Risks
Related To Our Overall Business Operations
We
have a limited operating history with significant losses and expect losses to continue for the foreseeable future.
We
have yet to establish any history of profitable operations. As of January 31, 2018, we have an accumulated deficit of $1,855,589.
We have just begun generating revenues since our inception and do not anticipate that we will generate revenues which will be
sufficient to sustain our operations. We expect that our revenues will not be sufficient to sustain our operations for the foreseeable
future. Our profitability will require the successful commercialization of our mining properties. We may not be able
to successfully commercialize our mines or ever become profitable.
There
is doubt about our ability to continue as a going concern due to recurring losses from operations, accumulated deficit and insufficient
cash resources to meet our business objectives, all of which means that we may not be able to continue operations.
Our
independent auditors have added an explanatory paragraph to their audit opinion issued in connection with the financial statements
for the years ended July 31, 2017 and 2016, respectively, with respect to their doubt about our ability to continue as a going
concern. As discussed in Note 3 to our financial statements for the six months ended January 31, 2018, we have generated
operating losses since inception, and our cash resources are insufficient to meet our planned business objectives, which together
raises doubt about our ability to continue as a going concern.
We
may not be able to secure additional financing to meet our future capital needs due to changes in general economic conditions.
We
anticipate needing significant capital to conduct further exploration and development needed to bring our existing oil and gas
and mining properties into production and/or to continue to seek out appropriate joint venture partners or buyers for certain
mining properties. We may use capital more rapidly than currently anticipated and incur higher operating expenses than currently
expected, and we may be required to depend on external financing to satisfy our operating and capital needs. We may need
new or additional financing in the future to conduct our operations or expand our business. Any sustained weakness in the
general economic conditions and/or financial markets in the United States or globally could adversely affect our ability to raise
capital on favorable terms or at all. From time to time we have relied, and may also rely in the future, on access to financial
markets as a source of liquidity to satisfy working capital requirements and for general corporate purposes. We may be unable
to secure debt or equity financing on terms acceptable to us, or at all, at the time when we need such funding. If we do
raise funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would
be reduced, and the securities that we issue may have rights, preferences or privileges senior to those of the holders of our
common stock or may be issued at a discount to the market price of our common stock which would result in dilution to our existing
stockholders. If we raise additional funds by issuing debt, we may be subject to debt covenants, which could place limitations
on our operations including our ability to declare and pay dividends. Our inability to raise additional funds on a timely
basis would make it difficult for us to achieve our business objectives and would have a negative impact on our business, financial
condition and results of operations.
Our
properties are in the exploration stage. There is no assurance that we can establish the existence of any mineral resource on
any of our properties in commercially exploitable quantities. Until we can do so, we cannot earn any revenues from operations
and if we do not do so we will lose all of the funds that we expend on exploration. If we do not discover any mineral resource
in a commercially exploitable quantity, our business could fail.
Despite
exploration work on our mineral properties, we have not established that our properties have sufficient mineral reserve to justify
a mining operation, and there can be no assurance that we will be able to do so. If we do not, our business could fail.
A
mineral reserve is defined by the Securities and Exchange Commission in its Industry Guide 7 (which can be viewed over the Internet
at
http://www.sec.gov/divisions/corpfin/forms/industry.htm#secguide7
) as that part of a mineral deposit which could be
economically and legally extracted or produced at the time of the reserve determination. The probability of an individual prospect
ever having a “reserve” that meets the requirements of the Securities and Exchange Commission’s Industry Guide 7 is
extremely remote; in all probability our mineral resource properties do not contain any ‘reserve’ and any funds that we spend
on exploration will probably be lost.
Even
if we do eventually discover a mineral reserve on any of our properties, there can be no assurance that we will be able to develop
any of our properties into a producing mine and extract those resources. Both mineral exploration and development involve a high
degree of risk and few properties which are explored are ultimately developed into producing mines.
The
commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size,
grade and other attributes of the mineral deposit, the proximity of the resource to infrastructure such as a smelter, roads and
a point for shipping, government regulation and market prices. Most of these factors will be beyond our control, and any of them
could increase costs and make extraction of any identified mineral resource unprofitable.
Mineral
operations are subject to applicable law and government regulation. Even if we discover a mineral resource in a commercially exploitable
quantity, these laws and regulations could restrict or prohibit the exploitation of that mineral resource. If we cannot exploit
any mineral resource that we might discover on any of our properties, our business may fail.
