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SurgePays, Inc. - Quarter Report: 2013 July (Form 10-Q)

FORM 10-Q

 

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: July 31, 2013

 

File No. 000-52522

 

North American Energy Resources, Inc.

(Name of small business issuer in our charter)

 

Nevada   98-0550352
(State or other jurisdiction of   (IRS Employer
incorporation or organization)   Identification No.)

 

1535 Soniat St., New Orleans, LA 70115

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number: (504) 561-1151

 

Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] 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. (Check one):

 

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]

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 21,554,945 shares of common stock outstanding as of August 30, 2013.

  

 

 

 
 

 

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (“Commission”). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto, contained in North American Energy Resources, Inc.’s Form 10-K dated April 30, 2013.

  

TABLE OF CONTENTS

 

      Page
       
PART I - FINANCIAL INFORMATION (Unaudited)   F-1 
       
Item 1: Consolidated Financial Statements   F-1 
       
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations   3 
       
Item 3: Quantitative and Qualitative Disclosures About Market Risk   6
       
Item 4: Controls and Procedures   6
       
PART II - OTHER INFORMATION   7
       
Item 1: Legal Proceedings   7
       
Item 1A: Risk Factors    7
       
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds   7
       
Item 3: Defaults upon Senior Securities   7
       
Item 4: Submission of Matters to a Vote of Security Holders   7
       
Item 5: Other Information   7
       
Item 6: Exhibits   7

 

2
 

 

PART I - Financial Information

 

Item 1: Financial Statements

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Consolidated Balance Sheets

July 31, 2013 (Unaudited) and April 30, 2013

 

   July 31, 2013   April 30, 2013 
ASSETS          
Current assets:          
Cash and cash equivalents  $1,534   $482 
Accounts receivable   290    244 
Total current assets   1,824    726 
Properties and equipment, at cost:          
 Proved oil and natural gas properties and equipment   2,358    2,358 
Accumulated depreciation and amortization   (330)   (290)
Total properties and equipment   2,028    2,068 
Total assets  $3,852   $2,794 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable          
Trade  $63,923   $49,554 
Related parties   20,257    20,257 
Accrued expenses - Related Party   270,207    260,316 
Convertible note payable - officer   470,682    464,992 
Convertible note payable   38,678    38,678 
Total current liabilities   863,747    833,797 
Commitments and contingencies          
           
Stockholders’ deficit:          
Preferred stock: $0.001 par value; 100,000,000 shares authorized; no shares issued and outstanding   -    - 
Common stock: $0.001 par value; 100,000,000 shares authorized; 21,554,945 shares issued and outstanding at July 31, 2013 and April 30, 2013, respectively   21,555    21,555 
Additional paid in capital   2,838,197    2,838,197 
Deficit accumulated during the development stage   (3,719,647)   (3,690,755)
Total stockholders’ deficit   (859,895)   (831,003)
Total liabilities and stockholders’ deficit  $3,852   $2,794 

 

See accompanying notes to consolidated financial statements

 

F-1
 

  

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Statements of Consolidated Operations

For the three months ended July 31, 2013 and 2012

and the period from inception (August 18, 2006) through July 31, 2013

(Unaudited)

 

           Inception 
           (August 18, 2006) 
         through 
   July 31, 2013   July 31, 2012   July 31, 2013 
             
Oil and natural gas sales  $460   $291   $47,899 
Pipeline fees   -    -    2,450 
Total revenues   460    291    50,349 
Costs and expenses               
Oil and natural gas production taxes   33    21    3,448 
Oil and natural gas production expenses   267    322    109,452 
Depreciation and amortization   40    27    16,394 
Asset impairment   -    -    910,714 
Non-cash compensation   -    -    1,414,291 
General and administrative expense   19,132    6,764    1,189,215 
Total costs and expenses   19,472    7,134    3,643,514 
Loss from operations   (19,012)   (6,843)   (3,593,165)
Other income (expense):               
Other income   -    -    21,606 
Interest income   -    -    900 
Interest expense   (9,880)   (9,203)   (148,988)
Total other income (expense)   (9,880)   (9,203)   (126,482)
Net loss  $(28,892)  $(16,046)  $(3,719,647)
                
Net loss per common share, basic and diluted  $(0.00)  $(0.00)     
                
Weighted average common shares outstanding   21,554,945    21,554,945      

 

See accompanying notes to consolidated financial statements.

