West Virginia Operator
Our West Virginia wells are maintained and operated by Allstate Energy Corporation (“Allstate”), a local
operator, under the terms of an operating agreement. Allstate was formed in 1979 and employs up to 10
people.
The terms of the operating agreement, as amended, grant Allstate the exclusive right to conduct operations
in respect to our interests in our wells in exchange for a monthly operating fee for each well and any other
costs incurred in normal operation of the wells. Title to all machinery, equipment, or other property
attached to the wells under the operating agreement, as amended, belongs to each party in proportion to its
interest
in
each well,
as does any
amount
recovered as
the result
of salvaging machinery
or equipment from
the
wells.
Under
the
operating
agreement,
as
amended,
Allstate
is
permitted
to
make
capital
expenditures
on
the wells up to $5,000 without notifying Allied in advance of the expense. However, notice of amounts to
be spent over $5,000 must be provided to us prior to expenditure for our approval if we own a majority
interest in the specific well. Likewise, the abandonment of wells must be approved by the party holding a
majority interest in the specific well to be abandoned. The operating agreement, as amended, further
prohibits
us
from
selecting
an
alternative
operator
of
the
wells
unless we are
prepared
to purchase
Allstate’s
interest in each specific well at fair market value. Likewise, we cannot sell our interest in any of the wells
unless we first offer to sell such interests to Allstate on the same terms as are proposed for a third party
purchaser.
The
surrender
of
leases
under
the
operating
agreement,
as
amended,
can
only
be
accomplished
in
the event that both Allied and Allstate consent to such surrender.
Allstate established, pursuant to the operating agreement, as amended, an interest bearing escrow account,
whereby
it
has
withheld
up
to
25%
of
the
net
income
on
each
of
our
wells
up
to
$5,000,
to
be
used
for
capital
improvement of the wells or if necessary plugging. The escrow account is currently fully funded to the
extent provided by the operating agreement.
West Virginia Properties
Allied’s interests in our West Virginia oil and gas properties are the direct result of our relationship with
Allstate. The majority of our West Virginia oil and gas interests, approximately 90 wells, were acquired as
part of the Ashland Properties acquisition pursuant to the terms and conditions of a Joint Venture
Agreement dated May 1, 1996. Allied’s other interests in wells outside of the Ashland Properties were the
result of agreeing to a percentage interest through Allstate farm out arrangements, individual well/lease
assignments, and drilling agreements spanning the time period from 1981 to 2002. We were not furnished
with any engineering reports prior to purchasing interests in our oil and gas properties.
Allstate maintains an interest in each of our wells in West Virginia.
Texas Well Information
Allied
owns varying interests in 10 wells located
in
Texas
on four
leases held
by
independent
operators.
All
the wells in which we have an interest are situated on developed acreage spread over 2,510 acres in
Goliad,
Edwards and Jackson Counties. Depth of the producing intervals varies from 7,600 ft to 9,600 ft.
Our working interest is defined as interest in oil and gas that includes responsibility for all drilling,
developing, and operating costs varying from 3.73% to 21%. Our net revenue interest is defined as that
portion of oil and gas production revenue after deduction of royalties, varying from 3.9388% to 12.75%.
The distribution of our interests in Texas oil and gas leases is detailed below:
5
Texas Oil and Gas Leases
Well Name(s)
% Working
% Net Revenue
Operator
Interest
Interest
Harper #2
5.4221
3.9388
Hankey Oil Company
Holman-Fagan 24-1
5.4375
4.2323
Marshall & Winston
Holman-Fagan 24-2
5.4375
4.2323
Marshall & Winston
Holman-Fagan 41-2
5.4375
4.2323
Marshall & Winston
Holman-Fagan 42-1
5.4375
4.2323
Marshall & Winston
Holman-Fagan 43-1
5.4375
4.2323
Marshall & Winston
Holman-Fagan 46-1
5.4375
4.2323
Marshall & Winston
Holman-Fagan 46-2
5.4375
4.2323
Marshall & Winston
Williams #1
3.73
2.68
Magnum Producing, LP
Brinkoeter #4
21.00
12.75
Marquee Corporation
Texas Operators
Each of our Texas acquisitions has a different operator. A brief description of the operators is as follows:
§
Hankey Oil Company of Houston, Texas, was founded in 1981. Since inception they focused their
efforts on the Texas Gulf Coast. Hankey utilizes a 3D geophysical workstation technology to develop
their drilling prospects.
§
Magnum Producing, LP of Corpus Christi, Texas, has been operating along South Texas and the Gulf
Coast since the mid-1980s. Magnum has 15 employees and operates approximately 150 wells.
§
Marquee Corporation of Houston, Texas, became involved in the oil and gas business in 1981.
Marquee has 4 full-time employees operating approximately 100 wells. Zinn Petroleum Co. is the
operating arm of the company.
§
Marshall & Winston, Inc. of Midland, Texas, began as a royalty company in 1928. Marshall currently
operates approximately 100 wells in and around the Midland area, and has 14 employees.
Texas Properties
On May 1, 2007, Allied acquired an interest in the Harper #2 well located within the Ramon Musquiz
Survey, A-29, Goliad, Texas from Spanish Moss Energy Company, LLC. The Harper #2 well is operated
by Hankey Oil Company and produces oil and gas from the Wilcox formation.
On August 1, 2007, Allied acquired interests in the ten properties located in Sections 24, 41, 42 and 46 of
the CCSD & RGNG RR Co. Survey, Edwards County, Texas from Rischco Energy, Inc. (“Rischco”). The
acquisition included an interest in the pipeline gathering system connected to five of the wells. The
properties are operated by Marshall & Winston, Inc. and produces oil and gas from the Frances Hill (Penn
Lower) field in the Canyon Sands formation. Three of the wells purchased from Rischco have since been
plugged due to depletion and production of non-commercial quantities of natural gas.
On October 1, 2007, Allied acquired an interest in the Williams #1 well located within the John Alley
Survey, A-3, Jackson County, Texas from Benchmark Oil and Gas Company. The Williams #1 well is
operated by Magnum Producing, LP and produces oil and gas from the Wilcox formation.
6
On October 1, 2007, Allied acquired an interest in the Brinkoeter #4 well located within the V. Ramos
Survey, A-241, Goliad County, Texas from Tyner Exploration, Inc. and Clendon B. Caire. The Brinkoeter
#4 well is operated by Marquee Corporation and produces oil and gas from the Massive formation.
Allied’s oil
and
gas interests combined
in
West
Virginia
and
in
Texas
in
the
aggregate
produced on average
374 STBO and 8,040 MCFG per month in 2015.
Exploration, Development and Operations
The dramatic decline in oil prices over the last eighteen months has had a significant negative effect on
Allied’s business. Even though production has remained relatively consistent revenues over the annual
period have plummeted. The revenue will continue to decrease until such time as prices increase. Since the
end of
the annual period, prices for oil and gas appear to be trending towards a gradual
recovery. However,
the strength of any sustained recovery over time can in no way be assured.
Allied will continue to identify non-operated oil and gas producing properties for purchase, oil and gas
leases that it could operate and implement improved production efficiencies on existing wells. Our criteria
for purchasing oil and gas producing properties is defined by short term returns on investment, long term
growth in revenue, and development potential, while our criteria for acquiring oil and gas leases is
predicated
on a proven record of historical
production
and our
own capacity
to operate any
given field. The
decrease in prices for oil and the continuation of low natural gas prices has increased the opportunities
available
to
us
though we are
limited
by
our limited cash position
and
the expectation
that
prices
for oil
will
increase to average around $50.00 per NYMEX WTI Crude barrel and natural gas will increase to average
around $3.72 per mcf within the next 12 months.
We are further considering future prospects for the development of the Marcellus and Utica shale
formations that underlie Allied’s oil and gas interests in West Virginia. The Marcellus and Utica shale
structures that underlay much of Pennsylvania, Ohio, New York, West Virginia and adjacent states are
major reservoirs for hydrocarbon recovery. Drilling by third party operators in Ritchie County, West
Virginia
has
indicated
successful
rates
of
recovery
and
our own
open
hole
well
logs indicate
the
presence
of
potentially
productive
Marcellus
shale
at
a
depth
of
6,000
feet
that
varies
in
thickness
from
50
–
60
feet.
We
have been approached by an active operator in the area that seeks the right to potentially develop this
prospective resource. No oil or natural gas reserves underlying our interests in West Virginia have been
proven. However, we have obtained a probable reserve calculation that
places a value on probable reserves
underlying
certain
of
our
leases
in
Ritchie
County
based
on
our
portion
of
an
estimated
royalty
payment
that
would issue if a third party operator recovered commercial quantities of oil and gas from our leases. Any
future plans to develop these shale formations continue to be tempered by the high risk/reward ratio of
exploratory drilling in the near term based on anticipated pricing for oil and natural gas over the next five
years.
Competition
The exploration for and development and production of oil and gas is subject to intense competition. The
principal methods of competition in the industry for the acquisition of oil and gas leases are:
§
the payment of cash bonuses at the time of acquisition of leases,
§
delay rentals,
§
location damage supplement payments, and
§
stipulations requiring exploration and production commitments by the lessee.
Companies with greater financial resources, existing staff and labor forces, equipment for exploration, and
7
experience are in a better position than us to compete for such leases. In addition, our ability
to market any
oil and gas which we might produce could be severely
limited by our inability to compete with larger
companies operating in the same area, which may be willing or able to offer oil and gas at a lower price.
In
addition,
the
availability
of
a
ready
market
for oil
and
gas will
depend
upon
numerous
factors beyond
our
control, including:
§
the extent of domestic production and imports of oil and gas,
§
proximity and capacity of pipelines,
§
the effect of federal and state regulation of oil and gas sales, and
§
environmental restrictions on exploration and usage of oil and gas prospects that will become even
more intense in the future.
Competition in West Virginia
Allied competes as a small independent against over five hundred other independent companies in West
Virginia, many with greater financial resources than those available to us. Operators such as Exxon, Shell
Oil, Conoco-Phillips and others considered major players in the oil and gas industry no longer operate any
significant interests in West Virginia. However, West Virginia hosts approximately 40 significant
independent operators including NiSource, Equitable, Energy
Corporation of America, Cabot Oil and Gas,
and Dominion Appalachian with over 450 smaller operations with no single producer dominating the area.
Competition in Texas
Allied
competes
against
thousands
of
other
independent
companies
and
several
majors
in
Texas, many
with
greater financial
resources
than
those
available
to
us.
Major
companies
include
Occidental
Permian,
Kinder
Morgan, Apache, Chevron, Conoco-Phillips, and BP America who operate across Texas. While major
companies
do not
dominate the
areas in which we have
interests, several
of
the
counties do have significant
producers.
Several
significant
independent
gas
producers
operate
in
Edwards
County,
including
Newfield
Exploration,
Dominion Oklahoma, and Range Production. Only a few oil producers operate in Edwards County. Our
Edwards County operator, Marshall & Winston, Inc., is one of the largest gas and oil producers in the
county.
Numerous significant independent oil and gas producers operate in Goliad County, including Petrohawk
Operating, Chesapeake Operating, T-C Oil, Ventex Operating, Charro Operating, and KCS Resources.
Several significant gas producers operate in Jackson County, including Tri-C Resources, Cypress E & P,
Jamex, Vintage Petroleum, and Cox & Perkins Exploration. There are several significant oil producers in
Jackson County, including Vintage Petroleum, Hilcorp Energy, Sue-Ann Operating, Premier Natural
Resources, and SE USA Operating.
We believe that our operations can successfully
compete with those of independent companies by
focusing
our efforts on efficiently developing current lease interests, acquiring non-operated producing oil and gas
leases with an upside for future development, cautious exploration activities on existing lease interests,
entering into agreements with third parties to better exploit existing known or unknown resources and
operating oil and gas leases that are manageable within our existing structure.
