XOTC:ALOD Allied Resources Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 þ

Quarterly  report  pursuant  to  Section  13  or  15(d)  of  the  Securities  Exchange  Act  of  1934  for  the

quarterly period ended March 31, 2012.

 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: 000-29321

ALLIED RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Nevada

000-31390

(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)

(801) 582-9609

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 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.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ

Indicate  by  check  mark  whether  the  registrant  is  a  shell  company  (as  defined  in  Rule  12b-2  of  the  Exchange

Act). Yes o  No þ

Indicate  the  number  of  shares  outstanding  of  each  of  the  issuer’s  classes  of  common  stock,  as  of  the  latest

practicable  date.  The  number  of  shares  outstanding  of  the  issuer’s  common  stock,  $0.01  par  value  (the  only

class of voting stock), at May 15, 2012, was 5,653,011.




TABLE OF CONTENTS

PART 1- FINANCIAL INFORMATION

Item1.

Financial Statements:

3

Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011 (audited)

4

Unaudited  Condensed Statements of Operations for the Three month periods ended

5

March 31, 2012 and March 31, 2011

Unaudited Condensed  Statements of Cash Flows for the Three month periods

6

ended March 31, 2012 and  March 31, 2011

Condensed Notes to Unaudited Financial Statements

7

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of

8

Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

15

Item 4.

Controls and Procedures

15

PART II-OTHER INFORMATION

Item 1.

Legal Proceedings

16

Item 1A.

Risk Factors

16

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

20

Item 3.

Defaults Upon Senior Securities

20

Item 4.

(Removed and Reserved)

20

Item 5.

Other Information

20

Item 6.

Exhibits

20

Signatures

21

Index to Exhibits

22

2




PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

As used herein, the terms “Allied,” “we,” “our,” “us,” “it,” and “its” refer to Allied Resources, Inc., a

Nevada corporation, unless otherwise indicated.  In the opinion of management, the accompanying

unaudited financial statements included in this Form 10-Q reflect all adjustments (consisting only of

normal recurring accruals) necessary for a fair presentation of the results of operations for the periods

presented.  The results of operations for the periods presented are not necessarily indicative of the results

to be expected for the full year.

3




ALLIED RESOURCES, INC.

BALANCE SHEETS

March 31,

December 31,

2012

2011

ASSETS

(Unaudited)

(Audited)

Current assets:

Cash

$

1,316,597

1,295,901

Accounts receivable

61,139

72,656

Total current assets

1,377,736

1,368,557

Oil and gas properties (proven), net (successful

efforts method)

776,254

800,744

Deposits

704,701

704,701

Total assets

$

2,858,691

2,874,002

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

44,903

19,226

Total current liabilities

44,903

19,226

Asset retirement obligation

195,779

195,382

Total liabilities

240,682

214,608

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

9,868,170

9,858,512

Accumulated deficit

(7,255,814)

(7,204,771)

Total stockholders' equity

2,618,009

2,659,394

Total liabilities and stockholders' equity

$

2,858,691

2,874,002

The accompanying notes are an integral part of these financial statements

4




ALLIED RESOURCES, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2012 and 2011

2012

2011

Oil and gas revenues

$

120,708

157,188

Operating expenses:

Production costs

75,652

93,473

Depletion and amortization

24,490

22,892

General and administrative expenses

72,447

74,911

172,589

191,276

Loss from operations

(51,881)

(34,088)

Interest income

838

5,425

Loss before benefit from income taxes

(51,043)

(28,663)

Benefit from income taxes - deferred

-

(6,000)

Net loss

$

(51,043)

(22,663)

Loss per common share - basic and diluted

$

(0.01)

-

Weighted average common shares - basic and diluted

5,653,000

5,653,000

The accompanying notes are an integral part of these financial statements

5




ALLIED RESOURCES, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2012 and 2011

2012

2011

Cash flows from operating activities:

Net loss

$

(51,043)

(22,663)

Adjustments to reconcile net loss to net

cash provided by (used in) operating activities:

Depletion and amortization

24,490

22,892

Stock option compensation expense

9,658

9,658

Accretion expense

397

2,310

Deferred tax asset

-

(6,000)

Decrease (increase) in accounts receivable

11,517

(26,805)

Increase accounts payable

25,677

15,578

Net cash provided by (used in) operating activities

20,696

(5,030)

Cash flows from investing activities:

-

-

Cash flows from financing activities:

-

-

Net increase (decrease) in cash

20,696

(5,030)

Cash, beginning of period

1,295,901

1,311,002

Cash, end of period

$

1,316,597

1,305,972

The accompanying notes are an integral part of these financial statements

6




ALLIED RESOURCES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

March 31, 2012

Note 1 – Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared by management in

accordance with the instructions in Form 10-Q and, therefore, do not include all information and

footnotes required by generally accepted accounting principles and should, therefore, be read in

conjunction with the Company’s Form 10-K for the year ended December 31, 2011, filed with the

Securities and Exchange Commission. These statements do include all normal recurring adjustments

which the Company believes necessary for a fair presentation of the statements. The interim operations

are not necessarily indicative of the results to be expected for the full year ended December 31, 2012.

