The accompanying notes are an integral part of these unaudited financial statements
The accompanying notes are an integral part of these unaudited financial statements
The accompanying notes are an integral part of these unaudited financial statements
The accompanying notes are an integral part of these unaudited financial statements
NOTES TO FINANCIAL STATEMENTS
April 30, 2014
NOTE 1 ORGANIZATION AND DESCRIPTION OF BUSINESS
Liberty Energy Corp. (f/k/a DMA Minerals Inc., the Company) was incorporated on June 6, 2006 under the laws of the State of Nevada. The Company is currently an exploration stage company under the provisions of Accounting Standards Codification (ASC) No. 915, Development Stage Entities. Since inception, the Company has produced almost no revenues and will continue to report as an exploration stage company until significant revenues are produced. The Companys principal activity is the exploration and development of oil and gas properties. Properties are located in the United States of America.
The Companys success will depend in large part on its ability to obtain and develop oil and gas interests within the United States. There can be no assurance that oil and gas properties obtained by the Company will contain reserves or that properties with reserves will be profitable to extract. The Company is subject to local and national laws and regulations which could impact the Companys ability to execute its business plan.
NOTE 2 GOING CONCERN
The financial statements of the Company have been prepared assuming that future issuances of the Companys equity or debt securities will be required in order for the Company to continue to finance its operations and continue as a going concern. The Company has no revenues or cash flow to meet operating expenses. Continuing as a going concern, the Company contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses since its inception and requires capital for its future operational activities. The Company's ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Companys plan of operations, and its transition to profitable operations is necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying interim unaudited financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the Companys opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended April 30, 2014 are not necessarily indicative of the results for the full years. While management of the Company believes that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto for the year ended July 31, 2013 detailed in our Annual Report on Form 10-K filed on November 21, 2013.
Recent Accounting Pronouncements
Recently issued accounting pronouncements will have no significant impact on the Company and its reporting methods.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Net Loss per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. As the Company is in a net loss position, there are no outstanding potentially dilutive securities that would cause diluted earnings per share to differ from basic earnings per share.
Oil and Gas Properties
The Company follows the full-cost method of accounting for oil and natural gas properties. Under this method, all costs incurred in the exploration, acquisition and development, including unproductive wells, are capitalized in separate cost centers for each country. Such capitalized costs include contract and concessions acquisition, geological, geophysical, and other exploration work, drilling, completing and equipping oil and gas wells, constructing production facilities and pipelines, and other related costs.
The capitalized costs of oil and gas properties in each cost center are amortized on a composite unit of production method based on future gross revenues from proved reserves. Sales or other dispositions of oil and gas properties are normally accounted for as adjustments of capitalized costs. A gain or loss is not recognized in income unless a significant portion of a cost centers reserves is involved. Capitalized costs associated with acquisition and evaluation of unproved properties are excluded from amortization until it is determined whether proved reserves can be
assigned to such properties or until the value of the properties is impaired. If the net capitalized costs of oil and gas properties in a cost center exceed an amount equal to the sum of the present value of estimated future net revenues from proved oil and gas reserves in the cost center and the lower of cost or fair value of properties not being amortized, both adjusted for income tax effects, such excess is charged to expense.
Capitalized costs associated with acquisition and evaluation of unproved properties are excluded from amortization until it is determined whether proved reserves can be assigned to such properties or until the value of the properties is impaired. Our policy is consistent with ASC 932.
Revenue and Cost Recognition
The Company uses the sales method of accounting for natural gas and oil revenues. Under this method, revenues are recognized based on the actual volumes of gas and oil sold to purchasers. The volume sold may differ from the volumes to which the Company is entitled based on our interest in the properties. Costs associated with production are expensed in the period incurred.
The Company accounts for its income taxes in accordance with ASC No. 740, "Income Taxes". Under Statement 740, a liability method is used whereby deferred tax assets and liabilities are determined based on temporary differences between basis used for financial reporting and income tax reporting purposes. Income taxes are provided based on tax rates in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not, that the Company will not realize the tax assets through future operations.
