UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

For the transition period from ____________ to____________

Commission File No. 000-51033

MONDIAL VENTURES, INC.

(Exact name of Registrant as specified in its charter)

6564 Smoke Tree Lane

 (Address of Principal Executive Offices)

 

 (Registrant’s Telephone Number)

 

(Former name, former address and former fiscal year, if changed since last report)

 

 

MONDIAL VENTURES, INC.

June 30, 20132014

TABLE OF CONTENTS

 

 

 

MONDIAL VENTURES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE SIX AND THREE MONTHS ENDED MARCH 31,JUNE 30, 2014 AND MARCH 31,JUNE 30, 2013

(UNAUDITED)

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

FOR THE THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2014

(UNAUDITED)

 

 

Mondial Ventures, Inc

 Notes to the Unaudited Consolidated Financial Statements

For the three months ended March 31,June 30, 2014 and March 31,June  30, 2013

The Company was incorporated in the state of Nevada May 29, 2002 as Mondial Ventures, Inc.

In December 2003, the Company owned a 100% interest, subject to a 2% net smelter returns royalty, in four mineral claims located in the Namaimo Mining Division of British Columbia.

Effective December 1, 2010, the Company increased its authorized common shares to 250,000,000 with a par value of $0.001, and authorized shares of blank check preferred stock, par value $0.001 per share.

On December 15, 2010 the claims related to the 100% interest owned in the British Columbia mineral claims expired.

On December 30, 2010, the Company completed a merger with Legacy Athletic Apparel, LLC, a Virginia limited liability company (Legacy) in a Merger Agreement dated December 14, 2010, by and between the Company and Legacy.  Pursuant to the Plan of Merger, Legacy merged into the Company, with the Company being the surviving entity (“the Merger”).  The transaction was accounted for using the purchase method of accounting.

On July 31, 2012, the Company purchased oil and gas assets and interests in the J.B. Tubb Leasehold Estate from EGPI Firecreek, Inc. The Company issued 14,000,000 shares of common stock to EGPI Firecreek, Inc. and the assumption of debt for 37.5% working interest and corresponding 28.125% net revenue interest in the oil and gas interests and pro rata oil and gas revenue and reserves in the North 40 plus additional right agreement for the South 40 of the J.B. Tubb Leasehold Estate, and for all depths below the surface to 8,500 ft. Also included are all related assets, fixtures, equipment, three well heads and three well bores.

On October 30, 2012 the Company entered into a Definitive Short Form Agreement with EGPI Firecreek, Inc. for development of 240 acre leases, reserves, three wells and equipment located in Callahan, Steven and Shackelford Counties, West Central Texas, which includes but is not limited to continuing negotiations to buy out 50% partner interests, due diligence, evaluation and preparation including an initial 3-D Seismic study reserve studies and roll over leases if necessary.  The agreement is non-binding and the parties intend to finalize the agreement by executing a Definitive Long Form Agreement in the future.  The parties had until November 6, 2012 to finalize this agreement but did not do so by that date.  Both parties are still interested in pursuing this transaction in the future.

Effective August 21, 2013, the Company increased its authorized common shares to 490,000,000 with a par value of $0.001, and with its current 10,000,000 authorized shares of blank check preferred stock, par value $0.001 per share.

Effective October 2, 2013, the Company increased its authorized common shares to 1,490,000,000 with a par value of $0.001, and with its current 10,000,000 authorized shares of blank check preferred stock, par value $0.001 per share.

Effective on January 31, 2014, the Company effected a one (1) for fifteen hundred (1,500) reverse stock split whereby, as of the record date, for every fifteen hundred shares of common stock then owned, each shareholder received one share of common stock.  All share amounts throughout this report have been retroactively adjusted for all periods to reflect this stock-split.

On January 27, 2014, the Company executed an Omnibus Agreement with EGPI, TWL Investments aLLC (“TWL”), and Thomas J. Richards (“TJR”) whereby EGPI delivered an Assignment and Bill of Sale (the “Assignment and Bill of Sale Agreement”) for transfer of i) an additional 12.5% Working Interest and corresponding 9.375% Net Revenue Interest in the North 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field and oil and gas interests, including all related assets, fixtures, equipment, three well heads, three well bores, and pro rata oil & gas revenue and reserves for all depths below the surface to at least 8500 ft. ii) 12.5% Working Interest and 9.375% corresponding Net Revenue Interest in the Highland Production Company No. 2 well-bore located in the South 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field, oil and gas interests, pro rata oil & gas revenues and reserves with depth of ownership 4700 ft. to 4900 ft in well bore and 3800 ft. to 4000 ft in well bore, and iii) interest in the Participation Agreement (Turnkey Drilling, Re Entry, and Multiple Wells) granting certain rights in and to interests for additional development in the J.B. Tubb Leasehold Estate.  In consideration for the additional working interest, the Company assumed $550,000 debt from EGPI.  The Assignment and Bill of Sale was retroactively effective on January 1, 2014.