8
Marketability
The
products
sold
by
Allied,
natural
gas
and
crude
oil,
are
commodities
purchased
by
many
distribution
and
retail companies. Crude oil can be easily sold whenever it is produced subject to transportation cost. The
crude
oil
produced
on
our behalf
is transported
by
truck from
the collection points to the purchaser.
Natural
gas on the other hand can be more difficult to sell since transportation from point of production to the
purchaser requires a pipeline. Most of our current gas production interests are transported by pipelines
owned
by
the
purchasers.
We
own
an
interest
in
the
pipeline
gathering
system
connected
to
five
of
our
wells
in Edwards County, Texas.
Allstate sells our natural gas production
interest
in West
Virginia
to
three main
purchasers,
Dominion Field
Services, and Equitable Resources, and Mountaineer Gas Co. The gas is sold utilizing two different forms
of
contracts.
One,
characterized
as
a
fixed
contract
that
determines
a
certain
price
for
gas
over
a
fixed
period
of time, usually
90 days and a spot price contract, which markets the production to the purchaser willing to
pay the highest price for the production on a month to month basis at prices ranging from $1.00 per mcf
(fixed contract price) to $5.00 per mcf during the year ended December 31, 2015. Any gas production not
sold according to fixed gas purchase agreements is sold on the spot price market. Allstate has fixed
contracts with Dominion Field Services.
Allstate sells our oil production interest to West Virginia Oil Gathering at the market price on the day of
pick up. Prices for oil production ranged from $34.60 per bbl to $68.00 per bbl during the year ended
December 31, 2015.
Our independent Texas operators (Hankey, Marquee, and Magnum) sell our oil production to certain
purchasers including Gulfmark Energy
(Hankey), Shell
Trading
Company
(Magnum) and TEPCCO Crude
Oil LP (Marquee) at prices determined by base or spot pricing as a percentage of the oil index price. The
sale prices for Allied’s oil production interests in Texas during 2015 ranged from $29.39 per bbl to $41.34
per bbl over the period.
Natural gas and gas condensate is sold to Houston Energy Services Company LLC (Hankey), BML, Inc.,
and Enterprise Products Partners LP (Winston), Acock Operating Limited (Magnum) and dcpMidstream
LP at prices determined by
the Houston Ship Channel price or spot pricing less pipeline carrying costs and
dehydration fees as applicable. The sale prices for Allied’s gas production in Texas fluctuated between
$1.78 per mcf and $3.34 per mcf in 2015.
Governmental Regulation of Exploration and Production
Oil and natural gas exploration, production and related operations are subject to extensive rules and
regulations promulgated by
federal
and
state
agencies.
Operations, which
sometimes
occur
on
public lands,
may be subject to regulation by, among other state and federal agencies, the Bureau of Land Management,
the U.S. Army Corps of Engineers or the U.S. Forest Service
.
Failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on the oil and gas industry increases
our cost of doing business and affects our profitability. Since such rules and regulations are frequently
amended or interpreted differently by regulatory agencies, we are unable to accurately predict the future
cost
or impact
on
the
operators of
our
oil
and
gas wells in complying
with such
laws
or ultimately
what
cost
or impact compliance or otherwise will have on Allied.
9
Oil and natural gas exploration and production operations are affected by
state and federal regulation of oil
and gas production, federal regulation of gas sold in interstate and intrastate commerce, state and federal
regulations governing environmental quality and pollution control, state limits on allowable rates of
production by a well or pro-ration unit and the amount of oil and gas available for sale, state and federal
regulations governing the availability of adequate pipeline and other transportation and processing
facilities, and state and federal regulation governing the marketing of competitive fuels. For example, a
productive gas well may be “shut-in” because of an over-supply of gas or lack of an available gas pipeline
in the areas in which we may conduct operations. State and federal regulations generally are intended to
prevent waste of oil and gas, protect rights to produce oil and gas between owners in a common reservoir,
control the amount of oil and gas produced by assigning allowable rates of production and control
contamination
of
the
environment.
Pipelines
are
subject
to
the
jurisdiction
of
various federal,
state
and
local
agencies.
Many state authorities require permits for drilling operations, drilling bonds and reports concerning
operations, and impose other requirements relating to the exploration and production of oil and gas. Such
states also have ordinances, statutes, or regulations addressing conservation matters, including provisions
for
the
unitization
or
pooling
of
oil
and
gas
properties,
the
regulation
of
spacing,
plugging
and
abandonment
of such wells, and limitations establishing maximum rates of production from oil and gas wells. We are
aware that certain regulations in West Virginia and Texas do limit the activities of those operators
responsible for operating Allied’s oil and gas wells.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements and Labor Contracts
Allied currently operates under and holds no patents, trademarks, licenses, franchises, or concessions.
Allied is not subject to any labor contracts. Each of Allied’s interests are subject to royalty payments.
Environmental Regulation
The recent trend in environmental legislation and regulation has been generally toward stricter standards,
and this trend will likely continue. Allied does not presently anticipate that we will be required to expend
amounts relating to our oil and gas production operations that are material in relation to our total capital
expenditure program by reason of environmental laws and regulations. However, because such laws and
regulations are subject to interpretation by enforcement agencies and are frequently changed by legislative
bodies, Allied is unable to accurately predict the ultimate cost of such compliance for 2016.
Oil and gas production is subject to numerous laws and regulations governing the discharge of materials
into the environment or otherwise relating to environmental protection. These laws and regulations may
require the acquisition of a permit before drilling commences, restrict the types, quantities and
concentration of various substances that can be released into the environment in connection with drilling
and production activities, limit or prohibit drilling activities on certain lands lying within wilderness,
wetlands, and areas containing threatened and endangered plant and wildlife species, and impose
substantial liabilities for unauthorized pollution resulting from our operations.
The following environmental laws and regulatory programs appeared to be the most significant to Allied’s
operations in 2015, and are expected to continue to be significant in 2016:
10
Clean Water and Oil Pollution Regulatory Programs
The Federal Clean Water Act (“CWA”) regulates discharges of pollutants to surface waters. The discharge
of crude oil and petroleum products to surface waters also is precluded by the Oil Pollution Act (“OPA”).
Our operations are inherently subject to accidental spills and releases of crude oil and drilling fluids that
may give rise to liability to governmental entities or private parties under federal, state or local
environmental laws, as well as under common law. Minor spills occur from time to time during the normal
course of Allied’s production operations. Our independent operators maintain spill prevention control and
countermeasure plans (“SPCC plans”) for facilities that store large quantities of crude oil or petroleum
products
to
prevent
the
accidental
discharge
of
these
potential
pollutants
to
surface
waters
where
applicable.
As of December 31, 2015, we know of no investigative or remedial work required of our independent
operators
by
governmental
agencies
to
address
potential
contamination by
accidental
spills
or discharges
of
crude oil or drilling fluids.
Clean Air Regulatory Programs
The operations of Allied’s independent operators are subject to the federal Clean Air Act (“CAA”), and
state implementing regulations. Among other things, the CAA requires all major sources of hazardous air
pollutants, as well as major sources of certain other criteria pollutants, to obtain operating permits, and in
some cases, construction permits. The permits must contain applicable Federal and state emission
limitations and standards as well as satisfy other statutory and regulatory requirements. The 1990
Amendments to the CAA also established new monitoring, reporting, and recordkeeping requirements to
provide a reasonable assurance of compliance with emission limitations and standards. Allied’s
independent operators obtain construction and operating permits for their compressor engines, and we are
not presently aware of any potential adverse claims in this regard.
Waste Disposal Regulatory Programs
The operations of Allied’s independent operators generate and result in the transportation and disposal of
large
quantities
of
produced
water
and
other
wastes
classified
by
EPA
as
“non-hazardous
solid
wastes”.
The
EPA is currently considering the adoption of stricter disposal and clean-up standards for non-hazardous
solid wastes under the Resource Conservation and Recovery Act (“RCRA”). In some instances, EPA has
already required the cleanup of certain non-hazardous solid waste reclamation and disposal sites under
standards similar to those typically found only for hazardous waste disposal sites. It also is possible that
wastes that are currently classified as “non-hazardous” by EPA, including some wastes generated during
our drilling and production operations, may in the future be reclassified as “hazardous wastes”. Since
hazardous wastes require much more rigorous and costly treatment, storage, transportation and disposal
requirements, such changes in the interpretation and enforcement of the current waste disposal regulations
would result in significant increases in waste disposal expenditures incurred by Allied.
The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”)
CERCLA, also known as the “Superfund” law, imposes liability, without regard to fault or the legality of
the original conduct, on certain classes of persons who are considered to have caused or contributed to the
release or threatened release of a “hazardous substance” into the environment. Persons include the current
or past owner or operator of the disposal site or sites where the release occurred and companies that
transported disposed or arranged for the disposal of the hazardous substances under CERCLA. Persons so
defined may be subject to joint and several liability for the costs of cleaning up the hazardous substances
that have been released into the environment and for damages to natural resources. Allied is not presently
aware of any potential adverse claims in this regard.
11
West Virginia Division of Environmental Protection Office of Oil and Gas
The
State
of
West
Virginia
has promulgated
certain
legislative
rules
pertaining
to
exploration,
development
and production of oil and gas that are administered by the West Virginia Division of Environmental
Protection Office of Oil and Gas. The rules govern permitting for new drilling, inspection of wells, fiscal
responsibility of operators, bonding wells, the disposal of solid waste, water discharge, spill prevention,
liquid injection, waste disposal wells, schedules that determine the procedures for plugging and
abandonment of wells, reclamation, annual reports and compliance with state and federal environmental
protection laws. Allied believes that all wells in which we have an interest are operated by Allstate in a
manner that is in compliance with these rules.
The Railroad Commission of Texas, Oil and Gas Division
The Railroad Commission of Texas, through its Oil and Gas Division, works to prevent the waste of oil,
gas, and geothermal resources and to prevent the pollution of fresh water from oil and gas operations. The
division issues drilling permits and reviews and approves oil and gas well completions. It also regulates
underground injection of fluids in oil field operations, a program approved by the U.S. Environmental
Protection
Agency
under
the Federal
Safe
Drinking Water
Act.
The
division further
oversees
well
plugging
operations, site remediation, underground hydrocarbon storage, and hazardous waste management. Allied
believes that all wells in which we have an interest are operated in a manner that is in compliance the
division.
Health and Safety Regulatory Programs
The operations of Allied’s independent operators are subject to regulations promulgated by the
Occupational Safety and Health Administration (“OSHA”) regarding worker and work place safety. We
have been assured that our independent operators currently provide health and safety training and
equipment to their employees and have adopted corporate policies and procedures to comply
with OSHA’s
workplace safety standards.
Climate Change Legislation and Greenhouse Gas Regulation
Many studies over the past couple decades have indicated that emissions of certain gases contribute to
warming of the Earth’s atmosphere. In response to these studies, many nations have agreed to limit
emissions of “greenhouse gases” or “GHGs” pursuant to the United Nations Framework Convention on
Climate Change, and the “Kyoto Protocol” and more recently the “Paris Accord”. Although the United
States elected not to participate in the Kyoto Protocol it has indicated that it will ratify the Paris Accord.
Several states have adopted legislation and regulations to reduce emissions of greenhouse gases.
Restrictions on emissions of methane or carbon dioxide that may be imposed in various nations and states
could adversely affect our operations and demand for our products.
Acts of Congress, particularly
such as the
“American Clean Energy
and Security
Act of 2009,” also known
as the “Waxman-Markey cap-and-trade legislation,” approved by the United States House of
Representatives on June 26, 2009, as well as the decisions of lower courts, large numbers of states, and
foreign governments which affect climate change regulation could have a material adverse effect on our
business, financial condition, and results of operations.
Exploration Activities
Allied spent no amounts on exploration activities during either of the last two fiscal years.
12
Employees
Allied has engaged its chief executive officer, Ruairidh Campbell, and one other support person, on a part
time basis. Mr. Campbell spends approximately 20 hours a week providing services to Allied. Our
independent operators are responsible for conducting oil and gas operations tied to our interests.
