North American Oil & Gas Corp. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - North American Oil & Gas Corp.	Financial_Report.xls
EX-10.3 - STOCK PURCHASE AGREEMENT - North American Oil & Gas Corp.	namg_ex103.htm
EX-31.2 - CERTIFICATION - North American Oil & Gas Corp.	namg_ex312.htm
EX-10.2 - STOCK PURCHASE AGREEMENT - North American Oil & Gas Corp.	namg_ex102.htm
EX-32.1 - CERTIFICATION - North American Oil & Gas Corp.	namg_ex321.htm
EX-31.1 - CERTIFICATION - North American Oil & Gas Corp.	namg_ex311.htm
EX-10.4 - PURCHASE AND SALE AGREEMENT - North American Oil & Gas Corp.	namg_ex104.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2014

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

FOR THE TRANSITION PERIOD FROM _______TO _______

Commission File Number: 333-172896

NORTH AMERICAN OIL & GAS CORP.

(exact name of registrant as specified in its charter)

Nevada		98-087028
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

56 E. Main St. Suite 202

Ventura, CA 93001

(Address of principal executive offices) (Zip Code)

(805) 643-0385

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x
(Do not check if a smaller reporting company)

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

As of March 31, 2014, there were 62,869,337 shares of registrant’s common stock outstanding.

NORTH AMERICAN OIL & GAS CORP.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14

Item 4.	Controls and Procedures	14

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	15

Item 1A.	Risk Factors	15

Item 2.	Unregistered Sales of Securities and Use of Proceeds	15

Item 3.	Defaults Upon Senior Securities	15

Item 4.	Mine Safety Disclosures	15

Item 5.	Other information	15

Item 6.	Exhibits	16

SIGNATURES		17

NORTH AMERICAN OIL & GAS CORP.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheets

	March 31, 2014 (Unaudited)			December 31, 2013
ASSETS
Current Assets
Cash and Cash Equivalents	$	101,005		$	49,563
Accounts Receivable		683			704
Total Current Assets		101,688			50,267

Long Term Assets
Restricted Cash		-			1,037

Oil and Gas Properties, Unproved, Successful Efforts method		475,998			472,520
Furniture, Fixtures, and Equipment		5,514			5,876
Deposits		21,300			21,300
Total Non-current Assets		502,812			499,696

TOTAL ASSETS	$	604,500		$	551,000

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Current Liabilities
Accounts Payable	$	77,707		$	62,655
Accounts Payable - Related Party		106,610			156,610
Advance from Working Interest Owner		37,509			53,090
Other Current Liabilities		208,796			172,735
Note Payable - Related party		-			50,000
Total Current Liabilities		430,622			495,090

Long-term Liabilities
Asset Retirement Obligation		106,420			104,100
Total Liabilities		537,591			599,190

Shareholders' Equity (Deficit)
Common Stock: $0.001 par value; 200,000,000 shares authorized; 62,869,337 and 61,114,602 shares issued and outstanding, respectively		62,864			61,115
Preferred Stock; 25,000,000 authorized; zero issued		-			-
Additional paid-in capital		2,260,882			1,818,389
Deficit Accumulated During the Development Stage		(2,256,288	)		(1,927,694	)
Total Shareholders' Equity (Deficit)		67,458			(48,190	)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)	$	604,500		$	551,000

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

NORTH AMERICAN OIL & GAS CORP.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Operations
(Unaudited)
	For the Three Months Ended March 31,						Cumulative Period from Inception June 20, 2011 Through March 31,
	2014			2013			2014


Expenses
Exploration & Leasehold Costs		28,694			362,540			684,629
Management and Consulting		40,500			15,000			261,754
General and Administration		256,057			332,196			1,409,957
Depreciation expense		362			39			2,443
Accretion expense		2,320			1,562			12,378

Total Expenses		327,934			711,337			2,371,161

Other Income (Expense)
Other Income (Expense)		1,493			(5,650	)		(6,617	)
Interest Expense		(2,154	)		-			(1,986	)
Gain on Sale of Oil and Gas Properties		-			-			123,476

Total Other Income (Expense)		(660	)		(5,650	)		114,873

Net Loss	$	(328,594	)	$	(716,987	)	$	(2,256,288	)

Net Loss per common share	$	(0.01	)	$	(0.01	)

