OKMN 10-Q
Okmin Resources, Inc. (OKMN)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(MARK ONE)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ |
Commission File Number:
| (Exact Name of Registrant as Specified in its Charter) |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
| (Registrant’s Telephone Number, Including Area Code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| None | None | None |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. ☒
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller Reporting Company | |
| Emerging growth company |
If an emerging growth company, indicate by
check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 5, 2022 there were shares of the registrant’s common stock, $0.0001 par value per share, issued and outstanding.
Okmin Resources, Inc.
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| Item 3. | Qualitative and Quantitative Disclosures about Market Risk | 15 |
| Item 4. | Controls and Procedures | 16 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 18 |
| Item 1A. | Risk Factors | 18 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
| Item 3. | Defaults Upon Senior Securities | 18 |
| Item 4. | Mine Safety Disclosures | 18 |
| Item 5. | Other Information | 18 |
| Item 6. | Exhibits | 18 |
| SIGNATURES | 19 |
PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements.
OKMIN RESOURCES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| September 30, | June 30, | |||||||
| 2022 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Production revenue receivable | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Oil and gas properties, net | ||||||||
| Black Rock Joint Venture | ||||||||
| Other assets and restricted cash | ||||||||
| Total noncurrent assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Stock issued liability | ||||||||
| Total current liabilities | ||||||||
| Long term liabilities: | ||||||||
| Accrued interest payable | ||||||||
| Note payable | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock, $ par value, shares authorized, shares issued and outstanding at September 30, 2022 and June 30,2022 | ||||||||
| Common stock, $ par value, shares authorized, and , respectively, issued and outstanding at September 30, 2022 and June 30, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to the unaudited consolidated financial statements.
| 1 |
OKMIN RESOURCES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| September 30, 2022 | September 30, 2021 | |||||||
| Revenue | ||||||||
| Oil and gas sales | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ( | ) | ||||||
| Operating expenses: | ||||||||
| General and administrative expense | ||||||||
| Total operating expenses | ||||||||
| (Loss) income from operations | ( | ) | ||||||
| (Loss) income before taxes | ( | ) | ||||||
| Provision for income taxes | ||||||||
| Total net (loss) income | $ | ( | ) | $ | ||||
| Net income (loss) per share | ||||||||
| Basic | $ | ( | ) | $ | ||||
| Diluted | $ | ( | ) | $ | ||||
| Weighted average number of shares outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
See accompanying notes to the unaudited consolidated financial statements.
| 2 |
OKMIN RESOURCES, INC AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended September 30, 2022 and 2021
(Unaudited)
| Additional | Stockholders' | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Accumulated | Equity/ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Shares issued for cash | — | |||||||||||||||||||||||||||
| Shares issued for services | — | |||||||||||||||||||||||||||
| Shares used for financing | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Additional | Stockholders' | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Accumulated | Equity/ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Shares issued for cash | — | |||||||||||||||||||||||||||
| Shares issued for services | — | |||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements
| 3 |
OKMIN RESOURCES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| September 30, 2022 | September 30, 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net (loss) profit | ( | ) | ||||||
| Adjustments to reconcile net loss to net cash from operations: | ||||||||
| Accrued Product Sale (O&G) | ( | ) | ||||||
| Prepaid Deposit Kluin Trust acc | ||||||||
| Security Deposit | ||||||||
| Production revenue receivable | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Net cash from operating activities | ( | ) | ||||||
| Cash Flows from Investing Activities | ||||||||
| Blackrock Joint Venture | ||||||||
| Pushmataha Lease | ( | ) | ||||||
| Sheppard Pool Gas Project | ( | ) | ||||||
| Vitt lease-Kansas | ( | ) | ||||||
| Vitt lease-Kansas:Intangible Assets | ( | ) | ||||||
| Vitt lease-Kansas: Tangible Assets | ||||||||
| Vitt lease-Kansas: Tangible Assets Depreciation | ||||||||
| Net cash from investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Note Payable | ( | ) | ||||||
| Additional Paid in Capital | ||||||||
| Common stock issued | ||||||||
| Opening Equity Balance | ||||||||
| Net cash from financing activities | ||||||||
| Net change in cash | ||||||||
| Cash - beginning of period | ||||||||
| Cash - end of period | ||||||||
See accompanying notes to the unaudited consolidated financial statements.
| 4 |
OKMIN RESOURCES, INC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2022
(Unaudited)
1. ORGANIZATION AND BUSINESS
Okmin Resources, Inc. (collectively with its subsidiaries, “Okmin” or the “Company”) was incorporated in Nevada in December 2020 to engage in the business of the acquisition, exploration and development of oil and gas properties, mineral rights and other natural resource assets.
