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EX-31.1 - CERTIFICATION - North American Oil & Gas Corp.namg_ex311.htm

 

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One) 

x QUARTERLY REPORT PURSUANT 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

 

FOR THE TRANSITION PERIOD FROM _______________TO _______________

 

Commission File Number: 333-172896

 

NORTH AMERICAN OIL & GAS CORP.

(exact name of registrant as specified in its charter)

 

Nevada

 

98-087028

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

56 E. Main St. Suite 202 Ventura, CA

  93001
(Address of principal executive offices)   (Zip Code)

  

(805) 643-0385 

(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 (§ 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,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

(Do not check if a smaller reporting company)

   

 

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

 

As of November 14, 2014, there were 63,164,337 shares of registrant’s common stock outstanding.

 

 

 

NORTH AMERICAN OIL & GAS CORP.

 

 Table of Contents

 

PART I. FINANCIAL INFORMATION

   
       

Item 1.

Financial Statements

   

3

 
           

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   

11

 
           

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

   

18

 
           

Item 4.

Controls and Procedures

   

18

 
           

PART II. OTHER INFORMATION

       
           

Item 1.

Legal Proceedings

   

19

 
           

Item 1A.

Risk Factors

   

19

 
           

Item 2.

Unregistered Sales of Securities and Use of Proceeds

   

19

 
           

Item 3.

Defaults Upon Senior Securities

   

19

 
           

Item 4.

Mine Safety Disclosures

   

19

 
           

Item 5.

Other information

   

19

 
           

Item 6.

Exhibits

   

20

 
           

SIGNATURES

   

21

 

 

 
2

 

NORTH AMERICAN OIL & GAS CORP.

Condensed Consolidated Balance Sheets

 

    September 30,
2014
    December 31,
2013
 
    (Unaudited)      

ASSETS

       

Current Assets

       

Cash and Cash Equivalents

 

$

74,824

   

$

49,563

 

Accounts Receivable

   

879

     

704

 

Total Current Assets

   

75,703

     

50,267

 

Restricted Cash

   

-

     

1,037

 

Oil and Gas Properties, Successful Efforts method

   

496,764

     

472,520

 

Furniture, Fixtures, and Equipment

   

4,792

     

5,876

 

Deposits

   

21,300

     

21,300

 

Total Non-current Assets

   

522,856

     

500,733

 
                 

TOTAL ASSETS

 

$

598,559

   

$

551,000

 
                 

LIABILITIES AND SHAREHOLDERS' DEFICIT

               

Liabilities

               

Current Liabilities

               

Accounts Payable

 

$

162,959

   

$

62,655

 

Accounts Payable - Related Party

   

106,610

     

156,610

 

Advance from Working Interest Owner

   

26,711

     

53,090

 

Other Current Liabilities

   

294,916

     

172,735

 

Convertible Note Payable, net of Original Issue Discount of $42,414 and $0, respectively and Debt Discount of $15,661 and $0, respectively

   

126,925

     

-

 

Note Payable - Related party, including accrued interest

   

20,133

     

50,000

 

Total Current Liabilities

   

738,254

     

495,090

 
                 
Long-term Liabilities                

Convertible Note Payable, net of Original Issue Discount of $4,801 and $0, respectively

   

45,199

     

-

 

Asset Retirement Obligation

   

111,062

     

104,100

 

Total Liabilities

   

894,515

     

599,190

 
                 

Shareholders' Deficit

               

Common Stock: $0.001 par value; 200,000,000 shares authorized; 63,164,337 and 61,114,602 shares issued and outstanding, respectively

   

63,164

     

61,115

 

Preferred Stock; 25,000,000 authorized; zero issued

   

-

     

-

 

Additional paid-in capital

   

2,303,737

     

1,818,389

 

Accumulated deficit

   

(2,662,857

)

   

(1,927,694

)

Total Shareholders' Deficit

   

(295,956

)

   

(48,190

)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT

 

$

598,559

   

$

551,000

 

 

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

 

 
3

 

NORTH AMERICAN OIL & GAS CORP.

Consolidated Statements of Operations

(Unaudited)

 

    For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
   

2014

   

2013

   

2014

   

2013

 

Expenses

                       

Exploration & Leasehold Costs

 

$

25,446

   

$

19,409

   

$

68,241

   

$

429,611

 

Management and Consulting

   

50,288

     

7,000

     

100,788

     

61,980

 

General and Administration

   

167,936

     

138,927

     

532,766

     

707,973

 

Depreciation

   

361

     

39

     

1,084

     

117

 

Accretion on Asset Retirement Obligation

   

2,321

     

3,991

     

6,962

     

7,114

 
                                 

Total Expenses

   

246,352

     

169,366

     

709,841

     

1,206,795

 
                                 

Other Income (Expense)

                               

Interest Expense, including amortization of OID

   

