UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013.
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
___ to
.
Commission file number: 000-31390
ALLIED RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Nevada
98-0187744
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
1403 East 900 South, Salt Lake City, Utah 84105
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (801) 582-9609
Securities registered under Section 12(b) of the Act: none.
Securities registered under Section 12(g) of the Act: common stock (title of class), $0.001 par value.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The aggregate market value of the registrant's common stock, $0.001 par value (the only class of voting stock), held by
non-affiliates (3,573,011 shares) was approximately $1,071,903 based on the average closing bid and ask prices ($0.30) for the
common stock on March 31, 2014.
At March 31, 2014, the number of shares outstanding of the registrant's common stock, $0.001 par value (the only class of voting
stock), was 5,653,011.
1
TABLE OF CONTENTS
PART I
Business
3
Risk Factors
13
Unresolved Staff Comments
17
Properties
17
Legal Proceedings
20
Mine Safety Disclosures
20
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
21
Equity Securities
Selected Financial Data
22
Management's Discussion and Analysis of Financial Condition and Results of Operations
22
Quantitative and Qualitative Disclosures about Market Risk
28
Financial Statements and Supplementary Data
28
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
29
Controls and Procedures
29
Other Information
30
PART III
Directors, Executive Officers, and Corporate Governance
31
Executive Compensation
35
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
37
Matters
Certain Relationships and Related Transactions, and Director Independence
37
Principal Accountant Fees and Services
38
PART IV
Exhibits, Financial Statement Schedules
39
40
2
PART I
ITEM 1.
As used herein the terms “Allied,” “we,” “our,” “us,” refer to Allied Resources, Inc., and our
predecessors, unless the context indicates otherwise.
Corporate History
Allied was incorporated as “General Allied Oil and Gas Co” on April 15, 1979 in West Virginia. The
company’s name was changed to “Allied Resources, Inc.” on August 12, 1998. On February 26, 2002, we
incorporated a new company by the name of “Allied Resources, Inc.” in Nevada for the purpose of merging
the West Virginia company with the Nevada company. The transaction resulted in the Nevada company
surviving the merger as the sole remaining entity. The purpose of the transaction was to remove Allied’s
domicile to a jurisdiction with tested corporate legislation and to reduce corporate maintenance costs. The
merger was completed on April 5, 2002. Pursuant to the merger, shareholders of the West Virginia
corporation received one share of the Nevada corporation for each share held in the West Virginia
corporation.
Allied’s principal place of business is located at 1403 East 900 South, Salt Lake City, Utah, 84105. Our
telephone number is (801) 582-9609. Our registered statutory office is located at JAD Communications,
LLC., 5209 West Gowan Road, Las Vegas, Nevada 89130.
Allied trades on the Over the Counter Bulletin Board under the symbol “ALOD”.
Allied
Allied is an independent oil and natural gas producer involved in the exploration, development, production
and sale of oil and gas derived from properties located in Calhoun and Ritchie Counties, West Virginia, and
Goliad, Edwards and Jackson Counties, Texas.
West Virginia Well Information
Allied owns varying interests in a total of 145 wells in West Virginia on several leases held by an
independent operator. Some leases contain multiple wells. All the wells in which we have an interest are
situated on developed acreage spread over 3,400 acres in Ritchie and Calhoun Counties. Depth of the
producing intervals varies from 1,730 ft to 5,472 ft. Allied believes that operating in West Virginia has
certain advantages over other locations, including:
§ relatively inexpensive drilling and completion operations, and
§ the absence of poisonous gas often associated with oil and gas production.
Many of our wells are situated on the same leases and as such share production equipment in order to
minimize lease operating costs.
Our working interest is defined as interest in oil and gas that includes responsibility for all drilling,
developing, and operating costs varying from 18.75% to 75%. Our net revenue interest is defined as that
portion of oil and gas production revenue after deduction of royalties, varying from 15.00% to 65.625%.
The distribution of our interests in West Virginia oil and gas leases is detailed below:
3
West Virginia Oil and Gas Leases
Well Name(s)
% Working Interest
% Net Revenue Interest
Anderson
75
63.5742
Batson
51.5625
45.1172
Britton
75
63.28125
B. Rutherford
75
65.625
Cokely 582
75
63.5742
Cokely 633-654
75
60.9375
Conrad
75
61.5234
Deem
75
63.5742
E. Goff
75
58.8867
Jay Goff
65.625
55.3709
John Goff
60.9375
51.416
Fire Snyder
75
61.5732
GT Sommerville
75
65.625
Gus Bee
75
63.5742
Foster
70.3125
52.7344
Kennedy
75
63.5742
Law
75
63.5742
Leeson
75
65.625
Mullenix
33.984
27.12
Wellings
75
61.5234
Wellings 1A
63.9637
55.9682
Patton
75
63.5942
Riddle
75
65.625
Richards
75
63.5742
A. J. Scott
37.5
32.8125
Spurgeon
75
63.5742
Stanley 2 & 3
18.75
15.00
Stanley 583
75
63.5742
Summers 2
75
63.28125
Sutton
72.6562
55.0593
Taylor Carr
70.3125
54.9316
Toothman
75
65.625
Vincent 20 C
75
65.625
Vincent 25 C
75
65.625
Vincent 35 C
75
65.625
Vincent 41 C
75
65.625
V. Zinn
75
65.625
Baker Baughman
75
65.625
Baker Baughman 81
75
65.625
Bollinger
75
60.9375
Gill
75
65.625
Gill 3
50
43.75
Haddox
75
65.625
Mills
75
65.625
Sweet 1 & 2
75
65.625
Sweet 3
50
43.75
Watson
75
65.625
Watson 85
75
65.625
Watson 86
75
65.625
Watson 6-87
75
65.625
Wolfe
75
56.25
Browne 1
75
65.625
4
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 maintains an interest in each of our wells.
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. 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.
Finally, 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.
Allstate has 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 Acquisitions
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. Allstate prepared a bid package that was presented to Ashland
Exploration, Inc., the seller of the wells, for consideration in competition with several other bidders for the
properties. Allstate submitted the bid under the pretext that, should it be successful in its bid, Allied would
participate in a shared interest in the acquisition. 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.
Texas Well Information
Allied owns varying interests in a total of 10 wells 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
% 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 42-2
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 Wells
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. 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. The Holman-Fagan 42-1 well was plugged and abandoned in 2012 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
237 STBO and 8,320 MCFG per month in 2013.
Exploration, Development and Operations
Allied intends to continue to purchase non-operated oil and gas producing properties, acquire oil and gas
leases that it will 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
recent increase in prices for oil has decreased the number of opportunities available to us due to our
relatively limited cash position and the relatively low price paid for natural gas continues to sway us away
from prospective natural gas activity. We do however continue to seek out prospective oil producing
properties that meet our acquisition criteria for a price that is consistent with competing forecasts for energy
prices going forward into a volatile market.
We are further considering future prospects for exploration of the virtually untapped Marcellus and Utica
shale formations that underlie Allied’s oil and gas interests in West Virginia, particularly in Ritchie County.
The Marcellus and Utica shale structures have formed under much of Pennsylvania, Ohio, New York, West
Virginia and adjacent states to become a prospectively major reservoir for natural gas recovery. Drilling by
other operators in Ritchie County 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. However, since
exploration of the Marcellus and Utica shale in our area is relatively recent no natural gas reserves
underlying our interests have been determined. Our future plans for exploring these shale formations are
further tempered by the high risk/reward ratio of exploratory drilling in the near term based on anticipated
pricing for 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
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:
7
§ 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 against over 500 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 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 in the near
term by focusing our efforts on minimizing corporate expenses, efficiently developing current lease
interests, acquiring producing oil and gas leases with an upside for future development, cautious
exploration activities based on current interests and a transition to operations for prospective acquisitions.
Otherwise, Allied is a minor actor in the oil and gas industry.
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
8
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 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 2013. 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 $80.97 per bbl to $104.72 per bbl during the year ended
December 31, 2013.
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 2013 ranged from $91.66 per bbl to $107.11
per bbl over the period.
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
$2.64 per MCF and $5.06 per MCF in 2013.
Governmental Regulation of Exploration and Production
Allied’s oil and 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. Because such rules and regulations are frequently
amended or interpreted differently by regulatory agencies, we are unable to accurately predict the future
cost or impact of complying with such laws.
Allied’s oil and 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.
9
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. Although
no West Virginia regulations provide such limitations with respect to our operations certain limitations are
in place in Texas.
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 2014.
Allied 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 2013, and are expected to continue to be significant in 2014:
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, 2013, 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.
10
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.
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.
11
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.” Although the United States elected not to participate in the
Kyoto Protocol, 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.
The United States Supreme Court has ruled, in Massachusetts, et al. v. EPA, that the EPA abused its
discretion under the Clean Air Act by refusing to regulate carbon dioxide emissions from mobile sources.
