,798 shares of common stock with a fair value of $51,746 to Hillair in payment of accrued interest on convertible debt agreements.
The fair value of the common stock was determined using the closing price of the shares on the settlement date
During the nine months ended September 30,
2014, the Company issued 54,819,234 shares of common stock to various employees and consultants in exchange for services. The stock
had a fair value of $835,665. The fair value of the common stock was determined using the closing price of the shares on the settlement
date.
Stock Incentive Plan
On May 15, 2014, the Company created
the 2014 Stock Incentive Plan and reserved 40,000,000 shares of common stock for issuance thereunder. The 2014 Stock Incentive
Plan also provides the issuance of stock awards and grant of options to purchase shares of the Company’s common stock. The
Company did not issue any stock options or warrants during the periods ended September 30, 2015 or 2014. All common stock reserved
under this plan has been issued as of the date of this report to either employees, contractors or financial partners of the Company.
NOTE 14 – COMMITMENTS AND CONTINGENCIES
The Company is not aware of any pending
or threatened legal proceedings, nor is the Company aware of any pending or threatened legal proceedings, affecting any current
officer, director or control shareholder, or their affiliates.
As part of its regular operations, the
Company may become party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other
remedies concerning its’ commercial operations, products, employees and other matters. Although the Company can give no assurance
about the outcome of these or any other pending legal and administrative proceedings and the effect such outcomes may have on the
Company, the Company believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise
provided for or covered by insurance, will not have a material adverse effect on the Company’s financial condition or results
of operations.
The Company owes $10,766 in property taxes,
penalties, and interest to the state of North Dakota from operations during the year 2012. We entered into a payment plan with
the state of North Dakota whereby we pay them $500 per month until the above balance is fully repaid.
On October 28, 2013, a vendor filed
a complaint against the Company seeking to collect $68,913, plus interest for services rendered on or before November 30,
2012. This claim has been satisfactorily resolved between the parties, and Legend is remitting approximately $2,500 per month
in settlement of this claim, until such balance is fully repaid. During the nine months ended September 30, 2015, the Company
made principal payments of $22,500. The Company recorded interest of approximately $4,146 on the settlement liability for the
nine months ended September 30, 2015. As of September 30, 2015, the Company had a principal balance of $52,252 outstanding on
the settlement liability.
On June 19, 2014, a vendor
filed a complaint against the Company seeking to collect $35,787, plus interest for
services rendered. This claim has been satisfactorily resolved between the parties, and Legend is remitting $2,000 per month
in settlement of this claim, until such balance is fully repaid. During the nine months ended September 30, 2015, the
Company made principal payments of $18,000. The Company recorded interest of approximately $1,308 on the settlement liability
for the nine months ended September 30, 2015. As of September 30, 2015, the Company had a principal balance of approximately
$6,947 outstanding on the settlement liability.
The Company leases office space
on a month-to-month basis, with monthly rental payments due of approximately $2,200.
The Company leases office space,
a diesel repair shop, and employee housing under non-cancelable lease agreements. The leases provide that we pay taxes, insurance,
utilities, and maintenance expenses related to the leased assets. Future minimum lease payments for these non-cancelable operating
leases as of September 30, 2015 are as follows:
2015 | |
$ | 30,000 | |
2016 | |
| 120,000 | |
2017 | |
| 90,000 | |
Thereafter | |
| — | |
Total net minimum payments | |
$ | 240,000 | |
NOTE 15 – SEGMENT INFORMATION
The Company has the following reporting
segments:
Legend is an oil and gas exploration,
development and production company. The Company’s oil and gas property interests are located in the United States (in
the States of Kansas and Oklahoma).
Black Diamond is a trucking and
oil and gas services company that operates in North Dakota.
The accounting policies of the
segments are the same as those described in the summary of significant accounting policies. The Company evaluates performances
based on profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains
and losses. Legend’s reportable segments are strategic business units that offer different technology and marketing strategies.
Below is summarized segment financial
data for both Legend and Black Diamond as of September 30, 2015 and for the three and nine months ended September 30, 2015.
The Company acquired Black
Diamond in April 2015. Accordingly, the segment financial data as of December 31, 2014 and for the three and nine months
ended September 30, 2014 is not presented.
Summarized Statements of Operations for the Three Months Ended September 30, 2015 | |
Legend | |
Black Diamond | |
Total |
Revenue | |
$ | 81,843 | | |
$ | 1,148,708 | | |
$ | 1,230,551 | |
Total operating expenses | |
| (206,561 | ) | |
| (1,582,381 | ) | |
| (1,788,942 | ) |
Operating loss | |
| (124,718 | ) | |
| (433,673 | ) | |
| (558,391 | ) |
Total other income (expense) | |
| (399,384 | ) | |
| 11,645 | | |
| (387,739 | ) |
Net loss | |
| (524,102 | ) | |
| (422,028 | ) | |
| (946,130 | ) |
| |
| | | |
| | | |
| | |
Summarized Statements of Operations for the Nine Months Ended September 30, 2015 | |
| Legend | | |
| Black Diamond | | |
| Total | |
Revenue | |
$ | 322,569 | | |
$ | 3,474,466 | | |
$ | 3,797,035 | |
Total operating expenses | |
| (3,552,556 | ) | |
| (4,405,783 | ) | |
| (7,958,339 | ) |
Operating loss | |
| (3,229,987 | ) | |
| (931,317 | ) | |
| (4,161,304 | ) |
Total other income (expense) | |
| (7,575,250 | ) | |
| 8,346 | | |
| (7,566,904 | ) |
Net loss | |
| (10,805,237 | ) | |
| (922,971 | ) | |
| (11,728,208 | ) |
| |
| | | |
| | | |
| | |
Summarized Balance Sheets at September 30, 2015 | |
| Legend | | |
| Black Diamond | | |
| Total | |
Total assets | |
$ | 2,318,550 | | |
$ | 4,821,782 | | |
$ | 7,140,332 | |
Total liabilities | |
| 13,475,933 | | |
| 773,515 | | |
| 14,249,448 | |
Subsequent to September 30, 2015,
the Company sold its remaining oil and gas properties and no longer participates in oil and gas producing activities. As
of the issuance date of the consolidated financial statements, the Company has only trucking-operating activities in North
Dakota.
NOTE 16 – DISCONTINUED OPERATIONS
On May 9, 2014, the Bank of Canada was
granted a Consent Receivership Order in Canada, whereby the bank appointed a receiver to take all legally appropriate means to
recover the amounts Legend Canada defaulted on, including the managing of its assets, potential sales of its assets and other strategic
measures to appropriately remediate the amounts due to the bank.
In August 2014, the Company and
the Bank of Canada signed a Mutual Release and Discharge. The Company paid the bank $250,000 and obtained a release which,
among other things, stipulated that the bank immediately release the guaranty of the Bank’s debt by Legend US, and the
Uniform Commercial Code (“UCC”) filing placed by the bank on Legend US (the parent company guarantee). All such
releases were obtained as of December 31, 2014. During the nine months ended September 30, 2015 and 2014, Legend Canada did
not have ongoing operations.
NOTE 17 – SUBSEQUENT EVENTS
On October 22, 2015, the
Company consummated a Securities Exchange Agreement with Hillair, its controlling shareholder, pursuant to which it issued
9,643 shares of Series B Convertible Preferred Stock (the “Series B Preferred Shares”) with conversion price of
$0.03 in exchange for the cancellation of debentures held by Hillair with a total face value of $9,643,700
(the “Exchanged Debentures”).
On the same date, the Company issued a
promissory note Hillair in the principal amount of $1,928,740 with respect to prepayment penalties due to Hillair under
the terms of the Exchanged Debentures (the “Note”). The principal amount of the note, together with interest at
eight percent (8%) per annum was due on November 30, 2015. This note was discharged on October 28, 2015, in connection with
the sale of the Company's Kansas oil drilling leases and accompanying personal property described below. The Company will
record additional interest expense of the carrying value of the note for the prepayment penalty.
On October 28, 2015, the Company entered into and consummated a
Purchase and Sale Agreement (“Agreement”) with HPH Kansas LLC, a Delaware limited liability company (“HPH”).
HPH is a subsidiary of Hillair Petroleum Holdings, Inc., a Delaware corporation and an affiliate of Hillair Investments Capital,
L.P., which owns approximately 69% of the outstanding common stock and 100% of the outstanding Series B Convertible Preferred Stock
of the Company.
Pursuant to the Agreement, the Company sold its oil and gas leases
in the State of Kansas and accompanying personal property to HPH in consideration of the cancellation and discharge of the note
described above, in the original principal amount of $1,928,740.
In connection with this related party
sale, the Company sought third party written bids for the assets as well as performed a fundamental analysis of the fair
value of the oil and gas leases based on comparable asset sales in the region. Additionally, valuations were determined using
a variety of traditional oil and gas metrics, including but not limited to, discounted cash flows, reserve base valuation and
multiple of flowing barrels at current daily production rates and current WTI prices. The Company saw a range of values
between $850,000 through a formal written offer from a bona fide purchaser and $1.4 million. The Company believes the
cancellation and discharge of $1,928,740 in debt represents a fair value for the sale of these assets. As this is a
transaction between entities under common control, no gain or loss will be recorded on the sale.
