MONGOLIA HOLDINGS, INC. company history: the story so far

History

Consolidation Services built a Kentucky coal and oil position, was diluted by a restated 2010 wells deal, then moved into a Mongolian Hertz franchise and a proposed Monroad purchase.

2008-2009: Building a Kentucky land position

The company, then called Consolidation Services, Inc., started out collecting coal, oil, gas and mineral rights in Kentucky. In April 2008 it took an option on the oil, gas and mineral rights under Buckhorn Resources LLC's land. In May it completed the purchase of a 50% stake in Buckhorn, which owns about 10,000 acres with coal rights, for $4.2 million. It paid $550,000 in cash, owed $1,550,000 in installments, and issued 1,093,750 restricted shares valued at $2.1 million.

In August 2008 it bought about 1,000 acres in Owsley County for $1,000,000, funded partly by a $513,655 loan from CEO Johnny Thomas. In September it bought a 50% stake in LeeCo Development LLC, which leases coal on about 650 acres, for $50,000 cash and 225,000 restricted shares. It then closed the Eastern Kentucky Land option for $1,000,000, paid with $200,000 cash and 415,584 restricted shares. The filing noted there was no assurance the resources exist in economic quantities. Much of the price was paid in shares, several with guaranteed values. In September 2009 the company disclosed that its auditor Moore & Associates had been barred by the PCAOB, and that a new firm would also re-audit 2008.

2010-2011: The Leland wells and failed big deals

On April 1, 2010 the company bought interests in oil and gas wells in Kentucky and Tennessee from 12 Leland-managed funds, issuing about 60% of the company in new shares. Control changed: Johnny Thomas and John Francis stepped down, and Stephen Thompson became Chairman and CEO. Existing shareholders were heavily diluted. Shares on issue rose from 42,309,053 at the end of 2010 to 49,919,289 a year later. The company also kept rights on about 12,000 acres, spun off to a subsidiary, Colt Resources, in January 2010.

Its bigger ambitions did not come off. In October 2010 it agreed to buy six California fields for $35 million, conditional on financing, but the agreement lapsed on December 31, 2010 without closing. In December 2011 Elkhorn Goldfields told it the sale of Elkhorn Goldfields and Montana Tunnels Mining under a May 2011 agreement could not be completed. No penalties applied, and the company said it would pursue alternatives.

2012-2013: Restatement and a new direction

The Leland deal was then marked down repeatedly. A July 2010 amendment cut the recorded price from $15,555,208 to $7,421,910. In January 2012 the company said its 2010 accounts should not be relied on, because goodwill should not have been recorded. Its auditor, GBH CPAs, withdrew its audit report. In February the company put the error at about $10.9 million, which had overstated losses, and relabelled the 2010 figures unaudited. A June 2012 amendment set the assets at about $4,355,000 for 22,786,872 shares. The Thompsons resigned in 2011. By the end of 2012 shares on issue stood at 12,567,553, though the beats do not explain the fall.

In February 2013 the company moved substantially all its oil and gas assets into a subsidiary, Hydrocarbons Holdings, Inc. In March 2013 its subsidiary Mongolia Equipment Rental Corporation signed a 10-year Hertz Equipment Rental franchise for Mongolia, for a $45,000 fee and 6% of gross revenue (minimum $135,000 a year). Shares on issue were 15,167,553 at the end of 2013, partly reflecting share grants to consultants and executives.

2014-2015: Mongolia plans and a proposed acquisition

The record for 2014 is thin. The franchise start was pushed from July 2013 to December 31, 2014, and shares reached 15,912,553. In January 2015 subsidiary Rental Equipment, LLC signed a credit line with XacBank for up to $10 million over 60 months at 12%, guaranteed by the parent, with funds released only against rental agreements. The press release called it the first part of a proposed $40 million line. In June 2015 the company settled a dispute with B&J Oil, owing $412,270.73 from Kentucky oil sales and issuing 130,000 restricted shares.

On December 28, 2015 the company agreed to acquire Monroad LLC, a Mongolian road construction company, by issuing 1,000,000 shares of preferred stock with $16 million face value, convertible into 16 million common shares, about 49% of the company at closing. The deal was not final. It depended on due diligence, converting certain debt to equity, a $2.00 share price and enough funding. As of that date, the Hertz operations had not been shown to have started.

Written from the 19 story beats below (2008 to 29 Dec 2015), which come from the company's own announcements and filings.

