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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 June 30, 2011
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____ to _______
Commission file number: 333-103780
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PARADIGM OIL AND GAS, INC.
--------------------------------------------------------------------------------
(Exact name of small business issuer in its charter)
Nevada 33-1037546
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation 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-Q or any
amendment to this Form 10-Q. Yes No [X]
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 Smaller reporting company [X]
(Do not check if a smaller 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 August 22, 2011, there were
23,887,826 shares of stock held by non-affiliates. As of August 22, 2011,
54,803,140 shares of the common stock of the registrant were outstanding.
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 June 30, 2011 and December 31, 2010..... F-2
Consolidated Statements of Operations for the three and six months
ended June 30, 2011 and three months ended June 30, 2010 and for
the periods from January 28, 2010 (inception) through June 30, 2010
and through June 30, 2011............................................ F-3
Consolidated Statements of Comprehensive (Loss) for the six months
ended June 30, 2011 and for the periods from January 28, 2010
(inception) through June 30, 2010 and through June 30, 2011.......... F-4
Consolidated Statement of Changes in Shareholders' Equity for
the period from January 28, 2010 (inception) through June 30, 2011... F-5
Consolidated Statements of Cash Flows for the six months ended
June 30, 2011 and for the periods from January 28, 2010 (inception)
through June 30, 2010 and through June 30, 2011...................... F-6
Notes to Consolidated Financial Statements............................. F-7
PARADIGM OIL AND GAS, INC.
(An Exploration Stage Company)
Consolidated Balance Sheets
June 30, 2011 and
December 31, 2010
June 30, December 31,
2011 2010
------------- -------------
(Unaudited)
Assets
Current assets:
Cash $ 24,177 $ 68,644
Employee advances 7,559 7,059
Note receivable 28,050 25,050
Related party receivable 60,264 45,807
Inventory 7,823 7,823
------------- -------------
Total current assets 127,873 154,383
------------- -------------
Furniture and fixtures,
net of $ 4,183-$ 2,436 in
accumulated depreciation 20,169 22,605
Production equipment 196,124 196,124
Natural gas and oil properties
Unproved (Note 3) 601,566 601,566
------------- -------------
817,859 820,295
------------- -------------
Bond RRC 52,500 52,500
------------- -------------
Total assets $ 998,232 $ 1,027,178
============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 192,036 $ 168,210
Advances from shareholder 62,046 76,546
Short term convertible notes and accrued
interest 147,669 143,885
Short term loan 4,110 --
Note payable and accrued interest 101,609 96,066
------------- -------------
Total current liabilities 507,470 484,707
------------- -------------
Total liabilities 507,470 484,707
------------- -------------
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, 54,803,140 and 53,287,826
shares issued and outstanding 54,804 53,288
Additional paid-in capital 3,138,786 2,981,174
Accumulated deficit during the exploration
stage (2,681,163) (2,477,707)
Accumulated comprehensive income (21,665) (14,284)
------------- -------------
Total shareholders' equity 490,762 542,471
------------- -------------
$ 998,232 $ 1,027,178
============= =============
The accompanying notes are an integral part of
these consolidated financial statements.
F-2
Paradigm Oil and Gas, Inc
(an Exploration Stage Company)
Consolidated Statements of Operations
For the three months and six months ended June 30, 2011
and three months ended June 30,2010
and for the periods from January 28, 2010 (inception) through
June 30, 2010 and through June 30, 2011
January 28, January 28,
2010 2010
Three Months Three Months Six Months (Inception) (Inception)
Ended Ended Ended Through Through
June 30, June 30, June 30, June 30, June 30,
2011 2010 2011 2010 2011
------------- ------------- -------------- -------------- --------------
Field operation expenses:
Labor $ 16,063 $ 30,041 $ 54,201 $ 30,041 $ 128,042
Lease costs 1,319 13,613 3,416 13,613 18,201
Legal 1,508 -- 1,508 -- 11,508
Maintenance 2,190 6,683 14,553 9,183 17,602
Natural gas and oil
exploration costs 132 240 409 692 1,861
Travel 1,774 -- 3,795 -- 17,817
Utilities -322 5,571 940 5,571 6,511
------------- ------------- -------------- -------------- --------------
Total field
operation expenses 22,664 56,148 78,822 59,100 201,542
------------- ------------- -------------- -------------- --------------
General expenses:
