ITEM 1.FINANCIAL STATEMENTS
BERING EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements
BERING EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to consolidated financial statements
BERING EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
See accompanying notes to consolidated financial statements
BERING EXPLORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated financial statements
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies
Organization and Nature of Business
Bering Exploration, Inc., (formerly China Development Group, Inc. (CDG), formerly, Oncolin Therapeutics, Inc. (Oncolin), formerly, Edgeline Holdings, Inc. (Edgeline), formerly, Dragon Gold Resources, Inc., (Dragon Gold)) (“We”, “Our” or the “Company”) was incorporated in the state of Nevada on December 13, 2000.
Effective May 9, 2007, Dragon Gold Resources, Inc. completed a reverse merger with Secure Voice Communications, Inc., a Texas corporation (“Secure Voice”). As a result of the transaction, Secure Voice became a wholly-owned subsidiary of Dragon Gold when Dragon Gold agreed to issue an aggregate of 3,207,840,000 shares of its common stock (pre-reverse split) to the former shareholders of Secure Voice (in exchange for all the outstanding capital stock of Secure Voice), resulting in the former shareholders of Secure Voice owning approximately 98.5% of the issued and outstanding Dragon Gold common stock. As the articles of incorporation only authorized the issuance of 500,000,000 shares of common stock, Dragon Gold issued 450,053,276 shares of common stock (pre-reverse split) and was obligated to issue an additional 2,757,786,724 shares of common stock (pre-reverse split). At the annual shareholders’ meeting which was held on June 19, 2007, the shareholders approved an 80-for-1 reverse split that did not reduce the number of authorized shares of common stock. Upon the approval of the 80-for-1 reverse split, Dragon Gold issued the balance of these shares which equated to 34,472,334 shares on a post-split basis.
On February 15, 2008, the Company amended its Articles of Incorporation to change the par value of the Company’s Common Stock from $0.08 to $0.001, to authorize 25,000,000 shares of blank-check preferred stock and to change the name of the Company from “Edgeline Holdings, Inc.” to “Oncolin Therapeutics, Inc.” The accompanying consolidated financial statements and related notes give retroactive effect to the change in par value.
On May 18, 2010, the Company amended its Articles of Incorporation to change the name of the Company to “Oncolin Therapeutics, Inc.” from “China Development Group, Inc.” and implement a 20-for-1 reverse stock split of the issued and outstanding common stock. The accompanying consolidated financial statements and related notes give effect to the reverse stock split as of inception (May 9, 2007).
On July 31, 2010, the Company amended its Articles of Incorporation to change the name of the Company from “Oncolin Therapeutics, Inc.” to “Bering Exploration, Inc.”
On January 10, 2012, the shareholders of the Company voted to approve a resolution authorizing the Board of Directors of the Company to effect one or a series of reverse stock splits of the Company’s common stock at a ratio of not less than 1-for-2 and not greater than 1-for-12, with the exact ratio to be set within such a range at the discretion of the Board of Directors. On February 12, 2012, the Board of Directors approved a 1-for-10 reverse stock split. The accompanying consolidated financial statements and related notes give effect to the reverse split as of its effective date (February 27, 2012).
The Company has two wholly-owned subsidiaries as follows:
· Secure Voice Communications, Inc. (Texas) - This subsidiary was incorporated in the State of Texas on May 9, 2007, with the initial primary focus being the development and readying for market a SIP (Session Initiation Protocol) based approach to defending voice traffic and voice packets against deliberate attacks such as DoS (Denial of Service) developing information.
· Bering Operations, Inc., formerly Bering Exploration (Texas), Inc., formerly, New Enersource, Inc. (“New Enersource”), (“Bering TX”) - This subsidiary was incorporated in the State of Texas on August 28, 2007, with the primary purpose to operate our oil and gas properties. On August 20, 2011, New Enersource amended its Articles of Incorporation to change the name of New Enersource to Bering Exploration (Texas), Inc. On May 23, 2012, Bering Exploration (Texas), Inc. amended its Articles of Incorporation to change the name of Bering Exploration (Texas), Inc. to Bering Operations, Inc.
Intertech Bio Corporation (“Intertech Bio”) was incorporated in the State of Texas on August 8, 2007. Its primary purpose was to focus on developing products to treat cancer, infectious diseases and other medical conditions associated with compromised immune systems. On February 23, 2009, the Company distributed 75% of their ownership in Intertech Bio in exchange for the assumption of certain liabilities and future obligations associated with the ongoing operations of Intertech Bio. Bering retains an approximate 25% interest in Intertech Bio and is not be responsible for future costs associated with Intertech Bio.
Principles of Consolidation
The consolidated financial statements include the accounts of Bering Exploration, Inc. and its wholly owned subsidiaries, Secure Voice Communications, Inc. (Texas) and Bering Operations, Inc. All significant inter-company accounts and transactions have been eliminated.
Development Stage Company
During the year ended March 31, 2012, the Company no longer met the qualifications as a development stage company as defined by the Accounting Standards Codification No. 915 “Development Stage Entities”. Accordingly, the Company is no longer reported as a development stage Company.
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies (cont’d)
Oil and Natural Gas Properties
We account for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the United States Securities and Exchange Commission (SEC). Under this method, subject to a limitation based on estimated value, all costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized within a cost center on a country by country basis. Costs of production and general and administrative corporate costs unrelated to acquisition, exploration, and development activities are expensed as incurred.
Costs associated with unevaluated properties are capitalized as oil and natural gas properties but are excluded from the amortization base during the evaluation period. When we determine whether the property has proved recoverable reserves or not, or if there is an impairment, the costs are transferred into the amortization base and thereby become subject to amortization. We evaluate unevaluated properties for impairment at least annually.
Capitalized costs included in the amortization base are depleted using either the units of production method based on proved reserves where the Company operates the well or the percentage depletion method when the Company does not operate the well. Depletion is calculated using the capitalized costs included in the amortization base, including estimated asset retirement costs, plus the estimated future expenditures to be incurred in developing proved reserves, net of estimated salvage values.
