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EX-31.1 - THREE FORKS, INC.ex311.txt
EX-32.1 - THREE FORKS, INC.ex321.txt

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                -----------------

                                   FORM 10Q/A
                                Amendment No. 1

                                -----------------

(Mark One)
[ X ]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2014

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

            For the transition period from __________ to ___________

                        Commission file number: 000-55033

                                THREE FORKS, INC.
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             (Exact name of registrant as specified in its charter)

          COLORADO                                        45-4915308
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  (State of Incorporation)                          (IRS Employer ID Number)

            555 ELDORADO BLVD., SUITE 100, BROOMFIELD, COLORADO 80021
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                    (Address of principal executive offices)

                                 (303) 404-2160
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                         (Registrant's Telephone number)


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            (Former Address and phone of principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter  period that the registrant was required
to file such reports),  and (2) has been subject to the filing  requirements for
the past 90 days. Yes [X] 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 for Regulation S-T  (ss.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  file, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
the definitions of "large accelerated  filer,"  "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer    [  ]                   Accelerated filer [  ]
Non-accelerated filer      [  ]                   Smaller reporting company [X]
(Do not check if a smaller reporting company)


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of share outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of May 9, 2014, there were 11,534,011 shares of the registrant's common stock issued and outstanding. EXPLANATORY NOTE Five JAB, Inc.'s oil and gas operations prior to the effective date of the Company acquiring Five JAB, Inc. September 1, 2013 are considered to be the oil and gas operations of the Company's predecessor and, therefore, have been reported separately in this Form 10-Q. Three Forks, Inc., (the "Company"), is filing this Amendment to its Quarterly Report on Form 10-Q for the Quarter ended March 31, 2014 filed with the Securities and Exchange Commission on May 19, 2014, for the sole purpose of Restating the Five JAB, Inc. Financial Statements provided in Part I, Item 1 Financial Statements. As result of such restatement, Part I, Item 2, Managements' Discussion and Analysis has also been amended under the title Liquidity of Five JAB, Inc. This Amendment does not reflect events occurring after the Original Filing except as noted above. Except for the foregoing amended information, this Form 10-Q/A continues to speak as of the date of the Original Filing and the Company has not otherwise updated disclosures contained therein or herein to reflect events that occurred at a later date.
PART I - FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements 3 FINANCIAL STATEMENTS THREE FORKS, INC. (UNAUDITED) Balance Sheets - March 31, 2014 and December 31, 2013 (Audited) 4 Statements of Operations - Three Months ended March 31, 2014 and 2013 5 Statements of Changes in Shareholders' Equity - For the Three Months ended March 31, 2014 6 Statements of Cash Flows - Three Months ended March 31, 2014 and 2013 7 Notes to the Financial Statements 8 FINANCIAL STATEMENTS FIVE JAB, INC. (THE PREDECESSOR) (UNAUDITED) Balance Sheet - September 1, 2013 (Audited) 21 Statement of Operations - Three Months ended March 31, 2013 22 Statement of Cash Flows - Three Months ended March 31, 2013 23 Notes to Financial Statements 24 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Item 3. Quantitative and Qualitative Disclosures About Market Risk 33 - Not Applicable Item 4. Controls and Procedures 33 -1-
PART II - OTHER INFORMATION Item 1. Legal Proceedings -Not Applicable 35 Item 1A. Risk Factors - Not Applicable 35 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35 Item 3. Defaults Upon Senior Securities - Not Applicable 35 Item 4. Mine Safety Disclosure - Not Applicable 35 Item 5. Other Information - Not Applicable 36 Item 6. Exhibits 36 SIGNATURES 37 -2-
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ---------------------------- -3-
THREE FORKS, INC. BALANCE SHEETS March 31, 2014 December 31, 2013 (Unaudited) (Audited) --------------------- --------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 74,275 $ 121,174 Accounts receivable trade, net 267,655 276,570 Note receivable other 100,000 100,000 Prepaid and other current assets 16,554 20,442 --------------------- --------------------- TOTAL CURRENT ASSETS 458,484 518,186 --------------------- --------------------- Disposal group held for sale of discontinued operations - - --------------------- --------------------- PROPERTY AND EQUIPMENT Oil and gas properties at cost, full-cost method of accounting Unproved 214,584 214,584 Proved 5,812,630 5,614,987 Other 33,953 25,554 --------------------- --------------------- TOTAL PROPERTY AND EQUIPMENT 6,061,167 5,855,125 Less accumulated depreciation, depletion and amortization (121,297) (65,038) --------------------- --------------------- Net property and equipment 5,939,870 5,790,087 --------------------- --------------------- Long-term assets Other long-term assets 61,330 61,330 --------------------- --------------------- TOTAL LONG-TERM ASSETS 61,330 61,330 --------------------- --------------------- TOTAL ASSETS $ 6,459,684 $ 6,369,603 ===================== ===================== CURRENT LIABILITIES Current maturities of convertible notes $ 85,000 $ 1,475,000 Current maturities of notes 10,547 24,500 Accounts payable trade 708,415 425,133 Loan payable, accruals and repurchase obligation 339,217 192,517 Notes payable, advances and loans, related party 683,282 812,205 --------------------- --------------------- Total current liabilities 1,826,461 2,929,355 --------------------- --------------------- Long-term liabilities Asset retirement obligations 307,854 307,854 --------------------- --------------------- Total long-term liabilities 307,854 307,854 --------------------- --------------------- Total liabilities 2,134,315 3,237,209 --------------------- --------------------- Commitments and Contingencies - - STOCKHOLDERS' EQUITY Preferred shares, no par value, 25,000,000 shares authorized; no shares issued and outstanding - - Common shares, $0.001 par value, 100,000,000 shares authorized; 11,506,677 and 11,681,477 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively 11,506 11,681 Additional paid in capital 7,547,805 5,629,205 Accumulated deficit (3,233,942) (2,508,492) --------------------- --------------------- Total stockholders' equity 4,325,369 3,132,394 --------------------- --------------------- Total liabilities and stockholders' equity $ 6,459,684 $ 6,369,603 ===================== ===================== The accompanying notes are an integral part of these financial statements. -4-
THREE FORKS, INC. STATEMENTS OF OPERATIONS For the Three Months ended March 31, 2014 2013 (Unaudited) (Unaudited) --------------------- --------------------- Revenue: Oil and gas sales $ 444,458 $ - Management fees 47,000 - --------------------- --------------------- Total revenues 491,458 - --------------------- --------------------- Operating expenses: Lease operating expenses 494,077 - Production taxes 19,508 - Depreciation, depletion and amortization 56,259 832 General and administrative expenses 606,717 525,629 --------------------- --------------------- Total operating expenses 1,176,561 526,461 --------------------- --------------------- Loss from operations (685,103) (526,461) --------------------- --------------------- Other income (expense): Other Income - 22,000 Interest income 986 986 Interest expense (41,333) - --------------------- --------------------- Total other income (expense) (40,347) 22,986 --------------------- --------------------- Loss from continuing operations before income taxes (725,450) (503,475) Income taxes - - --------------------- --------------------- Net loss from continuing operations (725,450) (503,475) --------------------- --------------------- Discontinued operations Gain on disposal of property - 143,608 --------------------- --------------------- Income from discontinued operations - 143,608 --------------------- --------------------- Net loss $ (725,450) $ (359,867) ===================== ===================== Net loss from continuing operations $ (0.06) $ (0.05) ===================== ===================== Net income from discontinued operations Basic and diluted $ - $ 0.01 ===================== ===================== Net loss per common share Basic and diluted $ (0.06) $ (0.03) ===================== ===================== Weighted average number of common shares Basic and diluted 11,653,255 11,033,387 ===================== ===================== The accompanying notes are an integral part of these financial statements. -5-
THREE FORKS, INC. STATEMENT OF STOCKHOLDERS' EQUITY COMMON PREFERRED SHARES SHARES $.001 ADDITIONAL TOTAL NO PAR VALUE PAR VALUE PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY -------- -------- ------------ ------------- ------------ ------------- -------------- BALANCES, December 31, 2013 (Audited) - $ - 11,681,477 $ 11,681 $ 5,629,205 $ (2,508,492) $ 3,132,394 Sale of shares for cash at $3.00 per share - - 25,200 25 75,575 - 75,600 Sale of options for cash - - - - 250,000 - 250,000 Sale of warrants in exchange for debt - - - - 1,690,000 - 1,690,000 Repurchase of shares - - (200,000) (200) (142,300) - (142,500) Contribution of assets - - - - 24,639 - 24,639 Stock based compensation - - - - 20,686 - 20,686 Net (loss) for the period - - - - - (725,450) (725,450) -------- -------- ------------ ------------ ------------ ------------- -------------- BALANCES, MARCH 31, 2014 (UNAUDITED) - $ - 11,506,677 $ 11,506 $ 7,547,805 $ (3,233,942) $ 4,325,369 ======== ======== ============ ============ ============ ============= ============== The accompanying notes are an integral part of these financial statements. -6-
