XOTC:BERX Annual Report 10-K Filing - 3/31/2012

Effective Date 3/31/2012

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

 

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2012

 

OR

¨ TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

 

Commission File Number 000-50541

 

Bering Exploration, Inc.

(Exact name of small business issuer as specified in its charter)

 

Nevada   88-0507007

(State or other jurisdiction of

incorporation or organization)

  (IRS Employer Identification Number)

 

710 N. Post Oak Road, Suite 410, Houston, TX77024

 (Address of principal executive offices)

 (713) 780-0806

(Issuer's telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:            None

 

Securities registered pursuant to Section 12(g) of the Act:  

$0.001 Par Value Common Stock

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ¨    No x

 

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  ¨   No x

 

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   x      No ¨

 

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  x   No   ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) 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.   Yes  ¨    No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No   x

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, December 31, 2011, was $31,575,821 using 28,705,292 shares at $1.10 per share.  For purposes of this computation, all executive officers, directors and 10% shareholders were deemed affiliates. Such a determination should not be construed as an admission that such 10% shareholders are affiliates.

 

As of July 16, 2012, there were 11,044,081 shares of common stock of the issuer issued and outstanding.

 

 
 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

INDEX TO FORM 10-K

March 31, 2012

 

            Page No.
Part I   Item 1.   Description of Business   4
    Item 1A.   Risk Factors   9
    Item 1B.   Unresolved Staff Comments   13
    Item 2.   Properties   13
    Item 3.   Legal Proceedings   13
    Item 4.   Mine Safety Disclosures   13
             
Part II   Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   14
    Item 6.   Selected Financial Data   14
    Item 7.   Management’s Discussion and Analysis of Financial Condition or Plan of Operations   15
    Item 7A.   Quantitative and Qualitative Disclosures about Market Risk   18
    Item 8.   Financial Statements and Supplementary Data   20
    Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   21
    Item 9A.   Controls and Procedures   21
    Item 9B.   Other Information   22
             
Part III   Item 10.   Directors, Executive Officers, and Corporate Governance   23
    Item 11.   Executive Compensation   25
    Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   27
    Item 13.   Certain Relationships and Related Party Transactions, and Director Independence   28
    Item 14.   Principal Accountant Fees and Services   29
    Item 15.   Exhibits and Financial Statement Schedules   29
             
        Signatures   30
        Exhibit Index    

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Form 10-K contains "forward-looking" statements including statements regarding our expectations of our future operations. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate," or "continue" or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include, but are not limited to, economic conditions generally and in the industries in which we may participate and competition within our chosen industry,. In light of these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to announce publicly revisions we make to these forward-looking statements to reflect the effect of events or circumstances that may arise after the date of this report. All written and oral forward-looking statements made subsequent to the date of this report and attributable to us or persons acting on our behalf are expressly qualified in their entirety by this section.

 

DEFINITIONS

  

All defined terms under Rule 4-10(a) of Regulation S-X shall have their statutorily prescribed meanings when used in this report. As used in this document:

  

“3-D” means three-dimensional.

  

“B/d” means barrels of oil or natural gas liquids per day.

  

“Bbl” or “Bbls” means barrel or barrels of oil.

  

“Bcf” means billion cubic feet.

  

“Boe” means barrel of oil equivalent, determined by using the ratio of one Bbl of oil or NGLs to six Mcf of gas.

  

“Boe/d” means boe per day.

  

“Btu” means a British thermal unit, a measure of heating value, which is approximately equal to one Mcf.

  

“LNG” means liquefied natural gas.

  

“Mb/d” means Mbbls per day.

  

“Mbbls” means thousand barrels of oil.

  

“Mboe” means thousand boe.

  

“Mboe/d” means Mboe per day.

  

“Mcf” means thousand cubic feet of natural gas.

  

“Mcf/d” means Mcf per day.

  

“MMbbls” means million barrels of oil.

  

“MMboe” means million boe.

  

“MMBtu” means million Btu.

  

“MMBtu/d” means MMBtu per day.

  

“MMcf” means million cubic feet of natural gas.

  

“MMcf/d” means MMcf per day.

  

“NGL” or “NGLs” means natural gas liquids, which are expressed in barrels.

  

“NYMEX” means New York Mercantile Exchange.

  

“Oil” includes crude oil and condensate.

  

“PUD” means proved undeveloped.

  

“SEC” means United States Securities and Exchange Commission.

  

With respect to information relating to our working interest in wells or acreage, “net” oil and gas wells or acreage is determined by multiplying gross wells or acreage by our working interest therein. Unless otherwise specified, all references to wells and acres are gross.

 

3
 

 

PART I

 

ITEMS 1 AND 2.              DESCRIPTION OF BUSINESS AND PROPERTIES

 

Organization

 

Bering Exploration Inc., (formerly China Development Group, Inc. (CDG), formerly, Oncolin Therapeutics, Inc. (Oncolin), formerly, Edgeline Holdings, Inc. (Edgeline), formerly, Dragon Gold Resources, Inc., (Dragon Gold)) was incorporated in Nevada on December 13, 2000 under the name “Folix Technologies, Inc.”  Effective June 14, 2004, the Company changed its name to Dragon Gold Resources, Inc.  The Company's principal business was the development of a Linux based application server and thin client computing systems.  During the year ended March 31, 2005, the Company entered the mineral resource exploration business through the acquisition of a 100% interest in Dragon Minerals Holdings Inc. (“DMHI”), a private British Virgin Island company.  DMHI is involved in mineral property acquisition and exploration in China.  On May 5, 2006, the Company and DMHI terminated their agreement dated July 14, 2004.  On June 19, 2007, the shareholders approved a change in the Company’s name to Edgeline Holdings, Inc. and on March 7, 2008 to Oncolin Therapeutics, Inc.

 

On May 18, 2010, the Board of Directors and the Majority Shareholders approved an Amendment to the Company’s Amended and Restated Articles of Incorporation to change the Company’s corporate name to China Development Group, Inc.(the “June Name Change”) and a 1-for-20 reverse split of the issued and outstanding Common Stock (the “Reverse Split”).  

 

On July 31, 2010, the Board of Directors and the Majority Shareholders approved an Amendment to the Company’s Amended and Restated Articles of Incorporation to change the Company’s corporate name to Bering Exploration, Inc.  This name change and the Reverse Split became effective on September 9, 2010.

 

On January 10, 2012, the shareholders of the Company voted to approve a resolution authorizing the Board of Directors of the Company to effect one or a series of reverse stock splits of the Company’s common stock at a ratio of not less than 1-for-2 and not greater than 1-for-12, with the exact ratio to be set within such a range at the discretion of the Board of Directors. On February 12, 2012, the Board of Directors approved a 1-for-10 reverse stock split, which became effective on February 27, 2012. The Company has retroactively applied this reverse stock split to its financial reporting for the years ended March 31, 2012 and 2011.

 

As of March 31, 2012, Bering Exploration, Inc. had two wholly-owned subsidiaries as follows:

 

·Secure Voice Communications, Inc. (“Secure Voice”) – This subsidiary was incorporated in the State of Texas on May 9, 2007, with the initial primary focus being the development and readying for market a SIP (Session Initiation Protocol) based approach to defending voice traffic and voice packets against deliberate attacks such as DoS (Denial of Service) developing information.

 

·Bering Operations, Inc. (formerly Bering Exploration (Texas), Inc.), (formerly New Enersource, Inc.).  This subsidiary was incorporated in the State of Texas on August 28, 2007, with the primary purpose to operate oil and gas properties.

 

Intertech Bio Corporation (“Intertech Bio”) was incorporated in the State of Texas on August 8, 2007.  Its primary purpose was to focus on developing products to treat cancer, infectious diseases and other medical conditions associated with compromised immune systems. On February 23, 2009, the Company distributed 75% of their ownership in Intertech Bio in exchange for the assumption of certain liabilities and future obligations associated with the ongoing operations of Intertech Bio.  Bering retains an approximate 25% interest in Intertech Bio and is not be responsible for future costs associated with Intertech Bio.

 

Business Strategy

 

The Company is focused on investing in and acquiring oil and gas reserves within the United States.  The Company’s strategy consists of the following key elements:

 

· Acquire onshore domestic production and drilling opportunities;

· Initiate development drilling program;

· Initial focus on drilling prospect along Gulf Coast;

· Exploit Management Team’s experience in this region.

 

Geographic Area Overviews

 

We currently have exploration and production interests the United States.

 

The following table sets out a brief comparative summary of certain key 2012 data for our operating area. Additional data and discussion is provided in Part II, Item 7 of this Form 10-K.

  

                   Percentage   2012   2012 Gross 
       Percentage       3/31/12   of Total   Gross   New 
   2012   of Total   2012   Estimated   Estimated   New   Productive 
   Net   2012   Production   Proved   Proved   Wells   Wells 
   Production   Production   Revenue   Reserves   Reserves   Drilled   Drilled 
   (In Bbl)       (In thousands)   (In Mboe)             
                                    
United States   766.3    100%  $79    24.133    100%   3    2 

 

A description of the Companies oil and gas properties follows.

 

Central Texas Project,

Caldwell County, Texas

 

In March 2011, the Company leased the mineral rights on 1,282.974 gross acres targeting the Eagle Ford shale play in Central Texas.  This prospect has an aeromagnetic survey and the company expects to utilize it and other advanced techniques to maximize oil recovery from the Eagle Ford, Austin Chalk, Buda and Edwards zones. Bering will retain a 100% working interest and an 81% net revenue interest with a two year lease term.

 

The Eagle Ford Shale is a shale rock formation located in multiple counties in South Texas. It underlies the Austin Chalk and the Edwards limestone formation is just below it. It is considered by geologists to be the source rock”, or the original source of hydrocarbons (oil and gas) that are now found in the Austin Chalk above it.

 

4
 

 

Chicas Locas Field,

Victoria County, Texas

 

In June 2011, the Company entered into a joint development agreement to co-develop an approximately 640 acre tract in Victory County, Texas.  The Company will retain a 50% working interest in this prospect.  Our net revenue interest in this field is 75%. In August 2011, the first well developed in this area began producing oil.  The well is currently producing 4 bbl of oil per day. The operator of the well has determined that the well is producing more natural gas than oil and installed a gas pipeline to connect the well to a commercial pipeline. In April 2012, the pipeline was completed and we began producing natural gas accordingly. Our share of net production on this well was $43,203 during the fiscal year ended March 31, 2012.

 

Singer Prospect

Beauregard Parish, Louisiana

 

In August and October 2011, the Company leased the mineral rights on 320 gross acres in Singer, Louisiana.  Initial geological assessment reveals four sands in zones from 9,600’ to 10,600’ with four potential drilling locations.  Bering retains a 90% working interest in the prospect and a 75% net revenue interest.

  

Ashland Prospect

Concordia Parish, Louisiana

 

In July 2011, the Company purchased a 10% working interest in the Ashland prospect in Concordia Parish, Louisiana.  Our net revenue interest in this well is 75%. The prospect contains 1,200 acres.  Preliminary geological analysis reveals two sands between 6,900’ and 7,100’.   In September 2011, a well was successfully drilled on the prospect.  The well was completed in November 2011 and is producing approximately 26 gross barrels of oil per day. In November 2011, a second well was drilled on this prospect. It was not commercially viable and was converted into a salt water disposal well. This well will be used to off load water produced in the first well and allow for production to increase on the first well. This work is expected to be completed and permitted in June 2012. A third well was drilled in May 2012 and is in the process of being completed. Our share of net production on this well was $35,882 during the fiscal year ended March 31, 2012.

 

Gohlke Project

Texas Gulf Coast

 

In October 2011, the Company leased the mineral rights to 10,000 feet on 272 gross acres in South Texas.  The tract has 12 potential drilling locations.  Preliminary geological assessment reveals 3 sands at depths of 3,800’, 5,500’ and 8,100’. Bering currently holds a 95% working interest and a 76.5% net revenue interest.

 

North Edna Project

In May 2012, the Company acquired a 74% net revenue interest and a 100% of working interests in the North Edna Field located in Jefferson Davis Parish, Louisiana (“N. Edna”). N. Edna consists of 384.84 gross acres and the Lejeune No. 1 oil and gas well (Lejeune 1). The Lejeune 1 is producing approximately 11 B/d of oil from the Hawthorne at a depth of 8,350’. There are 3 new potential wells located on this lease.

 

South Texas Project

Texas Gulf Coast

 

In September 2010, the Company obtained a 5% back in after payout working interest in a single well being drilled in South Texas, along the Texas Gulf Coast. The well was successfully completed and is producing natural gas.  The operator of the well estimates that payout will be achieved in twelve months, at which time the Company’s net working interest will be established.  Until such time as payout is achieved, the Company has no rights to the production from this well and accordingly, has not recognized any oil and gas revenues or reserves from this well.

 

We are currently evaluating additional mineral rights and drilling opportunities to acquire.

 

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Drilling Statistics 

 

In FYE 2012 we participated in drilling 3 gross wells, with 2 (67 percent) completed as producers. The non-producing well has been converted into a salt water waste disposal well that will be utilized to reduce the operating costs on the productive well in the same field.

 

The following table shows the results of the oil and gas wells drilled and completed during the year ended March 31, 2012: 

 

   Net Exploratory   Net Development   Total Net Wells 
   Productive   Dry   Total   Productive   Dry   Total   Productive   Dry   Total 
                                              
2012                                             
United States   -    -    -    2    1    3    2    1    3 

  

Productive Oil and Gas Wells 

 

The number of productive non-operated oil and gas wells in which we had an interest as of March 31, 2012, is set forth below: 

 

   Gas   Oil   Total 
   Gross   Net   Gross   Net   Gross   Net 
                               
United States   1    0.500    1    0.075    2    0.575 

 

Production, Pricing and Lease Operating Cost Data 

 

The following table describes, as of March 31, 2012, oil, natural gas liquids (NGLs) and gas production, average lease operating expenses per boe (including transportation costs but excluding severance and other taxes) and average sales prices for our operations: 

 

       Average Lease     
   Production   Operating Cost per   Average Sales Price 
   Oil   NGLs   Gas   Boe   Oil   NGLs   Gas 
   (bbls)   (bbls)   (Mcf)       (Per bbl)   (Per bbl)   (Per Mcf) 
                                    
United States   766    -    -   $4.60   $103.21   $-   $- 

  

Gross and Net Undeveloped and Developed Acreage 

 

The following table sets out our gross and net acreage position: 

 

  Undeveloped Acreage    Developed Acreage  
  Net Acres   Gross Acres   Gross Acres   Net Acres 
                 
United States   1,876    1,480    1,840    410 

 

As of March 31, 2012, we have 1,271 and 208 net acres scheduled to expire by March 31, 2013 and 2014, respectively, if production is not established or we take no other action to extend the terms. We plan to continue the terms of many of these licenses and concession areas through operational or administrative actions and do not expect a significant portion of our net acreage position to expire before such actions occur. 

