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

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - North American Oil & Gas Corp.	Financial_Report.xls
EX-32.1 - CERTIFICATION - North American Oil & Gas Corp.	namg_321.htm
EX-31.1 - CERTIFICATION - North American Oil & Gas Corp.	namg_311.htm
EX-31.2 - CERTIFICATION - North American Oil & Gas Corp.	namg_312.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, 2015

¨ 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.)

701 E. Santa Clara Street

Ventura, CA 93001

(Address of principal executive offices) (Zip Code)

(805) 665-6308

(Registrant’s telephone number, including area code)

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

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

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

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

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

As of May 20, 2015, there were 111,176,138 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	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16

Item 4.	Controls and Procedures	16

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	17

Item 1A.	Risk Factors	17

Item 2.	Unregistered Sales of Securities and Use of Proceeds	17

Item 3.	Defaults Upon Senior Securities	17

Item 4.	Mine Safety Disclosures	17

Item 5.	Other information	17

Item 6.	Exhibits	18

SIGNATURES		19

NORTH AMERICAN OIL & GAS CORP.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014

	MARCH 31,			DECEMBER 31,
	2015			2014
	(unaudited)
ASSETS
CURRENT ASSETS
Cash	$	11,906		$	51,210
Accounts receivable		2,846			2,846
Total current assets		14,752			54,056

Fixed assets, net		3,936			4,334

Other Assets
Oil and gas properties, successful efforts method		-			215,161
Deposits		21,300			21,300
Total other assets		21,300			236,461

TOTAL ASSETS	$	39,988		$	294,851


LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable	$	77,110		$	46,130
Accounts payable - related party		169,884			236,167
Other current liabilities		369,869			339,360
Current portion of convertible note payable - net of discounts of $146,363 and $74,920, respectively		348,774			407,585
Derivative liability		325,553			61,134
Note payable - related party, including accrued interest		-			20,000
Total current liabilities		1,291,190			1,110,376

LONG TERM LIABILITIES
Long Term Debt		-			18,413
Asset retirement obligation		-			77,415

TOTAL LIABILITIES		1,291,190			1,206,204

STOCKHOLDERS' DEFICIT
Preferred stock, $0.001 par value, 25,000,000 shares authorized Nil shares issued and outstanding		-			-
Common stock, $0.001 par value, 200,000,000 shares authorized 103,323,338 and 66,164,337 shares issued and outstanding, respectively		103,323			66,164
Additional paid in capital		2,539,653			2,363,342
Accumulated deficit		(3,894,178	)		(3,340,859	)
Total stockholders' deficit		(1,251,202	)		(911,353	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	39,988		$	294,851

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

NORTH AMERICAN OIL & GAS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(UNAUDITED)

	THREE MONTHS ENDED
	MARCH 31,
	2015			2014

OPERATING EXPENSES
Exploration and leasehold costs		1,648			28,694
Management and consulting expenses		6,000			40,500
General and administrative expenses		139,598			256,057
Impairment expense		-			-
Depreciation		398			362
Accretion on asset retirement obligation		-			2,320
Total operating expenses		147,644			327,933

OTHER INCOME (EXPENSE)
Interest expense, including amortization of original issue discount, net		(91,868	)		(2,154	)
Loss on embedded derivative		(166,062	)		-
Loss on sale of assets		(147,745	)		-
Other income (expense)		-			1,493
Total other (income) expense		(405,675	)		(661	)

Net loss before provision for income taxes		(553,319	)		(328,594	)

Provision for income taxes		-			-

NET LOSS	$	(553,319	)	$	(328,594	)

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING		70,131,426			61,869,237

BASIC AND DILUTED NET LOSS PER SHARE	$	(0.01	)	$	(0.01	)

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

NORTH AMERICAN OIL & GAS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(UNAUDITED)

	THREE MONTHS ENDED
	MARCH 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(553,319	)	$	(328,594	)

Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation expense		398			362
Amortization of original issue discount and debt discount		90,104			-
Accretion expense		-			2,320
Stock based compensation		6,000			92,090
Loss on embedded derivative		166,062			-
Loss on sale of assets		147,745			-

