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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
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Commission file number 0-52725
NORTHERN EMPIRE ENERGY CORP.
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(Exact name of registrant as specified in its charter)
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Nevada 20-4765268
------------------------ ------------------------
(State of incorporation) (I.R.S. Employer ID No.)
118 8th Ave. NW, Calgary, Alberta T2M 0A4, Canada
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(Address of principal executive offices)(Zip Code)
Issuer's telephone number, including area code: (403) 456-2333
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 |_|
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
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Exchange Act (Check one).
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| 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 |_| No |X|
As of May 5, 2009, the registrant's outstanding common stock consisted
of 18,061,200 shares, $0.001 Par Value. Authorized - 195,000,000 common
voting shares authorized and 75,000 preferred issued, 5,000,000 authorized.
Table of Contents
Northern Empire Energy Corp.
Index to Form 10-Q
For the Quarterly Period Ended March 31, 2009
Part I. Financial Information
Page
Item 1. Financial Statements
Balance Sheets as of March 31, 2009 and December 31, 2008 3
Statements of Income for the three months
ended March 31, 2009 and 2008 4
Statements of Cash Flows for the three months
ended March 31, 2009 and 2008 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
Part II Other Information
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3 -- Defaults Upon Senior Securities 20
Item 4 -- Submission of Matters to a Vote of Security Holders 20
Item 5 -- Other Information 20
Item 6. Exhibits 21
Signatures 22
2
Part I. Financial Information
Item 1. Financial Statements
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Balance Sheets
ASSETS
------
March 31,
2009 December 31,
(unaudited) 2008
------------- -------------
CURRENT ASSETS
Cash $ 24,431 $ 49,688
------------- -------------
Total Current Assets 24,431 49,688
------------- -------------
PROPERTY AND EQUIPMENT, net - -
------------- -------------
Deposits - 40,435
------------- -------------
Total Other Assets - 40,435
------------- -------------
TOTAL ASSETS $ 24,431 $ 90,123
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 57,782 $ 69,289
------------- -------------
Total Current Liabilities 57,782 69,289
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 5,000,000
shares authorized, 75,000 shares
issued and outstanding 75 75
Common stock, $0.001 par value, 195,000,000
shares authorized, 18,061,200 and 18,423,100
shares issued and outstanding, respectively 18,061 18,423
Additional paid-in capital 1,671,603 1,671,241
Deficit accumulated during the exploration
stage (1,723,090) (1,668,905)
------------- -------------
Total Stockholders' Equity (Deficit) (33,351) 20,834
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 24,431 $ 90,123
============= =============
The accompanying notes are an integral part of these financial statements.
3
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Statements of Operations
(unaudited)
For the For the From Inception
Three Months Three Months on April 24,
Ended Ended 2006 through
March 31, March 31, March 31,
2009 2008 2009
------------- ------------- -------------
REVENUES $ - $ - $ 19,491
OPERATING EXPENSES
General and administrative 54,185 54 1,740,464
Depreciation expense - 250 2,000
------------- ------------- -------------
Total Operating Expenses 54,185 304 1,742,464
------------- ------------- -------------
LOSS FROM OPERATIONS (54,185) (304) (1,722,973)
------------- ------------- -------------
Income tax (expense) benefit - - (117)
------------- ------------- -------------
Total Other Expenses - - (117)
------------- ------------- -------------
NET LOSS $ (54,185) $ (304) $ (1,723,090)
============= ============= =============
BASIC LOSS PER COMMON SHARE $ (0.02) $ (0.00)
============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 18,121,517 423,100
============= =============
The accompanying notes are an integral part of these financial statements.
