GASE GASE Energy Inc (PK)

 

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2014

 

or

 

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

 

For the transition period from ___________ to ______________

 

Commission File Number: 333-179321

 

GASE ENERGY, INC.

 (Exact name of registrant as specified in its charter)

 

Delaware		46-0525801
(State or other jurisdiction of incorporation)		(IRS Employer Identification Number)

 

173 Keith St., Suite 300

Warrenton, VA 20186

(Address of principal executive offices)

 

(540) 347-2212

(Registrant’s telephone number, including area code)

 

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 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  ☐ 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  ☐ No 

 

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

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
(Do not check if a smaller reporting company)

 

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

 

As of November 14, 2014, there were outstanding 51,562,896 shares of the registrant’s common stock, $.0001 par value.

 

 

 

TABLE OF CONTENTS

 

			Page
PART I	Financial Information
Item 1.	Financial Statements.			F-1
	Condensed Consolidated Balance Sheet as of September 30, 2014 (Unaudited) and December 31, 2013			F-1
	Condensed Consolidated Statements of Operations and Comprehensive Loss For the Three and Nine months Ended September 30, 2014 and September 30, 2014 (Unaudited)			F-2
	Condensed Consolidated Statement of Cash Flows For the Nine months Ended September 30, 2014 and September 30, 2013 (Unaudited)			F-3
	Notes to Financial Statements (Unaudited)			F-4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			1
Item 4.	Controls and Procedures			4
PART II	Other Information
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			5
Item 6.	Exhibits.			5
	Signatures			6
	Exhibits/Certifications

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

GASE ENERGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

 

		September 30,				December 31,
		2014				2013
		(Unaudited)				(Audited)
ASSETS
Current assets:
Cash		$	22,220			$	99,650
Accounts receivable, net			16,238				6,207
Inventories			21,792				41,749
Other current assets			4,814				7,281
Deferred income tax assets			2,937				2,945
Total current assets			68,001				157,832
Long-term assets:
Property, plant and equipment, net			604,355				1,090,537
Deferred income tax assets			14,352				21,015
Total Long-term assets			618,707				1,111,552
Total assets		$	686,708			$	1,269,384
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable to related parties		$	349,551			$	341,953
Bank overdraft			-				454
Accounts payable			95,649				87,585
Taxes payable			11,588				9,567
Related party payables			152,525				3,025
Total current liabilities			609,313				442,584
Long-term liabilities:
Asset retirement obligations			36,522				56,917
Total long-term liabilities			36,522				56,917
Total liabilities			645,835				499,501
Commitments and Contingencies (Note 11)
Stockholders’ equity:
Series A preferred stock - $.0001 par value; 1 share authorized; 0 shares outstanding as of September 30, 2014 and 1 share outstanding as of December 31, 2013			-				-
Undesignated preferred stock - $.0001 par value; 9,999,999 authorized; 0 shares outstanding as of September 30, 2014 and December 31, 2013			-				-
Common stock - $.0001 par value; 100,000,000 shares  authorized, with 51,562,896 and 51,177,896 shares outstanding as of September 30, 2014 and December 31, 2013, respectively			5,157				5,118
Additional paid-in capital			3,745,089				3,569,051
Accumulated deficit			(3,275,040	)			(2,804,286	)
Accumulated other comprehensive income			(434,333	)			-
Total  stockholders' equity			40,873				769,883
Total liabilities and stockholders' equity		$	686,708			$	1,269,384

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

  

GASE ENERGY, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Consolidated Three and Nine months Ended September 30, 2014 and 2013 (Unaudited)

  

		Consolidated Three months Ended September 30,				Consolidated Three months Ended September 30,				Consolidated Nine months Ended September 30,				Consolidated Nine Month Ended September 30,
		2014				2013				2014				2013
REVENUES AND OTHER INCOME
Gas sales		$	47,425			$	69,672			$	148,930			$	212,845
Other sales			9,214				14,215				24,309				23,635
Other income			597				3,070				2,707				19,357
Total Revenues and Other Income			57,236				86,957				175,946				255,837
OPERATING EXPENSES
Operating and maintenance expenses			42,129				70,293				134,724				182,894
General and administrative expenses			20,008				38,859				90,644				138,833
Depreciation, depletion and amortization			15,541				25,677				53,101				80,979
Professional fees			52,139				3,613,984				346,409				3,687,059
Total Operating Expenses			129,817				3,748,813				624,878				4,089,765
Loss from operations			(75,581	)			(3,661,856	)			(448,932	)			(3,833,928	)
Other Expense:
Finance costs			-				(6,382	)			-				(8,240	)
Other Expense			-				(6,382	)			-				(8,240	)
LOSS BEFORE INCOME TAX			(75,581	)			(3,668,238	)			(448,932	)			(3,842,168	)
Income tax benefit/(provision)			(7,431	)			(3,230	)			(6,681	)			3,671
NET LOSS APPLICABLE TO COMMON SHARES		$	(80,012	)		$	(3,671,468	)		$	(455,613	)		$	(3,838,497	)
Other Comprehensive Loss
Foreign currency translation adjustment			(86,396	)			-				(434,333	)			(501	)
Total Other Comprehensive Loss			(86,396	)			-				(434,333	)			(501	)
COMPREHENSIVE LOSS		$	(166,408	)		$	(3,671,468	)		$	(889,946	)		$	(3,838,998	)
NET LOSS PER BASIC AND DILUTED SHARES		$	(0.00	)		$	(0.09	)		$	(0.01	)		$	(0.09	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING			51,297,135				42,202,888				51,247,090				42,202,888

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

GASE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 (Unaudited)

 

