NOTES TO FINANCIAL STATEMENTS
January 31, 2014
(UNAUDITED)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Liberty Energy Corp. (f/k/a DMA Minerals Inc., the “Company”) was incorporated on June 6, 2006 under the laws of the State of Nevada. The Company is currently an exploration stage company under the provisions of Accounting Standards Codification (ASC) No. 915,
Development Stage Entities
. Since inception, the Company has produced almost no revenues and will continue to report as an exploration stage company until significant revenues are produced. The Company’s principal activity is the exploration and development of oil and gas properties. Properties are located in the United States of America.
The Company’s success will depend in large part on its ability to obtain and develop oil and gas interests within the United States. There can be no assurance that oil and gas properties obtained by the Company will contain reserves or that properties with reserves will be profitable to extract. The Company is subject to local and national laws and regulations which could impact the Company’s ability to execute its business plan.
NOTE 2 – GOING CONCERN
The financial statements of the Company have been prepared assuming that future issuances of the Company’s equity or debt securities will be required in order for the Company to continue to finance its operations and continue as a going concern. The Company has no revenues or cash flow to meet operating expenses. Continuing as a going concern, the Company contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses since its inception and requires capital for its future operational activities. The Company's ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s plan of operations, and its transition to profitable operations is necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying interim unaudited financial statements have been prepared in accordance with generally accepted
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accounting principles for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the Company’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended January 31, 2014 are not necessarily indicative of the results for the full years. While management of the Company believes that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto for the year ended July 31, 2013 detailed in our Annual Report on Form 10-K filed on November 21, 2013.
Recent Accounting Pronouncements
Recently issued accounting pronouncements will have no significant impact on the Company and its reporting methods.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Net Loss per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. As the Company is in a net loss position, there are no outstanding potentially dilutive securities that would cause diluted earnings per share to differ from basic earnings per share.
Oil and Gas Properties
The Company follows the full-cost method of accounting for oil and natural gas properties. Under this method, all costs incurred in the exploration, acquisition and development, including unproductive wells, are capitalized in separate cost centers for each country. Such capitalized costs include contract and concessions acquisition, geological, geophysical, and other exploration work, drilling, completing and equipping oil and gas wells, constructing production facilities and pipelines, and other related costs.
The capitalized costs of oil and gas properties in each cost center are amortized on a composite unit of production method based on future gross revenues from proved reserves. Sales or other dispositions of oil and gas properties are normally accounted for as adjustments of capitalized costs. A gain or loss is not recognized in income unless a significant portion of a cost center’s reserves is involved. Capitalized costs associated with acquisition and evaluation of unproved properties are excluded from amortization until it is determined whether proved reserves can be
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assigned to such properties or until the value of the properties is impaired. If the net capitalized costs of oil and gas properties in a cost center exceed an amount equal to the sum of the present value of estimated future net revenues from proved oil and gas reserves in the cost center and the lower of cost or fair value of properties not being amortized, both adjusted for income tax effects, such excess is charged to expense.
Capitalized costs associated with acquisition and evaluation of unproved properties are excluded from amortization until it is determined whether proved reserves can be assigned to such properties or until the value of the properties is impaired. Our policy is consistent with ASC 932.
Revenue and Cost Recognition
The Company uses the sales method of accounting for natural gas and oil revenues. Under this method, revenues are recognized based on the actual volumes of gas and oil sold to purchasers. The volume sold may differ from the volumes to which the Company is entitled based on our interest in the properties. Costs associated with production are expensed in the period incurred.
Income Taxes
The Company accounts for its income taxes in accordance with ASC No. 740, "Income Taxes". Under Statement 740, a liability method is used whereby deferred tax assets and liabilities are determined based on temporary differences between basis used for financial reporting and income tax reporting purposes. Income taxes are provided based on tax rates in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not, that the Company will not realize the tax assets through future operations.
The Company’s federal tax returns for the years ended 2009 through 2012 are open to examination. At January 31, 2014, the Company evaluated its open tax years in all known jurisdictions. Based on this evaluation, the Company did not identify any uncertain tax positions. The Company accounts for interest and penalties relating to uncertain tax positions in the current period statement of operations as necessary.