THREE FORKS, INC. STATEMENTS OF CASH FLOWS For the Three Months ended March 31, 2014 2013 (Unaudited) (Unaudited) ------------------- -------------------- OPERATING ACTIVITIES Net (loss) from continuing operations attributable to common stockholders $ (725,450) $ (503,475) Income from discontinued operations - 143,608 Adjustments to reconcile net (loss) to net cash flows (used in) operating activities: Depreciation, depletion and amortization 56,259 832 Gain on settlement of claims - (22,000) Gain on sale of disposal group held for sale - (143,608) Shares issued for services - 15,400 Stock based compensation 20,686 2,967 Changes in operating assets and liabilities: Accounts receivable trade 8,915 8,550 Prepaid and other current assets 3,888 17,284 Accounts payable trade 283,282 122,255 Accrued and deposits payable 4,200 218,636 Accrued liabilities, related party 171,077 165,768 ------------------- -------------------- Net cash provided by (used in) operating activities (177,143) 26,217 ------------------- -------------------- INVESTING ACTIVITIES Additions to property and equipment (206,042) (50,588) Proceeds from sale of disposal group held for sale - 1,600,000 ------------------- -------------------- Net cash provided by (used in) investing activities (206,042) 1,549,412 ------------------- -------------------- FINANCING ACTIVITIES Sale of common shares 75,600 989,400 Sale of options 250,000 - Contribution of assets 24,639 - Funds used to repurchase common shares - (815,000) Repayment of short term debt (13,953) (3,001) ------------------- -------------------- Net cash provided by financing activities 336,286 171,399 ------------------- -------------------- NET CHANGE IN CASH (46,899) 1,747,028 CASH, Beginning 121,174 492,729 ------------------- -------------------- CASH, Ending $ 74,275 $ 2,239,757 =================== ==================== SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION: Debt owed in retirement of 375,000 shares of stock $ - $ 160,000 =================== ==================== Sale of warrants in exchange for debt $ 1,690,000 $ - =================== ==================== Repurchase of common stock $ 142,500 $ - =================== ==================== Interest paid $ - $ - =================== ==================== Income taxes paid $ - $ - =================== ==================== The accompanying notes are an integral part of these financial statements. -7-
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --------------------------------------------------- NATURE OF OPERATIONS AND ORGANIZATION Three Forks, Inc. (the "Company") was incorporated on March 28, 2012 in the State of Colorado. The Company's business plan focuses on the development as an independent energy company engaged in the acquisition, exploration, development and production of North American conventional oil and gas properties through the acquisition of leases and/or royalty interests and developing the properties for maximum cash flow. On September 7, 2012, the Company acquired working interests between 10.12% and 10.50% in five (5) producing oil and gas wells along with mineral interests in proved undeveloped leaseholds totaling approximately 320 acres located in Weld county Colorado valued at $1,477,990 as well as a 76.25% working interest in undeveloped leaseholds totaling approximately 120 acres located in Morgan county Colorado valued at $14,000 in exchange for the issuance of 700,000 shares of the Company's common stock valued at $1,400,000 or $2.00 per share and the assumption of certain debt in the amount of $91,990. In addition, the Company was required to fund an escrow account in the amount of $55,000 for legal services that may occur over a three year period from the date of the acquisition and this escrow account at March 31, 2014 and December 31, 2013 has a balance of $55,163 and $55,163 respectively. Effective January 1, 2013, the Company sold its entire interest in these oil and gas properties located in Weld county Colorado for $1,600,000 in cash. See Note 4 - Disposal Group Held for Sale. On December 31, 2012, the Company entered into a Farmout Agreement ("Farmout") where the Company had a 100% working interest in 320gross/290net acres of mineral interests located in Archer county Texas subject to the Farmout. In consideration of Three Forks No. 1, LLC, a Colorado limited liability company ("LLC"), undertaking and paying it's pro rata portion of the costs associated with the drilling and completion of 9 wells in Archer county Texas on the Farmout property, the Company assigned 87% of the working interest in the Farmout to the LLC. Likewise, on January 1, 2013, the Company assigned 2% of the working interest in the Farmout to two members of the Board of Directors of the Company. Three Forks LLC No. 2 ("Three Forks No. 2") was organized in the State of Colorado on December 4, 2013. The Company is the manager of the Three Forks No. 2 and the Company does not hold an equity interest in Three Forks No. 2. Three Forks No. 2 has been organized to fund and develop the proposed drilling of additional wells in Colorado, Oklahoma and Texas. Effective June 30, 2013 and September 1, 2013, the Company acquired a 37.5% and 37.5% working interest, respectively or a total of 75% working interest in certain oil and gas properties located in Louisiana and Texas totaling approximately 1955 gross acres known as the Five JAB, Inc. properties in exchange for $3,869,497 in cash plus the assumption of liabilities in the amount of $281,962 as part of a purchase sale and participation agreement dated February 27, 2013 as well as participate in a development program that includes the drilling and completion of additional wells The Company's acquisition of the 75% of working interest in the oil and gas properties was accounted for as an acquisition for accounting purposes. CONCENTRATION OF CREDIT RISK The Company, from time to time during the periods covered by these financial statements, may have bank balances in excess of its insured limits. Management has deemed this a normal business risk. -8-
CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all cash and highly liquid investments with initial maturities of three months or less to be cash equivalents. ACCOUNTS RECEIVABLE Accounts receivable are stated at their cost less any allowance for doubtful accounts. The allowance for doubtful accounts is based on the management's assessment of the collectability of specific customer accounts and the aging of the accounts receivable. If there is deterioration in a major customer's creditworthiness or if actual defaults are higher than the historical experience, the management's estimates of the recoverability of amounts due to the Company could be adversely affected. Based on the management's assessment, there is no reserve recorded at March 31, 2014 and December 31, 2013. OIL AND GAS ACTIVITIES The Company follows the full cost method of accounting for oil and natural gas operations. Under this method all productive and nonproductive costs incurred in connection with the acquisition, exploration, and development of oil and natural gas reserves are capitalized. No gains or losses are recognized upon the sale or other disposition of oil and natural gas properties except in transactions that would significantly alter the relationship between capitalized costs and proved reserves. Unproved properties with significant acquisition costs are assessed annually on a property-by-property basis and any impairment in value is charged to expense. If the unproved properties are determined to be productive, the related costs are transferred to proved oil and natural gas properties and are depleted. Proceeds from sales of partial interests in unproved leases are accounted for as a recovery of cost without recognizing any gain or loss until all costs have been recovered. The costs of unproved oil and natural gas properties are excluded from the amortizable base until the time that either proven reserves are found or it has been determined that such properties are impaired. As properties become proved, the related costs transfer to proved oil and natural gas properties using full cost accounting. There were capitalized costs of $5,812,630 and $5,614,987 included in the amortization base at March 31, 2014 and December 31, 2013, respectively and the Company did not expense any capitalized costs for the three months ended March 31, 2014 and 2013, respectively. The Company performs a quarterly "ceiling test" calculation to test its oil and gas properties for possible impairment. The primary components impacting this calculation are commodity prices, reserve quantities added and produced, overall exploration and development costs, depletion expense, and tax effects. If the net capitalized cost of the Company's oil and gas properties subject to amortization (the carrying value) exceeds the ceiling limitation, the excess would be charged to expense. The ceiling limitation is equal to the sum of the present value discounted at 10% of estimated future net cash flows from proved reserves, the cost of properties not being amortized, the lower of cost or estimated fair value of unproved properties included in the costs being amortized, and all related tax effects. At March 31, 2014 and December 31, 2013, the calculated value of the ceiling limitation exceeded the carrying value of the Company's oil and gas properties subject to the test, and no impairment was necessary. PROPERTY AND EQUIPMENT Management capitalizes additions to property and equipment. Expenditures for repairs and maintenance are charged to expense. Property and equipment are carried at cost. Adjustment of the asset and the related accumulated depreciation accounts are made for property and equipment retirements and disposals, with the resulting gain or loss included in the statement of operations. The Company has not capitalized any internal costs for the three months ended March 31, 2014 and 2013, respectively. -9-
