Sable Natural Resources Corp - FORM 10-Q - September 30, 2014

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q 
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2014
Commission File Number: 53915 
ENERGY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
84-1080045
(State or other jurisdiction of
 incorporation or organization)
 
(I.R.S. Employer
 Identification No.)
12222 Merit Drive, Suite 1850
Dallas, Texas
 
75251
(Address of principal executive offices)
 
(Zip Code)
972-770-4700
(Registrant’s telephone number, including area code) 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ¨  No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 (Do not check if a
smaller reporting company)
 
Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨  No x
As of August 31, 2014, the registrant had 34,879,168 shares of common stock outstanding.
 



TABLE OF CONTENTS
 
 
 
 
Page
 
 
 
 
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


FORWARD-LOOKING STATEMENTS 
The statements contained in all parts of this document relate to future events, including, but not limited to, any and all statements regarding future operations, financial results, business plans and cash needs and other statements that are not historical facts are forward looking statements.  When used in this document, the words “anticipate,” “budgeted,” “planned,” “targeted,” “potential,” “estimate,” “expect,” “may,” “project,” “believe” and similar expressions are intended to be among the statements that identify forward looking statements. Such statements involve known and unknown risks and uncertainties, including, but not limited to, those relating to the current economic and credit environment, the volatility of natural gas and oil prices, our dependence on our key personnel, factors that affect our ability to manage our growth and achieve our business strategy, technological changes, our significant capital requirements, our ability to continue as a going concern, the potential impact of government regulations and the taxation of the oil and gas industry, adverse regulatory determinations, litigation, competition, availability of drilling, completion and production equipment and materials, business and equipment acquisition risks, weather, availability of financing and the terms of any such financing, financial condition of our industry partners, ability to obtain permits, drilling and completion of wells, infrastructure for salt water disposal, costs of exploiting and developing our properties and conducting other operations, the ability to obtain financing for drilling activities, competition in the oil and natural gas industry, developments in oil producing and natural gas producing countries, and other factors detailed herein. Some of the factors that could cause actual results to differ from those expressed or implied in forward-looking statements are described under “Risk Factors” and in our Form 10-K for the year ended December 31, 2013 filed with the U.S. Securities and Exchange Commission.  Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement and we undertake no obligation to update or revise any forward-looking statement.

3

PART I
Item 1.  Financial Statements
NYTEX ENERGY HOLDINGS, INC.
Consolidated Balance Sheets 
 
 
March 31, 2014 (Unaudited)
 
December 31, 2013
Assets
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
103,013

 
$
93,728

Accounts receivable, net
 
89,627

 
76,696

Prepaid expenses and other
 
58,555

 
82,027

Total current assets
 
251,195

 
252,451

 
 
 
 
 
Restricted cash
 
3,120,026

 
3,119,949

Oil & gas properties and equipment, net
 
901,944

 
934,486

Deposits and other
 
56,134

 
56,134

 
 
 
 
 
Total assets
 
$
4,329,299

 
$
4,363,020

 
 
 
 
 
Liabilities and stockholders’ equity (deficit)
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable and accrued expenses
 
$
570,348

 
$
597,830

Revenues payable
 
1,032

 
7,837

Debt - current portion
 
672,225

 
289,891

Total current liabilities
 
1,243,605

 
895,558

 
 
 
 
 
Other liabilities:
 
 

 
 

Debt
 
168,554

 
128,807

Derivative liabilities
 
2,510

 
2,510

Asset retirement obligation
 
7,199

 
7,199

 
 
 
 
 
Total liabilities
 
1,421,868

 
1,034,074

 
 
 
 
 
Commitments and contingencies
 


 


 
 
 
 
 
Mezzanine equity:
 
 

 
 

Preferred stock, Series A convertible, $0.001 par value; and redemption value of 3,724,004 at March 31, 2014 and December 31, 2013
 
3,724,004

 
3,724,004

 
 
 
 
 
Stockholders’ equity (deficit):
 
 

 
 

Common stock, $0.001 par value; 200,000,000 shares authorized; 27,866,307 shares issued and 26,865,266 outstanding at March 31, 2014 and 27,729,736 shares issued and 26,728,695 outstanding at December 31, 2013
 
27,865

 
27,730

Additional paid-in capital
 
20,634,986

 
20,615,409

Treasury stock, at cost: 1,001,041 shares at March 31, 2014 and December 31, 2013
 
(1,860,233
)
 
(1,860,233
)
Accumulated deficit
 
(19,613,997
)
 
(19,172,770
)
Accumulated other comprehensive loss
 
(5,194
)
 
(5,194
)
Total stockholders’ equity (deficit)
 
(816,573
)
 
(395,058
)
 
 
 
 
 
Total liabilities and stockholders’ equity (deficit)
 
$
4,329,299

 
$
4,363,020

See accompanying Notes to Consolidated Financial Statements

4


NYTEX ENERGY HOLDINGS, INC.
Consolidated Statements of Operations
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
 
2014
 
2013
 
Revenues:
 
 

 
 

 
Land services
 
$
1,074

 
$
330,382

 
Oil and gas sales
 
48,133

 
119,191

 
Sale of oil and gas interests
 
27,260

 
—

 
Total revenues
 
76,467

 
449,573

 
 
 
 
 
 
 
Operating expenses:
 
 

 
 

 
Oil & gas lease operating expenses
 
37,113

 
107,018

 
Exploration
 
30,950

 
—

 
Depreciation, depletion, and amortization
 
9,936

 
5,062

 
Selling, general, and administrative expenses
 
362,390

 
994,801

 
Total operating expenses
 
440,389

 
1,106,881

 
 
 
 
 
 
 
Loss from operations
 
(363,922
)
 
(657,308
)
 
 
 
 
 
 
 
Other income (expense):
 
 

 
 

 
Interest and dividend income
 
77

 
7,332

 
Loss on sale of securities
 
—

 
585

 
Interest expense
 
(77,382
)
 
(18,359
)
 
Total other expense
 
(77,305
)
 
(10,442
)
 
 
 
 
 
 
 
Loss before income taxes
 
(441,227
)
 
(667,750
)
 
Income tax benefit (provision)
 
—

 
(1,810
)
 
 
 
 
 
 
 
Net loss
 
$
(441,227
)
 
$
(669,560
)
 
 
 
 
 
 
 
Basic and diluted earnings per share:
 
 

 
 

 
Net loss
 
$
(0.02
)
 
$
(0.03
)
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 

 
 

 
Basic and diluted
 
26,755,408

 
26,657,389

 
 
See accompanying Notes to Consolidated Financial Statements

5

NYTEX ENERGY HOLDINGS, INC.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
 
2014
 
2013
 
Net loss to common stockholders
 
$
(441,227
)
 
