Legend Oil & Gas, Ltd. - FORM 10-Q

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EX-31.2 - Legend Oil & Gas, Ltd.	ex31-2.htm
EX-31.1 - Legend Oil & Gas, Ltd.	ex31-1.htm
EX-32.1 - Legend Oil & Gas, Ltd.	ex32-1.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No.: 000-49752

Legend Oil and Gas, Ltd.

(Exact name of registrant as specified in its charter)

Colorado		84-1570556
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1218 3rd Avenue, Suite 505

Seattle, Washington 98101

(Address of principal executive offices)

206-910-2687

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	x

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

As of August 7, 2013, the registrant had 97,443,271 shares of its common stock, par value $0.001 per share, issued and outstanding.

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LEGEND OIL AND GAS, LTD.

FORM 10-Q

For the Quarterly Period ended June 30, 2013

Table of Contents


		Page

EXPLANATORY NOTE			2
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS			2
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012		3
	Consolidated Statements of Operations for the six months ended June 30, 2013 and 2012		4
	Consolidated Statements of Comprehensive Loss for the six months ended June 30, 2013 and 2012		5
	Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2012 and six months ended June 30, 2013		6
	Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012		7
	Notes to Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 4.	Controls and Procedures		20

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities		21
Item 5	Other Information		21
Item 6.	Exhibits		21

SIGNATURES			22

EXHIBITS			23

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EXPLANATORY NOTE

Unless otherwise indicated or the context otherwise requires, all references in this Quarterly Report on Form 10-Q (“Report”) to “we,” “us,” “our,” “Legend” and the “Company” are to Legend Oil and Gas, Ltd., a Colorado corporation, and references in this Report to “Legend Canada” are to Legend Energy Canada, Ltd., a wholly-owned subsidiary of the Company. All references to “Wi2Wi” are to Wi2Wi Corporation, formerly International Sovereign Energy Corp., an Alberta, Canada corporation. Unless otherwise indicated, references herein to “$” or “dollars” are to United States dollars. All references in this Current Report to “CA$” are to Canadian dollars. All financial information with respect to the Company has been presented in United States dollars in accordance with U.S generally accepted accounting principles.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This Report contains a number of forward-looking statements that reflect management’s current views and expectations with respect to our business, strategies, future results and events, and financial performance. All statements made in this Report other than statements of historical fact, including statements that address operating performance, the economy, events or developments that management expects or anticipates will or may occur in the future, including statements related to revenues, profitability, adequacy of funds from operations, and cash flows and financing are forward-looking statements. In particular, the words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “can,” “plan,” “predict,” “could,” “future,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking.

Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions and apply only as of the date of this Report. Our actual results, performance or achievements could differ materially from historical results as well as the results expressed in, anticipated or implied by these forward-looking statements.

In particular, our business, including our financial condition and results of operations and our ability to continue as a going concern may be impacted by a number of factors, including, but not limited to, the following:

•

Our ability to pay off our demand loan facility with National Bank of Canada when due;

•

Our ability to draw down on our equity line of credit with Lincoln Park Capital Fund, LLC, in amounts and times when needed;

•

Our ability to fund our 2013 drilling and development plan;

•

Our ability to obtain buyers on terms favorable to us, in the event that we were to seek to sell certain of our oil and gas interests;

•

Our ability to retain the services of our President, Chief Financial Officer and other key employees, the loss of which could materially impair our business plan;

•

Changes in estimates of our crude oil and natural gas reserves and depletion rates;

•

Our ability to control or reduce operating expenses and manage unforeseen costs;

•

Our reliance on third-party contractors in performing the majority of our operations, which could make management of our drilling and production efforts inefficient or unprofitable;

•

Our ability to maintain our existing property leases and acquire rights on properties that we desire;

•

Changes in commodity prices for crude oil and natural gas;

•

Environmental risks from operations of our wells;

•

Our ability to compete successfully against larger, well-funded, established oil and gas companies;

•

Our ability to comply with the many regulations to which our business is subject; and

•

Dilutive and other adverse effects on our existing shareholders and our stock price arising from future securities issuances.

For a more detailed discussion of some of the factors that may affect our business, results and prospects, see our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission on April 1, 2013, as well as various disclosures made by us in our other reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I – FINANCIAL INFORMATION

ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS

Legend Oil and Gas Ltd.

CONSOLIDATED BALANCE SHEETS

(unaudited)


	June 30,			December 31,
	2013			2012

ASSETS
Current Assets
Cash and cash equivalents	$	16,015		$	12,989
Accounts receivable		386,505			302,502
Prepaid expenses		67,455			102,741
Total current assets		469,975			418,232

Deposits		3,740			6,078
Oil and gas property, plant and equipment
Proven property - net		4,718,437			5,278,426
Unproven property		7,974,265			8,426,997
Total oil and gas properties, net		12,692,702			13,705,423
Total assets	$	13,166,417		$	14,129,733

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities
Accounts payable	$	1,906,730		$	1,389,908
Short term note payable, net		12,771			-
Note payable to bank		3,419,924			3,702,279
Total current liabilities		5,339,425			5,092,187
Asset retirement obligations		1,596,776			1,654,032
Total liabilities		6,936,201			6,746,219


Contingently redeemable convertible preferred stock (100,000,000 shares authorized; $0.001 par value; zero and 1,700,000 shares issued and outstanding, respectively; redemption $2.00 per share)		-			366,953
Contingently redeemable common stock		-			47,764,927
		-			48,131,880


Stockholders’ Equity (Deficit)

Common stock - 400,000,000 shares authorized; $0.001 par value; 94,443,271 and 77,220,271 shares issued and outstanding respectively		94,443			77,220
Additional paid-in capital		24,802,014			(25,353,942	)
Accumulated other comprehensive loss		(180,303	)		152,634
Accumulated deficit		(18,485,938	)		(15,624,278	)
Total stockholders’ equity (deficit)		6,230,216			(40,748,366	)
Total liabilities and stockholders’ equity (deficit)	$	13,166,417		$	14,129,733

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

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Legend Oil and Gas Ltd.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012

