UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2014

 

OR

 

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

 

Commission File Number: 000-53923

 

CARDINAL ENERGY GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		26-0703223
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
6037 Frantz Rd., Suite 103, Dublin, OH		43017
(Address of principal executive offices)		(Zip Code)

 

(614) 459-4959

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 last 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 (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [X]   NO [  ]

 

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,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer	[  ]	Accelerated Filer	[  ]
Non-accelerated Filer	[  ]	Smaller Reporting Company	[X]
(Do not check if smaller reporting company)

 

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

 

As of November 10, 2014 there were 35,205,046 shares outstanding of Registrant’s Common Stock (par value $0.00001 per share).

 

 

 

CARDINAL ENERGY GROUP, INC.

For the Quarter Ended September 30, 2014

 

TABLE OF CONTENTS

 

			Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements.		F-1
	Condensed Consolidated Balance Sheets (Unaudited)		F-1
	Condensed Consolidated Statements of Operations and Other Comprehensive Loss (Unaudited)		F-2
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)		F-3
	Condensed Consolidated Statements of Cash Flows (Unaudited)		F-4
	Notes to Condensed Consolidated Financial Statements (Unaudited)		F-6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		7
Item 4.	Controls and Procedures.		7
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		7
Item 1A.	Risk Factors.		8
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		8
Item 5.	Other Information		8
Item 6.	Exhibits.		8
Signatures			9

  

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

Cardinal Energy Group, Inc.

Condensed Consolidated Balance Sheets

 

		September 30, 2014				December 31, 2013
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash		$	328,903			$	18,694
Accounts receivable			1,193,856				-
Other current assets			107,517				67,190
Total Current Assets			1,630,276				85,884
PROPERTY AND EQUIPMENT, net			321,273				56,078
OIL AND GAS PROPERTIES (full cost method)
Unproved propeties, net of accumulated depletion, depreciation, amortization and impairment of $-0- and $579,963, respectively			2,512,889				1,355,631
OTHER ASSETS
Deposits and deferred charges			111,135				49,202
Prepaid expenses - debt issuance costs, net			452,098				-
TOTAL ASSETS		$	5,027,670			$	1,546,795
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	634,741			$	234,011
Related party payables			-				4,599
Current portion of equipment contracts payable			13,938				-
Convertible notes, net of debt discount of $326,563 and $-0-, respectively			321,437				418,306
Derivative liability			431,704				32,528
Total Current Liabilities			1,401,820				689,444
LONG-TERM LIABILITIES
Convertible notes, net of debt discount of $370,128 and $30,836, respectively			4,129,872				202,164
Equipment purchase contracts payable			37,059				-
Notes payable			340,000				400,000
Asset retirement obligations			156,191				8,639
Total Long-Term Liabilities			4,663,122				610,803
TOTAL LIABILITIES			6,064,942				1,300,247
STOCKHOLDERS’ (DEFICIT) EQUITY
Common stock, 100,000,000 shares authorized at par value of $0.00001; 38,055,046 and 35,944,750 shares issued; and 34,955,046 and 35,944,750 shares outstanding, respectively			350				359
Additional paid-in capital			8,077,417				5,293,772
Stock subscription receivable			(3,500	)			(3,500	)
Treasury stock			(2,013,380	)			-
Accumulated other comprehensive loss			(2,193,730	)			(2,193,765	)
Accumulated deficit			(4,904,429	)			(2,850,318	)
Total Stockholders’ (Deficit) Equity			(1,037,272	)			246,548
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	5,027,670			$	1,546,795

 

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

 

 

Cardinal Energy Group, Inc.

Condensed Consolidated Statements of Operations and Other Comprehensive Loss

(Unaudited)

 

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2014				2013				2014				2013
REVENUES
Oil and gas revenues		$	47,649			$	5,396			$	122,363			$	12,738
Income from contract development operations			975,000				-				975,000				-
Total Revenues from Operations			1,022,649				5,396				1,097,363				12,738
COSTS & OPERATING EXPENSES
Operating and production costs			69,065				2,520				363,141				5,246
Costs of contract development operations			328,189				-				328,189				-
Depreciation and amortization			9,699				3,908				22,296				8,516
Property and other operating taxes			3,978				-				6,589				-
Accretion on asset retirement obligation			4,296				220				12,888				659
General and administrative			373,604				294,394				1,669,899				1,013,788
Total Operating Expenses			788,830				301,042				2,403,001				1,028,209
OPERATING INCOME (LOSS)			233,819				(295,646	)			(1,305,638	)			(1,015,471	)
OTHER INCOME (EXPENSES)
Gain on sale of lease			93,448				-				93,448				-
Interest expense, net			(555,617	)			(230,881	)			(888,868	)			(243,146	)
Gain (loss) on change in the fair value of derivative liability			113,068				(44,481	)			123,528				(35,260	)
Loss on extinguishment of debt			-				-				(76,581	)			-
Total Other Income (Expenses)			(349,101	)			(275,362	)			(748,473	)			(278,406	)
NET LOSS		$	(115,282	)		$	(571,008	)		$	(2,054,111	)		$	(1,293,877	)
OTHER COMPREHENSIVE LOSS
Change in value of investments			-				-				35				(101,640	)
NET COMPREHENSIVE LOSS		$	(115,282	)		$	(571,008	)		$	(2,054,076	)		$	(1,395,517	)
Loss per share of common stock (basic and diluted)		$	(0.00	)		$	(0.02	)		$	(0.06	)		$	(0.04	)
Weighted average shares outstanding			35,128,576				35,093,415				35,865,804				34,861,422

 

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

 

 

Cardinal Energy Group, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

 

																										Accumulated
										Additional				Stock												Other				Total
		Common Stock								Paid-In				Subscription				Treasury				Accumulated				Comprehensive				Stockholders’
		Shares				Amount				Capital				Receivable				Stock				Deficit				Loss				Equity
Balance at December 31, 2012			34,545,000			$	346			$	3,518,752			$	-			$	-			$	(860,106	)		$	(2,092,860	)		$	566,132
Common stock issued for services			568,147				6				578,369				-				-				-				-				578,375
Common stock issued for cash			457,407				4				327,796				(3,500	)			-				-				-				324,300
Common stock issued for deferred costs			25,862				-				34,655				-				-				-				-				34,655
Common stock issued for interest on convertible notes			333,334				3				302,150				-				-				-				-				302,153
Common stock issued for property			15,000				-				18,750				-				-				-				-				18,750
Beneficial conversion feature			-				-				48,300				-				-				-				-				48,300
Write off of derivative liability			-				-				63,000				-				-				-				-				63,000
Accrued compensation forgiven by officers - contributed capital			-				-				402,000				-				-				-				-				402,000
Unrealized holding loss for available-for-sale-securities			-				-				-				-				-				-				(100,905	)			(100,905	)
Net loss for the year ended December 31, 2013			-				-				-				-				-				(1,990,212	)			-				(1,990,212	)
Balance at December 31, 2013			35,944,750				359				5,293,772				(3,500	)			-				(2,850,318	)			(2,193,765	)			246,547
Common stock issued for cash			699,929				7				195,968				-				-				-				-				195,975
Common stock issued for services			922,867				9				415,211				-				-				-				-				415,220
Common stock issued for settlement of accounts payable			100,000				1				29,999				-				-				-				-				30,000
Common stock issued for purchase of oil and gas properties			50,000				1				34,999				-				-				-				-				35,000
Common stock issued for conversion of debt			437,500				4				174,803				-				-				-				-				174,807
Common stock cancelled			(150,000	)			(1	)			1				-				-				-				-				-
Extinguishment of derivative liability on conversion of debt			-				-				22,068				-				-				-				-				22,068
Beneficial conversion feature on warrants issued concurrent with convertible notes			-				-				519,289				-				-				-				-				519,289
Treasury stock received for assets transferred to related party			(3,100,000	)			(31	)			1,356,308				-				(2,013,380	)			-				-				(657,103	)
Common stock issued to pay interest on debt			50,000				1				34,999				-				-				-				-				35,000
Unrealized holding loss for available-for-sale-securities			-				-				-				-				-				-				35				35
Net loss for the nine months ended September 30, 2014			-				-				-				-				-				(2,054,111	)			-				(2,054,111	)
Balance at September 30, 2014			34,955,046			$	350			$	8,077,418			$	(3,500	)		$	(2,013,380	)		$	(4,904,429	)		$	(2,193,730	)		$	(1,037,272	)