Effective on January 1, 2014, the Company delivered an Assignment and Bill of Sale agreement to Shale Corp. for transfer of its entire 50% of working interest and corresponding 37.50% net revenue interest in the North 40 acres of the J.B. Tubb Leasehold Estate.  In consideration, the Company received cash payment, liabilities to be assumed by Shale corp., and 47 million of Shale Corp's common stock.  Based on the 47 million common stock ownership, the Company became 67.14% owner of Shale Corp.

On March 25, 2014, Boomerang Oil, Inc. (formerly 0922327 B.C. Ltd.) entered into acquisition agreement with Shale Corp to acquire all issued and outstanding Shale Corp shares.  Pursuant to the acquisition agreement, Boomerang issued 70,000,000 of its common stock to acquire all of Shale Corp's issued and outstanding shares on a 1 to 1 basis.  Subsequent to the share exchange, Shale Corp became Boomerang's wholly owned subsidiary.  Immediately after the share exchange, Shale Corp amalgamated with Boomerang's wholly owned subsidiary 2301840 Ontario, Inc. to form a new subsidiary subsequently named as 1913564 Ontario, Inc.  As a result of the share exchange, the Company, which owned 47 million of Shale Corp immediately prior to the share exchanges, became 66.17% owner of the consolidated entity of Boomerang Oil, Inc. and 1913564 Ontario, Inc.

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make reasonable estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses at the date of the consolidated financial statements and for the period they include. Actual results may differ from these estimates.

Oil and Gas: Revenue is recognized from oil and gas sales in the period of delivery.  Settlement on sales occurs anywhere from two weeks to two months after the delivery date. The Company recognizes revenue when an arrangement exists, the product has been delivered, the sales price has been fixed or determinable, and collectability is reasonably assured.

The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents.  There were no cash equivalents as of March 31,June 30, 2014 or December 31, 2013.  The Company had cash balance of $78,264$8,559 and $3,508 as of March 31,June 30, 2014 and December 31, 2013, respectively.

The Company uses the successful efforts method of accounting for oil and gas producing activities.  Under this method, acquisition costs for proved and unproved properties are capitalized when incurred.  Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs are expensed.  Development costs, including the costs to drill and equip developmental wells, and successful exploratory drilling costs to locate proved reserves are capitalized.

Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. A determination of whether a well has found proved reserves is made shortly after drilling is completed. The determination is based on a process which relies on interpretations of available geologic, geophysics, and engineering data.  If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made.  If an exploratory well requires a major capital expenditure before production can begin, the cost of drilling the exploratory well will continue to be carried as an asset pending determination of whether proved reserves have been found only as long as: i) the well has found a sufficient quantity  of reserves to justify its completion as a producing well if the required capital expenditure is made, and: ii) drilling of the additional exploratory well is under way or firmly planned for the near future.  If drilling in the area is not under way or firmly planned, or if the well has not found a commercially producible quantity of reserves, the exploratory well is assumed to be impaired, and its costs are charged to expense.

In the absence of a determination as to whether the reserves that have been found can be classified as proved, the cost of drilling such an exploratory well is not carried as an asset for more than one year following completion of drilling.  If after that year is passed, a determination that proved reserves exist cannot be made, the well is assumed impaired and it’sits costs are charged to expense.  Its costs can, however, continue to be capitalized if a sufficient quantity of reserves is discovered in the well to justify its completion as a producing well and sufficient progress is made in assessing the reserves and the well’s economic and operating feasibility.

The impairment of unamortized capital costs is measured at a lease level and is reduced to fair value if it is determined that the sum of expected future net cash flows is less than the net book value. The Company determines if impairment has occurred through either adverse changes or as a result of the annual review of all fields. During 2013 after conducting an impairment analysis, the Company recorded an impairment of $84,778.

 

Development costs of proved oil and gas properties, including estimated dismantlement, restoration and abandonment costs and acquisition costs, are depreciated and depleted on a field basis by the units-of-production method using proved developed and proved reserves, respectively. The costs of unproved oil and gas properties are generally combined and impaired over a period that is based on the average holding period for such properties and the Company’s experience of successful drilling.

Costs of retired, sold or abandoned properties that make up a part of an amortization base (partial field) are charged to accumulated depreciation, depletion and amortization if the units-of-production rate is not significantly affected. Accordingly, a gain or loss, if any, is recognized only when a group of proved properties (entire field) that make up the amortization base has been retired, abandoned or sold.

 

The Company estimates the fair value of share-based payment awards made to employees and directors, including stock options, restricted stock and employee stock purchases related to employee stock purchase plans, on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense ratably over the requisite service periods. We estimate the fair value of each share-based award using the Black-Sholes option pricing model. The Black-Sholes model is highly complex and dependent on key estimates by management. The estimates with the greatest degree of subjective judgment are the estimated lives of the stock-based awards and the estimated volatility of our stock price. The Black-Sholes model is also used for our valuation of warrants.

 

Basic earnings per common share are calculated based upon the weighted average number of common shares outstanding for the period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and dilutive common share equivalents (convertible notes and interest on the notes, stock awards and stock options) outstanding during the period. Dilutive earnings per common share reflect the potential dilution that could occur if options to purchase common stock were exercised for shares of common stock. Basic and diluted EPS are the same as the effect of our potential common stock equivalents would be anti-dilutive.

