10-Q 1 v328698_10q.htm 10-Q

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2012

 

OR

 

¨ TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

 

From the transition period from ____________ to ___________.

 

Commission File Number 000-50541

 

Bering Exploration, Inc.
(Exact name of small business issuer as specified in its charter)

 

N/A
(Former Name if Applicable)

  

Nevada   88-0507007

(State or other jurisdiction of

incorporation or organization)

  (IRS Employer Identification Number)

 

710 North Post Oak, Suite 410, Houston, Texas 77024

 

(Address of principal executive offices)

(713) 780-0806

 (Issuer's telephone number)

 

Check whether the issuer has (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 is a large accelerated filer, and 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

 

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 November 19, 2012 there were outstanding 11,156,506 shares of common stock, $0.001 par value per share.

  

 
 

 

 BERING EXPLORATION, INC.

INDEX TO FORM 10-Q

September 30, 2012

 

Part I Financial Information
         
  Item 1. Financial Statements    
         
    Consolidated Balance Sheets -    
    September 30, 2012 (unaudited) and March 31, 2012   3
         
    Consolidated Statements of Operations (unaudited)    
    Three and Six Months Ended September 30, 2012 and 2011   4     
         
    Consolidated Statements of Cash Flows (unaudited)    
    Six Months Ended September 30, 2012 and 2011   5     
         
    Notes to Unaudited Consolidated Financial Statements   6  
         
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   11
         
  Item 3. Quantitative and Qualitative Disclosures About Market Risk   13
         
  Item 4. Controls and Procedures   13
         
Part II Other Information    
         
  Item 5. Exhibits   14

 

2
 

 

PART I.                FINANCIAL INFORMATION

 

ITEM 1.                                               FINANCIAL STATEMENTS

BERING EXPLORATION, INC.

CONSOLIDATED BALANCE SHEETS 

 

   September 30,   March 31, 
   2012   2012 
   (Unaudited)    
         
ASSETS          
           
Current assets:          
Cash and cash equivalents  $27,817   $52,088 
Accounts receivable, net   44,974    14,376 
Prepaid insurance   11,550    - 
Total current assets   84,341    66,464 
           
Property and equipment, net   136    566 
Oil and gas properties, net of accumulated depletion          
of $71,768 and $38,988, at September 30, 2012 and March 31, 2012,          
respectively, full cost method          
Proved   707,519    342,407 
Unproved   583,441    591,665 
Total assets  $1,375,437   $1,001,102 
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
           
Current liabilities:          
Accounts payable  $159,833   $97,737 
Accounts payable - related parties   52,808    96,873 
Accrued liabilities   126,075    81,199 
Notes payable third parties   9,182    - 
Convertible notes payable - related parties, net of discount of $218,191 and $0          
at September 30, 2012 and March 31, 2012, respectively   83,229    40,700 
Convertible notes payable   65,641    350,000 
Derivative liability   463,226    - 
           
Total current liabilities   959,994    666,509 
Asset retirement obligation   9,665    9,665 
Total liabilities   969,659    676,174 
           
Commitments and contingencies          
           
Shareholders' equity:          
Preferred stock, $0.001 par value, 25,000,000 shares authorized;          
0 shares issued and outstanding at September 30 and March 31, 2012   -    - 
Common stock, $0.001 par value, 500,000,000 shares          
authorized; 11,156,506 and 4,465,531 shares issued and          
outstanding at September 30 and March 31, 2012, respectively   11,156    4,465 
Additional paid-in capital   9,858,035    7,184,809 
Accumulated deficit   (9,463,413)   (6,864,346)
Total shareholders' equity   405,778    324,928 
Total liabilities and shareholders' equity  $1,375,437   $1,001,102 

 

See accompanying notes to unaudited consolidated financial statements. 

