EDGAR 10-K Filing

Company CIK: 822746
Filing Year: 2023
Filename: 822746_10-K_2023_0001493152-23-017151.json

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ITEM 1. BUSINESS
Item 1. Business.
DESCRIPTION OF BUSINESS
The financial statements contained in this Annual Report on Form 10-K as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of December 31, 2022.
Overview
Historically, the Company has been an oil and natural gas exploration, development and production company, which was primarily in the business of drilling and operating oil and gas wells. From 2009 to 2020, the Company had pursued the exploration of potential oil and gas resources in the United States and in the Perlas and Tyra concession blocks in offshore Nicaragua in the Caribbean Sea (the “Concessions”), which contain a total of approximately 1.4 million acres. In January 2020, the Company decided to cease its activities, exploration and production in the Concessions.
Recently, the Company has changed its focus to include the exploration and development of noble gas and rare earth minerals. Noble gases and rare earth minerals are generally present in either the natural gas or brine water produced by conventional oil and gas wells. Therefore, we are now focusing on exploration and development of areas that may contain noble gas and rare earth mineral reserves in addition to exploration and development of traditional oil and gas.
The Company is assessing various opportunities and strategic alternatives involving the acquisition, exploration and development of natural gas and oil properties in the United States that may include noble gases and rare earth minerals, including the possibility of acquiring businesses or assets that provide support services for the production of oil, gas, noble gas and rare earth minerals in the United States.
Central Kansas Uplift
On April 1, 2021, we completed the acquisition of the Central Kansas Uplift Properties, for a purchase price of $900,000. The Central Kansas Uplift Properties include production and mineral rights/leasehold for oil and gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological formation covering approximately 11,000 contiguous acres (the “Properties”). The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce oil from the Reagan Sand zone at an approximate depth of 3,600 feet.
We commenced with certain rework to the existing production wells after completion of the acquisition of the Properties and have performed testing and evaluation of the existence of noble gas reserves on the Properties including helium, argon and other rare earth minerals/gases. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results, and we have yet to determine the possibility of commercializing the noble gas reserves on the Properties. We plan to assess the Properties’ existing oil and gas reserves, including the exploration for the existence of new oil and gas zones and other mineral reserves, in particular the noble gases, that the Properties may hold.
During the year ended December 31, 2022, the Company changed its strategy regarding the Central Kansas Uplift considering the reduced net cash flows from the sale of crude oil production. The reduction in net cash flows was attributable to lower spot crude oil prices during 2022 compared to 2021 and higher than anticipated operating costs related to the operation of the horizontal wells on the Properties. The Company has shut down the horizontal production wells as of December 31, 2022 and is considering the deepening of the conventional wells on the property to explore for helium and other noble gases that may be present in deeper producing zones. Accordingly, the Company has recorded an impairment charge of $712,812 to reduce the capitalized tangible and intangible costs related to its Central Kansas Uplift properties to zero as of December 31, 2022.
Hugoton Gas Field Farm-Out
On April 4, 2022, the Company acquired a 40% participation in a Farmout Agreement by and between Sunflower Exploration, LLC as the Farmee and Scout Energy Partners as Farmor (“Scout”) with regards to its oil and gas interests in the Hugoton Gas Field, located in Haskell and Finney Counties, Kansas. The Company has joined three other parties to explore for and develop potential oil, natural gas, noble gases and brine minerals on the properties underlying the Farmout Agreement (collectively the “Hugoton JV”).
The Farmout Agreement covers drilling and completion of up to 50 wells, with the first exploratory well spudded on May 7, 2022. The Hugoton JV will utilize Scout’s existing infrastructure assets including water disposal, gas gathering and helium processing. The Farmout Agreement provides the Hugoton JV with rights to take in-kind and market its share of helium at the tailgate of Jayhawk Gas Plant, which will enable the Hugoton JV to market and sell the helium produced at prevailing market prices.
The Hugoton JV also acquired the right to all brine minerals subject to a ten percent (10%) royalty to Scout, across Finney and Haskell Counties. Brine minerals are harvested from the formation water produced from active, and to be drilled, oil and gas wells and may include a variety of dissolved minerals including bromine and iodine. The Hugoton JV plans to target brine minerals with commercial quantities of bromine and iodine. The Company through the Hugoton JV is currently developing proprietary technology to recover brine minerals, particularly with respect to bromine, which is well underway and has demonstrated recovery efficiency and is expected to be available for use in existing and future development wells.
The Hugoton JV believes that its unconventional theory has not previously been targeted for exploration by historical operations in the field. The initial exploratory well was spud on May 7, 2022 near Garden City, Kansas, with production casing set after testing and completion logs identified at least two potential zones with substantial gas and helium reserves. The initial well was completed upon the successful perforation across two lower intervals of the Chase group of formations. The fracture stimulation was completed in two stages during June 2022. The well was connected to the pipeline and commenced commercial production and sale of natural gas, natural gas liquids and helium on August 17, 2022. The Company is continuing to evaluate the initial flows of both natural gas, natural gas liquids and helium to determine its plan for additional wells on the farmout.
The Company performed the ceiling test to assess potential impairment of the capitalized costs relative to its Hugoton Gas Field Project. The ceiling test indicated an impairment charge of $192,762 was required to reduce the total capitalized costs to $88,687 as of December 31, 2022. Accordingly, the Company has recorded an impairment charge of $192,762 to reduce the capitalized tangible and intangible costs related to its Hugoton Gas Field properties to $88,687 as of December 31, 2022.
Investment in GMDOC, LLC
On May 3, 2022, the Company entered into an operating agreement (the “Operating Agreement”) pursuant to which the Company acquired 17 (or 60.7143%) of 28 limited liability membership interests (the “Interests”) in GMDOC, LLC, a Kansas limited liability company (“GMDOC”), for an aggregate purchase price of $4,037,500, and was subsequently admitted as a member of GMDOC.
With respect to its cash capital contribution, the Company paid a non-refundable cash deposit for the membership interests in the amount of $50,000 on May 3, 2022. The Company paid the remainder of the cash contribution for the membership interests, or $800,000, on May 16, 2022. The remainder of the Company’s capital contribution, or $3,187,500, was financed by the Bank Loan (as defined below).
GMDOC had previously acquired 70% of the working interests (the “Acquisition”) in certain oil and gas leases (the “GMDOC Leases”) from Castelli Energy, L.L.C., an Oklahoma limited liability company (“Castelli”). The GMDOC Leases cover approximately 10,000 acres located in Southern Kansas near the Oklahoma border. The GMDOC Leases currently produce approximately 100 barrels of oil per day and 1.5 million cubic feet of natural gas per day on a gross basis.
GMDOC is managed by two members: Darrah Oil Company, LLC, and Grand Mesa Operating Company, (collectively the “Managing Members”), which also serve as the operating companies under the GMDOC Leases.
USNG Letter Agreement
On November 9, 2021, the Company entered into a letter agreement (the “USNG Letter Agreement”) with U.S. Noble Gas, LLC (“USNG”), pursuant to which USNG provides consulting services to the Company for exploration, testing, refining, production, marketing and distribution of various potential reserves of noble gases and rare earth element/minerals on the Company’s recently acquired 11,000-care oil and gas properties in the Otis Albert Field located on the Properties. The USNG Letter Agreement would cover all of the noble gases, specifically helium, and rare earth elements/minerals potentially existing on the Properties and the Company’s future acquisitions, if any, including the Hugoton Gas Field.
The USNG Letter Agreement also provided that USNG would supply a large vessel designed for flows up to 5,000 barrels of water per day at low pressures, known as a gas extraction/separator unit. The gas extraction/separator unit is a dewatering vessel that the Company may use for multiple wells in the future.
The USNG Letter Agreement required the Company to establish a four-member board of advisors (the “Board of Advisors”) comprised of various experts in noble gas and rare earth elements/minerals. The Board of Advisors will help attract both industry partners and financial partners for developing a large helium, noble gas and/or rare earth element/mineral resources that may exist in the region where the Company currently operates. The industry partners would include helium, noble gas and/or rare earth element/mineral purchasers and exploration and development companies from the energy industry. The financial partners may include large family offices or small institutions.
Pursuant to the USNG Letter Agreement, the Company will pay USNG a $8,000 monthly cash fee beginning at the onset of commercial helium or minerals production and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month that the Company receives cash receipts in excess of $25,000 derived from the sale of noble gases and/or rare earth elements/minerals. The Company has not yet achieved the $25,000 cash receipts threshold, therefore, there has been no payment or accrual liability relative to this cash fee provision through December 31, 2022.
The USNG Letter Agreement has an initial term of 5 years, which shall thereafter continue for successive one-year periods, provided that there is no uncured breach, unless otherwise terminated by either party upon a written notice of intent to non-renew.
In consideration for the consulting services to be rendered and pursuant to the terms of the USNG Letter Agreement, the Company issued warrants to purchase, in the aggregate, 2,060,000 shares of common stock, par value $0.0001 per share (the “Common Stock”), at an exercise price of fifty ($0.50) to three of USNG’s principal consultants and four third-party service providers. The Company also issued warrants to purchase, in the aggregate, 1,200,000 shares of Common Stock at fifty cents ($0.50) per share exercise price to three members of the Board of Advisors (as defined in the USNG Letter Agreement). The Company granted a total of 3,260,000 warrants to purchase its Common Stock with an exercise price of fifty cents ($0.50) per share in connection with the USNG Letter Agreement and the arrangements described therein. The warrants expire five years after the date of the USNG Letter Agreement.
Recent Developments
Designation of Series B Convertible Preferred Stock
On May 3, 2023, the Company filed the Certificate of Designation (the “Certificate of Designation”) with the Secretary of State of the State of Nevada (the “Nevada Secretary of State”), establishing the rights, preferences, privileges, qualifications, restrictions, and limitations relating to the Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Convertible Preferred Stock). The Certificate of Designation became effective upon filing with the Nevada Secretary of State.
Pursuant to the provisions of the Certificate of Designation of Preferences, Rights and Limitations of the Series B Preferred Stock (the “Certificate of Designation”) the Company is authorized to issue up to 30,000 shares of Series B Preferred from time to time with a Stated Value/Liquidation Value of $100 per share. Each share of Series B Preferred Stock is convertible, at the option of the holders thereof, at any time, subject to certain beneficial ownership limitations, into shares of Common Stock determined on a per share basis by dividing the Stated Value of such share of Preferred Stock (as such term is defined in the Certificate of Designation) by the Conversion Price (as such term is defined in the Certificate of Designation), which Conversion Price is subject to certain adjustments. In addition, the Certificate of Designation also provides for the payment of dividends, in (I) cash, or (ii) shares of Common Stock, to the holders of the Series B Preferred Stock, of 8% per annum, based on the Stated Value, until the earlier of (i) the date on which the shares of Series B Preferred Stock are converted to Common Stock or (ii) date the Company’s obligations under the Certificate of Designation have been satisfied in full. The shares of Series B Preferred Stock also (i) vote on an as-converted to Common Stock basis, subject to certain beneficial ownership limitations, (ii) are redeemable at the option of the Company at any time, (iii) rank senior to the Common Stock and any class or series of capital stock created after the Series B Preferred Stock and (iv) have a special preference upon the liquidation of the Company.
Issuance of Series B Convertible Preferred Stock
May 2023 Issuance - On May 4, 2023, the Company entered into a securities purchase agreement with three (3) accredited investors providing for an aggregate investment of $750,000 by the investors for the issuance by the Company to them of (i) 7,500 shares of Series B Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “May 2023 Series B Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 15,000,000 shares of Common Stock at an exercise price of five ($0.05) cents per share, subject to customary adjustments thereunder. The 7,500 shares of May 2023 Series B Convertible Preferred Stock are convertible into an aggregate of up to 15,000,000 shares of Common Stock. Holders of the warrants may exercise the warrants by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrants. The Company intends to use the proceeds of the May 2023 Series B Convertible Preferred Stock offering for development of Hugoton Gas Field and Central Kansas Uplift Properties and for general working capital purposes.
The Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement within forty-five (45) days following the closing of the May 2023 Series B Convertible Preferred Stock transaction, to register the shares of Common Stock issuable upon the conversion of the May 2023 Series B Convertible Preferred Stock and the common stock underlying the warrants. The Company is to use its best efforts to cause such registration statement to be declared effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar day following the closing of issuance of the May 2023 Series B Convertible Preferred Stock.
On May 5, 2022, Ozark Capital, LLC (“Ozark”) acquired 2,500 shares of Series B Preferred Stock (convertible into 5,000,000 shares of Common Stock), together with warrants to acquire 5,000,000 shares of Common Stock at five cents ($0.05) per share for a total cash contribution of $250,000. Ozark and its affiliates hold over 10% of the shares of the Company’s Common Stock as of December 31, 2022. Accrued dividends on the Class A Convertible Preferred Stock attributable to Ozark were $11,080 and $8,523 for the years ended December 31, 2022 and 2021, respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $5,601 and $ - relative to Ozark’s Series A Preferred Stock as of December 31, 2022 and 2021, respectively.
The Securities Purchase Agreement also contains customary representations, warranties and agreements of the Company and the Investors and customary indemnification rights and obligations of the parties thereto.
Resignation and Appointment of Officers
Resignation of Stanton E. Ross- On May 5, 2023, in connection with the closing of the May 2023 Series B Convertible Preferred Stock, Stanton E. Ross, the Company’s Chief Executive Officer and President, resigned from his positions with the Company.
Resignation of Daniel F. Hutchins- On May 5, 2023, in connection with the closing of the May 2023 Series B Convertible Preferred Stock, Daniel F. Hutchins, the Company’s Chief Financial Officer, resigned from his position with the Company.
Appointment of Thomas J. Heckman as Chief Executive Officer and Chief Financial Officer- On May 2, 2023, in connection with the anticipated closing of the May 2023 Series B Convertible Preferred Stock the Company’s Board of Directors appointed Thomas Heckman to the positions of Chief Executive Office and Chief Financial Officer of the Company to replace Mr. Ross and Mr. Hutchins, effective May 5, 2023.
Issuance of Series A Convertible Preferred Stock
March 2021 Issuance - On March 26, 2021, the Company entered into a securities purchase agreement with five (5) accredited investors providing for an aggregate investment of $2,050,000 by the investors for the issuance by the Company to them of (i) 22,776 shares of Series A Convertible Preferred Stock, par value $0.001 per share with a stated/liquidation value of $100 per share (the “March 2021 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 5,256,410 shares of Common Stock at an exercise price of thirty-nine ($0.39) per share, subject to customary adjustments thereunder. The March 2021 Series A Convertible Preferred Stock is convertible into an aggregate of up to 7,117,500 shares of Common Stock. Holders of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrants. Net proceeds from the issuance of March 2021 Series A Convertible Preferred Stock totaled $1,929,089 after deducting the placement agent fee and other expenses of the offering. The Company used the proceeds of the March 2021 Series A Convertible Preferred Stock offering to complete the acquisition and development of the Properties, to pay-off certain outstanding convertible notes payable (see Note 4) and for general working capital purposes.
The Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement within forty-five (45) days following the closing of the acquisition of the Properties, which occurred on April 1, 2021, to register the shares of Common Stock underlying the warrants. The Company is to use its best efforts to cause such registration statement to be declared effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar day following the closing of the acquisition of the Properties, which occurred on April 1, 2021. The Company completed the required registration of these shares on Form S-1, which the Securities and Exchange Commission declared effective on August 4, 2021.
The holders of the March 2021 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its March 2021 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.
The Company has accrued preferred dividends totaling $199,300 and $174,449 relative to the March 2021 Series A Convertible Preferred Stock which was charged to additional paid in capital during the years ended December 31, 2022 and 2021, respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $44,805 and $- relative to the March 2021 Series A Convertible Preferred Stock as of December 31, 2022 and 2021, respectively.
The holders of March 2021 Series A Convertible Preferred Stock exercised their rights to convert a total of 3,000 shares of March 2021 Series A Convertible Preferred Stock into 937,500 shares of Common Stock during the year ended December 31, 2022. The holders exercised their rights to convert a total of 700 shares of March 2021 Series A Convertible Preferred Stock into 218,750 shares of Common Stock during the year ended December 31, 2021.
On March 26, 2021, Ozark acquired 1,111 shares of March 2021 Series A Convertible Preferred Stock (convertible into 347,188 shares of Common Stock), together with warrants to acquire 256,410 shares of Common Stock at fifty cents ($0.50) per share for a total cash of $100,000. Ozark and its affiliates hold over 10% of the shares of the Company’s Common Stock as of December 31, 2022. Accrued dividends attributable to Ozark Capital, LLC were $11,080 and $8,523 for the years ended December 31, 2022 and 2021 respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $2,800 and $- relative to the Ozarks Series A Convertible Preferred Stock as of December 31, 2022 and 2021, respectively.
All holders of the March 2021 Series A Convertible Preferred Stock, including Ozark, have agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days’ advance notice to the Company.
The holders converted a total of 3,000 and 700 shares of Series A Preferred Stock into common stock during the years ended December 31, 2022 and 2021, respectively.
June 2022 Issuance - On June 15, 2022, the Company entered into a securities purchase agreement with an accredited investor providing for an aggregate investment of $500,000 by the investor for the issuance by the Company of (i) 5,000 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “June 2022 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 1,666,667 shares of Common Stock at an exercise price of thirty cents ($0.30) per share, subject to customary adjustments thereunder. The June 2022 Series A Convertible Preferred Stock is convertible into an aggregate of up to 1,562,500 shares of Common Stock. The holder of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrant. Net proceeds from the issuance of the June 2022 Series A Convertible Preferred Stock totaled $500,000. The Company used the proceeds of the June 2022 Series A Convertible Preferred Stock offering to pay-off certain outstanding convertible notes payable and for general working capital purposes.
The Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement within forty-five (45) days following the closing of the of the June 2022 Series A Preferred Stock, which occurred on June 15, 2022, to register the shares of Common Stock underlying the warrants. The Company is to use its best efforts to cause such registration statement to be declared effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar day following the closing of the offering, which occurred on June 15, 2022.
The holder of the June 2022 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its June 2022 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.
The Company has accrued preferred dividends totaling $27,260 and $-0- relative to the June 2022 Series A Convertible Preferred Stock which was charged to additional paid in capital during the years ended December 31, 2022 and 2021, respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $27,260 and $ - relative to the June 2022 Series A Convertible Preferred Stock as of December 31, 2022 and 2021, respectively.
There were no conversions during the years ended December 31, 2022 and 2021.
August/September 2022 Issuances - During August and September 2022, the Company entered into a securities purchase agreement with three accredited investors providing for an aggregate investment of $145,000 by the investors for the issuance by the Company of (i) 1,450 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “August/September 2022 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 483,332 shares of Common Stock at an exercise price of thirty ($0.30) per share, subject to customary adjustments thereunder. The August/September 2022 Series A Convertible Preferred Stock is convertible into an aggregate of up to 453,125 shares of Common Stock. The holders of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrant. Net proceeds from the issuance of the August/September 2022 Series A Convertible Preferred Stock totaled $145,000. The Company used the proceeds of the August/September 2022 Series A Convertible Preferred Stock offering to pay-off certain outstanding convertible notes payable and for general working capital purposes.
The holders of the August/September 2022 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its August/September 2022 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.
The Company has accrued preferred dividends totaling $5,059 and $-0- relative to the August/September 2022 Series A Convertible Preferred Stock which was charged to additional paid in capital during the years ended December 31, 2022 and 2021, respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $5,059 and $ - relative to the August/September 2022 Series A Convertible Preferred Stock as of December 31, 2022 and 2021, respectively.
There were no conversions during the years ended December 31, 2022 and 2021.
Issuances of Convertible Notes Payable
8% Convertible Notes Payable due September 15, 2022 (in default) - On June 8, 2022, the Company issued to an accredited investor an unsecured convertible note payable due September 15, 2022 (the “June 2022 Note”), with an aggregate principal face amount of approximately $350,000. The June 2022 Note is, subject to certain conditions, convertible into an aggregate of 700,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued a five-year Common Stock purchase warrant to purchase up to 700,000 shares of Common Stock at an exercise price of fifty cents ($0.50) per share, subject to customary adjustments (the “June 2022 Warrants”) which are immediately exercisable. The investor purchased the June 2022 Note and June 2022 Warrant from the Company for an aggregate purchase price of $350,000 and the proceeds were used for drilling and completion costs on the initial well drilled under the Hugoton Gas Field participation agreement and general working capital purposes. The Company also granted the investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares of Common Stock underlying the June 2022 Warrant and the conversion of the June 2022 Note unless the shares of the Company commence to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.
The June 2022 Note bears interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to the remaining principal amount of the underlying note and any accrued and unpaid interest.
The underlying notes and warrants contain customary events of default, representations, warranties, agreements of the Company and the investors and customary indemnification rights and obligations of the parties thereto, as applicable.
The Company did not pay the principal balance due on the June 2022 Note upon its maturity on September 15, 2022 and the remaining balance remains due and payable and is therefore in technical default as of December 31, 2022.
On May 5, 2023, the Company reached an agreement with the holder of two separate convertible notes payable in the aggregate principal face amount of approximately $450,000 (including the June 2022 Note), which the Company did not pay by their maturity dates. The Company and the holder of the two convertible notes payable entered into a new convertible promissory note (the “New Note”), exchanging the outstanding principal amount of the old convertible notes payable into the New Note, with a maturity date of September 30, 2023. Upon issuance of the New Note, the old convertible notes payable were cancelled and the repayment defaults under the prior convertible notes payable were cured with the entry into the New Note. The conversion price of the New Note was reduced from $0.50 per share to $0.40 per share however, the interest rate and other significant terms of the New Note are the same as those of the prior convertible notes payable.
The Company has accrued default interest aggregating $8,208 as of December 31, 2022 related to the repayment default on these notes.
8% Convertible Notes Payable due June 29, 2022 (in default) - The Company entered into a securities purchase agreement with two accredited investors for the Company’s 8% convertible notes payable due June 29, 2022 (the “May 2022 Notes”), with an aggregate principal amount of $850,000. The May 2022 Notes are, subject to certain conditions, convertible into an aggregate of 2,125,000 shares of Common Stock, at a price of forty cents ($0.40) per share. The Company also issued an aggregate of 425,000 shares of Common Stock as commitment shares (“Commitment Shares” and, together with the May 2022 Notes and Conversion Shares, the “Securities”) to the investors as additional consideration for the purchase of the May 2022 Notes. The closing of the offering of the Securities occurred on May 13, 2022, when the Investors purchased the Securities for an aggregate purchase price of $850,000. The Company has also granted the investors certain automatic and piggy-back registration rights whereby the Company has agreed to register the resale by the investors of the Conversion Shares. The proceeds of this offering of Securities was used to purchase the Company’s membership interests in GMDOC.
The May 2022 Notes bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time (subject to the occurrence of an event of default) in an amount equal to 120% of the principal amount of each May 2022 Note and any accrued and unpaid interest, and shall be mandatorily repaid in cash in an amount equal to a) fifty percent (50%) of the then outstanding principal amount equal to 120% of the principal amount of each May 2022 Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 but not greater than $3,000,000; or b) one hundred percent (100%) of the then outstanding principal amount equal to 120% of the principal amount of a May 2022 Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of in excess of $3,000,000. In addition, pursuant to the May 2022 Notes, so long as such May 2022 Notes remain outstanding, the Company shall not enter into any financing transactions pursuant to which the Company sells its securities at a price lower than the $0.40 per share conversion price, subject to certain adjustments, without the written consent of the investors.
The conversion of the May 2022 Notes are each subject to beneficial ownership limitations such that the investors may not convert the May 2022 Notes to the extent that such conversion or exercise would result in an Investor being the beneficial owner in excess of 4.99% (or, upon election of the Investor, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.
Pursuant to the purchase agreement for the Securities, for a period of twelve (12) months after the closing date, the investors have a right to participate in any issuance of the Company’s Common Stock, Common Stock equivalents, conventional debt, or a combination of such securities and/or debt, up to an amount equal to thirty-five percent (35%) of the subsequent financing.
The Company also entered into that certain registration rights side letter, pursuant to which, in the event the Company’s shares of Common Stock have not commenced trading on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date, and, thereafter, the Company agreed to file a registration statement under the Securities Act to register the offer and sale, by the Company, of Common Stock underlying the May 2022 Notes in the event that such notes are not repaid prior to such 120-day period.
The Company paid half of the May 2022 Notes principal balance upon its maturity on June 29, 2022 and an additional $112,500 in September 2022 and the remaining balance remains due and payable and is therefore in technical default. With respect to the two May 2022 Notes with an aggregate outstanding principal balance of $312,500 as of December 31, 2022 the Company has reached an agreement with the two investors. The Company has accrued default interest aggregating $69,183 as of December 31, 2022 related to the repayment default on these May 2022 Notes. On January 10, 2023, the Company amended each of those Nay 2022 Notes by entering into a letter agreement between the investors and the Company (the “Letter Agreement”). The Letter Agreement modifies the terms of the May 2022 Notes by extending each note’s respective maturity date to September 30, 2023. In consideration for the extension, the Company amended the Fixed Conversion Price (as defined in each note) to $0.10, subject to any future adjustments as provided in each of the notes.
8% Convertible Notes Payable due October 29, 2022 (in default) - On August 30, 2021, the Company issued to an accredited investor (the “8% Note Investor”) an unsecured convertible note payable due October 29, 2022 (the “8% Note”), with an aggregate principal face amount of approximately $100,000. The 8% Note is, subject to certain conditions, convertible into an aggregate of 200,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued a five and one half-year Common Stock purchase warrant to purchase up to 200,000 shares of Common Stock at an exercise price of fifty cents ($0.50) per share, subject to customary adjustments (the “8% Note Warrant”) which are immediately exercisable. The 8% Note Investor purchased the 8% Note and 8% Note Warrant from the Company for an aggregate purchase price of $100,000 and the proceeds were used for general working capital purposes. The Company also granted the 8% Note Investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the 8% Note Warrant and the conversion of the 8% Note unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.
On October 29, 2021, the Company issued to three accredited investors (the “October 8% Note Investors”) unsecured convertible notes payable due October 29, 2022 (the “October 8% Notes”), with an aggregate principal face amount of approximately $550,000. The October 8% Notes are, subject to certain conditions, convertible into an aggregate of 1,100,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued five and one half-year Common Stock purchase warrants to purchase up to 1,650,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “October 8% Note Warrants”) which are immediately exercisable. The October 8% Note Investors purchased the October 8% Notes and October 8% Note Warrants from the Company for an aggregate purchase price of $550,000 and the proceeds were used for general working capital purposes. The Company also granted the October 8% Note Investors certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the October 8% Note Warrants and the conversion of the October 8% Notes unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.
The 8% Note and the October 8% Notes all bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to 120% of the principal amount of the underlying notes and any accrued and unpaid interest. Fifty percent (50%) of the 8% Note and the October 8% Notes shall be mandatorily repaid in cash in an amount equal to 120% of the principal amount of the underlying notes and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 and one-hundred percent (100%) of the underlying notes plus accrued interest shall be mandatorily repaid in an amount equal to 120% of outstanding principal and interest in cases in which the Company receives gross proceeds of at least $3,000,000. In addition, pursuant to the 8% Notes Note and the October 8% Notes, so long as the underlying notes remain outstanding, the Company cannot enter into any financing transactions pursuant to which the Company sells its securities at a price lower than $0.50 cents per share without the written consent of the 8% Note Investor.
The conversion of the 8% Note and the October 8% Notes and the exercise of the underlying warrants are each subject to beneficial ownership limitations such that the 8% Note Investor and the October 8% Note Investors may not convert the underlying notes or exercise the underlying warrants to the extent that such conversion or exercise would result in any of the investors being the beneficial owner in excess of 4.99% (or, upon election of the investors, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.
The Company, the 8% Note Investor and the October 8% Note Investors have agreed that for so long as the underlying warrants remain outstanding, the investors have the right to participate in any issuance of Common Stock, conventional debt, or a combination of such securities and/or debt, up to an amount equal to thirty-five percent (35%) of such subsequent financing.
The Company did not pay the principal balance due on the 8% Notes and the October 8% Notes upon their maturity on October 29, 2022 and the remaining balance remains due and payable and is therefore in technical default as of December 31, 2022. With respect to the two October 8% Notes with an outstanding aggregate principal balance of $550,000 as of December 31, 2022, the Company has reached an agreement with the two Investors. On January 10, 2023, the Company amended each of those notes by entering into a letter agreement between the Investors and the Company. The Letter Agreement modifies the terms of the notes by extending each note’s respective maturity date to September 30, 2023. In consideration for the extension, the Company amended the Fixed Conversion Price (as defined in each note) to $0.10, subject to any future adjustments as provided in each of the notes.
On May 5, 2023, the Company reached an agreement with the holder of two separate convertible notes payable in the aggregate principal face amount of approximately $450,000 (including $100,000 principal balance of the 8% Note), which the Company did not pay by their maturity dates. The Company and the holder of the two convertible notes payable entered into the New Note, exchanging the outstanding principal amount of the old convertible notes payable into the New Note, with a maturity date of September 30, 2023. Upon issuance of the New Note, the old convertible notes payable were cancelled and the repayment defaults under the prior convertible notes payable were cured with the entry into the New Note. The conversion price of the New Note was reduced from $0.50 per share to $0.40 per share however, the interest rate and other significant terms of the New Note are the same as those of the prior convertible notes payable.
The Company has accrued default interest aggregating $138,680 as of December 31, 2022 related to the repayment default on these notes.
3% Convertible Notes Payable due March 31, 2026 - On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% convertible notes payable (the “3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for fifty cents ($0.50) per share (the 3% Note Warrants”). The 3% Notes allow for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30, 2026. The 3% Notes are convertible as to principal and any accrued interest, at the option of holder, into shares of the Common Stock at any time after the issue date and prior to the close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustments. The 3% Note Warrants were valued at $1,605,178 using the Black-Scholes methodology.
Principal Executive Offices
Our principal executive offices are located at 15612 College Boulevard, Lenexa, Kansas 66215. Our telephone number is (913) 948-9512. Our website is https://www.amnoblegas.com/. Information on our website is not incorporated by reference into this Annual Report on Form 10-K.
Business Strategy
Our 2022 and 2021 operating objectives have been focused on the resolution of outstanding and older obligations, some of which were in default, and the acquisition of mineral rights to properties primarily in Kansas that may hold commercial reserves of oil, gas, noble gas and rare earth minerals.
Resolution of outstanding and older obligations
The Company has spent considerable time and resources negotiating and settling older outstanding obligations during 2022 and 2021. During the years ended December 31, 2022 and 2021, the Company recorded gains on the extinguishment of liabilities through negotiation of settlements with certain creditors and through the operation of law.
On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties), which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of the 3% Notes with detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share. The 3% Notes allow for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30, 2026, the 3% Notes Maturity Date. The 3% Notes are convertible as to principal and any accrued interest, at the option of holder, into shares of the company’s Common Stock at any time after the issue date and prior to the close of business on the business day preceding the 3% Notes Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment.
The warrants to purchase 5,732,994 shares of Common Stock issued pursuant to the Debt Settlement Agreements were valued at $1,605,178 using the Black-Scholes methodology.
An aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with the five related parties. Such related parties were issued $25,777 principal balance of the 3% Notes and warrants to purchase 5,155,454 shares of Common Stock in exchange for the extinguishment of their respective debt obligations. The Company recognized a gain on extinguishment of liabilities for the portion of the extinguishment with non-related parties. Furthermore, it recognized the portion of the gain on extinguishment of liabilities with related parties as a contribution of capital.
The gain on extinguishment of liabilities from the Debt Settlement Agreements was determined as follows:
Amount
Total accounts payable and accrued liabilities extinguished $ 2,866,497
Less: Principal balance of 3% Convertible Promissory Notes issued (28,665 )
Less: Fair value of warrants to purchase common stock issued (1,605,178 )
Total gain on extinguishment of liabilities $ 1,232,654
Less: Related party amounts reported as a capital contribution (1,108,477 )
Gain on extinguishment of liabilities $ 124,177
Competition
We compete in virtually all facets of our businesses with numerous other companies in the oil and gas industry, including many that have significantly greater financial and other resources. Such competitors will be able to pay more for desirable oil and gas leases and to evaluate, bid for, and purchase a greater number of properties than our financial or personnel resources permit.
Our business strategy includes highly competitive oil and natural gas exploration, development and production and the exploration and development of noble gas and rare earth minerals. We face intense competition from a large number of independent exploration and development companies as well as major oil and gas companies in a number of areas, such as obtaining the capital necessary to pursue the development of our recently acquired Kansas Oil and Gas Properties and the Hugoton Gas Field. We may find it difficult to acquire the services, equipment, labor and materials necessary to explore, operate and develop those properties with the intense competition in our industry. Most of our competitors have financial and technological resources substantially exceeding those available to us. We cannot be sure that we will be successful in developing and operating profitably the Properties and the Hugoton Gas Field in the face of this competition.
Government Regulation of the Oil and Gas Industry
General
Our business is affected by numerous laws and regulations, including, among others, laws and regulations relating to energy, environment, conservation and tax. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and/or criminal penalties, the imposition of injunctive relief or both. Moreover, changes in any of these laws and regulations could have a material adverse effect on our business. In view of the many uncertainties with respect to current and future laws and regulations, including their applicability to us, we cannot predict the overall effect of such laws and regulations on our future operations.
The following is a summary discussion of the framework of key environmental and land use regulations and requirements affecting oil and natural gas exploration, development, production and transportation operations and is qualified as mentioned above.
Environmental and Land Use Regulation
Various federal, state and local laws and regulations relating to the protection of the environment may affect our operations and costs. The areas affected include:
● unit production expenses primarily related to the control and limitation of air emissions, spill prevention and the disposal of produced water;
● capital costs to drill development wells resulting from expenses primarily related to the management and disposal of drilling fluids and other oil and natural gas exploration wastes;
● capital costs to construct, maintain and upgrade equipment and facilities;
● operational costs associated with ongoing compliance and monitoring activities; and
● exit costs for operations that we are responsible for closing, including costs for dismantling and abandoning wells and remediating environmental impacts.
The environmental and land use laws and regulations affecting oil and natural gas operations have changed frequently in the past, and in general, these changes have imposed more stringent requirements that increase operating costs and/or require capital expenditures to remain in compliance. Failure to comply with these requirements can result in civil and/or criminal fines and liability for non-compliance, clean-up costs and other environmental damages. It is also possible that unanticipated developments or changes in law could cause us to make environmental expenditures significantly greater than those we currently expect.
Operating Hazards and Insurance
The oil and natural gas business involves a variety of operating risks. Historically, we were unable to maintain insurance against such potential risks and losses. The Company has relevant liability insurance coverage on its Kansas Oil and Gas Properties which is maintained by the licensed operator of the lease.
In addition, pollution and environmental risks are not insured. If a significant accident or other event occurs that is not covered by insurance, it could adversely affect us.
Employees
As of December 31, 2022 we had two employees, our Chief Executive Officer and Chief Financial Officer, whose compensations have primarily been in the form of restricted stock grants. Recurring cash salaries for our employees were suspended effective January 1, 2018. During 2021, our Chief Executive Officer was awarded a cash bonus of $30,000. We also use outside contractors to perform services.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Not applicable.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
None.

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ITEM 2. PROPERTIES
Item 2. Properties.
This section contains an explanation and detail of some of the relevant project groupings from our overall inventory of projects and prospects. In 2022 and 2021, we continued to implement our strategy to acquire and develop oil producing properties in the continental United States. In that regard, we acquired oil and gas leases the Properties of approximately 11,000 acres located in Central Kansas Uplift and acquired an interest in Hugoton Gas Field.
Central Kansas Uplift - On April 1, 2021, we completed the acquisition of the Central Kansas Uplift Properties., for a purchase price of $900,000. The Central Kansas Uplift include the production and mineral rights/leasehold for oil and gas properties, subject to overriding royalties to third parties, in the Properties, located in Central Kansas Uplift geological formation covering over 11,000 contiguous acres. The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand Zone with an approximate depth of 3,600 feet.
We commenced rework to the existing production wells after completion of the acquisition of the Properties and have performed testing and evaluation of the existence of noble gas reserves on the Properties including helium, argon and other rare earth minerals/gases. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results, and we have yet to determine the possibility of commercializing the noble gas reserves on the Properties. We plan to assess the Properties existing oil and gas reserves, including the exploration for the existence of new oil and gas zones and other mineral reserves, in particular the noble gas reserves, that the Properties may hold.
Hugoton Gas Field Farm-Out - On April 4, 2022, the Company acquired a 40% participation in a Farmout Agreement by and between Sunflower Exploration, LLC as the Farmee and Scout Energy Partners as Farmor with regards to its oil and gas interests in the Hugoton Gas Field, located in Haskell and Finney Counties, Kansas. The Company has joined three other parties in the Hugoton JV to explore for and develop potential oil, natural gas, noble gases and brine minerals on the properties underlying the Farmout Agreement.
The Farmout Agreement covers drilling and completion of up to 50 wells, with the first exploratory well spudded on May 7, 2022. The Hugoton JV will utilize Scout’s existing infrastructure assets including water disposal, gas gathering and helium processing. The Farmout Agreement provides the Hugoton JV with rights to take in-kind and market its share of helium at the tailgate of Jayhawk Gas Plant, which will enable the Hugoton JV to market and sell the helium produced at prevailing market prices.
The Hugoton JV also acquired the right to all brine minerals subject to a ten percent (10%) royalty to Scout, across Finney and Haskell Counties. Brine minerals are harvested from the formation water produced from active, and to be drilled, oil and gas wells and may include a variety of dissolved minerals including bromine and iodine. The Hugoton JV plans to target brine minerals with commercial quantities of bromine and iodine. The Company through the Hugoton JV is currently developing proprietary technology to recover brine minerals, particularly with respect to bromine, which is well underway and has demonstrated recovery efficiency and is expected to be available for use in existing and future development wells.
The Hugoton JV believes that its unconventional theory has not previously been targeted for exploration by historical operations in the field. The initial exploratory well was spud on May 7, 2022 near Garden City, Kansas, with production casing set after testing and completion logs identified at least two potential zones with substantial gas and helium reserves. The initial well was completed upon the successful perforation across two lower intervals of the Chase group of formations. The fracture stimulation was completed in two stages during June 2022. The well was connected to the pipeline and commenced commercial production and sale of natural gas, natural gas liquids and helium on August 17, 2022. The Company is continuing to evaluate the initial flows of both natural gas, natural gas liquids and helium to determine its plan for additional wells on the farmout.
Proved Reserves Reporting
The following tables summarize the net ownership interest in the proved oil and gas reserves and the standardized measure of discounted future net cash flows related to the proved oil and gas reserves of the Properties. The estimates were prepared by the Company based on the reserve reports prepared for the Company for the year ended December 31, 2022 and 2021. The standardized measure presented here excludes income taxes as the tax basis for the Properties is not applicable due to the substantial net operating loss carryforwards available to the Company on a go-forward basis. The proved oil and gas reserve estimates and other components of the standardized measure were determined in accordance with the authoritative guidance of the Financial Accounting Standards Board and the SEC.
