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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Arete Industries Inc (CE) | USOTC:ARET | OTCMarkets | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.0001 | 0.00 | 01:00:00 |
☒
|
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:
|
☐
|
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
|
Colorado
|
|
84-1508638
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
|
(I.R.S. Employer
Identification No.)
|
7260 Osceola Street, Westminster, Colorado
|
|
80030
|
(Address of Principal Executive Offices)
|
|
(Zip Code)
|
Large accelerated filer
|
|
☐
|
|
Accelerated filer
|
|
☐
|
Non-accelerated filer
|
|
☐
|
|
Smaller reporting company
|
|
☒
|
1
|
Explanatory Note: The Company is a voluntary filer with the Securities and Exchange Commission.
|
|
|
|
|
Page
|
|
|
PART I
|
|
|
5
|
|
||
Item 1.
|
|
Business
|
|
5
|
|
|
Item 1A.
|
|
Risk Factors
|
|
11
|
|
|
Item 1B
|
|
Unresolved Staff Comments
|
|
19
|
|
|
Item 2.
|
|
Properties
|
|
19
|
|
|
Item 3.
|
|
Legal Proceedings
|
|
24
|
|
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Item 4.
|
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Mine Safety Disclosures
|
|
24
|
|
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PART II
|
|
|
25
|
|
||
Item 5.
|
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
|
25
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|
|
Item 6.
|
|
Selected Financial Data
|
|
26
|
|
|
Item 7.
|
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
|
26
|
|
|
Item 7A.
|
|
Quantitative and Qualitative Disclosures About Market Risk
|
|
|||
Item 8.
|
|
Financial Statements and Supplementary Data.
|
|
32
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|
|
Item 9.
|
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
|
54
|
|
|
Item 9-A
|
|
Controls and Procedures
|
|
54
|
|
|
Item 9-B
|
|
Other Information
|
|
54
|
|
|
PART III
|
|
|
55
|
|
||
Item 10.
|
|
Directors, Executive Officers and Corporate Governance
|
|
55
|
|
|
Item 11.
|
|
Executive Compensation
|
|
57
|
|
|
Item 12.
|
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
|
59
|
|
|
Item 13.
|
|
Certain Relationships and Related Transactions, and Director Independence
|
|
59
|
|
|
Item 14.
|
|
Principal Accounting Fees and Services
|
|
61
|
|
|
PART IV
|
|
|
62
|
|
||
Item 15.
|
|
Exhibits, Financial Statement schedules
|
|
62
|
|
|
•
|
|
our ability to alleviate our significant working capital deficit and continue business as a going concern
|
|
•
|
|
changes in production volumes, worldwide demand and commodity prices for oil and natural gas;
|
|
•
|
|
changes in estimates of proved reserves;
|
|
•
|
|
declines in the values of our oil and natural gas properties resulting in impairments;
|
|
•
|
|
the timing and extent of our success in discovering, acquiring, developing and producing oil and natural gas reserves;
|
|
•
|
|
our ability to acquire leases, drilling rigs, supplies and services at reasonable prices;
|
|
•
|
|
risks incident to the drilling and operation of oil and natural gas wells;
|
|
•
|
|
future production and development costs;
|
|
•
|
|
the availability of sufficient pipeline and other transportation facilities to carry our production and the impact of these facilities on price;
|
|
•
|
|
the effect of existing and future laws, governmental regulations and the political and economic climate of the United States of America;
|
|
•
|
|
changes in environmental laws and the regulation and enforcement related to those laws;
|
|
•
|
|
the identification of and severity of environmental events and governmental responses to the events;
|
|
•
|
|
the effect of oil and natural gas derivatives activities; and
|
|
•
|
|
conditions in the capital markets.
|
Item 1.
|
BUSINESS
|
|
•
|
|
We plan to and have acquired oil and natural gas properties that will provide for the operations of the Company;
|
|
•
|
|
We expect to seek to acquire leases that have development possibility either for us to drill or with other companies on a joint venture or farm-out basis. Part of this plan would include the possibility of selling leases and retaining an overriding royalty in the property and a right to buy back into future development; and
|
|
•
|
|
We are looking for acquisitions of producing properties with future development.
|
Item 1A.
|
RISK FACTORS
|
|
•
|
|
The statements may disclose our future expectations;
|
|
•
|
|
The statements may contain projections of our future earnings or our future financial condition; and
|
|
•
|
|
The statements may state other “forward-looking” information.
|
|
•
|
|
Economic and energy infrastructure disruptions caused by geopolitical factors including but not limited to embargoes and sanctions on major producing countries and actual or threatened acts of war, or terrorist activities particularly with respect to oil producers in the Middle East, Nigeria and Venezuela;
|
|
•
|
|
Weather conditions, such as hurricanes, including energy infrastructure disruptions resulting from those conditions;
|
|
•
|
|
Changes in the global oil supply, demand and inventories;
|
|
•
|
|
Changes in domestic natural gas supply, demand and inventories;
|
|
•
|
|
The price and quantity of foreign imports of oil;
|
|
•
|
|
Political conditions in or affecting other oil-producing countries;
|
|
•
|
|
General economic conditions in the United Stated and worldwide;
|
|
•
|
|
The level of worldwide oil and natural gas exploration and production activity;
|
|
•
|
|
Technological advances affecting energy consumption; and
|
|
•
|
|
The price and availability of alternative fuels.
|
|
•
|
|
Shortages of or delays in obtaining equipment and qualified personnel such as we are currently experiencing;
|
|
•
|
|
Pressure or irregularities in geological formations;
|
|
•
|
|
Equipment failures or accidents;
|
|
•
|
|
Adverse weather conditions;
|
|
•
|
|
Reductions in oil and natural gas prices;
|
|
•
|
|
Issues associated with property titles; and
|
|
•
|
|
Delays imposed by or resulting from compliance with regulatory requirements.
|
|
•
|
|
Blowouts, fires and explosions;
|
|
•
|
|
Personal injuries and death;
|
|
•
|
|
Uninsured or underinsured losses;
|
|
•
|
|
Unanticipated, abnormally pressured formations;
|
|
•
|
|
Mechanical difficulties, such as stuck oil field drilling and service tools and casing collapses; and
|
|
•
|
|
Environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater and shoreline contamination.
|
Item 1B.
|
UNRESOLVED STAFF COMMENTS
|
Item 2.
|
PROPERTIES
|
|
Productive Wells
|
|||||||
|
During 2015
|
|||||||
State
|
Gross
|
Net
(a)
|
||||||
Wyoming
|
32.0
|
22.4
|
||||||
Kansas
|
5.0
|
3.4
|
||||||
Colorado
|
5.0
|
4.9
|
||||||
Nebraska
|
-
|
-
|
||||||
Montana
|
1.0
|
1.0
|
||||||
43.0
|
31.7
|
(a)
|
Net wells are the sum of our fractional working interests owned in gross wells.
|
|
Proved Reserves at 2015 Year-End
|
2015 Average
|
||||||||||||||
|
Quantity
|
Pre and Post-Tax
|
%
|
Monthly Production
|
||||||||||||
State
|
(BOE)
(a)
|
PV 10%
(b)
|
Oil
(c)
|
(BOE)
|
||||||||||||
Wyoming
|
201,438
|
$
|
885,720
|
67.8
|
%
|
1,376
|
||||||||||
Kansas
|
113,920
|
1,623,570
|
100.0
|
%
|
568
|
|||||||||||
Colorado
|
3,667
|
8,830
|
11.7
|
%
|
444
|
|||||||||||
Nebraska
|
1,610
|
9,690
|
100.0
|
%
|
-
|
|||||||||||
Montana
|
14,293
|
24,860
|
0.0
|
%
|
61
|
|||||||||||
334,928
|
$
|
2,552,670
|
82.2
|
%
|
2,449
|
(a)
|
BOE is defined as one barrel of oil equivalent determined using the ratio of six Mcf of natural gas to one barrel of oil.