 

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

 

 

Cardinal Energy Group, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

		For the Nine Months Ended
		September 30,
		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(2,054,111	)		$	(1,293,877	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation			22,297				8,516
Accretion			12,888				659
Amortization of debt discount			193,435				68,075
Amortization of pre-paid debt issuance costs			160,291				-
Stock based compensation			453,945				350,363
Loss on settlement of debt			76,581				-
Common stock issued for interest			-				141,005
(Gain) loss on change in fair value of derivative liability			(123,528	)			35,260
Non-cash interest expense			204,772				-
Gain on sale of lease			(93,448	)			-
Operating expenses incurred by related party on behalf of the Company			-				50,289
Changes in operating assets and liabilities:
Accounts receivable - related party			-				16,978
Accounts receivable			(1,189,225	)			-
Unbilled costs on turnkey wells			(56,036	)			-
Other assets			(81,933	)			-
Accounts payable and accrued expenses			349,550				265,268
Accounts payable - related party			-				(40,421	)
Net Cash used in Operating Activities			(2,124,520	)			(397,885	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment			(231,738	)			(45,203	)
Purchase of oil and gas properties			(1,591,252	)			(110,274	)
Net Cash Used in Investing Activities			(1,822,990	)			(155,477	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related party			-				60,600
Repayment of notes payable - related party			-				(187,913	)
Proceeds from notes payable			296,000				-
Stock issued for cash			195,975				135,500
Net proceeds from convertible notes payable			4,750,000				660,831
Repayment of convertible notes payable			(469,256	)			(53,000	)
Payment of deferred financing costs			(515,000	)			-
Net Cash Provided by Financing Activities			4,257,719				616,018
NET INCREASE IN CASH			310,209				62,656
CASH AT BEGINNING OF PERIOD			18,694				3,460
CASH AT END OF PERIOD		$	328,903			$	66,116

 

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

 

 

Cardinal Energy Group, Inc.

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited)

 

		For the Nine Months Ended
		30-Sep
		2014				2013
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID FOR:
Interest		$	19,708			$	-
Income Taxes		$	-			$	-
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Unrealized gain (loss) on AFS securities		$	(35	)		$	101,640
Reduction in note payable for reduction in purchase price of oil properties		$	60,000			$	-
Extinguishment of derivative liability		$	22,069			$	63,000
Derivative liability on convertible notes payable and warrants at inception		$	544,772			$	120,840
ARO estimate on assets purchased		$	143,303			$	-
Related party debt issued for cash bond		$	-			$	20,000
Common stock issued for prepaid services		$	438,600			$	28,667
Common stock issued for conversion of debt		$	174,807			$	-
Beneficial conversion feature on warrants issued concurrent with convertible note		$	519,289			$	48,300
Common stock issued for oil and gas properties		$	35,000			$	18,750
Common stock issued for prepaid interest		$	35,000			$	161,148
Note payable issued for purchase of oil and gas properties		$	-			$	400,000
Common stock cancelled for assets transferred to related party		$	657,106			$	-
Purchase of fixed assets through financing		$	55,753			$	-
Common stock returned reflecting employment agreement changes		$	207,302			$	-
Common stock issued for settlement of accounts payable		$	30,000			$	-
Original issue discount on convertible note payable		$	90,000			$	-

 

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

 

 

Cardinal Energy Group, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

For the Periods Ended September 30, 2014 and December 31, 2013

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying condensed consolidated 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, 2014, 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 unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s December 31, 2013 audited consolidated financial statements. The results of operations for the periods ended September 30, 2014 and 2013 are not necessarily indicative of the operating results for the full year.

 

Nature of Operations and Organization

 

Cardinal Energy Group, Inc. (the “Company”) was incorporated in the State of Nevada on June 19, 2007. On September 28, 2012, the Company changed the focus of its business when it acquired all of the ownership interests of Cardinal Energy Group, LLC, an Ohio limited liability company which was engaged in the business of exploring, purchasing, developing and operating oil and gas leases. The Company changed its name to Cardinal Energy Group, Inc. on October 10, 2012 in connection with this acquisition.

 

The Company has been engaged in the exploration, development, exploitation and production of oil and natural gas. The Company sells its oil and gas products primarily to domestic purchasers of oil and gas production. Its operations are presently focused in the state of Texas. The recoverability of the capitalized acquisition and development costs for these properties is dependent upon the existence of economically recoverable reserves, the Company’s ability to obtain the necessary financing to complete required development activities, and future positive cash flows from operations and/or sufficient proceeds from the disposition of one or more of such properties.

 

Basis of Presentation and Use of Estimates

 

These financial statements have been prepared in accordance with accounting principles generally accepted in United States of America which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosures of revenues and expenses for the reported periods. Actual results may differ from those estimates.

 

Revenues and direct operating expenses of the California and Ohio properties represent members’ interest in the properties acquired for the periods prior to the closing date and are presented on the accrual basis of accounting and in accordance with generally accepted accounting principles. The financial statements presented herein include the revenues and operating expenses of the California and Ohio properties for the period of January 1, 2013 through the sale date of the properties on April 1, 2014.

 

Oil and Gas Properties

 

The Company follows the full cost method of accounting for its oil and natural gas properties, whereby all costs incurred in connection with the acquisition, exploration for and development of petroleum and natural gas reserves are capitalized. Such costs include lease acquisition, geological and geophysical activities, rentals on non-producing leases, drilling, completing and equipping of oil and gas wells and administrative costs directly attributable to those activities and asset retirement costs. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized to income.

 

Depletion and depreciation of proved oil and gas properties is calculated on the units-of-production method based upon estimates of proved reserves. Such calculations include the estimated future costs to develop proved reserves. Oil and gas reserves are converted to a common unit of measure based on the energy content of 6,000 cubic feet of gas to one barrel of oil. Costs of unevaluated properties are not included in the costs subject to depletion. These costs are assessed periodically for impairment. As of September 30, 2014 and December 31, 2013 there were no proved reserves.

 

During the nine months ended September 30, 2014, the Company completed the acquisition of 100% working interests in the Powers-Sanders and Stroebel-Broyles leases, a 93.75% working interest in the Bradford “A” and “B” leases, a 50% working interest in the Fortune lease and the remaining 15% working interest in the Dawson-Conway leases for a combined cash consideration of $1,010,000. These properties are located in Shackelford and Eastland counties in north-central Texas. The cash for these acquisitions was sourced from a portion of the proceeds from a private offering of Senior Secured Convertible Promissory Notes. The acquisition cost for these properties was capitalized. Also, during the same period, the Company sold its interests in oil and gas properties located in California and Ohio to California Hydrocarbons, Inc. in exchange for the return of 3,000,000 shares of the Company’s common stock valued at $2,010,000. The Company has recorded the return of the shares as the acquisition of Treasury Stock at cost and relieved the balance sheet of the affected assets and liabilities. On September 2, 2014 the Company sold its interests in the Bradford “A” and “B” leases to the Bradford Joint Venture Partnership (“Bradford JV”) for $325,000. The Company’s wholly-owned subsidiary CEGX of Texas, LLC provides drilling and production services to Bradford JV. The additional cost for developing the leases is $2,175,000 to include infrastructure development, drilling and completion of 14 new wells, remediation of 6 existing wells, and conversion of 1 existing producing well to an injector. The Company has no equity interest in Bradford JV.

