ITEM 1. BUSINESS
Organization and Background
The Company was incorporated on October 16, 2008 in the State of Nevada as “Oreon Rental Corporation”. At the time of its incorporation, the management of the Company intended to operate electronics rental stores in Ternopil and other similar cities throughout Ukraine. However, at the time of its incorporation and its initial public offering of common stock in October 2008, the Company did not own any such stores, nor did it have any ongoing business operations. The Company underwent a change in management in January 2010. Following the change in management, the Company decided not to proceed with its original plan of operations and to shift its business focus to that of an independent oil and gas company engaged in the acquisition, drilling and production of oil and natural gas properties and prospects. The Company anticipates implementing this new business focus by pursuing interests in oil and natural gas properties by acquiring leases, such as the Leases described below. The Company plans to act as an operator, which means the Company will directly manage exploration, drilling and development activities, as well as seek joint ventures with oil and gas companies that have exploration, development and drilling expertise.
In January 2011, the Company executed an Agreement and Plan of a Merger with Keyser Resources, Inc., a Nevada Corporation (“Keyser”). Under the Agreement and Plan of Merger, the Company’s wholly-owned subsidiary, True American Energy Corporation (“TAEC”) would be merged with and into Keyser, with Keyser being the surviving corporation. However, the Company, TAEC and Keyser mutually agreed to abandon the proposed merger in March 2011. At the time of the proposed merger and its subsequent abandonment, Alvaro Vollmers, was the sole director and officer of the Company and of Keyser. The proposed merger would have constituted a sale of substantially all the assets of the Company.
Business
The Company is currently an exploration stage company and has no products or services, customers or ongoing sources of revenue. The Company currently has no employees, other than its Chairman and President.
Sale of Oil and Gas Properties
In 2012, the Company sold its ownership interest in its Cortez and Gabbs leases to Desert Discoveries in exchange for a 2% overriding royalty interest in the lease should there be any future revenues derived from the property. The Company determined that it did not wish to continue funding this project, as it was not sure if the project will be economically viable in the future. The Company could not assign a value on these leases, as there was insufficient information to be able to do so. Accordingly, the Company wrote off the value of the property. The amount written off was $1,423,439 during the year ended October 31, 2012.
Independent Contractor Agreement; Establishment of Advisory Board
Effective as of April 12, 2011, the Company entered into an agreement with Vincent Ramirez, pursuant to which Mr. Ramirez will provide services to the Company similar to those provided by a Vice President of Operations (the “Independent Contractor Agreement”). Mr. Ramirez will perform the services as an independent contractor, and not as an employee, of the Company. Instead of receiving cash compensation, Mr. Ramirez was entitled to receive 100,000 shares of Common Stock when the Independent Contractor Agreement was signed, and will receive an additional 100,000 on each 6-month anniversary date. The Independent Contractor Agreement expires at the end of the initial 180-day period, but automatically renews for an additional 180-day period unless terminated in accordance with the Agreement. The Company has issued 300,000 shares of Common Stock to Mr. Ramirez pursuant to this Independent Contractor Agreement. See Note 3 to the Financial Statements.
The Company has established an Advisory Board. To date, James E. Melland and Dr. Alfred H. Pekarek have agreed to serve on the Advisory Board. Mr. Melland is a licensed professional petroleum engineer (KS & CA) and a licensed professional geologist (CA), and has previously worked as petroleum appraisal engineer for the Kern County’s Assessor Office, as geological engineer and petroleum engineer for Shell Oil Company, operations engineer for Occidental Petroleum Company, consulting geologist for Texaco E&P and Mobil E&P. His firm, Melland Engineering, Inc., acts as a consultant to the Company. Dr. Pekarek is a geologist with 36 years of oil and gas experience, having worked for Wexpro and at Husky Oil Company as geologist in charge of the Railroad Valley, NV, exploration program, and his current consulting work include oil and gas exploration, and prospect development and drilling, primarily in the Mid-Continent, Rocky Mountains, and Basin and Range Province. Dr. Pekarek currently teaches a variety of geology courses, including petroleum geology, at St. Cloud State University.
In consideration for their respective services, Mr. Melland and Mr. Pekarek will each receive 25,000 shares of Common Stock on each June 30 and December 31 of each calendar year of service. The Company has issued 100,000 shares of Common Stock in the aggregate to each of Mr. Melland and Dr. Pekarek. As of October 31, 2013, Mr. Melland had 50,000 shares of Common Stock and Mr. Pekarek currently has 125,000 shares of Common Stock, as they have sold a portion of the shares they received under their agreements.
Neither the shares of Common Stock issued to Mr. Ramirez under the Independent Contractor Agreement, nor the shares of Common Stock issued to Mr. Melland and Mr. Pekarek under their respective agreements with the Company, have been registered under the Securities Act, or any state securities laws, and accordingly will be subject to all applicable restrictions on sale under such laws.
Marketing and Pricing
The Company currently has no revenue or revenue producing assets.
Competition
The Company is an exploration stage company with no current operations and so does not experience direct competition from other businesses. However, the Company intends to operate in the highly competitive areas of oil and gas acquisition and exploration, areas in which other competing companies have substantially larger financial resources, strategic alliances, operations, staff and facilities. Such companies may be able to pay more for prospective oil and gas properties or prospects, to partner with more experienced partners to form joint ventures and to evaluate, bid for and purchase a greater number of properties and prospects than the Company’s financial or human resources will permit. This competition could adversely impact the availability of real properties to lease and of experienced companies with which to form joint ventures to develop the oil and gas leases and could impact the Company’s ability to achieve the financing necessary for it to develop its projects.
Research and Development Expenditures
The Company has not incurred any research and development expenditures since its incorporation.
