Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 1—Nature of Operations
Organization
Puissant Industries, Inc. (the “Company”) was organized as a Wyoming corporation on July 6, 2009. As of December 31, 2010, the Company was located in Columbia, Kentucky, in Adair County.
The Company is an oil and natural gas exploration, production and development company geographically focused on the onshore United States. The Company currently has 39 wells assigned to it with over 3,935 acres available for drilling and exploration. The Company redomiciled to the state of Florida and changed its name from American Resource Management, Inc. to Puissant Industries, Inc. on March 17, 2011.
The Company owns 100% of ARM Operating Company (“ARM”). ARM was formed on July 12, 2011, primarily to manage all oil and gas properties of the Company, which includes the operation, development, and maintenance of all oil and gas wells, leases, and reserve activities. ARM will be registered as the operator of wells with all relevant governmental agencies, and it will be responsible for maintaining production and maintenance reports for all wells and facilities of the Company.
Accounting period
The Company has adopted an annual accounting period of January through December.
Puissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 2—Summary of significant accounting principles
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP’) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates particularly significant to the financial statements include the following:
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Estimates of our reserves of oil, natural gas and natural gas liquids ("NGL");
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Future cash flows from oil and gas properties;
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Depreciation, depletion and amortization expense;
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Asset retirement obligations;
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Fair values of derivative instruments;
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Fair values of assets acquired and liabilites assumed from business combinations; and
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Natural gas imbalances.
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As fair value is a market-based measurement, it is determined based on the assumptions that market participants would use. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision,
actual results could differ from these estimates. Any changes in estimates
resulting from continuous changes in the economic environment will be reflected in the financial statements in future periods.
There are numerous uncertainties in estimating the quantity of reserves and in projecting the future rates of production and timing of development expenditures, including future costs to dismantle, dispose and restore our properties. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way.
Cash and cash equivalents
The Company considers short-term interest bearing investments with initial maturities of three months or less to be cash equivalents. Cash and cash equivalents consist of cash in banks, free credit on investment accounts and money market accounts.
Foreign currency translation
The Company complies with Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830, “Foreign Currency Matters.” Monetary items are translated at the exchange rate in effect at the balance sheet date; non-monetary items are translated at historical exchange rates. Income and expense items are translated at the average exchange rate for the year. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Puissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 2—Summary of significant accounting principles (continued)
Property and equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Repairs and maintenance are expensed as incurred while betterments and improvements are capitalized. When items are sold or retired, the related cost and accumulated depreciation is removed from the accounts and any gain or loss is included in operations.
The Company provides for depreciation and amortization over the following estimated useful lives:
Building
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39
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years
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Land improvements
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10
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years
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Machinery and equipment
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5-7
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years
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Computer equipment
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3
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years
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Office equipment
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7
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years
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Trucks and trailers
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5
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years
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Oil and Gas Properties
Oil and gas investments are accounted for by the successful efforts method of accounting. Accordingly, the costs incurred to acquire property (proved and unproved), all development costs, and successful exploratory costs are capitalized, whereas the costs of unsuccessful exploratory wells are expensed.
Depletion
The provision for depletion of proved oil and gas properties is calculated on the units-of-production method, whereby capitalized costs, as adjusted for future development costs and asset retirement obligations, are amortized over the total estimated proved reserves. The Company calculates depletion on a quarterly basis.
Inventories
Inventories, consisting primarily of tubular goods and other well equipment held for use in the development and production of natural gas and crude oil reserves, are carried at the lower of cost or market, on a first-in first-out basis. Adjustments are made from time to time to recognize, as appropriate, any reductions in value.
Puissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 2—Summary of significant accounting principles (continued)
Unproved Properties
Investments in unproved properties are not depleted pending determination of the existence of proved reserves. Unproved properties are assessed periodically to ascertain whether there is a probability of obtaining proved reserves in the future. When it is determined these properties have been promoted to a proved reserve category or there is no longer any probability of obtaining proved reserves from the properties, the costs associated with these properties is transferred into the amortization base to be included in depletion calculations. Unproved properties whose costs are individually significant are assessed individually by considering the primary lease terms of the properties, the holding period of the properties, and geographic and geological data obtained relating to the properties. Where it is not practicable to assess properties individually as their costs are not individually significant, such properties are grouped for purposes of the periodic assessment.