Proved Oil and Gas Reserve Quantities
Proved reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well. Proved undeveloped reserves are proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. The net proved oil and gas reserves and changes in net proved oil and gas reserves attributable to the Properties with respect to crude oil, and the Hugoton Gas Field which produces natural gas, natural gas liquids and helium all of which are located in the state of Kansas, are summarized below:
Crude Oil Barrels Natural Gas MCF (Thousand Cubic Feet) Natural Gas Liquids Gallons Helium Gas MCF (Thousand Cubic Feet)
Proved developed reserves:
At January 1, 2021
In-place proved developed reserves acquired 26,185 - - -
Extensions and discoveries - - - -
Revisions of previous estimates - - - -
Production (3,123 ) - - -
Proved developed reserves - at December 31, 2021 23,062 - - -
Proved undeveloped reserves:
At January 1, 2021 - - - -
In-place proved developed reserves acquired 403,210 - - -
Extensions and discoveries - - - -
Revisions of previous estimates - - - -
Production - - - -
Proved undeveloped reserves - at December 31, 2021 403,210 - - -
Proved developed and undeveloped reserves:
At January 1, 2021 - - - -
In-place proved developed reserves acquired 429,395 - - -
Extensions and discoveries - - - -
Revisions of previous estimates - - - -
Production (3,123 )
Proved developed and undeveloped reserves - at December 31, 2021 426,272 - - -
Proved developed reserves:
At January 1, 2022 23,062 - - -
In-place proved developed reserves acquired - - - -
Extensions and discoveries - 31,445 86,656
Revisions of previous estimates (21,842 ) - - -
Production (1,220 ) (9,301 ) (19,937 ) (15
)
Proved developed reserves - at December 31, 2022 - 22,144 66,719
Proved undeveloped reserves:
At January 1, 2022 403,210 - - -
In-place proved developed reserves acquired - - - -
Extensions and discoveries - - - -
Revisions of previous estimates (403,210 ) - - -
Production - - - -
Proved undeveloped reserves - at December 31, 2022 - - - -
Proved developed and undeveloped reserves:
At January 1, 2022 426,272 - - -
In-place proved developed reserves acquired - - - -
Extensions and discoveries - 31,445 86,656
Revisions of previous estimates (425,052 ) - - -
Production (1,220 ) (9,301 ) (19,937 ) (15 )
Proved developed and undeveloped reserves - at December 31, 2022 - 22,144 66,719
Standardized Measure
The standardized measure of discounted future net cash flows before income taxes related to the proved oil and gas reserves of the Properties is as follows:
December 31,
Future cash inflows $ 186,158 $ 21,955,464
Future production costs (89,815 ) (2,698,409 )
Future development costs - (4,450,000 )
-
Future net cash flows 96,343 14,807,055
Less 10% annual discount to reflect timing of cash flows (7,656 ) (11,166,405 )
Standard measure of discounted future net cash flows $ 88,687 $ 3,640,650
Requirements for oil and gas reserve estimation and disclosure require that reserve estimates and future cash flows be based on the average market prices for sales of oil and gas on the first calendar day of each month during the year. The average prices used for the year ended December 31, 2022 and 2021 under these rules were $94.14 and $66.34 for crude oil, respectively. The average prices used for the year ended December 31, 2022 under these rules were $5.84 per one thousand cubic feet (or “MCF”) for natural gas and $0.76 per gallon for natural gas liquids and $260.01 per MCF for helium, respectively.
Future operating expenses and development costs are computed primarily by the Company’s petroleum engineers by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year end costs and assuming continuation of existing economic conditions. As mentioned above, the standardized measure presented here does not include the effects of income taxes as the tax basis for the Properties due to the substantial tax net operating loss carryforwards available to the Company which makes its use non-applicable on a go-forward basis. A discount factor of 10% was used to reflect the timing of future net cash flows. The standardized measure of discounted future net cash flows is not intended to represent the replacement cost or fair value of the Company’s Properties. An estimate of fair value would also take into account, among other things, the recovery of reserves not presently classified as proved, anticipated future changes in prices and costs, and a discount factor more representative of the time value of money and the risks inherent in oil and gas reserve estimates.
Production, Prices and Production Costs
We began production of crude oil in April 2021 following the acquisition of the Properties.
The Hugoton Gas Field initial exploratory well was spud on May 7, 2022 near Garden City, Kansas with production casing set after testing and completion logs identified at least two potential zones with substantial gas and helium reserves. The initial well was completed upon the successful perforation across two lower intervals of the Chase group of formations. The fracture stimulation was completed in two stages during June 2022. The well was connected to the pipeline and commenced commercial production and sale of natural gas, natural gas liquids and helium on August 17, 2022. The Company is continuing to evaluate the initial flows of both natural gas, natural gas liquids and helium to determine its plan for additional wells on the farmout.
Significant Fields
The Company principally operates two oil and natural gas production for fields
1. The Properties in the Central Kansas Uplift represents our only producing oil field is which produces primarily crude oil in the Otis Albert Field from the Reagan Sand Zone at a depth of 3,600 feet.
2. The Hugoton Gas Field represe4nts our only producing natural gas, natural gas liquids and helium.
Production and Price History
The Company produced approximately 1,220 and 1,165 barrels of crude oil during the years ended December 31, 2022 and 2021 respectively from the Properties which had a total of three producing wells. We received an average price per barrel of crude oil sold of $96.87 and $67.84 per barrel for the years ended December 31, 2022 and 2021, respectively.
The Company produced approximately 12,183 MCFs of natural gas, 26,749 gallons of natural gas liquids and 67 MCFs of helium for the year ended December 31, 2022 from its initial pilot well that was completed and began commercial production/sale on August 17, 2022 in the Hugoton Gas Field.
Production wells
The following table sets forth the number of production wells in which the Company owned working interests as of December 31, 2022 and 2021. We utilize a third-party licensed operator to operate all of our wells. Productive wells consist of producing wells and wells capable of producing, including oil wells awaiting connection to production facilities to commence deliveries. The Company owns 100% of the working interest in all production wells as of December 31, 2022 and 2021.
Year Ended
December 31,
Kansas Properties:
Conventional production wells
Horizontal production wells
Hugoton Gas Field:
Conventional production wells -
Total production wells
Drilling activity
The Company drilled one new well during the year ended December 31, 2022 and no new wells during the year ended December 31, 2021. The new well was drilled in the Hugoton Gas Field. The Company produced approximately 12,183 MCFs of natural gas, 26,749 gallons of natural gas liquids and 67 MCFs of helium for the year ended December 31, 2022 from its initial pilot well that was completed and began commercial production/sale on August 17, 2022 in the Hugoton Gas Field.
Costs Incurred in Oil and Gas Activities
Costs incurred during the years ended December 31, 2022 and 2021 in connection with the Company’s oil and gas acquisition, exploration and development activities are shown below.
Year Ended December 31,
Property acquisition costs:
Proved $ - $ -
Unproved - -
Total property acquisition costs
-
Development costs - 272,799
Exploration costs 288,366 -
Total costs $ 288,366 $ 272,799
During the year ended December 31, 2022, the Company incurred $288,366 of exploration costs when it drilled its pilot well in the Hugoton Gas Field which was successfully completed and is producing and selling commercial quantities of natural gas, natural gas liquids and helium. During the year ended December 31, 2021, the Company incurred $272,799 in development costs on the Kansas Oil & Gas Properties in 2021 primarily to assess the potential of noble gas and rare earth mineral reserves. Such exploration included noble gases such as helium and argon and rare earth minerals included bromine, lithium and iodine. The Company is assessing the results of such tests to determine whether commercial amounts of reserves exist that can be profitably extracted on the Properties.
Aggregate capitalized costs relating to the Company’s oil and gas producing activities, and related accumulated depreciation, depletion, impairment and amortization are as follows:
December 31,
December 31,
Central Kansas Uplift - Oil and gas production equipment $ 913,425 $ 913,425
Hugoton Gas Field - Oil and gas production equipment 96,831 -
Central Kansas Uplift - Leasehold costs 15,225 -
Hugoton Gas Field - Leasehold costs 191,535
Subtotal 1,217,016 913,425
Less: Accumulated impairment (905,574 ) -
Less: Accumulated depreciation, depletion and amortization (222,755 ) (92,502 )
Oil and gas properties and equipment, net $ 88,687 $ 820,923
The $288,366 exploration costs relative the Hugoton Gas Field pilot well during the year ended December 31, 2022 was allocated to proved oil and gas properties with $191,535 to leasehold costs and $96,831 representing tangible equipment. The $913,425 acquisition price of the Properties in 2021 was allocated to tangible equipment and seismic data acquired as part of the acquisition.
During the year ended December 31, 2022, the Company changed its strategy regarding the Central Kansas Uplift considering the reduced net cash flows from the sale of crude oil production. The reduction in net cash flows was attributable to lower spot crude oil prices during 2022 compared to 2021 and higher than anticipated operating costs related to the operation of the horizontal wells on the Properties. The Company has shut down the horizontal production wells as of December 31, 2022 and is considering the deepening of the conventional wells on the property to explore for helium and other noble gases that may be present in deeper producing zones. Accordingly, the Company has recorded an impairment charge of $712,812 to reduce the capitalized tangible and intangible costs related to its Central Kansas Uplift properties to zero as of December 31, 2022.
The Company performed the ceiling test to assess potential impairment of the capitalized costs relative to its Hugoton Gas Field Project. The ceiling test indicated an impairment charge of $192,762 was required to reduce the total capitalized costs to $88,687 as of December 31, 2022. Accordingly, the Company has recorded an impairment charge of $192,762 to reduce the capitalized tangible and intangible costs related to its Hugoton Gas Field properties to $88,687 as of December 31, 2022.
Costs Not Being Amortized
Oil and gas property costs not being amortized at December 31, 2022 and 2021, costs by year that the costs were incurred, are as follows:
Year Ended December 31, Amount
$ -
-
-
Prior -
Total costs not being amortized $ -
Acreage Data
The following table sets forth the approximate gross and net acres of developed and undeveloped oil and gas leases we held as of December 31, 2022.
Developed Acreage Undeveloped Acreage
Gross Net Gross Net
Onshore U.S. - Otis Albert Field of the Properties 10,360 10,360
Onshore U.S. - Hugoton Gas Field 400,000 160,000
Total 410,360 170,360

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
The Company is subject to numerous claims and legal actions in which vendors are claiming breach of contract due to the Company’s failure to pay amounts due. The Company believes that it has made adequate provision for these claims in the accompanying financial statements.
The Company is currently involved in litigation as follows:
●
In October 2012, the State of Texas filed a lawsuit naming Infinity Oil and Gas of Texas, Inc., a wholly-owned subsidiary of the Company which was sold in 2012 (“Infinity-Texas”), the Company and the corporate officers of Infinity-Texas, seeking $30,000 of reclamation costs associated with a single well, in addition to administrative expenses and penalties. The Company engaged in negotiations with the State of Texas in late 2012 and early 2013 and reached a settlement agreement that would reduce the aggregate liability, in this action and any extension of this action to other Texas wells, to $45,103, which amount has been paid. Certain performance obligations remain which must be satisfied in order to finally settle and dismiss the matter.
Pending satisfactory performance of the performance obligations and their acceptance by the State of Texas, the Company’s officers have potential liability regarding the above matter, and the Company officers are held personally harmless by indemnification provisions of the Company. Therefore, to the extent they might actually occur, these liabilities are the obligations of the Company. Management estimates that the liabilities associated with this matter will not exceed $780,000, calculated as $30,000 for each of the 26 Infinity-Texas operated wells. This related liability, less the payment made to the State of Texas in 2012 in the amount of $45,103, is included in the asset retirement obligation on the accompanying balance sheets, which management believes is sufficient to provide for ultimate resolution of this dispute.
● On September 26, 2014, Cambrian Consultants America, Inc. (“Cambrian”) filed an action in the District Court of Harris County, Texas, against the Company resulting from certain professional consulting services provided for quality control and management of seismic operations during November and December 2013 on the Concessions. Cambrian provided these services pursuant to a master consulting agreement with AMGAS, dated November 20, 2013, and has claimed breach of contract for failure to pay amounts due. On December 8, 2014, a default judgment was entered against the Company in the amount of $96,877 plus interest and attorney fees. The Company has included the impact of this litigation as a liability in its accounts payable which management believes is sufficient to provide for ultimate resolution of this dispute.
● Torrey Hills Capital, Inc. (“Torrey”) notified the Company by a letter, dated August 15, 2014, of its demand for the payment of $56,000, which it alleged was unpaid and owed under a consulting agreement dated October 18, 2013. Torrey and the Company entered into a consulting agreement, pursuant to which Torrey agreed to provide investor relations services in exchange for payment of $7,000 per month and the issuance of 15,000 shares of Common Stock. The agreement was for an initial three month-term with automatic renewals unless terminated upon 30 days’ written notice by either party. The Company made payments totaling $14,000 and issued 15,000 shares of Common Stock during 2013. The Company contended that Torrey breached the agreement by not performing the required services and that it had provided proper notice of termination to Torrey. Furthermore, the Company contended that the parties agreed to settle the dispute on or about June 19, 2014 under which it would issue 2,800 shares of Common Stock in full settlement of any balance then owed and final termination of the agreement. Torrey disputed the Company’s contentions and submitted the dispute to binding arbitration. The Company was unable to defend itself and the arbitration panel awarded Torrey a total of $79,594 in damages. The Company has accrued this amount in accounts payable as of December 31, 2022 and 2021, which management believes is sufficient to provide for the ultimate resolution of this dispute.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Principal Market and Price Range of Common Stock
Shares of our Common Stock are traded on the OTCQB Venture Tier Market (OTCQB) under the symbol “AMNI”. Prior to January 20, 2023, our Common Stock was quoted for trading on the OTCQB under the symbol “IFNY”. The following table sets forth the high and low closing bid prices for AMGAS’s Common Stock as reported by the OTCQB. The closing price of our Common Stock on May 11, 2023 was $0.05 per share. The quotations reflect interdealer bid prices without retail markup, markdown or commission and may not represent actual transactions.
Year Ended December 31, 2022 High Low
1st Quarter $ 0.49 $ 0.28
2nd Quarter $ 0.61 $ 0.25
3rd Quarter $ 0.35 $ 0.09
4th Quarter $ 0.20 $ 0.08
Year Ended December 31, 2021 High Low
1st Quarter $ 0.40 $ 0.09
2nd Quarter $ 0.35 $ 0.15
3rd Quarter $ 0.35 $ 0.21
4th Quarter $ 0.69 $ 0.28
Holders of Common Stock
At December 31, 2022, there were approximately 161 stockholders of record of our Common Stock.
Dividend Policy
Holders of Common Stock are entitled to receive such dividends as may be declared by our Board. We have not declared or paid and do not anticipate declaring or paying any dividends on our Common Stock in the near future. Any future determination as to the declaration and payment of dividends will be at the discretion of our Board and will depend on then-existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and such other factors as the board deems relevant.
Holders of Series A Convertible Preferred Stock are entitled to receive the payment of 10% per annum cumulative dividends, in (i) cash, or (ii) shares of Common Stock, based on the stated/liquidation value of the Series A Convertible Preferred Stock. The holders of such Series A Convertible Preferred Stock earned dividends in 2022 of $231,619 and $174,449 in 2021.
Securities Authorized for Issuance under Equity Compensation Plans
At the Annual Meeting of Stockholders held on October 13, 2021, the stockholders approved the 2021 Plan and we reserved 5,000,000 shares of Common Stock for issuance under the 2021 Plan. At the Annual Meeting of Stockholders held on September 25, 2015, the stockholders approved the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”) and we reserved 500,000 shares of Common Stock for issuance under the 2015 Plan.
Under the 2021 Plan and the 2015 Plan, both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. Options granted under the 2021 Plan and 2015 Plan allow for the purchase of shares of Common Stock at prices not less than the fair market value of such stock at the date of grant, become exercisable immediately or as directed by the Company’s Board and expire ten years after the date of grant. The Company has issued stock options and restricted stock awards that are outside of a formal plan with terms similar to the 2021 Plan and 2015 Plan as described in this Annual Report on Form 10-K.
As of December 31, 2022, an aggregate 5,500,000 shares were available for future grants under the 2021 Plan and the 2015 Plan. All other Plans have now expired.
The following table sets forth certain information regarding our stock option plans as of December 31, 2022:
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of
securities
remaining
available for future
issuance under
equity
compensation
plans
(excluding
securities
reflected
in column (a))
Plan category (a) (b) (c)
Equity compensation plans approved by stockholders - $ - 5,500,000
Option grants not issued under a plan approved by stockholders 1,442,000 2.38 n/a
Total 1,442,000 $ 2.38 5,500,000
Recent Issuances of Unregistered Securities
During the last three (3) years, we have sold the following unregistered securities:
On August 19, 2020, we entered into a securities purchase agreement (the “August Purchase Agreement”) with one investor (the “August Investor”), pursuant to which we issued to the August Investor, in consideration for an aggregate of $325,000, (i) a senior unsecured convertible note payable due August 19, 2021 (the “August Note”), which was, subject to certain conditions, convertible into an aggregate of 3,943,820 shares of Common Stock, at a price of $0.10 per share; and (ii) a common stock purchase warrant (the “August Warrant”), which is immediately exercisable upon issuance and on a cashless basis if the August Warrant has not been registered 180 days after the date of issuance for up to 800,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments. Pursuant to the August Purchase Agreement, the August Note and August Warrant were issued to the August Investor in a private placement transaction pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. Pursuant to the August Purchase Agreement, the August Investor was also granted certain piggy-back registration rights, whereby we agreed to register the resale of the shares of Common Stock underlying the August Warrant and the August Note. We repaid the August Note on March 26, 2021. On August 5, 2021, the Company has filed a registration statement on Form 424B4 to register for resale all of the shares of Common Stock issuable upon exercise of the August Warrant issued to the August Investor.
The exercise of the August Warrant is subject to a beneficial ownership limitation such that the August Investor may not exercise the August Warrant to the extent that such exercise would result in the August Investor being the beneficial owner in excess of 4.99% (or, upon election of the August Investor, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to us, provided that any increase in such limitation will not be effective until 61 days following notice to us.
Additionally, pursuant to the August Purchase Agreement, for so long as the August Note or August Warrant is outstanding, the August Investor has a right to participate in any issuance of the Common Stock, Common Stock Equivalents (as defined in the August Purchase Agreement), conventional debt, or a combination of such securities and/or debt (a “Subsequent Financing”), up to an amount equal to 35% of the Subsequent Financing.
We used the proceeds of the August Note to pay off $60,125 in principal balance of notes payable that were in default, to pay the $100,000 required by the SKM Exchange Agreement (as defined below) and for general working capital.
On August 19, 2020, we granted certain of our executive officers, directors and affiliate thereof and consultant, outside of our existing equity compensation plans, and pursuant to the August 2020 Restricted Stock Agreements, an aggregate of 5,000,000 shares of Common Stock, subject to the restrictions contained therein, as compensation for their services to the Company. Such individuals were granted such shares pursuant to the exemption provided by Section 4(a)(2) of the Securities Act.
On September 24, 2020, we entered into an exchange and settlement agreement (the “SKM Exchange Agreement”) with SKM Partnership, Ltd. (“SKM”), pursuant to which SKM agreed to exchange an 8% promissory note issued by us to SKM, dated as of December 27, 2013, in the original principal amount of $1,050,000, representing outstanding principal balance of $1,000,000 and accrued and unpaid interest thereon of $481,000, for (i) a cash payment in the amount of $100,000 and (ii) 737,532 newly issued shares of Common Stock. The issuance of the 737,532 shares is being made without any restrictive legends upon reliance on the exemptions from the registration requirements of the Securities Act afforded by Section 3(a)(9) of the Securities Act and Rule 144 promulgated thereunder. The closing of the exchange occurred on September 24, 2020.
On March 26, 2021, we entered into securities purchase agreements (collectively, the “March Purchase Agreements”) with certain investors (the “March Investors”), pursuant to which, in consideration for an aggregate of $2,050,000, we issued an aggregate of 22,776 shares of Series A Preferred Stock and common stock purchase warrants (the “March Warrants”) exercisable for up to 5,256,410 shares of Common Stock six (6) months following issuance and for five (5) years after such date. Holders of the March Warrants may exercise them on a cashless basis pursuant to the formula provided in the March Warrants if there is not an effective registration statement for the sale of the shares of Common Stock underlying the March Warrants within six (6) months following the Closing Date, as defined in the March Warrants. Such securities were issued to March Investors in a private placement transaction pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
In connection with the March Purchase Agreement, we and the March Investors entered into that certain registration rights agreement (the “Registration Rights Agreement”), pursuant to which we agreed to file a registration statement to register such shares of Common Stock issuable upon conversion of the Series A Preferred Stock and such shares of Common Stock underlying the March Warrants. In order to satisfy such obligations, on August 5, 2021, the Company filed a registration statement to register for resale all of the Preferred Shares and Warrant Shares issuable upon conversion of the shares of Series A Preferred Stock and upon exercise of the March Warrants issued to the March Investors.
The closing of the private placement in connection with the March Purchase Agreements took place on March 26, 2021.
We used the proceeds of the offering of the Series A Preferred Stock to complete the acquisition of the Properties and intend to use the remaining proceeds to complete development of the Properties, to pay-off all outstanding convertible notes payable and for general working capital.
On March 31, 2021, we entered into entered into the Debt Settlement Agreements with six creditors of the Company (collectively, the “Creditors”), pursuant to which the Creditors agreed to extinguish an aggregate of $2,866,497 of debt and liabilities of the Company owed to such Creditors in consideration for the issuance to each Creditor of (i) an aggregate of approximately $28,665 in the 3% Notes , which are, subject to certain conditions, convertible at any time at the option of the Creditors into an aggregate of 65,930 shares of Common Stock (including accruable interest), at a price of $0.50 per share and (ii) common stock purchase warrants (the “Creditor Warrants”) which are immediately exercisable for up to an aggregate of 5,732,994 shares of Common Stock and for five (5) years thereafter. We also granted the Creditors certain piggy-back registration rights pursuant to the Notes and the Creditor Warrants, which were satisfied by the Company filing the registration statement on Form 424B4 on August 5, 2021. Such securities were issued to the Creditors in a private placement transaction pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act.
The 3% Notes bear interest at a rate of 3% per annum, may be voluntarily repaid in cash in full or in part by us at any time in an amount equal to the face amount plus any accrued and unpaid interest on the 3% Notes (or portion thereof) being prepaid, and mature on March 30, 2026.
On April 1, 2021, the Company and the holder of a $50,000 outstanding convertible note (the “April 2021 Creditor #1”) entered into a settlement agreement pursuant to which the Company issued to such holder 145,000 shares of Common Stock in consideration for the extinguishment of the outstanding principal and accrued interest on such note and the cancellation of common stock purchase warrants of the Company issued in connection with the issuance of such note. The 145,000 shares of Common Stock issued to such holder pursuant to such settlement agreement were valued at $40,600 based on the closing market price of the Common Stock on the date of such extinguishment and cancellation. Such securities were issued to the April 2021 Creditor #1 in a private placement transaction pursuant to an exemption from the registration requirements of the Securities Act provided in Section 3(a)(9) of the Securities Act.
Also on April 1, 2021, the Company and the holder of a $35,000 outstanding convertible note (the “April 2021 Creditor #2”) entered into a settlement agreement pursuant to which the Company issued to such holder 100,000 shares of Common Stock in consideration for the extinguishment of the outstanding principal and accrued interest on such note and the cancellation of common stock purchase warrants of the Company issued in connection with the issuance of such note. The 100,000 shares of Common Stock issued to such holder pursuant to such settlement agreement were valued at $28,000 based on the closing market price of the Common Stock on the date of such extinguishment and cancellation. Such securities were issued to the April 2021 Creditor #2 in a private placement transaction pursuant to an exemption from the registration requirements of the Securities Act provided in Section 3(a)(9) of the Securities Act.
On June 4, 2021, our Board authorized the grant of stock options to purchase up to (i) 500,000 shares of Common Stock to Mr. Ross, (ii) 100,000 shares of Common Stock to Mr. Richie, (iii) 100,000 shares of Common Stock to Mr. Hutchins, (iv) 350,000 shares of Common Stock to Mr. Loeffelbein, and (v) a total of 750,000 shares of Common Stock to three Company consultants. All such stock options vest on June 4, 2022, contingent upon the holder of such options continuing to serve the Company on such date, have 10-year terms and are exercisable at $0.50 per share. Such individuals were granted such stock options pursuant to the exemption provided by Section 4(a)(2) of the Securities Act in consideration for the time and efforts such individuals devoted to assisting the acquisition of the Properties and its drilling program.
On August 30, 2021, the Company entered into an agreement with an accredited investor (the “8% Note Investor”) for the Company’s 8% Note, with an aggregate principal face amount of $100,000. The 8% Note is, subject to certain conditions, convertible into an aggregate of 200,000 shares of Common Stock, at a price of $0.50 per share. The Company also issued a five-and-one-half-year common stock purchase warrant to purchase up to 200,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “8% Note Warrant”), which is immediately exercisable. The 8% Note Investor purchased the 8% Note and 8% Note Warrant from the Company for an aggregate purchase price of $100,000. The Company also granted the 8% Note Investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the 8% Note Warrant and the conversion of the 8% Note unless the shares of the Company commences trading on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within 120 days after the closing date of such transaction.
The 8% Note bears interest at a rate of 8% per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to 120% of the principal amount of the 8% Note and any accrued and unpaid interest. 50% of the 8% Note shall be mandatorily repaid in cash in an amount equal to 120% of the principal amount of the 8% Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 and 100% of the 8% Note, plus accrued interest shall be mandatorily repaid in an amount equal to 120% of outstanding principal and interest in cases in which the Company receives gross proceeds of at least $3,000,000. In addition, pursuant to the 8% Note, so long as the 8% Note remains outstanding, the Company cannot enter into any financing transactions pursuant to which the Company sells its securities at a price lower than $0.50 per share without written consent of the 8% Note Investor.
The conversion of the 8% Note and the exercise of the 8% Note Warrant are each subject to its applicable beneficial ownership limitation.
The 8% Note and the 8% Note Warrant were issued to the 8% Note Investor pursuant to Section 4(a)(2) of the Securities Act, because the 8% Note Investor represented that it had sufficient sophistication and knowledge of the Company, and the issuance did not involve any form of general solicitation or general advertising. Furthermore, the 8% Note Investor made representations that the securities issued to extinguish the obligations were taken for investment purposes and not with a view to resale.
On October 29, 2021, the Company entered into a securities purchase agreement (the “November Purchase Agreement”) with three additional accredited investors (the “November Investors”) for the Company’s Senior Unsecured Convertible Promissory Notes due October 29, 2022 (the “November Notes”), with an aggregate principal face amount of $550,000. The November Notes are, subject to certain conditions, convertible into 1,100,000 shares (the “November Conversion Shares”) of Common Stock, at a price per share of $0.50 (“November Conversion Price”). Pursuant to the November Purchase Agreement, the Company also issued a five-and-one-half-year common stock purchase warrant (the “November Warrant”) to purchase up to 1,650,000 shares of Common Stock (the “November Warrant Shares” and collectively with the November Notes, the November Conversion Shares, and the November Warrant, the “November Securities”) at an exercise price of $0.50 per share, subject to customary adjustments. The November Investors purchased the November Securities for an aggregate purchase price of $850,000. The Company has also granted the November Investors certain piggy-back registration rights whereby the Company has agreed to register the resale by the November Investors of the November Warrant Shares and November Conversion Shares. The Company relied on the exemption from the registration requirements of the Securities Act, provided in Section 4(a)(2) of the Securities Act.
The November Notes bear interest at a rate of 8% per annum, may be voluntarily repaid in cash in full or in part by the Company at any time (subject to the occurrence of an event of default) in an amount equal to 120% of the principal amount of each November Note and any accrued and unpaid interest, and shall be mandatorily repaid in cash in an amount equal to a) 50% of the then outstanding principal amount equal to 120% of the principal amount of each November Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 but not greater than $3,000,000; or b) 100% of the then outstanding principal amount equal to 120% of the principal amount of a November Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of in excess of $3,000,000. In addition, pursuant to the November Notes, so long as a November Note remains outstanding, the Company shall not enter into any financing transactions pursuant to which the Company sells its securities at a price lower than the November Conversion Price, subject to certain adjustments, without written consent of the November Investors.
The conversion of the November Notes and the exercise of the November Warrants are each subject to Beneficial Ownership Limitation.
Pursuant to the November Purchase Agreement, for a period of twelve (12) months after the Closing Date (as defined in the November Purchase Agreement), the November Investors have a right to participate in Subsequent Financing, up to an amount equal to thirty-five percent (35%) of the Subsequent Financing. The transaction completed by the November Purchase Agreement closed on November 1, 2021.
On November 9, 2021, the Company entered into a USNG Letter Agreement, pursuant to which USNG will provide consulting services to the Company for exploration, testing, refining, production, marketing and distribution of various potential reserves of noble gases and rare earth element/minerals on the Properties. The USNG Letter Agreement would cover all of the noble gas, specifically helium, and rare earth elements/minerals potentially existing on the Properties and the future acquisitions of the Company, if any.
The USNG Letter Agreement required the Company to establish a four-member Board of Advisors, which will help attract both industry partners and financial partners for developing a large helium, noble gas and/or rare earth element/mineral resources that may exist in the region where the Company currently operates. The industry partners would include helium, noble gas and/or rare earth element/mineral purchasers and exploration and development companies from the energy industry. The financial partners may include large family offices or small institutions.
The Company also is required to pay USNG a $8,000 monthly cash fee beginning at the onset of commercial helium or minerals production and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month that AMGAS receives cash receipts in excess of $25,000 derived from the sale of noble gases and/or rare earth elements/minerals.
In consideration of the foregoing and pursuant to the terms of the USNG Letter Agreement, on November 9, 2021, the Company also issued warrants (the “November 9 Warrants”), exercisable for five (5) years, to purchase, in the aggregate, 2,000,000 shares of Common Stock, at an exercise price of $0.50 per share, subject to customary adjustments (the “November 9 Exercise Price”) to three of USNG’s principal consultants. The Company also issued November 9 Warrants to purchase, in the aggregate, 1,200,000 shares of Common Stock at the November 9 Exercise Price to the four members of the Board of Advisors and options to acquire 60,000 shares of Common Stock to various support personnel at the November 9 Exercise Price. The Company therefore granted a total of 3,260,000 November 9 Warrants to purchase its Common Stock for a price of approximately $1.6 million in connection with the USNG Letter Agreement and the arrangements described therein. In issuing the November 9 Warrants, the Company relied on an exemption from registration under Section 4(a)(2) of the Securities Act. Each holder of the November 9 Warrants has advised the Company that they are sophisticated and can bear the risks associated with the November 9 Warrants, and the Company has not engaged in general solicitation in connection with the offer or sale of the November 9 Warrants.
On June 8, 2022, the Company issued to an accredited investor an unsecured convertible note due September 15, 2022 (the “June 2022 Note”), with an aggregate principal face amount of $350,000. The June 2022 Note is, subject to certain conditions, convertible into an aggregate of 700,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued a five-year Common Stock purchase warrant to purchase up to 700,000 shares of Common Stock at an exercise price of fifty cents ($0.50) per share, subject to customary adjustments (the “June 2022 Warrants”) which are immediately exercisable. The investor purchased the June 2022 Note and June 2022 Warrant from the Company for an aggregate purchase price of $350,000 and the proceeds were used for drilling and completion costs on the initial well drilled under the Hugoton Gas Field participation agreement and general working capital purposes. The Company also granted the investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares of Common Stock underlying the June 2022 Warrant and the conversion of the June 2022 Note unless the shares of the Company commence to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.
The June 2022 Note bears interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to the remaining principal amount of the underlying note and any accrued and unpaid interest.
The note has matured and therefore the remaining unamortized discount relative to the June 2022 Notes was $-0- as of December 31, 2022.
On May 5, 2023, the Company reached an agreement with the holder of two separate convertible notes payable in the aggregate principal face amount of approximately $450,000 (including the June 2022 Note), which the Company did not pay by their maturity dates. The Company and the holder of the two convertible notes payable entered into a new convertible promissory note (the “New Note”), exchanging the outstanding principal amount of the old convertible notes payable into the New Note, with a maturity date of September 30, 2023. Upon issuance of the New Note, the old convertible notes payable were cancelled and the repayment defaults under the prior convertible notes payable were cured with the entry into the New Note. The conversion price of the New Note was reduced from $0.50 per share to $0.40 per share however, the interest rate and other significant terms of the New Note are the same as those of the prior convertible notes payable.
In May 2022 the Company entered into a securities purchase agreement with two accredited investors (the “Investors”) for the Company’s 8% convertible notes payable due June 29, 2022 (the “May 2022 Notes”), with an aggregate principal amount of $850,000. The May 2022 Notes are, subject to certain conditions, convertible into an aggregate of 2,125,000 shares of Common Stock, at a price of forty cents ($0.40) per share. The Company also issued an aggregate of 425,000 shares of Common Stock as commitment shares (“Commitment Shares” and, together with the May 2022 Notes and Conversion Shares, the “Securities”) to the Investors as additional consideration for the purchase of the May 2022 Notes. The closing of the offering of the Securities occurred on May 13, 2022, when the Investors purchased the Securities for an aggregate purchase price of $850,000. The Company has also granted the Investors certain automatic and piggy-back registration rights whereby the Company has agreed to register the resale by the Investors of the Conversion Shares. The proceeds of this offering of Securities were used to purchase the Company’s membership interests in GMDOC.
The May 2022 Notes bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time (subject to the occurrence of an event of default) in an amount equal to 120% of the principal amount of each May 2022 Note and any accrued and unpaid interest, and shall be mandatorily repaid in cash in an amount equal to a) fifty percent (50%) of the then outstanding principal amount equal to 120% of the principal amount of each May 2022 Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 but not greater than $3,000,000; or b) one hundred percent (100%) of the then outstanding principal amount equal to 120% of the principal amount of a May 2022 Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of in excess of $3,000,000. In addition, pursuant to the May 2022 Notes, so long as such May 2022 Notes remain outstanding, the Company shall not enter into any financing transactions pursuant to which the Company sells its securities at a price lower than the $0.40 per share conversion price, subject to certain adjustments, without the written consent of the Investors.
The conversion of the May 2022 Notes are each subject to beneficial ownership limitations such that the Investors may not convert the May 2022 Notes to the extent that such conversion or exercise would result in an Investor being the beneficial owner in excess of 4.99% (or, upon election of the Investor, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.
The Company paid half of the May 2022 Notes principal balance upon its maturity on June 29, 2022 and an additional $112,500 in September 2022 and the remaining balance remains due and payable and is therefore in technical default.
With respect to the two May 2022 Notes with an aggregate outstanding principal balance of $312,500 as of December 31, 2022 the Company has reached an agreement with the two Investors. On January 10, 2023, the Company amended each of those notes by entering into a letter agreement between the Investors and the Company. The Letter Agreement modifies the terms of the notes by extending each note’s respective maturity date to September 30, 2023. In consideration for the extension, the Company amended the Fixed Conversion Price (as defined in each note) to $0.10, subject to any future adjustments as provided in each of the notes.
During May 2022, the Board of Directors granted 1,550,000 shares of restricted stock awards to our officers, directors and consultants. In addition, during August 2020 the Board of Directors granted 5,000,000 shares of restricted stock awards to our officers, directors and a consultant. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over a period of time generally corresponding to yearly anniversaries of the grant date. Unvested shares of restricted stock awards may be forfeited upon the termination of service of employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive cash dividends.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved.]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
The following information should be read in conjunction with the Financial Statements and Notes presented elsewhere in this Annual Report on Form 10-K. See Note 1 - “Summary of Significant Accounting Policies,” to the Financial Statements for the Years Ended December 31, 2022 and 2021.
Overview
The Company has assessed various opportunities and strategic alternatives involving the acquisition, exploration and development of oil and gas oil producing properties in the United States, including the possibility of acquiring businesses or assets that provide support services for the production of oil and gas in the United States.
As a result, we are now involved with the following oil and gas producing properties:
Central Kansas Uplift - On April 1, 2021, we completed the acquisition of the Central Kansas Uplift Properties, for a purchase price of $900,000. The Central Kansas Uplift Properties include the production and mineral rights/leasehold for oil and gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological formation covering over 11,000 contiguous acres (the “Properties”). The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand Zone with an approximate depth of 3,600 feet.
We commenced rework of the existing production wells after completion of the acquisition of the Properties and have performed testing and evaluation of the existence of noble gas reserves on the Properties including helium, argon and other rare earth minerals/gases. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and we have yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties’ existing oil and gas reserves, including the exploration for the existence of new oil and gas zones and other mineral reserves, in particular, the noble gas reserves that the Properties may hold.
During the year ended December 31, 2022, the Company changed its strategy regarding the Central Kansas Uplift considering the reduced net cash flows from the sale of crude oil production. The reduction in net cash flows was attributable to lower spot crude oil prices during 2022 compared to 2021 and higher than anticipated operating costs related to the operation of the horizontal wells on the Properties. The Company has shut down the horizontal production wells as of December 31, 2022 and is considering the deepening of the conventional wells on the property to explore for helium and other noble gases that may be present in deeper producing zones. Accordingly, the Company has recorded an impairment charge of $712,812 to reduce the capitalized tangible and intangible costs related to its Central Kansas Uplift properties to zero as of December 31, 2022.
Hugoton Gas Field Farm-Out - On April 4, 2022, the Company acquired a 40% participation in a Farmout Agreement by and between Sunflower Exploration, LLC as the Farmee and Scout Energy Partners as Farmor with regards to its oil and gas interests in the Hugoton Gas Field, located in Haskell and Finney Counties, Kansas. The Company has joined three other parties to explore for and develop potential oil, natural gas, noble gases and brine minerals on the properties underlying the Farmout Agreement (collectively the “Hugoton JV”).
The Farmout Agreement covers drilling and completion of up to 50 wells, with the first exploratory well spudded on May 7, 2022. The Hugoton JV will utilize Scout’s existing infrastructure assets including water disposal, gas gathering and helium processing. The Farmout Agreement provides the Hugoton JV with rights to take in-kind and market its share of helium at the tailgate of Jayhawk Gas Plant, which will enable the Hugoton JV to market and sell the helium produced at prevailing market prices.
The Hugoton JV also acquired the right to all brine minerals subject to a ten percent (10%) royalty to Scout, across Finney and Haskell Counties. Brine minerals are harvested from the formation water produced from active, and to be drilled, oil and gas wells and may include a variety of dissolved minerals including bromine and iodine. The Hugoton JV plans to target brine minerals with commercial quantities of bromine and iodine. The Company through the Hugoton JV is currently developing proprietary technology to recover brine minerals, particularly with respect to bromine, which is well underway and has demonstrated recovery efficiency and is expected to be available for use in existing and future development wells.
The Hugoton JV believes that its unconventional theory has not previously been targeted for exploration by historical operations in the field. The initial exploratory well was spud on May 7, 2022 near Garden City, Kansas, with production casing set after testing and completion logs identified at least two potential zones with substantial gas and helium reserves. The initial well was completed upon the successful perforation across two lower intervals of the Chase group of formations. The fracture stimulation was completed in two stages during June 2022. The well was connected to the pipeline and commenced commercial production and sales of natural gas, natural gas liquids and helium on August 17, 2022. The Company is continuing to evaluate the initial flows of both natural gas, natural gas liquids and helium to determine its plan for additional wells on the farmout.
The Company performed the ceiling test to assess potential impairment of the capitalized costs relative to its Hugoton Gas Field Project. The ceiling test indicated an impairment charge of $192,762 was required to reduce the total capitalized costs to $88,687 as of December 31, 2022. Accordingly, the Company has recorded an impairment charge of $192,762 to reduce the capitalized tangible and intangible costs related to its Hugoton Gas Field properties to $88,687 as of December 31, 2022.
Investment in GMDOC, LLC - On May 3, 2022, the Company entered into an operating agreement (the “Operating Agreement”) pursuant to which the Company acquired 17 (or 60.7143%) of 28 limited liability membership interests (the “Interests”) in GMDOC, LLC, a Kansas limited liability company (“GMDOC”), for an aggregate purchase price of $4,037,500, and was subsequently admitted as a member of GMDOC.
With respect to its cash capital contribution, the Company paid a non-refundable cash deposit for the membership interests in the amount of $50,000 on May 3, 2022. The Company paid the remainder of the cash contribution for the membership interests, or $800,000, on May 16, 2022. The remainder of the Company’s capital contribution, or $3,187,500, was financed by the Bank Loan (as defined below).
