UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014.
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
___ to
.
Commission file number: 000-31390
ALLIED RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Nevada
98-0187744
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
1403 East 900 South, Salt Lake City, Utah 84105
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (801) 582-9609
Securities registered under Section 12(b) of the Act: none.
Securities registered under Section 12(g) of the Act: common stock (title of class), $0.001 par value.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The aggregate market value of the registrant's common stock, $0.001 par value (the only class of voting stock), held by
non-affiliates (3,573,011 shares) was approximately $464,491 based on the average closing bid and ask prices ($0.13) for the
common stock on April 14, 2015.
At April 15, 2015, the number of shares outstanding of the registrant's common stock, $0.001 par value (the only class of voting
stock), was 5,653,011.
1
TABLE OF CONTENTS
PART I
Business
3
Risk Factors
13
Unresolved Staff Comments
16
Properties
16
Legal Proceedings
19
Mine Safety Disclosures
19
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
20
Equity Securities
Selected Financial Data
21
Management's Discussion and Analysis of Financial Condition and Results of Operations
21
Quantitative and Qualitative Disclosures about Market Risk
27
Financial Statements and Supplementary Data
27
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
28
Controls and Procedures
28
Other Information
29
PART III
Directors, Executive Officers, and Corporate Governance
30
Executive Compensation
34
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
36
Matters
Certain Relationships and Related Transactions, and Director Independence
36
Principal Accountant Fees and Services
37
PART IV
Exhibits, Financial Statement Schedules
38
39
2
PART I
ITEM 1.
As used herein the terms “Allied,” “we,” “our,” “us,” refer to Allied Resources, Inc., and our
predecessors, unless the context indicates otherwise.
Corporate History
Allied was incorporated as “General Allied Oil and Gas Co” on April 15, 1979 in West Virginia, which
name was changed to “Allied Resources, Inc.” on August 12, 1998. On February 26, 2002, we incorporated
“Allied Resources, Inc.” in Nevada to merge the West Virginia entity with the Nevada entity. The merger
was completed on April 5, 2002.
Allied’s principal place of business is located at 1403 East 900 South, Salt Lake City, Utah, 84105. Our
telephone number is (801) 582-9609. Our registered statutory office is located at JAD Communications,
LLC., 5209 West Gowan Road, Las Vegas, Nevada 89130.
Allied trades on the Over the Counter Bulletin Board under the symbol “ALOD”.
Allied
Allied is an independent oil and natural gas producer involved in the exploration, development, production
and sale of oil and gas derived from properties located in Calhoun and Ritchie Counties, West Virginia, and
Goliad, Edwards and Jackson Counties, Texas.
West Virginia Well Information
Allied owns varying interests in a total of 145 wells in West Virginia on several leases held by an
independent operator. Some leases contain multiple wells. All the wells in which we have an interest are
situated on developed acreage spread over 3,400 acres in Ritchie and Calhoun Counties. Depth of the
producing intervals varies from 1,730 ft to 5,472 ft. Allied believes that operating in West Virginia has
certain advantages over other locations, including:
§ relatively inexpensive drilling and completion operations, and
§ the absence of poisonous gas often associated with oil and gas production.
Many of our wells are situated on the same leases and as such share production equipment in order to
minimize lease operating costs.
Our working interest is defined as interest in oil and gas that includes responsibility for all drilling,
developing, and operating costs varying from 18.75% to 75%. Our net revenue interest is defined as that
portion of oil and gas production revenue after deduction of royalties, varying from 15.00% to 65.625%.
The distribution of our interests in West Virginia oil and gas leases is detailed below:
3
West Virginia Oil and Gas Leases
Well Name(s)
% Working Interest
% Net Revenue Interest
Anderson
75
63.5742
Batson
51.5625
45.1172
Britton
75
63.28125
B. Rutherford
75
65.625
Cokely 582
75
63.5742
Cokely 633-654
75
60.9375
Conrad
75
61.5234
Deem
75
63.5742
E. Goff
75
58.8867
Jay Goff
65.625
55.3709
John Goff
60.9375
51.416
Fire Snyder
75
61.5732
GT Sommerville
75
65.625
Gus Bee
75
63.5742
Foster
70.3125
52.7344
Kennedy
75
63.5742
Law
75
63.5742
Leeson
75
65.625
Mullenix
33.984
27.12
Wellings
75
61.5234
Wellings 1A
63.9637
55.9682
Patton
75
63.5942
Riddle
75
65.625
Richards
75
63.5742
A. J. Scott
37.5
32.8125
Spurgeon
75
63.5742
Stanley 2 & 3
18.75
15.00
Stanley 583
75
63.5742
Summers 2
75
63.28125
Sutton
72.6562
55.0593
Taylor Carr
70.3125
54.9316
Toothman
75
65.625
Vincent 20 C
75
65.625
Vincent 25 C
75
65.625
Vincent 35 C
75
65.625
Vincent 41 C
75
65.625
V. Zinn
75
65.625
Baker Baughman
75
65.625
Baker Baughman 81
75
65.625
Bollinger
75
60.9375
Gill
75
65.625
Gill 3
50
43.75
Haddox
75
65.625
Mills
75
65.625
Sweet 1 & 2
75
65.625
Sweet 3
50
43.75
Watson
75
65.625
Watson 85
75
65.625
Watson 86
75
65.625
Watson 6-87
75
65.625
Wolfe
75
56.25
Browne 1
75
65.625
4
West Virginia Operator
Our West Virginia wells are maintained and operated by Allstate Energy Corporation (“Allstate”), a local
operator, under the terms of an operating agreement. Allstate maintains an interest in each of our wells.
The terms of the operating agreement, as amended, grant Allstate the exclusive right to conduct operations
in respect to our interests in our wells in exchange for a monthly operating fee for each well and any other
costs incurred in normal operation of the wells. Title to all machinery, equipment, or other property
attached to the wells under the operating agreement, as amended, belongs to each party in proportion to its
interest in each well, as does any amount recovered as the result of salvaging machinery or equipment from
the wells. Under the operating agreement, as amended, Allstate is permitted to make capital expenditures on
the wells up to $5,000 without notifying Allied in advance of the expense. However, notice of amounts to
be spent over $5,000 must be provided to us prior to expenditure for our approval if we own a majority
interest in the specific well. Likewise, the abandonment of wells must be approved by the party holding a
majority interest in the specific well to be abandoned. The operating agreement, as amended, further
prohibits us from selecting an alternative operator of the wells unless we are prepared to purchase Allstate’s
interest in each specific well at fair market value. Likewise, we cannot sell our interest in any of the wells
unless we first offer to sell such interests to Allstate on the same terms as are proposed for a third party
purchaser. The surrender of leases under the operating agreement, as amended, can only be accomplished in
the event that both Allied and Allstate consent to such surrender.
Allstate established, pursuant to the operating agreement, as amended, an interest bearing escrow account,
whereby it has withheld up to 25% of the net income on each of our wells up to $5,000, to be used for
capital improvement of the wells or if necessary plugging. The escrow account is currently fully funded to
the extent provided by the operating agreement.
West Virginia Acquisitions
Allied’s interests in our West Virginia oil and gas properties are the direct result of our relationship with
Allstate. The majority of our West Virginia oil and gas interests, approximately 90 wells, were acquired as
part of the Ashland Properties acquisition. Allstate prepared a bid package that was presented to Ashland
Exploration, Inc., the seller of the wells, for consideration in competition with several other bidders for the
properties. Allstate submitted the bid under the pretext that, should it be successful in its bid, Allied would
participate in a shared interest in the acquisition. Allied’s other interests in wells outside of the Ashland
Properties were the result of agreeing to a percentage interest through Allstate farm out arrangements,
individual well/lease assignments, and drilling agreements spanning the time period from 1981 to 2002. We
were not furnished with any engineering reports prior to purchasing interests in our oil and gas properties.
Texas Well Information
Allied owns varying interests in a total of 10 wells in Texas on four leases held by independent operators.
All the wells in which we have an interest are situated on developed acreage spread over 2,510 acres in
Goliad, Edwards and Jackson Counties. Depth of the producing intervals varies from 7,600 ft to 9,600 ft.
Our working interest is defined as interest in oil and gas that includes responsibility for all drilling,
developing, and operating costs varying from 3.73% to 21%. Our net revenue interest is defined as that
portion of oil and gas production revenue after deduction of royalties, varying from 3.9388% to 12.75%.
The distribution of our interests in Texas oil and gas leases is detailed below:
5
Texas Oil and Gas Leases
Well Name
% Working
% Net Revenue
Operator
Interest
Interest
Harper #2
5.4221
3.9388
Hankey Oil Company
Holman-Fagan 24-1
5.4375
4.2323
Marshall & Winston
Holman-Fagan 24-2
5.4375
4.2323
Marshall & Winston
Holman-Fagan 41-2
5.4375
4.2323
Marshall & Winston
Holman-Fagan 42-1
5.4375
4.2323
Marshall & Winston
Holman-Fagan 42-2
5.4375
4.2323
Marshall & Winston
Holman-Fagan 43-1
5.4375
4.2323
Marshall & Winston
Holman-Fagan 46-1
5.4375
4.2323
Marshall & Winston
Holman-Fagan 46-2
5.4375
4.2323
Marshall & Winston
Williams #1
3.73
2.68
Magnum Producing, LP
Brinkoeter #4
21.00
12.75
Marquee Corporation
Texas Operators
Each of our Texas acquisitions has a different operator. A brief description of the operators is as follows:
§ Hankey Oil Company of Houston, Texas, was founded in 1981. Since inception they focused their
efforts on the Texas Gulf Coast. Hankey utilizes a 3D geophysical workstation technology to develop
their drilling prospects.
§ Magnum Producing, LP of Corpus Christi, Texas, has been operating along South Texas and the Gulf
Coast since the mid-1980s. Magnum has 15 employees and operates approximately 150 wells.
§ Marquee Corporation of Houston, Texas, became involved in the oil and gas business in 1981.
Marquee has 4 full-time employees operating approximately 100 wells. Zinn Petroleum Co. is the
operating arm of the company.
§ Marshall & Winston, Inc. of Midland, Texas, began as a royalty company in 1928. Marshall currently
operates approximately 100 wells in and around the Midland area, and has 14 employees.
Texas Wells
On May 1, 2007, Allied acquired an interest in the Harper #2 well located within the Ramon Musquiz
Survey, A-29, Goliad, Texas from Spanish Moss Energy Company, LLC. The Harper #2 well is operated
by Hankey Oil Company and produces oil and gas from the Wilcox formation.
On August 1, 2007, Allied acquired interests in the ten properties located in Sections 24, 41, 42 and 46 of
the CCSD & RGNG RR Co. Survey, Edwards County, Texas from Rischco Energy, Inc. The acquisition
included an interest in the pipeline gathering system connected to five of the wells. The properties are
operated by Marshall & Winston, Inc. and produces oil and gas from the Frances Hill (Penn Lower) field in
the Canyon Sands formation. The Holman-Fagan 42-1 well was plugged and abandoned in 2012 due to
depletion and production of non-commercial quantities of natural gas.
On October 1, 2007, Allied acquired an interest in the Williams #1 well located within the John Alley
Survey, A-3, Jackson County, Texas from Benchmark Oil and Gas Company. The Williams #1 well is
operated by Magnum Producing, LP and produces oil and gas from the Wilcox formation.
6
On October 1, 2007, Allied acquired an interest in the Brinkoeter #4 well located within the V. Ramos
Survey, A-241, Goliad County, Texas from Tyner Exploration, Inc. and Clendon B. Caire. The Brinkoeter
#4 well is operated by Marquee Corporation and produces oil and gas from the Massive formation.
Allied’s oil and gas interests combined in West Virginia and in Texas in the aggregate produced on average
245 STBO and 7,983 MCFG per month in 2014.
Exploration, Development and Operations
The recent dramatic decline in oil prices has affected Allied’s business and will continue to do so should
current prices remain consistent or continue to decline. Nevertheless, Allied intends to continue to identify
non-operated oil and gas producing properties for purchase, acquire oil and gas leases that it will operate
and implement improved production efficiencies on existing wells. Our criteria for purchasing oil and gas
producing properties is defined by short term returns on investment, long term growth in revenue, and
development potential, while our criteria for acquiring oil and gas leases is predicated on a proven record of
historical production and our own capacity to operate any given field. The decrease in prices for oil and the
continuation of low natural gas prices is yet to increase the number of opportunities available to us due to
our relatively limited cash position and the general belief among those in the energy business that prices
will rebound in the near term stabilizing at $60-70 per barrel within the next 12 months.
