PINX:EFIR Egpi Firecreek Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

S QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2012

 

£ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ____________ to____________

 

Commission File No. 000-32507

 

EGPI FIRECREEK, INC. 

(Exact name of Registrant as specified in its charter)

 

Nevada 88-0345961

(State or Other Jurisdiction of

Incorporation or organization)

(I.R.S. Employer Identification No.)

 

6564 Smoke Tree Lane

Scottsdale, Arizona 85253

 (Address of Principal Executive Offices)

 

(480) 948-6581

 (Registrant’s Telephone Number)

 

N/A

(Former name, former address and former fiscal year,

if changed since last report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes S      No £

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes £     No £

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

 

  Large Accelerated Filer  £   Accelerated Filer  £
     
  Non-Accelerated Filer    £   Smaller Reporting Company  T

       (Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  

 

As of August 19, 2012, the registrant had 3,633,761,705 shares of its $0.001 par value common stock issued and outstanding. There are no shares of Series A and B preferred stock, and 87,412 shares of Series C, and 2,484 share of its Series D preferred stock issued and outstanding, at $0.001 par value for each of the Series of Preferred, and no shares of non-voting common stock issued and outstanding.

 

 

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EGPI FIRECREEK, INC

f/k/a Energy Producers, Inc.

10-Q

June 30, 2012

 

TABLE OF CONTENTS

 

 

    PAGE #
PART I   FINANCIAL INFORMATION  
     
ITEM 1 FINANCIAL STATEMENTS  
  CONSOLIDATED BALANCE SHEETS 3
     
  UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS 4
     
  UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS 5
     
  UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT 6
     
  NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 7-17
     
ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18
     
ITEM 3 QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISKS 22
     
ITEM 4(T)  

CONTROLS AND PROCEDURES

22
     
PART II OTHER INFORMATION  
     
ITEM 1 LEGAL PROCEEDINGS 23
     
ITEM 1A RISK FACTORS 23
     
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 24
     
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 24
   
ITEM 4 (REMOVED AND RESERVED) 24
     
ITEM 5 OTHER INFORMATION 24
     
ITEM 6 EXHIBITS 24
     

 

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PART I FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS 

EGPI FIRECREEK, INC.

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2012 AND DECEMBER 31, 2011

 

   Unaudited  Audited
   6/30/2012  12/31/2011
ASSETS          
Current assets:          
Cash  $296   $2,481 
Current assets related to discontinued operations          
Cash   43    215 
Total current assets related to discontinued operations   43    215 
Total current assets   339    2,696 
           
Other assets:          
Fixed assets – net   515,675    565,509 
Oil and natural gas properties – proved reserves - net   1,780,936    1,849,843 
Other assets related to discontinued operations          
Fixed assets – net   10,976    12,449 
Oil and natural gas properties – proved reserves - net   266,117    274,251 
Total other assets related to discontinued operations   277,093    286,700 
Total other assets   2,573,704    2,702,052 
           
Total assets  $2,574,043   $2,704,748 
           
 LIABILITIES AND SHAREHOLDERS' DEFICIT          
           
Current liabilities:          
Accounts payable & accrued expenses  $1,674,085   $1,001,584 
Notes payable   2,400,242    2,767,589 
Convertible notes, net of discount   797,869    480,221 
Capital lease obligation   56,872    56,872 
Advances & notes payable - related parties   815,816    477,876 
Derivative liabilities   445,645    639,859 
Asset retirement obligation   11,537    10,930 
Current liabilities related to discontinued operations          
Accounts payable & accrued expenses   114,945    64,840 
Notes payable   96,390    96,390 
Asset retirement obligation   11,537    10,931 
Total current liabilities related to discontinued operations   222,872    172,161 
Total current liabilities   6,424,938    5,607,092 
           
Commitments and contingencies:          
Series D preferred stock, 2.5 million authorized, par value $0.001, convertible into common shares, 2,484 and 2,490 shares issued at June 30, 2012 and December 31, 2011, respectively   1,867,913    1,872,554 
           
Shareholders' deficit:          
Series A preferred stock, 20 million authorized, par value $0.001,one share convertible to one common share, no stated dividend, none outstanding        —   
Series B preferred stock, 20 million authorized, par value $0.001,one share convertible to one common share, no stated dividend, none outstanding        —   
Series C preferred stock, 20 million authorized, par value $.001, each share has 21,200 votes per share, are not convertible, have no stated dividend; 87,142 and 87,142 shares outstanding at June 30, 2012 and December 31, 2011, respectively   87    87 
Common stock- $0.001 par value, authorized 5,000,000,000 shares, issued and outstanding, 2,635,786,879  at June 30, 2012 and 99,648,493 at December 31, 2011, respectively   2,635,787    99,648 
Additional paid in capital   28,229,903    29,668,977 
Other comprehensive income   232,896    214,499 
Common stock subscribed   1,470,866    1,466,364 
Contingent holdback   2,000    2,000 
Accumulated deficit   (38,290,347)  (36,130,083)
Total shareholders' deficit   (5,718,808)   (4,678,508)
Total liabilities & shareholders' deficit  $2,574,043   $2,704,748 

 

See the notes to the unaudited consolidated financial statements.

 

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EGPI FIRECREEK, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND JUNE 30, 2011

(Unaudited)

 

 

      For the six   For the three
      months ended   months ended
               
      6/30/2012 6/30/2011   6/30/2012 6/30/2011

Revenues                   
Gross revenue from sales  $—     $12,320   $—    $—   
Gross revenues from oil and gas sales   31,604    53,825    12,734   36,267 
    Total revenue   31,604    66,145    12,734   36,267 
Cost of sales        (40,011)       (20,949)
Well operation costs   (216,179)   (46,391)   (181,511)  (24,837)
Gross margin   (184,575)   (20,257)   (168,777)  (9,519)
                    
General and administrative expenses:                   
General administration   (708,868)   (588,334)   (477,922)  (330,602)
Total general & administrative expenses   (708,868)   (588,334)   (477,922)  (330,602)
Net loss from operations   (893,443)   (608,591)   (646,699)  (340,121)
Other revenues and expenses:                   
Interest expense   (844,990)   (295,030)   (489,402)  (177,689)
Gain (loss) on settlement of debt   (334,162)   (1,011,209)   (193,840)  (344,572)
Other income   35,653    —      980   —   
Gain (loss) on asset disposal   —      31,970    —     —   
Gain (loss) on derivatives   148,214    321,659    237,172   533,331 
Net loss before provision for income taxes   (1,888,728)   (1,561,201)   (1,091,789)  (329,051)
Provision for income taxes   —      —      —     —   
Loss from continuing operations   (1,888,728)   (1,561,201)   (1,091,789)  (329,051)
Loss from discontinued operations net of tax   (271,536)   (792,415)   (227,854)  (134,169)
                    
Net loss  $(2,160,264)  $(2,353,616)  $(1,319,643) $(463,220)
                    
Foreign currency translation   (18,397)   117,609    6,474   194,468 
Net comprehensive loss   (2,141,867)   (2,471,225)   1,313,169   (657,688)
Basic and diluted net loss per common share:                   
Basic and diluted loss per common share from continuing operations  $(0.00)  $(0.99)  $(0.00) $(0.12)
Basic and diluted loss per common share from discontinued operations  $(0.00)  $(0.50)  $(0.00) $(0.05)
Basic and diluted net loss per common share  $(0.00)  $(1.49)  $(0.00) $(0.17)
Weighted average of common shares outstanding:                   
Basic and fully diluted   841,934,723    1,581,675    1,471,725,622   2,803,839 

 

See the notes to the unaudited consolidated financial statements.

 

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EGPI FIRECREEK, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND JUNE 30, 2011

 

 

 

     For six months ended
    6/30/2012   6/30/2011

Operating Activities:         
Net income (loss)  $(2,160,264)  $(2,353,616) 
Adjustments to reconcile net loss items not requiring the use of cash:         
Accretion of asset retirement obligation   1,213   979 
Preferred shares issued for services   —     75,000 
Common shares issued for services   —     20,148 
Promissory notes issued for services   120,000   150,000 
Imputed interest   35,688   —   
Loss on disposition of SATCO   —     586,924 
Gain on issuance of common shares to shareholders of Terra Telecom, Inc.   —     (31,970)
Bad debt expense   —     100,000 
Loss (Gain) on change in derivative   (148,214)   (321,659)
Loss on settlement or conversion of debt   334,162   1,011,211 
Depletion   76,720   73,268 
Depreciation   51,308   43,157 
Amortization of intangibles   —     48,878 
Amortization of debt discount   512,264   406,882 
Changes in other operating assets and liabilities:         
Accounts receivable   —     93,723 
Inventory   —     11,493 
Accounts payable and accrued expenses   743,579   (98,276)
Accounts payable and accrued expenses - related party   15,250   42,670 
Prepaid expenses   —     336 
Net cash provided by (used by) operations   (418,294)   (140,853)
Investing Activities:         
Cash paid for development costs of oil and gas properties   —     (165,162)
Cash acquired in acquisition of Arctic Solar Engineering   —     538 
Net cash used by investing activities   —     (165,700)
Financing Activities:         
Principal payments on debt-related parties   —     (5,823)
Principal payments on debt   (50,000)   —   
Borrowings on debt – related parties   322,690   210,000 
Borrowings on debt   124,850   251,292 
Net cash provided by financing activities   397,540   455,469 
          
Foreign currency translation   18,397   (101,600)
Net increase (decrease) in cash during the period   (2,357)   48,393 
Cash balance at January 1st   2,696   9,930 
Cash balance at June 30th  $339  $58,323 
          
Supplemental disclosures of cash flow information:         
Interest paid during the year  $13,354  $12,450 
Income taxes paid during the year         
Non-cash activities:         
Common stock issued for:         
Debt conversion and settlement   373,944   2,251,244 
Services expensed in the prior period (common stock subscribed)   25,000   —   
Redquartz  acquisition   —     30,876 
Preferred stock conversion   4,642   —   
Preferred shares subscribed to acquire oil and gas lease   —     3,736,387 
Adjustment to derivative liability due to debt conversion   328,998   —   
Accounts payable converted to promissory notes   —     385,581 
Adjustment to asset retirement obligation   —     8,051 
Debt discount   282,998   350,864 
          

 

 See the notes to the unaudited consolidated financial statements.

 

(5)

 

EGPI FIRECREEK, INC.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2012 

 

      Preferred   Shares   Preferred   Value     Common     Shares     Common  Value     Paid In  Capital     Accumulated Deficit    Other Conprehensive Loss    Common Stock Subscribed          Other        Total 
Balance at December 31, 2011     87,142   87     99,648,493     99,648     29,668,977     -36,130,083    214,499    1,466,364          2,000        -4,678,508 
                                                                  
Issued common shares for services               224,735,714     224,736     -161,724                                   63,012 
Issued common shares for  conversion or settlement of debt               2,295,152,672     2,295,153     -1,631,559               4.502                   668,096 
Issued common shares for conversion of preferred stock               16,250,000     16,250     -10,477                                   5,773 
Imputed interest                           35,688                                   35,688 
Adjustment to derivative liability due to debt conversion                           328,998                                   328,998 
Other comprehensive loss                                      18,397                        18,397 
Net loss for the six months ended                                 -2,160,264                             -2,160,264 
Balance at June 30, 2012     87,142   87     2,635,786,879     2,635,787     28,229,903     -38,290,347    232,896    1,470,866       $  2,000   $    -5,718,808 

 

 

 See the notes to the unaudited consolidated financial statements.

 

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EGPI FIRECREEK, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2012 AND JUNE 30, 2011

 

 

1.Organization of the Company and Significant Accounting Principles

 

The Company was incorporated in the State of Nevada October 1995. Effective October 13, 2004 the Company, previously known as Energy Producers Inc., changed its name to EGPI Firecreek, Inc.

 

Prior to December 2008, the Company held interests in various gas & oil wells located in the Wyoming and Texas area. In December 2008, the Company’s major creditor, Dutchess Private Equities Ltd. (Dutchess), foreclosed on the assets of the Company.  As a result, all of the Company’s oil and gas properties were transferred to Dutchess in satisfaction of debt owed.

 

In October 2008, the Company effected a 1 share for 200 shares reverse split of its common stock and all amounts have been retroactively adjusted.

 

In May 2009 the Company acquired M3 Lighting, Inc. (“M3”) as a wholly owned subsidiary via reverse triangular merger. The Company was determined to be the acquirer in the transaction for accounting purposes. M3 is a distributor of commercial and decorative lighting to the trade and direct to retailers.  As part of the Merger the Company effected a name change for its wholly owned subsidiary Malibu Holding, Inc. to Energy Producers, Inc. (“EPI”) as a conduit for its oil and gas activities.

 

In November 2009 the Company acquired all of the issued and outstanding capital stock of South Atlantic Traffic Corporation, a Florida corporation (“SATCO”). SATCO has been in business since 2001 and has several offices throughout the Southeast United States. SATCO carries a variety of products and inventory geared primarily towards the transportation industry.  SATCO offers transportation products ranging from loop sealant, traffic signal equipment, traffic and light poles, data/video systems and Intelligent Traffic Systems (ITS) surveillance systems. SATCO works closely with Department of Transportation (DOT) agencies, local traffic engineers, contractors, and consultants to customize high quality traffic control systems.

 

In December 2009, the Company’s wholly owned subsidiary Energy Producers, Inc. acquired 50% working interests and corresponding 32% net revenue interests in oil and gas leases, reserves, and equipment located in West Central Texas. The Company entered into a turnkey work program included for three wells located on the leases.

 

On March 3, 2010, the Company executed a Stock Purchase Agreement with the stockholders of Redquartz LTD (“Sellers” or “RQTZ”), a company formed and existing under the laws of the country of Ireland, whereas the Company agreed to issue 100,000 shares of its restricted common stock valued at USD $2,500 in exchange for 100% of the issued and outstanding shares of common stock, par value $0.01 per share, of RQTZ. All assets and liabilities, other than the Shareholder Notes Payable, of the RQTZ were transferred to the prior owners of Redquartz. The Notes Payable represent a debt burden to RQTZ of USD $4,464,262. This obligation is based in Euros and converted to our functional currency the dollar. Redquartz LTD was inactive in the first and second quarter of 2010 and had no income and expense that would affect the financial statements of the Company and therefore no pro-forma is necessary.

