UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March
31, 2015
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from ________ to ________
Commission File Number: 333-164856
STRATEX OIL & GAS HOLDINGS, INC.
(Exact name of registrant as specified in
its charter)
Colorado |
|
94-3364776 |
(State or Other Jurisdiction of
Incorporation or Organization) |
|
(I.R.S. Employer
Identification No.) |
175 South Main Street,
Suite 900
Salt Lake City, Utah |
|
84111 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(801) 519-8500 |
(Registrant’s
telephone number, including area code) |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes x
No o
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes x
No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large
accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act:
Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer o |
Smaller reporting company x |
(Do not check if a smaller reporting company) |
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
No x
The issuer had 118,995,071 shares of common stock
outstanding as of May 15, 2015.
TABLE OF CONTENTS
|
|
|
Page |
|
|
PART I. FINANCIAL INFORMATION |
3 |
|
|
|
Item 1. |
|
Consolidated Financial Statements
(Unaudited) |
3 |
|
|
|
|
|
Condensed Consolidated Balance
Sheets (Unaudited) March 31, 2015 and December 31, 2014 |
3 |
|
|
Condensed Consolidated Statements
of Operations (Unaudited) For the Three Months Ended March 31, 2015 and 2014 |
4 |
|
|
Condensed Statements
of Cash Flows (Unaudited) For the Three Months Ended March 31, 2015 and 2014 |
5 |
|
|
Notes to Condensed
Consolidated Financial Statements (Unaudited) |
6 |
|
|
|
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
26 |
|
|
|
Item 4. |
|
Controls and Procedures |
26 |
|
|
PART II. OTHER INFORMATION |
27 |
|
|
|
Item 1. |
|
Legal Proceedings |
27 |
|
|
|
Item 1A. |
|
Risk Factors |
27 |
|
|
|
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
27 |
|
|
|
Item 6. |
|
Exhibits |
27 |
|
|
SIGNATURES |
28 |
Item 1. Financial Statements.
Stratex Oil & Gas Holdings, Inc. |
Condensed Consolidated Balance Sheets |
|
| |
(Unaudited)
March 31, 2015 | | |
December 31, 2014 | |
Assets | |
| | | |
| | |
| |
| | | |
| | |
Current Assets: | |
| | | |
| | |
Cash | |
$ | 224,203 | | |
$ | 1,937,225 | |
Accounts receivable | |
| 244,100 | | |
| 448,702 | |
Prepaid expenses | |
| 3,673 | | |
| 39,593 | |
Total Current Assets | |
| 471,976 | | |
| 2,425,520 | |
| |
| | | |
| | |
Deposits | |
| 146,746 | | |
| 128,805 | |
Debt issuance costs | |
| 1,520,698 | | |
| 1,887,378 | |
Oil and gas property, plant and equipment: | |
| | | |
| | |
Proven property - net | |
| 9,000,917 | | |
| 9,834,506 | |
Unproven property | |
| 11,258,581 | | |
| 10,951,429 | |
Support facilities and related well equipment - net | |
| 2,250,851 | | |
| 2,652,271 | |
Vehicles, furniture and equipment - net | |
| 114,832 | | |
| 122,309 | |
Total Assets | |
$ | 24,764,601 | | |
$ | 28,002,218 | |
| |
| | | |
| | |
Liabilities and Stockholders' Equity | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 2,952,875 | | |
$ | 3,609,890 | |
Demand notes payable | |
| 322,575 | | |
| 322,575 | |
Current maturities of notes payable - net of debt discount | |
| 678,032 | | |
| 573,094 | |
Current maturities of convertible notes payable - net of debt discount | |
| 138,182 | | |
| 138,182 | |
Capital lease obligations | |
| - | | |
| 88,000 | |
Derivative liability - warrants | |
| 25,584 | | |
| 128,829 | |
Total Current Liabilities | |
| 4,117,248 | | |
| 4,860,570 | |
| |
| | | |
| | |
Long-term Liabilities: | |
| | | |
| | |
Asset retirement obligations | |
| 663,269 | | |
| 639,349 | |
Notes payable - net of debt discount | |
| 1,199,599 | | |
| 1,256,477 | |
Convertible notes payable, net of debt discount | |
| 19,184,644 | | |
| 18,663,203 | |
| |
| | | |
| | |
Total Long-Term Liabilities | |
| 21,047,512 | | |
| 20,559,029 | |
| |
| | | |
| | |
Total Liabilities | |
| 25,164,760 | | |
| 25,419,599 | |
| |
| | | |
| | |
Commitments and Contingencies | |
| | | |
| | |
| |
| | | |
| | |
Stockholders' Equity: | |
| | | |
| | |
Series A, convertible preferred stock, $0.0001 par value; 400 shares authorized; 100 shares issued; 0 and 0 shares outstanding | |
| - | | |
| - | |
Common stock, $0.01 par value; 750,000,000 shares authorized; and 120,737,337 and 116,904,004 shares issued and outstanding | |
| 1,207,372 | | |
| 1,169,038 | |
Additional paid in capital | |
| 29,826,735 | | |
| 29,321,895 | |
Accumulated deficit | |
| (31,414,266 | ) | |
| (27,888,314 | ) |
Less: Treasury stock, 40 shares Series A, convertible preferred stock, at cost | |
| (20,000 | ) | |
| (20,000 | ) |
Total Stockholders' Equity | |
| (400,159 | ) | |
| 2,582,619 | |
| |
| | | |
| | |
Total Liabilities and Stockholders' Equity | |
$ | 24,764,601 | | |
$ | 28,002,218 | |
See accompanying notes to the condensed consolidated
financial statements.
Stratex Oil & Gas Holdings, Inc. |
Condensed Consolidated Statements of Operations |
(Unaudited) |
| |
For The Three Months Ended | |
| |
March 31, | | |
March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Revenue | |
$ | 309,728 | | |
$ | 98,357 | |
| |
| | | |
| | |
Operating Expenses: | |
| | | |
| | |
Production expenses | |
| 311,527 | | |
| 40,939 | |
Depletion, depreciation and amortization | |
| 178,652 | | |
| 17,519 | |
General and administrative | |
| 679,428 | | |
| 778,608 | |
Impairment of oil and gas assets | |
| 705,330 | | |
| - | |
Loss on abandonment of oil and gas assets | |
| 331,405 | | |
| - | |
Total Operating Expenses | |
| 2,206,342 | | |
| 837,066 | |
| |
| | | |
| | |
Loss From Operations | |
| (1,896,614 | ) | |
| (738,709 | ) |
| |
| | | |
| | |
Other Income and (Expense): | |
| | | |
| | |
Interest expense | |
| (1,640,506 | ) | |
| (325,026 | ) |
Change in fair value - derivative liabilities | |
| 103,245 | | |
| (89,416 | ) |
Warrant amendment expense | |
| - | | |
| (14,755 | ) |
Gain on sale of oil and gas interests | |
| - | | |
| 450,000 | |
Loss on settlement of liabilities | |
| (92,077 | ) | |
| (1,000 | ) |
Other income | |
| - | | |
| 39,175 | |
Total Other Income and (Expense) | |
| (1,629,338 | ) | |
| 58,978 | |
| |
| | | |
| | |
Net Loss | |
$ | (3,525,952 | ) | |
$ | (679,731 | ) |
| |
| | | |
| | |
Net Loss Per Common Share - Basic and Diluted | |
$ | (0.03 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | |
Weighted Average Number of Common Shares Outstanding - Basic and Diluted | |
| 116,946,597 | | |
| 47,287,376 | |
See accompanying
notes to the condensed consolidated financial statements.