We are further considering future prospects for the development of the virtually untapped Marcellus and
Utica shale formations that appear to underlie Allied’s oil and gas interests in West Virginia, particularly in
Ritchie County. The Marcellus and Utica shale structures that have formed under much of Pennsylvania,
Ohio, New York, West Virginia and adjacent states have become a major reservoir for hydrocarbon
recovery. Drilling by other operators in Ritchie County has indicated successful rates of recovery and our
own open hole well logs indicate the presence of potentially productive Marcellus shale at a depth of 6,000
feet varying in thickness from 50 – 60 feet. We have been approached by active operators in the area to
conduct potential joint development of this potential resource with the expectation that hydrocarbon
reserves meet the probable reserves criteria. However, since exploration of the Marcellus and Utica shale in
Ritchie County is relatively recent no oil or natural gas reserves underlying our interests have yet been
determined. We intend to conduct a probable reserve evaluation this year to value probable reserves.
Nevertheless, our future plans to develop these shale formations continue to be tempered by the high
risk/reward ratio of exploratory drilling in the near term based on anticipated pricing for oil and natural gas
over the next five years.
Competition
The exploration for and development and production of oil and gas is subject to intense competition. The
principal methods of competition in the industry for the acquisition of oil and gas leases are:
§ the payment of cash bonuses at the time of acquisition of leases,
§ delay rentals,
§ location damage supplement payments, and
§ stipulations requiring exploration and production commitments by the lessee.
Companies with greater financial resources, existing staff and labor forces, equipment for exploration, and
experience are in a better position than us to compete for such leases. In addition, our ability to market any
oil and gas which we might produce could be severely limited by our inability to compete with larger
companies operating in the same area, which may be willing or able to offer oil and gas at a lower price.
In addition, the availability of a ready market for oil and gas will depend upon numerous factors beyond our
control, including:
7
§ the extent of domestic production and imports of oil and gas,
§ proximity and capacity of pipelines,
§ the effect of federal and state regulation of oil and gas sales, and
§ environmental restrictions on exploration and usage of oil and gas prospects that will become even
more intense in the future.
Competition in West Virginia
Allied competes as a small independent against over five hundred other independent companies in West
Virginia, many with greater financial resources than those available to us. Operators such as Exxon, Shell
Oil, Conoco-Phillips and others considered major players in the oil and gas industry no longer operate any
significant interests in West Virginia. However, West Virginia hosts approximately 40 significant
independent operators including NiSource, Equitable, Energy Corporation of America, Cabot Oil and Gas,
and Dominion Appalachian with over 450 smaller operations with no single producer dominating the area.
Competition in Texas
Allied competes against thousands of other independent companies and several majors in Texas, many with
greater financial resources than those available to us. Major companies include Occidental Permian, Kinder
Morgan, Apache, Chevron, Conoco-Phillips, and BP America who operate across Texas. While major
companies do not dominate the areas in which we have interests, several of the counties do have significant
producers.
Several significant independent gas producers operate in Edwards County, including Newfield Exploration,
Dominion Oklahoma, and Range Production. Only a few oil producers operate in Edwards County. Our
Edwards County operator, Marshall & Winston, Inc., is one of the largest gas and oil producers in the
county.
Numerous significant independent oil and gas producers operate in Goliad County, including Petrohawk
Operating, Chesapeake Operating, T-C Oil, Ventex Operating, Charro Operating, and KCS Resources.
Several significant gas producers operate in Jackson County, including Tri-C Resources, Cypress E & P,
Jamex, Vintage Petroleum, and Cox & Perkins Exploration. There are several significant oil producers in
Jackson County, including Vintage Petroleum, Hilcorp Energy, Sue-Ann Operating, Premier Natural
Resources, and SE USA Operating.
We believe that our operations can successfully compete with those of independent companies in the near
term by focusing our efforts on minimizing corporate expenses, efficiently developing current lease
interests, acquiring producing oil and gas leases with an upside for future development, cautious
exploration activities based on current interests and a transition to operations for prospective acquisitions.
Marketability
The products sold by Allied, natural gas and crude oil, are commodities purchased by many distribution and
retail companies. Crude oil can be easily sold whenever it is produced subject to transportation cost. The
crude oil produced on our behalf is transported by truck from the collection points to the purchaser. Natural
gas on the other hand can be more difficult to sell since transportation from point of production to the
purchaser requires a pipeline. Most of our current gas production interests are transported by pipelines
owned by the purchasers. We own an interest in the pipeline gathering system connected to five of our wells
in Edwards County, Texas.
8
Allstate sells our natural gas production interest in West Virginia to three main purchasers, Dominion Field
Services, and Equitable Resources, and Mountaineer Gas Co. The gas is sold utilizing two different forms
of contracts. One, characterized as a fixed contract that determines a certain price for gas over a fixed period
of time, usually 90 days and a spot price contract, which markets the production to the purchaser willing to
pay the highest price for the production on a month to month basis at prices ranging from $1.00 per MCF
(fixed contract price) to $7.51 per MCF during the year ended December 31, 2014. Any gas production not
sold according to fixed gas purchase agreements is sold on the spot price market. Allstate has fixed
contracts with Dominion Field Services.
Allstate sells our oil production interest to West Virginia Oil Gathering at the market price on the day of
pick up. Prices for oil production ranged from $52 per bbl to $98.32 per bbl during the year ended
December 31, 2014.
Our independent Texas operators (Hankey, Marquee, and Magnum) sell our oil production to certain
purchasers including Gulfmark Energy (Hankey), Shell Trading Company (Magnum) and TEPCCO Crude
Oil LP (Marquee) at prices determined by base or spot pricing as a percentage of the oil index price. The
sale prices for Allied’s oil production interests in Texas during 2014 ranged from $101.17 per bbl to $54.23
per bbl over the period.
Natural gas and gas condensate is sold to Houston Energy Services Company LLC (Hankey), BML, Inc.,
and Enterprise Products Partners LP (Winston), Acock Operating Limited (Magnum) and dcpMidstream
LP at prices determined by the Houston Ship Channel price or spot pricing less pipeline carrying costs and
dehydration fees as applicable. The sale prices for Allied’s gas production in Texas fluctuated between
$3.08 per MCF and $6.18 per MCF in 2014.
Governmental Regulation of Exploration and Production
Oil and natural gas exploration, production and related operations are subject to extensive rules and
regulations promulgated by federal and state agencies. Operations, which sometimes occur on public lands,
may be subject to regulation by, among other state and federal agencies, the Bureau of Land Management,
the U.S. Army Corps of Engineers or the U.S. Forest Service. Failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on the oil and gas industry increases
our cost of doing business and affects our profitability. Since such rules and regulations are frequently
amended or interpreted differently by regulatory agencies, we are unable to accurately predict the future
cost or impact on the operators of our oil and gas wells in complying with such laws or ultimately what cost
or impact compliance or otherwise will have on Allied.
Oil and natural gas exploration and production operations are affected by state and federal regulation of oil
and gas production, federal regulation of gas sold in interstate and intrastate commerce, state and federal
regulations governing environmental quality and pollution control, state limits on allowable rates of
production by a well or pro-ration unit and the amount of oil and gas available for sale, state and federal
regulations governing the availability of adequate pipeline and other transportation and processing
facilities, and state and federal regulation governing the marketing of competitive fuels. For example, a
productive gas well may be “shut-in” because of an over-supply of gas or lack of an available gas pipeline
in the areas in which we may conduct operations. State and federal regulations generally are intended to
prevent waste of oil and gas, protect rights to produce oil and gas between owners in a common reservoir,
control the amount of oil and gas produced by assigning allowable rates of production and control
contamination of the environment. Pipelines are subject to the jurisdiction of various federal, state and local
agencies.
9
Many state authorities require permits for drilling operations, drilling bonds and reports concerning
operations, and impose other requirements relating to the exploration and production of oil and gas. Such
states also have ordinances, statutes, or regulations addressing conservation matters, including provisions
for the unitization or pooling of oil and gas properties, the regulation of spacing, plugging and abandonment
of such wells, and limitations establishing maximum rates of production from oil and gas wells. We are
aware that certain regulations in West Virginia and Texas do limit the activities of those operators
responsible for operating Allied’s oil and gas wells.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements and Labor Contracts
Allied currently operates under and holds no patents, trademarks, licenses, franchises, or concessions.
Allied is not subject to any labor contracts. Each of Allied’s interests are subject to royalty payments.
Environmental Regulation
The recent trend in environmental legislation and regulation has been generally toward stricter standards,
and this trend will likely continue. Allied does not presently anticipate that we will be required to expend
amounts relating to our oil and gas production operations that are material in relation to our total capital
expenditure program by reason of environmental laws and regulations. However, because such laws and
regulations are subject to interpretation by enforcement agencies and are frequently changed by legislative
bodies, Allied is unable to accurately predict the ultimate cost of such compliance for 2015.
Oil and gas production is subject to numerous laws and regulations governing the discharge of materials
into the environment or otherwise relating to environmental protection. These laws and regulations may
require the acquisition of a permit before drilling commences, restrict the types, quantities and
concentration of various substances that can be released into the environment in connection with drilling
and production activities, limit or prohibit drilling activities on certain lands lying within wilderness,
wetlands, and areas containing threatened and endangered plant and wildlife species, and impose
substantial liabilities for unauthorized pollution resulting from our operations.
The following environmental laws and regulatory programs appeared to be the most significant to Allied’s
operations in 2014, and are expected to continue to be significant in 2015:
Clean Water and Oil Pollution Regulatory Programs
The Federal Clean Water Act (“CWA”) regulates discharges of pollutants to surface waters. The discharge
of crude oil and petroleum products to surface waters also is precluded by the Oil Pollution Act (“OPA”).
Our operations are inherently subject to accidental spills and releases of crude oil and drilling fluids that
may give rise to liability to governmental entities or private parties under federal, state or local
environmental laws, as well as under common law. Minor spills occur from time to time during the normal
course of Allied’s production operations. Our independent operators maintain spill prevention control and
countermeasure plans (“SPCC plans”) for facilities that store large quantities of crude oil or petroleum
products to prevent the accidental discharge of these potential pollutants to surface waters where
applicable. As of December 31, 2014, we know of no investigative or remedial work required of our
independent operators by governmental agencies to address potential contamination by accidental spills or
discharges of crude oil or drilling fluids.
10
Clean Air Regulatory Programs
The operations of Allied’s independent operators are subject to the federal Clean Air Act (“CAA”), and
state implementing regulations. Among other things, the CAA requires all major sources of hazardous air
pollutants, as well as major sources of certain other criteria pollutants, to obtain operating permits, and in
some cases, construction permits. The permits must contain applicable Federal and state emission
limitations and standards as well as satisfy other statutory and regulatory requirements. The 1990
Amendments to the CAA also established new monitoring, reporting, and recordkeeping requirements to
provide a reasonable assurance of compliance with emission limitations and standards. Allied’s
independent operators obtain construction and operating permits for their compressor engines, and we are
not presently aware of any potential adverse claims in this regard.
Waste Disposal Regulatory Programs
The operations of Allied’s independent operators generate and result in the transportation and disposal of
large quantities of produced water and other wastes classified by EPA as “non-hazardous solid wastes”. The
EPA is currently considering the adoption of stricter disposal and clean-up standards for non-hazardous
solid wastes under the Resource Conservation and Recovery Act (“RCRA”). In some instances, EPA has
already required the cleanup of certain non-hazardous solid waste reclamation and disposal sites under
standards similar to those typically found only for hazardous waste disposal sites. It also is possible that
wastes that are currently classified as “non-hazardous” by EPA, including some wastes generated during
our drilling and production operations, may in the future be reclassified as “hazardous wastes”. Since
hazardous wastes require much more rigorous and costly treatment, storage, transportation and disposal
requirements, such changes in the interpretation and enforcement of the current waste disposal regulations
would result in significant increases in waste disposal expenditures incurred by Allied.
The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”)
CERCLA, also known as the “Superfund” law, imposes liability, without regard to fault or the legality of
the original conduct, on certain classes of persons who are considered to have caused or contributed to the
release or threatened release of a “hazardous substance” into the environment. Persons include the current
or past owner or operator of the disposal site or sites where the release occurred and companies that
transported disposed or arranged for the disposal of the hazardous substances under CERCLA. Persons so
defined may be subject to joint and several liability for the costs of cleaning up the hazardous substances
that have been released into the environment and for damages to natural resources. Allied is not presently
aware of any potential adverse claims in this regard.