(17,918

   

-

     

(20,071

)

   

-

 

Amortization of debt discount

   

(6,494

)

   

-

     

(6,494

)

   

-

 

Other Income (Expense)

   

-

     

(1,600

)

   

1,243

     

(7,250

)

                                 

Total Other Income (Expense)

   

(24,412

)

   

(1,600

)

   

(25,322

)

   

(5,650

)

                                 

Net (Loss)

 

$

(270,764

)

 

$

(170,966

)

 

$

(735,163

)

 

$

(1,214,045

)

                                 

(Loss) per common share

 

$

(0.00

)

 

$

(0.00

)

 

$

(0.01

)

 

$

(0.02

)

                                 

Weighted average number of shares outstanding

   

63,164,337

     

60,468,682

     

62,748,293

     

60,294,299

 

 

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

 

 
4

 

NORTH AMERICAN OIL & GAS CORP.

 Consolidated Statements of Cash Flows

(Unaudited)

 

   

For the Nine Months Ended

September 30,

 
   

2014

   

2013

 

Cash Flows from Operating Activities:

           

Net (Loss)

 

$

(735,163

)

 

$

(1,214,045

)

Adjustments to Reconcile Net (Loss) to Net Cash

               

(Used in) Operating Activities:

               

Depreciation expense

   

1,084

     

116

 

Amortization of original issue discount

   

17,785

     

-

 

Amortization of debt discount

   

6,494

     

-

 

Accretion expense

   

6,962

     

7,114

 

Stock based compensation

   

92,089

     

448,114

 

Common stock issued for services

   

21,000

     

-

 

Consulting fees paid for by convertible note

   

15,000

     

-

 

Changes in Assets and Liabilities:

               

(Increase)/Decrease in accounts receivable

   

(175

)

   

4,441

 

(Increase)/Decrease in prepaid and other assets

   

-

     

3,726

 

Increase/(Decrease) in accrued expenses

   

124,467

     

129,676

 

Increase/(Decrease) in accounts payable

   

100,304

     

(429,004

)

Increase/(Decrease) in accounts payable - related party

   

(50,000

)

   

147,051

 

Net Cash (Used in) Operating Activities

   

(400,153

)

   

(902,811

)

Cash Flows from Investing Activities:

               

(Purchase) of oil and gas property

   

(50,623

)

   

(810,363

)

(Purchase) of furniture, fixtures and equipment

   

-

     

(1,343

)

Restricted Cash

   

1,037

     

916,009

 

Net Cash Provided by (Used in) Investing Activities

   

(49,586

)

   

104,303

 

Cash Flows from Financing Activities:

               

Proceeds from the sale of common stock

   

300,000

     

225,020

 

Proceeds from the issuance of notes and convertible notes payable

   

180,000

     

-

 

Proceeds from issuance of related party notes

   

20,000

     

-

 

Repayment of principal on convertible notes payable

   

(25,000

)

     

-

Net Cash Provided by Financing Activities

   

475,000

     

225,020

 

Net Increase (Decrease) in Cash and Cash Equivalents

   

25,261

     

(573.487

)

Cash and Cash Equivalents at the Beginning of the Period

   

49,563

     

578,927

 

Cash and Cash Equivalents at the End of the Period

 

$

74,824

   

$

5,440

 
                 

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS

               

Shares issued for conversion of debt - related party

 

$

52,153

   

-

 

Warrants issued with convertible debt

 

$

22,155

   

$

-

 

Recovery of Oil and Gas Property

 

$

-

   

$

75,117

 

Asset Retirement Obligation

 

$

-

   

$

32,635

 

 

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

 

 
5

 

NORTH AMERICAN OIL & GAS CORP. 

Notes To Consolidated Financial Statements 

(Unaudited)

 

NOTE 1 – THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

North American Oil & Gas Corp. (hereinafter referred to as the “Company”) was incorporated in the State of Nevada on April 7, 2010. Since November 16, 2012, the Company has been engaged in the exploration and development of oil and natural gas.

 

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements, and rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 25, 2014. While management believes the procedures followed in preparing these financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

 

Commitments and Contingent Liabilities

 

The Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures as they relate to the drilling of oil and gas wells and the operations. In the Company’s acquisition of existing or previously drilled well bores, the Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to any environmental clean up or restoration, the liability to cure such a violation could fall upon the Company. Management believes its properties are operated in conformity with local, state, and federal regulations. No claim has been made, nor is the Company aware of any uninsured liability which the Company may have, as it relates to any environmental cleanup, restoration, or the violation of any rules or regulations.

 

The Company is contingently liable for all of the asset retirement costs associated with the Pass Exploration 77-20 well, as opposed to its 75% working interest share of such costs. The asset retirement obligation has been calculated using the Company’s share of 75% of the working interest in the leased property. Pursuant to the Farm-In, the Company is contingently liable for 100% of the asset retirement obligation related to the Pass Exploration 77-20 well if the well proves to be incapable of producing oil or gas in commercial quantities. This well was in the drilling process as of December 31, 2013.

