saga_10q-063012.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-52692
 
SAGA ENERGY, INC. 

(Exact name of registrant as specified in its charter)
 
 
Florida
 
65-0921319
 
 
(State or other Jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
         
 
1509 East Chapman Ave, Orange, CA
 
92866
 
 
(Address of principal executive offices)
 
(Zip Code)
 
 
(714) 532-1500

(Registrant’s telephone number, including area code)
 
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  þ  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 þ  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 þ  
  (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 þ
As of August 14, 2012, the number of shares of common stock outstanding was 49,100,000.
 

 
 
 

 
 
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2012

TABLE OF CONTENTS

   
Page
PART I—FINANCIAL INFORMATION
     
Item 1.  Financial Statements.
 
1
     
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
9
     
Item 3.  Quantitative and Qualitative disclosures about Market Risk.
 
12
     
Item 4.  Controls and Procedures.
 
12
     
PART II—OTHER INFORMATION
     
Item 1.  Legal Proceedings.
 
13
     
Item1A.  Risk Factors.
 
13
     
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
 
13
     
Item 3.  Defaults Upon Senior Securities.
 
13
     
Item 4.  Mine Safety Disclosures.
 
13
     
Item 5.  Other Information.
 
13
     
Item 6.  Exhibits.
 
13
     
SIGNATURES
 
14
     
EXHIBIT INDEX
 
15
 
 
 

 
 
PART I - FINANCIAL INFORMATION

ITEM 1.                      FINANCIAL STATEMENTS

SAGA ENERGY, INC. AND SUBSIDIARY
FORMERLY KNOWN AS DON MARCOS TRADING CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2012 AND DECEMBER 31, 2011
(UNAUDITED)
 
   
June 30, 2012
    December 31, 2011  
ASSETS
           
CURRENT ASSETS
           
Cash
  $ 9,216     $ 45,995  
Accounts receivable – related entity
    187       7,200  
Advance to related entity
    -       4,000  
Prepaid expenses – related entity
    10,000       -  
Prepaid insurance
    471       -  
Other receivable
    -       750  
TOTAL CURRENT ASSETS
    19,874       57,945  
                 
OIL FIELD SERVICE EQUIPMENT, NET OF ACCUMULATED DEPRECIATION OF $8,290 AND $995     93,846       82,583  
TOTAL ASSETS
  $ 113,720     $ 140,528  
                 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
               
                 
CURRENT LIABILITIES
               
Accounts payable
               
Related
  $ 42,759     $ 15,162  
Unrelated
    29,027       34,843  
Note payable - related entity
    5,000          
Note payable, stockholder
    96,842       -  
Accrued expenses
    1,987       19,624  
TOTAL CURRENT LIABILITIES
    175,615       69,629  
                 
STOCKHOLDERS’ EQUITY (DEFICIT)
               
Preferred stock, no stated value; Authorized - 10,000,000 shares; Issued and outstanding - -0- shares
    -       -  
Common stock, no par value; Authorized - 100,000,000 shares; Issued and outstanding - 49,100,000 shares at June 30, 2012 and 49,125,000 at December 31, 2011
    544,972       545,195  
Accumulated deficit
    (606,867 )     (474,296 )
                 
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)
    (61,895 )     70,899  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
  $ 113,720     $ 140,528  
 
The accompanying notes are an integral part of these financial statements.
 
 
1

 
 
SAGA ENERGY, INC. AND SUBSIDIARY
FORMERLY KNOWN AS DON MARCOS TRADING CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)
 
 
   
Three Month Periods Ended
June 30,
   
Six Month Periods Ended
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
REVENUES
  $ 7,200     $ -     $ 16,200     $ -  
                                 
OPERATING EXPENSES
    62,796       -       148,771       -  
                                 
NET (LOSS) FROM CONTINUING OPERATIONS
  $ (55,596 )   $ -     $ (132,571 )   $ -  
                                 
NET (LOSS) FROM DISCONTINUED OPERATIONS
  $ -     $ (7,921 )   $ -     $ (14,804 )
                                 
NET (LOSS)
  $ (55,596 )   $ (7,921 )   $ (132,571 )   $ (14,804 )
                                 
NET (LOSS) PER SHARE FROM CONTINUING OPERATIONS - BASIC AND DILUTED
  $ (0 )   $ (0 )   $ (0 )   $ (0 )
                                 