 

 

Asset Retirement Obligation

 

The Company follows FASB ASC 410, Asset Retirement and Environmental Obligations which requires entities to record the fair value of a liability for asset retirement obligations (“ARO”) and to record a corresponding increase in the carrying amount of the related long-lived asset. The asset retirement obligation primarily relates to the abandonment of oil and gas properties. The present value of the estimated asset retirement cost is capitalized as part of the carrying amount of oil and gas properties and is depleted over the useful life of the asset. The settlement date fair value is discounted at our credit adjusted risk-free rate in determining the abandonment liability. The liability is accreted with the passage of time to its expected settlement fair value. Revisions to such estimates are recorded as adjustments to ARO and are charged to operations in the period in which they become known. At the time the abandonment cost is incurred, the Company is required to recognize a gain or loss if the actual costs do not equal the estimated costs included in ARO. The ARO is based upon numerous estimates and assumptions, including future abandonment costs, future recoverable quantities of oil and gas, future inflation rates, and the credit adjusted risk free interest rate. The ARO is $156,191 as of September 30, 2014.

 

Revenue and Cost Recognition

 

The Company uses the sales method to account for the sales of crude oil and natural gas. Under this method, revenues are recognized based on the actual volumes of oil and gas sold to purchasers. The volumes sold may differ from the volumes to which the Company is entitled based on its interest in the properties. These differences create imbalances which are recognized as a liability or as an asset only when the imbalance exceeds the estimate of remaining reserves. For the periods ending September 30, 2014 and December 31, 2013 there were no such differences.

 

The Company has agreed with the Bradford JV to provide drilling, infrastructure and work-over services to support the development of oil leases in Texas. The revenue and costs arising from the drilling and other services are matched and recorded as income and expense as each project is completed in accordance with their agreement. The costs of uncompleted projects is included as unbilled costs and reported in current assets.

 

Costs associated with the production of oil and gas (sometimes referred to as “lifting costs”) are expensed in the period incurred.

 

Accounts Receivable

 

Uncollectible accounts receivable are charged directly against earnings when they are determined to be uncollectible. Use of this method does not result in a material difference from the valuation method required by generally accepted accounting principles. At September 30, 2014 and December 31, 2013, no reserve for doubtful accounts was needed.

 

New Accounting Pronouncements

 

The FASB has issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.

 

The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.

 

In August 2014, the FASB issued a new accounting standard which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2014 and the Company will continue to assess the impact on its consolidated financial statements.

 

Management has considered all recent accounting pronouncements issued since the last audit of our financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s unaudited condensed consolidated financial statements.

 

NOTE 2 - GOING CONCERN

 

The Company’s unaudited condensed consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and the liquidation of liabilities in the normal course of business. The Company currently utilizes production revenues and the proceeds from the private sales of common stock and convertible debt instruments to fund its operating expenses. The Company’s minimal cash flows from operations and the projected cost of capital improvements of its oil and gas wells raise substantial doubt about its ability to continue as a going concern. The Company has not yet established an adequate ongoing source of operating revenues sufficient to cover its operating costs and to allow it to continue as a going concern. Management’s plans to continue as a going concern include raising additional capital through increased sales volumes of oil and gas, the sale of interests in selected oil and gas properties and by the sale of debt securities in both public and private transactions. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS

 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs.

  

 

The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of September 30, 2014 and December 31, 2013. As required by ASC 820, a financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for the nine months ended September 30, 2014, and the year ended December 31, 2013.

 

The carrying amounts reported in the balance sheets for cash, accounts receivable, loans payable, and accounts payable and accrued expenses, approximate their fair market value based on the short-term maturity of these instruments. The following table presents assets and liabilities that are measured and recognized at fair value as of September 30, 2014 and December 31, 2013, on a recurring basis:

 

Assets and liabilities at fair value on a recurring basis at September 30, 2014:

 

		Level 1				Level 2				Level 3				Total
Assets
Marketable securities		$	23,870				-				-			$	23,870
Total		$	23,870				-				-			$	23,870
Liabilities
Derivative liability			-				-			$	431,704			$	431,704
Total			-				-			$	431,704			$	431,704

 

Assets and liabilities at fair value on a recurring basis at December 31, 2013:

 

		Level 1				Level 2				Level 3				Total
Assets
Marketable securities		$	23,835				-				-			$	23,835
Total		$	23,835				-				-			$	23,835
Liabilities
Derivative liability			-				-			$	32,528			$	32,528
Total			-				-			$	32,528			$	32,528

 

The balance of the derivative liability increased from $32,528 on December 31, 2013 to $431,704 on September 30, 2014. This is due to the extinguishment of certain convertible notes and their related embedded derivative liabilities during the first quarter of 2014.

 

The value of the derivative liability was re-assessed as of September 30, 2014 resulting in a net gain to the unaudited condensed consolidated statement of operations of $123,528 and $113,068, respectively for the three and nine months ended September 30, 2014.

 

		September 30,  2014				December 31,  2013
		(Unaudited)
Opening balance		$	32,528			$	74,240
Derivative financial liability arising upon issuance of convertible notes and warrants			544,772				120,840
Extinguished derivative liability			(22,068	)			(63,000	)
Fair value adjustments			(123,528	)			(99,552	)
		$	431,704			$	32,528

 

The carrying value of short term financial instruments including cash, accounts payable, accrued expenses and short-term borrowings approximate fair value due to the short period of maturity for these instruments. The long-term debentures payable approximates fair value since the related rates of interest approximate current market rates.

 

NOTE 4 - STOCKHOLDERS’ EQUITY

 

During the nine months ended September 30, 2014, the Company issued 1,572,867 shares of common stock for services valued at fair market value of $687,523. Of this total, $35,000 was charged to Oil and Gas Properties, $30,000 was recognized as settlement of accounts payable, and $622,523 was expensed during the nine month period ended September 30, 2014. During the nine months ended September 30, 2014, the Company amortized prepaid expenses of $322,367 to operations.

 

During the nine months ended September 30, 2014, the Company issued 699,929 shares of common stock for cash proceeds of $195,975.

 

During the nine months ended September 30, 2014, the Company issued 437,500 shares of common stock valued at fair market value of $196,875 for the conversion of convertible notes to equity per the terms of note agreements. The $22,068 excess over the nominal value of the notes was credited to additional paid-in capital as the extinguishment of a derivative liability (also see Note 3).

 

During the nine months ended September 30, 2014, the Company issued 50,000 shares of common stock valued at a fair market value of $35,000 for pre-paid interest on a 90-day note.

 

During the nine months ended September 30, 2014 the Company cancelled 650,000 shares of common stock. The stock was valued based upon the value of the services assigned when the stock was issued of $207,302. Of the foregoing total of 650,000 shares, the Company cancelled 150,000 shares of common stock which were returned to the Company pursuant to the terms of a settlement agreement with Caro Capital, LLC and 500,000 shares of common stock which was returned to the Company from former employees and officers upon termination of services.

 

During the nine months ended September 30, 2014, the Company reacquired 3,000,000 shares of common stock as the result of the sale of oil and gas properties in California and Ohio (also see Note 1) and 100,000 shares in settlement of litigation with Charles A. Koenig (also see Note 9). The 3,000,000 shares associated with the asset sale were valued at a fair market value of $2,010,000 and the 100,000 shares associated with the legal settlement were valued at original cost of $3,380. The Company treated both of these transactions as the acquisition of Treasury Stock.