Stratex Oil & Gas Holdings, Inc. |
Condensed Consolidated Statements of Cash Flows |
(Unaudited) |
| |
For The Three
Months Ended | |
| |
March 31, | | |
March 31 | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash Flows From Operating Activities: | |
| | |
| |
Net loss | |
$ | (3,525,952 | ) | |
$ | (679,731 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | | |
| | |
Depletion, depreciation and amortization | |
| 178,652 | | |
| 17,519 | |
Stock based compensation | |
| 126,341 | | |
| 57,041 | |
Warrant amendment expense | |
| - | | |
| 14,755 | |
Amortization of debt issue costs | |
| 366,680 | | |
| 34,268 | |
Accretion of debt discount | |
| 572,045 | | |
| 167,360 | |
Impairment of oil and gas assets | |
| 705,330 | | |
| - | |
Loss on abandonment of oil and gas assets | |
| 331,405 | | |
| | |
Loss on settlement of liabilities | |
| 92,077 | | |
| 1,000 | |
Income from forgiveness of debt | |
| - | | |
| - | |
Gain on sale of oil and gas interests | |
| - | | |
| (450,000 | ) |
Change in fair value of derivative liabilities | |
| (103,245 | ) | |
| 89,416 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
(Increase) decrease in: | |
| | | |
| | |
Accounts receivable | |
| 204,602 | | |
| (11,016 | ) |
Prepaid expenses | |
| 35,920 | | |
| (54,593 | ) |
Deposits | |
| (17,941 | ) | |
| (25,000 | ) |
Increase (decrease) in: | |
| | | |
| | |
Accounts payable and accrued liabilities | |
| (585,217 | ) | |
| 947,342 | |
Net Cash Used In Operating Activities | |
| (1,619,303 | ) | |
| 108,361 | |
| |
| | | |
| | |
Cash Flows From Investing Activities: | |
| | | |
| | |
Purchase of oil and gas properties | |
| (84,465 | ) | |
| (2,246,894 | ) |
Proceeds from sale of oil and gas interests | |
| - | | |
| 45,000 | |
Proceeds from sale of oil and gas properties | |
| - | | |
| (21,000 | ) |
Purchase of furniture and equipment | |
| (3,200 | ) | |
| (5,700 | ) |
Net Cash Provided By (Used In) Investing Activities | |
| (87,665 | ) | |
| (2,228,594 | ) |
| |
| | | |
| | |
Cash Flows From Financing Activities: | |
| | | |
| | |
Proceeds from notes payable | |
| - | | |
| 400,000 | |
Repayments on notes payable | |
| (2,544 | ) | |
| (96,373 | ) |
Proceeds from convertible notes payable | |
| - | | |
| 8,622,650 | |
Repayments on capital leases | |
| (3,510 | ) | |
| - | |
Debt issuance costs paid in cash | |
| - | | |
| (366,918 | ) |
Net Cash Provided By (Used In) Financing Activities | |
| (6,054 | ) | |
| 8,559,359 | |
| |
| | | |
| | |
Net change in cash | |
| (1,713,022 | ) | |
| 6,439,126 | |
| |
| | | |
| | |
Cash at beginning of period | |
| 1,937,225 | | |
| 609,061 | |
| |
| | | |
| | |
Cash at end of period | |
$ | 224,203 | | |
$ | 7,048,187 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 527,108 | | |
$ | 68,568 | |
Cash paid for taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Supplemental disclosure of non-cash investing and financing activities: | |
| | | |
| | |
| |
| | | |
| | |
Issuance of common stock to settle liabilities | |
$ | 283,500 | | |
$ | 9,000 | |
Original issue discount on notes payable | |
$ | - | | |
$ | 160,000 | |
Original issue discount on convertible notes payable | |
$ | - | | |
$ | 2,432,078 | |
Debt issuance costs paid in the form of warrants | |
$ | - | | |
$ | 372,962 | |
Debt issuance costs accrued | |
$ | - | | |
$ | 345,016 | |
Increase in asset retirement obligation | |
$ | 35,463 | | |
$ | 95,000 | |
Vehicles purchased through issuance of notes payable | |
$ | - | | |
$ | 28,510 | |
Capitalized oil and gas properties included in accounts payable | |
$ | 187,223 | | |
| - | |
See accompanying notes to the condensed consolidated financial
statements.
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Note 1 Nature of Operations and
Basis of Presentation:
Nature of Operations
Stratex Oil & Gas Holdings,
Inc. (“we or the “Company”) was incorporated on August 15, 2003 as Poway Muffler and Brake Inc. in California
to enter the muffler and brake business. On December 15, 2008, a merger was effected with Ross Investments Inc., a Colorado shell
corporation. Ross Investments was the acquirer and the surviving corporation. Ross Investments Inc. then changed its name to Poway
Muffler and Brake, Inc. On May 25, 2012, we filed an Amendment to our Certificate of Incorporation by which we changed our name
from Poway Muffler and Brake, Inc., a Colorado corporation, to Stratex Oil & Gas Holdings, Inc., with the Secretary of the
State of Colorado.
On July 6, 2012, Stratex
Acquisition Corp., a wholly-owned subsidiary of Stratex Oil & Gas Holdings, Inc. merged with and into Stratex Oil & Gas,
Inc., a Delaware corporation (“Stratex”) (“SOG”). Stratex was the surviving corporation of that Merger.
As a result of the merger, we acquired the business of Stratex, and continued the business operations of Stratex as a wholly-owned
subsidiary.
On December 1, 2014, pursuant
to the terms and condition of the Agreement and Plan of Merger dated May 6, 2014 by and among Stratex Oil & Gas Holdings, Inc.
(the “Company”), Richfield Acquisition Corp. (“Merger Sub”), and Richfield Oil & Gas Company (“Richfield”),
as amended by Amendment No. 1 to Agreement and Plan and Merger dated July 17, 2014 (the Agreement and Plan of Merger, as so amended,
the “Merger Agreement”), Merger Sub merged with and into Richfield, with Richfield continuing as the surviving corporation
and as a wholly owned subsidiary of Stratex (the “Richfield Merger”).
The Company is engaged
in the sale of oil and gas and the exploration for and development of oil and gas reserves in Texas, Kansas, North Dakota, Montana,
Colorado and Utah.
Basis of Presentation- Unaudited
Interim Financial Information
The accompanying
unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and
in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) with
respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements furnished reflect
all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to fairly present
the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial
statements of the Company for the year ended December 31, 2014 and notes thereto contained in the Company’s annual report
on Form 10-K for the year ended December 31, 2014, as filed with the SEC on April 17, 2015.
Note 2 Summary of Significant
Accounting Policies:
Principles of Consolidation and Presentation
The accompanying condensed
consolidated financial statements been prepared in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation.
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Use of Estimates
The preparation
of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Such estimates and
assumptions impact, among others, the following: allowance for bad debt, inventory obsolescence, the fair value of share-based
payments, fair value of derivative liabilities, estimates of the probability and potential magnitude of contingent liabilities
and the valuation allowance for deferred tax assets due to continuing operating losses.
Making estimates requires management
to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation
or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating
its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ
significantly from our estimates.
Risks and Uncertainties
The Company operates in an industry that
is subject to intense competition. The Company's operations are subject to significant risk and uncertainties including financial
and operational risks including the potential risk of business failure.
The Company’s future success depends
largely on its ability to find and develop or acquire additional oil and gas reserves that are economically recoverable. Unless
the Company replaces the reserves produced through successful development, exploration or acquisition activities, proved reserves
will decline over time. Recovery of any additional reserves will require significant capital expenditures and successful drilling
operations. The Company may not be able to successfully find and produce reserves economically in the future. In addition, the
Company may not be able to acquire proved reserves at acceptable costs.
Cash and Cash Equivalents
The Company considers all highly liquid
instruments purchased with an original maturity of three months or less to be cash equivalents. There were no cash equivalents
at March 31, 2015 and December 31, 2014.
The Company minimizes its credit risk associated with cash
by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured
limits.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consist primarily
of oil and gas receivables, net of a valuation allowance for doubtful accounts. As of March 31, 2015 and December 31, 2014, the
allowance for doubtful accounts was $0.
Oil and Gas Properties, Successful Efforts Method
The Company accounts
for oil and gas properties by the successful efforts method. Under this method of accounting, costs to acquire mineral interests
in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development
wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and
costs of carrying and retaining unproved properties are expensed as incurred. The Company evaluates its proved oil and gas properties
for impairment on a field-by-field basis whenever events or changes in circumstances indicate that an asset’s carrying value
may not be recoverable. The Company follows FASB ASC 360 - Property, Plant, and Equipment, for these evaluations. Unamortized
capital costs are reduced to fair value if the undiscounted future net cash flows from our interest in the property’s estimated
proved reserves are less than the asset’s net book value. During the three months
ended March 31, 2015, the Company recorded impairments on oil and gas assets of $705,330 and a loss on abandonment of oil and
gas assets of $331,405. There were no impairments or loss on abandonments for the three months ended March 31, 2014.
The
costs of development wells are capitalized whether productive or non-productive. Leasehold acquisition costs are capitalized when
incurred. If proved reserves are found on an unproved property, leasehold cost is transferred to proved properties. Exploration
dry holes are charged to expense when it is determined that no commercial reserves exist. Other exploration costs, including personnel
costs, geological and geophysical expenses and delay rentals for oil and gas leases, are charged to expense when incurred. The
costs of acquiring or constructing support equipment and facilities used in oil and natural gas producing activities are capitalized.
Production costs are charged to expense as incurred and are those costs incurred to operate and maintain the Company’s wells
and related equipment and facilities.
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Depletion of producing
oil and gas properties is recorded based on units of production. Acquisition costs of proved properties are depleted on the basis
of all proved reserves, developed and undeveloped, and capitalized development costs (wells and related equipment and facilities)
are depleted on the basis of proved developed reserves. As more fully described below, proved reserves are estimated by the Company’s
independent petroleum engineer and are subject to future revisions based on availability of additional information. Asset retirement
costs are recognized when the asset is placed in service, and are depleted over proved reserves using the units of production method.
Oil and gas properties
are reviewed for impairment when facts and circumstances indicate that their carrying value may not be recoverable. The Company
compares net capitalized costs of proved oil and gas properties to estimated undiscounted future net cash flows using management’s
expectations of future oil and natural gas prices. These future price scenarios reflect the Company’s estimation of future
price volatility. If net capitalized costs exceed estimated undiscounted future net cash flows, the measurement of impairment is
based on estimated fair value, using estimated discounted future net cash flows based on management’s expectations of future
oil and natural gas prices.