Oil and gas revenue	$	627,449		$	588,016		$	1,150,773		$	1,286,264

Costs and Expenses
General and administrative		392,515			911,875			1,939,851			1,923,481
Production expenses		411,327			422,559			762,672			851,077
Depletion, depreciation, and amortization		167,695			381,799			352,682			802,584
Impairment on oil and gas assets		38,961			-			149,983			-
Accretion on asset retirement obligation		14,342			12,914			28,899			25,940
Total costs and expenses		1,024,840			1,729,147			3,234,087			3,603,082
Operating Loss		(397,391	)		(1,141,131	)		(2,083,314	)		(2,316,818	)

Other Income and Expense
Interest expense		(49,719	)		(57,381	)		(87,196	)		(114,083	)
Change in value of contingent consideration		( -	)		(4,189,836	)		( -	)		(4,146,412	)
Total other income and expense		(49,719	)		(4,247,217	)		(87,196	)		(4,260,495	)

Net loss		(447,110	)		(5,388,348	)		(2,170,510	)		(6,577,313	)
Preferred stock dividends		(691,150	)		-			(691,150	)		-
Net loss applicable to common stock	$	(1,138,260	)	$	(5,388,348	)	$	(2,861,660	)	$	(6,577,313	)

Basic and diluted weighted average shares outstanding		81,348,774			61,791,272			81,144,354			56,216,894

Basic and diluted net loss per common share	$	(0.01	)	$	(0.09	)	$	(0.04	)	$	(0.12	)

The accompanying notes are an integral part of these consolidated financial statements.

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Legend Oil and Gas Ltd.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012

Net loss	$	(447,110	)	$	(5,388,348	)	$	(2,170,510	)	$	(6,577,313	)
Other comprehensive loss
Foreign currency translation adjustment		(199,636	)		(141,878	)		(332,937	)		8,643
Comprehensive loss	$	(646,746	)	$	(5,530,226	)	$	(2,503,447	)	$	(6,568,670	)

The accompanying notes are an integral part of these consolidated financial statements.

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Legend Oil and Gas Ltd.

STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited)

	Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total


Balance at December 31, 2011		50,582,516	$	50,583	$	7,691,161		$	(42,438	)	$	(6,342,936	)	$	1,356,370
Common stock issued for services		1,160,000		1,160		151,340			-			-			152,500
Conversion of convertible preferred stock to common stock		600,000		600		128,913			-			-			129,513
Issuance of common stock to settle contingent consideration obligation		21,350,247		21,350		5,529,715			-			-			5,551,065
Reclassification to contingently redeemable common stock		-		-		(42,700,495	)		-			-			(42,700,495	)
Reclassification out of contingently redeemable common stock		-		-		2,040,600			-			-			2,040,600
Issuance of common stock to Lincoln Park Capital		3,527,508		3,527		418,473			-			-			422,000
Stock based compensation		-		-		1,386,351			-			-			1,386,351
Foreign currency translation		-		-		-			195,072			-			195,072
Net loss		-		-		-			-			(9,281,342	)		(9,281,342	)
Balance at December 31, 2012		77,220,271		77,220		(25,353,942	)		152,634			(15,624,278	)		(40,748,366	)
Common stock issued for services		1,700,000		1,700		83,300			-			-			85,000
Stock based compensation		-		-		1,190,340			-			-			1,190,340
Foreign currency translation		-		-		-			(332,937	)		-			(332,937	)
Discount on short term note payable		-		-		74,810			-			-			74,810
Conversion of convertible preferred stock to common stock		1,700,000		1,700		365,253			-			-			366,953
Dividends on preferred stock		13,823,000		13,823		677,327			-			(691,150	)		-
Reclassification out of contingently redeemable common stock		-		-		47,764,926			-			-			47,764,926
Net loss		-		-		-			-			(2,170,510	)		(2,170,510	)
Balance at June 30, 2013		94,443,271	$	94,443	$	24,802,014		$	(180,303	)	$	(18,485,938	)	$	6,230,216

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

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Legend Oil and Gas Ltd.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the six months ended
	June 30, 2013			June 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,170,510	)	$	(6,577,313	)
Adjustments to reconcile net loss to cash flows from operating activities:
Stock-based compensation		1,190,340			708,343
Amortization of discounts on notes payable		12,581			-
Accretion on asset retirement obligation		28,899			25,940
Issuance of common stock for services		85,000			60,000
Change in value of contingent consideration liability		-			4,146,412
Depletion, depreciation, amortization and impairment		505,254			802,584
Changes in operating assets and liabilities:
Accounts receivable		(101,406	)		59,963
Prepaid expenses and other assets		36,062			2,934
Accounts payable		601,955			603,602
Net cash flows from operating activities		188,175			(167,535	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas property development costs		(171,776	)		(142,438	)
Net cash flows from investing activities		(171,776	)		(142,438	)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock and warrants		-			90,000
Proceeds from notes payable		75,000			-
Proceeds (payments on) note payable to bank		(282,355	)		229,548
Net cash flows from financing activities		(207,355	)		319,548
Change in cash and cash equivalents before effect of exchange rate changes		(190,956	)		9,575
Effect of exchange rate changes		193,982			9,388
Net change in cash and cash equivalents		3,026			18,963

Cash and cash equivalents, beginning of period		12,989			52,726
Cash and cash equivalents, end of period	$	16,015		$	71,689
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest	$	87,196		$	109,333

NON-CASH INVESTING AND FINANCING ACTIVITIES
Stock subscription receivable	$	-	$	100,000
Common stock issued under purchase agreement	$	-	$	208,311
Common stock issued for contingent consideration	$	-	$	5,550,471
Common stock classified as contingently redeemable	$	-	$	(42,700,495	)
Conversion of convertible preferred stock to common stock	$	366,953	$	129,513
Common stock reclassified from contingently redeemable	$	47,764,926	$	-
Preferred stock dividend	$	691,150	$	-
Discount on short term note payable	$	74,810	$	-

The accompanying notes are an integral part of these consolidated financial statements.

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Legend Oil and Gas Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND DESCRIPTION OF OPERATIONS

Description of Business

We are an oil and gas exploration, development and production company. Our oil and gas property interests are located in Western Canada (in Berwyn, Medicine River, Boundary Lake, and Wildmere in Alberta, and Clarke Lake and Inga in British Columbia) and in the United States (in the Piqua region of the State of Kansas).