 

On June 11, 2010, the Company acquired all of the issued and outstanding stock of Chanwest Resources, Inc., (“Chanwest or CWR”) a Texas corporation. In the course of this acquisition, Chanwest stockholders exchanged all outstanding common shares for the Company’s common shares and other provisions. Chanwest Resources, Inc. was formed in 2009 and has been engaged in ramping up operations including acquiring assets related to the servicing and construction, and activities related to the acquisition, production and development for oil and gas. Chanwest has formed strategic alliances and brought key management with over 40 years experience in all facets of the oil and gas industry, to be implemented on day one of our acquisition thereof. Chanwests’ first phase of operations include Construction and Trucking, services for drill site preparation to clear and lay pipeline (gathering systems) for operators. Chanwest operations can provide for services to maintain lease roads, set power poles and clean up oilfield spills. Chanwest works with operators or lease owners by purchase order or contract with major oil fields.

 

On October 1, 2010 EGPI Firecreek, Inc. the Company entered into a Definitive Securities Purchase/Exchange Agreement with Terra Telecom, LLC. (“Terra"). Terra is considered recognized as a leading provider of state-of-the-art communication technologies and a premier Alcatel-Lucent partner. They currently serve various sized companies and organizations that use and deploy communications systems, sales, service, and training while consolidating and optimizing the end user experience. Its goal is to provide customers value and integrity in each of these opportunities. Since 1980, Terra has focused on delivering enterprise solutions while leading with voice services and offering full turn-key solutions that consist of voice, data, video and associated applications.  As of December 31, 2010, the Company has not assumed control of this acquisition.  As a result, this company is not consolidated in the financial statements as of December 31, 2010.  On March 14, 2011, the Company sold its interest in Terra to Distressed Asset Acquisitions, Inc.

 

On October 18, 2010, the Company filed a Certificate of Amendment to its Articles of Incorporation, increasing its authorized common stock, par value $0.001 per share, to 3,000,000,000 from 1,300,000,000 and is authorized to issue 60,000,000 shares of preferred stock that has a par value of $0.001 per share.

 

On November 9, 2010, the Company affected a 1 share for 50 shares reverse split of its common stock and all amounts have been retroactively adjusted for all periods presented.

 

On February 4, 2011, the Company entered into an Agreement to acquire all 100% of Arctic Solar Engineering LLC, a Missouri limited liability company located at PO Box 4391, Chesterfield, MO 63006 and the owners of Membership Interests of the Arctic Solar Engineering LLC; The FATM Partnership, a Missouri Partnership, The Frederic Sussman Living Trust. Arctic Solar Engineering, LLC, is an integrator of Solar Thermal Energy technology. For further information please see our Current Report on Form 8-K filed on February 10, 2011, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.

 

On March 2, 2011 the Company obtained a consent from the majority shareholders of the Company to amend the Articles of Incorporation to i) authorize the issuance of 2,500 shares of a new D Series Preferred Stock, and ii) for the Board of Directors to be able to authorize any and all capitalization of the Company going forward without the need for shareholder approval, and further authorized for the Board of Directors to set all rights, preferences, and designations, for and in behalf of any class of the Company’s common of preferred stock, and as may be required or as necessary in the best interest of the Company.

 

On March 14, 2011, the Company entered into and completed the closing of a Stock Purchase Agreement involving the sale of South Atlantic Traffic Corporation to Distressed Asset Acquisitions, Inc. For further information please see our Current Report on Form 8-K filed on March 18, 2011 and in the section on The Business”, and Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.

 

On March 14, 2011, the Company entered into and completed the closing of a Stock Purchase Agreement involving the sale of Oklahoma Telecom Holdings, Inc. an Oklahoma corporation, formerly known as Terra Telecom, LLC., an Oklahoma limited liability company and Terra Telecom, Inc. (TTI”), to Distressed Asset Acquisitions, Inc. For further information please see our Current Report on Form 8-K filed on March 18, 2011 and in the section on The Business”, and Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.

 

On July 7, 2011, the Company filed a Certificate of Amendment to its Articles of Incorporation, increasing its authorized common stock, par value $0.001 per share, to 5,000,000,000 from 3,000,000,000 and is authorized to issue 60,000,000 shares of preferred stock that has a par value of $0.001 per share.

 

On July 7, 2011, the Company affected a 1 share for 500 shares reverse split of its common stock and all amounts have been retroactively adjusted for all periods presented.

 

Consolidation - the accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.  All significant inter-company balances have been eliminated.

 

The financial information included in this quarterly report should be read in conjunction with the consolidated financial statements and related notes thereto in our Form 10-K for the year ended December 31, 2011.

 

Use of Estimates - 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.

 

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Revenue and Cost Recognition-

 

  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 is fixed or determinable, and collectability is reasonably assured.

 

  Oilfield services:  Revenue from services is recognized when an arrangement exists, the services are rendered, the sales price is fixed or determinable, and collectability is reasonably assured.

 

  Product sales/installation:  Revenue from product sales or installation pertaining to solar panels and equipment are recognized when an arrangement exists, the product is delivered or installed, the sales price is fixed or determinable, and collectability is reasonably assured.

 

 

Cash Equivalents -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 June 30, 2012 or December 31, 2011.

 

Accounts Receivable - The Company extends credit to its customers in the normal course of business and performs ongoing credit evaluations of its customers, maintaining allowances for potential credit losses which, when realized, have been within management's expectations. The allowance method is used to account for uncollectible amounts. The evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. Allowance for doubtful accounts was $118,473 at June 30, 2012 and $118,473 at December 31, 2011.

 

Inventory - Inventories consist of merchandise purchased for resale and are stated at the lower of cost or market using the first-in, first-out (FIFO) method.

 

Prepaid Expenses - Prepaid expenses are recorded at cost for payments for goods and services purchased during an accounting period but not used or consumed during that accounting period. The costs are amortized over time as the benefit is received onto the income statement.

 

Oil and Gas Activities - 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 development 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, geophysic, and engineering data. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. 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 wells 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 costs 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 has passed, a determination that proved reserves exist cannot be made, the well is assumed to be impaired, and its 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 2011 after conducting an impairment analysis, the Company did not record impairment as the fair value of our reserves exceeded our net book value.

 

Asset Retirement Obligations (“ARO”).  The estimated costs of restoration and removal of facilities are accrued. The fair value of a liability for an asset's retirement obligation is recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depreciated with the related long-lived asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. For all periods presented, estimated future costs of abandonment and dismantlement are included in the full cost amortization base and are amortized as a component of depletion expense. At June 30, 2012 and December 31, 2011, the ARO of $23,074 and $21,861 is included in liabilities and fixed assets.

 

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.

 

Stock-Based Compensation - 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-Scholes option pricing model. The Black-Scholes 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-Scholes model is also used for our valuation of warrants.

 

Earnings Per Common Share - Basic earnings per common share is 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 reflects 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.

 

(8)

  

Fair Value Measurements -  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 June 30, 2012 on a recurring and non-recurring basis:

 

                      Gains  
Description   Level 1     Level 2     Level 3     (Losses)  
Intangibles (non-recurring)   $ -     $ -     $ -     $ -  
Goodwill (non-recurring)   $ -     $ -     $ -     $ -  
Derivatives (recurring)   $ -     $ -     $ 445,645     $ 148,214  

 

The Company has goodwill and intangible assets as a result of the 2011 business combinations discussed throughout this form 10-Q. These assets were valued with the assistance of a valuation consultant and consisted of level 3 valuation techniques.

 

The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2011 on a recurring and non-recurring basis:

 

                      Gains  
Description   Level 1     Level 2     Level 3     (Losses)  
Intangibles (non-recurring)   $ -     $ -     $ -     $ (309,816)  
Goodwill (non-recurring)   $ -     $ -     $ -     $ (22,119)  
Derivatives (recurring)   $ -     $ -     $ 639,859     $ 470,833  

 

The Company has derivative liabilities as a result of 2010 convertible promissory notes that include embedded derivatives.  These liabilities were valued with the assistance of a valuation consultant and consisted of level 3 valuation techniques.

 

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 - 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:

 

Office equipment   3 years
Computer hardware & software   3 years
Improvements & furniture   5 years
Well equipment   7 years

 

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.

 

Impairment of Long-Lived Assets - 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 assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

 

Goodwill and Other Intangible Assets - 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.

 

(9)

 

As of June 30, 2012 there were no intangible assets and in 2011, amortizable intangible assets consisted of trade names and customer contracts.  These intangibles are being amortized on a straight-line basis over their estimated useful lives of 12 and 10 years, respectively. For the three and six months ending June 30, 2012 the Company recorded no amortization, and amortization of $29,249 and $48,878 for the three and six months ending June 30, 2011.  The useful lives pertaining to the intangible assets amortized are as follows:

 

Intangibles acquired in Arctic Solar Engineering, Inc.

    Useful life  
Patents   5  
Customer Base   5  
Trademarks   5  
Non-Compete   3  

 

Foreign Currency Translation and Transaction - The financial position at present for the Company’s foreign subsidiary Redquartz, LLC, established under the laws of the Country of Ireland are determined using (U.S. dollars) reporting currency as the functional currency. All exchange gains and losses from remeasurement of monetary assets and liabilities that are not denominated in U.S. dollars are recognized currently in other comprehensive income. All transactional gains and losses are part of income or loss from operations (if and when incurred) will be pursuant to current accounting literature. The Company’s functional currency is the U.S dollar. We have an obligation related to our acquisition of Redquartz as discussed in Note 7 which is denominated in Euro’s. The change in currency valuation from our reporting this obligation in U.S dollars is reported as a component of other comprehensive income consistent with the relevant accounting literature.

 

Income taxes - 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.

 

Derivative Financial Instruments -The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re−valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option−based derivative financial instruments, the Company uses the Black−Scholes model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non−current based on whether or not net−cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

Recently Adopted and Recently Enacted Accounting Pronouncements

 

In January 2010, the FASB issued FASB ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements,” which is now codified under FASB ASC Topic 820, “Fair Value Measurements and Disclosures.” This ASU will require additional disclosures regarding transfers in and out of Levels 1 and 2 of the fair value hierarchy, as well as a reconciliation of activity in Level 3 on a gross basis (rather than as one net number). The ASU also provides clarification on disclosures about the level of disaggregation for each class of assets and liabilities and on disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. FASB ASU No. 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures requiring a reconciliation of activity in Level 3. Those disclosures will be effective for interim and annual periods beginning after December 15, 2010. The adoption of the portion of this ASU effective after December 15, 2009, as well as the portion of the ASU effective after December 15, 2010, did not have an impact on our consolidated financial position, results of operations or cash flows.

 

In April 2010, the FASB issued FASB ASU No. 2010-17, “Milestone Method of Revenue Recognition,” which is now codified under FASB ASC Topic 605, “Revenue Recognition.” This ASU provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions. Consideration which is contingent upon achievement of a milestone in its entirety can be recognized as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. A milestone should be considered substantive in its entirety, and an individual milestone may not be bifurcated. An arrangement may include more than one milestone, and each milestone should be evaluated individually to determine if it is substantive. FASB ASU No. 2010-17 was effective on a prospective basis for milestones achieved in fiscal years (and interim periods within those years) beginning on or after June 15, 2010, with early adoption permitted.

 

If an entity elects early adoption, and the period of adoption is not the beginning of its fiscal year, the entity should apply this ASU retrospectively from the beginning of the year of adoption. This ASU did not have any effect on the timing of revenue recognition and our consolidated results of operations or cash flows.

 

In December 2010, the FASB issued FASB ASU No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts,” which is now codified under FASB ASC Topic 350, “Intangibles — Goodwill and Other.” This ASU provides amendments to Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not a goodwill impairment exists. When determining whether it is more likely than not an impairment exists, an entity should consider whether there are any adverse qualitative factors, such as a significant deterioration in market conditions, indicating an impairment may exist. FASB ASU No. 2010-28 is effective for fiscal years (and interim periods within those years) beginning after December 15, 2010. Early adoption is not permitted. Upon adoption of the amendments, an entity with reporting units having carrying amounts which are zero or negative is required to assess whether is it more likely than not the reporting units’ goodwill is impaired. If the entity determines impairment exists, the entity must perform Step 2 of the goodwill impairment test for that reporting unit or units. Step 2 involves allocating the fair value of the reporting unit to each asset and liability, with the excess being implied goodwill. An impairment loss results if the amount of recorded goodwill exceeds the implied goodwill. Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption. This ASU is did not have an impact on our consolidated financial position, results of operations or cash flows.

 

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2.Going Concern

 

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.

 

3.Common and Preferred Stock Transactions

 

During the six months ended June 30, 2012, the Company issued 224,735,714 shares of common stock valued at $63,012 for services. The value of these services, $25,000 was expensed in the prior year and recorded in accounts payable.  The transaction resulted in a loss on settlement of debt totaling $38,012 All shares issued were valued based upon the closing price of the Company’s common stock at the date of grant.

 

During the six months ended June 30, 2012, the Company issued 2,295,152,672 shares of common stock with a value of $668,096 and recorded common stock subscriptions in the amount of $4,502 to extinguish debt of $373,944 resulting in a loss on extinguishment of debt of $294,152 based upon the closing price of the Company’s common stock at the grant date less the carrying value of the debt that was exchanged. 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 six months ended June 30, 2012, 6 shares of Series D preferred stock were converted into common shares of the Company. The shares were converted in accordance with the conversion terms of the preferred stock and no gain or loss was recorded on the transaction. A total of 16,250,000 shares of common stock were issued pursuant to this conversion.

 

During the six months ended June 30, 2012, the Company recorded an additional amount of $328,998 to additional paid in capital related to the fair market value of the conversion of debts that were included in the derivative liability on the conversion date. The Company also recorded $35,688 in imputed interest as an increase to additional paid in capital related to loans that did not carry a market rate of interest or were non-interest bearing.