On January 1, 2008, the Company adopted guidance which defines fair value, establishes a framework for using fair value to measure financial assets and liabilities on a recurring basis, and expands disclosures about fair value measurements. Beginning on January 1, 2009, the Company also applied the guidance to non-financial assets and liabilities measured at fair value on a non-recurring basis, which includes goodwill and intangible assets. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

 

Level 1 – Valuation is based upon unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.

 

Level 2 –Valuation is based upon quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable in the market.

Level 3 – Valuation is based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the inputs that market participants would use.

 

The following table presents assets and liabilities that are measured and recognized at fair value as of March 31,June  30, 2014 on a recurring and non-recurring basis:

 

The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2013 on a recurring and non-recurring basis:

 

 

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and long-term debt. The estimated fair value of cash, accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments. The carrying value of long-term debt also approximates fair value since their terms are similar to those in the lending market for comparable loans with comparable risks. None of these instruments are held for trading purposes.

Fixed assets are stated at cost. Depreciation expense is computed using the straight-line method over the estimated useful life of the asset. The following is a summary of the estimated useful lives used in computing depreciation expense:

 

 

Expenditures for major repairs and renewals that extend the useful life of the asset are capitalized. Minor repair expenditures are charged to expense as incurred.

 

The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires that those assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.

The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The Company’s evaluation of goodwill completed at December 31, 2012 pertaining to Legacy resulted in a full impairment. This impairment was recorded as an impairment expense of $104,272.

As of March 31,June 30, 2014 the Company had no amortizable intangible assets.

The Company accounts for income taxes using the asset and liability method, which requires the establishment of deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent deferred tax assets may not be recoverable after consideration of the future reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income.

 

The Company uses a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance requires the Company to recognize tax benefits only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in our tax returns that do not meet these recognition and measurement standards.

The functional currency of the Company’s majority owned subsidiary is the Canadian dollar and these financial statements have been translated into U.S. dollars in accordance with standards issued by the FASB. The Canadian dollar based accounts of the Company’s foreign operations have been translated into United States dollars using the current rate method. Assets and liabilities of those operations are translated into U.S. dollars using exchange rates as of the balance sheet date; income and expenses are translated using the weighted average exchange rates for the reporting period. Translation adjustments are recorded as accumulated other comprehensive income (loss), a separate component of shareholders’ equity.

In July 2013, FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss, or a Tax Credit Carryforward Exists.” The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

 

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.

 

The accompanying consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying consolidated financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company has experienced substantial losses, maintains a negative working capital and capital deficits, which raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company is working to manage its current liabilities while it continues to make changes in operations to improve its cash flow and liquidity position. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon the Company’s ability to generate revenue from the sale of its services and the cooperation of the Company’s note holders to assist with obtaining working capital to meet operating costs in addition to our ability to raise funds.

During the quartersix months ended March 31,June 30, 2014, the Company issued 10,425,000 shares of common stock for services that were expensed and valued at $2,037,413 based upon the closing price of the common stock at the date of grant and reflecting the 1:1,500 reverse stock split.

During the quartersix months ended March 31,June 30, 2014, the Company issued 2,073,29360,655,229 shares of common stock valued at $504,032$603,925 for conversion or settlement of debt in the amount of $138,455,$194,045, resulting in a loss on debt settlement of $365,577.$409,700.  A portion of these shares, $108,271, remains unissued as of June 30, 2014.  All shares issued were valued based upon the closing price of the Company’s common stock at the date of the debt settled.  For all debts that were converted within the terms of the related promissory notes, no gain or loss was recorded.  Any debts converted outside of the terms resulted in a gain or loss based on the fair value of the stock on the date of conversion.

During the quartersix months ended March 31,June 30, 2014, the Company and one of its debt holders agreedagree to rescind a conversion of convertible debt executed during fiscal year 2013.  Common stock of 6,667 was rescinded and debt in the amount of $12,500 was reinstated as of March 31, 2014.  An additional 68 shares were cancelled by a shareholder due to the fact that they were issued in error.

During the quartersix months ended March 31,June 30, 2014, the Company issued 507 fractional shares in relation to the reverse stock split effective on January 31, 2014.  These fractional shares have no value.

Series C preferred stock: The Preferred C stock has a par value of $0.001 and no stated dividend rate and is non-participatory. The Series C (i) has voting rights for each share of Series C Preferred Stock shall have 31,500 votes on the election of directors of the Company and for all other purposes, and (ii) has no right to convert to common shares of the Company.

During the quartersix months ended March 31,June 30, 2014, the Company issued 100,000 Series C preferred stock for services rendered.  The value assigned to this issuance is $22,000 based on an estimate of the fair market value on the issuance date. The holders of Series C preferred stock represent a controlling voting interest in the Company. As a result, a determination of the control premium was determined to estimate the value of the shares. The control premium is based on publicly traded companies or comparable entities which have been recently acquired in arm’s length transactions. The Company performed the valuation with the assistance of a valuations expert.

 

 

The following is a detailed list of fixed assets:

 

 

Depreciation expense was $3,778$7,555 and $2,024$4,048 for the quartersix months ended March 31,June 30, 2014 and 2013, respectively.