Both
mineral exploration and extraction require permits from various foreign, federal, state, provincial and local governmental authorities
and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport,
export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection,
mine safety and other matters. There can be no assurance that we will be able to obtain or maintain any of the permits required
for the continued exploration of our mineral properties or for the construction and operation of a mine on our properties at economically
viable costs. If we cannot accomplish these objectives, our business could fail.
We
believe that we are in compliance with all material laws and regulations that currently apply to our activities but there can
be no assurance that we can continue to remain in compliance. Current laws and regulations could be amended, and we might not
be able to comply with them, as amended. Further, there can be no assurance that we will be able to obtain or maintain all permits
necessary for our future operations, or that we will be able to obtain them on reasonable terms. To the extent such approvals
are required and are not obtained, we may be delayed or prohibited from proceeding with planned exploration or development of
our mineral properties.
If
we establish the existence of a mineral resource on any of our properties in a commercially exploitable quantity, we will require
additional capital in order to develop the property into a producing mine. If we cannot raise this additional capital, we will
not be able to exploit the resource, and our business could fail.
If
we do discover mineral resources in commercially exploitable quantities on any of our properties, we will be required to expend
substantial sums of money to establish the extent of the resource, develop processes to extract it and develop extraction and
processing facilities and infrastructure. Although we may derive substantial benefits from the discovery of a major deposit, there
can be no assurance that any discovered resource will be large enough to justify commercial operations, nor can there be any assurance
that we will be able to raise the funds required for development on a timely basis. If we cannot raise the necessary capital or
complete the necessary facilities and infrastructure, our business may fail.
Mineral
exploration and development is subject to extraordinary operating risks. We do not currently insure against these risks. In the
event of a cave-in or similar occurrence, our liability may exceed our resources, which would have an adverse impact on our company.
Mineral
exploration, development and production involve many risks which even a combination of experience, knowledge and careful evaluation
may not be able to overcome. Our operations will be subject to all the hazards and risks inherent in the exploration for mineral
resources and, if we discover a mineral resource in commercially exploitable quantity, our operations could be subject to all
of the hazards and risks inherent in the development and production of resources, including liability for pollution, cave-ins
or similar hazards against which we cannot insure or against which we may elect not to insure. Any such event could result in
work stoppages and damage to property, including damage to the environment. We do not currently maintain any insurance coverage
against these operating hazards. The payment of any liabilities that arise from any such occurrence would have a material adverse
impact on our company.
Mineral
prices are subject to dramatic and unpredictable fluctuations.
We
expect to derive revenues, if any, either from the sale of our mineral resource properties or from the extraction and sale of
ore. The price of those commodities has fluctuated widely in recent years, and is affected by numerous factors beyond our control,
including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates,
global or regional consumptive patterns, speculative activities and increased production due to new extraction developments and
improved extraction and production methods. The effect of these factors on the price of base and precious metals, and therefore
the economic viability of any of our exploration properties and projects, cannot accurately be predicted.
The
mining industry is highly competitive and there is no assurance that we will continue to be successful in acquiring mineral claims.
If we cannot continue to acquire properties to explore for mineral resources, we may be required to reduce or cease operations.
The
mineral exploration, development, and production industry is largely un-integrated. We compete with other exploration companies
looking for mineral resource properties. While we compete with other exploration companies in the effort to locate and acquire
mineral resource properties, we will not compete with them for the removal or sales of mineral products from our properties if
we should eventually discover the presence of them in quantities sufficient to make production economically feasible. Readily
available markets exist worldwide for the sale of mineral products. Therefore, we will likely be able to sell any mineral products
that we identify and produce.
In
identifying and acquiring mineral resource properties, we compete with many companies possessing greater financial resources and
technical facilities. This competition could adversely affect our ability to acquire suitable prospects for exploration in the
future. Accordingly, there can be no assurance that we will acquire any interest in additional mineral resource properties that
might yield reserves or result in commercial mining operations.
Risks
Associated with Our Mining Industry
The
development and operation of our mining projects involve numerous uncertainties.
Mine
development projects, including our planned projects, typically require a number of years and significant expenditures during
the development phase before production is possible.
Development
projects are subject to the completion of successful feasibility studies, issuance of necessary governmental permits and receipt
of adequate financing. The economic feasibility of development projects is based on many factors such as:
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estimation
of reserves;
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anticipated
metallurgical recoveries;
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future
gold and silver prices; and
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anticipated
capital and operating costs of such projects.
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Our
mine development projects may have limited relevant operating history upon which to base estimates of future operating costs and
capital requirements. Estimates of proven and probable reserves and operating costs determined in feasibility studies are
based on geologic and engineering analyses.