The Companys federal tax returns for the years subsequent to 2010 are open to examination. At April 30, 2014, the Company evaluated its open tax years in all known jurisdictions. Based on this evaluation, the Company did not identify any uncertain tax positions. The Company accounts for interest and penalties relating to uncertain tax positions in the current period statement of operations as necessary.
Fair Value of Financial Instruments
GAAP establishes a fair value hierarchy which has three levels based on the reliability of the inputs to determine the fair value. These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions. The Companys financial instruments consist primarily of cash, accounts payables, loan payable and accrued interest. The carrying values of these financial instruments approximate their respective fair values as they are either short-term in nature or carry interest rates that approximate market rates. The Company evaluates its embedded conversion features contained within their convertible notes for derivative treatment.
The Companys derivative liabilities recognized since August 1, 2012 were considered Level 3 financial instruments.
We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 815 Derivatives and Hedging Activities.
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
We account for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: We record when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. The embedded conversion option in connection with our convertible debt could not be exercised unless and until we completed a Qualifying Financing transaction. Accordingly, we determined based on authoritative guidance that the embedded conversion option is deemed to be a contingent conversion rather than active conversion option that did not require accounting recognition at the commitment dates of the issuances of the Notes.
Certain prior period amounts have been reclassified to conform to current period presentation. No reclassification had any impact on the Companys previously reported net income (loss).
NOTE 4 - UNEVALUATED OIL AND GAS PROPERTIES
Baylor County Acquisition
In March 2014, the Company entered into a series of agreements to acquire $431,292 of certain oil and gas leases located in Baylor County, Texas (the Baylor County Acquisition) from certain non-related third parties. In connection therewith, the Company entered into (1) an agreement whereby certain mineral rights were released by their current lessee; (2) the purchase of certain oil and gas leases with respect to four properties (Macha, Ptacek, Motl, Butler) from their prior operator and (3) the reservation of a 5% Overriding Royalty Interest in the seller.
Consideration for the acquisition price of $431,292 of the oil and gas leases included the
following: (1) The Companys non-interest bearing promissory note in the face amount of $65,000. (2) The issuance of $50,000 original issue value of a new series of Company preferred stock (upon the filing of a Certificate of Designations for such stock with the Nevada Secretary of State). As of April 30, 2014, no preferred stock has been issued and this commitment has been recorded as other liability in the financial statements. (3) The Companys promissory note in the face amount of $316,292 (see Note 7 for further notes payable detail).
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company may from time to time be involved in legal proceedings arising from the normal course of business. There are no pending or threatened legal proceedings as of April 30, 2014.
NOTE 6 RELATED PARTY TRANSACTIONS
Effective October 25, 2013, the Company entered into two separate agreements with Buchanan Ventures, Inc. to engage Carlos Buchanan as a consultant. Under the first agreement (Contractor Agreement), it was agreed that Mr. Buchanan would, among other things, (a) assist with the development of the Companys business, (b) assist with the financial and investment structuring of the Company and (c) assist with evaluating acquisition prospects. As consideration for such consulting services, the Company agreed to pay Mr. Buchanan an aggregate of $150,000, payable every 90 days over a term of 24 months, payable in either cash or Company stock at the Companys discretion and based on income threshold of above $25,000 achieved by the Company. As of April 30, 2014, the income threshold has not yet met; thus, no payment was due to Mr. Buchanan. Under the second agreement (Finder Fee Agreement) Mr. Buchanan agreed, among other things, to introduce a mezzanine lender to advance to the Company over a period of 12 months up to $7,500,000 to support development and acquisition plans. In consideration of such services, the Company agreed to issue to Mr. Buchanan a total of 10,000,000 shares of Company common stock, subject to adjustment and clawback of all or a portion of the shares based upon Mr. Buchanans performance under the Finder Fee Agreement. As of April 30, 2014, no part of the consideration payable on account of either of the agreements has been earned. Mr. Buchanan is the brother of Armando Rafael Buchanan, the Companys Chief Financial Officer.
At April 30, 2014, the Company owed $52,425 to current officers and directors and $90,000 to two former officers and directors in non-interest bearing notes. Because the former officers each own approximately 16% of the Companys outstanding stock, we have reported the liability as owing to related parties. All amounts owing to related parties relate to fees for services provided.
