UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE
ACT OF 1934
| Santa Fe Petroleum, Inc. |
(Exact Name of the Registrant as Specified in its Charter)
|
| Delaware |
20-8295316 |
| (State or Other Jurisdiction of |
IRS Employer |
| Incorporation or Organization) |
(Identification No.)
|
| 1333 West McDermott Drive, Suite 200, Allen, TX 75013 |
(Address of Principal Executive Offices and Zip Code)
|
| (214) 213-2046 |
| (Registrant’s Telephone Number, Including Area Code) |
Securities
to be registered under Section 12(b) of the Act:
None
Securities
to be registered under Section 12(g) of the Act:
Common
Stock, Par Value $0.0001
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
| Large Accelerated
Filer ☐ |
Accelerated filer ☐ |
| Non-accelerated filer ☐ (do not check if a smaller reporting company) |
Smaller reporting company ☑ |
As used herein, references to the “Company”,
“we”, “our” or “us” refer to the registrant unless the context otherwise indicates.
Item 1. Business.
Background
We were incorporated in Delaware under
the name of Baby All Corp. on November 30, 2010, and on December 13, 2010, we entered into an agreement to acquire a patented infant
medicine dispenser. This technology was designed to provide an additional way in which infants are given medicine and potentially
liquid vitamins and other liquids in small quantities.
On January 9, 2012, the United States
Securities and Exchange Commission declared effective a registration statement on Form S-1 in which we registered 2,500,000 shares
of Common Stock to be sold for $0.03 per share. The shares were self-underwritten, and we sold all of the shares. Following the
completion of the offering, the Company effected, on April 13, 2012, a 2.4 for one forward stock split.
The Company’s business plan was
to seek third party entities interested in licensing the rights to manufacture and market the patent design of the infant medicine
dispenser, an endeavor in which we did not succeed. The Company’s funds were otherwise insufficient to develop or commercialize
the product, build or test a prototype, or determine its reliability or cost effectiveness. As a result, we were not able to commence
operations under the infant medicine dispenser business plan.
On May 10, 2012, we entered into a Share
Exchange Agreement (the “Exchange Agreement ”), with Santa Fe Operating, Inc., a Delaware corporation engaged in the
exploration and production of oil and gas (“ SFO ”) to acquire 100% of the issued and outstanding common stock of SFO
(the “SFO Stock”). Pursuant to the Exchange Agreement, each SFO Shareholder was issued one share of Common Stock in
exchange for each of such holder’s shares of SFO Stock. As a result, (i) we issued an aggregate of 33,478,261 shares of our
Common Stock to the holders of SFO Common Stock; (ii) we issued warrants to purchase an aggregate of 6,764,856 shares of Common
Stock to the SFO Shareholders, at an exercise price of $0.50 per share; and (iii) SFO became our wholly-owned subsidiary.
Pursuant to the terms of the Exchange
Agreement, the acquisition closed on May 20, 2012, and in connection with the Exchange Agreement, we changed the name of the Corporation
from Baby All Corp. to Santa Fe Petroleum, Inc.
Santa Fe Operating, Inc.
The Company has not conducted or had conducted
on its behalf any reserve study.
At the time of the acquisition of SFO,
SFO owned a 75% net revenue and a 100% working interest on 76 acres in Comanche County, Texas, designated the Barnett Cody #1.
SFO acquired its interest in 2009 and in October 2012 drilled a well to the Ellenberger formation. Though producing gas but little
oil, the well generated excessive amounts of water, and the Company did not have access to a water disposal well nor the resources
to develop one. The project did not appear to be commercial, and other projects appeared to provide better opportunities and returns.
Despite having extended the original lease term two years, the Company abandoned the prospect at the end of 2013.
In February 2013, the Company acquired
from Long Branch Petroleum, LLC a Texas Limited Liability Company (“Long Branch”) 100% working interest and an 87.5%
net revenue interest on approximately 1600 acres in Brown and Comanche counties, Texas. Long Branch is wholly owned by the Company’s
then Chief Executive Officer, Tom Griffin. We had entered into certain “Lease Acquisition Agreements” with this and
another entity controlled by Tom Griffin, including Long Branch. We had guaranteed the obligations of these entities which would
acquire properties from funds received from investors in these Griffin affiliated entities, these investors being assured a 50%
return on the investment. This arrangement was entered immediately prior to the acquisition of SFO by the Company, and Long Branch
had sold to five individuals or entities shares of SFO in addition utilizing the funds from these investors to acquire said Comanche/Brown
County leases. For the acquisition of these leases, we issued $444,148 convertible promissory notes, convertible at $0.25 per share.
In a separate agreement with these investors, we granted each a 2% net revenue interest in the properties. Simultaneously, we ended
all obligations with entities affiliated with Mr. Griffin for the purchase of oil and gas properties.
The Company, again lacking resources to
develop these properties, let the leases lapse in early 2014 after the expiration of the two year primary term of the leases.
Of the notes totaling $444,148 issued
by the Company to acquire the Comanche/Brown leases, $244,148 principal amount was issued to Mr. Griffin. Mr. Griffin released
the Company from that obligation at the end of 2014.
In May through October 2013 we acquired
a 2.8% working interest, a 2.1% net revenue interest in a producing well in Hopkins County, Texas. We issued 1,000,002 shares of
common stock to five individuals or entities for the interests. In 2014 we averaged approximately $1300.00 net revenue per month
from this interest.
In September 2013 we acquired, with funding
from a third party, a 100% working interest in 320 acres in Jack County, Texas, the lease expiring in September 2015 unless held
by production. A dispute with the third party arose regarding the funding arrangement which was settled with the transfer of the
interest to the third party, the Company retaining a one percent overriding royalty interest. The Company had granted, in connection
with a $20,000 investment in the Company, a $0.13334% overriding royalty interest in addition to issuing 20,000 shares of stock
to that individual. Part of the agreement with that individual requires that the Company pay the individual $20,000 plus 5% per
annum if a well is not drilled on the property prior to September 25, 2015. This amount is recorded as a note, and to date such
well has not been drilled.
In April 2015 we acquired a 19.58% Working
Interest, a 15.9% Net Revenue Interest, on leases with seven potential productive zones located on 160 acres in Hughes County,
Oklahoma. One well will be drilled on this lease in September or October, 2015. The seven formations begin around a depth of 3,000
feet and extend to approximately 4,400 feet. Our primary goal, however, is a formation located at a depth of approximately 3,400
feet. We do not anticipate any horizontal drilling on this prospect.
The prospect in Hughes county, which we
designate as the Villines #1, is located on 160 acres on which a well can be drilled on each 40 acres, a single well holding the
entire 160 acre tract. We believe that at least one other well can be drilled, depending on the success of the first well, and
would probably be drilled in the first five to six months of 2016.
In July 2015 we acquired a 25% Working
Interest, a 20% Net Revenue Interest in a lease located on 320 acres in Pottawatomie County, Oklahoma. We anticipate drilling on
this well in September 2015, prior to drilling on the Villines #1. We believe that three wells can be drilled, depending on the
success of the first well, which would probably be drilled in the first six months of 2016.
Business Strategy
Our goal over the next 24 months is to
build production to our interest to 100 to 200 barrels of oil per day. While we will pursue the development of oil and gas properties,
our emphasis will be on the drilling for oil in formations less than 5,000 deep that do not require horizontal drilling and that
offset or extend producing wells. We anticipate that our early efforts will be for one or two wells and could involve purchasing
existing producing wells whose production could be improved with modest investment.
We believe that pursuing smaller projects
for the next 18 to 24 months can be achieved with modest and available financing, principally financing through debt. In the first
half of 2015 we secured $400,000 in year debt with 8% annual simple interest. The notes mature from one to three years from date
of issuance. This debt should allow us to complete the initial well in Hughes County and pursue another nearby if the opportunity
presents itself. We are currently conducting and gathering modest geological data to determine if should seek to extend our existing
prospect in Hughes county. If financing permits during the next 24 months, we may engage in drilling programs to develop larger
prospects.
Competition
We compete with other companies for financing
and for the acquisition of new oil and gas properties. Many of the oil and gas exploration companies with which we compete have
greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend greater
amounts on acquisitions of oil and gas properties of merit, on exploration of their properties, and on development of their properties.
In addition, they may be able to afford more geological and other technical expertise in the targeting and exploration of oil and
gas properties. This competition could result in competitors having properties of greater quality and interest to prospective investors
who may finance additional exploration and development. This competition could have an adverse impact on our ability to achieve
the financing necessary for us to conduct further exploration of our acquired properties.
We will also compete with other smaller
oil and gas exploration companies for financing from a limited number of investors that are prepared to make investments in junior
oil and gas exploration companies. The presence of competing smaller oil and as exploration companies may have an adverse impact
on our ability to raise additional capital to fund our exploration programs if investors are of the view that investments in competitors
are more attractive based on the merit of the oil and gas properties under investigation and the price of the investment offered
to investors.
We also compete with other oil and gas
companies for available resources, including, but not limited to, professional exploration and production, geological and engineering
personnel services and supplies, for the drilling completion and production of hydrocarbon resources.
Intellectual Property
We do not own any copyrights, patents,
or trademarks. We own the Internet domain name www.santafepetroleum.com. Under current domain name registration practices, no one
else can obtain an identical domain name, but someone might obtain a similar name, or the identical name with a different suffix,
such as “.org”, or with a country designation. The regulation of domain names in the United States and in foreign countries
is subject to change, and we could be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease
the value of our domain names. During each of the last two fiscal years, we had no expenditures on research and development activities.
Governmental Regulation
Our oil and gas operations are subject
to various federal, state, and local governmental regulations. Matters subject to regulation include discharge permits for drilling
operations, drilling and abandonment bonds, reports concerning operations, the spacing of wells, pooling of properties, and taxation.
From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow
of oil and gas wells below actual production capacity to conserve supplies of oil and gas. The production, handling, storage, transportation,
and disposal of oil and gas, by-products thereof, and other substances and materials produced or used in connection with oil and
gas operations are also subject to regulation under federal, state, and local laws and regulations relating primarily to the protection
of human health and the environment. State and local laws and regulations may affect the prices at which royalty owners are paid
for their leases by requiring more stringent disclosure and certification requirements, adjusting interest rates for late payments,
raising legal and administrative costs and imposing more costly default contractual terms. The requirements imposed by such laws
and regulations are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance
with these requirements or their effect on our operations.
Environmental legislation provides for,
among other things, restrictions and prohibitions on spills, releases, or emissions of various substances produced in association
with oil and gas 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 gas 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. We cannot assure
you 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 affect our financial condition, results of operations, or prospects. We could
incur significant liability for damages, clean-up costs, and 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. Any of the foregoing
could have a material adverse effect on our financial results.
Failure to comply with environmental laws
could result in fines or penalties being owed to third parties or governmental entities, the payment of which could have a material
adverse effect on our financial condition or results of operations. The Company believes that through its affiliate entities, it
has all required permits, licenses, approvals and other authorizations that are necessary or required as of the date hereof.
Employees
We currently have no employees. Our officers
and other personnel currently provide their services pursuant to engagement agreements. Until the scope of our operations warrants
otherwise, we plan to outsource independent consultant engineers and geologists on a part time basis to conduct our operations.
Facilities
Our executive offices are located at 1333
West McDermott Drive, Suite 200, Allen, Texas 75013, where we occupy approximately 1,000 square feet of office space. We pay approximately
$1,200 per month to lease this office space from an unaffiliated third party. The term of our lease is month-to-month. We believe
that our current office space and facilities will have to be expanded in the near future to meet our growth plans.
Reports to Security Holders
At the current time, we are subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended (the “ Exchange Act”), pursuant to Section
15(d) of the Exchange Act. We are currently not subject to the reporting requirements of Section 12 of the Securities Exchange
Act of 1934, as amended. The public may read and copy any materials we file with the Securities and Exchange Commission (the “
SEC”) at the SEC's Public Reference Room at 100 F Street, NE., Washington, DC 20549, on official business days during the
hours of 10 a.m. to 3 p.m. The public may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. Internet Website
Our Internet website is www.santafepetroleum.com.
Item 1A. Risk Factors
As a smaller reporting company, we are
not required to provide the information required by this item.
Item 2. Financial Information.
Management’s discussion and analysis of financial
condition and results of operation.
This section includes a number of forward-looking
statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are
often identified by words like “believe”, “expect”, “estimate”, “anticipate”, “intend”,
“project” and similar expressions, or words which, by their nature, refer to future events. You should not place undue
certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from our predictions or expectations.
General
The oil and gas industry is capital intensive.
A well successfully completed will usually experience significant immediate decline in production in the early days and weeks after
production commences. This decline in production continues after the first decline but generally at not as great a rate. The Company,
to expand and to offset declining production, must successfully drill additional wells to replace this declining production.
The cost to drill and complete a well
varies. A shallower well costs less to drill and complete than a deeper well. A well that requires horizontal drilling costs more
than a well that does not require horizontal drilling to complete. For the foreseeable future, we plan to drill only vertical wells
at relative shallow depths, depths less than 5,000 feet, and wells that do not require horizontal drilling to complete.