West Virginia Division of Environmental Protection Office of Oil and Gas
The State of West Virginia has promulgated certain legislative rules pertaining to exploration, development
and production of oil and gas that are administered by the West Virginia Division of Environmental
Protection Office of Oil and Gas. The rules govern permitting for new drilling, inspection of wells, fiscal
responsibility of operators, bonding wells, the disposal of solid waste, water discharge, spill prevention,
liquid injection, waste disposal wells, schedules that determine the procedures for plugging and
abandonment of wells, reclamation, annual reports and compliance with state and federal environmental
protection laws. Allied believes that all wells in which we have an interest are operated by Allstate in a
manner that is in compliance with these rules.
11
The Railroad Commission of Texas, Oil and Gas Division
The Railroad Commission of Texas, through its Oil and Gas Division, works to prevent the waste of oil,
gas, and geothermal resources and to prevent the pollution of fresh water from oil and gas operations. The
division issues drilling permits and reviews and approves oil and gas well completions. It also regulates
underground injection of fluids in oil field operations, a program approved by the U.S. Environmental
Protection Agency under the Federal Safe Drinking Water Act. The division further oversees well plugging
operations, site remediation, underground hydrocarbon storage, and hazardous waste management. Allied
believes that all wells in which we have an interest are operated in a manner that is in compliance the
division.
Health and Safety Regulatory Programs
The operations of Allied’s independent operators are subject to regulations promulgated by the
Occupational Safety and Health Administration (“OSHA”) regarding worker and work place safety. We
have been assured that our independent operators currently provide health and safety training and
equipment to their employees and have adopted corporate policies and procedures to comply with OSHA’s
workplace safety standards.
Climate Change Legislation and Greenhouse Gas Regulation
Many studies over the past couple decades have indicated that emissions of certain gases contribute to
warming of the Earth’s atmosphere. In response to these studies, many nations have agreed to limit
emissions of “greenhouse gases” or “GHGs” pursuant to the United Nations Framework Convention on
Climate Change, and the “Kyoto Protocol.” Although the United States elected not to participate in the
Kyoto Protocol, several states have adopted legislation and regulations to reduce emissions of greenhouse
gases. Restrictions on emissions of methane or carbon dioxide that may be imposed in various nations and
states could adversely affect our operations and demand for our products.
The United States Supreme Court has ruled, in Massachusetts, et al. v. EPA, that the EPA abused its
discretion under the Clean Air Act by refusing to regulate carbon dioxide emissions from mobile sources.
As a result of the Supreme Court decision the EPA issued a finding that serves as the foundation under the
Clean Air Act to issue other rules that would result in federal greenhouse gas regulations and emissions
limits under the Clean Air Act, even without Congressional action. As part of this array of new regulations
the EPA also issued a GHG monitoring and reporting rule that requires certain parties, including
participants in the oil and natural gas industry, to monitor and report their GHG emissions, including
methane and carbon dioxide, to the EPA. These regulations may apply to our operations. The EPA has
proposed two other rules that would regulate GHGs, one of which would regulate GHGs from stationary
sources, and may affect sources in the oil and natural gas exploration and production industry and the
pipeline industry. The EPA’s finding, the greenhouse gas reporting rule, and the proposed rules to regulate
the emissions of greenhouse gases would result in federal regulation of carbon dioxide emissions and other
greenhouse gases, and may affect the outcome of other climate change lawsuits pending in United States
federal courts in a manner unfavorable to our industry.
Acts of Congress, particularly such as the “American Clean Energy and Security Act of 2009,” also known
as the “Waxman-Markey cap-and-trade legislation,” approved by the United States House of
Representatives on June 26, 2009, as well as the decisions of lower courts, large numbers of states, and
foreign governments which affect climate change regulation could have a material adverse effect on our
business, financial condition, and results of operations.
12
Exploration Activities
Allied spent no amounts on exploration activities during either of the last two fiscal years.
Employees
Allied has engaged its chief executive officer, Ruairidh Campbell, and one other support person, on a part
time basis. Mr. Campbell spends approximately 20 hours a week providing services to Allied. Our
independent operators are responsible for conducting oil and gas operations tied to our interests.
Management uses oil and gas consultants, attorneys, and accountants as necessary and does not plan to
engage any full-time employees in the near future.
Reports to Security Holders
Allied’s annual report contains audited financial statements. We are not required to deliver an annual report
to security holders and will not automatically deliver a copy of the annual report to our security holders
unless a request is made for such delivery. We file all of our required reports and other information with the
Securities and Exchange Commission (the “Commission”). The public may read and copy any materials
that are filed by Allied with the Commission at the Commission’s Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference
Room by calling the Commission at 1-800-SEC-0330. The statements and forms filed by us with the
Commission have also been filed electronically and are available for viewing or copy on the Commission
maintained Internet site that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission. The Internet address for this site can be
found at http://www.sec.gov.
ITEM 1A.
RISK FACTORS
Allied’s operations and securities are subject to a number of risks. Below we have identified and discussed
the material risks that we are likely to face. Should any of the following risks occur, they will adversely
affect our operations, business, financial condition and/or operating results as well as the future trading
price and/or the value of our securities.
Risks Related to Allied’s Business
We have a history of significant operating losses and realized a loss in the current period.
Since our inception in 1979, our expenses have often exceeded our income, resulting in losses and an
accumulated deficit of $7,367,366 at December 31, 2014. Over the twelve month period ended December
31, 2014, we recorded a net loss of $21,499 from operations and could continue to realize net losses due to
the dramatic decline in oil prices over the last half of 2014 and the continuation of weakness in natural gas
prices, the depletion of oil and gas resources, and production expenses. Future profitability will depend on
a rise in energy prices combined with our ability to increase production through exploration, development
or acquisition. Allied’s success in returning to profitability can in no way be assured.
13
Oil and natural gas prices are volatile. Any substantial decrease in prices would adversely affect our
financial results.
Allied’s future financial condition, results of operations and the carrying value of our oil and natural gas
properties depend primarily upon the prices we receive for oil and natural gas production. Oil and natural
gas prices historically have been volatile and are likely to continue to be volatile in the future. Allied’s cash
flow from operations is highly dependent on the prices we receive for oil and natural gas. This price
volatility also affects the amount of Allied’s cash flow available for capital expenditures and our ability to
borrow money or raise additional capital. The prices for oil and natural gas are subject to a variety of
additional factors that are beyond our control. These factors include:
§ the level of consumer demand for oil and natural gas;
§ the domestic and foreign supply of oil and natural gas;
§ the price of oil and natural gas;
§ domestic governmental regulations and taxes;
§ the price and availability of alternative fuel sources;
§ weather conditions;
§ market uncertainty; and
§ worldwide economic conditions.
These factors and the volatility of the energy markets generally make it extremely difficult to predict future
oil and natural gas price movements with any certainty. Declines in oil and natural gas prices will not only
reduce revenue and could affect the amount of oil and natural gas that Allied can produce economically.
Allied’s future performance depends on its ability to find or acquire additional oil or natural gas
reserves.
Unless Allied successfully replaces the reserves that it produces, defined reserves will decline, resulting in
a decrease in oil and natural gas production, that will produce lower revenues, in turn decreasing cash flows
from operations. Allied has historically obtained the majority of its reserves through acquisition. The
business of exploring for, developing or acquiring reserves is capital intensive. Allied may not be able to
obtain the necessary capital to acquire additional oil or natural gas reserves if cash flows from operations
are reduced, and access to external sources of capital is unavailable. Should Allied not make significant
capital expenditures to increase reserves it will not be able to maintain current production rates and
expenses will overtake revenue.
The results of our operations are wholly dependent on the production and maintenance efforts of
independent operators.
The operation and maintenance of our oil and natural gas operations is wholly dependent on independent
local operators. While the services provided by operators of our properties in the past have proven adequate
for the successful operation of our oil and natural gas wells, the fact that we are dependent on operations of
third parties to produce revenue from our assets could restrict our ability to continue generating a net profit
on operations.
Risks Related to Allied’s Stock
The market for our stock is limited and our stock price may be volatile.
The market for our common stock is limited due to low trading volumes and the small number of brokerage
firms acting as market makers. The average daily trading volume for our stock has varied significantly from
14
week to week and from month to month, and the trading volume often varies widely from day to day. Due to
these limitations there is volatility in the market price and tradability of our stock, which may cause our
shareholders difficulty in selling their shares in the market place.
Allied has not paid dividends to the shareholders of its common stock.
Allied has not paid any dividends to the shareholders of its common stock and has no intention of paying
dividends in the foreseeable future. Any future dividends would be at the discretion of our board of
directors and would depend on, among other things, future earnings, our operating and financial condition,
our capital requirements, and general business conditions.
Allied may require additional capital funding.
Allied may require additional funds, either through additional equity offerings or debt placements, in order
to expand our operations. Such additional capital may result in dilution to our current shareholders.
Further, our ability to meet short-term and long-term financial commitments will depend on future cash.
There can be no assurance that future income will generate sufficient funds to enable us to meet our
financial commitments.
If the market price of our common stock declines as the selling security holders sell their stock, selling
security holders or others may be encouraged to engage in short selling, depressing the market price.
The significant downward pressure on the price of the common stock as the selling security holders sell
material amounts of common stock could encourage short sales by the selling security holders or others.
Short selling is the selling of a security that the seller does not own, or any sale that is completed by the
delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at
a lower amount than the price at which they sold it short. Significant short selling of a company’s stock
creates an incentive for market participants to reduce the value of that company’s common stock. If a
significant market for short selling our common stock develops, the market price of our common stock
could be significantly depressed.
Allied’s shareholders may face significant restrictions on their stock.
Our common stock is subject to the “penny stock” rules adopted under section 15(g) of the Exchange Act.
The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock
Market or other national securities exchange and trades at less than $5.00 per share or that have tangible net
worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years).
These rules require, among other things, that brokers who trade penny stock to persons other than
“established customers” complete certain documentation, make suitability inquiries of investors and
provide investors with certain information concerning trading in the security, including a risk disclosure
document and quote information under certain circumstances. Many brokers have decided not to trade
penny stocks because of the requirements of the penny stock rules and, as a result, the number of
broker-dealers willing to act as market makers in such securities is limited. Since our securities are subject
to the penny stock rules, Allied’s shareholders will find it more difficult to dispose of its securities.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
15
Ritchie and Calhoun Counties, West Virginia
Allied currently realizes production in West Virginia from a total of 145 oil and gas wells with working
interests ranging from 18.75% to 75%, producing a combination of varying amounts of oil and gas.
Goliad, Edwards and Jackson Counties, Texas
Allied currently realizes production in Texas from a total of 10 oil and gas wells with working interests
ranging from 3.73% to 21% and net revenue interests varying from 2.68% to 12.75%, after deduction of
royalties, on four leases.
Annual Oil and Gas Production – West Virginia &Texas
2014
2013
2012
Natural Gas
95,799MCF
99,844 MCF
105,923 MCF
Oil
2,945 STB
2,839 STB
3,061 STB
Average production costs (VW)*
$2.26/MCFE
$2.55 /MCFE
$2.22 / MCFE
Average production costs (TX)*
$2.03/MCFE
$1.81 /MCFE
$2.78 / MCFE
* includes lifting costs, maintenance costs, and severance taxes
Productive Wells and Acreage
Ritchie and Calhoun Counties, West Virginia
Allied owns 145 gross wells and 101 net wells in West Virginia as of December 31, 2014. The wells are
located on 3,400 gross acres and approximately 2,377 net acres. Allied has no plans at this time to purchase
or drill additional wells in West Virginia.
Goliad, Edwards and Jackson Counties, Texas
Allied owns 10 gross wells and 0.83 net wells in Texas as of December 31, 2014. The wells are located on
2,510 gross acres and approximately 206.45 net acres. Allied has no plans at this time to purchase or drill
additional wells in Texas.
Drilling Activity
Allied has drilled no productive or dry exploratory or developmental wells in the last three fiscal years.
Present Activities
Allied is not in the process of drilling wells, installing waterfloods, performing pressure maintenance
operations, or performing any other related operations of material importance as of the date of this current
report on 10-K.
Delivery Commitments
Allied is not obligated to provide a fixed and determinable quantity of oil or gas in the near future under
existing contracts or agreements though its independent operators do have agreements for the delivery of
fixed and determinable quantities of natural gas products.