Change in assets and liabilities
Decrease in accounts receivable		-			21
Increase in accounts payable		30,980			17,206
Increase in accrued expenses		30,509			36,059
Increase (decrease) in accounts payable - related party		12,217			(50,000	)
Total adjustments		484,015			98,058
Net cash (used in) operating activities		(69,304	)		(230,536	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of oil and gas properties		(10,000	)		(19,059	)
Decrease in restricted cash		-			1,037
Net cash (used in) investing activities		(10,000	)		(18,022	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds received from the sale of common stock		-			300,000
Proceeds from the issuance of short-term convertible debt, net		40,000			-
Net cash provided by financing activities		40,000			300,000

NET INCREASE (DECREASE) IN CASH		(39,304	)		51,442

CASH - BEGINNING OF PERIOD		51,210			49,563

CASH - END OF PERIOD	$	11,906		$	101,005

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest		-			-
Income taxes		-			-

SUPPLEMENTAL NON-CASH ACTIVITY:
Common stock issued for conversion of note payable - related party		-			52,154
Recovery of oil and gas property		-			15,581
Common stock issued for conversion of notes payable		45,780			-
Common stock issued for conversion of accounts payable		78,500			-
Debt discount from derivative		161,547			-
Sale of ARO		77,415			-
Derivative liability extinguished		63,190			-
Common stock issued for conversion of related party notes payable		20,000			-

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

NORTH AMERICAN OIL & GAS CORP.

Notes To Consolidated Financial Statements

(Unaudited)

NOTE 1 – THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by USGAAP for complete financial statements, and rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the year ended December 31, 2014 filed with the SEC on May 15, 2015. While management believes the procedures followed in preparing these financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Commitments and Contingent Liabilities

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

The Company is contingently liable for all of the asset retirement costs associated with the Pass Exploration 77-20 well, as opposed to its 75% working interest share of such costs. The asset retirement obligation has been calculated using the Company’s share of 75% of the working interest in the leased property. Pursuant to the Farm-In, the Company is contingently liable for 100% of the asset retirement obligation related to the Pass Exploration 77-20 well if the well proves to be incapable of producing oil or gas in commercial quantities. This well was in the drilling process as of December 31, 2014. In 2015, the Company has sold its working interest in the 77-20 well and no longer will be recording an asset retirement obligation for well 77-20. The sale with an overriding royalty has reduced the Company’s commitments and continent liabilities while also ensuring the Company recovers its $20,000 bond with the State of California. On March 1, 2015, the Company entered into a Purchase and Sale Agreement with Soda Creek Exploration, LLC (“SCE”) to farm-in to the Tejon agreements in the Pass Exploration 77-20 well. In addition, all ARO costs and liabilities associated with this drilling has been transferred to SCE and NAMG retains an overriding royalty of 1.5% of future production. As a result, the Company lost $147,745 on the sale of the assets.

Reclassifications

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

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 $3,888,178 and has a working capital deficit of $1,296,438 at March 31, 2015. 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

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, a company with common ownership to NAOMG. 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 December 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, 2015 Avere has contributed $1,337,019 towards Well 77-20, with NAMG’s contribution at $115,275.

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, $24,883 of which is included in accounts payable as of March 31, 2015.

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 NAMG. As of March 31, 2015, the Company has $37,333 in accounts payable to Donald Boyd and $1,057 to Robert Skerry Hoar in accounts payable. These agreements have been terminated effective November 30, 2014.

On July 23, 2014, the Company entered into a short-term promissory note (the “Note”) with ASPS Energy Investments Ltd., a company whose voting and investment control is held by Mr. Robert Rosenthal, the Company’s President and Chief Executive Officer. The Note is for a principal amount of $20,000, bears interest at the rate of 4% per annum, and is payable on or before August 26, 2014. The proceeds from the Note were used for the Company’s general business purposes. This amount remains outstanding as of December 31, 2014, and the Company has accrued $355 in interest on this note through December 31, 2014. The note was amended to have the note to either be paid in the form of cash or converted into shares. On March 17, 2015, the outstanding principal of $20,000 excluding the accrued interest was converted into 5,000,000 shares of common stock at a price of $0.004 per share. The balance of this accounts payable at March 31, 2015 is $0 as the accrued interest was written off to zero.

