As filed with the Securities and Exchange Commission on October 29, 2020

 

Registration No. 333-

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-1

 

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

 

U.S. ENERGY CORP.

(Exact name of registrant as specified in its charter)

 

Wyoming		1311		83-0205516
(State or jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

 

675 Bering Dr, Suite 100
Houston, Texas 77057
(303) 993-3200

(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)

 

Ryan L. Smith
Chief Executive Officer
U.S. Energy Corp.
675 Bering Dr, Suite 100
Houston, Texas 77057
(303) 993-3200

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

 

 

Copies To:
David M. Loev, Esq.		Barry I. Grossman, Esq.
John S. Gillies, Esq.		Sarah E. Williams, Esq.
The Loev Law Firm, PC		Ellenoff Grossman & Schole LLP
6300 West Loop South, Suite 280		1345 Avenue of the Americas
Bellaire, Texas 77401		New York, New York 10105
Telephone: (713) 524-4110		Telephone: (212) 370-1300
Facsimile: (713) 524-4122		Facsimile: (212) 370-7889

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: [  ]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

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

 

	Large accelerated filer [  ]		Accelerated filer [  ]
	Non-accelerated filer [X]		Smaller reporting company [X]
			Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. [  ]

 

CALCULATION OF REGISTRATION FEE

 

Title of Securities Being Registered		Proposed Maximum Aggregate Offering Price(1)(2)				Amount of Registration Fee
Common Stock, $0.01 per value per share(3)(4)		$	5,750,000			$	627.33

 

(1)	In accordance with Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”), the number of shares being registered and the proposed maximum offering price per share are not included in this table.
(2)	Estimated solely for purposes of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.
(3)	Pursuant to Rule 416 under the Securities Act, the shares registered hereby also include an indeterminate number of additional shares as may from time to time become issuable by reason of stock splits, distributions, recapitalizations or other similar transactions.
(4)	Includes shares the underwriters have the option to purchase to cover over-allotments, if any.

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.

 

 

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS

SUBJECT TO COMPLETION

DATED OCTOBER 29, 2020

 

 

Shares of Common Stock

 

Pursuant to this prospectus, U.S. Energy Corp. (the “Company”, “U.S. Energy”, “we”, “us” and “our”) is offering         shares of our common stock, $0.01 par value per share, at a public offering price of $ per share, in a firm commitment underwritten public offering (the “Offering”).

 

Our common stock is listed on The NASDAQ Capital Market under the symbol “USEG.” On October 28, 2020, the last reported sales price of our common stock was $4.85 per share. For the purposes of this prospectus we have assumed a public offering price of $         per share. The actual public offering price per common share will be determined between us and the underwriters based on market conditions at the time of pricing and may be at a discount to the current market price of our common stock. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of the final offering price.

 

You should read this prospectus, together with additional information described under the heading “Where You Can Find More Information,” carefully before you invest in any of our securities.

 

Investing in our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should consider carefully the risks that we have described under, and incorporated by reference in, “Risk Factors” beginning on page 7 of this prospectus and in our reports filed with the Securities and Exchange Commission which are incorporated by reference herein for a discussion of information that should be considered in connection with an investment in our securities.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

			Per Share				Total
Public offering price		$				$
Underwriting discounts and commissions (1)		$				$
Proceeds, before expenses, to us		$				$

 

(1)	We have also agreed to reimburse the underwriters for certain expenses. See “Underwriting” beginning on page 28 for a description of these arrangements.

 

We have granted a 45-day option to the representative of the underwriters to purchase up to                    additional shares of common stock from us solely to cover over-allotments, if any, at the public offering price, less underwriting discounts and commissions. See “Underwriting.”

 

The underwriters expect to deliver the shares of our common stock against payment therefor on or about                , 2020, subject to customary closing conditions.

 

Kingswood Capital Markets
division of Benchmark Investments, Inc.

 

The date of this prospectus is            , 2020

 

 

TABLE OF CONTENTS

 

ABOUT THIS PROSPECTUS	1
PROSPECTUS SUMMARY	2
THE OFFERING	6
RISK FACTORS	7
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS	17
USE OF PROCEEDS	18
CAPITALIZATION	19
DILUTION	20
DIVIDEND POLICY	22
PRINCIPAL STOCKHOLDERS	22
DESCRIPTION OF CAPITAL STOCK	24
DESCRIPTION OF SECURITIES WE ARE OFFERING	28
UNDERWRITING	28
LEGAL MATTERS	30
EXPERTS	30
WHERE YOU CAN FIND MORE INFORMATION	31
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE	31

 

 

ABOUT THIS PROSPECTUS

 

You should rely only on the information contained or incorporated by reference into this prospectus and any free writing prospectus. We have not, and the underwriters have not authorized anyone to provide you with different information. If anyone provides you with different or additional information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any state or jurisdiction where the offer or sale is not permitted. In making an investment decision, prospective investors must rely on their own examination of us and the terms of the Offering, including the merits and risks involved. None of the Company, the underwriters nor any of their respective representatives is making any representation to you regarding the legality of an investment decision in our securities by you under applicable laws.

 

You should not assume that the information contained in this prospectus and any free writing prospectus is accurate on any date subsequent to the date set forth on the front of the document or that any information we have incorporated by reference is correct on any date subsequent to the date of the document incorporated by reference, even though this prospectus and any free writing prospectus is delivered or securities are sold on a later date. We have filed with the SEC a registration statement on Form S-1 with respect to the securities offered hereby. This prospectus does not contain all of the information set forth in the registration statement, parts of which are omitted in accordance with the rules and regulations of the SEC. For further information with respect to us and the securities offered hereby, reference is made to the registration statement and the exhibits that are a part of the registration statement. We will disclose any material changes in our affairs in a post-effective amendment to the registration statement, a future prospectus supplement, a free writing prospectus, or a future filing with the Securities and Exchange Commission incorporated by reference in this prospectus. It is important for you to read and consider all the information contained in this prospectus, including the documents incorporated by reference therein, in making your investment decision.

 

We further note that the representations, warranties, and covenants made by us or the underwriters in any agreement that is filed as an exhibit to any document that is incorporated by reference in this prospectus were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties, or covenants were accurate only as of the date when made. Accordingly, such representations, warranties, and covenants should not be relied on as accurately representing the current state of our affairs.

 

Before you invest in the shares, you should read the registration statement (including the exhibits thereto) of which this prospectus forms a part, including the risk factors set forth below under, and incorporated by reference in, “Risk Factors”, the information regarding forward-looking statements under “Cautionary Statement Regarding Forward-Looking Statements”, and the documents incorporated by reference herein. The incorporated documents are described in this prospectus under the headings “Incorporation of Certain Documents by Reference.”

 

Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside of the United States.

 

Our logo and other trade names, trademarks, and service marks of U.S. Energy Corp. appearing in this prospectus are the property of our company. Other trade names, trademarks, and service marks appearing in this prospectus are the property of their respective holders.

 

The market data and certain other statistical information used throughout this prospectus and incorporated herein are based on independent industry publications, government publications, and other published independent sources. Although we believe that these third-party sources are reliable and that the information is accurate and complete, we have not independently verified the information. Some data is also based on our good faith estimates. While we believe the market data included in this prospectus and the information incorporated herein by reference is generally reliable and is based on reasonable assumptions, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under the heading “Risk Factors” beginning on page 7 of this prospectus.

 

All references to “we”, “our”, “us”, the “Company”, and “U.S. Energy” in this prospectus mean U.S. Energy Corp. and all entities owned or controlled by us except where it is made clear that the term means only the parent company. The term “you” refers to a prospective investor. Please carefully read this prospectus and any free writing prospectus, in addition to the information contained in the documents we refer to under the headings “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference”.

 

In addition, unless the context otherwise requires and for the purposes of this prospectus:

 

	●	“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
	●	“SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and
	●	“Securities Act” refers to the Securities Act of 1933, as amended.

 

 

 

 

 

 

 

 

 

 

THE OFFERING

 

Issuer:		U.S. Energy Corp.
Securities offered hereby:		shares of common stock (at an assumed public offering price of $   per share, which was the last reported sale price of our common stock on The Nasdaq Capital Market on   , 2020)
Public offering price per share of common stock		The assumed public offering price is $       per share, the last reported sales price of our shares of common stock on the Nasdaq Capital Market on   , 2020. The actual offering price per share will be negotiated between us and the underwriters based on the trading of our shares of common stock prior to the Offering, among other things, and may be at a discount to the current market price.
Over-allotment option		We have granted a 45-day option to the representative of the underwriters to purchase up to          additional shares of common stock from us solely to cover over-allotments, if any, at the public offering price per share, less underwriting discounts and commissions.
Common stock outstanding prior to this Offering:		shares
Common stock to be outstanding after this Offering:		shares of our common stock (at an assumed public offering price of $   per share, which was the last reported sale price of our common stock on The Nasdaq Capital Market on     , 2020). If the underwriters’ over-allotment option is exercised in full, the total number of shares of common stock outstanding immediately after this Offering would be  (at an assumed public offering price of $     per share, which was the last reported sale price of our common stock on The Nasdaq Capital Market on   , 2020).
Use of proceeds:		We estimate that our net proceeds from this Offering will be approximately $ million after deducting underwriting discounts and commissions and estimated offering expenses, or approximately $       million if the underwriters’ option to purchase additional shares is exercised in full.   We intend to use the net proceeds from this Offering for general corporate and working capital, acquisitions of oil and gas properties and assets, to repay outstanding debt, retire preferred stock, or for other purposes that the our board of directors (the “Board of Directors” or the “Board”), in their good faith, deems to be in the best interest of the Company. See “Use of Proceeds” for more information.
Risk factors:		An investment in our common stock involves a significant degree of risk. You should read the “Risk Factors” section of this prospectus and in the documents incorporated by reference in this prospectus for a discussion of factors to consider before deciding to purchase shares of our common stock.
NASDAQ Capital Market Symbol for our common stock:		USEG

 

 

In this prospectus, unless otherwise indicated, the number of shares of our common stock and other capital stock, and the other information based thereon, are as of October 29, 2020, and excludes:

 

●	50,000 shares of common stock issuable upon the exercise of outstanding warrants to purchase shares of common stock at a weighted-average exercise price of $5.25 per share;
●	31,367 shares of our common stock issuable upon the exercise of outstanding options to purchase shares of common stock at a weighted-average exercise price of $64.78 per share; and
●	79,334 shares of our common stock currently issuable upon the conversion of the 50,000 shares of our outstanding Series A Preferred Stock.

 

Additionally, unless otherwise stated, all information in this prospectus:

 

●	assumes no exercise by the underwriters of their over-allotment option;
●	excludes the acquisition of the Properties, which closed on September 25, 2020;
●	assumes no issuance of shares available for future issuance under our equity compensation plans; and
●	reflects all currency in United States dollars.

 

RISK FACTORS

 

Before making an investment decision, you should consider the “Risk Factors” discussed below, in the section entitled “Risk Factors“ contained under Item 1A of Part I of our most recent Annual Report on Form 10-K for the year ended December 31, 2019, and under “Risk Factors” under Item 1A of Part II of subsequently filed quarterly reports on Form 10-Q and annual reports on Form 10-K, as the same may be amended, supplemented or superseded from time to time by our subsequent filings and reports under the Securities Act or the Exchange Act, each of which is incorporated by reference in this prospectus. For more information, see “Incorporation of Certain Documents by Reference.” The market or trading price of our securities could decline due to any of these risks. In addition, please read “Cautionary Statement Regarding Forward-Looking Statements” in this prospectus, where we describe additional uncertainties associated with our business and the forward-looking statements included or incorporated by reference in this prospectus.

 

The securities offered herein are highly speculative and should only be purchased by persons who can afford to lose their entire investment in us. You should carefully consider the following risk factors and the aforementioned risk factors that are incorporated herein by reference and other information in this prospectus before deciding to become a holder of our common stock. The risks and uncertainties described in these incorporated documents and described below are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us may also impair our business operations. If any of these risks occur, our business and financial results could be negatively affected to a significant extent. In that event, the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock.

