Note Regarding Forward Looking Statements
This quarterly report on Form 10-Q contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which are intended to be covered by the safe harbors created thereby. In
some cases, you can identify forward-looking statements by terminology such as
"may," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue," "intends," and other variations of these
words or comparable words. In addition, any statements that refer to
expectations, projections or other characterizations of events, circumstances or
trends and that do not relate to historical matters are forward-looking
statements. To the extent that there are statements that are not recitations of
historical fact, such statements constitute forward-looking statements that, by
definition, involve risks and uncertainties. In any forward-looking statement,
where we express an expectation or belief as to future results or events, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will be achieved or accomplished. The actual results or
events may differ materially from those anticipated and as reflected in
forward-looking statements included in this report.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. Except as required by law, we do not undertake to update or revise any
of the forward-looking statements to conform these statements to actual results,
whether as a result of new information, future events or otherwise.
Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. We believe
the information contained in this quarterly report on Form 10-Q to be accurate
as of the date hereof. Changes may occur after that date, and we will not update
that information except as required by law.
As used in this quarterly report, "AMGAS," the "Company," "we," "us" and "our"
refer collectively to American Noble Gas, Inc., formerly Infinity Energy
Resources, Inc., its predecessors and subsidiaries or one or more of them as the
context may require.
Overview
The Company is an oil and gas exploration, development and production company,
which is primarily in the business of drilling and operating oil and gas wells.
From 2009 to 2020, the Company had pursued the exploration of potential oil and
gas resources in the Concession - Perlas and Tyra concession blocks offshore
Nicaragua in the Caribbean Sea, containing a total of approximately 1.4 million
acres. However, in January 2020, the Company abandoned the Concessions.
On April 1, 2021, we completed the acquisition of the Properties, under the same
terms of the Asset Purchase Agreement which provided a purchase price of
$900,000. The Company raised approximately $2.05 million on March 26, 2021
through the issuance of Series A Convertible Preferred Stock with detachable
common stock purchase warrants.
The purchase of the Properties included the existing production equipment,
infrastructure and ownership of 11 square miles of existing 3-D seismic data on
the acreage. The Properties include a horizontal producing well, horizontal
saltwater injection well, conventional saltwater disposal well and two
conventional vertical producing wells, which currently produce from the Reagan
Sand Zone with an approximate depth of 3,600 feet.
36
We have commenced rework of the existing production wells immediately after the
acquisition of the Properties and have performed testing and evaluation of the
existence of noble gas reserves on the Properties, including helium, argon and
other rare earth minerals and gases. Testing of the Properties for noble gas
reserves has provided encouraging but not yet conclusive results and the Company
has yet to determine the possibility of commercializing the noble gas reserves
on the Properties. The Company plans to assess the existing oil and gas reserves
on the Properties, while continuing the evaluation of the existence of new oil
and gas zones and other mineral reserves and specifically the noble gas reserves
that the Properties may hold.
We may find it necessary to obtain new sources of debt and/or equity capital to
fund the exploration and development of the Properties enumerated above, as well
as to satisfy our existing debt obligations. We can provide no assurance that we
will be able to obtain sufficient new debt/equity capital to fund our planned
development of the Properties.
Name Change and Reincorporation Matters
At the Annual Meeting of Stockholders held on October 13, 2021, the stockholders
approved an amendment to the Company's Certificate of Incorporation, changing
the Company's name to American Noble Gas, Inc. The stockholders also approved an
amendment to the Company's Certificate of Incorporation, removing the provision
providing that any action taken by the stockholders by written consent in lieu
of a meeting requires that all of the Company's stockholders entitled to vote on
such action consent in writing thereto. Finally, the stockholders approved the
2021 Plan and we reserved 5,000,000 shares of Common Stock for issuance under
the 2021 Plan.
Reincorporation in Nevada
On December 7, 2021, pursuant to the Agreement and Plan of Merger, the
Predecessor merged with and into its wholly owned subsidiary, AMGAS-Nevada with
AMGAS-Nevada continuing as the surviving corporation. In conjunction with the
merger, AMGAS-Nevada succeeded to the assets, continued the business and assumed
the rights and obligations of the Predecessor existing immediately prior to the
merger. The merger was consummated by the filing of a Certificate of Merger on
December 7, 2021 with the Secretary of State of the State of Delaware and
Articles of Merger with the Secretary of State of the State of Nevada. The
Agreement and Plan of Merger and transactions contemplated thereby were adopted
by the holders of a majority of the outstanding shares of the Predecessor's
Common Stock and/or Series A Convertible Preferred Stock on an as-converted
common stock basis, by written consent in lieu of a special meeting of
stockholders, in accordance with the Delaware General Corporation Law.
Pursuant to the Agreement and Plan of Merger, (i) each outstanding share of the
Predecessor's common stock automatically converted into one share of common
stock, par value $0.0001 per share, of AMGAS-Nevada, (ii) each outstanding share
of the Predecessor's Series A Convertible Preferred Stock automatically
converted into one share of Series A Convertible Preferred Stock, par value
$0.0001 per share, of AMGAS-Nevada, and (iii) each outstanding option, right or
warrant to acquire shares of the Predecessor common stock converted into an
option, right or warrant to acquire an equal number of shares of AMGAS-Nevada
common stock under the same terms and conditions as the original options, rights
or warrants.
Similar to the shares of common stock of the Predecessor prior to the merger,
the shares of AMGAS-Nevada common stock are quoted on the OTCQB tier operated by
the OTC Markets Group Inc. under the symbol "IFNY". In accordance with the
Agreement and Plan of Merger, each outstanding certificate previously
representing shares of the Predecessor's common stock or Series A Preferred
Stock automatically represents, without any action of the Predecessor's
stockholders, the same number of shares of AMGAS-Nevada common stock or Series A
Preferred Stock, as applicable.