 

F-2
 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Consolidated Statements of Stockholders’ Deficit

For the period from inception (August 18, 2006) through July 31, 2013

(Unaudited)

 

                   Intrinsic 
               Additional   Value of 
       Common stock   Paid in   Common 
   Date   Shares   Amount   Capital   Stock Options 
                     
BALANCE August 18, 2006        -   $-   $-   $- 
Common stock issued for net assets   9/1/2006    11,264,485    11,265    88,735    - 
Common stock issued for cash   9/7/2006    1,126,448    1,126    8,874    - 
Common stock issued for cash   9/11/2006    1,126,448    1,126    8,874    - 
Net loss        -    -         - 
BALANCE April 30, 2007        13,517,381    13,517    106,483    - 
Net loss        -    -    -    - 
BALANCE April 30, 2008        13,517,381    13,517    106,483    - 
Acquisition of North American Energy Resources, Inc.   7/28/2008    177,000    177    119,653    - 
Conversion of note payable and accrued interest for common stock   7/31/2008    153,000    153    35,377    - 
Common stock options granted for:                         
350,000 shares at $1.00 per share   8/1/2008    -    -    178,000    (178,000)
50,000 shares at $1.25 per share   8/1/2008    -    -    27,096    (27,096)
Exercise common stock options:                         
for $1.25 per share   9/22/2008    100    -    6,250    - 
for $1.00 per share   9/22/2008    1,000    1    49,999    - 
for $1.25 per share   10/13/2008    100    -    6,250    - 
for $1.00 per share   10/13/2008    70    -    3,500    - 
Accounts payable paid with common stock   10/14/2008    90    -    9,016    - 
Amortize intrinsic value of options   10/31/2008    -    -    -    17,091 
Cancel common stock options   11/5/2008    -    -    (188,005)   188,005 
Common stock issued for compensation   11/7/2008    100    -    6,250    - 
Common stock issued for accounts payable   11/7/2008    60    -    3,000    - 
Common stock issued for consulting service   11/12/2008    3,000    3    310,497    - 
Common stock issued for accounts payable   11/17/2008    400    1    24,999    - 
Capital contribution by shareholder in cash   11/30/2008    -    -    50,000    - 
Common stock issued for:                         
Compensation   12/9/2008    338    -    5,000    - 
Accounts payable   12/9/2008    300    -    1,200    - 
Accounts payable   12/9/2008    400    -    6,000    - 
Compensation   1/5/2009    500    1    4,999    - 
Accounts payable   1/5/2009    800    1    3,199    - 
Accounts payable   1/5/2009    400    1    3,999    - 
Accounts payable   1/19/2009    4,000    4    14,996    - 
Compensation   1/26/2009    1,500    2    4,998    - 
Accounts payable   2/24/2009    6,000    6    9,761    - 
Compensation   2/24/2009    1,000    1    1,999    - 
Compensation   3/4/2009    4,000    4    4,996    - 
Compensation   4/6/2009    4,000    4    5,996    - 
Officer compensation   4/21/2009    160,000    160    145,440    - 
Net loss        -    -    -    - 
                          
BALANCE April 30, 2009        14,035,539   $14,036    960,948    - 

 

 (Continued)

 

See accompanying notes to consolidated financial statements.

 

F-3
 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Consolidated Statements of Stockholders’ Deficit, continued

For the period from inception (August 18, 2006) through July 31, 2013

(Unaudited)

 

           Deficit     
       Accumulated   Accumulated     
   Prepaid   Other   During the     
   Officer   Comprehensive   Development     
   Compensation   Loss   Stage   Total 
                 
