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EX-32.1 - Paradigm Oil & Gas, Inc.paradigmoil10qexh321.txt
EX-32.2 - Paradigm Oil & Gas, Inc.paradigmoil10qexh322.txt
EX-31.2 - Paradigm Oil & Gas, Inc.paradigmoil10qexh312.txt
EX-31.1 - Paradigm Oil & Gas, Inc.paradigmoil10qexh311.txt

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                                     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 quarter year ended MARCH 31, 2010

[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
                For the transition period from _____ to _______

                       Commission file number: 333-103780
                       ----------------------------------

                           PARADIGM OIL AND GAS, INC.
--------------------------------------------------------------------------------
              (Exact name of small business issuer in its charter)

                    Nevada                                     33-1037546
----------------------------------------------            ----------------------
 (State or other jurisdiction of incorporation               (I.R.S. Employer
               or organization)                             Identification No.)

               123 E. Market St                                  75147
    Mabank,Texas, United States of America
----------------------------------------------            ----------------------
   (Address of principal executive offices)                     (Zip Code)

                   Issuer's telephone number: (903) 880 1161

      Securities Registered Under Section 12(b) of the Exchange Act: None

         Securities Registered Under Section 12(g) of the Exchange Act:
                         Common Stock, $0.001 par value
                         ------------------------------
                                (Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer as
defined in Rule 405 of the Securities Act. Yes No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No [X]

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-Q. Yes No [X]


                                       i

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. (Check one): Large accelerated filer Accelerated filer Non-accelerated (Do not check if a smaller Smaller reporting company [X] reporting company) filer Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes No [X] The Company's stock is traded on the OTC-BB. As of May 24, 2010, there were 23,888,058 shares of stock held by non-affiliates. As of May 24, 2010, 51,188,058 shares of the common stock of the registrant were outstanding. ii
PART I - FINANCIAL INFORMATION Item 1. Financial Statements ----------------------------- PARADIGM OIL AND GAS, INC. (An Exploration Stage Company) Index to Consolidated Financial Statements Page ------- Consolidated Balance Sheets at March 31, 2010 and January 28, 2010................................................... F-2 Consolidated Statements of Operations for the period ended March 31, 2010 and from January 28, 2010 (inception) through March 31, 2010................................. F-3 Consolidated Statements of Comprehensive Income (Loss) for the period ended March 31, 2010 and from January 28, 2010 (inception) through March 31, 2010..................................................... F-4 Consolidated Statement of Changes in Shareholders' Equity from January 28, 2010, (inception) through March 31, 2010............................................. F-5 Consolidated Statements of Cash Flows for the period ended March 31, 2010 and from January 28, 2010 (inception) through March 31, 2010................................. F-6 Notes to Consolidated Financial Statements............................ F-7 F-1
PARADIGM OIL AND GAS, INC. (An Exploration Stage Company) Consolidated Balance Sheets March 31, 2010 and January 28, 2010 March 31 January 28 2010 2010 ------------- ------------- (unaudited) (unaudited) Assets Cash $ 7,011 $ -- ------------- ------------- Total current assets 7,011 -- ------------- ------------- Natural gas and oil properties Unproved properties 557,281 541,539 ------------- ------------- Total assets $ 564,292 $ 541,539 ============= ============= Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 171,096 $ -- Convertible note payable -- Shareholder loan 94,076 -- Note payable 90,481 -- ------------- ------------- Total current Liabilities 355,653 -- Total liabilities 355,653 -- ------------- ------------- Shareholders' equity: Preferred stock, $.001 par value, 10,000,000 shares authorized, none issued or outstanding -- -- Common stock, $.001 par value; 300,000,000 shares authorized, 51,188,058 and 188,058 shares issued and outstanding 51,188 188 Additional paid-in capital 2,290,351 541,351 Accumulated deficit during the exploration stage (2,125,542) -- Accumulated comprehensive income (loss) (7,358) -- ------------- ------------- Total shareholders' equity 208,639 541,539 ------------- ------------- $ 564,292 $ 541,539 ============= ============= The accompanying notes are an integral part of these financial statements. F-2
PARADIGM OIL AND GAS, INC. (An Exploration Stage Company) Consolidated Statements of Operations For the period ended March 31, 2010 and from January 28, 2010 (inception) through March 31, 2010 January 28, 2010 Period (Inception) Ended Through March 31, March 31, 2010 2010 ------------- ------------- Expenses: Accounting and Audit $ 2,500 $ 2,500 Advertising and Promotion 258 258 Field Supplies 2,100 2,100 Legal fees 19,058 19,058 Maintenance 400 400 Meals and Entertainment 110 110 Natural gas and oil exploration costs 452 452 Professional and consulting fees 37 37 Management Fees 19,418 19,418 Office 734 734 Telephone 1,178 1,178 Transfer Agent Fees 615 615 Travel 1,278 1,278 Interest 1,200 1,200 Utilities 1,225 1,225 Foreign Exchange Loss 1,700 1,700 ------------- ------------- Total expenses 52,263 52,263 ------------- ------------- Loss from operations (52,263) (52,263) Other income (expense): Assumption of Liabilities in Acquisition (633,279) (633,279) Loss from Share issue on debt conversion (1,440,000) (1,440,000) ------------- ------------- Net loss $ (2,125,542) $ (2,125,542) ============= ============= Basic and diluted loss per share $ (0.04) ============= Basic and diluted weighted average common shares outstanding 50,462,252 ============= The accompanying notes are an integral part of these financial statements. F-3