As a result of the Supreme Court decision the EPA issued a finding that serves as the foundation under the
Clean Air Act to issue other rules that would result in federal greenhouse gas regulations and emissions
limits under the Clean Air Act, even without Congressional action. As part of this array of new regulations
the EPA also issued a GHG monitoring and reporting rule that requires certain parties, including
participants in the oil and natural gas industry, to monitor and report their GHG emissions, including
methane and carbon dioxide, to the EPA. These regulations may apply to our operations. The EPA has
proposed two other rules that would regulate GHGs, one of which would regulate GHGs from stationary
sources, and may affect sources in the oil and natural gas exploration and production industry and the
pipeline industry. The EPA’s finding, the greenhouse gas reporting rule, and the proposed rules to regulate
the emissions of greenhouse gases would result in federal regulation of carbon dioxide emissions and other
greenhouse gases, and may affect the outcome of other climate change lawsuits pending in United States
federal courts in a manner unfavorable to our industry.
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.
12
Exploration Activities
Allied spent no amounts on exploration activities during either of the last two fiscal years.
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 $7,345,867 at December 31, 2013. Over the twelve month period ended December
31, 2013 we recorded a net loss of $13,422 from operations and could continue to realize net losses due to
lower natural gas prices, the constant depletion of oil and gas resources, extraordinary production expenses
and the vagaries of price volatility. Future profitability will depend on our ability to increase production
through exploration, development or acquisition. Allied’s success in returning to profitability can in no way
be assured.
13
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:
§ the level of consumer demand for oil and natural gas;
§ the domestic and foreign supply of oil and natural gas;
§ the ability of the members of the Organization of Petroleum Exporting Countries to agree to and
maintain oil price and production controls;
§ the price of foreign oil and natural gas;
§ domestic governmental regulations and taxes;
§ the price and availability of alternative fuel sources;
§ weather conditions;
§ market uncertainty;
§ political conditions or hostilities in energy producing regions; 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 would not
only reduce revenue, but could reduce the amount of oil and natural gas that Allied can produce
economically and, as a result, could have a material adverse effect on our financial condition, results of
operations and reserves. Should the oil and natural gas industry experience significant price declines, Allied
may, among other things, be unable to meet our financial obligations or make planned expenditures.
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.
14
Climate change legislation or regulations restricting emissions of “greenhouse gases” could result in
increased operating costs and reduced demand for the oil and natural gas that we produce.
On December 15, 2009, the U.S. Environmental Protection Agency (“EPA”) officially published its
findings that emissions of carbon dioxide, methane and other “greenhouse gases” present an endangerment
to human health and the environment because emissions of such gases are contributing to warming of the
Earth’s atmosphere and other climatic changes. These findings by the EPA allow the agency to proceed
with the adoption and implementation of regulations that would restrict emissions of greenhouse gases
under existing provisions of the federal Clean Air Act. In late September 2009, the EPA had proposed two
sets of regulations in anticipation of finalizing its findings that would require a reduction in emissions of
greenhouse gases from motor vehicles and that could also lead to the imposition of greenhouse gas emission
limitations in Clean Air Act permits for certain stationary sources. In addition, on September 22, 2009, the
EPA issued a final rule requiring the reporting of greenhouse gas emissions from specified large
greenhouse gas emission sources in the United States beginning in 2011 for emissions occurring in 2010.
The adoption and implementation of any regulations over greenhouse gases could require us to incur costs
to reduce emissions of greenhouse gases associated with our operations or could adversely affect demand
for the oil and natural gas that we produce.
On June 26, 2009, the U.S. House of Representatives passed the “American Clean Energy and Security Act
of 2009,” or “ACESA,” which would establish an economy-wide cap-and-trade program to reduce U.S.
emissions of greenhouse gases including carbon dioxide and methane. ACESA would require a 17%
reduction in greenhouse gas emissions from 2005 levels by 2020 and just over an 80% reduction of such
emissions by 2050. Under this legislation, the EPA would issue a capped and steadily declining number of
tradable emissions allowances to certain major sources of greenhouse gas emissions so that such sources
could continue to emit greenhouse gases into the atmosphere. These allowances would be expected to
escalate significantly in cost over time. The net effect of ACESA will be to impose increasing costs on the
combustion of carbon-based fuels such as oil, refined petroleum products, and natural gas. The U.S. Senate
has begun work on its own legislation for restricting domestic greenhouse gas emissions and the President
Obama Administration has indicated its support of legislation to reduce greenhouse gas emissions through
an emission allowance system. Although it is not possible at this time to predict when the Senate may act on
climate change legislation or how any bill passed by the Senate would be reconciled with ACESA, any
future federal laws or implementing regulations that may be adopted to address greenhouse gas emissions
could adversely affect demand for the oil and natural gas that we produce.
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.
15
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.
Our internal controls over financial reporting may not be considered effective in the future, which could
result in a loss of investor confidence in our financial reports and in turn have an adverse effect on our
stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 we are required to furnish a report by our
management on our internal controls over financial reporting. Such report must contain, among other
matters, an assessment of the effectiveness of our internal controls over financial reporting as of the end of
the year, including a statement as to whether or not our internal controls over financial reporting are
effective. This assessment must include disclosure of any material weaknesses in our internal controls over
financial reporting identified by management. If we are unable to continue to assert that our internal
controls are effective, our shareholders could lose confidence in the accuracy and completeness of our
financial reports, which in turn could cause our stock price to decline.
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.
16
Allied’s shareholders may face significant restrictions on their stock.
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. If Allied remains subject to the
penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our
securities. If our securities are subject to the penny stock rules, investors will find it more difficult to
dispose of Allied’s securities.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
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
2013
2012
2011
Natural Gas
99,844 MCF
105,923 MCF
101,147 MCF
Oil
2,839 STB
3,061 STB
2,229 STB
Average production costs (VW)*
$2.55/MCFE
$2.22 /MCFE
$2.46 / MCFE
Average production costs (TX)*
$1.81/MCFE
$2.78 /MCFE
$2.55 / MCFE
* includes lifting costs, maintenance costs, and severance taxes
Productive Wells and Acreage
Ritchie and Calhoun Counties, West Virginia
Allied owns 145 gross wells and 101 net wells in West Virginia as of December 31, 2013. The wells are
located on 3,400 gross acres and approximately 2,377 net acres. Allied has no plans at this time to purchase
or drill additional wells in West Virginia.
17
Goliad, Edwards and Jackson Counties, Texas
Allied owns 10 gross wells and 0.83 net wells in Texas as of December 31, 2013. The wells are located on
2,510 gross acres and 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, 2013 and 2012 by Sure
Engineering LLC.
Sure Engineering LLC. 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 Engineering, LLC 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.
18
All information provided by Allied to Sure Engineering LLC 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 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.
Oil reserves show a decrease of 1,123 BO from that reported as of December 31, 2012 and natural gas
reserves show an increase of 412,085 MCF over that reported as of December 31, 2012. The reason for the
decrease in oil reserves can be attributed to production and depletion of the Texas oil wells, and the increase
in natural gas reserves is probably due to the lower operating costs that have extended the producing lives of
marginal gas wells in West Virginia due to limited oil production associated with workover operations.
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, 2013 and 2012.
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.
Proved Developed Reserves
Years Ended December 31,
2013
2012
Oil (bbls)
Gas (mcf)
Oil (bbls)
Gas (mcf)
Proved developed and undeveloped reserves:
Beginning of year
27,557 1,017,803
23,931
829,179
Revision in previous estimates
1,716
520,929
6,687
294,547
Discoveries and extension
-
-
-
-
Purchase in place
-
-
-
-
Production
(2,839)
(99,844)
(3,061)
(105,923)
Sales in place
_____-
______-
-
-
End of year
26,434 1,438,888
27,557
1,017,803
* all of Allied’s reserves are proved developed reserves.
19
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.
20
PART II
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 Bulletin Board, a service maintained by the
Financial Industry Regulatory Authority, 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, 2013 and 2012 are as
follows:
Trading Market
Year
Quarter Ending
High
Low
2013
December 31
$0.40
$0.26
September 30
$0.40
$0.32
June 30
$0.40
$0.25
March 31
$0.45
$0.32
2012
December 31
$0.45
$0.20
September 30
$0.20
$0.20
June 30
$0.38
$0.20
March 31
$0.50
$0.35
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, 2013, there were 108 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 substantially 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, 2013, Allied had no outstanding warrants to purchase shares of our common stock.
21
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
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, 2013.
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.
22
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
data indicates that the target has significant accumulations of oil and gas, we then consider the economic
feasibility of drilling. The presence of oil and gas for any specific target cannot guarantee economic
recovery. Production depends on many factors including drilling and completion costs, the distance to
pipelines and pipeline pressure, current energy prices, accessibility to the site, and whether the project is
developmental or solely a wildcat prospect.
Allied’s business development strategy is prone to significant risks and uncertainties certain of which can
have an immediate impact on its efforts to realize positive net cash flow and deter future prospects of
production growth. Historically Allied has not been able to generate sufficient cash flow from operations to
sustain operations and fund necessary exploration or development costs. Therefore, there can be no
assurance that the wells currently producing will provide sufficient cash flows to continue to sustain
operations. Should Allied be unable to continue to generate sufficient cash flow from existing properties, it
may have to sell certain properties or interests in such properties or seek financing through alternative
sources such as the sale of its common stock.
Allied’s financial condition, results of operations and the carrying value of its oil and natural gas properties
depends primarily upon the prices it receives for oil and natural gas production and the quantity of that
production. Oil and natural gas prices historically have been volatile and are likely to continue to be volatile
in the future. This price volatility can immediately affect Allied’s available cash flow which can in turn
impact the availability of net cash flow for future capital expenditures. A drop in oil and natural gas prices
could also incur a write down of the carrying value of our properties as can a decrease in production.