Note 2 – Additional Footnotes Included By Reference

There have been no material changes in the information disclosed in the notes to the financial statements

included in the Company’s Form 10-K for the year ended December 31, 2011, filed with the Securities

and Exchange Commission. Therefore, those footnotes are included herein by reference.

Note 3 – Subsequent Events

The Company evaluated its March 31, 2012 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.

7




ITEM  2.

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 quarterly 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 report. Our fiscal year end is December 31. All

information presented herein is based on the three and nine month periods ended March 31, 2012.

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.

Discussion and Analysis

General

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

initiate 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,

Allied 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.

8




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 a significant reduction in revenue.

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. 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%.

Texas Well Information

Allied owns varying interests in a total of 11 wells in Texas on four leases managed by independent

operators and an interest in a pipeline gathering system. 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 2.68% to 12.75%.

Over the three months ended March 31, 2012 two of our natural gas wells in Edwards County, Texas

were plugged and abandoned due to declining production that resulted in uneconomic commercial

recovery from these wells.

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 decrease in natural gas prices has done little to increase the number of opportunities available to us

due to our relatively limited cash position and the uncertainty associated with natural gas prices in the

future. We do however continue to seek out prospective oil and gas properties that meet our acquisition

criteria for a price that is consistent with competing forecasts for energy prices going forward into an

unsettled market.

9




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 the

Marcellus shale 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 twelve to eighteen months.

Results of Operations

During the period from January 1, 2012 through March 31, 2012, 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 impact its own ability to realize net profit.

For the fiscal quarter ended March 31, 2012 Allied realized a net loss. Allied believes that the immediate

key to its ability to return to profitability is that oil and gas prices rise and production increases.

Meanwhile, general and administrative expenses and production costs are constantly evaluated to guard

against increases while we continue to seek out revenue producing acquisitions. Should oil and gas prices

rise, production increase and expenses remain relatively consistent, Allied believes that it will return to

operate at a net profit in future periods.

THREE MONTHS ENDED MARCH  31

2012

2011

CHANGE  #     CHANGE  %

AVERAGE  DAILY PRODUC TION

Oil (bbls/day)

3

8

(5)

-63%

Natural gas (mcf/day)

333

253

80

32%

Barrels of oil equivalent (boe/day)

59

50

8

17%

PROFITABILITY

Petroleum and natural gas revenue

$

120,780     $

157,188

(36,480)

-23%

Net Revenue

120,780

157,188

(36,480)

-23%

Production and operating costs

75,652

93,473

(17,821)

-19%

Field netback

45,056

63,715

(18,659)

-29%

G&A

72,447

74,911

(2,464)

-3%

Net cash flow from operations

(27,391)

(11,196)

(16,195)

145%

Depletion, depreciation and other charges

24,490

22,892

1,598

7%

Future income taxes

-

-

-

0%

Net loss from operations

$

(51,881)     $

(34,088)

(17,793)

52%

PROFITABILITY PER  BOE

Oil and gas revenue (average selling price)

22.67

34.81

(12.14)

-35%

Production and operating costs

14.21

20.70

(6.49)

-31%

Field netback ($/boe)

8.46

14.11

(5.65)

-40%

Net loss ($/boe)

(9.75)

(7.55)

(2.20)

29%

Cash flow from operations ($/boe)

(5.15)

(2.48)

(2.67)

107%

10




Revenue

Revenue for the three month period ended March 31, 2012 decreased to $120,708 from $157,188 for the

comparable period ended March 31, 2011, a decrease of 23%. The revenue decrease over the comparable

three month periods is due to a drop in oil production as the result of the work-over of certain wells,

depletion of oil reserves, the plugging and abandonment of two natural gas producing wells and the

continuing decline in natural gas prices. Allied believes that revenue will continue to decline unless oil

production can be increased, either by acquisition or work-over of existing wells and natural gas prices

rise.

Net Losses

Net losses for the three month period ended March 31, 2012 were $51,043 as compared to net losses of

$22,663 for the comparable period ended March 31, 2011, an increase of 125%. The increase in net losses

over the comparative three month periods can be primarily attributed to the decrease in revenues. Allied

expects net losses to continue to increase unless revenues increase.

Expenses

General and administrative expenses for the three month period ended March 31, 2012 decreased to

$72,447 from $74,911 for the comparable period ended March 31, 2011, a decrease of 3%. The decrease

in general administrative expenses over the comparable three month periods can be primarily attributed to

operating efficiencies. Allied expects that general and administrative expenses will remain relatively

consistent in future periods.