We also intend to drill wells with other
participants so that the cost to drill a well is shared. This sharing may take the form of simply participating with other owners
of working interests or sponsor drilling programs in which we partner with investors to drill a well.
Results of Operations – 2013 compared to 2014
The Company’s loss in 2014 declined
to approximately $17,000 from almost $3,000,000 in 2013. Revenues from the production of hydrocarbons were roughly equal in both
years, $23,100 in 2013 and $28,000 in 2014, all of the revenue from production in both years coming from the Hopkins Spindletop
# 1. In 2014 the Company had additional revenue of approximately $22,500 from the sale of a lease.
The Company’s expenses declined
significantly in 2014 from 2013. The Company incurred dry hole expense of approximately $1,230,000 in 2013 and none in 2014, the
dry hole expense related to expenses incurred in drilling and ultimately abandoning the Barnett Cody # 1.
The Company also incurred significant
compensation and consulting expenses in 2013 that were not incurred in 2014. Of the approximately $800,000 in compensation incurred
in 2013, the majority, approximately $545,000, was paid through the issuance of stock and related to settlement for services rendered
by an executive in 2012. In addition, the Company accrued $255,000 for compensation for an accountant and the Company’s Chief
Executive Officer. At the end of 2014, the Company’s Chief Executive forgave all indebtedness owed to him by the Company
resulting in no compensation expense being incurred in 2014. In addition, the Company incurred almost $375,000 in consulting fees
largely related to financial consulting services and financial public relations, expenses not incurred in 2014. Professional expenses
declined in 2014 from 2013 because the Company’s reporting obligations pursuant to SEC regulations decreased in 2014 from
2013.
The Company’s derivative expense
declined from almost $100,000 in 2013 to approximately $7,000 in 2014 because Company issued a convertible note in early 2013,
a note that was convertible at a discount to the market value of the Company’s stock. At the end of 2014, $9,133 principal
amount of that note remained outstanding but was discharged in early 2015. Because this note was convertible at below market price,
the difference between the conversion price and the market price is accounted for as interest, and, consequently, the Company’s
interest expense was approximately $260,000 in 2013 compared to $2,000 in 2014.
Results of Operations – Six months ended June
2015 compared to six months ended June 2014
We incurred a net loss of almost $290,000
for the six months ended June 30, 2015, compared to a net loss of approximately $6,100 for the six month period ended June 30,
2014. The oil and gas revenues in 2015 declined by approximately 62% when compared to 2014 revenues. The decline was the result
of a 23% decline in oil produced and a 51% decline in the sale price per barrel in 2015. In 2015 we incurred significant personnel
expenses for those restructuring the Company as well as significant professional costs, that is, legal and accounting costs, in
preparing the Company to become a reporting company under the Securities Exchange Act of 1934. Professional expenses and compensation
expenses totaled almost $220,000 of the approximately $293,000 2015 expenses. In addition, we incurred $62,600 in interest expenses
largely related to shares issued to four individuals who purchased $400,000 of 8% notes and also received shares in connection
with the purchase of the notes.
Liquidity and Capital Resources
In the first six months of 2015, the Company
raised approximately $450,000, the majority, $400,020, coming from four investors purchasing notes having 8% simple interest, with
maturities ranging from one to three years, the earliest maturity coming in February 2016. At June 30, 2015, there remained approximately
$280,000 from the securities the Company sold in 2015.
In the first six months of 2015, the Company
focused on renegotiating existing debt and payables, formally becoming a reporting company under the Securities Exchange Act of
1934, and acquiring prospects for development, eventually acquiring two prospects, the Lester, which will be drilled in September
2015, and the Villines which we anticipate being drilled soon thereafter. We believe that our current cash reserves are adequate
to drill and complete these wells.
Over the next 18 months, we do not plan
to increase significantly the number of Company employees or consultants though our expense in being or becoming a reporting company
will continue. We may add a person whose background is in the oil and gas industry and an accounting professional. Though the funding
that occurred in 2015 funded day to day expenses as well as anticipated drilling and completion costs on the Lester and Villines
prospects, our plan is for these initial prospects and others we bring develop in the next several months to fund current day to
day operations as soon as possible. We do not anticipate that during the ensuing 18 months such prospects will contribute sufficient
cash to develop additional prospects.
We plan to develop additional prospects
by selling securities which, we believe, will be through debt and drilling funds, funds that acquire working interests in which
we receive a carried interest.
Summary of Significant Accounting Policies
Use of Estimates
Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual
results and outcomes may differ from management’s estimates and assumptions. Estimates are used when accounting for stock-based
transactions, account payables and accrued expenses and taxes, among other matters.
Basis of Presentation
The audited consolidated financial statements
of the Company include the accounts of the Company and its wholly-owned subsidiary and have been prepared in accordance with generally
accepted accounting principles in the United States. All significant intercompany transactions and account balances have been eliminated
in consolidation.
Cash and Cash Equivalents
Cash equivalents comprise certain highly
liquid instruments with a maturity of three months or less when purchased. As of December 31, 2014 there were no cash equivalents.
Advertising Costs
The Company expenses advertising costs
as these are incurred. There were no advertising costs in 2013 or 2014.
Revenue Recognition
Oil and gas revenues are recognized when
oil and gas is produced and sold.
Development Stage Company
The Company adopted the provisions of
FASB Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915) (“the Update”) in these
consolidated financial statements. The Update removes the definition of a development stage entity from the Master Glossary of
the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities
from US GAAP. In addition, the Update eliminates the requirements for development stage entities to: (1) present inception-to-date
information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development
stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in
the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.
For public business entities, the amendment is effective for annual reporting periods beginning after December 15, 2014. The requirements
of this pronouncement did not have a material effect on the financial statements.
Oil and Gas Properties
The Company uses the successful efforts
method of accounting for oil and natural gas producing activities, as further defined under ASC 932, Extractive Activities -
Oil and Natural Gas. Under these provisions, costs to acquire mineral interests in oil and natural gas properties, to drill
exploratory wells that find proved reserves, and to drill and equip development wells are capitalized.
Exploratory drilling costs are capitalized
when incurred pending the determination of whether a well has found proved reserves. A determination of whether a well has found
proved reserves is made shortly after drilling is completed. The determination is based on a process that relies on interpretations
of available geologic, geophysic, and engineering data. If a well is determined to be successful, the capitalized drilling costs
will be reclassified as part of the cost of the well. Capitalized costs of producing oil and natural gas interests are depleted
on a unit-of-production basis.
If a well is determined to be unsuccessful,
the capitalized drilling costs will be charged to expense in the period the determination is made. If a determination cannot be
made as to whether the reserves that have been found can be classified as proved, the cost of drilling the exploratory well is
not carried as an asset for more than one year following completion of drilling. If, after that year has passed, a determination
that proved reserves exist cannot be made, the well is assumed to be impaired and its costs are charged to expense. Its cost can,
however, continue to be capitalized if a sufficient quantity of reserves is discovered in the well to justify its completion as
a producing well and the entity is making sufficient progress assessing the reserves and the economic and operating viability of
the project.
Impairment of Long-Lived Assets
The Company accounts for the impairment
of long-lived assets in accordance with ASC 360-10, Property, Plant and Equipment, which requires that long-lived assets
be reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable.
Recoverability of the asset is measured by comparison of its carrying amount to the undiscounted cash flow that the asset or asset
group is expected to generate. If such assets or asset groups are considered to be impaired, the loss recognized is the amount
by which the carrying amount of the property, if any, exceeds its fair market value.
Concentration of Credit Risk and Fair Value of Financial
Instruments
The Company maintains cash balances at
financial institutions, which at times exceed federally insured amounts. The Company has not experienced any material losses in
such accounts.
The carrying amount of cash and cash equivalents,
accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments.
Income Taxes
Income taxes are accounted for under the
asset and liability method of ASC 740, Income Taxes. Under ASC 740, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740,
the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.
Effective May 11, 2011, with the commencement
of operations, the Company adopted provisions of ASC 740, Sections 25 through 60, Accounting for Uncertainties in Income Taxes.
These sections provide detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions
recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the
effective date to be recognized upon the adoption of ASC 740 and in subsequent periods. Upon the adoption of ASC 740, the Company
had no unrecognized tax benefits. For the year ended December 31, 2013, no adjustments were recognized for uncertain tax benefits.
The Company’s tax year for 2013 and the tax year for 2014 are subject to audit.
Stock-Based Compensation
The Company adopted ASC 718, Compensation
- Share Based Compensation, as of May 11, 2011. This statement requires the recognition of compensation expense measured at
fair value when the Company obtains employee services in stock-based payment transactions.
Net Income (loss) per Common Share
The Company computes earnings (loss) per
share in accordance with ASC 260-10, Earnings Per Share. ASC 260-10 requires presentation of both basic and diluted earnings
per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available
to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect
to all dilutive potential common shares outstanding during the period. Diluted EPS excludes all dilutive potential common shares
if their effect is anti-dilutive. No potential dilutive common shares are included in the computation of any diluted per share
amount when a loss is reported.
Accordingly, we did not include potentially
dilutive warrants at December 31, 2013 and 2014, respectively.
Legal Costs and Contingencies
In the normal course of business, the
Company incurs costs to retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses
these costs as the related services are received. If a loss is considered probable and the amount can be reasonable estimated,
the Company recognizes an expense for the estimated loss. If we have the potential to recover a portion of the estimated loss from
a third party, the Company makes a separate assessment of recoverability and reduces the estimated loss if recovery is also deemed
probable.
Fair Value Estimates
In September 2006, the FASB issued SFAS
No. 157 “Fair Value Measurements”. The objective of SFAS 157 (ASC 820) is to increase consistency and
comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS 157 (ASC 820) defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about
fair value measurements. SFAS 157 (ASC 820) applies under other accounting pronouncements that require or permit fair value measurements
and does not require any new fair value measurements.
The Company measures its options and warrants
at fair value in accordance with SFAS 157 (ASC 820). SFAS 157 (ASC 820) specifies a valuation hierarchy based on whether the inputs
to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources,
while unobservable inputs reflect the Company’s own assumptions. These two types of inputs have created the following fair
value hierarchy:
| · | Level 1 - Quoted prices for identical instruments in active markets; |
| · | Level 2 - Quoted prices for similar instruments in active markets,
quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant
inputs and significant value drivers are observable in active markets; and |
| · | Level 3 - Valuations derived from valuation techniques in which one
or more significant inputs or significant value drivers are unobservable. |
This hierarchy requires the Company to
minimize the use of unobservable inputs and to use observable market data, if available, when estimating fair value. The fair value
of the stock based compensation at December 31, 2013 and 2014, were as follows:
| | |
Quoted Prices In Active Markets for Identical Assets | |
Significant Other Observable Inputs | |
Significant Unobservable Inputs | |
|
| | |
(Level 1) | |
(Level 2) | |
(Level 3) | |
Total |
| | |
| | | |
| | | |
| | | |
| | |
| Year Ended December 31, 2013 | |
| | | |
| | | |
| | | |
| | |
| Stock Based
Services and Interest | |
$ | — | | |
$ | 1,137,984 | | |
$ | — | | |
$ | 1,137,984 | |
| Derivative Liability | |
| | | |
$ | 50,598 | | |
$ | — | | |
$ | 50,598 | |
| Year Ended December 31, 2014 | |
| | | |
| | | |
| | | |
| | |
| Derivative Liability | |
| | | |
$ | 26,053 | | |
| — | | |
| 26,053 | |
| Stock Based Services | |
$ | — | | |
$ | 17,170 | | |
$ | — | | |
$ | 17,170 | |
Recent Accounting Pronouncements
No recent accounting pronouncements or
other authoritative guidance have been issued that management considers likely to have a material impact on our consolidated financial
statements.
Item 3. Properties
We have described our properties, acreage,
wells, production and drilling activity in Part I, Item 1. “Business” of this Form 10.
Item 4 Security Ownership of Certain Beneficial Owners
and Management.
The following table sets forth as of August
1, 2015 the number and percentage of the outstanding shares of common stock, which according to the information available to the
Company, were beneficially owned by (i) each person known to the Company to own more than five percent of any class of the Company’s
voting securities, (ii) each person who is currently a director, (iii) each executive officer, and (iv) all current directors and
executive officers as a group. Except as listed in the table below, to the knowledge of the Company, no person is the beneficial
owner of five percent or more of the outstanding common stock other than as stated for them herein. Except as otherwise indicated,
the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned, subject to
community property laws where applicable.
| Name and Address of | |
| Number of | | |
| Percent of | |
| Beneficial Owner | |
| Common Shares | | |
| Class (1) | |
| | |
| | | |
| | |
| Edward R. Wachendorfer(1) | |
| | | |
| | |
| 1333 West McDermott Drive, Suite 200 | |
| | | |
| | |
| Allen, TX 75013 | |
| 20,419,603 | | |
| 16.50 | % |
| | |
| | | |
| | |
| Carl Vincent Karnes(1) | |
| | | |
| | |
| 1333 West McDermott Drive, Suite 200 | |
| | | |
| | |
| Allen, TX 75013 | |
| 16,460,000 | | |
| 13.3 | |
| | |
| | | |
| | |
| Long Branch Petroleum, LLC | |
| | | |
| | |
| 4011 West Plano Parkway, Suite 126 | |
| | | |
| | |
| Plano, TX 75093 | |
| 20,497,405 | | |
| 16.6 | |
| | |
| | | |
| | |
| Stifel Nicolaus & Co FBO | |
| | | |
| | |
| P.O. Box 928 | |
| | | |
| | |
| Seminole, OK 74818 | |
| 10,000,000 | | |
| 8.1 | |
| | |
| | | |
| | |
| Trimerica Corporation | |
| | | |
| | |
| 4011 West Plano Parkway, Suite 126 | |
| | | |
| | |
| Plano, TX 75093 | |
| 7,700,000 | | |
| 6.2 | |
| | |
| | | |
| | |
| All executive officers, beneficial owners, | |
| | | |
| | |
| and directors as a group | |
| 75,077,008 | | |
| 60.8 | |
(1) As of August 17, 2015, there were
115,981,997 shares of Common Stock issued and outstanding. This amount excludes 750,000 shares per month that are to be issued
to each of Messrs. Karnes and Wachendorfer for services to the Company, shares that have not as of August 17, 2015, been issued.
