UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Arena Resources, Inc.
----------------------
(Name of small business issuer in its charter)
Nevada 1311 73-1596109
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(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
4920 South Lewis Street, Suite 107, Tulsa, Oklahoma 74105 (918) 747-6060
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(Address and telephone number of principal executive offices)
4920 South Lewis Street, Suite 107, Tulsa, Oklahoma 74105
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(Address of principal place of business or intended principal place of business)
Wilson & Barrows Ltd., 442 Court Street, Elko, Nevada 89801 (775) 738-7271
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(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public October 1, 2000.
If this Form is filed to register additional securities for an offering pursuant
to rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] Not currently applicable.
If this Form is a post-effective amendment filed pursuant to Rule 462 (c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] Not currently applicable.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] Not currently applicable.
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ] Not applicable.
<TABLE>
<CAPTION>
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Title of each class of Dollar amount to Proposed Amount of
securities to be be registered maximum registration fee
registered offering price
per share
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<S> <C> <C> <C>
Common voting stock Max: $500,000 $.25/share $139.00
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</TABLE>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.
(i)
<PAGE>
PROSPECTUS
ARENA RESOURCES, INC.
4920 South Lewis Street, Suite 107
Tulsa, Oklahoma 74105
(918) 747-6060
Offering of the common voting stock of Arena Resources, Inc.,("Arena").
Minimum Offering of 800,000 shares, Maximum Offering of 2,000,000 shares, both
at $.25/share. The Company reserves the right to close the offering at any
amount between the Minimum or Maximum Offering during the offering term of sixty
(60) days from the date appearing on this prospectus cover page.
Arena will place all subscription proceeds into a segregated
subscription account until the minimum offering is sold or the offering is
closed. Upon the closing of the subscription account the proceeds will be
promptly returned to investors if the minimum offering is not sold; or employed
by Arena if, at least, the minimum is sold.
Arena has only one class of stock, 100,000,000 shares of common voting
stock, subject to this offering, of which 2,600,000 are presently issued and
outstanding with up to an additional 2,000,000 to be issued by this offering.
Arena is a start-up enterprise which was incorporated in Nevada on
August 31, 2000 with minimum capital to engage in its initial intended business
activities of oil and gas acquisition, development and marketing. See
description of business in this prospectus. Arena has minimal historical
operating history or revenues to date.
THIS IS A HIGH RISK OFFERING. SEE RISK FACTORS AT PAGE 3.
This offering is intended as a self underwriting. That is, the stock will be
sold by Arena management without the employment of any underwriters or other
commissioned sales agents. Should Arena be unsuccessful at completing its self
underwriting, it may amend the prospectus to indicate commissions to be paid.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION; NOR BY ANY STATE OR FOREIGN SECURITIES
REGULATORY AGENCY; NOR HAS THE COMMISSION OR ANY OTHER SECURITIES REGULATORY
AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<TABLE>
<CAPTION>
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Description of Estimated Cost of Estimated Net Net Proceeds as
Securities Offered Offering Proceeds of a Percentage of
Offering Offering Price
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<S> <C> <C> <C> <C>
Minimum 800,000 shares $35,000 $165,000 82.5%
Offering @ 0.25/share
$200,000
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Maximum 2,000,000 shares $35,000 $465,000 93%
Offering @ $0.25/share
$500,000
============================================================================================================
Offering Notes and Table of Significant Parties on following pages
</TABLE>
Date of this Prospectus: October 1, 2000
Offering Termination Date: December 1, 2000
(ii)
<PAGE>
OFFERING NOTES
1- The intended oil and gas acquisition program will not be initiated
unless the minimum offering ($200,000) has been sold within the offering term
ending on December 1, 2000. Of the anticipated net offering proceeds of $165,000
minimum to $465,000 maximum, approximately $130,000 (65%) in the minimum
offering and $430,000 (86%) in the maximum offering will be directly employed
for gas acquisition or related production activities. See Sections on Use of
Proceeds and Business.
2- Funds received up to the minimum offering will be held in a special
subscription account and will be returned without interest or deduction if the
minimum is not sold within the offering term (60 days). All funds received after
the minimum offering, as well as the minimum offering proceeds, will be placed
in the general operating fund of the company and employed as received. See Terms
of the Offering.
3- As this is a stock offering by a corporate entity, all anticipated
proceeds of oil and gas activities will be payable to the corporation. In like
manner, Arena will bear all costs of operations and will incur all tax benefits
and pay all tax obligations. Since Arena does not have any present expectations
of paying dividends or other distributions, investors in this offering will have
to look solely to potential capital appreciation for a return of their
investment. See Description of Business Section.
4- Arena believes it will have sufficient proceeds from this offering
and anticipated production to pay anticipated costs of the oil and gas
operations; however, the potential shortage of operating capital in any oil and
gas program to pay unanticipated costs constitutes a risk factor. Further, an
exact allocation of proceeds in this offering is difficult to project as
management has broad discretion to define the type of oil and gas program after
the offering is closed. However, it is the intended objective of Arena to
primarily acquire non-producing gas reserves and most of the disclosure in the
Use of Proceeds and Business Sections is premised on this objective. See Risk
Factors, Use of Proceeds and Description of Business.
(iii)
<PAGE>
Table of Significant Parties
Officers and Directors:
<TABLE>
<CAPTION>
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Name Position Residential Address Business Address
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<S> <C> <C> <C>
Mr. Lloyd T. Rochford Director, CEO, 5 Clancy Lane South 4920 South Lewis,
President Rancho Mirage, #107, Tulsa,
California 92270 Oklahoma 74105
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Mr. Stanley McCabe Chairman Board, 5922 South Atlanta Place, 4920 South Lewis,
Treasurer/Secretary Tulsa, Oklahoma 74135 #107, Tulsa,
CFO, Accounting Oklahoma 74105
Officer
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Mr. Charles Crawford Director 6423 South Quebec Ave. 6423 South Quebec
Tulsa, Oklahoma 74135 Avenue, Tulsa,
Oklahoma 74135
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</TABLE>
Five Percent or Greater Shareholders; Promotors; Underwriters; Legal Counsel;
and Affiliates:
<TABLE>
<CAPTION>
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Name1 Relationship2 Current Per Residential Business Address
Cent Stock Address
Held 3
(Rounded)
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<S> <C> <C> <C> <C>
Mr. Lloyd T. Rochford Director/Officer 50% See above See above
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Mr. Stanley McCabe Director/Officer 50% See above See above
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Mr. Julian Jensen Attorney 0% 1453 Ute Drive 311 S. State #380
Salt Lake City, Salt Lake City, Utah
Utah 84108 84111
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</TABLE>
1 The only shareholders, at present, are the two directors as listed.
2 Arena does not have any 5% shareholders, affiliates, underwriters
or promoters-other than current directors. Legal counsel is not a
shareholder and is not deemed by management to be affiliated.
3 There are no current outstanding stock options or other sharehold
rights.
See Biographical Information on Management under the Management Section.
(iv)
<PAGE>
TABLE OF CONTENTS
ITEM
NUMBER DESCRIPTION PAGE
------ ----------- ----
1 Summary Information........................................ 1
2 Risk Factors............................................... 3
3 Dilution................................................... 6
4 Plan of Distribution and Terms of Offering................. 7
5 Use of Proceeds to Issuer.................................. 8
6 Description of Business and Properties.....................10
7 Description of Other Property..............................15
8 Management's Discussion and Analysis of Financial
Condition..............................................15
9 Directors, Executive Officers & Significant Employees......16
10 Remuneration of Directors & Officers.......................17
11 Security Ownership of Management & Certain
Security Holders...................................19
12 Interest of Management & Others in Certain Transactions....19
13 Securities Being Offered...................................20
14 Experts....................................................21
15 Legal Proceedings..........................................21
16 Changes in a Disagreement with Accountants.................21
17 Indemnity of Officers and Directors........................21
Glossary of Oil and Gas Terms..............................22
EXHIBITS
Audited Financial Statements to the period ending August 31, 2000
(v)
<PAGE>
SUMMARY OF THE OFFERING
-----------------------
Terms of Offering: This is a minimum/maximum offering. We, as your
management, will only determine that the offering
has been subscribed and closed when a minimum of
$200,000 of gross proceeds has been received
within the offering term of sixty days (60/days)
from the date appearing on the face of this
prospectus. Based upon an effective date of
October 1, 2000 this would mean an outside
offering date of December 1, 2000. All funds
received up to the minimum offering will be held
in a segregated subscription account by the
company, until or unless the minimum offering is
reached within the subscription term. If the
minimum offering is not reached within this
subscription term, all proceeds will be returned
to the investors in this offering within ten days,
without interest or deduction for costs. We may
close the offering at any time after the minimum
offering is sold within the offering term.
However, if the maximum offering of $500,000 is
reached, the offering will be closed when and if
such amount is obtained. There is neither an
obligation or prohibition placed upon officers,
directors, affiliates or any related party buying
shares to satisfy either the minimum or maximum
offering. Further, there is no dollar limit on the
amount of securities in this offering that may be
purchased by the persons affiliated with Arena.
Any shares purchased by Arena affiliates will be
restricted stock and must be held for investment
purposes. All proceeds received after the minimum
offering will be paid directly to Arena and may be
used for the anticipated company purposes as
received. Arena is selling 800,000 (min.) to
2,000,000 (max.) of its common voting stock in
this offering at $0.25/share. There is no minimum
subscription amount.
We also have a class of ten million preferred
class "A" shares, none of which have been issued
and none of which are currently being offered.
No allowances are made for the payment of
commissions as we intend to sell the offering
through our own management, a self-underwriting,
without the payment of any third party commissions
or fees. Should we not be successful in selling
the offering, we may elect to amend this
registration statement and prospectus to provide
for the payment of commissions to any licensed
third party underwriter or broker, at which time
the amount of commissions would be described in
the forepart of the prospectus. See Section on
Terms of the Offering.
Oil & Gas Terminology: Technical terms commonly used in the oil and gas
industry are generally attempted to be defined in
the context of where employed in this prospectus.
There is also a glossary of such terms at the end.