 

As of March 31, 2012, none of our net undeveloped acreage was held by production. 

 

Estimated Proved Reserves and Future Net Cash Flows 

 

In January 2009 the SEC issued Release No. 33-8995, “Modernization of Oil and Gas Reporting” (Release 33-8995), amending oil and gas reporting requirements under Rule 4-10 of Regulation S-X and Industry Guide 2 in Regulation S-K and bringing full-cost accounting rules into alignment with the revised disclosure requirements. The new rules include changes to the pricing used to estimate reserves, the option to disclose probable and possible reserves, revised definitions for proved reserves, additional disclosures with respect to undeveloped reserves, and other new or revised definitions and disclosures. In January 2010 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-03, “Oil and Gas Reserve Estimation and Disclosures” (ASU 2010-03), which amends Accounting Standards Codification (ASC) Topic 932, “Extractive Industries — Oil and Gas” to align the guidance with the changes made by the SEC. The Company adopted Release 33-8995 and the amendments to ASC Topic 932 resulting from ASU 2010-03 (collectively, the Modernization Rules) effective July 2010, when the Company began acquiring oil and gas properties.

 

6
 

 

Proved oil and gas reserves are the estimated quantities of natural gas, crude oil, condensate and NGL’s that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing conditions, operating conditions, and government regulations. The Company reports all estimated proved reserves held under production-sharing arrangements utilizing the “economic interest” method, which excludes the host country’s share of reserves. Reserve estimates are considered proved if they are economically producible and are supported by either actual production or conclusive formation tests. Estimated reserves that can be produced economically through application of improved recovery techniques are included in the “proved” classification when successful testing by a pilot project or the operation of an active, improved recovery program using reliable technology establishes the reasonable certainty for the engineering analysis on which the project or program is based. Economically producible means a resource which generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation. Reasonable certainty means a high degree of confidence that the quantities will be recovered. Reliable technology is a grouping of one or more technologies (including computational methods) that has been field-tested and has been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation. Estimated proved developed oil and gas reserves can be expected to be recovered through existing wells with existing equipment and operating methods. 

 

Proved undeveloped (PUD) reserves include those reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Undeveloped reserves may be classified as proved reserves on undrilled acreage directly offsetting development areas that are reasonably certain of production when drilled, or where reliable technology provides reasonable certainty of economic producibility. Undrilled locations may be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless specific circumstances justify a longer time period.

 

The following table shows proved oil, NGL and gas reserves as of March 31, 2012, based on average commodity prices in effect on the first day of each month in FYE 2012, held flat for the life of the production, except where future oil and gas sales are covered by physical contract terms.

 

   Oil   Gas   Total 
   (Mbbl)   (MMcf)   (Mboe) 
                
Proved Developed   8    96    24 
TOTAL PROVED   8    96    24 

  

As of March 31, 2012, Bering had total estimated proved reserves of 8,160 net bbls of crude oil, condensate and NGLs and 101 net Mmcf of natural gas. Combined, these total estimated proved reserves are the energy equivalent of 24,133 barrels of oil. Bering has no Proved Undeveloped Reserves and has elected not to disclose probable or possible reserves in this filing.

  

The Company’s estimates of proved reserves, proved developed reserves and proved undeveloped reserves as of March 31, 2012, changes in estimated proved reserves during the last three years, and estimates of future net cash flows from proved reserves are contained in Note 13 — Supplemental Oil and Gas Disclosures in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Form 10-K. Estimated future net cash flows as of March 31, 2012, were calculated using a discount rate of 10 percent per annum, end of period costs, and an unweighted arithmetic average of commodity prices in effect on the first day of each month in FYE 2012, held flat for the life of the production, except where prices are defined by contractual arrangements. 

 

Preparation of Oil and Gas Reserve Information 

 

Bering emphasizes that its reported reserves are reasonably certain estimates which, by their very nature, are subject to revision. As additional geoscience, engineering and economic data are obtained, proved reserve estimates are much more likely to increase or remain constant than to decrease. These estimates are reviewed throughout the year and revised either upward or downward, as warranted. 

 

Bering’s proved reserves are estimated at the property level and compiled for reporting purposes by an independent third-party reservoir engineer. The independent reservoir engineer interacted with engineering and geoscience personnel and with accounting personnel to obtain the necessary data for projecting future production, costs, net revenues and ultimate recoverable reserves. All relevant data is compiled in a computer database application, to which only authorized personnel are given security access rights consistent with their assigned job function. Reserves are reviewed internally with senior management and presented to Bering’s Board of Directors in summary form on a semi-annual basis. Annually, each property is reviewed in detail by our operations manager to ensure forecasts of operating expenses, netback prices, production trends and development timing are reasonable. 

 

Bering’s independent reservoir engineer, Paul J. Szatkowski, of the firm DeGolyer and MacNaughton, is the person primarily responsible for preparing our reserve estimates. Mr. Szatkowski is a graduate of Texas A&M University with a Bachelor of Science degree in Petroleum Engineering. He has over 37 years of industry experience in reservoir engineering. He is a member of the Society of Petroleum Engineers and is a Registered Professional Engineer in the state of Texas.

 

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The estimate of reserves disclosed in this annual report on Form 10-K is prepared by an independent third-party, DeGolyer and MacNaughton. We have filed DeGolyer and MacNaughton’s independent report as an exhibit to this Form 10-K. 

 

DeGolyer and MacNaughton opined that the overall proved reserves for the reviewed properties as estimated by the Company are, in the aggregate, reasonable, prepared in accordance with generally accepted petroleum engineering and evaluation principles and conform to the SEC’s definition of proved reserves as set forth in Rule 210.4-10(a) of Regulation S-X.

 

INTELLECTUAL PROPERTY / RESEARCH AND DEVELOPMENT

 

We have no intellectual property such as patents or trademarks. Additionally, we have no royalty agreements or labor contracts.  We have not incurred any research or development expenditures since our inception on November 26, 2007.

 

Employees

 

We currently have one full time and one part time consultant.  In order to implement our business plan, we will be required to employ additional qualified technical and administrative employees or retain the services of qualified consultants with the technical expertise to evaluate the technologies which we are seeking.

 

Competition

 

The oil and gas industry is intensely competitive.  We compete with numerous individuals and companies, including many major oil and gas companies, which have substantially greater technical, financial, and operational resources and staffs.  Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations, and necessary drilling equipment, as well as for access to funds

 

Insurance

 

We currently do not have any insurance coverage to cover losses or risks incurred in the ordinary course of business.

 

Dependence on Major Customers

 

We currently have two customers.

 

Office Space

 

The Company’s current headquarters are located in office space leased from our Chief Financial Officer and are located at 710 N. Post Oak Road, Suite 410, Houston, Texas 77024.

 

8
 

 

Item IA. Risk Factors

 

The Company’s business, financial condition and results of operations could be materially adversely affected if any of these risks materialized, which could result in the trading price of our common stock to decline.

 

Risks Related to Our Business and Our Marketplace

 

There is no assurance that we will operate profitably or will generate positive cash flow in the future.

 

If we cannot generate positive cash flow in the future, or raise sufficient financing to continue our normal operations, then we may be forced to scale down or even close our operations.  In particular, additional capital may be required in the event that:

 

drilling and completion costs for further wells increase beyond our expectations; or

 

we encounter greater costs associated with general and administrative expenses or offering costs.

 

The occurrence of any of the aforementioned events could adversely affect our ability to meet our business plan.

 

We will depend almost exclusively on outside capital to pay for the continued exploration and development of our properties. Such outside capital may include the sale of additional stock and/or commercial borrowing. Capital may not continue to be available if necessary to meet these continuing exploration and development costs or, if capital is available, it may not be on terms acceptable to us. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

 

If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business and as a result may be required to scale back or cease operations for our business, the result of which would be that our stockholders would lose some or all of their investment

 

A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations.

 

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital.  Because our operations have been primarily financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our continued operations.  Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to develop new projects and continue our current operations.  If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.

 

The Company’s stock price is highly volatile.

 

The market price of the Company's common stock has fluctuated and may continue to fluctuate.  These fluctuations may be exaggerated since the trading volume of its common stock is volatile.  These fluctuations may or may not be based upon any business or operating results.  Its common stock may experience similar or even more dramatic price and volume fluctuations in the future.

 

If we are not successful in continuing to grow our business, then we may have to scale back or even cease our ongoing business operations.

 

Our success is significantly dependent on a successful acquisition, drilling, completion, and production program.  We may be unable to locate recoverable reserves or operate on a profitable basis.  If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in us.

 

9
 

 

Trading of our stock may be restricted by the SEC’s “Penny Stock” regulations, which may limit a stockholder’s ability to buy and sell our stock.

 

The U.S. Securities and Exchange Commission has adopted regulations that generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.  Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers or “accredited investors.”  The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with his or her spouse.  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market.  The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account.  The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation.  In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.  These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules.  Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities.  We believe that the penny stock rules may discourage investor interest in and limit the marketability of, our common stock.

 

NASD sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rules described above, the NASD has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.  Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information.  Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers.  The NASD requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

Trading in our common shares on the OTC QB has been volatile, making it more difficult for our stockholders to sell their shares or liquidate their investments with predictability.

 

Our common shares are currently quoted on the OTC QB.  The trading price of our common shares has been subject to wide fluctuations.  Trading prices of our common shares may fluctuate in response to a number of factors, many of which will be beyond our control.  The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with no current business operation.  There can be no assurance that trading prices and price earnings ratios previously experienced by our common shares will be matched or maintained.  These broad market and industry factors may adversely affect the market price of our common shares, regardless of our operating performance.

 

In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted.  Such litigation, if instituted, could result in substantial costs for us and a diversion of management’s attention and resources.

 

As substantially all of our properties are in the exploration stage, there can be no assurance that we will establish commercial discoveries on our properties.

 

Exploration for economic reserves of oil and gas is subject to a number of risk factors.  Few properties that are explored are ultimately developed into producing oil and/or gas wells.  Our properties are in the exploration stage only and are without proven reserves of oil and gas.  We may not establish commercial discoveries on any of our properties

 

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The potential profitability of oil and gas ventures depends upon factors beyond our control.

 

The potential profitability of oil and gas properties is dependent upon many factors beyond our control.  For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments.  Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project.  These changes and events will likely materially affect our financial performance.

 

Adverse weather conditions can also hinder drilling operations.  A productive well may become uneconomic in the event water or other deleterious substances are encountered that impair or prevent the production of oil and/or gas from the well.  In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances.  The marketability of oil and gas that may be acquired or discovered will be affected by numerous factors beyond our control.  These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production, and environmental protection.  These factors cannot be accurately predicted and the combination of these factors may result in us not receiving an adequate return on invested capital.

 

Competition in the oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring properties or leases.

 

The oil and gas industry is intensely competitive.  We compete with numerous individuals and companies, including many major oil and gas companies that have substantially greater technical, financial, and operational resources and staffs.  Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations, and necessary drilling equipment, as well as for access to funds.  We cannot predict if the necessary funds can be raised or that any projected work will be completed.  Our budget anticipates our acquisition of additional acreage.  This acreage may not become available or, if it is available for leasing, we may not be successful in acquiring the leases.  There are other competitors that have operations in areas of potential interest to us and the presence of these competitors could adversely affect our ability to acquire additional leases.

 

The marketability of natural resources will be affected by numerous factors beyond our control, which may result in us not receiving an adequate return on invested capital to be profitable or viable.

 

The marketability of natural resources that may be acquired or discovered by us will be affected by numerous factors beyond our control.  These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, land tenure, land use, and governmental regulations, including regulations concerning the importing and exporting of oil and gas and environmental protection regulations.  The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.

 

Oil and gas operations are subject to comprehensive regulation, which may cause substantial delays or require capital outlays in excess of those anticipated, causing an adverse effect on us.

 

Oil and gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment.  Oil and gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment.  Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received.  Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities.  Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us.  Additionally, we may be subject to liability for pollution or other environmental damages that we may elect not to insure against due to prohibitive premium costs and other reasons.  To date, we have not been required to spend any material amount on compliance with environmental regulations.  However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.

 

Exploration and production activities are subject to certain environmental regulations, which may prevent or delay the commencement or continuance of our operations.

 

In general, our exploration and production activities are subject to certain federal, state, and local laws and regulations relating to environmental quality and pollution control.  Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation.  Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date.  Specifically, we are subject to legislation regarding emissions into the environment, water discharges, and storage and disposition of hazardous wastes.  In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities.  However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance.  Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry.

 

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Exploratory drilling involves many risks and we may become liable for pollution or other liabilities, which may have an adverse effect on our financial position.

 

Drilling operations generally involve a high degree of risk.  Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labor, and other risks are involved.  We may become subject to liability for pollution or hazards against which we cannot adequately insure or for which we may elect not to insure.  Incurring any such liability may have a material adverse effect on our financial position and operations.

 

Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.

 

The laws, regulations, policies, or current administrative practices of any government body, organization, or regulatory agency in the United States or any other jurisdiction may be changed, applied, or interpreted in a manner that will fundamentally alter the ability of our company to carry on our business.  The actions, policies, or regulations, or changes thereto, of any government body, regulatory agency, or special interest groups may have a detrimental effect on us.  Any or all of these situations may have a negative impact on our ability to operate and/or our profitably.

 

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, or EPA, published its findings that emissions of carbon dioxide, or CO2 , methane, and other greenhouse gases, or GHGs, present an endangerment to public heath and the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth’s atmosphere and other climate changes.  These findings allow the EPA to adopt and implement regulations that would restrict emissions of GHGs under existing provisions of the Federal Clean Air Act.  The EPA has adopted two sets of regulations under the existing Clean Air Act that would require a reduction in emissions of GHGs from motor vehicles and could trigger permit review for GHG emissions from certain stationary sources.  In addition, in April 2010, the EPA proposed to expand its existing GHG reporting rule to include onshore oil and natural gas production, processing, transmission, storage, and distribution facilities.  If the proposed rule is finalized as proposed, reporting of GHG emissions from such facilities would be required on an annual basis, with reporting beginning in 2012 for emissions occurring in 2011.

 

Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.