Any
of the following events, among others, could affect the profitability or economic feasibility of a project:
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unanticipated
changes in grade and tonnage of material to be mined and processed;
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unanticipated
adverse geotechnical conditions;
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incorrect
data on which engineering assumptions are made;
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costs
of constructing and operating a mine in a specific environment;
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availability
and cost of processing and refining facilities;
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availability
of economic sources of power;
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adequacy
of water supply;
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adequate
access to the site;
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unanticipated
transportation costs;
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government
regulations (including regulations relating to prices, royalties, duties, taxes, restrictions
on production, quotas on exportation of minerals, as well as the costs of protection
of the environment and agricultural lands);
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fluctuations
in metal prices; and
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accidents,
labor actions and force majeure events.
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Any
of the above referenced events may necessitate significant capital outlays or delays, may materially and adversely affect the
economics of a given property, or may cause material changes or delays in our intended exploration, development and production
activities. Any of these results could force us to curtail or cease our business operations.
Mineral
exploration is highly speculative, involves substantial expenditures, and is frequently non-productive.
Mineral
exploration involves a high degree of risk and exploration projects are frequently unsuccessful. Few prospects that are explored
end up being ultimately developed into producing mines. To the extent that we continue to be involved in mineral exploration,
the long-term success of our operations will be related to the cost and success of our exploration programs. We cannot assure
you that our mineral exploration efforts will be successful. The risks associated with mineral exploration include:
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the
identification of potential economic mineralization based on superficial analysis;
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the
quality of our management and our geological and technical expertise; and
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the
capital available for exploration and development.
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Substantial
expenditures are required to determine if a project has economically mineable mineralization. It may take several years to
establish proven and probable reserves and to develop and construct mining and processing facilities. Because of these uncertainties,
our current and future exploration programs may not result in the discovery of reserves, the expansion of our existing reserves
or the further development of our mines.
The
price of gold and silver are highly volatile and a decrease in the price of gold or silver would have a material adverse effect
on our business.
The
profitability of mining operations is directly related to the market prices of metals. The market prices of metals fluctuate
significantly and are affected by a number of factors beyond our control, including, but not limited to, the rate of inflation,
the exchange rate of the dollar to other currencies, interest rates, and global economic and political conditions. Price
fluctuations of metals from the time development of a mine is undertaken to the time production can commence can significantly
affect the profitability of a mine. Accordingly, we may begin to develop one or more of our mining properties at a time when
the price of metals makes such exploration economically feasible and, subsequently, incur losses because the price of metals decreases. Adverse
fluctuations of the market prices of metals may force us to curtail or cease our business operations.
Mining
risks and insurance could have an adverse effect on our profitability.
Our
operations are subject to all of the operating hazards and risks normally incident to exploring for and developing mineral properties,
such as unusual or unexpected geological formations, environmental pollution, personal injuries, flooding, cave-ins, changes in
technology or mining techniques, periodic interruptions because of inclement weather and industrial accidents. Although maintenance
of insurance to ameliorate some of these risks is part of our proposed exploration program associated with those mining properties
we have an interest in, such insurance may not be available at economically feasible rates or in the future be adequate to cover
the risks and potential liabilities associated with exploring, owning and operating our properties. Either of these events
could cause us to curtail or cease our business operations.
We
face significant competition in the mineral exploration industry.
We
compete with other mining and exploration companies possessing greater financial resources and technical facilities than we do
in connection with the acquisition of exploration properties and leases on prospects and properties and in connection with the
recruitment and retention of qualified personnel. Such competition may result in our being unable to acquire interests in
economically viable gold and silver exploration properties or qualified personnel.
Our
applications for exploration permits may be delayed or may be denied in the future.
Exploration
activities usually require the granting of permits from various governmental agencies. For exploration drilling on unpatented
mineral claims, a drilling plan must be filed with the Bureau of Land Management or the United States Forest Service, which may
then take several months or more to grant the requested permit. Depending on the size, location and scope of the exploration
program, additional permits may also be required before exploration activities can be undertaken. Prehistoric or Indian grave
yards, threatened or endangered species, archeological sites or the possibility thereof, difficult access, excessive dust and
important nearby water resources may all result in the need for additional permits before exploration activities can commence. With
all permitting processes, there is the risk that unexpected delays and excessive costs may be experienced in obtaining required
permits or the refusal to grant required permits may not be granted at all, all of which may cause delays and unanticipated costs
in conducting planned exploration activities. Any such delays or unexpected costs in the permitting process could result
in serious adverse consequences to the price of our stock and to the value of your investment.
