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, 2012

 

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.)

 

228 Saint Charles Ave., Suite 724, New Orleans, LA 70130

(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 February 15, 2012.

 

 

 

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, 2011.

 

						TABLE OF CONTENTS
										Page
PART I - FINANCIAL INFORMATION (UNAUDITED)
Item 1:	Condensed Consolidated Financial Statements									3
Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations									17
Item 3:	Quantitative and Qualitative Disclosures About Market Risk									21
Item 4:	Controls and Procedures									21
PART II - OTHER INFORMATION										22
Item 1:	Legal Proceedings
Item 1A:	Risk Factors
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3:	Defaults upon Senior Securities
Item 4:	Submission of Matters to a Vote of Security Holders
Item 5:	Other Information
Item 6:	Exhibits

 

 

 

PART I - Financial Information

Item 1: Financial Statements

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY
(Development Stage Companies)
Condensed Consolidated Balance Sheets
January 31, 2012 (Unaudited) and April 30, 2011
					January 31,		April 30,
					2012		2011
ASSETS
Current assets:
	Cash and cash equivalents				58,691		716
	Accounts receivable				150		-
	Prepaid expenses				-		8,664
		Total current assets			58,841		9,380
Properties and equipment, at cost:
	Proved oil and natural gas properties and equipment				2,358		2,358
		Accumulated depreciation and amortization			(141)		(52)
			Total properties and equipment		2,217		2,306
		Total assets			61,058		11,686
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
	Accounts payable
		Trade			118,076		30,860
		Oil and gas proceeds due to others			-		368
		Related parties			18,427		54,187
	Accrued expenses				214,901		859
	Convertible note payable - officer				375,181		-
	Convertible note payable				38,678		38,678
		Total current liabilities			765,263		124,952
	Commitments and contingencies
	Stockholder' 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 issued and outstanding
			at January 31, 2012 and April 30, 2011, respectively		21,555		21,555
		Additional paid in capital			2,838,197		2,838,197
		Deficit accumulated during the development stage			(3,563,957)		(2,973,018)
			Total stockholders' deficit		(704,205)		(113,266)
				Total liabilities and stockholders' deficit	61,058		11,686
	See accompanying notes to condensed consolidated financial statements

 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY
(Development Stage Companies)
Statements of Condensed Consolidated Operations
For the three months ended January 31, 2012 and 2011
(Unaudited)
					2012		2011
Oil and natural gas sales					326		322
		Total revenues			326		322
Costs and Expenses
	Oil and natural gas production taxes				23		23
	Oil and natural gas production expenses				244		171
	Depreciation and amortization				19		52
	Non-cash compensation				-		53,500
	General and administrative expense, net of
		operator's overhead fees			354,451		23,672
		Total costs and expenses			354,737		77,418
Loss from operations					(354,411)		(77,096)
Other income (expense):
	Interest expense				(4,486)		(5,500)
		Total other income (expense)			(4,486)		(5,500)
		Net loss			(358,897)		(82,596)
Net loss per common share, basic and diluted					(0.02)		0.00
Weighted average common shares outstanding					21,554,945		20,029,232
See accompanying notes to condensed consolidated financial statements

 

 

 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY
Statements of Condensed Consolidated Operations
For the nine months ended January 31, 2012 and 2011
	and the period from inception (August 18, 2006) through January 31, 2012
(Unaudited)
									Inception
									(August 18, 2006)
									through
									January 31,
					2012		2011		2012
Oil and natural gas sales					1,572		4,366		45,466
Pipeline fees					-		-		2,450
		Total revenues			1,572		4,366		47,916
Costs and expenses
	Oil and natural gas production taxes				113		312		3,272
	Oil and natural gas production expenses				750		8,568		107,867
	Depreciation and amortization				89		1,530		16,205
	Asset impairment				-		46,894		910,714
	Non-cash compensation				-		266,254		1,414,291
	Bad debt expense				-		7,828		86,000
	General and administrative expense, net of
		operator's overhead fees			595,916		51,757		990,616
		Total costs and expenses			596,868		383,143		3,528,965
Loss from operations					(595,296)		(378,777)		(3,481,049)
Other income (expense):
	Other income				9,619		-		9,939
	Interest income				-		-		900
	Interest expense				(5,262)		(36,680)		(93,747)
		Total other income (expense)			4,357		(36,680)		(82,908)
		Net loss			(590,939)		(415,457)		(3,563,957)
Net loss per common share, basic and diluted					(0.03)		(0.02)
Weighted average common shares outstanding					21,554,945		18,260,104
See accompanying notes to condensed consolidated financial statements

