UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
| x | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended December 31, 2014
| o | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from _____ to ______________
Commission
File No: 000-51465
United
American Petroleum Corp.
(Exact
name of registrant as specified in its charter)
| Nevada | |
20-1904354 |
(State or other jurisdiction of
incorporation or organization) | |
(I.R.S. Employer Identification No.) |
9600
Great Hills Trail, Suite 150W, Austin, TX 78759 |
| (Address
of principal executive offices) (Zip Code) |
| |
| Registrant’s
telephone number, including area code: (512) 852-7888 |
| |
|
| Securities
registered under Section 12(b) of the Act: None. |
| |
|
| Securities
registered pursuant to section 12(g) of the Act: |
| |
Common
Stock, Par Value $.001
(Title of Class) |
Indicate
by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No
Indicate
by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated file, 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.
| Large
accelerated filer o |
Accelerated
filer o |
| |
|
Non-accelerated
filer o
(Do
not check if a smaller
reporting company) |
Smaller
reporting company x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
The
aggregate market value of the registrant’s shares of common stock held by non-affiliates of the registrant on June 30, 2014, the
last business day of the registrant’s most recently completed second fiscal quarter was $283,922.
As
of April 8, 2015, there were 321,867,911 shares of the issuer’s $.001 par value common stock issued and outstanding.
TABLE
OF CONTENTS
PART
I
Item
1. Business.
Our
Business. United American Petroleum Corp., a Nevada corporation (the “Company”, “we”, “us,”
or “our”), is engaged in the acquisition, exploration, development and production of oil and gas properties. Our principal
business is the acquisition of leasehold interests in petroleum and natural gas rights, either directly or indirectly, and the
exploitation and development of properties subject to these leases. Our primary focus is to develop our properties that have potential
for near-term production. We also provide operational expertise for several third party well owners out of our operational base
in Austin, Texas. We currently have proved reserves in the State of Texas.
Our
Subsidiaries
United
Operating, LLC. On January 13, 2011, we formed our wholly-owned subsidiary, United Operating, LLC, a Texas limited liability
company, for the purpose of operating certain interests that we acquired. United Operating, LLC, has not undergone bankruptcy,
receivership, or any similar proceeding.
UAP
Management, LLC. On January 13, 2011, we formed our wholly-owned subsidiary, UAP Management, LLC, a Texas limited liability
company, for the purpose of managing the Gabriel Interests in Bastrop County, Texas. UAP Management, LLC, has not undergone bankruptcy,
receivership, or any similar proceeding.
Item
1A. Risk Factors.
In
addition to the other information in this filing, the following risk factors should be considered carefully in evaluating our
business before purchasing any of our shares of common stock. A purchase of our common stock is speculative in nature and involves
many risks. No purchase of our common stock should be made by any person who is not in a position to lose the entire amount of
his investment.
Risks
Related to our Business:
We
have a limited history operating in the oil and gas industry. As a result, it is difficult for potential investors to evaluate
our business and prospects.
We
entered the oil and gas business in December 2009. Our limited operating history makes it difficult for potential investors to
evaluate our business or prospective operations. Since our formation, we have generated only limited revenues. As an early stage
company, we are subject to all the risks inherent in the financing, expenditures, operations, complications and delays
inherent in a new business. Accordingly, our business and success faces risks from uncertainties faced by developing companies
in a competitive environment. There can be no assurance that our efforts will be successful or that we will ultimately be able
to attain profitability.
We
have a history of net losses which will continue and which may negatively impact our ability to achieve our business objectives.
For
fiscal years 2014 and 2013, we had revenue of $621,548 and $736,613 and a net loss of $836,234 and $1,349,568, respectively. We
cannot guarantee that our future operations will result in net income. We may not be able to operate profitability on a quarterly
or annual basis in the future and we will likely continue to have net losses for the foreseeable future. If our revenues grow
more slowly than we anticipate or our operating expenses exceed our expectations, our operating results will suffer.
We
will need additional financing to execute our business plan.
The
revenues from our current operations are not sufficient to support our operating costs and anticipated drilling programs. We will
need substantial additional funds to:
| ● |
effectuate
our business plan; |
| |
|
| ● |
fund
the acquisition, exploration, development and production of oil and natural gas in the future; |
| |
|
| ● |
fund
future drilling programs; and |
| |
|
| ● |
hire
and retain key employees. |
We
may seek additional funds through public or private equity or debt financing, via strategic transactions, and/or from other sources.
There are no assurances that future funding will be available on favorable terms or at all. If additional funding is not obtained,
we may need to reduce, defer or cancel drilling programs, planned initiatives, or overhead expenditures to the extent necessary.
The failure to fund our operating and capital requirements could have a material adverse effect on our business, financial condition
and results of operations.
Our
auditors have expressed substantial doubt regarding our ability to continue operations as a “going concern.” Investors
may lose all of their investment if we are unable to continue operations and generate revenues, or if we do not raise sufficient
funds.
We
will seek to raise additional funds to meet our working capital needs principally through the additional sales of our securities.
However, we cannot guarantee that we will be able to obtain sufficient additional funds when needed, or that such funds, if available,
will be obtainable on terms satisfactory to us. If we do not raise sufficient funds, we may not be able to continue in business.
As a result, our auditors believe that substantial doubt exists about our ability to continue operations as a going concern.
Our
exploration appraisal and development activities are subject to many risks which may affect our ability to profitably extract
oil reserves or achieve targeted returns. In addition, continued growth requires that we acquire and successfully develop
additional oil reserves.
Oil
exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient
net revenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the
investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could
greatly increase the cost of operations, and various field operating conditions may negatively affect the production from successful
wells. These conditions include delays in obtaining governmental approvals or consents, shut-ins of connected wells resulting
from extreme weather conditions, insufficient storage or transportation capacity or other geological and mechanical conditions.
While diligent well supervision and effective maintenance operations can contribute to maximizing production rates over time,
production delays and declines from normal field operating conditions cannot be eliminated and can be expected to negatively affect
revenue and cash flow levels to varying degrees.
Our
ability to successfully market and sell oil is subject to a number of factors that are beyond our control, and that may adversely
impact our ability to produce and sell oil, or to achieve profitability.
The
marketability and price of oil that may be acquired or discovered by us will be affected by numerous factors beyond our control.
Our ability to market our oil may depend upon our ability to acquire space on pipelines that deliver oil to commercial markets. We
may be affected by deliverability uncertainties related to the proximity of our reserves to pipelines and processing facilities,
by operational problems with such pipelines and facilities, and by government regulation relating to price, taxes, royalties,
land tenure, allowable production, the export of oil and by many other aspects of the oil business.
Our
revenues and future growth and the carrying value of our oil properties are substantially dependent on prevailing prices of oil.
Our ability to borrow and to obtain additional capital on attractive terms is also substantially dependent upon oil and natural
gas prices. Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the
supply of and demand for oil, market uncertainty and a variety of additional factors beyond our control. These factors include
economic conditions, in the United States and Canada, the actions of the Organization of Petroleum Exporting Countries, governmental
regulation, political stability in the Middle East and elsewhere, the foreign supply of oil, the price of foreign imports and
the availability of alternative fuel sources. Any substantial and extended decline in the price of oil would have an adverse effect
on our borrowing capacity, revenues, profitability and cash flows from operations.
Volatile
oil prices make it difficult to estimate the value of producing properties for acquisition and often cause disruption in the market
for oil producing properties, as buyers and sellers have difficulty agreeing on such value. Price volatility also makes it difficult
to budget for and project the return on acquisitions and development and exploitation projects.
Our
reserve estimates are subject to numerous uncertainties and may be inaccurate.
We
currently have proved reserves in Texas. We rely on independent third party petroleum engineering firms to calculate reserve estimates.
There are numerous uncertainties inherent in estimating quantities of oil and natural gas reserves and cash flows to be derived
therefrom, including many factors beyond our control. In general, estimates of economically recoverable oil and gas reserves and
the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production
from the properties, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of
our products, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which
may vary from actual results. All such estimates are to some degree speculative, and classifications of reserves are only attempts
to define the degree of speculation involved. For those reasons, estimates of the economically recoverable reserves attributable
to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues
expected therefrom prepared by different engineers, or by the same engineers at different times, may vary. Our actual production,
revenues, taxes and development and operating expenditures with respect to our reserves will vary from estimates thereof and such
variations could be material.
Estimates
of proved or unproved reserves that may be developed and produced in the future are often based upon volumetric calculations and
upon analogy to similar types of reserves rather than actual production history. Estimates based on these methods are generally
less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production
history and production practices will result in variations in the estimated reserves and such variations could be material.
We
cannot guarantee that title to our properties does not contain a defect that may materially affect our interest in those properties.
It
is our practice in acquiring significant oil leases or interest in oil leases to retain lawyers to fully examine the title to
the interest under the lease. In the case of minor acquisitions, we rely upon the judgment of oil lease brokers or landmen to
examine records in the appropriate governmental office before attempting to place under lease a specific interest. We believe
that this practice is widely followed in the oil industry. Nevertheless, there may be title defects which affect lands comprising
a portion of our properties which may adversely affect us.
Our
properties are held in the form of leases and working interests in operating agreements and leases. If the specific requirements
of such licenses, leases and working interests are not met, the lease or working interest may terminate or expire.
All
of our properties are held under interests in oil and gas leases and working interests in operating agreements and leases. If
we fail to meet the specific requirements of each lease or working interest, especially future drilling and production requirements,
the lease may be terminated or otherwise expire. We cannot be assured that we will be able to meet our obligations under each
lease and working interest. The termination or expiration of our working interest relating to any lease would harm our business,
financial condition and results of operations.
Competition
in the oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring properties
or leases.
The
oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and
gas companies, which have substantially greater technical, financial, and operational resources and staff. Accordingly, there
is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations, and necessary drilling
equipment, as well as for access to funds. We cannot predict if the necessary funds can be raised or that any projected work will
be completed. Desirable acreage may not become available or if it is available for leasing, that we may not be successful in acquiring
the leases.
The
marketability of natural resources will be affected by numerous factors beyond our control which may result in us not receiving
an adequate return on invested capital to be profitable or viable.
The
marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control.
These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets
and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of
oil and gas, and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the
combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.
Oil
and gas operations are subject to comprehensive regulation, which may cause substantial delays or require capital outlays in excess
of those anticipated, causing an adverse effect on us.
Our
operations are subject to regulation at the federal, state and local levels, including regulation relating to matters such as
the exploration for and the development, production, marketing, pricing, transmission and storage of oil, as well as environmental
and safety matters. Failure to comply with applicable regulations could result in fines or penalties being owed to third parties
or governmental entities, the payment of which could negatively impact our financial condition or results of operations. Our operations
are subject to significant laws and regulations, which may negatively affect our ability to conduct business or increase our costs.
Extensive federal, state and local laws and regulations relating to health and environmental quality in the United States affect
nearly all of our operations. These laws and regulations set various standards regulating various aspects of health and environmental
quality, provide for penalties and other liabilities for the violation of these standards, and in some circumstances, establish
obligations to remediate current and former facilities and off-site locations.
Environmental
legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances
produced in association with oil operations. The legislation also requires that wells and facility sites be operated, maintained,
abandoned and reclaimed to the satisfaction of the applicable regulatory authorities. Compliance with such legislation can require
significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental
legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially
increased capital expenditures and operating costs. The discharge of oil or other pollutants into the air, soil or water may give
rise to liabilities to governments and third parties and may require us to incur costs to remedy such discharge. No assurance
can be given that environmental laws will not result in a curtailment of production or a material increase in the costs of production,
development or exploration activities or otherwise adversely impact our financial condition, results of operations or prospects.
We could incur significant liability for damages, clean-up costs and/or penalties in the event of discharges into the environment,
environmental damage caused by us or previous owners of our property or non-compliance with environmental laws or regulations.
In addition to actions brought by governmental agencies, we could face actions brought by private parties or citizens groups.
Moreover,
we cannot predict what legislation or regulations will be enacted in the future or how existing or future laws or regulations
will be administered, enforced or made more stringent. Compliance with more stringent laws or regulations, or more vigorous enforcement
policies of the regulatory agencies, could require us to make material expenditures for the installation and operation of systems
and equipment for remedial measures, all of which could have a material adverse effect on our financial condition or results of
operations.
Exploratory
drilling involves many risks and we may become liable for pollution or other liabilities, which may have an adverse effect on
our financial position.
Drilling
operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages,
labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labor,
and other risks are involved. We may become subject to liability for pollution or hazards against which we cannot adequately insure
or that we may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position
and operations.
Our
exploration and development activities will depend in part on the evaluation of data obtained through geophysical testing and
geological analysis, as well as test drilling activity.
The
results of geophysical testing and geological analysis are subjective, and we cannot guarantee that the exploration and development
activities we conduct based on positive analysis will produce oil or gas in commercial quantities or costs. As we perform developmental
and exploratory activities, further data required for evaluation of our oil and gas interests will become available. The exploration
and development activities that will be undertaken by us are subject to greater risks than those associated with the acquisition
and ownership of producing properties. The drilling of development wells, although generally consisting of drilling to reservoirs
believed to be productive, may result in dry holes or a failure to produce oil or gas in commercial quantities. Moreover, any
drilling of exploratory wells is subject to significant risk of dry holes.
Because
we are small and have limited access to additional capital, we may have to limit our exploration activity, which may result in
a loss of investment.
We
have a small asset base and limited access to additional capital. Accordingly, we must limit our exploration activity. As such,
we may not be able to complete an exploration program that is as thorough as our management would like. In that event, existing
reserves may go undiscovered. Without finding reserves, we cannot generate revenues and investors may lose their investment.
Seasonal
weather conditions and other factors could adversely affect our ability to conduct drilling activities.
Our
operations could be adversely affected by seasonal weather conditions and wildlife restrictions on federal leases. In some areas,
certain drilling and other oil and gas activities can only be conducted during limited times of the year, typically during the
summer months. This would limit our ability to operate in these areas and could intensify competition during those times for drilling
rigs, oil field equipment, services, supplies and qualified personnel, which may lead to periodic shortages. These constraints
and the resulting shortages or high costs could delay our operations and materially increase our operating and capital costs,
which could have a material adverse effect upon us and our results of operations.
We
depend on the services of third parties for material aspects of our operations, including drilling operators, and accordingly
if we cannot obtain certain third party services, we may not be able to operate.
We
rely on third parties to operate some of the assets in which we possess an interest. The success of our oil operations, whether
considered on the basis of drilling operations or production operations, will depend largely on whether the operator of the property
properly fulfills our obligations. As a result, our ability to exercise influence over the operation of these assets or their
associated costs may be limited. Our performance will therefore depend upon a number of factors that may be outside of our full
control, including the timing and amount of capital expenditures, the operator’s expertise and financial resources, the
approval of other participants, the selection of technology, and risk management practices. The failure of third party operators
and their contractors to perform their services in a proper manner could adversely affect our operations.
We will
need additional financing to continue and grow our operations, which financing may not be available on acceptable terms or at
all.
We will
need to raise additional funds to fund our operations or grow our business. Additional financing may not be available on terms
or at times favorable to us, or at all. If adequate funds are not available when required or on acceptable terms, we may be unable
to continue and grow our operations. In addition, such additional financing transactions, if successful, may result in additional
dilution of our stockholders. They may also result in the issuance of securities with rights, preferences, and other characteristics
superior to those of the common stock and, in the case of debt or preferred stock financings, may subject us to covenants that
restrict our ability to operate our business freely.
The
loss or unavailability of our key personnel for an extended period of time could adversely affect our business operations and
prospects.
Our
success depends in large measure on certain key personnel, including Michael Carey, our President and Chief Executive Officer
and Ryan Hudson, our Secretary and Chief Operating Officer. The loss of the services of Mr. Carey and/or Mr. Hudson could significantly
hinder our operations. The competition for qualified personnel in the oil industry is intense and there can be no assurance
that we will be able to continue to attract and retain all personnel necessary for the development and operation of our business.
The
costs and effects of litigation, investigations, or similar matters could adversely affect our financial position and result of
operations.
We
may be involved from time to time in a variety of litigation, investigations, or similar matters arising out of our business.
Our insurance may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit
or eventual outcome, may harm our reputation. If the ultimate judgments or settlements in any litigation or investigation significantly
exceed insurance coverage, they could adversely affect our financial position and results of operations. In addition, we may be
unable to obtain appropriate types or levels of insurance in the future.
We
are subject to the reporting requirements of federal securities laws, which will be expensive.
We
are a public reporting company in the U.S. and, accordingly, subject to the information and reporting requirements of the Exchange
Act and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act. The costs of preparing and filing
annual and quarterly reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”
or “Commission”) and furnishing audited reports to stockholders will cause our expenses to be higher than they would
be if we remained a privately held company.
Failure
to maintain the adequacy of our internal controls could impair our ability to provide accurate financial statements and comply
with the requirements of the Sarbanes-Oxley Act, which could cause our stock price to decrease substantially.
We
have committed limited personnel and resources to the development of the external reporting and compliance obligations that are
required of a public company. If our financial and managerial controls, reporting systems, or procedures fail, we may not be able
to provide accurate financial statements on a timely basis or comply with the Sarbanes-Oxley Act of 2002 as it applies to us.
Risks
Related to Our Common Stock
The
exercise of outstanding warrants may cause immediate and substantial dilution to our existing stockholders.