Business: To date, we have acquired, as the initial
principal asset of the company, a 40% carried
working interest in an existing 160 acre gas
production lease in McIntosh County, Oklahoma,
(Spears lease) including a shut-in gas well. In
addition, we own the same interest in the Casey
Lease No. 1 and Wallace Lease No. 1, in Muskogee
County, Oklahoma. Both the Casey and Wallace
leases are also160 acres each. Under current
1
<PAGE>
spacing regulations one well can be completed in
each lease. A carried working interest in this
offering is a percentage of production in which
the holder does not pay drilling and completion
costs, but does pay a pro rata share of
operations. It should be noted that there is
currently no production from any of the gas leases
in which Arena has an interest. The completed gas
well on the Spears lease is not in current
production and is known as a shut-in. It is more
particularly described under the Business and
Property Sections of this Prospectus.
The shut-in well is intended to be put into
production when the anticipated additional two
wells are drilled and completed on the adjacent
leases.
Arena reasonably anticipates revenue from future
production of the Spears well, as well as the
drilling and anticipated completion of two
additional gas wells in the adjacent leases within
the next six months.
Drilling, completion and potential revenues from
these additional properties will most likely be
contingent upon subsequent financing by Arena.
Presently, on the existing leases, there is only
potential gas production and it is not anticipated
that there would be any oil production from the
target formations. However, Arena reserves the
right to employ offering proceeds for drilling or
completion purposes or to acquire producing
reserves, but does not presently intend to
primarily engage in these types of acquisitions or
drilling activities. These matters are more fully
discussed under the Sections on Business and
Properties.
Use of Proceeds: We intend to use the proceeds of this offering, in
the event of either the minimum or maximum
offering, to acquire as yet undesignated proven
non-producing oil and gas properties, most likely
within the State of Oklahoma, for future
development through drilling and completion. It is
not known, nor anticipated, whether the oil and
gas properties to be acquired will be carried
properties. As a result, the company will most
likely be responsible for subsequently raising
additional financing for sufficient drilling and
completion funding for the development of these
properties outside the scope of this offering. See
Sections on Business, Properties and Use of
Proceeds.
Control & Ownership: You should also understand that even in the event
of the sale of the maximum offering, you and other
shareholders purchasing pursuant to this offering,
will hold only a minority interest in Arena and
the original founders and shareholders will
continue to maintain a majority sharehold
interest. Further, you will have no direct
ownership or control over the properties to be
acquired. While you will not be liable for costs
or charges of operations, neither will you enjoy
any direct distributions or tax benefits sometimes
associated with an oil and gas program. See
Section on Risk Factors, Business and Properties,
and Terms of the Offering.
Offering Price: The offering price for shares in this registration
has been arbitrarily set by us and does not
purport, in any way, to reflect the actual value
of Arena or its assets. See Section on Terms of
the Offering.
2
<PAGE>
Cost of Offering: We have estimated the cost of this
offering to be approximately $35,000 which amount
should include registration fees, printing, legal,
accounting and distribution costs.
No Commissions: No allowances are made for the payment of
commissions as we intend to sell the offering
through our own management without the payment of
any third party commissions or fees. Should we not
be successful in selling the offering, we may
elect to amend this registration statement and
prospectus to provide for the payment of
commissions to any licensed third party
underwriter or broker, at which time the amount of
commissions would be described in the forepart of
the prospectus. See Section on Terms of the
Offering.
RISK FACTORS
------------
The following constitutes what we believe to be the risk factors in
this offering. Each investor should also read the entire prospectus, as these
various risk factors may be further discussed or illuminated by other sections
of this prospectus.
1- There is a present and future risk that your investment may not have
value, because there have been only minimal revenues or production from
properties presently held by Arena. You should understand that Arena presently
owns a forty percent carried working interest in an approximate 160 acre mineral
lease, known as the Spears lease, in McIntosh County, Oklahoma, as well as two
other proximate carried drill sites in the adjacent leases. There is no current
production from these existing leasehold properties acquired as the initial
assets of the company. Arena has what is called a carried working interest in
the Spears lease and the other two leases, such that it will not be in a
position to control or direct the initiation or completion of additional wells,
but would receive a forty percent working interest, after production costs, when
and if additional well(s) are completed and a compressor is utilized to create
potential production from the wells. Arena has been informed by the operator of
the leases that two additional gas wells will be drilled and completed, if
commercially productive, within the next six months and all three wells will be
placed into production; however, Arena cannot warrant or guaranty such
representations. Proceeds of this offering are primarily intended to be used to
acquire additional potential production property, but there is no assurance that
such production property can be acquired . In all events, the cost of drilling
and completion of any potential future wells will most likely require subsequent
funding by Arena before any revenues can be reasonably anticipated from future
acquisitions. Management also reserves the right to participate in the drilling
and completion of a well or wells with the proceeds of this offering; which
endeavors, if undertaken, would entail other additional risks as described
below.
2- There is a particularly high risk of loss of your investment in an
oil or gas drilling program. As indicated in the preceding risk factor, the
company presently intends to use all or most of the proceeds in this offering to
attempt to acquire other oil and gas properties for future development. The
principal risks which may be encountered in the drilling and completion of oil
and gas wells are summarized as follows:
(a) The company may expend all its resources in drilling a dry
hole, that is a well with no recoverable oil and/or gas
reserves.
3
<PAGE>
(b) The Company may complete a well which appears to be
economically productive, but finds that it cannot produce in
sufficient quantities to justify continued operations.
(c) A well may be completed as a commercial well, but have
dramatic declines in production due to various unforseen
factors such as a well collapse, flooding or unanticipated
production declines.
(d) Various unforeseen factors such as drilling or completion
complications or difficult formations may greatly increase
the anticipated cost of drilling and completing a well, thus
rendering it uneconomic.
(e) The price of oil and gas, as well as the costs of
operations, can be very unstable and a commercial well may
be rendered uneconomic by relatively small changes in the
market price of oil or gas or increases in operating costs.
(f) Charges for drilling and completion services and equipment
are also very volatile and these potential increases in
anticipated costs over a short period can render a proposed
acquisition or drilling project non-commercial.
3- Your investment is at risk to the extent Arena will be dependent
upon a single gatherer to transport its product. At present Arena would be
dependent upon a single gas line gatherer to transport its product from the
leases. This dependence upon a single gatherer constitutes a marketing risk for
any natural gas production, as well as the fair competitive pricing of any
production.
4- Investors should consider the risk to return of their investment
when there will only be a limited amount of capital resources after this
offering. We have intentionally limited the amount of money to be raised in this
offering to help in efforts to close this offering as a self-underwriting by
potential contacts of management and without the need to employ third party
underwriters or broker dealers. As a result, the amount of capital being raised
is marginal and may not be adequate to fully or sufficiently fund either the
acquisition of intended oil and/or gas properties or participation in drilling
and completion activities. The company may need to seek additional funds from
commercial lenders or other sources from which it presently has no commitment or
arrangements.
5- You face a degree of additional risk in any start-up that is not a
proven venture. This is a start-up enterprise without any extended operating
history or record. No assurance can be made or given that the business concepts
or endeavors will be viable, can be profitably pursued or that you, as investors
in this offering, will receive any return on your investment.
6- Current Shareholders, not you, will continue to control Arena after
this offering. Even in the event that the maximum amount is sold in this
offering, the original shareholders in Arena prior to this offering will
continue to hold a 56.5% majority of the shares and thereby control the future
of Arena in such important matters as type of business, compensation to
management and other matters related to control of the corporation's Board of
Directors.
7- You may not have a trading market for your shares. As of the time of
the anticipated effective date of this registration statement, there will not
exist any publicly traded market for Arena's shares. Even after the completion
of this offering, as a minimum or maximum offering, there can be no assurance
that a publicly traded market will develop for the shares being sold to you in
this offering. If we are not able to develop a public trading market for the
4
<PAGE>
shares, there may be limited liquidity of the shares and you may be forced to
hold such shares for an indefinite period of time and to rely upon the uncertain
prospects of "private"sales of your securities in order to have any type of a
marketability or "exit strategy."
8- No independent or objective standard was used to set the offering
price of your shares. The offering price of the shares being sold in this
offering were arbitrarily set by us and do not reflect any intrinsic value of
Arena or its shares.
9- If you invest, your shares will be worth less after the offering
than what you paid for them. Because the initial shares in this corporation were
issued to founders or other affiliated parties for assets accepted at a premium
to the cash value you are paying for your shares; you, as a post organization
investor in this offering, will suffer a "dilution" in the value of the shares
you purchase in this offering - that is the reduction in value of your shares
after the offering compared to the price of the shares being purchased in the
offering. See Dilution Section. Moreover, the initial valuation of assets for
shares was not determined by an arms length transaction. See Certain
Transactions with Management.
10- The success of the company and your investment are subject to the
risk that prices for oil and gas production are very volatile. You should
understand that the pricing for oil and gas production can change very rapidly
over short periods of time and profit projections or revenue expectations based
on current pricing can rapidly diminish.
11- You should note that a significant portion of the offering proceeds
are being used to pay offering and operating costs. The cost of the offering
constitutes a substantial portion of the proceeds of this offering, up to 17.5%
in the event only the minimum offering is sold. As a result, you should
understand that [a significant portion] of the proceeds being raised will be
used to pay the cost of this offering [and general operating costs,] rather than
being employed for actual oil and gas acquisition or drilling purposes. We
anticipated this consequence as a result of our efforts to maintain a limited
offering size. See Use of Proceeds, Description of Business and Terms of the
Offering sections.
12- Your investment in a start-up is at risk for unforseen or excessive
costs. As a start-up company, there may be cost overruns or other unforseen
problems that develop that were not known or anticipated at the time of this
offering and which may impede the opportunity for return of your investment, or
even the continued commercial operations of Arena. [Additionally, in oil and gas
programs there may be substantial unanticipated costs related to the continued
operation of a well or wells ranging from routine maintenance to major
workovers.]
13- Your investment return in this offering is highly dependent upon
Arena obtaining subsequent financing. As presently anticipated, Arena would need
to obtain substantial subsequent financing to have funds available for drilling
and completion of wells from oil or gas leases anticipated to be acquired from
the proceeds of this offering.
