UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

TABLE OF CONTENTS

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PART I – FINANCIAL INFORMATION

Item 1.           Financial Statements

These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the Securities and Exchange Commission instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended April 30, 2014 are not necessarily indicative of the results that can be expected for the full year.

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Blue Water Petroleum Corp.

As of and for the nine months ended April 30, 2014

                                                                                                                                                                                                     Index

Consolidated Balance Sheets (unaudited) ............................................................................................................................ F–1

Consolidated Statements of Operations (unaudited) .......................................................................................................... F–2

Consolidated Statements of Cash Flows (unaudited) ......................................................................................................... F–3

Notes to the Consolidated Financial Statements (unaudited) ........................................................................................... F–4

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Blue Water Petroleum Corp.
Consolidated Balance Sheets
(unaudited)

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

F-1

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Blue Water Petroleum Corp.

Consolidated Statements of Operations

For the Three and Nine Months Ended April 30, 2014 and 2013

(unaudited)

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

F-2

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Blue Water Petroleum Corp. 

Consolidated Statements of Cash Flows

For the Nine Months Ended April 30, 2014 and 2013

 (unaudited) 

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

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Blue Water Petroleum Corp.

 Notes to the Consolidated Financial Statements

 (unaudited) 

1.        Nature of Business and Continuance of Operations

The Company was incorporated in the State of Nevada on December 8, 2009 as “Degaro Innovations Corp.” Up until May 2013, our management has devoted a significant amount of time to the development of our prior solar power installation business. In furtherance of our prior solar power installation business, our management investigated the market demand for solar power in the Jamaican and Caribbean markets, raised seed capital, investigated various suppliers of solar power equipment.  During the fiscal quarter ended April 30, 2013, management began to evaluate our Company’s current business in a changing competitive environment and exploring a plan to diversify its business to include other opportunities in the renewable energy business and the exploration of conventional sources of energy such as oil and natural gas.  Based on this review, management began evaluating various business opportunities and projects, including growth in the oil and gas sector in the United States.

As part of the Company’s change in business strategy, we changed the name of our Company to “Blue Water Petroleum Corp.” effective July 30, 2013, which management believed was necessary to better reflect the Company’s transition from a solar power marketing, installation and delivery company, to a company focused on the acquisition, exploration and development  of oil and natural gas properties across the United States.

These consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. Since inception the Company has incurred losses totaling $1,179,044, since inception, and has not yet generated any revenue from operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

2.        Summary of Significant Accounting Policies

a)       Basis of Presentation

These consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States and are expressed in US dollars. The Company’s fiscal year end is July 31.

b)      Principal of Consolidation

The consolidated financial statements include the accounts of Blue Water Limited, its 100% owned subsidiary.  All significant intercompany balances and transactions have been eliminated upon consolidation.

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Blue Water Petroleum Corp.

Notes to the Consolidated Financial Statements

 (unaudited) 

2.        Summary of Significant Accounting Policies (continued)

c)       Use of Estimates

The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to useful life of long-lived assets and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

d)      Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

e)      Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally, accelerated depreciation methods) for tax purposes where appropriate. Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When property and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. The Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors.

The estimated service lives of property and equipment are principally as follows:

                Equipment               10 years

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Blue Water Petroleum Corp.

 Notes to the Consolidated Financial Statements

(unaudited)

2.        Summary of Significant Accounting Policies (continued)

f)       Oil and Gas Properties, Successful Efforts Method

The Company uses the successful efforts method of accounting for oil and gas producing activities. Under the successful efforts method, costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed as incurred.

The cost of oil and gas properties is amortized at the well level based on the unit of production method.  Unit of production rates are based on oil and gas reserves and developed producing reserves estimated to be recoverable from existing facilities based on the current terms of the respective production agreements.  The Company’s reserve estimates represent crude oil and natural gas which management believes can be reasonably produced within the current terms of their production agreements.

The Company evaluates its proved oil and gas properties for impairment on a field-by-field basis whenever events or changes in circumstances indicate that an asset’s carrying value may not be recoverable. The Company follows Accounting Standards Codification ASC 360 - Property, Plant, and Equipment, for these evaluations. Unamortized capital costs are reduced to fair value if the undiscounted future net cash flows from our interest in the property’s estimated proved reserves are less than the asset’s net book value.

g)       Support Facilities and Equipment

Our support facilities and equipment are generally located in proximity to certain of our principal fields. Depreciation of these support facilities is provided on the straight-line method based on estimated useful lives of 7 to 20 years.