Unproven properties
that are individually significant are assessed for impairment and if considered impaired are charged to expense when such impairment
is deemed to have occurred. We perform periodic assessment of individually significant unproved crude oil and gas properties for
impairment on a quarterly basis and we would recognize a loss at the time if there was an impairment by providing an impairment
allowance. In determining whether a significant unproved property is impaired we consider numerous factors including, but not
limited to, current exploration plans, favorable or unfavorable exploratory activity on adjacent leaseholds, our management and
geologists’ evaluation of the lease, and the remaining months in the lease term. As of March 31, 2015 the company recorded
and $66,177 expense for leases that had expired. There were no additional impairment allowances for expiring leases required as
of March 31, 2015.
The sale of a partial
interest in a proved oil and gas property is accounted for as normal retirement and no gain or loss is recognized as long as this
treatment does not significantly affect the units-of-production depletion rate. If the units-of-production rate is significantly
affected, then the sale shall be accounted for as the sale of an asset, and a gain or loss shall be recognized. The unamortized
cost of the property or group of properties shall be apportioned to the interest sold and the interest retained on the basis of
the fair values of those interests. A gain or loss is recognized for all other sales of producing properties and is included in
the results of operations. The sale of a partial interest in an unproved property is accounted for as a recovery of cost when substantial
uncertainty exists as to recovery of the cost applicable to the interest retained. A gain on the sale is recognized to the extent
the sales price exceeds the carrying amount of the unproved property. A gain or loss is recognized for all other sales of nonproducing
properties and is included in the results of operations.
Support Facilities and Equipment
Support facilities and
equipment include property and equipment that are not oil and gas properties and are recorded at cost and depreciated using the
straight-line method over their estimated useful lives of five to ten years. Expenditures for replacements, renewals, and betterments
are capitalized. Maintenance and repairs are charged to operations as incurred. Long-lived assets, other than oil and gas properties,
are evaluated for impairment to determine if current circumstances and market conditions indicate the carrying amount may not be
recoverable. Our support facilities and equipment are generally located in proximity to certain of our principal fields.
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Asset Retirement Obligations
The Company follows
the provisions of the FASB ASC 410 - Asset Retirement and Environmental Obligations. The fair value of an asset retirement obligation
is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. As of March 31, 2015 and
December 31, 2014, the Company’s obligations were $663,269 and $639,349, respectively. The present value of the estimated
asset retirement costs is capitalized as part of the carrying amount of the long-lived asset. The Company’s asset retirement
obligations relate to the abandonment of oil and gas producing facilities. The amounts recognized are based upon numerous estimates
and assumptions, including future retirement costs, future recoverable quantities of oil and gas, future inflation rates and the
credit-adjusted risk-free interest rate. Accretion of asset retirement costs for the three months ended March 31, 2015 and 2014
were $14,925 and $0, respectively.
Debt Issue Costs and Debt Discount
The Company may pay debt issue costs,
and record debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized
over the life of the debt to interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized
amounts is immediately expensed.
Original Issue Discount
For certain debt issued, the Company
provided the debt holder with an original issue discount. The original issue discount was equal to simple interest at 10% - 20%
of the proceeds raised. The original issue discount was recorded to debt discount reducing the face amount of the note and is being
amortized to interest expense over the maturity period of the debt. For certain debt the original issue discount exceeded face
value bringing the carrying value to $0 and the remainder charged to interest expense.
Beneficial Conversion Feature
For conventional convertible debt where
the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”)
and related debt discount.
When the Company records a BCF the relative
fair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument. The debt
discount attributable to the BCF is amortized over the period from issuance to the date that the debt becomes convertible. If the
debt is immediately convertible, the discount is amortized to interest expense in full immediately.
Derivative Financial Instruments
Fair value accounting requires bifurcation
of embedded derivative instruments such as ratchet provisions or conversion features in convertible debt or equity instruments,
and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company utilized an
option pricing model. In assessing the Company’s convertible debt instruments, management determines if the convertible debt
host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement.
If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments
as derivative financial instruments.
Once determined, the derivative liabilities
are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded
in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative
instruments such as warrants, are also valued using the option pricing model.
Revenue Recognition
Revenues from the sale of oil and natural
gas are recognized when the product is delivered at a fixed or determinable price, title has transferred, and collectability is
reasonably assured and evidenced by a contract. The Company follows the “sales method” of accounting for oil and natural
gas revenue, so it recognizes revenue on all natural gas or crude oil sold to purchasers, regardless of whether the sales are proportionate
to its ownership in the property. A receivable or liability is recognized only to the extent that the Company has an imbalance
on a specific property greater than its share of the expected remaining proved reserves.
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Share-Based Payments
Generally, all forms of share-based payments,
including stock option grants, warrants, restricted stock grants and stock appreciation rights are measured at their fair value
utilizing an option pricing model on the awards’ grant date, based on the estimated number of awards that are ultimately
expected to vest. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair
value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The expenses
resulting from share-based payments are recorded in cost of goods sold or general and administrative expense in the statement of
operations, depending on the nature of the services provided.
Income Taxes
The Company is a taxable entity and recognizes
deferred tax assets and liabilities 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 be in effect when the temporary differences reverse. The effect on the deferred tax assets
and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change.
A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized. Interest
and penalties associated with income taxes are included in selling, general and administrative expense.
The Company follows
ASC 740 “Accounting for Uncertainty in Income Taxes” which prescribes a comprehensive model of how a company should
recognize, measure, present, and disclose in its consolidated financial statements uncertain tax positions that the Company has
taken or expects to take on a tax return. ASC 740 states that a tax benefit from an uncertain position may be recognized if it
is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying
position is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement
with a taxing authority having full knowledge of all relevant information. After review of the Company’s tax positions,
no liabilities were recorded for unrecognized tax benefits as of December 31, 2014.
Earnings Per Share
Basic earnings (loss) per share is computed
by dividing net income (loss) by the weighted average number of shares of common stock outstanding during each period. Diluted
earnings (loss) per share is computed by dividing net income (loss), adjusted for changes in income or loss that resulted from
the assumed conversion of convertible shares, by the weighted average number of shares of common stock, common stock equivalents
and potentially dilutive securities outstanding during the period.
The Company had the following potential common stock equivalents
at March 31, 2015:
Convertible debt – face amount of $21,607,939, conversion price of $0.25 - $2.50 | |
| 73,645,128 | |
Common stock options, exercise price of $0.08 - $0.50 | |
| 14,350,000 | |
Common stock warrants, exercise price of $0.15 - $0.85 | |
| 32,426,917 | |
Total common stock equivalents | |
| 120,422,045 | |
The Company had the following potential common stock equivalents
at March 31, 2014:
Convertible debt – face amount of $120,000, conversion price of $0.70 | |
| 171,429 | |
Convertible debt – face amount of $8,622,650, conversion price of $0.30 | |
| 28,742,167 | |
Common stock options, exercise price of $0.08 - $0.50 | |
| 9,100,000 | |
Common stock warrants, exercise price of $0.15 - $0.85 | |
| 16,330,532 | |
Common stock to be issued | |
| 2,770,000 | |
Total common stock equivalents | |
| 57,114,128 | |
Since the Company reflected a net loss
during the three months ended March 31, 2015 and 2014, the effect of considering any common stock equivalents, would have been
anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Fair Value of Financial Instruments
Fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability,
including assumptions about risk inherent in the inputs to the valuation technique. The authoritative guidance establishes a fair
value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:
Level 1 |
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
|
|
|
Level 2 |
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
|
|
|
Level 3 |
|
Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets
and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies
or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy
gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority
to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described
above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts
of the Company’s financial assets and liabilities, such as cash, inventory, prepaid expenses and other current assets, accounts
payable and accrued liabilities approximate their fair values because of the short maturity of these instruments.
The Company’s
Level 3 financial liabilities consist of the derivative warrants issued with the 2011 notes payables for which there is no current
market for this security such that the determination of fair value requires significant judgment or estimation. The Company valued
the reset adjustments in the warrant on subsequent potential equity offerings using an option pricing model, for which management
understands the methodologies. These models incorporate transaction details such as the Company’s stock price, contractual
terms, maturity, risk-free rates, as well as assumptions about future financings, volatility, and holder behavior as of the date
of issuance and each balance sheet date.
Transactions involving related parties
cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings
may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions
were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
The Company uses Level 3 of the fair
value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative warrant liability and derivative
feature of convertible notes at every reporting period and recognizes gains or losses in the statements of operations attributable
to the change in the fair value of the derivatives.
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Financial instruments measured at fair value on a recurring
basis are summarized below and disclosed on the balance sheets as follows:
March 31, 2015 | |
Fair Value Measurement Using | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Derivative warrant liabilities | |
$ | - | | |
$ | - | | |
$ | 25,584 | | |
$ | 25,584 | |
December 31, 2014 | |
Fair Value Measurement Using | |
| |
| Level 1 | | |
| Level 2 | | |
| Level 3 | | |
| Total | |
Derivative warrant liabilities | |
$ | - | | |
$ | - | | |
$ | 128,829 | | |
$ | 128,829 | |
The table below provides a summary of the changes in fair
value, including net transfers in and/or out, of all financial instruments measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) during the period January 1, 2015 to March 31, 2015:
| |
Fair Value Measurement Using Level 3 Inputs | |
| |
| Derivative Liabilities | | |
| Total | |
| |
| | | |
| | |
Balance, January 1, 2015 | |
$ | 128,829 | | |
$ | 128,829 | |
| |
| | | |
| | |
Purchases, issuances and settlements | |
| | | |
| | |
| |
| | | |
| | |
Total gains or losses (realized/unrealized) included in net loss | |
| (103,245 | ) | |
| (103,245 | ) |
| |
| | | |
| | |
Transfers in and/or out of Level 3 | |
| | | |
| | |
| |
| | | |
| | |
Balance, March 31, 2015 | |
$ | 25,584 | | |
$ | 25,584 | |
Fair Value of Financial Assets and Liabilities Measured
on a Non-Recurring Basis
For periods in which impairment charges have been incurred,
the Company is required to write down the value of the impaired asset to its fair value. The impairment charges were recorded during
the three months ended March 31, 2015 were $705,330. There were no impairment charges for the three months ended March 31, 2014.