Pursuant to the Agreement and Plan of Merger, the directors and officers of the
Predecessor immediately prior to the merger became the directors and officers of
AMGAS-Nevada and continued their respective directorship or services with the
Company on the same terms as their respective directorship or services with the
Predecessor immediately prior to the merger.
37
As a result of the merger, the internal affairs of the Company ceased to be
subject to the Delaware General Corporation Law or governed by the Predecessor's
Certificate of Incorporation and bylaws. As of the December 7, 2021, effective
date of the merger, the Company is now subject to the Nevada Revised Statutes
and is governed by the Company's Articles of Incorporation.
All references to the Company in this Quarterly Report on Form 10-Q refer to the
Predecessor prior to the merger, and AMGAS-Nevada subsequent to the merger.
2022 Operational and Financial Objectives
COVID-19 PANDEMIC
The financial statements contained in this Quarterly Report on Form 10-Q as well
as the description of our business contained herein, unless otherwise indicated,
principally reflect the status of our business and the results of our operations
as of March 31, 2022. Economies throughout the world have been and continue to
be disrupted by the continuing effects of the COVID-19 pandemic, including the
recent rise of the new Omicron variant. In particular, the oil and gas market
has been severely adversely impacted by the effects of the COVID-19 pandemic
because of the substantial and abrupt decrease in the demand for oil and gas
globally followed by the recent resurgence in oil and natural gas prices. In
addition, the capital markets have experienced periods of disruption and our
efforts to raise necessary capital in the future may be adversely impacted by
the continuing effects of the COVID-19 pandemic and investor sentiment and we
cannot forecast with any certainty when the lingering uncertainty caused by the
COVID-19 pandemic will cease to impact our business and the results of our
operations. In reading this Quarterly Report on Form 10-Q, including our
discussion of our ability to continue as a going concern set forth herein, in
each case, consider the additional uncertainties caused by the COVID-19
pandemic.
Corporate Activities
The Company's 2022 operating objectives are focused on: 1) raising the necessary
funds to finance exploration and development of the Hugoton Gas Field Farm-Out
Venture, 2) raise the funds necessary to explore and develop the Properties,
including testing and evaluation of noble gas reserves in additional to the oil
and gas producing zones and 3) to raise the funds necessary to allow the Company
to compete for new oil and gas properties that become available for acquisition
purposes 3) to fund our daily operations and the repayment of obligations that
become due, or are in default and/or past due.
Recent financings -
Issuance of Series A Convertible Preferred Stock - On March 26, 2021, the
Company issued Series A Convertible Preferred Stock, with an aggregate principal
face amount of up to approximately $2,500,000 subject to a 10% original issue
discount. The Series A Convertible Preferred Stock is, subject to certain
conditions, convertible into shares of Common Stock at a rate of $0.32 per share
and will be subject to a 10% dividend rate per annum, payable quarterly in cash
or registered Common Stock, subject to equity conditions. The holders were also
granted demand registration rights. The Company also issued warrants along-side
of the Convertible Preferred Stock investors to purchase up to 6,410,250 shares
(assuming the $2.5 million offering is fully subscribed) of Common Stock at an
exercise price of $0.39 per share, subject to customary adjustments. The common
stock purchase warrants are exercisable commencing six (6) months after issuance
on a cashless basis at the holders' discretion with a term of five (5) years. On
March 26, 2021, investors purchased Series A Convertible Preferred Stock with an
aggregate cash purchase price of $2,050,000 together with warrants to purchase a
total of 5,256,410 shares of Common Stock.
Net proceeds from the issuance of Series A Convertible Preferred Stock was
$1,929,089 after deducting the placement agent fee and other expenses of the
offering. The Company used the proceeds of the Series A Convertible Preferred
Stock offering to complete the acquisition and development of the Properties, to
pay-off all outstanding convertible notes payable and for general working
capital.
38
Issuance of 8% Note with Detachable Warrants - On August 30, 2021, the Company
entered into a securities purchase agreement with the 8% Note Investor for the
Company's 8% Note, with an aggregate principal face amount of approximately
$100,000. The 8% Note is, subject to certain conditions, convertible into an
aggregate of 200,000 shares of Common Stock, at a price of $0.50 per share. The
Company also issued a 8% Note Warrant to purchase up to 200,000 shares of Common
Stock at an exercise price of $0.50 per share. 8% Note Investor purchased the 8%
Note and 8% Note Warrant from the Company for an aggregate purchase price of
$100,000. The Company also granted the 8% Note Investor certain piggy-back
registration rights whereby the Company has agreed to register the resale by the
8% Note Investor of the shares underlying the 8% Note Warrant and the conversion
of the 8% Note unless the Company commences to trade on the NYSE American; the
Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select
Market; or the New York Stock Exchange, within one hundred twenty (120) days
after the Closing Date, as defined in the 8% Note and 8% Note Warrant.
Issuance of 3% Notes with Detachable Warrants - On March 31, 2021, the Company
entered into Debt Settlement Agreements with six creditors (five of which were
related parties) which extinguished accounts payable and accrued liabilities
totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance
of the 3% Notes with detachable warrants to purchase 5,732,994 shares of Common
Stock for $0.50 per share. The 3% Notes allows for prepayment at any time with
all principal and accrued interest becoming due and payable at maturity on March
30, 2026. The 3% Notes are convertible as to principal and any accrued interest,
at the option of holder, into shares of the Common Stock at any time after the
issue date and prior to the close of business on the business day preceding
March 30, 2026 at the rate of fifty cents ($0.50) per share, subject to normal
and customary adjustments. The warrants to purchase 5,732,994 shares of Common
Stock issued pursuant to the Debt Settlement Agreements were valued at
$1,605,178 using the Black-Scholes methodology.