PARADIGM OIL AND GAS, INC. (An Exploration Stage Company) Consolidated Statements of Comprehensive Income (Loss) For the period ended March 31, 2010 and from January 28, 2010 (inception) through March 31, 2010 January 28, 2010 Period (Inception) Ended Through March 31, March 31, 2010 2010 ------------- ------------- Loss for the period $ (2,125,542) $ (2,125,542) Other Comprehensive Income (Loss) Foreign currency translation adjustments (7,358) (7,358) ------------- ------------- Comprehensive Income (Loss) $ (2,132,900) $ (2,132,900) ============= ============= The accompanying notes are an integral part of these financial statements. F-4
PARADIGM OIL AND GAS, INC. (An Exploration Stage Company) Consolidated Statements of Changes in Shareholders' Equity (Deficit) As of March 31, 2010 Other Additional Compre- Common Stock Paid-In Accumulated hensive Shares Par Value Capital Deficit Income Total -------------- ------------- ------------- ------------- ------------- ------------- Balance at January 28, 2010 considering reverse merger calculations 188,058 $ 188 $ 541,351 $ -- $ -- $ 541,539 Issuance of common stock for acquisition 42,000,000 42,000 8,358,000 -- -- 8,400,000 Adjustment to record basis in Intergrated Oil and Gas Solutions, Inc. -- -- (8,400,000) -- -- (8,400,000) -------------- ------------- ------------- ------------- ------------- ------------- Balance at January 29, 2010 after reverse acquistion 42,188,058 42,188 499,351 -- -- 541,539 Common stock issued February 2 on conversion of debt 9,000,000 9,000 1,791,000 1,800,000 Net loss, quarter ended March 31, 2009 (2,125,542) (2,125,542) Foreign currency translation adjustment -- -- -- -- (7,358) (7,358) -------------- ------------- ------------- ------------- ------------- ------------- Balance at March 31, 2010 51,188,058 $ 51,188 $ 2,290,351 $ (2,125,542) $ (7,358) $ 208,639 ============== ============= ============= ============= ============= ============= The accompanying notes are an integral part of these financial statements. F-5
PARADIGM OIL AND GAS, INC. (An Exploration Stage Company) Consolidated Statements of Cash Flows For the period ended March 31, 2010 and from January 28, 2010 (inception) through March 31, 2010 January 28, 2010 Period (Inception) Ended Through March 31, March 31, 2010 2010 ------------- ------------- Cash flows from operating activities: Net loss $ (2,125,542) $ (2,125,542) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash interest 1,200 1,200 Loss on Acquisition 633,279 633,279 Loss from extinguishment of debt conversion 1,440,000 1,440,000 ------------- ------------- (51,063) (51,063) Changes in operating assets and liabilities: Accounts payable and accrued expenses 19,644 19,644 ------------- ------------- Net cash used in operating activities (31,419) (31,419) ------------- ------------- Cash flows from (used in) investing activities: Expenditures made on Oil and gas properties (15,742) (15,742) ------------- ------------- Net cash used in investing activities (15,742) (15,742) ------------- ------------- Cash flows from financing activities: Proceeds from shareholder loan 54,051 54,051 Cash acquired in acquisition 121 121 ------------- ------------- Net cash provided by financing activities 54,172 54,172 ------------- ------------- Net change in cash 7,011 7,011 Cash, beginning of period -- -- ------------- ------------- Cash, end of period $ 7,011 $ 7,011 ============= ============= Supplemental disclosure of cash flow information: Foreign currency translation of liabilities $ (7,358) $ (7,358) Assumption of accounts payable in acquisition $ 147,410 $ 147,410 Assumption of note payable, Shareholder in acquisition $ 40,025 $ 40,025 Assumption of note payable in acquisition $ 85,864 $ 85,864 Assumption of convertible debt in acquisition $ 360,000 $ 360,000 Issuance of common stock for convertible debt $ (360,000) $ (360,000) The accompanying notes are an integral part of these financial statements. F-7
PARADIGM OIL & GAS, INC. NOTES TO FINANCIAL STATEMENTS 1. UNAUDITED INFORMATION The balance sheet of Paradigm Oil & Gas, Inc. (the "Company") as of March 31, 2010, and as of January 28, 2010 Inception and the statements of operations for the period ended March 31, 2010 and from January 28, 2010 Inception to March 31, 2010 have not been audited. However, in the opinion of management, such information includes all adjustments (consisting only of normal recurring adjustments) which are necessary to properly reflect the financial position of the Company as of March 31, 2010, and the results of operations for the period ended March 31, 2010 and 2009. Certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, although management believes that the disclosures are adequate to make the information presented not misleading. Interim period results are not necessarily indicative of the results to be achieved for an entire year. These financial statements should be read in conjunction with the financial statements and notes to financial statements included in the Company's financial statements as filed on Form 10-K for the year ended December 31, 2009. 2. RELATED PARTY TRANSACTIONS Shareholders of the company have loans outstanding to the Company of $94,076 at March 31, 2010. The loans are interest free and have no formal terms of repayment. 3. REVERSE MERGER OF INTERGRATED OIL AND GAS INC. On January 28, 2010, the Company entered into a Share exchange agreement with the shareholders of Intergrated Oil and Gas Solutions Inc. (the "Acquired company") in exchange for their one hundred percent (100%) interest in all of the capital stock of the Acquired company. Paradigm issued 42,000,000 of its $.001 par value shares common shares representing 82% of the fully-diluted capital of the company in exchange for 100% of the acquired company's outstanding shares. The Acquired company is now a 100% subsidiary of the Company. The Acquired company holds 100% working interests in certain oil and gas leases along with certain Oil and Gas production equipment. The total purchase price to acquire these assets amounted to $541,538.90. These costs have been capitalized on the acquired company's books at cost as Oil and Gas Properties Under Lease. F-8