Long-Lived Assets
In accordance with Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360 “Property, Plant, and Equipment,” the Company records impairment losses on long-lived assets such as oil and gas properties and equipment used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. There was no impairment charges during the years ended December 31, 2012 and 2011.
Impairment of unproved oil and gas properties are determined by FASB ASC Topic 932, “Extractive Activities—Oil and Gas.”
Fair Value of Financial Instruments
The fair values of the Company’s assets and liabilities that qualify as financial instruments under FASB ASC Topic 825, “Financial Instruments,” approximate their carrying amounts presented in the accompanying balance sheet at December 31, 2012 and 2011.
Market Risk
Our activities primarily consist of acquiring, owning, enhancing and producing oil and gas properties. The future results of our operations, cash flows and financial condition may be affected by changes in the market price of oil and natural gas. The availability of a ready market for oil and natural gas products in the future will depend on numerous factors beyond our control, including weather, imports, marketing of competitive fuels, proximity and capacity of oil and natural gas pipelines and other transportation facilities, any oversupply or undersupply of oil, natural gas and liquid products, the regulatory environment, the economic environment and, other regional and political events, none of which can be predicted with certainty.
Puissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 2—Summary of significant accounting principles (continued)
Oil and Gas Reserve Quantities
Reserves and their relation to estimated future net cash flows impact our depletion and impairment calculations. As a result, adjustments to depletion are made concurrently with changes to reserve estimates. We disclose reserve estimates, and the projected cash flows derived from these reserve estimates, in accordance with SEC guidelines. Our independent engineers will also adhere to the SEC definitions when preparing their reserve reports.
Asset Retirement Obligations
We have significant obligations to plug and abandon oil and natural gas wells and related equipment at the end of oil and natural gas production operations. We incur these liabilities upon acquiring or drilling a well. GAAP requires entities to record the fair value of a liability for an asset retirement obligation (“ARO”) in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. Over time, changes in the present value of the liability are accreted and expensed. The capitalized asset costs are depleted as a component of the full cost pool. The fair values of additions to the ARO liability are estimated using present value techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation include estimates of: (i) plug and abandonment costs per well based on existing regulatory requirements; (ii) remaining life per well; (iii) inflation factors; and (iv) a credit-adjusted risk free rate. Future revisions to ARO estimates will impact the present value of existing ARO liabilities and corresponding adjustments will be made to the capitalized asset retirement costs balance. Upon settlement of the liability, we report a gain or loss to the extent the actual costs differ from the recorded liability.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC Topic 740 “Income Taxes,” which requires accounting for deferred income taxes under the asset and liability method. Deferred income tax asset and liabilities are computed for the difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on the enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce the deferred income tax assets to the amount expected to be realized.
The determination of the Company’s provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in the Company’s financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from tax authorities. When facts and circumstances change, the Company reassesses these probabilities and records any changes in the financial statements as appropriate. Accrued interest and penalties related to income tax matters are classified as a component of income tax expense.
Puissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 2—Summary of significant accounting principles (continued)
Income Taxes (continued)
In accordance with GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company files an income tax return in the U.S. federal jurisdiction, and may file income tax returns in various U.S. state and local jurisdictions. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce stockholders’ equity. This policy also provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities. It must be applied to all existing tax positions upon initial adoption and the cumulative effect, if any, is to be reported as an adjustment to stockholder’s equity as of January 1, 2009. Based on its analysis, the Company has determined that the adoption of this policy did not have a material impact on the Company’s financial statements upon adoption. However, management’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof.
Interest and Penalty Recognition on Unrecognized Tax Benefits
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
Comprehensive Income
The Company complies with FASB ASC Topic 220, “Comprehensive Income,” which establishes rules for the reporting and display of comprehensive income (loss) and its components.
Loss Per Common Share
The Company complies with the accounting and disclosure requirements of FASB ASC 260, “Earnings Per Share.” Basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per common share incorporates the dilutive effect of common stock equivalents on an average basis during the period.
Stock-Based Compensation
The Company complies with FASB ASC Topic 718 “Compensation – Stock Compensation,” which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. FASB ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment
transactions. FASB ASC Topic 718 requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with
limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award the requisite service period (usually the vesting period). No compensation costs are recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. For the years ended December 31, 2012 and 2011, the Company recorded compensation expense of $-0- and $-0-, respectively.
Puissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 2—Summary of significant accounting principles (continued)
Valuation of Investments in Securities at Fair Value—Definition and Hierarchy
FASB ASC Topic 820 “Fair Value Measurements and Disclosures” provides a framework for measuring fair value under generally accepted accounting principles in the United States and requires expanded disclosures regarding fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. FASB ASC Topic 820 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations, as follows:
Level 1
- Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.
Level 2
- Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 -
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including, the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that
valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined.
Puissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 2—Summary of significant accounting principles (continued)
Valuation of Investments in Securities at Fair Value—Definition and Hierarchy (continued)
Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a
ready market for the securities existed. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level in
the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.
Valuation Techniques
The Company values investments in securities that are freely tradable and are listed on a national securities exchange or reported on the NASDAQ national market at their last sales price as of the last business day of the year. At December 31, 2012 and 2011, the Company had no investments classified as securities owned on the balance sheet.
Certificate of Deposits
The fair values of the bank certificate of deposits are based on the face value of the certificate of deposits.
Recently Adopted Accounting Pronouncements
In December 2011, the FASB issued “Balance Sheet: Disclosures about Offsetting Assets and Liabilities.” The new standard requires entities to disclose information about financial instruments and derivative instruments that are either offset on the balance sheet or are subject to a master netting arrangement, including providing both gross information and net information for recognized assets and liabilities, the net amounts presented on an entity’s balance sheet and a description of the rights of offset associated with these assets and liabilities. The new standard is applicable fo all entities that have financial instruments and derivative instruments shown using a net presentation on an entity’s balance sheet or are subject to a master netting arrangement. The new standard is effective for interim and annual reporting periods for fiscal years beginning on or after January 1, 2013, and should be applied retrospectively for all periods presented. The Company plans to adopt this new standard effective January 1, 2013, and will provide any additional disclosures necessary to comply with the new standard.
Puissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 2—Summary of significant accounting principles (continued)
Recently Adopted Accounting Pronouncements (continued)
On June 16, 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income (Topic 220),” which requires companies to report total net income, each component of comprehensive income, and total comprehensive income on the face of the income statement, or as two consecutive statements. The components of comprehensive income will not be changed, nor does the ASU affect how earnings per share is calculated or reported. These amendments will be reported retrospectively upon adoption. The adoption of the ASU will be required for the Company’s September 30, 2012 Form 10-Q filing, and is not expected to have a material impact on the Company.
In May 2011, the
FASB
issued an accounting standard update which works to achieve common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards. The update both clarifies the FASB’s intent about the application of existing fair value guidance, and also changes certain principles regarding measurement and disclosure. The update is effective prospectively and is effective for annual periods beginning after December 15, 2011. Early application is permitted for interim periods beginning after December 15, 2011. The Company is currently evaluating the effect the update will have on its consolidated financial statements.
Concentration of Credit Risk
The Company maintains its cash and cash equivalents in bank deposit accounts, which, at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. Management believes the Company is not exposed to any significant credit risk related to cash and cash equivalents.
The Company extends credit, primarily in the form of uncollateralized oil and gas sales to various companies in the oil and gas industry, which results in concentrations of credit risk. Concentrations of credit risk may be affected by changes in economic or other conditions within our industry and may impact our overall credit risk. However, we believe that the risk of these unsecured receivables is mitigated by the size, reputation, and nature of the companies to which we extend credit.
Historically, the Company has sold its oil and natural gas production to a relatively small number of purchasers. We are not dependent upon, or confined to, any one purchaser or small group of purchasers. Due to the nature of oil and natural gas markets and because oil and natural gas are commodities and there are numerous purchasers in the areas in which we sell production, we do not believe the loss of a single purchaser, or more than one purchaser, would materially affect our ability to sell our production.
For the years ended December 31, 2012 and 2011, revenues from four customers accounted for 100% of oil and gas production revenues.
Puissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 3—Convertible Bonds Payable–Related Parties
During April 2012 and September 2012, the Company received $20,000 and $8,000, respectively, of proceeds from the issuance of convertible bonds to related parties. The convertible bonds bear interest at 15% per annum and are due 60 months from the date of the bonds. The bond holder at his sole option may convert all of the principal due into common stock at a price per share of $2.00 per share.