Accounting and audit 4,001 12,845 8,236 15,345 68,161
Administration 9,433 -- 19,488 -- 32,454
Advertising and promotion -- 6,698 41 6,956 611
Depreciation 1,218 -- 2,436 -- 4,183
Foreign exchange loss -- -1,700 -- --
Insurance 216 782 681 782 1,463
Interest -372 1,145 9,537 2,345 15,642
Investor relations 3,000 -- 4,684 -- 14,559
Legal fees 833 30,692 833 49,750 27,448
Management fees 22,500 26,847 37,500 46,265 129,802
Meals and entertainment 116 1,386 762 1,496 2,467
Office 338 4,943 338 5,677 13,970
Office maintenance -- -- -- -- 2,157
Professional and consulting
fees 8,073 4,921 11,759 4,958 69,946
Rent 1,547 -- 3,797 -- 6,047
Stock options -- -- 10,500 -- 10,500
Telephone 3,288 3,722 4,476 4,900 16,747
Transfer agent fees 2,050 1,494 3,863 2,109 9,257
Travel 776 7,517 3,323 8,795 19,596
Utilities 848 65 2,380 1,290 3,327
------------- ------------- -------------- -------------- --------------
Total general
expenses 57,865 101,357 124,634 150,668 448,337
------------- ------------- -------------- -------------- --------------
Loss from operations (80,529) (157,505) (203,456) (209,768) (649,879)
Other expense:
Assumption of liabilities
in acquisition -- -- -- 633,279 633,279
Loss from shares issued
on debt conversion, net
(Note 7) -- -- -- 1,440,000 1,398,005
------------- ------------- -------------- -------------- --------------
Net loss $ (80,529) $ (157,505) $ (203,456) (2,283,047) $ (2,681,163)
============= ============= ============== ============== ==============
Basic and diluted loss per
share $ (0.00) $ (0.00) $ (0.00) $ (0.05)
============= ============= ============== ==============
Basic and diluted weighted
average common shares
outstanding 53,287,826 53,287,826 53,287,826 50,462,262
============= ============= ============== ==============
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
PARADIGM OIL AND GAS, INC.
(An Exploration Stage Company)
Consolidated Statements of Comprehensive (Loss)
For the six months ended June 30, 2011 and for the periods from
January 28, 2010 (Inception) through June 30, 2010 and through June 30, 2011
January 28, January 28,
2010 2010
Six Months (Inception) (Inception)
Ended Through Through
June 30, June 30, June 30,
2011 2010 2011
------------- ------------- -------------
Net loss $ (203,456) $ (2,283,047) $ (2,681,163)
Other comprehensive loss:
Foreign currency translation
adjustments (7,381) 3,872 (21,665)
------------- ------------- -------------
Comprehensive loss $ (210,837) $ (2,279,175) $ (2,702,828)
============= ============= =============
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
PARADIGM OIL AND GAS, INC
(An Exploration Stage Company)
Consolidated Statement of Changes in Shareholders Equity
For the period from January 28, 2010 (Inception) through June 30, 2011
Additional Other
Common Stock Paid-In Accumulated Comprehensive
Shares Par Value Capital Deficit Loss Total
------------- ------------- ------------- -------------- ------------- -------------
Balance at January 28, 2010
(inception) 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 28, 2010
after reverse acquisition 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
Common stock issued September 28
on conversion of debt 2,099,768 2,100 690,823 -- -- 692,923
Net loss -- -- -- (2,477,707) -- (2,477,707)
Foreign currency translation
adjustment -- -- -- -- (14,284) (14,284)
------------- ------------- ------------- -------------- ------------- -------------
Balance at December 31, 2010 53,287,826 53,288 2,981,174 (2,477,707) (14,284) 542,471
Common Stock issued on
Conversion of Debt
April 25 100,874 101 14,899 15,000
April 28 120,096 120 14,880 15,000
April 29 96,077 96 11,904 12,000
May 4 82,508 83 9,917 10,000
May 24 58,594 59 7,441 7,500
May 25 131,926 132 14,868 15,000
June 1 141,110 141 14,859 15,000
June 1 83,333 83 7,417 7,500
June 3 117,172 117 11,483 11,600
June 10 102,005 102 7,426 7,528
June 23 213,675 214 14,786 15,000
June 30 267,944 268 17,232 17,500
Net loss -- -- -- (203,456) -- (203,456)
Stock options -- -- 10,500 -- -- 10,500
Foreign currency translation
adjustment -- -- -- -- (7,381) (7,381)
------------- ------------- ------------- -------------- ------------- -------------
Balance at June 30, 2011 54,803,140 $ 54,804 $ 3,138,786 $ (2,681,163) $ (21,665) $ 490,762
============= ============= ============= ============== ============= =============
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
Paradigm Oil and Gas, Inc
(an Exploration Stage Company)
Consolidated Statements of Cash Flows
For the three months and six months ended June 30, 2011
and three months ended June 30,2010
and for the periods from January 28, 2010 (inception)
through June 30, 2010 and through June 30, 2011
January 28, January 28,
2010 2010
Six Months (Inception) (Inception)
Ended Through Through
June 30, June 30, June 30,
2011 2010 2011
------------- ------------- -------------