As a development stage company, Okmin has been focused on the acquisition and development of domestic oil and gas fields, investing in lower profile rework and recompletion opportunities with lower entry costs. The company's initial projects are located in Oklahoma and Kansas.
The Company has two wholly owned subsidiaries that conduct oil and gas activities, Okmin Operations, LLC organized on May 25, 2021 in the State of Kansas and Okmin Energy LLC, organized on November 21, 2021 in the State of Oklahoma.
The Company has an interest in four separate projects:
| 1) | The Blackrock Joint Venture encompassing 15 oil and gas leases in Oklahoma | |
| 2) | A 72.5% Net Revenue Interest in the Vitt oil lease located in Neosho County, Kansas | |
| 3) | A 50% Joint Venture interest in West Sheppard Pool, a natural gas project in North East Oklahoma | |
| 4) | A 50% Joint Venture interest in Pushmataha, a natural gas project in South East Oklahoma. |
The Company has not conducted any reserve evaluations or calculations, and there are currently no proven reserves on any of the Company’s properties.
The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to advance the Company’s current plan to rework and possibly develop its existing projects and to identify and acquire new projects.
The Company’s fiscal year end is June 30.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.
The Company maintains its accounts on the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Accounting principles followed and the methods of applying those principles, which materially affect the determination of financial position, results of operations and cash flows are summarized below.
The financial statements are presented on a consolidated basis and include all of the accounts of Okmin Resources, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated. The results for the interim period are not necessarily indicative of the results to be expected for the year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and certain assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual results could differ from these estimates.
| 5 |
OKMIN RESOURCES, INC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of September 30, 2022 (Unaudited) |
Cash and cash Equivalents
The Company considers all highly liquid temporary
cash investments with an original maturity of three months or less to be cash equivalents. At September 30, 2022 and June 30, 2022, the
Company cash equivalents totaled $
Revenue recognition
The Company recognizes oil and gas revenues when production is sold at a fixed or determinable price, persuasive evidence of an arrangement exists, delivery has occurred and title has transferred, and collectability is reasonably assured.
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 of unsuccessful, as well as successful, exploration and development activities are capitalized as properties and equipment. This includes any internal costs that are directly related to property acquisition, exploration and development activities but does not include any costs related to production, general corporate overhead or similar activities. Gain or loss on the sale or other disposition of oil and gas properties is not recognized unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves.
Oil and gas properties include costs that are excluded from costs being depleted or amortized. Oil and natural gas property costs excluded represent investments in unevaluated properties and include non-producing leasehold, geological, and geophysical costs associated with leasehold or drilling interests and exploration drilling costs. The Company allocates a portion of its acquisition costs to unevaluated properties based on relative value. Costs are transferred to the full cost pool as the properties are evaluated over the life of the reservoir. Unevaluated properties are reviewed for impairment annually and are determined through an evaluation considering, among other factors, seismic data, requirements to relinquish acreage, drilling results, remaining time in the commitment period, remaining capital plan, and political, economic, and market conditions.
Gains and losses on the sale of oil and gas properties are not generally reflected in income unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves. Sales of less than 100% of the Company’s interest in the oil and gas property are treated as a reduction of the capital cost of the field, with no gain or loss recognized, as long as doing so does not significantly affect the unit-of-production depletion rate. Costs of retired equipment, net of salvage value, are usually charged to accumulated depreciation.
Depreciation, depletion, and amortization
The depreciable base for oil and natural gas properties includes the sum of all capitalized costs net of accumulated depreciation, depletion, and amortization (“DD&A”), estimated future development costs and asset retirement costs not included in oil and natural gas properties, less costs excluded from amortization. The depreciable base of oil and natural gas properties is amortized on a unit-of-production method.