Patents and Trademarks
The Company does not own, either legally or beneficially, any patents or trademarks.
Governmental Regulation, Approval and Compliance
The Leases, and the exploration and development of the Leases, will be subject to various types of regulation at the federal, state and local levels. Such regulations includes requiring permits for the drilling of wells; maintaining bonding requirements in order to drill or operate wells; implementing spill prevention plans; submitting notification and receiving permits relating to the presence, use and release of certain materials incidental to oil and gas operations; and regulating the location of wells, the method of drilling and casing wells, the use, transportation, storage and disposal of fluids and materials used in connection with drilling and production activities, surface usage and the restoration of properties upon which wells have been drilled, the plugging and abandoning of wells and the transporting of production. The operations of any oil and gas wells will also be subject to various conservation matters, including the regulation of the size of drilling and spacing units or pro-ration units, the number of wells which may be drilled in a unit, and the unitization or pooling of oil and gas properties. In addition, state conservation laws establish maximum rates of production from oil and gas wells, generally limit the venting or flaring of gas, and impose certain requirements regarding the ratable purchase of production. The effect of these regulations is to limit the amounts of oil and gas these wells may be able to produce and to limit the number of wells or the locations on which wells may be drilled. Even though the Company will not be actively operating the Leases, its financial performance and results of operations will be affected by numerous laws and regulations, including energy, environmental, conservation, tax and other laws and regulations relating to the oil and gas industry.
Environmental Regulation
The Leases, and the exploration and development of the Leases, will be subject to stringent federal, state and local laws and regulations governing environmental quality, including those relating to oil spills and pollution control, that are constantly changing. Should the Company and its operating partners fail to comply with existing federal, state and local laws, rules and regulations governing the release of materials into the environment or otherwise relating to the protection of the environment, such failure may have a material adverse effect upon its business operations and operating results.
Employees
The Company does not have any active employees, except its Chairman and President.
ITEM 1A.
ITEM 1A. RISK FACTORS.
If we do not obtain additional financing, our business will fail.
As of October 31, 2013, we had no cash on hand. We have not earned any income since our inception. Our plan of operation calls for significant expenses in connection with the exploration of any oil and natural gas leases we may acquire.
We currently do not have any arrangements for financing and we may not be able to obtain financing when required. Obtaining additional financing would be subject to a number of factors outside of our control, including the results from our exploration program, and any unanticipated problems relating to our oil and natural gas exploration activities, including environmental assessments and additional costs and expenses that may exceed our current estimates. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us, in which case our business will fail.
We have yet to earn revenue and our ability to sustain our operations is dependent on our ability to raise financing. As a result, our accountants believe there is substantial doubt about our ability to continue as a going concern.
We have incurred net losses of $3,143,159 for the period from our inception on October 16, 2008 to October 31, 2013, and have no revenues to date. Our future is dependent upon our ability to obtain financing and upon future profitable operations from the development of oil and natural gas leases, including the Leases. These factors raise substantial doubt that we will be able to continue as a going concern. LBB & Associates Ltd., LLP, Certified Public Accountants, our independent auditors, have expressed substantial doubt about our ability to continue as a going concern. This opinion could materially limit our ability to raise additional funds by issuing new debt or equity securities or otherwise. If we fail to raise sufficient capital when needed, we will not be able to complete our business plan. As a result we may have to liquidate our business and investors may lose their investment. Investors should consider our auditor's comments when determining if an investment in the Company is suitable.
Because of the unique difficulties and uncertainties inherent in oil and natural gas exploration ventures, we face a high risk of business failure.
Investors should be aware of the difficulties normally encountered by new oil and natural gas exploration companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the oil and natural gas properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates. The Leases do not contain known oil and natural gas deposits and, therefore, any program conducted on the Leases would be an exploratory search for oil and natural gas. There is no certainty that any expenditures made in the exploration of the Leases will result in discoveries of commercial quantities of oil and natural gas. Most exploration projects do not result in the discovery of commercially producible oil and natural gas deposits. Problems such as unusual or unexpected geological conditions or operational difficulties are common to oil and natural gas exploration activities and often result in unsuccessful exploration efforts. If the results of our exploration program do not reveal viable commercial oil and natural gas deposits, we may decide to abandon the Leases and acquire new leases for new exploration. Our ability to acquire additional leases will be dependent upon our possessing adequate capital resources when needed. If no funding is available, we may be forced to abandon our operations.
Geological conditions are variable and unpredictable and heighten exploration risk.
Oil and gas exploration and development involves a higher degree of risk and few properties that are explored are ultimately developed into producing properties. Even if production is commenced from a well, the production will inevitably decline and may be affected or terminated by changes in geological conditions that cannot be foreseen or remedied. A change in geological conditions may render a discovery uneconomic.
The market price for oil and natural gas is volatile and determined by factors beyond our control. Failure to accurately forecast prices may result in financial losses.
Market prices for oil and natural gas may fluctuate widely from time to time depending on international demand, production and other factors that cannot be foreseen. A decline in price may render a discovery uneconomic resulting in unforeseen losses. If a discovery becomes uneconomic due to declining prices, funds spent to develop the discovery might not be recoverable, leading to financial losses.
We have no known oil and natural gas reserves and if we cannot find any, we may have to cease operations.
We have no oil and natural gas reserves. If we do not find any commercially exploitable oil and natural gas reserves or if we cannot complete the exploration of any oil and natural gas reserves, either because we do not have the money to do so or because it is not economically feasible to do so, we may have to cease operations and our investors may lose their investments. Oil and natural gas exploration is highly speculative. It involves many risks and is often non-productive. Even if we are able to find oil and natural gas reserves on the Leases, our production capability will be subject to further risks including:
·
the costs of bringing the property into production, including exploration work, preparation of production feasibility studies, and construction of production facilities, all of which we have not budgeted for;
·
the availability and costs of financing;
·
the ongoing costs of production; and
·
environmental compliance regulations and restraints.