The Company was incorporated under the laws of the State of Colorado on November 27, 2000 under the name “SIN Holdings, Inc.” From inception until June 2010, we pursued our original business plan of developing a web portal listing senior resources across the United States through our former wholly-owned subsidiary Senior-Inet, Inc. On July 29, 2010, Senior-Inet, Inc. was dissolved and we changed our business to the acquisition, exploration, development and production of oil and gas reserves. To align our name with our new business, on November 29, 2010, we changed our name to Legend Oil and Gas, Ltd.

On July 28, 2011, we formed a wholly owned subsidiary named Legend Energy Canada, Ltd. (“Legend Canada”), which is a corporation registered under the laws of Alberta, Canada. Legend Canada was formed to acquire, own and manage certain oil and gas properties and assets located in Canada. Legend Canada completed the acquisition of significant oil and gas reserves located in Canada on October 20, 2011.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, and our wholly-owned subsidiary Legend Canada. Intercompany transactions and balances have been eliminated in consolidation. We account for our undivided interest in oil and gas properties using the proportionate consolidation method, whereby our share of assets, liabilities, revenues and expenses are included in the financial statements.

Interim Reporting

The unaudited financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which in the opinion of management are necessary to fairly state the financial position of Legend Oil & Gas Ltd. and the results of its operations for the periods presented. This report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2012. The Company assumes that the users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. Accordingly, footnote disclosure, which would substantially duplicate the disclosure contained in the Company’s Form 10-K for the fiscal year ended December 31, 2012 has been omitted. The results of operations for the period ended June 30, 2013 are not necessary indicative of results for the entire year ending December 31, 2013.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Management’s judgments and estimates in these areas are to be based on information available from both internal and external sources, including engineers, geologists, consultants and historical experience in similar matters. The more significant reporting areas impacted by management’s judgments and estimates are accruals related to oil and gas sales and expenses, estimates of future oil and gas reserves, estimates used in the impairment of oil and gas properties, and the estimated future timing and cost of asset retirement obligations.

Actual results could differ from the estimates as additional information becomes known. The carrying values of oil and gas properties are particularly susceptible to change in the near term. Changes in the future estimated oil and gas reserves or the estimated future cash flows attributable to the reserves that are utilized for impairment analysis could have a significant impact on the future results of operations.

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Comprehensive Income

For operations outside of the U.S. that prepare financial statements in currencies other than U.S. dollars, we translate the financial statements into U.S. dollars. Results of operations and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at end of period exchange rates, except for equity transactions and advances not expected to be repaid in the foreseeable future, which are translated at historical costs. The effects of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated as a separate component in other comprehensive income (loss). Accumulated other comprehensive income (loss) consists entirely of foreign currency translation adjustments at June 30, 2013 and December 31, 2012.

Liquidity

We have incurred net operating losses and operating cash flow deficits over the last two years, continuing through 2013. We are in the early stages of acquisition and development of oil and gas leaseholds, and we have been funded primarily by a combination of equity issuances and borrowing under loan agreements and to a lesser extent by operating cash flows, to execute on our business plan for the acquisition, exploration, development and production of oil and gas reserves. At June 30, 2013, we had cash and cash equivalents totalling approximately $16,000.

In October 2011, we established a revolving demand loan with National Bank of Canada (the “Bank”) through our wholly-owned subsidiary, Legend Canada. The credit facility currently has a maximum borrowing base of CA$3.5 million and is payable in full at any time upon demand.

At June 30, 2013, the Company also had a bridge demand loan with the Bank that had commenced in December 2012. The balance of the bridge demand loan at June 30, 2013 was $118,850 (CA$125,000). In the most recent revision of the bridge demand loan agreement, it was contemplated that the final payment would be due September 24, 2013. However, the Company and the Bank reached agreement in July 2013, in conjunction with the Company’s agreement with Hillair Capital Investments to obtain funding under a Secured Convertible Debenture, whereby the Company repaid the bridge demand loan.

Wi2Wi, formerly International Sovereign Energy Corp., and the holders of our convertible preferred stock had “put” rights to require us to repurchase their shares at a price of $2.00 per share. On May 1, 2013, the Company and Wi2Wi entered into a Settlement and Termination Agreement, of which a key component is the elimination of the put right associated with all of the common stock held by Wi2Wi. On May 28, 2013, all of the Company’s preferred shareholders converted their preferred stock to common stock and the Company issued additional shares of common stock to the preferred shareholders as consideration for forfeiting their put rights. As of June 30, 2013, the Company has no capital stock issued and outstanding with put rights.

During April, May, and June 2013, the Company received advances totaling $75,000 under a note payable agreement with a third party that provides for total borrowing of $300,000.

As of the date that these financial statements were issued, we have an outstanding balance under the revolving demand loan with the Bank in the amount of approximately $3,327,800 (CA$3,500,000). The Bank may demand repayment of all amounts owed to it at any time. There is no assurance that any portion of this credit facility will be available in the future.

We believe that the combination of revenue from our on-going operations, proceeds from potential future asset sales, and potential future equity or debt financing, provides us the ability to repay the revolving demand loan. However, in the event we are unable to repay the revolving demand loan at any time upon demand by the Bank, we will be in default of our obligations to the Bank. The Bank has a first priority security interest in all of our assets and can exercise its rights and remedies against us as a secured creditor. Any such default by us or action by the Bank will have a material adverse effect on us and our business. If we are unable to negotiate favorably with the Bank, or if we are unable to secure additional financing, whether from equity, debt, or alternative funding sources, this could have a material adverse effect on us and we may be required to sell some or all of our properties, sell or merge our business, or file a petition for bankruptcy.

We anticipate needing additional financing to fund our drilling and development plans in 2013. We may seek financing from other sources, which may also include the sale of certain of our oil and gas properties. Our ability to obtain financing or to sell our properties on favorable terms may be impaired by many factors outside of our control, including the capital markets (both generally and in the crude oil and natural gas industry in particular), our limited operating history, the location of our crude oil and natural gas properties and prices of crude oil and natural gas on the commodities markets (which will impact the amount of asset-based financing available to us) and other factors. Further, if crude oil or natural gas prices on the commodities markets decline, our revenues will likely decrease and such decreased revenues may increase our requirements for capital.