4
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Statements of Stockholders' Equity
(unaudited)
Statements of Stockholders' Equity
Deficit
Preferred Common Accumulated
Stock Stock Additional During the Total
------------- ------------------ Paid-In Exploration Stockholders'
Shares Amount Shares Amount Capital Stage Equity
------ ------ ---------- ------- ---------- ------------ -------------
Balance,
April 24,
2006 - $ - - $ - $ - $ - $ -
4/24/06
Shares
issued
for cash
at $0.001
per share - - 361,900 362 3,257 - 3,619
4/24/06
Shares
issued
for
equipment
at $0.01
per
share 75,000 75 - - 7,425 - 7,500
Deemed
interest
from
beneficial
conversion
feature
on preferred
stock - - - - 1,492,500 - 1,492,500
12/31/06
Shares
issued
for cash
at $0.01
per share - - 61,200 61 6,059 - 6,120
Net loss
for the
year ended
December
31, 2006 - - - - - (1,486,543) (1,486,543)
------ ------ ---------- ------- ---------- ------------ -------------
5
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Statements of Stockholders' Equity (Continued)
(unaudited)
Deficit
Preferred Common Accumulated
Stock Stock Additional During the Total
------------- ------------------ Paid-In Exploration Stockholders'
Shares Amount Shares Amount Capital Stage Equity
------ ------ ---------- ------- ---------- ------------ -------------
Balance,
December
31, 2006 75,000 75 423,100 423 1,509,241 (1,486,543) 23,196
Net loss
for the
year ended
December
31, 2007 - - - - - (15,934) (15,934)
------ ------ ---------- ------- ---------- ------------ -------------
Balance,
December
31, 2007 75,000 75 423,100 423 1,509,241 (1,502,477) 7,262
11/20/08
Shares
issued
for cash
at $0.001
per share - - 18,000,000 18,000 162,000 - 180,000
Net loss
for the
year ended
December
31, 2008 - - - - - (166,428) (166,428)
------ ------ ---------- ------- ---------- ------------ -------------
Balance,
December
31, 2008 75,000 $ 75 18,423,100 $18,423 $1,671,241 $(1,668,905) $ 20,834
Shares
cancelled - - (361,900) (362) 362 - -
Net loss
for the
three months
ended
March 31,
2009 - - - - - (54,185) (54,185)
------ ------ ---------- ------- ---------- ------------ -------------
Balance,
March 31,
2009 75,000 $ 75 18,061,200 $18,061 $1,671,603 $(1,723,090) $ (33,351)
====== ====== ========== ======= ========== ============ =============
The accompanying notes are an integral part of these financial statements.
6
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Statements of Cash Flows
(unaudited)
Statements of Cash Flows
For the For the From Inception
Three Months Three Months on April 24,
Ended Ended 2006 through
March 31, March 31, March 31,
2009 2008 2009
------------- ------------- -------------
OPERATING ACTIVITIES
Net loss $ (54,185) $ (304) $ (1,723,090)
Adjustments to Reconcile Net
Loss to Net Cash Used by
Operating Activities:
Depreciation expense - 250 2,000
Beneficial conversion
feature - - 1,492,500
Impairment of asset - 5,500
Changes in operating assets
and liabilities:
Changes in accounts payable
and accrued expenses (11,507) 57,782
------------- ------------- -------------
Net Cash Used in Operating
Activities (65,692) (54) (165,308)
------------- ------------- -------------
INVESTING ACTIVITIES
Refund of deposit for purchase
of property 40,435 - 40,435
Deposit for purchase of property - - (40,435)
------------- ------------- -------------
Net Cash Used in Investing
Activities 40,435 - -
------------- ------------- -------------
FINANCING ACTIVITIES
Common stock issued for cash - - 189,739
------------- ------------- -------------
Net Cash Provided by
Financing Activities - - 189,739
------------- ------------- -------------
NET DECREASE IN CASH (25,257) (54) 24,431
CASH AT BEGINNING OF PERIOD 49,688 1,879 -
------------- ------------- -------------
CASH AT END OF PERIOD $ 24,431 $ 1,825 $ 24,431
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ - $ - $ -
Income Taxes $ - $ - $ 1,023
NON CASH FINANCING ACTIVITIES
Common stock issued for assets $ - $ - $ 7,500
The accompanying notes are an integral part of these financial statements.