The marketability of any oil and natural gas acquired or discovered may be affected by numerous factors which are beyond our control and which cannot be accurately predicted, such as market fluctuations, the lack of adequate facilities and processing equipment near the Leases, and other factors such as government regulations, including regulations relating to allowable production, the importing and exporting of oil and natural gas, and environmental protection.
Given the above-noted risks, the chances of our finding and commercially exploiting reserves on our oil and natural gas leases are remote and funds expended on exploration are subject to the risk of being lost.
As we undertake exploration of our oil and natural gas leases, we will be subject to compliance with government regulation that may increase the anticipated cost of our exploration program.
There are several governmental regulations that materially restrict oil and natural gas exploration. We will be subject to state and federal laws of the State of Nevada, the State of Texas, and the United States of America as we carry out our exploration program on the Leases. We may be required to obtain work permits, post bonds and perform remediation work for any physical disturbance to the land in order to comply with these laws. If we enter the development and production phase, the cost of complying with permit and regulatory environment laws will be greater because the impact on the project area is greater. Permits and regulations will control all aspects of the development and production program if the project continues to that stage.
We may conduct further offerings in the future in which case investors' shareholdings will be diluted.
Since our inception, we have relied on sales of our common stock to fund our operations. We may conduct further equity offerings in the future to finance our current projects or to finance subsequent projects that we decide to undertake. If common stock is issued in return for additional funds, the price per share could be lower than that paid by our current stockholders. We anticipate continuing to rely on equity sales of our common stock in order to fund our business operations. If we issue additional stock, investors' percentage interests in us will be diluted. The result of this could reduce the value of current investors' stock.
Because our stock is a penny stock, shareholders will be more limited in their ability to sell their stock.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 per share, other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. Because our securities constitute "penny stocks" within the meaning of the rules, the rules apply to us and to our securities. The rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them. As long as the quotation price of our common stock is less than $5.00 per share, the common stock will be subject to penny stock rules. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:
·
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 securities laws;
·
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 in 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 broker-dealer also must provide the customer, prior to effecting any transaction in a penny stock, with: (a) bid and offer quotations for the penny stock; (b) the amount of compensation of the broker-dealer and its salesperson in the transaction; (c) 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 (d) monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a suitably written statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not Applicable.
ITEM 2.
ITEM 2. PROPERTIES.
The Company does not own any physical property or own any real property. The Company is provided use of the Chairman’s leased office space at 11251 Richmond Avenue, Suite, Houston, Texas 77082 at no cost.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY.
Market Information.
Shares of the Company’s common stock are currently listed on the Over-The-Counter Bulletin Board under the symbol “OREO.” The following table sets forth the range of high and low bid prices for the last fiscal year.
The transfer agent and registrar for the Company’s common stock is Signature Stock Transfer, Inc., PMB 317, 2632 Coach Light Ct, Plano, Texas 75093.
Holders of Common Stock
As of February 11, 2014, there are 107,389,051 shares of common stock issued and outstanding. These shares of common stock are held of record by 8 registered shareholders.
Dividends
The Company has not declared any dividends on its common stock since its inception on October 16, 2008. There are no dividend restrictions that limit the Company’s ability to pay dividends on its common stock in its Articles of Incorporation or Bylaws. The governing statute, Chapter 78 of the NRS does provide limitations on a company’s ability to declare dividends. Section 78.288 of Chapter 78 of the NRS prohibits a company from declaring dividends where, after giving effect to the distribution of the dividend, (a) would not be able to pay its debts as they become due in the usual course of business; or (b) the company’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if it to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders who may have preferential rights and whose preferential rights are superior to those receiving the distribution (except as otherwise specifically allowed by the Company’s Articles of Incorporation).
Securities Authorized for Issuance under Equity Compensation Plans.
None.
Recent Sales of Unregistered Securities Not Previously Reported on a Quarterly Report on Form 10-Q or a Current Report on Form 8-K
None.
Purchase of Equity Securities by Issuer in Fourth Quarter
None.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Not Applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS.
The Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide the reader of the Company’s consolidated financial statements with a narrative from the perspective of the Company’s management on its financial condition, results of operations, liquidity and certain other factors that may affect the Company’s future results. This section should be read in conjunction with the Company’s audited financial statements and the related notes thereto included in this Annual Report.
Executive Overview
The Company is an independent oil and gas company engaged in the acquisition, drilling and production of oil and natural gas properties and prospects. The Company plans to act as a non-operator, which means the Company will not directly manage exploration, drilling or development activities, but instead will seek joint ventures with oil and gas companies that have exploration, development and drilling expertise.
The Company acquired the Leases on June 27, 2011. From May 11, 2010 to June 27, 2011, the Company paid option fees to Desert Discoveries totaling $1,150,000 in order to acquire the option to purchase the Leases. Of the $1,150,000, $850,000 was placed into escrow to pay for expenses associated with exploring and developing the Leases. To date, the operator has spent $849,022 on the exploration and production of the Paradise Unit 2-12 well, and exploration on the original Leases. Under the Joint Operating Agreements, the Company is responsible for its share of expenses related to the exploration and development on the Leases after the Escrow Funds have been depleted. The Company currently does not have the funds available for its share of those expenses and sold its ownership interests in its leases during the fiscal year ended October 31, 2012.
The Company is currently an exploration stage company and has no products or services, customers or ongoing sources of revenue. The Company currently has no employees, other than its President.