 

 

 

 Depletion expense was $2,363$4,217 and $30,068$84,009 for the quartersix months ended March 31,June  30, 2014 and 2013, respectively.

 

On  July 31, 2012 the Company, acquired assets of  Energy Producers, Inc., a wholly owned subsidiary of EGPI Firecreek, Inc., (“EPI”)  as described in the preliminary Assignment and Bill of Sale and summarily as follows: Under the terms of the agreement, which shall be effective  July 31, 2012, the Company acquired a  37.5% Working Interest and 28.125% corresponding Net Revenue Interest in the North 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field and oil and gas interests, including all related assets, fixtures, equipment, three well heads, three well bores, and pro rata oil & gas revenue and reserves for all depths below the surface to 8500 ft. The field is located in the Permian Basin and the Crawar Field in Ward County, Texas (12 miles west of Monahans & 30 miles west of Odessa in West Texas). Included in the transaction, the Company will also acquire 37.5% Working Interest and 28.125% corresponding Net Revenue Interest in the Highland Production Company No. 2 well-bore located in the South 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field, oil and gas interests, pro rata oil & gas revenues and reserves with depth of ownership 4700 ft. to 4900 ft. As consideration for the transaction the Company agreed to authorize, issue and sell to EGPI Firecreek, Inc. 14,000,000 shares of common stock, and assumption of $450,000 in related debt.

On January 27, 2014, the Company executed an Omnibus Agreement with EGPI, TWL Investments aLLC (“TWL”), and Thomas J. Richards (“TJR”) whereby EGPI delivered an Assignment and Bill of Sale (the “Assignment and Bill of Sale Agreement”) for transfer of i) an additional 12.5% Working Interest and corresponding 9.375% Net Revenue Interest in the North 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field and oil and gas interests, including all related assets, fixtures, equipment, three well heads, three well bores, and pro rata oil & gas revenue and reserves for all depths below the surface to at least 8500 ft. ii) 12.5% Working Interest and 9.375% corresponding Net Revenue Interest in the Highland Production Company No. 2 well-bore located in the South 40 acres of the J.B. Tubb Leasehold Estate/Amoco Crawar field, oil and gas interests, pro rata oil & gas revenues and reserves with depth of ownership 4700 ft. to 4900 ft in well bore and 3800 ft. to 4000 ft in well bore, and iii) interest in the Participation Agreement (Turnkey Drilling, Re Entry, and Multiple Wells) granting certain rights in and to interests for additional development in the J.B. Tubb Leasehold Estate.  In consideration for the additional working interest, the Company assumed $550,000 debt from EGPI.  As the net carrying value of the additional working interest was lessgreater than debt assumed, the Company recorded lossan increase in additional paid in capital of $267,256$282,743 on the acquisition.  The Assignment and Bill of Sale was retroactively effective on January 1, 2014.

The acquired leases and the property to which they relate are identified below:

 

North 40 acres: J.B. TUBB “18-1”, being the W1/2 of the NW1/4 of Section 18, Block B-20, Public School Lands, Ward County, Texas, containing Forty (North 40) acres only (also listed as Exhibit “A” to Exhibit 10.1 in our Current Report on Form 8-K filed on March 7, 2011, incorporated herein by reference.

 

Well-bore located on South 40 acres: The Highland Production Company (Crawar) #2 well-bore, API No. 42-475-33611, located on the J.B. Tubb Lease in W ½ of the NW ¼ of Sec. 18, Block B-20, Public School Lands, Ward County, Texas at 1787 FNL and 853 FWL being on the South Forty (40) acres of the J. B. Tubb Lease, Ward County, Texas.

 

The following wells are located on the leases identified, above:

 

 

Listing for the Equipment items related to the wells on the leases on the J.B. Tubb Leasehold Estate (RRC #33611) Amoco/ Crawar field are as follows:

 

Due to the fact that EGPI Firecreek, Inc. and Mondial Ventures, Inc. are considered related parties, the acquired assets were recorded at historical cost in the financial statements with no step up in basis.  On July 31, 2012, the total gross cost of oil and gas properties recorded on the date of the acquisition was $1,109,572, as well as an accumulated depletion of $98,230, and the gross cost of $56,663 with an accumulated depreciation of $16,055.  The consideration given consisted of 14,000,000 shares of common stock valued at $595,684 and assumed debt of $450,000.  On January 1, 2014, the total gross cost of the additional 12.5% working interest of oil and gas properties was $290,778 with an accumulated depletion of $14,193, and the gross cost of additional fixed assets acquired discussed in Note 6, was $18,888 with an accumulated depreciation of $10,703.  In consideration for the additional working interest, the Company assumed $550,000 debt from EGPI.  As the net carrying value of the additional working interest was lessgreater than debt assumed, the Company recorded lossan increase in additional paid in capital of $267,256$282,743 on the acquisition.