Other property and equipment, such as office furniture and equipment, and computer hardware and software, are recorded at cost. Costs of renewals and improvements that substantially extend the useful lives of the assets are capitalized. Maintenance and repair costs are expensed when incurred. DEPRECIATION For financial reporting purposes, depreciation and amortization of other property and equipment is computed using the straight-line method over the estimated useful lives of assets at acquisition. For income tax reporting purposes, depreciation of other equipment is computed using the straight-line and accelerated methods over the estimated useful lives of assets at acquisition. Depreciation and depletion of capitalized acquisition, exploration and development costs are computed on the units-of-production method by individual fields on the basis of the total estimated units of proved reserves as the related proved reserves are produced. Depreciation, depletion and amortization of oil and gas property and other property and equipment for the three months ended March 31, 2014 and 2013 is $56,259 and $832, respectively. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with authoritative guidance on accounting for the impairment or disposal of long-lived assets, as set forth in Topic 360 of the ASC, the Company assesses the recoverability of the carrying value of its non-oil and gas long-lived assets when events occur that indicate an impairment in value may exist. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. If this occurs, an impairment loss is recognized for the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. No events occurred during the three months ended March 31, 2014 and 2013, respectively that would be indicative of possible impairment. ASSET RETIREMENT OBLIGATIONS The Company's asset retirement obligations arise from plugging and abandonment liabilities for the Company's natural gas and oil wells. OTHER COMPREHENSIVE (LOSS) The Company has no material components of other comprehensive loss and accordingly, net loss is equal to comprehensive loss for the period. INCOME TAXES The Company accounts for income taxes under the liability method as prescribed by ASC authoritative guidance. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted rates expected to be in effect during the year in which the basis difference reverses. The realizability of deferred tax assets are evaluated annually and a valuation allowance is provided if it is more likely than not that the deferred tax assets will not give rise to future benefits in the Company's income tax returns. The Company assessed the likelihood of utilization of the deferred tax asset, in light of the recent losses. As a result of this review, the deferred tax asset of $1,714,920 has been fully reserved at March 31, 2014. At March 31, 2014, the Company has incurred net operating losses for income tax purposes of -10-
approximately $4,400,000. Such losses may be carried forward and are scheduled to expire in the year 2033, if not utilized, and may be subject to certain limitations as provided by the Internal Revenue Code. The Company has adopted ASC guidance regarding accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the financial statements and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. At March 31, 2014, there were no uncertain tax positions that required accrual. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the net loss available to common shareholders by the weighted-average number of common shares outstanding during each period. Diluted net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding including the effect of the Company's potentially dilutive securities. The Company's potentially dilutive securities consist of options, warrants and convertible promissory notes to purchase the Company's common stock. Potentially dilutive securities are not included in the weighted average calculation for net loss per common share since their effect would be anti-dilutive due to the net loss. The treasury method is used by the Company to measure the dilutive effect of stock options, warrants and convertible promissory notes. Since the option price is significantly greater than the current value of the Company's common stock, management has determined the effective exercise of the dilutive securities would have no effect on the weighted-average number of common shares outstanding for the periods presented. Therefore, the basic and diluted weighted average number of common shares outstanding for net income from continuing operations is the same for the periods presented. For the three months ended March 31, 2014 and 2013, the Company had outstanding 8,077,435 and 2,250,000, respectively of potentially dilutive options, warrants and convertible promissory notes. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures 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, and such differences may be material to the financial statements. REVENUE RECOGNITION The Company recognizes revenue from the exploration and production of the Company's oil and gas properties in the period of production. Management fee income is recognized in the period where the Company performs the services as manager of a limited liability company. SHARE-BASED COMPENSATION The Company accounts for share-based payment accruals under authoritative guidance on stock compensation as set forth in the Topics of the ASC. The guidance requires all share-based payments to employees and non-employees, -11-
including grants of employee and non-employee stock options and warrants, to be recognized in the financial statements based on their fair values. GOING CONCERN AND MANAGEMENTS' PLANS As shown in the accompanying financial statements for the period ended March 31, 2014, the Company has reported an accumulated deficit of $3,233,942. At March 31, 2014, the Company has current assets of $458,484, including cash and cash equivalents of $74,275 and current liabilities of $1,826,461. The Company does recognize revenues from the properties it acquired in 2013 and continues to develop these properties to improve production. To the extent the Company's operations are not sufficient to fund the Company's capital and current growth requirements the Company will attempt to raise capital through the sale of additional shares of stock. At the present time, the Company cannot provide assurance that it will be able to raise funds through the further issuance of equity in the Company. See Note 14 - Subsequent Events. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, however, the above conditions raise substantial doubt about the Company's ability to do so. The financial statements do not include any adjustment to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. OFF-BALANCE SHEET ARRANGEMENTS As part of its ongoing business, the Company has not participated in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. From its incorporation on March 28, 2012 through March 31, 2014, the Company has not been involved in any unconsolidated SPE transactions. RECLASSIFICATION Certain amounts in the prior period financial statements have been reclassified to conform to the current period financial statement presentation. Such reclassifications had no effect on the Company's net loss. RECENT ACCOUNTING PRONOUNCEMENTS The Company has reviewed all recently issued but not yet effective accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or results of operations. NOTE 2 - RELATED PARTY TRANSACTIONS ----------------------------------- ADVANCES AND LOANS PAYABLE - RELATED PARTY During the three months ended March 31, 2014, the Company was advanced funds from affiliates in the amount of $171,077 and at March 31, 2014 owes these affiliates $383,282. -12-
SHARES FOR SERVICES During the three months ended March 31, 2013, a former member and a current member of the Board of Directors were issued 200,000 shares of the Company's common stock in exchange for services in the amount of $17,600 or at a fair value of $0.088 per share. CONSULTING SERVICES During the three months ended March 31, 2014 and 2013, the Company paid an officer and director $47,000 and $35,000, respectively in fees as part of consulting arrangement approved by the Board of Directors. During the three months ended March 31, 2013, the Company paid an affiliate of one of its directors $55,000 in fees as part of a consulting agreement approved by the Board of Directors. LIMITED LIABILITY COMPANIES The Company is the manager of Three Forks No. 1, LLC, a Colorado limited liability company. See Note 1 - Summary of Significant Accounting Policies "Nature of Operations and Organization" and Note 9 - Management Agreement. The Company is the manager of the Three Forks No. 2 and the Company does not hold an equity interest in Three Forks No. 2. Three Forks No. 2 has been organized to fund and develop the proposed drilling of additional wells in Archer County, Texas. At March 31 2014, Three Forks No. 2 has yet to commence operations. See Note 1 - Summary of Significant Accounting Policies "Nature of Operations and Organization." Certain officers and members of the Board of Directors of the Company are members of Tin Cup Oil and Gas LLC, a Colorado limited liability company and on March 31 2014, Tincup Oil and Gas LLC purchased 190,000 two year warrants in consideration for and cancellation of $190,000 in debt. See Note 10 - Secured Convertible Promissory Notes. NOTE 3 - NOTE RECEIVABLE ------------------------ In May 2012, the Company loaned Holms Energy Development Corp ("HEDC") $100,000 which is evidenced by an unsecured promissory note dated May 30, 2012 whereby the unpaid principal amount of the promissory note is due and payable on Demand at any time on or after March 15, 2013 including any and all unpaid and accrued interest at the rate of four percent (4%) per annum of the outstanding principal. HEDC may offset the principal amount of the promissory note with any amounts due from the Company pursuant to the certain Joint Venture Cooperation and Profit Allocation Agreement between the Company and HEDC dated May 1, 2012 ("JV Agreement") as per Note 8. At March 31, 2014 and December 31 2013, the Company is owed $100,000 plus accrued interest in the amount of $7,342 and $6,356, respectively. NOTE 4 - DISPOSAL GROUP HELD FOR SALE ------------------------------------- The Company, as part of an agreement dated September 7, 2012, acquired certain oil and gas mineral interest, including five (5) producing wells, located in Weld county Colorado. The Company determined that these mineral interests were considered a Disposal Group Held for Sale as set forth in Topic 205 of the ASC and therefore, the Company at December 31, 2012 recorded the property as a separate asset in the amount of $1,472,521 [net of $5,658 in amortization] on -13-
