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 SECTION 13 OR 15(D) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________

 

Commission File # 333-165373

 

NORTHUMBERLAND RESOURCES, INC.

(Exact name of small business issuer as specified in its charter)

 

Nevada

(State or other jurisdiction of incorporation or organization)

 

98-0628594

(IRS Employer Identification Number)

 

701 N. Green Valley Pkwy.

Ste 200-258,

Henderson, NV

89074

(Address of principal executive offices)

 

(702) 335-0356

(Issuer’s telephone number)

 

Indicate by check mark whether the registrant(1) has filed all reports required 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 day. [X] Yes  [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]

Accelerated filer [  ]

Non-accelerated filer [  ]

Small reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes  [X] No

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. The issuer had 50,486,667 shares of common stock and 809,400 shares of preferred stock (with 100:1 conversion and voting rights) issued and outstanding as of November 19, 2012.

 

 

 

TABLE OF CONTENTS

 

			Page
Condensed Balance Sheets of September 30, 2012 and December 31, 2011			F-1
Condensed Statements of Operations (Unaudited) For the Three and Nine Months ended September 30, 2012 and 2011			F-2
Condensed Statements of Cash Flows (Unaudited) For the Nine Months ended September 30, 2012 and 2011			F-3
Notes to Condensed Financial Statements			F-4
ITEM 2. Management’s Discussion and Analysis or Plan of Operation			3
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			8
ITEM 4. CONTROLS AND PROCEDURES			8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			10
ITEM 1A. RISK FACTORS			10
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			10
ITEM 5. OTHER INFORMATION			11
ITEM 6. EXHIBITS			11
SIGNATURES			12

 

 

NORTHUMBERLAND RESOURCES, INC.

Condensed Balance Sheets

 

		September 30, 2012				December 31, 2011
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	239			$	91,551
Prepaid expenses			1,000				-
Deposits			1,400				1,200
Total Current Assets			2,639				92,751
PROPERTY AND EQUIPMENT
Oil and gas properties (full cost method)			1,365,534				981,336
Support equipment			254,287				163,968
Total property, plant and equipment			1,619,821				1,145,304
Accumulated depletion, depreciation, and amortization			(456,251	)			(70,924	)
Total Property, Plant and Equipment, net			1,163,570				1,074,380
TOTAL ASSETS		$	1,166,209			$	1,167,131
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	122,886			$	126,983
Related party payables			5,123				123
Convertible notes payable			100,000				30,673
Derivative liability			11,208				103,581
Total Current Liabilities			239,217				261,360
LONG TERM LIABILITIES
Asset retirement obligations			154,866				121,848
TOTAL LIABILITIES			394,083				383,208
STOCKHOLDERS' EQUITY
Preferred stock, 2,000,000 shares authorized at par value of $0.10; 809,400 shares issued and outstanding			80,940				-
Common stock, 198,000,000 shares authorized at par value of $0.001; 81,229,099 and 161,325,766 shares issued and outstanding, respectively			81,229				161,326
Additional paid-in capital			1,845,081				1,340,724
Accumulated deficit			(1,235,124	)			(718,127	)
Total Stockholders’ Equity			772,126				783,923
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,166,209			$	1,167,131

 

The accompanying notes are an integral part of these condensed financial statements

 

 

NORTHUMBERLAND RESOURCES, INC.

Condensed Statements of Operations

(Unaudited)

 

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2012				2011				2012				2011
REVENUES		$	87,594			$	43,781			$	367,744			$	43,781
OPERATING EXPENSES
Depletion, depreciation, amortization and accretion expense			142,741				7,128				398,216				12,327
Lease operating expenses			54,680				52,573				228,516				72,886
Professional fees			64,432				87,908				213,610				208,360
General and administrative expenses			18,118				16,541				63,568				44,712
Total Operating Expenses			279,971				164,150				903,910				338,285
NET LOSS FROM OPERATIONS			(192,377	)			(120,369	)			(536,166	)			(294,504	)
OTHER EXPENSES
Gain on derivative liability			56,610				548				92,373				548
Interest expense			(23,980	)			(94,042	)			(73,204	)			(94,042	)
Total Other Expenses			32,630				(93,494	)			19,169				(93,494	)
LOSS BEFORE INCOME TAXES			(159,747	)			(213,863	)			(516,997	)			(387,998	)
PROVISION FOR INCOME TAXES			-				-				-				-
NET LOSS		$	(159,747	)		$	(213,863	)		$	(516,997	)		$	(387,998	)
BASIC AND DILUTED LOSS PER COMMON SHARE		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING			139,284,751				158,659,100				154,242,031				141,000,223

 

The accompanying notes are an integral part of these condensed financial statements

 

  

NORTHUMBERLAND RESOURCES, INC.