 

4.Preferred Stock Series

 

Series A preferred stock: Series A preferred stock has a par value of $0.001 per share and no stated dividend preference.  The Series A is convertible into common stock at a conversion ratio of one preferred share for one common share.   Preferred A has liquidation preference over Preferred B stock and common stock.

 

Series B preferred stock: Series B preferred stock has a par value of $0.001 per share and no stated dividend preference.  The Series B is convertible into common stock at a conversion ratio of one preferred share for one common share.  The Series B has liquidation preference over Preferred C stock and common stock.

 

Series C preferred stock: The Preferred C stock has a stated value of $.001 and no stated dividend rate and is non-participatory.   The Series C has liquidation preference over common stock. Effective May 20, 2009 i) Voting Rights for each share of Series C Preferred Stock shall have 21,200 votes on the election of directors of the Company and for all other purposes, and, ii) regarding Conversion to Common Shares, Series C have no right to convert to common or any other series of authorized shares of the Company.

 

Series D preferred stock: Effective March 2, 2011 EGPI Firecreek, Inc. (the “Company”) obtained consent from the majority shareholders of the Company to amend the Articles of Incorporation to i) authorize the issuance of 2,500 shares of a new D Series Preferred Stock. The Series D preferred stock include 2.5 million shares authorized, par value $.001, and each share of Series D Preferred Stock is convertible into common shares, where such number of shares shall be equal to the greater of the number calculated by dividing the Purchase Commitment per share ($1,000) by 1) $0.003 per share, or 2) one hundred and ten percent (110%) of the lowest VWAP for the three (3) days immediately preceding a Conversion Date.

 

During the six months ended June 30, 2012, 6 shares of Series D preferred stock were converted into common shares of the Company. The shares were converted in accordance with the conversion terms of the preferred stock and no gain or loss was recorded on the transaction. A total of 16,250,000 shares of common stock were issued pursuant to this conversion.

 

5.Fixed Assets

 

The following is a detailed list of fixed assets:

 

    6/30/2012     12/31/2011
Property and equipment   540,307                 540,307
Well equipment     174,825       174,825
Accumulated depreciation     (188,481)       (137,174)
               
Fixed assets - net   $ 526,651     $ 577,958

 

Depreciation expense was $51,308 and $43,157 for the six months ended June 30, 2012 and June 30, 2011.

 

6.Oil and Gas

 

Oil and Gas Properties: June 30, 2012   December 31, 2011
Oil and gas properties – proved reserves $ 2,066,367   $ 2,053,981
Development costs   165,162     165,162
Accumulated depletion   (184,476)     (109,520)
             
Oil and gas properties - net $ 2,047,052   $ 2,109,623

 

Depletion expense was $76,720 and $73,268 for six months ended June 30, 2012 and June 30, 2011, respectively.

 

7.Options & Warrants Outstanding

All options and warrants granted are recorded at fair value using a Black-Scholes model at the date of the grant.   There is no formal stock option plan for employees.

 

A listing of options and warrants outstanding at June 30, 2012 is as follows.  Option and warrants outstanding and their attendant exercise prices have been adjusted for the 1 for 200 reverse split and the 1 for 50 reverse split of the common stock discussed in Note 1.

 

    Amount     Weighted Average Exercise Price     Weighted Average Years to Maturity  
Outstanding at December 31, 2011     240     $ 28.125000                0.978  
                         
Issued     0                  
Exercised     0                  
Expired     0                  
                         
Outstanding at June 30, 2012     240       28,125.000       0.479  

 

There was no warrant activity during the six months ended June 30, 2012. The value of these warrants are included in the derivative liability at June 30, 2012 and December 31, 2011 due to the fact that the equity environment is tainted.

 

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8.Note Receivable

 

On March 14, 2011, the company received a promissory note from the sale of its interest in Terra to a third party.  The value of this promissory note is $50,000 and is due 1 year from the date of issuance, along with accrued interest at the rate of 9%.  The note includes an optional provision to extend for one additional twelve month period. An Allowance for Doubtful Accounts of $50,000 has been established for this receivable.

 

On March 14, 2011, the company received a promissory note from the sale of a subsidiary, SATCO, to a third party.  The value of this promissory note is $50,000 and is due 1 year from the date of issuance, along with accrued interest at the rate of 9%.  The note includes an optional provision to extend for one additional twelve month period. An allowance for doubtful accounts of $50,000 has been established for this receivable.

 

9.Income Tax Provision

 

Deferred income tax assets and liabilities consist of the following at June 30, 2012:

 

Deferred Tax asset   $ 3,265,805
Valuation allowance     (3,265,805)
Net deferred tax assets     -

 

The Company estimates that it has an NOL carryfoward of approximately $9,330,871 that begins to expire in 2027.

 

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, 2003 to December 31, 2011 may be subject to IRS audit.

 

10.Related Party Transactions

 

Through May 31, 2009 the Secretary of EGPI Firecreek, Inc provided office space for the Company’s Scottsdale office free of charge. June 1, 2009 Energy Producers, Inc, a 100% owned subsidiary of the Company entered into a month to month lease for the same office space at a rate of $1,400 per month. There remains an unpaid balance of $7,450 at June 30, 2012 and $6,700 December 31, 2011.

 

In addition Energy Producers Inc. also has an Administrative Service Agreement with Melvena Alexander, CPA , which is 100% owned by Melvena Alexander, officer and shareholder of the Company, to provide services to the Company. The agreement is an open-ended, annually renewable contract for payments of $4,600 per month. The contract is currently in force with a balance due of $68,070 and $45,870 at June 30, 2012 and December 31, 2011.

 

The Company had 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. The contract terminated May 31, 2009 and there is an outstanding balance of $0 at December 31, 2011.

 

The above referenced contract was superseded by a month-to-month contract between Energy Producers, Inc., a 100% owned subsidiary of the Company, and Dennis Alexander, an officer and director of the Company, at a monthly payment of $15,000. There was a balance due on this contract of $338,025and $279,950 at June 30, 2012 and December 31, 2011.

 

The Company had a Service Agreement with Tirion Group, Inc., which was owned by Rupert C. Johnson, a former director of the Company. The contract was terminated in 2007 and Mr. Johnson severed his connection to the Company in 2008. However, there is unpaid balance of $55,000 remaining at June 30, 2012 and December 31, 2011.

 

During 2010, Robert Miller, a director of the Company, made unsecured, non-interest bearing advances to M3 Lighting, Inc. a 100% owned subsidiary of the Company, for working capital of $1,500 which remains unpaid at June 30, 2012 and December 31, 2011.

 

April 1, 2010 the Company signed a 9% unsecured note with Bob Joyner a former officer and shareholder, for $27,000. The note matures June 30, 2011, and the unpaid balance at June 30, 2012 and December 31, 2011 was $21,700.

 

Chanwest Resources, Inc, a 100% owned subsidiary of the Company billed Petrolind Drilling, Inc a company in which David Taylor, a director and share holder of the Company, has a substantial interest. The invoice of $9,635 was still outstanding at June 30, 2012 and December 31, 2011 and a full valuation allowance was recorded for this receivable.

 

Willoil Consulting, LLC also gave unsecured non-interest bearing advances to Chanwest Resources, Inc. of $17,825. Willoil Consulting LLC is a company in which David Taylor is a managing member with 80% control. The funds have not been repaid as of June 30, 2012.

 

Relative to the May 21, 2009 acquisition of M3 Lighting, Inc. the Company approved an Administrative Services Agreement (ASA), and amended terms thereof, with Strategic Partners Consulting, LLC (SPC).Two of the Company’s officers, directors and shareholders, David H. Ray, Director and Executive Vice President and Treasurer of the Company since May 21, 2009 and Brandon D. Ray Director and Executive Vice President of Finance of the Company, are also owners and managers of SPC. Information is listed in Exhibit 10.1 to a Current Report on form 8-K, Amendment No. 1, filed on June 23, 3009. The ASA initiated on November 4, 2009, in accordance with its terms thereof, and was billed at the rate of $20,833.33 per month. The ASA contract was canceled June 8, 2010. During the six months ending June 30, 2012, the Company made no payment to SPC, with a balance payable due in the amount of approximately $ 46,958.

 

Effective May 9, 2011 the Company entered into a Promissory Note with a company controlled by a director of the Company in the amount of $210,000, and amended December 9, 2011 to $315,625 and again in the six months ended June 30, 2012 to $641,816. The terms of the note are for 14% interest, with principal and interest all due on or before May 9, 2013. The loan is collateralized with the oil and gas leases held in our subsidiary Energy Producers, Inc.

 

The Company’s subsidiary Arctic Solar Engineers issued promissory notes to various individuals for working capital, all maturing in 2020 at an interest rate of 2%. Additional interest expense was imputed on these loans due to the fact that the interest rate was below market. Of these loans, $5,000 was owed to the former CEO of Arctic Solar Engineering, LLC, who is currently a director of the Company.

 

11.Notes Payable

 

At June 30, 2012, the Company was liable on the following Promissory notes:

(see notes to the accompanying table)

 

Date of       Date Obligation   Interest     Balance Due  
Obligation   Notes   Matures   Rate (%)     6/30/12 ($)  
9/17/2009     4   9/17/2010     12     $ 11,350  
5/29/2009     4   9/17/2010     12 *     30,404  
9/17/2009     4   9/17/2010     18 *     3,430  
3/25/2012     4   4/1/2012     18       10,521  
5/5/2012     4   5/12/2012     12 *     10,100  
5/21/2012     4   5/28/2012     12 *     19,793  
11/4/2009     11   11/4/2012     9       98,391  
11/4/2009     11   11/4/2012     9       98,391  
11/4/2009     11   11/4/2012     9       98,391  
5/30/2010     2   12/31/2011     8       118,620  
3/1/2010     9   See footnote 10     0       497,000  
4/1/2010     3   6/30/2011     9       21,700  
7/26/2010     5   7/26/2012     10       118,974  
8/10/2010     6   8/10/2012     10       29,542  
8/31/2011     7   5/31/2012     8       25,000  
7/1/2011     1   7/1/2013     18       133,000  
2/18/2010     3   12/1/2010     4       137,450  
2/15/2010     3   2/15/2010     8       201,500  
3/3/2010     10   3/31/12     10       -  
3/4/2011     12   9/8/2011     14       133,247  
 3/4/2011     12    9/22/2011     14       100,000  
8/1/2010     13   12/3/2020     2       137,000  
3/24/2010     13   12/31/2020     2       42,000  
8/1/2010     13   12/31/2020     2       5,000  
8/1/2010     13   12/31/2020     2       5,000  
 5/31/2011       14     5/31/2013           172,190  
6/9/2011     15   5/9/2011     14       641,816  
6/1/2011     16   12/1/2011     8       67,352  
8/11/2011     17   4/11/2012     12       20,500  
8/12/2011     19   2/12/2012     10       26,000  
9/12/2011     20   3/12/2012     8       25,000  
9/3/2011     21   3/3/2012     8       8,975  
10/1/2011     22   6/30/2012     6       6,174  
11/15/2011     8   8/17/2012     8       25,000  
1/27/2012     23   7/27/2012     8       13,700  
3/1/2012     23   9/1/2012     8       10,000  
3/15/2012     23   9/5/2012     8       19,000  
1/25/2012     24   1/25/2013     12       30,804  
3/28/2012     22   3/28/2013     15       20,000  
3/30/2012     8   On Demand     10       10,800  
Unamortized Discount                       (36,925)  
Total                       3,146,189  

 

* Compounded

 

(12)

 

Notes:

 

Other than as described at Notes 1, 6, 7, 8, 9, 17, 18, 19, 22, 23, and 24 none of the other notes had conversion options.

 

Note 1: On January 15, 2010, the Company issued an $86,000 Convertible Promissory Note (“Convertible Note”) and a registration rights agreement (“RRA”) to an investor for making a $1,000,000 cash loan.  The Convertible Note has no specified interest rate and was scheduled to mature six months from the closing date.  At the investor’s option, the outstanding principal amount, including all accrued and unpaid interest and fees, may be converted into shares of common stock at the conversion price, which is 75% of the lower of (a) $0.08 per share; or (b) the lowest three-day common stock volume weighted average price during the prior twenty business days. In addition, if the Company sells common shares or securities convertible into common shares, the Conversion Price shall become the lower of: (a) the conversion price in effect immediately prior to the sale of securities; or (b) the conversion price of the securities sold.   

 

The RRA provides both mandatory and piggyback registration rights.  The Company was obligated to (a) file a registration statement for 40,000 common shares (subject to adjustment) no later than 14 days after the closing date, and (b) have it declared effective no later than the earlier of (i) five days after the SEC notifies the Company that it may be declared effective or (ii) 90 days from the closing date.  The Company was obligated to pay the investor a penalty of $100 for each day that it is late in meeting these obligations. The Company’s registration statement was filed late and on March 18, 2010 it was withdrawn.

 

Upon occurrence of an Event of Default (various specified events), the Lender may (a) declare the unpaid principal balance and all accrued and unpaid interest thereon immediately due and payable; (b) at anytime after January 31, 2010, immediately draw on the LOC to satisfy EGPI’s obligations; and (c) interest will accrue at the rate of 18%.

 

Upon occurrence of a Trigger event: (a) the outstanding principal amount will increase by 25%; and (b) interest will accrue at the rate of 18%. The Trigger Event effects shall not be applied more than two times. There are various Trigger Events, including (a) the five-day common stock VWAP declines below $0.04; (b) the ten-day average daily trading volume declines below $5,000; (c) a judgment against EGPI in excess of $100,000; (d) failure to file a registration statement on time; (e) failure to cause a registration statement to become effective on time; (f) events of default; and (g) insufficient authorized common shares.

 

During the first quarter of 2010, the Company tripped two trigger events and incurred resulting penalties and incremental debt obligation. These events increased the outstanding principal amount of the Convertible Note by approximately $22,000 and $27,000 of trigger penalties.

