Item 1. Business.
Business Overview
North Texas Energy, Inc. ("NTE", "the Company", "we") is a non-traditional producer of crude oil. The Company acquires oil and gas leases with non-functioning wells and uses Enhanced Oil Recovery Methods ("EOR") to bring wells back into production. The Company currently holds oil and gas leases in Milam County, Texas of which it holds one-hundred percent of the working interest. In order to execute its business plan to recover the oil and gas reserves on its leased property, the Company prepared and filed an S-1 Registration Statement for the sale of two million shares of its common stock. The price of the common shares was set at $2.00 per share. The registration statement became effective on March 29, 2013. The sale of the common shares was conducted without an underwriter.
NTE is an Enhanced Oil Recovery ("EOR") company. EOR is a term used to describe a variety of methods by which oil reserves are recovered from existing oil fields that were not completely exhausted using standard methods. We are not an "exploration company" in the sense that our business and our methods do not involve an attempt to explore for new oil reserves but rather to exploit existing known oil fields using other than "standard" recovery methods. In simplified terms, the "standard" methods of producing oil and natural gas from its location in natural reservoirs in the earth is to drill a relief (well) into the reservoir and allow the reservoir's crude oil to surface because of the natural pressure that exists in the reservoir structure underground. Once a well is finished and well casing is in place, the oil and natural gas will surface under its own pressure or with a small amount of suction introduced into the well. As the oil surfaces so does the natural gas. The gas and oil are separated and stored or delivered directly to market.
Enhanced Oil Recovery methods identify the process(s) by which substantial amounts of oil and gas that remain in a field reservoir, after standard recovery methods are exhausted, can be recovered using a variety of methods of enhancing the natural pressure in a reservoir or using some other method to release additional trapped oil in the reservoir. EOR allows for the recovery of significantly more oil from the same field by introducing additional pressure or other geological changes in the reservoir. The original well, well casing and well head equipment, are used in the process.
NTE initially uses an EOR method called "Microbial Enhanced Oil Recovery (MEOR)". MEOR is the process by which nutrients or compounds are injected into an oil field to allow for the natural enhancement of the movement and release of the oil out of the reserve. According to the U.S. Department of Energy Fossil Energy report on Oil and Natural Technologies "Enhanced Oil Recovery" Conventional primary and secondary recovery operations often leave two-thirds of the oil in the reservoir at the time of abandonment. Enhanced oil recovery methods have the potential for recovering much of the remaining oil. - U.S. DOE. The concept is to use natural environmental reactions to improve the recovery of oil trapped in porous media in the reservoir or without sufficient pressure to allow the oil and gas to be expressed normally from the reservoir to above ground. In each different oil field, the method by which EOR can be successful is dependent on the oil field and reservoir structure. The uniqueness of each field may involve unique EOR methods which can be any combination of methods involving the use of expertise in the disciplines of geology, chemistry, and microbiology as well as fluid mechanics and a variety of engineering applications.
Corporate History and Background
The Company was organized in Nevada in January 2011. We are a combination of two companies, each originally founded for the same purpose. The predecessor to NTE is Remington Oil & Gas, Inc., a Nevada corporation, and its predecessor is Remington Oil & Gas LLC., a Texas Limited Liability Company. During 2009, Remington Oil & Gas, LLC acquired oil field leases in North Texas, in Upshur country. In January 2010, Remington Oil & Gas, Inc. acquired all of the outstanding ownership interests of Remington Oil & Gas, LLC. In the process, Remington Oil & Gas, Inc. acquired the oil and gas leases in North Texas that had been previously assigned to Remington Oil & Gas, LLC. Effective in January 2011, North Texas Energy, Inc. acquired Remington Oil & Gas, Inc. through a Purchase and Sale Agreement. The Purchase and Sale Agreement transferred title of Remington's well-head equipment to North Texas Energy, Inc. and provided for the acquisition of all of the outstanding shares of Remington Oil & Gas, Inc. by North Texas Energy, Inc. in a one-for-one share exchange.
Properties
The Company has leased property in Milam County Texas. The lease consists of 21 productive wells at December 31, 2016 and started to produce crude oil since December 2013. The lease also consists of three existing wells that the Company plans to use for injection. Because the Company currently has only insignificant production, none of the reserves were classified as proved as of December 31, 2016.