The net book value of all capitalized oil and natural gas properties within a cost center, less related deferred income taxes, is subject to a full cost ceiling limitation which is calculated quarterly. Under the ceiling limitation, costs may not exceed an aggregate of the present value of future net revenues attributable to proved oil and natural gas reserves discounted at 10 percent using current prices, plus the lower of cost or market value of unproved properties included in the amortization base, plus the cost of unevaluated properties, less any associated tax effects. Any excess of the net book value, less related deferred tax benefits, over the ceiling is written off as expense. Impairment expense recorded in one period may not be reversed in a subsequent period even though higher oil and gas prices may have increased the ceiling applicable to the subsequent period.
Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change.
Asset Retirement Obligation
We record the fair value of an asset retirement cost, and corresponding liability as part of the cost of the related long-lived asset and the cost is subsequently allocated to expense using a systematic and rational method. We record an asset retirement obligation to reflect our legal obligations related to future plugging and abandonment of our oil and natural gas wells and gas gathering systems. We estimate the expected cash flow associated with the obligation and discount the amount using a credit-adjusted, risk-free interest rate. At least annually, we reassess the obligation to determine whether a change in the estimated obligation is necessary. We evaluate whether there are indicators that suggest the estimated cash flows underlying the obligation have materially changed. Should those indicators suggest the estimated obligation may have materially changed on an interim basis (quarterly), we will accordingly update its assessment. Additional retirement obligations increase the liability associated with new oil and natural gas wells and gas gathering systems as these obligations are incurred. As of March 31, 2012, the Company has recorded asset retirement obligations of $9,665, which represents the Company’s share of the cost to plug and abandon the two producing wells in which it owns an interest. No asset retirement obligation was recorded as of March 31, 2011 since the related oil and gas properties are still unproved at that time.
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.Organization and Significant Accounting Policies (cont’d)
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents.
Cash is maintained in bank accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on cash.
Accounts Receivable
The Company’s accounts receivable primarily consist of trade receivables. Management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. The Company includes any accounts receivable balances that are determined to be uncollectible in its allowance for doubtful accounts. The allowance for doubtful accounts as of March 31, 2012 and 2011 was $0.
Equity Investments
For investments in which the Company owns from 20% to 50% of the investment, the equity method of accounting is used.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the straight line method over their estimated useful lives. As of March 31, 2012, the property and equipment consisted of personal computers.
Long Lived Assets
The Company reviews long-lived assets whenever events or circumstances indicate that the carrying amounts of such assets may not be fully recoverable. The Company evaluates the recoverability of long-lived assets by measuring the carrying amounts of the assets against the estimated undiscounted cash flows associated with these assets. If this evaluation indicates that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the assets’ carrying value, the assets are adjusted to their fair values (based upon discounted cash flows).
Loss per Share
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share”, basic net loss per common share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. Under ASC 260, diluted loss per share is computed by dividing the net loss for the period by the weighted average number of common and common equivalent shares, such as stock options and warrants, outstanding during the period. Such common equivalent shares have not been included in the computation of net loss per share as their effect would be anti-dilutive.
Income Taxes
Income taxes are recorded in accordance with FASB ASC 740, “Income Taxes”. This statement requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company's assets and liabilities result in a deferred tax asset, ASC 740 requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or the entire deferred tax asset will not be realized.
The Company has not filed tax returns for years ended 2007-2012. As of March 31, 2012, there is approximately $4,500,000 in accumulated losses for tax purposes. When the tax returns are completed, these losses will give rise to deferred tax assets, a significant portion of which are likely to be net operating loss carry forwards. Due to the May 30, 2007 reverse merger, these net operating loss deferred tax assets will be subject to limitations. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. Because of these potential limitations and the Company’s history of losses, the Company has not recognized any deferred tax asset and has placed a full valuation allowance on such assets.
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.Organization and Significant Accounting Policies (cont’d)
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with FASB ASC 718, “Compensation-Stock Compensation”, which requires the measurement and recognition of compensation expense for all share-based payments made to employees and directors based on estimated fair values. Share-based payments awarded to non-employees are accounted for in accordance with FASB ASC 505-50, “Equity-Based Payments to Non-Employees.”
FASB ASC 718 requires companies to estimate the fair value of equity share option awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statement of operations.
Stock-based compensation expense recognized is based on the value of the portion of equity share option award that is ultimately expected to vest. The Company generally attributes the value of stock-based compensation to expense using the straight-line method.
The Company estimates fair value of equity share option awards using the Black-Scholes-Merton option-pricing formula (“Black-Scholes model”). This model requires the Company to estimate expected volatility and expected life, which are highly complex and subjective variables. The Company estimates expected term using the safe-harbor provisions of FASB ASC 718. The Company estimated its expected volatility by taking the average volatility determined for a peer group of similar publicly-traded companies.
Fair Value of Financial Instruments
The fair values of cash, accounts receivable, accounts payable, accrued expenses, notes payable and convertible notes approximate their carrying values due to the short-term nature of these financial instruments.
Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on their results of operations, financial position or cash flows.
Reclassifications
Certain reclassifications have been made to conform the prior period’s financial information to the current period’s presentation. These reclassifications had no effect on previously reported net loss or accumulated deficit.
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2.Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated significant revenue since its inception and is unlikely to generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders and the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. As of March 31, 2012, the Company has accumulated losses of approximately $6,860,000 since inception and has negative working capital of approximately $600,000. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 3.Deconsolidation of Intertech Bio, Inc. and Correction of an Error
On February 24, 2009, the Company distributed its interest in Intertech Bio by assigning 75% of the Intertech Bio common stock to the founders of Intertech Bio in exchange for the assumption of certain liabilities and future obligations associated with the ongoing operations of Intertech Bio. The Company did not receive any consideration in the transaction. Since the Company no longer has a controlling interest in Intertech Bio, their assets, liabilities and operating results are no longer included in the Company’s consolidated financial statements as of February 24, 2009. As a result of the distribution, the Company recognized a gain on deconsolidation of $478,765 for the year ended March 31, 2009, which represents prepaid expenses of $13,334, accounts payable and accrued liabilities of $215,304 and a payable to the Company of $276,095, of Intertech Bio that were written off. For the period from February 24, 2009 through March 31, 2012, Intertech Bio had no significant activity and accordingly the Company did not recognize any income or loss from its equity method investment.