Risks
Associated with Our Oil & Gas Industry
A
substantial or extended decline in oil and natural gas prices or demand for oil and gas products may adversely affect our business,
financial condition, cash flow, liquidity or results of operations and our ability to meet our capital expenditure obligations
and financial commitments and to implement our business strategy.
The
price we receive for our oil and natural gas production will heavily influence our revenue, profitability, access to capital,
and future rate of growth. Recent extremely high prices have affected the demand for oil and gas products, and that demand has
declined on a worldwide basis. If the decline in demand continues, the ability to command higher prices for oil and gas products
will be endangered. Oil and natural gas are commodities, and, therefore, their prices are subject to wide fluctuations in response
to relatively minor changes in supply and demand. Historically, the markets for oil and natural gas have been volatile. These
markets will likely continue to be volatile in the future. The prices we receive for our production, and the levels of our production,
and the revenue we will receive, depend on numerous factors beyond our control. These factors include the following:
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changes in global supply and demand for oil and natural
gas;
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the
actions of the Organization of Petroleum Exporting Countries (“OPEC”) and other
organizations and government entities;
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the price and quantity of imports of foreign oil and
natural gas;
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political
conditions and events worldwide, including rules concerning production and environmental
protection, and political instability in countries with significant oil production such
as the Congo and Venezuela, all affecting oil-producing activity;
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the level of global oil and natural gas exploration
and production activity;
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the short and long term levels of global oil and natural
gas inventories;
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weather conditions;
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technological
advances affecting the exploitation for oil and gas, and related advances for energy
consumption; and
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the price and availability of alternative fuels.
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Lower
oil and natural gas prices may not only decrease our revenues but may also reduce the amount of oil and natural gas that we can
produce economically. A substantial or extended decline in oil or natural gas prices is likely to materially and adversely affect
our future business, financial condition, results of operations, liquidity or ability to finance planned capital expenditures.
We
plan to conduct exploration, exploitation and production operations, which present additional unique operating risks.
There
are additional risks associated with oil and gas investment which involve production and well operations and drilling. These risks
include, among others, substantial cost overruns and/or unanticipated outcomes that may result in uneconomic projects or wells.
Cost overruns could materially reduce the funds available to the Company, and cost overruns are common in the oil and gas industry.
Moreover, drilling expense and the risk of mechanical failure can be significantly increased in wells drilled to greater depths
and where one is more likely to encounter adverse conditions such as high temperature and pressure.
We
may not be able to control operations of the wells we acquire.
We
may not be able to acquire the operations for properties that we invest in. As a result, we may have limited ability to exercise
influence over the operations for these properties or their associated costs. Our dependence on another operator and other working
interest owners for these projects and our limited ability to influence operations and associated costs could prevent the realization
of our targeted returns on capital in drilling or acquisition activities. The success and timing of development and exploitation
activities on properties operated by others depend upon a number of factors that will be largely outside of our control, including:
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the timing and amount of capital expenditures;
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the
availability of suitable drilling rigs, drilling equipment, production and transportation
infrastructure and qualified operating personnel;
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the operator’s expertise and financial resources;
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approval of other participants in drilling wells; and
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selection of technology.
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We
may not be successful in identifying or developing recoverable reserves.
Our
future success depends upon our ability to acquire and develop oil and gas reserves that are economically recoverable. Proved
reserves will generally decline as reserves are depleted, except to the extent that we can replace those reserves by exploration
and development activities or acquisition of properties containing proved reserves, or both. In order to increase reserves and
production, we must undertake development, exploration, drilling and recompletion programs or other replacement activities. Our
current strategy includes increasing our reserve base through development, exploitation, exploration and acquisition. There can
be no assurance that our planned development and exploration projects or acquisition activities will result in significant additional
reserves or that we will have continuing success drilling productive wells at economical values in terms of their finding and
development costs. Furthermore, while our revenues may increase if oil and gas prices increase significantly, finding costs for
additional reserves have increased during the last few years. It is possible that product prices will decline while the Company
is in the middle of executing its plans, while costs of drilling remain high. There can be no assurance that we will replace reserves
or replace our reserves economically.
Our
future oil & gas activities may not be successful.
Oil
and gas activities are subject to many risks, including the risk that no commercially productive reservoirs will be encountered.
There can be no assurance that new wells drilled by us will be productive or that we will recover all or any portion of our investment.
Drilling for oil and gas may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do
not produce sufficient net revenues to return a profit after drilling, operating and other costs. The cost of drilling, completing
and operating wells is often uncertain, and the cost associated with these activities has risen significantly during the past
year. Our drilling operations may be curtailed, delayed or canceled as a result of numerous factors, many of which are beyond
our control, including economic conditions, mechanical problems, title problems, weather conditions, governmental requirements
and shortages or delays in the delivery of equipment and services. Our future oil and gas activities may not be successful and,
if unsuccessful, such failure may have a material adverse effect on our future results of operations and financial condition.