Oil and Gas Production, Production Prices and Production Costs
The following table sets forth certain information regarding the production volumes, average prices received and average production costs associated with our sales of gas and oil for each of the three years ended December 31, 2016:
We categorize our reserves as unproved due to the current production levels. Reserves will be categorized as proved when the production level increases.
Drilling and other Exploratory and Development Activities
The Company is an oil and gas producing company that currently has no exploration activities. The Company is an oil and gas producing company that attempts to produce crude oil from existing wells on its leased properties. Beginning in the first quarter in 2016, the Company activated new leases, drilled and applied new drilling and recovery technology to its efforts in recovering the estimated reserves in its leased properties.
Present Activities
The Company plans to activate new leases in 2017 to improve and expand production. As of December 31, 2016, the Company had refurbished a total of 43 wells and has a total of 21 productive wells on its properties. The extensive petroleum engineering and geological analyze enabled the Company to achieve its goal of consistent production from paraffin restricted oil wells.
Delivery Commitments
The Company has no contractual commitments to deliver or sell any oil or gas production from its leased oil and gas properties as of the date of this report or at December 31, 2016.
Operations
The Company has oil and gas leases in Milam County Texas. The Company utilizes a process called "Microbial Enhanced Oil Recovery" or MEOR. This process introduces microbial materials into the well geology enhancing the production of oil that previously was prevented by the status of the geological structure. Over the past year we have achieved consistent production from previously clogged wells. Having made this achievement, we have begun activating additional leases and expanding our oil production.
Development Plans
Our plan is to significantly expand oil production and revenues in the near future. We will expand our lease holding beyond the current 682 acres that are being operated. The Company has devoted considerable resource to conducting the necessary petroleum engineering and geological analyze necessary to underhand and efficiently produce this reservoir. We have begun our first phase of production expansion. In the coming months, we will implement more comprehensive production methods that will enable significant increases of our daily oil production.
Employees
As of September 29, 2017, we have 1 full-time employee and 1 part-time employee. The employees are not covered by a collective bargaining agreement, and we do not anticipate that any of our future employees will be covered by such agreements. We engage consultants on an as-needed basis for operation.
Regulatory Matters
The oil and gas industry is subject to regulation by numerous national, state and local governmental agencies and departments. Compliance with these regulations is often difficult and costly and noncompliance could result in substantial penalties and risks. The failure to comply with the statutes, rules and regulations could result in the imposition of fines and penalties and the suspension or cessation of operations in affected areas. We routinely obtain permits for our facilities and operations in accordance with the applicable laws and regulations on an ongoing basis. There are no known issues that have a significant adverse effect on the permitting process or permit compliance status of any of our facilities or operations.
The ultimate financial impact of environmental laws and regulations is neither clearly known nor easily determined as new standards are enacted and new interpretations of existing standards are rendered. Environmental laws and regulations are expected to have an increasing impact on our operations. In addition, any non-compliance with such laws could subject us to material administrative, civil or criminal penalties, or other liabilities. Potential permitting costs are variable and directly associated with the type of facility and its geographic location.
Item 1a.
Item 1a. Risk Factors.
As a smaller reporting Company the company is not required to report on Risk Factors in its Annual Report to Shareholders.
Item 1b.
Item 1b. Un-Resolved Staff Comments.
The Company has no disclosures responsive to this item 1b.
Item 2.
Item 2. Properties.
The Company has oil and gas leases in Milam County, Texas on which it is producing crude oil. As of December 31, 2016, the Company has 60 wells on its properties in Milam County including 39 unproductive wells. The Company's leases cover 682 well acres.
In its Petroleum Engineer's Report dated December 31, 2016 the Company is reporting; Probable Undeveloped and Non-producing reserves of approximately 168,634 stock tank barrels, Possible Undeveloped Non-Producing reserves of approximately 3,521,307 stock tank barrels. The Company has no proved reserves as of December 31, 2016.
Item 3.
Item 3. Legal Proceedings.
The Company is not a party to nor is it aware of any significant legal proceeding that would negatively affect its operation or financial condition.
Item 4.
Item 4. Mine Safety Disclosures
The Company has no disclosures responsive to this item 4.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
Market Information
The Company's registration statement of its common stock for sale became effective on March 29, 2013. The Company did not employ an underwriter to assist it in the sale of the common shares. The shares were sold by and through the Company's CEO, Kevin Jones.