 

3
 

 

 BERING EXPLORATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 (Unaudited)

 

   For the Three Months Ended
September 30,
   For the Six Months Ended
September 30,
 
   2012   2011   2012   2011 
                 
Oil and gas revenue  $25,263   $9,682   $49,340   $9,682 
                     
Operating costs and expenses:                    
Lease operating expenses   114,829    2,063    150,363    2,063 
Compensation and related expenses   1,274,494    235,195    1,443,712    473,642 
Office administration   6,341    11,200    38,942    18,084 
Professional fees   91,608    53,083    218,672    114,956 
Investor relations   -    5,137    -    133,429 
Depletion, depreciation and amortization   16,715    215    33,210    645 
Other expenses   44,971    -    44,971    11,048 
Total operating costs and expenses   1,548,958    306,893    1,929,870    753,867 
                     
Net loss from operations   (1,523,695)   (297,211)   (1,880,530)   (744,185)
                     
 Other expense                    
Interest expense   (70,339)   (141,609)   (502,811)   (257,365)
Loss on extinguishment of debt   -    (50,518)   -    (50,518)
Derivative expense   (215,726)   -    (215,726)   - 
                     
Net loss  $(1,809,760)  $(489,338)  $(2,599,067)  $(1,052,068)
                     
Net loss per share:                    
Basic and diluted  $(0.16)  $(0.20)  $(0.28)  $(0.43)
                     
Weighted average number of common shares outstanding basic and diluted   11,063,099    2,485,552    9,255,926    2,460,010 

  

See accompanying notes to unaudited consolidated financial statements.

 

4
 

  

BERING EXPLORATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited) 

 

  

For the Six Months Ended

September 30,

 
   2012   2011 
Cash flows from operating activities:          
Net loss  $(2,599,067)  $(1,052,068)
Adjustments to reconcile net loss to cash used in operating activities:          
Depletion, depreciation, and amortization   33,210    645 
Amortization of debt discount   449,553    206,484 
Share-based compensation   1,323,992    473,642 
Non-cash interest expense   35,027    - 
Loss on extinguishment of debt   -    50,518 
Derivative expense   215,726   - 
Changes in assets and liabilities:          
Accounts receivable   (30,598)   (9,682)
Prepaid insurance   (11,550)   - 
Accounts payable   51,531    25,712 
Accrued liabilities   112,068    44,485 
Net cash used in operating activities   (420,108)   (260,264)
           
Cash flows from investing activities:          
Capital expenditures   (389,668)   (478,170)
Net cash used in investing activities   (389,668)   (478,170)
           
Cash flows from financing activities:          
Proceeds from sale of common stock   500,603    - 
Proceeds from notes payable   9,182    - 
Repayment of convertible notes - related party   (32,500)   (15,302)
Proceeds from convertible notes - related party   308,220    45,000 
Proceeds from exercise of stock options   -    201,250 
Net cash provided by financing activities   785,505    230,948 
           
Net change in cash and cash equivalents   (24,271)   (507,486)
Cash and cash equivalents, beginning of period   52,088    531,933 
Cash and cash equivalents, end of period  $27,817   $24,447 
           
Supplemental disclosures:          
Interest paid  $-   $- 
Income taxes paid  $-   $- 
           
Non-cash investing and financing activities:          
Conversion of accounts payable to convertible notes - related party  $33,500   $- 
Debt discount on convertible notes - related party  $70,750   $- 
Debt discount on convertible notes  $597,500   $42,328 
Conversion of convertible notes payable - related party and accrued interest  to common stock  $49,869   $- 
Conversion of convertible notes payable and accrued interest to common stock  $384,883   $150,000 
Stock issued to settle accounts payable  $-   $18,902 

   

See accompanying notes to unaudited consolidated financial statements.

 

5
 

 

BERING EXPLORATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

 

Note 1.  Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Bering Exploration, Inc. (the "Company" or "Bering") 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 8-03 of Regulation S-X related to smaller reporting companies. These consolidated financial statements should be read in conjunction with the audited financial statements and notes, which are included as part of the Company's Form 10-K filed with the Securities and Exchange Commission (“SEC”) on July 16, 2012.  In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included in the accompanying unaudited consolidated financial statements.  Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year.  Notes to the consolidated financial statements which substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year ended March 31, 2012 as reported in the 10-K have been omitted.