BALANCE August 18, 2006  $-   $-   $-   $- 
Common stock issued for net assets   -    -    -    100,000 
Common stock issued for cash   -    -    -    10,000 
Common stock issued for cash   -    -    -    10,000 
Net loss   -    -    (5,379)   (5,379)
BALANCE April 30, 2007   -    -    (5,379)   114,621 
Net loss   -    -    (24,805)   (24,805)
BALANCE April 30, 2008   -    -    (30,184)   89,816 
Acquisition of North American Energy Resources, Inc.   -    -    -    119,830 
Conversion of note payable and accrued interest for common stock   -    -    -    35,530 
Common stock options granted for:                    
350,000 shares at $1.00 per share   -    -    -    - 
50,000 shares at $1.25 per share   -    -    -    - 
Exercise common stock options:                    
for $1.25 per share   -    -    -    6,250 
for $1.00 per share   -    -    -    50,000 
for $1.25 per share   -    -    -    6,250 
for $1.00 per share   -    -    -    3,500 
Accounts payable paid with common stock   -    -    -    9,016 
Amortize intrinsic value of options   -    -    -    17,091 
Cancel common stock options   -    -    -    - 
Common stock issued for compensation   -    -    -    6,250 
Common stock issued for accounts payable   -    -    -    3,000 
Common stock issued for consulting service   -    -    -    310,500 
Common stock issued for accounts payable   -    -    -    25,000 
Capital contribution by shareholder in cash   -    -    -    50,000 
Common stock issued for:                    
Compensation   -    -    -    5,000 
Accounts payable   -    -    -    1,200 
Accounts payable   -    -    -    6,000 
Compensation   -    -    -    5,000 
Accounts payable   -    -    -    3,200 
Accounts payable   -    -    -    4,000 
Accounts payable   -    -    -    15,000 
Compensation   -    -    -    5,000 
Accounts payable   -    -    -    9,767 
Compensation   -    -    -    2,000 
Compensation   -    -    -    5,000 
Compensation   -    -    -    6,000 
Officer compensation   (84,933)   -    -    60,667 
Net loss   -    -    (1,097,468)   (1,097,468)
                     
BALANCE April 30, 2009   (84,933)   -    (1,127,652)  $(237,601)

 

 (Continued)

 

See accompanying notes to consolidated financial statements.

 

F-4
 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Consolidated Statements of Stockholders’ Deficit, continued

For the period from inception (August 18, 2006) through July 31, 2013

(Unaudited)

 

                   Intrinsic 
               Additional   Value of 
       Common stock   Paid in   Common 
   Date   Shares   Amount   Capital   Stock Options 
                     
BALANCE April 30, 2009        14,035,539   $14,036   $960,948   $- 
Common stock issued for:                         
consulting agreement   5/1/2009    400,000    400    419,600    - 
consulting agreement   5/1/2009    200,000    200    209,800    - 
oil and gas non-producing property   6/9/2009    700,000    700    125,300    - 
accounts payable   7/27/2009    10,000    10    4,990    - 
consulting agreement   7/27/2009    30,000    30    14,970    - 
consulting agreement   7/27/2009    30,000    30    14,970    - 
oil and gas producing property   9/25/2009    350,000    350    192,150    - 
consulting contract   9/25/2009    300,000    300    182,700    - 
cash   2/23/2010    200,000    200    5,800    - 
consulting agreement   2/24/2010    400,000    400    31,600    - 
consulting agreement - director fees   2/24/2010    450,000    450    35,550    - 
consulting agreement - director fees   2/24/2010    150,000    150    11,850    - 
officer compensation - director fees   2/24/2010    120,000    120    9,480    - 
Other comprehensive loss on available-for-sale securities        -    -    -    - 
Amortize officer compensation        -    -    -    - 
Net loss         -    -    -    - 
                          
BALANCE April 30, 2010        17,375,539    17,376    2,219,708    - 
Recission of available-for-sale                         
securities transaction        -    -    -    - 
Amortize officer compensation        -    -    -    - 
Convertible note payable forgiven by related party   12/3/2010    -    -    57,920    - 
Common stock issued for:                         
Consulting agreement   12/2/2010    850,000    850    7,650    - 
Conversion of convertible notes payable   12/5/2010    3,329,406    3,329    552,919    - 
Net loss        -    -    -    - 
BALANCE April 30, 2011        21,554,945    21,555    2,838,197    - 
Net loss        -    -    -    - 
BALANCE April 30, 2012        21,554,945    21,555    2,838,197    - 
Net loss        -    -    -    - 
BALANCE April 30, 2013        21,554,945    21,555    2,838,197    - 
Net loss        -    -    -    - 
BALANCE July 31, 2013        21,554,945   $21,555   $2,838,197   $- 

 

(Continued)

 

See accompanying notes to consolidated financial statements.

