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EX-31.1 - EXHIBIT 31.1 - Santa Fe Petroleum, Inc.sfpi0514exh311.htm
EX-32.1 - EXHIBIT 32.1 - Santa Fe Petroleum, Inc.sfpi0514exh321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 


FORM 10-Q


 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended March 31, 2013

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

for the transition period from ______ to _______

 

Commission File Number 333-173302

 

SANTA FE PETROLEUM, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 99-0362658
(State or other jurisdiction of incorporation of organization) (I.R.S. Employer Identification No.)

 

4011 West Plano Parkway, Suite 126

Plano, Texas

 

75093

(Address of Principal Executive Offices) (Zip Code)

 

(888) 870-7060

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

None

 

Securities registered pursuant to Section 12(g) of the Act:

 

None

(Title of class)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ☑   No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

 

 

☐  Large Accelerated Filer    ☐  Accelerated Filer              
☐  Non-Accelerated Filer (Do not check if smaller reporting company)   ☑  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  ☑ No 

As of May 10, 2013, the Company had 42,520,517 shares of common stock issued and outstanding.

 

 
 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Description Page
   
Consolidated Balance Sheets as of March 31, 2013 (Unaudited) and December 31, 2012(audited)  
   
Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and for the Period from May 11, 2011 (Inception of Development Stage) through March 31, 2013 (Unaudited)  
   
Consolidated Statement of Stockholders’ Equity  
   
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013and for the Period from May 11, 2011 (Inception of Development Stage) through March 31, 2013 (Unaudited)  
   
Notes to the Consolidated Financial Statements (Unaudited)  
   

 

 
 

 

SANTA FE PETROLEUM, INC. AND SUBSIDIARIES      
(A Development Stage Company)      
CONSOLIDATED BALANCE SHEETS      
AS OF MARCH 31, 2013 AND DECEMBER 31, 2012      
       
       
       
    March 31, December 31,
    2013 2012
    (Unaudited) Audited
ASSETS      
       
Current assets      
Cash and cash equivilants    $             705  $         33,901
       
Total current assets   705 33,901
       
Unevaluated oil and natural gas property, successful efforts method          1,231,360           736,676
Deferred offering costs     -    
       
Total assets    $    1,232,065  $       770,577
       
       
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)      
       
Current liabilities      
Accounts payable    $       402,734  $       419,506
Accounts payable, related parties   311,496 235,276
Accrued liabilities   191,060 208,560
Accrued compensation   322,350 277,350
       
Total current liabilities   1,227,640 1,140,692
       
 Convertible promissory notes   200,000  
 Convertible promisssory note, related party   244,148  
       
 Total liabilities   1,671,788 -    
       
Commitments and contingencies      
       
Stockholders' deficit      
Common stock, $0.0001 par value, 200,000,000 shares authorized      
 41,288,511 and 40,797,711 shares issued and outstanding, respectively   4,129 4,080
Additional paid in capital   1,196,879 836,606
Deficit accumulated during the development stage   (1,640,731) (1,210,801)
       
Total stockholders' deficit   (439,723) (370,115)
       
Total liabilities and stockholders' deficit $     1,232,065  $       770,577
       
See accompanying notes to consolidated financial statements      
 

 

 

 

F-1

 

 
 

 

SANTA FE PETROLEUM, INC. AND SUBSIDIARIES    
(A Development Stage Company)          
CONSOLIDATED STATEMENTS OF OPERATIONS    
FOR THE THREE MONTHS ENDED MARCH 31, 2013    
AND FOR THE PERIOD FROM  MAY 11, 2011 (COMMENCEMENT OF OPERATIONS) TO March 31 31, 2013
                    (Unaudited)          
          Period from
          May 11, 2011
          (inception of
          development
      Three Months   stage
      Ended   through
      March 31, 2013   March 31, 2013
Expenses          
           
Compensation      $                   105,000    $                 112,975
Professional     26,500   588,825
Consulting     35,000   384,673
Rent     2,422   184,122
Lease     997   47,682
Other     11,288   73,731
  Total     181,207   1,392,008
           
Interest     248,723                       248,723
           
Total expenses     429,930   1,640,731
           
Net loss      $                  (429,930)    $              (1,640,731)
           
           
Basic and diluted loss per share      $                       (0.01)    
           
Basic and diluted weighted average           
   shares outstanding     41,076,635    
           
See accompanying notes to consolidated financial statements    
           
         

 

F-2

 

 
 

SANTA FE PETROLEUM, INC. AND SUBSIDIARIES    
(A Development Stage Company)          
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)    
           
Period from May 11, 2011 (commencement of operations) through December 31, 2011 
For the Year Ended December 31, 2012          
For the Three Months Ended March 31, 2013   Deficit  
        Accumulated  
      Additional During the  Total
  Common Stock Paid - In Development Stockholders'
  Shares Amount Capital Stage Deficit
May 11, 2011 - Common stock and          
1,999,150 warrants issued to unit          
holders of Santa Fe Land, LLC           
(amounts reflect the effect of the          
recapitalization on May 10, 2012)  33,478,261  $ 3,348  $     490,784  $               -     $      494,132
           
May 11, 2011 - Stock based compensation          
provided by Principal Stockholder                 -           -         123,581                    -          123,581
           
May 17, 2011 - Common stock and 1,573,956          
warrants issued for capital placement fees          
provided by Principal Stockholder                 -           -          23,784                    -            23,784
           
Net loss                 -           -                   -         (541,590)         (541,590)
           
Balances at December 31, 2011 33,478,261  $ 3,348  $     638,149  $     (541,590)  $        99,907
           
January 31, 2012 - Stock based compensation          
provided by Principal Stockholder     40,044   40,044
           
Shares issued in connection with the          
recapitalization transaction    6,000,000       600              (600)                    -                     -
           
Sale of common stock 1,319,450       132         556,544                    -          556,676
           
Payment of financing and offering expenses -               -         (59,952)                    -           (59,952)
           
