We have audited the accompanying
consolidated balance sheets of Tiger Oil and Energy, Inc. (the "Company") as of December 31, 2017 and 2016, the related
statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively
referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based
on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements,
the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues
to experience negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
The accompanying notes are a integral part of these consolidated financials statements.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Activity
Tiger
Oil and Energy, Inc., formerly UTeC, Inc., is a Nevada corporation organized on November 8, 1993 as a “For Profit”
corporation for the purpose of engaging in any lawful activity. On January 10, 2007, the Company purchased 100%
of the shares of UTeC Corporation, Inc. In 2007, the Company licensed technology covering the use of cold plasma
oxidizer technology for the destruction of solid and liquid hazardous chemicals and biologicals. During 2007 and 2008, the
Company worked to validate the technology and prepare a business plan for its commercialization.
In
April 2009, the Company divested its commercial explosives development, analysis, testing and manufacturing business to eliminate
the need to inject new capital into the Company to support this business, and concentrate on raising the funds necessary to commercialize
its hazardous waste destruction business. At this time, the Company re-entered the development stage.
Prior
to the divestiture, the Company’s business was to offer state of the art testing and analysis to clients worldwide. The
Company operated a chemical research and development laboratory near Riverton, Kansas, which specialized in commercial explosives
development and analysis. The Company also operated a destructive test facility near Hallowell, Kansas, which specialized in determining
the detonating characteristics of commercial explosives.
On
October 1, 2009 the Company entered into an agreement to purchase 100% of the outstanding shares of C2R Energy Commodities, Inc.,
a Nevada corporation, in exchange for 4,050,000 shares of the Company’s restricted common stock. The Company
entered into this agreement due primarily to the fact that C2R owned certain intellectual property that the Company wished to
acquire.
On
October 29, 2010, the Company acquired all of the membership interest in Jett Rink Oil, LLC (“Jett Rink”) in exchange
for 10,000,000 shares of the Company’s Common Stock. Jett Rink is involved in the business relating to the exploration,
development and production of oil and gas in the United States. At the closing of the Exchange Agreement, Jett Rink became a wholly-owned
subsidiary of the Company and the Company acquired the business and operations of Jett Rink.
Basis
of Presentation
The
accompanying audited consolidated financial statements and related notes include the activity of the Company and its two wholly-owned
subsidiaries, C2R Energy Commodities, Inc. and Jett Rink Oil, LLC and have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) and with the rules and regulations of the United
States Securities and Exchange Commission (“SEC”) to Form 10-K. All inter-company balances and transactions have been
eliminated.
Reclassification
Certain
amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These
reclassifications had no effect on reported losses.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Consolidation
The
accompanying consolidated financial statements included all of the accounts of the Company and its wholly-owned subsidiaries,
C2R, Inc., a Nevada Corporation, and Jett Rink Oil, LLC, a Kansas Limited Liability Company. All intercompany transactions have
been eliminated.
Accounting
Method
The
Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a
December 31 year-end.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash
and Cash Equivalents
For
purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments purchased with a maturity of three
months or less to be cash equivalents to the extent the funds are not being held for investment purposes. The Company
at times may maintain a cash balance in excess of insured limits.
Property,
Plant and Equipment
Property
and equipment are stated at cost. Major additions and improvements are capitalized in the month following the month
in which the assets or improvement are deemed to be placed in service. Maintenance and repairs are expensed as incurred. Upon
disposition, the net book value is eliminated from the accounts, with the resultant gain or loss reflected in operations. Depreciation
expense is computed on a straight-line basis over the estimate useful lives of the assets as follows:
|
Building
and leasehold improvements
|
10-25
years
|
|
Machinery
and equipment
|
5
years
|
|
Furniture
and fixtures
|
3-7
years
|
The
Company periodically assesses the recoverability of property, plant and equipment and evaluates such assets for impairment whenever
events or changes in circumstances indicate that the net carrying amount of an asset may not be recoverable. Asset impairment
is determined to exist if estimated future cash flows, undiscounted and without interest charges, are less than the net carrying
amount.
Impairment
of Long-Lived Assets
The
Company follows the provisions of ASC 360 for its long-lived assets. The Company’s long-lived assets, which include
test equipment and purchased intellectual property rights, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment
of Long-Lived Assets (Continued)
The
Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated
with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective
carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair
value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If
long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than
originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated
useful lives.