4. OIL AND GAS INTERESTS On January 28, 2010, the Company entered into a Share exchange agreement with the shareholders of Intergrated Oil and Gas Solutions Inc. (the "Acquired company") in exchange for their one hundred percent (100%) interest in all of the capital stock of the Acquired company The Acquired company is now a 100% subsidiary of the Company. The Acquired company holds 100% working interests in certain oil and gas leases along with certain Oil and Gas production equipment. The costs to acquire these assets have amounted to $541,538.90. Theses costs have been capitalized on the acquired company's books at cost as Oil and Gas Properties Under Lease. The oil and gas properties are comprised of 4 leases totaling approximately nine hundred and thirty four (934) net mineral Acres, all located in the State of Texas, USA. 692 acres in Kaufman County, carry a 80% Net Revenue Interest, 40 acres located in the County of Wood, carry a 80% Net Revenue Interest, 122.37 acres located in the County of Henderson carry a 81.25% Net Revenue Interest and 80 acres in the County of Wichita carry a 75% Net Revenue Interest. Combined there are a total of 9 existing previously producing wells and available spacing to support the drilling of approximately 30 new wells in the 3800' to 9000' range and approximately 50 new wells in the 800' to 1,800' range. The acquisition is accounted for on a consolidated basis as follows; OIL AND GAS INTERESTS March 31, 2010 ------------- Chelson Property Acquisition cost January 28, 2010 $ 121,744 Cost of work program 15,742 ------------- $ 137,486 ------------- Lett Finlay Property Acquisition cost January 28, 2010 $ 308,708 ------------- $ 308,708 ------------- Lumpkin Property Acquisition cost January 28, 2010 $ 111,057 ------------- $ 111,057 ------------- Todd Creek Property Acquisition cost $ 298,631 Cash call 52,102 Refund (17,022) Written off (50,000) Impairment expense (283,711) ------------- $ - ------------- Hillsprings Property Acquisition cost $ 207,383 Impairment expense (207,383) ------------- $ - ------------- Sawn Lake Property Farmout and option agreement $ 152,423 Impairment expense (152,423) ------------- $ - ------------- $ 557,251 ------------- F-9
5. SHAREHOLDERS' EQUITY Common Stock a) Effective January 28, 2010, Paradigm Oil & Gas Inc. (the "Company"), a Nevada corporation, entered into a Share exchange agreement with the shareholders of Intergrated Oil and Gas Solutions Inc. (the "Acquired company") a Texas corporation, whereby the Company has issued 42,000,000, US$.001 Par value common shares to unrelated shareholders in exchange for their one hundred percent (100%) interest in all of the capital stock of the Acquired company The Acquired company is now a 100% subsidiary of the Company. Prior to the Acquisition, there were 188,058 shares of the Company's Common Stock outstanding. Immediately following the Acquisition, there are 42,188,058 shares of Common Stock outstanding. On the effective date of the acquisition, additional paid in Capital was increased by $8,358,000. This was offset by $8,400,000 to record the basis in Intergrated Oil and Gas Solutions Inc. An expense of $633,279 was then recorded to recognize the assumption of liabilities on the acquisition. b) On February 2, 2010 the convertible note payable of $ 360,000 was converted into common shares at $ .04 per share. 9,000,000 shares were issued to the convertible debenture holders. On the effective date of the conversion, additional paid in Capital was increased by $ 1,791,000. A loss of $ 1,440,000 was then recognized to match the conversion to the book value of the convertible debenture. As of May 24, 2010 there were 51,188,058 common shares outstanding. 6. NATURAL GAS AND OIL EXPLORATION RISK Exploration Risk The Company's future financial condition and results of operations will depend upon prices received for its natural gas and oil production and the cost of finding, acquiring, developing and producing reserves. Substantially all of its production is sold under various terms and arrangements at prevailing market prices. Prices for natural gas and oil are subject to fluctuations in response to changes in supply, market uncertainty and a variety of other factors beyond its control. Other factors that have a direct bearing on the Company's prospects are uncertainties inherent in estimating natural gas and oil reserves and future hydrocarbon production and cash flows, particularly with respect to wells that have not been fully tested and with wells having limited production histories; access to additional capital; changes in the price of natural gas and oil; availability and cost of services and equipment; and the presence of competitors with greater financial resources and capacity. Distribution Risk The Company is dependent on the operator to market any oil production from its wells and any subsequent production which may be received from other wells which may be successfully drilled on the Prospect. It relies on the operator's ability and expertise in the industry to successfully market the same. Prices at which the operator sells gas/oil both in intrastate and interstate commerce, will be subject to the availability of pipe lines, demand and other factors beyond the control of the operator. The Company and the operator believe any oil produced can be readily sold to a number of buyers. F-10
