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 September 30, 2009
OR
|_| 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 0-52725
NORTHERN EMPIRE ENERGY CORP.
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(Exact name of registrant as specified in its charter)
Nevada 20-4765268
------------------------ ------------------------
(State of incorporation) (I.R.S. Employer ID No.)
118 8th Ave. NW, Calgary, Alberta T2M 0A4, Canada
-----------------------------------------------------
(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 November 23, 2009, the registrant's outstanding common stock consisted
of 20,276,547 shares, $0.001 Par Value. Authorized - 195,000,000 common
voting shares authorized and 67,000 preferred issued, 5,000,000 authorized.
Table of Contents
Northern Empire Energy Corp.
Index to Form 10-Q
For the Quarterly Period Ended September 30, 2009
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets as of September 30, 2009 and
December 31, 2008 3
Condensed Statements of Income for the three months and nine
months ended September 30, 2009 and 2008 4
Condensed Statements of Stockholders' Equity (Deficit) 5-7
Condensed Statements of Cash Flows for the nine months
ended September 30, 2009 and 2008 8
Condensed Notes to Financial Statements 9-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 19
Part II Other Information
Item 1. Legal Proceedings 21
Item 1A. Risk Factors 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 3 -- Defaults Upon Senior Securities 21
Item 4 -- Submission of Matters to a Vote of Security Holders 21
Item 5 -- Other Information 21
Item 6. Exhibits 22
Signatures 23
2
Part I. Financial Information
Item 1. Financial Statements
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Condensed Balance Sheets
September 30, December 31,
2009 2008
(Unaudited) (Audited)
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 345,177 $ 49,688
------------- -------------
TOTAL CURRENT ASSETS 345,177 49,688
------------- -------------
PROPERTY AND EQUIPMENT, net
Deposits - 40,435
------------- -------------
TOTAL OTHER ASSETS - 40,435
------------- -------------
------------- -------------
TOTAL ASSETS $ 345,177 $ 90,123
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 25,757 $ 69,289
Accounts payable - related party 47,422 -
------------- -------------
TOTAL CURRENT LIABILITIES 73,179 69,289
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value, 5,000,000
shares authorized; 67,000 and 75,000 shares
issued and outstanding as of 9/30/2009 and
12/31/2008, respectively 67 75
Common stock, $0.001 par value, 195,000,000
shares authorized; 20,276,547 shares
outstanding and 19,661,200 shares issued
as of 9/30/2009 and 18,423,100 issued and
outstanding as of 12/31/2008 19,661 18,423
Stock payable: 615,347 shares 615 -
Additional paid-in capital 2,038,604 1,671,241
Deficit accumulated during the exploration
stage (1,796,697) (1,668,905)
Accumulated other comprehensive income 9,748 -
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 271,998 20,834
------------- -------------
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 345,177 $ 90,123
============= =============
The accompanying notes are an integral part of these condensed financial
statements.
3
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Condensed Statements of Operations
April 24,
2006
Three Months Ended Nine Months Ended (inception)
--------------------- --------------------- to
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2009 2008 2009 2008 2009
(Unaudited)(Unaudited)(Unaudited)(Unaudited) (Unaudited)
---------- ---------- ---------- ---------- ------------
REVENUES $ - $ - $ - $ - $ 19,491
OPERATING EXPENSES
General and
administrative 8,281 1,554 93,687 1,837 1,779,966
Professional fees 28,758 - 28,758 - 28,758
Exploration costs 5,346 - 5,346 - 5,346
Depreciation - 250 - 750 2,000
---------- ---------- ---------- ---------- ------------
Total Operating
Expenses 42,386 1,804 127,792 2,587 1,816,071
---------- ---------- ---------- ---------- ------------
LOSS FROM OPERATIONS (42,386) (1,804) (127,792) (2,587) (1,796,580)
---------- ---------- ---------- ---------- ------------
OTHER EXPENSES:
Income tax (expense)
benefit - - - - (117)
---------- ---------- ---------- ---------- ------------
TOTAL OTHER EXPENSE - - - - (117)
---------- ---------- ---------- ---------- ------------
NET LOSS (42,386) (1,804) (127,792) (2,587) (1,796,697)
========== ========== ========== ========== ============
OTHER COMPREHENSIVE
INCOME (LOSS)
Foreign currency
translation
adjustment 9,748 - 9,748 - 9,748
---------- ---------- ---------- ---------- ------------
NET LOSS $ (32,638) $ (1,804) $(118,044) $ (2,587) $(1,786,949)
========== ========== ========== ========== ============
NET LOSS PER SHARE-
BASIC AND DILUTED (0.00) (0.00) (0.01) (0.01)
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
EQUIVALENT SHARES
OUTSTANDING - BASIC
AND DILITED 18,994,971 423,100 19,306,280 423,100
========== ========== ========== ==========
The accompanying notes are an integral part of these condensed financial
statements.