The value of these shares is $0.005 per share, the value of the Company’s stock price in March of this year. The percentages
in the table are based on the assumption that such additional 750,000 shares per month commencing March 2015 have, in fact, been
issued for services rendered through July 2015. Thus the number of shares deemed to be outstanding for purposes of this table are
123,481,997, an increase of 7,500,000 to reflect the 3,750,000 shares to which Messrs. Karnes and Wachendorfer are entitled for
five months of services commencing March 2015.
Change of Control
In January 2015, Messrs. Wachendorfer
and Karnes agreed to become the Company’s Chairman of the Board of Directors and Chief Executive Officer, respectively. As
part of that agreement, Mr. Griffin, the Company’s then Chief Executive Officer, agreed to transfer to each 12,500,000 shares
of the Company’s common stock. In addition, the Company has agreed to issue an aggregate of 15,000,000 shares of the Company’s
common stock for services to be rendered to the Company in 2015 by Messrs. Wachendorfer and Karnes. As a result of these transactions,
the number of shares owned by Messrs. Wachendorfer and Karnes in the aggregate exceeded that owned by Mr. Griffin.
Item 5. Directors and Executive Officers.
The following table sets forth the names,
ages, and positions with the Company for each of the directors and officers as of May 31, 2015.
| Name |
Age |
Position |
Since |
| Edward R. Wachendorfer |
53 |
Director, Chairman of Board |
Jan 2015 |
| Carl Vincent Karnes |
53 |
Director, Chief Executive Officer |
Jan 2015 |
Mr. Wachendorfer has practiced law in
Texas since 1988, focusing on oil and gas, commercial transactions and commercial litigation. In September 2009 he formed Axar
Energy Group, Inc. to engage in oil and gas exploration. In June 2010 he became a director and Vice President of that enterprise
and in August 2011 became its President. In July 2010, Mr. Wachendorfer formed Rockbridge Energy Company which invests in oil and
gas royalties. Mr. Wachendorfer has been that enterprises’s director and president since its formation. In July 2008 Mr.
Wachendorfer formed Orphan Angel International Foundation, a charitable organization providing orphan relief and assisting the
adoption of children in the Ukraine. Mr. Wachendorfer received his BBA from the University of Oklahoma, his JD degree from Pepperdine
University and was awarded an LLM in taxation from Southern Methodist University.
Mr. Karnes has been a managing partner
in the private equity firm B4 Ventures since 1999. B4 Ventures manages private holdings for its limited partners. Mr. Karnes also
holds a real estate license in the State of Texas and since 2004 has acted as a real estate agent through True Realty Services,
Inc., a real estate broker and real estate investment counselor based in McKinney, Texas. Mr. Karnes graduated from Oklahoma State
University majoring in finance and economics.
With respect to certain understandings
regarding the appointment of Messrs. Wachendorfer and Karnes, see Item 4. Security Ownership of Certain Beneficial Owners and
Management; Change of Control.
Item 6. Executive Compensation.
Our current directors and executive officers,
Messrs. Wachendorfer and Karnes, were appointed to these positions on January 15, 2015. Mr. Griffin, the Company’s sole director
and officer prior to that time, resigned all offices and the directorship of the Company with the appointment of Messrs. Wachendorfer
and Karnes. With respect to compensation from Mr. Griffin to these two individuals for becoming officers and directors of the Company,
see Item 4. Security Ownership of Certain Beneficial Owners and Management; Change of Control. In May 2015, the Board of
Directors, the sole members of which are Messrs. Wachendorfer and Karnes, agreed to pay each $5,000 per month compensation commencing
in January 2015 and each receive 750,000 shares per month through 2015, commencing in March 2015. Mr. Griffin, following his resignation,
does not receive compensation from the Company.
Annual Compensation
The following table
sets forth certain information regarding the annual compensation for services in all capacities to the Company for the years ended
December 31, 2013 and 2014 who were executive officers of the Company for the year ended December 31, 2014, or who receive annual
salary and bonuses exceeding $100,000.
| | |
| | | |
| | | |
| Stock | |
| Name and Principal Position | |
| Year | | |
| Salary ($) | | |
| Awards($) | |
| Tom Griffin | |
| 2014 | | |
$ | — | | |
$ | — | |
| Chairman, President and | |
| 2013 | | |
$ | 180,000 | | |
$ | — | |
| Chief Executive Officer | |
| | | |
| | | |
| | |
In January 2014
the Company issued to an affiliate of Mr. Griffin 20,000,000 shares of Common Stock for services rendered to the Company in 2013,
as partial compensation for services, shares that were valued at $0.004 per share or $80,000.
Stock Options
No options are
currently issued to any executive, employee, consultant or investor.
Compensation Committee Interlocks and Insider Participation
The Company does
not have a compensation committee nor does the Company use a compensation consultant. Currently, two people, Messrs. Wachendorfer
and Karnes, are the only people actively involved in the Company and, as the Company’s only directors, make all decisions
about compensation, including their own, a practice appropriate for a small enterprise.
In 2014, Mr. Griffin
acted as the sole member of the Company’s Board of Directors and in that capacity made all decisions about compensation.
Item 7. Certain Relationships and Related Transactions,
and Director Independence.
At the beginning of 2013, the Company
owed an affiliate of Mr. Griffin approximately $187,000 for expenses relating to the development of the Barnett Cody #1 well in
which the affiliated entity acted as the operator. In that year, the Company paid another $30,000 to the same entity for the same
purpose and to develop additional properties. In addition, the Company accrued another $158,000 for expenses paid on the Company’s
behalf to another affiliate of Mr. Griffin. As a management fee, the Company accrued almost $40,000 to a management Company owned
by Mr. Griffin.
During 2013, the Company paid to these
affiliates of Mr. Griffin approximately $40,000.
In early 2013, the Company acquired from
an affiliate of Mr. Griffin a prospect located on approximately 1,600 acres in Brown and Comanche counties, Texas. We issued notes
totaling $448,000 to certain individuals and the affiliated entity for the acquisition of this property. Of the $448,000, $248,000
was a note to the affiliated entity of Mr. Griffin, the entity from which we acquired the property.
The largest amount owed to Mr. Griffin
and any affiliated entity during 2013 was approximately $625,000 plus $302,500 in accrued but unpaid wages.
In 2014, we incurred $1,000 in liabilities
to an affiliated entity of Mr. Griffin and repaid approximately $18,000 in indebtedness we had incurred with the entities affiliated
with Mr. Griffin in previous years.
In December 2014, Mr. Griffin, on behalf
of himself and all the entities affiliated with him, forgave all outstanding indebtedness, or approximately $917,000. This indebtedness
was treated as a contribution of capital to the Company by Mr. Griffin because the 20,000,000 share issuance to Mr. Griffin for
services rendered to the Company in 2013, the original value of which was for compensation for services valued at $80,000 in that
year.
The largest amount owed to Mr. Griffin
and any affiliated entity during 2014 was approximately $648,000 plus $222,500 in accrued but unpaid wages.
Item 8. Legal Proceedings.
We know of no material, active or pending
legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no
proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder is an adverse party
or has a material interest adverse to us.
Item 9. Market Price of and Dividends on the Registrant’s
Common Equity and Related Stockholder Matters.
Market Information
Our common stock is traded on the Over
the Counter Bulletin Board (“OTCBB”) under the symbol “SFPI”. The market for our common stock is limited,
volatile and sporadic. The first quotation for our common stock on the OTCBB occurred on May 31, 2012.
The following table sets forth, for the
periods indicated, the high and low bid prices of our common stock as reported on the OTCBB. The following quotations reflect inter-dealer
prices, without retail mark-up, markdown, or commissions, and may not reflect actual transactions.
| Closing High and Low Bid |
| | |
| | | |
| | |
| 2013 | |
| | | |
| | |
| | |
| | | |
| | |
| First Quarter | |
| 2.23 | | |
| 0.185 | |
| Second Quarter | |
| 0.35 | | |
| 0.01 | |
| Third Quarter | |
| 0.13 | | |
| 0.011 | |
| Fourth Quarter | |
| 0.06 | | |
| 0.0041 | |
| | |
| | | |
| | |
| 2014 | |
| | | |
| | |
| | |
| | | |
| | |
| First Quarter | |
| 0.0115 | | |
| 0.004 | |
| Second Quarter | |
| 0.0125 | | |
| 0.003 | |
| Third Quarter | |
| 0.011 | | |
| 0.0052 | |
| Fourth Quarter | |
| 0.007 | | |
| 0.0023 | |
| | |
| | | |
| | |
| 2015 | |
| | | |
| | |
| | |
| | | |
| | |
| First Quarter | |
| 0.0056 | | |
| 0.0031 | |
| Second Quarter | |
| 0.01 | | |
| 0.045 | |
The closing bid on August 31, 2015, was
$0.033. As of August 31, 2015 we had 102 shareholders of record.
Dividend Policy
No dividends have been declared or paid
on our common stock. We have incurred recurring losses and do not currently intend to pay any cash dividends in the foreseeable
future.
Securities Authorized For Issuance under Compensation
Plans
Table
5-2
Summary
of Equity Compensation Plans(1)
| | |
Number of | |
| Weighted | | |
| | |
| | |
Securities to be | |
| Average | | |
| Number of | |
| | |
Issued Upon | |
| Exercise Price | | |
| Securities | |
| | |
Exercise of | |
| of | | |
| Remaining | |
| | |
Outstanding | |
| Outstanding | | |
| Available for | |
| | |
Options, Warrants | |
| Options, Warrants | | |
| Future | |
| Plan Description | |
and Rights | |
| and Rights | | |
| Issuance | |
| Grants Under Compensation Plans Not Approved by shareholders | |
15,000,000 | |
$ | 0.005 | | |
| — | |
| Totals | |
15,000,000 | |
$ | 0.005 | | |
| — | |
(1) The Company has agreed to issue to
Messrs. Wachendorfer and Karnes 7,500,000 shares each, 750,000 shares each month, for services rendered or to be rendered during
2015. As of July 31, the Company was obligated to issue 3,750,000 shares of Common Stock to each.
Warrants, Options and Convertible Securities
As of August 1, 2015, there were no warrants
issued and outstanding.
As of August 1, 2015, we had $200,000
of unsecured convertible notes outstanding that are convertible into 800,000 shares of our common stock.
Item 10. Recent Sales of Unregistered Securities.
On December 1, 2010, we issued a total
of 3,000,000 shares of our Common Stock (the “Placement Shares”) in reliance on the exemption from the registration
requirements of the Securities Act provided by Rule 904 of Regulation S, promulgated thereunder, to two individuals: (i) our then-Principal
Executive Officer and Treasurer and (ii) our then-Principal Financial and Accounting Officer. The purchase price for the Placement
Shares was equal to their par value, $0.0001 per share, amounting in the aggregate for all 3,000,000 shares to $300. The offer
and sale of the Placement Shares did not involve any underwriters, underwriting discounts or commissions or any public offering.
No advertising or general solicitation was employed in offering the securities.
2012
On the date of the acquisition by Baby
All Corp. of Santa Fe Operating, Inc., May 10, 2012, the Company issued: (i) an aggregate of 33,478,261 shares of Common Stock
to the stockholders of Santa Fe Operating, Inc. and (ii) issued to the same individuals or entities warrants to purchase an aggregate
of 6,764,856 shares of Common Stock (the “Warrants”), which Warrants are exercisable at any time for a period of three
years from the date of issuance at an exercise price of $0.50 per share.
In the third calendar quarter of 2012,
the Company sold to five individuals or entities 462,400 shares of Common Stock at prices ranging from $0.25 per share to $0.50
per share at a weighted average of approximately $0.33 per share.
The 33,478,261 shares and related warrants
and the 462,500 shares did not involve a public offering and the offer and sale of warrants and shares were exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) and Regulation D promulgated thereunder.
2013
In the first quarter of 2013, the Company
sold to five individuals or entities 340,800 shares of Common Stock for $0.25 per share.