Asset retirement obligations
The fair value of a liability for an asset’s retirement obligation (“ARO”) is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made, with the corresponding charge capitalized as part of the carrying amount of the related long-lived asset. The liability is accreted to its then-present value each subsequent period, and the capitalized cost is depleted over the useful life of the related asset. Abandonment costs incurred are recorded as a reduction of the ARO liability.
Inherent in the fair value calculation of an ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental, and political environments. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property balance. Settlements greater than or less than amounts accrued as ARO are recorded as a gain or loss upon settlement.
| 6 |
OKMIN RESOURCES, INC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of September 30, 2022 (Unaudited) |
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of ASU No. 2016-02 has had no impact on our financial statements.
3. GOING CONCERN
The Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business.
As reflected in the accompanying condensed financial
statements, the Company had a net loss of $
The Company had working capital of $
The Company’s future success is dependent upon its ability to achieve profitable operations, generate cash from operating activities and obtaining additional financing. If such additional financing is not available on terms acceptable to us or at all, then we may need to curtail our operations and/or take additional measures to conserve and manage our liquidity and capital resources, any of which would have a material adverse effect on our financial position, results of operations, and our ability to continue as a going concern. The condensed financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
4. OIL AND GAS PROPERTIES
Blackrock Joint Venture - Oklahoma
In February 2021 Okmin entered into a Joint
Venture Agreement and Operating Agreement with Blackrock Energy, LLC committing $
| 7 |
OKMIN RESOURCES, INC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of September 30, 2022 (Unaudited) |
Pursuant to the Joint Venture Agreements, the Company has acquired working interests in the following leases:
50% Working Interest
| · | Chain Lease – 160 Acres in Okmulgee County | |
| · | Burke Lease – 40 Acres in Okmulgee County | |
| · | Preston Lease – 80 Acres in Okmulgee County | |
| · | Goldner Lease – 160 Acres in Okmulgee County | |
| · | Peavler Lease – 80 Acres in Okmulgee County | |
| · | Anthony Lease – 70 Acres in Muskogee County | |
| · | Calley Lease – 40 Acres in Okmulgee County | |
| · | Abbey Lease – 40 Acres in Okmulgee County | |
| · | Duffy Lease – 40 Acres in Okmulgee County | |
| · | Shanks Lease - 160 Acres in Okmulgee County | |
| · | Waldrip Lease – 80 Acres in Okmulgee County | |
| · | Circle V Lease – 236 Acres in Okmulgee County | |
| · | Hessom Lease – 183 Acres in Okmulgee County | |
| · | Chastain Lease – 80 Acres in Okmulgee County |
25% Working Interest
| · | Hollingsworth Lease – 80 Acres in Okmulgee County |
There are no proven reserves of any classification in the Blackrock Joint Venture leases.
Vitt Project – Kansas
In July 2021, the Company through its wholly owned
Kansas subsidiary, Okmin Operations, LLC entered into an agreement to acquire a
West Sheppard Pool Field in North East Oklahoma
In August 2021, the Company entered into an option
agreement with Blackrock to acquire a
The 24 existing wells on the leases range from 850 feet to 1950 feet in depth with gas production from several zones as their main objective.
Pushmataha in South East Oklahoma
In December 2021,
the Company exercised its option and entered into definitive agreements with Blackrock to acquire a
| 8 |
OKMIN RESOURCES, INC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of September 30, 2022 (Unaudited) |
In the three months ended September 30, 2022, the
Company’s expenditures on the project were approximately $
For the three months ended September 30, 2022, the
Company had production revenue of $
| Oil | Natural Gas | |||||||||||||||||||||||||||
| Production | Avg. Cost | Avg. Sales Price | Production | Avg. Cost | Avg. Sales Price | Total Revenue | ||||||||||||||||||||||
| Project | (BBLS) | ($) | ($) | (MCF) | ($) | ($) | ($) | |||||||||||||||||||||
| Black Rock JV | ||||||||||||||||||||||||||||
| Pushmataha | ||||||||||||||||||||||||||||
| West Sheppard | ||||||||||||||||||||||||||||
| Vitt Lease | ||||||||||||||||||||||||||||
Subject to the Company being able to secure adequate additional financing, Okmin may also acquire the rights to and participate in drilling and/or other mining operations. The Company will evaluate exploration and mining opportunities and other strategic corporate opportunities as they become available from time to time.
