SurgePays, Inc. - FORM 10-Q - December 21, 2009

Attached files

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EX-31 - SurgePays, Inc.	v169578_ex31.htm
EX-32 - SurgePays, Inc.	v169578_ex32.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: October 31, 2009

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.)

11005 Anderson Mill Road, Austin, Texas 78750

(Address of principal executive offices) (Zip Code)

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

Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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 o Accelerated filer o Non-accelerated filer o Smaller reporting company x

(Do not check if a smaller reporting company)

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

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 16,055,539 shares of common stock outstanding as of November 19, 2009.

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission ("Commission"). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto, contained in North American Energy Resources, Inc.’s Form 10-K dated April 30, 2009.

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	20

Item 4T:	Controls and Procedures	20

PART II - OTHER INFORMATION		21

Item 1:	Legal Proceedings	21

Item 1A:	Risk Factors	21

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	21

Item 3:	Defaults upon Senior Securities	21

Item 4:	Submission of Matters to a Vote of Security Holders	21

Item 5:	Other Information	21

Item 6:	Exhibits	21

PART I - FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

NORTH AMERICAN ENERGY RESOURCES, INC.
(An Exploration Stage Company)
Balance Sheets
October 31, 2009 (Unaudited) and April 30, 2009
	October 31,			April 30,
	2009			2009
ASSETS
Current assets:
Cash and cash equivalents	$	6,081		$	27,966
Accounts receivable, net of allowance of $10,000 at 10/31/09		9,981			20,826
Due from related party		20,593			19,993
Prepaid expenses		692,906			84,933
Total current assets		729,561			153,718
Properties and equipment, at cost:
Proved oil and natural gas properties and equipment		147,134			47,394
Unevaluated properties, at cost		125,780			-
Pipeline		144,575			144,575
		417,489			191,969
Accumulated depreciation and amortization		(18,383	)		(15,143	)
Total properties and equipment		399,106			176,826
Deposits		837			-
Total assets	$	1,129,504		$	330,544

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable
Trade	$	105,581		$	47,756
Oil and gas proceeds due others		-			956
Advances from related parties		12,300			2,000
Advances received from joint interest participants		47,652			30,000
Accrued expenses - related parties		24,154			-
Current portion of long-term debt - related parties		384,428			-
Total current liabilities		574,115			80,712
Long-term debt, less current portion - related parties		13,500			402,500
Total liabilities		587,615			483,212
Commitments and contingencies

Stockholders' equity (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; 16,055,539 and 14,035,539 shares issued
and outstanding at July 31, 2009 and April 30, 2009,
respectively		16,056			14,036
Additional paid in capital		2,125,428			960,948
Deficit accumulated during the exploration stage		(1,599,595	)		(1,127,652	)
Total stockholders' equity (deficit)		541,889			(152,668	)
Total liabilities and stockholders' equity (deficit)	$	1,129,504		$	330,544

See accompanying notes to financial statements

NORTH AMERICAN ENERGY RESOURCES, INC.
(An Exploration Stage Company)
Statements of Condensed Consolidated Operations
For the three months ended October 31, 2009 and 2008
and the period from inception (August 18, 2006) through October 31, 2009
(Unaudited)


	2009			2008

Oil and natural gas sales	$	1,974		$	1,705
Pipeline fees		-			-

Total revenues		1,974			1,705
Costs and expenses
Oil and natural gas production taxes		142			123
Oil and natural gas production expenses		4,115			11,716
Depreciation and amortization		1,641			1,536
Asset impairment		108,000			-
Non-cash compensation		106,326			17,091
General and administrative expense, net of operator's overhead fees		59,716			48,107

		279,940			78,573
Loss from operations		(277,966	)		(76,868	)
Other income (expense):
Interest income		300			-
Interest expense		(12,079	)		-
Total other income (expense)		(11,779	)		-
Loss before income taxes		(289,745	)		(76,868	)
Provision for income taxes		-			-
Net loss	$	(289,745	)	$	(76,868	)