The
Company recognized no impairment expense during the years ended December 31, 2017 and 2016.
Fair
Value of Financial Instruments
The
fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices
and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair
value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization
within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The
fair value hierarchy is defined into the following three categories:
Level
1: Quoted market prices in active markets for identical assets or liabilities
Level
2: Observable market-based inputs or inputs that are corroborated by market data
Level
3: Unobservable inputs that are not corroborated by market data
Stock-based
Compensation
The
Company adopted ASC 718 effective January 1, 2006 using the modified prospective method. Under this transition method, stock
compensation expense includes compensation expense for all stock-based compensation awards granted on or after January 1,
2006, based on the grant-date fair value estimated in accordance with the provisions of ASC 718.
Provision
for Taxes
The
Company applies ASC 740, which requires the asset and liability method of accounting for income taxes. This method requires
that the current or deferred tax consequences of all events recognized in the financial statements be measured by applying the
provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years. Deferred tax
assets are reviewed for recoverability and the Company records a valuation allowance to reduce its deferred tax assets when it
is more likely than not that all or some portion of the deferred tax assets will not be recovered.
The
Company adopted ASC 740, at the beginning of fiscal year 2008. This interpretation requires recognition and measurement of uncertain
tax positions using a “more-likely-than-not” approach, requiring the recognition and measurement of uncertain tax
positions. The adoption of ASC 740 had no material impact on the Company’s financial statements.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basic
and Diluted Loss per Share
Basic
and diluted loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted
average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net
income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted
weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt
or equity. The Company had 1,200,000 potential dilutive shares as of December 31, 2017 that were excluded as their effect was
anti-dilutive.
Reporting
Segments
ASC
280 establishes standards for the way that public enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating segments in interim financial statements regarding products
and services, geographic areas and major customers. ASC 280 defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performances. Currently, ASC 280 has no effect on the Company’s consolidated
financial statements as substantially all of the Company’s operations are conducted in one industry segment.
Oil
and Gas Properties
The
Company uses the full cost method of accounting for oil and natural gas properties. Under this method, all acquisition, exploration
and development costs, including certain payroll, asset retirement costs, other internal costs, and interest incurred for the
purpose of finding oil and natural gas reserves, are capitalized. Internal costs that are capitalized are directly attributable
to acquisition, exploration and development activities and do not include costs related to production, general corporate overhead
or similar activities. Costs associated with production and general corporate activities are expensed in the period incurred.
Proceeds from the sale of oil and natural gas properties are applied to reduce the capitalized costs of oil and natural gas properties
unless the sale would significantly alter the relationship between capitalized costs and proved reserves, in which case a gain
or loss is recognized.
Capitalized
costs associated with impaired properties and capitalized costs related to properties having proved reserves, plus the estimated
future development costs, and asset retirement costs under Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Topic 410 “Asset Retirement and Environmental Obligations” (FASB
ASC 410), are amortized using the unit-of-production method based on proved reserves. Capitalized costs of oil and natural gas
properties, net of accumulated amortization and deferred income taxes, are limited to the total of estimated future net cash flows
from proved oil and natural gas reserves, discounted at ten percent, plus the cost of unevaluated properties. Under
certain specific conditions, companies could elect to use subsequent prices for determining the estimated future net cash flows.
The use of subsequent pricing is no longer allowed. There are many factors, including global events that may influence the production,
processing, marketing and price of oil and natural gas. A reduction in the valuation of oil and natural gas properties resulting
from declining prices or production could adversely impact depletion rates and capitalized cost limitations. Capitalized costs
associated with properties that have not been evaluated through drilling or seismic analysis, including exploration wells in progress
at December 31, 2017, are excluded from the unit-of-production amortization. Exclusions are adjusted annually based on drilling
results and interpretative analysis.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Oil
and Gas Properties (Continued)
Sales
of oil and natural gas properties are accounted for as adjustments to the net full cost pool with no gain or loss recognized,
unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. If it is determined
that the relationship is significantly altered, the corresponding gain or loss will be recognized in the statements of operations.