In the second calendar quarter, the Company
issued to a former Chief Executive Officer, who had resigned in the fourth calendar quarter of 2012, 3,500,000 shares of Common
Stock in exchange for the cancellation of compensation and accounts payable owed to the individual.
In the second calendar quarter of 2013,
the Company sold to two individuals 200,000 shares of Common Stock for $0.10 per share.
Also in the fourth calendar quarter, the
Company issued 20,000 shares of its Common Stock, valued at $800, plus an overriding royalty interest in one of the Company’s
properties.
In the second quarter of 2013, the Company
issued a convertible note in which the investor could convert the note to Common Stock of the Company based on a discount to the
then current market price of the Company’s Common Stock. Beginning six months later, in the fourth quarter of 2013, that
investor converted a portion of the note, and the Company issued an aggregate of 4,850,000 free trading shares in five separate
transactions in which the weighted average conversion was approximately $0.0057 per share.
In the first quarter of 2013, the Company
engaged a financial public relations firm, Investor Awareness, Inc., for which it paid an aggregate of 300,000 shares of its Common
Stock. In the second quarter of 2013, the Company engaged C4 Capital Markets LLC to provide financial consulting services. The
Company issued to C4 Capital Markets LLC a total of 1,032,000 shares of Common Stock for these services.
In the five month period commencing in
May 2013, the Company acquired a 2.8% working interest from five individuals in exchange for 1,000,002. Star G&O Holdings (96,001).
And in the third quarter of that year,
the Company issued an aggregate of 130,000 shares to two attorneys for legal services.
In the fourth calendar quarter, the Company
issued 20,000 shares of its Common Stock for $20,000 plus a 0.13333% overriding royalty interest in one of the Company’s
properties.
In the fourth quarter of 2013, the Company
issued 20,000,000 shares of Common Stock to an entity affiliated with our then Chief Executive Officer, Tom Griffin, as compensation
for services valued at $80,000, or $0.004 per share, in 2013. Similarly, the Company issued 7,700,000 shares to an entity affiliated
with Mr. Griffin as compensation to an individual for services valued at $30,800 or $0.004 per share, rendered to the Company.
All shares and debt obligations offered
and sold in 2013 did not involve a public offering and the offer and sale of warrants and shares were exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof.
2014
In January 2014 the Company issued to
an engineer 100,000 shares of Common Stock for $5,000 of services related to the Company prospect in Jack County, Texas.
Pursuant to the convertible note issued
in the second quarter of 2013, the Company issued 10,850,000 free trading shares of its Common Stock in three separate transactions
for conversion of $18,950 in principal amount the convertible debt, a weighted average conversion price of $0.00175 per share.
In each calendar quarter of 2014, the
Company issued to Edward Wachendorfer, an individual who became a director and Chairman of the Board of the Company in January
2015, an aggregate of 3,324,603 shares of Common Stock for legal services valued at $17,170, or a weighted average of $0.0052 per
share.
All shares sold in 2014 did not involve
a public offering and the offer and sale of shares were exempt from the registration requirements of the Securities Act by virtue
of Section 4(2) thereof.
2015
In March 2015, the Company entered in
to agreements with Carl Karnes and Edward Wachendorfer to issue a total of 15,000,000 shares, 7,500,000 shares each, in consideration
for services to be rendered to the Company in 2015. The value of the shares was $0.005 per share, the price on the date of the
execution of the agreement for services.
In July 2015 the Company issued 20,886,875
shares of Common Stock to 18 individuals or entities. Of these shares, 14,040,000 were issued to ten individuals for cash of $0.005
per share. Four individuals or entities purchased 846,835 shares for services rendered to the Company at a value ranging from $0.005
to $0.01 per share.
In the first and second quarters of 2015,
the Company issued four notes totaling $400,000 in principal amount. The notes were issued to four individuals, bear interest at
8% per annum with principal and interest payable at maturity. One note, in the principal amount of $100,000 matures in February
2016 and another, in the principal amount of $50,000, matures in March 2016. The third, in the principal amount of $50,000 matures
in March 2017 and the fourth, in the principal amount of $200,000 matures in June 2018. These individuals were issued a total of
6,000,000 shares of stock which are charged as interest on the notes with a value of approximately $0.0069 per share.
Securities sold in 2015 did not involve
a public offering and the offer and sale of shares were exempt from the registration requirements of the Securities Act by virtue
of Section 4(2) thereof.
Item 11. Description of Registrant’s Securities to
be Registered.
We are authorized to issue 300,000,000
shares of our Common Stock, $0.0001 par value (the “Common Stock”) and 15,000,000 shares of Preferred Stock, $0.0001
par value (the “Preferred Stock”). The following description of our capital stock is a summary and is qualified in
its entirety by the provisions of our Certificate of Incorporation, with amendments, all of which have been filed as exhibits to
this registration statement.
Description of Common Stock
As of August 17, 2015, there were 122,821,997
shares of our Common Stock outstanding. Each share of the Common Stock is entitled to share equally with each other share of Common
Stock in dividends from sources legally available therefore, when, and if, declared by our Board of Directors and, upon our liquidation
or dissolution, whether voluntary or involuntary, to share equally in the assets of the Company that are available for distribution
to the holders of the Common Stock. Each holder of Common Stock is entitled to one vote per share for all purposes, except that
in the election of directors, each holder shall have the right to vote such number of shares for as many persons as there are directors
to be elected. Cumulative voting shall not be allowed in the election of directors or for any other purpose, and the holders of
Common Stock have no preemptive rights, redemption rights or rights of conversion with respect to the Common Stock. Our Board of
Directors is authorized to issue additional shares of our Common Stock within the limits authorized by our Certificate of Incorporation
and without stockholder action. All shares of Common Stock have equal voting rights.
Description of Preferred Stock
The shares of Preferred
Stock could be issued from time to time by our Board of Directors in its sole discretion without further approval or authorization
by the stockholders, in one or more series, each of which series could have any particular distinctive designations as well as
relative rights and preferences as determined by our Board of Directors. The relative rights and preferences that may be determined
by our Board of Directors in its discretion from time to time include but are not limited to the following:
| · | the rate of dividend and whether the dividends
are to be cumulative and the priority, if any, of dividend payments relative to other series in the class; |
| · | whether the shares of any such series may be
redeemed, and if so, the redemption price and the terms and conditions of redemption; |
| · | the amount payable with respect to such series
in the event of voluntary or involuntary liquidation and the priority, if any, of each series relative to other series in the class
with respect to amounts payable upon liquidation and sinking fund provision, if any, for the redemption or purchase of the shares
of that series; and |
| · | the terms and conditions, if any, on which the
shares of a series may be converted into or exchanged for shares of any class, whether common or preferred, or into shares of any
series of the same class, and if provision is made for conversion or exchange, the times, prices, rates, adjustments and other
terms. |
We believe that the availability of preferred
stock provides flexibility in structuring future financings, should the need for additional financing arise. We have no plans,
understandings, arrangements, or agreements for issuing any shares of preferred stock at the present time.
Our authorized but unissued preferred
stock could be issued in one or more transactions, which would make more difficult or costly, and less likely, a takeover of the
Company. Issuing additional shares of stock would also have the effect of diluting the stock ownership of persons seeking to obtain
control of Company. Moreover, certain companies have issued rights to purchase their preferred stock, with such rights having terms
designed to encourage in certain potential acquisitions negotiation with the board. The authorized but unissued shares of preferred
stock would be available for use in connection with the issuance of such rights. The Company does not intend to adopt any anti-takeover
measures at the present time.
Item 12. Indemnification of Directors and Officers.
Article Nine of our amended and restated
Certificate of Incorporation provide that to the fullest extent permitted by Delaware law, the Company may indemnify our directors
and officers against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit, or proceeding in which such person was or is a party
or is threatened to be made a party by reason of the fact that such person is or was a director or officer of the corporation.
The indemnification provisions in our Certificate of Incorporation may discourage stockholders from bringing a lawsuit against
directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative
litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders.
In addition, your investment in the Company may be adversely affected to the extent we pay the costs of settlement and damage awards
against directors and officers pursuant to these indemnification provisions. We believe that the indemnification provisions in
our bylaws are necessary to attract and retain qualified persons as directors and officers.
Item 13. Financial Statements and Supplementary Data.
The Company’s consolidated financial
statements and supplementary data are included in pages F-1 through F- 16 of this Registration Statement on Form 10.
Item 14. Changes in and Disagreements with Accountants
and financial Disclosure.
None
Item 15. Financial Statements and Exhibits.
(a) Exhibits
Exhibit 3.1 – Amended and restated Certificate of Incorporation
Exhibit 10.1 - Form of 8% Note
(a) The following
financial statements are filed as part of this report and incorporated by reference to such financial statements:
| Reports of Independent Registered Public Accounting Firm | |
| F-1 | |
| Consolidated Balance Sheets | |
| F-2 | |
| Consolidated Statements of Operations | |
| F-3 | |
| Consolidated Statements of Stockholders’ Equity (Deficit) | |
| F-4 | |
| Consolidated Statements of Cash Flows | |
| F-5 | |
| Notes to Consolidated Financial Statements | |
| F-6 | |
| Consolidated Balance Sheet June 2013 (Unaudited) | |
| F-18 | |
| Consolidated Statements of Operations for the | |
| | |
| Six Months Ended June 30, 2015 And 2014 (Unaudited) | |
| F-19 | |
| Consolidated Statements of Cash Flows for the | |
| | |
| Six Months Ended June 30, 2015 And 2014 (Unaudited) | |
| F-20 | |
| Notes to the Consolidated Financial Statements for the | |
| | |
| Six Months Ended June 30, 2015 and 2014 (Unaudited) | |
| F-22 | |
SIGNATURES
Pursuant to the
requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
Santa Fe Petroleum, Inc. |
| Date: September 2, 2015 |
By: |
/s/ Carl Karnes |
| |
|
Carl Karnes |
| |
|
Chief Executive Officer |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Stockholders
Santa Fe Petroleum, Inc.
Dallas, Texas
We have audited the accompanying consolidated
balance sheets of Santa Fe Petroleum, Inc. as of December 31, 2013 and 2014, and the related consolidated statements of operations,
stockholders’ deficit and cash flows for the years then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 audits 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 consolidated 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 consolidated financial statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall consolidated 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 Santa Fe Petroleum,
Inc. as of December 31, 2013 and 2014, and the consolidated results of its operations and its cash flows for 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 2 to the consolidated
financial statements, the Company has suffered recurring losses from operations and its limited capital resources raise substantial
doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described
in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ KWCO, PC
KWCO, PC
Odessa, Texas
August 31, 2015
SANTA FE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF
DECEMBER 31, 2013 AND 2014
| | |
December 31, | |
December 31, |
| | |
2013 | |
2014 |
| ASSETS | |
| | | |
| | |
| Current assets | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 402 | | |
$ | 119 | |
| Accounts receivable | |
| 1,242 | | |
| 948 | |
| Total current assets | |
| 1,644 | | |
| 1,067 | |
| Oil
and gas properties, using successful efforts method | |
| | | |
| | |
| Producing property, net of accumulated depletion | |
| | | |
| | |
| of $14,475 and $31,358 respectively | |
| 90,725 | | |
| 73,842 | |
| Non-producing properties | |
| 326,725 | | |
| — | |
| Total assets | |
$ | 419,094 | | |
$ | 74,909 | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Accounts payable | |
$ | 453,250 | | |
$ | 450,409 | |
| Accounts payable, related parties | |
| 381,821 | | |
| — | |
| Accrued liabilities | |
| 198,140 | | |
| 200,140 | |
| Accrued compensation | |
| 377,350 | | |
| 75,000 | |
| Notes payable | |
| 568,083 | | |
| 209,133 | |
| Notes payable – other | |
| — | | |
| 20,000 | |
| Total current liabilities | |
| 1,978,644 | | |
| 954,682 | |
| Long-term notes payable | |
| | | |
| | |
| Related party | |
| 244,148 | | |
| — | |
| Other | |
| 20,000 | | |
| — | |
| Derivative liability | |
| 50,598 | | |
| 26,053 | |
| Total liabilities | |
| 2,293,390 | | |
| 980,735 | |
| Commitments and contingencies | |
| — | | |
| — | |
| Stockholders’ deficit | |
| | | |
| | |
| Common stock, $0.0001 par value, 300,000,000 shares | |
| | | |
| | |
| Authorized; 80,960,519 and 95,135,122 shares
issued | |
| | | |
| | |
| and outstanding, respectively | |
| 8,096 | | |
| 9,514 | |
| Additional paid-in capital | |
| 2,250,300 | | |
| 3,234,588 | |
| Retained Deficit | |
| (4,132,692 | ) | |
| (4,149,928 | ) |
| Total stockholders’ deficit | |
| (1,874,296 | ) | |
| (905,826 | ) |
| Total liabilities and
stockholders’ deficit | |
$ | 419,094 | | |
$ | 74,909 | |
See
accompanying notes to consolidated financial statements.