 

Risks Relating to Our Business:

 

We will need additional capital to complete future acquisitions, conduct our operations, and fund our business, and our ability to obtain the necessary funding is uncertain.

 

We will need to raise additional funding to complete future potential acquisitions and will be required to raise additional funds through public or private debt or equity financing or other various means to fund our operations and complete exploration and drilling operations, and acquire assets. In such a case, adequate funds may not be available when needed or may not be available on favorable terms. If we need to raise additional funds in the future by issuing equity securities, dilution to existing stockholders will result, and such securities may have rights, preferences, and privileges senior to those of our common stock. If funding is insufficient at any time in the future and we are unable to generate sufficient revenue from new business arrangements, to complete future acquisitions or operations, our results of operations and the value of our securities could be adversely affected.

 

 

Additionally, due to the nature of oil and gas interests, i.e., that rates of production generally decline over time as oil and gas reserves are depleted, if we are unable to drill additional wells and develop our reserves, either because we are unable to raise sufficient funding for such development activities, or otherwise, or in the event we are unable to acquire additional operating properties, we believe that our revenues will continue to decline over time. Furthermore, in the event we are unable to raise additional required funding in the future, we will not be able to participate in the drilling of additional wells, will not be able to complete other drilling and/or workover activities, and may not be able to make required payments on our outstanding liabilities.

 

If this were to happen, we may be forced to scale back our business plan which could result in the value of our outstanding securities declining in value.

 

Declines in oil, natural gas liquids (NGL) and natural gas prices, have in the past and will continue in the future to, adversely affect our business, financial condition or results of operations, and our ability to meet our capital expenditure obligations or targets and financial commitments.

 

The price we receive for our oil and, to a lesser extent, natural gas and NGLs, heavily influences our revenue, profitability, cash flows, liquidity, access to capital, present value and quality of our reserves, the nature and scale of our operations, and our future rate of growth. Oil, NGL, and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. In recent years, the markets for oil and natural gas have been volatile. These markets will likely continue to be volatile in the future. Further, oil prices and natural gas prices do not necessarily fluctuate in direct relation to each other. The price of crude oil has experienced significant volatility over the last five years, with the price of a barrel of oil dropping below $20 during the earlier part of the year, due in part to reduced global demand stemming from the recent global COVID-19 outbreak, and only recently increasing to around $40 a barrel. A prolonged period of low market prices for oil and natural gas, or further declines in the market prices for oil and natural gas, will likely result in capital expenditures being further curtailed and will adversely affect our business, financial condition and liquidity, and our ability to meet obligations, targets or financial commitments and could ultimately lead to restructuring or filing for bankruptcy, which would have a material adverse effect on our stock price and indebtedness. Additionally, lower oil and natural gas prices have, and may in the future, cause, a decline in our stock price.

 

Our success is dependent on the prices of oil, NGLs, and natural gas. Low oil or natural gas prices and the substantial volatility in these prices will adversely affect, and are expected to continue to adversely affect, our business, financial condition and results of operations, and our ability to meet our capital expenditure requirements and financial obligations.

 

The prices we receive for our oil, NGLs, and natural gas heavily influence our revenue, profitability, cash flow available for capital expenditures, access to capital, and future rate of growth. Oil, NGLs, and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the commodities market has been volatile. For example, the price of crude oil has experienced significant volatility over the last five years. We believe that prices for natural gas and NGLs experienced declines of similar magnitude. An extended period of continued lower oil prices, or additional price declines, will have further adverse effects on us. The prices we receive for our production, and the levels of our production, will continue to depend on numerous factors, including the following:

 

 

●	the domestic and foreign supply of oil, NGLs, and natural gas;
●	the domestic and foreign demand for oil, NGLs, and natural gas;
●	the prices and availability of competitors’ supplies of oil, NGLs, and natural gas;
●	the actions of the Organization of Petroleum Exporting Countries, or OPEC, and state-controlled oil companies relating to oil price and production controls;
●	the price and quantity of foreign imports of oil, NGLs, and natural gas;
●	the impact of U.S. dollar exchange rates on oil, NGLs, and natural gas prices;
●	domestic and foreign governmental regulations and taxes;
●	speculative trading of oil, NGLs, and natural gas futures contracts;
●	localized supply and demand fundamentals, including the availability, proximity, and capacity of gathering and transportation systems for natural gas;
●	the availability of refining capacity;
●	the prices and availability of alternative fuel sources;
●	the threat, or perceived threat, or results, of viral pandemics, for example, as experienced with the COVID-19 pandemic in 2020;
●	weather conditions and natural disasters;
●	political conditions in or affecting oil, NGLs, and natural gas producing regions, including the Middle East and South America;
●	the continued threat of terrorism and the impact of military action and civil unrest;
●	public pressure on, and legislative and regulatory interest within, federal, state, and local governments to stop, significantly limit, or regulate hydraulic fracturing activities;
●	the level of global oil, NGL, and natural gas inventories and exploration and production activity;
●	authorization of exports from the United States of liquefied natural gas;
●	the impact of energy conservation efforts;
●	technological advances affecting energy consumption; and
●	overall worldwide economic conditions.

 

Declines in oil, NGL, or natural gas prices will reduce not only our revenue but also the amount of oil, NGL, and natural gas that we, and the operators of our properties, can produce economically. Should natural gas, NGL or oil prices remain at current levels for an extended period, our wells, including our non-operated wells, may be forced to be shut-in, and we may be forced to delay some or all of our exploration and development plans for our prospects and cease exploration or development activities on certain prospects due to the anticipated unfavorable economics from such activities. As a result, we will have to make substantial downward adjustments to our estimated proved reserves, each of which would have a material adverse effect on our business, financial condition, and results of operations. Due to the lower demand caused by the COVID-19 pandemic and the oversupply of crude oil, spot and futures prices of crude oil fell to historic lows during the second quarter of 2020 and remain depressed. Operators in North Dakota’s Williston Basin responded by significantly decreasing drilling and completion activity and shutting in or curtailing production from a significant number of producing wells.

 

 

Our business and operations have been adversely affected by, and are expected to continue to be adversely affected by, the COVID-19 pandemic, and may be adversely affected by other similar outbreaks.

 

As a result of the COVID-19 pandemic or other adverse public health developments, including voluntary and mandatory quarantines, travel restrictions, and other restrictions, our operations, and those of our subcontractors, customers, and suppliers, have and are anticipated to continue to experience delays or disruptions and temporary suspensions of operations. In addition, our financial condition and results of operations have been and are likely to continue to be adversely affected by the COVID-19 pandemic.

 

The timeline and potential magnitude of the COVID-19 outbreak are currently unknown. The continuation or amplification of this virus could continue to more broadly affect the United States and global economy, including our business and operations, and the demand for oil and gas. For example, the outbreak of coronavirus has resulted in a widespread health crisis that will adversely affect the economies and financial markets of many countries, resulting in an economic downturn that will affect our operating results. Other contagious diseases in the human population could have similar adverse effects. In addition, the effects of COVID-19 and concerns regarding its global spread have recently negatively impacted the domestic and international demand for crude oil and natural gas, which has contributed to price volatility, impacted the price we receive for oil and natural gas, and has materially and adversely affected the demand for and marketability of our production, and is anticipated to continue to adversely affect the same for the foreseeable future. As the potential impact from COVID-19 is difficult to predict, the extent to which it will negatively affect our operating results, or the duration of any potential business disruption is uncertain. The magnitude and duration of any impact will depend on future developments and new information that may emerge regarding the severity and duration of COVID-19 and the actions taken by authorities to contain it or treat its impact, all of which are beyond our control. These potential impacts, while uncertain, have already negatively affected our first, second, and third-quarter results of operations, due both to decreases in the overall market prices of oil and gas and well shut-ins (provided that all wells previously shut-in during the second quarter are now back online) and are anticipated to have a negative impact on multiple future quarters’ results as well, as a result of various factors including potential further decreases in, or prolonged periods of decreased pricing in, oil and gas, potential further well shut-ins and the possible continued decline in global demand for oil and gas.

 

We may be forced to write-down material portions of our assets if low oil prices continue.

 

The COVID-19 pandemic has led to an economic downturn resulting in lower oil prices, and the Company could be required to shut-in some or all of its production in the future should market conditions deteriorate. A continued period of low prices may force us to incur material write-downs of our oil and natural gas properties, which could have a material effect on the value of our properties, and cause the value of our securities to decline in value. For example, at June 30, 2020, we performed an impairment review resulting in the Company recording a ceiling test write-down of $1.8 million due to the effect lower crude oil prices had on the value of its proved reserves. In addition, the Company evaluated its unevaluated property at June 30, 2020, and recorded a reclassification to the depletable base of the full cost pool of $2.1 million related to a reduction in value of certain of its acreage. In the calculation of the ceiling test as of June 30, 2020, the Company used $47.17 per barrel for oil and $2.07 per thousand cubic feet (mcf) for natural gas (as further adjusted for differentials related to property, specific gravity, quality, local markets and distance from markets) to compute the future cash flows of the Company’s producing properties. The discount factor used was 10%. These prices represent the average of the first day of the month prices for oil and natural gas for each month in the twelve-month period ended June 30, 2020. If depressed prices for crude oil continue, it is likely that the Company will experience additional ceiling test write-downs in 2020 as higher prices from last year and the beginning of 2020 used in the calculation of the average price are replaced with lower prices.

 

 

Declining general economic, business or industry conditions have, and will continue to have, a material adverse effect on our results of operations, liquidity, and financial condition, and are expected to continue having a material adverse effect for the foreseeable future.

 

Concerns over global economic conditions, the threat of pandemic diseases and the results thereof, energy costs, geopolitical issues, inflation, the availability and cost of credit, the United States mortgage market, and a declining real estate market in the United States have contributed to increased economic uncertainty and diminished expectations for the global economy. These factors, combined with volatile prices of oil and natural gas, declining business and consumer confidence, and increased unemployment, have precipitated an economic slowdown and a recession, which could expand to a global depression. Concerns about global economic growth have had a significant adverse impact on global financial markets and commodity prices and are expected to continue having a material adverse effect for the foreseeable future. If the economic climate in the United States or abroad continues to deteriorate, demand for petroleum products could diminish, which could further impact the price at which we can sell our oil, natural gas, and natural gas liquids, affect the ability of our vendors, suppliers and customers to continue operations, and ultimately adversely impact our results of operations, liquidity and financial condition to a greater extent than it has already.

 

The marketability of our production is dependent upon oil and natural gas gathering, transportation, and storage facilities owned and operated by third parties, and the unavailability of satisfactory oil and natural gas transportation arrangements have had a material adverse effect on our revenue.

 

The unavailability of satisfactory oil and natural gas transportation arrangements has hindered our access to oil and natural gas markets and has delayed production from our wells. The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for, and supply of, oil and natural gas and the proximity of reserves to pipelines, terminal facilities, and storage facilities. Our ability to market our production depends in substantial part on the availability and capacity of gathering systems, pipelines, processing facilities, and storage facilities owned and operated by third parties. Our failure to obtain these services on acceptable terms could materially harm our business.

 

The disruption of third-party facilities due to maintenance and/or weather could negatively impact our ability to market and deliver our products. Additionally, the third parties’ control when or if such facilities are restored after disruption, and what prices will be charged for products, may have an adverse effect on our operations. Federal and state regulation of oil and natural gas production and transportation, tax and energy policies, changes in supply and demand, pipeline pressures, damage to or destruction of pipelines, and general economic conditions could adversely affect our ability to produce, gather and transport oil and natural gas.

 

Downturns and volatility in global economies and commodity and credit markets have materially adversely affected our business, results of operations, and financial condition.