Weighted average number of shares outstanding		61,869,237			60,125,000

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

NORTH AMERICAN OIL & GAS CORP.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Cash Flows (Unaudited)
	For the Three Months Ended March 31,						Cumulative Period from Inception June 20, 2011 Through March 31,
	2014			2013			2014

Cash Flows from Operating Activities:
Net (Loss)	$	(328,594	)	$	(716,987	)	$	(2,256,288	)
Adjustments to Reconcile Net (Loss) to Net Cash
(Used in) Operating Activities:
Depreciation expense		362			39			2,444
Accretion expense		2,320			1,562			12,377
(Gain) on sale of oil & gas properties		-			-			(123,476	)
Stock based compensation		92,090			235,550			712,393
Changes in Assets and Liabilities:
(Increase)/Decrease in accounts receivable		21			3,028			(683	)
(Increase)/ Decrease in prepaids and other assets		-			1,242			(21,300	)
Increase/ (Decrease) in accrued expenses		36,059			61,943			208,795
Increase/(Decrease) in accounts payable		17,206			(523,527	)		3,851
Increase/(Decrease) in accounts payable - related party		(50,000	)		150,000			(133,390	)
Net Cash Used in Operating Activities		(230,535	)		(787,150	)		(1,595,277	)

Cash Flows from Investing Activities:
Purchase of oil and gas property		(19,059	)		(481,382	)		(1,990,374	)
Proceeds from the sale of oil & gas properties		-			-			200,000
Purchase of furniture, fixtures and equipment		-			(1,345	)		(7,958	)
Restricted Cash		1,037			-			-
Net Cash Used in Investing Activities		(18,023	)		(481,382	)		(1,798,332	)

Cash Flows from Financing Activities:
Proceeds from the sale of common stock		300,000			-			1,424,920
Contributions		-			-			213,874
(Distributions)		-			-			(134,180	)
Advances From working interest owner		-			-			1,700,000
Proceeds from related party notes		-			-			290,000
Net Cash Provided by Financing Activities		300,000			-			3,494,614

Net Increase (Decrease) in Cash and Cash Equivalents		51,442			(1,269,877	)		101,005
Cash and Cash Equivalents at the Beginning of the Period		49,563			1,515,995			-
Cash and Cash Equivalents at the End of the Period	$	101,005			246,118		$	101,005

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Recovery of Oil and Gas Property	$	-		$	75,117		$	75,117
Asset Retirement Obligation		-			61,407			94,042
Shares issued for conversion of debt		52,154			-			52,154
AP for oil and gas additions		15,581			-			15,581

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

NORTH AMERICAN OIL & GAS CORP.

(A DEVELOPMENT STAGE COMPANY)

Notes To Consolidated Financial Statements

(Unaudited)

NOTE 1 – THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

North American Oil & Gas Corp. (hereinafter referred to as the “Company”) was incorporated in the State of Nevada on April 7, 2010. Since November 16, 2012, the Company has been engaged in the exploration and development of oil and natural gas. The Company is considered a development stage exploration company in accordance with Financial Accounting Standards Board (“FASB”) and Accounting Standards Codification (“ASC”) No. 915, “Development Stage Entities”.

The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 25, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Reclassifications

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

NOTE 2 – GOING CONCERN

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs, which indicates a substantial doubt of its ability to continue as a going concern. The Company has accumulated losses of $2,256,288 from Inception through March 31, 2014. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.

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

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

NOTE 3 – RELATED PARTY TRANSACTIONS

The Company entered into a short-term loan with ASPS Energy Investments, Ltd. (“ASPS”), on September 7, 2012, for the principal sum of $50,000, with interest rate of 3%. The note was due and payable on September 6, 2013, when the outstanding amount of principal and interest was due in full. On February 3, 2014, the outstanding principal of $50,000 as well as accrued interest of $2,154 was converted into 200,590 shares of common stock at a price of $0.26 per share.

On November 13, 2012, the Company entered into a Farm-In agreement with Avere Energy Corp (“Avere”), a wholly owned subsidiary of East West Petroleum Corp. According to the provisions of the agreement, Avere was to fund $300,000 for overhead, which was funded at 100% as of May 1, 2013. The Company has repaid through cash and overhead deductions in the amount of $193,390 leaving the debt remaining at March 31, 2014 of $106,610. Additionally, Avere has provided $1,300,000 to finance the drilling of Well 77-20 in exchange for a 25% working interest in the Tejon Extension. Well 77-20 has been drilled, and is currently shut in while reviewing additional testing possibilities. As of March 31, 2014 Avere has contributed $1,337,019 towards Well 77-20, with NAMOG’s contribution at $115,275.