There are no proven reserves of any classification in any of the projects listed above.
5. STOCKHOLDERS’ EQUITY
Preferred stock
The Company is authorized to issue
shares of preferred stock with a par value of $ per share. As of September 30, 2022, the Company had a total of shares
of Series A preferred stock issued and outstanding.
Common stock
The Company is authorized to issue shares of common stock with a par value of $ per share.
As of September 30, 2022, the Company had shares of its common stock issued and outstanding.
On September 29, 2022, the Company completed the placement
of equity units in a private placement. Each unit consists of 1 common share and 0.5 of a warrant. The units were priced at
$ per unit and each full warrant will be exercisable to buy one share of the Company’s common stock at a price of $ until
December 31, 2024. Pursuant to the terms of the placement the Company issued common shares and warrants for gross
proceeds of $
In the Company’s efforts to conserve limited liquidity, these shares included shares of common stock issued during the three months ending September 30, 2022 in lieu of cash for services as follows:
On September 30, 2022, the board of directors approved
the issuance of an aggregate of shares of common stock in lieu of cash payments of $
| 9 |
OKMIN RESOURCES, INC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of September 30, 2022 (Unaudited) |
Additionally on September 30, 2022, the board of directors approved the issuance of shares of common stock in connection with a consulting services agreement for services in connection with the Company’s filing preparation, compliance matters and business activities.
A reconciliation of the components of basic and diluted net income per common share for the three months ended September 30, 2022 is presented below:
| Three Months Ended September 30, 2022 | ||||||||||||
| Net Loss | Weighted Average Shares | Per Share | ||||||||||
| Basic Earnings per Share: | ||||||||||||
| Net loss attributable to common stock basic | $ | ( | ) | $ | ( | ) | ||||||
| Net loss attributable to common stock fully diluted | $ | ( | ) | $ | ( | ) | ||||||
The numerator for basic earnings per share is net income attributable to common stockholders. The numerator for diluted earnings per share is net income available to common stockholders.
7. INCOME TAXES
Net operating loss carry forwards of approximately
$
8. CONVERTIBLE NOTE
In November 2021, the Company entered into a convertible
note agreement pursuant to which it raised $
9. SUBSEQUENT EVENTS
On October 4, 2022,
the Company filed a Form D in connection with a private placement of securities in the Company, pursuant to which additional gross
proceeds of $
Other than as outlined above, the Company has evaluated subsequent events through the filing date of these financial statements and has disclosed that there are no such events that are material to the financial statements to be disclosed.
| 10 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Special Note Regarding Forward-Looking Information
The following discussion and analysis of the results of operations and financial condition of Okmin Resources, Inc., and its subsidiaries (“Okmin” or the “Company”) as of September 30, 2022 should be read in conjunction with our unaudited financial statements and the notes to those unaudited financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to Okmin. This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based.
Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. Except as required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
U.S. Dollars are denoted herein by “USD,” “$” and “dollars”.
Note on COVID- 19
The COVID-19 pandemic is a highly fluid situation and it is not currently possible for us to reasonably estimate the impact it may have on our financial and operating results. We will continue to evaluate the impact of the COVID-19 pandemic on our business as we learn more and the impact of COVID-19 on our industry becomes clearer. We are complying with health guidelines regarding safety procedures, including, but are not limited to, social distancing, remote working, and teleconferencing. The extent of the future impact of the COVID-19 pandemic on our business is uncertain and difficult to predict. Adverse global economic and market conditions as a result of COVID-19 could also adversely affect our business. If the pandemic continues to cause significant negative impacts to economic conditions, our results of operations, financial condition and liquidity could be adversely impacted.
Overview
Okmin Resources, Inc. was organized near the end of 2020 to engage in the business of the acquisition, exploration and development of mineral rights and natural resource assets.
As a development stage company, Okmin has been focused on the acquisition and development of domestic oil and gas fields, investing in lower profile rework and recompletion opportunities with lower entry costs. The company's initial projects are located in Oklahoma and Kansas.
The Company has two wholly owned subsidiaries that conduct oil and gas activities, Okmin Operations, LLC incorporated on May 25, 2021 in the State of Kansas and Okmin Energy LLC, incorporated on November 21, 2021 in the State of Oklahoma.