16
Undeveloped Acreage
All acreage on which Allied maintains an interest in oil and gas wells is to be considered developed acreage.
Undeveloped acreage is considered to be those lease acres on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities of oil and gas regardless of
whether or not such acreage contains proved reserves. Undeveloped acreage should not be confused with
undrilled acreage held by production under the terms of a lease.
Oil and Gas Reserves
Oil and gas reserves for our properties have been evaluated as of December 31, 2014 and 2013 by Sure
Engineering LLC. Sure Engineering LLC. was founded in 1997 by Dr. Nafi Onat to provide a variety of
engineering services to the oil and gas industry including the design of well completions and optimizations,
the preparation of reserve evaluations, secondary recovery plans, well testing and interpretation. Dr. Onat
obtained a Bachelor of Science and Master of Science Degrees in Petroleum Engineering from the Middle
East Technical University in Ankara, Turkey and a Doctorate (PhD) in Petroleum Engineering from the
Colorado School of Mines in Golden, Colorado. Since obtaining his PhD, Dr. Onat has worked within the
oil and gas industry for over thirty years.
Dr. H. I. Bilgesu, who works as a consulting engineer for Sure Engineering, LLC has over 16 years
experience in oil and gas property evaluation. Dr. Bilgesu obtained a B.Sc. in Petroleum Engineering from
Middle East Technical University, a M.Sc. in Chemical and Petroleum Engineering from Colorado School
of Mines and a Ph.D. in Petroleum Engineering from Pennsylvania State University. Dr. Bilgesu is a
Registered Professional Engineer in the State of Colorado.
All information provided by Allied to Sure Engineering LLC for the purpose of preparing its reserve
evaluation was received from those independent operators responsible for managing Allied’s oil and gas
interests. Information received was first reviewed by management for reasonableness and accuracy, to the
extent that such review was practicable having been obtained from third parties, to ensure that such
information might be relied upon by Dr. Onat in compiling his reserve calculations. Reserve calculations by
independent petroleum engineers involve the estimation of future net recoverable reserves of oil and gas
and the timing and amount of future net revenues to be received therefrom. Those estimates are based on
numerous factors, many of which are variable and uncertain. Reserve estimators are required to make
numerous judgments based upon professional training, experience, and educational background. The
extent and significance of the judgments in them are sufficient to render reserve estimates inherently
imprecise. Since reserve determinations involve estimates of future events, actual production, revenues
and operating expenses may not occur as estimated. Accordingly, it is common for the actual production
and revenues later received to vary from earlier estimates. Estimates made in the first few years of
production from a property are generally not as reliable as later estimates based on a longer production
history. Reserve estimates based upon volumetric analysis are inherently less reliable than those based on
lengthy production history. Also, potentially productive gas wells may not generate revenue immediately
due to lack of pipeline connections and potential development wells may have to be abandoned due to
unsuccessful completion techniques. Hence, reserve estimates may vary from year to year.
Oil reserves show a decrease of 1,973 BO from that reported as of December 31, 2013 and natural gas
reserves show a decrease of 52,005 MCF over that reported as of December 31, 2013. The reason for the
decrease in oil and natural gas reserves can be attributed to depletion and the dramatic decrease in oil prices
in tandem with continued weakness in natural gas prices, which attributes collectively have decreased the
producing lives of marginal wells.
17
The following table set forth the estimated proved developed oil and gas reserves and proved undeveloped
oil and gas reserves of our properties for the years ended December 31, 2014 and 2013.
Reserve Quantity Information (Unaudited)
The estimated quantities of proved oil and gas reserves disclosed in the table below are based on appraisal
of the proved developed properties by Sure Engineering, LLC. Such estimates are inherently imprecise and
may be subject to substantial revisions. All quantities shown in the table are proved developed reserves and
are located within the United States.
Proved Developed Reserves
Years Ended December 31,
2014
2013
Oil (bbls)
Gas (mcf)
Oil (bbls)
Gas (mcf)
Proved developed and undeveloped reserves:
Beginning of year
26,434 1,438,888
27,557 1,017,803
Revision in previous estimates
972
43,794
1,716
520,929
Discoveries and extension
-
-
-
-
Purchase in place
-
-
-
-
Production
(2,945)
(95,799)
(2,839)
(99,844)
Sales in place
_____-
______-
-
-
End of year
24,461 1,386,883
26,434 1,438,888
* all of Allied’s reserves are proved developed reserves.
Oil and Gas Titles
As is customary in the oil and gas industry, we perform only a perfunctory title examination at the time of
acquisition of undeveloped properties. Prior to the commencement of drilling, in most cases, and in any
event where we are the operator, a title examination is conducted and significant defects remedied before
proceeding with operations. We believe that the title to our properties is generally acceptable to a
reasonably prudent operator in the oil and gas industry. The properties owned by us are subject to royalty,
overriding royalty, and other interests customary in the industry, liens incidental to operating agreements,
current taxes and other burdens, minor encumbrances, easements, and restrictions. We do not believe that
any of these burdens materially detract from the value of the properties or will materially interfere with their
use in the operation of our business.
18
Office Facilities
Allied maintains office space owned by Ruairidh Campbell, Allied’s chief executive officer, for which
Allied pays $1,000 per month on a month to month basis. This address is 1403 East 900 South, Salt Lake
City, Utah 84105 and the phone number is (801) 582-9609. Allied believes that its current office space will
be adequate for the foreseeable future.
ITEM 3.
LEGAL PROCEEDINGS
Allied is currently not a party to any legal proceedings.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
19
PART II
ITEM 5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES
Allied’s common stock is quoted on the Over the Counter Bulletin Board, a service maintained by the
Financial Industry Regulatory Authority, under the symbol “ALOD.” Trading in the common stock
over-the-counter market has been limited and sporadic and the quotations set forth below are not
necessarily indicative of actual market conditions. These prices reflect inter-dealer prices without retail
mark-up, mark-down, or commission, and may not necessarily reflect actual transactions. The high and low
bid prices for the common stock for each quarter of the years ended December 31, 2014 and 2013 are as
follows:
Trading Market
Year
Quarter Ending
High
Low
2014
December 31
$0.40
$0.15
September 30
$0.39
$0.30
June 30
$0.35
$0.35
March 31
$0.38
$0.30
2013
December 31
$0.40
$0.26
September 30
$0.40
$0.32
June 30
$0.40
$0.25
March 31
$0.45
$0.32
Capital Stock
The following is a summary of the material terms of Allied’s capital stock. This summary is subject to and
qualified by our articles of incorporation and bylaws.
Common Stock
As of December 31, 2014, there were 108 shareholders of record holding a total of 5,653,011 shares of fully
paid and non-assessable common stock of the 50,000,000 shares of common stock, par value $0.001,
authorized. The board of directors believes that the number of beneficial owners is substantially greater
than the number of record holders because a portion of our outstanding common stock is held in broker
“street names” for the benefit of individual investors. The holders of the common stock are entitled to one
vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common
stock have no preemptive rights and no right to convert their common stock into any other securities. There
are no redemption or sinking fund provisions applicable to the common stock.
20
Warrants
As of December 31, 2014, Allied had no outstanding warrants to purchase shares of our common stock.
Dividends
Allied has not declared any cash dividends since inception and does not anticipate paying any dividends in
the foreseeable future. The payment of dividends is within the discretion of the board of directors and will
depend on Allied’s earnings, capital requirements, financial condition, and other relevant factors. There are
no restrictions that currently limit the Allied’s ability to pay dividends on its common stock other than those
generally imposed by applicable state law.
Stock Options
Allied has granted 600,000 options to purchase shares of our common stock at an exercise price of $0.35 per
share pursuant to The Allied Resources, Inc. 2008 Stock Option Plan. Options outstanding vest over five
years from the date of grant and may be exercised within ten years. Allied had vested 600,000 options to
purchase shares of our common stock at year end December 31, 2014.
Transfer Agent and Registrar
Our transfer agent is Standard Registrar & Transfer located at 12528 South 1840 East Draper, Utah, 84020;
their telephone number is (801) 571-8844.
Purchases of Equity Securities made by the Issuer and Affiliated Purchasers
None.
Recent Sales of Unregistered Securities
None.
ITEM 6.
SELECTED FINANCIAL DATA
Not required.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other
parts of this current report contain forward-looking statements that involve risks and uncertainties.
Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,”
“plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future
performance and our actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such differences include but are not limited to those
discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future
Results and Financial Condition below. The following discussion should be read in conjunction with our
financial statements and notes thereto included in this current report. Our fiscal year end is December 31.
21
Discussion and Analysis
Allied intends to utilize available cash to acquire additional oil and gas producing properties and to
implement improved production practices on existing wells to increase production and expand reserves
where practicable. Allied believes that it can achieve production growth while expanding reserves through
improved exploitation of its existing inventory of wells by disposing of non-productive wells and
enhancing producing wells. An evaluation for this objective of our existing portfolio of oil and gas
properties is constantly under consideration. Allied also intends to continue to expand non-operated and
explore opportunities for operated acquisitions of additional oil or gas producing properties.
Recovery from producing wells is consistently evaluated to consider cost-efficient work-over methods
designed to improve the performance of the wells. When considering the drilling of new wells, we conduct
a geological review of the prospective area, in cooperation with our independent operator, to determine the
potential for oil and gas. Our own consultants then review available geophysical data (generally seismic and
gravity data) opine as to the prospect for success. In the event that our evaluation of available geophysical
data indicates that the target has significant accumulations of oil and gas, we then consider the economic
feasibility of drilling. The presence of oil and gas for any specific target cannot guarantee economic
recovery. Production depends on many factors including drilling and completion costs, the distance to
pipelines and pipeline pressure, current energy prices, accessibility to the site, and whether the project is
developmental or solely a wildcat prospect.
Allied’s business development strategy is prone to significant risks and uncertainties certain of which can
have an immediate impact on its efforts to realize positive net cash flow and deter future prospects of
production growth. Historically Allied has not been able to generate sufficient cash flow from operations to
sustain operations and fund necessary exploration or development costs. Therefore, there can be no
assurance that the wells currently producing will provide sufficient cash flows to sustain operations. Should
Allied be unable to generate sufficient cash flow from existing properties, it may have to sell certain
properties or interests in such properties or seek financing through alternative sources such as the sale of its
common stock.
Allied’s financial condition, results of operations and the carrying value of its oil and natural gas properties
depends primarily upon the prices it receives for oil and natural gas production and the quantity of that
production. Oil and natural gas prices historically have been volatile and in the last six months of 2014 the
price paid for oil plummeted due to supply and geopolitical reasons. This price volatility has had an
immediate effect on Allied’s available cash flow which has impacted the amount of cash available for
future capital expenditures. A continued drop in oil and natural gas prices could also incur a write down of
the carrying value of our properties as can a further decrease in production. Since production leads to the
depletion of oil and gas reserves, Allied’s ability to develop or acquire additional economically recoverable
oil and gas reserves is vital to its future success. Unless Allied can obtain additional reserves, current
production will continue to decline.
Results of Operations
During the period from January 1, 2014 through December 31, 2014, Allied was engaged in evaluating
acquisition opportunities, examining the operating efficiencies of existing wells, overseeing the operation
of its oil and gas assets by independent operators and seeking to acquire oil and gas producing assets. The
operation and maintenance of Allied’s oil and gas operations is wholly dependent on the services provided
by five different independent operators. While the services provided by these operators have proven
adequate, the fact that Allied is dependent on the operations of third parties to maintain its operations and
produce revenue does negatively impact its own ability to realize a net profit.
22
For the fiscal year ended December 31, 2014, Allied realized a net loss. Allied believes that the immediate
key to its ability to return to profitability is that oil and natural gas prices increase and recover from what
has been a steep decline in oil prices and continued weakness in natural gas prices . General and
administrative and production expenses are constantly evaluated to guard against increases while we
continue to seek out revenue producing acquisitions. Should we be able to increase production or energy
prices rise, Allied expects to return to operating with a net profit in future periods.