In connection with a review of the deconsolidation of Intertech Bio Corporation (“Intertech Bio”), the Company identified an error in the accounting for the investment in Intertech Bio. The fair value of the liabilities assumed by Intertech Bio was overstated by $189,458 resulting in an understatement of the Gain on Deconsolidation of Subsidiary as reported in the financial statements for the year ended March 31, 2009. Consequently, the error affected accounts payable and the accumulated deficit as of March 31, 2011. After evaluating the impact of the error, both quantitatively and qualitatively, upon the Company’s consolidated financial statements as of and for the years ended March 31, 2009, 2010 and 2011, it was determined that the error would not have a material impact to the readers of our consolidated financial statements. Our analysis was primarily based on qualitative factors including the fact that we had no revenue and minimal operating activity for the years ended March 31, 2009, 2010 and 2011. Consequently, we are following the guidelines of Staff Accounting Bulletin (SAB) No. 108. The effects of the correction on reported amounts for the year ended March 31, 2011 are presented below in the following table:
Consolidated Balance Sheet
* reflects the impact of the reverse stock split
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4.Property and Equipment, net
Property and equipment consist of the following at March 31, 2012 and 2011, respectively:
Note 5.Oil and Gas Properties
All of the Company’s oil and gas properties are located in the United States. The Company’s oil and gas properties consist of the following at March 31, 2012:
The Company has allocated the costs of its oil and gas properties acquired in 2012 based on its estimate of relative values of the proved and unproved portions of its leaseholds, and costs associated with these properties. The properties presently classified as unproved will be evaluated in the future. The purchase price is subject to reallocation as management moves forward with its evaluation of the unproved property.
Note 6.Accounts Payable - Related Parties
Certain officers, directors and consultants, who are also shareholders of the Company, have paid for goods and services, or incurred expenses, for the benefit of the Company. As of March 31, 2012 and 2011, the amounts owed to these related parties were $96,873 and $37,947, respectively.
For the year ended March 31, 2011, an officer of the Company forgave certain payables owed to him totaling to $45,086. The forgiveness of debt was recorded as a credit to additional paid in capital.
BERING EXPLORATION, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7.Debt
Debt as of March 31, 2012 and 2011 consists of the following:
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7.Debt (cont’d)
In October 2011, the Company issued a convertible note to a third party in the amount of $225,000, bearing annual interest of 8%, with a maturity date of September 1, 2013. The note was convertible into the Company’s common shares at $0.40 per share on a post reverse-split basis. The Company identified and recorded a BCF on this note amounting to $225,000 which was recorded as a debt discount and amortized over the term of the note. In October 2011, the note and related unpaid interest were converted to equity and the Company issued 562,623 common shares. The unamortized discount on the converted note was immediately charged to interest expense.
The Company evaluated the 2011 Convertible Notes as well as the related party convertible note under ASC 470-20, “Debt with Conversion and Other Options”, and determined that the 2011 Convertible Notes contained a beneficial conversion feature with an intrinsic value of $350,000. This amount was recorded as a discount to the note and is amortized over the term of the notes using the effective interest method. Amortization expense of $320,274 and $29,726 was recorded during the years ended March 31, 2012 and 2011, respectively. The Company also analyzed all of the convertible notes for derivative accounting consideration and determined that derivative accounting does not apply to these instruments.
Note 8.Common Stock
Year Ended March 31, 2011
In April 2010, the Company issued 50,000 shares of its common stock as bonus to the Company’s Chief Executive Officer. The shares were recorded using their fair value of $40,000 which was based on the quoted market share price at grant date.
In August 2010, the Company issued 20,000 shares of its common stock in exchange for a 5% back end after payout working interest in an oil and gas drilling prospect located in South Texas. The shares were recorded using their fair value of $32,000 which was based on the quoted market share price on the acquisition date.
In March 2011, the Company issued 15,000 shares of its common stock to an external consultant as settlement for services received. The shares were recorded using their fair value of $178,500 which was based on the quoted market share price at grant date.
Year Ended March 31, 2012
During the year ended March 31, 2012, the Company issued 211,500 shares of its common stock to various consultants for consulting services which vested immediately on the date of grant. The Company recognized stock-based compensation expense equivalent to the fair market values of these shares (ranging from $1.30 to $12.60 per share) on the respective dates of grant aggregating $384,898. The Company also issued 30,000 common shares to two consultants in lieu of 15,000 warrants previously issued. No incremental stock compensation expense was recognized on this exchange.
During September and October 2011, per the respective note holder’s instructions, certain convertible notes payable and related interest totaling $870,585 were converted to 1,809,255 shares of common stock. The conversion rates ranged from $0.31 to $4.00 per share.
During the year ended March 31, 2012, the Company issued 40,000 shares from the exercise of options for total cash consideration of $201,250.
During April 2011, the Company issued 1,500 shares of its common stock to a law firm as settlement for past due accounts payable balance of $18,902.
On January 10, 2012, the shareholders of the Company voted to approve a resolution authorizing the Board of Directors of the Company to effect one or a series of reverse stock splits of the Company’s common stock at a ratio of not less than 1-for-2 and not greater than 1-for-12, with the exact ratio to be set within such a range at the discretion of the Board of Directors. On February 12, 2012, the Board of Directors approved a 1-for-10 reverse stock split, which became effective on February 27, 2012. All per share amounts in these consolidated financial statements and notes thereto have been adjusted to reflect the reverse stock split.
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9.Stock Options and Warrants
Stock Option Plans
On May 18, 2010, the Company’s shareholders adopted the 2010 Stock Option Plan (the “2010 Plan”), which allows for the issuance of up to 225,000 stock options to directors, executive officers, employees and consultants of the Company who are contributing to the Company’s success.
On January 10, 2012, the shareholders adopted the 2011 Stock Option Plan (the “2011 Plan”), which allows for the issuance of up to 800,000 stock options to directors, executive officers, employees and consultants of the Company who are contributing to the Company’s success.
Year Ended March 31, 2011
In March 2011, the Company granted 10,000 stock options to a shareholder for consulting services at exercise prices ranging from $12.00 to $14.45 per share. These options have a term of two years and vested immediately. The options have a fair value of $78,091 which was recorded immediately to expense and was calculated using the Black-Scholes option-pricing model. Variables used in the valuation include (1) discount rate of 0.80%, (2) expected life of two years, (3) expected volatility of 135.43% and (4) zero expected dividends.