14- There is a risk to the company and to you as an investor arising
from the fact that management has no employment commitment. In this offering,
management has no long term or contractual employment commitment to Arena. The
departure of one or both current members of management could have an immediate
and adverse impact on the viability of Arena.
15- There are potential conflicts of interest which may be adverse to
your interest as a shareholder. Both of the principals in Arena, Mr. Rochford
and Mr. McCabe, intend to continue with individual oil and gas acquisition and
5
<PAGE>
consulting endeavors. As a result, there may arise certain potential conflicts
of interest such as the duty of a corporate officer to make applicable business
opportunities available to his affiliated corporation in contrast to his
individual interests. Additionally, the commitment to "carry" drilling and
completion costs on the Wallace and Casey leases is a personal undertaking of
Messrs., Rochford, and McCabe. As a result, the carried working interest is
fully dependent upon their personal ability to pay these anticipated future
costs or otherwise arrange for payment. While the company believes various
undertakings have substantially eliminated this risk, you should review the
Section Certain Transactions with Management.
16- Your investment could be adversely affected by environmental Risks
and Government Regulation. There are significant environmental risks and
potential liabilities, as well as governmental regulation, which could adversely
affect your investment. Historically, the oil and gas industry has been subject
to significant risks of potential liability arising from environmental risks
such as oil spills, land and water contamination, fires, blow-outs and related
environmental damages. Litigation or administrative actions related to such
risks could reduce or eliminate any profits to Arena or lead to its economic
demise. In all events, the cost of environmental compliance is usually a
significant cost factor to an oil and gas company. In addition to environmental
regulation, an oil and gas venture is subject to significant transportation,
well spacing, engineering, pricing, safety, tax and other regulations by various
government agencies.
DILUTION
--------
Dilution is a term which normally defines the reduction in value per
share which occurs to the investor in certain offerings compared to the purchase
price of those shares. By way of specific illustration, an investor in this
offering is paying $0.25 per share. It is estimated that the net worth per share
after the completion of the maximum offering will only be $ 0.12 per share.
Therefore, each investor in this offering will suffer an immediate dilution to
his investment of $0.13 per share or 52% in the maximum offering; and $0.17 per
share or 68 % in the minimum offering. These dilution factors are illustrated in
the following graphical representations.
<TABLE>
<CAPTION>
Minimum offering Maximum Offering
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<S> <C> <C> <C>
Value Subscription Value share after Value Subscription Value share after
$0.25/share offering $0.25/share offering
100% $0.08/share 100% $0.12 /share
(Rounded) (Rounded)
Dilution 68% Dilution52%
$0.17/Share $0.13/Share
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</TABLE>
(GRAPHICS OMITTED)
In this offering dilution primarily arises because the original founders
who organized the corporation took shares for oil and gas properties which must
generally be valued at predecessor costs. As a result, after the initial
funding, there was little significant accountable net worth in the company. You,
as an investor, will contribute essentially all of the working capital.
6
<PAGE>
PLAN OF DISTRIBUTION AND TERMS OF THE OFFERING
----------------------------------------------
Arena does not intend to employ the services of any underwriter or other
broker/dealer to place or sell its securities. Arena believes it can place the
limited amount of securities being offered by this registration through the
efforts of its own management group who will not be paid any consideration,
commission or other compensation for their selling and placement efforts.
Consequently, no provisions for commissions have been provided for in this
prospectus. Should management determine, at any time, that it is necessary to
sell this offering through the use of commissions to an underwriter, management
will reserve the right to amend the registration and prospectus to reflect any
such commission arrangements and to continue with the offering in accordance
with all other terms and provisions.
It is anticipated that Mr. Rochford and Mr. McCabe will be primarily
responsible for the efforts to sell the Arena stock pursuant to this offering to
various business contacts and acquaintances through delivery of this prospectus.
No assurance of success can be given and management will only engage in these
efforts as they deem necessary. Obviously, there is an indirect benefit to
management, as principal shareholders, if the shares are sold in this offering
as the management shareholders would most likely realize an increase in the
value of their shares and potentially an active market for their shares.
The costs of this offering are estimated at $35,000, and include legal,
accounting, filing or permit fees, printing and related distribution costs.
These amounts are estimates but are believed reasonably accurate for the
intended size of the offering. As noted under the Risk Factors and Use of
Proceeds Sections, payment of these estimated offering costs will expend a
significant portion of both the minimum or maximum offering. This will limit the
amount of net proceeds available for actual business purposes.
Proceeds of the offering, up to the minimum amount, will be placed in a
segregated subscription account under control of Arena and will not be employed
for any business purposes of the company until or unless the minimum offering is
sold within the offering term of 60 days from the date appearing on the face of
this prospectus. If the minimum offering is not fully sold and collected within
such offering period, then the offering will be terminated and all proceeds will
be returned without deduction for costs or addition of any interest. Arena will
obtain an address from each subscriber and will return all proceeds within ten
days of the termination of the offering to that address. Any interest earned on
the subscription account will be employed by Arena to pay for anticipated
offering costs and return of subscription proceeds to investors.
In the event of the close of the minimum offering, Arena will employ any
additional proceeds of this offering upon receipt without further utilizing the
subscription account.
Arena reserves the right to close the offering at any time within the
offering term of 60 days whenever the minimum offering proceeds have been
received in the subscription account, even if less than the maximum offering has
been sold. Factors which may influence Arena's decision to close the offering
would be the effort required to continue sales and the rate at which
subscriptions were obtained up to the minimum offering. In all events, the
company will not sell more than the maximum offering and will close the offering
at any time that the maximum amount has been sold. The Use of Proceeds Section
reflects Arena's best present estimate of the use of proceeds in the event of
either the minimum or maximum offering amount being received. The offering most
likely will be closed at some point between the minimum and maximum and the use
of proceeds will be adjusted accordingly, though no assurance is given or
represented that such adjustment will be exactly pro rata to the percentage
difference between the minimum and maximum offering.
7
<PAGE>
It is intended the offering will be sold primarily to citizens of the
States of California, Florida, Illinois, Nevada, New York and Texas. Arena
intends to qualify this offering in one or more of these states as a
registration by coordination. That is, Arena will be deemed to be qualified as a
registered offering in these jurisdictions upon clearance of this registration
with the SEC and a notice type filing in the appropriate state. If the offering
is offered or sold in other jurisdictions, the offering must be registered or
qualified under the applicable state law of that jurisdiction. Arena does not
intend to register this offering in the foregoing or any other jurisdiction for
sale unless such registration can primarily be achieved by coordination without
the necessity of merit review or substantial additional disclosure requirements.
However, should Arena elect to sell in any jurisdiction that imposes any
additional disclosure requirements, they will be included in this offering as a
supplemental disclosure.
Also, as previously noted, Arena has not secured a commitment to list or
trade the securities being registered through any broker/dealer and there is no
present assurance that a public market will exist for the securities even in the
event of a successful completion of this offering. Each prospective investor
should consider the potential lack of a public market as a significant risk
factor. Management will work to obtain the listing of the securities after this
offering by one or more broker/dealers, but can give no warranty or assurance
that they will be successful in such efforts.
No shares of current management or original shareholders are being
registered pursuant to this offering and no intent or obligation exists by Arena
to currently register issued shares in any manner.
ESTIMATED USE OF PROCEEDS
-------------------------
We have set-out in the following tabular format the intended use of
proceeds based upon the sale of either the minimum or maximum offering. As
previously advised, each prospective investor should be aware that the offering
may be closed at some point between the minimum and maximum offering and there
would be some allocation of the use of proceeds between the two tables, though
management is under no requirement to exactly complete a mathematical pro ration
on the use of proceeds.
You are advised that management may alter or change the use of proceeds
in the exercise of sound business discretion after the completion of the
offering and the following should be viewed only as an outline of the present
intended use of proceeds.
8
<PAGE>
Minimum Offering: $200,000
================================================================================
General Description of Intended Expenditure Dollar Amount Percentage of
Offering
(Rounded)
--------------------------------------------------------------------------------
1. Estimated costs of offering $35,000 17.5%
--------------------------------------------------------------------------------
2. Estimated overhead expenses (six months) $20,000 10%
--------------------------------------------------------------------------------
3. Funds committed to acquiring oil and/or gas $130,000 65%
properties1
--------------------------------------------------------------------------------
4. Funds reserved for subsequent financing $15,000 7.5%
expenses.
--------------------------------------------------------------------------------
Totals $200,000 100%
================================================================================
Maximum Offering: $500,000
================================================================================
General Description of Intended Expenditure Dollar Amount Percentage of
Offering
(Rounded)
--------------------------------------------------------------------------------
1. Estimated costs of offering $35,000 7%
--------------------------------------------------------------------------------
2. Estimated overhead expenses (six months) $20,000 4%
--------------------------------------------------------------------------------
3. Funds committed to acquiring oil and/or gas $430,000 86%
properties1
--------------------------------------------------------------------------------
4. Funds reserved for subsequent financing $15,000 3%
expense
--------------------------------------------------------------------------------
Totals $500,000 100%
================================================================================
1 While the company presently intends to use the "working portion" of
net offering proceeds for anticipated acquisitions of non-carried proven
developmental reserves; it may, alternatively, use these proceeds for drilling
or completion activities or acquiring existing production.
Arena has reserved and allocated approximately $20,000 of the net
proceeds of the Offering for operational costs. The operational costs are
allocated to cover the minimum costs of operations of Arena for an estimated
period of six months. Included within the operational costs are payments of
rent, utilities, and other overhead. No salaries will be paid. Present
management will continue to serve the company on a full-time basis with
compensation deferred until revenues are available, if at all, to pay salaries.
It is not anticipated that there will be any other full-time salaried officers
or employees during this initial start-up phase, unless revenues are generated
sufficient to justify payment of salaries to other employees.