 

It was determined that the Convertible Note’s conversion option, plus other existing equity instruments (warrants outstanding; see Notes 2 and 7 below) of the Company, were required to be (re)classified as derivative liabilities as of January 15, 2010, because (a) the Convertible Note provides conversion price protection; and (b) the quantity of shares issuable pursuant to the conversion option is indeterminate.  The conversion option and the related instruments were initially valued at $63,080 (expected term of 0.5 years; risk-free rate of 0.15%; and volatility of 95%) and this amount was recorded as a note discount and derivative liability. The derivative liabilities were then marked to the market to an aggregate value of $16,158 (expected term of 0.3 years; risk-free rate of 0.16%; and volatility of 95%) at December 31, 2010.

 

On May 12, 2010, the parties to the Convertible Note executed a Waiver of Trigger Event, which stipulated: (1) the principal outstanding on the Convertible Note was fixed at $147,500 as of May 12, 2010; (2) the remaining impact of the trigger events and failure to register the shares was waived; (3) the interest rate was reset at 9%; (4) the number of shares issuable under the conversion option was capped at 150 million shares; (5) the repricing provision of the conversion option was eliminated; and (6) the maturity date of the note was revised to August 15, 2010.  In addition, if the market price of the Company’s common stock declines such that the conversion option would be capped at the agreed 150 million shares, the repayment date is accelerated and the outstanding balance on the note is immediately due and payable.  As a result of the above, the conversion option and related instruments were revalued as of May 12, 2010 and were reclassified to paid-in-capital (equity) in the amount of $50,303 (expected term of 0.3 years; risk-free rate of 0.16%; and volatility of 95%).

 

Effective August 3, 2010 the Company entered into a Promissory Note in the amount of $153,046 with an entity that had acquired and then exchanged the Debt described above. The terms of the Promissory Note are for 8% interest, with principal and interest all due on or before August 3, 2012. In July 2011 a judgment was issued for $202,000 to be paid over two years with no interest, except if there is a default, then interest of 18% will accrue. As a result of defaults by the Company under the agreed upon settlement terms, another settlement agreement was entered into on January 31, 2012. This settlement required the payment of monthly amounts of $10,000 by the Company over 18 months and no default interest is owed until the Company defaults on a payment under these newly agreed upon terms. Default interest of 18% will accrue in the event of default. A total of $50,000 in payments in cash and $6,000 payments in stock were issued during the six months ended June 30, 2012, reducing the balance of the amount due to $133,000.

 

Note 2: For the three months ended June 30, 2012, we have received no cash proceeds for these debt obligations, settled $45,800 in debt for common stock, yielding a balance of $118,620 at the period end.

 

Note 3: For the six months ended June 30, 2012 the Company has a debt obligation of $21,700 for which no payments were made during the period.   The company also had a promissory note of $201,500 for which no payments were made during the period.  The company also had a promissory note of $133,550 for which no payments were made during the period and included $3,900 in accrued interest added to the principal value of the note.

 

Note 4:  During 2009 we received cash proceeds for the aggregate amount of $41,307, which is payable in principal and interest with rates ranging from 12-18%. During the six months ended June 30, 2012 we received additional cash proceeds of $ 39,500 which is payable in principal and interest at 12%.

 

Note 5: On July 26, 2010, we issued a $165,000 secured convertible promissory note that is convertible at the election of the holder any time after issuance, or upon an Event of Default, or when due in 24 months on July 26, 2012. While the notes have not yet become due or repaid, there was no Event of Default as of June 30, 2012, or thereafter. 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 July 26, 2010. This note also contains conversion price reset provisions which also factor into the derivative value.  The July 26, 2010 value of the conversion option of $165,000 was recorded as a note discount, to be amortized over the life of the note, and derivative liability.  For the six months ended June 30, 2012, the Company recognized note discount amortization of $71,669.  The discount is amortized using the effective interest method.

 

Note 6: On August 10, 2010, we issued a $35,000 convertible promissory note that is convertible at the election of the holder any time after issuance, or upon an Event of Default, or when due in 24 months on August 10, 2012. While the notes have not yet become due or repaid, there was no Event of Default as of June 30, 2012, or thereafter. The Company evaluated the note and determined that, because the shares issuable pursuant to the July 26, 2010 convertible note are indeterminate, the conversion option associated with this note is deemed to be a derivative liability.  This note also contains conversion price reset provisions which also factor into the derivative value.  The August 10, 2010 value of the note of $35,000 was recorded as a note discount, to be amortized over the life of the note, and derivative liability.  For the six months ended June 30, 2012, the Company recognized note discount amortization of $25,996.  The discount is amortized using the effective interest method.

 

Note 7: On August 31, 2011, we issued a $25,000 convertible promissory note that is convertible at the election of the holder any time after issuance, or upon an Event of Default, or when due in 9 months on May 31, 2012. The notes are currently past due.  The Company evaluated the note and determined that, because the shares issuable pursuant to the convertible note are indeterminate, the conversion option associated with this note is deemed to be a derivative liability. This note also contains conversion price reset provisions which also factor into the derivative value.  The August 31, 2011 value of the note of $25,000 was recorded as a note discount, to be amortized over the life of the note, and derivative liability.  For the six months ended June 30, 2012, the Company recognized note discount amortization of $9,621.

 

Note 8: On November 15, 2011, we issued a $25,000 convertible promissory note that is convertible at the election of the holder any time after issuance, or upon an Event of Default, or when due in 9 months on August 17, 2012. While the notes have not yet become due or repaid, there was no Event of Default as of June 30, 2012, or thereafter.  The Company evaluated the note and determined that, because the shares issuable pursuant to the convertible note are indeterminate, the conversion option associated with this note is deemed to be a derivative liability. This note also contains conversion price reset provisions which also factor into the derivative value.  The November 15, 2011 value of the note of $25,000 was recorded as a note discount, to be amortized over the life of the note, and derivative liability.  For the six months ended June 30, 2012, the Company recognized note discount amortization of $6,289  The discount is amortized using the effective interest method. In March of 2012, the Company entered into an additional note for $25,000 with the same terms, except the new note was due on demand. The $25,000 was recorded as a note discount and expensed immediately due to the fact that the note is due on demand. The remaining balance due on this second note was $10,800 as of June 30, 2012.

  

Note 9:  On March 1, 2010, we issued non-interest bearing, convertible notes for services, renewable annually until paid through conversions.  The total debt owing under these agreements is $180,000, which is composed of two $90,000 debts owed to two professional service firms.  During the six months ended June 30, 2012, an additional $120,000 in promissory notes were issued to these firms for services provided.  These notes can be converted at 50% of the closing price of the stock on the day preceding the conversion date.  The Company evaluated the note and determined that the conversion option associated with this note is deemed to be a derivative liability.  During the six months ended June 30, 2012, $15,500 of these notes were settled by the issuance of common stock.

 

Note 10:  For the period ended June 30, 2012 we have balance on debt obligations owed totaling $795,128, related to the acquisition of a subsidiary in March 2010.  A total of $28,875 of this debt was settled by the issuance of stock during the six months ended June 30, 2012.

 

Note 11:  Promissory notes totaling $295,173, which were issued in conjunction with the acquisition of SATCO.

 

Note 12:  Accounts Payable of $133,247 due to Contegra Construction by Energy Ventures One, Inc, a Company subsidiary was converted to a Note Payable in March 2011.  Energy Ventures One also has a Line of Credit with Masters Equipment, Inc. with a balance due of $100,000 at June 30, 2012.

 

Note 13:  The Company’s subsidiary Arctic Solar Engineering, LLC issued promissory notes to various individuals for working capital, all maturing in 2020 at an interest rate of 2%.  Additional interest expense was imputed on these balances.

 

Note 14: The balance owed under these debt obligations is $172,190 as of June 30, 2012.

 

Note 15: Effective May 9, 2011 the Company entered into a Promissory Note in the amount of $210,000, and amended December 9, 2011 to $315,625. The note was further amended in June 2012 to $641,816. The terms of the note are for 14% interest, with principal and interest all due on or before May 9, 2013. The loan is collateralized with the oil and gas leases held in our subsidiary Energy Producers, Inc.

 

Note 16: Effective June 1, 2011 the Company entered into a Promissory Note in the amount of $39,000. The terms of the note are for 8% interest only, with principal and interest all due on or before December 1, 2011. Effective September 2, 2011, the Company entered into an additional Promissory Note in the amount $20,500 with same terms due on or before March 2 2012. Also on September 28, 2011, the Company entered into an additional Promissory Note in the amount of $8,000, same terms, due on or before March 28, 2012. A fourth Promissory Note of $17,500 entered into on October 24, 2011 under the same terms, brings the total owed to $85,000 at December 31, 2011. In the six months ended June 30, 2012, the Company settled $17,648 on this note by issuing common stock, leaving a balance of $67,352 at June 30, 2012.

 

Note 17: Effective August 11, 2011, the Company entered into a Convertible Promissory Note in the amount of $10,000. The terms of the note are 12% interest, with principal and interest all due on or before August 11, 2012. October 28, 2011, the Company entered into a Convertible Promissory Note in the amount of $17,000. The terms of the note are 12% interest, with principal and interest all due on or before June 11, 2012. On or after the maturity date, the notes may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 50% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the notes and determined that the conversion option associated with this note is deemed a derivative liability. This note also contains conversion price reset provisions which factor into the derivative value. The August 11, 2011 and October 28, 2011 values of the notes of $10,000 and $17,000 were recorded as a note discount, to be amortized over the life of the note, and derivative liability. For the six months ended June 30, 2012, the Company recognized note discount amortization of $12,467. The discount is amortized using the effective interest method.

 

 

(13)

 

Note 18: Effective October 28, 2011, the Company entered into a Convertible Promissory Note in the amount of $50,000. The terms of the note are 12% interest, with principal and interest all due on or before October 28, 2012. On or after the maturity date, the note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 50% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the note, and determined that because the shares issuable are indeterminate, the conversion option associated with this note is deemed a derivative liability. The October 28, 2011 value of the note of $50,000 was recorded as a note discount to be amortized over the life of the note and derivative liability. For the quarter ended March 31, 2012, the Company recognized note discount amortization of $4,484. The discount is amortized using the effective interest method. The note was paid in full as of June 30,2012.

 

Note 19: Effective August 12, 2011 the Company entered into a Convertible Promissory Note in the amount of $50,000. The terms of the note are for 10% interest, with principal and interest all due on or before February 12, 2012. On, or after, the maturity date, the note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 50% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the note, and determined that because the shares issuable are indeterminate, the conversion option associated with this note is deemed a derivative liability. The August 12, 2011 value of the note of $50,000 was recorded as a note discount to be amortized over the life of the note, and derivative liability. The balance owing at June 30, 2012 is $26,000. For the six months ended June 30, 2012, the Company recognized note discount amortization of $8,819. The discount is amortized using the effective interest method.

 

Note 20: Effective September 12, 2011 the Company entered into a Convertible Promissory Note in the amount of $25,000. The terms of the note are for 8% interest, with principal and interest all due on or before March 12, 2012. On or after the maturity date, the note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 50% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the note and determined that because issuable shares are indeterminate, the conversion option associated with this note is deemed a derivative liability. For the six months ended June 30, 2012, the Company recognized note discount amortization of $8,473. The discount is amortized using the effective interest method.

 

Note 21: Effective September 3, 2011 the Company entered into an Unsecured Promissory Note in the amount of $20,000. The terms of the note are for 8% per annum interest. During the six months ended June 30, 2012 the Company settled $11,025 of the debt, leaving a balance of $8,975 at June 30, 2012.

 

Note 22: Effective October 1, 2011, the Company entered into a Convertible Promissory Note in the amount of $11,250. The terms of the note are for 6% interest with principal and interest due on demand. The note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 50% discount to the fair market value of the stock price at the time of conversion. The Company evaluated the note and determined that because the shares issuable are indeterminate, the conversion option associated with this note is deemed a derivative liability. The October 1, 2011 value of the note of $11,250 was recorded as a note discount to be amortized over the life of the note and derivative liability. In March 2012 an additional note for $20,000 was issued bearing the same terms. For the six months ended June30, 2012, the Company recognized no note discount amortization as the note was satisfied in the second quarter.

 

Note 23: Effective January 27, 2012, the Company entered into a Promissory Note in the amount of $13,700. The terms of the note are for 8% interest, with principal and interest all due on or before July 27, 2012. Effective March 1, 2012 the Company entered into an additional Promissory Note in the amount of $10,000 with the same terms due on or before September 1, 2012 Effective March 5, 2012, the Company entered into an additional Promissory Note in the amount of $19,000 with the same terms due on or before September 5, 2012.

 

Note 24: Effective January 25, 2012, the Company entered into a Convertible Promissory Note in the amount of $50,000. The terms of the note are for interest of 12% with principal and interest due on or before January 25, 2013. The note may be converted based on the outstanding and unpaid principal and interest amount into fully paid and non-assessable shares of common stock at a 60% discount to the fair market value of the stock at the time of conversion. The Company evaluated the note and determined that because the shares issuable are indeterminate, the conversion option associated with this note is deemed a derivative liability. The January 25, 2012 value of the note for $50,000 was recorded as a note discount to be amortized over the life of the note and derivative liability. On March 28, 2012 an additional note for $20,000 was issued bearing the same terms. For the six months ended June 30, 2012, the Company recognized note discount of $34,915. The discount is amortized using the effective interest rate.

 

Although a portion of our debt is not due within 12 months, given our working capital deficit and cash positions and our ability to service the debt on a long term basis is questionable, the notes are all effectively in default and treated as current liabilities.

 

(14)

 

12.Capital Lease Obligation

 

During the year ended December 31, 2010, the Company entered into a lease for equipment which included the promise to make monthly payments of $5,000 for 12 months with a bargain purchase option at the end of the lease.  This lease is accounted for as a capital lease in which the present value of the future payments is recorded as a liability of $56,872.  The discount rate is 10%.  As of June 30, 2012, there were no payments made on this lease and the entire balance is classified as a current liability.