If
the price per share of our common stock at the time of conversion of our convertible promissory notes, and exercise of any warrants,
options, or any other convertible securities is in excess of the various conversion or exercise prices of these convertible securities,
conversion or exercise of these convertible securities would have a dilutive effect on our common stock. As of December 31, 2014,
we had warrants to purchase up to 2,800,000 shares of our common stock at an exercise price of $1.00 per share. Further, any additional
financing that we secure may require the granting of rights, preferences or privileges senior to those of our common stock and
which result in additional dilution of the existing ownership interests of our common stockholders.
Our
common shares are thinly traded, and you may be unable to sell at or near ask prices or at all if you need to sell your shares
or otherwise desire to liquidate such shares.
We
cannot predict the extent to which an active public market for our common stock will develop or be sustained due to a number of
factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional
investors, 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 company such as ours or purchase or
recommend the purchase of our shares 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 shares 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 share price. We cannot give you any assurance that a
broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels
will be sustained.
The
market price for our common stock may be particularly volatile given our status as a relatively small company with a thinly traded
“float” and lack of significant revenues that could lead to wide fluctuations in our share price. You may be unable
to sell your common stock at or above your purchase price if at all, which may result in substantial losses to you.
Stockholders
should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns
of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often
related to the promoter or issuer; (2) manipulation of prices through pre-arranged matching of purchases and sales and false and
misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5)
the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level,
along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these
patterns or practices could increase the volatility of our share price.
Volatility
in our common stock price may subject us to securities litigation.
The
market for our common stock is characterized by significant price volatility when compared to seasoned issuers, and we expect
that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs
have often initiated securities class action litigation against a company following periods of volatility in the market price
of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and resources.
We
do not anticipate paying any cash dividends.
We
presently do not anticipate that we will pay any dividends on any of our capital stock in the foreseeable future. The payment
of dividends, if any, would be contingent upon our revenues and earnings, if any, capital requirements, and general financial
condition. The payment of any dividends will be within the discretion of our Board of Directors. We presently intend to retain
all earnings, if any, to implement our business plan; accordingly, we do not anticipate the declaration of any dividends in the
foreseeable future.
Because
we may be subject to the “penny stock” rules, the level of trading activity in our stock may be reduced which may
make it difficult for investors to sell their shares.
Broker-dealer
practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by
the Securities and Exchange Commission. Penny stocks, like shares of our common stock, generally are equity securities with a
price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on NASDAQ. The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and, if the broker-dealer is the sole market maker,
the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market, and monthly account
statements showing the market value of each penny stock held in the customer’s account. In addition, broker-dealers who
sell these securities to persons other than established customers and “accredited investors” must make a special written
determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement
to the transaction. Consequently, these requirements may have the effect of reducing the level of trading activity, if any, in
the secondary market for a security subject to the penny stock rules, and investors in our common stock may find it difficult
to sell their shares.
We will
need additional capital, and the sale of additional shares or other equity securities could result in additional dilution to our
stockholders.
We
believe that our current cash and cash equivalents and anticipated cash flow from operations will not be sufficient to meet our
anticipated cash needs for the near future. We will require additional cash resources due to changed business conditions or other
future developments, including any investments or acquisitions we may decide to pursue. If our resources are insufficient to satisfy
our cash requirements, we will seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional
equity securities could result in additional dilution to our stockholders. The incurrence of additional indebtedness would result
in increased debt service obligations and could result in operating and financing covenants that would restrict our operations.
We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
The
Company has established preferred stock which can be designated by the Company’s directors without shareholder approval
and has established Series B Preferred Stock, which gives the holders majority voting power over the Company.
The
Company has 10,000,000 shares of preferred stock authorized and 1,000 shares of Series B Preferred Stock designated. As of the
filing date of this report, the Company has 1,000 Series B Preferred Stock shares issued and outstanding, which shares are held
by Michael Carey, the Company’s Chief Executive Officer, President and Director (500 shares), and Ryan Hudson, the Company’s
Chief Operating Officer, Secretary and Director (500 shares). The Series B Preferred Stock have no dividend rights, no liquidation
preference, no redemption rights and no conversion rights. The Series B Preferred Stock have the right, voting in aggregate, to
vote on all shareholder matters (including, but not limited to, at every meeting of the stockholders of the Company and upon any
action taken by stockholders of the Company with or without a meeting) equal to fifty-one percent (51%) of the total vote (the
“Super Majority Voting Rights”). Additionally, we are not allowed to adopt any amendments to our Bylaws, Articles
of Incorporation, as amended, make any changes to the Certificate of Designations establishing the Series B Preferred Stock, or
effect any reclassification of the Series B Preferred Stock, without the affirmative vote of at least 66 2/3% of the outstanding
shares of the Series B Preferred Stock.
Our
Board of Directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial
to common stockholders and may grant voting powers, rights and preference that differ from or may be superior to those of our
shares of common stock.
Our
articles of incorporation allow us to issue 10,000,000 shares of preferred stock without any vote or further action by our stockholders.
Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board
of Directors also has the authority to issue preferred stock without further stockholder approval, including large blocks of preferred
stock. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders
the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to
the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of
our common stock.
Item
1B. Unresolved Staff Comments.
Not
applicable to smaller reporting companies.
Item
2. Properties.
Our
Facilities. As of December 31, 2014, we maintain our corporate offices for approximately $200 per month on a month to month
basis. We also maintain our operational offices of approximately 1,600 square feet for $1,500 per month on a month to month basis.
We believe our current office space and facilities are sufficient to meet our current and future needs.
Our
Properties. We own interests in the following oil and gas properties in Texas:
The
Marcee 1 Interest. We own a 100% working interest and operating interest in the Marcee 1 Tract, which is located in the Eagle
Ford Shale formation on approximately 112 acres of land in Gonzalez County, Texas (“Marcee
1
Tract”). We currently have one non-producing well and enough space to further offset wells if it is determined they will
be profitable.
The
Eagle Ford Shale formation in South Texas runs from the US-Mexico border north of Laredo in a narrow band extending northeast
for several hundred miles to just north of Houston. It is located directly below the Austin Chalk. The average thickness of the
Eagle Ford Shale is about 475 feet. The formation produces both natural gas and oil, but we believe the oil-producing and gas
condensate areas are most attractive at this time.
The
Lozano Interest. We own a 100% working interest and operating interest in the Hector Lozano Tract, which is located on approximately
110 acres, located in Frio County, Texas (“Lozano Tract”). The Lozano Tract is a producing asset with three wells
with proven reserves. The production from the Lozano wells is mature and we believe the wells are likely to continue to produce
with slow decline for the foreseeable future. All three wells produced an average of 3.2 barrels of oil per day during 2014.
Historically these wells have produced a total of 5-12 barrels of oil per day.
The
Lozano Tract lies in the Western Gulf province, an area that covers 116,599 sq. mi., allowing extensive data on several hundred
thousand oil and gas wells. So far, 2,518 significant oil and gas fields comprising 3,883 reservoirs have been discovered in the
region.
For
the past 20 years, the oil industry has had huge success in the county due to oil-extraction technology that permits horizontal
drilling extending the primary producing formations such as the Olmos B and Olmos D sands, which range in depth from 3,100 feet
to 3,600 feet. The Austin Chalk, Navarro and Anacacho formations are also abundant in the area.
Nearby
the Lozano Tract, the untapped reserves in the region have been demonstrated by the Kinder Morgan-operated Yates Oil Field, which
has yielded over 1.4 billion barrels and is expected to produce a further 1 billion barrels. Also nearby are the plays of the
Bigfoot (6miles) and Pearsall fields.
The
Western Gulf Province is divided into 48 hydrocarbon plays; 3 plays in the Jurassic, 15 in Cretaceous and 30 plays in Tertiary
rocks. All but 3 plays are conventional. The Austin Mid-Dip Oil play was removed from the conventional list and divided into 3
plays (4747, 4748 and 4749) and the oil was assessed as an unconventional resource.
The
Welder Interest. We own a 59.61% working interest in the Welder Tract, which is located on approximately 550 acres, located
in Duval County, Texas. The Welder Tract has 43 wells. The Welder Tract wells are currently producing an average of 8 barrels
per day. In February 2014 we sold the acreage of the Welder Tract, but we maintain our interest in the well.
The
Walker Smith Interests. We own a 10.43% working interest in the Walker Smith and Walker Smith #21D tracts and a 40.39% working
interest in the Walker Smith #22D Tract (the “Walker Smith Interests”), which are located on approximately 275 acres,
located in Wilbarger County, Texas. The Walker Smith wells did not produce economically significant quantities during 2014.
The
Merrick Davis Interests. We own a 62.22% working interest in the Merrick Davis #16 and Merrick Davis #17 tracts and a 19.72%
working interest in the Merrick Davis tract (hereinafter all three tracts will be referred to as “Merrick Davis Interests”),
which are located on approximately 320 acres, located in Shackelford County, Texas. The Merrick Davis Interests have six wells
producing an average of 0.6 barrels per day.
The
Bailey, Rogers and Fohn Interests. We own a 65.00% working interest in the Baily, Rogers and Fahn tracts (the “BRF Interests”),
which are located on approximately 1000 acres, located in Medina County, Texas. The wells are currently producing an average of
2.3 barrels per day.
The
Gabriel and Rosser Interests. On January 28, 2011, we acquired certain oil and gas interests located in Bastrop County, Texas,
(“Gabriel Interests”) from Gabriel Rosser, LP (“Gabriel”). The Gabriel Interests include Gabriel’s
undivided 50.83% working interest and 39.14% revenue interest in the Gabriel 3, 4, 5, 9,
15,
Rosser #2 and #4 and Koi #1 wells. At the time of our acquisition of the Gabriel Interests, all wells were not producing. The
Gabriel Interests comprise over 400 acres, with approximately 10 wells that were shut in. As of the date of this report,
Rosser 4 is producing about 2 barrels of oil per day. We are currently equipping Gabriel 3 to produce with pumping unit. Expecting
it will have the same level of production as Rosser 4, 2 barrels of oil per day.
The
McKenzie State Well Interests. On November 30, 2011, we acquired one hundred percent (100%) of the working interest in the
McKenzie State Well No. 1, located in Pecos County, Texas from McKenzie Oil Corp. (“McKenzie”) in exchange for
an aggregate cash sum of $550,000 and 50,000 shares of our common stock. The Company has performed workover procedures on certain
wells in the McKenzie and production has commenced on one well, which is currently producing an average total of 3.4 barrels per
day. In addition to the production from this current zone, several additional horizons (which are productive in the area)
have been identified in the McKenzie well, which could be tested and potentially produced in the future.
The
McKinney Interests. We own a 7.04% working interest in the McKinney #3B, #5B, #6B and #11B tracts and a 5.40% working interest
in the McKinney #4B tract (hereinafter all tracts will be referred to as the “McKinney Interests”). Each tract has
one wellbore and our working interest is for the wellbores on each tract. The wellbores are located in Navarro County, Texas.
These wells are currently producing an average total of 0.25 barrels per day.
Company
Reserve Estimates. Our proved reserve information as of December 31, 2014 and 2013 was estimated by Mire and Associates, Inc.
(“Mire”), independent petroleum engineers. In accordance with SEC guidelines contained in Item 1202(a)(8) of SEC Regulation
S-K and Mire’s estimates of future net revenues from our properties, the PV-10 and standardized measure thereof were determined
to be economically producible under existing economic conditions. These guidelines require the use of the 12-month average price
for each product, calculated as the unweighted arithmetic average of the first-day-of-the-month price for the period January 1,
2014 through December 31, 2014, except where such guidelines permit alternate treatment, including the use of fixed and determinable
contractual price escalations.
The technical
persons at Mire are responsible for preparing the reserves estimates presented herein and ensuring that they meets the requirements
regarding qualifications, independence, objectivity, and confidentiality set forth in the Standards Pertaining to the Estimating
and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers.
Mire is
an independent petroleum engineering firm specializing in the technical and financial evaluation of oil and gas assets. Mire’s
report was prepared under the direction of Kurt Mire, principal consultant and owner of Mire. Mr. Mire earned a B.S. degree in
Petroleum Engineering from the University of Louisiana at Lafayette and has more than 25 years of experience in production engineering,
field operations and management, reservoir engineering, acquisitions and divestments. Mire and its employees have no interest
in our Company or in our properties, were not employed by our Company on a contingent fee basis and were objective in determining
our reserves.
Additional
information regarding our oil and gas properties and reserve information can be found in Note 14 to the audited financial statements
for the years ended December 31, 2014 and 2013, attached hereto.
Our
Acreage and Wells. We own mineral interests leases on the following productive wells, developed acreage and undeveloped acreage
in Texas. Other properties outside of Texas have been excluded from this table. Productive wells are producing wells and wells
mechanically capable of production. A gross well is 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. The number of net wells is the sum of the fractional working interests
owned in gross wells expressed as whole numbers and fractions thereof. Wells with multiple completions are counted as one well
in the table below.
| | |
December 31, 2014 | | |
December 31, 2013 | |
| | |
Oil | | |
| | |
Gas | | |
| | |
Oil | | |
| | |
Gas | | |
| |
| | |
Gross | | |
Net | | |
Gross | | |
Net | | |
Gross | | |
Net | | |
Gross | | |
Net | |
| United States - Texas | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Gross & Net Productive Wells | |
| 43 | | |
| 19 | | |
| — | | |
| — | | |
| 46 | | |
| 19 | | |
| — | | |
| — | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Gross & Net Developed Acreage | |
| 1,473 | | |
| 824 | | |
| 882 | | |
| 178 | | |
| 3,125 | | |
| 824 | | |
| 882 | | |
| 178 | |
| Gross & Net Undeveloped Acreage | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Production.
For the year ended December 31, 2014, we had production from our Lozano, Marcee, McKinney, and Gabriel Rosser leases located
in nine Texas counties: Bastrop, Duval, Erath, Frio, Gonzalez, Medina, Navarro, Pecos and Shackleford. The Company produced approximately
8,907 barrels and 0 Mcf on a net basis.
Drilling
Activity. During the fiscal year ended December 31, 2014, the Company drilled the surface casing on Gabriel 17. Currently
the well is not completed. No drilling was performed during the year ended December 31, 2013.
Delivery
Commitments. We are not obligated to provide a fixed and determinable quantity of oil or gas in the near future under existing
contracts or agreements in Texas.
Item
3. Legal Proceedings.
None.
Item
4. Mine Safety Disclosures.
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market
Information. Our common stock, par value $.001, is quoted on the OTC Bulletin Board and OTCQB under the symbol “UAPC”.
For the periods indicated, the following table sets forth the high and low bid prices per share of our common stock. These prices
represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
| | |
High | | |
Low | |
| Fiscal Year 2014 | |
| | | |
| | |
| First Quarter | |
$ | 0.012 | | |
| 0.0025 | |
| Second Quarter | |
| 0.008 | | |
| 0.0023 | |
| Third Quarter | |
| 0.0029 | | |
| 0.0008 | |
| Fourth Quarter | |
| 0.0024 | | |
| 0.0004 | |
| | |
High | | |
Low | |
| Fiscal Year 2013 | |
| | | |
| | |
| First Quarter | |
$ | 0.15 | | |
$ | 0.07 | |
| Second Quarter | |
| 0.14 | | |
| 0.07 | |
| Third Quarter | |
| 0.12 | | |
| 0.02 | |
| Fourth Quarter | |
| 0.04 | | |
| 0.0027 | |
Reports
to Security Holders. We are a reporting company with the SEC. The public may read and copy any materials filed with the Securities
and Exchange Commission at the Security and Exchange Commission’s Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that file electronically with the Securities and Exchange
Commission. The address of that site is http://www.sec.gov.
We
also make our SEC reports available on our Web site at http://www.unitedamericanpetroleum.com.
Holders.
On April 11, 2014, we had approximately 97,418,383 shares of common stock issued and outstanding held by 28 stockholders of
record. The number of stockholders of record does not include beneficial owners of our common stock, whose shares are held in
the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.
Dividends.
We currently anticipate that we will not declare or pay cash dividends on our common stock in the foreseeable future. We will
pay dividends on our common stock only if and when declared by our Board of Directors. Our Board of Directors’ ability to
declare a dividend is subject to restrictions imposed by Nevada law. In determining whether to declare dividends, the Board of
Directors will consider these restrictions as well as our financial condition, results of operations, working capital requirements,
future prospects and other factors it considers relevant.
On
September 13, 2013, the Company’s Board of Directors approved the Company’s 2013 Stock Plan for Officers, Directors,
and Consultants (the “2013 Plan”). The 2013 Plan provided for the issuance of a total of up to 2,000,000 shares of
common stock, options, restricted share units, share appreciation rights and other share based awards to acquire common stock
to employees, directors and consultants. No options were issued under the 2013 Plan during the year ended December 31, 2013.
| Plan Category | |
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights | | |
Weighted-average
exercise price of
outstanding options,
warrants and rights | | |
Number of securities
available for future
issuance under equity
compensation plans
(excluding those in first
column) | |
| Equity compensation plans approved by security holders | |
| — | | |
| — | | |
| — | |
| Equity compensation plans not approved by security holders | |
| — | | |
| — | | |
| 1,436,000 | |
| Total | |
| — | | |
| — | | |
| 1,436,000 | |
Recent
Sales of Unregistered Securities.
On
(a) January 31, 2013, the Company sold a Note to JMJ Financial in the initial amount of $50,000; and (b) February 19, 2013, the
Company sold a $103,500 Convertible Note to Asher Enterprises, Inc. (“Asher”), each in transactions exempt from registration
as provided by Section 4(a)(2) and Rule 506 of Regulation D of the Securities Act. JMJ Financial and Asher are “accredited
investors,” as such term is defined in Rule 501(a) of Regulation D of the Securities Act. The sale of the Note and Convertible
Note did not involve a public offering and were made without general solicitation or general advertising. JMJ and Asher acquired
the securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof.