Condensed Statements of Cash Flows

(Unaudited)

 

		For the Nine Months Ended September 30,
		2012				2011
OPERATING ACTIVITIES
Net loss		$	(516,997	)		$	(387,998	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation, depletion, amortization and accretion			398,216				12,327
Amortization of debt discount			69,327				-
Change in derivative liability			(92,373	)			93,428
Common stock issued for services			5,200				8,000
Changes in operating assets and liabilities:
Accounts receivable			-				(3,927	)
Deposits			(200	)			(1,200	)
Prepaid expenses			(1,000	)			(15,000	)
Accounts payable and accrued expenses			(4,097	)			25,455
Net Cash Used in Operating Activities			(141,924	)			(268,915	)
INVESTING ACTIVITIES
Acquisition of oil and gas properties			(170,177	)			(225,720	)
Capitalized oil and gas exploration and development costs			(193,892	)			(264,960	)
Acquisition of oil and gas support equipment			(90,319	)			(113,968	)
Net Cash Used in Investing Activities			(454,388	)			(604,648	)
FINANCING ACTIVITIES
Proceeds from related-party debt			5,000				200
Repayments of related party payables			-				(77	)
Proceeds from convertible debt			-				100,000
Common stock issued for cash			500,000				850,000
Net Cash Provided by Financing Activities			505,000				950,123
NET INCREASE (DECREASE) IN CASH			(91,312	)			76,560
CASH AT BEGINNING OF PERIOD			91,551				-
CASH AT END OF PERIOD		$	239			$	76,560
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest		$	-			$	-
Income Taxes		$	-			$	-
NON-CASH FINANCING AND INVESTING ACTIVITES
Purchase of oil and gas properties for debt		$	-			$	270,708
Purchase of well operating equipment for debt		$	-			$	50,000
Increase in asset retirement obligations		$	20,129			$	55,838
Common stock issued for prepaid services		$	-			$	7,200
Preferred stock issued in conversion of common stock		$	80,940			$	-

 

The accompanying notes are an integral part of these condensed financial statements

 

   

NORTHUMBERLAND RESOURCES, INC.

Notes to Condensed Financial Statements

September 30, 2012 and December 31, 2011

(Unaudited)

 

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, 2012, and for all periods presented herein, 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, 2011 audited financial statements. The results of operations for the period ended September 30, 2012 and 2011 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 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 and allow it to continue as a going concern. 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 operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and 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.

 

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 

 

Recent Accounting Pronouncements

 

The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position or statements.

 

Reclassification of Financial Statement Accounts

 

Certain amounts in the September 30, 2011 financial statements have been reclassified to conform to the presentation in the September 30, 2012 financial statements.

 

  

NORTHUMBERLAND RESOURCES, INC.

Notes to Condensed Financial Statements

September 30, 2012 and December 31, 2011

(Unaudited)

 

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Oil and Gas Properties

 

The Company uses the full cost method of accounting for oil and natural gas properties. Under this method, all acquisition, exploration and development costs, including certain payroll, asset retirement costs, other internal costs, and interest incurred for the purpose of finding oil and natural gas reserves, are capitalized. Internal costs that are capitalized are directly attributable to acquisition, exploration and development activities and do not include costs related to production, general corporate overhead or similar activities. Costs associated with production and general corporate activities are expensed in the period incurred. Proceeds from the sale of oil and natural gas properties are applied to reduce the capitalized costs of oil and natural gas properties unless the sale would significantly alter the relationship between capitalized costs and proved reserves, in which case a gain or loss is recognized.