Total outstanding related party accounts payable to Avere, Cosimo Damiano, Donald Boyd, Robert Skerry Hoar at March 31, 2015 is $169,884.

NOTE 4 – COMMON STOCK

In the three months ended March 31, 2015, the Company issued 12,234,000 shares of common stock in conversion of $29,262 in convertible notes with WHC Capital, and $16,518 in convertible notes with JMJ Financial; and 19,625,001 shares of common stock in conversion of $78,500 of accounts payable with various related parties.

On March 17, 2015, the Board of Directors of the Company authorized to increase the authorized capital stock from 200,000,000 shares of common stock to 1,000,000,000 shares of common stock. The preferred stock remained unchanged at 25,000,000 shares. Although authorized by the Board and a consent of a majority of the shares entitled to vote on the increase, the increase in authorized shares will become effective on the filing of an amendment to the Company’s Articles of Incorporation which is expected to occur on or about June 22, 2015.

As of March 31, 2015, the Company has 103,323,338 shares of common stock issued and outstanding.

NOTE 5 – STOCK OPTIONS

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

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

During the three months ended March 31, 2015, the Company recorded stock-based compensation of $0 related to options granted in prior periods. At March 31, 2015 the weighted average remaining life of the stock options is 7 years. All options had been fully amortized as of March 31, 2015.

Outstanding as of March 31, 2015	Number of Options/Shares		Range of Exercise Prices		Weighted-Average Exercise Price
Outstanding as of December 31, 2014		850,000	$	0.70-$0.80	$	0.76
Options granted		-	$	0.00	$	0.00
Options exercised		-	$	0.00	$	0.00
Options forfeited/expired/cancelled		-	$	0.00	$	0.00
Outstanding as of March 31, 2015		850,000	$	0.70-$0.80	$	0.76
Exercisable as of March 31, 2015		850,000	$	0.70-$0.80	$	0.76

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

Exercise Price		Number of Options Outstanding		Weighted-Average Remaining Contractual Life (years)		Number of Options Exercisable
$	0.70		350,000		6.90		350,000
$	0.80		500,000		8.00		500,000
			850,000		7.56		850,000

NOTE 6 – CONVERTIBLE NOTES PAYABLE

WHC Capital, LLC

On August 12, 2014 the Company entered into a Convertible Promissory Note with WHC Capital, LLC. (“WHC”). The Convertible Promissory Note provides the Company with a note in the principal amount of $210,000. The net proceeds the Company received was $135,000 as $60,000 of Original Issue Discount and a financing fee of $15,000 was netted out from the total principal. The Convertible Promissory Note matures on February 11, 2015, and the Company shall make monthly installments of $25,000, commencing September 11, 2014, with the balance due at maturity. As of December 31, 2014, payments in the amount of $50,000 have been made and the balance remaining at December 31, 2014 is $160,000. As the Company failed to make their required $25,000 installment (and subsequent installments), on November 10, 2014, they have defaulted on the WHC Convertible Promissory Note. As a result of the default, pursuant to the terms of WHC Convertible Promissory Note, the November 10, 2014 installment of $25,000 is increased by 30%, and bears interest at 22%. Additionally, the default leads to acceleration and then the full note is increased by 150% to total $330,581. The Company is in process of negotiating a settlement with WHC. As of December 31, 2014, the Company recorded $170,418 in default interest and penalties. In the three months ended March 31, 2015, the Company converted $29,262 of these notes into shares of common stock.