Note 4—Notes Payable: Convertible Promissory Notes
During the three months ended March 31, 2011, the Company received $37,000 of proceeds from the issuance of convertible promissory notes with warrants. The notes bore interest at 10% per annum and were due 24-months from the date of the notes. The note holder had the option to convert the principal due into securities of a Qualifying Transaction entity (a corporate entity with equity securities) at an original price of $1.00 per share; the conversion price was changed to $0.50 per share in February 2011. Upon the closing of a Qualifying Transaction, a transaction described as the closing of a purchase of, formation of, merger with, and or acquisition of a corporate entity with equity securities, the Company would issue to the note holders warrants to purchase shares of common stock at $1.00 per share. The Company would remain obligated to issue the warrants the earlier of (1) nine months from the date of a Qualifying Transaction or (2) on the maturity date of the promissory notes.
During the three months ended March 31, 2011, the note holders exercised their options to convert the principal due into an aggregate of 128,000 shares of the Company’s common stock.
Note 5—Notes Payable – Property and Mineral Rights
On August 1, 2011, the Company entered into a property and mineral and property rights purchase agreement (“Agreement”) in exchange for $25,000. The Agreement provided for a $1,000 down payment, with the balance of $24,000 to be paid in twelve monthly payments of approximately $2,077, which includes interest at 7% per annum. The note was paid in full during the year ended December 31, 2012.
On October 13, 2011, the Company entered into an agreement (“Agreement) to acquired property and property and mineral rights, in exchange for $50,000. The Agreement provided for a $500 down payment,
with the balance of $49,500 to be paid in 120 payments of approximately $575, which includes interest at 7% per annum.
Maturities for these two notes payable
are as follows at December 31:
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|
|
|
|
|
|
|
2013
|
|
|
3,800
|
|
2014
|
|
|
4,100
|
|
2015
|
|
|
4,400
|
|
2016
|
|
|
4,700
|
|
2017
|
|
|
5,000
|
|
Thereafter
|
|
|
23,340
|
|
|
|
$
|
45,340
|
|
P
uissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 6—Notes Payable - Shareholders
During the year ended December 31, 2011, the Company borrowed a total of $15,000 from related party shareholders, repaying $11,000 during the year, leaving a balance due of $4,000. These borrowings are non-interest bearing and due on demand.
Note 7—Income Taxes
At December 31, 2012, the Company had approximately 265,000 of net operating losses (“NOL”) carry-forwards for federal and state income purposes. These losses are available for future years and expire through 2032. Utilization of these losses may be severely or completely limited if the Company undergoes an ownership change pursuant to Internal Revenue Code Section 382.
The deferred tax asset is summarized as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Deferred tax asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
99,375
|
|
|
$
|
77,625
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
99,375
|
|
|
$
|
77,625
|
|
|
|
|
|
|
|
|
|
|
Less: Valuation allowance
|
|
|
(99,375
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)
|
|
|
(77,625
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)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of income tax expense computed at the U.S. federal, state, and local statutory rates and the Company’s effective tax rate is as follows:
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December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Statutory federal income tax expense
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
|
|
|
|
|
|
|
|
|
State and local income tax
|
|
|
(4
|
)
|
|
|
(4
|
)
|
(net of federal benefits)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
38
|
|
|
|
38
|
|
|
|
|
-
|
%
|
|
|
-
|
%
|
The Company has taken a 100% valuation allowance against the deferred asset attributable to the NOL carry-forwards of $99,375 at December 31, 2012, due to the uncertainty of realizing the future tax benefits.
P
uissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 8—Common Stock
The Company is authorized to issue 90,000,000 shares of common stock with a par value of $0.001. At December 31, 2012 and 2011, 6,644,200 and 5,941,800 shares were issued and outstanding, respectively.
Note 9—Preferred Stock
The Company is authorized to issue 10,000,000 of preferred stock with a par value of $0.001. At December 31, 2012, no shares were issued or outstanding.
Note 10—Equity
On January 7, 2010 and March 17, 2011, the Company issued 16,667 and 1,733,333 shares, respectively, of its $0.001 par value common stock to Sovereign One, Inc., a Tennessee corporation controlled by Mark Holbrook, president and director, in exchange for oil and gas leases. We recorded these shares at $0.0006 per share, which represents the per share proration of the cost of the oil and gas leases ($1,041) over the 1.750 million shares issued in exchange for the oil and gas leases. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration "transactions by an issuer not involving any public offering."