Fair Value of Financial Instruments
GAAP establishes a fair value hierarchy which has three levels based on the reliability of the inputs to determine the fair value. These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company’s financial instruments consist primarily of cash, accounts payables, loan payable and accrued interest. The carrying values of these financial instruments approximate their respective fair values as they are either short-term in nature or carry interest rates that approximate market rates. The Company evaluates its embedded conversion features contained within their convertible notes for derivative treatment.
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The Company’s derivative liabilities recognized since August 1, 2012 were considered Level 3 financial instruments.
We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
We account for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: We record when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. The embedded conversion option in connection with our convertible debt could not be exercised unless and until we completed a Qualifying Financing transaction. Accordingly, we determined based on authoritative guidance that the embedded conversion option is deemed to be a contingent conversion rather than active conversion option that did not require accounting recognition at the commitment dates of the issuances of the Notes.
Reclassifications
Certain prior period amounts have been reclassified to conform to current period presentation. No reclassification had any impact on the Company’s previously reported net income (loss).
NOTE 4 - UNEVALUATED OIL AND GAS PROPERTIES
Trius Acquisition
On October 1, 2009, the Company entered into a lease purchase and sale agreement with Trius Energy LLC, a Texas corporation, to acquire four oil and gas leases in Texas for $125,000. The interests consist of a 100% WI (Working Interest) at a 75% NRI (Net Revenue Interest) in the Dahlstrom Lease, 2% WI at 75% NRI in the Ratliff Lease and 100% WI at a 70% NRI in the Lockhart Project, consisting of two leases, the Anton Lease (1 tract) and Alexander Lease (3 tracts).
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The Anton Lease lapsed on January 9, 2011 this tract had 1 shut-in well. It was determined by the Company after discussions with their operators, geologists and based on historical data, that it would not be cost effective to pursue the well therefore the lease was allowed to lapse. In connection with the lapse, $3,512 of leasehold cost were written off as of July 31, 2012.
The remaining leases lapsed on July 25, 2012. It was determined by the Company after discussions with their operators, geologists and based on historical data that it would not be cost effective to pursue the leases and existing wells; therefore the lease was allowed to lapse. In connection with the lapse, $690,397 of leasehold cost was written off. The Company also accrued payables in the amount of $23,280 for the plugging and abandonment of wells associated with these properties as of January 31, 2014.
Bulgaria
On September 22, 2009, the Company entered into a purchase and sales agreement with William C. Athens, of Tulsa, Oklahoma. The Company agreed to acquire a total of 1/16ths of 1% of 8/8ths ORRI (overriding royalty interest) in the A-Lovech exploration block in Bulgaria for a total price of $400,000. The payments and assignments were payable in four separate $100,000 closings to take place approximately 30 days apart, from the date of execution of the agreement.
Mr. Athens passed away between the date the contract was executed and full payment was made, completion of the contract was delayed pending notification from his estate. On April 28, 2011, Ms. Susan W. Athens, the executor for the estate of Mr. William C. Athens, executed an agreement to terminate the purchase and sale agreement between Liberty Energy Corp. and William C. Athens. Under the terms of the agreement Liberty Energy Corp. shall retain the 1/64th of the 1% interest in the A-Lovech exploration block and Mr. Athens’ estate shall retain the $100,000 which was forwarded to Mr. Athens for this acquisition. Oil and gas properties and notes payable were both reduced by $300,000 in accordance with the revised agreement.
Langold Acquisition
On February 22, 2012, the Company entered into and closed a three year lease assignment agreement with Langold Enterprises Limited (an entity with some cross ownership and common principal manager of Asia-Pacific, the Company’s primary source of capital) pertaining to certain interests in oil and gas properties in Bastrop, Caldwell and Eastland Counties, Texas. The interests which were assigned to the Company are three year leases to the following properties:
A 100% working interest in 2 separate properties equaling approximately 300 acres of exploration property located in Bastrop Town Tract, Abstract No. 11, Bastrop County, TX and the T. J. Hardeman Survey A 203, in Bastrop County, Texas.