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

WHC shall have the right and at any time after February 11, 2015 to convert all or any part of the outstanding and unpaid principal amount of the Convertible Promissory Note into shares of the Company’s common stock at a conversion price of a thirty-percent (30%) discount off the average of the three (3) lowest intra-day trading prices during the twenty (20) trading days immediately preceding a conversion date, as reported by NASDAQ. The Company recognized a derivative liability in the amount of $229,213 when the note became convertible. Of that amount $141,667 was recognized as debt discount. This amount is amortized using the straight-line method over the life of the Convertible Promissory Note. For the period ended March 31, 2015, the Company has amortized $48,898, with $92,769 remaining as of March 31, 2015.

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

In addition, the Company has recognized an original issue discount in the amount of $60,000. This amount is amortized using the straight-line method over the life of the Convertible Promissory Note. For the period ended March 31, 2015, the Company has amortized $11,650, with $349 remaining as of March 31, 2015.

The WHC note was issued with 500,000 warrants, expiring thirty-six months from the execution of the warrant agreement are exercisable into 500,000 common shares of the Company’s Common Stock at $.15 per share. The fair value of the warrants were estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility of 128.14%, risk free interest rate of 1.00%; and expected term of three years. The fair value of the warrants on the date of issuance is reflected as a debt discount in the amount of $24,760 and an increase to additional paid-in capital. Through the period ended March 31, 2015, there was amortization of the debt discount of $6,334 to bring the debt discount to $0 as of March 31, 2015.

JMJ Financial

On September 3, 2014 the Company entered into a Convertible Note with JMJ Financial (“JMJ”). The Convertible Note provides the Company with a note in the principal amount up to $300,000. The Company received an initial tranche of gross proceeds of $50,000, and net proceeds of $45,000, the $5,000 being Original Issue Discount. The term of the Convertible Note is two years. There is no interest due if the Company repays the note in the first three months. If the Company fails to repay the note within the 90 day period, a one-time interest charge of twelve percent (12%) shall be applied to the principal. A second tranche with similar terms of $25,000 gross proceeds and $22,500 net proceeds was received on December 18, 2014.

JMJ has the right after the 90^th day, at its election, to convert all or part of the outstanding and unpaid principal and accrued interest into shares of common stock at a conversion price of 60% of the lowest trade price in the 20 trading days previous to the conversion. On December 3, 2014, when the first tranche of the JMJ Note became convertible, the Company recognized a derivative liability in the amount of $66,204, of which $50,000 was recognized as a debt discount. The Company recognized a fair value adjustment of $5,070 through December 31, 2014 bringing the derivative liability balance down to $61,134 at December 31, 2014. In the three months ended March 31, 2015, the Company converted $16,519 of convertible notes into shares of common stock. On March 16, 2015, the second tranche became convertible and the company recognized a derivative liability in the amount of $23,273, of which $19,880 was recognized as debt discount. For the period ended March 31, 2015 there was amortization of the debt discount of $21,755 to bring the unamortized debt discount down to $48,125.

In addition, the Company has recognized an original issue discount in the amount of $7,500. At December 31, 2014, the debt discount net of amortization was $6,587. This amount is amortized using the straight-line method over the life of the Convertible Promissory Note. For the period ended March 31, 2015, the Company has amortized $1,467, with $5,120 remaining as of March 31, 2015.

KBM Worldwide, Inc.

On November 7, 2014 the Company entered into a Convertible Promissory Note with KBM Worldwide, Inc. (“KBM”). The Convertible Promissory Note in the principal amount of $53,500 accrues interest at the rate of 8% per annum and matures August 7, 2015. Any amount of principal or interest on this Convertible Promissory Note which is not paid when due shall bear interest at the rate of 22% per annum (“Default Rate”). The Company received net proceeds of $50,000 for this note, paying $3,500 of fees related to the note out of closing. On January 9, 2015, the Company was funded an additional $40,000.

KBM shall have the right to convert this note into shares of the Company’s common stock after 180 days at a conversion price equal to 61% (39% discount) of the average of the three lowest trading prices during the ten trading day period ending on the latest complete trading day prior to conversion. Upon becoming convertible, the conversion feature will be accounted for as an embedded derivative liability.

There has been no payments made on this note through March 31, 2015, and the Company has accrued $2,399 in interest of which $1,766 is for the period ended March 31, 2015.