 

Reclassifications

 

Certain reclassifications of amounts previously reported have been made to the accompanying consolidated financial statements to maintain consistency between periods presented. The reclassifications had no impact on net (loss) or stockholders’ equity (deficit).

 

 
6

 

NOTE 2 – GOING CONCERN

 

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs, which indicates a substantial doubt of its ability to continue as a going concern. The Company has accumulated losses of $2,662,857 and has a working capital deficit of $662,551 at September 30, 2014. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.

 

Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and to succeed in its future operations. If the Company is unable to make it profitable, the Company could be forced to discontinue operations.

 

The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts.

 

NOTE 3 – RELATED PARTY TRANSACTIONS

 

The Company entered into a short-term loan with ASPS Energy Investments, Ltd. (“ASPS”), a company whose voting and investment control is held by Mr. Robert Rosenthal, the Company's President and Chief Executive Officer, on September 7, 2012, for the principal sum of $50,000, with interest rate of 3%. The note was due and payable on September 6, 2013, when the outstanding amount of principal and interest was due in full. On February 3, 2014, the outstanding principal of $50,000 as well as accrued interest of $2,153 was converted into 200,590 shares of common stock at a price of $0.26 per share.

 

On November 13, 2012, the Company entered into a Farm-In agreement with Avere Energy Corp (“Avere”), a wholly owned subsidiary of East West Petroleum Corp. According to the provisions of the agreement, Avere was to fund $300,000 for overhead, which was funded at 100% as of May 1, 2013. The Company has repaid through cash and overhead deductions in the amount of $193,390 leaving the debt remaining at September 30, 2014 of $106,610. Additionally, Avere has provided $1,300,000 to finance the drilling of Well 77-20 in exchange for a 25% working interest in the Tejon Extension. Well 77-20 has been drilled, and is currently shut in while reviewing additional testing possibilities. As of September 30, 2014 Avere has contributed $1,337,019 towards Well 77-20, with NAMOG’s contribution at $115,275.

 

Through the Farm-In agreement, Avere is to fund $347,500 in total to acquire the White Wolf Prospect in exchange for a 50% working interest. As of June 30, 2014 NAMOG secured 4,663 gross acres, 2,239 net acres, at an average cost per net acre of $135.18. The total costs for the White Wolf leasing acquisition program through September 30, 2014 is $399,823. Avere’s share of these costs at September 30, 2014 is $307,446 leaving a remaining obligation from Avere of $40,054 per this agreement.

 

 
7

  

On February 1, 2013, the Company entered into a consulting contract with a Board Director, Cosimo Damiano. The consulting contract is for twelve months beginning January 2013 at a rate of $5,000 per month, and covers a variety of consulting activities in the management and operations of the Company. For the twelve (12) month period ending December 31, 2013 the Company incurred consulting fees totaling $60,000, $35,000 of which is included in accounts payable as of September 30, 2014.

 

On April 1, 2013 Donald Boyd, Operations Manager, and Robert Skerry Hoar, Managing Geologist, agreed to termination of services as full time employees, and signed Consulting Agreement contracts with the Company this same date. Each individual contract stipulates $5,000 per month fixed compensation for consulting services in the ongoing operations of NAMOG. As of September 30, 2014, the Company has $43,500 in accounts payable to Donald Boyd and $40,000 to Robert Skerry Hoar in accounts payable. These agreements have been terminated effective November 1, 2014.

 

On July 23, 2014, the Company entered into a short-term promissory note (the “Note”) with ASPS Energy Investments Ltd., a company whose voting and investment control is held by Mr. Robert Rosenthal, the Company’s President and Chief Executive Officer. The Note is for a principal amount of $20,000, bears interest at the rate of 4% per annum, and is payable on or before August 26, 2014. The proceeds from the Note will be used for the Company’s general business purposes. This amount remains outstanding as of September 30, 2014, and the Company has accrued $133 in interest on this note through September 30, 2014.

 

NOTE 4 – COMMON STOCK

 

On January 27, 2014, the Company entered into a Stock Purchase Agreement with Oel und Erdgazforshung AG, a Nevis Corporation, for the sale and issuance of 854,701 shares of the Company’s common stock for a purchase price of $200,000, and warrants to purchase an aggregate of 100,000 shares of Common Stock, at an exercise price of $.30 per share. The Warrants are exercisable immediately and expire January 27, 2017.

 

On February 3, 2014, ASPS elected to convert its $50,000 loan plus interest to date (totaling $52,153) to Two Hundred-thousand, Five Hundred-ninety (200,590) common shares based on the previous day’s close (Friday, January 31, 2014) of $0.26 per share.