$
(669,560
)
 
 
 
 
 
 
 
Other comprehensive income
 
 

 
 

 
Unrealized holding loss on securities available for sale
 
—

 
(2,696
)
 
 
 
 
 
 
 
Other comprehensive loss
 
—

 
(2,696
)
 
 
 
 
 
 
 
Comprehensive loss to common stockholders
 
$
(441,227
)
 
$
(672,256
)
 
 
See accompanying Notes to Consolidated Financial Statements

6

NYTEX ENERGY HOLDINGS, INC.
Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Treasury Stock
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
 
Shares
 
Amounts
 
 
Shares
 
Amounts
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
 
27,729,736

 
$
27,730

 
$
20,615,409

 
1,001,041

 
$
(1,860,233
)
 
$
(19,172,770
)
 
$
(5,194
)
 
$
(395,058
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares issued with promissory notes
 
112,500

 
112

 
14,095

 
 

 
 

 
 

 
 

 
14,207

Shares issued for share based compensation
 
24,071

 
23

 
5,482

 


 


 
 

 
 

 
5,505

Comprehensive loss:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net loss
 
 

 
 

 
 

 
 

 
 

 
(441,227
)
 
 

 
(441,227
)
Comprehensive loss to common stockholders
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
(441,227
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2014
 
27,866,307

 
$
27,865

 
$
20,634,986

 
1,001,041

 
$
(1,860,233
)
 
$
(19,613,997
)
 
$
(5,194
)
 
$
(816,573
)
 
See accompanying Notes to Consolidated Financial Statements

7

NYTEX ENERGY HOLDINGS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
2014
 
2013
Cash flows from operating activities:
 
 

 
 

Net loss
 
$
(441,227
)
 
$
(669,560
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 

 
 

Depreciation, depletion, and amortization
 
9,936

 
4,960

Share-based compensation
 
5,505

 
37,345

Share-based debt issuance costs
 
11,249

 
—

Accretion of discount on asset retirement obligations
 
—

 
102

Amortization of debt discount
 
16,482

 
16,449

Gain on sale of oil and gas interest
 
(27,260
)
 
—

Loss on sale of securities
 
—

 
(585
)
Change in working capital:
 
 

 
 

Accounts receivable
 
(12,931
)
 
1,978,949

Inventories
 
—

 
—

Prepaid expenses and other
 
23,472

 
(25,324
)
Accounts payable and accrued expenses
 
(27,482
)
 
(226,361
)
Deposits held in trust
 
—

 
586,714

Revenues payable
 
(6,805
)
 
(110,634
)
 
 
 
 
 
Net cash provided by (used in) operating activities
 
(449,061
)
 
1,592,055

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Additions to property and equipment
 
—

 
(37,514
)
Proceeds from sale of oil and gas properties
 
67,238

 
93,736

Investments in oil and gas properties
 
(17,372
)
 
(879,469
)
Restricted cash
 
(77
)
 
(154
)
Purchase of marketable securities
 
—

 
(2,580
)
 
 
 
 
 
Net cash provided by (used in) investing activities
 
49,789

 
(825,981
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Issuance of 12% convertible debentures
 
250,000

 
—

Borrowings under notes payable
 
200,000

 
—

Payments on notes payable
 
(41,443
)
 
(84,783
)
 
 
 
 
 
Net cash provided by (used in) financing activities
 
408,557

 
(84,783
)
 
 
 
 
 
Net increase in cash and cash equivalents
 
9,285

 
681,291

Cash and cash equivalents at beginning of period
 
93,728

 
1,484,386

 
 
 
 
 
Cash and cash equivalents at end of period
 
$
103,013

 
$
2,165,677

See accompanying Notes to Consolidated Financial Statements

8

NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1.
Summary of Significant Accounting Policies
General
NYTEX Energy Holdings, Inc. d/b/a Sable Natural Resources (“Sable”) is an energy holding company with principal operations centralized in its wholly-owned subsidiary, NYTEX Petroleum, Inc. which changed its name to Sable Operating Company, Inc. (“Sable Operating”) on July 16, 2014.  Sable Operating is an early-stage exploration and production company engaged in the acquisition, development, and production of oil and natural gas reserves from low-risk, high rate-of-return wells in carbonate reservoirs.

Basis of Presentation

The consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.  These financial statements include the accounts of Sable and entities in which it holds a controlling interest.  All intercompany accounts and transactions have been eliminated in consolidation.  Investments in non-controlled entities over which we have the ability to exercise significant influence over operating and financial policies are accounted for using the equity method.  In applying the equity method of accounting, the investments are initially recognized at cost, and subsequently adjusted for our proportionate share of earnings and losses and distributions.
The interim financial data as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 is unaudited; in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to a fair statement of the results for the interim periods.  The consolidated results of operations for the three months ended March 31, 2014 and 2013 are not necessarily indicative of the results to be expected for the full year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto as filed in our Annual Report on Form 10-K for the year ended December 31, 2013. 
Liquidity
We cannot be certain that our existing sources of cash will be adequate to meet our liquidity requirements, including cash requirements that may be due under existing debt obligations as well as amounts due to our vendors in the normal course of business. For the three months ended March 31, 2014, we incurred a net loss of $441,227, and have an accumulated deficit totaling $19,613,997, all of which casts substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing from shareholders or other sources to meet its obligations and repay its liabilities arising from normal business operations when they come due.
We intend to seek substantial sources of liquidity. In addition, management has implemented plans to improve liquidity through cash flows generated from development of new business initiatives within the oil & gas industry and improvements to results from existing operations. There can be no assurance that we will be successful with our plans or that our results of operations will materially improve in either the short-term or long-term and accordingly, we may be unable to meet our obligations as they become due.
A fundamental principle of the preparation of financial statements in accordance with generally accepted accounting principles is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business. This principle is applicable to all entities except for entities in liquidation or entities for which liquidation appears imminent. In accordance with this requirement, our policy is to prepare our consolidated financial statements on a going concern basis unless we intend to liquidate or have no other alternative but to liquidate. Our consolidated financial statements have been prepared on a going concern basis and do not reflect any adjustments that might specifically result from the outcome of this uncertainty.


9
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited)

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make informed judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. Management evaluates its estimates and related assumptions regularly, including those related to proved reserves; the value of properties and equipment; goodwill; intangible assets; asset retirement obligations; litigation liabilities; environmental liabilities; pension assets, liabilities, and costs; income taxes; and fair values. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ from these estimates.