Net loss per common share, basic and diluted	$	(0.02	)	$	(0.01	)

Weighted average common shares outstanding		15,659,887			13,847,897

See accompanying notes to condensed consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC.
(An Exploration Stage Company)
Statements of Condensed Consolidated Operations
For the six months ended October 31, 2009 and 2008
and the period from inception (August 18, 2006) through October 31, 2009
(Unaudited)
							Inception
							(August 18, 2006)
							through
							October 31,
	2009			2008			2009

Oil and natural gas sales	$	3,588		$	2,972		$	28,260
Pipeline fees		-			-			2,450

Total revenues		3,588			2,972			30,710
Costs and expenses
Oil and natural gas production taxes		258			214			2,035
Oil and natural gas production expenses		8,966			20,862			84,689
Depreciation and amortization		3,240			2,659			10,883
Asset impairment		108,000			-			525,840
Non-cash compensation		235,027			17,091			623,285
General and administrative expense, net of
operator's overhead fees		96,486			63,912			358,529

		451,977			104,738			1,605,261
Loss from operations		(448,389	)		(101,766	)		(1,574,551	)
Other income (expense):
Other income		-			-			320
Interest income		600			-			600
Interest expense		(24,154	)		(425	)		(25,964	)
Total other income (expense)		(23,554	)		(425	)		(25,044	)
Loss before income taxes		(471,943	)		(102,191	)		(1,599,595	)
Provision for income taxes		-			-			-
Net loss	$	(471,943	)	$	(102,191	)	$	(1,599,595	)

Net loss per common share, basic and diluted	$	(0.03	)	$	(0.01	)	$	(0.11	)

Weighted average common shares outstanding		15,343,800			13,762,025			13,978,776

See accompanying notes to condensed consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC.
(An Exploration Stage Company)
Statements of Changes in Stockholers Equity (Deficit)
For the period from inception (August 18, 2006) through October 31, 2009
(Unaudited)

							Deficit
							Accumulated
					Additional		During the
	Common stock				Paid-in		Exploration
	Shares		Amount		Capital		Stage			Total

BALANCE August 18, 2006		-	$	-	$	-	$	-		$	-
Common stock issued for cash		2,071,684		2,072		17,928		-			20,000
Common stock issued for net assets		10,355,935		10,356		89,644		-			100,000
Net loss		-		-				(5,379	)		(5,379	)
BALANCE April 30, 2007		12,427,619		12,428		107,572		(5,379	)		114,621
Net loss		-		-		-		(24,805	)		(24,805	)

BALANCE April 30, 2008		12,427,619		12,428		107,572		(30,184	)		89,816
Acquisition of North American Energy Resources, Inc.		177,000		177		119,653		-			119,830
Conversion of note payable and accrued interest for common stock		1,242,762		1,243		34,287		-			35,530
Common stock options granted		-		-		17,091		-			17,091
Shareholder contribution		-		-		50,000		-			50,000
Exercise common stock options		25,158		25		176,408		-			176,433
Common stock issued for consulting services		3,000		3		310,497		-			310,500
Common stock issued for Chief Executive Officer compensation		160,000		160		145,440		-			145,600
Net loss		-		-		-		(1,097,468	)		(1,097,468	)

BALANCE April 30, 2009		14,035,539		14,036		960,948		(1,127,652	)		(152,668	)
Common stock issued for:
Unevaluated oil and gas properties		700,000		700		125,300		-			126,000
Proven oil and gas properties		350,000		350		192,150		-			192,500
Consulting agreements		900,000		900		812,100		-			813,000
Exercise common stock options		70,000		70		34,930		-			35,000
Net loss		-		-		-		(471,943	)		(471,943	)

BALANCE October 31, 2009		16,055,539	$	16,056	$	2,125,428	$	(1,599,595	)	$	541,889

See accompanying notes to financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC.
(An Exploration Stage Company)
Statements of Condensed Consolidated Cash Flows
For the six months ended October 31, 2009 and 2008
and the period from inception (August 18, 2006) through October 31, 2009
(Unaudited)
							Inception
							(August 18, 2006)
							through
							October 31,
	2009			2008			2009