SANTA FE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2014
| | |
For the Year | |
For the Year |
| | |
Ended | |
Ended |
| | |
December
31, 2013 | |
December
31, 2014 |
| Revenue | |
| | | |
| | |
| Oil and Gas Revenue | |
$ | 23,102 | | |
$ | 27,566 | |
| Gain on Sale of Oil and
Gas Lease | |
| — | | |
| 22,525 | |
| Total Revenue | |
| 23,102 | | |
| 50,091 | |
| Costs and expenses | |
| | | |
| | |
| Lease operating expenses | |
| 8,746 | | |
| 9,996 | |
| Production Taxes | |
| 1,068 | | |
| 1,273 | |
| Dry Hole Expense | |
| 1,212,859 | | |
| — | |
| Depletion Expense | |
| 14,475 | | |
| 16,883 | |
| Compensation | |
| 803,700 | | |
| — | |
| Professional | |
| 111,551 | | |
| 21,863 | |
| Consulting | |
| 374,628 | | |
| — | |
| Rent and office expenses | |
| 14,560 | | |
| — | |
| Other | |
| 42,091 | | |
| 8,257 | |
| Derivative Expense | |
| 99,679 | | |
| 7,055 | |
| Interest Expense | |
| 261,636 | | |
| 2,000 | |
| Total expenses | |
| 2,944,993 | | |
| 67,327 | |
| Net loss | |
$ | (2,921,891 | ) | |
$ | (17,236 | ) |
| Basic and diluted loss
per share | |
$ | (0.06 | ) | |
$ | (0.00 | ) |
| Basic and diluted weighted average | |
| | | |
| | |
| shares
outstanding | |
| 47,378,240 | | |
| 90,982,155 | |
See
accompanying notes to consolidated financial statements.
SANTA FE PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIT
FOR
THE YEARS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2014
| | |
| |
| |
Additional | |
| |
Total |
| | |
Common
Stock | |
Paid
- In | |
Retained | |
Stockholders’ |
| | |
| Shares | | |
| Par
Value | | |
| Capital | | |
| Deficit | | |
| Deficit | |
| Beginning Balance at | |
| | | |
| | | |
| | | |
| | | |
| | |
| December
31, 2012 | |
| 40,797,711 | | |
$ | 4,080 | | |
$ | 836,606 | | |
$ | (1,210,801 | ) | |
$ | (370,115 | ) |
| Stock Issued for Services
and | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest | |
| 33,702,006 | | |
| 3,370 | | |
| 1,134,614 | | |
| | | |
| 1,137,984 | |
| Stock Issued for Accounts | |
| | | |
| | | |
| | | |
| | | |
| | |
| Payable
Settlement | |
| 50,000 | | |
| 5 | | |
| 52,395 | | |
| | | |
| 52,400 | |
| Stock Sold | |
| 540,800 | | |
| 54 | | |
| 105,146 | | |
| | | |
| 105,200 | |
| Offering Expenses | |
| | | |
| | | |
| (60,705 | ) | |
| | | |
| (60,705 | ) |
| Stock Issued for Oil
and Gas | |
| | | |
| | | |
| | | |
| | | |
| | |
| Leases | |
| 1,020,002 | | |
| 102 | | |
| 105,898 | | |
| | | |
| 106,000 | |
| Note Conversions | |
| 4,850,000 | | |
| 485 | | |
| 27,265 | | |
| | | |
| 27,750 | |
| Derivative Liability
on Note | |
| | | |
| | | |
| | | |
| | | |
| | |
| Payable
Conversions | |
| | | |
| | | |
| 49,081 | | |
| | | |
| 49,081 | |
| Net
Loss | |
| | | |
| | | |
| | | |
| (2,921,891 | ) | |
| (2,921,891 | ) |
| Balances at December
31, 2013 | |
| 80,960,519 | | |
| 8,096 | | |
| 2,250,300 | | |
| (4,132,692 | ) | |
| (1,874,296 | ) |
| Note Conversions | |
| 10,850,000 | | |
| 1,085 | | |
| 17,865 | | |
| | | |
| 18,950 | |
| Stock for Services | |
| 3,324,603 | | |
| 333 | | |
| 16,837 | | |
| | | |
| 17,170 | |
| Contributed Capital | |
| | | |
| | | |
| 917,986 | | |
| | | |
| 917,986 | |
| Derivative Liability
on Note | |
| | | |
| | | |
| | | |
| | | |
| | |
| Payable
Conversions | |
| | | |
| | | |
| 31,600 | | |
| | | |
| 31,600 | |
| Net
Loss | |
| | | |
| | | |
| | | |
| (17,236 | ) | |
| (17,236 | ) |
| Balances at December
31, 2014 | |
| 95,135,122 | | |
$ | 9,514 | | |
$ | 3,234,588 | | |
$ | (4,149,928 | ) | |
$ | (905,826 | ) |
See
accompanying notes to consolidated financial statements.
SANTA FE PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2014
| | |
For the Year | |
For the Year |
| | |
Ended | |
Ended |
| | |
December
31, 2013 | |
December
31, 2014 |
| Cash Flows From Operating Activities: | |
| | | |
| | |
| Net Loss | |
$ | (2,921,891 | ) | |
$ | (17,236 | ) |
| Adjustments to reconcile
net loss to net cash used in operating activities: | |
| | | |
| | |
| Stock issued for compensation and interest | |
| 1,137,984 | | |
| 17,170 | |
| Derivative expense | |
| 99,679 | | |
| 7,055 | |
| Depletion | |
| 14,475 | | |
| 16,883 | |
| Dry hole costs | |
| 1,212,859 | | |
| — | |
| Gain on sale of oil and gas lease | |
| — | | |
| (22,525 | ) |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| (1,242 | ) | |
| 294 | |
| Accounts payable | |
| 68,744 | | |
| 12,162 | |
| Accounts payable, related parties | |
| 146,545 | | |
| (25,336 | ) |
| Accrued liabilities | |
| 6,980 | | |
| 2,000 | |
| Accrued compensation | |
| 100,000 | | |
| — | |
| Net Cash Used By Operating
Activities | |
| (135,867 | ) | |
| (9,533 | ) |
| Cash Flows from Investing Activities: | |
| | | |
| | |
| Investment in oil and gas properties | |
| (357,960 | ) | |
| — | |
| Proceeds from sale of
oil and gas lease | |
| — | | |
| 9,250 | |
| Net Cash Used in Investing
Activities | |
| (357,960 | ) | |
| 9,250 | |
| Cash Flows from Financing Activities: | |
| | | |
| | |
| Notes payable borrowings | |
| 415,833 | | |
| — | |
| Sale
of common stock net of $60,705 issuance costs in 2013 | |
| 44,495 | | |
| — | |
| Net Cash Provided by Financing
Activities | |
| 460,328 | | |
| — | |
| Net Decrease in Cash: | |
| (33,499 | ) | |
| (283 | ) |
| Cash at Beginning of Year | |
| 33,901 | | |
| 402 | |
| Cash at End of Year | |
$ | 402 | | |
$ | 119 | |
| Supplemental
disclosure of cash flow information: | |
| | | |
| | |
| Income taxes paid | |
$ | — | | |
$ | — | |
| Cash interest paid | |
$ | — | | |
$ | — | |
See
accompanying notes to consolidated financial statements.
SANTA FE PETROLEUM, INC.
Consolidated Statements of Cash Flows
For
the Years Ended December 31, 2013 and December 31, 2014
| | |
For the Year | |
For the Year |
| | |
Ended | |
Ended |
| | |
December
31, 2013 | |
December
31, 2014 |
| Supplemental disclosure of non-cash | |
| | | |
| | |
| investing and financing
activities: | |
| | | |
| | |
| Oil and gas
property acquired by issuance of note payable | |
$ | 444,148 | | |
$ | — | |
| Note payable converted into common stock | |
$ | 27,750 | | |
$ | 18,950 | |
| Derivative liability on note conversions | |
$ | 49,081 | | |
$ | 31,600 | |
| Accounts payable and accrued
liabilities settled by issuance of common stock | |
$ | 52,400 | | |
$ | — | |
| Common stock issued for oil and gas lease | |
$ | 106,000 | | |
$ | — | |
| Contributed capital by controlling shareholder debt | |
$ | — | | |
$ | 917,986 | |
See
accompanying notes to consolidated financial statements.
Santa Fe Petroleum, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013
and December 31, 2014
Note 1 - Nature of Operations
Santa Fe Petroleum, Inc. (“SFPI”
or “Company”) is engaged primarily in the acquisition, development, production and sale of oil and gas in the United
States.
On May 10, 2012 the Company acquired 100% of
the issued and outstanding common stock of Santa Fe Operating, Inc. (“SFO”). SFO owned a 75% net revenue and a 100%
working interest on 76 acres in Comanche County, Texas, designated the Barnett Cody #1. SFO acquired its interest in 2009 and in
October 2012 drilled a well to the Ellenberger formation. Though producing gas but little oil, the well generated excessive amounts
of water, and the Company did not have access to a water disposal well nor the resources to develop one. The Company abandoned
the prospect at the end of 2013 and recognized a $768,711 dry hole expense.
In February 2013, the Company acquired from
Long Branch Petroleum, LLC a Texas limited liability company (“Long Branch”) 100% working interest and an 87.5% net
revenue interest on approximately 1600 acres in Brown and Comanche counties, Texas. Long Branch is wholly owned by the Company’s
then Chief Executive Officer. The Company had entered into certain “Lease Acquisition Agreements” with this and another
entity controlled by Tom Griffin, including Long Branch. The Company had guaranteed the obligations of these entities which would
acquire properties from funds received from investors in these Griffin affiliated entities, these investors being assured a 50%
return on the investment. This arrangement was entered immediately prior to the acquisition of Santa Fe Operating, Inc. by the
Company, and Long Branch had sold to five individuals or entities shares of SFO in addition utilizing the funds from these investors
to acquire said Comanche/Brown County leases. We issued $444,148 of convertible promissory notes, convertible at $0.25 per share
in connection with this acquisition. In a separate agreement with these investors, we granted each a 2% net revenue interest in
the properties. Simultaneously, we ended all obligations with entities affiliated with Mr. Griffin for the purchase of oil and
gas properties. The Company decided in 2013 not to develop these leases and allowed the leases to lapse in early 2014 after the
expiration of the two year primary term of the leases. The Company recognized as dry hole expense the $444,148 investment at December
31, 2013.
In May through October 2013 the Company acquired
a 2.8% working interest, a 2.1% net revenue interest in a producing well in Hopkins County, Texas. The Company issued 1,000,002
shares of common stock to five individuals or entities for the interests, valued at $105,200.
In September 2013 the Company acquired a 100%
working interest in 320 acres in Jack County, Texas, the lease expiring in September 2015 unless held by production. The Company
purchased the property pursuant to funding from a third party. A dispute regarding the funding arrangement arose with the third
party which was settled with the transfer of the interest to the third party, the Company retaining a one percent overriding royalty
interest. The Company had granted, in connection with a $20,000 investment in the Company, a $0.13334% overriding royalty interest
in addition to issuing 20,000 shares of stock to that individual. Part of the agreement with that individual requires that the
Company pay the individual $20,000 plus 5% per annum if a well is not drilled on the property prior to September 25, 2015.
Note 2 - Going Concern and Liquidity
As reflected in the accompanying consolidated financial statements,
the Company had a net loss of $2,921,891 for the period ending December 31, 2013, a net loss of $17,236 for the year ended December
31, 2014 and a net loss of $4,149,928 since inception. Further, at December 31, 2014, the Company had cash of only $119, a working
capital deficit of $953,615 accumulated deficit of $4,149,928, which could have a material impact on the Company’s financial
condition and operations.
Our net losses and lack of capital pose risks to our business
and stockholders by:
| · | making it more difficult for us to satisfy our obligations; |
| · | impeding us from obtaining additional financing in the future for working capital, capital expenditures
and general corporate purposes; and |
| · | making us more vulnerable to a downturn in our business and limit our flexibility to plan for,
or react to, changes in our business. |
The time required for us to become profitable is highly uncertain,
and we cannot assure you that we will achieve or sustain profitability or generate sufficient cash flow from operations to meet
our planned capital expenditures and working capital requirements. Our ability to obtain additional financing from other sources
also depends on many factors beyond our control, including the state of the capital markets and the prospects for our business.
The necessary additional financing may not be available to us or may be available only on terms that would result in further dilution
to the current owners of our common stock.
The accompanying consolidated financial statements do not include
any adjustments to reflect the possible effects on recoverability and classification of assets or the amount and classification
of liabilities which may result from the inability of the Company to continue as a going concern.
Note 3 - Summary of Significant Accounting Policies
Use of Estimates
Preparing financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results
and outcomes may differ from management’s estimates and assumptions. Estimates are used when accounting for stock-based transactions,
account payables and accrued expenses and taxes, among other matters.
Basis of Presentation
The audited consolidated financial statements
of the Company include the accounts of the Company and its wholly-owned subsidiary and have been prepared in accordance with generally
accepted accounting principles in the United States. All significant intercompany transactions and account balances have been eliminated
in consolidation.
Cash and Cash Equivalents
Cash equivalents comprise certain highly liquid
instruments with a maturity of three months or less when purchased. As of December 31, 2014 there were no cash equivalents.
Advertising Costs
The Company expenses advertising costs as these
are incurred. There were no advertising costs in 2013 or 2014.
Revenue Recognition
Oil and gas revenues are recognized when oil
and gas is produced and sold.