Also, On October 22, 2015, the Company consummated a Securities
Purchase Agreement with Hillair pursuant to which it issued an Original Issue Discount Senior Secured Convertible Debenture in the aggregate amount of $654,000, payable in full on March 1, 2017. The debenture is convertible into
up to 21,800,000 shares of common stock at a conversion price of $.03 per share. After taking into account the original issue discount
and legal and diligence fees of $44,000 reimbursed to Hillair, the net proceeds received by the Company was $550,000.
Subsequent to September 30, 2015, the Company issued 57,682,644 shares of the Company’s common stock
to Wallace due under the MIPA in Note 4.
ITEM 2 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis
is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States, and should be read in conjunction with our financial statements and related notes. We
incorporate by reference into this Report our audited consolidated financial statements for the years ended December 31, 2014
and 2013. The preparation of these financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.
Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions. In addition, the following discussion and analysis contains forward-looking statements that involve risks and uncertainties,
including, but not limited to, those discussed in “Forward Looking Statements,” and elsewhere in this Report.
The following management’s
discussion and analysis is intended to assist in understanding the principal factors affecting our results of operations, liquidity,
capital resources and contractual cash obligations. This discussion should be read in conjunction with our consolidated
financial statements which are incorporated by reference herein, information about our business practices, significant accounting
policies, risk factors, and the transactions that underlie our financial results, which are included in various parts of this filing.
For ease of presentation in the
following discussions of “Comparison of Results” and “Liquidity and Capital Resources”, we round dollar
amounts to the nearest thousand dollars (other than average prices per barrel and per share amounts).
Overview of Business
We operate two segments in our
business including an oil and gas exploration, development and production company and a trucking services company.
Our oil and gas
property interests are located in the United States (in the Piqua region of the State of Kansas). In April 2015, the Company acquired
Black Diamond Energy Holdings LLC, a Delaware limited liability company (“Black Diamond”), which is a wholly owned
and consolidated subsidiary of the Company. Black Diamond is a trucking and oil and gas services company that operates in North
Dakota.
Subsequent to September 30, 2015, the
Company sold its remaining oil and gas properties and no longer participates in oil and gas producing activities. As of
issuance date of the consolidated financial statements, the Company has only trucking-operating activities in North Dakota.
Our business focus for Black Diamond,
the trucking/crude oil hauling company (our wholly owned subsidiary in North Dakota) is to grow the base of our customers and increase
revenue and operating income as a result, while growing the number of barrels hauled with existing customers. We are aggressively
pursuing new business models and avenues to generate revenue and enhance the existing business model used by Black Diamond.
In addition to
the trucking/crude hauling business, management’s plans and intentions are to acquire other oil and gas service
companies in the midstream.
On May 1, 2015, the Board of Directors
approved an amendment to the Company’s Articles of Incorporation. The amendment removed restrictions which prohibited the
holder of the Company’s Convertible Preferred Stock from converting and holding more than 19.99% of the Company’s
outstanding common stock. Legend’s sole preferred stockholder converted its convertible perpetual preferred stock of 600
shares on that same date need to disclose resulting ownership of company to common stock totaling 600 million shares. The preferred
stockholder now owns approximately 63% of the Company’s common stock.
Results of Operations
The following is a discussion
of our consolidated results of operations, financial condition and capital resources. You should read this
discussion in conjunction with our unaudited Consolidated Financial Statements and the Notes thereto contained elsewhere in
this Form 10-Q. Comparative results of operations for the periods indicated are discussed below.
The following table sets forth certain of our oil
and gas operating information for the three and nine months ended September 30, 2015, and September 30, 2014, respectively.
| |
Three Months
Ended Sept 30, | |
| |
| |
Nine Months
Ended Sept 30, | |
| |
|
| |
2015 | |
2014 | |
$ Change | |
% Change | |
2015 | |
2014 | |
$ Change | |
% Change |
Production Data : | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Oil production (bbl) | |
| 2,118 | | |
| 2,991 | | |
| (873 | ) | |
| (29 | )% | |
| 8,029 | | |
| 5,367 | | |
| 2,662 | | |
| 50 | % |
Average daily oil production (bbl/d) | |
| 23.53 | | |
| 33.23 | | |
| (10 | ) | |
| (29 | )% | |
| 29.41 | | |
| 19.66 | | |
| 10 | | |
| 50 | % |
Natural gas production (mcf) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 23,751 | | |
| (23,751 | ) | |
| — | |
Average daily natural gas production (mcf/d) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 87.00 | | |
| (87 | ) | |
| — | |
Total BOE | |
| 2,118 | | |
| 2,991 | | |
| (873 | ) | |
| (29 | )% | |
| 8,029 | | |
| 9,326 | | |
| (1,297 | ) | |
| (14 | )% |
Total BOE/d | |
| 23.53 | | |
| 33.23 | | |
| (10 | ) | |
| (29 | )% | |
| 29.41 | | |
| 34.16 | | |
| (5 | ) | |
| (14 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Revenue Data: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Oil revenue ($) | |
| 81,843 | | |
| 217,868 | | |
| (136,025 | ) | |
| (62 | )% | |
| 322,569 | | |
| 467,214 | | |
| (144,645 | ) | |
| (31 | )% |
Average realized oil sales price ($/bbl) | |
| 38.64 | | |
| 72.84 | | |
| (34 | ) | |
| (47 | )% | |
| 40.18 | | |
| 87.05 | | |
| (47 | ) | |
| (54 | )% |
Gas revenue ($) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 157,061 | | |
| (157,061 | ) | |
| — | |
Average realized gas sales price ($/mcf) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 6.61 | | |
| (7 | ) | |
| — | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Production expenses | |
| 115,780 | | |
| 73,413 | | |
| 42,367 | | |
| 58 | % | |
| 398,826 | | |
| 262,923 | | |
| 135,903 | | |
| 52 | % |
Average production expenses ($/boe) | |
| 54.66 | | |
| 24.54 | | |
| 30.12 | | |
| 1.23 | | |
| 49.67 | | |
| 28.19 | | |
| 21 | | |
| 76 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Margin ($/boe) | |
| (16.02 | ) | |
| 48.30 | | |
| (64 | ) | |
| (133 | )% | |
| (9.50 | ) | |
| 38.75 | | |
| (48 | ) | |
| (125 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation, depletion, and amortization | |
| 250,984 | | |
| 64,000 | | |
| 186,984 | | |
| 292 | % | |
| 526,405 | | |
| 295,235 | | |
| 231,170 | | |
| 78 | % |
* Oil and natural gas
were combined by converting natural gas to oil equivalent on the basis of 6 mcf of gas = 1 boe.
Production and Revenue
Revenues
| |
Three Months
Ended Sept 30, | |
| |
| |
Nine Months
Ended Sept 30, | |
| |
|
| |
2015 | |
2014 | |
$ Change | |
% Change | |
2015 | |
2014 | |
$ Change | |
% Change |
Product revenues: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Crude oil sales | |
$ | 81,843 | | |
$ | 217,868 | | |
| (136,025 | ) | |
| (62 | )% | |
$ | 322,569 | | |
$ | 467,214 | | |
| (144,645 | ) | |
| (31 | )% |
Natural Gas | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 157,061 | | |
| (157,061 | ) | |
| — | |
Service revenues | |
| 1,148,708 | | |
| — | | |
| 1,148,708 | | |
| 0 | % | |
| 3,474,466 | | |
| — | | |
| 3,474,466 | | |
| — | |
Product revenues | |
$ | 1,230,551 | | |
$ | 217,868 | | |
| (136,025 | ) | |
| (62 | )% | |
$ | 3,797,035 | | |
$ | 624,275 | | |
| 3,172,760 | | |
| 508 | % |
The decrease in oil revenue is largely
due to the sale of the Piqua and McCune oil and gas properties in the first quarter of 2015. Natural gas revenue decreases
were due to asset sales and the production of the Company’s properties being solely oil in the nine months ended
September 30, 2015. The increase in service revenues was due to acquisition of Black Diamond.
Production
| |
Three Months
Ended Sept 30, | |
| |
| |
Nine Months
Ended Sept 30, | |
| |
|
| |
2015 | |
2014 | |
Change | |
% Change | |
2015 | |
2014 | |
Change | |
% Change |
Sales Volume : | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Crude Oil(bbl) | |
| 2,118 | | |
| 2,991 | | |
| (873 | ) | |
| (29 | )% | |
| 8,029 | | |
| 5,367 | | |
| 2,662 | | |
| 50 | % |
Total BOE | |
| 2,118 | | |
| 2,991 | | |
| (873 | ) | |
| (29 | )% | |
| 8,029 | | |
| 9,326 | | |
| (1,297 | ) | |
| (14 | )% |
* Oil and natural gas were combined by converting natural
gas to oil equivalent on the basis of 6 mcf of gas = 1 boe.
The decrease in oil volumes is
largely due to both the oil and gas property sales in the three-month period ended March 31, 2015, as well as the asset sales
in Canada in the third quarter of 2014. Natural gas volume decreases were due to asset sales, as well as lower production
in key areas in Canada such as Berwyn.