The Company cannot guarantee it will be successful in its business operations. The business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns. The Company is seeking equity financing in order to obtain the capital required to fund its expenses payable under the Joint Operating Agreements and to continue operating its business. The Company has no assurance that future financing will be available to it on acceptable terms. If financing is not available to the Company on satisfactory terms, it may be unable to pay its share of expenses under the Joint Operating Agreement, and to continue, develop or expand the Company’s operations. Equity financing could result in additional dilution to its existing shareholders.
Results of Operations - Year Ended October 31, 2013 versus Year Ended October 31, 2012
Revenue
The Company has not earned any revenues to date.
Expenses
Consulting services decreased by $228,935 from $377,306 in FY2012 to $148,371 in FY 2013 due to the reduction in consulting fees related to oil and gas exploration activities subsequent to the sale of the Company’s oil and gas properties. General and administrative decreased $40,305 from $110,733 in FY 2012 to $70,428 in FY 2013 due to reductions in investor relations costs of $23,003 and stock transfer agent fees of $13,895. Rent decreased by $1,458 in FY 2013 compared to FY 2012. Legal and accounting decreased by $2,760 due to lower legal fees in FY 2013. Bank fees decreased by $3,147 due to a decrease in monthly bank charges during FY 2013. The Company has sold its ownership interest in its leases to Desert Discoveries in exchange for a 2% overriding royalty interest in the lease should there be any future revenues derived from the property.
Going Concern
The report of the Company’s independent registered public accounting firm on the financial statements for the years ended October 31, 2013 and 2012 includes a paragraph relating to substantial doubt or uncertainty in the Company’s ability to continue as a going concern, which means that there is substantial doubt that the Company can continue on an on-going business for the next twelve months unless it obtains additional capital to pay the cost and expense of running its business. The independent registered public accounting firm is raising this concern in part because the Company has not generated any revenues to date, it has generated a cumulative net loss of $3,143,159 since inception and no revenues are anticipated until the Company begins its operations. For fiscal year 2013, the Company will need to raise additional capital in order to continue to pursue investment opportunities. The Company’s ability to establish itself as a going concern is dependent upon its ability to obtain additional financing in order to finance its planned operations and there are no assurances that it will be able to obtain the necessary financing in the foreseeable future.
Liquidity and Capital Resources
Working Capital (Deficit)
Working capital (deficit) is the amount by which current assets exceed current liabilities, and the Company’s working capital decreased from $279,009 as of October 31, 2012 to a working capital deficit of $31,972 as of October 31, 2013. This decrease is attributable to a decrease in prepaid assets of $21,554, a decrease in cash of $274,244 and an increase in accounts payable of $15,183.
Cash Flow - Year Ended October 31, 2013 versus Year Ended October 31, 2012
Net cash flow used in operating activities in 2013 was $274,244 which was primarily attributable to a net loss of $315,512 for the fiscal year ended October 31, 2013 and a decrease of $21,554 in prepaid escrow funds.
Net cash flow used in investing activities was $0.
Net cash flow from financing activities decreased by $600,000 primarily as the result of no private placements of debt and equity securities the Company conducted throughout the fiscal year ended October 31, 2013.
Financing Requirements
From its inception on October 16, 2008 to October 31, 2013, the Company has used a combination of debt and equity to raise money for its corporate and operating expenses. During the fiscal year ended October 31, 2013, the Company has financed its operations through the balance of private placement that was completed in June 2012.
The Company will require additional financing to sustain its business operations and currently does not have any binding arrangements for any third party to provide financing. As a result, there are no assurances that the Company will be able to obtain the necessary financing when required. Obtaining additional financing would be subject to a number of factors that are outside the control of the Company and may make the timing, amount, terms or conditions of additional financing unavailable to it.
Since its inception, the Company has incurred cumulative losses of $3,143,159 and is dependent upon obtaining financing to pursue any activities. The Company expects to continue to incur substantial losses until it completes the development of its business. The Company anticipates continuing to rely on private equity and debt transactions in order to continue to fund its business operations. Issuances of additional shares will be dilutive to the Company’s existing shareholders. There is no assurance that the Company will achieve any additional sales of its equity securities or arrange for debt or other financing for to fund its planned activities.
Critical Accounting Policies
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of the Company’s consolidated financial statements requires management to make judgments and estimates that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. The Company regularly reviews the accounting policies, assumptions, estimates and judgment to assure that its financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from the Company’s assumptions and estimates, and such differences could be material.
The Company’s significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies, of its consolidated financial statements. The Company believes the following policies to be the most significant and critical to an understanding of its business and operations.
Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flow.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources that are material to its shareholders.
Tabular Disclosure of Contractual Obligations
Not Applicable.
ITEM 7A
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 8
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company’s consolidated financial statements together with the report thereon of LBB & Associates Ltd., LLP for the years ended October 31, 2013 and 2012, and the period from inception (October 16, 2008) through October 31, 2013, is set forth as follows:
Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of October 31, 2013 and 2012
Consolidated Statements of Operations for the Years Ended October 31, 2013 and 2012 and from Inception to October 31, 2013
Consolidated Statements of Cash Flows for the Years Ended October 31, 2013 and 2012 and from Inception to October 31, 2013
Consolidated Statements of Shareholders’ Equity(Deficit) from Inception to October 31, 2013
Notes to Consolidated Financial Statements
LBB & ASSOCIATES LTD., LLP
10260 Westheimer Road, Suite 310
Houston, TX 77042
Phone: (713) 800-4343 Fax: (713) 456-2408
Report of Independent Registered Public Accounting Firm
To the Board of Directors of
American Liberty Petroleum Corp.