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Any new debt or equity financing arrangements may not be available to us, or may be available only on unfavorable terms. Additionally, these alternatives could be highly dilutive to our existing shareholders, and may not provide us with sufficient funds to meet our long-term capital requirements. We have and may continue to incur substantial costs in the future in connection with raising capital to fund our business, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, which may adversely impact our financial condition. If the amount of capital we are able to raise from financing activities, together with our cash flow from operations, is not sufficient to satisfy our capital needs (even to the extent that we reduce our operations), we will be required to reduce operating costs, which could jeopardize our future strategic initiatives and business plans, and we may be required to sell some or all of our properties (which could be on unfavorable terms), seek joint ventures with one or more strategic partners, strategic acquisitions and other strategic alternatives, cease our operations, sell or merge our business, or file a petition for bankruptcy.

The uncertainties relating to our ability to repay our revolving demand loan and to successfully execute our business plan, combined with the difficult financing environment, continue to raise substantial doubt about our ability to continue as a going concern. Our financial statements were prepared assuming we would continue as a going concern, which contemplates that we will continue in operation for the foreseeable future and will be able to realize assets and settle liabilities and commitments in the normal course of business. These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that could result should we be unable to continue as a going concern.

Full Cost Method of Accounting for Oil and Gas Properties

We have elected to utilize the full cost method of accounting for our oil and gas activities. In accordance with the full cost method of accounting, all costs associated with acquisition, exploration, and development of oil and gas reserves, including directly related overhead costs and related asset retirement costs are capitalized into a cost center. Our cost centers consist of the Canadian cost center and the United States cost center.

All capitalized costs of oil and gas properties within each cost center, including the estimated future costs to develop proved reserves, are amortized on the unit-of-production method using estimates of proved reserves. Excluded from this amortization are costs associated with unevaluated properties, including capitalized interest on such costs. Unevaluated property costs are transferred to evaluated property costs at such time as wells are completed on the properties or management determines that these costs have been impaired.

Oil and gas properties without estimated proved reserves are not amortized until proved reserves associated with the properties can be determined or until impairment occurs. The cost of these properties is assessed quarterly, on a field-by-field basis, to determine whether the properties are recorded at the lower of cost or fair market value.

Sales of oil and gas properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost center, in which case the gain or loss is recognized in income. In determining whether adjustments to capitalized costs result in a significant alteration, capitalized costs within the cost center are allocated between the reserves sold and reserves retained on the same basis used to compute amortization, unless there are substantial economic differences between the properties sold and those retained. When economic differences between properties sold and those retained exist, capitalized costs within the cost center are allocated on the basis of the relative fair values of the properties in determining whether adjustments to capitalized costs result in a significant alteration.

Full Cost Ceiling Test

At the end of each quarterly reporting period, the cost of oil and gas properties in each cost center are subject to a “ceiling test” which basically limits capitalized costs to the sum of the estimated future net revenues from proved reserves, discounted at 10% per annum to present value, based on current economic and operating conditions, at the end of the period, 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. If the cost of oil and gas properties exceeds the ceiling, the excess is reflected as a non-cash impairment charge to earnings. The impairment charge is permanent and not reversible in future periods, even though higher oil and gas prices in the future may subsequently and significantly increase the ceiling amount. Impairment charges for the three month and six month periods ended June 30, 2013 were $38,961and $149,983, respectively. There were no impairment charges during the three and six month periods ended June 30, 2012.

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Asset Retirement Obligation

We record the fair value of a liability for an asset retirement obligation in the period in which the asset is acquired and a corresponding increase in the carrying amount of the related long-lived asset if a reasonable estimate of fair value can be made. The associated asset retirement cost capitalized as part of the related asset is allocated to expense over the asset’s useful life. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. The asset retirement obligation is recorded at its estimated fair value and accretion is recognized over time as the discounted liability is accreted to its expected settlement value. Fair value is determined by using the expected future cash outflows discounted at our credit-adjusted risk-free interest rate.

Oil and Gas Revenue Recognition

Revenue from production on properties in which we share an economic interest with other owners is recognized on the basis of our interest. Revenues are reported on a gross basis for the amounts received before taking into account production taxes, royalties, and transportation costs, which are reported as production expenses. Revenue is recorded and receivables accrued using the sales method of accounting. Under this method, revenues are recognized based on the actual volumes of gas and oil sold to purchasers at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectability of the revenue is probable. Delivery occurs and title is transferred when production has been delivered to a purchaser’s pipeline or truck. The volume sold may differ from the volumes we are entitled to, based on our individual interest in the property. We utilize a third-party marketer to sell oil and gas production in the open market. As a result of the requirements necessary to gather information from purchasers or various measurement locations, calculate volumes produced, perform field and wellhead allocations and distribute and disburse funds to various working interest partners and royalty owners, the collection of revenues from oil and gas production may take up to 45 days following the month of production. Therefore, we may make accruals for revenues and accounts receivable based on estimates of our share of production. Since the settlement process may take 30 to 60 days following the month of actual production, our financial results may include estimates of production and revenues for the related time period. We will record any differences between the actual amounts ultimately received and the original estimates in the period they become finalized.

Stock-based compensation

We measure compensation cost for stock-based payment awards at fair value and recognizes it as compensation expense over the service period for awards expected to vest. Compensation cost is recorded as a component of general and administrative expenses in the consolidated statements of operations, net of an estimated forfeiture rate, and amounted to $1,190,340 and $708,343 for the periods ended June 30, 2013 and 2012, respectively.

Net Loss Per Common Share

The computation of basic net loss per common share is based on the weighted average number of shares that were outstanding during the period, including contingently redeemable common stock. The computation of diluted net loss per common share is based on the weighted average number of shares used in the basic net loss per share calculation plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding. Potentially dilutive common shares include warrants to purchase shares of common stock (4,150,000 shares for both 2013 and 2012), notes payable convertible into common stock (3,300,000 for 2013 and nil shares for 2012), options to purchase shares of common stock (nil shares for 2013 and 2,800,000 shares for 2012), and preferred stock convertible into shares of common stock (nil shares for 2013 and 1,700,000 for 2012). During the periods ended June 30, 2013 and 2012 potentially dilutive common shares were not included in the computation of diluted loss per shares as to do so would be anti-dilutive.