Management uses oil and gas consultants, attorneys, and accountants as necessary and does not plan to
engage any full-time employees in the near future.
Reports to Security Holders
Allied’s annual
report
contains
audited
financial
statements.
We
are
not
required
to
deliver an
annual
report
to security holders and will not automatically deliver a copy of the annual report to our security holders
unless
a
request
is made
for
such
delivery. We file
all
of
our required
reports and
other information
with
the
Securities and Exchange Commission (the “Commission”). The public may read and copy any materials
that are filed by Allied with the Commission at the Commission’s Public Reference Room at 100 F Street,
N.E.,
Washington,
D.C.
20549.
The
public
may
obtain
information
on
the
operation of
the
Public
Reference
Room by calling the Commission at 1-800-SEC-0330. The statements and forms filed by us with the
Commission have also been filed electronically and are available for viewing or copy on the Commission
maintained Internet site that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission. The Internet address for this site can be
found at
http://www.sec.gov
.
ITEM 1A.
RISK
FACTORS
Allied’s operations and securities are subject to a number of risks. Below we have identified and discussed
the material risks that we are likely to face. Should any of the following risks occur, they will adversely
affect our operations, business, financial condition and/or operating results as well as the future trading
price and/or the value of our securities.
Risks Related to Allied’s Business
We have a history of significant operating losses and realized a loss in the current period.
Since our inception in 1979, our expenses have often exceeded our income, resulting in losses and an
accumulated deficit of $7,615,963 at December 31, 2015. Over the twelve month period ended December
31,
2015, we
recorded
a net
loss
of
$
248,597
from
operations and will
continue
to
realize
net
losses due
to
the dramatic decline in oil prices over 2015, the continuation of weakness in natural gas prices, the
depletion of oil and gas resources, and production expenses. Future profitability will depend on a rise in
energy prices combined with our ability to increase production through exploration, development or
acquisition. Allied’s success in returning to profitability can in no way be assured.
Oil and natural gas prices are volatile. Any substantial decrease in prices would adversely affect our
financial results.
Allied’s future financial condition, results of operations and the carrying value of our oil and natural gas
properties depend primarily upon the prices we receive for oil and natural gas production. Oil and natural
gas prices historically
have
been volatile
and are
likely
to continue
to be volatile in
the future. Allied’s
cash
flow from operations is highly dependent on the prices we receive for oil and natural gas. This price
volatility also affects the amount of Allied’s cash flow available for capital expenditures and our ability to
borrow money or raise additional capital. The prices for oil and natural gas are subject to a variety of
additional factors that are beyond our control. These factors include:
13
§
the level of consumer demand for oil and natural gas;
§
the domestic and foreign supply of oil and natural gas;
§
the price of oil and natural gas;
§
domestic governmental regulations and taxes;
§
the price and availability of alternative fuel sources;
§
weather conditions;
§
market uncertainty; and
§
worldwide economic conditions.
These factors
and
the volatility
of the
energy
markets generally
make it
extremely
difficult
to predict future
oil and natural gas price movements with any certainty. Declines in oil and natural gas prices will not only
reduce revenue and could affect the amount of oil and natural gas that Allied can produce economically.
Allied’s future performance depends on its ability to find or acquire additional oil or natural gas
reserves.
Unless
Allied
successfully
replaces
the
reserves
that
it
produces,
defined
reserves
will
decline,
resulting
in
a
decrease in oil and natural gas production, that will produce lower revenues, in turn decreasing cash flows
from operations. Allied has historically obtained the majority of its reserves through acquisition. The
business of exploring for, developing or acquiring reserves is capital intensive. Allied may not be able to
obtain the necessary capital to acquire additional oil or natural gas reserves if cash flows from operations
are reduced, and access to external sources of capital is unavailable. Should Allied not make significant
capital expenditures to increase reserves it will not be able to maintain current production rates and
expenses will overtake revenue.
The results of our operations are wholly dependent on the production and maintenance efforts of
independent operators.
The operation and maintenance of our oil and natural gas operations is wholly dependent on independent
local
operators.
While
the
services
provided
by
operators
of
our
properties in
the past
have
proven adequate
for the successful
operation of our oil and natural gas wells, the fact that
we are dependent on operations of
third parties to produce revenue from
our assets could restrict our ability
to continue generating a net
profit
on operations.
Climate change and greenhouse gas restrictions.
Due to concern over the risk of climate change, a number of countries have adopted, or are considering the
adoption
of, regulatory
frameworks to reduce
greenhouse gas emissions.
These
include
adoption
of
cap and
trade regimes, carbon taxes, restrictive permitting, increased efficiency standards, and incentives or
mandates for renewable energy. These requirements could make our products more expensive, lengthen
project implementation times, and reduce demand for hydrocarbons, as well as shift hydrocarbon demand
toward relatively lower-carbon sources such as natural gas. Current and pending greenhouse gas
regulations
may
also
increase
our
compliance
costs
for
our
independent
operators,
such
as
for
monitoring
or
sequestering emissions.
Government sponsorship of alternative energy.
14
Many governments are providing tax advantages and other subsidies to support alternative energy sources
or are mandating the use of specific fuels or technologies. Governments are also promoting research into
new technologies to reduce the cost and increase the scalability of alternative energy sources. Our future
results may
depend in part on the success of those research efforts and on our ability to adapt and apply
the
strengths of our
current business model to providing the energy
products of
the future in a cost-competitive
manner.
Risks Related to Allied’s Stock
The market for our stock is limited and our stock price may be volatile.
The market
for our
common stock
is
limited
due
to
low
trading volumes
and the
small
number
of
brokerage
firms
acting
as
market
makers.
The
average
daily
trading
volume for
our
stock
has
varied
significantly
from
week
to
week
and
from
month
to
month,
and
the
trading
volume
often
varies
widely
from
day
to
day.
Due
to
these limitations there is volatility in the market price and tradability of our stock, which may cause our
shareholders difficulty in selling their shares in the market place.
Allied has not paid dividends to the shareholders of its common stock.
Allied has not paid any dividends to the shareholders of its common stock and has no intention of paying
dividends in the foreseeable future. Any future dividends would be at the discretion of our board of
directors and would depend on, among other things, future earnings, our operating and financial condition,
our capital requirements, and general business conditions.
Allied may require additional capital funding.
Allied may require additional funds, either through additional equity offerings or debt placements, in order
to expand our operations. Such additional capital may result in dilution to our current shareholders.
Further, our ability to meet short-term and long-term financial commitments will depend on future cash.
There can be no assurance that future income will generate sufficient funds to enable us to meet our
financial commitments.
If the market price of our common stock declines as the selling security holders sell their stock, selling
security holders or others may be encouraged to engage in short selling, depressing the market price.
The significant downward pressure on the price of the common stock as the selling security holders sell
material amounts of common stock could encourage short sales by the selling security holders or others.
Short selling is the selling of a security that the seller does not own, or any sale that is completed by the
delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at
a lower amount than the price at which they sold it short. Significant short selling of a company’s stock
creates an incentive for market participants to reduce the value of that company’s common stock. If a
significant market for short selling our common stock develops, the market price of our common stock
could be significantly depressed.
Allied’s shareholders may face significant restrictions on their stock.
15
Our common stock is subject to the “penny stock” rules adopted under section 15(g) of the Exchange Act.
The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock
Market
or other
national
securities
exchange
and
trades
at
less
than $5.00 per
share
or that
have
tangible
net
worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years).
These rules require, among other things, that brokers who trade penny stock to persons other than
“established customers” complete certain documentation, make suitability inquiries of investors and
provide investors with certain information concerning trading in the security, including a risk disclosure
document and quote information under certain circumstances. Many brokers have decided not to trade
penny stocks because of the requirements of the penny stock rules and, as a result, the number of
broker-dealers willing to act as market makers in such securities is limited. Since our securities are subject
to the penny stock rules, Allied’s shareholders will find it more difficult to dispose of its securities.
ITEM 1B.
UNRESOLVED
STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Ritchie and Calhoun Counties, West Virginia
Allied currently realizes production in West Virginia from a total of 145 oil and gas wells with working
interests ranging from 18.75% to 75%, producing a combination of varying amounts of oil and gas.
Goliad, Edwards and Jackson Counties, Texas
Allied currently realizes production in Texas from a total of 10 oil and gas wells with working interests
ranging from 3.73% to 21% and net revenue interests varying from 2.68% to 12.75%, after deduction of
royalties, on four leases.
Annual Oil and Gas Production – West Virginia &Texas
2015
2014
2013
Natural Gas
96,484/MCF
95,799MCF
99,844 MCF
Oil
4,488/STB
2,945 STB
2,839 STB
Average production costs (VW)*
$1.99/MCFE
$2.26/ MCFE
$2.55 / MCFE
Average production costs (TX)*
$2.22 /MCFE
$2.03/MCFE
$1.81 / MCFE
* includes lifting costs, maintenance costs, and severance taxes
Productive Wells and Acreage
Ritchie and Calhoun Counties, West Virginia
Allied owns 145 gross wells or 101 net wells in West Virginia as of December 31, 2015. The wells are
located on 3,400 gross acres or approximately 2,377 net acres. Allied has no plans at this time to purchase
or drill additional wells in West Virginia.
16
Goliad, Edwards and Jackson Counties, Texas
Allied owns 10 gross wells and 0.83 net wells in Texas as of December 31, 2015. The wells are located on
2,510 gross acres or approximately 206.45 net acres. Allied has no plans at this time to purchase or drill
additional wells in Texas.
Drilling Activity
Allied has drilled no productive or dry exploratory or developmental wells in the last three fiscal years.
Present Activities
Allied is not in the process of drilling wells, installing waterfloods, performing pressure maintenance
operations, or performing any other related operations of material importance as of the date of this current
report on 10-K.
Delivery Commitments
Allied is not obligated to provide a fixed and determinable quantity of oil or gas in the near future under
existing contracts or agreements though its independent operators do have agreements for the delivery of
fixed and determinable quantities of natural gas products.
Undeveloped Acreage
All
acreage
on
which
Allied
maintains
an
interest
in
oil
and
gas
wells
is
to
be
considered
developed
acreage.
Undeveloped acreage is considered to be those lease acres on which wells have not been drilled or
completed to a point that
would permit
the production of commercial
quantities of oil
and gas regardless of
whether or not such acreage contains proved reserves. Undeveloped acreage should not be confused with
undrilled acreage held by production under the terms of a lease.
Oil and Gas Reserves
Oil and gas reserves for our properties have been evaluated as of December 31, 2015 and 2014 by Sure
Engineering LLC. (“Sure”). Sure was founded
in 1997
by
Dr. Nafi
Onat
to
provide
a variety
of engineering
services to the oil and gas industry including the design of well completions and optimizations, the
preparation of reserve evaluations, secondary recovery plans, well testing and interpretation. Dr. Onat
obtained a Bachelor of Science and Master of Science Degrees in Petroleum Engineering from the Middle
East Technical University in Ankara, Turkey and a Doctorate (PhD) in Petroleum Engineering from the
Colorado School of Mines in Golden, Colorado. Since obtaining his PhD, Dr. Onat has worked within the
oil and gas industry for over thirty years.
Dr. H. I. Bilgesu, who works as a consulting engineer for Sure has over 16 years experience in oil and gas
property evaluation. Dr. Bilgesu obtained a B.Sc. in Petroleum Engineering from Middle East Technical
University, a
M.Sc. in
Chemical
and
Petroleum
Engineering
from
Colorado
School
of
Mines
and
a
Ph.D. in
Petroleum Engineering from Pennsylvania State University. Dr. Bilgesu is a Registered Professional
Engineer in the State of Colorado.