Conversion of deferred offering expenses          
from sale of common stock -               -         (23,784)                    -           (23,784)
           
Merger costs -               -        (313,795)                    -         (313,795)
           
Net loss                 -           -                   -         (669,211)         (669,211)
           
Balances at December 31, 2012 40,797,711  $ 4,080  $     836,606  $  (1,210,801)  $     (370,115)
           
Sale of common stock 340,800 34 85,166   85,200
Stock offering costs     (30,000)   (30,000)
Stock issued for consulting services 150,000 15 56,384   56,399
          -    
Convertible promissory notes - beneficial conversion feature     248,723   248,723
Net loss       (429,930) (429,930)
           
Balances at March 31, 2013 41,288,511  $ 4,129  $  1,196,879  $  (1,640,731)  $     (439,723)
           
See accompanying notes to consolidated financial statements    
         

 

F-3

 
 

SANTA FE PETROLEUM, INC. AND SUBSIDIARIES  
(A Development Stage Company)    
Consolidated Statement of Cash Flows    
FOR THE THREE MONTHS ENDED MARCH 31, 2013    
AND FOR THE PERIOD FROM  MAY 11, 2011 (COMMENCEMENT OF OPERATIONS) TO MARCH 31, 2013    
                   (Unaudited)    
     
     
    Period from
    May 11, 2011
  Three Months (Inception of 
  Ended Development Stage)
  March 31, 2013 to March 31, 2013
Cash Flows From Operating Activities:    
     
Net Loss  $                     (429,930)  $                       (1,640,731)
     

Adjustments to reconcile net loss to net cash used in operating

activities:

 
Stock based compensation 56,399                                220,024
Non-cash interest expense - benficial conversion feature 248,723                                248,723
     

Increase in cash attributable to changes in operating assets

and liabilities:

 
  Accounts payable (16,772)                                402,734
  Accounts payable, related parties 76,220                                155,023
  Accrued Liabilities (17,500)                                    5,000
  Accrued compensation 45,000                                322,350
Net Cash Provided By Operating Activities (37,860)                              (286,877)
     
Investing Activities:    
  Investment in unevaluated oil and natural gas property (494,684)                              (737,228)
  Accounts payable related parties, unpaid property costs                                    -                                   156,473
  Convertible promisssory notes issued for mineral lease acquisition 200,000                                200,000
  Convertible promissory note, related party issued for mineral lease acquisition 244,148                                244,148
     
Net Cash Used in Investing Activities (50,536)                              (136,607)
     
Financing Activities:    
  Proceeds from sale of common stock 55,200                                611,876
  Merger costs                                    -                                 (373,747)
  Accrued liabilities, unpaid merger costs                                    -                                   186,060
     
Net Cash Provided by Financing Activities 55,200                                424,189
     
Net Increase in Cash (33,196)                                       705
Cash at Beginning of Period                             33,901                                         -   
Cash at End of Period  $                              705  $                                   705
     
Supplemental disclosure of cash flow information  
Income taxes paid  $                                -     $                                     -   
Cash interest paid  $                                -     $                                     -   
     

Supplemental disclosure of  non-cash investing and

financing activities

     
Unevaluated oil and natural gas property acquired through SFL acquisition  $                       494,684  $                         1,231,360
Common shares issued in recapitalization  $                                   -  $                                   600
     
     
See accompanying notes to consolidated financial statements
   

 

 F-4

 
 

 

 

Note 1 – Nature of Operations

 

On May 10, 2012, Santa Fe Petroleum, Inc., f/k/a Baby All Corp., a Delaware corporation (the “we,” “us ,” “our ,” or the “Company”), entered into a Share Exchange Agreement (the “Exchange Agreement”), with Santa Fe Operating, Inc., a Delaware corporation engaged in the exploration and production of oil and gas (“SFO”), Tom Griffin, an individual, on behalf of the holders (the “SFO Shareholders”) of 100% of the issued and outstanding common stock of SFO (the “SFO Stock”), and Efrat Schwartz, an individual and the holder of a majority of the issued and outstanding shares of our common stock, par value $0.0001 per share (the “Common Stock”). Pursuant to the Exchange Agreement, each SFO Shareholder was issued one share of Common Stock in exchange for each of such SFO Shareholder’s shares of SFO Stock (the “Exchange”). Pursuant to the terms of the Exchange Agreement, the Exchange closed on May 20, 2012, (the “Closing Date”). As a result, (i) we issued an aggregate of 33,478,261 shares of Common Stock to the SFO Shareholders; (ii) we issued warrants to purchase an aggregate of 6,764,856 shares of Common Stock to the SFO Shareholders, at an exercise price of $0.50 per share; and (iii) SFO became our wholly-owned subsidiary.

We were incorporated in Delaware on November 30, 2010.  Prior to the Exchange, our business plan was to seek third party entities interested in licensing the rights to manufacture and market the patent design of an infant medicine dispenser. Due to a lack of funds, we were not able to commence operations under the infant medicine dispenser business plan and were in the development stage at the time of the Exchange.

As the result of the Exchange, we are now a development stage company engaged in the acquisition, exploration, and development of oil and gas properties. In addition to the development of our existing property interests, we intend to acquire additional oil and gas interests in the future. Our management believes that our future growth will primarily occur through the acquisition of additional oil and gas properties following extensive due diligence. We also may elect to proceed through collaborative agreements and joint ventures in order to share expertise and reduce operating costs with other experts in the oil and gas industry. The analysis of new property interests will be undertaken by or under the supervision of our management and our board of directors (our “Board”). Although the oil and gas industry is currently very competitive, our management believes that many undervalued prospective properties remain available for acquisition purposes. For accounting purposes, the Exchange Agreement was accounted for as a reverse merger, since the SFO Shareholders collectively beneficially owned approximately 84.8% of the Common Stock immediately after the Exchange.