(An Exploration Stage Company)
Bakersfield, California
We have audited the accompanying consolidated balance sheets of American Liberty Petroleum Corp. (the “Company”) as of October 31, 2013 and 2012, and the related consolidated statements of operations, shareholders' equity (deficit), and cash flows for each of the years then ended and for the period from October 16, 2008 (Inception) to October 31, 2013. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Liberty Petroleum Corp. as of October 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years then ended and the period from October 16, 2008 (Inception) to October 31, 2013 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 5 to the consolidated financial statements, the Company's absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2014 raise substantial doubt about its ability to continue as a going concern. The 2013 financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ LBB & Associates Ltd., LLP
LBB & Associates Ltd., LLP
Houston, Texas
February 12, 2014
AMERICAN LIBERTY PETROLEUM CORP.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
The accompanying notes form an integral part of these consolidated financial statements.
AMERICAN LIBERTY PETROLEUM CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes form an integral part of these consolidated financial statements.
AMERICAN LIBERTY PETROLEUM CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes form an integral part of these consolidated financial statements.
AMERICAN LIBERTY PETROLEUM CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Period October 16, 2008 (Date of Inception) to October 31, 2013
The accompanying notes form an integral part of these consolidated financial statements.
AMERICAN LIBERTY PETROLEUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2013
Note 1 Summary of Significant Accounting Policies
American Liberty Petroleum Corp., a Nevada corporation initially incorporated on October 16, 2008, was formerly known as “Oreon Rental Corporation.” The Company changed its focus in 2010 to that of an independent oil and gas company engaged in the acquisition, drilling and production of oil and natural gas properties by acquiring leases to be held as a non-operator, and developing those leases through joint ventures with oil and gas companies having exploration and development expertise. The Company’s only material asset is its interest in the Option Agreement, which is held by its wholly owned subsidiary, True American Energy Corporation. The Company’s Common Stock is traded on the OTCBB under the stock symbol “OREO.”
BASIS OF PRESENTATION
The accompanying financial statements of American Liberty Petroleum Corp (“ALP” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the result of operations for the periods presented have been reflected herein.
As used in this Annual Report, the terms “we,” “us,” “our,” “ALP” and “the Company” mean American Liberty Petroleum Corp. unless otherwise indicated.
On June 14, 2010, the Company filed an amendment to its Articles of Incorporation with the Nevada Secretary of State, which included the following amendments:
· A change in the Company’s name from Oreon Rental Corporation to American Liberty Petroleum Corp.,
· An increase in the number of authorized shares of Common Stock from 75,000,000 to 450,000,000.
· A new Article authorizing the Board of Directors to adopt, alter, amend or repeal the Bylaws of the Company, including any Bylaw adopted by the stockholders.
· A new Article stating that the Company may indemnify a director or officer of the Company to the fullest extent allowed by Nevada law, and may indemnify any other person for whom indemnification is allowed by Nevada law, and to purchase insurance for this purpose.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, True American Energy Corporation. All inter-company transactions and accounts have been eliminated.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash consists of cash on deposit with high quality major financial institutions, and to date the Company has not experienced losses on any of its balances. For purposes of the balance sheet and statement of cash flows, the Company considers all highly liquid instruments with original maturities of three months or less at the time of issuance to be cash equivalents. At various times during the year, the Company maintained cash balances in excess of FDIC insurable limits. The Company has not experienced any losses related to these deposits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash, notes receivables, accounts payable, and notes payable are carried at amounts which reasonably approximate their fair value due to the short-term nature of these amounts or due to variable rates of interest which are consistent with market rates. No adjustments have been made in the current period.
BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic and diluted net loss per share calculations are calculated on the basis of the weighted average number of common shares outstanding during the year. The per share amounts include the dilutive effect of common stock equivalents in years with net loss. Basic and diluted loss per share is the same due to the anti-dilutive nature of potential common stock equivalents.
ENVIRONMENTAL COSTS
The Company is currently engaged in oil and natural gas exploration activities and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures as they relate to the drilling of oil and natural gas wells and the operation thereof. In the Company's acquisition of existing or previously drilled well bores, the Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to any environmental cleanup or restoration, the liability to cure such a violation could fall upon the Company. No claim has been made, nor is the Company aware of any liability, which the Company may have, as it relates to any environmental cleanup, restoration or the violation of any rules or regulations relating thereto.
ASSET RETIREMENT OBLIGATIONS
The Company accounts for asset retirement obligations in accordance with ASC 410-20, Accounting for Asset Retirement Obligations. The asset retirement obligations represent the estimated present value of the amounts expected to be incurred to plug, abandon, and re-mediate the producing properties at the end of their productive lives, in accordance with state laws, as well as the estimated costs associated with the reclamation of the surrounding property. The Company determines the asset retirement obligations by calculating the present value of estimated cash flows related to the liability. The asset retirement obligations are recorded as a liability at the estimated present value as of the asset’s inception, with an offsetting increase to producing properties.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain.
STOCK BASED COMPENSATION
We account for stock-based payments using the fair value method in accordance with the provisions of ASC 718, Compensation - Stock Compensation , which requires the measurement and recognition of compensation expense for all share-based payments based on estimated fair value. Equity-classified share and warrant awards are measured at the grant date based on fair value. Common stock and warrants issued are valued at the estimated fair market value.
OIL AND GAS PROPERTIES
The Company follows the full cost accounting method to account for oil and gas properties, whereby costs incurred in the acquisition, exploration and development of oil and gas reserves are capitalized. Such costs include lease acquisition, geological and geophysical activities, rentals on non-producing leases, drilling, completing and equipping of oil and gas wells and administrative costs directly attributable to those activities and asset retirement costs. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized to income.
The capitalized costs of oil and gas properties, excluding unevaluated and unproved properties, are amortized using the units-of-production method based on estimated proved recoverable oil and gas reserves. Amortization of unevaluated and unproved property costs begins when the properties become proved or their values become impaired. Impairment of unevaluated and unproved prospects is assessed periodically based on a variety of factors, including management’s intention with regard to future exploration and development of individually significant properties and the ability of the Company to obtain funds to finance such exploration and development. In the course of preparing each property for use, improvements were made to the property.