the balance sheet. Effective January 1, 2013, the Company sold these properties for $1,600,000 in cash and recorded in the statement of operations for the three months ended March 31, 2013 a gain on the sale of assets in the amount of $143,608 under discontinued operations. In addition and as part of the sale, the purchasers of the property deposited with the Company $400,000 to be used towards the AFE costs in the drilling of future oil and gas wells. At March 31, 2014 and December 31, 2013, the Company owes $400,000 including $209,520 due to a member of the Board of Directors. NOTE 5 - DISCONTINUED OPERATIONS -------------------------------- In January 2013, the Company sold all of its proved oil and gas properties located in Weld County CO for $1,600,000 in cash and for the three months ended March 31, 2013, the Company recorded a gain of $143,608 on the sale of the disposal group held for sale. The properties consisted solely of oil and gas properties that were acquired in 2012. The financial results of the disposal group held for sale have been classified as discontinued operations in our statements of operations for all period presented. There were no operations for the three months ended March 31, 2014. NOTE 6 - ASSET RETIREMENT OBLIGATIONS ------------------------------------- The Property's asset retirement obligations reported as accrued liabilities arise from the plugging and abandonment liabilities for oil and gas wells that were acquired during the year ended December 31, 2013. The Company has determined there is no salvage value associated with the Property's tangible assets at the time the wells are retired. There were no wells retired during the three months ended March 31, 2014 and the Property's asset retirement obligation at March 31, 2014 is $307,854. NOTE 7 - INFORMATION ON BUSINESS SEGMENTS ----------------------------------------- At March 31, 2014, the Company considered its business activities to constitute a single segment. NOTE 8 - JOINT VENTURE AGREEMENT -------------------------------- Through March 31, 2014, the Company has paid a total of $163,456 in costs to drill an oil and gas well in Archer County Texas as part of the JV Agreement entered into between the Company and Holms Energy Development Corp. The Company will receive revenues and be responsible for 49% of the costs to drill and complete each well the Company elects to participate in on such leases that are part of the JV Agreement. NOTE 9 - MANAGEMENT AGREEMENT ----------------------------- The Company is the manager of a tax partnership known as Three Forks No. 1, LLC and as manager receives a fee beginning January 1, 2014 in the amount of $5,000 per month. The Company owns no interest in the LLC but does own an 11% working interest in the Farmout property as more fully described in Note 1. For the three months ended March 31, 2014 and 2013, respectively the Company reported management fee income in the amount of $47,000 and $0, respectively including $32,000 in total fees that were due for the months of November and December of 2013. -14-
NOTE 10 - SECURED CONVERTIBLE PROMISSORY NOTES ---------------------------------------------- In September 2013, the Company commenced a private offering of $2,000,000 of Secured Convertible Promissory Notes in order to complete the purchase of the remaining 37.5% working interest in the Five JAB properties discussed in Note 1. These promissory notes in the amount of $1,475,000 have a maturity date in September 2014 including interest at the rate of 10% per annum on the unpaid balance and are convertible into shares of the Company's common stock in whole or in part at a conversion price of $3.60 per share 6 months after issuance of the promissory note. One of the subscribers of this offering is Tincup Oil and Gas, LLC, which subscribed for a $250,000 promissory note. A director of the Company is a member of Tincup Oil and Gas, LLC. On March 31, 2014, the holders of promissory notes purchased 1,390,000 of two year warrants in consideration for and cancellation of $1,390,000 of debt. Therefore, at March 31, 2014, the Company owes promissory notes in the amount of $85,000. See Note 14 - Subsequent Events. Separately and apart, an officer and director of the Company, agreed to make up the difference of the Secured Convertible Promissory Note Offering towards the purchase price of the Five JAB properties in a separate transaction under separate terms with the Company. The officer and director in exchange for secured convertible promissory notes provided the Company each with $300,000 in cash or a total of $600,000. Their promissory notes have a due date of January 2, 2014 including interest at the rate of 10% per annum on the unpaid balance and allow for the conversion of the promissory notes at issuance into common stock in whole or in part at a conversion price of $3.60 per share. The promissory notes provide that in addition to having a due date of January 2, 2014, that at the due date they will each receive a $7,500 payment of fees. If payments are not made on the promissory notes at January 2, 2014, the Company is required to take immediate steps to liquidate the Five JAB properties and the due date will be extended to April 2, 2014. At January 2, 2014, the Company failed to make payment on the notes. At that time Mr. Pollard and Ranew each entered into an Extension and Waiver with the Company. The Extension and Waiver provides that the payment date shall be extended to April 2, 2014 and both holders have waived the provision that steps be taken to liquidate the secured property at this time. They will each receive a $15,000 payment of fees. On April 7, 2014, Mr. Pollard and the Company entered into an Extension and Waiver with the Company and extended the maturity date of the promissory note to May 2, 2014. The note was paid in full on May 9, 2014. On March 31, 2014, Mr. Ranew purchased 300,000 of two year warrants in consideration for and cancellation of his $300,000 promissory note. Therefore, at March 31 2014, the Company owes $300,000. See Note 14 - Subsequent Events. NOTE 11 - SHARE BASED COMPENSATION ---------------------------------- PRESIDENT AND CHIEF OPERATING OFFICER The Company granted to its President and Chief Operating Officer effective March 5, 2013 and amended March 1, 2014, cashless options to acquire up to 2,250,000 shares of the Company's common stock at an option price of $0.10 per share for a period of five years from the effective date of the grant. The options are fully vested. These options are not part of the Company's 2013 Stock Incentive Plan. 2013 STOCK INCENTIVE PLAN Effective May 1, 2013, the Company's 2013 Stock Option and Award Plan (the "2013 Stock Incentive Plan") was approved by its Board of Directors and shareholders. Under the 2013 Stock Incentive Plan, the Board of Directors may grant options or purchase rights to purchase common stock to officers, employees, and other persons who provide services to the Company or any related company. The participants to whom awards are granted, the type of awards granted, the number of shares covered for each award, and the purchase price, conditions and other terms of each award are determined by the Board of Directors, except that the -15-
term of the options shall not exceed 10 years. A total of 5 million shares of the Company's common stock are subject to the 2013 Stock Incentive Plan. The shares issued for the 2013 Stock Incentive Plan may be either treasury or authorized and unissued shares. During the year ended December 31, 2013, options in the amount of 2,300,000 and warrants in the amount of 275,000 were granted under the 2013 Stock Incentive Plan including options in the amount of 175,000 to officers and directors as well as cashless options to a Board member to acquire up to 100,000 shares of the Company's common stock at an option price of $.10 per share for a period of five years from the effective date of the grant. The cashless options were immediately vested upon the date of grant. The following table summarizes information related to the outstanding and vested options and warrants at March 31, 2014: Outstanding and Vested Options and Warrants ---------------- Number of shares Non-Qualified stock options 5,390,000 2013 Stock Incentive Plan 2,575,000 Weighted average remaining contractual life Non-Qualified stock options 3.36 years 2013 Stock Incentive Plan 3.52 years Weighted average exercise price Non-Qualified stock options $0.46 2013 Stock Incentive Plan $0.53 Number of shares vested Non-Qualified stock options 4,527,900 2013 Stock Incentive Plan 1,636,826 Aggregate intrinsic value Non-Qualified stock options $229,559 2013 Stock Incentive Plan $158,627 The aggregate intrinsic value of outstanding securities is the amount by which the fair value of underlying (common) shares exceeds the exercise price of the options issued and outstanding. For the three months ended March 31, 2014 and 2013, the Company granted and sold options and warrants that had a total fair value of $0 and $199,810, respectively and reported $20,686 and $2,967 as compensation expense for the three months ended March 31, 2014 and 2013 in the statement of operations. No options or warrants were exercised or expired during the three months ended March 31, 2014 and 2013. -16-