During the year ended December 31, 2016, the Company has sold and issued common stock to private parties totaling 243,425 common shares of registered stock for a total of $486,850. All of the sales were made on the efforts of the Company's CEO, Kevin Jones, with private parties. There is no ready public trading market for the Company's common shares. The Company has not listed its shares for sale on any stock exchange as of the date of this report. So, there is no method of trading electronically for the shares. However, the Company intends to seek a market maker and file the necessary documents to meet the necessary requirements to obtain a listing and develop a public market for its common stock as well as make arrangements for electronic trading of the shares. Until that time no public market for trading of the Company's stock exists.
Holders
As of September 29, 2017, there were approximately 268 shareholders of record of our common stock.
Dividends
No dividends were paid during the years ended December 31, 2016 and 2015. The payment of future cash dividends will depend upon, among other things, our financial condition, funds from operations, the level of our capital and development expenditures, our future business prospects, contractual restrictions and any other factors considered relevant.
Recent sales of unregistered securities
During the year ended December 31, 2013, the Company sold 1,500 shares to an individual for $1,500 cash. From March 30, 2016 to September 29, 2017, the Company sold 329,095 shares for $658,190 cash and issued 65,000 shares for services.
Item 6.
Item 6. Selected Financial Data.
As a Smaller Reporting Company the Company is not required to make disclosures related to this item 6.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview
North Texas Energy, Inc. is in its exploration stage. The results of operations show how capital intensive and profitless the oil and gas production business is at start up. The progress so far has been limited by severely limited access to working capital. One of the most important economic factors in the U.S economy is the successful exploration and production of crude oil and natural gas. North Texas Energy, Inc. is committing its business and resources to the production of crude oil that remains in geological formations in oil fields that have been previously explored and have produced significant amounts of crude oil already. Data and research produced by the Department of Energy indicates that additional significant reserves of crude oil and natural gas remain in fields that were once productive in the past. In recent years and with the price of crude oil steady at about seventy-four dollars per barrel (since 2008), new production methods have emerged as cost-effective in recovering the substantial remaining oil that has not been recovered using standard methods. North Texas Energy, Inc. entered into the business of recovering oil in previously drilled and producing fields in 2009 by acquiring oil and natural gas leases in north Texas. The Company's predecessor operated in year 2010 for a short period of time. During that time, the Company had access to private capital from sales of common stock to shareholders. The capital from investment by private shareholders was limited and sales were terminated late in 2010. The funds invested at that time were used mainly to begin the process of refurbishing wells and preparing well head installations for re-use. The short operations history shows that without on-going sources of working capital, the initial cost of getting wells and drill bores functional to begin the process of recovering oil that remains in the geological formation will not be met and significant delays in recovering the remaining oil would occur.
Results of Operations
For the year ended December 31, 2016, the Company had a net loss of $300,419 compared to a net loss of $562,626 for the year ended December 31, 2015.
Revenues
For the years ended December 31, 2016 and 2015, the Company had revenues of $32,518 and $21,578, respectively, from the sales of crude oil. The reason for the increase is because the Company restarted operating the wells which were shut down during 2015 due to damages caused by the severe weather conditions. Additionally, the Company brought several additional wells into production during the last quarter of 2016.
Operating expenses
For the year ended December 31, 2016, the Company had an operating expenses of $332,937 compared to $584,204 for the year ended December 31, 2015. For the years ended December 31, 2016 and 2015, the Company has lease operating expense of $79,859 and $109,482, respectively. The decrease of lease operating expense is mainly because the Company had to do some repairs due to the flooding in the area in 2015. For the years ended December 31, 2016 and 2015, the Company has legal and professional fees of $53,689 and $237,351, respectively. The decrease in legal and professional expense was mainly due to the decrease of stock-based compensation related to the issuance of 103,000 common shares to obtain geographical maps and professional services in 2015. For the years ended December 31, 2016 and 2015, the Company has general and administrative expenses of $186,126 and $237,371, respectively. The Company incurred more travel expense related to the trips the Company's management made to manage the wells and sell the Company's shares in 2015.
Liquidity
The Company began selling its common shares in accordance with its registration statement which became effective on March 29, 2013. The registration statement expired on March 29, 2016. The Company will continue to sell shares in private placements as allowed and use those funds for the further development of its oil and gas properties. The Company believes that it can continue to sell its common stock and use those funds as well as the funds it generates from crude oil production to continue its operations.