7
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2009 and 2008
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at March 31, 2009 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. It
is suggested that these condensed financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
December 31, 2008 audited financial statements. The results of operations for
the period ended March 31, 2009 and 2008 are not necessarily indicative of the
operating results for the full year.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has had no revenues and has generated losses from
operations.
In order to continue as a going concern and achieve a profitable level of
operations, the Company will need, among other things, additional capital
resources and to develop a consistent source of revenues. Management's plans
include of investing in and developing all types of businesses related to the
entertainment industry.
The ability of the Company to continue as a going concern is dependent upon
its ability to successfully accomplish the plan described in the preceding
paragraph and eventually attain profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
8
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2009 and 2008
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Accounting Pronouncements
- --------------------------------
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities, ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses
whether instruments granted in share-based payment transactions are
participating securities prior to vesting, and therefore need to be included
in the computation of earnings per share under the two-class method as
described in FASB Statement of Financial Accounting Standards No. 128,
"Earnings per Share." FSP EITF 03-6-1 is effective for financial statements
issued for fiscal years beginning on or after December 15, 2008 and earlier
adoption is prohibited. We are not required to adopt FSP EITF 03-6-1; neither
do we believe that FSP EITF 03-6-1 would have material effect on our
consolidated financial position and results of operations if adopted.
In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No.
163, "Accounting for Financial Guarantee Insurance Contracts-and
interpretation of FASB Statement No. 60". SFAS No. 163 clarifies how
Statement 60 applies to financial guarantee insurance contracts, including
the recognition and measurement of premium revenue and claims liabilities.
This statement also requires expanded disclosures about financial guarantee
insurance contracts. SFAS No. 163 is effective for fiscal years beginning on
or after December 15, 2008, and interim periods within those years. SFAS No.
163 has no effect on the Company's financial position, statements of
operations, or cash flows at this time.
In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 162, "The Hierarchy of Generally Accepted Accounting Principles". SFAS
No. 162 sets forth the level of authority to a given accounting pronouncement
or document by category. Where there might be conflicting guidance between
two categories, the more authoritative category will prevail. SFAS No. 162
will become effective 60 days after the SEC approves the PCAOB's amendments
to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no
effect on the Company's financial position, statements of operations, or cash
flows at this time.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Information
The Company may from time to time make written or oral "forward-looking
statements" including statements contained in this report and in other
communications by the Company, which are made in good faith by the Company
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.
These forward-looking statements include statements of the Company's plans,
objectives, expectations, estimates and intentions, which are subject to
change based on various important factors (some of which are beyond the
Company's control). The following factors, in addition to others not listed,
could cause the Company's actual results to differ materially from those
expressed in forward looking statements: the strength of the domestic and
local economies in which the Company conducts operations, the impact of
current uncertainties in global economic conditions and the ongoing financial
crisis affecting the domestic and foreign banking system and financial
markets, including the impact on the Company's suppliers and customers,
changes in client needs and consumer spending habits, the impact of
competition and technological change on the Company, the Company's ability to
manage its growth effectively, including its ability to successfully integrate
any business which it might acquire, and currency fluctuations. All forward-
looking statements in this report are based upon information available to the
Company on the date of this report. The Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result
of new information, future events, or otherwise, except as required by law.
Critical Accounting Policies
- ----------------------------
There have been no material changes to our critical accounting policies and
estimates from the information provided in Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations", included in our
Registration Statement for the fiscal year ended December 31, 2007.
10
Results of Operations
- ---------------------
History and Organization
- ------------------------
The Company was organized April 24, 2006 (Date of Inception) under the laws
of the State of Nevada, as Political Calls, Inc. The original business plan
of the Company consisted of marketing telephone broadcasting messages for
political campaigns. On November 17, 2008, the Board of Directors and the
majority vote of the Company's shareholders voted and approved a name change
of the Company from Political Calls, Inc. to Northern Empire Energy Corp., to
better reflect the Company's new business direction.