 

As of September 22, 2014, the beneficial conversion feature embedded in the short term note payable is subject to adjustment based upon the trading value of the Company's common stock. The value of the conversion feature is being adjusted periodically via an adjustment to the derivative liability. The value is calculated based upon the Black-Scholes call option pricing model. See Note 7 for more information on the transaction. During the nine month period ending September 30, 2014, the Company issued common stock purchase warrants to purchase an aggregate of 1,800,000 shares of the Company's common stock at an exercise price of $1.00 per share in connection with the issuance of its Senior Secured Convertible Notes discussed in Note 6 above.

 

 

NOTE 5 - RELATED PARTY TRANSACTIONS

 

Various general and administrative expenses of the Company as well as loans for operating purposes have been paid for or made by related parties of the Company. In January of 2013 the Company entered into an agreement in which a related party transferred a $20,000 surety bond to the Company. During the nine months ended September 30, 2013 the Company received cash of $60,600 and repaid $187,913 on these payables and had $50,289 in expenses paid by a related party on behalf of the Company.

 

During the nine month period ended September 30, 2014 the Company transferred the $20,000 surety bond back to a related party pursuant to the terms of the asset sale and purchase agreement covering the sale of the Company’s California and Ohio oil and gas properties. Related party receivables and payable are nil at September 30, 2014.

 

NOTE 6 - SENIOR SECURED CONVERTIBLE NOTES PAYABLE

 

In March 2014, the Company issued Senior Secured Convertible Notes in an aggregate principal amount of $3,225,000 together with common stock purchase warrants (the “Warrants”) to purchase an aggregate of 1,290,000 shares of the Company’s common stock at an exercise price of $1.00 per share as part of a private placement offering. The Senior Secured Convertible Notes bear interest at a rate of 12.0% per annum until they mature on December 15, 2015 or are converted.

 

During the three month period ended June 30, 2014 the Company issued additional Senior Secured Convertible Notes in an aggregate principal amount of $1,275,000 together with common stock purchase warrants (the “Warrants”) to purchase an aggregate of 510,000 shares of the Company’s common stock at an exercise price of $1.00 per share as part of the same private placement offering.

 

During the three month period ended September 30, 2014 no additional Senior Secured Convertible Notes were issued by the Company. The Company intends to issue the remaining $500,000 of principal available under the facility during the fourth quarter of 2014.

 

In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature in the notes. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of nil of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature.

 

In connection with the issuance of the promissory notes, the Company issued detachable warrants granting the holders the right to acquire an aggregate of 1,800,000 shares of the Company’s common stock for $1.00 per share. The warrants expire on December 31, 2019. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants in the amount of $519,289 to additional paid-in capital and as a discount against the notes. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 2 years, an average risk free interest rate of 0.69%, a dividend yield of 0% and volatility of 238.45%. The debt discount attributed to the value of the warrants issued is amortized over the notes’ maturity as interest expense.

 

The Company amortized debt discount of $75,425 and $149,160 to current operations as a component of interest expense for the three and nine months ended September 30, 2014, respectively.

 

Through the end of September 2014, the Company has paid $515,000 in commissions and fees related to the financing. Of the foregoing total $145,402 has been amortized as a component of interest expense while the remaining balance of $369,598 is classified as pre-paid debt issuance costs on the balance sheet at September 30, 2014. The net proceeds from the borrowing were used primarily to acquire selected oil and gas properties in Texas, to fund the Company’s well work-over and drilling programs, to purchase a regional office and various well testing and production equipment, to fund lease operating expenses and to retire short-term debt. The Company previously disclosed the details of the Senior Secured Convertible Notes offering in a Form 8-K filed on March 7, 2014.

 

NOTE 7 - NOTES PAYABLE AND CONVERTIBLE SHORT TERM NOTES PAYABLE

 

In July 2013, the Company issued a promissory note in the amount of $400,000 to finance the purchase of an 85% working interest in the Dawson-Conway leases located in Shackelford County, Texas. The note accrues interest at 6% per annum and is due in July 2015. In March 2014, the Company successfully negotiated a $60,000 reduction in the principal amount due to the holder of the note. All other terms of the note agreement remain unchanged. The Company has treated the reduction as an adjustment to the purchase price of the properties.

 

On September 11, 2014, Cardinal issued a 90 day promissory note to an unrelated entity in the amount of $120,000. The Company received $120,000 in cash. Under the terms of the note, Cardinal issued 50,000 shares of restricted common stock as a prepayment of interest and agreed to pay an additional $15,000 of interest on maturity of the note. The stock that was issued was valued at $0.70 per share based upon the trading value of the stock when issued resulting in a credit to common stock of $35,000 which is being amortized over the 90 days to maturity of the note. For the period ended September 30, 2014 the Company charged interest expense $10,556.

 

On September 22, 2014, the Company negotiated a short term convertible promissory note payable to an unrelated entity. Under the terms of the note, the Company received $250,000. The Company paid $10,000 as a commission related to this credit facility. The repayment of the note is due 180 days after the funds were received. The repayment is subject to the convertible features of the note. The creditor has a conversion option allowing it to choose to receive repayment of the stated principal either in cash or, at the creditor’s option, in the Company’s restricted common stock. If paid in cash the principal repayment will be $290,000 if paid on or before 90 days from the execution date of the agreement; $340,000 if paid on or before 180 days from the execution of the agreement. At the option of the note holder, the Company may repay the note by issuing restricted common stock based upon a valuation formula, which includes a calculation based upon 80% of an average of the lowest 3-day closing price during the immediate 20 days prior to the calculation of the conversion notice.

 

 

The note was issued with an original issue discount of $90,000 and the Company recorded it as prepaid debt issuance cost which is amortized over the term of the note. During the three and nine months ended September 30, 2014, the company amortized $7,500 to current period operations as interest expense.

 

The Company identified embedded derivatives related to the Convertible Promissory Notes entered into in September 2014.  These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $392,710 of the embedded derivative. The fair value of the embedded derivative was determined using the Black-Scholes Model based on the following assumptions:

 

Dividend yield:			0	%
Volatility			168	%
Risk free rate:			0.01	%

 

In conjunction with the issuance of the Convertible Promissory Notes, the Company issued an aggregate of 250,000 Class C detachable warrants exercisable three years from the date of issuance with an initial exercise price of $1 per share.

 

The Company identified embedded derivatives related to the warrants issued September 2014. These embedded derivatives included certain reset provisions. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date to adjust the fair value as of each subsequent balance sheet date. At the date of issuance, the Company determined a fair value of $152,062 of the embedded derivative. The fair value of the embedded derivative was determined using the Black-Scholes Model based on the following assumptions:

 

Dividend yield:			0	%
Volatility			168	%
Risk free rate:			1.08	%

 

The initial fair values of the embedded debt derivative of $392,710 and warrants of $152,062 was allocated as a debt discount up to the proceeds of the note ($340,000) with the remainder ($204,772) charged to operations as interest expense during the three and nine months ended September 30, 2014.

 

During the three and nine months ended September 30, 2014, the Company amortized $25,290 to current period operations as interest expense. The fair value of the described embedded derivative of $431,704 at September 30, 2014 was determined using the Black-Scholes Model with the following assumptions:

 

Dividend yield:			0	%
Volatility			167	%
Risk free rate:			0.02%-1.07	%

 

At September 30, 2014, the Company adjusted the recorded fair value of the derivative liability to market resulting in non-cash, non-operating gain of $113,068 for the three and nine months ended September 30, 2014.

 

NOTE 8 - WARRANTS AND WARRANT LIABILITY

 

On December 31, 2012 the Company issued 30,000 units at $1.00 per unit resulting in total cash proceeds of $30,000. Each unit sold consists of one share of the Company’s common stock, one Class A Redeemable Warrant, and one Class B Redeemable Warrant.

 

The Class A warrants are exercisable into one share of the Company’s common stock at $5.00 per share, expire on December 31, 2015, and are callable by the Company any time after December 31, 2014 upon 30 days written notice by the Company. If the holders do not exercise the warrants within 30 days of receiving notice from the Company, the warrants terminate 30 days from the date of notice.