All
information provided by
Allied to Sure for
the purpose of preparing
its reserve evaluation was received
from those independent operators responsible for managing Allied’s oil and gas interests. Information
received was first
reviewed
by
management for
reasonableness
and
accuracy, to
the
extent
that
such review
17
was practicable having been obtained from third parties, to ensure that such information might be relied
upon by Dr. Onat in compiling his reserve calculations. Reserve calculations by independent petroleum
engineers
involve
the
estimation
of
future
net
recoverable
reserves
of
oil
and
gas
and
the
timing
and
amount
of future net revenues to be received therefrom. Those estimates are based on numerous factors, many of
which are variable and uncertain. Reserve estimators are required to make numerous judgments based
upon professional training, experience, and educational background. The extent and significance of the
judgments in them are sufficient to render reserve estimates inherently imprecise. Since reserve
determinations involve estimates of future events, actual production, revenues
and operating expenses may
not occur as estimated. Accordingly, it is common for the actual production and revenues later received to
vary from earlier estimates. Estimates made in the first few years of production from a property are
generally not as reliable as later estimates based on a longer production history. Reserve estimates based
upon volumetric analysis are inherently
less reliable than those based on lengthy
production history. Also,
potentially
productive gas wells may not generate revenue immediately
due to lack of pipeline connections
and potential development wells may have to be abandoned due to unsuccessful completion
techniques. Hence, reserve estimates may vary from year to year.
Proved oil
reserves show a
decrease of 16,436 bbls from that
reported as of December 31, 2014 and
proved
natural gas reserves show a decrease of 1,211,350 mcf over that reported as of December 31, 2014. The
reason for the decrease in oil and natural gas reserves can be attributed to depletion and the dramatic
decrease
in
oil
prices
in tandem with
continued
weakness
in
natural
gas prices, which
attributes
collectively
have decreased the producing lives of marginal wells.
The following table set forth the estimated proved developed oil and gas reserves and proved undeveloped
oil and gas reserves of our properties for the years ended December 31, 2015 and 2014.
Reserve Quantity Information (Unaudited)
The estimated quantities of proved oil and gas reserves disclosed in the table below are based on appraisal
of the proved developed properties by Sure. Such estimates are inherently imprecise and may be subject to
substantial
revisions.
All
quantities
shown in
the
table
are proved developed
reserves
and
are
located
within
the United States.
Proved Developed Reserves
Years Ended December 31,
2015
2014
Oil (bbls)
Gas (mcf)
Oil (bbls)
Gas (mcf)
Proved developed and undeveloped reserves:
Beginning of year
24,461
1,386,883
26,434
1,438,888
Revision in previous estimates
(11,948)
(1,114,866)
972
43,794
Discoveries and extension
-
-
-
-
Purchase in place
-
-
-
-
Production
(4,488)
(96,484)
(2,945)
(95,799)
Sales in place
_____-
______-
-
-
End of year
8,025
175,533
24,461
1,386,883
The
estimated
quantities of
probable
oil
and
gas
reserves disclosed
in
the
table below
are
based
on
appraisal
of the proved developed properties by
Sure. As of December 31, 2015, Sure estimated probable reserves of
17,342 bbls and 1,036,780 mcf. Such estimates are inherently imprecise and may be subject to substantial
18
revisions.
Oil and Gas Titles
As is customary in the oil and gas industry, we perform only a perfunctory title examination at the time of
acquisition of undeveloped properties. Prior to the commencement of drilling, in most cases, and in any
event where we are the operator, a title examination is conducted and significant defects remedied before
proceeding with operations. We believe that the title to our properties is generally acceptable to a
reasonably prudent operator in the oil and gas industry. The properties owned by
us are subject to royalty,
overriding royalty, and other interests customary in the industry, liens incidental to operating agreements,
current taxes and other burdens, minor encumbrances, easements, and restrictions. We do not believe that
any
of
these
burdens
materially
detract
from
the
value
of
the
properties
or
will
materially
interfere
with
their
use in the operation of our business.
Office Facilities
Allied maintains office space owned by Ruairidh Campbell, Allied’s chief executive officer, for which
Allied pays $1,000 per month on a month to month basis. This address is 1403 East 900 South, Salt Lake
City, Utah 84105 and the phone number is (801) 582-9609. Allied
believes that
its current
office space will
be adequate for the foreseeable future.
ITEM 3.
LEGAL
PROCEEDINGS
Allied is currently not a party to any legal proceedings.
ITEM 4.
MINE
SAFETY DISCLOSURES
Not applicable.
PART II
19
ITEM 5.
MARKET
FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES
Allied’s common stock is quoted on the over the counter market on a quotation platform maintained by
the
OTC Markets Group, Inc., under the symbol “ALOD.” Trading in the common stock over-the-counter
market has been limited and sporadic and the quotations set forth below are not necessarily indicative of
actual market conditions. These prices reflect inter-dealer prices without retail mark-up, mark-down, or
commission, and may not necessarily reflect actual transactions. The high and low bid prices for the
common stock for each quarter of the years ended December 31, 2015 and 2014 are as follows:
Trading Market
Year
Quarter Ending
High
Low
2015
December 31
$0.16
$0.12
September 30
$0.17
$0.16
June 30
$0.22
$0.13
March 31
$0.19
$0.14
2014
December 31
$0.40
$0.15
September 30
$0.39
$0.30
June 30
$0.35
$0.35
March 31
$0.38
$0.30
Capital Stock
The following is a summary of the material terms of Allied’s capital stock. This summary is subject to and
qualified by our articles of incorporation and bylaws.
Common Stock
As
of
December
31,
2015,
there
were
106
shareholders
of
record
holding
a
total
of
5,653,011
shares
of
fully
paid and non-assessable common stock of the 50,000,000 shares of common stock, par value $0.001,
authorized. The board of directors believes that
the number of beneficial owners is greater than the number
of record holders because a portion of our outstanding common stock is held in broker “street names” for
the benefit of individual investors. The holders of the common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no
preemptive rights and no right to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock.
Warrants
As of December 31, 2015, Allied had no outstanding warrants to purchase shares of our common stock.
Dividends
Allied has not declared any cash dividends since inception and does not anticipate paying any
dividends in
the foreseeable future. The payment of dividends is within the discretion of the board of directors and will
depend
on
Allied’s earnings, capital
requirements, financial
condition, and
other
relevant factors. There
are
no
restrictions
that
currently
limit
the
Allied’s
ability
to
pay
dividends
on
its
common
stock
other
than
those
generally imposed by applicable state law.
Stock Options
20
Allied
has
granted
600,000
options
to
purchase
shares
of
our
common
stock
at
an
exercise
price
of
$0.35
per
share pursuant to The Allied Resources, Inc. 2008 Stock Option Plan. Options outstanding vest over five
years from the date of grant and may be exercised within ten years. Allied had vested 600,000 options to
purchase shares of our common stock at year end December 31, 2015.
Transfer Agent and Registrar
Our
transfer agent
is Standard
Registrar
& Transfer located
at
12528
South
1840
East
Draper,
Utah, 84020;
their telephone number is (801) 571-8844.
Purchases of Equity Securities made by the Issuer and Affiliated Purchasers
None.
Recent Sales of Unregistered Securities
None.
ITEM 6.
SELECTED
FINANCIAL DATA
Not required.
ITEM 7.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This
Management’s Discussion and Analysis of Financial Condition and Results of Operations
and other
parts of this current report contain forward-looking statements that involve risks and uncertainties.
Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,”
“plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future
performance and our actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such differences include but are not limited to those
discussed in the subsection entitled
Forward-Looking Statements and Factors That May Affect Future
Results and Financial Condition
below. The following discussion should be read in conjunction with our
financial statements and notes thereto included in this current report. Our fiscal year end is December 31.
Discussion and Analysis
Allied intends to utilize available cash to acquire additional oil and gas producing properties and to
implement improved production practices on existing wells to increase production and expand reserves
where practicable. Allied believes that it can achieve production growth while expanding reserves through
improved exploitation of its existing inventory of wells by disposing of non-productive wells and
enhancing producing wells. An evaluation for this objective of our existing portfolio of oil and gas
properties is constantly under consideration. Allied also intends to continue to expand non-operated and
explore opportunities for operated acquisitions of additional oil or gas producing properties.
Recovery from producing wells is consistently evaluated to consider cost-efficient work-over methods
designed to improve the performance of
the wells. When considering the drilling of
new wells, we conduct
a geological review of the prospective area, in cooperation with our independent operator, to determine the
potential
for
oil
and
gas.
Our
own
consultants
then
review
available
geophysical
data
(generally
seismic
and
gravity data) opine as to the prospect for success. In the event that our evaluation of available geophysical
21
Allied anticipates, based on existing production, that gross revenue will increase if energy prices rise over
the next twelve months.
Net Loss
Net loss after provision for
income taxes for the year ended
December
31, 2015 was $248,597
as compared
to net losses after provision for income taxes of $21,499 for the year ended December 31, 2014. The
increase
in
net
loss
in
the
current
period
can
be
primarily
attributed
to
the
decrease
in gross
revenues.
Allied
will only transition from net loss to net profit in the event energy prices increase.
Operating Expenses
Production costs for the year ended December 31, 2015 and December 31, 2014, were $307,840 and
$352,755, a decrease of 13%. Production costs include the cost of maintaining the wells, severance taxes,
miscellaneous expenses for soap, solvent, gasoline or electricity and expenses such as those incurred in
swabbing,
dozer
work
or
rig
time.
The
decrease
in
production
costs
over
the
current
period
can
be
attributed
to
operating
efficiencies.
Allied
expects
that
production
costs
will
rise
as
the
cost
of
energy
production
from
aging wells increases over time.
General and administrative expenses for the year ended December 31, 2015, increased to $213,070 from
$206,032 for the year ended December 31, 2014, an increase of 3%. The increase in general and
administrative costs can be attributed to an increase in office expenses. Allied anticipates that general and
administrative expenses will be relatively consistent over future periods.
Depletion expenses for the year ended December 31, 2015 and December 31, 2014 were $56,781 and
$50,524
respectively.
Depletion
expenses
will
continue
to
decline
in
relation
to
the
aging
of
existing
oil
and
gas assets.
Income Tax Expense
As of December 31, 2015, Allied has net operating loss (NOL) carry forwards of approximately
$2,354,000. Should substantial changes in our ownership occur there would be an annual limitation of the
amount of NOL carry forward which could be utilized. The ultimate realization of these carry forwards is
due, in part, on the tax law in effect at the time and future events, which cannot be determined. During the
year ended December 31, 2015, a valuation allowance was recorded against this net operating loss carry
forward.
Liquidity and Capital Resources
Allied has a working capital surplus of $1,277,802 as of December 31, 2015 and has funded its cash needs
since inception with revenues generated from operations, debt instruments and private equity placements.
Existing working capital and anticipated cash flow are expected to be sufficient to fund operations.
Total current assets as of December 31, 2015 were $1,290,849 which consisted of $1,265,126 in cash and
$25,723 in accounts receivable. Total assets were $2,553,805 which consisted of current assets, proven oil
and
gas
properties
and
an
escrow
deposit.
Total
current
liabilities
were
$13,047
which
consisted
of
accounts
payable. Total liabilities were $247,657 which consisted of current liabilities, and an asset retirement
obligation of $234,610. Total stockholders’ equity as of December 31, 2015 was $2,306,148.
24
Net cash used in operating activities for the year ended December 31, 2015 was $147,035 as compared to
net cash provided by operations of $22,120 for the year ended December 31, 2014. The transition to net
cash used in operating activities in the current period can be attributed to net losses from operations and a
number of items that are book expense items which do not affect the total amount relative to actual cash
used including depletion and amortization and accretion expense. Balance sheet accounts that actually
affect cash, but are not income statement related items, that are added or deducted to arrive at net cash
provided by operations, include accounts receivable and accounts payable.
Allied expects to continue to use net cash in operating activities in future periods until energy prices
increase.