		Nine months ended				Nine months ended
		September 30,				September 30,
		2014				2013
Operating activities:
Net loss		$	(455,613	)		$	(3,838,497	)
Adjustments to reconcile net loss to net cash used in operating activities:
Common shares issued for services			22,500				-
Depreciation, depletion and amortization			53,101				80,979
Deferred income taxes			6,672				(7,848	)
Accretion expense			2,888				3,285
Finance costs			-				8,240
Other			-				705
Changes in assets and liabilities:
Accounts receivable			(12,570	)			12,094
Inventory			2,879				6,666
Advances paid and deferred expenses			1,329				(1,188	)
Accrued Investment Liability			-				837,500
Accounts payable and accrued liabilities			16,814				30,711
Prepaid taxes and taxes payable			5,922				(61,972	)
Related party payable			149,500				25
Net cash used in operating activities			(206,578	)			(2,929,300	)
Investing activities:
Purchase of property, plant and equipment			(3,281	)			(1,459	)
Change in deposits			-				20,018
Receipts from collections of loans issued			-				320,433
Acquisition of subsidiary			-				(53,164	)
Deposits for investments			-				(1,252,597	)
Net cash used in investing activities			(3,281	)			(966,769	)
Financing activities:
Proceeds from advance subscription from investors			-				200,000
Proceeds from loans received			-				63,500
Repayments of loans received			7,143				(370,848	)
Payments of notes issued			-				(34,130	)
Proceeds from common stock issued for cash			134,985				4,407,662
Net cash provided by financing activities			142,128				4,266,184
Effect of translation to presentation currency			(9,699	)			(500	)
Net (decrease) increase in cash			(77,430	)			369,616
Cash, beginning of period			99,650				197,101
Cash, end of period		$	22,220			$	566,717
Supplemental disclosures of cash flow information:
Cash paid for interest		$	-			$	-
Cash paid for taxes		$	-			$	4,171
Non cash financing activities
Transfer of loan received to additional paid-in capital		$	-			$	63,362

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

GASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014

  

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

 

The unaudited condensed consolidated interim financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements and notes are presented as permitted on Form 10-Q and do not contain information included in the Company’s annual statements and notes. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the December 31, 2013 audited financial statements and the accompanying notes thereto. Operating results for the interim periods are not necessarily indicative of financial results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. In preparing these financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

These condensed consolidated unaudited financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary to present fairly the operations and cash flows for the periods presented.

 

GASE Energy, Inc. (the “Company”) was incorporated under the name Epsilon Corp. in Delaware on October 17, 2011. The Company changed its name to Great East Energy, Inc. on September 10, 2013, and to GASE Energy, Inc. on June 13, 2014. The Company's current business plan is acquisition and development of natural gas properties located in Ukraine.

 

On July 25, 2013, the Company consummated transactions pursuant to a Share Exchange Agreement (the “Share Exchange Agreement”) dated July 25, 2013 by and among the Company and the stockholders of Great East Energy, Inc., a Nevada corporation (“GEEI”), (the “GEEI Stockholders”) whereby GEEI Stockholders transferred 100% of the outstanding shares of common stock of GEEI held by them, in exchange for an aggregate of 330,008 newly issued shares of the Company’s common stock, par value $.001 per share (“Common Stock”). As a result, GEEI became a wholly-owned subsidiary of the Company.

 

On July 25, 2013, GEEI entered into a Stock Purchase Option Agreement (the “Option Agreement”) with Bezerius Holdings Limited, a corporation organized under the laws of the Republic of Cyprus (“BHL”), whereby BHL granted to GEEI an option to purchase 1,000 shares of equity capital of Synderal Services LTD, a corporation organized under the laws of the Republic of Cyprus ("SSL"), representing all issued and outstanding shares of SSL, for $1,250,000. SSL is engaged in the gas exploration and production business in Ukraine through its two wholly-owned subsidiaries, Limited Liability Company NPK-KONTAKT and Limited Liability Company LISPROMGAZ, each a legal entity formed under the laws of Ukraine.

 

Under the Option Agreement, the Company was required to pay to BHL $412,500 as an advance payment to be credited towards the purchase price of the SSL shares. The Company made the advance payment on July 25, 2013. The balance of the purchase price in the amount of $837,500 was paid upon exercise of the option that was completed on November 25, 2013 by paying to BHL $500,000 in cash and issuing a promissory note in the principal amount of $337,500 for the balance of the option exercise price. The note bears no interest and has a maturity date of December 31, 2013, which was extended to March 31, 2015. The obligations of the Company under the note are secured by 1,000 shares of SSL purchased by the Company under the Option Agreement in accordance with the Pledge and Security Agreement dated November 25, 2013 made by the Company in favor of the collateral agent acting on behalf of BHL. As a result, SSL, Limited Liability Company NPK-KONTAKT and Limited Liability Company LISPROMGAZ became indirect wholly-owned subsidiaries of the Company.

  

 

NOTE 2 – BASIS OF CONSOLIDATION

 

The Group’s entities maintain accounting books and records in local currencies of their domicile in accordance with the requirements of respective accounting and tax legislations. The accompanying condensed consolidated financial statements have been prepared in order to present the Company’s financial position and its results of operations and cash flows in accordance with US GAAP and are expressed in terms of US Dollars ($), unless otherwise stated.

 

The consolidated and combined financial statements are based upon the historical financial statements of Synderal Services LTD, NPK-Kontakt LLC and Lispromgaz LLC and certain adjustments that rely on preliminary estimates and certain assumptions which the Company believes are reasonable under the circumstances.

 

The adjustments made in preparing the condensed consolidated interim financial statements are as follows:

 

-	elimination of intra-entity transactions between GASE Energy, Inc. and Synderal Services LTD;
-	elimination of intra-entity transactions between NPK-Kontakt LLC and Lispromgaz LLC;

-	elimination of intra-entity balances between NPK-Kontakt LLC and Lispromgaz LLC;

-	elimination of share capital of NPK-Kontakt LLC and Lispromgaz LLC and representation of payables for acquisition of subsidiaries incurred in connection with acquisition of NPK-Kontakt LLC and Lispromgaz LLC in March 2013.

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Although the company uses its best estimates and judgments, actual results could differ from these estimates as future confirming events occur.

 

Reporting and functional currency

 

The Company’s functional and Group’s reporting currency is the US dollar ("USD").

 

The national currency of Ukraine, Ukrainian Hryvnia (“UAH”) is the functional currency for the Group’s entities that operate in Ukraine. Monetary assets and liabilities denominated in currencies other than the US dollar have been translated into US dollar at the rate prevailing at each balance sheet date. Non-monetary assets and liabilities in currencies other than the US dollar have been translated into US dollars at historical rates. Non US dollar revenues, expenses and cash flows have been translated into US dollars at rates, which approximate actual rates at the date of the transaction. Translation differences resulting from the use of these rates are included in the statement of income.