Foreign Operations Risk The Company is exposed to foreign currency fluctuations, political risks, price controls and varying forms of fiscal regimes or changes thereto which may impair its ability to conduct profitable operations as it operates internationally and holds foreign denominated cash and other assets. 7. NOTE PAYABLE The Company is indebted under a note payable to 1132559 Alberta Ltd, bearing annual interest of 7% and secured by 100% of the first proceeds of production under the Farmout and Option Agreement for the Sawn Lake Property. There are no fixed repayment terms. The Company may be in default of this note as more fully explained in note 11. March 31 2010 ------------- 1132559 Alberta Ltd $ 90,481 ------------- $ 90,481 ============= 8. CONTRACTUAL OBLIGATIONS AND COMMITMENTS The Company is in default of its obligation to Compton Petroleum in respect to the Todd Creek Property, as it has not paid the full share of costs of drilling or to complete the well. As a result the Company has received no further information about the Todd Creek project. The Company does not expect to receive further information from the operator until all outstanding participation costs have been paid. Inconjunction with the year end audit in 2007 and 2008, 1132559 Alberta Ltd alleged that the Company was in default of the Sawn Lake Property Lake farmout agreement over which their note payable (refer to note 8) is secured by 100% of the first proceeds of production of the Sawn Lake Property. Accordingly 1132559 Alberta Ltd position is that they own the Sawn Lake Property Lake farmout agreement. The Company does not believe there has been any default and maintains its ownership in the Sawn Lake farmout agreement. 9. SUBSEQUENT EVENT On May 6, 2010 the Company received a$ 170,000 non interest bearing loan from a shareholder. F-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results -------------------------------------------------------------------------------- of Operations -------------- This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. Some discussions in this report may contain forward-looking statements that involve risk and uncertainty. A number of important factors could cause our actual results to differ materially from those expressed in any forward-looking statements made by us in this report. 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. In some cases, you can also identify forward-looking statements by terminology such as "may", "will", "should", "plans", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors", that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. Any references to "CA$" refer to Canadian Dollars and all references to "common shares" refer to the common shares in our capital stock. As used in this annual report, the terms "we", "us", "our", and "Paradigm" mean Paradigm Oil And Gas, Inc., unless otherwise indicated. Paradigm is an exploration stage company. There is no assurance that commercially viable reserves of oil and/or gas exist on our farmin lands or that commercially viable mineral deposits exist on the claims that we have under option. Some further drilling and exploration will be required before a final evaluation as to the economic and legal feasibility of our properties can be determined. OVERVIEW -------- We were incorporated as Paradigm Enterprises, Inc. in the state of Nevada on July 15, 2002 and established a year end of December 31. On February 7, 2005 we changed our name from Paradigm Enterprises, Inc. to Paradigm Oil And Gas, Inc. From July, 2002 to December, 2004, we were in the business of the exploration and development of a mineral property in British Columbia. The Company decided to abandon its interest in this mineral property and on August 26, 2005. We have not spent anything on research and development activities. On December 06, 2004, we entered into two participation proposals with Win Energy Corporation. On June 18, 2005, the Company received a payment of $147,258 from Win for the sale of 50% of the Company's 10% interest in the Todd Creek Property and currently holds a 5% interest in the project. On February 15, 2005, Paradigm entered into a Farmout and Option Agreement with 1132559 Alberta Ltd., a private Alberta corporation whereby Paradigm will farm in to a 5% interest in a test well at Township 91, Range 13 W5M, SE Section 36, and a similar interest in an additional option well at Township 91, Range 12 W5M, NW Section 29 in the Sawn Lake, Alberta, oil and gas project. In March 2006, a well was drilled in Section 36. The well is not producing at this time and Paradigm is waiting for further information from the operator on their plan of operations. Effective January 28, 2010, Paradigm Oil & Gas Inc. entered into a Share exchange agreement with the shareholders of Intergrated Oil and Gas Solutions Inc. (the "Acquired company") a Texas corporation, whereby the Company has issued 42,000,000, US$.001 Par value common shares to unrelated shareholders in exchange for their one hundred percent (100%) interest in all of the capital stock of the Acquired company . The Transaction is considered to be a reverse acquisition. The acquition date now becomes the inception date of the company. The Acquired company is now a 100% subsidiary of Paradigm. The Acquired company holds 100% working interests in certain oil and gas leases along with certain Oil and Gas production equipment. The costs to acquire these assets have amounted to $541,538.90. These costs have been capitalized on the acquired company's books at cost as Oil and Gas Properties Under Lease. 1