 

Significant accounting policies

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Bering Exploration, Inc. and its wholly owned subsidiaries, Secure Voice Communications, Inc. (Texas) and Bering Operations, Inc. All significant inter-company accounts and transactions have been eliminated.

 

Use of Estimates

 

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

Oil and Natural Gas Properties

 

We account for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the SEC. Under this method, subject to a limitation based on estimated value, all costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized within a cost center on a country by country basis.  Costs of production and general and administrative corporate costs unrelated to acquisition, exploration, and development activities are expensed as incurred.

 

Costs associated with unevaluated properties are capitalized as oil and natural gas properties but are excluded from the amortization base during the evaluation period. When we determine whether the property has proved recoverable reserves or not, or if there is an impairment, the costs are transferred into the amortization base and thereby become subject to amortization.  We evaluate unevaluated properties for impairment at least annually.

 

Capitalized costs included in the amortization base are depleted using either the units of production method based on proved reserves where the Company operates the well or the percentage of depletion method when the Company does not operate the well.  Depletion is calculated using the capitalized costs included in the amortization base, including estimated asset retirement costs, plus the estimated future expenditures to be incurred in developing proved reserves, net of estimated salvage values.

 

The net book value of all capitalized oil and natural gas properties within a cost center, less related deferred income taxes, is subject to a full cost ceiling limitation which is calculated quarterly.  Under the ceiling limitation, costs may not exceed an aggregate of the present value of future net revenues attributable to proved oil and natural gas reserves discounted at 10 percent using current prices, plus the lower of cost or market value of unproved properties included in the amortization base, plus the cost of unevaluated properties, less any associated tax effects.  Any excess of the net book value, less related deferred tax benefits, over the ceiling is written off as expense. Impairment expense recorded in one period may not be reversed in a subsequent period even though higher oil and gas prices may have increased the ceiling applicable to the subsequent period.

 

Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change. 

 

In June 2012, the Company acquired the N. Edna field for total cash consideration of $200,000. The single well in the N. Edna field was not producing at the time of purchase. The Company has initiated workover on the well in an effort to restore production.

 

6
 

 

BERING EXPLORATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012 

 

Note 2.  Going Concern

 

These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business.  The Company has not generated significant revenue since its inception and is unlikely to generate earnings in the immediate or foreseeable future.  The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders and the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations.  As of September 30, 2012, the Company has accumulated losses of $9,463,413 since inception and negative working capital of $875,653.  These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These 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.   

 

Note 3. Related Party Transactions

 

In April 2012, a shareholder advanced the Company $35,000 in exchange for a convertible note payable due March 31, 2013, bearing interest at 12% per annum and convertible into shares of the Company’s common stock at $0.50 per share. In May 2012, the note was amended to allow for conversion at $0.09 per share.

 

In May 2012, shareholder notes and accrued interest totaling $49,869 were converted into 554,105 shares of common stock.

 

In May 2012, the Company made principal payments totaling $12,500 to an officer of the Company on an outstanding convertible note payable.

 

In May 2012, the Company issued a stock option to the Chairman of the Board to purchase 500,000 shares of the Company’s common stock at a price of $0.10 per share, vesting immediately, with a five year term. The fair market value of the option on the date of grant was $99,270. In August 2012, the stock option was cancelled and a new option was issued to the Chairman of the Board to purchase 1,300,000 shares of the Company’s stock at a price of $0.10 per share, vesting immediately, with a five year term. The fair market value of the option was $649,846 on the date of grant.