 

Our results of operations are materially adversely affected by the conditions of the global economies and the credit, commodities, and stock markets. Among other things, we have recently been adversely impacted, and anticipate to continue to be adversely impacted, due to a global reduction in consumer demand for oil and gas, and consumer lack of access to sufficient capital to continue to operate their businesses or to operate them at prior levels. In addition, a decline in consumer confidence or changing patterns in the availability and use of disposable income by consumers can negatively affect the demand for oil and gas and as a result our results of operations.

 

Our oil and natural gas reserves are estimated and may not reflect the actual volumes of oil and natural gas we will receive, and significant inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves.

 

The process of estimating accumulations of oil and natural gas is complex and is not exact, due to numerous inherent uncertainties. The process relies on interpretations of available geological, geophysical, engineering, and production data. The extent, quality, and reliability of this technical data can vary. The process also requires certain economic assumptions related to, among other things, oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes, and availability of funds. The accuracy of a reserves estimate is a function of:

 

 

●	the quality and quantity of available data;
●	the interpretation of that data;
●	the judgment of the persons preparing the estimate; and
●	the accuracy of the assumptions.

 

The accuracy of any estimates of proved reserves generally increases with the length of the production history. Due to the limited production history of our properties, the estimates of future production associated with these properties may be subject to greater variance to actual production than would be the case with properties having a longer production history. As our wells produce over time and more data is available, the estimated proved reserves will be re-determined on at least an annual basis and may be adjusted to reflect new information based upon our actual production history, results of exploration and development, prevailing oil and natural gas prices and other factors.

 

Actual future production, oil, and natural gas prices, revenues, taxes, development expenditures, operating expenses, and quantities of recoverable oil and natural gas most likely will vary from our estimates. It is possible that future production declines in our wells may be greater than we have estimated. Any significant variance to our estimates could materially affect the quantities and present value of our reserves.

 

We may purchase oil and natural gas properties with liabilities or risks that we did not know about or that we did not assess correctly, and, as a result, we could be subject to liabilities that could adversely affect our results of operations.

 

Before acquiring oil and natural gas properties, we estimate the reserves, future oil and natural gas prices, operating costs, potential environmental liabilities, and other factors relating to the properties. However, our review involves many assumptions and estimates, and their accuracy is inherently uncertain. As a result, we may not discover all existing or potential problems associated with the properties we buy. We may not become sufficiently familiar with the properties to assess fully their deficiencies and capabilities. We generally do not perform inspections on every well or property, and we may not be able to observe mechanical and environmental problems even when we conduct an inspection. The seller may not be willing or financially able to give us contractual protection against any identified problems, and we may decide to assume environmental and other liabilities in connection with the properties we acquire. If we acquire properties with risks or liabilities we did not know about or that we did not assess correctly, our business, financial condition, and results of operations could be adversely affected as we settle claims and incur cleanup costs related to these liabilities.

 

If we do not hedge our exposure to reductions in oil and natural gas prices, we may be subject to significant reductions in prices. Alternatively, we may use oil and natural gas price hedging contracts, which involve credit risk and may limit future revenues from price increases and result in significant fluctuations in our profitability.

 

In the event that we continue to choose not to hedge our exposure to reductions in oil and natural gas prices by purchasing futures and/or by using other hedging strategies, we may be subject to a significant reduction in prices which could have a material negative impact on our profitability. Alternatively, we may elect to use hedging transactions with respect to a portion of our oil and natural gas production to achieve more predictable cash flow and to reduce our exposure to price fluctuations. While the use of hedging transactions limits the downside risk of price declines, their use also may limit future revenues from price increases. Hedging transactions also involve the risk that the counterparty may be unable to satisfy its obligations. We do not currently have any hedges in place.

 

We depend significantly upon the continued involvement of our present management.

 

We depend to a significant degree upon the involvement of our management, specifically, our Chief Executive Officer and Chief Financial Officer, Ryan L. Smith. Our performance and success are dependent to a large extent on the efforts and continued employment of Mr. Smith. We do not believe that Mr. Smith could be quickly replaced with personnel of equal experience and capabilities, and his successor(s) may not be as effective. If Mr. Smith or any of our other key personnel resign or become unable to continue in their present roles and if they are not adequately replaced, our business operations could be adversely affected. The Company entered into an agreement with Mr. Smith on March 5, 2020. The term of Mr. Smith’s Employment Agreement commenced on March 5, 2020, and, unless terminated sooner as provided in the Employment Agreement, will continue until January 1, 2021. After January 1, 2021, the Employment Agreement will automatically renew for one successive term of one year, unless Mr. Smith or the Company provides written notice within 60 days prior to the expiration that the Employment Agreement will not be renewed.

 

 

We have an active Board of Directors that meets several times throughout the year and is intimately involved in our business and the determination of our operational strategies. Members of our Board of Directors work closely with management to identify potential prospects, acquisitions, and areas for further development. If any of our directors resign or become unable to continue in their present role, it may be difficult to find replacements with the same knowledge and experience and as a result, our operations may be adversely affected.

 

Stockholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through the issuance of securities.

 

Wherever possible, our Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of shares of our common stock, preferred stock, or warrants to purchase shares of our common stock. Our Board of Directors has authority, without action or vote of the stockholders, subject to the requirements of The NASDAQ Capital Market (which generally require shareholder approval for any transactions which would result in the issuance of more than 20% of our then outstanding shares of common stock or voting rights representing over 20% of our then outstanding shares of stock, subject to certain exceptions, including sales in a public offering and/or sales which are undertaken at or above the lower of the closing price immediately preceding the signing of the binding agreement or the average closing price for the five trading days preceding the signing of the binding agreement), to issue all or part of the authorized but unissued shares of common stock, preferred stock or warrants to purchase such shares of common stock. In addition, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market in the future. These actions will result in dilution of the ownership interests of existing stockholders and may further dilute common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s ability to maintain control of us, because the shares may be issued to parties or entities committed to supporting existing management.

 

If persons engage in short sales of our common stock, including sales of shares to be issued upon exercise of our outstanding warrants, the price of our common stock may decline.

 

Selling short is a technique used by a shareholder to take advantage of an anticipated decline in the price of a security. In addition, holders of options and warrants will sometimes sell short knowing they can, in effect, cover through the exercise of an option or warrant, thus locking in a profit. A significant number of short sales or a large volume of other sales within a relatively short period of time can create downward pressure on the market price of a security. Further sales of common stock issued upon exercise of our outstanding warrants could cause even greater declines in the price of our common stock due to the number of additional shares available in the market upon such exercise, which could encourage short sales that could further undermine the value of our common stock. Stockholders could, therefore, experience a decline in the values of their investment as a result of short sales of our common stock.

 

Our business has been and may continue to be impacted by adverse commodity prices.

 

The price of crude oil has experienced significant volatility over the last five years, including dropping below $0 per barrel in April 2020, due in part to reduced global demand stemming from the COVID-19 pandemic and oversupply, provided that pricing has since increased to around $40 per barrel as of the filing of this prospectus. A prolonged period of low market prices for oil and natural gas, or further declines in the market prices for oil and natural gas, will likely result in capital expenditures being further curtailed and will adversely affect the Company’s business, financial condition and liquidity and its ability to meet obligations, targets or financial commitments and could ultimately lead to restructuring or filing for bankruptcy, which would have a material adverse effect on the Company’s stock price and indebtedness. Additionally, lower oil and natural gas prices have, and may in the future, cause, a decline in the Company’s stock price. During the year ended December 31, 2019, the daily Cushing, Oklahoma West Texas Intermediate (“WTI”) oil spot price ranged from a high of $66.24 per barrel (Bbl) to a low of $46.31 per Bbl and the NYMEX natural gas Henry Hub spot price ranged from a high of $4.25 per one million British Thermal Units (MMBtu) to a low of $1.75 per MMBtu. During the nine months ended September 30, 2020, the daily Cushing, Oklahoma WTI oil spot price ranged from a high of $63.27 per Bbl to a low of $(36.98) per Bbl in April 2020 and the NYMEX natural gas Henry Hub spot price ranged from a high of $2.57 per MMBtu to a low of $1.33 per MMBtu.

 

 

We believe that the global markets, in reaction to general economic conditions and perceived impacts of future global supply, have caused large fluctuations in price, and we believe significant future price swings are likely. We believe that natural gas prices and NGL prices have experienced volatility of comparable magnitude over the same period. Volatility in the prices we receive for our oil and natural gas production have and may continue to adversely affect many aspects of our business, including our financial condition, revenues, results of operations, cash flows, liquidity, reserves, rate of growth, and the carrying value of our oil and natural gas properties, all of which depend primarily or in part upon those prices. The reduction in drilling activity will likely result in lower production and, together with lower realized oil prices, lower revenue, and lower net income or a higher net loss. Declines in the prices we receive for our oil and natural gas can also adversely affect our ability to finance capital expenditures, make acquisitions, raise capital, and satisfy our financial obligations. In addition, declines in prices can reduce the amount of oil and natural gas that we can produce economically and the estimated future cash flow from that production and, as a result, adversely affect the quantity and the present value of our proved reserves. Among other things, a reduction in the amount or present value of our reserves can limit the capital available to us, and the availability of other sources of capital likely will be based to a significant degree on the estimated quantity and value of the reserves.

 

Warrants we have granted include anti-dilutive rights.

 

Currently we have outstanding warrants to purchase 50,000 shares of common stock with an exercise price of $5.25 per share, which are subject to “full ratchet” anti-dilution in the event the Company issues additional common stock or common stock equivalents at a price per share less than the exercise price in effect, subject to a floor of $3.92 per share, during the term of the warrants (through June 21, 2022). Specifically, if, while the warrants are outstanding, we issue or are deemed to have issued (which includes shares issuable upon exercise of warrants and options and conversion of convertible securities) securities for consideration less than the then-current exercise price of the warrants, subject to certain excepted issuances, the exercise price of such warrants is automatically reduced to the lowest price per share of the consideration provided or deemed to have been provided for such securities. The exercise price of the warrants to purchase 50,000 shares of common stock will automatically decrease to $         per share as a result of this Offering.

 

Risks Relating to this Offering and our Securities:

 

You will experience immediate and substantial dilution as a result of this Offering and may experience additional dilution in the future.

 

Because the price per share of our common stock being offered is higher than the book value per share of our common stock, you will suffer dilution in the net tangible book value of the common stock you purchase in this Offering. Based on the assumed public offering price of $ per share and the pro forma net tangible book value of the common stock of $5.20 per share as of June 30, 2020 (see “Dilution” below), if you purchase shares of common stock in this Offering, you will suffer dilution of $ per share in the net tangible book value of the common stock which is $        per share following the Offering. See “Dilution” below for a more detailed discussion of the dilution you will incur if you purchase our common stock in the Offering.

 

 

Management will have broad discretion as to the use of the proceeds from this Offering, and may not use the proceeds effectively.

 

Our management will have broad discretion in the application of the net proceeds from this Offering and could spend the proceeds in ways that may not improve our results of operations or enhance the value of our common stock. Our failure to apply these funds effectively could have a material adverse effect on our business and cause the price of our common stock to decline.

 

We currently have an unlimited number of shares of common stock authorized and there may be future issuances or sales of our common stock, which could adversely affect the market price of our common stock and dilute a shareholder’s ownership of common stock.

 

The exercise of (a) any options granted to executive officers and other employees under our equity compensation plans and (b) of any warrants and other issuances of our common stock could have an adverse effect on the market price of the shares of our common stock. Additionally, other than the restrictions set forth in the section titled “Underwriting,” we are not restricted from issuing additional shares of common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive shares of common stock, and currently have an unlimited number of authorized shares of common stock, provided that we are subject to the requirements of The NASDAQ Capital Market (which generally requires shareholder approval for any transactions which would result in the issuance of more than 20% of our then outstanding shares of common stock or voting rights representing over 20% of our then outstanding shares of stock). Issuances of a substantial number of shares of our common stock and/or sales of a substantial number of shares of our common stock in the public market or the perception that such issuances or sales might occur could materially adversely affect the market price of the shares of our common stock. Because our decision to issue securities in the future, including in connection with any future offering, will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our future issuances or offerings. Accordingly, our stockholders bear the risk that our future issuances and/or offerings will reduce the market price of our common stock and dilute their stock holdings in us.