Depletion expenses for the three month periods ended March 31, 2012, and March 31, 2011 were $24,490

and $22,892 respectively. Depletion expenses will continue to increase in relation to the aging of existing

oil and gas assets.

Production costs for the three month periods ended March 31, 2012, and March 31, 2011 were $75,652

and $93,473 respectively, a decrease of 19%. Production costs include the cost of maintaining the wells,

severance taxes, miscellaneous expenses for soap, solvent, gasoline or electricity and expenses such as

those incurred in swabbing, dozer work or rig time. The decrease in production costs over the current

three month periods can be attributed to declining production. Allied expects that production costs will

continue to decrease over future periods as our existing wells age and energy production drops.

Income Tax Expense

As of December 31, 2011 Allied has a net operating loss (NOL) carry forwards of approximately

$2,219,000. 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, 2011 a valuation allowance was recorded against this net operating loss carried

forward.

Impact of Inflation

Allied believes that inflation has had an effect on operations over the past three years in connection with

production costs. Allied believes that it can offset inflationary increases in production costs by increasing

revenue and improving operating efficiencies.

11




Capital Expenditures

Allied made no capital expenditures on property or equipment for the three months ended March 31, 2012

or 2011.

Liquidity and Capital Resources

Allied had a working capital surplus of $1,332,833 as of March 31, 2012 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 over

the next twelve months.

Current assets as of March 31, 2012 were $1,377,736 which consisted of $1,316,597 in cash and $61,139

in accounts receivable. Total assets were $2,858,691 which consisted of current assets, proven oil and gas

properties of $776,254 and deposits of $704,701.

Current liabilities as of March 31, 2012 were $44,903 which consisted of accounts payable. Total

liabilities were $240,682 which consisted of current liabilities and an asset retirement obligation of

$195,779.

Stockholders’ equity as of March 31, 2012 was $2,618,009.

Cash flow provided by operations for the three month period ended March 31, 2012 was $20,696 as

compared to cash flow used in operations of $5,030 for the comparable period ended March 31, 2011.

The change to cash flow provided by operations in the current three month period can be attributed to the

increase in accounts payable and the decrease in accounts receivable. Allied expects to use cash flow in

operations until net losses can be transitioned to net income.

Cash flow used in investing activities for the three month periods ended March 31, 2012 and March 31,

2011 was $0. Allied expects to use cash flow in investing activities over future periods as the it evaluates

existing wells, identifies exploration opportunities and considers additional acquisitions.

Cash flow from financing activities for the three month periods ended March 31, 2012 and March 31,

2011 was $0. Allied does not expect to realize cash flow from financing activities in the near term.

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 on the terms and

conditions set forth therein. As of March 31, 2012, 600,000 options have been granted of which 420,000

had vested as of December 31, 2011.

Allied has no lines of credit or other bank financing arrangements in place.

Allied had no commitments for future capital expenditures that were material at March 31, 2012.

Allied has no defined benefit plan or contractual commitment with any of its officers or directors except

each members participation in our stock option plan and a consulting agreement with its sole executive

officer that provides for a monthly fee and participation in our 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.

12




Allied does not expect to pay cash dividends in the foreseeable future.

Off Balance Sheet Arrangements

As of March 31, 2012, 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 are 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, with the exception of historical facts, are forward looking

statements within the meaning of Section 27A of the Securities Act. We are ineligible to rely on the safe-

harbor provision of the Private Litigation Reform Act of 1995 for forward looking statements made in

this current report. 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;

    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 that is required by law.

Stock-Based Compensation

Allied has adopted Accounting Standards Codification Topic (“ASC”) 718 Share-Based Payment, 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.

Allied accounts 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.

13




Critical Accounting Policies and Estimates

Accounting for Oil and Gas Property Costs. 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, 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.

Critical Accounting Policies

In Note 1 to the audited financial statements for the years ended December 31, 2011 and 2010, included

in our Form 10-K, Allied discusses those accounting policies that are considered to be significant in

determining the results of operations and its financial position.  Allied believes that the accounting

principles utilized by it conform to accounting principles generally accepted in the United States.

The preparation of financial statements requires Allied’s management to make significant estimates and

judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature,

these judgments are subject to an inherent degree of uncertainty. On an on-going basis, Allied evaluates

estimates. Allied bases its estimates on historical experience and other facts and circumstances that are

believed to be reasonable, and the results form the basis for making judgments about the carrying value of

assets and liabilities.  The actual results may differ from these estimates under different assumptions or

conditions.