Jumpstart Our Business Startups Act
(“JOBS Act”), adopted January 3, 2012
We qualify as an “emerging growth
company,” as defined in Section 2(a) of the Securities Act as modified by the Jumpstart Our Business Startups Act of 2012
(the “JOBS Act”). As such, we are permitted to rely on exemptions from various reporting requirements including, but
not limited to, the requirement to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes–Oxley
Act of 2002, and the requirement to submit certain executive compensation matters to shareholder advisory votes such as “say
on pay” and “say on frequency.”
In addition, Section 107 of the JOBS
Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in
Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging
growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private
companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore
not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an emerging growth company
up to the fifth anniversary of our first registered sale of common equity securities, or until the earliest of (a) the last day
of the first fiscal year in which our annual gross revenues exceed $1 billion, (b) the date that we become a “large accelerated
filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by
non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the
date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Recent Accounting Pronouncements
From time to time, new
accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date. If not discussed,
management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact
on the Company’s financial statements upon adoption.
In May 2014, the Financial
Accounting Standards Board issued accounting guidance on revenue recognition. The amended guidance will enhance the comparability
of revenue recognition practices and will be applied to all contracts with customers. Improved disclosures related to the nature,
amount, timing, and uncertainty of revenue that is recognized are requirements under the amended guidance. This guidance will be
effective for fiscal 2017 and will be required to be applied retrospectively. We are currently assessing the impact that this guidance
will have on our financial statements at this time.
In August 2014, the Financial
Accounting Standards Board issued ASU No. 2014-15. This standard provides guidance on determining when and how to disclose going-concern
uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an
entity’s ability to continue as a going concern within one year of the date the financial statements are issued. This ASU
is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016, with early adoption
permitted. The Company is evaluating the new guidance and plans to provide additional information about its expected impact at
a future date.
In April 2015, the Financial
Accounting Standards Board issued ASU No. 2015-03. This standard provides guidance on the balance sheet presentation for debt issuance
costs and debt discounts and debt premiums. To simplify the presentation of debt issuance costs, this standard requires that debt
issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying
amount of that debt liability. This ASU is effective for fiscal years beginning after December 15, 2015. The Company is evaluating
the new guidance and plans to provide additional information about its expected impact at a future date.
Note 3 Going Concern:
The Company’s
condensed consolidated financial statements have been prepared on a going concern basis which contemplates the realization of
assets and the liquidation of liabilities in the ordinary course of business. The Company has incurred substantial losses from
operations causing negative working capital, in that current liabilities exceed current assets, and the Company has negative operating
cash flows, which raise substantial doubt about the Company’s ability to continue as a going concern. As reflected in the
accompanying condensed consolidated financial statements, the Company has a net loss of $3,525,952 and net cash used in operations
of $1,619,303 for the three months ended March 31, 2015 and has a working capital deficit of $3,645,272 at March 31, 2015.
The
ability of the Company to continue its operations is dependent on Management's plans, which include the raising of capital through
debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until
such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur
additional liabilities with certain related parties to sustain the Company’s existence.
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
The Company will
require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic
objectives. The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash
needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company,
if at all. These uncertainties create substantial doubt about the Company’s ability to continue as a going concern. These condensed
consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification
of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 Oil and Gas Assets:
The following table summarizes the Company’s oil and
gas assets, net:
Balance
– January 1, 2014 | |
$ | 2,276,552 | |
Additions | |
| 23,377,139 | |
Depletion | |
| (163,095 | ) |
Asset retirement obligations | |
| 36,238 | |
Impairment | |
| (3,697,924 | ) |
Abandonments | |
| (1,042,975 | ) |
Dispositions | |
| - | |
Balance –
December 31, 2014 | |
$ | 20,785,935 | |
Additions | |
| 307,679 | |
Depletion | |
| (71,904 | ) |
Asset retirement obligations | |
| 18,741 | |
Impairment | |
| (705,330 | ) |
Dispositions | |
| (75,623 | ) |
Balance
– March 31, 2015 | |
$ | 20,259,498 | |
The Company owns support facilities
and equipment which serve its oil and gas production activities. The following table summarizes the properties and equipment, net:
Balance
– January 1, 2014 | |
$ | 138,081 | |
Additions | |
| 2,578,822 | |
Depreciation | |
| (64,193 | ) |
Dispositions | |
| (439 | ) |
Balance –
December 31, 2014 | |
$ | 2,652,271 | |
Additions | |
| 3,200 | |
Depreciation | |
| (84,868 | ) |
Impairment | |
| - | |
Dispositions | |
| (319,752 | ) |
Balance
– March 31, 2015 | |
$ | 2,250,851 | |
On March 31, 2015
we entered into a Settlement Agreement whereby we agreed to transfer oil & gas leases totaling 2,629 acres located in Zavala
county, Texas. The Company also transferred interest in well equipment located on the leases. The Company recognized a loss on
the abandonment in the amount of $265,228.
As of March 31, 2015 and 2014, the Company had $71,904 and $17,519, respectively to depletion
expense.
Note 5 Acquisition of Richfield Oil & Gas Company:
On December 1, 2014, the Company acquired
Richfield Oil & Gas Company (Richfield) by merging a wholly owned subsidiary of the Company with and into Richfield, with Richfield
continuing as the surviving corporation and wholly owned subsidiary of the Company. Richfield is involved in the exploration and
production of crude oil and natural gas. Richfield’s asset base, technical capabilities and operating expertise, together
with the Company’s project management, operational skills and financial capacity, should enable effective development of
oil and gas reserves. At December 1, 2014, each share of Richfield common stock was exchanged for one share of common stock of
the Company and each outstanding warrant to purchase Richfield common stock was exchanged for one warrant to purchase a share of
the Company’s common stock.
The components of the consideration transferred follow: | |
| |
| |
| |
Consideration attributable to stock issued (1) | |
$ | 8,183,220 | |
Consideration attributable to exchanged warrants (2) | |
| 422,067 | |
Consideration attributable to settlement of accounts and notes receivable (3) | |
| 4,645,463 | |
Total consideration transferred | |
$ | 13,250,750 | |
(1) |
The fair value of the Company’s common stock on the acquisition date was $0.135 per share based on the closing value on the NASDAQ OTC. The Company issued 60,616,448 shares of stock for the acquisition of Richfield. |
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
(2) |
The fair value of warrants issued by the Company on the acquisition to former warrant holders of Richfield. |
(3) |
The fair value of a note receivable and accounts receivables to the Company from Richfield that was settled upon the acquisition. |
The following table summarizes the assets
acquired and liabilities assumed as of the acquisition date. The Company is in the process of obtaining additional valuation evidence,
including appraisals and other market transactions, as it relates to certain oil and gas properties and other long-lived assets.
Therefore, the provisional measurements for these amounts are subject to change.
Cash and cash equivalents |
|
$ |
6,011 |
|
Accounts receivable |
|
|
188,887 |
|
Other current assets |
|
|
140,439 |
|
Proven oil and gas properties (1) |
|
|
8,145,486 |
|
Unproven oil and gas properties (2) |
|
|
9,930,578 |
|
Well equipment |
|
|
2,072,166 |
|
Furniture and equipment |
|
|
38,205 |
|
Goodwill (3) |
|
|
32,787 |
|
Total assets acquired |
|
|
20,554,559 |
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
2,500,473 |
|
Notes and loans payable (4) |
|
|
4,114,183 |
|
Asset retirement obligations |
|
|
601,153 |
|
Capital lease obligations |
|
|
88,000 |
|
Total liabilities assumed |
|
|
7,303,809 |
|
|
|
|
|
|
Net assets acquired |
|
$ |
13,250,750 |
|
(1) |
Proven oil and gas properties were measured primarily using an income approach. The fair value measurements of the oil and gas assets were based, in part, on significant inputs not observable in the market and thus represent a Level 3 measurement. The significant inputs included Richfield resources, assumed future production profiles, commodity prices (mainly based on observable market inputs), discount rate of 15.0 percent, risk adjustments of classes of reserves between 10.0% and 100.0% and assumptions on the timing and amount of future development and operating costs. |
(2) |
Unproven oil and gas properties were measured primarily using a market approach with internal management inputs based, in part, on significant inputs not observable in the market and thus represent a Level 3 measurement. The significant inputs include estimated price per acre, potential future production and assumptions on the timing and amount of future development and operating costs. |
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
(3) |
Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill is not amortized and is not deductible for tax purposes. |
(4) |
Notes and loans payable and capital lease obligations were recognized mainly at market rates at closing (Level 1). |
Note 6 Vehicles, Furniture and Equipment:
The following table summarizes furniture and equipment:
Balance – January 1, 2014 | |
$ | 2,380 | |
Additions | |
| 133,792 | |
Depreciation | |
| (13,863 | ) |
Impairment | |
| - | |
Balance – December 31, 2014 | |
$ | 122,309 | |
Additions | |
| - | |
Depreciation | |
| (6,954 | ) |
Dispositions | |
| (532 | ) |
Balance – March 31, 2015 | |
$ | 114,832 | |
During three months ended March 31, 2015 and 2014, the Company
recorded $6,954 and $2,034, respectively to depreciation expense.