The fair value of the options and warrants granted and sold were estimated as of the grant date using the Black-Scholes option pricing model with the following assumptions: Volatility 123.60% Expected Option Term 2-5 years Risk-free interest rate 11%-.17% Expected dividend yield 0.00% The expected term of the options and warrants granted and sold were estimated to be the contractual term. The expected volatility was based on an average of the volatility disclosed based upon comparable companies who had similar expected option terms. The risk-free rate was based on the one-year U.S. Treasury bond rate. NOTE 12 - STOCKHOLDERS' EQUITY ------------------------------ PREFERRED SHARES The Company is authorized to issue 25,000,000 shares of no par value preferred stock. At March 31, 2014 and December 31, 2013, the Company has no preferred shares issued and outstanding. COMMON SHARES The Company is authorized to issue 100,000,000 shares of $0.001 voting common stock. At March 31, 2014 and December 31, 2013 there were a total of 11,506,677 and 11,681,477 shares of common stock issued and outstanding, respectively. During the three months ended March 31, 2014, the Company sold 25,200 shares of its common stock for $75,600 or $3.00 per share and sold three (3) year options to acquire 295,600 shares of its common stock at an exercise price of $1.00 per share in exchange for cash in the amount of $295,600. During the three months ended March 31, 2013, as described in Note 2, the Company issued 175,000 shares of its common stock in exchange for services valued at $15,400. REPURCHASE OF COMMON SHARES During the three months ended March 31, 2014, the Company entered into a settlement agreement with a former officer and director to settle certain claims against the employee and as part of the agreement the Company agreed to repurchase 200,000 shares of the Company's common stock owned by the employee as well as personal property valued at $4,201 in exchange for cash of $120,000 and assumption of a loan due to Three Forks No. 1, LLC in the amount of $25,000 plus interest in the amount of $1,701. Effective March 26, 2013, the Company entered into a repurchase agreement with two of its shareholders to acquire their 275,000 shares of common stock in exchange for cash of $825,000. NOTE 13 - COMMITMENTS AND CONTINGENCIES --------------------------------------- OPERATING LEASE The Company leases office space in Broomfield Colorado under a non-cancelable operating lease that allows either party the option to terminate the lease. Rent expense for the three months ended March 31, 2014 and 2013 was $16,576 and -17-
$22,781, respectively. The following table summarizes the future minimum payments under this non-cancelable lease at March 31, 2014: 2014 $ 49,728 2015 $ 38,677 2016 $ - 2017 $ - 2018 $ - --------- $ 88,405 CONSULTING AGREEMENTS Effective November 1, 2013, the Company entered into a twelve month agreement with a consultant to perform services at the rate of $200,000 per year under certain terms and conditions that includes the granting of non-qualified stock options in exchange for cash of $50,000 to acquire up to 1,000,000 shares of the Company's common stock at an option price of $.010 per share over a five year period from the effective date of the grant. The options vest over a three year period from the effective date of the grant. The Company entered into a four year agreement effective September 1, 2012 and amended March 1, 2013 with its interim Chief Executive Officer to perform services at the base rate of $180,000 per year under certain terms and conditions. EMPLOYMENT AGREEMENTS The Company entered into a two year employment agreement effective September 1, 2012 and amended in February 2013 with its Executive Vice President of Finance that includes compensation of a base salary of $192,000 per year under certain terms and conditions. This agreement was terminated during the first quarter of 2014 as part of a settlement agreement described in Note 12. The Company entered into a three year employment agreement effective March 1, 2013 and amended March 1, 2014 with its President and Chief Operating Officer that includes compensation of a base salary of $250,000 per year under certain terms and conditions including non-qualified stock options as described in Note 11. NOTE 14 - SUBSEQUENT EVENTS --------------------------- CREDIT FACILITY On May 9, 2014, the Company closed on a four (4) year Credit Facility with Guaranty Bank and Trust ("GBT") for a loan commitment up to $50,000,000. This Credit Facility allows the Company subject to certain terms and conditions to borrow from the Credit Facility amounts in the form of notes issued by the Company to the Lender. The notes are collateralized by the Company's oil and gas properties and require that the Company pay interest monthly in arrears on the unpaid balance of the notes at varying rates but not to exceed 5.0% per annum. On May 9, 2014, the Company borrowed $3,500,000 off of the Credit Facility of which $1,050,000 was used towards financing costs, working capital, workover of additional wells acquired from Five JAB and payment in full of outstanding promissory notes due by the Company at March 31, 2014 totaling $385,000 including $300,000 owed to Mr. Pollard. The remaining $2,450,000 of funds borrowed off of the Credit Facility is available to be used by the Company at its discretion. -18-
SALE OF COMMON SHARES During the period April 1, 2014 through May 9, 2014, the Company sold 27,334 shares of its common stock in exchange for $82,000 in cash or at $3.00 per share. STOCK OPTIONS During the period April 1, 2014 through Mary 9, 2014, the Company sold three (3) year options to acquire 405,000 of its common stock at an exercise price of $1.00 per share for cash in the amount of $380,000. -19-
FINANCIAL STATEMENTS OF FIVE JAB, INC. (THE PREDECESSOR) (UNAUDITED) -20-
FIVE JAB, INC. BALANCE SHEET September 1, 2013 (Audited) ------------------- ASSETS Current Assets $ - ------------------- Total assets $ - =================== LIABILITIES AND CAPITAL Current liabilities $ - Total liabilities - Commitments and contingencies - Capital - ------------------- Total liabilities and capital $ - =================== See accompanying notes are an integral part of these financial statements. -21-
FIVE JAB, INC. STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 2013 2013 (Unaudited) ---------------- Revenue: Oil and gas sales $ 586,935 ---------------- Total revenues 586,935 ---------------- Operating expenses: Lease operating expense 147,992 Production taxes 27,851 General and administrative expense 15,300 Depreciation, depletion and amortization 37,195 ---------------- Total operating expenses 228,338 ---------------- Income income from operations 358,597 Income taxes - ---------------- Net income $ 358,597 ================ See accompanying notes are an integral part of these financial statements. -22-
FIVE JAB, INC. STATEMENT OF CASH FLOWS For the Three Months Ended March 31, 2013 (Unaudited) ------------------ OPERATING ACTIVITIES Net income attributable to owners $ 358,597 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation, depletion and amortization 37,195 ------------------ Net cash provided by operating activities 395,792 ------------------ INVESTING ACTIVITIES Acquisition of property and equipment (27,155) ------------------ Net cash (used in) by investing activities (27,155) ------------------ FINANCING ACTIVITIES Distributions to owners (368,637) ------------------ Net cash (used in) by financing activities (368,637) ------------------ NET CHANGE IN CASH - CASH, Beginning - ------------------ CASH, Ending $ - ================== SUPPLEMENTAL SCHEDULE OF OF CASH FLOW INFORMATION Interest paid $ - ================== Income taxes paid $ - ================== The accompanying notes are an integral part of these financial statements. -23-
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --------------------------------------------------- This summary of significant accounting policies is presented to assist in understanding the Business's financial statements. The policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of these financial statements. NATURE OF OPERATIONS AND ORGANIZATION Five JAB, Inc. ("Five JAB"), an operator of oil and gas properties, and a number of other owners own 75% of the working interest in certain leases located in the states of Texas and Louisiana (the "Business" or "Five JAB, Inc."). These leases are proved leaseholds only and include 11 producing crude oil wells and one well that also produced natural gas (the "Properties"). In addition, all of the wells were purchased by the Business and therefore there are no drilling costs incurred by the Business. The Business sold 100% of its 75% working interest in the Properties to Three Forks, Inc. effective June 30, 2013 (37.5% WI) and effective September 1, 2013 (37.5% WI) for $3,842,143 in cash plus the assumption of certain liabilities in the amount of $281,962. BASIS OF PRESENTATION These financial statements represent the historical costs of the Business based upon generally accepted accounting principles for the periods presented. INCOME TAXES The Business is taxed as a disregarded entity for income tax purposes and as such each of the owners report separately their pro rata share of income, deductions and losses. Therefore, no provision for income taxes is made in the accompanying financial statements. USE OF ESTIMATES The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as of and during the reporting periods. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates. Any change in estimates resulting from continuous changes in the economic environment will be reflected in the financial statements in the future periods. REVENUE RECOGNITION Revenues are recognized on production as it is taken and delivered to the purchasers and payment is made to the Business. PROPERTY AND EQUIPMENT The Business accounts for its crude oil and natural gas exploration and development activities under the successful efforts method of accounting. Under such method, costs of productive exploratory wells, development dry holes and productive wells and undeveloped leases are capitalized. Oil and gas lease -24-