|
(b)
|
The prices used in this report were computed by applying the SEC-mandated 12 month arithmetic average of the first of month price for January through December 31, 2015, which resulted in benchmark prices of $50.28 per barrel for crude oil and $2.587 per MMbtu for natural gas. Benchmark prices were further adjusted on a well by well basis for transportation, quality and basis differentials to arrive at the prices used for this report. The differential ranged by well from -$3.40/bbl to -$10.77/bbl for oil and for natural gas ranged from minus 81% to plus 59% of NYMEX.
|
(c)
|
Computed based on BOE using the ratio of six Mcf of natural gas to one barrel of oil.
|
|
Standardized
|
|
||||||
|
Measure
|
PV 10
|
||||||
Future cash inflows
|
$
|
13,002,030
|
$
|
6,604,328
|
||||
Future production costs
|
( 7,976,560
|
)
|
(4,051,658
|
)
|
||||
Future development cos
|
-
|
-
|
||||||
Future income taxes
|
-
|
-
|
||||||
Future net cash flows
|
5,025,470
|
2,552,670
|
||||||
10% annual discount
|
( 2,472,800
|
)
|
-
|
|||||
Discounted future net cash flows
|
$
|
2,552,670
|
$
|
2,552,670
|
||||
Years Ended December 31,
|
||||||||||||
|
2015
|
2014
|
2013
|
|||||||||
Oil sales
|
$
|
777,123
|
$
|
1,797,230
|
$
|
1,791,451
|
||||||
Natural gas sales
|
143,907
|
361,053
|
434,230
|
|||||||||
Royalty revenues
|
4,871
|
3,369
|
533
|
|||||||||
Sale of oil and natural gas properties
|
27,120
|
391,585
|
347,888
|
|||||||||
Total revenue
|
953,021
|
2,553,237
|
2,574,102
|
|||||||||
Production taxes
|
(84,576
|
)
|
(179,660
|
)
|
(187,594
|
)
|
||||||
Lease operating expense
|
(754,362
|
)
|
(791,142
|
)
|
(679,172
|
)
|
||||||
Other operating expenses
|
(160,011
|
)
|
(36,250
|
)
|
-
|
|||||||
Depreciation, depletion, amortization and accretion (“DD&A”)
|
(816,481
|
)
|
(767,857
|
)
|
(665,123
|
)
|
||||||
Impariement expense | (3,231,000 | ) | - | - | ||||||||
Net
|
$
|
(4,093,409
|
)
|
$
|
778,328
|
$
|
1,042,213
|
|||||
Net barrels of oil sold
|
18,956
|
22,825
|
21,304
|
|||||||||
Net Mcf of gas sold
|
62,630
|
70,195
|
82,207
|
|||||||||
Net Barrels of Oil Equivalent (“BOE”) sold
|
29,394
|
34,524
|
35,005
|
|||||||||
Average price per barrel of oil sold
|
$
|
41.00
|
$
|
78.74
|
$
|
84.09
|
||||||
Average price for per Mcf of natural gas sold
|
$
|
2.30
|
$
|
5.14
|
$
|
5.28
|
||||||
Lease operating expense per BOE
|
$
|
25.66
|
$
|
22.92
|
$
|
19.40
|
||||||
DD&A per BOE
|
$
|
27.78
|
$
|
22.24
|
$
|
19.01
|
|
Undeveloped
|
Developed
|
||||||||||||||
State
|
Gross
|
Net
|
Gross
|
Net
|
||||||||||||
Wyoming
|
-
|
-
|
8,551
|
7,865
|
||||||||||||
Kansas
|
-
|
-
|
1,510
|
743
|
||||||||||||
Nebraska
|
4,400
|
1,528
|
160
|
120
|
||||||||||||
Total
|
4,400
|
1,528
|
10,221
|
8,728
|
|
Net Exploratory
Wells Drilled
|
Net Development
Wells Drilled
|
Total Net Productive
and Dry Wells
|
|||||||||||||||||
Year
|
Productive
|
Dry
|
Productive
|
Dry
|
Drilled
|
|||||||||||||||
2015
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
|||||||||||||||
2014
|
0.00
|
0.00
|
0.0169
|
0.00
|
0.0169
|
|||||||||||||||
2013
|
0.00
|
0.00
|
0.0285
|
0.00
|
0.0285
|
Year
|
Name of Customer
|
Amount of Year’s Gross Revenues
|
|||
2014
|
Plains Marketing
|
68
|
%
|
||
2014
|
DCP Midstream
|
16
|
%
|
||
2015
|
Plains Marketing
|
67
|
%
|
||
2015
|
DCP Midstream
|
15
|
%
|
||
· | royalties and other burdens and obligations, express or implied, under oil and natural gas leases; |
· | overriding royalties and other burdens created by us or our predecessors in title; |
· | a variety of contractual obligations (including, in some cases, development obligations) arising under operating agreements, farmout agreements, production sales contracts and other agreements that may affect the properties or their titles; |
· | back-ins and reversionary interests existing under purchase agreements and leasehold assignments; |
· | liens that arise in the normal course of operations, such as those for unpaid taxes, statutory liens securing obligations to unpaid suppliers and contractors and contractual liens under operating agreements; pooling, unitization and communitization agreements, declarations and orders; and |
· | easements, restrictions, rights-of-way and other matters that commonly affect property. |
Item 3.
|
LEGAL PROCEEDINGS
|
Item 4.
|
MINE SAFETY DISCLOSURES
|
Item 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
|
HIGH
|
LOW
|
||||||
Year Ended December 31, 2015:
|
||||||||
First Quarter
|
$
|
0.17
|
$
|
0.08
|
||||
Second Quarter
|
0.22
|
0.11
|
||||||
Third Quarter
|
0.16
|
0.11
|
||||||
Fourth Quarter
|
0.20
|
0.07
|
||||||
Year Ended December 31, 2014:
|
||||||||
First Quarter
|
$
|
0.89
|
$
|
0.22
|
||||
Second Quarter
|
0.45
|
0.26
|
||||||
Third Quarter
|
0.43
|
0.20
|
||||||
Fourth Quarter
|
0.27
|
0.08
|
|
•
|
|
contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
|
|
•
|
|
contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of the Exchange Act, as amended;
|
|
•
|
|
contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the bid and ask price;
|
|
•
|
|
contains a toll-free telephone number for inquiries on disciplinary actions;
|
|
•
|
|
defines significant terms in the disclosure document or in the conduct of trading penny stocks; and
|
|
•
|
|
contains such other information and is in such form (including language, type, size and format) as the SEC shall require by rule or regulation.
|
|
•
|
|
the bid and offer quotations for the penny stock;
|
|
•
|
|
the compensation of the broker-dealer and its salesperson in the transaction;
|
|
•
|
|
the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and
|
|
•
|
|
monthly account statements showing the market value of each penny stock held in the customer’s account.
|
Item 6.
|
SELECTED FINANCIAL DATA
|
Item 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
•
|
|
Critical accounting policies;
|
|
•
|
|
Results of operations;
|
|
•
|
|
Liquidity and capital resources;
|
|
•
|
|
Contractual obligations and commercial commitments;
|
|
•
|
|
Off-balance sheet arrangements;
|
|
•
|
|
New accounting pronouncements; and
|
|
•
|
|
Controls and procedures.