 

In May 2012, the Company issued a stock option to the Chief Financial Officer to purchase 200,000 shares of the Company’s common stock at a price of $0.10 per share, vesting as follows: 100,000 shares vest immediately and 100,000 shares vest on January 1, 2013, with a five year term. The fair market value of the option on the date of grant was $39,708 and will be recognized over the term of the vesting period. In August 2012, the stock option was cancelled and a new option was issued to the Chief Financial Officer to purchase 300,000 shares of the Company’s stock at a price of $0.10 per share, vesting as follows: 200,000 shares vest immediately and 100,000 shares vest on January 1, 2013, with a five year term. The fair market value of the option was $149,965 on the date of grant, of which 67% was recognized on the date of grant and the balance of which will be recognized over the remaining vesting period.

 

In June 2012, the Company made a payment on a related party payable in the amount of $20,000.

 

In August 2012, the Company entered into a convertible note agreement with Jinsun, LLC, an affiliate of Kevan Casey, the beneficial owner of more than 5% of the Company's outstanding common stock, in the principal amount of $247,500 at an annual interest rate of 10%. The note is due August 31, 2013. The note is convertible into the Company’s common stock at the lesser of (i) 50% of the average of the lowest three (3) closing bid prices for the Company’s common stock during the ten (10) trading days prior to the Conversion Date or (ii) $.05 per share. The Company recorded a discount of $247,500 and a derivative liability of $682,090 related to the variable conversion price of the note at inception. The derivative was calculated using the Black-Scholes pricing model. Variables used in the valuation include (1) discount rate of 0.19%, (2) expected life of 1 year, (3) expected volatility of 315.21%, and (4) zero expected dividends. The company recorded amortization of $29,309 related to the discount during the three months ended September 30, 2012 and recognized a change in derivative liability of $218,864 as of September 30, 2012.

 

In August 2012, the Company issued a stock option to its operations manager to purchase 900,000 shares of the Company’s common stock at a price of $0.10 per share, vesting as follows: 50% on the date of grant and 50% on January 1, 2013, with a five year term. The fair market value of the option was $449,896 on the date of grant. The Company recognized $224,948 on the date of grant and the remainder will be recognized over the remaining vesting period.

 

7
 

 

BERING EXPLORATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

 

Note 4.  Debt

 

Debt as of September 30, 2012 and March 31, 2012 consists of the following:

 

   September 30,   March 31, 
Description  2012   2012 
Note payable          
In June 2012, the Company financed the unpaid balance of a general liability insurance policy in the amount of $11,404 with a premium finance company.  The financing agreement bears annual interest at 8% and is due in April 2013 and calls for monthly principal and interest payments of $1,193.  $9,182   $- 
           
 Convertible notes payable - related party          
On September 30, 2008, the Company entered into a note agreement with J. Leonard Ivins, an Officer of the Company, in the principal amount of $63,302 at an annual interest rate of 10%.  The note was executed in exchange for the cancellation of Mr. Ivins’ employment agreement and all outstanding amounts due to him as of September 30, 2008.  In April 2010, the note was amended and is convertible into the Company’s common stock at the rate of $0.05 per share.  During the six months ended September 30, 2012, the Company made a $12,500 cash payment on this note and increased the note balance by $25,720 in connection with compensation due to Mr. Ivins. The note is due upon demand.   $53,920   $40,700 
In August 2012, the Company entered into a convertible note agreement with Jinsun, LLC, in the principal amount of $247,500 at an annual interest rate of 10%. The note is due August 31, 2013. The note is convertible into the Company’s common stock at the lesser of (i) 50% of the average of the lowest three (3) closing bid prices for the Company’s common stock during the ten (10) trading days prior to the Conversion Date or (ii) $.05 per share. The Company recorded a discount of $247,500 and a derivative liability of $682,090 related to the variable conversion price of the note at inception. The company recorded amortization of $29,309 related to the discount during the three months ended September 30, 2012 and recognized a change in derivative liability of $218,864 as of September 30, 2012.   247,500    - 
Less:  discount   (247,500)   - 
Add:  Amortization of discount   29,309    - 
Total convertible notes payable – related party, net of discount  $83,229   $40,700 
           