Note 7 Demand Notes Payable:
As of March 31, 2105,
three (3) convertible notes for an aggregate principal amount of $322,575 had become due and were in default. These notes were
reclassified and are recorded as due on demand. The notes bear interest at rates between 10.0% to 12.0% and are convertible into
shares of common stock at conversion rates between $0.60 to $2.50 per share.
Note 8 Notes Payable:
On May 20, 2013, the Company issued a promissory note with
principal of $80,000 for proceeds of $80,000. The note bears interest at 12% per annum with interest only payments for the first
24 months. The note matures on May 19, 2015. In addition, the Company issued the note holder a five (5) year common stock purchase
warrant exercisable for up to 100,000 shares of common stock at $0.85 per share. The issuance of the warrants was recorded as a
debt discount up to the face amount of the note. The amount in excess of the face amount of the note was recorded to interest expense
on the date of issuance. The note is secured by certain oil and gas assets of the Company.
On May 20, 2013, the Company issued a promissory note with
principal of $25,000 for proceeds of $25,000. The note bears interest at 12% per annum with interest only payments for the first
24 months. The note matures on May 19, 2015. In addition, the Company issued the note holder a five (5) year common stock purchase
warrant exercisable for up to 31,250 shares of common stock at $0.85 per share. The issuance of the warrants was recorded as a
debt discount up to the face amount of the note. The amount in excess of the face amount of the note was recorded to interest expense
on the date of issuance. The note is secured by certain oil and gas assets of the Company.
On October 1, 2013, the Company issued a promissory note
with principal of $500,000 for proceeds of $500,000. The note bears interest at 12% per annum with interest only payments for the
first 36 months. The note matures on September 30, 2016. In addition, the Company issued the purchaser 1,000,000 shares of common
stock of the Company. The issuance of the shares was recorded as a debt discount equal to the market value of shares issued at
issuance date.
On December 5, 2013, the Company issued a promissory note
with principal of $500,000 for proceeds of $500,000. The note bears interest at 12% per annum with interest only payments for the
first 36 months. The note matures on December 4, 2016. In addition, the Company issued the purchaser 1,000,000 shares of common
stock of the Company. The issuance of the shares was recorded as a debt discount equal to the market value of shares issued at
issuance date.
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
On December 12, 2013, the Company issued a promissory note
with principal of $25,000 for proceeds of $25,000. The note bears interest at 12% per annum and with interest only payments for
the first 36 months. The note matures on December 11, 2016. In addition, the Company issued the purchaser 50,000 shares of common
stock of the Company. The issuance of the shares was recorded as a debt discount equal to the market value of shares issued at
issuance date.
On January 27, 2014, the Company issued a promissory note
with principal of $400,000 for proceeds of $400,000. The note bears interest at 12% per annum and with interest only payments for
the first 36 months. The note matures on January 27, 2017. In addition, the Company issued the purchaser 800,000 shares of common
stock of the Company. The issuance of the shares was recorded as a debt discount equal to the market value of shares issued at
issuance date.
On February 14, 2014 and September 25, 2014, the Company
issued promissory notes in the principal amount of $28,510 and $24,855, respectively, for the purchase of two vehicles. Monthly
principal and interest payments are $599 and $450, respectively. The notes bear interest at 9.49% and 9.13% per annum and mature
on February 13, 2019 and September 7, 2020, respectively. The notes are each secured by a vehicle.
On December 1, 2014 as part of the merger with Richfield,
the Company assumed a promissory note in the amount of $578,454. The note bears interest at 10% per annum with monthly principal
and interest payments in the amount of $15,000. The note matures on June 30, 2015.
Notes payable as of March 31, 2015 is as follows:
| |
March 31, 2015 | |
| |
| |
Notes payable | |
$ | 2,141,416 | |
Discount on notes | |
| (263,785 | ) |
Notes payable, net of debt discount | |
| 1,877,631 | |
Less: Current maturities | |
| (678,032 | ) |
| |
| | |
Notes payable, net of debt discount and current maturities | |
$ | 1,199,599 | |
Future minimum debt repayments under
these obligations at March 31, 2015 are as follows:
2015 (remainder of year) | |
$ | 675,814 | |
2016 | |
| 1,034,506 | |
2017 | |
| 410,116 | |
2018 | |
| 11,102 | |
2019 and thereafter | |
| 9,878 | |
| |
$ | 2,141,416 | |
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Note 9 Convertible Notes Payable:
(A) |
Series A Senior Secured Convertible Promissory Notes |
From
February 11, 2014 through April 10, 2014, the Company raised gross proceeds of $9,987,650 through the sale of units (the “Series
A Units”) in a private offering (the “Series A Offering”). The purchase price for each Series A Unit was $50,000
and each Series A Unit consisted of (i) a 12% Series A Senior Secured Convertible Promissory Note in the principal amount of $50,000
(the “Series A Notes”) convertible into shares of common stock of the Company at a conversion price of $0.30 per share
and (ii) a Series A warrant to purchase 33,333 shares of common stock of the Company at an exercise price of $0.30 per share (the
“Series A Warrant”). All outstanding principal and interest of each Series A Note is due on February 11, 2016. The
Series A Notes may be redeemed by the Company at any time following six (6) months after their respective issuance. If however,
the Company elects to redeem the Series A Notes prior to the one (1) year anniversary date of the issuance of such Series A Note,
the Company shall pay the holder all unpaid interest on the portion of the principal redeemed that would have been earned through
such one (1) year anniversary date. Each Series A Note bears interest at 12% per annum and is due and payable quarterly, in arrears.
The holder of each Series A Note may elect to convert the principal balance of the Series A Note into shares of common stock at
any time following six (6) months after the issuance of such note. The Series A Notes are secured by a first lien on substantially
all of the assets of the Company, including all present and future wells and working interests, on a pro-rata basis. As of March
31, 2015 the Company had not redeemed any Series A Notes and there were no conversions of the principal balance by note holders.
Beneficial Conversion Feature
The intrinsic value of certain convertible notes, when issued,
gave rise to a beneficial conversion feature which was recorded as a discount to the notes of $1,613,642 to be amortized over the
period from issuance to the date that the debt matures.
Warrants
Each investor participating
in the Series A Offering received a Series A Warrant, exercisable for up to 33,333 shares of common stock for every $50,000 invested.
The Series A Warrants are exercisable at $0.30 per share. The Series A Warrants expire five (5) years from the date of issuance.
During the year ended December 31, 2014, we issued Series A Warrants exercisable for up to 6,658,374 shares of our common stock
to investors participating in the Series A Offering. The issuance of the Series A Warrants was recorded as a debt discount of $1,424,236
and is being amortized over the life of the Series A Note.
(B) |
Series B Senior Secured Convertible Promissory Notes |
From June 6, 2014 through August 20, 2014, the Company raised
gross proceeds of $8,014,560 through the sale of units (the “Series B Units”) in a private offering (the “Series
B Offering”). The purchase price for each Series B Unit was $50,000 and each Series B Unit consisted of (i) a 12% Series
B Senior Secured Convertible Promissory Note in the principal amount of $50,000 (the “Series B Notes”) convertible
into shares of common stock of the Company at a conversion price of $0.30 per share and (ii) a Series B warrant to purchase 33,333
shares of common stock of the Company at an exercise price of $0.30 per share (the “Series B Warrant”). All outstanding
principal and interest of each Series B Note is due on June 6, 2016. The Series B Notes may be redeemed by the Company at any time
following six (6) months after their respective issuance. If however, the Company elects to redeem the Series B Notes prior to
the one (1) year anniversary date of the issuance of such Series B Note, the Company shall pay the holder all unpaid interest on
the portion of the principal redeemed that would have been earned through such one (1) year anniversary date. Each Series B Note
bears interest at 12% per annum and is due and payable quarterly, in arrears. The holder of each Series B Note may elect to convert
the principal balance of the Series B Note into shares of common stock at any time following six (6) months after the issuance
of such note. The Series B Notes are secured by a first lien on substantially all of the assets of the Company, including all present
and future wells and working interests, on a pro-rata basis. The lien is pari-passu with the lien granted in favor of the holders
of the Company’s outstanding Series A Notes. As of March 31, 2015 the Company had not redeemed any Series B Notes and there
were no conversions of the principal balance by note holders.
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Warrants
Each investor participating
in the Series B Offering received a Series B Warrant, exercisable for up to 33,333 shares of common stock for every $50,000 invested.
The Series B Warrants are exercisable at $0.30 per share. The Series B Warrants expire five (5) years from the date of issuance.