Recently Issued Accounting Standards
    
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The ASU changes the criteria for reporting discontinued operations and requires additional disclosures, both for discontinued operations and for individually significant dispositions and assets classified as held for sale not qualifying as discontinued operations. The ASU is effective for annual and interim periods beginning in 2015. Early adoption is permitted for disposals or for assets classified as held for sale that have not been reported in previously issued financial statements. Sable elected to early adopt the ASU on a prospective basis for the quarter ended March 31, 2014. The adoption did not have a material impact on the Company’s consolidated financial statements.

The FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The ASU requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset, except in certain circumstances as described in the ASU. The ASU is effective for annual and interim periods beginning in 2014. See Note 9 —Income Taxes. The adoption did not have a material impact on the Company's consolidated financial statements.
NOTE 2.
PROPERTY AND EQUIPMENT
Property and equipment, which includes our oil and gas properties at March 31, 2014 and December 31, 2013 consist of the following: 
 
 
March 31, 2014
 
December 31, 2013
Oil and gas properties - proved
 
$
383,708

 
$
388,937

Oil and gas properties - unproved
 
667,168

 
684,560

Total oil and gas properties
 
1,050,876

 
1,073,497

Furniture, fixtures, and equipment
 
138,378

 
138,378

Total property and equipment
 
1,189,254

 
1,211,875

Accumulated DD&A
 
(287,310
)
 
(277,389
)
Property and equipment, net
 
$
901,944

 
$
934,486

 
Depreciation and depletion related to our property and equipment was $9,936 and $4,960 for the three months ended March 31, 2014 and 2013, respectively.
NOTE 3.
DERIVATIVE LIABILITIES 
At March 31, 2014, we had one derivative liability on our consolidated balance sheet which was related to the warrants issued to the holders of the Company’s Series A Convertible Preferred Stock.  The agreement setting forth the terms of the warrants issued to the holders of the Company’s Series A Convertible Preferred Stock includes an anti-dilution provision that requires a reduction in the instrument’s exercise price should subsequent at-market issuances of the Company’s common stock be issued below the instrument’s original exercise price of $2.00 per share.  Accordingly, we consider the warrants to be a derivative.  As a result, the fair value of this derivative is included as a derivative liability on the accompanying consolidated balance sheets.  At both March 31, 2014 and December 31, 2013, the fair value of the warrants issued to the holders of the Series A Convertible Preferred Stock was $2,510. 
Changes in fair value of the derivative liabilities are included as a separate line item within other income (expense) in the accompanying consolidated statement of operations for the three months ended March 31, 2014 and 2013, and are not taxable or deductible for income tax purposes. 
NOTE 4.
DEBT 

10
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited)

A summary of our outstanding debt obligations as of March 31, 2014 and December 31, 2013 is presented as follows: 
 
 
March 31, 2014
 
December 31,
2013
12.0% Convertible Debentures
 
$
247,075

 
$
—

Secured Bridge Loans
 
200,000

 
—

Promissory Note (non-interest bearing, net of discount) due October 2015
 
214,330

 
200,051

Promissory Note (non-interest bearing, net of discount) due December 2015
 
140,848

 
160,969

5.74% Insurance Financing due August 2014
 
27,399

 
45,211

7.5% Secured Equipment Loan due March 2016
 
11,127

 
12,467

 
 
 
 
 
Total debt
 
840,779

 
418,698

Less: current maturities
 
(672,225
)
 
(289,891
)
 
 
 
 
 
Total long-term debt
 
$
168,554

 
$
128,807

 
Carrying values in the table above include net unamortized debt discount of $103,789 and $117,313 as of March 31, 2014 and December 31, 2013, respectively, which is amortized to interest expense over the terms of the related debt. 
12% Convertible Debentures
In February 2014, we initiated a $1,000,000 offering of convertible debt ("12% Convertible Debentures") to fund our
ongoing working capital needs. Terms of the 12% Convertible Debentures were as follows: (i) $100,000 per unit with interest at
a rate of 12% per annum payable monthly with a maturity of three years from the date of issuance; (ii) convertible at any time
prior to maturity at $0.75 per share of the Company's common stock; (iii) each unit included a three-year warrant to purchase up to 30,000 shares of the Company's common stock at an exercise price of $0.75 per share for a period of three years from the effective date of the warrant; and, (iv) an anti-dilution provision that requires a reduction in the conversion price should subsequent at-market issuances of the Company’s common stock be issued below the stated conversion price. As of March 31, 2014, we had raised $250,000 under the 12% Convertible Debenture offering including warrants to purchase up to 75,000 shares of the Company's common stock.
Promissory Notes
In January 2014, we entered into a $100,000 secured promissory note agreement with an unrelated third party to provide working capital to the Company. The secured promissory note was due four months from the date of issuance. Under the terms of the secured promissory note, the loan paid interest at a rate of 18%, plus an accommodation fee, which, including the interest payable under the loan, was an amount ranging from $5,000 to $20,000, (depending upon the number of months the secured promissory note remained outstanding), plus 12,500 shares of the Company's common stock. In February 2014, the holder of the secured promissory note transferred its principal due under the agreement to the Company's 12% Convertible Debentures and the secured promissory note was deemed paid in full.
In February 2014, we entered into two $100,000 secured bridge loans ("Secured Bridge Loans") with two unrelated third parties to provide working capital to the Company. Under the terms of the Secured Bridge Loans, principal was due in forty days with interest payable at 18%, plus an accommodation fee, such that combined with the interest due and payable, a sum equal to $20,000 plus 25,000 shares of the Company's common stock was paid. In March 2014, in consideration of the issuance of an additional 25,000 shares of the Company's common stock, the maturity date of both Secured Bridge Loans was extended. In April 2014, the Company made a partial payment totaling $140,000 on the Secured Bridge Loans. In May 2014, one of the Secured Bridge Loans was paid in full. At June 30, 2014, amounts due under the remaining Secured Bridge Loan totaled $20,700, of which $15,700 represents accrued and unpaid interest.
In connection with the acquisition of Francis Drilling Fluids, Inc. ("FDF"), on November 23, 2010, we issued a promissory note payable to a former interest holder of FDF in the face amount of $750,000.  The note is an unsecured, non-interest bearing loan that requires quarterly payments of $37,500 and matures October 1, 2015.  At March 31, 2014 and December 31, 2013, we have recorded the note as a discounted debt of $214,330 and $200,051 respectively, using an imputed interest rate of 9%.
In November 2013, we entered into a promissory note with a third party to finance premiums related to certain insurance policies.  The promissory note bears an annual interest rate of 5.7% with principal and interest payments of $8,109 due monthly through maturity in August 2014. 