 

On March 24, 2014, the Company issued 300,000 shares of common stock to a consultant for services rendered valued at $21,000 ($0.07 per share).

 

On March 28, 2014, the Company entered into a Stock Purchase Agreement with Oel und Erdgazforshung AG, a Nevis Corporation, for the sale and issuance of 694,444 shares of the Company’s common stock for a purchase price of $100,000, and warrants to purchase an aggregate of 50,000 shares of Common Stock, at an exercise price of $.18 per share. The Warrants are exercisable immediately and expire March 28, 2017.

 

 
8

 

NOTE 5 – STOCK OPTIONS

 

The Company awarded Linda Gassaway, Chief Financial Officer, 500,000 shares of stock options on April 1, 2013. The restricted stock options were offered at an exercise price of $.80 per share, and vested one year from date of grant (April 1, 2014). The Company also had 350,000 options that have fully vested in previous years outstanding.

 

The fair value of the option grants were estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility of 202.5%, risk free interest rate of 0.76%; and expected term of five years.

 

During the nine months ended September 30, 2014, the Company recorded stock-based compensation of $92,089 related to options granted in prior periods. At September 30, 2014 the weighted average remaining life of the stock options is 8 years. All options had been fully amortized as of September 30, 2014.

 

Outstanding as of September 30, 2014

  Number of Options/Shares     Range of
Exercise
Prices
    Weighted-
Average
Exercise Price
 

Outstanding as of December 31, 2013

 

850,000

   

$

0.70-$0.80

    $

0.76

 

Options granted

   

-

   

$

0.00

   

$

0.00

 

Options exercised

   

-

   

$

0.00

   

$

0.00

 

Options fofeited/expired/cancelled

   

-

   

$

0.00

   

$

0.00

 

Outstanding as of September 30, 2014

   

850,000

   

$

0.70-$0.80

   

$

0.76

 

Exercisable as of September 30, 2014

   

850,000

   

$

0.70-$0.80

   

$

0.76

 

Exercisable as of December 31, 2013

   

350,000

   

$

0.70

   

$

0.70

 

 

Information about stock options outstanding as of September 30, 2014 is as follows:

 

Exercise
Price
    Number of Options
Outstanding
    Weighted-Average
Remaining
Contractual Life
(years)
    Number of
Options
Exercisable
 

$

0.70

   

350,000

   

7.40

   

350,000

 

$

0.80

     

500,000

     

8.50

     

500,000

 
         

850,000

     

8.06

     

850,000

 

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE

 

WHC Capital, LLC

 

On August 12, 2014 the Company entered into a Convertible Promissory Note with WHC Capital, LLC. (“WHC”). The Convertible Promissory Note provides the Company with a note in the principal amount of $210,000. The net proceeds the Company received was $135,000 as $60,000 of Original Issue Discount and a financing fee of $15,000 was netted out from the total principal. The Convertible Promissory Note matures on February 11, 2015, and the Company shall make monthly installments of $25,000, commencing September 11, 2014, with the balance due at maturity. As of September 30, 2014, the initial payment due has been made and the balance remaining at September 30, 2014 is $185,000.

 

The Convertible Promissory Note may not be prepaid in whole or in any part except as otherwise explicitly set forth in the agreement. Any amount of principal or interest on this Convertible Promissory Note which is not paid when due shall bear interest at the rate of twenty-two percent (22%) per annum from the due date thereof until the same is paid.

 

WHC shall have the right and at any time after February 11, 2015 to convert all or any part of the outstanding and unpaid principal amount of the Convertible Promissory Note into shares of the Company’s common stock at a conversion price of a thirty-percent (30%) discount off the average of the three (3) lowest intra-day trading prices during the twenty (20) trading days immediately preceding a conversion date, as reported by NASDAQ.

 

In accordance with the Convertible Promissory Note agreement, if at any time when the note is outstanding, the Company issues or sells, any common shares for no consideration or for consideration per share less than the conversion price in effect on the date of such issuance of such shares of common stock, then immediately upon that issuance, the conversion price will be reduced to the amount of the consideration per share received by the Company.

 

 
9

  

In addition, the Company has recognized an original issue discount in the amount of $60,000. This amount will be amortized using the effective interest method over the life of the Convertible Promissory Note. For the period ended September 30, 2014, the Company has amortized $17,586, with $42,414 remaining as of September 30, 2014.

 

The WHC note was issued with 500,000 warrants, expiring thirty-six months from the execution of the warrant agreement are exercisable into 500,000 common shares of the Company’s Common Stock at $.15 per share. The fair value of the warrants were estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility of 128.14%, risk free interest rate of 1.00%; and expected term of three years. The fair value of the warrants on the date of issuance is reflected as a debt discount in the amount of $22,155 and an increase to additional paid-in capital. Through the period ended September 30, 2014, there was amortization of the debt discount of $6,494 to bring the debt discount to $15,661 as of September 30, 2014.