NET (LOSS) PER SHARE FROM DISCONTINUED OPERATIONS - BASIC AND DILUTED
  $ (0 )   $ (0 )   $ (0 )   $ (0 )
                                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED
    49,105,907       48,300,000       49,105,907       48,300,000  

 
The accompanying notes are an integral part of these financial statements
 
 
2

 
 
SAGA ENERGY, INC. AND SUBSIDIARY
FORMERLY KNOWN AS DON MARCOS TRADING CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)
 
   
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net (loss) from continuing operations
  $ (132,571 )   $ -  
Net (loss) from discontinued operations
    -       (14,804 )
Adjustments to reconcile net (loss) to net cash (used) by operating activities:
               
Depreciation
    7,295       -  
Recovery of consulting fees due to cancellation of common stock
    (223 )     -  
Changes in operating assets and liabilities:
               
Accounts receivable
    7,013       -  
Advance to related entity
    4,000       -  
Prepaid expenses
    (10,471 )     -  
Other receivable
    750       -  
Accounts payable
    21,781       (1,640 )
Accrued expenses
    (17,637 )     -  
                 
NET CASH (USED) IN OPERATING ACTIVITIES
    (120,063 )     (16,444 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchase of oil field service equipment
    (18,557 )     -  
                 
NET CASH (USED) BY INVESTING ACTIVITIES
    (18,557 )     -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from notes payable, stockholder
    96,842       35,000  
Proceeds from note payable, related entity
    5,000       -  
                 
NET CASH PROVIDED BY FINANCING ACTIVITIES
    101,842       35,000  
 
The accompanying notes are an integral part of these financial statements
 
 
3

 
 
SAGA ENERGY, INC. AND SUBSIDIARY
FORMERLY KNOWN AS DON MARCOS TRADING CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)
 
   
2012
   
2011
 
             
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
  $ (36,779 )   $ 18,556  
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    45,995       1,685  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 9,216     $ 20,241  
                 
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               
                 
CASH PAID DURING THE YEAR FOR:
               
Interest
  $ -     $ -  
                 
Taxes
  $ -     $ -  
                 
                 
NON-CASH FINANCING ACTIVITIES
               
Common stock re-purchased due to cancelled contract
  $ 223     $ -  
  
The accompanying notes are an integral part of these financial statements
 
 
4

 

SAGA ENERGY, INC. AND SUBSIDIARY
FORMERLY KNOWN AS DON MARCOS TRADING CO.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 AND 2011


NOTE 1                 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Nature of Business and History of Company

Saga Energy, Inc. (unless otherwise indicated, together with its subsidiary, Saga Services & Equipment, Inc., “the Company”), formerly known as Don Marcos Trading Co., was incorporated on May 11, 1999 in the state of Florida.  On August 15, 2011, control of the Company changed due to the majority stockholders selling their stock to a new group of stockholders.  The Company now concentrates on conducting activities in the energy industry, including leasing the Cardwell A150 Pulling Unit (Year: 1985, Model: DC9364B) (the “Workover Rig”) that the Company completed refurbishing on March 19, 2012 and expanding into the upstream sector of the oil industry in the United States.

Saga Services & Equipment, Inc. was formed on December 22, 2011 in the state of Texas.  The Company’s operations consist of leasing an oil field service rig in the state of Oklahoma.

Principles of Consolidation

For the six months ended June 30, 2012, the Company was consolidated with its wholly-owned subsidiary, Saga Services & Equipment, Inc.  All inter-company accounts and transactions have been eliminated.
 
Change from Development Stage Enterprise
 
On December 26, 2011, the Company, through its subsidiary, began operations by leasing its oil field service rig, which changed the Company from being a development stage enterprise to an operating company.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Fair value of financial instruments

For certain Company instruments, including cash, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities.
 
 
 
5

 
 
SAGA ENERGY, INC. AND SUBSIDIARY
FORMERLY KNOWN AS DON MARCOS TRADING CO.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 AND 2011


NOTE 1                 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Common Stock Issued for Non-Cash Transaction

It is the Company’s policy to value stock issued for non-cash transactions, such as services, at the fair market value of the goods or services received or the consideration granted, whichever is more readily determinable, at the date the transaction is negotiated.