Operating activities
Net loss	$	(471,943	)	$	(102,191	)	$	(1,599,595	)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization		3,240			2,659			10,883
Non-cash compensation		235,027			17,091			623,285
Bad debt expense		10,000			-			86,000
Asset impairment		108,000			-			525,840
Increase (decrease) in:
Accounts receivable		(17,584	)		(32,795	)		(75,726	)
Prepaid expenses and other assets		(837	)		-			(837	)
Accounts payable		60,801			15,263			210,696
Accrued expenses		24,154			(1,094	)		24,434
Related party advances, net		9,700			(8,519	)		(8,293	)
Advances from joint interest owners		17,652			(125,228	)		38,982
Net cash from (used in) operating activities		(21,790	)		(234,814	)		(164,331	)
Investing activities
Payments for oil and natural gas properties and equipment		(95	)		(38,242	)		(161,418	)
Cash received in excess of cash paid in reverse acquisition of North American Energy Resources, Inc.		-			119,830			119,830
Proceeds from sale of oil and gas properties		-			-			7,500
Payments for pipeline		-			-			(7,500	)
Net cash used in investing activities		(95	)		81,588			(41,588	)
Financing activities
Loan proceeds		-			-			48,750
Shareholder contribution		-			-			50,000
Loans from related parties		-			-			93,250
Sale of common stock		-			-			20,000
Net cash provided by financing activities		-			-			212,000
Net increase in cash and cash equivalents		(21,885	)		(153,226	)		6,081
Cash and cash equivalents, beginning of period		27,966			185,023			-
Cash and cash equivalents, end of period	$	6,081		$	31,797		$	6,081

(Continued)

See accompanying notes to condensed consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC.
(An Exploration Stage Company)
Statements of Condensed Consolidated Cash Flows, Continued
For the six months ended October 31, 2009 and 2008
and the period from inception (August 18, 2006) through October 31, 2009
(Unaudited)
						Inception
						(August 18, 2006)
						through
						October 31,
	2009		2008			2009

Supplemental cash flow information
Cash paid for interest and income taxes:
Interest	$	-	$	-		$	-
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
Acquisition of North American Energy Resources,
Inc. in reverse acquisition:
Assets acquired, other than cash			$	-		$	-
Liabilities assumed				(30,170	)		(30,170	)
				(30,170	)		(30,170	)
Common stock issued				(150,000	)		(150,000	)
Cash received in excess of cash paid			$	119,830		$	119,830

Exchange of joint interest receivable for oil and
natural gas properties	$	-		37,316		$	37,316
Convertible note payable and accrued interest
exchanged for 1,000 shares of North American
Exploration, Inc. common stock		-		35,530			35,530
Common stock options cancelled		-		-			188,005
Common stock issued for:
Consulting agreements		813,000		-			813,000
Unevaluated oil and natural gas properties		126,000		-			126,000
Proven oil and natural gas properties		192,500		-			192,500

See accompanying notes to condensed consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC.

(An Exploration Stage Company)

Notes to Condensed Consolidated Financial Statements

NOTE 1:

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

NAER was incorporated in Nevada on August 22, 2006 as Mar Ked Mineral Exploration, Inc. and changed its name to North American Energy Resources, Inc. on August 11, 2008. NAE was incorporated in Nevada on August 18, 2006 as Signature Energy, Inc. and changed its name to North American Exploration, Inc. on June 2, 2008.

The condensed consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. These condensed consolidated financial statements have not been audited.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report for the year ended April 30, 2009, which is included in the Company’s Form 10-K dated April 30, 2009. The financial data for the interim periods presented may not necessarily reflect the results to be anticipated for the complete year.

In preparing the accompanying unaudited condensed consolidated financial statements, the Company has reviewed, as determined necessary by the Company's management, events that have occurred after October 31, 2009, up until the issuance of the financial statements, which occurred on December 21, 2009.

