SurgePays, Inc. - FORM 10-Q - December 7, 2010

Attached files

file	filename
EX-32 - SurgePays, Inc.	v204830_ex32.htm
EX-31 - SurgePays, Inc.	v204830_ex31.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, 2010

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.)

6914 So Yorktown Ave., Suite 130, Tulsa, OK 74136

(Address of principal executive offices) (Zip Code)

11005 Anderson Mill Road, Austin, Texas 78750

(Former address of principal executive offices) (Zip Code)

Registrant's telephone number: (918) 712-7774

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: 17,375,539 shares of common stock outstanding as of November 30, 2010.

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission ("Commission"). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto, contained in North American Energy Resources, Inc.’s Form 10-K dated April 30, 2010.

TABLE OF CONTENTS

		Page

PART I – FINANCIAL INFORMATION (Unaudited)		3

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 4T:	Controls and Procedures	21


PART II - OTHER INFORMATION		22

Item 1:	Legal Proceedings	22

Item 1A:	Risk Factors	22

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 3:	Defaults upon Senior Securities	22

Item 4:	Submission of Matters to a Vote of Security Holders	22

Item 5:	Other Information	22

Item 6:	Exhibits	22

PART I - FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(An Exploration Stage Company)

Balance Sheets

October 31, 2010 (Unaudited) and April 30, 2010

	October 31,			April 30,
	2010			2010
ASSETS
Current assets:
Cash and cash equivalents	$	1,993		$	3,026
Accounts receivable, net of allowance of $10,000 at 4/30/10		15,000			13,150
Prepaid expenses		45,500			250,733
Total current assets		62,493			266,909
Properties and equipment, at cost:
Proved oil and natural gas properties and equipment		2,358			68,424
Accumulated depreciation and amortization		-			(16,174	)
Total properties and equipment		2,358			52,250
Deposits and other assets		-			5,864
Total assets	$	64,851		$	325,023

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable
Trade	$	55,254		$	13,554
Oil and gas proceeds due others		6,868			4,990
Advances received from joint interest participants		-			33,056
Accrued expenses		358			-
Accrued interest - related parties		80,799			49,618
Convertible notes payable - principally related parties		527,976			510,476
Total current liabilities		671,255			611,694
Commitments and contingencies

Stockholders' 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; 17,375,539 shares issued and outstanding
at October 31, 2010 and April 30, 2010, respectively		17,376			17,376
Additional paid in capital		2,219,708			2,219,708
Prepaid officer compensation		-			(12,129	)
Other comprehensive loss		-			(1,000	)
Deficit accumulated during the exploration stage		(2,843,488	)		(2,510,626	)
Total stockholders' deficit		(606,404	)		(286,671	)
Total liabilities and stockholders' deficit	$	64,851		$	325,023

See accompanying notes to financial statements

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(An Exploration Stage Company)

Statements of Condensed Consolidated Operations

For the three months ended October 31, 2010 and 2009

(Unaudited)

	2010			2009

Oil and natural gas sales	$	2,139		$	1,974
Pipeline fees		-			-
Total revenues		2,139			1,974
Costs and expenses
Oil and natural gas production taxes		152			142
Oil and natural gas production expenses		5,753			4,115
Depreciation and amortization		764			1,641
Asset impairment		46,894			108,000
Non-cash compensation		88,875			106,326
Bad debt expense		7,828			-
General and administrative expense, net of
operator's overhead fees		4,918			59,716
		155,184			279,940
Loss from operations		(153,045	)		(277,966	)
Other income (expense):
Interest income		-			300
Interest expense		(15,740	)		(12,079	)
Total other income (expense)		(15,740	)		(11,779	)
Net loss		(168,785	)		(289,745	)
Other comprehensive loss
Unrealized loss on available for sale securities		-			-
Net comprehensive loss	$	(168,785	)	$	(289,745	)

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

Weighted average common shares outstanding		17,375,539			15,659,887

See accompanying notes to condensed consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(An Exploration Stage Company)

Statements of Condensed Consolidated Operations

For the six months ended October 31, 2010 and 2009

and the period from inception (August 18, 2006) through October 31, 2010

(Unaudited)

							Inception
							(August 18, 2006)
							through
							October 31,
	2010			2009			2010