|
|
2015
|
2014
|
||||||
Oil sales
|
$
|
777,123
|
$
|
1,797,230
|
||||
Natural gas sales
|
143,907
|
361,053
|
||||||
Royalty revenue
|
4,871
|
3,369
|
||||||
Sale of oil and natural gas properties
|
27,120
|
391,585
|
||||||
Total revenue
|
953,021
|
2,553,237
|
||||||
Production taxes
|
(84,576
|
)
|
(179,660
|
)
|
||||
Lease operating expense
|
(754,362
|
)
|
(791,142
|
)
|
||||
Other operating expenses
|
(160,011
|
)
|
(36,250
|
)
|
||||
Depreciation, depletion, amortization and accretion (“DD&A”)
|
(816,481
|
)
|
(767,857
|
)
|
||||
Impairment expense | (3,231,000 | ) | - | |||||
Net
|
$
|
(4,093,409
|
)
|
$
|
778,328
|
|||
Net barrels of oil sold
|
18,956
|
22,825
|
||||||
Net Mcf of gas sold
|
62,630
|
70,195
|
||||||
Net Barrels of Oil Equivalent (“BOE”) sold
|
29,394
|
34,524
|
||||||
Average price per barrel of oil sold
|
$
|
41.00
|
$
|
78.74
|
||||
Average price for per Mcf of natural gas sold
|
$
|
2.30
|
$
|
5.14
|
||||
Lease operating expense per BOE
|
$
|
25.66
|
$
|
22.92
|
||||
DD&A per BOE
|
$
|
27.78
|
$
|
22.24
|
|
2015
|
2014
|
Change
|
|||||||||
Director fees
|
$
|
47,833
|
$
|
20,450
|
$
|
27,383
|
||||||
Investor relations
|
28,128
|
65,833
|
(37,705
|
)
|
||||||||
Legal, auditing and professional services
|
116,078
|
146,581
|
(30,503
|
)
|
||||||||
Consulting and executive services:
|
||||||||||||
Related parties
|
172,217
|
220,800
|
(48,583
|
)
|
||||||||
Unrelated parties
|
—
|
—
|
—
|
|||||||||
Other administrative expenses
|
74,634
|
72,807
|
1,827
|
|||||||||
Depreciation
|
428
|
570
|
(142
|
)
|
||||||||
Total general and administrative expenses
|
$
|
439,318
|
$
|
527,041
|
$
|
(87,723
|
)
|
Item 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Report of Independent Registered Public Accounting Firm
|
33
|
|
Consolidated Balance Sheets – December 31, 2015 and 2014
|
34
|
|
Consolidated Statements of Operations – For the years ended December 31, 2015 and 2014
|
35
|
|
Consolidated Statements of Stockholders’ Equity – For the years ended December 31, 2015 and 2014
|
36
|
|
Consolidated Statements of Cash Flows – For the years ended December 31, 2015 and 2014
|
37
|
|
Notes to Consolidated Financial Statements
|
38
|
Denver, Colorado
May 6, 2016
|
/s/ CAUSEY DEMGEN & MOORE P.C.
|
2015
|
2014
|
|||||||
Revenues:
|
||||||||
Oil and natural gas sales
|
$
|
921,030
|
$
|
2,158,283
|
||||
Sale of oil and natural gas properties
|
27,120
|
391,585
|
||||||
Royalty revenues
|
4,871
|
3,369
|
||||||
Total revenues
|
953,021
|
2,553,237
|
||||||
Operating Expenses:
|
||||||||
Oil and gas producing activities:
|
||||||||
Lease operating expenses
|
754,362
|
791,142
|
||||||
Production taxes
|
84,576
|
179,660
|
||||||
Other operating expense
|
160,011
|
36,250
|
||||||
Depreciation, depletion, amortization and accretion
|
816,481
|
767,857
|
||||||
Impairment
|
3,231,000
|
-
|
||||||
Gas gathering:
|
||||||||
Operating expenses
|
1,406
|
8,926
|
||||||
Depreciation
|
44,362
|
44,219
|
||||||
Impairment
|
56,648
|
-
|
||||||
General and administrative expenses:
|
||||||||
Director fees
|
47,833
|
20,450
|
||||||
Investor relations
|
28,128
|
65,833
|
||||||
Legal, auditing and professional fees
|
116,078
|
146,581
|
||||||
Consulting fees executive services-related parties
|
172,217
|
220,800
|
||||||
Other adminstrative expenses
|
74,634
|
72,807
|
||||||
Depreciation
|
428
|
570
|
||||||
Total operating expenses
|
5,588,164
|
2,355,095
|
||||||
Operating income (loss)
|
(4,635,143
|
)
|
198,142
|
|||||
Other income (expense)
|
||||||||
Interest income (expense), net
|
(111,910
|
)
|
(135,773
|
)
|
||||
Total other expense
|
(111,910
|
)
|
(135,773
|
)
|
||||
Income (loss) before income taxes
|
(4,747,053
|
)
|
62,369
|
|||||
Income tax benefit (expense)
|
-
|
-
|
||||||
Net income (loss) attributable to Arete Industries, Inc.
|
$
|
(4,747,053
|
)
|
$
|
62,369
|
|||
Net Income (Loss) Applicable to Common Stockholders:
|
||||||||
Net income (loss)
|
$
|
(4,747,053
|
)
|
$
|
62,369
|
|||
Redemption of preferred stock
|
-
|
17,951
|
||||||
Accrued preferred stock dividends
|
-
|
(9,375
|
)
|
|||||
Net income (loss) applicable to common stockholders
|
$
|
(4,747,053
|
)
|
$
|
70,945
|
|||
Earnings (Loss) Per Share Applicable to Common Stockholders:
|
||||||||
Basic
|
$
|
(0.37
|
)
|
$
|
0.01
|
|||
Diluted
|
$
|
(0.37
|
)
|
$
|
0.01
|
|||
Weighted Average Number of Common Shares Outstanding:
|
||||||||
Basic
|
12,882,000
|
12,450,000
|
||||||
Diluted
|
12,882,000
|
12,450,000
|
Class A Preferred Stock
|
Common Stock
|
Accumulated
|
||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Deficit
|
Total
|
|||||||||||||||||||
Balances, December 31, 2013
|
10
|
$
|
95,451
|
13,608,459
|
$
|
21,488,387
|
$
|
(16,198,862
|
)
|
$
|
5,384,976
|
|||||||||||||
Issuance of common stock for oil and gas acquisition from related parties, shares valued at $0.23 per share
|
-
|
-
|
150,000
|
34,500
|
-
|
34,500
|
||||||||||||||||||
Redemption of common stock
|
-
|
-
|
(1,200,000
|
)
|
(228,000
|
)
|
-
|
(228,000
|
)
|
|||||||||||||||
Redemption of preferred stock
|
(10
|
)
|
(95,451
|
)
|
-
|
-
|
17,951
|
(77,500
|
)
|
|||||||||||||||
Net income
|
-
|
-
|
62,369
|
62,369
|
||||||||||||||||||||
Balances, December 31, 2014
|
-
|
-
|
12,558,459
|
21,294,887
|
(16,118,542
|
)
|
5,176,345
|
|||||||||||||||||
Common Stock Issued for Services - Related Parties
|
-
|
-
|
206,666
|
32,516
|
-
|
32,516
|
||||||||||||||||||
Common Stock Issued for Directors Fees
|
-
|
-
|
530,288
|
75,232
|
-
|
75,232
|
||||||||||||||||||
Issuance of common stock for oil and gas acquisition
|
-
|
-
|
1,000,000
|
100,000
|
-
|
100,000
|
||||||||||||||||||
Issuance of series A2 preferred stock
|
177
|
1,770,000
|
-
|
-
|
-
|
1,770,000
|
||||||||||||||||||
Preferred stock issued for settlement with a related party
|
90
|
900,000
|
-
|
-
|
-
|
900,000
|
||||||||||||||||||
Net income
|
-
|
-
|
-
|
-
|
(4,747,053
|
)
|
(4,747,053
|
)
|
||||||||||||||||
Balances, December 31, 2015
|
267
|
$
|
2,670,000
|
14,295,413
|
$
|