Allied’s future success will depend on the level of oil and natural gas prices and the quantity of its
production. Since production leads to the depletion of oil and gas reserves, Allied’s ability to develop or
acquire additional economically recoverable oil and gas reserves is vital to its future success. Unless Allied
can obtain additional reserves, current production will continue to decline, which will lead to further
reductions in revenue.
Results of Operations
During the period from January 1, 2013 through December 31, 2013, Allied was engaged in evaluating
acquisition opportunities, examining the operating efficiencies of existing wells, overseeing the operation
of its oil and gas assets by independent operators and seeking to acquire oil and gas producing assets. The
operation and maintenance of Allied’s oil and gas operations is wholly dependent on the services provided
by five different independent operators. While the services provided by these operators have proven
adequate, the fact that Allied is dependent on the operations of third parties to maintain its operations and
produce revenue does negatively impact its own ability to realize a net profit.
23
For the fiscal year ended December 31, 2013, Allied realized a net loss. Allied believes that the immediate
key to its ability to return to profitability is that oil prices maintain current pricing and that gas prices
continue to recover from what has been a steep decline. Meanwhile, general and administrative and
production expenses are constantly evaluated to guard against increases while we continue to seek out
revenue producing acquisitions. Should we be able to procure additional revenue producing oil properties
and gas prices rise, Allied believes that it can return to operating with a net profit in future periods.
%
Twelve Months Ended December 31
2013
2012
Change
Change
Average Daily Production
Oil (bbls/day)
8
8
-
0%
Natural gas (mcf/day)
274
289
(15)
-5%
Barrels of oil equivalent (boe/day)
54
56
(2)
-4%
Profitability
Petroleum and natural gas revenue
$
612,759 $
521,271 $
91,488
18%
Net Revenue
612,759
521,271
91,488
18%
Production and operating costs
356,304
341,250
15,054
4%
Field netback
256,455
180,021
76,434
42%
G&A
220,121
234,884
(14,763)
-6%
Net cash flow from operations
36,334
(54,863)
91,197
166%
Depletion, depreciation and other charges
53,067
82,117
(29,050)
-35%
Future income taxes
-
-
-
0%
Net earnings from operations
$
(16,733) $
(136,980) $
120,247
88%
Profitability per boe
Oil and gas revenue (average selling price)
31.28
25.36
5.92
23%
Production and operating costs
18.19
16.60
1.59
10%
Field netback ($/boe)
$
13.09 $
8.76 $
4.33
50%
Net earnings ($/boe)
$
(0.85) $
(6.66) $
5.81
87%
Cash flow from operations ($/boe)
$
1.85 $
(2.67) $
4.52
170%
24
Gross Revenue
Gross revenue for the year ended December 31, 2013 increased to $612,759 from $521,271 for the year
ended December 31, 2012, an increase of 18%. The increase in gross revenue in the current period can be
attributed to the increase in oil and natural gas prices over the comparative periods despite the decline in oil
and gas production.
Gross daily production of oil for the year ended December 31, 2013 remained consistent at 8 bbls with the
year ended December 31, 2012. Gross daily production of gas for the year ended December 31, 2013
decreased to 274 MCF from 289 MCF for the year ended December 31, 2012, a decrease of 5%. Average
oil and natural gas prices realized increased on a daily basis to $31.28 per BOE over the year ended
December 31, 2013, from $25.36 per BOE on a daily basis over the year ended December 31, 2012, an
increase of 23%.
Allied anticipates, based on existing properties, that gross revenue will continue to increase
as natural gas prices continue an upward trend.
Net Loss
Net loss after provision for income taxes for the year ended December 31, 2013 was $13,422 as compared
to net losses after provision for income taxes of $127,674 for the year ended December 31, 2012. The
decrease in net loss in the current period can be primarily attributed to the increase in gross revenues. Allied
expects to transition to net profit on the procurement of additional oil producing properties and
comparatively higher prices for natural gas products.
Operating Expenses
Production costs for the year ended December 31, 2013 and December 31, 2012 were $356,304 and
$341,250, an increase of 4%. 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 increase in production costs over the current period can be attributed
to the higher costs associated with maintaining existing wells. Allied expects that production costs will
continue to increase as the cost of production increases from aging wells.
General and administrative expenses for the year ended December 31, 2013 decreased to $220,121 from
$234,884 for the year ended December 31, 2012, a decrease of 6%. The decrease in general and
administrative costs can be attributed to operating efficiencies. Allied anticipates that general and
administrative expenses will continue to be relatively consistent over future periods.
Depletion expenses for the year ended December 31, 2013 and December 31, 2012 were $53,067 and
$82,117 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, 2013, Allied has a net operating loss (NOL) carry forwards of approximately
$2,155,000. 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, 2013, a valuation allowance was recorded against this net operating loss carried
forward.
25
Liquidity and Capital Resources
Allied has a working capital surplus of $1,418,984 as of December 31, 2013 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, 2013 were $1,431,841 which consisted of $1,390,041 in cash and
$41,800 in accounts receivable. Total assets were $2,802,102 which consisted of current assets, proven oil
and gas properties and an escrow deposit. Total current liabilities were $12,857 which consisted of accounts
payable. Total liabilities were $225,858 which consisted of current liabilities, and an asset retirement
obligation of $213,001. Total stockholders’ equity as of December 31, 2013 was $2,576,244.
Net cash provided by operations for the year ended December 31, 2013 was $67,009 as compared to net
cash provided by operations of $27,131 for the year ended December 31, 2012. Net cash provided by
operating activities in the current period can be attributed primarily to 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, stock option expense, 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 net cash to continue to be provided by operations in future periods as revenues are expected
to increase.
Net cash used in investing activities for the years ended December 31, 2013 and December 31, 2012 was
zero. Allied expects to use net cash flow in investing activities over future periods as it
identifies exploration opportunities and considers additional acquisitions.
Net cash from financing activities for the years ended December 31, 2013 and December 31, 2012 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, 2013, 600,000 options have 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.
26
Off Balance Sheet Arrangements
As of December 31, 2013, 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
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.
Stock-Based Compensation
We have adopted Accounting Standards Codification Topic (“ASC”) 718, which addresses the accounting
for stock-based payment transactions in which an enterprise receives employee services in exchange for (a)
equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity
instruments or that may be settled by the issuance of such equity instruments.
We account for equity instruments issued in exchange for the receipt of goods or services from other than
employees in accordance with ASC 505. Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments issued, whichever is more
reliably measurable. The value of equity instruments issued for consideration other than employee services
is determined on the earliest of a performance commitment or completion of performance by the provider of
goods or services.
27
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 consolidated financial statements for recent accounting pronouncements.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our audited financial statements for the years ended December 31, 2013 and 2012 in addition to our
supplementary schedules are attached hereto as F-1 through F-20.
28
ALLIED RESOURCES, INC.
INDEX TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Page
Report of Independent Registered Public Accounting Firm
F-2
Balance Sheets
F-3
Statements of Operations
F-4
Statements of Stockholders’ Equity
F-5
Statements of Cash Flows
F-6
Notes to Financial Statements
F-7
Supplementary Schedules on Oil and Gas Operations
F-15
F-1
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, 2013 and 2012, and the related statements of operations, stockholders’ equity, and cash flows
for each of the years in the two-year period ended December 31, 2013. 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, 2013 and 2012, and the results of its operations and
its cash flows for each of the years in the two-year period ended December 31, 2013 in conformity with
accounting principles generally accepted in the United States of America.
/s/ JONES SIMKINS LLC
JONES SIMKINS LLC
Logan, Utah
March 31, 2014
F-2
ALLIED RESOURCES, INC.
BALANCE SHEETS
December 31, 2013 and 2012
ASSETS
2013
2012
Current assets:
Cash
$
1,390,041
1,323,032
Accounts receivable
41,800
62,096
Total current assets
1,431,841
1,385,128
Oil and gas properties (proven), net (successful
efforts method)
665,560
718,627
Deposits
704,701
704,701
Total assets
$
2,802,102
2,808,456
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
12,857
35,149
Total current liabilities
12,857
35,149
Asset retirement obligation
213,001
202,956
Total liabilities
225,858
238,105
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
9,897,143
Accumulated deficit
(7,345,867)
(7,332,445)
Total stockholders' equity
2,576,244
2,570,351
Total liabilities and stockholders' equity
$
2,802,102
2,808,456
The accompanying notes are an integral part of these consolidated financial statements.