A 100% working interest in 5 separate properties equaling approximately 622 acres of exploration property located in Sampson Connell Survey, A-63, Caldwell County, TX, the G. W. James Survey, Caldwell County, TX, the Jasper Gilbert Survey, Caldwell County, TX and the A100 Evans, Wistar, Caldwell County, TX.
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A 100% working interest in an approximately 5 acre oil and gas property called the Dillon Hall property located in the Gerron Hinds League in Caldwell County, Texas. The Dillon Hall property is not currently producing, and though it holds an existing well, that well requires a work-over to be put back into production.
A 100% working interest in a property equaling approximately 112 acres of exploration property located in the N. W. 1/4 of Section 24, Block 2, H & C. R. R. Co., Survey, Eastland County, TX.
In consideration for the above leases the Company issued 24,155,435 restricted shares of our common stock to Langold, a non-US shareholder. The restricted shares were valued equal the volume weighted average of the closing price (the “VWAP”) of Common Stock for the ten (10) Banking Days immediately preceding the execution of the assignment, as quoted on Google Finance or other source of stock quotes as agreed to by the parties. The original value assigned these shares and the leaseholds was $3.3 million. It was determined that due to the relationship between Langold and Asia-Pacific this transaction was not arms-length but rather was related party. The Company corrected the error and the shares issued and the leasehold costs were recorded at the price paid by Langold on their original three year lease acquisition from the land owners. That price paid was $20,000 cash plus 1,800,000 shares of restricted Liberty Energy stock which was valued at $243,932 for a total consideration of $263,932 which is recorded as oil and gas properties in the accompanying balance sheets as of January 31, 2014 and July 31, 2013.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company may from time to time be involved in legal proceedings arising from the normal course of business. There are no pending or threatened legal proceedings as of January 31, 2014.
NOTE 6 – RELATED PARTY TRANSACTIONS
Effective October 25, 2013, the Company entered into two separate agreements with Buchanan Ventures, Inc. to engage Carlos Buchanan as a consultant. Under the first agreement (“Contractor Agreement”), it was agreed that Mr. Buchanan would, among other things, (a) assist with the development of the Company’s business, (b) assist with the financial and investment structuring of the Company and (c) assist with evaluating acquisition prospects. As consideration for such consulting services, the Company agreed to pay Mr. Buchanan an aggregate of $150,000, payable every 90 days over a term of 24 months, payable in either cash or Company stock
at the Company’s discretion and based on the income thresholds achieved by the Company. If the Company’s income is below $25,000 per month during the service period than payments should be due after income threshold is achieved.
Under the second agreement (“Finder Fee Agreement”) Mr. Buchanan agreed, among other things, to introduce a mezzanine lender to advance to the Company over a period of 12 months up to $7,500,000 to support development and acquisition plans. In consideration of such services, the Company agreed to issue to Mr. Buchanan a total of 10,000,000 shares of Company common stock, subject to adjustment and clawback of all or a portion of the shares based upon Mr. Buchanan’s performance under the Finder Fee Agreement. As of January 31, 2014, no part of the consideration payable on account of either of the agreements has been incurred. Mr. Buchanan is the brother of Armando Rafael Buchanan, the Company’s Chief Financial Officer.
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At January 31, 2014, the Company owed $37,425 to current officers and directors and $90,000 to two former officers and directors in non-interest bearing notes. Because the former officers each own approximately 16% of the Company’s outstanding stock, we have reported the liability as owing to related parties. All amounts owing to related parties relate to fees for services provided.
Subsequent to October 31, 2013, the Company received free rent from a related party without an official agreement.
NOTE 7 – CONVERTIBLE NOTES PAYABLE
The May 23, 2012 Convertible Note
On May 23, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises Inc. (“Asher”). Pursuant to the Agreement, Asher purchased an 8% convertible note (the “May Note”) in the aggregate principal amount of $42,500 due on February 25, 2013. $40,000 was funded to the Company with the remaining $2,500 recorded as interest expense for financing costs charged by Asher’s legal counsel. This convertible note together with any unpaid accrued interest is convertible into shares of common stock at the holder’s option 180 days from inception at a variable conversion price calculated as 58% of the market price which means the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion date with no floor stated in the conversion feature. The convertible note, issued on May 23, 2012, was due on February 25, 2013 at an interest rate of 8% per annum. On November 19, 2012, the note had not been repaid and became eligible for treatment as a derivative.