Costs
of oil and gas properties are depleted using the unit-of-production method. For the years ended December 31, 2017 and 2016, the
Company recognized $-0- of depletion expense related to oil and gas production during the period.
Ceiling
Test
In
applying the full cost method, the Company performs an impairment test (ceiling test) at each reporting date, whereby the carrying
value of property and equipment is compared to the value of its proved reserves discounted at a ten percent interest rate of future
net revenues, based on current economic and operating conditions, plus the cost of properties not being amortized, plus the lower
of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to
book and tax basis differences of the properties. During the years ended December 31, 2017 and 2016 the Company had
recorded no impairment expense in connection with the full cost ceiling test calculation.
Asset
Retirement Obligation
The
Company follows ASC 410, Asset Retirement and Environmental Obligations which requires entities to record the fair value of a
liability for asset retirement obligations (“ARO”) and recorded a corresponding increase in the carrying amount of
the related long-lived asset. The asset retirement obligation primarily relates to the abandonment of oil and gas properties.
The present value of the estimated asset retirement cost is capitalized as part of the carrying amount of oil and gas properties
and is depleted over the useful life of the asset. The settlement date fair value is discounted at our credit adjusted risk-free
rate in determining the abandonment liability. The abandonment liability is accreted with the passage of time to its expected
settlement fair value. Revisions to such estimates are recorded as adjustments to ARO are charged to operations in the period
in which they become known. At the time the abandonment cost is incurred, the Company is required to recognize a gain or loss
if the actual costs do not equal the estimated costs included in ARO.
The
ARO is based upon numerous estimates and assumptions, including future abandonment costs, future recoverable quantities of oil
and gas, future inflation rates, and the credit adjusted risk free interest rate.
Recent
Accounting Pronouncements
Management
has considered all recent accounting pronouncements issued since the last audit of its consolidated financial statements. The
Company’s management believes that these recent pronouncements will not have a material effect on the Company’s consolidated
financial statements.
NOTE
2 - GOING CONCERN
The
Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable
to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue
as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital
to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced
to cease operations.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan
is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet
its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that
the Company will be successful in accomplishing any of its plans.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
3 – OIL AND GAS PROPERTIES
On
April 3, 2014, the Company signed an election to participate in the first of three wells with Toto Energy, LLC in Cowley County,
Kansas. The Company has a 30 percent working interest and a 24.45 percent net royalty interest in the well. As of December 31,
2017, the Company has capitalized $213,000 of cash payments made to commence operations development of the well.
On
May 10, 2014, the Company signed an election to participate in the second of three wells with Toto Energy, LLC in Cowley County,
Kansas. The Company has a 30 percent working interest and a 24.45 percent net royalty interest in the well. As of December 31,
2017, the Company has capitalized $189,000 of cash payments made to commence operations development of the well.
On
July 23, 2016 the Company received $58,684 from the operator of two of its oil and gas leases. The payment received represented
a partial refund of the Company’s previous $404,837 in payments made to the operator pursuant to the terms of an Authorization
for Expenditures (“AFE”) Agreement. The Company’s original payments under the AFE were capitalized to oil and
gas properties in 2014. All capitalized costs pursuant to the AFE were fully impaired during the year ended December 31, 2015.
As the capitalized costs had been previously impaired, the $58,684 was recorded as a gain on property settlement for the period
ended December 31, 2016.
Oil
and gas properties are stated at cost. As of December 31, 2017 and December 31, 2016, oil and gas properties, net consisted of
the following:
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
Unproved properties
|
|
$
|
470,377
|
|
|
$
|
470,377
|
|
|
Impairment of oil and gas leases
|
|
|
(470,377
|
)
|
|
|
(470,377
|
)
|
|
Oil and gas properties, net
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE
4 – CONVERTIBLE NOTES PAYABLE
On
January 3, 2014, the Company received $600,000 in connection with a convertible note financing commitment, the terms of which
call for the Company to receive three tranches of $200,000 each on a callable convertible note wherein the Company borrows the
sum at five percent interest for one year and the investor can elect to continue to receive the interest on the note or have the
Company issue the investor shares of common stock of the Company at $0.50 per share to retire the debt. The notes came due on
December 12, 2014, and as of December 31, 2017 the notes were in default. At December 31, 2017 accrued interest on the notes totaled
$119,616.