 

Capitalized costs associated with impaired properties and capitalized costs related to properties having proved reserves, plus the estimated future development costs, and asset retirement costs under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 410 “Asset Retirement and Environmental Obligations” (FASB ASC 410), are amortized using the unit-of-production method based on proved reserves. Capitalized costs of oil and natural gas properties, net of accumulated amortization and deferred income taxes, are limited to the total of estimated future net cash flows from proved oil and natural gas reserves, discounted at ten percent, plus the cost of unevaluated properties. Under certain specific conditions, companies could elect to use subsequent prices for determining the estimated future net cash flows. The use of subsequent pricing is no longer allowed. There are many factors, including global events that may influence the production, processing, marketing and price of oil and natural gas. A reduction in the valuation of oil and natural gas properties resulting from declining prices or production could adversely impact depletion rates and capitalized cost limitations. Capitalized costs associated with properties that have not been evaluated through drilling or seismic analysis, including exploration wells in progress at June 30, 2012, are excluded from the unit-of-production amortization. Exclusions are adjusted annually based on drilling results and interpretative analysis.

 

Sales of oil and natural gas properties are accounted for as adjustments to the net full cost pool with no gain or loss recognized, unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. If it is determined that the relationship is significantly altered, the corresponding gain or loss will be recognized in the statements of operations.

 

Costs of oil and gas properties are depleted using the unit-of-production method. For the nine months ended September 30, 2012, the Company recognized $353,810 of depletion expense related to oil and gas production.

 

Ceiling Test

 

In applying the full cost method, the Company performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and equipment is compared to the value of its proved reserves discounted at a ten percent interest rate of future net revenues, based on current economic and operating conditions, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties. As of September 30, 2012, no impairment has been recorded in connection with the full cost ceiling test calculation.

 

Revenue Recognition

 

Revenues from the sale of oil and natural gas are recognized when the product is delivered at a fixed or determinable price, title has transferred, and collectability is reasonably assured. For oil sales, this occurs when the customer takes delivery of oil from the operators’ storage tanks.

 

 

NORTHUMBERLAND RESOURCES, INC.

Notes to Condensed Financial Statements

September 30, 2012 and December 31, 2011

(Unaudited)

 

NOTE 4 – OIL AND GAS PROPERTIES

 

Nine Months Ended September 30, 2012

 

On May 14, 2012 the Company purchased a 35 percent gross working interest and a 28 percent net revenue interest in 98 acres of unproved oil and gas leases in Stafford County, Kansas for $12,569. Concurrent with this purchase, the Company paid $19,174 in additional development costs, and $66,181 for support equipment, for an aggregate purchase price of $97,924.

 

On May 14, 2012 the Company purchased a 13 percent gross working interest and a 10 percent net revenue interest in 70 acres of unproved oil and gas leases in Butler County, Kansas for $17,208. Concurrent with this purchase, the Company paid $27,261 in additional development costs, and $17,542 for support equipment, for an aggregate purchase price of $62,011.

 

On February 9, 2012, the Company purchased a 30 percent gross working interest and a 26.25 percent net revenue interest in six unproved oil and gas leases in Cowley County, Kansas for $140,400. The six leases combined contain approximately 1,025 acres.

 

During the nine months ended September 30, 2012, the Company established an asset retirement obligation of $20,129 for all oil and gas properties purchased during the period, which was capitalized to the value of the oil and gas properties. The wells have an estimated useful life of 25 years. Accretion expense recorded for the period was $12,888.

 

NOTE 5 – RELATED PARTY PAYABLES

 

The Company owed $5,123 and $123 to related parties as of September 30, 2012 and December 31, 2011, respectively. The liabilities are non-interest bearing,unsecured, and due upon demand.

 

NOTE 6 – CONVERTIBLE NOTE PAYABLE

 

On September 28, 2011 the Company borrowed $100,000 from an unrelated third party entity in the form of a convertible note. The note bears interest at a rate of five percent per annum, with principal and interest due in full on September 24, 2012. The note is convertible at any time, at the option of the note holder, into shares of the Company’s common stock, at ten percent below the current market price on the date of conversion. For purposes of the note, “current market price” is defined as the average of the lowest three daily closing prices per share for the five business days prior to the date of conversion.