Beat by beat

The events that changed the company's story, in plain English, each written against everything known about the company at the time. The dot shows whether it was good, bad or neutral for shareholders.

shares on issue market cap (log scale)

201515.9m shares

29 Dec
On December 28, 2015 the company, through its subsidiary HERC, LLC, signed an agreement to acquire Monroad LLC, a Mongolian road construction and earth moving company, from its sole shareholder. In exchange it would issue 1,000,000 shares of 6% Series A Convertible Preferred Stock (face value $16 million), convertible into 16 million common shares, or about 49% of the outstanding shares at closing, so existing shareholders would be diluted if it completes. The deal is not final: it depends on due diligence, converting certain company debt to equity, a $2.00 per share trading price, and enough funding for the combined business plan (some conditions can be waived). Monroad's 2014 audited revenue was reported as $19,214,805, and the company says this adds to its Hertz franchise plans in Mongolia, which have not yet been shown to have started.
material agreement
15.9m sh
15 June
On June 9, 2015 the company and Hydrocarbons Holdings settled a dispute with B&J Oil Company over costs from its Kentucky oil production. B&J is owed $412,270.73, paid from Kentucky crude oil sale proceeds, with Hydrocarbons responsible for any shortfall, and the company issued B&J 130,000 restricted shares. The company says it was never served with a complaint and the case was dismissed with prejudice.
material agreement
15.9m shUS$6.4m
28 Jan
On January 22, 2015 the subsidiary Rental Equipment, LLC signed a loan agreement with XacBank for a credit line of up to $10,000,000 over 60 months at 12% interest, to buy equipment for the Hertz franchise. It can fund up to 80% of equipment cost, requires rental agreements before funds are released, and is secured by a pledge of the equipment bought. The parent company guarantees all of the borrower's obligations and must keep a 1.2 debt service coverage ratio. The press release calls it the first $10 million of a proposed $40 million line, and the company says it will look for more funding with no assurance of getting it.
material agreement
15.9m shUS$4.0m

201312.6m shares · US$1.3m market cap

25 Mar
On March 21, 2013 the company's subsidiary Mongolia Equipment Rental Corporation signed a 10-year Hertz Equipment Rental franchise agreement for Mongolia, starting July 1, 2013, with two 5-year renewal options. It pays a $45,000 initial fee and a monthly fee of 6% of gross revenue (minimum $135,000 a year). Hertz may not license another equipment rental business in Mongolia, and the company gets a right of first opportunity for Burma (Myanmar). This is a new business line alongside the oil and gas assets.
material agreement
12.6m shUS$1.3m
27 Feb
On February 21, 2013 the company agreed to transfer substantially all of its oil and gas assets and liabilities to its wholly owned subsidiary Hydrocarbons Holdings, Inc., effective February 28, 2013. The assets stay inside the group but are now held in a separate subsidiary.
material agreement
12.6m shUS$1.3m

201249.9m shares · US$6.0m market cap

4 June
Second amendment to the report on the April 1, 2010 purchase of oil and gas well interests from 12 Leland-managed partnerships in Kentucky and Tennessee. It now says the price was 22,786,872 restricted shares (earlier context said 23,216,729) for assets valued at about $4,355,000, not the ~$15,555,000 originally used, after an updated reserve report; the SEC required the 2010 quarterly reports to be restated. It also adds audited Leland partnership financials, says the partnerships' limited partners were treated as approving the deal when ballots were not returned, and says Stephen and Pamela Thompson later resigned their positions in 2011. This continues the restatement thread and lowers the recorded value of the Leland wells.
asset acquisition disposition
49.9m shUS$6.0m
17 Feb
This amendment quantifies the error in the January 2012 non-reliance notice: about $10.9 million, with net loss reduced by that amount, loss per share reduced by $0.32 and accumulated deficit reduced by $10.9 million (that is, the earlier results overstated losses). The company amended its 2010 annual report on February 9, 2012 to remove the withdrawn audit report and label the figures unaudited, and says it will file corrected annual and quarterly reports by February 29, 2012, citing limited resources.
financial restatement
49.9m shUS$10.0m
27 Jan
The company says its December 31, 2010 annual accounts and the June and September 2010 quarterly accounts should no longer be relied on, because goodwill should not have been recorded or impaired given a final $4.3 million valuation; it plans to amend them. On January 25, 2012 its auditor GBH CPAs withdrew its April 14, 2011 audit report, citing the company's failure to make the amendments on time, to file a timely non-reliance notice, and to respond to SEC staff comments. The board's determination dates from July 26, 2011, so this disclosure came about six months later.
financial restatement
49.9m shUS$12.0m

201149.9m shares · US$12.0m market cap

30 Dec
The company was told by letter of December 27, 2011 that Elkhorn Goldfields' board decided it cannot complete the sale of Elkhorn Goldfields, Inc. and Montana Tunnels Mining, Inc. to the company's subsidiary CSI Resources under a May 2, 2011 stock purchase agreement (as amended). Neither side owes early termination penalties, and the company says it is pursuing alternative transactions. This deal was not in earlier context.
material agreement termination
49.9m shUS$12.0m
3 Jan
The October 2010 agreement to buy six California oil and gas fields from Grayson Services and RMR Energy Resources for $35 million terminated on December 31, 2010 under its own terms, so the deal did not close. The filing gives no reason and no mention of penalties.
material agreement
42.3m shUS$38.9m