Cash flows from operating activities:
Net loss $ (203,456) $ (2,283,047) $ (2,681,163)
Adjustments to reconcile net
loss to net cash used
in operating activities:
Non cash interest -- 2,345 --
Stock options 10,500 -- 10,500
Depreciation 2,436 -- 4,183
Assumption of liabilities in
acquisition -- 633,279 633,279
Loss from shares issued on debt
conversion -- 1,440,000 1,398,005
------------- ------------- -------------
(190,520) (207,423) (635,196)
Changes in operating assets and
liabilities:
Employee advances (500) (3,087) (7,559)
Inventory -- (6,258) (7,823)
Accrued interest 7,348 -- 13,423
Accounts payable and accrued
liabilities 19,552 10,356 31,479
------------- ------------- -------------
Net cash used in
operating activities (164,120) (206,412) (605,676)
Cash flows from (used in) investing
activities:
Note receivable (3,000) (25,050) (28,050)
Related party receivable (14,457) -- (60,264)
Bond RRC -- -- (52,500)
Furniture and fixtures -- (1,178) (24,352)
Production equipment -- (105,183) (196,124)
Purchases on natural gas and
oil properties -- (60,027) (60,027)
Cash acquired in acquisition -- 121 121
------------- ------------- -------------
Net cash used in
investing activities (17,457) (191,317) (421,196)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from convertible
debenture payable -- 494,918 734,918
Proceeds from advances from
shareholder 8,000 29,521 62,051
Repayments for advances from
shareholder -- -- (17,530)
Proceeds from short term
convertible notes 125,000 -- 267,500
Proceeds from short term loan 15,000 -- 15,000
Repayments for short term loan (10,890) -- (10,890)
------------- ------------- -------------
Net cash provided by
financing activities 137,110 524,439 1,051,049
------------- ------------- -------------
Net change in cash (44,467) 126,710 24,177
Cash, beginning of period 68,644 -- --
------------- ------------- -------------
Cash, end of period $ 24,177 $ 126,710 $ 24,177
============= ============= =============
Supplemental disclosure of cash
flow information:
Foreign currency translation
of liabilities $ (7,381) $ (3,872) $ (19,793)
Assumption of accounts payable
in acquisition -- $ 147,510 $ 147,510
Assumption of advances from
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 (148,628) $ (360,000) $ (1,094,918)
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
PARADIGM OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2011 and for the periods from
January 28, 2010 (inception) through June 30, 2010 and through June 30, 2011
1. UNAUDITED INFORMATION
The consolidated balance sheet of Paradigm Oil & Gas, Inc. (the "Company") as of
June 30, 2011, and the consolidated statements of operations for the three and
six months ended June 30, 2011 and three months ended June 30, 2010 and for the
periods ended from January 28, 2010 (Inception) to June 30, 2010 and through
June 30, 2011 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 consolidated financial
position of the Company as of June 30, 2011, and the results of operations for
the three and six months ended June 30, 2011.
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 consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes
to the consolidated financial statements included in the Company's consolidated
financial statements as filed on Form 10-K for the year ended December 31, 2010.
BASIS OF PRESENTATION
Organization
Paradigm Enterprises, Inc. (the "Company") was incorporated in the state of
Nevada on July 15, 2002 to engage in the acquisition, exploration and
development of oil and gas properties. On February 7, 2005 the Company changed
its name to Paradigm Oil and Gas, Inc. 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. The Transaction is considered to be a reverse acquisition. The
acquisition date now becomes the inception date of the Company.
The Company is considered an exploration stage company, as it has not generated
revenues from its operations.
Reverse merger of Intergrated Oil and Gas Solutions 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 shares 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 $541,539. These costs have been capitalized on
the Acquired Company's books at cost as natural gas and oil properties, unproved
properties.
F-7
Subsidiary formed: Paradigm Integrated Technology Solutions Inc.
On May 20, 2010 the Company formed Paradigm Integrated Technology Solutions
Inc., as a wholly owned subsidiary to conduct business related to technologies
that enhance secondary oil recovery.
Going Concern
These financial statements have been prepared in conformity with generally
accepted accounting principles in the United States of America with the
assumption that the Company will be able to realize its assets and discharge its
liabilities in the normal course of business rather than through a process of
forced liquidation.