11
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited)

In December 2012, we entered into an unsecured, non-interest bearing promissory note with a former vendor in the amount of $342,500 as a settlement for outstanding payables due to the former vendor.  The promissory note required an initial payment of $75,000 with monthly payments of $7,431 due through maturity, on December 31, 2015.  At March 31, 2014 and December 31, 2013, we have recorded the promissory note as a discounted debt of $140,848 and $160,969, respectively, using an imputed interest rate of 7.5%. 
We also have a secured equipment loan outstanding that requires a monthly principal and interest payment based on a fixed interest rate of 7.5% and matures in March of 2016.
NOTE 5.
COMMITMENTS AND CONTINGENCIES 
Leases
The Company leases office space under a non-cancelable operating lease which provides for minimum annual rentals.  At March 31, 2014, future minimum obligations under this lease agreement are as follows:
April 1, 2014 to December 31, 2014
$
50,000

2015
68,405

2016
58,283

2017
—

2018
—

Thereafter
—

 
$
176,688

 
Total lease rental expense for the three months ended March 31, 2014 and 2013 was $10,572 and $20,907 respectively. 
Litigation
We may become involved from time to time in litigation on various matters, which are routine to the conduct of our business.  We believe that none of these actions, individually or in the aggregate, will have a material adverse effect on our financial position or operations, although any adverse decision in these cases, or the costs of defending or settling such claims, could have a material adverse effect on our financial position, operations, and cash flows.
NOTE 6.
STOCKHOLDERS’ EQUITY
The authorized capital of Sable consists of 200 million shares of common stock, par value $0.001 per share, and 10 million shares of Series A Convertible Preferred Stock, par value $0.001 per share.  The holders of Series A Convertible Preferred Stock have the same voting rights and powers as the holders of common stock.  Each holder of Series A Convertible Preferred Stock may, at any time, convert their shares of Series A Convertible Preferred Stock into shares of common stock at an initial conversion ratio of one-to-one.  For the three months ended March 31, 2014, we did not issue any shares of common stock related to conversions of the Company’s Series A Convertible Preferred Stock. 
Treasury Stock 
In April 2013, our Board of Directors approved the repurchase of up to an aggregate of 2.7 million shares of our common stock, or approximately 10% of our outstanding common shares.  The repurchases will be made from time-to-time on the open market at prevailing market prices.  The repurchase program is expected to continue over the next twelve months unless extended or shortened by the Board of Directors.  The timing and amount of any repurchase will depend on economic and market conditions, the trading price and other factors and any purchases will be executed in compliance with applicable laws and regulations.  The plan does not obligate the Company to acquire any particular amount of common stock and can be implemented, suspended or discontinued at any time without prior notice at the Company’s sole discretion.  The share repurchase program will be funded with the Company’s available working capital.  The 12% Convertible Debentures restrict the Company to de minimus repurchases as long as the debentures are outstanding. Through March 31, 2014 we have repurchased a total of 1,450 shares of our common stock on the open market.  These shares were purchased at an average cost of $0.24 per share, for a total cost of $343. 
Warrants 

12
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited)

The fair value of our warrants is determined using the Black-Scholes option pricing model and the Monte Carlo simulation.  The expected term of each warrant is estimated based on the contractual term or an expected time-to-liquidity event.  The volatility assumption is estimated based on expectations of volatility over the term of the warrant as indicated by implied volatility.  The risk-free interest rate is based on the U.S. Treasury rate for a term commensurate with the expected term of the warrant. 
A summary of warrant activity for the three months ended March 31, 2014 and 2013 is as follows:
 
 
Three Months Ended March 31,
 
 
2014
 
2013
 
 
Warrants
 
Weighted
Average
Exercise
Price
 
Warrants
 
Weighted
Average
Exercise
Price
Outstanding at beginning of period
 
4,748,690

 
$
1.18

 
4,748,690

 
$
1.18

Issued
 
75,000

 
0.75

 
—

 
—

Exercised
 
—

 
—

 
—

 
—

Forfeited or expired
 
—

 
—

 
—

 
—

Outstanding at end of period
 
4,823,690

 
$
1.17

 
4,748,690

 
$
1.18

 
The following table shows the weighted average assumptions used in the Black-Scholes calculation of the fair value of the warrants issued in the three months ended March 31, 2014:
Volatility
114.12
%
Risk-free interest rate
0.69
%
Expected life
3.0 Years

Fair value on grant date
$0.0395
NOTE 7.
STOCK BASED COMPENSATION 
In November 2012, the Board of Directors adopted the 2013 Equity Incentive Plan for the purpose of attracting and retaining the services of key employees, consultants, and non-employee members of the Board of Directors and to provide such persons with a proprietary interest in the Company through the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, and/or other awards. 
In March 2013, the Company granted to its executive officers, Board of Directors, and certain key employees nonqualified stock options and restricted stock under the 2013 Equity Incentive Plan. Nonqualified stock options to purchase an aggregate 227,000 shares of the Company’s common stock at $0.42 per share were awarded; these options vest ratably over a service period of three years.  A total of 136,200 shares of restricted stock were granted and such awards vest over a three years period.  The total grant date fair value of all of these awards was approximately $101,000.  At March 31, 2014, the unrecognized stock-based compensation expense related to all awards which is expected to be recognized over a weighted average period of 1.6 years is approximately $19,456. 
Stock Options 
We utilize the Black-Scholes option pricing model to measure the fair value of stock options granted to employees and directors.  For the three months ended March 31, 2014, we recognized $3,313 in stock-based compensation related to stock options.  We recognized approximately $400 in stock-based compensation expense related to stock options for the three months ended March 31, 2013
The following table summarizes our stock option activity for the three months ended March 31, 2014:

13
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited)

 
 
Number
of
Shares
 
Weighted
Average
Exercise
Price Per
Share
 
Weighted
Average
Grant Date
Fair Value
Per Share
 
Weighted
Average
Remaining
Contractual
Term
Outstanding, December 31, 2013
 
209,000

 
$
0.42

 
$
0.19

 

Granted
 
—

 
$
—

 
$
—

 

Exercised
 
—

 
$
—

 
$
—

 

Canceled / Forfeited
 
(53,000
)
 
$
0.42

 
$
0.19

 

Outstanding, March 31, 2014
 
156,000

 
$
0.42

 
$
0.19

 
0.9
Options exercisable at March 31, 2014
 
52,000

 
$
0.42

 
$
0.19

 

 
 
Restricted stock
Restricted stock awards are awards of common stock that are subject the restrictions on transfer and to a risk of forfeiture if the awardee terminates employment with the Company prior to the lapse of the restrictions.  The fair value of such stock was determined using the closing price on the grant date and compensation expense is recorded over the applicable vesting periods.  For the three months ended March 31, 2014 and 2013, we recognized approximately $6,800 and $37,000, respectively, in stock-based compensation related to restricted stock awards.  The following table summarizes our restricted stock activity for the three months ended March 31, 2014
 