Oil and natural gas sales	$	4,044		$	3,588		$	43,059
Pipeline fees		-			-			2,450
Total revenues		4,044			3,588			45,509
Costs and expenses
Oil and natural gas production taxes		289			258			3,099
Oil and natural gas production expenses		8,397			8,966			106,700
Depreciation and amortization		1,478			3,240			16,064
Asset impairment		46,894			108,000			910,714
Non-cash compensation		212,754			235,027			1,360,291
Bad debt expense		7,828			10,000			93,828
General and administrative expense, net of
operator's overhead fees		28,085			86,486			316,912
		305,725			451,977			2,807,608
Loss from operations		(301,681	)		(448,389	)		(2,762,099	)
Other income (expense):
Other income		-			-			320
Interest income		-			600			900
Interest expense		(31,181	)		(24,154	)		(82,609	)
Total other income (expense)		(31,181	)		(23,554	)		(81,389	)
Net loss		(332,862	)		(471,943	)		(2,843,488	)
Other comprehensive loss
Unrealized loss on available for sale securities		1,000			-			-
Net comprehensive loss	$	(331,862	)	$	(471,943	)	$	(2,843,488	)

Net loss per common share, basic and diluted	$	(0.02	)	$	(0.03	)

Weighted average common shares outstanding		17,375,539			15,343,800

See accompanying notes to condensed consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(An Exploration Stage Company)

Consolidated Statements of Stockholders' Deficit

For the period from inception (August 18, 2006) through October 31, 2010

(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.

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(An Exploration Stage Company)

Consolidated Statements of Stockholders' Deficit, continued

For the period from inception (August 18, 2006) through October 31, 2010

(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
Cancel 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

(An Exploration Stage Company)

Consolidated Statements of Stockholders' Deficit, continued

For the period from inception (August 18, 2006) through October 31, 2010

(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			-		-		-		-
Net loss			-		-		-		-
BALANCE October 31, 2010			17,375,539	$	17,376	$	2,219,708	$	-

(Continued)

See accompanying notes to consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(An Exploration Stage Company)

Consolidated Statements of Stockholders' Deficit, continued

For the period from inception (August 18, 2006) through October 31, 2010

(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
Net loss		-			-			(332,862	)		(332,862	)
BALANCE October 31, 2010	$	-		$	-		$	(2,843,488	)	$	(606,404	)

See accompanying notes to consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(An Exploration Stage Company)

Statements of Condensed Consolidated Cash Flows

For the six months ended October 31, 2010 and 2009

and the period from inception (August 18, 2006) through October 31, 2010

(Unaudited)

							Inception
							(August 18, 2006)
							through
							October 31,
	2010			2009			2010

Operating activities
Net loss	$	(332,862	)	$	(471,943	)	$	(2,843,488	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,478			3,240			16,064
Non-cash compensation		212,754			235,027			1,360,291
Bad debt expense		7,828			10,000			99,243
Asset impairment		46,894			108,000			910,714
Changes in operating assets and liabilities:
Accounts receivable		(9,679	)		(17,584	)		(106,057	)
Interest accrued on loan to related party		-			-			(900	)
Prepaid expenses and other assets		5,472			(837	)		-
Accounts payable		22,642			60,801			296,696
Accrued interest - related parties		31,181			24,154			81,079
Accrued expenses		-			-			-
Related party advances for working capital		-			9,700			2,000
Oil and gas proceeds due others		1,878			-			6,868
Advances from joint interest owners		(1,226	)		17,652			(9,643	)
Net cash from (used in) operating activities		(13,640	)		(21,790	)		(187,133	)
Investing activities
Payments for oil and natural gas properties and equipment		(4,893	)		(95	)		(166,311	)
Cash received in excess of cash paid in reverse acquisition of North American Energy Resources, Inc.		-			-			119,830
Loan to related party		-			-			(19,993	)
Proceeds from sale of oil and gas properties		-			-			7,500
Payments for pipeline		-			-			(7,500	)
Net cash used in investing activities		(4,893	)		(95	)		(66,474	)
Financing activities
Loan proceeds		17,500			-			66,250
Shareholder contribution		-			-			50,000
Loans from related parties		-			-			113,350
Sale of common stock		-			-			26,000
Net cash provided by financing activities		17,500			-			255,600
Net increase in cash and cash equivalents		(1,033	)		(21,885	)		1,993
Cash and cash equivalents, beginning of period		3,026			27,966			-
Cash and cash equivalents, end of period	$	1,993		$	6,081		$	1,993

(Continued)

See accompanying notes to condensed consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(An Exploration Stage Company)

Statements of Condensed Consolidated Cash Flows, Continued

For the six months ended October 31, 2010 and 2009

and the period from inception (August 18, 2006) through October 31, 2010

(Unaudited)

					Inception
					(August 18, 2006)
					through
					October 31,
	2010		2009		2010

Supplemental cash flow information
Cash paid for interest and income taxes:
Interest	$	-	$	-	$	1,094
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	)
Common stock issued						150,000
Cash received in excess of cash paid					$	119,830

Exchange of joint interest receivable for oil and natural gas properties	$	-		-	$	53,068
Convertible note payable and accrued interest exchanged for 1,000 shares of North American Exploration, Inc. common stock		-		-		35,530
Common stock options granted		-		-		205,096
Common stock options cancelled		-		-		188,005
Common stock issued for:
Consulting agreements		-		630,000		902,600
Unevaluated oil and natural gas properties		-		126,000		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		-		31,829

See accompanying notes to condensed consolidated financial statements.