On November 19, 2012, pursuant to ASC 815, “Derivatives and Hedging,” the Company recognized the fair value of the embedded conversion feature of $60,284 as a derivative liability and a loss on the derivative liability of $17,784. The initial fair value of the derivative liability was determined using the Black Scholes option pricing model with a quoted market price of $0.04, a conversion price of $0.0174, expected volatility of 172%, no expected dividends, an expected term of 0.27 years and a risk-free interest rate of 0.16%. The original discount on the convertible loan was $42,500, all of which had been fully accreted by July 31, 2013.
During the 2
nd
Quarter of 2013, Asher converted the $42,500 note payable along with the interest of $1,700. The fair value of the derivative liability was determined using the Black-Scholes option pricing model with a quoted market price of $0.020-$0.040, a conversion price of $0.0115-$0.0179, expected volatility of 141.25%-289.31%, no expected dividends, an expected term of 0.13-0.23 years and a risk-free interest rate of 0.12%-0.18%. On December 3, 2012, Asher converted $15,000 of May Note principal into 842,697 shares of common stock. The Company revalued the derivative liability as of that date and recorded a gain of $5,230. On December 11, 2012, Asher converted $12,000 of May Note principal into 800,000 shares of common stock. The Company revalued the derivative liability as of that date and recorded a gain of $11,973. On January 7, 2013, Asher converted the remaining $15,500 of principal and $1,700 accrued interest on the May Note into 1,977,011 shares of common stock. The Company recorded a loss of $3,739 on the final conversion of the derivative liability.
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In the aggregate, the Company recorded a total loss of $4,320 on the conversion of the May note payable to Asher which is included as part of Loss on Derivative in the statement of operations for the year ended July 31, 2013. As of January 31, 2014 no additional Loss on Derivative is recognized.
The July 12, 2012 Convertible Note
On July 12, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises Inc. Pursuant to the Agreement, Asher Enterprises has agreed to purchase an 8% convertible note in the aggregate principal amount of $32,500. $30,000 was funded to the Company with the remaining $2,500 recorded as legal expenses charged by Asher’s legal counsel. This convertible note together with any unpaid accrued interest is convertible into shares of common stock at the holder’s option 180 days from inception at a variable conversion price calculated as 58% of the market price which means the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion date with no floor stated in the conversion feature. The convertible note, issued on July 12, 2012, was due on April 16, 2013 at an interest rate of 8% per annum. On January 7, 2013, the note had not been repaid and became eligible for treatment as a derivative.
Pursuant to ASC 815, “Derivatives and Hedging,” the Company recognized the fair value of the embedded conversion feature of $31,776. The initial fair value of the derivative liability was determined using the Black-Scholes option pricing model with a quoted market price of $0.02, a conversion price of $0.0116, expected volatility of 205%, no expected dividends, an expected term of 0.27 years and a risk-free interest rate of 0.15%. The discount on the convertible loan was $32,500 which was recorded on January 31, 2013, all of which had been fully accreted by July 31, 2013.
On January 29, 2013, Asher converted $15,000 of July Note principal into 1,774,186 shares of common stock. The Company revalued the derivative liability as of that date and recorded a gain of $724. On February 6, 2013, Asher converted $15,000 of July Note principal into 1,875,000 shares of common stock. The Company revalued the derivative liability as of that date and recorded a loss of $16,444. On February 19, 2013, Asher converted $3,800 of July Note principal and $1,300 of interest into 426,966 shares of common stock. The Company revalued the derivative liability as of that date and recorded a loss of $8,934. The fair value of the derivative liability was determined using the Black-Scholes option pricing model with a quoted market price of $0.015-$0.045, a conversion price of $0.08-$0.0089, expected volatility of 204.78%-257.65%, no expected dividends, an expected term of 0.13-0.27 years and a risk-free interest rate of 0.15%-0.17%.
In the aggregate, the Company recorded a total loss of $24,654 on the conversion of the July Note payable to Asher which is included as part of Loss on Derivative in the statement of operations for the year ended July 31, 2013. As of January 31, 2014 no additional Loss on Derivative is recognized.