During the year ended December 31, 2014, we issued Series B Warrants exercisable for up to 5,342,742 of our common stock to investors
participating in the Series B Offering. The issuance of the Series B Warrants was recorded as a debt discount of $990,408 and is
being amortized over the life of the Series B Note.
(C) |
Other Convertible Promissory Notes |
As part of the merger with Richfield, on December 1, 2014,
the Company agreed to assume two (2) convertible notes in the aggregate principal amount of $138,182 and $3,194,972. Both notes
bear interest at 12.0% per annum and are convertible into shares of common stock at a conversion rate of $0.25 per share. The
notes mature on May 31, 2015 and June 30, 2016 respectively.
The following is a summary of Convertible Notes Payable:
| |
March 31, 2015 | |
| |
| |
Convertible notes payable | |
$ | 21,335,365 | |
Debt discount | |
| (2,012,534 | ) |
Convertible notes payable, net of debt discount | |
| 19,322,826 | |
Less current maturities | |
| (138,132 | ) |
Balance – March 31, 2015 | |
$ | 19,184,644 | |
Future minimum debt repayments under these obligations
at March 31, 2015 are as follows:
2015 (remainder of year) | |
$ | 138,182 | |
2016 | |
| 21,197,182 | |
2017 and thereafter | |
| - | |
| |
$ | 21,335,364 | |
Debt issuance costs, net are as follows:
Balance - January 1, 2014 | |
$ | - | |
Debt issuance costs incurred in 2014 | |
| 2,845,541 | |
Amortization of debt issuance costs | |
| (958,163 | ) |
Balance – December 31, 2014 | |
$ | 1,887,378 | |
Amortization of debt issuance costs | |
| (366,680 | ) |
Balance - March 31, 2015 | |
$ | 1,520,698 | |
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Note 10 Stockholders’ Equity (Deficit):
During the three months ended March 31, 2015 the Company
did not issue any shares of preferred stock.
During the three
months ended March 31, 2015, the Company issued the following common stock:
Transaction Type |
|
Quantity of Shares |
|
|
Valuation |
|
|
Range of Value per Share |
|
Common stock issued for services |
|
|
400,000 |
|
|
$ |
54,000 |
|
|
$ |
0.135 |
|
Common stock issued to settle liabilities |
|
|
2,100,000 |
|
|
|
283,500 |
|
|
$ |
0.135 |
|
Common stock issued to settle lawsuit and abandon lease |
|
|
1,333,333 |
|
|
|
133,333 |
|
|
$ |
0.10 |
|
Total |
|
|
3,833,333 |
|
|
$ |
470,833 |
|
|
$ |
0.10-0.135 |
|
The following is a summary of the Company’s warrant
activity during the three months ended March 31, 2015:
| |
Warrants | | |
Weighted Average Exercise Price | |
| |
| | |
| |
Outstanding – January 1, 2015 | |
| 33,450,677 | | |
$ | 0.34 | |
Exercisable – January 1, 2015 | |
| 33,450,677 | | |
$ | 0.34 | |
Granted | |
| - | | |
$ | - | |
Exercised | |
| - | | |
$ | - | |
Expired/Cancelled | |
| 1,023,760 | | |
$ | - | |
Outstanding – March 31, 2015 | |
| 32,426,917 | | |
$ | 0.34 | |
Exercisable – March 31, 2015 | |
| 32,426,917 | | |
$ | 0.34 | |
Warrants Outstanding | | |
Warrants Exercisable | |
Range of exercise price | | |
Number Outstanding | | |
Weighted Average Remaining Contractual Life (in years) | |
Weighted Average Exercise Price | | |
Number Exercisable | | |
Weighted Average Exercise Price | |
$ | 0.15 - $0.85 | | |
| 32,426,917 | | |
3.36 years | |
$ | 0.32 | | |
| 32,426,917 | | |
$ | 0.32 | |
At March 31, 2015 and 2014 there was no intrinsic value
of warrants outstanding and exercisable.
The following is a summary of the Company’s option
activity during the three months ended March 31, 2015:
|
|
Options |
|
|
Weighted Average Exercise Price |
|
|
|
|
|
|
|
|
Outstanding – January 1, 2015 |
|
|
17,850,000 |
|
|
$ |
0.21 |
|
Exercisable – January 1, 2015 |
|
|
15,225,000 |
|
|
$ |
0.19 |
|
Granted |
|
|
- |
|
|
$ |
- |
|
Exercised |
|
|
- |
|
|
$ |
- |
|
Forfeited/Cancelled |
|
|
(2,000,000) |
|
|
$ |
0.30 |
|
Outstanding – March 31, 2015 |
|
|
15,850,000 |
|
|
$ |
0.20 |
|
Exercisable – March 31, 2015 |
|
|
14,350,000 |
|
|
$ |
0.19 |
|
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Options Outstanding | | |
Options Exercisable | |
Range of exercise price | | |
Number Outstanding | | |
Weighted Average Remaining Contractual Life (in years) | |
Weighted Average Exercise Price | | |
Number Exercisable | | |
Weighted Average Exercise Price | |
$ | 0.08-$0.50 | | |
| 15,850,000 | | |
4.61 years | |
$ | 0.20 | | |
| 14,350,000 | | |
$ | 0.19 | |
At March 31, 2015 and 2014 there was no intrinsic value
of options outstanding and exercisable.
There were no treasury stock transactions during the three
months ended March 31, 2015.
Note 11 Commitments and Contingencies:
Litigations, Claims and Assessments
From time to time, the Company may become
involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject
to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business.
The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the
aggregate, a material adverse affect on its business, financial condition or operating results.
On December 10,
2013, the Company entered into a Joint Development Agreement dated as of December 3, 2013 (the “Joint Agreement”)
with Eagleford Energy, Inc., an Ontario, Canada Corporation (“Eagleford”) and its wholly-owned subsidiary,
Eagleford Energy, Zavala Inc., a Nevada corporation (“Eagleford Zavala”). On January 24, 2014, the Company, Eagleford
and Eagleford Zavala entered into an amendment to the Joint Agreement (the “First Amendment”), pursuant to which Eagleford
Zavala, in exchange for certain commitments made by us therein, accelerated the grant to us of certain undivided interests in
its oil and gas lease dated September 1, 2013 covering approximately 2,629 acres in Zavala County, Texas (the “Lease”).
Effective March 31, 2015 the Company settled litigation against Eagleford Energy, Zavala Inc. The action was for foreclosure of
the payment of obligations owed by Eagleford Energy, Zavala Inc. for lease obligations. Prior to foreclosure Eagleford paid the
obligations which were owed. On March 31, 2015 this matter was settled by Stratex releasing its interest in the project for the
development of the 2,926 acres in Zavala County, Texas, to its two partners Eagleford Energy, Zavala Inc. and Quadrant Energy,
Inc. The parties entered into a mutual release of all obligations. Pursuant to the Mutual Settlement Agreement and the abandonment
of the lease the Company agreed to pay $25,000 in cash and issue 1,333,333 shares of common stock to Eagleford Energy Corp.
Oil & Gas Prices
The prices of oil, natural gas, methane gas and other fuels
have been, and are likely to continue to be, volatile and subject to wide fluctuations in response to numerous factors, including
but not limited to the worldwide and domestic supplies of oil and gas, changes in the supply of and demand for such fuels, political
conditions in fuel-producing and fuel-consuming regions, weather conditions, the development of other energy sources, and the effect
of government regulation on the production, transportation and sale of fuels. These factors and the volatility of energy markets
make it extremely difficult to predict future oil and gas price movements with any certainty. A decline in prices could adversely
affect the Company’s financial position, financial results, cash flows, access to capital and ability to grow.
Environmental Liabilities
Oil and gas operations are subject to many risks, including
well blowouts, cratering and explosions, pipe failure, fires, formations with abnormal pressures, uncontrollable flows of oil,
natural gas, brine or other well fluids, and other environmental hazards and risks. Our drilling operations involve risks from
high pressures and from mechanical difficulties such as stuck pipes, collapsed casings, and separated cables. If any of these circumstances
occur, the Company could sustain substantial losses as a result of injury or loss of life, destruction of property and equipment,
damage to natural resources, pollution or other environmental damages, clean-up responsibilities, regulatory investigations and
penalties, suspension of operations, and compliance with environmental laws and regulations relating to air emissions, waste disposal
and hydraulic fracturing, restrictions on drilling and completion operations and other laws and regulations. The Company’s
potential liability for environmental hazards may include those created by the previous owners of properties purchased or leased
prior to the date we purchase or lease the property. The Company maintains insurance against some, but not all, of the risks described
above. Insurance coverage may not be adequate to cover casualty losses or liabilities.
Stratex Oil & Gas Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Employment Contracts
On January 15, 2015, and
effective as of January 1, 2015, the Company entered into Amended Employment Agreements with the following Executive Officers:
Alan D. Gaines, Executive Chairman of the Board; Stephen P. Funk, Chief Executive Officer: Matthew S. Cohen, Executive Vice President
and General Counsel; Michael J. Thurz, Chief Administrative Officer; and Michael A. Cederstrom, Vice President. The purpose of
the Amended Employment Agreements was to assist with the Company’s cash flow during this period of reduced oil and gas commodity
pricing. The amendments to the Employment Agreements removed the provision stating the amount of salary to be paid and replaced
it with the following statement, “…salary at the rate to be determined by the Board of Directors. Executive’s
base salary may be reviewed and further adjusted from time to time by the Board in its discretion”. Pursuant to this amendment
the Board of Directors reduced the Executive Officers base salary by 75%.