Maintenance and repair costs that do not extend the useful lives of property and equipment are charged to expense as incurred.

h)       Proved Reserves

Estimates of the Company’s proved reserves included in this report are prepared in accordance with GAAP and guidelines from the United States Securities and Exchange Commission (“SEC”). The Company’s engineering estimates of proved oil and natural gas reserves directly impact financial accounting estimates, including depreciation, depletion and amortization expense and impairment. Proved oil and natural gas reserves are the estimated quantities of oil and natural gas reserves that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under period-end economic and operating conditions. The process of estimating quantities of proved reserves is very complex, requiring significant subjective decisions in the evaluation of all geological, engineering and economic data for each reservoir. The accuracy of a reserves estimate is a function of: (i) the quality and quantity of available data; (ii) the interpretation of that data; (iii) the accuracy of various mandated economic assumptions, and (iv) the judgment of the persons preparing the estimate. The data for a given reservoir may change substantially over time as a result of numerous factors, including additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Changes in oil and natural gas prices, operating costs and expected performance from a given reservoir also will result in revisions to the amount of the Company’s estimated proved reserves. The Company engages independent reserve engineers to estimate its proved reserves.

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Blue Water Petroleum Corp.

Notes to the Consolidated Financial Statements

(unaudited)

2.        Summary of Significant Accounting Policies (continued)

i)       Asset Retirement Obligations

The Company follows the provisions of the Accounting Standards Codification ASC 410 - Asset Retirement and Environmental Obligations. The fair value of an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The present value of the estimated asset retirement costs is capitalized as part of the carrying amount of the long-lived asset. The Company’s asset retirement obligations relate to the abandonment of oil and gas producing facilities and facilities that support the production of oil and gas. The amounts recognized are based upon numerous estimates and assumptions, including future retirement costs, future inflation rates and the credit-adjusted risk-free interest rate. After recording these amounts, the ARO will be accreted to its future estimated value using the same assumed cost of funds and the capitalized costs are depreciated on a unit-of-production basis within the related full cost pool. Both the accretion and the depreciation will be included in depreciation, depletion and amortization expense on our consolidated statements of operations.

j)       Revenue Recognition

The Company recognizes sales revenues for natural gas, oil, and NGLs based on the amount of each product sold to purchasers when delivery to the purchaser has occurred and title has transferred. This occurs when product has been delivered to a pipeline or when a tanker lifting has occurred. The Company follows the sales method of accounting for natural-gas production imbalances. If the Company’s sales volumes for a well exceed the Company’s proportionate share of production from the well, a liability is recognized to the extent that the Company’s share of estimated remaining recoverable reserves from the well is insufficient to satisfy this imbalance. No receivables are recorded for those wells on which the Company has taken less than its proportionate share of production.

k)       Financial Instruments

The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, related party payables and loan payable. Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments the fair value of the Company’s cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets.

l)       Earnings (Loss) Per Common Share

Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At April 30, 2014 and 2013, the Company has no potentially dilutive securities outstanding.

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Blue Water Petroleum Corp.

Notes to the Consolidated Financial Statements

 (unaudited) 

2.        Summary of Significant Accounting Policies (continued)

m)        Income Taxes

The Company accounts for income taxes using the asset and liability method.  The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

n)      Subsequent Events

The Company has evaluated all transactions through the date the consolidated financial statements were issued for subsequent event disclosure consideration.

o)      Recent Accounting Pronouncements

In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date  information on the statements of operations, cash flows and stockholders’ equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. The Company evaluated and adopted ASU 2014-10 for the reporting period ended April 30, 2014.

3.        Property and Equipment

Property and equipment consisted of the following at April 30, 2014 and July 31, 2013:

For the nine months ended April 30, 2014 and 2013, the Company recorded depreciation of $1,371 and $1,373, respectively.       

4.         Related Party Transactions

As of April 30, 2014, the Company owed its former sole officer and director $24,561 for expenditures paid on behalf of the Company. The amount owed is unsecured, non-interest bearing, and has no specified repayment terms.

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Blue Water Petroleum Corp.

Notes to the Consolidated Financial Statements

 (unaudited) 

5.         Loan Payable

At April 30, 2014, the Company was indebted to an unrelated third party for $70,927 and (July 31, 2013 - $42,551). This loan is non-interest bearing and is due on demand. During the nine months ended April 30, 2014, the Company recorded imputed interest of $5,330.