Issuance of August Notes - On August 19, 2020, we entered into the August
Purchase Agreement with the August Investor for August Note, with an aggregate
principal face amount of approximately $365,169. The August Note is, subject to
certain conditions, convertible into an aggregate of 3,943,820 shares of Common
Stock, at a price of $0.10 per share (the "Fixed Conversion Price"). We also
issued the five-year August Warrant to purchase up to 800,000 shares of Common
Stock at an exercise price of $0.50 per share. The August Investor purchased
such securities from the Company for an aggregate purchase price of $325,000. We
also granted the August Investor certain automatic and piggy-back registration
rights whereby we agreed to register the resale by the August Investor of the
shares underlying the August Warrant and the conversion of the August Note,
which was satisfied on August 5, 2021 by filing a registration statement on Form
424B4 to register for resale all of the shares of Common Stock issuable upon
exercise of the August Warrant issued to the August Investor
The August Note bears interest at a rate of eight percent (8%) per annum with 12
months guaranteed, may be voluntarily repaid in cash in full or in part by us at
any time in an amount equal to 115% of the principal amount of the August Note
and any accrued and unpaid interest, and shall be mandatorily repaid in cash in
an amount equal to 115% of the principal amount of the August Note and any
accrued and unpaid interest in the event of the consummation by us of any public
or private offering or other financing pursuant to which we receive gross
proceeds of at least $2,500,000. The August Note is convertible at any time by
the August Investor and we shall have the right to request that the August
Investor convert the August Note in full or in part at the Fixed Conversion
Price in the event that the VWAP (as defined in the August Note) of the Common
Stock exceeds $0.75 for twenty consecutive trading days. In addition, pursuant
to the August Note, so long as the August Note remains outstanding, we shall not
enter into any financing transactions pursuant to which the Company sells its
securities at a price lower than the Fixed Conversion Price, without written
consent of the August Investor.
The conversion of the August Note and the exercise of the August Warrant are
each subject to beneficial ownership limitations such that the August Investor
may not convert the August Note or exercise the August Warrant to the extent
that such conversion or exercise would result in the August Investor being the
beneficial owner in excess of 4.99% (or, upon election of the August Investor,
9.99%) of the number of shares of the Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock issuable upon such
conversion or exercise, which beneficial ownership limitation may be increased
or decreased up to 9.99% upon notice to us, provided that any increase in such
limitation will not be effective until 61 days following notice to us.
39
We used the proceeds of the August Note to pay off $60,125 in principal balance
of notes payable that were in default, to pay the $100,000 required by the SKM
Exchange Agreement and for general working capital.
On March 26, 2021, the Company exercised its right to retire the August Note in
conjunction with the issuance of Series A Convertible Preferred Stock. In
accordance with the prepayment provisions contained in the August Note, the
Company paid all principal, accrued interest and the 15% prepayment premium
which totaled $453,539.
Extinguishment of liabilities -
Debt Settlement Agreements - On March 31, 2021, the Company entered into Debt
Settlement Agreements with six creditors (five of which were related parties)
which extinguished accounts payable and accrued liabilities totaling $2,866,497
in exchange for the issuance of $28,665 in principal balance of 3% Notes with
detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per
share. The 3% Notes allow for prepayment at any time with all principal and
accrued interest becoming due and payable at maturity on March 30, 2026. The 3%
Notes are convertible as to principal and any accrued interest, at the option of
holder of the 3% Notes, into shares of the Common Stock at any time after the
issue date and prior to the close of business on the business day preceding
March 30, 2026 at the rate of fifty cents ($0.50) per share, subject to normal
and customary adjustment. The warrants to purchase 5,732,994 shares of Common
Stock issued pursuant to the Debt Settlement Agreements were valued at
$1,605,178 using the Black-Scholes methodology.
Extinguishment of Convertible Note Payable - On March 26, 2021, the Company
exercised its right to retire the August Note issued in August 2020 in
conjunction with the issuance of the Series A Convertible Preferred Stock. In
accordance with the prepayment provisions contained in the August Note, the
Company paid $453,539 to retire all principal, accrued interest and the 15%
prepayment premium.
Extinguishment of Notes Payable - On April 1, 2021, the Company and the holder
of a $50,000 outstanding convertible note reached a settlement, pursuant to
which the Company issued to such holder a total of 145,000 shares of Common
Stock in exchange for the extinguishment of the outstanding principal, accrued
interest and associated common stock purchase warrants, which totaled $72,874 as
of April 1, 2021. The 145,000 shares of Common Stock issued to extinguish the
debt obligations were valued at $40,600 based on the closing market price on the
date of the extinguishment. The extinguishment of the debt obligations resulted
in a gain of $32,274, which was recorded in the year ended December 31, 2021.
On April 1, 2021, the Company and the holder of the $35,000 outstanding
convertible note reached a settlement, pursuant to which the Company issued a
total of 100,000 shares of Common Stock in exchange for the extinguishment of
the outstanding principal, accrued interest and associated common stock purchase
warrants, which totaled $50,956 as of April 1, 2021. The 100,000 shares issued
to extinguish the debt obligations were valued at $28,000 based on the closing
market price on the date of the extinguishment. The extinguishment of the debt
obligations resulted in a gain of $22,956, which was recorded in the year ended
December 31, 2021.