EXPLORATION STAGE COMPANY
The Company complies with Financial Accounting Standards Codification (“ASC”) 915 and Securities and Exchange Commission Act Guide 7 for its characterization of the Company as an exploration stage enterprise.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Management does not anticipate that the recently issued but not yet effective accounting pronouncements will materially impact the Company’s financial condition.
Note 2 Related Party Transactions
In February 2010, the Company agreed to pay director fees of $8,500 per month to Diamante Services Ltd. in exchange for Mr. Alvaro Vollmers’ services as director of the Company. During the years ended October 31, 2013 and 2012 the Company paid a total of $102,000 for consulting services provided by Mr. Vollmers. As of October 31, 2013, the Company owed $17,000 to Diamante Services Ltd., which is recorded as accounts payable in the accompanying consolidated financial statements.
During the year ended October 31, 2013, Mr. Vollmers paid certain Company expenses in the amount of $61,660, which were reimbursed by the Company.
Note 3 Common Stock
On June 28, 2012, the Company completed a private placement of 1,176,471 Units to New World consisting of one share of the Company’s Common Stock and a warrant to purchase one share of the Company’s Common Stock at a price of $0.27 per share for a period of three years from the date of issuance of the Units. Gross proceeds from the sale of the Units were $200,000. The relative fair market value of the warrant on the date of issuance was $93,500. These shares were issued on December 28, 2012.
On December 28, 2012, the Company issued 25,000 shares of Common Stock to each of James E. Melland and Alfred H. Pekarek for serving on the Company’s Advisory Board. The aggregate fair market value of those shares was $2,000 on the date of grant.
On December 28, 2012, the Company issued 100,000 shares of Common Stock to Vincent R. Ramirez, as compensation for consulting services. The shares were authorized for issuance during the year ended October 31, 2012.
On June 3, 2013, the Company issued 100,000 shares of Common Stock to Vincent R. Ramirez, as compensation for consulting services. The grant date of these shares was April 12, 2013. The aggregate fair market value of those shares was $1,531 on the date of grant.
On June 3, 2013, the Company issued 25,000 shares of Common Stock to each of James E. Melland and Alfred H. Pekarek for serving on the Company’s Advisory Board. The fair market value of the total shares on the grant date was $1,000.
None of the securities issued in transactions described in this Note 3 to the Financial Statements were registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and accordingly will be subject to all applicable restrictions on sale under such laws.
A summary of warrant activity for the year ended October 31, 2013 is presented below:
Note 4 Income Taxes
The Company has tax losses which may be applied against future taxable income. The Company’s tax rate is 34%. The potential tax benefits arising from these loss carryforwards expire beginning in 2028 and are offset by a valuation allowance due to the uncertainty of profitable operations in the future. The net operating loss carryforward was approximately $3,144,000 and $2,828,000 at October 31, 2013 and 2012, respectively. The change in the valuation allowance in each of the periods ending October 31, 2013 and 2012 were $107,300 and $685,100, respectively. The significant components of the deferred tax asset as of October 31, 2013 and 2012 are as follows:
Note 5 Going Concern
These financial statements have been prepared on a going concern basis, which implies American Liberty Petroleum Corp. will continue to meet its obligations and continue its operations for the next fiscal year. Realization value may be substantially different from carrying values as shown and 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 American Liberty Petroleum Corp. be unable to continue as a going concern. As of October 31, 2013, American Liberty Petroleum Corp has not generated revenues and has accumulated losses of $3,143,159 since inception. The continuation of American Liberty Petroleum Corp. as a going concern is dependent upon the continued financial support from its shareholders, the ability of American Liberty Petroleum Corp. to obtain necessary equity financing to continue operations, and the attainment of profitable operations.
There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through private placements, public offerings and/or bank financings necessary to support the Company’s working capital requirements. To the extent that funds generated from any private placements, public offerings and/or bank financings are insufficient to support the Company’s working capital requirements, the Company will have to raise additional working capital from alternative financing sources. No assurance can be given that alternative financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, then the Company may not be able to continue its operations.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 6 Oil and Gas Properties
Loss on disposition of Oil and Gas Properties
During 2012, the Company sold its ownership interest in its Cortez and Gabbs leases to Desert Discoveries in exchange for a 2% overriding royalty interest in the lease should there be any future revenues derived from the property. The Company had determined that it did not wish to continue funding this project, as it is not sure if the project will be economically viable in the future. As of October 31, 2012, the Company could not assign a value on this lease, as there was insufficient information to be able to do so. Accordingly, in October 2012, the Company impaired value of the properties. The amount written off was $1,423,439.
Note 7 Subsequent Event
In January 2014, the Company appointed new directors and officers and the previous sole director and Chief Executive Officer of the Company resigned from his positions.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed and submitted under the Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that are filed under the Exchange Act is accumulated and communicated to management, including the principal executive officer, as appropriate to allow timely decisions regarding required disclosure. Under the supervision of and with the participation of its executive officer, the Company has evaluated the effectiveness of its disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this Annual Report. Based on that evaluation, the sole executive officer of the Company has concluded that, as of the end of the period covered in this Annual Report, these disclosure controls and procedures were not effective.
Internal Control over Financial Reporting
Management’s Annual Report on Internal Control of Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the SEC, internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of the end of its most recent fiscal year, the Company’s management assessed the effectiveness of its internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and SEC guidance on conducting such assessments. Based on that evaluation, management concluded that, as of October 31, 2013, such internal control over financial reporting was not effective.