The Company has an interest in four separate projects:
| 1) | The Blackrock Joint Venture encompassing 15 oil and gas leases in Oklahoma | |
| 2) | A 72.5% Net Revenue Interest in the Vitt oil lease located in Neosho County, Kansas | |
| 3) | A 50% joint venture interest in West Sheppard Pool, a natural gas project in North East Oklahoma | |
| 4) | A 50% joint venture interest in Pushmataha, a natural gas project in South East Oklahoma. |
The Company has not conducted any reserve evaluations or calculations, and there are currently no proven reserves on any of the Company’s properties.
| 11 |
Okmin entered into a Joint Venture Agreement and Operating Agreement in February 2021, committing $100,000 in the initial phase to acquire working interests in ten oil and gas leases located in Okmulgee and Muskogee Counties in Oklahoma. Under the Operating Agreement, Okmin has a 50% Working Interest in 710 acres and a 25% interest in 80 acres. The Company’s Joint Venture partner, Blackrock Energy LLC (“Blackrock”) is the Operator of the project. Pursuant to a further agreement entered into on June 10, 2022, the Company added an additional five oil and gas leases across 739 acres to its joint venture with Blackrock, thereby expanding the overall project to fifteen leases covering over 1,500 acres. Recent focus has been directed to the Shanks lease, one of the newly acquired leases. Initially the operator was able to activate one of the four wells on the lease and ran a 24 hour gas test on the well. The test results showed 198.5 MCFD potential. Upon being put on production, the (13C) well came on at 140 MCFD through the meter for a short time and then the flow rate dropped due to blockage at the perforations downhole. Blockages and corrosion are typical since the well has been shut in for a number of years. The well was subsequently pulled and the operator plans to recomplete the well and utilize stimulation techniques not previously deployed on the lease. This work program is designed to reopen the existing zone and potentially add an additional gas zone on the same wellbore. Three additional wells on the Shanks lease have been pulled and are potential candidates for stimulations and recompletion into additional behind-pipe zones.
In the fiscal year ended June 30, 2022, our share of the joint venture recorded revenues of approximately $51,000 from oil and gas sales, predominantly oil. In the current quarter ended September 30, 2022, our share of the joint venture recorded revenues of $10,841 from oil sales and $2,279 from the sale of natural gas.
The Company through its wholly owned Kansas subsidiary, Okmin Operations, LLC, entered into an agreement in July 2021 to acquire a 72.5% Net Revenue Interest in the Vitt Lease located in Neosho County, Kansas. Okmin Operations, LLC acquired the lease with a cash payment of $25,000 together with a commitment to make additional capital and operating expenditures to rework the wells on the lease. The lease covers 160 acres and after initial reworking now includes nine active oil wells, two idle wells and two active water injection wells, plus another two injection wells that require further assessment. In the quarter ended September 30, 2022, lease operating expenditures were $6,000 with revenue of $2,317.
The Vitt lease has now become a small producing lease, though we continue to encounter various maintenance issues that have to be addressed. The Company is currently exploring a number of possibilities for the lease, which may include involving a partner in its further development.
In November 2021, the Company entered into a definitive joint venture and operating agreement with Blackrock to acquire a 50% joint venture interest in the West Sheppard Pool Field, a series of leases totaling 1,930 acres located in Okmulgee County, Oklahoma with an upfront cost of $150,000 plus some ancillary costs and an anticipated initial rework budgeted at $100,000. As of the fiscal year end on June 30, 2022, approximately $21,000 of additional expenditures had been made on equipment and field work. The 24 existing wells on the leases range from 850 feet to 1,950 feet in depth with gas production from several zones as their main objective. Following the acquisition of the leases, the operator began to assess the inventory of wells and equipment on site. Initial work focused on improving the flow lines, water congestion issues and electronic metering. After some minor repairs, there has been minimal gas flow between 25 to 50 MCFD, and additional work is ongoing. The plan is to open up as many connected wells as we can and purge the water in the flow lines. The project also requires further trenching to lay up to 3 miles of flow line with associated valve requirements and plans are underway for this to be completed over the next several months. Gas sales have been temporarily suspended at West Sheppard Pool, as the gas company requires additional production throughput to justify the ongoing operation of its compressor station three miles away. Only six of the 24 wells have been connected to the pipeline thus far. The operator is optimistic that upon reactivating additional wells, there will be sufficient daily gas flow to justify a resumption of the compressor operation and of gas sales through this meter. Beyond this, in terms of further developing the project, the operator believes that there is room to drill dozens of additional wells, and excellent behind-pipe opportunities in many of the existing 24 wells. In the quarter ended September 2022, we recorded minimal revenues of $1948 at West Sheppard Pool.