%
Twelve Months Ended December 31
2014
2013
Change
Change
Average Daily Production
Oil (bbls/day)
8
8
-
0%
Natural gas (mcf/day)
262
274
(12)
-4%
Barrels of oil equivalent (boe/day)
52
54
(2)
-4%
Profitability
Petroleum and natural gas revenue
$
548,099 $
612,759 $
(64,660)
-11%
Net Revenue
548,099
612,759
(64,660)
-11%
Production and operating costs
352,775
356,304
(3,529)
-1%
Field netback
195,324
256,455
(61,131)
-24%
G&A
206,032
220,121
(14,089)
-6%
Net cash flow from operations
(10,078)
36,334
(47,042)
-129%
Depletion, depreciation and other charges
50,524
53,067
(2,543)
-5%
Future income taxes
-
-
-
0%
Net earnings from operations
$
(61,232) $
(16,733) $
(44,499)
-266%
Profitability per boe
Oil and gas revenue (average selling price)
29.06
31.28
(2.22)
-7%
Production and operating costs
18.71
18.19
0.52
3%
Field netback ($/boe)
$
10.36 $
13.09 $
(2.73)
-21%
Net earnings ($/boe)
$
(3.25) $
(0.85) $
(2.40)
-280%
Cash flow from operations ($/boe)
$
(0.57) $
1.85 $
(2.42)
-131%
23
Gross Revenue
Gross revenue for the year ended December 31, 2014, decreased to $585,599 from $612,759 for the year
ended December 31, 2013, a decrease of 4%. The decrease in gross revenue in the current period can be
attributed to the dramatic decrease in oil prices in the second half of the annual period and the continued
weakness of natural gas prices over the comparative periods, the decline in natural gas production was
offset by other revenue associated with an option agreement that the optionee declined to exercise.
Gross daily production of oil for the year ended December 31, 2014, remained consistent at 8 bbls with the
year ended December 31, 2013. Gross daily production of gas for the year ended December 31, 2014,
decreased to 262 MCF from 274 MCF for the year ended December 31, 2013, a decrease of 4%. Average
oil and natural gas prices declined to $29.06 per BOE on a daily basis over the year ended December 31,
2014, from $31.28 per BOE on a daily basis over the year ended December 31, 2013, a decrease of 7%.
Allied anticipates, based on existing production, that gross revenue will increase in the event energy prices
return to the same level as those realized in the first half of 2014 even in the face of continued weakness in
natural gas prices .
Net Loss
Net loss after provision for income taxes for the year ended December 31, 2014 was $21,499 as compared
to net losses after provision for income taxes of $13,422 for the year ended December 31, 2013. The
increase in net loss in the current period can be primarily attributed to the decrease in gross revenues. Allied
expects to transition to net profit on realizing an increase in gross revenue.
Operating Expenses
Production costs for the year ended December 31, 2014 and December 31, 2013, were $352,775 and
$356,304, a decrease of 1%. Production costs include the cost of maintaining the wells, severance taxes,
miscellaneous expenses for soap, solvent, gasoline or electricity and expenses such as those incurred in
swabbing, dozer work or rig time. The decrease in production costs over the current period can be attributed
to operating efficiencies. Allied expects that production costs will rise as the cost of energy production from
aging wells increases over time.
General and administrative expenses for the year ended December 31, 2014, decreased to $206,032 from
$220,121 for the year ended December 31, 2013, a decrease of 6%. The decrease in general and
administrative costs can be attributed to operating efficiencies. Allied anticipates that general and
administrative expenses will be relatively consistent over future periods.
Depletion expenses for the year ended December 31, 2014 and December 31, 2013 were $50,524 and
$53,067 respectively. Depletion expenses will continue to decline in relation to the aging of existing oil and
gas assets.
Income Tax Expense
As of December 31, 2014, Allied has net operating loss (NOL) carry forwards of approximately
$2,143,000. Should substantial changes in our ownership occur there would be an annual limitation of the
amount of NOL carry forward which could be utilized. The ultimate realization of these carry forwards is
due, in part, on the tax law in effect at the time and future events, which cannot be determined. During the
year ended December 31, 2014, a valuation allowance was recorded against this net operating loss carried
forward.
24
Liquidity and Capital Resources
Allied has a working capital surplus of $1,458,552 as of December 31, 2014 and has funded its cash needs
since inception with revenues generated from operations, debt instruments and private equity placements.
Existing working capital and anticipated cash flow are expected to be sufficient to fund operations.
Total current assets as of December 31, 2014 were $1,437,287 which consisted of $1,412,161 in cash and
$61,126 in accounts receivable. Total assets were $2,793,024 which consisted of current assets, proven oil
and gas properties and an escrow deposit. Total current liabilities were $14,735 which consisted of accounts
payable. Total liabilities were $238,279 which consisted of current liabilities, and an asset retirement
obligation of $223,544. Total stockholders’ equity as of December 31, 2014 was $2,554,745.
Net cash provided by operations for the year ended December 31, 2014 was $22,120 as compared to net
cash provided by operations of $67,009 for the year ended December 31, 2013. Net cash provided by
operating activities in the current period can be attributed primarily to a number of items that are book
expense items which do not affect the total amount relative to actual cash used including depletion and
amortization and accretion expense. Balance sheet accounts that actually affect cash, but are not income
statement related items, that are added or deducted to arrive at net cash provided by operations, include
accounts receivable and accounts payable.
Allied expects net cash to continue to be provided by operations in future periods as revenues are expected
to increase.
Net cash used in investing activities for the years ended December 31, 2014 and December 31, 2013, was
zero. Allied expects to use net cash flow in investing activities over future periods as it identifies
exploration opportunities and considers additional acquisitions.
Net cash from financing activities for the years ended December 31, 2014 and December 31, 2013, was
zero. Allied does not expect net cash flow from financing activities in the near term.
Since earnings are reinvested in operations, cash dividends are not expected to be paid in the foreseeable
future.
Allied has no lines of credit or other bank financing arrangements.
Commitments for future capital expenditures were not material at year-end.
Allied has adopted a stock option plan pursuant to which it can grant up to 750,000 options to purchase
shares of its common stock to employees, directors, officers, consultants or advisors of Allied on the terms
and conditions set forth therein. As of December 31, 2014, 600,000 options had been granted of which all
have vested.
Allied has entered into an agreement with its chief executive officer that provides for a five year term,
effective July 1, 2013, that includes a monthly fee and participation in Allied’s stock option plan.
Allied has no current plans for the purchase or sale of any plant or equipment.
Allied has no current plans to make any changes in the number of employees.
25
Off Balance Sheet Arrangements
As of December 31, 2014, Allied has no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources
that is material to stockholders.
Forward Looking Statements and Factors That May Affect Future Results and Financial Condition
The statements contained in the section titled Management’s Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this current report, with the exception of historical
facts, are forward looking statements. Forward looking statements reflect our current expectations and
beliefs regarding our future results of operations, performance, and achievements. These statements are
subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not
materialize. These statements include, but are not limited to, statements concerning:
§ our anticipated financial performance and business plan;
§ uncertainties related to production volumes of oil and gas;
§ the sufficiency of existing capital resources;
§ uncertainties related to future oil and gas prices;
§ our ability to raise additional capital to fund cash requirements for future operations;
§ uncertainties related the quantity of our reserves of oil and gas
§ the volatility of the stock market and;
§ general economic conditions.
We wish to caution readers that our operating results are subject to various risks and uncertainties that could
cause our actual results to differ materially from those discussed or anticipated, including the factors set
forth in the section entitled Risk Factors included elsewhere in this report. We also wish to advise readers
not to place any undue reliance on the forward looking statements contained in this report, which reflect our
beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these
forward looking statements to reflect new events or circumstances or any changes in our beliefs or
expectations, other than as required by law.
Critical Accounting Policies and Estimates
Accounting for Oil and Gas Property Costs. As more fully discussed in Note 1 to the Financial Statements,
Allied (i) follows the successful efforts method of accounting for the costs of its oil and gas properties, (ii)
amortizes such costs using the units of production method and (iii) evaluates its proven properties for
impairment whenever events or changes in circumstances indicate that their net book value may not be
recoverable. Adverse changes in conditions (primarily gas price declines) could result in permanent
write-downs in the carrying value of oil and gas properties as well as non-cash charges to operations that
would not affect cash flows.
Estimates of Proved Oil and Gas Reserves. An independent petroleum engineer annually estimates Allied’s
proven reserves. Reserve engineering is a subjective process that is dependent upon the quality of available
data and the interpretation thereof. In addition, subsequent physical and economic factors such as the results
of drilling, testing, production and product prices may justify revision of such estimates. Therefore, actual
quantities, production timing, and the value of reserves may differ substantially from estimates. A reduction
in proved reserves would result in an increase in depreciation, depletion and amortization expense.
26
Estimates of Asset Retirement Obligations. In accordance with ASC 410-20, Allied makes estimates of
future costs and the timing thereof in connection with recording its future obligations to plug and abandon
wells. Estimated abandonment dates will be revised in the future based on changes to related economic
lives, which vary with product prices and production costs. Estimated plugging costs may also be adjusted
to reflect changing industry experience. Increases in operating costs and decreases in product prices would
increase the estimated amount of the obligation and increase depreciation, depletion and amortization
expense. Cash flows would not be affected until costs to plug and abandon were actually incurred.
Recent Accounting Pronouncements
Please see Note 14 to our financial statements for recent accounting pronouncements.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our audited financial statements for the years ended December 31, 2014 and 2013 in addition to our
supplementary schedules are attached hereto as F-1 through F-20.
27
ALLIED RESOURCES, INC.
INDEX TO FINANCIAL STATEMENTS
December 31, 2014 and 2013
Page
Report of Independent Registered Public Accounting Firm
F-2
Balance Sheets
F-3
Statements of Operations
F-4
Statements of Stockholders’ Equity
F-5
Statements of Cash Flows
F-6
Notes to Financial Statements
F-7
Supplementary Schedules on Oil and Gas Operations
F-15
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Allied Resources, Inc.
We have audited the accompanying balance sheets of Allied Resources, Inc. (the Company) as of
December 31, 2014 and 2013, and the related statements of operations, stockholders’ equity, and cash flows
for each of the years in the two-year period ended December 31, 2014. The Company’s management is
responsible for these financial statements. 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 financial statements referred to above present fairly, in all material respects, the financial
position of Allied Resources, Inc. as of December 31, 2014 and 2013, and the results of its operations and
its cash flows for each of the years in the two-year period ended December 31, 2014, in conformity with
accounting principles generally accepted in the United States of America.
/s/ JONES SIMKINS LLC
JONES SIMKINS LLC
Logan, Utah
April 15, 2015
F-2
ALLIED RESOURCES, INC.
BALANCE SHEETS
December 31, 2014 and 2013
ASSETS
2014
2013
Current assets:
Cash
$
1,412,161
1,390,041
Accounts receivable
61,126
41,800
Total current assets
1,473,287
1,431,841
Oil and gas properties (proven), net (successful
efforts method)
615,036
665,560
Deposits
704,701
704,701
Total assets
$
2,793,024
2,802,102
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
14,735
12,857
Total current liabilities
14,735
12,857
Asset retirement obligation
223,544
213,001
Total liabilities
238,279
225,858
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value; 50,000,000 shares
authorized, 5,653,011 issued and outstanding
5,653
5,653
Additional paid-in capital
9,916,458
9,916,458
Accumulated deficit
(7,367,366)
(7,345,867)
Total stockholders' equity
2,554,745
2,576,244
Total liabilities and stockholders' equity
$
2,793,024
2,802,102
The accompanying notes are an integral part of these consolidated financial statements.
F-3
ALLIED RESOURCES, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 2014 and 2013
2014
2013
Revenue:
Oil and gas sales
$
548,099
612,759
Other
37,500
-
585,599
612,759
Operating expenses:
Production costs
352,775
356,304
Depletion and amortization
50,524
53,067
General and administrative expenses
206,032
220,121
609,331
629,492
Loss from operations
(23,732)
(16,733)
Interest income
2,233
3,311
Loss before provision for income taxes
(21,499)
(13,422)
Provision for income taxes
-
-
Net loss
$
(21,499)
(13,422)
Loss per common share - basic and diluted
$
-
-
Weighted average common shares - basic and diluted
5,653,000
5,653,000
The accompanying notes are an integral part of these consolidated financial statements.