 

JMJ Financial

 

On September 3, 2014 the Company entered into a Convertible Note with JMJ Financial (“JMJ”). The Convertible Note provides the Company with a note in the principal amount up to $300,000. The Company received gross proceeds of $50,000, and net proceeds of $45,000, the $5,000 being Original Issue Discount. The term of the Convertible Note is two years. There is no interest due if the Company repays the note in the first three months. If the Company fails to repay the note within the 90 day period, a one-time interest charge of twelve percent (12%) shall be applied to the principal.

 

JMJ has the right after the 90th day, at its election, to convert all or part of the outstanding and unpaid principal and accrued interest into shares of common stock at a conversion price of 60% of the lowest trade price in the 20 trading days previous to the conversion.

 

In addition, the Company has recognized an original issue discount in the amount of $5,000. This amount will be amortized using the effective interest method over the life of the Convertible Promissory Note. For the period ended September 30, 2014, the Company has amortized $199, with $4,801 remaining as of September 30, 2014.

 

Long-term Debt Summary - September 30, 2014

  WHC Capital     JMJ Financial  

Principal Amount

 

$

210,000

   

$

50,000

 

Original Issue Discount

 

$

(42,414

)

 

$

(4,801

)

Debt Discount

 

$

(15,661

)

 

$

-

 

Principal Repayments

 

$

(25,000

)

 

$

-

 

Total - September 30, 2014

 

$

126,925

   

$

45,199

 

Less: Current portion of convertible notes payable

 

$

(126,925

 

$

-

 

Long-term portion of convertible notes payable

 

$

-

   

$

45,199

 

 

NOTE 7 – SUSBSEQUENT EVENTS

 

On October 30, 2014, the Company’s CFO Linda Gassaway resigned effective immediately to pursue other interests, and the Company appointed Cosimo Damiano as the interim CFO and entered into a service agreement with an outside company to assist Mr, Damiano in the reporting function for the Company.

 

 
10

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

 

This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-look statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company’s services, fluctuations in pricing for materials, and competition.

 

Overview

 

NAMG is an exploration and development stage oil and gas company. The Company through its subsidiary Lani, LLC was formed on June 20, 2011 to purchase, operate, explore and develop oil and gas properties. NAMG acquired oil and gas leases and began development of a plan for oil and gas exploration and producing operations. The Company is actively engaged in leasing properties focused in the San Joaquin Basin in California, and pursuing crude oil and natural gas opportunities, with existing foundation assets targeting exploration and exploitation of oil and gas projects located near infrastructure and existing discoveries.

 

NAMG owns lease interests in over 174 individual leases covering its three prospects. On the Tejon Ranch Main lease the Company holds 4,300 gross acres and 426 net acres; on the Tejon Ranch Extension lease the Company holds 472 gross acres and 346 net acres; and on the White Wolf leases the Company holds 4,645 gross acres and 2,286 net acres. The majority of these leaseholds are held for primary terms of five years. The current leaseholds are set to expire over various periods from now until February 26, 2018 if no additional lease terms are negotiated or extended.

 

Per seismic evaluation, these leases hold at least fourteen potentially identified drill sites for future exploration. Provided adequate funding through capital raising and farm-outs; the Company’s current plan involves permitting four wells, three in the Tejon Main lease area, and one in the Tejon Extension area, with exploration of at least one well in 2014.

 

We have no developed proven reserves or production, and have not realized any revenues from our operations. We maintain our principal administrative offices in Ventura, California. The Company is focused on exploration activities in the San Joaquin Basin in California.

 

 
11

  

The Company plans to continue using a combination of capital raisings and farm-in opportunities to develop NAMG’s leased acreage. The leaseholds are not held by drilling, and all required lease payments are made in order to retain properties for development of exploration and drilling.

 

History and Corporate Structure

 

NAMG was incorporated as Calendar Dragon, Inc. on April 8, 2010 in the State of Nevada. From inception until the completion of the reverse acquisition on November 20, 2012, the Company was in the development stage of creating a new calendaring software application. On October 11, 2012, the Company filed an amendment to its Articles of Incorporation changing its name to North American Oil & Gas Corp. During that time, we had no revenue and our operations were limited to capital formation, organization, and development of our business plan and target customer market. As a result of the merger we ceased prior operations and are now engaged in an exploration stage oil and gas enterprise focused on the acquisition, stimulation, rehabilitation and asset improvement of leased acreage in California. NAMG has no developed reserves or production, and has not realized any revenues from operations.