Effective on January 1, 2014, the Company delivered an Assignment and Bill of Sale agreement to Shale Corp. for transfer of its entire 50% of working interest and corresponding 37.50% net revenue interest in the North 40 acres of the J.B. Tubb Leasehold Estate, discussed in Note 7.  In consideration, the Company received $42,703 cash payment, $400,000 outstanding debt to be assumed by Shale corp., and 47 million of Shale Corp's common stock.stock, subject to terms of an Amalgamation Agreement dated March 25, 2014.  Based on the 47 million common stock ownership, the Company became 67.14% owner of Shale Corp, and reported the net value of the oil and gas properties and fixed assets in the consolidated financial statements with non-controlling interest in the Shale Corp.  At the time of the transaction, Shale Corp. consisted of only $141,470 in cash and had no operating activities.  Non-controlling interest of $263,001 and loss of $165,233 were recorded for this transaction.

 

 

Deferred income tax assets and liabilities consist of the following at March 31,June  30, 2014 and December 31, 2013:

 

 

The Company estimates that it has an NOL carry forward of approximately $1,209,385$2,796,966 that begins to expire in 2024.

 

After evaluating any potential tax consequence from our former subsidiary and our own potential tax uncertainties, the Company has determined that there are no material uncertain tax positions that have a greater than 50% likelihood of reversal if the Company were to be audited. The Company believes that it is current with all payroll and other statutory taxes. Our tax return for the years ended December 31, 2010 to December 31, 2013 may be subject to IRS audit.

Through December 31, 2012 the CEO of Mondial Ventures, Inc provided office space for the Company’s Scottsdale office free of charge.  As of January 1, 2013, a lease was signed for the same premises at a monthly rate of $2,000.  Accrued rent due on this contract was $10,845$13,945 and $8,105 as of March 31,June 30, 2014 and December 31, 2013, respectively.

The Company has a service agreement with Global Media Network USA, Inc. a company 100% owned by Dennis Alexander, to provide the services of Dennis Alexander to the Company at a monthly rate of $5,000.   The monthly rate was increased to $10,000 as of October 1, 2013. Balance due on this contract was $nil and $1,800 as of March 31,June 30, 2014 and December 31, 2013, respectively.

The Company’s majority owned subsidiary Boomerang Oil, Inc. has a service agreement with Global Media Network USA, Inc. a company 100% owned by Dennis Alexander, to provide the services of Dennis Alexander to the Company at a monthly rate of $10,000 effective in March 2014.  Balance due on this contract was $10,000$40,000 and $nil as of March 31,June 30, 2014 and December 31, 2013, respectively.

The Company has a service agreement with Joanne M. Sylvanus, Accountant, a company owned 100% by Joanne M, Sylvanus, to provide her services to the Company at a rate of $3,000 per month.  Balance due on this contract was $nil$3,000 and $6,000 as of March 31,June 30, 2014 and December 31, 2013, respectively.

The Company’s majority owned subsidiary Boomerang Oil, Inc. has a service agreement with Joanne M. Sylvanus, Accountant, a company owned 100% by Joanne M, Sylvanus, to provide her services to the Company at a rate of $4,000 per month.  Balance due on this contract was $4,000$16,000 and $nil as of March 31,June 30, 2014 and December 31, 2013, respectively.

As December 31, 2013, the Company’s CEO, Dennis Alexander, paid $53 on behalf of the Company for business related expenses.  The balance remained outstanding as of March 31,June 30, 2014.

On November 20, 2013, the Company received cash proceeds of $15,000 from related party for debt obligation which bears interest at the rate of 6%.  A debt discount of $7,424 was recorded due to embedded derivative feature in the convertible promissory note. This note is convertible into a number of shares by dividing the principal and interest owed by 50% of the average lowest three day trading prices over the 10 trading days prior to the conversion date.  Financing costs of $10,000 were paid in conjunction with this debt.  For the quarter ended March 31, 2014, the Company recorded debt discount amortization of $3,699 and amortization of deferred financing cost of $2,500. No payments were made during the quarter ended March 31,June 30, 2014, and there was $326 in accrued interest on the note.

As discussed in Note 7, EGPI Firecreek, Inc. sold a 37.5% working interest to the Company in the J.B. Tubb Leasehold Estate/Amoco Crawar Field on July 31, 2012, and sold an additional 12.5% working interest in the same properties on January 1, 2014.  The assets were recorded by the Company at historical cost and there was no step up in basis.

 

At March 31,June 30, 2014 the Company was liable on the following Promissory notes

 

 

*compounded monthly

 

Note 1:  The Company entered into two note agreements with an unrelated third party for the amount of $20,000 and $25,000 during fiscal year 2011.  During the year ended December 31, 2013, the Company entered into an agreement with the note holder to settle one of the note agreements in the amount of $25,000 with Company’s common shares.  As of December 31, 2013 the promissory note of $20,000, bearing interest at 24% annually remained outstanding.   No payment was made for this note during the period and there was $15,942 in accrued interest on the note.  The note is atin default as of March 31,June 30, 2014.

Note 2:  Promissory note in the amount of $175,000 was outstanding as of December 31, 2013, bearing interest 24% annually.  During the quarter ended March 31, 2014 the Company had settled $99,750 of the outstanding balance with issuance of 950,000 of Company’s common shares.  The common shares were valued as of settlement date in the amount of $141,835.  The Company recorded loss of $42,085 on the conversion. Debttotal amount of $75,250 and accrued interest of $129,920 wasis outstanding as of March 31,June 30, 2014.  The note is atin default as of March 31,June 30, 2014.