On May 11, 2011, SFO acquired 100 percent of the issued and outstanding units of membership interest of Santa Fe Land, LLC (such units, the “SFL Units”), a Texas limited liability company and a wholly-owned subsidiary of SFO (“SFL”). SFO issued an aggregate of 33,478,261 shares of its common stock and 1,966,900 warrants to purchase its common stock to holders of SFL units of membership interest (the “SFL Unit Holders”) in exchange for their SFL Units (the “SFL Acquisition”). The SFL Unit Holders were comprised entirely of entities under the control of Tom Griffin, the Company’s Chairman of the Board and a related party (the “Principal Stockholder”), including Long Branch Petroleum, LP (“LB”). The acquisition of SFL by SFO is being accounted for as a combination of entities under common control. Therefore, the acquisition has been recorded at the historical cost basis of the assets transferred.

In connection with the SFL Acquisition, we acquired SFL’s oil and natural gas working interests of 100% with a net revenue interest of 75% for the Test Well in Comanche County, Texas. Additionally, we acquired a mineral lease over approximately 76 acres of land as part of the SFL Acquisition.

The Company formally changed its name from Baby All Corp. to Santa Fe Petroleum, Inc. on May 17, 2012. 

 

 

Note 2 – Going Concern and Liquidity

     

 

As reflected in the accompanying consolidated financial statements, the Company had a net loss of, $429,930 for the three months ended March 31. 2013, and a net loss of $1,640,731 for period from May 11, 2011 (commencement of operations) through March 31, 2013. Additionally, at March 31, 2013, the Company had cash of only $705, a working capital deficit of $1,226,890 and an accumulated deficit of $1,640,731, which could have a material impact on the Company’s financial condition and operations.

 

Our net losses and lack of capital pose risks to our business and stockholders by:

 

  · making it more difficult for us to satisfy our obligations;

 

  · impeding us from obtaining additional financing in the future for working capital, capital expenditures and general corporate purposes; and

 

  · making us more vulnerable to a downturn in our business and limit our flexibility to plan for, or react to, changes in our business.

 

The time required for us to become profitable is highly uncertain, and we cannot assure you that we will achieve or sustain profitability or generate sufficient cash flow from operations to meet our planned capital expenditures and working capital requirements. Our ability to obtain additional financing from other sources also depends on many factors beyond our control, including the state of the capital markets and the prospects for our business. The necessary additional financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of our common stock.

 

The accompanying consolidated financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amount and classification of liabilities which may result from the inability of the Company to continue as a going concern.

 

Note 3 - Summary of Significant Accounting Policies

 

 

Basis of Presentation

 

In the opinion of management, the accompanying consolidated balance sheets and related consolidated statements of operations, cash flows, and stockholders’ equity (deficit) include all adjustments, consisting of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America for interim period reporting in conjunction with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these statements do not include all of the information required by GAAP. In the opinion of management, the condensed consolidated financial statements include the adjustments and accruals, all of which are of a normal recurring nature, which are necessary for a fair presentation of the results for the interim periods. These interim results are not necessarily indicative of results for a full year. These unaudited condensed consolidated financial statements should be read in connection with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions. Estimates are used when accounting for stock-based transactions, accounts payable and accrued expenses and taxes, among other matters.

 

 

Principles of Consolidation

 

The audited consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions, accounts and balances have been eliminated in consolidation.

 

 

Development Stage Company

 

The Company is classified as a development stage company in accordance with Accounting Standard Codification (“ASC”) 915, Development Stage Entities, since no revenues have been generated from inception through the date of these consolidated financial statements. During the development stage, the Company has primarily incurred compensation, professional, and consulting expenses associated with the Company’s contemplated equity financing plan.  

 
 

 

Oil and Gas Properties

 

The Company uses the successful efforts method of accounting for oil and natural gas producing activities, as further defined under ASC 932, Extractive Activities - Oil and Natural Gas. Under these provisions, costs to acquire mineral interests in oil and natural gas properties, to drill exploratory wells that find proved reserves, and to drill and equip development wells are capitalized.

 

Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. A determination of whether a well has found proved reserves is made shortly after drilling is completed. The determination is based on a process that relies on interpretations of available geologic, geophysic, and engineering data. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. Capitalized costs of producing oil and natural gas interests are depleted on a unit-of-production basis.

 

If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made. If a determination cannot be made as to whether the reserves that have been found can be classified as proved, the cost of drilling the exploratory well is not carried as an asset for more than one year following completion of drilling. If, after that year has passed, a determination that proved reserves exist cannot be made, the well is assumed to be impaired and its costs are charged to expense. Its cost can, however, continue to be capitalized if a sufficient quantity of reserves is discovered in the well to justify its completion as a producing well and the entity is making sufficient progress assessing the reserves and the economic and operating viability of the project.

 

 

Impairment of Long-Lived Assets

 

The Company accounts for the impairment of long-lived assets in accordance with ASC 360-10, Property, Plant and Equipment, which requires that long-lived assets be, reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to the undiscounted cash flow that the asset or asset group is expected to generate. If such assets or asset groups are considered to be impaired, the loss recognized is the amount by which the carrying amount of the property, if any, exceeds its fair market value.

 

 

Deferred Offering Costs

 

The Company complies with the requirements of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) Topic 5A, Expenses of Offering. Deferred offering costs consist principally of the fair value of stock grants and warrants issued to placement agents that are related to the Company’s contemplated equity financing and will be charged to stockholders’ equity upon the receipt of the contemplated equity financing proceeds or charged to expense if the contemplated equity financing is not completed. During the year ended December 31, 2012, the Company received subscriptions of 1,319,450 shares of common stock for $556,676 of gross proceeds less $83,736 of financing and offering expenses through a private placement memorandum at prices ranging from $0.25 to $0.50 per share. Previously recorded deferred offering expenses of $23,784 were expensed. In the three months ended March 31, 2013, the Company received subscriptions of 340,800 of shares of its $0.0001 par value common stock at $0.25 per share. The gross proceeds were $85,200 less $30,000 of offering expenses.