 

The cumulative translation effects for those entities using functional currencies other than the US dollar are included in “Foreign currency translation adjustment” on the statement of equity.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management 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.

 

 

Revenue recognition

 

Revenues from the sale of natural gas are recognized when title passes to customers, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sale price is fixed or determinable.

 

Cash

 

Cash and cash equivalents comprise cash balances, call deposits and certificates of deposit with an original maturity of less than three months.

 

Inventories

 

Inventories are stated at the lower of current market value or cost. The cost of inventories is based on the FIFO (first in first out) method and includes expenditures and other charges directly and indirectly incurred in bringing the inventory to its existing condition and location. Inventories are comprised of pipe and other material used to extract gas.

 

Accounts receivable

 

Accounts receivable are recorded at their transaction amounts less allowance for doubtful accounts. Allowance for doubtful accounts is recorded to the extent that there is a likelihood that any of the amounts due will not be obtained.

 

The allowance is based on historical experience, current and expected economic trends and specific information about customer accounts. Accordingly, actual results may differ from these estimates under different assumptions or conditions at the date of the financial statements and the reported amount of revenues and expenses during those reporting periods.

 

Property, plant and equipment

 

Depreciation, depletion and amortization, based on cost less estimated salvage value of the asset, are primarily determined under either the unit-of-production method or the straight-line method, which is based on estimated asset service life taking obsolescence into consideration. Maintenance and repairs, including planned major maintenance, are expensed as incurred. Major renewals and improvements are capitalized and the assets replaced are retired.

 

Production costs are expensed as incurred. Production involves lifting the gas to the surface and gathering, treating, field processing and field storage of the gas. Production costs are those incurred to operate and maintain wells and related equipment and facilities. These costs become part of the cost of gas produced.

 

Interest costs incurred to finance expenditures during the construction phase of multiyear projects are capitalized as part of the historical cost of acquiring the constructed assets. The project construction phase commences with the development of the detailed engineering design and ends when the constructed assets are ready for their intended use.

 

Gas properties (wells) are accounted for using the successful efforts method of accounting whereby property acquisitions, successful exploratory wells, development costs, and support equipment and facilities are capitalized and depleted using the unit-of-production method. Unsuccessful exploratory wells are expensed when a well is determined to be non-productive. Other exploratory expenditures, including geological and geophysical cost are expensed as incurred.

 

The Company capitalizes costs related to exploratory wells and exploratory-type stratigraphic wells for more than one year if the well has found a sufficient quantity of reserves to justify its completion as a producing well and the company is making sufficient progress assessing the reserves and the economic and operating viability of the project. If these conditions are not met or if information that raises substantial doubt about the economic or operational viability of the project is obtained, the well would be assumed impaired, and its cost, net of any salvage value, would be charged to operating expenses.

 

 

The capitalized costs of all other plant and equipment are depreciated or amortized over their estimated useful lives on a straight-line basis.

 

Long-lived assets, including gas properties, are assessed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Such events include write-downs of proved reserves based on field performance, significant decreases in the market value of an asset, significant change in the extent or manner of use of or a physical change in an asset, and a more-likely-than-not expectation that a long-lived asset or asset group will be sold or otherwise disposed of significantly sooner than the end of its previously estimated useful life. Recoverability of assets to be held and used is measured by a comparison of their carrying amount with their estimated undiscounted future cash flows expected to be generated by such assets. Impaired assets are written down to their estimated fair values, generally their discounted, future net before-tax cash flows.

 

Asset retirement obligation and environmental liabilities

 

The Company incurs asset retirement obligations for certain assets. These obligations may include the costs of asset disposal and additional soil remediation. The fair value of a liability for an asset retirement obligation is recorded as a liability when there is a legal obligation associated with the retirement of a long-lived asset and the amount can be reasonably estimated. In the estimation of fair value, the Company uses assumptions and judgments regarding such factors as the existence of a legal obligation for an asset retirement obligation; technical assessments of the assets; estimated amounts and timing of settlements; discount rates; and inflation rates. The costs associated with these liabilities are capitalized as part of the related assets and depreciated. Over time, the liabilities are accreted for the change in their present value.

 

Liabilities for environmental costs are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Environmental expenditures that relate to ongoing operations or to conditions caused by past operations are expensed. Expenditures that create future benefits or contribute to future revenue generation are capitalized.

 

The gross amount of environmental liabilities is based on the Company’s best estimate of future costs using currently available technology. Future amounts are not discounted.

 

Start-up Costs

 

In accordance with ASC 720, “Start-up Activities,” the Company expenses all costs incurred in connection with the start-up and organization of the Company.

 

Common Stock Issued For Other Than Cash Proceeds

 

Services purchased and other transactions settled in the Company's common stock are recorded at the estimated fair value of the common stock issued if that value is more readily determinable than the fair value of the consideration received.

 

Income taxes

 

Income taxes represent amounts paid or estimated to be payable, net of amounts refunded or estimated to be refunded, for the current year and the change in deferred taxes, exclusive of amounts recorded in other comprehensive income.

 

Deferred income tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities and are recognized using enacted tax rates for the effect of such temporary differences. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

 

 

In accounting for uncertainty in income taxes of a tax position taken or expected to be taken in a tax return, the Company utilizes a recognition threshold and measurement attribute for the financial statement recognition and measurement. The recognition threshold requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position in order to record any financial statement benefit. If it is more likely than not that a tax position will be sustained, then the Company must measure the tax position to determine the amount of benefit to recognize in financial statements. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense.