NOTE
5 – NOTES PAYABLE – RELATED PARTY
On
June 11, the Company borrowed $5,000 from a related-party entity. Pursuant to the terms of the note, the principal accrues interest
at a rate of five percent per annum, is unsecured, and was due in full on June 11, 2016. Subsequent to the initial borrowing the
Company borrowed an additional $57,500 from the same lender under the same terms. On July 25, 2016 the Company paid $40,000 against
the outstanding principal of the notes. Accrued interest totaling $1,340 was forgiven at the time of payment, and recorded as
additional paid-in capital. At December, 2017 the total outstanding principal balance due to the lender was $22,500, and aggregate
accrued interest on the notes totaled $1,587.
On
May 6, 2015 the Company borrowed $5,000 from an unrelated third-party entity. The note, accrued interest at a rate of five percent
per annum, was unsecured, and was due in full on May 6, 2016. On July 25, 2015 the note, inclusive of all unpaid principal and
interest, was transferred to and assumed by a different related party entity. On July 25, 2016 the Company repaid the full $5,000
principal balance due under the terms of the note. Accrued interest on the note totaling $305 was forgiven at the time of payment,
and recorded as additional paid-in capital. During the year ended December 31, 2017, the Company borrowed an additional $10,000
from the same entity. This note accrues interest at a rate of five percent per annum, and is due twelve months from the note date.
As of December 31, 2017, accrued interest on the note totaled $153.
On
March 7, 2016 the Company borrowed $10,000 from a related-party. Pursuant to the terms of the note the principal accrues interest
at a rate of five percent per annum, is unsecured, and is due in full on May 6, 2017. On May 2, 2016 the Company borrowed an additional
$4,000 under the same terms. On October 4, 2016 the Company borrowed an additional $25,000 under the same terms. During the year
ended December 31, 2017, the Company borrowed an additional $10,000 under the same terms. At December, 2017 the aggregate principal
balance of the notes totaled $49,000 and aggregate accrued interest on the notes totaled $3,205.
NOTE
6 – ASSET RETIREMENT OBLIGATIONS
The
asset retirement obligation is estimated by management based on the Company’s net working interests in all wells, estimated
costs to reclaim and abandon wells and facilities and the estimated timing of the costs to be incurred in future periods. At December
31, 2017 and 2016, the Company estimated the undiscounted cash flows related to asset retirement obligation to total approximately
$105,000. The actual costs to settle the obligation are expected to occur in approximately 25 years. Through December 31, 2017,
the Company established an asset retirement obligation of $9,860 for the wells acquired by the Company, which was capitalized
to the value of the oil and gas properties. The fair value of the liability at December 31, 2017 and 2016 is estimated to be $13,178
and $12,323, respectively, using a risk free rate of 9.31 percent and inflation rates between 3.87 and 4.81 percent. Total accretion
expense on the asset retirement obligation was $855 and $789 for the years ended December 31, 2017 and 2016, respectively.
Changes
to the asset retirement obligation for the years ended December 31, 2017 and 2016 were as follows:
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
12,323
|
|
|
$
|
11,534
|
|
|
Liabilities incurred
|
|
|
—
|
|
|
|
—
|
|
|
Accretion expense
|
|
|
855
|
|
|
|
789
|
|
|
Balance, end of period
|
|
$
|
13,178
|
|
|
$
|
12,323
|
|
NOTE
7 – STOCKHOLDERS’ DEFICIT
The
Company has 1,000,000 preferred shares authorized at a par value of $0.001 and 74,000,000 common shares authorized at par value
of $0.001. As of December 31, 2017 the Company has 22,013 shares of preferred stock and 37,105,062 shares of common
stock issued and outstanding.
On
July 29, 2016 the Company repaid in full the principal balance of multiple related-party notes payable. Pursuant to this transaction,
the note holders agreed to forgive an aggregate of $1,645 in accrued interest related to the notes. The Company recorded this
forgiveness as a credit to additional paid-in capital, as the note holders were related parties.
During
the year ended December 31, 2017, the Company cancelled 20,000 shares of preferred stock, and 5,623,097 shares of common stock.