Development Stage Company
The Company adopted the provisions of FASB
Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915) (“the Update”) in these consolidated
financial statements. The Update removes the definition of a development stage entity from the Master Glossary of the Accounting
Standards Codification, thereby removing the financial reporting distinction between development stage entities from US GAAP.
In addition, the Update eliminates the requirements for development stage entities to: (1) present inception-to-date information
in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development
stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose
in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development
stage. For public business entities, the amendment is effective for annual reporting periods beginning after December 15, 2014.
The requirements of this pronouncement did not have a material effect on the financial statements.
Oil and Gas Properties
The Company uses the successful efforts method
of accounting for oil and natural gas producing activities, as further defined under ASC 932, Extractive Activities - Oil and
Natural Gas. Under these provisions, costs to acquire mineral interests in oil and natural gas properties, to drill exploratory
wells that find proved reserves, and to drill and equip development wells are capitalized.
Exploratory drilling costs are capitalized
when incurred pending the determination of whether a well has found proved reserves. A determination of whether a well has found
proved reserves is made shortly after drilling is completed. The determination is based on a process that relies on interpretations
of available geologic, geophysic, and engineering data. If a well is determined to be successful, the capitalized drilling costs
will be reclassified as part of the cost of the well. Capitalized costs of producing oil and natural gas interests are depleted
on a unit-of-production basis.
If a well is determined to be unsuccessful,
the capitalized drilling costs will be charged to expense in the period the determination is made. If a determination cannot be
made as to whether the reserves that have been found can be classified as proved, the cost of drilling the exploratory well is
not carried as an asset for more than one year following completion of drilling. If, after that year has passed, a determination
that proved reserves exist cannot be made, the well is assumed to be impaired and its costs are charged to expense. Its cost can,
however, continue to be capitalized if a sufficient quantity of reserves is discovered in the well to justify its completion as
a producing well and the entity is making sufficient progress assessing the reserves and the economic and operating viability of
the project.
Impairment of Long-Lived Assets
The Company accounts for the impairment of long-lived assets in
accordance with ASC 360-10, Property, Plant and Equipment, which requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. Recoverability of
the asset is measured by comparison of its carrying amount to the undiscounted cash flow that the asset or asset group is expected
to generate. If such assets or asset groups are considered to be impaired, the loss recognized is the amount by which the carrying
amount of the property, if any, exceeds its fair market value.
Concentration of Credit Risk and Fair Value of Financial Instruments
The Company maintains cash balances at financial institutions, which
at times exceed federally insured amounts. The Company has not experienced any material losses in such accounts.
The carrying amount of cash and cash equivalents, accounts payable
and accrued liabilities approximate fair value due to the short-term nature of these instruments.
Income Taxes
Income taxes are accounted for under the asset
and liability method of ASC 740, Income Taxes. Under ASC 740, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
Effective May 11, 2011, with the commencement
of operations, the Company adopted provisions of ASC 740, Sections 25 through 60, Accounting for Uncertainties in Income Taxes.
These sections provide detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions
recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the
effective date to be recognized upon the adoption of ASC 740 and in subsequent periods. Upon the adoption of ASC 740, the Company
had no unrecognized tax benefits. For the year ended December 31, 2013, no adjustments were recognized for uncertain tax benefits.
The Company’s tax year for 2013 and the tax year for 2014 are subject to audit.
Stock-Based Compensation
The Company adopted ASC 718, Compensation - Share Based Compensation,
as of May 11, 2011. This statement requires the recognition of compensation expense measured at fair value when the Company obtains
employee services in stock-based payment transactions.
Net Income (loss) per Common Share
The Company computes earnings (loss) per share in accordance with
ASC 260-10, Earnings Per Share. ASC 260-10 requires presentation of both basic and diluted earnings per share (“EPS”)
on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to common stockholders
by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive.
No potential dilutive common shares are included in the computation of any diluted per share amount when a loss is reported.
Accordingly, we did not include potentially dilutive warrants at
December 31, 2013 and 2014, respectively.
Legal Costs and Contingencies
In the normal course of business, the Company
incurs costs to retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these
costs as the related services are received. If a loss is considered probable and the amount can be reasonable estimated, the Company
recognizes an expense for the estimated loss. If we have the potential to recover a portion of the estimated loss from a third
party, the Company makes a separate assessment of recoverability and reduces the estimated loss if recovery is also deemed probable.
Fair Value Estimates
In September 2006, the FASB issued SFAS No.
157 “Fair Value Measurements”. The objective of SFAS 157 (ASC 820) is to increase consistency and comparability
in fair value measurements and to expand disclosures about fair value measurements. SFAS 157 (ASC 820) defines fair value, establishes
a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.
SFAS 157 (ASC 820) applies under other accounting pronouncements that require or permit fair value measurements and does not require
any new fair value measurements.
The Company measures its options and warrants
at fair value in accordance with SFAS 157 (ASC 820). SFAS 157 (ASC 820) specifies a valuation hierarchy based on whether the inputs
to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources,
while unobservable inputs reflect the Company’s own assumptions. These two types of inputs have created the following fair
value hierarchy:
| · | Level 1 - Quoted prices for identical instruments in active markets; |
| · | Level 2 - Quoted prices for similar instruments in active markets,
quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant
inputs and significant value drivers are observable in active markets; and |
| · | Level 3 - Valuations derived from valuation techniques in which one
or more significant inputs or significant value drivers are unobservable. |
This hierarchy requires the Company to minimize
the use of unobservable inputs and to use observable market data, if available, when estimating fair value. The fair value of the
stock based compensation at December 31, 2013 and 2014, were as follows:
| | |
Quoted Prices In Active Markets for Identical Assets | |
Significant Other Observable Inputs | |
Significant Unobservable Inputs | |
|
| | |
(Level 1) | |
(Level 2) | |
(Level 3) | |
Total |
| | |
| | | |
| | | |
| | | |
| | |
| Year Ended December 31, 2013 | |
| | | |
| | | |
| | | |
| | |
| Stock Based
Services and Interest | |
$ | — | | |
$ | 1,137,984 | | |
$ | — | | |
$ | 1,137,984 | |
| Derivative Liability | |
| | | |
$ | 50,598 | | |
$ | — | | |
$ | 50,598 | |
| Year Ended December 31, 2014 | |
| | | |
| | | |
| | | |
| | |
| Derivative Liability | |
| | | |
$ | 26,053 | | |
| — | | |
| 26,053 | |
| Stock Based Services | |
$ | — | | |
$ | 17,170 | | |
$ | — | | |
$ | 17,170 | |
Recent Accounting Pronouncements
No recent accounting pronouncements or other
authoritative guidance have been issued that management considers likely to have a material impact on our consolidated financial
statements.
Note 4 - Oil and Gas Properties
The following sets forth the Company investment in oil and gas properties
at December 31, 2013 and 2014:
| | |
2013 | |
2014 |
| Producing Property – | |
| | | |
| | |
| Hopkins Spindletop #1 | |
$ | 105,200 | | |
$ | 105,200 | |
| | |
| | | |
| | |
| Less: Accumulated | |
| | | |
| | |
| Depletion | |
| (14,475 | ) | |
| (31,358 | ) |
| | |
| 90,725 | | |
| 73,842 | |
| Non-Producing Property – | |
| | | |
| | |
| Jack County, Texas | |
| 326,725 | | |
| — | |
| | |
$ | 417,450 | | |
$ | 73,842 | |
The Company has a 2.8% working interest, 2.1% net revenue interest
in the Hopkins Spindletop #1 well located in Hopkins County, Texas.
For the year ended December 31, 2013 the Company
recognized dry hole expense as follows:
| Investment in Barnett Cody #1 | |
| | |
| as of December 31, 2012 | |
$ | 736,676 | |
| | |
| | |
| 2013 Expenses, net | |
| 32,035 | |
| | |
| 768,711 | |
| | |
| | |
| Comanche and Brown County Leases | |
| 444,148 | |
| | |
| | |
| Dry Hole Expense, December 31, 2013 | |
$ | 1,212,859 | |
On April 30, 2014, the Company entered in a
“Settlement Agreement and Mutual Release” with the lender that provided the $340,000 land loan, which proceeds were
used to acquire the Jack County lease in 2013. The lender and an unrelated third party agreed to:
| · | Assume responsibility for the development of the lease |
| · | The lender deemed that the land loan was satisfied and discharged
in full |
| · | Lender agreed to pay a total of $14,250 to reimburse expenses incurred
related to the lease, which included $9,250 paid to the Company |
| · | The Company retained a one percent (1%) overriding royalty interest
in the production revenues from any wells operated on the lease |
The Company recognized a gain on the disposition
of the Jack County lease as follows:
| 2013 Investment | |
$ | (326,725 | ) |
| | |
| | |
| Less: Payment received | |
| 9,250 | |
| Debt Assumed by | |
| | |
| Acquirer | |
| 340,000 | |
| Gain | |
$ | 22,525 | |
Note 5 - Income Taxes
As of December 31, 2013 and 2014 the Company
had net operating loss carryforwards of approximately $2,353,000 and $2,648,000 respectively, which will expire beginning in 2031. A
valuation allowance has been provided for the deferred tax asset as it is uncertain whether the Company will have future taxable
income. A reconciliation of the benefit for income taxes with amounts determined by applying the statutory federal income rate
of (35%) to the loss before income taxes is as follows:
| | |
2013 | |
2014 |
| Net Operating Income (Loss) | |
$ | (2,921,891 | ) | |
$ | (17,236 | ) |
| Benefit (expense) for income taxes computed using the statutory rate of 35% | |
$ | 1,022,662 | | |
$ | 6,033 | |
| Non-deductible expense (reversal) | |
| (433,457 | ) | |
| (8,480 | ) |
| Change in valuation allowance | |
| 589,205 | | |
| (2,447 | ) |
| Provision for income taxes | |
$ | — | | |
$ | — | |
Significant components of the Company's deferred tax liabilities
and assets at December 31, 2013 and 2014 are as follows:
| | |
2013 | |
2014 |
| Tax operating loss carryforwards | |
$ | 823,509 | | |
$ | 926,885 | |
| Accrued Compensation | |
| 132,073 | | |
| 26,250 | |
| Total deferred tax assets | |
| 955,582 | | |
| 953,135 | |
| Deferred tax liabilities | |
| — | | |
| — | |
| Net deferred tax assets | |
| 955,582 | | |
| 953,135 | |
| Valuation allowance | |
| (955,582 | ) | |
| (953,135 | ) |
| | |
$ | — | | |
$ | — | |
As of December 31, 2014, open Federal income tax years subjected
to examination include tax years ended December 31, 2013 through December 31, 2011.
Note 6 - Stockholders’ Deficit
Capital Structure
The Company is authorized to issue up to 15,000,000
shares of preferred stock at $0.01 par value per share and 300,000,000 shares of common stock at $0.0001 par value per share. No
preferred shares are issued or outstanding at December 31, 2014.
Common Stock
As of December 31, 2013, 80,960,519 shares
of common stock were issued and outstanding, and as of December 31, 2014, 95,135,122 shares of common stock were issued and outstanding.
Stock Warrants
The exercisable outstanding stock purchase warrants were 6,764,858
and 3,224,000 as of December 31, 2013 and 2014 respectively, with a weighted average exercise price of $0.38 and $0.25, respectively. The
following summarizes the warrant activity in 2013 and 2014:
| | |
2013 | |
2014 |
| | |
Number of Shares | |
Weighted Average Exercise Price | |
Number of Shares | |
Weighted Average Exercise Price |
| Outstanding at beginning of the year | |
| 6,764,856 | | |
$ | 0.38 | | |
| 6,764,856 | | |
$ | 0.38 | |
| Granted | |
| — | | |
| — | | |
| — | | |
| — | |
| Exercised | |
| — | | |
| — | | |
| — | | |
| — | |
| Forfeited or cancelled | |
| — | | |
| — | | |
| — | | |
| — | |
| Expired | |
| — | | |
| — | | |
| 3,540,856 | | |
| 0.50 | |
| Outstanding at end of year | |
| 6,764,856 | | |
$ | 0.38 | | |
| 3,224,000 | | |
$ | 0.25 | |
| Exercisable | |
| 6,764,856 | | |
$ | 0.38 | | |
| 3,224,000 | | |
$ | 0.25 | |
3,540,856 warrants expired on May 11, 2014
and 3,224,000 warrants will expire on January 31, 2015.
Note 7 - Related Party Transactions
The Company has entered into numerous transactions
with Mr. Thomas Griffin, the Company’s Chief Executive Officer and various companies controlled by Mr. Griffin (these include
Long Branch Petroleum, LLC and TexTron Southwest, Inc.). The following sets forth transactions with this executive officer:
| | |
Amount |
| Balance December 31, 2012 | |
$ | 235,276 | |
| | |
| | |
| Cash transactions - | |
| | |
| Advances | |
| 158,082 | |
| Payments | |
| (40,450 | ) |
| Expenses | |
| 28,913 | |
| | |
| | |
| Balance December 31, 2013 | |
| 381,821 | |
| | |
| | |
| Cash transactions – | |
| | |
| Advances | |
| 1,000 | |
| Payments | |
| (20,311 | ) |
| | |
| | |
| Expenses | |
| 8,978 | |
| | |
| | |
| Balance December 31, 2014 (before contribution) | |
$ | 371,488 | |
We have engaged, and may engage in the future,
in transactions with our affiliates or stockholders, officers and directors of our affiliates. TexTron Southwest, Inc. (“TexTron”)
provides operating services including drilling of wells and ongoing operating management for oil and gas entities and is owned
by entities under the control of the principal stockholder/chief executive officer.