F-3
ALLIED RESOURCES, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 2013 and 2012
2013
2012
Oil and gas revenues
$
612,759
521,271
Operating expenses:
Production costs
356,304
341,250
Depletion and amortization
53,067
82,117
General and administrative expenses
220,121
234,884
629,492
658,251
Loss from operations
(16,733)
(136,980)
Interest income
3,311
9,306
Loss before provision for income taxes
(13,422)
(127,674)
Provision for income taxes - deferred
-
-
Net loss
$
(13,422)
(127,674)
Loss per common share - basic and diluted
$
-
(0.02)
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, 2013 and 2012
Additional
Total
Common Stock
Paid-In
Accumulated
Stockholders'
Shares
Amount
Capital
Deficit
Equity
Balance at January 1, 2012
5,653,011 $
5,653 $ 9,858,512 $
(7,204,771) $
2,659,394
Stock option compensation
expense
-
-
38,631
-
38,631
Net loss
-
-
-
(127,674)
(127,674)
Balance at December 31, 2012
5,653,011
5,653
9,897,143
(7,332,445)
2,570,351
Stock option compensation
expense
-
-
19,315
-
19,315
Net loss
-
-
-
(13,422)
(13,422)
Balance at December 31, 2013
5,653,011 $
5,653 $ 9,916,458 $
(7,345,867) $
2,576,244
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, 2013 and 2012
2013
2012
Cash flows from operating activities:
Net loss
$
(13,422)
(127,674)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depletion and amortization
53,067
82,117
Stock option compensation expense
19,315
38,631
Accretion expense
10,045
7,574
Decrease in:
Accounts receivable
20,296
10,560
Increase (decrease) in:
Accounts payable
(22,292)
15,923
Net cash provided by operating activities
67,009
27,131
Cash flows from investing activities:
-
-
Cash flows from financing activities:
-
-
Net increase in cash
67,009
27,131
Cash, beginning of year
1,323,032
1,295,901
Cash, end of year
$
1,390,041
1,323,032
The accompanying notes are an integral part of these consolidated financial statements
F-6
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
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, and current economic conditions.
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, 2013 and 2012
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
Deferred income taxes arise from temporary differences resulting from income and expense items reported
for financial accounting and tax purposes in different periods. 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.
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, 2013 and 2012
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.
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 criteria of
Staff Accounting Bulletin 101 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
At December 31, 2013, the Company has a stock option plan, which is described more fully in Note 8. The
Company accounts for stock compensation under ASC 718. This requires the Company to recognize
compensation cost based on the grant date fair value of options granted.
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.
F-9
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 1 – Organization and Summary of Significant Accounting Policies (continued)
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,
2013
2012
Proved oil and gas properties and related equipment
$
8,513,291
8,513,291
Asset retirement obligation
93,499
93,499
8,606,790
8,606,790
Accumulated depreciation, depletion, amortization
and valuation allowances
(7,941,230)
(7,888,163)
$
665,560
718,627
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, 2013 and 2012 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.
F-10
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 4 – Asset Retirement Obligation (continued)
Following is a reconciliation of the aggregate retirement liability associated with the Company’s obligation
to plug and abandon its oil and gas properties:
2013
2012
Balance at beginning of year
$
202,956
195,382
Accretion expense
10,045
7,574
Balance at end of year
$
213,001
202,956
Note 5 – Income Taxes
The provision (benefit) for income taxes differs from the amount computed at federal statutory rates as
follows:
2013
2012
Federal income tax benefit at statutory rate
$
(2,000)
(43,000)
State income tax benefit, net of federal tax benefit
(1,000)
(5,000)
Expiration of net operating loss carry-forward
5,000
-
Change in valuation allowance
(3,000)
41,000
Other
1,000
7,000
$
-
-
Deferred tax assets (liabilities) are comprised of the following:
2013
2012
Net operating loss carry-forwards
$
732,000
757,000
Asset retirement obligation
62,000
56,000
Depletion and amortization
120,000
111,000
Stock compensation expense
66,000
59,000
980,000
983,000
Less valuation allowance
(980,000)
(983,000)
$
-
-
F-11
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 5 – Income Taxes (continued)
As of December 31, 2013, the Company had net operating loss (NOL) carryforwards of approximately
$2,155,000. 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
80,000
2018
1999
1,980,000
2019
2001
4,000
2021
2002
78,000
2022
2011
12,000
2031
2012
1,000
2032
$
2,155,000
The Company is no longer subject to examination by federal and state taxing authorities for years prior to
2010.
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
during the years ended December 31, 2013 and 2012. At December 31, 2013 and 2012, $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 during the years ended December 31, 2013 and 2012. At December 31, 2013 and
2012, $10,000 was included in accounts payable for management services.
Note 7 – Supplemental Disclosures of Cash Flow Information
No amounts were paid for interest or income taxes during the years ended December 31, 2013 and 2012.
F-12
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
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, 2013 and 2012, the Company had 600,000 options outstanding at an exercise price of
$0.35. During the years ended December 31, 2013 and 2012, 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,
2013:
Outstanding
Exercisable
Weighted
Average
Weighted
Weighted
Remaining
Average
Average
Exercise
Number
Contractual
Exercise
Number
Exercise
Price
Outstanding
Life (Years)
Price
Exercisable
Price
$ 0.35
600,000
5.0
$ 0.35
600,000
$ 0.35
Note 10 – Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments at December 31, 2013 and 2012 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
non-trading 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.
F-13
ALLIED RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
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, 2013, 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.
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-14
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2013 and 2012
Capitalized Costs Relating to Oil and Gas Producing Activities
December 31,
2013
2012
Proved oil and gas properties and related equipment
$
8,513,291
8,513,291
Unproved oil and gas properties
-
Asset retirement obligation
93,499
93,499
8,606,790
8,606,790
Accumulated depreciation, depletion, amortization
and valuation allowances
(7,941,230)
(7,888,163)
$
665,560
718,627
Costs Incurred in Oil and Gas Acquisition, Exploration and Development Activities
December 31,
2013
2012
Acquisition of properties:
Proved
$
-
-
Unproved
$
-
-
Exploration costs
$
-
-
Development costs
$
-
-
F-15
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2013 and 2012
Results of Operations for Producing Activities
Years Ended
December 31,
2013
2012
Oil and gas revenues
$
612,759
521,271
Production costs net of reimbursements
(359,304)
(341,250)
Exploration costs
-
-
Depreciation, depletion, amortization, and valuation provisions
(53,067)
(82,117)
Net income before income taxes
203,388
97,904
Income tax expense
69,000
33,000
Results of operations from producing activities (excluding
corporate overhead and interest costs)
$
134,388
64,904
F-16
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2013 and 2012
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,
2013
2012
Oil
Gas
Oil
Gas
(bbls)
(mcf)
(bbls)
(mcf)
Proved developed and undeveloped reserves:
Beginning of year
27,557
1,017,803
23,931
829,179
Revision in previous estimates
1,716
520,929
6,687
294,547
Discoveries and extension
-
-
-
-
Purchase in place
-
-
-
-
Production
(2,839)
(99,844)
(3,061)
(105,923)
Sales in place
-
-
-
-
End of year
26,434
1,438,888
27,557
1,017,803
F-17
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2013 and 2012
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil
and Gas Reserves (Unaudited)
Years Ended
December 31,
2013
2012
Future cash inflows
$
7,277,000
5,293,000
Future production and development costs
(4,770,000)
(3,549,000)
Future income tax expenses
(853,000)
(593,000)
1,654,000
1,151,000
10% annual discount for estimated timing of cash flows
(920,000)
(598,000)
Standardized measure of discounted future net cash flows
$
734,000
553,000
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-18
ALLIED RESOURCES, INC.
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
December 31, 2013 and 2012
Changes in the Standardized Measure of
Discounted Future Cash Flows (Unaudited)
Years Ended
December 31,
2013
2012
Balance, beginning of year
$
553,000
701,000
Sales of oil and gas produced net of production costs
(206,000)
(187,000)
Net changes in prices and production costs
(284,000)
(1,340,000)
Extensions and discoveries, less related costs
-
-
Purchase and sales of minerals in place
-
-
Revisions of estimated development costs
-
-
Revisions of previous quantity estimate
471,000
1,351,000
Accretion of discount
55,000
70,000
Net changes in income taxes
145,000
(42,000)
Balance, end of year
$
734,000
553,000
F-19
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 effective 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 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.
29
Allied’s management conducted an assessment of the effectiveness of our internal control over financial
reporting as of December 31, 2013, 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 not identify any material weaknesses, management
considers its internal control over financial reporting to be effective.
This annual report does not include an attestation report of our independent registered public accounting
firm regarding internal control over financial reporting. We were 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 that permit us to provide only management’s
report in this annual report.
Changes in Internal Control over Financial Reporting
As of the end of the period covered by this report, there have been no changes in internal control over
financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the year ended December 31,
2013, that materially affected, or are reasonably likely to materially affect, Allied’s internal control over
financial reporting.
9B.
OTHER INFORMATION
None.
30
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
50
1998
Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer, Director
Ed Haidenthaller
50
2004
Director
Paul Crow
67
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 17 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 Park Vida Group, Inc. a real estate development company with interests in the Dominican
Republic and as an officer and director of Arvana, Inc., a company without significant operations.
31
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.
32
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 Forms 3, 4 and 5 furnished to Allied, we are not aware of any person who,
during the period ended December 31, 2013, failed to file, on a timely basis, reports required by Section
16(a) of the Securities Exchange Act of 1934 except the following:
§ Mr. Campbell, our chief executive officer and one of our directors, failed to file a Form 4 or
Form 5 in connection with the vesting of options over the period.
§ Mr. Haidenthaller, one of our directors, failed to file a Form 4 or Form 5 in connection with the
vesting of options over the period.
§ Mr. Crow, one of our directors, failed to file a Form 4 or Form 5 in connection with the vesting
of options over the period.
33
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.
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, 2013, 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, 2013, Allied compensated one of its directors pursuant to a consulting
agreement with him for services rendered as corporate secretary for annual compensation of $3,000.
During the year ended December 31, 2013, 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 $12,000 for providing office space to Allied and for an additional grant of 500,000 stock
options. The stock options have not yet been granted.