4
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Statements of Stockholders' Equity (Deficit)
Accumulated
Deficit Other
Preferred Common Accumulated Comprehesive
Stock Stock Additional During the Income Total
------------- ------------------ Shares Stock Paid-In Exploration Foreign Stockholders'
Shares Amount Shares Amount Issuable Payable Capital Stage Translation Equity
------ ------ ---------- ------- -------- ------- ---------- ------------ ---------- ------------
Balance,
April 24,
2006 - $ - - $ - - $ - $ - $ - $ - $ -
Shares
issued
for cash
at $0.001
per share - - 361,900 362 - - 3,257 - - 3,619
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
5
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Statements of Stockholders' Equity (Deficit)(Continued)
Accumulated
Deficit Other
Preferred Common Accumulated Comprehesive
Stock Stock Additional During the Income Total
------------- ------------------ Shares Stock Paid-In Exploration Foreign Stockholders'
Shares Amount Shares Amount Issuable Payable Capital Stage Translation Equity
------ ------ ---------- ------- -------- ------- ---------- ------------ ---------- ------------
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)
------ ------ ---------- ------- -------- ------- ---------- ------------ ---------- ------------
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
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)
------ ------ ---------- ------- -------- ------- ---------- ------------ ---------- ------------
6
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Statements of Stockholders' Equity (Deficit)(Continued)
Accumulated
Deficit Other
Preferred Common Accumulated Comprehesive
Stock Stock Additional During the Income Total
------------- ------------------ Shares Stock Paid-In Exploration Foreign Stockholders'
Shares Amount Shares Amount Issuable Payable Capital Stage Translation Equity
------ ------ ---------- ------- -------- ------- ---------- ------------ ---------- ------------
Balance,
December
31, 2008 75,000 $ 75 18,423,100 $18,423 - $ - $1,671,241 $(1,668,905) $ - $ 20,834
Shares
cancelled
(unaudited) - - (361,900) (362) - - 362 - - -
Conversion
of preferred
shares into
common stock
(un-
audited) (8,000) (8) 1,600,000 1,600 - - (1,592) - - -
Private
placement
(unaudited) - - - - 615,347 615 368,593 - - 369,208
Foreign
currency
translation
adjustment - - - - - - - - 9,748 9,748
Net loss
for the
nine months
ended
Sept. 30,
2009
(un-
audited) - - - - - - - (127,792) - (127,792)
------ ------ ---------- ------- -------- ------- ---------- ------------ ---------- ------------
Balance,
Sept. 30,
2009
(un-
audited) 67,000 $ 67 19,661,200 $19,661 615,347 $ 615 $2,038,604 $(1,796,697) $ 9,748 $ 271,998
====== ====== ========== ======= ======== ======= ========== ============ ========== ============
The accompanying notes are an integral part of these financial statements.
7
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Statements of Cash Flows
April 24, 2006
2006
Nine Months Nine Months (inception)
Ended Ended to
Sept. 30, Sept. 30, Sept. 30,
2009 2008 2009
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
OPERATING ACTIVITIES
Net loss $ (127,792) $ (2,587) $ (1,796,697)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation - 750 2,000
Beneficial conversion
feature - - 1,492,500
Impairment of asset - 5,500
Changes in operating assets
and liabilities:
Decrease (increase) in:
Accounts payable
and accrued expenses 3,890 - 73,179
Other accrued liabilities
(deferred taxes) - - -
------------- ------------- -------------
Net cash used in operating
activities (123,902) (1,837) (223,518)
------------- ------------- -------------
INVESTING ACTIVITIES
Refund of deposit for purchase
of property - - -
Deposit for purchase of property 40,435 - -
------------- ------------- -------------
Net Cash Used in Investing
Activities 40,435 - -
------------- ------------- -------------
FINANCING ACTIVITIES
Common stock issued for cash 369,208 - 558,947
------------- ------------- -------------
Net cash provided by
financing activities 369,208 - 558,947
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH 285,741 (1,837) 335,429
EFFECT OF FOREIGN CURRENCY
TRANSLATION ADJUSTMENT 9,748 - 9,748
CASH AND CASH EQUIVALENTS,
Beginning of period 49,688 1,879 -
------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
End of period $ 345,177 $ 42 $ 345,177
============= ============= =============
The accompanying notes are an integral part of these condensed financial
statements.
