As filed with the Securities and Exchange Commission on May 8, 2014
Registration No.333-192228
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1/A
Amendment No. 3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THREE FORKS, INC.
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(Exact name of registrant as specified in its charter)
COLORADO 1381 45-4915308
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
555 ELDORADO BLVD., SUITE 100, BROOMFIELD, COLORADO 80021/ PHONE (303)404-2160
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(Address and telephone number of principal executive offices)
W. EDWARD NICHOLS, CHIEF EXECUTIVE OFFICER AND DIRECTOR
555 ELDORADO BLVD., SUITE 100, BROOMFIELD, COLORADO 80021/ PHONE (303)404-2160
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(Name, address and telephone number of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
Michael A. Littman, Attorney at Law
7609 Ralston Road, Arvada, CO, 80002 phone 303-422-8127 / fax 303-431-1567
Approximate date of commencement of proposed sale to the public: As soon as
possible after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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.
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Large accelerated filer [___] Accelerated filer [___]
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Non-accelerated filer [___] Smaller reporting company [_X_]
(Do not check if a smaller
reporting company)
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CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE AGGREGATE OFFERING REGISTRATION
PRICE(1) FEE
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Common Stock by Selling 3,637,028 $1.50 $5,455,542 $702.67 (2)
Shareholders
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act.
(2) The Registration Fee of $702.67 was paid in November 2013.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
ii
(SUBJECT TO COMPLETION)
PROSPECTUS
THREE FORKS, INC.
3,637,028 SHARES OF COMMON STOCK OF SELLING SHAREHOLDERS
We are registering:
(a) 3,637,028 shares listed for sale on behalf of selling shareholders;
We will NOT receive any proceeds from sales of shares by selling shareholders.
Our selling shareholders plan to sell common shares at $1.50, until such time as
a market develops for any of the securities and thereafter at such prices as the
market may dictate from time to time. There is no market price for the stock and
our pricing is arbitrary with no relation to market value, liquidation value,
earnings or dividends. The price was arbitrarily set at $1.50 per share, based
on speculative concept unsupported by any other comparables. We have set the
initial fixed price as follows:
TITLE PRICE PER SHARE
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Common Stock $1.50
At any time after a market develops, our security holders may sell their
securities at market prices or at any price in privately negotiated
transactions.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK; SEE "RISK FACTORS" BEGINNING ON
PAGE 7 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE
COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR ANY STATE OR PROVINCIAL SECURITIES
COMMISSION, NOR HAS THE SEC OR ANY STATE OR PROVINCIAL SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
We intend to obtain a listing for our stock on an exchange in the future, but
cannot make any assurances that we will be approved for such listing, as the
exchanges have certain listing requirements that we would have to meet. An
application has not yet been filed, nor is there any selected broker/dealer to
file on our behalf as of yet. Our common stock is presently not listed on any
national securities exchange or the NASDAQ Stock Market or any other venue.
This offering will be on a delayed and continuous basis only for sales of
selling shareholders shares. The selling shareholders are not paying any of the
offering expenses and we will not receive any of the proceeds from the sale of
the shares by the selling shareholders. (See "Description of Securities -
Shares").
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the date that the registration statement
relating to these securities, which has been filed with the Securities and
Exchange Commission, becomes effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
The date of this Prospectus is May 8, 2014.
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TABLE OF CONTENTS
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PART I - INFORMATION REQUIRED Page No.
IN PROSPECTUS
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ITEM 1. Front of Registration Statement and Outside Front Cover Page
of Prospectus
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ITEM 2. Prospectus Cover Page 1
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ITEM 3. Prospectus Summary Information, Risk Factors and Ratio of 3
Earnings to Fixed Charges
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ITEM 4. Use of Proceeds 14
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ITEM 5. Determination of Offering Price 15
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ITEM 6. Dilution 16
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ITEM 7. Selling Security Holders 16
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ITEM 8. Plan of Distribution 21
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ITEM 9. Description of Securities 21
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ITEM 10. Interest of Named Experts and Counsel 23
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ITEM 11. Information with Respect to the Registrant 23
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a. Description of Business 23
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b. Description of Property 34
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c. Legal Proceedings 39
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d. Market for Common Equity and Related Stockholder Matters 39
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e. Financial Statements 40
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f. Selected Financial Data 41
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g. Supplementary Financial Information 41
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h. Management's Discussion and Analysis of Financial Condition 41
and Results of Operations
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i. Changes In and Disagreements With Accountants on Accounting 46
and Financial Disclosure
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j. Quantitative and Qualitative Disclosures About Market Risk 46
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k. Directors and Executive Officers 46
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l. Executive and Directors Compensation 50
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m. Security Ownership of Certain Beneficial Owners and 54
Management
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n. Certain Relationships, Related Transactions, Promoters And 56
Control Persons
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ITEM 11 A. Material Changes 59
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ITEM 12. Incorporation of Certain Information by Reference 60
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ITEM 12 A. Disclosure of Commission Position on Indemnification for 62
Securities Act Liabilities
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PART II - INFORMATION NOT
REQUIRED IN PROSPECTUS
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ITEM 13. Other Expenses of Issuance and Distribution 63
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ITEM 14. Indemnification of Directors and Officers 63
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ITEM 15. Recent Sales of Unregistered Securities 64
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ITEM 16. Exhibits and Financial Statement Schedules 72
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ITEM 17. Undertakings 74
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Signatures 75
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ITEM 3. PROSPECTUS SUMMARY INFORMATION, RISK FACTORS AND RATIO OF EARNINGS TO
FIXED CHARGES
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OUR COMPANY
Three Forks, Inc. (hereafter "Three Forks," "we," "us," or "our") was
incorporated on March 28, 2012 in the State of Colorado. Our business plan
focuses on our development as an independent energy company engaged in the
acquisition, exploration, development and production of North American
conventional oil and gas properties through the acquisition of leases and/or
royalty interests.
At present, our current oil and gas projects consist of:
- In Archer County, Texas, we are a 49% working interest ("WI") owner in
a joint venture agreement where the joint venture has drilled and
completed one well.
- In Archer County, Texas, we have a 11% WI through a Farmout in 290
net, 320 gross acres with 5 wells. We are also the manager of Three
Forks No. 1, LLC ("Three Forks No. 1") which owns 87% of the working
interest in the Farmout acreage.
- In Pottawatomie County, Oklahoma, we have a 25% WI in 290/290
net/gross acres upon which the first well was drilled in July 2013 and
has now been completed and is being put into production.
- The Five JAB project located in Southeast Texas - Southwest Louisiana
where we have a non-operated 75% WI in 13 producing wells, 9 service
wells and 14 additional wellbores.
We intend to acquire additional acreage to drill in other areas where deemed
attractive, though no such additional prospects have been identified at the time
of this filing.
On September 7, 2012, we acquired working interests between 10.12% and 10.50% in
5 producing oil and gas wells along with mineral interests in proved undeveloped
leaseholds totaling approximately 320 acres located in Weld County, Colorado
valued at $1,477,990, as well as, a 76.25% working interest in undeveloped
leaseholds totaling approximately 120 acres located in Morgan County, Colorado
valued at $14,000 in exchange for the issuance of 700,000 shares of the
Company's restricted common stock valued at $1,400,000 or $2.00 per share and
the assumption of certain debt in the amount of $91,990. In addition, we were
required to fund an escrow account in the amount of $55,000 for legal services
that may occur over a three year period from the date of the acquisition until
December 31, 2014. This escrow account at December 31, 2013 and December 31,
2012 has a balance of $55,163 and $55,081, respectively. On January 1, 2013, we
sold our entire interest in these oil and gas properties located in Weld County,
Colorado, for $1,600,000 in cash.
Our Auditors have issued a going concern opinion and the reasons noted for
issuing the opinion are our lack of revenues and modest capital.
Factors that make this offering highly speculative or risky are:
o There is a limited market for any securities;
o We have minimal revenues or sales; and
o We are undercapitalized.
Our principal executive offices are located at 555 Eldorado Boulevard, Suite
100, Broomfield, Colorado 80021 and our telephone number is (303) 404-2160. We
maintain a website at www.threeforksinc.com, such website is not incorporated
into or a part of this filing.
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SUMMARY OF FINANCIAL INFORMATION
The Summary Financial Information presented below is at December 31, 2013.
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As at December 31, 2013
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Total Assets $6,369,603
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Current Liabilities $2,929,355
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Shareholders' Equity $3,132,394
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For the Year Ended December 31, 2013
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Revenues $894,128
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Net Loss $1,527,205
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As of December 31, 2013, the accumulated deficit was $(2,508,492). We anticipate
that we will operate in a deficit position and continue to sustain net losses
for the foreseeable future.
THE OFFERING
We are registering 3,637,028 shares listed for sale on behalf of selling
shareholders.
Our common stock, only, will be transferable immediately after the closing of
this offering. (See "Description of Securities")
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Common shares outstanding before this offering 11,503,477
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Maximum common shares being offered by our existing
selling shareholders 3,637,028
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Maximum common shares outstanding after this offering 11,503,477
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We are authorized to issue 100,000,000 shares of common stock and 25,000,000
shares of preferred stock. Our current shareholders, officers and directors
collectively own 11,681,447, shares of restricted common stock as of December
31, 2013. These shares were issued in the following amounts and at the following
prices including 625,000 shares redeemed by the Company:
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Number of Shares Consideration Price Per Share
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2,627,515 Cash $0.01
225 Cash $0.50
1,505,051 Cash $1.00
100,001 Cash $1.50
25,000 Cash $2.00
187,630 Cash $2.25
911,055 Cash $3.00
6,250,000 Services $0.01 to $0.088
700,000 Purchase of Property $2.00
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There is currently no public market for our shares as it is presently not traded
on any market or securities exchange.
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GLOSSARY
The following are definitions of terms used in this Memorandum:
BBL. An abbreviation for the term "barrel" which is a unit of measurement
of volume of oil or related petroleum products. One barrel (one bbl) is the
equivalent of 42 U.S. gallons or approximately 159 liters.
BONUS PAYMENT. Usually a one time payment made to a mineral owner as
consideration for the execution of an oil and gas lease.
CASING POINT. That point in time during the drilling of an oil well at
which a decision is made to install well casing and to attempt to complete the
well as an oil producer.
COMPLETION. The procedure used in finishing and equipping an oil or gas
well for production.
DELAY RENTAL. Payment made to the lessor under a nonproducing oil and gas
lease at the end of each year to continue the lease in force for another year
during its primary term.
DEVELOPMENT WELL. A well drilled to a known producing formation in a
previously discovered field, usually offsetting a producing well on the same or
an adjacent oil and gas lease.
EXPLORATORY WELL. A well drilled either (a) in search of a new and as yet
undiscovered pool of oil or gas or (b) with the hope of significantly extending
the limits of a pool already developed (also known as a "wildcat well").
FARMIN. An agreement which allows a party earn a full or partial working
interest (also known as an "earned working interest") in an oil and gas lease in
return for providing exploration or development funds.
FARMOUT. An agreement whereby the owner of the leasehold or working
interest agrees to assign a portion of his interest in certain acreage subject
to the drilling of one or more specific wells or other performance by the
assignee as a condition of the assignment. Under a farmout, the owner of the
leasehold or working interest may retain some interest such as an overriding
royalty interest, an oil and gas payment, offset acreage or other type of
interest.
GROSS ACRE. An acre in which a working interest is owned. The number of
gross acres is the total number of acres in which an interest is owned (see "Net
Acre" below).
GROSS WELL. A well in which a working interest is owned. The number of
gross wells is the total number of wells in which a working interest is owned.
LANDOWNER ROYALTY. That interest retained by the holder of a mineral
interest upon the execution of an oil and gas lease which usually ranges from
1/8 to 1/4 of all gross revenues from oil and gas production unencumbered with
an expenses of operation, development or maintenance.
LEASES. Full or partial interests in oil or gas properties authorizing the
owner of the lease to drill for, produce and sell oil and gas upon payment of
rental, bonus, royalty or any of them. Leases generally are acquired from
private landowners (fee leases) and from federal and state governments on
acreage held by them.
LEASE PLAY. A term used to describe lease acquisition activity in a
prospect or geologically defined area.
MCF. An abbreviation for "1,000 cubic feet," which is a unit of measurement
of volume for natural gas.
NET WELL OR ACRE. A net well or acre exists when the sum of the fractional
ownership working interests in gross wells or acres equals one. The number of
net wells or acres is the sum of the factional working interests owned in gross
wells or acres expressed as whole number and fractions thereof.
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NET REVENUE INTEREST. The fractional undivided interest in the oil or gas
or in the revenues from the sale of oil or gas attributable to a particular
working interest after reduction for a proportionate share of landowner's
royalty interest and overriding royalty interest.
OVERRIDING ROYALTY. An interest in the gross revenues or production over
and above the landowner's royalty carved out of the working interest and also
unencumbered with any expenses of operation, development or maintenance.
PAYOUT. The point in time when the cumulative total of gross income from
the production of oil and gas from a given well (and any proceeds from the sale
of such well) equals the cumulative total cost and expenses of acquiring,
drilling, completing and operating such well, including tangible and intangible
drilling and completion costs.
PROSPECT. A geological area which is believed to have the potential for oil
or gas production.
PROVED RESERVES. Proved oil and gas reserves are those quantities of oil
and gas, which, by analysis of geoscience and engineering data, can be estimated
with reasonable certainty to be economically producible - from a given date
forward, from known reservoirs, and under existing economic conditions,
operating methods, and government regulations - prior to the time at which
contracts providing the right to operate expire, unless evidence indicates that
renewal is reasonably certain, regardless of whether deterministic or
probabilistic methods are used for the estimation. The project to extract the
hydrocarbons must have commenced or the operator must be reasonably certain that
it will commence the project within a reasonable time.
The area of the reservoir considered as proved includes all of the
following: (a) the area identified by drilling and limited by fluid contacts, if
any, and (b) adjacent undrilled portions of the reservoir that can, with
reasonable certainty, be judged to be continuous with it and to contain
economically producible oil or gas on the basis of available geoscience and
engineering data. In the absence of data on fluid contacts, proved quantities in
a reservoir are limited by the lowest known hydrocarbons as seen in a well
penetration unless geoscience, engineering, or performance data and reliable
technology establish a lower contact with reasonable certainty.
Reserves that can be produced economically through application of improved
recovery techniques (including but not limited to, fluid injection) are included
in the proved classification when both of the following occur: (a) successful
testing by a pilot project in an area of the reservoir with properties no more
favorable than in the reservoir as a whole, the operation of an installed
program in the reservoir of an analogous reservoir, or other evidence of
reliable technology establishes the reasonable certainty of the engineering
analysis on which the project or program was based, and (b) the project has been
approved for development by all necessary parties and entities, including
governmental entities.
Existing economic conditions include prices and costs at which economic
productivity from a reservoir is to be determined. The price shall be the
average price during the 12-month period prior to the ending date of the period
covered by the report, determined as an unweighted arithmetic average of the
first-day-of-the-month price for each month within such period, unless prices
are defined by contractual arrangements, excluding escalations based upon future
conditions.
PROVED DEVELOPED RESERVES. Proved reserves that can be expected to be
recovered: (i) through existing wells with existing equipment and operating
methods or in which the cost of the required equipment is relatively minor
compared to the costs of a new well; and (ii) through installed extraction
equipment and infrastructure operational at the time of the reserve estimate if
the extraction is by means not involving a well.
PROVED UNDEVELOPED RESERVES. Proved reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those directly offsetting development spacing areas
that are reasonably certain of production when drilled, unless evidence using
reliable technology exists that establishes reasonable certainty of economic
productivity at greater distances. Undrilled locations can be classified as
having undeveloped reserves only if a development plan has been adopted
indicating that they are scheduled to be drilled within five years, unless the
specific circumstances, justify a longer time. Under no circumstances shall
estimates for undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
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contemplated, unless such techniques have been proved effective by actual
projects in the same reservoir or an analogous reservoir, or by other evidence
using reliable technology establishing reasonable certainty.
REVERSIONARY INTEREST. The portion of the working interest in an oil and
gas lease which will be returned to its former owner when payout occurs or after
a predetermined amount of production and income has been produced.
UNDEVELOPED LEASEHOLD ACREAGE. Leased acreage on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas.
WORKING INTEREST. An interest in an oil and gas lease entitling the holder
at its expense to conduct drilling and production operations on the leased
property and to receive the net revenues attributable to such interest, after
deducting the landowner's royalty, any overriding royalties, production costs,
taxes and other costs.
RISK FACTORS RELATED TO OUR COMPANY
Our securities, as offered hereby, are highly speculative and should be
purchased only by persons who can afford to lose their entire investment in us.
Each prospective investor should carefully consider the following risk factors,
as well as all other information set forth elsewhere in this prospectus, before
purchasing any of the shares of our common stock.
OUR BUSINESS HAS AN OPERATING HISTORY OF ONLY A YEAR AND A HALF AND IS UNPROVEN
AND THEREFORE RISKY.
We have only recently begun operations under the business plan discussed herein.
Stockholders should be made aware of the risk and difficulties encountered by a
new enterprise in the oil and gas industry, especially in view of the intense
competition from existing businesses in the industry.
WE HAVE A LACK OF REVENUE HISTORY AND STOCKHOLDERS CANNOT VIEW OUR PAST
PERFORMANCE SINCE WE HAVE A LIMITED OPERATING HISTORY.
We were incorporated on March 28, 2012 for the purpose of engaging in any lawful
business and have adopted a plan to engage the acquisition, exploration, and if
warranted, development of natural resource properties. During the period of
inception March 28, 2012 (inception) through December 31, 2012, we did recognize
revenues of $78,726 from the operations of our properties in Weld County,
Colorado, which were sold in January 2013, as well as, recognize revenues of
$1,026,715 through our predecessor from the operations of the Five Jab
properties. We recognized revenues during the twelve months ended December 31,
2013 of $894,128. We are not profitable. We must be regarded as a new venture
with all of the unforeseen costs, expenses, problems, risks and difficulties to
which such ventures are subject.
WE ARE NOT DIVERSIFIED AND WE WILL BE DEPENDENT ON ONLY ONE BUSINESS.
Because of the limited financial resources that we have, it is unlikely that we
will be able to diversify our operations. Our probable inability to diversify
our activities into more than one area will subject us to economic fluctuations
within the energy industry and therefore increase the risks associated with our
operations due to lack of diversification.
WE CAN GIVE NO ASSURANCE OF SUCCESS OR PROFITABILITY TO OUR STOCKHOLDERS.
There is no assurance that we will ever operate profitably. There is no
assurance that we will generate revenues or profits, or that the market price of
our common stock will be increased thereby.
WE MAY HAVE A SHORTAGE OF WORKING CAPITAL IN THE FUTURE WHICH COULD JEOPARDIZE
OUR ABILITY TO CARRY OUT OUR BUSINESS PLAN.
Our capital needs consist primarily of expenses related to geological
evaluation, general and administrative and exploration and workover
participation and could exceed $15,000,000 in the next twelve months. Such funds
are not currently committed, and we have cash of approximately $121,174 as of
December 31, 2013.
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If we find oil and gas reserves to exist on a prospect, we will need substantial
additional financing to fund the necessary exploration and development work.
Furthermore, if the results of that exploration and development work are
successful, we will need substantial additional funds for continued development.
There is no assurance that we will be successful in obtaining any financing.
These various financing alternatives may dilute the interest of our stockholders
and/or reduce our interest in the properties.
WE WILL NEED ADDITIONAL FINANCING FOR WHICH WE HAVE NO COMMITMENTS, AND THIS MAY
JEOPARDIZE EXECUTION OF OUR BUSINESS PLAN.
We have limited funds, and such funds may not be adequate to carryout the
business plan in the oil and gas industry. Our ultimate success depends upon our
ability to raise additional capital. We have not investigated the availability,
source, or terms that might govern the acquisition of additional capital and
will not do so until it determines a need for additional financing. If we need
additional capital, we have no assurance that funds will be available from any
source or, if available, that they can be obtained on terms acceptable to us. If
not available, our operations will be limited to those that can be financed with
our modest capital.
WE MAY IN THE FUTURE ISSUE MORE SHARES WHICH COULD CAUSE A LOSS OF CONTROL BY
OUR PRESENT MANAGEMENT AND CURRENT STOCKHOLDERS.
We may issue further shares as consideration for the cash or assets or services
out of our authorized but unissued common stock that would, upon issuance,
represent a majority of the voting power and equity of our Company. The result
of such an issuance would be those new stockholders and management would control
our Company, and persons unknown could replace our management at this time. Such
an occurrence would result in a greatly reduced percentage of ownership of our
Company by our current stockholders, which could present significant risks to
stockholders.
WE HAVE SECURED CONVERTIBLE DEBT WHICH IS CONVERTIBLE INTO OUR COMMON STOCK. A
CONVERSION OF SUCH DEBT COULD HAVE A DILUTIVE EFFECT TO EXISTING SHAREHOLDERS.
In September 2013, we commenced a private offering of $2,000,000 Secured
Convertible Promissory Notes in order to complete the purchase of the remaining
37.5% WI in the Five JABS property discussed above. These notes are due in
September 2014 and are convertible into shares of our common stock in whole or
in part at a conversion price of $3.60 per share 6 months after issuance of the
secured convertible promissory note. The conversion of the convertible
promissory notes into shares of our common stock could have a dilutive effect to
the holdings of our existing shareholders. The Secured Convertible Promissory
Notes are secured by the Company's 75% of the right, title and working interest
in 1,955 gross leasehold acres including 13 producing wells, 9 service wells and
14 additional wellbores located in the States of Texas and Louisiana, the Five
JABS properties. The offering was not fully subscribed and a total of $1,535,000
was raised. Tincup Oil and Gas, LLC of which Mr. Ranew, a director of the
Company, is a member, holds a Secured Convertible Promissory Note for $250,000.
At December 31, 2013, the Company owes a total of $1,475,000 in outstanding
secured convertible promissory notes.
On March 31, 2014, holders of the above promissory notes purchased 1,390,000
warrants issued by the Company in consideration for and cancellation of their
promissory notes issued to them by the Company in the amount of $1,390,000. A
warrant entitles the holder for a term of two years to purchase one share of
common stock of the Company at the rate of $1.00 per share. Therefore, as of
March 31, 2014, the Company issued 1,390,000 warrants to holders of the
promissory notes in cancellation of $1,390,000 in debt.
MR. POLLARD AND MR. RANEW, OFFICERS AND DIRECTORS OF THE COMPANY ARE HOLDERS OF
$600,000 OF THE SECURED CONVERTIBLE PROMISSORY NOTES AT TERMS DIFFERENT THAN
THOSE OF NON-AFFILIATED SECURED CONVERTIBLE PROMISSORY NOTE HOLDERS. A FAILURE
TO MEET THE TERMS OF SUCH DEBT, COULD RESULT IN THEM TAKING OWNERSHIP OF PART OF
THE ASSETS SECURING SUCH ASSETS.
Separately and apart, two members of management agreed to make up the difference
of the Secured Convertible Promissory Note Offering and the purchase price of
Five JABS in a separate transaction with separate terms with the Company. Mr.
Charles Pollard and Mr. Lester Ranew, officers and directors of the Company, in
exchange for secured convertible promissory notes provided the Company with a
total of $600,000 cash ($300,000 each). At December 31, 2013, the Company owes a
total of $600,000 to Mr. Pollard and Mr. Ranew.
-8-
Mr. Pollard's and Mr. Ranew's notes have a due date of January 2, 2014 and allow
for the conversion of the notes into common stock upon issuance. Their notes
provide that in addition to having a due date of January 2, 2014, that at the
due date they will each receive a $7,500 payment of fees and interest. If the
notes are not paid at January 2, 2014, the Company is required to take immediate
steps to liquidate the secured property and the due date will be extended to
April 2, 2014. At January 2, 2014, the Company failed to make payment on the
notes. At that time Mr. Pollard and Ranew each entered into an Extension and
Waiver with the Company. The Extension and Waiver provides that the payment date
shall be extended to April 2, 2014 and both holders have waived the provision
that steps be taken to liquidate the secured property at this time. On April 7,
2014, Mr. Pollard extended the payment date on his note to May 2, 2014 and if
the payment is not made or the property has not been liquidated then he will be
assigned a 5.625% interest in the Five JABS properties. On March 31, 2014, Mr.
Ranew purchased 300,000 warrants issued by the Company in consideration for and
cancellation of his promissory note issued to him by the Company in the amount
of $300,000.
WE HAVE AUTHORIZED AND DESIGNATED A CLASS A PREFERRED CONVERTIBLE STOCK, WHICH
HAVING VOTING RIGHTS EQUIVALENT TO OUR COMMON STOCK.
Class A Preferred Convertible Stock (the "Class A Preferred Stock") of which
500,000 shares of preferred stock have been authorized for the class and the
shares have a deemed purchase price at $4.50 per share. The Class A Preferred
Stock are to have voting rights equivalent to their conversion rate, one (1)
share of Class A Preferred Stock equals one (1) share of common stock. At this
time, no shares of the Class A Preferred Stock have been issued.
Holders of the Class A Preferred Stock would have the ability equal to that of
our common stockholders to vote in any vote of the common stockholders. The
Class A Preferred Stock would have a voting equivalent of 4.3%, if issued at
this time.
WE HAVE OPTIONS, WARRANTS AND CONVERTIBLE PROMISSORY NOTES ISSUED AND
OUTSTANDING WHICH ARE CONVERTIBLE INTO OUR COMMON STOCK. A CONVERSION OF SUCH
EQUITY INSTRUMENTS COULD HAVE A DILUTIVE EFFECT TO EXISTING STOCKHOLDERS.
As of December 31, 2013, we have options, warrants and convertible notes issued
and outstanding exercisable into 6,615,559 shares of our common stock at ranges
from $0.10 to $3.00 per share. The options, warrants and convertible promissory
notes are exercisable in whole or in part. The exercise of the options, warrants
and convertible promissory notes into shares of our common stock could have a
dilutive effect to the holdings of our existing stockholders.
OUR OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTERESTS AS TO CORPORATE
OPPORTUNITIES WHICH WE MAY NOT BE ABLE OR ALLOWED TO PARTICIPATE IN.
Presently there is no requirement contained in our Articles of Incorporation,
Bylaws, or minutes which requires officers and directors of our business to
disclose to us business opportunities which come to their attention. Our
officers and directors do, however, have a fiduciary duty of loyalty to us to
disclose to us any business opportunities which come to their attention, in
their capacity as an officer and/or director or otherwise. Excluded from this
duty would be opportunities which the person learns about through his
involvement as an officer and director of another company. We have no intention
of merging with or acquiring a business opportunity from any affiliate or
officer or director.
WE HAVE AGREED TO INDEMNIFICATION OF OFFICERS AND DIRECTORS AS IS PROVIDED BY
COLORADO STATUTES.
Colorado Statutes provide for the indemnification of our directors, officers,
employees, and agents, under certain circumstances, against attorney's fees and
other expenses incurred by them in any litigation to which they become a party
arising from their association with or activities our behalf. We will also bear
the expenses of such litigation for any of our directors, officers, employees,
or agents, upon such person's promise to repay us therefore if it is ultimately
determined that any such person shall not have been entitled to indemnification.
This indemnification policy could result in substantial expenditures by us that
we will be unable to recoup.
-9-
OUR DIRECTORS' LIABILITY TO US AND STOCKHOLDERS IS LIMITED
Colorado Statutes exclude personal liability of our directors and our
stockholders for monetary damages for breach of fiduciary duty except in certain
specified circumstances. Accordingly, we will have a much more limited right of
action against our directors that otherwise would be the case. This provision
does not affect the liability of any director under federal or applicable state
securities laws.
RISK FACTORS RELATING TO OUR BUSINESS
Any person or entity contemplating an investment in the securities offered
hereby should be aware of the high risks involved and the hazards inherent
therein. Specifically, the investor should consider, among others, the following
risks:
OUR BUSINESS, THE OIL AND GAS BUSINESS HAS NUMEROUS RISKS WHICH COULD RENDER US
UNSUCCESSFUL.
The search for new oil and gas reserves frequently results in unprofitable
efforts, not only from dry holes, but also from wells which, though productive,
will not produce oil or gas in sufficient quantities to return a profit on the
costs incurred. There is no assurance we will find or produce oil or gas from
any of the undeveloped acreage farmed out to us or which may be acquired by us,
nor are there any assurances that if we ever obtain any production it will be
profitable. (See "Business and Properties")
WE HAVE SUBSTANTIAL COMPETITORS WHO HAVE AN ADVANTAGE OVER US IN RESOURCES AND
MANAGEMENT.
We are and will continue to be an insignificant participant in the oil and gas
business. Most of our competitors have significantly greater financial
resources, technical expertise and managerial capabilities than us and,
consequently, we will be at a competitive disadvantage in identifying and
developing or exploring suitable prospects. Competitor's resources could
overwhelm our restricted efforts to acquire and explore oil and gas prospects
and cause failure of our business plan.
WE WILL BE SUBJECT TO ALL OF THE MARKET FORCES IN THE ENERGY BUSINESS, MANY OF
WHICH COULD POSE A SIGNIFICANT RISK TO OUR OPERATIONS.
The marketing of natural gas and oil which may be produced by our prospects will
be affected by a number of factors beyond our control. These factors include the
extent of the supply of oil or gas in the market, the availability of
competitive fuels, crude oil imports, the world-wide political situation, price
regulation, and other factors. Current economic and market conditions have
created dramatic fluctuations in oil prices. Any significant decrease in the
market prices of oil and gas could materially affect our profitability of oil
and gas activities.
There generally are only a limited number of gas transmission companies with
existing pipelines in the vicinity of a gas well or wells. In the event that
producing gas properties are not subject to purchase contracts or that any such
contracts terminate and other parties do not purchase our gas production, there
is assurance that we will be able to enter into purchase contracts with any
transmission companies or other purchasers of natural gas and there can be no
assurance regarding the price which such purchasers would be willing to pay for
such gas. There may, on occasion, be an oversupply of gas in the marketplace or
in pipelines; the extent and duration may affect prices adversely. Such
oversupply may result in reductions of purchases and prices paid to producers by
principal gas pipeline purchasers. (See "Our Business and Competition, Markets,
Regulation and Taxation.")
WE BELIEVE STOCKHOLDERS SHOULD CONSIDER CERTAIN NEGATIVE ASPECTS OF OUR
OPERATIONS.
DRY HOLES: We may expend substantial funds acquiring and potentially
participating in exploring properties which we later determine not to be
productive. All funds so expended will be a total loss to us.
TECHNICAL ASSISTANCE: We will find it necessary to employ technical
assistance in the operation of our business. As of the date of this Prospectus,
we have not contracted for any technical assistance. When we need it such
assistance is likely to be available at compensation levels we would be able to
pay.
UNCERTAINTY OF TITLE: We will attempt to acquire leases or interests in
leases by option, lease, farmout or by purchase. The validity of title to oil
-10-
and gas property depends upon numerous circumstances and factual matters (many
of which are not discoverable of record or by other readily available means) and
is subject to many uncertainties of existing law and our application. We intend
to obtain an oil and gas attorney's opinion of valid title before any
significant expenditure upon a lease.
GOVERNMENT REGULATIONS: The area of exploration of natural resources has
become significantly regulated by state and federal governmental agencies, and
such regulation could have an adverse effect on our operations. Compliance with
statutes and regulations governing the oil and gas industry could significantly
increase the capital expenditures necessary to develop our prospects.
NATURE OF OUR BUSINESS: Our business is highly speculative, involves the
commitment of high-risk capital, and exposes us to potentially substantial
losses. In addition, we will be in direct competition with other organizations
which are significantly better financed and staffed than we are.
GENERAL ECONOMIC AND OTHER CONDITIONS: Our business may be adversely
affected from time to time by such matters as changes in general economic,
industrial and international conditions; changes in taxes; oil and gas prices
and costs; excess supplies and other factors of a general nature.
OUR BUSINESS IS SUBJECT TO SIGNIFICANT WEATHER INTERRUPTIONS.
Our activities may be subject to periodic interruptions due to weather
conditions. Weather-imposed restrictions during certain times of the year on
roads accessing properties could adversely affect our ability to benefit from
production on such properties or could increase the costs of drilling new wells
because of delays.
WE ARE SUBJECT TO SIGNIFICANT OPERATING HAZARDS AND UNINSURED RISK IN THE ENERGY
INDUSTRY.
Our proposed operations will be subject to all of the operating hazards and
risks normally incident to exploring, drilling for and producing oil and gas,
such as encountering unusual or unexpected formations and pressures, blowouts,
environmental pollution and personal injury. We will maintain general liability
insurance but we have not obtained insurance against such things as blowouts and
pollution risks because of the prohibitive expense. Should we sustain an
uninsured loss or liability, or a loss in excess of policy limits, our ability
to operate may be materially adversely affected.
WE ARE SUBJECT TO FEDERAL INCOME TAX LAWS AND CHANGES THEREIN WHICH COULD
ADVERSELY IMPACT US.
Federal income tax laws are of particular significance to the oil and gas
industry in which we engage. Legislation has eroded various benefits of oil and
gas producers and subsequent legislation could continue this trend. Congress is
continually considering proposals with respect to Federal income taxation which
could have a material adverse effect on our future operations and on our ability
to obtain risk capital which our industry has traditionally attracted from
taxpayers in high tax brackets.
WE ARE SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION IN THE ENERGY INDUSTRY WHICH
COULD ADVERSELY IMPACT US.
The production and sale of oil and gas are subject to regulation by state and
federal authorities, the spacing of wells and the prevention of waste. There are
both federal and state laws regarding environmental controls which may
necessitate significant capital outlays, resulting in extended delays,
materially affect our earnings potential and cause material changes in the in
our proposed business. We cannot predict what legislation, if any, may be passed
by Congress or state legislatures in the future, or the effect of such
legislation, if any, on us. Such regulations may have a significant effect on
our operating results.
-11-
RISK FACTORS RELATED TO OUR STOCK
NO PUBLIC MARKET EXISTS FOR OUR COMMON STOCK AT THIS TIME, AND THERE IS NO
ASSURANCE OF A FUTURE MARKET.
There is no public market for our common stock, and no assurance can be given
that a market will develop or that a shareholder ever will be able to liquidate
his investment without considerable delay, if at all. If a market should
develop, the price may be highly volatile. Factors such as those discussed in
the "Risk Factors" section may have a significant impact upon the market price
of the shares offered hereby. Due to the low price of our securities, many
brokerage firms may not be willing to effect transactions in our securities.
Even if a purchaser finds a broker willing to effect a transaction in our
shares, the combination of brokerage commissions, state transfer taxes, if any,
and any other selling costs may exceed the selling price. Further, many lending
institutions will not permit the use of our shares as collateral for any loans.
OUR STOCK, IF EVER LISTED, WILL IN ALL LIKELIHOOD BE THINLY TRADED AND AS A
RESULT YOU MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF YOU NEED TO
LIQUIDATE YOUR SHARES.