On May 20, 2013, the Company issued a $200,000 promissory note to Kor Energy Holdings Limited. Under the terms of the note, the amount is unsecured, due interest at 8.5% per annum, and due on demand May 20, 2014. During the nine months ended April 30, 2014, the Company recorded interest of $12,622.

On August 15, 2013, the Company issued a $100,000 promissory note to Universal Contrarian Ltd to evidence funds previously lent by the Noteholder to the Company. Under the terms of the note, the amount is unsecured, bears interest at 8.5% per annum, and due on December 31, 2013. During the nine months ended April 30, 2014, the company has defaulted on the note. The default rate as of April 30, 2014 is 16% per annum, and the company has recoded interest expense of $8,474.

On October 18, 2013, the Company issued a $100,000 promissory note to Kor Energy Holdings Limited to evidence funds previously lent by the Noteholder to the Company. Under the terms of the note, the amount is unsecured, bears interest at 8.5% per annum, and due on October 18, 2014. During the nine months ended

April 30, 2014, the Company recorded interest of $4,471.

On October 21, 2013, the Company issued an additional $200,000 promissory note to Kor Energy Holdings Limited to evidence funds previously lent by the Noteholder to the Company. Under the terms of the note, the amount is unsecured, bears interest at 8.5% per annum, and due on October 21, 2014. During the nine months ended April 30, 2014, the Company received $130,000 of the $200,000 promissory note and recorded interest of $4,153.

6.        Commitments

On July 2, 2013, the Company entered into a Farmout Agreement with Blue Water Petroleum LLC, an unrelated third party relating to certain leased lands represented by 12,979.28 gross acres located in Big Horn County, Montana. Under the Farmout Agreement, Blue Water Petroleum LLC granted to the Company, as farmee, all of Farmor’s right, title and interest in and to the leases covering the leased lands, subject to the completion of the Work Program (as defined in the Farmout Agreement).  Blue Water Petroleum LLC reserved and retained an 8% royalty interest in the leases prior to payout and a 16% royalty interest in the leases after payout for each 40 acre drillsite, or portion thereof, located within the leased lands.

7.        Stock Payable

On April 22, 2013, the Company granted 2,500,000 shares of common stock to Tom Hynes as part of his employment agreement, the shares valued have a fair value of $1,275,000 and vested over 3 years. During the nine months end April 30, 2014, the Company has recorded $265,626 to compensation expense. As of April 30, 2014, the unissued vested amount due to Mr. Haynes totals $324,653 and is recorded as a stock payable.  The unvested portion as of April 30, 2014 totals $737,847. 

8.        Subsequent Event

On June 13, 2014, the Company issued a $100,000 promissory note to Kor Energy Holdings Limited.  Under the terms of the note, the amount is unsecured, bears interest at 10% per annum, and due on June 1, 2015. 

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “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, 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, performance 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 unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this Quarterly Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Quarterly Report.

In this Quarterly Report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to “US$” refer to United States dollars and all references to “common stock” refer to the common shares in our capital stock.

As used in this Quarterly Report, the terms “we”, “us”, “our” and “our Company” mean Blue Water Petroleum Corp. and our wholly-owned subsidiary, Degaro Limited, a Jamaican corporation, unless otherwise indicated.

Activities to Date

We are an early stage company that was incorporated on December 8, 2009. Up until May 2013, our management has devoted a significant amount of time to the development of our business. In furtherance of our planned business, our management investigated the market demand for solar power in the Jamaican and Caribbean markets, raised seed capital, investigated various suppliers of solar power equipment, decided on a supplier of solar power equipment and recently purchased a complete 1.5KW solar system for demonstration purposes.  The solar power business has become increasingly more competitive and competitors are marketing low cost systems in the market.  During the fiscal quarter ended April 30, 2013, management began to evaluate its current business in a changing competitive environment and exploring a plan to diversify the Company’s business to include other opportunities in the oil and natural gas industry.  Based on this review, management began evaluating various business opportunities and projects.  On July 2, 2013, we entered into a Farmout Agreement to acquire a working interest in the Blue Water Project.  Effective, July 30, 2013, we changed our name to Blue Water Petroleum Corp.  In July of 2013, management decided to discontinue our solar power business and to exclusively focus our efforts on the acquisition, exploration and development of oil and gas properties across the United States. 

Plan of Operations

Overview

We are in the business of exploring, developing and acquiring oil and gas properties in the United States.  Our sole project is the Blue Water Project located in Big Horn County, Montana.  We have completed our first 5-well production unit, another successful exploration well in the adjacent section, and a water well, for a total of 7 wells.