 

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method of ASC 740, Income Taxes. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between

the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

Effective May 11, 2011, with the commencement of operations, the Company adopted provisions of ASC 740, Sections 25 through 60, Accounting for Uncertainties in Income Taxes. These sections provide detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods. Upon the adoption of ASC 740, the Company had no unrecognized tax benefits. For the period from May 11, 2011, (commencement of operations) through December 31,, 2012, no adjustments were recognized for uncertain tax benefits. The Company’s initial tax year for 2011and the tax year for 2012 are subject to audit.

 

 

Stock-Based Compensation

 

The Company adopted ASC 718, Compensation – Share Based Compensation, as of May 11, 2011. This statement requires the recognition of compensation expense measured at fair value when the Company obtains employee services in stock-based payment transactions.

 

 

Net Income (loss) per Common Share

 

The Company computes earnings (loss) per share in accordance with ASC 260-10, Earnings Per Share. ASC 260-10 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. No potential dilutive common shares are included in the computation of any diluted per share amount when a loss is reported. Accordingly, we did not include 6,764,856 of potentially dilutive warrants at December 31, 2012.

 

 

Legal Costs and Contingencies

 

In the normal course of business, the Company incurs costs to retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received. If a loss is considered probable and the amount can be reasonable estimated, the Company recognizes an expense for the estimated loss. If we have the potential to recover a portion of the estimated loss from a third party, the Company makes a separate assessment of recoverability and reduces the estimated loss if recovery is also deemed probable.

 

 

 

Fair Value Estimates

 

In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”.  The objective of SFAS 157 (ASC 820) is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS 157 (ASC 820) defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 (ASC 820) applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements.

 

The Company measures its options and warrants at fair value in accordance with SFAS 157 (ASC 820). SFAS 157 (ASC 820) specifies a valuation hierarchy based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions. These two types of inputs have created the following fair value hierarchy:

 

  Level 1 – Quoted prices for identical instruments in active markets;  
  Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and 
  Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.  

 

This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when estimating fair value. The fair value of the stock based compensation at March 31, 2013 and December 31, 2012, were as follows:

 

   

Quoted Prices

 In Active

 Markets for

 Identical

 Assets

   

Significant

 Other

 Observable

 Inputs

   

Significant

 Unobservable

 Inputs

       
    (Level 1)     (Level 2)     (Level 3)     Total  

Three Months Ended March 31, 2013

Stock Based Compensation

  $             -      $         56,399      $           -      $          56,399  
                                 

 

Year Ended December 31, 2012

                               
Stock Based Compensation   $             -     $          40,044     $          -     $            40,044  

 

Options are valued using the Black Scholes model.

 

 

 

Recent Accounting Pronouncements

 

No recent accounting pronouncements or other authoritative guidance have been issued that management considers likely to have a material impact on our consolidated financial statements

 

Note 4 - Acquisition of Oil and Gas Company

 

On May 11, 2011, SFO acquired 100 percent of the member units of SFL by issuing 33,478,261 shares of common stock and 1,999,150 warrants to SFL member unit holders in exchange for their SFL member units. The SFL member unit holders were comprised entirely of entities under the control of Tom Griffin, the Company’s Chairman of the Board and a related party (the “Principal Stockholder”). As a result of the Share Exchange on May 10, 2012,

SFO and SFL are subsidiaries of the Company.

 

The acquisition of SFL is being accounted for as a combination of entities under common control. Therefore, the acquisition has been recorded at the historical cost basis of the assets transferred. The warrants to purchase common stock of the Company are at an exercise price of $0.50 per share and have a three year exercise period.

The Company acquired SFL’s oil and natural gas working interests of 100% with a net revenue interest of 75% for the Barnett Cody #1A in Comanche County, Texas. Additionally, the Company acquired approximately 76 acres of land as part of the purchase.

 

The following table presents a summary of the historical costs of assets and liabilities acquired at the date of acquisition:

 

Assets acquired, unevaluated oil and natural gas property   $ 494,132
Liabilities assumed     —  
Net assets acquired for 33,478,261 shares of Company common stock and 1,999,150 warrants to purchase Company common stock at $0.50 per share   $ 494,132

 

 

Concurrent with this transaction, the Principal Stockholder assigned 10,446,782 of his personal shares and 1,573,956 warrants in the Company to employees and consultants of the Company for services rendered. Under SAB Topic 5T, Miscellaneous Accounting, payments made by a principal stockholder to settle the Company’s obligations were deemed to be capital contributions.  Accordingly, the assignment of shares was recognized in the accompanying condensed consolidated financial statements as stock based compensation and deferred offering costs of approximately $123,581 and $23,784, respectively.

 

Note 5 - Unevaluated Oil and Natural Gas Property

 

The Company’s principal asset consists of an unevaluated oil and natural gas property in Comanche County, Texas, which approximated $1,231,000 at March 31, 2013 and $737,000 as of December 31, 2012.

 

The Company’s original intent was to complete five test wells on its unevaluated oil and natural gas property. The first test well was originally drilled in 2009 by a predecessor affiliate company, as the Barnett Cody #1A test. Due to the high volume of water production it would take to produce oil as this test well, the Company does not anticipate further developing this test well but instead intends to use it as a water disposal well for new drilling operations, Additional capital is needed for the Company to commence further drilling activities for the other test wells. As a result of the additional capital requirements, the five test well drilling project is not completed and the reservoir analysis has not yet been finished. As such, the Company has classified the oil and natural gas property as unevaluated as of December 31, 2012. As of December 31, 2012, the primary term of the Company’s oil and natural gas lease is through March 2014.

 

Note 6 – Convertible Promissory Notes

 

The Company issued five convertible promissory notes in the first week of February 2013 for a total principal amount of $200,000. The convertible notes accrue no interest and three of the notes, which total $150,000 in principal amount, are due fourteen (14) months from the date of issuance while two of the notes totaling $50,000 in principal amount are due fifteen (15) months from the date of issuance. At any time before the maturity dates, the notes are convertible at $0.25 per share into common stock of the Company.