On April 15, 2015, KBM notified the Company that they were in default of their Convertible Promissory Notes due to the Company’s failure to be in compliance with the reporting requirements of the Exchange Act. As a result of this default, and as discussed in the Convertible Promissory Note with KBM, the notes are due on demand for immediate payment representing 150% of the remaining outstanding principal balance, together with Default Interest as provided for in the notes. If the payment is not paid within 5 days of the notice of default, KBM has the right at its sole discretion to convert the default amount into equity as provided for in the notes.

LG Capital Funding, LLC

On November 18, 2014 the Company entered into a Convertible Redeemable Note with LG Capital Funding, LLC. (“LG”). The Convertible Redeemable Note in the principal amount of $42,000 accrues interest at the rate of 8% per annum and matures November 18, 2015. The note may be prepaid at any time up to the 180th day at a prepayment penalty as stipulated in the note agreement. The Company received net proceeds of $40,000 for this note, paying $2,000 of fees related to the note out of closing.

LG shall have the right to convert this note into shares of the Company’s common stock after 180 days at a conversion price equal to 65% (35% discount) of the lowest trading prices during the twenty trading day period ending on the latest complete trading day prior to conversion. Upon becoming convertible, the conversion feature will be accounted for as an embedded derivative liability.

There has been no payments made on this note through March 31, 2015, and the Company has accrued $1,224 of which $828 is for the period ended March 31, 2015.

Long-term Debt Summary – March 31, 2015	WHC Capital			JMJ Financial			KBM Worldwide			LG Capital			Total
Principal Amount	$	210,000		$	75,000		$	93,500		$	42,000		$	420,500
Original Issue Discount		-			(5,120	)		-			-			(5,633	)
Debt Discount		(93,118	)		(48,125	)		-			-			(133,276	)
Principal converted to stock		(29,262	)		(16,518	)		-			-			(45,780	)
Default Interest Added		170,418			-			-			-			170,581
Principal Repayments		(50,000	)		-			-			-			(50,000	)
Total – March 31, 2015		208,038			5,236			93,500			42,000			348,774
Less: Current portion of convertible notes payable		(208,038	)		(5,236	)		(93,500	)		(42,000	)		(348,774	)
Long-term portion of convertible notes payable	$	-		$	-		$	-		$	-		$	-

NOTE 7 – SALE OF PROPERTY

On March 1, 2015, the Company entered into a Purchase and Sale Agreement with Soda Creek Exploration, LLC (“SCE”) for the sale of its Tejon Extension Acreage, which included the Pass Exploration 77-20 well. The company received nil consideration for the sale upfront but all its ARO costs and liabilities associated with the leases and Well 77-20 have been transferred to SCE and NAMG retains an overriding royalty of 1.5% of future production. As a result of the sale of property, the Company recognized a loss of $147,745 on the assets of Well 77-20.

NOTE 8 – FAIR VALUE MEASUREMENT

The Company records its financial assets and liabilities at fair value, which is defined as the price that would be received to sell the asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. The fair value measurement of these liabilities is consistent with ASC 820, "Fair Value Measurements", whereby the Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:

	Level 1:	Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

	Level 2:	Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

	Level 3:	Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2015:

	Level 1		Level 2		Level 3		Total

Derivative liabilities		-		-		325,553		325,553

There were no such derivatives at December 31, 2013

The estimated fair values of the Company’s derivative liabilities are as follows:

	Convertible Notes (1)			Derivative Liability (2)			Notes Payable (3)

Liabilities Measured at Fair Value
Beginning balance as of December 31, 2014	$	433,500		$	61,134		$	20,000
Derivative expense		-			252,487			-
Revaluation (gain)/loss in interest expense		-			75,122			-
Issuances, net of discount and repayments		(179,945	)		(63,190	)		-
Amortization of discount		90,219			-			-
Ending balance as of March 31, 2015	$	348,774		$	325,553		$	20,000

Total (gain)/loss from revaluation of derivatives included in earnings for the period and reported as an adjustment to interest is as follows:

For fiscal 2014		$	-			$	-			$	-
For fiscal 2015			-				166,062				-

(1)	The balance as of December 31, 2014 and March 31, 2015, includes gross proceeds received, net of repayments including conversion of debt for common shares.