The November 19, 2012 Convertible Note
On November 19, 2012, the Company entered into a Securities Purchase Agreement with Asher. Pursuant to the Agreement, Asher Enterprises has agreed to purchase an 8% convertible note (the
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“November Note”) in the aggregate principal amount of $27,500, $25,000 was funded to the Company with the remaining $2,500 recorded as interest expense for financing costs charged by Asher’s legal counsel. This convertible note together with any unpaid accrued interest is convertible into shares of common stock at the holder’s option 180 days from inception at a variable conversion price calculated as 58% of the market price which means the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion date with no floor stated in the conversion feature. The convertible note, issued on November 19, 2012, is due on August 21, 2013 at an interest rate of 8% per annum. The Company paid the November Note in full in May 2013 before the completion of 180 days from the date of funding.
The April 10, 2013 Convertible Note
On April 10, 2013, the Company entered into a Securities Purchase Agreement with Asher. Pursuant to the Agreement, Asher Enterprises has agreed to purchase an 8% convertible note (the “April Note”) in the aggregate principal amount of $32,500, $30,000 was funded to the Company with the remaining $2,500 recorded as interest expense for financing costs charged by Asher’s legal counsel. This convertible note together with any unpaid accrued interest is convertible into shares of common stock at the holder’s option 180 days from inception at a variable conversion price calculated as 61% of the market price which means the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion date with no floor stated in the conversion feature. The convertible note, issued on April 16, 2013, is due on January 15, 2014 at an interest rate of 8% per annum.
In light of the fact that some of the debt would be converted before it was extinguished and that there would be a high prepayment penalty, the Company recorded the cost of the discount on conversion and the prepayment penalty at July 31, 2013, resulting in a liability of $58,064 and total related interest of $25,564.
On October 16, 2013, Asher converted $15,000 of the face amount of the April Note into 898,204 shares of common stock.
On October 28, 2013, the Company settled the amount due on the April Note in full for $31,118, which included all accrued interest and prepayment penalties, and as of January 31, 2014 there is no balance due.
NOTE 8 – STOCK AND WARRANT TRANSACTIONS
On July 19, 2010, the Company entered into a stock and warrant purchase agreement with Asia-Pacific Capital Ltd. pursuant to which the investor agreed to lend up to $4,000,000 to the Company in multiple installments in exchange for units of the Company at unit price. The unit price means a price equal to the higher of either $ 0.50, or 90% of the volume-weighted average of the closing price of common stock, for the five days immediately preceding the date of receipt of notice from the Company for the advance of funds from Asia-Pacific Capital Ltd. Each unit shall consist of one share (restricted) of the common stock of the Company and one and a half share purchase warrant. Each warrant shall entitle Asia-Pacific Capital Ltd. to purchase one
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additional share of common stock, at an exercise price equal to 125% of the unit price at which the unit containing the warrant being exercised was issued, for a period of three (3) years from the date such warrant is issued.
On March 8, 2011, the Company entered into a letter agreement to amend the share issuance agreement entered into with Asia-Pacific Capital Ltd. on July 19, 2010. Pursuant to the terms of the share issuance agreement Asia-Pacific agreed to advance $4,000,000 to the Company and had the option to advance a further $4,000,000 once the initial amount had been exhausted. Pursuant to the terms of the letter agreement amending the original share issuance agreement Asia-Pacific has now committed to providing the Company with a total of $8,000,000 in advances despite the fact that the initial $4,000,000 has not yet been fully advanced. As of January 31, 2014, the Company has issued a total of 3,871,835 shares to Asia-Pacific for a total cash amount of $1,055,000 under the terms of the above-mentioned agreement.
On September 27, 2011 the Company issued a total of 50,000 shares of common stock to Asia-Pacific for cash in the amount of $0.50 per share for a total of $25,000.