The shares of our common stock, if ever listed, may be thinly-traded. We are a
small company which is relatively unknown to stock analysts, stock brokers,
institutional stockholders and others in the investment community that generate
or influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven, early stage company such as ours or purchase or recommend the purchase
of any of our Securities until such time as we became more seasoned and viable.
As a consequence, there may be periods of several days or more when trading
activity in our Securities is minimal or non-existent, as compared to a seasoned
issuer which has a large and steady volume of trading activity that will
generally support continuous sales without an adverse effect on Securities
price. We cannot give you any assurance that a broader or more active public
trading market for our common Securities will develop or be sustained, or that
any trading levels will be sustained. Due to these conditions, we can give
stockholders no assurance that they will be able to sell their shares at or near
ask prices or at all if they need money or otherwise desire to liquidate their
securities.
OUR COMMON STOCK MAY BE VOLATILE, WHICH SUBSTANTIALLY INCREASES THE RISK THAT
YOU MAY NOT BE ABLE TO SELL YOUR SECURITIES AT OR ABOVE THE PRICE THAT YOU MAY
PAY FOR THE SECURITY.
If we are able to obtain an exchange listing of our common stock in the future,
because of the possible price volatility, you may not be able to sell your
shares of common stock when you desire to do so. The inability to sell your
securities in a rapidly declining market may substantially increase your risk of
loss because of such illiquidity and because the price for our securities may
suffer greater declines because of our price volatility.
The price of our common stock that will prevail in the market after this
offering may be higher or lower than the price you may pay. Certain factors,
some of which are beyond our control, that may cause our share price to
fluctuate significantly include, but are not limited to the following:
o Variations in our quarterly operating results;
o Loss of a key relationship or failure to complete significant
transactions;
o Additions or departures of key personnel; and
o Fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, has experienced
extreme price and volume fluctuations. In some cases, these fluctuations are
unrelated or disproportionate to the operating performance of the underlying
company. These market and industry factors may materially and adversely affect
our stock price, regardless of our operating performance. In the past, class
action litigation often has been brought against companies following periods of
volatility in the market price of those companies common stock. If we become
involved in this type of litigation in the future, it could result in
substantial costs and diversion of management attention and resources, which
could have a further negative effect on your investment in our stock.
THE REGULATION OF PENNY STOCKS BY THE SEC AND FINRA MAY DISCOURAGE THE
TRADABILITY OF OUR SECURITIES.
We are a "penny stock" company, as our stock price is less than $5.00 per share.
If we are able to obtain an exchange listing for our stock, we cannot make an
-12-
assurance that we will be able to maintain a stock price greater than $5.00 per
share and if the share price was to fall to such prices, that we wouldn't be
subject to the Penny Stocks rules. None of our securities currently trade in any
market and, if ever available for trading, will be subject to a Securities and
Exchange Commission rule that imposes special sales practice requirements upon
broker-dealers who sell such securities to persons other than established
customers or accredited stockholders. For purposes of the rule, the phrase
"accredited stockholders" means, in general terms, institutions with assets in
excess of $5,000,000, or individuals having a net worth in excess of $1,000,000
or having an annual income that exceeds $200,000 (or that, when combined with a
spouse's income, exceeds $300,000). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Effectively, this discourages broker-dealers from executing trades in
penny stocks. Consequently, the rule will affect the ability of purchasers in
this offering to sell their securities in any market that might develop
therefore because it imposes additional regulatory burdens on penny stock
transactions.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange
Act of 1934, as amended. Because our securities constitute "penny stocks" within
the meaning of the rules, the rules would apply to us and to our securities. The
rules will further affect the ability of owners of shares to sell our securities
in any market that might develop for them because it imposes additional
regulatory burdens on penny stock transactions.
Stockholders should be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired consequent investor losses. Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
Inventory in penny stocks have limited remedies in the event of violations of
penny stock rules. While the courts are always available to seek remedies for
fraud against us, most, if not all, brokerages require their customers to sign
mandatory arbitration agreements in conjunctions with opening trading accounts.
Such arbitration may be through an independent arbiter. Stockholders may file a
complaint with FINRA against the broker allegedly at fault, and FINRA may be the
arbiter, under FINRA rules. Arbitration rules generally limit discovery and
provide more expedient adjudication, but also provide limited remedies in
damages usually only the actual economic loss in the account. Stockholders
should understand that if a fraud case is filed an against a company in the
courts it may be vigorously defended and may take years and great legal expenses
and costs to pursue, which may not be economically feasible for small
stockholders.
That absent arbitration agreements, specific legal remedies available to
stockholders of penny stocks include the following:
If a penny stock is sold to the investor in violation of the requirements listed
above, or other federal or states securities laws, the investor may be able to
cancel the purchase and receive a refund of the investment.
If a penny stock is sold to the investor in a fraudulent manner, the investor
may be able to sue the persons and firms that committed the fraud for damages.
The fact that we are a penny stock company will cause many brokers to refuse to
handle transactions in the stocks, and may discourage trading activity and
volume, or result in wide disparities between bid and ask prices. These may
cause stockholders significant illiquidity of the stock at a price at which they
may wish to sell or in the opportunity to complete a sale. Stockholders will
have no effective legal remedies for these illiquidity issues.
-13-
WE WILL PAY NO FORESEEABLE DIVIDENDS IN THE FUTURE.
We have not paid dividends on our common stock and do not ever anticipate paying
such dividends in the foreseeable future. Stockholders whose investment criteria
are dependent on dividends should not invest in our common stock.
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON OUR STOCK PRICE.
All of the outstanding shares of common stock are held by our present officers,
directors, and affiliate stockholders as "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted
shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions
from registration under the Act and as required under applicable state
securities laws. Rule 144 provides in essence that a person who has held
restricted securities for six months may, under certain conditions, sell every
three months, in brokerage transactions, a number of shares that does not exceed
the greater of 1.0% of a company's outstanding common stock or the average
weekly trading volume during the four calendar weeks prior to the sale. There is
no limit on the amount of restricted securities that may be sold by a
non-affiliate after the owner has held the restricted securities for a period of
two years. A sale under Rule 144 or under any other exemption from the Act, if
available, or pursuant to subsequent registration of shares of common stock of
present stockholders, may have a depressive effect upon the price of the common
stock in any market that may develop.
OUR STOCKHOLDERS MAY SUFFER FUTURE DILUTION DUE TO ISSUANCES OF SHARES FOR
VARIOUS CONSIDERATIONS IN THE FUTURE.
There may be substantial dilution to Three Forks stockholders as a result of
future decisions of the Board to issue shares without shareholder approval for
cash, services, or acquisitions.
ANY SALES OF OUR COMMON STOCK, IF IN SIGNIFICANT AMOUNTS, ARE LIKELY TO DEPRESS
THE MARKET PRICE OF OUR SECURITIES.
Assuming all of the shares of common stock under this Registration Statement are
sold and all of the shares of common stock held by the selling security holders
registered hereby are sold, we would have 3,637,028 shares that are freely
tradable. Even officers and directors are registering a portion of their shares
for sale under this prospectus.
Unrestricted sales of 3,637,028 shares of stock by our selling stockholders
could have a huge negative impact on our share price, and the market for our
shares.
ANY NEW POTENTIAL INVESTORS WILL SUFFER A DISPROPORTIONATE RISK AND THERE WILL
BE IMMEDIATE DILUTION OF EXISTING INVESTOR'S INVESTMENTS.
Our present shareholders have acquired their securities at a cost significantly
less than that which the investors purchasing pursuant to shares will pay for
their stock holdings or at which future purchasers in the market may pay.
Therefore, any new potential investors will bear most of the risk of loss.
WE HAVE DETERMINED AN ARBITRARY OFFERING PRICE OF OUR SHARES.
The price of our shares has been determined arbitrarily by us with no
established criteria of value. There is no direct relationship between these
prices and our assets, book value, lack of earnings, shareholder's equity, or
any other recognized standard of value of our business. The offering price
should NOT be considered an indication of the actual value of the shares or
securities.
ITEM 4. USE OF PROCEEDS
-----------------------
We will not receive any proceeds from the sale of the shares being registered on
behalf of our selling shareholders.
We may raise additional funds through a private placement of shares of our
common stock. At this time there is no committed source for such funds and we
cannot give any assurances of being able to raise such funds. We can assure that
we will require additional funds to carry out our business plan. The
availability and terms of any future financing will depend on market and other
conditions.
-14-
Our lack of funds could and would severely limit our operations, and might
render us unable to carry out our business plan.
The monies we have raised thus far from selling stock to our current
Shareholders is anticipated to be sufficient to pay all expenses of this
registration statement, which is estimated to be $25,000.
ITEM 5. DETERMINATION OF OFFERING PRICE
---------------------------------------
We have no established market for our common stock.
Our selling shareholders plan to sell shares at $1.50 per share, until such time
as a market develops for any of the securities and thereafter at such prices as
the market may dictate from time to time. There is no market price for the stock
and our pricing is arbitrary with no relation to market value, liquidation
value, earnings or dividends.
------------------------------------- --------------------------------
TITLE PER SECURITY
------------------------------------- --------------------------------
Common Stock $1.50
------------------------------------- --------------------------------
We have arbitrarily determined our offering price for shares to be sold pursuant
to this offering at $1.50. The Company is authorized to issue 100,000,000 shares
of $0.001 par value voting common stock. There were a total of 11,681,447 shares
of common stock issued during the period of March 28, 2012 (inception) through
December 31, 2013. During the period of January 1, 2013 through December 31,
2013, there were a total of 1,620,000 shares issued. During that same period a
total of 737,844 shares were cancelled.
During the period of March 28, 2012 (inception) through December 31, 2013, the
Company sold5,469,361 shares of common stock as part of different private
placements ranging from $0.01 per share to $3.00 per share.
During the period of March 28, 2012 (inception) through December 31, 2013, the
Company issued 6,250,000 shares of its common stock to officers and directors
and third parties in exchange for services at prices ranging from $0.001 per
share to $0.088 per share. Mr. Nichols and Mr. Walford, officers, directors and
founders of the Company were issued 2,000,000 shares of common stock each at a
price of $0.001 per share.
The additional major factors that were included in determining the initial sales
price to our founders and private investors were the lack of liquidity since
there was no present market for our stock and the high level of risk considering
our lack of operating history.
The share price bears no relationship to any criteria of goodwill value, asset
value, market price or any other measure of value and were arbitrarily
determined in the judgment of our Board of Directors.
ITEM 6. DILUTION
----------------
The following table sets forth with respect to existing shareholders, the number
of our shares of common stock purchased the percentage ownership of such shares,
the total consideration paid, the percentage of total consideration paid and the
average price per share. All percentages are computed based upon cumulative
shares and consideration assuming sale of all shares in the line item as
compared to maximum in each previous line.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
NUMBER PERCENT AMOUNT PERCENT (2) PRICE/SHARE
(1)
-------------------- --------------------- -----------
Existing Shareholders (3) 11,681,477 100% 4,909,493 100% $0.42
(1) Percentage relates to total percentage of shares sold up to such
increment in the offering.
(2) Percentage relates to total percentage of capital raised post
offering.
(3) Relates to the total numbers of shares issued and outstanding,
including shares being registered.
"Net tangible book value" is the amount that results from subtracting the total
liabilities and intangible assets from the total assets of an entity. Dilution
-15-
occurs because we determined the offering price based on factors other than
those used in computing book value of our stock. Dilution exists because the
book value of shares held by existing stockholders is lower than the offering
price offered to new investors.
As at December 31, 2013, the net tangible book value of our stock was $0.27 per
share.
ITEM 7. SELLING SECURITY HOLDERS
--------------------------------
The selling shareholders, including our officers and directors, obtained their
shares of our stock in the following transactions:
---------------------------- ----------------------------- ---------------------
Number of Shares Consideration Price Per Share
---------------------------- ----------------------------- ---------------------
2,627,515 Cash $0.01
225 Cash $0.50
1,505,051 Cash $1.00
100,001 Cash $1.50
25,000 Cash $2.00
187,630 Cash $2.25
911,055 Cash $3.00
6,250,000 Services $0.01 to $0.088
700,000 Purchase of Property $2.00
---------------------------- ----------------------------- ---------------------
Other than the stock transactions discussed above, we have not entered into any
transaction nor are there any proposed transactions in which any founder,
director, executive officer, significant shareholder of our company or any
member of the immediate family of any of the foregoing had or is to have a
direct or indirect material interest.
No person who may, in the future, be considered a promoter of this offering,
will receive or expect to receive assets, services or other considerations from
us except those persons who are our salaried employees or directors. No assets
will be, nor expected to be, acquired from any promoter on behalf of us. We have
not entered into any agreements that require disclosure to the shareholders.
All of the securities listed below are being registered in this Registration
Statement, which include all of the securities outstanding as of date hereof.
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
-16-
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COMMON SHARES COMMON % SHARES %
HELD BY EACH SHARES OWNED OWNED OWNED
SHAREHOLDER TO BE BEFORE AFTER AFTER
NAME BEFORE OFFERING REGISTERED OFFERING (1) OFFERING OFFERING
------------------------------------------------------------------------------------------------------------------------------------
Adelaide Andrews 15,000 15,000 0.13% * *
------------------------------------------------------------------------------------------------------------------------------------
Adelaide Biggs 100,000 50,000 0.86% 50,000 0.43%
------------------------------------------------------------------------------------------------------------------------------------
Alexander Biggs 16,667 16,667 0.14% * *
------------------------------------------------------------------------------------------------------------------------------------
Alexander Withall Decalartion of Trust 100,000 25,000 0.86% 75,000 0.64%
------------------------------------------------------------------------------------------------------------------------------------
Alexander Withall/Knopf 20,000 5,000 0.17% 15,000 0.13%
------------------------------------------------------------------------------------------------------------------------------------
Amanda Germany 4,000 4,000 0.03% * *
------------------------------------------------------------------------------------------------------------------------------------
Amanda Remington 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Arthur C. Krepps III 13,334 13,334 0.11% * *
------------------------------------------------------------------------------------------------------------------------------------
Barry Isaacs 16,500 16,500 0.14% * *
------------------------------------------------------------------------------------------------------------------------------------
Barry L. Jacobson 18,334 18,334 0.16% * *
------------------------------------------------------------------------------------------------------------------------------------
Becky Sharpenter 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Bermard Bols 30,000 30,000 0.26% * *
------------------------------------------------------------------------------------------------------------------------------------
Bernard Rinella 5,000 5,000 0.04% * *
------------------------------------------------------------------------------------------------------------------------------------
Bill Baber 50,000 20,000 0.43% 30,000 0.26%
------------------------------------------------------------------------------------------------------------------------------------
Brain Hassett 1,000 1,000 0.01% * *
------------------------------------------------------------------------------------------------------------------------------------
Breff Leasing (b) 33,667 33,667 0.29% * *
------------------------------------------------------------------------------------------------------------------------------------
Brian Remington 50,000 25,000 0.43% 25,000 0.21%
------------------------------------------------------------------------------------------------------------------------------------
Bruce Molloy 16,000 16,000 0.14% * *
------------------------------------------------------------------------------------------------------------------------------------
Bruce Molloy FBO Mariana Molloy 4,876 4,876 0.04% * *
------------------------------------------------------------------------------------------------------------------------------------
Bruce Theuerkauf, Jr. 164,000 50,000 1.40% 114,000 0.98%
------------------------------------------------------------------------------------------------------------------------------------
Byron Beckley 7,000 7,000 0.06% * *
------------------------------------------------------------------------------------------------------------------------------------
C. Roan Berry 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Cain Griffin Group, LLC (b) 60,000 20,000 0.51% 40,000 0.34%
------------------------------------------------------------------------------------------------------------------------------------
Carol Justice 25,000 5,000 0.21% 20,000 0.17%
------------------------------------------------------------------------------------------------------------------------------------
Caryn & Marc Schneider 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Charles Ras 5,500 5,500 0.05% * *
------------------------------------------------------------------------------------------------------------------------------------
Charles W. Jones 6,000 6,000 0.05% * *
------------------------------------------------------------------------------------------------------------------------------------
Christian Farr 17,000 17,000 0.15% * *
------------------------------------------------------------------------------------------------------------------------------------
Christoper Pesce 2,500 2,500 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
Christopher Jacobs 100,000 50,000 0.86% 50,000 0.43%
------------------------------------------------------------------------------------------------------------------------------------
Clarence O Hample Revocable Turst 100,000 20,000 0.86% 80,000 0.68%
------------------------------------------------------------------------------------------------------------------------------------
Cottonwood NB, LLC 16,000 16,000 0.14% * *
------------------------------------------------------------------------------------------------------------------------------------
Cracked Crab LLC (b) 60,000 20,000 0.51% 40,000 0.34%
------------------------------------------------------------------------------------------------------------------------------------
Creative Solutions Investments, LLC (b) 1,500 1,500 0.01% * *
------------------------------------------------------------------------------------------------------------------------------------
Daniel & Lesli Underhill 6,250 6,250 0.05% * *
------------------------------------------------------------------------------------------------------------------------------------
Daniel Rainey 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Darrell L & Mary A Gulseth JTWROS 1,000 1,000 0.01% * *
------------------------------------------------------------------------------------------------------------------------------------
David & Lois Ensidler 2,500 2,500 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
David D. Duvick 30,000 10,000 0.26% 20,000 0.17%
------------------------------------------------------------------------------------------------------------------------------------
David Kelley 60,000 25,000 0.51% 35,000 0.30%
------------------------------------------------------------------------------------------------------------------------------------
David Newman 12,000 12,000 0.10% * *
------------------------------------------------------------------------------------------------------------------------------------
Debbie Hamen 13,000 13,000 0.11% * *
------------------------------------------------------------------------------------------------------------------------------------
Dennis & Mary Jo Gabriel 250,000 50,000 2.14% 200,000 1.71%
------------------------------------------------------------------------------------------------------------------------------------
Dennis Kaboth 30,000 30,000 0.26% * *
------------------------------------------------------------------------------------------------------------------------------------
Dennis Noel 40,000 40,000 0.34% * *
------------------------------------------------------------------------------------------------------------------------------------
-17-
------------------------------------------------------------------------------------------------------------------------------------
Diane Leeds Einsidler 3,215 3,215 0.03% * *
------------------------------------------------------------------------------------------------------------------------------------
Donald Einsidler 5,500 5,500 0.05% * *
------------------------------------------------------------------------------------------------------------------------------------
Donald L. Walford (a) 2,000,000 400,000 17.12% 1,600,000 13.70%
------------------------------------------------------------------------------------------------------------------------------------
Donald S. Heauser 60,000 20,000 0.51% 40,000 0.34%
------------------------------------------------------------------------------------------------------------------------------------
Donna Wittenauer FBO LK Latimer 25,000 25,000 0.21% * *
------------------------------------------------------------------------------------------------------------------------------------
Dr. William R. King 20,000 20,000 0.17% * *
------------------------------------------------------------------------------------------------------------------------------------
E. Dean Davis 50,000 50,000 0.43% * *
------------------------------------------------------------------------------------------------------------------------------------
Edward Vitko 157,500 35,000 1.35% 122,500 1.05%
------------------------------------------------------------------------------------------------------------------------------------
Edward W. Sharpenter 1,000 1,000 0.01% * *
------------------------------------------------------------------------------------------------------------------------------------
Emily Blincoe 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Emma Blincoe 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Envirotech 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Eric Hample 50,000 25,000 0.43% 25,000 0.21%
------------------------------------------------------------------------------------------------------------------------------------
Falettiko Oil & Gas, LLC (b) 30,000 30,000 0.26% * *
------------------------------------------------------------------------------------------------------------------------------------
FNB Griffin Custodian for
Individual IRA Charles W. Jones 4,000 4,000 0.03% * *
------------------------------------------------------------------------------------------------------------------------------------
FNB Griffin Custodian for
Individual IRA Linda Jordan 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
FNB Griffin Custodian for
Individual IRA Timothy R. Dender 46,667 46,667 0.40% * *
------------------------------------------------------------------------------------------------------------------------------------
Francis Construction (b) 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Gary Lee Young 2,500 2,500 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
Gary Underhill 33,334 33,334 0.29% * *
------------------------------------------------------------------------------------------------------------------------------------
Gary Walford 25,000 25,000 0.21% * *
------------------------------------------------------------------------------------------------------------------------------------
George Biggs 15,000 15,000 0.13% * *
------------------------------------------------------------------------------------------------------------------------------------
Gerald Smart Trust 50,000 50,000 0.43% * *
------------------------------------------------------------------------------------------------------------------------------------
Glenda Weiss 50,000 20,000 0.43% 30,000 0.26%
------------------------------------------------------------------------------------------------------------------------------------
Henry Moxely 210,000 40,000 1.80% 170,000 1.46%
------------------------------------------------------------------------------------------------------------------------------------
Herbert T. Sears 15,000 15,000 0.13% * *
------------------------------------------------------------------------------------------------------------------------------------
Irene A. Brown 5,000 5,000 0.04% * *
------------------------------------------------------------------------------------------------------------------------------------
Jacobs Enterprises, Ltd (b) 100,000 20,000 0.86% 80,000 0.68%
------------------------------------------------------------------------------------------------------------------------------------
James & Teresa Stewart 26,667 26,667 0.23% * *
------------------------------------------------------------------------------------------------------------------------------------
James Ford 100,000 10,000 0.86% 90,000 0.77%
------------------------------------------------------------------------------------------------------------------------------------
James H. Campbell 6,000 6,000 0.05% * *
------------------------------------------------------------------------------------------------------------------------------------
James Iverson 20,000 20,000 0.17% * *
------------------------------------------------------------------------------------------------------------------------------------
James R. & Teresa L. Stewart 20,000 20,000 0.17% * *
------------------------------------------------------------------------------------------------------------------------------------
James R. Stewart 94,444 45,000 0.81% 49,444 0.42%
------------------------------------------------------------------------------------------------------------------------------------
Jared & Christina Adam 8,334 8,334 0.07% * *
------------------------------------------------------------------------------------------------------------------------------------
Jay Blincoe 50 50 0.00% * *
------------------------------------------------------------------------------------------------------------------------------------
Jeff Rosenberg 7,500 7,500 0.06% * *
------------------------------------------------------------------------------------------------------------------------------------
Jeremy Isaacs 7,500 7,500 0.06% * *
------------------------------------------------------------------------------------------------------------------------------------
Jim Blincoe 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Joan Jacobson Trust 50,000 25,000 0.43% 25,000 0.21%
------------------------------------------------------------------------------------------------------------------------------------
Joan M. Jacobson 67,000 35,000 0.57% 32,000 0.27%
------------------------------------------------------------------------------------------------------------------------------------
Joanne Blincoe 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Joe Ford 25,000 25,000 0.21% * *
------------------------------------------------------------------------------------------------------------------------------------
Joel Ripmaster 25,000 25,000 0.21% * *
------------------------------------------------------------------------------------------------------------------------------------
John Bryan 5,000 5,000 0.04% * *
------------------------------------------------------------------------------------------------------------------------------------
John Cooper 20,000 20,000 0.17% * *
------------------------------------------------------------------------------------------------------------------------------------
John Phelps 5,000 5,000 0.04% * *
------------------------------------------------------------------------------------------------------------------------------------
Jonathan Sherman 20,000 20,000 0.17% * *
------------------------------------------------------------------------------------------------------------------------------------
Joseph G. Hoenigmann 2,500 2,500 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
Joseph Willen 2,500 2,500 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
Judy Blincoe 50 50 0.00% * *
------------------------------------------------------------------------------------------------------------------------------------
Karen A. Baker 2,800 2,800 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
Karen Anderson Baker 1,000 1,000 0.01% * *
------------------------------------------------------------------------------------------------------------------------------------
Kathie Hayes 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Keil & Elizabeth Johnson 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Kelly Anderson 500 500 * * *
------------------------------------------------------------------------------------------------------------------------------------
-18-
------------------------------------------------------------------------------------------------------------------------------------
Kenneth & Shirley Thompson 2,000 2,000 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
Kenneth Knudson 3,000 3,000 0.03% * *
------------------------------------------------------------------------------------------------------------------------------------
Kirk Anderson 500 500 * * *
------------------------------------------------------------------------------------------------------------------------------------
Kyle Anderson 500 500 * * *
------------------------------------------------------------------------------------------------------------------------------------
Larry & Gayla Johnson 17,000 17,000 0.15% * *
------------------------------------------------------------------------------------------------------------------------------------
Lawson Farmer 25,000 25,000 0.21% * *
------------------------------------------------------------------------------------------------------------------------------------
Leah & Greg Isaacs 7,500 7,500 0.06% * *
------------------------------------------------------------------------------------------------------------------------------------
Leanne Sharpenter 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Leland Beckley 7,000 7,000 0.06% * *
------------------------------------------------------------------------------------------------------------------------------------
Lester Ranew (a) 66,667 14,000 0.57% 52,667 0.45%
------------------------------------------------------------------------------------------------------------------------------------
Lillian Sharpenter 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Lindsey Sharpenter 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Lisa B. Meloro Irrevocable Trust 19,500 19,500 0.17% * *
------------------------------------------------------------------------------------------------------------------------------------
Lisa Baird 75,000 15,000 0.64% 60,000 0.51%
------------------------------------------------------------------------------------------------------------------------------------
Lorie J. & Josephine Mangham, Jr. 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Marc & Caryn Schneider 2,500 2,500 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
Marc Pindus 380,000 30,000 3.25% 350,000 3.00%
------------------------------------------------------------------------------------------------------------------------------------
Marc Sharpenter 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Marcia Biggs 15,000 15,000 0.13% * *
------------------------------------------------------------------------------------------------------------------------------------
Maria Terrazas 500 500 * * *
------------------------------------------------------------------------------------------------------------------------------------
Marie Blincoe 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Marla Alstadt 500 500 * * *
------------------------------------------------------------------------------------------------------------------------------------
Melvin & Judith Einsidler 5,000 5,000 0.04% * *
------------------------------------------------------------------------------------------------------------------------------------
Michael Einsidler 6,500 6,500 0.06% * *
------------------------------------------------------------------------------------------------------------------------------------
Michael Faletti, Jr. 25,000 25,000 0.21% * *
------------------------------------------------------------------------------------------------------------------------------------
Michael Littman 150,000 50,000 1.28% 100,000 0.86%
------------------------------------------------------------------------------------------------------------------------------------
Michael McNally 150,000 50,000 1.28% 100,000 0.86%
------------------------------------------------------------------------------------------------------------------------------------
Michael Pryblo 50,000 12,500 0.43% 37,500 0.32%
------------------------------------------------------------------------------------------------------------------------------------
Mike Vitko 32,500 10,000 0.28% 22,500 0.19%
------------------------------------------------------------------------------------------------------------------------------------
Mitchell Gulseth 3,500 3,500 0.03% * *
------------------------------------------------------------------------------------------------------------------------------------
Monica Sherman 5,000 5,000 0.04% * *
------------------------------------------------------------------------------------------------------------------------------------
Ned Sharpenter 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Neilson Family Trust 75,000 15,000 0.64% 60,000 0.51%
------------------------------------------------------------------------------------------------------------------------------------
Nick Sharpenter 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Nicole Saunders 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
NTC & Co. FBO Paul H. Dragul (a) 25,000 25,000 0.21% * *
------------------------------------------------------------------------------------------------------------------------------------
Patricia K. Huber 1,671 1,671 0.01% * *
------------------------------------------------------------------------------------------------------------------------------------
Patricia Nauman 7,000 7,000 0.06% * *
------------------------------------------------------------------------------------------------------------------------------------
Patrick J. Donovan 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Paul Dragul (a) 137,000 30,000 1.17% 107,000 0.92%
------------------------------------------------------------------------------------------------------------------------------------
Ralph Toftoy 3,500 3,500 0.03% * *
------------------------------------------------------------------------------------------------------------------------------------
Raymond Dender 20,000 20,000 0.17% * *
------------------------------------------------------------------------------------------------------------------------------------
Rich Sharpenter 51,005 10,000 0.44% 41,005 0.35%
------------------------------------------------------------------------------------------------------------------------------------
Richard Coleman Clements 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Richard Davis 11,000 11,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Richard Rinella 40,000 40,000 0.34% * *
------------------------------------------------------------------------------------------------------------------------------------
Risa Einsidler 5,500 5,500 0.05% * *
------------------------------------------------------------------------------------------------------------------------------------
Robert & Cynthia Toftoy 139,667 139,667 1.20% * *
------------------------------------------------------------------------------------------------------------------------------------
Robert & Donna Wittennauer 25,000 25,000 0.21% * *
------------------------------------------------------------------------------------------------------------------------------------
Robert Bradley 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Robert E. Long 100,000 20,000 0.86% 80,000 0.68%
------------------------------------------------------------------------------------------------------------------------------------
Robert Reynolds 50,000 5,000 0.43% 45,000 0.39%
------------------------------------------------------------------------------------------------------------------------------------
Robert Scerbo 180,000 40,000 1.54% 140,000 1.20%
------------------------------------------------------------------------------------------------------------------------------------
Robert Toftoy 7,500 7,500 0.06% * *
------------------------------------------------------------------------------------------------------------------------------------
Robert W. Simmons 45,000 15,000 0.39% 30,000 0.26%
------------------------------------------------------------------------------------------------------------------------------------
Rodney J. Buhr 6,600 6,600 0.06% * *
------------------------------------------------------------------------------------------------------------------------------------
Ron Anderson 3,400 3,400 0.03% * *
------------------------------------------------------------------------------------------------------------------------------------
Ronald Cox 14,000 14,000 0.12% * *
------------------------------------------------------------------------------------------------------------------------------------
-19-
------------------------------------------------------------------------------------------------------------------------------------
Ronney Ledford Jr. LLC (b) 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Ronney Ledford, Jr. 16,666 16,666 0.14% * *
------------------------------------------------------------------------------------------------------------------------------------
Ronnie Cain 9,998 9,998 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Russel D. & Judith A. Noel 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Samuel H. Rabin 2,000 2,000 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
Sauney & Geraldine Pippin 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
SCI Investments, LLC (b) 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Sean Fleming 21,000 10,000 0.18% 11,000 0.09%
------------------------------------------------------------------------------------------------------------------------------------
Seth Sleezer IV 16,667 16,667 0.14% * *
------------------------------------------------------------------------------------------------------------------------------------
Sophie Blincoe 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Spyglass Capital Group, LLC (b) 5,000 5,000 0.04% * *
------------------------------------------------------------------------------------------------------------------------------------
Star Net Investments, LLC (b) 2,000 2,000 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
Stephen Cohen 2,500 2,500 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
Steve Remmert 25,000 25,000 0.21% * *
------------------------------------------------------------------------------------------------------------------------------------
Steve Scalf 44,445 10,000 0.38% 34,445 0.29%
------------------------------------------------------------------------------------------------------------------------------------
Steward Mosko 40,000 10,000 0.34% 30,000 0.26%
------------------------------------------------------------------------------------------------------------------------------------
Tamar & Bruce Mar 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Terry Jacobson 3,200 3,200 0.03% * *
------------------------------------------------------------------------------------------------------------------------------------
Thomas & Linda Nixon 2,750 2,750 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
Thomas B. Biggs 16,667 16,667 0.14% * *
------------------------------------------------------------------------------------------------------------------------------------
Thomas G. Nixon 2,250 2,250 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
Tim L. Briggs 2,222 2,222 0.02% * *
------------------------------------------------------------------------------------------------------------------------------------
Timothy Dender 120,000 24,000 1.03% 96,000 0.82%
------------------------------------------------------------------------------------------------------------------------------------
Timothy Scott 5,000 5,000 0.04% * *
------------------------------------------------------------------------------------------------------------------------------------
Todd Blincoe 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Tom Blincoe 50 50 * * *
------------------------------------------------------------------------------------------------------------------------------------
Tom Ness 45,500 10,000 0.39% 35,500 0.30%
------------------------------------------------------------------------------------------------------------------------------------
Trenton Toftoy 7,000 7,000 0.06% * *
------------------------------------------------------------------------------------------------------------------------------------
Trevor J. Buhr 225 225 * * *
------------------------------------------------------------------------------------------------------------------------------------
Underhill Trucking 7,000 7,000 0.06% * *
------------------------------------------------------------------------------------------------------------------------------------
Vladimir & Glida Scerbo 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Vladimir Scerbo 6,000 6,000 0.05% * *
------------------------------------------------------------------------------------------------------------------------------------
W. Edward Nichols (b) 2,000,000 400,000 17.12% 1,600,000 13.70%
------------------------------------------------------------------------------------------------------------------------------------
William & Joyce Babb 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
William & Suzanne Knopf 25,000 25,000 0.21% * *
------------------------------------------------------------------------------------------------------------------------------------
William C. Gascoigne 20,000 20,000 0.17% * *
------------------------------------------------------------------------------------------------------------------------------------
William Stewart 7,000 7,000 0.06% * *
------------------------------------------------------------------------------------------------------------------------------------
William Young 400,000 60,000 3.42% 340,000 2.91%
------------------------------------------------------------------------------------------------------------------------------------
Willie & Carol Love, Jr. 10,000 10,000 0.09% * *
------------------------------------------------------------------------------------------------------------------------------------
Willie Love 25,000 25,000 0.21% * *
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
TOTAL 10,067,589 3,637,028 86.15% 6,430,561 55.05%
------------------------------------------------------------------------------------------------------------------------------------
(1) Based upon 11,681,477 shares issued and outstanding
* Less than 0.01%
(a) Officer/Director
(b) Please see beneficial ownership table below.
-20-
NUMBER OF
COMMON SHARES
PERSON WITH BEING
NAME OF THE ENTITY VOTING CONTROL REGISTERED AFFILIATE OF COMPANY?
------------------------------------ ---------------------- ------------- ---------------------
Cain Griffin Group, LLC Kristi Cain 20,000 No
Cracked Crab, LLC Frank L. Cahill 60,000 No
Creative Solutions Investments, LLC Darell L. Gulseth 1,500 No
Falittiko Oil & Gas LLC Ed Vitiko (a) 30,000 No
Francis Construction Nick Tverdeich 10,000 No
Jacob Enterprises, Ltd Christopher Jacobs 20,000 No
Ronny Ledford, LLC Ronny Ledford, Jr. (b) 10,000 No
SCI Investments, LLC Todd Feltman 10,000 No
Spyglass Capital Investments, LLC David Gragarek 5,000 No
Star Net Investments, LLC Mitchell Gulseth 2,000 No
------------------------------------
(a) Mr. Edward Vitko holds 157,500 shares directly in his name. 35,000 of
these shares are being registered on his behalf.
(b) Mr. Ledford holds 16,667 shares directly in his name. All 16,667
shares are being registered on his behalf.
None of the above listed shareholders are registered broker-dealers or are
associates of a registered broker-dealer. None of the above listed shareholders
are affiliates of any registered broker-dealers.
ITEM 8. PLAN OF DISTRIBUTION
----------------------------
Upon effectiveness of this registration statement, of which this prospectus is a
part, our existing selling shareholders may sell their securities at market
prices or at any price in privately negotiated transactions.
Our selling shareholders may be deemed underwriters in this offering.