 

13.Derivative Liability

 

The Company evaluated the conversion feature embedded in the convertible notes to determine if such conversion feature should be bifurcated from its host instrument and accounted for as a freestanding derivative. Due to the note not meeting the definition of a conventional debt instrument because it contained a diluted issuance provision, the convertible notes were accounted for in accordance with ASC 815. According to ASC 815, the derivatives associated with the convertible notes were recognized as a discount to the debt instrument, and the discount is being amortized over the life of the note and any excess of the derivative value over the note payable value is recognized as additional expense at issuance date.

 

The Company also issued 2,500 series D convertible preferred stock which included reset provisions which are considered derivatives in accordance with ASC 815. The fair market value of these reset provisions were bifurcated and recorded as derivative liabilities.

 

Further, and in accordance with ASC 815, the embedded derivatives are revalued at each balance sheet date and marked to fair value with the corresponding adjustment as a “gain or loss on change in fair value of derivatives” in the consolidated statement of operations.  As of June 30, 2012, the fair value of the embedded derivatives included on the accompanying consolidated balance sheet was $445,645.  During the three and six months ended June 30, 2012, the Company recognized a gain on change in fair value of derivative liability totaling $237,712 and $148,214, respectively. Key assumptions used in the valuation of derivative liabilities associated with the convertible notes at June 30, 2012 were as follows:

 

ØThe stock price would fluctuate with an annual volatility ranging from 264% to 520% based on the historical volatility for the company.
ØAn event of default would occur 5% of the time, increasing 0.10% per quarter to a maximum of 25%.
ØAlternative financing for the convertible notes would be initially available to redeem the note 0% of the time and increase quarterly by 1% to a maximum of 20%.
ØThe trading volume would average $265,308 to $291,990 and would increase at 1% per quarter.
ØThe holder would automatically convert the notes at a stock price of the greater of the initial exercise price multiplied by two and the market price for the convertible notes if the registration was effective and the company was not in default.

 

ØKey assumptions used in the valuation of derivative liabilities associated with the reset provisions of the series D preferred stock at December 31, 2011 were as follows:

 

ØThe stock price would fluctuate with an annual volatility ranging from 258% to 615% based on the historical volatility for the company.
ØAn event of default that requires the Company to redeem the stock would be 0% increasing 2% per period to a maximum of 20% at maturity.
ØThe Holder would automatically convert at a stock price of $0.0045 if the Company was not in default.

 

The Company classifies the fair value of these securities under level three of the fair value hierarchy of financial instruments. The fair value of the derivative liability was calculated using a lattice model that values the compound embedded derivatives based on a probability weighted discounted cash flow model. This model is based on future projections of the various potential outcomes. The embedded derivatives that were analyzed and incorporated into the model included the conversion feature with the full ratchet reset, and the redemption options.

 

The components of the derivative liability on the Company’s balance sheet at June 30, 2012 and December 31, 2011 are as follows:

 

    June 30, 2012     December 31, 2011  
Embedded conversion features - convertible promissory notes   $ 432,405     $ 626,953  
Common stock warrants     -       -  
Anti-dilution provisions of series D preferred stock     13,240       12,906  
    $ 445,645     $ 639,859  

 

The Company had the following changes in the derivative liability:

 

       
Balance at December 31, 2011   $ 639,859  
Issuance of securities with embedded derivatives     449,125  
Debt and preferred stock conversions     (328,998)
Derivative (gain) or loss due to mark to market adjustment     (314,341)
Balance at June 30, 2012   $ 445,645  

 

14.Intangible Assets

 

The company had $0 of intangible assets recorded as of June 30, 2012 and December 31, 2011. In the year ended December 31, 2011, all intangible assets were fully impaired.

 

15.Asset Retirement Obligation (ARO)

 

The ARO is recorded at fair value and accretion expense is recognized as the discounted liability is accreted to its expected settlement value. The fair value of the ARO liability is measured by using expected future cash outflows discounted at the Company’s credit adjusted risk free interest rate.

 

Amounts incurred to settle plugging and abandonment obligations that are either less than or greater than amounts accrued are recorded as a gain or loss in current operations.  Revisions to previous estimates, such as the estimated cost to plug a well or the estimated future economic life of a well, may require adjustments to the ARO and are capitalized as part of the costs of proved oil and natural gas property.

 

The following table is a reconciliation of the ARO liability for continuing operations for the three months ended June 30, 2012 and December 31, 2011:

 

    6/30/2011     12/31/2011  
Asset retirement obligation at the beginning of period     21,861       5,368  
Liabilities incurred              -  
Revisions to previous estimates             11,876  
Dispositions             -  
Accretion expense     1,213       4,617  
Asset retirement obligation at the end of period     23,074       21,861  

 

(15)

  

16.Discontinued Operations

 

On March 14, 2011, the Company entered into and completed a definitive Stock Purchase Agreement whereby EGPI Firecreek, Inc. would sell 100% of the common shares of SATCO to Distressed Asset Acquisitions, Inc.

 

The consideration being paid by Distressed Asset Acquisitions, Inc. consists of a $50,000 in the form of a promissory note (the Purchase Price”). The promissory note is to be paid to the Company on or before March 14, 2012 in lawful money of the United States of America and in immediately available funds the principal sum of $50,000, together with interest on the unpaid principal of this Note from the date hereof at the interest rate of Nine Percent (9%). The Note can be extended for one additional twelve month period. The loss on disposal is $586,924 and is recognized in the financial statements on the disposal date. Please refer to the Form 8-K filed with the SEC on March 18, 2011.

 

On February 29, 2012, the Company entered into a Linear Short Form Agreement (the “AGREEMENT”), with Success Oil Co., Inc. located at 8306 Wilshire Blvd. #566 Beverly Hills, Ca. 90211, (“Success” or “Operator”) and CUBO Energy, PLC and or its assignee, a public limited corporation organized under the laws of Great Britain (“CUBO”, “Assignee”, or “Participant”), whereas the Company will sell 50% of its interests in certain oil and gas properties and interests to CUBO known as the North 40 Interests of the A.J. Tubb Leasehold Estate located in Ward County Texas to CUBO as approved by Operator, along with granting certain participation rights in further Option Rights for new proposed Drilling and Development in the South 40 of the A.J. Tubb Leasehold Estate. The total consideration to be given is $1.15 million in CUBO stock reduced by any liabilities assumed by CUBO that are collateralized by the North 40 Interests. For further information please see our Current Report on Form 8-K filed on March 7, 2012, incorporated herein by reference. As of the date of this filing, this transaction has not closed. The Company included the assets and liabilities of the portion of the interests that may be sold in assets and liabilities available for sale and discontinued operations.

 

On March 12, 2012 the Company announced that it entered into a Letter of Intent to sell 51% majority interest in its Arctic Solar Engineering, LLC ("ASE") to Canada based W2 Energy, Inc. (“W2”) via a Securities Exchange Agreement and subject to the approvals of the Board of Directors of both the Company and W2. As of the date of this filing, this transaction has not closed. The Company included the assets and liabilities of the portion of the interests that may be sold in assets and liabilities available for sale and discontinued operations.

 

17.Professional Service Agreements

 

On March 1, 2010, the Company entered into two professional service agreements (the Agreements”) which are intended to be automatically renewable annually. Aggregate fees pursuant to the Agreements are comprised of (a) $20,000 in cash per month which has been accrued through the period ended December 31, 2010; (b) a one-time issuance of 120,000 shares of restricted common stock; and (c) three-year warrants, which vest six months from the grant date, to purchase for $20,000 the lower of (i) shares of common stock representing 1% of the Company’s outstanding common stock; or (ii) shares of common stock representing a fair market value of $150,000. In addition, the vendors are entitled to convert any unpaid cash fees into common stock at a 50% discount to the fair market value of the stock on the date of conversion. On April 1, 2011 the contracts were renewed with aggregate fees of $30,000 per month which have been accrued through the period ended December 31, 2011. In this renewal, the warrants were cancelled and are no longer exercisable. All amounts accrued as part of the $30,000 monthly accrual are done so pursuant to convertible promissory notes due on demand. They are convertible at a 50% discount to the fair market value of the stock on the date of conversion. April 1,2012 the agreements were amended to aggregate fees of $10,000 monthly and the monthly accrual adjusted accordingly.

 

18.Concentrations and Risk

 

Customers

During the three and six months ended June 30, 2012 and June 30, 2011, revenue generated under the top five customers accounted for 100% of the Company’s total revenue. Concentration with a single or a few customers may expose the Company to the risk of substantial losses if a single dominant customer stops conducting business with the Company.  Moreover, the Company may be subject to the risks faced by these major customers to the extent that such risks impede such customers’ ability to stay in business and make timely payments.

 

19.Contingencies

 

The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the financial condition or results of operations of the Company.

 

In October 2010 we received notice of a lawsuit filed against the Company by St. George Investments LLC relating to certain Agreements entered on January 15th, 2010 by EGPI Firecreek Inc. and St. George Investments LLC which include: i) Note Purchase Agreement, ii) Convertible Promissory Note, iii) Judgment by Confession and iv) Registration Rights Agreement. St. George Investments LLC believes that EGPI Firecreek is in breach of terms agreed upon pursuant to the aforementioned agreements and sought damages totaling $262,585 (includes principal, interest and all penalties/fees pursuant to plaintiff's initial disclosures dated 3/28/11). In July 2011, the Company and St. George Investments LLC entered into a settlement agreement where the Company agreed to pay $202,000 on various payment terms beginning with $10,000 on signing of agreement, followed by five payments beginning August through December 2011, and thereafter payments for 18 months in the amount of $6,158. St. George now claims EGPI defaulted on the payment schedule and entered a Confession of Judgment. On September 23, 2011, EGPI Firecreek, Inc. received notice that St. George Investments LLC had filed a second lawsuit arising out of the same claims. The Company is moving to set aside the Confession of Judgment on this basis and is answering and vigorously defending the second lawsuit. As of January 31, 2012, the Company entered into a Settlement Agreement with St. George Investments, LLC whereas among other terms due the Company agreed to two principal options for settlement with summary terms as follows: 1. A settlement payment in the total aggregate amount of $200,000 with $20,000 due January 21, 2012, and $10,000 per month thereafter on the 21st of each month thereafter going forward until paid or 2. A payment balloon of $100,000 paid by April 21, 2012 less $30,000 in payments as credited or $70,000 total upon which the Company or its parties shall have no further obligation to make settlement payments or pay any other amounts to St. George Investments, LLC thereafter. The Company is current in its payment through April 20, 2012 and negotiated a stock payment during the quarter ended June 30, 2012. We are further in discussions on negotiations to make our payments.The entire amount owed is accrued in notes payable in the financial statements.

 

In November 2010, EGPI Firecreek, Inc. and South Atlantic Traffic Corp. received a lawsuit notice from two of the former owners of SATCO, Mr. Jesse Joyner and Mr. James Stewart Hall. Mr. Joyner and Mr. Hall have subsequently resigned from their positions with the company.   The former owners of SATCO are suing for payment of promissory notes that are currently recorded in the financial statements, along with accrued interest and penalties and seeking damages for breach of their employment contracts.  On December 17, 2010, EGPI Firecreek, Inc. filed its answer to the claim and filed a counterclaim against Mr. Joyner and Mr. Hall. It is management's position that the Company is not liable and is currently exploring all defense and counter-suit options, and the Company will vigorously defend its position.

 

In May 2011 the Company received a lawsuit by Edelweiss Enterprises Inc. dba The Small Business Money Store (“SMBS”) seeking a judgment to collect amounts allegedly owed it relating to an account receivable factoring agreement, to the former subsidiary SATCO, in the total aggregate amount of $48,032. The Company believes that it is not liable, and will vigorously defend its position.

 

In August 2011, the Company received a lawsuit notice on behalf of our wholly owned subsidiary Energy Ventures One Inc whereas Contegra Construction Company LLC (“CCC”) is seeking a judgment to collect amounts owed it relating to a promissory note in the amount of $157,767, which includes interest and late fees. The amount is recorded as a liability in the financial statements.

 

In August 2011, the Company received a lawsuit notice on behalf of itself and our wholly owned subsidiary Energy Ventures One Inc. and Arctic Solar, LLC by Masters Equipment Services, Inc. (“Masters”) seeking a judgment to collect amounts allegedly owed it relating to a promissory note in the amount of $110,153, including interest and late fees. The Company is one of several parties named in the proceeding and is prepared to vigorously defend its position. The promissory note is recorded as a liability in the financial statements.

 

In February 2012 the Company received a lawsuit notice on behalf of itself by Morrell Saffa Craige, PC (“Morrell”) seeking the recovery of legal fees in the approximate sum of $25,000 owed to the Plaintiff in connection with its successful defense of a lawsuit styled Thermo Credit, LLC v. EGPI, et al. The Company owes the above fees and intends on paying the bill in full. The amount is recorded in the financial statements in accounts payable.

 

In May, 2012 a lawsuit was filed in the Clark County, Nevada District Court by Lakeview Consulting, LLC (“Lakeview”), against the Company and other various Does 1-V and Roes corporations V1-X. Lakeview alleges the Company failed or refused to convert shares on a Convertible Note in the amount of $35,000 and therefore the sum plus interest, damages, etc. The Company is one of several parties named in the proceeding and is prepared to vigorously defend its position. The amount is recorded as a liability in the financial statements.

 

As noted in our business combination footnote our SATCO acquisition contained certain make whole provisions that may impact us in the future.  In accordance with the make whole provision of the acquisition agreement pertaining to SATCO, $988,720 has been recorded in common stock subscribed for additional contingent consideration that is owed as of December 31, 2009.  The make whole provision provided that the owners of SATCO would be protected from decreases in the stock price of the Company for 1 year subsequent to the acquisition date.  The one year anniversary of the acquisition is November 4, 2010.  As of this date, the total fair value of the amount of contingent consideration owed in common shares is $1,119,580.  In accordance with ASC 805-30-35 pertaining to subsequent measurement of contingent consideration pursuant to a business combination, the additional $130,860 is not recorded due to the fact that this consideration is recorded in equity.  This amount will be recognized upon issuance of the shares in settlement of the amount owed.

 

As discussed in Note 11 above, we have certain notes that may become convertible in the future and potential result in further dilution to our common shareholders.