The Company's significant operating losses raise substantial doubt about its
ability to continue as a going concern. Inherent in the Company's business are
various risks and uncertainties, including its limited operating history,
historical operating losses, dependence upon strategic alliances, and the
historical success rate of oil and gas exploration. Management's plan is to
acquire interests in certain oil and gas properties with production and to
rework existing wells to bring them on line for production.
As shown in the accompanying financial statements, the Company has incurred a
net loss of $2,681,163 for the period from January 28, 2010 (inception) through
June 30, 2011.
The Company has no revenue. The Company's future success is primarily dependent
upon the existence of oil and gas in quantities which are commercially viable to
produce, on properties for which the Company owns a working interest or an
option to acquire an interest and/or through its successful deployment of the
Company's Transportable Enhanced Oil Recovery Platform (T-EOR) and the Joint
Venture Production Program. The Company's success will also be dependent upon
its ability to raise sufficient capital to fund its rework and exploration
programs and, to exploit the discovery on a timely and cost-effective basis.
2. RECENT ACCOUNTING PRONOUNCEMENTS
During the period ended June 30, 2011, there were several new accounting
pronouncements issued by the Financial Accounting Standards Board (FASB). Each
of these pronouncements, as applicable, has been or will be adopted by the
Company. Management does not believe the adoption of any of these accounting
pronouncements has had or will have a material impact on the Company's financial
position or operating results. The Company will monitor these emerging issues to
assess any potential future impact on its consolidated financial statements.
F-8
3. OIL AND GAS INTERESTS
The Oil and Gas Interests are accounted for on a consolidated basis as follows;
June 30,
2011
-------------
Chilson Property
Acquisition cost January 28, 2010 $ 121,774
Cost of work program 21,350
-------------
$ 143,124
-------------
Lett Finlay Property
Acquisition cost January 28, 2010 $ 308,708
-------------
$ 308,708
-------------
Lumpkin Property
Acquisition cost January 28, 2010 $ 111,057
-------------
$ 111,057
-------------
Chilson B
Acquisition cost June 30, 2010 $ 17,977
-------------
$ 17,977
-------------
Corsicana
Acquisition cost June 22, 2010 $ 20,700
-------------
$ 20,700
-------------
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)
-------------
Total Oil and Gas Interests $ 601,566
=============
F-9
4. SHORT TERM CONVERTIBLE NOTES
The Company has entered into a series of Short Term Convertible Notes bearing
annual interest of 8% which mature 180 days after the issue date (maturity
date). The note plus interest can be converted in whole or in part to common
shares at the holder's option at the later of the maturity date or the default
date. The Conversion price is calculated as 55% of the market price which is
determined by averaging the lowest 3 day closing price over the last 10 trading
day period ending one trading day prior to the day the conversion notice was
sent by facsimile. If the note plus interest is not paid or converted on the
maturity, then default interest begins to accrue on the whole amount bearing
annual interest of 22%.
Conversion Price During Major Announcements
-------------------------------------------
In the event the Company (i) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which
the Company is the surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the assets of the
Company or (ii) any person, group or entity (including the Company) publicly
announces a tender offer to purchase 50% or more of the Company's Common Stock
(or any other takeover scheme) (the date of the announcement referred to in
clause (i) or (ii) is hereinafter referred to as the "Announcement Date"), then
the Conversion Price shall, effective upon the Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined below), be
equal to the lower of (x) the Conversion Price which would have been applicable
for a Conversion occurring on the Announcement Date and (y) the Conversion Price
that would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth above.
For purposes hereof, "Adjusted Conversion Price Termination Date" shall mean,
with respect to any proposed transaction or tender offer (or takeover scheme)
for which a public announcement as contemplated by this paragraph has been made,
the date upon which the Company (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) consummates or publicly
announces the termination or abandonment of the proposed transaction or tender
offer (or takeover scheme) which caused this paragraph to become operative.
The Company may prepay the note plus accrued interest at any time after 91 days
after the issue date and ending up to 180 days after the issue date. The total
amount calculated to be prepaid will bear an additional charge of 75% of the
calculated prepaid amount. The Company is required at all times to have
authorized and reserved five times the number of shares that is actually
issuable upon full conversion of the notes (based on the Conversion Price of the
Notes in effect from time to time).