Revenue Recognition

Saga Energy, Inc. did not have any revenue for the three and six months ended June 30, 2012 and 2011.

Saga Services & Equipment, Inc. recognizes revenue from the leasing of an oil field service rig when the services are completed.

Net Loss Per Share

The Company adopted ASC 260, “Earnings Per Share,” that requires the reporting of both basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with ASC 260, any anti-dilutive effects on net income (loss) per share are excluded.
 
Allowance for Doubtful Accounts
 
The allowance for doubtful accounts on accounts receivable is charged to income in amounts sufficient to maintain the allowance at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on expected collectability.
 
Oil Field Service Equipment
 
Oil field service equipment is stated at cost.  Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs, which do not improve or extend the lives of respective assets, are expensed.  At the time the equipment is retired or otherwise disposed of, the assets and related depreciation accounts are relieved of the applicable amounts.  Gains or losses from retirements or sales are credited or charged to income.
 
The Company depreciates its oil field service equipment for financial reporting purposes using the straight-line method over a seven year period.
 
Reclassifications
 
Certain 2011 amounts have been reclassified to conform to 2012 presentations.
 
 
6

 
 
SAGA ENERGY, INC. AND SUBSIDIARY
FORMERLY KNOWN AS DON MARCOS TRADING CO.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 AND 2011
 
 
NOTE 1                 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes

The Company follows the accounting principle for uncertainty in income tax guidance which clarifies the accounting and recognition for tax positions taken or expected to be taken in its income tax returns. The Company’s income tax filings are subject to audit by various taxing authorities.  The Company’s open audit periods are 2008 to 2011.  In evaluating the Company’s tax provisions and accruals, future taxable income, the reversal of temporary differences, and tax planning strategies are considered.
 
NOTE 2                 GOING CONCERN
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business.
 
The Company’s activities since inception have been financially sustained by issuance of common stock, stockholder contributions, and related party loans. The Company may raise additional funding to continue its operations through contributions from the current stockholders and stock issuance to other investors.
 
The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities.
 
Management’s plan to eliminate the going concern situation includes, but is not limited to, obtaining investors to fund the working capital needs of the Company.
 
NOTE 3                 COMMON STOCK
 
On February 13, 2012, the Company cancelled its agreement for financial advisory and investment banking services with an investment banking firm.  The investment banking firm returned for cancellation the 25,000 shares of common stock it received under the contract.

NOTE 4                 CHANGE OF OWNERSHIP AND DISCONTINUED OPERATIONS
 
On August 15, 2011, the majority stockholders entered into a Stock Purchase Agreement in which the stockholders sold 32,075,000 shares of common stock to a new group of stockholders.
 
The following amounts have been segregated from continuing operations and reported as discontinued operations for the six months ended June 30, 2012 and 2011:
 
     
2012
   
 
2011
 
Operating expenses
 
$
-
   
$
14,804
 
Net (loss) from discontinued operations
 
$
-
   
$
(14,804
)
 
 
7

 
 
SAGA ENERGY, INC. AND SUBSIDIARY
FORMERLY KNOWN AS DON MARCOS TRADING CO.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 AND 2011
 
 
NOTE 5                 RELATED PARTIES
 
The Company had multiple transactions with various related parties during the six months ended June 30, 2012.  These included revenues of $16,200 and expenses of $90,890, respectively.  On March 31, 2012, the Company entered into a one-year $44,735 promissory note with Blue Sky Energy & Power, Inc., one of our stockholders, with interest accruing at the rate of 7% per annum and payable quarterly. In addition, on June 30, 2012, the Company entered into another promissory note with Blue Sky Energy & Power, Inc. The note principal balance is $52,106, with interest accruing at the rate of 7% per annum payable quarterly, and a maturity date of December 31, 2013. Collectively these notes are referred to as the “BSEP Notes.”
 
NOTE 6                 SUBSEQUENT EVENTS
 
The Company’s management has reviewed all material events through the date of this report in accordance with ASC 855-10.
 
 
8

 
 
ITEM 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this report.