F-4
ALLIED RESOURCES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2014 and 2013
Additional
Total
Common Stock
Paid-In
Accumulated
Stockholders'
Shares
Amount
Capital
Deficit
Equity
Balance at January 1, 2013
5,653,011 $
5,653 $
9,897,143 $
(7,332,445) $
2,570,351
Stock option compensation
expense
-
-
19,315
-
19,315
Net loss
-
-
-
(13,422)
(13,422)
Balance at December 31, 2013
5,653,011
5,653
9,916,458
(7,345,867)
2,576,244
Net loss
-
-
-
(21,499)
(21,499)
Balance at December 31, 2014
5,653,011 $
5,653 $
9,916,458 $
(7,367,366) $
2,554,745
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ALLIED RESOURCES, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2014 and 2013
2014
2013
Cash flows from operating activities:
Net loss
$
(21,499)
(13,422)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depletion and amortization
50,524
53,067
Stock option compensation expense
-
19,315
Accretion expense
10,543
10,045
(Increase) decrease in:
Accounts receivable
(19,326)
20,296
Increase (decrease) in:
Accounts payable
1,878
(22,292)
Net cash provided by operating activities
22,120
67,009
Cash flows from investing activities:
-
-
Cash flows from financing activities:
-
-
Net increase in cash
22,120
67,009
Cash, beginning of year
1,390,041
1,323,032
Cash, end of year
$
1,412,161
1,390,041
The accompanying notes are an integral part of these consolidated financial statements
F-6
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2014 and 2014
Note 1 – Organization and Summary of Significant Accounting Policies
Organization
Allied Resources, Inc. (the Company) was incorporated on April 5, 2002. The Company is primarily
engaged in the business of acquiring, developing, producing and selling oil and gas production and
properties to companies located in the continental United States.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments with a
maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are amounts due on oil and gas sales and are unsecured. Accounts receivable are
carried at their estimated collectible amounts. Credit is generally extended on a short-term basis; thus
accounts receivable do not bear interest although a finance charge may be applied to such receivables that
are more than thirty days past due. Accounts receivable are periodically evaluated for collectibility based on
past credit history with clients. Provisions for losses on accounts receivable are determined on the basis of
loss experience, known and inherent risk in the account balance, current economic conditions, and the
financial stability of customers.
Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash and cash equivalents.
Oil and Gas Producing Activities
The Company utilizes the successful efforts method of accounting for its oil and gas producing activities.
Under this method, all costs associated with productive exploratory wells and productive or nonproductive
development wells are capitalized while the costs of nonproductive exploratory wells are expensed.
If an exploratory well finds oil and gas reserves, but a determination that such reserves can be classified as
proved is not made after one year following completion of drilling, the costs of drilling are charged to
operations. Indirect exploratory expenditures, including geophysical costs and annual lease rentals, are
expensed as incurred. Unproved oil and gas properties that are individually significant are periodically
assessed for impairment of value and a loss is recognized at the time of impairment by providing an
impairment allowance. Other unproved properties are amortized based on the Company’s experience of
successful drillings and average holding period. Capitalized costs of producing oil and gas properties, after
considering estimated dismantlement and abandonment costs and estimated salvage values, are depreciated
and depleted by the units-of-production method. Support equipment and other property and equipment are
depreciated over their estimated useful lives.
F-7
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2014 and 2014
Note 1 – Organization and Summary of Significant Accounting Policies (continued)
Oil and Gas Producing Activities (continued)
On the sale or retirement of a complete unit of a proved property, the cost and related accumulated
depreciation, depletion and amortization are eliminated from the property accounts, and the resultant gain
or loss is recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to
accumulated depreciation, depletion and amortization with a resulting gain or loss recognized in income.
On the sale of an entire interest in an unproved property for cash or cash equivalent, gain or loss on the sale
is recognized, taking into consideration the amount of any recorded impairment if the property has been
assessed individually. If a partial interest in an unproved property is sold, the amount received is treated as
a reduction of the cost of the interest retained.
The continued carrying value of the Company’s oil and natural gas properties depends primarily upon the
estimated reserves and the prices it receives for oil and natural gas production. Oil and natural gas prices
historically have been volatile and are likely to continue to be volatile in the future. The Company’s
production quantities of oil and natural gas are in decline. Any decrease in oil and natural gas prices without
an offsetting increase in reserve quantities could result in an impairment of the Company’s assets.
Current accounting standards may require companies involved in the oil and gas industry to reclassify oil
and gas contract based drilling rights from tangible to intangible assets and to provide the related intangible
assets disclosures under Accounting Standards Codification (ASC) 350. Since the Company does not have
any contract based oil and gas drilling rights, any disclosure related to this possible requirement would not
have an affect on the Company’s financial statements.
Income Taxes
The Company files Federal and state income tax returns in states in which it operates. Deferred income
taxes arise from temporary differences resulting from income and expense items reported for financial
accounting and tax purposes in different periods. 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. Deferred taxes are classified as current or noncurrent, depending on the
classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary
differences that are not related to an asset or liability are classified as current or noncurrent depending on
the periods in which the temporary differences are expected to reverse. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
The Company considers many factors when evaluating and estimating its tax positions and tax benefits. Tax
positions are recognized only when it is more likely than not (likelihood of greater than 50%), based on
technical merits, that the positions will be sustained upon examination. Reserves are established if it is
believed certain positions may be challenged and potentially disallowed. If facts and circumstances change,
reserves are adjusted through the provision for income taxes. The Company recognizes interest expense and
penalties related to unrecognized tax benefits with the provision for income taxes.
F-8
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2014 and 2014
Note 1 – Organization and Summary of Significant Accounting Policies (continued)
Earnings Per Share
The computation of basic earnings per common share is based on the weighted average number of shares
outstanding during each year.
The computation of diluted earnings per common share is based on the weighted average number of shares
outstanding during the year plus the common stock equivalents which would arise from the exercise of
stock options and warrants outstanding using the treasury stock method and the average market price per
share during the year. Common stock equivalents are not included in the diluted earnings per share
calculation when their effect is anti-dilutive. Common stock equivalents that could potentially dilute
earnings per share are common stock options.
Presentation of Sales and Similar Taxes
Sales tax on revenue-producing transactions is recorded as a liability when the sale occurs.
Revenue Recognition
Revenue is recognized from oil sales at such time as the oil is delivered to the buyer. Revenue is recognized
from gas sales when the gas passes through the pipeline at the well head. The Company believes that both
oil and gas revenues should be recognized at these times because ownership of the oil and gas generally
passes to the customer at these times. Management believes that this policy meets the recognition criteria in
that there is persuasive evidence of an existing contract or arrangement, delivery has occurred, the price is
fixed and determinable and the collectibility is reasonably assured.
The Company does not have any gas balancing arrangements.
Stock-Based Compensation
At December 31, 2014, the Company has a stock option plan, which is described more fully in Note 8. The
Company accounts for stock compensation under ASC Topic 718. This topic requires the Company to
recognize compensation cost based on the grant date fair value of options granted.
F-9
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2014 and 2014
Note 1 – Organization and Summary of Significant Accounting Policies (continued)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. 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 periods reported. Actual results could differ from
those estimates.
Significant estimates include volumes of oil and natural gas reserves used in calculating depletion of proved
oil and natural gas properties, future net revenues and abandonment obligations, future taxable income and
related assets/liabilities, the collectibility of outstanding accounts receivable, stock-based compensation
expense, and contingencies. Oil and natural gas reserve estimates, which are the basis for
unit-of-production depletion, have numerous inherent uncertainties. The accuracy of any reserve estimate is
a function of the quality of available data and of engineering and geological interpretation and judgment.
Subsequent drilling results, testing and production may justify revision of such estimates. Accordingly,
reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered.
In addition, reserve estimates are vulnerable to changes in wellhead prices of crude oil and natural gas. Such
prices have been volatile in the past and can be expected to be volatile in the future.
The significant estimates are based on current assumptions that may be materially affected by changes to
future economic conditions such as the market prices received for sales of volumes of oil and natural gas,
the creditworthiness of counterparties, interest rates, the market value of the Company’s common stock
and corresponding volatility and the Company’s ability to generate future taxable income. Future changes
to these assumptions may affect these significant estimates materially in the near term.
Note 2 – Oil and Gas Properties
Oil and gas properties consist of the following:
December 31,
2014
2013
Oil and gas properties (successful efforts method)
$
8,513,291
8,513,291
Capitalized costs related to asset retirement obligation
93,499
93,499
8,606,790
8,606,790
Less accumulated depreciation, depletion, and amortization
(7,991,754)
(7,941,230)
$
615,036
665,560
F-10
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2014 and 2014
Note 3 – Deposits
The Company has an operating agreement with one of the operators of the Company’s oil and gas wells.
Terms of the agreement allow the operator to withhold a portion of the Company’s share of revenue for
possible future costs associated with the wells. The terms of the agreement require that these funds be held
in escrow. As of December 31, 2014 and 2013 amounts on deposit were approximately $705,000 and
$705,000, respectively.
Note 4 – Asset Retirement Obligation
The Company is subject to certain regulations implemented to protect the environment. These regulations
require that when oil and gas wells are abandoned, the owners must perform certain reclamation activities
related to the oil and gas wells. Accordingly, a liability has been established equal to the present value of the
Company’s estimated pro-rata share of the obligation. The Company has no assets that are legally restricted
for the purpose of settling this obligation.
Following is a reconciliation of the aggregate retirement liability associated with the Company’s obligation
to plug and abandon its oil and gas properties:
2014
2013
Balance at beginning of year
$
213,001
202,956
Accretion expense
10,543
10,045
Balance at end of year
$
223,544
213,001
Note 5 – Income Taxes
The provision (benefit) for income taxes differs from the amount computed at federal statutory rates as
follows:
2014
2013
Federal income tax benefit at statutory rate
$
(7,000)
(2,000)
State income tax benefit, net of federal tax benefit
(1,000)
(1,000)
Expiration of net operating loss carry-forward
-
5,000
Change in valuation allowance
9,000
(3,000)
Other
(1,000)
1,000
$
-
-
F-11
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2014 and 2014
Note 5 – Income Taxes (continued)
Deferred tax assets (liabilities) are comprised of the following:
2014
2013
Net operating loss carry-forwards
$
729,000
732,000
Asset retirement obligation
66,000
62,000
Depletion and amortization
128,000
120,000
Stock compensation expense
66,000
66,000
989,000
980,000
Less valuation allowance
(989,000)
(980,000)
$
-
-
As of December 31, 2014, the Company had net operating loss (NOL) carry-forwards of approximately
$2,143,000. If substantial changes in the Company’s ownership should occur there would be an annual
limitation of the amount of NOL carry-forwards which could be utilized. Also, the ultimate realization of
these carry-forwards is due, in part, on the tax law in effect at the time and future events, which cannot be
determined.
The Company’s NOL amounts and related years of expiration are as follows:
Year
Year of
Generated
Amount
Expiration
1998
68,000
2018
1999
1,980,000
2019
2001
4,000
2021
2002
78,000
2022
2011
12,000
2031
2012
1,000
2032
$
2,143,000
The Company is no longer subject to examination by federal and state taxing authorities for years prior to
2011.
F-12
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2014 and 2014
Note 6 – Related Party Transactions
The Company leases office space on a month-to-month basis from the CEO of the Company. The lease
requires monthly payments of $1,000. The Company incurred rent expense of $12,000 during the years
ended December 31, 2014 and 2013. At December 31, 2014 and 2013, $1,000 was included in accounts
payable for rent.
The Company has an agreement with its CEO to provide executive services. The agreement requires
monthly payments of $10,000. The Company incurred management and consulting fees of approximately
$120,000 during the years ended December 31, 2014 and 2013. At December 31, 2014 and 2013, $10,000
was included in accounts payable for management services.
Note 7 – Supplemental Disclosures of Cash Flow Information
No amounts were paid for interest or income taxes during the years ended December 31, 2014 and 2013.
Note 8 – Stock Options
The Company has a stock option plan (the Plan) which allows for the issuance of the Company’s common
stock or the grant of options to acquire the Company’s common stock from time to time to employees,
directors, officers, consultants or advisors of the Company on the terms and conditions set forth in the Plan.
At December 31, 2014 and 2013, the Company had 600,000 options outstanding at an exercise price of
$0.35. During the years ended December 31, 2014 and 2013, the Company did not have any changes in the
number of outstanding options.
Note 9 – Stock Based Compensation
The following table summarizes information about common stock options outstanding at December 31,
2014
Outstanding
Exercisable
Weighted
Average
Weighted
Weighted
Remaining
Average
Average
Exercise
Number
Contractual
Exercise
Number
Exercise
Price
Outstanding
Life (Years)
Price
Exercisable
Price
$ 0.35
600,000
4.0
$ 0.35
600,000
$ 0.35
F-13
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2014 and 2014
Note 10 – Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments at December 31, 2014 and 2013 does
not differ materially from the aggregate carrying value of its financial instruments recorded in the
accompanying balance sheet. Carrying value approximates fair value due to the short maturity of the
instruments identified as current assets and liabilities. The Company’s financial instruments are held for
non-trading purposes.