Outstanding
Convertible at
Note June 30,
Issued 2011
------------- -------------
Issue Date
October 6, 2010 $ 50,000 $ ---
November 18, 2010 40,000 ---
December 20, 2010 52,500 20,000
January 28, 2011 32,500 32,500
March 9, 2011 25,000 25,000
April 29, 2011 32,500 32,500
June 7, 2011 32,500 32,500
------------- -------------
$ 265,000 142,500
Accrued Interest 5,169
-------------
$ 147,669
=============
During the 2nd quarter of 2011 the Company converted the convertible notes and
accrued interest dated October 6, 2010, and November 18, 2010 and partially the
convertible note dated December 20, 2010. (see note 7). The Company entered into
additional convertible notes dated April 29, 2011 and June 7, 2011.
F-10
Failure to Deliver Common Stock Prior to Deadline.
--------------------------------------------------
Without in any way limiting the Holder's right to pursue other remedies,
including actual damages and/or equitable relief, the parties agree that if
delivery of the Common Stock issuable upon conversion of this Note is more than
three (3) business days after the Deadline, the Company shall pay to the Holder
$2,000 per day in cash, for each day beyond the Deadline that the Company fails
to deliver such Common Stock. Such cash amount shall be paid to Holder by the
fifth day of the month following the month in which it has accrued or, at the
option of the Holder (by written notice to the Company by the first day of the
month following the month in which it has accrued), shall be added to the
principal amount of this Note, in which event interest shall accrue thereon in
accordance with the terms of this Note and such additional principal amount
shall be convertible into Common Stock in accordance with the terms of this
Note.
On May 23, 2011, part of a shareholder loan in the amount of $ 22,500 was
exchanged for a convertible note which was then converted into 243,932 common
shares (see note 7). The Convertible note was to mature on June 1, 2012 and was
convertible by the holder at any time. The convertible note carried a 5% annual
interest rate.
5. SHORT TERM LOAN
On March 9, 2011 the Company entered into a short term merchant account loan
agreement for $15,000. The loan is secured by future sales/receivables and
carries an annual interest of rate of 15%. Daily payments are made against the
amount outstanding at a rate of up to $460 per day. As of June 30, 2011, $ 4,110
was outstanding.
6. 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 of the December 31, 2010 financial statements.
June 30,
2011
-------------
1132559 Alberta Ltd $ 101,609
-------------
$ 101,609
=============
7. 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 adjusted 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 Paradigms' liabilities assumed at the
time of the acquisition.
F-11
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.
c) On September 28, 2010 a convertible note in the amount of $ 734,918 was
converted at $ 0.35 per share for a total of 2,099,768 Common Shares at a par
value of $ 2,100. Additional paid in capital increased by $ 690,823. The share
price was $ 0.33 on the closing of this transaction, as a result a gain of $
41,995 was recognized and recorded as a Gain from issued shares on debt
conversion.
d) During the 2nd quarter period from April 25, 2011 to June 30, 2011
convertible notes were converted into 1,271,382 common shares as follows:
ISSUE DATE PRINCIPAL INTEREST DATE AMOUNT PRICE # OF SHARES SHARE PV APIC
October 6, 2010 $ 50,000 $ 2,000 4/25/2011 $ 15,000 0.1487 100,874 $ 101 $ 14,899
4/28/2011 $ 15,000 0.1249 120,096 $ 120 $ 14,880
4/29/2011 $ 12,000 0.1249 96,077 $ 96 $ 11,904
5/4/2011 $ 10,000 0.1212 82,508 $ 83 $ 9,917
November 18, 2010 $ 40,000 $ 1,600 5/25/2011 $ 15,000 0.1137 131,926 $ 132 $ 14,868
6/1/2011 $ 15,000 0.1063 141,110 $ 141 $ 14,859
6/3/2011 $ 11,600 0.099 117,172 $ 117 $ 11,483
December 20, 2010 $ 52,500 $ 2,100 6/23/2011 $ 15,000 0.0702 213,675 $ 214 $ 14,786
6/30/2011 $ 17,500 0.0653 267,944 $ 268 $ 17,232
---------- ------------------------------------
$ 126,100 1,271,382 $ 1,272 $ 124,828
========== ====================================
F-12
e) The $22,500 convertible debenture entered into on May 23, 2011 was converted
into 243,932 common shares as follows:
ISSUE DATE PRINCIPAL INTEREST DATE AMOUNT PRICE # OF SHARES SHARE PV APIC
May 23, 2011 $ 22,500 $ 28 24/05/2011 $ 7,500 0.128 58,594 $ 59 $ 7,441
---------------------------------------------------------------------------------------------------------------
01/06/2011 $ 7,500 0.09 83,333 $ 83 $ 7,417
---------------------------------------------------------------------------------------------------------------
10/06/2011 $ 7,528 0.0738 102,005 $ 102 $ 7,426
===============================================================================================================
As of June 30, 2011 there were 54,803,140 Common Shares outstanding.