  

F-5
 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Consolidated Statements of Stockholders’ Deficit, continued

For the period from inception (August 18, 2006) through July 31, 2013

(Unaudited)

 

           Deficit     
       Accumulated   Accumulated     
   Prepaid   Other   During the     
   Officer   Comprehensive   Development     
   Compensation   Loss   Stage   Total 
                 
BALANCE April 30, 2009  $(84,933)  $-   $(1,127,652)  $(237,601)
Common stock issued for:                    
consulting agreement   -    -    -    420,000 
consulting agreement   -    -    -    210,000 
oil and gas non-producing property   -    -    -    126,000 
accounts payable   -    -    -    5,000 
consulting agreement   -    -    -    15,000 
consulting agreement   -    -    -    15,000 
oil and gas producing property   -    -    -    192,500 
consulting contract   -    -    -    183,000 
cash   -    -    -    6,000 
consulting agreement   -    -    -    32,000 
consulting agreement - director fees   -    -    -    36,000 
consulting agreement - director fees   -    -    -    12,000 
officer compensation - director fees   -    -    -    9,600 
Other comprehensive loss on available-for-sale securities   -    (1,000)   -    (1,000)
Amortize officer compensation   72,804    -    -    72,804 
Net loss   -    -    (1,382,974)   (1,382,974)
BALANCE April 30, 2010   (12,129)   (1,000)   (2,510,626)   (286,671)
Recission of available-for-sale                    
securities transaction   -    1,000    -    1,000 
Amortize officer compensation   12,129    -    -    12,129 
Convertible note payable forgiven by related party   -    -    -    57,920 
Common stock issued for:                    
Consulting agreement   -    -    -    8,500 
Conversion of convertible notes payable   -    -    -    556,248 
Net loss   -    -    (462,392)   (462,392)
BALANCE April 30, 2011   -    -    (2,973,018)   (113,266)
Net loss   -    -    (655,449)   (655,449)
BALANCE April 30, 2012   -    -    (3,628,467)   (768,715)
Net loss   -    -    (62,288)   (62,288)
BALANCE April 30, 2013   -    -    (3,690,755)   (831,003)
Net loss   -    -    (28,892)   (28,892)
BALANCE July 31, 2013  $-   $-   $(3,719,647)  $(859,895)

 

See accompanying notes to consolidated financial statements.

 

F-6
 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Statements of Consolidated Cash Flows

For the three months ended July 31, 2013 and 2012

and the period from inception (August 18, 2006) through July 31, 2013

(Unaudited)

 

           Inception 
           (August 18, 2006) 
         through 
   July 31, 2013   July 31, 2012   July 31, 2013 
             
Operating activities               
Net loss  $(28,892)  $(16,046)  $(3,719,647)
Adjustments to reconcile net loss to net cash used in operating activities:               
Depreciation and amortization   40    27    16,394 
Non-cash compensation   -    -    1,414,291 
Bad debt expense   -    -    104,243 
Asset impairment   -    -    910,714 
Changes in operating assets and liabilities:               
Accounts receivable   (46)   (43)   (96,347)
Interest accrued on loan to related party   -    -    (900)
Prepaid expenses and other assets   -    -    12,232 
Accounts payable - increase (decrease)   14,369    (41,494)   331,810 
Accrued expenses   9,891    8,219    356,322 
Repayments - joint interest owners   -    -    (9,643)
Net cash used in operating activities   (4,638)   (49,337)   (680,531)
Investing activities               
Payments for oil and natural gas properties and equipment   -    -    (166,311)
Cash received in excess of cash paid in reverse acquisition of North American Energy Resources, Inc.   -    -    119,830 
Proceeds from sale of oil and gas properties   -    -    7,500 
Payments for pipeline   -    -    (7,500)
Net cash used in investing activities   -    -    (46,481)
Financing activities               
Loan proceeds   -    -    48,750 
Shareholder contribution   -    -    50,000 
Loans from officers and shareholders   5,690    48,912    601,532 
Related party advances for working capital   -    357    2,264 
Sale of common stock   -    -    26,000 
Net cash provided by financing activities   5,690    49,269    728,546 
Net increase in cash and cash equivalents   1,052    (68)   1,534 
Cash and cash equivalents, beginning of period   482    316    - 
Cash and cash equivalents, end of period  $1,534   $248   $1,534 

 

(Continued)

 

See accompanying notes to consolidated financial statements.