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This first 5-well production unit is now ready for further development as soon as steam generation equipment is installed on location.  Our Plan of Operations over the next twelve months is as follows:

2013 - 2014

-          Installation of steam or natural gas injection generator, or other improved method generator and a production pad to begin oil production on the initial production unit.

-          Improvements to roads and production infra-structure.

-          Drilling of additional 10 production wells (2 production units) in the area between the initial production unit and the adjacent exploratory well.

Estimated Capital Costs

Based on our current plan of operations as set forth above, we estimate that we will require approximately $2.0 million to pursue our plan of operations over the next 12 months. As at April 30, 2014, we had cash of $579, and total assets of $426,378 and a working capital deficit of $1,328,407. Consequently, we will require additional financing to pursue our plan of operations over the next 12 months. There can be no assurance that we will obtain any additional financing in the amounts required or on terms favorable to us. If we are unable to obtain additional financing, we may have to re-evaluate or abandon our business activities and revise our plan of operations.

We anticipate that additional funding will be in the form of equity or debt financing. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding to fund our plan of operations going forward. In the absence of such financing, our business plan will fail. Even if we are successful in obtaining financing, there is no assurance that we will obtain the funding necessary to pursue our business plan. If we do not continue to obtain additional financing going forward, we will be forced to re-evaluate or abandon our plan of operations.

Results of Operations for the Three and Nine months ended April 30, 2014 and 2013

  
Revenue

We have not earned revenue since our inception.

Expenses

Our operating expenses incurred during the three months ended April 30, 2014 included $77,889  for general and administrative expenses, $457 in depreciation and $10,463 in professional fees compared to the three months ended April 30, 2013 of $3,526  for general and administrative expenses, $457  in depreciation and amortization and $5,803  in professional fees.  This increase in expenses was primarily a result of an increase in fees associated with our exploration activities. Our operating expenses incurred during the nine months ended April 30, 2014 included $452,500  for general and administrative expenses, $1,371 in depreciation and $82,354 in professional fees compared to the nine months ended April 30, 2013 of $8,638  for general and administrative expenses, $1,373  in depreciation and amortization and $18,029  in professional fees.  This increase in expenses was primarily a result of an increase in fees associated with our exploration activities. 

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Net Loss

We incurred a net loss in the amount of $574,629 during the nine months ended April 30, 2014 compared to $32,301 during the nine months ended April 30, 2013.  The increase in net loss was primarily a result of an increase in accounts payable and accrued liabilities due to a lack of funding for our exploration operations as well as the increase in stock based compensation. 

Liquidity and Capital Resources

Neither our prior solar business nor our oil and gas exploration business have generated revenues from operations and are not profitable.  We are dependent upon obtaining financing to pursue our business plan over the next twelve months.  As a result, our auditors have expressed substantial doubt about our ability to continue as a going concern.

As of April 30, 2014, we had a working capital deficit of $1,328,407  and $579  in current assets.  We do not currently have sufficient cash to fund its working capital requirements for the next twelve months.  Consequently, we will need to obtain additional financing, through the issuance of equity or debt.  Our preferred method of raising capital is through the issuance of our equity securities; however, our financial position may require us to issue debt in the form of promissory notes or convertible promissory notes or seek other alternative means of financing.

There can be no assurance that we will be able to raise sufficient financing to satisfy its obligations under the Kor Promissory Notes (as described below).  While the Notes are unsecured, if we fail to satisfy our obligations and are unable to obtain an extension of the term of the Notes, the Noteholder will be able to seek remedies at law and in equity, which could adversely affect our liquidity and capital resources.

We anticipate generating losses in the near term, and therefore, may be unable to continue operations in the future. If we require additional capital, we would have to issue debt or equity or enter into a strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no agreements, arrangements, or understandings with any person to obtain funds through bank loans, lines of credit, or any other sources.

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Kor Promissory Notes  

On October 18, 2013 and on October 21, 2013, we issued two promissory notes to Kor Energy Holdings Limited (each an “October Note” and collectively, the “October Notes”) for an aggregate amount of $300,000. The October Notes evidence the $300,000 loaned to the Company by Kor Energy Holdings Limited in October 2013. Each October Note bears interest at a rate of 8.5% per annum and are due on demand at any time after October 18, 2014 and October 21, 2014, respectively.

We anticipate paying the October Notes through the issuance of equity securities. In the event we are unable to raise sufficient funds to repay the October Notes through the issuance of equity securities prior to the maturity date of such notes, we will seek an extension of the maturity dates from Kor Energy Holdings Limited and Universal Contrarian Ltd., respectively.