 

The convertible promissory notes were issued with a beneficial conversion feature for which the intrinsic value was $112,000 and that amount was expensed as interest expense in the three months ended March 31, 2013.

 

The Company issued the convertible promissory notes as payment for the acquisition of certain mineral leases in the state of Texas as well as for the settlement of the participation agreement with Long Branch Petroleum LP.

 

 

Note 7- Convertible Promissory Note – Related Party

 

The Company issued a $244,148 principal amount, convertible promissory note on February 11, 2013 to Long Branch Petroleum LP. The convertible note accrues no interest and is due fifteen (15) months from the date of issuance. The Long Branch Note also contains customary events of default and, at the election of Long Branch at any time before the date of maturation, shall be convertible into the common stock of the Company at a $0.25 per share. 

 

The convertible promissory notes were issued with a beneficial conversion feature for which the intrinsic value was $136,723 and that amount was expensed as interest expense in the three months ended March 31, 2013.

 

The Company issued the convertible promissory note as payment for the acquisition of certain mineral leases in the state of Texas.
 

 

Note 8- Stockholders’ Deficit

 

Capital Structure

 

The Company is authorized to issue up to 200,000,000 shares of common stock at $0.0001 par value per share. As of March 31, 2013 and December 31, 2012, 41,288,511 and 40,797,711 shares were issued and outstanding, respectively. 

 

Common Stock

 

Effective on the commencement date of May 11, 2011, (commencement of operations), the Company issued 33,478,261 shares of common stock for the acquisition of SFL from a related party. The stock was valued based on the historical cost basis of the asset acquired, which approximated $494,000.

 

In 2011, the Company filed a registration statement on Form S-1 to register and sell in a self-directed offering 6,000,000 shares of newly issued common stock at an offering price of $0.0125 per share for proceeds of up to $75,000. The Registration Statement was declared effective on January 9, 2012. On February 6, 2012, the Company issued 6,000,000 shares of common stock pursuant to the registration statement for proceeds of $75,000 and these shares are freely-tradable as a result of the registration of the offer and sale of these shares on Form S-1.

 

From July 1, 2012, through December 31, 2012, the Company received subscriptions of 1,319,450 shares of common stock for $556,676 of gross proceeds less $83,736 of financing and offering expenses through a private placement memorandum (“PPM”). Common stock was sold at prices ranging from $0.25 to $0.50 per share through the PPM to “accredited investors” as defined in Rule 501 (a) of Regulation D promulgated under the Securities Act of 1933, as amended. 

 

For the three months ended March 31, 2013, the Company received subscriptions of 340,800 shares of common stock for $85,200 of gross proceeds. The Common stock was sold for $0.25 per share through the PPM to “accredited investors” as defined in Rule 501 (a) of Regulation D promulgated under the Securities Act of 1933, as amended. 

 

Stock Warrants

 

The exercisable outstanding stock purchase warrants were 6,764,856 at March 31, 2013 and December 31, 2012. with a weighted average exercise price of $0.38.  The following summarizes the warrant activity:

 

 

                    March 31, 2013               December 31, 2012  
    Number of Shares      

Weighted Average

Exercise Price

        Number of Shares 

Weighted

Average

Exercise Price

 
Outstanding at beginning of the Period     6,764,856       $ 0.38             3,540,856   $ 0.50  
Granted     -                       3,224,000   $ 0.25  
Exercised     -                       -    
Forfeited or cancelled     -                       -    
Expired                          -    
Outstanding at end of year     6,764,856    

 

 

  0.38             6,764,856

 

$ 0.38

 
Exercisable     6,764,856       $ 0.38             6,764,856 $ 0.38  
                                                   

 

At March 31, 2013, 3,540,856 warrants expire on May 11, 2014 and 3,224,000 warrants expire January 31, 2015.

 

 We have adopted the guidance of ASC 718-10-S99-1 for purposes of determining the expected term for stock warrants. Due to limited historical data to rely upon, we use the "simplified" method in developing an estimate of expected term for stock warrants per ASC 718-10-S99-1. Additionally, the volatility utilized is based on the composite of several comparable guideline companies.

 

 
 

Effective on January 31, 2012, the Company issued 3,200,000 warrants to purchase common stock to two consultants of the Company and 24,000 warrants to purchase common stock to a director of the Company. The Company evaluated the stock warrants in accordance with ASC 718, Stock Compensation, and utilized the Black Scholes method to determine valuation. As a result of our analysis, the total value for the stock warrant issuance on the grant date of January 31, 2012, was de minimis and no amount was recorded in the consolidated financial statements.

 

 

Stock Grants

 

On January 31, 2012, the Company issued 2,875,000 shares of common stock to two consultants and a director of the Company. The Company recorded $40,044 as stock compensation expense. Under SAB Topic 5T, Miscellaneous Accounting, these were deemed stock based compensation of the Company and were valued in accordance with ASC 718, Stock Compensation.

 

In the three months ended March 31, 2013, the Company issued 150,000 shares of common stock to three consultants and recorded a stock compensation expense of $56,399.

 

 

Note 9 - Related Party Transactions

 

On May 11, 2011, SFO acquired 100% of the member units of SFL in exchange for 33,478,261 shares of Common Stock and 1,966,900 warrants to SFL member unit holders in exchange for their SFL member units. All the SFL member unit holders were entities under the control of Tom Griffin, our chairman of the board. This acquisition was accounted for as a combination of entities under common control; therefore, the assets transferred are reflected on our balance sheet at their historical cost basis of $494,132 at December 31, 2011. In the Exchange described above, Mr. Griffin exchanged 26,505,155 shares of SFO for 26,505,155 shares of our Common Stock.