Through the Farm-In agreement, Avere is to fund $347,500 in total to acquire the White Wolf Prospect in exchange for a 50% working interest. As of March 31, 2014 NAMOG secured 4,663 gross acres, 2,239 net acres, at an average cost per net acre of $135.18. The total costs for the White Wolf leasing acquisition program through March 31, 2014 is $399,823. Avere’s share of these costs at March 31, 2014 is $304,868 leaving a remaining obligation from Avere of $42,632 per this agreement.

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

On April 1, 2013 Donald Boyd, Operations Manager, and Robert Skerry Hoar, Managing Geologist, agreed to termination of services as full time employees, and signed Consulting Agreement contracts with the Company this same date. Each individual contract stipulates $5,000 per month fixed compensation for consulting services in the ongoing operations of NAMOG.

NOTE 4 – COMMON STOCK

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

On February 3, 2014, ASPS elected to convert its $50,000 loan plus interest to date (totaling $52,154) to Two Hundred-thousand, Five Hundred-ninety (200,590) common shares based on the previous day’s close (Friday, January 31, 2014) of $0.26 per share.

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

NOTE 5 – STOCK OPTIONS

The Company awarded Linda Gassaway, Chief Financial Officer, 500,000 shares of stock options on April 1, 2013. The restricted stock options were offered at an exercise price of $.80 per share, and will vest one year from date of grant.

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

During the three months ended March 31, 2014, the Company recorded stock-based compensation of $92,090 related to options granted in prior periods. At March 31, 2014 the weighted average remaining life of the stock options is 4.13 years. All options have been fully amortized as of March 31, 2014.

NOTE 6 – SUSBSEQUENT EVENTS

On April 30, 2014 the Company entered into a Purchase and Sale Agreement (“Agreement”) with Edwin S. Nichols Exploration, Inc., a Texas corporation (“Seller”). The Company purchased ninety-five percent (95%) of Seller’s interest in the “Paid-Up” Oil and Gas Lease covering lands located in Crockett County, State of Texas, more specifically, leases dated June 16, 2012 referred to as the Padgitt Leases covering 596 net acres. The Company acquired these leases for the purchase price of $750 per acre (total consideration equal to $424,650). The terms of the Agreement required the Company to provide a non-refundable deposit of $20,000 upon signing (April 20, 2014), with another payment of $200,000 due on June 30, 2014, and final payment of $204,650 due on September 2, 2014.

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

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

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

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

Overview

The Company began oil and gas exploration in California in June 2011 through our subsidiary Lani. The Company is currently focused on oil and natural gas exploration, exploitation and development operations in projects targeted primarily in the San Joaquin Basin, California. The current Company prospects are: 1) Tejon Main prospect, 2) Tejon Extension prospect, and 3) White Wolf project.

The Company drilled its inaugural exploratory well on the Tejon Ranch Extension on November 25, 2012. We completed drilling on Well 77-20 in December 2012. Seven zones were tested and, due to the results,, the well was shut-in on February 13, 2013. Further review of seismic data is ongoing and the well continues to be shut-in until Management determines if further zonal testing is economically feasible.

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

The prospects include 5 target horizons; the Eocene, Vedder, Jv, Olcese, Reserve and Transition Zone.

Based on the findings in the 3D evaluation, the Company had originally budgeted to drill a well on the Tejon Main prospect. In the first quarter of 2014, Management re-evaluated its drilling plans for 2014, and the timing of drilling. The Company plans to drill a well on the Tejon Extension lease based on adequate funding. The Company plans to drill this well in the third or forth quarter of 2014.

During the period ending March 31, 2014 the Company continued its aggressive acquisition program in the White Wolf prospect. The Company has acquired additional leases in this prospect totaling approximately 1,156 gross, and 1,054 net acres in this prospect.

NAMG owns lease interests in over 176 individual leases covering its three prospects. On the Tejon Ranch Main lease the Company holds 2,874 gross acres and 2,600 net acres; on the Tejon Ranch Extension lease the Company holds 546 gross acres and 346 net acres; and on the White Wolf leases the Company holds 4,823 gross acres and 2,098 net acres. The majority of these leaseholds are held for primary terms of five years. The current leaseholds are set to expire over various periods from now until February 26, 2018 if no additional lease terms are negotiated or extended

Projects in the next 12 months, subject to raising the capital requirements:

Subject to obtaining additional financing, the following drilling and testing may be pursued. The projects and our share of the estimated costs are listed below:

Estimated cost based on expected participating working interest.