Income Taxes

We recognize income taxes on an accrual basis based on a tax position taken or expected to be taken in its tax returns. A tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets or liabilities. Tax positions are recognized only when it is more likely than not (i.e., likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more likely than not be realized. We established a valuation allowance for the full amount of the net deferred tax asset during the periods presented. Should they occur, our policy is to classify interest and penalties related to tax positions as interest expense. Since our inception, no such interest or penalties have been incurred. We are no longer subject to federal examination for years before 2009.

Fair value of financial instruments

The carrying value of cash and cash equivalents approximate their fair value (determined based on level 1 inputs in the fair value hierarchy) based on the short-term nature of these financial instruments. The carrying values of notes payable approximate their fair value (determined based on level 3 inputs in the fair value hierarchy) because interest rates of notes payable approximate market interest rates.

NOTE 3 – OIL AND GAS PROPERTIES

The amount of capitalized costs related to oil and gas property and the amount of related accumulated depletion, depreciation, and amortization are as follows:

	June 30, 2013			December 31, 2012
Proven property, net of impairment	$	6,540,558		$	6,833,463
Accumulated depletion, depreciation, and amortization		(1,822,121	)		(1,555,037	)
		4,718,437			5,278,426
Unproven property		7,974,265			8,426,997
	$	12,692,702		$	13,705,423

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NOTE 4 – ASSET RETIREMENT OBLIGATION

The following table reconciles the value of the asset retirement obligation for the periods ended June 30, 2013 and June 30, 2012 :

	June 30, 2013			June 30, 2012
Opening balance, January 1	$	1,654,032		$	1,601,423
Foreign currency translation adjustment		(86,155	)		(2,003	)
Accretion expense		28,899			25,940
Ending balance, June 30	$	1,596,776		$	1,625,360

NOTE 5 – STOCKHOLDERS’ EQUITY (DEFICIT)

On May 1, 2013, Legend and Wi2Wi entered into a Settlement and Termination Agreement, of which a key component is the elimination of the put right. For accounting purposes, the carrying amount of the contingently redeemable common stock amounting to $47,764,926 was transferred to additional paid-in capital in the consolidated financial statements on the effective date of the Agreement which was May 1, 2013. In related matters, on March 26, 2012 the holders of convertible preferred stock agreed to waive their put option with the condition that Wi2Wi also waive their put option. As a result of the Agreement with Wi2Wi and the election to convert to common stock by preferred shareholders, on June 20, 2013, the Company issued 1,700,000 shares of common stock related to the 1:1 conversion of the preferred stock to common stock, and 13,823,000 shares of common stock as consideration for forfeiting their put rights. The fair value of the consideration shares determined from the closing price of the shares on the date transferred amounting to $691,150 was recorded as a dividend to the preferred stock holders. In addition, the carrying amount of the contingently redeemable convertible preferred stock amounting to $366,953 was transferred to common stock and additional paid-in capital in the consolidated financial statements.

During the period ended June 30, 2013, we issued 1,700,000 shares of common stock with a fair value of $85,000 to consultants in exchange for services. The fair value of the common stock was determined from the closing price of the shares on the dates transferred.

On May 22, 2012, the Company commenced a Purchase Agreement with Lincoln Park Capital to sell up to $10.2 million in common stock during a term of three years. In consideration for entering into the Purchase Agreement, the Company issued 723,592 shares of common stock to Lincoln Park as an initial commitment fee. Up to 1,072,183 of additional shares of common stock may be issued on a pro rata basis to Lincoln Park as an additional commitment fee as Lincoln Park purchases additional shares of common stock. During 2012, we issued 3,527,508 shares of common stock to Lincoln Park and received a total of $422,000 in proceeds. Future sales of common stock to Lincoln Park Capital are subject to the minimum $0.10 floor price specified in the Purchase Agreement whereby the Company is prohibited from making sales of common stock to Lincoln Park Capital if the market price of the Company’s common stock is below $0.10.

Warrants

The following table summarizes outstanding warrants to purchase shares of our common stock as of December 31, 2012 and June 30, 2013, as described above:

	Shares of Common Stock Issuable from Warrants Outstanding as of
	June 30,		December 31,		Exercise
Date of Issue	2013		2012		Price		Expiration
October 2010		1,300,000		1,300,000	$	0.50	October 2013
February 2011		300,000		300,000	$	0.50	February 2014
April 2011		250,000		250,000	$	1.00	April 2014
August 2011		2,300,000		2,300,000	$	2.00	August 2014

		4,150,000		4,150,000

As of June 30, 2013, none of the outstanding warrants had been exercised.

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Stock Incentive Plan

On May 3, 2011, our Board of Directors adopted the Legend Oil and Gas, Ltd. 2011 Stock Incentive Plan (“Plan”). The Plan provides for the grant of options to purchase shares of our common stock, and stock awards consisting of shares of our common stock, to eligible participants, including directors, executive officers, employees, and consultants of the Company. We have reserved 4,500,000 shares of common stock for issuance under the Plan.

On February 8, 2013, all outstanding options to purchase common stock (2,800,000) were cancelled, and the remaining compensation expense amounting to $1,190,340 was accelerated and recognized during the period ended March 31, 2013. There was no compensation expense related to options to purchase common stock recognized during the three month period ended June 30, 2013.