Note 3:   The Company entered into a promissory note agreement in the amount of $450,000 in 2012.   On March 29, 2013, the Company entered into an agreement with the note holder to pay $300,000 of the note with 2,857,152 shares of common stock.  On May 20, 2013, May 30, 2013, August 29, 2013 and December 3, 2013 note holder entered into debt assignment agreements to assign $30,000, $120,000, $42,000 and 21,000 interests to unrelated third parties respectively.   On September 3, 2013, the note holder paid $5,250 on behalf of the Company for business related expenses.  On December 3, 2013, the Company assumed an additional $86,000 of debt in relation to an amendment agreement related to acquisition of the Tubb leases in July 2012.   During the quarter ended March 31, 2014, the debt holder advanced $8,000 to the Company for daily operation.  On January 2, 2014 and March 17, 2014, debt holder assigned $20,000 and $7,500 to unrelated third parties respectively.  As of March 31, 2014 unpaid compounded interest in the amount of $4,536 was reclassified from accrued interest to note payable due to note holder.  The note is due on demand as of March 31, 2014.June 30, 2014 and the total balance is $95,733, which includes several debt repayments, debt assignments to third parties, and additional increases to the note.  During the six months period ended June 30, 2014, $54,000 was loaned under the terms of this note.

Note 4:   On March 17, 2014, the Company received cash proceeds of $10,000 for this debt obligation which bears interest at the rate of 10% and included financing cost of $1,500.  This note is convertible into a number of shares by dividing the principal and interest owed by 50% of the average lowest 3 trading prices over the 30 days prior to the conversion date.    A debt discount was recorded for $10,000 based on the fact that there was an embedded derivative features in the note.  The debt discount and financing cost are amortized over the life of the note.  AmortizationThe balance of debt discount of $384 and deferred financing cost of $58 were recorded for the three months ended March 31, 2014.  Accrued interest of $38 was outstandingthis note as of March 31, 2014.    June 30, 2014 was $10,000.

Note 5:    During fiscal year 2012 Company entered into a non interest bearing note in the amount of $100,000 with 10% interest expenses embedded in the note amount, and default interest rate of $24%.  No payment was made to this note during the quarter ended March 31, 2014.  Interest debt discount was fully amortized as of December 31, 2013.  On April 1, 2013, the Company entered into a second note agreement with the same party in the amount of $22,000 with the same terms.  No payments were made during the quartersix months ended March 31,June 30, 2014.  Interest discount is being amortized over the life of the note.   Debt discount amortization for the quarter ended March 31, 2014 was $490 for this note.  Both notes were at default as of March 31,June 30, 2014.

Note 6:   On January 2, 2014, the Company received cash proceeds of $12,500 for this debt obligation which bears interest at the rate of 10% and included financing cost of $2,500.  This note is convertible into a number of shares by dividing the principal and interest owed by 50% of the average lowest 3 trading prices over the 30 days prior to the conversion date.    A debt discount was recorded for $12,500 based on the fact that there was an embedded derivative features in the note.  The debt discount and financing cost are amortized over the life of the note.  Amortization of debt discount of $3,014 and deferred financing cost of $603 were recorded for the three months ended March 31, 2014.  Accrued interest of $298 was outstandingThe balance remaining on this note as of March 31, 2014.June 30, 2014 is $12,500.

Note 7:   The Company had a debt obligation which bears interest at the rate of 12%.  During the year ended December 31, 2013, the Company settled $17,130 in debt for common stock, yielding a balance of $17,870 and accrued interest of $2,725 at the end of the period.  This note is convertible into a number of shares by dividing the principal and interest owed by 30% of the average lowest trading prices over the 15 days prior to the conversion date.  During the quartersix months ended March 31,June 30, 2014, no payment was made to the notes.  Amortization of debt discount of $539The balance was recorded for the quarter ended March 31, 2014.  Accrued interest of $3,261 was outstanding$17,870 as of March 31,June 30, 2014.   The note was at default as of March 31,June 30, 2014.

Note 8:   On March 17, 2014, one of the note holders assigned debt in the amount of $7,500 to unrelated third party, and Company issued a convertible promissory note to this unrelated party for the debt assigned with 10% annual interest. This note is convertible into a number of shares at a discount of 65% of the lowest intra-day trading price during the five trading days immediately prior to conversion date.  The Company evaluated the note and determined that the shares issuable pursuant to the conversion option were indeterminate and therefore this conversion option and all other dilutive securities would be classified as a derivative liability as of March 17, 2014.  A debt discount of $7,500 was recorded due to embedded derivative feature in the convertible promissory note, and a loss on derivative valuation of $11,173 was recorded on issuance date of the note.   The debt discount was amortized over the life of the debt.  The Company recorded debt discount amortizationbalance of $288 for the quarter ended March 31, 2014.  Accrued interest of $29 was outstandingnote as of March 31, 2014.June 30, 2014 is $7,500.