Project	Current WI%			No. Wells		Procedure	Est. Net Cost
Tejon Extension		75	%		1	New Drill	$	1.0MM
Tejon Main		40	%		1	New Drill	$	2.5MM

Consolidated Results of Operations for the Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013

Revenues from Operations - The Company had no revenues for the three-month periods ending March 31, 2014 and 2013.

Expenses from Operations - The Company incurred operating expenses of $327,934 for the three-month period ending March 31, 2014; a decrease of $383,403 compared to $711,337 for the three-month period ending March 31, 2013. The operating expense decrease is largely due to a reduction in geological and geophysical consulting fees of $333,845. The remaining reduction in operating expenses was due largely to a decrease in outside accounting expense due in large part to reduced audit fee costs.

Other Income/Expenses – For the three month period ending March 31, 2014 the Company had $1,493 in other income due to a refund of fees from the California Franchise Tax board, which was offset by $2,154 in interest expense. At March 31, 2013, the company incurred $5,650 in other expenses related to California State franchise tax fees.

Liquidity – At March 31, 2014, the Company had a cash balance of $101,005, compared to a cash balance at March 31, 2013 of $246,118. This decrease in cash is attributed to overall operating expenses.

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

Based on current expectations, the Company will need to find additional sources of financing to meet our general corporate needs beyond December 2014 as well as any large capital requirements necessary for additional oil and gas exploration.

Based on the Company’s current expectations, and, along with subsequent events involving stock purchase, we believe that we are only sufficiently funded through December 2014. We do not have any firm commitments to raise additional capital nor is there any assurance sufficient capital will be available at acceptable terms.

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

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

Net Cash Used in Operating Activities

Cash used in operating activities in the three months ended March 31, 2014 was $230,536, compared to $787,150 used in operating activities in the three months ended March 31, 2013. The decrease in cash used in operating activities was primarily related to a decrease account payable resulting from drilling activities in the first quarter of 2013, as well as a decrease in stock based compensation related expenses.

Cash Flows Used In Investing Activities

Net cash used in investing activities for the three months ended March 31, 2014 was $18,022 compared to $482,727 in the three months ended March 31, 2013. The costs for both periods relate to our oil and gas acquisitions and development.

Cash Flows From Financing Activities

Cash provided by financing activities for the three months ended March 31, 2014 was $300,000 compared to $0 provided in the three months ended March 31, 2013. Financing activities during the three months ended March 31, 2014 related to cash sales of our common stock to investors.

Critical Accounting Policies

Oil and Gas Accounting

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

Property Acquisition Costs

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

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

Exploratory Costs

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

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

Proved Reserves

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

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

At March 31, 2014 the Company does not have any Proved Reserves.

Asset Retirement Obligations

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

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

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

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

Internal controls over financial reporting and material weakness previously identified

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2014.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

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

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

10.1		Stock Purchase Agreement, dated January 27, 2014, filed as an Exhibit to the Company’s Form 8-K, filed on February 3, 2014 and incorporated herein by reference.

10.2		Stock Purchase Agreement between North American Oil & Gas Corp. and ASPS Energy Investments Ltd., dated April 3, 2014.

10.3		Stock Purchase Agreement, dated March 28, 2014, between North American Oil & Gas Corp. and Oel und Erdgazforshung, AG.

10.4		Purchase and Sale Agreement between North American Oil & Gas Corp. and Edwin S. Nichols Exploration, Inc. dated April 20, 2014.

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

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

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

101.INS **		XBRL Instance Document

101.SCH **		XBRL Taxonomy Extension Schema Document

101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB **		XBRL Taxonomy Extension Label Linkbase Document

101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document

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

SIGNATURES

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

	NORTH AMERICAN OIL & GAS CORP.

Date: May 16, 2014	By:	/s/ Robert Rosenthal
		Robert Rosenthal
		Chief Executive Officer

Date: May 16, 2014	By:	/s/ Linda Gassaway
		Linda Gassaway
		Chief Financial Officer

North American Oil & Gas Corp. - FORM 10-Q - May 16, 2014

Attached files

North American Oil & Gas Corp. Reports