NOTE 6 – NOTE PAYABLE TO BANK

Under a series of agreements with National Bank of Canada (the “Bank”), as of June 30, 2013, we had a revolving credit facility with a maximum borrowing base of $3,327,800 (CA$3,500,000) through our wholly-owned subsidiary, Legend Canada. Outstanding principal under the loan bears interest at a rate equal to the Bank’s prime rate of interest (currently 3%) plus 1%. We are obligated to pay a monthly fee of 0.25% of any undrawn portion of the credit facility. The borrowings under the credit facility is payable upon demand at any time. Borrowings under the agreements are collateralized by a Fixed and Floating Charge Demand Debenture (the “Debenture”) to the Bank in the face amount of CA$25 million, to secure payment of all debts and liabilities owed by Legend Canada to the Bank. The interest rate on amounts drawn under the Debenture, as well as interest that is past due, is the prime rate, plus 7% per annum. As further collateral, Legend Canada also executed an Assignment of Book Debts on October 19, 2011, that grants, transfers and assigns to the Bank a continuing and specific security interest in specific collateral of Legend Canada, including all debts, proceeds, accounts, claims, money and chooses in action which currently or in the future are owing to Legend Canada. Under the agreements, we must maintain a working capital ratio, exclusive of bank indebtedness, of at least 1 to 1. For purposes of this calculation, the undrawn availability under the revolving credit facility is added to current assets. We remain in violation of this debt covenant at June 30, 2013. The revolving credit facility is subject to review by the Bank at future dates as determined by the Bank, and the Bank may increase or lower the maximum borrowing base subject to their review. Our next scheduled review was June 1, 2013 and is on-going as of the date of this report. As of June 30, 2013 there was $3,327,800 (CA$3,500,000) outstanding on the revolving credit facility.

At June 30, 2013, a bridge demand loan was in place through Legend Canada that was fully drawn on June 30, 2013 with a balance of $118,850 (CA$125,000). This bridge demand loan bears interest at a rate equal to the Bank’s prime rate plus 2% (resulting in a rate of 5% as of June 30, 2013). The Company repaid the bridge demand loan during July 2013.

NOTE 7 – SHORT TERM NOTE PAYABLE

During April and June 2013, the Company received proceeds of $75,000 in connection with issuing an unsecured convertible note with a face value of $82,500 to an unrelated third party. The note provides for borrowing of up to $300,000, is repayable beginning April 2014, and carries an original issue discount of 10%. No interest accrues on the note principal if borrowings are repaid within 90 days from the date advanced. If repaid within 90 days, a one-time interest charge of 12% accrues. The conversion price of the note is the lesser of $0.05 or 60% of the lowest trade price of the Company’s common stock for 25 days prior to the conversion. The intrinsic value of the beneficial conversion feature was determined to be $74,810. As a result, the discount of the note, including original issue discount, totaled $82,310 and is being amortized over the term of the note.

NOTE 8 – SUBSEQUENT EVENTS

On July 10, 2013, the Company received $900,000 from issuing an 8% Original Issue Discount Senior Secured Convertible Debenture to Hillair Capital Investments, L.P. in the amount of $1,008,000, initially convertible at a rate of $0.0561, and payable on or before December 1, 2014. In conjunction with the debenture, 3,000,000 shares of common stock with a fair value of approximately $150,000 were issued to Hillair as a consideration for executing the agreement in advance of National Bank waiving certain security agreements on select assets. In conjunction with the Debenture, a warrant was issued to purchase up to a number of shares of common stock equal to 100% of the principal amount of the debenture, divided by $0.0561. The exercise price is $0.0673, subject to any further adjustments in the debenture.

In conjunction with the above Senior Secured Convertible Debenture issuance, the Company and the Bank reached an agreement to retire the bridge demand loan prior to its scheduled retirement date of September 24, 2013.

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ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, and should be read in conjunction with our financial statements and related notes. We incorporate by reference into this Report our audited consolidated financial statements for the years ended December 31, 2012 and 2011. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In addition, the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, including, but not limited to, those discussed in “Forward Looking Statements,” and elsewhere in this Report.

The following management’s discussion and analysis is intended to assist in understanding the principal factors affecting our results of operations, liquidity, capital resources and contractual cash obligations. This discussion should be read in conjunction with our consolidated financial statements which are incorporated by reference herein, information about our business practices, significant accounting policies, risk factors, and the transactions that underlie our financial results, which are included in various parts of this filing.

For ease of presentation in the following discussions of “Comparison of Results” and “Liquidity and Capital Resources”, we round dollar amounts to the nearest thousand dollars (other than average prices per barrel and per share amounts).

Overview of Business

Our business focus is to acquire producing and non-producing oil and gas right interests and develop oil and gas properties that we own or in which we have a leasehold interest. We also anticipate pursuing the acquisition of leaseholds and sites within other geographic areas that meet our general investment guidelines and targets. The majority of our operational duties are outsourced to consultants and independent contractors, including for drilling, maintaining and operating our wells, and we maintain a limited in-house employee base.

On October 20, 2011, our wholly-owned subsidiary, Legend Canada completed the acquisition of the majority of the petroleum and natural gas leases, lands and facilities held by Wi2Wi, formerly International Sovereign. The assets acquired consisted of substantially all of Wi2W’s assets (which are the properties in Alberta and British Columbia described above).

Our Company was incorporated under the laws of the State of Colorado on November 27, 2000 under the name “SIN Holdings, Inc.” On November 29, 2010, we changed our name to Legend Oil and Gas, Ltd. Our only subsidiary is Legend Canada, which was formed in Alberta, Canada on July 28, 2011 to acquire the Wi2Wi assets. Neither we nor Legend Canada are reporting issuers in any province of Canada.

Results of Operations

The following is a discussion of our consolidated results of operations, financial condition and capital resources. You should read this discussion in conjunction with our Consolidated Financial Statements and the Notes thereto contained elsewhere in this Form 10-Q. Comparative results of operations for the periods indicated are discussed below.

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The following table sets forth certain of our oil and gas operating information for the three and six months ended June 30, 2013, and June 30, 2012, respectively.

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Production Data :
Oil production (bbls)		4,390		5,402		9,615		11,230
Average daily oil production (bbl/d)		48		59		53		62
Natural gas production (mcf)		62,366		82,958		118,928		175,397
Average daily natural gas production (mcf/d)		685		912		653		964
Natural gas liquids production (bbl)		239		457		779		878
Average daily natural gas liquids production (bbl/d)		3		5		4		5
Total BOE		15,023		19,685		30,216		41,341
Total BOE/d		165		216		166		227
Revenue Data :
Oil revenue ($)		379,000		443,000		714,000		947,000
Average realized oil sales price ($/bbl)		86.48		82.42		74.25		84.46
Gas revenue ($)		228,000		118,000		392,000		284,000
Average realized gas sales price ($/mcf)		3.67		1.46		3.30		1.61
Natural gas liquids revenue ($)		20,000		27,000		45,000		55,000
Average realized natural gas liquids price ($/bbl)		87.37		59.76		54.03		63.32
Operating expenses :
Production expenses		411,000		423,000		763,000		851,000
Average operating expenses ($/boe)		27.36		21.49		25.25		20.59

Operating Margin ($/boe)		14.45		8.38		12.84		10.52

Depreciation, depletion, and amortization		168,000		382,000		353,000		803,000

* Oil and natural gas were combined by converting natural gas to oil equivalent on the basis of 6 mcf of gas = 1 boe.