Acquisition of Oil and Gas Properties -
On July 31, 2019, we acquired the Option from Core to purchase the production
and mineral rights/leasehold for the Properties. We paid a non-refundable
deposit of $50,000 to bind the Option, which provided us the right to acquire
the Properties for $2.5 million prior to December 31, 2019. The Company was not
able to exercise the Option prior to December 31, 2019. On September 2, 2020,
the Company acquired a new option from Core under similar terms as the Option.
The newly acquired option, however, now permits the Company to purchase the
Properties at a reduced price of $900,000 at any time prior to November 1, 2020
and the Company has agreed to immediately conduct a capital raise of between
approximately $2 to $10 million to fund its acquisition and development of the
Properties. On December 14, 2020, the parties executed the Asset Purchase and
Sale Agreement, which extended the new option to January 11, 2021, which has
expired.
40
We, Core, and Seller entered into the Side Letters on September 2, 2020 and
March 31, 2021, pursuant to which we and Core agreed to set the closing date of
the acquisition of the Properties under the Asset Purchase Agreement to April 1,
2021. Pursuant to the Side Letters, the Company is responsible for reimbursing
Core for certain prorated revenues and expenses from January 1, 2021 through
April 1, 2021.
On April 1, 2021, we completed the acquisition of the Properties, under the same
terms of the Asset Purchase Agreement, which provided a purchase price of
$900,000.
The acquisition included the existing production equipment, infrastructure and
ownership of 11 square miles of existing 3-D seismic data on the acreage. The
Properties include a horizontal producing well, horizontal saltwater injection
well, conventional saltwater disposal well and two conventional vertical
producing wells, which currently produce from the Reagan Sand Zone with an
approximate depth of 3,600 feet.
Following the acquisition, we have commenced rework of the existing production
wells and have performed testing and evaluation of the existence of noble gas
reserves on the Properties, including helium, argon and other rare earth
minerals/gases. Testing of the Properties for noble gas reserves has provided
encouraging but not conclusive results and the Company has yet to determine the
possibility of commercializing the noble gas reserves on the Properties. The
Company plans to assess the existing oil and gas reserves on the Properties
while continuing the evaluation of the existence of new oil and gas zones and
other mineral reserves and specifically the noble gas reserves that the
Properties may hold.
On November 9, 2021, the Company entered into a letter agreement the USNG Letter
Agreement with U.S. Noble Gas, LLC ("USNG"), pursuant to which USNG would
provide consulting services to the Company for exploration, testing, refining,
production, marketing and distribution of various potential reserves of noble
gases and rare earth element/minerals on the Properties. The USNG Letter
Agreement would cover all of the noble gas, specifically helium, and rare earth
elements/minerals potentially existing on the Properties and the future
acquisitions of the Company, if any, including the Hugoton Gas Field.
The USNG Letter Agreement also provided that USNG would supply a large vessel
designed for flows up to 5,000 barrels of water per day at low pressures, known
as a gas extraction/separator unit. The gas extraction/separator unit is a
dewatering vessel that the Company may use for multiple wells in the future.
The USNG Letter Agreement required the Company to establish a four-member board
of advisors (the "Board of Advisors") comprised of various experts in noble gas
and rare earth elements/minerals. The Board of Advisors will help attract both
industry partners and financial partners for developing a large helium, noble
gas and/or rare earth element/mineral resources that may exist in the region
where the Company currently operates. The industry partners would include
helium, noble gas and/or rare earth element/mineral purchasers and exploration
and development companies from the energy industry. The financial partners may
include large family offices or small institutions.
The Company is required to pay USNG a $8,000 monthly cash fee beginning at the
onset of commercial helium or minerals production and sales, subject to certain
thresholds. Such monthly fees will become due and payable for any month that
AMGAS receives cash receipts in excess of $25,000 derived from the sale of noble
gases and/or rare earth elements/minerals. The Company has not yet achieved the
$25,000 cash receipts threshold, therefore there has been no payment or accrual
liability relative to this cash fee provision through March 31, 2022.
The USNG Letter Agreement has an initial term of 5 years, which shall thereafter
continue for successive one-year periods, provided that there is no uncured
breach, unless otherwise terminated by either party upon a written notice of
intent to non-renew.
In consideration for the consulting services to be rendered and pursuant to the
terms of the USNG Letter Agreement, the Company issued warrants to purchase, in
the aggregate, 2,060,000 shares of Common Stock, at an exercise price of $0.50
to three of USNG's principal consultants and four third-party service providers.
The Company also issued warrants to purchase, in the aggregate, 1,200,000 shares
of Common Stock at $0.50 per share exercise price to three members of the Board
of Advisors. The Company granted a total of 3,260,000 warrants to purchase its
Common Stock with an exercise price of $0.50 per share in connection with the
USNG Letter Agreement and the arrangements described therein. The warrants
expire five years after the date of the USNG Letter Agreement.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet debt, nor did we have any transactions,
arrangements, obligations (including contingent obligations) or other
relationships with any unconsolidated entities or other persons that may have a
material current or future effect on our financial conditions, changes in our
financial conditions, or our results of operations, liquidity, capital
expenditures, capital resources, or significant components of revenue or
expenses.
For the Three Months Ended March 31, 2022 and 2021
Results of Operations
Revenue
The Company began generating revenues from the production and sale of crude oil
since the acquisition of the Properties on April 1, 2021. Revenues totaled
$25,305 for the three months ended March 31, 2022. The Company had no revenues
in the same period in 2021 as it focused on identification of acquisition
targets of domestic oil and gas producing properties.