 

Net Income or (Loss) Per Share of Common Stock

The following table sets forth the computation of basic and diluted earnings per share:

 

		For the three months ended September 30								For the nine months ended September 30
		2014				2013				2014				2013
Net loss		$	(80,012	)		$	(3,671,468	)		$	(455,613	)		$	(3,838,497	)
Weighted average common shares outstanding (Basic and Diluted)			51,297,135				42,202,888				51,247,090				42,202,888
Net loss per share (Basic and diluted)		$	(0.00	)		$	(0.09	)		$	(0.01	)		$	(0.09	)

 

As of September 30, 2014 and December 31, 2013, the Company had 51,562,896 and 51,177,896 shares issued and outstanding, respectively. The Company had 155,000 potentially dilutive warrants issued and outstanding at September 30, 2014. For the three and nine months ended September 30, 2014 and 2013, the Company was in a loss position and the basic and diluted loss per share are the same since the effect of stock options and warrants on loss per share was anti-dilutive and thus not included in the diluted loss per share calculation.

 

Significant Concentrations

 

There is currently one customer that makes up 100% of total gas revenue as of September 30, 2014, and September 30, 2013, respectively. The loss of this customer would have a material adverse effect on the Company’s financial condition and results of operations.

 

Recently Enacted Accounting Standards

 

Based on our review of recently enacted accounting standards, the Company believes that none of them are expected to a have a material impact on the Company's financial position, results of operations or cash flows.

 

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

 

		September 30, 2014				December 31, 2013
Wells and related equipment and facilities		$	709,066			$	1,199,912
Buildings, equipment, vehicles, and other PPE			387,478				657,439
			1,096,544				1,857,351
Less: Accumulated depreciation			(492,189	)			(766,814	)
			604,355				1,090,537

 

The Group’s property, plant and equipment listed above include asset retirement costs associated with its asset retirement obligations (Note 6).

 

 

Exploratory wells

 

The following two tables provide details of the changes in the balance of suspended exploratory well costs as well as an aging summary of those costs.

 

Change in capitalized suspended exploratory well costs:

 

		September 30, 2014				December 31, 2013
Beginning balance		$	412,028			$	412,028
Effect of translation to presentation currency			(171,706	)			-
Ending balance			240,322				412,028

 

Aging of capitalized suspended exploratory well costs:

 

		September 30, 2014				December 31, 2013
Capitalized for a period of one year or less		$	-			$	-
Capitalized for a period of between one and five years			33,283				33,283
Capitalized for a period of between five and ten years			374,274				378,745
Capitalized for a period of greater than ten years			4,471				-
Effect of translation to presentation currency			(171,706	)			-
			240,322				412,028

 

Capitalized exploratory well costs are related to one project, represented by two wells drilled during 2003-2004: $103,144 and $134,331 and related expenses of $2,847 as of September 30, 2014. Decrease in value of these expenses was due to foreign currency devaluation. Due to technical and geological reasons, the wells were suspended in 2005. Currently, the Company is considering an overhaul and intensification of gas produced from these wells. The final assessment of the operational and economic viability of the production from those wells is expected at the end of 2015.

 

NOTE 5 – RELATED PARTIES

 

		September 30, 2014				December 31, 2013
Note payable to related parties		$	349,551			$	341,953
Related party payables			152,525				3,025
			502,076				344,978

 

Total amounts due to related parties as of September 30, 2014 and December 31, 2013 was $502,076 and $344,978, respectively.

 

Notes payable to related parties consists of the following agreements:

 

1)

On August 5, 2014, the Company entered into a financial support agreement with LLC “Innovative financial technologies” which provided funds in the amount of $12,051. The total amount available under the agreement is 400,000 UAH (equivalent of $29,572 USD as at September 30, 2014). The agreement is interest free, with an initial repayment term of 6 months for the first tranche and subject to extension.

 

2)

On July 25, 2013, GEEI entered into the Option Agreement with BHL, whereby BHL granted to GASE an option to purchase 1,000 shares of equity capital of SSL, representing all issued and outstanding shares of SSL, for $1,250,000. Under the Option Agreement, GEEI was required to pay to BHL $412,500 as an advance payment to be credited towards the purchase price of the SSL shares. The Company made the advance payment on July 25, 2013. The balance of the purchase price in the amount of $837,500 was paid by GEEI upon exercise of the option that was completed on November 25, 2013 by paying to BHL $500,000 in cash and issuing a promissory note in the principal amount of $337,500 for the balance of the option exercise price. The note bears no interest and has a maturity date of December 31, 2013, which was extended to March 31, 2015. The obligations of GEEI under the note are secured by 1,000 shares of SSL purchased by GEEI under the Option Agreement in accordance with the Pledge and Security Agreement dated November 25, 2013 made by GEEI in favor of the collateral agent acting on behalf of BHL. As of September 30, 2014, the Company had reduced the cost of the option by $165,000, paid $2,597 by common shares valued at par, paid $750,000 in cash with $337,500 remaining as a non interest bearing loan to BHL.

 

 

Related party payables consist of reimbursement of expenses and compensation to the Company’s acting Chairman and acting CEO for their services. Each of them was to receive the Company’s common shares in addition to a monthly cash payment for the period of April 15, 2013 through December 31, 2013. The compensation was calculated based on their average hours worked per week applied to an hourly rate that is compatible to the market rate of similar positions. As of September 30 2014 and December 31, 2013 amounts outstanding were $152,525 and 3,025, respectively.

 

NOTE 6 – ASSET RETIREMENT OBLIGATIONS

 

Change in asset retirement obligations:

 

		Year ended
		September 30, 2014				December 31, 2013
Beginning balance			56,917				53,591
Accretion expense			3,646				3,326
Effect of translation to presentation currency			(24,041	)			-
Ending balance			36,522				56,917

 

NOTE 7 – STOCKHOLDERS’ EQUITY

 

As of December 31, 2013, the Company has authorized 110,000,000 shares consisting of 100,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of blank check preferred stock, par value $0.0001 per share.

 

On September 16, 2013, the Company effected a 56-for-1 forward stock split of its issued and outstanding shares of common stock. All common share and per share amounts have been restated for all periods presented for this stock split. As of September 30, 2014 and December 31, 2013, the Company has issued 51,562,896 and 51,177,896 of the authorized shares of common stock respectively.