 
Shares
 
Wtd Avg
Grant-Date
Fair Value
Nonvested, December 31, 2013
 
95,800

 
$
0.44

Granted
 
—

 
$
—

Vested
 
(35,000
)
 
$
0.42

Canceled / Forfeited
 
(800
)
 
$
0.42

Nonvested, March 31, 2014
 
60,000

 
$
0.45

NOTE 8.
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Our financial instruments include cash and cash equivalents, accounts receivable, marketable securities, accounts payable, derivative liabilities, and long-term debt. Because of their short maturity, the carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value.  The carrying value of long-term debt also approximates fair value since these instruments bear market rates of interest.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs.  We utilize a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.
•
Level 1 — Quoted prices in active markets for identical assets or liabilities.  These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.
•
Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.  These are typically obtained from readily-available pricing sources for comparable instruments.
•
Level 3 — Unobservable inputs, where there is little or no market activity for the asset or liability.  These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.
As discussed in Note 5, we consider the warrants issued to the holders of the Company’s Series A Convertible Preferred Stock to be derivatives, and, as a result, the fair value of the derivative liabilities are reported on the accompanying consolidated balance sheets.  We value the derivative liabilities using a Monte Carlo simulation, which contains significant unobservable, or

14
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited)

Level 3, inputs.  The use of valuation techniques requires us to make various key assumptions for inputs into the model, including assumptions about the expected behavior of the instruments’ holders and expected future volatility of the price of our common stock.  At certain common stock price points within the Monte Carlo simulation, we assume holders of the instruments will convert into shares of our common stock.  In estimating the fair value, we estimated future volatility by considering the historic volatility of the stock of a selected peer group over a five year period.
Financial assets and liabilities measured at fair value on a recurring basis are summarized below:
March 31, 2014
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
Derivative liabilities
 
$
2,510

 
$
—

 
$
—

 
$
2,510

March 31, 2013
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
Derivative liabilities
 
$
2,510

 
$
—

 
$
—

 
$
2,510

Included below is a summary of the changes in our Level 3 fair value measurements:
Balance, December 31, 2013
$
2,510

Change in derivative liabilities
—

Issuance of warrant derivative
—

Balance, March 31, 2014
$
2,510

 
 

Balance, December 31, 2012
$
2,510

Change in derivative liabilities
—

Issuance of warrant derivative
—

Balance, March 31, 2013
$
2,510

NOTE 9.
INCOME TAXES
Income tax provision for the three months ended March 31, 2014 and 2013 was $0 and $1,810, respectively.  At March 31, 2014 we had deferred income tax assets of $9,786,713 and a valuation allowance of $9,631,427 resulting in an estimated recoverable amount of deferred income tax assets of $155,286.  This reflects a net increase of the valuation allowance of $154,185 from the December 31, 2013 balance of $9,477,242.  At March 31, 2014, we had deferred income tax liabilities of $155,286.
The balance of the valuation allowance as of March 31, 2014 and December 31, 2013 was $9,631,427 and $9,477,242, respectively.  The anticipated effective income tax rate is expected to continue to differ from the Federal statutory rate primarily due to the effect of state income taxes, permanent differences between book and taxable income, changes to the valuation allowance, and certain discrete items.
NOTE 10.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Additional cash flow information was as follows for the three months ended March 31, 2014 and 2013:
 
 
2014
 
2013
Supplemental disclosures of cash flow information:
 
 

 
 

Total cash paid for interest
 
$
14,500

 
$
1,910

Total cash paid for taxes
 
$
—

 
60,000


15

NOTE 11.  SUBSEQUENT EVENTS

On June 20, 2014, the Board of Directors of the Company approved the sale and issuance of 8,013,902 shares of Common Stock of the Company to Cory R. Hall in exchange for $1,001,738 in accordance with that certain Securities Purchase Agreement executed on June 20, 2014 between the Company and Mr. Hall (the “Offering”). The Offering was made in reliance on the exemption provided by Rule 506(b) promulgated under the Securities Act of 1933, as amended, and certain provisions of Regulation D thereunder based on Mr. Hall’s status as an accredited investor.

On June 23, 2014, the Company entered into an employment agreement with Mr. Hall. The employment agreement providees for an annual base salary of at least $375,000 per year, an auto allowance of $825 per month and incentive compensation to be determined from time to time by the Company’s board of directors. 

The sale of common stock on June 20, 2014 was a "Subsequent Equity Sale" as defined in the 12% Convertible Debentures wherein the stated conversion price of the debenture to common stock is adjusted. As a result the debentures issued prior to March 31, 2014 with a stated conversion price of $0.75 were adjusted to a $0.64 conversion price. Debentures issued after March 31, 2014 and before June 20, 2014 with a stated conversion price of $0.50 were adjusted to a $0.43 conversion price. As of September 15, 2014 the Company has raised $1,125,000 under the 12% Convertible Debentures offering including warrants to purchase up to 507,500 shares of the Company's common stock.



Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the notes thereto.
Overview
NYTEX Energy Holdings, Inc. d/b/a Sable Natural Resources (“Sable”) is an energy holding company with principal operations centralized in its wholly-owned subsidiary, NYTEX Petroleum, Inc. which changed its' name to Sable Operating Company, Inc. ("Sable Operating") on July 16, 2014.  Sable Operating is an early-stage exploration and production ("E&P") company engaged in the acquisition, development, and production of oil and natural gas reserves from low-risk, high rate-of-return wells in carbonate reservoirs. Sable Operating also provides land services to its customers by identifying landowners and performing such services as analyzing land and mineral title reports, leasehold title analysis and reports, land title runsheets, sourcing, negotiating and acquiring leases, document preparation, and performing title curative functions.
Sable and subsidiaries are collectively referred to herein as the "Company,” “we,” “us,” and “our.”
General Industry Overview
The U.S. economy experienced a modest recovery during 2013 that has continued into 2014 with much of that recovery driven by the U.S. energy industry.  However, uncertainty persists as federal deficit issues continue to leave ambiguities with U.S. businesses and consumers including what policies and practices may be implemented to resolve these matters.  It remains challenging to predict the economic consequences on the U.S. energy industry, specifically the supply and demand for oil and gas, as governments struggle to resolve these issues.
Oil and Natural Gas
Sable Operating is an exploration and production company engaged in the acquisition, development and production of oil & natural gas reserves from low-risk, high rate-of-return wells in carbonate reservoirs. By focusing on early, low and no-cost entry into “tight oil” resource plays in North Texas, using multiple entry methods, Sable Operating has swiftly amassed interests in more than 87,000 leasehold acres.  We believe these plays can be developed uniformly over expansive geographical areas with a high rate of success due to the recent advancements in horizontal drilling and multi-stage hydraulic fracturing technologies.