 

Pursuant to this conversion feature, the Company recognized a derivative liability in the amount of $93,976 on the note date. At December 31, 2011, the derivative liability was revalued at $103,581, and at September 30, 2012 the derivative liability was revalued at $11,208. This led to the Company recording a gain on derivative liability of $92,373 for the period ended September 30, 2012.

 

As of September 30, 2012 the convertible note was in default. Pursuant to the terms of the note, the unpaid balance began accruing interest at the default rate of 15 percent per annum, and will continue accruing interest at this rate until the note is satisfied in full. At September 30, 2012 the total accrued interest owing on the note amounted to $5,182.

 

NOTE 7– STOCKHOLDERS’ EQUITY

 

On August 25, 2011 the Company enacted a forward stock-split of the Company’s common stock on a twenty-shares-for-one-share basis. All discussion of common stock in these financial statements has been retroactively restated to reflect this forward stock-split. During the period ended September 30, 2012, the Company increased its authorized common stock to 198,000,000 shares, and authorized 2,000,000 preferred shares with 1-to-100 voting rights and conversion ratio from preferred to common shares. Additionally, during the period ended September 30, 2012, the Company converted 80,940,000 shares of outstanding common stock into 809,400 shares of preferred stock. As of September 30, 2012 and December 31, 2011 there were 81,229,099 and 161,325,766 common shares issued and outstanding, respectively.

 

 

NORTHUMBERLAND RESOURCES, INC.

Notes to Condensed Financial Statements

September 30, 2012 and December 31, 2011

(Unaudited)

 

NOTE 7 – STOCKHOLDERS’ EQUITY (CONTINUED)

 

During the twelve months ended December 31, 2011, the Company issued 33,575,767 shares of $0.001 par value common stock for cash at $0.04 per share for proceeds of $1,250,000. The Company also issued 15,200,000 shares of $0.001 par value common stock for services valued at $206,000, or $0.01 per share. The price per share of common stock issued for services was based on the trading price of the Company’s common stock on the dates such services were performed.

 

During the nine months ended September 30, 2012, the Company issued 833,333 shares of $0.001 par value common stock for cash at $0.60 per share for proceeds of $500,000.

 

On April 1, 2012, the Company appointed a new member of its Board of Directors. The Company has agreed to pay the director $1,000 per month. In addition,the Company has also agreed to issue the new director 10,000 shares of $0.001 par value common stock valued at $0.52 per share, for services valued at $5,200. The price per share of common stock issued for services was based on the trading price of the Company’s common stock on the dates such services were performed.

 

NOTE 8 – SUBSEQUENT EVENTS

 

In accordance with ASC 855-10, the Company’s management has reviewed all material events and there are no additional material subsequent events to report.

  

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

Forward-looking statements

 

This quarterly report on Form 10-Q contains “forward-looking statements” relating to the registrant which represent the registrant’s current expectations or beliefs, including statements concerning registrant’s operations, performance, financial condition and growth. For this purpose, any statement contained in this quarterly report on Form 10-Q that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “anticipation”, “intend”, “could”, “estimate”, or “continue” or the negative or other comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, such as credit losses, dependence on management and key personnel and variability of quarterly results, ability of registrant to continue its growth strategy and competition, certain of which are beyond the registrant’s control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statements.

 

The following discussion and analysis should be read in conjunction with the information set forth in the Company’s audited financial statements for the period ended December 31, 2011.

 

Overview

 

We are in the business of precious minerals exploration and oil and gas exploration and production. The Company was incorporated in the State of Nevada on June 22, 2009.

 

On March 31st, 2011 Northumberland (NHUR) was a successful bidder at the Evenson Oil Production Auction in Wichita, Kansas. NHUR acquired the Mason, Thompson, Keyes and Harrell leases inclusive of all production and improvements. The leases were purchased at auction from Reh Oil & Gas LLC. The leases of 280 acres located in the Sawyer field in Pratt County Kansas and 120 acres located in the Wildcat field, filed in Pratt County Kansas, were purchased for Two Hundred Sixty Thousand Dollars.