 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY
(Development Stage Companies)
Consolidated Statements of Stockholders' Deficit
For the Period from inception (August 18, 2006) through January 31, 2012									Intrinsic
(Unaudited)							Additional		Value of
			Common Stock				Paid in		Common
		Date	Shares		Amount		Capital		Stock Options
BALANCE August 18, 2006			-		-		-		-
Common stock 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		1
Accounts payable paid with common stock		10/14/2008	90		-		9,016		-
Amortized intrinsic value of options		10/31/2008	-		-		-		17,091
Cancel common stock options		11/5/2008	-		-		(188,055)		188,055
Common stock issued for compensation		11/7/2008	100		-		6,250		-
Common stock issued for accounts payable		11/7/2008	60		1		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

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY
(Development stage Companies)
Consolidated Statements of Stockholders' Deficit, continued
For the period from inception (August 18, 2006) through January 31, 2012
(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
Cancle 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

 

 

 

 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY
(Development stage Companies)
Consolidated Statements of Stockholders' Deficit, continued
For the period from inception (August 18, 2006) through January 31, 2012
(Unaudited)
											Intrinsic
									Additional		Value of
					Common stcok				Pain 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 non-producing property			9/25/2009	350,000		350		192,150		-
	consulting agreement			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		33,550		-
	consulting agreement- director fees			2/24/2010	150,000		150		11,850		-
	consulting agreement- 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 January 31, 2012					21,554,945		21,555		2,838,197		-
											(Continued)
See accompanying notes to consolidated financial statements

 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY
(Development stage Companies)
Consolidated Statements of Stockholders' Deficit, continued
For the period from inception (August 18, 2006) through January 31, 2012
(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 non-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 abailable-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 abailable-for-sale
	securities transaction				-		1,000		-		1,000
Amortize officer compensation					12,129		-		-		12,129
Convertible note payable forgiven by realted 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					-		-		(590,939)		(590,939)
BALANCE January 31, 2012					-		-		(3,563,957)		(704,205)
See accompanying notes to condensed consolidated financial statements

 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY
(Development stage Companies)
Statements of Condensed Consolidated Cash Flows
	Nine months ended January 31, 2012 and 2011, and the period from inception (August 18, 2006) through January 31, 2012
(Unaudited)
										Inception
										18-Aug-06
										through
										January 31,
						2012		2011		2012
Operating activities
Net loss						(590,939)		(415,457)		(3,563,957)
Adjustments to reconcile net loss to net cash used in
	operating activities:
		Depreciation and amortization				89		1,530		16,205
		Non-cash compensation				-		266,254		1,414,291
		Bad debt expense				-		7,828		104,243
		Asset impairment				-		46,894		910,714
		Changes in operating assets and liabilities:
			Accounts receivable			(150)		321		(96,207)
			Interest accrued on loan to related party			-		-		(900)
			Prepaid expenses and other asstes			8,664		5,982		12,232
			Accounts payable			87,216		41,060		385,963
			Accrued expenses			214,042		36,689		301,016
			Realted party advances for working capital			(35,760)		-		434
			Oil and gas proceeds due others			(368)		(4,622)		-
			Advances (repayments) - joint interest owners			-		(1,226)		(9,643)
				Net cash from (used in) operating activities		(317,206)		(14,747)		(525,609)
Investing activities
Payments for oil and natural gas properties and
	equipment					-		(4,893)		(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		-		(4,893)		(46,481)
Financing activities
Loan proceeds						-		17,500		48,750
Shareholder contribution						-		-		50,000
Loans from related parties						375,181		-		506,031
Sale of common stock						-		-		26,000
				Net cash provided by financing activities		375,181		17,500		630,781
Net increase (decrease) in cash and cash ewuibalents						57,975		(2,140)		58,691
Cash and cash equivalents, beginning of period						716		3,026		-
Cash and cash equivalents, end of period						58,691		886		58,691
										(Continued)
See accompanying notes to condensed consolidated financial statements