Overview

We were incorporated on May 11, 1999 in the state of Florida.  On August 15, 1011, the control of the company changed due to the majority stockholders selling their stock to a new group of stockholders.  After the sale, we now concentrate on conducting activities in the energy industry, including leasing the Workover Rig that we completed refurbishing on March 19, 2012 and expanding into the upstream sector of the oil industry in the United States.  After the sale, we changed our name to Saga Energy, Inc. from Don Marcos Trading Co. and changed our trading symbol on the Over-the-Counter Quotation Bureau (OTC QB) from DNMO to SAGA.

Saga Services & Energy, Inc. was formed on December 22, 2011 in the state of Texas.  Its operations consist of leasing an oil field service rig in the state of Oklahoma.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with our Board of Directors, we have identified several accounting principles that we believe are key to the understanding of our financial statements. These important accounting policies require management’s most difficult, subjective judgments.

Principles of Consolidation

For the six months ended June 30, 2012, we were consolidated with our wholly-owned subsidiary, Saga Services & Equipment, Inc.  All inter-company accounts and transactions have been eliminated.

Revenue Recognition

Saga Energy, Inc. did not have any revenue for the six months ended June 30, 2012 and 2011.

Saga Services & Equipment, Inc. recognizes revenue from the leasing of an oil field service rig when the services are completed.

Change From Development Stage Enterprise

On December 26, 2011, we began operations, through our subsidiary, Saga Services & Equipment, Inc., by leasing our oil field service rig, which changed our status from being a development stage enterprise to an operating company.

Oil Field Service Equipment
 
Oil field service equipment is stated at cost.  Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs, which do not improve or extend the lives of respective assets, are expensed.  At the time the equipment is retired or otherwise disposed of, the assets and related depreciation accounts are relieved of the applicable amounts.  Gains or losses from retirements or sales are credited or charged to income.
 
We depreciate our oil field service equipment for financial reporting purposes using the straight-line method over a seven year period.
 
 
9

 
 
Common Stock

On February 13, 2012, we cancelled our agreement for financial advisory and investment banking services with an investment banking firm.  The investment banking firm returned for cancellation the 25,000 shares of common stock it received under the contract.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Net Loss Per Share

We adopted ASC 260, “Earnings Per Share” that requires the reporting of both basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with ASC 260, any anti-dilutive effects on net income (loss) per share are excluded.

Stock Issued for Non Cash Transactions

It is our policy to value stock issued for non-cash transactions, such as services, at the fair market value of the goods or services received or the consideration granted, whichever is more readily determinable, at the date the transaction is negotiated.

There were no shares of common stock issued for services during the six months ended June 30, 2012 and 2011.
 
Going Concern

Our financial statements are prepared using generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to locate sources of capital, and attain future profitable operations. Our management is currently initiating our business plan. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

Results of Operations

Our operations currently consist of the leasing of the Workover Rig.  Due to the age of the Workover Rig and federal and state regulations, however, we only lease the Workover Rig for five-day periods.

Our operations are affected by weather conditions, as operators will shut down rig activity for safety reasons when they anticipate inclement weather.  Oklahoma faced an abundance of bad weather thus far this year, adversely affecting our results of operations.  We hope for better weather conditions as the year progresses.

You should read the selected financial data set forth below along with our discussion and our financial statements and the related notes. We have derived the financial data from our financial statements. We believe the financial data shown in the table below includes all adjustments only consisting of normal recurring adjustments, that we consider necessary for a fair presentation of such information. Operating results for the period are not necessarily indicative of the results that may be expected in the future.
 
 
10

 
 
Results for the Three and Six Months Ended June 30, 2012 Compared to the Three and Six Months Ended June 30, 2011 (unaudited)

   
Six Months
Ended
June 30, 2012
(Unaudited)
   
Six Months
Ended
June 30, 2011
(Unaudited)
   
Three Months
Ended
June 30, 2012
(Unaudited)
   
Three Months
Ended
June 30, 2011
(Unaudited)
 
Revenue - related entity
  $ 16,200     $ -     $ 7,200     $ -  
Operating expenses
    148,771       -       62,976       -  
                                 
Net (loss) from continuing operations
    (132,571 )     -       (55,776 )     -  
                                 
Net (loss) from discontinued operations
            (14,804 )             (7,921 )
                                 
Net (loss)
  $ (132,571 )   $ (14,804 )   $ (55,776 )   $ (7,921 )
                                 
Net (loss) per share
  $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
 
 
Saga Energy, Inc. did not have any revenue for the six months ended June 30, 2012.  Saga Services & Equipment, Inc. had $16,200 of revenue from operations for the six months ended June 30, 2012.  We had no revenue from operations for the six months ended June 30, 2011.