Acquisition

On July 28, 2008, the shareholders of NAE entered into a stock purchase agreement with NAER. NAER issued 420,000 restricted shares of its common stock to the shareholders of NAE in exchange for 100% of the issued and outstanding stock of NAE. Completion of the stock purchase agreement resulted in the shareholders of NAE having control of NAER. Accordingly, the transaction was recorded for accounting purposes as the acquisition of NAE by NAER with NAE as the acquirer (reverse acquisition). The financial statements of the Company prior to July 28, 2008 are those of NAE. Formerly, NAER used a November 30 year-end. As a result of the reverse acquisition, the Company now utilizes the April 30 year-end of NAE.

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

Exploration stage

The Company is in the exploration stage and has realized only nominal revenue to date. The Company is now beginning to develop leasehold which it owns in Washington County, Oklahoma. Accordingly, the operation of the Company is presented as those of a development stage enterprise, from its inception (August 18, 2006).

Going concern

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

At October 31, 2009 and April 30, 2009 the Company had working capital of $155,446 and $73,006, respectively. The Company has an accumulated deficit of $1,599,595 which includes a loss of $471,943 during the six months ended October 31, 2009.

The Company had relied on receiving an additional $1,300,000 from the prior shareholders to fund its planned drilling and development program. As discussed in Note 3, the prior shareholders decided to default on their agreement. Accordingly, the Company will plan to meet its capital requirements for the next year with private placements of its common stock or advances from related parties.

In addition, the Company expects to sell the majority of its interest in its existing developmental drilling prospects on a 1/3 for 1/4 basis and be carried to the tanks, thus having limited additional up-front capital costs on existing properties. This method of operation allows the company to participate in a larger number of prospects with a relatively low capital outlay.

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.

Prior operations

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

Recent accounting pronouncements

There are several new accounting pronouncements issued by the FASB which are not yet effective. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe any of these accounting pronouncements has had or will have a material impact on the Company’s financial position or operating results.

On June 29, 2009, the FASB issued an accounting pronouncement establishing the FASB Accounting Standards Codification (the “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities. This pronouncement was effective for financial statements issued for interim and annual periods ending after September 15, 2009, for most entities. On the effective date, all non-SEC accounting and reporting standards will be superseded. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the manner in which companies refer to U.S. GAAP in financial statements and note disclosures. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure. The Company adopted this body of accounting for the quarterly period ended September 30, 2009, as required, and adoption did not have a material impact on our consolidated financial statements taken as a whole.

FASB ASC Topic 260, “Earnings Per Share.” On January 1, 2009, we adopted new authoritative accounting guidance under FASB ASC Topic 260, “Earnings Per Share,” which provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method.

FASB ASC Topic 320, “Investments - Debt and Equity Securities.” New authoritative accounting guidance under ASC Topic 320, “Investments - Debt and Equity Securities,” (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under ASC Topic 320, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. We adopted the provisions of the new authoritative accounting guidance under ASC Topic 320 during the first quarter of 2009. Adoption of the new guidance did not significantly impact our consolidated financial statements.

FASB ASC Topic 715, “Compensation - Retirement Benefits.” New authoritative accounting guidance under ASC Topic 715, “Compensation - Retirement Benefits,” provides guidance related to an employer’s disclosures about plan assets of defined benefit pension or other post-retirement benefit plans. Under ASC Topic 715, disclosures should provide users of financial statements with an understanding of how investment allocation decisions are made, the factors that are pertinent to an understanding of investment policies and strategies, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period and significant concentrations of risk within plan assets. The disclosures required by ASC Topic 715 are not applicable to us.

FASB ASC Topic 805, “Business Combinations.” On January 1, 2009, new authoritative accounting guidance under ASC Topic 805, “Business Combinations,” became applicable to the Corporation’s accounting for business combinations closing on or after January 1, 2009. ASC Topic 805 applies to all transactions and other events in which one entity obtains control over one or more other businesses. ASC Topic 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. This fair value approach replaces the cost-allocation process required under previous accounting guidance whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. ASC Topic 805 requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under prior accounting guidance. Assets acquired and liabilities assumed in a business combination that arise from contingencies are to be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with ASC Topic 450, “Contingencies.” Under ASC Topic 805, the requirements of ASC Topic 420, “Exit or Disposal Cost Obligations,” would have to be met in order to accrue for a restructuring plan in purchase accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria of ASC Topic 450, “Contingencies.”