acquisition costs are also capitalized. Exploration costs and certain geological or geophysical expenses charged to expense as incurred. Exploratory drilling costs are initially capitalized, but evaluated quarterly and charged to expense if and when the well is determined not to have found reserves in commercial quantities. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the units-of-production amortization rate. A gain or loss is recognized for all other sale of producing properties. Unproved properties with significant acquisition costs are assessed quarterly on a property-by-property basis and any impairment in value is charged to expense. If the unproved properties are determined to be productive, the related costs are transferred to proved oil and gas properties. Proceeds from sales of partial interests in unproved leases are accounted for as a recovery of costs without recognizing any gain or loss until all costs have been recovered. There are no unproved properties at September 1, 2013. Depletion and amortization of capitalized acquisition, exploration and development costs are computed on the units-of-production method by property on the basis of total estimated units of proved reserves as the related proved reserves are produced. The long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds the estimated future cash flows, an impairment charged is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. No impairment was recognized at September 1, 2013. Other property and equipment are carried at cost. Depreciation is provided using the straight-line method of accounting over the assets' estimated useful lives of seven years. Depreciation, depletion and amortization of oil and gas properties and other property and equipment for the three months ended March 31, 2013 was $37,195. OTHER COMPREHENSIVE INCOME The Company has no material components of other comprehensive income (loss) and accordingly, net income (loss) is equal to comprehensive income (loss) for the periods presented. RECENT ACCOUNTING PRONOUNCEMENTS The Company has reviewed all recently issued but not yet effective accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or results of operations. SUBSEQUENT EVENTS The Company has evaluated subsequent events through the date the financial statements were available to be issued, and has concluded no events need to be reported. NOTE 2 - INFORMATION ON BUSINESS SEGMENTS ----------------------------------------- At September 1, 2013, the Company considered its business activities to constitute a single segment. -25-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------------------------------------- THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED HEREIN. IN CONNECTION WITH, AND BECAUSE WE DESIRE TO TAKE ADVANTAGE OF, THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WE CAUTION READERS REGARDING CERTAIN FORWARD LOOKING STATEMENTS IN THE FOLLOWING DISCUSSION AND ELSEWHERE IN THIS REPORT AND IN ANY OTHER STATEMENT MADE BY, OR ON OUR BEHALF, WHETHER OR NOT IN FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. FORWARD-LOOKING STATEMENTS ARE STATEMENTS NOT BASED ON HISTORICAL INFORMATION AND WHICH RELATE TO FUTURE OPERATIONS, STRATEGIES, FINANCIAL RESULTS OR OTHER DEVELOPMENTS. FORWARD LOOKING STATEMENTS ARE NECESSARILY BASED UPON ESTIMATES AND ASSUMPTIONS THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND OUR CONTROL AND MANY OF WHICH, WITH RESPECT TO FUTURE BUSINESS DECISIONS, ARE SUBJECT TO CHANGE. THESE UNCERTAINTIES AND CONTINGENCIES CAN AFFECT ACTUAL RESULTS AND COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING STATEMENTS MADE BY, OR ON OUR BEHALF. WE DISCLAIM ANY OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS. THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S REPORT ON THE COMPANY'S FINANCIAL STATEMENTS AS OF DECEMBER 31, 2013 AND FOR THE YEAR THEN ENDED INCLUDES A "GOING CONCERN" EXPLANATORY PARAGRAPH, THAT DESCRIBES SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN. PLAN OF OPERATIONS Three Forks is focused on the development of its business plan as an independent energy company engaged in the acquisition, exploration, development and production of North American conventional oil and gas properties through the acquisition of leases and/or royalty interests. PROJECTS At present, our oil and gas projects consist of: - In Archer County, Texas, we are a 49% working interest ("WI") owner in a joint venture agreement where the joint venture has drilled and completed one well. - In Archer County, Texas, we have a 11% WI through a Farmout in 290 net, 320 gross acres with 5 wells. We are also the manager of Three Forks No. 1, LLC ("Three Forks No. 1") which owns 87% of the working interest in the Farmout acreage. - In Pottawatomie County, Oklahoma, we have a 25% WI in 290/290 net/gross acres upon which the first well was drilled in July 2013 and has now been completed and is being put into production. - The Five JAB project located in Southeast Texas - Southwest Louisiana where we have a non-operated 75% WI in 13 producing wells, 9 service wells and 14 additional wellbores. - In Weld County, Colorado, we have a 67.125% WI through a Farmout in 107 net, 160 gross acres with 5 wells. We intend to acquire additional acreage to drill in other areas where deemed attractive, though no such additional prospects have been identified at the time of this filing. -26-
Our milestones for the next twelve months include: ------------------- ------------------------------------------------------------ 2nd Quarter 2014 o Drill and complete 1-2 additional wells in Archer County; o Drill and complete 1-2 additional wells in Oklahoma; o 2-3 well workovers in Five JAB projects ------------------- ------------------------------------------------------------ 3rd Quarter 2014 o Drill and complete 5-6 wells in new development areas; o 5-7 well workovers in Five JAB projects ------------------- ------------------------------------------------------------ 4th Quarter 2014 o Drill and complete 2-3 wells in new development areas ------------------- ------------------------------------------------------------ Our Budget for operations in the next year is as follows: Working Capital $3,000,000 Workover of Five JAB Wells $1,200,000 Targeted Acquisition $6,400,000 Drilling and Development of new areas $2,000,000 Fees, commissions and general expenses $2,400,000 ----------------- $15,000,000 The Company may change any or all of the budget categories in the execution of its business model. None of the line items are to be considered fixed or unchangeable. CAPITAL PLANS We have conducted a Private Offering of shares of our restricted common stock for capital and, as a result, from March 28, 2012 (inception) through May 9, 2014, the Company had sold approximately 5,500,000 shares of its common stock, raising a total of approximately $5,000,000. We sold options to acquire shares of our Company common stock and thus from March 28, 2012 (inception) through May 9, 2014, the Company has granted options to acquire 1,855,000 shares of the common stock at an exercise price of $1.00 per share in exchange for cash of $880,000. In September 2013, we commenced a private offering of $2,000,000 Secured Convertible Promissory Notes in order to complete the purchase of the remaining 37.5% WI in the Five JAB's property discussed elsewhere in this filing. These notes are due in September 2014 and are convertible into shares of our common stock in whole or in part at a conversion price of $3.60 per share 6 months after issuance of the secured convertible promissory note. The conversion of the convertible promissory notes into shares of our common stock could have a dilutive effect to the holdings of our existing shareholders. The Secured Convertible Promissory Notes are secured by the Company's 75% of the right, title and working interest in 1,955 gross leasehold acres including 13 producing wells, 9 service wells and 14 additional wellbores located in the States of Texas and Louisiana, the Five JABS properties. The offering was not fully subscribed and a total of $1,535,000 was raised. Tincup Oil and Gas, LLC of which Mr. Ranew, a director of the Company, is a member, holds a Secured Convertible Promissory Note for $250,000. On March 31, 2014, holders of the above promissory notes purchased 1,390,000 warrants issued by the Company in consideration for and cancellation of their promissory notes issued to them by the Company in the amount of $1,390,000. A warrant entitles the holder for a term of two years to purchase one share of -27-
common stock of the Company at the rate of $1.00 per share. Therefore, at March 31, 2014, the Company owes $85,000 in notes. On May 9, 2014, the Company paid in full the $85,000 in notes. Separately and apart, two members of management agreed to make up the difference of the Secured Convertible Promissory Note Offering and the purchase price of Five JABS in a separate transaction with separate terms with the Company. Mr. Charles Pollard and Mr. Lester Ranew, officers and directors of the Company, in exchange for secured convertible promissory notes provided the Company with a total of $600,000 cash ($300,000 each). At December 31, 2013, the Company owes a total of $600,000 to Mr. Pollard and Mr. Ranew. Mr. Pollard's and Mr. Ranew's notes have a due date of January 2, 2014 and allow for the conversion of the notes into common stock upon issuance. Their notes provide that in addition to having a due date of January 2, 2014, that at the due date they will each receive a $7,500 payment of fees and interest. If the notes are not paid at January 2, 2014, the Company is required to take immediate steps to liquidate the secured property and the due date will be extended to April 2, 2014. At January 2, 2014, the Company failed to make payment on the notes. At that time Mr. Pollard and Ranew each entered into an Extension and Waiver with the Company. The Extension and Waiver provides that the payment date shall be extended to April 2, 2014 and both holders have waived the provision that steps be taken to liquidate the secured property at this time. On March 31, 2014, Mr. Ranew purchased 300,000 warrants issued by the Company in consideration for and cancellation of his promissory note issued to him by the Company in the amount of $300,000. On April 7, 2014, Mr. Pollard extended the payment date on his note to May 2, 2014. On May 9, 2014, the Company paid in full the $300,000 note. On May 9, 2014, the Company closed on a four (4) year Credit Facility with Guaranty Bank and Trust ("GBT") for a loan commitment up to $50,000,000. This Credit Facility allows the Company subject to certain terms and conditions to borrow from the Credit Facility amounts in the form of notes issued by the Company to the Lender. The notes are collateralized by the Company's oil and gas properties and require that the Company pay interest monthly in arrears on the unpaid balance of the notes at varying rates but not to exceed 5.0% per annum. On May 9, 2014, the Company borrowed $3,500,000 off of the Credit Facility of which $1,050,000 was used towards financing costs, working capital, workover of additional wells acquired from Five JAB and payment in full of outstanding promissory notes due by the Company at March 31, 2014 totaling $385,000 including $300,000 owed to Mr. Pollard. The remaining $2,450,000 of funds borrowed off of the Credit Facility is available to be used by the Company at its discretion to support its ongoing operations. Based on our current cash reserves of $74,275 at March 31, 2014 and the additional funding available on May 9, 2014 from the Credit Facility in the amount of $3,500,000, we have the cash for our operational budget for the remainder of 2014. We had recognized minimal revenues from our operational activities during the year ended December 31, 2013. During the three months ended March 31, 2014, we recognized revenues of $444,458 from oil and gas sales and expect to consistently recognize revenues from our oil and gas activities during the year including additional revenues from existing properties as a result of workovers on the wells. We have limited borrowing capacity under our current Credit Facility with Guaranty Bank and Trust, as discussed herein, to assist us in meeting our operational goals. Though, we expect that our new Credit Facility together with the sale of equity will allow us to fulfill our operational budget for the year 2014 of $15,000,000. However, we can make no assurance or representation that funds will be available from the new Credit Facility to carry out the business plan -28-