 

The Company’s Articles of Incorporation are being amended to reflect a decrease in the number of common shares from Two Billion (2,000,000,000) to One Hundred Ninety Eight Million (198,000,000) and the creation of a preferred stock in the amount of Two Million (2,000,000) shares with voting and conversion rights of 1 for 100. The Amendment was adopted pursuant to written consent of stockholders holding a majority of the voting power of the outstanding capital stock of the Company.

 

On September 27, 2011 Northumberland Resources purchased at auction, two leases with the multiple acquisition of an additional 1040 acres of productive oil and gas leases. The two leases located in Pratt County, KS consist of six wells with a 100% Working Interest of 82% Net Revenue Interest. These six wells leases are directly adjacent to our existing leases and will integrate the 6 fields and maximize efficiency and production. Included in the purchase is a gas

 

 

compression station which will enhance flows from current operations. The purchase price of the Pratt County acquisition was Seventy-Two Thousand Five hundred Dollars. Of this total, $22,500 was allocated to oil and gas leases, and the remaining $50,000 was allocated to the purchased well operating equipment. The leases carry a 100 percent working interest of 70 percent net revenue interest. Subsequent to purchase the Company capitalized $990 in exploration costs and $17,533 in development costs relating to these leases.

 

On September 27, 2011, the Company also purchased a 23 percent interest in a net revenue interest ranging from 18.66 to 19.65 percent in three leases in Barton and Stafford Counties, Kansas for $220,800. The three leases combined contain slightly more than 564 net acres. In total there are seven active wells located in these leases. There are four oil producing wells, two disposal wells and one injection well. Subsequent to purchase the Company capitalized $2,326 in development costs relating to these leases.

 

On December 19, 2011, the company purchased a 15 percent interest in net revenue interests ranging from 12.675 percent to 13.125 percent in four leases in Cowley County, Kansas for $75,600. The four leases combined contain approximately 720 acres. The Company has incurred no exploration or development costs with respect to these properties as of December 31, 2011.

 

On February 9, 2012, the Company purchased a 30 percent gross working interest and a 26.25 percent net revenue interest in six unproved oil and gas leases in Cowley County, Kansas for $140,400. The six leases combined contain approximately 1,025 acres.

 

On May 14, 2012 the Company purchased a 35 percent gross working interest and a 28 percent net revenue interest in 98 acres of unproved oil and gas leases in Stafford County, Kansas for $12,569. Concurrent with this purchase, the Company paid $19,174 in additional development costs, and $66,181 for support equipment, for an aggregate purchase price of $97,924.

 

On May 14, 2012 the Company purchased a 13 percent gross working interest and a 10 percent net revenue interest in 70 acres of unproved oil and gas leases in Butler County, Kansas for $17,208. Concurrent with this purchase, the Company paid $27,261 in additional development costs, and $17,542 for support equipment, for an aggregate purchase price of $62,011.

 

At September 30, 2012, the Company has established an asset retirement obligation of $136,715 for all oil and gas properties purchased since inception, which has been capitalized to the value of the oil and gas properties. The wells have an estimated useful life of 25 years. Accretion expense recorded on these obligations since inception totals $18,151, leaving a balance of 154,866 at September 30, 2012.

 

Management did not renew four mineral claims, collectively named the “BARD 1-4 Property,” situated in the Paymaster Canyon area of Esmeralda County in west-central Nevada. We do not have any current plans to acquire interests in additional mineral properties, though we may consider such acquisitions in the future.

 

There was no assurance that a commercially viable precious minerals deposit existed on the BARD 1-4 Property and further development was abandoned.

 

 

Effective April 1, 2012, Chris Knowles was elected as an additional director of the Company, bringing the total number of directors to three. Mr. Chris Knowles, age 53, has many years of experience in executive management, production, acquisition, operations, leasehold evaluation and development of drilling prospects in the oil & gas industry. From December 2008 to the present, Mr. Knowles has served as a senior partner with Redhawk Advisors, LLC based in Wichita, Kansas. Over that period he has assisted with the acquisition of over 95,000 acres in the premier Mississippi Lime Zones for his firm and clients. From January 2001 to November 2007, Mr. Knowles was a partner in Westside Energy Corporation of Dallas, Texas. Mr. Knowles was charged with managing a staff of field Landmen, developing drilling locations, and acquiring multiple lease properties (80,000 acres) in 12 counties. Westside Energy went public on the American Stock Exchange and has since been acquired. Mr. Knowles hold a degree in Petroleum Land Management from the University of Houston.