We have not been involved in any bankruptcy, receivership or similar proceeding nor has there been any material reclassification or merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of business other than the acquisition mentioned above on January 28, 2010. OUR CURRENT BUSINESS -------------------- PETROLEUM EXPLORATION, DEVELOPMENT AND RECOVERY Effective January 28, 2010, Paradigm Oil & Gas Inc. entered into a Share exchange agreement with the shareholders of Intergrated Oil and Gas Solutions Inc. (the "Acquired company") a Texas corporation, whereby the Company has issued 42,000,000, US$.001 Par value common shares to unrelated shareholders in exchange for their one hundred percent (100%) interest in all of the capital stock of the Acquired company The Acquired company is now a 100% subsidiary of the Company. The Acquired company holds 100% working interests in certain oil and gas leases along with certain Oil and Gas production equipment. The costs to acquire these assets have amounted to $541,538.90. These costs have been capitalized on the acquired company's books at cost as Oil and Gas Properties Under Lease. The oil and gas properties are comprised of 4 leases totaling approximately nine hundred and thirty four (934) net mineral Acres, all located in the State of Texas, USA. 692 acres in Kaufman County, carry a 80% Net Revenue Interest, 40 acres located in the County of Wood, carry a 80% Net Revenue Interest, 122.37 acres located in the County of Henderson carry a 81.25% Net Revenue Interest and 80 acres in the County of Wichita carry a 75% Net Revenue Interest. Combined there are a total of 9 existing previously producing wells and available spacing to support the drilling of approximately 30 new wells in the 3800' to 9000' range and approximately 50 new wells in the 800' to 1,800' range. BUSINESS PRIOR TO ACQUISITION OF JANUARY 28, 2010 On December 06, 2004, we entered into two participation proposal agreements with Win Energy Corporation. HILLSPRINGS PROPERTY Paradigm paid $207,383 to Win to acquire a 10% working interest in one section (640 acres) in the Hillsprings Property (Township 10, Range 34,Section 29 W4), Alberta, Canada. It is now anticipated that a test well will be drilled on our property interest in 2007. TODD CREEK PROPERTY Paradigm paid $298,631 to Win to acquire a 10% working interest in 13.75 sections (8800 acres) in the Todd Creek Property, Alberta, Canada. In June, 2005, we sold 50% of our interest back to Win for net proceeds of $127,349 (value of the interest less certain uppaid operating expenses) as of the date of this report, Paradigm holds a 5% in the Todd Creek property and has paid a net cost of $149,316 to acquire its interest. During the second quarter of 2005, a well located in Todd Creek property was drilled to a specifically targeted depth. This well is located in 13-28-9-2W5 in Alberta, Canada and we will refer to this well as the "13-28 well." The 13-28 well was evaluated and tested. The operator encountered gas reservoirs and concluded that this well is a potential gas well. This well was tied into a newly constructed gas processing plant and production commenced in September 2006. To date we have received no revenue from this well due to the fact we owe Win Energy drilling costs. In January 2007, we completed the drilling of a second well in the Todd Creek Prospect located in 13-33-8-2 in Alberta, Canada and we will refer to this well as the "13-33 well." Reports by other farmin partners indicate that no economic hydrocarbons are present. SAWN LAKE PROJECT On February 15, 2005 Paradigm entered into a Farmout and Option Agreement with 1132559 Alberta Ltd., a private Alberta corporation whereby Paradigm will farm in to a 5% interest in a test well at Township 91, Range 13 Section 36 W5M SE , and a similar interest in an additional option well at Township 91, Range 12, Section 29 W5M NW in the Sawn Lake, Alberta exploratory oil and gas project. Paradigm will also have a right of first refusal to participate in each drilling spacing unit through a farm-in on the lands held by Deep Well Oil and Gas, Inc. in the Sawn Lake project in which 1132559 Alberta Ltd has an interest. The final terms of the option for the additional DSUs are yet to be agreed upon by both parties. Paradigm will earn 100% of the farmor's interest (an undivided 10% interest in the drilling spacing unit) before payout (BPO), reverting to 50% of the farmor's interest (an undivided 5% interest) after payout(APO). Paradigm will have then earned a 5% interest in the remaining wells to be drilled in that drilling spacing unit. 2
In order to earn its interest in the initial test well, total costs of the test well, estimated to be CA $216,489, up to the point of commercial oil sales are to be borne one hundred percent (100%) by Paradigm. Total costs, estimated to be $173,200, of the option well up to the point of commercial oil sales are also to be borne one hundred percent (100%) by Paradigm in order to earn its undivided interest. Payment of the full AFE amount is due upon invoicing of Paradigm by the operator (1132559 Alberta Ltd.) for each of the test and option wells. In March 2006, a well was drilled in Section 36. The well is not producing at this time and Paradigm is waiting for further information from the operator on their plan of operations. ITEM 2. DESCRIPTION OF PROPERTY PETROLEUM PROPERTIES -------------------- Our initial petroleum project was acquired as a result of our perception of the continued demand for oil and gas on a world wide scale and the increase in the price of petroleum projects. In late 2004 the Board decided to review the feasibility of becoming involved in that sector and found available a number of reasonably low cost, low risk projects provided we could raise sufficient capital to participate in the projects. HILLSPRINGS On December 06, 2004, we entered into a participation proposal with Win Energy Corporation whereby we could acquire an interest in the Hillsprings exploratory oil and gas drilling project about 100 miles south of Calgary in the Alberta foothills for the payment of a total of $207,383 excluding drilling costs. We acquired a 5% interest in one section (640 acres) of land located at Section 34, Township 5, Range 29 W4M. TODD On December 06, 