On April 15, 2013, the Company issued 330,008 shares of common stock to the President and director as part of their consulting agreements. The shares were valued based on an hourly rate of $150 that is compatible with the market rate for the similar positions and applied to their average of a combined 30 hours per week. The Company valued their services excluding the cash payments at $39,915. The Company also recorded the closing of Great East Energy (NV)’s accumulated deficit to additional paid in capital as part of the share exchange agreement. The shares related to this issuance were cancelled as part of the recapitalization on July 15, 2013.

On July 25, 2013, the Company issued 25,964,960 shares of Common Stock to BHL in connection with the option grant closing under the Option Agreement. The stock compensation for the period was calculated at par of $0.0001 per common share or $2,597.

 

From July 25, 2013 to December 31, 2013, the Company entered into and consummated transactions pursuant to a series of the Subscription Agreements (the “Subscription Agreements”) with certain accredited investors whereby the Company issued and sold to the investors for $1.00 per share an aggregate of 1,439,928 shares of the Company’s Common Stock for an aggregate purchase price of $1,440,000 (the “Private Placement”). The Company paid $89,593 in offering cost related to the private placement.

On July 25, 2013, the Company cancelled 168,000,000 shares of common stock per the terms of the Share Exchange Agreement.

 

During the month of August 2013, the Company issued 3,777,984 shares of common stock to officers, directors, and consultants in exchange for services provided at a value of $1.00 per common share or $3,777,984.

 

On November 26, 2013, the Company issued one share of Series A Preferred Stock to BHL. The holder of the Series A Preferred Stock is entitled to vote together with the holders of the Company’s common stock, with such holder entitled to 30% of the total votes on all such matters, and the holders of Common Stock and any other shares entitled to vote are entitled to their proportional share of the remaining 70% of the total votes based on their respective voting power. Each share of Series A Preferred Stock is convertible into one share of the Company’s common stock upon the earlier to occur of (i) Twelve (12) months from July 25, 2013 or (ii) the Company closing financings with gross proceeds of at least $4,000,000 on a cumulative basis from July 25, 2013. Shares of Series A Preferred Stock are not redeemable and have no liquidation preference.

 

On January 16, 2014, the Company issued 50,000 shares of Common Stock to an investor for $50,000.

 

On February 24, 2014 Mr. Herve Collet was appointed Chief Operating Office. The Company agreed to issue Mr. Collet 300,000 shares of stock of which 150,000 shares vest as of the date of the agreement and 150,000 shares vesting and issued 181 days after the date of the agreement. As of March 31, 2014 the first 150,000 shares had not been issued. On February 24, 2014 the stock was trading at $0.64 whereby the shares were valued at $96,000 and was recorded as a payable to related parties.

 

On June 11, 2014, the Company issued 60,000 shares of Common Stock to an investor for $60,000.

 

 

On July 25, 2014, one share of Series A preferred stock was automatically converted into one share of the Company’s common stock.

 

On August 28, 2014, the Company issued 25,000 shares of Common Stock to an investor for $25,000.

 

On September 24, 2014, the Company and Fedoriv.Com INC LP concluded an agreement to provide comprehensive services for promoting Company’s trademarks and products. The payment for services provided by Fedoriv.Com INC LP is 500,000 shares of Common Stock. On September 26, 2014 the Company issued 250,000 shares of Common Stock to Fedoriv.com Inc. LP.

 

NOTE 8 – STOCK PURCHASE WARRANTS

 

During the nine month period ended September 30, 2014, the Company issued warrants to purchase a total of 11,000 shares of the Company’s Common Stock. The Company issued the warrants as stock offering costs of 10% of the total dollar value of subscriptions at $1.00 per share under the agreement with the placement agent. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below totaling $3,698 booked to additional paid in capital and offset as stock issuance fees. Volatility was calculated by using the average volatility of three benchmark companies in the same line of business with similar revenues and assets. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants.

 

There were no warrants issued during the third quarter of 2014.

 

The following table presents the assumptions used to estimate the fair values of the stock warrants and options granted during the nine months ended September 30, 2014:

 

		2014				2013
Expected volatility			287-364	%			287-294	%
Expected dividends			0	%			0	%
Expected term			5 Years				5 Years
Risk-free interest rate			1.36-1.70	%			1.36-1.43	%

 

 

The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company during the nine months ended September 30, 2014.

 

Date Issued		Number of Warrants				Weighted Average Exercise Price				Weighted Average Grant Date Fair Value				Expiration Date (yrs)
Balance December 31, 2013			144,000			$	1.00			$	1.00				5.00
Granted			11,000				1.00				0.34				5.00
Exercised			-				-				-				-
Cancelled/Expired
Outstanding as of September 30, 2014			155,000			$	1.00			$	0.95				5.00

 

NOTE 9 – TAXES PAYABLE

 

		September 30, 2014				December 31, 2013
VAT payable			927				4,432
Other taxes payable			10,661				5,135
			11,588				9,567

 

NOTE 10 – FOREIGN CURRENCY TRANSLATION

 

Transactions involving the Company's two natural gas companies in Ukraine, are denominated in Ukrainian Hryvnia. Assets and liabilities denominated in Ukrainian Hryvnia are revalued to the United States dollar equivalent. The effect of change in exchange rates from the transaction dates to the reporting date, for assets and liabilities, is reported as a Cumulative Currency Translation Adjustment and included in Other Comprehensive Gains or (Losses). As of September 30, 2014, the Company’s accumulated translation loss totaled $434,333.

 

NOTE 11 –COMMITMENTS AND CONTINGENCIES

 

Operating environment

 

The principal business activities of the Group are within Ukraine. Emerging markets such as Ukraine are subject to different risks than more developed markets, including economic, political and social, legal and legislative risks. As has happened in the past, actual or perceived financial problems or an increase in the perceived risks associated with investing in emerging economies could adversely affect the investment climate in Ukraine and the Ukraine’s economy in general. Laws and regulations affecting businesses operating in Ukraine are subject to rapid changes and the Group’s assets and operations could be at risk if there are any adverse changes in the political and business environment.

 

Taxation

 

The tax environment in Ukraine is constantly changing and characterized by numerous taxes and frequently changing legislation, which may be applied retroactively and are often unclear, contradictory, and subject to interpretation. Taxes are subject to review and investigation by a number of authorities, which are enabled by law to impose severe fines, penalties and interest charges and these amounts could be material. Future tax examinations could raise issues or assessments which are contrary to the Group companies’ tax filings.