FASB ASC Topic 810, “Consolidation.” New authoritative accounting guidance under ASC Topic 810, “Consolidation,” amended prior guidance to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Under ASC Topic 810, a non-controlling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, ASC Topic 810 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. The new authoritative accounting guidance under ASC Topic 810 became effective for us on January 1, 2009 and did not have a significant impact on our consolidated financial statements.

Further new authoritative accounting guidance under ASC Topic 810 amends prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The new authoritative accounting guidance requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. The new authoritative accounting guidance under ASC Topic 810 will be effective January 1, 2010 and is not expected to have a significant impact on our consolidated financial statements.

FASB ASC Topic 815, “Derivatives and Hedging.” New authoritative accounting guidance under ASC Topic 815, “Derivatives and Hedging,” amends prior guidance to amend and expand the disclosure requirements for derivatives and hedging activities to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under ASC Topic 815, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, the new authoritative accounting guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The new authoritative accounting guidance under ASC Topic 815 became effective for us on January 1, 2009 and did not impact our consolidated financial statements.

FASB ASC Topic 820, “Fair Value Measurements and Disclosures.” New authoritative accounting guidance under ASC Topic 820,”Fair Value Measurements and Disclosures,” affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. ASC Topic 820 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. The new accounting guidance amended prior guidance to expand certain disclosure requirements. We adopted the new authoritative accounting guidance under ASC Topic 820 during the first quarter of 2009. Adoption of the new guidance did not significantly impact our consolidated financial statements.

Further new authoritative accounting guidance (Accounting Standards Update No. 2009-5) under ASC Topic 820 provides guidance for measuring the fair value of a liability in circumstances in which a quoted price in an active market for the identical liability is not available. In such instances, a reporting entity is required to measure fair value utilizing a valuation technique that uses (i) the quoted price of the identical liability when traded as an asset, (ii) quoted prices for similar liabilities or similar liabilities when traded as assets, or (iii) another valuation technique that is consistent with the existing principles of ASC Topic 820, such as an income approach or market approach. The new authoritative accounting guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The forgoing new authoritative accounting guidance under ASC Topic 820 will be effective for our consolidated financial statements beginning October 1, 2009 and is not expected to have a significant impact on our consolidated financial statements.

FASB ASC Topic 825 “Financial Instruments.” New authoritative accounting guidance under ASC Topic 825,”Financial Instruments,” requires an entity to provide disclosures about the fair value of financial instruments in interim financial information and amends prior guidance to require those disclosures in summarized financial information at interim reporting periods. The new interim disclosures required under Topic 825 had no impact on our consolidated financial statements.

FASB ASC Topic 855, “Subsequent Events.” New authoritative accounting guidance under ASC Topic 855, “Subsequent Events,” establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC Topic 855 defines (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. The new authoritative accounting guidance under ASC Topic 855 became effective for our consolidated financial statements for periods ending after June 15, 2009 and did not have a significant impact on our consolidated financial statements.

FASB ASC Topic 860, “Transfers and Servicing.” New authoritative accounting guidance under ASC Topic 860, “Transfers and Servicing,” amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative accounting guidance under ASC Topic 860 will be effective January 1, 2010 and is not expected to have a significant impact on our consolidated financial statements.

NOTE 2:

RELATED PARTY TRANSACTIONS

The Company sells its gas pursuant to a contract with a gathering system principally owned by a related party. The Company receives a price equal to 70% of the posted price, which is the same rate charged to third parties. The related party retains the other 30% of the posted price for gathering fees and marketing fees. The gathering system is currently inactive due to low gas prices.

