SurgePays - 10-Q quarterly report FY

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, 2009

File No. 000-52522

 (Name of small business issuer in our charter)

(Address of principal executive offices) (Zip Code)

Registrant's telephone number:  (512) 944-9115

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. YesxNo ¨

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

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨Nox

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 30,507,667 shares of common stock outstanding as of January 31, 2009.

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 Mar Ked Mineral Exploration, Inc.’s Form 10-KSB dated November 30, 2007 and the Form 8-K dated July 28, 2008 covering the acquisition of North American Exploration, Inc. by the Company.

TABLE OF CONTENTS

NORTH AMERICAN ENERGY RESOURCES, INC.

See accompanying notes to condensed consolidated financial statements

See accompanying notes to condensed consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC.

See accompanying notes to condensed consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC.

See accompanying notes to condensed consolidated financial statements. 

NORTH AMERICAN ENERGY RESOURCES, INC.

See accompanying notes to condensed consolidated financial statements.

 

The financial statements include the accounts of North American Energy Resources, Inc. (formerly Mar Ked Mineral Exploration, Inc.) (“NAEN”) and its wholly owned subsidiary, North American Exploration, Inc. (“NAE”) (formerly Signature Energy, Inc.) (collectively the “Company”).

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 condensed 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 condensed consolidated financial statements have not been audited.

Certain information and footnote disclosures normally included in 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, 2008, which is included in the Company’s Form 8-K/A dated July 28, 2008 and filed on September 12, 2008.  The financial data for the interim periods presented may not necessarily reflect the results to be anticipated for the complete year.

On July 28, 2008, the shareholders of NAE entered into a stock purchase agreement with NAER.  NAER issued 21,000,000 restricted shares of its common stock to the shareholders of NAE in exchange for 100% of the issued and outstanding stock of NAE.  Completion of the stock purchase agreement resulted in the shareholders of NAE having control of NAER.  Accordingly, the transaction is recorded for accounting purposes as the acquisition of NAE by NAER with NAE as the acquirer (reverse acquisition).  The financial statements of the Company prior to July 28, 2008 are those of NAE.  Formerly, NAER used a November 30 year-end.  As a result of the reverse acquisition, the Company will utilize the April 30 year-end of NAE in the future.

 

 

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 with activities, including the drilling, completion and operation of oil and gas wells in Oklahoma.  The Company also has an interest in a pipeline in its area of operations which is used for gathering its gas and the gas production of other producers.

The Company is in the exploration stage and has realized only nominal revenue to date.  The Company is now beginning to develop leasehold which it owns in Washington County, Oklahoma.  Accordingly, the operation of the Company is presented as those of a development stage enterprise, from its inception (August 18, 2006) as prescribed by Statement of Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by Development Stage Enterprises.”

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

At January 31, 2009 and April 30, 2008 the Company had negative working capital of $379,788 and $509,192, respectively, which includes $407,000 and $501,000 in non-interest bearing loans from related parties, respectively.

The Company had relied on receiving an additional $1,300,000 from the prior shareholders to fund its planned drilling and development program.  As discussed in Note 4, the prior shareholders have decided to default on their agreement.  Accordingly, the Company will plan to meet its capital requirements for the next year with private placements of its common stock.

In addition, the Company expects to sell all of its interest in its existing developmental drilling prospects on a 1/3 for 1/4 basis and be carried to the tanks, thus having no additional up-front capital costs on existing properties.  This method of operations allows the company to participate in a larger number of prospects with a relatively low capital outlay.

These conditions raise 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.

Prior to the acquisition of NAE, NAER was an exploration stage company engaged in the acquisition, exploration and development of resource properties, principally gold, in the Province of British Columbia, Canada.  Since the acquisition of NAE, NAER has abandoned its plans to develop gold leases and will concentrate future resources in acquiring, exploring and developing oil and natural gas properties.

The Company has non-interest bearing obligations to related parties at January 31, 2009 and April 30, 2008, as follows:

 

The Company acquired the following assets from its shareholders and assumed the liability to its shareholders in August 2006:

The Company sells its gas pursuant to a contract with a gathering system principally owned by a related party.  The Company receives a price equal to 70% of the posted price.  The related party retains the other 30% of the posted price for gathering fees and marketing fees.

During the three months ended October 31, 2008, options to acquire 400,000 shares of common stock were granted to two shareholders at prices ranging from $1.00 to $1.25 per share.  A total of 63,500 shares were exercised during the quarter and paid with a $66,000 reduction in the amount due shareholders.  These options were cancelled effective November 1, 2008.

During the three months ended January 31, 2009, the Company granted options for 384,667 shares to shareholders which were exchanged for shareholder advances of $9,250 and accounts payable assumed of $65,000.

During the nine months ended January 31, 2009, the Company loaned a related party $8,519 as an advance of consulting fees.

The Company has 100,000,000 shares of its $0.001 par value preferred stock authorized.  At January 31, 2009 and April 30, 2008, the Company had no shares issued and outstanding.

 

The Company has 100,000,000 shares of its $0.001 par value common stock authorized.  At January 31, 2009 and April 30, 2008 the Company has 30,507,667 and 21,000,000 shares issued and outstanding, respectively.

During the three months ended October 31, 2008, options to acquire 404,500 shares of common stock were granted to two shareholders and one consultant at prices ranging from $1.00 to $2.00 per share.  A total of 66,000 shares were exercised during the quarter and paid with a $66,000 reduction in the amount due shareholders and a reduction in accounts payable of $9,020.

During the three months ended January 31, 2009, the Company granted options to acquire 589,667 shares of its common stock which were exchanged for a consulting contract valued at $310,500, advances due shareholders of $9,250 and accounts payable assumed of $69,400.