Production and Revenue

Revenues

	Three months Ended June 30,						Six Months Ended June 30,
	2013		2012		Change		2013		2012		Change
Product revenues:	$		$		%		$		$		%
Crude oil sales		379,000		443,000		-14		714,000		947,000		-25
Natural gas sales		228,000		118,000		93		392,000		284,000		38
Natural gas liquids sales		20,000		27,000		-19		45,000		55,000		-18
Product revenues		627,000		588,000		7		1,151,000		1,286,000		-10

The lower oil volumes in Canada, due largely to the 2012 asset sales, was the main driver for the lower oil revenues. Gas revenues were considerably higher in the second quarter due to much stronger pricing in the Canadian markets in comparison to the prior year, that offset the lower produced volumes. Liquids revenues during the 2013 periods were lower compared to 2012 due to the lower gas production in Canada partially offset by higher prices during 2013 compared to 2012.

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Production

	Three Months Ended June 30,						Six Months Ended June 30,
	2013		2012		Change		2013		2012		Change
Sales Volume :					%						%
Crude Oil(bbl)		4,390		5,402		-19		9,615		11,230		-14
Natural Gas(mcf)		62,366		82,958		-25		118,928		175,397		-32
Natural Gas Liquids(bbl)		239		457		-48		779		878		-11
Total BOE		15,023		19,685		-24		30,216		41,341		-27

* Oil and natural gas were combined by converting natural gas to oil equivalent on the basis of 6 mcf of gas = 1 boe.

The decrease in oil volumes is largely due to the asset sales in Canada in third quarter of 2012. Natural gas volume decreases were due to asset sales, as well lower production in key areas in Canada such as Berwyn. The decrease in liquids is reflective of the lower natural gas production in Canada.

Commodity Prices Realized

	Three Months Ended June 30,						Six Months Ended June 30,
	2013		2012		Change		2013		2012		Change
Sales Price :	$		$		%		$		$		%
Crude Oil($/bbl)		86.48		82.42		5		74.25		84.46		-12
Natural Gas($/mcf)		3.67		1.46		151		3.30		1.61		105
Natural Gas Liquids($/bbl)		87.37		59.76		47		54.03		63.32		-15

The average price per barrel during the second quarter of 2013 was higher than the first quarter of 2012, reflective of the global oil pricing environment. We continue to see steep differentials in the pricing of our Canadian oil sales. The natural gas prices reflect the considerably stronger gas price environment in 2013 in Canada in comparison to 2012. Liquids pricing is linked to the oil pricing environment, which leads to the stronger pricing in the second quarter. The prices we receive for our oil and natural gas production are determined by the market and heavily influence our revenue, profitability, access to capital and future rate of growth.

Production Expenses

Production expenses stayed flat on an absolute basis at $411,000 in the second quarter of 2013 compared $423,000 in the second quarter of 2012. For the six months ended June 30, 2013, production expenses decreased to $763,000 from $851,000 for the six months ended June 30, 2012, due largely due to lower volumes and properties sold in 2012. However, on a per barrel basis, the production expense increased from $21.49/boe in the second quarter of 2012 to $27.36/boe in the corresponding period of 2013. For the six months ended June 30, production expenses have increased in 2013 to $25.25 compared to $20.59 in the corresponding period for 2012. Production expenses consist of day-to-day operational expenses for production of oil and maintenance and repair expenses for the wells and property.

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General and Administrative Expenses

General and administrative expenses include: professional fees; management fees; travel expenses; office and administrative expenses; and marketing and SEC filing expenses. General and administrative expenses decreased in the second quarter to $393,000, as compared to $912,000 for the same period in 2012, a $519,000 decrease. The period-to-period decrease is reflective of the Company’s efforts to reduce such costs, as well as the fact that 2013 had no stock based compensation due to the cancellation of all stock options in during the three month period ended March 31, 2013. Excluding the stock based compensation for the six month periods, general and administrative expenses for 2013 are $465,000 lower compared to the same period in 2012.

	Three months Ended June 30,						Six Months Ended June 30,
	2013		2012		Change		2013		2012		Change
General and administrative expenses	$		$		%		$		$		%
Professional fees		124,000		192,000		-35		224,000		445,000		-50
Salaries and benefits		151,000		196,000		-23		333,000		431,000		-23
Office and administration		118,000		185,000		-36		193,000		339,000		-43
Stock based compensation		-		339,000		n/a		1,190,000		708,000		68
Total		393,000		912,000		-57		1,940,000		1,923,000		1

Stock based compensation is a significant item in the general and administrative, and the amount in the first quarter of 2013 reflects the full amortization of the fair value of options granted in 2011and 2012. Disclosure of these stock based compensation transactions can be found in Note 5 to the Notes to Consolidated Financial Statements for the period ended June 30, 2013.

Depletion, depreciation, amortization and impairment

The Company incurred $168,000 for depreciation, depletion, amortization for the three months ended June 30, 2013 ($382,000 for the same period during 2012), reflective of the lower production levels of the company. Depletion for the six months ended June 30, 2013 is $353,000 ($803,000 for the same period during 2012). The Company also incurred $39,000 in non-cash impairment charges during the three month period ended June 30, 2013, and $150,000 for the six month period ended June 30, 2013. There were no impairment charges during the three and six month periods ended June 30, 2012.

Accretion expense

For the three months ended June 30, 2013 the Company had accretion expense of $14,000 ($13,000 in second quarter 2012) related to the Company’s asset retirement obligations. For the year to date periods, 2013 accretion is $29,000 compared to $26,000 in 2012. Accretion expense is consistent for the periods presented due to the consistent level of asset retirement obligations during the periods.

