Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - SurgePays, Inc. | Financial_Report.xls |
| EX-31 - SurgePays, Inc. | ex312.htm |
| EX-32 - SurgePays, Inc. | ex322.htm |
| EX-31 - SurgePays, Inc. | ex311.htm |
| EX-32 - SurgePays, Inc. | ex321.htm |
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: July 31, 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.) |
| 1535 Soniat St., New Orleans, LA | 70115 |
| (Address of principal executive offices) | (Zip Code) |
| (504) 561-1151 | |
| (Registrant's telephone number) | |
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 ☑ 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 | ☐ | Non-accelerated filer | ☐ |
| Accelerated filer | ☐ | 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 ☐ No ☑
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 21,554,945 shares of common stock outstanding as of August 31, 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, 2012
| TABLE OF CONTENTS | |||
|---|---|---|---|
| PART I – FINANCIAL INFORMATION (Unaudited) | Page | ||
| Item 1: | Consolidated Financial Statements | ||
| Consolidated Balance sheets | 2 | ||
| Consolidated Statement of Operations | 3 | ||
| Consolidated Statements of Equity ( Deficit ) | 4-7 | ||
| Consolidated Statement of Cash Flows | 8-9 | ||
| Consolidated Notes to Financials | 10 | ||
| Item 2; | Management's Discussion and Analysis of Financial Condition and Results of Operations | 14 | |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 16 | |
| Item 4: | Controls and Procedures | 16 | |
| PART II - OTHER INFORMATION | |||
| Item 1: | Legal Proceedings | 17 | |
| Item 1A: | Risk Factors | 17 | |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 17 | |
| Item 3: | Defaults upon Senior Securities | 17 | |
| Item 4: | Submission of Matters to a Vote of Security Holders | 17 | |
| Item 5: | Other Information | 17 | |
| Item 6: | Exhibits | 18 | |
| SIGNATURES | 19 | ||
PART I - Financial Information
Item 1: Financial Statements
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 July 31, 2012 | |||||||||
| (Unaudited) | |||||||||
| Intrinsic | |||||||||
| Additional | Value of | ||||||||
| Common stock | Paid in | Common | |||||||
| Date | Shares | Amount | Capital | Stock Options | |||||
| BALANCE August 18, 2006 | - | $ | - | $ | - | $ | - | ||
| Common stock issued for net assets | 9/1/2006 | 11,264,485 | 11,265 | 88,735 | - | ||||
| Common stock issued for cash | 9/7/2006 | 1,126,448 | 1,126 | 8,874 | - | ||||
| Common stock issued for cash | 9/11/2006 | 1,126,448 | 1,126 | 8,874 | - | ||||
| Net loss | - | - | - | ||||||
| BALANCE April 30, 2007 | 13,517,381 | 13,517 | 106,483 | - | |||||
| Net loss | - | - | - | ||||||
| BALANCE April 30, 2008 | 13,517,381 | 13,517 | 106,483 | - | |||||
| Acquisition of North American Energy | |||||||||
| Resources, Inc. | 7/28/2008 | 177,000 | 177 | 119,653 | - | ||||
| Conversion of note payable and accrued | |||||||||
| interest for common stock | 7/31/2008 | 153,000 | 153 | 35,377 | - | ||||
| Common stock options granted for: | |||||||||
| 350,000 shares at $1.00 per share | 8/1/2008 | - | - | 178,000 | (178,000) | ||||