Our common stock is quoted for trading on the OTC Bulletin Board under the
symbol NOEE. Our principal executive offices are located at 118 8th Ave. NW,
Calgary, Alberta T2M 0A4, Canada. Our telephone number is (403) 456-2333.
Our Business
- ------------
Northern Empire Energy Corp. is an emerging oil and gas exploration company
that focuses on the acquisition of oil and natural gas interests; including
leases, wells, mineral rights, working interests, royalty interests,
overriding royalty interests, net profits interests, and production payments
in Canada. We intend to pursue prospects in partnership with other companies
with exploration, development and production expertise. We will also pursue
alliances with partners in the areas of geological and geophysical services
and prospect generation, evaluation and prospect leasing.
The acquisition, drilling and development of oil and gas is capital intensive
and the level of performance and outcome attainable by an oil and gas company
is proportional to the amount of available capital. Therefore, a principal
part of our plan of operations is to acquire the additional capital required
to finance our future operations.
Business Strategy
- -----------------
In pursuing our operations strategy, our primary focus will be directed
towards the following:
Exploration Activities
- ----------------------
We intend to conduct exploration and development programs to grow proven
reserves, production and cash flow. We participate by acquiring working
interests in our projects and we continually review opportunities generated
by industry partners
11
Strategic Acquisitions
- ----------------------
We plan to review opportunities to acquire (i) producing properties in our
target areas that contain proved reserve value as well as meaningful
exploitation and exploration upside potential; and (ii) small to mid-size
energy companies that, along with our current management expertise, would
display profitability, strong revenue growth and significant cash flows.
We intend to use the services of independent consultants and contractors to
perform various professional services, including reservoir engineering, land,
legal, and environmental services. As a non-operator working interest owner,
we intend to rely on the services private contractors to drill, produce and
market our natural gas and oil.
Seasonality
- -----------
The exploration for oil and natural gas reserves depends on access to areas
where operations are to be conducted. Seasonal weather variations, including
freeze-up and break-up affect access in certain circumstances. Natural gas is
used principally as a heating fuel and for power generation. Accordingly,
seasonal variations in weather patterns affect the demand for natural gas.
Depending on prevailing conditions, the prices received for sales of natural
gas are generally higher in winter than summer months, while prices are
generally higher in summer than spring and fall months.
Our Exploration Property
- ------------------------
We entered into an Option Agreement with Maguire Resources Ltd., a corporation
having an office at 300-840 6th Ave SW T2P 3E5 in the City of Calgary, in the
Province of Alberta, Canada. Maquire has granted an option to the Registrant
to earn a 40% interest in the Turin Project by incurring 100% of the drilling
and completion costs up to a five well drilling program. This a non-operating
working interest and/or royalty owner participation position in oil and gas
project is located in the Turin area of south-east Alberta, Canada,
specifically section 28, township 10, range 19 west of the 4th meridian.
The option interest consists of several potential hydrocarbon zones in the
area including (starting from the shallowest formation), the Milk River,
Second White Specks, Barons, Bow Island, Glauconite and the Lower Mannville
sandstones plus the Livingston Carbonate.
The option, if exercised, will allow the Registrant to acquire up to a 40%
non-operating working interest, subject to a 31% G.O.R. (Gross Overriding
Royalty) by incurring expenditures of $2 million, 100% of the drilling and
completion costs in a five well drilling program. By drilling an initial
well on the Turin Project the Company can earn 25% of a shut-in gas well
subject to a 31% G.O.R. (Gross Overriding Royalty) by incurring 100% of
completion and tie in costs, located in the land of interest.
12
Competition
- -----------
The oil and natural gas industry is highly competitive. This includes but is
not limited to:
o locating and acquiring exploratory drilling prospects,
o locating and acquiring economically desirable producing properties; and
o finding equipment and labor to operate and maintain their properties.