21,502,635
|
$
|
(20,865,595
|
)
|
$
|
3,307,040
|
2015
|
2014
|
|||||||
Cash Flows from Operating Activities:
|
||||||||
Net income (loss)
|
$
|
(4,747,053
|
)
|
$
|
62,369
|
|||
Adjustments to reconcile net income (loss) to net cash provided by
|
||||||||
(used in) operating activities:
|
||||||||
Depreciation, depletion and amortization
|
790,896
|
745,836
|
||||||
Accretion of discount on asset retirement obligations
|
70,375
|
66,810
|
||||||
Gain on sale of oil and gas properties
|
(27,120
|
)
|
(391,585
|
)
|
||||
Additional cost for settlement of asset retirement obligations
|
(28,684
|
)
|
-
|
|||||
Impairment expense
|
3,287,648
|
-
|
||||||
Additional acquisition expense realized on settlement with a related party
|
141,099
|
-
|
||||||
Common stock issued in exchange for services
|
85,048
|
-
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
132,041
|
101,740
|
||||||
Prepaid expenses and other
|
1,668
|
3,955
|
||||||
Accounts payable
|
21,531
|
25,559
|
||||||
Directors and officers services payable
|
141,952
|
-
|
||||||
Accrued costs and expenses
|
33,709
|
44,235
|
||||||
Net cash provided by (used in) operating activities
|
(96,890
|
)
|
658,919
|
|||||
Cash Flows from Investing Activities:
|
||||||||
Capital expenditures for property and equipment
|
(68,631
|
)
|
(639,259
|
)
|
||||
Capital expenditures for acquisition of oil & gas properties
|
(1,100,000
|
)
|
-
|
|||||
Proceeds from sale of oil and gas properties
|
50,000
|
312,789
|
||||||
Net cash provided by (used in) investing activities
|
(1,118,631
|
)
|
(326,470
|
)
|
||||
Cash Flows from Financing Activities:
|
||||||||
Proceeds from notes and advance payable
|
67,000
|
622,638
|
||||||
Principal payments on notes payable
|
(25,568
|
)
|
(1,157,155
|
)
|
||||
Net proceeds received from issuance of Series A2 Preferred Stock
|
1,665,000
|
-
|
||||||
Redemption of preferred stock
|
-
|
(15,500
|
)
|
|||||
Redemption of common stock
|
-
|
(228,000
|
)
|
|||||
Net cash provided by (used in) financing activities
|
1,706,432
|
(778,017
|
)
|
|||||
Net increase (decrease) in cash and equivalents
|
490,911
|
(445,568
|
)
|
|||||
Cash and equivalents, beginning of period
|
30,755
|
476,323
|
||||||
Cash and equivalents, end of period
|
$
|
521,666
|
$
|
30,755
|
||||
Supplemental Disclosure of Cash Flow Information:
|
||||||||
Cash paid for interest
|
$
|
83,136
|
$
|
123,669
|
||||
Cash paid for income taxes
|
$
|
-
|
$
|
-
|
||||
Supplemental Disclosure of Non-cash Investing and Financing Activities:
|
||||||||
Issuance of common stock for asset purchase
|
$
|
100,000
|
$
|
34,500
|
||||
Conversion of series A1 preferred stock to note payable
|
$
|
-
|
$
|
62,000
|
||||
Series A2 preferred stock issued for debt settlement - related party
|
$
|
900,000
|
$
|
-
|
||||
Common Stock Issued for services
|
$
|
3,950
|
$
|
-
|
||||
Common Stock issued for directors fees payable
|
$
|
20,900
|
$
|
-
|
1.
|
Organization and Nature of Operations
|
2.
|
Summary of Significant Accounting Policies
|
Year ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Net income (loss) available to common shareholder’s – Basic
|
$
|
(4,747,053
|
)
|
$
|
70,945
|
|||
Plus: Preferred stock dividends
|
-
|
-
|
||||||
Net income (loss) available to common shareholder’s – Diluted
|
$
|
(4,747,053
|
)
|
$
|
70,945
|
|||
Weighted average common shares outstanding – Basic
|
12,882,000
|
12,450,000
|
||||||
Add: Dilutive effect of stock options
|
-
|
-
|
||||||
Add: Dilutive effect of preferred stock
|
-
|
-
|
||||||
Weighted average common shares outstanding – Diluted
|
12,882,000
|
12,450,000
|
||||||
Net income (loss) per common share:
|
||||||||
Basic
|
$
|
(0.37
|
)
|
$
|
0.01
|
|||
Diluted
|
$
|
(0.37
|
)
|
$
|
0.01
|
3.
|
Acquisitions and Dispositions of Oil and Gas Properties
|
Purchase Price allocation:
|
Amount
|
|||
Cash
|
$
|
1,100,000
|
||
Common Stock
|
100,000
|
|||
Total Consideration
|
$
|
1,200,000
|
||
Oil and gas properties
|
$
|
1,404,493
|
||
Asset retirement obligation assumed
|
(204,493
|
)
|
||
Total Purchase price allocation
|
$
|
1,200,000
|
December31,
|
||||||||
2015
|
2014
|
|||||||
Total revenue
|
$
|
1,294,069
|
$
|
3,384,674
|
||||
Net income (loss)
|
(4,773,679
|
)
|
455,736
|
|||||
Net income (loss) applicable to common shareholders
|
(4,773,679
|
)
|
464,312
|
|||||
Earnings per share
|
$
|
(0.34
|
)
|
$
|
0.03
|
|||
Basic
|
||||||||
Diluted
|
$
|
(0.34
|
)
|
$
|
0.03
|
4.
|
Oil and Gas Properties
|
December31,
|
||||||||
2015
|
2014
|
|||||||
Proved oil and gas properties at cost, net of impairment
|
$
|
8,683,273
|
$
|
10,222,668
|
||||
Unevaluated oil and gas properties at cost, net of impairment
|
154,836
|
348,836
|
||||||
Accumulated depreciation, depletion and amortization
|
(3,223,000
|
)
|
(2,476,898
|
)
|
||||
Oil and gas properties, net
|
$
|
5,615,109
|
$
|
8,094,606
|
5.
|
Fair Value Measurements
|
- | Level 1 – Observable inputs, such as unadjusted quoted prices in active markets, for substantially identical assets and liabilities. |
- | Level 2 – Observable inputs other than quoted prices within Level 1 for similar assets and liabilities. These include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. If the asset or liability has a specified or contractual term, the input must be observable for substantially the full term of the asset or liability. |
- | Level 3 – Unobservable inputs that are supported by little or no market activity, generally requiring a significant amount of judgment by management. The assets or liabilities fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. |
Level 1
|
Level 2
|
Level 3
|
Net Book Value |
Total Pre-tax
(Non-cash)
Impairment Loss
|
||||||||||||||||
Proved oil and gas properties at cost, net of impairment
|
-
|
-
|
$
|
315,138
|
$ | 3,386,585 | $ | 3,071,447 | ||||||||||||
Unevaluated oil and gas properties at cost, net of impairment
|
-
|
-
|
$
|
154,783
|
$ | 314,336 | $ | 159,553 | ||||||||||||
Gas gathering system (1) | - | - | - | 56,648 | $ | 56,648 |
7.