| 50,000 shares at $1.25 per share | 8/1/2008 | - | - | 27,096 | (27,096) | ||||
| Exercise common stock options: | |||||||||
| for $1.25 per share | 9/22/2008 | 100 | - | 6,250 | - | ||||
| for $1.00 per share | 9/22/2008 | 1,000 | 1 | 49,999 | - | ||||
| for $1.25 per share | 10/13/2008 | 100 | - | 6,250 | - | ||||
| for $1.00 per share | 10/13/2008 | 70 | - | 3,500 | - | ||||
| Accounts payable paid with common stock | 10/14/2008 | 90 | - | 9,016 | - | ||||
| Amortize intrinsic value of options | 10/31/2008 | - | - | - | 17,091 | ||||
| Cancel common stock options | 11/5/2008 | - | - | (188,005) | 188,005 | ||||
| Common stock issued for compensation | 11/7/2008 | 100 | - | 6,250 | - | ||||
| Common stock issued for accounts payable | 11/7/2008 | 60 | - | 3,000 | - | ||||
| Common stock issued for consulting service | 11/12/2008 | 3,000 | 3 | 310,497 | - | ||||
| Common stock issued for accounts payable | 11/17/2008 | 400 | 1 | 24,999 | - | ||||
| Capital contribution by shareholder in cash | 11/30/2008 | - | - | 50,000 | - | ||||
| Common stock issued for: | |||||||||
| Compensation | 12/9/2008 | 338 | - | 5,000 | - | ||||
| Accounts payable | 12/9/2008 | 300 | - | 1,200 | - | ||||
| Accounts payable | 12/9/2008 | 400 | - | 6,000 | - | ||||
| Compensation | 1/5/2009 | 500 | 1 | 4,999 | - | ||||
| Accounts payable | 1/5/2009 | 800 | 1 | 3,199 | - | ||||
| Accounts payable | 1/5/2009 | 400 | 1 | 3,999 | - | ||||
| Accounts payable | 1/19/2009 | 4,000 | 4 | 14,996 | - | ||||
| Compensation | 1/26/2009 | 1,500 | 2 | 4,998 | - | ||||
| Accounts payable | 2/24/2009 | 6,000 | 6 | 9,761 | - | ||||
| Compensation | 2/24/2009 | 1,000 | 1 | 1,999 | - | ||||
| Compensation | 3/4/2009 | 4,000 | 4 | 4,996 | - | ||||
| Compensation | 4/6/2009 | 4,000 | 4 | 5,996 | - | ||||
| Officer compensation | 4/21/2009 | 160,000 | 160 | 145,440 | - | ||||
| Net loss | - | - | - | - | |||||
| BALANCE April 30, 2009 | 14,035,539 | $ | 14,036 | 960,948 | - | ||||
| (Continued) | |||||||||
| See accompanying notes to consolidated financial statements. | |||||||||
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 July 31, 2012 | ||||||||
| (Unaudited) | ||||||||
| Intrinsic | ||||||||
| Additional | Value of | |||||||
| Common stock | Paid in | Common | ||||||
| Date | Shares | Amount | Capital | Stock Options | ||||
| BALANCE April 30, 2009 | 14,035,539 | $ | 14,036 | $ | 960,948 | $ | - | |
| Common stock issued for: | ||||||||
| consulting agreement | 5/1/2009 | 400,000 | 400 | 419,600 | - | |||
| consulting agreement | 5/1/2009 | 200,000 | 200 | 209,800 | - | |||
| oil and gas non-producing property | 6/9/2009 | 700,000 | 700 | 125,300 | - | |||
| accounts payable | 7/27/2009 | 10,000 | 10 | 4,990 | - | |||
| consulting agreement | 7/27/2009 | 30,000 | 30 | 14,970 | - | |||
| consulting agreement | 7/27/2009 | 30,000 | 30 | 14,970 | - | |||
| oil and gas producing property | 9/25/2009 | 350,000 | 350 | 192,150 | - | |||
| consulting contract | 9/25/2009 | 300,000 | 300 | 182,700 | - | |||
| cash | 2/23/2010 | 200,000 | 200 | 5,800 | - | |||
| consulting agreement | 2/24/2010 | 400,000 | 400 | 31,600 | - | |||
| consulting agreement - director fees | 2/24/2010 | 450,000 | 450 | 35,550 | - | |||