The Company currently maintains its corporate office in the office of its accountant at no charge.

The shareholders of NAER prior to the acquisition of NAE agreed to contribute a total of $1,500,000 to NAER as an inducement to the shareholders of NAE to close the acquisition in July 2008.  Of this amount, $200,000 was contributed as of January 31, 2009.  The Company received confirmation in early February 2009 that the shareholders of NAER before the acquisition of NAE advised NAER of the decision to default on their agreement to contribute a $1,500,000 to the Company.  The Company’s plans for drilling and developing its acreage have been delayed pending obtaining a new source of financing.

On February 12, 2009, the Company filed a Preliminary Information Statement pursuant to Section 14C of the Securities Exchange Act of 1934 to announce the approval by the holders of a majority of the common stock of the Company of a reverse stock split of one share for each 50 currently outstanding.  This action should become effective at least 20 days after filing a Definitive 14C.  The share disclosures in this filing have not been adjusted to take into account this reverse split.

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.

Our plan of operation for the next twelve months is to obtain funding from private placements of our common stock, continue to develop our existing leases, and acquire additional leases.

During the three-month periods ended January 31, 2009 and 2008, we had oil and natural gas sales of $1,740 and $1,679, respectively.  In the 2008 period, the Company’s field came back on line after being shut-in due to flooding experienced earlier in the year.  Sales re-commenced after substantial repairs had been completed.  In the 2009 period, the Company had several wells which were scheduled for work-over to commence in the quarter ended January 31, 2009.  The scheduled work-overs were delayed until the quarter ending April 30, 2009.

Non-cash compensation includes the calculated value of options granted for consulting contracts during the quarter.

At January 31, 2009, the Company wrote off a note receivable in the amount of $76,000 to bad debt expense as it was determined to be uncollectible.

During the three-month periods ended January 31, 2009 and 2008, general and administrative expenses, amounted to $62,033 and $5,662, respectively.  Consulting and professional services, accounting, field supervision and software costs in 2009 account for the majority of the increase.  The accounting was brought up to date during the 2009 period, an audit was completed and new oil and gas software was used for the first time.

During the nine-month periods ended January 31, 2009 and 2008, we had oil and natural gas sales of $4,712 and $4,109, respectively.  In the 2008 period, the Company’s field was shut-in due to flooding experienced earlier in the year until August 2007.  During 2009, several wells are being re-completed commencing in February 2009.

Non-cash compensation represents the amortization of the intrinsic value of common stock options which began in the October 2008 quarter of $17,091 and the calculated value of options issued for consulting contracts of $310,500.  The options granted in the prior quarter were cancelled effective November 1, 2008.

At January 31, 2009, the Company wrote off a note receivable in the amount of $76,000 to bad debt expense as it was determined to be uncollectible.

During the nine-month periods ended January 31, 2009 and 2008, general and administrative expenses, amounted to $125,945 and $4,362, respectively.  Consulting and professional services, accounting and software costs in 2009 account for the majority of the increase.  The accounting was brought up to date during the 2009 period, an audit was completed and new oil and gas software was used for the first time.

At January 31, 2009, we had $4,769 in cash and a working capital deficit of $379,788.  Comparatively, we had cash of $185,023 and a working capital deficit of $509,192 at April 30, 2008.

Pursuant to the stock purchase agreement between NAER and the shareholders of NAE, the shareholders of NAER prior to the acquisition of NAE agreed to contribute $1,500,000 for the working capital needs of NAER.  As of January 31, 2009, the Company had received $200,000 from the shareholders.  The Company received confirmation in early February 2009 that the shareholders of NAER before the acquisition of NAE advised NAER o the decision to default on their agreement to contribute a $1,500,000 to the Company.  The Company’s plans for drilling and developing its acreage have been delayed pending obtaining a new source of financing.

We estimate that our total planned expenditures over the next twelve months will be approximately $120,000 for corporate overhead.  We expect to utilize excess funds when available to acquire additional acreage for future drilling operations.

Cash used for operating activities was $275,059 for the nine-month period ended January 31, 2009 and $37,743 for the nine-month period ended January 31, 2008.  The majority of the increase is attributed to using the funds received from joint interest participants to pay drilling and development costs incurred during the period.  The majority of the funds required for drilling and developing existing acreage will come from prepayments from joint interest participants.  Aside from overhead, we expect to utilize the majority of our excess capital, if any, to acquire additional leases.

We received $50,000 in cash from shareholder contributions during the nine-month period ended January 31, 2009, after the acquisition of NAE by NAEN.  Of this amount, $36,750 was used to repay a portion of shareholder loans.  As noted above, there will be no future shareholder contributions from the former shareholders of NAEN.

 

 

We have not attained profitable operations and are dependent upon obtaining a replacement for the shareholder contributions discussed above to pursue our business plan.  For these reasons, there is doubt we will be able to continue as a going concern, since we are dependent upon an as yet unknown source to provide sufficient funds to finance future operations until our revenues are adequate to fund our cost of operations.

Not applicable.

 

The Company’s Chief Executive Officer has reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of January 31, 2009.  Based on that review and evaluation, which included inquiries made to certain other employees of the Company, the CEO concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to the Company required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including insuring that such information is accumulated and communicated to the Company’s management, including the CEO, as appropriate to allow timely decisions regarding required disclosure.

There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation described above, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

None

Not applicable.

During the three months ended January 31, 2009, the Company granted options to acquire 589,667 shares of its common stock pursuant to an S-8 registration statement which were exchanged for a consulting contract valued at $310,500, advances due shareholders of $9,250 and accounts payable assumed of $69,400.

None

None

None

 

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.