 

Recent Developments

 

The Company licensed seismic data over 3,429 gross acres (2,946 net acres) on our Tejon Extension and Tejon Main prospect in February 2013. Consulting geologists completed an exhaustive analysis on this 3D survey in September 2013. We have finished the mapping and volumetric analysis of the 14 prospects previously identified. We have further refined the extent of, and reduced the associated technical risk, of these prospects. This work will allow the Company to prioritize its prospect inventory in terms of geologic risk, resource potential, drilling difficulty and permitting issues.

 

The prospects include 5 target horizons; the Eocene, Vedder, JV, Olcese, Reserve and Transition Zone. The 3D interpretation shows traps that were untested in the previous drilling campaign because we did not have this data to drive the Company’s development programs.

 

This seismic evaluation also indicated new target zones to test in our shut-in Well 77-20. NAMG has tentatively budgeted to reopen the Well 77-20 in 2014 for further testing at a cost of NAMG’s 75% working interest share at $100,000. This testing, however, is predicated on the Company’s ability to raise sufficient capital to proceed.

 

Based on the finding in the 3D evaluation, the Company has budgeted to drill a well on the Tejon Main prospect in late-2014 subject to the Company’s ability to raise sufficient capital to fund the project. The Company has started the permitting process of two wells.

 

On August 1, 2013 NAMG and Avere entered into a Purchase and Sale Agreement with Solimar to purchase an additional interest in the Tejon Main leaseholds. This Agreement resulted in NAMG increasing our working interest to 40% in the Tejon Main Lease, as well as operatorship on the deep depths. Avere, through this acquisition now holds a 50% working interest, with Solimar holding a 10% working interest.

 

During the period ending December 31, 2013 the Company oversaw an aggressive acquisition program in the White Wolf prospect. As of September 30, 2014 the Company continued its aggressive acquisition program in the White Wolf prospect. The Company has acquired additional leases in this prospect totaling approximately 1,156 gross, and 1,054 net acres in this prospect.

 

 
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Development

 

Beginning in June 2011, NAMG has focused on California projects, in proven, prolific hydrocarbon provinces. NAMG specifically is focused on three projects within the San Joaquin Basin; Tejon Ranch Extension, Tejon Main, and White Wolf. Within these three projects, NAMG has built up leasehold acreage. From June 2011 through December 2013 the Company went from approximately 3,209 net acres of leasehold property to over 5,198 net acres of leasehold properties. The cost incurred for this additional 1,989 leasehold acreage acquisition has been approximately $292,186, and approximately $27,500 for previous acreage. The exploration drilling and testing of the 77-20 well totaled $1,452,294, with $1,300,000 covered by Avere, as agreed to in the Farm-In, with the remainder allocated per the working interest percentages.

 

The purchase of seismic data in February 2013 allowed the Company to thoroughly analyze its Tejon Main and Tejon Extension assets for exploration and development. In a July 2013 investor presentation made available to the public, the Company identified fourteen low risk and high risk prospects targeting light oil with 24/81 mmboe of gross resource potential and acreage play. The primary objectives are in the Eocene, Olcese and JV sands, near shore and submarine channel. The Company has plans to permit and explore up to four identified well locations, pending sufficient funding for development.

 

On August 1, 2013 NAMG acquired additional interest percentage in the Tejon Main lease from Solimar, for a purchase price of $125,000. This purchase secured additional interest, bringing the Company‘s working interest percent to 40%, as well as operatorship over both the shallow and deep well depth locations.

 

NAMG is in the exploratory stage of oil and gas projects and has no current production. Our infrastructures and geographical locations are based near other oil and gas discoveries within California, and, throughout California, there are over twenty proven end user markets (refineries). NAMG will geographically rely on approximately four oil and gas refineries. The refineries are competitive with market prices; NAMG ‘s future consideration for an oil and gas customer will be based on transportation costs, facility costs, and pipeline costs.

 

Plans for our fiscal year 2014 include the following:

 

The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs, which indicates a substantial doubt of its ability to continue as a going concern. The Company has accumulated losses of $2,662,857 and has a working capital deficit of $662,551 at September 30, 2014. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.

 

Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependant upon the Company's ability to raise additional capital, obtain financing and to succeed in its future operations. If the Company is unable to make it profitable, the Company could be forced to discontinue operations.

 

Subject to obtaining additional financing, the following drilling and testing may be pursued. The projects with our working interest (“WI”) share (based on our WI as listed) of the estimated costs are listed below:

 

Estimated cost based on expected participating working interest.

 

Project

  Current WI%     No. Wells  

Procedure

  Est. Cost  
               

Tejon Main

   

40

%

   

1

 

New Drill

 

$

2.5MM

 

Tejon Extension

   

75

%

   

1

 

New Drill

 

$

1.0MM

 

 

 
13

 

Consolidated Results of Operations for the Three Months Ended September 30, 2014 Compared to the Three Months Ended September 30, 2013

 

Expenses from Operations - The Company incurred operating expenses of $246,352 for the three-month period ending September 30, 2014; an increase of $76,986 compared to $169,366 for the three-month period ending September 30, 2013. The operating expense increase is largely due to a large increase in management and consulting expenses as a result of governmental filings.