Our
operations are subject to risks associated with drilling or producing and transporting oil and gas.
Our
operations are subject to hazards and risks inherent in drilling or producing and transporting oil and gas, such as fires, natural
disasters, explosions, encountering formations with abnormal pressures, blowouts, cratering, pipeline ruptures and spills, any
of which can result in the loss of hydrocarbons, environmental pollution, personal injury claims and other damage to our properties.
The
lack of availability or high cost of drilling rigs, fracture stimulation crews, equipment, supplies, insurance, personnel and
oil field services could adversely affect our ability to execute our exploration and development plans on a timely basis and within
our budget.
Our
industry is cyclical and, from time to time, there is a shortage of drilling rigs, fracture stimulation crews, equipment, supplies,
key infrastructure, insurance or qualified personnel. During these periods, the costs and delivery times of rigs, equipment and
supplies are substantially greater. In addition, the demand for, and wage rates of, qualified crews rise as the number of active
rigs and completion fleets in service increases. If increasing levels of exploration and production result in response to strong
prices of oil and natural gas, the demand for oilfield services will likely rise, and the costs of these services will likely
increase, while the quality of these services may suffer. If the lack of availability or high cost of drilling rigs, equipment,
supplies, insurance or qualified personnel were particularly severe in Texas, we could be materially and adversely affected because
our operations and properties are concentrated in Texas at the present time.
Compliance
with government regulations may require significant expenditures.
Our
business is subject to federal, state and local laws and regulations relating to the exploration for, and the development, production
and transportation of oil and gas, as well as safety matters. Although we will attempt to conduct due diligence concerning standard
compliance issues, there is a heightened risk that our target properties are not in compliance because of lack of funding. We
may be required to make significant expenditures to comply with governmental laws and regulations that may have a material adverse
effect on our financial condition and results of operations. Even if the properties are in substantial compliance with all applicable
laws and regulations, the requirements imposed by such laws and regulations are frequently changed and are subject to interpretation,
and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations.
Environmental
regulations and costs of remediation could have a material adverse effect on our operations.
Our
operations are subject to complex and constantly changing environmental laws and regulations adopted by federal, state and local
government authorities. The implementation of new, or the modification of existing, laws or regulations could have a material
adverse effect on our operations. The discharge of oil, gas or other pollutants into the air, soil, or water may give rise to
significant liabilities on our part to the government and third parties, and may require us to incur substantial costs of remediation.
We will be required to consider and negotiate the responsibility of the Company for prior and ongoing environmental liabilities.
We may be required to post or assume bonds or other financial guarantees with the parties from whom we purchase properties or
with governments to provide financial assurance that we can meet potential remediation costs. There can be no assurance that existing
environmental laws or regulations, as currently interpreted or reinterpreted in the future, or future laws or regulations will
not materially adversely affect our results of operation and financial condition or that material indemnity claims will not arise
against us with respect to properties acquired by us.
Certain
United States federal income tax deductions currently available with respect to oil and natural gas exploration and production
may be eliminated as a result of future legislation.
Recently,
there has been significant discussion among members of Congress regarding potential legislation that, if enacted into law, would
eliminate certain key United States federal income tax incentives currently available to oil and natural gas exploration and production
companies. These changes include, among other proposals:
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the
repeal of the limited percentage depletion allowance for oil and natural gas production
in the United States;
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the
replacement of expensing intangible drilling and development costs in the year incurred
with an amortization of those costs over several years;
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the elimination of the deduction for certain domestic
production activities; and
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an extension of the amortization period for certain
geological and geophysical expenditures.
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It
is unclear whether these or similar changes will be enacted. The passage of this legislation or any similar changes in federal
income tax laws could eliminate or postpone certain tax deductions that are currently available with respect to U.S. oil and natural
gas exploration and development. Any such changes could have an adverse effect on our financial position, results of operations
and cash flows.
We
operate in a highly competitive environment.
We
operate in the highly competitive areas of oil and gas exploration, development, acquisition and production with other companies.
In seeking to acquire desirable producing properties or new leases for future exploration, and in marketing our oil and gas production,
we face intense competition from both major and independent oil and gas companies. If any of these competitors have financial
and other resources substantially in excess of those available to us. Our inability to effectively compete in this environment
could materially and adversely affect our financial condition and results of operations.
The
producing life of oil and gas wells is uncertain, and production will decline.