The Company has no immediate sources of debt or equity funding that is not related to the offering of its shares. The Company believes it can avoid accumulating debt or using other non-traditional forms of financing to provide liquidity.
At December 31, 2016, our cash and cash equivalents balance was $74,751.
Net cash used in operating activities was $335,201 for the year ended December 31, 2016, compared to $344,994 for the year ended December 31, 2015. The change is mainly due to less expenses occurred during the current year.
Net cash used in investing activities was $91,323 for the year ended December 31, 2016, compared to $141,357 for the year ended December 31, 2015. The Company made less payments to develop oil and gas properties in 2016.
Net cash provided by financing activities for the year ended December 31, 2016 was $486,850 compared to $408,350 for the year ended December 31, 2015. During the year ended December 31, 2016 and 2015, the Company received proceeds from sale of common stock of $482,350 and $403,350, respectively.
Without additional investment capital from shareholders or other sources, the Company has no short-term source of liquidity. In order to bring wells on-line and produce crude oil to bring to market, significant amounts of working capital will be needed to continue. Accordingly, the Company plans to systematically bring wells on-line that have the greatest initial production possibility as capital is available. The Company's illiquid financial position could cause it to not be able to start producing oil in the near future unless working capital from the offering or some other source of short-term liquidity is developed.
Management does not believe that the Company's current capital resources will be sufficient to fund its operating activity and other capital resource demands during the next year. Our ability to continue as a going concern is contingent upon our ability to obtain capital through the sale of equity or issuance of debt, and ultimately attaining profitable operations. There is no assurance that we will be able to successfully complete any one of these activities.
Trends
In 2017, the Company plans to accelerate production and revenue growth. The increased production will be accomplished by establishing consistent production on several newly activated leases.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements or guarantees of third party obligations at December 31, 2016.
Critical Accounting Policies
The following describes the critical accounting policies used in reporting our financial condition and results of operations. In some cases, accounting standards allow more than one alternative accounting method for reporting. Such is the case with accounting for oil and gas activities described below. In those cases, our reported results of operations would be different should we employ an alternative accounting method.
Oil and Gas Properties
The Company uses the full cost method of accounting for exploration and development activities as defined by the SEC. Under this method of accounting, the costs for unsuccessful, as well as successful, exploration and development activities are capitalized as oil and gas properties. Capitalized costs include lease acquisition, geological and geophysical work, delay rentals, costs of drilling, completing and equipping the wells and any internal costs that are directly related to acquisition, exploration and development activities but does not include any costs related to production, general corporate overhead or similar activities. Proceeds from the sale or other disposition of oil and gas properties are generally treated as a reduction in the capitalized costs of oil and gas properties, unless the impact of such a reduction would significantly alter the relationship between capitalized costs and proved reserves of oil and natural gas attributable to a country.
The Company categorizes its full cost pools as costs subject to amortization and costs not being amortized. The sum of net capitalized costs subject to amortization, including estimated future development and abandonment costs, are amortized using the unit-of-production method.
Oil and gas properties include costs that are excluded from capitalized costs being amortized. These amounts represent costs of investments in unproved properties. The Company excludes these costs on a country-by-country basis until proved reserves are found or until it is determined that the costs are impaired. All costs excluded are reviewed quarterly to determine if impairment has occurred. The amount of any impairment is transferred to the costs subject to amortization.
Recent Accounting Pronouncements
In May 2014, the FASB issued guidance for revenue recognition for contracts, superseding the previous revenue recognition requirements along with most existing industry-specific guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations, 3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard will result in enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue arising from contracts with customers. In August 2015, the FASB issued guidance approving a one-year deferral, making the standard effective for reporting periods beginning after December 15, 2017, with early adoption permitted only for reporting periods beginning after December 15, 2016. In March 2016, the FASB issued guidance to clarify the implementation guidance on principal versus agent considerations for reporting revenue gross rather than net, with the same deferred effective date. In April 2016, the FASB issued guidance to clarify the implementation guidance on identifying performance obligations and the accounting for licenses of intellectual property, with the same deferred effective date. In May 2016, the FASB issued guidance rescinding SEC paragraphs related to revenue recognition, pursuant to two SEC Staff Announcements at the March 3, 2016 Emerging Issues Task Force meeting. In May 2016, the FASB also issued guidance to clarify the implementation guidance on assessing collectability, presentation of sales tax, noncash consideration, and contracts and contract modifications at transition, with the same effective date. The Company is currently evaluating the impact, if any, that this guidance will have on the financial statements. Because the Company does not have existing significant revenue arrangements, management believes the impact of adoption will not be material to its financial statements.
