SurgePays, Inc. - Quarter Report: 2014 January (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: January 31, 2014

File No. 000-52522

North American Energy Resources, Inc.

(Name of small business issuer in our charter)

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 [X]

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 February 28, 2014.

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

PART I - FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Consolidated Balance Sheets

January 31, 2014 (Unaudited) and April 30, 2013

See accompanying notes to consolidated financial statements

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Consolidated Statements of Operations

For the three months ended January 31, 2014 and 2013

(Unaudited)

See accompanying notes to consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Consolidated Statements of Operations

For the nine months ended January 31, 2014 and 2013 and the period from inception (August 18, 2006) through January 31, 2014

(Unaudited)

See accompanying notes to consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Consolidated Statements of Stockholders’ Deficit

For the period from inception (August 18, 2006) through January 31, 2014

(Unaudited)

(Continued)

See accompanying notes to consolidated financial statements.

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 January 31, 2014

(Unaudited)

(Continued)

See accompanying notes to consolidated financial statements.

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 January 31, 2014

(Unaudited)

(Continued)

See accompanying notes to consolidated financial statements.

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 January 31, 2014

(Unaudited)

See accompanying notes to consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Consolidated Statements of Cash Flows

For the nine months ended January 31, 2014 and 2013 and the period from inception (August 18, 2006) through January 31, 2014

(Unaudited)

 (Continued)

See accompanying notes to consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Consolidated Statements of Cash Flows, Continued

For the nine months ended January 31, 2014 and 2013 and the period from inception (August 18, 2006) through January 31, 2014

(Unaudited)

See accompanying notes to consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Notes to Consolidated Financial Statements

January 31, 2014

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.

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, Oklahoma to 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).

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 March 7, 2014 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 negative working capital of $908,221 as of January 31, 2014 and has generated losses since inception. 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.

Over an extended period of time these conditions, among others have raised 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 January 31, 2014 and April 30, 2013. Amounts due include reimbursements for travel, legal and cash advances for payment of other administrative expenses.

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:

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 $497,908 and $464,992 at January 31, 2014 and April 30, 2013, respectively. Mr. Coldren has agreed to extend the maturity date of the note to June 30, 2014.

Note 4: CONVERTIBLE NOTES PAYABLE

The Company has a convertible note payable in the amount of $38,678 which is due June 30, 2014 with interest accruing at 4% per annum. The note is convertible into the Company’s common stock at $0.02 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 January 31, 2014 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 January 31, 2014 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.

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

c) Other warrant terms are as follows:

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.

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 JANUARY 31, 2014 AND 2013

Revenues

Revenues during the three months ended January 31, 2014 and 2013 were $421 and $388, respectively. The 2014 period included net production of 166 MCF at an average price of $2.53 and the 2013 period included net production of 167 MCF at an average price of $2.32.

Costs and expenses during the three months ended January 31, 2014 and 2013 were as follows:

Other general and administrative expense increased in the current year period from $3,830 in 2013 to $18,462 in 2014, primarily due to an increase in professional services costs and travel costs associated with raising funds for a potential acquisition.

Other expense during the three months ended January 31, 2014 and 2013 is as follows:

The increase in interest expense is the result of the increased balances of the convertible note payable to an officer in 2014 ($497,909) as compared to 2013 ($459,645).

COMPARISON OF NINE MONTHS ENDED JANUARY 31, 2014 AND 2013

Revenues

Revenues during the nine months ended January 31, 2014 and 2013 were $1,297 and $1,036, respectively. The 2014 period included net production of 496 MCF at an average price of $2.61 and the 2013 period included net production of 504 MCF at an average price of $2.06.

Costs and expenses during the nine months ended January 31, 2014 and 2013 were as follows:

Other general and administrative expense increased in the current year period from $23,511 in 2013 to $40,889 in 2014, primarily due to an increase in professional services costs and travel costs. Audit and accounting costs increased approximately $9,300 due to an amendment of the 2012 Form 10-K in addition to the normal completion of the 2013 Form 10-K, both being completed during the period. In addition, there was an increase in professional costs and travel costs associated with raising funds of $10,600.

Other expense during the nine months ended January 31, 2014 and 2013 is as follows:

The increase in interest expense is the result of the increased balances of the convertible note payable to an officer in 2014 ($497,909) as compared to 2013 ($459,645).

LIQUIDITY AND CAPITAL RESOURCES

Historical information

At January 31, 2014, we had $86 in cash, $261 in accounts receivable and a working capital deficit of $908,221. 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.

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 January 31, 2014, our CEO has loaned $497,909 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 $35,943 for the nine-month period ended January 31, 2014 and cash used in operations was $67,865 for the comparable 2013 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 nine-month periods ended January 31, 2014 and 2013.

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 January 31, 2014 and April 30, 2013 the Company had a working capital deficit of $908,221 and $833,071, respectively. At January 31, 2014, the Company has an accumulated deficit of $3,766,025 which includes a loss of $75,270 during the nine months ended January 31, 2014. 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 January 31, 2014, the Company’s CEO had loaned the Company $497,909, which is due June 30, 2014.

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.

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 January 31, 2014. Our management has determined that, as of January 31, 2014, 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 January 31, 2014, including any corrective actions with regard to significant deficiencies and material weaknesses.

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

*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”.

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.