(2)	Represents the derivative liability on the convertible notes.

(3)	The balance represents the gross amounts outstanding for December 31, 2014 and March 31, 2015.

NOTE 9 – SUSBSEQUENT EVENTS

The Company in April and May issued 7,852,800 shares of common stock in conversion of convertible notes payable of $14,135.

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

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

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

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

Overview

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

NAMG owns lease interests located in the Southern San Joaquin Basin covering its three prospects. On the Tejon Ranch Main lease the Company holds 290 gross acres and 270 net acres; on the Tejon Ranch Extension lease the Company holds 629 gross acres and 346 net acres; and on the White Wolf leases the Company holds 1,169 gross acres and 741 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. The Company anticipates allowing leases in White Wolf and Tejon Ranch Main lapse upon their lease expirations, and accordingly has impaired these assets as of December 31, 2014. The Company has sold its working interest in the Tejon Ranch Extension leases and related well 77-20 on March 1, 2015 whereby the buyer Soda Creek Exploration LLC has agreed to assume the Company’s abandonment liability and provide NAMG with an overriding royalty of 1.5% of any oil and gas produced and NAMG will be refunded its security bond with the State of California.

Subject to availability of capital, the Company plans to continue using a combination of capital raising, farm-in and asset sale opportunities to develop NAMG’s leased acreage and where possible to maintain an interest either directly or through an overriding royalty exposure in the leases. Our objective is to build value through astute corporate deals to create long term shareholder wealth, through the acquisition and trading of our leases and continue to build a high impact successful exploration company.

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

History and Corporate Structure

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

Development

Beginning in June 2011, NAMG has focused on California projects, in proven, prolific hydrocarbon provinces. NAMG specifically has focused on three projects within the San Joaquin Basin because of their proximity to existing production and infrastructure; Tejon Ranch Extension, Tejon Main, and White Wolf, with only activity occurring on the Tejon Ranch Extension leases occurring early 2013. Within these three projects, NAMG initially increased its leasehold acreage to over 5,198 net acres of leasehold properties from 3,209 net acres in June 2011, however due to weaker commodity price markets and restricted capital funding the Company has not renewed leases as they expire, allowing the leases to lapse. NAMG currently has approximately 1,357 net acres under leasehold across its three projects as of December 31, 2014.

The Company’s initial area of development was Tejon Ranch Extension where NAMG drilled and completed a well in during the first quarter of 2013. The exploration drilling and testing of the 77-20 well totalled $1,452,294, with $1,300,000 covered at 100% cap by Avere under an agreed Farm-In agreement, with the remainder allocated per the working interest percentages. The purchase of seismic data in February 2013 allowed the Company to thoroughly analyze its Tejon Main and Tejon Extension assets for exploration and development. In a July 2013 investor presentation made available to the public, the Company identified fourteen low risk and high risk prospects targeting light oil with 24/81 mmboe of gross resource potential and acreage play. The primary objectives are in the Eocene, Olcese and JV sands, near shore and submarine channel.

The Company’s initial area of development was Tejon Ranch Extension where NAMG drilled and completed a well in during the first quarter of 2013. The exploration drilling and testing of the 77-20 well totaled $1,452,294, with $1,300,000 covered at 100% cap by Avere under an agreed Farm-In agreement, with the remainder allocated per the working interest percentages. The purchase of seismic data in February 2013 allowed the Company to thoroughly analyze its Tejon Main and Tejon Extension assets for exploration and development. In a July 2013 investor presentation made available to the public, the Company identified fourteen low risk and high risk prospects targeting light oil with 24/81 mmboe of gross resource potential and acreage play. The primary objectives are in the Eocene, Olcese and JV sands, near shore and submarine channel.