 

 

Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable tax legislation and official pronouncements.

 

Environmental liabilities

 

The Group routinely evaluates their obligations relating to new and changing environmental legislation.

 

As liabilities in respect of the Group’s environmental obligations are able to be determined, they are recognized immediately. The likelihood and amount of liabilities relating to environmental obligations under proposed or any future legislation cannot be reasonably estimated at present and could become material. Under existing legislation, however, management believes that there are no significant unrecorded liabilities or contingencies, which could have a materially adverse effect on the operating results or financial position of the Group.

 

Political Risks

 

After continuous political and social turbulence that resulted in dismissal of the acting President of Ukraine, on February 27, 2014, the Ukrainian parliament appointed an interim government with a mandate to execute the Ukraine-EU Association and Free trade agreements, negotiated USD 16 billion IMF program in order to support implementation of liberal economic, judicial and social reforms. The Parliament also scheduled presidential elections which took place May 25, 2014. The US and European Union also agreed to provide additional USD 20 billion financial and technical support for Ukraine in light of its recent economic and military tensions with Russian Federation. The Parliament also scheduled the presidential elections, which took place on May 25, 2014. As a result Mr. Petro Poroshenko won the presidency with overwhelming majority in first round.

 

Political unrest in Ukraine of the past months and recent increase in political, economic and military pressures from Russian Federation, had fueled activity of various secessionist groups in the eastern part of the country. This may have an adverse effect on the national security and economy, and increase risks of doing business in Ukraine or investing in the companies doing business in Ukraine. The situation is exacerbated by the tensions with the Russian Federation which annexed the Crimean peninsula in March 2014 and built up a significant military presence at its border with Ukraine. Russia actively provides financial, military and human resources to illegal armed groups, which are active in some north-eastern parts of Donbass. In order to counteract to such activities and potential consequences, starting from April, the government, enforcement agencies and armed forces of Ukraine are implementing anti terrorists operation (ATO).

 

Petr Poroshenko, the President of Ukraine elected in May 2014, presented his program of peaceful regulation of the situation in the East of Ukraine. Based on this peaceful plan, the signing of the protocol which contains the steps and measures aimed at de-escalation of the situation in Donetsk and Lugansk regions took place in Minsk at the beginning of September.

 

This protocol was signed by Ukraine, the Organization for Security and Co-operation in Europe (OSCE) and Russia and contains 12 steps which regulate the process of implementation of peace on the given territory. In connection with signing the cessation of arms and cease-fire was announced. Together with that, the terrorists do not follow this condition and the locations of Ukrainian army undergo the firing.

 

At the end of August, the President of Ukraine announced about the dismissal of the Parliament and the pre-term elections to the Parliament on October 26th.

 

During September-October the Parliament adopted several important laws including the laws aimed at the reforms in Ukraine and improvement of the investment climate in Ukraine: laws on the public prosecutor’s office, the National anti-corruption bureau of Ukraine and on the prevention of corruption.

 

The territory where the licensed area of the Company is located and the operation activity is implemented is located on the territory controlled by Ukrainian military forces. The bank system (commercial banks and the National Bank of Ukraine) and the system of the state regulation (state and tax administrations) fully function, which enables the Company to receive the cash assets in time and make all necessary payments.

 

 

October 26, 2014 early parliamentary elections took place. The elections were held under a mixed system: 225 deputies from parties and 225 deputies by majority districts. According to the results of the parliamentary elections were held six political parties: Block Poroshenko, the Narodnuy Front (Yatsenyuk), Samopomich, Opposition bloc, the Radical Party and the Batkivshchyna (Yulia Tymoshenko). Four parties announced the beginning of negotiations on forming a coalition and formation of a new Cabinet of Ministers. The coalition will be formed on the basis of the European choice of Ukraine, the need for structural economic reforms and the restoration of the territorial integrity of the country. The European Union, the International Monetary Fund and others international financial institution support efforts of Ukraine government and provide financial assistance and loans.

 

Such events and circumstances have an adverse effect on investment climate in Ukraine and in case of further escalation might have further negative impact on the business environment.

 

Equipment

 

On July 22, 2014, the Company entered into an agreement for supply of a two-stage compressor in the Ukraine. The cost of the compressor is 19,090 EUR. The equipment will be complete and delivered in approximately 11 weeks. The payment for the equipment is to be made by two payments: 40% was paid after the signing of agreement (11,454 EUR) and the balance of 60% after the delivery. Delivery is expected in the Ukraine in November.

 

NOTE 12 – GOING CONCERN

 

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has incurred $3,275,040 in accumulated deficit since its inception and has generated $57,236 and $175,946, in operating revenue during the three and nine months ended September 30, 2014. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

 

In view of these matters, realization of the assets of the Company is dependent upon the Company’s ability to meet its financial requirements through equity financing and the success of future operations. These condensed consolidated financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

 

NOTE 13 – SUBSEQUENT EVENTS

 

The Company has evaluated events from September 30, 2014 through the date the financial statements were issued and determined no subsequent events warranted accounting disclosure.

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

THE DISCUSSION IN THIS SECTION CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE RELATING TO FUTURE EVENTS OR OUR FUTURE PERFORMANCE. WORDS SUCH AS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE," "MAY" AND SIMILAR EXPRESSIONS OR VARIATIONS OF SUCH WORDS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, BUT ARE NOT THE ONLY MEANS OF IDENTIFYING FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE ONLY PREDICTIONS AND ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS, WE URGE YOU TO CAREFULLY CONSIDER VARIOUS FACTORS IDENTIFIED IN THIS REPORT, WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.

 

The Company is focused on growing gas production volumes in Ukraine through expansion of its assets base by exploring and developing its existing license field, as well as through evaluation and pursuit of new investment opportunities. The Company’s management anticipates that in addition to the existing assets which will continue to provide ongoing revenues from our productive gas wells, the Company's surface and sub-surface facility optimization, expected new drilling activities and discovery of new resources will contribute to increased production volumes.