 

F-7
 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Statements of Consolidated Cash Flows, Continued

For the three months ended July 31, 2013 and 2012

and the period from inception (August 18, 2006) through July 31, 2013

(Unaudited)

 

           Inception 
           (August 18, 2006) 
         through 
   July 31, 2013   July 31, 2012   July 31, 2013 
Supplemental cash flow information               
Cash paid for interest and income taxes:               
Interest  $-   $-   $437 
Income taxes   -    -    - 
Non-cash investing and financing activities:               
Common stock issued for:               
Notes receivable  $-   $-   $76,000 
Oil and gas properties   -    -    303,670 
Interest in pipeline   -    -    100,000 
Loans to shareholders assumed   -    -    (371,000)
Advance from joint interest participant assumed   -    -    (8,670)
   $-   $-   $100,000 
                
Exchange of joint interest receivable for oil and natural gas properties  $-    -   $53,068 
Common stock options granted   -    -    205,096 
Common stock options cancelled   -    -    188,005 
Common stock issued for:               
Convertible notes payable   -    -    591,778 
Consulting agreements   -    -    911,100 
Unevaluated oil and natural gas properties   -    -    126,000 
Proven oil and natural gas properties   -    -    192,500 
Accounts payable   -    -    106,183 
Chief executive officer compensation   -    -    155,200 
Credit balance transferred from accounts receivable to accounts payable   -    -    1,068 
Accounts receivable applied as payment on note payable to related party   -    -    4,572 
Option exercises paid by reducing note payable related party   -    -    75,250 
Advance from shareholder converted to note   -    -    2,000 
Participant advance converted to accounts payable   -    -    31,829 
Accounts payable converted to convertible note payable   -    -    38,678 
Convertible note payable and accrued interest forgiven by related party   -    -    57,920 

 

See accompanying notes to consolidated financial statements.

 

F-8
 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY
(Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2013

 

Note 1: Organization and summary of significant accounting policies

 

Organization

 

The consolidated financial statements include the accounts of North American Energy Resources, Inc. (“NAER”) and its wholly owned subsidiary, North American Exploration, Inc. (“NAE”) (collectively the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

 

NAER was incorporated in Nevada on August 22, 2006 as Mar Ked Mineral Exploration, Inc. and changed its name to North American Energy Resources, Inc. on August 11, 2008. NAE was incorporated in Nevada on August 18, 2006 as Signature Energy, Inc. and changed its name to North American Exploration, Inc. on June 2, 2008.

 

The consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. These consolidated financial statements have not been audited.

 

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report for the year ended April 30, 2013, which is included in the Company’s Form 10-K dated April 30, 2013. The financial data for the interim periods presented may not necessarily reflect the results to be anticipated for the complete year.

 

Business

 

NAE is an independent oil and natural gas company engaged in the acquisition, exploration and development of oil and natural gas properties and the production of oil and natural gas. The Company operates in the upstream segment of the oil and gas industry which includes the drilling, completion and operation of oil and gas wells. The Company has an interest in a pipeline in Oklahoma which is currently shut-in, but has been used to gather natural gas production. The Company has a non-operated interest in a gas well in Texas County, Oklahoma and is continuing to seek additional acquisition possibilities.

 

On December 15, 2010, the Company introduced a new Executive Team. Clinton W. Coldren became the new Chairman and Chief Executive Officer and Alan G. Massara became Director, President and Chief Financial Officer. The new Executive Team is actively reviewing opportunities to acquire additional oil and gas production, development and exploration properties. The initial focus is on properties that are currently producing, but which contain upside drilling and workover potential. If successful, any acquisition will require significant new external financings which could materially change the existing capital structure of the Company. There can be no guarantee that the Company will successfully conclude an acquisition.

