Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10Q/A
Amendment No. 1
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(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
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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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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THREE FORKS, INC.
BALANCE SHEETS
March 31, 2014 December 31, 2013
(Unaudited) (Audited)
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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
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TOTAL CURRENT ASSETS 458,484 518,186
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Disposal group held for sale of discontinued operations - -
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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
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TOTAL PROPERTY AND EQUIPMENT 6,061,167 5,855,125
Less accumulated depreciation, depletion and amortization (121,297) (65,038)
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Net property and equipment 5,939,870 5,790,087
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Long-term assets
Other long-term assets 61,330 61,330
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TOTAL LONG-TERM ASSETS 61,330 61,330
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TOTAL ASSETS $ 6,459,684 $ 6,369,603
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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
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Total current liabilities 1,826,461 2,929,355
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Long-term liabilities
Asset retirement obligations 307,854 307,854
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Total long-term liabilities 307,854 307,854
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Total liabilities 2,134,315 3,237,209
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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)
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Total stockholders' equity 4,325,369 3,132,394
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Total liabilities and stockholders' equity $ 6,459,684 $ 6,369,603
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The accompanying notes are an integral part of these financial statements.
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THREE FORKS, INC.
STATEMENTS OF OPERATIONS
For the Three Months ended March 31,
2014 2013
(Unaudited) (Unaudited)
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Revenue:
Oil and gas sales $ 444,458 $ -
Management fees 47,000 -
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Total revenues 491,458 -
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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
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Total operating expenses 1,176,561 526,461
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Loss from operations (685,103) (526,461)
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Other income (expense):
Other Income - 22,000
Interest income 986 986
Interest expense (41,333) -
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Total other income (expense) (40,347) 22,986
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Loss from continuing operations
before income taxes (725,450) (503,475)
Income taxes - -
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Net loss from continuing operations (725,450) (503,475)
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Discontinued operations
Gain on disposal of property - 143,608
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Income from discontinued operations - 143,608
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Net loss $ (725,450) $ (359,867)
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Net loss from continuing operations $ (0.06) $ (0.05)
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Net income from discontinued operations
Basic and diluted $ - $ 0.01
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Net loss per common share
Basic and diluted $ (0.06) $ (0.03)
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Weighted average number of common shares
Basic and diluted 11,653,255 11,033,387
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The accompanying notes are an integral part of these financial statements.
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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
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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)
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BALANCES, MARCH 31, 2014 (UNAUDITED) - $ - 11,506,677 $ 11,506 $ 7,547,805 $ (3,233,942) $ 4,325,369
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The accompanying notes are an integral part of these financial statements.
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THREE FORKS, INC.
STATEMENTS OF CASH FLOWS
For the Three Months ended March 31,
2014 2013
(Unaudited) (Unaudited)
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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
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Net cash provided by (used in) operating activities (177,143) 26,217
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INVESTING ACTIVITIES
Additions to property and equipment (206,042) (50,588)
Proceeds from sale of disposal group held for sale - 1,600,000
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Net cash provided by (used in) investing activities (206,042) 1,549,412
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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)
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Net cash provided by financing activities 336,286 171,399
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NET CHANGE IN CASH (46,899) 1,747,028
CASH, Beginning 121,174 492,729
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CASH, Ending $ 74,275 $ 2,239,757
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SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Debt owed in retirement of 375,000 shares of stock $ - $ 160,000
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Sale of warrants in exchange for debt $ 1,690,000 $ -
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Repurchase of common stock $ 142,500 $ -
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Interest paid $ - $ -
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Income taxes paid $ - $ -
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The accompanying notes are an integral part of these financial statements.
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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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.
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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
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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,
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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
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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.
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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
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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
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(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)
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