BUSINESS ACQUISITION

6 Months Ended

Jun. 30, 2011

Notes to Financial Statements

BUSINESS ACQUISITION

4.           BUSINESS ACQUISITION

Reverse Acquisition of Eagle Ford

On June 20, 2011, Eagle Ford acquired all of the membership interests of Sandstone Energy, L.L.C. (Sandstone”) in exchange for 17,857,113 shares of common stock of Eagle Ford. Following the acquisition, the shares issued to the former owners of Sandstone constituted 82% of the Company’s common stock resulting in a change of control in which Sandstone controls Eagle Ford post-acquisition. The Acquisition is being accounted for as a “reverse acquisition” in which Sandstone is deemed to be the acquirer and Eagle Ford is deemed to be the acquiree (“Acquiree”). Consequently, the assets and liabilities and the operations reflected in the consolidated financial statements prior to the Acquisition are those of Sandstone and are recorded at the historical cost basis of Sandstone. The consolidated financial statements after completion of the Acquisition include the assets and liabilities of Sandstone and the Acquiree and the historical operations of Sandstone and the Acquiree and its subsidiaries from the closing date of the Acquisition.

The Acquisition has been treated as a recapitalization of the Company for financial accounting purposes. Sandstone is considered the acquirer for accounting purposes, and the historical financial statements of the Acquiree prior to the Acquisition will be replaced with the historical financial statements of Sandstone prior to the Acquisition in all future filings with the SEC.  In accordance with ASC 805, the assets and liabilities of the Acquiree at the date of the acquisition have been recorded at fair value.

The acquisition price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values with the excess being recorded in goodwill. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

Cash and equivalents	$	832
Accounts receivable		1,500
Other current assets		36,653
Oil and gas property		253,671
Goodwill		4,641,061
Total assets acquired		4,933,717
Accounts payable		140,860
Accrued liabilities		559,765
Convertible note, net of debt discount of $41,267		503,733
Notes payable		1,918,709
Notes payable – related parties		35,077
Asset retirement obligation		311
Total liabilities assumed		3,158,455
Net assets acquired	$	1,775,262

The allocation of the purchase price was based on preliminary estimates and is provisional. Estimates and assumptions are subject to change upon the receipt of management’s review of the final amounts and final tax returns. This final evaluation of net assets acquired is expected to be completed as soon as a final accounting is performed but no later than one year from the acquisition date. Any future changes in the value of the net assets acquired will be offset by a corresponding change in goodwill.  As of June 30, 2011, Eagle Ford evaluated goodwill for impairment and determined the goodwill was fully impaired.

Subsequent purchase of remaining 50% member interests

On August 8 and August 11, 2011, Eagle Ford Oil & Gas Corp. acquired the remaining 50% interests in each of SSEP1, SSEP2 and SSEP3 in exchange for 8,970,120 shares of Eagle Ford common stock valued at $2,780,737 based on the trading price on the dates of the transactions.  Eagle Ford now owns 100% of the interests in these ventures.As a result of the acquisition of the SSEP interests, the Company currently owns the entire 38.75% working interest on 2,315 acres located in Lee County, Texas.

The following unaudited pro forma combined financial statements are based on the unaudited historical financial statements of Eagle Ford and Sandstone after giving effect to the acquisition of Eagle Ford and the subsequent purchase of the remaining 50% interests in SSEP1, SSEP2, and SSEP3. The unaudited pro forma combined balance sheet represents the balances as of June 30, 2011 for Eagle Ford as reported in the June 30, 2011 consolidated balance sheet herein, and includes the additional purchase of the remaining 50% interests as if the purchase took place as of the beginning of the period.

Pro forma presentation

The unaudited pro forma combined statements of operations for the six and three months ended June 30, 2011 and 2010, are presented as if (1) the acquisition of Eagle Ford and (2) the purchase of the 50% interests had taken place on the first day of each period by combining the unaudited historical results of Eagle Ford, Sandstone and the purchased 50% interests.