2004, we entered into a second participation proposal with Win Energy whereby we could acquire an interest in the Todd exploratory oil and gas drilling project also about 100 miles south of Calgary in the foothills of the Rocky Mountains for the payment of a total of $298,631 including drilling costs. On January 25, 2005, we concluded final payments and finalized the agreements whereby we acquired a 10% interest in 13.75 sections (8800 acres) of land located at Section 16, Township 9, Range 2 W5 and an option to December 31, 2006 to earn a 7.5% interest in an additional seven sections 4480 acres) in the surrounding area by contributing 10% of the drilling costs. Contributions to each well drilled will earn an interest in two sections. On June 18, 2005, the Corporation received a net payment of CA $117,442.50 from Win Energy Corporation for the sale of 50% of Paradigm's 10% interest in the Todd Creek Oil and Gas Property to Win, the original vendor. Paradigm now holds a 5% interest in the Todd Creek 13-28 well. On June 27, 2005, we announced that drilling of the Todd Creek Well had been moved into the final completion stage which may take up to 50 days to complete. The operators have placed the well on "tight hole" status and further news will be released upon completion of testing. As of the date of this report, that status continues; we will release further information as it comes available. "Tight hole" is a petroleum industry term used colloquially in which the performance data of a well is closely guarded. During this period, all information about the well - depth, formations, drilling rates, logs and other pertinent data - is not shared or made public. Following the evaluation of the 13-28 well, additional drilling is anticipated during the last quarter of the year on company lands. A test well drilled in Section 16, Township 9, Range 2 W5 is included in the transaction, the results of which have not been released. Further details will be provided once the tight hole status has been lifted. The next proposed well will likely be drilled at location 13-28-9-2W5 with anticipated production from two reservoirs. Estimates indicate initial potential daily production could reach 400 barrels of oil equivalent per day based upon the flow rates from adjacent and similarly structured wells. It is anticipated that it will require more than 20 such wells to fully exploit the reservoirs in the project area. Producing wells in the area typically are of long life with minimal declines. The gas is sweet with minimal sulfur or CO2 and generally receives excellent prices. Existing wells on the Todd Creek prospect typically produce at depths between 1,600 and 1,900 meters. The operator has obtained a license to build a gas plant in the project area, for up to 10,000 Mcf/day of gas which is anticipated to come on stream towards the end of 2005. This plant will be located close to the gas export line to the United States and will considerably facilitate access to this market. 3
SAWN LAKE On February 18, 2005, we announced that we have farmed into a 10% interest in a major heavy oil exploratory project located the Sawn Lake area of the Peace River region of Alberta in a project owned by 1132559 Alta. Ltd. The general terms of the farm-in agreement is that Paradigm will pay 10% to earn the full 10% interest until payout, and will retain 5% interest after payout. Paradigm's participation in any subsequent wells in that Drilling Spacing Unit (DSU) will be at 5% to earn an equal 5% interest. The first well will be drilled on DSU located at Township 91, Range 13 W5M, SE Section 36. Paradigm has also negotiated participation in another well in Township 91, Range 12 W5M, NW Section 29 under the same terms. Furthermore, Paradigm will have the option to participate in all future 1132559 Alta. Ltd.'s interests in Sawn Lake wells under terms to be negotiated. The Sawn Lake project includes over 69.5 sections of land and is operated by Signet Energy. An independent resource evaluation carried out by Ryder Scott Company estimates 820 million barrels of oil in place for the Sawn Lake Project. For reference, this report can be reviewed at the Deep Well Web site at www.deepwelloil.com. Other operators targeting the deeper Slave Point Formation have previously drilled much of the land. Because of the earlier extensive exploration for deeper light oil, Sawn Lake project is able to benefit from data collected by others pertaining to the drilling of 67 wells that penetrated and partially delineated the Bluesky Formation heavy oil reservoir. This acquisition is in line and consistent with Paradigm's investment strategy to acquire small interests in a variety of domestic and international upstream oil and gas projects to develop a high impact and diversified portfolio. PROPERTY ACQUIRED BY ACQUISITION OF INTERGRATED OIL AND GAS SOLUTIONS INC. JANUARY 28, 2010 The Acquired company holds 100% working interests in certain oil and gas leases along with certain Oil and Gas production equipment. The costs to acquire these assets have amounted to $541,538.90. Theses costs have been capitalized on the acquired company's books at cost as Oil and Gas Properties Under Lease. The oil and gas properties are comprised of 4 leases totaling approximately nine hundred and thirty four (934) net mineral Acres, all located in the State of Texas, USA. 692 acres in Kaufman County, carry a 80% Net Revenue Interest, 40 acres located in the County of Wood, carry a 80% Net Revenue Interest, 122.37 acres located in the County of Henderson carry a 81.25% Net Revenue Interest and 80 acres in the County of Wichita carry a 75% Net Revenue Interest. Combined there are a total of 9 existing previously producing wells and available spacing to support the drilling of approximately 30 new wells in the 3800' to 9000' range and approximately 50 new wells in the 800' to 1,800' range. Financial Condition and Changes in Financial Condition Consolidated Operating expenses for the