During
2014, we issued the following shares to JMJ Financial pursuant to conversion requests under its Note:
| Date | |
Shares | | |
Price | | |
Amount | |
| 1/7/2014 | |
| 2,800,000 | | |
| 0.00228 | | |
$ | 6,380 | |
| 6/9/2014 | |
| 3,000,000 | | |
| 0.00110 | | |
$ | 3,300 | |
| 6/27/2014 | |
| 4,600,000 | | |
| 0.00115 | | |
$ | 5,290 | |
| 7/16/2014 | |
| 4,800,000 | | |
| 0.00075 | | |
$ | 3,600 | |
| 7/29/2014 | |
| 5,000,000 | | |
| 0.00055 | | |
$ | 2,750 | |
| 8/12/2014 | |
| 5,300,000 | | |
| 0.00050 | | |
$ | 2,650 | |
| 8/27/2014 | |
| 6,200,000 | | |
| 0.00045 | | |
$ | 2,790 | |
| 9/12/2014 | |
| 6,500,000 | | |
| 0.00045 | | |
$ | 2,925 | |
| 9/22/2014 | |
| 7,100,000 | | |
| 0.00040 | | |
$ | 2,840 | |
| 10/2/2014 | |
| 7,900,000 | | |
| 0.00040 | | |
$ | 3,160 | |
| 10/13/2014 | |
| 8,300,000 | | |
| 0.00035 | | |
$ | 2,995 | |
| 10/28/2014 | |
| 8,250,000 | | |
| 0.00025 | | |
$ | 2,062 | |
| 11/11/2014 | |
| 8,310,000 | | |
| 0.00020 | | |
$ | 1,662 | |
| 11/20/2014 | |
| 14,600,000 | | |
| 0.00020 | | |
$ | 2,920 | |
| 12/1/2014 | |
| 14,256,650 | | |
| 0.00020 | | |
$ | 2,851 | |
| Total | |
| 106,916,650 | | |
| | | |
$ | 48,175 | |
During
2014, we issued the following shares to Asher pursuant to conversion requests under its Convertible Note:
| Date | |
Shares | | |
Price | | |
Amount | |
| 1/2/2014 | |
| 2,235,294 | | |
| 0.0017 | | |
$ | 3,800 | |
| 1/7/2014 | |
| 2,757,895 | | |
| 0.0019 | | |
$ | 5,240 | |
| 1/13/2014 | |
| 2,750,000 | | |
| 0.0018 | | |
$ | 4,950 | |
| 6/4/2014 | |
| 2,758,824 | | |
| 0.0017 | | |
$ | 4,690 | |
| 6/16/2014 | |
| 4,860,000 | | |
| 0.0025 | | |
$ | 12,150 | |
| 6/24/2014 | |
| 4,843,750 | | |
| 0.0016 | | |
$ | 7,750 | |
| 7/7/2014 | |
| 5,630,000 | | |
| 0.0015 | | |
$ | 8,445 | |
| 7/14/2014 | |
| 5,629,167 | | |
| 0.0012 | | |
$ | 6,755 | |
| 7/18/2014 | |
| 5,631,818 | | |
| 0.0011 | | |
$ | 6,195 | |
| 7/23/2014 | |
| 7,090,909 | | |
| 0.0010 | | |
$ | 7,800 | |
| 7/25/2014 | |
| 5,526,596 | | |
| 0.0009 | | |
$ | 5,195 | |
| 7/25/2014 | |
| 1,643,617 | | |
| 0.0000 | | |
$ | 1,545 | |
| 8/5/2014 | |
| 7,173,611 | | |
| 0.0007 | | |
$ | 5,165 | |
| 8/7/2014 | |
| 7,169,118 | | |
| 0.0007 | | |
$ | 4,875 | |
| 8/19/2014 | |
| 7,169,231 | | |
| 0.0006 | | |
$ | 4,660 | |
| 8/26/2014 | |
| 7,161,765 | | |
| 0.0007 | | |
$ | 4,870 | |
| 9/2/2014 | |
| 7,171,875 | | |
| 0.0006 | | |
$ | 4,590 | |
| 9/8/2014 | |
| 7,172,414 | | |
| 0.0006 | | |
$ | 4,160 | |
| 9/10/2014 | |
| 7,172,414 | | |
| 0.0006 | | |
$ | 4,160 | |
| 9/16/2014 | |
| 12,236,364 | | |
| 0.0005 | | |
$ | 6,730 | |
| 9/18/2014 | |
| 12,235,849 | | |
| 0.0005 | | |
$ | 6,485 | |
| 9/22/2014 | |
| 2,055,556 | | |
| 0.0000 | | |
$ | 1,110 | |
| Total | |
| 128,076,067 | | |
| | | |
$ | 121,320 | |
The
sale of the Convertible Note did not involve a public offering and were made without general solicitation or general advertising.
JMJ and Asher acquired the securities for investment purposes only and not with a view to or for sale in connection with any distribution
thereof. Neither the Convertible Note nor the underlying shares of common stock issuable upon the conversion thereof have been
registered under the Securities Act. in reliance upon the exemption set forth in Sections 3(a)(9), 4(a)(1) and 4(a)(2) of the
Securities Act.
Item
6. Selected Financial Data.
Not
applicable.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward
Looking Statements
This
Annual Report of United American Petroleum Corp. on Form 10-K contains forward-looking statements, particularly those identified
with the words, “anticipates,” “believes,” “expects,” “plans,” “intends”,
“objectives” and similar expressions. These statements reflect management’s best judgment based on factors known at
the time of such statements. The reader may find discussions containing such forward-looking statements in the material set forth
under “Management’s Discussion and Analysis and Plan of Operations,” generally, and specifically therein under the
captions “Liquidity and Capital Resources” as well as elsewhere in this Annual Report on Form 10-K. Actual events
or results may differ materially from those discussed herein. The forward-looking statements specified in the following information
have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable.
Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred
from those forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in the following
information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative,
industry, and other circumstances. As a result, the identification and interpretation of data and other information and their
use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent
that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly,
no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions
relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to
update any such forward-looking statements.
Critical
Accounting Policy and Estimates. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations
section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including
those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases
its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the
appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.
Oil
and Gas Properties
The
Company follows the full cost method of accounting for its investments in oil and gas properties. Under the full cost method,
all costs associated with the exploration of properties are capitalized into appropriate cost centers within the full cost pool.
Internal costs that are capitalized are limited to those costs that can be directly identified with acquisition, exploration,
and development activities undertaken and do not include any costs related to production, general corporate overhead, or similar
activities. Cost centers are established on a country-by-country basis.
Capitalized
costs within the cost centers are amortized on the unit-of-production basis using proved oil and gas reserves. The cost of investments
in unproved properties and major development projects are excluded from capitalized costs to be amortized until it is determined
whether or not proved reserves can be assigned to the properties. Until such a determination is made, the properties are assessed
annually to ascertain whether impairment
has
occurred. The costs of drilling exploratory dry holes are included in the amortization base immediately upon determination that
the well is dry.
For
each cost center, capitalized costs are subject to an annual ceiling test, in which the costs shall not exceed the cost center
ceiling. The cost center ceiling is equal to i) the present value of estimated future net revenues computed by applying current
prices of oil and gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to
estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated
future expenditures (based on current costs) to be incurred in developing and producing the proved reserves computed using a discount
factor of ten percent and assuming continuation of existing economic conditions; plus ii) the cost of properties not being amortized;
plus iii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less iv) income
tax effects related to differences between the book and tax basis of the properties. If unamortized costs capitalized within a
cost center, less related deferred income taxes, exceed the cost center ceiling, the excess is charged to expense and separately
disclosed during the period in which the excess occurs.
Share-Based
Compensation
The
Company accounts for share-based compensation in accordance with Accounting Standards Codification subtopic 718-10, Stock Compensation
(“ASC 718-10”). This requires the measurement and recognition of compensation expense for all share-based payment
awards made to employees and directors, including employee stock options and employee stock purchases related to an Employee Stock
Purchase Plan based on the estimated fair values.
As
of December 31, 2014, there were no outstanding employee stock options.
Recent
Accounting Pronouncements
There
were various updates recently issued, most of which represented technical corrections to the accounting literature or application
to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations
or cash flows.
Overview.
United American Petroleum Corp. (“we” or the “Company”), formerly Forgehouse, Inc., was incorporated
in the State of Nevada on November 19, 2004. On December 31, 2010, we entered into and closed an Agreement and Plan of Merger
(“Merger Agreement”) with our then newly formed wholly-owned subsidiary, United PC Acquisition Corp., a Nevada corporation
(“Merger Sub”), and United American Petroleum Corp., a Nevada Corporation (“United”) (the “Merger
Transaction”), pursuant to which Merger Sub merged with and into United with United surviving, making United our wholly-owned
subsidiary. Immediately thereafter and pursuant to the Merger Agreement, United merged with and into the Company, with the Company
surviving and we changed our name to “United American Petroleum Corp.” In connection with the Merger Transaction,
we assumed all of United’s contractual obligations and acquired certain oil and gas properties of United located in Texas.
The Merger Transaction was deemed to be a reverse acquisition, where the Company (the legal acquirer) is considered the accounting
acquiree and United (the legal acquiree) is considered the accounting acquirer. The Company is deemed a continuation of the business
of United, and the historical financial statements of United became the historical financial statements of the Company.
Recent
Events
Our
Business. We are engaged in the acquisition, exploration, development and production of oil and gas properties. Our principal
business is the acquisition of leasehold interests in petroleum and natural gas rights, either directly or indirectly, and the
exploitation and development of properties subject to these leases. Our primary focus is to develop our properties that have potential
for near-term production. We also provide operational expertise for several third-party well owners out of our operation base
in Austin, Texas. We currently have proved reserves in the State of Texas.
The
following discussion of our financial condition and results of operations should be read in conjunction with our financial statements
for the period ended December 31, 2014, together with notes thereto, which are included in this Annual Report.
Results
of operations for the twelve months ended December 31, 2014, as compared to the twelve months ended December 31, 2013.
Revenues.
We had total revenues of $621,548 for the twelve months ended December 31, 2014, which were generated from oil and gas sales
of $563,622 and administrative revenue of $57,926. This was a $115,065 decrease from total revenues of $736,613 for the twelve
months ended December 31, 2013, which were generated from oil and gas sales of $704,704 and administrative revenue of $31,909.
Our oil and gas revenues decreased $141,082, a 25.03% decrease from the year before.
Our
administrative revenues, as presented within this report for the years ended December 31, 2014 and 2013, are administrative fees
charged through United Operating, LLC, our wholly-owned subsidiary, to third party well owners for properties which the company
owns no portion of for managing and accounting for the development and production of their oil and gas property interests. Administrative
revenues increased during fiscal year 2014 from administrative revenues in fiscal year 2013 due to an increase in operation fees
charged to well interest owners.
The
following table sets forth the revenue and production data for the twelve months ended December 31, 2014 and 2013.
| | |
TWELVE MONTHS | | |
TWELVE MONTHS | | |
| | |
| |
| | |
ENDED DECEMBER | | |
ENDED DECEMBER | | |
INCREASE | | |
% INCREASE | |
| | |
31, 2014 | | |
31, 2013 | | |
(DECREASE) | | |
(DECREASE) | |
| REVENUES | |
| | | |
| | | |
| | | |
| | |
| Oil and Gas Revenues | |
$ | 563,622 | | |
$ | 704,704 | | |
$ | (141,082 | ) | |
| -20 | % |
| Administrative revenues | |
| 57,926 | | |
| 31,909 | | |
| 26,017 | | |
| 82 | % |
| Total Revenues | |
| 621,548 | | |
| 736,613 | | |
| (115,065 | ) | |
| -16 | % |
| | |
| | | |
| | | |
| | | |
| | |
| PRODUCTION: | |
| | | |
| | | |
| | | |
| | |
| Total production (Barrel of Oil Equivalent) | |
| 6,161 | | |
| 7,123 | | |
| (962 | ) | |
| -14 | % |
| Barrels of Oil Equivalent per day | |
| 16.88 | | |
| 19.52 | | |
| (5 | ) | |
| -27 | % |
| | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| AVERAGE SALES PRICES: | |
| | | |
| | | |
| | | |
| | |
| Price per Barrel of Oil Equivalent | |
$ | 91.48 | | |
$ | 98.93 | | |
$ | (7 | ) | |
| -8 | % |
During
the twelve months ended December 31, 2014, we decreased our barrels of oil per day (BOPD) produced to an average of 16.88 BOPD
from 19.52 BOPD for the twelve months ended December 31, 2013.
Operating
Expenses. The following table sets forth information relating to our operating expenses for the twelve months ended December
31, 2014 and 2013.
| | |
TWELVE MONTHS | | |
TWELVE MONTHS | | |
| | |
| |
| | |
ENDED DECEMBER | | |
ENDED DECEMBER | | |
INCREASE | | |
% INCREASE | |
| | |
31, 2014 | | |
31, 2013 | | |
(DECREASE) | | |
(DECREASE) | |
| LEASE OPERATING EXPENSES | |
| | | |
| | | |
| | | |
| | |
| Lease operating expenses | |
$ | 372,998 | | |
$ | 768,847 | | |
$ | (395,849 | ) | |
| -51 | % |
| Workover expenses | |
| 7,189 | | |
| 127,122 | | |
| (119,933 | ) | |
| -94 | % |
| Legal, title and administrative well expenses | |
| 28,204 | | |
| 32,013 | | |
| (3,805 | ) | |
| -12 | % |
| Total Lease Operating expenses | |
| 408,391 | | |
| 927,982 | | |
| (515,582 | ) | |
| -56 | % |
| | |
| | | |
| | | |
| | | |
| | |
| DEPLETION AND ACCRETION EXPENSE | |
| | | |
| | | |
| | | |
| | |
| Depreciation, depletion, amortization and accretion expense | |
| 109,178 | | |
| 112,239 | | |
| (3,061 | ) | |
| -3 | % |
| | |
| | | |
| | | |
| | | |
| | |
| BAD DEBT EXPENSE | |
| | | |
| | | |
| | | |
| | |
| Bad debt expense | |
| 67,977 | | |
| 226,986 | | |
| (159,009 | ) | |
| 100 | % |
| | |
| | | |
| | | |
| | | |
| | |
| LEGAL SETTLEMENT LOSS | |
| | | |
| | | |
| | | |
| | |
| Legal settlement loss | |
| — | | |
| 93,526 | | |
| (93,526 | ) | |
| 100 | % |
| | |
| | | |
| | | |
| | | |
| | |
| GENERAL AND ADMINISTRATIVE EXPENSES | |
| | | |
| | | |
| | | |
| | |
| SEC related general and administrative expenses | |
$ | 305,394 | | |
$ | 248,940 | | |
$ | 56,457 | | |
| 23 | % |
| Employee and officer expenses | |
| 298,409 | | |
| 312,665 | | |
| (14,256 | ) | |
| -5 | % |
| Other general and administrative | |
| 96,725 | | |
| 188,052 | | |
| (91,327 | ) | |
| -49 | % |
| Total General and Administrative expenses | |
| 700,527 | | |
| 749,657 | | |
| (49,130 | ) | |
| -7 | % |
| | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| TOTAL OPERATING EXPENSES | |
| 1,286,073 | | |
| 2,110,390 | | |
| (567,775 | ) | |
| -27 | % |
| | |
| | | |
| | | |
| | | |
| | |
For
the twelve months ended December 31, 2014, our total operating expenses were $1,286,073, which consisted of lease operating expenses
of $408,391, accretion expense of $63,334, depletion expense of $45,844, and general and administrative expenses of
$700,527. By comparison, for the twelve months ended December 31, 2013, our total operating expenses were $2,110,390, which
consisted of lease operating expenses of $927,982, accretion expense of $12,745, depletion expense of $99,494, legal settlement
loss of $93,526 and general and administrative expenses of $749,657.
For
the twelve months ended December 31, 2014, we incurred lease and well operating expenses of $372,994 compared to $768,847 for
the twelve months ended December 31, 2013. This represents a decrease of $395,853 or 103.93% related to decrease in production
activities on our properties and the related expenses to run those properties. During the twelve months ended December 31, 2014,
we incurred workover expenses of $7,189 representing a 1,668.27% decrease from the prior period. The decrease in workover expenses
were primarily related to an effort in 2013 to increase production that had short term results.
During
the twelve months ended December 31, 2014 compared to the twelve months ended December 31, 2014, our depletion and accretion expenses
decreased by $109,178, or 0.03% due to an increase in the estimated average life of the Company’s wells per the SEC reserve
report, which lowered our depletion rate.
The
decrease in general and administrative expenses of $49,130 or -7% during the twelve months ended December 31, 2014, compared
to the prior year, was largely due to the $44,074 decrease in travel expenses, $15,769 decrease in payroll, offset by an increase
of $66,871 in professional fees.
Net
Operating Loss. For the twelve months ended December 31, 2014, our total net operating loss was $664,525 as compared to a
net operating loss of $1,373,777 from the prior period, an improvement of $705,245 or 105.49% from the prior period. Our net operating
loss decreased over the prior period, largely due to a significant decrease in Lease Operating Expenses from $927,982 for the
year ended December 31, 2013 to $377,007 for the year ended December 31, 2014
Interest
Expense. For the twelve months ended December 31, 2014 we had interest expense of $189,710 associated with the conversion
of certain of our previously outstanding convertible promissory notes during the period, compared to interest expense of $296,930
for the twelve months ended December 31, 2013, relating to previously held outstanding convertible promissory notes.