In March 2011, the Company granted 15,000 stock warrants for consulting services with an exercise price of $5.00 per share. These warrants have a term of five years and vested immediately. The warrants have a fair value of $153,170 which was recorded immediately to expense and was calculated using the Black-Scholes option-pricing model. Variables used in the valuation include (1) discount rate of 2.04%, (2) expected life of five years, (3) expected volatility of 153.47% and (4) zero expected dividends.
Year Ended March 31, 2012
In April and May 2011, the Company granted 30,000 stock options for consulting services at exercise prices ranging from $6.50 to $8.00. These options have a term of two years and vested immediately. The options have a fair value of $188,890 which was recorded immediately to expense and was calculated using the Black-Scholes option-pricing model. Variables used in the valuation include (1) discount rates ranging from 0.56% to 0.65%, (2) expected life of two years, (3) expected volatility of 135% and (4) zero expected dividends.
In April and May 2011, the Company repriced 40,000 options that were previously issued to reduce the exercise prices ranging from $3.00 to $11.60. The options were remeasured at the date of modification and an incremental stock-based compensation expense of $34,969 was recognized.
In February 2011, the Company entered into an agreement with a consultant. As part of the agreement, the Company issued 46,000 stock warrants representing 50% of a quarterly retainer to vest over three years. The warrants are exercisable at $7.50 per share, have a term of five years and vest beginning May 1, 2011. The warrants have a fair value of $333,966 which was calculated using the Black-Scholes option pricing model. Variables used in the valuation include (1) discount rate of 1.97%, (2) expected life of five years, (3) expected volatility of 152.9% and (4) zero expected dividends. Stock-based compensation expense recognized for these warrants amounted to $111,113 for the year ended March 31, 2012 and the unamortized expense as of March 31, 2012 amounted to $222,853.
In December 2011, the Company issued a warrant to purchase 500,000 shares of its common stock at $1.00 per share to the President of the Company. The warrant has a term of five years and vested immediately. The warrant has a fair value of $440,739 which was recorded immediately to expense and was calculated using the Black-Scholes option-pricing model. Variables used in the valuation include (1) discount rates of 0.31% (2) expected life of 2.5 years, (3) expected volatility of 166.75% and (4) zero expected dividends. In May 2012, the warrant was cancelled effective December 2011 and replaced with an option to purchase 1,300,000 shares of the Company’s common stock at $0.10 per share, effective as of December 2011. The option has a term of five years and vests as follows: 50% vests immediately and 50% vests on January 1, 2013.
In November 2011, the Company issued 500,000 shares of its common stock as compensation to the VP of Operations. The Company valued the shares based on the then current market price of $2.00 per share for an aggregate of $1,000,000. Effective December 2011, as the Company did not present the certificate to the VP of Operations, the Company canceled the certificate and instead issued an option to purchase 1,000,000 shares of its common stock at $0.10 per share. The option has a term of five years and vests as follows: 50% vests immediately and 50% vests on January 1, 2013. The option has a fair value of $94,821 and was calculated using the Black-Scholes option-pricing model. Variables used in the valuation include (1) discount rates of 2.21% (2) expected life of 5 years, (3) expected volatility of 171.82% and (4) zero expected dividends.
In March 2012, the Company entered into an Option Agreement (the “Agreement”) with an investment banking firm. Per the Agreement, the counterparty is to raise $2,500,000 of capital, net of any fees and costs related to the financing, for the Company on or before June 30, 2012. As inducement for performance, the Company granted an option to acquire 10% of the issued and outstanding common stock of the Company (based at the date of exercise) for an exercise price of $100,000. As the option vests conditional to performance by the counterparty, the Company will recognize the vesting of the option only upon the satisfaction of the performance conditions. As of June 29, 2012, the counterparty had not met the performance conditions and management does not believe that the performance conditions will be achieved before the expiration on June 30, 2012. Accordingly, the Company has recorded no fair value for these options as the probability of vesting is very remote.
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9.Stock Options and Warrants (cont’d)
The following table summarizes stock options issued and outstanding:
The following table summarizes warrants issued and outstanding:
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10.Income Taxes
The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During the years ended March 31, 2012 and 2011, the Company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $4.5 million and $3.0 million at March 31, 2012 and 2011, respectively, and will expire beginning in 2028.
The Company is subject to United States income taxes at a rate of 34%. The reconciliation of the provision for income taxes at the United States statutory rate compared to the Company’s income tax expense as reported is as follows:
At March 31, 2012 and 2011 deferred tax assets consisted of the following:
Note 11.Commitments and contingencies
On February 7, 2011, the Company signed a three year exclusive Exploration Agreement (the “Glaux Agreement”) with Glaux Oil & Gas, LLC (“Glaux”) for the development of numerous leads and prospects in approximately 500,000 gross acres in West Texas. Glaux has identified approximately 25 leads and prospects in the area and will work exclusively with the Company to develop these prospects using Glaux’s access to exploratory leads that were identified using a proprietary aeromagnetic survey and other advanced oil finding technologies such as telluric and seismic. Subject to the terms of the Glaux Agreement, once each of these prospects is developed, the Company will be able to choose whether or not to lease the mineral rights and proceed to the drilling of the prospect. In conjunction with the Glaux Agreement, the Company issued to Glaux a warrant to purchase 46,000 (post reverse-split) shares of common stock of the Company at $7.50 per share (post reverse-split), vesting quarterly beginning May 8, 2011, and representing 50% of the quarterly retainer due to Glaux. The term of the warrant is 5 years. In July 2011, the Company cancelled the Glaux Agreement and believes that it has no further obligations under this agreement.
In May 2011, the Company entered into a lease agreement with an officer of the Company to rent office space. The Company pays $1,200 per month on a month to month basis. During the year ended March 31, 2012, the Company incurred $13,200 in rent under this agreement.
From time to time, the Company may be subject to routine litigation, claims, or disputes in the ordinary course of business. In the opinion of management, no pending or known threatened claims, actions or proceedings against the Company are expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. The Company cannot predict with certainty, however, the outcome or effect of any of the litigation or investigatory matters specifically described above or any other pending litigation or claims. There can be no assurance as to the ultimate outcome of these lawsuits and investigations.