It is anticipated that revenues will be sufficient to cover operating
expenses after the first six months of operations, though no assurance or
warranty of this projection can be made. We may elect to use additional offering
9
<PAGE>
proceeds for continuing operations beyond the initial six month term in the
exercise of sound business discretion, if so required. In all events, the use of
proceeds of the offering to pay operational costs will necessarily reduce the
amount of proceeds of the offering available for actual production acquisition
or potential drilling and completion of wells. Each prospective investor should
understand that there is a risk factor in investing in a start-up entity in that
a substantial amount of the offering proceeds may be used for operational costs
at a time when the company does not have sufficient revenues to pay for such
costs.
There is no assurance that any of the estimated use of proceeds for the
specific business purposes outlined above will be sufficient to adequately fund
the costs of operations and start up expenses.
We, as management of Arena, may decide in the exercise of our business
judgment that some or all of the proceeds of this offering could most profitably
be used to participate in drilling and completion of one or more oil or gas
wells in presently undesignated properties to be acquired. Alternatively, some
or all of the proceeds may be used to acquire existing production properties.
These determinations cannot be presently made and are contingent upon such
variables as the price of oil or natural gas at the completion of the offering;
the availability of participation opportunities in other wells to be drilled or
completed; the availability of drilling and completion equipment and services
and the going rates for such equipment and services.
Based on Arena's primary intent to use the net operating proceeds of
this offering to acquire new oil and gas interests for future drilling and
completion operations, there is a potential risk factor that if the company is
not successful in arranging subsequent financing, it may not have adequate funds
to complete any proposed drilling and completion of wells on acquired
properties. Secondly, the drilling and completion of wells is a high risk
venture, as previously described, even if sufficient funds are raised by Arena.
Arena cannot direct drilling, completion or workover on the existing
leasehold properties. As a result, future revenues are contingent upon whether
third party owners of the existing leases determine to move forward with
drilling and completion operations and a workover of the existing well on the
Spears lease. Arena has been assured, but cannot warrant, that drilling and
completion of two additional gas wells on the Casey and Wallace leases and
operation of the third well on the Spears lease will occur in the next six
months. Arena, as a carried interest owner, would not have to participate in
such drilling, completion costs or workover, but would be required to use some
of the proceeds of this offering to pay for ongoing operational costs of the
anticipated well or wells until self sustaining. In all events, it is
anticipated that a compressor would be required to be placed on the existing
Spears lease to service all three potential wells if additional wells are
drilled and completed and brought on line.
Arena intends to devote most of its efforts to acquiring, drilling, and
completing natural gas wells as opposed to oil production. However, no firm
commitment or undertaking is made that the company may not act upon
opportunities to participate in properties primarily acquired for production of
crude oil.
DESCRIPTION OF BUSINESS AND PROPERTIES
--------------------------------------
GENERAL DESCRIPTION OF PROPERTIES AND OPERATIONS
Arena Resources, Inc. was incorporated on August 31, 2000 as a Nevada
corporation. The company was concurrently organized by its two principal
10
<PAGE>
shareholders, Mr. Lloyd T. Rochford and Mr. Stanley McCabe, who jointly and
equally contributed the existing non-producing proven natural gas properties to
Arena for their sharehold interest. Each received one million, three hundred
thousand common shares (1,300,000/shares) of Arena for the gas properties, which
are more particularly described in this Prospectus and as part of the audited
financial statements attached and incorporated in this Prospectus.
As an accounting matter, the contributed properties are deemed to have
been acquired in March, 2000 by Mr. McCabe and Mr. Rochford acting as a joint
venture and subsequently contributed to Arena in September, 2000. As a result,
the accounting basis for the properties is valued from the date of initial
acquisition by the partnership and the limited production reflected in the
financial statements is for this predecessor entity.
As has been previously noted, there is no current production from the
Arena forty percent carried working interest in the Spears lease presently
contributed, nor from the two additional carried drill sites in Muskogee County,
Oklahoma. There was minimal production from the well on the Spears lease
(approximately $2,000 to the predecessor venture), but this well was shut-in at
the time of acquisition by Arena. It is presently anticipated that all workovers
on the Spears lease, as well as completion of the two additional adjacent drill
sites, would produce, if the wells are commercial, natural gas production and
not crude oil production. Arena intends to currently emphasize natural gas
production, but will buy oil producing properties if economically advantageous.
It is further noted that sometimes wells drilled and completed primarily for
anticipated natural gas production also produce commercial quantities of crude
oil, and oil wells usually produce natural gas, often in recoverable quantities.
In the existing Spears lease, the company has a forty percent carried
working interest. This means that Arena has a forty percent interest in total
production after it pays its pro rata share (forty percent) of operating costs,
but before royalty payments to the mineral interest owner. The company estimates
its net revenue interest, which it retains after the payment of royalty
interest, would be approximately thirty percent. Because the interest of Arena
is "carried," Arena is not required to pay any of the workover costs on the
Spears lease or the drilling and completion costs on the adjacent Casey and
Wallace leases. However, it does not have the authority or legal capacity to
direct the drilling and completion of additional wells and must rely on third
party determination as to drilling. Further, Arena has no contractual basis to
enforce the undertaking of Mr. McCabe and Mr. Rochford to carry the contributed
properties.
There is one existing natural gas well on the Spears lease which is
currently shut-in, that is it is not presently in production. It is anticipated
that the owner of the lease intends to reactivate this existing gas well upon
the drilling and completion of one or more additional commercial wells on the
adjacent leases and the installation of a compressor unit for production
purposes. Arena has been informed, but cannot warrant, that all three wells will
be on line within the next six months from the date of this Prospectus. Arena
would then be required to participate in the cost of the compressor and other
equipment directly related to production after drilling and completion of any
additional wells, or the workover of the existing Spears well. Initially the
company has been informed that its pro rata costs of participating in the
compressor and initial production costs would be approximately $1,000 per month
for the three anticipated wells.
It is not possible to presently estimate other anticipated production
costs for the existing well, or other gas wells to be drilled on the additional
adjacent leases. Historically, commercial gas wells in this area drilled to the
anticipated formation depth of approximately 2,000 feet have not required
significant operating expenditures and have usually been positive net revenue
11
<PAGE>
producers from the time of completion. The principal gas production formations
on the Spears and adjacent leases would be the Atoka and Booch formations. The
current approximate drilling and completion cost of a gas well to these
formations would be approximately $134,000 for all three wells.
Until and unless the existing well or other wells are brought online,
Arena will not have any revenues from its present reserves or anticipated
reserves.
As generally noted above, the present intent of Arena is to use the
proceeds of this offering, if sold and closed, to acquire additional proven
reserves with drill site locations. However, Arena may elect to use proceeds, in
the exercise of sound business discretion by management, to acquire working
interests, whether "carried" or "uncarried," in new currently producing
properties. Further, if appropriate opportunities avail themselves, Arena
reserves the right to engage in drilling and completion participation in proven
reserves. Each investor should understand that the exact allocation of proceeds
between these various alternatives is not presently determined by management and
will not be determined until after the close of the offering and will depend on
various market factors and availability of properties or other drilling and
completion opportunities, as well as the amount of net proceeds of this
offering. Further, no assurance can be given in any manner that the company will
be successful in subsequent efforts to raise additional capital for anticipated
drilling and completion or acquisition of production properties.
In this program, each investor needs to understand that the investor
will be a shareholder in Arena and not a direct participant in the oil or gas
properties acquired or to be acquired. As a result, investors will be relying
fully upon management of Arena to select properties and to pay all operating
costs. There will be no assessments, though the success of Arena depends on its
ability to pay anticipated costs.
REVENUES, COSTS AND TAXES
All revenues, if any, and costs will be accrued as income or costs to
Arena not to you as a shareholder. Your expectation of return of investment will
be directly linked to the success of Arena, not directly to the anticipated
production. In like manner, typical anticipated tax benefits in an oil or gas
program such as write-offs for drilling and completion costs and percentage or
cost depletion will accrue directly to Arena and not to you as an investor. Each
investor is encouraged to discuss potential tax aspects of investing with the
investor's own tax advisor prior to investing. In all events, this investment
should not be considered a tax advantage or deferral investment.
OPERATING AGREEMENT
The day-to-day operations of the leases is governed by an operating
agreement between the owner/operator of the leases and Arena and others as the
non-operators. The operator is charged with day-to-day operations, as well as
making drilling and completion decisions, but subject to the pro rata financial
participation by the non-operations, such as Arena.
GATHERER AND PURCHASER
Gas produced in the lease areas is gathered in the field by a
gathering/transport company which charges a transportation charge to deliver the
gas to a principal pipeline purchaser. The present gatherer available is Enogex.
The current net price paid is approximately $3.50 to $4.25 per thousand cubic
feet (MCF). The gas is currently purchased by ONEOK Energy Marketing and Trading
Company LP, ("ONEOK").
12
<PAGE>
RESERVE ESTIMATES
The following table summarizes the existing net gas properties held by
Arena showing both estimated proven developed and proven non-developed reserves
with estimated recoverable natural gas revenues from those reserves expressed in
increments of a thousand cubic feet (MCF):
<TABLE>
<CAPTION>
==========================================================================================================
Current Current Proven Estimated Net Cash Flow At
Proven Developed Reserves Undeveloped Reserves Current Prices Discounted
at 10% to Present Value
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
60,034 MCF 418,229 MCF $1,096,866
==========================================================================================================
</TABLE>
Another common method by which oil and gas companies production
potential is expressed is to compare the interests which an oil and gas
production company has in existing wells, regardless of how small that interest
may be, by designating each such interest as a gross well and then to aggregate
that percentage of interest in the various "gross wells" until a total
percentage is derived up to one hundred percent of interest in a comparable
well, which is described as a net well. Using this analysis, the company
presently has an interest in one "gross well" and a thirty percent "net well"
interest as its net revenue interest in the one well would be thirty percent. By
comparison, if a company had a thirty percent net revenue interest in three
gross wells, then it would have a ninety percent net well.
The independent mineral report upon which the foregoing analysis of
existing interest is derived has not been attached as an exhibit to this
Prospectus, but has been filed as part of the Audited Financial Statement and
these registration materials. Arena does not warrant or guarantee the accuracy
or completeness of the results contained in such independent reserve report
prepared for the company, and any such mineral report should be considered as an
estimate rather than an actual determination of recoverable and potential
reserves.