Note 11 – Commitments and Contingencies
Oil and Gas Operating Agreement
The Company has agreements with the operators of the oil and gas wells in which the Company owns an
interest. These agreements require the Company to pay a percentage of the fees and production costs of
operating the wells.
Litigation
The Company may become or is subject to investigations, claims or lawsuits ensuing out of the conduct of
its business, including those related to environmental safety and health, commercial transactions, etc. The
Company is currently not aware of any such item which it believes could have a material adverse affect on
its financial position.
Note 12 – Risks and Uncertainties
The Company’s oil and gas reserves are continually declining, which will eventually result in a reduction of
the amount of oil and gas produced, oil and gas revenues and cash flows. The Company has historically
replaced reserves through both drilling and acquisitions, however, there is no assurance that oil and gas
reserves can be located through drilling or acquisition or that even if reserves are located, that such reserves
will allow the recovery of all or part of the investment made by the Company to obtain these reserves.
The Company’s carrying cost of its oil and gas properties are subject to possible future impairment based on
the estimated future cash flows of these properties. These estimated future cash flows are in turn subject to
oil and gas prices that are subject to fluctuations and, as a consequence, no assurance can be given that oil
and gas prices will decrease, increase or remain stable.
Note 13 – Subsequent Events
The Company evaluated its December 31, 2014, financial statements for subsequent events through the
date the financial statements were issued. The Company is not aware of any subsequent events which
would require recognition or disclosure in the financial statements.
F-14
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2014 and 2014
Note 14 – Recent Accounting Pronouncements
The Company’s management has evaluated the recently issued accounting pronouncements through the
filing date of these financial statements and has determined that the application of these pronouncements
will not have a material impact on the Company’s financial position and results of operations.
F-15
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2014 and 2013
Capitalized Costs Relating to Oil and Gas Producing Activities
December 31,
2014
2013
Proved oil and gas properties and related equipment
$
8,513,291
8,513,291
Unproved oil and gas properties
-
Capitalized costs related to asset retirement obligation
93,499
93,499
8,606,790
8,606,790
Accumulated depreciation, depletion, amortization
and valuation allowances
(7,991,754)
(7,941,230)
$
615,036
665,560
Costs Incurred in Oil and Gas Acquisition, Exploration and Development Activities
December 31,
2014
2013
Acquisition of properties:
Proved
$
-
-
Unproved
$
-
-
Exploration costs
$
-
-
Development costs
$
-
-
F-16
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2014 and 2013
Results of Operations for Producing Activities
Years Ended
December 31,
2014
2013
Oil and gas revenues
$
548,099
612,759
Production costs net of reimbursements
(352,775)
(359,304)
Exploration costs
-
-
Depreciation, depletion, amortization, and valuation provisions
(50,524)
(53,067)
Net income before income taxes
144,800
203,388
Income tax expense
49,000
69,000
Results of operations from producing activities (excluding
corporate overhead and interest costs)
$
95,800
134,388
F-17
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2014 and 2013
Reserve Quantity Information (Unaudited)
The estimated quantities of proved oil and gas reserves disclosed in the table below are based on appraisal
of the proved developed properties by Sure Engineering, LLC. Such estimates are inherently imprecise and
may be subject to substantial revisions.
All quantities shown in the table are proved developed reserves and are located within the United States.
Years Ended December 31,
2014
2013
Oil
Gas
Oil
Gas
(bbls)
(mcf)
(bbls)
(mcf)
Proved developed and undeveloped reserves:
Beginning of year
26,434
1,438,888
27,557
1,017,803
Revision in previous estimates
972
43,794
1,716
520,929
Discoveries and extension
-
-
-
-
Purchase in place
-
-
-
-
Production
(2,945)
(95,799)
(2,839)
(99,844)
Sales in place
-
-
-
-
End of year
24,461
1,386,883
26,434
1,438,888
F-18
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2014 and 2013
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil
and Gas Reserves (Unaudited)
Years Ended
December 31,
2014
2013
Future cash inflows
$
6,605,000
7,277,000
Future production and development costs
(4,374,000)
(4,770,000)
Future income tax expenses
(758,000)
(853,000)
1,473,000
1,654,000
10% annual discount for estimated timing of cash flows
(833,000)
(920,000)
Standardized measure of discounted future net cash flows
$
640,000
734,000
The preceding table sets forth the estimated future net cash flows and related present value, discounted at a
10% annual rate, from the Company’s proved reserves of oil, condensate and gas. The estimated future net
revenue is computed by applying the average prices of oil and gas (including price changes that are fixed
and determinable) based upon the prior 12-month period and current costs of production and development
for estimated future production assuming continuation of existing economic conditions. The values
expressed are estimates only, without actual long-term production to base the production flows, and may
not reflect realizable values or fair market values of the oil and gas ultimately extracted and recovered. The
ultimate year of realization is also subject to accessibility of petroleum reserves and the ability of the
Company to market the products.
F-19
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2014 and 2013
Changes in the Standardized Measure of
Discounted Future Cash Flows (Unaudited)
Years Ended
December 31,
2014
2013
Balance, beginning of year
$
734,000
553,000
Sales of oil and gas produced net of production costs
(191,000)
(206,000)
Net changes in prices and production costs
137,000
(284,000)
Extensions and discoveries, less related costs
-
-
Purchase and sales of minerals in place
-
-
Revisions of estimated development costs
-
-
Revisions of previous quantity estimate
(59,000)
471,000
Accretion of discount
73,000
55,000
Net changes in income taxes
(54,000)
145,000
Balance, end of year
$
640,000
734,000
F-20
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this annual report on Form 10-K, an evaluation was carried out by
Allied’s management, with the participation of the chief executive officer and the chief financial officer, of
the effectiveness of Allied’s disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of the end of the period covered
by this report. Disclosure controls and procedures are designed to ensure that information required to be
disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the Commission’s rules and forms, and that such information
is accumulated and communicated to management, including the chief executive officer and the chief
financial officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, Allied’s management concluded, as of the end of the period covered by this
report, that Allied’s disclosure controls and procedures were effective in recording, processing,
summarizing, and reporting information required to be disclosed, within the time periods specified in the
Commission’s rules and forms, and such information was accumulated and communicated to management,
including the chief executive officer and the chief financial officer, to allow timely decisions regarding
required disclosures.
Management’s Report on Internal Control over Financial Reporting
Management of Allied is responsible for establishing and maintaining adequate internal control over
financial reporting. Allied’s internal control over financial reporting is a process, under the supervision of
the chief executive officer and the chief financial officer, designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of Allied’s financial statements for
external purposes in accordance with United States generally accepted accounting principles (GAAP).
Internal control over financial reporting includes those policies and procedures that:
§ Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of Allied’s assets;
§ Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
the financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with authorizations of management
and the board of directors; and
§ Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of Allied’s assets that could have a material effect on the financial statements.
Due to its inherent limitations, 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 because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
28
Allied’s management conducted an assessment of the effectiveness of our internal control over financial
reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission,
which assessment did not identify any material weaknesses in internal control over financial reporting. A
material weakness is a control deficiency, or a combination of deficiencies in internal control over financial
reporting that creates a reasonable possibility that a material misstatement in annual or interim financial
statements will not be prevented or detected on a timely basis. Since the assessment of the effectiveness of
our internal control over financial reporting did not identify any material weaknesses, management
considers its internal control over financial reporting to be effective.
This annual report does not include an attestation report of our independent registered public accounting
firm regarding internal control over financial reporting. We were not required to have, nor have we,
engaged our independent registered public accounting firm to perform an audit of internal control over
financial reporting pursuant to the rules of the Commission that permit us to provide only management’s
report in this annual report.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2014, there has been no change in internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect our internal control over
financial reporting.
9B.
OTHER INFORMATION
None.
29
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Officers and Directors
The following table sets forth the name, age and position of each director and executive officer of Allied:
Name
Age
Year
Positions Held
Elected/Appointed
Ruairidh Campbell
51
1998
Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer, Director
Ed Haidenthaller
51
2004
Director
Paul Crow
68
2005
Director, Secretary
Set forth below is a brief description of the background and business experience of each of our executive
officers and directors for the past five years:
Ruairidh Campbell
On June 6, 1998, Mr. Campbell was first elected as a director and subsequently appointed as an officer of
Allied. Mr. Campbell estimates that he spends approximately 20 hours per week on Allied’s business. He
also has significant responsibilities with other companies, as detailed in the following paragraph.
Business Experience
Mr. Campbell has been advising early-stage businesses for over 17 years in the public and private sectors.
Services range from investment banking to managerial duties that include working with government
regulators, business organizations, auditors, accountants, attorneys and quasi-public governing bodies
responsible for everything from public health to public quotation. He formed Orsa & Company in 2001
which is dedicated to providing these services.
Since joining Allied in 1998 Mr. Campbell has spent a significant amount of his time in the field with oil
and gas producers, prospectors and geologists in pursuit of growing the business.
Officer and Director Responsibilities and Qualifications
Mr. Campbell is responsible for the overall management of Allied and is involved in all of its day-to-day
operations and administration. He also serves as a director and as a member of Allied’s audit committee.
Mr. Campbell graduated from the University of Texas at Austin with a Bachelor of Arts in History and then
from the University of Utah College of Law with a Juris Doctorate with an emphasis in corporate law and
energy law.
Other Public Company Directorships in the Last Five Years
Over the last five years to present Mr. Campbell has served and continues to serve as an officer and
director of Arvana, Inc., a company without significant operations (May 2013 to present) and as an
officer and director of Park Vida Group, Inc. a real estate development company with interests in the
Dominican Republic (December 1998 to January 2015).
30
Ed Haidenthaller
On September 23, 2004, Mr. Haidenthaller was elected as a director of Allied. Mr. Haidenthaller estimates
that he spends approximately 1 hour per week on Allied’s business. He also has significant responsibilities
with other companies, as detailed in the following paragraph.
Business Experience
Mr. Haidenthaller worked as the Chief Financial Officer and holding company Secretary, for Proficio Bank
and NHB Holdings, Inc., respectively from March 2012 to November 2013. Proficio is a Utah State
chartered commercial bank with operations in Utah and Orlando, Florida and 33 additional loan generation
offices primarily east of the Rocky Mountains. Prior to this position, Mr. Haidenthaller was employed as
a director for approximately 2 years for McGladrey, the 5th largest accounting and consulting firm in the
US, and a multi-national firm specializing in internal audit, tax compliance, financial operations support,
and technology risk management. Prior to joining McGladrey Mr. Haidenthaller worked as a VP of Risk
management & Audit for a large multi-billion wholesale bank, and for 5+ years with Jefferson Wells
International managing its consulting practice as well as its banking services practice. Mr. Haidenthaller
also had his own business, Strategic Funding Consultants, LLC. which worked with start up and small
businesses to develop business strategies, assist in obtaining funding and general consulting services.
Officer and Director Responsibilities and Qualifications
Mr Haidenthaller serves on the board of directors as an independent director and in that capacity is
responsible for providing Allied with oversight in all material corporate decisions. He also serves
as a member of Allied’s audit committee.
Mr. Haidenthaller graduated from Weber State University with a Bachelor of Science in Finance and then
from the University of Utah with a Masters of Business Administration (MBA).
Other Public Company Directorships in the Last Five Years
None.
Paul Crow
On January 17, 2005, Mr. Paul Crow was appointed as a director of Allied and subsequently appointed as
secretary. Mr. Crow estimates that he spends approximately 2 hours per week on Allied’s business. He also
has significant responsibilities with other companies, as detailed in the following paragraph.
Business Experience
Mr. Crow operates his own Edgar preparation and filing business working with private and public
businesses to provide general consulting services related to Sarbanes-Oxley compliance and other
Commission related disclosure requirements. His prior experience includes work as a business consultant to
Axia Group, Inc., a company involved in business consulting and real estate from April 2002 until
September 2003 and as a library supervisor at the University of Utah from March 1996 until March of 2002.
31
Officer and Director Responsibilities and Qualifications
Mr. Crow serves on the board of directors and in that capacity is responsible for considering corporate
matters and for participating in the decision making process at the board level. He is also responsible in his
capacity as secretary for filing Allied’s public disclosure online and serves as a member of Allied’s audit
committee.
Mr. Crow graduated from the University of Utah with a Bachelor of Science in Accounting in 1994.
Other Public Company Directorships in the Last Five Years
None.
No other persons are expected to make any significant contributions to Allied’s executive decisions who are
not executive officers or directors of Allied.