 

In 2011, we entered into Lease Acquisition Agreements with the Land Banks. Tom Griffin, our chairman of the board, is the President of each Land Bank. Under the Lease Acquisition Agreements, we could purchase leases, or portions of leases, held by the Land Banks from time to time and were obligated to purchase all the leases held by the Land Banks within two years from the dates the Land Banks were formed.

 

These Lease Acquisitions were terminated in November 2012. On February 11, 2013, we entered into a Lease Acquisition Agreement (the "Lease Acquisition Agreement") with LB. Pursuant to the terms and conditions of the Lease Acquisition Agreement, the Company acquired those leases from LB. In exchange, we issued Unsecured Convertible Promissory Notes totaling an aggregate amount of $444,148 to six parties. We issued the largest of those notes to LB for $244,148.

 

Our executive offices are located at 4011 W. Plano Parkway, Suite 126, Plano, Texas 75093, where we occupy approximately 1,000 square feet of office space. Effective August 2012, we pay $1,211 per month to lease this office space from an unaffiliated third party. Previously, we paid $2,650 per month, which included rent and other prorated offices expenses, under an arrangement with a company controlled by Mr. Griffin, which leased a larger space from an unaffiliated third party. We believe that our current office space and facilities will have to be expanded in the near future to meet our growth plans. From May 11, 2011, (commencement of operations) through March 31, 2013, we have recorded approximately $49,107 in rental expense and other prorated office expenses for our executive offices.

 

From May 11, 2011, (commencement of operations) through March 31, 2013 and December 31, 2012, SFP, LLC., a Texas entity that is an affiliate of the Company (“SFP LLC”) expended $311,496 and $235,276 respectively of funds on behalf of the Company and is recorded as a component of accounts payable, related parties in the accompanying consolidated balance sheet at March 31, 2013 and December 31, 2012. SFPLLC is owned entirely by entities under the control of the Principal Stockholder. The expenditures were primarily related to compensation and legal expenses for the Company related to the Company preparing to structure a transaction to become a publicly traded company.

 
 

From May 11, 2011, (commencement of operations) through December 31 2012, SFP, LLC (“SFP LLC”), expended $11,885 of funds on behalf of the Company and is recorded as a component of accounts payable, related parties in the accompanying condensed consolidated balance sheet at December 31, 2012. SFP LLC is owned entirely by entities under the control of the Principal Stockholder. The expenditures were primarily related to legal and consulting expenses for the Company related to the Company preparing to structure a transaction to become a publicly traded company.

 

We have engaged, and may engage in the future, in transactions with our affiliates or stockholders, officers and directors of our affiliates. TexTron Southwest, Inc. (“TexTron”) provides operating services including drilling of wells and ongoing operating management for oil and gas entities and is owned by entities under the control of the Principal Stockholder.

 

 

 

  Note 10 - Commitment and Contingencies

 

From time-to-time the Company may become subject to proceedings, lawsuits and other claims in the ordinary course of business including proceedings related to environmental and other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. The Company is unaware of any claim or lawsuit as of and March 31, 2013 and December 31, 2012.

 

The Company is subject to various possible contingencies that arise primarily from interpretation of federal and state laws and regulations affecting the oil and natural gas industry. Such contingencies include differing interpretations as to the prices at which oil and natural gas sales may be made, the prices at which royalty owners may be paid for production from their leases, environmental issues and other matters. Although management believes that it has complied with the various laws and regulations, administrative rulings and interpretations thereof, adjustments could be required as new interpretations and regulations are issued. In addition, environmental matters are subject to regulation by various federal and state agencies. 

 

 

 

10.

Note 11- Subsequent Events

 

Convertible Note Issuance

 

On April 17, 2013 (the "Effective Date"), we issued and sold a convertible promissory note (the "Note") to an accredited investor or its assignees (the "Holder"), pursuant to which we promise to pay Holder the aggregate principal amount of $300,000 (the "Principal") plus any accrued and unpaid interest and other fees for aggregate proceeds equal to $335,000 (the "Aggregate Consideration"). The Holder agreed to pay $50,000 of the Aggregate Consideration upon the closing of the Note and may make additional payments in such amounts and at such dates as the Holder may choose in its sole discretion. The Principal due to Holder under the Note will be prorated based on the Aggregate Consideration actually paid by Holder plus an approximate 10% original issue discount and any accrued interest and fees.

 

The Note has a maturity date one (1) year from the Effective Date of each payment (the "Maturity Date"). We may repay the Note at any time on or before 90 days from the Effective Date, after which we must receive written approval from Holder to make further payments through the Maturity Date. If we repay the Note on or before 90 days from the Effective Date, no interest will accrue or become due under the Note. If we do not repay the Note on or before 90 days from the Effective Date, the Note will bear a one-time interest charge of 12% on the Principal.

 

At any time after the Effective Date, the Note is convertible, at the Holder's election, into the number of shares of our common stock equal to (i) the dollar amount of the outstanding and unpaid Principal and accrued interest to be converted, divided by (ii) the lesser of $0.30 or 60% of the lowest trade price in the 25 trading days prior to the conversion; provided, however, that no amount converted under the Note would cause the Holder to own more than 4.99% of our total common stock outstanding . If we fail to deliver the shares from any conversion to Holder within three (3) business day of conversion notice delivery, there will be a penalty of $2,000 per day assessed and added to the Principal for each day until such delivery occurs. In addition, we agreed to reserve at least 6,000,000 shares of common stock for conversion under the Note.

 

  Note 12- Supplemental Oil and Gas Disclosures  

 

Since the Company is in the development stage and its oil and natural gas property is considered probable, reserve data is not presented.

 

 

 
 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, that involve risks and uncertainties. All statements other than statements relating to historical matters including statements to the effect that we “believe”, “expect”, “anticipate”, “plan”, “target”, “intend” and similar expressions should be considered forward-looking statements. Our actual results could differ materially from those discussed in the forward-looking statements as a result of a number of important factors, including factors discussed in this section and elsewhere in this quarterly report on Form 10-Q, and the risks discussed in our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only as the date hereof. We assume no obligation to update these forward-looking statements to reflect events or circumstance that arise after the date hereof.