 

Other Income/Expenses – For the three-month period ending September 30, 2014 the Company had other expenses of $24,412 compared to $1,600 for the three-month period ended September 30, 2013. These expenses are the result of incurred interest on the Company’s debt and amortization of discounts on the convertible notes for 2014.

 

Consolidated Results of Operations for the Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013

 

Expenses from Operations - The Company incurred operating expenses of $709,841 for the nine-month period ending September 30, 2014; a decrease of $496,954 compared to $1,206,795 for the nine-month period ending September 30, 2013. The operating expense decrease is largely due to a large decrease in outside accounting and legal expenses as a result of reduced activity and governmental filings and a reduction of exploration activities due to adequate cash flow.

 

Other Income/Expenses – For the nine-month period ending September 30, 2014 the Company had other expenses of $25,322 compared to $7,250 for the nine-month period ended September 30, 2013. These expenses are the result of interest incurred on the Company’s debt and amortization of discounts on the convertible notes of $24,412.

 

Liquidity – At September 30, 2014, the Company had a cash balance of $74,824, compared to a cash balance at December 31, 2013 of $49,563. This increase in cash is attributed to reduction of operating expenses and new debt incurred.

 

Historically the Company has lacked liquidity, a result of insufficient financing alternatives available to the Company and the lack of production to produce significant revenues.

 

Based on current expectations, the Company will need to find additional sources of financing to meet our general corporate needs beyond December 2014 as well as any large capital requirements necessary for additional oil and gas exploration. The Company is looking for outside funding, loans, partner agreements and all other courses at their disposal to improve the sources for capital.

 

Based on the Company’s current expectations, and, along with subsequent events involving stock purchase, we continue to believe that we are only sufficiently funded through December 2014. We have listed our firm commitments with plans to continue raising capital through agreements put in place for ‘Finder Fee’s, etc. There is no assurance sufficient capital will be available at acceptable terms.

 

 
14

  

The cash requirements of the Company may have a material impact on our liquidity. The reasons for this are:

 

The Company has only secured sufficient funds to maintain its current operations through December 2014. There is an uncertainty as to whether the Company can maintain operations through the fourth quarter of 2014 without securing additional capital through cash raisings, or investor project participation; and there is no certainty that the Company can achieve profitable levels in the oil and gas exploration field, or that it will be able to raise additional capital through any means.

 

Net Cash Used in Operating Activities

 

Cash used in operating activities in the nine months ended September 30, 2014 was $400,153, compared to $902,810 used in operating activities in the nine months ended September 30, 2013. The decrease in cash used in operating activities was primarily related to a decrease stock based compensation related expenses. In addition, the Company finds itself reducing its accounts payable as monthly administrative overhead costs are reduced.

 

Cash Flows Used in Investing Activities

 

Net cash used in investing activities for the nine months ended September 30, 2014 was $49,586 compared to $104,303 provided by investing activity in the nine months ended September 30, 2013. The decrease in cash provided by investing activities is due to additions in the prior year that were funded through restricted cash.

 

Cash Flows Provided by Financing Activities

 

Cash provided by financing activities for the nine months ended September 30, 2014 was $475,000 compared to $225,020 provided in the nine months ended September 30, 2013. Financing activities during the nine months ended September 30, 2014 related to cash sales of our common stock to investors and proceeds received from notes payable, net of repayments. Cash provided by financing activities for the nine-months ended September 30, 2013 related to sales of our common stock.

 

 
15

  

Critical Accounting Policies

 

Oil and Gas Accounting

 

Accounting for oil and gas exploratory activity is subject to special accounting rules unique to the oil and gas industry. The acquisition of geological and geophysical seismic information licensed for unproved acreage to assist in determining the desirability of drilling additional development wells within an area may be capitalized under the successful efforts method. These costs must meet the definition of development activities. Leasehold acquisition costs and exploratory well costs are capitalized on the balance sheet pending determination of whether proved oil and gas reserves have been discovered on the prospect.

 

Property Acquisition Costs

 

For individually significant leaseholds, management periodically assesses for impairment based on exploration and drilling efforts to date. For leasehold acquisition costs that individually are relatively small, management exercises judgment and determines a percentage probability that the prospect ultimately will fail to find proved oil and gas reserves and pools that leasehold information with others in the geographic area. For prospects in areas that have had limited, or no, previous exploratory drilling, the percentage probability of ultimate failure is normally judged to be quite high. This judgmental percentage is multiplied by the leasehold acquisition cost, and that product is divided by the contractual period of the leasehold to determine a periodic leasehold impairment charge that is reported in exploration expense.