Properties in which we may acquire an interest will encounter strong
competition from other oil and gas producers, including many that will possess
substantially greater financial resources than us. Competition could reduce
the availability of properties of merit or increase the cost of acquiring the
properties.
We will be competing with other oil and gas exploration companies for
financing from a limited number of investors that are prepared to make
investments in junior oil and gas exploration companies. The presence of
competing oil and gas exploration companies may impact our ability to raise
the necessary capital to fund the acquisition and exploration programs if
investors view investments in competitors as more attractive based on the
merit of the oil and gas properties and the price of the investment offered
to investors.
Northern Empire Energy Corp. Funding Requirements
- -------------------------------------------------
We do not have sufficient capital to fully develop our business plan.
Management anticipates Northern Empire Energy Corp. will require to raise at
least $2,000,000. There is no assurance that we will have revenue in the
future or that we will be able to secure the necessary funding to develop our
business. Without additional funding, it is most likely that our business
model will not succeed, and we shall be forced to curtail or even cease our
operations.
Future funding could result in potentially dilutive issuances of equity
securities, the incurrence of debt, contingent liabilities and/or
amortization expenses related to goodwill and other intangible assets, which
could materially adversely affect the Company's business, results of
operations and financial condition.
13
Results of Operations for the quarter ended March 31, 2009
- ----------------------------------------------------------
During the three months ended March 31, 2009, the Company had a net loss of
$(54,185) or $(0.02) per share versus a net loss of $(304) or ($0.00) per
share, when the Company was somewhat inactive. For the three months ending
March 31, 2009, the Company experienced general and administrative expenses of
$54,185, these expenses comprised legal and audit fees.
For the period since inception through December 31, 2008, we generated no
income. Since our inception on April 24, 2006 we experienced a net loss of
$(1,722,973). The bulk of this loss $(1,490,454) is due to the beneficial
conversion feature of the Company's preferred stock. We anticipate our
operating expenses will increase as we start to develop oil wells. We
anticipate our ongoing operating expenses will also increase since we are a
reporting company under the Securities Exchange Act of 1934.
Revenues
- --------
During the three month period ended March 31, 2009, the Company generated no
revenues. Since inception on February 23, 2007, the Company has generated no
revenues.
Plan of Operation
- -----------------
Management does not believe that the Company will be able to generate
any significant profit during the coming year. Management believes
that general and administrative costs and well as building its infrastructure
will most likely curtail any significant profits.
Management believes the Company can sustain itself for the next twelve months.
Management has agreed to keep the Company funded at its own expense, without
seeking reimbursement for expenses paid. The Company's need for capital may
change dramatically if it can generate additional revenues from its operations.
In the event the Company requires additional funds, the Company will have to
seek loans or equity placements to cover such cash needs. There are no
assurances additional capital will be available to the Company on acceptable
terms.
14
Going Concern
- -------------
Going Concern - The Company experienced operating losses, of $(30,866) since
its inception on February 23, 2007 through the period ended March 31, 2009.
The financial statements have been prepared assuming the Company will continue
to operate as a going concern which contemplates the realization of assets and
the settlement of liabilities in the normal course of business. No adjustment
has been made to the recorded amount of assets or the recorded amount or
classification of liabilities which would be required if the Company were
unable to continue its operations. (See Financial Footnote 2)
Expected purchase or sale of plant and significant equipment
- ------------------------------------------------------------
We do not anticipate the purchase or sale of any plant or significant
equipment; as such items are not required by us at this time.
Significant changes in the number of employees
- ----------------------------------------------
As of March 31, 2009, we did not have any employees. We are dependent upon
our sole officer and director for our future business development. As our
operations expand we anticipate the need to hire additional employees,
consultants and professionals; however, the exact number is not quantifiable
at this time.
Liquidity and Capital Resources
- -------------------------------
The Company has limited financial resources available, which has had an
adverse impact on the Company's liquidity, activities and operations.