 

We have established preferred stock which can be designated by the Board of Directors without shareholder approval.

 

We have 100,000 shares of preferred stock authorized, which includes 50,000 shares of Series A Convertible Preferred Stock (of which 50,000 shares are outstanding) and 50,000 shares of Series P preferred stock (none of which are outstanding). Shares of preferred stock may be designated and issued by our Board of Directors without shareholder approval with voting powers, and such preferences and relative, participating, optional, or other special rights and powers as determined by our Board of Directors, which may be greater than the shares of common stock currently outstanding. As a result, shares of preferred stock may be issued by our Board of Directors which cause the holders to have voting power over our shares or provide the holders of the preferred stock the right to convert the shares of preferred stock they hold into shares of our common stock, which may cause substantial dilution to our then common stock stockholders and/or have other rights and preferences (including, but not limited to voting rights) greater than those of our common stock stockholders. Investors should keep in mind that the Board of Directors has the authority to issue additional shares of preferred stock, which could cause substantial dilution to our existing stockholders or result in a change of control. Because our Board of Directors is entitled to designate the powers and preferences of the preferred stock without a vote of our stockholders, subject to NASDAQ rules and regulations, our stockholders will have no control over what designations and preferences our future preferred stock, if any, will have.

 

You may experience future dilution as a result of future equity offerings.

 

In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock. We cannot assure you that we will be able to sell shares or other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors in this Offering, and investors purchasing our shares or other securities in the future could have rights superior to existing stockholders. The price per share at which we sell additional shares of our common stock or other securities convertible into or exchangeable for our common stock in future transactions may be higher or lower than the price per share in this Offering.

 

 

We do not intend to pay dividends on our common stock for the foreseeable future.

 

We have never paid cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock for the foreseeable future. Investors should not rely on an investment in us if they require income generated from dividends paid on our capital stock. Because we do not intend to pay dividends on our common stock, any income derived from our common stock would only come from a rise in the market price of our common stock, which is uncertain and unpredictable.

 

Future sales of our common stock could cause our stock price to decline.

 

If our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could decrease significantly. The perception in the public market that our stockholders might sell shares of our common stock could also depress the market price of our common stock. Up to $50,000,000 in total aggregate value of securities have been registered by us on a “shelf” registration statement on Form S-3 (File No. 333-248906) that we filed with the Securities and Exchange Commission on September 18, 2020, and which was declared effective on September 25, 2020. We currently have an aggregate of over $48.34 million in securities which will be eligible for sale in the public markets from time to time, subject to the requirements of Form S-3, which limits us, until such time, if ever, as our public float exceeds $75 million, from selling securities in a public primary offering under Form S-3 with a value exceeding more than one-third of the aggregate market value of the common stock held by non-affiliates of the Company every twelve months. Additionally, if our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline significantly. The market price for shares of our common stock may drop significantly when such securities are sold in the public markets. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.

 

Our stock price has historically been and is likely to continue to be, volatile.

 

Our stock is traded on The NASDAQ Capital Market under the symbol “USEG”. During the last 52 weeks, our common stock has traded as high as $18.57 per share and as low as $2.44 per share. We expect our common stock will continue to be subject to wide fluctuations as a result of a variety of factors, including factors beyond our control. These factors include:

 

●	price volatility in the oil and natural gas commodities markets;
●	variations in our drilling, recompletion, and operating activity;
●	relatively small amounts of our common stock trading on any given day;
●	additions or departures of key personnel;
●	legislative and regulatory changes; and
●	changes in the national and global economic outlook.

 

The stock market has recently experienced significant price and volume fluctuations, and oil and natural gas prices have declined significantly. These fluctuations have particularly affected the market prices of securities of oil and natural gas companies like ours.

 

 

Additional Risk Factors:

 

We have completed a significant acquisition, which requires that we prepare and disclose financial statements with the SEC, which have not been prepared or filed as of the date of this prospectus.

 

As disclosed in the Current Report on Form 8-K which we filed with the Commission on September 29, 2020, on September 25, 2020, we entered into an Asset Purchase Agreement (APA) with Randolph N. Osherow, as Chapter 7 trustee, for FieldPoint Petroleum Corporation’s Chapter 7 bankruptcy proceedings (the “Seller”). Pursuant to the APA, we acquired all of the Seller’s rights to, and interest in, both operated and non-operated properties primarily in Lea County, New Mexico, and Converse County, Wyoming (the “Properties”). The Properties produced approximately 23,572 barrels of oil equivalent (BOE) for the six months ended June 30, 2020. We paid $25,000 as a deposit in connection with the acquisition and paid the remaining amount of the $500,000 aggregate purchase price (i.e., $475,000), on September 25, 2020, upon the closing of the acquisition, which was subject to the approval of the bankruptcy court. The Properties constitute a ‘business’ and the acquisition of the Properties was significant at a level above 20%, but below 50%, for purposes of the significance tests set forth in Rule 1-02(w) of Regulation S-X. As such, we are required to file audited financial statements meeting the requirements of Regulation S-X and pro forma financial statements in connection with such acquisition within 74 calendar days after the date the acquisition closed (i.e., before December 8, 2020). Notwithstanding that requirement, pursuant to the exception set forth in Regulation S-X, Rule 3-05(b)(4), for financial statements of an acquired business that exceeds 20%, but does not exceed 50% significance, such financial statements are not required to be included in the registration statement of which this prospectus forms a part. Investors in the Offering will not have the benefit of the financial statements or pro forma information relating to the Properties in making their investment decision and the pro forma financial statements of the Company taking into account the acquired Properties may be significantly different than the financial statements of the Company as of June 30, 2020, which could, among other things, result in materially different capitalization and dilution calculations compared to those set forth herein under “Capitalization” and “Dilution”, which do not take into account the acquisition of the Properties.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

Certain information included in this prospectus, any free writing prospectus we may file, the documents or information incorporated by reference herein, and other reports filed by us under the Exchange Act contain forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

 

In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “will,” “continue” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under, and incorporated by reference in, “Risk Factors” and elsewhere in this prospectus.

 

If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this prospectus, those documents incorporated by reference herein, and those documents which we have filed with the SEC as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

 

Forward-looking statements speak only as of the date of this prospectus or the date of any document incorporated by reference in this prospectus or any free writing prospectus, as applicable. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.

 

 

You should also consider carefully the statements under and incorporated by reference in “Risk Factors” and other sections of this prospectus, and the documents we incorporate by reference or file as part of any free writing prospectus, which addresses additional facts that could cause our actual results to differ from those set forth in the forward-looking statements. We caution investors not to place significant reliance on the forward-looking statements contained in this prospectus, any free writing prospectus, and the documents we incorporate by reference. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as otherwise required by law.

 

You are advised to consult any further disclosures we make on related subjects in our reports on Forms 10-Q, 8-K and 10-K filed with the SEC.

 

USE OF PROCEEDS

 

We estimate that the net proceeds of this Offering will be approximately $       million, based on an assumed public offering price of $          per share of common stock (which was the last reported sale price of our common stock on The Nasdaq Capital Market on              , 2020), or approximately $         million if the underwriters exercise in full their option to purchase additional shares of common stock, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The actual public offering price per share of common stock will be determined between us and the underwriters based on market conditions at the time of pricing and may be at a discount to the current market price of our common stock.

 

Except where indicated, the foregoing discussion assumes no exercise of the underwriters’ option to purchase up to additional shares of common stock.

 

A $0.50 increase (decrease) in the assumed public offering price of $          per share of common stock would increase (decrease) the expected net proceeds of the Offering to us by approximately $           million, assuming that the number of shares sold by us remains the same. We may also increase or decrease the number of shares of our common stock we are offering. An increase (decrease) of 100,000 in the number of shares sold in this Offering would increase (decrease) the expected net proceeds of the Offering to us by approximately $          million assuming that the assumed public offering price per share remains the same. An increase (decrease) of 250,000 in the number of shares sold in this Offering would increase (decrease) the expected net proceeds of the Offering to us by approximately $          million.

 

We currently intend to use the net proceeds from this Offering, for general corporate purposes, capital expenditures, and working capital. We may also use all or a portion of the net proceeds from this Offering to fund possible acquisitions of oil and gas properties (but we currently have no agreements or commitments with respect to any acquisition), to repay debt (provided we have no specific debt which we currently plan to repay), or for other purposes that the Board of Directors, in their good faith, deems to be in the best interest of the Company.

 

Additionally, in the discretion of our Board of Directors, and with the approval of the holder of our Series A Convertible Preferred Stock, we may use a portion of the Offering proceeds to retire and repurchase some or all of such outstanding shares of Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock does not currently provide for any repurchase or redemption rights (except by the holder thereof upon a change of control of the Company, which has not been triggered to date). The Series A Convertible Preferred Stock had an aggregate liquidation preference of $3,431,000 as of June 30, 2020, provided that the Board of Directors will seek to redeem such shares at a discount to the liquidation value of such preferred stock, which will be subject to the consent of the holder thereof. We may not able to redeem the Series A Convertible Preferred Stock on favorable terms, if at all, and the Board of Directors may choose not to use any of the Offering proceeds to redeem or repurchase such preferred stock or any shares thereof.

 

 

Notwithstanding the above, the amounts and timing of our actual expenditures will depend on numerous factors. We may find it necessary or advisable to use portions of the net proceeds for other purposes, and we will have broad discretion in the application and allocation of the net proceeds from this Offering. Pending the use of the net proceeds from this Offering as described above, we intend to invest the proceeds in investment-grade, interest-bearing instruments.

 

CAPITALIZATION

 

The following table sets forth our capitalization as of June 30, 2020:

 

●	on an actual basis;
●	On a pro forma basis, to give effect to the sale by us, in the September 2020 Offering, which closed on October 2, 2020, of 315,810 shares of common stock at the offering price of $5.25 per share after deducting the placement agent fees and offering expenses payable by us; and
●	On an as-adjusted basis, to give effect to the sale by us, in this Offering, of          shares of common stock at an assumed public offering price of $   per share, which is the last reported sale price of our shares of common stock on the Nasdaq Capital Market on    , 2020, after deducting underwriting discounts and fees and estimated offering expenses payable by us.

 

You should read this table together with the “Use of Proceeds” section included in this prospectus, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, each of which are incorporated by reference into this prospectus.

 

		As of June 30, 2020 (In thousands, except share and per share amounts) (unaudited)
		Actual				Pro Forma				As Adjusted
Cash, cash equivalents and marketable equitable securities		$	963			$	2,447
Stockholders’ equity:
Common stock, $0.01 par value; unlimited shares authorized; 1,399,754, 1,715,564 and         shares issued and outstanding at June 30, 2020, and on a pro forma, and adjusted basis, respectively		$	14			$	17
Additional paid-in capital			137,220				138,701
Accumulated deficit			(131,636	)			(131,636	)			)
Total stockholders’ equity		$	5,598			$	7,082

 

Each increase (decrease) of 100,000 shares of common stock to be purchased at $         per share, which was the last reported sale price of our common stock on The Nasdaq Capital Market on October , 2020) would increase or (decrease) the pro forma as adjusted amount of each of our additional paid-in capital and total stockholders’ equity by approximately $          million, assuming the public offering price remains at $        per share of common stock, which was the last reported sale price of our common stock on The Nasdaq Capital Market on October     , 2020, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

A $0.50 increase (decrease) in the assumed public offering price of $        per share of common stock, which was the last reported sale price of our common stock on The Nasdaq Capital Market on October       , 2020, would result in an incremental increase (decrease) in the pro forma as adjusted amount of each of our additional paid-in capital and total stockholders’ equity by approximately $        million, assuming that the number of shares of our common stock sold by us as set forth on the cover page of this prospectus remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

The number of issued and outstanding shares as of June 30, 2020, in the table excludes (except otherwise indicated):

 

	●	assumes no exercise by the underwriters of their over-allotment option;
	●	100,000 shares of common stock issuable upon the exercise of outstanding warrants to purchase shares of common stock at a weighted-average exercise price of $5.25 per share (of which warrants to purchase 50,000 shares of common stock have since been exercised and which exercise price of the remaining warrants to purchase 50,000 shares has been adjusted to $5.25 per share in connection with the anti-dilution provisions of such warrants);
	●	31,367 shares of our common stock issuable upon the exercise of outstanding options to purchase shares of common stock at a weighted-average exercise price of $64.78 per share; and
	●	79,334 shares of our common stock issuable upon the conversion of the 50,000 shares of our outstanding Series A Convertible Preferred Stock.