 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY
(Development stage Companies)
Statements of Condensed Consolidated Cash Flows, Continued
	Nine months ended January 31, 2012 and 2011, and the period from inception (August 18, 2006) through January 31, 2012
(Unaudited)
										Inception
										(August 18, 2006)
										through
										January 31,
						2012		2011		2012
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 eceivable			-		-		76,000
			Oil and gas properties			-		-		303,670
			Interest in pipeling			-		-		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			-		556,248		591,778
			Consulting agreements			-		-		911,100
			Un-evaluated 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		38,678
		Convertible note payable and accrued interest forgiven by related party				-		57,920		57,920
See accompanying notes to condensed consolidated financial statements

 

 

 

 

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Companies)

Notes to Condensed Consolidated Financial Statements

January 31, 2012

 

 

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 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 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, 2011, which is included in the Company’s Form 10-K dated April 30, 2011. 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's gas production was shut-in due to low prices in February 2009 in Washington County, Oklahoma and was sold effective October 1, 2010. The Company has acquired 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).

 

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, 2012 and April 30, 2011 the Company had a working capital deficit of $706,422 and $115,572, respectively. The Company has an accumulated deficit of $3,563,957 which includes a loss of $590,939 during the nine months ended January 31, 2012. By December 5, 2010, the Company had exchanged 3,329,406 shares of common stock for convertible notes payable principal of $474,358 and $81,890 in accrued interest. In January 2011, the Company exchanged $38,678 in accounts payable for a convertible note payable due in January 2012 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 January 31, 2012, the Company’s CEO had loaned the Company $375,181.

 

Effective October 1, 2010, the Company sold all of its shut-in gas properties and its producing oil properties in Washington County, Oklahoma. The Company invested in its first non-operated gas well in October 2010 and plans to continue this course as funds become available.

 

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.

 

Fiscal year

2012 refers to periods ending during the fiscal year ending April 30, 2012 and 2011 refers to periods ended during the fiscal year ended April 30, 2011.

 

Reclassification

Certain reclassifications have been made in the financial statements at January 31, 2011 and for the periods then ended to conform to the January 31, 2012 presentation. The reclassifications had no effect on net loss.

 

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 November 30, 2011 and find none that would have a material impact on the financial statements of the Company.

 

 

Note 2: related party transactions

 

Accounts payable - related parties includes the following expense reimbursements due to related parties at January 31, 2012 and April 30, 2011. Amounts due include reimbursements for D&O insurance, rent, travel, legal and cash advances for payment of other administrative expenses.

 

 

					January 31, 2012		April 30, 2011
Clinton W. Coldren, Chief Executive Officer					$      -		$50,769
Alan G. Massara, Chief Financial Officer					18,427		3,418
					18,427		54,187

 

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.

 

Accrued expenses include the following:

 

			January 31, 2012		April 30, 2011
Accrued Compensation			208,750		-
Accrued interest due CEO			4,096		-
Amount due related parties			212,846		-
Accrued interest - other			1,649		483
Asset retirement obligation			406		376
			214,901		859

 

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 that certain 8% Convertible Note in the principal amount of $500,000. The Convertible Note has a 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.

 

 

Note 3: Stockholder’s equity

 

PREFERRED STOCK

 

The Company has 100,000,000 shares of its $0.001 par value preferred stock authorized. At January 31, 2012 and April 30, 2011, 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, 2012 and April 30, 2011 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:

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.

 

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 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, 2012. At January 31, 2012, there are 1,242,333 shares available for grant.

 

 

Note 4: CONVERTIBLE NOTES PAYABLE

 

The Company has a convertible note payable in the amount of $38,678 which is due July 6, 2012 with interest accruing at 4% per annum. The note is convertible into the Company's common stock at $0.10 per share.

 

 

 

 

 

 

 

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, 2012 AND 2011

 

Revenues during the three months ended January 31, 2012 and 2011 were as follows:

 

			2012		2011
Oil production			-		-
Gas production			$326		$322
	Total revenue		$326		$322

 

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 revenue for each period is from this new property.