| consulting agreement - director fees | 2/24/2010 | 150,000 | 150 | 11,850 | - | |||
| officer compensation - director fees | 2/24/2010 | 120,000 | 120 | 9,480 | - | |||
| Other comprehensive loss on available-for- | - | - | ||||||
| sale securities | - | - | - | - | ||||
| Amortize officer compensation | - | - | - | - | ||||
| Net loss | - | - | - | - | ||||
| BALANCE April 30, 2010 | 17,375,539 | 17,376 | 2,219,708 | - | ||||
| Recission of available-for-sale | ||||||||
| securities transaction | - | - | - | - | ||||
| Amortize officer compensation | - | - | - | - | ||||
| Convertible note payable forgiven by related party | 12/3/2010 | - | - | 57,920 | - | |||
| Common stock issued for: | ||||||||
| Consulting agreement | 12/2/2010 | 850,000 | 850 | 7,650 | - | |||
| Conversion of convertible notes payable | 12/5/2010 | 3,329,406 | 3,329 | 552,919 | - | |||
| Net loss | - | - | - | - | ||||
| BALANCE April 30, 2011 | 21,554,945 | 21,555 | 2,838,197 | - | ||||
| Net loss | - | - | - | - | ||||
| BALANCE April 30, 2012 | 21,554,945 | 21,555 | 2,838,197 | - | ||||
| Net loss | - | - | - | - | ||||
| BALANCE July 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 Company) | ||||||||||||||||
| Consolidated Statements of Stockholders' Deficit, continued | ||||||||||||||||
| For the period from inception (August 18, 2006) through July 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 producing property | — | — | — | 192,500 | ||||||||||||
| consulting contract | — | — | — | 183,000 | ||||||||||||
| cash | — | — | — | 6,000 | ||||||||||||
| consulting agreement | — | — | — | 32,000 | ||||||||||||
| consulting agreement - director fees | — | — | — | 36,000 | ||||||||||||
| consulting agreement - director fees | — | — | — | 12,000 | ||||||||||||
| officer compensation - director fees | — | — | — | 9,600 | ||||||||||||
| Other comprehensive loss on available-for- | ||||||||||||||||
| sale securities | — | (1,000 | ) | — | (1,000 | ) | ||||||||||
| Amortize officer compensation | 72,804 | — | — | 72,804 | ||||||||||||
| Net loss | — | — | (1,382,974 | ) | (1,382,974 | ) | ||||||||||
| BALANCE April 30, 2010 | (12,129 | ) | (1,000 | ) | (2,510,626 | ) | (286,671 | ) | ||||||||
| Recission of available-for-sale | ||||||||||||||||
| securities transaction | — | 1,000 | — | 1,000 | ||||||||||||
| Amortize officer compensation | 12,129 | — | — | 12,129 | ||||||||||||
| Convertible note payable forgiven by related party | — | — | — | 57,920 | ||||||||||||
| Common stock issued for: | ||||||||||||||||
| Consulting agreement | — | — | — | 8,500 | ||||||||||||
| Conversion of convertible notes payable | — | — | — | 556,248 | ||||||||||||
| Net loss | — | — | (462,392 | ) | (462,392 | ) | ||||||||||
| BALANCE April 30, 2011 | — | — | (2,973,018 | ) | (113,266 | ) | ||||||||||
| Net loss | — | — | (655,449 | ) | (655,449 | ) | ||||||||||
| BALANCE April 30, 2012 | — | — | (3,628,467 | ) | (768,715 | ) | ||||||||||
| Net loss | — | — | (16,046 | ) | (16,046 | ) | ||||||||||
| BALANCE July 31, 2012 | $ | — | $ | — | $ | (3,644,513 | ) | $ | (784,761 | ) | ||||||
See accompanying notes to consolidated financial statements.
| NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY | ||||||||||||
| (Development Stage Company) | ||||||||||||
| Statements of Condensed Consolidated Cash Flows, Continued | ||||||||||||
| For the nine months ended January 31, 2012 and 2011 | ||||||||||||
| and the period from inception (August 18, 2006) through July 31, 2012 | ||||||||||||
| (Unaudited) | ||||||||||||
| Inception | ||||||||||||
| (August 18, 2006) | ||||||||||||
| through | ||||||||||||
| July 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 receivable | $ | — | $ | — | $ | 76,000 | ||||||
| Oil and gas properties | — | — | 303,670 | |||||||||
| Interest in pipeline | — | — | 100,000 | |||||||||
| Loans to shareholders assumed | — | — | (371,000 | ) | ||||||||
| Advance from joint interest participant assumed | — | — | (8,670 | ) | ||||||||
| $ | — | $ | — | $ | 100,000 | |||||||
| Exchange of joint interest receivable for oil and | ||||||||||||
| natural gas properties | $ | — | — | $ | 53,068 | |||||||
| Common stock options granted | — | — | 205,096 | |||||||||
| Common stock options cancelled | — | — | 188,005 | |||||||||
| Common stock issued for: | ||||||||||||
| Convertible notes payable | — | — | 591,778 | |||||||||
| Consulting agreements | — | — | 911,100 | |||||||||
| Unevaluated oil and natural gas properties | — | — | 126,000 | |||||||||
| Proven oil and natural gas properties | — | — | 192,500 | |||||||||
| Accounts payable | — | — | 106,183 | |||||||||
| Chief executive officer compensation | — | — | 155,200 | |||||||||
| Credit balance transferred from accounts receivable | ||||||||||||
| to accounts payable | — | — | 1,068 | |||||||||
| Accounts receivable applied as payment on note | ||||||||||||
| payable to related party | — | — | 4,572 | |||||||||
| Option exercises paid by reducing note payable | ||||||||||||
| related party | — | — | 75,250 | |||||||||
| Advance from shareholder converted to note | — | — | 2,000 | |||||||||
| Participant advance converted to accounts payable | — | — | 31,829 | |||||||||
| Accounts payable converted to convertible note payable | — | — | 38,678 | |||||||||
| Covertible note payable and accrued interest forgiven by related party | — | — | 57,920 | |||||||||
See accompanying notes to condensed consolidated financial statements.
NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY
(Development Stage Company)
Notes to Consolidated Financial Statements
July 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 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, 2012, which is included in the Company’s Form 10-K dated April 30, 2012. 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).
Going concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company commenced operations in September 2006.
At July 31, 2012 and April 30, 2012 the Company had a working capital deficit of $786,910 and $770,891, respectively. The Company has an accumulated deficit of $3,644,513 which includes a loss of $16,046 during the three months ended July 31, 2012. In January 2011, the Company exchanged $38,678 in accounts payable for a convertible note payable due in January 2013 with interest accruing at 4% per annum. The note is convertible into common stock at $0.10 per share. Beginning in November 2011, the Company’s CEO loaned the Company funds for due diligence and operating expenses pursuant to a Convertible Bridge Loan Note approved by the Board of Directors and executed on November 3, 2011. The majority of these expenses were incurred while attempting to complete an oil and gas property acquisition. The acquisition agreement was terminated in December 2011 and the acquisition was not completed. At July 31, 2012, the Company’s CEO had loaned the Company $441,722.
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.
Fiscal year
2013 refers to periods ending during the fiscal year ending April 30, 2013 and 2012 refers to periods ended during the fiscal year ended April 30, 2012.
Reclassification
Certain reclassifications have been made in the financial statements at July 31, 2011 and for the periods then ended to conform to the July 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 August 31, 2012 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 July 31, 2012 and April 30, 2012. Amounts due include reimbursements for D&O insurance, rent, travel, legal and cash advances for payment of other administrative expenses.
| July 31, 2012 | April 30, 2012 | |||||||
| Alan G. Massara, Chief Financial Officer | $ | 19,055 | $ | 18,698 | ||||
| $ | 19,055 | $ | 18,698 | |||||
Effective June 15, 2011, the Board of Directors approved compensation to begin accruing at the rate of $10,000 per month for each of the two listed executive officers. At October 31, 2011, accrued expenses included $90,000 accrued for compensation. Beginning effective November 1, 2011, the compensation rate for Mr. Coldren increased to $20,833 per month and for Mr. Massara increased to $18,750 per month. Both agreed to discontinue accruing their salary effective January 31, 2012 until conditions improve.
Accrued expenses include the following:
| July 31, 2012 | April 30, 2012 | |||||||
| Accrued compensation due officers | $ | 208,750 | $ | 208,750 | ||||
| Accrued interest due CEO | 20,400 | 11,583 | ||||||
| Amount due related parties | 229,150 | 220,333 | ||||||
| Other accrued expenses | — | 994 | ||||||
| Accrued interest - other | 2,415 | 2,029 | ||||||
| Asset retirement obligation | 426 | 416 | ||||||
| $ | 231,991 | $ | 223,772 | |||||
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 July 31, 2012 and April 30, 2012 the Company had no shares issued and outstanding.