On November 23, 2011, the Company amended the share issuance agreement to modify the share issuance agreement originally entered into with Asia-Pacific Capital Ltd. on July 19, 2010. The parties have agreed to amend the pricing mechanisms (the “Unit Price”) within the original agreement. The definition of the Unit Price in the original agreement is deleted and replaced with “Unit Price means a price equal 95% of the volume weighted average of the closing price (the “VWAP”) of Common Stock for the ten (10) Banking Days immediately preceding the date of the Notice, as quoted on Google Finance or other source of stock quotes as agreed to by the parties, but at no time less than $0.05 per share”. Excluding the modifications to the Unit Price, the original agreement remains in full force and effect.
As of January 31, 2014 and as part of the agreement with its primary investor, Asia-Pacific Capital Ltd., the Company had issued 5,807,752 warrants in the prior periods. The warrants issued have an exercise price of $1.25 and are fully vested at the date of grant. As these warrants are so far out of the money no value was allocated to them. As of January 31, 2014 no warrants had been exercised.
On February 22, 2012, the Company entered into and closed a lease assignment agreement with Langold Enterprises Limited pertaining to certain interests in oil and gas properties in Bastrop, Caldwell and Eastland Counties, Texas. In consideration for the above leases the Company issued 24,155,435 restricted shares of its common stock to Langold, a non-US shareholder. The restricted shares issued and the leasehold costs were each recorded at the price paid by Langold on their original three year lease acquisition from the land owners. That price paid was $20,000 cash plus 1,800,000 shares of restricted Liberty Energy stock which was valued at $243,932 for a total consideration of $263,932.
On May 23, 2012, the Company entered into the May Note (see Note 7) with face amount of the May Note together with any unpaid accrued interest being convertible into shares of common stock at the holder’s option 180 days from inception at a variable conversion price calculated as 58% of the market price which means the average of the lowest three trading prices during the
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ten trading day period ending on the latest complete trading day prior to the conversion date with no floor stated in the conversion feature. The convertible note, issued on May 23, 2012, was due on February 25, 2013 at an interest rate of 8% per annum. During the 2
nd
Quarter of 2013, Asher converted $42,500 of the face amount of the May Note together with the interest of $1,700. On December 11, 2012, Asher converted $12,000 of the face amount of the May Note. On January 7, 2013, Asher converted the remaining $15,500 face amount of the May Note together with $1,700 accrued interest. In the aggregate, the Company recorded a total loss of $4,320 on the conversion of the May Note, which was included as part of Loss on Derivative in the statement of operations for the year ended July 31, 2013. As of January 31, 2014 no additional Loss on Derivative is recognized.
On July 12, 2012, the Company entered into the July Note. The face amount of the July Note together with any unpaid accrued interest was convertible into shares of common stock at the holder’s option 180 days from inception at a variable conversion price calculated as 58% of the market price which means the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion date with no floor stated in the conversion feature. The convertible note, issued on July 12, 2012, was due on February 25, 2013 at an interest rate of 8% per annum. On January 29, 2013, Asher converted $15,000 of the face amount of the July Note. On February 6, 2013, Asher converted $15,000 of face amount of the July Note. On February 19, 2013, Asher converted $3,800 of face amount of the July Note and $1,300 of interest. In aggregate, the Company recorded a total loss of $24,654 on the conversion of the July Note which was included as part of Loss on Derivative in the statement of operations for the year ended July 31, 2013. As of January 31, 2014 no additional Loss on Derivative is recognized.
On September 1, 2012, we issued 25,000 shares of common stock for the services provided for the three month quarter ended October 31, 2012. The Company recorded the shares at the market price on the issue date of $0.06 for a total consulting expense of $1,500.
On November 19, 2012, the Company entered into the November Note. The face amount of the November Note together with any unpaid accrued interest was convertible into shares of common stock at the holder’s option 180 days from inception at a variable conversion price calculated as 58% of the market price which means the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion date with no floor stated in the conversion feature. The November Note was issued on November 19, 2012, was due on August 21, 2013 at an interest rate of 8% per annum. The Company repaid the November Note in May 2013 before the completion of 180 days from the date of funding.
On April 10, 2013, the Company entered into the April Note. The face amount of the April Note, together with any unpaid accrued interest was convertible into shares of common stock at the holder’s option 180 days from inception at a variable conversion price calculated as 61% of the market price which means the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion date with no floor stated in the conversion feature. The April Note, issued on April 16, 2013, was due on January 15, 2014 at an interest rate of 8% per annum. On October 16, 2013, Asher converted $15,000 of
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the face amount of the April Note. On October 28, 2013, the Company settled the note in full for $31,118, which included all accrued interest and prepayment penalties.