period ended March 31, 2010, totaled $52,263. The Company incurred additional legal fees concerning the acquisition of Intergrated Oil and Gas Solutions inc. and related filing fees which totaled $19,058. With the addition of the operations from the acquisition and the ramping up of activity in the Company, management fees increased to total $19,418. Field supplies for the commencement of Oil field activities amounted to $2,100, maintenance $400, travel $1,278 and utilities amounted to $1,225. The remaining costs, professional fees for its accounting and audit 2,500, transfer agent fees $ 615 and interest on its notes payable $1,200 were in line and in the normal course of business. The remaining expenses relate to general and admin. Expense on Assumption of Liabilities on Acquisition On the effective date of the acquisition, additional paid in Capital was increased by $8,358,000. This was offset by $8,400,000 to record the basis in Intergrated Oil and Gas Solutions Inc. An expense of $633,279 was then recorded to recognize the assumption of liabilities on the acquisition. Loss from share issue on Acquisition On the effective date of the acquisition, additional paid in Capital was increased by $8,358,000. A loss of $9,033,279 was then recognized to match the acquisition at the book value of the Oil and Gas Interests. Loss from share issue on debt conversion On the effective date of the conversion, additional paid in Capital was increased by $ 1,791,000. A loss of $ 1,440,000 was then recognized to match the conversion to the book value of the convertible debenture. 4
Natural Gas and Oil Properties During the quarter the 100% acquisition of Intergrated Oil and Gas Solutions Inc in return for common shares added $ 541,538.90 in capital value on a consolidated basis. An additional $ 15,742 was spent and capitalized on the newly acquired properties as part of the initiation of the work plan. Liquidity and Capital Resources As of the period ended March 31, 2010, we have yet to generate any revenues from our business operations. Since inception, we have received loans or used our common stock to raise money for our optioned mineral and petroleum acquisitions, for corporate expenses, acquisitions and to repay outstanding indebtedness. Net cash provided by financing activities for the period ended March 31, 2010 was $ 54, 050, all provided by way of shareholder loans. Subsequent to March 31, 2010 an additional $ 170,000 in cash was provided by way of a shareholder loan. As of March 31, 2010, our total assets which consist of cash and oil and gas properties amounted to $ 564,292 and our total liabilities were $ 355,654. Working capital stood at $(164,086). Subsequent to March 31, 2010 an additional $ 170,000 in cash was provided by way of a shareholder loan. For the period ended March 31, 2010, our net loss was $2,125,542 ($0.04 per share). The loss per share was based on a weighted average of 50,462,252 common shares outstanding. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to the impact of market fluctuations associated with commodity prices and foreign currency. At this time, the Company has not entered into any hedging agreements due to limited value of transactions in foreign currency. The Company has entered into convertible debentures which have been determined to require derivative treatment. Item 4T. Controls and Procedures. The Company maintains "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934, as amended (the "Exchange Act"), that are designed to ensure that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management including the Company's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The management of the Company has designed and evaluated the Company's disclosure controls and procedures. Management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The Company's management, including its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of March 31, 2010. Based on that evaluation, the Company's President and Chief Executive Officer concluded that the Company's disclosure controls and procedures, as of the end of the period ended March 31, 2010 covered by this Form 10-Q, were effective CHANGE IN INTERNAL CONTROL OVER FINANCIAL REPORTING None. PART II - OTHER INFORMATION Item 1. Legal Proceedings. We are currently not a party to any pending legal proceedings and no such actions by, or to the best of our knowledge, against us have been threatened. 5
Item 1A. Risk Factors IN ADDITION TO THE OTHER INFORMATION IN THIS REPORT, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING OUR BUSINESS AND PROSPECTS, CONDITIONS EXIST WHICH CAUSE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. Market for Our Products and Services Each oil and gas property that we now own and those that we may later acquire a percentage of interest in, will have an operator who will be responsible for marketing production. The availability of a ready market for oil and gas, and the prices of such oil and gas, depends upon a number of factors, which are beyond our control. These include, among other things: o the level of domestic production; o actions taken by foreign oil and gas producing nations; o the availability of pipelines with adequate capacity; o the availability and marketing of other competitive fuels; o fluctuating and seasonal demand for oil, gas and refined products; and o the extent of governmental regulation and taxation (under both present and future legislation) of the production, importation, refining, transportation, pricing, use and allocation of oil, gas, refined products and alternative fuels. In view of the many uncertainties affecting the supply and demand for crude oil, gas and refined petroleum products, it is not possible to predict accurately the prices or marketability of the gas and oil produced for sale. Competition The oil producing properties and exploratory drilling prospects, and gas industry is highly competitive in all its phases. Properties in which we have