On June 13, 2014, we issued an additional $100,000 promissory note to Kor Energy Holdings Limited.  Under the terms of the note, the amount is unsecured, bears interest at 10% per annum, and due on June 1, 2015. 

Off-Balance Sheet Arrangements

From time to time, we may enter into off-balance sheet arrangements and transactions that can give rise to off-balance sheet obligations. As of April 30, 2014, the off-balance sheet arrangements and transactions that we have entered into include operating lease agreements and gas transportation commitments. We do not believe that these arrangements are reasonably likely to materially affect our liquidity or availability of, or requirements for, capital resources.

General Trends and Outlook

Our financial results depend upon many factors, particularly the price of oil and gas. Commodity prices are affected by changes in market demand, which is impacted by domestic and foreign supply of oil and gas, overall domestic and global economic conditions, commodity processing, gathering and transportation availability and the availability of refining capacity, price and availability of alternative fuels, price and quantity of foreign imports, domestic and foreign governmental regulations, political conditions in or affecting other gas producing and oil producing countries, weather and technological advances affecting oil and gas consumption. As a result, we cannot accurately predict future oil and gas prices, and therefore, we cannot determine what effect increases or decreases will have on our Company. A substantial or extended decline in oil and gas prices could have a material adverse effect on our business.

In addition to production volumes and commodity prices, finding and developing sufficient amounts of oil and gas reserves at economical costs are critical to our long-term success. Future finding and development costs are subject to changes in the industry, including the costs of acquiring, drilling and completing our projects. We focus our efforts on increasing oil and gas reserves and production while controlling costs at a level that is appropriate for long-term operations. Our future cash flow from operations will depend on our ability to manage our overall cost structure.

To fund our current working capital needs and maintain our current drilling and acquisition program, we must access the public or private equity or debt markets.  Also, additional capital is necessary for future development of reserves, acquisitions, additional working capital or other liquidity needs. We cannot guarantee that such financing will be available on acceptable terms or at all.

Item 3.           Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.

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Item 4.           Controls and Procedures

Disclosure Controls and Procedures

At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision of and with the participation of our management, including our Chief Executive Officer, Thomas Hynes who serves as our principal executive officer and principal financial officer, of the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Exchange Act). Based on that evaluation, our principal executive officer/principal financial officer has concluded that our disclosure controls and procedures were not effective in ensuring that: (i) information required to be disclosed by the Company in reports that it files or submits to the Securities and Exchange Commission under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for accurate and timely decisions regarding required disclosure. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as at April 30, 2014:

·         Due to the Company’s limited resources, the Company has insufficient personnel resources and technical accounting and reporting expertise to properly address all of the accounting matters inherent in the Company’s financial transactions. The Company does not have a formal audit committee, and the Board does not have a financial expert, thus the Company lacks the board oversight role within the financial reporting process.  

·         The Company’s small size and “one-person” office prohibits the segregation of duties and the timely review of accounts payable, expense reporting banking information.  

Our Chief Executive Officer is in the process of determining how best to change our current system and implement a more effective system to insure that information required to be disclosed in this Quarterly Report on Form 10-Q has been recorded, processed, summarized and reported accurately. Our management acknowledges the existence of this problem, and intends to developed procedures to address them to the extent possible given limitations in financial and manpower resources. While management is working on a plan, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented and tested.

Changes in Internal Control over Financial Reporting

During the period covered by this Quarterly Report, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.           Legal Proceedings

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

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

None.

Item 3.           Defaults Upon Senior Securities

On May 20, 2013, the Company issued a $200,000 promissory note to Kor Energy Holdings Limited (the “Kor Energy Note”).  Under the terms of the Kor Energy Note, the Kor Energy Note bears interest at 8.5% per annum, and was due on demand May 20, 2014. The default interest rate is 16%.  We owed $200,000 and $12,622 in accrued interest as of April 30, 2014

 On August 15, 2013, the Company issued a $100,000 promissory note to Universal Contrarian Ltd. (the “Contrarian Note”) to evidence funds previously lent by the Noteholder to the Company. Under the terms of the Contrarian Note, the Contrarian Note bears interest at 8.5% per annum, and was due on December 31, 2013. We are currently in default on the Contrarian Note and the default rate is 16%.  We owed $100,000 and $8,474 in accrued interest as of April 30, 2014. 

Item 4.           Mine Safety Disclosures

Not applicable.

Item 5.           Other Information

None.

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Item 6.           Exhibits

  
*      Filed herewith

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SIGNATURES

In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

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