The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
Item 8.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
North Texas Energy, Inc.
Addison, Texas
We have audited the accompanying consolidated balance sheets of North Texas Energy, Inc. as of December 31, 2016 and 2015, and the related statements of operations, shareholders' equity and cash flows for each of the years then ended. North Texas Energy, Inc.'s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North Texas Energy, Inc. as of December 31, 2016 and 2015 and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that North Texas Energy, Inc. will continue as a going concern. As discussed in Note 3 to the financial statements, North Texas Energy, Inc. has suffered losses from operations and has not secured sufficient funding for its operations. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ GBH CPAs, PC
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
September 29, 2017
See notes to the consolidated financial statements.
NORTH TEXAS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
See notes to the consolidated financial statements.
See notes to the consolidated financial statements.
NORTH TEXAS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
See notes to the consolidated financial statements.
NORTH TEXAS ENERGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business and Organization
North Texas Energy, Inc. ("the Company") was incorporated in the State of Nevada on January 12, 2011. The Company intends to focus on re-entering non-producing oil fields and re-starting production with new and existing wells located in Milam County, Texas.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and include the accounts of the Company and those of its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments with an original maturity of three months or less.
Accounts Receivable
Accounts receivable are stated at the historical carrying amount net of write-offs and allowance for uncollectible accounts. The carrying amount of the Company's accounts receivable approximates fair value because of the short-term nature of the instruments.
The Company's reported balance of accounts receivable, net of allowance for doubtful accounts, represents management's estimate of the amount that ultimately will be realized in cash. The Company reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical payment trends, the age of the receivables and knowledge of the individual customers or joint interest owners. When the analysis indicates, management increases or decreases the allowance accordingly. However, if the financial condition of our customers were to deteriorate, additional allowances might be required.
Oil and Gas Properties
The Company uses the full cost method of accounting for exploration and development activities as defined by the U.S. Securities and Exchange Commission ("SEC"). Under this method of accounting, the costs for unsuccessful, as well as successful, exploration and development activities are capitalized as oil and gas properties. Capitalized costs include lease acquisition, geological and geophysical work, delay rentals, costs of drilling, completing and equipping the wells and any internal costs that are directly related to acquisition, exploration and development activities but does not include any costs related to production, general corporate overhead or similar activities. Proceeds from the sale or other disposition of oil and gas properties are generally treated as a reduction in the capitalized costs of oil and gas properties, unless the impact of such a reduction would significantly alter the relationship between capitalized costs and proved reserves of oil and natural gas attributable to a country.
The Company categorizes its full cost pools as costs subject to amortization and costs not being amortized. The sum of net capitalized costs subject to amortization, including estimated future development and abandonment costs, are amortized using the unit-of-production method.
Oil and gas properties include costs that are excluded from capitalized costs being amortized. These amounts represent costs of investments in unproved properties. The Company excludes these costs on a country-by-country basis until proved reserves are found or until it is determined that the costs are impaired. All costs excluded are reviewed annually to determine if impairment has occurred. The amount of any impairment is transferred to the costs subject to amortization.
Ceiling Test and Impairment
Under the full cost method of accounting, a ceiling test is performed each quarter for proved properties. The full cost ceiling test is an impairment test prescribed by SEC Regulation S-X. The ceiling test determines a limit, on a country-by-country basis, on the book value of oil and gas properties. The capitalized costs of proved oil and gas properties, net of accumulated depreciation, depletion, amortization and impairment("DD&A") and the related deferred income taxes, may not exceed the estimated future net cash flows from proved oil and gas reserves, calculated using the average oil and natural gas sales price received by the Company as of the first trading day of each month over the preceding twelve months (such prices are held constant throughout the life of the properties) with consideration of price change only to the extent provided by contractual arrangement, discounted at 10%, net of related tax effects. If capitalized costs exceed this limit, the excess is charged to expense and reflected as additional accumulated DD&A. The Company has no proved properties subject to the full cost ceiling test as of December 31, 2016.