NORTH AMERICAN ENERGY RESOURCES, INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Condensed Consolidated Financial Statements

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”).

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, 2010, which is included in the Company’s Form 10-K dated April 30, 2010. The financial data for the interim periods presented may not necessarily reflect the results to be anticipated for the complete year.

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.

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 could be used for gathering gas production. The Company's gas production has been shut-in due to low prices since 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 seeking to acquire other non-operated interests when funds are available.

Exploration stage

The Company is in the exploration stage and has realized only nominal revenue to date. The decline in gas prices has placed the Company's original gas development plans in Washington County, Oklahoma on hold. The Company has plans to raise funds in order to develop or acquire additional oil leases. 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 consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company commenced operations in September 2006.

At October 31, 2010 and April 30, 2010 the Company had a working capital deficit of $608,762 and $344,785, respectively. The Company has an accumulated deficit of $2,843,488 which includes a loss of $332,862 during the six months ended October 31, 2010, which includes stock compensation in the amount of $212,754. The Company's note payable to a shareholder with a balance of $384,428 at July 31, 2010, was due May 1, 2010 and remains unpaid. The Company expects to extend the note or convert it to common stock.

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

2011 refers to periods ending during the fiscal year ending April 30, 2011 and 2010 refers to periods ended during the fiscal year ended April 30, 2010.

Reclassification

Certain reclassifications have been made in the financial statements at October 31, 2009 and for the periods then ended to conform to the October 31, 2010 presentation. The reclassifications had no effect on net loss.

Recent adopted and pending accounting pronouncements

Below is a listing of the most recent accounting standards and their effect on the Company, as issued by the Financial Accounting Standards Board ("FASB") in the form of Accounting Standards Updates ("ASU"). We have evaluated all recent accounting pronouncements through November 30, 2010 and find none that would have a material impact on the financial statements of the Company, except for those detailed below.

In August 2010, the FASB issued Accounting Standards Update 2010-21 (ASU 2010-21), "Accounting for Technical Amendments to Various SEC Rules and Schedules — Amendments to SEC Paragraphs Pursuant to Release No. 33-9026; Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies" and ASU 2010-22, "Accounting for Various Topics — Technical Corrections to SEC Paragraphs - An announcement made by the staff of the U.S. Securities and Exchange Commission." Both corrections have been adopted by the Company and had no effect on the financial position, results of operations or cash flows of the Company.

NOTE 2: RELATED PARTY TRANSACTIONS

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

Convertible notes payable includes convertible notes payable to shareholders and others in the total amount of $527,976 and $510,476 at October 31, 2010 and April 30, 2010, respectively. One note with a balance of $384,428 at October 31, 2010 and April 30, 2010 was due May 1, 2010 and remains past due. This note is convertible into the Company's common stock at a price of $1.50 per share. The remaining notes in the total amount of $143,548 are due, $126,048 in March and April 2011 and $17,500 in September 2011, including interest at 12% and are convertible into the Company's common stock at a price ranging from $0.03 to $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, 2010 and April 30, 2010, 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, 2010 and April 30, 2010 the Company has 17,375,539 shares issued and outstanding.

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, 2010. At October 31, 2010, there are 1,242,333 shares available for grant.

NOTE 4: PREPAID EXPENSES

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

	October 31,		April 30,
	2010		2009
Current asset
Stockholder relations firm	$	42,000	$	168,000
Consulting firm assisting with listing common stock on
the Frankfort Exchange		-		68,625
Administrative management		3,500		9,500
Other prepaid expense		-		4,608
	$	45,500	$	250,733
Component of stockholders' deficit
Chief executive officer compensation	$	-	$	12,129

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 and acquire additional leases.

COMPARISON OF THREE MONTHS ENDED OCTOBER 31, 2010 AND 2009

Revenues during the three months ended October 31, 2010 and 2009 were as follows:

	2010		2009

Oil production	$	2,139	$	1,974

Oil revenues included 32 net barrels sold in 2010 and in 2009. Due to low prices, the Company shut-in its gas production during January 2009. The Company's oil prices per barrel averaged $66.84 during 2010 and $61.69 during 2009.