 

Additionally, the actual, pro forma and as adjusted capitalization in the table above as of June 30, 2020, does not take into the Company’s September 25, 2020 acquisition of the Properties (discussed above under “Prospectus Summary—Recent Events”).

 

DILUTION

 

If you purchase shares of our common stock in this Offering, your ownership interest will be diluted to the extent of the difference between the public offering price per share and the as adjusted net tangible book value per share after giving effect to this Offering. “Net tangible book value” is total assets minus the sum of liabilities and intangible assets. “Net tangible book value per share” is net tangible book value divided by the total number of shares of common stock outstanding. Dilution in net tangible book value per share represents the difference between the portion of the amount per share paid by purchasers of shares in this Offering and the as adjusted net tangible book value per share of our common stock immediately after giving effect to this Offering.

 

Our pro forma net tangible book value as of June 30, 2020, was $8.93 million, or $5.20 per share per share. Pro forma net tangible book value per share represents the amount of our total tangible assets as adjusted to take into account net cash proceeds of approximately $1.48 million from the sale of 315,810 shares of our common stock in the September 2020 Offering.

 

After giving effect to the assumed sale by us of shares of our common stock in this Offering at an assumed public offering price of $        per share, which was the last reported sale price of our common stock on The Nasdaq Capital Market on , 2020), after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of June 30, 2020 would have been approximately $       million, or approximately $       per share. This represents an immediate decrease in as adjusted net tangible book value of $        per share to existing stockholders and an immediate dilution of $      per share to new investors purchasing common stock in this Offering. The following table illustrates this per share dilution:

 

Assumed public offering price per share						$
Pro forma net tangible book value per share as of June 30, 2020		$	5.20
Decrease in pro forma as adjusted net tangible book value per share of common stock attributable to this Offering		$
Pro forma as adjusted net tangible book value per share of common stock as of June 30, 2020 after giving effect to this Offering						$
Dilution per share to investors participating in this Offering						$

 

 

The information above is as of June 30, 2020, and excludes, as of that date:

 

	●	assumes no exercise by the underwriters of their over-allotment option;
	●	100,000 shares of common stock issuable upon the exercise of outstanding warrants to purchase shares of common stock at a weighted-average exercise price of $11.30 per share (of which warrants to purchase 50,000 shares of common stock have since been exercised and which exercise price of the remaining warrants to purchase 50,000 shares has been adjusted to $5.25 per share in connection with the anti-dilution provisions of such warrants);

 

●

31,367 shares of our common stock issuable upon the exercise of outstanding options to purchase shares of common stock at a weighted-average exercise price of $64.78 per share; and

 

●

79,334 shares of our common stock issuable upon the conversion of the 50,000 shares of our outstanding Series A Preferred Stock.

 

Additionally, the above table does not take into the Company’s September 25, 2020 acquisition of the Properties (discussed above under “Prospectus Summary—Recent Events”).

 

A $0.50 increase (decrease) in the assumed public offering price of $ per share would result in an incremental increase (decrease) in our pro forma as adjusted net tangible book value of approximately $ million or approximately $ per share, and would result in an incremental increase (decrease) in the dilution to new investors of approximately $ per share, assuming that the number of shares of our common stock sold by us remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

We may also increase or decrease the number of shares of common stock we are offering from the assumed number of shares of common stock set forth above. An increase (decrease) of 100,000 in the assumed number of shares of common stock sold by us in this Offering would result in an incremental increase (decrease) in our pro forma as adjusted net tangible book value of approximately $ million or approximately $ per share, and would result no incremental increase (decrease) in the dilution to new investors per share, assuming that the assumed public offering price of the common stock remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 250,000 in the assumed number of shares of common stock sold by us in this Offering would result in an incremental increase (decrease) in our pro forma as adjusted net tangible book value of approximately $ million or approximately $ per share, and would result no incremental increase (decrease) in the dilution to new investors per share, assuming that the assumed public offering price of the common stock remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the actual public offering price, the actual number of securities in this Offering and other terms of this Offering determined at pricing. The information discussed above is illustrative only and will adjust based on the actual public offering price, the actual number of securities in this Offering and other terms of this Offering determined at pricing.

 

The foregoing discussion and table do not take into account further dilution to new investors that could occur upon the exercise of outstanding options or warrants. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

 

DIVIDEND POLICY

 

We do not currently intend to pay any cash dividends on our common stock in the foreseeable future. We expect to retain all available funds and future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends, if any, on our common stock will be at the discretion of our Board of Directors and will depend on, among other factors, our results of operations, financial condition, capital requirements and contractual restrictions.

 

PRINCIPAL STOCKHOLDERS

 

The following table sets forth certain information with respect to the beneficial ownership of our capital stock as of October [  ], 2020, referred to in the table below as the “Beneficial Ownership Date”, and as adjusted to reflect the sale of our shares offered by us in this Offering assuming no exercise of the underwriter’s option to purchase additional shares, by:

 

●

each person, or group of affiliated persons, known by us to beneficially own more than 5% of any class of our securities;

 

●

each of our directors;

 

●

each of our named executive officers; and

 

●

all directors and executive officers as a group.

 

The column titled “Percentage of Shares Beneficially Owned—Before Offering” is based on a total of 1,765,564 shares of our common stock and 50,000 shares of our Series A Preferred Stock outstanding as of the Beneficial Ownership Date. The column titled “Percentage of Shares Beneficially Owned—After Offering” is based on         shares of our common stock to be outstanding after this offering, including the           shares of our common stock that we are selling in this offering, but not including any exercise by the underwriters of their option to purchase additional shares and 50,000 outstanding shares of our Series A Preferred Stock.

 

Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, ordinary shares subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of the Beneficial Ownership Date are deemed outstanding but are not deemed outstanding for computing the percentage ownership of any other person.

 

To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise identified, the address of our directors, director nominees and officers is c/o 675 Bering, Suite 100, Houston, Texas 77057.

 

 

										Percent of Shares Beneficially Owned
Title of Class		Name of Beneficial Owner		Position with Company		Beneficial Ownership				Before Offering			After Offering
Directors, Director Nominees and Executive Officers
Common		Ryan L. Smith		Chief Executive Officer			69,731	(1)			3.9	%		%
Common		James W. Denny III		Director			5,000	(2)			*	%		%
Common		Patrick E. Duke		Director			581,927	(3)			33.0	%		%
Common		Randall D. Keys		Director			5,000	(2)			*	%		%
Common		Javier F. Pico		Director			10,000	(4)			*	%		%
Common		D. Stephen Slack		Director			5,000	(2)			*	%		%
Common		Directors and executive officers as a group (6 people)					676,658				38.1	%		%
Greater than 5% Stockholders
Common		APEG Energy II, L.P.(5)		Stockholder			581,927	(3)			33.0	%		%
Common		Sabby Volatility Warrant Master Fund, Ltd.(6)		Stockholder			157,905				8.9	%		%
Common		Empery Asset Management, LP(7)		Stockholder			157,905				8.9	%		%
Series A Convertible Preferred		Mt. Emmons Mining Company(8)		Series A Convertible Preferred Stockholder			50,000	(9)			100	%	100	%

 

* Less than one percent

 

(1)	Mr. Smith owns 57,500 shares of our common stock and stock options to purchase 10,000 shares of common stock at an exercise price of $11.60 per share, which expire on November 10, 2027. Mr. Smith’s beneficial ownership also includes 2,231 shares currently owned by the employee stock ownership plan (“ESOP”) that Mr. Smith has dispositive power over as an ESOP Trustee.
(2)	Represents 5,000 shares of our common stock issued on January 28, 2020, that vest in full on January 28, 2021.
(3)	Mr. Duke may be deemed to indirectly beneficially own these shares, which are beneficially owned by APEG Energy II, LP, in the following manner: Mr. Duke is the sole member of Duke Capital Services, LLC, which is a managing member of Angelus Private Equity Group, LLC, which is the sole member of Angelus Capital, LLC, which is the sole member of APEG Energy II GP, LLC, which is the general partner and investment advisor of APEG Energy II, LP. Mr. Duke has shared voting power and shared investment power over these shares.
(4)	Represents 8,000 shares of our common stock issued on January 28, 2020, that vest in full on January 28, 2021. Additionally, Mr. Pico owns stock options to purchase 2,000 shares which have an exercise price of $7.20 per share and expire on August 16, 2027.
(5)	Address is 2808 Flintrock Trace, Suite 373, Austin, Texas 78738.
(6)	Sabby Management, LLC (“Sabby”) is the investment manager of Sabby Volatility Warrant Master Fund, Ltd. and shares voting and investment power with respect to these shares in this capacity. As manager of Sabby Management, LLC, Hal Mintz also shares voting and investment power on behalf of Sabby Volatility Warrant Master Fund, Ltd. Each of Sabby Management, LLC and Hal Mintz disclaims beneficial ownership over the securities listed except to the extent of their pecuniary interest therein. The address of principal business office of Sabby Volatility Warrant Master Fund, Ltd., Sabby Management, LLC and Hal Mintz is 10 Mountainview Road, Suite 205, Upper Saddle River, New Jersey 07458. Sabby Volatility Warrant Master Fund, Ltd. is not a registered broker-dealer or an affiliate of a registered broker-dealer. Based solely on information reported on Schedule 13G filed by Sabby with the SEC on September 30, 2020, which information has not been independently verified or confirmed.

 

 

(7)	Address is 1 Rockefeller Plaza, Suite 1205, New York, New York 10020. Empery Asset Management LP, the authorized agent of Empery Asset Master, Ltd (“EAM”), has discretionary authority to vote and dispose of the shares held by EAM and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the shares held by EAM. EAM, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares. Based solely on information reported on Schedule 13G filed by EAM with the SEC on October 5, 2020, which information has not been independently verified or confirmed.
(8)	Address is 333 N. Central Avenue, Phoenix, Arizona 85004.
(9)	On February 11, 2016, Mt. Emmons Mining Company, a subsidiary of Freeport-McMoRan Inc., acquired 50,000 shares of our Series A Convertible Preferred Stock (“Series A Preferred Stock”) with an initial liquidation preference of $2,000,000 ($40.00 per share). The Series A Preferred Stock accrues dividends at a rate of 12.25% per annum and such dividends are not payable in cash but are accrued and compounded quarterly in arrears and added to the initial liquidation preference. As of June 30, 2020, the adjusted liquidation preference was approximately $3.2 million. In no event will the aggregate number of shares of common stock issued upon conversion be greater than 79,334 shares (which is the current number of shares of common stock which such Series A Preferred Stock is convertible into). The Series A Preferred Stock will generally not vote with the Company’s common stock on an as-converted basis on matters put before the Company’s stockholders. Mt. Emmons Mining Company owns 100% of the outstanding Series A Preferred Stock.