NOTE
8 – RELATED-PARTY TRANSACTIONS
At
December 31, 2017 and 2016 the Company was owed its directors an aggregate of $36,000 and $19,000, respectively, in accrued director
fees.
NOTE
9 – INCOME TAXES
No
provision has been made in the financial statements for income taxes because the Company has accumulated losses from operations
since inception. Any deferred tax benefit arising from the operating loss carried forward is offset entirely by a valuation
allowance since it is currently not likely that the Company will be significantly profitable in the near future to take advantage
of the losses. The provision for income taxes consists of the following:
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
Current taxes
|
|
$
|
(28,805
|
)
|
|
$
|
(29,550
|
)
|
|
Impairment of oil and gas properties
|
|
|
—
|
|
|
|
—
|
|
|
Valuation allowance
|
|
|
28,805
|
|
|
|
29,550
|
|
|
Total provision for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
The
income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates
of 34% to pretax income from continuing operations for the years ended December 31, 2017 and 2016 due to the following:
|
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
Loss carry forwards (expire through 2036)
|
|
$
|
1,665,129
|
|
|
$
|
1,636,324
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax asset
|
|
|
762,893
|
|
|
|
698,751
|
|
|
Valuation allowance
|
|
|
(762,893
|
)
|
|
|
(698,751
|
)
|
|
Net deferred taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
At
December 31, 2017, the Company had net operating loss carry forwards of approximately $1,805,416 that may be offset against future
taxable income through 2036. The Company adopted the provisions of ASC 740 at the beginning of fiscal year 2008. As
a result of this adoption, the Company has not made any adjustments to deferred tax assets or liabilities. The Company did not
identify any material uncertain tax positions on returns that have been filed or that will be filed. The Company has not had operations
resulting in net income and is carrying a large Net Operating Loss as disclosed above. Since it is not thought that this
Net Operating Loss will ever produce a tax benefit, even if examined by taxing authorities and disallowed entirely, there would
be no effect on the financial statements.
NOTE
10 – SUBSEQUENT EVENTS
Adar
Bays Financing
On
January 22, 2018, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Adar Bays,
a Florida limited liability company (“Adar”), providing for the purchase of seven convertible notes in the aggregate
principal amount of $300,000 (the “Notes”), with the first Note being in the amount of $75,000 (“First Note”)
and the remaining six Notes being in the amount of $37,500 each (the “Back End Notes”). Each Note bears interest at
the rate of 8% per annum and matures on January 22, 2019.
NOTE
10 – SUBSEQUENT EVENTS (Continued)
Each
Back-End Note shall be paid for by an offsetting a $37,500 secured promissory note issued to the Company by Adar on January 22,
2018 (each, the “Adar Note” and collectively, the “Adar Notes”), provided that prior to the conversion
of each Back-End Note, Adar must have paid off an Adar Note in cash. The first two Adar Notes are each secured by the First
Note or substitute collateral having an appraisal value of $37,500. The remaining four Adar Notes are each secured by money placed
into escrow equal to the principal amount of such Adar Note. The first Adar Note matures on January 22, 2019 with all additional
notes maturing on January 22, 2019 as well, unless the Company does not meet the “current public information” requirement
pursuant to Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), in which case both Back-End
Notes and the Adar Notes may be both cancelled.
The
First Note was funded on January 22, 2018, less $3,750 in legal fees. Each of the remaining six notes shall be funded on a monthly
basis from August 22, 2018 to January 22, 2019, each less $2,000 in legal fees.
Adar
Bays Financing
Adar
or other holder(s) of the Notes (the “Holder”) may, at its option, at any time after 180 days, elect to convert all
or any amount of the principal face amount of each Note then outstanding into shares of the Company’s common stock, par
value $0.0001 per share, at a conversion price for each share of Common Stock equal to fifty percent (50%) of the lowest closing
bid price of the Common Stock as reported on the OTCQB, where the Company’s shares are traded, or any exchange upon which
the Common Stock may be traded in the future, for the lower of (i) twenty (20) prior trading days immediately preceding the issuance
date of the Note or (ii) the twenty (20) prior trading days including the day upon which a Notice of Conversion is received by
the Company or its transfer agent.