It
is not possible to predict the life and production of any oil and gas wells with accuracy. The actual life could differ significantly
from that anticipated. Sufficient oil or natural gas may not be produced for investors to receive a profit or even to recover
their initial investments. In addition, production from the Company’s oil and natural gas wells, if any, will decline over time,
and current production does not necessarily indicate any consistent level of future production. A production decline may be rapid
and irregular when compared to a well’s initial production.
Our
lack of diversification will increase the risk of an investment in us, as our financial condition may deteriorate if we fail to
diversify.
Larger
companies have the ability to manage their risk by diversification. However, we lack diversification, in terms of both the nature
and geographic scope of our business. As a result, we will likely be impacted more acutely by factors affecting our industry or
the regions in which we operate than we would if our business were more diversified, enhancing our risk profile. If we cannot
diversify our operations, our financial condition and results of operations could deteriorate. The Company has a limited number
of potential revenue generating properties. These properties historically had revenue derived from the sale of natural gas and
oil. Therefore, the price we receive for our oil and natural gas production heavily influences our revenue, profitability, access
to capital and future rate of growth.
Our
business may suffer if we do not attract and retain talented personnel.
Our
success will depend in large measure on the abilities, expertise, judgment, discretion, integrity and good faith of our management
and other personnel in conducting our intended business. We presently have a small management team which we intend to expand in
conjunction with our planned operations and growth. The loss of a key individual, or our inability to attract suitably qualified
staff could materially adversely impact our business.
We
may not be able to establish substantial oil operations or manage our growth effectively, which may harm our profitability.
Our
strategy envisions establishing and expanding our oil business. If we fail to effectively establish sufficient oil operations
and thereafter manage our growth, our financial results could be adversely affected. Growth may place a strain on our management
systems and resources. We must continue to refine and expand our business development capabilities, our systems and processes,
and our access to financing sources. As we grow, we must continue to hire, train, supervise and manage new employees. We cannot
assure you that we will be able to:
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meet
our capital needs;
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expand
our systems effectively or efficiently or in a timely manner;
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allocate
our human resources optimally
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identify
and hire qualified employees or retain valued employees; or
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incorporate
effectively the components of any business that we may acquire in our effort to achieve
growth.
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If
we are unable to manage our growth, our operations and our financial results could be adversely affected by inefficiency, which
could diminish our profitability.
Relationships
upon which we may rely are subject to change, which may diminish our ability to conduct our operations.
To
develop our business, it will be necessary for us to establish business relationships, which may take the form of joint ventures
with private parties and contractual arrangements with other unconventional oil companies, including those that supply equipment
and other resources that we expect to use in our business. We may not be able to establish these relationships, or if established,
we may not be able to maintain them. In addition, the dynamics of our relationships with strategic partners may require us to
incur expenses or undertake activities we would not otherwise be inclined to in order to fulfill our obligations to these partners
or maintain our relationships. If our strategic relationships are not established or maintained, our business prospects may be
limited, which could diminish our ability to conduct our operations.
An
increase in royalties payable may make our operations unprofitable.
Any
development project of our resource assets will be directly affected by the royalty regime applicable. The economic benefit of
future capital expenditures for the project is, in many cases, dependent on a satisfactory royalty regime. There can be no assurance
that governments will not adopt a new royalty regime that will make capital expenditures uneconomic or that the royalty regime
currently in place will remain unchanged.
Hydraulic
fracturing, the process used for releasing oil and natural gas from shale rock, has recently come under increased scrutiny and
could be the subject of further regulation that could impact the timing and cost of development.
Recently
there has been increasing public and regulatory attention focused on the potential environmental impact of hydraulic fracturing
(or “fracking”) operations. This process, which involves the injection of water, sand and certain additives deep underground
to release natural gas, natural gas liquids and oil deposits, is part of our proposed future operations and future regulation
of these activities could have a material adverse impact on our business, financial condition and results of operations.
Various
government agencies, political representatives and public interest groups have raised concerns about the potential for fracking
to lead to groundwater contamination, and various regulatory and legislative measures have been proposed or adopted at the federal,
state and local level to study or monitor related concerns, to regulate well operations and related production and waste streams,
or to ban fracking entirely. For example, various states and federal regulatory authorities require or are considering requiring
public disclosure of the chemicals contained in fracking fluids and testing and monitoring obligations relating to well integrity
and operation. North Dakota, a state in which we conduct operations, recently amended its current regulations to require additional
pollution control equipment at well sites and enhanced emergency response procedures in addition to other measures designed to
reduce potential environmental impacts. In 2011, the EPA announced its intention to consider pre-treatment standards for produced
waters that are sent to third party wastewater treatment plants.
