DISCONTINUED OPERATIONS

12 Months Ended

Dec. 31, 2014

Notes to Financial Statements

DISCONTINUED OPERATIONS

The Company is discontinuing its activities in the oil and gas industry and focusing its activities on the marijuana consulting industry. In discontinuing its oil and gas operations, the Company incurred a $465,000 loss on discontinued operations as of December 31, 2014. Historically the company value of the oil and gas properties that the company owned were expensed in accordance with Generally Accepted Accounting Principles for the industry. The Company does not have proven reserves confirmed with a geological study and will only be able to capitalize properties once reserves have been proven. The following is a summary of the properties which the Company discontinued.

Innex Drilling and Participation Agreement

On December 16, 2013, the Company entered into a Participation Agreement with Innex California Inc. and General Crude Oil Company (together referred to as “Innex JV”) for the following projects (1) The Kettleman Dome Project (“KDEP”); (2) the Kettlemen Middle Dome McAdams (“KMDM”), (3) East Elk Hills (“EEH”), (4) South Tapo Canyon (“STC”); (5) Eel River; (6) the Oklahoma (“OK”), (7) the Kettledome Middledome Shallow (“KMDS” and (8) the West Side Joint Venture (“USJV”) . Under the terms of this Innex JV, the Company has the right to earn a 50% working interest in each well in which the Company funds. In order to maintain Innex JV, the Company must fund one well in each of the aforementioned projects or risk losing the right to fund. The Company must also fund Innex JV general and administrative costs of $40,000 per month.

The first quarter budget was approximately $5.77 million. The budget was delivered to the Company on March 1, 2014. Under the terms of the Innex JV, the Company was to fund the Innex JV the budget requirements by March 15, 2014. During the quarter the Company made lease payments totalling $465,000 to the Innex JV. However, the Company could not meet the terms of the budget requirement and on April 1, 2014 the Company announced that it was divesting itself of the Innex JV.

Hangtown Drilling and Participation Agreement

On May 27, 2013, the Company entered into a Drilling and Participation Agreement with Hangtown Energy, Inc. (“Hangtown”). Hangtown owns approximately 12,000 acres of oil and gas rights located in three separate oil field in South and Central California. Under this Agreement, the Company will provide 100% of the development costs for an initial program of 2 wells per project area, and was to receive 100% of the production cash flow until payback is achieved. After payback, the Company's working interest was to revert to 75% for the life of the 6 wells. Further to the initial development program the Company and Hangtown Energy will continue to develop the Project areas equally and jointly to maximize production at each site.

On May 31, 2013, the Company entered into a Financial Participation Agreement with Capistrano Capital, LLC (“Capistrano), whereby Capistrano funded the $1,160,000 to Hangtown, plus agreed to fund up to an additional $6,500,000 for drilling costs of the KMD17-18 well. As of September 30, 2013, the Capistrano had funded Hangtown $2,250,000. Capistrano will earn a net resource interest of 1 % for the lesser of 10 years or the life of the KMD17-18 well, and earn 135% of payments made to Hangtown for the drilling and completion of the well from the cash flow from the well. These amounts will be repaid annually over the next three years commencing with 1/3^rd after 1 year of production, 1/3^rd after 2 years of production, and 1/3^rd after three years of production. Should the cash flows from the wells fail to meet the repayment commitments the amount of any amounts due will be carried forward to future years for repayment from cash flows from the well. Should the cash flow from the well fail to repay Capistrano the full amount of its advances to Hangtown, Capistrano has no recourse for this shortfall from the Company. Should the KMD17-18 well be plugged and abandoned, Capistrano can elect to participate in a replacement well. If Capistrano chooses to participate, it will be given 72 hours to decide upon notice being received from the Company. Should Capistrano elect to participate, the same terms and conditions as per the KMD 17-18 well shall apply except that the costs of the KMD 17-18 well will be costs of the replacement well. As the Well has not been completed as of the date of this filing, no assets have been recorded by the Company.

At any time after the completion of KMD 17-18, the Company has the right, but not the obligation, to convert the capital it has contributed to Hangtown into equity of Hangtown at the greater of either $3.75 per share or the most recent per share valuation which Hangtown has accepted and received capital for. If the Company converts its interest into equity of Hangtown, the Company shall not have any rights or interest in the KMD 17-18 well or any additional wells as the Drilling and Participation Agreement will effectively terminate.

On December 16, 2013 the Company cancelled its Drilling and Participation Agreement with Hangtown.

First Pacific Oil and Gas Ltd. Joint Venture

On May 24, 2011, the Company entered into a Farm-Out Agreement with First Pacific Oil and Gas Ltd. (“First Pacific”). Under this Agreement First Pacific has acquired the right to earn 50% of the Company’s working interest in its existing 12 hydrocarbon wells located in Southern Arkansas. Under this Agreement First Pacific has paid the Company $250,000; and will pay $800,000 on or before September 30, 2013. The Company retains a 50% working interest. First Pacific will earn its working interest upon improvements of the existing hydrocarbon wells being completed with the final $800,000 investment. The $250,000 received was recorded as Deferred Gain as of December 31, 2012. On September 12, 2013, the Company returned the balance of the trust funds held on behalf of First Pacific as First Pacific informed the Company that it will not be completing the $800,000 financing. Consequently, the Company returned the $232,500 held by its lawyers to First Pacific, and wrote down the $250,000 Deferred Gain. This resulted in a net gain of $17,500 on the sale of its oil leases. In addition, the Company paid the operator an additional $11,729 for disposal fees related to the lease; total cash paid as a result of the sale is $244,229. Due to the sale of the leases, the Asset Retirement Obligation balance of $122,484 as also removed from the books. The net effect of the transaction resulted in a gain on the sale of leases of $128,255.

Arkansas Lease

On October 24, 2009 the Company signed a letter agreement to acquire eleven producible deep oil wells north of Hosston, Louisiana, and in Southern Arkansas for $385,000. Seven of these wells are in production. The deepest of these wells produce from the Smackover formation at 7800 feet. Four other wells are capable of production after work over operation has been completed. Also included with the agreement are three disposal wells.

On June 12, 2013, the Company sold these properties under an Asset Transfer and Liability Assumption Agreement for $10 to a non-related party. The sale resulted in a gain of $110,755, which include a decrease to $nil on the Company’s Asset Retirement Obligation of $122,484 (December 31, 2013).