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PUISSANT INDUSTRIES, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) As used in this Form 10-Q, references to "we," "our" or "us" refer to Puissant Industries, Inc. unless the context otherwise indicates. Forward-Looking Statements The following discussion should be read in conjunction with our financial statements, which are included elsewhere in this Form 10-Q (the "Report"). This Report contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Corporate History Corporate Overview. We were incorporated on July 6, 2009, in the state of Wyoming as American Resource Management, Inc. We changed our domicile to the State of Florida on March 17, 2011 and simultaneously changed our name to Puissant Industries, Inc.. Our principal offices are located at 520 Whitley Street, London Kentucky and our telephone number is (606) 864-3161 20 --------------------------------------------------------------------------------Business Description. We are engaged in oil and gas exploration and development activities in fractured formations located in Kentucky. On or about January 15, 2005, Sovereign One, Inc., a company controlled by Mark Holbrook, McCrome International Inc., a company controlled by Cora J Holbrook and Logos Resources, Inc., a company controlled by Marshall Holbrook entered into an agreement with A.D.I.D. Corporation, a Kentucky corporation controlled by Marshall Holbrook ("A.D.I.D.") whereby A.D.I.D. agreed to acquire oil and gas leases and properties and assign such oil and gas leases and properties as specified by Sovereign One Inc., McCrome International, Inc., and Logos Resources, Inc. In exchange for our issuance of an aggregate of 5,250,000 shares of our common stock representing 1,750,000 common shares to each Sovereign One Inc., McCrome International, Inc. and Logos Resources, Inc., A.D.I.D. assigned the following interests to us: (i) On August 9, 2010, 100% ownership in: (a) 34,000 of 2-inch natural gas pipeline and 60,000 feet of 4-inch natural gas pipeline, compressor stations, right of ways and easements located in Clay and Laurel Counties, Kentucky; and (b) 59,000 feet of 2-inch natural gas pipeline and 10,000 feet of 4-inch natural gas pipeline, compressor stations, right of ways and easements located in Whitley County, Kentucky; and (ii) On February 15, 2010, a 100% working interest and an 85% net revenue interest of 39 oil and gas wells and leases in Kentucky wells (the "Wells"). This working interest gives us the ability to explore for and to produce and own oil, gas or other minerals from the Wells. As the working interest owner, we bear the exploration, development, and operating costs from the property. The net revenue interest provides us with approximately 85% of the proceeds from any oil and gas production on the Wells after payment of all operating and development costs. 21 -------------------------------------------------------------------------------- Beginning in the fourth quarter of 2011, we commenced recompletion of old wells by connecting the wells to our existing pipeline. During this period, we located the first purchaser of the natural gas from the recompleted wells, Seminole Energy Services. In the fourth quarter of 2011, we acquired the surface mineral and property rights to 100 acres and subsurface rights to 175 acres in Clay County Kentucky. On July 12, 2011, we formed our wholly owned subsidiary, ARM Operating Company ("ARM"), a Kentucky corporation which manages all of our oil and gas properties and oversees the operation, development, and maintenance of all our oil and gas wells, leases, and reserve activities. ARM is registered as the operator of wells with all relevant governmental agencies, and is responsible for maintaining production and maintenance reports for all of our wells and facilities. Our officers and Board of Directors makes all decisions concerning ARM. On May 1, 2014, we purchased approximately 14 miles of 4-inch pipeline, 3 Knox Oil and Gas Wells, Compressor Station Site and related facilities and 814 acres for oil and gas development from N.A. Energy Resources Corporation and Kentucky Petroleum Operating Ltd for consideration of $400,000 cash to be paid at $10,000 per month with no interest. The additional 14 miles of pipeline is estimated to increase the Company's capacity by 82%, from 1.82 MMCFPD (million cubic feet per day) to 3.31 MMCFPD. On May 30, 2014, we completed a new compressor station on the site acquired from N.A. Energy Resources Corporation. The new compressor station was built at a cost of $34,44 On July 8, 2014, we formed our wholly owned subsidiary, American Pipeline Company ("APC"), a Kentucky corporation which owns, manages and maintains all of our oil and natural gas pipelines and facilities. Our officers and Board of Directors makes all decisions concerning ARM. Report by Independent Engineering Firm An independent petroleum-engineering firm provided the following information with respect to the proved reserves attributable to our properties as of December 31, 2013. Proved Developed Proved Total Producing Undeveloped Proved Net Reserves Natural Gas -MMcf 3,523,315 12,426,644 15,949,959 Oil / Condendsate -Mbbl 39,317 157,264 197,026 Natural Gas Liquids - Mbbl 0 326,862 326,862 Income Data Future Gross Revenue $ -M 14,440.382 63,935.218 78,375.600 Deductions $ -M 3,032.083 13,384.852 16,416.935 Future Net Income Undiscounted $ -M 11,408.299 50,550.366 61,958.665 Discounted @10% (Net Present Value) $ -M 5,975.694 23,251.996 29,227.690 22-------------------------------------------------------------------------------- The foregoing estimated proved reserve data was prepared using unweighted average first-day-of-the-month prices for the year ended December 31, 2013. The Securities and Exchange Commission (SEC) pricing guidelines were used to set the oil and gas prices. An oil price of $96.94 per barrel (Bbl), a natural gas liquids price of $36.68 per barrel (Bbl) and gas price of $3.671 per million British Thermal Unit (MMbtu) were used in this study. The prices were adjusted for energy content, price differentials, and other expenses as needed. Our proved natural gas reserves were 15.949 billion cubic feet (Bcf), or 2.6583 million barrels of oil equivalent (BOE) (1Bbl = 6 Mcf basis). The proved oil reserves were .197 million barrels. The proved natural gas liquids (NGL) reserves were .327 million barrels, for a total of 3.182 million barrels of oil equivalent (BOE). The Net Present Value, discounted at 10%, of the estimated future net cash flow before income taxes (PV-10) of our total proved reserves at December 31, 2013 was $29.227 million. Uncertainties There are many uncertainties inherent in estimating quantities and values of proved reserves and projecting future rates of production and timing of development. The reserve data set forth herein, although prepared by an independent petroleum engineer in a manner customary in the industry, are estimates only, and the actual quantities and values of oil and gas are likely to differ from the estimated amounts set forth herein. In addition, the reserve estimates for our properties will be affected by future changes in sales prices of oil and gas produced. Other than those filed with the SEC, our estimated reserves have not been filed with or included in any reports to any federal agency. Results of operations Three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 For the three months ended June 30, 2014, we generated total revenues of $189,705, consisting of $178,516 in oil and gas production revenues and $11,189 in royalty income. For the three-month period ending June 30, 2013, we generated total revenues of $122,289 consisting of oil and gas production of $111,622 in oil and gas production revenues and $10,667 of royalty income. The $67,416 increase or 55% increase in our total revenues for the three months ended June 30, 2014 compared to the June 30, 2013 is primarily attributable to the increase of $66,894 of oil and gas production revenues in the June 30, 2014 quarter compared to the June 30, 2013 quarter. For the three month period ended June 30, 2014 and June 30, 2013, we incurred total costs and expenses of $172,926 and $155,161, respectively, The total costs and expenses for June 30, 2014 and June 30, 2013 periods represents a $17,765 increase in our operating expenses during the June 30, 2014 quarter compared to the June 30, 2013 quarter; however, there are material differences in the comparisons of type costs and expenses between the 2014 quarter and 2013 quarters, as follows: (a) a $4,049 increase in lease operating expenses; (b) a $4,500 increase in exploration costs, of which there were no such costs during the three months ended June 30, 2013; (c) a $19,849 increase in administrative expenses; and (d) offset by a $10,633 decrease in depreciation and depletion. 23--------------------------------------------------------------------------------Six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 For the six months ended June 30, 2014, we generated total revenues of $363,451 consisting of $342,056 in oil and gas production revenues and $21,395 in royalty income. We reported $233,007 of total revenues for the six-months ended June 30, 2013, consisting of 213,007 in oil and gas production and $20,229 in royalty income. The $130,444 increase in our revenues for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 is primarily attributable to an increase of $129,049 in oil and gas produdction compared to the six months ended June 30, 2013. For the six month period ended June 30, 2014 and June 30, 2013, we incurred operating expenses of $363,451 and $353,758, respectively, representing increased expenses of $9,693. This increase is primarily attributable to a $32,236 increase in administrative expenses offset by a $25,923 increase in lease operating expenses during the six months ended June 30, 2014 compared to the six months ended June 30, 2013. Liquidity At June 30, 2014, we had total current assets of $354,932 consisting of $92,929 in cash, $67,500 in accounts receivable and $194,503 in prepaid expenses for professional services. Total current liabilities at June 30, 2014 were $53,895, consisting of accounts and accrued expenses payable of $45,700, notes payable - current portion of $4,195 and due to related parties of $4,000. At June 30, 2014, we had positive working capital of $301,037. Our material sources and uses of cash for the three months ended June 30, 2014 and 2013 are as follows: 2014 2013 Net cash provided by operating activities $ 61,387 99,169 Net cash used in investing activities $ (36,784 ) $ (101,080 ) Net cash provided by (used in) financing activities $ 8,995 (935 ) Increase (decrease) in cash $ 33.598 $ (2,846 ) Our net gain of $15,023 for the three months ended June 30, 2104 compared to a net loss of ($34,690) for the three months ended June 30, 2013 represents an increased net gain of $50,713. The primary component of our positive operating cash flow for the three months ended June 30, 2014 were a $67,416 increase in total revenues comparing the 2014 to the 2013 quarter. 