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards

Update (ASU) No. 2011-11, “Disclosures about Offsetting Assets and Liabilities”, which will require

disclosures for entities with financial instruments and derivatives that are either offset on the balance

sheet in accordance with ASC 210-20-45 or ASC 815-10-45, or are subject to a master netting

arrangement. ASU No. 2011-11 is effective for interim and annual periods beginning on or after January

1, 2013. Allied is currently evaluating the impact of the adoption of ASU 2011-11 on its financial

position, results of operations, and disclosures.

14




Other pronouncements issued by the FASB or other authoritative accounting standards groups with future

effective dates are either not applicable or are not expected to be significant to the financial statements of

Allied.

ITEM 3.

QUANTITATIVE   AND   QUALITATIVE   DISCLOSURES   ABOUT   MARKET

RISK

Not required.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this report on Form 10-Q, an evaluation was carried out by Allied’s

management, with the participation of the chief executive officer and 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”)). 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 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.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of

the Exchange Act) during the period ended March 31, 2012, that materially affected, or are reasonably

likely to materially affect, Allied’s internal control over financial reporting.

15




PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 1A.

RISK FACTORS

Our future operating results are highly uncertain. Before deciding to invest in us or to maintain or increase

your investment, you should carefully consider the risks described below, in addition to the other

information contained in this quarterly report. If any of these risks actually occur, our business, financial

condition or results of operations could be seriously harmed. In that event, the market price for our

common stock could decline and you might lose all or part of your investment.

Risks Related to Allied’s Business

We have a history of significant operating losses, which losses may reoccur in the future.

Since our inception in 1979, our expenses have often exceeded our income, resulting in losses and an

accumulated deficit of $7,204,771 at December 31, 2011 which had increased to $7,255,814 at March 31,

2012. We recorded a net loss of $51,043 for the three month period ended March 31, 2012 and may

continue to realize net losses if revenues do not increase. Our expectation of profitability depends on

higher energy prices and increased production through exploration, development or acquisition. Allied’s

success in this continued endeavor can in no way be assured.

Oil and natural gas prices are volatile. Any substantial decrease in prices would adversely affect our

financial results.

Allied’s future financial condition, results of operations and the carrying value of our oil and natural gas

properties depend primarily upon the prices we receive for oil and natural gas production. Oil and natural

gas prices historically have been volatile and are likely to continue to be volatile in the future. Allied’s

cash flow from operations is highly dependent on the prices we receive for oil and natural gas. This price

volatility also affects the amount of Allied’s cash flow available for capital expenditures and our ability to

borrow money or raise additional capital. The prices for oil and natural gas are subject to a variety of

additional factors that are beyond our control. These factors include:

    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, including the Middle East; and

    worldwide economic conditions.

16




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 continue to exceed revenue.

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.

17




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.

Risks Related to the Company’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.

We incur significant expenses as a result of the Sarbanes-Oxley Act of 2002, which expenses may

continue to negatively impact our financial performance.

We incur significant legal, accounting and other expenses as a result of the Sarbanes-Oxley Act of 2002,

as well as related rules implemented by the Commission, which control the corporate governance

practices of public companies. Compliance with these laws, rules and regulations, including compliance

with Section 404 of the Sarbanes-Oxley Act of 2002, as discussed in the following risk factor, has

substantially increased our expenses, including legal and accounting costs, and made some activities more

time-consuming and costly.

18




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.

19




Allied’s common stock is currently deemed to be “penny stock”, which makes it more difficult for

investors to sell their shares.

Allied’s common stock is and will be 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

Allied’s securities. If Allied’s securities are subject to the penny stock rules, investors will find it more

difficult to dispose of Allied’s securities.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS ON SENIOR SECURITIES

None.

ITEM 4.

(REMOVED AND RESERVED)

Removed and reserved.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page

22 of this Form 10-Q, and are incorporated herein by this reference.

20




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this

report to be signed on its behalf by the undersigned, thereunto duly authorized.

Allied Resources, Inc.

Date

/s/ Ruairidh Campbell

May 15, 2012

Ruairidh Campbell

Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Director

21




INDEX TO EXHIBITS

Exhibit

Description

3(i) *

Articles of Incorporation dated February 12, 2002 (incorporated by reference to the

Form 10-SB/A filed on April 21, 2003).

3(ii) *

Bylaws (incorporated by reference to the Form 10-SB/A filed on April 21, 2003).

10(i) *

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(ii) *

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(iii) *

Form Gas Purchase Agreement (incorporated by reference to the Form 10SB/A filed

on April 21, 2003).

10(iv)*

Consulting Agreement between Allied and Ruairidh Campbell dated July 1, 2008

(incorporated by reference to the Form 10-Q filed on November 14, 2008).

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*

Allied Resources, Inc. 2008 Stock Option Plan (incorporated by reference to the

Form 10-Q filed on November 14, 2008).

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.

22



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