SurgePays - 10-Q quarterly report FY

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):

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: 21,554,945 shares of common stock outstanding as of February 21, 2011.

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, 2010.

The Company previously sold its gas pursuant to a contract with a gathering system principally owned by a related party.  The Company received a price equal to 70% of the posted price, which is the same rate charged to third parties.  The related party retained the other 30% of the posted price for gathering fees and marketing fees.  The gathering system has been shut-in due to low gas prices since February 2009.  The Company sold all of its interest in these gas wells effective October 1, 2010.

Convertible notes payable includes convertible notes payable to shareholders and others in the total amount of $510,476 at April 30, 2010.  Convertible notes payable with a balance of $474,358 in principal and $81,890 in accrued interest were converted into 3,329,406 common shares in December 2010.  A convertible note payable with a principal balance of $53,618 and accrued interest of $4,302 was forgiven and the balance was recorded as a contribution to capital.

Accounts payable - related parties includes the following expense reimbursements due to related parties at January 31, 2011 (none at April 30, 2010).  Expense reimbursements include D&O insurance of $12,233, rent of $6,962, office expenses of $836 and travel expenses of $1,875.

The Company has 100,000,000 shares of its $0.001 par value preferred stock authorized.  At January 31, 2011 and April 30, 2010, 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, 2011 and April 30, 2010 the Company has 21,554,945 shares and 17,375,539 shares issued and outstanding, respectively.

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 North American Energy Resources, Inc. 2008 Stock Option Plan ("Plan") was filed on September 11, 2008 and reserves 2,500,000 shares for awards under the Plan.  The Company's Board of Directors is designated to administer the Plan and may form a Compensation Committee for this purpose.  The Plan terminates on July 23, 2013.

Options granted under the Plan may be either "incentive stock options" intended to qualify as such under the Internal Revenue Code, or "non-qualified stock options."  Options outstanding under the Plan have a maximum term of up to ten years, as designated in the option agreements.  No options are outstanding at January 31, 2011.  At January 31, 2011, there are 1,242,333 shares available for grant.

The Company recorded prepaid expenses from the issue of its common stock for consulting services.  The cost, based on the trading price of the stock at the time of the transaction, is amortized to expense over the term of the contracts.  The unamortized balances at January 31, 2011 and April 30, 2010 are as follows:

Other prepaid expense at January 31, 2011 is for D&O insurance for the year ended January 13, 2012.

Activity in convertible notes payable was as follows:

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.

Gas production included 118 MCF sold in 2011.  Oil revenues included 33 net barrels sold in 2010.  As a result of continuing high operating costs, the Company sold all of its producing oil properties and its non-producing gas properties effective October 1, 2010 and acquired one new gas property in a different geographic area.

The decline in direct oil and natural gas costs is a result of the sale of the high maintenance oil properties effective October 1, 2010 and the simultaneous purchase of an interest in a producing gas well.  The gas well has produced a small profit whereas the operating costs of the oil production always exceeded its revenue.

Non-cash compensation declined primarily due to completion of the amortization of higher cost consulting agreements which began in the earlier year.

Other general and administrative expense, net of operator's overhead fee increased in the 2011 period primarily due to new costs associated with the expanding staff and the new office location.  Rent increased $6,962; travel and entertainment increased $1,875; and other costs associated with maintaining a separate office also increased.

The interest bearing debt decreased during the 2011 period as compared to the 2010 period primarily due to the exchange of common stock for convertible notes payable in December 2010.

Oil revenues included 64 net barrels sold in 2011 and 99 net barrels sold in 2010.  Due to low prices, the Company shut-in its Washington County, Oklahoma gas production during January 2009.  The Company's oil prices per barrel averaged $63.52 during 2011 and $59.06 during 2010.  The Company sold all of its producing oil properties and its non-producing gas properties in Washington County, Oklahoma effective October 1, 2010.  The Company acquired a producing gas well which produced 118 net MCF and averaged $2.73/MCF.

The Company recorded asset impairment charges in 2011 and 2010.  The charge in 2011 was as a result of the sale of its remaining shut-in gas properties and its producing oil properties in Washington County, Oklahoma during October 2010.  The 2010 impairment was a result of an acquisition made with common stock being recorded higher than the value of the discounted reserves at the time of the acquisition.

Non-cash compensation in 2011 and 2010 represents the current period charge for stock which has been issued for consulting contracts.  The higher cost contracts have been expiring in 2011, resulting in a reduction in non-cash compensation.

Other general and administrative expense, net of operator's overhead fee declined from $89,142 to $51,757.  The majority of the decline is due to lower legal costs of $34,161 and lower accounting and auditing costs.  A new office was established in New Orleans to accommodate the new Executive Team.  The related costs are expected to cause these expenses to increase in the future.

The weighted average interest bearing debt was approximately the same in both periods.  In December 2010, common stock was issued to retire the convertible notes payable outstanding at that time.

At January 31, 2011, we had $886 in cash and a working capital deficit of $68,637.  Comparatively, we had cash of $3,026 and a working capital deficit of $344,785 at April 30, 2010.  The principal element of the change in working capital was a decrease in prepaid consulting contracts and other prepaid expenses of $238,510, a net decrease in convertible notes payable and related accrued interest of $521,416 and other losses incurred during the period which increased current liabilities.

We estimate that our total planned cash expenditures over the next twelve months will be approximately $100,000 for basic corporate overhead, assuming no increased operations.  We expect to utilize excess funds, when available, to acquire additional acreage for future drilling operations and plan to issue our common stock for certain services when possible.

The Company will plan to meet its capital requirements for the next year with private placements of its common stock or advances from related parties.

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.

Cash used in operating activities was $14,747 for the nine-month period ended January 31, 2011 and cash used in operations was $27,378 for the comparable 2010 period.  There has been only nominal activity with a significant portion of the operating loss being paid with common stock.

We incurred capital costs of $4,893 and $95 in the nine months ended January 31, 2011 and 2010, respectively.

We received loan proceeds of $17,500 during the nine months ended January 31, 2011 and had no activity during the nine months ended January 31, 2010.

We have not attained profitable operations and are dependent upon obtaining a replacement for the shareholder contributions to pursue our business plan.  For these reasons, there is substantial 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.

None.

Not applicable.

The Company’s Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have 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, 2011.  Based on that review and evaluation, which included inquiries made to certain other consultants of the Company, the CEO and CFO concluded that the Company’s current disclosure controls and procedures, as designed and implemented, is 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 and CFO, as appropriate to allow timely decisions regarding required disclosure.  The CEO and CFO feel that a weakness due to a lack of segregation of duties, due to the Company's small size, is mitigated by a third party consultant which the Company has engaged to assist the Company in preparing its financial statements and its filings with the SEC.

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, 2011, the Company issued 3,329,406 common shares for convertible notes payable and accrued interest of $556,248 and issued 850,000 common shares for a consulting agreement valued at $8,500.

The shares were sold pursuant to an exemption from registration under Section 4(2) promulgated under the Securities Act of 1933, as amended.

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.