FIVE JAB, INC. In June 2013, we acquired 37.5% WI and the remaining 37.5% WI effective September 1, 2013 for a total of 75% WI in 27 producing/9 service wells in Texas and Louisiana currently operated by Five JAB, Inc. out of Tomball, Texas, in exchange for $3,869,497 in cash plus the assumption of liabilities in the amount of $281,962. The remaining 25% WI is owned by Five JAB, Inc. and other non-affiliated owners. The properties currently produce 100 BOPD and 50 MCFPD. The purchase included working interests in 13 producing wells, 9 service wells and 14 additional wellbores, which are spread across Montgomery, Jasper and Tyler Counties in Texas and the Evangeline and St. Mary Parishes in Louisiana. Geologically, these wells are located in the Gulf Coast Upper Jurassic-Cretaceous-Tertiary province. This province extends on shore and off shore in the states of Texas, Louisiana, Mississippi and Florida. The multiple conventional pays make up the geological success of the area. The Five JAB properties are all located onshore. Workovers were initiated in September of 2013 and three were completed in 2013. Another 2 workovers were completed during the first quarter of 2014. The cost for all the workovers is estimated to total $1.25 million (net) and is forecast to double production. The Company's acquisition of the 75% working interest in the Five JAB properties was accounted for as an acquisition for accounting purposes. However, the oil and gas operations of Five JAB prior to the effective dates of the acquisition were considered to be the oil and gas operations of the Company's predecessor and therefore, a separate set of financial statements have been reported separately in this Form 10-Q and a separate discussion of the their operations will follow the discussion of the Company's result of operations and liquidity. RESULTS OF OPERATIONS OF THREE FORKS, INC. FOR THE THREE MONTHS ENDED MARCH 31, 2014 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2013 During the three months ended March 31, 2014, the Company recognized $491,458 in revenue from its operational activities comprised of $444,458 from the sale of oil and gas and $47,000 from management fees. During the three months ended March 31, 2013, the Company did not recognize any revenues from its operational activities. During the three months ended March 31, 2014, the Company incurred operating expenses of $1,176,561. During the three months ended March 31, 2013, the Company incurred operating expenses of $526,461. The increase of $650,100 was primarily a result of the Company's increased operational activities resulting from the acquisitions of certain properties, discussed above, and the Company's focus on filing registration statements with the SEC. During the three months ended March 31, 2014, the Company recognized the following operating expenses: Three Months Ended March 31, 2014 --------------------- Operating Expense: Lease operating expenses $ 494,077 Production taxes 19,508 Depreciation, depletion and amortization 56,259 General and administrative expenses 606,717 --------------------- Total Operating Expenses: $ 1,176,561 -29-
During the three months ended March 31, 2014, the Company recognized a net loss of $725,450 compared to a net loss of $359,867 during the three months ended March 31, 2013. The increase of $365,583 was a direct result of the $650,100 increase in operating expenses discussed above, offset by the increase in revenues of $491,458 and an increase in other expense of $63,333 along with a decrease in a gain of $143,608 on the disposal of property from discontinued operations. LIQUIDITY OF THREE FORKS, INC. At March 31, 2014, the Company had total current assets of $458,484 and total current liabilities of $1,826,461 resulting in a working capital deficit of $1,367,977. During the three months ended March 31, 2014, the Company used $177,143 in funds towards its operational activities. The Company recognized a net loss of $725,450 which was adjusted for such non-cash items as $56,259 in depreciation, depletion and amortization, and $20,686 in stock based compensation. During the three months ended March 31, 2013, the Company was provided $26,217 from its operational activities. The Company recognized a net loss of $503,475 which was adjusted for the non-cash items as $832 in depreciation, depletion and amortization, $22,000 gain on the settlement of claims, $143,608 gain on the sale of disposal group held for sale, $15,400 in shares issued for services and $2,967 in stock based compensation. During the three months ended March 31, 2014, the Company used $206,042 in its investing activities comprised of additions to property and equipment. During the three months ended March 31, 2013, the Company was provided $1,549,412 from its investing activities comprised of the proceeds from the sale of disposal group held for sale in the amount of $1,600,000 net of additions to property and equipment in the amount of $50,588. During the three months ended March 31 2014, the Company was provided $336,286 from its financing activities as compared to $171,399 during the three months ended March 31, 2013. FINANCING ACTIVITIES COMMON STOCK OFFERINGS During the three months ended March 31, 2014, as part of a private placement, the Company issued 25,200 shares of its common stock for cash in the amount of $75,600. During the three months ended March 31, 2013, the Company as part of a private placement the Company issued 329,667 shares of its common stock for cash in the amount of $989,000 or at $3.00 per share and 40,000 shares of its common stock for cash in the amount of $400 or at $.01 per share. SALE OF OPTIONS During the three months ended March 31, 2014, the Company sold options to acquire 250,000 shares of its common stock at an exercise price of $1.00 per share in exchange for cash in the amount of $250,000. REPURCHASE COMMON SHARES The Company during March 2013 agreed to repurchase from an employee 100,000 shares of their common stock in exchange for $150,000 in cash. In addition, effective March 26, 2013, the Company entered into a repurchase agreement with two of its shareholders to acquire their 275,000 shares of common stock in exchange for cash of $800,000 and an amount to be paid of $25,000 in May of 2013 or a total of $825,000. -30-
CAPITAL RESOURCES Decisions regarding future participation in exploration wells or geophysical studies or other activities will be made on a case-by-case basis. The Company may, in any particular case, decide to participate or decline participation. If participating, we may pay our proportionate share of costs to maintain the Company's proportionate interest through cash flow or debt or equity financing. If participation is declined, the Company may elect to farmout, non-consent, sell or otherwise negotiate a method of cost sharing in order to maintain some continuing interest in the prospect. To fund its current business plan, the Company has now procured a Credit Facility through Guaranty Bank and Trust that will allow the Company to meet its needs within the next year to pay for participation, investigation, exploration and acquisition of oil and gas properties as well as working capital. However, we can make no assurance or representation that funds will be available from the new Credit Facility to carry out the business plan. Further, the Company has the ability to sell its own common stock as well as options to acquire common stock of the Company. CRITICAL ACCOUNTING POLICIES ACCOUNTS RECEIVABLE Accounts receivable are stated at their cost less any allowance for doubtful accounts. The allowance for doubtful accounts is based on the management's assessment of the collectability of specific customer accounts and the aging of the accounts receivable. If there is deterioration in a major customer's creditworthiness or if actual defaults are higher than the historical experience, the management's estimates of the recoverability of amounts due to the Company could be adversely affected. Based on the management's assessment, there is no reserve recorded at March 31, 2014 and December 31, 2013. REVENUE RECOGNITION The Company recognizes revenue from the exploration and production of the Company's oil and gas properties in the period of production. Management fee income is recognized in the period where the Company performs the services as manager of a limited liability company. PROPERTY AND EQUIPMENT The Company follows the full cost method of accounting for oil and natural gas operations. Under this method all productive and nonproductive costs incurred in connection with the acquisition, exploration, and development of oil and natural gas reserves are capitalized. No gains or losses are recognized upon the sale or other disposition of oil and natural gas properties except in transactions that would significantly alter the relationship between capitalized costs and proved reserves. Unproved properties with significant acquisition costs are assessed annually on a property-by-property basis and any impairment in value is charged to expense. If the unproved properties are determined to be productive, the related costs are transferred to proved oil and natural gas properties and are depleted. Proceeds from sales of partial interests in unproved leases are accounted for as a recovery of cost without recognizing any gain or loss until all costs have been recovered. The costs of unproved oil and natural gas properties are excluded from the amortizable base until the time that either proven reserves are found or it has been determined that such properties are impaired. As properties become proved, the related costs transfer to proved oil and natural gas properties using full cost accounting. There were capitalized costs of $5,812,630 and $5,614,987 included in the amortization base at March 31, 2014 and December 31, 2013, respectively and the Company did not expense any capitalized costs for the three months ended March 31, 2014 and 2013. -31-