Note 12.Subsequent Events
In April 2012, a shareholder advanced the Company $35,000 in exchange for a convertible note payable due March 31, 2013, bearing interest at 12% and convertible at $0.50 per share. In May 2012, the note was amended to allow for conversion at $0.09 per share.
In May 2012, the Company completed a private placement of 1,428,981 shares of common stock for net proceeds of approximately $500,000.
In May 2012, the Company made principal payments totaling $12,500 to an officer of the Company on his outstanding convertible note payable.
In May 2012, the Company issued a stock option to the Chairman of the Board to purchase 500,000 shares of the Company’s common stock at a price of $0.10 per share, vesting immediately, with a five year term. The fair market value of the option on the date of grant was $48,348.
In May 2012, the Company issued a stock option to the Chief Financial Officer to purchase 200,000 shares of the Company’s common stock at a price of $0.10 per share, vesting as follows: 100,000 shares vest immediately and 100,000 shares vest on January 1, 2013, with a five year term. The fair market value of the option on the date of grant was $19,337.
In May 2012, the Company issued 4,206,575 shares of common stock upon the conversion of notes payable and related accrued interest totaling $415,496 and additional consideration of $35,027, for a total of $450,523..
In June 2012, the Company issued 554,105 shares of common stock to a related party upon the conversion of notes payable and related accrued interest totaling $49,869.
In June 2012, the Company acquired the N. Edna field for total consideration of $200,000.
In June 2012, the Company made a payment on a related party payable in the amount of $20,000.
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13.Supplemental Oil and Gas Disclosures (Unaudited)
Oil and Gas Operations
The following table sets forth revenue and direct cost information relating to the Company’s oil and gas exploration and production activities. Bering has no long-term agreements to purchase oil or gas production from foreign governments or authorities. Bering had no oil and gas operations during the year ending March 31, 2011.
(1)This amount only reflects income taxes directly related to oil and gas producing properties. The Company has a net operating loss carryforward sufficient to offset any actual income taxes and accordingly does not agree with the amount of income taxes disclosed in Note 10 - Income Taxes.
Costs Incurred in Oil and Gas Property Acquisitions, Exploration, and Development Activities
Capitalized Costs
The following table sets forth the total capitalized costs and associated accumulated depreciation, depletion and amortization, including impairments, relating to the Company’s oil and gas production, exploration and development activities:
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13.Supplemental Oil and Gas Disclosures (Unaudited) (cont’d)
Costs Not Being Amortized
The following table sets forth a summary of oil and gas property costs not being amortized at March 31, 2012, by the year in which such costs were incurred. There are no individually significant properties or significant development projects included in costs not being amortized. The majority of the evaluation activities are expected to be completed within two to three years.
Proved Undeveloped Reserves
The Company’s has no proved undeveloped reserves as of March 31, 2012.
Oil and Gas Reserve Information
In January 2009, the SEC issued Release No. 33-8995 amending oil and gas reporting requirements under Rule 4-10 of Regulation S-X and Industry Guide 2 in Regulation S-K and bringing full-cost accounting rules into alignment with the revised disclosure requirements. The new rules include changes to the pricing used to estimate reserves, the option to disclose probable and possible reserves, revised definitions for proved reserves, additional disclosures with respect to undeveloped reserves, and other new or revised definitions and disclosures. In January 2010, the FASB issued ASU No. 2010-03, which amends ASC Topic 932 to align the guidance with the changes made by the SEC. The Company implemented these Modernization Rules effective March 31, 2012, when it began recognizing oil and gas operating activities.
Bering emphasizes that its reported reserves are reasonably certain estimates which, by their very nature, are subject to revision. As additional geoscience, engineering and economic data are obtained, proved reserve estimates are much more likely to increase or remain constant than to decrease. These estimates are reviewed throughout the year and revised either upward or downward, as warranted.
Bering’s proved reserves are estimated at the property level and compiled for reporting purposes by an independent third-party reservoir engineer. The independent reservoir engineer interacted with engineering and geoscience personnel and with accounting personnel to obtain the necessary data for projecting future production, costs, net revenues and ultimate recoverable reserves. All relevant data is compiled in a computer database application, to which only authorized personnel are given security access rights consistent with their assigned job function. Reserves are reviewed internally with senior management and presented to Bering’s Board of Directors in summary form on a semi-annual basis. Annually, each property is reviewed in detail by our operations manager to ensure forecasts of operating expenses, netback prices, production trends and development timing are reasonable.
Bering’s independent reservoir engineer, Paul J. Szatkowski, of the firm DeGolyer and MacNaughton, is the person primarily responsible for preparing our reserve estimates. Mr. Szatkowski is a graduate of Texas A&M University with a Bachelor of Science degree in Petroleum Engineering. He has over 37 years of industry experiencein reservoir engineering. He is a member of the Society of Petroleum Engineers and is a Registered Professional Engineer in the state of Texas.
The estimate of reserves disclosed in this annual report on Form 10-K is prepared by an independent third-party, DeGolyer and MacNaughton. We have filed DeGolyer and MacNaughton’s independent report as an exhibit to this Form 10-K.
DeGolyer and MacNaughton opined that the overall proved reserves for the reviewed properties as estimated by the Company are, in the aggregate, reasonable, prepared in accordance with generally accepted petroleum engineering and evaluation principles and conform to the SEC’s definition of proved reserves as set forth in Rule 210.4-10(a) of Regulation S-X.
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13.Supplemental Oil and Gas Disclosures (Unaudited) (cont’d)
There are numerous uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production and timing of development expenditures. The following reserve data only represent estimates and should not be construed as being exact.
Bering did not have any oil and gas reserves as of March 31, 2011.
Approximately 84 percent of our March 31, 2012 estimated proved developed reserves are classified as proved not producing. These reserves relate to zones that are either behind pipe, or that have been completed but not yet produced, or zones that have been produced in the past, but are not now producing because of mechanical reasons. These reserves are considered to be a lower tier of reserves than producing reserves because they are frequently based on volumetric calculations rather than performance data. Future production associated with behind pipe reserves is scheduled to follow depletion of the currently producing zones in the same wellbores. It should be noted that additional capital may have to be spent to access these reserves. The capital and economic impact of production timing are reflected in this Note 12, under “Future Net Cash Flows.”