|
Notes and advances payable
|
|
2015
|
2014
|
||||||
Officers, directors and affiliates:
|
||||||||
Note payable, interest at 7.5%, due March 2016 (6)
|
$
|
150,000
|
$
|
150,000
|
||||
Notes payable, interest 7.0%, due January 2019 (3)
|
63,464
|
79,970
|
||||||
Notes payable, interest varies (4)
|
-
|
792,151
|
||||||
Collateralized note payable (1)
|
120,728
|
120,728
|
||||||
Total officers, directors and affiliates
|
334,192
|
1,142,849
|
||||||
Less: Current portion of officers, directors, and affiliates
|
18,900
|
288,258
|
||||||
Long-term portion of officers, directors, and affiliates
|
$
|
315,292
|
$
|
854,591
|
||||
Unrelated parties:
|
||||||||
Notes payable, interest at 7.5%, due March 2016 (7)
|
$
|
100,000
|
$
|
100,000
|
||||
Note payable, interest variable (see below) due January 2016, Extended to May 2016 (2)
|
616,105
|
549,105
|
||||||
Note payable, interest at 7.0%, due August 2016 (8)
|
62,000
|
62,000
|
||||||
Notes payable, interest at 7.0%, due January 2017
|
32,606
|
41,668
|
||||||
Notes payable, interest at 7.0%, due January 2016, Extended to May 2016 (5)(8)
|
183,000
|
183,000
|
||||||
Total unrelated parties
|
993,711
|
935,773
|
||||||
Less: Current portion of unrelated parties
|
970,953
|
872,239
|
||||||
Long-term portion of unrelated parties
|
$
|
22,758
|
$
|
63,534
|
||||
(1) | On April 29, 2013, the Company executed a promissory note under which the Company agreed to pay Apex Financial Services Corp, a Colorado corporation, (“Apex”) the principal sum of $1,000,000, with interest accruing at an annual rate of 7.5%, with principal and interest due on May 31, 2014, and subsequently extended to March 31, 2017. The Company also agreed to assign 75% of its operating income from its oil and gas operations and any lease or well sale or any other assets sales to Apex to secure the debt. Apex is 100% owned by the CEO, director, and shareholder of the Company, Nicholas L. Scheidt. The Company borrowed the full amount of principal on the note, and also paid a loan fee of $10,000. In the event of default on the note and failure to cure the default in ten days, Apex may accelerate payment and the annual interest rate on the note will accrue at 18%. Default includes failure to pay the note when due or if the Company borrows any other monies or offers security in the Company or in the collateral securing the note prior to the note being paid in full. The outstanding principal balance as of December 31, 2015, was $120,728. |
(2) | On January 28, 2014, we entered into a line of credit loan agreement for $1,500,000 due January 15, 2015 extended to January 28, 2016, and further extended after December 31, 2015 to May 28, 2016. The terms of the note are as follows: 1) the accrued interest is payable monthly starting February 28, 2014, 2) the interest rate is variable based on an index calculated based on a prime rate as published by the Wall Street Journal index (currently 3.5%) plus an add on index with the current and minimum rate of 6.5%, the note has draw provisions and is secured by seven wells and leases owned by the Company, a certificate of deposit for $500,000 at CityWide Banks pledged by a related party, and 5) the personal guarantee of Nicholas Scheidt, Chief Executive Officer. The amount eligible for borrowing on the Credit Facility is limited to the lesser of (i) 65% of the Company’s PV10 value of its carbon reserves based upon the most current engineering reserve report or (ii) 48 month cumulative cash flow based upon the most current engineering reserve report. In addition to the borrowing base limitation, the Company is required to maintain and meet certain affirmative and negative covenants and conditions in order to draw advances on the Credit Facility. The Credit Facility contains certain representations, warranties, and affirmative and negative covenants applicable to the Company, which are customarily applicable to senior secured loan facilities. Key covenants include limitations on indebtedness, restricted payments, creation of liens on oil and gas properties, hedging transactions, mergers and consolidations, sales of assets, use of loan proceeds, change in business, and change in control. The above-referenced promissory note contains customary default and acceleration provisions and provides for a default interest rate of 21% per annum. In addition, the Credit Facility contains customary events of default, including: (a) failure to pay any obligations when due; (b) failure to comply with certain restrictive covenants; (c) false or misleading representations or warranties; (d) defaults of other indebtedness; (e) specified events of bankruptcy, insolvency or similar proceedings; (f) one or more final, non-appealable judgments in excess of $50,000 that is not covered by insurance; (g) change in control (25% threshold); (h) negative events affecting the Guarantor; and (i) lender in good faith believes itself insecure. In an event of default arising from the specified events, the Credit Facility provides that the commitments thereunder will terminate and the Lender may take such other actions as permitted including, declaring any principal and accrued interest owed on the line of credit to become immediately due and payable. The Credit Facility is secured by a security interest in substantially all of the assets of the Company, pursuant to a Security Agreement, Deed of Trust and Assignment of As-Extracted Collateral entered into between the Company and Citywide Banks. The outstanding principal balance as of December 31, 2015 was $616,105. |
(3) | On January 1, 2014, we memorialized certain short-term liabilities into formal promissory notes. Information concerning these promissory notes is set forth in the table below. |
(4) | We issued an unsecured promissory note in the amount of $792,151 on January 1, 2014 to DNR. The note accrues interest at the rate of 2.50% for the calendar years 2014 and 2015, 4.00% for the calendar year 2016, 6.00% for the calendar year 2017 and 8.00% for the remainder of the term of the DNR note. The DNR note matures on January 1, 2019. |
(5) | In June 2013, in connection with the conversions of Series A1 Preferred Stock by Burlingame Equity Investors II, LP and Burlingame Equity Investors Master Fund, LP, the Company issued unsecured promissory notes in the original principal amounts of $48,000 and $552,000, respectively, with interest at 7% per annum payable quarterly and all unpaid interest and principal due on July 23, 2014. We have agreed with the holders of these two existing notes to extend the maturity date of the notes to May 25, 2016. Information concerning the principal pay down is set forth in the following table. |
Name of Holder
|
Principal Balance
before Pay down
|
Principal
Pay down
|
Remaining
Principal Balance |
|||||||||
Burlingame Equity Investors II, LP
|
$ | 44,000 |
$
|
26,251
|
$
|
17,749
|
||||||
Burlingame Equity Investors Master Fund, LP
|
$ | 506,000 |
$
|
340,749
|
$
|
165,251
|
(6) | On March 28, 2012, the Company executed a Promissory Note with Fairfield Management Group, LLC (“Fairfield”), a related party. The note accrues interest at 7.5%, payable monthly and has a maturity date of March 31, 2016. During the fiscal year ended December 31, 2015, Fairfield assigned this note to Donald Prosser (former CFO and Director). Subsequent to the year ended December 31, 2015, the Company and Mr. Prosser extended the due date to March 31, 2017. |
(7) | On March 28, 2012, the Company executed a promissory note with Pikerni, LLC (“Pikerni”). This note was extended and amended on April 1, 2015. The note accrues interest at 7.5% and is payable quarterly. The maturity date of the note is April 1, 2016, with principal payments of $5,000 due on June 30, 2015, September 30, 2015, December 31, 2015, and March 31, 2016, and the remaining principal balance of $80,000 due on April 1, 2016. At December 31, 2015, the Company was in default on this note. The Company is currently negotiating an amendment with Pikerni to cure the default. |
(8) | On August 15, 2014, the Company redeemed the remaining 10 shares of Series A-1 Convertible Preferred Stock outstanding for consideration of $77,500, of which $15,500 was paid in cash and the remaining amount as a promissory note for $62,000. The note accrues interest at 7% per annum, payable in two installments as follows; |
a. | A payment of $31,000, plus accrued and unpaid interest was payable on August 15, 2015 |
b. | A payment of $31,000, plus accrued and unpaid interest shall be payable on August 15, 2016 |
8.
|
General and Administrative Expenses
|
|
2015
|
2014
|
Change
|
|||||||||
Director fees
|
$
|
47,833
|
$
|
20,450
|
$
|
27,383
|
||||||
Investor relations
|
28,128
|
65,833
|
(37,705
|
)
|
||||||||
Legal, auditing and professional services
|
116,078
|
146,581
|
(30,503
|
)
|
||||||||
Consulting and executive services:
|
||||||||||||
Related parties
|
172,217
|
220,800
|
(48,583
|
)
|
||||||||
Unrelated parties
|
—
|
—
|
—
|
|||||||||
Other administrative expenses
|
74,634
|
72,807
|
1,827
|
|||||||||
Depreciation
|
428
|
570
|
(142
|
)
|
||||||||
Total general and administrative expenses
|
$
|
439,318
|
$
|
527,041
|
$
|
(87,723
|
)
|
|||||
9.