In
addition, bills have been proposed in the US. Congress to allow the EPA to regulate the injection of fracking fluids under the
federal Safe Drinking Water Act, which could require hydraulic fracturing operations to meet federal permitting and financial
assurance requirements, adhere to certain construction specifications, fulfill monitoring, reporting, and recordkeeping obligations,
and meet plugging and abandonment requirements. The proposed legislation also would require the reporting and public disclosure
of chemicals used in the fracturing process, which could make it easier for third parties opposing the hydraulic fracturing process
to initiate legal proceedings based on allegations that specific chemicals used in the fracturing process could adversely affect
groundwater. In addition, in light of concerns about seismic activity being triggered by the injection of produced waters into
underground wells, certain regulators are considering additional requirements related to seismic safety. Other concerns have been
raised regarding water usage, air emissions (including greenhouse gas emissions) and waste disposal, and certain jurisdictions
have imposed moratoria on fracking operations while the potential impacts are studied. The EPA, Congress and other government
representatives continue to investigate the impacts of fracking, and additional studies and regulatory or legislative initiatives
are possible.
Depending
on the legislation that may ultimately be enacted or the regulations that may be adopted at the federal, and/or state levels,
exploration and production activities that entail hydraulic fracturing could be subject to additional regulation and permitting
requirements. Individually or collectively, such new legislation or regulation could lead to operational delays or increased operating
costs and could result in additional burdens that could increase the costs and delay or curtail the development of conventional
and unconventional oil and natural gas resources including development of shale formations which are not commercial without the
use of hydraulic fracturing. This could have an adverse effect on our business, financial condition and results of operations.
Exploration
for petroleum and gas products is inherently speculative. There can be no assurance that we will ever establish commercial discoveries.
Exploration
for economic reserves of oil and gas is subject to a number of risk factors. Few properties that are explored are ultimately developed
into producing oil or gas wells. Some of our properties are in the exploration stage only and are without proven reserves of oil
and gas. We may not establish commercial discoveries on any of our properties.
There
are numerous uncertainties inherent in estimating quantities of conventional and unconventional oil and gas resources, including
many factors beyond our control and no assurance can be given that expected levels of resources or recovery of oil and gas will
be realized. In general, estimates of recoverable oil and gas resources are based upon a number of factors and assumptions made
as of the date on which resource estimates are determined, such as geological and engineering estimates which have inherent uncertainties
and the assumed effects of regulation by governmental agencies and estimates of future commodity prices and operating costs, all
of which may vary considerably from actual results. All such estimates are, to some degree, uncertain, and classifications of
resources are only attempts to define the degree of uncertainty involved. For these reasons, estimates of the recoverable unconventional
oil, the classification of such resources based on risk of recovery, prepared by different engineers or by the same engineers
at different times, may vary substantially.
Prices
and markets for oil and gas are unpredictable and tend to fluctuate significantly, which could reduce profitability, growth and
the value of our proposed business.
Our
revenues and earnings, if any, will be highly sensitive to the price of oil and gas. Prices for oil and gas are subject to large
fluctuations in response to relatively minor changes in the supply of and demand for oil and gas, market uncertainty, and a variety
of additional factors beyond our control. These factors include, without limitation, weather conditions, the condition of the
Canadian, US. and global economies, the actions of the Organization of Petroleum Exporting Countries, governmental regulations,
political stability in the Middle East and elsewhere, war, or the threat of war, in oil producing regions, the foreign supply
of oil, the price of foreign imports, and the availability of alternate fuel sources. Significant changes in long-term price outlooks
for crude oil and natural gas could have a material adverse effect on us. For example, market fluctuations of oil prices may render
uneconomic the extraction of oil and gas.
All
of these factors are beyond our control and can result in a high degree of price volatility not only in crude oil and natural
gas prices, but also fluctuating price differentials between heavy and light grades of crude oil, which can impact prices for
our crude oil. Oil and natural gas prices have fluctuated widely in recent years, and we expect continued volatility and uncertainty
in crude oil and natural gas prices. A prolonged period of low crude oil and natural gas prices could affect the value of our
crude oil and gas properties and the level of spending on growth projects, and could result in curtailment of production on some
properties. Accordingly, low crude oil prices in particular could have an adverse impact on our financial condition and liquidity
and results of operations.
Existing
environmental regulations impose substantial operating costs which could adversely effect our business.