COMPETITIVE FACTORS
Current competitive factors in the domestic oil and gas industry are
unique. The actual price range of natural gas and crude oil is largely
established by major international producers. Because domestic demand for oil
and gas exceeds supply, there is little risk that all current production will
not be sold at relatively fixed prices. To this extent the company does not see
itself as directly competitive with other producers, nor is there any
significant risk that the company could not sell all production at current
prices with a reasonable profit margin. The risk of domestic overproduction at
current prices is almost nil. The primary competitive risks would come from
falling international prices which could render current production uneconomical.
Secondarily, Arena is presently committed to use the services of the
existing gatherer in its present areas of anticipated production. This gives to
such gatherer certain short term monopolistic powers to set gathering and
transportation costs, because obtaining the services of an alternative gathering
company would require substantial additional costs.
It is also significant that more favorable prices can usually be
negotiated for larger quantities of oil and/or gas product, such that Arena
views itself to have a price disadvantage to larger producers.
13
<PAGE>
PRINCIPAL PRODUCT GATHERER AND CURRENT PRICE
While the company currently does not have any existing production, it is
anticipated that there will be future production from the existing leasehold
interests, as well as future interests. At present, most of the area in which
the company intends to operate is served by one gas gatherer known as Enogex.
Enogex is what is typically known as a "gatherer" which runs pipe line in
production areas, gathers the various natural gas production after metering and
testing, and enters the gas under pressure into its main pipe line to be shipped
to a principal pipe line company. The current net price of natural gas in the
area ranges from $3.50 to $4.25 per MCF.
NUMBER OF PERSONS EMPLOYED
At present, both Mr. Lloyd T. Rochford and Mr. Stanley McCabe actively
engage in management for the company. Mr. Rochford presently serves the company
on a full-time basis as its President and CEO. Mr. McCabe is the CFO, Secretary
and Treasurer on a full-time basis. Both Mr. Rochford and Mr. McCabe are
currently primarily involved in start-up and promotional efforts. Mr. Rochford
and Mr. McCabe do not receive any direct compensation. The company has
determined to pay Mr. Rochford and Mr. McCabe for their executive services on a
deferred basis. The company has indicated to each of these individuals that it
will compensate them for a reasonable expenditure of time related to the
start-up of the company. It is not presently determined if this deferred
compensation will be in the form of cash, stock or some combination of cash and
stock. No actual compensation has been determined or paid to management and the
parties have simply agreed to negotiate the deferred compensation on a good
faith basis in the future and subsequent to the completion of this initial
public offering.
Arena has agreed to pay general costs such as travel and communications,
directly related to the organizational and selling efforts of Mr. Rochford and
Mr. McCabe in organizing the company and engaging experts and other efforts
required to complete this initial public offering of its securities.
Arena intends to extend to Mr. Rochford and Mr. McCabe full-time salary
compensation in the event that revenues are subsequently generated in sufficient
amount to continue their services on a full-time basis. No proceeds of this
offering will be used to pay compensation to either. Until such time as such
revenues are realized in sufficient quantities to pay regular compensation, the
two officers designated above have indicated a willingness to continue on a
full-time basis to serve the company indefinitely. However, it should be
realized that the company has no fixed compensation contract with either party
and either party could terminate services to the company at any time.
In the event that Arena realizes subsequent revenues, it may also retain
such other employees or experts on a full or part-time basis as it deems
appropriate. It is presently intended that the company may employ the services
of a CFO, office manager, field geologist and well completion supervisor. The
geologist and well completion supervisor may be retained on either a part-time
salary or independent contract basis as Arena would subsequently deem most
appropriate in the future. Arena would also probably consider hiring a full-time
secretary as the development of Arena would justify, along with other as yet
undetermined office workers or personnel.
ENVIRONMENTAL COMPLIANCE
Oil and gas production is a highly regulated commercial activity which
is subject to significant environmental and conservation regulations both on a
14
<PAGE>
federal and state level. Historically, most of the environmental regulation of
oil and gas production has been left to state regulatory boards or agencies in
those jurisdictions where there is significant gas and oil production with
limited direct regulation by such federal agencies as the Environmental
Protection Agency. However, while the company believes this generally to be the
case for its intended production activities in Oklahoma, it should be noted that
there are various Environmental Protection Agency regulations which would govern
spills or uncontrolled emissions. Moreover, there are specific oil and gas
regulations related to the drilling, completion, disposal of oil, as well as
procedures incident to the plugging and abandonment of dry holes or other
non-operational wells.
Compliance with these regulations will constitute a significant cost and
effort to the company. Arena does not presently know of any environmental
demands, claims, or adverse actions, litigation or administrative proceedings in
which it or the acquired properties are involved relevant to or arising out of
its predecessor operations.
DESCRIPTION OF OTHER PROPERTY
-----------------------------
In addition to the aforedescribed oil and gas properties, Arena has a
rental office, equipment and facilities. At present, it leases office space at
4920 South Lewis, Suite 107, Tulsa, Oklahoma. As of October 1, 2000, this lease
consists of approximately 671square feet of office space and is leased by the
company on a one year lease for $ 460.00 per month including all standard office
equipment and furnishings, including its telephone system.
The present facilities are believed adequate for the initial operation
of Arena after the completion of this offering.
Arena does not presently own any oil or gas production equipment such a
pump jacks, pipe or compressors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
Arena, exclusive of very limited predecessor production, does not have
any revenues or net income to date. Its anticipation of future revenues is
contingent upon various factors previously discussed. In particular, it is not
anticipated that Arena would realize any significant revenues or income from oil
and gas properties to be acquired with proceeds of this offering unless it
arranges additional financing to create drilling and completion funding for the
company. As a result, the success of this offering is also partially dependent
upon the subsequent success of additional financing being raised, which factor
constitutes a significant additional risk of investment in this offering.
A very limited amount of production revenues are reflected in the
Financial Statements due to the production by the predecessor venture consisting
of Mr. McCabe and Mr. Rochford from the period of acquisition in March, 2000
until contribution to Arena in September, 2000. In like manner, the predecessor
cost basis of the leases is established from the March Acquisition date.
It should also be noted that the valuation of the oil and gas reserves
placed into the company by management for shares were based upon a discounted
current estimated market value through a reserve report, even though such
properties are valued for accounting purposes on a predecessor cost basis. This
valuation is more fully discussed under the auditor's footnotes in the attached
and incorporated audited financial statements. It is difficult to actually value
the present assets placed into the company, notwithstanding the existence of an
15
<PAGE>
independent petroleum reserve report. These reports should be considered,
however, only as estimates of potential value and recoverable reserves and not
as an assurance and warranty that the company will realize either cash flow or
gains from those resources, even assuming maximum sustained production.
The initial capital being raised in this offering is marginal for the
primary purpose of obtaining additional proven developmental reserves. In short,
Arena may expend all of the net proceeds available from this registration and
not acquire sufficient oil and gas properties to justify sustained economic
production in the future, even allowing for receipt of sufficient drilling and
completion funding from any subsequent financing efforts.
In this offering, investors are assuming the risk that there is no
present revenue, that the economic viability of the company is partially
dependent upon subsequent financing which cannot be warranted, and that even if
subsequent financing is obtained there may not be sufficient funds to adequately
develop or operate oil and gas properties in sufficient amounts or quantities to
justify an economic return to investors. Moreover, there is always the risk that
oil and gas prices could adversely change in a dramatic fashion independently of
any efforts or control by Arena. Finally, there is the ongoing risk and concern
that costs of operations, as well as drilling and completion risks, may
substantially exceed any present estimates and render such future anticipated
economic endeavors as unsuccessful.
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
-------------------------------------------------------
Following this table is a brief biographical description for each of
the management principals with a brief description of their business experience
and present relationship to Arena, together with all required relevant
disclosures for the past five years. Following the biographical information for
the directors and officers is a remuneration table showing current compensation
and following this table is a security ownership table showing security
ownership of the principal officers and directors, as well as those holding five
percent (5%) or more of the issued and outstanding stock.
16
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
NAME POSITION CURRENT TERM OF
OFFICE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mr.Lloyd "Tim" Rochford Director/CEO/ President Appointed in Organizational
Minutes - September, 2000.
Will serve as director until
first annual meeting, not yet
set. Will serve as an officer
without term/contract
pursuant to leave of the
Board of Directors on
deferred compensation basis.
------------------------------------------------------------------------------------------------------
Mr. Stanley McCabe Director/Treasurer/Secretary Appointed in Organizational
CFO/Accounting Officer Will Minutes - September,
2000. serve as Director until
first annual meeting, not yet
set. Will serve as an officer
without term/contract pursuant
to leave of the Board of
Directors on deferred
compensation basis.
------------------------------------------------------------------------------------------------------
Mr. Charles Crawford Director Appointed in Organizational
Minutes - September, 2000.
Will serve as Director until
first annual meeting, not yet
set.
======================================================================================================
</TABLE>
BIOGRAPHICALS
MR. LLOYD "TIM" ROCHFORD - DIRECTOR , CEO/PRESIDENT
Age: 54
Mr. Rochford has been active as an individual consultant and
entrepreneur in the oil and gas industry since 1973. In this capacity, he has
primarily been engaged in the organization and funding of private oil and gas
drilling and completion projects and ventures within the mid continent region of
the United States. Mr. Rochford continues to be active on an independent basis
in oil and gas consulting, funding, and prospect origination.
In 1989 Mr. Rochford was co-founder, director and CEO of a small public
company known as Magnum Petroleum, Inc. ("Magnum") which was listed on the
American Stock Exchange. Subsequently, Magnum acquired Hunter Resources, Inc. in
1995. Mr. Rochford served as Chairman of the Board of the combined companies
from 1995 - 1997. Since 1997, Mr. Rochford has primarily devoted his time and
efforts to individual oil and gas acquisition and development prior to his
commitment to participate in Arena Resources. In 1982, Mr. Rochford was
co-founder of Dana Niguel Bank, a publicly held California bank operation and
served as a director until 1994. Mr. Rochford currently serves as a director for
E-Vantage Solutions, Inc., a public company and New Systems, Inc., a public
company.