The Company had plans to permit and explore up to four identified well locations, pending sufficient funding for development, however the collapse in commodity prices has impacted NAMG’s ability to raise funds and further tests and develop its leases. On March 1, 2015 NAMG sold its working interest in the Tejon Ranch Extension project to Soda Creek Exploration LLC, a Colorado based oil and gas company. In consideration of the sale NAMG was relieved of any future abandonment liabilities associated with the suspended well 77-20, retains an overriding royalty of 1.5% on future production and is refunded its security Bond with the State of California.

There can be no assurances that we will be successful in any of these endeavours, that the prices of oil and natural gas will recover to levels that support commercial development of any discovery on our leases or that NAMG will source sufficient funding to at favourable terms to pursue its future plans.

Plans for our fiscal year 2015 include the following:

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

Estimated cost based on expected participating working interest.

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

Consolidated Results of Operations for the Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014

Expenses from Operations – The Company incurred operating expenses of $141,644 for the three-month period ended March 31, 2015; a decrease of $186,289 compared to $327,933 for the three-month period ended March 31, 2014. The operating expense decrease is largely due to a large decrease in management and consulting expenses and general and administrative expenses as a result of the business slowing down and eventual sale of certain assets.

Other Income/Expenses – For the three-month period ended March 31, 2015 the Company had other expenses of $405,675 compared to $661 for the three-month period ended March 31, 2014. These expenses are the result of incurred interest on the Company’s debt and amortization of discounts on the convertible notes for 2014 and for the most part the recognition and fair value adjustments on the derivative liabilities.

Liquidity – At March 31, 2015, the Company had a cash balance of $11,906, compared to a cash balance at December 31, 2014 of $51,210. This decrease in cash is attributed to the net loss offset by all of the noncash operating activities and the increase in accounts payable and accrued expenses and new debt incurred.

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

Based on current expectations, the Company will need to find additional sources of financing to meet our general corporate needs beyond June 2015. The Company is looking for outside funding, loans, partner agreements and all other courses at their disposal to improve the sources for capital.

Based on the Company’s current expectations, and, along with subsequent events involving stock purchase, we continue to believe that we are only sufficiently funded through June 2015. We have listed our firm commitments with plans to continue raising capital through agreements put in place for ‘Finder Fee’s, etc. There is no assurance sufficient capital will be available at acceptable terms.

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 June 2015. There is an uncertainty as to whether the Company can maintain operations through the second quarter of 2015 without securing additional capital through cash raisings, or investor project participation. In addition, our independent registered public accounting firm has issued a going concern on our financial statements.

Net Cash Used in Operating Activities

Cash used in operating activities in the three months ended March 31, 2015 was $69,304, compared to $230,536 used in operating activities in the three months ended March 31, 2014. The decrease in cash used in operating activities was primarily related to a decrease stock based compensation related expenses.

Cash Flows Used in Investing Activities

Net cash used in investing activities for the three months ended March 31, 2015 was $10,000 compared to $18,022 provided by investing activity in the three months ended March 31, 2014. The decrease in cash provided by investing activities is due to more additions in the prior year for our oil and gas properties.

Cash Flows Provided by Financing Activities

Cash provided by financing activities for the three months ended March 31, 2015 was $40,000 compared to $300,000 provided in the three months ended March 31, 2014. Financing activities during the three months ended March 31, 2014 related to debt financings, as compared to cash provided by financing activities for the three months ended March 31, 2014 related to sales of our common stock.

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, 2015 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.

At March 31, 2015 the Company does not have any Asset Retirement Obligations.

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, 2015.

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.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

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

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

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

101.INS **		XBRL Instance Document

101.SCH **		XBRL Taxonomy Extension Schema Document

101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB **		XBRL Taxonomy Extension Label Linkbase Document

101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document

______________

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

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 28, 2015	By:	/s/ Robert Rosenthal
		Robert Rosenthal
		Chief Executive Officer

	By:	/s/ Cosimo Damiano
		Cosimo Damiano
		Chief Financial Officer

North American Oil & Gas Corp. - FORM 10-Q - May 29, 2015

Attached files

North American Oil & Gas Corp. Reports