The unaudited pro forma results were as follows:

Unaudited Pro Forma Balance Sheet

As of June 30, 2011

	Historical			Pro Forma
Description	Eagle Ford			Adjustments				Combined
Cash and cash equivalents	$	578,768		$	-			$	578,768
Accounts receivable		1,500			-				1,500
Accounts receivable oil and gas - related party		28,183			-				28,183
Deferred financing cost, net		3,708			-				3,708
Prepaid expenses		5,534			-				5,534
Total current assets		617,693			-				617,693
Oil and gas properties, net		3,423,942			1,281,327		(3)		4,705,269
Pipeline transmission properties, net		23,339			-				23,339
Total property and equipment, net		3,447,281			1,281,327				4,728,608
TOTAL ASSETS	$	4,064,974		$	1,281,327			$	5,436,301
Accounts payable – trade	$	243,475		$	-			$	243,475
Accrued expenses		607,868			-				607,868
Accrued expenses - related parties		62,975			-				62,975
Short-term debt		1,726,578			-				1,759,633
Short-term debt - related parties		958,577			-				958,577
Current maturities of long-term debt		227,131			-				227,131
Convertible debentures, net		512,993			-				512,993
Derivative liability		241,416			-				241,416
Total current liabilities		4,581,013			-				4,581,013
Asset retirement obligation		63,311			-				63,311
TOTAL LIABILITIES		4,644,324			-				4,644,324
Common Stock		22,994			8,970		(1)		31,964
Additional paid-in-capital		4,303,080			2,771,767		(1)		7,074,847
Accumulated deficit		(6,404,834	)		-		(2)		(6,404,834	)
Total Eagle Ford Oil and Gas Corp. stockholders' equity (deficit)		(2,078,760	)		2,789,737				701,977
Noncontrolling interest		1,499,410			(1,499,410	)	(2)		-
Total stockholders' equity (deficit)		(579,350	)		1,281,327				701,977
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4,064,974		$	1,281,327			$	5,346,301

(1) To record issuance of 8,970,120 shares of Eagle Ford common stock valued at $2,780,737 to acquire the remaining 50% noncontrolling interest in each of SSEP1, SSEP2 and SSEP3.

(2) To eliminate noncontrolling interest to reflect purchase of interests.

(3) To record the cost of SSEP1, SSEP2 and SSEP3 properties acquired at the fair value of consideration paid.

Unaudited Pro Forma Statement of Operations

For the Six Months Ended June 30, 2011

	Historical Eagle Ford			Sandstone 50% Interests		Pro Forma Adjustments				Combined
REVENUE	$	219,823		$	108,779	$	(108,779	)	(1)	$	245,349
							25,528		(2)
OPERATING EXPENSES
Lease operating expenses		37,977			18,805		(18,805	)	(1)		44,248
							6,271		(2)
General and administrative		318,964			27,039		(27,039	)	(1)		1,065,486
							746,522		(2)
Impairment expense - goodwill		4,641,061			-		-				4,641,061
Depreciation, depletion and accretion		2,106			-		31,219		(2)		33,325
Total operating expenses		5,000,108			45,844		738,168				5,784,120
Net operating loss		(4,780,285	)		62,935		(846,947	)			(5,838,771	)
OTHER INCOME (EXPENSES)
Interest expense		(96,298	)		-		(286,528	)	(2)		(382,826	)
Loss on sale of furniture and equipment		(3,646	)		-		(3,645	)	(2)		(3,645	)
Gain on settlement of liabilities		11,136			-		-				11,136
Noncontrolling interest		(62,935	)		-		62,935		(1)		-
Gain on derivative liability		197,264					-				197,264
Management fee income		54,000			-		-				54,000
Total other expenses		229,037			-		(353,108	)			(124,071	)
Net income (loss)	$	(4,551,248	)	$	62,935	$	(1,200,055	)		$	(5,662,842	)

Net income (loss) per share – basic and diluted	$	(0.25	)	$	0.01	-	$	(0.21	)
Weighted average common shares outstanding – basic and diluted		18,113,771			8,970,120	-		27,083,891

Unaudited Pro Forma Statement of Operations

For the Six Months Ended June 30, 2010

		Historical Eagle Ford			Sandstone 50% Interests			Pro Forma Adjustments				Combined
REVENUE	$	26,399		$	13,120		$	(13,120	)	(1)	$	87,399
								51,000		(2)
OPERATING EXPENSES
Lease operating expenses		23,399			11,700			(11,700	)	(1)		120,376
								96,977		(2)
General and administrative		186,336			3,179			263,285		(2)		449,702
								(3,098	)	(1)
Impairment expense - properties		-			-			748,587		(2)		748,587
Depreciation, depletion and accretion		-			-			17,562		(2)		17,562
Total operating expenses		209,735			14,879			1,111,613				1,336,227
Net operating loss		(183,336	)		(1,759	)		(1,127,381	)			(1,248,828	)
OTHER INCOME (EXPENSES)
Interest expense		(15,904	)		-			(99,427	)	(2)		(115,331	)
Loss on settlement of asset retirement obligation		-			-			(21,543	)	(2)		(21,543	)
Noncontrolling interest		1,678						(1,678	)	(1)
Total other expenses		(14,226	)		-			(122,648	)			(136,874	)
Net loss		(197,562	)		(1,759	)		(1,247,381	)			(1,385,702	)
Dividends applicable to common stock		-			-			(163,239	)	(2)		(163,239	)
Net loss attributable to common shareholders	$	(197,562	)	$	(1,759	)	$	(1,410,620	)		$	(1,548,941	)