Commodity Prices Realized
| |
Three Months
Ended Sept 30, | |
| |
| |
Nine Months
Ended Sept 30, | |
| |
|
| |
2015 | |
2014 | |
Change | |
% Change | |
2015 | |
2014 | |
Change | |
% Change |
Sales Price: | |
| |
| |
| |
| |
| |
| |
| |
|
Crude Oil($/bbl) | |
$ | 39 | | |
$ | 72.84 | | |
$ | (34.20 | ) | |
| (47 | )% | |
$ | 40 | | |
$ | 87 | | |
| (47 | ) | |
| (54 | )% |
The average price per barrel received by
Legend during the third quarter of 2015 was $40, down from $87 in the same period of 2014, reflective of the prices the Company
receives in the Kansas area and the global decline in oil prices.
Production Expenses
Production
expenses increased on an absolute basis to $398,826 in the third quarter of 2015 from $262,923 in the third quarter of 2014.
The increase in production expenses was due to operational issues that arose in the first quarter of 2015, related to
freezing weather conditions and our need to repair and maintain certain wells to place them back into production. Production expenses consist of day-to-day operational expenses for production of oil and maintenance and repair expenses for
the wells and property.
General and Administrative Expenses
For the three months
ended September 30, 2015, general and administrative expenses decreased to $337,211 as compared to $2,389,630 for the three
months ended September 30, 2014. In 2014, the Company recognized approximately $350,000 of non-cash charges and professional
fees related to the deconsolidation and bankruptcy of our Canadian subsidiary. In addition, the Company
incurred approximately $111,000 in stock compensation expense during the three months ended September 30, 2014 which was $0
for the three months ended September 30, 2015. The remaining decrease in general and administrative expenses was resulted
from the decrease in salary and other professional expenses in 2015.
For the nine months ended September 30, 2015, general
and administrative expenses decreased to $3,475,403 as compared to $3,719,589 for the nine months ended September 30, 2014. The
decrease was mainly because the Company recognized approximately $350,000 of non-cash charges in 2014.
Depletion, Depreciation, Amortization and Impairment
The Company incurred $250.984 for
depreciation, depletion, and amortization for the three months ended September 30, 2015 ($64.000 for the same period during 2014),
reflective of the acquisition and consolidation of Black Diamond. Depreciation, depletion and amortization for the nine months
ended September 30, 2015 is $526,405 ($263,512 for the same period during 2014). The Company also incurred $452,277
and $580,649 in non-cash impairment charges during the nine-month period ended September 30, 2015 and 2014, respectively.
Accretion Expense
For the three months ended September
30, 2015 the Company had accretion expense of $13,328 ($0 in third quarter 2014) related to the Company’s asset retirement
obligations. For the nine months ended September 30, 2015 accretion was $18,113 compared to $31,723 in 2014. The
reduction in accretion expense is consistent with the level of asset retirement obligations during the periods, other than any
impairment.
Interest expense
Interest expense was $430,765 for
the three months ended September 30, 2015 ($265,988 in third quarter 2014). For the nine months ended September 30,
2015, interest expense is $1,134,296, compared to $1,605,226 in 2014 for the corresponding period. Interest expense
for the periods presented are principally the result of interest expense accrued on both convertible and other term debt, as well
as amortization of original issue discounts.
Net Loss
The Company recorded net loss of $946,130
for the three months ended September 30, 2015, as compared to the net income of $292,427 for the three months ended September 30,
2014. The changes between the years are principally due certain noncash income as a result of the Canadian deconsolidation.
The Company recorded net loss of
$11,728,208 for the nine months ended September 30, 2015, as compared to the net loss of $1,428,062. The change is primarily
due to recognition of the non-cash change in fair value of embedded derivative liabilities.
Liquidity and Capital Resources
Liquidity
We have incurred net operating
losses and operating cash flow deficits over the last two years, continuing through 2015. We are in the early stages of acquisition
and development of certain oil and gas leaseholds, have acquired a crude oil hauling company in North Dakota, and we have been
funded primarily by a combination of equity issuances and borrowings under loan agreements and to a lesser extent by operating
cash flows, to execute our business plan. On April 3, 2015, we acquired Black Diamond, which is a last mile oil trucking/hauling
business. Black Diamond operated in a cash flow positive manner during April and May 2015. However, due to well maintenance
at our major customer, our revenue for June declined unexpectedly, resulting in negative operating cash flows. However, management
believes that based on various cost reductions put in place during July 2015, as well as increased and normalized revenue as well
as cash flows that commenced in August 2015, will result positively at Black Diamond adding to the Company’s overall cash
flow availability assisting in funding overall corporate operations. If volumes and revenue do not continue consistent with the
current rates of August 2015, we may be at break-even rates or lower, depending on hauling volumes and revenue. Should this be
the case, we would require additional operating funding in amounts which are not yet determinable. At September 30, 2015, we had
cash and cash equivalents totaling $567,266.
Our operating costs have
been further streamlined in August 2015, to levels we believe will effectively operate our business. We expect our
additional cash requirements over the next 12 months to be approximately $3.2 million, including the repayment of the note to
Sher Trucking, and normal corporate general and administrative expenses.
However, should the Company seek additional
financing to fund operations, such financings may not be available and the terms of the financing may only be available on unfavorable
terms.
On October 22, 2015, the Company consummated
a Securities Exchange Agreement with Hillair pursuant to which it issued 9,643 shares of Series B Convertible Preferred Stock (the
“Series B Preferred Shares”) with conversion price of $0.03 in exchange for the cancellation of debentures held by
Hillair with a total face value of $9,643,700 (the “Exchanged Debentures”).
On the same date, the Company issued a promissory
note to Hillair in the principal amount of $1,928,740 with respect to prepayment penalties due to Hillair under the terms
of the Exchanged Debentures. The principal amount of the note, together with interest at eight percent
(8%) per annum was due on November 30, 2015. This note was discharged on October 28, 2015, in connection with the sale of the
Company's Kansas oil drilling leases and accompanying personal property described below. The Company will record additional interest
expense for the carrying value of the note for its prepayment penalty.
These financial statements do
not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts
and classifications of liabilities that could result should the Company be unable to continue as a going concern.
The following table summarizes
our cash flows from continuing operations for the nine months ended September 30, 2015 and 2014, respectively:
| |
For the Nine Months Ended
September 30, |
| |
2015 | |
2014 |
Net cash flows from operating activities | |
$ | (2,231,800 | ) | |
$ | (4,064,813 | ) |
Net cash flows from investing activities | |
| (451,069 | ) | |
| 243,475 | |
Net cash flows from financing activities | |
| 2,548,287 | | |
| 5,033,916 | |
Effect of exchange rate changes | |
| — | | |
| 110,586 | |
Net change in cash during period | |
$ | (134,582 | ) | |
$ | 1,323,164 | |
Cash from Operating Activities
Cash
used in operating activities was $2,231,800 for the nine months ended September 30, 2015, as compared to $4,064,813 in the
nine months ended September 30, 2014. The increase in cash used in operating activities is due to significant expenses that resulted
from the Black Diamond acquisition. Such operating costs include professional fees totaling approximately $285,000, compensation
costs of over $425,000 for both the Company and Black Diamond, brokerage fees of approximately $225,000, a legal settlement of
$105,000 with the former President and Chief Operating Officer, other costs as a result of our acquisition of Black Diamond, as
well as other general and administrative expenses we incurred during the quarter ended September 30, 2015.
Cash from
Investing Activities
Cash
(used in) provided from investing activities for the nine months ended September 30, 2015 was ($451,069) as compared to $243,475
during the nine months ended September 30, 2014. The cash flows used in investing activities for 2015 include cash received
from the sale of two oil and gas properties in the first quarter of approximately $1.7 million, acquisition of fixed assets of
approximately $487,000, net cash paid for the purchase of Black Diamond of approximately $1.5 million, and costs incurred of approximately
$585,000 for the development of oil and gas properties.
Cash from
Financing Activities
Total
net cash provided by financing activities was $2,548,287 for the nine months ended September 30, 2015, consisting of repayment
of bank debt, offset by proceeds of notes payable to Hillair. Total net cash from financing activities in the nine months ended
September 30, 2014 was $5,033,916. The Company issued convertible debt and short-term debt of approximately $3.5 million during
the nine months ended September 30, 2015.
Credit Facility
Currently, the Company does not
have any credit facilities with available funds.
Planned Capital Expenditures
As funds allow, we plan to resume
our drilling program on the Kansas properties.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
ITEM 4
CONTROLS AND PROCEDURES
Changes in Internal Controls Over Financial Reporting
Our management evaluated, with
the participation of our President and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as
of the end of the period covered by this Report. Based on this evaluation, our President and our Chief Financial Officer concluded
that our disclosure controls and procedures are not effective to ensure that information we are required to disclose in reports
that we file or submit under the Securities Exchange Act of 1934, as amended, (i) is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated
and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure.
Such conclusion was reached based
on the following material deficiencies noted by management:
a) We have
a lack of segregation of duties due to the small size of the Company.
b) Lack
of controls that provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposal
of the Company’s assets that could have a material effect on the financial statements.
c) In approximately
June 2014, the Company hired a Chief Restructuring Officer, now the Chief Executive Officer (CEO), as well as a new Chief Financial
Officer (CFO). In their work with the Company since their commencing service, they identified multiple material weaknesses
in internal control by prior management, and have been working to cure those deficiencies. The CEO and CFO expect that any
material weaknesses in internal control will be mitigated by December 31, 2015.