Term of Office
Our directors have been elected or appointed to the board of directors for a one (1) year term or until the
next annual meeting of our shareholders or until removed in accordance with our bylaws. Our sole
executive officer was appointed by our board of directors and holds office at the discretion of the board in
accordance with terms of his agreement with Allied.
Family Relationships
There are no family relationships between or among the directors or executive officers.
Involvement in Certain Legal Proceedings
During the past ten years there are no events that occurred related to an involvement in legal proceedings
that are material to an evaluation of the ability or integrity of any of Allied’s directors, persons nominated to
become directors or executive officers.
Compliance with Section 16(A) of the Exchange Act
Based solely upon a review of the Forms 3, 4 and 5 furnished to Allied, we are not aware of any person who,
during the period ended December 31, 2014, failed to file, on a timely basis, reports required by Section
16(a) of the Securities Exchange Act of 1934.
Code of Ethics
Allied has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-B of the Securities
Exchange Act of 1934. The Code of Ethics applies to directors and senior officers, such as the principal
executive officer, principal financial officer, controller, and persons performing similar functions. Allied
has incorporated a copy of its Code of Ethics as Exhibit 14 to this Form 10-K. Further, our Code of Ethics is
available in print, at no charge, to any security holder who requests such information by contacting us.
32
Board of Directors Committees
Allied has formed an audit committee from the board of directors that assists the chief executive officer in
fulfilling its oversight responsibilities by reviewing the financial information which will be provided to the
shareholders and others; reviewing the systems of internal controls which management and the board of
directors have established; appointing, retaining and overseeing the performance of independent
accountants; and overseeing Allied’s accounting and financial reporting processes and the audit of its
financial statements.
Allied’s board of directors has not established a compensation committee.
Director Compensation
Directors currently are not reimbursed for out-of-pocket costs incurred in attending meetings but
non-executive directors are compensated for their service as directors in the amount $500 per meeting.
During the year ended December 31, 2014, Allied compensated each of its non-executive directors for their
participation in four meetings of the board of directors held over the annual period.
During the year ended December 31, 2014, Allied compensated one of its directors pursuant to a consulting
agreement with him for services rendered as corporate secretary for annual compensation of $3,000.
During the year ended December 31, 2014, Allied compensated one of its directors, pursuant to an
executive agreement with him for services rendered as chief executive officer, chief financial officer, and
principal accounting officer, for annual compensation of $120,000. He was further compensated in the
annual amount of $12,000 for providing office space to Allied.
The following table provides summary information for the year 2014 concerning cash and non-cash
compensation paid or accrued by Allied to or on behalf of our directors.
Directors’ Summary Compensation Table
Name
Fees earned
Stock
Option
Non-equity
Nonqualified
All other
Total
or paid in
awards
Awards
incentive plan
deferred
compensation
($)
cash
($)
($)
compensation
compensation
($)
($)
($)
($)
Ruairidh Campbell
120,000*
-
-
-
-
12,000**
132,000
Paul Crow
2,000
-
-
-
-
3,000***
5,000
Ed Haidenthaller
2,000
-
-
-
-
-
2,000
*
Pursuant to a consulting agreement; amount paid to Mr. Campbell for services rendered as chief executive officer, chief
financial officer and principal accounting officer.
**
Pursuant to a month to month lease agreement; amount paid to Mr. Campbell for the provision of office space.
***
Pursuant to a consulting agreement; amount paid to Mr. Crow for services rendered as corporate secretary.
33
ITEM 11.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The objective of Allied’s compensation program is to provide compensation for services rendered by our
sole executive officer in the form of a consulting fee and stock option grants. We utilize these forms of
compensation because we believe that these forms of consideration are adequate to both retain and motivate
our executive officer. The amounts we deem appropriate to compensate our executive officer are
determined in accordance with market forces; we have no specific formula to determine compensatory
amounts at this time. While we have deemed that our current compensatory program and the decisions
regarding compensation are easy to administer and are appropriately suited for our objectives, we may
expand our compensation program to any additional future employees to include options and other
compensatory elements.
Executive compensation for the year ended December 31, 2014 was $132,000 as compared to $148,000 for
the year ended December 31, 2013. The decrease can be attributed to the full vesting of stock option grants
in the prior year. Compensation includes a monthly consulting fee, stock options and rent paid to our sole
executive officer in exchange for office space. Outside of the stock option grant, the consistency in
executive compensation in the comparative annual periods is attributable to Allied’s executive agreement
with its sole executive officer. We anticipate that executive compensation will remain relatively consistent
over the remaining term of the five year agreement.
Tables
The following table provides summary information for the years 2014, and 2013 concerning cash and
non-cash compensation paid or accrued by Allied to or on behalf of (i) the chief executive officer and (ii)
any other employee to receive compensation in excess of $100,000.
Officer’s Summary Compensation Table
Name and
Year
Salary
Bonus
Stock
Option
Non-Equity
Change in
All Other
Total
Principal
($)
($)
Awards
Awards
Incentive Plan
Pension Value
Compensation
($)
Position
($)
($)
Compensation
and
($)
($)
Nonqualified
Deferred
Compensation
($)
Ruairidh
2014 120,000
-
-
-
-
-
12,000
132,000
Campbell,
2013 120,000
-
-
16,000
-
-
12,000
148,000
CEO, CFO,
PAO and
director
34
The following table provides summary information for 2014 concerning unexercised options, stock that has
not vested, and equity incentive plan awards by Allied to or on behalf of (i) the chief executive officer and
(ii) any other employee to receive compensation in excess of $100,000:
Outstanding Equity Awards at Fiscal Year-End
Option awards
Stock awards
Equity
Equity
incentive
incentive
plan
plan
awards:
awards:
market or
Equity
number
payout
incentive
Market
of
value of
plan
value of unearned unearned
awards:
Number
shares
shares,
shares,
Number of
Number of
number of
of shares or units
units or
units or
securities
securities
securities
or units
of stock
other
other
underlying
underlying
underlying
of stock
that
rights
rights
unexercised
unexercised
unexercised
Option
that
have
that have that have
options
options
unearned
exercise
Option
have not
not
not
not
(#)
(#)
options
price
expiration
vested
vested
vested
vested
Name
exercisable unexercisable
(#)
($)
date
(#)
(#)
(#)
($)
Ruairidh
Campbell
500,000
0
-
0.35
Dec 31,
2018
-
-
-
-
Allied has an executive agreement with its executive officer, effective July 1, 2013, through June 30, 2018,
for (i) an annual salary of $120,000, (ii) at Allied’s discretion, an annual bonus, and (iii) tenure based
incentive stock options. The stock options have not yet been granted.
Allied has no plans that provides for the payment of retirement benefits, or benefits that will be paid
primarily following retirement.
Allied has no agreement that provides for payment to our executive officer at, following, or in connection
with the resignation, retirement or other termination, or a change in control of Allied or a change in our
executive officer's responsibilities following a change in control.
35
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information concerning the ownership of Allied’s 5,653,011 shares of
common stock issued and outstanding as of April 15, 2015, with respect to: (i) all directors; (ii) each person
known by us to be the beneficial owner of more than five percent of our common stock; and (iii) our
directors and executive officers as a group.
Names and Addresses of Managers
Title of Class
Number of
Percent of
and Beneficial Owners
Shares
Class
Ruairidh Campbell
3002 Kinney Avenue
Common
2,060,000*
36.4
Austin, Texas 78704
Ed Haidenthaller
1193 East 800 North
Common
10,000**
<1.0
Layton, Utah 84040
Paul Crow
1185 East 5840 South
Common
10,000***
<1.0
Salt Lake City, Utah 84121
All Executive Officers and Directors
as a Group (3)
Common
2,080,000
36.4
* Ruairidh Campbell holds 500,000 vested options to purchase 500,000 common shares at $0.35.
** Ed Haidenthaller holds 50,000 vested options to purchase 50,000 common shares at $0.35.
*** Paul Crow holds 50,000 vested options to purchase 50,000 common shares at $0.35.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
None of our directors or executive officers, nor any person who beneficially owns, directly or indirectly,
shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any
members of the immediate family (including spouse, parents, children, siblings, and in−laws) of any of the
foregoing persons has any material interest, direct or indirect, in any transaction in the period covered by
this report or in any presently proposed transaction which, in either case, has or will materially affect us.
Director Independence
Allied is quoted on the OTC Bulletin Board inter-dealer quotation system, which does not have director
independence requirements. However, for purposes of determining director independence, we have applied
the definitions set out in NASDAQ Rule 4200(a)(15). NASDAQ Rule 4200(a)(15) states that a director is
not considered to be independent if he or she is also an executive officer or employee of the corporation.
Accordingly, we consider Mr. Haidenthaller to be an independent director.
36
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The following is a summary of the fees billed to us by Jones Simkins LLC (“Jones Simkins”) for
professional services rendered for the past two fiscal years:
Auditors’ Fees and Services
2014
2013
Audit fees
$
40,245 $
40,200
Audit-related fees
-
-
Tax fees
7,030
6,525
All other fees.
-
-
Total fees paid or accrued to our principal accountants $
47,275 $
46,725
Audit Fees consist of fees billed for professional services rendered for the audit of our financial statements
and review of the interim financial statements included in quarterly reports and services that are normally
provided by Jones Simkins in connection with statutory and regulatory filings or engagements.
Audit Committee Pre-Approval
All services provided to Allied by Jones Simkins as detailed above, were pre-approved by Allied’s audit
committee. Jones Simkins performed all work only with their permanent full time employees.
37
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
The following documents are filed under “Item 8. Financial Statements and Supplementary Data,” pages
F-1 through F-20, and are included as part of this Form 10-K:
Financial Statements of Allied for the years ended December 31, 2014 and 2013:
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statement of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
Schedules of Supplementary Information on Oil and Gas Operations
(b) Exhibits
The exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on
page 40 of this Form 10-K, and are incorporated herein by this reference.
(c) Financial Statement Schedules
We are not filing any financial statement schedules as part of this Form 10-K because such schedules are
either not applicable or the required information is included in the financial statements or notes thereto.
38
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.
Allied Resources, Inc.
Date
/s/ Ruairidh Campbell
By: Ruairidh Campbell
April 15, 2015
Its: Chief Executive Officer, Chief Financial Officer, Principal
Accounting Officer and Director
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 the dates indicated.
Date
/s/ Ruairidh Campbell
Ruairidh Campbell
Chief Executive Officer, Chief Financial Officer, Principal Accounting
April 15, 2015
Officer and Director
/s/ Ed Haidenthaller
April 15, 2015
Ed Haidenthaller
Director
/s/ Paul Crow
Paul Crow
April 15, 2015
Director
39
INDEX TO EXHIBITS
Exhibit
Description
3.1*
Articles of Incorporation dated February 12, 2002 (incorporated by reference to the Form
10-SB/A filed on April 21, 2003).
3.2 *
Bylaws (incorporated by reference to the Form 10-SB/A filed on April 21, 2003).
10.1 *
Oil and Gas Well Operating Agreement between Allied and Allstate Energy Corporation
dated May 1, 1996 (incorporated by reference to the Form 10SB/A filed on April 21, 2003).
10.2 *
Amendments to Operating Agreements between Allied and Allstate Energy Corporation
dated May 10, 1996 (incorporated by reference to the Form 10SB/A filed on April 21,
2003).
10.3 *
Form Gas Purchase Agreement (incorporated by reference to the Form 10SB/A filed on
April 21, 2003).
10.4*
Executive Agreement between Allied and Ruairidh Campbell dated July 1, 2013 filed on
March 31, 2014.
14 *
Code of Ethics adopted May 3, 2004 (incorporated by reference to the Form 10-KSB filed
on May 26, 2004).
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule
13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (attached).
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(attached).
99.1 *
Allied Resources, Inc. 2008 Stock Option Plan (incorporated by reference to the Form 10-Q
filed on November 14, 2008).
Reserve report from Sure Engineering, LLC (attached).
101. INS
XBRL Instance Document†
101. PRE
XBRL Taxonomy Extension Presentation Linkbase†
101. LAB
XBRL Taxonomy Extension Label Linkbase†
101. DEF
XBRL Taxonomy Extension Label Linkbase†
101. CAL
XBRL Taxonomy Extension Label Linkbase†
101. SCH
XBRL Taxonomy Extension Schema†
*
Incorporated by reference to previous filings of Allied.
†
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed
“furnished” and not “filed” or part of a registration statement or prospectus for purposes of
Section 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for
purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not
subject to liability under these sections.
40