 

Hydraulic fracturing is a process used by oil and natural gas exploration and production operators in the completion or re-working of certain oil and natural gas wells, whereby water, sand, and chemicals are injected under pressure into subsurface formations to stimulate natural gas and, to a lesser extent, oil production.  This process is typically regulated by state oil and natural gas agencies and has not been subject to Federal regulation.  However, due to concerns that hydraulic fracturing may adversely affect drinking water supplies, the EPA has commenced a study of the potential adverse effects that hydraulic fracturing may have on water quality and public health, and a committee of the U.S. House of Representatives has commenced its own investigation into hydraulic fracturing practices.  Additionally, legislation has been introduced in Congress to amend the Federal Safe Drinking Water Act to subject hydraulic fracturing processes to regulation under that Act and to require the disclosure of chemicals used by the oil and natural gas industry in the hydraulic fracturing process.  If enacted, such a provision could require hydraulic fracturing activities to meet permitting and financial assurance requirements, adhere to certain construction specifications, fulfill monitoring, reporting, and recordkeeping requirements, and meet plugging and abandonment requirements.

 

Additional capital may dilute current stockholders.

 

In order to provide capital for the operation of the Company’s business, it may enter into additional financing arrangements.  These arrangements may involve the issuance of new common stock, preferred stock that is convertible into common stock, debt securities that are convertible into common stock or warrants for the purchase of common stock.  Any of these items could result in a material increase in the number of shares of common stock outstanding which would in turn result in a dilution of the ownership interest of existing common shareholders.  In addition, these new securities could contain provisions, such as priorities on distributions and voting rights, which could affect the value of the Company’s existing common stock.

 

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A low market price may severely limit the potential market for the Company’s common stock.

 

The Company’s common stock is currently trading at a price below $5.00 per share, subjecting trading in the stock to certain SEC rules requiring additional disclosures by broker-dealers.  These rules generally apply to any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions (a “penny stock”).

 

The Company is unlikely to pay dividends on its common stock.

 

The Company does not anticipate paying any cash dividends on its common stock in the foreseeable future.  While its dividend policy will be based on its operating results and capital needs, the Company anticipates that all earnings, if any, will be retained to finance its future operations.

 

Our Auditor has issued a going concern opinion regarding the Company’s financial condition

 

In their audit reports for the years ending March 31, 2012 and 2011, our auditors have expressed an opinion that substantial doubt exists as to whether we can continue as an ongoing business. In addition, the financial statements do not contain any adjustments that may result from the uncertainty of our continuation as a going concern. We believe that if we do not raise sufficient additional capital within 12 months of the filing of our Annual Report on Form 10-K, we may be required to suspend or cease the implementation of our business plan.

 

ITEM 1B.UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 3.LEGAL PROCEEDINGS

 

The Company is not aware of any legal proceedings, pending or threatened, which it is a party to.  

 

ITEM 4.MINE SAFETY DISCLOSURES

 

Not applicable.

 

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PART II

 

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The Company’s Common Stock trades on the pink sheets under the symbol BERX.PK.  The following table sets forth the range of high and low bid prices for the last three fiscal years which represent the effect of a 1-for-10 reverse stock split which became effective on February 27, 2012.

 

Year 2012  High   Low 
Quarter ended March 31, 2012  $1.10   $0.23 
Quarter ended December 31, 2011  $2.50   $0.80 
Quarter ended September 30, 2011  $7.50   $0.80 
Quarter ended June 30, 2011  $14.30   $6.00 

 

Year 2011  High   Low 
Quarter ended March 31, 2011  $12.10   $4.20 
Quarter ended December 31, 2010  $8.50   $0.50 
Quarter ended September 30, 2010  $3.80   $0.26 
Quarter ended June 30, 2010  $0.80   $0.30 

 

The OTC Bulletin Board securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTC Bulletin Board securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTC Bulletin Board stocks are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.

 

As of May 31, 2012 we have approximately 4,200 holders of record of our common stock.

 

DIVIDENDS.

 

There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:

 

1.we would not be able to pay our debts as they become due in the usual course of business; or

 

2.our total assets would be less than the sum of our total liabilities, plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

 

We have not declared any dividends. We do not plan to declare any dividends in the foreseeable future.

 

ITEM 6.SELECTED FINANCIAL DATA

 

This item does not apply to small reporting companies.

 

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ITEM 7.MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

Results of Operations 

 

Oil and Gas Revenues, Production and Prices

 

Bering began producing oil in September 2011. Prior to September 2011 Bering had no revenues. Bering produced 5,590.69 gross and 766.28 net bbl of oil during the fiscal year ending March 31, 2012. Bering did not produce any NGL or natural gas during the year ended March 31, 2012. The average price per barrel of oil received by Bering during the year ended March 31, 2012 was $103.21.

 

Crude Oil Prices

 

All of our oil production is sold at prevailing market prices, which fluctuate in response to many factors that are outside of our control. Bering does not use financial instruments to manage any portion of its exposure to fluctuations in crude oil prices.

 

Crude Oil Revenues 

 

Prior to September 2011, Bering did not have any revenues. The Chicas Locas No. 1 well began producing oil in September 2011. The Sharp Heirs A No. 1 well began producing oil in late October 2011. Crude oil accounted for 100 percent of our oil and gas production revenues during the year ended March 31, 2012. Crude oil revenues for the years ended March 31, 2012 and 2011 totaled $79,085 and $0, respectively. 

 

Production totaled 766 and 0 net bbl in the years ended March 31, 2012 and 2011, respectively.

 

Revenue and production increased as a result of investments in oil and gas drilling programs.

 

 Operating Expenses 

 

The table below presents a comparison of our expenses on an absolute dollar basis and an equivalent unit of production (boe) basis. Our discussion may reference expenses either on a boe basis, on an absolute dollar basis or both, depending on relevance. 

 

   Year ended March 31, 2012 
   $   $ per boe 
Lease operating expenses  $3,523   $4.60 
Compensation and related expenses   2,160,609    2,820.64 
Office administration   56,457    73.70 
Professional fees   204,127    266.48 
Investor relations   140,138    182.95 
Depreciation, deplection and amortization   40,063    52.30 
           
Total  $2,604,917   $3,400.67 

 

During the year ended March 31, 2011, the Company did not have oil and gas operations, and therefore, comparative data for the year ended March 31, 2011 is not presented.

 

Depreciation, Depletion and Amortization 

 

The following table details the components of depreciation, depletion and amortization (DD&A) for the year ended March 31, 2012 and 2011:

 

   Year ended March 31, 
   2012   2011 
Depreciation  $1,075   $645 
Depletion   38,079    - 
ARO accretion   909    - 
Discount amortization   -    - 
           
   $40,063   $645 

 

Bering began generating revenue from oil and gas operations in September 2011. Accordingly, no depletion or ARO accretion was recognized prior to September 2011. Full-cost depletion was $38,079 during the year ended March 31, 2012. Bering did not recognized depletion in the year ended March 31, 2011 due to the lack of oil and gas revenues.

 

15
 

 

Under the full-cost method of accounting, the Company is required to review the carrying value of its proved oil and gas properties each quarter on a country-by-country basis. Under these rules, capitalized costs of oil and gas properties, net of accumulated DD&A and deferred income taxes, may not exceed the present value of estimated future net cash flows from proved oil and gas reserves, discounted 10 percent, net of related tax effects. Until estimated future net cash flows is calculated using an unweighted arithmetic average of commodity prices in effect on the first day of each month, held flat for the life of the production, except where prices are defined by contractual arrangements. The rules also generally require the estimation of future costs using costs in effect at the end of each fiscal quarter. Write-downs required by these rules do not impact cash flow from operating activities.

 

Lease Operating Expenses 

 

Lease operating expenses (LOE) include several components: direct operating costs, repair and maintenance, and workover costs. 

 

Direct operating costs generally trend with commodity prices and are impacted by the type of commodity produced and the location of properties (i.e., offshore, onshore, remote locations, etc.). Fluctuations in commodity prices impact operating cost elements both directly and indirectly. They directly impact costs such as power, fuel, and chemicals, which are commodity-price based. Commodity prices also affect industry activity and demand, thus indirectly impacting the cost of items such as labor, materials and supplies. Oil, which contributed all of our production, is inherently more expensive to produce than natural gas. Workovers accelerate production; hence, activity generally increases with higher commodity prices. 

 

Bering began generating revenue from oil and gas operations in September 2011. Accordingly, we recognized lease operating costs during the fiscal year ended March 31, 2012 of $3,523 and none in the prior year.

 

Results of Operations – April 1, 2011 to March 31, 2012

 

The Company recognized gross revenue from oil and gas operations of $86,303 and net revenues of $79,085 for the fiscal year from April 1, 2011 through March 31, 2012. Revenues were generated by the Sharp Heirs No. 1 well, drilled in September 2011 and completed in November 2011 and the Chicas Locas No. 1 well, re-entered in August 2011 and completed in September 2011. Currently, these are our only producing wells.

 

The Company’s costs and expenses totaled $3,730,495 from April 1, 2011 through March 31, 2012, which were comprised of lease operating expenses of $3,523, compensation and related expenses of $2,160,609, office administration of $56,457, professional fees of $204,127, investor relations expenses of $140,138, and depreciation, depletion and amortization of $40,063. In addition, we incurred interest expense of $1,075,060 and loss on extinguishment of debt of $50,518.

 

Compensation and related expenses increased by $1,710,848 due to share based compensation issued to our CEO, our VP of Operations and professional services firms. Office administration increased by $52,797 due to rent expense of $13,200, office supplies of $13,308 and travel of $26,287. Professional fees increased by $127,002 primarily due to consulting fees paid to our VP of Operations, who is hired on a contract basis. Investor relations increased by $121,436 due to fees paid to investor relation and public relations professionals. Depreciation and amortization is analyzed above. Interest expense increased by $1,019,856 due to the amortization of discount recognized in conjunction with notes payable and amendments to notes payables. Loss on extinguishment of debt decreased by $104,759 due to the different non-recurring transactions recognized in FYE 2012 and 2011.

 

The Company’s net loss for the period from April 1, 2011 through March 31, 2012 was $3,651,410 or $1.07 per share (basic and diluted).

 

Results of Operations – April 1, 2010 to March 31, 2011

 

The Company has had no revenue for the period from April 1, 2010 through March 31, 2011.

 

The Company’s expenses totaled $610,878 from April 1, 2010 through March 31, 2011, which were primarily comprised of compensation and related expenses of $449,761, professional fees of $77,125, interest expense of $55,204 and investor relations expenses of $18,702. The Company recognized a gain on extinguishment of debt in the amount of $54,241 related to the foregiveness of debts owed to an officer of the Company. This represented an increase of $54,241 from the prior year due because this was a non-recurring transaction.

 

The Company’s net loss for the period from April 1, 2010 through March 31, 2011 was $556,637 or $0.23 per share (basic and diluted).

 

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Liquidity and Capital Resources

 

Our liquidity is dependent, in the short term, on proceeds from newly issued debt and the sale of our common stock for cash. As discussed in Note 2 to the consolidated financial statements, the Company has accumulated losses since inception and has negative working capital. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

As of March 31, 2012, the Company had cash in non-restrictive accounts of $52,088 and negative working capital of $600,045.

 

Net cash used in operating activities was $230,402.   

 

Cash provided by financing activities totaled $411,648.

 

In May 2012, the Company completed a private placement of its common stock realizing net proceeds of approximately $500,000. The Company anticipates the need to raise additional capital during the fiscal year ending March 31, 2013 in order to implement its drilling program and meets it overhead needs.

 

Off-balance sheet arrangements

 

We have 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.

 

Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Bering Exploration, Inc. (a Nevada corporation) and its wholly owned subsidiaries, Secure Voice and Bering Operations, Inc. All significant inter-company accounts and transactions have been eliminated.

 

Oil and Natural Gas Properties

 

We account for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the United States Securities and Exchange Commission (SEC). Under this method, subject to a limitation based on estimated value, all costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized within a cost center on a country by country basis.  Costs of production and general and administrative corporate costs unrelated to acquisition, exploration, and development activities are expensed as incurred.

 

Costs associated with unevaluated properties are capitalized as oil and natural gas properties but are excluded from the amortization base during the evaluation period. When we determine whether the property has proved recoverable reserves or not, or if there is an impairment, the costs are transferred into the amortization base and thereby become subject to amortization.  We evaluate unevaluated properties for impairment at least annually.

 

 Capitalized costs included in the amortization base are depleted using either the units of production method based on proved reserves where the Company operates the well or the percentage depletion method when the Company does not operate the well.  Depletion is calculated using the capitalized costs included in the amortization base, including estimated asset retirement costs, plus the estimated future expenditures to be incurred in developing proved reserves, net of estimated salvage values.

 

The net book value of all capitalized oil and natural gas properties within a cost center, less related deferred income taxes, is subject to a full cost ceiling limitation which is calculated quarterly.  Under the ceiling limitation, costs may not exceed an aggregate of the present value of future net revenues attributable to proved oil and natural gas reserves discounted at 10 percent using current prices, plus the lower of cost or market value of unproved properties included in the amortization base, plus the cost of unevaluated properties, less any associated tax effects.  Any excess of the net book value, less related deferred tax benefits, over the ceiling is written off as expense. Impairment expense recorded in one period may not be reversed in a subsequent period even though higher oil and gas prices may have increased the ceiling applicable to the subsequent period.

 

Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change. 

 

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Asset Retirement Obligation

 

We record the fair value of an asset retirement cost, and corresponding liability as part of the cost of the related long-lived asset and the cost is subsequently allocated to expense using a systematic and rational method. We record an asset retirement obligation to reflect our legal obligations related to future plugging and abandonment of our oil and natural gas wells and gas gathering systems. We estimate the expected cash flow associated with the obligation and discount the amount using a credit-adjusted, risk-free interest rate. At least annually, we reassess the obligation to determine whether a change in the estimated obligation is necessary. We evaluate whether there are indicators that suggest the estimated cash flows underlying the obligation have materially changed. Should those indicators suggest the estimated obligation may have materially changed on an interim basis (quarterly), we will accordingly update its assessment. Additional retirement obligations increase the liability associated with new oil and natural gas wells and gas gathering systems as these obligations are incurred. As of March 31, 2012, the Company has recorded an asset retirement obligations of $9,665, which represents the Company’s share of the cost to plug and abandon the two producing wells in which it owns an interest. No asset retirement obligation was recorded as of March 31, 2011 since the related oil and gas properties are still unproved at that time.

 

Use of Estimates

 

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation in accordance with FASB ASC 718, which requires the measurement and recognition of compensation expense for all share-based payments made to employees and directors based on estimated fair values. Share-based payments awarded to non-employees are accounted for in accordance with FASB ASC 505-50, “Equity-Based Payments to Non-Employees.”