Net cash used in investing activities for the years ended December 31, 2015 and December 31, 2014, was
zero. Allied expects to use net cash flow in investing activities in future periods as it identifies exploration
opportunities and considers additional acquisitions.
Net cash from financing activities for the years ended December 31, 2015 and December 31, 2014, was
zero. Allied does not expect net cash flow from financing activities in the near term.
Since earnings are reinvested in operations, cash dividends are not expected to be paid in the foreseeable
future.
Allied has no lines of credit or other bank financing arrangements.
Commitments for future capital expenditures were not material at year-end.
Allied has adopted a stock option plan pursuant to which it can grant up to 750,000 options to purchase
shares of its common stock to employees, directors, officers, consultants or advisors of Allied on the terms
and conditions set forth therein. As of December 31, 2015, 600,000 options had been granted of which all
have vested.
Allied has entered into an agreement with its chief executive officer that provides for a five year term,
effective July 1, 2013, that
includes a monthly fee and participation in Allied’s stock option plan.
Allied has no current plans for the purchase or sale of any plant or equipment.
Allied has no current plans to make any changes in the number of employees.
Off Balance Sheet Arrangements
As of December 31, 2015, Allied has no significant 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
that is material to stockholders.
Forward Looking Statements and Factors That May Affect Future Results and Financial Condition
The statements contained in the section titled
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
and elsewhere in this current report, with the exception of historical
facts, are forward looking statements. Forward looking statements reflect our current expectations and
beliefs regarding our future results of operations, performance, and achievements. These statements are
25
subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not
materialize. These statements include, but are not limited to, statements concerning:
§
our anticipated financial performance and business plan;
§
uncertainties related to production volumes of oil and gas;
§
the sufficiency of existing capital resources;
§
uncertainties related to future oil and gas prices;
§
our ability to raise additional capital to fund cash requirements for future operations;
§
uncertainties related the quantity of our reserves of oil and gas
§
the volatility of the stock market and;
§
general economic conditions.
We
wish
to
caution
readers
that
our
operating
results
are
subject
to
various
risks
and uncertainties
that
could
cause our actual results to differ materially from those discussed or anticipated, including the factors set
forth in the section entitled
Risk Factors
included elsewhere in this report. We also wish to advise readers
not
to
place
any
undue
reliance
on
the
forward
looking
statements
contained
in
this
report,
which
reflect
our
beliefs and
expectations
only
as of
the
date
of
this
report.
We assume
no
obligation
to
update
or
revise
these
forward looking statements to reflect new events or circumstances or any changes in our beliefs or
expectations, other than as required by law.
Critical Accounting Policies and Estimates
Accounting for Oil and Gas Property
Costs. As more fully discussed in Note 1 to the Financial Statements,
Allied (i) follows the successful efforts method of accounting for the costs of its oil and gas properties, (ii)
amortizes such costs using the units of production method and (iii) evaluates its proven properties for
impairment whenever events or changes in circumstances indicate that their net book value may not be
recoverable. Adverse changes in conditions (primarily gas price declines) could result in permanent
write-downs in the carrying value of oil and gas properties as well as non-cash charges to operations that
would not affect cash flows.
Estimates of
Proved
Oil
and
Gas
Reserves.
An
independent
petroleum
engineer
annually
estimates Allied’s
proven reserves.
Reserve engineering is a
subjective process that
is dependent
upon the quality
of available
data
and
the
interpretation
thereof.
In
addition,
subsequent
physical
and
economic
factors
such
as
the
results
of drilling, testing, production and product prices may justify revision of such estimates. Therefore, actual
quantities,
production
timing,
and
the
value
of
reserves
may
differ substantially
from
estimates.
A
reduction
in proved reserves would result in an increase in depreciation, depletion and amortization expense.
Estimates of Asset Retirement Obligations. In accordance with ASC 410-20, Allied makes estimates of
future costs and the timing thereof in connection with recording its future obligations to plug and abandon
wells. Estimated abandonment dates will be revised in the future based on changes to related economic
lives, which vary with product prices and production costs. Estimated plugging costs may also be adjusted
to reflect changing industry experience. Increases in operating costs and decreases in product prices would
increase the estimated amount of the obligation and increase depreciation, depletion and amortization
expense. Cash flows would not be affected until costs to plug and abandon were actually incurred.
Recent Accounting Pronouncements
Please see Note 14 to our financial statements for recent accounting pronouncements.
ITEM 7A.
QUANTITATIVE
AND
QUALITATIVE DISCLOSURES
ABOUT MARKET
RISK
Not required.
26
ITEM 8.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Our
audited
financial
statements
for
the
years
ended
December
31,
2015
and
2014
in
addition
to
our
supplementary schedules are attached hereto as F-1 through F-20.
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Allied Resources, Inc.
We
have
audited
the
accompanying
balance
sheets
of
Allied
Resources,
Inc.
(the
Company)
as
of
December
31, 2015 and 2014, and the related statements of operations, stockholders’ equity, and cash flows for each
of the years in the two-year period ended December 31, 2015. The Company’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 Allied Resources, Inc. as of December 31, 2015 and 2014, and the results of its operations and
its
cash
flows
for
each
of
the
years
in
the
two-year
period
ended
December
31,
2015,
in
conformity
with
accounting principles generally accepted in the United States of America.
/s/ JONES SIMKINS LLC
JONES SIMKINS LLC
Logan, Utah
April 28, 2016
F-2
ALLIED RESOURCES, INC.
BALANCE SHEETS
December 31, 2015 and 2014
ASSETS
2015
2014
Current assets:
Cash
$
1,265,126
1,412,161
Accounts receivable
25,723
61,126
Total current assets
1,290,849
1,473,287
Oil and gas properties (proven), net (successful
efforts method)
558,255
615,036
Deposits
704,701
704,701
Total assets
$
2,553,805
2,793,024
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
13,047
14,735
Total current liabilities
13,047
14,735
Asset retirement obligation
234,610
223,544
Total liabilities
247,657
238,279
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value; 50,000,000 shares
authorized, 5,653,011 issued and outstanding
5,653
5,653
Additional paid-in capital
9,916,458
9,916,458
Accumulated deficit
(7,615,963)
(7,367,366)
Total stockholders' equity
2,306,148
2,554,745
Total liabilities and stockholders' equity
$
2,553,805
2,793,024
The accompanying notes are an integral part of these consolidated financial statements.
F-3
ALLIED RESOURCES, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 2015 and 2014
2015
2014
Revenue:
Oil and gas sales
$
325,800
548,099
Other
-
37,500
325,800
585,599
Operating expenses:
Production costs
307,840
352,775
Depletion and amortization
56,781
50,524
General and administrative expenses
213,070
206,032
577,691
609,331
Loss from operations
(251,891)
(23,732)
Interest income
3,294
2,233
Loss before provision for income taxes
(248,597)
(21,499)
Provision for income taxes
-
-
Net loss
$
(248,597)
(21,499)
Loss per common share - basic and diluted
$
(0.04)
-
Weighted average common shares - basic and diluted
5,653,000
5,653,000
The accompanying notes are an integral part of these consolidated financial statements.
F-4
ALLIED RESOURCES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2015 and 2014
Additional
Total
Comm
o
n Stock
Paid-In
Accumulated
Stockholders'
Shares
Amount
Capital
Deficit
Equity
Balance at January 1, 2014
5,653,011
$ 5,653
$
9,916,458 $ (7,345,867)
$
2,576,244
Net loss
-
-
-
(21,499)
(21,499)
Balance at December 31, 2014
5,653,011
5,653
9,916,458
(7,367,366)
2,554,745
Net loss
-
-
-
(248,597)
(248,597)
Balance at December 31, 2015
5,653,011
$ 5,653
$ 9,916,458 $ (7,615,963)
$
2,306,148
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ALLIED RESOURCES, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2015 and 2014
2015
2014
Cash flows from operating activities:
Net loss
$
(248,597)
(21,499)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depletion and amortization
56,781
50,524
Accretion expense
11,066
10,543
(Increase) decrease in:
Accounts receivable
35,403
(19,326)
Increase (decrease) in:
Accounts payable
(1,688)
1,878
Net cash provided by (used in) operating activities
(147,035)
22,120
Cash flows from investing activities:
-
-
Cash flows from financing activities:
-
-
Net increase (decrease) in cash
(147,035)
22,120
Cash, beginning of year
1,412,161
1,390,041
Cash, end of year
$
1,265,126
1,412,161
The accompanying notes are an integral part of these consolidated financial statements
F-6
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
Note 1 – Organization and Summary of Significant Accounting Policies
Organization
Allied Resources, Inc. (the Company) was incorporated on April 5, 2002. The Company is primarily
engaged in the business of acquiring, developing, producing and selling oil and gas production and
properties to companies located in the continental United States.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments with a
maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are amounts due on oil and gas sales and are unsecured. Accounts receivable are
carried at their estimated collectible amounts. Credit is generally extended on a short-term basis; thus
accounts receivable do not bear interest although a finance charge may be applied to such receivables that
are
more
than
thirty
days past
due.
Accounts
receivable
are
periodically
evaluated
for
collectibility
based
on
past credit history with clients. Provisions for losses on accounts receivable are determined on the basis of
loss experience, known and inherent risk in the account balance, current economic conditions, and the
financial stability of customers.
Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash and cash equivalents.
Oil and Gas Producing Activities
The Company utilizes the successful efforts method of accounting for its oil and gas producing activities.
Under this method, all costs associated with productive exploratory wells and productive or nonproductive
development wells are capitalized while the costs of nonproductive exploratory wells are expensed.
If an exploratory well finds oil and gas reserves, but a determination that such reserves can be classified as
proved is not made after one year following completion of drilling, the costs of drilling are charged to
operations. Indirect exploratory expenditures, including geophysical costs and annual lease rentals, are
expensed as incurred. Unproved oil and gas properties that are individually significant are periodically
assessed for impairment of value and a loss is recognized at the time of impairment by providing an
impairment allowance. Other unproved properties are amortized based on the Company’s experience of
successful
drillings and average holding period. Capitalized costs of producing oil
and gas properties, after
considering
estimated
dismantlement
and
abandonment
costs and
estimated
salvage values, are
depreciated
and depleted by the units-of-production method. Support equipment and other property and equipment are
depreciated over their estimated useful lives.
F-7
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
Note 1 – Organization and Summary of Significant Accounting Policies (
continued)
Oil and Gas Producing Activities
(continued)
On the sale or retirement of a complete unit of a proved property, the cost and related accumulated
depreciation, depletion and amortization are eliminated from the property accounts, and the resultant gain
or loss is recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to
accumulated depreciation, depletion and amortization with a resulting gain or loss recognized in income.
On the sale of an entire interest in
an unproved property
for cash
or cash equivalent, gain or loss on
the sale
is recognized, taking into consideration the amount of any recorded impairment if the property has been
assessed individually. If a partial interest in an unproved property is sold, the amount received is treated as
a reduction of the cost of the interest retained.
The continued carrying value of the Company’s oil and natural gas properties depends primarily upon the
estimated reserves and the prices it receives for oil and natural gas production. Oil and natural gas prices
historically have been volatile and are likely to continue to be volatile in the future. The Company’s
production
quantities
of
oil
and
natural
gas
are
in
decline.
Any
decrease
in
oil
and
natural
gas
prices
without
an offsetting increase in reserve quantities could result in an impairment of the Company’s assets.
Current accounting standards may require companies involved in the oil and gas industry to reclassify oil
and gas
contract
based drilling
rights from
tangible
to intangible
assets
and
to provide the
related
intangible
assets disclosures under Accounting Standards Codification (ASC) 350. Since the Company does not have
any contract based oil and gas drilling rights, any disclosure related to this possible requirement would not
have an affect on the Company’s financial statements.
Income Taxes
The
Company
files
federal
and
state
income
tax
returns
in
states
in
which
it
operates.