Attestation Report of the Registered Accounting Firm
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to Rule 308(b) of Regulation S-K, which permits the Company to provide only management’s report in this Annual Report.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the year ended October 31, 2013 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. There was a change in management effective January 2014 as disclosed in the accompanying consolidated financial statements.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The Company’s executive officer, director and his age and titles as of October 31, 2013, are as follows:
Alvaro Vollmers is the sole director, President, Secretary and Treasurer. Mr. Vollmers was appointed to the board of directors and was appointed President, Treasurer and Secretary of the Company on January 4, 2010. Since April 2009, Mr. Vollmers has served as President and CEO of Bald Eagle Energy, Inc., a Nevada corporation (“Bald Eagle”), which is traded in the pink sheets and has been engaged in the acquisition, exploration and development of oil and natural gas properties and prospects. In addition, Mr. Vollmers has served as Bald Eagle’s CFO since March 2008 and has been a member of its board of directors since April 1, 2008. Mr. Vollmers also served as the sole officer and director of Keyser Resources, Inc. from November 2010 to March 2011. Since July 2007, Mr. Vollmers has acted as an independent consultant for various businesses. From July 2006 to July 2007, Mr. Vollmers served as manager in charge of marine and aviation insurance at Pacifico Seguros, an insurance company based in Peru. From August 2004 to July 2006, Mr. Vollmers worked as a project management consultant, project manager and project management supervisor at the Ministry of Economy and Finance for the Republic of Peru. His tasks included the supervision of two project managers who were in charge of the financial and operation management of various multi-sector technical assistance projects. These projects were partially financed by the World Bank, the Inter-American Development Bank and the Japan Social Development Fund. Mr. Vollmers holds a Master of Business Administration degree from the London Business School. The Company believes Mr. Vollmers’ qualifications to serve on its board of directors include his extensive business experience. Mr. Vollmers has not been involved in any legal proceeding, as that term is defined in Rule 401(f) of Regulation S-K.
In January 2014, Mr. Hunter M.A. Carr, Mr. Robert C. Rhodes and Mr. Steven M. Plumb were elected to serve on the Board of Directors of the Company (the Board) and Mr. Volmers resigned from his positions on the Board and as President, Secretary and Treasurer. Mr. Carr was elected to serve as Chairman of the Board, Mr. Rhodes was elected to serve as President and Chief Executive Officer and Mr. Plumb was elected to serve as Chief Financial Officer, Vice President of Finance, Secretary and Treasurer.
Committees of the Board of Directors
The Company does not presently have a separately designated audit committee, compensation committee, nominating committee, executive committee or any other committees of its Board of Directors. As such, the sole director acts in those capacities.
Audit Committee Financial Expert
Mr. Vollmers is the sole director of the Company and does not qualify as an “audit committee financial expert.” The Company believes that the cost related to retaining such a financial expert at this time is prohibitive, given its current operating and financial condition. Further, because the Company is in the development stage of its business operations, it believes the services of an audit committee financial expert are not warranted at this time.
Code of Ethics
The Company has not yet adopted a code of ethics as defined by applicable rules of the SEC. The Company has only one director and executive officer, and no employees. The Company anticipates that it will adopt a Code of Ethics when appropriate for the Company as it hires additional employees, obtains additional officers and directors, and begins operations.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the officers, directors, and persons who beneficially own more than 10% of the Company’s common stock to file reports of securities ownership and changes in such ownership with the SEC. Officers, directors and greater than 10% beneficial owners are also required by rules promulgated by the SEC to furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the Company, or written representations that no filings were required, the Company believes that during the fiscal year ended October 31, 2013, all filings required under Section 16(a) have been timely filed, except that it appears from our review that New World and John Rhoden, each of whom beneficially own more than 10% of our common stock, have not filed a Form 3 reflecting such ownership position.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
(1)
Represents the payment of $8,500 per month for service as President, Treasurer, Secretary and the sole director of the Company.
In January 2014, Mr. Hunter M.A. Carr, Mr. Robert C. Rhodes and Mr. Steven M. Plumb were elected to serve on the Board of Directors of the Company (the Board) and Mr. Vollmers resigned from his positions on the Board and as President, Secretary and Treasurer. Mr. Carr was elected to serve as Chairman of the Board, Mr. Rhodes was elected to serve as President and Chief Executive Officer and Mr. Plumb was elected to serve as Chief Financial Officer, Vice President of Finance, Secretary and Treasurer.
Outstanding Equity Awards at Fiscal Year End
As at October 31, 2013, the Company did not have any option, stock and equity incentive plan awards for Mr. Vollmers.
Director Compensation
Diamante Services Ltd. received $8,500 per month during the fiscal years ended October 31, 2013 and 2012 for the services provided by Mr. Vollmers as a director of the Company. The Company has no other standard arrangement in place or currently contemplated to compensate the Company’s director for his service as a director.
Employment Contracts
The Company has no written employment contracts, termination of employment or change-in-control arrangements with any of its executive officers or directors as of the fiscal year ended October 31, 2013.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information concerning the number of shares of the Company’s common stock owned beneficially as of October 31, 2013 by: (i) each person (including any group) known to the Company to own more than five percent of any class of its voting securities; (ii) each of its directors; (iii) each of its named executive officers; and (iv) the executive officers and directors as a group. Shares of common stock relating to options, warrants or convertible securities currently exercisable, or exercisable within 60 days of January 31, 2013 are deemed outstanding for computing the percentage of the person beneficially owning such securities but are not deemed outstanding for computing the percentage of any other person. Except as otherwise indicated, each person or entity named in the table has sole voting and investment power with respect to all shares of the Company’s common stock shown as beneficially owned, subject to applicable community property laws.
Equity Compensation Plans
The Company has no equity compensation plans with its executive officer and director as of the fiscal year ended October 31, 2013.