On January 7, 2010 and March 17, 2011, the Company issued 16,667 and 1,733,333 shares, respectively, of its $0.001 par value common stock Logos Resources, Inc., a Tennessee corporation controlled by Marshall Holbrook, vice president and director, in exchange for oil and gas leases. We recorded these shares at $0.0006 per share, which represents the per share proration of the cost of the oil and gas leases ($1,040) over the 1.750 million shares issued in exchange for the oil and gas leases. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration "transactions by an issuer not involving any public offering."
On January 7, 2010 and March 17, 2011, the Company issued 16,667 and 1,733,333 shares, respectively, of its $0.001 par value common stock to McCrome International, Inc., a Tennessee Corporation controlled by Cora Holbrook, secretary and director, in exchange for oil and gas leases. We recorded these shares at $0.0006 per share, which represents the per share proration of the cost of the oil and gas leases ($1,040) over the 1.750 million shares issued in exchange for the oil and gas leases. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration "transactions by an issuer not involving any public offering."
On March 29, 2011, The Company issued 20,000 shares of its $0.001 par value common stock to Mark Holbrook, president and director, in connection with the conversion of a December 31, 2010 liability to issue stock, a liability incurred in exchange for services rendered as our president during the year ended December 31, 2010. We valued these shares at $0.50 per share .The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration "transactions by an issuer not involving any public offering."
On March 29, 2011, The Company issued 20,000 shares of its $0.001 par value common stock to Marshall Holbrook, vice president and director, in connection with the conversion of a December 31, 2010 liability to issue stock, a liability incurred in exchange for services rendered as our vice president during the year ended December 31, 2010. We valued these shares at $0.50 per share .The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration "transactions by an issuer not involving any public offering."
P
uissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 10—Equity (continued)
On March 29, 2011, The Company issued 20,000 shares of its $0.001 par value common stock to Mellissa Holbrook, in connection with the conversion of a December 31, 2010 liability to issue stock, a liability incurred in exchange for services rendered during the year ended December 31, 2010. We valued these shares at $0.50 per share. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration "transactions by an issuer not involving any public offering."
On March 29, 2011, The Company issued 20,000 shares of $0.001 par value common stock to Cora Holbrook, secretary, treasurer and director, in connection with the conversion of a December 31, 2010 liability to issue stock, a liability incurred in exchange for services rendered as secretary and treasurer during the year ended December 31, 2010. We valued these shares at $0.50 per share. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration "transactions by an issuer not involving any public offering."
During the three months ended March 31, 2011, note holders of the Company’s convertible promissory notes, in the aggregate of $64,000 (See Note 3—Notes Payable: Convertible Promissory Notes) converted their notes into an aggregate of 128,000 shares of the Company’s $0.001 par value common stock. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration "transactions by an issuer not involving any public offering."
On March 29, 2011, the Company issued 320,000 shares of its $0.001 par value common stock to professionals and consultants in exchange for professional services. We valued these shares at $0.50 per share. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration "transactions by an issuer not involving any public offering."
In April 2011, the Company issued 3,800 shares of its $0.001 par value common stock to a third party investor for a $1,900 cash payment. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration "transactions by an issuer not involving any public offering."
On December 7, 2011, the Company issued 160,000 shares of its $.001 par value common stock to
professionals and consultants in exchange for professional services to be rendered in 2012 and 2013. We valued these shares at $2.00 per share. The 160,000 shares were issued in accordance with the provisions of our Stock Award Plan; they were registered on a Form S-8 Registration Statement under the 1933 ACT, which became effective on December 2, 2011.
On May 10, 2012, the Company issued 100,000 shares of its $0.001 par value common stock to a professional service organization in exchange for professional services. We valued these shares at $2.00 per share. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration "transactions by an issuer not involving any public offering."
On August 15, 2012, the Company issued 192,000 shares of its $0.001 par value common stock in exchange for warrants held by shareholders. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration "transactions by an issuer not involving any public offering."