The following table provides summary information for the year 2013 concerning cash and non-cash
compensation paid or accrued by Allied to or on behalf of our directors.
Directors’ Summary Compensation Table
Name
Fees earned
Stock
Option
Non-equity
Nonqualified
All other
Total
or paid in
awards
Awards
incentive plan
deferred
compensation
($)
cash
($)
($)
compensation
compensation
($)
($)
($)
($)
Ruairidh Campbell
120,000*
16,000
12,000**
148,000
Paul Crow
2,000
1,600
-
-
3,000***
6,600
Ed Haidenthaller
2,000
-
1,600
-
-
-
3,600
*
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.
***
Pursuant to a consulting agreement; amount paid to Mr. Crow for services rendered as corporate secretary.
34
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, 2013 was $148,000 as compared to $164,000 for
the year ended December 31, 2012. The decrease can be attributed to the full vesting of stock option grants
half way through the current year. Compensation includes a monthly consulting fee, stock options and rent
paid to our sole executive officer in exchange for office space. Outside of the stock option grant, the
consistency in executive compensation in the comparative annual periods is attributable to Allied’s
executive agreement with its sole executive officer. We anticipate that executive compensation will remain
relatively consistent over the remaining term of the five year agreement.
Tables
The following table provides summary information for the years 2013, and 2012 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
2013 120,000
-
-
16,000
-
-
12,000
148,000
Campbell,
2012 120,000
-
-
32,000
-
-
12,000
164,000
CEO, CFO,
-
PAO and
director
35
The following table provides summary information for 2013 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 stock options have not yet been granted.
Allied has no plans that provides 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 the resignation, retirement or other termination, or a change in control of Allied or a change in our
executive officer's responsibilities following a change in control.
36
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 March 31, 2014, 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 has also been granted 500,000 options to purchase common shares at $0.35 all of which were
vested as of December 31, 2013.
** Ed Haidenthaller has also been granted 50,000 options to purchase common shares at $0.35 all of which were
vested as of December 31, 2013.
*** Paul Crow has also been granted 50,000 options to purchase common shares at $0.35 all of which were vested as
of December 31, 2013.
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
except the following consulting agreement, rent provision and option grants:
§ Ruairidh Campbell, sole executive officer and a director, entered into an executive agreement dated
July 1, 2013 for a monthly fee of $10,000 and additional stock options not yet granted.
§ Ruairidh Campbell, sole executive officer and a director, entered into a month to month
arrangement pursuant to which Allied pays $1,000 a month for the use of an office owned by Mr.
Campbell that is inclusive of associated office costs.
37
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.
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
2013
2012
Audit fees
$
40,200 $
40,200
Audit-related fees
-
-
Tax fees
6,525
6,835
All other fees.
-
-
Total fees paid or accrued to our principal accountants $
46,725 $
47,035
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.
38
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Consolidated Financial Statements
The following documents are filed under “Item 8. Financial Statements and Supplementary Data,” pages
F-1 through F-19, and are included as part of this Form 10-K:
Financial Statements of Allied for the years ended December 31, 2013 and 2012:
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 41 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.
39
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.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.
by the undersigned, thereunto duly authorized.
Allied Resources, Inc.
Date
/s/ Ruairidh Campbell
March 31, 2014
By: Ruairidh Campbell
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.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
March 31, 2014
Ruairidh Campbell
Chief Executive Officer, Chief Financial Officer, Principal Accounting
Officer and Director
/s/ Ed Haidenthaller
March 31, 2014
Ed Haidenthaller
Director
/s/ Paul Crow
Paul Crow
March 31, 2014
Director
40
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.
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.
41
Exhibit 10.4
EXECUTIVE AGREEMENT
This Executive Agreement ("Agreement") is made and entered into on this 1st day of July, 2013 by and
between Allied Resources, Inc., of 1403 East 900 South, Salt Lake City, Utah 84105 (the "Company"),
and Ruairidh Campbell (hereinafter, the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive serves as Chief Executive Officer, Chief Financial Officer and Principal
Accounting Officer of the Company.
WHEREAS, the Executive possesses intimate knowledge of the business and affairs of the Company, its
policies, methods and personnel;
WHEREAS, the Board of Directors of the Company recognizes that the Executive will contribute to the
growth and success of the Company, and desires to assure the Company of the Executive's continued
engagement and to compensate him therefore;
WHEREAS, the Board has determined that this Agreement will reinforce and encourage the Executive's
continued attention and dedication to the Company;
WHEREAS, the Executive is willing to make his services available to the Company on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are mutually acknowledged,
the Company and the Executive hereby agree as follows:
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree as follows:
1.
AGREEMENT TERM. The term of this Agreement shall be five (5) years beginning on July 1,
2013, and ending on June 30, 2018 (the “Term”), unless terminated sooner pursuant to the termination
provisions herein contained.
2.
POSITION AND DUTIES OF ENGAGEMENT.
a.
Executive Duties and Title. The Company hereby engages Executive to continue to act as
the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer of the Company,
pursuant to the terms hereof, and Executive hereby accepts such engagement. Executive’s duties and
responsibilities generally shall be those customarily undertaken by executives of companies engaged in
enterprises in which the Company is engaged, including but not necessarily limited to, general
management and operations, responsibility for finance, administration, and human resources. The Board
may add, delete or otherwise alter Executive’s duties and responsibilities, provided the Board shall make
all assignments of duties and responsibilities in good faith and shall not materially alter the general
character of the work to be performed by Executive, who shall perform such duties and discharge such
responsibilities as directed by the Board in a good and businesslike manner. Executive’s duties shall be
governed by such policies and procedures adopted by the Company from time to time that provide for the
orderly administration of the workplace.
1
Exhibit 10.4
b.
Performance. During the Term, Executive shall (i) devote sufficient time to the business
of the Company; (ii) faithfully serve the Company; (iii) in all respects conform to and comply with the
lawful and reasonable directions and instructions given by the Board in accordance with the terms of this
Agreement; and (iv) use reasonable business efforts to promote and serve the interests of the Company.
Notwithstanding the foregoing, provided the following does not interfere with Executive’s ability to
perform his duties under this Agreement, Executive may (i) participate in outside business activities for
remuneration; (ii) participate in the activities of professional trade organizations related to the business of
Company or its affiliates; (iii) engage in personal investing activities; and (iv) devote reasonable amounts
of time to civic, social, community, charitable or religious pursuits.
3.
COMPENSATION AND BENEFITS.
a.
Base Executive Fee. The Company shall pay Executive an annual base fee of One
Hundred and Twenty Thousand and No/100 Dollars ($120,000.00), which shall be payable monthly as it
accrues, or at such other intervals as Company and Executive may hereafter from time to time agree in
writing. Further, the Company agrees to review Executive’s base fee and increase the amount payable
commensurate with an increase in net pre-tax profits over the Term of the Agreement.
b.
Annual Bonus. On each anniversary of the beginning of the Term, the Company, at its
sole discretion, shall pay Executive an annual bonus in an amount to be determined by the Board.
c.
Stock Options. Executive shall be granted options to purchase Five Hundred Thousand
(500,000) shares of the Common Stock of the Company, which shall vest as indicated on the schedule set
forth in Exhibit A attached hereto.
All stock options described herein shall be granted in accordance with the terms and conditions of the
Company’s 2013 Stock Option Plan. Notwithstanding anything to the contrary herein, or in any other
document or agreement between the Company and Executive, each such stock option granted to
Executive shall have an exercise price that is not less than the fair market value of the Company’s
Common Stock on the date of grant.
All stock options described herein shall be granted in accordance with the terms and conditions of the
Company’s 2013 Stock Option Plan. Notwithstanding anything to the contrary herein or in any other
document or agreement between the Company and Executive, each stock option granted to Executive
shall have an exercise price that is not less than the fair market value of the Company’s Common Stock
on the date of the grant.
d.
Expenses. The Company shall reimburse Executive for all reasonable travel,
entertainment and out-of-pocket expenses incurred by Executive in the course and scope of authorized
Company business regardless of when incurred.
2
Exhibit 10.4
4.
TERMINATION OF AGREEMENT.
a.
By Company Without Cause. During the Term:
(i)
The Company may terminate Executive’s engagement at any time without cause
upon ninety (90) days written notice.
(ii)
(iii)
(iv)
(i)
The Company may terminate the Executive’s engagement at any time
without cause upon ninety (90) days written notice.
(ii)
In the event the Company terminates Executive’s engagement during the Term
without cause pursuant to this article 4.a.(i), any stock options not vested in accordance with
Exhibit A will automatically vest and Executive shall have twenty four (24) months in which to
exercise vested stock options. Any remaining stock options that have not been exercised at the
end of said twenty four (24) months shall expire.
(iii)
In the event the Company terminates Executive’s engagement during the Term
without cause pursuant to article 4.a.(i), the Company shall pay Executive an amount equal to
twenty four (24) months of Executive’s then base fee plus any unpaid reimbursable expenses, and
any earned but unpaid annual bonus.
(ii)
In the event the Company terminates Executive’s engagement
during the Term without cause pursuant to article 4.a.(i), any stock options not
vested in accordance with Exhibit A will automatically vest and Executive shall
have twenty four (24) months in which to exercise vested stock options. Any
remaining stock options that have not been exercised at the end of said twenty
four (24) months shall expire.