GMDOC had previously acquired 70% of the working interests (the “Acquisition”) in certain oil and gas leases (the “GMDOC Leases”) from Castelli Energy, L.L.C., an Oklahoma limited liability company. The GMDOC Leases cover approximately 10,000 acres located in Southern Kansas near the Oklahoma border. The GMDOC Leases currently produce approximately 100 barrels of oil per day and 1.5 million cubic feet of natural gas per day on a gross basis.
GMDOC is managed by two members: Darrah Oil Company, LLC, and Grand Mesa Operating Company, (collectively the “Managing Members”), which also serve as the operating companies under the GMDOC Leases.
Name Change and Reincorporation Matters
At the Company’s Annual Meeting of Stockholders held on October 13, 2021, the stockholders approved an amendment to the Company’s Certificate of Incorporation, changing the Company’s name to American Noble Gas Inc. The stockholders also approved an amendment to the Company’s Certificate of Incorporation, removing the provision providing that any action taken by the stockholders by written consent in lieu of a meeting requires that all of the Company’s stockholders entitled to vote on such action consent in writing thereto. Finally, the stockholders approved the 2021 Plan and we reserved 5,000,000 shares of the Company’s Common Stock, par value $0.0001 per share (the “Common Stock”) for issuance under the 2021 Plan.
Reincorporation in Nevada
On December 7, 2021, pursuant to the Agreement and Plan of Merger, American Noble Gas, Inc., a Delaware corporation, merged with and into its wholly owned subsidiary, American Noble Gas Inc., a Nevada corporation (“AMGAS-Nevada” and/or the “Company”) with AMGAS-Nevada continuing as the surviving corporation. In conjunction with the merger, AMGAS-Nevada succeeded to the assets, continued the business and assumed the rights and obligations of the predecessor Delaware corporation existing immediately prior to the merger. The merger was consummated by the filing of a Certificate of Merger on December 7, 2021 with the Secretary of State of the State of Delaware and Articles of Merger with the Secretary of State of the State of Nevada. The Agreement and Plan of Merger and transactions contemplated thereby were adopted by the holders of a majority of the outstanding shares of the predecessor’s common stock, par value $0.0001 per share, and/or Series A Convertible Preferred Stock, par value $0.0001 per share, on an as-converted common stock basis, by written consent in lieu of a special meeting of stockholders, in accordance with the Delaware General Corporation Law.
Pursuant to the Agreement and Plan of Merger, (i) each outstanding share of the Predecessor’s common stock automatically converted into one share of Common Stock of AMGAS-Nevada, (ii) each outstanding share of the predecessor’s Series A Convertible Preferred Stock automatically converted into one share of Series A Convertible Preferred Stock, par value $0.0001 per share, of AMGAS-Nevada (the “Series A Convertible Preferred Stock”), and (iii) each outstanding option, right or warrant to acquire shares of predecessor common stock converted into an option, right or warrant to acquire an equal number of shares of AMGAS-Nevada Common Stock under the same terms and conditions as the original options, rights or warrants.
Similar to the shares of common stock of the Predecessor prior to the merger, the shares of Common Stock were quoted on the OTCQB tier operated by the OTC Markets Group Inc. under the symbol “IFNY”. In accordance with the Agreement and Plan of Merger, each outstanding certificate previously representing shares of the predecessor’s common stock or Series A Convertible Preferred Stock automatically represents, without any action of the predecessor’s stockholders, the same number of shares of Common Stock or Series A Convertible Preferred Stock, as applicable.
Pursuant to the Agreement and Plan of Merger, the directors and officers of the predecessor immediately prior to the merger became the directors and officers of AMGAS-Nevada and continued their respective directorship or services with the Company on the same terms as their respective directorship or services with the predecessor immediately prior to the merger.
As a result of the merger, the internal affairs of the Company ceased to be subject to the Delaware General Corporation Law or governed by the predecessor’s Certificate of Incorporation, as amended, and its bylaws. As of December 7, 2021, effective date of the merger, the Company is now subject to the Nevada Revised Statutes and is governed by the Company’s Articles of Incorporation as filed in the State of Nevada and the Company’s Bylaws.
All references to the Company in this Annual Report on Form 10-K refer to the predecessor prior to the merger, and AMGAS-Nevada subsequent to the merger.
Operational and Financial Objectives
COVID-19 PANDEMIC
The financial statements contained in this Annual Report on Form 10-K as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of and for the year ended December 31, 2022. Economies throughout the world have been and continue to suffer disruptions by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes as a result of the COVID-19 pandemic. In particular, the oil and gas market has been severely adversely impacted by the effects of the COVID-19 pandemic because of the substantial and abrupt decrease in the demand for oil and gas globally followed by the recent resurgence in oil and natural gas prices. In addition, the capital markets have experienced periods of disruption and our efforts to raise necessary capital in the future may be adversely impacted by the continuing effects of the COVID-19 pandemic and investor sentiment and we cannot forecast with any certainty when the lingering uncertainty caused by the COVID-19 pandemic will cease to impact our business and the results of our operations. In reading this Annual Report on Form 10-K, including our discussion of our ability to continue as a going concern set forth herein, in each case, consider the additional uncertainties caused by the COVID-19 pandemic.
Corporate Activities
The Company’s 2023 operating objectives are focused on: 1) raising the necessary funds to finance exploration and development of the Hugoton Gas Field through the Hugoton JV, 2) raising the necessary funds for repayment of obligations that become due, or are in default and/or past due, 3) raising the funds necessary to explore and develop the Properties, including testing and evaluation of noble gas reserves in additional to the oil and gas producing zones, 4) raising the funds necessary to allow the Company to compete for new oil and gas properties that become available for acquisition purposes, and 5) funding our daily operations and the repayment of other obligations that become due, or are in default and/or past due.
Recent financings -
Issuance of Series B Convertible Preferred Stock
May 2023 Issuance - On May 4, 2023, the Company entered into a securities purchase agreement with three (3) accredited investors providing for an aggregate investment of $750,000 by the investors for the issuance by the Company to them of (i) 7,500 shares of Series B Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “May 2023 Series B Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 15,000,000 shares of Common Stock at an exercise price of five ($0.05) cents per share, subject to customary adjustments thereunder. The 7,500 shares of May 2023 Series B Convertible Preferred Stock are convertible into an aggregate of up to 15,000,000 shares of Common Stock. Holders of the warrants may exercise the warrants by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrants. The Company intends to use the proceeds of the May 2023 Series B Convertible Preferred Stock offering for development of Hugoton Gas Field and Central Kansas Uplift Properties and for general working capital purposes.
The Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement within forty-five (45) days following the closing of the May 2023 Series B Convertible Preferred Stock transaction, to register the shares of Common Stock issuable upon the conversion of the May 2023 Series B Convertible Preferred Stock and the common stock underlying the warrants. The Company is to use its best efforts to cause such registration statement to be declared effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar day following the closing of the issuance of the May 2023 Series B Convertible Preferred Stock.
On May 5, 2022, Ozark Capital, LLC (“Ozark”) acquired 2,500 shares of Series B Preferred Stock (convertible into 5,000,000 shares of Common Stock), together with warrants to acquire 5,000,000 shares of Common Stock at five cents ($0.05) per share for a total cash contribution of $250,000. Ozark and its affiliates hold over 10% of the shares of the Company’s Common Stock as of December 31, 2022. Accrued dividends on the Class A Convertible Preferred Stock attributable to Ozark were $11,080 and $8,523 for the years ended December 31, 2022 and 2021, respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $5,601 and $ - relative to Ozark’s Series A Preferred Stock as of December 31, 2022 and 2021, respectively.
Issuances of Series A Convertible Preferred Stock
March 2021 Issuance - On March 26, 2021, the Company entered into a securities purchase agreement with five (5) accredited investors providing for an aggregate investment of $2,050,000 by the investors for the issuance by the Company to them of (i) 22,776 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “March 2021 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 5,256,410 shares of Common Stock at an exercise price of thirty-nine ($0.39) per share, subject to customary adjustments thereunder. The March 2021 Series A Convertible Preferred Stock is convertible into an aggregate of up to 7,117,500 shares of Common Stock. Holders of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrants. Net proceeds from the issuance of March 2021 Series A Convertible Preferred Stock totaled $1,929,089 after deducting the placement agent fee and other expenses of the offering. The Company used the proceeds of the March 2021 Series A Convertible Preferred Stock offering to complete the acquisition and development of the Properties, to pay-off certain outstanding convertible notes payable (see Note 4) and for general working capital purposes.
The Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement within forty-five (45) days following the closing of the acquisition of the Properties, which occurred on April 1, 2021, to register the shares of Common Stock underlying the warrants. The Company is to use its best efforts to cause such registration statement to be declared effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar day following the closing of the acquisition of the Properties, which occurred on April 1, 2021. The Company completed the required registration of these shares on Form S-1, which the Securities and Exchange Commission declared effective on August 4, 2021.
The holders of the March 2021 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its March 2021 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.
The Company has accrued preferred dividends totaling $199,300 and $174,449 relative to the March 2021 Series A Convertible Preferred Stock which was charged to additional paid in capital during the years ended December 31, 2022 and 2021, respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $44,805 and $ - relative to the March 2021 Series A Convertible Preferred Stock as of December 31, 2022 and 2021, respectively.
The holders of March 2021 Series A Convertible Preferred Stock exercised their rights to convert a total of 3,000 shares of March 2021 Series A Convertible Preferred Stock into 937,500 shares of Common Stock during the year ended December 31, 2022. The holders exercised their rights to convert a total of 700 shares of March 2021 Series A Convertible Preferred Stock into 218,750 shares of Common Stock during the year ended December 31, 2021.
On March 26, 2021, Ozark acquired 1,111 shares of March 2021 Series A Convertible Preferred Stock (convertible into 347,188 shares of Common Stock), together with warrants to acquire 256,410 shares of Common Stock at fifty cents ($0.50) per share for a total cash of $100,000. Ozark and its affiliates hold over 10% of the shares of the Company’s Common Stock as of December 31, 2022. Accrued dividends attributable to Ozark were $11,080 and $8,523 for the years ended December 31, 2022 and 2021 respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $2,800 and $ - relative to the Ozark’s Series A Convertible Preferred Stock as of December 31, 2022 and 2021, respectively.
The holders converted a total of 3,000 and 700 shares of Series A Preferred Stock into common stock during the years ended December 31, 2022 and 2021, respectively.
All holders of the March 2021 Series A Convertible Preferred Stock, including Ozark, have agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days’ advance notice to the Company.
June 2022 Issuance - On June 15, 2022, the Company entered into a securities purchase agreement with an accredited investor providing for an aggregate investment of $500,000 by the investor for the issuance by the Company of (i) 5,000 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “June 2022 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 1,666,667 shares of Common Stock at an exercise price of thirty cents ($0.30) per share, subject to customary adjustments thereunder. The June 2022 Series A Convertible Preferred Stock is convertible into an aggregate of up to 1,562,500 shares of Common Stock. The holder of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrant. Net proceeds from the issuance of the June 2022 Series A Convertible Preferred Stock totaled $500,000. The Company used the proceeds of the June 2022 Series A Convertible Preferred Stock offering to pay-off certain outstanding convertible notes payable and for general working capital purposes.
The Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement within forty-five (45) days following the closing of the of the June 2022 Series A Preferred Stock, which occurred on June 15, 2022, to register the shares of Common Stock underlying the warrants. The Company is to use its best efforts to cause such registration statement to be declared effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar day following the closing of the offering, which occurred on June 15, 2022.
The holders of the June 2022 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its June 2022 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.
The Company has accrued preferred dividends totaling $27,260 and $-0- relative to the June 2022 Series A Convertible Preferred Stock which was charged to additional paid in capital during the years ended December 31, 2022 and 2021, respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $27,260 and $ - relative to the June 2022 Series A Convertible Preferred Stock as of December 31, 2022 and 2021, respectively.
There were no conversions during the years ended December 31, 2022 and 2021.
August/September 2022 Issuances - During August and September 2022, the Company entered into a securities purchase agreement with three accredited investors providing for an aggregate investment of $145,000 by the investors for the issuance by the Company of (i) 1,450 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “August/September 2022 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 483,332 shares of Common Stock at an exercise price of thirty ($0.30) per share, subject to customary adjustments thereunder. The August/September 2022 Series A Convertible Preferred Stock is convertible into an aggregate of up to 453,125 shares of Common Stock. The holders of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrant. Net proceeds from the issuance of the August/September 2022 Series A Convertible Preferred Stock totaled $145,000. The Company used the proceeds of the August/September 2022 Series A Convertible Preferred Stock offering to pay-off certain outstanding convertible notes payable and for general working capital purposes.
The holders of the August/September 2022 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its August/September 2022 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.
The Company has accrued preferred dividends totaling $5,059 and $-0- relative to the August/September 2022 Series A Convertible Preferred Stock which was charged to additional paid in capital during the years ended December 31, 2022 and 2021, respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $5,059 and $ - relative to the August/September 2022 Series A Convertible Preferred Stock as of December 31, 2022 and 2021, respectively.
There were no conversions during the years ended December 31, 2022 and 2021.
Issuances of Convertible Notes Payable
8% Convertible Notes Payable due September 15, 2022 (in default) - On June 8, 2022, the Company issued to an accredited investor an unsecured convertible note payable due September 15, 2022 (the “June 2022 Note”), with an aggregate principal face amount of approximately $350,000. The June 2022 Note is, subject to certain conditions, convertible into an aggregate of 700,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued a five-year Common Stock purchase warrant to purchase up to 700,000 shares of Common Stock at an exercise price of fifty cents ($0.50) per share, subject to customary adjustments (the “June 2022 Warrants”) which are immediately exercisable. The investor purchased the June 2022 Note and June 2022 Warrant from the Company for an aggregate purchase price of $350,000 and the proceeds were used for drilling and completion costs on the initial well drilled under the Hugoton Gas Field participation agreement and general working capital purposes. The Company also granted the investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares of Common Stock underlying the June 2022 Warrant and the conversion of the June 2022 Note unless the shares of the Company commence to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.
The June 2022 Note bears interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to the remaining principal amount of the underlying note and any accrued and unpaid interest.
The underlying notes and warrants contain customary events of default, representations, warranties, agreements of the Company and the investors and customary indemnification rights and obligations of the parties thereto, as applicable.
The Company did not pay the principal balance due on the June 2022 Note upon its maturity on September 15, 2022 and the remaining balance remains due and payable and is therefore in technical default as of December 31, 2022.
On May 5, 2023, the Company reached an agreement with the holder of two separate convertible notes payable in the aggregate principal face amount of approximately $450,000 (including the June 2022 Note), which the Company did not pay by their maturity dates. The Company and the holder of the two convertible notes payable entered into a new convertible promissory note (the “New Note”), exchanging the outstanding principal amount of the old convertible notes payable into the New Note, with a maturity date of September 30, 2023. Upon issuance of the New Note, the old convertible notes payable were cancelled and the repayment defaults under the prior convertible notes payable were cured with the entry into the New Note. The conversion price of the New Note was reduced from $0.50 per share to $0.40 per share however, the interest rate and other significant terms of the New Note are the same as those of the prior convertible notes payable.
8% Convertible Notes Payable due June 29, 2022 (in default) - The Company entered into a securities purchase agreement with two accredited investors for the Company’s 8% convertible notes payable due June 29, 2022 (the “May 2022 Notes”), with an aggregate principal amount of $850,000. The May 2022 Notes are, subject to certain conditions, convertible into an aggregate of 2,125,000 shares of Common Stock, at a price of forty cents ($0.40) per share. The Company also issued an aggregate of 425,000 shares of Common Stock as commitment shares (“Commitment Shares” and, together with the May 2022 Notes and Conversion Shares, the “Securities”) to the investors as additional consideration for the purchase of the May 2022 Notes. The closing of the offering of the Securities occurred on May 13, 2022, when the investors purchased the Securities for an aggregate purchase price of $850,000. The Company has also granted the investors certain automatic and piggy-back registration rights whereby the Company has agreed to register the resale by the Investors of the Conversion Shares. The proceeds of this offering of Securities was used to purchase the Company’s membership interests in GMDOC.
The May 2022 Notes bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time (subject to the occurrence of an event of default) in an amount equal to 120% of the principal amount of each May 2022 Note and any accrued and unpaid interest, and shall be mandatorily repaid in cash in an amount equal to a) fifty percent (50%) of the then outstanding principal amount equal to 120% of the principal amount of each May 2022 Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 but not greater than $3,000,000; or b) one hundred percent (100%) of the then outstanding principal amount equal to 120% of the principal amount of a May 2022 Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of in excess of $3,000,000. In addition, pursuant to the May 2022 Notes, so long as such May 2022 Notes remain outstanding, the Company shall not enter into any financing transactions pursuant to which the Company sells its securities at a price lower than the $0.40 per share conversion price, subject to certain adjustments, without the written consent of the investors.
The conversion of the May 2022 Notes are each subject to beneficial ownership limitations such that the investors may not convert the May 2022 Notes to the extent that such conversion or exercise would result in an Investor being the beneficial owner in excess of 4.99% (or, upon election of the Investor, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.
Pursuant to the purchase agreement for the Securities, for a period of twelve (12) months after the closing date, the investors have a right to participate in any issuance of the Company’s Common Stock, Common Stock equivalents, conventional debt, or a combination of such securities and/or debt, up to an amount equal to thirty-five percent (35%) of the subsequent financing.
The Company also entered into that certain registration rights side letter, pursuant to which, in the event the Company’s shares of Common Stock have not commenced trading on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date, and, thereafter, the Company agreed to file a registration statement under the Securities Act to register the offer and sale, by the Company, of Common Stock underlying the May 2022 Notes in the event that such notes are not repaid prior to such 120-day period.
The Company paid half of the May 2022 Notes principal balance upon its maturity on June 29, 2022 and an additional $112,500 in September 2022 and the remaining balance remains due and payable and is therefore in technical default. With respect to the two May 2022 Notes with an aggregate outstanding principal balance of $312,500 as of December 31, 2022 the Company has reached an agreement with the two investors. On January 10, 2023, the Company amended each of those notes by entering into a letter agreement between the investors and the Company. The Letter Agreement modifies the terms of the May 2022 Notes by extending each note’s respective maturity date to September 30, 2023. In consideration for the extension, the Company amended the Fixed Conversion Price (as defined in each note) to $0.10, subject to any future adjustments as provided in each of the notes.
8% Convertible Notes Payable due October 29, 2022 (in default) - On August 30, 2021, the Company issued to an accredited investor (the “8% Note Investor”) an unsecured convertible note payable due October 29, 2022 (the “8% Note”), with an aggregate principal face amount of approximately $100,000. The 8% Note is, subject to certain conditions, convertible into an aggregate of 200,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued a five and one half-year Common Stock purchase warrant to purchase up to 200,000 shares of Common Stock at an exercise price of fifty cents ($0.50) per share, subject to customary adjustments (the “8% Note Warrant”) which are immediately exercisable. The 8% Note Investor purchased the 8% Note and 8% Note Warrant from the Company for an aggregate purchase price of $100,000 and the proceeds were used for general working capital purposes. The Company also granted the 8% Note Investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the 8% Note Warrant and the conversion of the 8% Note unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.
On October 29, 2021, the Company issued to three accredited investors (the “October 8% Note Investors”) unsecured convertible notes payable due October 29, 2022 (the “October 8% Notes”), with an aggregate principal face amount of approximately $550,000. The October 8% Notes are, subject to certain conditions, convertible into an aggregate of 1,100,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued five and one half-year Common Stock purchase warrants to purchase up to 1,650,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “October 8% Note Warrants”) which are immediately exercisable. The October 8% Note Investors purchased the October 8% Notes and October 8% Note Warrants from the Company for an aggregate purchase price of $550,000 and the proceeds were used for general working capital purposes. The Company also granted the October 8% Note Investors certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the October 8% Note Warrants and the conversion of the October 8% Notes unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.
The 8% Note and the October 8% Notes all bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to 120% of the principal amount of the underlying notes and any accrued and unpaid interest. Fifty percent (50%) of the 8% Note and the October 8% Notes shall be mandatorily repaid in cash in an amount equal to 120% of the principal amount of the underlying notes and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 and one-hundred percent (100%) of the underlying notes plus accrued interest shall be mandatorily repaid in an amount equal to 120% of outstanding principal and interest in cases in which the Company receives gross proceeds of at least $3,000,000. In addition, pursuant to the 8% Notes Note and the October 8% Notes, so long as the underlying notes remain outstanding, the Company cannot enter into any financing transactions pursuant to which the Company sells its securities at a price lower than $0.50 cents per share without the written consent of the 8% Note Investor.
The conversion of the 8% Note and the October 8% Notes and the exercise of the underlying warrants are each subject to beneficial ownership limitations such that the 8% Note Investor and the October 8% Note Investors may not convert the underlying notes or exercise the underlying warrants to the extent that such conversion or exercise would result in any of the investors being the beneficial owner in excess of 4.99% (or, upon election of the investors, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.
The Company, the 8% Note Investor and the October 8% Note Investors have agreed that for so long as the underlying warrants remain outstanding, the investors have the right to participate in any issuance of Common Stock, conventional debt, or a combination of such securities and/or debt, up to an amount equal to thirty-five percent (35%) of such subsequent financing.
The Company did not pay the principal balance due on the 8% Notes and the October 8% Notes upon their maturity on October 29, 2022 and the remaining balance remains due and payable and is therefore in technical default as of December 31, 2022. With respect to the two October 8% Notes with an outstanding aggregate principal balance of $550,000 as of December 31, 2022, the Company has reached an agreement with the two October 8% Note Investors. On January 10, 2023, the Company amended each of these October 8% Notes by entering into Letter Agreement between the October 8% Investors and the Company. The Letter Agreement modifies the terms of the October 8% Notes by extending each note’s respective maturity date to September 30, 2023. In consideration for the extension, the Company amended the Fixed Conversion Price (as defined in each note) to $0.10, subject to any future adjustments as provided in each of the notes.
On May 5, 2023, the Company reached an agreement with the holder of two separate convertible notes payable in the aggregate principal face amount of approximately $450,000 (including $100,000 principal balance of the notes payable due October 29, 2022 and $350,000 principal balance of the note payable due September 15, 2022), which the Company did not pay by their maturity dates. The Company and the holder of the two convertible notes payable entered into the New Note, exchanging the outstanding principal amount of the old convertible notes payable into the New Note, with a maturity date of September 30, 2023. Upon issuance of the New Note, the old convertible notes payable were cancelled and the repayment defaults under the prior convertible notes payable were cured with the entry into the New Note. The conversion price of the New Note was reduced from $0.50 per share to $0.40 per share however, the interest rate and other significant terms of the New Note are the same as those of the prior convertible notes payable.
3% Convertible Notes Payable due March 31, 2026 - On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% convertible notes payable (the “3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for fifty cents ($0.50) per share (the 3% Note Warrants”). The 3% Notes allow for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30, 2026 (the “Maturity Date”). The 3% Notes are convertible as to principal and any accrued interest, at the option of holder, into shares of the Common Stock at any time after the issue date and prior to the close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustments. The 3% Note Warrants were valued at $1,605,178 using the Black-Scholes methodology.
Extinguishment of liabilities -
Debt Settlement Agreements - On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of the 3% Notes with detachable warrants to purchase the 3% Note Warrants. The 3% Notes allow for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on the Maturity Date. The 3% Notes are convertible as to principal and any accrued interest, at the option of holder of the 3% Notes, into shares of the Common Stock at any time after the issue date and prior to the close of business on the business day preceding March 30, 2026 at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment. The 3% Note Warrants were valued at $1,605,178 using the Black-Scholes methodology.
Extinguishment of Convertible Note Payable - On March 26, 2021, the Company exercised its right to retire a convertible note payable originally issued in August 2020 (the “August 2020 Note”) in conjunction with the issuance of the March 2021 Series A Convertible Preferred Stock. In accordance with the prepayment provisions contained in the August 2020 Note, the Company paid $453,539 to retire all principal, accrued interest and the 15% prepayment premium.
Extinguishment of Notes Payable - On April 1, 2021, the Company and the holders of two notes payable aggregating $85,000 that were in default reached a settlement whereby the Company issued a total of 245,000 shares of Common Stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated Common Stock purchase warrants, which totaled $123,830, as of April 1, 2021. The extinguishment of the debt obligations resulted in a gain of $55,230, which was recorded in the year ended December 31, 2021.
USNG Letter Agreement -
On November 9, 2021, the Company entered into a letter agreement (the “USNG Letter Agreement”) with U.S. Noble Gas, LLC (“USNG”), pursuant to which USNG provides consulting services to the Company for exploration, testing, refining, production, marketing and distribution of various potential reserves of noble gases and rare earth element/minerals on the Company’s recently acquired 11,000-care oil and gas properties in the Otis Albert Field located on the Properties. The USNG Letter Agreement would cover all of the noble gases, specifically helium, and rare earth elements/minerals potentially existing on the Properties and the Company’s future acquisitions, if any, including the Hugoton Gas Field.
The USNG Letter Agreement also provided that USNG would supply a large vessel designed for flows up to 5,000 barrels of water per day at low pressures, known as a gas extraction/separator unit. The gas extraction/separator unit is a dewatering vessel that the Company may use for multiple wells in the future.
The USNG Letter Agreement required the Company to establish a four-member board of advisors (the “Board of Advisors”) comprised of various experts in noble gas and rare earth elements/minerals. The Board of Advisors will help attract both industry partners and financial partners for developing a large helium, noble gas and/or rare earth element/mineral resources that may exist in the region where the Company currently operates. The industry partners would include helium, noble gas and/or rare earth element/mineral purchasers and exploration and development companies from the energy industry. The financial partners may include large family offices or small institutions.
Pursuant to the USNG Letter Agreement, the Company will pay USNG a $8,000 monthly cash fee beginning at the onset of commercial helium or minerals production and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month that the Company receives cash receipts in excess of $25,000 derived from the sale of noble gases and/or rare earth elements/minerals. The Company has not yet achieved the $25,000 cash receipts threshold, therefore, there has been no payment or accrual liability relative to this cash fee provision through December 31, 2022.
The USNG Letter Agreement has an initial term of 5 years, which shall thereafter continue for successive one-year periods, provided that there is no uncured breach, unless otherwise terminated by either party upon a written notice of intent to non-renew.
In consideration for the consulting services to be rendered and pursuant to the terms of the USNG Letter Agreement, the Company issued warrants to purchase, in the aggregate, 2,060,000 shares of Common Stock, at an exercise price of fifty ($0.50) to three of USNG’s principal consultants and four third-party service providers. The Company also issued warrants to purchase, in the aggregate, 1,200,000 shares of Common Stock at fifty cents ($0.50) per share exercise price to three members of the Board of Advisors. The Company granted a total of 3,260,000 warrants to purchase its Common Stock with an exercise price of fifty cents ($0.50) per share in connection with the USNG Letter Agreement and the arrangements described therein. The warrants expire five years after the date of the USNG Letter Agreement.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet debt, nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have a material current or future effect on our financial conditions, changes in our financial conditions, or our results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses except as follows:
Investment in Unconsolidated Subsidiary - GMDOC - On May 3, 2022, the Company entered into the Operating Agreement pursuant to which the Company acquired 17 (or 60.7143%) of 28 limited liability membership Interests in GMDOC, for an aggregate purchase price of $4,037,500, and was subsequently admitted as a member of GMDOC.
With respect to its cash capital contribution, the Company paid a non-refundable cash deposit for the membership interests in the amount of $50,000 on May 3, 2022. The Company paid the remainder of the cash contribution for the membership interests, or $800,000, on May 16, 2022. The remainder of the Company’s capital contribution, or $3,187,500, was financed by the Bank Loan (as defined below).
GMDOC had previously acquired 70% of the working interests in the GMDOC Leases from Castelli Energy, L.L.C, an Oklahoma limited liability company. The GMDOC Leases cover approximately 10,000 acres located in Southern Kansas near the Oklahoma border. The GMDOC Leases currently produce approximately 100 barrels of oil per day and 1.5 million cubic feet of natural gas per day on a gross basis.
Pursuant to the terms of the Operating Agreement, each member agreed to pay GMDOC, as its capital contribution, $50,000 in cash per Interest, with the remainder to be financed, in part, by a loan to GMDOC from a commercial bank, secured by GMDOC’s property, in the aggregate amount of $6,045,000 (the “Bank Loan”). The principal of the Bank Loan is to be repaid in 84 varying monthly installments, ranging from $170,000 at the beginning to $40,500 at the end of the loan term, with the first installment on July 1, 2022. The Bank Loan bears a variable interest beginning at an initial rate of 6% per annum with one rate adjustment after 36 months subject to a 6% minimum interest rate.
For the Years Ended December 31, 2022 and 2021
Results of Operations
Revenue
The Company began generating revenues from the production and sale of crude oil since the acquisition of the Properties on April 1, 2021. Revenues totaled $117,125 and $79,002 for the years ended December 31, 2022 and 2021, respectively. The $38,123 or 48% increase in revenues during the year ended December 31, 2022 as compared to the same period in 2021 reflects the commencement of natural gas and helium sales from the initial Hugoton Gas Field which was connected to the pipeline on August 17, 2022 as well as the timing of the purchase of the Properties. The Company expects its revenues to continue to improve as the price of WTI crude oil remains strong and the Company increases the volume of natural gas and helium gas sold as it continues its drill and complete wells pursuant to its Hugoton Gas Field participation agreement.
During the year ended December 31, 2022, our revenue was substantially impacted by inflation, the COVID-19 pandemic and the Russian war in Ukraine, which has restricted the world supply of oil and gas and thereby increased the average WTI crude oil price. We expect this trend to continue during 2023 and perhaps beyond.
Oil and Gas Lease Operating Expenses
The Company began generating revenues from the production and sale of crude oil since the acquisition of the Properties on April 1, 2021. Total oil and gas lease operating expenses totaled $279,067 and $530,118 for the years ended December 31, 2022 and 2021, respectively. The decrease in oil and gas lease operating expenses during the year ended December 31, 2022 as compared to the same period in 2021 is attributable to significant repairs and rework performed in the year ended December 31, 2022 that did not recur during the year ended December 31, 2021.
Upon completion of our acquisition of the Properties on April 1, 2021, we commenced rework of the existing production wells on the Properties in order to restore the three producing wells to full operational condition. All such rework costs were expensed as routine maintenance instead of capitalized to oil and gas properties and equipment under the full-cost method. In addition, we have performed certain exploration, including testing and evaluation for the existence of noble gas reserves on the Properties, including helium, argon and other rare earth minerals/gases. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the existing oil and gas reserves on the Properties while continuing the evaluation of the existence of new oil and gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.
During the year ended December 31, 2022, our oil and gas lease operating expenses have been substantially impacted by inflation, the COVID-19 pandemic and the Russian war in Ukraine, which has restricted the supply of production pipe and other materials used in the drilling and rework of oil and gas wells. In addition, experienced oil and gas service professionals have been in high demand in the oil and gas service sector and thereby increasing the cost of oil and gas well services. We expect this trend to continue during the 2023 and perhaps beyond.
Depreciation, Depletion and Impairment
Depreciation, depletion and amortization expense totaled $1,035,827 and $92,502 during the years ended December 31, 2022 and 2021, respectively. Depreciation and depletion expenses were $130,253 and $92,502 for the years ended December 31, 2022 and 2021, respectively. Impairment charges totaled $905,574 and $- for the years ended December 31, 2022 and 2021, respectively.
The Company began generating revenues from the production and sale of natural gas and helium from the Hugoton Gas Field on August 17, 2022 and crude oil since the acquisition of the Properties on April 1, 2021, which was acquired for $900,000 cash plus the assumption of asset retirement obligations of $13,425. The Company allocated the purchase price of $913,425 to oil and gas properties and equipment, which is subject to depreciation, depletion and amortization as the acquisition qualified as an asset acquisition. The Company began generating revenues from the production and sale of natural gas and helium from the Hugoton Gas Field on August 17, 2022, which also marked the beginning of the related depreciation, depletion and amortization.
During the year ended December 31, 2022, the Company changed its strategy regarding the Central Kansas Uplift considering the reduced net cash flows from the sale of crude oil production. The reduction in net cash flows was attributable to lower spot crude oil prices during 2022 compared to 2021 and higher than anticipated operating costs related to the operation of the horizontal wells on the Properties. The Company has shut down the horizontal production wells as of December 31, 2022 and is considering the deepening of the conventional wells on the property to explore for helium and other noble gases that may be present in deeper producing zones. Accordingly, the Company has recorded an impairment charge of $712,812 to reduce the capitalized tangible and intangible costs related to its Central Kansas Uplift properties to zero as of December 31, 2022.
The Company performed the ceiling test to assess potential impairment of the capitalized costs relative to its Hugoton Gas Field Project. The ceiling test indicated an impairment charge of $192,762 was required to reduce the total capitalized costs to $88,687 as of December 31, 2022. Accordingly, the Company has recorded an impairment charge of $192,762 to reduce the capitalized tangible and intangible costs related to its Hugoton Gas Field properties to $88,687 as of December 31, 2022.
Accretion of Asset Retirement Obligation
Total expense for the accretion of asset retirement obligations was $2,222 and $836 for the years ended December 31, 2022 and 2021, respectively. The Company determined the amount of the asset retirement obligation assumed to be $13,425 as of April 1, 2021, the date of the acquisition of the Properties. In addition, the Company commenced production from the Hugoton Gas Field well which began the accretion of its related asset retirement obligations. The obligation relates to legal requirements associated with the retirement of long-lived assets that result from the acquisitions, construction, development, or normal use of the asset. The obligation relates primarily to the requirement to plug and abandon oil and natural gas wells and support wells at the conclusion of their useful lives.
Oil and Gas Production Related Taxes
Oil and gas production related taxes totaled $164 and $1,060 for the years ended December 31, 2022 and 2021, respectively. Such taxes are deducted from gross oil and gas revenue by the crude oil purchaser upon payment to the Company and include primarily severance taxes imposed by the State of Kansas, and Kansas conservation assessment fees. Revenues totaled $117,125 for the year ended December 31, 2022, which resulted in the deduction of $164 in production related taxes. Revenues totaled $79,002 for the year ended December 31, 2021, which resulted in the deduction of $1,060 in production related taxes primarily due to severance taxes paid in 2021. During the year ended December 31, 2021, the Company received a notice from the State of Kansas that exempted the Company from paying severance taxes due to the existing wells’ production levels. Therefore, production related taxes declined as a percentage of revenue during the year ended December 31, 2022 as compared to the same period in 2021.
Other General and Administrative Expenses
Other general and administrative expenses were $1,500,504 for the year ended December 31, 2022, an increase of $463,508, or 45%, from other general and administrative expenses of $1,036,996 for the year ended December 31, 2021. The increase in other general and administrative expenses is primarily attributable to an increase of $549,561 in stock-based compensation due to the noncash compensation awarded to the Company’s executives, members of the Board of Directors, the USNG Letter Agreement, which awarded compensatory warrants to advisory members of the Board of Advisors and other consultants in 2022 and in late 2021. The increase in stock-based compensation was offset by a $75,000 charge-off of one option to acquire a property during the year ended December 31, 2021 that did not recur in the comparable period in 2022.
Equity in earnings of unconsolidated subsidiary - GMDOC
The Company reported equity in earnings of unconsolidated subsidiary of $251,461 for the year ended December 31, 2022, compared to $-0- for the year ended December 31, 2021. Such income resulted from the Company acquiring a 60.7143% membership interest in GMDOC in May 2022. The Company uses the equity method of accounting for equity investments if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee, GMDOC. Management’s judgment regarding its level of influence over the operations of GMDOC included considering key factors such as the Company’s ownership interest, legal form of the investee, its’ lack of participation in policy-making decisions and its’ lack of control over the day-to-day operations of GMDOC.
GMDOC had previously acquired 70% of the working interests in the GMDOC Leases from Castelli Energy, L.L.C., an Oklahoma limited liability company. The GMDOC Leases cover approximately 10,000 acres located in Southern Kansas near the Oklahoma border. The GMDOC leases currently produce approximately 100 barrels of oil per day and 1.5 million cubic feet of natural gas per day on a gross basis. GMDOC, LLC generated $414,171 of net income on $2,397,406 of oil and gas revenues during the year ended December 31, 2022. The Company owns a 60.7143% membership interest in such net income or $251,461 which it has reported as equity in earnings of unconsolidated subsidiary - GMDOC during the year ended December 31, 2022.
Interest Expense
Interest expense increased to $913,608 for the year ended December 31, 2022, compared to $108,052 for the year ended December 31, 2021. The increase in interest expense during the year ended December 31, 2022 was attributable to $218,680 of default interest accrued on the convertible notes that were in default at December 31, 2022. Management believes that it will be able to negotiate the waiver of such default interest when it negotiates amendments to the notes in default during 2023. In addition the increase was attributable to the issuance of the various convertible notes payable issued in 2022 and in 2021 that were outstanding during the year ended December 31, 2022 and not outstanding during the year ended December 31, 2021.
Gain on Extinguishment of Liabilities
The Company reported a gain on exchange and extinguishment of liabilities of $-0- and $86,602 in the years ended December 31, 2022 and 2021, respectively.
On April 1, 2021, the Company and the holders of two notes payable aggregating $85,000 that were in default reached a settlement whereby the Company issued a total of 245,000 shares of Common Stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated Common Stock purchase warrants, which totaled $123,830, as of April 1, 2021. The 245,000 shares issued to extinguish the debt obligations resulted in a gain of $55,230 which was recorded in the year ended December 31, 2021.
On March 31, 2021, the Company recorded a net gain on extinguishment of liabilities totaling $31,372, which was attributable to six transactions that extinguished outstanding liabilities as of that date. The Debt Settlement Agreements extinguished accounts payable and accrued liabilities with a total outstanding balance of $2,866,497, for the issuance of $28,665 in principal balance of the 3% Notes. Such 3% Notes were issued with the 3% Warrants, which were valued at $1,605,178. The transaction resulted in a total gain of $1,232,654 of which $124,177 was reported as a gain on extinguishment of liabilities and $1,108,477 was reported as a capital contribution during the year ended December 31, 2021. The $23,000 gain from settlement of litigation extinguished $33,000 of trade payables for a cash payment of $10,000. The loss of $115,805 is related to the early retirement of $365,169 principal balance of the August 2020 Note. There were no similar transactions during the year ended December 31, 2022.
Change in Warrant Derivative Fair Value
The change in warrant derivative liability was an expense of $577,269 during the year ended December 31, 2022, as compared to a gain of $199 during the year ended December 31, 2021. The estimated fair value of the Company’s derivative liabilities, all of which were related to the detachable warrants issued in connection with the issuance of Series A Convertible Preferred Stock, were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock and current interest rates. The detachable warrants issued in connection with the issuance of certain Series A Convertible Preferred Stock contained a provision allowing the holder to require cash settlement in certain situations were fundamental transaction, as defined in the warrant agreements have occurred. An event occurred on December 31, 2022 that activated the Holder’s ability to utilize such provisions, therefore the derivative liability was recognized on December 31, 2022.
The conversion feature in certain outstanding notes payable and Common Stock purchase warrants issued in connection with short-term notes outstanding during the year ended December 31, 2021 were treated as derivative instruments because such notes payable and warrants contained ratchet and anti-dilution provisions. The mark-to-market process resulted in a gain of $199 during the year ended December 31, 2021. There were no similar derivatives outstanding during the year ended December 31, 2022. All short-term notes and their related derivative warrants were terminated on April 1, 2021.
Income Tax
The Company recorded no income tax benefit (expense) in the years ended December 31, 2022 and 2021. The Company has been in a cumulative tax loss position and has substantial net operating loss carryforwards available for its utilization at December 31, 2022. The Company has continued to carry a 100% reserve on its net deferred tax assets and therefore recorded no income tax expense or benefit on its income (loss) before income taxes during the years ended December 31, 2022 and 2021.