The Company performs a quarterly "ceiling test" calculation to test its oil and gas properties for possible impairment. The primary components impacting this calculation are commodity prices, reserve quantities added and produced, overall exploration and development costs, depletion expense, and tax effects. If the net capitalized cost of the Company's oil and gas properties subject to amortization (the carrying value) exceeds the ceiling limitation, the excess would be charged to expense. The ceiling limitation is equal to the sum of the present value discounted at 10% of estimated future net cash flows from proved reserves, the cost of properties not being amortized, the lower of cost or estimated fair value of unproved properties included in the costs being amortized, and all related tax effects. At March 31, 2014 and December 31, 2013, the calculated value of the ceiling limitation exceeded the carrying value of the Company's oil and gas properties subject to the test, and no impairment was necessary. Management capitalizes additions to property and equipment. Expenditures for repairs and maintenance are charged to expense. Property and equipment are carried at cost. Adjustment of the asset and the related accumulated depreciation accounts are made for property and equipment retirements and disposals, with the resulting gain or loss included in the statement of operations. The Company has not capitalized any internal costs for the three months ended March 31, 2014 and 2013. Other property and equipment, such as office furniture and equipment, and computer hardware and software, are recorded at cost. Costs of renewals and improvements that substantially extend the useful lives of the assets are capitalized. Maintenance and repair costs are expensed when incurred. For financial reporting purposes, depreciation and amortization of other property and equipment is computed using the straight-line method over the estimated useful lives of assets at acquisition. For income tax reporting purposes, depreciation of other equipment is computed using the straight-line and accelerated methods over the estimated useful lives of assets at acquisition. Depreciation and depletion of capitalized acquisition, exploration and development costs are computed on the units-of-production method by individual fields on the basis of the total estimated units of proved reserves as the related proved reserves are produced. Depreciation and amortization of oil and gas property and other property and equipment for the three months ended March 31, 2014 and 2013 is $56,259 and $832, respectively. SHARE-BASED COMPENSATION The Company accounts for share-based payment accruals under authoritative guidance on stock compensation as set forth in the Topics of the ASC. The guidance requires all share-based payments to employees and non-employees, including grants of employee and non-employee stock options and warrants, to be recognized in the financial statements based on their fair values. RESULTS OF OPERATIONS OF FIVE JAB, INC. During the three months ended March 31, 2014, Five JAB, Inc. had no operations as the assets were sold in 2013 and therefore there were no revenues or expenses. During the three months ended March 31, 2013, Five JAB, Inc. recognized revenues of $586,935 from oil and gas sales and incurred operating expenses of $228,338 comprised of $147,992 of lease operating expense, $27,851 of production taxes, $15,300 of general and administrative expense and $37,195 of depreciation, depletion and amortization expense. During the three months ended March 31, 2013, Five JAB, Inc. recognized net income of $358,597. -32-
LIQUIDITY OF FIVE JAB, INC. At September 1, 2013, Five JAB, Inc. had no assets or liabilities and therefore recognized no funds from its operating, investing or financing activities. During the three months ended March 31, 2013, Five JAB, Inc. recognized funds of $395,792 from its operating activities, used $27,155 in its investment activities and used $368,637 in its financing activities. ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------------- Not Applicable. ITEM 4. CONTROLS AND PROCEDURES ------------------------------- Disclosures Controls and Procedures We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) and that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is gathered and communicated to our management, including our Chief Financial Officer (Principal Executive Officer and Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure. As required by SEC Rule 15d-15(b), our Chief Financial Officer carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation and the evaluation conducted at March 31, 2014, our Chief Financial Officer has concluded that our disclosure controls and procedures are not effective in timely alerting them to material information required to be included in our periodic SEC filings and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Financial Officer, to allow timely decisions regarding required disclosure. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING. The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting for the company in accordance with as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company's assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company's receipts and expenditures are being made only in accordance with authorizations of the Company's management and directors; and -33-
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the Company's financial statements. We have identified certain material weaknesses in internal control over financial reporting relating to a shortage of accounting and reporting personnel due to limited financial resources and the size of our Company, as detailed below: (1) The Company currently does not have, but is in the process of developing formally documented accounting policies and procedures, which includes establishing a well-defined process for financial reporting. (2) As is the case with many companies of similar size, we currently lack segregation of duties in the accounting department. Until our operations expand and additional cash flow is generated from operations, a complete segregation of duties within our accounting function will not be possible. Considering the nature and extent of our current operations and any risks or errors in financial reporting under current operations and the fact that we have been a small business with limited employees, such items caused a weakness in internal controls involving the areas disclosed above. We have concluded that our internal controls over financial reporting were ineffective as of March 31, 2014 due to the existence of the material weaknesses noted above that we have yet to fully remediate. There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. -34-
PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ------------------------- None. ITEM 1A. RISK FACTORS --------------------- Not Applicable to Smaller Reporting Companies. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ------------------------------------------------------------------- During the period of January 1, 2014 through March 31, 2014, the Company made the following issuances of its equity securities. DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER ------------------------------ ----------------------- ----------------- ------------------------- ----------------------- February & March 2014 Common Shares 25,200 $75,600 Business Associates March 2014 Options -- $250,000 Business Associates March 2014 Warrants -- $1,390,000 Business Associates March 2014 Warrants -- $300,000 Director EXEMPTION FROM REGISTRATION CLAIMED All of the above sales by the Company of its unregistered securities were made by the Company in reliance upon Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"). All of the individuals and/or entities that purchased the unregistered securities were primarily existing shareholders, known to the Company and its management, through pre-existing business relationships, as long standing business associates and employees. All purchasers were provided access to all material information, which they requested, and all information necessary to verify such information and were afforded access to management of the Company in connection with their purchases. All purchasers of the unregistered securities acquired such securities for investment and not with a view toward distribution, acknowledging such intent to the Company. All certificates or agreements representing such securities that were issued contained restrictive legends, prohibiting further transfer of the certificates or agreements representing such securities, without such securities either being first registered or otherwise exempt from registration in any further resale or disposition. ITEM 3. DEFAULTS UPON SENIOR SECURITIES --------------------------------------- None. ITEM 4. MINE SAFETY DISCLOSURE ------------------------------ Not Applicable. -35-
ITEM 5. OTHER INFORMATION ------------------------- None. ITEM 6. EXHIBITS ---------------- EXHIBITS. The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K. Exhibit 31.1 Certification of Chief Executive and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act Exhibit 32.1 Certification of Principal Executive and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act Exhibit 101.INS XBRL Instance Document Exhibit 101.SCH XBRL Taxonomy Extension Schema Document (1) Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (1) Exhibit 101.DEF XBRL Taxonomy Extension Definition Linkbase Document (1) Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document (1) Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (1) ----------------- (1) Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. -36-
SIGNATURES Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THREE FORKS, INC. ---------------------------------------- (REGISTRANT) Dated: June 9, 2014 By: /s/ W. Edward Nichols --------------------------------- W. Edward Nichols, (Chief Executive Officer & Principal Accounting Officer) -37