 

Costs and expenses during the three months ended January 31, 2012 and 2011 were as follows:

 

				2012		2011
Oil and natural gas production taxes				$23		$23
Oil and natural gas production expenses				$244		$171
Depreciation and amortization				$19		$52
Non-cash compensation				-		$53,500
Other general and administrative expense,
	net of operator's overhead fee			$354,451		$23,672
	Total			$354,737		$77,418

 

The gas well has produced a small profit whereas the operating costs of the oil production, which was sold effective October 1, 2010, always exceeded its revenue.

 

Non-cash compensation declined primarily due to completion of the amortization of consulting agreements in 2011.

 

Other general and administrative expense, net of operator's overhead fee increased in the 2012 period from $23,672 in 2011 to $354,451 in 2012, primarily due to new costs associated with the due diligence and planned property acquisition and the new office location. Rent increased $23,544; officer compensation increased $118,750; legal and professional costs increased $176,706; travel and entertainment increased $25,278; and other costs associated with maintaining a separate office also increased.

 

Other income (expense) during the three months ended January 31, 2012 and 2011 is as follows:

 

				2012		2011
Other income				-		-
Interest expense				($4,486)		($5,500)
	Total			($4,486)		($5,500)

 

COMPARISON OF NINE MONTHS ENDED JANUARY 31, 2012 AND 2011

 

Revenues during the nine months ended January 31, 2012 and 2011 were as follows:

 

				2012		2011
Oil production				-		$4,044
Gas production				$1,572		$332
	Total revenue			$1,572		$4,366

 

 

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 gas production is from this well.

 

Costs and expenses during the nine months ended January 31, 2012 and 2011 were as follows:

 

				2012		2011
Oil and natural gas production taxes				$113		$312
Oil and natural gas production expenses				$750		$8,568
Depreciation and amortization				$89		$1,530
Asset impairment				-		$46,894
Non-cash compensation				-		$266,254
Bad debt expense				-		$7,828
Other general and administrative expenses,
	net of operator's overhead fee			$595,916		$51,757
	Total			$596,868		$383,143

 

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.

 

The Company recorded an asset impairment charge of $46,894 for the difference between the sales price of its remaining assets in 2011 and the carrying value of the assets at the time of the sale.

 

Non-cash compensation declined primarily due to completion of the amortization of consulting agreements in 2011.

 

Other general and administrative expense, net of operator's overhead fee increased in the 2012 period from $51,757 in 2011 to $595,916 in 2012, primarily due to new costs associated with the due diligence costs and preliminary financing costs associated with the planned purchase. Rent increased $51,267; officer compensation increased $208,750; legal and professional costs increased $251,141; travel and entertainment increased $34,985; and other costs associated with maintaining a separate office also increased.

 

Other income (expense) during the nine months ended January 31, 2012 and 2011 is as follows:

 

				2012		2011
Other income				$9,619		-
Interest expense				-$5,262		($36,680)
	Total			$4,357		($36,680)

 

 

The interest bearing debt decreased during the 2012 period as compared to the 2011 period primarily due to the exchange of common stock for convertible notes payable in December 2010.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Historical information

At January 31, 2012, we had $58,691 in cash, $150 in accounts receivable and a working capital deficit of $706,422. Comparatively, we had cash of $716 and a working capital deficit of $115,572 at April 30, 2011.

 

We entered into an Asset Purchase Agreement which expired in December 2011. The majority of our increased administrative cost during the nine-month period ended January 31, 2012 was a result of due diligence costs and preliminary financing costs associated with the planned purchase.

 

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, 2012, our CEO has loaned $375,181 for this purpose. 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 two to three 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 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.

 

CASH FROM OPERATING ACTIVITIES

 

Cash used in operating activities was $317,206 for the nine-month period ended January 31, 2012 and cash used in operations was $14,747 for the comparable 2011 period. Losses incurred arose primarily from due diligence costs and the initial cost of raising funds for the planned acquisition which expired in December 2011.

 

CASH USED IN FINANCING ACTIVITIES

 

We incurred capital costs of $4,893 in the nine-month period ended January 31, 2011 and none in the 2012 period.

 

GOING CONCERN

 

We have not attained profitable operations and are dependent upon obtaining substantial debt and equity financing to complete an acquisition, which we have not yet identified. 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. 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, 2012. Our management has determined that, as of January 31, 2012, 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, 2012, 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

 

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

 

 

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: March 5, 2012

 

 

By: /s/ Alan G. Massara

President and Chief Financial Officer