Deferred
income
taxes
arise from temporary differences resulting from income and expense items reported for financial
accounting and tax purposes in different periods. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply
to taxable income in the years in which those temporary
differences are
expected
to be
recovered
or
settled. Deferred
taxes
are classified
as current or
noncurrent, depending
on
the
classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary
differences that are not related to an asset or liability are classified as current or noncurrent depending on
the periods in which the temporary differences are expected to reverse. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
The
Company
considers
many
factors
when
evaluating
and
estimating
its
tax
positions
and
tax
benefits.
Tax
positions are recognized only when it is more likely than not (likelihood of greater than 50%), based on
technical merits, that the positions will be sustained upon examination. Reserves are established if it is
believed
certain
positions may
be
challenged
and
potentially
disallowed. If facts
and
circumstances
change,
reserves
are
adjusted
through
the
provision
for
income
taxes.
The
Company
recognizes
interest
expense
and
penalties related to unrecognized tax benefits with the provision for income taxes.
F-8
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
Note 1 – Organization and Summary of Significant Accounting Policies (
continued)
Earnings Per Share
The computation of basic earnings per common share is based on the weighted average number of shares
outstanding during each year.
The computation of diluted
earnings per common share is based on the weighted average number of shares
outstanding during the year plus the common stock equivalents which would arise from the exercise of
stock options and warrants outstanding using the treasury stock method and the average market price per
share during the year. Common stock equivalents are not included in the diluted earnings per share
calculation when their effect is antidilutive. Common stock equivalents that could potentially dilute
earnings per share are common stock options.
Presentation of Sales and Similar Taxes
Sales tax on revenue-producing transactions is recorded as a liability when the sale occurs.
Revenue Recognition
Revenue
is
recognized
from
oil
sales at
such time as
the
oil
is
delivered
to
the buyer.
Revenue
is
recognized
from gas sales when the gas passes through the pipeline at the well head. The Company believes that both
oil and gas revenues should be recognized at these times because ownership of the oil and gas generally
passes
to
the
customer at
these
times.
Management
believes that
this
policy
meets the
recognition
criteria
in
that there is persuasive evidence of an existing contract or arrangement, delivery has occurred, the price is
fixed and determinable and the collectibility is reasonably assured.
The Company does not have any gas balancing arrangements.
Stock-Based Compensation
The Company has a stock option plan which is described more fully in Note 8. The Company accounts for
stock compensation under ASC Topic 718. This topic requires the Company to recognize compensation
cost based on the grant date fair value of options granted.
F-9
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
Note 1 – Organization and Summary of Significant Accounting Policies (
continued)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the periods reported. Actual results could differ from
those estimates.
Significant
estimates
include
volumes
of
oil
and
natural
gas
reserves
used
in
calculating
depletion
of
proved
oil and natural gas properties, future net revenues and abandonment obligations, future taxable income and
related assets/liabilities, the collectibility of outstanding accounts receivable, stock-based compensation
expense, and contingencies. Oil and natural gas reserve estimates, which are the basis for
unit-of-production
depletion,
have
numerous
inherent
uncertainties.
The
accuracy
of
any
reserve
estimate
is
a function of the quality of available data and of engineering and geological interpretation and judgment.
Subsequent drilling results, testing and production may justify revision of such estimates. Accordingly,
reserve estimates are often different from
the quantities of oil and natural gas that
are ultimately
recovered.
In
addition,
reserve
estimates
are
vulnerable
to
changes
in
wellhead
prices
of
crude
oil
and
natural
gas.
Such
prices have been volatile in the past and can be expected to be volatile in the future.
Use of Estimates in the Preparation of Financial Statements (
continued)
The significant estimates are based on current assumptions that may be materially affected by changes to
future economic conditions such as the market prices received for sales of volumes of oil and natural gas,
the creditworthiness of counterparties, interest rates, the market value of the Company’s common stock
and corresponding volatility and the Company’s ability to generate future taxable income. Future changes
to these assumptions may affect these significant estimates materially in the near term.
Note 2 – Oil and Gas Properties
Oil and gas properties consist of the following:
December 31,
2015
2014
Oil and gas properties (successful efforts method)
$
8,513,291
8,513,291
Capitalized costs related to asset retirement obligation
93,499
93,499
8,606,790
8,606,790
Less accumulated depreciation, depletion, and amortization
(8,048,535)
(7,991,754)
$
558,255
615,036
F-10
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
Note 3 – Deposits
The Company has an operating agreement with one of the operators of the Company’s oil and gas wells.
Terms of the agreement allow the operator to withhold a portion of the Company’s share of revenue for
possible future costs associated with the wells. The terms of the agreement require that these funds be held
in escrow. As of December 31, 2015 and 2014 amounts on deposit were approximately $705,000 and
$705,000, respectively.
Note 4 – Asset Retirement
Obligation
The Company is subject to certain regulations implemented to protect the environment. These regulations
require that when oil and gas wells are abandoned, the owners must perform certain reclamation activities
related
to
the
oil
and
gas
wells.
Accordingly,
a
liability
has
been
established
equal
to
the
present
value
of
the
Company’s estimated prorata share of
the obligation. The Company
has no assets that are legally
restricted
for the purpose of settling this obligation.
Following
is a
reconciliation of
the aggregate retirement
liability
associated with
the Company’s obligation
to plug and abandon its oil and gas properties:
2015
2014
Balance at beginning of year
$
223,544
213,001
Accretion expense
11,066
10,543
Balance at end of year
$
234,610
223,544
Note 5 – Income Taxes
The provision for income taxes differs from the amount computed at federal statutory rates as follows:
2015
2014
Federal income tax benefit at statutory rate
$
(84,000)
(7,000)
State income tax benefit, net of federal tax benefit
(9,000)
(1,000)
Change in valuation allowance
92,000
9,000
Other
1,000
(1,000)
$
-
-
F-11
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
Note 5 – Income Taxes
(continued)
Deferred tax assets are comprised of the following:
2015
2014
Net operating loss carry-forwards
$
800,000
729,000
Asset retirement obligation
71,000
66,000
Depletion and amortization
144,000
128,000
Stock compensation expense
66,000
66,000
1,081,000
989,000
Less valuation allowance
(1,081,000)
(989,000)
$
-
-
As of December 31, 2015, the Company had net operating loss (NOL) carryforwards of approximately
$2,354,000. If substantial changes in the Company’s ownership should occur there would be an annual
limitation of the amount of NOL carryforwards which could be utilized. Also, the ultimate realization of
these carryforwards is due, in part, on the tax law in effect at the time and future events, which cannot be
determined.
The Company’s NOL amounts and related years of expiration are as follows:
Year
Year of
Generated
Amount
Expiration
1998
73,000
2018
1999
1,980,000
2019
2001
4,000
2021
2002
78,000
2022
2011
12,000
2031
2012
1,000
2032
2015
206,000
2035
$
2,354,000
The Company is no longer subject to examination by federal and state taxing authorities for years prior to
2012.
F-12
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
Note 6 – Related Party Transactions
The
Company
leases
office
space
on
a
month-to-month
basis
from
the
CEO
of
the
Company.
The
lease
requires monthly
payments of $1,000. The Company
incurred rent expense of approximately
$12,000 each
year
during
the
years
ended
December
31,
2015
and
2014.
At
December
31,
2015
and
2014,
$1,000
was
included in accounts payable for rent.
The Company has a consulting agreement with its CEO to provide management services. The agreement
requires monthly payments of $10,000. The Company incurred management and consulting fees of
approximately $120,000 each year during the years ended December 31, 2015 and 2014. At December 31,
2015 and 2014, $10,000 was included in accounts payable for management services.
Note 7 – Supplemental Disclosures of Cash Flow Information
No amounts were paid for interest and income taxes during the years ended December 31, 2015 and 2014.
Note 8 – Stock Options
The Company has a stock option plan (the Plan) which allows for the issuance of the Company’s common
stock or the grant of options to acquire the Company’s common stock from time to time to employees,
directors, officers, consultants
or
advisors of
the
Company
on the
terms
and
conditions
set
forth
in
the
Plan.
At December 31, 2015 and 2014, the Company had 600,000 options outstanding at an exercise price of
$0.35. During
the years ended December 31, 2015 and 2014, the Company did not have any
changes in the
number of outstanding options.
Note 9 – Stock Based Compensation
The
following
table
summarizes
information
about
common
stock
options
outstanding
at
December
31,
2015:
Outsta
n
ding
Exer
cis
able
Weighted
Average
Weighted
Weighted
Remaining
Average
Average
Exercise
Number
Contractual
Exercise
Number
Exercise
Price
Outstanding
Life (Years)
Price
Exercisable
Price
$ 0.35
600,000
3.0
$ 0.35
600,000
$ 0.35
F-13
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
Note 10 – Fair Value of Financial Instruments
The
Company
estimates
that
the
fair
value
of
all financial
instruments at
December 31,
2015
and
2014
does
not differ materially from the aggregate carrying value of its financial instruments recorded in the
accompanying balance sheet. Carrying value approximates fair value due to the short maturity of the
instruments identified as current assets and liabilities. The Company’s financial instruments are held for
nontrading purposes.
Note 11 – Commitments and Contingencies
Oil and Gas Operating Agreement
The Company has agreements with the operators of the oil and gas wells in which the Company owns an
interest. These agreements require the Company to pay a percentage of the fees and production costs of
operating the wells.
Litigation
The Company may become or is subject to investigations, claims or lawsuits ensuing out of the conduct of
its business, including those related to environmental safety and health, commercial transactions, etc. The
Company
is currently
not aware of any
such item which it believes could have a material adverse affect on
its financial position.
Note 12 – Risks and Uncertainties
The
Company’s oil
and
gas
reserves
are
continually
declining,
which
will
eventually
result
in
a
reduction
of
the amount of oil and gas produced, oil and gas revenues, and cash flows. The Company has historically
replaced reserves through both drilling and acquisitions, however, there is no assurance that oil and gas
reserves
can be
located
through drilling
or
acquisition
or that
even
if
reserves are
located, that
such
reserves
will allow the recovery of all or part of the investment made by the Company to obtain these reserves.
The
Company’s
carrying
cost
of
its
oil
and
gas
properties
are
subject
to
possible
future
impairment
based
on
the estimated future cash flows of these properties. These estimated future cash flows are in turn subject to
oil and gas prices that are subject to fluctuations and, as a consequence, no assurance can be given that oil
and gas prices will decrease, increase, or remain stable.
Note 13 – Subsequent Events
The
Company
evaluated
its December
31,
2015, financial
statements for
subsequent
events
through
the
date the
financial statements
were issued. The Company is
not
aware of
any subsequent
events which
would require recognition or disclosure in the financial statements.
F-14
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
Note 14 – Recent Accounting Pronouncements
The Company’s management has evaluated the recently issued accounting pronouncements through the
filing date of these financial statements and has determined that the application of these pronouncements
will not have a material impact on the Company’s financial position and results of operations.
F-15
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2015 and 2014
Capitalized Costs Relating to Oil and Gas Producing Activities
December 31,
2015
2014
Proved oil and gas properties and related equipment
$
8,513,291
8,513,291
Unproved oil and gas properties
-
-
Capitalized costs related to asset retirement obligation
93,499
93,499
8,606,790
8,606,790
Accumulated depreciation, depletion, amortization
and valuation allowances
(8,048,535)
(7,991,754)
$
558,255
615,036
Costs Incurred in Oil and Gas Acquisition, Exploration and Development Activities
December 31,
2015
2014
Acquisition of properties:
Proved
$
-
-
Unproved
$
-
-
Exploration costs
$
-
-
Development costs
$
-
-
F-16
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2015 and 2014
Results of Operations for Producing Activities
Years Ended
December 31,
2015
2014
Oil and gas revenues
$
325,800
548,099
Production costs net of reimbursements
(307,840)
(352,775)
Exploration costs
-
-
Depreciation, depletion, amortization, and valuation provisions
(56,781)
(50,524)
Net income before income taxes
(38,821)
144,800
Income tax expense
(13,000)
49,000
Results of operations from producing activities (excluding
corporate overhead and interest costs)
$
(25,821)
95,800
F-17
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2015 and 2014
Reserve Quantity Information (Unaudited)
The estimated quantities of proved oil and gas reserves disclosed in the table below are based on appraisal
of the proved developed properties by
Sure Engineering, LLC. Such
estimates are
inherently
imprecise and
may be subject to substantial revisions.