Operating Expenses

We had operating expenses of $148,771 for the six months ended June 30, 2012 mainly due to legal, professional, and consulting fees, and contract services.  We did not have any operating expenses for the six months ended June 30, 2011 since all activities were reclassified as discontinued operations for that period.
 
Net Loss from Continuing Operations

Primarily as a result of our operating expenses, we had a net loss from continuing operations of $132,571 for the six months ended June 30, 2012.  All activities for the six months ended June 30, 2011 were reclassified as discontinued operations.

Net Loss from Discontinued Operations

We did not have any discontinued operations for the six months ended June 30, 2012.  We had a net loss from discontinued operations of $14,804 for the six months ended June 30, 2011 due to the company’s change in operations from distributing coffee to seeking opportunities in the energy industry.

Liquidity and Capital Resources

We currently have no material commitments for capital expenditures.
 
 
11

 
 
Working capital is summarized and compared as follows:
 
    June 30, 2012     June 30, 2011  
Current Assets   $ 19,874     $ 29,061  
Current Liabilities     175,615       9,671  
Deficit   $ (155,741 )   $ (61,610 )
 
The changes in our working capital are primarily due to the BSEP Notes and increased expenditures during the six months ended June 30, 2012.
 
 
Changes in cash flows are summarized as follows:

Our net cash used by operations was $120,063 for the six months ended June 30, 2012. During the six months ended June 30, 2012, we experienced a net loss from continuing operations of $132,571, which included noncash items such as depreciation in the amount of $7,295 and a recovery of consulting fees due to the cancellation of a contract in the amount of $223. We had cash provided by repayment of an advance to a related entity in the amount of $4,000, a decrease in accounts receivable of $7,013, a decrease in other receivable of $750, and an increase in accounts payable of $21,781.  These were offset by an increase in prepaid expenses of $10,471 and and a decrease in accrued expenses of $17,637.

Our net cash used by operations for the six months ended June 30, 2011 was $16,444.  During the six months ended June 30, 2011, we experienced a net loss from discontinued operations of $14,804.  We had cash used by a decrease in accounts payable of $1,640.

There was cash used by investing activities of $18,557 for the six months ended June 30, 2012 due to the purchase of equipment to complete the refurbishment of the Workover Rig.

There was no net cash used by, or provided from, investing activities for the three and six months ended June 30, 2011.

Cash provided by financing activities for the six months ended June 30, 2012 and 2011 was $101,842 and $35,000, respectively.  We had proceeds from the BSEP Notes of $96,842 and proceeds from a related party note of $5,000 for the six months ended June 30, 2012.  We had proceeds from notes payable of $35,000 for the six months ended June 30, 2011.

ITEM 3.                        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

ITEM 4.                        CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our President and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of period covered by this report.  Based upon such evaluation, the President and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
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PART II - OTHER INFORMATION

ITEM 1.                        LEGAL PROCEEDINGS

To the best knowledge of our management, there are no legal proceedings pending or threatened against us.

ITEM 1A.                     RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.
 
ITEM 2.                        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.

ITEM 3.                        DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.                        MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.                        OTHER INFORMATION

The information required by this item is included in “Notes to Condensed Consolidated Financial Statements Note 5 - Related Parties.”

ITEM 6.                        EXHIBITS

The information required by this Item is set forth on the Exhibit Index at the end of this report.
 
 
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SIGNATURES

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.
 
DATED: August 14, 2012      
   
 
 
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EXHIBIT INDEX
 
Exhibit
Number
 
Description
     
     
31.1
 
Certification by the Chief Executive Officer of Registrant pursuant to the Securities Exchange Act of 1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2
 
Certification by the Chief Financial Officer of Registrant pursuant to the Securities Exchange Act of 1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1
 
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS*
 
XBRL Instance Document
101.SCH* 
 
XBRL Taxonomy Extension Schema Document
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE* 
 
XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF* 
 
XBRL Taxonomy Extension Definition Linkbase Document.

*  Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
 
 
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