On February 13, 2015 the Board of Directors accepted the
resignation of Matthew S. Cohen as the Company’s General Counsel and Executive Vice President to allow him to pursue other
business opportunities.
Agreements with Placement Agents and Finders
The Company entered into a Financial
Advisory and Investment Banking Agreement with Radnor Research & Trading Company, LLC (“Radnor”) effective January
24, 2014 (the “Radnor Advisory Agreement”). Pursuant to the Radnor Advisory Agreement, Radnor acted as the Company’s
exclusive financial advisor and placement agent to assist the Company in connection with the two private placements of the Series
A and Series B Convertible Promissory Notes.
There were no payments to Radnor during
the three months ended March 31, 2015. During the three months ended March 31, 2014 the Company paid to Radnor fees of $382,765
and issued to Radnor 1,275,900 warrants to purchase common stock that expire five (5) years from the date of issuance with an exercise
price of $0.30 per share.
Joint Development Agreement
On March 13, 2015 the Company entered
into a Joint Development Agreement with Itasca Energy LLC (“IE”) whereby IE will drill up to 6 wells in the Buda Limestone
formation of the leasehold to earn a 77.5 % working interest in each of the 6 wells which are completed, the Company will retain
a 21.3% working interest in each well. IE will pay all cost of development through the tanks on the six wells. If IE completes
all six wells they will earn a 77.5 % working interest in 10,314 gross (7,994 net) working interest in the Matthews Lease and 50%
working interest in 9,333 gross and (4,666 net) in the remaining portion of the Matthews Lease. The first well of this agreement
was spudded on March 16, 2015 each of the 5 remaining wells must be spudded within 120 days of the prior well reaching total depth.
If the wells are not spudded with the required time period then IE will earn its interest in the actual wells drilled only and
will not earn an interest in the total lease.
Note 12 Subsequent Events:
On April 1, 2015, the Company issued
a promissory note with principal of $300,000 for proceeds of $300,000. The note bears interest at 12% per annum and is due and
payable in 60 days. On April 21, 2015, the Company paid $150,000 of the principal balance.
On April 28,
2015 the Board of Directors of the Company, accepted the resignation of Alan D. Gaines, our Executive Chairman of the Board
and Board Member. Mr. Gaines resigned in order to pursue other business opportunities. The Company and Mr. Gaines signed a
Separation Agreement whereby Mr. Gaines agreed to return 1,782,266 shares of the Company’s common stock and 6,300,000
warrants vested or unvested owned by Mr. Gaines were cancelled.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of our financial condition and results of operations should be read together with our financial
statements appearing in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties
because they are based on current expectations and relate to future events and future financial performance. Our actual results
may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including
those set forth in our “Risk Factors.”
Overview
We
are an independent energy company focused on the acquisition and subsequent exploitation and development of predominantly crude
oil in Kansas and Texas as well as varied non-operated working interests in North Dakota, Montana, Colorado, Utah and Kansas.
In Texas, we have interests in certain properties located in Zavala Counties. Our Zavala County acreage lies within the established
oil rim of the very prolific Eagle Ford Shale play, one of the most actively drilled basins in the United States. The play is
also known for multiple stacked pay zones and is also highly prospective for the San Miguel, Austin Chalk and Buda formations,
which all produce within the general vicinity. Management views our Zavala County acreage as the cornerstone of its present development
program. Our Kansas property is situated on acreage where we intend to drill low risk, wells in the Wilcox and Arbuckle formations
located in central Kansas area. In Montana, we focus on stacked Williston Basin production primarily from the Bakken Shale, and
Three Forks formations. Our Utah property is located in the Central Utah overthrust and the shale play. We are currently participating
in the shale play with Whiting Petroleum as the operator.
Present
corporate strategy is to internally identify those prospects, which may take the form of acquisition of bolt on acreage and/or
production within existing core areas or other potentially opportunistic areas of interest. We intend to evaluate those prospects
utilizing subsurface geology, geophysical data and existing well control. Currently, we utilize the services of geologists, petroleum
engineers and geophysicists with local expertise on a contract basis, in order to maintain a low cost structure.
To
date, the Company has only held small, passive, non-operated working interests in North Dakota, Montana and Kansas. By virtue
of our recent Richfield Merger with Richfield the Company now intends to actively exploit Kansas and Utah properties together
with the Zavala County Texas properties. The Company has assumed operator status. Upon assuming the role of operator, subject
to the terms of the underlying leases, the Company will be able to have greater control over the timing of expenditures, drilling
and completion costs, and operating budgets.
The
Company currently owns, as of March 31, 2015, an interest in 86 wells, 55 of which account for the Company’s present net
production and cash flow. Currently, we hold approximately 35,317 net leasehold acres in Sheridan, Montana, Williams, Billings,
Divide, Mountrail, and Stark Counties, North Dakota, Weld County, Colorado, Central Kansas, Central Utah and Zavala County, Texas.
The
Bakken formation is recognized internationally as a major source of oil reserves. The United States Geological Survey (USGS) estimates
that the Bakken has some 4.3 billion barrels of recoverable oil. The Keystone pipeline, which runs along the US-Canada border,
was halted by President Obama and we expect it to be approved and construction to be resumed in the near future. If approved,
it will be a principal means of transporting the Bakken oil from the Canadian and US portions of the formation to the refineries.
It is believed that the Bakken oil fields and the shale gas fields in other parts of the US will make the US energy independent
this decade.
We
expect to continue to acquire oil and gas properties and to build our asset base. As we continue to review business opportunities,
we believe that we will need to raise additional capital through equity sales and debt financing to continue to acquire more properties,
and business opportunities, such properties are expected to generate cash flow from participation in the development of the drilling
programs that each property is designed to support.
Results
of Operations for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014:
Revenues:
We
generated revenues of $309,728 for the three months ended March 31, 2015 compared to $98,357 for the three months ended March
31, 2014. The increase in revenue reflects an increase in sales volumes as a result of one of the merger of the Company with Richfield
on December 1, 2014.
Operating
Expenses:
● |
Production
expense was $311,527 for the three months ended March 31, 2015 compared to $40,939 for the three months ended March 31, 2014.
The increase in expenses reflects an increase in the number of producing wells as a result of one of the merger of the Company
with Richfield on December 1, 2014. |
|
|
● |
General
and administrative expense was $679,428 for the three months ended March 31, 2015 compared to $778,608 for the three months
ended March 31, 2014. The overall $99,180 decrease in operating expenses is primarily attributable to the following approximate
net increases (decreases) in operating expenses: |
|
|
|
|
● |
A decrease in legal and professional fees of $(404,400). In the prior year the Company incurred higher legal and consulting fees due to the Company negotiating and entering into multiple Joint Development Agreements, the commencement of the Company’s private offering and merger with Richfield. |
|
|
|
|
● |
An increase in Insurance expenses of $26,100 as a result of the Company’s merger with Richfield. |
|
|
|
|
● |
An increase in Rent expenses of $47,600 as a result of the Company’s merger with Richfield. |
|
|
|
|
● |
An increase of payroll and payroll related expenses of $139,800 that was attributed to an increase in FTE as a result to merger of the Company with Richfield on December 1, 2014. |
|
|
|
|
● |
An increase in Stock based compensation of $51,500 as a result of the Company’s additional amortization of employee option agreements and additional stock awards from the previous year. |
|
|
|
|
● |
An increase in all other general and administrative expenses in the amount of $40,220.
|
|
|
|
● |
Depletion, depreciation and amortization expense was $178,652 for the three months ended March 31, 2015 compared to $17,519 for the three months ended March 31, 2014. The increase in expense reflects an increase in total oil production as a result of the merger of the Company with Richfield on December 1, 2014 coupled with a increase in the per barrel depletion rates as a result of the Company reserve reports as compared to the three months ended March 31, 2014. |
|
|
● |
Impairment of oil and gas assets was $705,330 for the three months ended March 31, 2015, and $0 for the year ended March 31, 2014. This is due to leases expiring within the next twelve months that we do not anticipate being able to renew. |
● |
Loss on abandonment of oil and gas assets was $331,405 for the three months ended March 31, 2015, and $0 for the year ended March 31, 2014. This is due to the $265,228 loss incurred on the abandonment of the 2,629 acres in Zavala County, Texas as a result of our settlement agreement. In addition, the Company recorded a $66,177 loss for leases that expired in our undeveloped Utah properties. There was no loss on abandonment of oil and gas assets during the three months ended March 31, 2014. |
Other
Income and (Expense):
Other
Income (Expense)-net: Other income (expenses) consists primarily of gains and losses on the change in fair value of derivative
liabilities, gains and losses on sale of oil and gas properties/interests and interest expense all primarily related to the Company’s
convertible promissory notes, traditional notes and warrant issuances.