 

FASB ASC 718 requires companies to estimate the fair value of equity share option awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statement of operations.

 

Stock-based compensation expense recognized is based on the value of the portion of equity share option award that is ultimately expected to vest. The Company generally attributes the value of stock-based compensation to expense using the straight-line method.

 

The Company estimates fair value of equity share option awards using the Black-Scholes-Merton option-pricing formula (“Black-Scholes model”). This model requires the Company to estimate expected volatility and expected life, which are highly complex and subjective variables. The Company estimates expected term using the safe-harbor provisions of FASB ASC 718, “Compensation—Stock Compensation.” The Company estimated its expected volatility by taking the average volatility determined for a peer group of similar publicly-traded companies.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our exposure to market risk. The term market risk relates to the risk of loss arising from adverse changes in oil, gas and NGL prices, interest rates, and adverse governmental actions. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. The forward-looking information provides indicators of how we view and manage our ongoing market risk exposures. 

 

Commodity Risk 

 

The Company’s revenues, earnings, cash flow, capital investments and, ultimately, future rate of growth are highly dependent on the prices we receive for our crude oil, natural gas and NGLs, which have historically been very volatile due to unpredictable events such as economic growth or retraction, weather and climate. Our average monthly crude oil realizations averaged $103.21 per barrel and were as high as $126.41 per barrel and as low as $100.07 per barrel. Prices began at $118.71 per barrel in September 2011 and rose to our high in November and gradually fell to during the remainder of the fiscal year. We did not recognize any revenues from natural gas during the fiscal year ended March 31, 2012 or 2011.

 

None of our oil and gas production was subject to financial derivative hedges during the fiscal year ended March 31, 2012 and we do not currently have and financial derivative hedges in place.

 

18
 

 

Interest Rate Risk 

 

On March 31, 2012 and 2011, the Company’s debt with fixed interest rates represented 100 percent of total debt. As a result, the Company does not currently have any interest rate risk.

 

Forward-Looking Statements and Risk 

 

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans and objectives of management for future operations, are forward-looking statements. Such forward-looking statements are based on our examination of historical operating trends, the information that was used to prepare our estimate of proved reserves as of March 31, 2012, and other data in our possession or available from third parties. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “plan,” “believe,” or “continue” or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, our assumptions about: 

 

the market prices of oil, natural gas, NGLs and other products or services;

 

our commodity hedging arrangements;

 

the supply and demand for oil, natural gas, NGLs and other products or services;

 

production and reserve levels;

 

drilling risks;

 

economic and competitive conditions;

 

the availability of capital resources;

 

capital expenditure and other contractual obligations;

 

currency exchange rates;

 

weather conditions;

 

inflation rates;

 

the availability of goods and services;

 

legislative or regulatory changes;

 

terrorism;

 

occurrence of property acquisitions or divestitures;

 

the securities or capital markets and related risks such as general credit, liquidity, market and interest-rate risks; and

 

other factors disclosed under Items 1 and 2 — Business and Properties— Estimated Proved Reserves and Future Net Cash Flows, Item 1A— Risk Factors, Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7A— Quantitative and Qualitative Disclosures About Market Risk and elsewhere in this Form 10-K.

 

All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. We assume no duty to update or revise our forward-looking statements based on changes in internal estimates or expectations or otherwise.

 

19
 

 

ITEM 8.FINANCIAL STATEMENTS

 

Table of Contents

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
Reports of Independent Registered Public Accounting Firms F-1
Consolidated Balance Sheets as of March 31, 2012 and 2011 F-3
Consolidated Statements of Operations for the years ended March 31, 2012 and 2011 F-4
Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended March 31, 2012 and 2011 F-5
Consolidated Statements of Cash Flows for the years ended March 31, 2012 and 2011 F-6
Notes to Consolidated Financial Statements F-7

 

20
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders

Bering Exploration, Inc. and Subsidiaries

Houston, Texas

 

We have audited the accompanying consolidated balance sheet of Bering Exploration, Inc. and Subsidiaries (collectively, the “Company”) as of March 31, 2012 and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for the year then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit 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 consolidated 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bering Exploration, Inc. and Subsidiaries as of March 31, 2012, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

As discussed in Note 2 to the consolidated financial statements, the Company’s limited amounts of revenue, recurring losses from operations and negative working capital raise substantial doubt about the Company's ability to continue as a going concern.   The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ LBB and Associates, Ltd, LLP

Houston, Texas

 

July 9, 2012

 

F-1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

 

The Board of Directors and Stockholders

Bering Exploration Inc. (formerly Oncolin Therapeutics, Inc.)

(A Development Stage Company)

Houston, Texas

 

We have audited the accompanying consolidated balance sheet of Bering Exploration, Inc. and its subsidiaries (formerly Oncolin Therapeutics, Inc.) (the “Company”) as of March 31, 2011 and the related consolidated statements of operations, shareholders' deficit and cash flows for the year then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.  

 

We conducted our audit 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 consolidated 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bering Exploration, Inc. and subsidiaries as of March 31, 2011, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern.  As discussed in Note 2 to the consolidated financial statements, the Company has never generated any revenue and has negative working capital.  These factors raise substantial doubt about the Company's ability to continue as a going concern.  Management's plans in regard to these matters are also described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Malone Bailey, LLP

www.malonebailey.com

Houston, Texas

 

July 14, 2011

 

F-2
 

 

ITEM 1.FINANCIAL STATEMENTS

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   March 31, 
   2012   2011 
         
ASSETS          
           
Current assets:          
Cash and cash equivalents  $52,088   $531,933 
Accounts receivable, net   14,376    - 
Total current assets   66,464    531,933 
           
Property and equipment, net   566    1,641 
Oil and gas properties, net of accumulated depletion of $38,988 and $0, at March 31, 2012 and 2011, respectively, full cost method          
Proved   342,407    - 
Unproved   591,665    302,304 
Total assets  $1,001,102   $835,878 
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
           
Current liabilities:          
Accounts payable  $97,737   $66,273 
Accounts payable - related parties   96,873    37,947 
Accrued liabilities   81,199    38,967 
Notes payable   -    72,013 
Short term debt - related parties   -    369,342 
Convertible note payable - related parties   40,700    63,302 
Convertible notes, net of discount of $0 and $320,274 at March 31, 2012 and 2011, respectively   350,000    179,726 
Total current liabilities   666,509    827,570 
Asset retirement obligation   9,665    - 
Total liabilities   676,174    827,570 
           
Commitments and contingencies          
           
Shareholders' equity:          
Preferred stock, $0.001 par value, 25,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2012 and 2011   -    - 
Common stock, $.001 par value, 500,000,000 shares authorized; 4,465,531 and 2,403,276 shares issued and outstanding at March 31, 2012 and 2011, respectively   4,465    2,403 
Additional paid-in capital   7,184,809    3,218,841 
Accumulated deficit   (6,864,346)   (3,212,936)
Total shareholders' equity   324,928    8,308 
Total liabilities and shareholders' equity  $1,001,102   $835,878 

 

See accompanying notes to consolidated financial statements

 

F-3
 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   For the Years Ended 
   March 31, 
   2012   2011 
         
Oil and gas revenue  $79,085   $- 
           
Operating costs and expenses:          
Lease operating expenses   3,523    - 
Compensation and related expenses   2,160,609    449,761 
Office administration   56,457    3,660 
Professional fees   204,127    77,125 
Investor relations   140,138    18,702 
Depreciation and amortization   40,063    645 
Other expenss   -    5,781 
Total operating costs and expenses   2,604,917    555,674 
           
Net loss from operations   (2,525,832)   (555,674)
           
   Other income (expense)          
Interest expense   (1,075,060)   (55,204)
Gain (loss) on extinguishment of debt   (50,518)   54,241 
           
Net loss  $(3,651,410)  $(556,637)
           
Net loss per share:          
Basic and diluted  $(1.07)  $(0.23)
           
Weighted average number of common shares outstanding basic and diluted   3,421,147    2,377,906 

 

See accompanying notes to consolidated financial statements

 

F-4
 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

 

           Additional         
       Common   Paid-in   Accumulated     
   Shares   Stock   Capital   Deficit   Total 
                     
Balance at March 31, 2010    2,318,276   $ 2,318   $ 2,342,079   $ (2,656,299  $ (311,902
Issuance of common stock for services   65,000    65    218,435    -    218,500 
Issuance of common stock for acquisition of oil and gas property   20,000    20    31,980    -    32,000 
Issuance of options and warrants for services   -    -    231,261    -    231,261 
Discount on convertible debt due to beneficial conversion feature   -    -    350,000    -    350,000 
Forgiveness of debt by officer   -    -    45,086    -    45,086 
Net loss   -    -    -    (556,637)   (556,637)
Balance at March 31, 2011   2,403,276    2,403    3,218,841    (3,212,936)   8,308 
                          
Issuance of common stock for services   211,500    211    384,687    -    384,898 
Issuance of options and warrants for services   -    -    1,775,711    -    1,775,711 
Discount on convertible debt due to beneficial conversion feature   -    -    716,684    -    716,684 
Conversion of notes payable and accrued interest   1,809,255    1,809    868,776    -    870,585 
Exercise of stock options   40,000    40    201,210    -    201,250 
Stock issued to settle accounts payable   1,500    2    18,900    -    18,902 
Net loss   -    -    -    (3,651,410)   (3,651,410)
Balance at March 31, 2012   4,465,531   $4,465   $7,184,809   $(6,864,346)  $324,928 

 

See accompanying notes to consolidated financial statements

 

F-5
 

 

BERING EXPLORATION INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   For the Years Ended
March 31,
 
   2012   2011 
Cash flows from operating activities:          
Net loss  $(3,651,410)  $(556,637)
Adjustments to reconcile net loss to cash used in operating activities:          
Depletion, depreciation, and amortization   40,063    645 
Amortization of debt discount   986,440    29,726 
Share-based compensation   2,160,609    449,761 
Loss on extinguishment of debt   50,518    - 
Forgiveness of debt   -    (54,241)
Changes in assets and liabilities:          
Accounts receivable   (14,376)   - 
Accounts payable   50,366    4,548 
Accounts payable - related parties   58,926    (15,000)
Accrued liabilities   88,462    13,242 
Net cash used in operating activities   (230,402)   (127,956)
           
Cash flows from investing activities:          
Investment in oil and gas properties   (661,091)   (270,304)
Net cash used in investing activities   (661,091)   (270,304)
           
Cash flows from financing activities:          
Proceeds from notes payable - related parties   -    358,166 
Proceeds from notes payable - third parties   -    72,013 
Proceeds from short term debt - related parties   53,000    - 
Repayments of short term debt - related parties   (45,000)   - 
Repayment of convertible note payable - related party   (22,602)   - 
Proceeds from convertible notes   225,000    500,000 
Proceeds from exercise of stock options   201,250    - 
Net cash provided by financing activities   411,648    930,179 
           
Net change in cash and cash equivalents   (479,845)   531,919 
Cash and cash equivalents, beginning of period   531,933    14 
Cash and cash equivalents, end of period  $52,088   $531,933 
           
Supplemental disclosures:          
Interest paid  $20,689   $- 
Income taxes paid  $-   $- 
           
Non-cash investing and financing activities:          
Stock issued for oil and gas properties  $-   $32,000 
Expenses paid credited to additional paid in capital  $-   $45,086 
Debt discount on convertible notes  $716,684   $350,000 
Conversion of notes payable and accrued interest to common stock  $870,585   $- 
Stock issued to settle accounts payable  $18,902   $- 

 

See accompanying notes to consolidated financial statements

 

F-6
 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.          Organization and Significant Accounting Policies

 

Organization and Nature of Business

 

Bering Exploration, Inc., (formerly China Development Group, Inc. (CDG), formerly, Oncolin Therapeutics, Inc. (Oncolin), formerly, Edgeline Holdings, Inc. (Edgeline), formerly, Dragon Gold Resources, Inc., (Dragon Gold)) (“We”, “Our” or the “Company”) was incorporated in the state of Nevada on December 13, 2000.

 

Effective May 9, 2007, Dragon Gold Resources, Inc. completed a reverse merger with Secure Voice Communications, Inc., a Texas corporation (“Secure Voice”).  As a result of the transaction, Secure Voice became a wholly-owned subsidiary of Dragon Gold when Dragon Gold agreed to issue an aggregate of 3,207,840,000 shares of its common stock (pre-reverse split) to the former shareholders of Secure Voice (in exchange for all the outstanding capital stock of Secure Voice), resulting in the former shareholders of Secure Voice owning approximately 98.5% of the issued and outstanding Dragon Gold common stock.  As the articles of incorporation only authorized the issuance of 500,000,000 shares of common stock, Dragon Gold issued 450,053,276 shares of common stock (pre-reverse split) and was obligated to issue an additional 2,757,786,724 shares of common stock (pre-reverse split).  At the annual shareholders’ meeting which was held on June 19, 2007, the shareholders approved an 80-for-1 reverse split that did not reduce the number of authorized shares of common stock.  Upon the approval of the 80-for-1 reverse split, Dragon Gold issued the balance of these shares which equated to 34,472,334 shares on a post-split basis.

 

On February 15, 2008, the Company amended its Articles of Incorporation to change the par value of the Company’s Common Stock from $0.08 to $0.001, to authorize 25,000,000 shares of blank-check preferred stock and to change the name of the Company from “Edgeline Holdings, Inc.” to “Oncolin Therapeutics, Inc.”  The accompanying consolidated financial statements and related notes give retroactive effect to the change in par value.

 

On May 18, 2010, the Company amended its Articles of Incorporation to change the name of the Company to “Oncolin Therapeutics, Inc.” from “China Development Group, Inc.” and implement a 20-for-1 reverse stock split of the issued and outstanding common stock. The accompanying consolidated financial statements and related notes give effect to the reverse stock split as of inception (May 9, 2007).

 

On July 31, 2010, the Company amended its Articles of Incorporation to change the name of the Company from “Oncolin Therapeutics, Inc.” to “Bering Exploration, Inc.”

 

On January 10, 2012, the shareholders of the Company voted to approve a resolution authorizing the Board of Directors of the Company to effect one or a series of reverse stock splits of the Company’s common stock at a ratio of not less than 1-for-2 and not greater than 1-for-12, with the exact ratio to be set within such a range at the discretion of the Board of Directors. On February 12, 2012, the Board of Directors approved a 1-for-10 reverse stock split. The accompanying consolidated financial statements and related notes give effect to the reverse split as of its effective date (February 27, 2012).