Management has hired a corporate
Controller and is integrating the accounting and administrative staff of Black Diamond/Maxxon, which is expected to significantly
enhance internal control for the Company.
Our disclosure controls and procedures
include components of our internal control over financial reporting and, as such, are designed to provide reasonable assurance
that such information is accumulated and communicated to our management. Management’s assessment of the effectiveness
of our internal control over financial reporting is expressed at the level of reasonable assurance that the control system, no
matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s
objectives will be met (see the section below in this Item 4 entitled Limitations on the Effectiveness of Internal Controls).
Changes in Internal Controls Over
Financial Reporting
There have been no changes in our
internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934,
as amended) that occurred during the nine months ended September 30, 2015, that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness
of Internal Controls
Our management does not expect
that our disclosure controls and procedures or our internal controls over financial reporting will necessarily prevent all fraud
and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives
and our President and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable
assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management override of the internal control. The design of any system of controls is
also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because
of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
PART II - OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
None.
ITEM 1A
RISK FACTORS
No material changes.
ITEM 2
UNREGISTERED SALES
OF EQUITY SECURITIES AND USE OF PROCEEDS
In May 2015, Hillair converted 600 shares of preferred stock into 600 million shares of the Company's common stock.
ITEM 3
DEFAULTS UPON
SENIOR SECURITIES
None.
ITEM 4
CONTROLS
AND PROCEDURES
None.
ITEM 5
OTHER INFORMATION
On November 16, 2015, the Company, through
action of its independent board member, entered into amended and restated letter agreements with the following officers of the
Company:
CHIEF EXECUTIVE OFFICER
The material terms of the amended and
restated letter agreement between Northpoint Energy Partners, Ltd., of which Andrew Reckles, Chief Executive Officer of the Company,
of which Mr. Reckles is the Managing Partner, include the following:
|
· |
One year term. |
|
|
|
|
· |
Base compensation of $20,000 per month for Mr. Reckles’ CEO services. |
|
|
|
|
· |
Reimbursement, on a monthly basis, of his out-of-pocket costs and expenses to obtain health insurance policy coverage for himself and his wife that is satisfactory to Mr. Reckles payable monthly by the Company provided, however, that the maximum amount payable by the Company to Mr. Reckles in connection therewith shall not exceed $1000 per month; |
|
|
|
|
· |
Starting in calendar year 2015, an annual bonus (“annual bonus”) payable either in common stock of the Company or cash or a combination thereof, at the option of the BOD in the amount of or having a value equal to up to 50% of Mr. Reckles’ Base Compensation at the time; annual bonuses shall be based on performance criteria to be determined by the Board; any annual bonus shall be accrued and earned monthly throughout the Calendar year, but will be payable on February 1st of the year following the year in which the bonus is earned. |
|
|
|
|
· |
Beginning October 1st, 2015, the Company shall provide a Company vehicle to Northpoint for Mr. Reckles’ use. |
|
|
|
|
· |
Beginning October 1st, 2015, the Company shall provide a two week annual paid vacation to Mr. Reckles. The vacation shall be paid for by the company up to a total of $20,000. |
|
|
|
|
· |
“Change in Control” bonus. In the event of a change in control as defined in the agreement, Mr. Reckles is entitled to receive a one time bonus, in cash, equal to 150% of his Base Compensation plus his to date accrued but unearned annual bonus. |
|
|
|
|
· |
EBITDA bonus. Should the Company achieve EBITDA in any quarter of $350,000 or greater, then Mr. Reckles shall be entitled to a cash bonus equal to $25,000.00. |
|
|
|
|
· |
Transaction Bonus. Should the Company acquire any other company or be acquired by another company during the term of this agreement, the CEO shall receive a bonus equal to 2% of the value of the transaction. The bonus may be paid in cash or in stock of the Company at the option of the Board. |
Additionally, Mr. Reckles forgave bonuses
of $478,333 that were due to him under Northpoint’s prior letter agreement.
PRESIDENT, CHIEF FINANCIAL OFFICER
AND SECRETARY/TREASURER
Warren S. Binderman, President, Chief
Financial Officer and Secretary/Treasurer, entered into an amended and restated letter agreement (the “Agreement”)
which provides for the following:
|
· |
Two year term. |
|
|
|
|
· |
Base compensation of $20,000 per month for Mr. Binderman’s services |
|
|
|
|
· |
Commencing with the work to be performed on the 2015 year end Form 10-K (expected to be on or around January 15, 2016) the Company will pay Binderman an initial bonus of $25,000. Further, upon filing the 10-K on a timely basis, including extensions allowable by the SEC via filing of NT-10K, a bonus payment of $25,000 will be paid to Binderman. |
|
|
|
|
· |
Starting in calendar year 2015, an annual bonus (“annual bonus”) payable either in common stock of the Company or cash or a combination thereof, at the option of the BOD in the amount of or having a value equal to up to 50% of Mr. Binderman’s Base Compensation at the time; annual bonuses shall be based on performance criteria to be determined by the Board; any annual bonus shall be accrued and earned monthly throughout the Calendar year, but will be awarded and will be payable on February 1st of the year following the year in which the bonus is earned. |
|
|
|
|
· |
Effective November 1, 2014, payment of $1,000, on a monthly basis deemed to be for Mr. Binderman and/or his family’s health insurance policies; |
|
|
|
|
· |
Beginning October 1st, 2015, the Company shall provide a car for Mr. Binderman for his use. |
|
|
|
|
· |
Beginning October 1st, 2015, the Company shall provide for an annual two week paid vacation for Mr. Binderman. The vacation shall be paid for by the Company in amounts not to exceed $15,000. |
|
|
|
|
· |
“Change in Control” bonus. In the event of a change in control as defined in the agreement, Mr. Binderman is entitled to receive a one time bonus, in cash, equal to 150% of his Base Compensation plus his to date accrued but unearned annual bonus. |
Additionally, Mr. Binderman forgave
a bonus of $322,000 that was due to him under his prior letter agreement.
ITEM 6
EXHIBITS
The exhibits listed in the accompanying index to exhibits
are filed or incorporated by reference as part of this Report.
Certain of the agreements filed as exhibits
to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit
of the parties to the agreement. These representations and warranties:
|
• |
|
may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements; |
|
• |
|
may apply standards of materiality that differ from those of a reasonable investor; and |
|
• |
|
were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances. |
Accordingly, these representations and warranties may
not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time.
Investors should not rely on them as statements of fact.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
LEGEND OIL AND GAS, LTD. |
|
|
|
|
Dated: November
20, 2015 |
|
|
|
By: |
|
/s/ Andrew Reckles |
|
|
|
|
|
|
Andrew Reckles |
|
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
Dated: November
20, 2015 |
|
|
|
By: |
|
/s/ Warren S. Binderman, CPA |
|
|
|
|
|
|
Warren S. Binderman, CPA |
|
|
|
|
|
|
Chief Financial Officer and Principal Accounting Officer |
EXHIBIT INDEX
Legend Oil and Gas, Ltd. 10-Q
November
16, 2015
Legend
Oil and Gas, Ltd.
555
North Point Center E.
Suite
400
Alpharetta,
GA 30022
Gentlemen:
This
letter agreement (the “Agreement”) amends the prior letter Agreement dated September 2015, and sets forth the
understanding between Northpoint Energy Partners, LLC (‘Northpoint”) and Legend Oil & Gas, Ltd. and its
affiliated entities (collectively, the “Company”) for the engagement of Andrew Reckles, Managing Partner of
Northpoint, to serve as Chairman of the Board and chief executive officer of the Company (“Mr. Reckles” or
the “CEO”) during the term hereof. This Agreement shall be effective on the date that it is executed by you
in the space provided for your signature below.
I. APPOINTMENT
OF CHIEF EXECUTIVE OFFICER
Northpoint
will continue to provide Mr. Reckles services as CEO of the Company subject to the terms and conditions of this amended Agreement.
II. TERM
The
term of Mr. Reckles appointment shall be effective on this date and shall be twelve (12) months from and after the date hereof
(the “Employment Term”) unless sooner terminated as more fully provided in Section V hereof. Each twelve-month
period of the Employment Term beginning on the date hereof shall be hereinafter referred to as an “Employment Year”.
III.
SCOPE AND LOCATION OF SERVICES
Mr.
Reckles’ ordinary course duties as CEO will involve managing the Company’s day to day business affairs and he shall
have such duties, authority and responsibility as shall be determined and are assigned to him by the Board of Directors of the
Company (the “Board”), which duties, authority and responsibility are consistent with the position of CEO.
During the Employment Term, Mr. Reckles shall also serve as Chairman of the Board. During the Employment Term, Mr. Reckles shall
devote such time as is necessary to perform such duties and responsibilities but shall be free to engage in any other business,
profession or occupation for compensation or otherwise so long as same will not conflict or interfere with the performance of
such duties and responsibilities. The CEO shall perform his duties and responsibilities hereunder either at the offices of the
Company or Northpoint or such other place as is convenient to the CEO.
IV.
FEES AND EXPENSES
| A. | Amended
Base Compensation |
As
base compensation (“Base Compensation”) for the CEO’s services, the Company shall pay the CEO a non-refundable
fee of $20,000 per month payable in advance on the date hereof and each successive monthly anniversary date of this Agreement.