In December 2021, the Company exercised its option and entered into a definitive joint venture and operating agreement with Blackrock to acquire 50% of Blackrock’s interest in the Pushmataha Gas Field, comprising 6 leases covering an area of 3,840 acres located in Pushmataha County, Oklahoma. Blackrock had previously entered into a separate option to acquire working interests ranging from 92%-100% in the existing wells and lease acreage from a third party. In connection with the initial acquisition, the Company expended approximately $253,000 in cash. Under the terms of the Joint Venture agreement, after deducting operating costs including a flat sum of $1,000 per month to Blackrock as operator, the Company shall receive all net income from revenues of the project until it has recouped $125,000, thereafter, the parties shall equally split the income.
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The Company has a 50% ownership interest in the Joint Venture with Blackrock. The leases owned by the Joint Venture are subject to land owner royalties and other commitments resulting in net revenue interests to the joint venture of between 71% - 76%, with the exception of the Stephenson well, which has a net revenue interest of approximately 68%.
Pushmataha has 7 existing gas wells ranging in depth from 10,000-12,300 feet. The wells were temporarily inactive since 2019 due to line leaks and lower gas prices, though in April 2021 some wells were put back online and have at various intervals produced between 100-300 MCFD. Through the fiscal year ended June 30, 2022, we recorded $28,110 in revenues from gas sales at the project. Earlier this year, the wells were shut in, as the operator awaited repairs to a gas leak by the pipeline owner to the pipeline gathering system. The operator developed its plan to resume and improve production on the leases and the Company has committed to further expend an unspecified additional amount of capital toward reworking the field as it reasonably determines. At this stage the Company anticipates its next phase of such expenditure to be between $100,000 to $200,000, though there can be no guarantee that such amount will be sufficient or what results it will achieve. The operator believes with additional reworking and recompletion efforts it can further optimize the production potential of this field. Newer modern day technologies could also have an important impact on the economics for this asset. In July 2022, management was present on site as a hydrocarbon survey was conducted across these leases utilizing a third party patented remote sensing technology, which has provided the operator with valuable data in charting the potential for the future development of this project. Plans are also underway for the operator to commence repairing or possibly replacing the plunger lift systems of some of the wells, with the goal of dewatering the wells to enable the gas to flow freely. The existing seven wells show additional behind-pipe zones. In addition, there is room to drill new gas wells on the 3,840 acre leasehold, using the hydrocarbon mapping as a tool to mitigate risk in these reservoirs.
Subject to the Company being able to secure adequate additional financing, Okmin may also acquire the rights to and participate in drilling and/or other mining operations. The Company will evaluate exploration and mining opportunities and other strategic corporate opportunities as they become available from time to time.
The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to advance the Company’s current plan to rework and possibly develop its existing projects and to identify and acquire new projects.
Results of Operations
For the Three months ended September 30, 2022, as compared to the Three months ended September 30, 2021
Revenue
We generated $42,232 in revenue from oil and gas sales for the three months ended September 30, 2022, as compared to $13,133 in revenues generated in the three months ended September 30, 2021. The increase in revenue is attributable to rework operations and improvements on the Blackrock Joint Venture leases over the past twelve months and the acquisition of the other additional income producing properties during the course of the year, including West Sheppard Pool and Pushmataha.
General and Administrative Expense
General and administrative expenses increased to $116,667 for the three months ended September 30, 2022 as compared to $7,605 for the three months ended September 30, 2021, part of these expenses included $12,600 in non-cash items, where stock was issued in lieu of cash for services. This increase is attributable to the Company moving from its formative stages into development and operations at its oil and gas properties and greater expenses of the Company as it moved from a start-up phase to a more advanced operating Company and therefore incurring expenses related to compensation, lease operating, interest and professional fees. Additionally, this incorporates fees and expenses related to the efforts to become a publicly traded company.