As used in this quarterly report: (i) the terms “we”, “us”, “our”, “Santa Fe Petroleum” and the “Company” mean Santa Fe Petroleum, Inc. and its wholly owned subsidiaries; (ii) “SEC” refers to the Securities and Exchange Commission; (iii) “Securities Act” refers to the Securities Act of 1933, as amended; (iv) “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.

The following should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012.

 

Business Overview

We are a development stage oil and gas company led by an experienced management team and focused on production of oil and natural gas. Our business plan is to acquire oil and gas properties for appraisal and development.  We will employ strict selection guidelines for our projects including but not limited to 1) priority to projects with near term cash flow potential, pay-back period, quantity and quality of oil and gas reserves and utilizing premier oilfield services and engineering firms in analyzing and conducting our operations. Until we form a subsidiary that is qualified to be the operator, an affiliated company will act as contract operator.   

 

In 1997, our chairman of the board, Tom Griffin, established Santa Fe Petroleum, LLC, a Texas limited liability company engaged in oil and gas operations (“SFP2”) that subsequently ceased operations and forfeited its status with the Texas Secretary of State in 2006. In 2010, Mr. Griffin formed a new entity, SFP, as a business to engage in oil and gas exploration and production. SFP2 successfully drilled 25 vertical and horizontal wells in East Texas for investors in those projects. As of the date of this Annual Report, SFP is a holding company with no oil and gas operations, and we have no ownership in the prior business or wells drilled in East Texas. In December 2009, that business drilled the Test Well on a 76-acre lease in the Bend Arch-Fort Worth Basin in Texas. Baker Hughes, a top-tier oilfield services company, interpreted the logs and Weatherford Laboratories, who is engaged in all facets of rock and fluid analysis for the purpose of evaluating hydrocarbon resources around the world, analyzed the core samples. The side-wall core samples were taken every two feet beginning a few feet below the Barnett Shale in the Ellenberger formation and above the Barnett Shale a few feet in the Marble Falls formation. The results show oil exists in a porous, 101-feet-thick blanket formation with the top of the formation at the initial test-well location at a depth of approximately 2,600 feet below the surface.

 

In order to exploit this opportunity, Mr. Griffin and the investors in the Test Well formed SFO, a Delaware corporation, in 2011. SFO’s wholly owned subsidiary, SFL, which was originally incorporated in Texas in 2009, owns the 76-acre oil and gas lease and the Test Well. On the date of the Exchange, May 10, 2012, SFO and SFL became our wholly owned subsidiaries. Aside from acquiring the Test Well and associated leases, SFO and SFL have not conducted any operations and have not begun oil and gas production from the Test Well. In October 2012, SFPI attempted to provide a high-conductivity path from the suspected reservoir to the test well bore using an acid frac treatment. The treatment was unsuccessful due to fracing into the Ellenberger (which is below the Barnett Shale formation) watering out the well. Due to the high volume of water production it would take to produce the oil in the Barnett Shale, we do not anticipate developing the Test Well but instead intend to use it for a water disposal well for new drilling operations in the future.

The Company believes that for the foreseeable future, the world will be highly dependent on oil and natural gas. Currently, alternative fuels are far more expensive than fossil fuels and because of the politically unstable conditions of many of the energy producing regions of the world, the Company believes that oil and natural gas will remain a key yet volatile component of the world’s future energy requirements. Additionally, with the ever increasing world demand for energy, the domestic production of oil and gas will play an even greater role in America’s future then it already has to date.

Results of operations

 

Going Concern

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $429,930 for the three months ended March 31, 2013 and a net loss of $1,640,731 since inception at May 11, 2011. Additionally, at March 31, 2013, the Company had cash of only $705, a working capital deficit of $1,226,890 and an accumulated deficit of $1,640,731, which could have a material impact on the Company’s financial condition and operations.

The time required for us to become profitable is highly uncertain, and we cannot assure you that we will achieve or sustain profitability or generate sufficient cash flow from operations to meet our planned capital expenditures and working capital requirements. Our ability to obtain additional financing from other sources also depends on many factors beyond our control, including the state of the capital markets and the prospects for our business. The necessary additional financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of our common stock.

 

Commencement of Oil and Gas Operations

Although the Company commenced operating as of May 11, 2011 as Baby All Corp., it did not complete its exchange transaction with Santa Fe Operating, Inc., nor start its oil and gas operations until May 10, 2012. Therefore, there are not any comparative financial statements for the three months ended March 31, 2012.

 

Revenues:

The Company is in the development stage and has not obtained revenue under its business plan.

 

Operating Expenses:

Operating expenses were $181,207 for the three months ended March 31, 2013 and total operating expenses since inception are $1,392,008. The operating expense consisted primarily of $105,000 in compensation expense and $61,500 in combined professional and consulting expenses related to costs from the recapitalization and Share Exchange and other costs from becoming a publicly traded company.

 

Interest Expense:

The Company issued $444,148 in principal amount of convertible promissory notes which had a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was $248,723 and was expensed as interest expense in the three months ended March 31, 2013.

 

Capital Commitments, Capital Resources and Liquidity

 

Capital commitments.  The Company’s primary needs for cash are (i) to fund drilling and development costs associated with well development within its leasehold properties, (ii) the  further acquisition of additional leasehold assets, and (iii), the payment of contractual obligations and working capital obligations. The Company intends to initially fund these cash needs through sales of debt and equity. Subsequently, it intends to supplement these funds through a combination of internally-generated cash flows from operations and equity and or debt financing sources.

 

Capital resources and liquidity.  The Company’s primary capital resources from May 11, 2011, (commencement of operations) through March 31, 2013, have been from funds provided by affiliated related parties and cash proceeds from the issuance of common stock pursuant to a private placement memorandum (“PPM”). The Company believes that it will raise sufficient cash proceeds from the sale of common stock to meet both our short-term working capital requirements and our twelve month capital expenditure plans.