Net Loss
The Company reported a net loss of $3,940,075 for the year ended December 31, 2022, compared to a net loss of $1,603,761 for the year ended December 31, 2021. This represents an increase in net loss of $2,336,314 for the year December 31, 2022 compared to the year ended December 31, 2021.
Series A Convertible Preferred Stock Dividends
The Company recorded $231,619 and $174,449 in convertible preferred stock dividends in the years ended December 31, 2022 and 2021, respectively. On March 26, 2021, the Company issued and classified its Series A Convertible Preferred Stock as equity securities on its balance sheet. During 2022, the Company issued additional shares of Series A Convertible Preferred Stock, therefore, there were more shares of Series A Convertible Preferred Stock outstanding during the year ended December 31, 2022 as compared to the year ended December 31, 2021. All shares of Series A Convertible Preferred Stock bear a cumulative dividend at a 10% rate based on its stated/liquidation value.
Net Loss Applicable to Common Stockholders
The Series A Convertible Preferred Stock issued in 2022 and 2021 have dividend and/or distribution preferences over our Common Stock and, therefore, such accrued dividend amounts have been deducted from net loss to report net loss applicable to common stockholders of $4,171,694 and $1,778,210 for the years ended December 31, 2022 and 2021, respectively.
Basic and Diluted Net Loss Attributable to Common Stockholders per Share
Basic net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of Common Stock outstanding during the period. Diluted net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of Common Stock and dilutive Common Stock Equivalents outstanding during the period. Common Stock Equivalents included in the diluted net loss attributable to common stockholders per share computation represent shares of Common Stock issuable upon the assumed conversion of convertible notes payable, Series A Convertible Preferred Stock and the assumed exercise of stock options and warrants using the treasury stock and “if converted” method. For periods in which net losses attributable to common stockholders are incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations, as the inclusion of Common Stock Equivalents would have an anti-dilutive effect.
The Company incurred a net loss attributable to common stockholders during the year ended December 31, 2022, and 2021, therefore all Common Stock Equivalents were considered anti-dilutive and excluded from diluted net loss attributable to common stockholders per share computations. The basic and diluted net loss attributable to common stockholders per share were $(0.20) and $(0.09) for the years ended December 31, 2022 and 2021, respectively.
Potential Common Stock Equivalents as of December 31, 2022 totaled 32,688,238 shares of Common Stock, which included 2,838,580 shares of Common Stock underlying the convertible notes payable, 7,976,875 shares of Common Stock underlying the conversion of Series A Convertible Preferred Stock, 20,430,783 shares of Common Stock underlying outstanding warrants and 1,442,000 shares of Common Stock underlying outstanding stock options.
Liquidity and Capital Resources; Going Concern-
We have had a history of losses and have generated little or no operating revenues for a number of years. In 2020, we began assessing various opportunities and strategic alternatives involving the acquisition, exploration and development of gas and oil properties in the United States, including the possibility of acquiring businesses or assets that provide support services for the production of oil and gas in the United States. As a result, we: 1) acquired the Properties, 2) entered into the Hugoton JV and 3) entered into the GMDOC venture.
The planned development of the development projects previously identified will require us to raise additional capital to accomplish our operating plan, which cannot be assured. Historically, we financed our operations through the issuance of equity and various short and long-term debt financing that contained some level of detachable warrants to provide the holders with a level of equity participation.
Capital Raised
Historically, we have raised funds through various equity and debt instruments through private transactions. The following summarizes the sources of significant liquidity raised during the years ended December 31, 2022 and 2021:
Year ended
December 31, 2022
Capital raised:
Issuance of convertible notes payable together with the issuance of 425,000 shares of Common Stock $ 850,000
Issuance of Series A Convertible Preferred Stock with detachable Common Stock purchase warrants 645,000
Issuance of convertible notes payable with detachable Common Stock purchase warrants 350,000
Total capital raised $ 1,845,000
Year ended
December 31, 2021
Capital raised:
Issuance of Series A Convertible Preferred Stock with detachable Common Stock purchase warrants $ 1,929,089
Issuance of convertible notes payable with detachable Common Stock purchase warrants 650,000
Total capital raised $ 2,579,089
The Company was able to raise liquidity during 2022 and 2021 through the issuance of debt and equity in private transactions with accredited investors. These financial instruments generally require the Company to register the Common Stock underlying the conversion of the Series A Convertible Preferred Stock, the Common Stock purchase warrants and the convertible notes payable. These issuances generally provide the holders with a right to participate in future capital raises and require their approval for the future issuance of securities at rates less than their purchase price. The holders have also agreed that the conversion of the Series A Convertible Preferred Stock, the convertible notes payable and the exercise of the underlying warrants are generally subject to beneficial ownership limitations such that each holder of the financial instruments individually may not convert the underlying Series A Convertible Preferred Stock, convertible notes payable or exercise the underlying warrants to the extent that such conversion or exercise would result in any of the holders individually being the beneficial owner in excess of 4.99% (or, upon election of the holders, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.
We will likely continue to issue such convertible notes payable with detachable warrants to acquire Common Stock to fund our operational and capital expenditure plans for 2023.
Capital Expenditures
As of December 31, 2022, we had: 1) acquired the Properties, 2) entered into the Hugoton JV and 3) entered into the GMDOC venture as more fully described elsewhere in this Annual Report on Form 10-K.
Going Concern
The Company has incurred losses from operations, has a stockholders’ deficit, incurred net cash used in operating activities and has a significant working capital deficit as of and for the years ended December 31, 2022 and 2021. The Company must raise substantial amounts of debt and equity capital from other sources in the future in order to fund (i) the development of the Properties acquired on April 1, 2021; (ii) our obligations for exploration and development under the Hugoton Farmout Agreement; (iii) normal day-to-day operations and corporate overhead; and (iv) outstanding debt and other financial obligations as they become due. Some of the Company’s outstanding debt and other financial obligations are currently past due and the Company anticipates that other debt and financial obligations will become past due imminently. These are substantial operational and financial issues that must be successfully addressed during 2023 and beyond.
The Company has made substantial progress in resolving many of its existing financial obligations during the years ended December 31, 2022 and 2021.
The Company will have significant financial commitments to execute its planned exploration and development of the Properties and the Hugoton Gas Field. The Company may find it necessary to raise substantial amounts of debt or equity capital to fund such exploration and development activities and may seek offers from industry operators and other third parties for interests in the Properties in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement. There can be no assurance that it will be able to obtain such new funding or be able to reach agreements with industry operators and other third parties or on what terms.
Due to the uncertainties related to the foregoing matters, there exists substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financials are issued. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
Cash and cash equivalents balances-
As of December 31, 2022, we had cash and cash equivalents with an aggregate balance of $10,163, a decrease from a balance of $260,590 as of December 31, 2021. Summarized immediately below and discussed in more detail in the subsequent subsections are the main elements of the $250,427 net decrease in cash during the year ended December 31, 2022:
● Operating activities: $249,841 of net cash used in operating activities. Net cash used in operating activities was $249,841 and $801,553 for the years ended December 31, 2022 and 2021, respectively, an improvement in net cash used in operating activities of $551,712. The improvement in net cash used in operating activities was primarily the result of an increase in non-cash expenses including the change in warrant derivative liability, discount amortization on debt and stock-based compensation, the impairment charge to oil and gas properties, an increase in accounts payable and accrued interest reflected in our cash flows from operating activities for the year ended December 31, 2022 compared to the same period in 2021.
● Investing activities: $1,153,591 of net cash used in investing activities. Cash used in investing activities was $1,153,591 for the year ended December 31, 2022 compared to $900,000 for the year ended December 31, 2021. We utilized funds during 2022 to acquire our membership interest in GMDOC and to drill the initial exploratory well pursuant to the Hugoton Gas Field participation agreement. We utilized funds during 2021 to acquire the Properties.
● Financing activities: $1,153,005 of net cash provided by financing activities. Cash provided by financing activities for the year ended December 31, 2022 was $1,153,005 compared to cash provided by financing activities of $1,951,101 for the year ended December 31, 2021. We raised a total of $1,200,000 from the issuance of convertible notes payable and $645,000 from the issuance of Series A Convertible Preferred Stock with detachable warrants during the year ended December 31, 2022. These financing cash inflows were offset by the repayment of $537,500 principal balance of convertible notes payable and the payment of dividends totaling $154,495 on the Series A Convertible Preferred Stock during the year ended December 31, 2022. The Company raised $1,929,089 through the issuance of Series A Convertible Preferred Stock and $650,000 in convertible notes payable, which was offset by the repayment of $453,539 principal balance of convertible debt and the payment of dividends totaling $174,449 on the Series A Convertible Preferred Stock during the year ended December 31, 2021.
The net result of these activities was a $250,427 decrease in cash and cash equivalents from $260,590 as of December 31, 2021 to $10,163 as of December 31, 2022.
Commitments:
Capital Expenditures. We had no material commitments for capital expenditures at December 31, 2022. However, we are required by the Hugoton Gas Field Farmout Agreement to drill at least three additional gas production wells in 2023 and 2024 in order to maintain the Hugoton JV. We drilled and completed the first Hugoton Gas Field production well in May 2022, which was connected to the pipeline and commenced production on August 17, 2022. We estimate that the expenses related to the drilling program to be approximately $300,000 for drilling and completion of each additional exploratory well.
Repayment of Debt. Debt obligations are comprised of the following at December 31, 2022:
December 31, 2022
Convertible notes payable:
8% convertible notes payable due October 29, 2022 (in default) $ 650,000
8% convertible notes payable due September 15, 2022 (the June 2022 Note) (in default) 350,000
8% convertible notes payable due June 29, 2022 (the May 2022 Notes) (in default) 312,500
3% convertible notes payable (the 3% Notes) 28,665
Total convertible notes payable 1,341,165
Less: Long-term portion 28,665
Convertible notes payable, short-term $ 1,312,500
Debt obligations become due and payable as follows:
Years ended Principal
balance due
$ 1,312,500
-
-
28,665
-
-
Total $ 1,341,165
With respect to two of the 8% convertible notes payable due October 29, 2022 with an outstanding aggregate principal balance of $500,000 as of December 31, 2022, the Company has reached an agreement with the two Investors. On January 10, 2023, the Company amended each of those notes by entering into a letter agreement between the Investors and the Company. The Letter Agreement modifies the terms of the notes by extending each note’s respective maturity date to September 30, 2023. In consideration for the extension, the Company amended the Fixed Conversion Price (as defined in each note) to $0.10, subject to any future adjustments as provided in each of the notes.
On May 5, 2023, the Company reached an agreement with the holder of two separate convertible notes payable in the aggregate principal face amount of approximately $450,000 (including $100,000 principal balance of the notes payable due October 29, 2022 and $350,000 principal balance of the note payable due September 15, 2022), which the Company did not pay by their maturity dates. The Company and the holder of the two convertible notes payable entered into a new convertible promissory note (the “New Note”), exchanging the outstanding principal amount of the old convertible notes payable into the New Note, with a maturity date of September 30, 2023. Upon issuance of the New Note, the old convertible notes payable were cancelled and the repayment defaults under the prior convertible notes payable were cured with the entry into the New Note. The conversion price of the New Note was reduced from $0.50 per share to $0.40 per share however, the interest rate and other significant terms of the New Note are the same as those of the prior convertible notes payable.
With respect to the 8% convertible notes payable due June 29, 2022 with an outstanding aggregate principal balance of $312,500 as of December 31, 2022, the Company has reached an agreement with the two Investors. On January 10, 2023, the Company amended each of those notes by entering into a letter agreement between the Investors and the Company. The Letter Agreement modifies the terms of the notes by extending each note’s respective maturity date to September 30, 2023. In consideration for the extension, the Company amended the Fixed Conversion Price (as defined in each note) to $0.10, subject to any future adjustments as provided in each of the notes.
With respect to the other notes that were not amended or exchanged on January 10, 2023 and May 5, 2023, the parties are negotiating a forbearance/resolution to such technical defaults which include several alternatives. Such negotiations include i) a reduction in the conversion price of the underlying convertible notes, ii) an extension and a roll-over of the principal into other Company securities, and iii) a combination of the alternatives. The Company can provide no assurance that the parties will reach a mutually agreeable resolution.
Open Litigation.
The nature of the Company’s business exposes its properties, the Company, the Hugoton JV and its interest in GMDOC to the risk of claims and litigation in the normal course of business. Other than as noted above in Part I, Item 3 of this Annual Report on Form 10-K, in our Notes to the Financial Statements or routine litigation arising out of the ordinary course of business, the Company is not presently subject to any material litigation nor, to its knowledge, is any material litigation threatened against the Company.
Contractual Obligations
USNG Letter Agreement - Pursuant to the USNG Letter Agreement, the Company is required to pay USNG a $8,000 monthly cash fee beginning at the onset of commercial helium or minerals production and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month that the Company receives cash receipts in excess of $25,000 derived from the sale of noble gases and/or rare earth elements/minerals. The Company has not yet achieved the $25,000 cash receipts threshold, therefore, there has been no payment or accrual liability relative to this cash fee provision through December 31, 2022.
Farmout Agreement to Explore and Develop Unconventional Gas and Brine Materials in the Hugoton Gas Field - On April 4, 2022, the Company acquired a 40% interest in a Farm-Out Agreement by and between Sunflower Exploration, LLC as the Farmee and Scout Energy Partners as Farmor with regards to its oil and gas interests in the Hugoton Gas Field, located in Haskell and Finney Counties, Kansas. The Farmout Agreement covers drilling and completion of up to 50 wells and the Company has joined three other entities in the Hugoton JV to explore for and develop potential oil, natural gas, noble gases and brine minerals on the properties underlying the Farmout Agreement Farm-Out Agreement.
The Hugoton JV will utilize Scout Energy Partner’s existing infrastructure assets, including water disposal, gas gathering and helium processing. In addition, the Farmout Agreement provides the Hugoton JV with rights to take in-kind and market its share of helium at the tailgate of Jayhawk Gas Plant, located in Grant County, Kansas, which will enable the Hugoton JV to market and sell the helium produced at prevailing market prices. The first exploratory well was completed and commenced production and sales of natural gas, natural gas liquids and helium on August 17, 2022 near Garden City, Kansas, The Company is continuing to evaluate the initial flows of both natural gas, natural gas liquids and helium to determine its plan for additional wells on the farmout.
Inflation and Seasonality
Inflation in general has had a material effect on us during the year ended December 31, 2022 and we do believe that inflation will continue to significantly impact our business during 2023 and perhaps beyond. We do not believe that our business is seasonal in nature.
In addition, our oil and gas lease operating expenses have been substantially impacted by the COVID-19 pandemic and the Russian war in Ukraine, which has restricted the supply of production pipe and other materials used in the drilling and rework of oil and gas wells. In addition, experienced oil and gas service professionals have been in high demand in the oil and gas service sector and thereby increasing the cost of oil and gas well services. We expect this trend to continue during 2023 and perhaps beyond.
Critical Accounting Policies
A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective, or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance with accounting principles generally accepted in the United States and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements:
Note 1 - Going Concern Analysis - In accordance with Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements- Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, we are required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that our financials are issued. When management identifies conditions or events that raise substantial doubt about their ability to continue as a going concern it should consider whether its plans to mitigate those relevant conditions or events will alleviate the substantial doubt. If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of management’s plans, the entity should disclose information that enables user of financial statements to understand the principal events that raised the substantial doubt, management’s evaluation of the significance of those conditions or events, and management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern.
We performed the analysis and our overall assessment was there were conditions or events, considered in the aggregate, which raised substantial doubt about our ability to continue as a going concern within the next year, but such doubt was not adequately mitigated by our plans to address the substantial doubt as disclosed in Note 1 of the Notes to the Financial Statements.
Note 2 - Oil and Gas Properties and Equipment - The Company was required to perform an allocation of the purchase price for the acquisition of the Properties and to provide the estimated useful lives assigned to the related equipment purchased.
In addition, the accounting for, and disclosure of, oil and gas producing activities require that we choose between two alternatives under accounting principles generally accepted in the United States (“GAAP”): the full cost method or the successful efforts method. We adopted and use the full cost method of accounting, which involves capitalizing all exploration, exploitation, development and acquisition costs. Once we incur costs, they are recorded in the depletable pool of proved properties or in unproved properties, collectively, the full cost pool. Our unproved property costs, which include unproved oil and gas properties, properties under development, and major development projects, were zero through December 31, 2022, and are not subject to depletion. We review our unproved oil and gas property costs on a quarterly basis to assess for impairment and transfer unproved costs to proved properties as a result of extensions or discoveries from drilling operations or determination that no proved reserves are attributable to such costs. We expect these costs to be evaluated in one to seven years and transferred to the depletable portion of the full cost pool during that time. The full cost pool is comprised of intangible drilling costs, lease and well equipment and exploration and development costs incurred plus acquired proved and unproved leaseholds.
Note 3 - Investment in unconsolidated subsidiary - GMDOC - The Company’s investment in its unconsolidated subsidiary - GMDOC requires that the Company assess its control over the operations of GMDOC.
The Company uses the equity method of accounting for equity investments if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee, GMDOC. Management’s judgment regarding its level of influence over the operations of GMDOC included considering key factors such as the Company’s ownership interest, legal form of the investee, its’ lack of participation in policy-making decisions and its’ lack of control over the day-to-day operations of GMDOC.
Note 4 - Debt Obligations - The Company has issued various debt and equity securities that require the Company to estimate the fair value of the debt, its embedded features and any related detachable warrants or other equity-related securities issued. Management must make significant assumption/estimates in order to allocate the proceeds of the issuance of the convertible debt securities between its debt and equity components.
Note 6 - Stock Options - The Company follows the fair value recognition provisions of Accounting Standards Codification (“ASC”) 718. Stock-based compensation expense is recognized in the financial statements for granted, modified, or settled stock options based on estimated fair values. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the expected term of the option award, expected stock price volatility and expected dividends. These estimates involve inherent uncertainties and the application of management judgment.
Note 7 - Warrants - The Company has issued various debt and equity securities (including detachable warrants) that require the Company to estimate the fair value of the debt, its embedded features and any related detachable warrants or other equity-related securities issued. Management must make significant assumption/estimates in order to allocate the proceeds of the issuance of the convertible debt securities between its debt and equity components.
Note 8 - Income Taxes - Accounting for income taxes requires significant estimates and judgments on the part of management. Such estimates and judgments include, but are not limited to, the effective tax rate anticipated to apply to tax differences that are expected to reverse in the future, the sufficiency of taxable income in future periods to realize the benefits of net deferred tax assets and net operating losses currently recorded and the likelihood that tax positions taken in tax returns will be sustained on audit.
Note 11 - Warrant Derivative Liabilities - Accounting for warrant derivative liabilities requires significant estimates and judgments on the part of management. The estimated fair value of the Company’s warrant derivative liabilities, all of which were related to the detachable warrants issued in connection with various notes payable, were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock and current interest rates.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
American Noble Gas Inc.
Financial Statements and Accompanying Notes
December 31, 2022 and 2021
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No: 587)
Balance Sheets
Statements of Operations
Statements of Stockholders’ Deficit
Statements of Cash Flows
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
American Noble Gas Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of American Noble Gas Inc. (the “Company”) as of December 31, 2022 and 2021, and the related statements of operations, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Substantial doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the accompanying financial statements, the Company must raise significant funds in order to pay its outstanding debt and meet its other obligations, has a stockholders’ deficit and has a significant working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
We determined that there are no critical audit matters.
/s/ RBSM LLP
We have served as the Company’s auditor since 2014.
New York, NY
May 15, 2023
PCAOB ID Number 587
AMERICAN NOBLE GAS INC
Balance Sheets
December 31, 2022 December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents $ 10,163 $ 260,590
Accrued receivable 47,423 10,998
Prepaid expenses 12,617 13,090
Total current assets 70,203 284,678
Oil and gas properties and equipment:
Oil and gas properties and equipment 1,217,026 913,425
Accumulated depreciation, depletion and impairment (1,128,339 ) (92,502 )
Property and equipment, net 88,687 820,923
Investment in unconsolidated subsidiary - GMDOC, LLC 1,101,461 -
Total assets $ 1,260,351 $ 1,105,601
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable $ 1,387,893 $ 975,842
Accrued liabilities 1,159,403 1,159,403
Accrued interest - $1,501 and $643 to related parties as of December 31, 2022 and 2021, respectively 244,038
Accrued dividends 77,124 -
Warrant derivative liability 577,269 -
Convertible notes payable, net of unamortized discount 1,312,500 376,274
Total current liabilities 4,758,227 2,512,162
Asset retirement obligations 1,732,486 1,730,264
Convertible promissory notes, net of unamortized discount - related parties 28,665 28,665
Total liabilities 6,519,378 4,271,091
Commitments and contingencies (Note 12) - -
Stockholders’ deficit:
Preferred stock; par value $0.0001 per share, 10,000,000 shares authorized; Series A Convertible Preferred Stock - 27,778 shares authorized with stated/liquidation value of $100 per share, 25,526 and 22,076 shares issued and outstanding as of December 31, 2022 and 2021, respectively
Common Stock, par value $0.0001 per share, 500,000,000 shares authorized, 21,924,515 shares issued and outstanding at December 31, 2022 and 19,012,015 shares issued and outstanding at December 31, 2021 2,192 1,901
Additional paid-in capital 117,369,198 115,522,952
Accumulated deficit (122,630,420 ) (118,690,345 )
Total stockholders’ deficit (5,259,027 ) (3,165,490 )
Total liabilities and stockholders’ deficit $ 1,260,351 $ 1,105,601
The accompanying notes are an integral part of these financial statements.
AMERICAN NOBLE GAS INC
Statements of Operations
Years ended December 31,
Revenues $ 117,125 $ 79,002
Operating expenses:
Oil and gas lease operating expense 279,067 530,118
Depreciation, depletion and impairment 1,035,827 92,502
Accretion of asset retirement obligation 2,222
Oil and gas production related taxes 1,060
Other general and administrative expenses 1,500,504 1,036,996
Total operating expenses 2,817,784 1,661,512
Operating loss (2,700,659 ) (1,582,510 )
Other income (expense):
Equity in earnings of unconsolidated subsidiary - GMDOC, LLC 251,461 -
Interest expense (913,608 ) (108,052 )
Gain on exchange and extinguishment of liabilities - 86,602
Change in warrant derivative fair value (577,269 )
Total other income (expense) (1,239,416 ) (21,251 )
Loss before income taxes (3,940,075 ) (1,603,761 )
Income tax (expense) benefit - -
Net loss (3,940,075 ) (1,603,761 )
Convertible preferred stock dividends (231,619 ) (174,449 )
Net loss attributable to common stockholders $ (4,171,694 ) $ (1,778,210 )
Basic and diluted net loss per share:
Basic $ (0.20 ) $ (0.09 )
Diluted $ (0.20 ) $ (0.09 )
Weighted average shares outstanding - basic and diluted 20,913,440 18,741,187
The accompanying notes are an integral part of these financial statements.
AMERICAN NOBLE GAS INC
Statements of Changes in Stockholders’ Deficit
Preferred Stock Common Stock Additional
Paid-in Accumulated Stockholders’
Shares Amount Shares Amount Capital Deficit Deficit
Balance, December 31, 2020 - $ - 18,548,265 $ 1,855 $ 110,352,302 $ (117,178,645 ) $ (6,824,488 )
Cumulative effect of adoption of ASU 2020-06 - - - - (252,961 ) 92,061 (160,900 )
Stock-based compensation - - - - 550,868 - 550,868
Issuance of preferred stock with detachable warrants to purchase Common Stock 22,776 - - 1,929,087 - 1,929,089
Issuance of warrants to purchase Common Stock pursuant to debt settlement agreements - - - - 1,605,178 - 1,605,178
Extinguishment of liabilities with related parties pursuant to debt settlement agreements - - - - 1,108,477 - 1,108,477
Issuance of Common Stock pursuant to debt settlement agreements - - 245,000 68,576 - 68,600
Issuance of detachable warrants to purchase common stock pursuant to issuance of debt - - - - 335,896 - 335,896
Issuance of common stock pursuant to conversion of preferred stock (700 ) - 218,750 (22 ) - -
Accrual of preferred stock dividends - - - - (174,449 ) - (174,449 )
Net loss - - - - - (1,603,761 ) (1,603,761 )
Balance, December 31,
22,076 19,012,015 1,901 115,522,952 (118,690,345 ) (3,165,490 )
Stock-based compensation - - - - 1,100,429 - 1,100,429
Issuance of Common Stock in association with the issuance of convertible bridge notes payable - - 425,000 196,112 - 196,154
Issuance of restricted Common Stock as compensation - - 1,550,000 (155 ) - -
Issuance of detachable warrants to purchase Common Stock in association with issuance of convertible bridge note payable - - - - 136,574 - 136,574
Issuance of Series A Convertible preferred stock with detachable Common Stock purchase warrants 6,450 - - 644,999 - 645,000
Issuance of Common Stock pursuant to conversion of Series A Convertible Preferred Stock (3,000 ) - 937,500 (94 ) - -
Series A Convertible Preferred Stock dividends - - - - (231,619 ) - (231,619 )
Net loss - - - - - (3,940,075 ) (3,940,075 )
Balance, December 31, 2022 25,526 $ 3 21,924,515 $ 2,192 $ 117,369,198 $ (122,630,420 ) $ (5,259,027 )
The accompanying notes are an integral part of these financial statements.
AMERICAN NOBLE GAS INC
Statements of Cash Flows
For the Year Ended
December 31,
Cash flows from operating activities:
Net loss $ (3,940,075 ) $ (1,603,761 )
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in earnings of unconsolidated subsidiary - GMDOC, LLC (251,461 ) -
Change in fair value of derivative liability 577,269 (199 )
Stock-based compensation 1,100,429 550,868
Impairment charge on oil and gas properties 905,574 -
Depreciation, depletion and amortization 130,253 92,502
Accretion of asset retirement obligations 2,222
Gain on settlement of litigation - (23,000 )
Gain on exchange and extinguishment of liabilities - (179,407 )
Loss on retirement of convertible note payable - 115,805
Expiration and charge-off of deposit to acquire oil and gas properties - 75,000
Amortization of discount on convertible note payable 606,454 87,993
Change in operating assets and liabilities:
Increase in accounts receivable (36,425 ) (10,998 )
Increase in prepaid expenses (13,090 )
Increase in accounts payable 412,051 97,303
Increase (decrease) in accrued liabilities - (450 )
Increase in accrued interest 243,395 9,045
Net cash used in operating activities (249,841 ) (801,553 )
Cash flows from investing activities:
Investment in unconsolidated subsidiary - GMDOC, LLC (850,000 ) -
Investment in Hugoton Gas Field participation agreement (288,366 ) -
Investment in oil and gas properties and equipment (15,225 ) (900,000 )
Net cash used in investing activities (1,153,591 ) (900,000 )
Cash flows from financing activities:
Cash dividends paid on preferred stock (154,495 ) (174,449 )
Net proceeds from issuance of convertible notes payable 1,200,000 650,000
Repayment of convertible note payable (537,500 ) (453,539 )
Net proceeds from issuance of Series A Convertible Preferred Stock with detachable Common Stock purchase warrants 645,000 1,929,089
Net cash provided by financing activities 1,153,005 1,951,101
Net (decrease) increase in cash and cash equivalents (250,427 ) 249,548
Cash and cash equivalents:
Beginning 260,590 11,042
Ending $ 10,163 $ 260,590
Supplemental cash flow information:
Cash paid for interest $ 63,759 $ 17,737
Cash paid for taxes $ - $ -
Supplemental disclosure of non-cash investing and financing activities:
Accrual of dividends on Series A Convertible Preferred Stock $
77,124
$ -
Conversion of Series A Convertible Preferred Stock to Common Stock $ 94 $ 22
Issuance of restricted Common Stock $ 155 $ -
Issuance of restricted Common Stock attributable to issuance of convertible notes payable $ 196,154 $ -
Issuance of detachable Common Stock warrants attributable to issuance of convertible notes payable $ 136,574 $ 335,896
Cumulative effect of adoption of ASU 2020-06 $ - $ 160,900
Issuance of convertible promissory notes pursuant to debt settlement agreements $ - $ 28,665
Issuance of detachable Common Stock purchase warrants pursuant to debt settlements agreements $ - $ 1,605,178
Capital contribution attributable to related party debt extinguishment $ - $ 1,108,477
Issuance of Common Stock pursuant to debt settlement agreements $ - $ 68,600
Assumption of asset retirement obligation related to purchase of oil and gas properties $ - $ 13,425
The accompanying notes are an integral part of these financial statements.
AMERICAN NOBLE GAS, INC.
Notes to Financial Statements
December 31, 2022
Note 1 - Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies
Reincorporation in Nevada
On December 7, 2021, pursuant to an Agreement and Plan of Merger, American Noble Gas, Inc., a Delaware corporation, merged with and into its wholly owned subsidiary, American Noble Gas Inc., a Nevada corporation (“AMGAS-Nevada” and/or the “Company”) with AMGAS-Nevada continuing as the surviving corporation. In conjunction with the merger, AMGAS-Nevada succeeded to the assets, continued the business and assumed the rights and obligations of the predecessor Delaware corporation existing immediately prior to the merger. The merger was consummated by the filing of a certificate of merger on December 7, 2021 with the Secretary of State of the State of Delaware and Articles of Merger with the Secretary of State of the State of Nevada. The Agreement and Plan of Merger and transactions contemplated thereby were adopted by the holders of a majority of the outstanding shares of the predecessor company’s common stock, par value $0.0001 per share, and/or Series A Convertible Preferred Stock, par value $0.0001 per share, on an as-converted common stock basis, by written consent in lieu of a special meeting of stockholders, in accordance with the Delaware General Corporation Law.
Pursuant to the Agreement and Plan of Merger, (i) each outstanding share of predecessor’s common stock automatically converted into one share of common stock, par value $0.0001 per share, of AMGAS-Nevada (the “Common Stock”), (ii) each outstanding share of the predecessor’s Series A Convertible Preferred Stock automatically converted into one share of Series A Convertible Preferred Stock, par value $0.0001 per share of AMGAS-Nevada (the “Series A Convertible Preferred Stock”), and (iii) each outstanding option, right or warrant to acquire shares of predecessor common stock converted into an option, right or warrant to acquire an equal number of shares of AMGAS-Nevada Common Stock under the same terms and conditions as the original options, rights or warrants.
Similar to the shares of predecessor common stock prior to the merger, the shares of Common Stock are quoted on the OTCQB tier operated by the OTC Markets Group Inc. under the symbol “IFNY”. In accordance with the Agreement and Plan of Merger, each outstanding certificate previously representing shares of the predecessor’s common stock or Series A Convertible Preferred Stock automatically represents, without any action of the predecessor’s stockholders, the same number of shares of Common Stock or Series A Convertible Preferred Stock, as applicable.
Pursuant to the Agreement and Plan of Merger, the directors and officers of the predecessor company immediately prior to the merger became the directors and officers of AMGAS-Nevada and continued their respective directorship or services with the Company on the same terms as their respective directorship or service with the predecessor registrant immediately prior to the merger.
As a result of the merger, the internal affairs of the Company ceased to be subject to the Delaware General Corporation Law or governed by the predecessor’s Delaware Certificate of Incorporation, as amended, and its bylaws. As of December 7, 2021, the effective date of the merger, the Company is now subject to the Nevada Revised Statutes and is governed by the Company’s Articles of Incorporation as filed in the State of Nevada and the Company’s Bylaws.
Quotation of Common Stock on OTCQB
Effective July 13, 2021, the Company’s Common Stock was approved for quotation on the OTCQB® Venture Market under the symbol “IFNY.”
Nature of Operations
The Company has assessed various opportunities and strategic alternatives involving the acquisition, exploration and development of oil and gas oil producing properties in the United States, including the possibility of acquiring businesses or assets that provide support services for the production of oil and gas in the United States.
As a result, we are now involved with the following oil and gas producing properties:
Central Kansas Uplift - On April 1, 2021, we completed the acquisition of the Central Kansas Uplift Properties, for a purchase price of $900,000. The Central Kansas Uplift Properties include the production and mineral rights/leasehold for oil and gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological formation covering over 11,000 contiguous acres (the “Properties”). The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand Zone with an approximate depth of 3,600 feet.
We commenced rework of the existing production wells after completion of the acquisition of the Properties and have performed testing and evaluation of the existence of noble gas reserves on the Properties including helium, argon and other rare earth minerals/gases. Testing of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties’ existing oil and gas reserves while continuing the evaluation of the existence of new oil and gas zones and other mineral reserves and specifically the noble gas reserves that the Properties may hold.
During the year ended December 31, 2022, the Company changed its strategy regarding the Central Kansas Uplift considering the reduced net cash flows from the sale of crude oil production. The reduction in net cash flows was attributable to lower spot crude oil prices during 2022 compared to 2021 and higher than anticipated operating costs related to the operation of the horizontal wells on the Properties. The Company has shut down the horizontal production wells as of December 31, 2022 and is considering the deepening of the conventional wells on the property to explore for helium and other noble gases that may be present in deeper producing zones. Accordingly, the Company has recorded an impairment charge of $712,812 to reduce the capitalized tangible and intangible costs related to its Central Kansas Uplift properties to zero as of December 31, 2022.
Hugoton Gas Field Farm-Out - On April 4, 2022, the Company acquired a 40% participation in a Farmout Agreement by and between Sunflower Exploration, LLC as the Farmee and Scout Energy Partners as Farmor (“Scout”) with regards to its oil and gas interests in the Hugoton Gas Field, located in Haskell and Finney Counties, Kansas. The Company has joined three other parties to explore for and develop potential oil, natural gas, noble gases and brine minerals on the properties underlying the Farmout Agreement (collectively the “Hugoton JV”).
The Farmout Agreement covers drilling and completion of up to 50 wells, with the first exploratory well spudded on May 7, 2022. The Hugoton JV will utilize Scout’s existing infrastructure assets including water disposal, gas gathering and helium processing. The Farmout Agreement provides the Hugoton JV with rights to take in-kind and market its share of helium at the tailgate of Jayhawk Gas Plant, which will enable the Hugoton JV to market and sell the helium produced at prevailing market prices.
The Hugoton JV also acquired the right to all brine minerals subject to a ten percent (10%) royalty to Scout, across Finney and Haskell Counties. Brine minerals are harvested from the formation water produced from active, and to be drilled, oil and gas wells and may include a variety of dissolved minerals including bromine and iodine. The Hugoton JV plans to target brine minerals with commercial quantities of bromine and iodine. The Company through the Hugoton JV is currently developing proprietary technology to recover brine minerals, particularly with respect to bromine, which is well underway and has demonstrated recovery efficiency and is expected to be available for use in existing and future development wells.
The Hugoton JV believes that its unconventional theory has not previously been targeted for exploration by historical operations in the field. The initial exploratory well was spud on May 7, 2022 near Garden City, Kansas, with production casing set after testing and completion logs identified at least two potential zones with substantial gas and helium reserves. The initial well was completed upon the successful perforation across two lower intervals of the Chase group of formations. The fracture stimulation was completed in two stages during June 2022. The well was connected to the pipeline and commenced commercial production and sales of natural gas, natural gas liquids and helium on August 17, 2022. The Company is continuing to evaluate the initial flows of both natural gas and helium to determine its plan for additional wells on the farmout.
The Company performed the ceiling test to assess potential impairment of the capitalized costs relative to its Hugoton Gas Field Project. The ceiling test indicated an impairment charge of $192,762 was required to reduce the total capitalized costs to $88,687 as of December 31, 2022. Accordingly, the Company has recorded an impairment charge of $192,762 to reduce the capitalized tangible and intangible costs related to its Hugoton Gas Field properties to $88,687 as of December 31, 2022.
Investment in GMDOC, LLC - On May 3, 2022, the Company entered into an operating agreement (the “Operating Agreement”) pursuant to which the Company acquired 17 (or 60.7143%) of 28 limited liability membership interests (the “Interests”) in GMDOC, LLC, a Kansas limited liability company (“GMDOC”), for an aggregate purchase price of $4,037,500, and was subsequently admitted as a member of GMDOC.
With respect to its cash capital contribution, the Company paid a non-refundable cash deposit for the membership interests in the amount of $50,000 on May 3, 2022. The Company paid the remainder of the cash contribution for the membership interests, or $800,000, on May 16, 2022. The remainder of the Company’s capital contribution, or $3,187,500, was financed by the Bank Loan (as defined below).
GMDOC had previously acquired 70% of the working interests (the “Acquisition”) in certain oil and gas leases (the “GMDOC Leases”) from Castelli Energy, L.L.C., an Oklahoma limited liability company (“Castelli”). The GMDOC Leases cover approximately 10,000 acres located in Southern Kansas near the Oklahoma border. The GMDOC Leases currently produce approximately 100 barrels of oil per day and 1.5 million cubic feet of natural gas per day on a gross basis.
GMDOC is managed by two members: Darrah Oil Company, LLC, and Grand Mesa Operating Company, (collectively the “Managing Members”), which also serve as the operating companies under the GMDOC Leases.
COVID-19 Pandemic
The financial statements contained in this Annual Report on Form 10-K as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of and for the year ended December 31, 2022. Economies throughout the world continue to suffer disruptions by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes as a result of the COVID-19 pandemic. In particular, the oil and gas market has been severely impacted by the negative effects of the COVID 19 pandemic because of the substantial and abrupt decrease in the demand for oil and gas globally followed by the recent resurgence in oil and natural gas prices. In addition, the capital markets have experienced periods of disruption and our efforts to raise necessary capital in the future may be adversely impacted by the continuing effects of the COVID-19 pandemic and investor sentiment and we cannot forecast with any certainty when the lingering uncertainty caused by the COVID-19 pandemic will cease to impact our business and the results of our operations. In reading this Annual Report on Form 10-K, including our discussion of our ability to continue as a going concern set forth herein, in each case, consider the additional uncertainties caused by the COVID-19 pandemic.
Going Concern
The Company has incurred losses from operations, has a stockholders’ deficit, incurred net cash used in operating activities and has a significant working capital deficit as of and for the years ended December 31, 2022 and 2021. The Company must raise substantial amounts of debt and equity capital from other sources in the future in order to fund (i) the development of the Properties acquired on April 1, 2021; (ii) our obligations for exploration and development under the Hugoton Farmout Agreement; (iii) normal day-to-day operations and corporate overhead; and (iv) outstanding debt and other financial obligations as they become due, as described below. Most of the Company’s outstanding debt and other financial obligations are currently past due and the Company must negotiate forbearance and/or restructuring agreements with the holders of such debt. These are substantial operational and financial issues that must be successfully addressed during 2023 and beyond.
The Company has made substantial progress in resolving many of its existing financial obligations and acquiring oil and gas producing properties to deploy its new operational strategy during the years ended December 31, 2022 and 2021.
The Company will have significant financial commitments executing its planned exploration and development of the Properties and the Hugoton Gas Field. The Company may find it necessary to raise substantial amounts of debt or equity capital to fund such exploration and development activities and may seek offers from industry operators and other third parties for interests in the Properties in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement. There can be no assurance that it will be able to obtain such new funding or be able to reach agreements with industry operators and other third parties or on what terms.
Due to the uncertainties related to the foregoing matters, there exists substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financials are issued. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and the series of related accounting standard updates that followed, using the modified retrospective method of adoption. Adoption of the ASU did not require an adjustment to the opening balance of equity and did not change the Company’s amount and timing of revenues.
The Company’s revenues are primarily derived from its interests in the sale of oil and natural gas production. To date, such revenues have only included the sale of oil however the Company expects to begin generating revenues from the sale of natural gas and noble gases in the future. The Company recognizes revenue from its interests in the sales of oil and gas in the period that its performance obligations are satisfied. Performance obligations are satisfied when the customer obtains control of product, when the Company has no further obligations to perform related to the sale, when the transaction price has been determined and when collectability is probable. The sales of oil and gas are made under contracts which the third-party operators of the wells have negotiated with customers, which typically include variable consideration that is based on pricing tied to local indices and volumes delivered in the current month. The Company receives payment from the sale of oil and gas production from one to three months after delivery. At the end of each month when the performance obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are accrued in trade receivables, net in the balance sheets. Variances between the Company’s estimated revenue and actual payments are recorded in the month the payment is received, however, differences have been and are insignificant. The Company’s oil is typically sold at delivery points under contracts terms that are common in our industry.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash consists of cash on hand and demand deposits with financial institutions. The Company’s policy is that all highly liquid investments with an original maturity of three months or less when purchased would be cash equivalents and would be included along with cash as cash and equivalents.