 

DESCRIPTION OF CAPITAL STOCK

 

General

 

Our authorized capital stock consists of an unlimited number of shares of common stock with a $0.01 par value per share and 100,000 shares of preferred stock, $0.01 par value per share.

 

As of the date of this prospectus, and prior to the offering of the shares of common stock contemplated hereby, we have 1,765,564 shares of our common stock outstanding and 50,000 shares of our Series A Convertible Preferred Stock outstanding.

 

The following description of our capital stock is a summary only and is subject to and qualified in its entirety by reference to the applicable provisions of the Wyoming Business Corporation Act, and our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws, copies of which are incorporated by reference as exhibits to the registration statement of which this prospectus forms a part. Please refer to the “Where You Can Find More Information” section of this prospectus for directions on obtaining these documents. You should refer to, and read this summary together with, our Amended and Restated Articles of Incorporation, designations of preferred stock and Amended and Restated Bylaws, each as amended and restated from time to time, to review all of the terms of our capital stock. Our Amended and Restated Articles of Incorporation and amendments thereto are incorporated by reference as exhibits to the registration statement of which this prospectus is a part and other reports incorporated by reference herein.

 

Common Stock

 

Each share of our common stock is entitled to equal dividends and distributions per share with respect to the common stock when, as and if declared by our Board of Directors. No holder of any shares of our common stock has a preemptive right to subscribe for any of our securities, nor are any shares of our common stock subject to redemption or convertible into other securities. Upon liquidation, dissolution or winding-up of the Company, and after payment to our creditors and preferred stockholders, if any, our assets will be divided pro rata on a share-for-share basis among the holders of our common stock.

 

Shares of common stock may be issued for such consideration and on such terms as determined by the Board of Directors, without stockholder approval. Holders are entitled to receive dividends when and as declared by the Board of Directors out of funds legally available therefor. We may declare dividends in the future but we expect to retain most or all of our earnings and cash to fund investments and business development. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, except that cumulative voting in the election of directors is permitted (as discussed below). Directors are elected by a plurality of the votes cast.

 

 

The presence of the persons entitled to vote a majority of the outstanding voting shares on a matter before the stockholders constitute the quorum necessary for the consideration of the matter at a stockholders’ meeting.

 

Except as otherwise required by law, the Amended and Restated Articles of Incorporation, or any certificate of designation, (i) at all meetings of stockholders for the election of directors, a plurality of votes cast are sufficient to elect such directors; (ii) any other action taken by stockholders are valid and binding upon the Company if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, at a meeting at which a quorum is present; and (iii) broker non-votes and abstentions are considered for purposes of establishing a quorum but not considered as votes cast for or against a proposal or director nominee. Each shareholder has one vote for every share of stock having voting rights registered in his or her name, except as otherwise provided in any preferred stock designation setting forth the right of preferred stock stockholders.

 

In all elections for directors, every holder of the common stock has the right to vote in person, by proxy or by voting trustee under any voting trust, the number of shares of stock owned by him, her or it, for as many persons as there are directors to be elected, or to cumulate such shares and to give one candidate as many votes equal to the number of directors multiplied by the number of his, her or its shares of stock or to distribute them on the same principle among as many candidates as he, she or it desires.

 

Preferred Stock

 

The Company is authorized to issue 50,000 shares of Series P preferred stock in connection with a shareholder rights plan that expired in 2011, none of which are outstanding.

 

The Company has designated 50,000 shares of Series A Convertible Preferred Stock, all of which are currently outstanding. The Series A Convertible Preferred Stock was issued at a value of $40 per share for an aggregate of $2 million. The Series A Convertible Preferred Stock liquidation preference, initially $2 million, increases by quarterly dividends of 12.25% per annum (the “Adjusted Liquidation Preference”). At the option of the holder, each share of Series A Convertible Preferred Stock may initially be converted into 1.33 shares of common stock (the “Conversion Rate”) for an aggregate of 66,667 shares. The Conversion Rate is subject to anti-dilution adjustments for stock splits, stock dividends and certain reorganization events and to price-based anti-dilution protections. At June 30, 2020, the aggregate number of shares of common stock issuable upon conversion is 79,334 shares, which is the maximum number of shares issuable upon conversion. The Series A Convertible Preferred Stock is senior to other classes or series of shares of the Company with respect to dividend rights and rights upon liquidation. No dividend or distribution will be declared or paid on junior stock, including the Company’s common stock, (1) unless approved by the holders of Series A Convertible Preferred Stock and (2) unless and until a like dividend has been declared and paid on the Series A Convertible Preferred Stock on an as-converted basis. The Series A Convertible Preferred Stock does not vote with the Company’s common stock on an as-converted basis on matters put before the Company’s stockholders. However, the holders of the Series A Convertible Preferred Stock have the right to approve specified matters as set forth in the certificate of designation and have the right to require the Company to repurchase the Series A Convertible Preferred Stock in the event of a change of control, for total consideration equal to the face amount of such preferred stock (currently equal to an aggregate of $2 million) and all accrued and unpaid dividends thereon.

 

Shares of Preferred Stock may be issued from time to time in one or more series, each of which shall have such distinctive designation or title as shall be determined by our Board of Directors prior to the issuance of any shares thereof. Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof.

 

 

The Board may, from time to time, increase the number of shares of any series of Preferred Stock already created by providing that any unissued shares of Preferred Stock shall constitute part of such series, or may decrease (but not below the number of shares thereof then outstanding) the number of shares of any series of any Preferred Stock already created providing that any unissued shares previously assigned to such series shall no longer constitute a part thereof.

 

Composition of the Board of Directors; Election and Removal of Directors; Filling Vacancies

 

The Board of Directors consists of five directors, provided that the number may be increased or decreased from time to time by an amendment to the Amended and Restated Bylaws or by a resolution adopted by the Board of Directors. The Board of Directors is divided into three classes, designated as Class One, Class Two and Class Three directors. Directors need not be stockholders of the Company.

 

Directors serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting of stockholders at which such director was elected. The term of each director continues until the election and qualification of his or her successor and is subject to his or her earlier death, disqualification, resignation or removal. Except as otherwise provided by the Wyoming Business Corporation Act, the Amended and Restated Articles of Incorporation or the Amended and Restated Bylaws, directors are elected by a plurality of the votes of the shares present in person or represented by a duly authorized and executed proxy at the meeting and entitled to vote on the election of directors.

 

In all elections for directors, every holder of the common stock has the right to vote in person, by proxy or by voting trustee under any voting trust, the number of shares of stock owned by him, her or it, for as many persons as there are directors to be elected, or to cumulate such shares and to give one candidate as many votes equal to the number of directors multiplied by the number of his, her or its shares of stock or to distribute them on the same principle among as many candidates as he, she or it desires.

 

Subject to applicable law or by the Amended and Restated Articles of Incorporation, any director or the entire Board of Directors of the Company may be removed without cause by the affirmative vote of a majority of the holders of the Company’s then-outstanding shares entitled to vote generally at an election of directors.

 

Any vacancy occurring in the Board of Directors by reason of an increase in the number of directors, or for any other reason, may be filled by the affirmative vote of a majority of the directors voting on such matter at a duly convened meeting, or in the event that the directors remaining in office constitute fewer than a quorum of the Board of Directors, by the affirmative vote of a majority of all directors remaining in office.

 

Limitations of Liability and Indemnification Matters

 

The Amended and Restated Articles of Incorporation require the Company to indemnify to the fullest extent permitted by and in the manner permissible under the Wyoming Business Corporation Act, as amended from time to time, any person made, or threatened to be made, a party to any threatened, pending or completed action, suit, or proceeding, whether criminal, civil, administrative, or investigative, by reason of the fact that such person (a) is or was a director or officer of the Company or any predecessor of the Company or (b) served any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner, trustee, employee or agent at the request of the Company or any predecessor of the Company; provided, subject to certain exceptions in the Amended and Restated Bylaws, the Company is only required to indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized in advance by the Board of Directors.

 

To the fullest extent permitted by the Wyoming Business Corporation Act, or any other applicable law, the Company, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to the Amended and Restated Bylaws.

 

 

Anti-Takeover Effects of our Amended and Restated Articles of Incorporation and Wyoming Law

 

Our Amended and Restated Articles of Incorporation provide for the issuance of up to an unlimited number of shares of common stock, par value $0.01 per share. Our authorized but unissued shares of common stock will be available for future issuance without stockholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. Our board has the authority to issue an unlimited additional number of shares. The existence of unlimited authorized but unissued shares of common stock could render more difficult or discourage an attempt to obtain control of a majority of our common stock by means of a proxy contest, tender offer, merger or otherwise.

 

We may be or in the future we may become subject to Wyoming’s control share law. The law focuses on the acquisition of a “controlling interest” which means the ownership of outstanding voting shares sufficient, but for the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the corporation in the election of directors: (i) one-fifth or more but less than one-third, (ii) one-third or more but less than a majority, or (iii) a majority or more. The ability to exercise such voting power may be direct or indirect, as well as individual or in association with others. The effect of the control share law is that the acquiring person, and those acting in association with it, obtains only such voting rights in the control shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to strip voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest, their shares do not become governed by the control share law. If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of record, other than an acquiring person, who has not voted in favor of approval of voting rights is entitled to demand fair value for such stockholder’s shares.

 

Wyoming’s control share law may have the effect of discouraging takeovers of the corporation. In addition to the control share law, Wyoming has a business combination law which prohibits certain business combinations between Wyoming corporations and “interested stockholders” for three years after the “interested stockholder” first becomes an “interested stockholder,” unless the corporation’s Board of Directors approves the combination in advance. For purposes of Wyoming law, an “interested stockholder” is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation, or (ii) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition of the term “business combination” is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquiror to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders. The effect of Wyoming’s business combination law is to potentially discourage parties interested in taking control of the Company from doing so if it cannot obtain the approval of our Board of Directors.

 

Separately, our authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder approval, subject to any limitations imposed by the listing standards of the NASDAQ Capital Market. These additional shares may be used for a variety of corporate finance transactions, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could make more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

 

 

DESCRIPTION OF SECURITIES WE ARE OFFERING

 

We are offering shares of common stock, assuming no exercise of the underwriters’ over-allotment option.

 

The material terms and provisions of our common stock are described above under “Description of Capital Stock—Common Stock”.

 

UNDERWRITING

 

We are offering the shares of common stock described in this prospectus supplement and the accompanying prospectus through the underwriter listed below. Kingswood Capital Markets, a division of Benchmark Investments, Inc., is acting as the sole book-running manager of this offering. The underwriter named below has agreed to buy, subject to the terms of the underwriting agreement, the number of shares of common stock listed opposite its name below. The underwriter is committed to purchase and pay for all of the shares of common stock if any are purchased, other than those shares of common stock covered by the over-allotment option described below. -* 

Name of Underwriter		Number of Shares
Kingswood Capital Markets
Total

 

The underwriter has advised us that it proposes to offer the shares of common stock to the public at an offering price of $_____. The underwriter proposes to offer the shares of common stock to certain dealers at the same price less a concession of not more than $_____. After the offering, these figures may be changed by the underwriter. 

 

The common stock sold in this offering are expected to be ready for delivery on or about November __, 2020, against payment in immediately available funds. The underwriter may reject all or part of any order.

 

We have granted to the underwriter an option to purchase up to an additional _____ shares of common stock from us at the same price to the public, and with the same underwriting discount, as set forth in the table below. The underwriter may exercise this option any time during the 45-day period after the date of this prospectus supplement, but only to cover over-allotments, if any. To the extent the underwriter exercises the option, the underwriter will become obligated, subject to certain conditions, to purchase the shares of common stock for which it exercises the option.