 

On April 27, 2012, the Company entered into a Common Stock Purchase Agreement with ThorFinn Partners, a private investment group, with such agreement being effective March 21, 2012. As previously disclosed by the Company in its Annual Report filed on Form 10-K for the year ended December 31, 2011, the Company received a $500,000 subscription for common shares at a price of $0.60 per share on March 21, 2012. This amount was received from ThorFinn Partners in anticipation of a broader financing arrangement as detailed in the Common Stock Purchase Agreement filed herewith. Under the terms of the Common Stock Purchase Agreement, until March 21, 2013, ThorFinn Partners may purchase common stock of the Company at a price of $0.60 per share in tranches of up to $500,000. The total financing amount is up to $3,000,000, including and incorporating the initial $500,000 tranche that closed on March 21, 2012. Closings of additional tranches are conditional upon the mutual agreement of the parties.

 

Plan of Operation

 

Our plan of operations is to further develop our recent oil and gas acquisitions in Kansas and carry out further exploration and acquisition in the oil and gas sectors. NHUR has upgraded the facilities on its acquired Mason, Thompson, Keyes and Harrell Sanders, Asmussen and Carver leases with the objective to improve current oil and gas production.

 

Results of Operations for the Three Months Ended September 30, 2012 and 2011

 

Revenues

 

We had revenues of $87,594 during the three months ended September 30, 2012, compared to $43,781 in revenues during the corresponding period in 2011. Revenues were from oil and gas production occurring at previously purchased property sites.

 

 

Expenses

 

We incurred operating expenses in the amount of $279,971 during the three months ended September 30, 2012, compared to $164,150 for the corresponding period in 2011. The 2012 operating expenses consisted primarily of $18,118 in general and administrative expenses such as office expenses, $64,432 in professional fees, $54,680 in lease operating expenses and $142,741 in depletion, depreciation, amortization, and accretion expenses. This compares to lease operating costs of $52,573, professional fees of $87,908, and general and administrative expenses of $16,541, and $7,128 in depletion, depreciation, amortization and accretion expense during the corresponding period in 2011. The increase in operating expenses was due to beginning of oil production in July 2011. We expect our operating costs to continue to increase in the next 12 months.

 

Net Loss

 

We incurred a net loss of $159,747 during the three months ended September 30, 2012, compared to a net loss of $213,863 during the corresponding period in 2011. This translates to a loss per share of $0.00 and $0.00 for the three months ended September 30, 2012 and 2011, respectively.

 

Results of Operations for the Nine Months Ended September 30, 2012 and 2011

 

Revenues

 

We had revenues of $367,744 during the nine months ended September 30, 2012, compared to $43,781 revenues during the corresponding period in 2011. Revenues were from oil and gas production occurring at previously purchased property sites.

 

Expenses

 

We incurred operating expenses in the amount of $903,910 during the nine months ended September 30, 2012, compared to $338,285 for the corresponding period in 2011. The 2012 operating expenses consisted primarily of $63,568 in general and administrative expenses such as office expenses, $213,610 in professional fees, $228,516 in lease operating expenses and $398,216 in depletion, depreciation, amortization, and accretion expenses. This compares to lease operating costs of $72,886, professional fees of $208,360, and general and administrative expenses of $44,712, and $12,327 in depletion, depreciation, amortization and accretion expense during the corresponding period in 2011. The increase in operating expenses was due to beginning of oil production in July 2011. We expect our operating costs to continue to increase in the next 12 months.

 

Net Loss

 

We incurred a net loss of $516,997 during the nine months ended September 30, 2012, compared to a net loss of $387,998 during the corresponding period in 2011. This translates to a loss per share of $0.00 and $0.00 for the nine months ended September 30, 2012 and 2011, respectively.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Since its inception, the Company has financed its cash requirements from the sale of common stock. Uses of funds have included activities to establish our business, professional fees and other general and administrative expenses.