In 2013 the Company issued its common stock
to two executive officers as follows:
| |
|
|
|
|
|
|
| Name |
|
Number of Shares |
|
Value |
|
Reason |
| Bruce Hall |
|
3,500,000 |
|
$490,000 |
|
Accrued Compensation |
| |
|
|
|
35,000 |
|
Accounts Payable |
| |
|
|
|
|
|
|
| Tom Griffin |
|
20,000,000 |
|
80,000 |
|
Services Rendered |
In January 2015, Messrs. Edward Wachendorfer
and Karl Karnes agreed to being the Company’s Chairman of the Board of Directors and Chief Executive Officer, respectively.
As part of that agreement, Mr. Griffin, the Company’s then Chief Executive Officer, agreed to transfer to each 12,500,000
shares of the Company’s common stock. In addition, the Company has agreed to issue an aggregate of 15,000,000 shares of the
Company’s common stock for services to be rendered to the Company in 2015 by Messrs. Wachendorfer and Karnes. As a result
of these transactions, the number of shares owned by Messrs. Wachendorfer and Karnes in the aggregate exceeded that owned by Mr.
Griffin. Prior to these actions Mr. Griffin owned 45,497,405 common shares or 47.8% of total outstanding common shares at December
31, 2014. In connection with the change in control, Mr. Griffin agreed to contribute to the Company all balances due to him personally
and/or his affiliates. The following summarizes the contributed capital:
| Accounts payable, related party | |
$ | 371,488 | |
| Accrued compensation | |
| 302,350 | |
| Note Payable | |
| 244,148 | |
| | |
$ | 917,986 | |
This contributed balance has been reflected
in the December 31, 2014 consolidated statement of stockholders’ deficit.
Due to the change in control Mr. Edward Wachendorfer
became a related party. Mr. Wachendorfer was issued the following shares of the Company’s common stock:
- 2013 – issued 840,000 shares valued at $3,360 for legal services
- 2014 – issued 3,324,603 shares valued at $17,170 for legal services
Note 8 - Commitment and Contingencies
From time-to-time the Company may become subject
to proceedings, lawsuits and other claims in the ordinary course of business including proceedings related to environmental and
other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. The Company is
unaware of any claim or lawsuit as of and December 31, 2013 and December 31, 2014.
The Company is subject to various possible
contingencies that arise primarily from interpretation of federal and state laws and regulations affecting the oil and natural
gas industry. Such contingencies include differing interpretations as to the prices at which oil and natural gas sales may be made,
the prices at which royalty owners may be paid for production from their leases, environmental issues and other matters. Although
management believes that it has complied with the various laws and regulations, administrative rulings and interpretations thereof,
adjustments could be required as new interpretations and regulations are issued. In addition, environmental matters are subject
to regulation by various federal and state agencies.
Note 9 – Notes Payable
The following are the components of notes payable:
| | |
|
2013 |
| |
|
2014 |
|
Convertible Note payable – JMJ Financial – Notes incur a onetime interest charge of 12% if held longer than 3 months. The notes are convertible at the lower of $0.30 or 60% of the lowest trading price in the 25 trading day preceding conversion. The note matured on April 17, 2014.
| |
$ | 28,083 | | |
$ | 9,133 | |
Five (5) Unsecured Convertible Promissory notes – non-interest bearing, maturing fourteen months after issuance. All notes matured in April and May 2014. The notes are convertible at a rate of $0.25 per share, into 800,000 total shares. The beneficial conversion feature was valued as $112,000 and was recorded as interest expense in 2013.
| |
| 200,000 | | |
| 200,000 | |
Land Bank Loan – non-interest bearing loan dated July 26, 2013, with a maturity of two years was issued in connection with the acquisition of the Jack County lease.
| |
| 340,000 | | |
| — | |
| Total notes payable | |
$ | 568,083 | | |
$ | 209,133 | |
The five unsecured convertible
promissory notes were assumed by the Company in connection with the acquisition of the Comanche and Brown County leases. Simultaneous
with the debt assumption, the Company entered into a “Settlement and Release Agreement” with each of the five individual
lenders, which include the following provisions:
| i. |
The Company agreed to grant each lender a 2% net revenue interest in the leases |
| |
|
| ii. |
The Company issued a new note agreement in favor of the lender |
| |
|
| iii. |
The lenders agreed to terminate that certain Participation Agreement between the Company and the lenders dated February, 2013. |
Related Party Note Payable
Convertible debt to a related party consists of one
note payable assumed from a related party, in connection with the acquisition of the Comanche and Brown County leases, with a balance
due of $244,148 at December 31, 2013. The note matured in May 2014. The note was forgiven by the majority shareholder in 2014,
and treated as a contribution to capital.
Long-Term Debt Other
The long-term debt other is owed to an individual and
the term of this debt was set forth in a “Purchase Agreement” dated September 25, 2013 and included the following provisions:
- Individual was sold a .133334% overriding royalty interest in
the Jack County, Texas lease owned by the Company for $20,000
- Individual was issued 20,000 shares of the Company’s common
stock (valued at $800)
- In the event the first oil/gas well was not drilled within twelve(12)
months from September 25, 2013, at the election of the individual, the overriding royalty should be exchanged for a $20,000 note
payable, bearing interest at 5% per annum and matures in twenty four (24) months
Due to the Company’s inability
to obtain sufficient funds to develop the Jack County lease, the $20,000 has been reflected as a note payable since the inception
of the debt.
Note 10 – Subsequent Event
As of August 30, 2015 the Company had issued
a total of 26,886,875 shares of its common stock to eighteen (18) individuals, of which 14,040,000 shares were issued for cash
(average price $0.005 per share), 6,646,875 shares were issued for services rendered (average value per share of $0.007), 6,000,000
shares were issued for interest on notes payable (average price $0.0069) and 200,000 shares were issued to a landman (at $0.005).
In April 2015 we acquired a 19.58% Working
Interest, a 15.9% Net Revenue Interest, on leases for seven zones located on 160 acres in Hughes County Oklahoma. The seven formations
begin around a depth of 3,000 feet and extend to approximately 4,400 feet. Our primary goal, however, is a formation located at
a depth of approximately 3,400 feet. We do not anticipate any horizontal drilling on this prospect.
The prospect in Hughes County, which we designate
as the Villines #1, is located on 160 acres on which a well can be drilled on each 40 acres, a single well holding the entire 160
acre tract. We believe that at least one other well can be drilled, depending on the success of the first well.
In July 2015 we acquired a 25% Working Interest,
a 20% Net Revenue Interest on leases totaling 320 acres in Pottawatomie County, Oklahoma.
From February 20, 2015 to June 30, 2015 the
Company borrowed $400,020 from four individuals. Each note payable has a twelve (12) to thirty six (36) month maturity and accrues
interest at 8% per annum.
Note 11 - Supplemental Information on
Oil and Gas (unaudited)
| Capitalized costs relating to oil and gas producing activities at December 31, 2013 and 2014 | |
2013 | |
2014 |
| Provided Oil and Gas Properties | |
$ | 105,200 | | |
$ | 105,200 | |
| | |
| | | |
| | |
| Unproved Leases | |
| 326,725 | | |
| — | |
| | |
| 431,925 | | |
| 105,200 | |
| Less: Accumulated depletion | |
| (14,475 | ) | |
| (31,358 | ) |
| | |
$ | 417,450 | | |
$ | 73,842 | |
| | |
| | | |
| | |
Costs incurred in oil and gas producing activities for the years ended December 31, 2013 and 2014
| |
| | | |
| | |
| | |
| | | |
| | |
| Property acquisition cost: | |
| | | |
| | |
| Proved | |
$ | 105,200 | | |
$ | — | |
| Unproved | |
| 770,873 | | |
| — | |
| Exploration and development cost | |
| 32,036 | | |
| — | |
| | |
| | | |
| | |
| Depletion rate per equivalent barrel of production | |
$ | 1.06 | | |
$ | 1.06 | |
| | |
| | | |
| | |
| Results of operations for oil and gas producing activities for the years ended December 31, 2013 and 2014 | |
| | | |
| | |
| | |
| | | |
| | |
| Oil Sales | |
$ | 23,102 | | |
$ | 27,566 | |
| Gain on sale of lease | |
| — | | |
| 22,525 | |
| | |
| 23,102 | | |
| 50,091 | |
| | |
| | | |
| | |
| Less: Production Costs | |
| 9,814 | | |
| 11,269 | |
| Depletion | |
| 14,475 | | |
| 16,883 | |
| Dry Hole Expense | |
| 1,212,859 | | |
| — | |
| | |
| (1,214,046 | ) | |
| 21,939 | |
| | |
| | | |
| | |
| Income tax benefit (expense) | |
| — | | |
| — | |
| | |
| | | |
| | |
| Results of operations for oil and gas producing activities (excluding corporate overhead and financing costs) | |
$ | (1,214,046 | ) | |
$ | 21,939 | |
Reserve Information:
The Company has a non-operating 2.8% working
interest, 2.1% net revenue interest in the Hopkins Spindletop #1 well located in Hopkins County, Texas. As of December 31, 2014,
the Company has not obtained an estimate of the proved developed reserve de minimis nature of the investment.
| SANTA FE PETROLEUM, INC. AND SUBSIDIARIES | |
|
| CONSOLIDATED BALANCE SHEETS | |
| |
|
| AS OF DECEMBER 31, 2014 AND JUNE 30, 2015 | |
June 30, | |
December 31, |
| | |
2015 | |
2014 |
| | |
(Unaudited) | |
(Audited) |
| ASSETS | |
| | | |
| | |
| Current assets | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 281,811 | | |
| 119 | |
| Accounts Receivable | |
| 603 | | |
| 948 | |
| Total current assets | |
| 282,414 | | |
| 1,067 | |
| Oil and gas properties, using successful efforts method | |
| | | |
| | |
| Non-producing property | |
| 20,332 | | |
| — | |
| Producing property, net of accumulated depletion of $38,004 and | |
| | | |
| | |
| $31,358 respectively | |
| 67,196 | | |
| 73,842 | |
| Total assets | |
$ | 369,942 | | |
$ | 74,909 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Accounts payable | |
$ | 500,525 | | |
$ | 450,409 | |
| Accounts payable, related parties | |
| 100 | | |
| — | |
| Accrued liabilities | |
| 214,906 | | |
| 200,140 | |
| Accrued compensation | |
| 75,000 | | |
| 75,000 | |
| Notes payable | |
| 600,020 | | |
| 209,133 | |
| Notes payable - other | |
| 20,000 | | |
| 20,000 | |
| Total current liabilities | |
| 1,410,551 | | |
| 954,682 | |
| Derivative liability | |
| — | | |
| 26,053 | |
| Total liabilities | |
| 1,410,551 | | |
| 980,735 | |
| Commitments and contingencies | |
| — | | |
| — | |
| Stockholders’ deficit | |
| | | |
| | |
| Common stock, $0.0001 par value 300,000,000 shares authorized | |
| | | |
| | |
| 122,021,997 and 95,135,122 shares issued and outstanding, | |
| | | |
| | |
| respectively | |
| 12,202 | | |
| 9,514 | |
| Stock subscription receivable | |
| (7,000 | ) | |
| — | |
| Additional paid-in capital | |
| 3,391,439 | | |
| 3,234,588 | |
| Retained deficit | |
| (4,437,250 | ) | |
| (4,149,928 | ) |
| Total stockholders’ deficit | |
| (1,040,609 | ) | |
| (905,826 | ) |
| Total liabilities and stockholders’ deficit | |
$ | 369,942 | | |
$ | 74,909 | |
See
accompanying notes to consolidated financial statements.
SANTA FE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (Unaudited)
| | |
2015 | |
2014 |
| | |
(Unaudited) | |
(Audited) |
| Revenue | |
| | | |
| | |
| Oil and Gas Revenue | |
$ | 5,820 | | |
$ | 15,457 | |
| Gain on Sale of Oil and Gas Lease | |
| — | | |
| 22,525 | |
| Total Revenue | |
| 5,820 | | |
| 37,982 | |
| Costs and expenses | |
| | | |
| | |
| Lease operating expenses | |
| 3,765 | | |
| 4,727 | |
| Production taxes | |
| 269 | | |
| 714 | |
| Depletion expense | |
| 6,646 | | |
| 9,000 | |
| Compensation | |
| 100,300 | | |
| — | |
| Professional | |
| 119,221 | | |
| 13,874 | |
| Other | |
| 26,128 | | |
| 7,978 | |
| Derivative expense (income) | |
| (26,053 | ) | |
| 6,826 | |
| Interest Expense | |
| 62,866 | | |
| 1,000 | |
| Total expenses | |
| 293,142 | | |
| 44,119 | |
| Net loss | |
$ | (287,322 | ) | |
$ | (6,137 | ) |
| Basic and diluted loss per share | |
$ | (0 | ) | |
$ | — | |
| Basic and diluted weighted average | |
| | | |
| | |
| shares outstanding | |
| 105,818,068 | | |
| 88,769,294 | |
See accompanying notes to consolidated financial statements.