 

In July 2010 our Chanwest Resources, Inc. subsidiary operation (“CWR”) entered into a purchase lease agreement with Circle D Trucking of Texas which includes a right to purchase the leased equipment valued at $164,500.

 

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20.Subsequent Events

  

I.

 

On February 29, 2012, the we entered into a Linear Short Form Agreement (the “AGREEMENT”), with Success Oil Co., Inc. located at 8306 Wilshire Blvd. #566 Beverly Hills, Ca. 90211, and ii) CUBO Energy, PLC and or its assignee, a public limited corporation organized under the laws of Great Britain with its principal place of business located at Thames House, Portsmouth Road Esher Surrey, KT10 9AD United Kingdom.

 

Whereas, a linear short form Agreement was agreed by the parties to be developed into the final long form agreement (“LFA”) to be completed and signed off by the parties by no later than March 15, 2012.

 

Whereas the Parties as i) entered into a Stock Purchase Agreement (the “Agreement”) as of July 31, 2012, the Effective Date (“Effective Date”), by and among CUBO Energy, PLC’s assignee, Mondial Ventures Inc., (“Mondial”) a public limited corporation organized under the state of Nevada, USA, with its principal place of business located at 4625 West Nevso Drive, Suite 2 Las Vegas NV, 89103 (collectively, the “Company”), and itself, and EGPI Firecreek, Inc. (“the Registrant”) listed on Schedule 1 attached thereto (collectively referred to as the “Investor”), and, ii) entered into an assignment and,

 

Whereas, contemporaneously with the execution and delivery of the Agreement, the parties hereto executed and delivered i) an Assignment and Bill of Sale (the “Assignment and Bill of Sale Agreement”) pursuant to which EGPI Firecreek, Inc., the Investor, and its wholly-owned subsidiary, Energy Producers, Inc., agree to sell to Mondial Ventures, Inc., oil and gas interests for the J.B. Tubb Leasehold Estate listed in the Assignment and Bill of Sale Agreement of Energy Producers, Inc., a wholly owned subsidiary of EGPI Firecreek, Inc. as described in the Assignment and Bill of Sale attached on Exhibit “A” thereto, and, ii) 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.

 

For more information please see our Current Report on Form 8-K filed on August 3, 2012.

 

II.

 

Effective July 1, 2012 EGPI Firecreek, Inc. and it wholly owned subsidiary Energy Producers, Inc. (individually and collectively, the “Company” or “Companies”, entered into an Agreement (the “Agreement”) with TWL Investments a LLC, an Arizona limited liability company (“Holder” or “TWL”), each a “Party” and collectively (the “Parties”). The Agreement pertains to a certain Promissory Note of May 9, 2011 (hereinafter, the “TWL Note”) and other obligations of the Companies that have been assigned to TWL by their holders. This Agreement shall be effective as of July 1, 2012.

 

For more information please see our Current Report on Form 8-K filed on August 3, 2012.

 

In August 2012 the Company issued 370,750,000 shares of common stock, as reclassified, to reduce debt owed to a debt holder.

 

In August 2012 the Company issued 627,222,222 shares of common stock, as reclassified, to reduce debt on promissory notes and convertible promissory notes.

 

21.Segment Reporting

 

We classify our operations into two main business lines: (1) Solar Thermal Energy, and (2) Oil and Gas. This segmentation best describes our business activities and how we assess our performance. Information about the nature of these segment services, geographic operating areas and customers is described in the Company’s 2010 Annual Report. Summarized financial information by business segment for the three months ending June 30, 2012 is presented below. All segment revenues were derived from external customers. As more fully disclosed in the Company’s fiscal year 2011 Annual Report, we had no operations in these business segments until our acquisitions of Arctic Solar Engineering, LLC on February 4, 2011 (Solar Thermal Energy), and the beginning operations of Energy Producers, Inc. (Oil and Gas).

 

For the six months ending June 30, 2012,

 

 

 

Discontinued Operations

Solar Thermal

Energy

 

 

Oil & Gas

 

 

All Other (a)

 

 

Totals

Revenues 31,604       31,604       63,208
Depreciation & amortization 47,868       81,693       129,561
Income (loss) from operations (271,536)   34,376   (305,913)   (1,617,191)   (2,160,264)
Interest expense     463       844,527   844,990
Segment assets 177,136   210   2,047,053   349,644   2,574,043

 

For the six months ending June 30, 2012,

 

The following are reconciliations of reportable segment revenues, results of operations, assets and other significant items to the Company’s consolidated totals (amounts stated in thousands):

 

   Six Months Ended June 30, 2012
Net revenues:     
Total for reportable segments   63,208 
Corporate   —   
    63,208 
Depreciation and amortization:     
Total for reportable segments   129,561 
Corporate   —   
    129,561 
Income (loss) from operations:     
Total for reportable segments   (543,073)
Corporate   (1,617,191)
    (2,160,264)
Interest expense:     
Total for reportable segments   463 
Corporate   844,527 
    844,590 
Segment assets:     
Total for reportable segments   2,224,399 
Corporate   349,644 
    2,574,043 

 

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ITEM 2 –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

You should read the following discussion and analysis in conjunction with the Consolidated Financial Statements in Form 10-K, as amended, and the other financial data appearing elsewhere in this Form 10-Q Report.

 

The information set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) expected changes in the Company’s revenues and profitability, (ii) prospective business opportunities and (iii) the Company’s strategy for financing its business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to the plans, objectives and expectations of the Company for future operations. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this report should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. In light of these risks and uncertainties, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. The foregoing review of important factors should not be construed as exhaustive. The Company undertakes no obligation to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

The Company has been focused on oil and gas activities for development of interests held that were acquired in Texas and Wyoming for the production of oil and natural gas through December 2, 2008.  The Company throughout 2008 was seeking to continue expansion and growth for oil and gas development in its core projects. EGPI Firecreek Inc. was formerly known as Energy Producers, Inc., an oil and gas production company focusing on the recovery and development of oil and natural gas. This strategy is centered on rehabilitation and production enhancement techniques, utilizing modern management and technology applications in upgrading certain proven reserves. Historically in its 2005 fiscal year, the Company initiated a program to review domestic oil and gas prospects and targets.  As a result, EGPI acquired non-operating oil and gas interests in a project titled Ten Mile Draw (“TMD”) located in Sweetwater County, Wyoming USA for the development and production of natural gas. In July, 2007, the Company acquired and began production of oil at the 2,000 plus acre Fant Ranch Unit in Knox County, Texas. This was followed by the acquisition and commencement in March, 2008 of oil and gas production at the J.B. Tubb Leasehold Estate located in the Amoco Crawar Field in Ward County, Texas. The Company as a result, successfully increased oil and gas production and revenues derived from its properties.

 

In early 2009, based on the economic downturn, struggling financial markets and the implementation of the federal stimulus package for infrastructure projects, the Company embarked on a transition from an emphasis on the oil and gas focused business to that of an acquisition strategy focused on the transportation industry serving federal DOT and state/local DOT agencies. In addition, the acquisition targets being reviewed by the Company also had a presence in the telecommunications and general construction industries. The acquisition strategy focuses on vertically integrating manufacturing entities, distributors and construction groups. In May 2009, the Company acquired M3 Lighting Inc. (M3) as the flagship subsidiary with key additional management team to begin this process, and as a result on November 4, 2009, the Company acquired all of the capital stock of South Atlantic Traffic Corporation, a Florida corporation, which distributes a variety of products geared primarily towards the transportation industry where it derives its revenues.

 

Through 2009 and in addition to activities discussed above, we continued our previous decisions to limit and wind down the historical pursuit of our oil and gas projects overseas in Central Asian and European countries and sold off our then oil and gas subsidiary unit Firecreek Petroleum, Inc., but did retain certain first right of refusal to overseas projects (see discussion further in this report). In late 2009 and in 2010, the Company began pursuing a reentry to the oil and gas industry on a domestic basis as the Company’s second line of business and which was part of our ongoing strategic plans. The Company became a party to a pending agreement to acquire an entity that owns approximately 2,100 miles of a pipeline system initially used as a crude oil transportation system by Koch Industries, As of December 31, 2010 we have not concluded this transaction and have not received notice of termination or other correspondence. In addition, on December 31, 2009, the Company, through its wholly-owned subsidiary, Energy Producers, Inc., effectively acquired a 50% working interest and corresponding 32% revenue interest in certain oil and gas leases, reserves and equipment located in West Central Texas. As of December 31, 2010 we have not yet produced commercial oil or gas through these non operated interests. The turnkey manager, partner, and project operator encountered an abundance of weather related and non reported down hole maintenance issues in its attempts in 2010 to bring one or more wells on line. For 2011 both the operator and Company are in agreement and are currently moving forward for the recompletion of the McWhorter and Boyette proven zones in their respective wells. Additionally, plans are to have the Young #1 well, which adjoins the McWhorter, convert into a salt water disposal well to support the McWhorter production operations and economics. We are planning in-depth technical evaluations to be conducted on the two undeveloped Barnett Shale locations situated on the Boyette lease at the 5,500 ft. depth.  Recent successes in the local Barnett wells have encouraged both management and its operator, to advance the timing on the Barnett evaluation.

 

Moving forward, in early 2010 again as a part of our business strategy for a line of business focusing on the transportation industry serving federal DOT and state/local DOT agencies the Company entered into a pending agreement to acquire all of the issued and outstanding capital stock of Southwest Signal, Inc., a Florida corporation. Southwest Signal, Inc. was established in 2000 and is engaged in all facets of the United States Intelligent Traffic Systems (ITS) / Department of Transportation (DOT) Industry activities. Ultimately this acquisition was never consummated due to a failed financial arrangement. In addition, working side by side at the time of SWSC to implement our strategy for SATCO and pair the activities of the two units due the similar nature of business, on March 3, 2010, the Company executed a Stock Purchase Agreement with the stockholders of Redquartz LTD, a company formed and existing under the laws of the country of Ireland.  Redquartz LTD business had been active for 45 years, is known internationally and we sought this acquisition as our entrance into the European markets with respect to Intelligent Traffic Systems (ITS) and the transportation industry as well as expanding our relationship recently established with an overseas entity business relationship with the principals of Redquartz, known as Cordil, Inc., to assist for the products sold by South Atlantic Traffic Corporation (SATCO), a wholly owned subsidiary of the Company. For further information please see our Current Report on Form 8-K filed on March 11, 2010,  and as provided elsewhere in this document. The Redquartz LTD business unit purchased by the Company had no assets and resulted in additional debt burden to the Company.

 

Toward further development of our oil and gas line of business, in June 2010, the Company acquired all of the issued and outstanding stock of Chanwest Resources, Inc., (“Chanwest or CWR”) a Texas corporation. In the course of this acquisition, Chanwest stockholders exchanged all outstanding common shares for the Company’s common shares. Chanwest will provide services for drill site preparation to clear and lay pipeline (gathering systems) for operators. Chanwest operations can provide for services to maintain lease roads, set power poles and clean up oilfield spills. Chanwest works with operators or lease owners by purchase order or contract with major oil fields. The Company will continue to work with Chanwest to develop its plans for new growth for 2011. For further information please see our Current Report on Form 8-K filed on June 16, 2010, and information contained in our Form 10-Q filed November 22, 2010.

 

In October 2010, the Company (“Purchaser”) executed a Securities Purchase / Exchange Agreement (“SPA”) with the owners (“Sellers”) of Terra Telecom, LLC, an Oklahoma limited liability company, located at 4510 South 86th East Ave, Tulsa, Oklahoma, 74145 ( “Terra”) to acquire all of the outstanding stock of Terra, and 100% of the total LLC membership units existing thereof. For more information on Terra, please see our Current Report on Form 8-K and Exhibit 10.1 thereto filed on August 7, 2010, as amended.

 

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Terra Telecom was considered recognized as a leading provider of state-of-the-art communication technologies and a premier Alcatel-Lucent partner. They served various sized companies and organizations that use and deploy communications systems, sales, service, and training while consolidating and optimizing the end user experience. In 2006 Terra relocated its company headquarters to a 25,000 square foot facility in Tulsa, Oklahoma. This facility provides Terra the space to continue growth and the ability to manage operations throughout the nation. Terra Telecom worked with the United Nations delivering Alcatel voice products to several countries and the Texas Dept. of Transportation, which will bring opportunities to the Company’s SATCO and M3 units and other current or future planned ITS/DOT related activities. Terra’s various ITS/DOT opportunities in place with Alcatel products. Terra employed approximately 50.  The acquisition of Terra ultimately failed due to lack of a completed funding which was to be concluded on or about February 24th, 2011. The funding that was in process for its initial order was stopped due to the actions of IRS seizure of escrow deposit funds in transit from the former Principals of Terra to the deposit account of the lender which was the requirements for the initial funding to begin. Because the funding did not begin, Terra was not able to maintain its dealership guarantees for product delivery which were pulled from clients’ orders.

 

Further regarding Terra, the Company from the time of execution of the Agreement did not have or assume control of the Terra entity’s assets, including bank accounts, nor did it establish or have effective or permanent management control of the entity. Since the economic downturn lenders have become intensely difficult to satisfy which in many cases can jeopardize transaction completions, due the time loss of substantial and excessive due diligence processes, including backing out of signed closing processes. 

 

Overall due to economic factors we entered extreme financial turbulence in the latter half to end of Q4 2010 for our new business strategy. Some of these economic factors included our subsidiary operations for SATCO being on hold numerous times (unable to complete or take on new sales) with the inability to make some or all product deliveries and installations (jobs), not being able to pay suppliers for order deliveries, and other obstacles including some suppliers backing down on agreements negotiated with negotiated terms being met by SATCO. These issues over time eventually generated an unstable environment for both South Atlantic Traffic Corporation and all entities or pending acquisitions or activities related to Intelligent Traffic Systems (ITS) / Department of Transportation (DOT) Industry serving federal DOT and state/local DOT agencies, and telecommunications industries for deployment of communications systems, sales, and/or service. The Company management and advisors reached the conclusion in late February 2011, that it was unlikely that SATCO or Terra would be able to continue operations and on March 14, 2011 sold its interests in both entities to Distressed Asset Acquisitions, Inc. We believe that if the financing established for Terra would have closed, it would have improved the cash flow status of the Company that could also have also directly and indirectly assisted our SATCO unit to rebuild and quickly re-structure and solve many of its problems and renewed growth potential. As delays were incurred time and time again from potential lenders and financial entities, realizing the potential of SATCO became less and less of a possibility. For more information please see our Current Report on Form 8-K filed on March 18, 2011.