 

Note 9:   On January 2, 2014, one of the note holders assigned debt in the amount of $20,000 to unrelated third party, and Company issued a convertible promissory note to this unrelated party for the debt assigned with 10% annual interest. This note is convertible into a number of shares at a discount of 65% of the lowest intra-day trading price during the five trading days immediately prior to conversion date.  The Company evaluated the note and determined that the shares issuable pursuant to the conversion option were indeterminate and therefore this conversion option and all other dilutive securities would be classified as a derivative liability as of January 2, 2014.  A debt discount of $20,000 was recorded due to embedded derivative feature in the convertible promissory note, and a loss on derivative valuation of $24,989 was recorded on issuance date of the note.   The debt discount was amortized over the life of the debt.  During the quarter ended March 31,As of June 30, 2014, the Company issued 133,333 shares to settle $5,000 of outstanding balance, yielding balance of $15,000 due as of March 31, 2014.  The shares were valued per conversion term and market price on conversion date.  The Company recorded loss of $13,351 on the conversions.  The Company recorded debt discount amortization of $24,822 for the quarter ended March 31, 2014.  Accrued interest of $494 was outstanding as of March 31, 2014.note is $11,100.

Note 10:   As of March 31,June 30, 2014 the Company had a debt obligation of $11,300. The note bears no interest; therefore, Company imputed interest at 12% and recorded imputed interest in the amount of $399 for the quarter ended as March 31, 2014 as additional paid in capital. No payments were made during the period.

Note 11:  On May 20, 2013, one of the note holders assigned debt in the amount of $30,000 to unrelated third party, and Company issued a convertible promissory note to this unrelated party for the debt assigned with 12% annual interest and default rate of 22%. The note is convertible into a number of shares at a discount of 50% off the lowest intra-day trading prices during the 10 days prior to the conversion date. The Company evaluated the note and determined that the shares issuable pursuant to the conversion option were indeterminate and therefore this conversion option and all other dilutive securities would be classified as a derivative liability as of May 20, 2013. Debt discount of $30,000 for each convertible note was recorded due to embedded derivative feature, and a loss on derivative valuation of $4,541 for each convertible note was also recorded as of December 31, 203.  The debt discount was fully amortized as2013.   As of March 31,June 30, 2014, and the Company recorded debt discount amortization of $7,796 for the three months ended March 31, 2014.  Accrued interest was due on this note in the amount of $3,869 as of March 31, 2014.balance is $29,191.   This note was at default as of March 31,June 30, 2014.  On August 26, 2013, one of the note holders assigned debt in the amount of $42,000 to this same unrelated third party, and Company issued a convertible promissory note for the debt assigned with 12% annual interests and default rate of 22%. This convertible note has the same conversion terms as those previously issued to this unrelated third party.  A debt discount of $42,000 was recorded due to embedded derivative feature in the convertible promissory note, and a loss on derivative valuation of $11,035 was recorded as of December 31, 2013.  During the year ended December 31, 2013, the Company settled $12,483As of this note by issuing common stock, yielding balance of $29,517.  During the quarter ended March 31,June 30, 2014, the Company settled $1,375 of this note by issuing 18,333 of Company’s common shares, yielding balance ofis $28,412.  The shares were valued per conversion term and market price on conversion date. The Company recorded a gain of $13 for the conversion.  The Company recorded debt discount amortization of $10,959 for the quarter ended March 31, 2014.  Accrued interest of $3,116 was outstanding as of March 31, 2 014.   This note was atin default as of March 31,June 30, 2014.  On August 30, 2013, the Company received cash proceeds in the amount of $25,000 related to a convertible debt obligation with the same unrelated third party. This convertible note has the same conversion terms as those previously issued to this unrelated third party.  A debt discount of $25,000 was recorded due to embedded derivative feature in the convertible promissory note, and a loss on derivative valuation of $5,026 was recorded as of December 31, 2013.   No payments were made duringAs of June 30, 2014, the quarter ended March 31, 2014.  The Company recorded debt discount amortizationbalance of $6,164 for the quarter ended March 31, 2014, and therethis note is accrued interest of $1,998 on this note.$25,000.

Note 12:   As of March 31,June 30, 2014 the Company has a debt obligation of $25,000 which bears interest at the rate of 6%.  No payments were made during the quarter ended March 31, 2014, and there is accrued interest of $4,278 on the note.   This note is convertible into a number of shares arrived at  by dividing the principal and interest owed by  50% of the average lowest 3 trading prices over the 20 days prior to the conversion date.  A debt discount was recorded for $25,000 based on the fact that there was a beneficial conversion feature in the promissory note and fully amortized during the year ended December 31, 2013.   This note is atin default as of March 31,June 30, 2014.