On April 11, 2013, the Company entered into a stock purchase agreement with Petro Fund 1 (“PF1”), a Houston, Texas-based upstream oil and gas fund, pursuant to which the investor agreed to advance up to $3,650,000 to the Company in multiple installments in exchange for units of the Company at unit price. The unit price means a price equal to the higher of either $0.05, or 95% of the volume-weighted average of the closing price of common stock, for the 10 days immediately preceding the date of receipt of notice from the Company for the advance of funds from the investor. Each unit shall consist of one share (restricted) of the common stock of the Company. The Company shall use up to $150,000 of Advances to extinguish existing debts, fund operating expenses, working capital and general corporate activities. Subject to the foregoing, the Company may use any balance of the Advances up to $3,500,000 to fund mergers and acquisitions (including related legal and, accounting expenses) or the purchase of capital assets, with any such Advances to be approved by PF1. All advances made shall be converted into shares.
The Company agreed to issue Petro Fund 548,921 shares of common stock for $43,000 in cash on May 23, 2013. The Company received the cash on May 24, 2013. The Company received an additional $41,118 in advances from PF1 in relation to this stock purchase agreement during the quarter ended October 31, 2013. The Company used these advances to settle the remaining April Note with Asher and to pay off certain payables. The Company had not issued any shares to PF1 for any of the advances received as of December 16, 2013, and the advances have been recorded as additional paid in capital. Please refer to Note10 for additional advances made subsequent to January 31, 2014.
On July 31, 2013, the day of their resignation, the Company issued the former officers 2,000,000 shares of common stock, which it valued at $110,000. As part of the separation agreement, the Company accelerated the 500,000 shares that each were to have earned over the first six months (including 150,000 that each had not yet earned) and further awarded each an additional 500,000 shares when they left the Company.
Armando Buchanan became Chief Financial Officer of the Company on November 7, 2013, pursuant to an agreement whereby he will earn an aggregate of 1,000,000 shares of Company stock over the following twelve months as compensation.
Richard Steve Williamson became Chief Operating Officer of the Company on October 21, 2013, pursuant to an agreement whereby he will earn an aggregate of 1,000,000 shares of Company stock over the following twelve months as compensation.
NOTE 9 – COMMITMENT AND CONTINGENCY
On November 22, 2013, the Company entered into a Letter of Intent with Harmel Estate # 3 LLC to acquire certain producing oil and gas leases in Archer County, Texas. The leases cover 140 Acres with 21 oil wells and 2 injection wells. The lease has current production of approximately 8-10 Barrels of Per Day (BOPD) from currently producing wells. The wells are currently
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producing from 1,400-1,500 foot pay zones and new logs show potential additional zones up hole. This lease has rights to all depths which include Cisco, Thomas, Gunsight Sands, Milham Sands and KMA Sands. The lease currently has a 100% Working Interest and 80% Net Revenue Interest. The Letter of Intent calls for a purchase price of $100,000 cash plus $300,000 worth of restricted Company stock. The sellers will retain a minority carried interest in workover and infill drilling wells subject to a Before Pay Out return to Liberty of 125% of capital invested. The transaction is subject to Company due diligence, the negotiation of definitive agreements and raising the required funding. As of January 31, 2014, the agreement was not finalized.
NOTE 10 – SUBSEQUENT EVENTS
The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The management of the Company determined that the following were certain reportable subsequent events to be disclosed as follows:
Subsequent to January 31, 2014 and up to date of filing of this financial statements, the Company received an additional $5,000 in advances from PF1 as per the stock purchase agreement entered into on April 11, 2013 and as detailed in Note 8.
On March 5, 2014, the Company filed Schedule 14C with the SEC to seek for the approval to increase the number of shares of stock authorized by the Company from 150,000,000 shares to 160,000,000 shares, comprising 150,000,000 shares of common stock with a par value $0.001 and 10,000,000 shares of Preferred Stock with a par value $0.001.
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