Subsequent to October 31, 2013, the Company received free rent from a related party without a written agreement.
In connection with the Baylor County Leases acquired by the Company (see Note 4, above), on May 30, 2014, the Company entered into an Operating Agreement with BEP Operating, LLC as the successor operator of the properties described in the Baylor County Leases. Pursuant to this agreement, BEP Operating, LLC will hold the license to operate these leases. BEP Operating, LLC is licensed by the Texas Railroad Commission and is bonded to undertake these operations.
The Company anticipates that in the future when it has satisfied all requirements of the Texas Railroad Commission and is duly bonded, it will directly operate these leases. The Operating Agreement calls for the Company to reimburse all of BEP Operating, LLCs operating expenses incurred in connection with the work and to pay an additional amount on account of the operators overhead. BEP Operating, LLC is controlled by Carlos E. Buchanan II, the brother of Armando Rafael Buchanan, the Companys Chief Financial Officer.
NOTE 7 CONVERTIBLE NOTES PAYABLE
The April 10, 2013 Convertible Note
On April 10, 2013, the Company entered into a Securities Purchase Agreement with Asher Enterprises (Asher). Pursuant to the Agreement, Asher has agreed to purchase an 8% convertible note (the April Note) in the aggregate principal amount of $32,500, $30,000 was funded to the Company with the remaining $2,500 recorded as interest expense for financing costs charged by Ashers legal counsel. This convertible note together with any unpaid accrued interest is convertible into shares of common stock at the holders option 180 days from inception at a variable conversion price calculated as 61% of the market price which means the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion date with no floor stated in the conversion feature. The convertible note, issued on April 16, 2013, was due on January 15, 2014 at an interest rate of 8% per annum.
In light of the fact that some of the debt would be converted before it was extinguished and that there would be a high prepayment penalty, the Company recorded the cost of the discount on conversion and the prepayment penalty at July 31, 2013, resulting in a liability of $58,064 and total related interest of $25,564.
On October 16, 2013, Asher converted $15,000 of the face amount of the April Note into 898,204 shares of common stock.
On October 28, 2013, the Company settled the amount due on the April Note in full for $31,118, which included all accrued interest and prepayment penalties, and as of April 30, 2014 there is no balance due.
Baylor County Acquisition
In March 2014, the Company entered into a series of agreements to acquire certain oil and gas leases located in Baylor County, Texas (see Note 4 for further detail) from certain non-related third parties. In connection therewith, the Company entered into several note payable agreements as follows:
The Company entered into a non-interest bearing promissory note in the face amount of $65,000 payable in ten equal monthly installments of $6,500 commencing April 15, 2014 with a final maturity date of January 15, 2015. The Company has the option of making the payments by payment of certain specifically enumerated obligations of the seller. The note is secured by a
mortgage on the leasehold interest.
The Company entered into another promissory note in the face amount of $316,292 payable in 117 equal monthly installments of $3,715.47 commencing March 1, 2014 with a final maturity date of December 1, 2023. The note bears interest at a rate of seven percent (7%) per annum. The note is secured by a mortgage on the leasehold interest.
The future minimum payments of the long-term note payable are as follows as of April 30, 2014:
On April 10, 2013, the Company entered into the April Note (see Note 7 for further detail). The face amount of the April Note, together with any unpaid accrued interest was convertible into shares of common stock at the holders option 180 days from inception at a variable conversion price calculated as 61% of the market price which means the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion date with no floor stated in the conversion feature. The April Note, issued on April 16, 2013, was due on January 15, 2014 at an interest rate of 8% per annum. On October 16, 2013, Asher converted $15,000 of the face amount of the April Note. On October 28, 2013, the Company settled the note in full for $31,118, which included all accrued interest and prepayment penalties.