Convertible notes, net of discount          
On February 28, 2011, the Company entered into a series of convertible note agreements (the 2011 Convertible Notes) at an annual interest rate of 12% that were convertible into the Company’s common stock at the rate of $0.50 per share.  In May 2012, certain notes issued to third parties totaling $350,000, were modified to reduce the conversion price to $0.09 per common share.  This modification resulted in a beneficial conversion feature (BCF) on the notes amounting to $350,000.  These notes were subsequently assigned to unrelated third parties.  In connection with the assignment, the Company agreed to pay additional consideration of $35,027 to the assignors.  The BCF was recorded as a debt discount and amortized over the term of the notes. In May 2012, notes with a principal balance of $284,359, additional consideration of $35,027, and accrued interest totaling $65,496 were converted to equity and the Company issued 4,206,575 common shares. In May 2012, the due date on the notes was extended to August 31, 2012. In August 2012, the due dates on the notes was extended to May 31, 2013.  $65,641   $350,000 
Less:  Beneficial conversion feature discount   (350,000)   (320,274)
Add:  Amortization of discount   350,000    320,274 
Total convertible notes, net of discount  $65,641   $350,000 

 

Note 5.  Common Stock

 

In May 2012, the Company issued 4,760,680 shares of its common stock upon the conversion of certain convertible notes payable.

 

In May 2012, the Company completed a private placement of 1,430,295 shares of common stock for gross proceeds of $500,603.

 

In July 2012, the Company issued 500,000 shares of its common stock to the Company’s operations manager. The fair market value of the shares on the date of issuance was $180,000.

 

8
 

 

BERING EXPLORATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012 

 

Note 6. Stock Options and Warrants

 

In March 2012, the Company entered into an Option Agreement (the “Agreement”) with an investment banking firm. Per the Agreement, the counterparty is to raise $2,500,000 of capital, net of any fees and costs related to the financing, for the Company on or before September 30, 2012. As inducement for performance, the Company granted an option to acquire 10% of the issued and outstanding common stock of the Company (based at the date of exercise) for an exercise price of $100,000. As the option vests conditional to performance by the counterparty, the Company will recognize the vesting of the option only upon the satisfaction of the performance conditions. In July 2012, the counterparty informed the Company that it would not meet the performance conditions. Accordingly, the option expired without being exercised.

 

In May 2012, the Company issued a stock option to the Chairman of the Board to purchase 500,000 shares of the Company’s common stock at a price of $0.10 per share, vesting immediately, with a five year term. The fair market value of the option on the date of grant was $99,270.

 

In May 2012, the Company issued a stock option to the Chief Financial Officer to purchase 200,000 shares of the Company’s common stock at a price of $0.10 per share, vesting as follows: 100,000 shares vest immediately and 100,000 shares vest on January 1, 2013, with a five year term. The fair market value of the option on the date of grant was $39,708 and will be recognized over the term of the vesting period.

 

In August 2012, the Company issued stock options to its officers to purchase 2,500,000 shares of the Company’s common stock at a price of $0.10 per share. The options were calculated using the Black-Scholes option-pricing model. Variables used in the valuation include (1) discount rate of 0.36%, (2) expected life of five years, (3) expected volatility of 309.64%, and (4) zero expected dividends. See description of vesting and fair market value in Note 3.

 

A summary of option activity for the six months ended September 30, 2012 is presented below:

 

           Weighted     
       Weighted   Average     
       average   Remaining   Aggregate 
       exercise   contractual   intrinsic 
   Options   price   life (years)   value 
Outstanding March 31, 2012   2,300,000   $0.10    4.00   $218,088 
Granted   3,200,000    0.10    4.75    1, 388,688 
Exercised   -    -    -    - 
Forfeited   (3,000,000)   0.10    4.91    (357,066)
Expired   -    -    -    - 
Outstanding September 30, 2012   2,500,000   $0.10    4.86   $1,249,710 
Exercisable September 30, 2012   1,950,000   $0.10    4.86   $1,249,710 

 

9
 

 

BERING EXPLORATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012 

 

The weighted average grant date fair value for the options granted during the period was $0.43.