17
<PAGE>
Mr. Rochford attended various college level courses in business from
1967-1970 in California.
MR. STANLEY McCABE - DIRECTOR/SECRETARY/TREASURER/CFO
ACCOUNTING OFFICER
Age: 68
From 1979 to 1995, Mr. McCabe was involved in Stanton Energy, Inc., a
Tulsa, Oklahoma natural resource company specializing in contract drilling and
operation of oil and gas wells. From 1990 to 1995, he was Chairman and CEO of
that company. In 1990, Mr. McCabe also became a co- founder and subsequent
officer and director of Magnum Petroleum, Inc., along with Mr. Rochford as
previously discussed. Subsequently, Mr. McCabe served as a director of Magnum
Hunter Resources, Inc., until 1996. Since 1996, Mr. McCabe has been involved as
an independent investor and developer of oil and other natural resource
companies.
Mr. McCabe attended college courses at the University of Maryland,
primarily in business in 1961-1962.
MR. CHARLES CRAWFORD - DIRECTOR
Age: 48
For the past twenty-five years Mr. Crawford has served as an
independent oil and gas exploration consultant to various private and public oil
and gas companies within the United States. He has acted as a consultant to such
firms as Texaco Corporation, Phillips Petroleum, Mid-Continent and Energy as
well as other regional and national companies primarily acting in the
mid-continent area.
Mr. Crawford is not presently affiliated with any private or public
companies other that his participation on the Board of Directors with Arena.
Mr. Crawford received a Masters Degree in Geology from Miami University
of Ohio, in 1976. Mr. Crawford will serve the company on an as needed basis as
an outside Director.
Further, it is anticipated that if Arena is successful in generating
revenues, it will attempt to hire one or more other officers and employees to
supply administrative and marketing services. As a result, the following chart
only includes the current management, with reservation of salaries to other
officers pending revenues.
<TABLE>
<CAPTION>
COMPENSATION CHART
======================================================================================================
POSITION NAME OF CAPACITY IN WHICH AGGREGATE
INDIVIDUAL OR REMUNERATION WILL REMUNERATION
IDENTITY OF GROUP BE RECEIVED
------------------------------------------------------------------------------------------------------
<S> <C> <C>
All executive officers as a group President No present salary. Officers
and will be compensated on a
Other Officers reasonable to be negotiated
basis when and if revenues are
obtained.
======================================================================================================
</TABLE>
18
<PAGE>
SHARES OWNED BY MANAGEMENT AND CERTAIN SECURITY HOLDERS
-------------------------------------------------------
The following table includes all shares issued to a director, officer
or 5% or greater shareholder. There are no created or issued stock options or
other stock rights in Arena at the present time:
<TABLE>
<CAPTION>
=======================================================================================================================
Title or Class Name of Owner Amount Amount Percent of Percent of
owned owned Class Before Class After
before the after the Offering Max.
Offering Offering1 (Rounded) Offering
(Rounded)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock Lloyd T. Rochford 1,300,000 same 50% 28%
-----------------------------------------------------------------------------------------------------------------------
Common Stock Stanley McCabe 1,300,000 same 50% 28%
-----------------------------------------------------------------------------------------------------------------------
Common Stock All Officers/Directors 2,600,000 same 100% 56%
as a Group
=======================================================================================================================
</TABLE>
1 Assumes management does not purchase shares in the offering.
There are no other shareholders which own any of the outstanding stock
prior to the offering. Further, the company has not issued or adopted any form
of warrants or option rights or any plan for options or warrants. It is
anticipated that in the event of the successful completion of this offering, the
board of directors may authorize and approve a standard incentive stock option
plan.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
---------------------------------------------------------
There are certain transactions related to Arena and this offering which
are not deemed to be "arms-length" transactions. That is, the parties on both
sides of the contract or agreement have substantial relationships or common
interests. All such material transactions are believed to be disclosed in this
section:
1. The initial capital assets contributed to Arena were supplied by the
two principal existing shareholders of the company. In contributing these assets
there was no independent Board of Directors or shareholders to determine the
reasonable valuation of such oil and gas properties for the sharehold interest
obtained by the founders and initial shareholders. Each investor in this
offering should consider as a potential risk factor the lack of independent
valuation and review of the assets contributed by the principal shareholders for
their relative sharehold interest. In all events, such contribution to the
corporation cannot be considered an independent or arms-length transaction. In
like manner, the two initial shareholders will most likely be in a position,
even after the completion of this offering, to determine their initial salaries
and any amount of deferred compensation and these actions will not constitute an
independent transaction and should be considered as a potential risk factor.
2. Each investor in the offering should consider, even if the total
offering is sold, the prior management group, as described above, will continue
in control and will essentially be in a position to dictate salaries,
distributions, and other interests as to all shareholders. While there is a
general common law or statutory obligation placed upon management of Arena to
19
<PAGE>
act in the best interest of all shareholders, each investor in this offering
should consider that their minority shareholder status imposes a certain risk of
not being in a position to influence or affect the direction of the company.
3. There exists a potential conflict that both Mr. Rochford and Mr.
McCabe will continue to pursue individually various oil and gas interests for
their accounts. As officers and directors, Mr. Rochford and Mr. McCabe have a
fiduciary duty to make appropriate oil and gas opportunities first available to
Arena. As a result, a certain potential conflict exists between their pursuit of
individual oil and gas interests and the duty owed to Arena. It is believed this
potential conflict is resolved through the understanding of this issue by
current management and their undertakings to make all appropriate and feasible
oil or gas opportunities first available to the company. However, each
prospective investor should consider such potential conflict as a risk factor.
Further, Mr. Rochford and Mr. McCabe have individually undertaken to carry the
drilling and completion costs on the two drill sites in the Casey No. 1 and the
Wallace No. 1 leases. Arena then becomes dependent upon them to honor this
commitment.
SECURITIES BEING OFFERED
------------------------
Only Arena's voting common stock is being offered by this prospectus.
Of the One Hundred Million (100,000,000) shares of common stock authorized,
$0.001 par, Arena presently has issued and outstanding 2,600,000 shares of
common stock and will sell between 800,000 shares of common stock in the minimum
offering and 2,000,000 shares in the maximum offering. If the minimum offering
is sold, the shareholders purchasing in this offering would hold approximately
24% of the issued and outstanding common stock and in the event of the maximum
offering approximately 43% of the issued and outstanding common stock.
In summary of the nature of the securities being offered, each investor
should note as follows:
o Arena does not have any dividend policy, nor has it declared
dividends. It is not anticipated that dividends will be paid for the foreseeable
future.
o Each common share has an equal voting right.
o There are no pre-emptive rights or cumulative voting in Arena.
o The shares are not subject to any conversion rights or obligations,
nor any redemptive provisions, sinking fund provisions, or liability to call or
assessment.
o It is not believed that any shareholder under Nevada law would be
subject to any debts, liabilities or claims made against the company.
o Arena does not have any outstanding warrants, rights or other stock
interest or rights to acquire stock; however, management will most likely
institute some standard management stock option plan if this offering is
completed.
20
<PAGE>
EXPERTS
-------
Legal Counsel - Arena has retained the firm of Jensen, Duffin, Carman,
Dibb & Jackson to act as independent securities counsel. Counsel has passed upon
the eligibility of the Company to file this registration. Counsel has also
passed upon the validity of the shares offered by this registration as being
legally issued, fully paid and non-assessable as sold. The named expert has no
relationship with any member of management or Arena.
Accountants - The balance sheet as of August 31, 2000 and the
statements of operations, stockholders' equity, and cash flows for the period
from March 3, 2000 (date of inception) through August 31, 2000 have been
included in this Prospectus in reliance on the report of Hansen, Barnett and
Maxwell, Salt Lake City, Utah, independent certified public accountants, given
on authority of that firm as experts in accounting and auditing.
LEGAL PROCEEDINGS
-----------------
Arena is not presently engaged in any legal proceedings as either a
plaintiff or defendant, nor does it know of any material claims.
CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS
--------------------------------------------
Neither Arena nor its management has had any disagreement with its
independent certified public accountants regarding the scope of the audit or the
application of accounting principles.The company has retained the same auditors
since inception.
INDEMNITY OF OFFICERS AND DIRECTORS
-----------------------------------
The By-laws and Articles for Arena provide indemnity statements for
general indemnities and relief from liability for management. These indemnities,
as well as Nevada law, provide for general indemnity, including costs of defense
for officers, directors and agents acting within the normal scope of their duty
and service to Arena.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
21
<PAGE>
GLOSSARY OF OIL AND GAS TERMS
-----------------------------
The following oil and gas terms as used in this prospectus shall have
the following meanings. These terms were derived, with certain modifications,
from the Manual of Oil and Gas Terms, Williams and Meyers, Mathew Bender, 5th
Edition:
Carried Working Interest. A fractional interest in oil or gas
properties, usually a lease, the holder of which has no obligation to pay for
drilling and completion costs, but which does pay its pro rata share of
operating expenses. A working interest is normally calculated as to the whole of
the production after deduction for royalty interest. As a result, a working
interest would produce a lessor revenue interest which is computed after
deduction for costs of operation, as well as royalties. See Net Revenue Interest
below.
Drill Site. The particular area within a lease which has been
designated for the drilling and completion of an oil and/or gas well. A lease is
often designated or referred to by the number of allowable drill sites contained
therein under prevailing spacing or unit requirements.
Drilling and Completion Costs. Those costs normally incurred by the
working interest holders as necessary to drill, complete and bring an oil or gas
well to a state of commercial completion.
Dry Hole. A term used to denote an oil or gas well which was drilled to
its intended formation depth and was determined prior to completion not to
contain sufficient recoverable quantities of oil and/or gas to warrant
completion.
Formation. That area or group of geographic strata which is typically
productive of oil or gas in a given lease or field. As a result, a well is
typically drilled to this or that formation, or combination of formations,
usually at a predetermined depth within a given lease or field.