On April 11, 2013, the Company entered into a stock purchase agreement with Petro Fund 1 (PF1), a Houston, Texas-based upstream oil and gas fund, pursuant to which the investor agreed to advance up to $3,650,000 to the Company in multiple installments in exchange for units of the Company at unit price. The unit price means a price equal to the higher of either $0.05, or 95% of the volume-weighted average of the closing price of common stock, for the 10 days immediately preceding the date of receipt of notice from the Company for the advance of funds from the investor. Each unit shall consist of one share (restricted) of the common stock of the Company. The Company shall use up to $150,000 of Advances to extinguish existing debts, fund operating expenses, working capital and general corporate activities. Subject to the foregoing, the Company may use any balance of the Advances up to $3,500,000 to fund mergers and acquisitions (including related legal and, accounting expenses) or the purchase of capital assets, with any such Advances to be approved by PF1. All advances made shall be converted into shares.
The Company agreed to issue Petro Fund 548,921 shares of common stock for $43,000 in cash on May 23, 2013. The Company received the cash on May 24, 2013. The Company received an additional $41,118 in advances from PF1 in relation to this stock purchase agreement during the quarter ended October 31, 2013. The Company used these advances to settle the remaining April Note with Asher and to pay off certain payables. The Company received an additional $8,000 advances from PF1 in relation to this stock purchase agreement during the quarter ended April 30, 2014. The Company issued shares to PF1 for the advances received as of April 30, 2014 in the amount 548,921 common shares.
On July 31, 2013, the day of their resignation, the Company issued the former officers 2,000,000 shares of common stock, which it valued at $110,000. As part of the separation agreement, the Company accelerated the 500,000 shares that each were to have earned over the first six months (including 150,000 that each had not yet earned) and further awarded each an additional 500,000 shares when they left the Company.
Armando Buchanan became Chief Financial Officer of the Company on November 7, 2013, pursuant to an agreement whereby he will earn an aggregate of 1,000,000 shares of Company stock over the following twelve months as compensation (See note 9 subsequent events for further detail).
Richard Steve Williamson became Chief Operating Officer of the Company on October 21, 2013, pursuant to an agreement whereby he will earn an aggregate of 1,000,000 shares of Company stock over the following twelve months as compensation. (See note 9 subsequent events for further detail).
Effective as of April 23, 2014, the Company increased its authorized capital to one hundred sixty million (160,000,000) shares comprising one hundred fifty million (150,000,000) shares of Common Stock par value $0.001 and ten million (10,000,000) shares of Preferred Stock par value $0.001. Additional shares of Common and/or Preferred Stock may be issued by the Company from time to time for such considerations as may be fixed from time to time by the Companys Board of Directors.
As of February 1, 2014, the Company accrued additional compensation payable to its two directors for $7,500 per director, which comprises the first installment of agreed compensation as a director of the Company at a rate of $15,000 per fiscal year.
In connection with the Baylor County Acquisition (see Note 4, above) the Company committed to issue $50,000 original issue value of a new series of Company preferred stock (upon the filing of a Certificate of Designations for such stock with the Nevada Secretary of State). As of April 30, 2014, no preferred stock has been issued.
NOTE 9 SUBSEQUENT EVENTS
The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The management of the Company determined that the following were certain reportable subsequent events to be disclosed as follows:
BEP Operating Agreement.
In connection with the Baylor County Leases acquired by the Company, on May 30, 2014, the Company entered into an Operating Agreement with BEP Operating, LLC as the successor operator of the properties described in the Baylor County Leases. Pursuant to this agreement, BEP Operating, LLC will hold the license to operate these leases. BEP Operating, LLC is licensed by the Texas Railroad Commission and is bonded to undertake these operations. The Company anticipates that in the future when it has satisfied all requirements of the Texas Railroad Commission and is duly bonded, it will directly operate these leases. The Operating Agreement calls for the Company to reimburse all of BEP Operating, LLCs operating expenses incurred in connection with the work and to pay an additional amount on account of the operators overhead. BEP Operating, LLC is controlled by Carlos E. Buchanan II, the brother of Armando Rafael Buchanan, the Companys Chief Financial Officer.
Officer and Director Compensation
On June 11, 2014, the Companys Board of Directors approved compensation to the Companys sole independent director, Richard Webb as follows: (a) $6,300 cash payable on May 1, 2014 for services provided as a director of the Company through May 1, 2014 and (b) additional compensation as an independent director of the Company at a rate of $15,000 per fiscal year, payable in two (2) semi-annual installments of $7,500 each on February 1 and May 1 of each year. The fees are payable in cash or in shares of the Companys Common Stock, at the option of the Company.