Asset Retirement Obligations
Asset retirement obligations ("ARO") represent the future abandonment costs of tangible assets such as platforms, wells, service assets, pipelines, and other facilities. The fair value of a liability for an asset's retirement obligation is recorded in the period in which it is incurred if a reasonable estimate of fair value can be made, and that the corresponding cost is capitalized as part of the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, an adjustment is made to the full cost pool, with no gain or loss recognized, unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. The ARO assets, which are carried on the balance sheet as part of the full cost pool, will be included in our amortization base for the purposes of calculating depreciation, depletion and amortization expense. For the purposes of calculating the ceiling test, the future cash outflows associated with settling the ARO liability is included in the computation of the discounted present value of estimated future net revenues.
Revenue Recognition
The Company recognizes sales revenues for crude oil based on the amount sold to purchasers when delivery to the purchaser has occurred and title has transferred. This occurs when a tanker lifting has occurred.
Income Taxes
Deferred income taxes are provided on a liability method whereby deferred tax assets and liabilities are established for the difference between the financial reporting and income tax basis of assets and liabilities as well as operating loss and tax credit carry forwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry-forwards are expected to be available to reduce taxable income. At December 31, 2016 and 2015, the Company has recorded a 100% valuation allowance as management believes it is likely that no deferred tax assets will be realized.
At December 31, 2016, the Company had net operating loss carry forwards of approximately $1.5 million that will expire between 2031 through 2036.
Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing the net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common and common equivalent shares outstanding during the period. Common share equivalents included in the diluted computation represent shares issuable upon assumed exercise of stock options and warrants using the treasury stock and "if converted" method. For periods in which net losses are incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations, as the inclusion of common share equivalents would have an anti-dilutive effect. As of December 31, 2016 and 2015, there were no potentially dilutive shares.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year-end and the reported amounts of revenues and expenses during the year and the reported amount of proved natural gas and oil reserves. Management bases its estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments that are not readily apparent from other sources. Actual results could differ from these estimates and changes in these estimates are recorded when known.
Subsequent Events
The Company has evaluated all transactions through the date the consolidated financial statements were issued for subsequent event disclosure consideration.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued guidance for revenue recognition for contracts, superseding the previous revenue recognition requirements along with most existing industry-specific guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations, 3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard will result in enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue arising from contracts with customers. In August 2015, the FASB issued guidance approving a one-year deferral, making the standard effective for reporting periods beginning after December 15, 2017, with early adoption permitted only for reporting periods beginning after December 15, 2016. In March 2016, the FASB issued guidance to clarify the implementation guidance on principal versus agent considerations for reporting revenue gross rather than net, with the same deferred effective date. In April 2016, the FASB issued guidance to clarify the implementation guidance on identifying performance obligations and the accounting for licenses of intellectual property, with the same deferred effective date. In May 2016, the FASB issued guidance rescinding SEC paragraphs related to revenue recognition, pursuant to two SEC Staff Announcements at the March 3, 2016 Emerging Issues Task Force meeting. In May 2016, the FASB also issued guidance to clarify the implementation guidance on assessing collectability, presentation of sales tax, noncash consideration, and contracts and contract modifications at transition, with the same effective date. The Company is currently evaluating the impact, if any, that this guidance will have on the financial statements. Because the Company does not have existing significant revenue arrangements, management believes the impact of adoption will not be material to its financial statements.
The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
Note 3 - Going Concern
As shown in the accompanying financial statements, the Company has incurred losses from operations, has not generated significant revenue and has not secured continuous funding for the operation of its oil and gas producing activities. These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. In addition to the offering of securities for sale to the public, the management currently is searching for other short-term and long-term sources of liquidity for its producing operations.
Note 4 - Oil and Gas Properties, Full Cost Method
The Company's oil and gas properties at December 31, 2016 and 2015 are located in the State of Texas in the United States of America and are all in Milam County.
During the year ended December 31, 2016, the Company added three additional oil and gas leases. The added leases contain a total of 23 wells.
For the years ended December 31, 2016 and 2015, the Company invested $91,323 and $141,357, respectively, in the development of its oil and gas infrastructure and wells and acquisition of new lease properties discussed above.
Note 5 - Accrued Lease Liabilities
The Company has an accrued lease liability to KADs Oil, Inc., the lessor of the Company's leases in Milam County, Texas. As a result of the Purchase and Sale Agreement with Remington, the Company assumed the leasehold obligation of $50,000. Payments are to be made when oil and gas is recovered and delivered to market at the rate of 25% of the sale price after all operating expenses. No payment has been made as of December 31, 2016.