 

The Class B warrants are exercisable into one share of the Company’s common stock at $9,375 per share, expire on December 31, 2017, and are callable by the Company any time after December 31, 2015 upon 30 days written notice by the Company. If the holders do not exercise the warrants within 30 days of receiving notice from the Company, the warrants terminate 30 days from the date of notice.

 

On September 22, 2014, the Company issued 250,000 Class C warrants in connection with a short term credit facility. Each of the 250,000 warrants is exercisable into one share of the Company’s common stock at $1.00 per share. The warrants were immediately exercisable. The warrants will expire if not converted into stock by September 29, 2017. After September 29, 2015, the shares are callable by the Company.

 

For each of the Class A and Class B warrants, the exercise price and/or the number of shares of common stock to be issued upon exercise is subject to adjustment in certain cases. Such adjustments would be triggered in instances where the Company does any of the following: a) pays a stock dividend, splits or reverse-splits its common stock; b) issues common stock, convertible securities, or debentures to obtain shares at a price less than the warrant exercise price; or c) distributes to shareholders evidences of its indebtedness or securities or assets.

 

On September 15, 2013 the Company and the warrant holders agreed to amend the Class A and Class B warrant agreements whereby the warrant holders waived any rights to exercise warrants that had not been exercised as of the amendment date.

 

The Company has analyzed this price adjustment provision under ASC 815 “Derivative and Hedging” and determined that these instruments should be classified as liabilities and recorded at fair value due to there being no explicit limit to the number of shares to be delivered upon settlement of the warrants. The Company has estimated the fair value of the derivative using the Black-Scholes option-pricing model at September 10, 2013. At the date the warrant agreements were amended, the embedded derivative liability was valued at $63,000 and a gain of $11,240 was recorded for the year ended December 31, 2013. The Company determined that after the amendment to the warrant agreements no derivative liability existed and the Company wrote off the derivative liability in the amount of $63,000 to additional paid-in capital.

 

 

During the nine month period ending September 30, 2014, the Company issued Class C common stock purchase warrants to purchase an aggregate of 250,000 shares of the Company’s common stock at an exercise price of $1.00 per share in connection with the issuance of its Convertible promissory note as discussed in Note 7 above.

 

During the nine month period ending September 30, 2014, the Company issued common stock purchase warrants to purchase an aggregate of 1,800,000 shares of the Company’s common stock at an exercise price of $1.00 per share in connection with the issuance of its Senior Secured Convertible Notes discussed in Note 6 above.

 

NOTE 9 - COMMITMENTS AND CONTINGENCIES

 

Litigation

 

Hudson Petroleum Ltd. v. Cardinal Energy Group, Inc. and CEGX of Texas, LLC (Case No. 2014-038 259^th Judicial District, Shackelford County. Texas) and Concho Oilfield Services, LLC v. Cardinal Energy Group, Inc.(Case No. 1:14-cv-00097United States District Court for the Northern District of Texas)

 

On May 9, 2014, Hudson Petroleum Ltd. Co. filed a complaint in the 259th District Court of Shackelford County, Texas against the Company and its subsidiary CEGX of Texas, LLC, claiming that is it owed $42,874.09 for goods and services provided between December of 2013 and April of 2014. Hudson also seeks recovery of pre- and post-judgment interest, attorney’s fees, and costs. The Company and CEGX of Texas answered Hudson’s complaint and denied all liability. Moreover, the Company and CEGX of Texas filed counterclaims against Hudson asserting that Hudson failed to properly perform the lease administration services it promised to provide and improperly invoiced the Company, causing damages to the Company in an amount not yet determined but in excess of $75,000, plus attorney’s fees and costs. As of November 5, 2014, the case is in the early stages of discovery.

 

On May 12, 2014, Concho Oilfield Services, LLC filed a complaint in the 259th District Court of Shackelford County, Texas against the Company claiming that it is owed $115,911.86 for goods and services provided. Concho Oilfield Services and Hudson Petroleum Ltd. Co. are related companies. The Company removed the Concho case to the Federal District Court of the Northern District of Texas. The Company answered Concho’s complaint and denied all liability. Moreover, the Company filed a counterclaim against Concho asserting that Concho knowingly performed work that should not have been performed, incorrectly billed and overbilled, and improperly performed its work, thereby causing injury to the Company and its property and engaged in deceptive trade practices, made fraudulent representations, was negligent in providing services to the Company and engaged in a civil conspiracy. Concho has moved to dismiss some of Cardinal’s counterclaims, and that motion is pending before the Court. Cardinal has moved for a default judgment against Concho on some of its counterclaims, and that motion also is pending. Cardinal seeks to recover actual damages in an amount not yet determined but in excess of $75,000, treble damages, exemplary damages, consequential damages, including, but not limited to lost profits, cost of substitute performance, cost of mitigation and loss of goodwill plus attorney’s fees and costs. The Company and Concho agreed to meet with a mediator on November 4, 2014. The results of the November 4, 2014 mediation were not fruitful and the case continues in the early stages of discovery and pleading.

 

The Company believes that its claims and defenses in the above cases are substantial for the reasons discussed above. Litigation is, however, inherently unpredictable. The outcome of these lawsuits is subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss is complex. Consequently, we are unable to estimate the range of reasonably possible loss. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies heavily on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.

 

Cardinal Energy Group v. Charles A. Koenig, Franklin County Common Pleas Case No. 13 CV 11 12847 Franklin County, Ohio

 

On November 25, 2013, the Company filed a complaint in Franklin County, Ohio Common Pleas Court (Case No. 13-CV-11-12847) seeking the return of 100,000 shares of our unregistered common stock issued to Charles A, Koenig as a retainer for legal services. However, Mr. Koenig never performed any legal services for the Company. On December 30, 2013, Mr. Koenig moved to dismiss our complaint which had been amended prior to the hearing. On February 26, 2014, Mr. Koenig’s motion to dismiss the complaint was denied. Mr. Koenig had until March 10, 2014 to respond and he has failed to respond to our amended complaint. In the interim the Company submitted a settlement proposal to Mr. Koenig. On May 20, 2014, the Company and Mr. Koenig entered into a Settlement Agreement and Release in connection with this case wherein the Company filed a Notice of Dismissal of the Amended Complaint and Mr. Koenig agreed to execute all documents necessary to transfer ownership of 100,000 shares of the Company’s common stock to the Company. In addition, both parties agreed to pay their own expenses, costs and attorney fees in connection with the Action. The Company has treated the return of the shares as the acquisition of Treasury Stock at cost.

 

Contract Operating Agreement

 

On June 1, 2014, the Company, through its wholly owned subsidiary, CEGX of Texas, LLC entered into a Contract Operating Agreement with Bradford JV. Under the terms of this agreement, the Company agreed to perform routine and major operations, marketing services, accounting services, reporting services and other administrative services on behalf of Bradford JV as necessary to operate Bradford JV’s oil and gas lease operations on the Bradford oil and gas leases located in Shakelford County, Texas. Bradford JV agreed to pay the Company an administrative and pumping fee of $500 per well per month, 93.7% of the actual cost of electricity, taxes and ongoing maintenance and repairs to operate Bradford JV’s assets. The agreement is for a term of three years and automatically renews for one year periods until one of the parties notifies the other party not later than 60 days prior to commencement of a renewal term of its desire to not renew the agreement.

 

NOTE 10 - SUBSEQUENT EVENTS

 

In accordance with ASC 855, Company management reviewed all material events through the filing or these unaudited condensed consolidated financial statements and there are no material subsequent events to report.

  

  

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

This section of the quarterly report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results of our predictions.

 

This discussion relates to Cardinal Energy Group, Inc. and its consolidated subsidiaries and should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included under Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q, as well as our consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC on March 28, 2014.