COMMON STOCK
The Company has 100,000,000 shares of its $0.001 par value common stock authorized. At July 31, 2012 and April 30, 2012 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. |
The Board of Directors issued a warrant to acquire 500,000 shares of the Company’s common stock at $0.18 per share to its new director, Larry D. Hall, on November 10, 2011. The strike price exceeded the market price when the warrants were granted.
COMMON STOCK OPTIONS
The North American Energy Resources, Inc. 2008 Stock Option Plan ("Plan") was filed on September 11, 2008 and reserved 2,500,000 shares for awards under the Plan. The Company's Board of Directors 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 were outstanding at July 31, 2012. At July 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 January 6, 2013 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 JULY 31, 2012 AND 2011
Revenues
Revenues during the three months ended July 31, 2012 and 2011 were $291 and $536, respectively. The decline is primarily due to substantially lower gas prices during the current year period.
Costs and expenses during the three months ended July 31, 2012 and 2011 were as follows:
| 2012 | 2011 | |||||||
| Oil and natural gas production taxes | $ | 21 | $ | 39 | ||||
| Oil and natural gas production expenses | 322 | 243 | ||||||
| Depreciation and amortization | 27 | 31 | ||||||
| Other general and administrative expense | 6,764 | 105,113 | ||||||
| Total | $ | 7,134 | $ | 105,426 | ||||
Other general and administrative expense decreased in the current year period from $105,113 in 2011 to $6,764 in 2012, primarily due to a reduction in costs associated with the due diligence and planned property acquisition and the new office location. Rent decreased $14,854; officer compensation decreased $30,000; legal and professional costs decreased $39,094; travel and entertainment decreased $4,463; and other costs associated with maintaining a separate office also decreased.
Other expense during the three months ended July 31, 2012 and 2011 is as follows:
| 2012 | 2011 | |||||||
| Interest expense | $ | (9,203 | ) | $ | (386 | ) | ||
| Total | $ | (9,203 | ) | $ | (386 | ) | ||
The increase in interest expense is the result of the convertible note payable to an officer which did not begin funding until after the second quarter of last year.
LIQUIDITY AND CAPITAL RESOURCES
Historical information
At July 31, 2012, we had $248 in cash, $410 in accounts receivable and a working capital deficit of $786,910. Comparatively, we had cash of $316 and a working capital deficit of $770,891 at April 30, 2012.
We entered into an Asset Purchase Agreement which expired in December 2011. The majority of our decreased administrative cost during the three-month period ended July 31, 2012 was a result of preliminary due diligence costs and preliminary financing costs associated with the planned purchase in the year earlier period.
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 July 31, 2012, our CEO has loaned $441,722 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 $49,337 for the three-month period ended July 31, 2012 and cash used in operations was $39,669 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 no capital costs in the three-month periods ended July 31, 2012 and 2011.
GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company commenced operations in September 2006.
At July 31, 2012 and April 30, 2012 the Company had a working capital deficit of $786,910 and $770,891, respectively. The Company has an accumulated deficit of $3,644,513 which includes a loss of $16,046 during the three months ended July 31, 2012. In January 2011, the Company exchanged $38,678 in accounts payable for a convertible note payable due in January 2013 with interest accruing at 4% per annum. The note is convertible into common stock at $0.10 per share. Beginning in November 2011, the Company’s CEO loaned the Company funds for due diligence and operating expenses pursuant to a Convertible Bridge Loan Note approved by the Board of Directors and executed on November 3, 2011. The majority of these expenses were incurred while attempting to complete an oil and gas property acquisition. The acquisition agreement was terminated in December 2011 and the acquisition was not completed. At July 31, 2012, the Company’s CEO had loaned the Company $441,722.
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 July 31, 2012. Our management has determined that, as of July 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 July 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
| 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 |
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.
September 11, 2012 /s/ Alan G. Massara
Alan G. Massara
Chief Financial Officer