At October 31, 2009 and April 30, 2009, the Company owed the President of NAE $2,000 in compensation. In addition, during the six months ended October 31, 2009, the Company received non-interest bearing advances from related parties of $10,300.

At October 31, 2009 and April 30, 2009, the Company had a note receivable from a shareholder in the amount of $19,993 which bears interest at 6% per annum. Accrued interest in the amount of $600 is included in the balance at October 31, 2009.

Long-term debt includes two convertible notes payable to shareholders in the total amount of $397,928 and $402,500 at October 31, 2009 and April 30, 2009, respectively. One note with a balance of $384,428 and $389,000 at October 31, 2009 and April 30, 2009, respectively, is due May 1, 2010, including interest at 12% and is convertible into the Company's common stock at a price of $1.50 per share. The second note in the amount of $13,500 is due April 27, 2011, including interest at 12% and is convertible into the Company's common stock at a price of $1.00 per share.

NOTE 3:

STOCKHOLDER’S EQUITY

PREFERRED STOCK

The Company has 100,000,000 shares of its $0.001 par value preferred stock authorized. At October 31, 2009 and April 30, 2009, 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 October 31, 2009 and April 30, 2009 the Company has 16,055,539 and 14,035,539 shares issued and outstanding, respectively.

During the six months ended October 31, 2009, options to acquire 70,000 shares of common stock were granted to three consultants at $0.50 per share. All of the shares were exercised during the quarter and paid with $30,000 in consulting contracts and a reduction in accounts payable of $5,000. In addition, 700,000 common shares were issued to acquire undeveloped oil and gas properties valued at $126,000; 350,000 common shares were issued to acquire proved oil and gas properties valued at $192,500 and 900,000 common shares were issued for consulting agreements valued at $813,000.

REVERSE SPLIT

At a special meeting of shareholders held on April 23, 2009, 63% of our shareholders, either in person or by proxy, voted to approve a 1:50 reverse split of the Company's common stock. This amendment to the Company's Articles of Incorporation was filed with the Nevada Secretary of State and became effective on April 27, 2009. Accordingly, all references to shares of our common stock included herein have been retroactively restated to give effect to the reverse split.

CONTINGENT SHARES

On July 28, 2008, the Company acquired 100% of the outstanding stock of NAE for 420,000 shares of our common stock pursuant to a Stock Purchase Agreement ("SPA"). Completion of the SPA resulted in the shareholders of NAE having control of NAEY.

The SPA provided that NAEY was to have $1,500,000 in cash and no liabilities at closing. At July 28, 2008, the closing date, NAEY had $150,000 of the required cash and on August 28, 2008, the parties to the SPA entered into a Modification Agreement ("MA") which provided an extension until January 27, 2009 for the additional cash to be contributed to the Company. At January 27, 2009, the Company had received an additional $50,000 and was still short $1,300,000 of the agreed amount. The MA provided that the Buyer would make contingent issuances of shares to the Seller equal to 95% of all the outstanding stock after issuance. Accordingly, effective April 30, 2009, an additional 13,250,381 shares were issued to the Sellers.

COMMON STOCK OPTIONS

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 October 31, 2009.

NOTE 4:

COMMITMENTS AND CONTINGENCIES

The CEO provides the Company's corporate office at no charge.

NOTE 5:

PROPERTIES AND EQUIPMENT

The Company prepared an evaluation of its proven oil and natural gas properties at October 31, 2009 and determined that an asset impairment charge of $108,000 was required.

NOTE 6:

PREPAID EXPENSES

The Company has issued common stock in exchange for consulting agreements which are for periods up to three years. At October 31, 2009, there is a prepaid balance of $692,906 which is being amortized over the remaining life of the agreements.

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.

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

COMPARISON OF THREE MONTHS ENDED OCTOBER 31, 2009 AND 2008

During the three-month periods ended October 31, 2009 and 2008, we had oil and natural gas sales of $1,974 and $1,705, respectively. In the 2008 period, the Company’s revenue was solely from natural gas sales. In the 2009 period, the Company's revenue was from its interest in two oil wells. All natural gas production was shut-in during February 2009 due to the low gas price. The Company acquired an additional interest in the oil property as of the end of the 2009 period and expects oil revenue to increase in the future.