 

A summary of warrant activity for the six months ended September 30, 2012 is presented below:

 

           Weighted     
       Weighted   average     
       average   remaining   Aggregate 
       exercise   contractual   intrinsic 
   Warrants   price   life (years)   value 
Outstanding March 31, 2012   46,000   $7.50    3.85   $333,966 
Granted   -    -    -    - 
Exercised   -    -    -    - 
Cancelled   (38,333)   7.50    3.60    (278,303)
Expired   -    -    -    - 
Outstanding September 30, 2012   7,667   $7.50    3.60   $55,663 
Exercisable September 30, 2012   7,667   $7.50    3.60   $55,663 

 

Note 7.  Subsequent Events

 

In October 2012, the Company assigned its interest in the Ashland Project to an unrelated third party in exchange for $150,000. 

 

10
 

 

ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the Company’s financial condition as of September 30, 2012 and 2011, and its results of operations for the three and six months ended September 30, 2012 and 2011, should be read in conjunction with the audited consolidated financial statements and notes included in Bering Exploration Inc.’s Form 10-K for the year ended March 31, 2012, filed with the Securities and Exchange Commission.

 

Overview

 

In July 2010, the Company determined to primarily focus its business on the exploration, acquisition, development, production and sale of natural gas, crude oil and natural gas liquids from conventional reservoirs within the United States.  

 

In addition, the Company owns 25% of Intertech Bio, which is developing products to treat cancer, infectious diseases and other medical conditions associated with compromised immune systems.  The Company is not actively involved in the management of Intertech Bio.

 

A description of the Company’s oil and gas properties follows.

 

Central Texas Project,

Caldwell County, Texas

 

In March 2011, the Company leased the mineral rights on 1,282.974 gross acres targeting the Eagle Ford shale play in Central Texas.  This prospect has an aeromagnetic survey and the company expects to utilize it and other advanced techniques to maximize oil recovery from the Eagle Ford, Austin Chalk, Buda and Edwards zones. Bering will retain a 100% working interest and an 81% net revenue interest with a two year lease term.

 

The Eagle Ford Shale is a shale rock formation located in multiple counties in South Texas. It underlies the Austin Chalk and the Edwards limestone formation is just below it. It is considered by geologists to be the “source rock”, or the original source of hydrocarbons (oil and gas) that are now found in the Austin Chalk above it.

 

Chicas Locas Field,

Victoria County, Texas

 

In June 2011, the Company entered into a joint development agreement to co-develop an approximately 640 acre tract in Victoria County, Texas.  The Company will retain a 50% working interest in this prospect.  Our net revenue interest in this field is 75%. In August 2011, the first well developed in this area began producing oil.  The well is currently producing 4 bbl of oil per day. The operator of the well has determined that the well is producing more natural gas than oil and has installed a gas pipeline to connect the well to a commercial pipeline. In April 2012, the pipeline was completed and we began producing natural gas accordingly. Our share of net production on this well was $11,091 and $19,073 during the three and six months ended September 30, 2012.

 

Singer Prospect,

Beauregard Parish, Louisiana

 

In August and October 2011, the Company leased the mineral rights on 320 gross acres in Singer, Louisiana.  Initial geological assessment reveals four sands in zones from 9,600’ to 10,600’ with four potential drilling locations.  Bering retains a 90% working interest in the prospect and a 75% net revenue interest. In August and October 2012, the Company extended the leases for an additional year.