Net loss per share – basic and diluted	$	-	$	0.00	-	$	(0.17	)
Weighted average common shares outstanding – basic and diluted		-		8,970,120	-		8,970,120

(1)   To record revenues and expenses reclassified from noncontrolling interest.

(2)   To record the income statement amounts of Eagle Ford Oil & Gas for the period from January 1, 2011 and April 1, 2011, respectively, to June 20, 2011

Unaudited Pro Forma Statement of Operations

For the Three Months Ended June 30, 2011

		Historical Eagle Ford			Sandstone 50% Interests		Pro Forma Adjustments				Combined
REVENUE	$	176,774		$	87,654	$	(87,654	)	(1)	$	190,346
							13,572		(2)
OPERATING EXPENSES
Lease operating expenses		13,072			6,353		(6,353	)	(1)		17,667
							4,595		(2
General and administrative		177,923			13,517		(23,165	)	(1)		838,416
							670,141		(2)
Impairment expense - goodwill		4,641,061			-		-				4,641,061
Depreciation, depletion and accretion		2,106			-		24,066		(2)		26,172
Total operating expenses		4,834,162			19,870		669,284				5,523,316
Net operating income (loss)		(4,657,388	)		67,784		(756,938	)			(5,332,970	)
OTHER INCOME (EXPENSES)
Interest expense		(38,080	)		-		(134,166	)	(2)		(172,246	)
Management fee income		27,000									27,000
Loss on sale of furniture and equipment		-			-		(3,646	)	(2)		(3,646	)
Noncontrolling interest		58,136			-		(58,136	)	(2)		-
Gain on derivative liability		197,264
Gain on legal settlements - liens		11,136			-		-				11,136
Total other expenses		255,456			-		(195,948	)			59,508
Net income (loss)	$	(4,401,932	)	$	67,784	$	(952,886	)		$	(5,273,462	)
Net loss per share – basic and diluted
	$	(0.24	)	$	0.01		-			$	(0.19	)
Weighted average common shares outstanding – basic and diluted		18,367,608			8,970,120		-				27,337,728

Unaudited Pro Forma Statement of Operations

For the Three Months Ended June 30, 2010

		Historical Eagle Ford			Sandstone 50% Interests		Pro Forma Adjustments				Combined
REVENUE	$	26,399		$	13,200	$	(13,200	)	(1	$	51,351
							24,951		(2
OPERATING EXPENSES
Lease operating expenses		23,399			11,700		(11,700	)	(1		34,581
							11,182		(2
General and administrative		118,773			28		(28	)	(1)		235,945
Impairment expense - properties		-			-		748,587		(2)		748,587
Depreciation, depletion and accretion		-			-		8,957		(2)		8,957
Total operating expenses		142,172			11,728		874,170				1,028,070
Net operating income (loss)		(115,773	)		1,472		(887,370	)			(976,720	)
OTHER INCOME (EXPENSES)
Interest Expense		(8,736	)		-		(51,203	)	(2)		(59,939	)
Noncontrolling interest		(1,472	)		-		1,472		(1)		-
Total other expenses		(10,208	)		-		(49,731	)			(59,939	)
Net income (loss)		(125,981	)		1,472		(937,101	)			(962,010	)
Dividends applicable to common stock		-			-		(76,801	)	(2)		(76,801	)
Net income (loss) attributable to common shareholders	$	(125,981	)	$	1,472	$	(1,013,902	)		$	(1,113,460	)

Net income (loss) per share – basic and diluted	-	$	0.00	-	$	0.12
Weighted average common shares outstanding – basic and diluted	-		8,970,120	-		8,970,102

(1)   To record revenues and expenses reclassified from noncontrolling interest.

(2)   To record the six and three month income statements of Eagle Ford Oil & Gas Corporation for the period ended June 30, 2010