Also on June 11, 2014, the Companys Board of Directors approved the vesting of certain restricted stock grants to the following employees of the Company as follows:
May 1, 2014
May 1, 2014
May 1, 2014
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" in our prior filings with the Securities and Exchange Commission. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to publicly update any forward-looking statements, whether as the result of new information, future events, or otherwise. We intend that all forward-looking statements be subject to the safe harbor provisions of the PSLRA.
Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "US$" refer to United States dollars and all references to "common shares" refer to the common shares in our capital stock.
As used in this quarterly report, the terms we, us, our and our company refer to Liberty Energy Corp., unless otherwise indicated.
We are an exploration stage company and have generated nominal revenues since inception and have incurred $2,053,921 in expenses through April 30, 2014. Our financial statements from inception (June 6, 2006) through April 30, 2014 report revenues of $26,778 and a net loss of $2,027,143. Those revenues were generated from our interest in the Dahlstrom and Lockhart leases in Texas, which have now lapsed and are not recurring. We had expected to generate greater revenues from the Dahlstrom lease. However, the well underwent a significant work-over resulting in significant production downtime and decreased lease revenues through the period ended April 30, 2014. We acquired the Baylor lease during the three month ended April 30, 2014 and we expect to generate revenues from this lease. Consideration for the acquisition price of $431,292 of the oil and gas leases included the following: (1) a non-interest bearing promissory note in the face amount of $65,000. (2) An issuance of $50,000 original issue value of a new series of our preferred stock. As of April 30, 2014, no preferred stock has been issued and this commitment has been recorded as other liability in the financial statements. (3) A promissory note in the face amount of $316,292.
To implement our business plan during the next twelve months, we need to develop and/or acquire additional oil interests which will be revenue-generating. Our failure to do so will hinder our ability to increase the size of our operations and to generate revenues. If we are not able to generate additional revenues to cover our operating costs, we may not be able to expand our operations and may need to curtail our existing operations.
For the period of inception (June 6, 2006) through April 30, 2014, our total operating expenses were $682,806, which is comprised of operating costs of $56,170 and impairment expense of $626,636. We expect that we will continue to generate operating losses for the foreseeable future.
We incurred operating expenses of $2,982 for the nine months ended April 30, 2014 and the comparable period the prior year operating expenses were $10,814. With the addition of acquisitions and other business, we expect that we will generate additional operating expenses in the remainder of fiscal year 2014. We will also continue to incur significant general and administrative expenses.
Results of Operations
The following summary of our results of operations should be read in conjunction with our financial statements for the quarter ended April 30, 2014 which are included herein.
Three and nine month periods ending April 30, 2014 and 2013 and from June 6, 2006 (inception) to April 30, 2014
Our total expenses for the three-month and nine-month periods ended April 30, 2014 and 2013 and June 6, 2006 (inception) to April 30, 2014 are outlined in the table below:
Total expenses including other expenses for the nine-month ended April 30, 2014, decreased by $214,256, compared to the nine months ended April 30, 2013. The decrease was primarily as a result of a decrease in general and administrative expenses related to resignation compensation to previous officers that occurred during the period ended April 30, 2013, and a decrease in interest expense as a result of the decrease in balances of the Asher notes, partially offset by an increase in professional fees.
We currently have recorded $-0- of equity compensation as of April 30, 2014.
Changes in cash flows reflect an increase in accounts payable and accounts payable related parties, a decrease in net loss, offset by the repayment of loans. Total cash flow for the nine months ended April 30, 2014, decreased by $50.
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
As a smaller reporting company, we are not required to provide tabular disclosure obligations.
Recently issued accounting pronouncements will have no significant impact on our company and its reporting methods.
Item 4. Controls and Procedures
Managements Report on Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of April 30, 2014. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commissions rules and forms and that our disclosure and controls are not designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes.
Management believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Pursuant to the requirements of Section 13 or 15(d) 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.