NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and
cash flows at June 30, 2016, and for all periods presented herein, have been made.
Certain
information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2015
audited financial statements. The results of operations for the periods ended June 30, 2016 and 2015 are not necessarily indicative
of the operating results for the full year.
NOTE
2 - GOING CONCERN
The
Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable
to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue
as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital
to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced
to cease operations.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan
is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet
its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that
the Company will be successful in accomplishing any of its plans.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
3 – SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE
3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Consolidation
The
accompanying consolidated financial statements included all of the accounts of the Company and its wholly-owned subsidiaries,
C2R, Inc., a Nevada Corporation, and Jett Rink Oil, LLC, a Kansas Limited Liability Company. All intercompany transactions have
been eliminated.
Recent
Accounting Pronouncements
Management
has considered all recent accounting pronouncements issued since the last audit of the Company’s financial statements. The
Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial
statements.
Cash
and Cash Equivalents
Cash
and cash equivalents include cash in banks and financial instruments which mature within six months of the date of purchase.
Oil
and Gas Properties
The
Company uses the full cost method of accounting for oil and natural gas properties. Under this method, all acquisition, exploration
and development costs, including certain payroll, asset retirement costs, other internal costs, and interest incurred for the
purpose of finding oil and natural gas reserves, are capitalized. Internal costs that are capitalized are directly attributable
to acquisition, exploration and development activities and do not include costs related to production, general corporate overhead
or similar activities. Costs associated with production and general corporate activities are expensed in the period incurred.
Proceeds from the sale of oil and natural gas properties are applied to reduce the capitalized costs of oil and natural gas properties
unless the sale would significantly alter the relationship between capitalized costs and proved reserves, in which case a gain
or loss is recognized.
Capitalized
costs associated with impaired properties and capitalized costs related to properties having proved reserves, plus the estimated
future development costs, and asset retirement costs under Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Topic 410 “Asset Retirement and Environmental Obligations” (FASB
ASC 410), are amortized using the unit-of-production method based on proved reserves. Capitalized costs of oil and natural gas
properties, net of accumulated amortization and deferred income taxes, are limited to the total of estimated future net cash flows
from proved oil and natural gas reserves, discounted at ten percent, plus the cost of unevaluated properties. Under
certain specific conditions, companies could elect to use subsequent prices for determining the estimated future net cash flows.
The use of subsequent pricing is no longer allowed. There are many factors, including global events that may influence the production,
processing, marketing and price of oil and natural gas. A reduction in the valuation of oil and natural gas properties resulting
from declining prices or production could adversely impact depletion rates and capitalized cost limitations. Capitalized costs
associated with properties that have not been evaluated through drilling or seismic analysis, including exploration wells in progress
at June 30, 2016, are excluded from the unit-of-production amortization. Exclusions are adjusted annually based on drilling results
and interpretative analysis.
NOTE
3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Oil
and Gas Properties (Continued)
Sales
of oil and natural gas properties are accounted for as adjustments to the net full cost pool with no gain or loss recognized,
unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. If it is determined
that the relationship is significantly altered, the corresponding gain or loss will be recognized in the statements of operations.
Costs
of oil and gas properties are depleted using the unit-of-production method. For the six months ended June 30, 2016 and 2015, the
Company recognized $-0- and $-0-, respectively, of depletion expense related to oil and gas production during the period.
Ceiling
Test
In
applying the full cost method, the Company performs an impairment test (ceiling test) at each reporting date, whereby the carrying
value of property and equipment is compared to the value of its proved reserves discounted at a ten percent interest rate of future
net revenues, based on current economic and operating conditions, 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. During the six months ended June 30, 2016 and 2015, the Company recorded
$-0- and $-0-, respectively, of impairment expense in connection with the full cost ceiling test calculation.
Revenue
Recognition
Revenues
from the sale of oil and natural gas are recognized when the product is delivered at a fixed or determinable price, title has
transferred, and collectability is reasonably assured. For oil sales, this occurs when the customer takes delivery of oil
from the operators’ storage tanks.
Earnings
(Loss) per Share
The
Company has adopted ASC 260, “Earnings Per Share,” (“EPS”) which requires presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital structures, and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the
accompanying financial statements, basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average
number of shares of common stock outstanding during the period. The Company had 1,200,000 potential dilutive shares of common
stock as of June 30, 2016 that were excluded as their effect was anti-dilutive.
NOTE
4 – OIL AND GAS PROPERTIES
On
April 3, 2014, the Company signed an election to participate in the first of three wells with Toto Energy, LLC in Cowley County,
Kansas. The Company will earn a 30 percent working interest and a 24.45 percent net royalty interest in the well. The Company
capitalized $213,000 of cash payments made to commence operations development of the well.
NOTE
4 – OIL AND GAS PROPERTIES (Continued)
On
May 10, 2014, the Company signed an election to participate in the second of three wells with Toto Energy, LLC in Cowley County,
Kansas. The Company will earn a 30 percent working interest and a 24.45 percent net royalty interest in the well. The Company
capitalized $189,000 of cash payments made to commence operations development of the well.