|
Income Taxes
|
|
2015
|
2014
|
||||||
Income tax benefit (expense) at the statutory rate
|
$
|
1,614,000
|
$
|
(21,000
|
)
|
|||
Benefit (expense) resulting from:
|
||||||||
Increase in Federal valuation allowance
|
(1,884,000
|
)
|
—
|
|||||
Other permanent differences
|
270,000
|
—
|
||||||
Utilization of net operating loss carryforwards
|
—
|
21,000
|
||||||
Income tax benefit (expense)
|
$
|
—
|
$
|
—
|
||||
|
2015
|
2014
|
||||||
Federal net operating loss carryforwards
|
$
|
3,030,000
|
$
|
2,465,000
|
||||
State net operating loss carryforwards
|
315,000
|
264,000
|
||||||
Oil and gas properties
|
917,000
|
(222,000
|
)
|
|||||
Asset retirement obligations
|
371,000
|
241,000
|
||||||
Net deferred tax assets
|
4,632,000
|
2,748,000
|
||||||
Less valuation allowance
|
(4,632,000
|
)
|
(2,748,000
|
)
|
||||
Net deferred tax assets
|
$
|
—
|
$
|
—
|
||||
10.
|
Asset Retirement Obligations
|
|
2015
|
2014
|
||||||
Balance, beginning of year
|
$
|
749,013
|
$
|
682,203
|
||||
Liabilities incurred upon acquisition of properties
|
204,493
|
—
|
||||||
Liabilities settled
|
(28,684
|
)
|
—
|
|||||
Accretion expense
|
70,375
|
66,810
|
||||||
Revisions of prior estimates
|
—
|
—
|
||||||
Balance, end of year
|
995,197
|
749,013
|
||||||
Less current asset retirement obligations
|
(409,621
|
)
|
(191,843
|
)
|
||||
Long-term asset retirement obligations
|
$
|
585,576
|
$
|
557,170
|
||||
11.
|
Commitments and Contingencies
|
12.
|
Subsequent Events
|
· | Donald W. Prosser (formerly Fairfield) - $100,000 principal – extended to March 31, 2017 |
· | Apex Financial Services Corp.- $120,728 principal– extended to March 31, 2017 |
· | CityWide Banks - $616, 105 principal– extended to May 28, 2016 |
· | Burlingame Equity Investors II, LP – extended to May 25, 2016 |
· | Burlingame Equity Investors Master Fund, LP – extended to May 25, 2016 |
13.
|
Supplementary Oil and Gas Information (unaudited)
|
|
2015
|
2014
|
||||||
Acquisition costs:
|
||||||||
Unproved properties
|
$
|
—
|
$
|
34,500
|
||||
Proved properties
|
1,404,493
|
—
|
||||||
Exploration costs
|
—
|
—
|
||||||
Development costs
|
115,992
|
594,359
|
||||||
Revisions to asset retirement obligation
|
—
|
—
|
||||||
Total costs incurred
|
$
|
1,520,485
|
$
|
628,859
|
||||
Depletion per BOE of production
|
$
|
27.78
|
$
|
22.24
|
||||
|
Oil
(Bbl) |
Gas
(Mcf) |
Equivalent
(BOE) |
|||||||||
Balance, January 1, 2014
|
246,994
|
676,788
|
359,792
|
|||||||||
Sale of oil and gas reserves in place
|
—
|
—
|
—
|
|||||||||
Revisions in previous estimates
|
13,060
|
8,347
|
14,452
|
|||||||||
Production
|
(22,825
|
)
|
(70,195
|
)
|
(34,524
|
)
|
||||||
Balance, December 31, 2014
|
237,229
|
614,940
|
339,720
|
|||||||||
Sale of oil and gas reserves in place
|
—
|
—
|
—
|
|||||||||
Acquisition of reserves in place
|
71,870
|
—
|
71,870
|
|||||||||
Revisions in previous estimates
|
(14,924
|
)
|
(194,070
|
)
|
(47,269
|
)
|
||||||
Production
|
(18,955
|
)
|
(62,630
|
)
|
(29,393
|
)
|
||||||
Balance, December 31, 2015
|
275,220
|
358,240
|
334,928
|
|||||||||
Proved reserves, December 31, 2014:
|
||||||||||||
Proved developed
|
230,530
|
614,940
|
333,020
|
|||||||||
Proved undeveloped
|
6,699
|
—
|
6,699
|
|||||||||
Proved reserves, December 31, 2015:
|
||||||||||||
Proved developed
|
275,220
|
358,240
|
334,928
|
|||||||||
Proved undeveloped
|
—
|
—
|
—
|
|||||||||
|
2015
|
2014
|
||||||
Future cash inflows
|
$
|
13,002,030
|
$
|
23,132,987
|
||||
Future production costs
|
(7,976,560
|
)
|
(9,732,541
|
)
|
||||
Future development costs
|
—
|
(781,442
|
)
|
|||||
Future income taxes
|
—
|
(1,905,627
|
)
|
|||||
Future net cash flows
|
5,025,470
|
10,713,377
|
||||||
10% annual discount
|
(2,472,800
|
)
|
(4,724,250
|
)
|
||||
Standardized measure of discounted future net cash flows
|
$
|
2,552,670
|
$
|
5,989,127
|
||||
|
2015
|
2014
|
||||||
Standardized measure of discounted future net cash flows, beginning of year
|
$
|
5,989,127
|
$
|
6,154,647
|
||||
Sales of oil and gas, net of production costs and taxes
|
23,891
|
(1,190,850
|
)
|
|||||
Purchases of reserves in place
|
589,190
|
—
|
||||||
Sales of reserves in place
|
—
|
—
|
||||||
Changes in development costs
|
(699,000
|
)
|
98,054
|
|||||
Revisions of previous estimates
|
(440,871
|
)
|
213,112
|
|||||
Changes in prices and production costs
|
(4,661,912
|
)
|
(341,335
|
)
|
||||
Net changes in income taxes
|
1,153,332
|
440,034
|
||||||
Accretion of discount
|
598,913
|
615,465
|
||||||
Standardized measure of discounted future net cash flows, end of year
|
$
|
2,552,670
|
$
|
5,989,127
|
||||
Item 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
Item 9A.
|
CONTROLS AND PROCEDURES
|
|
•
|
|
We have not developed and effectively communicated our accounting policies and procedures, and
|
|
•
|
|
Our controls over financial statement disclosures were determined to be ineffective.
|
Item 9B.
|
OTHER INFORMATION
|
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
Name and Address
|
|
Age
|
|
First
Became Officer and/or Director |
|
Position(s)
|
Nicholas L. Scheidt
7260 Osceola Street
Westminster, CO 80030
|
|
55
|
|
November
2012
|
|
Director and Chief Executive Officer
|
Charles B. Davis
7260 Osceola Street
Westminster, CO 80030
|
|
58
|
|
October
2007
|
|
Director and Chief Operating Officer
|
William W. Stewart
7260 Osceola Street
Westminster, CO 80030
|
|
55
|
|
December
2001
|
|
Director and Assistant Secretary
|
Robert J. McGraw, Jr.
7260 Osceola Street
Westminster, CO 80030
|
|
61
|
|
April
2015
|
|
Director
|
Randall K. Arnold
7260 Osceola Street
Westminster, CO 80030
|
|
63
|
|
June
2015
|
|
Director
|
Tristan R. Farel
7260 Osceola Street
Westminster, CO 80030
|
|
46
|
|
June
2015
|
|
Chief Financial Officer and Secretary
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
Name
|
Fees
Earned Or Paid in Cash ($) |
Stock
Awards ($) (1) |
Option
Awards ($) |
All Other
Compensation ($) |
Total ($)
|
|||||||||||||||
Charles B. Davis
|
—
|
$
|
12,180
|
—
|
—
|
$
|
132,180
|
|||||||||||||
William W. Stewart
|
—
|
$
|
21,280
|
—
|
15,000
|
$
|
36,280
|
|||||||||||||
Robert J. McGraw, Jr.
|
—
|
$
|
6,000
|
—
|
—
|
$
|
6,000
|
|||||||||||||
Randall K. Arnold
|
—
|
$
|
4,666
|
—
|
—
|
$
|
4,666
|
(1)
|
Our Directors are entitled to common shares of the Company’s common stock for each meeting attended. The fee was payable at the end of each calendar quarter and was calculated based on the closing price of our common stock as reported by the OTC Market as of the last day of each quarter.