 

The Company’s principal sources of liquidity as of September 30, 2012 consisted of $239 in cash.

 

We believe the Company will have adequate resources to implement its strategic objectives in upcoming quarters. Due to our lack of operating history and present inability to generate revenues, however, our auditors have stated their opinion that there currently exists substantial doubt about our ability to continue as a going concern.

 

Material Events and Uncertainties

 

Our operating results are difficult to forecast. Our prospects should be evaluated in light of the risks, expenses and difficulties commonly encountered by comparable exploration stage companies.

 

There can be no assurance that we will successfully address such risks, expenses and difficulties.

 

On September 27, 2011 we purchased at auction two leases with the multiple acquisition of an additional 1040 acres of productive oil and gas leases. The two leases located in Pratt County, KS consist of six wells with a 100% Working Interest of 82% Net Revenue Interest. These six wells leases are directly adjacent to our existing leases and will integrate the 6 fields and maximize efficiency and production. Included in the purchase is a gas compression station which will enhance flows from current operations. The purchase price associated with the Pratt County acquisition was Seventy-Two Thousand Five hundred Dollars.

 

On September 27, 2011, we also purchased a 30% interest in Lasso Energy, LLC's 80% Net Revenue Interest in three leases in Barton and Stafford County, Kansas. The three leases combined contain slightly more than 564 net acres. In total there are seven active wells and no inactive wells in these leases. There are four oil producing wells, two disposal wells and one injection well.

 

On September 7, 2011, the corporation filed a Certificate of Change with the Nevada Secretary of State amending the corporations Articles of Incorporation to increase the authorized shares of the corporation to 2,000,000,000 shares with a par value of $0.001. There were no other changes to the Articles as a result of this Certificate of Change.

 

On September 30, 2011, the registrant issued a 19 for 1 dividend of its $0.001 par value common stock in order to effectuate as 20 for 1 forward. FINRA declared the payment date of September 30 effective.

 

The Company purchased a 15% interest in the 1,040 acre “Carver Project”. Plans call for the completion of the Carver #1 well by the end of August 2012.

 

 

The Company purchased a 30% interest a 1,202 acre, 4 lease package called the Wilson, Barber, Trobaugh and Holt. Out of the ten Holt wells one is a good SWD well and the other nine are producing wells. Out of the nine producing wells NHUR will plug and abandon the worst of the three on the Holt lease, bring online the best three of them and target the other three of them for later development.

 

A maintenance program has been initiated on the Holt Leases. The Company will bring online one of the wells on the Wilson lease to keep the leasehold current. These Leases surround the Carver Project.

 

On May 9, 2012 we purchased a 35% Working Interest and 28% Net Revenue Interest in the Sanders Lease with two producing oil wells and one Salt Water Disposal well in Stafford County KS for $97,924.

 

On May 14, 2012 we purchased a 12 ½% WI and 10% NRI in the Asmussen Lease with one producing well and one SWD well in Butler County KS. for $62,011.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

Item 4. Controls and Procedures

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

As of September 30, 2012, under the direction of the Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a — 15(e) under the Securities Exchange Act of 1934, as amended. Based on the evaluation of these controls and procedures required by paragraph (b) of Sec. 240.13a-15 or 240.15d-15 the disclosure controls and procedures have been found to be ineffective. The company intends, prior to the next fiscal year as the company's finances improve, to hire additional accounting staff and implement additional controls.

 

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in our reports filed under the securities Exchange Act, is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this 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.

 

 

Evaluation of Internal Control Over Financial Reporting

 

Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2012. In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. In management’s assessment of the effectiveness of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) as required by Exchange Act Rule 13a-15(c), our management concluded as of the end of the fiscal year covered by this Quarterly Report on Form 10-Q that our internal control over financial reporting has not been effective. The company intends, prior to the next fiscal year as the company's finances improve, to hire additional accounting staff and implement additional controls.