an interest will encounter strong competition from many other oil and gas producers, including many that possess substantial financial resources, in acquiring economically desirable producing properties and exploratory drilling prospects, and in obtaining equipment and labor to operate and maintain their properties. Existing and Probable Governmental Regulation We monitor and comply with current government regulations that affect our activities, although our operations may be adversely affected by changes in government policy, regulations or taxation. There can be no assurance that we will be able to obtain all of the necessary licenses and permits that may be required to carry out our exploration and development programs. It is not expected that any of these controls or regulations will affect our operations in a manner materially different than they would affect other natural gas and oil companies operating in the areas in which we operate. Canadian Government Regulation and US State of Texas Regulation The natural gas and oil industry is subject to extensive controls and regulations imposed by various levels of government. It is not expected that any of these controls or regulations will affect our operations in a manner materially different than they would affect other natural gas and oil companies of similar size. Pricing and Marketing Natural Gas In the United States in the State of Texas, we are focused on Oil production. Oil is sold to refineries at spot prices. In Canada, the price of natural gas sold in interprovincial and international trade is determined by negotiation between buyers and sellers. Natural gas exported from Canada is subject to regulation by the NEB and the Government of Canada. Exporters are free to negotiate prices and other terms with purchasers, provided that the export contracts continue to meet certain criteria prescribed by the NEB and the Government of Canada. Natural gas exports for a term of less than two years or for a term of two to 20 years (in quantities of not more than 30,000 m3/day), must be made pursuant to an NEB order. Any natural gas export to be made pursuant to a contract of longer duration (to a maximum of 25 years) or a larger quantity requires an exporter to obtain an export license from the NEB and the issue of such a license requires the approval of the Governor in Council. 6
The government of Alberta also regulates the volume of natural gas that may be removed from the province for consumption elsewhere based on such factors as reserve availability, transportation arrangements and market considerations. Royalties and Incentives In Canada in addition to federal regulation, each province has legislation and regulations that govern land tenure, royalties, production rates, environmental protection and other matters. The royalty regime is a significant factor in the profitability of natural gas and oil production. Royalties payable on production from lands other than Crown lands are determined by negotiations between the mineral owner and the lessee. Crown royalties are determined by government regulation and are generally calculated as a percentage of the value of the gross production, and the rate of royalties payable generally depends in part on prescribed reference prices, well productivity, geographical location, field discovery date and the type or quality of the petroleum product produced. In the United States in the State of Texas, mineral rights owners usually have a royalty paid to them which range from 5-25% of net revenue. Land Tenure Crude natural gas and oil located in the western provinces is owned predominantly by the respective provincial governments. Provincial governments grant rights to explore for and produce natural gas and oil pursuant to leases, licenses and permits for varying terms from two years and on conditions set forth in provincial legislation including requirements to perform specific work or make payments. Natural gas and oil located in such provinces can also be privately owned and rights to explore for and produce such natural gas and oil are granted by lease on such terms and conditions as may be negotiated. In the United States in the State of Texas, mineral owners sell and lease those rights to Operators who provide the infrastructure and support to develop and produce from the property. Leases usually remain in effect as long as work is being performed on the property or they are held by production. Compliance with Environmental Laws We did not incur any costs in connection with the compliance with any federal, state, or local environmental laws. However, costs could occur at any time through industrial accident or in connection with a terrorist act or a new project. Costs could extend into the millions of dollars for which we could be totally liable. In the event of liability, we would be entitled to contribution from other owners so that our percentage share of a particular project would be the percentage share of our liability on that project. However, other owners may not be willing or able to share in the cost of the liability. Even if liability is limited to our percentage share, any significant liability would wipe out our assets and resources. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. The 42,000,000 shares issued for the acquisition of Intergrated Oil and Gas Solutions Inc., were unregistered and are therefore issued as restricted shares. Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits. Exhibit Number Exhibit Title 31.1 Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 7
SIGNATURES In accordance with the requirements of Section Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Paradigm Oil & Gas, Inc. By /s/ Marc Juliar ----------------------- David Roff President and Chief Executive Officer Date: May 24, 2010 By: /s/ Brian Kennedy ----------------------- Brian Kennedy Chief Financial Officer 8 --------------------------------------------------------------------------------