GW
Holdings Financing
On
January 24, 2018, the Company, entered into a Securities Purchase Agreement (“SPA”), with GW Holdings Group, LLC,
a New York limited liability company (the “Buyer” or “GWH”), providing for the purchase of four convertible
promissory notes in the aggregate principal amount of $157,750, with the first Note being in the principal amount of $78,750,
and the second, third and fourth Notes being in the principal amount of $26,000 each.
The
First Note was funded on January 24, 2018, with the Company receiving $75,000, less $3,750 in legal fees.
Each
Note bears interest at the rate of 10% per annum, and is due and payable on January 24, 2019. Interest shall be paid by the Company
in common stock.
GWH,
or other permitted holder (“
Holder
”), may convert all or any amount the principal face amount of the Notes
then outstanding and accrued interest into shares of the Company's Common Stock at a price (“
Conversion Price
”)
per share equal to 50% of the lesser of the lowest closing bid or the lowest trading price: (i)
twenty
prior
trading days, including the day upon which a Notice of Conversion is received by the Company (provided such Notice of Conversion
is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings
Time if the Holder wishes to include the same day closing price), or (ii) the
twenty
prior trading
days immediately preceding the issuance date of the Notes. The number of issuable shares will be rounded to the nearest whole
share, and no fractional shares or scrip representing fractions of shares will be issued on conversion
.
In the event
the Company experiences a DTC “Chill” on its shares, the conversion price discount shall be increased to 60% while
that “Chill” is in effect. Notwithstanding anything to the contrary contained in the Notes, the Notes shall not be
convertible by the holder thereof, and Company shall not effect any conversion of the Notes or otherwise issue any shares of Common
Stock to the extent (but only to the extent) that the holder together with any of its affiliates would beneficially own in excess
of 9.99% (the “
Maximum Percentage
”) of the Company’s outstanding Common Stock. The Holder may send in
a Notice of Conversion to the Company for Interest Shares based on the formula provided above.
NOTE
10 – SUBSEQUENT EVENTS (Continued)
Change
in Control of Registrant
On
March 1, 2018, Howard Bouch, the Chief Financial Officer and member of the Board of Directors of the Company, purchased 20,000
shares of the Company’s preferred stock from Ken Liebscher, the then President, Chief Executive Officer, Secretary, Treasurer
and Director of the Company, pursuant to a stock purchase agreement, dated March 1, 2018, for $1.00 per share, or a total purchase
price of $20,000. Each share of Preferred Stock entitles the owner to 2,500 votes. The Shares have the voting equivalency
of 50 million (50,000,00) shares of common stock and represent approximately 54.72% of the aggregate 92,137,562 votes entitled
to by the 37,105,062 outstanding shares of common stock and 22,013 outstanding shares of Preferred Stock.
As
a result, the sale of the Shares constituted a change in control of the Company. The Company was not a party to the Stock Purchase
Agreement.
Other
In
accordance with ASC 855-10, Company management reviewed all material events through the date of this report and there are no material
subsequent events to report, other than those listed above.
SUPPLEMENTAL
INFORMATION TO
FINANCIAL
STATEMENTS (Unaudited)
Oil
and Gas Producing Activities
In
January 2010, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU) No. 2010-03, "Oil
and Gas Reserve Estimations and Disclosures" (ASU No. 2010-03). This update aligns the current oil and gas reserve estimation
and disclosure requirements of the Extractive Industries - Oil and Gas topic of the FASB Accounting Standards Codification (ASC
Topic 932) with the changes required by the final rule of the Securities and Exchange Commission (the “SEC”), "Modernization
of Oil and Gas Reporting." ASU No. 2010-03 must be applied prospectively as a change in accounting principle that is inseparable
from a change in accounting estimate and is effective for entities with annual reporting periods ending on or after December 31,
2009.
Oil
and Gas Reserves
Users of this information should be aware that the process of estimating quantities of "proved,"
"proved developed," "proved undeveloped" and "probable" crude oil, natural gas liquids and natural
gas reserves is complex, requiring significant subjective decisions in the evaluation of all available geological, engineering
and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous
factors including, but not limited to, additional development activity, evolving production history and continual reassessment
of the viability of production under varying economic conditions. Consequently, material revisions (upward or downward) to existing
reserve estimates may occur from time to time. Although reasonable effort is made to ensure that reserve estimates reported represent
the most accurate assessments possible, the significance of the subjective decisions required and variances in available data
for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial
statement disclosures. See ITEM 1A. Risk Factors.