Other
income (expenses) - net decreased by $1,688,316 to $(1,629,338) for the three months ended March 31, 2015 as compared to other
income (expenses) - net of $58,978 for the three months ended March 31, 2014. For the three months ended March 31, 2015 other
income (expenses) consisted of ($1,640,506) in interest expense, a gain on change in fair value of derivative liabilities of $103,245,
and a loss on settlement of liabilities of ($92,077). For the three months ended March 31, 2014 other income (expenses) consisted
of ($325,026) in interest expense, a loss on change in fair value of derivative liabilities of ($89,416), warrant amendment expense
of ($14,755), a gain on sale of oil and gas interests of $450,000, a loss on settlement
of liabilities of ($1,000) and other income of $39,175.
Liquidity
and Capital Resources:
We
have incurred net operating losses and operating cash flow deficits since inception, continuing through the first quarter of 2015.
We are in the early stages of acquisition and development of oil and gas leaseholds and properties, and we have been funded primarily
by a combination of equity issuances and debt, and to a lesser extent by operating cash flows, to execute on our business plan
of acquiring working interests in oil and gas properties and for working capital for production. At March 31, 2015, we had cash
and cash equivalents totaling $224,203.
Our
ability to obtain financing may be impaired by many factors outside of our control, including the capital markets (both generally
and in the crude oil and natural gas industry in particular), our limited operating history, the location of our crude oil and
natural gas properties and prices of crude oil and natural gas on the commodities markets (which will impact the amount of asset-based
financing available to us) and other factors. Further, if crude oil or natural gas prices on the commodities markets decline,
our revenues will likely decrease and such decreased revenues may increase our requirements for capital.
Any
new debt or equity financing arrangements may not be available to us, or may be available only on unfavorable terms. Additionally,
these alternatives could be highly dilutive to our existing stockholders, and may not provide us with sufficient funds to meet
our long-term capital requirements. We have and may continue to incur substantial costs in the future in connection with raising
capital to fund our business, including investment banking fees, legal fees, accounting fees, securities law compliance fees,
printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with
certain securities we may issue, which may adversely impact our financial condition. If the amount of capital we are able to raise
from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs (even to
the extent that we reduce our operations), we will be required to reduce operating costs, which could jeopardize our future strategic
initiatives and business plans, and we may be required to sell some or all of our properties (which could be on unfavorable terms),
seek joint ventures with one or more strategic partners, strategic acquisitions and other strategic alternatives, cease our operations,
sell or merge our business, or file a petition for bankruptcy.
Our
condensed consolidated financial statements for the three months ended March 31, 2015 were prepared assuming we would continue
as a going concern, which contemplates that we will continue in operation for the foreseeable future and will be able to realize
assets and settle liabilities and commitments in the normal course of business. These financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications
of liabilities that could result should we be unable to continue as a going concern.
Cash
Flows from Operating Activities
Cash used
in operating activities was $1,619,303 for the three months ended March 31, 2015, as compared to cash provided by operating activities
of $108,361 during the three months ended March 31, 2014. The decrease in cash provided by operating activities during the three
months ended March 31, 2015 as compared to March 31, 2014 is primarily due to increases in legal and professional fees during
the period partially offset by a decrease in salaries and payroll related expenses.
Cash
Flows from Investing Activities
Cash used
in investing activities for the three months ended March 31, 2015 was $87,665 as compared to $2,228,594 during the three months
ended March 31, 2014. The net increase is primarily due to a significant increase in capital acquisition cost during the first
three months of 2014 as compared to the comparable period ended 2015. The increase is slightly offset by the Company receiving
$45,000 in proceeds from the sale of oil and gas interests during 2014.
Cash
Flows from Financing Activities
Total net
cash used in financing activities was $6,504 for the three months ended March 31, 2015, from payments on notes and capital leases.
Total net cash provided by financing activities during the three months ended March 31, 2014 was $8,559,359 from various debt
and equity offerings. For more details about these debt and equity financings, see Notes to the Condensed Consolidated Financial
Statements for the three months ended March 31, 2015, incorporated by reference herein.
Planned
Capital Expenditures
Depending
on our ability to obtain sufficient financing, development plans for 2015 include identifying, acquiring and operating properties
as well continued development of our existing leases. The Company plans to continue its Joint Development Programs in Texas and
to review opportunistic acquisitions when available. We will also to continue to participating in the ongoing Authorization for
Expense (AFE) process for the existing properties where these programs make economic sense for the Company.
The
Company incurred approximately $354,428 in development costs related to the purchase and development of working interest in wells
during the three months ended March 31, 2015. Unrelated to any potential acquisitions or advances to be made to Richfield under
the Loan Agreement, the Company expects to incur maintenance and operating costs of approximately $45,000 to $60,000 per month
for the next twelve months to maintain these assets.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
As
a smaller reporting company, we have elected not to provide the disclosures required by this item.
Item
4. Controls and Procedures
Our management, with the participation
of our Chief Executive Officer (“CEO”) and Chief Administrative Officer (“CAO”), has evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
as of March 31, 2015. The CEO and CAO have concluded that, as of March 31, 2015, our disclosure controls and procedures were
not effective, in that they ensure that information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and (2) accumulated and communicated to our management, including our CEO and CFO, as
appropriate to allow timely decisions regarding required disclosure.
Changes
in Internal Control Over Financial Reporting
There were no changes made in our internal
control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended
March 31, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
PART
II - Other Information
Item
1. Legal Proceedings
In
or about September 2014 Stratex filed an action against Eagleford Energy, Zavala Inc. in the 293rd District Court of
Zavala County, Texas. Styled Stratex Oil & Gas Holdings, Inc. v Eagleford Energy, Zavala Inc. Case No 14-09-132090-ZCV, the
action was for foreclosure of the payment of obligations owed by Eagleford Energy, Zavala Inc. for lease obligations. Prior to
foreclosure Eagleford paid the obligations which were owed. On March 31, 2015 this matter was settled by Stratex releasing its
interest in the project for the development of the 2,926 acres in Zavala County, Texas, to its two partners Eagleford Energy,
Zavala Inc and Quadrant Energy, Inc. The parties entered into a mutual release of all obligations.
Litigation
in the Ordinary Course
We
have become involved in litigation from time to time relating to claims arising in the ordinary course of our business. We do
not believe that the ultimate resolution of such claims would have a material effect on our business, results of operations, financial
condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution
of one or more of these matters could have a material effect on our business, results of operations, financial condition and cash
flows.
Item
1A. Risk Factors
As
a smaller reporting company, we have elected not to provide the disclosures required by this item.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
On March
31, 2015 the Company issued 2,500,000 shares of unregistered common stock to employees and consultants for work on the merger
between the Company and Richfield. The shares were issued at $0.135 per share.
On March
31, 2015 the Company issued 1,333,333 shares of unregistered common stock to Eagleford Energy Corp in settlement of litigation
between the Company and Eaglford Energy Corp. The shares were issued at $0.10 per share.
Item
6. Exhibits
Exhibit No. | |
Description |
31.1 | |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002. (Filed herewith) |
31.2 | |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002. (Filed herewith) |
32.1 | |
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. (Filed herewith) |
32.2 | |
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. (Filed herewith) |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
|
STRATEX
OIL &GAS HOLDINGS, INC. |
|
|
|
Date:
May 15, 2015 |
By: |
/s/
Stephen Funk |
|
|
Stephen
Funk |
|
|
Chief
Executive Officer and Director |
|
|
(Principal
Executive Officer) |
|
|
|
Date:
May 15, 2015 |
By: |
/s/
Michael J. Thurz |
|
|
Michael
J. Thurz |
|
|
Chief
Administrative Officer |
|
|
(Principal
Financial Officer) |
28
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT
TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen Funk, certify that:
1. I have reviewed this annual report on Form
10-Q of Stratex Oil & Gas Holdings, Inc. (the “registrant”) for the quarter ended March 31, 2015;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f)
and 15d–15(f)) for the registrant and have:
(a) Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal
control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report
any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies
and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 15, 2015
/s/
Stephen Funk |
|
Stephen Funk |
|
Chief Executive Officer |
|
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT
TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael J. Thurz, certify that:
1. I have reviewed this annual report on Form
10-Q of Stratex Oil & Gas Holdings, Inc. (the “registrant”) for the quarter ended March 31, 2015;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f)
and 15d–15(f)) for the registrant and have:
(a) Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal
control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report
any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies
and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 15, 2015
/s/
Michael J. Thurz |
|
Michael J. Thurz |
|
Chief Administrative Officer |
|
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the
annual report of Stratex Oil & Gas Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31,
2015, as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), I, Michael
J. Thurz, Chief Administrative Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
|
(1) |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
|
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company. |
Date: May 15, 2015
/s/
Stephen Funk |
|
Stephen Funk |
|
Chief Administrative Officer |
|
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the
annual report of Stratex Oil & Gas Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31,
2015, as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), I, Michael
J. Thurz, Chief Administrative Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
|
(1) |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
|
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company. |
Date: May 15, 2015
/s/
Michael J. Thurz |
|
Michael J. Thurz |
|
Chief Administrative Officer |
|
Stratex Oil and Gas (PK) (USOTC:STTX)
Historical Stock Chart
From May 2024 to Jun 2024
Stratex Oil and Gas (PK) (USOTC:STTX)
Historical Stock Chart
From Jun 2023 to Jun 2024