P
uissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 10—Equity (continued)
On December 15, 2012, the Company issued a total of 410,400 shares of its $0.001 par value common stock for the purchase of support equipment from three related party companies (136,800 issued to each company). We valued these shares at $0.25 per share. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration "transactions by an issuer not involving any public offering."
Note 11—Related Party
On January 7, 2010 and March 17, 2011, the Company issued 16,667 and 1,733,333 shares, respectively, of its $0.001 par value common stock to Sovereign One, Inc., a Tennessee corporation controlled by Mark Holbrook, president and director in exchange for oil and gas leases. We recorded these shares at $0.0006 per share, which represents the per share proration of the cost of the oil and gas leases ($1,041) over the 1.750 million shares issued in exchange for the oil and gas leases.
On January 7, 2010 and March 17, 2011, the Company issued 16,667 and 1,733,333 shares, respectively, of its $0.001 par value common stock Logos Resources, Inc., a Tennessee corporation controlled by Marshall Holbrook, vice president and director in exchange for oil and gas leases. We recorded these
shares at $0.0006 per share, which represents the per share proration of the cost of the oil and gas leases ($1,040) over the 1.750 million shares issued in exchange for the oil and gas leases.
On January 7, 2010 and March 17, 2011, the Company issued 16,667 and 1,733,333 shares, respectively, shares of its $0.001 par value common stock to McCrome International, Inc., a Tennessee Corporation controlled by Cora Holbrook, secretary and director in exchange for oil and gas leases. We recorded these shares at $0.0006 per share, which represents the per share proration of the oil and gas leases ($1,040) over the 1.750 million shares issued in exchange for the oil and gas leases.
On December 27, 2010, the Company entered into a convertible promissory note for $3,500, which converted into 7,000 shares of common stock on February 7, 2011, with McCrome International, Inc., a Tennessee corporation controlled by Cora Holbrook, secretary and director of the Company.
On December 31, 2010, the Company entered into a convertible promissory note for $3,500, which converted into 7,000 shares of common stock on February 7, 2011, with Logos Resources, Inc., a Tennessee corporation controlled by Marshall Holbrook, vice president and director of the Company.
On December 31, 2010, the Company entered into a convertible promissory note for $3,500, which converted into 7,000 shares of common stock on February 7, 2011, with Sovereign One, Inc., a Tennessee corporation controlled by Mark Holbrook, president and director of the Company.
On March 29, 2011, The Company issued 20,000 shares of its $0.001 par value common stock to Mark Holbrook, president and director, in exchange for services rendered as our president during the year ended December 31, 2010 (See Note 10—Equity). We valued these shares at $0.50.
On March 29, 2011, The Company issued 20,000 shares of its $0.001 par value common stock to Marshall Holbrook, vice president and director, in exchange for services rendered as our vice president during the year ended December 31, 2010 (See Note 10—Equity) We valued these shares at $0.50.
P
uissant Industries, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
Note 11—Related Party (continued)
On March 29, 2011, The Company issued 20,000 shares of its $0.001 par value common stock to Mellissa Holbrook, in exchange for services rendered during the year ended December 31, 2010 (See Note 10—Equity) We valued these shares at $0.50.
On March 29, 2011, The Company issued 20,000 shares of $0.001 par value common stock to Cora Holbrook, secretary, treasurer and director for services rendered as secretary and treasurer during the year ended December 31, 2010 (See Note 10—Equity) We valued these shares at $0.50.
During the year ended December 31, 2011, the Company borrowed a total of $15,000 from related party shareholders, repaying $11,000 during the year, leaving a balance due of $4,000. During the nine months ended September 30, 2012, the Company borrowed an additional $20,000 from related party shareholders. These borrowings are non-interest bearing and due on demand.
On December 15, 2012, the Company issued a total of 410,400 shares of its $0.001 par value common stock for the purchase of support equipment from three related party companies. A total of 136,800 shares were issued to each of the following related parties: Sovereign One, Inc., Logos Resources, Inc. and McCrome International, Inc. We valued these shares at $0.25 per share.
The Company is related to several other entities by virtue of common ownership and control, which includes stockholders, employees, attorneys, consultants or companies owned by attorneys, consultants, and family members.
Note 12—Subsequent Events
Management has evaluated subsequent events through April 12, 2013, the date of which the financial statements were available to be issued.
Puissant Industries, Inc.