 

We are engaged in the business of acquiring, developing and operating oil and gas leases. On April 22, 2014 we sold our oil and gas assets in California and Ohio in exchange for the return of 3,000,000 shares of our common stock valued at $2,010,000. We are focused on growth via the reworking of marginal oil and gas wells, exploiting untapped “behind the pipe” reserves by recompleting existing well bores in zones overlying currently producing formations and by selected development drilling in mature but marginally producing fields throughout Texas.

 

On March 5, 2014, we acquired a 100% working interest (80% net revenue interest) in the Powers-Sanders leases located in Shackelford County, Texas for $600,000. The property consists of 385 acres and 5 producing oil wells. We plan to rework these wells to increase their production rates and to perforate other zones currently “behind pipe” overlying the producing formation. We also plan to drill additional development wells on these leases.

 

On March 6, 2014, we acquired a 100% working interest (80% net revenue interest) in the Stroebel-Broyles leases located in Eastland County, Texas for $75,000. The property consists of 235 acres and 32 wells. We plan to re-complete these wells by perforating 3 additional zones “behind pipe” overlying the currently producing formation. We also plan to drill additional development wells on these leases.

 

On March 11, 2014, we acquired the remaining 15% working interest in the Dawson-Conway leases in Shackelford County, Texas for a cash payment of $30,000. We had previously acquired an 85% working interest in these leases in July of 2013.

 

On June 16, 2014, we acquired a 93.75% working interest in the Bradford “A” and Bradford “B” leases located in Shackelford County, Texas for $225,000 pursuant to the terms of Purchase & Sale and Farmout agreements. The property consists of 320 acres with 7 producing wells. Under the terms of the Farmout Agreement our wholly-owned subsidiary, CEGX of Texas, LLC, is obligated to spud the initial “Earning Well” by September 15, 2014. The initial well is part of a “continuous drilling program” which will afford Cardinal the opportunity to earn additional 2-acre producing units on the Bradford leases by drilling and completing injection and production wells. The property, which heretofore has never been waterflooded, has a two tank batteries. Other Tannehill plays have shown significant increases in production when a waterflood program is employed. If we are successful with our waterflood operation at Bradford we will be in an excellent position to apply this operating strategy to our operations on the neighboring Powers-Sanders leases. In addition to the Tannehill sands, these leases offer additional multiple pay zones behind pipe.

 

On September 2, 2014, we acquired a 50% working interest in the Fortune prospect located in Shackelford County, Texas for a cash payment of $80,000. The prospect consists of leasehold interests in five tracts of land aggregating just over 310 acres. The property has one uncompleted plugged well that will be re-entered and re-drilled to the prolific Caddo formation. The plan is to continue the development of the prospect by drilling 3 to 5 additional new wells into the various other formations on the property. Activity commenced during September, 2014.

 

On September 2, 2014 the Company sold its interests in the Bradford “A” and “B” leases to the Bradford Joint Venture Partnership (“Bradford JV”) for $325,000. The Company’s wholly-owned subsidiary CEGX of Texas, LLC provides drilling and production services to Bradford JV. The additional cost for developing the leases is $2,175,000 to include infrastructure development, drilling and completion of 14 new wells, remediation of 6 existing wells, and conversion of 1 existing producing well to an injector well. The Company has no equity interest in Bradford JV.

 

We have nominal revenues, have achieved losses since inception, have been issued a going concern opinion by our auditors and currently rely upon the sale of our securities to fund operations. We may enter into agreements with major and independent oil and natural gas companies to drill wells and own interests in oil and natural gas properties. We also may drill and own interests without such strategic partners.

 

 

Financial Overview

 

The following reflects how we intend to spend our capital we plan to raise over the next twelve months:

 

Acquisition of Leases		$	20,000,000
Drilling and Well Workovers		$	14,000,000
Lease Operating Costs		$	1,500,000
General and Administrative Expenses		$	2,000,000

 

During the first nine months of 2014, the Company issued Senior Secured Convertible Notes in an aggregate principal amount of $4,500,000 together with common stock purchase warrants (the “Warrants”) to purchase an aggregate of 1,800,000 shares of the Company’s common stock at an exercise price of $1.00 per share as part of a private placement offering. The proceeds from these offerings were used primarily to fund the Company’s ongoing programs to re-work and re-complete existing oil wells, to acquire selected oil and gas leases and related production equipment and facilities, drill additional development wells and to retire short-term debt.

 

The Company also secured short term financing by issuing two notes payable to unrelated entities for a total of $465,000.

 

Currently, we do not generate sufficient cash flows from producing properties to fully fund our proposed budget and maintain operations for the current year. Accordingly we will have to raise additional capital through the sale of interests in selected oil and gas properties and/or the sale of debt securities in both public and private transactions.

 

Results of Operations

 

The results discussed below are for the three and nine month periods ended September 30, 2014 and September 30, 2013, respectively.

 

Revenues

 

For the three months ended September 30, 2014, oil and gas revenues increased to $47,649 compared to $5,396 for the three months ended September 30, 2013. For the nine months ended September 30, 2014, oil and gas revenues increased to $122,363 compared to $12,738 for the nine months ended September 30, 2013. These increases primarily reflect increased oil production and resulting sales from our recently acquired Texas properties. We sold our California natural gas property effective April 1, 2014, hence natural gas sales revenues which accounted for approximately 30% of our first quarter sales revenues are not expected to significantly contribute to our over-all operating revenues on a going forward basis. We expect to increase crude oil sales revenues during the remainder of 2014 as we continue to ramp up production from our recently acquired properties in Texas.

 

In accordance with the sale, on September 2, 2014 of the Bradford A&B properties, the Company recognized net operating revenues (income from services less associated costs) of $646,811 during the third quarter of 2014 for services performed pursuant to the drilling, development and production services agreement between the Company and the Bradford JV.

 

 

Operating and Production Costs

 

For the three months ended September 30, 2014, operating and production costs increased to $69,065 compared to $2,520 for the three months ended September 30, 2013. For the nine months ended September 30, 2014, operating and production costs increased to $363,141 from $5,246 for the nine months ended September 30, 2013. The increases were primarily due to higher lease operating expenses for our recently acquired oil and gas leases in Texas.

 

General and Administrative Expenses

 

For the three months ended September 30, 2014, general and administrative expenses increased to $373,604 compared to $294,394 for the three months ended September 30, 2013. For the nine months ended September 30, 2014, general and administrative expenses increased to $1,669,899, compared to $1,013,788 for the nine months ended September 30, 2013. The increases were primarily attributable to higher professional and consulting fees as we have increased our efforts to locate additional sources of financing, retained additional personnel to administer our portfolio of operating assets and augmented our home office staff to manage our investor relations and SEC reporting obligations.

 

Depreciation, Depletion and Amortization

 

For the three months ended September 30, 2014, depreciation and amortization expense increased to $9,699 compared to $3,908 for the three months ended September 30, 2013. For the nine months ended September 30, 2014, depreciation and amortization expense increased to $22,296 compared to $8,516 for the nine months ended September 30, 2013. These increases are mainly due to the purchases of new vehicles and other pieces of rolling-stock plus the purchase of well testing and shop equipment and additional information technology assets required to support the Company’s growing operations.

 

Property and Operating Taxes

 

Operating taxes were $3,978 for the three months ended September 30, 2014 compared to $0 for the three months ended September 30, 2013. For the nine months ended September 30, 2014 property and other operating taxes totaled $6,589 versus $0 for the same period of 2013. The current periods reflect $3,978 in production and severance taxes from our Texas properties during the quarter ended September 30, 2014 and $6,048 in production and severance taxes for the nine-month period ended September 30, 2014. The nine month period ended September 30, 2014 also includes a credit of $271 in property taxes on the Company’s Armstrong lease in California and the impact of the pro-ration of property tax expense for the current year resulting from the sale of the Armstrong lease which was sold effective April 1, 2014.