SANTA FE PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (Unaudited)
| | |
2015 | |
2014 |
| Cash Flows From Operating Activities: | |
| | | |
| | |
| Net Loss | |
$ | (287,322 | ) | |
$ | (6,137 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Stock issued for compensation and interest | |
| 88,339 | | |
| 12,280 | |
| Derivative expense (Income) | |
| (26,053 | ) | |
| 6,826 | |
| Depletion | |
| 6,646 | | |
| 9,000 | |
| Gain on sale of oil and gas lease | |
| — | | |
| (22,525 | ) |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| 345 | | |
| (660 | ) |
| Accounts payable | |
| 50,116 | | |
| 6,137 | |
| Accounts payable, related parties | |
| 100 | | |
| (15,111 | ) |
| Accrued liabilities | |
| 14,766 | | |
| 1,000 | |
| Net Cash Used By Operating Activities | |
| (153,063 | ) | |
| (9,190 | ) |
| Cash Flows from Investing Activities: | |
| | | |
| | |
| Purchase of non-producing leases | |
| (19,332 | ) | |
| — | |
| Net Cash Provided by Investing Activities | |
| (19,332 | ) | |
| — | |
| Cash Flows from Financing Activities: | |
| | | |
| | |
| Notes payable borrowings, net | |
| 390,887 | | |
| — | |
| Sale of common stock | |
| 63,200 | | |
| — | |
| Proceeds from Sale of Oil and Gas Leases | |
| — | | |
| 9,250 | |
| Net Cash Provided by Financing Activities | |
| 454,087 | | |
| 9,250 | |
| Net Increase in Cash | |
| 281,692 | | |
| 60 | |
| Cash at Beginning of Year | |
| 119 | | |
| 402 | |
| Cash at Quarter End | |
$ | 281,811 | | |
$ | 462 | |
| Supplemental disclosure of cash flow information: | |
| | | |
| | |
| Income taxes paid | |
$ | — | | |
$ | — | |
| Cash interest paid | |
$ | — | | |
$ | — | |
See accompanying notes to consolidated financial statements.
SANTA FE PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (Unaudited)
| | |
2015 | |
2014 |
| Supplemental disclosure of non-cash investing and financing activities: | | |
| Note payable converted into common stock | |
$ | — | | |
$ | 18,950 | |
| Stock subscription receivable | |
$ | 7,000 | | |
$ | — | |
| Derivative liability on note conversions | |
$ | — | | |
$ | 31,600 | |
| Non-producing oil and gas lease | |
$ | 1,000 | | |
$ | — | |
See accompanying notes to consolidated financial statements.
Santa Fe Petroleum, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2015 and
2014
(Unaudited)
Note 1 - Nature of Operations
On May 10, 2012, Santa Fe Petroleum,
Inc., f/k/a Baby All Corp., a Delaware corporation (the “we,” “us,” “our,” or the “Company”),
entered into a Share Exchange Agreement (the “Exchange Agreement”), with Santa Fe Operating, Inc., a Delaware corporation
engaged in the exploration and production of oil and gas (“SFO”), Tom Griffin, an individual, on behalf of the holders
(the “SFO Shareholders”) of 100% of the issued and outstanding common stock of SFO (the “SFO Stock”), and
Efrat Schwartz, an individual and the holder of a majority of the issued and outstanding shares of our common stock, par value
$0.0001 per share (the “Common Stock”). Pursuant to the Exchange Agreement, each SFO Shareholder was issued one share
of Common Stock in exchange for each of such SFO Shareholder’s shares of SFO Stock (the “Exchange”). Pursuant
to the terms of the Exchange Agreement, the Exchange closed on May 20, 2012, (the “Closing Date”). As a result, (i)
we issued an aggregate of 33,478,261 shares of Common Stock to the SFO Shareholders; (ii) we issued warrants to purchase an aggregate
of 6,764,856 shares of Common Stock to the SFO Shareholders, at an exercise price of $0.50 per share; and (iii) SFO became our
wholly-owned subsidiary.
We were incorporated in Delaware on
November 30, 2010. Prior to the Exchange, our business plan was to seek third party entities interested in licensing the
rights to manufacture and market the patent design of an infant medicine dispenser. Due to a lack of funds, we were not able to
commence operations under the infant medicine dispenser business plan and were in the development stage at the time of the Exchange.
As the result of the Exchange, we are
now engaged in the acquisition, exploration, and development of oil and gas properties. In addition to the development of our existing
property interests, we intend to acquire additional oil and gas interests in the future. Our management believes that our future
growth will primarily occur through the acquisition of additional oil and gas properties following extensive due diligence. We
also may elect to proceed through collaborative agreements and joint ventures in order to share expertise and reduce operating
expenses with other experts in the oil and gas industry. The analysis of new property interests will be undertaken by or under
the supervision of our management and our board of directors (our “Board”). Although the oil and gas industry is currently
very competitive, our management believes that many undervalued prospective properties remain available for acquisition purposes.
For accounting purposes, the Exchange Agreement was accounted for as a reverse merger, since the SFO Shareholders collectively
beneficially owned approximately 84.8% of the Common Stock immediately after the Exchange.
The Company formally changed its name
from Baby All Corp. to Santa Fe Petroleum, Inc. on May 17, 2012.
Note 2 - Going Concern and Liquidity
As reflected in the accompanying consolidated
financial statements, the Company had a net loss of $287,322 for the six months ended June 30, 2015. Additionally, at June 30,
2015, the Company had cash of $281,811, a working capital deficit of $1,128,137 and an accumulated deficit of $4,437,250, which
has a material impact on the Company’s financial condition and operations.
Our accumulated losses and lack of working
capital pose risks to our business and stockholders by:
| |
• |
making it more difficult for us to satisfy our obligations; |
| |
• |
impeding us from obtaining additional financing in the future for working capital, capital expenditures and general corporate purposes; and |
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making us more vulnerable to a downturn in our business and limit our flexibility to plan for, or react to, changes in our business. |
The time required for us to become profitable
is highly uncertain, and we cannot assure you that we will achieve or sustain profitability or generate sufficient cash flow from
operations to meet our planned capital expenditures and working capital requirements. Our ability to obtain additional financing
from other sources also depends on many factors beyond our control, including the state of the capital markets and the prospects
for our business. The necessary additional financing may not be available to us or may be available only on terms that would result
in further dilution to the current owners of our common stock.
The accompanying consolidated financial statements
do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amount and
classification of liabilities which may result from the inability of the Company to continue as a going concern.
Note 3 – Basis of Presentation
In the opinion of management, the accompanying
consolidated balance sheets and related consolidated statements of operations, cash flows, and stockholders’ deficit include
all adjustments, consisting of normal recurring items, necessary for their fair presentation in conformity with accounting principles
generally accepted in the United States of America for interim period reporting in conjunction with the instructions to Form 10-Q
Rule 10-01 of Regulation S-X. Accordingly, these statements do not include all of the information required by GAAP. In the opinion
of management, the condensed consolidated financial statements include the adjustments and accruals, all of which are of a normal
recurring nature, which are necessary for a fair presentation of the results for the interim periods. These interim results are
not necessarily indicative of results for a full year. These unaudited condensed consolidated financial statements should be read
in connection with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form
10 for the year ended December 31, 2014.
Note 4 – Notes Payable
From February 20, 2015 to June 30, 2015 the Company borrowed $400,020
from four individuals. The maturity dates of the four notes vary in length from twelve (12) to thirty six (36) months and
all notes accrue interest at 8% per annum. These notes payable are reflected as current liabilities, as management has determined
that they will be repaid within a twelve month period.
F-24
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF
SANTA FE PETROLEUM, INC.
SANTA FE PETROLEUM., a corporation existing
under the laws of the State of Delaware (the “Corporation”), by its Chief Executive Officer, hereby certifies as follows:
1. The name of the Corporation is “Santa
Fe Petroleum, Inc.”
2. The Corporation’s Certificate
of Incorporation was filed in the office of the Secretary of State of the State of Delaware on April 5, 2011, and amended on May
18, 2012.
3. This Amended Restated Certificate
of Incorporation restates, integrates and amends the Certificate of Incorporation of the Corporation.
4 . This Amended and Restated Certificate
of Incorporation was duly adopted by joint written consent of the directors and stockholders of the Corporation in accordance with
the applicable provisions of Sections 141(f), 228, 242 and 245 of the General Corporation Law of the State of Delaware (“GCL”).
5. The text of the Certificate of Incorporation
of the Corporation is hereby amended and restated to read in full as follows:
ARTICLE ONE
The name of this Corporation (hereinafter
called this “Corporation”) is Santa Fe Petroleum, Inc.
ARTICLE TWO
The address of the registered office
of this Corporation in the State of Delaware is 113 Barksdale Professional Center, Delaware, City of Newark, County of Delaware,
Zip Code 19711, and the name of the registered agent of this Corporation in the State of Delaware at such address is Delaware Intercorp,
Inc.
ARTICLE THREE
The purpose of this Corporation is to
engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of
Delaware.
ARTICLE FOUR
This Corporation is authorized to issue
two classes of stock to be designated, respectively, Preferred Stock (“Preferred Stock”) and Common Stock (“Common
Stock”). The total number of shares of capital stock that this Corporation shall have authority to issue is three hundred
fifteen million (315,000,000). The total number of shares of Preferred Stock this Corporation shall have authority to issue is
fifteen million (15,000,000). The total number of shares of Common Stock this Corporation shall have authority to issue is three
hundred million (300,000,000). The Preferred Stock shall have a par value of $0.01 per share and the Common Stock shall have a
par value of $0.0001 per share.
Preferred Stock may be issued from time
to time in one or more series. The Board of Directors of the Corporation (the “Board of Directors”) is expressly authorized
to provide for the issue of all or any unissued and undesignated shares of Preferred Stock in one or more series, and to fix the
number of shares and to determine or alter for each series, such voting powers, full or limited, or no voting powers, and such
designations, preferences, and relative, participating, optional, or other rights and such qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the
issuance of such shares (a “Preferred Stock Designation”) and as may be permitted by the General Corporation Law of
the State of Delaware. The Board of Directors is also expressly authorized to increase or decrease (but not below the number of
shares of such series then outstanding) the number of shares of any series. In case the number of shares of any such series shall
be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series. The number of authorized shares of Common Stock may be increased or decreased
(but not below the number of shares of Common Stock then outstanding) by the affirmative vote of the holders of shares of stock
of the corporation representing a majority of the votes represented by all outstanding shares of stock of the corporation entitled
to vote, notwithstanding the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware.
ARTICLE FIVE
In furtherance and not in limitation
of the powers conferred by statute, the Board of Directors shall have the power, both before and after receipt of any payments
for any of the Corporation’s capital stock, to adopt amend, repeal or otherwise alter the Bylaws of the Corporation without
any action on the part of the stockholders; provided, however, that the grant of such power to the Board of Directors shall not
divest the stockholders of nor limit their power, to adopt, amend, repeal or otherwise alter the Bylaws.
ARTICLE SIX
Elections of directors need not be by
written ballot unless the Bylaws of the Corporation shall so provide.
ARTICLE SEVEN
The Corporation reserves the right to
adopt, repeal, rescind or amend in any respect any provisions contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by applicable law, and all rights conferred on stockholders herein are granted subject to this reservation.
ARTICLE EIGHT
A director of the Corporation shall,
to the full extent permitted by the Delaware General Corporation law as it now exists or as it may hereafter be amended, not be
liable to the Corporation or to stockholders for monetary damages for breach of fiduciary duty as a director. Neither any amendment
nor repeal of this Article Eight, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this
Article Eight, shall eliminate or reduce the effect of this Article Eight in respect of any matter occurring, or any cause of action,
suit or claim that, but for this Article Eight would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
ARTICLE NINE
The Corporation may indemnify to the
fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer,
employee or agent of the Corporation or any predecessor of the Corporation or serves or served at any other enterprise as a director,
officer, employee or agent at the request of the Corporation or any predecessor to the Corporation.
ARTICLE TEN
Without limiting
the Corporation’s rights or obligations under any contract or agreement, the Corporation renounces, to the fullest extent
permitted by law, any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any
Excluded Opportunity. An “Excluded Opportunity” is any potential transaction or matter that may be an opportunity
for the Corporation that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of
(i) the Corporation or (ii) any of its Affiliates (each a “Covered Person” and collectively, “Covered Persons”),
unless such potential transaction or matter is presented to, or acquired, created or developed by, or otherwise comes into the
possession of, a Covered Person expressly and solely in such Covered Person’s capacity as an Affiliate. An “Affiliate”
is, with respect to the Corporation, any other person directly or indirectly controlling, controlled by or under common control
with such person, which shall include any Director (including in such person’s capacity as an observer on any committee
of the Board of Directors) who has been designated by the Corporation.
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