(iii)
In the event the Company terminates Executive’s engagement during the Term
without cause pursuant to article 4.a.(i), the Company shall pay Executive an amount equal to
twenty four (24) months of Executive’s then base fee plus any unpaid reimbursable expenses, and
any earned but unpaid annual bonus.
b.
By the Company With Cause.
(i)
The Company may terminate Executive’s engagement at any time for cause.
(ii)
(iii)
(i)
The Company may terminate Executive’s engagement at any time for
cause. (i)
The Company may terminate Executive’s engagement at any
time for cause. (i)
The Company may terminate Executive’s engagement at
any time for cause. (i) The Company may terminate Executive’s engagement at
any time for cause.
3
Exhibit 10.4
(ii)
The term “cause” shall mean (1) Executive’s material failure, neglect or refusal
to perform any duties, responsibilities or obligations specifically described in or assigned to him
under article 2 of this Agreement; (2) any willful or intentional act of Executive that has the effect
of substantially injuring the reputation or business of the Company or any of its affiliates and any
of their respective affiliates; (3) use of illegal drugs by Executive or repeated drunkenness; (4) a
plea of nolo contendre, admission of guilt or conviction of Executive by a court of competent
jurisdiction for the commission of (A) a felony or (B) a misdemeanor involving moral turpitude;
(5) an act of fraud or embezzlement or material dishonesty by Executive against the Company or
any other person or entity; (6) other violations of policies adopted by the Company that provide
for the orderly administration of the workplace; or (7) during the Term, any material violation of
a covenant described in article 5 of this Agreement.
(iii)
Company shall give Executive written notice of the Company’s intention to
terminate Executive’s engagement for cause under article 4.b.(i) (the “Cause Notice”). The Cause
Notice shall state the particular action(s) or inaction(s) giving rise to cause for termination. If the
cause for termination is capable of cure, Executive shall have a reasonable time not to exceed
thirty (30) days after a Cause Notice is communicated pursuant to article 7.a. to perform or
correct performance of the particular duties, responsibilities or obligations described in the Cause
Notice. If Executive performs and continues to perform as required, the Company shall not
terminate Executive’s engagement for cause based upon the reasons stated in the Cause Notice.
(iv)
Upon termination by the Company for cause, Executive shall be entitled only to
accrued and unpaid compensation and benefits unreimbursed expenses and earned but unpaid
bonuses as defined in article 3 of this Agreement through the date of termination, and any rights
and benefits to which Executive is entitled at law. Any stock options that have not vested at the
time of termination of Executive for cause shall expire, and Executive shall have twelve (12)
months from the date of termination to exercise any vested stock options, after which time, such
vested options shall expire.
(ii)
The term “cause” shall mean (1) Executive’s material failure, neglect or refusal
to perform any duties, responsibilities or obligations specifically described in or assigned to him
under article 2 of this Agreement; (2) any willful or intentional act of Executive that has the effect
of substantially injuring the reputation or business of the Company or any of its affiliates and any
of their respective affiliates; (3) use of illegal drugs by Executive or repeated drunkenness; (4) a
plea of nolo contendre, admission of guilt or conviction of Executive by a court of competent
jurisdiction for the commission of (A) a felony or (B) a misdemeanor involving moral turpitude;
(5) an act of fraud or embezzlement or material dishonesty by Executive against the Company or
any other person or entity; (6) other violations of policies adopted by the Company that provide
for the orderly administration of the workplace; or (7) during the Term, any material violation of
a covenant described in article 5 of this Agreement.
(iii)
Company shall give Executive written notice of the Company’s intention to
terminate Executive’s engagement for cause under article 4.b.(i) (the “Cause Notice”). The Cause
Notice shall state the particular action(s) or inaction(s) giving rise to cause for termination. If the
cause for termination is capable of cure, Executive shall have a reasonable time not to exceed
thirty (30) days after a Cause Notice is communicated pursuant to article 7.a. to perform or
correct performance of the particular duties, responsibilities or obligations described in the Cause
4
Exhibit 10.4
Notice. If Executive performs and continues to perform as required, the Company shall not
terminate Executive’s engagement for cause based upon the reasons stated in the Cause Notice.
(iv)
Upon termination by the Company for cause, Executive shall be entitled only to
accrued and unpaid compensation and benefits unreimbursed expenses and earned but unpaid
bonuses as defined in article 3 of this Agreement through the date of termination, and any rights
and benefits to which Executive is entitled at law. Any stock options that have not vested at the
time of termination of Executive for cause shall expire, and Executive shall have twelve (12)
months from the date of termination to exercise any vested stock options, after which time, such
vested options shall expire.
c.
Termination of Engagement by Executive.
(i)
At any time during the Term, Executive may terminate his engagement, with or
without good reason, by giving sixty (60) days prior written notice of termination to the Company
pursuant to article 7.a.
(ii)
The term “good reason” shall mean the occurrence of any of the following
events: (1) Company shall fail to pay Executive any compensation or benefits due under this
Agreement and such failure shall not be remedied within ten (10) days after receipt of written
notice from Executive specifying such failure; or (2) Company shall materially breach any other
provision of this Agreement and such breach shall not be remedied within a reasonable time after
receipt by Company of written notice from Executive specifying such breach.
(iii)
In the event Executive terminates his engagement with good reason during the
Term, any stock options not vested in accordance with Exhibit A will automatically vest and
Executive shall have twenty four (24) months in which to exercise those and any remaining
unexercised stock options. Any remaining stock options that have not been exercised at the end
of twenty (24) months shall expire.
(iv)
Executive shall give written notice to the Company of his intention to terminate
his engagement for good reason under article 4.c. (i) (the “Good Reason Notice”). The Good
Reason Notice shall state the particular action(s) or inaction(s) giving rise to good reason for
termination. Company shall have a reasonable time, not to exceed thirty (30) days after a Good
Reason Notice is given, to perform or correct performance of the particular duties action(s) or
inaction(s) described in the Good Reason Notice. If Company reasonably corrects performance of
the action(s) or inaction(s) described in the Good Reason Notice, then Company shall not
terminate Executive’s engagement for good reason based upon the reasons stated in the Good
Reason Notice.
(v)
In the event Executive voluntarily terminates his engagement without good
reason at any time during the Term, he shall be entitled to the compensation, benefits,
unreimbursed expenses and earned but unpaid bonus as defined in article 3 of this Agreement
through the date of termination, and any rights and benefits to which Executive is entitled at law.
Any stock options that have not vested at the time Executive voluntarily terminates without good
reason shall expire, and Executive shall have twenty four (24) months from the date of
termination to exercise any vested options, after which time, such vested options shall expire.
5
Exhibit 10.4
(i)
At any time during the Term, Executive may terminate his engagement, with or
without good reason, by giving sixty (60) days prior written notice of termination to the Company
pursuant to article 7.a.
(ii)
The term “good reason” shall mean the occurrence of any of the following
events: (1) Company shall fail to pay Executive any compensation or benefits due under this
Agreement and such failure shall not be remedied within ten (10) days after receipt of written
notice from Executive specifying such failure; or (2) Company shall materially breach any other
provision of this Agreement and such breach shall not be remedied within a reasonable time after
receipt by Company of written notice from Executive specifying such breach.
(iii)
In the event Executive terminates his engagement with good reason during the
Term, any stock options not vested in accordance with Exhibit A will automatically vest and
Executive shall have twenty four (24) months in which to exercise those and any remaining
unexercised stock options. Any remaining stock options that have not been exercised at the end
of twenty (24) months shall expire.
(iv)
Executive shall give written notice to the Company of his intention to terminate
his engagement for good reason under article 4.c. (i) (the “Good Reason Notice”). The Good
Reason Notice shall state the particular action(s) or inaction(s) giving rise to good reason for
termination. Company shall have a reasonable time, not to exceed thirty (30) days after a Good
Reason Notice is given, to perform or correct performance of the particular duties action(s) or
inaction(s) described in the Good Reason Notice. If Company reasonably corrects performance of
the action(s) or inaction(s) described in the Good Reason Notice, then Company shall not
terminate Executive’s engagement for good reason based upon the reasons stated in the Good
Reason Notice.
(v)
In the event Executive voluntarily terminates his engagement without good
reason at any time during the Term, he shall be entitled to the compensation, benefits,
unreimbursed expenses and earned but unpaid bonus as defined in article 3 of this Agreement
through the date of termination, and any rights and benefits to which Executive is entitled at law.
Any stock options that have not vested at the time Executive voluntarily terminates without good
reason shall expire, and Executive shall have twenty four (24) months from the date of
termination to exercise any vested options, after which time, such vested options shall expire.
d.
Termination of Engagement by Reason of Death. If Executive shall die during the Term,
this Agreement shall terminate automatically as of the date of death, and Company shall pay to
Executive’s estate (i) the compensation and benefits under article 3, which would otherwise be payable to
Executive up to the end of the month in which death occurs, and, to the extent applicable, (ii) any
insurance or insurance proceeds, vested death benefits, compensation for accrued vacation or leave time,
(iii) any unpaid bonus for the prior fiscal period, and (iv) an amount equal to one (1) year of Executive’s
then base fee. In addition, any stock options held by Executive at the time of his death shall be treated in
accordance with the Company’s Stock Option Plan.