 

F-9
 

 

Development stage

 

The Companies are in the development stage and have realized only nominal revenue to date. The decline in gas prices and limited reserves caused the Company’s original gas development plans in Washington County, Oklahomato be cancelled and these properties were sold effective October 1, 2010. Accordingly, the operations of the Companies are presented as those of a development stage enterprise, from their inception (August 18, 2006).

 

Fiscal year

 

2013 refers to periods ending during the fiscal year ending April 30, 2013 and 2012 refers to periods ended during the fiscal year ended April 30, 2012.

 

Reclassification

 

Certain reclassifications have been made in the financial statements at January 31, 2012 and for the periods then ended to conform to the January 31, 2013 presentation. The reclassifications had no effect on net loss or shareholders’ deficit.

 

Recent adopted and pending accounting pronouncements

 

We have evaluated all recent accounting pronouncements as issued by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASU”) through August 31, 2012 and find none that would have a material impact on the financial statements of the Company.

 

Note 2: GOING CONCERN

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has a negative net working capital of $859,895 as of July 31, 2013 and a net loss of $28,892 for the three months then ended. The Company currently has limited liquidity, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

 

Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. There are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.

 

The Company invested in its first non-operated gas well in October 2010 and plans to continue this course as funds become available. The Company has limited business activities which are not capable of supporting current operating requirements.

 

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of these uncertainties.

 

Note 3: related party transactions

 

Accounts payable - related parties includes the following expense reimbursements due to related parties at July 31, 2013 and April 30, 2013. Amounts due include reimbursements for travel, legal and cash advances for payment of other administrative expenses.

 

   July 31, 2013   April 30, 2013 
         
Alan G. Massara, Chief Financial Officer  $20,257   $20,257 
   $20,257   $20,257 

 

F-10
 

 

Effective June 15, 2011, the Board of Directors approved compensation to begin accruing at the rate of $10,000 per month for each of the two listed executive officers. At October 31, 2011, accrued expenses included $90,000 accrued for compensation. Beginning effective November 1, 2011, the compensation rate for Mr. Coldren increased to $20,833 per month and for Mr. Massara increased to $18,750 per month. Both agreed to discontinue accruing their salary effective January 31, 2012 until conditions improve.

 

Accrued expenses include the following:

 

   July 31, 2013   April 30, 2013 
         
Accrued compensation due officers  $208,750   $208,750 
Accrued interest due CEO   57,024    47,534 
Amount due related parties   265,774    256,284 
Accrued interest - other   3,962    3,572 
Asset retirement obligation   471    460 
   $270,207   $260,316 

 

Convertible note payable – officer

 

Interim financing for due diligence expenses and operations is being funded pursuant to a $500,000 multiple advance bridge loan provided to the Company by Clinton W. Coldren, CEO. In evidence of the loan, on November 3, 2011, the Company issued to Clinton W. Coldren a 8% Convertible Note in the principal amount of $500,000. The Convertible Note had an original term of one year and is convertible into shares of common stock of the Company, in whole or in part at any time, at an initial conversion price equal to 130% of the volume-weighted average price of the common stock for the 50 trading days following October 31, 2011, subject to adjustment for distributions to shareholders, stock splits, reclassification of shares and tender or exchange offers. The Company does not have the right to prepay all or any portion of the Note prior to the Maturity Date. The loan balance was $470,682 and $464,992 at July 31, 2013 and April 30, 2013, respectively. Mr. Coldren has agreed to extend the maturity date of the note to October 31, 2013.

 

Note 4: CONVERTIBLE NOTES PAYABLE

 

The Company has a convertible note payable in the amount of $38,678 which is due October 31, 2013 with interest accruing at 4% per annum. The note is convertible into the Company’s common stock at $0.10 per share.

 

Note 5: Stockholder’s equity

 

PREFERRED STOCK

 

The Company has 100,000,000 shares of its $0.001 par value preferred stock authorized. At July 31, 2013 and April 30, 2013 the Company had no shares issued and outstanding.