On May 10, 2011, the Company entered into an oil, gas and mineral lease agreement for its oil and gas properties located in Milam County, Texas. Pursuant to the lease agreement, the Company will pay the lessor $15,881 for the lease which is recorded as an accrued leasehold liability on the Company's balance sheets at December 31, 2016 and 2015. No payment has been made as of December 31, 2016.
Note 6 - Asset Retirement Obligations
The following table provides a reconciliation of the changes in the estimated present value of asset retirement obligations.
Note 7 - Equity
During the year ended December 31, 2016, the Company issued 243,425 common shares for $486,850. During the year ended December 31, 2015, the Company issued 206,675 common shares for $413,350.
During the year ended December 31, 2015, two investors canceled their subscriptions of 5,000 common shares and returned the shares to the Company. The Company returned $10,000 previously received.
As of December 31, 2016 and 2015, the Company has stock payable of $40,500 and $45,000, respectively, for shares subscribed but not issued.
Note 8 - Commitments and Contingencies
On September 21, 2016, the Securities and Exchange Commission declared effective a registration statement that the Company had filed for shelf offering. The registration statement on Form S-1 filed on December 1, 2011 went effective on March 29, 2013 and expired on March 29, 2016. From March 30, 2016 until the date of this report, the Company sold 394,095 shares pursuant to Rule 506(b) in private placements, which the Company believes it would qualify for a Section 4(a) (2) exemption. The Company filed a Form D on November 18, 2016 to report the private offering of restricted securities. The private placements may have violated Section 5 of the Securities Act of 1933, as amended, and, as a result, regulatory authorities could take the position that the Company violated applicable Federal and State securities laws and, as a result, impose penalties and that the purchasers of those shares may have rescission rights or claims for damages.
Note 9 - Subsequent Events
Subsequent to December 31, 2016, the Company issued 184,920 common shares for $239,840.
Subsequent to December 31, 2016, the Company canceled 7,500 common shares that was returned to the Company. The Company returned $15,000 previously received.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive and principal financial officers, we conducted an evaluation as of December 31, 2016 of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2016.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of management, including our principal executive and principal financial officers, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "2013 COSO Framework"). Based on this evaluation under the COSO Framework, management concluded that our internal control over financial reporting was not effective as of December 31, 2016 Such conclusion reflects the lack of accounting experience of our now principal financial officer, the lack of design and implementation of internal controls, and a lack of segregation of duties. Until we are able to remedy these material weaknesses, we are relying on third party consultants to assist with financial reporting.
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 rules of the Securities and Exchange Commission that permit smaller reporting companies to provide only management's report in this annual report.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during the year of 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
Executive Officers
Our executive officers as of December 31, 2016, and their ages and positions as of that date, are as follows:
Kevin Jones
Mr. Jones is the founder of North Texas Energy, Inc. and holds BS, MS degrees, and PhD (ABD) in Physics. For nearly two years, early 1997 through late 1999, Mr. Jones served as a risk project manager for SRS Technologies. In late 1999, Mr. Jones joined General Dynamics where he served as a project manager and later a program manager for various defense related programs until late 2009. In late 2009, Mr. Jones joined ManTech International where he served as a program manager until he began serving full time as the CEO of North Texas Energy, Inc. in March 2012. Mr. Jones began serving as the director of North Texas Energy, Inc. in January 2011. None of Mr. Jones' previous employers have any connection with North Texas Energy, Inc. He served as the initial Secretary for the Board of Directors of Remington Oil & Gas, Inc. for two months, January and February of 2010.
For the past 15 years, Mr. Jones has worked in program management and project management capacities. He managed $3 million to $50 million programs from inception to completion. Mr. Jones has managed programs and projects for the Missile Defense Agency, the Department of Defense (Army, Navy, and Marines), and the Department of Homeland Security. As a program manager, he was responsible for the executive management of a program (and it associated projects) and ensured the program ran effectively and efficiently. He managed the development and implementation of the programmatic scope, management plans, management schedules, life cycle and logistics cost analyses, cost trade-off analysis, and programmatic risk management assessments.