The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with several financial institutions if necessary to remain below the federally insured limit of $250,000 per bank. At December 31, 2022 and December 31, 2021, the uninsured balance amounted to $-0- and $10,504, respectively.
Convertible Instruments
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)” which is intended to reduce complexity in applying GAAP to certain financial instruments with characteristics of liabilities and equity. The guidance in ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in Accounting Standards Codification (“ASC”) 470-20, Debt: Debt with Conversion and Other Options that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.
The amendments in ASU 2020-06 are effective for public entities that meet the definition of an SEC filer, excluding smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.
The Company early adopted ASU 2020-06 effective January 1, 2021 and has applied its effects to the 3% convertible notes payable issued on March 31, 2021 and the 8% convertible notes payable issued on August 30, 2021 (see Note 4). The Company elected to adopt ASU 2020-06 using the modified retrospective method which enables entities to apply the transition requirements in this ASU at the effective date of ASU 2020-06 (rather than as of the earliest comparative period presented) with the effect of initially adopting ASU 2020-06 recognized as a cumulative-effect adjustment to retained earnings (accumulated deficit) on the first day of the period adopted. Therefore, this transition method applies the amendments in ASU 2020-06 to outstanding financial instruments as of the beginning of the fiscal year of adoption (January 1, 2021), with the cumulative effect of the change recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) as of the date of adoption. In accordance with the modified retrospective method, no adjustment was made to the comparative-period information including earnings (loss) per share.
The Company applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06). The convertible notes payable issued on August 19, 2020 was the only outstanding financial instrument effected by this new accounting standard as of January 1, 2021. Therefore, the application of ASU-2020-06 to this convertible note payable was used to determine the cumulative effect of the adoption of the new accounting standard. The cumulative effect of the adoption of the new accounting standard was recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) which resulted in an increase to the carrying value of convertible notes payable as of January 1, 2021 of $160,900, a decrease to additional paid in capital of $252,961 and a decrease to accumulated deficit of $92,061. See Note 4.
Prior to the adoption of ASU 2020-06, the Company applied the existing accounting standards for derivatives and hedging and for distinguishing liabilities from equity when accounting for hybrid contracts that feature conversion options. The accounting standards require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (i) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (ii) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (iii) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.
Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.
Derivative Instruments
The Company accounts for derivative instruments or hedging activities under the provisions of ASC 815 Derivatives and Hedging. ASC 815 requires the Company to record derivative instruments at their fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive earnings (loss) and are recognized in the statement of earnings when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges, if any, are recognized in earnings. Changes in the fair value of derivatives that do not qualify for hedge treatment are recognized in earnings.
The purpose of hedging is to provide a measure of stability to the Company’s cash flows in an environment of volatile oil and gas prices and to manage the exposure to commodity price risk. As of December 31, 2022 and 2021 and during the years then ended, the Company had no oil and natural gas derivative arrangements outstanding.
As a result of certain terms, conditions and features included in certain common stock purchase warrants issued by the Company (Note 4 and 13), those warrants were required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized in operations.
Fair Value of Financial Instruments
The carrying values of the Company’s accounts payable, accrued liabilities and short-term notes represent the estimated fair value due to the short-term nature of the accounts.
In accordance with ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC 820”), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.
ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
● Level 1 - Quoted prices in active markets for identical assets and liabilities.
● Level 2 - Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities).
● Level 3 - Significant unobservable inputs (including the Company’s own assumptions in determining the fair value.
The estimated fair value of warrant derivative liabilities, which are related to detachable warrants issued in connection with the Series A Preferred Stock, were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock, and current interest rates. The fair values for the warrant derivatives as of December 31, 2022 and 2021 were classified under the fair value hierarchy as Level 3.
The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021:
Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basic
December 31, 2022
Level 1
Level 2
Level 3
Total
Liabilities:
Warrant derivative liabilities
$ -
$ -
$ 577,269
$ 577,269
$ -
$ -
$ 577,269
$ 577,269
December 31, 2021
Level
Level
Level
Total
Liabilities:
Warrant derivative liabilities
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
There were no changes in valuation techniques or reclassifications of fair value measurements between Levels 1, 2 or 3 during the years ended December 31, 2022 and 2021.
Management Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates include, but are not limited to, oil and gas reserves; depreciation, depletion and amortization of proved oil and gas properties; future cash flows from oil and gas properties; impairment of long-lived assets; fair value of derivatives; asset retirement obligations, our control over equity method investments, fair value of equity compensation; warrants issued in connection with convertible debt; the realization of deferred tax assets; fair values of assets acquired and liabilities assumed in business combinations.
Oil and gas properties
Central Kansas Uplift Properties - On April 1, 2021, we completed the acquisition of the Properties, under the terms of the Asset Purchase Agreement, for a purchase price of $900,000. The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand Zone with an approximate depth of 3,600 feet.
The Company has performed workovers of the wells subsequent to the Properties purchase which was necessary to put the lease back into production status. Therefore, these tangible and intangible workover costs were expensed as lease operating expenses rather than capitalized in the full cost pool through December 31, 2022. In addition, the Company is currently evaluating the Properties for oil and gas reserves and specifically the potential for noble gas reserves such as helium, argon and krypton. Based on these evaluations, the Company may redirect its efforts to the production of noble gases rather than crude oil on the Properties. These noble gas evaluation costs have also been expensed as lease operating costs through December 31, 2022.
Hugoton Gas Field Farm-Out -The first exploratory well commenced on May 7, 2022 near Garden City, Kansas with a goal to evaluate its unconventional theory of where substantial oil, natural gas and noble gases may be present in the Hugoton Gas Field. The initial well in which the Company has acquired a 40% participation together with three other venture partners was spud on May 7, 2022 with production casing set after testing and completion logs identified at least two potential zones with substantial gas and helium reserves.
The initial well was completed upon the successful perforation across two lower intervals of the Chase group of formations. The fracture stimulation was completed in two stages during June 2022. The well was connected to the pipeline and commenced commercial production on August 17, 2022. The Company is continuing to evaluate the initial flows of both natural gas and helium to determine its plan for additional wells on the farmout.
Full Cost Accounting
The accounting for, and disclosure of, oil and gas producing activities require that we choose between two GAAP alternatives: the full cost method or the successful efforts method. We adopted and use the full cost method of accounting, which involves capitalizing all exploration, exploitation, development and acquisition costs. Once we incur costs, they are recorded in the depletable pool of proved properties or in unproved properties, collectively, the full cost pool. Our unproved property costs, which include unproved oil and gas properties, properties under development, and major development projects, were zero through December 31, 2022, and are not subject to depletion. We review our unproved oil and gas property costs on a quarterly basis to assess for impairment and transfer unproved costs to proved properties as a result of extensions or discoveries from drilling operations or determination that no proved reserves are attributable to such costs. We expect these costs to be evaluated in one to seven years and transferred to the depletable portion of the full cost pool during that time. The full cost pool is comprised of intangible drilling costs, lease and well equipment and exploration and development costs incurred plus acquired proved and unproved leaseholds.
When we acquire significant amounts of undeveloped acreage, we capitalize interest on the acquisition costs in accordance with FASB ASC Subtopic 835-20 for Capitalization of Interest. When the unproved property costs are moved to proved developed and undeveloped oil and gas properties, or the properties are sold, we cease capitalizing interest.
Capitalized costs to acquire oil and natural gas properties are depreciated and depleted on a units-of-production basis based on estimated proved reserves. Capitalized costs of exploratory wells and development costs are depreciated and depleted on a units-of-production basis based on estimated proved developed reserves. Under this method, the sum of the full cost pool, excluding the book value of unproved properties, and all estimated future development costs are divided by the total estimated quantities of proved reserves. This rate is applied to our total production for the quarter, and the appropriate expense is recorded. Support equipment and other property, plant and equipment related to oil and gas producing activities, as well as property, plant and equipment unrelated to oil and gas producing activities, are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets.
Sales, dispositions and other oil and gas property retirements are accounted for as adjustments to the full cost pool, with no recognition of gain or loss, unless the disposition would significantly alter the amortization rate and/or the relationship between capitalized costs and Proved Reserves.
Pursuant to Rule 4-10(c)(4) of Regulation S-X, at the end of each quarterly period, companies that use the full cost method of accounting for their oil and gas properties must compute a limitation on capitalized costs, or ceiling test. The ceiling test involves comparing the net book value of the full cost pool, after taxes, to the full cost ceiling limitation defined below. In the event the full cost ceiling is less than the full cost pool, we must record a ceiling test write-down of our oil and gas properties to the value of the full cost ceiling. The full cost ceiling limitation is computed as the sum of the present value of estimated future net revenues from our proved reserves by applying average prices as prescribed by the SEC Release No. 33-8995, less estimated future expenditures (based on current costs) to develop and produce the proved reserves, discounted at 10%, plus the cost of properties not being amortized and the lower of cost or estimated fair value of unproved properties included in the costs being amortized, net of income tax effects.
The ceiling test is computed using the simple average spot price for the trailing twelve-month period using the first day of each month. The trailing twelve-month reference price was $67.99 per barrel for the West Texas Intermediate oil at Cushing, Oklahoma through December 31, 2021. This reference price for oil is further adjusted for quality factors and regional differentials to derive estimated future net revenues. Under full cost accounting rules, any ceiling test write-downs of oil and gas properties may not be reversed in subsequent periods. We recognized an impairment charge of $905,574 as of December 31, 2022 which is attributable to changing our strategy to exploring for noble gases and away from crude oil production at our Central Kansas Uplift properties which resulted in a large decrease in estimated future cash flows. The accumulated impairment charges relative to ceiling test write-downs of our oil and gas properties was $905,574 through December 31, 2022.
The ceiling test calculation is based upon estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves, in projecting the future rates of production and in the timing of development activities. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered.
Equity Method Investments
The Company uses the equity method of accounting for equity investments if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee. The Company’s proportionate share of the net income or loss of these investees is included in our Statements of Operations. Judgment regarding the level of influence over each equity method investment includes considering key factors such as the Company’s ownership interest, legal form of the investee, representation on the board of directors, participation in policy-making decisions and material intra-entity transactions.
The Company evaluates equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. Factors considered by the Company when reviewing an equity method investment for impairment include the length of time and the extent to which the fair value of the equity method investment has been less than cost, the investee’s financial condition and near-term prospects and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment that is other-than temporary is recognized in the period identified.
The Company accounts for distributions received from equity method investees under the “nature of the distribution” approach. Under this approach, distributions received from equity method investees are classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as cash inflows from operating activities) or a return of investment (classified as cash inflows from investing activities).
Issuance of Debt Instruments With Detachable Stock Purchase Warrants
Proceeds from the issuance of a debt instrument with stock purchase warrants (detachable call options) are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds allocated to the warrants are recorded as additional paid-in capital. The remainder of the proceeds are allocated to the debt instrument portion of the transaction. Such issuances generally result in a discount (or, occasionally, a reduced premium) relative to the debt instrument, which is amortized to interest expense using the effective interest rate method.
Asset Retirement Obligations
The Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410. ASC 410 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. Subsequent to its initial measurement, the asset retirement liability is required to be accreted each period. The Company’s asset retirement obligations consist of costs related to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties.
During April 2021, the Company acquired the Properties and assumed the related asset retirement obligation existing at the date of acquisition. The asset retirement obligation assumed for the Properties relates to the plug and abandonment costs when the wells acquired are no longer useful. The Company determined the value of the liability by obtaining quotes for this service and estimated the increased costs that the Company will face in the future. We then discounted the future value based on an intrinsic interest rate that is appropriate for us. If costs rise more than what we have expected there could be additional charges in the future; however, we monitor the costs of the abandoned wells and we will adjust this liability if necessary.
As of December 31, 2012, the Company had divested all of its domestic oil properties that contained operating and abandoned wells in Texas, Colorado and Wyoming. The Company may have obligations related to the divestiture of certain abandoned non-producing domestic leasehold properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. Management believes the Company has been relieved from asset retirement obligation related to Infinity-Texas because of the sale of its Texas oil and gas properties in 2011 and its sale of 100% of the stock in Infinity-Texas in 2012. The Company has recognized an additional liability of $734,897 related to its former Texas oil and gas producing properties (included in asset retirement obligations) to recognize the potential personal liability of the Company and its officers for the Infinity-Texas oil and gas properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. In addition, management believes the Company has been relieved from asset retirement obligations related to Infinity-Wyoming because of the sale of its Wyoming and Colorado oil and gas properties in 2008; however, the Company has recognized since 2012 an additional liability of $981,106 related to its former Wyoming and Colorado oil and gas producing properties (included in asset retirement obligations) to recognize the potential liability of the Company and its officers should the new owner not perform its obligations to reclaim abandoned wells in a timely manner.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. This method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial accounting bases and tax bases of assets and liabilities. The tax benefits of tax loss carryforwards and other deferred taxes are recorded as an asset to the extent that management assesses the utilization of such assets to be more likely than not. Management routinely assesses the realizability of the Company’s deferred income tax assets, and a valuation allowance is recognized if it is determined that deferred income tax assets may not be fully utilized in future periods. Management considers future taxable earnings in making such assessments. Numerous judgments and assumptions are inherent in the determination of future taxable earnings, including such factors as future operating conditions. When the future utilization of some portion of the deferred tax asset is determined not to be more likely than not, a valuation allowance is provided to reduce the recorded deferred tax asset. When the Company can project that a portion of the deferred tax asset can be realized through application of a portion of tax loss carryforward, the Company will record that utilization as a deferred tax benefit and recognize a deferred tax asset in the same amount. There can be no assurance that facts and circumstances will not materially change and require the Company to adjust its deferred income tax asset valuation allowance in a future period. The Company recognized a deferred tax asset, net of valuation allowance, of $-0- at December 31, 2022 and 2021.
The Company is potentially subject to taxation in many jurisdictions, and the calculation of income tax liabilities (if any) involves dealing with uncertainties in the application of complex income tax laws and regulations in various taxing jurisdictions. It recognizes certain income tax positions that meet a more-likely-than not recognition threshold. If the Company ultimately determines that the payment of these liabilities will be unnecessary, it will reverse the liability and recognize an income tax benefit. No liability for unrecognized tax benefit was recorded as of December 31, 2022 and 2021.
Stock-based compensation
The Company applies ASC 718, Stock Compensation, which requires companies to recognize compensation expense for share-based payments based on the estimated fair value of the awards. ASC 718 also requires tax benefits relating to the deductibility of increases in the value of equity instruments issued under share-based compensation arrangements to be presented as financing cash inflows in the statement of cash flows. Compensation cost is recognized based on the grant-date fair value for all share-based payments granted and is estimated in accordance with the provisions of ASC 718.
Related Party Transactions
The Company’s financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances and similar items in the ordinary course of business. Disclosure of related party transactions include: 1) the nature of the relationships involved, 2) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements, 3) the dollar amounts of the transactions for each periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period, and 4) amounts due from or to related parties as of the date of each balance sheet presented and if not otherwise apparent , the terms of settlement.
Basic and Diluted Income (Loss) Per Share
Net income (loss) per share is calculated in accordance with FASB ASC 260, Earnings Per Share, for the periods presented. Basic net loss per share is based upon the weighted average number of shares of Common Stock outstanding. Diluted net earnings (loss) per share is based on the assumption that all dilutive convertible shares, warrants and stock options were converted or exercised or excluded from the calculations if their inclusion would be antidilutive. Dilution is computed by applying the if-converted/treasury stock method. Under this method, options and warrants are assumed exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase shares of Common Stock at the average market price during the period. The Company has outstanding convertible notes payable and Series A Convertible Preferred Stock both of which are potentially dilutive. Such potential dilutive effect is included in diluted earnings (loss) per share at the beginning of the period (or at the time of issuance, if later) if they have a dilutive effect or such potentially dilutive securities are excluded from the calculations if their inclusion would be antidilutive.
The adoption of ASU 2020-06 requires the Company to assume share settlement when an instrument can be settled in cash or shares at the entity’s option. This applies both to convertible instruments and freestanding arrangements that could result in cash or share settlement. ASU 2020-06 also stipulates that an average market price for the period should be used in the computation of the diluted earnings (loss) per share denominator in cases when the exercise price of an instrument may change based on an entity’s share price or changes in the entity’s share price may affect the number of shares that would be used to settle a financial instrument. Lastly, an entity should use the weighted-average share count from each quarter when calculating the year-to-date weighted average share count for all potentially dilutive securities.
During the years ended December 31, 2022 and 2021, the Company had outstanding the following securities that were potentially dilutive: i) Series A Convertible Preferred Stock, ii) various convertible notes payable (see Note 4), iii) warrants to purchase Common Stock (see Note 7) and iv) options to purchase Common Stock. All potentially dilutive securities were excluded from the calculation of diluted income (loss) per share for the years ended December 31, 2022 and 2021 as all were considered anti-dilutive because of the net loss reported for the years ended December 31, 2022 and 2021.
Gain on Extinguishment of Liabilities / Troubled Debt Restructuring:
In accordance with ASC 470, the Company assesses restructuring of debt as troubled debt restructuring if the creditor for economic or legal reasons related to the debtor’s financial difficulties grant a concession to the debtor that it would not otherwise consider. The Company records a gain on restructuring of payables when it transfers its assets to a creditor to fully settle a payable. The gain is measured by the excess of the carrying amount of the payable over the fair value of the assets transferred or fair value of equity interest granted.
Recent Accounting Pronouncements
Business Combinations - In October 2021, FASB issued ASU 2021-08 Business Combinations (“Topic 805”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities were recognized by the acquirer at fair value on the acquisition date. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. We are currently evaluating the impact of adopting this ASU on our financial statements.
Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations and cash flows.
Note 2 - Oil and Gas Properties and Equipment
Oil and gas properties and equipment is comprised of the following at December 31, 2022 and 2021:
Schedule of Oil and Gas Properties and Equipment
December 31,
December 31,
Central Kansas Uplift - Oil and gas production equipment $ 913,425 $ 913,425
Hugoton Gas Field - Oil and gas production equipment 96,831 -
Central Kansas Uplift - Leasehold costs 15,225 -
Hugoton Gas Field - Leasehold costs 191,535
Subtotal 1,217,016 913,425
Less: Accumulated impairment (905,574 ) -
Less: Accumulated depreciation, depletion and amortization (222,755 ) (92,502 )
Oil and gas properties and equipment, net $ 88,687 $ 820,923
Great Bend Properties - On April 1, 2021, the Company completed the previously announced acquisition of certain oil and gas properties and interests from Core Energy, LLC (“Core”), effective as of January 1, 2021 (the “Great Bend Properties Acquisition”). On December 14, 2020, the Company entered into an asset purchase and sale agreement (the “Agreement”) with Core Energy, as well as all of the members of Core, Mandalay LLC and Coal Creek Energy, LLC, to purchase certain oil and gas properties in the Central Kansas Uplift geological formation, covering over 11,000 contiguous acres, including, among other things, the production and mineral rights to and a leasehold interest in the Properties and all contracts, agreements and instruments. The Agreement provided for an aggregate purchase price consisting of $900,000 in cash at closing.
The following represents the purchase price allocation for the Great Bend Properties Acquisition for $900,000 in cash. The Great Bend Properties Acquisition qualifies as an asset acquisition. As such, the Company recognized the assets acquired and liabilities assumed at their fair values as of April 1, 2021, the date of closing. The fair value of the Properties acquired approximate the value of the consideration paid, and the asset retirement obligation to be assumed, which management has concluded approximates the fair value that would be paid by a typical market participant. As a result, neither goodwill nor a bargain purchase gain will be recognized related to the acquisition.
The Company determined the amount of the asset retirement obligation assumed to be $13,425 as of the date of acquisition. The obligation relates to legal requirements associated with the retirement of long-lived assets that result from the acquisitions, construction, development, or normal use of the asset. The obligation relates primarily to the requirement to plug and abandon oil and natural gas wells and support wells at the conclusion of their useful lives.
The following table summarizes the allocation of the assets acquired and the liabilities assumed related to the Properties:
Schedule of Oil and Gas Properties Acquired
Amount
Properties, subject to depreciation, depletion and amortization $ 913,425
Asset retirement obligation assumed (13,425 )
Total purchase price of the Properties $ 900,000
During the year ended December 31, 2022, the Company changed its strategy regarding the Central Kansas Uplift considering the reduced net cash flows from the sale of crude oil production. The reduction in net cash flows was attributable to lower spot crude oil prices during 2022 compared to 2021 and higher than anticipated operating costs related to the operation of the horizontal wells on the Properties. The Company has shut down the horizontal production wells as of December 31, 2022 and is considering the deepening of the conventional wells on the property to explore for helium and other noble gases that may be present in deeper producing zones. Accordingly, the Company has recorded an impairment charge of $712,812 to reduce the capitalized tangible and intangible costs related to its Central Kansas Uplift properties to zero as of December 31, 2022.
Hugoton Gas Field Participation Agreement - On April 4, 2022, the Company acquired a 40% participation in a Farmout Agreement by and between Sunflower Exploration, LLC as the Farmee and Scout Energy Partners as Farmor with regards to its oil and gas interests in the Hugoton Gas Field, located in Haskell and Finney Counties, Kansas. The Company has joined three other parties in the Hugoton JV to explore for and develop potential oil, natural gas, noble gases and brine minerals on the properties underlying the Farmout Agreement.
The Farmout Agreement covers drilling and completion of up to 50 wells, with the first exploratory well spudded on May 7, 2022. The Hugoton JV will utilize Scout’s existing infrastructure assets including water disposal, gas gathering and helium processing. The Farmout Agreement provides the Hugoton JV with rights to take in-kind and market its share of helium at the tailgate of Jayhawk Gas Plant, which will enable the Hugoton JV to market and sell the helium produced at prevailing market prices.
The Hugoton JV also acquired the right to all brine minerals subject to a ten percent (10%) royalty to Scout, across Finney and Haskell Counties. Brine minerals are harvested from the formation water produced from active, and to be drilled, oil and gas wells and may include a variety of dissolved minerals including bromine and iodine.
The Hugoton JV believes that its unconventional theory has not previously been targeted for exploration by historical operations in the field. The initial exploratory well was spud on May 7, 2022 near Garden City, Kansas with production casing set after testing and completion logs identified at least two potential zones with substantial gas and helium reserves. The initial well was completed upon the successful perforation across two lower intervals of the Chase group of formations. The fracture stimulation was completed in two stages during June 2022. The well was connected to the pipeline and commenced commercial production and sales of natural gas, natural gas liquids and helium on August 17, 2022. The Company is continuing to evaluate the initial flows of both natural gas and helium to determine its plan for additional wells on the farmout.
The Company has paid a total of $288,366 for its participation in the drilling and completion of the initial exploratory well. Such amount was an estimate and will be adjusted to actual drilling and completion cost expenditures when the well is connected to the pipeline and the production of gas commences.
The Company performed the ceiling test to assess for potential impairment of the capitalized costs relative to the Hugoton Gas Field Project. The ceiling test indicated an impairment charge of $192,762 was required to reduce the total capitalized costs to $88,687 as of December 31, 2022. Accordingly, the Company has recorded an impairment charge of $192,762 to reduce the capitalized tangible and intangible costs related to its Hugoton Gas Field properties to $88,687 as of December 31, 2022.
Note 3 - Investment in unconsolidated subsidiary - GMDOC
A summary of the Company’s investment in unconsolidated subsidiary-GMDOC during the year ended December 31, 2022 follows:
Schedule of Investment Unconsolidated Subsidiary
Year ended
December 31, 2022
Investment in unconsolidated subsidiary-GMDOC,
at beginning of period
$ -
Purchase of membership interests in GMDOC 850,000
Equity in earnings of GMDOC 251,461
Distributions during period -
Impairment charges -
Investment in unconsolidated subsidiary-GMDOC at end of period
$ 1,101,461
The following table presents summarized balance sheet financial information of the Company’s unconsolidated subsidiary - GMDOC as of December 31, 2022:
Schedule of Unconsolidated Subsidiary Balance Sheet Financial Information
December 31,
Assets:
Cash $ 208,450
Accrued revenue & prepaid expenses 320,212
Oil and gas properties and equipment, net 7,359,905
Total assets $ 7,888,567
Liabilities and Member’s Equity:
Accounts payable and accrued liabilities $ 207,244
Mortgage note payable, net 4,984,821
Asset Retirement Obligations 882,331
Member’s equity 1,814,171
Total liabilities and member’s equity $ 7,888,567
The following table presents summarized income statement financial information of the Company’s unconsolidated subsidiary - GMDOC for the year ended December 31, 2022:
Schedule of Unconsolidated Subsidiary Financial Information
Year ended
December 31, 2022
Oil and gas revenues $ 2,397,406
Lease operating expenses (1,080,616 )
Production related taxes (68,049 )
Ad valorem taxes (32,265 )
Depreciation expense (401,794 )
Accretion of asset retirement obligation (50,961 )
General and administrative expenses (110,856 )
Interest expense (238,694 )
Net income 414,171
AMGAS member’s percentage 60.7143 %
Equity in earnings of unconsolidated subsidiary - GMDOC $ 251,461
The Company uses the equity method of accounting for equity investments if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee, GMDOC. Management’s judgment regarding its level of influence over the operations of GMDOC included considering key factors such as the Company’s ownership interest, legal form of the investee, its’ lack of participation in policy-making decisions and its’ lack of control over the day-to-day operations of GMDOC.
On May 3, 2022, the Company entered into the Operating Agreement pursuant to which the Company acquired 17 (or 60.7143%) of 28 limited liability membership interests in GMDOC, for an aggregate purchase price of $4,037,500, and was subsequently admitted as a member of GMDOC.
With respect to its cash capital contribution, the Company paid a non-refundable cash deposit for the membership interests in the amount of $50,000 on May 3, 2022. The Company paid the remainder of the cash contribution for the membership interests, or $800,000, on May 16, 2022. The remainder of the Company’s capital contribution, or $3,187,500, was financed by the Bank Loan (as defined below).
GMDOC had previously acquired 70% of the working interests in the GMDOC Leases from Castelli Energy, L.L.C., an Oklahoma limited liability company. The GMDOC Leases cover approximately 10,000 acres located in Central and Southern Kansas near the Oklahoma border. The GMDOC Leases currently produce approximately 100 barrels of oil per day and 1.5 million cubic feet of natural gas per day on a gross basis.
GMDOC is managed by two Managing Members, which also serve as the operating companies under the GMDOC Leases.
Pursuant to the terms of the Operating Agreement, each member agreed to pay GMDOC, as its capital contribution, $50,000 in cash per Interest, with the remainder to be financed, in part, by a loan to GMDOC from a commercial bank, secured by GMDOC’s property, in the aggregate amount of $6,045,000 (the “Bank Loan”). The principal of the Bank Loan is to be repaid in 84 varying monthly installments, ranging from $170,000 at the beginning to $40,500 at the end of the loan term, with the first installment on July 1, 2022. The Bank Loan bears a variable interest beginning at an initial rate of 6% per annum with one rate adjustment after 36 months subject to a 6% minimum interest rate. Initial working capital requirements was financed by a loan to GMDOC from the Managing Members, in the maximum aggregate amount of $400,000 (the “Member Loan”), which was repaid during the year ended December 31, 2022.
Note 4 - Debt Obligations
Debt obligations were comprised of the following at December 31, 2022 and 2021:
Schedule of Debt Outstanding
December 31, 2022 December 31, 2021
Notes payable:
Notes payable: $ 28,665 $ 28,665
3% convertible notes payable due March 30, 2026 (the 3% Notes) $ 28,665 $ 28,665
8% convertible notes payable due October 29, 2022 (less discount of $ - and $273,726 as of December 31, 2022 and 2021, respectively) (the 8% Note and the October 8% Notes) (in default) 650,000 376,274
8% Convertible promissory notes payable due September 15, 2022 (the June 2022 Note) (in default) 350,000 -
8% Convertible promissory notes payable due June 29, 2022 (the May 2022 Notes) (in default) 312,500 -
Total notes payable 1,341,165 404,939
Less: Long-term portion 28,665 28,665
Notes payable, short-term $ 1,312,500 $ 376,274
Debt obligations become due and payable as follows:
Schedule of Debt Obligations Maturities
Years ended Principal
balance due
$ 1,312,500
-
-
28,665
-
-
Total $ 1,341,165
3% Convertible Notes Payable
On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% convertible notes payable (the “3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for fifty cents ($0.50) per share (the “3% Note Warrants”). The 3% Notes allow for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30, 2026 (the “Maturity Date”). The 3% Notes are convertible as to principal and any accrued interest, at the option of the holder, into shares of Common Stock at any time after the issue date and prior to the close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment.
An aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with five related parties. Such related parties were issued $25,777 principal balance of the 3% Notes and the 3% Note Warrants to purchase 5,155,454 shares of Common Stock in exchange for the extinguishment of their respective debt obligations. See Note 14.
The 3% Note Warrants were valued at $1,605,178 using the Black-Scholes methodology. The following assumptions were used in calculating the estimated fair value of the warrants as of March 31, 2021, their date of issuance:
Schedule of Fair Value of Warrants Estimated Valuation Assumptions
As of
March 31,
Volatility - range 374.0 %
Risk-free rate 0.92 %
Contractual term 5.0 years
Exercise price $ 0.50
Number of warrants in aggregate 5,732,994
8% Convertible Notes Payable due October 29, 2022 (in default)
On August 30, 2021, the Company issued to an accredited investor (the “8% Note Investor”) an unsecured convertible note due October 29, 2022 (the “8% Note”), with an aggregate principal face amount of approximately $100,000. The 8% Note is, subject to certain conditions, convertible into an aggregate of 200,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued a five and one half-year Common Stock purchase warrant to purchase up to 200,000 shares of Common Stock at an exercise price of fifty cents ($0.50) per share, subject to customary adjustments (the “8% Note Warrant”) which are immediately exercisable. The 8% Note Investor purchased the 8% Note and 8% Note Warrant from the Company for an aggregate purchase price of $100,000 and the proceeds were used for general working capital purposes. The Company also granted the 8% Note Investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the 8% Note Warrant and the conversion of the 8% Note unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.
On October 29, 2021, the Company issued to three accredited investors (the “October 8% Note Investors”) unsecured convertible notes payable due October 29, 2022 (the “October 8% Notes”), with an aggregate principal face amount of approximately $550,000. The October 8% Notes are, subject to certain conditions, convertible into an aggregate of 1,100,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued five and one half-year Common Stock purchase warrants to purchase up to 1,650,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “October 8% Note Warrants”) which are immediately exercisable. The October 8% Note Investors purchased the October 8% Notes and October 8% Note Warrants from the Company for an aggregate purchase price of $550,000 and the proceeds were used for general working capital purposes. The Company also granted the October 8% Note Investors certain piggy-back registration rights whereby the Company has agreed to register for resale the shares underlying the October 8% Note Warrants and the conversion of the October 8% Notes unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.
The 8% Note and the October 8% Notes all bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to 120% of the principal amount of the underlying notes and any accrued and unpaid interest. Fifty percent (50%) of the 8% Note and the October 8% Notes shall be mandatorily repaid in cash in an amount equal to 120% of the principal amount of the underlying notes and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 and one-hundred percent (100%) of the underlying notes plus accrued interest shall be mandatorily repaid in an amount equal to 120% of outstanding principal and interest in cases in which the Company receives gross proceeds of at least $3,000,000. In addition, pursuant to the 8% Note and the October 8% Notes, so long as the underlying notes remain outstanding, the Company cannot enter into any financing transactions pursuant to which the Company sells its securities at a price lower than $0.50 cents per share without the written consent of the 8% Note Investor.
The conversion of the 8% Note and the October 8% Notes and the exercise of the underlying warrants are each subject to beneficial ownership limitations such that the 8% Note Investor and the October 8% Note Investors may not convert the underlying notes or exercise the underlying warrants to the extent that such conversion or exercise would result in any of the investors being the beneficial owner in excess of 4.99% (or, upon election of the investors, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.
The Company, the 8% Note Investor and the October 8% Note Investors have agreed that for so long as the underlying warrants remain outstanding, the investors have the right to participate in any issuance of Common Stock, conventional debt, or a combination of such securities and/or debt, up to an amount equal to thirty-five percent (35%) of such subsequent financing.
The underlying notes and warrants contain customary events of default, representations, warranties, agreements of the Company and the investors and customary indemnification rights and obligations of the parties thereto, as applicable.
As described in Note 1, the Company elected to early adopt ASU 2020-06 using the modified retrospective method which enables entities to apply the transition requirements in this ASU at the effective date of ASU 2020-06 (rather than as of the earliest comparative period presented) with the effect of initially adopting ASU 2020-06 recognized as a cumulative-effect adjustment to retained earnings (accumulated deficit) on the first day of the period adopted.
The Company has applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06) and those entered into after January 1, 2021, including the 8% Note. As a result, the 8% Note and October 8% Notes were required to be separated into its debt and equity components based on their relative fair values because of the issuance of detachable warrants together with the 8% Note and the October 8% Notes. Accordingly, the Company allocated the proceeds of the 8% Note as follows:
Schedule of Proceeds from Debt Obligations
Amount
Proceeds allocated to the 8% Note and the October 8% Notes $ 314,104
Proceeds allocated to detachable warrants to purchase Common Stock 335,896
Total proceeds $ 650,000
The 8% Note and October 8% Notes were recorded at their par value less the discount established at its origination date. The note discount is amortized over the term of the convertible note utilizing the level-interest method. The following are the assumptions used in calculating the estimated grant-date fair value of the detachable warrants to purchase Common Stock granted in connection with the 8% Note and the October 8% Notes in August and October of 2021:
Schedule of Fair Value of Detachable Warrants to Purchase Common Stock Granted
As of
August 30, 2021
(issuance date)
As of
October 30, 2021
(issuance date)
Volatility - range 369.4 % 367.7 %
Risk-free rate 0.77 % 1.18 %
Contractual term 5.5 years 5.5 years
Exercise price $ 0.50 $ 0.50
Number of warrants in aggregate 200,000 1,650,000
The following is a summary of activity relative to the 8% Note and October 8% Notes for the year ended December 31, 2022:
Schedule of Convertible Debt
Amount
Balance December 31, 2021 - 8% Note and October 8% Notes $ 376,274
Amortization of discount during the period to interest expense 273,726
Balance December 31, 2022 - 8% Note and October 8% Notes $ 650,000
The remaining unamortized discount relative to the 8% Notes and the October 8% Notes was $ - and $273,726 as of December 31, 2022 and 2021 respectively.
The Company did not pay the principal balance due on the 8% Notes and the October 8% Notes upon their maturity on October 29, 2022 and the remaining balance remains due and payable and is therefore in technical default as of December 31, 2022. With respect to the two October 8% Notes with an outstanding aggregate principal balance of $550,000 as of December 31, 2022, the Company has reached an agreement with the two October 8% Note Investors. On January 10, 2023, the Company amended each of these October 8% Notes by entering into a Letter Agreement between the October 8% Note Investors and the Company. The Letter Agreement modifies the terms of the October 8% Notes by extending each note’s respective maturity date to September 30, 2023. In consideration for the extension, the Company amended the Fixed Conversion Price (as defined in each note) to $0.10, subject to any future adjustments as provided in each of the notes.
On May 5, 2023, the Company reached an agreement with the holder of two separate convertible notes payable in the aggregate principal face amount of approximately $450,000 (including $100,000 outstanding principal balance of the 8% Note), which the Company did not pay by their maturity dates. The Company and the holder of the two convertible notes payable entered into a new convertible promissory note (the “New Note”), exchanging the outstanding principal amount of the old convertible notes payable into the New Note, with a maturity date of September 30, 2023. Upon issuance of the New Note, the old convertible notes payable were cancelled and the repayment defaults under the prior convertible notes payable were cured with the entry into the New Note. The conversion price of the New Note was reduced from $0.50 per share to $0.40 per share however, the interest rate and other significant terms of the New Note are the same as those of the prior convertible notes payable.
The Company has accrued default interest aggregating $138,680 as of December 31, 2022 related to the repayment default on these notes.
8% Convertible Notes Payable due September 15, 2022 (in default)
On June 8, 2022, the Company issued to an accredited investor an unsecured convertible note due September 15, 2022 (the “June 2022 Note”), with an aggregate principal face amount of $350,000. The June 2022 Note is, subject to certain conditions, convertible into an aggregate of 700,000 shares of Common Stock, at a price of fifty cents ($0.50) per share. The Company also issued a five-year Common Stock purchase warrant to purchase up to 700,000 shares of Common Stock at an exercise price of fifty cents ($0.50) per share, subject to customary adjustments (the “June 2022 Warrants”) which are immediately exercisable. The investor purchased the June 2022 Note and June 2022 Warrant from the Company for an aggregate purchase price of $350,000 and the proceeds were used for drilling and completion costs on the initial well drilled under the Hugoton Gas Field participation agreement and general working capital purposes. The Company also granted the investor certain piggy-back registration rights whereby the Company has agreed to register for resale the shares of Common Stock underlying the June 2022 Warrant and the conversion of the June 2022 Note unless the shares of the Company commence to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date.
The June 2022 Note bears interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to the remaining principal amount of the underlying note and any accrued and unpaid interest.
The underlying notes and warrants contain customary events of default, representations, warranties, agreements of the Company and the investors and customary indemnification rights and obligations of the parties thereto, as applicable.
The Company has applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021 (the date of adoption of ASU 2020-06) and those entered into after January 1, 2021 including the June 2022 Note. As a result, the June 2022 Note was required to be separated into its debt and equity components based on their relative fair values because of the issuance of detachable warrants together with the June 2022 Note. Accordingly, the Company allocated the proceeds of the June 22 Note as follows:
Schedule of Proceeds from Debt Obligation
Amount
Proceeds allocated to 8% June 2022 Note $ 213,426
Proceeds allocated to detachable warrants to purchase Common Stock 136,574
Total proceeds $ 350,000
The June 2022 Note was recorded at its par value less the discount established at its origination date. The note discount is amortized over the term of the convertible note utilizing the level-interest method. The following are the assumptions used in calculating the estimated grant-date fair value of the detachable warrants to purchase Common Stock granted in connection with the June 2022 Note:
Schedule of Fair Value of Detachable Warrants to Purchase Common Stock Granted
As of
June 8, 2022
(issuance date)
Volatility - range 344.7 %
Risk-free rate 3.03 %
Contractual term 5.0 years
Exercise price $ 0.50
Number of warrants in aggregate 700,000
The following is a summary of activity relative to the June 2022 Note for the year ended December 31, 2022:
Schedule of Convertible Debt
Amount
Balance December 31, 2021 - June 2022 Note $ -
Proceeds allocated to the May 2022 Notes (defined below) 213,426
Principal payments -
Amortization of discount during the period to interest expense 136,574
Balance December 31, 2022 - June 2022 Notes $ 350,000
The note has matured and therefore the remaining unamortized discount relative to the June 2022 Notes was $-0- as of December 31, 2022.
On May 5, 2023, the Company reached an agreement with the holder of two separate convertible notes payable in the aggregate principal face amount of approximately $450,000 (including the June 2022 Note), which the Company did not pay by their maturity dates. The Company and the holder of the two convertible notes payable entered into a new convertible promissory note (the “New Note”), exchanging the outstanding principal amount of the old convertible notes payable into the New Note, with a maturity date of September 30, 2023. Upon issuance of the New Note, the old convertible notes payable were cancelled and the repayment defaults under the prior convertible notes payable were cured with the entry into the New Note. The conversion price of the New Note was reduced from $0.50 per share to $0.40 per share however, the interest rate and other significant terms of the New Note are the same as those of the prior convertible notes payable.