 

The table below summarizes the underwriting discounts that we will pay to the underwriter. These amounts are shown assuming both no exercise and full exercise of the over-allotment option. In addition to the underwriting discount, we have agreed to pay up to $125,000 of the fees and expenses of the underwriter, which may include the fees and expenses of counsel to the underwriter, in the event of a closing of this offering and up to $25,000 in the event there is not a closing of this offering. The fees and expenses of the underwriter that we have agreed to reimburse are not included in the underwriting discounts set forth in the table below. The underwriting discount and reimbursable expenses the underwriter will receive were determined through arms’ length negotiations between us and the underwriter.

 

Per Share

Total with no Over-Allotment

Total with Over-Allotment

Public offering price

$

$

Underwriting discount

$

$

Proceeds, before expenses, to us

$

$

 

We estimate that the total expenses of this offering, excluding underwriting discounts, will be $_____. This includes $____ of the fees and expenses of the underwriter. These expenses are payable by us.

 

We also have agreed to indemnify the underwriter against certain liabilities, including civil liabilities under the Securities Act of 1933, as amended, or to contribute to payments that the underwriter may be required to make in respect of those liabilities.

 

We, as well as our officers and directors have agreed, subject to limited exceptions, for a period of 180 days after the closing of this Offering, not to offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of, directly or indirectly any shares of common stock or any securities convertible into or exchangeable for our common stock either owned as of the date of the underwriting agreement or thereafter acquired without the prior written consent of the underwriter. The underwriter may, in its sole discretion and at any time or from time to time before the termination of the lock-up period, without notice, release all or any portion of the securities subject to lock-up agreements.

 

Price Stabilization, Short Positions, and Penalty Bids

 

In connection with this offering, each underwriter may engage in transactions that stabilize, maintain or otherwise affect the price of our securities. Specifically, such underwriter may over-allot in connection with this offering by selling more securities than are set forth on the cover page of this prospectus. This creates a short position in our securities for such underwriter’s own accounts. The short position may be either a covered short position or a naked short position. In a covered short position, the number of securities over-allotted by such underwriter is not greater than the number of securities that it may purchase in the over-allotment option. In a naked short position, the number of securities involved is greater than the number of securities in the over-allotment option. To close out a short position, such underwriter may elect to exercise all or part of the over-allotment option. Such underwriter may also elect to stabilize the price of our securities or reduce any short position by bidding for, and purchasing, securities in the open market.

 

 

The underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing a security in this offering because the underwriter repurchases that security in stabilizing or short covering transactions.

 

Finally, each underwriter may bid for, and purchase, shares of our securities in market-making transactions, including “passive” market-making transactions as described below.

 

These activities may stabilize or maintain the market price of our securities at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue any of these activities at any time without notice. These transactions may be affected on NASDAQ, in the over-the-counter market, or otherwise.

 

In connection with this offering, the underwriters and selling group members, if any, or their affiliates may engage in passive market-making transactions in our common stock immediately prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103 generally provides that:

 

	●	a passive market maker may not affect transactions or display bids for our securities in excess of the highest independent bid price by persons who are not passive market makers;
	●	net purchases by a passive market maker on each day are generally limited to 30% of the passive market maker’s average daily trading volume in our common stock during a specified two-month prior period or 200 shares, whichever is greater, and must be discontinued when that limit is reached; and
	●	passive market-making bids must be identified as such.

 

Determination of Offering Price

 

The public offering price of the securities we are offering was negotiated between us and the underwriters based on the trading of our common stock prior to the Offering, among other things. Other factors considered in determining the public offering price of the shares include the history and prospects of the Company, the stage of development of our business, our business plans for the future and the extent to which they have been implemented, an assessment of our management, general conditions of the securities markets at the time of the Offering and such other factors as were deemed relevant.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our common stock is Computershare Trust Company, Inc., 462 South 4th Street, Louisville, Kentucky 40202.

 

Listing

 

Our common stock is listed on the NASDAQ Capital Market under the symbol “USEG.”

 

Electronic Distribution

 

This prospectus in electronic format may be made available on websites or through other online services maintained by the underwriters, or by their affiliates. Other than this prospectus in electronic format, the information on the underwriters’ websites and any information contained in any other websites maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the underwriters in their capacity as underwriter, and should not be relied upon by investors.

 

Other than the prospectus in electronic or printed format, the information on the underwriters’ website and any information contained in any other website maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the underwriters in their capacity as underwriters and should not be relied upon by investors.

 

 

Certain Relationships

 

From time to time, the underwriters and/or their affiliates have provided, and may in the future provide, various investment banking and other financial services for us for which services it has received and, may in the future receive, customary fees.

 

Except for the services provided in connection with this Offering and as described below, the underwriters have not provided any investment banking or other financial services during the 180-day period preceding the date of this prospectus, except as set forth below.

 

Kingswood Capital Markets, a division of Benchmark Investments, Inc., acted as the sole placement agent for the Company on a “reasonable best efforts” basis, in connection with the September 2020 Offering discussed above under “Prospectus Summary—Recent Events” and as described in greater detail in our Current Report on Form 8-K filed with the SEC on October 2, 2020, which is incorporated by reference into this prospectus.

 

Offers Outside the United States

 

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

 

LEGAL MATTERS

 

The Loev Law Firm, P.C., Bellaire, Texas, will issue an opinion with respect to the validity of the shares of common stock offered hereby. Ellenoff Grossman & Schole LLP, New York, New York is acting as counsel to the representative for the underwriters in this Offering.

 

EXPERTS

 

The consolidated balance sheets of the Company as of December 31, 2019, and 2018, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2019, appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, have been audited by Plante & Moran, PLLC, as set forth in their report thereon, and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

 

Estimates of historical oil and natural gas reserves and related information of the Company as of December 31, 2019, appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, are based upon engineering studies prepared by Don Jacks, PE an independent petroleum engineer and State of Texas Licensed Professional Engineer (License #73499) and estimates of historical oil and natural gas reserves and related information of the Company as of December 31, 2018, appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, are based upon engineering studies prepared by and for the Jane E. Trusty, PE an independent petroleum engineer and State of Texas Licensed Professional Engineer (License #60812). Such estimates and related information have been so included in reliance upon the authority of Mr. Jacks and Ms. Trusty as an expert in such matters.

 

 

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, any interest, directly or indirectly, in our Company or any of our parents or subsidiaries, nor was any such person connected with us or any of our parents or subsidiaries, if any, as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We file annual, quarterly, and current reports, proxy statements, and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC’s web site at www.sec.gov and on the “Investors – SEC Filings” page of our website at https://usnrg.com. Neither this website nor the information on this website is included or incorporated in or is a part of, this prospectus. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC like us. Our SEC filings are also available to the public from the SEC’s website at http://www.sec.gov.

 

This prospectus is part of the registration statement and does not contain all of the information included in the registration statement. Whenever a reference is made in this prospectus to any of our contracts or other documents, the reference may not be complete, and, for a copy of the contract or document, you should refer to the exhibits that are a part of the registration statement. You should rely only on the information contained or incorporated by reference in this prospectus, and any supplement or amendment hereto. We have not authorized anyone to provide you with information different from that contained in this prospectus. The securities offered under this prospectus are offered only in jurisdictions where offers and sales are permitted. The information contained in this prospectus, and any free writing prospectus, is accurate only as of the date of this prospectus and any such free writing prospectus, regardless of the time of delivery of this prospectus or any free writing prospectus, or any sale of the securities.

 

This prospectus constitutes a part of a registration statement we filed with the SEC under the Securities Act. This prospectus does not contain all of the information set forth in the registration statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information with respect to us and the shares offered hereby, reference is hereby made to the registration statement. The registration statement may be inspected at the website addresses set forth in the paragraph above. Statements contained herein concerning any document filed as an exhibit are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an exhibit to the registration statement. Each such statement is qualified in its entirety by such reference.

 

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

 

The SEC allows us to “incorporate by reference” into this prospectus the information we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus from the date on which we file that document. Any reports filed by us with the SEC (i) on or after the date of filing of the registration statement and (ii) on or after the date of this prospectus and before the termination of the Offering of the securities by means of this prospectus will automatically update and, where applicable, supersede information contained in this prospectus or incorporated by reference into this prospectus.

 

 

We incorporate by reference the documents listed below, all filings filed by us pursuant to the Exchange Act after the date of the registration statement of which this prospectus forms a part, and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the time that all securities covered by this prospectus have been sold; provided, however, that we are not incorporating any information furnished under either Item 2.02 or Item 7.01 of any current report on Form 8-K:

 

	(a)	The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “Annual Report”), as filed with the SEC on March 30, 2020;
	(b)	The Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, as filed with the SEC on May 14, 2020, and the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2020, as filed with the SEC on August 14, 2020;
	(c)	The Company’s Current Reports on Form 8-K and Form 8-K/A (other than information furnished rather than filed) filed with the SEC on March 5, 2020; March 10, 2020; June 10, 2020, September 29, 2020, and October 2, 2020;
	(d)	The Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 29, 2020; and
	(e)	The description of our capital stock contained in our registration statement on Form 10 filed under the Exchange Act with the SEC on January 29, 1973, as amended and restated in the Form 8-K filed with the SEC on April 7, 2014, as the same may be further amended from time to time.

 

These documents contain important information about us, our business, and our financial condition. Copies of documents incorporated by reference, excluding exhibits except to the extent such exhibits are specifically incorporated by reference, are available from us without charge, from any person, including any beneficial owner, to whom a prospectus is delivered, upon oral or written request to:

 

U.S. Energy Corp.

675 Bering Dr, Suite 100

Houston, Texas 77057

Attn: Ryan L. Smith, Chief Executive Officer

Email: Ryan@usnrg.com

Phone: (303) 993-3200

 

All documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Act or the Exchange Act, excluding any information in those documents that are deemed by the rules of the SEC to be furnished but not filed, after the date of this prospectus and before the termination of this Offering shall be deemed to be incorporated in this prospectus and to be a part hereof from the date of the filing of such document. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for all purposes to the extent that a statement contained in this prospectus, or in any other subsequently filed document which is also incorporated or deemed to be incorporated by reference, modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus. You will be deemed to have notice of all information incorporated by reference in this prospectus as if that information was included in this prospectus.

 

Statements made in this prospectus or in any document incorporated by reference in this prospectus as to the contents of any contract or other document referred to herein or therein are not necessarily complete, and in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the documents incorporated by reference, each such statement being qualified in all material respects by such reference.

 

We file annual, quarterly, and current reports, proxy statements, and other information with the SEC.

 

We maintain an Internet website at https://usnrg.com where the incorporated reports listed above can be accessed. Neither this website nor the information on this website is included or incorporated in or is a part of, this prospectus. Additionally, the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, such as the Company, at http://www.sec.gov.

 

 

Shares of Common Stock

 

 

PROSPECTUS

 

Kingswood Capital Markets
division of Benchmark Investments, Inc.

 

, 2020

 

 

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

 

The following table sets forth an estimate of the registrant’s expenses, other than any sales commissions or discounts, in connection with the issuance and distribution of the securities being registered hereby. All amounts are estimates except for the SEC registration fee and the Financial Industry Regulatory Authority, or FINRA, filing fee.

 

Securities and Exchange Commission registration fee		$	627.32
FINRA Filing Fee		$	1,250.00
Accounting fees and expenses		$	20,000.00
Printing and engraving expenses		$	12,000.00
Legal fees and expenses		$	85,000.00
Transfer agent and registrar fees		$	10,000.00
Miscellaneous		$	5,000.00
Total		$	133,877.32

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

Our directors and officers are indemnified as provided by the Wyoming Business Corporation Act (“WBCA”) and our Amended and Restated Bylaws.

 

Our Amended and Restated Bylaws provide that we will indemnify our officers and directors, including the advancement of expenses, to the fullest extent permitted by and in the manner permissible under the WBCA, and that we may maintain insurance, at our expense, to protect against any expense, liability or loss on our behalf or on behalf of our officers, directors, employees or agents, whether or not we would have the power to indemnify such person against such expense, liability or loss under the WBCA.