8. RELATED PARTY TRANSACTIONS
On May 23, 2011, part of a shareholder loan in the amount of $ 22,500 was
exchanged for a convertible note which was then converted into 243,932 common
shares. Additional loans of $ 8,000 were also issued to the Company. Two
Shareholders of the Company have loans outstanding to the Company of $ 62,046 at
June 30, 2011. The loans are interest free and have no formal terms of
repayment. A related party to the Company has an amount due to the Company of $
60,264 at June 30, 2011.
9. 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.
In conjunction 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 11) 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.
F-13
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 acquisition date now becomes the inception date of the Company.
The Acquired Company is now a 100% subsidiary of Paradigm.
2
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 $541,539. These costs have been capitalized on the
acquired company's books at cost as Oil and Gas Properties under Lease.
On May 20, 2010 the Company formed Paradigm Integrated Technology Solutions
Inc., as a wholly owned subsidiary to conduct business related to technologies
that enhance secondary oil recovery.
On May 20, 2010 the Company's subsidiary, Paradigm Integrated Technology
Solutions Inc., entered into a Transfer of Technology and Know How Agreement for
the world wide marketing rights for the Transportable Enhanced Oil Recovery
Platform. Under the terms of the agreement the Company agreed to purchase the
first system which includes the exclusive ownership in the related technology
and know how. $ 50,000 was paid on signing the agreement and $50,000 was to be
paid within thirty days of signing the agreement towards the purchase of the
first system and an additional $ 50,000 on delivery of the equipment. To date
the Company has paid $ 161,471 towards this program and has taken delivery of
the first system. In addition, the purchase of the next 10 systems carry an
additional $ 10,000 charge per system above the list purchase price of the
system for a total of $ 100,000, however the Company is under no obligation to
purchase further systems. The first system was received on September 29, 2010
and has been fully tested and is now commissioned for production use which is
occurring in the 4th quarter.
On June 22, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions
Inc. acquired the Corsicana lease. The cost to acquire this lease amounted to $
20,700 for a 50% working interest in the 80% Net Revenue Interest. The lease is
located in Navarro County, Texas.
On June 30, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions
Inc. acquired 2 additional Chilson leases, known as Chilson B. The cost to
acquire these leases amounted to $ 17,977 for a 100% working interest in the 81%
Net Revenue Interest. The new Chilson leases are adjacent to the existing
Chilson lease the Company has which are all located in Wichita County, Texas.
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.
On June 22, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions
Inc. acquired the Corsicana lease. The cost to acquire this lease amounted to $
20,700 for a 50% working interest in the 80% Net Revenue Interest. The lease has
9 previously producing wells and have spacing over a total of 60 acres to
support the potential of 17 new wells to depths of up to 2000 feet. The
Corsicana lease is located in Navarro County, Texas.
3
On June 25, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions
Inc. acquired 2 additional Chilson leases, known as Chilson B. The cost to
acquire these leases amounted to $ 17,977 for a 100% working interest in the 81%
Net Revenue Interest. Combined the 2 leases have 5 previously producing wells
and have spacing over a total of 154 acres to support the potential of 37 new
wells to depths of up to 2000 feet. The new Chilson leases are adjacent to the
existing Chilson lease the Company has which are all located in Wichita County,
Texas.
On May 20, 2010 the Company's subsidiary, Paradigm Integrated Technology
Solutions Inc., entered into a Transfer of Technology and Know How Agreement for
the world wide marketing rights for the Transportable Enhanced Oil Recovery
Platform. Under the terms of the agreement the Company agreed to purchase the
first system which includes the exclusive ownership in the related technology
and know how. $ 50,000 was paid on signing the agreement and $50,000 was to be
paid within thirty days of signing the agreement towards the purchase of the
first system and an additional $ 50,000 on delivery of the equipment. To date
the Company has paid $ 196,124 towards this program and has taken delivery of
the first system. In addition, the purchase of the next 10 systems carry an
additional $ 10,000 charge per system above the list purchase price of the
system for a total of $ 100,000, however the Company is under no obligation to
purchase further systems. The first system was received on September 29, 2010
and has been fully tested and is now commissioned for production and is
currently being demonstrated for commercial use.