 

Operating Income (Loss)

 

For the 3^rd quarter, the company had income from operations of $233,819 compared to a loss of $(295,646) for the comparable period in 2013. The income was a result of an agreement with Bradford JV group wherein the Company sold leases and agreed to develop and drill up to 14 wells on the leases transferred to Bradford. As of September 30, 2014, the Company had successfully drilled 4 wells and worked over an additional seven wells, earning $646,811 net of the cost of the services performed.

 

For the nine months ended September 30, 2014, the Company had a loss of $1,305,638 compared to a loss of $1,015,471 for the nine months ended September 30, 2013.

 

Accretion on Asset Retirement Obligation

 

Accretion expense for the three months ended September 30, 2014 increased to $4,296 compared to $220 for the three months ended September 30, 2013. For the nine months ended September 30, 2014 accretion expensed totaled $12,888 versus $659 for the nine months ended September 30, 2013. These increases reflect the addition, in the first quarter of 2014, of 78 wells in Texas to the Company’s inventory of wells subject to future plugging and abandonment liability and the removal of 16 wells from Cardinal’s inventory of oil and gas wells due to the sale of the California and Ohio properties on April 1, 2014.

 

Other Income (Expenses)

 

Other expenses for the three months ended September 30, 2014 totaled $349,101 compared to $275,362 for the three months ended September 30, 2013. Interest expense and related charges during the quarter ended September 30, 2014 was $555,617 interest versus $230,881 during the comparable quarter of 2013 and $113,068 from the gain on fair value of derivatives versus loss of $44,481 in the same quarter of 2013. The increase reflected the higher level of long-term and short-term debt outstanding. The current quarter includes a gain of $93,448 related to the sale of the leasehold interests in the Bradford leases to Bradford JV.

 

Other income/(expenses) for the nine months ended September 30, 2014 was $748,473 compared to $278,406 for the nine months ended September 30, 2013. Interest expense increased to $888,868 versus $243,146 reflecting the higher level of debt outstanding. The current period included $76,581 of “premium” costs due to the early extinguishment of debt in the first quarter. During the nine months ended September 30, 2014 the Company recorded a gain on derivative liability of $123,528 arising from convertible warrants and Class C warrants net of a $10,460 gain on the first quarter repayment of convertible debt while the prior year included a $35,260 loss related to the change in fair value of derivative liabilities. The Company also reported a gain of $93,448 resulting from the aforementioned sale of the leasehold interests in the Bradford properties.

 

Net Income (Loss)

 

For the three months ended September 30, 2014 we recorded a net loss of $115,282 compared to a net loss of $571,008 for the three months ended September 30, 2013. The reduction in the amount of the loss was primarily due to drilling, development and production services revenues related to the Bradford JV and higher crude oil sales volumes which offset the higher production and operating costs associated with the company’s increased development and production activities in Texas, higher interest related costs due to increased borrowings required to fund the Company’s growth and development activities and higher general and administrative expenses and translates into a loss of $0.003 per share in 2014 compared to a loss of $0.02 per share in 2013.

 

For the nine months ended September 30, 2014 our net loss was $2,054,111 compared to a net loss of $1,293,877 for the nine months ended September 30, 2013. The increase was mainly due to higher production and operating costs associated with the Company’s increased development and production activities in Texas and higher interest related costs due to increased borrowings required to fund its growth and development activities partially offset by higher crude oil sales and contract development revenues and translates into a loss of $0.06 per share in 2014 compared to a net loss of $0.04 per share in 2013.

  

 

Financial Condition, Liquidity and Capital Resources

 

We continue to incur operating expenses in excess of net revenue and will require capital infusions to sustain our operations until operating results improve.

 

Capital Resources and Liquidity

 

We used cash in operations of $2,124,520 during the nine months ended September 30, 2014 compared to cash used of $397,885 during the comparable period of 2013. The change was due primarily to the increased losses from operations, a net decrease in operating assets and liabilities, gain on change in fair value of derivative liability, partially offset by stock based compensation paid to employees and consultants and non-cash debt related costs.

 

We used cash in investing activities of $1,822,990 during the nine months ended September 30, 2014 compared to $155,477 during the nine months ended September 30, 2013. In 2014, we used $1,591,252 to acquire and develop oil and gas properties and $231,738 to purchase other property and equipment. In 2013, we used $45,203 for the purchase of property and equipment and $110,274 to acquire and develop oil and gas properties. (The acquisition of oil and gas properties totaling $400,000 in 2013 was financed through a secured long-term note).

 

We were provided $4,257,719 of net cash from financing activities during the nine months ended September 30, 2014 compared to $616,018 provided during the same period in 2013. The funds in 2014 came primarily from the sales of the 12% senior secured convertible and other notes for $3,985,000 (net of debt issuance costs), $195,975 from the sale of stock for cash offset by net repayment of convertible notes payable of $469,256 and proceeds from short-term notes of $296,000.

 

At September 30, 2014, we had cash on hand of $328,903 which is not sufficient to meet our operating needs for the next twelve months. Because we operate in a cash intensive industry we anticipate the need to raise additional capital through the sale of interests in selected oil and gas properties and the issuance of additional debt instruments via a combination of public and private offerings. The proceeds from such offerings will be used to re-work and re-complete our existing wells, to drill new wells and to acquire additional oil and gas properties.

 

At September 30, 2014, our current assets were $1,630,276 and our current liabilities were $1,401,820 resulting in positive working capital of $228,456. We anticipate that increased levels of production from our Texas properties will be adequate to fund our routine lease operating costs by the end of 2014. The capital expenditures required to re-work and re-complete existing wells and to drill additional development wells when coupled with the timing of proceeds from debt offerings and asset sales may result in short-term liquidity imbalances until cash flows from operating activities are consistently positive.

 

Critical Accounting Policies and Estimates

 

We prepared our financial statements and the accompanying notes in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions about future events that affect the reported amounts in the financial statements and the accompanying notes. We identified certain accounting policies as critical based on, among other things, their impact on the portrayal of our financial condition, results of operations, or liquidity and the degree of difficulty, subjectivity, and complexity in their deployment. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. Management routinely discusses the development, selection, and disclosure of each of the critical accounting policies. The following is a discussion of our most critical accounting policies.

 

Oil and Gas Properties

 

We follow the full cost method of accounting for our oil and natural gas properties, whereby all costs incurred in connection with the acquisition, exploration for and development of petroleum and natural gas reserves are capitalized. Such costs include lease acquisition, geological and geophysical activities, rentals on non-producing leases, drilling, completing and equipping of oil and gas wells and administrative costs directly attributable to those activities and asset retirement costs. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized to income.

 

Depletion and depreciation of proved oil and gas properties is calculated on the units-of-production method based upon estimates of proved reserves. Such calculations include the estimated future costs to develop proved reserves. Oil and gas reserves are converted to a common unit of measure based on the energy content of 6,000 cubic feet of gas to one barrel of oil. Costs of unevaluated properties are not included in the costs subject to depletion. These costs are assessed periodically for impairment.

 

In applying the full cost method, we performed an impairment test (ceiling test) at each reporting date, whereby the carrying value of oil and gas property and equipment is limited to the “estimated present value” of the future net revenues from its proved reserves, discounted at a 10-percent interest rate and 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 any book and tax basis differences of the properties. As of September 30, 2014 and 2013 no impairment of oil and gas properties was recorded.