Change of Control
The Company is not aware of any arrangement that might result in a change in control in the future.
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Transactions with Related Persons
The following is a description of transactions since November 1, 2012 to which the Company has been a party in which the amount involved exceed or will exceed $120,000 and in which any of the person who serves as our director and executive officer or with any beneficial owners of more than 5% of our common stock, or entities affiliated with them, had or will have a director or indirect material interest.
On February 2, 2012, the Company completed a private placement of 300,000 Units to New World Petroleum Investments (“New World”) consisting of one share of the Company’s Common Stock and a warrant to purchase one share of the Company’s Common Stock at a price of $0.65 per share for a period of three years from the date of issuance of the Units. The gross proceeds from the issuance of the Units were $150,000. The relative fair market value of the warrant on the date of issuance was $75,000. These shares were issued on February 2, 2012.
On April 23, 2012, the Company completed a private placement of 198,413 Units to New World consisting of one share of the Company’s Common Stock and a warrant to purchase one share of the Company’s Common Stock at a price of $1.89 per share for a period of three years from the date of issuance of the Units. The gross proceeds from the issuance of the Unites were $250,000. The relative fair market value of the warrant on the date of issuance was $131,925. These shares were issued on May 2, 2012.
On June 28, 2012, the Company completed a private placement of 1,176,471 Units to New World consisting of one share of the Company’s Common Stock and a warrant to purchase one share of the Company’s Common Stock at a price of $0.27 per share for a period of three years from the date of issuance of the Units. Gross proceeds from the sale of the Units were $200,000. The relative fair market value of the warrant on the date of issuance was $93,500. These shares were issued on December 28, 2012.
Director Independence
Quotations for the Company’s common stock are entered on the Over-the-Counter Bulletin Board inter-dealer quotation system, which does not have director independence requirements. For purposes of determining director independence, the Company applied the definitions set out in NASDAQ Rule 4200(a)(15). Under NASDAQ Rule 4200(a)(15), a director is not considered to be independent if he or she is also an executive officer or employee of the corporation. As a result, the Company does not have any independent directors. During the fiscal year ended October 31, 2013, Mr. Vollmers acted as the Company’s director and principal executive officer.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The aggregate fees billed for the fiscal years ended October 31, 2013 and 2012 for professional services rendered by the principal accountant for (1) the audit of its annual financial statements and review of financial statements included in Form 10-Q (“Audit Fees”), (2) assurance and related services provided that are reasonably related to the audit (“Audit-Related Fees”), (3) tax compliance, advice, and planning (“Tax Fees”), and (iv) other products or services provided (“Other Fees”).
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as part of this Annual Report:
1.
Financial Statements - The following consolidated financial statements of the Company are contained in Item 8 of this Form 10-K:
•
Report of Independent Registered Public Accountant
•
Consolidated Balance Sheets as of October 31, 2013 and 2012
•
Consolidated Statements of Operations - For the years ended October 31, 2013 and 2012 and from inception (October 16, 2008) through October 31, 2013
•
Consolidated Statements of Shareholders’ Equity (Deficit) - From inception (October 16, 2008) through October 31, 2013
•
Consolidated Statements of Cash Flows - For the years ended October 31, 2013 and 2012 and from inception (October 16, 2008) through October 31, 2013
•
Notes to the Consolidated Financial Statements
2.
Financial Statement Schedules were omitted, as they are not required or are not applicable, or the required information is included in the Financial Statements.
3.
Exhibits - The following exhibits are filed with this report or are incorporated herein by reference to a prior filing, in accordance with Rule 12b-32 under the Exchange Act.
Exhibit
Number
Description of Exhibits
3.1
Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Current Report on Form 8-K filed on May 24, 2010)
3.2
Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Annual Report on Form 10-K filed on February 16, 2010)
10.1
Option Agreement dated May 11, 2010 by and between the Company and Desert Discoveries, LLC (incorporated by reference to Current Report on Form 8-K filed on May 17, 2010)
10.2
First Amendment to Option Agreement dated October 23, 2010 by and between the Company and Desert Discoveries, LLC (incorporated by reference to Current Report on Form 8-K filed on October 26, 2010)
10.3
Second Amendment to Option Agreement dated February 11, 2011 by and between the Company and Desert Discoveries, LLC (incorporated by reference to Current Report on Form 8-K filed on March 28, 2011)
10.4
Promissory Note executed on December 6, 2010 by the Company, as maker, for the benefit of Keyser Resources, Inc., as payee (incorporated by reference to Current Report on Form 8-K filed on December 9, 2010)
10.5
Promissory Note executed on December 9, 2010 by the Company, as maker, for the benefit of Keyser Resources, Inc., as payee (incorporated by reference to Current Report on Form 8-K filed on January 11, 2011)
10.6
Third Amendment to Option Agreement dated June 9, 2011 by and between the Company and Desert Discoveries, LLC (Incorporated by reference to the Company’s Quarterly Report on Form 10Q filed on June 20, 2011).
10.7
Operating Agreement dated August 2, 2011 by and among the Company, Independence Drilling, LLC, Desert Discoveries, LLC, and Edward Traub (Incorporated by reference to the Company’s Quarterly Report on Form 10Q filed on September 19, 2011).
10.8
Operating Agreement dated August 2, 2011 by and among the Company, Independence Drilling, LLC, Desert Discoveries, LLC, Cortez Exploration, LLC, Punto De Luz, LLC and Edward Traub (Incorporated by reference to the Company’s Quarterly Report on Form 10Q filed on September 19, 2011).
21.1
List of Subsidiaries of the Company (incorporated by reference to Annual Report on Form 10-K filed on February 15, 2011)
31.1
Certification of Chief Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on February 12, 2014.