It
is currently understood and agreed, that as of the date of this Amended letter agreement, that Northpoint is owed, from deferred
bonuses and banking fees earned since June of 2014, and that the Company has accrued on its audited financial statements an amount
equal to $778,333. It is hereby understood, that with the exception of the “annual bonus” for 2015, Northpoint will,
with the execution of this amended agreement, waive all other accrued fees and bonuses.
| B. | Additional
Compensation. |
In
addition to the Base Compensation the CEO will receive additional compensation (the “Additional Compensation”)
as follows:
(1)
reimbursement, on a monthly basis, of his out-of-pocket costs and expenses to obtain health insurance policy coverage for himself
and his wife that is satisfactory to Mr. Reckles payable monthly by the Company provided, however, that the maximum amount payable
by the Company to Mr. Reckles in connection therewith shall not exceed $1000 per month;
(2)
Starting in calendar year 2015, an annual bonus (“annual bonus”) payable either in common stock of the Company or
cash or a combination thereof, at the option of the BOD in the amount of or having a value equal to up to 50% of your Base Compensation
at the time; annual bonuses shall be based on performance criteria to be determined by the Board; any annual bonus shall be accrued
and earned monthly throughout the Calendar year, but will be payable on February 1st of the year following the year
in which the bonus is earned. The annual bonus is accrued and earned monthly for each month of service performed in the Calendar
year and is to be paid to Mr. Reckles pursuant to the “Termination” section below and
(4)
beginning October 1st, 2015, the Company shall provide a Company vehicle to Northpoint for Mr. Reckles’ use.
(5)
beginning October 1st, 2015, the Company shall provide a two week annual paid vacation to Mr. Reckles. The vacation
shall be paid for by the company up to a total of $20,000.
(6)
“Change in Control” bonus. In the event of a change in control as defined below, Mr. Reckles is entitled to receive
a one time bonus, in cash, equal to 150% of his Base Compensation PLUS his to date accrued but unearned annual bonus.
(7)
EBITDA bonus. Should the Company achieve EBITDA in any quarter of $350,000 or greater, the CEO shall be entitled to a cash bonus
equal to $25,000.00.
(8)
Transaction Bonus. Should the Company acquire any other company or be acquired by another company during the term of this agreement,
the CEO shall receive a bonus equal to 2% of the value of the transaction. The bonus may be paid in cash or in stock of the Company
at the option of the Board.
The
Company shall pay directly or reimburse the CEO, upon receipt of periodic billings, for all reasonable out-of-pocket expenses
incurred in connection with this Agreement and the engagement hereunder, including, but not limited to, travel, lodging, postage,
computer and research charges, attorneys’ fees, messenger services, telephone and facsimile services and other charges customarily
recoverable as out-of-pocket expenses. In addition, the Company shall pay to Northpoint or Mr. Reckles its or his reasonable legal
fees incurred in negotiating and drafting this Agreement.
V. Termination
| A. | Termination
of Employment. |
The
Employment Term and the CEO’s employment hereunder may be terminated by Company and the CEO at any time upon mutual agreement
of the Company and the CEO or by the CEO or the Company as provided in this Section V. Except as hereinafter provided in this
Section V, upon termination of the CEO’s employment during the Employment Term, the CEO shall be entitled to the compensation
and benefits described in Section IV hereof through the Termination Date.
| B. | Expiration
of the Term for Cause or Without Good Reason. |
The
CEO’s employment hereunder may be terminated by the Company for “Cause”, as such term is hereinafter
defined, or by the CEO without “Good Reason”, as such term is hereinafter defined. If the CEO’s employment is
terminated by the Company for Cause or by the CEO without Good Reason, the CEO shall be entitled to receive: (i) any accrued but
unpaid Base Compensation which shall be paid on the “Termination Date”, as hereinafter defined, within one
(1) week following the Termination Date; (ii) any earned but unpaid Annual Bonus with respect to any completed calendar/fiscal
year immediately preceding the Termination Date, which shall be paid on the otherwise applicable payment provided; and (iii) reimbursement
for unreimbursed business expenses properly incurred by the CEO including, without limitation, health insurance costs as provided
in Section IV hereof. For purposes of this Agreement, “Cause” shall mean:
| (1) | the
CEO’s willful failure to perform his duties and responsibilities (other than any
such failure resulting from incapacity due to physical or mental illness); |
| (2) | the
CEO’s willful failure to comply with any valid and legal directive of the Board; |
| (3) | the
CEO willful engagement in dishonesty, illegal conduct or gross misconduct, which is,
in each case, materially injurious to the Company; |
| (4) | the
CEO’s embezzlement, misappropriation or fraud related to the CEO’s
employment with the Company; |
| (5) | the
CEO’s conviction of or plea of guilty or nolo contendere to a crime that constitutes
a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving
moral turpitude[, if such felony or other crime is work-related, materially impairs the
CEO’s ability to perform services for the Company or results in material/reputational
or financial harm to the Company; or |
| (6) | the
CEO’s willful unauthorized disclosure of “Confidential Information”,
as hereinafter defined. |
For
purposes of this provision, no act or failure to act on the part of the CEO shall be considered “willful” unless it
is done, or omitted to be done, by the CEO in bad faith or without reasonable belief that the CEO’s action or omission was
in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by
the CEO in good faith and in the best interests of the Company. For purposes of this Agreement, “Good Reason” shall
mean the occurrence of any of the following, in each case during the Employment Term without the CEO ‘s written consent:
(i) any material breach by the Company of any material provision of this Agreement including, without limitation, failure to pay
the CEO any of the Base Compensation or Additional Compensation provided for herein within five (5) business days of the due date
thereof and a material, adverse change in the CEO’s authority, duties or responsibilities (other than temporarily while
the CEO is physically or mentally incapacitated or as required by applicable law and (ii) any Change in Control. For purposes
of this Agreement, “Change in Control” shall mean the occurrence of any of the following: (x) one person (or
more than one person acting as a group) acquires ownership of stock of the Company that, together with the stock held by such
person or group, constitutes more 50% of the voting power of the stock of the Company; (y) the sale of all or substantially all
of the Company’s assets; or (z) the merger or consolidation of the Company with another person, firm or entity that is not
currently an affiliate of the Company.
| C. | Without
Cause or for Good Reason. |
The
Employment Term and the CEO’s employment hereunder may be terminated by the CEO for Good Reason or by the Company without
Cause. In the event of such termination, the CEO shall be entitled to receive one full year’s worth of the Base Compensation
and Additional Compensation provided for in Section IV hereof just as if the CEO had been employed for one full year beyond the
termination date.
The
CEO’s employment hereunder shall terminate automatically upon the CEO’s death during the Employment Term, and the
Company may terminate the CEO s employment on account of the CEO’s Disability. If the CEO’s employment is terminated
during the Employment Term on account of the CEO’s death or Disability, the CEO (or the CEO’s estate and/or beneficiaries,
as the case may be) shall be entitled to receive all of the Base Compensation and Additional Compensation that would have accrued
and be payable to the CEO for the Employment Year in which his death or disability occurred. For purposes of clarification, any
Annual Bonus for the Employment Year in which the CEO’s death or disability may occur shall be prorated to the date of death
or disability. For purposes of this Agreement, “Disability” shall mean the CEO’s inability, due to physical
or mental incapacity, to substantially perform his duties and responsibilities under this Agreement for one hundred eighty (180)
days out of any three hundred sixty-five (365) day. Any question as to the existence of the CEO’s Disability as to which
the CEO and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to
the CEO and the Company. If the CEO and the Company cannot agree as to a qualified independent physician, each shall appoint such
a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability
made in writing to the Company and the CEO shall be final and conclusive for all purposes of this Agreement.
Any
termination of the CEO’s employment hereunder by the Company or by the CEO during the Employment Term (other than termination
pursuant to Section IV.D. on account of the CEO’s death) shall be communicated by written notice of termination (“Notice
of Termination”) to the other party hereto in accordance with Section X.J. hereof. The Notice of Termination shall specify:
(i) the termination provision of this Agreement relied upon; (ii) to the extent applicable, the facts and circumstances claimed
to provide a basis for termination of the CEO’s employment under the provision so indicated; and (iii) the applicable Termination
Date.
VI. CONFIDENTIALITY
The
CEO agrees to keep confidential all information obtained from the Company, and the CEO will not disclose to any other person or
entity, or use for any purpose other than specified herein, any information pertaining to the Company or any affiliate thereof,
which is either non-public, confidential or proprietary in nature (“Information”) that he obtains or is given
access to during the performance of his duties and responsibilities hereunder. The foregoing is not intended to nor shall it be
construed as prohibiting the CEO from disclosure pursuant to valid subpoena, order or other legal compulsion, but the CEO shall
not encourage, suggest, invite or request, or assist in securing, any such subpoena, court order, or other legal compulsion, and
the CEO shall immediately give notice of any such subpoena, court order, or legal compulsion to the Company. Furthermore, the
CEO may make reasonable disclosure of Information to third parties to the extent necessary in connection with his performance
of the his duties and responsibilities hereunder. In addition, the CEO shall have the right to disclose to others in the normal
course of business his involvement with the Company.