Supplemental Disclosures about Oil and Gas Producing Activities
Unaudited
Oil and Gas Reserves and Related Financial Data
Capitalized Costs Related to Oil and Gas Producing activities
The following table summarizes capitalized costs related to our oil and gas operations during the year ended December 31, 2012:
2012
Oil and gas properties:
|
|
|
|
|
|
|
|
Unproved
|
|
$
|
56,521
|
|
|
|
|
|
|
Proved
|
|
|
343,875
|
|
Accumulated depreciation, depletion, and amortization
|
|
|
(30,908
|
)
|
|
|
$
|
369,488
|
|
Cost Incurred
The following table sets forth certain information with respect to costs incurred in connection our oil and gas producing activities during the years ended December 31, 2012:
2012
Property acquisiton costs:
|
|
|
|
|
|
|
|
Unproved
|
|
$
|
56,521
|
|
Development costs
|
|
|
265,754
|
|
|
|
|
|
|
|
|
$
|
322,275
|
|
Puissant Industries, Inc.
Supplemental Disclosures about Oil and Gas Producing Activities
Unaudited
Results of Operations for Oil and Gas Producing Activities
The results of operations for oil and gas producing activities for the year ended December31, 2012 below excludes non-oil and gas revenues, general and administrative expenses, interest charges and other non-
operating items.
|
|
Ended
|
|
|
|
December 31,
|
|
|
|
2012
|
|
Revenues:
|
|
|
|
|
|
|
|
Oil and gas production
|
|
$
|
416,412
|
|
Royalty income
|
|
|
23,579
|
|
|
|
|
439,991
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
|
79,075
|
|
Depreciation, depletion, and amortization
|
|
|
30,908
|
|
|
|
|
109,983
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
330,008
|
|
|
|
|
|
|
Income tax (epense) benefit
|
|
|
(111,378
|
)
|
|
|
|
|
|
Results of operations from producing activities
|
|
|
|
|
(excluding corporate overhead and interest costs)
|
|
$
|
218,630
|
|
Oil and Natural Gas Reserves
Proved reserves are the estimated 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. Reservoirs are considered proved if shown to be economically producible by either actual production or conclusive formation tests.
Puissant Industries, Inc.
Supplemental Disclosures about Oil and Gas Producing Activities
For the year ended December 31, 2012, 100% of our reserves were prepared by independent petroleum engineering firm. As of December 31, 2012, we used Oilfield Technical Services, Inc. The following table sets forth our net proved oil and gas reserves at December 31, 2012.
|
|
|
|
|
Proved
|
|
|
|
|
|
|
Producing
|
|
|
Undeveloped
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas - MMCF
|
|
|
3,004.348
|
|
|
|
11,839.560
|
|
|
|
14,843.908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil/Conensate - MBBL
|
|
|
39.317
|
|
|
|
137.606
|
|
|
|
176.923
|
|
Standardized Measure
The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves for years ended December 31, 2012 is shown below:
|
|
Proved
|
|
|
|
|
|
|
|
|
|
Developed
|
|
|
Proved
|
|
|
|
|
|
|
Producing
|
|
|
Undeveloped
|
|
|
Total
|
|
Income Date (MS)
|
|
|
|
|
|
|
|
|
|
Future cash inflows
|
|
$
|
10,152.981
|
|
|
$
|
38,494.999
|
|
|
$
|
48,647.980
|
|
Future deductions
|
|
|
(2,477.669
|
)
|
|
|
(9,849.277
|
)
|
|
|
(12,326.946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future net cash flows
|
|
|
7,675.312
|
|
|
|
28,645.722
|
|
|
|
36,321.034
|
|
10% annual discount
|
|
|
3,272.425
|
|
|
|
14,964.014
|
|
|
|
18,236.439
|
|
Stanardized measure of discounted future net cash flows
|
|
$
|
4,402.887
|
|
|
$
|
13,681.708
|
|
|
$
|
18,084.595
|
|
The estimated reserve data shown above was prepared using unweighted average first-day-of-the-month prices for the year ended December 31, 2012. The Securities and Exchange Commission (SEC) pricing guidelines were used to set the oil and gas prices.
An oil price of $94.71 per barrel (Bbl) and a gas price of $2.752 per million British Thermal Unit (MMbtu) were used in this study. The prices were adjusted for energy content, price differentials, and other expenses as needed.