Mr. Jones has simultaneously managed disparate programs whereby different management techniques were brought to bear in totally different ways to obtain the desired results. He has built and led successful professional operations and he has turned dysfunctional operations into efficient cost productive programs.
Sanah Marah
Mr. Sanah Marah Jr. has been a Finance and Accounting Professional for the last 14 years. He attended the prestigious University of London and holds a Business and Finance degree and also attended LeTourneau University and graduated with a B.A. Accounting. He is a practicing Chartered Management Accountant, or C.M.A.
For the past 6 years, he served in two professional roles in which he managed budgets and projects ranging from $100 million to $800 million. In 2009, Mr. Marah joined the Accounting Team at Greyhound Lines Inc.'s (First Group America FGA Parent Company) corporate office in Dallas, Texas where his main focus was Inventory Management for all the U.S. and Canadian Operations and currently holds the position of Senior Accountant. He effectively managed all aspects of U.S. and Canadian Operations area including, Fuel, Oil, Tires, Engine and Cores. Components of these included Bus Refurbishment Project costing close to $200 million including budget and cash flow projections and spending. Before joining Greyhound Lines Inc., Mr. Marah pursued his private practice and he consulted with several companies including, Ascent Capital Group and J.F. Entertainment. As a Finance Consultant, he performed all finance and accounting roles from payables, receivables, cash management, budgeting & forecasting, inventory management, merger and acquisitions, fixed assets management and payroll.
Prior to private practice, Mr. Marah worked at Dean Foods Company, the largest Dairy Producer and Manufacturer in the U.S. In his tenure between 2003 and 2007, he focused on the inter-company reconciliations and eliminations for 45 entities. As a Senior Accountant, he introduced a cashless inter-company confirmation process between sister companies. During the same period, he performed Sarbanes-Oxley (SOX) implementation and testing to ensure proper internal controls. His last project before leaving was to ensure proper data integration and chart of accounts conversion to a new platform while constantly managing the Internal Financial Reporting for four divisions and the reconciliation of the financials between the General Ledger and Hyperion.
Earlier in his career, Mr. Marah was an International Accounting Analyst for Blockbuster's Corporate Office in Dallas Texas. In that capacity, he was responsible for the consolidations and eliminations of all the international operations in Europe, Latin America and Asia. He ensured minimal currency exposure and liabilities with the use of his hedging techniques. In addition, he created commentary on profit and loss fluctuations for each global region and reconciled statements from foreign GAAP to U.S. GAAP.
Mr. Marah began providing professional services to the Company on a part-time basis in January 2011.
No Officer or Director has been or is subject to any legal proceeding as identified in Regulation S-K Item 401(f)
Item 11.
Item 11. Executive Compensation.
The following table sets forth information concerning the total compensation paid or accrued by us during the fiscal years ended December 31, 2016 and 2015 to all individuals that served as our principal executive and principal financial officers or acted in a similar capacity for us at any time during the fiscal years ended December 31, 2016 and 2015.
SUMMARY COMPENSATION TABLE
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information with respect to the beneficial ownership of our common stock known by us as of September 29, 2017 by:
• each person or entity known by us to be the beneficial owner of more than 5% of our common stock;
• each of our directors and executive officers; and
• all of our directors and executive officers as a group.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
There were no related party transactions during the years ended December 31, 2016 and 2015.
Item 14.
Item 14. Principal Accounting Fees and Services.
The following table sets forth the fees billed by our principal independent accountants for each of our last two fiscal years for the categories of services indicated.
Audit fees: Consists of fees billed for the audit of our annual financial statements and review of our interim financial information and services that are normally provided by the accountant in connection with year-end and quarter-end statutory and regulatory filings or engagements.
Audit-related fees: Consists of fees billed for services relating to review of other regulatory filings including registration statements, periodic reports and audit related consulting.
Tax fees: Consists of professional services rendered by our principal accountant for tax compliance, tax advice and tax planning.
Other fees: Other services provided by our accountants.
EXHIBIT INDEX
* The XBRL related information in Exhibit 101 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Addison, State of Texas, on September 26, 2017.
NORTH TEXAS ENERGY, INC.
Signature
Title
Date
/s/ Kevin Jones
Chief Executive Officer and Director
September 29, 2017
Kevin Jones
(Principal Executive Officer)
/s/ Sanah Marah
Chief Financial Officer
September 29, 2017
Sanah Marah
(Principal Financial and Accounting Officer)