All quantities shown in the table are proved developed reserves and are located within the United States.
Years Ended December 31,
201
5
2
014
Oil
Gas
Oil
Gas
(bbls)
(mcf)
(bbls)
(mcf)
Proved developed and undeveloped reserves:
Beginning of year
24,461
1,386,883
26,434
1,438,888
Revision in previous estimates
(11,948)
(1,114,866)
972
43,794
Discoveries and extension
-
-
-
-
Purchase in place
-
-
-
-
Production
(4,488)
(96,484)
(2,945)
(95,799)
Sales in place
-
-
-
-
End of year
8,025
175,533
24,461
1,386,883
F-18
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2015 and 2014
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil
and Gas Reserves (Unaudited)
Years Ended
December 31,
2015
2014
Future cash inflows
$
645,000
6,605,000
Future production and development costs
(381,000)
(4,374,000)
Future income tax expenses
(90,000)
(758,000)
174,000
1,473,000
10% annual discount for estimated timing of cash flows
(64,000)
(833,000)
Standardized measure of discounted future net cash flows
$
110,000
640,000
The preceding table sets forth the estimated future net cash flows and related present value, discounted at a
10% annual rate, from the Company’s proved reserves of oil, condensate and gas. The estimated future net
revenue is computed by applying the average prices of oil and gas (including price changes that are fixed
and determinable) based upon the prior 12-month period and current costs of production and development
for estimated future production assuming continuation of existing economic conditions. The values
expressed are estimates only, without actual long-term production to base the production flows, and may
not
reflect realizable values or fair market values of
the oil and gas ultimately
extracted and recovered. The
ultimate year of realization is also subject to accessibility of petroleum reserves and the ability of the
Company to market the products.
F-19
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2015 and 2014
Changes in the Standardized Measure of
Discounted Future Cash Flows (Unaudited)
Years Ended
December 31,
2015
2014
Balance, beginning of year
$
640,000
734,000
Sales of oil and gas produced net of production costs
(147,000)
(191,000)
Net changes in prices and production costs
3,300,000
137,000
Extensions and discoveries, less related costs
-
-
Purchase and sales of minerals in place
-
-
Revisions of estimated development costs
-
-
Revisions of previous quantity estimate
(3,501,000)
(59,000)
Accretion of discount
64,000
73,000
Net changes in income taxes
(246,000)
(54,000)
Balance, end of year
$
110,000
640,000
F-20
ITEM 9.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS
AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this annual report on Form 10-K, an evaluation was carried out by
Allied’s management, with
the participation of the chief executive officer and
the chief financial officer, of
the effectiveness of Allied’s disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under
the
Securities
Exchange
Act
of
1934
(“Exchange
Act”))
as
of
the
end of
the
period
covered
by this report. Disclosure controls and procedures are designed to ensure that information required to be
disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the Commission’s rules and forms, and that such information
is accumulated and communicated to management, including the chief executive officer and the chief
financial officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, Allied’s management concluded, as of the end of the period covered by this
report, that Allied’s disclosure controls and procedures were ineffective in recording, processing,
summarizing, and reporting information required to be disclosed, within the time periods specified in the
Commission’s rules and forms, and such information was not accumulated and communicated to
management, including the chief executive officer and the chief financial officer, to allow timely
decisions
regarding required disclosures.
Management’s Report on Internal Control over Financial Reporting
Management of Allied is responsible for establishing and maintaining adequate internal control over
financial reporting. Allied’s internal control over financial reporting is a process, under the supervision of
the chief executive officer and the chief financial officer, designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of Allied’s financial statements for
external purposes in accordance with United States generally accepted accounting principles (GAAP).
Internal control over financial reporting includes those policies and procedures that:
§
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of Allied’s assets;
§
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
the financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with authorizations of management
and the board of directors; and
§
Provide
reasonable
assurance
regarding
prevention
or
timely
detection
of
unauthorized
acquisition,
use, or disposition of Allied’s assets that could have a material effect on the financial statements.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
28
Allied’s management conducted an assessment of the effectiveness of our internal control over financial
reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission,
which assessment did not identify any material weaknesses in internal control over financial reporting. A
material
weakness is
a control
deficiency, or
a
combination
of
deficiencies
in
internal
control
over financial
reporting that creates a reasonable possibility that a material misstatement in annual or interim financial
statements will not be prevented or detected on a timely basis. Since the assessment of the effectiveness of
our internal control over financial reporting did identify a material weakness, management considers its
internal control over financial reporting to be ineffective.
The matter involving internal control over financial reporting that our management considered to be a
material weakness was:
Management’s Inability to Obtain Production Reports from Independent Operators on a Timely Basis:
Over
the
current
reporting
period
management
was
unable
to
procure
production
and
expense
data
from
one
of
its
independent
operators
on
a
timely
basis which
failure
delayed
Allied’s
ability
to
complete
its
financial
reporting on a timely basis. Accordingly, we determined that this control deficiency as of December 31,
2015, constituted a material weakness.
Allied intends to remedy
this material weakness by causing its independent operator to engage personnel
sufficient to provide production and expense data on a timely basis.
This annual report does not include an attestation report of our independent registered public accounting
firm
regarding
internal
control
over financial
reporting. We are not
required
to have, nor have we, engaged
our independent registered public accounting firm to perform an audit of internal control over financial
reporting pursuant to the rules of the Commission.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2015, there has been no change in internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect our internal control over
financial reporting.
9B.
OTHER
INFORMATION
None.
29
PART III
ITEM 10.
DIRECTORS
, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Officers and Directors
The following table sets forth the name, age and position of each director and executive officer of Allied:
Name
Age
Year
Positions Held
Elected/Appointed
Ruairidh Campbell
52
1998
Chief Executive Officer, Chief Financial
Officer,
Principal Accounting Officer, Director
Ed Haidenthaller
52
2004
Director
Paul Crow
69
2005
Director, Secretary
Set forth below is a brief description of the background and business experience of each of our executive
officers and directors for the past five years:
Ruairidh Campbell
On June 6, 1998, Mr. Campbell was first elected as a director and subsequently appointed as an officer of
Allied. Mr. Campbell estimates that he spends approximately 20 hours per week on Allied’s business. He
also has significant responsibilities with other companies, as detailed in the following paragraph.
Business Experience
Mr. Campbell has been advising early-stage businesses for over 20 years in the public and private sectors.
Services range from investment banking to managerial duties that include working with government
regulators, business organizations, auditors, accountants, attorneys and quasi-public governing bodies
responsible for everything from public health to public quotation. He formed Orsa & Company in 2001
which is dedicated to providing these services.
Since joining Allied in 1998 Mr. Campbell has spent a significant amount of his time in the field with oil
and gas producers, prospectors and geologists in pursuit of growing the business.
Officer and Director Responsibilities and Qualifications
Mr. Campbell is responsible for the overall management of Allied and is involved in all of its day-to-day
operations and administration. He also serves as a director and as a member of Allied’s audit committee.
Mr. Campbell
graduated from
the
University
of
Texas
at
Austin with
a
Bachelor
of
Arts
in
History
and
then
from the University of Utah College of Law with a Juris Doctorate with an emphasis in corporate law and
energy law.
Other Public Company Directorships in the Last Five Years
Over the last five years to present Mr. Campbell has served and continues to serve as an officer and
director of Arvana, Inc., a company without significant operations (May 2013 to present) and as an
officer and director of Park Vida Group, Inc. a real estate development company with interests in the
Dominican Republic (December 1998 to January 2015).
30
Ed Haidenthaller
On September 23, 2004, Mr. Haidenthaller was elected as a director of Allied. Mr. Haidenthaller estimates
that he spends approximately
1 hour per week on Allied’s business. He also has significant responsibilities
with other companies, as detailed in the following paragraph.
Business Experience
Mr.
Haidenthaller worked as the
Chief
Financial
Officer and
holding
company
Secretary, for Proficio
Bank
and NHB Holdings, Inc., respectively from March 2012 to November 2013. Proficio is a Utah State
chartered commercial bank
with operations in
Utah and Orlando, Florida and 33 additional loan generation
offices primarily east of the Rocky Mountains. Prior to this position, Mr. Haidenthaller was employed as
a director for approximately 2 years for McGladrey, the 5th largest accounting and consulting firm in the
US, and a multi-national firm specializing in internal audit, tax compliance, financial operations support,
and technology risk management. Prior to joining McGladrey Mr. Haidenthaller worked as a VP of Risk
management & Audit for a large multi-billion wholesale bank, and for 5+ years with Jefferson Wells
International managing its consulting practice as well as its banking services practice. Mr. Haidenthaller
also had his own business, Strategic Funding Consultants, LLC. which worked with start up and small
businesses to develop business strategies, assist in obtaining funding and general consulting services.
Officer and Director Responsibilities and Qualifications
Mr
Haidenthaller
serves on
the
board
of
directors as an
independent director
and in
that
capacity
is
responsible for providing Allied with oversight in all material corporate decisions. He also serves
as a member of Allied’s audit committee.
Mr. Haidenthaller graduated from Weber State University with a Bachelor of Science in Finance and then
from the University of Utah with a Masters of Business Administration (MBA).
Other Public Company Directorships in the Last Five Years
None.
Paul Crow
On January 17, 2005, Mr. Paul Crow was appointed as a director of Allied and subsequently appointed as
secretary. Mr. Crow estimates
that he spends approximately
2 hours per week on
Allied’s business.
He
also
has significant responsibilities with other companies, as detailed in the following paragraph.
Business Experience
Mr. Crow operates his own Edgar preparation and filing business working with private and public
businesses to provide general consulting services related to Sarbanes-Oxley compliance and other
Commission
related
disclosure
requirements.
His
prior
experience
includes
work
as
a
business
consultant
to
Axia Group, Inc., a company involved in business consulting and real estate from April 2002 until
September
2003
and
as
a
library
supervisor
at
the
University
of
Utah
from
March
1996
until
March
of
2002.
31
Officer and Director Responsibilities and Qualifications
Mr. Crow serves on the board of directors and in that capacity is responsible for considering corporate
matters and for participating in the decision making process at the board level. He is also responsible in his
capacity as secretary for filing Allied’s public disclosure online and serves as a member of Allied’s audit
committee.
Mr. Crow graduated from the University of Utah with a Bachelor of Science in Accounting in 1994.
Other Public Company Directorships in the Last Five Years
None.
No
other
persons
are
expected
to
make
any
significant
contributions
to
Allied’s
executive
decisions
who
are
not executive officers or directors of Allied.
Term of Office
Our directors have been elected or appointed to the board of directors for a one (1) year term or until the
next annual meeting of our shareholders or until removed in accordance with our bylaws. Our sole
executive officer was appointed by our board of directors and holds office at the discretion of the board in
accordance with terms of his agreement with Allied.
Family Relationships
There are no family relationships between or among the directors or executive officers.
Involvement in Certain Legal Proceedings
During the past ten years there are no events that occurred related to an involvement in legal proceedings
that
are
material
to
an
evaluation
of
the
ability
or
integrity
of
any
of
Allied’s
directors,
persons
nominated
to
become directors or executive officers.
Compliance with Section 16(A) of the Exchange Act
Based
solely
upon
a
review
of
the
Forms
3,
4
and
5
furnished
to
Allied,
we
are
not
aware
of
any
person
who,
during the period ended December 31, 2014, failed to file, on a timely basis, reports required by Section
16(a) of the Securities Exchange Act of 1934.