These limitations have adversely affected the Company's ability to obtain
certain projects and pursue additional business. Without realization of
additional capital, it would be unlikely for the Company to continue as a
going concern. In order for the Company to remain a Going Concern it will
need to find additional capital. Additional working capital may be sought
through additional debt or equity private placements, additional notes
payable to banks or related parties (officers, directors or stockholders),
or from other available funding sources at market rates of interest, or a
combination of these. The ability to raise necessary financing will depend
on many factors, including the nature and prospects of any business to be
acquired and the economic and market conditions prevailing at the time
financing is sought. No assurances can be given that any necessary financing
can be obtained on terms favorable to the Company, or at all.
15
As a result of our the Company's current limited available cash, no officer
or director received compensation through the three months ended March 31,
2009. No officer or director received stock options or other non-cash
compensation since the Company's inception through March 31, 2009. The
Company has no employment agreements in place with its officers. Nor does
the Company owe its officers any accrued compensation, as the Officers agreed
to work for company at no cost, until the company can become profitable on
a consistent Quarter-to-Quarter basis.
Off-Balance Sheet Arrangements
- ------------------------------
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results or operations,
liquidity, capital expenditures or capital resources that is material to
investors.
Critical Accounting Policies and Estimates
- ------------------------------------------
Revenue Recognition: We recognize revenue from product sales once all of the
following criteria for revenue recognition have been met: pervasive evidence
that an agreement exists; the services have been rendered; the fee is fixed
and determinable and not subject to refund or adjustment; and collection of
the amount due is reasonable assured.
New Accounting Standards
- ------------------------
In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements". This statement amends ARB 51 to establish
accounting and reporting standards for the non-controlling (minority) interest
in a subsidiary and for the de-consolidation of a subsidiary. It clarifies
that a non-controlling interest in a subsidiary is equity in the consolidated
financial statements. SFAS No. 160 is effective for fiscal years and interim
periods beginning after December 15, 2008. The adoption of SFAS 160 is not
expected to have a material impact on the Company's financial position,
results of operation or cash flows.
As of January 1, 2008 we adopted SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159
allows the company to choose to measure many financial assets and financial
liabilities at fair value. Unrealized gains and losses on items for which the
fair value option has been elected are reported in earnings. The adoption of
SFAS 159 has not had a material impact on our financial position, results of
operation or cash flows.
As of January 1, 2008 we adopted SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 defines fair value and provides guidance for
measuring and disclosing fair value. The adoption of SFAS 157 has not had a
material impact on our financial position, results of operation or cash flows.
16
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4T. Controls and Procedures
Evaluation of disclosure controls and procedures
- ------------------------------------------------
Management is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness
of those internal controls. As defined by the SEC, internal control over
financial reporting is a process designed by our principal executive
officer/principal financial officer, to provide reasonable assurance regarding
the reliability of financial reporting and the reparation of the financial
statements in accordance with U. S. generally accepted accounting principles.
As of the end of the period covered by this report, we initially carried out
an evaluation, under the supervision and with the participation of our
President (who is also our principal financial and accounting officer), of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our President and chief financial
officer initially concluded that our disclosure controls and procedures were
not effective.
Management's Report On Internal Control Over Financial Reporting
- ----------------------------------------------------------------
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, the company's principal executive and principal financial
officers and effected by the company's board of directors, management and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America and includes those policies and procedures that:
- - Pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the
company;
17
- - Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America and that
receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and
- - Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to 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. 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. Because of the inherent limitations of
internal control, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial
reporting. 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.
As of December 31, 2008 management assessed the effectiveness of our internal
control over financial reporting based on the criteria for effective internal
control over financial reporting established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") and SEC guidance on conducting such assessments. Based
on that evaluation, they concluded that, during the period covered by this
report, such internal controls and procedures were not effective to detect
the inappropriate application of US GAAP rules as more fully described below.