 

The Company has two wholly-owned subsidiaries as follows:

 

· Secure Voice Communications, Inc. (Texas) – This subsidiary was incorporated in the State of Texas on May 9, 2007, with the initial primary focus being the development and readying for market a SIP (Session Initiation Protocol) based approach to defending voice traffic and voice packets against deliberate attacks such as DoS (Denial of Service) developing information.

 

· Bering Operations, Inc., formerly Bering Exploration (Texas), Inc., formerly, New Enersource, Inc. (“New Enersource”), (“Bering TX”) – This subsidiary was incorporated in the State of Texas on August 28, 2007, with the primary purpose to operate our oil and gas properties.  On August 20, 2011, New Enersource amended its Articles of Incorporation to change the name of New Enersource to Bering Exploration (Texas), Inc. On May 23, 2012, Bering Exploration (Texas), Inc. amended its Articles of Incorporation to change the name of Bering Exploration (Texas), Inc. to Bering Operations, Inc.

 

Intertech Bio Corporation (“Intertech Bio”) was incorporated in the State of Texas on August 8, 2007.  Its primary purpose was to focus on developing products to treat cancer, infectious diseases and other medical conditions associated with compromised immune systems. On February 23, 2009, the Company distributed 75% of their ownership in Intertech Bio in exchange for the assumption of certain liabilities and future obligations associated with the ongoing operations of Intertech Bio.  Bering retains an approximate 25% interest in Intertech Bio and is not be responsible for future costs associated with Intertech Bio.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Bering Exploration, Inc. and its wholly owned subsidiaries, Secure Voice Communications, Inc. (Texas) and Bering Operations, Inc. All significant inter-company accounts and transactions have been eliminated.

 

Development Stage Company

 

During the year ended March 31, 2012, the Company no longer met the qualifications as a development stage company as defined by the Accounting Standards Codification No. 915 “Development Stage Entities”. Accordingly, the Company is no longer reported as a development stage Company. 

 

F-7
 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.          Organization and Significant Accounting Policies (cont’d)

 

Oil and Natural Gas Properties

 

We account for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the United States Securities and Exchange Commission (SEC). Under this method, subject to a limitation based on estimated value, all costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized within a cost center on a country by country basis.  Costs of production and general and administrative corporate costs unrelated to acquisition, exploration, and development activities are expensed as incurred.

 

Costs associated with unevaluated properties are capitalized as oil and natural gas properties but are excluded from the amortization base during the evaluation period. When we determine whether the property has proved recoverable reserves or not, or if there is an impairment, the costs are transferred into the amortization base and thereby become subject to amortization.  We evaluate unevaluated properties for impairment at least annually.

 

Capitalized costs included in the amortization base are depleted using either the units of production method based on proved reserves where the Company operates the well or the percentage depletion method when the Company does not operate the well.  Depletion is calculated using the capitalized costs included in the amortization base, including estimated asset retirement costs, plus the estimated future expenditures to be incurred in developing proved reserves, net of estimated salvage values.

 

The net book value of all capitalized oil and natural gas properties within a cost center, less related deferred income taxes, is subject to a full cost ceiling limitation which is calculated quarterly.  Under the ceiling limitation, costs may not exceed an aggregate of the present value of future net revenues attributable to proved oil and natural gas reserves discounted at 10 percent using current prices, plus the lower of cost or market value of unproved properties included in the amortization base, plus the cost of unevaluated properties, less any associated tax effects.  Any excess of the net book value, less related deferred tax benefits, over the ceiling is written off as expense. Impairment expense recorded in one period may not be reversed in a subsequent period even though higher oil and gas prices may have increased the ceiling applicable to the subsequent period.

 

Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change. 

 

Asset Retirement Obligation

 

We record the fair value of an asset retirement cost, and corresponding liability as part of the cost of the related long-lived asset and the cost is subsequently allocated to expense using a systematic and rational method. We record an asset retirement obligation to reflect our legal obligations related to future plugging and abandonment of our oil and natural gas wells and gas gathering systems. We estimate the expected cash flow associated with the obligation and discount the amount using a credit-adjusted, risk-free interest rate. At least annually, we reassess the obligation to determine whether a change in the estimated obligation is necessary. We evaluate whether there are indicators that suggest the estimated cash flows underlying the obligation have materially changed. Should those indicators suggest the estimated obligation may have materially changed on an interim basis (quarterly), we will accordingly update its assessment. Additional retirement obligations increase the liability associated with new oil and natural gas wells and gas gathering systems as these obligations are incurred.  As of March 31, 2012, the Company has recorded asset retirement obligations of $9,665, which represents the Company’s share of the cost to plug and abandon the two producing wells in which it owns an interest. No asset retirement obligation was recorded as of March 31, 2011 since the related oil and gas properties are still unproved at that time.

 

F-8
 

 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.Organization and Significant Accounting Policies (cont’d)

 

Use of Estimates

 

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents.

 

Cash is maintained in bank accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on cash.

 

Accounts Receivable

 

The Company’s accounts receivable primarily consist of trade receivables. Management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. The Company includes any accounts receivable balances that are determined to be uncollectible in its allowance for doubtful accounts. The allowance for doubtful accounts as of March 31, 2012 and 2011 was $0.

 

Equity Investments

 

For investments in which the Company owns from 20% to 50% of the investment, the equity method of accounting is used.

 

Property and Equipment

 

Property and equipment are recorded at cost and are depreciated using the straight line method over their estimated useful lives.  As of March 31, 2012, the property and equipment consisted of personal computers.

 

Long Lived Assets

 

The Company reviews long-lived assets whenever events or circumstances indicate that the carrying amounts of such assets may not be fully recoverable. The Company evaluates the recoverability of long-lived assets by measuring the carrying amounts of the assets against the estimated undiscounted cash flows associated with these assets. If this evaluation indicates that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the assets’ carrying value, the assets are adjusted to their fair values (based upon discounted cash flows).

 

Loss per Share

 

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share”, basic net loss per common share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. Under ASC 260, diluted loss per share is computed by dividing the net loss for the period by the weighted average number of common and common equivalent shares, such as stock options and warrants, outstanding during the period. Such common equivalent shares have not been included in the computation of net loss per share as their effect would be anti-dilutive.

 

Income Taxes

 

Income taxes are recorded in accordance with FASB ASC 740, “Income Taxes”. This statement requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company's assets and liabilities result in a deferred tax asset, ASC 740 requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or the entire deferred tax asset will not be realized.

 

The Company has not filed tax returns for years ended 2007-2012. As of March 31, 2012, there is approximately $4,500,000 in accumulated losses for tax purposes. When the tax returns are completed, these losses will give rise to deferred tax assets, a significant portion of which are likely to be net operating loss carry forwards. Due to the May 30, 2007 reverse merger, these net operating loss deferred tax assets will be subject to limitations. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. Because of these potential limitations and the Company’s history of losses, the Company has not recognized any deferred tax asset and has placed a full valuation allowance on such assets.

 

F-9
 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.Organization and Significant Accounting Policies (cont’d)

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation in accordance with FASB ASC 718, “Compensation—Stock Compensation”, which requires the measurement and recognition of compensation expense for all share-based payments made to employees and directors based on estimated fair values. Share-based payments awarded to non-employees are accounted for in accordance with FASB ASC 505-50, “Equity-Based Payments to Non-Employees.”

 

FASB ASC 718 requires companies to estimate the fair value of equity share option awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statement of operations.

 

Stock-based compensation expense recognized is based on the value of the portion of equity share option award that is ultimately expected to vest. The Company generally attributes the value of stock-based compensation to expense using the straight-line method.

 

The Company estimates fair value of equity share option awards using the Black-Scholes-Merton option-pricing formula (“Black-Scholes model”). This model requires the Company to estimate expected volatility and expected life, which are highly complex and subjective variables. The Company estimates expected term using the safe-harbor provisions of FASB ASC 718. The Company estimated its expected volatility by taking the average volatility determined for a peer group of similar publicly-traded companies.

 

Fair Value of Financial Instruments

 

The fair values of cash, accounts receivable, accounts payable, accrued expenses, notes payable and convertible notes approximate their carrying values due to the short-term nature of these financial instruments.

 

Recent Accounting Pronouncements

 

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on their results of operations, financial position or cash flows.

 

Reclassifications

 

Certain reclassifications have been made to conform the prior period’s financial information to the current period’s presentation. These reclassifications had no effect on previously reported net loss or accumulated deficit.

 

F-10
 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2.Going Concern

 

These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business.  The Company has not generated significant revenue since its inception and is unlikely to generate earnings in the immediate or foreseeable future.  The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders and the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations.  As of March 31, 2012, the Company has accumulated losses of approximately $6,860,000 since inception and has negative working capital of approximately $600,000.  These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Note 3.Deconsolidation of Intertech Bio, Inc. and Correction of an Error

 

On February 24, 2009, the Company distributed its interest in Intertech Bio by assigning 75% of the Intertech Bio common stock to the founders of Intertech Bio in exchange for the assumption of certain liabilities and future obligations associated with the ongoing operations of Intertech Bio. The Company did not receive any consideration in the transaction. Since the Company no longer has a controlling interest in Intertech Bio, their assets, liabilities and operating results are no longer included in the Company’s consolidated financial statements as of February 24, 2009. As a result of the distribution, the Company recognized a gain on deconsolidation of $478,765 for the year ended March 31, 2009, which represents prepaid expenses of $13,334, accounts payable and accrued liabilities of $215,304 and a payable to the Company of $276,095, of Intertech Bio that were written off. For the period from February 24, 2009 through March 31, 2012, Intertech Bio had no significant activity and accordingly the Company did not recognize any income or loss from its equity method investment.

 

In connection with a review of the deconsolidation of Intertech Bio Corporation (“Intertech Bio”), the Company identified an error in the accounting for the investment in Intertech Bio. The fair value of the liabilities assumed by Intertech Bio was overstated by $189,458 resulting in an understatement of the Gain on Deconsolidation of Subsidiary as reported in the financial statements for the year ended March 31, 2009. Consequently, the error affected accounts payable and the accumulated deficit as of March 31, 2011. After evaluating the impact of the error, both quantitatively and qualitatively, upon the Company’s consolidated financial statements as of and for the years ended March 31, 2009, 2010 and 2011, it was determined that the error would not have a material impact to the readers of our consolidated financial statements. Our analysis was primarily based on qualitative factors including the fact that we had no revenue and minimal operating activity for the years ended March 31, 2009, 2010 and 2011. Consequently, we are following the guidelines of Staff Accounting Bulletin (SAB) No. 108. The effects of the correction on reported amounts for the year ended March 31, 2011 are presented below in the following table:

 

Consolidated Balance Sheet

   As of March 31, 2011 
   As Reported   Adjustments   As Corrected 
Current liabilities:               
Accounts payable  $255,731   $(189,458)  $66,273 
Accounts payable – related parties   37,947    -    37,947 
Accrued liabilities   38,967    -    38,967 
Notes payable - third parties   72,013    -    72,013 
Short term debt - related parties   369,342    -    369,342 
Convertible note - related party   63,302    -    63,302 
Convertible notes, net of discount $320,274   179,726    -    179,726 
Total liabilities   1,017,028    (189,458)   827,570 
                
Shareholders' deficit:               
Common stock   2,403*   -    2,403*
Additional paid-in-capital   3,218,841*   -    3,218,841*
Accumulated deficit   (3,402,394)   189,458    (3,212,936)
Total shareholders' equity (deficit)   (181,150)   189,458    8,308 
Total liabilities and shareholders' equity (deficit)  $835,878   $-   $835,878 

 

* reflects the impact of the reverse stock split

 

F-11
 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 4.Property and Equipment, net

 

Property and equipment consist of the following at March 31, 2012 and 2011, respectively:

 

   2012   2011 
Computers  $5,145   $5,145 
           
Less: accumulated depreciation   (4,579)   (3,504)
   $566   $1,641 

 

Note 5.Oil and Gas Properties

 

All of the Company’s oil and gas properties are located in the United States. The Company’s oil and gas properties consist of the following at March 31, 2012:

Proved Properties  Acquisition
Costs
   Development
Costs
   Depletion   Asset
Retirement
Costs
   Total 
Balance at March 31, 2010  $-   $-   $-   $-   $- 
                          
Activity-April 1, 2010 to March 31, 2011   -    -    -    -    - 
                          
Balance at March 31, 2011   -    -    -    -    - 
                          
Activity-April 1, 2011 to March 31, 2012   -    371,730    (38,988)   9,665    342,407 
                          
Balance at March 31, 2012  $-   $371,730   $(38,988)  $9,665   $342,407 

 

Unproved Properties  Acquisition
Costs
   Development
Costs
   Impairment
of
Properties
   Asset
Retirement
Costs
   Total 
Balance at March 31, 2010  $-   $-   $-   $-   $- 
                          
Activity-April 1, 2010 to March 31, 2011   302,304    -    -    -    302,304 
                          
Balance at March 31, 2011   302,304    -    -    -    302,304 
                          
Activity-April 1, 2011 to March 31, 2012   289,361    -    -    -    289,361 
                          
Balance at March 31, 2012  $591,665   $-   $-   $-   $591,665 

 

The Company has allocated the costs of its oil and gas properties acquired in 2012 based on its estimate of relative values of the proved and unproved portions of its leaseholds, and costs associated with these properties. The properties presently classified as unproved will be evaluated in the future. The purchase price is subject to reallocation as management moves forward with its evaluation of the unproved property.

 

Note 6.Accounts Payable – Related Parties

 

Certain officers, directors and consultants, who are also shareholders of the Company, have paid for goods and services, or incurred expenses, for the benefit of the Company.  As of March 31, 2012 and 2011, the amounts owed to these related parties were $96,873 and $37,947, respectively.

 

For the year ended March 31, 2011, an officer of the Company forgave certain payables owed to him totaling to $45,086.  The forgiveness of debt was recorded as a credit to additional paid in capital.