Proved
reserves represent estimated quantities of crude oil, natural gas liquids and natural gas that geoscience and engineering data
can estimate, with reasonable certainty, to be economically producible from a given day forward from known reservoirs under economic
conditions, operating methods and government regulation before the time at which contracts providing the right to operate expire,
unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are
used for the estimation.
Proved
developed reserves are proved reserves expected to be recovered under operating methods being utilized at the time the estimates
were made, through wells and equipment in place or if the cost of any required equipment is relatively minor compared to the cost
of a new well.
Proved
undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells
where a relatively major expenditure is required. Reserves on undrilled acreage are limited to those directly offsetting development
spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes
reasonable certainty of economic producibility at greater distances. Undrilled locations can be classified as having undeveloped
reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless
the specific circumstances justify a longer time. Estimates for proved undeveloped reserves are not attributed to any acreage
for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have
been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable
technology establishing reasonable certainty.
SUPPLEMENTAL
INFORMATION TO
FINANCIAL
STATEMENTS (Unaudited)
Oil
and Gas Producing Activities (Continued)
Probable
undeveloped reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together
with proved reserves, are as likely as not to be recovered. Probable reserves may be assigned to areas of a reservoir adjacent
to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir
continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to
areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir.
No
major acquisition or sale of oil and gas properties or other favorable or adverse event subsequent to December 31, 2017 is believed
to have caused a material change in the estimates of proved developed or proved undeveloped or probable undeveloped reserves as
of that date.
NET
PROVED RESERVE SUMMARY
The
following table sets forth the Company's net proved reserves, including proved developed and proved undeveloped reserves, at December
31, 2017 and 2016, as pursuant to reserve reports prepared by the Company’s independent, certified petroleum engineer.
|
|
|
|
December 31, 2017
|
|
|
|
December 31, 2016
|
|
|
Net Proved Developed Reserves:
|
|
|
|
|
|
|
|
|
|
Crude oil (Bbls)
|
|
|
—
|
|
|
|
—
|
|
|
Natural gas (Mcf)
|
|
|
—
|
|
|
|
—
|
|
|
Oil equivalents (Boa)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Proved Undeveloped Reserves:
|
|
|
|
|
|
|
|
|
|
Crude oil (Bbls)
|
|
|
—
|
|
|
|
—
|
|
|
Natural gas (Mcf)
|
|
|
—
|
|
|
|
—
|
|
|
Oil equivalents (Boe)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Proved Developed and Undeveloped Reserves:
|
|
|
|
|
|
|
|
|
|
Crude oil (Bbls)
|
|
|
—
|
|
|
|
—
|
|
|
Natural gas (Mcf)
|
|
|
—
|
|
|
|
—
|
|
|
Oil equivalents (Boe)
|
|
|
—
|
|
|
|
—
|
|
SUPPLEMENTAL
INFORMATION TO
FINANCIAL
STATEMENTS (Unaudited)
Capitalized
Costs Relating to Oil and Gas Producing Activities
The following table sets forth the capitalized costs relating to the
Company’s crude oil and natural gas producing activities at December 31, 2017 and 2016:
|
|
|
At December 31, 2017
|
|
At December 31, 2016
|
|
|
|
|
|
|
|
Proved leasehold costs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Costs of wells and development
|
|
|
910,855
|
|
|
|
910,855
|
|
|
Capitalized asset retirement costs
|
|
|
9,860
|
|
|
|
9,860
|
|
|
Total cost of oil and gas properties
|
|
|
920,715
|
|
|
|
920,715
|
|
|
Accumulated depreciation, depletion, and impairment
|
|
|
(920,715
|
)
|
|
|
(920,715
|
)
|
|
Net Capitalized Costs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Costs
Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities
The following table sets forth the
costs incurred in the Company’s oil and gas property acquisition, exploration and development activities for the ended December
31, 2017 and 2016:
|
|
|
|
For the Year Ended December 31, 2017
|
|
|
|
For the Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of properties:
|
|
|
|