During the three month period ended October 31, 2009, the Company recorded an asset impairment charge of $108,000 as a result of a ceiling test impairment.

Non-cash compensation includes the calculated value of options granted for consulting contracts during the quarter and the stock issued for consulting services provided during the quarter.

During the three-month periods ended October 31, 2009 and 2008, general and administrative expenses, amounted to $59,716 and $48,107, respectively.

Interest expense amounted to $12,079 during the three months ended October 31, 2009. The increase is primarily from the $389,000 note due to a shareholder which was dated May 1, 2009. There was no interest expense in the prior year quarter.

COMPARISON OF SIX MONTHS ENDED OCTOBER 31, 2009 AND 2008

During the six-month periods ended October 31, 2009 and 2008, we had oil and natural gas sales of $3,588 and $2,972, respectively. In the 2008 period, the Company’s revenue was solely from natural gas sales. In the 2009 period, the Company's revenue was from its interest in two oil wells. All natural gas production was shut-in during February 2009 due to the low gas price. The Company acquired an additional interest in the oil property as of the end of the 2009 period and expects oil revenue to increase in the future.

During the six month period ended October 31, 2009, the Company recorded an asset impairment charge of $108,000 as a result of a ceiling test impairment.

Non-cash compensation includes the calculated value of options granted for consulting contracts during the quarter and the stock issued for consulting services provided during the quarter.

During the six-month periods ended October 31, 2009 and 2008, general and administrative expenses, amounted to $96,4786 and $63,912, respectively. The 2009 period included an increase in field supervision costs.

Interest expense amounted to $24,154 and $425 during the six months ended October 31, 2009 and 2008, respectively. The increase is primarily from the $389,000 note due to a shareholder which was dated May 1, 2009.

LIQUIDITY, CAPITAL RESOURCES AND PLAN OF OPERATIONS

At October 31, 2009, we had $6,081 in cash and working capital of $155,446. Comparatively, we had cash of $27,966 and working capital of $73,006 at April 30, 2009.

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

CASH USED IN OPERATING ACTIVITIES

Cash used in operating activities was $21,790 for the six-month period ended October 31, 2009 and cash used in operations was $234,814 for the comparable 2008 period. The majority of the increase is attributed to using the funds received from joint interest participants to pay drilling and development costs incurred during the 2008 period. There was only very limited activity in the 2009 period. The majority of the funds required for drilling and developing existing acreage will come from prepayments from joint interest participants. Aside from overhead, we expect to utilize the majority of our excess capital, if any, to acquire additional leases.

CASH FROM FINANCING ACTIVITIES

We received $119,830 in cash from the acquisition of NAE by NAEN during the six months ended October 31, 2008. As noted above, there will be no future shareholder contributions from the former shareholders of NAEN. In addition, we incurred $95 and $38,242 in expenditures for oil and gas properties and equipment in 2009 and 2008, respectively. The 2008 amount was primarily for costs for a salt water disposal well.

GOING CONCERN

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

OFF-BALANCE SHEET ARRANGEMENTS

None.

ITEM 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4T:

CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer 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 October 31, 2009. 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, are not effective, due to a lack of segregation of duties, 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.

(b) Changes in Internal Controls

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.

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

During the three months ended October 31, 2009, 300,000 shares, valued at $183,000, were issued for consulting agreements and 350,000 shares, valued at $192,500, were issued to acquire proven oil and natural gas properties.

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

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

Certification pursuant to 18 U.S.C. Section 1350

Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32

Certification pursuant to 18 U.S.C. Section 1350

Section 906 of the Sarbanes-Oxley Act of 2002

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: December 21, 2009

	By: /s/	Ross E. Silvey
		President, Chief Executive Officer and
		Acting Chief Financial Officer

SurgePays, Inc. - FORM 10-Q - December 21, 2009

Attached files

SurgePays, Inc. Reports