Information
includes data, plans, reports, schedules, drawings, accounts, records, calculations, specifications, flow sheets, computer programs,
source or object codes, results, models or any work product relating to the business of the Company, its subsidiaries, distributors,
affiliates, vendors, customers, employees, contractors and consultants.
VII. INDEMNIFICATION,
ADVANCEMENT AND EXCULPATION
The
Company agrees to indemnify, provide advancement to, and hold harmless Northpoint and the CEO and each of their respective partners,
employees and agents (the “Indemnified Persons”), to the fullest extent lawful, from and against any claims,
liabilities, losses, damages and expenses (or any action, claim, suit or proceeding (an “Action”) in respect
thereof), as incurred, related to or arising out of or in connection with the CEO’s services (whether occurring before,
at or after the date hereof) under the Agreement or any Indemnified Person’s role in connection therewith, whether or not
resulting from an Indemnified Person’s negligence (“Losses”), provided, however, that the Company shall
not be responsible for any Losses that arise out of or are based on any action of or failure to act by the CEO to the extent such
Losses are determined, by a final, non-appealable judgment by a court or arbitral tribunal, to have resulted solely from the CEO’s
gross negligence or willful misconduct.
The
Company agrees to reimburse and provide advancement to the Indemnified Persons for all expenses (including, without limitation,
fees and expenses of counsel), including all costs and expenses (including expenses of counsel) incurred by an Indemnified Person
to enforce the Indemnified Person’s rights hereunder, as they are incurred in connection with investigating, preparing,
defending or settling any Action for which indemnification, advancement or contribution has or is reasonably likely to be sought
by the Indemnified Person, whether or not in connection with litigation in which any Indemnified Person is a named party; provided
that if any such reimbursement is determined by a final, non-appealable judgment by a court or arbitral tribunal, to have resulted
solely from the CEO’s gross negligence or willful misconduct, such Indemnified Person shall promptly repay such amount to
the Company. The Company agrees that the CEO shall not have any personal liability to the Company for monetary damages for breach
of fiduciary duty, provided that this limitation shall not eliminate or limit the liability of the CEO: (i) for any breach of
the CEO’s duty of loyalty to the Company, (ii) for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, or (iii) for any transaction from which the CEO received an improper personal benefit. Notwithstanding
the provisions hereof, the aggregate contribution of all Indemnified Persons to all Losses shall not exceed the amount of Base
Compensation actually received by the CEO with respect to the services rendered pursuant to the Agreement.
In
addition to the foregoing indemnification, advancement, and contribution rights, the Company agrees that the CEO will be entitled
to the benefit of the most favorable indemnities provided by the Company to its other officers and directors, whether under the
Company’s by-laws, certificates of incorporation, by contract or otherwise. The Company further agrees that it will include
and cover the CEO under the Company’s policy for directors’ and officers’ (“D&O”) insurance.
The Company agrees to maintain D&O insurance coverage for the CEO for a period of not less than three (3) years following
the date of termination of the CEO’s service under this Agreement. In the event that the Company is unable to include the
CEO under the Company’s D&O insurance policies or if the Company’s D&O policies do not have first dollar coverage
in effect for at least the first $3,000,000, it is agreed that the CEO is permitted to purchase a separate policy for D&O
insurance that covers only the CEO and invoice the Company for the costs associated with such policy as an out-of-pocket expense
reimbursement under this Agreement. If the CEO is unable to purchase such coverage, then the CEO shall have the right to terminate
this Agreement upon notice to the Company.
The
Company agrees that it will not settle or compromise or consent to the entry of any judgment in, or otherwise seek to terminate
any pending or threatened Action in respect of which indemnification, advancement, or contribution may be sought hereunder (whether
or not any Indemnified Person is a party to such Action) unless the CEO has given his prior written consent, or the settlement,
compromise, consent or termination (i) includes an express unconditional release of such Indemnified Person from all Losses arising
out of such Action and (ii) does not include any admission or assumption of fault on the part of any Indemnified Person.
Notwithstanding
anything in Section V of this Agreement to the contrary or inconsistent herewith, the provisions of this Section VII shall survive
termination of this Agreement for whatever reason and regardless of which party terminates this Agreement.
VIII.
DISCLOSURES
The
CEO is not aware of any business relationship he has that creates a potential or actual conflict of interest with respect to the
Company. Although the CEO is not aware of any relationships that connect him to any party in interest, because the CEO serves
clients on a national basis, it is possible that the CEO may have or will render services to or have business associates with
other entities which had or have relationships with the Company.
IX.
REPRESENTATIONS
The
Company represents and warrants to the CEO that it has taken all necessary corporate and other action necessary for it to enter
in to this Agreement and to enable the CEO to perform his duties and responsibilities hereunder. Further, the Company represents
and warrants to the CEO that this Agreement, when executed by you and the undersigned is a valid and binding agreement on the
part of the Company enforceable in accordance with its terms.
The
CEO represents and warrants to the Company that his acceptance of employment with the Company and the performance of his duties
and responsibilities hereunder will not conflict with or result in a violation of, a breach of, or a default under any contract,
agreement or understanding to which he is a party or is otherwise bound.
X. GENERAL
This
Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes any other prior
communications, understandings and agreements (both written and oral) between the parties with respect to the subject matter hereof.
This
Agreement may be modified, amended or supplemented only by a written agreement between the parties hereto. The CEO will not be
responsible for performing any services not specifically described in this Agreement or in a subsequent writing signed by the
parties.
This
Agreement and all controversies arising from or related to the performance hereunder shall be governed by, and construed in accordance
with, the laws of the State of Colorado, without giving effect to such State’s conflicts of law principles.
If
any portion of this Agreement shall be determined to be invalid or unenforceable, the parties agree that the remainder shall be
valid and enforceable to the maximum extent possible.
This
Agreement has been and is made solely for the benefit of the Company, Northpoint and the CEO and their respective successors and
assigns, and no other person or entity shall acquire or have any right under or by virtue of this Agreement.
Neither
party may assign or transfer its rights or obligations under this Agreement without the prior written consent of the other party.
Each
party agrees that no failure or delay by the other party in exercising any right, power or privilege hereunder will operate as
a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise
of any right, power or privilege hereunder.
Captions
and headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement
is to be construed by reference to the caption or heading of any section or paragraph.
This
Agreement may be executed in separate counterparts, each of which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
All
notices required or permitted to be delivered under this Agreement shall be sent, if to the CEO, to the attention of the CEO,
and if to the Company, to the attention of Marshall Diamond Goldberg. All notices under this Agreement shall be sufficient if
delivered by facsimile, electronic mail, or overnight courier. Any notice shall be deemed to have been given only upon actual
receipt. Mailed notices shall be addressed as set forth below, or to such other name or address as may be given in writing to
the other party.
|
To the CEO: |
Northpoint Energy Partners. LLC |
|
|
555 North Point Center East |
|
|
Alpharetta, GA 30022 |
|
|
Attn: Andrew Reckles |
|
|
Facsimile: |
|
|
Email: andy@northpointep.com |
|
|
|
|
To the Company: |
Legend Oil and Gas, Ltd. |
|
|
555 North Point Center East, Ste. 401 |
|
|
Alpharetta, GA 30022 |
|
|
Attn: Warren Binderman |
|
|
Facsimile:(678) 608-2565 |
|
|
Email: wbinderman@bindermanllc.com |
Please
confirm the foregoing is in accordance with your understanding by signing and returning a copy of this Agreement.
|
Sincerely, |
|
|
|
|
Northpoint Energy Partners, LLC |
|
|
|
|
|
|
|
By: |
|
|
Name: |
Andrew Reckles |
|
Title: |
Managing Partner |
AGREED AND ACKNOWLEDGED: |
|
|
|
|
Legend Oil and Gas, Ltd. |
|
|
|
|
|
|
|
By: |
|
|
Name: |
Warren S. Binderman |
|
Title: |
President |
|
Dated: |
|
|
Legend Oil and Gas, Ltd. 10-Q
November 16, 2015
Binderman Group, LLC
Mr. Warren S. Binderman, CPA
2090 Dunwoody Club Drive
Suite 106-215
Atlanta, Georgia 30350
Dear Warren:
This
Amended letter agreement (the “Agreement”) amends the prior letter agreement dated December 3, 2014, and sets
forth the understanding between Legend Oil & Gas, Ltd. (the “Company”) and you regarding the Company contracting
with you, through the Binderman Group, LLC, to serve as President, Chief Financial Officer, and Board Secretary/Treasurer Officer
of the Company during the term hereof. This Agreement shall be effective on the date that it is executed by you in the space provided
for your signature below.
| I. | APPOINTMENT
OF PRESIDENT, CHIEF FINANCIAL OFFICER, AND BOARD SECRETARY/TREASURER OFFICER |
The
Company affirms that it has appointed you to serve as President, Chief Financial Officer, and Board Secretary/Treasurer Officer,
subject to the terms and conditions of this Agreement, with the title, compensation and other descriptions set forth herein.