The selling shareholders are not paying any of the offering expenses and we will
not receive any of the proceeds from the sale of the shares by the selling
shareholders.
ITEM 9. DESCRIPTION OF SECURITIES
---------------------------------
The securities being registered and/or offered by this Prospectus are common
shares.
COMMON STOCK
We are presently authorized to issue one-hundred million (100,000,000) shares of
our $0.001 par value common shares. A total of 11,681,447 common shares are
deemed issued and outstanding as of December 31, 2013.
COMMON SHARES
All shares are equal to each other with respect to voting, liquidation, and
dividend rights. Special shareholders' meetings may be called by the officers or
director, or upon the request of holders of at least one-tenth (1/10th) of the
outstanding shares. Holders of shares are entitled to one vote at any
shareholders' meeting for each share they own as of the record date fixed by the
board of directors. There is no quorum requirement for shareholders' meetings.
Therefore, a vote of the majority of the shares represented at a meeting will
govern even if this is substantially less than a majority of the shares
outstanding. Holders of shares are entitled to receive such dividends as may be
declared by the board of directors out of funds legally available therefore, and
upon liquidation are entitled to participate pro rata in a distribution of
assets available for such a distribution to shareholders. There are no
conversion, pre-emptive or other subscription rights or privileges with respect
to any shares. Reference is made to our Articles of Incorporation and our
By-Laws as well as to the applicable statutes of the State of Colorado for a
more complete description of the rights and liabilities of holders of shares. It
-21-
should be noted that the board of directors without notice to the shareholders
may amend the By-Laws. Our shares do not have cumulative voting rights, which
means that the holders of more than fifty percent (50%) of the shares voting for
election of directors may elect all the directors if they choose to do so. In
such event, the holders of the remaining shares aggregating less than fifty
percent (50%) of the shares voting for election of directors may not be able to
elect any director.
PREFERRED SHARES
We are presently authorized to issue twenty-five million (25,000,000) preferred
shares our $10 par value preferred shares. No shares of preferred stock are
issued and outstanding as of December 31, 2013.
On June 12, 2013 the Board authorized the Class A Preferred Convertible Stock
(the "Class A Preferred Stock") of which 500,000 shares of preferred stock have
been authorized for the class and the shares have a deemed purchase price at
$4.50 per share. The Class A Preferred Stock are to have voting rights
equivalent to their conversion rate, one (1) share of Class A Preferred Stock
equals one (1) share of common stock. At this time, no shares of the Class A
Preferred Stock have been issued.
WARRANTS
Effective May 30, 2013 and as part of a consulting agreement, the Company issued
a warrant to a consultant in exchange for cash in the amount of $27.50. The
warrant entitles the consultant to purchase over a five year period at a price
of $3.00 per share up to 275,000 shares of the Company's common stock. The
warrant has a cashless exercise option.
SECURED CONVERTIBLE PROMISSORY NOTES
In September 2013, we commenced a private offering of $2,000,000 Secured
Convertible Promissory Notes in order to complete the purchase of the remaining
37.5% WI in the Five JABS property discussed above. These notes are due in
September 2014 and are convertible into shares of our common stock in whole or
in part at a conversion price of $3.60 per share 6 months after issuance of the
secured convertible promissory note. The conversion of the convertible
promissory notes into shares of our common stock could have a dilutive effect to
the holdings of our existing shareholders. The Secured Convertible Promissory
Notes are secured by the Company's 75% of the right, title and working interest
in 1,955 gross leasehold acres including 13 producing wells, 9 service wells and
14 additional wellbores located in the States of Texas and Louisiana, the Five
JABS properties. The offering was not fully subscribed and a total of $1,535,000
was raised. Tincup Oil and Gas, LLC of which Mr. Ranew, a director of the
Company, is a member, holds a Secured Convertible Promissory Note for $250,000.
At December 31, 2013, the Company owes a total of $1,475,000 in outstanding
secured convertible promissory notes.
On March 31, 2014, holders of the above promissory notes purchased 1,390,000
warrants issued by the Company in consideration for and cancellation of their
promissory notes issued to them by the Company in the amount of $1,390,000. A
warrant entitles the holder for a term of two years to purchase one share of
common stock of the Company at the rate of $1.00 per share. Therefore, as of
March 31, 2014, the Company issued 1,390,000 warrants to holders of the
promissory notes in cancellation of $1,390,000 in debt.
Separately and apart, two members of management agreed to make up the difference
of the Secured Convertible Promissory Note Offering and the purchase price of
Five JABS in a separate transaction with separate terms with the Company. Mr.
Charles Pollard and Mr. Lester Ranew, officers and directors of the Company, in
exchange for secured convertible promissory notes provided the Company with a
total of $600,000 cash ($300,000 each). At December 31, 2013, the Company owes a
total of $600,000 to Mr. Pollard and Mr. Ranew.
Mr. Pollard's and Mr. Ranew's notes have a due date of January 2, 2014 and allow
for the conversion of the notes into common stock upon issuance. Their notes
provide that in addition to having a due date of January 2, 2014, that at the
due date they will each receive a $7,500 payment of fees and interest. If the
notes are not paid at January 2, 2014, the Company is required to take immediate
steps to liquidate the secured property and the due date will be extended to
April 2, 2014. At January 2, 2014, the Company failed to make payment on the
notes. At that time Mr. Pollard and Ranew each entered into an Extension and
Waiver with the Company. The Extension and Waiver provides that the payment date
shall be extended to April 2, 2014 and both holders have waived the provision
that steps be taken to liquidate the secured property at this time. On April 7,
2014, Mr. Pollard extended the payment date on his note to May 2, 2014. On March
31, 2014, Mr. Ranew purchased 300,000 warrants issued by the Company in
-22-
consideration for and cancellation of his promissory note issued to him by the
Company in the amount of $300,000.
TRANSFER AGENT
Our transfer agent for our securities is Continental Stock and Transfer Company
at 17 Battery Place, New York, New York 10004 Phone: 212-509-4000.
ITEM 10. INTEREST OF NAMED EXPERTS AND COUNSEL
----------------------------------------------
We have not hired or retained any experts or counsel on a contingent basis, who
would receive a direct or indirect interest in us, or who is, or was, our
promoter, underwriter, voting trustee, director, officer or employee.
ITEM 11. INFORMATION WITH RESPECT TO THE REGISTRANT
---------------------------------------------------
A. DESCRIPTION OF BUSINESS
--------------------------
Three Forks, Inc. (hereafter "Three Forks," "we," "us," or "our") was
incorporated on March 28, 2012 in the State of Colorado. Our business plan
focuses on our development as an independent energy company engaged in the
acquisition, exploration, development and production of North American
conventional oil and gas properties through the acquisition of leases and/or
royalty interests.
At present, our current oil and gas projects consist of:
- In Archer County, Texas, we are a 49% working interest ("WI") owner in
a joint venture agreement where the joint venture has drilled and
completed one well.
- In Archer County, Texas, we have a 11% WI through a Farmout in 290
net, 320 gross acres with 5 wells. We are also the manager of Three
Forks No. 1, LLC ("Three Forks No. 1") which owns 87% of the working
interest in the Farmout acreage.
- In Pottawatomie County, Oklahoma, we have a 25% WI in 290/290
net/gross acres upon which the first well was drilled in July 2013 and
has now been completed and is being put into production.
- The Five JAB project located in Southeast Texas - Southwest Louisiana
where we have a non-operated 75% WI in 13 producing wells, 9 service
wells and 14 additional wellbores.
We intend to acquire additional acreage to drill in other areas where deemed
attractive, though no such additional prospects have been identified at the time
of this filing.
On September 7, 2012, we acquired working interests between 10.12% and 10.50% in
5 producing oil and gas wells along with mineral interests in proved undeveloped
leaseholds totaling approximately 320 acres located in Weld County, Colorado
valued at $1,477,990, as well as, a 76.25% working interest in undeveloped
leaseholds totaling approximately 120 acres located in Morgan County, Colorado
valued at $14,000 in exchange for the issuance of 700,000 shares of the
Company's restricted common stock valued at $1,400,000 or $2.00 per share and
the assumption of certain debt in the amount of $91,990. In addition, we were
required to fund an escrow account in the amount of $55,000 for legal services
that may occur over a three year period from the date of the acquisition until
December 31, 2014. This escrow account at December 31, 2013 and December 31,
2012 has a balance of $55,163 and $55,081, respectively. On January 1, 2013, we
sold our entire interest in these oil and gas properties located in Weld County,
Colorado, for $1,600,000 in cash.
Our principal executive offices are located at 555 Eldorado Boulevard, Suite
100, Broomfield, Colorado 80021 and our telephone number is (303) 404-2160. We
maintain a website at www.threeforksinc.com, such website is not incorporated
into or a part of this filing.
-23-
COMPANY OVERVIEW
CORPORATE STRUCTURE
The corporate structure is as follows:
---------------------------------------------------------
THREE FORKS, INC.
(A Colorado Corporation)
W. Edward Nichols - CEO, Director
---------------------------------------------------------
/ \ \
/ \ \
/ \ \
------------------------------------ -------------------------------- --------------------------------
TFI OPERATING COMPANY, INC.
(A Colorado Corporation) THREE FORKS NO. 1, LLC THREE FORKS LLC NO. 2
(Wholly-owned subsidiary of (A Colorado Limited (A Colorado Limited
Three Forks, Inc.) Liability Company) Liability Company)
Charles Pollard, CEO Three Forks, Inc., Manager Three Forks, Inc., Manager
(TFI Operating Company, Inc. (the Company does not (the Company does not
has yet to commence own an equity interest) own an equity interest)
operations as of
December 31, 2013)
------------------------------------ -------------------------------- --------------------------------
TFI Operating Company, Inc. ("TFI Operating") was incorporated in the state of
Colorado on January 2, 2013 as Three Forks Operating Company, Inc. On February
8, 2013, it changed its name to TFI Operating Company, Inc. TFI Operating was
established to handle and manage our exploration, drilling and production
operations, including our Archer County, Texas Farmout. At December 31, 2013,
TFI Operating did not have any assets and has yet to commence operations.
Three Forks No. 1 was organized in the State of Colorado on November 8, 2012. We
are the manager of Three Forks No. 1 and we do not hold an equity interest in
Three Forks No. 1. Three Forks No. 1 owns 87% of the working interest in the
Archer County, Texas Farmout. As the manager of Three Forks No. 1, we handle and
oversee the operations on the property in Archer County, Texas.
Mr. Lester Ranew, a director of the Company, holds a 5.41% equity interest in
the Three Forks No. 1, LLC at December 31, 2013.
Three Forks LLC No. 2 (hereinafter "Three Forks No. 2") was organized in the
State of Colorado on December 4, 2013. We are the manager of the Three Forks No.
2 and we do not hold an equity interest in Three Forks No. 2. Three Forks No. 2
has been organized to fund and handle the proposed drilling of additional wells
in Archer County, Texas. At the time of this filing, Three Forks No. 2 does not
have any assets and has yet to commence operations.
RECENT CONVERTIBLE DEBT OFFERING
In September 2013, we commenced a private offering of $2,000,000 Secured
Convertible Promissory Notes in order to complete the purchase of the remaining
37.5% WI in the Five JABS property discussed above. These notes are due in
September 2014 and are convertible into shares of our common stock in whole or
in part at a conversion price of $3.60 per share 6 months after issuance of the
secured convertible promissory note. The conversion of the convertible
promissory notes into shares of our common stock could have a dilutive effect to
the holdings of our existing shareholders. The Secured Convertible Promissory
Notes are secured by the Company's 75% of the right, title and working interest
in 1,955 gross leasehold acres including 13 producing wells, 9 service wells and
14 additional wellbores located in the States of Texas and Louisiana, the Five
JABS properties. The offering was not fully subscribed and a total of $1,535,000
was raised. Tincup Oil and Gas, LLC of which Mr. Ranew, a director of the
Company, is a member, holds a Secured Convertible Promissory Note for $250,000.
At December 31, 2013, the Company owes a total of $1,475,000 in outstanding
secured convertible promissory notes.
-24-
On March 31, 2014, holders of the above promissory notes purchased 1,390,000
warrants issued by the Company in consideration for and cancellation of their
promissory notes issued to them by the Company in the amount of $1,390,000. A
warrant entitles the holder for a term of two years to purchase one share of
common stock of the Company at the rate of $1.00 per share. Therefore, as of
March 31, 2014, the Company issued 1,390,000 warrants to holders of the
promissory notes in cancellation of $1,390,000 in debt.
Separately and apart, two members of management agreed to make up the difference
of the Secured Convertible Promissory Note Offering and the purchase price of
Five JABS in a separate transaction with separate terms with the Company. Mr.
Charles Pollard and Mr. Lester Ranew, officers and directors of the Company, in
exchange for secured convertible promissory notes provided the Company with a
total of $600,000 cash ($300,000 each). At December 31, 2013, the Company owes a
total of $600,000 to Mr. Pollard and Mr. Ranew.
Mr. Pollard's and Mr. Ranew's notes have a due date of January 2, 2014 and allow
for the conversion of the notes into common stock upon issuance. Their notes
provide that in addition to having a due date of January 2, 2014, that at the
due date they will each receive a $7,500 payment of fees and interest. If the
notes are not paid at January 2, 2014, the Company is required to take immediate
steps to liquidate the secured property and the due date will be extended to
April 2, 2014. At January 2, 2014, the Company failed to make payment on the
notes. At that time Mr. Pollard and Ranew each entered into an Extension and
Waiver with the Company. The Extension and Waiver provides that the payment date
shall be extended to April 2, 2014 and both holders have waived the provision
that steps be taken to liquidate the secured property at this time. On April 7,
2014, Mr. Pollard extended the payment date on his note to May 2, 2014. On March
31, 2014, Mr. Ranew purchased 300,000 warrants issued by the Company in
consideration for and cancellation of his promissory note issued to him by the
Company in the amount of $300,000.
RECENT OIL AND GAS ACQUISITIONS
ARCHER COUNTY, TEXAS
On December 31, 2012, we entered into a Farmout Agreement with Holms Energy
Development Corporation ("HEDC") to explore for oil, gas and methane production
in Archer County, Texas ("the Farmout"). In order to maintain the Farmout we
have to commence or cause to be commenced the drilling of at least 3 wells for
oil and/or gas prior to March 31, 2013 and pay for the costs associated with our
ownership of 100% of the working interest.
As such on December 31, 2012, we entered into a Purchase and Sale Agreement with
Three Forks No. 1 whereby in consideration of Three Forks No. 1 undertaking and
agreeing to pay its pro rata share of the costs associated with the drilling and
completion of wells in Archer County, Texas, we initially assigned an 87% WI in
the properties to Three Forks No. 1. Subsequently in 2013, we similarly assigned
a 1%% WI in the Farmout to Three Forks No. 1 to each of Messrs. Young and
Nichols, an officer and directors of the Company and retained a 11% WI in the
Farmout, with an additional back in after payout of 25%. At the time of this
filing and as part of this Farmout, 5 wells have been drilled on the property.
BLUE QUAIL - CENTRAL OKLAHOMA
On April 8, 2013, we entered into a Participation Agreement with Blue Quail,
Ltd. ("the Participation Agreement"). In exchange for an interest in certain
wells including an 80% Net Revenue Interest ("NRI") and a 25% WI in the Joe
Gregory #1 Well, and as of December 31 2013 we have paid a total of $328,663.
The Joe Gregory #1 Well has been being drilled in Pottowatomie County, Oklahoma
in the Bois D'Arc formation. The well has now been completed and is currently
being put into production at the time of this filing.
FIVE JAB - LOUISIANA AND TEXAS
On February 27, 2013, we entered into a Purchase and Participation Agreement
with Five JAB, Inc. ("the Purchase and Participation Agreement"). As part of the
Purchase and Participation Agreement, we are to acquire a 75% of the right,
title and working interest in 1,955.41 gross leasehold acres including 13
producing wells, 9 service wells and 14 additional wellbores in exchange for
cash of $3.8 million. The Purchase and Participation Agreement also provides for
our involvement in a development program that includes the drilling and
completion of workovers and well optimizations of certain of the existing wells.
-25-
Therefore on June 30, 2013, we acquired a 37.5% WI in those oil and gas
properties located in Louisiana and Texas totaling approximately 1,955.41 gross
acres in exchange for $1,900,000 in cash as part of the Purchase and
Participation Agreement. Further, this acquisition was subject to a reversionary
event whereby we must acquire on September 1, 2013 the remaining 37.5% of the
working interest in the properties for $1,900,000 in cash or we must return to
the Seller the 37.5% working interest acquired on June 30, 2013. On August 28,
2013, the Company and Five JAB, Inc. agreed to extend the September 1, 2013
deadline to October 1, 2013, without prejudice and penalty. On October 1, 2013,
the Company acquired the remaining 37.5% of working interest in the Five Jab,
Inc. properties for $1,942,143 in cash plus assumed liabilities in the amount of
$281,962.
Our acquisition of the 75% of working interest in the oil and gas properties has
been accounted for as an acquisition for accounting purposes.
AREAS OF INTEREST AND PROPERTY
ARCHER COUNTY, TEXAS
We have a 11% WI in a completed well that is currently producing from the
Ellenburger formation at approximately 4,900 feet. In late 2012, we entered into
a Farmout Agreement with the lease owner to develop the balance of the 320 acres
of property. We transferred the Farmout to Three Forks No. 1 to develop the 320
acres. We retained a 11% WI in these wells with a provision for a back-in of an
additional 25%, after payout to the equity holders of Three Forks No.1. After
payout, we will then own a 35% WI in the wells.
In late March 2013, 3-D seismic was shot across the property which revealed that
three Ellenburger highs exist on the acreage. The Ellenburger formation is the
deepest prospective formation in this multi-pay area. Shallower formations can
be draped over these deeper highs. In addition to the Ellenburger Formation, the
Caddo, Odom, Conglomerate, Gardner, KMA, Gunsight, 600' Sand and the 400' Sand
are all productive or prospective on this lease. Due to active water drive
reservoirs in most of these formations, limited stimulation work will occur for
these wells.
Three Forks No. 1, has paid $1.9 million in capital for drilling and completion
costs and about $200,000, for 3D seismic and facilities.
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
-26-
PLEASE SEE PHOTO ATTACHED AS EXHIBIT 99.1.
During the year ending on December 31, 2013, the Company successfully drilled
five wells, shown on the map as solid black dots with well number labels:
o G. A. Jennings 'AA' #101 - Drilled and completed in the Odom formation.
Well IP'd for 46 BOPD and 139 BWPD.
o G. A. Jennings 'AA" #102 - Drilled and completed well in the Ellenburger,
Conglomerate and Bend formations. Well IP'd for 30 BOPD and 90 BWPD.
o G. A. Jennings 'BB' #103 - Drilled and completed in the Caddo/Bend
formations. Well IP'd for 27 BOPD and 153 BWPD.
o G. A. Jennings 'BB' #104 - Drilled, completed and fraced in the KMA
formation. Well IP'd for 9 BOPD and 17 BWPD. Well continues to cleanup
following stimulation treatment.
o G. A. Jennings #105 - Drilled and completed in the Bend formation.
Following an acid treatment well IP'd for 40 BOPD and 100 BWPD.
-27-
The following wells are in the planning stages (shown on the map as open stars):
o G. A. Jennings #107 - Planned to spud this month.
o G. A. Jennings `BB' #108 - Drilling permit approved.
o G. A. Jennings #106, #109 and #110 - Drilling permits filed with TRRC.
Capital expenditures ("Capex") on this project is $3.0 million. As of December
31, 2013, a total of $1.9 million has been invested for drilling and well
completion work, $50,000 for seismic acquisition, processing and interpretation,
and $250,000 for equipment including approximately $220,000 in total costs
incurred by the Company.
BLUE QUAIL, CENTRAL OKLAHOMA
We entered into a Participation Agreement with Blue Quail Ltd. of Chandler,
Oklahoma to participate with a 25% WI in up to six wells in a multiple pay area
("Pink Prospect") within the Morvin oil field in Pottawatomie County where the
predominate production has been from the Bois d'Arc member of the Hunton Lime.
Additional pay intervals in the area include the Red Forks Sand, Misener Sand,
Viola Lime, Simpson Dolomite, and the 1st and 2nd Wilcox Sands. Two Pink
Prospect wells have been drilled to date with at least one more well planned. In
addition to the Pink Prospect area, another area, "Sportsman's Lake" was added
to the Participation Agreement under the same terms. Sportsman's Lake is located
in Seminole County, Oklahoma. One well was drilled in Sportsman's Lake by the
end of the year.
PLEASE SEE PHOTO ATTACHED AS EXHIBIT 99.2.
In the Pink Prospect area, drilling operations began in April 2013 with the
geologist, driller and operator (Blue Quail Ltd) each taking a 25% WI. Two wells
have been drilled (see solid black dots on the map) with results as follows:
o Blue Quail Jim #1-33 is currently completed in Bois D'Arc formation at
5-35 BOPD. Production variations have been primarily due to mechanical
issues with the artificial lift equipment.
o The Blue Quail Joe Gregory #1 was drilled and is currently completed
in the Bois D'Arc. Updip to the Jim #1-33, in early production, the
well is making mostly water with an oil cut.
-28-
PLEASE SEE PHOTO ATTACHED AS EXHIBIT 99.3.
In the Sportsman's Lake area, drilling operations began in October of 2013
with the geologist, driller and operator (Blue Quail Ltd) each taking a 25% WI.
One well was drilled in 2013 (see solid black dot on the map), with results as
follows:
o Blue Quail Sportsman's Lake #1 is currently completed in
Misener/Hunton formation at 300 MCFGD with a trace of condensate.
FIVE JAB - EVANGELINE/ST. MARY'S PARISHES, LOUISIANA AND MONTGOMERY/TYLER
COUNTY, TEXAS
In June 2013, we acquired 37.5% WI and the remaining 37.5% WI effective
September 1, 2013 for a total of 75% WI in 27 producing/9 service wells in Texas
and Louisiana currently operated by Five JAB, Inc. out of Tomball, Texas, in
exchange for $3,869,497 in cash plus the assumption of liabilities in the amount
of $281,962. The remaining 25% WI is owned by Five, JAB, Inc. and other
non-affiliated owners. The properties currently produce 100 BOPD and 50 MCFPD.
The purchase included working interests in 13 producing wells, 9 service wells
and 14 additional wellbores, which are spread across Montgomery, Jasper and
Tyler Counties in Texas and the Evangeline and St. Mary Parishes in Louisiana.
Geologically, these wells are located in the Gulf Coast Upper
Jurassic-Cretaceous-Tertiary province. This province extends on shore and off
shore in the states of Texas, Louisiana, Mississippi and Florida. The multiple
conventional pays make up the geological success of the area. The Five Jab
properties are all located onshore.
-29-
Workovers were initiated in September of 2013. Three of 11 workovers were
completed in 2013. The cost for all the workovers is estimated to total $1.25
million (net) and is forecast to double production.
PLEASE SEE PHOTO ATTACHED AS EXHIBIT 99.4.
COMPETITION, MARKETS, REGULATION AND TAXATION
COMPETITION.
There are a large number of companies and individuals engaged in the exploration
for minerals and oil and gas; accordingly, there is a high degree of competition
for desirable properties. Almost all of the companies and individuals so engaged
have substantially greater technical and financial resources than we do.
MARKETS.
The availability of a ready market for oil and gas discovered, if any, will
depend on numerous factors beyond our control, including the proximity and
capacity of refineries, pipelines, and the effect of state regulation of
production and of federal regulations of products sold in interstate commerce,
and recent intrastate sales. The market price of oil and gas are volatile and
beyond our control. The market for natural gas is also unsettled, and gas prices
have increased dramatically in the past four years with substantial fluctuation,
seasonally and annually.
There generally are only a limited number of gas transmission companies with
existing pipelines in the vicinity of a gas well or wells. In the event that
producing gas properties are not subject to purchase contracts or that any such
contracts terminate and other parties do not purchase our gas production, there
is no assurance that we will be able to enter into purchase contracts with any
transmission companies or other purchasers of natural gas and there can be no
assurance regarding the price which such purchasers would be willing to pay for
such gas. There presently exists an oversupply of gas in the certain areas of
the marketplace due to pipeline capacity, the extent and duration of which is
not known. Such oversupply may result in restrictions of purchases by principal
gas pipeline purchasers.
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EFFECT OF CHANGING INDUSTRY CONDITIONS ON DRILLING ACTIVITY.
Lower oil and gas prices have caused a decline in drilling activity in the U.S.
from time to time. However, such reduced activity has also resulted in a decline
in drilling costs, lease acquisition costs and equipment costs, and an
improvement in the terms under which drilling prospects are generally available.
We cannot predict what oil and gas prices will be in the future and what effect
those prices may have on drilling activity in general, or on our ability to
generate economic drilling prospects and to raise the necessary funds with which
to drill them.
FEDERAL REGULATIONS.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL CONSIDERATION.
Oil and Gas: The oil and gas business in the United States is subject to
regulation by both federal and state authorities, particularly with respect to
pricing, allowable rates of production, marketing and environmental matters.
The production of crude oil and gas has, in recent years, been the subject of
increasing state and federal controls. No assurance can be given that newly
imposed or changed federal laws will not adversely affect the economic viability
of any oil and gas properties we may acquire in the future. Federal income and
"windfall profit" taxes have in the past affected the economic viability of such
properties.
The above paragraphs only give a brief overview of potential state and federal
regulations. Because we have only acquired specific properties, and because of
the wide range of activities in which we may participate, it is impossible to
set forth in detail the potential impact federal and state regulations may have
on us.
COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS.
Our operations are subject to local, state and federal laws and regulations
governing environmental quality and pollution control. To date our compliance
with these regulations has had no material effect on our operations, capital,
earnings, or competitive position, and the cost of such compliance has not been
material. We are unable to assess or predict at this time what effect additional
regulations or legislation could have on our activities.
THE DEPARTMENT OF ENERGY.
The Department of Energy Organization Act (Pub. L. No. 95-91) became effective
October 1, 1977. Under this Act various agencies, including the Federal Energy
Administration (FEA) and the Federal Power Commission (FPC), have been
consolidated to constitute the cabinet-level Department of Energy (DOE). The
Economic Regulatory Administration (ERA), a semi-independent administration
within the DOE, now administers most of the regulatory programs formerly managed
by the FEA, including oil pricing and allocation. The Federal Energy Regulatory
Commission (FERC), an independent agency within the DOE, has assumed the FPC's
responsibility for natural gas regulation.
REGULATION AND PRICING OF NATURAL GAS.
Our operations may be subject to the jurisdiction of the Federal Energy
Regulatory Commission (FERC) with respect to the sale of natural gas for resale
in interstate and intrastate commerce. State regulatory agencies may exercise or
attempt to exercise similar powers with respect to intrastate sales of gas.
Because of its complexity and broad scope, the price impact of future
legislation on the operation of us cannot be determined at this time.
CRUDE OIL AND NATURAL GAS LIQUIDS PRICE AND ALLOCATION REGULATION.
Pursuant to Executive Order Number 12287, issued January 28, 1981, President
Reagan lifted all existing federal price and allocation controls over the sale
and distribution of crude oil and natural gas liquids. Executive Order Number
12287 was made effective as of January 28, 1981, and consequently, sales of
crude oil and natural gas liquids after January 27, 1981 are free from federal
regulation. The price for such sales and the supplier-purchaser relationship
will be determined by private contract and prevailing market conditions. As a
result of this action, oil which may be sold by us will be sold at deregulated
or free market prices. At various times, certain groups have advocated the
reestablishment of regulations and control on the sale of domestic oil and gas.
-31-
STATE REGULATIONS.
Our production of oil and gas, if any, will be subject to regulation by state
regulatory authorities in the states in which we may produce oil and gas. In
general, these regulatory authorities are empowered to make and enforce
regulations to prevent waste of oil and gas and to protect correlative rights
and opportunities to produce oil and gas as between owners of a common
reservoir. Some regulatory authorities may also regulate the amount of oil and
gas produced by assigning allowable rates of production.
PROPOSED LEGISLATION.
A number of legislative proposals have been and probably will continue to be
introduced in Congress and in the legislatures of various states, which, if
enacted, would significantly affect the petroleum industries. Such proposals and
executive actions involve, among other things, the imposition of land use
controls such as prohibiting drilling activities on certain federal and state
lands in roadless wilderness areas. At present, it is impossible to predict what
proposals, if any, will actually be enacted by Congress or the various state
legislatures and what effect, if any, such proposals will have. However,
President Clinton's establishment of numerous National Monuments by executive
order has had the effect of precluding drilling across vast areas of the Rocky
Mountain West.
ENVIRONMENTAL LAWS.
Oil and gas exploration and development are specifically subject to existing
federal and state laws and regulations governing environmental quality and
pollution control. Such laws and regulations may substantially increase the
costs of exploring for, developing, or producing oil and gas and may prevent or
delay the commencement or continuation of a given operation.
All of our operations involving the exploration for or the production of any
minerals are subject to existing laws and regulations relating to exploration
procedures, safety precautions, employee health and safety, air quality
standards, pollution of stream and fresh water sources, odor, noise, dust, and
other environmental protection controls adopted by federal, state and local
governmental authorities as well as the right of adjoining property owners. We
may be required to prepare and present to federal, state or local authorities
data pertaining to the effect or impact that any proposed exploration for or
production of minerals may have upon the environment. All requirements imposed
by any such authorities may be costly, time consuming, and may delay
commencement or continuation of exploration or production operations.
It may be anticipated that future legislation will significantly emphasize the
protection of the environment, and that, as a consequence, our activities may be
more closely regulated to further the cause of environmental protection. Such
legislation, as well as future interpretation of existing laws, may require
substantial increases in equipment and operating costs to us and delays,
interruptions, or a termination of operations, the extent to which cannot now be
predicted.
TITLE TO PROPERTIES.
We are not the record owner of our interest in our properties and rely instead
on contracts with the owner or operator of the property, pursuant to which,
among other things, we have the right to have our interest placed of record. As
is customary in the oil and gas industry, a preliminary title examination will
be conducted at the time unproved properties or interests are acquired by us.
Prior to commencement of drilling operations on such acreage and prior to the
acquisition of proved properties, we will conduct a title examination and
attempt to remedy extremely significant defects before proceeding with
operations or the acquisition of proved properties, as we may deem appropriate.
Our properties are subject to royalty, overriding royalty and other interests
customary in the industry, liens incident to agreements, current taxes and other
burdens, minor encumbrances, easements and restrictions. Although we are not
aware of any material title defects or disputes with respect to its undeveloped
acreage, to the extent such defects or disputes exist, we would suffer title
failures.
BACKLOG OF ORDERS.
We currently have no orders for sales at this time.
-32-
GOVERNMENT CONTRACTS.
We have no government contracts.
COMPANY SPONSORED RESEARCH AND DEVELOPMENT.
We are not conducting any research.
NUMBER OF PERSONS EMPLOYED.
As of December 31, 2013, we have 6 full-time employees and 4 independent
consultants.
PLAN OF OPERATIONS
----------------- --------------------------------------------------------------
1st Quarter 2014 o Drill and complete 4-5 additional wells in Archer County;
o Drill and complete 2-3 additional wells in Oklahoma;
o 10-11 well workovers in Five JAB projects
----------------- --------------------------------------------------------------
2nd Quarter 2014 o Drill and complete 6-8 wells in new development areas
----------------- --------------------------------------------------------------
3rd Quarter 2014 o Drill and complete 6-8 wells in new development areas
----------------- --------------------------------------------------------------
Our Budget for operations in the next year is as follows:
Working Capital $3,000,000
Drilling and Development of Five JAB Wells $1,500,000
Targeted Acquisition $7,000,000
Drilling and Development of new areas $2,000,000
Fees, commissions and general expenses $1,500,000
---------------------
$15,000,000
The Company may change any or all of the budget categories in the execution of
its business model. None of the line items are to be considered fixed or
unchangeable. The Company may need substantial additional capital to support its
budget. We have recognized minimal revenues from our operational activities
prior to June 30, 2013. During the year ended December 31, 2013, we recognized
$734,128 in revenue from oil and gas sales.
We have conducted a Private Offering of shares of our restricted common stock
for capital. We intend to raise up to $15 million in the next twelve months with
a structure not yet determined in debt or equity. As of December 31, 2013, the
Company had sold approximately 5,500,000 shares, raising a total of
approximately $4,900,000. We cannot give any assurances that we will be able to
raise the full $15,000,000 to fund the budget. Further, we will need to raise
additional funds to support not only our expected budget, but our continued
operations. We cannot make any assurances that we will be able to raise such
funds or whether we would be able to raise such funds with terms that are
favorable to us.
In September 2013, we commenced a private offering of $2,000,000 Secured
Convertible Promissory Notes in order to complete the purchase of the remaining
37.5% WI in the Five JABS property discussed above. These notes are due in
September 2014 and are convertible into shares of our common stock in whole or
in part at a conversion price of $3.60 per share 6 months after issuance of the
secured convertible promissory note. The conversion of the convertible
promissory notes into shares of our common stock could have a dilutive effect to
the holdings of our existing shareholders. The Secured Convertible Promissory
Notes are secured by the Company's 75% of the right, title and working interest
in 1,955 gross leasehold acres including 13 producing wells, 9 service wells and
14 additional wellbores located in the States of Texas and Louisiana, the Five
JABS properties. The offering was not fully subscribed and a total of $1,535,000
was raised. Tincup Oil and Gas, LLC of which Mr. Ranew, a director of the
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Company, is a member, holds a Secured Convertible Promissory Note for $250,000.
At December 31, 2013, the Company owes a total of $1,475,000 in outstanding
secured convertible promissory notes.
On March 31, 2014, holders of the above promissory notes purchased 1,390,000
warrants issued by the Company in consideration for and cancellation of their
promissory notes issued to them by the Company in the amount of $1,390,000. A
warrant entitles the holder for a term of two years to purchase one share of
common stock of the Company at the rate of $1.00 per share. Therefore, as of
March 31, 2014, the Company issued 1,390,000 warrants to holders of the
promissory notes in exchange for the cancelation of $1,390,000 in debt.
Separately and apart, two members of management agreed to make up the difference
of the Secured Convertible Promissory Note Offering and the purchase price of
Five JABS in a separate transaction with separate terms with the Company. Mr.
Charles Pollard and Mr. Lester Ranew, officers and directors of the Company, in
exchange for secured convertible promissory notes provided the Company with a
total of $600,000 cash ($300,000 each). At December 31, 2013, the Company owes a
total of $600,000 to Mr. Pollard and Mr. Ranew.
Mr. Pollard's and Mr. Ranew's notes have a due date of January 2, 2014 and allow
for the conversion of the notes into common stock upon issuance. Their notes
provide that in addition to having a due date of January 2, 2014, that at the
due date they will each receive a $7,500 payment of fees and interest. If the
notes are not paid at January 2, 2014, the Company is required to take immediate
steps to liquidate the secured property and the due date will be extended to
April 2, 2014. At January 2, 2014, the Company failed to make payment on the
notes. At that time Mr. Pollard and Ranew each entered into an Extension and
Waiver with the Company. The Extension and Waiver provides that the payment date
shall be extended to April 2, 2014 and both holders have waived the provision
that steps be taken to liquidate the secured property at this time. On April 7,
2014, Mr. Pollard extended the payment date on his note to May 2, 2014 and if
the payment is not made or the property has not been liquidated then he will be
assigned a 5.625% interest in the Five JABS properties. On March 31, 2014, Mr.