 

F-12
 

  

BERING EXPLORATION, INC.AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 7.Debt

 

Debt as of March 31, 2012 and 2011 consists of the following:

 

   March 31, 
Description  2012   2011 
Notes payable - third parties          
In January and February 2011, the Company entered into a series of note agreements with certain individuals for a total principal amount of $72,013 at an annual interest rate of 10%.  The principal and accrued interest on these notes were converted into the Company’s common stock in October 2011.  $-   $72,013 
           
Short term debt – related parties          
In June 2007, the Company entered into a note agreement with Tommy Allen, a shareholder of the Company, in the principal amount of $20,000 at an annual interest rate of 10% and principal and accrued and unpaid interest due September 30, 2007.  Mr. Allen verbally agreed to extend the due date of the note and accrued interest to March 31, 2012.  The principal and accrued interest on these notes were converted into the Company’s common stock in October 2011.  $-   $7,000 
           
During the year ended March 31, 2010, the Company entered into a note agreement with Kevan Casey, a Director of the Company, in the principal amount of $4,676 and an annual interest rate of 10%. During the years ended March 31, 2012 and 2011, Mr. Casey advanced the Company $45,000 and $212,790, respectively. Principal totaling $216,966 and related accrued interest were converted into the Company’s common stock in October 2011.   -    216,966 
           
In January and February 2011, the Company entered into a series of note agreements with certain related parties for a total principal amount of $145,376 at an annual interest rate of 10%.  The principal and accrued interest on these notes were converted into the Company’s common stock in October 2011.   -    145,376 
           
Total short term debt – related parties  $-   $369,342 
           
 Convertible note payable – related party          
On September 30, 2008, the Company entered into a note agreement with J. Leonard Ivins, an Officer of the Company, in the principal amount of $63,302 at an annual interest rate of 10%.  The note was executed in exchange for the cancellation of Mr. Ivins’ employment agreement and all outstanding amounts due to him as of September 30, 2008.  In April 2010, the note was amended and is convertible into the Company’s common stock at the rate of $0.05 per share.  During the year ended March 31, 2012, the Company made a $22,602 cash payment on this note. The note is due upon demand.  $40,700   $63,302 
           
Convertible notes, net of discount          
On February 28, 2011, the Company entered into a series of convertible note agreements (the 2011 Convertible Notes) for a total principal amount of $500,000 at an annual interest rate of 12%.  The principal and accrued and unpaid interest are due on May 18, 2012.  During September 2011, the note holders converted $150,000 of principal into the Company’s common stock. No principal or interest payments have been made through the date of this filing. The principal and accrued interest on these notes were converted into the Company’s common stock in May 2012.  $350,000   $500,000 
Less:  Beneficial conversion feature discount   (320,274)   (350,000)
Add:  Amortization of discount   320,274    29,726 
Total convertible notes, net of discount  $350,000   $179,726 

 

F-13
 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 7.Debt (cont’d)

 

In October 2011, the Company issued a convertible note to a third party in the amount of $225,000, bearing annual interest of 8%, with a maturity date of September 1, 2013. The note was convertible into the Company’s common shares at $0.40 per share on a post reverse-split basis. The Company identified and recorded a BCF on this note amounting to $225,000 which was recorded as a debt discount and amortized over the term of the note. In October 2011, the note and related unpaid interest were converted to equity and the Company issued 562,623 common shares.  The unamortized discount on the converted note was immediately charged to interest expense.

 

The Company evaluated the 2011 Convertible Notes as well as the related party convertible note under ASC 470-20, “Debt with Conversion and Other Options”, and determined that the 2011 Convertible Notes contained a beneficial conversion feature with an intrinsic value of $350,000. This amount was recorded as a discount to the note and is amortized over the term of the notes using the effective interest method.  Amortization expense of $320,274 and $29,726 was recorded during the years ended March 31, 2012 and 2011, respectively.  The Company also analyzed all of the convertible notes for derivative accounting consideration and determined that derivative accounting does not apply to these instruments.

 

Note 8.Common Stock

 

Year Ended March 31, 2011

 

In April 2010, the Company issued 50,000 shares of its common stock as bonus to the Company’s Chief Executive Officer.  The shares were recorded using their fair value of $40,000 which was based on the quoted market share price at grant date.

 

In August 2010, the Company issued 20,000 shares of its common stock in exchange for a 5% back end after payout working interest in an oil and gas drilling prospect located in South Texas.  The shares were recorded using their fair value of $32,000 which was based on the quoted market share price on the acquisition date.

 

In March 2011, the Company issued 15,000 shares of its common stock to an external consultant as settlement for services received.  The shares were recorded using their fair value of $178,500 which was based on the quoted market share price at grant date.

 

Year Ended March 31, 2012

 

During the year ended March 31, 2012, the Company issued 211,500 shares of its common stock to various consultants for consulting services which vested immediately on the date of grant. The Company recognized stock-based compensation expense equivalent to the fair market values of these shares (ranging from $1.30 to $12.60 per share) on the respective dates of grant aggregating $384,898. The Company also issued 30,000 common shares to two consultants in lieu of 15,000 warrants previously issued. No incremental stock compensation expense was recognized on this exchange.

 

During September and October 2011, per the respective note holder’s instructions, certain convertible notes payable and related interest totaling $870,585 were converted to 1,809,255 shares of common stock. The conversion rates ranged from $0.31 to $4.00 per share.

 

During the year ended March 31, 2012, the Company issued 40,000 shares from the exercise of options for total cash consideration of $201,250.

 

During April 2011, the Company issued 1,500 shares of its common stock to a law firm as settlement for past due accounts payable balance of $18,902.

 

On January 10, 2012, the shareholders of the Company voted to approve a resolution authorizing the Board of Directors of the Company to effect one or a series of reverse stock splits of the Company’s common stock at a ratio of not less than 1-for-2 and not greater than 1-for-12, with the exact ratio to be set within such a range at the discretion of the Board of Directors. On February 12, 2012, the Board of Directors approved a 1-for-10 reverse stock split, which became effective on February 27, 2012. All per share amounts in these consolidated financial statements and notes thereto have been adjusted to reflect the reverse stock split.

 

F-14
 

  

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 9.Stock Options and Warrants

 

Stock Option Plans

 

On May 18, 2010, the Company’s shareholders adopted the 2010 Stock Option Plan (the “2010 Plan”), which allows for the issuance of up to 225,000 stock options to directors, executive officers, employees and consultants of the Company who are contributing to the Company’s success.

 

On January 10, 2012, the shareholders adopted the 2011 Stock Option Plan (the “2011 Plan”), which allows for the issuance of up to 800,000 stock options to directors, executive officers, employees and consultants of the Company who are contributing to the Company’s success. 

 

Year Ended March 31, 2011

 

In March 2011, the Company granted 10,000 stock options to a shareholder for consulting services at exercise prices ranging from $12.00 to $14.45 per share.  These options have a term of two years and vested immediately.  The options have a fair value of $78,091 which was recorded immediately to expense and was calculated using the Black-Scholes option-pricing model.  Variables used in the valuation include (1) discount rate of 0.80%, (2) expected life of two years, (3) expected volatility of 135.43% and (4) zero expected dividends.

 

In March 2011, the Company granted 15,000 stock warrants for consulting services with an exercise price of $5.00 per share.  These warrants have a term of five years and vested immediately.  The warrants have a fair value of $153,170 which was recorded immediately to expense and was calculated using the Black-Scholes option-pricing model.  Variables used in the valuation include (1) discount rate of 2.04%, (2) expected life of five years, (3) expected volatility of 153.47% and (4) zero expected dividends.

 

Year Ended March 31, 2012

 

In April and May 2011, the Company granted 30,000 stock options for consulting services at exercise prices ranging from $6.50 to $8.00.  These options have a term of two years and vested immediately.  The options have a fair value of $188,890 which was recorded immediately to expense and was calculated using the Black-Scholes option-pricing model.  Variables used in the valuation include (1) discount rates ranging from 0.56% to 0.65%, (2) expected life of two years, (3) expected volatility of 135% and (4) zero expected dividends.

 

In April and May 2011, the Company repriced 40,000 options that were previously issued to reduce the exercise prices ranging from $3.00 to $11.60.  The options were remeasured at the date of modification and an incremental stock-based compensation expense of $34,969 was recognized.

 

In February 2011, the Company entered into an agreement with a consultant. As part of the agreement, the Company issued 46,000 stock warrants representing 50% of a quarterly retainer to vest over three years.  The warrants are exercisable at $7.50 per share, have a term of five years and vest beginning May 1, 2011.  The warrants have a fair value of $333,966 which was calculated using the Black-Scholes option pricing model.  Variables used in the valuation include (1) discount rate of 1.97%, (2) expected life of five years, (3) expected volatility of 152.9% and (4) zero expected dividends.  Stock-based compensation expense recognized for these warrants amounted to $111,113 for the year ended March 31, 2012 and the unamortized expense as of March 31, 2012 amounted to $222,853.

 

In December 2011, the Company issued a warrant to purchase 500,000 shares of its common stock at $1.00 per share to the President of the Company. The warrant has a term of five years and vested immediately. The warrant has a fair value of $440,739 which was recorded immediately to expense and was calculated using the Black-Scholes option-pricing model.  Variables used in the valuation include (1) discount rates of 0.31% (2) expected life of 2.5 years, (3) expected volatility of 166.75% and (4) zero expected dividends. In May 2012, the warrant was cancelled effective December 2011 and replaced with an option to purchase 1,300,000 shares of the Company’s common stock at $0.10 per share, effective as of December 2011. The option has a term of five years and vests as follows: 50% vests immediately and 50% vests on January 1, 2013.

 

In November 2011, the Company issued 500,000 shares of its common stock as compensation to the VP of Operations. The Company valued the shares based on the then current market price of $2.00 per share for an aggregate of $1,000,000. Effective December 2011, as the Company did not present the certificate to the VP of Operations, the Company canceled the certificate and instead issued an option to purchase 1,000,000 shares of its common stock at $0.10 per share. The option has a term of five years and vests as follows: 50% vests immediately and 50% vests on January 1, 2013. The option has a fair value of $94,821 and was calculated using the Black-Scholes option-pricing model.  Variables used in the valuation include (1) discount rates of 2.21% (2) expected life of 5 years, (3) expected volatility of 171.82% and (4) zero expected dividends.

 

In March 2012, the Company entered into an Option Agreement (the “Agreement”) with an investment banking firm. Per the Agreement, the counterparty is to raise $2,500,000 of capital, net of any fees and costs related to the financing, for the Company on or before June 30, 2012. As inducement for performance, the Company granted an option to acquire 10% of the issued and outstanding common stock of the Company (based at the date of exercise) for an exercise price of $100,000. As the option vests conditional to performance by the counterparty, the Company will recognize the vesting of the option only upon the satisfaction of the performance conditions. As of June 29, 2012, the counterparty had not met the performance conditions and management does not believe that the performance conditions will be achieved before the expiration on June 30, 2012. Accordingly, the Company has recorded no fair value for these options as the probability of vesting is very remote.

 

F-15
 

 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 9.Stock Options and Warrants (cont’d)

 

The following table summarizes stock options issued and outstanding:

 

   Options   Weighted
average
exercise
price
   Aggregate
intrinsic
value
   Weighted
average
remaining
contractual
life (years)
 
                 
Outstanding at March 31, 2010   -   $-   $-    - 
Granted   10,000    13.60    150    2.00 
Exercised   -    -    -    - 
Forfeited or cancelled   -    -    -    - 
Expired   -    -    -    - 
Outstanding at March 31, 2011   10,000    13.60    150    2.00 
                     
Granted   2,330,000    0.14    265,378    1.70 
Exercised   (40,000)   5.64    162,497    0.71 
Forfeited or cancelled   -    -    -    - 
Expired   -    -    -    - 
Outstanding at March 31, 2012   2,300,000   $0.10   $218,088    4.25 

 

The following table summarizes warrants issued and outstanding:

 

   Warrants   Weighted
average
exercise
price
   Aggregate
intrinsic
value
   Weighted
average
remaining
contractual
life (years)
 
                 
Outstanding at March 31, 2010   -   $-   $-    - 
Granted   15,000    5.00    106,500    4.98 
Exercised   -    -    -    - 
Forfeited or cancelled   -    -    -    - 
Expired   -    -    -    - 
Outstanding at March 31, 2011   15,000    5.00    106,500    4.98 
                     
Granted   546,000    1.55    774,705    4.42 
Exercised   -    -    -    - 
Forfeited or cancelled   (515,000)   1.12    (547,239)   2.23 
Expired   -    -    -    - 
Outstanding at March 31, 2012   46,000   $7.50   $333,966    4.10 

  

F-16
 

  

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 10.Income Taxes

 

The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During the years ended March 31, 2012 and 2011, the Company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $4.5 million and $3.0 million at March 31, 2012 and 2011, respectively, and will expire beginning in 2028.

 

The Company is subject to United States income taxes at a rate of 34%. The reconciliation of the provision for income taxes at the United States statutory rate compared to the Company’s income tax expense as reported is as follows:

 

   2012   2011 
         
Income tax recovery at statutory rate  $510,000   $190,000 
Valuation allowance change   (510,000)   (190,000)
Provision for income taxes  $-   $- 

 

At March 31, 2012 and 2011 deferred tax assets consisted of the following:

 

   2012   2011 
Deferred tax assets          
Net operating losses  $1,530,000   $1,020,000 
Less: valuation allowance   (1,530,000)   (1,020,000)
Net deferred tax asset  $-   $- 

 

Note 11.Commitments and contingencies

 

On February 7, 2011, the Company signed a three year exclusive Exploration Agreement (the “Glaux Agreement”) with Glaux Oil & Gas, LLC (“Glaux”) for the development of numerous leads and prospects in approximately 500,000 gross acres in West Texas.  Glaux has identified approximately 25 leads and prospects in the area and will work exclusively with the Company to develop these prospects using Glaux’s access to exploratory leads that were identified using a proprietary aeromagnetic survey and other advanced oil finding technologies such as telluric and seismic.  Subject to the terms of the Glaux Agreement, once each of these prospects is developed, the Company will be able to choose whether or not to lease the mineral rights and proceed to the drilling of the prospect. In conjunction with the Glaux Agreement, the Company issued to Glaux a warrant to purchase 46,000 (post reverse-split) shares of common stock of the Company at $7.50 per share (post reverse-split), vesting quarterly beginning May 8, 2011, and representing 50% of the quarterly retainer due to Glaux.  The term of the warrant is 5 years. In July 2011, the Company cancelled the Glaux Agreement and believes that it has no further obligations under this agreement.

 

In May 2011, the Company entered into a lease agreement with an officer of the Company to rent office space. The Company pays $1,200 per month on a month to month basis. During the year ended March 31, 2012, the Company incurred $13,200 in rent under this agreement.

 

From time to time, the Company may be subject to routine litigation, claims, or disputes in the ordinary course of business. In the opinion of management, no pending or known threatened claims, actions or proceedings against the Company are expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. The Company cannot predict with certainty, however, the outcome or effect of any of the litigation or investigatory matters specifically described above or any other pending litigation or claims. There can be no assurance as to the ultimate outcome of these lawsuits and investigations.

 

Note 12.Subsequent Events

 

In April 2012, a shareholder advanced the Company $35,000 in exchange for a convertible note payable due March 31, 2013, bearing interest at 12% and convertible at $0.50 per share. In May 2012, the note was amended to allow for conversion at $0.09 per share.