This was due to deficiencies that existed in the design or operation of our
internal controls over financial reporting that adversely affected our
internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public
Company Accounting Oversight Board were: (1) lack of a functioning audit
committee resulting in ineffective oversight in the establishment and
monitoring of required internal controls and procedures; (2) inadequate
segregation of duties consistent with control objectives; and (3) ineffective
controls over period end financial disclosure and reporting processes. The
aforementioned material weaknesses were identified by our President in
connection with the review of our financial statements as of December 31, 2008.
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Management believes that the material weaknesses set forth in items (2) and
(3) above did not have an effect on our financial results. However,
management believes that the lack of a functioning audit committee resulted in
ineffective oversight in the establishment and monitoring of required
internal controls and procedures, which could result in a material
misstatement in our financial statements in future periods.
This quarterly report does not include an attestation report of the
Corporation's registered public accounting firm regarding internal control
over financial reporting. Management's report was not subject to attestation
by the Corporation's registered public accounting firm pursuant to temporary
rules of the SEC that permit the Corporation to provide only the management's
report in this quarterly report.
Management's Remediation Initiatives
- ------------------------------------
In an effort to remediate the identified material weaknesses and other
deficiencies and enhance our internal controls, we have initiated, or plan to
initiate, the following series of measures:
We will create a position to segregate duties consistent with control
objectives and will increase our personnel resources and technical accounting
expertise within the accounting function when funds are available to us.
And, on August 28, 2008, we appointed outside directors to our board of
directors who shall appoint an audit committee resulting in a fully
functioning audit committee who will undertake the oversight in the
establishment and monitoring of required internal controls and procedures
such as reviewing and approving estimates and assumptions made by management
when funds are available to us.
Management believes that the appointment of the outside directors, who shall
appoint a fully functioning audit committee, will remedy the lack of a
functioning audit committee.
We anticipate that these initiatives will be at least partially, if not
fully, implemented by December 31, 2009. Additionally, we plan to test our
updated controls and remediate our deficiencies by December 31, 2009.
Changes in internal controls over financial reporting
- -----------------------------------------------------
There was no change in our internal controls over financial reporting that
occurred during the period covered by this report, that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
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PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
From time to time, we may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in
these or other matters may arise from time to time that may harm our
business.
We are not presently a party to any material litigation, nor to the knowledge
of management is any litigation threatened against us, which may materially
affect us.
Item 1A - Risk Factors
See Risk Factors set forth in Part I, Item 1A of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2007 and the discussion
in Item 1, above, under "Liquidity and Capital Resources."
Item 2 -- Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3 -- Defaults Upon Senior Securities
None.
Item 4 -- Submission of Matters to a Vote of Security Holders
None.
Item 5 -- Other Information
None.
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Item 6 -- Exhibits
Incorporated by reference
-------------------------
Filed Period Filing
Exhibit Exhibit Description herewith Form ending Exhibit date
- -------------------------------------------------------------------------------
3.1 Articles of Incorporation, SB-2 3.1 02/21/2007
as currently in effect
- -------------------------------------------------------------------------------
3.2 Bylaws SB-2 3.2 02/21/2007
as currently in effect
- -------------------------------------------------------------------------------
3.3 Amended Articles of SB-2 3.3 02/21/2007
Incorporation
- -------------------------------------------------------------------------------
3.4 Amended Articles of 8-K 3.4 11/19/2008
of Incorporation
- -------------------------------------------------------------------------------
10.1 Option Agreement dated 8-K 10.2 11/19/2008
November 17, 2008
- -------------------------------------------------------------------------------
31.1 Certification of Chief X
Executive Officer,
pursuant to Section
302 of the Sarbanes-Oxley
Act
- -------------------------------------------------------------------------------
32.1 Certification of Chief X
Executive Officer,
pursuant to Section
906 of the Sarbanes-Oxley
Act
- -------------------------------------------------------------------------------
21
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 hereunto duly authorized.
Northern Empire Energy Corp.
----------------------------
Registrant
By: /s/ Jeffrey Cocks
------------------------------
Name: Jeffrey Cocks
Title: President/CFO/Director
Dated: May 5, 2009
-----------
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