8
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Notes to the Condensed Financial Statements
September 30, 2009 and December 31, 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 September 30, 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 September 30, 2009 and 2008 are not necessarily indicative of
the operating results for the full year.
NOTE 2 - GOING CONCERN
These condensed financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. As of September 30, 2009, the
Company has recognized revenues of $19,491 and has accumulated operating
losses of approximately $(1,796,697) since inception. The Company's ability
to continue as a going concern is contingent upon the successful completion of
additional financing arrangements and its ability to achieve and maintain
profitable operations. Management plans to raise equity capital to finance
the operating and capital requirements of the Company. Amounts raised will be
used to further development of the Company's products, to provide financing
for marketing and promotion, to secure additional property and equipment, and
for other working capital purposes. While the Company is putting forth its
best efforts to achieve the above plans, there is no assurance that any such
activity will generate funds that will be available for operations.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include any
adjustments that might arise from this uncertainty.
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.
9
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Notes to the Condensed Financial Statements
September 30, 2009 and December 31, 2008
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In June 2009, the FASB issued ASC 105-10, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles".
ASC 105-10 will become the source of authoritative U.S. generally accepted
accounting principles (GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities
and Exchange Commission (SEC) under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. On the effective date
of this Statement, the Codification will supersede all then-existing non-SEC
accounting and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification will become non-
authoritative. This statement is effective for financial statements issued for
interim and annual periods ending after September 15, 2009.The Company does
not expect the adoption of ASC 105-10 to have an impact on the Company's
results of operations, financial condition or cash flows.
NOTE 4 - RELATED PARTY TRANSACTIONS
As of September 30, 2009, a company affiliated with an officer of the Company
and the officer was owed a total of $47,422 for consulting related fees and
various expenses paid on the Company's behalf. The obligations are included in
the accompanying financial statements as accounts payable - related party.
NOTE 5 - CONCENTRATION OF CREDIT RISK
Cash Balances
The Company maintains its cash in various financial institutions in both the
United States and Canada. Balances maintained in the United States are
insured by the Federal Deposit Insurance Corporation (FDIC). This government
corporation insured balances up to $100,000 through October 13, 2008. As of
October 14, 2008 all non-interest bearing transaction deposit accounts at an
FDIC-insured institution, including all business checking deposit accounts
that do not earn interest, are fully insured for the entire amount in the
deposit account. This unlimited insurance coverage is temporary and will
remain in effect for participating institutions until December 31, 2009. All
other deposit accounts at FDIC-insured institutions are insured up to at least
$250,000 per depositor until December 31, 2013. Balances maintained in Canada
are insured by the Canada Deposit Insurance Corporation for balances up to
$100,000 at each bank. As of September 30, 2009, the Company had $245,170 in
cash that is greater than the insured amount for CDIC.
10
NORTHERN EMPIRE ENERGY CORP.
(An Exploration Stage Company)
Notes to the Condensed Financial Statements
September 30, 2009 and December 31, 2008
NOTE 6 - STOCKHOLDER'S EQUITY
As of September 30, 2009 there were 19,661,200 shares of common stock issued
and 20,276,547 shares outstanding with 67,000 shares of preferred stock issued
and outstanding.
During the nine months ended September 30, 2009, the Company had the following
stockholder's equity transactions:
During the nine months ended September 30, 2009, the Company cancelled 361,900
shares that were originally approved for issuance in the year ended December
31, 2006.
Additionally, on February 27, 2009, 8,000 preferred shares of stock were
converted into 1,600,000 shares of common stock at a conversion rate of
200 to 1.
In September 2009, the Company conducted a private placement of 615,347 shares
of common stock at $0.60 per share. As of September 30, 2009, the shares had
not yet been issued by the transfer agent and are recorded as stock payable on
the Statement of Stockholder's Equity.