|
Item 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
Title of Class
|
|
Name and Address of Beneficial Owner
Directors and Executive Officers
|
|
Amount and Nature of
Beneficial Ownership
|
|
|
Percent
of Class |
|||||
Common Stock
|
|
Nicholas L. Scheidt, Director/CEO
7260 Osceola Street
Westminster, Colorado 80030,
|
|
Direct
|
|
|
1,721,703
|
|
|
|
12.0
|
%
|
Common Stock
|
|
Charles B. Davis, Director/COO
7260 Osceola Street
Westminster, Colorado 80030,
|
|
Direct
|
|
|
2,152,167
|
|
|
|
15.1
|
%
|
Common Stock
|
|
William W. Stewart, Director
7260 Osceola Street
Westminster, Colorado 80030,
|
|
Direct
|
|
|
382,982
|
|
|
|
2.7
|
%
|
Common Stock
|
|
Robert J. McGraw, Jr., Director
7260 Osceola Street
Westminster, Colorado 80030,
|
|
Direct
|
|
|
47,315
|
|
|
|
0.3
|
%
|
Common Stock
|
|
Randall K. Arnold, Director
7260 Osceola Street
Westminster, Colorado 80030,
|
|
Direct
|
|
|
36,667
|
|
|
|
0.3
|
%
|
Common Stock
|
|
Tristan R. Farel, CFO
7260 Osceola Street
Westminster, Colorado 80030,
|
|
Direct
|
|
|
166,666
|
|
|
|
1.2
|
%
|
Common Stock
|
Directors and Officers as a Group (6 persons)
|
Total:
|
|
4,507,500
|
|
|
31.5
|
%
|
||||
|
|
|
|
|
|
|
|
|
|
Item 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
|
2015
|
2014
|
||||||
Officers, directors and affiliates:
|
||||||||
Note payable, interest at 7.5%, due March 2016 (4)
|
$
|
150,000
|
$
|
150,000
|
||||
Notes payable, interest 7.0%, due January 2019 (2)
|
63,464
|
79,970
|
||||||
Notes payable, interest varies (3)
|
-
|
792,151
|
||||||
Collateralized note payable (1)
|
120,728
|
120,728
|
||||||
Total officers, directors and affiliates
|
334,192
|
1,142,849
|
||||||
Less: Current portion of officers, directors, and affiliates
|
18,900
|
288,258
|
||||||
Long-term portion of officers, directors, and affiliates
|
$
|
315,292
|
$
|
854,591
|
||||
(1) | On April 29, 2013, the Company executed a promissory note under which the Company agreed to pay Apex Financial Services Corp, a Colorado corporation, (“Apex”) the principal sum of $1,000,000, with interest accruing at an annual rate of 7.5%, with principal and interest due on May 31, 2014, and subsequently extended to March 31, 2017. The Company also agreed to assign 75% of its operating income from its oil and gas operations and any lease or well sale or any other assets sales to Apex to secure the debt. Apex is 100% owned by the CEO, director, and shareholder of the Company, Nicholas L. Scheidt. The Company borrowed the full amount of principal on the note, and also paid a loan fee of $10,000. In the event of default on the note and failure to cure the default in ten days, Apex may accelerate payment and the annual interest rate on the note will accrue at 18%. Default includes failure to pay the note when due or if the Company borrows any other monies or offers security in the Company or in the collateral securing the note prior to the note being paid in full. The outstanding principal balance as of December 31, 2015, was $120,728. |
(2) | On January 1, 2014, we memorialized certain short-term liabilities into formal promissory notes. These certain outstanding advances and other notes payable are now included in single promissory notes, all have been reported previously in our financial statements. Information concerning these promissory notes is set forth in the table below. |
(3) |
We issued an unsecured promissory note in the amount of $792,151 on January 1, 2014 to DNR. The note accrues interest at the rate of 2.50% for the calendar years 2014 and 2015, 4.00% for the calendar year 2016, 6.00% for the calendar year 2017 and 8.00% for the remainder of the term of the DNR note. The DNR note matures on January 1, 2019.
On January 19, 2016, but effective December 31, 2015, (the "Effective Date") we entered into a Settlement Agreement with DNR and Tindall Operating Company discussed above under which the DNR Note was deemed paid in full.
|
(4) | On March 28, 2012, the Company executed a Promissory Note with Fairfield Management Group, LLC (“Fairfield”), a related party. The note accrues interest at 7.5%, payable monthly and had a maturity date of March 31, 2016. During 2015 Fairfield assigned this note to Donald W. Prosser (former CFO and Director). Subsequent to December 31, 2015, the parties extended the due date to March 31, 2017. |
|
(a)
|
Assist the Company with resolving outstanding business issues; advise and assist with respect to proposed transactions and the Company’s business plan.
|
|
(b)
|
Assist with operations, including reviewing and advising on correspondence and documents received by the Company.
|
|
(c)
|
Review the Company’s insurance needs, obtain quotes and consult with the Company’s officers and Board remembers regarding the same.
|
|
(d)
|
Review the Company’s website and advise regarding updating and revising the website.
|
|
(e)
|
Review the Company’s organizational documents and related corporate governance documents and advise the Board regarding corporate governance matters and recommend revisions and updates to the organizational documents.
|
Item 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Item 15.
|
EXHIBITS
|
Exhibit
Number |
|
Description
|
3.1
|
|
Restated Articles of Incorporation with Amendment adopted by shareholders on September 1, 1998 (filed as Exhibit 3.1 to Form 10-KSB for the year ended December 31, 1998 (filed with the SEC on April 16, 1999), and incorporated herein by reference).
|
3.2
|
|
Articles of Amendment to the Articles of Incorporation of Arête Industries, Inc. – Preferences, Limitations and Relative Rights of 15% Series A1 convertible preferred stock (filed as Exhibit 3.1 to Form 8-K dated September 30, 2011, and incorporated herein by reference.)
|
3.2(a)
|
|
Articles of Amendment to Articles of Incorporation dated May 29, 2012 – Preferences, Limitations and Relative Rights of 15% Series A1 Convertible Preferred Stock (filed as Exhibit 3.2(a) to Registration Statement on Form S-1 filed on May 29, 2012, and incorporated herein by reference.)
|
3.2(b)
|
Articles of Amendment to Articles of Incorporation dated December 30, 2015 – Preferences, Limitations and Relative Rights of 7% Series A2 Convertible Preferred Stock (filed as Exhibit 3.1 to Form 8-K dated February 23, 2016, and incorporated herein by reference.)
|
|
3.3
|
|
Bylaws (filed as Exhibit 3.3 to Form 10-K for the year ended December 31, 2010 and filed with the SEC on March 30, 2011.)
|
10.1
|
|
Purchase and Sale Agreement among Tucker Family Investment LLLP, DNR Oil & Gas, Inc., Tindall Operating Company and Arête Industries, Inc., dated May 25, 2011 (filed as Exhibit 10.4 to Form 8-K dated May 25, 2011, and incorporated herein by reference.)
|
10.2
|
|
Security Agreement among Tucker Family Investment LLLP, DNR Oil & Gas, Inc., Tindall Operating Company and Arête Industries, Inc., dated May 25, 2011 (filed as part of Exhibit 10.4 to Form 8-K dated May 25, 2011, and incorporated herein by reference.)
|
10.4
|
|
Amended and Restated Purchase and Sale Agreement among Tucker Family Investment LLLP, DNR Oil & Gas, Inc., Tindall Operating Company and Arête Industries, Inc., dated July 29, 2011 (filed as Exhibit 10.5 to Amendment No. 1 to Form 8-K dated May 25, 2011 (filed with the SEC on August 5, 2011), and incorporated herein by reference.)