 

In an effort to establish an alternative energy division, in February 2011, the Company entered into an Agreement to acquire all 100%  of Arctic Solar Engineering LLC, a Missouri limited liability company located at PO Box 4391, Chesterfield, MO 63006 (the “Company”), and the owners of Membership Interests of the Arctic Solar Engineering LLC; The FATM Partnership, a Missouri Partnership, The Frederic Sussman Living Trust. Arctic Solar Engineering, LLC, is an integrator of Solar Thermal Energy technology. Solar Thermal Energy (“STE”) is believed to be the most efficient and economical method of capturing and using renewable thermal energy created by the sun every day of the year. The solar collectors that are used capture all visible and non-visible wave lengths of sun light and covert the light into energy at a 90% efficiency. Energy created by ASE’s STE Systems store that energy in water (or other similarly inexpensive storage mediums) and then use that energy in its direct form to heat water, heat space and cool spaces. According to the US Department of Energy, this accounts for 70% of all energy used in commercial and residential structures in the United States.

 

In September 2010 the Company entered into a term sheet and subsequently later in March of 2011, entered into a Series D Stock Purchase Agreement (“SPA”) with Dutchess Private Equities Fund, Ltd. (“Investors”) pursuant to which the Investors and its wholly-owned subsidiary Ginzoil, Inc, (GZI) agreed to sell to the Company’s wholly owned subsidiary unit Energy Producers, Inc. (“EPI”) a majority 75% Working Interest and 56.25% 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 8,500 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, EPI will also acquire 75% Working Interest and 56.25% 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.

 

The Company has been making presentations to asset-based lenders and other financial institutions for the purpose of (i) expanding and supporting our growth potential by i) to a lesser extent rebuilding for the time being, the development of its line of business operations similar to it former activities related to ITS/DOT and telecommunications industries, and (ii) building new infrastructure for its oil and gas operations in 2011. The Company throughout its first quarter of operations for 2011 has been pursuing projects for acquisition and development of select targeted oil and gas proved producing properties with revenues, having upside potential and prospects for enhancement, rehabilitation, and future development. These prospects are primarily located in Eastern Texas, and in other core areas of the Permian Basin.

 

The Company’s goal is to rebuild our revenue base and cash flow; however, the Company makes no guarantees and can provide no assurances that it will be successful in these endeavors.  

 

One of the ways our plans for growth could be altered if current opportunities now available become unavailable:

 

The Company would need to identify, locate, or address replacing current potential acquisitions or strategic alliances with new prospects or initiate other existing available projects that may have been planned for later stages of growth and the Company may therefore not be ready to activate. This process can place a strain on the Company. New acquisitions, business opportunities, and alliances, take time for review, analysis, inspections and negotiations. The time taken in the review activities is an unknown factor, including the business structuring of the project and related specific due diligence factors.

 

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General

 

The Company historically derived its revenues primarily from retail sales of oil and gas field inventory equipment, service, and supply items primarily in the southern Arkansas area, and from acquired interests owned in revenue producing oil wells, leases, and equipment located in Olney, Young County, Texas. The Company disposed of these two segments of operations in 2003. The Company acquired a marine vessel sales brokerage and charter business, International Yacht Sales Group, Ltd. of Great Britain in December 2003 later disposing of its operations in late 2005. The Company focused on oil and gas activities for development of interests held that were acquired in Wyoming (the Ten Mile Draw (TMD) prospect) and two programs in Texas, (the Fant Ranch unit, and J.B. Tubb Leasehold Estate) for the production of oil and natural gas through October 30 and December 2, 2008 the dates of disposal respectively. In 2009 we disposed of our wholly owned subsidiary Firecreek Petroleum, Inc. (see further information in this report and in our current Report on Form 8-K filed May 20, 2009, incorporated herein by reference). We account for or have accounted for these segments as discontinued operations in the consolidated statements of operations for the related fiscal year. 

 

Sale/Assignment of 100% Stock of FPI Subsidiary

 

Having disposed of all of the assets of FPI, on May 18, 2009, the Company and Firecreek Global, Inc., entered into a Stock Acquisition Agreement effective the 18th day of May, 2009, relating to the Assignee’s acquisition of all of the issued and outstanding shares of the capital stock of Firecreek Petroleum, Inc., a Delaware corporation. Moreover, included and inherent in the Assignment was all of the Company’s debt held in the FPI subsidiary. In addition, the Company, and Assignee executed a right of first refusal agreement attached as Exhibit to the Agreement, granting to the Company the right of first refusal, for a period of two (2) years after Closing, to participate in certain overseas projects in which Assignee may have or obtain rights related to Assignors’ previous activities in certain areas of the world. For further information please see our current Report on Form 8-K filed on May 20, 2009, incorporated herein by reference.

 

2009 Merger Acquisition with M3 Lighting, Inc.

 

On May 21, 2009, EGPI Firecreek, Inc., a Nevada corporation (the “Company” or “Registrant”), Asian Ventures Corp., a Nevada corporation (the “Subsidiary”), M3 Lighting, Inc., a Nevada corporation (“M3”), and Strategic Partners Consulting, L.L.C., a Georgia limited liability company (“Strategic Partners”) executed and closed a Plan and Agreement of Triangular Merger (the “Plan of Merger”), whereby M3 merged into the Subsidiary, a wholly-owned subsidiary of the registrant (the “Merger”).  Further information can be found along with copy of the Plan of Merger attached as an exhibit to our Current Report on Form 8-K, filed with the Commission on May 27, 2009, as amended. Amendment No. 1 and No. 2 to the May 27, 2009 current Report on Form 8-K were filed on June 24 and August 4, 2009, respectively, and additional information can be found in our Form 10-K annual report filed on April 15, 2010, and incorporated herein by reference.

 

Completion of South Atlantic Traffic Corporation (SATCO) Acquisition

 

Effective as of November 4, 2009, the Company acquired all of the issued and outstanding capital stock of South Atlantic Traffic Corporation, a Florida corporation (“SATCO”). In the course of this acquisition, SATCO stockholders exchanged all outstanding common shares for cash consideration, the Company’s common shares and sellers’ notes. SATCO has been in business since 2001 and has several offices throughout the Southeast United States. Please see further discussion and information listed in “The Business”, “Description of Properties”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere in this document.

 

Completion of Acquisition of 50% Oil and Gas Working Interests, Callahan, Stephens, and Shakelford Counties, Texas, Three Well Program

 

Effective December 31, 2009, the Company through its wholly owned subsidiary Energy Producers, Inc. closed an Acquisition Agreement including an Assignment of Interests in Oil and Gas Leases (the “Assignment”), with Whitt Oil & Gas, Inc., (“Whitt”) a Texas corporation acquiring 50% working interests and corresponding 32% net revenue interests in oil and gas leases representing the aggregate total of 240 acre leases, reserves, three wells, and equipment located in Callahan, Stephens, and Shakelford Counties, West Central Texas. Please see further discussion and information listed in “The Business” and “Description of Properties” and the “Overview” to the Management Discussion and Analysis sections of this report.

 

Completion of Redquartz LTD Acquisition

 

On March 3, 2010, the Company acquired Redquartz LTD, a company formed and existing under the laws of the country of Ireland.  Redquartz LTD has been in business for 45 years, is known internationally and is our entrance into the European markets with respect to Intelligent Traffic Systems (ITS) and the transportation industry as well as expanding our relationship recently established with Cordil, Inc. for the products sold by South Atlantic Traffic Corporation (SATCO), a wholly owned subsidiary of the Company. For further information please see our Current Report on Form 8-K filed on March 11, 2010,  and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.

 

Completion of Chanwest Resources, Inc. Acquisition

 

On June 11, 2010, the Company acquired all of the issued and outstanding stock of Chanwest Resources, Inc., (“Chanwest or CWR”) a Texas corporation. Chanwest Resources, Inc. was formed in 2009 and has been engaged in ramping up operations including acquiring assets related to the servicing, construction, production and development for oil and gas. For further information please see our Current Report on Form 8-K filed on June 16, 2010, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.

 

Completion and Entry into a Definitive Agreement with Terra Telecom, LLC

 

On October 1, 2010, EGPI Firecreek, Inc. (“Purchaser”) executed a Securities Purchase / Exchange Agreement (“SPA”) with the owners (“Sellers”) of Terra Telecom, LLC, an Oklahoma limited liability company, located at 4510 South 86th East Ave, Tulsa, Oklahoma, 74145 ( “Terra”) to acquire all of the outstanding stock of Terra, and 100% of the total LLC membership units existing thereof. All assets and liabilities of Terra, other than information listed in the SPA are considered to be transferred to the Purchaser. For more information on Terra, please see our Current Report on Form 8-K, Form 8-K/A (amendment no. 1), and Form 8-K/A (amendment no. 2) filed on October 7, 2010, December 7, 2010, and March 22, 2011, respectively, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.  On March 14, 2011, the Company’s interest in Terra was sold.

 

Completion and Entry into a Definitive Agreement with Arctic Solar Engineering, LLC

 

On February 4, 2011, the Company entered into an Agreement to acquire all 100%  of Arctic Solar Engineering LLC, a Missouri limited liability company located at PO Box 4391, Chesterfield, MO 63006 (the “Company”), and the owners of Membership Interests of the Arctic Solar Engineering LLC; The FATM Partnership, a Missouri Partnership, The Frederic Sussman Living Trust. Arctic Solar Engineering, LLC, is an integrator of Solar Thermal Energy technology. For further information please see our Current Report on Form 8-K filed on February 10, 2011, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.

 

Completion and Entry into a Definitive Agreement with Dutchess Private Equities Fund, Ltd.

 

On March 1, 2011, the Company entered into a Series D Stock Purchase Agreement (“SPA”) with Dutchess Private Equities Fund, Ltd. (“Investors”) pursuant to which the Investors and its wholly-owned subsidiary Ginzoil, Inc, (GZI) agreed to sell to the Company’s wholly owned subsidiary unit Energy Producers, Inc. (“EPI”), a majority 75% Working Interest and 56.25% 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. For further information please see our Current Report on Form 8-K filed on March 7, 2011, and in the section on “The Business”, and “Overview” to the Management Discussion and Analysis sections, and elsewhere listed in this document.

 

The Company expects to incur an increase in operating expenses during the next year from commencing activities related to its plans for the Company’s oil and gas business through EPI, oil and gas services business through CWR, alternative energy business division through Arctic Solar Engineering, LLC, and including any new or pending acquisitions discussed herein, and those business activities and developments whether ongoing or to be concluded, as related to our M3, SATCO, and Terra strategy and operations, and ongoing potential acquisitions, including new or pending acquisitions related to signalization and lighting geared to the transportation industry. The amount of net losses and the time required for the Company to reach and maintain profitability are uncertain at this time. There is a likelihood that the Company will encounter difficulties and delays encountered with business subsidiary operations, including, but not limited to uncertainty as to development and the time and timing required for the Company’s plans to be fully implemented, governmental regulatory responses to the Company’s plans, fluctuating markets and corresponding spikes, or dips in our products demand, currency exchange rates between countries, acquisition and development pricing, related costs, expenses, offsets, increases, and adjustments. There can be no assurance that the Company will ever generate significant revenues or achieve profitability at all or on any substantial basis.

 

(20)

 

General Statement:  Factors that may affect future results:

 

With the exception of historical information, the matters discussed in Management’s Discussion and Analysis or Plan of Operation contain forward looking statements under the 1995 Private Securities Litigation Reform Act that involve various risks and uncertainties.  Typically, these statements are indicated by words such as “anticipates”, “expects”, “believes”, “plans”, “could”, and similar words and phrases.  Factors that could cause the company’s actual results to differ materially from management’s projections, forecasts, estimates and expectations include but are not limited to the following:

 

  • Inability of the company to secure additional financing.

 

  • Unexpected economic changes in the United States.

 

  • The imposition of new restrictions or regulations by government agencies that affect the Company’s business activities.

 

To the extent possible, the following discussion will highlight the Company’s business activities for the three and six months ended June 30, 2012 and June 30, 2011.

 

Results of Operations

 

Three months ended June 30, 2012 compared to the three months ended June 30, 2011.

 

Total revenue for sales of oil and gas during the three months ended June 30, 2012 as compared to June 30, 2011 was $12,734 and $36,267, respectively. An additional and equal amount of revenue related to sales of oil and gas during the three months ended June 30, 2012 and 2011 were included in discontinued operations. Income declined the first six months due to oil field related problems first in its two fracing jobs which included defective gel pack sand from the manufacturer causing sand blockage, second from production interference due to necessary maintenance and repairs to its heater treater, water tank, and separator, and more recently having to shut down several weeks due to a pipe leak on pipeline owned by the gas purchaser running through the properties which shut down operations for nearly a month.

 

Total revenue for the sale and installation of solar equipment for the three months ended June 30, 2012 as compared to June 30, 2011 was $0 and $22,220, respectively. A portion of the overhead costs, 51%, pertaining to the subsidiary that is engaged in this business, Arctic Solar Engineering, LLC, has been classified in discontinuing operations due to the potential sale of this subsidiary.

 

Total general and administrative expenses increased to $477,922 as of June 30, 2012 from $330,602 as of June 30, 2012 due to increased professional expenses during the period.

 

The loss from discontinued operations for the three months ended June 30, 2012 and June 30, 2011 was $227,854 and $134,169, respectively. For the three months ended June 30, 2012 and June 30, 2011, the items composing discontinued operations included 51% of Arctic Solar Engineering, LLC and 50% of the operations of the oil and gas interests pertaining to the North 40 Interests of the Tubb Leasehold Interests. For the three months ended June 30, 2011, the loss from discontinued operations also included the operations of SATCO which was sold in the prior period.