On April 1, 2021, we completed the acquisition of the Properties, under the
terms of the Asset Purchase Agreement which provided a purchase price of
$900,000. The purchase of the Properties included the existing production
equipment, infrastructure and ownership of 11 square miles of existing 3-D
seismic data on the acreage. The Properties include a horizontal producing well,
horizontal saltwater injection well, conventional saltwater disposal well and
two conventional vertical producing wells, which currently produce from the
Reagan Sand Zone with an approximate depth of 3,600 feet.
Following the acquisition, we have commenced rework of the existing production
wells and have performed testing and evaluation of the existence of noble gas
reserves on the Properties including helium, argon and other rare earth
minerals/gases. Testing of the Properties for noble gas reserves has provided
encouraging but not conclusive results and the Company has yet to determine the
possibility of commercializing the noble gas reserves on the Properties. The
Company plans to assess the existing oil and gas reserves on the Properties
while continuing the evaluation of the existence of new oil and gas zones and
other mineral reserves and specifically the noble gas reserves that the
Properties may hold.
41
Oil and Gas Lease Operating Expenses
The Company began generating revenues from the production and sale of crude oil
since the acquisition of the Properties on April 1, 2021. Total oil and gas
lease operating expenses totaled $86,536 for the three months ended March 31,
2022.
We commenced rework of the existing production wells on the Properties in order
to restore the three producing wells to full operational condition. All such
rework costs were expensed as routine maintenance instead of capitalized to oil
and gas properties and equipment under the full-cost method. In addition, we
have performed certain exploration, including testing and evaluation for the
existence of noble gas reserves on the Properties, including helium, argon and
other rare earth minerals/gases. Testing of the Properties for noble gas
reserves has provided encouraging but not conclusive results and the Company has
yet to determine the possibility of commercializing the noble gas reserves on
the Properties. The Company plans to assess the existing oil and gas reserves on
the Properties while continuing the evaluation of the existence of new oil and
gas zones and other mineral reserves and specifically the noble gas reserves
that the Properties may hold.
The Company had no oil and gas lease operating expenses during the three months
ended March 31, 2021 as it held no oil and gas producing properties during that
period.
Depreciation, Depletion and Amortization
The Company began generating revenues from the production and sale of crude oil
resulting since the acquisition of the Properties on April 1, 2021, which was
acquired for $900,000 cash plus the assumption of asset retirement obligations
of $13,425. The Company allocated the purchase price of $913,425 to oil and gas
properties and equipment, which is subject to depreciation, depletion and
amortization as the acquisition qualified as an asset acquisition. Total
depreciation, depletion and amortization was $30,834 for the three months ended
March 31, 2022. There was no depreciation, depletion and amortization for the
three months ended March 31, 2021 as the Company held no properties during that
period of time.
Capitalized costs to acquire oil and natural gas properties are depreciated and
depleted on a units-of-production basis based on estimated proved reserves.
Capitalized costs of exploratory wells and development costs are depreciated and
depleted on a units-of-production basis based on estimated proved developed
reserves. Under this method, the sum of the full cost pool, excluding the book
value of unproved properties, and all estimated future development costs are
divided by the total estimated quantities of proved reserves. This rate is
applied to our total production for the three months ended March 31, 2022, and
the appropriate expense is recorded. Support equipment and other property, plant
and equipment related to oil and gas producing activities, as well as property,
plant and equipment unrelated to oil and gas producing activities, are recorded
at cost and depreciated on a straight-line basis over the estimated useful lives
of the assets.
Accretion of Asset Retirement Obligation
Total expense for the accretion of asset retirement obligations was $279 and
$-0- for the three months ended March 31, 2022 and 2021, respectively. The
Company determined the amount of the asset retirement obligation assumed to be
$13,425 as of April 1, 2021, the date of the acquisition of the Properties. The
obligation relates to legal requirements associated with the retirement of
long-lived assets that result from the acquisitions, construction, development,
or normal use of the asset. The obligation relates primarily to the requirement
to plug and abandon oil and natural gas wells and support wells at the
conclusion of their useful lives.
Oil and Gas Production Related Taxes
The Company began generating revenues from the production and sale of crude oil
since the acquisition of the Properties on April 1, 2021. Oil and gas production
related taxes totaled $28 and $-0- for the three months ended March 31, 2022 and
2021, respectively. Such taxes are deducted from gross oil and gas revenue by
the crude oil purchaser upon payment to the Company and include primarily
severance taxes imposed by the State of Kansas and Kansas conservation
assessment fees. Revenues totaled $25,305 for the three months ended March 31,
2022, which resulted in the deduction of $28 in production related taxes. The
Company has received notice of an exemption from the State of Kansas, which
exempted the Company from paying severance taxes due to the existing wells
production levels. Therefore, production related taxes should continue to
decline as a percentage of revenue during the remainder of 2022 and beyond. The
Company had no revenues in the similar 2021 period and therefore there was no
deduction for production related taxes in Kansas.
42
Other General and Administrative Expenses
Other general and administrative expenses were $368,706 for the three months
ended March 31, 2022, an increase of $167,736, or 83%, from other general and
administrative expenses of $200,970 for the three months ended March 31, 2021.
The increase in other general and administrative expenses is primarily
attributable to an increase of $148,656 in stock-based compensation due to the
noncash compensation for its executives and Board members in 2021. The increase
in other general and administrative expenses is also attributable to an increase
$47,500 for audit fees as the Company began operating the Properties, which
required various capital raises and other filings with the Securities and
Exchange Commission. The $148,656 increase in stock-based compensation was
related to the amortization of the stock option grants in June 2021, the
warrants issued to USNG and the Advisory Board, and the restricted stock grants
in August 2020.