 

The WBCA, provides that a corporation shall indemnify its directors and any officers who are not directors, who were wholly successful, on the merits or otherwise, in the defense of any proceeding to which such person was a party because he or she was a director (or officer) of the corporation against reasonable expenses incurred by the person in connection with the proceeding.

 

The WBCA also provides that a corporation may indemnify an individual who is a party to a proceeding because the individual is a director against liability incurred in the proceeding if:

 

(i) (A) The director conducted himself or herself in good faith; and

 

(B) He or she reasonably believed that his or her conduct was in or at least not opposed to the corporation’s best interests; and

 

(C) In the case of any criminal proceeding, the director had no reasonable cause to believe his or her conduct was unlawful; or

 

(ii) The director engaged in conduct for which broader indemnification has been made permissible or obligatory under a provision of the corporation’s articles of incorporation (provided that the Company’s Articles of Incorporation do not include any provisions relating to indemnification).

 

Additionally, the termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the standard of conduct described above.

 

 

However, unless ordered by a court, a corporation may not indemnify a director:

 

(i) In connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director has met the standard of conduct above; or

 

(ii) In connection with any proceeding with respect to conduct for which he or she was adjudged liable on the basis that he or she received a financial benefit to which he or she was not entitled, whether or not involving action in the director’s capacity.

 

Under the WBCA, a corporation may, before final disposition of a proceeding, advance funds to pay for or reimburse the expenses incurred in connection with the proceeding by an individual who is a party to a proceeding because that individual is a member of the Board of Directors under certain circumstances.

 

Additionally, under the WBCA, a corporation may indemnify and advance expenses to an officer of the corporation who is a party to a proceeding because he or she is an officer of the corporation:

 

(i) To the same extent as a director; and

 

(ii) If he or she is an officer but not a director, to such further extent as may be provided by the articles of incorporation, the Bylaws, a resolution of the Board of Directors or contract, except for:

 

(A) Liability in connection with a proceeding by or in the right of the corporation other than for expenses incurred in connection with the proceeding; or

 

(B) Liability arising out of conduct that constitutes:

 

(I) Receipt by the officer of a financial benefit to which he or she is not entitled;

 

(II) An intentional infliction of harm on the corporation or the stockholders; or

 

(III) An intentional violation of criminal law.

 

A corporation may also indemnify and advance expenses to a current or former officer, employee or agent who is not a director to the extent, consistent with public policy, that may be provided by its articles of incorporation, Bylaws, general or specific action of its Board of Directors or contract.

 

Notwithstanding the above, insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is theretofore unenforceable.

 

Separately, pursuant to the Company’s Amended and Restated Articles of Incorporation, no director of the Company is personally liable to the Company or any shareholder for monetary damages for breach of fiduciary duty as a director, except in connection with an unlawful distribution under the WBCA, or any amendment thereto or successor provision thereto, and except for any matter in respect of which such director is liable by reason that the director (i) has breached his or her duty of loyalty to the Company or its stockholders, (ii) has not acted in good faith or, in failing to act, has not acted in good faith, (iii) has acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, has acted in a manner involving intentional misconduct or a knowing violation of law, or (iv) has derived an improper personal benefit.

 

 

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

 

The following is a summary of transactions by us within the past three years involving sales or our securities that were not registered under the Securities Act.

 

On December 27, 2017, we received shareholder approval for the exchange agreement (“Exchange Agreement”) entered into by and among the Company, the Company’s wholly-owned subsidiary Energy One LLC and APEG Energy II, L.P., (“APEG”), which entity Patrick E. Duke, a director of the Company, has shared voting power and shared investment power over, pursuant to which, on December 29, 2017, pursuant to the terms and subject to the conditions of the Exchange Agreement, APEG exchanged $4,463,380 of outstanding borrowings under the Credit Agreement by and between the Company’s wholly-owned subsidiary, Energy One LLC, and APEG dated as of July 30, 2010, as amended (the “Credit Facility”), for 581,927 new shares of restricted common stock of the Company, par value $0.01 per share, representing an exchange price of $7.67 per share, representing a 1.3% premium over the 30-day volume-weighted average price of the Company’s common stock on September 20, 2017. Accrued, unpaid interest on the Credit Facility held by APEG was paid in cash at the closing of the transaction.

 

Effective on March 1, 2020, we closed the transactions contemplated by that certain Membership Interest Purchase Agreement, dated March 1, 2020, by and among us, Donald A. Kessel and Robert B. Foss, pursuant to which we agreed to acquire all of the issued and outstanding equity interests of New Horizon Resources, LLC (“New Horizon”), which had assets including acreage and operated producing properties in North Dakota. The consideration paid at closing consisted of 59,498 shares of restricted common stock of the Company and $150,000 in cash.

 

The issuances described above were exempt from registration pursuant to Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act, since the foregoing issuances did not involve a public offering, the recipients took the securities for investment and not resale, we took take appropriate measures to restrict transfer, and the recipients were “accredited investors”. The securities are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom. The securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.

 

ITEM 16. EXHIBITS

 

(a) Exhibits Pursuant to Item 601 of Regulation S-K:

 

A list of exhibits filed with this registration statement on Form S-1 is set forth on the Exhibit Index and is incorporated herein by reference.

 

ITEM 17. UNDERTAKINGS

 

The undersigned registrant hereby undertakes:

 

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:

 

(i) Include any prospectus required by Section 10(a)(3) of the Securities Act;

 

(ii) Reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

 

 

(iii) Include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

provided, however, that paragraphs (1)(i), (1)(ii) and (i)(iii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to sections 13 or 15(d) of the Exchange that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) of this chapter that is part of the registration statement.

 

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4) That, for the purpose of determining liability under the Securities Act to any purchaser:

 

(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) and (h) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

 

(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.

 

(5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

 

(6) That, for the purpose of determining liability of the Registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i) Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned registrant;

 

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and

 

(iv) Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.

 

(7) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(8) The undersigned registrant hereby undertakes that:

 

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Houston, State of Texas on the 29th day of October 2020.

 

	U.S. ENERGY CORP.
	/s/ Ryan L. Smith
	By:	Ryan L. Smith, President, Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and Principal Financial and Accounting Officer)

 

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mr. Ryan L. Smith, with full power of substitution, re-substitution and authority to act as his or her true and lawful attorney-in-fact and agent, with full power for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature		Title		Date
/s/ Ryan L. Smith		President, Chief Executive Officer, Chief Financial Officer		October 29, 2020
Ryan L. Smith		(Principal Executive Officer and Principal Financial and Accounting Officer)
		Director		__________, 2020
James W. Denny
/s/ Patrick E. Duke		Director		October 29, 2020
Patrick E. Duke
/s/ Randall D. Keys		Director		October 29, 2020
Randall D. Keys
/s/ Javier F. Pico		Director		October 29, 2020
Javier F. Pico
/s/ D. Stephen Slack		Director		October 29, 2020
D. Stephen Slack

 

 

EXHIBIT INDEX

 

Incorporated by Reference

Exhibit No.

Description

Form

File No.

Exhibit

Filing Date

Filed Herewith

1.1

Placement Agency Agreement, dated September 29, 2020, between the Company and Kingswood Capital Markets, a division of Benchmark Investments, Inc.

8-K

000-06814

1.1

October 2, 2020

*1.2

Form of Underwriting Agreement

2.1

Acquisition Agreement between U.S. Energy Corp. and Mt. Emmons Mining Company dated February 11, 2016

8-K

000-06814

2.1

February 12, 2016

3.1

Amended and Restated Articles of Incorporation

10-K

000-06814

3.1

March 30, 2020

3.2

Certificate of Designation for Series A Convertible Preferred Stock (incorporated by reference from Exhibit A to Exhibit 3.1)

10-K

000-06814

3.1

March 30, 2020

3.3

Amended and Restated Bylaws, dated as of August 5, 2019

8-K

000-06814

3.2

August 9, 2019

4.1

Specimen Certificate for Common Stock, par value $0.01 per share

S-3

333-162607

4.9

October 20, 2009

4.2

Common Stock Purchase Warrant Initially Exercisable June 21, 2017

8-K

000-06814

4.1

December 22, 2016

*5.1

Opinion and consent of The Loev Law Firm, PC re: the legality of the securities being registered

10.1†

USE 2001 Officers’ Stock Compensation Plan

10-K

000-06814

4.21

September 13, 2002

10.2†

2001 Incentive Stock Option Plan (amended in 2003)

10-K

000-06814

4.2

April 15, 2005

10.3†

2008 Stock Option Plan for Independent Directors and Advisory Board Members

10-K

000-06814

4.3

March 13, 2009

10.4†

U.S. Energy Corp. Employee Stock Ownership Plan (adopted December 2011)

S-8

333-180735

4.1

April 13, 2012

10.5†

U.S. Energy Corp. Amended and Restated 2012 Equity Performance and Incentive Plan

8-K

000-06814

10.1

June 10, 2020

10.6†

Form of Grant to the 2012 Equity and Performance Incentive Plan

10-K

000-06814

10.5.1

March 18, 2013

10.7†

Executive Employment Agreement – Ryan Smith (effective March 5, 2020)

8-K

000-06814

10.1

March 10, 2020

10.8†

Form of Option Agreement between U.S. Energy Corp. and its directors

10-K

000-06814

10.8(i)

March 28, 2018

10.9†

Form of Incentive Option Agreement between U.S. Energy Corp. and its executive officers

10-K

000-06814

10.8(j)

March 28, 2018

10.10†

Form of Indemnity Agreement between U.S. Energy Corp. and its directors and officers

10-K

000-06814

10.8(k)

March 28, 2018

10.11

Series A Convertible Preferred Stock Purchase Agreement between the Company and Mt. Emmons Mining Company dated February 11, 2016

8-K

000-06814

10.1

February 12, 2016

10.12

Investor Rights Agreement between the Company and Mt. Emmons Mining Company dated February 11, 2016

8-K

000-06814

10.2

February 12, 2016

10.13

Exchange Agreement, dated September 28, 2017, by and among U.S. Energy Corp., Energy One LLC, and APEG Energy II, L.P.

8-K

000-06814

10.1

October 5, 2017

10.14

Final Release and Settlement Agreement among U.S. Energy Corp. and Energy One, LLC, and APEG Energy II, LP, APEG Energy II GP, LLC and John Hoffman, dated May 22, 2019

8-K

000-06814

10.1

May 24, 2019

10.15

Membership Interest Purchase Agreement dated March 1, 2020 by and among U.S. Energy Corp, as Buyer, and Donald A. Kessel and Robert B. Foss, as Sellers

8-K

000-06814

10.1

March 5, 2020

**#10.16

Asset Purchase Agreement dated September 25, 2020, by and among U.S. Energy Corp, as Buyer, and Mr. Randolph N. Osherow, as Chapter 7 trustee in the Bankruptcy Case of FieldPoint Petroleum Corporation

X

**10.17

$375,000 Secured Promissory Note dated September 24, 2020 entered into by U.S. Energy Corp., to evidence amounts owed to APEG Energy II, L.P.

X

#10.18

Form of Securities Purchase Agreement, dated September 30, 2020, by and between the Company and the Purchasers thereunder

8-K

000-06814

10.1

October 2, 2020

10.19†

Form of Lock-Up Agreements for September 2020 Offering

8-K

000-06814

10.2

October 2, 2020

21.1

Subsidiaries of the Registrant

10-K

000-06814

21.1

March 30, 2020

**23.1

Consent of Plante & Moran, PLLC

X

**23.2

Consent of Don Jacks, PE

X

**23.3

Consent of Jane Trusty, PE

X

*23.4

Consent of The Loev Law Firm, PC (included in Exhibit 5.1)

**24.1

Power of Attorney (included on the signature page of this registration statement)

X

 

*	To be filed by amendment.
**	Filed herewith.
†	Exhibit constitutes a management contract or compensatory plan or agreement.
#	Certain schedules, annexes, and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request; provided, however, that U.S. Energy Corp. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished.