UNITED STATES
Securities and exchange commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2014
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________TO _______________
Commission File Number: 333-172896
| NORTH AMERICAN OIL & GAS CORP. |
| (exact name of registrant as specified in its charter) |
| Nevada | 98-087028 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
56 E. Main St. Suite 202
Ventura, CA 93001
(Address of principal executive offices) (Zip Code)
(805) 643-0385
(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 x No o
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 o
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 | o | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | x |
| (Do not check if a smaller reporting company) | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of August 18, 2014, there were 62,869,337 shares of registrant’s common stock outstanding.
NORTH AMERICAN OIL & GAS CORP.
Table of Contents
| PART I: FINANCIAL INFORMATION | |||||
| Item 1. | Financial Statements | 3 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 | |||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 13 | |||
| Item 4. | Controls and Procedures | 13 | |||
| PART II. OTHER INFORMATION | |||||
| Item 1. | Legal Proceedings | 14 | |||
| Item 1A. | Risk Factors | 14 | |||
| Item 2. | Unregistered Sales of Securities and Use of Proceeds | 14 | |||
| Item 3. | Defaults Upon Senior Securities | 14 | |||
| Item 4. | Mine Safety Disclosures | 14 | |||
| Item 5. | Other information | 14 | |||
| Item 6. | Exhibits | 15 | |||
| SIGNATURES | 16 | ||||
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| NORTH AMERICAN OIL & GAS CORP. | ||||
| Condensed Consolidated Balance Sheets |
June 30, 2014 | December 31, 2013 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | 18,590 | $ | 49,563 | ||||
| Accounts Receivable | 823 | 704 | ||||||
| Total Current Assets | 19,413 | 50,267 | ||||||
| Restricted Cash | - | 1,037 | ||||||
| Oil and Gas Properties, Successful Efforts method | 496,764 | 472,520 | ||||||
| Furniture, Fixtures, and Equipment | 5,153 | 5,876 | ||||||
| Deposits | 21,300 | 21,300 | ||||||
| Total Non-current Assets | 523,217 | 500,733 | ||||||
| TOTAL ASSETS | $ | 542,630 | $ | 551,000 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 110,594 | $ | 62,655 | ||||
| Accounts Payable - Related Party | 106,610 | 156,610 | ||||||
| Advance from Working Interest Owner | 34,176 | 53,090 | ||||||
| Other Current Liabilities | 251,855 | 172,735 | ||||||
| Note Payable - Related party | - | 50,000 | ||||||
| Total Current Liabilities | 503,235 | 495,090 | ||||||
| Long-term Liabilities | ||||||||
| Asset Retirement Obligation | 108,742 | 104,100 | ||||||
| Total Liabilities | 611,977 | 599,190 | ||||||
| Shareholders' Equity (Deficit) | ||||||||
| Common Stock: $0.001 par value; 200,000,000 shares authorized; 62,864,337 AND 61,114,602 shares issued and outstanding, respectively | 62,864 | 61,115 | ||||||
| Preferred Stock; 25,000,000 authorized; zero issued | - | - | ||||||
| APIC - Stock Options | 2,260,882 | 1,818,389 | ||||||
| (Deficit) Accumulated During the Development Stage | (2,393,093 | ) | (1,927,694 | ) | ||||
| Total Shareholders' Equity (Deficit) | (69,347 | ) | (48,190 | ) | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | $ | 542,630 | $ | 551,000 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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| NORTH AMERICAN OIL & GAS CORP. | |||||||||
| Consolidated Statements of Operations | |||||||||
| (Unaudited) |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Expenses | ||||||||||||||||
| Exploration & Leasehold Costs | $ | 14,100 | $ | 47,662 | $ | 42,795 | $ | 410,202 | ||||||||
| Management and Consulting | 10,000 | 39,980 | 50,500 | 54,980 | ||||||||||||
| General and Administration | 109,773 | 236,848 | 365,829 | 569,046 | ||||||||||||
| Depreciation | 361 | 39 | 723 | 78 | ||||||||||||
| Accretion on Asset Retirement Obligation | 2,322 | 1,562 | 4,642 | 3,123 | ||||||||||||
| Total Expenses | 136,556 | 326,091 | 464,489 | 1,037,428 | ||||||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest Expense | - | - | (2,153 | ) | - | |||||||||||
| Other Income (Expense) | (250 | ) | - | 1,243 | (5,650 | ) | ||||||||||
| Total Other Income (Expense) | (250 | ) | - | (910 | ) | (5,650 | ) | |||||||||
| Net (Loss) | $ | (136,306 | ) | $ | (326,091 | ) | $ | (465,399 | ) | $ | (1,043,078 | ) | ||||
| (Loss) per common share | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | ||||
| Weighted average number of shares outstanding | 62,864,337 | 60,287,222 | 62,372,315 | 62,206,111 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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| NORTH AMERICAN OIL & GAS CORP. | |||||
| Consolidated Statements of Cash Flows |
For the Six Months Ended June 30, | ||||||||
| 2014 | 2013 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net (Loss) | $ | (465,399 | ) | $ | (1,043,078 | ) | ||
| Adjustments to Reconcile Net (Loss) to Net Cash | ||||||||
| (Used in) Operating Activities: | ||||||||
| Depreciation expense | 723 | 78 | ||||||
| Accretion expense | 4,642 | 3,123 | ||||||
| Stock based compensation | 92,089 | 356,173 | ||||||
| Changes in Assets and Liabilities: | ||||||||
| (Increase)/Decrease in accounts receivable | (119 | ) | 4,613 | |||||
| (Increase)/ Decrease in prepaids and other assets | - | 2,484 | ||||||
| Increase/ (Decrease) in accrued expenses | 79,120 | 86,616 | ||||||
| Increase/(Decrease) in accounts payable | 50,092 | (541,786 | ) | |||||
| Increase/(Decrease) in accounts payable - related party | (50,000 | ) | 240,000 | |||||
| Net Cash (Used in) Operating Activities | (288,852 | ) | (891,776 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| (Purchase) of oil and gas property | (43,158 | ) | (537,715 | ) | ||||
| (Purchase) of furniture, fixtures and equipment | - | (1,345 | ) | |||||
| Restricted Cash | 1,037 | 891,002 | ||||||
| Net Cash Provided by (Used in) Investing Activities | (42,121 | ) | (351,942 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from the sale of common stock | 300,000 | 20 | ||||||
| Net Cash Provided by Provided by Financing Activities | 300,000 | 20 | ||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | (30,973 | ) | (539,814 | ) | ||||
| Cash and Cash Equivalents at the Beginning of the Period | 49,563 | 578,927 | ||||||
| Cash and Cash Equivalents at the End of the Period | $ | 18,590 | $ | 39,113 | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS | ||||||||
| Shares issued for conversion of debt | $ | 52,153 | - | |||||
| AP for oil and gas additions | $ | 18,914 | - | |||||
| Recovery of Oil and Gas Property | - | $ | 75,117 | |||||
| Asset Retirement Obligation | - | $ | 30,619 | |||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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NORTH AMERICAN OIL & GAS CORP.
Notes To Consolidated Financial Statements
(Unaudited)
NOTE 1 – THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
North American Oil & Gas Corp. (hereinafter referred to as the “Company”) was incorporated in the State of Nevada on April 7, 2010. Since November 16, 2012, the Company has been engaged in the exploration and development of oil and natural gas.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 25, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
Commitments and Contingent Liabilities
The Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures as they relate to the drilling of oil and gas wells and the operations. In the Company’s acquisition of existing or previously drilled well bores, the Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to any environmental clean up or restoration, the liability to cure such a violation could fall upon the Company. Management believes its properties are operated in conformity with local, state, and federal regulations. No claim has been made, nor is the Company aware of any uninsured liability which the Company may have, as it relates to any environmental cleanup, restoration, or the violation of any rules or regulations.
The Company is contingently liable for all of the asset retirement costs associated with the Pass Exploration 77-20 well, as opposed to its 75% working interest share of such costs. The asset retirement obligation has been calculated using the Company’s share of 75% of the working interest in the leased property. Pursuant to the Farm-In, the Company is contingently liable for 100% of the asset retirement obligation related to the Pass Exploration 77-20 well if the well proves to be incapable of producing oil or gas in commercial quantities. This well was in the drilling process as of December 31, 2013.
Reclassifications
Certain reclassifications of amounts previously reported have been made to the accompanying consolidated condensed financial statements to maintain consistency between periods presented. The reclassifications had no impact on net (loss) or stockholders’ equity (deficit).
NOTE 2 – GOING CONCERN
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs, which indicates a substantial doubt of its ability to continue as a going concern. The Company has accumulated losses of $2,393,093 and has a working capital deficit of $483,822 at June 30, 2014. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.
Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and to succeed in its future operations. If the Company is unable to make it profitable, the Company could be forced to discontinue operations.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts.
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NOTE 3 – RELATED PARTY TRANSACTIONS
The Company entered into a short-term loan with ASPS Energy Investments, Ltd. (“ASPS”), on September 7, 2012, for the principal sum of $50,000, with interest rate of 3%. The note was due and payable on September 6, 2013, when the outstanding amount of principal and interest was due in full. On February 3, 2014, the outstanding principal of $50,000 as well as accrued interest of $2,153 was converted into 200,590 shares of common stock at a price of $0.26 per share.
On November 13, 2012, the Company entered into a Farm-In agreement with Avere Energy Corp (“Avere”), a wholly owned subsidiary of East West Petroleum Corp. According to the provisions of the agreement, Avere was to fund $300,000 for overhead, which was funded at 100% as of May 1, 2013. The Company has repaid through cash and overhead deductions in the amount of $193,390 leaving the debt remaining at June 30, 2014 of $106,610. Additionally, Avere has provided $1,300,000 to finance the drilling of Well 77-20 in exchange for a 25% working interest in the Tejon Extension. Well 77-20 has been drilled, and is currently shut in while reviewing additional testing possibilities. As of June 30, 2014 Avere has contributed $1,337,019 towards Well 77-20, with NAMOG’s contribution at $115,275.
Through the Farm-In agreement, Avere is to fund $347,500 in total to acquire the White Wolf Prospect in exchange for a 50% working interest. As of June 30, 2014 NAMOG secured 4,663 gross acres, 2,239 net acres, at an average cost per net acre of $135.18. The total costs for the White Wolf leasing acquisition program through June 30, 2014 is $399,823. Avere’s share of these costs at June 30, 2014 is $304,868 leaving a remaining obligation from Avere of $42,632 per this agreement.
On February 1, 2013, the Company entered into a consulting contract with a Board Director, Cosimo Damiano. The consulting contract is for twelve months beginning January 2013 at a rate of $5,000 per month, and covers a variety of consulting activities in the management and operations of the Company. For the twelve (12) month period ending December 31, 2013 the Company incurred consulting fees totaling $60,000, $30,000 of which is included in accounts payable as of March 31, 2014.
On April 1, 2013 Donald Boyd, Operations Manager, and Robert Skerry Hoar, Managing Geologist, agreed to termination of services as full time employees, and signed Consulting Agreement contracts with the Company this same date. Each individual contract stipulates $5,000 per month fixed compensation for consulting services in the ongoing operations of NAMOG.
On July 23, 2014, the Company entered into a short-term promissory note (the “Note”) with ASPS Energy Investments Ltd., a company whose voting and investment control is held by Mr. Robert Rosenthal, the Company’s President and Chief Executive Officer. The Note is for a principal amount of $20,000, bears interest at the rate of 4% per annum, and is payable on or before August 26, 2014. The proceeds from the Note will be used for the Company’s general business purposes.
NOTE 4 – COMMON STOCK
On January 27, 2014, the Company entered into a Stock Purchase Agreement with Oel und Erdgazforshung AG, a Nevis Corporation, for the sale and issuance of 854,701 shares of the Company’s common stock for a purchase price of $200,000, and warrants to purchase an aggregate of 100,000 shares of Common Stock, at an exercise price of $.30 per share. The Warrants are exercisable immediately and expire January 27, 2017.
On February 3, 2014, ASPS elected to convert its $50,000 loan plus interest to date (totaling $52,154) to Two Hundred-thousand, Five Hundred-ninety (200,590) common shares based on the previous day’s close (Friday, January 31, 2014) of $0.26 per share.
On March 28, 2014, the Company entered into a Stock Purchase Agreement with Oel und Erdgazforshung AG, a Nevis Corporation, for the sale and issuance of 694,444 shares of the Company’s common stock for a purchase price of $100,000, and warrants to purchase an aggregate of 50,000 shares of Common Stock, at an exercise price of $.18 per share. The Warrants are exercisable immediately and expire March 28, 2017
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NOTE 5 – STOCK OPTIONS
The Company awarded Linda Gassaway, Chief Financial Officer, 500,000 shares of stock options on April 1, 2013. The restricted stock options were offered at an exercise price of $.80 per share, and will vest one year from date of grant.
The fair value of the option grants were estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility of 202.5%, risk free interest rate of 0.76%; and expected term of five years.
During the six months ended June 30, 2014, the Company recorded stock-based compensation of $92,089 related to options granted in prior periods. At June 30, 2014 the weighted average remaining life of the stock options is 4 years. All options have been fully amortized as of June 30, 2014.
NOTE 6 – SUSBSEQUENT EVENTS
On July 23, 2014, the Company entered into a short-term promissory note (the “Note”) with ASPS Energy Investments Ltd., a company whose voting and investment control is held by Mr. Robert Rosenthal, the Company’s President and Chief Executive Officer. The Note is for a principal amount of $20,000, bears interest at the rate of 4% per annum, and is payable on or before August 26, 2014. The proceeds from the Note will be used for the Company’s general business purposes.
On August 12, 2014 the Company entered into a Securities Purchase Agreement with WHC Capital, LLC. (“the Investor”). The Securities Purchase Agreement provides the Company with a note in the principal amount of $210,000 and offers warrants, expiring thirty-six months from the execution of the Agreement and exercisable into 500,000 common shares of the Company’s Common Stock at $.15 per share.
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2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-look statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company’s services, fluctuations in pricing for materials, and competition.
Overview
NAMG is an exploration and development stage oil and gas company. The Company through its subsidiary Lani, LLC was formed on June 20, 2011 to purchase, operate, explore and develop oil and gas properties. NAMG acquired oil and gas leases and began development of a plan for oil and gas exploration and producing operations. The Company is actively engaged in leasing properties focused in the San Joaquin Basin in California, and pursuing crude oil and natural gas opportunities, with existing foundation assets targeting exploration and exploitation of oil and gas projects located near infrastructure and existing discoveries.
NAMG owns lease interests in over 174 individual leases covering its three prospects. On the Tejon Ranch Main lease the Company holds 4,300 gross acres and 426 net acres; on the Tejon Ranch Extension lease the Company holds 472 gross acres and 346 net acres; and on the White Wolf leases the Company holds 4,645 gross acres and 2,286 net acres. The majority of these leaseholds are held for primary terms of five years. The current leaseholds are set to expire over various periods from now until February 26, 2018 if no additional lease terms are negotiated or extended.
Per seismic evaluation, these leases hold at least fourteen potentially identified drill sites for future exploration. Provided adequate funding through capital raising and farm-outs; the Company’s current plan involves permitting four wells, three in the Tejon Main lease area, and one in the Tejon Extension area, with exploration of at least one well in 2014.
We have no developed proven reserves or production, and have not realized any revenues from our operations. We maintain our principal administrative offices in Ventura, California. The Company is focused on exploration activities in the San Joaquin Basin in California.
The Company plans to continue using a combination of capital raisings and farm-in opportunities to develop NAMG’s leased acreage. The leaseholds are not held by drilling, and all required lease payments are made in order to retain properties for development of exploration and drilling.
History and Corporate Structure
NAMG was incorporated as Calendar Dragon, Inc. on April 8, 2010 in the State of Nevada. From inception until the completion of the reverse acquisition on November 20, 2012, the Company was in the development stage of creating a new calendaring software application. On October 11, 2012, the Company filed an amendment to its Articles of Incorporation changing its name to North American Oil & Gas Corp. During that time, we had no revenue and our operations were limited to capital formation, organization, and development of our business plan and target customer market. As a result of the merger we ceased prior operations and are now engaged in an exploration stage oil and gas enterprise focused on the acquisition, stimulation, rehabilitation and asset improvement of leased acreage in California. NAMG has no developed reserves or production, and has not realized any revenues from operations.
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Recent Developments
The Company licensed seismic data over 3,429 gross acres (2,946 net acres) on our Tejon Extension and Tejon Main prospect in February 2013. Consulting geologists completed an exhaustive analysis on this 3D survey in September 2013. We have finished the mapping and volumetric analysis of the 14 prospects previously identified. We have further refined the extent of, and reduced the associated technical risk, of these prospects. This work will allow the Company to prioritize its prospect inventory in terms of geologic risk, resource potential, drilling difficulty and permitting issues.
The prospects include 5 target horizons; the Eocene, Vedder, JV, Olcese, Reserve and Transition Zone. The 3D interpretation shows traps that were untested in the previous drilling campaign because we did not have this data to drive the Company’s development programs.
This seismic evaluation also indicated new target zones to test in our shut-in Well 77-20. NAMG has tentatively budgeted to reopen the Well 77-20 in 2014 for further testing at a cost of NAMG’s 75% working interest share at $100,000. This testing, however, is predicated on the Company’s ability to raise sufficient capital to proceed.
Based on the finding in the 3D evaluation, the Company has budgeted to drill a well on the Tejon Main prospect in late-2014 subject to the Company’s ability to raise sufficient capital to fund the project. The Company has started the permitting process of two wells.
On August 1, 2013 NAMG and Avere entered into a Purchase and Sale Agreement with Solimar to purchase an additional interest in the Tejon Main leaseholds. This Agreement resulted in NAMG increasing our working interest to 40% in the Tejon Main Lease, as well as operatorship on the deep depths. Avere, through this acquisition now holds a 50% working interest, with Solimar holding a 10% working interest.
During the period ending December 31, 2013 the Company oversaw an aggressive acquisition program in the White Wolf prospect. As of June 30, 2014 the Company continued its aggressive acquisition program in the White Wolf prospect. The Company has acquired additional leases in this prospect totaling approximately 1,156 gross, and 1,054 net acres in this prospect.
Development
Beginning in June 2011, NAMG has focused on California projects, in proven, prolific hydrocarbon provinces. NAMG specifically is focused on three projects within the San Joaquin Basin; Tejon Ranch Extension, Tejon Main, and White Wolf. Within these three projects, NAMG has built up leasehold acreage. From June 2011 through December 2013 the Company went from approximately 3,209 net acres of leasehold property to over 5,198 net acres of leasehold properties. The cost incurred for this additional 1,989 leasehold acreage acquisition has been approximately $292,186, and approximately $27,500 for previous acreage. The exploration drilling and testing of the 77-20 well totaled $1,452,294, with $1,300,000 covered by Avere, as agreed to in the Farm-In, with the remainder allocated per the working interest percentages.
The purchase of seismic data in February 2013 allowed the Company to thoroughly analyze its Tejon Main and Tejon Extension assets for exploration and development. In a July 2013 investor presentation made available to the public, the Company identified fourteen low risk and high risk prospects targeting light oil with 24/81 mmboe of gross resource potential and acreage play. The primary objectives are in the Eocene, Olcese and JV sands, near shore and submarine channel. The Company has plans to permit and explore up to four identified well locations, pending sufficient funding for development.
On August 1, 2013 NAMG acquired additional interest percentage in the Tejon Main lease from Solimar, for a purchase price of $125,000. This purchase secured additional interest, bringing the Company‘s working interest percent to 40%, as well as operatorship over both the shallow and deep well depth locations.
NAMG is in the exploratory stage of oil and gas projects and has no current production. Our infrastructures and geographical locations are based near other oil and gas discoveries within California, and, throughout California, there are over twenty proven end user markets (refineries). NAMG will geographically rely on approximately four oil and gas refineries. The refineries are competitive with market prices; NAMG ‘s future consideration for an oil and gas customer will be based on transportation costs, facility costs, and pipeline costs.
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Plans for our fiscal year 2014 include the following:
Subject to obtaining additional financing, the following drilling and testing may be pursued. The projects with our working interest (“WI”) share (based on our WI as listed) of the estimated costs are listed below:
Estimated cost based on expected participating working interest.
| Project | Current WI% | No. Wells | Procedure | Est. Cost | |||||||||
| Tejon Main | 40 | % | 1 | New Drill | $ | 2.5MM | |||||||
| Tejon Extension | 75 | % | 1 | New Drill | $ | 1.0MM | |||||||
Consolidated Results of Operations for the Three Months Ended June 30, 2014 Compared to the Three Months Ended June 30, 2013
Expenses from Operations - The Company incurred operating expenses of $136,556 for the three-month period ending June 30, 2014; a decrease of $189,535 compared to $326,091 for the three-month period ending June 30, 2013. The operating expense decrease is largely due to a large decrease in outside accounting and legal expenses as a result of reduced activity and governmental filings.
Other Income/Expenses – For the three-month period ending June 30, 2014 the Company had other expenses of $250, a small increase from the previous period due to California Franchise Tax Board statements.
Consolidated Results of Operations for the Six Months Ended June 30, 2014 Compared to the Six Months Ended June 30, 2013
Expenses from Operations - The Company incurred operating expenses of $464,489 for the six-month period ending June 30, 2014; a decrease of $572,940 compared to $1,037,429 for the six-month period ending June 30, 2013. The operating expense decrease is largely due to a large decrease in drilling activities.
Other Income/Expenses – For the six-month period ending June 30, 2014 the Company had $1,243 in other income due to a refund of fees from the California Franchise Tax board, which was offset by $2,153 in interest expense. At March 31, 2013, the company incurred $5,650 in other expenses related to California State franchise tax fees.
Liquidity – At June 30, 2014, the Company had a cash balance of $18,590, compared to a cash balance at June 30, 2013 of $39,113. This decrease in cash is attributed to overall operating expenses.
Historically the Company has lacked liquidity, a result of insufficient financing alternatives available to the Company and the lack of production to produce significant revenues.
Based on current expectations, the Company will need to find additional sources of financing to meet our general corporate needs beyond December 2014 as well as any large capital requirements necessary for additional oil and gas exploration. The Company is looking for outside funding, loans, partner agreements and all other courses at their disposal to improve the sources for capital.
Based on the Company’s current expectations, and, along with subsequent events involving stock purchase, we continue to believe that we are only sufficiently funded through December 2014. We have listed our firm commitments with plans to continue raising capital through agreements put in place for ‘Finder Fee’s, etc. There is no assurance sufficient capital will be available at acceptable terms.
The cash requirements of the Company may have a material impact on our liquidity. The reasons for this are:
The Company has only secured sufficient funds to maintain its current operations through December 2014. There is an uncertainty as to whether the Company can maintain operations through the fourth quarter of 2014 without securing additional capital through cash raisings, or investor project participation; and there is no certainty that the Company can achieve profitable levels in the oil and gas exploration field, or that it will be able to raise additional capital through any means.
Net Cash Used in Operating Activities
Cash used in operating activities in the three months ended June 30, 2014 was $288,825, compared to $891,776 used in operating activities in the three months ended June 30, 2013. The decrease in cash used in operating activities was primarily related to a decrease stock based compensation related expenses. In addition, the Company finds itself reducing its accounts payable as monthly administrative overhead costs are reduced.
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Cash Flows Used in Investing Activities
Net cash used in investing activities for the three months ended June 30, 2014 was $42,121 compared to $351,942 provided by investing activity in the three months ended June 30, 2013. The decrease in cash provided by investing activities is due to additions in the prior year that were funded through restricted cash.
Cash Flows Provided by Financing Activities
Cash provided by financing activities for the three months ended June 30, 2014 was $300,000 compared to $20 provided in the three months ended June 30, 2013. Financing activities during the three months ended June 30, 2014 related to cash sales of our common stock to investors.
Critical Accounting Policies
Oil and Gas Accounting
Accounting for oil and gas exploratory activity is subject to special accounting rules unique to the oil and gas industry. The acquisition of geological and geophysical seismic information licensed for unproved acreage to assist in determining the desirability of drilling additional development wells within an area may be capitalized under the successful efforts method. These costs must meet the definition of development activities. Leasehold acquisition costs and exploratory well costs are capitalized on the balance sheet pending determination of whether proved oil and gas reserves have been discovered on the prospect.
Property Acquisition Costs
For individually significant leaseholds, management periodically assesses for impairment based on exploration and drilling efforts to date. For leasehold acquisition costs that individually are relatively small, management exercises judgment and determines a percentage probability that the prospect ultimately will fail to find proved oil and gas reserves and pools that leasehold information with others in the geographic area. For prospects in areas that have had limited, or no, previous exploratory drilling, the percentage probability of ultimate failure is normally judged to be quite high. This judgmental percentage is multiplied by the leasehold acquisition cost, and that product is divided by the contractual period of the leasehold to determine a periodic leasehold impairment charge that is reported in exploration expense.
This judgmental probability percentage is reassessed and adjusted throughout the contractual period of the leasehold based on favorable or unfavorable exploratory activity on the leasehold or on adjacent leaseholds, and leasehold impairment amortization expense is adjusted prospectively. Management periodically assesses individually significant leaseholds for impairment based on the results of exploration and drilling efforts and the outlook for project commercialization.
Exploratory Costs
For exploratory wells, drilling costs are temporarily capitalized, or “suspended,” on the balance sheet, pending a determination of whether potentially economic oil and gas reserves have been discovered by the drilling effort to justify completion of the find as a producing well. If exploratory wells encounter potentially economic quantities of oil and gas, the well costs remain capitalized on the balance sheet as long as sufficient progress assessing the reserves and the economic and operating viability of the project is being made. The accounting notion of “sufficient progress” is a judgmental area, but the accounting rules do prohibit continued capitalization of suspended well costs on the mere chance that future market conditions will improve or new technologies will be found that would make the project’s development economically profitable. Often, the ability to move the project into the development phase and record proved reserves is dependent on obtaining permits and government or co-venture approvals, the timing of which is ultimately beyond our control. Exploratory well costs remain suspended as long as we are actively pursuing such approvals and permits, and believe they will be obtained. Once all required approvals and permits have been obtained, the projects are moved into the development phase, and the oil and gas reserves are designated as proved reserves. Once a determination is made the well did not encounter potentially economic oil and gas quantities, the well costs are expensed as a dry hole and reported in exploration expense.
Management reviews suspended well balances quarterly, continuously monitors the results of the additional appraisal drilling and seismic work, and expenses the suspended well costs as a dry hole when it determines the potential field does not warrant further investment in the near term. Criteria utilized in making this determination include evaluation of the reservoir characteristics and hydrocarbon properties, expected development costs, ability to apply existing technology to produce the reserves, fiscal terms, regulations or contract negotiations, and our required return on investment.
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Proved Reserves
Engineering estimates of the quantities of proved reserves are inherently imprecise and represent only approximate amounts because of the judgments involved in developing such information. Reserve estimates are based on geological and engineering assessments of in-place hydrocarbon volumes, the production plan, historical extraction recovery and processing yield factors, installed plant operating capacity and operating approval limits. The reliability of these estimates at any point in time depends on both the quality and quantity of the technical and economic data and the efficiency of extracting and processing the hydrocarbons.
Despite the inherent imprecision in these engineering estimates, accounting rules require disclosure of “proved” reserve estimates due to the importance of these estimates to better understand the perceived value and future cash flows of a company’s E&P operations. There are several authoritative guidelines regarding the engineering criteria that must be met before estimated reserves can be designated as “proved
At June 30, 2014 the Company does not have any Proved Reserves.
Asset Retirement Obligations
Under various contracts, permits and regulations, we have material legal obligations to remove tangible equipment and plug wells at the end of operations at operational sites. The fair values of obligations for dismantling and removing these facilities are accrued at the installation of the asset based on estimated discounted costs. Estimating the future asset removal costs necessary for this accounting calculation is difficult. Most of these removal obligations are many years, or decades, in the future and the contracts and regulations often have vague descriptions of what removal practices and criteria must be met when the removal event actually occurs. Asset removal technologies and costs, regulatory and other compliance considerations, expenditure timing, and other inputs into valuation of the obligation, including discount and inflation rates, are also subject to change.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required under Regulation S-K for “smaller reporting companies.”
Item 4. Controls and Procedures. Evaluation of disclosure controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Internal controls over financial reporting and material weakness previously identified
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2014.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are currently not a party to any material legal proceedings or claims.
Item 1A. Risk Factors.
Not required under Regulation S-K for “smaller reporting companies.”
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
| 10.1 | Security Purchase Agreement between North American Oil & Gas Corp. and WHC Capital dated August 12, 2014. | |
| 10.2 | Promissory note between North American Oil & Gas Corp. and ASPS dated July 28, 2014. | |
| 31.1 | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.01 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS ** | XBRL Instance Document | |
| 101.SCH ** | XBRL Taxonomy Extension Schema Document | |
| 101.CAL ** | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF ** | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB ** | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE ** | XBRL Taxonomy Extension Presentation Linkbase Document |
________________
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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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.
| NORTH AMERICAN OIL & GAS CORP. | |||
| Date: August 27, 2014 | By: | /s/ Robert Rosenthal | |
| Robert Rosenthal | |||
| Chief Executive Officer | |||
| Date: August 27, 2014 | By: | /s/ Linda Gassaway | |
| Linda Gassaway | |||
| Chief Financial Officer | |||
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