  

Ashland Prospect,

Concordia Parish, Louisiana

 

In July 2011, the Company purchased a 10% working interest in the Ashland prospect in Concordia Parish, Louisiana.  Our net revenue interest in this well is 75%. The prospect contains 1,200 acres.  Preliminary geological analysis reveals two sands between 6,900’ and 7,100’.   In September 2011, the Sharp Heirs A No. 1 (A-1) well was successfully drilled on the prospect.  The well was completed in November 2011 and is producing approximately 26 gross barrels of oil per day. In November 2011, a second well was drilled on this prospect. It was not commercially viable and was converted into a salt water disposal well. This well will be used to off load water produced in the first well and allow for production to increase on the first well. This work was completed and permitted in July 2012. A third well was drilled in May 2012 and is in the process of being completed. Our share of net production on the A-1 well was $15,907 and $29,810 during the three and six months ended September 30, 2012. In October 2012, the Company assigned its interest in the Ashland Prospect to an unrelated third party in exchange for $150,000.

 

Gohlke Project,

Texas Gulf Coast

 

In October 2011, the Company leased the mineral rights to 10,000 feet on 272 gross acres in South Texas.  The tract has 12 potential drilling locations.  Preliminary geological assessment reveals 3 sands at depths of 3,800’, 5,500’ and 8,100’. Bering currently holds a 95% working interest and a 76.5% net revenue interest.

 

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North Edna Project,

Jefferson Davis Parish, Louisiana

 

In May 2012, the Company acquired a 74% net revenue interest and a 100% of working interests in the North Edna Field located in Jefferson Davis Parish, Louisiana (“N. Edna”). N. Edna consists of 384.84 gross acres and the Lejeune No. 1 oil and gas well (Lejeune 1). The Lejeune 1 was not producing at the date of acquisition. The Company began a workover of this well in July 2012 in an effort to restart production. The workover has not been completed as of the date of this filing. The Company has incurred $63,555 in workover related costs during the quarter ended September 30, 2012. There are 3 new potential wells located on this lease.

 

South Texas Project,

Texas Gulf Coast

 

In September 2010, the Company obtained a 5% back in after payout working interest in a single well being drilled in South Texas, along the Texas Gulf Coast. The well was successfully completed and is producing natural gas.  The operator of the well estimates that payout will be achieved in twelve months, at which time the Company’s net working interest will be established.  Until such time as payout is achieved, the Company has no rights to the production from this well and accordingly, has not recognized any oil and gas revenues or reserves from this well.

 

Comparison of Three Months Ended September 30, 2012 and 2011.

 

The Company had revenue of $25,263 for the three months ended September 30, 2012 and $9,682 in revenue for the three months ended September 30, 2011. The increase in revenues of $15,581 was due to the success of two wells completed in the calendar quarter ending December 31, 2011. These wells produced for an entire quarter in 2012 and only one month in 2011.

 

The Company’s expenses increased from $306,893 for three months ended September 30, 2011 to $1,548,958 for three months ended September 30, 2012.  The increase of $1,242,065 was mainly due to the following: increase in oil and gas operating expenses of $112,766, decrease in office administration costs of $4,859, increase in professional fees of $38,525, an increase in depletion, depreciation and amortization of $16,500, an increase in stock based compensation of $1,039,299, and an increase in other expenses of $44,971.

 

In addition, interest expense decreased by $71,270, from $141,609 during the three months ended September 30, 2011 to $70,339 during the three months ended September 30, 2012, primarily due to lower debt levels during the current quarter. The Company also recognized a loss on extinguishment of debt during the quarter ending September 30, 2011 and no such loss during the current quarter. During the three months ended September 30, 2012, the Company entered into a debt agreement that resulted in the recognition of a derivative expense of $215,726. The Company did not have any derivative expenses at September 30, 2011.

 

As a result of the foregoing, the Company’s net loss for the three months ended September 30, 2012 and 2011 was $1,809,760 and $489,338, respectively.

 

Comparison of Six Months Ended September 30, 2012 and 2011.

 

The Company had oil and gas revenues of $49,340 for the six months ended September 30, 2012 and $9,682 in oil and gas revenues for the six months ended September 30, 2011.  The increase of $39,658 was due to the success of two wells completed in the calendar quarter ending December 31, 2011.