Ranew purchased 300,000 warrants issued by the Company in consideration for and
cancellation of his promissory note issued to him by the Company in the amount
of $300,000.
Based on our current cash reserves of $121,174 as of December 31, 2013, we have
the cash for an operational budget of six months. We have generated minimal and
sporadic revenues to date and prior to June 30, 2013 such revenues were
generated by properties we sold on January 1, 2013. If we are unable to generate
enough revenue, through our other subsidiaries, to cover our operational costs,
we will need to seek additional sources of funds. Currently, we have NO
committed source for any funds as of date hereof. No representation is made that
any funds will be available when needed. In the event funds cannot be raised if
and when needed, we may not be able to carry out our business plan and could
fail in business as a result of these uncertainties.
The independent registered public accounting firm's report on our financial
statements as of December 31, 2013, includes a "going concern" explanatory
paragraph that describes substantial doubt about our ability to continue as a
going concern.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
B. DESCRIPTION OF PROPERTY
--------------------------
DESCRIPTION OF PROPERTIES/ASSETS/OIL AND GAS PROSPECTS
------- ------------------------- ------------------------------
(a) Real Estate. None.
------- ------------------------- ------------------------------
(b) Title to properties. None.
------- ------------------------- ------------------------------
(c) Oil and Gas Properties. See below.
------- ------------------------- ------------------------------
As is customary in the oil and natural gas industry, we generally conduct a
preliminary title examination prior to the acquisition of properties or
leasehold interests. Prior to commencement of operations on such acreage, a
thorough title examination will usually be conducted and any significant defects
will be remedied before proceeding with operations. We believe the title to our
leasehold properties is good, defensible and customary with practices in the oil
and natural gas industry, subject to such exceptions that we believe do not
materially detract from the use of such properties. With respect to our
properties of which we are not the record owner, we rely instead on contracts
with the owner or operator of the property or assignment of leases, pursuant to
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which, among other things, we generally have the right to have our interest
placed on record.
Our properties are generally subject to royalty, overriding royalty and other
interests customary in the industry, liens incident to agreements, current taxes
and other burdens, minor encumbrances, easements and restrictions. We do not
believe any of these burdens will materially interfere with our use of these
properties.
SUMMARY OF OIL AND NATURAL GAS RESERVES
PROVED DEVELOPED RESERVES AND PROVED UNDEVELOPED RESERVES
SUMMARY OF OIL AND GAS RESERVES AS OF DECEMBER 31, 2013
BASED UPON AVERAGE 2013 PRICES
RESERVES
Oil Natural Gas
Reserve Category (mbbls) (mmcf)
----------------------------------- ------------------- -----------------
PROVED:
Developed:
Texas 180 19
Louisiana 232 -
Oklahoma 25 168
Undeveloped
Texas 11 -
Louisiana - -
Oklahoma 33 167
------------------- -----------------
TOTAL PROVED 481 354
Estimates of proved developed and undeveloped reserves are inherently imprecise
and are continually subject to revision based on production history, results of
additional exploration and development, price changes and other factors. See
"Qualifications of Technical Persons and Internal Controls Over Reserves
Estimation Process."
QUALIFICATIONS OF TECHNICAL PERSONS AND INTERNAL CONTROLS OVER RESERVES
ESTIMATION PROCESS
The reserve report for Three Forks, Inc. was prepared for us on March 16, 2014,
by Ralph E. Davis Associates, Inc, ("RED") as part of our year ended audit and
preparation of our annual report. RED estimated, in accordance with petroleum
engineering and evaluation principles set forth in the Standards Pertaining to
the Estimating and Auditing of Oil and Gas Reserve Information promulgated by
the Society of Petroleum Engineers ("SPE Standards") and definitions and
guidelines established by the SEC, 100% of the proved reserve information for
our onshore properties as of December 31, 2013.
The technical persons responsible for preparing the reserves estimates presented
herein meet the requirements regarding qualifications, independence, objectivity
and confidentiality set forth in the Standards Pertaining to the Estimating and
Auditing of Oil and Natural Gas Reserves Information promulgated by the Society
of Petroleum Engineers.
The principal person at RED who prepared the reserve report is Mr. David G.
Cole. Mr. Cole has been a practicing petroleum engineer at RED since December
2011. Mr. Cole has over 25 years of practical experience in petroleum
engineering, with over 25 years of experience in the estimation and evaluation
of reserves. He graduated from Texas A&M University in 1987 with a Bachelors of
Science in Petroleum Engineering.
Mr. Charles Pollard, the Company's President and Chief Operating Officer, is
primarily responsible for the determination of and the presentation of the
reserves presented by the Company.
We have an internal staff of geoscience professionals who worked closely with
our independent petroleum engineering firms to ensure the integrity, accuracy
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and timeliness of data furnished to them in their reserves estimation process.
The technical team consulted regularly with RED. We review with them our
properties and to discuss methods and assumptions used in their preparation of
the fiscal year-end reserves estimates. While we have no formal committee
specifically designated to review reserves reporting and the reserves estimation
process, a copy RED's reserve reports are reviewed with representatives of RED
and our internal technical staff before we disseminate any of the information is
disseminated. Additionally, our senior management reviews and approved the RED
reserve report and any internally estimated significant changes to the proved
reserves on an annual basis.
Estimates of oil and natural gas reserves are projections based on a process
involving an independent third party engineering firm's collection of all
required geologic, geophysical, engineering and economic data, and such firm's
complete external preparation of all required estimates and are forward-looking
in nature. These reports rely upon various assumptions, including assumptions
required by the SEC, such as constant oil and natural gas prices, operating
expenses and future capital costs. The process also requires assumptions
relating to availability of funds and timing of capital expenditures for
development of our proved undeveloped reserves. These reports should not be
construed as the current market value of our reserves. The process of estimating
oil and natural gas reserves is also dependent on geological, engineering and
economic data for each reservoir. Because of the uncertainties inherent in the
interpretation of this data, we cannot be certain that the reserves will
ultimately be realized. Our actual results could differ materially. See "Note 17
-- Supplemental Information Relating to Oil and Natural Gas Producing Activities
(Unaudited)" to our financial statements for additional information regarding
our oil and natural gas reserves.
Under SEC rules, proved reserves are those quantities of oil and natural gas,
which, by analysis of geoscience and engineering data, can be estimated with
reasonable certainty to be economically producible from a given date forward,
from known reservoirs, and under existing economic conditions, operating
methods, and government regulations. The term "reasonable certainty" implies a
high degree of confidence that the quantities of oil and/or natural gas actually
recovered will equal or exceed the estimate. To achieve reasonable certainty,
RED employs technologies consistent with the standards established by the
Society of Petroleum Engineers. The technologies and economic data used in the
estimation of our proved reserves include, but are not limited to, well logs,
geologic maps and available downhole and production data, seismic data and well
test data.
SUMMARY OF OIL AND NATURAL GAS PROPERTIES AND PROJECTS
PRODUCTION, PRICE AND COST HISTORY
The following table presents net production sold, average sales prices and
production costs and expenses for the year ended December 31, 2013 and for the
period of March 28, 2012 (inception) through December 31, 2012.
Year Ended March 28, 2012
December 31, (inception) through
Revenue 2013 December 31 2012 *)
---------------- -------------------
Oil sales 2,362,102 1,344,003
Gas sales 36,102 13,828
---------------- -------------------
Total revenues 2,398,204 1,357,831
================ ===================
Net production sold
Oil (Bbl) 22,575 13,631
Gas (Mcf) 9,093 2,568
Average sales price
Oil ($/Bbl) $ 103.99 $ 105.69
Gas ($/Mcf) $ 3.73 $ 3.77
Costs and expenses (per BOE)
Lease operating expenses $ 35.52 $ 41.77
Transportation and marketing expenses $ - $ -
Depreciation, depletion and amortization $ 5.86 $ 5.13
Productiion taxes $ 4.76 $ 4.84
-------------------------------------------
-36-
* During the year ended December 31, 2013 and during period of March 28, 2012
(inception) through December 31, 2012, we recognized a total of $2,398,204
and $1,357,831 in revenues from oil and gas sales, respectively of which
revenues of $1,664,076 and $1,279,105, respectively were from our
predecessor, Five Jab.
DEVELOPED AND UNDEVELOPED ACREAGE
The following table presents our total gross and net developed and undeveloped
acreage by region as of December 31, 2013:
Developed Acres Undeveloped Acres
-------------------------- -----------------------------
Gross (1) Net(2) Gross Net
------------ ------------- ------------ ----------------
Archer County, Texas 100.00 220
11.00 24.2
Texas/Louisiana 1,955.41 1,466.56 - -
Central Oklahoma 60.00 15.00 390 97.5
------------ ------------- ------------ ----------------
TOTAL 2,115.41 1,517.56 610 121.7
============ ============= ============ ================
--------------------------
(1) "Gross" means the total number of acres in which we have a working
interest.
(2) "Net" means the sum of the fractional working interests that we own in
gross acres.
Our net developed acreage is concentrated primarily in Texas and Louisiana
(95.36%). Our net undeveloped acreage is concentrated primarily in Texas
(83.33%) and Oklahoma (16.66%). The majority our net undeveloped acreage is held
by production and therefore is not subject to lease expiration terms.
PRODUCTIVE WELLS
The following table presents the total gross and net productive wells by area
and by completion as of December 31, 2013:
Oil Wells Gas Wells
------------------------------- ------------------------
Gross (1) Net(2) Gross(1) Net(2)
--------------- --------------- -------------- ---------
Archer County, Texas 5 0.55 - -
Texas, Louisiana 13 9.75 1 .75
Central Oklahoma 3 0.758 - -
--------------- --------------- -------------- ---------
TOTAL 21 11.05 - -
=============== =============== ============== =========
-----------------------
(1) "Gross" means the total number of wells in which we have a working
interest.
(2) "Net" means the sum of the fractional working interest that we own in gross
wells.
DRILLING ACTIVITY
The following table summarizes the number of net productive and dry development
wells and net productive and dry exploratory wells we drilled during the year
ended December 31, 2013 and refers to the number of wells completed during the
year regardless of when drilling was initiated.
Development Wells Exploratory Wells
----------------------------- ----------------------------
Productive Dry Productive Dry
-------------- -------------- -------------- -------------
Archer County, Texas 5 - - -
Texas, Louisiana - - - -
Central Oklahoma 3 - - -
-------------- -------------- -------------- -------------
TOTAL 8 - - -
============== ============== ============== =============
-37-
ARCHER COUNTY
During the year ending on December 31, 2013, the Company successfully drilled
five wells:
o G. A. Jennings 'AA' #101 - Drilled and completed in the Odom
formation. Well IP'd for 46 BOPD and 139 BWPD.
o G. A. Jennings 'AA" #102 - Drilled and completed well in the
Ellenburger, Conglomerate and Bend formations. Well IP'd for 30 BOPD
and 90 BWPD.
o G. A. Jennings 'BB' #103 - Drilled and completed in the Caddo/Bend
formations. Well IP'd for 27 BOPD and 153 BWPD.
o G. A. Jennings 'BB' #104 - Drilled, completed and fraced in the KMA
formation. Well IP'd for 9 BOPD and 17 BWPD. Well continues to cleanup
following stimulation treatment.
o G. A. Jennings #105 - Drilled and completed in the Bend formation.
Following an acid treatment well IP'd for 40 BOPD and 100 BWPD.
The following wells are in the planning stages:
o G. A. Jennings #107 - Planned to spud this month.
o G. A. Jennings `BB' #108 - Drilling permit approved.
o G. A. Jennings #106, #109 and #110 - Drilling permits filed with TRRC.
Capital expenditures ("Capex") on this project are $3.0 million. As of December
31, 2013, a total of $1.9 million has been invested for drilling and well
completion work, $50,000 for seismic acquisition, processing and interpretation,
and $250,000 for equipment including approximately $220,000 in total costs
incurred by the Company.
BLUE QUAIL, CENTRAL OKLAHOMA
We entered into a Participation Agreement with Blue Quail Ltd. of Chandler,
Oklahoma to participate with a 25% WI in up to six wells in a multiple pay area
("Pink Prospect") within the Morvin oil field in Pottawatomie County where the
predominate production has been from the Bois d'Arc member of the Hunton Lime.
Additional pay intervals in the area include the Red Forks Sand, Misener Sand,
Viola Lime, Simpson Dolomite, and the 1st and 2nd Wilcox Sands. Two Pink
Prospect wells have been drilled to date with at least one more well planned. In
addition to the Pink Prospect area, another area, "Sportsman's Lake" was added
to the Participation Agreement under the same terms. Sportsman's Lake is located
in Seminole County, Oklahoma. One well was drilled in Sportsman's Lake by the
end of the year.
In the Pink Prospect area, drilling operations began in April 2013 with the
geologist, driller and operator (Blue Quail Ltd) each taking a 25% WI. Two wells
have been drilled with results as follows:
o Blue Quail Jim #1-33 is currently completed in Bois D'Arc formation at
5-35 BOPD. Production variations have been primarily due to mechanical
issues with the artificial lift equipment.
o The Blue Quail Joe Gregory #1 was drilled and is currently completed
in the Bois D'Arc. Updip to the Jim #1-33, in early production, the
well is making mostly water with an oil cut.
In the Sportsman's Lake area, drilling operations began in October of 2013 with
the geologist, driller and operator (Blue Quail Ltd) each taking a 25% WI. One
well was drilled in 2013 (see solid black dot on the map), with results as
follows:
o Blue Quail Sportsman's Lake #1 is currently completed in
Misener/Hunton formation at 300 MCFGD with a trace of condensate.
-38-
FIVE JAB - EVANGELINE/ST. MARY'S PARISHES, LOUISIANA AND MONTGOMERY/TYLER
COUNTY, TEXAS
The properties currently produce 100 BOPD and 50 MCFPD.
The property includes working interests in 13 producing wells, 9 service wells
and 14 additional wellbores, which are spread across Montgomery, Jasper and
Tyler Counties in Texas and the Evangeline and St. Mary Parishes in Louisiana.
Geologically, these wells are located in the Gulf Coast Upper
Jurassic-Cretaceous-Tertiary province. This province extends on shore and off
shore in the states of Texas, Louisiana, Mississippi and Florida. The multiple
conventional pays make up the geological success of the area. The Five Jab
properties are all located onshore.
Workovers were initiated in September of 2013. Three of 11 workovers were
completed in 2013. The cost for all the workovers is estimated to total $1.25
million (net) and is forecast to double production.
------- ------------------------- ------------------------------
(d) Patents. None.
------- ------------------------- ------------------------------
C. LEGAL PROCEEDINGS
--------------------
We anticipate that we (including any future subsidiaries) will from time to time
become subject to claims and legal proceedings arising in the ordinary course of
business. It is not feasible to predict the outcome of any such proceedings and
we cannot assure that their ultimate disposition will not have a materially
adverse effect on our business, financial condition, cash flows or results of
operations. As of this filing date, we are not a party to any pending legal
proceedings, nor are we aware of any civil proceeding or government authority
contemplating any legal proceeding.
D. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------
MARKET INFORMATION
Currently there is no public trading market for our stock, and we have not
applied to have the common stock quoted for trading in any venue.
We intend to obtain a listing for our stock on an exchange in the future, but
cannot make any assurances that we will be approved for such listing, as the
exchanges have certain listing requirements that we would have to meet. Such
listing requirements at a minimum include, but are not limited to:
- Stockholders' equity of at least $4,000,000 and/or 2 years of
operating history and/or pre-tax income of at least $750,000 in our
last fiscal year or two of the last three fiscal years;
- Be able to meet certain distribution requirements; and
- Be able to meet certain market values of publicly held shares and
aggregate market values of the shares.
RULES GOVERNING LOW-PRICE STOCKS THAT MAY AFFECT OUR SHAREHOLDERS' ABILITY TO
RESELL SHARES OF OUR COMMON STOCK
We are a "penny stock" company, as our stock price is less than $5.00 per share.
If we are able to obtain an exchange listing for our stock, we cannot make an
assurance that we will be able to maintain a stock price greater than $5.00 per
share and if the share price was to fall to such prices, that we wouldn't be
subject to the Penny Stocks rules.
The penny stock rules require broker-dealers, prior to a transaction in a penny
stock not otherwise exempt from the rules, to make a special suitability
determination for the purchaser to receive the purchaser's written consent to
the transaction prior to sale, to deliver standardized risk disclosure documents
prepared by the SEC that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer must also
provide the customer with current bid and offer quotations for the penny stock.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the SEC relating to the penny stock market, unless the broker-dealer or the
transaction is otherwise exempt. A broker-dealer is also required to disclose
commissions payable to the broker-dealer and the registered representative and
-39-
current quotations for the securities. Finally, a broker-dealer is required to
send monthly statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect to the
limited market in penny stocks.
HOLDERS
As of December 31, 2013, we have approximately 395 stockholders of record of our
common stock.
DIVIDENDS
As of the filing of this registration statement, we have not paid any dividends
to stockholders. There are no restrictions which would limit our ability to pay
dividends on common equity or that are likely to do so in the future. The
Colorado Revised Statutes, however, do prohibit us from declaring dividends
where, after giving effect to the distribution of the dividend; we would not be
able to pay our debts as they become due in the usual course of business; or our
total assets would be less than the sum of the total liabilities plus the amount
that would be needed to satisfy the rights of stockholders who have preferential
rights superior to those receiving the distribution.
E. FINANCIAL STATEMENTS
-----------------------
The following is a complete list of the financial statements filed as a part of
this Report.
o Audited financial statements of Three Forks, Inc. as of and for the
year ended December 31, 2013 and as of and for the period from March
28, 2012 (inception) through December 31, 2012 (pages F-1 through
F-22)
o Audited financial statements of Five Jab, Inc. for the years ended
December 31, 2013 and 2012 (pages F-23 through F-34)
-40-
THREE FORKS, INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND FOR THE PERIOD
FROM MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THREE FORKS, INC.:
We have audited the accompanying balance sheet of Three Forks, Inc. ("the
Company") as of December 31, 2013 and 2012 and the related statement of
operations, stockholders' equity (deficit) and cash flows for the period March
28, 2012 (inception) through December 31, 2013. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with 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. An audit 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statement referred to above present fairly, in all
material respects, the financial position of Three Forks, Inc., as of December
31, 2012, and the results of its operations and its cash flows for the period
March 28, 2012 (inception) through December 31 2013, in conformity with
generally accepted accounting principles in the United States of America.
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 Company's internal control over financial
reporting. Accordingly, we express no such opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ B F Borgers CPA PC
B F BORGERS CPA PC
Denver, CO
April 14, 2014
F-2
THREE FORKS INC.
BALANCE SHEETS
December 31,
2013 2012
------------------------- -------------------------
ASSETS
Current assets
Cash and cash equivalents $ 121,174 $ 492,729
Accounts receivable trade, net 276,570 -
Note receivable other 100,000 100,000
Prepaid and other current assets 20,442 27,299
------------------------- -------------------------
Total current assets 518,186 620,028
------------------------- -------------------------
Disposal group held for sale of discontinued operations - 1,481,071
------------------------- -------------------------
Property and equipment
Oil and gas properties at cost, full-cost method of accounting
Unproved 214,584 150,001
Proved 5,614,987 -
Other 25,554 11,576
------------------------- -------------------------
Total property and equipment 5,855,125 161,577
Less accumulated depreciation, depletion and amortization (65,038) (449)
------------------------- -------------------------
Net property and equipment 5,790,087 161,128
------------------------- -------------------------
Long-term assets
Other long-term assets 61,330 55,081
------------------------- -------------------------
Total long-term assets 61,330 55,081
------------------------- -------------------------
Total assets $ 6,369,603 $ 2,317,308
========================= =========================
Current liabilities
Current maturities of convertible notes $ 1,475,000 $ -
Current maturities of notes 24,500 7,003
Accounts payable trade 425,133 4,427
Accrued and deposits payable 192,517 22,680
Accrued liabilities and notes payable, related party 812,205 15,000
------------------------- -------------------------
Total current liabilities 2,929,355 49,110
------------------------- -------------------------
Long-term liabilities
Asset retirement obligations 307,854 -
------------------------- -------------------------
Total long-term liabilities 307,854 -
------------------------- -------------------------
Disposal group held for sale payables of discontinued operations - 7,745
------------------------- -------------------------
Total liabilities 3,237,209 56,855
------------------------- -------------------------
Commitments and Contingencies - -
STOCKHOLDERS' EQUITY
Preferred shares, no par value, 25,000,000 shares authorized;
no shares issued and outstanding - -
Common shares, $0.001 par value, 100,000,000 shares authorized;
11,681,477 and 10,799,339 shares issued and outstanding at
December 31, 2013 and December 31, 2012, respectively 11,681 10,799
Additional paid in capital 5,629,205 3,230,941
Accumulated deficit (2,508,492) (981,287)
------------------------- -------------------------
Total stockholders' equity 3,132,394 2,260,453
------------------------- -------------------------
Total liabilities and stockholders' equity $ 6,369,603 $ 2,317,308
========================= =========================
The accompanying notes are an integral part of these financial statements.
F-3
THREE FORKS, INC.
STATEMENTS OF OPERATIONS
For the For the Period
Year Ended March 28, 2012 (inception)
December 31, through December 31,
2013 2012
--------------------- -----------------------------
Revenue:
Oil and gas sales $ 734,128 $ -
Management fees 160,000 -
--------------------- -----------------------------
Total revenues 894,128 -
--------------------- -----------------------------
Operating expenses:
Lease operating expenses 315,397 -
Production taxes 34,110 -
Depreciation, depletion and amortization 64,589 449
General and administrative expenses 2,101,497 1,011,016
--------------------- -----------------------------
Total operating expenses 2,515,593 1,011,465
--------------------- -----------------------------
Loss from operations (1,621,465) (1,011,465)
--------------------- -----------------------------
Other income (expense):
Other Income 22,000 -
Interest income 4,096 2,437
Interest expense (75,444) -
--------------------- -----------------------------
Total other income (49,348) 2,437
--------------------- -----------------------------
Loss from continuing operations
before income taxes (1,670,813) (1,009,028)
Income taxes - -
--------------------- -----------------------------
Net loss from continuing operations (1,670,813) (1,009,028)
--------------------- -----------------------------
Discontinued operations
Income from operations of discontinued
property - 27,741
Gain on disposal of property 143,608 -
--------------------- -----------------------------
Income from discontinued operations 143,608 27,741
--------------------- -----------------------------
Net loss $ (1,527,205) $ (981,287)
===================== =============================
Net loss from continuing operations $ (0.15) $ (0.11)
===================== =============================
Net income from discontinued operations
Basic and diluted $ 0.01 $ 0.00
===================== =============================
Net loss per common share
Basic and diluted $ (0.13) $ (0.11)
===================== =============================
Weighted average number of common shares
Basic and diluted 11,376,235 9,222,607
===================== =============================
The accompanying notes are an integral part of these financial statements.
F-4
THREE FORKS INC.
STATEMENT OF STOCKHOLDERS' EQUITY
PREFERRED SHARES COMMON SHARES ADDITIONAL TOTAL
$10 PAR VALUE $.001 PAR VALUE PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
-------- -------- ------------ -------- ----------- ------------- --------------
BALANCES, March 28, 2012 - $ - - $ - $ - $ - $ -
Issuance of shares for services
valued at $0.001 per share -
related party - - 5,325,000 5,325 - - 5,325
Issuance of shares for services
valued at $0.001 per share - - 195,000 195 - - 195
Issuance of shares for services
valued at $0.01 per share - - 260,000 260 2,340 - 2,600
Issuance of shares for property
valued at $2.00 per share - - 700,000 700 1,399,300 - 1,400,000
Sale of shares for cash at
$0.01 per share - - 2,700,399 2,700 24,237 - 26,937
Sale of shares for cash at
$0.50 per share - - 225 - 112 - 112
Sale of shares for cash at
$1.00 per share - - 1,505,051 1,505 1,503,546 - 1,505,051
Sale of shares for cash at
$2.25 per share - - 52,630 53 118,365 - 118,418
Sale of shares for cash at
$3.00 per share - - 61,034 61 183,041 - 183,102
Net loss for the period - - - - - (981,287) (981,287)
-------- -------- ------------ -------- ----------- ------------- ---------------
BALANCES, DECEMBER 31, 2012 - $ - 10,799,339 $ 10,799 $ 3,230,941 $ (981,287) $ 2,260,453
Issuance of shares for services
valued at $0.088 per share -
related party - - 25,000 25 2,175 - 2,200
Issuance of shares for services
valued at $0.088 per share - - 445,000 445 38,715 - 39,160
Sale of shares for cash at
$.01 per share - - 40,000 40 360 - 400
Sale of shares for cash at
$1.50 per share - - 100,001 100 149,902 - 150,002
Sale of shares for cash at
$2.00 per share - - 25,000 25 49,975 - 50,000
Sale of shares for cash at
$2.25 per share - - 135,000 135 303,615 - 303,750
Sale of shares for cash at
$3.00 per share - - 850,021 850 2,549,161 - 2,550,011
Sale of options and warrants
for cash - - - - 250,027 - 250,027
Correction of prior issuance
of shares - - (112,884) (113) 113 - -
Repurchase of shares at $3.00
per share - - (275,000) (275) (824,725) - (825,000)
Repurchase of shares at $1.50
per share - - (100,000) (100) (149,900) - (150,000)
Retirement of shares to settle
claims - - (250,000) (250) (21,750) - (22,000)
Stock based compensation - - - - 50,596 - 50,596
Net (loss) for the period - - - - - (1,527,205) (1,527,205)
-------- -------- ------------ -------- ----------- ------------- ---------------
BALANCES, DECEMBER 31, 2013 - $ - 11,681,477 $ 11,681 $ 5,629,205 $ (2,508,492) $ 3,132,394
======== ======== ============ ========= =========== ============= ===============
The accompanying notes are an integral part of these financial statements.
F-5
THREE FORKS INC.
STATEMENTS OF CASH FLOWS
For the For the Period
Year Ended March 28, 2012 (inception)
December 31, through December 31,
2013 2012
------------------- -----------------------------
OPERATING ACTIVITIES
Net (loss) from continuing operations attributable to
common stockholders $ (1,670,813) $ (1,009,028)
Income from discontinued operations 143,608 27,741
Adjustments to reconcile net (loss) to net cash
flows (used in) operating activities:
Depreciation, depletion and amortization 64,589 5,918
Gain on settlement of claims (22,000) -
Gain on sale of disposal group held for sale (143,608) -
Shares issued for services - related party 2,200 5,325
Shares issued for services 39,160 2,795
Options granted for services 50,596 -
Changes in operating assets and liabilities:
Accounts receivable trade (276,570) -
Prepaid and other current assets 6,857 (27,299)
Accounts payable trade 420,706 4,427
Accrued and deposits payable 177,902 15,000
Accrued liabilities, related party 205,270 22,680
Disposal group held for sale 804 (804)
------------------- -----------------------------
Net cash provided by (used in) operating activities (1,001,299) (953,245)
------------------- -----------------------------
INVESTING ACTIVITIES
Funds loaned to a non affiliate - (100,000)
Additions to property and equipment (5,385,694) (161,577)
Additions to other long-term assets (6,249) (133,071)
Proceeds from sale of disposal group held for sale 1,600,000 -
------------------- -----------------------------
Net cash (used in) investing activities (3,791,943) (394,648)
------------------- -----------------------------
FINANCING ACTIVITIES
Sale of common shares 3,054,163 1,833,620
Sale of options and warrants 250,027 -
Funds used to repurchase common shares (975,000) -
Funds from short-term convertible notes, net of repayment 1,475,000 -
Funds from short-term notes, net of repayment 17,497 7,002
Funds from short-term notes, related party 600,000 -
------------------- -----------------------------
Net cash provided by financing activities 4,421,687 1,840,622
------------------- -----------------------------
NET CHANGE IN CASH (371,555) 492,729
CASH, Beginning 492,729 -
------------------- -----------------------------
CASH, Ending $ 121,174 $ 492,729
=================== =============================
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Issuance of common shares for oil and gas properties $ - $ 1,400,000
=================== =============================
Interest paid $ - $ -
=================== =============================
Income taxes paid $ - $ -
=================== =============================
The accompanying notes are an integral part of these financial statements.
F-6
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
NATURE OF OPERATIONS AND ORGANIZATION
Three Forks, Inc. (the "Company") was incorporated on March 28, 2012 in the
State of Colorado. The Company's business plan focuses on the development as an
independent energy company engaged in the acquisition, exploration, development
and production of North American conventional oil and gas properties through the
acquisition of leases and/or royalty interests and developing the properties for
maximum cash flow.
On September 7, 2012, the Company acquired working interests between 10.12% and
10.50% in five (5) producing oil and gas wells along with mineral interests in
proved undeveloped leaseholds totaling approximately 320 acres located in Weld
county Colorado valued at $1,477,990 as well as a 76.25% working interest in
undeveloped leaseholds totaling approximately 120 acres located in Morgan county
Colorado valued at $14,000 in exchange for the issuance of 700,000 shares of the
Company's common stock valued at $1,400,000 or $2.00 per share and the
assumption of certain debt in the amount of $91,990. In addition, the Company
was required to fund an escrow account in the amount of $55,000 for legal
services that may occur over a three year period from the date of the
acquisition and this escrow account at December 31, 2013 and 2012 has a balance
of $55,163 and $55,081 respectively. Effective January 1, 2013, the Company sold
its entire interest in these oil and gas properties located in Weld county
Colorado for $1,600,000 in cash. See Note 4 - Disposal Group Held for Sale.
On December 31, 2012, the Company entered into a Farmout Agreement ("Farmout")
where the Company had a 100% working interest in 320gross/290net acres of
mineral interests located in Archer county Texas subject to the Farmout. In
consideration of Three Forks No 1 LLC, a Colorado limited liability company
("LLC"), undertaking and paying it's pro rata portion of the costs associated
with the drilling and completion of 9 wells in Archer county Texas on the
Farmout property, the Company assigned 87% of the working interest in the
Farmout to the LLC. Likewise, on January 1, 2013, the Company assigned 2% of the
working interest in the Farmout to two members of the Board of Directors of the
Company.
Three Forks LLC No 2 ("Three Forks No 2") was organized in the State of Colorado
on December 4, 2013. The Company is the manager of the Three Forks No. 2 and the
Company does not hold an equity interest in Three Forks No 2. Three Forks No 2
has been organized to fund and develop the proposed drilling of additional wells
in Archer County, Texas. At December 31 2013, Three Forks No 2 has yet to
commence operations.
Effective June 30, 2013 and September 1, 2013, the Company acquired a 37.5% and
37.5% working interest, respectively or a total of 75% working interest in
certain oil and gas properties located in Louisiana and Texas totaling
approximately 1955 gross acres known as the Five Jab properties in exchange for
$3,869,497 in cash plus the assumption of liabilities in the amount of $281,962
as part of a purchase sale and participation agreement dated February 27, 2013
as well as participate in a development program that includes the drilling and
completion of additional wells
The Company's acquisition of the 75% of working interest in the oil and gas
properties was accounted for as an acquisition for accounting purposes.
INCOME TAXES
The Company accounts for income taxes under the liability method as prescribed
by ASC authoritative guidance. Deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted rates expected to be in effect during
the year in which the basis difference reverses. The realizability of deferred
tax assets are evaluated annually and a valuation allowance is provided if it is
more likely than not that the deferred tax assets will not give rise to future
benefits in the Company's income tax returns.
F-7
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
The Company has adopted ASC guidance regarding accounting for uncertainty in
income taxes. This guidance clarifies the accounting for income taxes by
prescribing the minimum recognition threshold an income tax position is required
to meet before being recognized in the financial statements and applies to all
income tax positions. Each income tax position is assessed using a two-step
process. A determination is first made as to whether it is more likely than not
that the income tax position will be sustained, based upon technical merits,
upon examination by the taxing authorities. If the income tax position is
expected to meet the more likely than not criteria, the benefit recorded in the
financial statements equals the largest amount that is greater than 50% likely
to be realized upon its ultimate settlement. At December, 2013 and 2012 there
were no uncertain tax positions that required accrual.
(LOSS) PER SHARE
(Loss) per share requires presentation of both basic and diluted (loss) per
common share. Common share equivalents, if used, would consist of any options,
warrants and contingent shares, and would not be included in the weighted
average calculation since their effect would be anti-dilutive due to the net
(loss). At December 31, 2013 and December 31, 2012, the Company had outstanding
6,615,559 and 0, respectively options, warrants or contingent shares.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates,
and such differences may be material to the financial statements.
CONCENTRATION OF CREDIT RISK
The Company, from time to time during the periods covered by these financial
statements, may have bank balances in excess of its insured limits. Management
has deemed this a normal business risk.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all cash and
highly liquid investments with initial maturities of three months or less to be
cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are stated at their cost less any allowance for doubtful
accounts. The allowance for doubtful accounts is based on the management's
assessment of the collectability of specific customer accounts and the aging of
the accounts receivable. If there is deterioration in a major customer's
creditworthiness or if actual defaults are higher than the historical
experience, the management's estimates of the recoverability of amounts due to
the Company could be adversely affected. Based on the management's assessment,
there is no reserve recorded at December, 2013 and 2012.
REVENUE RECOGNITION
The Company recognizes revenue from the exploration and production of the
Company's oil and gas properties in the period of production.
F-8
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
OIL AND GAS PRODUCING ACTIVITIES
The Company follows the full cost method of accounting for oil and natural gas
operations. Under this method all productive and nonproductive costs incurred in
connection with the acquisition, exploration, and development of oil and natural
gas reserves are capitalized. No gains or losses are recognized upon the sale or
other disposition of oil and natural gas properties except in transactions that
would significantly alter the relationship between capitalized costs and proved
reserves. Unproved properties with significant acquisition costs are assessed
annually on a property-by-property basis and any impairment in value is charged
to expense. If the unproved properties are determined to be productive, the
related costs are transferred to proved oil and natural gas properties and are
depleted. Proceeds from sales of partial interests in unproved leases are
accounted for as a recovery of cost without recognizing any gain or loss until
all costs have been recovered. The costs of unproved oil and natural gas
properties are excluded from the amortizable base until the time that either
proven reserves are found or it has been determined that such properties are
impaired. As properties become proved, the related costs transfer to proved oil
and natural gas properties using full cost accounting. There were capitalized
costs of $5,614,987 and $0 included in the amortization base at December 31,
2013 and 2012, respectively and the Company did not expense any capitalized
costs for the year ended December 31, 2013 and for the period March 28, 2012
(inception) through December 31, 2012.