 

This judgmental probability percentage is reassessed and adjusted throughout the contractual period of the leasehold based on favorable or unfavorable exploratory activity on the leasehold or on adjacent leaseholds, and leasehold impairment amortization expense is adjusted prospectively. Management periodically assesses individually significant leaseholds for impairment based on the results of exploration and drilling efforts and the outlook for project commercialization.

 

Exploratory Costs

 

For exploratory wells, drilling costs are temporarily capitalized, or “suspended,” on the balance sheet, pending a determination of whether potentially economic oil and gas reserves have been discovered by the drilling effort to justify completion of the find as a producing well. If exploratory wells encounter potentially economic quantities of oil and gas, the well costs remain capitalized on the balance sheet as long as sufficient progress assessing the reserves and the economic and operating viability of the project is being made. The accounting notion of “sufficient progress” is a judgmental area, but the accounting rules do prohibit continued capitalization of suspended well costs on the mere chance that future market conditions will improve or new technologies will be found that would make the project’s development economically profitable. Often, the ability to move the project into the development phase and record proved reserves is dependent on obtaining permits and government or co-venture approvals, the timing of which is ultimately beyond our control. Exploratory well costs remain suspended as long as we are actively pursuing such approvals and permits, and believe they will be obtained. Once all required approvals and permits have been obtained, the projects are moved into the development phase, and the oil and gas reserves are designated as proved reserves. Once a determination is made the well did not encounter potentially economic oil and gas quantities, the well costs are expensed as a dry hole and reported in exploration expense.

 

 
16

  

Management reviews suspended well balances quarterly, continuously monitors the results of the additional appraisal drilling and seismic work, and expenses the suspended well costs as a dry hole when it determines the potential field does not warrant further investment in the near term. Criteria utilized in making this determination include evaluation of the reservoir characteristics and hydrocarbon properties, expected development costs, ability to apply existing technology to produce the reserves, fiscal terms, regulations or contract negotiations, and our required return on investment.

 

Proved Reserves

 

Engineering estimates of the quantities of proved reserves are inherently imprecise and represent only approximate amounts because of the judgments involved in developing such information. Reserve estimates are based on geological and engineering assessments of in-place hydrocarbon volumes, the production plan, historical extraction recovery and processing yield factors, installed plant operating capacity and operating approval limits. The reliability of these estimates at any point in time depends on both the quality and quantity of the technical and economic data and the efficiency of extracting and processing the hydrocarbons.

 

Despite the inherent imprecision in these engineering estimates, accounting rules require disclosure of “proved” reserve estimates due to the importance of these estimates to better understand the perceived value and future cash flows of a company’s E&P operations. There are several authoritative guidelines regarding the engineering criteria that must be met before estimated reserves can be designated as “proved"

 

At September 30, 2014 the Company does not have any Proved Reserves.

 

Asset Retirement Obligations

 

Under various contracts, permits and regulations, we have material legal obligations to remove tangible equipment and plug wells at the end of operations at operational sites. The fair values of obligations for dismantling and removing these facilities are accrued at the installation of the asset based on estimated discounted costs. Estimating the future asset removal costs necessary for this accounting calculation is difficult. Most of these removal obligations are many years, or decades, in the future and the contracts and regulations often have vague descriptions of what removal practices and criteria must be met when the removal event actually occurs. Asset removal technologies and costs, regulatory and other compliance considerations, expenditure timing, and other inputs into valuation of the obligation, including discount and inflation rates, are also subject to change.

 

 
17

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not required under Regulation S-K for “smaller reporting companies.”

 

Item 4. Controls and Procedures. Evaluation of disclosure controls and procedures.

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Internal controls over financial reporting and material weakness previously identified

 

Changes in internal control over financial reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended Septeber 30, 2014.

 

 
18

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are currently not a party to any material legal proceedings or claims.

 

Item 1A. Risk Factors.

 

Not required under Regulation S-K for “smaller reporting companies.”

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

 
19

 

Item 6. Exhibits.

 

31.1

 

Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     

31.2

 

Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     

32.01

 

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS **

 

XBRL Instance Document

     

101.SCH **

 

XBRL Taxonomy Extension Schema Document

     

101.CAL **

 

XBRL Taxonomy Extension Calculation Linkbase Document

     

101.DEF **

 

XBRL Taxonomy Extension Definition Linkbase Document

     

101.LAB **

 

XBRL Taxonomy Extension Label Linkbase Document

     

101.PRE **

 

XBRL Taxonomy Extension Presentation 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.

 

 
20

 

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.

 

 

 

NORTH AMERICAN OIL & GAS CORP.

 
       

Date: November 14, 2014

By /s/ Robert Rosenthal  
    Robert Rosenthal  
    Chief Executive Officer  

 

       

Date: November 14, 2014

By /s/ Cosimo Damiano  
    Cosimo Damiano  
    Chief Financial Officer  

 

 

21