The Company has accrued default interest aggregating $8,208 as of December 31, 2022 related to the repayment default on these notes.
8% Convertible Notes Payable due June 29, 2022 (in default)
The Company entered into a securities purchase agreement with two accredited investors for the Company’s 8% convertible notes payable due June 29, 2022 (the “May 2022 Notes”), with an aggregate principal amount of $850,000. The May 2022 Notes are, subject to certain conditions, convertible into an aggregate of 2,125,000 shares of Common Stock, at a price of forty cents ($0.40) per share. The Company also issued an aggregate of 425,000 shares of Common Stock as commitment shares (“Commitment Shares” and, together with the May 2022 Notes and Conversion Shares, the “Securities”) to the investors as additional consideration for the purchase of the May 2022 Notes. The closing of the offering of the Securities occurred on May 13, 2022, when the investors purchased the Securities for an aggregate purchase price of $850,000. The Company has also granted the Investors certain automatic and piggy-back registration rights whereby the Company has agreed to register the resale by the Investors of the Conversion Shares. The proceeds of this offering of Securities were used to purchase the Company’s membership interests in GMDOC.
The May 2022 Notes bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time (subject to the occurrence of an event of default) in an amount equal to 120% of the principal amount of each May 2022 Note and any accrued and unpaid interest, and shall be mandatorily repaid in cash in an amount equal to a) fifty percent (50%) of the then outstanding principal amount equal to 120% of the principal amount of each May 2022 Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 but not greater than $3,000,000; or b) one hundred percent (100%) of the then outstanding principal amount equal to 120% of the principal amount of a May 2022 Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of in excess of $3,000,000. In addition, pursuant to the May 2022 Notes, so long as such May 2022 Notes remain outstanding, the Company shall not enter into any financing transactions pursuant to which the Company sells its securities at a price lower than the $0.40 per share conversion price, subject to certain adjustments, without the written consent of the investors.
The conversion of the May 2022 Notes are each subject to beneficial ownership limitations such that the investors may not convert the May 2022 Notes to the extent that such conversion or exercise would result in an investor being the beneficial owner in excess of 4.99% (or, upon election of the Investor, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.
Pursuant to the purchase agreement for the Securities, for a period of twelve (12) months after the closing date, the investors have a right to participate in any issuance of the Company’s Common Stock, Common Stock equivalents, conventional debt, or a combination of such securities and/or debt, up to an amount equal to thirty-five percent (35%) of the subsequent financing.
The Company also entered into that certain registration rights side letter, pursuant to which, in the event the Company’s shares of Common Stock have not commenced trading on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the closing date, and, thereafter, the Company agreed to file a registration statement under the Securities Act to register the offer and sale, by the Company, of Common Stock underlying the May 2022 Notes in the event that such notes are not repaid prior to such 120-day period.
The Company paid half of the May 2022 Notes principal balance upon its maturity on June 29, 2022 and an additional $112,500 in September 2022 and the remaining balance remains due and payable and is therefore in technical default.
With respect to the two May 2022 Notes with an aggregate outstanding principal balance of $312,500 as of December 31, 2022 the Company has reached an agreement with the two investors. On January 10, 2023, the Company amended each of those notes by entering into a Letter Agreement between the investors and the Company. The Letter Agreement modifies the terms of the May 2022 Notes by extending each note’s respective maturity date to September 30, 2023. In consideration for the extension, the Company amended the Fixed Conversion Price (as defined in each note) to $0.10, subject to any future adjustments as provided in each of the notes.
With respect to one of the May 2022 Notes, on May 5, 2023, the Company reached an agreement with the holder of two separate convertible notes payable in the aggregate principal face amount of approximately $450,000 (including $100,000 principal balance of the May 2022 Notes), which the Company did not pay by their maturity dates. The Company and the holder of the two convertible notes payable entered into a new convertible promissory note (the “New Note”), exchanging the outstanding principal amount of the old convertible notes payable into the New Note, with a maturity date of September 30, 2023. Upon issuance of the New Note, the old convertible notes payable were cancelled and the repayment defaults under the prior convertible notes payable were cured with the entry into the New Note. The conversion price of the New Note was reduced from $0.50 per share to $0.40 per share however, the interest rate and other significant terms of the New Note are the same as those of the prior convertible notes payable.
The Company has applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06) and those entered into after January 1, 2021 including the May 2022 Notes. As a result, the May 2022 Notes were required to be separated into its debt and equity components based on their relative fair values because of the issuance of commitment shares together with the May 2022 Notes. Accordingly, the Company allocated the proceeds of the May 2022 Notes as follows:
Schedule of Proceeds from Debt Obligations
Amount
Proceeds allocated to the May 2022 Notes $ 653,846
Proceeds allocated to Commitment Shares 196,154
Total proceeds $ 850,000
The May 2022 Notes were recorded at their par value less the discount established at its origination date. The note discount is amortized over the term of each May 2022 Note (June 29, 2022) utilizing the level-interest method. The following is a summary of activity relative to the May 2022 Notes for the year ended December 31, 2022:
Schedule of Convertible Debt
Amount
Balance December 31, 2021 - May 2022 Notes $ -
Proceeds allocated to the May 2022 Notes 653,846
Principal payments (537,500 )
Amortization of discount during the period to interest expense 196,154
Balance December 31, 2022 - May 2022 Notes $ 312,500
The remaining unamortized discount relative to the May 2022 Notes were $-0- as of December 31, 2022.
The Company has accrued default interest aggregating $69,183 as of December 31, 2022 related to the repayment default on these notes.
Note 5 - Accrued liabilities
Accrued liabilities consisted of the following at December 31, 2022 and 2021:
Schedule of Accrued Liabilities
December 31, 2022 December 31, 2021
Accrued rent $ 614,918 $ 614,918
Accrued Nicaragua Concession fees 544,485 544,485
Total accrued liabilities $ 1,159,403 $ 1,159,403
The accrued rent balances relate to unpaid rent for the Company’s previous headquarters in Denver, Colorado and represents unpaid rents and related costs for the period June 2006 through November 2008. The Company has not had any correspondence with the landlord for several years and will seek to settle and/or negotiate the matter when it has the financial resources to do so.
From 2009 to 2020, the Company had pursued the exploration of potential oil and gas resources in the United States and in the Perlas and Tyra concession blocks in offshore Nicaragua in the Caribbean Sea (the “Concessions”), which contain a total of approximately 1.4 million acres. In January 2020, the Company decided to cease its activities, exploration and production in the Concessions. The accrued Nicaraguan Concession fees were accrued during the time the Concessions had lapsed and the Company was attempting to negotiate extensions to the underlying concessions with the Nicaraguan government which were unsuccessful. The Company abandoned all efforts to negotiate an extension to the Concessions effective January 1, 2020 and ceased the accrual of all related fees at that time.
Note 6 - Stock Options
Total stock-based compensation is comprised of the following for the years ended December 31, 2022 and 2021:
Schedule of Stock- based Compensation
Year ended
December 31,
Stock-based compensation - stock option grants $ 127,500 $ 178,498
Stock-based compensation - restricted stock grants 686,065 325,000
Stock-based compensation - warrants issued for services pursuant to USNG Letter Agreement (defined below) 286,864 47,370
Total stock-based compensation $ 1,100,429 $ 550,868
The Company applies ASC 718, Stock Compensation, which requires companies to recognize compensation expense for share-based payments based on the estimated fair value of the awards. ASC 718 also requires tax benefits relating to the deductibility of increases in the value of equity instruments issued under share-based compensation arrangements to be presented as financing cash inflows in the statement of cash flows. Compensation cost is recognized based on the grant-date fair value for all share-based payments granted and is estimated in accordance with the provisions of ASC 718.
At the Company’s Annual Meeting of Stockholders held on September 25, 2015, the stockholders approved the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”) and the Company reserved 500,000 shares for issuance under the 2015 Plan. At the Company’s Annual Meeting of Stockholders held on October 13, 2021, the stockholders approved the 2021 Stock Option and Restricted Stock Plan (the “2021 Plan”) and the Company reserved 5,000,000 shares for issuance under the 2021 Plan.
The 2021 Plan and the 2015 Plan provide for under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 5,500,000 shares of the Company’s Common Stock is reserved for issuance under the 2021 Plan and the 2015 Plan. Options granted under the 2021 Plan and 2015 Plan allow for the purchase of shares of Common Stock at prices not less than the fair market value of such stock at the date of grant, become exercisable immediately or as directed by the Company’s Board of Directors and generally expire ten years after the date of grant. The Company has issued stock options and restricted stock awards that are not pursuant to a formal plan with terms similar to the 2021 and 2015 Plans.
As of December 31, 2022, 5,500,000 shares were available for future grants under the 2021 Plan and the 2015 Plan.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the expected term of the option award, expected stock price volatility and expected dividends. These estimates involve inherent uncertainties and the application of management judgment. For purposes of estimating the expected term of options granted, the Company aggregates option recipients into groups that have similar option exercise behavioral traits. Expected volatilities used in the valuation model are based on the expected volatility based on historical volatility. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s forfeiture rate assumption used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture rate could differ from these estimates. There were 1,800,000 options granted during June 2021.
Stock option grants
The following table summarizes stock option activity for the years ended December 31, 2022 and 2021:
Summary of Stock Option Activity
Number of Options Weighted Average Exercise
Price Per
Share
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Outstanding at December 31, 2020 332,000 $ 41.86 1.28 years $ -
Granted 1,800,000 0.50
Exercised - -
Forfeited (240,000 ) (46.41 )
Outstanding at December 31, 2021 1,892,000 $ 1.93 9.07 years $ -
Outstanding and exercisable at December 31, 2021 92,000 $ 30.00 2.03 years $ -
Outstanding at December 31, 2021 1,892,000 $ 1.93 9.07 years $ -
Granted - -
Exercised - -
Forfeited (450,000 ) 0.50
Outstanding at December 31, 2022 1,442,000 $ 2.38 7.96 years $ -
Outstanding and exercisable at December 31, 2022 1,442,000 $ 2.38 7.96 years $ -
The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable options under the Company’s option plans as of December 31, 2022:
Summary of Exercise Price and Weighted Average Remaining Contractual Life
Outstanding options Exercisable options
Exercise price per share Number of options Weighted average remaining contractual life Number of options Weighted average remaining contractual life
$ 0.50 1,350,000 8.43 years 1,350,000 8.43 years
$ 30.00 92,000 1.03 years 92,000 1.03 years
Total 1,442,000 7.96 years 1,442,000 7.96 years
The following is the assumptions used in calculating the estimated grant-date fair value of the stock options granted during 2021:
Schedule of Stock Option Valuation Assumption
As of
June 4, 2021
(issuance date)
Volatility - range 286.6 %
Risk-free rate 1.56 %
Contractual term 10.0 years
Exercise price $ 0.50
Number of options in aggregate 1,800,000
The Company recorded stock-based compensation expense in connection with the vesting of stock options granted aggregating $127,500 and $178,498 for the years ended December 31, 2022 and 2021, respectively.
The total grant date fair value of the 1,800,000 stock options issued during 2021 was $305,997 in total or $0.17 per share and there were no stock options granted during the year ended December 31, 2022.
The intrinsic value as of December 31, 2022 related to the vested and unvested stock options as of that date was $-0-. There is no unrecognized compensation cost as of December 31, 2022 related to the unvested stock options as of that date.
Restricted stock grants.
During May 2022, the Board of Directors granted 1,550,000 shares of restricted stock awards to our officers, directors and consultants. In addition, during August 2020 the Board of Directors granted 5,000,000 shares of restricted stock awards to our officers, directors and a consultant. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over a period of time generally corresponding to yearly anniversaries of the grant date. Unvested shares of restricted stock awards may be forfeited upon the termination of service of employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive cash dividends.
A summary of all restricted stock activity under the equity compensation plans for the years ended December 31, 2022 and 2021 is as follows:
Schedule of Restricted Stock Unit Activity
Number of
restricted
shares
Weighted
average
grant date
fair value
Nonvested balance, December 31, 2020 3,750,000 $ 0.13
Granted - -
Vested (2,500,000 ) (0.13 )
Forfeited - -
Nonvested balance, December 31, 2021 1,250,000 $ 0.13
Nonvested balance, December 31, 2021 1,250,000 $ 0.13
Granted 1,550,000 0.45
Vested (2,412,500 ) (0.28 )
Forfeited - -
Nonvested balance, December 31, 2022 387,500 $ 0.45
The Company recorded stock-based compensation expense in connection with the issuance/vesting of restricted stock grants aggregating $686,065 and $325,000 during the years ended December 31, 2022 and 2021, respectively.
The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of December 31, 2022, there were $174,375 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next three months in accordance with the respective vesting scale.
The nonvested balance of restricted stock vests as follows:
Schedule of Nonvested Restricted Stock Unit Activity
Years ended Number of
Shares
387,500
-
Note 7 - Warrants
The following table summarizes warrant activity for the years ended December 31, 2022 and 2021:
Summary of Warrant Activity
Number of
Warrants
Weighted
Average
Exercise Price
Per Share
Outstanding and exercisable at December 31, 2020 1,528,380 $ 0.65
Issued in connection with issuance of Series A Convertible Preferred Stock (see Note 13) 5,256,410 0.39
Issued in connection with issuance of 3% Notes (see Note 4) 5,732,994 0.50
Issued in connection with issuance of 8% Note and the October 8% Notes (see Note 4) 1,850,000 0.50
Issued in connection with issuance of 3% Notes (see Note 4) 3,260,000 0.50
Forfeited/expired (47,000 ) (5.22 )
Outstanding and exercisable at December 31, 2021 17,580,784 $ 0.47
Outstanding and exercisable at December 31, 2021 17,580,784 $ 0.47
Issued in connection with issuance of Series A Convertible Preferred Stock (see Note 13) 2,149,999 0.30
Issued in connection with issuance of 8% Note and October 8% Notes (see Note 4) 700,000 0.50
Forfeited/expired - -
Outstanding and exercisable at December 31, 2022 20,430,783 $ 0.45
The weighted average term of all outstanding Common Stock purchase warrants was 3.8 years as of December 31, 2022. The intrinsic value of all outstanding Common Stock purchase warrants and the intrinsic value of all vested Common Stock purchase warrants was zero as of December 31, 2022 and 2021.
The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants to purchase common shares as of December 31, 2022:
Summary of Warrant Range of Exercise Price and Weighted Average Remaining Contractual Life
Outstanding and exercisable warrants
Exercise price per share Number of warrants Weighted average remaining contractual life
$ 0.30 2,149,999 5.1 years
$ 0.39 5,256,410 3.7 years
$ 0.50 13,024,374 3.6 years
Total 20,430,783 3.8 years
Warrants issued pursuant to USNG Letter Agreement
On November 9, 2021, the Company entered into a letter agreement (the “USNG Letter Agreement”) with U.S. Noble Gas, LLC (“USNG”), pursuant to which USNG provides consulting services to the Company for exploration, testing, refining, production, marketing and distribution of various potential reserves of noble gases and rare earth element/minerals on the Company’s recently acquired 11,000-acre oil and gas properties in the Otis Albert Field located on the Properties. The USNG Letter Agreement would cover all of the noble gases, specifically including helium, and rare earth elements/minerals potentially existing on Properties and the Company’s future acquisitions, if any, including the Hugoton Gas Field.
The USNG Letter Agreement also provides that USNG will supply a large vessel designed for flows up to 5,000 barrels of water per day at low pressures, known as a gas extraction/separator unit. The gas extraction/separator unit is a dewatering vessel that the Company may use for multiple wells in the future.
The USNG Letter Agreement requires the Company to establish a four-member board of advisors (the “Board of Advisors”) comprised of various experts involved in noble gas and rare earth elements/minerals. The Board of Advisors will help attract both industry partners and financial partners for developing a large helium, noble gas and/or rare earth element/mineral resources that may exist in the region where the Company currently operates. The industry partners would include helium, noble gas and/or rare earth element/mineral purchasers and exploration and development companies from the energy industry. The financial partners may include large family offices or small institutions.
Pursuant to the USNG Letter Agreement, the Company will pay USNG a monthly cash fee equal to $8,000 per month beginning at the onset of commercial helium or minerals production and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month that the Company receives cash receipts in excess of $25,000 derived from the sale of noble gases and/or rare earth elements/minerals. The Company has not yet achieved the $25,000 cash receipts threshold, therefore, there has been no payment or accrual liability relative to this cash fee provision as of December 31, 2022.
The USNG Letter Agreement has an initial term of 5 years, which shall thereafter continue for successive one-year periods, provided that there is no uncured breach, unless otherwise terminated by either party upon a written notice of intent to non-renew.
In consideration for the consulting services to be rendered and pursuant to the terms of the USNG Letter Agreement, the Company issued warrants to purchase, in the aggregate, 2,060,000 shares of its Common Stock at an exercise price of fifty cents ($0.50) to three of USNG’s principal consultants and four third-party service providers. The Company issued warrants to purchase, in the aggregate, 1,200,000 shares of Common Stock at fifty cents ($0.50) per share exercise price to three members of the Board of Advisors. The Company granted a total of 3,260,000 warrants to purchase its Common Stock with an exercise price of fifty cents ($0.50) per share in connection with the USNG Letter Agreement and the arrangements described therein. The warrants expire five years after the date of the USNG Letter Agreement.
The fair value of the warrants to purchase Common Stock in consideration for services to be rendered under the USNG Letter Agreement with USNG is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the expected term of the warrant, expected stock price volatility and expected dividends. These estimates involve inherent uncertainties and the application of management judgment. For purposes of estimating the expected term of warrants granted, the Company considered the historical pattern of warrant exercises behavioral traits and determined that the expected term should be 5 years. Expected volatilities used in the valuation model are based on the expected volatility based on historical volatility. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s forfeiture rate assumption used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture rate could differ from these estimates.
The following are the assumptions used in calculating the estimated grant-date fair value of the warrants issued pursuant to the USNG Letter Agreement granted on November 9, 2021:
Schedule of Warrants Valuation Assumption
As of
November 9, 2021
(issuance date)
Volatility - range 359.3 %
Risk-free rate 1.08 %
Expected term 5.0 years
Exercise price $ 0.50
Number of warrants in aggregate 3,260,000
The Company recognized $286,864 and $47,370 of compensation expense relative to the 3,260,000 warrants to purchase Common Stock issued pursuant to the USNG Letter Agreement during the years ended December 31, 2022 and 2021, respectively. There have been no exercises or forfeitures of the warrants to purchase Common Stock relative to the USNG Letter during the years ended December 31, 2022 and 2021.
The total grant date fair value of the 3,260,000 warrants to purchase Common Stock issued pursuant to the USNG Letter Agreement on November 9, 2021 was $1,434,313 in total or $0.44 per share. Total unrecognized compensation costs related to the 3,260,000 warrants to purchase Common Stock issued pursuant to the USNG Letter Agreement, as of December 31, 2022 was $1,099,639 which will be amortized over the next forty-six months.
Note 8 - Income Taxes
The provision for income taxes consists of the following:
Schedule of Provision for Income Taxes
For the Year Ended December 31,
Current income tax expense (benefit) $ - $ -
Deferred income tax benefit - -
Total income tax expense (benefit) $ - $ -
The effective income tax rate on continuing operations varies from the statutory federal income tax rate as follows:
Schedule of Income Statutory Federal Income Tax Rate
For the Years Ended December 31,
Federal income tax rate 21.0 % 21.0 %
State income tax rate 4.7 4.7
Stock-based compensation (3.9 ) (32.6 )
Exchange of debt for equity instruments - (38.7 )
Change in valuation allowance (20.2 ) 43.8
Other, net (1.6 ) 1.8
Effective tax rate - % - %
The significant temporary differences and carry-forwards and their related deferred tax asset (liability) and deferred tax asset valuation allowance balances are as follows:
Schedule of Deferred Tax Asset and Liability
For the Years Ended December 31,
Deferred tax assets:
Depreciation, depletion, impairment and amortization $ 190,000 $ -
Accruals and other 300,000 294,000
Asset retirement obligations 450,000 435,000
Stock-based compensation 535,000 340,000
Warrant derivative liability 150,000 -
Net operating loss carry-forward 16,760,000 16,000,000
Gross deferred tax assets 18,385,000 17,069,000
Depreciation, depletion, impairment and amortization - (14,000 )
Investment in unconsolidated subsidiary - GMDOC, LLC (535,000 ) -
Net deferred tax assets 17,850,000 17,055,000
Less valuation allowance (17,850,000 ) (17,055,000 )
Deferred tax asset $ - $ -
The effective income tax rate on earnings (loss) before income tax benefit varies from the 21% statutory federal income tax rate primarily due to Company providing a 100% reserve on its net deferred tax assets as of December 31, 2022 and 2021.
During the year ended December 31, 2022, the Company increased its valuation allowance on net deferred tax assets by $795,000 while the valuation allowance remained at 100% of all net deferred tax assets as of December 31, 2022 and 2021. The Company has incurred net taxable losses for 12 of the last 15 years and continues to be in a cumulative loss position at December 31, 2022. In addition, there exists substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financials are issued due to the operational and financing uncertainties. Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740. Therefore, it determined to continue to provide a 100% valuation allowance on its net deferred tax assets. The Company expects to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets. To the extent the Company determines that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed.
For income tax purposes, the Company has net operating loss carry-forwards of approximately $64,710,000 as of December 31, 2022, which expire from 2025 through 2041.
For income tax purposes, the Company has net operating loss carry-forwards of approximately $64,710,000 in accordance with its 2022 federal income tax return as filed. Approximately $61,045,000 of such net operating loss carry-forwards expire from 2028 through 2037 while $3,665,000 of such net operating loss carry-forwards have an indefinite carryforward period in accordance with the Tax Cuts and Jobs Act of 2017, as amended (the “Tax Cuts and Jobs Act”). In addition, the Tax Cuts and Jobs Act limits the usage of net operating loss carryforwards to 80% of taxable income per year.
The Company has recently completed the filing of tax returns for the tax years 2012 through 2021. Therefore, all such tax returns are open to examination by the Internal Revenue Service.
The Internal Revenue Code contains provisions under Section 382 which limit a company’s ability to utilize net operating loss carry-forwards in the event that it has experienced a more than 50% change in ownership over a three-year period. Management has completed its review of whether such ownership changes have occurred, and based upon such review, management believes that the Company is not currently subject to an annual limitation or the possibility of the complete elimination of the net operating loss carry- forwards. In addition, the Company may be limited by additional ownership changes which may occur in the future.
Note 9 - Gain on Exchange and Extinguishment of Liabilities
During the years ended December 31, 2022 and 2021, the Company recorded gains on the extinguishment of liabilities through the negotiation of settlements with certain creditors and through the operation of law as follows:
Schedule of Estimated Gain on Exchange and Extinguishment of Debt
Year ended
December 31,
Gain (loss) on exchange and extinguishment
of liabilities:
Gain on exchange and
extinguishment of notes payable $ - $ 55,230
Gain on exchange and extinguishment of liabilities - 124,177
Gain from settlement of litigation (see Note 13) - 23,000
Loss from retirement of convertible note payable - (115,805 )
Total gain on exchange and
extinguishment of liabilities $ - $ 86,602
Gain on exchange and extinguishment of notes payable - On April 1, 2021, the Company and the holders of two notes payable aggregating $85,000 that were in default reached a settlement whereby the Company issued a total of 245,000 shares of Common Stock in exchange for the extinguishment of the outstanding principal, accrued interest and associated Common Stock purchase warrants which totaled $123,830, as of April 1, 2021. The 245,000 shares issued to extinguish the debt obligations resulted in a gain of $55,230 which was recorded in the year ended December 31, 2021.
Gain on exchange and extinguishment of liabilities - On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties), which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of the 3% Notes with the 3% Note Warrants. The 3% Notes allows for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on the Maturity Date. The 3% Notes are convertible as to principal and any accrued interest, at the option of holder, into shares of the Company’s Common Stock at any time after the issue date and prior to the close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment.
An aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with five related parties. Such related parties were issued $25,777 principal balance of the 3% Notes and the 3% Note Warrants in exchange for the extinguishment of their respective debt obligations. The Company recognized a gain on extinguishment of liabilities for the portion of the extinguishment with non-related parties. Furthermore, it recognized the portion of the gain on extinguishment of liabilities with related parties as a contribution of capital.
The gain on extinguishment of liabilities from the Debt Settlement Agreements was determined as follows:
Schedule of Gain on Extinguishment of Liabilities
Amount
Total accounts payable and accrued liabilities extinguished $ 2,866,497
Less: Principal balance of 3% Notes issued (28,665 )
Less: Fair value of 3% Note Warrants (1,605,178 )
Total gain on extinguishment of liabilities $ 1,232,654
Less: Related party amounts reported as a capital contribution (1,108,477 )
Gain on extinguishment of liabilities $ 124,177
Loss from retirement of convertible note payable - On March 26, 2021, the Company exercised its right to retire a convertible note payable originally issued in August 2020 (the “August 2020 Note”) in conjunction with the issuance of March 2021 Series A Convertible Preferred Stock (see Note 13). In accordance with the prepayment provisions contained in the August 2020 Note, the Company paid all principal, accrued interest and the 15% prepayment premium as follows:
Schedule of Prepayment of Note
Amount
Principal balance at par $ 365,169
Remaining discount included in principal balance (44,883 )
Accrued interest 17,448
Prepayment premium (including remaining discount due to early retirement) 115,805
Total payment to retire the August Note $ 453,539
The prepayment premium was charged to non-operating expense as a loss from retirement of convertible note payable during the year ended December 31, 2021.
Note 10 - Asset Retirement Obligations
The Company’s asset retirement obligations primarily relate to the Company’s portion of future plugging and abandonment costs for wells and related facilities. The following table presents the changes in the asset retirement obligations for the years ended December 31, 2022 and 2021:
Schedule of Assets Retirement Obligation
Amount
Asset retirement obligation at December 31, 2020 $ 1,716,003
Additions 13,425
Accretion expense during the period
Asset retirement obligation at December 31, 2021 $ 1,730,264
Asset retirement obligation at December 31, 2021 $ 1,730,264
Additions -
Accretion expense during the period 2,222
Asset retirement obligation at December 31, 2022 $ 1,732,486
The $1,716,003 asset retirement obligation existing at December 31, 2022 and in years prior to 2022 represented the remaining potential liability for wells the Company had owned in Texas and Wyoming prior to their sales/disposal in 2012. The Company was not in compliance with then existing federal, state and local laws, rules and regulations for its previously owned Texas and Wyoming domestic oil and gas properties. All domestic oil and gas properties held by Infinity - Wyoming and Infinity-Texas were disposed of in 2012 and in years prior to 2012; however, the Company may remain liable for certain asset retirement costs should the new owners not complete their asset retirement obligations. Management believes the asset retirement obligations recorded relative to these Texas and Wyoming wells of $1,716,003 as of December 31, 2022 and 2021 are sufficient to cover any potential noncompliance liabilities relative to the plugging of abandoned wells, the removal of facilities and equipment, and site restoration on oil and gas properties for its former oil and gas properties.
The Company assumed a $13,425 asset retirement obligation pursuant to the acquisition of the Properties on April 1, 2021. In addition, the Company drilled and completed its first Hugoton Gas Field well which was placed in service in August 2022. The Company recorded $2,222 and $836 of accretion expense during the years ended December 31, 2022 and 2021, respectively, related to the acquisition of the Properties as further described in Note 1 and the Hugoton Gas Field well completed in August 2022.
Note 11 - Warrant Derivative Liability
The estimated fair value of the Company’s derivative liabilities, all of which were related to the detachable warrants issued in connection with Series A Convertible Preferred Stock, were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock and current interest rates. The detachable warrants issued in connection with the issuance of certain Series A Convertible Preferred Stock (See Note 13 - March 2021 Issuance) contained a provision allowing the holder to require cash settlement in certain situations were fundamental transaction, as defined in the warrant agreements have occurred. An event occurred on December 31, 2022 that activated the Holder’s ability to utilize such provisions therefore the derivative liability was recognized on December 31, 2022.
The following is a summary of the assumptions used in calculating estimated fair value of such derivative liabilities as of the December 31, 2022:
Schedule of Warrants Valuation Assumption
As of
December 31, 2022
Volatility - range 342.2 %
Risk-free rate 3.99 %
Contractual term 3.74 years
Exercise price $ 0.39
Number of warrants in aggregate 5,256,410
The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs for both open and closed derivatives:
Summary of Changes in Fair Value Derivative Financial Instruments
Amount
Balance at December 31, 2020 $ 321
Unrealized derivative gains included in other income/expense for the
period (199 )
Extinguishment of derivative liability as part of the exchange of debt
for common stock (122 )
Balance at December 31, 2021 $ -
Establishment of warrant derivative liability - included in other
income (expense) for the year 577,269
Balance at December 31, 2022 $ 577,269
Note 12 - Commitments and Contingencies
Lack of Compliance with Law Regarding Domestic Properties
The Company was not in compliance with then existing federal, state and local laws, rules and regulations for domestic oil and gas properties owned and disposed of in 2012 and in years prior to 2012 and could have a material or significantly adverse effect upon the liquidity, capital expenditures, earnings or competitive position of the Company. All domestic oil and gas properties held by Infinity - Wyoming and Infinity-Texas were disposed of in 2012 and in years prior to 2012; however, the Company may remain liable for certain asset retirement costs should the new owners not complete their obligations. Management believes the total asset retirement obligations recorded for these prior matters of $1,716,003 as of December 31, 2022 and 2021 are sufficient to cover any potential noncompliance liabilities relative to the plugging of abandoned wells, the removal of facilities and equipment, and site restoration on oil and gas properties for its former oil and gas properties.
USNG Letter Agreement commitment
Pursuant to the USNG Letter Agreement (see Note 7), the Company will pay USNG a monthly cash fee equal to $8,000 per month beginning at the onset of commercial helium or minerals production and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month that the Company receives cash receipts in excess of $25,000 derived from the sale of noble gases and/or rare earth elements/minerals. The Company has not yet achieved the $25,000 cash receipts threshold, therefore there has been no payment or accrual liability relative to this cash fee provision as of December 31, 2022.
The USNG Letter Agreement has an initial term of 5 years, which shall thereafter continue for successive one-year periods, provided that there is no uncured breach, unless otherwise terminated by either party upon a written notice of intent to non-renew.
Litigation
The Company is subject to various claims and legal actions in which vendors are claiming breach of contract due to the Company’s failure to pay amounts due. The Company believes that it has made adequate provision for these claims in the accompanying financial statements.
The Company is currently involved in litigation as follows:
● In October 2012, the State of Texas filed a lawsuit naming Infinity-Texas, the Company and the corporate officers of Infinity-Texas, seeking $30,000 of reclamation costs associated with a single well, in addition to administrative expenses and penalties. The Company engaged in negotiations with the State of Texas in late 2012 and early 2013 and reached a settlement agreement that would reduce the aggregate liability, in this action and any extension of this action to other Texas wells, to $45,103, which amount has been paid. Certain performance obligations remain which must be satisfied in order to finally settle and dismiss the matter.
Pending satisfactory performance of the performance obligations and their acceptance by the State of Texas, the Company’s officers have potential liability regarding the above matter, and the Company’s officers are held personally harmless by indemnification provisions of the Company. Therefore, to the extent they might actually occur, these liabilities are the obligations of the Company. Management estimates that the liabilities associated with this matter will not exceed $780,000, calculated as $30,000 for each of the 26 Infinity-Texas operated wells. This related liability, less the payment made to the State of Texas in 2012 in the amount of $45,103, is included in the asset retirement obligation on the accompanying balance sheets, which management believes is sufficient to provide for the ultimate resolution of this dispute.
● Cambrian Consultants America, Inc. (“Cambrian”) filed an action in the District Court of Harris County, Texas, number CV2014-55719, on September 26, 2014 against the Company resulting from certain professional consulting services provided for quality control and management of seismic operations during November and December 2013 on the Nicaraguan Concessions. Cambrian provided these services pursuant to a Master Consulting Agreement with the Company, dated November 20, 2013, and has claimed breach of contract for failure to pay amounts due. On December 8, 2014, a default judgment was entered against the Company in the amount of $96,877 plus interest and attorney fees. The Company has included the impact of this litigation as a liability in its accounts payable, which management believes is sufficient to provide for the ultimate resolution of this dispute.
● Torrey Hills Capital, Inc. (“Torrey”) notified the Company by letter, dated August 15, 2014, of its demand for the payment of $56,000, which it alleged was unpaid and owed under a consulting agreement dated October 18, 2013. The parties entered into a consulting agreement under which Torrey agreed to provide investor relations services in exchange for payment of $7,000 per month and the issuance of 15,000 shares of Common Stock. The agreement was for an initial three month-term with automatic renewals unless terminated upon 30 days’ written notice by either party. The Company made payments totaling $14,000 and issued 15,000 shares of Common Stock during 2013. The Company contends that Torrey breached the agreement by not performing the required services and that it had provided proper notice of termination to Torrey. Furthermore, the Company contends that the parties agreed to settle the dispute on or about June 19, 2014 under which it would issue 2,800 shares of Common Stock in full settlement of any balance then owed and final termination of the agreement. Torrey disputed the Company’s contentions and submitted the dispute to binding arbitration. The Company was unable to defend itself and the arbitration panel awarded Torrey a total of $79,594 in damages. The Company has accrued this amount in accounts payable as of December 31, 2022 and 2021, which management believes is sufficient to provide for the ultimate resolution of this dispute.
● Joseph Ryan (“Ryan”) filed an action in the District Court of Johnson County, Kansas, number 20CV01493, on March 20, 2020 against the Company resulting from certain professional consulting services Ryan alleges he performed for Social, Environmental and Economic Impact Assessments during July 2012 through September 2015 on the Nicaraguan Concessions. Ryan alleges that such services were provided pursuant to oral agreements with the Company. Ryan claims breach of contract for failure to pay $12,000 amounts invoiced and due. On December 23, 2020, Ryan filed a Motion for Default Judgment for $12,000 in unpaid invoices plus legal, fees, statutory interest and any expert testimony fees.
On February 10, 2021, the parties agreed to a full and complete settlement of the matter with prejudice. The terms of the settlement required the Company to pay a total of $10,000 to extinguish accounts payable to Ryan totaling $33,000. As a result, the Company recorded a $23,000 gain from settlement of litigation during the year ended December 31, 2021 (see Note 9).
Note 13 - Stockholder’s Deficit
Series A Convertible Preferred Stock
As of December 31, 2022 and 2021, the Company is authorized to issue up to 10,000,000 preferred stock, par value $0.0001 per share.
The following summarizes the activity in Series A Convertible Preferred Stock for the years ended December 31, 2022 and 2021:
Schedule of Series A Convertible Preferred Stock Activity
Number of
Shares
Outstanding at December 31, 2020 -
Issued 22,776
Converted to Common Stock (700 )
Outstanding at December 31, 2021 22,076
Outstanding at December 31, 2021 22,076
Issued 6,450
Converted to Common Stock (3,000 )
Outstanding at December 31, 2022 25,526
On March 16, 2021, the Company approved and filed a Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Preferred Stock (“COD”) with the Secretary of State of the State of Delaware. The COD provides for the issuance of up to 27,778 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share. Pursuant to the provisions of the COD, the Series A Convertible Preferred Stock is convertible, at the option of the holders thereof, at any time, subject to certain beneficial ownership limitations, into shares of Common Stock determined on a per share basis by dividing the $100 stated/liquidation value of such share of Series A Convertible Preferred Stock by the $0.32 per share conversion price, which conversion price is subject to certain adjustments. In addition, the COD provides for the payment of 10% per annum cumulative dividends, in (i) cash, or (ii) shares of Common Stock, to the holders of the Series A Convertible Preferred Stock based on the stated/liquidation value, until the earlier of (i) the date on which the shares of Series A Convertible Preferred Stock are converted to Common Stock or (ii) date the Company’s obligations under the COD have been satisfied in full. The shares of Series A Convertible Preferred Stock also (i) vote on an as-converted to Common Stock basis, subject to certain beneficial ownership limitations, (ii) are subject to mandatory conversion into Common Stock upon the closing of any equity financing transaction consummated after the original issue date, pursuant to which the Company raises gross proceeds of not less than $5,000,000, (iii) rank senior to the Common Stock and any class or series of capital stock created after the Series A Convertible Preferred Stock and (iv) have a special preference upon the liquidation of the Company.
March 2021 Issuance - On March 26, 2021, the Company entered into a securities purchase agreement with five (5) accredited investors providing for an aggregate investment of $2,050,000 by the investors for the issuance by the Company to them of (i) 22,776 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “March 2021 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 5,256,410 shares of Common Stock at an exercise price of thirty-nine ($0.39) per share, subject to customary adjustments thereunder. The March 2021 Series A Convertible Preferred Stock is convertible into an aggregate of up to 7,117,500 shares of Common Stock. Holders of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrants. Net proceeds from the issuance of March 2021 Series A Convertible Preferred Stock totaled $1,929,089 after deducting the placement agent fee and other expenses of the offering. The Company used the proceeds of the March 2021 Series A Convertible Preferred Stock offering to complete the acquisition and development of the Properties, to pay-off certain outstanding convertible notes payable (see Note 4) and for general working capital purposes.
The Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement within forty-five (45) days following the closing of the acquisition of the Properties, which occurred on April 1, 2021, to register the shares of Common Stock underlying the warrants. The Company is to use its best efforts to cause such registration statement to be declared effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar day following the closing of the acquisition of the Properties, which occurred on April 1, 2021. The Company completed the required registration of these shares on Form S-1, which the Securities and Exchange Commission declared effective on August 4, 2021.
The holders of the March 2021 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its March 2021 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.
The Company has accrued preferred dividends totaling $199,300 and $174,449 relative to the March 2021 Series A Convertible Preferred Stock which was charged to additional paid in capital during the years ended December 31, 2022 and 2021, respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $44,805 and $- relative to the March 2021 Series A Convertible Preferred Stock as of December 31, 2022 and 2021, respectively.
The holders of March 2021 Series A Convertible Preferred Stock exercised their rights to convert a total of 3,000 shares of March 2021 Series A Convertible Preferred Stock into 937,500 shares of Common Stock during the year ended December 31, 2022. The holders exercised their rights to convert a total of 700 shares of March 2021 Series A Convertible Preferred Stock into 218,750 shares of Common Stock during the year ended December 31, 2021.
On March 26, 2021, Ozark Capital, LLC (“Ozark”) acquired 1,111 shares of March 2021 Series A Convertible Preferred Stock (convertible into 347,188 shares of Common Stock), together with warrants to acquire 256,410 shares of Common Stock at fifty cents ($0.50) per share for a total cash of $100,000. Ozark and its affiliates hold over 10% of the shares of the Company’s Common Stock as of December 31, 2022. Accrued dividends attributable to Ozark were $11,080 and $8,523 for the years ended December 31, 2022 and 2021 respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $2,800 and $ - relative to the Ozark’s Series A Convertible Preferred Stock as of December 31, 2022 and 2021, respectively.
All holders of the March 2021 Series A Convertible Preferred Stock, including Ozark, have agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days’ advance notice to the Company.
June 2022 Issuance - On June 15, 2022, the Company entered into a securities purchase agreement with an accredited investor providing for an aggregate investment of $500,000 by the investor for the issuance by the Company of (i) 5,000 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “June 2022 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 1,666,667 shares of Common Stock at an exercise price of thirty cents ($0.30) per share, subject to customary adjustments thereunder. The June 2022 Series A Convertible Preferred Stock is convertible into an aggregate of up to 1,562,500 shares of Common Stock. The holder of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrant. Net proceeds from the issuance of the June 2022 Series A Convertible Preferred Stock totaled $500,000. The Company used the proceeds of the June 2022 Series A Convertible Preferred Stock offering to pay-off certain outstanding convertible notes payable (see Note 4) and for general working capital purposes.
The Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement within forty-five (45) days following the closing of the of the June 2022 Series A Preferred Stock, which occurred on June 15, 2022, to register the shares of Common Stock underlying the warrants. The Company is to use its best efforts to cause such registration statement to be declared effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar day following the closing of the offering, which occurred on June 15, 2022.
The holder of the June 2022 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its June 2022 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.
The Company has accrued preferred dividends totaling $27,260 and $-0- relative to the June 2022 Series A Convertible Preferred Stock which was charged to additional paid in capital during the years ended December 31, 2022 and 2021, respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $27,260 and $ - relative to the June 2022 Series A Convertible Preferred Stock as of December 31, 2022 and 2021, respectively
August/September 2022 Issuances - During August and September 2022, the Company entered into a securities purchase agreement with three accredited investors providing for an aggregate investment of $145,000 by the investors for the issuance by the Company of (i) 1,450 shares of Series A Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “August/September 2022 Series A Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 483,332 shares of Common Stock at an exercise price of thirty ($0.30) per share, subject to customary adjustments thereunder. The August/September 2022 Series A Convertible Preferred Stock is convertible into an aggregate of up to 453,125 shares of Common Stock. The holders of the warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrant. Net proceeds from the issuance of the August/September 2022 Series A Convertible Preferred Stock totaled $145,000. The Company used the proceeds of the August/September 2022 Series A Convertible Preferred Stock offering to pay-off certain outstanding convertible notes payable (see Note 4) and for general working capital purposes.
The holders of the August/September 2022 Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its August/September 2022 Series A Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.
The Company has accrued preferred dividends totaling $5,059 and $-0- relative to the August/September 2022 Series A Convertible Preferred Stock which was charged to additional paid in capital during the years ended December 31, 2022 and 2021, respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $5,059 and $ - relative to the August/September 2022 Series A Convertible Preferred Stock as of December 31, 2022 and 2021, respectively.
Note 14 - Related Party Transactions
The Company’s previous Chief Operating Officer, John Loeffelbein was a non-controlling member of Core. On April 1, 2021, we completed the acquisition of the Properties, under the same terms of the Agreement which provided a purchase price of $900,000. The Company raised approximately $2.05 million on March 26, 2021, through the issuance of the March 2021 Series A Convertible Preferred Stock with detachable Common Stock purchase warrants. The funds raised pursuant to the March 2021 Series A Convertible Preferred Stock issuance were used to complete the acquisition of the Properties on April 1, 2021, to retire the outstanding convertible note payable and for working capital purposes.
The Company does not have any employees other than its Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. In previous years, certain general and administrative services (for which payment is deferred) had been provided by the Company’s Chief Financial Officer’s accounting firm at its standard billing rates plus out-of-pocket expenses consisting primarily of accounting, tax and other administrative fees. The Company no longer utilizes its Chief Financial Officer’s accounting firm for such support services and was not billed for any such services during the years ended December 31, 2022 and 2021. On March 31, 2021, the parties entered into a Debt Settlement Agreement whereby all amounts due to such firm for services totaling $762,407 were extinguished upon the issuance of $7,624 principal balance of the 3% Notes and the issuance of the 3% Note Warrants as further described in Notes 4, 10 and 14. Total amounts due to the related party was $-0- as of December 31, 2022.
The Company had accrued compensation to its officers and directors in years prior to 2018. The Board of Directors authorized the Company to cease the accrual of compensation for its officers and directors, effective January 1, 2018. On March 31, 2021, the parties entered into Debt Settlement Agreements whereby all accrued amounts due for such services totaling $1,789,208 were extinguished upon the issuance of $17,892 principal balance of the 3% Notes and the issuance of the 3% Note Warrants as further described in Notes 4, 7 and 9. Total amounts due to the officers and directors related to accrued compensation was $-0- as of December 31, 2022 and 2021.
Offshore Finance, LLC was owed financing costs in connection with a subordinated loan to the Company which was converted to common shares in 2014. The managing partner of Offshore and the Company’s Chief Financial Officer are partners in the accounting firm which the Company used for general corporate purposes in the past. On March 31, 2021, the parties entered into a Debt Settlement Agreement whereby all amounts due for such services totaling $26,113 were extinguished upon the issuance of $261 principal balance of the 3% Notes and the issuance of the 3% Note Warrants as further described in Notes 4, 7 and 9. Total amounts due to this related party was $-0- as of December 31, 2022 and 2021.
In connection with the Hugoton Gas Field Farmout Agreement, John Loeffelbein, the Company’s previous Chief Operating Officer, was granted a 3% carried interest through drilling in the Hugoton JV. Such carried interest was burdened only to the three other partners in the Hugoton JV and not the Company’s interest. On April 18, 2022, John Loeffelbein resigned from his position as Chief Operating Officer with the Company.
Note 15 -Net Income (Loss) Per Share
The calculation of the weighted average number of shares outstanding and income (loss) per share outstanding for the years ended December 31, 2022 and 2021 are as follows:
Schedule of Net Earnings Per Share
Year Ended December 31,
Net loss $ (3,940,075 ) $ (1,603,761 )
Convertible preferred stock dividends (231,619 ) (174,449 )
Numerator for basic (loss) income per share - Net (loss) income attributable to common stockholders (4,171,694 ) (1,778,210 )
Add: Interest expense on convertible debt - -
Adjusted numerator for diluted (loss) income per share - Net loss income attributable to common stockholders $ (4,171,694 ) $ (1,778,210 )
Denominator for basic (loss) income per share - weighted average shares outstanding 20,913,440 18,741,187
Dilutive effect of convertible debt outstanding - -
Dilutive effect of shares issuable under stock options and warrants outstanding - -
Denominator for diluted (loss) income per share - adjusted weighted average shares outstanding 20,913,440 18,741,187
Net (loss) income per share:
Basic $ (0.20 ) $ (0.09 )
Diluted $ (0.20 ) $ (0.09 )
Basic income (loss) per share is based upon the weighted average number of shares of Common Stock outstanding during the year. For the year ended December 31, 2022 and 2021, all shares issuable upon conversion of convertible debt, convertible preferred stock and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share.
Note 16 - Supplemental Oil and Gas Information (Unaudited)
Estimated Proved Oil and Gas Reserves (Unaudited)
On April 1, 2021, the Company completed acquisition of certain oil and gas properties and interests from Core Energy, LLC, effective as of January 1, 2021 (the “Oil & Gas Properties Acquisition”). The Oil & Gas Properties Acquisition included the purchase of certain oil and gas properties in the Central Kansas Uplift geological formation, covering approximately 11,000 contiguous acres, including, among other things, the production and mineral rights to and a leasehold interest in the Oil & Gas Properties and all contracts, agreements and instruments. The Company acquired the Oil & Gas Properties for an aggregate purchase price consisting of $900,000 in cash at closing.
On April 4, 2022, the Company acquired a 40% participation in a Farmout Agreement by and between Sunflower Exploration, LLC as the Farmee and Scout Energy Partners as Farmor with regards to its oil and gas interests in the Hugoton Gas Field, located in Haskell and Finney Counties, Kansas. The Company has joined three other parties in the Hugoton JV to explore for and develop potential oil, natural gas, noble gases and brine minerals on the properties underlying the Farmout Agreement.
The Farmout Agreement covers drilling and completion of up to 50 wells, with the first exploratory well spudded on May 7, 2022. The Hugoton JV will utilize Scout’s existing infrastructure assets including water disposal, gas gathering and helium processing. The Farmout Agreement provides the Hugoton JV with rights to take in-kind and market its share of helium at the tailgate of Jayhawk Gas Plant, which will enable the Hugoton JV to market and sell the helium produced at prevailing market prices.
The Hugoton JV also acquired the right to all brine minerals subject to a ten percent (10%) royalty to Scout, across Finney and Haskell Counties. Brine minerals are harvested from the formation water produced from active, and to be drilled, oil and gas wells and may include a variety of dissolved minerals including bromine and iodine.
The Company has paid a total of $288,366 for its participation in the drilling and completion of the initial exploratory well. Such amount was an estimate and will be adjusted to actual drilling and completion cost expenditures when the well is connected to the pipeline and the production of gas commences.
The following tables summarize the net ownership interest in the proved oil and gas reserves and the standardized measure of discounted future net cash flows related to the proved oil and gas reserves for the Oil & Gas Properties and the Hugoton Gas Field. The estimates were prepared by the Company based on the reserve reports prepared for the Company for the years ended December 31, 2022 and 2021. The standardized measure presented here excludes income taxes as the tax basis for the Oil & Gas Properties and the Hugoton Gas Field is not applicable due to the substantial net operating loss carryforwards available to the Company on a go-forward basis. The proved oil and gas reserve estimates and other components of the standardized measure were determined in accordance with the authoritative guidance of the Financial Accounting Standards Board and the SEC.
Proved Oil and Gas Reserve Quantities
Proved reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well. Proved undeveloped reserves are proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. The net proved oil and gas reserves and changes in net proved oil and gas reserves attributable to the Oil & Gas Properties with respect to crude oil, and the Hugoton Gas Field which produces natural gas, natural gas liquids and helium all of which are located in the state of Kansas, are summarized below:
Schedule of Proved Oil and Gas Reserve Quantities
Crude Oil Barrels Natural Gas MCF (Thousand Cubic Feet) Natural Gas Liquids Million BTU Helium Gas MCF (Thousand Cubic Feet)
Proved developed reserves:
At January 1, 2021
Proved developed reserves, beginning of year
In-place proved developed reserves acquired 26,185 - - -
Extensions and discoveries - - - -
Revisions of previous estimates - - - -
Production (3,123 ) - - -
Proved developed reserves - at December 31, 2021 23,062 - - -
Proved developed reserves at end of year 23,062 - - -
Proved undeveloped reserves:
At January 1, 2021 - - - -
Proved undeveloped reserves, beginning of year - - - -
In-place proved developed reserves acquired 403,210 - - -
Extensions and discoveries - - - -
Revisions of previous estimates - - - -
Production - - - -
Proved undeveloped reserves - at December 31, 2021 403,210 - - -
Proved undeveloped reserves at end of year 403,210 - - -
Proved developed and undeveloped reserves:
At January 1, 2021 - - - -
Proved developed and undeveloped reserves, beginning of year - - - -
In-place proved developed reserves acquired 429,395 - - -
Extensions and discoveries - - - -
Revisions of previous estimates - - - -
Production (3,123 )
Proved developed and undeveloped reserves - at December 31, 2021 426,272 - - -
Proved developed and undeveloped reserves, end of year 426,272 - - -
Proved developed reserves:
At January 1, 2022 23,062 - - -
Proved developed reserves, beginning of year 23,062 - - -
In-place proved developed reserves acquired - - - -
Extensions and discoveries - 31,445 86,656
Revisions of previous estimates (21,842 ) - - -
Production (1,220 ) (9,301 ) (19,937 ) (15
)
Proved developed reserves - at December 31, 2022 - 22,144 66,719
Proved developed reserves at end of year - 22,144 66,719
Proved undeveloped reserves:
At January 1, 2022 403,210 - - -
Proved undeveloped reserves, beginning of year 403,210 - - -
In-place proved developed reserves acquired - - - -
Extensions and discoveries - - - -
Revisions of previous estimates (403,210 ) - - -
Production - - - -
Proved undeveloped reserves - at December 31, 2022 - - - -
Proved undeveloped reserves at end of year - - - -
Proved developed and undeveloped reserves:
At January 1, 2022 426,272 - - -
Proved developed and undeveloped reserves, beginning of year 426,272 - - -
In-place proved developed reserves acquired - - - -
Extensions and discoveries - 31,445 86,656
Revisions of previous estimates (425,052 ) - - -
Production (1,220 ) (9,301 ) (19,937 ) (15 )
Proved developed and undeveloped reserves - at December 31, 2022 - 22,144 66,719
Proved developed and undeveloped reserves, end of year - 22,144 66,719
Standardized Measure
The standardized measure of discounted future net cash flows before income taxes related to the proved oil and gas reserves of the Oil & Gas Properties is as follows:
Schedule of Standardized Measure of Discounted Future Net Cash Flows
December 31,
Future cash inflows $ 186,158
$ 21,955,464
Future production costs
(89,815 )
(2,698,409 )
Future development costs
-
(4,450,000 )
-
Future net cash flows
96,343
14,807,055
Less 10% annual discount to reflect timing of cash flows
(7,656 )
(11,166,405 )
Standard measure of discounted future net cash flows $ 88,687
$ 3,640,650
Requirements for oil and gas reserve estimation and disclosure require that reserve estimates and future cash flows be based on the average market prices for sales of oil and gas on the first calendar day of each month during the year. The average prices used for the year ended December 31, 2022 and 2021 under these rules were $94.14 and $66.34 for crude oil, respectively. The average prices used for the year ended December 31, 2022 under these rules were $ 5.84 per MCF for natural gas and $0.76 per gallon for natural gas liquids and $260.01 per MCF for helium, respectively.
Future operating expenses and development costs are computed primarily by the Company’s petroleum engineers by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year end costs and assuming continuation of existing economic conditions. As mentioned above, the standardized measure presented here does not include the effects of income taxes as the tax basis for the oil & gas properties due to the substantial tax net operating loss carryforwards available to the Company which makes its use non-applicable on a go-forward basis. A discount factor of 10% was used to reflect the timing of future net cash flows. The standardized measure of discounted future net cash flows is not intended to represent the replacement cost or fair value of the Company’s oil & gas properties. An estimate of fair value would also take into account, among other things, the recovery of reserves not presently classified as proved, anticipated future changes in prices and costs, and a discount factor more representative of the time value of money and the risks inherent in oil and gas reserve estimates.
Costs Incurred in Oil and Gas Activities
Costs incurred during the year ended December 31, 2022 and 2021 in connection with the Company’s oil and gas acquisition, exploration and development activities are shown below.
Schedule of Oil and Gas Acquisition, Exploration and Development Activities
Year Ended December 31,
Property acquisition costs:
Proved $ - $ -
Unproved - -
Total property acquisition costs
-
Development costs - 272,799
Exploration costs 288,366 -
Total costs $ 288,366 $ 272,799
During 2022, the Company incurred $288,366 of exploration costs when it drilled its pilot well in the Hugoton Gas Field which was successfully completed and is producing and selling commercial quantities of natural gas, natural gas liquids and helium. During 2021 the Company incurred $272,799 in development costs on the Kansas Oil & Gas Properties in 2021 primarily to assess the potential of noble gas and rare earth mineral reserves. Such exploration included noble gases such as helium and argon and rare earth minerals included bromine, lithium and iodine. The Company is assessing the results of such tests to determine whether commercial amounts of reserves exist that can be profitably extracted on the Kansas Oil & Gas Properties.
Aggregate capitalized costs relating to the Company’s oil and gas producing activities, and related accumulated depreciation, depletion, impairment and amortization are as follows:
Schedule of Capitalized Costs Oil and Gas Information
December 31,
December 31,
Central Kansas Uplift - Oil and gas production equipment $ 913,425 $ 913,425
Hugoton Gas Field - Oil and gas production equipment 96,831 -
Central Kansas Uplift - Leasehold costs 15,225 -
Hugoton Gas Field - Leasehold costs 191,535
Subtotal 1,217,016 913,425
Less: Accumulated impairment (905,574 ) -
Less: Accumulated depreciation, depletion and amortization (222,755 ) (92,502 )
Oil and gas properties and equipment, net $ 88,687 $ 820,923
The $288,366 exploration costs relative the Hugoton Gas Field pilot well during the year ended December 31, 2022 was allocated to proved oil and gas properties with $191,535 to leasehold costs and $96,831 representing tangible equipment. The $913,425 acquisition price of the Properties in 2021 was allocated to tangible equipment and seismic data acquired as part of the acquisition.
During the year ended December 31, 2022, the Company changed its strategy regarding the Central Kansas Uplift considering the reduced net cash flows from the sale of crude oil production. The reduction in net cash flows was attributable to lower spot crude oil prices during 2022 compared to 2021 and higher than anticipated operating costs related to the operation of the horizontal wells on the Properties. The Company has shut down the horizontal production wells as of December 31, 2022 and is considering the deepening of the conventional wells on the property to explore for helium and other noble gases that may be present in deeper producing zones. Accordingly, the Company has recorded an impairment charge of $712,812 to reduce the capitalized tangible and intangible costs related to its Central Kansas Uplift properties to zero as of December 31, 2022.
The Company performed the ceiling test to assess potential impairment of the capitalized costs relative to its Hugoton Gas Field Project. The ceiling test indicated an impairment charge of $192,762 was required to reduce the total capitalized costs to $88,687 as of December 31, 2022. Accordingly, the Company has recorded an impairment charge of $192,762 to reduce the capitalized tangible and intangible costs related to its Hugoton Gas Field properties to $88,687 as of December 31, 2022.
Costs Not Being Amortized
Oil and gas property costs not being amortized at December 31, 2022 and 2021, costs by year that the costs were incurred, are as follows:
Schedule of Oil and Gas Property Costs Not Being Amortized
Year Ended December 31, Amount
$ -
-
-
Prior -
Total costs not being amortized $ -
Note 17 - Subsequent Events
Designation of Series B Convertible Preferred Stock
On May 3, 2023, the Company filed the Certificate of Designation (the “ Certificate of Designation”) with the Secretary of State of the State of Nevada (the “Nevada Secretary of State”), establishing the rights, preferences, privileges, qualifications, restrictions, and limitations relating to the Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Convertible Preferred Stock”). The Certificate of Designation became effective upon filing with the Nevada Secretary of State.
Pursuant to the provisions of the Certificate of Designation of Preferences, Rights and Limitations of the Series B Preferred Stock (the “Certificate of Designation”) the Company is authorized to issue up to 50,000 shares of Series B Preferred from time to time with a Stated Value/Liquidation Value of $100 per share. Each share of Series B Preferred Stock is convertible, at the option of the holders thereof, at any time, subject to certain beneficial ownership limitations, into shares of Common Stock determined on a per share basis by dividing the Stated Value of such share of Preferred Stock (as such term is defined in the Certificate of Designation) by the Conversion Price (as such term is defined in the Certificate of Designation), which Conversion Price is subject to certain adjustments. In addition, the Certificate of Designation also provides for the payment of dividends, in (I) cash, or (ii) shares of Common Stock, to the holders of the Series B Preferred Stock, of 8% per annum, based on the Stated Value, until the earlier of (i) the date on which the shares of Series B Preferred Stock are converted to Common Stock or (ii) date the Company’s obligations under the Certificate of Designation have been satisfied in full. The shares of Series B Preferred Stock also (i) vote on an as-converted to Common Stock basis, subject to certain beneficial ownership limitations, (ii) are redeemable at the option of the Company at any time, (iii) rank senior to the Common Stock and any class or series of capital stock created after the Series B Preferred Stock and (iv) have a special preference upon the liquidation of the Company.
Issuance of Series B Convertible Preferred Stock
May 2023 Issuance - On May 4, 2023, the Company entered into a securities purchase agreement with three (3) accredited investors providing for an aggregate investment of $750,000 by the investors for the issuance by the Company to them of (i) 7,500 shares of Series B Convertible Preferred Stock with a stated/liquidation value of $100 per share (the “May 2023 Series B Convertible Preferred Stock”); and (ii) warrants, with a term of five and a half (5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 15,000,000 shares of Common Stock at an exercise price of five ($0.05) cents per share, subject to customary adjustments thereunder. The 7,500 shares of May 2023 Series B Convertible Preferred Stock are convertible into an aggregate of up to 15,000,000 shares of Common Stock. Holders of the warrants may exercise the warrants by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the shares of Common Stock underlying the warrants within six (6) months following the closing date, as defined in the warrants, by exercising on a cashless basis pursuant to the formula provided in the warrants. The Company intends to use the proceeds of the May 2023 Series B Convertible Preferred Stock offering for development of Hugoton Gas Field and Central Kansas Uplift Properties and for general working capital purposes.
The Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement within forty-five (45) days following the closing of the May 2023 Series B Convertible Preferred Stock transaction, to register the shares of Common Stock issuable upon the conversion of the May 2023 Series B Convertible Preferred Stock and the common stock underlying the warrants. The Company is to use its best efforts to cause such registration statement to be declared effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar day following the issuance of the May 2023 Series B Convertible Preferred Stock.
On May 5, 2022, Ozark Capital, LLC (“Ozark”) acquired 2,500 shares of Series B Preferred Stock (convertible into 5,000,000 shares of Common Stock), together with warrants to acquire 5,000,000 shares of Common Stock at five cents ($0.05) per share for a total cash contribution of $250,000. Ozark and its affiliates hold over 10% of the shares of the Company’s Common Stock as of December 31, 2022. Accrued dividends on the Class A Convertible Preferred Stock attributable to Ozark were $11,080 and $8,523 for the years ended December 31, 2022 and 2021, respectively. The Company has outstanding accrued and unpaid preferred dividends totaling $5,601 and $ - relative to Ozark’s Series A Preferred Stock as of December 31, 2022 and 2021, respectively.
The holders of the May 2023 Series B Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability to convert its May 2023 Series B Convertible Preferred Stock and/or exercise its Common Stock purchase warrants. Such limitation can be raised to 9.99% upon 60 days advance notice to the Company.
The Securities Purchase Agreement also contains customary representations, warranties and agreements of the Company and the Investors and customary indemnification rights and obligations of the parties thereto.
Appointment of Officers
Resignation of Stanton E. Ross- On May 5, 2023, in connection with the closing of the May 2023 Series B Convertible Preferred Stock, Stanton E. Ross, the Company’s Chief Executive Officer and President, resigned from his positions with the Company.
Resignation of Daniel F. Hutchins- On May 5, 2023, in connection with the closing of the May 2023 Series B Convertible Preferred Stock, Daniel F. Hutchins, the Company’s Chief Financial Officer, resigned from his position with the Company.
Appointment of Thomas J. Heckman as Chief Executive Officer and Chief Financial Officer- On May 2, 2023, in connection with the anticipated closing of the May 2023 Series B Convertible Preferred Stock the Company’s Board of Directors appointed Thomas J. Heckman to the positions of Chief Executive Office and Chief Financial Officer of the Company to replace Mr. Ross and Mr. Hutchins, effective May 5, 2023.
Conversion of 8% Convertible Notes Payable to Common Stock.
On January 13, 2023, a holder of 8% Convertible Notes Payable exercised its right to convert $46,296 of principal and $3,704 of accrued interest into 500,000 shares of common stock.
Status of 8% Convertible Notes Payable in Default as of December 31, 2022.
As further described in Note 4 the Company has certain convertible notes payable that have matured and are in default as of December 31, 2022. Following is the outstanding principal balance on matured convertible notes that are currently in default:
Schedule of Outstanding Principal Balance on Matured Convertible Notes
Amounts
Notes payable, in default:
Notes payable, in default: 1,312,500
8% Convertible notes payable due October 29, 2022 $ 650,000
8% Convertible promissory notes payable due September 15, 2022 350,000
8% Convertible promissory notes payable due June 29, 2022 312,500
Notes payable, in default $ 1,312,500
The Company did not pay the principal balance due on these Convertible Notes upon their maturity, therefore the remaining balance remains due and payable and is therefore in technical default as of December 31, 2022.
With respect to two of the 8% convertible notes payable due October 29, 2022 with an outstanding aggregate principal balance of $500,000 as of December 31, 2022, the Company has reached an agreement with the two Investors. On January 10, 2023, the Company amended each of those notes by entering into a letter agreement between the Investors and the Company. The Letter Agreement modifies the terms of the notes by extending each note’s respective maturity date to September 30, 2023. In consideration for the extension, the Company amended the Fixed Conversion Price (as defined in each note) to $0.10, subject to any future adjustments as provided in each of the notes.
On May 5, 2023, the Company reached an agreement with the holder of two separate convertible notes payable in the aggregate principal face amount of approximately $450,000 (including $100,000 principal balance of the notes payable due October 29, 2022 and $350,000 principal balance of the note payable due September 15, 2022), which the Company did not pay by their maturity dates. The Company and the holder of the two convertible notes payable entered into a new convertible promissory note (the “New Note”), exchanging the outstanding principal amount of the old convertible notes payable into the New Note, with a maturity date of September 30, 2023. Upon issuance of the New Note, the old convertible notes payable were cancelled and the repayment defaults under the prior convertible notes payable were cured with the entry into the New Note. The conversion price of the New Note was reduced from $0.50 per share to $0.40 per share however, the interest rate and other significant terms of the New Note are the same as those of the prior convertible notes payable.
With respect to the 8% convertible notes payable due June 29, 2022 with an outstanding aggregate principal balance of $312,500 as of December 31, 2022, the Company has reached an agreement with the two Investors. On January 10, 2023, the Company amended each of those notes by entering into a letter agreement between the Investors and the Company. The Letter Agreement modifies the terms of the notes by extending each note’s respective maturity date to September 30, 2023. In consideration for the extension, the Company amended the Fixed Conversion Price (as defined in each note) to $0.10, subject to any future adjustments as provided in each of the notes.
With respect to the other notes that were not amended or exchanged on January 10, 2023 and May 5, 2023, the parties are negotiating a forbearance/resolution to such technical defaults which include several alternatives. Such negotiations include i) a reduction in the conversion price of the underlying convertible notes, ii) an extension and a roll-over of the principal into other Company securities, and iii) a combination of the alternatives. The Company can provide no assurance that the parties will reach a mutually agreeable resolution.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures to provide reasonable assurance of achieving the control objectives, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on their evaluation as of December 31, 2022, the end of the period covered by this annual report on Form 10-K, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are not effective in assuring that financial statement presentation and disclosure are in conformity with those which are required to be included in our periodic SEC filings.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
● Provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the filing of this Annual Report on Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria set forth by Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on our assessment using those criteria, management believes that, as of December 31, 2022, our internal control over financial reporting was not effective due to material weaknesses identified as follows:
(a) Lack of control processes in place that provide multiple levels of review and supervision and
(b) Lack of segregation of duties.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even a system which is determined to be effective cannot provide absolute assurance that all control issues have been detected or prevented. Our systems of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth the names, positions and ages of our directors and executive officers. Our directors were elected by the majority written consent of our stockholders in lieu of a meeting. Our directors are typically elected at each annual meeting and serve for one year and until their successors are elected and qualify. Officers are elected by our board of directors and their terms of office are at the discretion of our board.
Name of Director
Age
Director Since
Stanton E. Ross
March
Daniel F. Hutchins
December
Leroy C. Richie
June
Stanton E. Ross. From March 1992 to June 2005, Mr. Ross was AMGAS’s Chairman and President and served as an officer and director of each of its subsidiaries. He resigned all of these positions with AMGAS in June 2005, except Chairman, but was reappointed as AMGAS’s President in October 2006. Mr. Ross has served as Chairman, President and Chief Executive Officer of Digital Ally, Inc. (“Digital”) since September 2005. Digital is a publicly held company whose common stock is traded on the Nasdaq Capital Market under the symbol DGLY. From 1991 until March 1992, he founded and served as President of Midwest Financial, a financial services corporation involved in mergers, acquisitions and financing for corporations in the Midwest. From 1990 to 1991, Mr. Ross was employed by Duggan Securities, Inc., an investment banking firm in Overland Park, Kansas, where he primarily worked in corporate finance. From 1989 to 1990, he was employed by Stifel, Nicolaus & Co., a member of the New York Stock Exchange, where he was an investment executive. From 1987 to 1989, Mr. Ross was self-employed as a business consultant. From 1985 to 1987, Mr. Ross was President and founder of Kansas Microwave, Inc., which developed a radar detector product. From 1981 to 1985, he was employed by Birdview Satellite Communications, Inc., which manufactured and marketed home satellite television systems, initially as a salesman and later as National Sales Manager. Mr. Ross allocates his time between Digital and the Company as he deems necessary to discharge his fiduciary duties to each of them. Mr. Ross served on the board of directors of Studio One Media, Inc., a publicly held company, from January 2013 to March 2013. Mr. Ross holds no public company directorships other than with Digital and AMGAS currently and has not held any others during the previous five years. The Company believes that Mr. Ross’s broad entrepreneurial, financial and business experience and his experience with micro-cap public companies and role as Chairman, President and CEO gives him the qualifications and skills to serve as a director.
Daniel F. Hutchins. Mr. Hutchins was elected to serve as a Director of AMGAS and was also appointed to serve as Chief Financial Officer of AMGAS effective as of August 13, 2007. Mr. Hutchins was elected as a Director of Digital in December 2007, serves as Chairman of its Audit Committee and is its financial expert. He is also a member of Digital’s Nominating and Governance Committee. Mr. Hutchins, a Certified Public Accountant, was a Principal with the accounting firm of Hutchins & Haake, LLC until his retirement on July 1, 2021. He was previously a member of the Advisory Board of Digital. Mr. Hutchins has served as an instructor for the Becker CPA exam with the Keller Graduate School of Management and has over 18 years of teaching experience preparing CPA candidates for the CPA exam. He has over 30 years of public accounting experience, including five years with Deloitte & Touche, LLP. He holds no other public directorships and has not held any others during the previous five years. He has served on the boards of various non-profit groups and is a member of the American Institute of Certified Public Accountants. Mr. Hutchins earned his Bachelor of Business Administration degree in Accounting at Washburn University in Topeka, Kansas. The Company believes that Mr. Hutchins’ significant experience in finance and accounting gives him the qualifications to serve as a director.
Leroy C. Richie. Mr. Richie has been a director of AMGAS since June 1, 1999. Since 2005, Mr. Richie has served as the lead outside director of Digital and currently serves as a member of Digital’s Audit Committee and is the Chairman of its Nominating and Governance and Compensation Committees. Additionally, until 2017, Mr. Richie served as a member of the boards of directors of Columbia Mutual Funds, (or mutual fund companies acquired by or merged with Columbia Mutual Funds), a family of investment companies managed by Ameriprise Financial, Inc. From 2004 to 2015, he was of counsel to the Detroit law firm of Lewis & Munday, P.C. He holds no other public directorships and has not held any others during the previous five years, except for OGE Energy Corp. (2007-2014) and Kerr-McGee Corporation (1998-2005). Mr. Richie served as Vice-Chairman of the Board of Trustees and Chairman of the Compensation Committee for the Henry Ford Health System, in Detroit until retirement in December 2020. Mr. Richie was formerly Vice President of Chrysler Corporation and General Counsel for automotive legal affairs, where he directed all legal affairs for its automotive operations from 1986 until his retirement in 1997. Before joining Chrysler, he was an associate with the New York law firm of White & Case (1973-1978), and served as director of the New York office of the Federal Trade Commission (1978-1983). Mr. Richie received a B.A. from City College of New York, where he was valedictorian, and a J.D. from the New York University School of Law, where he was awarded an Arthur Garfield Hays Civil Liberties Fellowship. The Company believes that Mr. Richie’s extensive experience as a lawyer and as an officer or director of public companies gives him the qualifications and skills to serve as a Director.
Family Relationships
There is no family relationship between any of our directors, director nominees and executive officers.
Board of Directors and Committee Meetings
Our Board held one meeting during the fiscal year ended December 31, 2022. Our directors attended all the meetings of the Board. Our directors are expected, absent exceptional circumstances, to attend all Board meetings.
Committees of the Board
We do not have Audit, Compensation or Nominating and Governance Committees. Our full Board discharges the duties that such committees would normally have. We do not have such committees because of our stage of operations and because our Board consists of only three members.
Our full Board is comprised of three Directors, one of whom is independent, as defined by the rules and regulations of the SEC. The members of our Board are Stanton E. Ross, Leroy C. Richie and Daniel F. Hutchins. The Board determined that Mr. Richie qualifies as an “audit committee financial expert,” as defined under the rules and regulations of the SEC and is independent as noted above.
Stanton E. Ross, Leroy C. Richie and Daniel F. Hutchins are the directors of the Company. Messrs. Ross and Hutchins are not considered “independent” in accordance with Rule 5605(a)(2) of the NASDAQ Marketplace Rules. The Board has determined that Mr. Richie is independent in accordance with the NASDAQ and SEC rules. We are currently traded on the OTC QB, which does not require that a majority of the board be independent. If we ever become an issuer whose securities are listed on a national securities exchange or on an automated inter-dealer quotation system of a national securities association, which has independent director requirements, we intend to comply with all applicable requirements relating to director independence.
Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by the Company’s independent registered accounting firms must be approved in advance by the Board to assure that such services do not impair the independent registered accounting firms’ independence from the Company. Our full Board performs the equivalent functions of an audit committee, therefore, no policies or procedures other than those required by SEC rules on auditor independence, have been implemented.
Report of the Board Serving the Equivalent Functions of an Audit Committee
Review and Discussion with Management
Our Board has reviewed and discussed with management our audited financial statements for the fiscal year ended December 31, 2022, the process designed to achieve compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and our assessment of internal control over financial reporting.
Review and Discussions with Independent Registered Public Accounting Firm
Our Board has discussed with RBSM, LLP, our independent registered public accounting firm for fiscal years ended 2022 and 2021, the matters the Board, serving the equivalent functions of an audit committee, is required to discuss. Specifically, the Board has discussed with the independent registered public accounting firm the matters required to be discussed by the Public Company Accounting Oversight Board’s Auditing AS 1301 (Communications With Audit Committees), as modified or supplemented. The discussions occurred with management and the independent public accountants about the quality (and not merely the acceptability) of the Company’s accounting principles, the reasonableness of significant estimates, judgments and the transparency of disclosures in the Company’s financial statements.
The Board has also received written disclosures in a letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s independence, and has discussed with the independent registered public accounting firm their independence from the Company and its management. This review also includes discussions of audit and non-audit fees as well as evaluation of the Company’s significant financial policies and accounting systems and controls.
The Board has also reviewed the independence of the independent registered public accounting firm considering the compatibility of non-audit services with maintaining their independence from the Company. Based on the preceding review and discussions contained in this paragraph, the Board recommended that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for filing with the SEC.
Conclusion
Based on the review and discussions referred to above, the Board, serving the equivalent functions of the audit committee, approved our audited financial statements for the fiscal year ended December 31, 2022 be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for filing with the SEC.
Board’s Role in the Oversight of Risk Management
We face a variety of risks, including credit, liquidity and operational risks. In fulfilling its risk oversight role, our Board focuses on the adequacy of our risk management process and overall risk management system. Our Board believes that an effective risk management system will (i) adequately identify the material risks that we face in a timely manner; (ii) implement appropriate risk management strategies that are responsive to our risk profile and specific material risk exposures; (iii) integrate consideration of risk and risk management into our business decision-making; and (iv) include policies and procedures that adequately transmit necessary information regarding material risks to senior executives and, as appropriate, to the Board or relevant committee.
Our Board oversees risk management for us. Accordingly, the Board schedules time for periodic review of risk management, in addition to its other duties. In this role, the Board receives reports from management, certified public accountants, outside legal counsel, and to the extent necessary, from other advisors, and strives to generate serious and thoughtful attention to our risk management process and system, the nature of the material risks we face, and the adequacy of our policies and procedures designed to respond to and mitigate these risks.
Board Leadership Structure
Our Board has a Chairman of the Board. Our Board does not have a policy on whether or not the roles of Chief Executive Officer and Chairman of the Board should be separate and, if they are to be separate, whether the Chairman of the Board should be selected from the non-employee directors or be an employee. Our Board believes that it should be free to make a choice from time to time in any manner that is in the best interests of us and our stockholders. The Board believes that Mr. Ross’s service as both Chief Executive Officer and Chairman of the Board is in the best interests of us and our stockholders. Mr. Ross possesses detailed and in-depth knowledge of the issues, opportunities and challenges we face and is thus best positioned to develop agendas, with the input of the other directors that ensure that the Board’s time and attention are focused on the most critical matters. His combined role enables decisive leadership, ensures clear accountability, and enhances our ability to communicate our message and strategy clearly and consistently to our stockholders, employees, customers and suppliers, particularly given the issues and other challenges the Company has faced in recent years. Our Board has determined that our Board leadership structure is appropriate given the size of our Board and the nature of our business.
Stockholder Communications with the Board
Stockholders may communicate with the Board by writing to us as follows: American Noble Gas Inc. attention: Corporate Secretary, 15612 College Blvd., Overland Park, KS 66210. Stockholders who would like their submission directed to a particular member of the Board may so specify and the communication will be forwarded as appropriate.
Prohibition on Hedging
The Company prohibit members of our Board and our officers from engaging in hedging transactions involving our securities.
Process and Policy for Director Nominations
Our full Board will consider candidates for Board membership suggested by Board members, management and our stockholders. In evaluating the suitability of potential nominees for membership on the Board, the Board members will consider the Board’s current composition, including expertise, diversity, and balance of inside, outside and independent directors. The Board considers the general qualifications of the potential nominees, including integrity and honesty; recognized leadership in business or professional activity; a background and experience that will complement the talents of the other board members; the willingness and capability to take the time to actively participate in board and committee meetings and related activities; the extent to which the candidate possesses pertinent technological, political, business, financial or social/cultural expertise and experience; the absence of realistic possibilities of conflict of interest or legal prohibition; the ability to work well with the other directors; and the extent of the candidate’s familiarity with issues affecting our business.
While the Board considers diversity and variety of experiences and viewpoints to be important factors, it does not believe that a director nominee should be chosen solely or mainly because of race, color, gender, national origin or sexual identity or orientation. Thus, although diversity may be a consideration in the Board’s process, it does not have a formal policy regarding the consideration of diversity in identifying director nominees.
Stockholder Recommendations for Director Nominations. Our Board does not have a formal policy with respect to consideration of any director candidate recommendation by stockholders. While the Board may consider candidates recommended by stockholders, it has no requirement to do so. To date, no stockholder has recommended a candidate for nomination to the Board. Given that we have not received director nominations from stockholders in the past and that we do not canvass stockholders for such nominations, we believe it is appropriate not to have a formal policy in that regard. We do not pay a fee to any third party to identify or evaluate or assist in identifying or evaluating potential nominees.
Stockholder recommendations for director nominations may be submitted to the Company at the following address: American Noble Gas Inc, attention: Corporate Secretary, 15612 College Blvd., Overland Park, KS 66210. Such recommendations will be forwarded to the Board for consideration, provided that they are accompanied by sufficient information to permit the Board to evaluate the qualifications and experience of the nominees, and provided that they are in time for the Board to do an adequate evaluation of the candidate before the annual meeting of stockholders. The submission must be accomplished by a written consent of the individual to stand for election if nominated by the Board and to serve if elected and to cooperate with a background check.
Stockholder Nominations of Directors. The bylaws of the Company provide that in order for a stockholder to nominate a director at an annual meeting, the stockholder must give timely, written notice to the Secretary of the Company and such notice must be received at the principal executive offices of the Company not less than 90 days nor more than 120 days prior to the date of the meeting. If public disclosure of the date of the meeting is made less than 100 days prior to the date of the meeting, a stockholder’s notice must be received not later than the close of business on the tenth day following the day on which such public disclosure of the date of the meeting was made. With respect to a special meeting called at the written request of stockholders, any notice submitted by a stockholder making the request must be provided simultaneously with such request.
Such stockholder’s notice shall include, with respect to each person whom the stockholder proposes to nominate for election as a director, all information relating to such person, including such person’s written consent to being named in the proxy statement as a nominee, serving as a director, that is required under the Exchange Act. In addition, the stockholder must include in such notice their name and address, as they appear on the Company’s records and the name and address of the beneficial owner, if any, of such stockholder, the class or series and number of shares of capital stock of the Company that are owned beneficially or of record by such stockholder of record and by the beneficial owner, if any, a description of all arrangements or understandings between such stockholder and the proposed nominee and any other person or person (including their names) pursuant to which the nomination is to be made by such stockholder, a representation that such stockholder intends to appear at the annual meeting to nominate the person named in its notice and any other information required under the Exchange Act.