Interest Expense
Interest expense increased to $93,556 for the three months ended March 31, 2022,
compared to $34,225 for the three months ended March 31, 2021, an increase of
$59,331, or 173%. Interest expense increased during the three months ended March
31, 2022 primarily due to the issuance of the 8% Convertible Notes Payable
during August and October 2021 that was outstanding in the 2022 period and not
in the 2021 period.
On August 30, 2021 and October 29, 2021, the Company entered into two Securities
Purchase Agreements with one and three, respectively, accredited investors
agreed for the 8% Notes, with an aggregate principal face amount of
approximately $650,000. The 8% Notes are, subject to certain conditions,
convertible into an aggregate of 1,300,000 shares of Common Stock, at a price of
$0.50 per share. The Company also issued five and one half-year common stock
purchase warrants to purchase up to 1,850,000 shares of Common Stock at an
exercise price of $0.50 per share, subject to customary adjustments which are
immediately exercisable. The investors purchased the 8% Notes and the warrants
from the Company for an aggregate purchase price of $650,000 and the proceeds
were used for general working capital purposes. The 8% Notes bear interest at
8%, however a discount was recorded for the on the relative estimated fair value
of the detachable warrants issued, which will be amortized to interest expense
over the term of the 8% Notes using the interest method. Total interest expense
related to the 8% Notes was $93,346 during the three months ended March 31, 31,
2022 including $80,667 related to discount amortization and will continue to
affect interest expense in future quarters.
On March 31, 2021, the Company issued $28,665 principal balance of 3% Notes in
connection with the Debt Settlement Agreements, which bear interest at 3%.
Interest expense related to the 3% Notes totaled $210 related to these 3% Notes
during the three months ended March 31, 2022 and will continue to affect
interest expense in future quarters.
Gain on Extinguishment of Liabilities
The Company reported a gain on exchange and extinguishment of liabilities of
$-0- and $31,372 in the three months ended March 31, 2022 and 2021,
respectively.
On March 31, 2021, the Company recorded a net gain on extinguishment of
liabilities totaling $31,372, which was attributable to six transactions that
extinguished outstanding liabilities as of that date. The Debt Settlement
Agreements extinguished accounts payable and accrued liabilities with a total
outstanding balance of $2,866,497, for the issuance of $28,665 in principal
balance of the 3% Notes. Such 3% Notes were issued with detachable warrants to
purchase 5,732,994 shares of Common Stock for $0.50 per share, which was valued
at $1,605,178. The transaction resulted in a total gain of $1,232,654 of which
$124,177 was reported as a gain on extinguishment of liabilities and $1,108,477
was reported as a capital contribution. The $23,000 gain from settlement of
litigation extinguished $33,000 of trade payables for a cash payment of $10,000.
The loss of $115,805 is related to the early retirement of $365,169 principal
balance of August 2020 Note.
43
Change in Derivative Fair Value
The conversion feature in certain outstanding promissory notes and common stock
purchase warrants issued in connection with short-term notes outstanding during
the three months ended March 31, 2021 were treated as derivative instruments
because such notes and warrants contained ratchet and anti-dilution provisions.
The mark-to-market process resulted in a gain of $199 during the three months
ended March 31, 2021. There were no similar derivatives outstanding during the
three months ended March 31, 2022. All short-term notes and their related
derivative warrants were terminated on April 1, 2021.
Income Tax
The Company recorded no income tax benefit (expense) in the three months ended
March 31, 2022 and 2021. The Company has been in a cumulative tax loss position
and has substantial net operating loss carryforwards available for its
utilization at March 31, 2022. The Company has continued to carry a 100% reserve
on its net deferred tax assets and therefore recorded no income tax expense or
benefit on its income (loss) before income taxes during the three months ended
March 31, 2022 and 2021.
Net Loss
The Company reported a net loss of $554,634 for the three months ended March 31,
2022, compared to a net loss of $203,624 for the three months ended March 31,
2021. This represents a deterioration of $351,010 for the three months ended
March 31, 2022 compared to the three months ended March 31, 2021.
Series A Convertible Preferred Stock Dividends
The Company recorded $52,861 and $3,744 in convertible preferred stock dividends
in the three months ended March 31, 2022 and 2021, respectively. On March 26,
2021, the Company issued and classified its Series A Convertible Preferred Stock
as equity securities in the balance sheet. Series A Convertible Preferred Stock
bears a cumulative dividend at a 10% rate based on its stated/liquidation value.
Net Loss Applicable to Common Stockholders
The Series A Convertible Preferred Stock issued on March 26, 2021 has a
preference over Common Stock and therefore such accrued dividend amounts have
been deducted from net loss to report net loss applicable to common stockholders
of $607,495 and $207,368 for the three months ended March 31, 2022 and 2021,
respectively.
Basic and Diluted Net Loss Attributable to Common Stockholders per Share
Basic net loss attributable to common stockholders per share is computed by
dividing the net loss attributable to common stockholders by the
weighted-average number of shares of Common Stock outstanding during the period.
Diluted net loss attributable to common stockholders per share is computed by
dividing the net loss attributable to common stockholders by the
weighted-average number of shares of Common Stock and dilutive Common Stock
Equivalents outstanding during the period. Common Stock Equivalents included in
the diluted net loss attributable to common stockholders per share computation
represent shares of Common Stock issuable upon the assumed conversion of
Convertible Promissory Notes, Convertible Preferred Stock and the assumed
exercise of stock options and warrants using the treasury stock and "if
converted" method. For periods in which net losses attributable to common
stockholders are incurred, weighted average shares outstanding is the same for
basic and diluted loss per share calculations, as the inclusion of Common Stock
Equivalents would have an anti-dilutive effect.