Gas Gatherer or Gatherer. That person or entity which has the right and
facilities to place temporary pipes within a producing oil or gas lease for the
purposes of gathering the production of the various wells and placing the gas,
usually under pressure, into a main gas line for purchase purposes.
Gross Well. A term used in the oil and gas industry to define the
number of wells in which a working interest may hold any fractional interest.
For example, even if an interest holder had only a ten percent interest in each
of ten wells he would still have ten gross wells, but only one net well. See
definition of Net Well below.
Lease. The instrument by which a leasehold or working interest is
created in a mineral estate. A mineral lease should not be confused with a
common law lease, but is more similar to a mineral ownership in that the lease
usually survives for so long as there is production from the property after a
stated initial period. In most cases, the mineral lease reflects the entire
mineral interest to be produced from the leasehold subject to only the royalty
interest payments.
Net Revenue Interest. The net revenue interest is a term which defines
the actual revenues which a mineral interest or working interest holder will
obtain from a given lease after payment of its pro rata share of production
costs and after royalty payments.
22
<PAGE>
Net Well. A term sometimes employed to define the aggregate of the
fractional net revenue interests in multiple oil and gas wells which, when
combined, constitute the percentage of an entire well or wells owned by a
working interest holder. For instance, if one has a thirty-three percent net
revenue interest in three wells of substantially similar production, then that
would be a ninety-nine percent net well from three gross wells. See definition
of Gross Well above.
Non-Commercial Well. An oil or gas well which was typically drilled and
completed based upon preliminary determination that sufficient quantities of oil
or gas may be produced, but which subsequently does not produce oil and gas in
sufficient quantities to repay the costs of drilling and completion or the cost
of continued production.
Operating Costs. Those costs normally associated with an oil and/or gas
well after a commercial completion and which are typically paid on a monthly
basis and cover the costs of actual operation of a well to sustain its
production.
Plug and Abandon. The process of abandoning a dry hole or
non-commercial well which normally requires the pulling of certain equipment
from the well and pouring concrete or other material into the well to seal the
producing formations and the surface hole. Plugging and abandoning operations
are normally subject to various state regulations and procedures.
Proven Reserves. Oil and gas which is still in the ground, but which
has been located and determined to be recoverable in verifiable quantities by
sufficient proximate production.
Royalty. That percentage of total production from the lease which is
paid to the landowner "landowners royalty" or other designated and created
royalty holder "overriding royalty." Royalties are a payment of total
production, net of all costs of production except taxes. The typical royalty
usually ranges from 8 to 15% of total production.
Shut-In Well. An oil or gas well that was commercially completed, but
is not in current production for various reasons. Such wells usually are shut-in
for maintenance, regulatory reasons or economic factors such as the prevailing
cost of production versus prices for the product. Typically, such a well can be
put back in to production without significant costs.
Unproven Reserves. A lease or other oil and gas property which is
believed to contain commercial quantities of oil or gas, but which has not been
currently proven to be commercially productive through the drilling of
sufficiently close producing wells.
Working Interest. A fractional interest in oil and gas properties,
usually a lease, which reference the percentage of ownership of the interest
holder in the remaining production after payment of royalties. A working
interest holder would normally pay his pro rata share of drilling and completion
costs, "unless carried," and the pro rata share of operating costs. Since a
working interest would have deducted from it royalty payments as well as
operating costs, the resulting actual payment to the holder is known as a net
revenue interest. See definition of Net Revenue and Carried Working Interest
above.
23
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
AND
FINANCIAL STATEMENTS
August 31, 2000
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
24
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants..........................1
Balance Sheet - August 31, 2000.............................................2
Statement of Operations for the period March 3, 2000
(Date of Inception) through August 31, 2000...............................3
Statement of Stockholders' Equity for the period
March 3, 2000 (Date of Inception) through
August 31, 2000 .....................................................4
Statement of Cash Flows for the period March 3, 2000
(Date of Inception) through August 31, 2000...............................5
Notes to Financial Statements...............................................6
Supplemental Information on Oil and Gas
Producing Activities.......................................................9
25
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Arena Resources, Inc.
Rancho Mirage, California
We have audited the balance sheet of Arena Resources, Inc. (a development stage
company) as of August 31, 2000, and the related statements of operations,
stockholders' equity and cash flows for the period from March 3, 2000 (date of
inception) through August 31, 2000. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Arena Resources, Inc. as of August
31, 2000, and the results of its operations and its cash flows for the period
from March 3, 2000 (date of inception) through August 31, 2000, in conformity
with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in the exploration, development, and production of oil and
gas properties and the production and sale of oil and gas. As discussed in Note
1 to the financial statements, the Company's operating loss since inception and
the deficit accumulated during the development stage raise substantial doubt
about its ability to continue as a going concern. Management's plans concerning
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
By: /s/ Hansen, Barnett & Maxwell
---------------------------------
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
September 6, 2000
26
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
BALANCE SHEET
AUGUST 31, 2000
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets
Cash $ 31,059
---------
Oil and Gas Properties, Using Full Cost Accounting
Properties being amortized 61,174
Less: Accumulated depletion (263)
---------
Net Oil and Gas Properties 60,911
---------
Total Assets $ 91,970
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Revenue distribution payable $ 3,241
Loans from stockholders 25,000
---------
Total Current Liabilities 28,241
---------
Stockholders' Equity
Preferred stock, par value $0.001 par share; 10,000,000 shares
authorized; no shares outstanding --
Common stock, par value $0.001 per share; 100,000,000
shares authorized; 2,600,000 shares outstanding 2,600
Additional paid-in capital 198,789
Estimated receivable from stockholders (134,000)
Accumulated deficit (3,660)
---------
Total Stockholders' Equity 63,729
---------
Total Liabilities and Stockholder's Equity $ 91,970
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 3, 2000 (DATE OF INCEPTION)
THROUGH AUGUST 31, 2000
Gas Revenues $ 2,424
-----------
Costs and Operating Expenses
Gas production costs 263
Depletion 263
General and administrative 5,558
-----------
Total Costs and Operating Expenses 6,084
-----------
Net Loss $ (3,660)
===========
Basic and Diluted Loss Per Common Share $ --
===========
Weighted Average Number of Common
Shares Used in Per Share Calculation 2,600,000
===========
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 3, 2000 (DATE OF INCEPTION)
THROUGH AUGUST 31, 2000
<TABLE>
<CAPTION>
Estimated
Additional Receivable Total
Common Stock Paid-in From Accumulated Stockholders'
Shares Amount Capital Stockholders Deficit Equity
--------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance - March 3, 2000 (Date
of inception) -- $ -- $ -- $ -- $ -- $ --
Common stock issued for cash and a
carried interest in gas properties,
March 3, 2000 through August 31,
2000 - $0.08 per share 2,600,000 2,600 198,789 (134,000) -- 67,389
Net loss -- -- -- -- (3,660) (3,660)
--------- --------- --------- --------- ----------- ---------
Balance - August 31, 2000 2,600,000 $ 2,600 $ 198,789 $(134,000) $ (3,660) $ 63,729
========= ========= ========= ========= =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 3, 2000 (DATE OF INCEPTION)
THROUGH AUGUST 31, 2000
Cash Flows From Operating Activities
Net loss $ (3,660)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depletion 263
Changes in operating assets and liabilities:
Increase in revenue distribution payable 3,241
--------
Net Cash Used in Operating Activities (156)
--------
Cash Flows from Investing Activities
Capital expenditures (61,174)
--------
Net Cash Used in Investing Activities (61,174)
--------
Cash Flows from Financing Activities
Proceeds from loan from stockholders 25,000
Proceeds from issuance of common stock 67,389
--------
Net Cash Provided by Financing Activities 92,389
--------
Net Increase in Cash 31,059
Cash at Beginning of Period --
--------
Cash at End of Period $ 31,059
========
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Arena Resources, Inc. (the Company) began operations as an
unincorporated joint venture on March 3, 2000. The joint venture acquired an
interest in oil and gas properties in Oklahoma. The joint venture was
incorporated under the laws of the State of Nevada on August 31, 2000. On that
date, the property interests were transferred to the corporation in exchange for
the issuance of 2,600,000 shares of common stock. The reorganization into the
corporation was recorded at historical cost. The accompanying financial
statements have been restated to reflect the shares issued in the
reorganization. The accompanying financial statements include the operations of
the joint venture from its formation on March 3, 2000 through August 31, 2000.
Nature of Operations - The Company owns interests in oil and gas properties
located in Oklahoma. The Company is engaged primarily in the acquisition,
exploration, development, and production of oil and gas properties and the
production and sale of oil and gas.
Use of Estimates - The preparation of financial statement in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The amount recorded as estimated receivable from
stockholders is based on a current estimate by a petroleum engineer of the
Company's carried interest in the cost to work over one well and to drill and
complete two wells on the Company's properties. These estimated costs are
subject to change in the near term.
Basis of Presentation - The accompanying financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
financial statements for the period from March 3, 2000 (date of inception)
through August 31, 2000, the Company earned only nominal revenue and incurred a
net loss of $3,660. The lack of operations and the loss from operations raise
substantial doubt about the Company's ability to continue as a going concern for
a reasonable period of time. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded assets
or the amount and classification of liabilities which might be necessary should
the Company be unable to continue as a going concern. The Company's continuation
as a going concern is dependent upon its ability to generate sufficient cash
flows to meet its obligations on a timely basis, to obtain additional financing
as may be required, and ultimately to attain successful operations. The
Company's management intends to raise additional equity capital for operations
and to begin production of its gas properties. There is no assurance additional
capital will be obtained.
Oil and Gas Properties - The Company follows the full cost method of accounting
for oil and gas properties. Accordingly, all costs associated with acquisition,
exploration for and development of oil and gas reserves, are capitalized.
Capitalized costs include land acquisition costs, geological and geophysical
expenditures, lease rentals on undeveloped properties and costs of drilling
productive and non-productive wells. Such capitalized costs include directly
31
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
related overhead costs. Proceeds from disposal of properties are applied as a
reduction of cost without recognition of a gain or loss, except where such
disposals would result in a major change in the depletion rate. Abandonments of
properties are accounted for as adjustments of capitalized costs with no loss
recognized.