 

Interest expense for the three months ended June 30, 2012 was $489,402 compared with $177,689 for the same period last year.

 

Fully diluted income (loss) per share was ($0.00) per share for the three months ended June 30, 2012, for continuing operations, compared to a loss of ($0.12) per share for the three months ended June 30, 2011.

 

Six months ended June 30, 2012 compared to the six months ended June 30, 2011.

 

Total revenue for sales of oil and gas during the six months ended June 30, 2012 as compared to June 30, 2011 was $31,604 and $107,649, respectively. An additional and equal amount of revenue related to sales of oil and gas during the three months ended June 30, 2012 and 2011 were included in discontinued operations.

 

Total revenue for the sale and installation of solar equipment for the six months ended June 30, 2012 as compared to June 30, 2011 was $0 and $25,142, respectively. A portion of the overhead costs, 51%, pertaining to the subsidiary that is engaged in this business, Arctic Solar Engineering, LLC, has been classified in discontinuing operations due to the potential sale of this subsidiary.

 

Total general and administrative expenses increased to $708,868 as of June 30, 2012 from $588,334 as of June 30, 2011 due to increased professional expenses during the period.

 

After deducting general and administrative expenses, the Company experienced a loss from operations of $893,443 for the six months ended June 30, 2012 compared to a loss of $608,591 for the same period last year.  

 

The loss from discontinued operations for the six months ended June 30, 2012 and June 30, 2011 was $271,536 and $792,415, respectively. For the six months ended June 30, 2012 and June 30, 2011, the items composing discontinued operations included 51% of Arctic Solar Engineering, LLC and 50% of the operations of the oil and gas interests pertaining to the North 40 Interests of the Tubb Leasehold Interests. For the six months ended June 30, 2011, the loss from discontinued operations also included the operations of SATCO which was sold in the prior period.

 

Interest expense for the six months ended June 30, 2012 was $844,990 compared with $295,030 for the same period last year.

 

Fully diluted income (loss) per share was ($0.00) per share for the six months ended June 30, 2012, for continuing operations, compared to a loss of ($0.99) per share for the six months ended June 30, 2011.

 

 Discussion of Financial Condition:  Liquidity and Capital Resources

 

Cash on hand at June 30, 2012 was $339 compared to $2,696 at December 31, 2011. The Company had working capital deficit of $6,424,599 at June 30, 2012 compared to a working capital deficit of $5,607,092 at December 31, 2011.

 

Total assets decreased to $2,574,043 at June 30, 2012 compared to $2,704,748 at December 31, 2011 mainly as a result of depreciation and depletion.

 

Shareholders’ equity increased to a deficit of $ 5,718,808 at June 30, 2012 from $4,678,508 at December 31, 2011. During the six months ended June 30, 2012, the Company issued 224,735,714 shares to consultants for services rendered. In addition, the Company issued 2,295,152,672 shares to pay debt of $373,944.

  

The Company must generally undertake certain ongoing expenditures in connection with rebuilding, expanding and developing its oil and gas business and related acquisition activity and its business acquisition activities, and for various past and present legal, accounting, consulting, and technical review, and to perform due diligence for the acquisition and development programs for both lines of business; furthering research for new and ongoing business prospects, and in pursuing capital financing for its existing available rights and proposed operations.   

  

Management has estimated that cost for initially paying down certain of the Company’s recent debt, providing necessary working capital, and activating development of its current plans for domestic oil and gas segment operations, alternative energy division, acquisition and development, and its rebuilding proposed for Telecom, ITS / DOT business operations and activities, acquisition and developments, will initially require a very minimum of $3,500,000 to $7,500,000 to a maximum of $8,000,000 to $10 million during the first six to twelve months of fiscal 2012.

 

Financing our full expansion and development plans for our oil and gas operations could require up to $50,000,000 or more. The Company may elect to reduce or increase its requirement as circumstances dictate. We may elect to revise these plans and requirements for funds depending on factors including; changes in acquisition and development estimates; interim corporate and project finance requirements; unexpected timing of markets as to cyclical aspects as a whole; currency and exchange rates; project availability with respect to interest and timing factors indicated from parties representing potential sources of capital; structure and status of our strategic alliances, potential joint venture partners, and or our targeted acquisitions and or interests.

 

The Company cannot predict that it will be successful in obtaining funding for its plans or that it will achieve profitability in fiscal 2012.

 

(21)

ITEM 3 – QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISKS

 

There are no material changes in the market risks faced by us from those reported in our Annual Report on Form 10-K for the year ended December 31, 2011.

 

ITEM 4(T) – CONTROLS AND PROCEDURES

 

(a)  Evaluation of Disclosure and Procedures

 

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2012. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that there are material weaknesses in our disclosure controls and procedures and they were not effective for the following reasons:

 

  In connection with the preparation of the Original Report, we identified a deficiency in our disclosure controls and procedures related to communication with the appropriate personnel involved with our 2011 audit.  We are utilizing additional accounting consultants to assist us in improving our controls and procedures. We believe these measures will benefit us by reducing the likelihood of a similar event occurring in the future.
     
  Due to our relatively small size and not having present operations, we do not have segregation of duties which is a deficiency in our disclosure controls. We do not presently have the resources to cure this deficiency.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer and Principal Accounting Officer, to allow timely decisions regarding required disclosure. 

 

All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial reporting reliability and financial statement preparation and presentation. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.

 

(b)  Changes in Internal Controls over financial reporting

 

There have been no changes in our internal controls over financial reporting during our last fiscal quarter, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

(22)

PART II.  OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

 

The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the financial condition or results of operations of the Company.

 

In October 2010 we received notice of a lawsuit filed against the Company by St. George Investments LLC relating to certain Agreements entered on January 15th, 2010 by EGPI Firecreek Inc. and St. George Investments LLC which include: i) Note Purchase Agreement, ii) Convertible Promissory Note, iii) Judgment by Confession and iv) Registration Rights Agreement. St. George Investments LLC believes that EGPI Firecreek is in breach of terms agreed upon pursuant to the aforementioned agreements and sought damages totaling $262,585 (includes principal, interest and all penalties/fees pursuant to plaintiff's initial disclosures dated 3/28/11). In July 2011, the Company and St. George Investments LLC entered into a settlement agreement where the Company agreed to pay $202,000 on various payment terms beginning with $10,000 on signing of agreement, followed by five payments beginning August through December 2011, and thereafter payments for 18 months in the amount of $6,158. St. George now claims EGPI defaulted on the payment schedule and entered a Confession of Judgment. On September 23, 2011, EGPI Firecreek, Inc. received notice that St. George Investments LLC had filed a second lawsuit arising out of the same claims. The Company is moving to set aside the Confession of Judgment on this basis and is answering and vigorously defending the second lawsuit. As of January 31, 2012, the Company entered into a Settlement Agreement with St. George Investments, LLC whereas among other terms due the Company agreed to two principal options for settlement with summary terms as follows: 1. A settlement payment in the total aggregate amount of $200,000 with $20,000 due January 21, 2012, and $10,000 per month thereafter on the 21st of each month thereafter going forward until paid or 2. A payment balloon of $100,000 paid by April 21, 2012 less $30,000 in payments as credited or $70,000 total upon which the Company or its parties shall have no further obligation to make settlement payments or pay any other amounts to St. George Investments, LLC thereafter. The Company is current in its payment through April 20, 2012 and negotiated a stock payment during the quarter ended June 30, 2012. We are further in discussions on negotiations to make our payments.The entire amount owed is accrued in notes payable in the financial statements.

 

In November 2010, EGPI Firecreek, Inc. and South Atlantic Traffic Corp. received a lawsuit notice from two of the former owners of SATCO, Mr. Jesse Joyner and Mr. James Stewart Hall. Mr. Joyner and Mr. Hall have subsequently resigned from their positions with the company.   The former owners of SATCO are suing for payment of promissory notes that are currently recorded in the financial statements, along with accrued interest and penalties and seeking damages for breach of their employment contracts.  On December 17, 2010, EGPI Firecreek, Inc. filed its answer to the claim and filed a counterclaim against Mr. Joyner and Mr. Hall. It is management's position that the Company is not liable and is currently exploring all defense and counter-suit options, and the Company will vigorously defend its position.

 

In May 2011 the Company received a lawsuit by Edelweiss Enterprises Inc. dba The Small Business Money Store (“SMBS”) seeking a judgment to collect amounts allegedly owed it relating to an account receivable factoring agreement, to the former subsidiary SATCO, in the total aggregate amount of $48,032. The Company believes that it is not liable, and will vigorously defend its position.

 

In August 2011, the Company received a lawsuit notice on behalf of our wholly owned subsidiary Energy Ventures One Inc whereas Contegra Construction Company LLC (“CCC”) is seeking a judgment to collect amounts owed it relating to a promissory note in the amount of $157,767, which includes interest and late fees. The amount is recorded as a liability in the financial statements.

 

In August 2011, the Company received a lawsuit notice on behalf of itself and our wholly owned subsidiary Energy Ventures One Inc. and Arctic Solar, LLC by Masters Equipment Services, Inc. (“Masters”) seeking a judgment to collect amounts allegedly owed it relating to a promissory note in the amount of $110,153, including interest and late fees. The Company is one of several parties named in the proceeding and is prepared to vigorously defend its position. The promissory note is recorded as a liability in the financial statements.

 

In February 2012 the Company received a lawsuit notice on behalf of itself by Morrell Saffa Craige, PC (“Morrell”) seeking the recovery of legal fees in the approximate sum of $25,000 owed to the Plaintiff in connection with its successful defense of a lawsuit styled Thermo Credit, LLC v. EGPI, et al. The Company owes the above fees and intends on paying the bill in full. The amount is recorded in the financial statements in accounts payable.

 

In May, 2012 a lawsuit was filed in the Clark County, Nevada District Court by Lakeview Consulting, LLC (“Lakeview”), against the Company and other various Does 1-V and Roes corporations V1-X. Lakeview alleges the Company failed or refused to convert shares on a Convertible Note in the amount of $35,000 and therefore the sum plus interest, damages, etc. The Company is one of several parties named in the proceeding and is prepared to vigorously defend its position. The amount is recorded as a liability in the financial statements.

 

ITEM 1A. RISK FACTORS.

 

There have been no material changes to the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2011, as updated by our subsequent filings on Form 10-Q (and otherwise) with the SEC.

 

(23)

 

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Required information has been furnished in current Report(s) on Form 8-K filings and other reports, as amended, during the period covered by this Report and additionally as listed and following:

 

Please see additional information listed in the Part II, Item 5, under the sub heading Recent Sales of Unregistered Securities, contained in our Annual Report on Form 10-K, filed on May 8, 2012, incorporated herein by reference.

 

I. (*)(**) On February 4, 2011, by majority consent of the Board of Directors, the Registrant approved the following issuances of its restricted common stock, par value $0.001 per share, to the following persons for and behalf of consideration for the Acquisition of Arctic Solar Engineering, LLC membership interests.

 

Name   Date  

Share

Amount

  Type of Consideration  

Fair Market

Value of

Consideration

 

Daniel Mark O’Neal  (***)/(1)

15316 Chesterfield Pines Lane

Chesterfield, MO 63017

   2/4/11   2,870,400  

In consideration of Acquisition of Arctic

Solar Engineering, LLC Membership

Interests

  $   14,064  
                     

Alvie M. Smith  (***)/(2)

15316 Chesterfield Pines Lane

Chesterfield, MO 63017

   2/4/11   1,435,200  

In consideration of Acquisition of Arctic

Solar Engineering, LLC Membership

Interests

  $   23,824  
                     

The Frederic Sussman Living Trust  (***)/()

Frederic Sussman, Trustee

15316 Chesterfield Pines Lane

Chesterfield, MO 63017

   2/4/11   1,694,400  

In consideration of Acquisition of Arctic

Solar Engineering, LLC Membership

Interests

  $   11.912  

 

 

(*) Issuances are approved, subject to such persons agreeing in writing to i) comply with applicable securities laws and regulations and make required disclosures; and ii) be solely and entirely responsible for their own personal, Federal, State, and or relevant single or multi jurisdictional income taxes, as applicable.

 

(**) $49,800 worth of common stock in the immediately preceding table was used primarily in consideration of Acquisition of Sierra Pipeline, LLC Membership Interests.

 

(1) Daniel Mark O’Neal is a shareholder, and not currently an affiliate, director, or officer of the Registrant. He provides business and consulting services to Arctic Solar Engineering, LLC.

 

(2) Alvie M. Smith is a shareholder, and not currently an affiliate, director, or officer of the Registrant. He provides business and consulting services to Arctic Solar Engineering, LLC.

 

(3) The Frederic Sussman Living Trust, Frederic Sussman, Trustee is a shareholder, and not currently an affiliate, director, or officer of the Registrant. Frederic Sussman manages day to day operations for Arctic Solar Engineering, LLC.

 

(***) The shares of common stock were issued pursuant to an exemption from registration as provided by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”). All such certificates representing the shares issued by the Company shall bear the standard 1933 Act restrictive legend restricting resale.

 

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4 – (REMOVED AND RESERVED)

 

ITEM 5 – OTHER INFORMATION

 

Please see information listed under Item 9B, “Other Information”, and under “Recent Developments”, and “Subsequent Events” contained in our Annual Report on Form 10-K, filed on May 8, 2012, incorporated herein by reference.

 

The Company and its Firecreek unit are presently in different stages of review and discussion, gathering data and information, and any available reports on other potential acquisitions in Texas, and other productive regions and areas in the U.S.

 

From time to time Management will examine oil and gas operations in other geographical areas for potential acquisition and joint venture development.

 

ITEM 6 – EXHIBITS

 

Exhibit No.   Description
31.1   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (3)
     
32.1   Certification Pursuant to 18 U.S.C. SECTION 1350 (3)

 

 

(24)

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date:  August 20, 2012

 

  EGPI FIRECREEK, INC.  
       
  By: /s/ Dennis Alexander  
    Name Dennis Alexander  
    Title: Chairman, CEO, President, and CFO  

 

 

 

 

 

 

 

 

 

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