2010

21 Oct
On October 15, 2010 the company's subsidiary CSI Energy signed an agreement to buy six California oil and gas fields in Kern and Santa Barbara counties from Grayson Services and RMR Energy Resources for $35 million (the press release says all cash). The fields have 54 producing wells on over 2,250 acres, producing 265 barrels of oil and 485 mcf of gas per day. Closing was set for on or before December 31, 2010, conditional on the company obtaining financing and finishing due diligence. This follows a non-binding letter of intent announced June 1, 2010.
material agreement
20 July
This amendment to the April 2010 Leland funds acquisition restates the deal: it now says 52 oil wells and 19 gas wells (up from 39 oil wells in the original). It records the purchase price at $7,421,910, based on a third-party reserve valuation and equipment appraisal, instead of the $15,555,208 first reported. It notes the shares had a quoted market price of $1.03 on April 1, 2010 (about $23.9 million in total). It also adds audited revenue and expense statements and pro forma financials for the acquired properties (figures are in exhibits not shown).
business combination
7 Apr
On April 1, 2010 the company (filing as Consolidation Services, Inc.) bought interests in 39 oil wells and 19 gas wells on about 1,500 leased acres in Kentucky and Tennessee from 12 oil and gas funds, paying 23,216,729 restricted shares valued at $0.67 each ($15,555,208). The shares are about 60% of the company, so control changed: Johnny Thomas and John Francis resigned as directors and officers (staying on an acquisition committee), and Stephen M. Thompson (president of the funds' manager's parent, Leland Energy) became Chairman and CEO, with Pamela Thompson as CFO and Gary Kucher as President. Existing shareholders were heavily diluted. The filing also says the company kept oil and gas rights on about 12,000 acres spun off to a subsidiary, Colt Resources, on January 1, 2010, with a 12.5% overriding royalty to Colt, and that funding to develop them is not assured.
business combination

2009

2 Sept
The company disclosed that the PCAOB revoked Moore & Associates' registration on August 27, 2009 for rule violations and non-cooperation with an investigation, and that Moore would not provide an updated letter to the SEC. It also says no engagement letter was signed with Seale and Beers and no new firm was retained; the new firm will also re-audit the 2008 financial statements.
auditor change

2008

25 Sept
On September 22, 2008 the company closed the Eastern Kentucky Land Corp. option, resolving that open thread: it bought the oil, gas and other mineral rights on the Buckhorn property for $1,000,000 ($200,000 cash, with $50,000 of option payments credited, plus 415,584 restricted shares at $1.925, value guaranteed if the lock-up is followed). CEO Johnny Thomas loaned $150,000 for the cash due at closing, plus $50,000 earlier for the extension payments, both at 6% payable on demand. The filing says there is no assurance the resources exist in economic quantities.
asset acquisition disposition
17 Sept
The company agreed (effective June 19, 2008, signed September 11, closed September 16, 2008) to buy a 50% stake in LeeCo Development LLC from Billy David Altizer and Pat E. Mitchell for $500,000: $50,000 cash (provided by CEO Johnny Thomas) and 225,000 restricted shares valued at $2.00 ($450,000, value guaranteed if the lock-up is followed). LeeCo leases coal on about 650 acres, and the company gets its oil and gas rights (less a 1% interest kept by the two original owners). Altizer is also the Buckhorn and AMS figure from earlier deals. Separately, Helen Thomas resigned as Secretary/Treasurer and director, and CFO John Francis took over the Secretary/Treasurer role.
asset acquisition disposition
28 Aug
On August 25, 2008 the company exercised its option and bought about 1,000 acres in Owsley County, Kentucky from Larry Bruce Herald for $1,000,000: $500,000 cash, funded by a $513,655 demand loan from CEO Johnny Thomas at 6% interest, and a $500,000 non-interest note due October 15, 2008 secured by a mortgage on the land. It also agreed with AMS Development to handle coal permitting and mining plans, paying AMS $100,000 cash, 50% of the coal royalty rights and 200,000 restricted shares valued at $2.00 ($400,000) with a guaranteed value. AMS's managing member, Billy David Altizer, is also a managing member of Buckhorn, linking this deal to the Buckhorn thread.
asset acquisition disposition
27 May
On May 20, 2008 the company completed its purchase of a 50% stake in Buckhorn Resources LLC, which owns about 10,000 acres with coal rights in Eastern Kentucky, for $4.2 million. It paid $550,000 cash at closing, owes $1,550,000 in installments over twelve months, and issued 1,093,750 restricted shares valued at $1.92 each ($2.1 million), which adds to the share count; the company guarantees the share value if the lock-up is followed. This follows the earlier EK option on the oil, gas and mineral rights beneath that same land.
asset acquisition disposition
2 Apr
The company (then named Consolidation Services, Inc.) signed an option, effective March 31, 2008, giving it until October 1, 2008 to close a purchase of the oil, gas and mineral rights on Buckhorn Resources LLC's property from Eastern Kentucky Land Corporation, which keeps a $0.30-per-ton coal right. The price is $200,000 cash plus 415,584 unregistered shares valued at $1.925 each ($800,000); the company pays $20,000 by April 8, 2008 and $5,000 monthly, credited against the cash, and guarantees the $800,000 share value if sales follow the lock-up (weekly sales up to 7,992 shares from April 1, 2009).
material agreement