NOTE 7 - SUBSEQUENT EVENTS
None. The Company has evaluated subsequent events through November 23, 2009,
the date which the financial statements were available to be issued.
11
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, 2008.
12
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 23, 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
13
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.
14
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 the Company will need 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.
15
Results of Operations for the quarter ended September 30, 2009
- --------------------------------------------------------------
During the three months ended September 30, 2009, the Company had a net loss
of $(42,386) versus a net loss of $(1,804) for the same period last year, when
the Company was somewhat inactive. For the three months ending September 30,
2009, the Company experienced general and administrative expenses of $42,386.
During the nine months ended September 30, 2009, the Company had a net loss of
$(127,792) versus a net loss of $(2,587) for the same period last year. For
the nine months ending September 30, 2009, the Company experienced general and
administrative expenses of $127,792.
For the period since inception through September 30, 2009, we generated no
income. Since our inception on April 24, 2006 we experienced a net loss of
$(1,796,697). The bulk of this loss 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 also anticipate
that our ongoing operating expenses will increase since we are a reporting
company under the Securities Exchange Act of 1934.
Revenues
- --------
During the nine month period ended September 30, 2009, the Company generated
no revenues. Since inception on April 24, 2006, 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.
16
Going Concern
- -------------
Going Concern - The Company experienced operating losses since its inception
on April 24, 2006 through the period ended September 30, 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 September 30, 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. As of September 30, 2009, the
company has current assets of $345,177 and currently liabilities of $73,179.
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.
17
Notwithstanding, management anticipates the Company will require additional
capital of approximately $2,000,000 to further the Company's business plan.
Management plans to raise the monies by selling equity in the Company.
There can be no assurance that additional capital will be available to the
Company.
As a result of our the Company's current limited available cash, no officer
or director received compensation through the nine months ended September 30,
2009. No officer or director received stock options or other non-cash
compensation since the Company's inception through September 30, 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 June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles -
a replacement of FASB Statement No. 162" ("SFAS No. 168"). Under SFAS No. 168
the "FASB Accounting Standards Codification" ("Codification") will become the
source of authoritative U. S. GAAP to be applied by nongovernmental entities.
Rules and interpretive releases of the Securities and Exchange Commission
("SEC") under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. SFAS No. 168 is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. On the effective date, the Codification will supersede
all then-existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the
Codification will become non-authoritative. SFAS No. 168 is effective for
the Company's interim quarterly period beginning July 1, 2009. The Company
does not expect the adoption of SFAS No. 168 to have an impact on the
financial statements.
18
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4T. Controls and Procedures
(a) Evaluation of Internal Controls and Procedures
Northern Empire Energy Corp. is committed to maintaining disclosure controls
and procedures that are designed to ensure that information required to be
disclosed in its Exchange Act reports is recorded, processed, summarized, and
reported within the time periods specified in the U.S. Securities and
Exchange Commission's rules and forms, and that such information is
accumulated and communicated to its management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
As required by Rule 13a-15(b) of the Exchange Act, Northern Empire Energy
Corp. has carried out an evaluation, under the supervision and with the
participation of its management, including its Chief Executive Officer and
the Chief Financial Officer, who is also the sole member of our Board of
Directors, 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.
The evaluation examined those disclosure controls and procedures as of
September 30, 2009, the end of the period covered by this report. 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 due to a lack of a majority of independent members and a lack of a
majority of outside directors on our board of directors, 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 Chief Executive Officer in
connection with the review of our financial statements as of September 30,
2009.
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 and the
lack of a majority of outside directors on our board of directors results 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.
19
Additional procedures were performed in order for management to conclude with
reasonable assurance that the Company's financial statements contained in
this Quarterly Report on Form 10-Q present fairly, in all material respects,
the Company's financial position, results of operations and cash flows for
the periods presented.
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.
(b) 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. We
plan to appoint one or more outside directors to our board of directors who
shall be appointed to 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.
(c) 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.
20
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, 2008 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.
21
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 23, 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
- -------------------------------------------------------------------------------
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 hereunto duly authorized.
Northern Empire Energy Corp.
----------------------------
Registrant
By: /s/ Jeffrey Cocks
------------------------------
Name: Jeffrey Cocks
Title: President/CFO/Director
Dated: November 23, 2009
-----------------
23