 

COMMON STOCK

 

The Company has 100,000,000 shares of its $0.001 par value common stock authorized. At July 31, 2013 and April 30, 2013 the Company had 21,554,945 shares issued and outstanding, respectively.

 

WARRANTS

 

As a part of their initial compensation, the new Executive Team was granted Warrants with the following primary terms and conditions. The strike price exceeded the market price when the Warrants were granted.

 

a) Each Warrant shall entitle the owner to purchase one share of common stock of the Company. The warrants will contain price protection should shares be used for an acquisition at a price lower than the conversion price in force. The anti dilution provision will not apply to financings done below the strike price.

 

F-11
 

 

b) The Executive Team is granted three Warrant Certificates as follows:

 

1.Certificate #1 for 10,000,000 warrants with a strike price of $0.025 per share must be exercised within one year of the date Executive Team begins collecting salaries from the Company,

 

2.Certificate #2 for 10,000,000 warrants with a strike price of $0.04 per share and a Term of 5 years from the vesting date, and

 

3.Certificate #3 for 10,000,000 warrants with a strike price of $0.055 per share and a Term of 5 years from the vesting date.

 

c) Other warrant terms are as follows:

 

1.Certificate #1 vests immediately, Certificate #2 shall vest upon execution of Certificate #1 and Certificate #3 shall vest upon execution of Certificate #1.

 

2.All Warrants may vest early if the Company has revenue of $12,500,000 total for two consecutive quarters and records a pre-tax net profit for the two quarters and other conditions including change in control, termination, etc.

 

3.The Warrant Certificates may be allocated among the Executive Team as they so determine.

 

4.The Warrants shall be registered in the first registration statement the Company files, subject to legal counsel approval.

 

The Board of Directors issued a warrant to acquire 500,000 shares of the Company’s common stock at $0.18 per share to its new director, Larry D. Hall, on November 10, 2011. The strike price exceeded the market price when the warrants were granted.

 

COMMON STOCK OPTIONS

 

The North American Energy Resources, Inc. 2008 Stock Option Plan (“Plan”) was filed on September 11, 2008 and reserved 2,500,000 shares for awards under the Plan. The Company’s Board of Directors was designated to administer the Plan and may form a Compensation Committee for this purpose. The Plan terminated on July 23, 2013 with no options outstanding.

 

F-12
 

 

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

 

This statement contains forward-looking statements within the meaning of the Securities Act. Discussions containing such forward-looking statements may be found throughout this statement. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including the matters set forth in this statement.

 

COMPARISON OF THREE MONTHS ENDED JULY 31, 2013 AND 2012

 

Revenues

 

Revenues during the three months ended July 31, 2013 and 2012 were $460 and $291, respectively. The 2013 period included net production of 165 MCF at an average price of $2.79 and the 2012 period included net production of 168 MCF at an average price of $1.73.

 

Costs and expenses during the three months ended July 31, 2013 and 2012 were as follows:

 

   2013   2012 
         
Oil and natural gas production taxes  $33   $21 
Oil and natural gas production expenses   267    322 
Depreciation and amortization   40    27 
Other general and administrative expense   19,132    6,764 
Total  $19,472   $7,134 

 

Other general and administrative expense increased in the current year period from $6,674 in 2012 to $19,132 in 2013, primarily due to an increase in professional services costs. Audit and accounting costs increased approximately $11,800 due to an amendment of the 2012 Form 10-K and the completion of the 2013 Form 10-K being completed during the period.

 

Other expense during the three months ended July 31, 2013 and 2012 is as follows:

 

   2013   2012 
         
Interest expense  $(9,880)  $(9,203)
Total  $(9,880)  $(9,203)

 

The increase in interest expense is the result of the increased balances of the convertible note payable to an officer in 2013 as compared to 2012.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Historical information

 

At July 31, 2013, we had $1,534 in cash, $290 in accounts receivable and a working capital deficit of $861,923. Comparatively, we had cash of $482 and a working capital deficit of $833,071 at April 30, 2013.

 

Evaluation of the amounts and certainty of cash flows

 

Our current cash flow is nominal and insufficient to pay current expenses. We continue to seek other acquisition possibilities, which will require some form of debt and equity financing.