The
term of your appointment shall be effective on this date and shall be twenty four (24) months from and after the date hereof (the
“Term”) unless sooner terminated as more fully provided in Section V hereof. Each twelve-month period of the
Term beginning on the date hereof shall be hereinafter referred to as a “Contract Term”.
| III. | SCOPE
AND LOCATION OF SERVICES |
Your
ordinary course duties as President, Chief Financial Officer, and Board Secretary/Treasurer Officer will involve managing the
Company’s day to operations as directed by the chief executive officer (CEO), as well as the accounting and finance operations
and you shall have such duties, authority and responsibility as shall be determined and are assigned to you by the CEO of the
Company, which duties, authority and responsibility are consistent with the position of President, Chief Financial Officer, and
Board Secretary/Treasurer Office. Further, during the Term, you shall also serve as a member of the Board of Directors of the
Company. Finally, during the Contract Term, you shall devote such time as is necessary to perform such duties and responsibilities.
You shall perform your duties and responsibilities hereunder either at the offices of the Company, or other such locations as
are appropriate to perform your specific functions.
As
base compensation (“Base Compensation”) for your services, the Company shall pay you $20,000 per month, payable
once monthly. The Base Compensation shall be reviewed at least annually by the Board and the Board may, but shall not be required
to, increase the Base Compensation during the Term. However, the Base Compensation may not be decreased during the Term. For the
purposes of this Agreement, you will serve as an independent contractor to the Company. All personal income tax responsibilities,
both United States Federal and State will be borne by you, and you agree to indemnify the Company from classifying you as an independent
contractor.
It
is currently understood and agreed, that as of the date of this Amended letter agreement, that Mr. Binderman is owed, from amounts
contractually earned, and that the Company has accrued on its financial statements a total amount due Binderman of $322,000, which,
as of the date of this letter, has been forgiven by Binderman.
| B. | Additional
Compensation. |
| 1. | In
addition to the Base Compensation you will receive additional compensation (the “Additional
Compensation”) as follows: |
| 2. | Commencing
with the work to be performed on the 2015 year end Form 10-K (expected to be on or around
January 15, 2016) the Company will pay Binderman an initial bonus of $25,000. Further,
upon filing the 10-K on a timely basis, including extensions allowable by the SEC via
filing of NT-10K, a bonus payment of $25,000 will be paid to Binderman. |
| 3. | Starting
in calendar year 2015, an annual bonus (“annual bonus”) payable either in
common stock of the Company or cash or a combination thereof, at the option of the BOD
in the amount of or having a value equal to up to 50% of your Base Compensation at the
time; annual bonuses shall be based on performance criteria to be determined by the Board;
any annual bonus shall be accrued and earned monthly throughout the Calendar year, but
will be awarded and will be payable on February 1st of the year following
the year in which the bonus is earned. The annual bonus is accrued and earned monthly
for each month of service performed in the Calendar year and is to be paid to Mr. Binderman
pursuant to the “Termination” section below. |
| 4. | Effective
November 1, 2014, payment of $1,000, on a monthly basis deemed to be for you and/or your
family’s health insurance policies; |
| 5. | Beginning
October 1st, 2015, the Company shall provide a car for Mr. Binderman for his
use. |
| 6. | Beginning
October 1st, 2015, the Company shall provide for a two week paid vacation
for Mr. Binderman. The vacation shall be paid for by the Company in amounts not to exceed
$15,000. |
| 7. | “Change
in Control” bonus. In the event of a change in control as defined below, Mr. Binderman
is entitled to receive a one time bonus, in cash, equal to 150% of his Base Compensation
PLUS his to date accrued but unearned annual bonus. |
The
Company shall pay directly or reimburse you, upon receipt of periodic billings, for all reasonable out-of-pocket expenses incurred
in connection with this Agreement and the engagement hereunder, including, but not limited to, travel, lodging, educational expenses
for you to remain a CPA (including travel and lodging for such conferences as may be required), computer and research charges,
attorneys’ fees, telephone and facsimile services and other charges customarily recoverable as out-of-pocket expenses. In
addition, the Company shall pay you for your reasonable legal fees incurred in the review of this Agreement.
| A. | Termination
of Your Position. |
The
Term and your contracting with the Company hereunder may be terminated by the Company and you at any time upon mutual agreement
of the Company and you or by you or the Company as provided in this Section V. Except as hereinafter provided in this Section
V, upon termination of your appointment during the Term, you shall be entitled to the compensation and benefits described in Section
IV hereof through the Termination Date.
| B. | Expiration
of the Term for Cause or Without Good Reason. |
Your
appointment hereunder may be terminated by the Company for “Cause”, as such term is hereinafter defined, or
by you with “Good Reason”, as such term is hereinafter defined. If your appointment is terminated by the Company for
Cause or by you with Good Reason, you shall be entitled to receive: (i) any accrued but unpaid Base Compensation which
shall be paid on the “Termination Date”, as hereinafter defined, within one (1) week following the Termination
Date; (ii) any earned or accrued but unpaid Annual Bonus with respect to any completed calendar/fiscal year immediately preceding
the Termination Date, which shall be paid on the otherwise applicable payment provided; and (iii) reimbursement for unreimbursed
business expenses properly incurred by you including, without limitation, health insurance costs as provided in Section IV hereof.
For purposes of this Agreement, “Cause” shall mean:
| 1. | your
willful failure to perform your duties and responsibilities (other than any such failure
resulting from incapacity due to physical or mental illness); |
| 2. | your
willful failure to comply with any valid and legal directive of the Board; |
| 3. | your
willful engagement in dishonesty, illegal conduct or gross misconduct, which is, in each
case, materially injurious to the Company; |
| 4. | your
embezzlement, misappropriation or fraud related to your appointment with the Company; |
| 5. | your
conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony
(or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude,
if such felony or other crime is work-related, materially impairs your ability to perform
services for the Company or results in material/reputational or financial harm to the
Company; or |
| 6. | your
willful unauthorized disclosure of “Confidential Information”, as hereinafter
defined. |
| 7. | For
purposes of this provision, no act or failure to act on your part shall be considered
“willful” unless it is done, or omitted to be done, by you in bad faith or
without reasonable belief that your action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by you in good faith and in the best interests
of the Company. For purposes of this Agreement, “Good Reason” shall
mean the occurrence of any of the following, in each case during the Term without your
written consent: (i) any material breach by the Company of any material provision of
this Agreement including, without limitation, failure to pay you any of the Base Compensation
or Additional Compensation provided for herein within five (5) business days of the due
date thereof and a material, adverse change in your authority, duties or responsibilities
(other than temporarily while you are physically or mentally incapacitated or as required
by applicable law), and (ii) any . For purposes of this Agreement, “Change in
Control” shall mean the occurrence of any of the following: (x) one person
(or more than one person acting as a group) acquires ownership of stock of the Company
that, together with the stock held by such person or group, constitutes more than 50%
of the voting power of the stock of the Company; (y) the sale of all or substantially
all of the Company’s assets; or (z) the merger or consolidation of the Company
with another person, firm or entity that is not currently an affiliate of the Company. |
| C. | Without
Cause or for Good Reason. |
The
Term and your appointment hereunder may be terminated by you for Good Reason or by the Company without Cause. In the event of
such termination, you shall be entitled to receive one full year’s worth of the Base Compensation and Additional Compensation
provided for in Section IV hereof just as if your appointment hereunder had continued for one full year beyond the termination
date.
Your
appointment hereunder shall terminate automatically upon your death during the Term, and the Company may terminate your appointment
on account of your Disability. If your appointment is terminated during the Term on account of your death or Disability, you (or
your estate and/or beneficiaries, as the case may be) shall be entitled to receive all of the Base Compensation and Additional
Compensation that would have accrued and be payable to you for the Contract Term in which your death or disability occurred. For
purposes of clarification, any Annual Bonus for the year in which your death or disability may occur shall be prorated to the
date of death or disability. For purposes of this Agreement, “Disability” shall mean your inability, due to physical
or mental incapacity, to substantially perform your duties and responsibilities under this Agreement for one hundred eighty (180)
days out of any three hundred sixty-five (365) days. Any question as to the existence of your Disability as to which you and the
Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to you and the Company.
If you and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two
physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing
to the Company and you shall be final and conclusive for all purposes of this Agreement.
Any
termination of your appointment hereunder by the Company or by you during the Term (other than termination pursuant to Section
IV.D. on account of your death) shall be communicated by written notice of termination (“Notice of Termination”) to
the other party hereto in accordance with Section X.J. hereof. The Notice of Termination shall specify: (i) the termination provision
of this Agreement relied upon; (ii) to the extent applicable, the facts and circumstances claimed to provide a basis for termination
of your appointment under the provision so indicated; and (iii) the applicable Termination Date.
You
agree to keep confidential all information obtained from the Company, and you will not disclose to any other person or entity,
or use for any purpose other than specified herein, any information pertaining to the Company or any affiliate thereof, which
is either non-public, confidential or proprietary in nature (“Information”) that you obtain or are given access
to during the performance of your duties and responsibilities hereunder. The foregoing is not intended to nor shall it be construed
as prohibiting you from disclosure pursuant to valid subpoena, order or other legal compulsion, but you shall not encourage, suggest,
invite or request, or assist in securing, any such subpoena, court order, or other legal compulsion, and you shall immediately
give notice of any such subpoena, court order, or legal compulsion to the Company. Furthermore, you may make reasonable disclosure
of Information to third parties to the extent necessary in connection with your performance of your duties and responsibilities
hereunder. In addition, you shall have the right to disclose to others in the normal course of business your involvement with
the Company.