Environmental
regulation affects nearly all aspects of our operations. These regulatory regimes are laws of general application that apply to
us in the same manner as they apply to other companies and enterprises in the energy industry. Conventional and unconventional
oil extraction operations present environmental risks and hazards and are subject to environmental regulation pursuant to a variety
of federal, state and county laws and regulations.
Environmental
legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances
produced in association with oil operations. The legislation also requires that facility sites be operated, maintained, abandoned
and reclaimed to the satisfaction of applicable regulatory authorities. Compliance with such legislation can require significant
expenditures and a breach may result in the imposition of fines and penalties, some of which may be material.
We
expect future changes to environmental legislation, including anticipated legislation for air pollution and greenhouse gases that
will impose further requirements on companies operating in the energy industry. Changes in environmental regulation could have
an adverse effect on us from the standpoint of product demand, product reformulation and quality, methods of production and distribution
and costs, and financial results. For example, requirements for cleaner-burning fuels could cause additional costs to be incurred,
which may or may not be recoverable in the marketplace. The complexity and breadth of these issues make it extremely difficult
to predict their future impact on us. Management anticipates capital expenditures and operating expenses could increase in the
future as a result of the implementation of new and increasingly stringent environmental regulations.
Abandonment
and reclamation costs are unknown and may be substantial.
Certain
environmental regulations govern the abandonment of project properties and reclamation of lands at the end of their economic life,
the costs of which may be substantial. A breach of such regulations may result in the issuance of remedial orders, the suspension
of approvals, or the imposition of fines and penalties, including an order for cessation of operations at the site until satisfactory
remedies are made. It is not possible to estimate with certainty abandonment and reclamation costs since they will be a function
of regulatory requirements at the time.
Changes
in the granting of governmental approvals could raise our costs and adversely affect our business.
Permits,
leases, licenses, and approvals are required from a variety of regulatory authorities at various stages of exploration and development.
There can be no assurance that the various government permits, leases, licenses and approvals sought will be granted in respect
of our activities or, if granted, will not be cancelled or will be renewed upon expiration. There is no assurance that such permits,
leases, licenses, and approvals will not contain terms and provisions which may adversely affect our exploration and development
activities.
Amendments
to current laws and regulations governing our proposed operations could have a material adverse impact on our proposed business.
Our
business will be subject to substantial regulation under state and federal laws relating to the exploration for, and the development,
upgrading, marketing, pricing, taxation, and transportation of unconventional oil and related products and other matters. Amendments
to current laws and regulations governing operations and activities of conventional and unconventional oil extraction operations
could have a material adverse impact on our proposed business. In addition, there can be no assurance that income tax laws, royalty
regulations and government incentive programs related to the unconventional oil industry generally will not be changed in a manner
which may adversely affect us and cause delays, inability to complete or abandonment of properties.
Risks
Related To The Market For Our Stock
Trading
of our stock may be restricted by the SEC’s “Penny Stock” regulations, which may limit a stockholder’s ability to buy
and sell our stock.
The
U.S. Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity
security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject
to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements
on broker-dealers who sell to persons other than established customers and “accredited investors.” The term “accredited
investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess
of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document
in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock
market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation
of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny
stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information,
must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing
before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure
requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject
to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities.
We believe that the penny stock rules discourage investor interest in and limit the marketability of, our common stock.
The
Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a stockholder’s
ability to buy and sell our stock.
In
addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment
to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts
to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations
of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for
at least some customers FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our
common stock, which may limit our ability to buy and sell our stock and have an adverse effect on the market for our shares.
Trading
in our common shares on the OTC is limited and sporadic making it difficult for our shareholders to sell their shares or liquidate
their investments.
Our
common shares are currently listed for public trading on the OTC under the stock symbol “NMEX”. The trading price
of our common shares has been subject to wide fluctuations. Trading prices of our common shares may fluctuate in response to a
number of factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating performance of companies with no current business
operation. There can be no assurance that trading prices and price earnings ratios previously experienced by our common shares
will be matched or maintained. These broad market and industry factors may adversely affect the market price of our common shares,
regardless of our operating performance.
In
the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has
often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of management’s
attention and resources.
We
are not likely to pay cash dividends in the foreseeable future.
We
intend to retain any future earnings for use in the operation and expansion of our business. We do not expect to pay any
cash dividends in the foreseeable future but will review this policy as circumstances dictate. Should we decide in the future
to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends
or other payments from our operating subsidiaries. In addition, our operating subsidiaries, from time to time, may be subject
to restrictions on their ability to make distributions to us, including restrictions on the conversion of local currency into
U.S. dollars or other hard currency and other regulatory restrictions.