The Transportable Enhanced Oil Recovery Platform is a portable production system
than can be easily and economically moved from well to well and quickly
installed to remove Oil from the existing well bore. This allows for quick Oil
recovery without the time and expense currently required to implement the
infrastructure need to produce Oil today. By utilizing this system, wells can be
produced from immediately and monitored as to flow rates to determine which
wells are suitable for making additional investment for a more permanent
operational infastructure. The company has begun to utilize this technology on
it's existing properties and is in the process to introduce this technology to
the market place.
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 unpaid 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.
4
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
PROPERTY ACQUIRED BY ACQUISITION OF INTERGRATED OIL AND GAS SOLUTIONS INC. ON
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 $541,539. These costs have been capitalized on the
acquired company's books at cost as Natural gas and oil properties, Unproved
properties.
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. And are summarized as follows;
Chilson Property, 80 acres in the County of Wichita carry a 87.5% Net Revenue
Interest. There are 7 existing wells on the property that have previously
produced. Approximately 69 new wells can be drilled to depths that vary between
800 to 5,000 feet.
Lett Finley Property, Consists of 2 leases-40 acres located in the County of
Wood, carry a 75% Net Revenue Interest, and 122.37 acres located in the County
of Henderson carry a 81.25% Net Revenue Interest There are 2 existing wells on
the properties that have previously produced. 2 new offset wells can be drilled
to 9,500 feet and another 7 infield wells can be drilled.
Lumpkin Property 692 acres in Kaufman County, carry a 80% Net Revenue Interest.
This lease is considered an exploration field with existing production nearby.
17 new wells can be drilled to 9,000 feet.
On June 22, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions
Inc. acquired the Corsicana lease. The cost to acquire this lease amounted to $
20,700 for a 50% working interest in the 80% Net Revenue Interest. The lease has
9 previously producing wells and have spacing over a total of 60 acres to
support the potential of 17 new wells to depths of up to 2000 feet. The
Corsicana lease is located in Navarro County, Texas.
On June 30, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions
Inc. acquired 2 additional Chilson leases, known as Chilson B. The cost to
acquire these leases amounted to $ 17,977 for a 100% working interest in the 81%
Net Revenue Interest. Combined the 2 leases have 5 previously producing wells
and have spacing over a total of 154 acres to support the potential of 37 new
wells to depths of up to 2000 feet. The new Chilson leases are adjacent to the
existing Chilson lease the Company has which are all located in Wichita County,
Texas.
PETROLEUM PROPERTIES PRIOR TO JANUARY 28, 2010
----------------------------------------------
HILLSPRINGS
In December 2004, we entered into a participation proposal with Compton
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. In 2008, due to the low prices for natural gas and the
lack of sustainable production from the property we took an impairment charge
against the Todd Creek property and wrote the value down to 0.
5
TODD
In December 2004, we entered into a second participation proposal with Compton
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 Compton 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. We have not been given any
further information regarding the Todd Creek property as we are delinquent in
our payments to Compton.
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.
We are delinquent in our payments to Compton. Until we are current on our
payments we will not receive any further information regarding the property. In
2008, due to the low prices for natural gas and the lack of sustainable
production from the property we took an impairment charge against the Todd Creek
property and wrote the value down to 0.
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.
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. Due to
the ongoing dispute the cost of defending the Companies rights to the Sawn Lake
property may cost more than the value of the property. In 2008 the Company took
an impairment charge against the Sawn Lake property and wrote the value down to
0.
6
Financial Condition and Changes in Financial Condition
The Company had no revenues from the sale of oil and gas in the six months
ended, June 30, 2011.
Consolidated operating expenses for the 2nd quarter ended June 30, 2011 amounted
$ 80,529 compared to $ 157,505 for the prior year's 2nd quarter. The reduction
in consolidated operating expenses was primarily due to a reduction in; Field
labor for approximately $14,000, Lease costs for $12,000, Maintenance for
$4,500, Utilities for $5,000, Advertising $6,700, Legal for $30,000, Management
fees for $4,000 and Travel for $7,000.
The reduction in expenses over the prior year is attributable to the a reduction
in activity the Company is experiencing with the work programs on the existing
properties as the company awaits for approval from the Railroad Commission for
commercial use of the Transportable Production System, and resulting cash flow
and additional financing to support the Company's growth.
Overall field operation expenses for the 2nd quarter totaled $22,664 compared to
$56,148 in prior years 2nd quarter.
June 30, 2011 2nd quarter general expenses totaled $57,865 compared to $101,357
for prior year's 2nd quarter ended June 30, 2010. . Interest charges were
reversed in the quarter due to a over accrual of interest charges on convertible
notes in the prior quarters.
Legal fees were reduced in the June 30, 2011 2nd quarter compared to the prior
year's 2nd quarter due to costs associated with lasts years reverse merger and
start up of operations.