Information
includes data, plans, reports, schedules, drawings, accounts, records, calculations, specifications, flow sheets, computer programs,
source or object codes, results, models or any work product relating to the business of the Company, its subsidiaries, distributors,
affiliates, vendors, customers, employees, contractors and consultants.
| VII. | INDEMNIFICATION,
ADVANCEMENT AND EXCULPATION |
The
Company agrees to indemnify, provide advancement to, and hold you harmless to the fullest extent lawful, from and against any
claims, liabilities, losses, damages and expenses (or any action, claim, suit or proceeding (an “Action”) in
respect thereof, as incurred, related to or arising out of or in connection with your services (whether occurring before, at or
after the date hereof) under the Agreement, whether or not resulting from your negligence (“Losses”), provided,
however, that the Company shall not be responsible for any Losses that arise out of or are based on any action of or failure to
act by you to the extent such Losses are determined, by a final, non-appealable judgment by a court or arbitral tribunal, to have
resulted solely from your gross negligence or willful misconduct.
The
Company agrees to reimburse and provide advancement to you for all expenses (including, without limitation, fees and expenses
of counsel), including all costs and expenses (including expenses of counsel) incurred by you to enforce your rights hereunder,
as they are incurred in connection with investigating, preparing, defending or settling any Action for which indemnification,
advancement or contribution has or is reasonably likely to be sought by you, whether or not in connection with litigation in which
you are a named party; provided that if any such reimbursement is determined by a final, non-appealable judgment by a court or
arbitral tribunal, to have resulted solely from your gross negligence or willful misconduct, you shall promptly repay such amount
to the Company. The Company agrees that you shall not have any personal liability to the Company for monetary damages for breach
of fiduciary duty, provided that this limitation shall not eliminate or limit the liability of you: (i) for any breach of your
duty of loyalty to the Company, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, or (iii) for any transaction from which you received an improper personal benefit. Notwithstanding the provisions
hereof, the aggregate contribution of you to all Losses shall not exceed the amount of Base Compensation actually received by
you with respect to the services rendered pursuant to the Agreement.
In
addition to the foregoing indemnification, advancement, and contribution rights, the Company agrees that you will be entitled
to the benefit of the most favorable indemnities provided by the Company to its other officers and directors, whether under the
Company’s by-laws, certificates of incorporation, by contract or otherwise. The Company further agrees that it will include
and cover you under the Company’s policy for directors’ and officers’ (“D&O”) insurance.
The Company agrees to maintain D&O insurance coverage for you for a period of not less than three (3) years following the
date of termination of your service under this Agreement. In the event that the Company is unable to include you under the Company’s
D&O insurance policies or if the Company’s D&O policies do not have first dollar coverage in effect for at least
the first $2,000,000, it is agreed that you are permitted to purchase a separate policy for D&O insurance that covers only
you and invoice the Company for the costs associated with such policy as an out-of-pocket expense reimbursement under this Agreement.
If you are unable to purchase such coverage, then you shall have the right to terminate this Agreement upon notice to the Company.
The
Company agrees that it will not settle or compromise or consent to the entry of any judgment in, or otherwise seek to terminate
any pending or threatened Action in respect of which indemnification, advancement, or contribution may be sought hereunder (whether
or not you are a party to such Action) unless you have given your prior written consent, or the settlement, compromise, consent
or termination (i) includes an express unconditional release of you from all Losses arising out of such Action, and (ii) does
not include any admission or assumption of fault on your part.
Notwithstanding
anything in Section V of this Agreement to the contrary or inconsistent herewith, the provisions of this Section VII shall survive
termination of this Agreement for whatever reason and regardless of which party terminates this Agreement.
You
are not aware of any business relationship you have that creates a potential or actual conflict of interest with respect to the
Company.
The
Company represents and warrants to you that it has taken all necessary corporate and other action necessary for it to enter in
to this Agreement and to enable you to perform your duties and responsibilities hereunder. Further, the Company represents and
warrants to you that this Agreement, when executed by you and the undersigned is a valid and binding agreement on the part of
the Company enforceable in accordance with its terms.
You
represent and warrant to the Company that your acceptance of your appointment as Executive Vice President, Chief Financial Officer,
and Board Secretary/Treasurer with the Company and the performance of your duties and responsibilities hereunder will not conflict
with or result in a violation of, a breach of, or a default under any contract, agreement or understanding to which you are a
party or are otherwise bound.
This
Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes any other prior
communications, understandings and agreements (both written and oral) between the parties with respect to the subject matter hereof.
This
Agreement may be modified, amended or supplemented only by a written agreement between the parties hereto. You will not be responsible
for performing any services not specifically described in this Agreement or in a subsequent writing signed by the parties.
This
Agreement and all controversies arising from or related to the performance hereunder shall be governed by, and construed in accordance
with, the laws of the State of Georgia without giving effect to such State’s conflicts of law principles.
If
any portion of this Agreement shall be determined to be invalid or unenforceable, the parties agree that the remainder shall be
valid and enforceable to the maximum extent possible.
This
Agreement has been and is made solely for the benefit of the Company and you and our respective successors and assigns, and no
other person or entity shall acquire or have any right under or by virtue of this Agreement.
Neither
party may assign or transfer its or his rights or obligations under this Agreement without the prior written consent of the other
party.
Each
party agrees that no failure or delay by the other party in exercising any right, power or privilege hereunder will operate as
a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise
of any right, power or privilege hereunder.
Captions
and headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement
is to be construed by reference to the caption or heading of any section or paragraph.
This
Agreement may be executed in separate counterparts, each of which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
All
notices required or permitted to be delivered under this Agreement shall be sent, if to you, to the attention of you, and if to
the Company, to the attention of Warren Binderman. All notices under this Agreement shall be sufficient if delivered by facsimile,
electronic mail, or overnight courier. Any notice shall be deemed to have been given only upon actual receipt. Mailed notices
shall be addressed as set forth below, or to such other name or address as may be given in writing to the other party.
|
To you: |
Warren S. Binderman |
|
|
|
2090 Dunwoody Club Drive, Ste. 106-215 |
|
|
|
Atlanta, GA 30350 |
|
|
|
Facsimile: (678) 608-2565 |
|
|
|
Email: wbinderman@bindermanllc.com |
|
|
|
|
|
To the Company: |
Legend Oil and Gas, Ltd. |
|
|
|
555 North Point Center East, Ste. 410 |
|
|
|
Alpharetta, GA 30022 |
|
|
|
Attn: Andrew Reckles |
|
|
|
Email: andy@midconoil.com |
Please
confirm the foregoing is in accordance with your understanding by signing and returning a copy of this Agreement.
|
Sincerely, |
|
|
|
Legend Oil and Gas, Ltd. |
|
|
|
By: |
|
|
Name: |
Andrew Reckles on behalf of North Point Energy Partners, LLC |
|
Title: |
CEO |
|
|
|
|
Dated: |
|
AGREED
AND ACKNOWLEDGED:
By: |
|
|
Name: |
Warren S. Binderman on behalf of Binderman Group, LLC |
|
|
|
|
Dated: |
November 16, 2015 |
|
Legend Oil and Gas, Ltd. 10-Q
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) OR RULE 15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED
I, Andrew S. Reckles, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Legend Oil and Gas, Ltd.; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
|
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Andrew S. Reckles |
|
Date: |
November 20, 2015 |
Andrew S. Reckles |
|
|
|
Chief Executive Officer |
|
|
|
Legend Oil and Gas, Ltd. 10-Q
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING OFFICER
PURSUANT TO RULE 13A-14(A) OR RULE 15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED
I, Warren S. Binderman, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Legend Oil and Gas, Ltd.; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
|
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/
Warren S. Binderman, CPA |
|
Date: |
November 20, 2015 |
Warren S. Binderman, CPA |
|
|
|
President, Chief Financial Officer and Principal Accounting Officer |
|
|
|
Legend Oil and Gas, Ltd. 10-Q
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER PURSUANT TO RULE 13A-14(B) OR 15D-14(B)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND TO 18 U.S.C. SECTION 1350
In connection with the quarterly report on
Form 10-Q of Legend Oil and Gas, Ltd. (the “Company”) for the quarter ended September 30, 2015, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew S. Reckles, as Chief
Executive Officer of the Company, and I, Warren S. Binderman, as President, Chief Financial Officer and Principal Accounting
Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
/s/
Andrew S. Reckles |
|
Date: |
November 20, 2015 |
Andrew S. Reckles |
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
/s/ Warren
S. Binderman, CPA |
|
Date: |
November 20, 2015 |
Warren S. Binderman, CPA |
|
|
|
President, Chief Financial Officer and Principal Accounting Officer |
|
|
|
The certifications
filed under this Exhibit 32.1 are not deemed “filed”
for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of
Legend Oil and Gas, Ltd. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether
made before or after the date hereof and irrespective of any general incorporation by reference language contained in any such
filing, except to the extent that Legend Oil and Gas, Ltd. specifically incorporates it by reference.
Legend Oil and Gas (CE) (USOTC:LOGL)
Historical Stock Chart
From Aug 2024 to Sep 2024
Legend Oil and Gas (CE) (USOTC:LOGL)
Historical Stock Chart
From Sep 2023 to Sep 2024