|
|
|
|
|
|
Proved
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Exploration costs
|
|
|
—
|
|
|
|
—
|
|
|
Development costs
|
|
|
—
|
|
|
|
—
|
|
|
Net Capitalized Costs
|
|
$
|
—
|
|
|
$
|
—
|
|
Results
of Operations for Oil and Gas Producing Activities
The following table sets forth the results of operations for oil and
gas producing activities for the year ended December 31, 2017 and 2016:
|
|
|
For the Year Ended December 31, 2017
|
|
For the Year Ended December 31, 2016
|
|
|
|
|
|
|
|
Crude oil and gas revenues
|
|
$
|
15114
|
|
|
$
|
—
|
|
|
Production costs
|
|
|
(22643
|
)
|
|
|
(4079
|
)
|
|
Depreciation, depletion and accretion
|
|
|
(855
|
)
|
|
|
(789
|
)
|
|
Results of operations for producing activities,
excluding corporate overhead
|
|
$
|
(8384
|
)
|
|
$
|
(4868
|
)
|
SUPPLEMENTAL
INFORMATION TO
FINANCIAL
STATEMENTS (Unaudited)
Standardized
Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
The following information has
been developed utilizing procedures prescribed by ASC Topic 932 and is based on crude oil and natural gas reserves and production
volumes estimated by the Company’s independent petroleum consultants. The estimates were based on a $43.92/BO crude oil
price. The following information may be useful for certain comparison purposes, but should not be solely relied upon in evaluating
the Company or its performance. Further, information contained in the following table should not be considered as representative
of realistic assessments of future cash flows, nor should the Standardized Measure of Discounted Future Net Cash Flows be viewed
as representative of the current value of the Company.
The
future cash flows presented below are based on sales prices, cost rates and statutory income tax rates in existence as of the
date of the projections. It is expected that material revisions to some estimates of crude oil and natural gas reserves may occur
in the future, development and production of the reserves may occur in periods other than those assumed, and actual prices realized
and costs incurred may vary significantly from those used.
Future
production and development costs were computed by estimating those expenditures expected to occur in developing and producing
the proved oil and natural gas reserves at the end of the year, based on year-end costs. Actual future cash inflows may vary considerably,
and the standardized measure does not necessarily represent the fair value of the Company’s oil and natural gas reserves.
Management
does not rely upon the following information in making investment and operating decisions. Such decisions are based upon a wide
range of factors, including estimates of probable and possible reserves as well as proved reserves, and varying price and cost
assumptions considered more representative of a range of possible economic conditions that may be anticipated.
The
following table sets forth the standardized measure of discounted future net cash flows from projected production of the Company’s
oil and gas reserves as of December 31, 2017 and 2016:
|
|
|
|
December 31, 2017
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future cash inflows
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Future production and development costs
|
|
|
—
|
|
|
|
—
|
|
|
Future income tax and insurance expense
|
|
|
—
|
|
|
|
—
|
|
|
Future net cash inflows
|
|
|
—
|
|
|
|
—
|
|
|
10% annual discount for estimated timing of cash flows
|
|
|
—
|
|
|
|
—
|
|
|
Standardized measure of discounted future net cash flows
|
|
$
|
—
|
|
|
$
|
—
|
|
SUPPLEMENTAL
INFORMATION TO
FINANCIAL
STATEMENTS (Unaudited)
Changes
in Standardized Measure of Discounted Future Net Cash Flows
The following table sets forth the changes in the standardized
measure of discounted future net cash flows for the year ended December 31, 2017 and 2016:
|
|
|
|
December 31, 2017
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Revenues less production and other costs
|
|
|
—
|
|
|
|
—
|
|
|
Changes in price, net of production costs
|
|
|
—
|
|
|
|
—
|
|
|
Development costs incurred
|
|
|
—
|
|
|
|
—
|
|
|
Net changes in future development costs
|
|
|
—
|
|
|
|
—
|
|
|
Purchases of reserves in place
|
|
|
—
|
|
|
|
—
|
|
|
Accretion of discount
|
|
|
—
|
|
|
|
—
|
|
|
Net change in income taxes
|
|
|
—
|
|
|
|
—
|
|
|
Timing differences and other
|
|
|
—
|
|
|
|
—
|
|
|
End of period
|
|
$
|
—
|
|
|
$
|
—
|
|