Exhibit 99.2
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Unaudited Pro Forma Financial Statements (pro forma financial statements) reflecting the sale of assets (the "asset sale") by Mainland to Exco have been derived from the historical financial statements of Mainland Resources.
The Unaudited Pro Forma Statements of Income (pro forma statements of income) for the year ended February 28, 2010 give effect to the asset sale as if it were completed on the effective date of January 1, 2010. The Unaudited Pro Forma Balance Sheet (pro forma balance sheet) as of February 28, 2010 gives effect to the asset sale as if it were completed on the effective date of January 1, 2010.
The historical financial information has been adjusted in the pro forma financial statements to give effect to pro forma events that are: (1) directly attributable to the asset sale; and (2) factually supportable.
Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in connection with the pro forma financial statements. Since the pro forma financial statements have been prepared based on preliminary estimates, the final amounts recorded at the date of the closing of the asset sale may differ materially from the information presented. These estimates are subject to change pending further review of the assets sold and any related assets or liabilities assumed by the purchaser.
The pro forma financial statements have been presented for illustrative purposes only and are not necessarily indicative of results of operations and financial position that would have been achieved had the pro forma events taken place on the dates indicated, or the future consolidated results of operations or financial position of the combined company.
The following pro forma financial statements should be read in conjunction with:
MAINLAND RESOURCES INC |
REFLECTING DIVESTITURE OF HAYNESVILLE ASSETS IN | |
CURRENT ASSETS | |
Cash | $ 10,417,857 |
Accounts Receivable | - |
Prepaid expenses | 31,918 |
Total Current Assets | 10,449,311 |
OIL AND GAS PROPERTIES | |
Proved, net of accumulated depletion | - |
Unproved | 3,534,436 |
Total Oil and Gas Properties | 3,534,436 |
TOTAL ASSETS | 13,983,747 |
CURRENT LIABILITIES | |
Accounts payable and accrued liabilities | 711,044 |
Income Taxes Payable | 2,600,000 |
TOTAL CURRENT LIABILITIES | 3,311,044 |
STOCKHOLDERS' EQUITY | |
Common stock, 400,000,000 shares authorized with $0.0001 par value | |
Issued and outstanding-80,969,502 common shares | 8,097 |
Additional paid-in-capital | 18,369,089 |
Deficit accumulated during exploration stage | (7,704,483) |
10,672,703 | |
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY | 13,983,747 |
Year Ended | Year Ended | Year Ended | ||||
GENERAL AND ADMINISTRATIVE EXPENSES | ||||||
Consulting Fees | 311,334 | 595,374 | - | |||
Management and rent fees-related parties | 250,164 | 126,400 | 8,627 | |||
Mineral Property costs | - | - | 10,070 | |||
Marketing expenses | 560,025 | 921,107 | - | |||
Office and general | 123,101 | 82,798 | 58,657 | |||
Professional fees | 490,858 | 243,710 | 67,169 | |||
Salary Expense | 1,148,000 | 12,002,685 | - | |||
2,883,482 | 13,972,074 | 144,523 | ||||
NET OPERATING LOSS | (2,883,482) | (13,972,074) | (144,523) | |||
OTHER ITEMS | ||||||
Interest Income | 1,070 | 7,399 | - | |||
Loss on abandonment on option deposit | (1,300,000) | 33,239 | - | |||
NET LOSS FROM CONTINUING OPERATIONS | (4,182,412) | (13,931,436) | (144,523) | |||
DISCONTINUED OPERATIONS | ||||||
Income/(Loss) from Discontinued Operations | ||||||
(34,575) | 355,256 | - | ||||
Gain on disposition of discontinued operations, net of tax expense of $2,600,000 | 10,244,463 | - | - | |||
INCOME/(LOSS) FROM DISCONTINUED OPERATIONS | 10,209,888 | 355,256 | - | |||
NET INCOME/(LOSS) | 6,027,476 | (13,576,180) | (144,523) | |||
Foreign currency translation adjustment | - | 422 | (617) | |||
COMPREHENSIVE INCOME/(LOSS) | 6,024,476 | (13,575,758) | (145,140) | |||
BASIC INCOME/(LOSS) PER COMMON SHARE | ||||||
From Continuing Operations | $ | (0.05) | $ | (0.18) | $ | (0.01) |
From Discontinued Operations | $ | 0.13 | $ | - | $ | - |
$ | 0.07 | $ | (0.18) | $ | (0.01) | |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC | 80,569,066 | 77,055,822 | 26,106,803 |
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Note 1. Basis of Pro Forma Presentation
The pro forma Statements of Income for the year ended February 28, 2010, give effect to the asset sale as if it were completed on the effective date of January 1, 2010. The pro forma balance sheet as of February 28, 2010 gives effect to the asset sale as if it were completed on the effective date of January 1, 2010.
The pro forma financial statements have been derived from the historical financial statements of Mainland Resources. Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the pro forma financial statements. Since the pro forma financial statements have been prepared based upon preliminary estimates, the final amounts recorded at the date of the closing of the asset sale and any final adjustments may differ materially from the information presented. These estimates are subject to change pending further review of the assets sold and any assets or liabilities assumed by the purchaser.
Estimated costs, including repayment of debt owed to Guggenheim, have been included in the pro forma income statement and balance sheet.
Note 2. Sale of Oil and Gas Properties
Subsequent to the year ended February 28, 2010, on April 22, 2010, the Company closed the sale of its Haynesville Shale assets in East Holly Field, DeSoto Parish, Louisiana. The assets were sold to Exco Operating Company, LP. a wholly owned subsidiary of EXCO Resources, for $28,159,604 effective January 1, 2010. The Company has sold its 40% working interest in all rights deeper than the base of the Cotton Valley formation (which has been defined to be 100 feet below the stratigraphic equivalent of the Cotton Valley formation and includes all of the Company's producing wells as described above) in the East Holly Field. The Company continues to own a 100% interest in all rights above this depth and specifically, in the Cotton Valley, Hosston and Upper Bossier sections.
As the asset sale had not closed as of the year ended February 28, 2010, the audited financial statements for the year ended February 28, 2010 reflected the transaction as Assets and Liabilities Held for Sale (refer to Notes 3, 5 and 9 of the audited financial statements).
Note 5 of the audited financial statements for the year ended February 28, 2010 outlined the use of proceeds from the asset sale. The Company used part of the proceeds of the asset sale to Exco to retire its debt to Guggenheim and to re-acquire the overriding royalty interests granted to Guggenheim in the DeSoto Acreage. The assets and liabilities related to this disposal were reclassified as of February 28, 2010 and include the promissory note payable to Guggenheim totalling $10,278,485 being classified as liabilities held for sale and the unamortized deferred financing costs totalling $1,070,941 being classified as assets held for sale (refer to Note 9 of the audited financial statements for the year ended February 28, 2010).
Note 3. Pro Forma Adjustments
The pro forma adjustments included in the pro forma financial statements are as follows:
(a) Cash- Proceeds of the asset sale, net of repayment of the debt to Guggenheim and other related closing costs, have been recorded as cash.
(b) Income taxes -- Adjustment reflects the income tax effect of the pro forma adjustments, which was calculated using a 35% rate, approximating statutory income tax rates.
(c) Property, Plant and Equipment -- Adjustment reflects the asset sale on the effective date of January 1, 2010
(d) Debt -- In connection with the financing agreement with Guggenheim, Mainland Resources must repay the entire debt outstanding from the proceeds of the asset sale.