 

In May 2012, the Company completed a private placement of 1,428,981 shares of common stock for net proceeds of approximately $500,000.

 

In May 2012, the Company made principal payments totaling $12,500 to an officer of the Company on his outstanding convertible note payable.

 

In May 2012, the Company issued a stock option to the Chairman of the Board to purchase 500,000 shares of the Company’s common stock at a price of $0.10 per share, vesting immediately, with a five year term. The fair market value of the option on the date of grant was $48,348.

 

In May 2012, the Company issued a stock option to the Chief Financial Officer to purchase 200,000 shares of the Company’s common stock at a price of $0.10 per share, vesting as follows: 100,000 shares vest immediately and 100,000 shares vest on January 1, 2013, with a five year term. The fair market value of the option on the date of grant was $19,337.

 

In May 2012, the Company issued 4,206,575 shares of common stock upon the conversion of notes payable and related accrued interest totaling $415,496 and additional consideration of $35,027, for a total of $450,523..

 

In June 2012, the Company issued 554,105 shares of common stock to a related party upon the conversion of notes payable and related accrued interest totaling $49,869.

 

In June 2012, the Company acquired the N. Edna field for total consideration of $200,000.

 

In June 2012, the Company made a payment on a related party payable in the amount of $20,000.

 

F-17
 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 13.Supplemental Oil and Gas Disclosures (Unaudited)

 

Oil and Gas Operations

 

The following table sets forth revenue and direct cost information relating to the Company’s oil and gas exploration and production activities. Bering has no long-term agreements to purchase oil or gas production from foreign governments or authorities. Bering had no oil and gas operations during the year ending March 31, 2011.

 

Oil and gas production revenues, gross  $86,303 
      
Operating costs:     
Depletion   38,988 
Asset retirement obligation accretion   909 
Lease operating expenses   3523 
Production taxes   7,218 
Income tax (1)   12,126 
Total operating costs   62,764 
Results of operations  $23,539 
      
Amortization rate per boe  $52.08 

 

(1)This amount only reflects income taxes directly related to oil and gas producing properties. The Company has a net operating loss carryforward sufficient to offset any actual income taxes and accordingly does not agree with the amount of income taxes disclosed in Note 10 – Income Taxes.

 

Costs Incurred in Oil and Gas Property Acquisitions, Exploration, and Development Activities

 

   March 31, 
   2012   2011 
Acquisitions:          
Proved  $-   $- 
Unproved   311,696    302,304 
Exploration   92,730    - 
Development   266,330    - 
Cost Incurred  $670,756   $302,304 
           
Includes capitalized asset retirement costs as follows:          
Asset retirement costs  $9,665   $- 

 

Capitalized Costs

 

The following table sets forth the total capitalized costs and associated accumulated depreciation, depletion and amortization, including impairments, relating to the Company’s oil and gas production, exploration and development activities:

 

   March 31, 
   2012   2011 
Proved properties  $381,395   $- 
Unproved properties   591,665    302,304 
    973,060    302,304 
Accumulated DD&A   (38,988)   - 
Cost Incurred  $934,072   $302,304 

 

F-18
 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 13.Supplemental Oil and Gas Disclosures (Unaudited) (cont’d)

 

Costs Not Being Amortized

 

The following table sets forth a summary of oil and gas property costs not being amortized at March 31, 2012, by the year in which such costs were incurred. There are no individually significant properties or significant development projects included in costs not being amortized. The majority of the evaluation activities are expected to be completed within two to three years.

 

   March 31, 
   2012   2011 
Property acquisition costs  $311,696   $32,000 
Exploration and development   -    270,304 
Total  $311,696   $302,304 

 

Proved Undeveloped Reserves

 

The Company’s has no proved undeveloped reserves as of March 31, 2012.

 

Oil and Gas Reserve Information

 

In January 2009, the SEC issued Release No. 33-8995 amending oil and gas reporting requirements under Rule 4-10 of Regulation S-X and Industry Guide 2 in Regulation S-K and bringing full-cost accounting rules into alignment with the revised disclosure requirements. The new rules include changes to the pricing used to estimate reserves, the option to disclose probable and possible reserves, revised definitions for proved reserves, additional disclosures with respect to undeveloped reserves, and other new or revised definitions and disclosures. In January 2010, the FASB issued ASU No. 2010-03, which amends ASC Topic 932 to align the guidance with the changes made by the SEC. The Company implemented these Modernization Rules effective March 31, 2012, when it began recognizing oil and gas operating activities.

 

Bering emphasizes that its reported reserves are reasonably certain estimates which, by their very nature, are subject to revision. As additional geoscience, engineering and economic data are obtained, proved reserve estimates are much more likely to increase or remain constant than to decrease. These estimates are reviewed throughout the year and revised either upward or downward, as warranted.

 

Bering’s proved reserves are estimated at the property level and compiled for reporting purposes by an independent third-party reservoir engineer. The independent reservoir engineer interacted with engineering and geoscience personnel and with accounting personnel to obtain the necessary data for projecting future production, costs, net revenues and ultimate recoverable reserves. All relevant data is compiled in a computer database application, to which only authorized personnel are given security access rights consistent with their assigned job function. Reserves are reviewed internally with senior management and presented to Bering’s Board of Directors in summary form on a semi-annual basis. Annually, each property is reviewed in detail by our operations manager to ensure forecasts of operating expenses, netback prices, production trends and development timing are reasonable.

 

Bering’s independent reservoir engineer, Paul J. Szatkowski, of the firm DeGolyer and MacNaughton, is the person primarily responsible for preparing our reserve estimates. Mr. Szatkowski is a graduate of Texas A&M University with a Bachelor of Science degree in Petroleum Engineering. He has over 37 years of industry experiencein reservoir engineering. He is a member of the Society of Petroleum Engineers and is a Registered Professional Engineer in the state of Texas.

 

 The estimate of reserves disclosed in this annual report on Form 10-K is prepared by an independent third-party, DeGolyer and MacNaughton. We have filed DeGolyer and MacNaughton’s independent report as an exhibit to this Form 10-K.

 

 DeGolyer and MacNaughton opined that the overall proved reserves for the reviewed properties as estimated by the Company are, in the aggregate, reasonable, prepared in accordance with generally accepted petroleum engineering and evaluation principles and conform to the SEC’s definition of proved reserves as set forth in Rule 210.4-10(a) of Regulation S-X.

 

F-19
 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 13.Supplemental Oil and Gas Disclosures (Unaudited) (cont’d)

 

There are numerous uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production and timing of development expenditures. The following reserve data only represent estimates and should not be construed as being exact.

 

   March 31, 2012 
   Oil and
Condensate
(Mbbl)
   Natural
Gas
(MMcf)
 
Proved developed  8    96 

 

Bering did not have any oil and gas reserves as of March 31, 2011.

 

Approximately 84 percent of our March 31, 2012 estimated proved developed reserves are classified as proved not producing. These reserves relate to zones that are either behind pipe, or that have been completed but not yet produced, or zones that have been produced in the past, but are not now producing because of mechanical reasons. These reserves are considered to be a lower tier of reserves than producing reserves because they are frequently based on volumetric calculations rather than performance data. Future production associated with behind pipe reserves is scheduled to follow depletion of the currently producing zones in the same wellbores. It should be noted that additional capital may have to be spent to access these reserves. The capital and economic impact of production timing are reflected in this Note 12, under “Future Net Cash Flows.”

 

Future Net Cash Flows

 

Future cash inflows as March 31, 2012 were calculated using an average of oil and gas prices in effect on the first day of each month in fiscal ending March 31, 2012, except where prices are defined by contractual arrangements. Operating costs, production and ad valorem taxes and future development costs are based on current costs with no escalation.

  

The following table sets forth unaudited information concerning future net cash flows for oil and gas reserves, net of income tax expense. Income tax expense has been computed using expected future tax rates and giving effect to tax deductions and credits available, under current laws, and which relate to oil and gas producing activities. This information does not purport to present the fair market value of the Company’s oil and gas assets, but does present a standardized disclosure concerning possible future net cash flows that would result under the assumptions used.

 

   March 31,
2012
 
Cash inflows  $1,164,560 
Production costs   (101,148)
Development costs   (69,450)
Operating expenses   (453,949)
Federal income tax   - 
Net cash flows   540,013 
10 percent discount rate   (261,494)
Discounted future net cash flows  $278,519 

 

F-20
 

 

BERING EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 13.Supplemental Oil and Gas Disclosures (Unaudited) (cont’d)

 

The following table sets forth the principal sources of change in the discounted future net cash flows:

  

   March 31, 2012 
     
Sales, net of production costs  $- 
Net change in prices and production costs   - 
Discoveries and improved recovery, net of related costs   278,519 
Change in future development costs   - 
Revision of quantities   - 
Purchases of minerals in-place   - 
Accretion of discount   - 
Change in income taxes   - 
Sales of properties   - 
Change in production rates and other   - 
   $278,519 

 

F-21
 

 

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

On April 30, 2012, the Board of Directors of the Registrant approved the dismissal of MaloneBailey, LLP, as its certifying independent registered public accountants. On such same date, the Registrant dismissed MaloneBailey, LLP, as its independent registered public accountants. None of the reports of MaloneBailey, LLP on the financial statements of the Registrant contained any adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, except for a going concern paragraph in MaloneBailey, LLP 's report on our financial statements as of and for the years ended March 31, 2011 and 2010.

 

During the Registrant’s two most recent fiscal years and during any subsequent interim periods preceding the date of termination, there were no disagreements with MaloneBailey, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to MaloneBailey, LLP 's satisfaction, would have caused them to refer to the subject matter of the disagreement(s) in connection with their report; and there were no "reportable events" as defined in Item 304 (a)(1) of the Securities and Exchange Commission's Regulation S-K.

 

On April 30, 2012, the Board of Directors of the Registrant approved the engagement of, and the Registrant did on such same date engage, LBB & Associates Ltd., LLP, 10260 Westheimer Road, Suite 310, Houston, Texas 77042, as its independent registered public accounting firm commencing April 30, 2012, for the fiscal year ended March 31, 2012. During the two most recent years and the subsequent interim period through the date of engagement, neither the Registrant nor anyone engaged on its behalf has consulted with LBB & Associates Ltd., LLP regarding: (i) either the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Registrant's financial statements; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) or (v) of Regulation S-K).

 

ITEM 9A.MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

(a) Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2012. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2012, the Company’s disclosure controls and procedures were ineffective. This conclusion by the Company’s Chief Executive Officer and Chief Financial Officer does not relate to reporting periods after March 31, 2012.

 

Management’s Report on Internal Control Over Financial Reporting

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2012 based on the framework stated by the Committee of Sponsoring Organizations of the Treadway Commission. Furthermore, due to our financial situation, we will be implementing further internal controls as we become operative so as to fully comply with the standards set by the Committee of Sponsoring Organizations of the Treadway Commission.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed 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. Because of inherent limitations, a system of 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 due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Based on its evaluation as of March 31, 2012, our management concluded that our internal controls over financial reporting were ineffective as of March 31, 2012. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

The material weakness relates to the monitoring and review of work performed by our Chief Financial Officer and lack of segregation of duties. In the preparation of audited financial statements, footnotes and financial data all of our financial reporting is carried out by our Chief Financial Officer, and we do not have an audit committee to monitor or review the work performed. The lack of segregation of duties results from lack of accounting staff with accounting technical expertise necessary for an effective system of internal control. In order to mitigate this material weakness to the fullest extent possible, all financial reports are reviewed by the Chief Executive Officer. All unexpected results are investigated. At any time, if it appears that any control can be implemented to continue to mitigate such weaknesses, it is immediately implemented. As soon as our finances allow, we will hire sufficient accounting staff and implement appropriate procedures for monitoring and review of work performed by our Chief Financial Officer.

 

This annual report does not include an attestation report of the Company s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.

 

21
 

 

(b) Changes in Internal Control Over Financial Reporting

 

No change in the Company’s internal control over financial reporting occurred during the year ended March 31, 2012, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

On May 16, 2012, the Company and the holders of $350,000 in convertible notes payable (the “Convertible Notes”) agreed to extend the due date of the Convertible Notes to May 18, 2012 and amend the conversion price of the Convertible Notes from $0.50 per share to $0.09 per share. In conjunction with the amendment, the holders the Convertible Notes, having a principal balance of $350,000 and accrued interest of $65,266, assigned their notes and related accrued interest to unrelated third parties in exchange for total consideration of $450,523. The consideration included $35,027 which the Company agreed to pay to the holders of the Convertible Notes as additional compensation for the period of time between the maturity of the notes, February 11, 2012, and the date the holders of the Convertible Notes agreed to extend the due date of the Convertible Notes, May 16, 2012 (the “Additional Compensation”). The notes, including the Additional Compensation, were converted by the assignees on May 18, 2012 into 4,205,556 shares of the Company’s common stock. At the time of the conversion, the principal balance, accrued interest and Additional Compensation totaled $500,392.

 

In June 2012, the holder of $48,500 in related party convertible notes payable converted a total of $49,869 in principal and accrued interest into 554,105 shares of the Company’s common stock.

 

22
 

 

PART III - OTHER INFORMATION

 

ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

 

The Company’s executive officers and directors are as follows:

 

Name   Age   Position
J. Leonard Ivins   72   Chairman of the Board and Director
Frederick A. Huttner, Jr.   68   Chief Executive Officer and President and Director
Steven M. Plumb, CPA   52   Chief Financial Officer and Secretary

 

J. Leonard Ivins.

Mr. Ivins has served as the Company’s Chairman of the Board of Directors since March 2012. He previously served as the Company’s Chief Executive Officer and a director from May 2007 to March 2012.  He has also served as the Chief Executive Officer for the Company’s wholly-owned subsidiary from December 2007 to March 2012.  Since 1995, he has been a private investor.  Previously, Mr. Ivins was a founder and co-owner of a privately held company that was an FDIC and RTC contractor.  From 1979 to 1981, Mr. Ivins was a turnaround and workout consultant to small, publicly held oil and gas companies. From 1970 to 1975, Mr. Ivins was president of The Woodlands Development Corporation and a director of Mitchell Energy and Development Corp.

 

Frederick A. Huttner, Jr.