The Company performs a quarterly "ceiling test" calculation to test its oil and
gas properties for possible impairment. The primary components impacting this
calculation are commodity prices, reserve quantities added and produced, overall
exploration and development costs, depletion expense, and tax effects. If the
net capitalized cost of the Company's oil and gas properties subject to
amortization (the carrying value) exceeds the ceiling limitation, the excess
would be charged to expense. The ceiling limitation is equal to the sum of the
present value discounted at 10% of estimated future net cash flows from proved
reserves, the cost of properties not being amortized, the lower of cost or
estimated fair value of unproved properties included in the costs being
amortized, and all related tax effects. At December 31, 2013, the calculated
value of the ceiling limitation exceeded the carrying value of the Company's oil
and gas properties subject to the test, and no impairment was necessary.
PROPERTY AND EQUIPMENT
Management capitalizes additions to property and equipment. Expenditures for
repairs and maintenance are charged to expense. Property and equipment are
carried at cost. Adjustment of the asset and the related accumulated
depreciation accounts are made for property and equipment retirements and
disposals, with the resulting gain or loss included in the statement of
operations. The Company has not capitalized any internal costs for the year
ended December 31, 2013 and for the period March 28, 2012 (inception) through
December 31, 2012.
Other property and equipment, such as office furniture and equipment, and
computer hardware and software, are recorded at cost. Costs of renewals and
improvements that substantially extend the useful lives of the assets are
capitalized. Maintenance and repair costs are expensed when incurred.
DEPRECIATION
For financial reporting purposes, depreciation and amortization of other
property and equipment is computed using the straight-line method over the
estimated useful lives of assets at acquisition. For income tax reporting
purposes, depreciation of other equipment is computed using the straight-line
and accelerated methods over the estimated useful lives of assets at
acquisition.
Depreciation and depletion of capitalized acquisition, exploration and
development costs are computed on the units-of-production method by individual
fields on the basis of the total estimated units of proved reserves as the
related proved reserves are produced.
F-9
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
Depreciation and amortization of oil and gas property and other property and
equipment for the year ended December 31, 2013 and for the period March 28, 2012
(inception) through December 31, 2012 is $64,589 and $449, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with authoritative guidance on accounting for the impairment or
disposal of long-lived assets, as set forth in Topic 360 of the ASC, the Company
assesses the recoverability of the carrying value of its non-oil and gas
long-lived assets when events occur that indicate an impairment in value may
exist. An impairment loss is indicated if the sum of the expected undiscounted
future net cash flows is less than the carrying amount of the assets. If this
occurs, an impairment loss is recognized for the amount by which the carrying
amount of the assets exceeds the estimated fair value of the assets. No events
occurred during the year ended December 31, 2013 and for the period March 28,
2012 (inception) through December 31, 2012 that would be indicative of possible
impairment.
OTHER COMPREHENSIVE INCOME
The Company has no material components of other comprehensive loss and
accordingly, net loss is equal to comprehensive loss for the period.
SHARE-BASED COMPENSATION
The Company accounts for share-based payment accruals under authoritative
guidance on stock compensation as set forth in the Topics of the ASC. The
guidance requires all share-based payments to employees and non-employees,
including grants of employee and non-employee stock options, to be recognized in
the financial statements based on their fair values.
GOING CONCERN AND MANAGEMENTS' PLANS
As shown in the accompanying financial statements for the period ended December
31, 2013, the Company has reported an accumulated deficit of $2,508,492. At
December 31, 2013, the Company has current assets of $518,186, including cash
and cash equivalents of $121,174 and current liabilities of $2,929,355 but has
acquired major proved oil and gas properties as described elsewhere in this
Annual Report.
To the extent the Company's operations are not sufficient to fund the Company's
capital and current growth requirements the Company will attempt to raise
capital through the sale of additional shares of stock. At the present time, the
Company cannot provide assurance that it will be able to raise funds through the
further issuance of equity in the Company.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, however, the above conditions raise
substantial doubt about the Company's ability to do so. The financial statements
do not include any adjustment to reflect the possible future effect on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result should the Company be unable to continue as a
going concern.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has reviewed all recently issued but not yet effective accounting
pronouncements and does not believe the future adoption of any such
pronouncements may be expected to cause a material impact on its financial
condition or results of operations.
F-10
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
SUBSEQUENT EVENTS
The Company evaluates events and transactions after the balance sheet date but
before the financial statements are issued.
NOTE 2 - RELATED PARTY TRANSACTIONS
-----------------------------------
ACCRUED LIABILITIES AND NOTES PAYABLE - RELATED PARTY
During the year ended December 31, 2013, the Company was advanced funds from one
of its members of the Board of Directors ("Board Member"), who is also a member
of Tin Cup LLC and at December 31, 2013 the Company owes $209,520. See Note 4 -
Disposal Group Held for Sale. Also, during December 31, 2013, the Company
borrowed $300,000 in funds from both an officer of the Company and the Board
Member and at December 31, 2013 the Company owes $600,000. See Note 11 - Secured
Convertible Promissory Notes. In addition, during the year 2013, the Company was
advanced funds from two of its affiliates and at December 31, 2013 owes $2,685.
At December 31, 2012, the Company owed an affiliate of an officer and director
of the Company a total of $15,000 in fees for services rendered.
SHARES FOR SERVICES
During the year ended December 31, 2013, a former member and a current member of
the Board of Directors were issued 200,000 shares of the Company's common stock
in exchange for services in the amount of $17,600 or at a fair value of $0.088
per share.
In March 2012, the Company issued 5,325,000 shares of its common shares to its
members of the Board of Directors and officers in exchange for services in the
amount of $5,325 or at a fair value of $0.001 per share. Par value was determine
to be the value of the services since at the time the Company had no assets and
had yet begun operations.
CONSULTING SERVICES
During the year ended December 31, 2013 the Company paid two of its officers and
directors $229,321 in fees as part of consulting arrangements approved by the
Board of Directors.
During the year ended December 31, 2013, the Company paid an affiliate of one of
its directors $55,000 in fees as part of a consulting agreement approved by the
Board of Directors.
During the period March 28, 2012 (inception) through December 31, 2012, the
Company paid three of its officers and directors $180,892 in fees as part of
consulting arrangements approved by the Board of Directors.
LIMITED LIABILITY COMPANIES
The Company is the manager of Three Forks No 1 LLC, a Colorado limited liability
company. See Note 1 - Summary of Significant Accounting Policies "Nature of
Operations and Organization" and Note 10 - Management Agreement.
The Company is the manager of the Three Forks No. 2 and the Company does not
hold an equity interest in Three Forks No 2. Three Forks No 2 has been organized
to fund and develop the proposed drilling of additional wells in Archer County,
Texas. At December 31 2013, Three Forks No 2 has yet to commence operations. See
Note 1 - Summary of Significant Accounting Policies "Nature of Operations and
Organization."
F-11
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
Certain officers and members of the Board of Directors of the Company are
members of Tin Cup LLC, a Colorado limited liability company and at September
30, 2013, Tin Cup LLC is owed $250,000. See Note 10 - Secured Convertible
Promissory Notes.
NOTE 3 - NOTE RECEIVABLE
------------------------
In May 2012, the Company loaned Holms Energy Development Corp ("HEDC") $100,000
which is evidenced by an unsecured promissory note dated May 30, 2012 whereby
the unpaid principal amount of the promissory note is due and payable on Demand
at any time on or after March 15, 2013 including any and all unpaid and accrued
interest at the rate of four percent (4%) per annum of the outstanding
principal. HEDC may offset the principal amount of the promissory note with any
amounts due from the Company pursuant to the certain Joint Venture Cooperation
and Profit Allocation Agreement between the Company and HEDC dated May 1, 2012
("JV Agreement") as per Note 9. At December 31 2013 and December 31, 2012, the
Company is owed $100,000 plus accrued interest in the amount of $6,356 and
$2,356, respectively.
NOTE 4 - DISPOSAL GROUP HELD FOR SALE
-------------------------------------
The Company, as part of an agreement dated September 7, 2012, acquired certain
oil and gas mineral interest, including five (5) producing wells, located in
Weld county Colorado. The Company determined that these mineral interests were
considered a Disposal Group Held for Sale as set forth in Topic 205 of the ASC
and therefore, the Company at December 31, 2012 recorded the property as a
separate asset in the amount of $1,472,521 [net of $5,658 in amortization] on
the balance sheet. Effective January 1, 2013, the Company sold these properties
for $1,600,000 in cash and recorded in the statement of operations for the year
ended December 31, 2013 a gain on the sale of assets in the amount of $143,608
under discontinued operations.
In addition and as part of the sale, the purchasers of the property deposited
with the Company $400,000 to be used towards the AFE costs in the drilling of
future oil and gas wells. At December 31, 2013, the Company owes $400,000
including $209,520 due to a member of the Board of Directors.
NOTE 5 - SIGNIFICANT ACQUISITIONS
---------------------------------
Effective June 30, 2013 and September 1, 2013, the Company acquired a 37.5% and
37.5% working interest, respectively or a total of 75% working interest in
certain oil and gas properties located in Louisiana and Texas totaling
approximately 1955 gross acres in exchange for $3,869,497 in cash plus the
assumption of liabilities in the amount of $281,962 as part of a purchase sale
and participation agreement dated February 27, 2013 as well as participate in a
development program that includes the drilling and completion of additional
wells. The acquisition was accounted for using the acquisition method in
accordance with guidance provided in ASC Topic 805.
The following table presents the allocation of the purchase price to the assets
acquired and liabilities assumed, based on their fair values at June 30, 2013
and September 1, 2013, respectively:
Purchase price:
Oil and gas properties $4,151,459
Liabilities assumed $ 281,962
----------
Total consideration $3,869,497
==========
F-12
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
Subsequent to the effective dates of June 30, 2013 and September 1, 2013, the
Company reported in the Statement of Operations for the year ended December 31,
2013 revenues from oil and gas sales in the amount of $734,128 related to the
Five Jab oil and gas properties.
NOTE 6 - DISCONTINUED OPERATIONS
--------------------------------
In January 2013, the Company sold all of its proved oil and gas properties
located in Weld County CO for $1,600,000 in cash and for the year ended December
31, 2013, the Company recorded a gain of $143,608 on the sale of the disposal
group held for sale. The properties consisted solely of oil and gas properties
that were acquired in 2012.
The financial results of the disposal group held for sale have been classified
as discontinued operations in our statements of operations for all period
presented. There were no operations for the year ended December 31, 2013. For
the period of March 28, 2012 (inception) through December 31, 2012 the Company
recognized revenues from oil and gas sales of $78,726 and operation expenses of
$50,985 or operating income from discontinued operations of $27,741.
The assets and liabilities related to the Company discontinued oil and gas
operations are reflected as assets and liabilities of discontinued operations in
the accompany balance sheets. The following summarizes the components of these
assets and liabilities at December 31, 2012:
Assets
Current Assets
Disposal group held for sale:
Accounts receivable $ 8,550
Oil and gas properties, net 1,472,521
--------------------
Total current assets of
discontinued operations $ 1,481,071
====================
Liabilities
Current Liabilities
Disposal group held for sale:
Accounts payable $ 7,745
--------------------
Total current liabilities of
discontinued operations $ 7,745
====================
NOTE 7 - ASSET RETIREMENT OBLIGATIONS
-------------------------------------
The Property's asset retirement obligations reported as accrued liabilities
arise from the plugging and abandonment liabilities for oil and gas wells that
were acquired during the year ended December 31, 2013. The Company has
determined there is no salvage value associated with the Property's tangible
assets at the time the wells are retired. There were no wells retired during the
year ended December 31, 2013 and the Property's asset retirement obligation at
December 31, 2013 is $307,854.
NOTE 8 - INFORMATION ON BUSINESS SEGMENTS
-----------------------------------------
At December 31, 2013 and 2012, the Company considered its business activities to
constitute a single segment.
F-13
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
NOTE 9 - JOINT VENTURE AGREEMENT
--------------------------------
At December 31, 2013 and 2012, the Company paid $163,456 and $134,000,
respectively in costs to drill an oil and gas well in Archer County Texas as
part of the JV Agreement entered into between the Company and HEDC. The Company
will receive revenues and be responsible for 49% of the costs to drill and
complete each well the Company elects to participate in on such leases that are
part of the JV Agreement.
NOTE 10 - MANAGEMENT AGREEMENT
------------------------------
The Company is the manager of a tax partnership known as Three Forks No 1 LLC
and as manager receives a fee in the amount of $16,000 per month. The Company
owns no interest in the LLC but does own a 11% working interest in the Farmout
property as more fully described in Note 1. For the year ended December 31, 2013
and for the period March 28, 2012 (inception) through December 31, 2012, the
Company reported management fee income in the amount of $160,000 and $0,
respectively.
NOTE 11 - SECURED CONVERTIBLE PROMISSORY NOTES
----------------------------------------------
In September 2013, the Company commenced a private offering of $2,000,000 of
Secured Convertible Promissory Notes in order to complete the purchase of the
remaining 37.5% working interest in the Five Jab properties discussed in Note 1.
These promissory notes are due in September 2014 including interest at the rate
of 10% per annum on the unpaid balance and are convertible into shares of the
Company's common stock in whole or in part at a conversion price of $3.60 per
share 6 months after issuance of the promissory note. One of the subscribers of
this offering was Tincup Oil and Gas, LLC, which subscribed for a $250,000
promissory note. A director of the Company is a member of Tincup Oil and Gas,
LLC. The offering was not fully subscribed for and therefore at December 31,
2013 the Company owes $1,475,000 plus accrued interest in the amount of $28,205.
Separately and apart, an officer and director of the Company, agreed to make up
the difference of the Secured Convertible Promissory Note Offering towards the
purchase price of the Five Jab properties in a separate transaction under
separate terms with the Company. The officer and director in exchange for
secured convertible promissory notes provided the Company each with $300,000 in
cash or a total of $600,000. Their promissory notes have a due date of January
2, 2014 including interest at the rate of 10% per annum on the unpaid balance
and allow for the conversion of the promissory notes at issuance into common
stock in whole or in part at a conversion price of $3.60 per share. The
promissory notes provide that in addition to having a due date of January 2,
2014, that at the due date they will each receive a $7,500 payment of fees. If
payments are not made on the promissory notes at January 2, 2014, the Company is
required to take immediate steps to liquidate the Five Jab properties and the
due date will be extended to April 2, 2014. At January 2, 2014, the Company
failed to make payment on the notes. At that time Mr. Pollard and Ranew each
entered into an Extension and Waiver with the Company. The Extension and Waiver
provides that the payment date shall be extended to April 2, 2014 and both
holders have waived the provision that steps be taken to liquidate the secured
property at this time. If payment is made at April 2, 2014, they will each
receive a $15,000 payment of fees. On April 7, 2014, Mr. Pollard and the Company
entered into an Extension and Waiver with the Company and extended the maturity
date of the promissory note to May 2, 2014. If the property has not been
liquidated at such date, Mr. Pollard will be assigned a 5.625% working interest
in the Five Jab properties. On March 31, 2014, Mr. Ranew purchased a warrant in
consideration for and cancellation of his $300,000 promissory note. At December
31, 2013, the Company owes $600,000 plus accrued interest in the amount of
$22,808. See Note 16 - Subsequent Events.
For the year ended December 31, 2013, these promissory notes with their
conversion right had an aggregate total intrinsic fair value of $390 and the
Company did not record any expense for 2013 in the statement of operations since
management considered such amount immaterial.
F-14
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
The Secured Convertible Promissory Notes are secured by the Company's 75% of the
right, title and working interest in 1,955 gross leasehold acres known as the
Five Jab properties including 13 producing wells, 9 service wells and 14
additional wellbores located in the States of Texas and Louisiana.
NOTE 12 - SHARE BASED COMPENSATION
----------------------------------
PRESIDENT AND CHIEF OPERATING OFFICER
The Company granted to its President and Chief Operating Officer effective March
5, 2013, cashless options to acquire up to 2,250,000 shares of the Company's
common stock at an option price of $0.10 per share for a period of five years
from the effective date of the grant. The options vest over a term of three
years from the effective date of the grant. These options are not part of the
Company's 2013 Stock Incentive Plan.
2013 STOCK INCENTIVE PLAN
Effective May 1, 2013, the Company's 2013 Stock Option and Award Plan (the "2013
Stock Incentive Plan") was approved by its Board of Directors and shareholders.
Under the 2013 Stock Incentive Plan, the Board of Directors may grant options or
purchase rights to purchase common stock to officers, employees, and other
persons who provide services to the Company or any related company. The
participants to whom awards are granted, the type of awards granted, the number
of shares covered for each award, and the purchase price, conditions and other
terms of each award are determined by the Board of Directors, except that the
term of the options shall not exceed 10 years. A total of 5 million shares of
the Company's common stock are subject to the 2013 Stock Incentive Plan. The
shares issued for the 2013 Stock Incentive Plan may be either treasury or
authorized and unissued shares. During the year ended December 31, 2013, options
in the amount of 2,300,000 and warrants in the amount of 275,000 were granted
under the 2013 Stock Incentive Plan including options in the amount of 175,000
to officers and directors as well as cashless options to a Board member to
acquire up to 100,000 shares of the Company's common stock at an option price of
$.10 per share for a period of five years from the effective date of the grant.
The cashless options were immediately vested upon the date of grant.
The following table summarizes information related to the outstanding and vested
options at December 31, 2013:
F-15
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
Outstanding and
Vested Options
and Warrants
-----------------------
Number of shares
Non-Qualified stock options 3,450,000
2013 Stock Incentive Plan 2,575,000
Weighted average remaining contractual life
Non-Qualified stock options 4.76
2013 Stock Incentive Plan 4.21 years
Weighted average exercise price
Non-Qualified stock options $0.15
2013 Stock Incentive Plan $0.54
Number of shares vested
Non-Qualified stock options 874,201
2013 Stock Incentive Plan 1,522,810
Aggregate intrinsic value
Non-Qualified stock options $229,559
2013 Stock Incentive Plan $158,627
The aggregate intrinsic value of outstanding securities is the amount by which
the fair value of underlying (common) shares exceeds the exercise price of the
options issued and outstanding. For the year ended December 31, 2013, the
Company granted options and warrants that had a total fair value of $388,186 and
reported $50,596 of such value as compensation expense for 2013 in the statement
of operations.
No options or warrants were exercised or expired during the year ended December
31, 2013. The Company did not realize any income tax expense related to the
exercise of stock options for the year ended December 31, 2013.
The fair value of the options granted was estimated as of the grant date using
the Black-Scholes option pricing model with the following assumptions:
Volatility 123.60%
Expected Option Term 3-5 years
Risk-free interest rate 11%-.17%%
Expected dividend yield 0.00%
The expected term of the options granted was estimated to be the contractual
term. The expected volatility was based on an average of the volatility
disclosed based upon comparable companies who had similar expected option terms.
The risk-free rate was based on the one-year U.S. Treasury bond rate.
NOTE 13 - STOCKHOLDERS' EQUITY
------------------------------
PREFERRED SHARES
The Company is authorized to issue 25,000,000 shares of no par value preferred
stock. At December 31, 2013 and 2012, the Company has no preferred shares issued
and outstanding.
F-16
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
COMMON SHARES
The Company is authorized to issue 100,000,000 shares of $0.001 voting common
stock. At December 31, 2013 and 2012 there were a total of 11,681,477 and
10,799,339 shares of common stock issued and outstanding, respectively.
During the year ended December 31, 2013, as described in Note 2, the Company
issued 200,000 shares of its common stock in exchange for services valued at
$17,600. The Company also issued 270,000 shares of its common stock to a
consultant for services valued at $23,760. In addition, and as part of a private
placement, the Company issued 1,150,022 shares of its common stock for cash in
the amount of $3,054,163 as more fully described in the financial statements..
During the period March 28, 2012 (inception) through December 31, 2012, as
described in Note 1, the Company issued 700,000 shares of its common stock in
exchange for oil and gas properties and, as described in Note 2, the Company
issued 5,325,000 shares of its common stock to its officers and directors for
services valued at $5,325. The Company also issued 195,000 and 260,000 shares of
its common stock to consultants for services valued at $195 and $2,600
respectively and, in addition as part of a private placement, issued 4,319,339
shares of its common stock for cash in the amount of $1,833,620 as more fully
described in the financial statements.
REPURCHASE AND RETIREMENT OF COMMON SHARES
Effective March 26, 2013, the Company entered into a settlement agreement with
one of its employees to settle certain claims against the employee valued at
$22,000 in exchange for the employee returning to the Company 250,000 shares of
their common stock. In addition, the Company agreed to repurchase from the
employee 100,000 shares of their common stock in exchange for $150,000 in cash.
Also, effective March 26, 2013, the Company entered into a repurchase agreement
with two of its shareholders to acquire their 275,000 shares of common stock in
exchange for cash of $825,000.
NOTE 14 - INCOME TAXES
----------------------
The Company assessed the likelihood of utilization of the deferred tax asset, in
light of the recent losses. As a result of this review, the deferred tax asset
of $994,000 has been fully reserved at December 31, 2013.
At December 31, 2013, the Company has incurred net operating losses for income
tax purposes of approximately $2,500,000.Such losses may be carried forward and
are scheduled to expire in the year 2032, if not utilized, and may be subject to
certain limitations as provided by the Internal Revenue Code.
The effective income tax rate at December 31, 2013 differs from the U.S Federal
statutory income tax rate due to the following:
Federal statutory income rate $ 521,000
State income tax, net of federal benefit 70,000
Permanent items (1,000)
Change in valuation allowance (590,000)
------------
$ -
============
F-17
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
The components of the deferred tax assets and liabilities at December 31, 2013
are as follows:
Long-term deferred tax assets:
Federal net operating loss $ 994,000
Long-term deferred tax liabilities:
Valuation allowance (994,000)
-------------
Net long-term deferred tax assets $ -
=============
The Company assessed the likelihood of utilization of the deferred tax asset, in
light of the recent losses. As a result of this review, the deferred tax asset
of $970,000 had been fully reserved at December 31, 2013.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
---------------------------------------
OPERATING LEASE
The Company leases office space in Broomfield Colorado under a non-cancelable
operating lease that allows either party the option to terminate the lease. Rent
expense for the year ended December 31, 2013 and for the period March 28, 2012
(inception) through December 31, 2012 was $75,020 and $46,254, respectively. The
following table summarizes the future minimum payments under this non-cancelable
lease at December 31, 2013:
2014 $ 91,738
2015 $ 54,416
2016 $ -
2017 $ -
2018 $ -
--------
$ 146,154
CONSULTING AGREEMENTS
Effective November 1, 2013, the Company entered into a twelve month agreement
with a consultant to perform services at the rate of $200,000 per year under
certain terms and conditions that includes the granting of non-qualified stock
options in exchange for cash of $50,000 to acquire up to 1,000,000 shares of the
Company's common stock at an option price of $.010 per share over a five year
period from the effective date of the grant. The options vest over a three year
period from the effective date of the grant.
The Company entered into a four year agreement effective September 1, 2012 and
amended March 1, 2013 with its interim Chief Executive Officer to perform
services at the base rate of $180,000 per year under certain terms and
conditions.
EMPLOYMENT AGREEMENTS
The Company entered into a two year employment agreement effective September 1,
2012 and amended in February 2013 with its Executive Vice President of Finance
that includes compensation of a base salary of $192,000 per year under certain
terms and conditions. This agreement was terminated in January 2014 for cause.
The Company entered into a three year employment agreement effective March 1,
2013 with its President and Chief Operating Officer that includes compensation
of a base salary of $210,000 per year under certain terms and conditions
including non-qualified stock options as described in Note 12.
F-18
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
NOTE 16 - SUBSEQUENT EVENTS
---------------------------
On March 31, 2014, holders of promissory notes, including a promissory note in
the amount of $300,000 issued to Mr. Ranew, a board member, purchased 1,690,000
warrants issued by the Company in consideration for and cancellation of their
promissory notes issued to them by the Company in the amount of $1,690,000. A
warrant entitles the holder for a term of two years to purchase one share of
common stock of the Company at the rate of $1.00 per share. Therefore, as of
March 31, 2014, the Company issued 1,690,000 warrants to holders of the
promissory notes in cancellation of $1,690,000 in debt.
The Company and Mr. Pollard agreed to extend the maturity date of his promissory
note issued by the Company in the amount of $300,000 to May 2, 2014 and waive
the provision that steps be taken to liquidate the Five Jab property at this
time.
NOTE 17 - SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
------------------------------------------------------------------
There are numerous uncertainties inherent in estimating quantities of proved
crude oil and natural gas reserves. Crude oil and natural gas reserve
engineering is a subjective process of estimating underground accumulations of
crude oil and natural gas that cannot be precisely measured. The accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Results of drilling,
testing and production subsequent to the date of the estimate may justify
revision of such estimate. Accordingly, reserves estimates are often different
from the quantities of crude oil and natural gas that are ultimately recovered.
Proved oil and gas reserves are those quantities of oil and gas, which, by
analysis of geoscience and engineering data, can be estimated with reasonable
certainty to be economically producible - from a given date forward, from known
reservoirs, and under existing economic conditions, operating methods, and
government regulations - prior to the time at which contracts providing the
right to operate expire, unless evidence indicates that renewal is reasonably
certain, regardless of whether deterministic or probabilistic methods are used
for the estimation. The project to extract the hydrocarbons must have commenced
or the operator must be reasonably certain that it will commence the project
within a reasonable time.
The area of the reservoir considered as proved includes all of the following:
(a) the area identified by drilling and limited by fluid contacts, if any, and
(b) adjacent undrilled portions of the reservoir that can, with reasonable
certainty, be judged to be continuous with it and to contain economically
producible oil or gas on the basis of available geoscience and engineering data.
In the absence of data on fluid contacts, proved quantities in a reservoir are
limited by the lowest known hydrocarbons as seen in a well penetration unless
geoscience, engineering, or performance data and reliable technology establish a
lower contact with reasonable certainty.
Reserves that can be produced economically through application of improved
recovery techniques (including but not limited to, fluid injection) are included
in the proved classification when both of the following occur: (a) successful
testing by a pilot project in an area of the reservoir with properties no more
favorable than in the reservoir as a whole, the operation of an installed
program in the reservoir of an analogous reservoir, or other evidence of
reliable technology establishes the reasonable certainty of the engineering
analysis on which the project or program was based, and (b) the project has been
approved for development by all necessary parties and entities, including
governmental entities.
Existing economic conditions include prices and costs at which economic
productivity from a reservoir is to be determined. The price shall be the
average price during the 12-month period prior to the ending date of the period
covered by the report, determined as an unweighted arithmetic average of the
first-day-of-the-month price for each month within such period, unless prices
are defined by contractual arrangements, excluding escalations based upon future
conditions.
F-19
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
Proved developed oil and gas reserves are proved reserves that can be expected
to be recovered: (i) through existing wells with existing equipment and
operating methods or in which the cost of the required equipment is relatively
minor compared to the costs of a new well; and (ii) through installed extraction
equipment and infrastructure operational at the time of the reserve estimate if
the extraction is by means not involving a well.
Proved undeveloped oil and gas reserves are proved reserves that are expected to
be recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those directly offsetting development spacing areas
that are reasonably certain of production when drilled, unless evidence using
reliable technology exists that establishes reasonable certainty of economic
productivity at greater distances. Undrilled locations can be classified as
having undeveloped reserves only if a development plan has been adopted
indicating that they are scheduled to be drilled within five years, unless the
specific circumstances, justify a longer time. Under no circumstances shall
estimates for undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual
projects in the same reservoir or an analogous reservoir, or by other evidence
using reliable technology establishing reasonable certainty.
"Prepared" reserves are those quantities of reserves which were prepared by an
independent petroleum consultant. "Audited" reserves are those quantities of
revenues which were estimated by the Company's employees and audited by an
independent petroleum consultant. An audit is an examination of a company's
proved oil and gas reserves and net cash flow by an independent petroleum
consultant that is conducted for the purpose of expressing an opinion as to
whether such estimates, in aggregate, are reasonable and have been determined
using methods and procedures widely accepted within the industry and in
accordance with SEC rules.
Estimates of the Company's crude oil and natural gas reserves and present values
at December 31, 2013 were prepared by Ralph E. Davis Associates, Inc.,
independent reserve engineers.
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES
Estimated quantities of proved crude oil and natural gas reserves at December
31, 2013 and 2012 and changes in the reserves during the periods are shown below
(in thousands). These reserve estimates have been prepared in compliance with
Securities and Exchange Commission regulations using the average price during
the 12-month period, determined as an unweighted average of the
first-day-of-the-month for each month.
F-20
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
Oil Natural Gas Total
(MBbls) (MMcf) (Mboe) (1)
----------------- ---------------- -----------------
Estimated proved reserves at March 28, 2012 - - -
Purchase of proved reserves - - -
----------------- ---------------- -----------------
Estimated proved reserves at December 31, 2012 - - -
Purchase of proved reserves 355 20 357
Extensions and discoveries 133 335 190
Production (7) (1) (7)
----------------- ---------------- -----------------
Estimated proved reserves at December 31, 2013 481 354 540
================= ================ =================
Proved developed reserves:
December 31, 2012 - - -
December 31, 2013 437 187 468
Proved undeveloped reserves:
December 31, 2012 - - -
December 31, 2013 44 167 72
Base pricing, after adjustments for contractual
differentials: $/BBL WTI SPOT $/MCF HHUB SPOT
December 31, 2013 $103.99 $3.73
-------------------------
[1] Mboe is based on a ratio of 6 Mcf to 1 barrel.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
Information with respect to the standardized measure of discounted future net
cash flows relating to proved reserves is summarized below. The price used to
estimate the reserves is held constant over the life of the reserve. Future
production and development costs are derived based on current costs assuming
continuation of existing economic conditions.
The discounted future net cash flows related to proved oil and gas reserves at
December 31, 2013 and 2012 (in thousands):
December 31,
2013 2012
----------------- ---------------
Future cash inflows $ 51,313 $ -
Less future costs:
Production 16,548 -
Development [1] 3,142 -
Income taxes 10,752 -
----------------- ---------------
Future net cash flows 20,871 -
10% discount factor (8,161) -
----------------- ---------------
Standardized measure of discounted
future net cash flows $ 12,710 $ -
================= ===============
Estimated future development costs $ 3,142 $ -
================= ===============
------------------
[1] Includes cost to P&A proved properties.
F-21
THREE FORKS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND
THE PERIOD OF MARCH 28, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012
CHANGES IN DISCOUNTED FUTURE NET CASH FLOWS
The following summarizes the principal sources of change in the standardized
measure of discounted future net cash flows during the year ended December 31,
2013 and the period March 28, 2012 (inception) through December 31, 2012 (in
thousands):
For the Period
March 28, 2012
For the Year Ended (inception) through
December 31, 2013 Decmeber 31, 2012
-------------------------- -----------------------
Beginning of the period $ - $ -
Purchase of proved
reserves 8,189 -
Changes in prices 958 -
Extension and discoveries 3,948
Sales of oil and natural
gas produced during
the period, net of
production costs (385) -
-------------------------- -----------------------
End of period $ 12,710 $ -
========================== =======================
F-22
FIVE JAB, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 and 2012
F-23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF FIVE JAB, INC.:
We have audited the accompanying balance sheets of Five Jab, Inc. ("the
Company") as of December 31, 2013 and 2012, and the related statement of
operations, stockholders' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with 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. An audit 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statement referred to above present fairly, in all
material respects, the financial position of Five Jab, Inc., as of December 31,
2013 and 2012, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles in
the United States of America.
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 Company's internal control over financial
reporting. Accordingly, we express no such opinion.
/s/ B F Borgers CPA PC
B F BORGERS CPA PC
Denver, CO
April 14, 2014
F-24
5 JAB INC
BALANCE SHEETS
December 31,
2013 2012
------------------ ---------------------
ASSETS
Current Assets $ - $ -
------------------ ---------------------
Property and equipment:
Oil and gas properties, successful efforts method of accounting:
Proved - 1,616,030
------------------ ---------------------
Total property and equipment - 1,616,030
Less accumulated depreciation, depletion and amortization - 73,265
------------------ ---------------------
Net property and equipment - 1,542,765
------------------ ---------------------
Total assets $ - $ 1,542,765
================== =====================
LIABILITIES AND CAPITAL
Current liabilities $ - $ -
Long-term liabilities
Asset retirement obligations - 275,085
------------------ ---------------------
Total liabilities - 275,085
Commitments and contingencies - -
Capital - 1,267,680
------------------ ---------------------
Total liabilities and capital $ - $ 1,542,765
================== =====================
See accompanying notes are an integral part of these financial statements.
F-25
5 JAB INC
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
2013 2012
-------------------- --------------------
Revenue:
Oil and gas sales $ 1,664,076 $ 1,279,105
-------------------- --------------------
Total revenues 1,664,076 1,279,105
-------------------- --------------------
Operating expenses:
Lease operating expense 540,171 544,285
Production taxes 80,602 65,442
General and administrative expense 84,938 62,625
Depreciation, depletion and amortization 81,080 66,614
-------------------- --------------------
Total operating expenses 786,791 738,966
-------------------- --------------------
Gain on sale of oil and gas properties 2,277,453 -
-------------------- --------------------
Income (loss) from operations 3,154,738 540,139
Income taxes - -
-------------------- --------------------
Net income $ 3,154,738 $ 540,139
==================== ====================
See accompanying notes are an integral part of these financial statements.
F-26
5 JAB INC
STATEMENT OF CAPITAL
ACCUMULATED TOTAL
(DEFICIT) STOCKHOLDERS'
CAPITAL INCOME EQUITY
----------------- ------------------- ---------------------
BALANCES, January 1, 2012 $ 761,703 $ (5,796) $ 755,907
Distributions to owners - (28,366) (28,366)
Net income for the period - 540,139 540,139
----------------- ------------------- ---------------------
BALANCES, DECEMBER 31, 2012 761,703 505,977 1,267,680
Distributions to owners (761,703) (3,660,715) (4,422,418)
Net income for the period - 3,154,738 3,154,738
----------------- ------------------- ---------------------
BALANCES, DECEMBER 31, 2013 $ - $ - $ -
================= =================== =====================
The accompanying notes are an integral part of these financial statements.
F-27
5 JAB INC
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2013 2012
------------------------- --------------------
OPERATING ACTIVITIES
Net income attributable to owners $ 3,154,738 $ 540,139
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation, depletion and amortization 81,080 66,614
Gain on sale of oil and gas properties (2,277,453) -
Changes in:
Accrued liabilities (275,085) 245,790
------------------------- --------------------
Net cash provided by operating activities 683,280 852,543
------------------------- --------------------
INVESTING ACTIVITIES
Costs expended in developing oil and gas properties (103,005) (824,177)
Proceeds from sale of oil and gas properties 3,842,143 -
------------------------- --------------------
Net cash provided (used in) by investing activities 3,739,138 (824,177)
------------------------- --------------------
FINANCING ACTIVITIES
Contribution of capital from owners - -
Distributions to owners (4,422,418) (28,366)
------------------------- --------------------
Net cash (used in) by financing activities (4,422,418) (28,366)
------------------------- --------------------
NET CHANGE IN CASH - -
CASH, Beginning - -
------------------------- --------------------
CASH, Ending $ - $ -
========================= ====================
SUPPLEMENTAL SCHEDULE OF
OF CASH FLOW INFORMATION
Interest paid $ - $ -
========================= ====================
Income taxes paid $ - $ -
========================= ====================
The accompanying notes are an integral part of these financial statements.
F-28
5 JAB INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
This summary of significant accounting policies is presented to assist in
understanding of the Business's financial statements. The policies conform to
accounting principles generally accepted in the United States of America and
have been consistently applied in the preparation of these financial statements.
NATURE OF OPERATIONS AND ORGANIZATION
Five Jab Inc., an operator of oil and gas properties, and a number of other
owners own 75% of the working interest in certain leases located in the states
of Texas and Louisiana (the "Business" or Five Jab Inc."). These leases are
proved leaseholds only and include 11 producing crude oil wells and one well
that also produced natural gas (the "Properties"). In addition, all of the wells
were purchased by the Business and therefore there are no drilling costs
incurred by the Business
The Business sold 100% of its 75% working interest in the Properties to Three
Forks Inc. effective June 30, 2013 (37.5% WI) and effective September 1, 2013
(37.5% WI) for $3,842,143 in cash plus the assumption of certain liabilities in
the amount of $281,962.
BASIS OF PRESENTATION
These financial statements represent the historical costs of the Business based
upon generally accepted accounting principles for the periods presented.
INCOME TAXES
The Business is taxed as a disregarded entity for income tax purposes and as
such each of the owners report separately their pro rata share of income,
deductions and losses. Therefore, no provision for income taxes is made in the
accompanying financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses as of and during the reporting
periods. These estimates and assumptions are based on management's best
estimates and judgment. Management evaluates its estimates and assumptions on an
ongoing basis using historical experience and other factors, including the
current economic environment, which management believes to be reasonable under
the circumstances. Such estimates and assumptions are adjusted when facts and
circumstances dictate. As future events and their effects cannot be determined
with precision, actual results could differ from these estimates. Any change in
estimates resulting from continuous changes in the economic environment will be
reflected in the financial statements in the future periods.
REVENUE RECOGNITION
Revenues are recognized on production as it is taken and delivered to the
purchasers.
PROPERTY AND EQUIPMENT
The Business accounts for its crude oil and natural gas exploration and
development activities under the successful efforts method of accounting.
However, the accompanying financial statements are prepared using the full cost
method of accounting and the Company intends to continue using the full cost
method of accounting for the Properties. The Company has determined there is no
material difference between the full cost method of accounting and the
successful efforts method of accounting as it relates to the Properties as the
Business acquired the Properties when they were considered proved and the
Business incurred only completion and workover costs after the Business acquired
the Properties. Under the full cost method all productive and nonproductive
F-29
5 JAB INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
costs incurred in connection with the acquisition, exploration, and development
of oil and natural gas reserves are capitalized. No gains or losses are
recognized upon the sale or other disposition of oil and natural gas properties
except in transactions that would significantly alter the relationship between
capitalized costs and proved reserves. The costs of unevaluated oil and natural
gas properties are excluded from the amortizable base until the time that either
proven reserves are found or it has been determined that such properties are
impaired. As properties become evaluated, the related costs transfer to proved
oil and natural gas properties using full cost accounting.
Depletion and amortization of capitalized acquisition, exploration and
development costs are computed on the units-of-production method by property on
the basis of the total estimated units of proved reserves as the related proved
reserves are produced. The long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of the asset exceeds the estimated future cash flows, an
impairment charged is recognized in the amount by which the carrying amount of
the asset exceeds the fair value of the asset. No impairment was recognized at
December 31, 2013 and 2012.
Other property and equipment are carried at cost. Depreciation is provided using
the straight-line method of accounting over the assets' estimated useful lives
of seven years.
Depreciation, depletion and amortization of oil and gas properties and other
property and equipment for the years ended December 31, 2013 and 2012 were
$81,080 and $66,614, respectively.
OTHER COMPREHENSIVE INCOME
The Company has no material components of other comprehensive income (loss) and
accordingly, net income (loss) is equal to comprehensive income (loss) for the
periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has reviewed all recently issued but not yet effective accounting
pronouncements and does not believe the future adoption of any such
pronouncements may be expected to cause a material impact on its financial
condition or results of operations.
SUBSEQUENT EVENTS
The Company has evaluated subsequent events through December 18, 2013, the date
the financial statements were available to be issued, and has concluded no
events need to be reported.
NOTE 2 - SALE OF OIL AND GAS PROPERTIES
---------------------------------------
The Business sold 100% of its 75% working interest in the Properties to Three
Forks Inc. effective June 30, 2013 (37.5% WI) and September 1, 2013 (37.5% WI)
for $3,842,143 in cash plus the assumption of liabilities in the amount of
$281,962 and recognized in accordance with ASC Topic 360 a gain on the sale in
the amount of $2,277,453 as reported in the statement of operations for the year
ended December 31, 2013.
F-30
5 JAB INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
NOTE 3 - ASSET RETIREMENT OBLIGATIONS
-------------------------------------
The Property's asset retirement obligations reported as accrued liabilities
arise from the plugging and abandonment liabilities for the oil and gas wells.
The Company has determined there is no salvage value associated with the
Property's tangible assets at the time the wells are retired. The following is a
reconciliation of the Property's asset retirement obligations for the years
ended December 31, 2013 and 2012.
For the Years Ended December 31,
2013 2012
--------------------- -------------------
Beginning of period $ 275,085 $ 29,295
Obligations incurred
(from new wells) - 245,790
Change in estimate 6,877 -
Sale of proved reserves (281,962) -
--------------------- -------------------
End of period - 275,085
Less: current retirement obligation - -
--------------------- -------------------
Long-term retirement obligation $ - $ 275,085
===================== ===================
NOTE 4 - INFORMATION ON BUSINESS SEGMENTS
-----------------------------------------
At December 31, 2013 and 2012, the Company considered its business activities to
constitute a single segment.
NOTE 5 - SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
-----------------------------------------------------------------
There are numerous uncertainties inherent in estimating quantities of proved
crude oil and natural gas reserves. Crude oil and natural gas reserve
engineering is a subjective process of estimating underground accumulations of
crude oil and natural gas that cannot be precisely measured. The accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Results of drilling,
testing and production subsequent to the date of the estimate may justify
revision of such estimate. Accordingly, reserves estimates are often different
from the quantities of crude oil and natural gas that are ultimately recovered.
Proved oil and gas reserves are those quantities of oil and gas, which, by
analysis of geoscience and engineering data, can be estimated with reasonable
certainty to be economically producible - from a given date forward, from known
reservoirs, and under existing economic conditions, operating methods, and
government regulations - prior to the time at which contracts providing the
right to operate expire, unless evidence indicates that renewal is reasonably
certain, regardless of whether deterministic or probabilistic methods are used
for the estimation. The project to extract the hydrocarbons must have commenced
or the operator must be reasonably certain that it will commence the project
within a reasonable time.
The area of the reservoir considered as proved includes all of the following:
(a) the area identified by drilling and limited by fluid contacts, if any, and
(b) adjacent undrilled portions of the reservoir that can, with reasonable
certainty, be judged to be continuous with it and to contain economically
producible oil or gas on the basis of available geoscience and engineering data.
In the absence of data on fluid contacts, proved quantities in a reservoir are
limited by the lowest known hydrocarbons as seen in a well penetration unless
geoscience, engineering, or performance data and reliable technology establish a
lower contact with reasonable certainty.
F-31
5 JAB INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
Reserves that can be produced economically through application of improved
recovery techniques (including but not limited to, fluid injection) are included
in the proved classification when both of the following occur: (a) successful
testing by a pilot project in an area of the reservoir with properties no more
favorable than in the reservoir as a whole, the operation of an installed
program in the reservoir of an analogous reservoir, or other evidence of
reliable technology establishes the reasonable certainty of the engineering
analysis on which the project or program was based, and (b) the project has been
approved for development by all necessary parties and entities, including
governmental entities.
Existing economic conditions include prices and costs at which economic
productivity from a reservoir is to be determined. The price shall be the
average price during the 12-month period prior to the ending date of the period
covered by the report, determined as an unweighted arithmetic average of the
first-day-of-the-month price for each month within such period, unless prices
are defined by contractual arrangements, excluding escalations based upon future
conditions.
Proved developed oil and gas reserves are proved reserves that can be expected
to be recovered: (i) through existing wells with existing equipment and
operating methods or in which the cost of the required equipment is relatively
minor compared to the costs of a new well; and (ii) through installed extraction
equipment and infrastructure operational at the time of the reserve estimate if
the extraction is by means not involving a well.
Proved undeveloped oil and gas reserves are proved reserves that are expected to
be recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those directly offsetting development spacing areas
that are reasonably certain of production when drilled, unless evidence using
reliable technology exists that establishes reasonable certainty of economic
productivity at greater distances. Undrilled locations can be classified as
having undeveloped reserves only if a development plan has been adopted
indicating that they are scheduled to be drilled within five years, unless the
specific circumstances, justify a longer time. Under no circumstances shall
estimates for undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual
projects in the same reservoir or an analogous reservoir, or by other evidence
using reliable technology establishing reasonable certainty.
"Prepared" reserves are those quantities of reserves which were prepared by an
independent petroleum consultant. "Audited" reserves are those quantities of
revenues which were estimated by the Company's employees and audited by an
independent petroleum consultant. An audit is an examination of a company's
proved oil and gas reserves and net cash flow by an independent petroleum
consultant that is conducted for the purpose of expressing an opinion as to
whether such estimates, in aggregate, are reasonable and have been determined
using methods and procedures widely accepted within the industry and in
accordance with SEC rules.
Estimates of the Properties crude oil and natural gas reserves and present
values at December 31, 2012 prepared by Ralph E. Davis Associates, Inc.,
independent reserve engineers,
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES
Estimated quantities of proved crude oil and natural gas reserves at December
31, 2013 and 2012 and changes in the reserves during the periods are shown below
(in thousands). These reserve estimates have been prepared in compliance with
Securities and Exchange Commission regulations using the average price during
the 12-month period, determined as an unweighted average of the
first-day-of-the-month for each month.
F-32
5 JAB INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
Oil Natural Gas Total
(MBbls) (MMcf) (Mboe) (1)
----------------- ----------------- -----------------
Estimated proved reserves at January 1, 2011 - - -
Purchase of proved reserves 384 25 388
Production (1) (2) (1)
----------------- ----------------- -----------------
Estimated proved reserves at December 31, 2011 383 23 - 387
Production (13) (1) (13)
----------------- ----------------- -----------------
Estimated proved reserves at December 31, 2012 370 22 374
Sale of properties [2] (355) (20) (357)
Production (15) (2) (17)
----------------- ----------------- -----------------
Estimated proved reserves at December 31, 2013: - - -
================= ================= =================
Proved developed reserves:
December 31, 2011 383 23 387
December 31, 2012 370 22 374
December 31, 2013 - - -
Proved undeveloped reserves:
December 31, 2011 - - -
December 31, 2012 - - -
December 31, 2013 - - -
Base pricing, after adjustments for contractual
differentials: $/BBL WTI SPOT $/MCF HHUB SPOT
December 31, 2011 $99.99 $3.56
December 31, 2012 $105.69 $3.77
December 31, 2013 [3] - -
--------------------------------
[1] Mboe is based on a ratio of 6 Mcf to 1 barrel.
[2] Effective June 30, 2013, 37.5% WI and effective September 1, 2013, 37.5% WI
in proved properties was sold to Three Forks Inc.
[3] Five Jab Inc has no oil and gas properties or produciton as of December 31,
2013.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
Information with respect to the standardized measure of discounted future net
cash flows relating to proved reserves is summarized below. The price used to
estimate the reserves is held constant over the life of the reserve. Future
production and development costs are derived based on current costs assuming
continuation of existing economic conditions.
F-33
5 JAB INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
The discounted future net cash flows related to proved oil and gas reserves at
December 31, 2013 and 2012 (in thousands):
For the Years Ended December 31,
2013 2012
------------------ ----------------
Future cash inflows $ - $ 39,729
Less future costs:
Production - 14,827
Development [1] - 1,335
Income taxes - 8,013
------------------ ----------------
Future net cash flows - 15,554
10% discount factor - (6,322)
------------------ ----------------
Standardized measure of discounted
future net cash flows $ - $ 9,232
================== ================
Estimated future development costs $ - $ 1,335
================== ================
---------------------------
[1] Includes cost to P&A proved properties.
CHANGES IN DISCOUNTED FUTURE NET CASH FLOWS
The following summarizes the principal sources of change in the standardized
measure of discounted future net cash flows during the years ended December 31,
2013 and 2012 (in thousands):
For the Years Ended December 31,
2013 2012
--------------------- ----------------------
Beginning of the period $ 9,232 $ 7,518
Purchase of proved
reserves - -
Sale of proved reserves [1] (8,189) -
Changes in prices - 2,383
Changes in estimated
future development costs - -
Sales of oil and natural
gas produced during
the period, net of
production costs (1,043) (669)
--------------------- ----------------------
End of period $ - $ 9,232
===================== ======================
-------------------------
[1] Sale of proved reserves to Three Forks Inc.
F-34
F. SELECTED FINANCIAL INFORMATION
---------------------------------
Not applicable.
G. SUPPLEMENTARY FINANCIAL INFORMATION
--------------------------------------
Not applicable.
H. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR AUDITED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED HEREIN. IN CONNECTION WITH, AND
BECAUSE WE DESIRE TO TAKE ADVANTAGE OF, THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WE CAUTION READERS REGARDING
CERTAIN FORWARD LOOKING STATEMENTS IN THE FOLLOWING DISCUSSION AND ELSEWHERE IN
THIS REPORT AND IN ANY OTHER STATEMENT MADE BY, OR ON OUR BEHALF, WHETHER OR NOT
IN FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. FORWARD-LOOKING
STATEMENTS ARE STATEMENTS NOT BASED ON HISTORICAL INFORMATION AND WHICH RELATE
TO FUTURE OPERATIONS, STRATEGIES, FINANCIAL RESULTS OR OTHER DEVELOPMENTS.
FORWARD LOOKING STATEMENTS ARE NECESSARILY BASED UPON ESTIMATES AND ASSUMPTIONS
THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND OUR CONTROL AND MANY
OF WHICH, WITH RESPECT TO FUTURE BUSINESS DECISIONS, ARE SUBJECT TO CHANGE.
THESE UNCERTAINTIES AND CONTINGENCIES CAN AFFECT ACTUAL RESULTS AND COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING
STATEMENTS MADE BY, OR ON OUR BEHALF. WE DISCLAIM ANY OBLIGATION TO UPDATE
FORWARD-LOOKING STATEMENTS.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013 COMPARED TO THE PERIOD OF MARCH 28, 2012
(INCEPTION) THROUGH DECEMBER 31, 2012
During the year ended December 31, 2013, the Company recognized $894,128 in
revenue from its operational activities. During the period of March 28, 2012
(inception) through December 31, 2012, the Company did not recognize any revenue
from its operational activities. During the year ended December 31, 2013, the
Company recognized revenue from two sources: $734,128 from the sale of oil and
gas and $160,000 from management fees.
Year Ended
December 31, 2013*
----------------------
Revenue
Oil sales $ 728,456
Gas sales 5,672
Net production sold
Oil (Bbl) 7,215
Gas (Mcf) 1,417
Average sales prices
Oil ($/Bbl) $103.99
Gas ($/Mcf) $3.73
During the year ended December 31, 2013, the Company incurred operating expenses
of $2,515,593. During the period of March 28, 2012 (inception) through December
31, 2012, the Company incurred operating expenses of $1,011,465. The increase of
$1,504,128 in operating expenses primarily a result of the Company's increased
operational activities resulting from the acquisitions of certain properties,
discussed above, and the Company's focus on filing a registration statement on
Form 10 and one on Form S-1 with the SEC.
-41-
During the year ended December 31, 2013, the Company recognized the following
operating expenses:
Year Ended
December 31,, 2013
--------------------------
Operating Expense:
Lease operating expenses $ 315,397
Production taxes 34,110
Depreciation, depletion and amortization 64,589
General and administrative expenses 2,101,497
--------------------------
Total Operating Expenses: $2,515,593
During the year ended December 31, 2013, the Company recognized a net loss of
$1,527,205 compared to a net loss of $981,287 during period of March 28, 2012
(inception) through December 31, 2012. The increase of $545,918 was a direct
result of the $1,504,128 increase in operating expenses discussed above, offset
by a $894,128 increase in revenues combined with a gain of $143,608 on the
disposal of property from discontinued operations.
LIQUIDITY
At December 31, 2013, the Company had total current assets of $518,186 and total
current liabilities of $2,929,355 resulting in a working capital deficit of
$2,411,169.
During the year ended December 31, 2013, the Company used $1,001,299 in funds
from its operational activities. During the year ended December 31, 2013, the
Company recognized a net loss of $1,670,813 which was adjusted for such non-cash
items as: income from discontinued operations of $143,608, $64,589 in
depreciation and amortization, $22,000 gain on settlement of claims, $143,608
gain on sale of disposal group held for sale, $41,360 in shares issued for
services and $50,596 in options granted for services. During the period of March
28, 2012 (inception) through December 31, 2012, the Company used $953,245 in its
operations based upon a net loss of $1,009,028 which was adjusted for the
non-cash items of $27,741 income from discontinued operations, $5,918 in
depreciation, depletion and amortization and $8,120 in shares issued for
services.
During the year ended December 31, 2013, the Company used $3,791,943 in its
investing activities. The Company used $5,385,694 in additions to property and
equipment and $6,249 in other additions to long-term assets. During this period,
the Company received $1,600,000 from the sale of disposal group held for sale.
During the period of March 28, 2012 (inception) through December 31, 2012, the
Company used $394,648 in its investing activities. The Company loaned $100,000
to a non-affiliate and used $161,577 in additions to property and equipment and
$133,071 in the addition of long term assets.
During the year ended December 31, 2013, the Company received $4,421,687 from
its financing activities compared to $1,840,622 during the period of March 28,
2012 (inception) through December 31, 2012.
FINANCING ACTIVITIES
COMMON STOCK OFFERINGS
During the year ended December 31, 2013, the Company issued 200,000 shares of
its common stock in exchange for services valued at $17,600. The Company also
issued 270,000 shares of its common stock to a consultant for services valued at
$23,760. In addition, and as part of a private placement, the Company issued
1,150,022 shares of its common stock for cash in the amount of $3,054,163 as
more fully described in the financial statements.
CONVERTIBLE PROMISSORY NOTES
In September 2013, we commenced a private offering of $2,000,000 Secured
Convertible Promissory Notes in order to complete the purchase of the remaining
37.5% WI in the Five JABS property discussed above. These notes are due in
September 2014 and are convertible into shares of our common stock in whole or
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in part at a conversion price of $3.60 per share 6 months after issuance of the
secured convertible promissory note. The conversion of the convertible
promissory notes into shares of our common stock could have a dilutive effect to
the holdings of our existing shareholders. The Secured Convertible Promissory
Notes are secured by the Company's 75% of the right, title and working interest
in 1,955 gross leasehold acres including 13 producing wells, 9 service wells and
14 additional wellbores located in the States of Texas and Louisiana, the Five
JABS properties. The offering was not fully subscribed and a total of $1,535,000
was raised. Tincup Oil and Gas, LLC of which Mr. Ranew, a director of the
Company, is a member, holds a Secured Convertible Promissory Note for $250,000.
At December 31, 2013, the Company owes a total of $1,475,000 in outstanding
secured convertible promissory notes.
On March 31, 2014, holders of the above promissory notes purchased 1,390,000
warrants issued by the Company in consideration for and cancellation of their
promissory notes issued to them by the Company in the amount of $1,390,000. A
warrant entitles the holder for a term of two years to purchase one share of
common stock of the Company at the rate of $1.00 per share. Therefore, as of
March 31, 2014, the Company issued 1,390,000 warrants to holders of the
promissory notes in cancellation of $1,390,000 in debt.
Separately and apart, two members of management agreed to make up the difference
of the Secured Convertible Promissory Note Offering and the purchase price of
Five JABS in a separate transaction with separate terms with the Company. Mr.
Charles Pollard and Mr. Lester Ranew, officers and directors of the Company, in
exchange for secured convertible promissory notes provided the Company with a
total of $600,000 cash ($300,000 each). At December 31, 2013, the Company owes a
total of $600,000 to Mr. Pollard and Mr. Ranew.
Mr. Pollard's and Mr. Ranew's notes have a due date of January 2, 2014 and allow
for the conversion of the notes into common stock upon issuance. Their notes
provide that in addition to having a due date of January 2, 2014, that at the
due date they will each receive a $7,500 payment of fees and interest. If the
notes are not paid at January 2, 2014, the Company is required to take immediate
steps to liquidate the secured property and the due date will be extended to
April 2, 2014. At January 2, 2014, the Company failed to make payment on the
notes. At that time Mr. Pollard and Ranew each entered into an Extension and
Waiver with the Company. The Extension and Waiver provides that the payment date
shall be extended to April 2, 2014 and both holders have waived the provision
that steps be taken to liquidate the secured property at this time. On April 7,
2014, Mr. Pollard extended the payment date on his note to May 2, 2014 and if
the payment is not made or the property has not been liquidated then he will be
assigned a 5.625% interest in the Five JABS properties. On March 31, 2014, Mr.
Ranew purchased 300,000 warrants issued by the Company in consideration for and
cancellation of his promissory note issued to him by the Company in the amount
of $300,000.
OPTIONS AND WARRANTS
During the year ended December 31, 2013, the Company granted options for
1,000,000 shares in exchange for cash of $50,000 and 200,000 shares to Mr.
Ranew, a member of the Board, in exchange for cash of $200,000 as well as issued
warrants for 275,000 shares in exchange for $27 in cash.
SHORT TERM
On a short-term basis, we have not generated any revenue or revenues sufficient
to cover operations. Based on prior history, we will continue to have
insufficient revenue to satisfy current and recurring liabilities as the Company
continues exploration activities.
CAPITAL RESOURCES
The Company has only common stock as its capital resource.
We have no material commitments for capital expenditures within the next year,
however if operations are commenced, substantial capital will be needed to pay
for participation, investigation, exploration, acquisition and working capital.
-43-
NEED FOR ADDITIONAL FINANCING
We do not have capital sufficient to meet its cash needs. The Company will have
to seek loans or equity placements to cover such cash needs. Once exploration
commences, its needs for additional financing is likely to increase
substantially.
No commitments to provide additional funds have been made by the Company's
management or other stockholders. Accordingly, there can be no assurance that
any additional funds will be available to us to allow us to cover the Company's
expenses as they may be incurred.
The Company will need substantial additional capital to support its proposed
future energy operations. We have MINIMAL revenues. The Company has NO committed
source for any funds as of the date hereof. No representation is made that any
funds will be available when needed. In the event funds cannot be raised when
needed, we may not be able to carry out our business plan, may never achieve
sales or royalty income, and could fail in business as a result of these
uncertainties.
Decisions regarding future participation in exploration wells or geophysical
studies or other activities will be made on a case-by-case basis. The Company
may, in any particular case, decide to participate or decline participation. If
participating, we may pay its proportionate share of costs to maintain the
Company's proportionate interest through cash flow or debt or equity financing.
If participation is declined, the Company may elect to farmout, non-consent,
sell or otherwise negotiate a method of cost sharing in order to maintain some
continuing interest in the prospect.
CRITICAL ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE
Accounts receivable are stated at their cost less any allowance for doubtful
accounts. The allowance for doubtful accounts is based on the management's
assessment of the collectability of specific customer accounts and the aging of
the accounts receivable. If there is deterioration in a major customer's
creditworthiness or if actual defaults are higher than the historical
experience, the management's estimates of the recoverability of amounts due to
the Company could be adversely affected. Based on the management's assessment,
there is no reserve recorded at December 31, 2013 and 2012.
REVENUE RECOGNITION
The Company recognizes revenue from the exploration and production of the
Company's oil and gas properties in the period of production.
PROPERTY AND EQUIPMENT
The Company follows the full cost method of accounting for oil and natural gas
operations. Under this method all productive and nonproductive costs incurred in
connection with the acquisition, exploration, and development of oil and natural
gas reserves are capitalized. No gains or losses are recognized upon the sale or
other disposition of oil and natural gas properties except in transactions that
would significantly alter the relationship between capitalized costs and proved
reserves. Unproved properties with significant acquisition costs are assessed
annually on a property-by-property basis and any impairment in value is charged
to expense. If the unproved properties are determined to be productive, the
related costs are transferred to proved oil and natural gas properties and are
depleted. Proceeds from sales of partial interests in unproved leases are
accounted for as a recovery of cost without recognizing any gain or loss until
all costs have been recovered. The costs of unproved oil and natural gas
properties are excluded from the amortizable base until the time that either
proven reserves are found or it has been determined that such properties are
impaired. As properties become proved, the related costs transfer to proved oil
and natural gas properties using full cost accounting. There were capitalized
costs of $5,614,987 and $0 included in the amortization base at December 31,
2013 and 2012, respectively and the Company did not expense any capitalized
costs for the year ended December 31, 2013 and for the period March 28, 2012
(inception) through December 31, 2012.
-44-
The Company performs a quarterly "ceiling test" calculation to test its oil and
gas properties for possible impairment. The primary components impacting this
calculation are commodity prices, reserve quantities added and produced, overall
exploration and development costs, depletion expense, and tax effects. If the
net capitalized cost of the Company's oil and gas properties subject to
amortization (the carrying value) exceeds the ceiling limitation, the excess
would be charged to expense. The ceiling limitation is equal to the sum of the
present value discounted at 10% of estimated future net cash flows from proved
reserves, the cost of properties not being amortized, the lower of cost or
estimated fair value of unproved properties included in the costs being
amortized, and all related tax effects. At December 31, 2013, the calculated
value of the ceiling limitation exceeded the carrying value of the Company's oil
and gas properties subject to the test, and no impairment was necessary.
Management capitalizes additions to property and equipment. Expenditures for
repairs and maintenance are charged to expense. Property and equipment are
carried at cost. Adjustment of the asset and the related accumulated
depreciation accounts are made for property and equipment retirements and
disposals, with the resulting gain or loss included in the statement of
operations. The Company has not capitalized any internal costs for the year
ended December 31, 2013 and for the period March 28, 2012 (inception) through
December 31, 2012.
Other property and equipment, such as office furniture and equipment, and
computer hardware and software, are recorded at cost. Costs of renewals and
improvements that substantially extend the useful lives of the assets are
capitalized. Maintenance and repair costs are expensed when incurred.
For financial reporting purposes, depreciation and amortization of other
property and equipment is computed using the straight-line method over the
estimated useful lives of assets at acquisition. For income tax reporting
purposes, depreciation of other equipment is computed using the straight-line
and accelerated methods over the estimated useful lives of assets at
acquisition.
Depreciation and depletion of capitalized acquisition, exploration and
development costs are computed on the units-of-production method by individual
fields on the basis of the total estimated units of proved reserves as the
related proved reserves are produced.
Depreciation and amortization of oil and gas property and other property and
equipment for the year ended December 31, 2013 and for the period March 28, 2012
(inception) through December 31, 2012 is $64,589 and $449, respectively.
SHARE-BASED COMPENSATION
The Company accounts for share-based payment accruals under authoritative
guidance on stock compensation as set forth in the Topics of the ASC. The
guidance requires all share-based payments to employees and non-employees,
including grants of employee and non-employee stock options, to be recognized in
the financial statements based on their fair values.
RESULTS OF OPERATIONS OF FIVE JAB INC.
During the year ended December 31, 2013, Five Jab recognized revenues of
$1,664,076 as compared to $1,279,105 for the year ended December 31, 2012. The
increase of $384,971 was a result of re-work efforts.
During the year ended December 31, 2013, Five Jab incurred operating expenses of
$786,791 as compared to $738,966 for the year ended December 31, 2012. The
nominal increase of $47,825 was the result of an increase in production taxes of
$15,160, general and administrative expense of $22,313 and depreciation,
depletion and amortization expense of $14,466 offset by a slight decrease in
lease operating expenses of $4,114.
During the year ended December 31, 2013, Five Jab recognized net income of
$3,154,738 as compared to $540,139 during the year ended December 31, 2012. The
increase of $2,614,599 was a result of not only the $384,971 increase in
revenues offset by the $47,825 increase in operational expenses, but the result
of a one-time gain of $2,277,453 recognized on the sale of the oil and gas
properties to Three Forks, Inc.
-45-
LIQUIDITY OF FIVE JAB INC.
At December 31, 2013, Five Jab did not have any assets or liabilities.
During the year ended December 31, 2013, Five Jab, recognized funds of $683,280
from its operating activities, $3,739,138 from its investment activities and
used $4,422,418 in its financing activities as compared to the year ended
December 31, 2012 where Five Jab recognized funds of $852,543 from its operating
activities and used $824,177 in its investment activities and $28,366 in its
financing activities.
I. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
--------------------------------------------------------------------------------
Not applicable.
J. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------
Not applicable.
K. DIRECTORS AND EXECUTIVE OFFICERS
-----------------------------------
NAME AGE POSITION TERM
------------------------ -------- ----------------------------------------------------------------- ------
W. Edward Nichols 71 Chief Executive Officer, Chairman and Secretary ** Annual
Charles W. Pollard 55 President and Chief Operating Officer of Three Forks, Inc., Annual
Chief Exexutive Officer of TFI Operating Company, Inc.
and Director
Donald L. Walford 68 Director and Executive Vice President of Finance ** Annual
William F. Young 65 Director Annual
Lester Ranew 53 Director Annual
Paul Dragul 80 Director Annual
** On October 7, 2013, Mr. Hattenbach, our Chief Financial Officer, resigned his
position. On October 22, 2013, Mr. Walford our Chief Executive Officer was
appointed the Executive Vice President of Finance and Mr. Nichols our Chairman
of the Board was appointed the Chief Executive Officer. On January 28, 2014, Mr.
Walford resigned as the Executive Vice President of Finance. He resigned as a
director of the Company's Board of Directors effective February 27, 2014.
Our officers are elected by the board of directors at the first meeting after
each annual meeting of our stockholders and hold office until their successors
are duly elected and qualified under our bylaws.
The directors named above will serve until the next annual meeting of our
stockholders. Thereafter, directors will be elected for one-year terms at the
annual stockholders' meeting. Officers will hold their positions at the pleasure
of the board of directors absent any employment agreement. There is no
arrangement or understanding between our directors and officers and any other
person pursuant to which any director or officer was or is to be selected as a
director or officer.
-46-
BIOGRAPHICAL INFORMATION
W. EDWARD NICHOLS, CHIEF EXECUTIVE OFFICER SINCE OCTOBER 22, 2013, CHAIRMAN OF
THE BOARD SINCE MARCH 2012 AND SECRETARY SINCE INCEPTION.
Mr. Nichols is currently a practicing attorney with Nichols & Nichols in Denver,
Colorado. He is authorized to practice in the states of Colorado and Kansas, the
United States Federal Courts, and Supreme Court of the United States. He is also
Managing Director of Nichols & Company, a management consulting firm he founded
on May 25, 2000 and through the firm has worked as a private investment banker
and consultant with venture capital companies in the U.S. and Europe. Mr.
Nichols grew up in the oil patch and has owned and operated gas processing
plants in Kansas and Wyoming. He has also co-owned and operated oil drilling,
production and gas gathering companies in Kansas. From 2010 to March 2012, Mr.
Nichols was a director of Gulfstar Energy Corporation (fka Bedrock Energy
Corporation), a publicly registered company.
Mr. Nichols holds a BBA from Washburn University and in 1971 received a JD from
Washburn University School of Law in Topeka, Kansas.
Mr. Nichols, as a founder of the Company, brings to the board of directors not
only his experience in the venture capital arena, but also provides the board
with his corporate legal experience.
CHARLES W. POLLARD, PRESIDENT AND CHIEF OPERATING OFFICER AND DIRECTOR SINCE
MARCH 1, 2013 AND CEO OF TFI OPERATING COMPANY, INC., A SUBSIDIARY OF THREE
FORKS, INC.
Charles Pollard has 32 years of experience in the energy industry, including
senior positions with MAK J Energy as President/COO (2009-2013), Petro-Canada
Resources as Sr. VP of Engineering /Operations (2004-2008), Flatiron Petroleum
as COO (2003-2004), and Ensign Oil & Gas as VP Engineering/Operations from
(2001-2003). Mr. Pollard was President & CEO Redstone Resources Inc.
(2000-2001). Prior to that he worked two years for Ocean Energy and 17 years for
Occidental Petroleum.
Mr. Pollard has been Chief Executive Officer of TFI Operating Company, Inc., our
wholly-owned subsidiary since March 2013.
Mr. Pollard has been the recipient of numerous industry awards and is the author
of a variety of technical papers and publications.
Mr. Pollard received his B.S. in Petroleum Engineering from Mississippi State
University Magna Cum Laude in 1981 and is a graduate of the Executive Management
program of UCLA (1997). He also is a Registered Professional Engineer in the
states of Texas and Wyoming.
Mr. Pollard was appointed to the Board of Director due to his technical
expertise in the oil and gas industry.
WILLIAM F. YOUNG, DIRECTOR
Mr. Young has over 30 years of experience in the oil and gas industry. He is
currently President of Georgia Energy in Griffin, Georgia. Georgia Energy
markets various gas and oil products, including propane and other gas products
for residential use, as well as fuel operated generators. Mr. Young has also
served as President of Eastside Petroleum from 1991 to date. Eastside Petroleum
is a fuel distributor dealing in light and heavy oils and lubricants primarily
for use in aviation. Mr. Young has also worked in management of oil and gas
distribution with Phillips 66. He is a veteran of the U.S. Navy where he served
in Naval Aviation, serving from 1968 through 1974.
Mr. Young was appointed to the Board of Directors due to his technical expertise
in the oil and gas industry.
LESTER RANEW, DIRECTOR
Lester Ranew is the founder, owner and president of Ranew's, a major precision
fabrication and industrial coatings company located in Milner, Georgia. Mr.
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Ranew founded the Company in 1981 as small paint and motor vehicle body shop.
Since that time, Ranew's has grown to include three manufacturing divisions
serving small and large transportation and heavy equipment companies both
domestically and abroad.
Mr. Ranew was appointed to the Board of Director due to his experience in not
only management but also for his experience in the oil and gas equipment.
PAUL DRAGUL, DIRECTOR
Dr. Dragul is a Board Certified otolaryngologist specializing in head and neck
surgery. He received his medical degree from the University of Cincinnati
College of Medicine in 1960 and completed his residency at the University of
Colorado Medical Center in 1967. He also earned a Bachelor of Science, Pharmacy
degree from the University of Cincinnati in 1956, where he was student body
president. Dr. Dragul is a member of the American Academy of Otolaryngology/Head
and Neck Surgery and several other medical societies.
Dr. Dragul was appointed to the Board of Directors due to his operational and
managerial experiences.
Our officers and directors are spending up to 40 hours per week on our business
at this time.
KEY EMPLOYEES
CHRISTIANA (JANA) ORLANDINI, CHIEF GEOLOGIST SINCE MAY 2013
Ms. Orlandini has previous experience with Exploration and Production majors
including, Marathon and Chevron. She has worked projects in the Williston Basin,
Greater Green River Basin, DJ Basin, San Juan, Piceance, Uintah, Gulf Coast and
lately, the Permian Basin.
Ms. Orlandini has supervised the geological aspects of many drilling programs,
including vertical "stack and frac" and multi-lateral horizontal programs, in
both conventional and unconventional targets.
She received a B.S. in Geology from Texas A&M University in 1982.
LARRY G. SESSIONS, DRILLING/OPERATIONS MANAGER SINCE JUNE 2013
Mr. Sessions has 49 years of oil and gas experience in domestic and
international drilling and production operations. He began his career in 1964
with Shell Oil Company in New Orleans as an assistant engineering trainee. Over
the next 25 years, he worked in various roles of increasing responsibility for
Shell Oil including international assignments in the Middle East, S. E. Asia,
the North Sea and Russia. Following his career with Shell, Larry was an
independent drilling and operations consultant before joining J. M. Huber
Company in 2000 as Sr. Operations Manager. More recently, Larry has held
positions of Operations Manager with Petro-Canada Resources USA and Drilling
Manager with MAK-J Energy.
Mr. Sessions attended Louisiana State University in the early 1960's.
FORMER OFFICERS AND DIRECTORS
DONALD WALFORD, Former Executive Vice President of Finance and Former Director
since 2012
Mr. Walford served as the Company's Chief Executive Officer from the inception
of the Company through October 22, 2013. He served as the Company's Executive
Vice President from October 22, 2013 through January 28, 2014. He has resigned
as a director of the Company effective February 27, 2014.
-48-
Mr. Walford has served as a Director and Broker from 1990 to date of Colorado
Landmark Reality. He has served as the Chairman and Vice President of Eveia
Medical from 2007 through 2010.
Mr. Walford was licensed as a principal, NASD Series 7, commodities broker and
all other principal securities licenses including an Allied Member of the New
York Stock Exchange, from 1967 through 1992.
Mr. Walford's career has included consulting work for the United States Attorney
and with three Federal Court jurisdictions as an expert in securities matters.
Mr. Walford has had a diverse experience in corporate operations in industries
such as agri-business, medical equipment, electronics, engineering, consumer
manufacturing, construction and development, and oil and gas.
Mr. Walford received his B.A. Liberal Arts with a concentration in Fine Arts in
1967 from Harpur College, State University of New York (kna Binghamton
University.)
Mr. Walford, as a founder of the Company, was appointed to the Board of
Directors, not only for his management skills, but also his experience in
private offerings and the public arena.
TODD B. HATTENBACH, Chief Financial Officer from July 1, 2013 through October 7,
2013
Mr. Hattenbach is a financial professional with over 19 years of experience of
which 17 years have been in energy. He has a broad background covering mergers &
acquisitions, divestitures, capital markets, investment banking, investor
relations, modeling and forecasting, financial planning, and more. Mr.
Hattenbach has been instrumental in structuring over $1 billion in public and
private equity placements and debt facilities during his career. As an
independent consultant with his company, Capital Risk Consulting, his clients
ranged from small private companies to large public companies. He provided
expertise in the areas of acquisitions, mergers, divestitures as well as having
been part of the management team that took a company public in a $200 million
IPO on the New York Stock Exchange and serving as their investor relations
director. In addition to consulting Todd served as Vice President of Finance for
SFC Energy Partners, a $1 billion oil and gas private equity firm, where he was
responsible for modeling, forecasting, and originating investments ranging from
$35 million to over $100 million. Prior positions include Assistant Vice
President at CoBank, ACB where he was an underwriter for purchased paper
transactions focused on power plants and natural gas pipelines. Mr. Hattenbach
started his energy career with Enron Corp in various groups focused on power
plant and pipeline development as well as oil and gas mezzanine finance.
Mr. Hattenbach has a B.S. in Business Administration from Trinity University and
a M.A. in International Studies from the University of Denver.
CONFLICTS OF INTEREST - GENERAL.
Our directors and officers are, or may become, in their individual capacities,
officers, directors, controlling shareholder and/or partners of other entities
engaged in a variety of businesses. Thus, there exist potential conflicts of
interest including, among other things, time, efforts and corporation
opportunity, involved in participation with such other business entities. While
the officers and directors of our business are engaged full time in our business
activities, the amount of time they devote to other business may be up to
approximately 30 hours per week.
CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES
Certain of our officers and directors may be directors and/or principal
stockholders of other companies and, therefore, could face conflicts of interest
with respect to potential acquisitions. In addition, our officers and directors
may in the future participate in business ventures, which could be deemed to
compete directly with us. Additional conflicts of interest and non-arms length
transactions may also arise in the future in the event our officers or directors
are involved in the management of any firm with which we transact business. Our
Board of Directors has adopted a policy that we will not seek a merger with, or
acquisition of, any entity in which management serve as officers or directors,
or in which they or their family members own or hold a controlling ownership
interest. Although the Board of Directors could elect to change this policy, the
Board of Directors has no present intention to do so. In addition, if we and
other companies with which our officers and directors are affiliated both desire
to take advantage of a potential business opportunity, then the Board of
Directors has agreed that said opportunity should be available to each such
-49-
company in the order in which such companies registered or became current in the
filing of annual reports under the Exchange Act subsequent to January 1, 2013.
Our officers and directors may actively negotiate or otherwise consent to the
purchase of a portion of their common stock as a condition to, or in connection
with, a proposed merger or acquisition transaction. It is anticipated that a
substantial premium over the initial cost of such shares may be paid by the
purchaser in conjunction with any sale of shares by our officers and directors
which is made as a condition to, or in connection with, a proposed merger or
acquisition transaction. The fact that a substantial premium may be paid to our
officers and directors to acquire their shares creates a potential conflict of
interest for them in satisfying their fiduciary duties to us and our other
stockholders. Even though such a sale could result in a substantial profit to
them, they would be legally required to make the decision based upon the best
interests of us and our other stockholders, rather than their own personal
pecuniary benefit.
PROJECTED STAFF
STAFFING
As of December 31, 2013, we have 6 full-time employees and 4 independent
consultants. This lean staffing is possible in this phase because of our
determination to outsource all operating functions. Our staff positions will be
filled as budget allows and business demands require, and the positions may be
altered in response to business needs.
L. EXECUTIVE AND DIRECTORS COMPENSATION
---------------------------------------
COMPENSATION
The following table sets forth certain information concerning compensation of
the President and our most highly compensated executive officers for the fiscal
year ended December 31, 2013 and for the period of March 28, 2012 (Inception)
through December 31, 2012 the ("Named Executive Officers"):
SUMMARY EXECUTIVES COMPENSATION TABLE
IN DOLLARS
-------------------- ------ ---------- ------- -------- -------- ------------ -------------- ------------ ---------
Non-equity Non-qualified
incentive deferred
Contract Stock Option plan compensation All other
Name & Position Payments Bonus awards awards compensation earnings compensation Total
Year ($) ($) ($) ($) ($) ($) ($) ($)
-------------------- ------ ---------- ------- -------- -------- ------------ -------------- ------------ ---------
W. Edward Nichols, 2013 170,000 25,000 0 26 0 0 0 $195,026
CEO, Secretary,
Chairman (1) 2012 104,892 0 2,000 0 0 0 0 $106,892
-------------------- ------ ---------- ------- -------- -------- ------------ -------------- ------------ ---------
Charles Pollard, 2013 174,719 0 0 27,267 0 $201,896
Pres. & COO (2) 2012 0 0 0 0 0 0 0 $0
-------------------- ------ ---------- ------- -------- -------- ------------ -------------- ------------ ---------
Todd B. 2013 50,000 0 0 162 0 0 0 $ 50,162
Hattenbach, Former
CFO (3) 2012 0 0 0 0 0 0 0 $0
-------------------- ------ ---------- ------- -------- -------- ------------ -------------- ------------ ---------
Donald Walford, 2013 192,000 10,000 0 0 0 0 0 $202,000
Former Exec VP of
Finance (4) 2012 135,000 76,000 2,000 0 0 0 0 $213,000
-------------------- ------ ---------- ------- -------- -------- ------------ -------------- ------------ ---------
(1) Mr. Nichols was appointed the Chief Executive Officer on October 22, 2013.
Mr. Nichols, in connection with his services as an officer, director and
founder was issued 2,000,000 shares of common stock, such shares were
valued at $2,000 or $0.001 per share. Mr. Nichols was also granted an
option for 50,000 shares on December 15, 2013 that has a value of $26 using
the Black-Scholes method.
-50-
(2) Mr. Pollard became an Officer in March 1, 2013. As part of Mr. Pollard's
employment he was granted options for 2,300,000 shares. The options have a
value of $27,267 using the Black-Scholes method.
(3) Mr. Hattenbach served as an Officer from July 1, 2013 through October 7,
2013.
(4) Mr. Walford served as the Chief Executive Officer of the Company from its
inception to October 22, 2013, at that time he was appointed the Executive
Vice President of Finance. He served as the Executive Vice President from
October 22, 2013 through January 28, 2014. Mr. Walford in connection with
his services as an officer, director and founder was issued 2,000,000
shares of common stock, such shares were valued at $2,000 or $0.001 per
share. Mr. Walford resigned as a Director on February 27, 2014.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
Effective May 1, 2013, our Stock Option and Award Plan (the "Stock Incentive
Plan") was approved by our Board of Directors. Under the Stock Incentive Plan,
the Board of Directors may grant options or purchase rights to purchase common
stock to officers, employees, and other persons who provide services to us or
any related company. The participants to whom awards are granted, the type of
awards granted, the number of shares covered for each award, and the purchase or
exercise price, conditions and other terms of each award are determined by the
Board of Directors, except that the term of the options shall not exceed 10
years. A total of 5 million shares of our common stock are subject to the Stock
Incentive Plan and maybe either a qualified or non-qualified stock option. The
shares issued for the Stock Incentive Plan may be either treasury or authorized
and unissued shares. During the year ended December 31, 2013, our officers and
directors were granted options for 2,300,000.
WARRANTS
Effective May 30, 2013 and as part of a consulting agreement and as part of the
above Stock Incentive Plan, the Company issued a warrant to a consultant in
exchange for cash in the amount of $27.50. The warrant entitles the consultant
to purchase over a five year period at a price of $3.00 per share up to 275,000
shares of the Company's common stock. The warrant has a cashless exercise
option.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth certain information concerning outstanding equity
awards held by the Chief Executive Officer, Chief Financial and the Company's
most highly compensated executive officers for the fiscal year ended December
31, 2013 (the "Named Executive Officers"):
------------ ---------------------------------------------------------- -----------------------------------------
OPTION AWARDS STOCK AWARDS
------------ ---------------------------------------------------------- -----------------------------------------
Equity Equity
incentive incentive
plan plan
awards: awards:
Market Number Market
value of or
Equity of unearned payout
incentive shares shares, value of
plan Number of units unearned
awards: of units or shares,
Number of Number of shares of other units or
securities Number of securities or units stock rights others
underlying securities underlying of stock that that rights
unexercised underlying unexercised Option that have have that
options unexercised unearned exercise Option have not not not have not
(#) options (#) options price expiration vested vested vested vested
Name exercisable unexercisable (#) ($) date (#) ($) (#) ($)
------------ ----------- ------------- ------------ -------- ---------- ---------- --------- --------- ----------
W. Edward 50,000 -0- -0- $1.00 12/15/16 -0- $ -0- -0- -0-
Nichols,
CEO
------------ ----------- ------------- ------------ -------- ---------- ---------- --------- --------- ----------
Charles 2,250,000 -0- -0- $0.10 3/5/18 1,631,507 $221,885 -0- -0-
Pollard,
President
and COO 50,000 -0- -0- $1.00 12/15/16 -0- $-0- -0- -0-
------------ ----------- ------------- ------------ -------- ---------- ---------- --------- --------- ----------
-51-
DIRECTOR COMPENSATION
All of the Company's officers and/or directors will continue to be active in
other companies. All officers and directors have retained the right to conduct
their own independent business interests.
The Company does not pay any Directors fees for meeting attendance.
The following table sets forth certain information concerning compensation paid
to the Company's directors during the year ended December 31, 2013:
------------- ------ -------------- --------- --------- ----------------- ---------------- ----------------- ----------
NON-QUALIFIED
FEES EARNED NON-EQUITY DEFERRED
OR PAID IN STOCK OPTION INCENTIVE PLAN COMPENSATION ALL OTHER
NAME YEAR CASH AWARDS AWARDS COMPENSATION ($) EARNINGS COMPENSATION TOTAL
($) ($) ($) ($) ($) ($)
------------- ------ -------------- --------- --------- ----------------- ---------------- ----------------- ----------
W. Edward 2013 $-0- $-0- $-0- $-0- $-0- $-0- $-0-
Nichols(1)
------------- ------ -------------- --------- --------- ----------------- ---------------- ----------------- ----------
Charles 2013 $-0- $-0- $-0- $-0- $-0- $-0- $-0-
Pollard(2)
------------- ------ -------------- --------- --------- ----------------- ---------------- ----------------- ----------
William F. 2013 $-0- $-0- $13 $-0- $-0- $-0- $13
Young(3)
------------- ------ -------------- --------- --------- ----------------- ---------------- ----------------- ----------
Lester 2013 $-0- $-0- $13 $-0- $-0- $-0- $13
Ranew(3)
------------- ------ -------------- --------- --------- ----------------- ---------------- ----------------- ----------
Paul Dragul 2013 $-0- $-0- $13 $-0- $-0- $-0- $13
(3)
------------- ------ -------------- --------- --------- ----------------- ---------------- ----------------- ----------
Donald 2013 $-0- $-0- $-0- $-0- $-0- $-0- $-0-
Walford (4)
------------- ------ -------------- --------- --------- ----------------- ---------------- ----------------- ----------
(1) Mr. Nichols receives a salary pursuant to an agreement with the Company for
his services to the Company. As discussed in the Executive Compensation
table. During the year ended December 31, 2013, Mr. Nichols received total
compensation of $195,026, including an option exercisable for 50,000 shares
of the Company's common stock.
(2) Mr. Pollard receives a salary pursuant to an agreement with the Company for
his services as an officer of the Company. During the year ended December
31, 2013, Mr. Pollard received total compensation of $201,896, including
options exercisable for 2,300,000 shares of the Company's common stock.
(3) During the year ended December 31, 2013, Messrs. Young, Ranew and Dragul
were each issued an option exercisable for 25,000 shares for their
services. The options were valued using Black-Scholes at $13 each.
(4) Mr. Walford receives a salary pursuant to an employment agreement with the
Company for his services as an officer of the Company. On February 27,
2014, he resigned as a Director.
-52-
EMPLOYMENT AGREEMENTS
We have employment/consultant agreements as of December 31, 2013, with our key
officers, as listed below. Described below are the compensation packages our
Board approved for our executive officers. The compensation agreements were
approved by our board based upon recommendations conducted by the board.
NAME POSITION ANNUAL COMPENSATION
---------------------- ------------------------- -------------------
W. Edward Nichols CEO, Chairman & Secretary $180,000 (1)
Charles Pollard President & COO $210,000 (2)
(1) Pursuant to a Consulting Agreement, effective September 1, 2012, Mr. Nichols
receives a Base Fee of $120,000 per year for the first six months and which
increased to $180,000 on the first day of March 2013. In addition to the Base
Fee, Mr. Nichols is paid a monthly car allowance of $600. Mr. Nichols shall be
paid an annual bonus of one half of one percent of the net asset increases over
the prior year. The basis of the calculation shall be the net assets as listed
in our financials and shall be paid every six months within 30 days after the
accounting for the applicable period has been completed. The original term of
the Consulting Agreement was extended through September 2016. On October 22,
2013, Mr. Nichols was appointed the Chief Executive Officer of the Company and
no changes have been made to the Consulting Agreement as a result of the change
of position.
Upon thirty (30) days written notice, the employment may be terminated without
further liability on the part of the Company. Cause is considered to be (i)
Conviction of a felony, a crime or moral turpitude or commission of an act of
embezzlement or fraud against the Company or affiliate thereof: (ii) deliberate
dishonesty of resulting in damages to the Company or affiliate thereof; and
(iii) dereliction of duty, misfeasance or malfeasance. If there is a termination
for cause the benefits of any bonus for the period preceding termination would
be forfeit.
The Company may terminate the agreement at will upon 60 days written notice. In
the Company decides to terminate it would be required to repurchase 50% of Mr.
Nichol's shares up to 1,000,000 shares at a price equal to 90% of the average
trading prices over the 60 days preceding the notice of termination. The Company
would have to pay 50% of the repurchase within price within 30 days of
termination and the balance within 60 additional days.
(2) Effective March 1, 2013, we entered into an Executive Employment Agreement
with Charles Pollard to become our Chief Operating Officer and Director and the
CEO of TFI Operating. Pursuant to the Agreement, Mr. Pollard will receive a base
salary of $210,000 per year. The base salary shall thereafter be reassessed
annually by the Board of Directors based upon the performance of Mr. Pollard. In
addition, Mr. Pollard: i) shall be eligible to receive up to 500,000 shares of
our common stock based upon his performance as to the production and reserve
growth of us and mutually agreed upon between himself and the Board of
Directors; and ii) he shall be entitled to participate in all benefit programs
established by us. This Agreement may be terminated by either party without
cause upon thirty days written notice. Also as part of this Agreement and
subsequently amended in June 2013, Mr. Pollard was granted non-qualified stock
options to purchase 2,250,000 shares of our common stock at $0.10 per share. The
stock options will have a cashless exercise option and a tag along sales option
for Mr. Pollard should the CEO or other members of the Board of Directors elect
to sell the shares of common stock prior to a public stock offering. See the
table below for a description of the vesting provisions and term of the stock
options.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
There are employment contracts, compensatory plans or arrangements, including
payments to be received from us, with respect to any of our directors or
executive officers which would in any way result in payments to any such person
because of his or her resignation, retirement or other termination of employment
with us. These agreements do not provide for payments to be made as a result of
any change in control of us, or a change in the person's responsibilities
following such a change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our board of directors in our entirety acts as the compensation committee for
Three Forks, Inc.
-53-
All of our officers and/or directors will continue to be active in other
companies. All officers and directors have retained the right to conduct their
own independent business interests.
It is possible that situations may arise in the future where the personal
interests of the officers and directors may conflict with our interests. Such
conflicts could include determining what portion of their working time will be
spent on our business and what portion on other business interest. To the best
ability and in the best judgment of our officers and directors, any conflicts of
interest between us and the personal interests of our officers and directors
will be resolved in a fair manner which will protect our interests. Any
transactions between us and entities affiliated with our officers and directors
will be on terms which are fair and equitable to us. Our Board of Directors
intends to continually review all corporate opportunities to further attempt to
safeguard against conflicts of interest between their business interests and our
interests.
We have no intention of merging with or acquiring an affiliate, associated
person or business opportunity from any affiliate or any client of any such
person.
M. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AS OF DECEMBER
31, 2013
--------------------------------------------------------------------------------
The following table sets forth information with respect to the beneficial
ownership of Three Forks's outstanding common stock by:
o each person who is known by Hinto to be the beneficial owner of five
percent (5%) or more of Three Forks common stock;
o Three Forks Chief Executive Officer and financial officer, its other
executive officers, and each director as identified in the "Management
-- Executive Compensation" section; and
o all of the Company's directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock and options, warrants
and convertible securities that are currently exercisable or convertible within
60 days of the date of this document into shares of the Company's common stock
are deemed to be outstanding and to be beneficially owned by the person holding
the options, warrants or convertible securities for the purpose of computing the
percentage ownership of the person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
The information below is based on the number of shares of Three Forks`s common
stock that we believe was beneficially owned by each person or entity as of
December 31, 2013.
-54-
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER (1) OWNER CLASS (2)
----------------- ------------------------------------------- ------------------- ---------------
Common shares W. Edward Nichols, Chief Executive
Officer, Chairman of the Board & 2,000,000 17.12%
Secretary(3)
Common shares Charles Pollard, President, Chief
Operating Officer & CEO of TFI Operating -0- -0-%
Company, Inc. & Director (4)
Common shares William Young, Director (5) 400,000 3.42%
Common shares Lester Ranew, Director (6) 66,667 0.57%
Common shares Paul Dragul, Director (7) 162,000 1.38%
Common shares Donald Walford, Former Director (8) 2,000,000 17.12%
----------------- ------------------------------------------- ------------------- ---------------
Common shares All Directors and Executive Officers as a 2,628,667 22.50%
Group (5 persons)
----------------- ------------------- ---------------
(1) The address of each person listed below, unless otherwise indicated, is c/o
Three Forks, Inc., 555 Eldorado Blvd., #100, Broomfield, Colorado 80021.
(2) Based upon 11,681,477 shares issued and outstanding on December 31, 2013.
Options and Warrants exercisable for 6,025,000 shares of common stock are
not included in this number as they are not considered to be exercisable in
the next 60 days.
(3) Mr. Nichols holds an option exercisable for 50,0000 shares of our common
stock with a term of 3 years and an exercise price of $1.00 per share.
(4) Mr. Pollard holds an option exercisable for 2,250,000 shares of our common
stock. The option has a term of 3 years and an exercise price of $0.10 per
share. The option does provide for a cashless exercise. Mr. Pollard also
holds an option exercisable for 50,000 shares of our common stock with a
term of 3 years and an exercise price of $1.00 per share. Mr. Pollard holds
a Secured Convertible Promissory Note for $300,000 convertible into shares
of our common stock at $3.60 per share.
(5) Mr. Young holds an option exercisable for 100,000 shares of our common
stock. The option has a term of 3 years and an exercise price of $0.10 per
share. The option does provide for a cashless exercise. Mr. Young also
holds an option exercisable for 25,000 shares of our common stock with a
term of 3 years and an exercise price of $1.00 per share. Mr. Young is to
receive 4,395 shares of our common stock, which are currently held in
escrow on behalf of the Gulfstar shareholders.
(6) Mr. Ranew holds an option exercisable for 25,000 shares of our common stock
with a term of 3 years and an exercise price of $1.00 per share. Mr. Ranew
is to receive 6,037 shares of our common stock which are currently held in
escrow on behalf of the Gulfstar shareholders. Mr. Ranew holds a Secured
Convertible Promissory Note for $300,000, convertible into shares of our
common stock at $3.60 per share. On March 31, 2014, Mr. Ranew purchased
300,000 warrants issued by the Company in consideration for and
cancellation of his promissory note issued to him by the Company in the
amount of $300,000. Tincup Oil and Gas, LLC of which Mr. Ranew is a member,
holds a Secured Convertible Promissory Note for $250,000, convertible into
shares of our common stock at $3.60 per share.
(7) Mr. Dragul holds 137,000 shares of common stock directly and 25,000 shares
indirectly through NTC & Co for the benefit of Paul Dragul. In addition,
Mr. Dragul holds an option exercisable for 25,000 shares of our common
stock with a term of 3 years and an exercise price of $1.00 per share.
(8) Mr. Walford resigned as an Officer of the Company on January 28, 2014 and
as a Director on February 27, 2014.
-55-
GREATER THAN 5% STOCKHOLDERS
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNER CLASS (1)
--------------- ------------------------------------------- ----------------- ------------
Common shares Shareholders of Gulfstar Energy Corp. (2) 700,000 5.99%
---------------
(1) Based upon 11,681,477 shares issued and outstanding on a fully diluted
basis. Options and Warrants exercisable for 4,175,000 shares of common
stock are not included in this number as they are not considered to be
exercisable in the next 60 days.
(2) Gulfstar Energy agreed to sell certain mineral interest to the Company
for cash and stock in September 2012. The transaction closed and
700,000 shares of the Company are held by the shareholders of
Gulfstar. Gulfstar is in a voluntary liquidation. We have agreed to
include the 700,000 shares in a registration statement on Form S-1 to
register the shares for distribution to the Gulfstar shareholders for
re-sale by these shareholders. These shares are NOT included in this
registration statement. The timing of such registration has not been
established at the time of this filing.
Rule 13d-3 under the Securities Exchange Act of 1934 governs the determination
of beneficial ownership of securities. That rule provides that a beneficial
owner of a security includes any person who directly or indirectly has or shares
voting power and/or investment power with respect to such security. Rule 13d-3
also provides that a beneficial owner of a security includes any person who has
the right to acquire beneficial ownership of such security within sixty days,
including through the exercise of any option, warrant or conversion of a
security. Any securities not outstanding which are subject to such options,
warrants or conversion privileges are deemed to be outstanding for the purpose
of computing the percentage of outstanding securities of the class owned by such
person. Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person.
N. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, PROMOTERS AND CONTROL PERSONS
-----------------------------------------------------------------------------
Other than the stock transactions discussed below, the Company has not entered
into any transaction nor is there any proposed transactions in which any of the
founders, directors, executive officers, shareholders or any members of the
immediate family of any of the foregoing had or is to have a direct or indirect
material interest.
We have employment agreements as of December 31, 2013, with our key officers, as
listed below. Described below are the compensation packages our Board approved
for our executive officers. The compensation agreements were approved by our
board based upon recommendations conducted by the board.
NAME POSITION ANNUAL COMPENSATION
------------------ ------------------------ -------------------
Donald L. Walford Former Executive Vice
President of Finance $192,000 (1)
Charles W. Pollard President & COO $210,000 (2)
W. Edward Nichols CEO, Chairman
and Secretary $120,000 (3)
------------------
(1) Pursuant to an employment agreement effective September 1, 2012 and amended
in February 2013, Mr. Walford receives a base salary of $192,000 per year. In
addition to the base salary, Mr. Walford shall be paid a monthly car allowance
of $600. In February 2013, the term of the agreement was extended through
-56-
September 2016. On October 22, 2013, Mr. Walford was appointed the Executive
Vice President of Finance and no changes were made to his employment agreement
as a result of the change of position. On January 28, 2014, Mr. Walford was
given 30-day notice of his termination for cause. Mr. Walford disputed that his
removal as an officer of the Company was "for cause" as defined in the
Employment Agreement. The Company and Mr. Walford reached a settlement of Mr.
Walford's Employment Agreement in March 2014 where Mr. Walford and the Company
agree that Mr. Walford shall be deemed to have resigned as an officer, as of
January 28, 2014, and he has resigned as a director of the Company effective
February 27, 2014.
(2) Effective March 1, 2013, we entered into an Executive Employment Agreement
with Charles Pollard to become our Chief Operating Officer and Director and the
CEO of TFI Operating. Pursuant to the Agreement, Mr. Pollard will receive a base
salary of $210,000 per year. The base salary shall thereafter be reassessed
annually by the Board of Directors based upon the performance of Mr. Pollard. In
addition, Mr. Pollard: i) shall be eligible to receive up to 500,000 shares of
our common stock based upon his performance as to the production and reserve
growth of us and mutually agreed upon between himself and the Board of
Directors; and ii) he shall be entitled to participate in all benefit programs
established by us. This Agreement may be terminated by either party without
cause upon thirty days written notice. Also as part of this Agreement and
subsequently amended in June 2013, Mr. Pollard was granted non-qualified stock
options to purchase 2,250,000 shares of our common stock at $0.10 per share. The
stock options will have a cashless exercise option and a tag along sales option
for Mr. Pollard should the CEO or other members of the Board of Directors elect
to sell the shares of common stock prior to a public stock offering. See the
table below for a description of the vesting provisions and term of the stock
options.
(3) Pursuant to a Consulting Agreement, effective September 1, 2012, Mr. Nichols
receives a Base Fee of $120,000 per year for the first six months and which
increased to $180,000on the first day of March 2013. In addition to the Base
Fee, Mr. Nichols is paid a monthly car allowance of $600. Mr. Nichols shall be
paid an annual bonus of one half of one percent of the net asset increases over
the prior year. The basis of the calculation shall be the net assets as listed
in our financials and shall be paid every six months within 30 days after the
accounting for the applicable period has been completed. The original term of
the Consulting Agreement was extended through September 2016. On October 22,
2013, Mr. Nichols was appointed the Chief Executive Officer of the Company no
changes have been made to the Consulting Agreement as a result of the change of
position.
STOCK ISSUANCES
During the period of March 28, 2012 (inception) through December 31, 2012, the
following officers and directors of the Company were issued stock as listed
below:
NUMBER OF REASON FOR
NAME POSITION SHARES TYPE OF EQUITY ISSUANCE
------------------ ------------------- ------------ ---------------- -----------
Donald Walford Former Director & 2,000,000 Common Shares Services
Former Exec VP of
Finance
W. Edward Nichols CEO, Chairman & 2,000,000 Common Shares Services
Secretary
William Young Director 400,000 Common Shares Services
Paul Dragul Director 112,000 Common Shares Cash
------------------
-57-
During the year ended December 31, 2013, the following officers and directors of
the Company were issued stock and granted options as listed below:
NUMBER OF REASON FOR
NAME POSITION SHARES TYPE OF EQUITY ISSUANCE
------------------ ----------------- ------------ ---------------- -----------
W. Edward Nichols CEO, Chairman & 50,000 Option Services
Secretary
Charles Pollard President & COO 2,300,000 Options Services
William Young Director 25,000 Option Services
Paul Dragul Director 25,000 Option Services
50,000 Common Shares Cash Services
Lester Ranew Director 72,704 Common Shares Cash
200,000 Option Cash
25,000 Option Services
-----------------------
THREE FORKS NO. 1 LLC
On December 31, 2012, we entered into a Farmout Agreement where we had a 100%
working interest in 320 gross and 290 net acres of mineral interests located in
Archer County Texas subject to the Farmout. In consideration of Three Forks No.
1 undertaking and paying it's pro rata portion of the costs associated with the
drilling and completion of 9 wells in Archer County Texas on the Farmout
property, we assigned 87% of the working interest in the Farmout to the LLC.
Likewise, on January 1, 2013, we assigned 1% of the WI to each Messrs. Young and
Nichols, officers and directors of the Company, (a total of 2% of the WI) in the
Farmout. These WIs' were assigned the proportional cash payment of 2% of the
project costs.
Mr. Lester Ranew, a director of the Company, purchase 6 Units in the Three Forks
No. 1, representing 5.41% equity interest in Three Forks No. 1.
ACCRUED LIABILITIES - RELATED PARTY
During the year ended December 31, 2013, the Company was advanced funds from Mr.
Ranew, who is also a member of Tin Cup LLC and at December 31, 2013 the Company
owes $209,520. In addition, during the year 2013, the Company was advanced funds
from Three Forks No 1 LLC and at December 31, 2013 owes $2,685.
At December 31, 2012, we owed an affiliate of one of our former officers and
directors a total of $15,000 in fees for services rendered. Such fees were paid
during the year ended December 31, 2013.
SHARES FOR SERVICES
During the year ended December 31, 2013, Mr. Dragul and Mr. Panigrahi a member
of the Board of Directors and a former member, respectively were issued 25,000
and 175,000 shares of our common stock in exchange for services in the amount of
$17,600 or at a fair value of $0.088 per share.
In March 2012, the Company issued 5,325,000 shares of its common stock to its
members of the Board of Directors and officers in exchange for services in the
amount of $5,325 or at a fair value of $0.001 per share.
SECURED CONVERTIBLE PROMISSORY NOTES
013fIn September 2013, we commenced a private offering of $2,000,000 Secured
Convertible Promissory Notes in order to complete the purchase of the remaining
37.5% WI in the Five JABS property discussed above. These notes are due in
September 2014 and are convertible into shares of our common stock in whole or
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in part at a conversion price of $3.60 per share 6 months after issuance of the
secured convertible promissory note. The conversion of the convertible
promissory notes into shares of our common stock could have a dilutive effect to
the holdings of our existing shareholders. The Secured Convertible Promissory
Notes are secured by the Company's 75% of the right, title and working interest
in 1,955 gross leasehold acres including 13 producing wells, 9 service wells and
14 additional wellbores located in the States of Texas and Louisiana, the Five
JABS properties. The offering was not fully subscribed and a total of $1,535,000
was raised. Tincup Oil and Gas, LLC of which Mr. Ranew, a director of the
Company, is a member, holds a Secured Convertible Promissory Note for $250,000.
At December 31, 2013, the Company owes a total of $1,475,000 in outstanding
secured convertible promissory notes.
On March 31, 2014, holders of the above promissory notes purchased 1,390,000
warrants issued by the Company in consideration for and cancellation of their
promissory notes issued to them by the Company in the amount of $1,390,000. A
warrant entitles the holder for a term of two years to purchase one share of
common stock of the Company at the rate of $1.00 per share. Therefore, as of
March 31, 2014, the Company issued 1,390,000 warrants to holders of the
promissory notes in cancellation of $1,390,000 in debt.
Separately and apart, two members of management agreed to make up the difference
of the Secured Convertible Promissory Note Offering and the purchase price of
Five JABS in a separate transaction with separate terms with the Company. Mr.
Charles Pollard and Mr. Lester Ranew, officers and directors of the Company, in
exchange for secured convertible promissory notes provided the Company with a
total of $600,000 cash ($300,000 each). At December 31, 2013, the Company owes a
total of $600,000 to Mr. Pollard and Mr. Ranew.
Mr. Pollard's and Mr. Ranew's notes have a due date of January 2, 2014 and allow
for the conversion of the notes into common stock upon issuance. Their notes
provide that in addition to having a due date of January 2, 2014, that at the
due date they will each receive a $7,500 payment of fees and interest. If the
notes are not paid at January 2, 2014, the Company is required to take immediate
steps to liquidate the secured property and the due date will be extended to
April 2, 2014. At January 2, 2014, the Company failed to make payment on the
notes. At that time Mr. Pollard and Ranew each entered into an Extension and
Waiver with the Company. The Extension and Waiver provides that the payment date
shall be extended to April 2, 2014 and both holders have waived the provision
that steps be taken to liquidate the secured property at this time. On April 7,
2014, Mr. Pollard extended the payment date on his note to May 2, 2014 and if
the payment is not made or the property has not been liquidated then he will be
assigned a 5.625% interest in the Five JABS properties. On March 31, 2014, Mr.
Ranew purchased 300,000 warrants issued by the Company in consideration for and
cancellation of his promissory note issued to him by the Company in the amount
of $300,000.
DIRECTOR INDEPENDENCE
Our board of directors undertook its annual review of the independence of the
directors and considered whether any director had a material relationship with
us or our management that could compromise his ability to exercise independent
judgment in carrying out his responsibilities. As a result of this review, the
board of directors affirmatively determined that Messrs. and Dragul. Young is
"independent" as such term is used under the rules and regulations of the
Securities and Exchange Commission. Mr. Nichols, as Chief Executive Officer and
Chief Financial Officer of the Company, Mr. Pollard as President and Chief
Operating Officer and Mr. Ranew as a shareholder and a Secured Debt holder, are
not considered to be "independent."
ITEM 11A. MATERIAL CHANGES
--------------------------
None.
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ITEM 12. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
----------------------------------------------------------
-------------- ------------------------------------------------------------------------ ---------------------------
EXHIBIT NO. DESCRIPTION
-------------- ------------------------------------------------------------------------ ---------------------------
3(i).1 Articles of Incorporation of Three Forks, Inc. - 3/28/12 (1)
-------------- ------------------------------------------------------------------------ ---------------------------
3(i).2 Articles of Organization of Three Forks No. 1, LLC - 11/8/2012 (1)
-------------- ------------------------------------------------------------------------ ---------------------------
3(i).3 Articles of Incorporation of Three Forks Operating Company, Inc. - (1)
1/2/13
-------------- ------------------------------------------------------------------------ ---------------------------
3(i).4 Articles of Amendment - Name Change to TFI Operating Company, Inc. - (1)
2/8/13
-------------- ------------------------------------------------------------------------ ---------------------------
3(i).5 Articles of Organization of Three Forks LLC No. 2 - 12/4/2013 (2)
-------------- ------------------------------------------------------------------------ ---------------------------
3(ii).1 Bylaws of Three Forks, Inc. (1)
-------------- ------------------------------------------------------------------------ ---------------------------
3(ii).2 Bylaws of TFI Operating Company (fka Three Forks Operating Company, (1)
Inc.)
-------------- ------------------------------------------------------------------------ ---------------------------
5.1 Opinion re: Legality Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
10.1 Employment Agreement, Donald Walford (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.2 Amendment to Employment Agreement, Donald Walford (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.3 Consulting Agreement with W. Edward Nichols (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.4 Amendment to Consulting Agreement with W. Edward Nichols (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.5 Employment Agreement, Charles Pollard (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.6 Operating Agreement of Three Forks No. 1, LLC (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.7 Amendment to Operating Agreement of Three Forks No. 1, LLC (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.8 Certificate of Designation of Class A Convertible Preferred Stock (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.9 Stock Option Plan (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.10 Farmout Agreement (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.11 Purchase & Sale Agreement, Three Forks, Inc. & TFI No. 1, LLC 12/31/12 (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.12 Purchase, Sale & Participation Agreement, Five Jab, Inc. & Three (5)
Forks, Inc. 2/27/13
-------------- ------------------------------------------------------------------------ ---------------------------
10.13 Blue Quail, Ltd. Participation Agreement 4/8/13 (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.14 1st Amendment to Purchase, Sale & Participation Agreement, Five Jab, (1)
Inc. & Three Forks, Inc. 4/30/13
-------------- ------------------------------------------------------------------------ ---------------------------
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10.15 2nd Amendment to Purchase, Sale & Participation Agreement, Five Jab, (1)
Inc. & Three Forks, Inc.
-------------- ------------------------------------------------------------------------ ---------------------------
10.16 3rd Amendment to Purchase, Sale & Participation Agreement, Five Jab, (1)
Inc. & Three Forks, Inc.
-------------- ------------------------------------------------------------------------ ---------------------------
10.17 4th Amendment to Purchase, Sale & Participation Agreement, Five Jab, (1)
Inc. & Three Forks, Inc.
-------------- ------------------------------------------------------------------------ ---------------------------
10.18 Form of Convertible Promissory Note & Mortgage, Security and Pledge (4)
Agreement
-------------- ------------------------------------------------------------------------ ---------------------------
10.19 Operating Agreement of Three Forks LLC No. 2 (2)
-------------- ------------------------------------------------------------------------ ---------------------------
23.1 Consent of Attorney Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
23.2 Consent of Independent Registered Public Accounting Firm Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
99.1 Archer County, Texas picture, page 27 Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
99.2 Blue Quail Pink Project picture, page 28 Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
99.3 Blue Quail Sportsman's Lake picture, page 29 Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
99.4 Five Jab Texas and Louisiana picture, page 30 Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
101.INS XBRL Instance Document Filed Herewith (3)
-------------- ------------------------------------------------------------------------ ---------------------------
101.SCH XBRL Taxonomy Extension Schema Document Filed Herewith (3)
-------------- ------------------------------------------------------------------------ ---------------------------
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed Herewith (3)
-------------- ------------------------------------------------------------------------ ---------------------------
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed Herewith (3)
-------------- ------------------------------------------------------------------------ ---------------------------
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed Herewith (3)
-------------- ------------------------------------------------------------------------ ---------------------------
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed Herewith (3)
-------------- ------------------------------------------------------------------------ ---------------------------
(1) Incorporated by reference from the exhibits included in the Company's
Form 10-12G/A filed with the Securities and Exchange Commission
(www.sec.gov), filed October 29, 2013.
(2) Incorporated by reference from the exhibits included in the Company's
Form 10-12G/A No. 2 filed with the Securities and Exchange Commission
(www.sec.gov), filed January 31, 2014.
(3) Pursuant to Rule 406T of Regulation S-T, this interactive data file is
deemed not filed or part of a registration statement or prospectus for
purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed
not filed for purposes of Section 18 of the Securities Exchange Act of
1934, and otherwise is not subject to liability under these sections.
(4) Incorporated by reference from the exhibits included in the Company's
Form 10-12G/A No. 3 filed with the Securities and Exchange Commission
(www.sec.gov), filed February 19, 2014.
(5) Incorporated by reference from the exhibits included in the Company's
Form 10-12G/A No. 4 filed with the Securities and Exchange Commission
(www.sec.gov), filed April 8, 2014.
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ITEM 12A. DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
--------------------------------------------------------------------------------
The Colorado Business Corporation Act requires us to indemnify officers and
directors for any expenses incurred by any officer or director in connection
with any actions or proceedings, whether civil, criminal, administrative, or
investigative, brought against such officer or director because of his or her
status as an officer or director, to the extent that the director or officer has
been successful on the merits or otherwise in defense of the action or
proceeding. The Colorado Business Corporation Act permits a corporation to
indemnify an officer or director, even in the absence of an agreement to do so,
for expenses incurred in connection with any action or proceeding if such
officer or director acted in good faith and in a manner in which he or she
reasonably believed to be in or not opposed to the best interests of us and such
indemnification is authorized by the stockholders, by a quorum of disinterested
directors, by independent legal counsel in a written opinion authorized by a
majority vote of a quorum of directors consisting of disinterested directors, or
by independent legal counsel in a written opinion if a quorum of disinterested
directors cannot be obtained.
The Colorado Business Corporation Act prohibits indemnification of a director or
officer if a final adjudication establishes that the officer's or director's
acts or omissions involved intentional misconduct, fraud, or a knowing violation
of the law and were material to the cause of action. Despite the foregoing
limitations on indemnification, the Colorado Business Corporation Act may permit
an officer or director to apply to the court for approval of indemnification
even if the officer or director is adjudged to have committed intentional
misconduct, fraud, or a knowing violation of the law.
The Colorado Business Corporation Act also provides that indemnification of
directors is not permitted for the unlawful payment of distributions, except for
those directors registering their dissent to the payment of the distribution.
According to our bylaws, we are authorized to indemnify our directors to the
fullest extent authorized under Colorado Law subject to certain specified
limitations.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and persons controlling
us pursuant to the foregoing provisions or otherwise, we are advised that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
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[OUTSIDE BACK COVER PAGE OF PROSPECTUS]
DEALER PROSPECTUS DELIVERY REQUIREMENTS
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
-----------------------------------------------
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
----------------------------------------------------
We have expended, or will expend fees in relation to this registration statement
as detailed below:
================================================================= ==============
EXPENDITURE ITEM AMOUNT
----------------------------------------------------------------- --------------
Attorney Fees $13,000
----------------------------------------------------------------- --------------
Audit Fees $7,500
----------------------------------------------------------------- --------------
Transfer Agent Fees $2,000
----------------------------------------------------------------- --------------
SEC Registration and Blue Sky Registration fees (estimated) $1,000
----------------------------------------------------------------- --------------
Printing Costs and Miscellaneous Expenses (estimated) $1,500
------
----------------------------------------------------------------- --------------
TOTAL $25,000
================================================================= ==============
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
--------------------------------------------------
Our officers and directors are indemnified as provided by the Colorado Revised
Statutes and the bylaws.
Under the Colorado Revised Statutes, director immunity from liability to a
company or its shareholders for monetary liabilities applies automatically
unless it is specifically limited by a company's Articles of Incorporation. Our
Articles of Incorporation do not specifically limit the directors' immunity.
Excepted from that immunity are: (a) a willful failure to deal fairly with us or
our shareholders in connection with a matter in which the director has a
material conflict of interest; (b) a violation of criminal law, unless the
director had reasonable cause to believe that his or her conduct was lawful or
no reasonable cause to believe that his or her conduct was unlawful; (c) a
transaction from which the director derived an improper personal profit; and (d)
willful misconduct.
Our bylaws provide that it will indemnify the directors to the fullest extent
not prohibited by Colorado law; provided, however, that we may modify the extent
of such indemnification by individual contracts with the directors and officers;
and, provided, further, that we shall not be required to indemnify any director
or officer in connection with any proceeding, or part thereof, initiated by such
person unless such indemnification: (a) is expressly required to be made by law,
(b) the proceeding was authorized by the board of directors, (c) is provided by
us, in sole discretion, pursuant to the powers vested under Colorado law or (d)
is required to be made pursuant to the bylaws.
Our bylaws provide that it will advance to any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of us, or is or was
serving at the request of us as a director or executive officer of another
company, partnership, joint venture, trust or other enterprise, prior to the
final disposition of the proceeding, promptly following request therefore, all
expenses incurred by any director or officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under the bylaws or otherwise.
Our bylaws provide that no advance shall be made by us to an officer except by
reason of the fact that such officer is or was our director in which event this
paragraph shall not apply, in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made: (a) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (b) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
-63-
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of us.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
------------------------------------------------
We have sold securities since inception (March 28, 2012) without registering the
securities under the Securities Act of 1933 as shown in the following tables:
SHARES ISSUED FOR PRIVATE OFFERINGS
Since our inception in March 2012 through September 2012, we have shares of our
common stock at a price of $0.01 per share in exchange for cash to the
individuals and the amounts set forth below.
Number of Shares Consideration Name
--------------------------------------------------------------------------------
5,000 $ 50 Melvin & Judith Einsidler
20,000 $ 200 William C. Gascoigne
5,000 $ 50 Robert Bradley
5,500 $ 55 Donald Einsidler
100,000 $ 1,000 Jacobs Enterprises, Ltd
45,000 $ 450 Robert W. Simmons
10,000 $ 100 Robert Reynolds
11,000 $ 110 Richard Davis
30,000 $ 300 Dennis Kaboth
7,500 $ 75 Jeremy Isaacs
2,500 $ 25 David & Lois Einsidler
16,500 $ 165 Barry Isaacs
5,500 $ 55 Risa Einsidler
137,000 $ 1,370 Bruce Theuerkauf
19,500 $ 195 Ralph T. Meloro, Trustee of
the Lisa B. Meloro Irrevocable
Trust
40,000 $ 400 Dennis Noel
60,000 $ 600 Donald S. Heauser
30,000 $ 300 Eric Hample
150,000 $ 1,500 Dennis and MaryJo Gabriel
2,215 $ 22 Diane Leeds Einsidler
10,000 $ 100 Vladimir & Glida Scerbo
160,000 $ 1,600 Robert Scerbo
2,500 $ 25 Marc & Caryn Schneider
5,500 $ 55 Charles Ras
50,000 $ 500 James Ford
5,000 $ 50 John Phelps
21,000 $ 210 Sean Fleming
75,000 $ 750 Neilson Family Trust
150,000 $ 1,500 Michael McNally
2,500 $ 25 Joseph G. Hoenigmann
2,500 $ 25 Christopher Pesce
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
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100,000 $ 1,000 Clarene O Hample Revocable
Trust, Brent Hample Trustee
7,500 $ 75 Leah & Greg Isaacs
67,000 $ 670 Joan M. Jacobson
17,000 $ 170 Christian Farr
20,000 $ 200 John Cooper
25,000 $ 250 Steve Remmert
25,000 $ 250 Gerald Smart Trust
6,500 $ 65 Michael Einsidler
16,667 $ 167 Alexander Biggs
16,667 $ 167 Thomas B. Biggs
7,000 $ 70 Leland Beckley
7,000 $ 70 Byron Beckley
7,000 $ 70 Trenton Toftoy
10,000 $ 100 James Iverson
100,000 $ 1,000 Robert & Cynthia Toftoy
25,000 $ 250 Joel Ripmaster
7,000 $ 70 Patricia Nauman
3,500 $ 35 Ralph Toftoy
5,000 $ 50 Monica Sherman
40,000 $ 400 Richard Rinella
5,000 $ 50 Bernard Rinella
17,000 $ 170 Breff Leasing
7,000 $ 70 Underhill Trucking -
25,000 $ 250 Gerald Smart Trust
200,000 $ 2,000 Henry Moxely
10,000 $ 100 Nicole Saunders
10,000 $ 100 Glenda Weiss
3,200 $ 32 Terry Jacobson
38,000 $ 380 Tom Ness
5,000 $ 50 John Bryan
25,000 $ 250 Robert & Donna Wittenauer
25,000 $ 250 Donna Wittenauer FBO LK Latimer
5,000 $ 50 Timothy Scott
10,000 $ 100 Patrick J. Donovan
25,000 $ 250 Mihcael Pryblo
100,000 $ 1,000 Adelaide Biggs
15,000 $ 150 George Biggs
15,000 $ 150 Marcia Biggs
15,000 $ 150 Adelaide Andrews
4,000 $ 40 Amanda Germany
40,000 $ 400 Paul Dragul
6,250 $ 63 Daniel and Lesli Underhill
2,500 $ 25 Stephen Cohen
3,400 $ 34 Ron Anderson
60,000 $ 600 Cracked Crab LLC
7,500 $ 75 Jeff Rosenberg
40,000 $ 400 Glenda Weiss
50,000 $ 500 Christopher Jacobs
2,500 $ 25 Joseph Willen
35,000 $ 350 Paul Dragul
40,000 $ 400 Steward Mosko
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25,000 $ 250 Gary Walford
50,000 $ 500 Brian Remington
10,000 $ 100 Daniel Rainey
50,000 $ 500 E. Dean Davis
25,000 $ 250 Lawson Farmer
25,000 $ 250 Cain Griffin Group, LLc
6,000 $ 60 Charles W. Jones
4,000 $ 40 FNB Griffin custodian for
Individual IRA Charles W. Jones
2,500 $ 25 Edward Vitko
2,500 $ 25 Mike Vitko
11,667 $ 117 Robert & Cynthia Toftoy
500 $ 5 Marla Alstadt
250 $ 3 Gary Lee Young
From July 2012 through September 2012, we have shares of our common stock at a
price of $1.00 per share in exchange for cash to the individuals and the amounts
set forth below.
Number of Shares Consideration Name
--------------------------------------------------------------------------------
8,000 $ 8,000 Robert & Cynthia Toftoy
15,000 $ 15,000 Bruce Theuerkauf Jr.
50,000 $ 50,000 James Ford
1,000 $ 1,000 Brian Hassett
25,000 $ 25,000 Willie Love
15,000 $ 15,000 Robert Reynolds
100,000 $ 100,000 Edward Vitko
10,000 $ 10,000 Caryn & Marc Schneider
1,000 $ 1,000 Diane Leeds Einsidler
4,876 $ 4,876 Bruce Molloy FBO Mariana Molloy
6,000 $ 6,000 Bruce Molloy
10,000 $ 10,000 Larry & Gayla Johnson
12,000 $ 12,000 David Newman
25,000 $ 25,000 Michael Faletti, Jr.
5,000 $ 5,000 Robert Bradley
2,250 $ 2,250 Thomas G. Nixon
20,000 $ 20,000 Jonathan Sherman,
25,000 $ 25,000 William and Suzanne Knopf
100,000 $ 100,000 Alexander Withall Declaration fo
Trust- W. Knopf Trustee
10,000 $ 10,000 Bruce Molloy
50,000 $ 50,000 Christopher Jacobs
10,000 $ 10,000 Henry H. Moxley
6,000 $ 6,000 James H. Campbell
2,750 $ 2,750 Thomas and Linda Nixon
25,000 $ 25,000 Michael Pryblo
5,000 $ 5,000 James Iverson
37,000 $ 37,000 Paul Dragul
30,000 $ 30,000 David Kelley
6,000 $ 6,000 Cottonwood NB LLC
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2,800 $ 2,800 Karen A. Baker
5,000 $ 5,000 Rodney J. Buhr
5,000 $ 5,000 Spyglass Capital Group LLC
2,000 $ 2,000 Samuel H. Rabin
14,000 $ 14,000 Ronald Cox
5,000 $ 5,000 Willie and Carol Love, Jr
20,000 $ 20,000 Steven A. Scalf
10,000 $ 10,000 Keil & Elizabeth Johnson
10,000 $ 10,000 Russel D. and Judith A. Noel
20,000 $ 20,000 Robert and Cynthia Toftoy
50,000 $ 50,000 Joan jacobson Trust
50,000 $ 50,000 James R. Stewart
5,000 $ 5,000 Irene A. Brown
5,000 $ 5,000 James Iverson
3,000 $ 3,000 Kenneth Knudson
100,000 $ 100,000 Dennis and MaryJo Gabriel
20,000 $ 20,000 Robert Scerbo
50,000 $ 50,000 Edward Vitko
30,000 $ 30,000 Falettiko Oil & Gas, LLc
25,000 $ 25,000 Mike Vitko
7,000 $ 7,000 Larry & Gayle Johnson
5,000 $ 5,000 Willie and Carol Love
6,000 $ 6,000 Vladimir Scerbo
25,000 $ 25,000 Robert Reynolds
10,000 $ 10,000 Bruce Theuerkauf Jr.
35,000 $ 35,000 Cain Griffin Group, Inc
30,000 $ 30,000 David. D. Duvick
25,000 $ 25,000 Caroline Justice
10,000 $ 10,000 Cottonwood NB LLC
10,000 $ 10,000 Steven A. Scalf
2,250 $ 2,250 Gary Lee Young
30,000 $ 30,000 David Kelley
10,000 $ 10,000 Sauney & Geraldine Pippin
20,000 $ 20,000 Steve Scalf
30,000 $ 30,000 Bernard Bols
16,667 $ 16,667 Breff Leasing
33,334 $ 33,334 Gary Underhill
50,000 $ 50,000 Bill Baber
13,000 $ 13,000 Debbie Hamen
2,000 $ 2,000 Bruce Theuerkauf Jr
81,000 $ 81,000 Dayspring Capital, LLC
12,500 $ 12,500 Tom Ness
7,500 $ 7,500 Robert Toftoy
2,500 $ 2,500 Edward Vitko
2,500 $ 2,500 Mike Vitko
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From October 2012 through December 2013, we have shares of our common stock at a
price of $2.25 per share in exchange for cash to the individuals and the amounts
set forth below.
Number of Shares Consideration Name
--------------------------------------------------------------------------------
10,000 $ 22,500 Tamar and Bruce Mar
44,444 $ 99,999 James R. Stewart
40,000 $ 90,000 Rich Sharpenter
50 $ 113 Kathie Hayes
500 $ 1,125 Maria Terrazas
2,222 $ 5,000 Tim L. Briggs
1,000 $ 2,250 Edward W. Sharpenter
1,600 $ 3,600 Rodney Buhr
20,000 $ 45,000 Alexander Withall/ Knopf
20,000 $ 45,000 Eric Hample
9,955 $ 22,399 Rich Sharpenter
50 $ 113 Ned Sharpenter
50 $ 113 Becky sharpenter
50 $ 113 Nick Sharpenter
50 $ 113 Lindsey Sharpenter
50 $ 113 Lillian Sharpenter
50 $ 113 Marc Sharpenter
50 $ 113 Leanne Sharpenter
50 $ 113 Joanne Blincoe
50 $ 113 Jim Blincoe
50 $ 113 Todd Blincoe
50 $ 113 Marie Blincoe
50 $ 113 Sophie Blincoe
50 $ 113 Emma Blincoe
50 $ 113 Tom Blincoe
50 $ 113 Judy Blincoe
50 $ 113 Jay Blincoe
50 $ 113 Emily Blincoe
225 $ 506 Trevor J. Buhr
135,000 $ 303,750 William Knopf
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
-68-
From January 2013 through December 2013, we have shares of our common stock at a
price of $3.00 per share in exchange for cash to the individuals and the amounts
set forth below.
Number of Shares Consideration Name
--------------------------------------------------------------------------------
20,000 $ 60,000 Dr William R. King
10,000 $ 30,000 Ronney Ledford Jr. LLc
10,000 $ 30,000 Francis Construction
10,000 $ 30,000 Lorie J.and Josephine Mangham, Jr.
10,000 $ 30,000 Tim Dender
1,034 $ 3,102 Rich Sharpenter
1,000 $ 3,000 Karen Anderson Baker
10,000 $ 30,000 William & Joyce Babb
6,665 $ 19,995 Ronnie Cain
7,000 $ 21,000 William Stewart
16 $ 48 Rich Sharpenter
16,667 $ 50,001 Seth Sleezer IV
8,333 $ 24,999 Ronney Ledford Jr.
66,667 $ 200,001 Lester Ranew
46,667 $ 140,001 FNB Griffin Custodian for
Individual IRA Timothy R. Dender
10,000 $ 30,000 FNB Griffin Custodian for
individual IRA Linda Jordan
2,000 $ 6,000 Kenneth and Shirley Thompson
13,334 $ 40,002 Barry L. Jacobson
26,667 $ 80,001 James and Teresa Stewart
8,334 $ 25,002 Jared and Christina Adam
3,333 $ 9,999 Ronnie Can
1,671 $ 5,013 Patricia K. Huber
10,000 $ 30,000 Amanda Remington
13,334 $ 40,002 Arthur C. Krepps III
10,000 $ 30,000 C. Roan Berry
1,500 $ 4,500 Creative Solutions Invesments, LLC
1,000 $ 3,000 Darrell L & Mary A Gulseth JTWROS
15,000 $ 45,000 Herbert T. Sears
20,000 $ 60,000 James and Teresa Stewart
500 $ 1,500 Kelly Anderson
500 $ 1,500 Kirk Anderson
500 $ 1,500 Kyle Anderson
3,500 $ 10,500 Mitchell Gulseth
20,000 $ 60,000 Raymond Dender
10,000 $ 30,000 Richard Coleman Clements
8,333 $ 24,999 Ronny Ledford Jr.
10,000 $ 30,000 SCI Investments, LLC
2,000 $ 6,000 Star Net Investments, LLC
100,000 $ 300,000 Robert E. Long
10,000 $ 30,000 Timothy Dender
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
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500 $ 1,500 Kelly Anderson
500 $ 1,500 Kirk Anderson
500 $ 1,500 Kyle Anderson
500 $ 1,500 Marla Alstadt
10,000 $ 30,000 Amanda Remington
8,333 $ 24,999 Ronny Ledford Jr.
10,000 $ 30,000 Richard Coleman Clements
1,500 $ 4,500 Creative Solutions Invesments, LLC
2,000 $ 6,000 Star Set Investments, LLC
20,000 $ 60,000 Raymond Dender
20,000 $ 60,000 James and Teresa Stewart
3,333 $ 10,000 Ray & Betty Chally
10,000 $ 30,000 M&M Funding, LLC
12,000 $ 36,000 FNB Griffin Custodian for
William C. Weldon IRA
10,000 $ 30,000 FNB Griffin Custodian for
Wendy Williams IRA
10,000 $ 30,000 FNB Griffin Custodian for
Lewis G. Sanders IRA
10,000 $ 30,000 FNB Griffin Custodian for
William House Jr. IRA
10,000 $ 30,000 M Sleezer
10,000 $ 30,000 D Duffy
16,333 $ 48,999 C Hopkins
3,333 $ 9,999 FNB Griffin Custodian for D Wren
3,334 $ 10,000 F Simonton
SECURED CONVERTIBLE PROMISSORY NOTE OFFERING
In September 2013, we commenced a private offering of $2,000,000 Secured
Convertible Promissory Notes in order to complete the purchase of the remaining
37.5% WI in the Five JABS property discussed earlier in the document. These
notes are due in September 2014 and are convertible into shares of our common
stock in whole or in part at a conversion price of $3.60 per share 6 months
after issuance of the secured convertible promissory note. The offering was not
fully subscribed and a total of $1,535,000 was raised.
NOTEHOLDER AMOUNT OF THE NOTE
-----------------------------------------------------------------------
Tincup Oil and Gas , LLC (1) $250,000
C. Roan Berry/Environtech Corp. $100,000
Timothy Dender $400,000
Dennis W. & Mary J. Gabriel $60,000
Charles Jones $100,000
Estate of William King $100,000
Estate of William King $500,000
Caroline J. Fisher, Ph. D $25,000
------------------------------------------------------------------------
(1) Mr. Ranew, a director of the Company, is a member of Tincup Oil and
Gas, LLC.
EXEMPTION FROM REGISTRATION CLAIMED
Sales and issuances by us of the unregistered securities listed above were made
by us in reliance upon Rule 506 of Regulation D to the individuals listed above.
All of the individuals and/or entities listed above that purchased the
unregistered securities were all known to us and our management, through
pre-existing business relationships, as long standing business associates,
friends, and employees. All purchasers were provided access to all material
information, which they requested, and all information necessary to verify such
information and were afforded access to our management in connection with their
purchases. All purchasers of the unregistered securities acquired such
securities for investment and not with a view toward distribution, acknowledging
such intent to us. All certificates or agreements representing such securities
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that were issued contained restrictive legends, prohibiting further transfer of
the certificates or agreements representing such securities, without such
securities either being first registered or otherwise exempt from registration
in any further resale or disposition. Each purchaser made written representation
under Rule 506 of Regulation D, including net worth and sophistication. We
required written representation that each purchaser who was not an accredited
investor, either alone or with his purchaser representative, had such knowledge
and experience in financial and business matters that he/she was capable of
evaluating the merits and risks of the prospective investment, and the issuer
reasonably believed (based on written representations) immediately prior to
making any sale that the purchaser came within this description.
SHARES ISSUED FOR COMPENSATION OR SERVICES
Since our inception, March 28, 2012 through December 31, 2013, we have
issued shares of our common stock in exchange for services to the individuals
and the amounts set forth below.
NUMBER OF SHARES CONSIDERATION NAME
--------------------------------------------------------------------------------
2,000,000 Services W Edward Nichols (1)
2,000,000 Services Donald Walford (1)
75,000 Services Lisa Baird
500,000 Services William Young (1)
750,000 Services Marc Pindus
150,000 Services Michael Littman
15,000 Services Debbie Hamen
15,000 Services Joe Ford
15,000 Services Herb Sears
200,000 Services Hawkeye Oil and Gas Ventures LLC
50,000 Services William Baber
10,000 Services Joe Ford
175,000 Services Prabhas Panigrahi
25,000 Services Paul Dragul (1)
270,000 Services Maxim Group Inc.
MATERIAL RELATIONSHIPS
(1) Director/Officer
EXEMPTION FROM REGISTRATION CLAIMED
All of the sales by us of the unregistered securities listed immediately above
were made by us in reliance upon Section 4(2) of the Act. All of the individuals
and/or entities listed above that purchased the unregistered securities were all
known to us and our management, through pre-existing business relationships, as
long standing business associates, friends, and employees. All purchasers were
provided access to all material information, which they requested, and all
information necessary to verify such information and were afforded access to our
management in connection with their purchases. All purchasers of the
unregistered securities acquired such securities for investment and not with a
view toward distribution, acknowledging such intent to us. All certificates or
agreements representing such securities that were issued contained restrictive
legends, prohibiting further transfer of the certificates or agreements
representing such securities, without such securities either being first
registered or otherwise exempt from registration in any further resale or
disposition.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
---------------------------------------------------
-------------- ------------------------------------------------------------------------ ---------------------------
EXHIBIT NO. DESCRIPTION
-------------- ------------------------------------------------------------------------ ---------------------------
3(i).1 Articles of Incorporation of Three Forks, Inc. - 3/28/12 (1)
-------------- ------------------------------------------------------------------------ ---------------------------
3(i).2 Articles of Organization of Three Forks No. 1, LLC - 11/8/2012 (1)
-------------- ------------------------------------------------------------------------ ---------------------------
3(i).3 Articles of Incorporation of Three Forks Operating Company, Inc. - (1)
1/2/13
-------------- ------------------------------------------------------------------------ ---------------------------
3(i).4 Articles of Amendment - Name Change to TFI Operating Company, Inc. - (1)
2/8/13
-------------- ------------------------------------------------------------------------ ---------------------------
3(i).5 Articles of Organization of Three Forks LLC No. 2 - 12/4/13 (2)
-------------- ------------------------------------------------------------------------ ---------------------------
3(ii).1 Bylaws of Three Forks, Inc. (1)
-------------- ------------------------------------------------------------------------ ---------------------------
3(ii).2 Bylaws of TFI Operating Company (fka Three Forks Operating Company, (1)
Inc.)
-------------- ------------------------------------------------------------------------ ---------------------------
5.1 Opinion re: Legality Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
10.1 Employment Agreement, Donald Walford (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.2 Amendment to Employment Agreement, Donald Walford (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.3 Consulting Agreement with W. Edward Nichols (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.4 Amendment to Consulting Agreement with W. Edward Nichols (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.5 Employment Agreement, Charles Pollard (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.6 Operating Agreement of Three Forks No. 1, LLC (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.7 Amendment to Operating Agreement of Three Forks No. 1, LLC (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.8 Certificate of Designation of Class A Convertible Preferred Stock (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.9 Stock Option Plan (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.10 Farmout Agreement (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.11 Purchase & Sale Agreement, Three Forks, Inc. & TFI No. 1, LLC 12/31/12 (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.12 Purchase, Sale & Participation Agreement, Five Jab, Inc. & Three (5)
Forks, Inc. 2/27/13
-------------- ------------------------------------------------------------------------ ---------------------------
10.13 Blue Quail, Ltd. Participation Agreement 4/8/13 (1)
-------------- ------------------------------------------------------------------------ ---------------------------
10.14 1st Amendment to Purchase, Sale & Participation Agreement, Five Jab, (1)
Inc. & Three Forks, Inc. 4/30/13
-------------- ------------------------------------------------------------------------ ---------------------------
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-------------- ------------------------------------------------------------------------ ---------------------------
10.15 2nd Amendment to Purchase, Sale & Participation Agreement, Five Jab, (1)
Inc. & Three Forks, Inc.
-------------- ------------------------------------------------------------------------ ---------------------------
10.16 3rd Amendment to Purchase, Sale & Participation Agreement, Five Jab, (1)
Inc. & Three Forks, Inc.
-------------- ------------------------------------------------------------------------ ---------------------------
10.17 4th Amendment to Purchase, Sale & Participation Agreement, Five Jab, (1)
Inc. & Three Forks, Inc.
-------------- ------------------------------------------------------------------------ ---------------------------
10.18 Form of Convertible Promissory Note & Mortgage, Security and Pledge (4)
Agreement
-------------- ------------------------------------------------------------------------ ---------------------------
10.19 Operating Agreement of Three Forks LLC No. 2 (2)
-------------- ------------------------------------------------------------------------ ---------------------------
23.1 Consent of Attorney Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
23.2 Consent of Independent Registered Public Accounting Firm Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
99.1 Archer County, Texas picture, page 27 Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
99.2 Blue Quail Pink Project picture, page 28 Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
99.3 Blue Quail Sportsman's Lake picture, page 29 Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
99.4 Five Jab Texas and Louisiana picture, page 30 Filed Herewith
-------------- ------------------------------------------------------------------------ ---------------------------
101.INS XBRL Instance Document Filed Herewith (3)
-------------- ------------------------------------------------------------------------ ---------------------------
101.SCH XBRL Taxonomy Extension Schema Document Filed Herewith (3)
-------------- ------------------------------------------------------------------------ ---------------------------
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed Herewith (3)
-------------- ------------------------------------------------------------------------ ---------------------------
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed Herewith (3)
-------------- ------------------------------------------------------------------------ ---------------------------
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed Herewith (3)
-------------- ------------------------------------------------------------------------ ---------------------------
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed Herewith (3)
-------------- ------------------------------------------------------------------------ ---------------------------
(1) Incorporated by reference from the exhibits included in the Company's
Form 10-12G/A filed with the Securities and Exchange Commission
(www.sec.gov), filed October 29, 2013.
(2) Incorporated by reference from the exhibits included in the Company's
Form 10-12G/A No. 2 filed with the Securities and Exchange Commission
(www.sec.gov), filed January 31, 2014.
(3) Pursuant to Rule 406T of Regulation S-T, this interactive data file is
deemed not filed or part of a registration statement or prospectus for
purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed
not filed for purposes of Section 18 of the Securities Exchange Act of
1934, and otherwise is not subject to liability under these sections.
(4) Incorporated by reference from the exhibits included in the Company's
Form 10-12G/A No. 3 filed with the Securities and Exchange Commission
(www.sec.gov), filed February 19, 2014.
(5) Incorporated by reference from the exhibits included in the Company's
Form 10-12G/A No. 4 filed with the Securities and Exchange Commission
(www.sec.gov), filed April 8, 2014.
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ITEM 17. UNDERTAKINGS
---------------------
We hereby undertake the following:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of this registration statement, or most recent
post-effective amendment, which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in the registration
statement.
That, for the purpose of determining any liability under the Securities Act,
each post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
To remove from registration by means of a post-effective amendment any of the
securities being registered hereby which remain unsold at the termination of the
Offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to the directors, officers and controlling persons pursuant to the
provisions above, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by us of expenses incurred or paid by one of the directors,
officers, or controlling persons in the successful defense of any action, suit
or proceeding, is asserted by one of the directors, officers, or controlling
persons in connection with the securities being registered, we will unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Securities Act, and
we will be governed by the final adjudication of such issue.
For the purposes of determining liability under the Securities Act of 1933 to
any purchaser, if the Registrant is subject to Rule 430C, each prospectus filed
pursuant to Rule 424(b) as part of a registration statement relating to an
offering, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such first use, supersede or modify any statement
that was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to such
date of first use.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and authorized this Registration
Statement to be signed on our behalf by the undersigned, thereunto duly
authorized, in the City of Broomfield, State of Colorado, on May 8, 2014.
THREE FORKS, INC.
/s/ W. Edward Nichols May 8, 2014
----------------------------------------------------------
W. Edward Nichols
(Chief Executive Officer and Principal Accounting Officer
and Principal Executive Officer)
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
/s/ W. Edward Nichols May 8, 2014
----------------------------------------------------------
Edward Nichols, Chairman of the Board of Directors
/s/ Charles W. Pollard May 8, 2014
----------------------------------------------------------
Charles W. Pollard, Director
/s/ William F. Young May 8, 2014
----------------------------------------------------------
William F. Young, Director
/s/ Paul Dragul May 8, 2014
----------------------------------------------------------
Paul Dragul, Director
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