All other costs were in line with the current level of activity at the company
and consistent with the prior quarter.
Other Income/(Expense) Items
During the 2nd quarter ended June 30, 2011, and 2010 2nd quarter there were no
Other Income/(Expense) items, however in the prior year's first quarter period
the following items occurred.
Expense on Assumption of Liabilities on Acquisition
On a year to date basis there was an expense on assumption of liabilities on
acquisition which was booked in the period ended March 31, 2010.
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 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.
These charges were booked in the period ended March 31, 2010.
Net Loss for the 2nd quarter ended June 30, 2011 amounted to $80,529 compared to
a Net Loss of $157,505 for the priors years 2nd quarter and on a year to date
basis the net loss for the six months ended June 30, 2011 was $203,456 compared
to a net loss $2,283,047 for the prior year's period ended June 30, 2010.
7
Current Assets
As of June 30, 2011 cash was recorded at $24,177. Employee Advances were $7,549
to cover contractors and employees performing field services. During the 2nd
quarter, a note receivable was increased by $3,000 to $ 28,050 that was set up
for work that was performed on the Corsicana property and lease acquisition
which is owing to the Company from the other working interest owner on the
property, and the related party receivable was increased to $60,264 for amounts
advanced for acquisitions and work performed. The Bond RRC in the amount of $
52,500 represents funds previously sent to the Texas Railroad Commission for the
prepaid operating bond.
With the purchase of one of the leases, there was existing Oil in the storage
tank on the lease and additional oil was collected from a test run of the
Transportable Enhanced Oil Recovery Platform which amounted to $ 7,823 which has
been accounted for as inventory.
Production Equipment $ 196,124
During the 2010, 2nd quarter, the Company's subsidiary, Paradigm Integrated
Technology Solutions Inc., entered into a Transfer of Technology and Know How
Agreement for the world wide marketing rights for the Transportable Enhanced Oil
Recovery Platform. Under the terms of the agreement the Company agreed to
purchase the first system which includes the exclusive ownership in the related
technology and know how. $ 50,000 was paid on signing the agreement and $50,000
was to be paid within thirty days of signing the agreement towards the purchase
of the first system and an additional $ 50,000 on delivery of the equipment. To
date the Company has paid $ 161,471 towards this program and has taken delivery
of the first system. In addition, the purchase of the next 10 systems carry an
additional $ 10,000 charge per system above the list purchase price of the
system for a total of $ 100,000, however the Company is under no obligation to
purchase further systems. The first system was received on September 29, 2010
and has been fully tested and is now commissioned for production use. The system
is now being demonstrated for commercial use and is being presented to Texas
Railroad Commission for commercial use approval.
Natural Gas and Oil Properties
Natural gas and oil properties remained at $ 601,566.
Liquidity and Capital Resources
For the period ended June 30, 2011 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 2nd quarter ended June 30, 2011 amounted $85,500
all provided by way of $77,500 in convertible notes payable and $8,000 in
shareholder loans. On a year to date basis for the first six months ended June
30, 2011 at total of $143,000 was provided by way of $125,000 in convertible
notes, $8,000 in shareholder loans and $10,000 in a short term merchant loan.
As of June 30, 2011 our total assets which consist of cash, advances, inventory,
a note receivable and related party receivable, furniture, production equipment
and oil and gas properties and a bond with the Texas Railroad Commission
amounted to $998,232 and our total liabilities reduced to $507,470 primarily due
to conversion of notes into common shares of the company.
Working capital stood at $(379,597). Management continues to source additional
financing and analyze Oil production acquisitions to support the Company's cash
requirements during the Company's development phase. There are no assurances
that the Company will be successful with these initiatives.
For the quarter ended June 30, 2011 our net loss was $(80,529) or $ (0.00) per
share. The loss per share was based on a period weighted average of 53,287,826
common shares outstanding. On a year to date basis for the six months ended the
net loss was $(203,456) or $(0.00). The loss per share was based on a period
weighted average of 53,287,826 common shares outstanding.
8
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.
ITEM 4. 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 June 30, 2011. 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 June 30, 2011 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.
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
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;
9
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.
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.
10
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.
None
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.
101.ins XBRL Instance
101.xsd XBRL Schema
101.cal XBRL Calculation
101.def XBRL Definition
101.lab XBRL Label
101.pre XBRL Presentation
11
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/ Ron Polli
---------------------------
Ron Polli
President and
Chief Executive Officer
Date: August 22, 2011 By: /s/ Brian Kennedy
---------------------------
Brian Kennedy
Chief Financial Officer
12
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