6
Exhibit 10.4
5.
CONFIDENTIALITY.
a.
Nondisclosure of Confidential Information. Executive will have access to Confidential
Information (defined below) during his engagement with Company. Except pursuant to his engagement
hereunder, or as required to be disclosed by any law, regulation or order of any court or regulatory
commission, department or agency, Executive shall not use or disclose to any person or entity during the
Term or at any time thereafter, any Confidential Information of Company.
(i)
“Confidential Information” shall include all information regarding Company’s
(or any of its affiliate’s) customers, vendors, suppliers, trade secrets, training programs, manuals
or materials, technical information, seismic data, contracts, systems, procedures, mailing lists,
know-how, trade names, improvements, price lists, financial or other data (including the
revenues, costs or profits associated with Company’s products or services), business plans, code
books, invoices and other financial statements, computer programs, software systems, databases,
discs and printouts, plans (business, technical or otherwise), customer and industry lists,
correspondence, internal reports, personnel files, sales and advertising material, telephone
numbers, names and addresses or any other compilation of information, written or unwritten,
which is or was used in the business of Company not in the public domain or generally known in
the industry, in any form, and including without limitation all such information acquired by
Executive before or during the Term.
(ii) Executive agrees and acknowledges that all Confidential Information, in any form,
and copies and extracts thereof, are and shall remain the sole and exclusive property of Company
and upon termination of his engagement under this Agreement, Executive shall within a
reasonable period of time return to Company the originals and all copies of any such information
provided to or acquired by Executive in connection with the performance of his duties for
Company, and shall return to Company all such files, correspondence and/or other
communications received, maintained and/or originated by Executive during the course of his
engagement.
(i)
“Confidential Information” shall include all information regarding Company’s
(or any of its affiliate’s) customers, vendors, suppliers, trade secrets, training programs, manuals
or materials, technical information, seismic data, contracts, systems, procedures, mailing lists,
know-how, trade names, improvements, price lists, financial or other data (including the
revenues, costs or profits associated with Company’s products or services), business plans, code
books, invoices and other financial statements, computer programs, software systems, databases,
discs and printouts, plans (business, technical or otherwise), customer and industry lists,
correspondence, internal reports, personnel files, sales and advertising material, telephone
numbers, names and addresses or any other compilation of information, written or unwritten,
which is or was used in the business of Company not in the public domain or generally known in
the industry, in any form, and including without limitation all such information acquired by
Executive before or during the Term.
(ii)
Executive agrees and acknowledges that all Confidential Information, in any
form, and copies and extracts thereof, are and shall remain the sole and exclusive property of
Company and upon termination of his engagement under this Agreement, Executive shall within
a reasonable period of time return to Company the originals and all copies of any such
information provided to or acquired by Executive in connection with the performance of his
7
Exhibit 10.4
duties for Company, and shall return to Company all such files, correspondence and/or other
communications received, maintained and/or originated by Executive during the course of his
engagement.
6.
DISPUTE RESOLUTION.
a.
Resolution Procedure. The parties agree to resolve any dispute or controversy between
Company and Executive arising out of or in connection with the terms and provisions of this Agreement
in accordance with the following:
(i)
If any dispute or controversy arises out of or relates to this Agreement or any
alleged breach hereof, the party desiring to resolve such dispute or controversy shall deliver a
written notice of the dispute, including the specific claim in the dispute (“Dispute Notice”) to the
other party pursuant to article 7.a. If any party delivers a Dispute Notice pursuant to this article
6.a.(i), the parties involved in the dispute or controversy shall meet at least twice within the thirty
(30) day period commencing with the date of the Dispute Notice and in good faith shall attempt
to resolve such dispute or controversy through negotiation.
(ii)
If any dispute or controversy is not resolved or settled by the parties as a result of
negotiation pursuant to article 6.a.(i) above, the parties shall in good faith submit the dispute or
controversy to non-binding mediation in Salt Lake County before a mediator agreed upon by the
parties. In the event the parties are unable to agree upon a mediator, the parties shall request that a
mediator be appointed by the Salt Lake County Court or the Federal District Court. The parties
shall bear the costs of such mediation equally.
(iii)
Any dispute or controversy between Company and Executive arising out of or
relating to this Agreement or any breach of this Agreement that is not resolved by mediation
pursuant to article 6.a.(ii) above, the dispute or controversy shall be resolved through arbitration
held in Salt Lake County, Utah, which arbitration shall be conducted in accordance with the rules
and procedures of the American Arbitration Association in accordance with its Rules for the
Resolution of Employment Disputes, then in effect. The arbitration of such issues, including the
determination of any amount of actual damages suffered by any party hereto by reason of the acts
or omissions of any party, shall be final and binding upon all parties. Except as otherwise set
forth in this Agreement, the cost of arbitration hereunder, including the cost of record or
transcripts thereof, if any, administrative fees, and all other fees involved, including reasonable
attorneys’ fees incurred by the party determined by the arbitrator to be the prevailing party, shall
be paid by the party determined by the arbitrator not to be the prevailing party, or otherwise
allocated in an equitable manner as determined by the arbitrator. The parties shall instruct the
arbitrator to render his or her decision no later than ninety (90) days after submission of the
dispute to the arbitrator.
(i)
If any dispute or controversy arises out of or relates to this Agreement or any
alleged breach hereof, the party desiring to resolve such dispute or controversy shall deliver a
written notice of the dispute, including the specific claim in the dispute (“Dispute Notice”) to the
other party pursuant to article 7.a. If any party delivers a Dispute Notice pursuant to this article
6.a.(i), the parties involved in the dispute or controversy shall meet at least twice within the thirty
(30) day period commencing with the date of the Dispute Notice and in good faith shall attempt
to resolve such dispute or controversy through negotiation.
(iii)
Any dispute or controversy between Company and Executive arising out of or
relating to this Agreement or any breach of this Agreement that is not resolved by mediation
pursuant to article 6.a.(ii) above, the dispute or controversy shall be resolved through arbitration
8
Exhibit 10.4
held in Salt Lake County, Utah, which arbitration shall be conducted in accordance with the rules
and procedures of the American Arbitration Association in accordance with its Rules for the
Resolution of Employment Disputes, then in effect. The arbitration of such issues, including the
determination of any amount of actual damages suffered by any party hereto by reason of the acts
or omissions of any party, shall be final and binding upon all parties. Except as otherwise set
forth in this Agreement, the cost of arbitration hereunder, including the cost of record or
transcripts thereof, if any, administrative fees, and all other fees involved, including reasonable
attorneys’ fees incurred by the party determined by the arbitrator to be the prevailing party, shall
be paid by the party determined by the arbitrator not to be the prevailing party, or otherwise
allocated in an equitable manner as determined by the arbitrator. The parties shall instruct the
arbitrator to render his or her decision no later than ninety (90) days after submission of the
dispute to the arbitrator.
b.
Confidentiality. Each party agrees to keep all disputes, mediation and arbitration
proceedings strictly confidential, except for disclosures of information in the ordinary course of business
of the parties or by applicable law or regulation.
7.
GENERAL PROVISIONS.
a.
Notices. Any notices to be given hereunder by either party to the other may be effected
by personal delivery in writing or by registered or certified mail, with postage prepaid and return receipt
requested, addressed as follows:
If to Executive, to:
Ruairidh Campbell
3002 Kinney Avenue
Austin, TX 78704
Email: ruairidhcampbell@msn.com
If to Company, to:
Paul Crow
1403 East 900 South
Salt Lake City
Utah 84105
Email: paulcrow@comcast.com
Any party may change its address by written notice in accordance with this article 7.a. Notices delivered
personally shall be deemed communicated as of actual receipt; mailed notices shall be deemed
communicated as of five (5) days after mailing by delivering the same into the care and custody of the
United States Postal Service or other national postal service, by registered or certified mail, return receipt
requested, with postage prepaid.
b.
Entire Agreement. This Agreement and Exhibit A hereto supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect to the engagement of
Executive by Company and contains all of the covenants and agreements between the parties with respect
to the subject matter hereof. Each party to this Agreement acknowledges that no representations,
inducement, promises, or agreements, orally or otherwise, have been made which are not embodied
herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid
or binding. Any modification of this Agreement will be effective only if it is in writing signed by the
party to be charged.
9
Exhibit 10.4
c.
Waiver and Amendments. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent breach, whether or not
similar, unless such waiver specifically states that it is to be construed as a continuing waiver. This
Agreement may be amended, modified or supplemented only by a written instrument executed by the
parties hereto.
d.
Law Governing Venue, Successors and Assigns. This Agreement shall be governed by
and construed in accordance with the laws of the State of Utah, excluding its conflicts of laws principles.
Each party consents to jurisdiction and venue for any suit relating to this Agreement in any court of
competent jurisdiction in Salt Lake County, Utah, or the United States District Court for the District of Utah.
This Agreement shall be binding upon and inure to the benefit of the legal representatives, successors and
assigns of the parties hereto (provided, however, that Executive shall not have the right to assign this
Agreement in view of its personal nature) and Company shall not assign or transfer this Agreement
without the consent of Executive.
e.
Attorney’s Fees and Costs. Except as otherwise provided in this Agreement, if any action
is necessary to enforce or interpret the terms of this Agreement (including without limitation any actions
for injunctive relief), the prevailing party shall be entitled to reasonable attorney’s fees, costs and
necessary disbursements in addition to any other relief to which the prevailing party may be entitled.
f.