Interest expense

Interest expense was $50,000 for the three months ended June 30, 2013 ($57,000 in second quarter 2012). For the year to date periods, 2013 interest expense is $87,000 compared to $114,000 in 2012 for the similar period. Interest expense for the periods presented varies with the average balance of the Company’s note payable to bank. The note payable to bank had a lower average balance during 2013 compared to 2012. Interest expense from the short term note payable incurred in the second quarter accounts for the increase in that period.

Net loss

The Company recorded a net loss of $447,000 in second quarter of 2013 and $2,171,000 for the six months ended June 30, 2013, as compared to the net loss of $5,388,000 and $6,577,000 in the corresponding periods in 2012. The net loss in 2012 reflects the recognition of the change in the fair value of contingent consideration transferred to Wi2Wi under the acquisition. The other variances in net loss are explained above.

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Liquidity and Capital Resources

Liquidity

During April, May, and June 2013, the Company received advances totaling $75,000 under a note payable agreement with a third party that provides for total borrowing of $300,000.

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The following table summarizes our cash flows for the periods ended June 30, 2013 and June 30, 2012, respectively:

	For the six months ended June 30,
	2013			2012
Net cash flows from in operating activities	$	188,000		$	(168,000	)
Net cash flows from investing activities		(172,000	)		(142,000	)
Net cash flows from financing activities		(207,000	)		320,000
Effect of exchange rate changes		194,000			9,000
Net change in cash during period	$	3,000		$	19,000

Cash from Operating Activities

Cash provided by operating activities was $188,000 for the six months ended June 30, 2013, as compared to cash used by operating activities of $168,000 in the six months ended June 30, 2012. The increase in cash provided is due to the lower administrative costs of the company.

Cash from Investing Activities

Cash used for investing activities for the six months ended June 30, 2013 was $172,000 as compared to $142,000 during the six months ended June 30, 2012. The increase is due to the Company spending much of the first half of 2012 integrating the Wi2wi assets, whereas in the first half of 2013 the Company was doing some recompletion work in Canada that led to capital costs incurred.

Cash from Financing Activities

Total net cash provided by financing activities was $320,000 for the six months ended June 30, 2012, from the company bank lines and proceeds from stock sales. Total net cash used by financing activities in the six months ended June 30, 2013 was $207,000, consisting of repayment of bank debt, offset by proceeds of a note payable.

Our ability to obtain financing, if and when necessary, may be impaired by such factors as the capital markets (both generally and in the crude oil and natural gas industry in particular), our limited operating history, the location of our crude oil and natural gas properties and prices of crude oil and natural gas on the commodities markets (which will impact the amount of asset-based financing available to us) and the departure of key employees. Further, if crude oil or natural gas prices on the commodities markets decline, our revenues will likely decrease and such decreased revenues may increase our requirements for capital. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs (even to the extent that we reduce our operations), we may be required to cease our operations, divest our assets at unattractive prices or obtain financing on unattractive terms.

We have and may continue to incur substantial costs in the future in connection with raising capital to fund our business, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, which may adversely impact our financial condition.

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Credit Facility

At June 30, 2013, our revolving bank facility was CA$3,500,000. This revolving facility is payable on demand at anytime by the bank.

Planned Capital Expenditures

As funds allow, we plan to resume our drilling program on the Kansas properties. Based on the encouraging results from this 2011and 2012 drilling activity, we will execute a development program in the Kansas property. This activity was started in the third quarter of 2013.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

ITEM 4 CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our President and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on this evaluation, our President and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures include components of our internal control over financial reporting and, as such, are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Management’s assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance that the control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met (see the section below in this Item 4 entitled Limitations on the Effectiveness of Internal Controls).

Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended) that occurred during the six months ended June 30, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Our management does not expect that our disclosure controls and procedures or our internal controls over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our President and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

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PART II - OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

None.

ITEM 1A RISK FACTORS

No material changes.

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 10, 2013, the Company received $900,000 from issuing an 8% Original Issue Discount Senior Secured Convertible Debenture to Hillair Capital Investments, L.P. in the amount of $1,008,000, initially convertible at a rate of $0.0561, and payable on or before December 1, 2014. In conjunction with the debenture, 3,000,000 shares of common stock with a fair value of approximately $150,000 were issued to Hillair as a consideration for executing the agreement in advance of the Bank waiving certain security agreements on select assets. In conjunction with the Debenture, a warrant was issued to purchase up to a number of shares of common stock equal to 100% of the principal amount of the debenture, divided by $0.0561. The exercise price is $0.0673, subject to any further adjustments in the debenture.

In conjunction with the above Senior Secured Convertible Debenture issuance, the Company and the National Bank of Canada reached an agreement to retire the bridge demand loan prior to its scheduled retirement date of September 24, 2013.

Use of Proceeds from the Hillair debenture shall be used for drilling, property lease and facilities and the bridge loan repayment. This unregistered sale of equity securities was disclosed by the Company in a Form 8-K filed with the Securities and Exchange Commission on July 17, 2013.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5 OTHER INFORMATION

None.

ITEM 6 EXHIBITS

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report.

Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

•

may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;

•

may apply standards of materiality that differ from those of a reasonable investor; and

•

were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.

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SIGNATURES

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


	LEGEND OIL AND GAS, LTD.

Dated: August 14, 2013	By:	/s/ Marshall Diamond-Goldberg
		Marshall Diamond-Goldberg
		President and Chief Executive Officer
		(Principal Executive Officer)

Dated: August 14, 2013	By:	/s/ James Vandeberg
		James Vandeberg
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

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EXHIBIT INDEX

Exhibit No.	Description	Location


31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934	Filed herewith.

31.2	Certification of Principal Accounting and Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934	Filed herewith.

32.1	Certification of Principal Executive Officer and Principal Accounting and Financial Officer pursuant to Rule 13a-14(b) or 15d-14(b) under the Securities Exchange Act of 1934 and to 18 U.S.C. Section 1350	Filed herewith.

101.INS	XBRL Instance Document	**

101.SCH	XBRL Taxonomy Extension Schema Document	**

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	**

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	**

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	**

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	**

XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

Attached files

Legend Oil & Gas, Ltd. Reports

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