24 --------------------------------------------------------------------------------TRENDS AND UNCERTAINTIES Our operations are subject to certain trends and uncertainties: o Supply and demand factors in the oil and gas industry; o Actions by United States policy makers in the oil and gas industry, particularly those that impact upon supply, demand and price; o Whether we are able to obtain adequate financing to expand our operations; o Fluctuating changes in the market price of oil and natural gas; and o Weather, imports, marketing of competitive fuels, proximity and capacity of oil and natural gas pipelines and other transportation facilities, any oversupply or undersupply of oil, natural gas and liquid products, the regulatory environment, the economic environment and, other regional and political events, none of which can be predicted with certainty; SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP') requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates particularly significant to the financial statements include the following: ? Estimates of our reserves of oil, natural gas and natural gas liquids ("NGL"); ? Future cash flows from oil and gas properties; ? Depreciation, depletion and amortization expense; ? Asset retirement obligations; ? Fair values of derivative instruments; ? Fair values of assets acquired and liabilites assumed from business combinations; and ? Natural gas imbalances. As fair value is a market-based measurement, it is determined based on the assumptions that market participants would use. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates. Any changes in estimates resulting from continuous changes in the economic environment will be reflected in the financial statements in future periods. 25 -------------------------------------------------------------------------------- There are numerous uncertainties in estimating the quantity of reserves and in projecting the future rates of production and timing of development expenditures, including future costs to dismantle, dispose and restore our properties. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way. Cash and cash equivalents The Company considers short-term interest bearing investments with initial maturities of three months or less to be cash equivalents. Cash and cash equivalents consist of cash in banks, free credit on investment accounts and money market accounts. Foreign currency translation The Company complies with Financial Accounting Standard Board ("FASB") Accounting Standards Codification ("ASC") Topic 830, Foreign Currency Matters. Monetary items are translated at the exchange rate in effect at the balance sheet date; non-monetary items are translated at historical exchange rates. Income and expense items are translated at the average exchange rate for the year. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. OFF BALANCE SHEET ARRANGMENTS We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Inapplicable. We have no market sensitive instruments. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the 1934 Act). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in reports that we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 240.15d-15 that occurred during our last fiscal quarter that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting. 26-------------------------------------------------------------------------------- PART II - OTHER INFORMATIONItem 1. Legal Proceedings None Item 2. Unregistered Sales of Equity Securities None Item 3. Defaults upon Senior Securities None. Item 4. Mine Safety Disclosures. Inapplicable. Item 5. Other Information. None. 27-------------------------------------------------------------------------------- Item 6. Exhibits Exhibit No. Description Rule 13a-14(a)/15d14(a) Certifications of Mark Holbrook Chief Executive Officer and Director 31.1 (attached hereto) Rule 13a-14(a)/15d14(a) Certifications of Cora J. 31.2 Holbrook, the CFO (attached hereto) Section 1350 Certifications of Mark Holbrook, the President, Chief Executive Officer and Director 32.1 (attached hereto) Section 1350 Certifications Cora Holbrook 32.2 (attached hereto) 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 _____________ ** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. 28 -------------------------------------------------------------------------------- SIGNATURESPursuant 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. Puissant Industries Inc. Dated: August 19, 2014 By: /s/ Mark Holbrook Name: Mark Holbrook Title: Chief Executive Officer 29-------------------------------------------------------------------------------- |