 

Asset Retirement Obligation

 

We follow FASB ASC 410, Asset Retirement and Environmental Obligations which requires entities to record the fair value of a liability for asset retirement obligations (“ARO”) and recorded a corresponding increase in the carrying amount of the related long-lived asset. The asset retirement obligation primarily relates to the abandonment of oil and gas properties. The present value of the estimated asset retirement cost is capitalized as part of the carrying amount of oil and gas properties and is depleted over the useful life of the asset. The settlement date fair value is discounted at our credit adjusted risk-free rate in determining the abandonment liability. The abandonment liability is accreted with the passage of time to its expected settlement fair value. Revisions to such estimates are recorded as adjustments to ARO are charged to operations in the period in which they become known. At the time the abandonment cost is incurred, the Company is required to recognize a gain or loss if the actual costs do not equal the estimated costs included in ARO. The ARO is based upon numerous estimates and assumptions, including future abandonment costs, future recoverable quantities of oil and gas, future inflation rates, and the credit adjusted risk free interest rate. The ARO is $156,191 as of September 30, 2014.

 

Recently Issued Accounting Pronouncements

 

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

Management does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have an effect on the accompanying unaudited condensed consolidated financial statements.

 

 

Off-Balance Sheet Arrangements.

 

Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and our Chief Financial Officer, CFO, to allow timely decisions regarding required disclosure. Management, with the participation of our CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2014. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were ineffective as of September 30, 2014 due to a lack of adequate segregation of duties and the absence of a functioning audit committee. For additional details please refer to Management’s Annual Report on Internal Controls over Financial Reporting disclosed in Item 9A of the Company’s Annual Report on Form 10-K filed on March 28, 2014.

 

Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. 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. Due to 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 our company have been detected.

 

Changes in Internal Control

 

There were no changes identified in connection with our internal control over financial reporting during the nine months ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

Hudson Petroleum Ltd. v. Cardinal Energy Group, Inc. and CEGX of Texas, LLC (Case No. 2014-038 259th Judicial District, Shackelford County. Texas) and Concho Oilfield Services, LLC v. Cardinal Energy Group, Inc.(Case No. 1:14-cv-00097United States District Court for the Northern District of Texas)

 

On May 9, 2014, Hudson Petroleum Ltd. Co. filed a complaint in the 259th District Court of Shackelford County, Texas against the Company and its subsidiary CEGX of Texas, LLC, claiming that is it owed $42,874.09 for goods and services provided between December of 2013 and April of 2014. Hudson also seeks recovery of pre- and post-judgment interest, attorney’s fees, and costs. The Company and CEGX of Texas answered Hudson’s complaint and denied all liability. Moreover, the Company and CEGX of Texas filed counterclaims against Hudson asserting that Hudson failed to properly perform the lease administration services it promised to provide and improperly invoiced the Company, causing damages to the Company in an amount not yet determined but in excess of $75,000, plus attorney’s fees and costs. As of November 5, 2014, the case is in the early stages of discovery.

 

On May 12, 2014, Concho Oilfield Services, LLC filed a complaint in the 259th District Court of Shackelford County, Texas against the Company claiming that it is owed $115,911.86 for goods and services provided. Concho Oilfield Services and Hudson Petroleum Ltd. Co. are related companies. The Company removed the Concho case to the Federal District Court of the Northern District of Texas. The Company answered Concho’s complaint and denied all liability. Moreover, the Company filed a counterclaim against Concho asserting that Concho knowingly performed work that should not have been performed, incorrectly billed and overbilled, and improperly performed its work, thereby causing injury to the Company and its property and engaged in deceptive trade practices, made fraudulent representations, was negligent in providing services to the Company and engaged in a civil conspiracy. Concho has moved to dismiss some of Cardinal’s counterclaims, and that motion is pending before the Court. Cardinal has moved for a default judgment against Concho on some of its counterclaims, and that motion also is pending. Cardinal seeks to recover actual damages in an amount not yet determined but in excess of $75,000, treble damages, exemplary damages, consequential damages, including, but not limited to lost profits, cost of substitute performance, cost of mitigation and loss of goodwill plus attorney’s fees and costs. The Company and Concho agreed to meet with a mediator on November 4, 2014. The results of that meeting were not fruitful in resolving the outstanding issues between the parties. As of November 5, 2014, the case remains in the early stages of discovery.

 

 

The Company believes that its claims and defenses in the above cases are substantial for the reasons discussed above. Litigation is, however, inherently unpredictable. The outcome of these lawsuits is subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss is complex. Consequently, we are unable to estimate the range of reasonably possible loss. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies heavily on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.

 

ITEM 1A. RISK FACTORS.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

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

 

During the three months ended September 30, 2014, the Company issued a total of 225,000 shares of common stock for services valued at fair market value of $117,500.

 

These shares of our common stock were issued in reliance on the exemption from registration provided by Rule 506 of Regulation D and Sections 4(a)(2) and 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”). In addition, the recipients of our shares were sophisticated investors and had access to information normally provided in a prospectus regarding us. In addition, the recipients of these shares had the necessary investment intent as required by Section 4(a)(2) since they agreed to allow us to include a legend on the shares stating that such shares are restricted pursuant to Rule 144 of the Securities Act. These restrictions ensure that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Rule 506 of Regulation D and Sections 4(a)(2) and 3(a)(9) of the Securities Act for the above transactions.

 

ITEM 5. OTHER INFORMATION. 

 

On September 2, 2014 the Company sold its interests in the Bradford “A” and “B” leases to the Bradford Joint Venture Partnership, an Ohio general partnership and unrelated party (“Bradford JV”) for $325,000. The Company’s wholly-owned subsidiary CEGX of Texas, LLC provides drilling and production services to Bradford JV. The additional cost for developing the leases is $2,175,000 to include infrastructure development, drilling and completion of 14 new wells, remediation of 6 existing wells, and conversion of 1 existing producing well to an injector.

 

On June 1, 2014, the Company, through its wholly owned subsidiary, CEGX of Texas, LLC entered into a Contract Operating Agreement with Bradford JV. Under the terms of this agreement, the Company agreed to perform routine and major operations, marketing services, accounting services, reporting services and other administrative services on behalf of Bradford JV as necessary to operate Bradford JV’s oil and gas lease operations on the Bradford oil and gas leases located in Shackelford County, Texas. Bradford JV agreed to pay the Company an administrative and pumping fee of $500 per well per month, 93.75% of the actual cost of electricity, taxes and ongoing maintenance and repairs to operate Bradford JV’s assets. The agreement is for a term of three years and automatically renews for one year periods until one of the parties notifies the other party not later than 60 days prior to commencement of a renewal term of its desire to not renew the agreement.

 

ITEM 6. EXHIBITS.

 

				Incorporated by reference						Filed
Exhibit No.		Document Description		Form		Date		Number		herewith
4.1		Form of Common Stock Purchase Warrant		8-K		3/7/14		4.1
4.2		Form of Senior Secured Convertible Promissory Note		8-K		3/7/14		4.2
4.3		Form of Subscription Agreement		8-K		3/7/14		4.3
10.1		Working Interest Purchase and Sale Agreement dated April 22, 2014 between California Hydrocarbons Corporation and Cardinal Energy Group, Inc.		8-K		5/1/14		10.1
10.2		Contract Operating Agreement between CEGX of Texas, LLC and Bradford Joint Venture Partnership dated June 1, 2014.								X
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.								X
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.								X
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.								X
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.								X
101.INS*		XBRL Instant Document								X
101.SCH*		XBRL Taxonomy Extension - Schema.								X
101.CAL*		XBRL Taxonomy Extension - Calculations.								X
101.DEF*		XBRL Taxonomy Extension - Definitions.								X
101.LAB*		XBRL Taxonomy Extension - Labels.								X
101.PRE*		XBRL Taxonomy Extension - Presentation								X

 

*In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 14th day of November, 2014.

 

	CARDINAL ENERGY GROUP, INC.
	BY:	/s/ TIMOTHY W. CRAWFORD
		Timothy W. Crawford
		Chief Executive Officer (Principal Executive Officer)
	BY:	/s/ GARY B. PETERSON
		Gary B. Peterson
		Chief Financial Officer (Principal Financial and Accounting Officer)