16

Results of Operations
Selected Data
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Financial Results
 
 

 
 

Revenues - Land Lease
 
$
1,074

 
$
330,382

Revenues - Oil and Gas sales
 
48,133

 
119,191

Revenues - Sale of oil and gas interests
 
27,260

 
—

 
 
 
 
 
Total revenues
 
76,467

 
449,573

 
 
 
 
 
Total operating expenses
 
440,389

 
1,106,881

Total other expense
 
77,305

 
10,442

 
 
 
 
 
Loss before income taxes
 
(441,227
)
 
(667,750
)
Income tax benefit (provision)
 
—

 
(1,810
)
 
 
 
 
 
Net loss
 
$
(441,227
)
 
$
(669,560
)
 
 
 
 
 
Operating Results
 
 

 
 

 
 
 
 
 
Consolidated Adjusted EBITDA(1)
 
$
(353,909
)
 
$
(644,914
)
 
________________________________________________________
(1)See Results of Operations—Adjusted EBITDA for a description of Adjusted EBITDA, which is not a U.S. Generally Accepted Accounting Principles (“GAAP”) measure, and a reconciliation of Adjusted EBITDA to net loss, which is presented in accordance with GAAP.
Three and three months ended March 31, 2014 compared to the three and three months ended March 31, 2013
On April 30, 2013, our former subsidiary, KS Energy Search Group, ceased operations.  As a result, all financial information included in this report including information contained within Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read and considered in such context.
Revenues.  Revenues decreased $373,106 for the three months ended March 31, 2014, compared to the prior year period. This was primarily due to a decrease from land services revenue of $329,308 for the three months ended March 31, 2014, compared to the prior year period.  The decrease in land services revenue is directly related to the timing of our ability to identify oil and gas leasehold properties to be acquired by our customers, and the timing and availability of our customer’s capital budget expenditures.  Our land services provide focused project management for companies looking to acquire and build positions in lease plays throughout North and West Texas.  These services range from generating land and mineral title reports, leasehold title analysis and reports, and land title run sheets to sourcing, negotiating and acquiring leases, document preparation, and performing title curative functions. The decrease in land services revenue was partially offset by an increase in the sale of oil and gas interests of $27,260 for the three months ended March 31, 2014, compared to the prior year period.  We anticipate revenues from land services and sale of oil and gas interests to continue to decrease over time as we continue to focus on opportunities to retain, explore and operate properties in resource plays primarily in West Texas. 
Revenues from oil and natural gas sales decreased to $48,133 for the three months ended March 31, 2014, compared to $119,191 for the three months ended March 31, 2013.  The decrease in oil and gas revenue was related to production problems experienced due to colder than normal operating conditions.
Oil & gas lease operating expenses.  Lease operating expenses decreased $69,905 for the three months ended March 31, 2014 compared to the three months ended March 31, 2013.  The decrease corresponds to the above mentioned production problems experienced during the first quarter of 2014 as compared to the same period in the prior year.
Exploration.  Exploration costs for the three months ended March 31, 2014 has increased to $30,950 over the prior period due to the shift in focus towards retaining and developing properties. 
Depreciation, depletion, and amortization.  Depreciation, depletion, and amortization (“DD&A”) for the three months ended March 31, 2014, increased $4,874 over the prior period due to the addition of the Newman and Coley wells.

17

Selling, general, and administrative expenses.  Selling, general, and administrative (“SG&A”) expenses decreased $632,411 for the three months ended March 31, 2014 compared to the prior year three months ended March 31, 2013.  This decrease was due to an overall decrease in professional fees and expenses including accounting and legal costs, and decreases in payroll related costs due in part to a decrease in personnel.  SG&A consists primarily of salary and wages, contract labor, professional fees, lease rental costs, and insurance costs. 
Interest expense.  Interest expense increased $59,023 for the three months ended March 31, 2014 compared to the prior year period primarily due to the addition of the 12% convertible debentures and the Secured Bridge Loans.  Interest expense was $77,382 for the three months ended March 31, 2014 compared to $18,359 compared to the same period in the prior year.
Income tax provision.  The income tax provision for the three months ended March 31, 2014 and 2013 of $0 and $1,810, respectively, is the result of utilizing existing and current net operating losses to offset taxable income generated by our oil and gas segment.  The provision is due to limitations placed on our ability to fully offset taxable income by available net operating loss carryforwards.
Adjusted EBITDA
To assess the continuing operating results of our business, our chief operating decision maker analyzes net income (loss) before income taxes, interest expense, DD&A, impairments, gains or losses resulting from the sale of assets or resolution of commercial disputes, changes in fair value attributable to derivative liabilities, and discontinued operations (“Adjusted EBITDA”).  Our definition of Adjusted EBITDA, which is not a GAAP measure, excludes interest expense to allow for assessment of segment operating results without regard to our financing methods or capital structure.  Similarly, DD&A and impairments are excluded from Adjusted EBITDA as a measure of our operating performance because capital expenditures are evaluated at the time capital costs are incurred.  In addition, changes in fair value attributable to derivative liabilities and the accretion of preferred stock liability are excluded from Adjusted EBITDA since these unrealized (gains) losses are not considered to be a measure of asset-operating performance. Management believes that the presentation of Adjusted EBITDA provides information useful in assessing the Company’s financial condition and results of operations and that Adjusted EBITDA is a widely accepted financial indicator of a company’s ability to incur and service debt, fund capital expenditures and make distributions to stockholders.
Adjusted EBITDA, as we define it, may not be comparable to similarly titled measures used by other companies. Therefore, our consolidated Adjusted EBITDA should be considered in conjunction with net income (loss) and other performance measures prepared in accordance with GAAP, such as operating income or cash flow from operating activities. Adjusted EBITDA has important limitations as an analytical tool because it excludes certain items that affect net income (loss) and net cash provided by operating activities.  Adjusted EBITDA should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP.  Below is a reconciliation of consolidated Adjusted EBITDA to consolidated net income (loss) to common stockholders as reported on our consolidated statements of operations.
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Reconciliation of Adjusted EBITDA to GAAP Net Loss:
Net loss
 
$
(441,227
)
 
$
(669,560
)
Discontinued operations
 
—

 
—

Income tax expense (benefit)
 
—

 
1,810

Interest expense
 
77,382

 
18,359

DD&A
 
9,936

 
5,062

Change in fair value of derivative liabilities
 
—

 
(585
)
 
 
 
 
 
Consolidated Adjusted EBITDA
 
$
(353,909
)
 
$
(644,914
)
Liquidity and Capital Resources
Our working capital needs have historically been satisfied through operations, equity and debt investments from private investors, loans with financial institutions, and through the sale of assets.  Historically, our primary use of cash has been to pay for acquisitions and investments, service our debt, and for general working capital requirements.  As of March 31, 2014, we have cash and marketable securities, less the cash portion of deposits held in trust, totaling $103,013. However, if we do not generate sufficient cash flow from operations, we will need to raise additional capital through equity and/or debt financings to support and expand our drilling activities until such time as we fully implement our plan of future operations and generate sufficient cash flow.