Future Net Cash Flows
Future cash inflows as March 31, 2012 were calculated using an average of oil and gas prices in effect on the first day of each month in fiscal ending March 31, 2012, except where prices are defined by contractual arrangements. Operating costs, production and ad valorem taxes and future development costs are based on current costs with no escalation.
The following table sets forth unaudited information concerning future net cash flows for oil and gas reserves, net of income tax expense. Income tax expense has been computed using expected future tax rates and giving effect to tax deductions and credits available, under current laws, and which relate to oil and gas producing activities. This information does not purport to present the fair market value of the Company’s oil and gas assets, but does present a standardized disclosure concerning possible future net cash flows that would result under the assumptions used.
BERING EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13.Supplemental Oil and Gas Disclosures (Unaudited) (cont’d)
The following table sets forth the principal sources of change in the discounted future net cash flows:
ITEM 9.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On April 30, 2012, the Board of Directors of the Registrant approved the dismissal of MaloneBailey, LLP, as its certifying independent registered public accountants. On such same date, the Registrant dismissed MaloneBailey, LLP, as its independent registered public accountants. None of the reports of MaloneBailey, LLP on the financial statements of the Registrant contained any adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, except for a going concern paragraph in MaloneBailey, LLP 's report on our financial statements as of and for the years ended March 31, 2011 and 2010.
During the Registrant’s two most recent fiscal years and during any subsequent interim periods preceding the date of termination, there were no disagreements with MaloneBailey, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to MaloneBailey, LLP 's satisfaction, would have caused them to refer to the subject matter of the disagreement(s) in connection with their report; and there were no "reportable events" as defined in Item 304 (a)(1) of the Securities and Exchange Commission's Regulation S-K.
On April 30, 2012, the Board of Directors of the Registrant approved the engagement of, and the Registrant did on such same date engage, LBB & Associates Ltd., LLP, 10260 Westheimer Road, Suite 310, Houston, Texas 77042, as its independent registered public accounting firm commencing April 30, 2012, for the fiscal year ended March 31, 2012. During the two most recent years and the subsequent interim period through the date of engagement, neither the Registrant nor anyone engaged on its behalf has consulted with LBB & Associates Ltd., LLP regarding: (i) either the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Registrant's financial statements; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) or (v) of Regulation S-K).
ITEM 9A.
ITEM 9A.MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
(a) Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2012. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2012, the Company’s disclosure controls and procedures were ineffective. This conclusion by the Company’s Chief Executive Officer and Chief Financial Officer does not relate to reporting periods after March 31, 2012.
Management’s Report on Internal Control Over Financial Reporting
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2012 based on the framework stated by the Committee of Sponsoring Organizations of the Treadway Commission. Furthermore, due to our financial situation, we will be implementing further internal controls as we become operative so as to fully comply with the standards set by the Committee of Sponsoring Organizations of the Treadway Commission.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on its evaluation as of March 31, 2012, our management concluded that our internal controls over financial reporting were ineffective as of March 31, 2012. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness relates to the monitoring and review of work performed by our Chief Financial Officer and lack of segregation of duties. In the preparation of audited financial statements, footnotes and financial data all of our financial reporting is carried out by our Chief Financial Officer, and we do not have an audit committee to monitor or review the work performed. The lack of segregation of duties results from lack of accounting staff with accounting technical expertise necessary for an effective system of internal control. In order to mitigate this material weakness to the fullest extent possible, all financial reports are reviewed by the Chief Executive Officer. All unexpected results are investigated. At any time, if it appears that any control can be implemented to continue to mitigate such weaknesses, it is immediately implemented. As soon as our finances allow, we will hire sufficient accounting staff and implement appropriate procedures for monitoring and review of work performed by our Chief Financial Officer.
This annual report does not include an attestation report of the Company s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.
(b) Changes in Internal Control Over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the year ended March 31, 2012, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
On May 16, 2012, the Company and the holders of $350,000 in convertible notes payable (the “Convertible Notes”) agreed to extend the due date of the Convertible Notes to May 18, 2012 and amend the conversion price of the Convertible Notes from $0.50 per share to $0.09 per share. In conjunction with the amendment, the holders the Convertible Notes, having a principal balance of $350,000 and accrued interest of $65,266, assigned their notes and related accrued interest to unrelated third parties in exchange for total consideration of $450,523. The consideration included $35,027 which the Company agreed to pay to the holders of the Convertible Notes as additional compensation for the period of time between the maturity of the notes, February 11, 2012, and the date the holders of the Convertible Notes agreed to extend the due date of the Convertible Notes, May 16, 2012 (the “Additional Compensation”). The notes, including the Additional Compensation, were converted by the assignees on May 18, 2012 into 4,205,556 shares of the Company’s common stock. At the time of the conversion, the principal balance, accrued interest and Additional Compensation totaled $500,392.
In June 2012, the holder of $48,500 in related party convertible notes payable converted a total of $49,869 in principal and accrued interest into 554,105 shares of the Company’s common stock.
PART III - OTHER INFORMATION
ITEM 10
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company’s executive officers and directors are as follows:
Name
Age
Position
J. Leonard Ivins
Chairman of the Board and Director
Frederick A. Huttner, Jr.
Chief Executive Officer and President and Director
Steven M. Plumb, CPA
Chief Financial Officer and Secretary
J. Leonard Ivins.
Mr. Ivins has served as the Company’s Chairman of the Board of Directors since March 2012. He previously served as the Company’s Chief Executive Officer and a director from May 2007 to March 2012. He has also served as the Chief Executive Officer for the Company’s wholly-owned subsidiary from December 2007 to March 2012. Since 1995, he has been a private investor. Previously, Mr. Ivins was a founder and co-owner of a privately held company that was an FDIC and RTC contractor. From 1979 to 1981, Mr. Ivins was a turnaround and workout consultant to small, publicly held oil and gas companies. From 1970 to 1975, Mr. Ivins was president of The Woodlands Development Corporation and a director of Mitchell Energy and Development Corp.
Frederick A. Huttner, Jr.