Code of Ethics
Allied has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-B of the Securities
Exchange Act of 1934. The Code of Ethics applies to directors and senior officers, such as the principal
executive officer, principal financial officer, controller, and persons performing similar functions. Allied
has
incorporated
a
copy
of
its
Code
of
Ethics
as
Exhibit
14
to
this Form
10-K.
Further,
our
Code
of
Ethics
is
available in print, at no charge, to any security holder who requests such information by contacting us.
32
Board of Directors Committees
Allied has formed an audit
committee from the board of directors that assists the chief executive officer in
fulfilling its oversight responsibilities by
reviewing the financial information which will be provided to the
shareholders and others; reviewing the systems of internal controls which management and the board of
directors have established; appointing, retaining and overseeing the performance of independent
accountants; and overseeing Allied’s accounting and financial reporting processes and the audit of its
financial statements.
Allied’s board of directors has not established a compensation committee.
Director Compensation
Directors currently are not reimbursed for out-of-pocket costs incurred in attending meetings but
non-executive directors are compensated for their service as directors in the amount $500 per meeting.
During
the year
ended
December
31, 2015, Allied
compensated
each
of
its
non-executive
directors for
their
participation in four meetings of the board of directors held over the annual period.
During the year ended
December 31, 2015, Allied
compensated one of its directors for services
rendered
as
corporate secretary.
During the year ended December 31, 2015, Allied compensated one of its directors, pursuant to an
executive agreement with him for services rendered as chief executive officer, chief financial officer, and
principal accounting officer, for annual compensation of $120,000. He was further compensated in the
annual amount of $12,000 for providing office space to Allied.
The following table provides summary information for the year 2015 concerning cash and non-cash
compensation paid or accrued by Allied to or on behalf of our directors.
Directors’ Summary Compensation Table
Name
Fees earned
Stock
Option
Non-equity
Nonqualified
All other
Total
or paid in
awards
Awards
incentive plan
deferred
compensation
($)
cash
($)
($)
compensation
compensation
($)
($)
($)
($)
Ruairidh Campbell
120,000*
-
-
-
-
12,000**
132,000
Paul Crow
2,000
-
-
-
-
3,000***
5,000
Ed Haidenthaller
2,000
-
-
-
-
-
2,000
*
Pursuant to a consulting agreement; amount paid to Mr. Campbell for services rendered as chief executive officer, chief
financial officer and principal accounting
officer.
**
Pursuant to a month to month lease agreement; amount paid to Mr. Campbell for the provision of office space.
***
Amount paid to Mr. Crow for services rendered as corporate secretary.
33
ITEM 11.
EXECUTIVE
COMPENSATION
Compensation Discussion and Analysis
The objective of Allied’s compensation program is to provide compensation for services rendered by our
sole executive officer in the form of a consulting fee and stock option grants. We utilize these forms of
compensation
because
we
believe
that
these
forms
of
consideration
are
adequate
to
both
retain
and
motivate
our executive officer. The amounts we deem appropriate to compensate our executive officer are
determined in accordance with market forces; we have no specific formula to determine compensatory
amounts at this time. While we have deemed that our current compensatory program and the decisions
regarding compensation are easy to administer and are appropriately suited for our objectives, we may
expand our compensation program to any additional future employees to include options and other
compensatory elements.
Executive compensation for the year ended
December 31, 2015 was
$132,000
as
compared
to $132,000 for
the year ended December 31, 2014. Compensation includes a monthly management fee, stock options and
rent paid for office space. We anticipate that executive compensation will remain consistent over the
remaining term of the five year agreement.
Tables
The
following
table
provides
summary
information
for
the
years
2015,
and
2014
concerning
cash
and
non-cash compensation paid
or
accrued by Allied to or
on behalf of (i)
the chief executive officer and (ii)
any other employee to receive compensation in excess of $100,000.
Officer’s Summary Compensation Table
Name and
Year
Salary
Bonus
Stock
Option
Non-Equity
Change in
All Other
Total
Principal
($)
($)
Awards
Awards
Incentive Plan
Pension Value
Compensation
($)
Position
($)
($)
Compensation
and
($)
($)
Nonqualified
Deferred
Compensation
($)
Ruairidh
2015 120,000
-
-
-
-
-
12,000
132,000
Campbell,
2014 120,000
-
-
-
-
-
12,000
132,000
CEO, CFO,
PAO and
director
34
The
following
table
provides
summary
information
for
2015
concerning
unexercised
options,
stock
that
has
not vested, and equity incentive plan awards by Allied to or on behalf of (i) the chief executive officer and
(ii) any other employee to receive compensation in excess of $100,000:
Outstanding Equity Awards at Fiscal Year-End
Option awards
Stock awards
Equity
Equity
incentive
incentive
plan
plan
awards:
awards:
market or
Equity
number
payout
incentive
Market
of
value of
plan
value of
unearned unearned
awards:
Number
shares
shares,
shares,
Number of
Number of
number of
of shares or units
units or
units or
securities
securities
securities
or units
of stock
other
other
underlying
underlying
underlying
of stock
that
rights
rights
unexercised
unexercised
unexercised
Option
that
have
that have that have
options
options
unearned
exercise
Option
have not
not
not
not
(#)
(#)
options
price
expiration
vested
vested
vested
vested
Name
exercisable unexercisable
(#)
($)
date
(#)
(#)
(#)
($)
Ruairidh
Campbell
500,000
0
-
0.35
Dec 31,
2018
-
-
-
-
Allied has an executive agreement with its executive officer, effective July
1, 2013,
through June 30, 2018,
for (i) an annual salary of $120,000, (ii) at Allied’s discretion, an annual bonus, and (iii) tenure based
incentive stock options. The tenure based stock options have not yet been granted.
Allied has no plans that provide for the payment of retirement benefits, or benefits that will be paid
primarily following retirement.
Allied has no agreement that provides for payment to our executive officer at, following, or in connection
with his resignation, retirement, termination, or for any change in control of Allied or change in his
responsibilities following a change in control.
35
ITEM 12.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table
sets
forth
certain
information
concerning
the ownership
of
Allied’s 5,653,011 shares
of
common stock
issued
and
outstanding as
of
April
29, 2016, with
respect
to:
(i)
all
directors;
(ii) each person
known by us to be the beneficial owner of more than five percent of our common stock; and (iii) our
directors and executive officers as a group.
Names and Addresses of Managers
Title of Class
Number of
Percent of
and Beneficial Owners
Shares
Class
Ruairidh Campbell
3002 Kinney Avenue
Common
2,060,000*
36.4
Austin, Texas 78704
Ed Haidenthaller
1193 East 800 North
Common
10,000**
<1.0
Layton, Utah 84040
Paul Crow
1185 East 5840 South
Common
10,000***
<1.0
Salt Lake City, Utah 84121
All Executive Officers and Directors
as a Group (3)
Common
2,080,000
36.4
* Ruairidh Campbell holds 500,000 vested options to purchase 500,000 common shares at $0.35.
** Ed Haidenthaller holds 50,000 vested options to purchase 50,000 common shares at $0.35.
*** Paul Crow holds 50,000 vested options to purchase 50,000 common shares at $0.35.
ITEM 13.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
None of our directors or executive officers, nor any person who beneficially owns, directly or indirectly,
shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any
members of the immediate family
(including spouse, parents, children, siblings, and in
−
laws) of any of the
foregoing persons has any material interest, direct or indirect, in any transaction in the period covered by
this report or in any presently proposed transaction which, in either case, has or will materially affect us.
Director Independence
Allied is quoted on the OTC Bulletin Board inter-dealer quotation system, which does not have director
independence
requirements.
However, for purposes
of
determining
director
independence, we have applied
the definitions set out in NASDAQ Rule 4200(a)(15). NASDAQ Rule 4200(a)(15) states that a director is
not considered to be independent if he or she is also an executive officer or employee of the corporation.
Accordingly, we consider Mr. Haidenthaller to be an independent director.
36
ITEM 14.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
Audit Fees
The following is a summary of the fees billed to us by Jones Simkins LLC (“Jones Simkins”) for
professional services rendered for the past two fiscal years:
Auditors’ Fees and Services
2015
2014
Audit fees
$
40,200 $
40,245
Audit-related fees
-
-
Tax fees
7,030
7,030
All other fees.
-
-
Total fees paid or accrued to our principal accountants $
47,230 $
47,275
Audit Fees consist of fees billed for professional services rendered for the audit of
our financial statements
and review of the interim financial statements included in quarterly reports and services that are normally
provided by Jones Simkins in connection with statutory and regulatory filings or engagements.
Audit Committee Pre-Approval
All services provided to Allied by Jones Simkins as detailed above, were pre-approved by Allied’s audit
committee. Jones Simkins performed all work only with their permanent full time employees.
37
PART IV
ITEM 15.
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
The following documents are filed under “
Item 8. Financial Statements and Supplementary Data,
” pages
F-1 through F-20, and are included as part of this Form 10-K:
Financial Statements of Allied for the years ended December 31, 2015 and 2014:
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statement of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
Schedules of Supplementary Information on Oil and Gas Operations
(b) Exhibits
The exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on
page 40 of this Form 10-K, and are incorporated herein by this reference.
(c) Financial Statement Schedules
We are not filing any financial statement schedules as part of this Form 10-K because such schedules are
either not applicable or the required information is included in the financial statements or notes thereto.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Allied Resources, Inc.
Date
/s/ Ruairidh Campbell
By: Ruairidh Campbell
April 29, 2016
Its: Chief Executive Officer, Chief Financial Officer, Principal
Accounting Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date
/s/ Ruairidh Campbell
Ruairidh Campbell
Chief Executive Officer, Chief Financial Officer, Principal Accounting
Officer and Director
April 29, 2016
/s/ Ed Haidenthaller
Ed Haidenthaller
Director
April 29, 2016
/s/ Paul Crow
Paul Crow
Director
April 29, 2016
39
INDEX TO EXHIBITS
Exhibit
Description
3.1*
Articles of Incorporation dated February 12, 2002 (incorporated by reference to the Form
10-SB/A filed on April 21, 2003).
3.2 *
Bylaws (incorporated by reference to the Form 10-SB/A filed on April 21, 2003).
10.1 *
Oil and Gas Well Operating Agreement between Allied and Allstate Energy Corporation
dated
May
1,
1996
(incorporated
by
reference
to
the Form
10SB/A
filed
on
April
21,
2003).
10.2 *
Amendments to Operating Agreements between Allied and Allstate Energy Corporation
dated May 10, 1996 (incorporated by reference to the Form 10SB/A filed on April 21,
2003).
10.3 *
Form Gas Purchase Agreement (incorporated by reference to the Form 10SB/A filed on
April 21, 2003).
10.4*
Executive Agreement between Allied and Ruairidh Campbell dated July 1, 2013 filed on
March 31, 2014.
14 *
Code of Ethics adopted May 3, 2004 (incorporated by reference to the Form 10-KSB filed
on May 26, 2004).
31
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule
13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (attached).
32
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section
1350
as
adopted
pursuant
to
Section
906 of
the Sarbanes-Oxley
Act
of 2002
(attached).
99.1 *
Allied
Resources,
Inc.
2008
Stock
Option
Plan
(incorporated
by
reference
to
the
Form
10-Q
filed on November 14, 2008).
99.2
Reserve report from Sure Engineering, LLC (attached).
101. INS
XBRL Instance Document
†
101. PRE
XBRL Taxonomy Extension Presentation Linkbase
†
101. LAB
XBRL Taxonomy Extension Label Linkbase
†
101. DEF
XBRL Taxonomy Extension Label Linkbase
†
101. CAL
XBRL Taxonomy Extension Label Linkbase
†
101. SCH
XBRL Taxonomy Extension Schema
†
*
Incorporated by reference to previous filings of Allied.
†
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed
“furnished”
and
not
“filed”
or part
of a registration
statement
or prospectus for
purposes
of
Section 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for
purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not
subject to liability under these sections.
40
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