On October 28, 2011, Mr. Frederick A. Huttner, Jr., age 66, was appointed to serve as the Company’s President. In March 2012, Mr. Huttner was appointed to the additional position of Chief Executive Officer and a member of the board of directors. Since 1994, Mr. Huttner has served as Chairman and President of Huttner and Company, a private consulting firm which offers business consulting services on a limited basis to entrepreneurial growth companies. Mr. Huttner works with business leaders to build effective communication systems within their organizations to maximize the success of the business, either through organic growth or acquisitions.  From May 2011 until July 2011, Mr. Huttner served as a member of the Board of Directors of Intreorg Systems, Inc. (OTCBB:IORG). From August 2009 until October 2010, he was employed by Miresco Financial Services, a national liquidation company, where he was responsible for investing capital for some of the liquidations.  Mr. Huttner was an officer and director of Stratum Holdings, Inc. (OTCBB: STTH), a company operating in the oil field services, construction staging and oil and gas operations in the Texas and Louisiana Gulf coast, from 2003 until 2008, serving various terms as President, Secretary-Treasurer and Chief Financial Officer, and Chief Executive Officer.  From 2000 to 2002, he was a principal of Innovation Growth Partners, LLC, a private consulting firm which had acquired Huttner and Company during this period.  He received a bachelor’s degree from New York University.

 

Steven M. Plumb,CPA.

Steven M. Plumb, CPA is a financial manager and senior executive experienced in operations, finance and marketing. He has Big 4 CPA experience, a background in IT, biotech, oil and gas, medical and utility companies. Mr. Plumb was appointed the Chief Financial Officer of the Company in July 2011. In March 2012, Mr. Plumb was appointed the Secretary of the Company. From September 2010 to June 2011, Mr. Plumb served as the Chief Financial Officer of Galaxy Media & Marketing Corp (Galaxy) and from January 2011 to June 2011 he also served as a member of the board of directors and chair of the board of directors of Galaxy.  From September 2009 to April 2012, Mr. Plumb served as the Chief Financial Officer of ADB International Group, Inc. (ADBI.PK) and from June 2010 to April 2012, he also served on the board of directors of ADBI.  From March 2008 to October 2009, Mr. Plumb served as the Chief Financial Officer of Oncolin Therapeutics, Inc. (OCOL.OB) and Striker Oil & Gas, Inc. (SOIS.OB).  Mr. Plumb served as the Chief Financial Officer of HoustonPharma, Inc. from September 2006 to July 2008.  Mr. Plumb served as the Chief Financial Officer of Hyperdynamics Corp. (AMEX.HDY) November 2005 to June 2008 and as the Chief Financial Officer of ADVENTRX Pharmaceuticals, Inc. (AMEX:ANX) from January 2003 to December 2004.   Since 2001, he has served as the owner and president of Clear Financial Solutions, Inc., a consulting firm that provides interim CFO services to small public companies.  In this capacity he has prepared SEC filings, managed investor relations, raised capital, conducted mergers and acquisition activities, developed successful offering memorandum, registration statements and investor presentations.  Mr. Plumb has a Bachelor of Business Administration degree from the University of Texas at Austin, Austin, Texas.

 

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s Directors and officers, and persons who own more than 10% of a registered class of the Company’s equity securities (“Section 16 Persons”), to file with the Securities and Exchange Commission (the “SEC”) initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company.  Section 16 Persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports they file.  Section 16(a) of the Exchange Act requires our directors, executive officers, and the persons who beneficially own more than ten percent of our common stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission.  None of our current executive officers has filed a Form 3 as of the date hereof.

 

23
 

 

Board Composition

The Company’s board of directors currently consists of two members.  Each of its directors is elected annually at its annual meeting.  There are no family relationships between any of the Company’s officers and directors.

 

Independence of Directors and Board Committees

In May 2011, the board established Audit, Compensation, and Corporate Governance & Compliance Committees. Mr. Ivins was appointed to the Compensation Committee, the Audit Committee and the Corporate Governance & Compliance Committee and as the chair of each committee. Mr. Huttner was appointed to the Compensation Committee and the Corporate Governance & Compliance Committee. No charters have been established for any of the committees of the board.

 

24
 

 

Audit Committee

 

The Audit Committee of the Board currently consists of the Mr. Ivins. The audit committee selects an independent public accounting firm to be engaged to audit our financial statements, discuss with the independent auditors their independence, review and discuss the audited financial statements with the independent auditors and management and recommend to our Board of Directors whether the audited financials should be included in our Annual Reports to be filed with the SEC.

 

All of the members of the audit committee are non-employee directors who: (1) met the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act; (2) did not participate in the preparation of our financial statements or the financial statements of the Company.; and (3) are able to read and understand fundamental financial statements, including a balance sheet, income statement and cash flow statement. The board has determined that Mr. Ivins qualifies as an audit committee financial expert as defined in Item 407(d) of Regulation S-X by virtue of his educational background in finance and earning an MBA, work experience in finance and past public company experience and responsibilities as an audit committee member and corporate officer.

 

Option Grants, Long-Term Incentive Plans and Employment Agreements

 

The Company currently does not have any stock options outstanding pursuant to any stock option plan or long-term incentive plans.

 

Code of Ethics

 

The Company adopted a Code of Ethics that applies to all of its directors and officers. Copies of the Company’s Code of Ethics are available, free of charge, by submitting a written request to the Company at Bering Exploration, Inc., 710 N. Post Oak Road, Suite 410, Houston, Texas 77401, Attention: Frederick A. Huttner, Jr., Chief Executive Officer.

 

ITEM 11 - Executive Compensation

 

The following Summary Compensation Table sets forth, for the years indicated, all cash compensation paid, distributed or accrued for services, including salary and bonus amounts, rendered in all capacities by our Chief Executive Officer and all other executive officers who received or are entitled to receive remuneration in excess of $100,000 during the stated periods. 

 

Name and Principal Position    Year   Salary ($)   Bonus ($)   Option
Awards
($)
   Other
Compensation ($)
   Total
($)
 
Frederick Huttner, Jr.
Chief Executive Officer
   2012    -    -    -   $440,739   $440,739 
                               
J. Leonard Ivins
Chief Executive Officer
   2012    -    -    -    -    - 
    2011    -    40,000    -    -    40,000 
    2010    -    6,400    -    -    6,400 
                               
Steven M. Plumb, CPA(1)   2012    60,000    -    -    -    60,000 
    2011    10,000    -    -    -    10,000 

 

(1)  The Company has retained Clear Financial Solutions, Inc., a consulting firm owned by Mr. Plumb, to provide interim chief financial officer services at the rate of $2,500 per month.  In July 2011, Mr. Plumb’s monthly compensation was increased to $5,000 per month.  Mr. Plumb’s services were retained in December 2010.

 

Outstanding Equity Awards at Fiscal Year End Table

 

The table below sets forth information with respect to our named executive officers regarding the value of equity compensation as of March 31, 2012.

 

Name  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
   Number of Securities
Underlying
Unexercised Options
(#) Exercisable
   Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
   Option Exercise
Price ($)
   Option Expiration
Date
 
Frederick A. Huttner, Jr.   1,300,000    650,000    -0-   $0.10    2016 
Steven M. Plumb   -0-    -0-    -0-    -0-    n/a 

  

25
 

 

Employment and Consulting Agreements

 

Frederick A. Huttner, Jr. 

 

On October 28, 2011, Bering Exploration, Inc. (the “Company”) and Mr. Frederick Huttner entered into an employment agreement (the “Original Agreement”) pursuant to which Mr. Huttner would serve as the Company’s president. Pursuant to the Original Agreement, the Company agreed to issue Mr. Huttner 500,000 shares of the Company’s common stock for services to be rendered.

 

On December 30, 2011, the Company and Mr. Huttner entered into an amended and restated employment agreement (the “Restated Agreement”) pursuant to which the Company agreed to issue, in lieu of the 500,000 shares of common stock described above, a five year warrant (the “Warrant”) to purchase up to 500,000 shares of Company common stock at an exercise price of $1.00 per share (such exercise price being the previous day’s closing price of the Company’s common stock as reported by the Pink Sheets OTCQB). The foregoing summary of the Restated Agreement and the Warrant are qualified in their entirety to the Restated Agreement and Warrant were filed as attachments to Form 8-K filed on January 5, 2012, each of which are incorporated herein by reference.

 

In May 2012, the Company and Mr. Huttner agreed to cancel the Warrant and issue to Mr. Huttner a five year option to purchase 1,300,000 shares of the Company’s common stock at an exercise price of $0.10 per share, effective December 30, 2011.

 

DIRECTOR AND EXECUTIVE COMPENSATION

 

During the fiscal year ended March 31, 2012, no directors received any compensation for serving as a director. In May 2012, the Board approved compensation as follows: Mr. Huttner will receive $25,000 annually for serving on the board of directors and $25,000 annually for serving on committees of the board of directors. Mr. Ivins will receive $25,000 annually for serving on the board of directors and $25,000 annually for serving on committees of the board of directors. The fees may be paid in cash or equity of an equivalent value, at the discretion of the director.

  

26
 

  

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth, as of March 31, 2012, the number and percentage of outstanding shares of Company common stock owned by: (a) each person who is known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; (b) each of our directors; (c) the current named executive officers as defined in Item 402 of Regulation S-K; and (d) 3 current directors and executive officers, as a group.  As of March 31, 2012, there were 4,465,531 shares of common stock issued and outstanding.

 

Name and Address of Beneficial Owner  (1)  Number of Shares   Percentage of 
   Owned   Class (2) 
Kevan Casey (3)   793,888    12.8%
Frederick A. Huttner, Jr. (6)   664,454    10.7%
J. Leonard Ivins (5)   648,426    10.4%
Xie Rui   562,623    9.1%
Jerry Walters (7)   500,000    8.0%
Officers and Directors:          
J. Leonard Ivins, Chairman of Board, Director (5)   648,426    10.4%
Frederick A. Huttner, Jr., CEO, Director (6)   664,454    10.7%
Steven M. Plumb, CFO (4)   27,064    3.5%
Total of all Officers and Directors   1,529,944    24.6%

 

(1)Unless otherwise indicated, the mailing address of the beneficial owner is Bering Exploration, Inc., 710 N. Post Oak Road, Suite 410, Houston, Texas 77024.
(2)The percentage of beneficial ownership of Common Stock is based on 4,965,531 shares of Common Stock outstanding as of March 31, 2012 and excludes all shares of Common Stock issuable upon the exercise of outstanding options, other than the shares of Common Stock issuable upon the exercise of options or warrants to purchase Common Stock held by the named person to the extent such options or warrants are exercisable within 60 days of May 30, 2012.
(3)The business address of Kevan Casey is PO Box 27949, Houston, Texas 77227-7949. Mr. Casey owns 3.374 shares directly and the following shares indirectly: 114,000 shares are held by Silver Star Holdings, Ltd., of which Mr. Casey is the managing partner, 117,079 shares are held by KM Casey No 1, Ltd, of which Mr. Casey is the managing partner, and 559,435 shares are held by Jinsun, LLC, of which Mr. Casey is the sole member.
(4)VASHB Group, LLC, a limited liability company of which Steven M. Plumb owns a minority interest, owns 117,064 shares.  Mr. Plumb is not an officer, director or manager of VASHB Group, LLC, and he disclaims any beneficial interest in the shares owned by VASHB Group, LLC. In addition, Mr. Plumb is the beneficial owner of a 50% vested option to purchase 200,000 shares of the Company’s common stock, exercisable within 60 days of June 30, 2012.
(5)J. Leonard Ivins directly owns 148,426 shares of the Company’s common stock and is the beneficial owner of a fully vested option to purchase 500,000 shares of the Company’s common stock, exercisable within 60 days of May 30, 2012.
(6)Frederick A. Huttner, Jr. directly owns 14,454 shares of the Company’s common stock and is the beneficial owner of a 50% vested option to purchase 1,300,000 shares of the Company’s common stock, exercisable within 60 days of June 30, 2012.
(7)Jerry Walters directly owns no shares of the Company’s common stock and is the beneficial owner of a 50% vested option to purchase 1,000,000 shares of the Company’s common stock, exercisable within 60 days of June 30, 2012.

 

27
 

 

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

None.

 

28
 

 

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Audit Fees.

 

The aggregate fees billed for professional services rendered by LBB and Associates, Ltd, LLP and MaloneBailey, LLP for the audits of our annual financial statements and review of financial statements included in our Forms 10-Q for fiscal years 2012 and 2011 are set forth in the table below.

 

   2012   2011 
LBB and Associates Ltd, LLP  $-   $- 
MaloneBailey, LLP   $10,950   $10,950 
           
   $10,950   $10,950 

 

Audit-Related Fees.

 

During the fiscal years ended March 31, 2012 and 2011, no assurance or related services were performed by LBB and Associates Ltd, LLP or MaloneBailey, LLP that were reasonably related to the performance of the audit or review of our financial statements.

 

Tax Fees.

 

During the fiscal year ended March 31, 2012 and 2011, no fees were billed by LBB and Associates Ltd, LLP or MaloneBailey, LLP for tax compliance, tax advice or tax planning services.

 

All Other Fees.

 

During the fiscal years ended March 31, 2012 and 2011, no fees were billed by LBB and Associates Ltd, LLP or MaloneBailey. LLP other than the fees set forth under the caption “Audit Fees” above.

 

Pre-Approval Policies and Procedures of the Audit Committee.

 

The Audit Committee has the sole authority to appoint, terminate and replace our independent auditor.  The Audit Committee may not delegate these responsibilities.  The Audit Committee has the sole authority to approve the scope, fees and terms of all audit engagements, as well as all permissible non-audit engagements of our independent auditor. The entire board of Directors serves as the audit committee of the Company.

 

ITEM 15.   EXHIBITS AND REPORTS
     
Exhibit No.   Description
     
23   Consent of DeGolyer and MacNaughton, independent petroleum consultants
31.1   Certification of Frederick A. Huttner, Jr.
31.2   Certification of Steven M. Plumb.
32.1   Certification for Sarbanes-Oxley Act of Frederick A. Huttner, Jr.
32.2   Certification for Sarbanes-Oxley Act of Steven M. Plumb.
99.1   Report of DeGolyer and MacNaughton, independent petroleum consultants
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
101.DEF   XBRL Taxonomy Extension Definition Linkbase
101.LAB   XBRL Taxonomy Extension Label Linkbase
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

29
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized

 

BERING EXPLORATION, INC.

 

By: /s/ Frederick A. Huttner, Jr.
Frederick A. Huttner, Jr., Chief Executive Officer
Date: July 16, 2012
 
By: /s/ Steven M. Plumb
Steven M. Plumb, Chief Financial Officer
Date: July 16, 2012

 

By: /s/ J. Leonard Ivins

J. Leonard Ivins, Director

Date: July 16, 2012

 

30

 

XOTC:BERX Annual Report 10-K Filling

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