 

Plan of Operations

 

Since 2004, the Company explored and developed the shallow gas-bearing horizons only at two of seven domes within the license area; we currently operate only two productive wells. Thus, we believe that the Company has unrealized opportunity and can create the base for further expansion. We have developed a production increase plan for years 2014-2018, key elements of this plan include:

 

Increase production within overthrust/belowthrust domes. We plan to enhance our gas production volumes on Northern Tomashevskoye and Southern Tomashevskoye domes through fracking and stimulation on our existing two exploratory, but currently suspended wells. Our 2014-2018 drilling program also includes drilling three new “shallow” and four new “deep” operated wells on Northern Tomashevskoye and Southern Tomashevskoye domes with implementation of fracking and stimulation technology to enhance initial production. In addition we plan to drill nine new “deep” exploratory wells on Zolotarivska, Toshkievskaya and Petrograd-Donetsk domes with fracking and stimulation.

 

Start of AMM production. We intend to start production of abandoned mine methane (AMM) by modernizing degasification equipment and connecting our current two degassing wells with existing delivery infrastructure. In addition, we intend to significantly enhance our coal bed methane (CBM) production by drilling on the developed domes numerous new shallow vent-wells up to 500m each.

 

Conduct further geological research within our Lisichansk-Toskovskay area. We intend to obtain new geological information for potential additional under-fault gas resources by reworking and deepening the 7K well up to 1,500 meters (under the fault) or drilling a new well up to 1,500 meters. In any case, the Company will hold the cement stabilization on the horizon 600, enter into production and produce the gas methane on 7-K from productive horizon at depth of 555-570 m.

 

We will also focus our efforts to carry out modern geological studies on the entire license area through 2D and 3D seismic as well as modern helium survey. As a result, we expect to compile a geophysical database and obtain geological proofs to update our reserves valuation. The Company plans to conduct geological research in 2015.

 

Our 2014-2018 strategic and operational plan is subject to various factors, including the ability to obtain adequate financing, market conditions, gas field services and equipment availability, commodity prices, drilling results and political instability. While we continue to explore opportunities to enhance our gas production volumes, our main efforts will be focused on drilling and completing wells. If we choose to pursue the rapid expansion strategy, we will contemplate obtaining greenfield licenses directly from government authorities and acquire underperforming existing operators that have room to grow.

 

 

Due to unfavorable political and military situation, the Company has decided not to initiate a drilling program in 2014. Since the Company’s licensed area is located at a place under the control of public authorities and the Ukrainian army, the Company began negotiations with the service (drilling) companies about the possible start drilling in the first quarter of 2015 shallow wells. These wells will be drilled for the development of production of AMM.

 

Results of Operations for the Three and Nine Months ended September 30, 2014 and 2013

 

The following table discloses our gas sales volumes for the periods indicated:

 

		For the Three Months Ended September 30,								For the Nine months Ended September 30,
		2014				2013				2014				2013
Sales Volume:
Gas production (MMcf)			5.05				7.13				17.41				22.00
Gas sales price ($/Mcf) (excluding VAT)			9.39				9.77				8.56				9.68
Gas sales ($)			47,425				69,672				148,930				212,845

 

Natural gas sales revenues. Natural gas sales volumes decreased by 2.08 MMcf and 4.59 MMcf to 5.05 MMcf and 17.41 MMcf for the three and Nine months ended September 30, 2014, respectively, compared to the same periods in 2013. Natural gas revenues decreased by $22,247 and $63,915 to $47,425 and $148,930 for the three and nine months ended September 30, 2014, respectively, compared to the same periods in 2013. The decrease in natural gas revenues was due to the devaluation of the hryvnia currency and also to the decrease of gas methane production compared to the same period in 2013.

 

The following table sets forth selected consolidated financial data as of and for the three and nine months ended September 30, 2014 and 2013.

 

		For the Three Months Ended September 30,								For the Nine months Ended September 30,
		2014				2013				2014				2013
Gas sales		$	47,425			$	69,672			$	148,930			$	212,845
Other sales			9,214				14,215				24,309				23,635
Other income			597				3,070				2,707				19,357
Total Revenues and Other Income			57,236				86,957				175,946				255,837
Operating expenses:
Operating and maintenance expenses			42,129				70,293				134,724				182,894
General and administrative expenses			20,008				38,859				90,644				138,833
Depreciation, depletion and amortization			15,541				25,677				53,101				80,979
Professional fees			52,139				3,613,984				346,409				3,687,059
Total Operating Expenses			129,817				3,748,813				624,878				4,089,765
Loss from operations			(72,581	)			(3,661,856	)			(448,932	)			(3,833,928	)
Other income (expense):
Finance costs			-				(6,382	)			-				(8,240	)
Total other income (expense)			-				(6,382	)			-				(8,240	)
Loss before income taxes			(300,081	)			(3,668,238	)			(448,932	)			(3,842,168	)
Income tax benefit/(provision)			(7,431	)			(3,230	)			(6,681	)			3,671
Net loss applicable to common shares		$	(307,512	)		$	(3,671,468	)		$	(455,613	)			(3,838,497	)
Other comprehensive loss:
Foreign currency translation adjustment			(86,396	)			-				(434,333	)			(501	)
Total other comprehensive loss			(86,396	)			-				(434,333	)			(501	)
Comprehensive Loss		$	(166,408	)		$	(3,671,468	)		$	(889,946	)			(3,838,998	)

 

 

Other income and other sales. Our other sales and income mainly included revenues using the Company-owned transportable machinery and equipment, such as a cementing unit, compressor unit and pump set to render services to third parties. Other income and other sales decreased by $7,474 and $15,976 to $9,811 and $27,016 for the three and nine months ended September 30, 2014, respectively, compared to the same periods ended September 30, 2013.

 

Operating and maintenance expenses. Our operating and maintenance expenses of $42,129 for the three months ended September 30, 2014 mainly included wages and salaries of the gas production personnel, cost of materials, taxes and duties. Operating and maintenance expenses decreased by $28,164 and $48,170 to $42,129 and $134,724 for the three and nine months ended September 30, 2014, respectively, compared to the same periods ended September 30, 2013, mainly due to decreases in material expenses.