On October 28, 2011, Mr. Frederick A. Huttner, Jr., age 66, was appointed to serve as the Company’s President. In March 2012, Mr. Huttner was appointed to the additional position of Chief Executive Officer and a member of the board of directors. Since 1994, Mr. Huttner has served as Chairman and President of Huttner and Company, a private consulting firm which offers business consulting services on a limited basis to entrepreneurial growth companies. Mr. Huttner works with business leaders to build effective communication systems within their organizations to maximize the success of the business, either through organic growth or acquisitions. From May 2011 until July 2011, Mr. Huttner served as a member of the Board of Directors of Intreorg Systems, Inc. (OTCBB:IORG). From August 2009 until October 2010, he was employed by Miresco Financial Services, a national liquidation company, where he was responsible for investing capital for some of the liquidations. Mr. Huttner was an officer and director of Stratum Holdings, Inc. (OTCBB: STTH), a company operating in the oil field services, construction staging and oil and gas operations in the Texas and Louisiana Gulf coast, from 2003 until 2008, serving various terms as President, Secretary-Treasurer and Chief Financial Officer, and Chief Executive Officer. From 2000 to 2002, he was a principal of Innovation Growth Partners, LLC, a private consulting firm which had acquired Huttner and Company during this period. He received a bachelor’s degree from New York University.
Steven M. Plumb,CPA.
Steven M. Plumb, CPA is a financial manager and senior executive experienced in operations, finance and marketing. He has Big 4 CPA experience, a background in IT, biotech, oil and gas, medical and utility companies. Mr. Plumb was appointed the Chief Financial Officer of the Company in July 2011. In March 2012, Mr. Plumb was appointed the Secretary of the Company. From September 2010 to June 2011, Mr. Plumb served as the Chief Financial Officer of Galaxy Media & Marketing Corp (Galaxy) and from January 2011 to June 2011 he also served as a member of the board of directors and chair of the board of directors of Galaxy. From September 2009 to April 2012, Mr. Plumb served as the Chief Financial Officer of ADB International Group, Inc. (ADBI.PK) and from June 2010 to April 2012, he also served on the board of directors of ADBI. From March 2008 to October 2009, Mr. Plumb served as the Chief Financial Officer of Oncolin Therapeutics, Inc. (OCOL.OB) and Striker Oil & Gas, Inc. (SOIS.OB). Mr. Plumb served as the Chief Financial Officer of HoustonPharma, Inc. from September 2006 to July 2008. Mr. Plumb served as the Chief Financial Officer of Hyperdynamics Corp. (AMEX.HDY) November 2005 to June 2008 and as the Chief Financial Officer of ADVENTRX Pharmaceuticals, Inc. (AMEX:ANX) from January 2003 to December 2004. Since 2001, he has served as the owner and president of Clear Financial Solutions, Inc., a consulting firm that provides interim CFO services to small public companies. In this capacity he has prepared SEC filings, managed investor relations, raised capital, conducted mergers and acquisition activities, developed successful offering memorandum, registration statements and investor presentations. Mr. Plumb has a Bachelor of Business Administration degree from the University of Texas at Austin, Austin, Texas.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s Directors and officers, and persons who own more than 10% of a registered class of the Company’s equity securities (“Section 16 Persons”), to file with the Securities and Exchange Commission (the “SEC”) initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Section 16 Persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports they file. Section 16(a) of the Exchange Act requires our directors, executive officers, and the persons who beneficially own more than ten percent of our common stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. None of our current executive officers has filed a Form 3 as of the date hereof.
Board Composition
The Company’s board of directors currently consists of two members. Each of its directors is elected annually at its annual meeting. There are no family relationships between any of the Company’s officers and directors.
Independence of Directors and Board Committees
In May 2011, the board established Audit, Compensation, and Corporate Governance & Compliance Committees. Mr. Ivins was appointed to the Compensation Committee, the Audit Committee and the Corporate Governance & Compliance Committee and as the chair of each committee. Mr. Huttner was appointed to the Compensation Committee and the Corporate Governance & Compliance Committee. No charters have been established for any of the committees of the board.
Audit Committee
The Audit Committee of the Board currently consists of the Mr. Ivins. The audit committee selects an independent public accounting firm to be engaged to audit our financial statements, discuss with the independent auditors their independence, review and discuss the audited financial statements with the independent auditors and management and recommend to our Board of Directors whether the audited financials should be included in our Annual Reports to be filed with the SEC.
All of the members of the audit committee are non-employee directors who: (1) met the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act; (2) did not participate in the preparation of our financial statements or the financial statements of the Company.; and (3) are able to read and understand fundamental financial statements, including a balance sheet, income statement and cash flow statement. The board has determined that Mr. Ivins qualifies as an audit committee financial expert as defined in Item 407(d) of Regulation S-X by virtue of his educational background in finance and earning an MBA, work experience in finance and past public company experience and responsibilities as an audit committee member and corporate officer.
Option Grants, Long-Term Incentive Plans and Employment Agreements
The Company currently does not have any stock options outstanding pursuant to any stock option plan or long-term incentive plans.
Code of Ethics
The Company adopted a Code of Ethics that applies to all of its directors and officers. Copies of the Company’s Code of Ethics are available, free of charge, by submitting a written request to the Company at Bering Exploration, Inc., 710 N. Post Oak Road, Suite 410, Houston, Texas 77401, Attention: Frederick A. Huttner, Jr., Chief Executive Officer.
ITEM 11
ITEM 11 - Executive Compensation
The following Summary Compensation Table sets forth, for the years indicated, all cash compensation paid, distributed or accrued for services, including salary and bonus amounts, rendered in all capacities by our Chief Executive Officer and all other executive officers who received or are entitled to receive remuneration in excess of $100,000 during the stated periods.
(1) The Company has retained Clear Financial Solutions, Inc., a consulting firm owned by Mr. Plumb, to provide interim chief financial officer services at the rate of $2,500 per month. In July 2011, Mr. Plumb’s monthly compensation was increased to $5,000 per month. Mr. Plumb’s services were retained in December 2010.
Outstanding Equity Awards at Fiscal Year End Table
The table below sets forth information with respect to our named executive officers regarding the value of equity compensation as of March 31, 2012.
Employment and Consulting Agreements
Frederick A. Huttner, Jr.