 

Cash flow from operating activities.  The Company used $37,860 of cash from operating activities for the three months ended March 31, 2013. The cash used in operations resulted from a net loss of $429,930 and a decrease in accounts payable of $16,772 and accrued liabilities of $17,500 offset by non-cash stock compensation expense of $56,399 and non-cash interest expense of $248,723. Further, cash was provided by increases in accounts payable related parties of $76,220 and accrued compensation of $45,000.

 

Cash flow used in investing activities.  The Company had $50,536 of cash used in investing activities for the three months ended March 31, 2013. The cash used in investing activities is entirely due to further expenditures related to the oil and gas properties under lease.

 

Cash flow from financing activities.  The Company had $55,200 of net cash flow from financing activities for the three months ended March 31, 2013. The net cash provided by financing is entirely from the private placement of common stock by the company. The Company issued 340,800 of shares of its $0.0001 par value common stock at $0.25 per share. The gross proceeds were $85,200 less $30,000 of offering expenses.

 
 
 

 

Liquidity.   At March 31, 2013, the Company had $705 of cash and cash equivalents. Additionally, at March 31, 2013, the Company had a working capital deficit of $1,226,890 and a deficit accumulated during the development stage of $1,640,731.

 

A critical component of our operating plan is the ability to obtain additional capital through additional equity or debt financing. We do not believe that existing capital and anticipated funds from operations will be sufficient to execute our strategic plan during 2013 without either equity or debt financing. We cannot ensure that financing will be available in amounts or on terms acceptable to us, if at all, and failure to secure the necessary financing could have a significant impact on our ability to continue as a going concern. We plan to seek additional capital in the future to fund growth and expansion through additional equity or debt financing. Such financing may not be available.

 

We anticipate incurring operating losses over the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in their early stage of development, particularly companies in the oil and gas exploration industry. To address these risks we must, among other things, implement and successfully execute our business strategy. We may not succeed in addressing such risks, and the failure to do so materially adversely affects our business prospects, financial condition, and results

 

Plan of Operations

During 2013, if sufficient funds are obtained, we plan to complete the test well that was originally drilled in December 2009 in the Barnett Shale into a water disposal well and drill a Marble falls horizontal well. The Marble Falls formation lies directly on top of the Barnett Shale formation. The Marble Falls Horizontal wells two to three counties north of our test well location have been very successful and cost approximately 60% less to drill than traditional vertical wells with potentially the same daily production as the Barnett five well projects that have been proposed. The Barnett projects include the drilling of four production wells, and one gas-injection well, for a total of five wells. It is projected that the initial projects will be drilled near the test-well location due to the need to utilize the converted test well for production water disposal that both type projects will require. On February 11, 2013, we completed the purchase of multiple leases totaling approximately 1,628 in the area of its test well in North Central Texas.  This purchase, plus the existing 76 acres that we already owned, brings the total of the Company’s holdings to 1,704 acres for future drilling.  With this added acreage, we expect to plan for approximately 12-20 drilling locations depending on the number of Marble Falls and Barnett Shale oil wells that are drilled respectively.

 

Critical Accounting Policies

Our critical accounting policies are described in Note 3, “Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements .

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and acting Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are not effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.

It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals.

Management’s Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Sarbanes-Oxley (SOX) Section 404 A. The Company's internal control over financial reporting is a process designed under the supervision of the Company's Principal Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with United States generally accepted accounting principles (“US GAAP”).

As of March 31, 2013, management assessed the effectiveness of the Company's internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, as at March 31, 2013 such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below.

 

The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) inadequate entity level controls due to the absence of an audit committee and the presence of only one outside director on our board of directors and (2) lack of a current Principal Financial Officer and a Principal Accounting Officer.

 

Management believes that none of the material weaknesses set forth above had a material adverse effect on the Company's financial results for the quarter ended March 31, 2013. Management is concerned that the material weaknesses set forth above could result in ineffective oversight in the establishment and monitoring of required internal controls and procedures and result in a material misstatement in our financial statements in future periods.

We will continue to monitor and evaluate the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and are committed to taking further action by implementing additional enhancements or improvements, or deploying additional human resources as may be deemed necessary.

This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only management’s report in this report.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the nine months ended March 31, 2013 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

We are not a party to any legal proceedings, and management is not aware of any legal proceedings pending or that have been threatened against us or our properties.

Item 1A. Risk Factors

Not required.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On April 17, 2013 we issued a convertible promissory note to an accredited investor for $55,000 (including original issue discount) in exchange for $50,000. The Note is convertible, at the holder's election into a number of shares of common stock of the Company equal to (i) the dollar amount of the outstanding and unpaid Principal and accrued interest to be converted, divided by (ii) the lesser of $0.30 or 60% of the lowest trade price in the 25 trading days prior to the conversion. At the time of issuance, the note was convertible into approximately 306,000 shares of our common stock.

This issuance was made in reliance of Section 4(2) of the Securities Act. The Company has previously reported all other issuances of unregistered equity from the start of the current fiscal year and through to the date of this report.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not Applicable.

 

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are included with this Quarterly Report on Form 10-Q:

  Exhibit Number Description of Exhibit
  31.1 Certification of Principal Executive Officer and Acting Principal Accounting Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).
  32.1 Certification of Principal Executive Officer and Acting Principal Accounting Officer pursuant to 18 U.S.C. Section 1350.

Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

Exhibit 101

101.INS - XBRL Instance Document

101.SCH - XBRL Taxonomy Extension Schema Document

101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF - XBRL Taxonomy Extension Definition Linkbase Document

101.LAB - XBRL Taxonomy Extension Label Linkbase Document

101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document

__________

 
 

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

SANTA FE PETROLEUM, INC.

 

 

 

 

/s/ Tom Griffin

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Tom Griffin

Chairman, Principal Executive Officer, Acting Principal Financial Officer and Acting Principal Accounting Officer

Date: May 15, 2013.