All capitalized costs of oil and gas properties, including the estimated future
costs to develop proved reserves and estimated future costs of site restoration,
are amortized on the unit-of-production method using estimates of proved
reserves as determined by independent engineers. Investments in unproved
properties and major development projects are not amortized until proved
reserves associated with the projects can be determined or until impairment
occurs. If the results of an assessment indicate that the properties are
impaired, the amount of the impairment is added to the capitalized costs to be
amortized. Depletion expense for the period from March 3, 2000 through August
31, 2000, was $263.
Capitalized costs, net of accumulated depletion, are evaluated periodically for
impairment. Impairment losses are recognized so as to limited net capitalized
costs to the estimated discounted future net revenues from proved reserves plus
the lower of cost or fair value of unproved properties. Estimated discounted
future net revenues are estimated based on current economic and operating
conditions and are discounted at a 10-percent interest rate.
Basic and Diluted Loss Per Share -Basic loss per common share is computed by
dividing net loss by the weighted-average number of common shares outstanding
during the period. Diluted loss per share is calculated to give effect to
potentially issuable common shares except during loss periods when those
potentially issuable common shares would decrease the loss per share. There were
no potentially issuable common shares which were excluded from the calculation
of diluted loss per common share at August 31, 2000.
NOTE 2 - LOAN FROM STOCKHOLDERS
On August 29, 2000, two stockholders loaned the Company $25,000 to finance its
short-term operations. The Company and the stockholders have mutually agreed
that the loan will be paid back from the proceeds of the Company's planned
equity financing with no interest incurred. The loan was not memorialized with a
promissory note.
NOTE 3 - STOCKHOLDERS' EQUITY
The Company is authorized to issue 100,000,000 common shares, with a par value
of $0.001 per share, and 10,000,000 Class A preferred shares, with a par value
of $0.001 per share. The rights of the Class A preferred shares may be
established by the Board of Directors. If issued, the Class A preferred shares
shall be non-voting and will be entitled to priority over the common shares in
the payment of dividends and in liquidation.
From March 3, 2000 through August 31, 2000, the owners of the Company while it
was a joint venture contributed $67,389 of capital to the joint venture in cash.
Upon its incorporation on August 31, 2000, the Company issued 2,600,000 shares
32
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
of common stock in exchange for the capital contributions previously made to the
joint venture and for the commitment by the shareholders to pay the Company's
40% share of the costs to work over one well and drill and complete two wells on
the Company's property. The estimated future development costs to the Company's
shareholders of $134,000 was estimated by independent engineers and has been
accounted for as an estimated receivable from stockholders.
NOTE 4 - RELATED PARTY TRANSACTIONS
As discussed in Note 3, there was an estimated receivable from stockholders in
the amount of $134,000 at August 31, 2000.
As discussed in Note 2, two stockholders loaned the Company $25,000. The loan is
short-term with no due date and no interest rate.
NOTE 5 - INCOME TAXES
There was no benefit or provision for income taxes for the period from March 3,
2000 (date of inception) through August 31, 2000. The following presents the
components of the net deferred tax asset at August 31, 2000:
Operating loss carryforwards..............$ 1,179
Valuation Allowance....................... (1,179)
-----------------
Net Deferred Tax Asset...........$ -
=================
The Company has a net operating loss carryforward of $3,161 which expires, if
unused, in 2020. The net operating loss carryforward includes the loss incurred
by the Company before it was incorporated.
The following is a reconciliation of the income tax benefit computed at the
federal statutory tax rate with the provision for income taxes for the period
from March 3, 2000 (date of inception) through August 31, 2000:
Income tax benefit at statutory rate (34%)$ (1,244)
Change in valuation allowance............. 1,179
State tax, net of federal benefit......... (121)
Non-deductible expenses................... 186
-----------------
Provision for Income Taxes...........$ -
=================
33
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
Capitalized Costs Relating to Oil and Gas
Producing Activities at August 31, 2000:
Proved gas properties.........................$ 61,174
Less accumulated depletion.................... (263)
----------------
Net Capitalized Costs.........................$ 60,911
================
Costs Incurred in Oil and Gas Producing
Activities for the Period from March 3, 2000
through August 31, 2000
Acquisition of proved properties..............$ 61,174
================
Results of Operations for Oil and Gas Producing
Activities for the Period from March 3, 2000
through August 31, 2000
Gas revenues..................................$ 2,424
Production costs.............................. (263)
Depletion ................................. (263)
----------------
Results of Oil and Gas Producing Operations...$ 1,898
================
Reserve Information - The following estimates of proved and proved developed
reserve quantities and related standardized measure of discounted net cash flow
are estimates only, and do not purport to reflect realizable values or fair
market values of the Company's reserves. The Company emphasizes that reserve
estimates are inherently imprecise and that estimates of new discoveries are
more imprecise than those of producing oil gas properties. Accordingly, these
estimates are expected to change as future information becomes available. All of
the Company's reserves are located in the United States.
Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed reserves are
those expected to be recovered through existing wells, equipment, and operating
methods.
The standardized measure of discounted future net cash flows is computed by
applying period-end prices of oil (with consideration of price changes only to
the extent provided by contractual arrangements) to the estimated future
production of proved oil reserves, less estimated future expenditures (based on
year-end costs) to be incurred in developing and producing the proved reserves,
less estimated future income tax expenses (based on year-end statutory tax
rates, with consideration of future tax rates already legislated) to be incurred
34
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
on pretax net cash flows less tax basis of the properties and available credits,
and assuming continuation of existing economic conditions. The estimated future
net cash flows are then discounted using a rate of 10 percent a year to reflect
the estimated timing of the future cash flows.
Gas
(Mcf)
----------------
Proved Developed and Undeveloped Reserves
Balance - March 3, 2000....................... -
Purchases of minerals in place................ 478,909
Production ................................. (646)
----------------
Balance - August 21, 2000................. 478,263
================
Proved Developed Reserves
March 3, 2000................................. -
August 31, 2000............................... 60,034
================
Standardized Measure of Discounted Future
Net Cash Flows at August 31, 2000
Future cash inflows...........................$ 1,667,941
Future production and development costs....... (180,800)
Future income tax expenses.................... (484,918)
----------------
Future Net Cash Flows......................... 1,002,223
10% annual discount for estimated timing
of cash flows......................... (263,017)
----------------
Standardized Measures of Discounted
Future Net Cash Flows Relating to Proved
Oil and Gas Reserves.....................$ 739,206
================
The following are the principal sources of change in the standardized measure of
discounted future net cash flows during the period from March 3, 2000 through
August 31, 2000:
Purchase of minerals in place.................$ 1,046,121
Sales of gas produced, net of production costs (2,161)
Accretion of discount......................... 52,906
Net change in income taxes.................... (357,660)
----------------
Net Change During the Period..................$ 739,206
================
35
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PART II
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Item 1. Indemnification of Officers & Directors. Arena indicates that
it has normal and customary indemnification provisions under its By-laws and
Articles of Incorporation as well as those generally provided by Nevada law. It
is believed these provisions would indemnify all officers and directors from any
good faith mistake or omission in the performance of his or her duties including
cost of defense. Such indemnity would not extend to intentionally wrongful acts
including fraud, appropriation, self dealing or patent conflicts of interest.
The Articles and By-Laws are being filed as Exhibit items.
Item 2. Other Expenses of Issuance & Distribution. Arena does not know
of any accrued or to be accrued expenses of issuance and distribution other than
as outlined in the foregoing prospectus Use of Proceeds section. The present
estimates of offering expenses are incorporated as costs for registration,
including: fees, legal, accounting, printing and miscellaneous in the aggregate
amount of $35,000.
Item 3. Undertakings. The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933. This
includes:
a. For determining liability under the Securities
Act, the issuer will treat each post-effective
amendment as a new registration statement of the
securities offered, and the offering of the
securities at that time to be the initial bona
fide offering.
b. The issuer will file a post-effective amendment
to remove from registration any of the
securities that remain unsold at the end of the
offering.
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post- effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
(iv) To the extent this issuer requests acceleration of
the effective date of the registration statement
under Rule 461 under the Securities Act, it will
include the following in the appropriate portion of
the prospectus:
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be
36
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permitted to directors, officers and controlling
persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion
of the Securities and Exchange Commission such
indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Item 4. Unregistered Securities Issued or Sold Within One Year. Arena
believes that in the body of this prospectus it has described all shares issued
within the past year from the date of inception of Arena. In summary of that
disclosure, Arena represents the only shares issued were to its founders and
principals, Mr. Lloyd T. Rochford, Mr. Stanley McCabe. All shares issued to them
are the same shares set forth in the chart showing securities held by management
and are deemed exempted transactions under section 4(2) of the Securities Act of
1933 as initial capital contributions. The shares issued to Mr. Rochford and Mr.
McCabe were common voting stock of the issuer. Both Mr. Rochford and Mr. McCabe
received 1,300,000 shares each for the initial oil and gas assets contributed
equally by them to Arena.
Item 5. Index of Exhibits As Listed under Part III, Item I, Form I-A:
Exhibit - Audited Financial Statements for the period ending
August 31, 2000 (Attached to Prospectus)
Exhibit 3.(I) - Articles of Incorporation
Exhibit 3.(II) - By-Laws
Exhibit 4 - Subscription Agreement
Exhibit 5 - Reserve Report
Exhibit 10a - Auditor's Consent Letter
Exhibit 10b - Attorney Letter in re Legality
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Specimen Stock Certificate
37
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Salt
Lake, State of Utah on September , 2000.
(Registrant) Arena Resources, Inc.
By: /s/ Lloyd T. Rochford
-------------------------
Lloyd T. Rochford, Its President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
By: /s/ Lloyd T. Rochford
-------------------------
Lloyd T. Rochford
(Title) Director, CEO, President
(Date)
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
By: /s/ Stanley McCabe
----------------------
Stanley McCabe
(Title) Director, Secretary/Treasurer, Chief Financial & Accounting Officer
(Date)
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
By: /s/ Charles Crawford
------------------------
Charles Crawford
(Title) Director
(Date)
38