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Net Loss
The net loss for the three months ended September 30, 2022 was $129,181 compared to a net profit of $4,586 for the three months ended September 30, 2021. The Expenses during the three month period ended September 30, 2022, included $40,500 in compensation (of which only half is being paid out at the present time, with the remainder being accrued as a payable), plus an additional $6,880 in accounting related compensation expenses and $31,848 in professional fees. Of these amounts, $12,600 were non-cash items with stock issued in lieu of services. Other expenses included $54,043 lease operating expenses (including taxes and royalties), $5,333 in interest expense, $26,912 in listing related fees and other general and administrative expenses. In the three month period ended September 30, 2021 expenses only included some nominal general operating overhead and were minimal as the Company was still establishing itself in its formative stages.
Net cash used in investing activities
In the three months ended September 30, 2022, cash expended on investing activities of $10,053 was predominantly in connection with development at Pushmataha. In the corresponding quarter ended September 30, 2021, this amount was $63,629 of which a significant amount was in connection to initial development of the Vitt lease upon acquiring it last year.
Net cash from financing
Net cash from financing activities in the three months ended September 30, 2022 totaled $329,475, which was predominantly comprised of private placements of equity securities during the quarter. Net cash from financing activities in the corresponding three months ended September 30, 2021 totaled $245,500, which was largely attributable to an earlier private placement of equity securities in that quarter.
LIQUIDITY AND CAPITAL RESOURCES
Current Financial Condition
As of September 30, 2022, we had total assets of $1,139,195, comprised primarily of cash and cash equivalents of $412,551, production revenue receivable of $60,418, oil and gas properties $666,130 and other assets of $96. As at September 30, 2022, we had total liabilities of $388,817, primarily comprised of convertible debt and related interest payable of $224,854, accounts payable of $4,713 and accrued liabilities of $84,250 which includes accrued compensation expenses of $74,250.
We have substantial capital resource requirements and have incurred significant losses since inception. The Company had a net loss of $129,181 for the three months ended September 30, 2022 and an accumulated deficit of $435,472 as of September 30, 2022. The Company had working capital of $308,899 as at September 30, 2022 and for the remainder of the 2023 fiscal year, the Company anticipates cash needs of at least a minimum of $550,000, of which approximately $250,000 is for general corporate overhead and $300,000 for continued work on existing properties. A portion of the required cash will be obtained from oil and gas sales. The Company plans to obtain the remainder of the required capital by issuing equity securities, which may consist of either capital stock or convertible debt.
To date, we have funded our operations primarily through the issuance of equity and/or convertible securities for cash. We depend upon debt and/or equity financing and revenues to fund our ongoing operations and to execute our current business plan. In the current 2023 fiscal year, such capital requirements will be in excess of what we have in available cash for planned ongoing activities. On October 4, 2022, the Company filed a Form D in connection with a private placement of securities in the Company, pursuant to which additional gross proceeds of $90,000 had been received, bringing total gross proceeds of the private placement to an aggregate of $345,000 as of this date. These securities were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”) and Regulation D promulgated thereunder. Proceeds from the placement will be used for general corporate purposes. We will be required to obtain alternative or additional financing from financial institutions, investors or otherwise, in order to maintain and expand our existing operations. The failure by us to obtain such financing would have a material adverse effect upon our business, financial condition and results of operations, and adversely affecting our ability to complete ongoing activities.
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Critical Accounting Estimates
This management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. Preparation of financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and the related disclosures of contingencies. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are fairly presented in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Recently Issued Accounting Pronouncements
Management does not believe any recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s present or future financial statements.
Going Concern Qualification
The Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business.
As reflected in the accompanying condensed financial statements, the Company had a net loss of $129,181 for the three months ended September 30, 2022 and an accumulated deficit of $435,472 as of September 30, 2022. These factors, among others, raise doubt about the Company’s ability to continue as a going concern.
The Company had working capital of $384,006 as at September 30, 2022, and for the remainder of the 2023 fiscal year the Company anticipates cash needs of at least a minimum of $550,000, of which approximately $250,000 is for general corporate overhead and $300,000 for continued work on existing properties. A portion of the required cash will be obtained from oil and gas sales. The Company plans to obtain the remainder of the required capital through private sales of securities.