Code of Ethics and Conduct
Our Board has adopted a Code of Ethics and Conduct that is applicable to all our employees, officers and directors. Our Code of Ethics and Conduct is intended to ensure that our employees act in accordance with the highest ethical standards. A copy of our Code of Ethics and Conduct may be obtained by sending a written request to us at 15612 College Blvd., Overland Park, KS 66210; Attn: President and the Code of Ethics and Conduct is filed as an exhibit to our Annual Report on Form 10-K.
Section 16(a) Beneficial Ownership Reporting
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than ten percent (10%) of our common stock, to file with the SEC reports of ownership of, and transactions in, our securities and to provide us with copies of those filings. To our knowledge, based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the year ended December 31, 2022, all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with during fiscal year 2022.
Director Compensation
The following table discloses the cash, equity awards and other compensation earned, paid or awarded, as the case may be, to each of the Company’s directors during the fiscal years ended December 31, 2022 and 2021.
Name (5) Year Fees
Earned
or Paid
in Cash
($) Stock
Awards
($)(2) Option
Awards
($)(2) Total
($)
Leroy C. Richie (1) $ - $ 45,000 (4) $ - (3) $ 45,000
$ - $ - $ 17,000 (3) $ 17,000
(1) The Company’s Board discontinued compensation for the Company’s officers and directors effective January 1, 2018. Mr. Richie received no cash compensation in 2022 and 2021 and had accrued an aggregate of $363,500 for his services on the Board since January 1, 2008. On March 31, 2021, the Company and Mr. Richie entered into a Debt Settlement Agreement whereby all accrued amounts due for such services totaling $363,500 were extinguished upon the issuance of $3,635 principal balance of 3% Convertible Promissory Note and the issuance of warrants to purchase 727,000 shares of Common Stock at an exercise price of $0.50 per share.
(2) The value of stock option and restricted stock grants are determined as the grant date fair value pursuant to ASC Topic 718 for all stock options and restricted stock granted. Refer to Note 5 to the financial statements that appear in our Annual Report on Form 10-K for further description of the awards and the underlying assumptions utilized to determine the amount of grant date fair value related to such grants. The grant date fair value of the restricted stock awards was determined based on the total number of restricted shares at the closing price on the date of award.
(3) The Company’s Board approved the grant of options to purchase 100,000 shares of common stock to Mr. Richie on June 4, 2021. The amount equals grant date fair value of the stock options determined at the closing date of the stock options issuance. The stock options will vest on June 4, 2022, assuming that he remains as a member of the Board of the Company at such points in time.
(4) The Company’s Board approved the grant of 100,000 shares of restricted Common Stock on May 19, 2022 to Mr. Richie. The amount equals 100,000 shares of restricted Common Stock multiplied by the closing price of such shares on May 19, 2022, the award date. Of the 100,000 total shares of restricted Common Stock, a total of 25,000 shares vest at the end of calendar quarter over the following 4 fiscal quarters ending March 31, 2022, assuming that he remains as a member of the Board of the Company at such points in time.
(5) Mr. Ross’ and Mr. Hutchins’ compensation and option awards are noted in the Executive Compensation table because neither of them received compensation or stock options for their services as a director.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Our executive officers are:
Name
Age
Positions and Offices Held
Stanton E. Ross
Chairman, President and Chief Executive Officer
Daniel F. Hutchins
Director, Chief Financial Officer, Secretary
Thomas J. Heckman
Chief Executive Officer and Chief Financial Officer
Biographical information on Messrs. Ross and Hutchins appears above in this Part III - Item 10.
On May 2, 2023, in connection with the closing of the Series B Convertible Preferred Stock Transaction, the Company’s Board of Directors appointed Mr. Heckman to the positions of Chief Executive Office and Chief Financial Officer of the Company to replace Mr. Ross and Mr. Hutchins, effective May 5, 2023.
Thomas J. Heckman. Mr. Heckman, age 63, is and has been the Chief Financial Officer and Treasurer of Digital Ally, Inc. (Nasdaq: DGLY) a company, which, through its subsidiaries, engages in video solution technology, human and animal health protection products, healthcare revenue cycle management, ticket brokering and marketing and event production (“Digital Ally”), since January 2008. Mr. Ross is currently the Chairman, President and Chief Executive Officer of Digital Ally, and Mr. Hutchins is an independent director and Chairman of Digital Ally’s Audit Committee. Mr. Heckman is also a Managing Member of Ozark. Prior to joining Digital Ally, Mr. Heckman held financial and accounting roles of increasing responsibility at Deloitte and Touche, LLP, a subsidiary of Deloitte Touche Tohmatsu, an international auditing, consulting, financial advisory, risk management and tax services organization (“Deloitte”), since 1983, including six years as an Accounting and Auditing Partner in Deloitte’s Kansas City, Missouri’s office. Mr. Heckman is a certified public accountant and holds a Bachelor of Arts in Accounting from the University of Missouri - Columbia.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The following table shows compensation paid, accrued or awarded with respect to our named executive officers during the years indicated:
- Summary Compensation Table
Name and
Principal
Position Year Salary
($) Bonus
($) Stock
Awards
($)(4) Option
Awards
($)(4) Total
($)
Stanton Ross (1) $ - $ - $ 225,000 (6) $ - $ 225,000
Chief Executive Officer $ 30,000 $ - $ - $ 85,000 (5) $ 115,000
Daniel F. Hutchins(2) $ - $ - $ 45,000 (8) $ - $ 45,000
Chief Financial Officer $ - $ - $ - $ 17,000 (7) $ 17,000
John Loeffelbein(3) $ - $ - $ - $ - $ -
Chief Operating Officer $ - $ - $ - $ 59,500 (9) $ 59,500
(1) The Company’s Board discontinued compensation for the Company’s officers and directors effective January 1, 2018. In addition, due to the financial condition of the Company, Mr. Ross has deferred the receipt of a portion of his salary since January 2009. Mr. Ross received $-0- and $30,000 of his deferred salary in cash during the years ended December 31, 2022 and 2021, respectively. On March 31, 2021, the Company and Mr. Ross entered into a Debt Settlement Agreement whereby all accrued amounts due for such services totaling $525,708 were extinguished upon the issuance of $5,257 principal balance of 3% Convertible Promissory Note and the issuance of warrants to purchase 1,051,416 shares of Common Stock at an exercise price of $0.50 per share.
(2) The Company’s Board discontinued compensation for the Company’s officers and directors effective January 1, 2018. Mr. Hutchins began serving the Company as Chief Financial Officer in August 2007. Since January 2009 he has deferred his compensation and a total of $900,000 of direct compensation was accrued but unpaid. Previously, Mr. Hutchins received other indirect compensation consisting of services billed at the normal standard billing rate of Hutchins & Haake, LLC plus out-of-pocket expenses for general corporate and bookkeeping purposes. For the years ended December 31, 2022 and 2021, the Company was billed $-0- for such services. Total amounts accrued for his indirect compensation was $-0- as of December 31, 2022 and 2021, respectively. On March 31, 2021, the Company and Mr. Hutchins entered into a Debt Settlement Agreement whereby all accrued amounts due for such services totaling $1,662,407 were extinguished upon the issuance of $16,624 principal balance of 3% Convertible Promissory Note and the issuance of warrants to purchase 3,324,813 shares of Common Stock at an exercise price of $0.50 per share.
(3) The Company’s Board appointed John Loeffelbein, as its Chief Operating Officer effective September 30, 2019. Mr. Loeffelbein received no cash compensation for his services for the years ended December 31, 2022 and 2021. On April 18, 2022, Mr. Loeffelbein resigned from his position as Chief Operating Officer, effective immediately. Mr. Loeffelbein’s resignation as an officer did not result from any disagreement with the Board.
(4) The value of stock option and restricted stock grants are determined as the grant date fair value pursuant to ASC Topic 718 for all stock options and restricted stock granted. Refer to Note 5 to the financial statements that appear in our Annual Report on Form 10-K for further description of the awards and the underlying assumptions utilized to determine the amount of grant date fair value related to such grants. The grant date fair value of the restricted stock awards was determined based on the total number of restricted shares at the closing price on the date of award.
(5) The Company’s Board approved the grant of options to purchase 500,000 shares of common stock on June 4, 2021 to Mr. Ross. The stock options will vest on June 4, 2022, assuming that he remains as a member of the Board of the Company at such points in time and have an exercise price of $0.50 per share.
(6) The Company’s Board approved the grant of 500,000 shares of restricted Common Stock on May 19, 2022 to Mr. Ross. Of the 500,000 total restricted shares, a total of 125,000 shares vest at the end of calendar quarter over the following 4 fiscal quarters ending March 31, 2023, assuming that he remains as an employee of the Company at such points in time. The value of the restricted stock awards was determined based on the total number of restricted shares at the closing price on the date of award on May 19, 2022.
(7) The Company’s Board approved the grant of options to purchase 100,000 shares of common stock on June 4, 2021 to Mr. Hutchins. The stock options will vest on June 4, 2022, assuming that he remains as a member of the Board of the Company at such points in time and have an exercise price of $0.50 per share.
(8) The Company’s Board approved the grant of 100,000 shares of restricted Common Stock on May 19, 2022 to Mr. Hutchins. Of the 100,000 total restricted shares, a total of 25,000 shares vest at the end of calendar quarter over the following 4 fiscal quarters ending March 31, 2023, assuming that he remains as an employee of the Company at such points in time. The value of the restricted stock awards was determined based on the total number of restricted shares at the closing price on the date of award on May 19, 2022.
(9) The Company’s Board approved the grant of options to purchase 350,000 shares of common stock effective June 4, 2021 to Mr. Loeffelbein. The stock options will vest on June 4, 2022, assuming that he remains as a member of the Board of the Company at such points in time and have an exercise price of $0.50 per share. On April 18, 2022, Mr. Loeffelbein resigned from his position as Chief Operating Officer, effective immediately. Mr. Loeffelbein’s resignation as an officer did not result from any disagreement with the Board.
Compensation Policies and Objectives
We structure compensation for executive officers, including the named executive officers, to drive performance, to accomplish both our short-term and long-term objectives, and to enable us to attract, retain and motivate well qualified executives by offering competitive compensation and by rewarding superior performance. We also seek to link our executives’ total compensation to the interests of our shareholders. To accomplish this, our board of directors relies on the following elements of compensation, each of which is discussed in more detail below:
● salary;
● annual performance-based cash awards;
● equity incentives in the form of stock and/or stock options; and
● other benefits.
Our Board believes that our executive compensation package, consisting of these components, is comparable to the compensation provided in the market in which we compete for executive talent and is critical to accomplishing our recruitment and retention aims.
In setting the amounts of each component of an executive’s compensation and considering the overall compensation package, the Committee generally considers the following factors:
Benchmarking-For executive officers, the board of directors considers the level of compensation paid to individuals in comparable executive positions of other oil and gas exploration and production companies of a similar size. The board of directors believes that these companies are the most appropriate for review because they are representative of the types of companies with which we compete to recruit and retain executive talent. The information reviewed by the board of directors includes data on salary, annual and long-term cash incentive bonuses and equity compensation, as well as total compensation.
Internal Equity-The board of directors considers the salary level for each executive officer and each position in overall management in order to reflect their relative value to us.
Individual Performance-The board of directors considers the individual responsibilities and performance of each named executive officer, which is based in part on the board of directors’ assessment of that individual’s performance as well as the evaluation of the individual by the Chief Executive Officer.
All executive officers are eligible for annual cash bonuses and equity incentive awards that reinforce the relationship between pay and performance by conditioning compensation on the achievement of the Company’s short- and long-term financial and operating goals, including operating profits, reserve finding costs, and growth in the Company’s daily oil and gas production and estimated proved, probable and possible recoverable oil and gas reserves.
Components of Executive Compensation
The following provides an analysis of each element of compensation, what each element is designed to reward and why the Board chose to include it as an element of our executive compensation.
Salaries
Salaries for executive officers are intended to incentivize the officers to focus on executing the Company’s day-to-day business and are reviewed annually. Changes are typically effective in April of each year and are based on the factors discussed above. Compensation arrangements with Mr. Hutchins were determined through arms-length negotiations. The Company’s Board discontinued regular cash compensation for the Company’s officers and directors effective January 1, 2018.
Annual Bonuses
The awarding of annual bonuses to executives is in the discretion of the Board, in their serving the equivalent functions of the compensation committee discretion. The objective of the annual bonus element of compensation is to align the interest of executive officers with the achievement of superior Company performance for the year and also to encourage and reward extraordinary individual performance. In light of the Company’s operating results for 2022 and 2021, the Board determined that it was appropriate not to grant annual bonuses to the executive officers for 2022 and 2021.
Stock Options
Including an equity component in executive compensation closely aligns the interests of the executives and our stockholders and rewards executives consistent with stockholder gains. Stock options produce value for executives only if our stock price increases over the exercise price, which is set at the market price on the date of grant. Also, through vesting and forfeiture provisions, stock options serve to encourage executive officers to remain with the Company. Awards made other than pursuant to the annual equity grants are typically made to newly hired or recently promoted employees.
In determining the stock option grants for Messrs. Ross, Hutchins and Loeffelbein, the Board considered the number of options previously granted that remained outstanding, the number and value of shares underlying the options being granted and the related effect on dilution. The Board also took into account the number of shares that remained available for grant under our stock option and restricted stock plans. Messrs. Ross, Hutchins and Loeffelbein were granted stock options during the year ended December 31, 2021 but not 2022. Information regarding all outstanding equity awards as of December 31, 2022 for the named executive officers is set forth below in the “Outstanding Equity Awards at Fiscal Year End” table.
Restricted Stock Grants
Including an equity component in executive compensation closely aligns the interests of the executives and our stockholders and rewards executives consistent with stockholder gains. Restricted stock grants produce value for executives as our stock price increases. The awards generally vest over a long period of time only if they remain as employees of the Company at specified points in time. Executives generally have to recognize taxable income based on the market price of the underlying common stock on such vesting dates. Also, through vesting and forfeiture provisions, restricted stock grants serve to encourage executive officers to remain with the Company. Awards made other than pursuant to the annual equity grants are typically made to newly hired or recently promoted employees.
In determining the restricted stock grants for Messrs. Ross and Hutchins, the Board considered the number of stock options previously granted that remained outstanding, the number and value of restricted common shares being granted and the related effect on dilution. The Board also took into account the number of shares that remained available for grant under our stock option and restricted stock plans. Messrs. Ross and Hutchins were granted 500,000 and 100,000 shares of restricted Common Stock during the year ended December 31, 2022, respectively, and none in 2021. The restricted stock grants in 2022 vest ratably at the end of the following four calendar quarters following issuance. Information regarding all outstanding equity awards as of December 31, 2022 for the named executive officers is set forth below in the “Outstanding Equity Awards at Fiscal Year End” table.
Other Elements of Executive Compensation
We have not provided cash perquisites to our executive officers given our limited funds.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
(As of December 31, 2022)
Option Awards
Stock Awards
Name Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
Option
Exercise
Price ($) Option Expiration
Date Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#) Market Value of Shares or Units of Stock That Have Not Vested ($)
Stanton Ross - 500,000 (1) - $ 0.50 6/4/2031 - -
Chief Executive Officer 60,000 (2) - - $ 30.00 1/16/2024 - -
- - - - - 125,000 (4) $ 13,750
Daniel F. Hutchins
Chief Financial Officer - 100,000 (3) - $ 0.50 6/4/2031 - -
15,000 (2) - - $ 30.00 1/16/2024 - -
- - - - - 25,000 (5) $ 2,750
(1) On June 4, 2021, the Company granted Mr. Ross stock options to purchase 500,000 shares of Common Stock at an exercise price of $0.50 per share with a termination date of June 4, 2031. Such stock options shall vest on June 4, 2022, so long as Mr. Ross remains in the service of the Company at such point in time.
(2) The stock options were granted on January 17, 2014, outside of the stock option plans of the Company. These stock options vested as follows: one-third on the date of grant; one-third on January 16, 2015; and one-third on January 16, 2016.
(3) On June 4, 2021, the Company granted Mr. Hutchins stock options to purchase 100,000 shares of Common Stock at $0.50 per share with a termination date of June 4, 2031. Such stock options vested on June 4, 2022.
(4) On May 19, 2022, the Company granted Mr. Ross 500,000 shares of restricted stock. Such restricted stock vest ratably on a quarterly basis through March 31, 2023, so long as Mr. Ross remains in the service of the Company at such point in time.
(5) On May 19, 2022, the Company granted Mr. Hutchins 100,000 shares of restricted stock. Such restricted stock vest ratably on a quarterly basis through March 31, 2023, so long as Mr. Hutchins remains in the service of the Company at such point in time.
Employment Contracts and Termination of Employment and Change-In-Control Arrangements
We have no employment agreements or similar contracts with Stanton E. Ross or Daniel F. Hutchins.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of May 8, 2023, information regarding beneficial ownership of our capital stock by:
● each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our equity securities;
● each of our named executive officers;
● each of our directors; and
● all of our executive officers and directors as a group.
The percentage ownership information shown in the table below is based upon 22,424,515 shares of Common Stock and 25,526 shares of Series A Preferred Stock and 7,500 shares of Series B Preferred Stock outstanding as of May 8, 2023 with shares of both Series A Preferred Stock and Series B Preferred Stock are subject to the applicable 4.99% beneficial ownership limitation. On a combined basis the shareholders of both Series A Preferred Stock and Series B Preferred Stock are entitled to vote a total of 5,694,752 votes when considering the applicable 4.99% beneficial ownership limitation. The 22,424,515 shares of Common Stock, 25,526 shares of Series A Preferred Stock and 7,500 shares of Series B Preferred Stock outstanding as of May 8, 2023 excludes (a) shares of Common Stock issuable upon the exercise of outstanding warrants to purchase an aggregate of up to 33,430,783 shares of Common Stock, with a weighted average exercise price of $0.29 per share, (b) shares of Common Stock issuable upon outstanding stock options exercisable for up to 1,442,000 shares of Common Stock, with a weighted average exercise price of $2.38 per share, (c) 8,944,367 shares of Common Stock issuable upon conversion of $1,266,204 principal balance of 8% Convertible Promissory Notes outstanding, and (c) 57,330 shares of Common Stock issuable upon conversion of $28,665 principal balance of 3% Convertible Promissory Notes outstanding.
Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, including securities that are convertible into and exercisable for shares of Common Stock within sixty (60) days after May 8, 2023. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of Common Stock and Series A Preferred Stock shown that they beneficially own, subject to community property laws where applicable.
For purposes of computing the percentage of outstanding shares of our Common Stock held by each person or group of persons named above, any shares of Common Stock that such person or persons has the right to acquire within sixty (60) days after May 8, 2023 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares of Common Stock listed as beneficially owned does not constitute an admission of beneficial ownership.
Except as otherwise noted below, the address for persons listed in the table is c/o American Noble Gas, Inc., 15612 College Blvd., Overland Park, KS 66210.
Shares Beneficially Owned
Series A Preferred Series B Preferred Total Voting
Common Stock Stock Stock Power
Shares % Shares % Shares % %(1)
5% or greater stockholders:
None
Directors and executive officers
Stanton E. Ross (3) President, Chief Executive Officer and Chairman 4,149,430 15.8 % - - % - - % 14.1 %
Daniel F. Hutchins (4) Director, Chief Financial Officer, Treasurer and Secretary 4,091,061 15.6 % - - % - - % 13.8 %
Leroy C. Richie (5) Director 1,449,270 5.5 % - - % - - % 4.9 %
Thomas J. Heckman (2) Chief Executive Officer and Chief Financial Officer 4,120,983 15.7 % 1,111 4.4 % 2,500 33.3 % 14.0 %
Directors and executive officers as a group (5 persons) (6) 13,810,744 52.7 % 1,111 4.4 % 2,500 33.3 % 46.8 %
(1) Percentage of total voting power represents voting power with respect to all shares of our Common Stock and Series A and B Preferred Stock, which have the same voting rights as our shares of Common Stock. Holders of Common Stock are entitled to one (1) vote per share for each share of Common Stock held by them and holders of our shares of Series A and B Preferred Stock are entitled to one (1) vote for each share of Common Stock into which the Series A and B Preferred Stock is convertible, on an as-converted basis. Notwithstanding the foregoing, the Series A and B Preferred Stock includes beneficial ownership limitations so that all holders of our Series A and B Preferred Stock are unable to convert their shares of Series A and B Preferred Stock to shares of Common Stock so that they would own greater than 4.99% of our issued and outstanding shares of Common Stock, unless they provide at least 61 days’ prior written notice to increase such beneficial ownership limitation up to a maximum of 9.99% of our issued and outstanding shares of Common Stock. These percentages reflect such beneficial ownership limitations.
(2) Such shares of Common Stock beneficially owned by Mr. Heckman include: (i) 502,000 shares of Common Stock issuable upon full exercise of vested options, (ii) 449,306 shares held by Ozark Capital LLC (“Ozark”), which shares Mr. Heckman is deemed to beneficially own, (iii) 1,111 shares of Series A Preferred Stock held by Ozark (convertible into up to 347,188 shares of common stock subject to the 4.99% beneficial ownership limitation) and (iv) upon exercise of March Warrants for up to 256,410 common shares held by Ozark (iii) 2,500 shares of Series B Preferred Stock held by Ozark (convertible into up to 5,000,000 shares of common stock subject to the 4.99% beneficial ownership limitation) and (iv) upon exercise of Warrants for up to 5,000,000 common shares subject to the 4.99% beneficial ownership limitation held by Ozark.
Such shares of Series A Preferred Stock and Series B Preferred Stock beneficially owned by Mr. Heckman include 1,111 shares of Series A Preferred Stock and 2,500 shares of Series B Preferred Stock held by Ozark, which shares Mr. Heckman, who in the managing member of Ozark, is deemed to beneficially own.
On May 2, 2023, in connection with the closing of the Series B Preferred Stock transactions, the Company’s Board of Directors appointed Mr. Heckman to the positions of Chief Executive Office and Chief Financial Officer of the Company to replace Mr. Ross and Mr. Hutchins, effective May 5, 2023.
(3) Such shares of Common Stock beneficially owned by Mr. Ross include: (i) 560,000 shares of Common Stock issuable upon full exercise of vested options, (ii) up to 1,051,416 shares of Common Stock issuable upon full exercise of a Creditor Warrant, (iii) 10,514 shares of Common Stock issuable upon full conversion of a Note, excluding accruable interest, and (iv) 125,000 restricted shares of Common Stock, which are subject to forfeiture.
On May 5, 2023, in connection with the closing of the Series B Preferred Stock transactions, Mr. Ross, the Company’s Chief Executive Officer and President, resigned from his positions with the Company.
(4) Such shares of Common Stock beneficially owned by Mr. Hutchins include: (i) 115,000 shares of Common Stock issuable upon full exercise of vested options, (ii) up to 3,324,813 shares of Common Stock issuable upon full exercise of a Creditor Warrant, (iii) 33,248 shares of Common Stock issuable upon full conversion of a Note, including accruable interest, and (iv) 25,000 restricted shares of Common Stock, which are subject to forfeiture.
On May 5, 2023, in connection with the closing of the Series B Preferred Stock transactions, Mr. Hutchins, the Company’s Chief Financial Officer, resigned from his positions with the Company.
(5) Such shares of Common Stock beneficially owned by Mr. Richie include: (i) 115,000 shares of Common Stock issuable upon full exercise of vested options, (ii) 727,000 shares of Common Stock issuable upon full exercise of a Creditor Warrant, (iii) 7,270 shares of Common Stock issuable upon full conversion of a Note, including accruable interest, and (iv) 25,000 restricted shares of Common Stock, which are subject to forfeiture.
(6) See the information included in footnotes 2 through 5 above.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions and Director Independence.
Serving the equivalent functions of the audit committee, the Board’s practice is to review and approve any transaction involving the Company and a related party at least once a year or upon any significant change in the transaction or relationship. For these purposes, a “related party transaction” includes any transaction required to be disclosed pursuant to Item 404 of Regulation S-K.
John L. Loeffelbein, the Company’s Former Chief Operating Officer from September 2019 to April 2022, is a non-controlling member of Core Energy Resources, LLC (“Core”). The Company acquired an Option from Core to purchase the production and mineral rights/leasehold for the oil and gas properties in the Central Kansas Uplift (the “Properties”). The Company paid a non-refundable deposit of $50,000 in 2019 to bind the original Option, which gave it the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms as the previous Option, however the newly acquired Option permitted the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020 and the Company agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. On December 14, 2020, the parties executed an asset purchase and sale agreement which extended the new Option to January 11, 2021, which expired. The parties entered into a Side Letter agreement on March 31, 2021, pursuant to which we and Core agreed to set the closing date on which the Properties would be purchased to April 1, 2021. Pursuant to the Side Letter, the Company is responsible for reimbursing Core for certain prorated revenues and expenses from January 1, 2021 through the April 1, 2021 closing date. On April 1, 2021, we completed the acquisition of the Properties, under the same terms of the asset purchase agreement executed on December 14, 2020 which provided a purchase price of $900,000. The Company raised approximately $2.05 million on March 26, 2021 through the issuance of convertible preferred stock with detachable common stock purchase warrants. The funds raised pursuant to the Series A Convertible Preferred Stock issuance were used to complete the acquisition of the Properties on April 1, 2021 and to retire the outstanding convertible note payable. On April 18, 2022, Mr. Loeffelbein resigned from his position as Chief Operating Officer, effective immediately. Mr. Loeffelbein’s resignation as an officer did not result from any disagreement with the Board.
The Company does not have any employees other than its Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. In previous years, certain general and administrative services (for which payment is deferred) had been provided by Mr. Hutchins’s accounting firm, Hutchins & Haake, LLC, at its standard billing rates plus out-of-pocket expenses consisting primarily of accounting, tax and other administrative fees. The Company no longer utilizes Hutchins & Haake, LLC for such support services and was not billed for any such services during the years ended December 31, 2022 and 2021. On March 31, 2021 the parties entered into a Debt Settlement Agreement whereby all amounts due to such firm for services totaling $762,407 were extinguished upon the issuance of $7,624 principal balance of 3% Convertible Promissory Note and the issuance of warrants to purchase 1,524,814 shares of Common Stock. Total amounts due to the related party was $-0- and $762,407 as of December 31, 2022 and December 31, 2021, respectively.
The Company has accrued compensation to its officers and directors in previous years. The Board authorized the Company to cease the accrual of compensation for its officers and directors, effective January 1, 2018. On March 31, 2021, the parties entered into Debt Settlement Agreements whereby all accrued amounts due for such services totaling $1,789,208 were extinguished upon the issuance of $17,892 principal balance of 3% Convertible Promissory Note and the issuance of warrants to purchase 3,578,416 shares of Common Stock as further described in Notes 3, 4, 7 and 13 to the financial statements that appear in our Annual Report on Form 10-K, filed with the SEC on April 6, 2022. Total amounts due to the officers and directors related to accrued compensation was $-0- and $1,789,208 as of December 31, 2022 and 2021, respectively.
The Company owes Offshore Finance, LLC (“Offshore”) financing costs in connection with a subordinated loan to the Company which was converted to shares of Common Stock in 2014. The managing partner of Offshore and Mr. Hutchins are partners in Hutchins & Haake, LLC, which the Company used for general corporate purposes in the past. On March 31, 2021 the parties entered into a Debt Settlement Agreement whereby all amounts due for such services totaling $26,113 were extinguished upon the issuance of $261 principal balance of 3% Convertible Promissory Note and the issuance of warrants to purchase 52,226 shares of common stock. Total amounts due to this related party was $-0- and $-0- as of December 31, 2022 and 2021, respectively.
Stanton E. Ross, Leroy C. Richie and Daniel F. Hutchins are the directors of the Company. Messrs. Ross and Hutchins are not considered “independent” in accordance with Rule 5605(a)(2) of the NASDAQ Marketplace Rules. The Board has determined that Mr. Richie is independent in accordance with the NASDAQ and SEC rules. We are currently traded on the OTC QB, which does not require that a majority of the board be independent. If we ever become an issuer whose securities are listed on a national securities exchange or on an automated inter-dealer quotation system of a national securities association, which has independent director requirements, we intend to comply with all applicable requirements relating to director independence.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services.
Audit and Related Fees
The Audit committee of the Company has appointed RBSM, LLP as the Company’s independent registered public accounting firm for the year ended December 31, 2022 and 2021.
The following table is a summary of the fees billed to us by RBSM for fiscal years ended December 31, 2022 and December 31, 2021:
Fee Category Fiscal
2022 fees
Fiscal
2021 fees
Audit fees $ 157,500 $ 87,500
Audit-related fees - 5,000
Tax fees - -
All other fees - -
Total fees $ 157,500 $ 92,500
Audit Fees. Such amount consists of fees billed for professional services rendered in connection with the audit of our annual financial statements and review of the interim financial statements included in our quarterly reports. It also includes services that are normally provided by our independent registered public accounting firms in connection with statutory and regulatory filings or engagements.
Audit-Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include employee benefit plan audits, consents issued for certain filings with the SEC, accounting consultations in connection with acquisitions, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.
Tax Fees. Tax fees consist of fees billed for professional services related to tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, tax audit defense, customs and duties, mergers and acquisitions, and international tax planning.
All Other Fees. Consists of fees for products and services other than the services reported above.
Serving the equivalent functions of the audit committee, the Board’s practice is to consider and approve in advance all proposed audit and non-audit services to be provided by our independent registered public accounting firm. All the fees shown above were pre-approved by the Board.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
The following documents are filed as part of this Annual Report on Form 10-K:
1. Financial Statements:
All financial statements set forth under Part II, Item 8 of this Annual Report.
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable or are not required, or because the required information is included in the financial statements or notes in this Annual Report.
3. Exhibits:
EXHIBITS
Exhibit Number
Description of Exhibits
2.1
Agreement and Plan of Merger between Infinity Energy Resources, Inc. and Infinity, Inc. (1)
2.2
Agreement and Plan of Merger of American Noble Gas, Inc., a Delaware Corporation with and into American Noble Gas Inc, a Nevada Corporation dated as of December 7, 2021 (31)
3.1(i)(a)
Certificate of Incorporation of Infinity Energy Resources, Inc. (3)
3.1(i)(b)
Certificate of Correction of Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (26)
3.1(i)(c)
Form of Certificate of Designations of Series A Convertible Preferred Stock (24)
3.1(i)(d)
Certificate of Amendment of Certificate of Incorporation of Infinity Energy Resources, Inc. (Filed herewith.) (28)
3.1(i)(e)
Certificate of Merger filed with the Secretary of State of the State of Delaware on December 7, 2021 (31)
3.1(i)(f)
Articles of Merger filed with the Secretary of State of the State of Nevada on December 7, 2021 (31)
3.1(i)(g)
Articles of Incorporation filed with the Secretary of State of the State of Nevada on November 23, 2021 (31)
3.1(i)(h)
Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (33)
3.2(i)
Bylaws of Infinity Energy Resources, Inc. (1)
3.2(ii)
Amended and Restated Bylaws of American Noble Gas, Inc., adopted effective October 14, 2021 (28)
3.2(iii)
Bylaws of American Noble Gas Inc, a Nevada Corporation, adopted October 22, 2021 (31)
4.1
Form of Common Stock Purchase Warrant (7)
4.2
Common Stock Purchase Warrant (1,000,000 shares), dated December 27, 2013 (9)
4.3
Warrant (11)
4.4
Form of Common Stock Purchase Warrant dated August 19, 2020 (23)
4.5
Form of March 16, 2021 Common Stock Purchase Warrant (24)
4.6
Form of Series A Convertible Preferred Stock Certificate (24)
4.7
Form of March 31, 2021 3% Convertible Promissory Note (25)
4.8
Form of March 31, 2021 Common Stock Purchase Warrant (26)
4.9
Form of Common Stock Purchase Warrant (29)
4.10
Form of Common Stock Purchase Warrant, dated October 29, 2021 (30)
4.11
Form of Senior Unsecured Convertible Promissory Note, due October 29, 2022 (30)
4.12
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (31)
4.13
Form of Warrant (33)
4.14
Form of Series B Convertible Preferred Stock Certificate (33)
10.1
Nicaraguan Concession - Perlas Prospect (3)
10.2
Nicaraguan Concession - Tyra Prospect (3)
10.3
Common Stock Purchase Warrant for 250,000 shares, dated February 13, 2013 (6)
10.4
Form of 8% Promissory Note (7)
10.5
8% Note, dated December 27, 2013 (9)
10.6
Third Amendment to Promissory Note, dated November 19, 2014 (10)
10.7
Third Amendment to Common Stock Purchase Warrant, dated November 19, 2014 (10)
10.8
First Amendment to Revenue Sharing Agreement, dated November 19, 2014 (10)
10.9
Revenue Sharing Agreement, dated May 17, 2014 (10)
10.10
Loan Extension Agreement, dated November 19, 2014(10)
10.11
Securities Purchase Agreement (11)
10.12
Registration Rights Agreement (11)
10.13
Senior Secured Convertible Note (11)
10.14
Security and Pledge Agreement (11)
10.15
Second Loan Extension Agreement Effective as of April 7, 2015 (12)
10.16
Fourth Amendment to Promissory Note, effective as of April 7, 2015 (12)
10.17
Fourth Amendment to Common Stock Purchase Warrant, effective as of April 7, 2015 (12)
10.18
8% Convertible Promissory Note and Common Stock Purchase Warrant dated December 31, 2014 (13)
10.19
8% Convertible Promissory Note and Common Stock Purchase Warrant dated November 19, 2014 (13)
10.20
8% Convertible Promissory Note and Common Stock Purchase Warrant dated January 7, 2014 (13)
10.21
8% Convertible Promissory Note and Common Stock Purchase Warrant dated October 2, 2014 (13)
10.22
8% Line-of-Credit Promissory Note and Common Stock Purchase Warrant dated October 23, 2014 (13)
10.23
2015 Stock Option Plan (14)
10.24
8% Convertible Promissory Note and Common Stock Purchase Warrant dated November 8, 2016 (15)
10.25
Exchange Agreement dated May 23, 2019 (16)
10.26
Side-letter Agreement dated May 23, 2019 (16)
10.27
Amendment No. 1 to Exchange Agreement, dated May 30, 2019 (17)
10.28
Exchange Agreement dated June 4, 2019 (18)
10.29
Common Stock Purchase Warrant Agreement dated June 4, 2019 (18)
10.30
Exchange Agreement dated June 19, 2019 (19)
10.31
Common Stock Purchase Warrant Agreement dated June 19, 2019 (19)
10.32
Form of Senior Unsecured Promissory Note, due August 19, 2021 (23)
10.33
Form of Securities Purchase Agreement dated August 19, 2020 by and between the Company and the Investor (23)
10.34
Form of Restricted Stock Purchase Agreement dated as of August 19, 2020 (23)
10.35
Form of Option Term Sheet dated September 2, 2020 by and between the Company and Core (22)
10.36
Form of Exchange Agreement by and between the Company and SKM dated September 24, 2020 (21)
10.37
Form of Asset Purchase and Sale Agreement made and entered into as of December 14, 2020 by and between the Company and Core Energy, LLC, Mandalay, LLC and Coal Creek Energy, LLC (20)
10.38
Form of Purchase Agreement by and between the Company and the March Investors dated as of March 16, 2021 (24)
10.39
Assignment and Bill of Sale, by and between Infinity Energy Resources, Inc. and Core Energy, LLC, dated as of March 31, 2021 (25)
10.40
Side Letter, by and between Infinity Energy Resources, Inc. and Core Energy, LLC, dated as of March 31, 2021 (25)
10.41
Form of Debt Settlement Agreement dated as of March 31, 2021 (25)
10.42
Form of Settlement Agreement by and between the Company and Global Equity Funding, LLC dated as of April 1, 2021 (27)
10.43
Form of Settlement Agreement by and between the Company and Stephen Cochenet dated as of April 1, 2021 (27)
10.44
2021 Stock Option and Restricted Stock Plan (28)
10.45
Letter Agreement by and between the Company and U.S. Noble Gas, LLC dated November 9, 2021 (30)
10.46
Form of Securities Purchase Agreement, dated as of October 29, 2021, by and between the Company and the Investor (30)
10.47
Form of Registration Rights Side Letter, dated as of October 29, 2021 (30)
10.48
Participation Agreement, dated as of April 4, 2022, by and between the Company and SunFlower Exploration, LLC (32)
10.49
Letter Agreement, dated as of May 3, 2022 by and between the Company and certain Investors (33)
10.50
Form of Securities Purchase Agreement, dated as of May 4, 2023 by and between the Company and the Investors (33)
10.51
Form of 8% Convertible Promissory Note due September 30, 2023 (33)
14.1
Code of Ethics and Code of Conduct (4)
21.1**
Subsidiaries of Registrant
23.1**
Consent of RBSM LLP
31.1
Certificate of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
31.2
Certificate of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
Certificate Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith)
101.INS*
Inline XBRL Instance Document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline XBRL Calculation Linkbase Document.
101.DEF*
Inline XBRL Taxonomy Definition Linkbase
101.LAB*
Inline XBRL Taxonomy Labels Linkbase Document.
101.PRE*
Inline XBRL Taxonomy Presentation Linkbase Document.
Cover Page Interactive Data File. (formatted as Inline XBRL and contained in Exhibit 101.)
(1) Filed as an exhibit to Form 10 by the Company on May 13, 2011.
(2) Filed as an exhibit to Amendment No. 1 to Form 10 by the Company on July 1, 2011.
(3) Filed as an exhibit to Amendment No. 2 to Form 10 by the Company on April 5, 2012.
(4) Filed as an exhibit to Form 10-K by the Company on April 16, 2012.
(5) Filed as an exhibit to Form 8-K by the Company on April 19, 2012.
(6) Filed as an exhibit to Form 8-K by the Company on February 19, 2013.
(7) Filed as an Exhibit to Form 8-K by the Company on March 1, 2013.
(8) Filed as an Exhibit to Form 8-K by the Company on April 29, 2013.
(9) Filed as an Exhibit to Form 8-K by the Company on January 3, 2014.
(10) Filed as an Exhibit to Form 8-K by the Company on November 20, 2014.
(11) Filed as an Exhibit to Form 8-K by the Company on May 8, 2015.
(12) Filed as an Exhibit to Form 8-K by the Company on May 11, 2015.
(13) Filed as an Exhibit to Form 8-K by the Company on August 12, 2015.
(14) Filed as an Exhibit to Definitive Schedule 14A filed by the Company on August 12, 2015.
(15) Filed as an Exhibit to Form 10-K by the Company on April 17, 2017.
(16) Filed as an Exhibit to Form 8-K by the Company on May 24, 2019.
(17) Filed as an Exhibit to Form 8-K by the Company on June 3, 2019.
(18) Filed as an Exhibit to Form 8-K by the Company on June 6, 2019.
(19) Filed as an Exhibit to Form 8-K by the Company on June 20, 2019.
(20) Filed as an Exhibit to Form 8-K by the Company on December 15, 2020.
(21) Filed as an Exhibit to Form 8-K by the Company on September 28, 2020.
(22) Filed as an Exhibit to Form 8-K by the Company on September 8, 2020.
(23) Filed as an Exhibit to Form 8-K by the Company on August 25, 2020.
(24) Filed as an Exhibit to Form 8-K by the Company on March 30, 2021.
(25) Filed as an Exhibit to Form 8-K by the Company on April 6, 2021.
(26) Filed as an Exhibit to Form 8-K/A by the Company on April 22, 2021.
(27) Filed as an Exhibit to Form 8-K by the Company on May 11, 2021.
(28) Filed as an Exhibit to Form 8-K by the Company on October 15, 2021.
(29) Filed as an Exhibit to Form 8-K by the Company on November 12, 2021.
(30) Filed as an Exhibit to Form 10-Q by the Company on November 12, 2021.
(31) Filed as an Exhibit to Form 8-K by the Company on December 13, 2021.
(32) Filed as an Exhibit to Form 10-K by the Company on April 6, 2022
(33) Filed as an Exhibit to Form 8-K by the Company on May 8, 2023.
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
*XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
** Filed or furnished herewith, as applicable.