Net
Loss. For the twelve months ended December 31, 2014, our net loss was $836,234, as compared to a net loss of $1,349,568 for
the twelve months ended December 31, 2013, an improvement of $580,702 or 75.53% from the prior period.
Liquidity
and Capital Resources
During
the twelve months ended December 31, 2014, we used $649,142 in operations, $450,000 in investing activities, and received $0 from
financing activities.
On
January 31, 2013 (the “Effective Date”), the Company entered into a promissory note (the “Note”) with
JMJ Financial, pursuant to which JMJ Financial agreed to lend the Company up to an aggregate principal amount of $360,000 (the
“Principal Sum”). On February 13, 2013, JMJ Financial lent $50,000 to the Company under the Note. On April 23, 2013
JMJ Financial lent us an additional $25,000 under the Note. JMJ Financial may choose to lend the Company additional funds under
the Note from time to time in its sole discretion. The Principal Sum due to JMJ Financial is prorated based on the consideration
actually paid by JMJ Financial, plus a 10% original issue discount (“OID”) and as such, a total of up to $400,000 (not
including accrued and unpaid interest and other fees and amounts due under the Note) may be evidenced by the Note.
The
Note has a maturity date of twelve (12) months from the Effective Date. If the Note is repaid within ninety (90) days of the Effective
Date, the interest rate is zero percent (0%). Should the Note still be outstanding after 90 days, a one-time 12% interest rate
is applied to the Note. In addition, JMJ Financial has the right, at any time 90 days after the Effective Date, at its election,
to convert all or part of the outstanding and unpaid Principal Sum and accrued interest (and any other fees) due under the Note
into shares of the Company’s common stock at a conversion price equal to the lesser of $0.11 per share or 60% of the lowest
trading price of the Company’s common stock in the 25 days prior to any conversion (provided that if the shares converted
are not deliverable via DWAC, an additional 10% discount will apply, and if the shares are ineligible for deposit with DTC another
5% discount will apply).
JMJ
Financial has contractually agreed to restrict its ability to convert the Note such that the number of shares of the Company’s
common stock held by JMJ Financial and its affiliates after such conversion will not exceed 4.99% of the Company’s then
issued and outstanding shares of common stock.
The
Company also provided JMJ Financial (a) piggy-back registration rights in connection with the shares issuable upon conversion
of the Note (provided that if the Company does not register such shares in the next registration statement filing the Company
makes with the Commission it is required to pay JMJ Financial a penalty of the greater of (i) 25% of the amount outstanding under
the Note, and (ii) $25,000); and (b) adjustment rights in connection with the Note in the event the Company provides any other
investor, or issues any other security with, more favorable terms than the Note. Upon the occurrence of an event of default under
the Note, the Company is required to pay JMJ Financial the higher of (i) the amount owed under the Note divided by the applicable
conversion price and multiplied by the volume weighted average price of the Company’s common stock on the date such amount
is demanded in full; or (ii) 150% of the amount owed under the Note. Additionally, upon an event of default, all interest under
the Note accrues at 18% per annum. The Note provides for customary events of default such as failing to timely make payments under
the Note when due. As of December 31, 2014, all principal and accrued interest on the note was converted.
The
Company has entered into three Convertible Promissory Notes with Asher Enterprises, Inc. (“Asher”). On February 19,
2013, the Company sold Asher a convertible note in the amount of $103,500, bearing interest at the rate of 8% per annum, on May
8, 2013, the Company sold Asher a convertible note in the amount of $63,000, bearing interest at the rate of 8% per annum, and
on August 23, 2013, the Company sold Asher a convertible note in the amount of $50,000, bearing interest at the rate of 8% per
annum (the “Convertible Notes”). The Convertible Notes provide Asher the right to convert the outstanding balance
(including accrued and unpaid interest) of such Convertible Notes into shares of the Company’s common stock at a conversion
price equal to the greater of (a) 60%
of
the average of the five lowest trading prices of the Company’s common stock during the ten trading days prior to such conversion
date; and (b) $0.00005 per share, at any time after the expiration of 180 days from the date such Convertible Note was issued.
The Convertible Notes are payable, along with interest thereon one year from the date they were entered into. In the event any
principal or interest is not timely paid, such amount accrues interest at 22% per annum until paid in full. Asher is prohibited
from converting the Convertible Notes into shares of the Company’s common stock to the extent that such conversion would
result in Asher beneficially owning more than 4.99% of the Company’s common stock, subject to 61 days prior written notice
to the Company from Asher of Asher’s intention to waive or modify such provision.
As
of December 31, 2014, all principal and interest outstanding on the JMJ Financial and Asher Notes was paid.
As
of December 31, 2014, we had a working capital deficit of $839,377 and an accumulated deficit of $9,442,446.
In
the opinion of management, available funds will not satisfy our working capital requirements to operate at our current level of
activity for the next twelve months. If we do not raise additional capital, then we may not be able to conduct oil and gas exploration
and development activities and expand our operations. Our forecast for the period for which our financial resources will be adequate
to support our operations involves risks and uncertainties and actual results could differ as a result of a number of factors.
In addition to generating revenues from our current operations, we will need to raise additional capital to expand our operations
to the point at which we are able to operate profitably.
No
assurances can be given that we will be successful in obtaining additional financing in the future. Any future financing that
we may obtain may cause significant dilution to existing stockholders. Moreover, in the event that we can raise additional funds,
we cannot guarantee that additional funding will be available on favorable terms. Any debt financing or other financing of securities
senior to common stock that we are able to obtain will likely include financial and other covenants that will restrict our flexibility.
Any failure to comply with these covenants would have a negative impact on our business, prospects, financial condition, results
of operations and cash flows.
If
adequate funds are not available, we may be required to delay, scale back or eliminate portions of our operations or to obtain
funds through arrangements with strategic partners or others that may require us to relinquish rights to certain of our assets.
Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of our assets
and could also adversely affect our ability to fund our continued operations and our expansion efforts with respect to our properties.
During
fiscal year 2014, we expect that the following will continue to impact our liquidity: (i) legal and accounting costs of being
a public company; (ii) expected expenses related to the exploration and development of our properties; (iii) expected expenses
related to repair and maintenance costs on wells that are currently producing and (iv) anticipated increases in overhead and the
use of independent contractors for services to be provided to us. We will need to obtain funds to pay those expenses. Other than
those items specified above, we are not aware of any other known trends, events or uncertainties, which may affect our future
liquidity.
We
have limited revenue and have incurred net losses to date. These factors raise substantial doubt about our ability to continue
as a going concern. No assurances can be given that we will obtain sufficient working capital to sustain ongoing operations. The
financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
We
are not currently conducting any research and development activities. We do not anticipate conducting such activities in the near
future. In the event that we expand our operations, then we may need to hire additional employees or independent contractors as
well as purchase or lease additional equipment. Our management believes that we do not require the services of independent contractors
to operate at our current level of activity. However, if our level of operations increases beyond the level that our current staff
can provide, then we may need to supplement our staff in this manner.
Off-Balance
Sheet Arrangements. We have no off-balance sheet arrangements as of December 31, 2014.
Item
7A. Quantitative and Qualitative Disclosures about Market Risk.
Not
applicable
Item
8. Financial Statements and Supplementary Data.
The
financial statements required by Item 8 are presented in the following order:
TABLE
OF CONTENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors
United
American Petroleum Corp.
Austin,
Texas
We
have audited the accompanying consolidated balance sheets of United American Petroleum Corp. and its subsidiaries (collectively,
the “Company”) as of December 31, 2014 and 2013 and the related consolidated statements of operations, stockholders’
deficit and cash flows for each of 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 audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of United American Petroleum Corp. and its subsidiaries as of December 31, 2014 and 2013 and the consolidated
results of their operations and their cash flows for each of the years then ended in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 3 to the consolidated financial statements, the Company has suffered losses from operations and has a working
capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans in regards to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/
MaloneBailey, LLP
www.malonebailey.com
Houston,
Texas
April
15, 2015
UNITED
AMERICAN PETROLEUM CORP.
CONSOLIDATED
BALANCE SHEETS
AS
OF DECEMBER 31, 2014 AND 2013
| | |
| | |
Prior Year | |
| | |
December 31, | | |
December 31, | |
| | |
2014 | | |
2013 | |
| ASSETS | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 358,156 | | |
$ | 557,298 | |
| Accounts receivable, net | |
| 48,392 | | |
| 119,052 | |
| Related party receivables | |
| 41,513 | | |
| 99,536 | |
| Total current assets | |
| 448,061 | | |
| 775,886 | |
| | |
| | | |
| | |
| Oil and gas properties (full cost method): | |
| 418,380 | | |
| 1,139,435 | |
| Total assets | |
$ | 866,441 | | |
$ | 1,915,321 | |
| | |
| | | |
| | |
| LIABILITIES AND MEMBERS’ EQUITY | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
$ | 780,890 | | |
$ | 1,150,116 | |
| Convertible note payable, net of debt discount of
_____ and $26,758 | |
| — | | |
| 131,027 | |
| Embedded derivative liability | |
| — | | |
| 139,508 | |
| Deferred gain on sale of assets | |
| 7,500 | | |
| 17,500 | |
| Other payable | |
| 499,048 | | |
| 582,278 | |
| Total current liabilities | |
| 1,287,438 | | |
| 2,020,429 | |
| | |
| | | |
| | |
| Asset retirement obligation | |
| 193,362 | | |
| 112,727 | |
| Total liabilities | |
| 1,480,800 | | |
| 2,133,156 | |
| | |
| | | |
| | |
| Stockholders’ Deficit | |
| | | |
| | |
| Preferred Stock, Series B, $0.001 par value, 1,000 shares authorized, 1,000 shares issued and 1,000 share outstanding and no shares issued and outstanding, respectively | |
| 1 | | |
| 1 | |
| Common stock, $0.001 par value, 100,000,000 shares authorized, 86,875,192 shares issued and 86,875,192 and 50,339,542 shares outstanding, respectively | |
| 321,868 | | |
| 86,876 | |
| Additional paid-in capital | |
| 8,506,218 | | |
| 8,301,499 | |
| Accumulated deficit | |
| (9,442,446 | ) | |
| (8,606,211 | ) |
| Total stockholders’ deficit | |
| (614,359 | ) | |
| (217,835 | ) |
| | |
| | | |
| | |
| Total liabilities and members’ equity | |
$ | 866,441 | | |
$ | 1,915,321 | |
See
accompanying notes to consolidated financial statements.
UNITED
AMERICAN PETROLEUM CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS
AS
OF DECEMBER 31, 2014 AND 2013
| | |
Year Ended | | |
Year Ended | |
| | |
December, 31 | | |
December, 31 | |
| | |
2014 | | |
2013 | |
| Revenues | |
| | | |
| | |
| Oil and Gas Revenues | |
$ | 563,622 | | |
$ | 704,704 | |
| Administrative Revenues | |
| 57,926 | | |
| 31,909 | |
| Revenues, net of sales returns and allowances | |
| 621,548 | | |
| 736,613 | |
| | |
| | | |
| | |
| Operating Expenses | |
| | | |
| | |
| Lease operating expenses | |
| 408,391 | | |
| 927,982 | |
| Bad debt expense | |
| 67,977 | | |
| 226,986 | |
| Accretion expense | |
| 63,334 | | |
| 12,745 | |
| Depletion expense | |
| 45,844 | | |
| 99,494 | |
| Share based compensation | |
| — | | |
| 50,760 | |
| Legal settlement loss | |
| — | | |
| 93,526 | |
| General and administrative | |
| 700,527 | | |
| 698,897 | |
| Total Operating Expenses | |
| 1,286,073 | | |
| 2,110,390 | |
| | |
| | | |
| | |
| Net Loss Before Other Expenses | |
$ | (664,525 | ) | |
$ | (1,373,777 | ) |
| | |
| | | |
| | |
| Other Income (Expense) | |
| | | |
| | |
| Interest expense | |
| (189,711 | ) | |
| (358,060 | ) |
| Gain (loss) on embedded derivatives | |
| 111,655 | | |
| 382,269 | |
| Loss on Conversion of Debt | |
| (93,654 | ) | |
| — | |
| Total other income (expense) | |
| (171,709 | ) | |
| 24,209 | |
| | |
| | | |
| | |
| Net Loss | |
$ | (836,235 | ) | |
$ | (1,349,568 | ) |
See
accompanying notes to consolidated financial statements.
UNITED
AMERICAN PETROLEUM CORP.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIT
AS
OF DECEMBER 31, 2014 AND 2013
| | |
Series B | | |
| | |
| | |
Additional | | |
| | |
| |
| | |
Preferred Stock | | |
Common Stock | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| | |
Shares | | |
Par Value | | |
Shares | | |
Par Value | | |
Capital | | |
Deficit | | |
Deficit | |
| Balance - December 31, 2012 | |
| 1,000 | | |
| 1 | | |
| 50,339,542 | | |
$ | 50,339 | | |
$ | 8,313,299 | | |
$ | (7,256,643 | ) | |
$ | 1,106,996 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for conversion of debt and accrued interest | |
| — | | |
| — | | |
| 35,971,650 | | |
| 35,972 | | |
| 168,166 | | |
| — | | |
| 204,139 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Reclassification of detachable warrants to additional paid-in capital | |
| — | | |
| — | | |
| — | | |
| — | | |
| (447,128 | ) | |
| — | | |
| (447,128 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Reclassification of derivative liability to additional paid-in capital due to conversion of related notes payable | |
| — | | |
| — | | |
| — | | |
| — | | |
| 216,966 | | |
| — | | |
| 216,966 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Shares issued for services | |
| — | | |
| — | | |
| 564,000 | | |
| 564 | | |
| 50,196 | | |
| — | | |
| 50,760 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss for the period | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,349,568 | ) | |
| (1,349,568 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance - December 31, 2013 | |
| 1,000 | | |
| 1 | | |
| 86,875,192 | | |
$ | 86,875 | | |
$ | 8,301,499 | | |
$ | (8,606,211 | ) | |
$ | (217,835 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for conversion of debt and accrued interest | |
| — | | |
| — | | |
| 234,992,717 | | |
| 234,993 | | |
| 28,157 | | |
| — | | |
| 263,150 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Reclassification of detachable warrants to derivative liability | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Reclassification of detachable warrants to additional paid-in capital | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Reclassification of derivative liability to additional paid-in capital due to conversion of related notes payable | |
| — | | |
| — | | |
| — | | |
| — | | |
| 176,562 | | |
| — | | |
| 176,562 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Discount from derivative liabilities | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Shares issued for services | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss for the period | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (836,235 | ) | |
| (836,235 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance - December 31, 2014 | |
| 1,000 | | |
| 1 | | |
| 321,867,909 | | |
$ | 321,868 | | |
$ | 8,506,218 | | |
$ | (9,442,446 | ) | |
$ | (614,359 | ) |
The
accompanying notes are an integral part of these financial statements.
UNITED
AMERICAN PETROLEUM CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS OF DECEMBER 31, 2014 and 2013
| | |
YEAR ENDED | | |
YEAR ENDED | |
| | |
DECEMBER 31, 2014 | | |
DECEMBER 31, 2013 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
| Net loss | |
$ | (836,235 | ) | |
$ | (1,349,568 | ) |
| | |
| | | |
| | |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Bad debt expense | |
| 67,977 | | |
| 226,986 | |
| Accretion expense | |
| 63,334 | | |
| 12,745 | |
| Depletion expense | |
| 45,844 | | |
| 99,494 | |
| Share based compensation | |
| — | | |
| 50,760 | |
| Amortization of debt discount | |
| 179,566 | | |
| 296,930 | |
| (Gain) loss on embedded derivatives | |
| (111,655 | ) | |
| (382,269 | ) |
| Loss on convertible note conversion | |
| 93,654 | | |
| | |
| Penalty on convertible note payable | |
| — | | |
| 51,750 | |
| Reduction in full cost pool due to operator income from owned wells | |
| 138,986 | | |
| 127,679 | |
| Legal settlement loss | |
| — | | |
| 93,526 | |
| | |
| | | |
| | |
| Change in assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| 2,683 | | |
| (212,780 | ) |
| Related party receivable | |
| 58,023 | | |
| (86,340 | ) |
| Other receivable | |
| — | | |
| — | |
| Accounts payable and accrued expenses | |
| (351,598 | ) | |
| 621,854 | |
| Deferred gain on sale of assets | |
| — | | |
| 17,500 | |
| Accrued interest | |
| — | | |
| 16,908 | |
| Other payable | |
| 279 | | |
| 130,339 | |
| Net cash used in operating activities | |
| (649,142 | ) | |
| (284,486 | ) |
| | |
| | | |
| | |
| CASH FLOWS USED IN INVESTING ACTIVITIES: | |
| | | |
| | |
| Proceeds from sale of oil and gas properties | |
| 450,000 | | |
| | |
| ARO Liabilities/Assets incurred (non-cash) | |
| — | | |
| | |
| Net cash used in investing activities | |
| 450,000 | | |
| — | |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| Proceeds from convertible notes | |
| — | | |
| 269,000 | |
| Net cash provided by financing activities | |
| — | | |
| 269,000 | |
| | |
| | | |
| | |
| NET DECREASE IN CASH AND CASH EQUIVALENTS | |
| (199,142 | ) | |
| (15,486 | ) |
| | |
| | | |
| | |
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | |
| 557,298 | | |
| 572,784 | |
| | |
| | | |
| | |
| CASH AND CASH EQUIVALENTS - END OF PERIOD | |
$ | 358,156 | | |
$ | 557,298 | |
| | |
| | | |
| | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | |
| | | |
| | |
| Cash paid during the period for: | |
| | | |
| | |
| Interest | |
$ | — | | |
$ | — | |
| Taxes | |
$ | — | | |
$ | — | |
| | |
| | | |
| | |
| NON CASH TRANSACTIONS: | |
| | | |
| | |
| Change in asset retirement liability (new wells) | |
$ | — | | |
$ | 86,015 | |
| Change in asset retirement liability (change in estimate) | |
$ | 17,302 | | |
$ | 55,349 | |
| Discount from derivative liabilities | |
$ | 152,810 | | |
$ | 282,334 | |
| Discount to additional paid-in capital from relative fair value of warrants | |
$ | — | | |
$ | 13,196 | |
| Conversion of convertible notes payable | |
$ | 263,150 | | |
$ | 204,138 | |
| Conversion of accrued interest | |
$ | — | | |
$ | — | |
| Settlement of derivative liabilities to additional paid-in capital | |
$ | — | | |
$ | 216,966 | |
| Reclassification of detachable warrants to derivative liability | |
$ | 176,562 | | |
$ | 447,128 | |
| Settlement of legal expenses through exchange of property | |
$ | 93,525 | | |
$ | — | |
The
accompanying notes are an integral part of these financial statements.
UNITED
AMERICAN PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2014 AND 2013
| 1. | Nature
of Operations and Basis of Presentation |
Nature
of Operations
We
(“United American Petroleum Corp.” the “Company”, “we”, “us,” or “our”)
are an exploration company engaged in the acquisition, exploration, development and production of oil and gas properties. Our
principal business is the acquisition of leasehold interests in petroleum and natural gas rights, either directly or indirectly,
and the exploitation and development of properties subject to these leases. Our primary focus is to develop our properties that
have potential for near-term production. We also provide operational expertise for several third party well owners out of our
operational base in Austin, Texas. We currently have proved reserves in the State of Texas.
On
January 13, 2011, the Company formed a wholly owned subsidiary, UAP Management, LLC, a Texas limited liability company, for
the purpose of managing the Gabriel Rosser, LP.
On
January 13, 2011, the Company formed a wholly owned subsidiary, United Operating, LLC, a Texas limited liability company,
for the purpose of operating and managing the various interests acquired from Patriot Minerals, LLC.
Basis
of Presentation
The
accompanying consolidated financial statements include United American Petroleum Corp. and its wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated. The accompanying financial statements have been prepared in accordance
with the Generally Accepted Accounting Principles in the United States of America (“GAAP”). We made certain reclassifications
to prior-period amounts to conform to the current presentation.
| 2. | Summary
of Significant Accounting Policies |
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from those estimates.
Principles
of consolidation
The
accompanying consolidated financial statements include the accounts of United American Petroleum and our wholly owned subsidiary,
United Operating LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash
and Cash Equivalents
All
highly liquid investments purchased with an original maturity of three months or less at the time of acquisition are considered
to be cash equivalents.
Fair
Value of Financial Instruments
The
Company is required to estimate the fair value of all financial instruments included on its balance sheet. The carrying value
of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the short period to
maturity of these instruments.
Receivables
and Allowance for Doubtful Accounts
The
Company collects its receivables on its working interests in oil and gas properties from well operators. As such, the Company
generally has relatively few customers. These receivables are unsecured and the Company performs ongoing credit evaluations of
the well operators’ financial condition whenever necessary. We regularly review collectability and establish or adjust an
allowance for uncollectible amounts as necessary using the specific identification method, and we write off receivables after
all means of collections have been exhausted and the potential for recovery is remote. The accumulated balance for allowance for
uncollectible account were $267,790 and $199,813 for the periods ending December 31, 2014 and 2013, respectively. We recorded
bad debt expense of $67,977 and $226,986 for the periods ended December 31, 2014 and 2013, respectively. We wrote off receivables
of $0 and $27,173, for the periods ended December 31, 2014 and 2013, respectively.
Revenue
Recognition- Oil and Gas
The
Company recognizes oil and gas revenue from interests in producing wells using the “sales method.” Under this method
of accounting, revenues are recognized based on volumes sold, which may differ from the volume to which we are entitled based
on our working interest. An imbalance is recognized as a liability only when the estimated remaining reserves will not be sufficient
to enable the under–produced owner(s) to recoup its entitled share through future production. Under the sales method, no
receivables are recorded where we have taken less than our share of production. Our net imbalance position at December 31, 2014
and December 31, 2013, was immaterial.
Revenue
Recognition – Administrative Income
The
Company will record revenue for administrative income in accordance with ASC 605. The criteria for recognition are as follows:
| 1) |
Persuasive
evidence of an arrangement exists; |
| |
|
| 2) |
Delivery
has occurred or services have been rendered; |
| |
|
| 3) |
The
seller’s price to the buyer is fixed or determinable, and |
| |
|
| 4) |
Collectability
is reasonably assured. |
Determination
of criteria (3) and (4) will be based on management’s judgments regarding the fixed nature of the selling prices of the services
performed and the collectability of those amounts.
The
Company operates certain wells where the Company also has an ownership interest. For these partially owned wells, no administrative
income is recognized. Rather, operating fees received from other well interest owners are recorded as a reduction to the full
cost pool per the full cost rules.
Oil
and Gas Properties
The
Company follows the full cost method of accounting for its investments in oil and gas properties. Under the full cost method,
all costs associated with the exploration of properties are capitalized into appropriate cost centers within the full cost pool.
Internal costs that are capitalized are limited to those costs that can be directly identified with acquisition, exploration,
and development activities undertaken and do not include any costs related to production, general corporate overhead, or similar
activities. Cost centers are established on a country-by-country basis.
Capitalized
costs within the cost centers are amortized on the unit-of-production basis using proved oil and gas reserves. The cost of investments
in unevaluated properties and major development projects are excluded from capitalized costs to be amortized until it is determined
whether or not proved reserves can be assigned to the properties. Until such a determination is made, the properties are assessed
annually to ascertain whether impairment
has occurred. The costs of drilling exploratory dry holes are included in the amortization
base immediately upon determination that the well is dry.
Capitalized
costs within the cost centers are amortized on the unit-of-production basis using proved oil and gas reserves. The cost of
investments in unproved properties and major development projects are excluded from capitalized costs to be amortized until
it is determined whether or not proved reserves can be assigned to the properties. Until such a determination is made, the
properties are assessed annually to ascertain whether impairment has occurred. The costs of drilling exploratory dry holes
are included in the amortization base immediately upon determination that the well is dry.
For
each cost center, capitalized costs are subject to an annual ceiling test, in which the costs shall not exceed the cost center
ceiling. The cost center ceiling is equal to i) the present value of estimated future net revenues computed by applying current
prices of oil and gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to
estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated
future expenditures (based on current costs) to be incurred in developing and producing the proved reserves computed using a discount
factor of ten percent and assuming continuation of existing economic conditions; plus ii) the cost of properties not being amortized;
plus iii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less iv) income
tax effects related to differences between the book and tax basis of the properties. If unamortized costs capitalized within a
cost center, less related deferred income taxes, exceed the cost center ceiling, the excess is charged to expense and separately
disclosed during the period in which the excess occurs.
Asset
Retirement Obligations
ASC
410, Asset Retirement and Environmental Obligations addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset retirement costs. Specifically, ASC 410 requires that
the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. In addition, the asset retirement cost is capitalized as part of the asset’s carrying
value and subsequently allocated to expense over the asset’s useful life.
Fair
Value of Financial Instruments
Accounting
standards regarding fair value of financial instruments define fair value, establish a three-level hierarchy which prioritizes
and defines the types of inputs used to measure fair value, and establish disclosure requirements for assets and liabilities presented
at fair value on the consolidated balance sheets.
Fair
value is the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction
between market participants. A liability is quantified at the price it would take to transfer the liability to a new obligor,
not at the amount that would be paid to settle the liability with the creditor.
The
three-level hierarchy is as follows:
| ● | Level
1 inputs consist of unadjusted quoted prices for identical instruments in active markets |
| | | |
| ● | Level
2 inputs consist of quoted prices for similar instruments |
| | | |
| ● | Level
3 valuations are derived from inputs which are significant and unobservable and have the lowest priority |
Financial
assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement. We have determined that certain warrants outstanding during the period and certain convertible notes covered by these
financial statements qualify as derivative financial instruments under the provisions of FASB ASC Topic No. 815-40, “Derivatives
and Hedging – Contracts in an Entity’s Own Stock.” See Note 6 – Fair Value for more details.
The
fair value of these warrants and derivative liabilities was determined using the Black Scholes Model with any change in fair value
during the period recorded in earnings as “Gain on derivative warrant liability.” Significant inputs used to calculate
the fair value of the warrants include expected volatility, risk-free interest rate and dividend yield.
Recoverability
of Long-Lived Assets
The
Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”).
ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Events
relating to recoverability may include significant unfavorable changes in business conditions or a forecasted inability to achieve
break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets would be
adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC
360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to
sell.
Share-Based
Compensation
The
Company accounts for share-based compensation to employees in accordance with Accounting Standards Codification subtopic 718-10,
Stock Compensation (“ASC 718-10”). This requires the measurement and recognition of compensation expense for all share-based
payment awards made to employees and directors, including employee stock options and employee stock purchases related to an Employee
Stock Purchase Plan based on the estimated fair values.
As
of December 31, 2014 and 2013, there were no outstanding employee stock options.
The
Company accounts for share-based compensation to non-employees in accordance with Accounting Standards Codification subtopic 505-50,
Equity-Based Payments to Non-Employees (“ASC 505-50”). This requires the measurement and recognition of compensation
expense for all share-based payment awards made to non-employees.
On
September 13, 2013, the Company’s Board of Directors approved the Company’s 2013 Stock Plan for Officers, Directors,
and Consultants (the “2013 Plan”). The 2013 Plan provided for the issuance of a total of up to 2,000,000 shares of
common stock, options, restricted share units, share appreciation rights and other share based awards to acquire common stock
to employees, directors and consultants. A total of 564,000 shares were issued under the 2013 Plan during the year ended December
31, 2013.
Income
Taxes
The
Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”). ASC 740-10 requires
the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included
in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the
difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax
assets to amounts that are expected to be realized.
Basic
and Diluted Earnings (Loss) Per Share
Basic
earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed in the same way as
basic earnings (loss) per common share except that the denominator is increased to include the number of additional common shares
that would be outstanding if all potential common shares had been issued and if the additional common shares were dilutive.
Property
and Equipment
Property
and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using principally the straight-line
method. When items are retired or otherwise disposed of, income is charged or credited
for
the difference between net book value and proceeds realized. Ordinary maintenance and repairs are charged to expense as incurred,
and replacements and betterments are capitalized.
The
range of estimated useful lives used to calculated depreciation for principal items of property and equipment are as follow:
| Asset Category | |
Depreciation Period |
| Furniture and Fixtures | |
5 Years |
| Automobiles | |
5 Years |
| Equipment | |
10 Years |
The
Company has a working capital deficit at December 31, 2014 and negative operating cash flows since inception These factors raise
substantial doubt about the Company’s ability to continue as a going concern. The Company’s management is working to secure additional
financing through the sale of debt or equity instruments. The consolidated financial statements have been prepared as if the company
is a going concern and do not include any adjustments that might be necessary if the Company is unable to continue as a going
concern.
| 4. | Related
Party Receivable |
As
of December 31, 2014, the Company had a related party receivable in the amount of $41,513 due from a Company with working interest
amounts payable. This is a $58,023 decrease from an amount of $99,536 as of December 31, 2013. Our directors are also officers
in this Company.
| 5. | Convertible
Notes and Detached Warrants |
Credit
Facility – January 31, 2013
On
January 31, 2013, we entered into a Note Purchase Agreement with an investor pursuant to which the investor agreed to lend
the Company up to $400,000 in multiple installments in exchange for a senior secured convertible promissory note with a conversion
price equal to 60% of the lowest trading price per share during the previous 25 trading days. The first installment of $55,000
was delivered less a fee of $5,000 on the date of the Purchase Agreement. The second installment of $25,000 was delivered in April
2013. The notes mature on January 31, 2014, or upon default, whichever is earlier and bear interest at an annual rate of 12%.
As described in Note 5, the embedded conversion feature qualified for liability classification at fair value. As a result, the
Company recorded a full discount of $55,000 to the note payable on issuance of the first installment, and a full discount of $25,000
to the note payable on issuance of the second installment. As of December 31, 2014, there was $0 in outstanding principal and
outstanding original interest discount (OID) on this note.
Conversions
The
holder of the convertible note exercised a portion of the conversion rights of the note in the following installments during the
year ended December 31, 2014:
| Date | |
Shares | | |
Price | | |
Amount | |
| 1/7/2014 | |
| 2,800,000 | | |
| 0.00228 | | |
$ | 6,380 | |
| 6/9/2014 | |
| 3,000,000 | | |
| 0.00110 | | |
$ | 3,300 | |
| 6/27/2014 | |
| 4,600,000 | | |
| 0.00115 | | |
$ | 5,290 | |
| 7/16/2014 | |
| 4,800,000 | | |
| 0.00075 | | |
$ | 3,600 | |
| 7/29/2014 | |
| 5,000,000 | | |
| 0.00055 | | |
$ | 2,750 | |
| 8/12/2014 | |
| 5,300,000 | | |
| 0.00050 | | |
$ | 2,650 | |
| 8/27/2014 | |
| 6,200,000 | | |
| 0.00045 | | |
$ | 2,790 | |
| 9/12/2014 | |
| 6,500,000 | | |
| 0.00045 | | |
$ | 2,925 | |
| 9/22/2014 | |
| 7,100,000 | | |
| 0.00040 | | |
$ | 2,840 | |
| 10/2/2014 | |
| 7,900,000 | | |
| 0.00040 | | |
$ | 3,160 | |
| 10/13/2014 | |
| 8,300,000 | | |
| 0.00035 | | |
$ | 2,995 | |
| 10/28/2014 | |
| 8,250,000 | | |
| 0.00025 | | |
$ | 2,062 | |
| 11/11/2014 | |
| 8,310,000 | | |
| 0.00020 | | |
$ | 1,662 | |
| 11/20/2014 | |
| 14,600,000 | | |
| 0.00020 | | |
$ | 2,920 | |
| 12/1/2014 | |
| 14,256,650 | | |
| 0.00020 | | |
$ | 2,851 | |
| Total | |
| 106,916,650 | | |
| | | |
$ | 48,175 | |
As
a result of the exercise of the conversion option of the note, the Company fully amortized the remaining balance of the associated
debt discount of $55,000 recognizing interest expense for the same amount.
Convertible
Note – February 19, 2013
On
February 19, 2013, we entered into a credit facility with an investor unrelated to the investor described above
pursuant to which the investor lent $103,500 to us in a single installment (minus fees of $16,500) in exchange for a convertible
promissory note with a conversion price equal to the average lowest trading price per share during the previous 10 trading days.
The embedded conversion option cannot be exercised until 180 days from the date of the note and as such, was not priced until
exercisable. The total number of conversion shares is calculated by dividing the amount of the notes by the conversion price.
In
May of 2013, we did not comply with the timely filing requirement on this loan. Pursuant to the promissory note, a penalty of
50% of the outstanding principal amount equaling $51,750 was added to the balance of the note. This additional sum was be eligible
for conversion at the same terms as the original principal balance.
The
holder of the convertible note exercised a portion of the conversion rights of the note in the following installments during the
year ended December 31, 2014. Note that the December 26, 2013 conversion of 200,000 shares was a conversion of accrued interest;
all of the other conversions were on the principal amount.
| Date | |
Shares | | |
Price | | |
Amount | |
| 1/2/2014 | |
| 2,235,294 | | |
| 0.0017 | | |
$ | 3,800 | |
| 1/7/2014 | |
| 2,757,895 | | |
| 0.0019 | | |
$ | 5,240 | |
| 1/13/2014 | |
| 2,750,000 | | |
| 0.0018 | | |
$ | 4,950 | |
| 6/4/2014 | |
| 2,758,824 | | |
| 0.0017 | | |
$ | 4,690 | |
| 6/16/2014 | |
| 4,860,000 | | |
| 0.0025 | | |
$ | 12,150 | |
| 6/24/2014 | |
| 4,843,750 | | |
| 0.0016 | | |
$ | 7,750 | |
| 7/7/2014 | |
| 5,630,000 | | |
| 0.0015 | | |
$ | 8,445 | |
| 7/14/2014 | |
| 5,629,167 | | |
| 0.0012 | | |
$ | 6,755 | |
| 7/18/2014 | |
| 5,631,818 | | |
| 0.0011 | | |
$ | 6,195 | |
| 7/23/2014 | |
| 7,090,909 | | |
| 0.0010 | | |
$ | 7,800 | |
| 7/25/2014 | |
| 5,526,596 | | |
| 0.0009 | | |
$ | 5,195 | |
| 7/25/2014 | |
| 1,643,617 | | |
| 0.0000 | | |
$ | 1,545 | |
| 8/5/2014 | |
| 7,173,611 | | |
| 0.0007 | | |
$ | 5,165 | |
| 8/7/2014 | |
| 7,169,118 | | |
| 0.0007 | | |
$ | 4,875 | |
| 8/19/2014 | |
| 7,169,231 | | |
| 0.0006 | | |
$ | 4,660 | |
| 8/26/2014 | |
| 7,161,765 | | |
| 0.0007 | | |
$ | 4,870 | |
| 9/2/2014 | |
| 7,171,875 | | |
| 0.0006 | | |
$ | 4,590 | |
| 9/8/2014 | |
| 7,172,414 | | |
| 0.0006 | | |
$ | 4,160 | |
| 9/10/2014 | |
| 7,172,414 | | |
| 0.0006 | | |
$ | 4,160 | |
| 9/16/2014 | |
| 12,236,364 | | |
| 0.0005 | | |
$ | 6,730 | |
| 9/18/2014 | |
| 12,235,849 | | |
| 0.0005 | | |
$ | 6,485 | |
| 9/22/2014 | |
| 2,055,556 | | |
| 0.0000 | | |
$ | 1,110 | |
| Total | |
| 128,076,067 | | |
| | | |
$ | 121,320 | |
Convertible
Note – April 22, 2013
On
April 22, 2013, we entered into a credit facility with an investor unrelated to the investor described above pursuant
to which the investor lent $63,000 (minus fees of $3,000) to us in a single installment in exchange for a convertible promissory
note with a conversion price equal to 60% of the average lowest trading price per share during 5 of the previous 10 trading days.
The embedded conversion option cannot be exercised until 180 days from the date of the note and as such, will not be priced until
exercisable. The total number of conversion shares is calculated by dividing the amount of the notes by the conversion price.
On
September 23, 2013, the investor lent an additional $50,000 in a single installment (minus fees of $3,000) under the same terms
agreement and terms as the previous installment made April 22, 2013.
Detachable
Warrants
On
October 14, 2011, the Company determined a relative fair value of $157,388 for the detachable warrants for the first installment
of the convertible notes. In calculating the relative fair value of the warrants the Company used the Black Scholes Option Pricing
Model based upon the following assumptions: dividend yield of -0-%, volatility of 108.61%, risk free rate of 1.12% and an expected
term of approximately 5 years.
On
November 29, 2011, the Company determined a relative fair value of $209,317 for the detachable warrants for the second installment
of the convertible notes. In calculating the relative fair value of the warrants the Company used the Black Scholes Option Pricing
Model based upon the following assumptions: dividend yield of -0-%, volatility of 109.19%, risk free rate of .93% and an expected
term of approximately 5 years.
On
December 19, 2011, the Company determined a relative fair value of $13,788 for the detachable warrants for the third installment
of the convertible notes. In calculating the relative fair value of the warrants the Company used the Black Scholes Option Pricing
Model based upon the following assumptions: dividend yield of -0-%, volatility of 109.32%, risk free rate of .82% and an expected
term of approximately 5 years.
As
described in Note 5, during fiscal year 2012, these notes associated with the second financing were converted into share of common
stock.
Conversions
On
June 7, 2012, the Company issued 3,314,062 shares of common stock to one investor who elected to convert the outstanding principal
amount of $1,590,000 and all of the accrued interest due on its convertible promissory notes dated October 14, 2011, November
29, 2011, December 19, 2011, February 10, 2012, March 30, 2012 and June 4, 2012 at a conversion price of $0.50 per share as provided
in the note agreement. Therefore, the note was fully converted as of December 31, 2012 and no longer outstanding debt.
Credit
Facility – December 31, 2010
On
December 31, 2010, the Company entered into a credit facility with one investor pursuant to which the investor agreed to lend
up to $2,250,000 to us in multiple installments in exchange for a senior secured convertible promissory note with a conversion
price of $0.50 per share and five-year warrants to acquire shares of common stock at an exercise price of $1.00 per share in the
amount of each installment. The credit facility provides that the investor will lend additional installments to us in amounts
as requested by us; provided however, that we provide the proposed use of proceeds for each requested amount. The investor shall
have sole discretion in determining whether the proposed use of proceeds meets those requirements. The notes mature on December
31, 2013, or upon default, whichever is earlier and bear interest at an annual rate of 10%.
Detachable
Warrants
On
December 31, 2010, the Company determined a relative fair value of $45,434 for the detachable warrants for the first installment
of the convertible notes. In calculating the relative fair value of the warrants the Company used the Black Scholes Option Pricing
Model based upon the following assumptions: dividend yield of: -0-%, volatility of 94.1%, risk free rate: 2.01% and an expected
term of 5 years.
On
January 20, 2011, the Company determined a relative fair value of $78,062 for the detachable warrants for the second installment
of the convertible notes. In calculating the relative fair value of the warrants the Company used the Black Scholes Option Pricing
Model based upon the following assumptions: dividend yield of: -0-%, volatility of 104.65%, risk free rate: 2.06% and an expected
term of 5 years.
On
March 9, 2011, the Company determined a relative fair value of $106,132 for the detachable warrants for the third installment
of the convertible notes. In calculating the relative fair value of the warrants the Company used the Black Scholes Option Pricing
Model based upon the following assumptions: dividend yield of -0-%, volatility of 105.22%, risk free rate of 2.16% and an expected
term of approximately 5 years.
On
June 20, 2011, the Company determined a relative fair value of $29,276 for the detachable warrants for the fourth installment
of the convertible notes. In calculating the relative fair value of the warrants the Company used the Black Scholes Option Pricing
Model based upon the following assumptions: dividend yield of -0-%, volatility of 105.87%, risk free rate of 1.55% and an expected
term of approximately 5 years.
On
June 30, 2011, the Company determined a relative fair value of $45,233 for the detachable warrants for the fifth installment of
the convertible notes. In calculating the relative fair value of the warrants the Company used the Black Scholes Option Pricing
Model based upon the following assumptions: dividend yield of -0-%, volatility of 107.39%, risk free rate of 1.76% and an expected
term of approximately 5 years.
Conversions
During
fiscal year 2012, these notes associated with the first financing were converted into share of common stock, as follows:
On
April 13, 2012, the Company issued 1,240,000 shares of common stock to one investor who elected to convert the outstanding principal
amount of $620,000 due on its convertible promissory note date December 31, 2010 at a conversion price of $0.50 per share as provided
in the note agreement.
On
June 1, 2012, the Company issued 1,180,000 shares of common stock to one investor who elected to convert the outstanding principal
amount of $590,000 due on its convertible promissory notes dated January 1, 2011, March 9, 2011, June 20, 2011 and June 30, 2011
at a conversion price of $0.50 per share as provided in the note agreement.
On
June 11, 2012, the Company issued 300,481 shares of common stock to one investor who elected to convert all of their accrued interest
in the amount of $150,240 on its convertible notes from its first financing at a conversion price of $0.50 per share as provided
in the note agreement. Therefore, as of December 31, 2012 the December 31, 2010 credit facility was fully converted and no longer
outstanding debt.
As
described in Note 6, the Company issued convertible notes with detachable warrants. The Company accounted for these detachable
warrants in accordance with ASC 470-20, which requires that the Company calculate the relative fair value of the warrants at the
grant date and record the relative fair value as a discount to the related note payable with an offset to additional paid-in capital.
The Company amortizes the debt discount associated with the warrants over the life of the convertible notes using the effective
interest method.
On
February 10, 2012, the Company determined a relative fair value of $61,354 for the detachable warrants for the fourth installment
of the convertible notes. In calculating the relative fair value of the warrants, the Company used the Black Scholes Option Pricing
Model based upon the following assumptions: dividend yield of -0-%, volatility of 110.77%, risk free rate of 1.04% and an expected
term of approximately 5 years.
On
March 30, 2012, the Company determined a relative fair value of $130,853 for the detachable warrants for the fifth installment
of the convertible notes. In calculating the relative fair value of the warrants, the Company used the Black Scholes Option Pricing
Model based upon the following assumptions: dividend yield of -0-%, volatility of 110.64%, risk free rate of 1.04% and an expected
term of approximately 5 years.
On
June 4, 2012, the Company determined a relative fair value of $97,313 for the detachable warrants for the fifth installment of
the convertible notes. In calculating the relative fair value of the warrants the Company used the Black Scholes Option Pricing
Model based upon the following assumptions: dividend yield of -0-%, volatility of 112.94%%, risk free rate of 0.27% and an expected
term of approximately 4.69 years.
Warrant
Summary
An
overall summary of warrant activity for the period from December 31, 2013 through December 31, 2014 is presented below:
| | |
Number of
Warrants | | |
Weighted
Average
Exercise
Price | | |
Weighted
Average
Remaining
Contract Term |
| Outstanding December 31, 2012 | |
|
2,800,000 | | |
$ |
1.00 | | |
3.61 years |
| Issued | |
| — | | |
| — | | |
— |
| Exercised | |
| — | | |
| — | | |
— |
| Outstanding December 31, 2013 | |
| 2,800,000 | | |
$ | 1.00 | | |
3.61 years |
| Issued | |
| — | | |
| — | | |
— |
| Exercised | |
| — | | |
| — | | |
— |
| Outstanding December 31, 2014 | |
| 2,800,000 | | |
$ | 1.00 | | |
1.76 years |
| | |
| | | |
| | | |
|
| Exercisable, December 31, 2014 | |
| 2,800,000 | | |
$ | 1.00 | | |
1.76 years |
Shares
Reserved for Future Issuance
The
Company has reserved shares for future issuance upon of its warrants as follows:
| Warrants | |
| 2,800,000 | |
| Reserved shares at December 31, 2014 | |
| 2,800,000 | |
The
Company measures fair value in accordance with a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels
of the fair value hierarchy are described below:
| |
Level
1 |
Unadjusted
quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
| |
|
|
| |
Level
2 |
Quoted
prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full
term of the asset or liability; and |
| |
|
|
| |
Level
3 |
Prices
or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported
by little or no market activity). |
As
described in Note 5, the Company issued a convertible note with certain reset provisions, The Company accounted for these reset
provisions in accordance with ASC 815-40, which requires that the Company bifurcate the embedded conversion option as liability
at the grant date and to record changes in fair value relating to the conversion option liability in the statement of operations
as of each subsequent balance sheet date. The debt discount related to the convertible note is amortized over the life of the
note using the effective interest method.
The
conversion options embedded in these instruments contain no explicit limit to the number of shares to be issued upon settlement
and as a result are classified as liabilities under ASC 815. Additionally, because the number of shares to be issued upon settlement
is indeterminate, all other share settle-able instruments must also be classified as liabilities. As a result, the Company measured
its outstanding warrants on December 31, 2014 at fair value and re-classified these amounts from additional paid-in capital to
derivative liabilities.
The
following table sets forth the Company’s consolidated financial assets and liabilities measured at fair value by level within
the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant
to the fair value measurement.
| 2013 |
| | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| LIABILITIES: | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Conversion option liability | |
| — | | |
| — | | |
| — | | |
| 139,508 | |
| | |
| | | |
| | | |
| | | |
| | |
| 2014 |
| | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| LIABILITIES: | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Conversion option liability | |
| — | | |
| — | | |
| — | | |
| 975 | |
| | |
| | | |
| | | |
| | | |
| | |
| 2013 |
| | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| LIABILITIES: | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Conversion option liability | |
| — | | |
| — | | |
| — | | |
| 139,508 | |
| | |
| | | |
| | | |
| | | |
| | |
| 2014 |
| | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| LIABILITIES: | |
| | | |
| | | |
| | | |
| | |
The
following is a reconciliation of the conversion option liability and detachable warrant liability for which Level 3 inputs were
used in determining fair value:
| Beginning balance January 1, 2014 | |
$ | 139,508 | |
| | |
| | |
| Additions due to new convertible debt | |
| 152,810 | |
| | |
| | |
| Reclassification of derivative liabilities to additional paid-in capital due to conversion of
related notes payable | |
| 180,663 | |
| | |
| | |
| Mark to market of debt derivative | |
| 111,655 | |
| | |
| | |
| Debt derivative as of December 31, 2014 | |
$ | — | |
During
the year ended December 31, 2014, the gain on embedded derivatives of $111,655 in the condensed consolidated statement of operations
consisted of a loss on the change in fair value of $292,318 and a gain of $180,663 which was the amount by which the embedded derivative
liabilities exceeded the principal of the related notes payable on the date the notes were issued
During
the year ended December 31, 2013, the gain on embedded derivatives of $382,269 in the condensed consolidated statement of operations
consisted of a gain on the change in fair value of $442,483 and a loss of $60,214 which was the amount by which the embedded derivative
liabilities exceeded the principal of the related notes payable on the date the notes were issued.
The
Company’s conversion option liabilities are valued using pricing models and the Company generally uses similar models to
value similar instruments. Where possible, the Company verifies the values produced by its pricing models to market prices. Valuation
models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measures of volatility
and correlations of such inputs. These consolidated financial liabilities do not trade in liquid markets, and as such, model inputs
cannot generally be verified and do involve significant management judgment. Such instruments are typically classified within
Level 3 of the fair value hierarchy.
January
31, 2014 Convertible Note Installments
As
described in Note 5, we entered into a Note Purchase Agreement on January 31, 2013. The Company converted shares in several
installments, and determined a fair value for the conversion option liability at each conversion, recognizing a non-cash loss
included in other income (expense).
February
19, 2014 Convertible Note Installments
As
described in Note 5, we entered into a credit facility on February 19, 2013. The investor lent $103,500 to us in
a single installment (minus fees of $16,500) in exchange for a convertible promissory
note with a conversion price equal to the average lowest trading price per share during the previous 10 trading days.
The
table below shows the Black Scholes Option Pricing Model inputs used by the Company to value the derivative, as well as the determined
value of the option liability and the amount of loss (gain) recognized at each conversion date:
During
fiscal year 2012, the Company recognized a reduction of embedded derivative from the second installment of its convertible notes
in the amount of $2,258,375. This amount was recorded to additional paid-in capital.
During
the twelve months ended December 31, 2014, the Company proposed no new workover procedures to third party working interest owners
on properties for which the Company has ownership
During
2014, the Company, by use of a third party, performed drilling on the Gabriel lease and placed surface casing. However, drilling
was halted due to the third party driller not having enough funds to continue drilling.
During
2014, the Company sold off acreage related to the Welder well but maintained its interest in the well.
During
2014, the Company did not perform any other workover, or acquire new well interest.
As
of December 31, 2013, United Operating, LLC received cash in the amount of $582,278 to perform work on behalf of various working
interest owners including repairs, drilling and production related costs. These funds are restricted solely for use in drilling
and workovers.
| 9. | Asset
Retirement Obligation |
The
Company accounts for its future asset retirement obligations by recording the fair value of the liability during the period in
which it was incurred. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived
asset. The Company depletes the amount added to proved oil and gas property costs and gathering assets using the units-of-production
method. The Company’s asset retirement obligation consists of costs related to the plugging of wells, removal of facilities
and equipment and site restoration on its oil and gas properties and gathering assets. The asset retirement liability is allocated
to operating expense using a systematic and rational method. The information below reconciles the value of the asset retirement
obligation for the periods presented.
| | |
Year ended
December 31,
2014 | | |
Year ended
December 31,
2013 | |
| Beginning of the period | |
$ | 112,727 | | |
$ | 69,316 | |
| New wells | |
| 25,144 | | |
| 86,015 | |
| Change in estimate | |
| (7,843 | ) | |
| (55,349 | ) |
| Accretion expense | |
| 63,334 | | |
| 12,745 | |
| Balance at end of the period | |
$ | 193,362 | | |
$ | 112,727 | |
As
described in Note 6 during the year ended December 31, 2013, certain notes payables were converted into 35,971,650 shares of common
stock.
Fiscal
Year 2014
As
of December 31, 2014, the Company had 321,867,911 shares of common stock issued and outstanding.
Fiscal
Year 2013
As
of December 31, 2013, the Company had 86,875,192 shares of common stock issued and outstanding.
On
August 20, 2013 directors of the Company approved the share-based compensation plan for a consultant of 564,000 shares of common
stock as share based compensation. These shares were issued at a market price of $0.09 per share.
On
December 21, 2012 directors of the Company approved share based compensation plan for an employee, an advisor and independent
investor relations advisor of 80,000, 125,000 and 100,000 shares of common stock as share based compensation. These shares were
issued at a market price of $0.09 per share. During the twelve months ended December 31, 2012, the Company recognized $30,500
as share based compensation expense.
On
December 26, 2012, the Company issued 500 shares of Series B Preferred Stock, each to Michael Carey, its Chief Executive Officer,
President and Director, and Ryan Hudson, its Chief Operating Officer, Secretary and Director (1,000 shares of Series B Preferred
Stock in aggregate), in consideration for services rendered to the Company as the Company’s Chief Executive Officer, President
and Director, and Chief Operating Officer, Secretary and Director, respectively. The Company has evaluated the fair value of the
share based compensation is $1.
As
of December 31, 2014, our deferred tax asset amounting to $660,055 primarily related to our net operating loss carryforward of
$537,555. A 100% valuation allowance has been established using an effective tax rate of 34% due to the uncertainty of the utilization
of the operating losses in future periods. As a result, the deferred tax asset was reduced to zero and no income tax benefit was
recorded. The net operating loss carryforward will begin to expire in 2031.
The
following table sets forth the components of our deferred tax balance as of December 31, 2014 and 2013.
| | |
December 31, | | |
December 31, | |
| | |
2014 | | |
2013 | |
| | |
| | | |
| | |
| Beginning of year NOL | |
| (1,536,395 | ) | |
| (778,338 | ) |
| | |
| | | |
| | |
| Current year NOL | |
| 836,234 | | |
| (2,004,723 | ) |
| Loss on MTM - embedded derivatives | |
| 106,212 | | |
| 728,124 | |
| Depletion amortization and accretion | |
| 109,178 | | |
| 426,782 | |
| Stock compensation | |
| — | | |
| 91,760 | |
| End of year NOL | |
| 2,157,239 | | |
| (1,536,395 | ) |
| Tax rate | |
| x 34 | % | |
| x 34 | % |
| | |
| | | |
| | |
| Deferred tax asset | |
| 733,461 | | |
| (522,374 | ) |
| Valuation allowance | |
| 733,461 | | |
| 522,374 | |
| | |
| | | |
| | |
| Net deferred tax asset | |
| — | | |
| — | |
Section
382 of the Internal Code allows post-change corporations to use pre-change net operating losses, but limit the amount of losses
that may be used annually to a percentage of the entity value of the corporation at the date of
the
ownership change. The applicable percentage is the federal long-term tax-exempt rate for the month during which the change in
ownership occurs.
| 12. | Commitments
and Contingencies |
Litigation.
A case was filed by Nottus Energy, as plaintiff, against Slate Holdings, Inc., Quality Architectural Element, Inc., United
American Petroleum Corp. and Carlos Sandoval, as defendants. This case is for termination of a portion of an oil and gas lease
operated by Slate Holdings, in which we own a working interest. The plaintiff was granted a final judgment in this case on July
3, 2013 and awarded damages of $93,526. A settlement offer has been submitted to all of the defendants by plaintiff and we have
agreed to accept the offer, but it is dependent on the other working interest owners accepting it as well.
As
of December 31, 2014, we have recorded the total $93,526 liability for the final judgment due to our belief that a payout of this
amount is probable.
| 13. | Supplemental
Oil and Gas Reserve Information (Unaudited) |
In
accordance with US GAAP for disclosures about oil and gas producing activities, and SEC rules for oil and gas reporting disclosures,
we are making the following disclosures about our crude oil and natural gas reserves and exploration and production activities.
Reserves.
There are numerous uncertainties inherent in estimating quantities of proved crude oil and natural gas reserves. Crude oil
and natural gas reserves engineering is a subjective process of estimating underground accumulations of crude oil and natural
gas that cannot be precisely measured. The accuracy of any reserves 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.
Reserves
Estimates. Our proved reserve information as of December 31, 2014 and December 31, 2013 was estimated by Mire and Associates,
Inc. (“Mire”), independent petroleum engineers. In accordance with SEC guidelines, Mire’s estimates of future
net revenues from our properties, and the PV-10 and standardized measure thereof, were determined to be economically producible
under existing economic conditions, which requires the use of the 12-month average price for each product, calculated as the unweighted
arithmetic average of the first-day-of-the-month price for the period January 1, 2014 through December 31, 2014, except where
such guidelines permit alternate treatment, including the use of fixed and determinable contractual price escalations.
The technical
persons at Mire are responsible for preparing the reserves estimates presented herein and meets the requirements regarding
qualifications, independence, objectivity, and confidentiality set forth in the Standards Pertaining to the Estimating and Auditing
of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. Michael Carey, our Chief Executive Officer
and a director, acted as the liaison with the technical persons at Mire.
Definitions.
The following definitions apply to the terms used in the paragraphs above:
Reserves
Estimate: The determination of an estimate of a quantity of oil or gas reserves that are thought to exist at a certain date,
considering existing prices and reservoir conditions.
Proved
Oil and Gas 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 produce the hydrocarbons must have commenced or the operator must be reasonably certain that it will
commence the project within a reasonable time.
Developed
Oil and Gas Reserves Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared
with the cost of a new well.
Undeveloped
Oil and Gas Reserves Proved undeveloped oil and gas reserves (PUDs) are 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. 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.
For
complete definitions of proved natural gas, natural gas liquids and crude oil reserves, refer to SEC Regulation S-X, Rule 4-10(a)(6),
(22) and (31).
Oil
and Gas Reserve Information. The following reserve quantities for our proved reserves located in the State of Texas in
the United States have been estimated as of December 31, 2014. The determination of oil and gas reserves is based on estimates,
which are highly complex and interpretive. The estimates are subject to continuing change as additional information becomes available.
| | |
At December 31, | | |
At December 31, | |
| Reserve Category | |
2014 | | |
2013 | |
| Proved Developed: | |
| | | |
| | |
| Crude Oil (Mbbls) | |
| 118,660 | | |
| 87,730 | |
| Natural Gas (Mcf) | |
| — | | |
| — | |
| Total Oil Equivalent (BOE) | |
| 118,660 | | |
| 87,730 | |
| | |
| | | |
| | |
| Proved Undeveloped: | |
| | | |
| | |
| Crude Oil (Mbbls) | |
| 20,250 | | |
| 14,340 | |
| Natural Gas (Mcf) | |
| — | | |
| — | |
| Total Oil Equivalent (BOE) | |
| 20,250 | | |
| 14,340 | |
Change
The
following table sets forth purchase, production and reserve adjustment activities for the three year period ended December 31,
2014.
| | |
| | |
Natural Gas | |
| Reserved Quantity | |
Oil (BBLS) | | |
(MCF) | |
| Balance, December 31, 2011 | |
| 38,330 | | |
| 49,406 | |
| | |
| | | |
| | |
| Purchases | |
| — | | |
| — | |
| Production | |
| (5,823 | ) | |
| (1,404 | ) |
| Adjustments to existing reserves | |
| 28,673 | | |
| (18,642 | ) |
| Balance, December 31, 2012 | |
| 61,180 | | |
| 29,360 | |
| | |
| | | |
| | |
| Purchases | |
| — | | |
| — | |
| Production | |
| (7,123 | ) | |
| — | |
| Adjustments to existing reserves | |
| 48,013 | | |
| (29,360 | ) |
| Balance, December 31, 2013 | |
| 102,070 | | |
| — | |
| | |
| | | |
| | |
| Purchases | |
| — | | |
| — | |
| Production | |
| 6,364 | | |
| — | |
| Adjustments to existing reserves | |
| 22,954 | | |
| 525 | |
| Balance, December 31, 2014 | |
| 118,660 | | |
| 525 | |
| | |
| | | |
| | |
Capitalized
Costs Relating to Oil and Gas Producing Activities. Aggregate capitalized costs relating to crude oil and natural gas producing
activities are as follows:
| | |
December 31, | | |
December 31, | |
| | |
2014 | | |
2013 | |
| | |
| | | |
| | |
| Unproved Oil and Gas Properties | |
| — | | |
| — | |
| Proved Oil and Gas Properties | |
| 700,839 | | |
| 1,376,049.00 | |
| Total Oil and Gas Properties | |
| 700,839 | | |
| 1,376,049.00 | |
| Accumulated DD&A | |
| (282,458.72 | ) | |
| (236,614.00 | ) |
| Net Capitalized Costs | |
| 418,380 | | |
| 1,139,435.00 | |
Standardized
Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves. The following information is based on
our best estimate of the required data for the Standardized Measure of Discounted Future Net Cash Flows in accordance with US
GAAP. This information is not the fair value nor does it represent the expected present value of future cash flows of our proved
oil and gas reserves.
The
standardized measure of discounted future net cash flows is provided using the 12-month unweighted arithmetic average and were
held constant throughout the life of the properties. The oil price used as of December 31, 2014 was $91.48 per bbl of oil and
$4.35 per MMbtu of natural gas. Future production costs are based on year-end costs and include severance and ad valorem taxes.
Each property that is leased by us is also charged with field-level overhead in the reserve calculation. The present value
of future cash inflows is based on a 10% discount rate, which is required by the standards.
Standardized
Measure of Future Net Cash Flows:
| | |
December 31, 2014 | | |
December 31, 2013 | |
| Future cash flows | |
$ | 10,388,070.00 | | |
$ | 9,657,990.00 | |
| Future production and development costs | |
| (6,709,780.00 | ) | |
| (4,603,210.00 | ) |
| Future income taxes | |
| — | | |
| — | |
| Future net cash flows before discount | |
| 3,678,290.00 | | |
| 5,054,780.00 | |
| 10% discount to percent value | |
| (1,653,200.00 | ) | |
| (2,609,220.00 | ) |
| Standardized measure of discounted future net cash flows | |
$ | 2,025,090.00 | | |
$ | 2,445,560.00 | |
| | |
| | | |
| | |
Changes
in the Standard Measure of Discounted Cash Flows:
| | |
December 31, | | |
December 31, | |
| | |
2014 | | |
2013 | |
| Standardized measure of discounted future net cash flows beginning of period | |
$ | 1,702,239 | | |
$ | 1,344,510 | |
| Purchases of reserves in place | |
| — | | |
| — | |
| Extension and discoveries, net of future production and development costs | |
| — | | |
| — | |
| Sales of oil and gas produced, net of production costs | |
| 340,266.38 | | |
| 223,278.00 | |
| Accretion of discount | |
| 170,224 | | |
| 134,451 | |
| Revisions of previous quantity estimates | |
| 2,935,464.61 | | |
| — | |
| Net change in prices and production costs | |
| (1,349,804 | ) | |
| — | |
| Net change in income taxes | |
| — | | |
| — | |
| Changes in timing and other | |
| (2,590,953 | ) | |
| 743,321 | |
| Standardized measure of discounted future net cash flows end of period | |
| 3,798,390.18 | | |
| 1,702,239.00 | |
Item
9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item
9A. Controls and Procedures.
Evaluation
of disclosure controls and procedures.
We
maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports that we
file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our
management including our principal executive and principal financial officers, as appropriate, to allow timely
decisions regarding required disclosures. Based upon their evaluation of those controls and procedures performed as of the
end of the period covered by this report, our principal executive officer and our principal financial officer concluded that our
disclosure controls and procedures were not effective due to our over reliance on consultants in our accounting and financial
statement closing processes.
Deficiencies
in Our Control Environment.
Our
control environment did not sufficiently promote effective internal control over financial reporting throughout the organization.
This material weakness exists because of the aggregate effect of multiple deficiencies in internal control which affect our control
environment, including: a) the lack of an effective risk assessment process for the identification of fraud risks; b) the lack
of an internal audit function or other effective mechanism for ongoing monitoring of the effectiveness of internal controls; c)
deficiencies in our accounting system and controls; d) and insufficient documentation and communication of our accounting policies
and procedures as of December 31, 2014.
Annual
Report on Internal Control over Financial Reporting.
Michael
Carey, our Principal Executive and Financial Officer, is responsible for establishing and maintaining adequate internal control
over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under
the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, our principal executive
and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those policies and procedures that:
| ● |
pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
our assets; |
| |
|
| ● |
provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with
authorizations of management and our directors; and |
| |
|
| ● |
provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the financial statements. |
Because
of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation
and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our
Principal Executive and Financial Officer assessed the effectiveness of our internal control over financial reporting as of December
31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control — Integrated Framework.
Based
on our assessment, our Principal Executive and Financial Officer believes that, as of December 31, 2014, our internal control
over financial reporting is not effective based on those criteria, due to the following material weaknesses:
| ● |
Deficiencies
in Segregation of Duties. Lack of proper segregation of functions, duties and responsibilities with respect to our cash and
control over the disbursements related thereto due to our very limited staff, including our accounting personnel. |
| |
|
| ● |
Deficiencies
in Our Control Environment. Our control environment did not sufficiently promote effective internal control over financial
reporting throughout the organization. This material weakness exists because of the aggregate effect of multiple deficiencies
in internal control which affect our control environment, including: a) the lack of an effective risk assessment process for
the identification of fraud risks; b) the lack of an internal audit function or other effective mechanism for ongoing monitoring
of the effectiveness of internal controls; c) deficiencies in our accounting system and controls; and d) and insufficient
documentation and communication of our accounting policies and procedures as of December 31, 2014. |
| |
|
| ● |
Deficiencies
in the staffing of our financial accounting department. The number of qualified accounting personnel with experience in public
company SEC reporting and GAAP is limited. This weakness does not enable us to maintain adequate controls over our financial
accounting and reporting processes regarding the accounting for non-routine and non-systematic transactions. There is a risk
that a material misstatement of the financial statements could be caused, or at least not be detected in a timely manner,
by this shortage of qualified resources. |
In
light of this conclusion and as part of the preparation of this report, we have applied compensating procedures and processes
as necessary to ensure the reliability of our financial reporting. Accordingly, management believes, based on its knowledge, that
(1) this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made not misleading with respect to the period covered by this report, and (2) the financial statements, and other
financial information included in this report, fairly present in all material respects our financial condition, results of operations
and cash flows for the years and periods then ended.
This
report does not include an attestation report of our independent registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm
pursuant to temporary rules of the SEC that permit us to provide only management’s report in this report.
Changes
in Internal Control over Financial Reporting
There
were no significant changes in our internal control over financial reporting during the fourth quarter of the year ended December
31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item
9B. Other Information.
None.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
Executive
Officers and Directors. Each of our officers is elected by the Board of Directors for a term of one year and serves until
his or her successor is duly elected and qualified, or until he or she is removed from office. Our directors and principal executive
officers are as specified on the following table:
| Name | |
Age | |
Position |
| Michael Carey | |
34 | |
Chief Executive Officer, Chief Financial Officer, President, Treasurer, and Director |
| Ryan Hudson | |
39 | |
Chief Operating Officer, Secretary, and Director |
The
business experience of each of the persons listed above during the past five years is as follows:
Michael
Carey. Michael Carey was appointed as our Chief Executive Officer, President and a Director in December 2010 and was appointed
as our Chief Financial Officer and Treasurer in February 2012. Prior to joining the Company, Mr. Carey previously worked for Trius
Operations, LLC, and 4 Phoenix Oil & Gas LLC, doing business as Phoenix Oil & Gas LLC. From 2002 to 2004, Mr. Carey served
as senior vice president at Richman Oil. Mr. Carey also previously served as junior vice president for CKG Energy. Mr. Carey is
not an officer or director of any other reporting company.
Ryan
Hudson. Ryan Hudson was appointed as our Chief Operating Officer and Secretary in December 2010. Mr. Hudson was appointed
as a Director in March 2011. Prior to joining the Company, Mr. Hudson worked for Trius Operations, LLC, and 4 Phoenix Oil &
Gas, doing business as Phoenix Oil & Gas LLC. From 2001 to 2004, Mr. Hudson served as senior vice president at Richman Oil.
Mr. Hudson is also a certified firefighter and received his firefighter certification from the Texas Commission on Fire Protection. Mr.
Hudson is not an officer or director of any other reporting company.
Involvement
in Certain Legal Proceedings
| | None
of our directors have been involved in any of the following events during the past ten years: |
| 1. |
any
bankruptcy petition filed by or against any business of which such person was a general
partner or executive officer either at the time of the bankruptcy or within two years
prior to that time;
|
| 2. |
any
conviction in a criminal proceeding or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses);
|
| 3. |
being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business, securities
or banking activities; or
|
| 4. |
being
found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission
to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. |
Corporate
Governance
The
Company promotes accountability for adherence to honest and ethical conduct; endeavors to provide full, fair, accurate, timely
and understandable disclosure in reports and documents that the Company files with the Securities and Exchange Commission (the
“SEC”) and in other public communications made by the Company; and strives to be compliant with applicable governmental
laws, rules and regulations. The Company has not formally adopted a written code of business conduct and ethics that governs the
Company’s employees, officers and directors as the Company is not required to do so.
In
lieu of an Audit Committee, the Company’s Board of Directors is responsible for reviewing and making recommendations concerning
the selection of outside auditors, reviewing the scope, results and effectiveness of the annual audit of the Company’s financial
statements and other services provided by the Company’s independent public accountants. The Board of Directors reviews the
Company’s internal accounting controls, practices and policies.
Committees
of the Board
Our
Company currently does not have nominating, compensation, or audit committees or committees performing similar functions nor does
our Company have a written nominating, compensation or audit committee charter. Our directors believe that it is not necessary
to have such committees, at this time, because the functions of such committees can be adequately performed by our directors.
Nominating
Process. Our entire Board of Directors participates in consideration of director nominees. The Board of Directors will consider
candidates who have experience in the oil and gas industry or able to bring significant financing to the Company. The Board of
Directors will also evaluate whether the candidates’ skills and experience are complementary to the existing Board’s skills and
experience as well as the Board of Directors’ need for operational, management, financial, international, technological or other
expertise. The Board of Directors will interview candidates that meet the criteria and then select nominees that the Board of
Directors believes best suit our needs.
The
Board of Directors will consider qualified candidates suggested by stockholders for director nominations. Stockholders can suggest
qualified candidates for director nominations by writing to our Corporate Secretary, at 9600 Great Hills Trail, Suite 150W, Austin,
TX 78759. Submissions that are received that meet the criteria described above will be forwarded to the Board of Directors for
further review and consideration. The Board of Directors will not evaluate candidates proposed by stockholders any differently
than other candidates. There have been no material changes to the procedures by which our stockholders may recommend nominees
to the Board of Directors.
Director
Independence. The Over-The-Counter Bulletin Board does not have rules regarding director independence. The Company will seek
to appoint independent directors, if and when it is required to do so.
Audit
Committee and Audit Committee Financial Expert. Presently, the Board of Directors acts as the audit committee. The Board of
Directors does not have an audit committee financial expert. The Board of Directors has not yet recruited an audit committee financial
expert to join the Board of Directors because we have only recently commenced a significant level of financial operations.
Code
of Ethics. We do not currently have a Code of Ethics that applies to all employees, including our principal executive
officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The
Board of Directors evaluated the business of the Company and the number of employees and determined that since the business is
operated by a small number of persons, general rules of fiduciary duty and federal and state criminal, business conduct and securities
laws are adequate ethical guidelines. In the event our operations, employees and/or directors expand in the future, we may take
actions to adopt a formal Code of Ethics.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our directors and officers,
and the persons who beneficially own more than ten percent of our common stock, to file reports of ownership and changes in ownership
with the SEC. Copies of all filed reports are required to be furnished to us pursuant to Rule 16a-3 promulgated under the Exchange
Act.
Based
solely on the reports received by us and on the representations of the reporting persons, we believe that all required directors,
officers and greater than ten percent shareholders complied with applicable filing requirements during the fiscal year ended December
31, 2014.
Item
11. Executive Compensation
Summary
Compensation Table. Michael Carey, our Chief Executive Officer and Ryan Hudson, our Chief Operating Officer each received
$72,000.00 in salary during the year ended December 31, 2014. The remainder of their 2014 salaries was accrued at December 31,
2014. The table set forth below summarizes the annual and long-term compensation for services in all capacities to us payable
to our principal executive officers for the fiscal years ended December 31, 2014 and 2013.
| SUMMARY COMPENSATION TABLE |
Name and
Principal
Position | |
Year
Ended | |
Salary
$ | |
Bonus
$ | |
Stock
Awards
$ | |
Option
Awards
$ | |
Non-Equity
Incentive Plan
Compensation
$ | |
Nonqualified
Deferred
Compensation
Earnings $ | |
All Other
Compensation
$ | |
Total
$ |
| | |
| |
| |
| |
| |
| |
| |
| |
| |
|
| Michael Carey, Chief Executive Officer, and President | |
2014
2013 | |
$120,000
$100,000 | |
None
None | |
None
None | |
None
None | |
None
None | |
None
None | |
None
None | |
$120,000
$100,000.00 |
| Ryan Hudson, Chief Operating Officer, and Secretary | |
2014
2013 | |
$120,000
$100,000 | |
None
None | |
None
None | |
None
None | |
None
None | |
None
None | |
None
None | |
$120,000.00
$100,000.00 |
| (1) | Represents
500 shares of the Company’s Series B Preferred Stock. |
| * | Does
not include perquisites and other personal benefits, or property, unless the aggregate amount of such compensation is more than
$10,000. The value of the Stock Awards and Option Awards in the table above, if any, were calculated based on the fair value of
such securities calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. |
Employment
Contracts and Termination of Employment.
Our
officers do not have a written employment agreement. Their employment agreements expired by their terms on October 15, 2013. Our
officers intend to seek new employment agreements with the Company.
Series
B Preferred Stock
On
October 11, 2012, the Company filed with the Nevada Secretary of State, a Certificate of Designations, Establishing the Designations,
Preferences, Limitations and Relative Rights of Its Series B Preferred Stock (the “Designation”). The Designation,
which was approved by the Board of Directors on October 9, 2012 and authorized under the Company’s Articles of Incorporation,
provides the Board of Directors the right to designate series of preferred stock, provided for the designation of a series of
1,000 shares of Series B Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”). The Series
B Preferred Stock have no dividend rights, no liquidation preference, no redemption rights and no conversion rights. The Series
B Preferred Stock have the right, voting in aggregate, to vote on all shareholder matters (including, but not limited to, at every
meeting of the stockholders of the Company and upon any action taken by stockholders of the Company with or without a meeting)
equal to fifty-one percent (51%) of the total vote (the “Super Majority Voting Rights”). Additionally, we are not
allowed to adopt any amendments to our Bylaws, Articles of Incorporation, as amended, make any changes to the Certificate of Designations
establishing the Series B Preferred Stock, or effect any reclassification of the Series B Preferred Stock, without the affirmative
vote of at least 66-2/3% of the outstanding shares of the Series B Preferred Stock.
On
December 26, 2012, the Company issued 500 shares of Series B Preferred Stock, each to Michael Carey, its Chief Executive Officer,
President and Director, and Ryan Hudson, its Chief Operating Officer, Secretary and Director (1,000 shares of Series B Preferred
Stock in aggregate), in consideration for services rendered to the Company as the Company’s Chief Executive Officer, President
and Director, and Chief Operating Officer, Secretary and Director, respectively.
Outstanding
Equity Awards. As of December 31, 2014, our executive officers did not have any unexercised options, stock that has not vested,
or equity incentive plan awards.
Equity
Compensation Plans. On September 13, 2013, the Company’s Board of Directors approved the Company’s 2013 Stock
Plan for Officers, Directors, and Consultants (the “2013 Plan”). The 2013 Plan provided for the issuance of a total
of up to 2,000,000 shares of common stock, options, restricted share units, share appreciation rights and other share based awards
to acquire common stock to employees, directors and consultants. No compensation has been issued to our directors of officers
under the 2013 Plan.
Stock
Options/SAR Grants. No grants of stock options or stock appreciation rights were made during the fiscal year ended December
31, 2013.
Long-Term Incentive
Plans. There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive
officers. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may
be paid to our directors or executive officers.
Director
Compensation For the year ended December 31, 2014, we did not have any directors who did not also serve as executive officers
of the Company and whose total compensation (including compensation as an officer and director) is included in the table above.
Any compensation received by our officers, directors, and management personnel will be determined from time to time by our Board
of Directors. As of December 31, 2014, our directors are not paid any compensation for their service as directors. They are nevertheless
reimbursed for their reasonable expenses incurred upon presentation of the appropriate documentary evidence.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
The
following table sets forth certain information regarding the beneficial ownership of our common stock as of April 8, 2015, by
(i) each person or entity known by us to be the beneficial owner of more than 5% of the outstanding shares of common stock, (ii)
each of our directors, (iii) our executive officers, and (iv) all of our directors and executive officers as a group.
The
number and percentage of shares beneficially owned is determined under Rule 13d-3 as promulgated under the Securities Exchange
Act of 1934, as amended, by the Securities and Exchange Commission (SEC), and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual
has sole or shared voting power or dispositive power and also any shares that the individual has the right to acquire within sixty
(60) days of April 11, 2014 through the exercise of any stock option or other right.
We
believe that, except as otherwise noted and subject to applicable community property laws, each person named in the following
table has sole investment and voting power with respect to the shares of common stock shown as beneficially owned by such person.
Unless otherwise indicated, the address for each of the officers or directors listed in the table below is 9600 Great Hills Trail,
Suite 150W, Austin, Texas 78759.
| | |
Shares of Common Stock | | |
Shares of Series
B Preferred Stock (2) | | |
Total Voting Shares Owned (2) | |
| Name and Address of Beneficial Owner | |
Number | | |
Percentage | | |
Number | | |
Percentage | | |
Number | | |
Percentage | |
| Officers and Directors | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Michael Carey | |
| 6,350,000 | (1) | |
| 6.5 | % | |
| 500 | | |
| 50 | % | |
| 88,426,317 | (2) | |
| 27.47 | % |
| Ryan Hudson | |
| 6,450,000 | (3) | |
| 6.6 | % | |
| 500 | | |
| 50 | % | |
| 88,526,317 | (2) | |
| 27.50 | % |
| (All Officers and Directors as a Group (2 persons)) | |
| 12,800,000 | | |
| 13.1 | % | |
| 1,000 | | |
| 100 | % | |
| 114,194,644 | (2) | |
| 54.97 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| 5% Shareholders | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Mighty Falcon Ltd. (4)
Room 1004, Harvest Building
29-37 Wing Kut Street
Central K3, Hong Kong | |
| 6,950,000 | | |
| 7.1 | % | |
| — | | |
| — | | |
| 6,950,000 | | |
| 7.1 | % |
Percentage
ownership in the table above is based on 321,867,911 shares of common stock issued and outstanding and 1,000 shares of Series
B Preferred Stock issued and outstanding, which have the right to vote 164,152,634 voting shares, resulting in a total of 486,020,545
total voting shares outstanding as of April 8, 2015.
| (1) | Includes
5,000,000 shares of common stock held in the name of Carey Partners, Ltd., which entity and therefore which shares, are beneficially
owned by Mr. Carey. |
| (2) | The
Series B Preferred Stock have the right, voting in aggregate, to vote on all shareholder matters (including, but not limited to
at every meeting of the stockholders of the Company and upon any action taken by stockholders of the Company with or without a
meeting) equal to fifty-one percent (51%) of the total vote, which percentage is equal to 101,394,644 voting shares as of January
29, 2014. |
| (3) | Includes
5,000,000 shares of common stock held in the name of Chitex Family Limited Partnership, which entity and therefore which shares,
are beneficially owned by Mr. Hudson. |
| (4) | Bill
Cheung holds voting and dispositive power over the shares of Mighty Falcon Ltd. |
Changes
in Control. Our management is not aware of any arrangements which may result in “changes in control” as that term
is defined by the provisions of Item 403(c) of Regulation S-K.
Item
13. Certain Relationships and Related Transactions, and Director Independence.
Related
Party Transactions.
As
of December 31, 2014, the Company had a related party receivable in the amount of $41,513 due from two Companies with working
interest amounts payable. This is a 2.65 increase from an amount of $58,023 as of December 31, 2013. Our directors are also officers
in these two companies.
Michael
Carey, our Chief Executive Officer and President, and Ryan Hudson, our Chief Operating Officer and Secretary, are members of 4
Phoenix Oil and Gas, LLC (“Phoenix”), which pays for fuel, meals, and other onsite location expenses, and field equipment
to facilitate field activities. The Company reimburses Phoenix for such expenses and services on an ongoing basis.
Effective
December 26, 2012, the Company issued 500 shares of its Series B Preferred Stock each to Mr. Carey and Mr. Hudson (1,000 shares
of Series B Preferred Stock in aggregate), in consideration for services rendered to the Company as the Company’s Chief
Executive Officer, President and Director, and Chief Operating Officer, Secretary and Director, respectively.
There
have been no other related party transactions, or any other transactions or relationships required to be disclosed pursuant to
Item 404 of Regulation S-K.
Review,
Approval and Ratification of Related Party Transactions
Given
our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or
ratification of transactions, such as those described above, with our executive officers, directors and significant stockholders.
We may establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional
directors, so that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an
appropriate committee thereof. On a moving forward basis, our directors will continue to approve any related party transaction.
Director
Independence. We do not have any independent directors.
Item
14. Principal Accountant Fees and Services.
Audit
Fees. The aggregate fees billed in the fiscal years ended December 31, 2014 and 2013 for professional services rendered by
the principal accountant for the audit of our annual financial statements and quarterly review of the financial statements included
in our Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings
or engagements for those fiscal years was $70,750 and $74,500, respectively.
Tax
Fees. For the fiscal years ended December 31, 2014 and 2013, our principal accountants did not render any services for tax
compliance, tax advice, and tax planning work.
All
Other Fees. None.
Pre-Approval
Policies and Procedures. Prior to engaging our accountants to perform a particular service, our Board of Directors obtains
an estimate for the service to be performed. All of the services described above were approved by the Board of Directors in accordance
with its procedures.
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
| (a) | Documents
filed as part of this report |
| (1) | All
financial statements |
| (2) | Financial
Statement Schedules |
All
financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts
sufficient to require submission of the schedule, or because the information required is included in the consolidated financial
statements and notes thereto included in this Form 10-K.
| (3) | Exhibits
required by Item 601 of Regulation S-K |
The
information required by this Section (a)(3) of Item 15 is set forth on the exhibit index that follows the Signatures page
of this Form 10-K.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
| |
United
American Petroleum Corp. |
|
| |
|
|
|
| April
15, 2015 |
By: |
/s/
Michael Carey |
|
| |
|
Michael
Carey |
|
| |
Its: |
Chief
Executive Officer, Chief Financial Officer, President, Treasurer and a Director |
|
| |
|
(Principal
Executive, Financial and Accounting Officer) |
|
In
accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
| By: |
/s/
Michael Carey |
|
April
15, 2015 |
| |
Michael
Carey |
|
|
| Its: |
Chief
Executive Officer, Chief Financial Officer, President, Treasurer and a Director |
|
|
| |
|
|
|
| By: |
/s/
Ryan Hudson |
|
April
15, 2015 |
| |
Ryan
Hudson |
|
|
| Its: |
Chief
Operating Officer, Secretary and a Director |
|
|
EXHIBIT
INDEX
| Exhibit | |
Description of Exhibit |
| 2.1 | |
Agreement and Plan of Merger, by and among the Company, United American Petroleum Corp. and United PC Acquisition Corp., dated December 31, 2010 (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 5, 2011) |
| | |
|
| 2.2 | |
Agreement and Plan of Merger and Reorganization dated December 31, 2010, by and between the Company and United American Petroleum Corp. (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 5, 2011) |
| | |
|
| 3.1 | |
Amended and Restated Articles of Incorporation, as filed with the Secretary of State of the State of Nevada, effective January 31, 2008 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, filed November 14, 2012) |
| | |
|
| 3.2 | |
Certificate of Designations of Series B Preferred Stock (incorporated by reference as Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed November 14, 2012) |
| | |
|
| 3.3 | |
Certificate of Withdrawal of Certificate of Designation of Series A Convertible Preferred Stock (incorporated by reference as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, filed November 14, 2012) |
| | |
|
| 3.4 | |
Bylaws (incorporated by reference to Exhibit 3(ii) of the Company’s Registration Statement on Form SB-2, filed on April 15, 2005). |
| | |
|
| 3.5 | |
Articles of Merger, as filed with the Secretary of State of the State of Nevada, effective December 16, 2009. |
| | |
|
| 3.6 | |
Certificate of Correction to Articles of Merger, as filed with the Secretary of State of the State of Nevada, effective January 29, 2010 (incorporated by reference to Exhibit 3.6 of the Company’s Annual Report on Form 10-K, as amended, filed January 21, 2011). |
| | |
|
| 3.7 | |
Articles of Merger between United PC Acquisition Corp. and United American Petroleum Corp. (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 5, 2011) |
| | |
|
| 3.8 | |
Articles of Merger between United American Petroleum Corp. and Forgehouse, Inc. (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 5, 2011) |
| | |
|
| 10.1 | |
Employment Agreement of Michael Carey (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 5, 2011) |
| | |
|
| 10.2 | |
Employment Agreement of Ryan Hudson (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 5, 2011) |
| | |
|
| 10.3 | |
$400,000 Promissory Note – JMJ Financial (January 31, 2013) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on March 7, 2013) |
| | |
|
| 10.4 | |
Securities Purchase Agreement – Asher Enterprises, Inc. (February 19, 2013) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on March 7, 2013) |
| 10.5 | |
$103,500 Convertible Promissory Note – Asher Enterprises, Inc. (February 19, 2013) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Commission on March 7, 2013) |
| | |
|
| 10.6 | |
2013 Stock Plan for Directors, Officers and Consultants (incorporated by reference to Exhibit 4.1 of the Company’s Form S-8 Registration Statement Under the Securities Act of 1933, filed with the Commission on September 13, 2013) |
| | |
|
| 21 | |
List of Subsidiaries (incorporated by reference to the Company’s Form 10-K for the Fiscal Year Ended December 31, 2013, filed with the Commission on April 15, 2014) |
| | |
|
| 23.1 | |
Consent of Mire and Associates, Inc. |
| | |
|
| 31.1 | |
Certification of Principal Executive and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
|
| 32.1 | |
Certification of Principal Executive and Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
|
| 99.1 | |
Reserve Reports of Properties located in Duval, Erath, Frio, Gonzales, Medina, Navarro, Pecos, Shackelford, and Wilbarger Counties, Texas |
| | |
|
| 101.INS | |
XBRL Instance Document |
| | |
|
| 101.SCH | |
XBRL Taxonomy Schema |
| | |
|
| 101.CAL | |
XBRL Taxonomy Calculation Linkbase |
| | |
|
| 101.DEF | |
XBRL Taxonomy Definition Linkbase |
| | |
|
| 101.LAB | |
XBRL Taxonomy Label Linkbase |
| | |
|
| 101.PRE | |
XBRL Taxonomy Presentation Linkbase |
| |
|
 |
1830
Snake River, Unit A
Katy, TX 77449
Tel: 281-646-9878
www.mireandassociates.com |
| |
|
| |
|
March
26, 2015
United
American Petroleum Corporation
9600 Great Hills Trail, Suite 150W
Austin, TX 78759
ATTN:
Mr. Michael Carey
|
| SUBJECT: | UNITED
AMERICAN PETROLEUM CORPORATION
INDEPENDENT CONSULTANT CONSENT |
Mire
& Associates, Inc. hereby consents to the use of its name and information from its report dated March 19, 2015, generating
estimated reserves and future net revenues for United American Petroleum Corporation for the year ended December 31, 2014. This
information may be used in United American Petroleum Corporation’s Form 10-K, dated December 31, 2014.
Sincerely,
Kurt
Mire, P.E.
Petroleum
Consultant
Exhibit 31.1
Certification
of Principal Executive and Financial Officer,
Required
By Rule 13a-14(A) of the Securities Exchange Act of 1934, As Amended,
As
Adopted Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002
I,
Michael Carey, certify that:
| 1. | I
have reviewed this annual report on Form 10-K of United American Petroleum Corp.; |
| 2. | Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
| 3. | Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report; |
| 4. | I
am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have: |
| (a) | Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and |
| (d) | Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I
have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
| (a) | All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and |
| (b) | Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date:
April 15, 2015
| /s/ Michael Carey |
| Michael Carey |
Chief Executive Officer and
Chief Financial Officer,
(Principal Executive and Financial Officer) |
Exhibit 32.1
Certification
of Principal Executive and Financial Officer
Pursuant
to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section
906 of the Sarbanes-Oxley Act of 2002
In
connection with the Annual Report of United American Petroleum Corp., a Nevada corporation (the “Company”) on Form
10-K for the year ending December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), Michael Carey, Chief Executive Officer, Chief Financial Officer, President, Treasurer and a director of
the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that:
| (1) | The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The
information contained in the Report fairly presents, in all material respects, the financial condition and result of operations
of the Company. |
| /s/ Michael Carey |
Michael Carey
Chief Executive Officer and
Chief Financial Officer,
(Principal Executive Officer and
Principal Financial Officer)
April 15, 2015 |
United American Petroleum (PK) (USOTC:UAPC)
Historical Stock Chart
From Oct 2024 to Nov 2024
United American Petroleum (PK) (USOTC:UAPC)
Historical Stock Chart
From Nov 2023 to Nov 2024