The Company incurred a net loss attributable to common stockholders during the
three months ended March 31, 2022, and 2021, therefore all Common Stock
Equivalents were considered anti-dilutive and excluded from diluted net loss
attributable to common stockholders per share computations. The basic and
diluted net loss attributable to common stockholders per share were $(0.03) and
$(0.01) for the three months ended March 31, 2022 and 2021, respectively.
Potential Common Stock Equivalents as of March 31, 2022 totaled 27,478,864
shares of Common Stock, which included 1,357,330 shares of Common Stock
underlying the Convertible Promissory Notes, 6,648,750 shares of Common Stock
underlying the conversion of Series A Convertible Preferred Stock, 17,580,784
shares of Common Stock underlying outstanding warrants and 1,892,000 shares of
Common Stock underlying outstanding stock options.
44
Liquidity and Capital Resources; Going Concern-
We have had a history of losses and have generated little or no operating
revenues for a number of years, as we concentrated on the development of our
Concessions, which was a long-term, high-risk/reward exploration project in an
otherwise unproven part of the world. We abandoned the Concessions in early 2020
due to the challenging economic and political issues in Nicaragua and the oil
and gas industry in general. We have been assessing various opportunities and
strategic alternatives involving the acquisition, exploration and development of
gas and oil properties in the United States, including the possibility of
acquiring businesses or assets that provide support services for the production
of oil and gas in the United States. As a result, we completed the purchase of
the Properties on April 1, 2021 and have commenced certain rework to the
existing producing wells and intend to perform workovers and other develop
activities on the Properties during 2022. We plan to evaluate the Properties for
additional reserves of noble gases, which may change our development plans
should we determine that reserves of noble gases exist on the Properties at
commercial quantities. The planned development of the Properties will require us
to raise additional capital to accomplish our operating plan, which cannot be
assured. Historically, we financed our operations through the issuance of equity
and various short and long-term debt financing that contained some level of
detachable warrants to provide the holders with a level of equity participation.
Capital Raised
Historically, we have raised funds through various equity and debt instruments
through private transactions. We did not complete any capital raises during the
three months ended March 31, 2022. The following summarizes the sources of
significant liquidity raised during the year ended December 31, 2021:
2021
Capital raised:
Issuance of Series A Convertible Preferred Stock with detachable
common stock purchase warrants
$ 1,929,089
Issuance of Convertible Promissory Notes with detachable common
stock purchase warrants 650,000
Total costs $ 2,579,089
The Company was able to raise liquidity during 2021 through the issuance of debt
and equity in private transactions with accredited investors. These financial
instruments generally require the Company to register the Common Stock
underlying the conversion of the Series A Convertible Preferred Stock, the
convertible notes, provide the holders with a right to participate in future
capital raises and require their approval for the future issuance of securities
at rates less than $0.50 per share. The holders have also agreed that the
conversion of the Series A Convertible Preferred Stock, the convertible
promissory notes and the exercise of the underlying warrants are generally
subject to beneficial ownership limitations such that each holder of the
financial instruments individually may not convert the underlying Series A
Convertible Preferred Stock, convertible notes or exercise the underlying
warrants to the extent that such conversion or exercise would result in any of
the holders individually being the beneficial owner in excess of 4.99% (or, upon
election of the holders, 9.99%) of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon such conversion or exercise, which beneficial ownership
limitation may be increased or decreased up to 9.99% upon notice to the Company,
provided that any increase in such limitation will not be effective until 61
days following notice to the Company.
We will likely continue to issue such convertible instruments with detachable
warrants to acquire Common Stock to fund our operational and capital expenditure
plans for 2022.
45
Letter of Engagement
On April 1, 2022, the Company engaged Univest Securities, LLC ("Univest") to act
as the exclusive financial advisor, and the lead underwriter in a public
offering (the "Offering"), to the Company. The size of the Offering is expected
to be between $10,000,000 to $15,000,000, with a goal to up-list the Company
onto the Nasdaq Capital Market upon closing of the Offering. The price per share
will be determined by mutual agreement of the Company and Univest and will be
determined at the signing of the final Underwriting Agreement, which will based
on, among other things, market conditions at the time of the Offering.
Pursuant to the Underwriting Agreement, Univest will act as principal, or the
representative of a number of broker-dealers that will offer the securities in a
public offering. The Letter of Engagement anticipates that Univest will receive
a gross discount equal to eight percent (8%) of the public offering price on
each of the securities being offered. Univest has agreed to negotiate in good
faith with other underwriters who, acting severally, could contract to act as an
Underwriter in connection with the sale of the securities being offered. Univest
will also have the right to re-offer all or any part of the securities being
offered to broker- dealers. Univest will be entitled to warrants to purchase
common stock representing 5% of the amount of securities sold in the Offering
with an exercise price determined to be 110% of the Offering Price.
The Company also agreed to reimburse Univest, at and out of the proceeds of the
Offering closings, for all of its reasonable, out-of-pocket expenses (including,
but not limited to, travel, due diligence expenses, reasonable fees and expenses
of its legal counsel, roadshow and background check on the Company's principals)
in connection with the performance of its services hereunder not to exceed an
aggregate of $150,000. In addition, at the closing of the Offering, the Company
agreed to reimburse Univest one percent (1%) of the actual amount of the
Offering as nonaccountable expense of the offering.
The term of the Letter of Engagement Agreement expires upon the earlier to occur
of (i) six (6) months from the date of execution or (ii) the mutual written
agreement of the Company and Univest.