The Company’s future success is dependent upon its ability to achieve profitable operations, generate cash from operating activities and obtaining additional financing. If such additional financing is not available on terms acceptable to us or at all, then we may need to curtail our operations and/or take additional measures to conserve and manage our liquidity and capital resources, any of which would have a material adverse effect on our financial position, results of operations, and our ability to continue as a going concern. The condensed financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable to smaller reporting companies.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to reasonably ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
At the end of the period covered by this Quarterly Report, we conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2022, the disclosure controls and procedures of our Company were not effective to ensure that the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis because of the material weaknesses in internal control over financial reporting described below.
Material Weaknesses and Corrective Actions
In connection with the audits of our financial statements for the fiscal years ended June 30, 2021 and 2022, we identified certain deficiencies relating to our internal control over financial reporting that constitute a material weakness under standards established by the Public Company Accounting Oversight Board (the “PCAOB”). The PCAOB defines a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
The following material weaknesses in our internal control over financial reporting continued to exist at September 30, 2022:
| ● | We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); | |
| ● | We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our limited size and early-stage nature of operations, segregation of all conflicting duties may not always be possible and may not be economically feasible; however, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals; | |
| ● | We lack an audit committee of our board of directors; and | |
| ● | We have insufficient monitoring and review of controls over the financial reporting closing process, including the lack of individuals with current knowledge of U.S. GAAP. |
We believe that these material weaknesses primarily relate, in part, to our lack of sufficient staff with appropriate training in U.S. GAAP and SEC rules and regulations with respect to financial reporting functions, and the lack of robust accounting systems, as well as the lack of sufficient resources to hire such staff and implement these accounting systems.
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Subject to raising sufficient additional capital, we plan to take a number of actions in the future to correct these material weaknesses including adding experienced accounting and financial personnel and retaining third-party consultants to review our internal controls and recommend improvements. We will need to take additional measures to fully mitigate these issues, and the measures we have taken, and expect to take, to improve our internal controls may not be sufficient to (1) address the issues identified, (2) ensure that our internal controls are effective or (3) ensure that the identified material weakness or other material weaknesses will not result in a material misstatement of our annual or interim financial statements. In addition, other material weaknesses may be identified in the future. If we are unable to correct deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC will be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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Part II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations.
Item 1A. Risk Factors.
We are not required to provide this information as we are a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On September 29, 2022, the Company completed the placement of 6,375,000 equity units in a private placement. Each unit consists of 1 common share and 0.5 of a warrant. The units were priced at $0.04 per unit and each full warrant will be exercisable to buy one share of the Company’s common stock at a price of $0.05 until December 31, 2024. Pursuant to the terms of the placement the Company issued 6,375,000 common shares and 3,187,500 warrants for gross proceeds of $255,000.
On September 30, 2022, the Company issued an aggregate of 65,000 shares of common stock in lieu of cash in connection with accounting, secretarial and public relations related services.
Additionally on September 30, 2022, the Company issued 250,000 shares of common stock in lieu of cash in connection with a compliance consulting services agreement.
Except as otherwise noted, the securities in the transactions described above were sold in reliance on the exemption from registration provided in Section 4(a)(2) of the Securities Act for transactions not involving any public offering. All certificates evidencing the shares sold bore a restrictive legend. No underwriter participated in the offer and sale of these securities, and no commission or other remuneration was paid or given directly or indirectly in connection therewith. The cash proceeds from these sales will be used for general corporate purposes.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
There is no other information required to be disclosed under this item which has not been previously disclosed.
Item 6. Exhibits
|
Exhibit Number |
Description | |
| 3.1 | Articles of Incorporation(1) | |
| 3.2 | Amendment to Articles of Incorporation dated October 15, 2021, including Certificate of Designation – Series A Presferred Stock(1) | |
| 3.3 | Bylaws(1) | |
| 31.1* | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14a or 15d-14(a) under the Securities Exchange Act of 1934, as amended, and adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1* | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File - the cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, is formatted in Inline XBRL. |
| * | Filed herewith. |
| (1) | Previously filed as an exhibit to the Company’s Form 10-K annual report on September 23, 2022 and incorporated herein by reference. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| OKMIN RESOURCES, INC. | ||
| Date: November 14, 2022 | /s/ Jonathan Herzog | |
|
Jonathan Herzog, Chief Executive Officer and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) |
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