 

3
 

 

Cash requirements and capital expenditures

 

We have made arrangement with our CEO to loan us up to $500,000 to meet the initial operating expenses during the due diligence phase of a potential acquisition. At July 31, 2013, our CEO has loaned $470,682 for this purpose and to meet continuing operating costs. If a potential acquisition is identified additional capital may be required to be raised in the form of equity or debt.

 

Known trends and uncertainties

 

The Company is in a very competitive business. The economy has been very uncertain over the past several years and may make it very difficult to raise the capital required to complete any asset purchase agreement.

 

Expected changes in the mix and relative cost of capital resources

 

The Company is now seeking another acquisition candidate. If identified, the initial phase for the Company will be due diligence and raising the purchase price for the acquisition. In order to take advantage of any undeveloped properties, the Company may require additional financing to continue development plans. The actual amounts required and the timing of the requirements, if any, has not been determined.

 

What balance sheet, income or cash flow items should be considered in assessing liquidity

 

We will seek funding to finance due diligence and the cost of an as yet unidentified acquisition, which may require significant new external financing and which may materially change the existing capital structure of the Company.

 

Our prospective sources for and uses of cash

 

Our current significant issue is identifying a new acquisition candidate, financing the due diligence and raising the funds to complete the acquisition. If successful, the Company expects to use a combination of debt and equity financing.

 

CASH USED IN OPERATING ACTIVITIES

 

Cash used in operating activities was $4,638 for the three-month period ended July 31, 2013 and cash used in operations was $49,337 for the comparable 2012 period. The majority of the cash used in the earlier year period was for payment of accounts payable associated with the planned acquisition which expired in December 2011.

 

CASH PROVIDED BY FINANCING ACTIVITIES

 

We incurred no capital costs in the three-month periods ended July 31, 2013 and 2012.

 

4
 

 

GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company commenced operations in September 2006.

 

At July 31, 2013 and April 30, 2013 the Company had a working capital deficit of $861,923 and $833,071, respectively. At July 31, 2013, the Company has an accumulated deficit of $3,719,647 which includes a loss of $28,892 during the three months ended July 31, 2013. In January 2011, the Company exchanged $38,678 in accounts payable for a convertible note payable now due in October 2013 with interest accruing at 4% per annum. The note is convertible into common stock at $0.10 per share. Beginning in November 2011, the Company’s CEO loaned the Company funds for due diligence and operating expenses pursuant to a Convertible Bridge Loan Note approved by the Board of Directors and executed on November 3, 2011. The majority of these expenses were incurred while attempting to complete an oil and gas property acquisition. The acquisition agreement was terminated in December 2011 and the acquisition was not completed. At July 31, 2013, the Company’s CEO had loaned the Company $470,682, which is due October 31, 2013.

 

The Company invested in its first non-operated gas well in October 2010 and plans to continue this course as funds become available. The Company has limited business activities which are not capable of supporting current operating requirements.

 

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of these uncertainties.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

None.

 

5
 

  

Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

Item 4: Controls and Procedures

 

Evaluation of disclosure controls and procedures

 

Under the PCAOB standards, a control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit the attention by those responsible for oversight of the company’s financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of July 31, 2013. Our management has determined that, as of July 31, 2013, the Company’s disclosure controls and procedures are effective.

 

Changes in internal control over financial reporting

 

There have been no significant changes in internal controls or in other factors that could significantly affect these controls during the quarter ended July 31, 2013, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

6
 

 

PART II - OTHER INFORMATION

 

Item 1: Legal Proceedings

 

None

 

Item 1A: RISK FACTORS

 

Not applicable.

 

Item 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

  

Item 3: Defaults upon Senior Securities.

 

None

 

Item 4: Submission of Matters to a Vote of Security Holders.

 

None

 

Item 5: Other Information.

 

None

 

Item 6: Exhibits

 

Exhibit 31.1   Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer*
     
Exhibit 31.1   Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer*
     
Exhibit 32.1   Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer*
     
Exhibit 32.1   Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer*

 

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**

 

*Filed herewith.
   
** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

 

7
 

 

Signature

 

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 ENERGY RESOURCES, INC.
     
Date: September 11, 2013    
  By:   /s/ Alan G. Massara
    President and Chief Financial Officer

  

8