18

Cash Flows
The following table summarizes our cash flows and has been derived from our unaudited financial statements for the three months ended March 31, 2014 and 2013.
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Cash flow provided by (used in) operating activities
 
$
(449,061
)
 
$
1,592,055

Cash flow provided by (used in) investing activities
 
49,789

 
(825,981
)
Cash flow provided by (used in) financing activities
 
408,557

 
(84,783
)
 
 
 
 
 
Net increase increase in cash and cash equivalents
 
9,285

 
681,291

Beginning cash and cash equivalents
 
93,728

 
1,484,386

 
 
 
 
 
Ending cash and cash equivalents
 
$
103,013

 
$
2,165,677

 
Cash flows from operating activities decreased for the three months ended March 31, 2014 by $2,041,116 compared to cash flows from operating activities for the three months ended March 31, 2013. This decrease was mainly due to a significant reduction in working capital from accounts receivable. There was also an overall reduction in working capital of $349,303.
Cash flows provided by investing activities for the three months ended March 31, 2014 were $49,789 compared to cash used in investing activities of $(825,981) for the three months ended March 31, 2013.  The change primarily represents a decrease year over year in cash outflows related to investments in oil & gas properties of $862,097. 
Cash flows provided by financing activities were $408,557 for the three months ended March 31, 2014 compared to $84,783 used in financing activities for the three months ended March 31, 2013.  For the three months ended March 31, 2014, the financing activity consisted primarily of issuance of 12% Convertible Debentures and the Secured Bridge Loans. 
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies
Preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.  We believe the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain.  Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2013, describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements.  Actual results in these areas could differ from management’s estimates.  Other than the clarification to our revenue recognition policy described below, there have been no significant changes in our critical accounting estimates and policies during the three months ended March 31, 2014.
Revenue Recognition
Revenues from the sales of natural gas and crude oil are recorded when product delivery occurs and title and risk of loss pass to the customer, the price is fixed or determinable, and collection is reasonably assured. The Company uses the sales method of accounting for oil and gas revenues. Under this method, revenues are recognized based on the actual volumes of gas and oil sold to purchasers. The volume sold may differ from the volumes the Company may be entitled to, based on the Company's individual interest in the property. Periodically, imbalances between production and nomination volumes can occur for various reasons. In cases where imbalances have occurred, a production imbalance receivable or liability will be recorded when determined. If an imbalance exists at the time the wells’ reserves are depleted, settlements are made among the joint interest owners under a variety of arrangements.
Revenues from land services are recorded when title work is completed and the customer has been invoiced for services provided. Revenues from the sale of interests in oil and gas properties are recorded once a formal agreement has been reached and the agreement has been consummated through the exchange of consideration.
•
Land services revenue - Land services revenues consist of fees generated from analyzing land and mineral title reports, leasehold title analysis and reports, land title runsheets, sourcing, negotiating and acquiring leases, document

19

preparation and performing title curative functions. Such revenues had previously been reported as Other revenues on the consolidated statements of operations. Sable provides land services to its customers by identifying the landowners and performing various land services identified above. The buyer (Sable’s customer) pays the landowner directly for the undeveloped lease acreage. Sable does not take title to the leasehold acreage and the buyer’s purchase from the landowner is non-recourse. For its services, Sable receives fees directly from its customer for services provided for clearing title, etc., generally based on a per acre amount. There is no substantial performance obligation or a retained interest by Sable as we do not obtain an interest in the leasehold acreage (not a conveyance of interests).
•
Sale of oil and gas interests - As there is a very competitive market to purchase oil and gas lease interests, especially in newer oil and gas plays with increasing acreage costs, Sable may purchase undeveloped leasehold acreage from landowners and take title to the leasehold. However, holding the leasehold acreage is generally short term in nature (less than 90 days) as we only acquire the undeveloped property when an identified customer has already agreed to the 100% re-purchase of the leasehold acreage from Sable. Accordingly, we do not acquire the leasehold acreage on a speculative basis nor for our own development. There is no substantial performance obligation or retained interest by Sable as all land services have been performed and Sable sells 100% of the leasehold interest. The difference between the sale price and the amount (cost) paid for the lease by Sable is recognized as a gain on sale in accordance with ASC 932-360-55-8. Such gains are not deemed to be incidental or peripheral transactions as providing land services and facilitating the purchase of oil and gas leasehold interest for its customers are transactions that are part of Sable’s principal ongoing operations, thus reported within the Company’s revenues.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
The information is not required under Regulation S-K for “smaller reporting companies.”
Item 4.  Controls and Procedures

Disclosure Controls and Procedures

Our management performed an evaluation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and to ensure that the information required to be disclosed by us in reports that we file under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, management has concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2014.
Management's Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness in future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our operating results could be harmed. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Based on our evaluation, our management concluded that there are material weaknesses in our internal control over financial reporting. The material weaknesses identified did not result in the restatement of any previously reported financial statements or any related financial disclosure, nor does management believe that it had any effect on the accuracy of the Company’s financial statements for the current reporting period. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement

20

of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness relates to the monitoring and review of work performed by our accounting consultant in the preparation of financial statements, footnotes and financial data provided to the Company’s registered public accounting firm in connection with the annual audit. All of our financial reporting is carried out by our Principal Accounting Officer and accounting consultants. A material weakness relates to minimal segregation of duties. This lack of accounting staff results in a lack of segregation of duties and accounting technical expertise necessary for an effective system of internal control. All unexpected results are investigated. At any time, if it appears that any control can be implemented to continue to mitigate such weaknesses, it is immediately implemented. We have hired a permanent accounting professional to serve as the Company's Principal Accounting Officer. As soon as practical, we will hire sufficient accounting staff and implement appropriate procedures for monitoring and review of work performed. Because of the material weakness described above, management concluded that, as of March 31, 2014, our internal control over financial reporting was not effective based on the criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO’).

Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter ended March 31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our management, including our chief executive officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system cannot provide absolute assurance due to its inherent limitations; it is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. A control system also can be circumvented by collusion or improper management override. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process, therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

21

PART II 
Item 1.  Legal Proceedings
At March 31, 2014, the Company was a party to lawsuits that were incurred in the normal course of business, none of which individually or in the aggregate is considered material by management in relation to the Company’s financial position or results of operations.  In management’s opinion, the Company’s consolidated financial statements would not be materially affected by the outcome of these legal proceedings, commitments, or asserted claims.
Item 1A.  Risk Factors
There have been no material changes in the Company’s risk factors from those disclosed in Part I, Item 1A, Risk Factors, in the Company’s Form 10-K for the year ended December 31, 2013.
Item 2.         Unregistered Sales of Equity Securities and Use of Proceeds
In April 2013, our Board of Directors approved the repurchase of up to an aggregate of 2.7 million shares of our common stock, or approximately 10% of outstanding common shares.  The repurchases will be made from time-to-time on the open market at prevailing market prices.  The repurchase program is expected to continue over the next twelve months unless extended or shortened by the Board of Directors.  The timing and amount of any repurchase will depend on economic and market conditions, the trading price and other factors and any purchases will be executed in compliance with applicable laws and regulations.  The plan does not obligate the Company to acquire any particular amount of common stock and can be implemented, suspended or discontinued at any time without prior notice at the Company’s sole discretion.  The share repurchase program will be funded with the Company’s available working capital.  During the three months ended March 31, 2014 we did not have any purchases of the Company’s common stock pursuant to the stock repurchase program.
In February 2014, we initiated a $1,000,000 offering of convertible debt ("12% Convertible Debentures") to fund our
ongoing working capital needs. Terms of the 12% Convertible Debentures were as follows: (i) $100,000 per unit with interest at
a rate of 12% per annum payable monthly with a maturity of three years from the date of issuance; (ii) convertible at any time
prior to maturity at $0.75 per share of the Company's common stock; (iii) each unit included a three-year warrant to purchase up to 30,000 shares of the Company's common stock at an exercise price of $0.75 per share for a period of three years from the effective date of the warrant; and, (iv) an anti-dilution provision that requires a reduction in the conversion price should subsequent at-market issuances of the Company’s common stock be issued below the stated conversion price. As of March 31, 2014, we had raised $250,000 under the 12% Convertible Debenture offering including warrants to purchase up to 75,000 shares of the Company's common stock. The proceeds were used to fund drilling and exploration costs along with general corporate overhead.

Item 3.         Defaults Upon Senior Securities
None
Item 4.         Mine Safety Disclosures
None
Item 5.         Other Information
None 
Item 6.         Exhibits
The exhibits set forth on the accompanying Exhibit Index have been filed as part of this Form 10-Q.

22

SIGNATURES 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
NYTEX Energy Holdings, Inc.
 
 
 
 
By:
/s/ Michael K. Galvis
 
 
Michael K. Galvis
 
 
Chief Executive Officer
 
 
September 30, 2014
 

23

EXHIBIT INDEX
 
Exhibit
 
Document
 
 
 
2.1
 
Agreement and Plan of Merger, dated as of May 4, 2012, by and among FDF Resources Holdings LLC, New Francis Oaks, LLC and NYTEX FDF Acquisition, Inc. (filed as Exhibit 2.1 to the Registrant’s Form 8-K filed May 10, 2012 and incorporated herein by reference)
 
 
 
3.1
 
Certificate of Incorporation of the Registrant, as amended (filed as Exhibit 3.1 to the Registrant’s Form 10-12G/A filed August 12, 2010 and incorporated herein by reference)
 
 
 
3.2
 
Bylaws of Registrant, as amended (filed as Exhibit 3.2 to the Registrant’s Form 10-12G/A filed August 12, 2010 and incorporated herein by reference)
 
 
 
4.1
 
Amended and Restated Certificate of Designation in respect of Senior Series A Redeemable Preferred Stock (filed as Exhibit 10.9 to the Registrant’s Form 8-K filed November 30, 2010 and incorporated herein by reference)
 
 
 
4.2
 
Amended and Restated Certificate of Designation in respect of Senior Series B Redeemable Preferred Stock (filed as Exhibit 10.10 to the Registrant’s Form 8-K filed November 30, 2010 and incorporated herein by reference)
 
 
 
4.3
 
Amended and Restated Certificate of Designation in respect of Series A convertible Preferred Stock (filed as Exhibit 4.3 to the Registrant’s Form 10-Q filed November 6, 2012 and incorporated herein by reference)
 
 
 
4.4
 
Amended and Restated Certificate of Designation in respect of Senior Series A Redeemable Preferred Stock (filed as Exhibit 10.9 to the Registrant’s Form 8-K filed November 30, 2010 and incorporated herein by reference)
 
 
 
4.5
 
Amended and Restated Certificate of Designation in respect of Senior Series B Redeemable Preferred Stock (filed as Exhibit 10.10 to the Registrant’s Form 8-K filed November 30, 2010 and incorporated herein by reference)
 
 
 
4.6
 
NYTEX Energy Holdings, Inc. 2013 Equity Incentive Plan (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 28, 2013 and incorporated herein by reference)
 
 
 
4.7
 
NYTEX Energy Holdings, Inc. Amendment No. 1 to 2013 Equity Incentive Plan (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with on February 7, 2013 and incorporated herein by reference)
 
 
 
31.1*
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
31.2*
 
Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
32.1*
 
Certifications of Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002***
 
 
 
101.INS**
 
XBRL Instance Document.
 
 
 
101.SCH**
 
XBRL Taxonomy Extension Schema.
 
 
 

24

101.CAL**
 
XBRL Taxonomy Extension Calculation Linkbase.
 
 
 
101.DEF**
 
XBRL Taxonomy Extension Definition Linkbase.
 
 
 
101.LAB**
 
XBRL Taxonomy Extension Label Linkbase.
 
 
 
101.PRE**
 
XBRL Taxonomy Extension Presentation Linkbase.
________________________________________________________
*                 Filed herewith
**          Furnished herewith
***   In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

25

Exhibit 31.1
CERTIFICATIONS
I, Michael K. Galvis, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of NYTEX Energy Holdings, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated this 30th day of September, 2014
/s/ Michael K. Galvis            
Michael K. Galvis
Chief Executive Officer
    


Exhibit 31.2 
CERTIFICATIONS 
I, James D. Parker, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of NYTEX Energy Holdings, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 
Dated this 30th day of September, 2014
 
 
 
 
/s/ James D. Parker
 
 
 
James D. Parker
 
Vice President and Controller



Exhibit 32.1
SECTION 1350 CERTIFICATIONS
This Certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of Section 18 of the Securities Act of 1934, as amended.
The undersigned, who are the Chief Executive Officer and Controller of NYTEX Energy Holdings, Inc. (the “Company”), each hereby certify as follows:
The Quarterly Report on Form 10-Q of the Company (the “Report”), which accompanies this Certificate, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and all information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated this 30th day of September, 2014
 
/s/ Michael K. Galvis            
Michael K. Galvis
Chief Executive Officer
    
/s/ James D. Parker            
James D. Parker
Vice President and Controller
    


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