|
10.5
|
|
First Amendment to the Amended and Restated Purchase and Sale Agreement among Tucker Family Investment LLLP, DNR Oil & Gas, Inc., Tindall Operating Company and Arête Industries, Inc., dated August 12, 2011 (filed as Exhibit 10.8 to Amendment No. 1 to Form 8-K/A dated August 12, 2011 (filed with the SEC on August 18, 2011), and incorporated herein by reference.)
|
10.6
|
|
Second Amendment to the Amended and Restated Purchase and Sale Agreement among Tucker Family Investment LLLP, DNR Oil & Gas, Inc., Tindall Operating Company and Arête Industries, Inc., dated September 16, 2011 (filed as Exhibit 10.9 to Form 8-K dated September 16, 2011, and incorporated herein by reference.)
|
10.7
|
|
Promissory Note due to Pikerni, LLC ($250,000) (filed as Exhibit 10.7 to Registration Statement on Form S-1 filed on May 29, 2012, and incorporated herein by reference)
|
10.8
|
|
Promissory Note due to Fairfield Management Group, LLC ($150,000) (filed as Exhibit 10.8 to Registration Statement on Form S-1 filed on May 29, 2012, and incorporated herein by reference)
|
10.9
|
|
Amended and Restated Contract Operator Agreement between DNR Oil & Gas, Inc. and Arête Industries, Inc. (filed as Exhibit 10.9 to Registration Statement on Form S-1 filed on May 29, 2012, and incorporated herein by reference)
|
10.10
|
|
Agreement regarding Increase in Payments in respect of Amended and Restated Purchase and Sale Agreement (Exhibit C) (filed as Exhibit 10.10 to Registration Statement on Form S-1 filed on May 29, 2012, and incorporated herein by reference)
|
10.11
|
|
Promissory Note due to Apex Financial Services Corp. ($455,000) and Assignment of Proceeds (filed as Exhibit 10.11 to Amended Registration Statement on Form S-1 filed on October 26, 2012, and incorporated herein by reference)
|
10.12
|
|
Promissory Note due to Apex Financial Services Corp. dated April 2, 2013 (filed as Exhibit 10.12 to Form 8-K dated May 3, 2013, and incorporated herein by reference.)
|
10.13
|
|
Notice of Conversion by Burlingame Equity Investors II, LP, dated June 28, 2013 (filed as Exhibit 10.13 to Form 8-K dated July 5, 2013, and incorporated herein by reference.)
|
10.14
|
|
Notice of Conversion by Burlingame Equity Investors Master Fund, LP, dated June 28, 2013 (filed as Exhibit 10.14 to Form 8-K dated July 5, 2013, and incorporated herein by reference.)
|
10.15
|
Promissory Note - Burlingame Equity Investors II, LP, dated June 28, 2013 (filed as Exhibit 10.15 to Form 8-K dated July 5, 2013, and incorporated herein by reference.)
|
|
10.16
|
Promissory Note - Burlingame Equity Investors Master Fund, LP, dated June 28, 2013 (filed as Exhibit 10.16 to Form 8-K dated July 5, 2013, and incorporated herein by reference.)
|
|
10.17
|
Form of Notice of Conversion for holders of Series A1 Preferred Stock other than Burlingame Equity Investors II, LP and Burlingame Equity Investors Master Fund, LP (filed as Exhibit 10.17 to Form 8-K dated July 5, 2013, and incorporated herein by reference.)
|
|
10.18
|
Promissory Note, Dated January 28, 2014 City Wide Bank (filed as Exhibit 10.18 to Form 8-K dated February 3, 2014, and incorporated herein by reference.)
|
|
10.19
|
Promissory Note, Dated January 28, 2014 Donald W Prosser (filed as Exhibit 10.19 to Form 8-K dated February 3, 2014, and incorporated herein by reference.)
|
|
10.20
|
Promissory Note, Dated January 28, 2014 Charles B Davis (filed as Exhibit 10.20 to Form 8-K dated February 3, 2014, and incorporated herein by reference.)
|
|
10.21
|
Promissory Note, Dated January 28, 2014 William Stewart (filed as Exhibit 10.21 to Form 8-K dated February 3, 2014, and incorporated herein by reference.)
|
|
10.22
|
Promissory Note, Dated January 28, 2014 DNR Oil & Gas, Inc. (filed as Exhibit 10.22 to Form 8-K dated February 3, 2014, and incorporated herein by reference.)
|
|
10.23
|
Extension of Burlingame Equity Investors II, LP Promissory Note, Dated January 28, 2014 (filed as Exhibit 10.23 to Form 8-K dated February 3, 2014, and incorporated herein by reference.)
|
|
10.24
|
Extension of Burlingame Equity Investors Master Fund, LP Promissory Note, Dated January 28, 2014 (filed as Exhibit 10.24 to Form 8-K dated February 3, 2014, and incorporated herein by reference.)
|
|
10.25
|
Direct stock purchase agreement between Arête Industries, Inc. and Burlingame Equity Investors Master Fund LP dated January 30, 2014 (filed as Exhibit 10.25 to Form 8-K dated February 21, 2014, and incorporated herein by reference.)
|
|
10.25
|
Account Services Agreement between Arête Industries, Inc. and Tristan R. Farel and Pivot Accounting, LLC dated May 26, 2015 (filed as Exhibit 10.1 to Form 8-K dated June 1, 2016, and incorporated herein by reference.)
|
|
10.26
|
Settlement Agreement between Arête Industries, Inc. and Tucker Family Investments, LLLP, DNR Oil & Gas, Inc., Tindall Operating Company, and Tucker Energy, LLC (filed as Exhibit 10.1 to Form 8-K dated February 23, 2016, and incorporated herein by reference.)
|
|
10.27
|
Lease Purchase Agreement between Arête Industries, Inc. and Wellstar Corporation, dated November 24, 2015 (filed as Exhibit 10.2 to Form 8-K dated February 23, 2016, and incorporated herein by reference.)
|
|
14
|
Code of Business Conduct and Ethics (filed as Exhibit 14 to Registration Statement on Form S-1 filed on May 29, 2012, and incorporated herein by reference)
|
|
21
|
List of Subsidiaries (filed as Exhibit 21 to Registration Statement on Form S-1 filed on May 29, 2012, and incorporated herein by reference)
|
|
31.1
|
Certification of the Principal Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002. *
|
|
31.2
|
Certification of the Principal Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002. *
|
|
32.1
|
Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350. *
|
|
32.2
|
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350. *
|
|
99.1
|
Report of Pinnacle Energy Services, L.L.C.*
|
|
101
|
The following materials are filed herewith:
(i) XBRL Instance, (ii) XBRL Taxonomy Extension Schema, (iii) XBRL Taxonomy Extension Calculation, (iv) XBRL Taxonomy Extension Definition, (v) XBRL Taxonomy Extension Labels, and (vi) XBRL Taxonomy Extension Presentation. |
*
|
Filed herewith.
|
Arête Industries, Inc.
|
||||
May 6, 2016
|
By:
|
/s/ Nicholas L. Scheidt
|
||
Nicholas L. Scheidt,
|
||||
Chief Executive Officer
|
/s/ Nicholas L. Scheidt | ||||
Nicholas L. Scheidt
|
Chairman of the Board, Chief Executive Officer (Principal Executive Officer), Director
|
May 6, 2016
|
||
/s/ Tristan R. Farel | ||||
Tristan R. Farel
|
Chief Financial Officer (Principal Financial and Accounting Officer)
|
May 6, 2016
|
||
/s/ Robert J. McGraw | ||||
Robert J. McGraw
|
Director
|
May 6, 2016
|
||
/s/ Charles B. Davis
|
||||
Charles B. Davis
|
Director and Chief Operating Officer
|
May 6, 2016
|
||
/s/ William W. Stewart
|
||||
William W. Stewart
|
Director and Assistant Secretary
|
May 6, 2016
|
||
/s/ Randall K. Arnold
|
||||
Randall K. Arnold
|
Director
|
May 6, 2016
|
1 Year Arete Industries (CE) Chart |
1 Month Arete Industries (CE) Chart |
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