Oil
and gas properties are stated at cost. The Company recognized impairment expense totaling $404,837 during the year ended December
31, 2015. As of June 30, 2016 and December 31, 2015, oil and gas properties, net consisted of the following:
|
|
June 30, 2016
|
|
December 31,
2015
|
|
|
|
|
|
Unproved properties
|
|
$
|
470,377
|
|
|
$
|
470,377
|
|
Impairment of oil and gas leases
|
|
|
(470,377
|
)
|
|
|
(470,377
|
)
|
|
|
|
|
|
|
|
|
|
Oil and gas properties, net
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE
5 – CONVERTIBLE NOTES PAYABLE
On
January 3, 2014, the Company received $600,000 in connection with a convertible note financing commitment, the terms of which
call for the Company to receive three tranches of $200,000 each on a callable convertible note wherein the Company borrows the
sum at five percent interest for one year and the investor can elect to continue to receive the interest on the note or have the
Company issue the investor shares of common stock of the Company at $0.50 per share to retire the debt. The notes came due on
December 12, 2014, and as of June 30, 2016 the notes were in default. At June 30, 2016 accrued interest on the notes totaled $74,575.
NOTE
6 – NOTES PAYABLE
On
May 6, 2015 the Company borrowed $5,000 from an unrelated third-party entity. Pursuant to the terms of the note, the principal
accrues interest at a rate of five percent per annum, is unsecured, and is due in full on May 6, 2016. At June 30, 2016 accrued
interest on the note totaled $288.
NOTE
7 – NOTES PAYABLE – RELATED PARTY
On
June 11, 2015 the Company borrowed $5,000 from a related-party entity. Pursuant to the terms of the note, the principal accrues
interest at a rate of five percent per annum, is unsecured, and is due in full on June 11, 2016. Subsequent to the initial borrowing
the Company borrowed an additional $35,000 from the same lender under the same terms. At June 30, 2016 the total outstanding principal
balance due to the lender was $40,000, and aggregate accrued interest on the notes totaled $1,203.
On
March 7, 2016 the Company borrowed $10,000 from a related-party. Pursuant to the terms of the note the principal accrues interest
at a rate of five percent per annum, is unsecured, and is due in full on May 6, 2017. On May 2, 2016 the Company borrowed an additional
$4,000 under the same terms. At June 30, 2016 accrued interest on the notes totaled $190.
NOTE
8 – ASSET RETIREMENT OBLIGATIONS
The
total future asset retirement obligation is estimated by management based on the Company’s net working interests in all
wells and facilities, estimated costs to reclaim and abandon wells and facilities and the estimated timing of the costs to be
incurred in future periods. At June 30, 2016 and December 31, 2015 the Company estimated the undiscounted cash flows related to
asset retirement obligation to total approximately $105,500. The actual costs to settle the obligation are expected to occur in
approximately 25 years. Through June 30, 2016, the Company established an asset retirement obligation of $9,860 for the wells
acquired by the Company, which was capitalized to the value of the oil and gas properties. The fair value of the liability at
June 30, 2016 and December 31, 2015 is estimated to be $11,722 and $11,915, respectively, using a risk free rate of 9.31 percent
and inflation rates between 3.87 and 4.81 percent. Total accretion expense on the asset retirement obligation was $381 and $349
for the six-month periods ended June 30, 2016 and 2015, respectively.
NOTE
9 – STOCKHOLDERS’ DEFICIT
The
Company has 1,000,000 preferred shares authorized at a par value of $0.001 and 74,000,000 common shares authorized at par value
of $0.001. As of June 30, 2016 the Company has 42,013 shares of preferred stock and 42,728,159 shares of common stock
issued and outstanding.
NOTE
10 – RELATED-PARTY TRANSACTIONS
At
June 30, 2016 and December 31, 2015 the Company owed its Chief Financial Officer $22,000 and $16,000, respectively, in accrued
director fees. An additional $8,000 was owed to the Company’s Chief Executive Officer in accrued director fees and notes
payable.
NOTE
11 – COMMITMENTS AND CONTINGENCIES
During
the year ended December 31, 2015 the Company became party to a legal action brought about by an unrelated third-party individual,
wherein the plaintiff alleges the Company “participated and/or conspired in a scheme to disseminate spam emails” which
were misleading in order to encourage individuals to purchase shares of the Company’s common stock at an artificial and/or
inflated stock price. As of June 30, 2016, the matter remains in the discovery stage; however, the Company deems the matter to
be frivolous and will vigorously defend itself in the matter. The Company’s legal counsel calculates the probability of
a negative outcome to be minimal; therefore the Company has not accrued any reserve for potential damages pursuant to this matter.
NOTE
12 – SUBSEQUENT EVENTS
In
accordance with ASC 855-10, Company management reviewed all material events through the date of this report and there are no material
subsequent events to report.