 

General and administrative (“G&A”) expenses. G&A expenses decreased by $18,851 and $48,189 to $20,008 and $90,644 for the three and nine months ended September 30, 2014, respectively, compared to the same periods ended September 30, 2013. Substantial cost saving is connected with the fact that in the relevant period of 2013, the company attracted the engineering companies for preparation of the necessary documentation for submission to the state authorities for extension of the special permit for production of gas by Ukrainian companies.

 

Depreciation, depletion and amortization (“DD&A”) expenses. Our DD&A expense decreased by $10,136 and $27,878 to $15,541 and $53,101 for the three and nine months ended September 30, 2014, respectively, compared to the same periods ended September 30, 2013.

 

Professional fees. Professional fee expenses decreased by $3,561,845 and $3,340,650 to $52,139 and $346,409 for the three and nine months ended September 30, 2014, respectively, compared to the same periods ended September 30, 2013. During the respective period of 2013, the Company made purchases of Ukrainian assets, accompanied by significant professional costs, which activity was not repeated in the 2014 period. Professional fee expenses in 2013 included legal fees and consulting expenses related to the preparation, execution and consummation of a series of transactions we entered during year 2013 pursuant to a Share Exchange Agreement, Stock Purchase Option Agreement and Private Placement of Common Stock.

 

Loss from operations. Our operating loss decreased by $3,589,275 and $3,384,997 to $75,581 and $448,931 for the three and nine months ended September 30, 2014, respectively, compared to same periods ended September 30, 2013. This decrease in operating loss is primarily attributed to a decrease in professional fees.

 

Net loss. Our net loss decreased by $3,591,456 and $3,382,885 to $80,012 and $455,612 for the three and nine months ended September 30, 2014, respectively, compared to same periods ended September 30, 2013. This decrease in operating loss is primarily attributed to a decrease in professional fees.

 

Liquidity and Capital Resources 

 

The financial statements for the three and nine months ended September 30, 2014 and 2013, were prepared assuming we will continue as a going concern. The Company has incurred $3,275,040 in accumulated deficit since its inception and has generated $57,236 and $175,946, in operating revenue during the three and nine months ended September 30, 2014. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

 

In view of these matters, realization of the assets of the Company is dependent upon the Company’s ability to meet its financial requirements through debt or equity financing and the success of future operations. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet our needs and we can provide no assurance that we will continue to satisfy our cash requirements for the next twelve months. These condensed consolidated financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

 

 

Our initial drilling program for 2014 was designed to provide flexibility in identifying suitable well locations and in the timing and size of capital investment. Due to unfavorable political developments in Ukraine, as described in Note 12 to the attached accompanying condensed consolidated financial statements, the company decided to postpone the beginning of drilling of new wells to the first quarter of 2015. Since the drilling program in 2014 has not been implemented, we do not expect a significant increase in our cash flow from operations.

 

The following is a summary of our change in cash and cash equivalents for the Nine months ended September 30, 2014 and 2013:

 

		For the Nine months ended September 30
		2014				2013				Change
Net cash used in operating activities		$	(206,578	)		$	(2,929,300	)		$	2,722,722
Net cash used in investing activities			(3,281	)			(966,769	)			963,488
Net cash provided by financing activities			142,128				4,266,184				(4,124,056	)
Increase (Decrease) in cash		$	(67,731	)		$	370,116			$	(437,847	)
Effect of translation			(9,699	)			(500	)			(9,199	)
Net Increase (Decrease) in cash			(77,430	)			369,616				(447,046	)

 

Operating activities.

 

During the Nine months ended September 30, 2014 cash used in operating activities was $206,578 as compared to cash used in operating activities during the same period ended September 30, 2013 in the amount of $2,929,300. This decrease in cash used in operating activities is primarily attributed to a decrease in professional fees.

 

Investing activities.

 

During the Nine months ended September 30, 2014 and 2013, net cash used in investing activities was $3,281 and $966,769, respectively. The decrease in cash used in investing activities in 2014 was primarily attributed to a decrease in deposits for investments compared to the prior year period.

 

Financing activities.

 

During the Nine months ended September 30, 2014 and 2013, cash provided by financing activities was $142,128 and $4,266,184, respectively. The decrease in cash provided by financing activities in 2014 was primarily due to a decrease in proceeds received from the issuance of common stock for cash compared to the prior year period. 

 

Off-Balance Sheet Arrangements

 

We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "special purpose entities" (SPEs).

 

ITEM 4.   CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

 

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure. 

 

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

 

Changes in Internal Controls over Financial Reporting

 

No change in our system of internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

  

PART II-  OTHER INFORMATION

 

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On September 26, 2014, the Company issued 250,000 shares of common stock to a consultant for services for promoting Company’s trademarks and products.

 

The foregoing issuance of the shares were effectuated pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(2) of the Securities Act and/or Regulation S promulgated thereunder.

 

ITEM 6.   EXHIBITS.

 

(a) The following exhibits are filed herewith:

 

31.1	Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.DEF	XBRL Definition Linkbase Document
101.LAB	XBRL Label Linkbase Document
101.PRE	XBRL Presentation Linkbase Document

   

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	GASE Energy, Inc.
Date: November 14, 2014	By:	/s/ Timur Khromaev
		Name: Timur Khromaev
		Title: Chief Executive Officer, Chief Financial Officer and Director (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

 

 

6

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EXHIBIT 31.1

 

CERTIFICATION

 

I, Timur Khromaev certify that:

 

1. I have reviewed this report on Form 10-Q of GASE Energy, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: November 14, 2014	By:	/s/ Timur Khromaev
		Timur Khromaev
		Chief Executive Officer, Chief Financial Officer and Director (principal executive officer, principal financial officer and principal accounting officer)

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

The undersigned hereby certifies, in her capacity as an officer of GASE Energy, Inc. (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

 

(1) The Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended September 30, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

  

Dated: November 14, 2014	By:	/s/ Timur Khromaev
		Timur Khromaev
		Chief Executive Officer, Chief Financial Officer and Director (principal executive officer, principal financial officer and principal accounting officer)

 

A signed original of this written statement required by Section 906 has been provided to GASE Energy, Inc. and will be retained by GASE Energy, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.