Severability. Should any term, covenant, condition or provision of this Agreement be
held to be invalid or unenforceable, the balance of this Agreement shall remain in full force and effect and
shall stand as if the unenforceable term, covenant, condition or provision did not exist.
g.
Article Headings. The article and section headings of this Agreement are for reference
only and shall not be considered in the interpretation of this Agreement.
h.
Counterparts. It is also expressly understood that this Agreement may be executed and
effective with multiple original signature pages.
EXECUTED to be effective this 1st day of July, 2013.
COMPANY:
ALLIED RESOURCES, INC.
By: /s/ Ed Haidenthaller
Ed Haidenthaller, Director
On Behalf of the Board of Directors
EXECUTIVE:
/s/ Ruairidh Campbell
Ruairidh Campbell
10
Exhibit 31
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ruairidh Campbell certify that:
1. I have reviewed this report on Form 10-K of Allied Resources, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and
internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls
over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal controls over financial reporting.
Date: March 31, 2014
/s/ Ruairidh Campbell
Ruairidh Campbell
Chief Executive Officer and Chief Financial Officer
Exhibit 32
CERTIFICATION OF 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
In connection with the report on Form 10-K of Allied Resources, Inc. for the annual period ended
December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof, I, Ruairidh
Campbell, do hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-
Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) This report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in this report fairly represents, in all material respects, the financial
condition of the registrant at the end of the period covered by this report and results of operations
of the registrant for the period covered by this report.
Date: March 31, 2014
/s/ Ruairidh Campbell
Ruairidh Campbell
Chief Executive Officer and Chief Financial Officer
This certification accompanies this report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall
not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the registrant
for the purposes of §18 of the Securities Exchange Act of 1934, as amended. This certification shall not
be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (whether made before or after the date of this report),
irrespective of any general incorporation language contained in such filing.
A signed original of this written statement required by §906 has been provided to the registrant and will
be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon
request.
Exhibit 99.2
SURE ENGINEERING, LLC.
Petroleum and Natural Gas Engineering Consultants
P.O. BOX 261967
TELEPHONE: (303) 770 3111
Littleton, CO 80112
FAX NO.:
(303) 721 6782
EMAIL:
SUREENG@AOL.COM
Allied Resources, Inc.
1403 East 900 South
Salt Lake City, Utah 84105
Attention: Mr. Ruairidh Campbell
3/20/2014
Dear Mr. Campbell:
As requested, estimate of the extent and value of the proved reserves of crude oil, natural gas, and
natural gas liquids for certain leasehold interests of Allied Resources, Inc. (“Allied”) has been
prepared as of December 31, 2013. The properties evaluated in this report are located in Ritchie and
Calhoun Counties, West Virginia; Edwards, Jackson and Goliad Counties, Texas.
The reserve estimates are based on review and evaluation of the geological and engineering data
provided by Allied. Oil and gas properties located in the general area have been examined prior to
this study. Property interests owned, production data, current costs of operation and development,
and other miscellaneous data were furnished by Allied, and are accepted as factual without
independent verification of such facts. A field examination of the operations and physical condition
of the properties has not been made.
This engineering study is limited to the availability and accuracy of the engineering and geological
data. Assumptions made and calculations used to generate cash flow projections are based on
engineering techniques commonly accepted by the industry. As in all aspects of oil and gas
evaluation, there are uncertainties inherent in the interpretation of engineering data and therefore our
conclusions represent only our best-informed professional judgments.
The proved crude oil, natural gas, and natural gas liquid reserves included in this report are judged to
be economically producible in future years from known reservoirs under existing economic and
operating conditions, and assuming continuation of the current regulatory practices, and using
conventional production methods and equipment. Estimates of proved reserves, future net revenue,
and present value of future net revenue included in this evaluation are intended to be submitted by
Allied as part of Allied’s annual report, filed on Form 10-K. Copies may also be submitted to
institutions and investors interested in the value of Allied’s reserves.
Allied Resources, Inc.
Page 2
3/20/2014
Exhibit 99.2
Definitions of proved reserves used in this evaluation are those set forth in Rule 4-10(a) of
Regulation S-X, as adopted by the Securities and Exchange Commission:
“Proved oil and gas reserves”.
Proved oil and gas reserves are those quantities of
crude oil, natural gas, and natural gas liquids which, by analysis of geoscience and engineering data,
can be estimated with reasonable certainty to be economically producible – from a given date
forward, from known reservoirs, and under existing economic conditions, operating methods, and
government regulations-prior to the time at which contracts providing the right to operate expire,
unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or
probabilistic methods are used for the estimation.”
“Proved developed oil and gas reserves.
Proved developed oil and gas reserves are reserves
that
can be expected to be recovered through existing wells with existing equipment and operating
methods. In projects that extract oil and gas in other ways, can be expected to be recovered through
extraction technology installed and operational at the time of the reserves estimate.
Summary of Estimated Oil and Gas Reserves as of Fiscal-Year End Based on Average
Fiscal-Year 2013 Prices
RESERVES
Oil (bbls)
Gas (mcf)
Reserves category
Proved Developed/Producing
26,434
1,438,888
* Small rounding error may occur
Natural gas volumes are expressed at standard conditions of temperature and pressure applicable in
the area where the reserves are located. Condensate reserves estimated are those obtained from
normal separator recovery. Crude oil and natural gas liquids are stated as standard barrels of 42 U.S.
gallons per barrel.
Value of net proved reserves is expressed in terms of estimated future net revenue and present value
of future net revenue. Future net revenue is calculated by deducting estimated operating expenses,
future development costs, and severance from the future gross revenue. Present value of future net
revenue is calculated by discounting the future net revenue at the arbitrary rate of 10 percent per year
compounded monthly over the expected period of realization. Present value, as expressed herein,
should not be construed as fair market value, since no consideration has been given to many factors,
which influence the prices at which, petroleum products are traded, such as taxes on operating
profits, allowance for the return on the investment, and normal risks incident to oil business.
Allied Resources, Inc.
Page 3
3/15/2014
Exhibit 99.2
Estimated future net revenue and net present value of Allied’s revenues from estimated production of
proved reserves are presented below:
Summary of Estimated Future Net Revenue and Net Present Value of Allied’s Revenues From
Estimated Production of Proved Reserves
RESERVES
10% Disc. Future Net
Future Net Revenue ($)
Revenue($)
Reserves category
Proved Developed/Producing
2,507,444
1,177,322
* Small rounding error mayoccur
In generating cash flow projections 12-month average oil and gas prices were used as initial prices
and held constant over the life of the remaining reserves with no future price escalation due to
inflation. Similarly 12-month average monthly operating costs were also held constant during the
lives of the properties.
Gas prices varied from $1.00 per mcf to $5.00 per mcf and oil prices varied from $80.97 per bbl to
$104.72 per bbl in West Virginia during 2013. Gas prices varied from $2.64 per mcf to $5.06 and oil
prices varied from $91.66 to $107.11 per bbl in Texas. Averages of 12-month gas and oil prices for
each lease were held constant over the life of the remaining reserves and no adjustment for the BTU
content was made in cash flow projections.
Based on cash flow projections, revenues from gas reserves account for 65 percent of the Allied’s
future gross income from proved reserves. Therefore, total future income is more sensitive to
fluctuation in gas prices than oil prices.
Oil reserve estimates in 2013 are slightly lower but gas reserves are higher than those reported in
2012 report. Higher gas prices along with servicing and repairing some gas wells in West Virginia
has probably increased gas flow rates, consequently extended production lives of the wells, and
resulted in higher gas reserve estimates. An average $0.67 per mcf increase in gas prices and lower
operating costs have affected individual well performances and in some cases, such as in Leading
Creek field of West Virginia cash flow projections have increased.
Sure Engineering anticipates plugging costs of approximately $5,000 per well for West Virginia
properties and $15,000 per well for the Texas wells based on depth, completion method, and location
of the wells. Plugging costs and salvage value of the equipment have not been considered in cash
flow calculations presented in this report.
Allied Resources, Inc
Page 4
3/20/2014
Exhibit 99.2
Allied also noticed that some of the gas wells have started producing relatively small volumes of oil.
It is probably liquid condensate deposition due to decreasing reservoir pressure and accumulation in
the wellbore. Even though it is in small volumes, additional oil production from marginal gas wells,
extended projected-economic lives of such wells, and has resulted in higher estimated ultimate
recoveries.
Allied’s leases in West Virginia, particularly in Ritchie County, cover parts of mostly untapped
Marcellus shale and Utica shale. Open- hole well logs indicate presence of potentially productive
Marcellus shale at a depth of 6,000 feet. Its thickness varies from 50 to 60 ft. Since the exploration
in this area is in its early stages, no reserves have been allocated for the Marcellus or Utica shale
potential in this report.
The estimates of reserves, future net revenue, and net present value are determined according to our
understanding of applicable regulations of the Securities and Exchange Commission. These
estimates have not been filed with any other federal authority or agency.
Sure Engineering, LLC, and its principals are unrelated to Allied, its officers, shareholders, and
properties evaluated in this report. We do not own a direct or indirect financial interest in Allied or
its properties.
Submitted,
/s/ Sure Engineering LLC
Sure Engineering, LLC
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