 

The Company’s expenses increased from $753,867 for the six months ended September 30, 2011 to $1,929,870 for six months ended September 30, 2012.  The increase of $1,176,003 was mainly due to the following: increase in oil and gas operating expenses of $148,300, increase in cash and stock based compensation of $970,070, decrease in investor relations of $133,429, increase in professional fees of $103,716, increase in office administration of $20,858, and increase in depreciation, depletion and amortization of $32,565.

 

In addition, interest expense increased by $245,446, from $$257,365 during the six months ended September 30, 2011 to $502,811 during the six months ended September 30, 2012 due to increased borrowing and discount amortization.  We also incurred a Loss on Extinguishment of Debt of $50,518 in connection with the conversion of certain notes payable in our Common Stock during the quarter ending September 30, 2011. During the six months ended September 30, 2012, the Company entered into a debt agreement that resulted in the recognition of a derivative expense of $215,726. The Company did not have any derivative expenses at September 30, 2011.

 

As a result of the foregoing, the Company’s net loss for the six months ended September 30, 2012 and 2011 was $2,599,067 and $1,052,068, respectively.

 

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Liquidity and Capital Resources

 

As of September 30, 2012, the Company had $27,817 in cash and negative working capital of $875,653.   In October 2012, the Company assigned its interest in the Ashland Prospect to an unrelated third party in exchange for $150,000. Additional capital will be necessary to fund ongoing operating costs and planned drilling programs over the next twelve months.

 

Net cash used in operating activities for the six months ended September 30, 2012 and 2011 was $420,108 and $260,264, respectively.

 

We anticipate that future liquidity requirements will arise from the need to finance our operations and continue our lease acquisition and drilling programs. The primary sources of funding for such requirements are expected to be raising additional capital from the sale of equity and/or debt securities. However, we can provide no assurances that we will be able to obtain additional financing on terms satisfactory to us, if at all, to remain a going concern. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis and ultimately to attain profitability. The Company is attempting to obtain cash to finance its operations through the sale of equity, debt borrowing and/or through the sale of working interests in our drilling programs. We can provide no assurances that financing will be available to us on terms satisfactory to us, if at all, or that we will be able to continue as a going concern. In this respect, see Note 2 - Going Concern in our financial statements for additional information as to the possibility that we may not be able to continue as a going concern. 

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

 

ITEM 4.CONTROLS AND PROCEDURES

 

                         (a)                 Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of our disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were not effective as of September 30, 2012 due to a lack of segregation of duties and an overreliance on consultants in the accounting and financial reporting process.

 

                         (b)                 Changes in Internal Controls Over Financial Reporting

 

There were no changes that occurred during the quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II.  OTHER INFORMATION

 

ITEM 6.EXHIBITS

 

Exhibit No.   Description
     
31.1   Certification of J. Leonard Ivins.
31.2   Certification of Steven M. Plumb
32.1   Certification for Sarbanes-Oxley Act of J. Leonard Ivins
32.2   Certification for Sarbanes-Oxley Act of Steven M. Plumb
     
101.INS XBRL   Instance Document
101.SCH XBRL   Taxonomy Extension Schema
101.CAL XBRL   Taxonomy Extension Calculation Linkbase
101.DEF XBRL   Taxonomy Extension Definition Linkbase
101.LAB XBRL   Taxonomy Extension Label Linkbase
101.PRE XBRL   Taxonomy Extension Definition Linkbase
       

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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

 

  BERING EXPLORATION, INC.  
     
By:   /s/ J. Leonard Ivins  
  J. Leonard Ivins, Chief Executive Officer  
  Date: November 19, 2012  

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/J. Leonard Ivins   Chief Executive Officer and   November 19, 2012
J. Leonard Ivins   Chairman of the Board    
         
/s/Steven M. Plumb   Principal Financial and   November 19, 2012
Steven M. Plumb   Accounting Officer    

 

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