 

As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board ("PCAOB"), a material weakness is a deficiency or combination of deficiencies that results more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of September 30, 2012:

 

i)

Lack of segregation of duties. At this time, our resources and size prevent us from being able to employ sufficient resources to enable us to have adequate segregation of duties within our internal control system. Management will periodically reevaluate this situation.

 

ii)

Lack of an independent audit committee. Although we have an audit committee it is not comprised solely of independent directors. We may establish an audit committee comprised solely of independent directors when we have sufficient capital resources and working capital to attract qualified independent directors and to maintain such a committee.

 

iii)

Insufficient number of independent directors. At the present time, our Board of Directors does not consist of a majority of independent directors, a factor that is counter to corporate governance practices as set forth by the rules of various stock exchanges.

 

Our management determined that these deficiencies constituted material weaknesses. Due to a lack of financial resources, we are not able to, and do not intend to, immediately take any action to remediate these material weaknesses. We will not be able to do so until we acquire sufficient financing to do so. We will implement further controls as circumstances, cash flow, and working capital permit. Notwithstanding the assessment that our ICFR was not effective and that there were material weaknesses as identified in this report, we believe that our financial statements fairly present our financial position, results of operations and cash flows for the years covered thereby in all material respects.

 

 

CHANGES IN INTERNAL CONTROLS.

 

There was no change in our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

 

The Company has not taken any steps at this time to address these weaknesses but will formulate a plan before fiscal year ending December 31, 2012.

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There is no litigation pending or threatened by or against us.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On April 27, 2012, the Company entered into a Common Stock Purchase Agreement with ThorFinn Partners, a private investment group, with such agreement being effective March 21, 2012. As previously disclosed by the Company in its Annual Report filed on Form 10-K for the year ended December 31, 2011, the Company received a $500,000 subscription for the issuance of 833,333 shares of common shares at a price of $0.60 per share on March 21, 2012. This amount was received from ThorFinn Partners in anticipation of a broader financing arrangement as detailed in the Common Stock Purchase Agreement filed herewith. Under the terms of the Common Stock Purchase Agreement, until March 21, 2013, ThorFinn Partners may purchase common stock of the Company at a price of $0.60 per share in tranches of up to $500,000. The total financing amount is up to $3,000,000, including and incorporating the initial $500,000 tranche that closed on March 21, 2012. Closings of additional tranches are conditional upon the mutual agreement of the parties.

 

On May 7, 2012 we issued 10,000 restricted common shares of the Company’s stock to a Director of the Company as compensation.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

The Company has no senior securities outstanding.

 

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

During the quarter ended September 30, 2012, a majority of the shareholders approved the change to the number of common shares from 2,000,000,000 to 198,000,000 common shares and 2,000,000 preferred shares. The preferred shares have a 1 to 100 voting and conversion ratio preferred to common.

 

 

ITEM 5. OTHER INFORMATION

 

None

 

ITEM 6. EXHIBITS

 

EXHIBIT INDEX

 

Exhibit Number		Description
3.1		Articles of Incorporation of Northumberland Resources, Inc.*
3.2		Bylaws of Northumberland Resources, Inc.*
3.3		Certificate of Change with Nevada Secretary of State. Incorporated by reference in 8K filed 9/16/11.
10.0		Materials Contracts-leases and ThorFinn documents. Incorporated by reference in 10Q filed 5/21/12.
10.1		Purchase Agreement and Investors Rights Agreement with Thorfinn Partners. Incorporated by reference in 8K filed 5/02/12.
10.2		Property acquisitions. Incorporated by reference in 8K filed 10/03/11 and August 14, 2012.
10.3		Convertible Debenture September 26, 2011 Incorporated by reference in 10Q/a filed 11/25/11.
14.1		Code of Ethics, Corporate Charters and Governances. Incorporated by reference in 8K filed 5/02/12.
31.1		Certificate of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certificate of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certificate of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

* Filed as an exhibit to our registration statement on Form S-1 filed March 9, 2010 and incorporated herein by this reference

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

NORTHUMBERLAND RESOURCES, INC.
/s/ Fortunato Villamagna
Fortunato Villamagna
President (Principal Executive Officer)

  

/s/ Peter Hewitt
Peter Hewitt
Secretary, CFO (Principal Accounting Officer)

 

November 19, 2012