Capital Expenditures
Acquisition of the Oil and Gas Properties in Central Kansas Uplift - On July 31,
2019, we acquired the option from Core to purchase the production and mineral
rights/leasehold for the Properties. We paid a non-refundable deposit of $50,000
to bind the option, which provided us the right to acquire the Properties for
$2.5 million prior to December 31, 2019. The Company was not able to exercise
the option prior to December 31, 2019. On September 2, 2020, the Company
acquired a new option from Core under similar terms as the previous option. the
newly acquired option, however, permits the Company to purchase the Properties
at a reduced price of $900,000 at any time prior to November 1, 2020 and the
Company agreed to immediately conduct a capital raise of between approximately
$2-10 million to fund its acquisition and development of the Properties. On
December 14, 2020 the parties executed the Asset Purchase Agreement which
extended the new option to January 11, 2021, which has expired.
We, Core, and Seller entered into the Side Letters on September 2, 2020 and
March 31, 2021, pursuant to which we and Core agreed to set the closing date of
the acquisition of the Properties under the Asset Purchase Agreement to April 1,
2021. Pursuant to the Side Letters, the Company is responsible for reimbursing
Core for certain prorated revenues and expenses from January 1, 2021 through
April 1, 2021.
On April 1, 2021, we completed the acquisition of the Properties, under the same
terms of the Asset Purchase Agreement for $900,000.
The purchase of the Properties included the existing production equipment,
infrastructure and ownership of 11 square miles of existing 3-D seismic data on
the acreage. The Properties include a horizontal producing well, horizontal
saltwater injection well, conventional saltwater disposal well and two
conventional vertical producing wells, which currently produce from the Reagan
Sand Zone with an approximate depth of 3,600 feet.
Farmout Agreement to Explore and Develop Unconventional Gas and Brine Materials
in the Hugoton Gas Field-
Effective April 4, 2022, pursuant to the participation agreement by and between
SunFlower Exploration, LLC ("SunFlower") and the Company (the "Participation
Agreement"), the Company acquired a 40% participation right in that certain
Farmout Agreement, effective as of February 2022 by and between Scout Energy
Management, LLC ("Scout") and SunFlower (the "Farmout Agreement") with regards
to oil, natural gas, helium and brine mineral interests in the Hugoton Gas
Field, located in Haskell and Finney counties, Kansas.
The Farmout Agreement covers drilling and completion of up to 50 wells, with the
first exploratory well spudded on May 7, 2022.
46
The AMGAS JV will utilize Scout's existing infrastructure assets including water
disposal, gas gathering and helium processing. The Farmout Agreement provides
the JV with rights to take in-kind and market its share of helium at the
tailgate of Jayhawk Gas Plant, which will enable the AMGAS JV to market and sell
the helium produced at prevailing market prices.
The AMGAS JV also acquired the right to all brine minerals subject to a ten
percent (10%) royalty to Scout, across Finney and Haskell Counties. Brine
minerals are harvested from the formation water produced from active, and to be
drilled, oil and gas wells and may include a variety of dissolved minerals
including bromine and iodine. The AMGAS JV plans to target brine with commercial
quantities of bromine and iodine. AMGAS is currently developing proprietary
technology to recover brine minerals, particularly with respect to bromine,
which is well underway and has demonstrated recovery efficiency and is expected
to be available for use in existing and future development wells.
We will likely find it necessary to obtain new sources of debt and/or equity
capital to fund the exploration and development of the Properties and the
Hugoton Gas Field, as well as to satisfy our existing debt obligations. We can
provide no assurance that we will be able to obtain sufficient new debt/equity
capital to fund our planned development of the Properties or the Hugoton Gas
Field.
Going Concern
The Company has incurred losses from operations, has a net stockholders'
deficit, incurred net cash used in operating activities and has a significant
working capital deficit as of and for the three months ended March 31, 2022 and
for the year ended December 31, 2021. The Company must raise substantial amounts
of debt and equity capital from other sources in the future in order to fund the
(i) development of the Properties acquired on April 1, 2021; (ii) funding our
obligations for exploration and development under the Hugoton Farmout Agreement
(see Note 14); (iii) normal day-to-day operations and corporate overhead; and
(iv) outstanding debt and other financial obligations as they become due, as
described below. These are substantial operational and financial issues that
must be successfully addressed during 2022 and beyond.
The Company has made substantial progress in resolving many of its existing
financial obligations during the three months ended March 31, 2022 and for the
year ended December 31, 2021.
The Company will have significant financial commitments to execute its planned
exploration and development of the Properties and the Hugoton Gas Field. The
Company may find it necessary to raise substantial amounts of debt or equity
capital to fund such exploration and development activities and may seek offers
from industry operators and other third parties for interests in the Properties
in exchange for cash and a carried interest in exploration and development
operations or other joint venture arrangement. There can be no assurance that it
will be able to obtain such new funding or be able to reach agreements with
industry operators and other third parties or on what terms.
Due to the uncertainties related to the foregoing matters, there exists
substantial doubt about the Company's ability to continue as a going concern
within one year after the date the financials are issued. The unaudited
condensed financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
Cash and cash equivalents balances-
As of March 31, 2022, we had cash and cash equivalents with an aggregate balance
of $148,384, a decrease from a balance of $260,590 as of December 31, 2021.
Summarized immediately below and discussed in more detail in the subsequent
subsections are the main elements of the $112,206 net decrease in cash during
the three months ended March 31, 2022:
© Edgar Online, source Glimpses
AMERICAN NOBLE GAS, INC. 