Note 13:  On May 22, 2013, the Company received cash advances of $25,000 against a reserved note of $275,000. Outstanding principal amount included cash proceed of $25,000, 10% of original interest discount of $2,500, and financing cost of $2,000. The note bears annual interest of 12%.  During the year ended December 31, 2013, the Company settled $2,200 in debt for common stock, yielding a balance of $27,300 at the end of the period, and there is $3,540 in accrued interest on the note.   This note is convertible into a number of shares equal to the dollar conversion amount divided by the lesser of $0.10 or 60% of the lowest trading price in the 25 trading days prior to conversion.  A debt discount of $26,137 was recorded due to embedded derivative feature in the convertible promissory note.   For the year ended December 31, 2013, the Company recorded debt discount amortization of $16,842, original interest discount amortization of $1,884, and amortization of financing cost of $1,167 forThe balance on this note.   During the quarter ended March 31, 2014, the Company settled $6,165 of the debt by issuing 100,000 Company’s common shares, yielding balance of $21,135note as of March 31, 2014.  The shares were valued per conversion term and market price on conversion date, and the Company recorded a loss of $2,424 on the conversion.  For the quarter ended March 31,June 30, 2014 the Company recorded debt discount amortization of $7,254, original interest discount amortization of $616, and amortization of financing cost of $500 for this note.  Accrued interest of $3,540 was outstanding as of March 31, 2014.is $21,135.  In addition, on August 21, 2013, the Company received another convertible note in the amount of $25,000 against the reserved note of $275,000 from the same unrelated third party. Outstanding principal of this note included cash proceed of $25,000, 10% of original interest discount of $2,500, and financing cost of $2,000. This note has the same conversion and interest term as that previously issued to the same party.  A debt discount of $29,500 was recorded due to embedded derivative feature in the convertible promissory note, and a loss on derivative valuation of $9,369 was recorded as of December 31, 2013.   ForAs of June 30, 2014, the year ended December 31, 2013, the Company recorded debt discount amortizationbalance of $10,668, original interest discount amortization of $904, and amortization of financing costs of $719 for this note.  No payment was made to this note during the quarter ended March 31, 2014.  For the quarter ended March 31, 2014, the Company recorded debt discount amortization of $7,247, original interest discount amortization of $616, and amortization of financing costs of $500 for this note.  Accrued interest of $3,540 was outstanding as of March 31, 2014.is $29,500.

Note 14:   On February 11, 2014, the Company received cash proceeds of $22,500 for this debt obligation which bears interest at the rate of 8% and includes financing cost of $2,500.  This note is convertible into a number of shares arrived at by dividing the principal and interest owed by 45% of the average lowest 3 days trading prices over the 10 days prior to the conversion date.  The Company evaluated the note and determined that the shares issuable pursuant to the conversion option were indeterminate and therefore this conversion option and all other dilutive securities would be classified as a derivative liability as of February 11, 2014.  A debt discount of $22,500 was recorded due to embedded derivative feature in the convertible promissory note, and a loss on derivative valuation of $19,666 was recorded as of March 31, 2014.  For the quarter ended March 31, 2014, the Company record debt discount amortizationThe balance of $3,564 and financing cost of $556.  Accrued interest of $236 was duethis note is $22,500 as of March 31,June 30, 2014.

Note 15:  As of December 31, 2013 the Company had a note outstanding of $12,000 for this debt obligation which bears interest at the rate of 18% compounded monthly. No payments were made during the period and there is accrued interest of $3,903 on the note.  Accrued interest was reclassified to principal owed as of December 31, 2013, yielding balance of $15,903.  During the quartersix months ended March 31,June 30, 2014, no payment was made, interest expenses of $716$4,220 for the threesix months ended March 31,2June 30,2 014 was reclassified to the principal owed, yielding balance of $16,619$20,123 as of March 31,June 30, 2014.  This note is atin default as of March 31,June 30, 2014.

Note 16:  On May 30, 2013, the Company received cash proceeds of $50,000 for this debt obligation which bears interest at the rate of 12% and default rate of 22%.  This note is convertible into a number of shares arrived at by dividing the principal and interest owed by 50% of the average lowest  trading prices over the 5 days prior to the conversion date.  A debt discount of $50,000 was recorded due to embedded derivative feature in the convertible promissory note, and a loss on derivative valuation of $5,652 was recorded as of December 31, 2013.  In relation to the cash advances, financing costs of $2,500 were paid in conjunction with this debt.  These fees are amortized over the term of the loan.  ForAs of June 30, 2014, the quarter ended March 31, 2014, no payment was made tobalance of this note and the Company recorded debt discount amortization of $10,766 and amortization of financing cost of $556.  There was accrued interest of $6,250 as of March 31, 2014 for this note.  The note was at default as of March 31, 2014.is $34,350.

 

Note 17:  During  the year ended December 31, 2013 we had received cash proceeds from an unrelated third party for the aggregate amount of $11,500 , which is payable in principal and interest with rates of 18% compounded monthly. No payments were made during the year ended December 31, 2013 and accrued interest of $1,186 was reclassified to principal owed, yielding balance of $12,686 as of December 31, 2014.  During the quarterperiod ended March 31,June 30, 2014, this unrelated third party advanced additional $10,000 cash to the Company for its daily operation, and the Company repaid this party $1,000 cash during the period.  Interest expense in the amount of $579 for three months ended March 31, 2014Accrued interest was reclassified to principal owed, yieldingowed.  The balance of $22,266 due as of March 31, 2014.June 30, 2014 is $12,782.