On October 28, 2011, Bering Exploration, Inc. (the “Company”) and Mr. Frederick Huttner entered into an employment agreement (the “Original Agreement”) pursuant to which Mr. Huttner would serve as the Company’s president. Pursuant to the Original Agreement, the Company agreed to issue Mr. Huttner 500,000 shares of the Company’s common stock for services to be rendered.
On December 30, 2011, the Company and Mr. Huttner entered into an amended and restated employment agreement (the “Restated Agreement”) pursuant to which the Company agreed to issue, in lieu of the 500,000 shares of common stock described above, a five year warrant (the “Warrant”) to purchase up to 500,000 shares of Company common stock at an exercise price of $1.00 per share (such exercise price being the previous day’s closing price of the Company’s common stock as reported by the Pink Sheets OTCQB). The foregoing summary of the Restated Agreement and the Warrant are qualified in their entirety to the Restated Agreement and Warrant were filed as attachments to Form 8-K filed on January 5, 2012, each of which are incorporated herein by reference.
In May 2012, the Company and Mr. Huttner agreed to cancel the Warrant and issue to Mr. Huttner a five year option to purchase 1,300,000 shares of the Company’s common stock at an exercise price of $0.10 per share, effective December 30, 2011.
DIRECTOR AND EXECUTIVE COMPENSATION
During the fiscal year ended March 31, 2012, no directors received any compensation for serving as a director. In May 2012, the Board approved compensation as follows: Mr. Huttner will receive $25,000 annually for serving on the board of directors and $25,000 annually for serving on committees of the board of directors. Mr. Ivins will receive $25,000 annually for serving on the board of directors and $25,000 annually for serving on committees of the board of directors. The fees may be paid in cash or equity of an equivalent value, at the discretion of the director.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of March 31, 2012, the number and percentage of outstanding shares of Company common stock owned by: (a) each person who is known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; (b) each of our directors; (c) the current named executive officers as defined in Item 402 of Regulation S-K; and (d) 3 current directors and executive officers, as a group. As of March 31, 2012, there were 4,465,531 shares of common stock issued and outstanding.
(1)Unless otherwise indicated, the mailing address of the beneficial owner is Bering Exploration, Inc., 710 N. Post Oak Road, Suite 410, Houston, Texas 77024.
(2)The percentage of beneficial ownership of Common Stock is based on 4,965,531 shares of Common Stock outstanding as of March 31, 2012 and excludes all shares of Common Stock issuable upon the exercise of outstanding options, other than the shares of Common Stock issuable upon the exercise of options or warrants to purchase Common Stock held by the named person to the extent such options or warrants are exercisable within 60 days of May 30, 2012.
(3)The business address of Kevan Casey is PO Box 27949, Houston, Texas 77227-7949. Mr. Casey owns 3.374 shares directly and the following shares indirectly: 114,000 shares are held by Silver Star Holdings, Ltd., of which Mr. Casey is the managing partner, 117,079 shares are held by KM Casey No 1, Ltd, of which Mr. Casey is the managing partner, and 559,435 shares are held by Jinsun, LLC, of which Mr. Casey is the sole member.
(4)VASHB Group, LLC, a limited liability company of which Steven M. Plumb owns a minority interest, owns 117,064 shares. Mr. Plumb is not an officer, director or manager of VASHB Group, LLC, and he disclaims any beneficial interest in the shares owned by VASHB Group, LLC. In addition, Mr. Plumb is the beneficial owner of a 50% vested option to purchase 200,000 shares of the Company’s common stock, exercisable within 60 days of June 30, 2012.
(5)J. Leonard Ivins directly owns 148,426 shares of the Company’s common stock and is the beneficial owner of a fully vested option to purchase 500,000 shares of the Company’s common stock, exercisable within 60 days of May 30, 2012.
(6)Frederick A. Huttner, Jr. directly owns 14,454 shares of the Company’s common stock and is the beneficial owner of a 50% vested option to purchase 1,300,000 shares of the Company’s common stock, exercisable within 60 days of June 30, 2012.
(7)Jerry Walters directly owns no shares of the Company’s common stock and is the beneficial owner of a 50% vested option to purchase 1,000,000 shares of the Company’s common stock, exercisable within 60 days of June 30, 2012.
ITEM 13.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
None.
ITEM 14.
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees.
The aggregate fees billed for professional services rendered by LBB and Associates, Ltd, LLP and MaloneBailey, LLP for the audits of our annual financial statements and review of financial statements included in our Forms 10-Q for fiscal years 2012 and 2011 are set forth in the table below.
Audit-Related Fees.
During the fiscal years ended March 31, 2012 and 2011, no assurance or related services were performed by LBB and Associates Ltd, LLP or MaloneBailey, LLP that were reasonably related to the performance of the audit or review of our financial statements.
Tax Fees.
During the fiscal year ended March 31, 2012 and 2011, no fees were billed by LBB and Associates Ltd, LLP or MaloneBailey, LLP for tax compliance, tax advice or tax planning services.
All Other Fees.
During the fiscal years ended March 31, 2012 and 2011, no fees were billed by LBB and Associates Ltd, LLP or MaloneBailey. LLP other than the fees set forth under the caption “Audit Fees” above.
Pre-Approval Policies and Procedures of the Audit Committee.
The Audit Committee has the sole authority to appoint, terminate and replace our independent auditor. The Audit Committee may not delegate these responsibilities. The Audit Committee has the sole authority to approve the scope, fees and terms of all audit engagements, as well as all permissible non-audit engagements of our independent auditor. The entire board of Directors serves as the audit committee of the Company.
ITEM 15.
ITEM 15.
EXHIBITS AND REPORTS
Exhibit No.
Description
Consent of DeGolyer and MacNaughton, independent petroleum consultants
31.1
Certification of Frederick A. Huttner, Jr.
31.2
Certification of Steven M. Plumb.
32.1
Certification for Sarbanes-Oxley Act of Frederick A. Huttner, Jr.
32.2
Certification for Sarbanes-Oxley Act of Steven M. Plumb.
99.1
Report of DeGolyer and MacNaughton, independent petroleum consultants
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized
BERING EXPLORATION, INC.
By: /s/ J. Leonard Ivins
J. Leonard Ivins, Director
Date: July 16, 2012