Costs and expenses during the three months ended October 31, 2010 and 2009 were as follows:

	2010		2009

Oil and natural gas production taxes	$	152	$	142
Oil and natural gas production expenses		5,753		4,115
Depreciation and amortization		764		1,641
Asset impairment		46,894		108,000
Non-cash compensation		88,875		106,326
Bad debt expense		7,828		-
Other general and administrative expense,
net of operator's overhead fee		4,918		59,716
Total	$	155,184	$	279,940

The Company recorded asset impairment charges in 2010 and 2009. The charge in 2010 was as a result of the sale of its remaining shut-in gas properties and its producing oil properties in Washington County, Oklahoma during October 2010. The 2009 impairment was a result of an acquisition made with common stock being higher than the value of the discounted reserves at the time of the acquisition.

Non-cash compensation in 2010 and 2009 represents the current period charge for stock which has been issued for consulting contracts.

Other general and administrative expense, net of operator's overhead fee declined from $59,716 to $4,918. The majority of the decline is due to lower legal costs of $34,161 and lower accounting and auditing costs.

Other income (expense) during the three months ended October 31, 2010 and 2009 is as follows:

	2010			2009

Interest income	$	-		$	300
Interest expense		(15,740	)		(12,079	)
Total	$	(15,740	)	$	(11,779	)

The interest bearing debt increased during the 2010 period as compared to the 2009 period.

COMPARISON OF SIX MONTHS ENDED OCTOBER 31, 2010 AND 2009

Revenues during the six months ended October 31, 2010 and 2009 were as follows:

	2010		2009

Oil production	$	4,044	$	3,588

Oil revenues included 64 net barrels sold in 2010 and 66 net barrels sold in 2009. Due to low prices, the Company shut-in its gas production during January 2009. The Company's oil prices per barrel averaged $63.19 during 2010 and $54.36 during 2009. The Company sold this production effective October 1, 2010.

Costs and expenses during the six months ended October 31, 2010 and 2009 were as follows:

	2010		2009

Oil and natural gas production taxes	$	289	$	258
Oil and natural gas production expenses		8,397		8,966
Depreciation and amortization		1,478		3,240
Asset impairment		46,894		108,000
Non-cash compensation		212,754		235,027
Bad debt expense		7,828		10,000
Other general and administrative expense,
net of operator's overhead fee		28,085		86,486
Total	$	305,725	$	451,977

Non-cash compensation in 2010 and 2009 represents the current period charge for stock which has been issued for consulting contracts.

Other general and administrative expense, net of operator's overhead fee declined from $86,486 to $28,085. The majority of the decline is due to lower legal costs of $34,161 and lower accounting and auditing costs.

Other income (expense) during the six months ended October 31, 2010 and 2009 is as follows:

	2010			2009

Interest income	$	-		$	600
Interest expense		(31,181	)		(24,154	)
Total	$	(31,181	)	$	(23,554	)

The interest bearing debt increased during the 2010 period as compared to the 2009 period.

LIQUIDITY, CAPITAL RESOURCES AND PLAN OF OPERATIONS

At October 31, 2010, we had $1,993 in cash and a working capital deficit of $608,762. Comparatively, we had cash of $3,026 and a working capital deficit of $344,785 at April 30, 2010. The principal element of the change in working capital was a decrease in prepaid consulting contracts of $205,233 and other losses incurred during the period which caused higher current liabilities.

We estimate that our total planned cash expenditures over the next twelve months will be approximately $36,000 for basic corporate overhead, assuming no increased operations. We expect to utilize excess funds, when available, to acquire additional acreage for future drilling operations and plan to issue our common stock for certain services when possible. The Company's note payable to a shareholder with a balance of $384,428 at October 31, 2010, was due May 1, 2010 and remains unpaid. The Company expects to extend the note or convert it to common stock.

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.

CASH FROM OPERATING ACTIVITIES

Cash used in operating activities was $13,640 for the six-month period ended October 31, 2010 and cash used in operations was $21,790 for the comparable 2009 period. There has been only nominal activity with a significant portion of the operating loss being paid with common stock.

CASH USED IN FINANCING ACTIVITIES

We incurred capital costs of $4,893 and $95 in the six months ended October 31, 2010 and 2009, respectively.

CASH FROM FINANCING ACTIVITIES

Received loan proceeds of $17,500 during the three months ended October 31, 2010 and had no activity during the six months ended October 31, 2009.

GOING CONCERN

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

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, 2010. 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

None during the quarter ended October 31, 2010.

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 7, 2010
	By:	/s/ Ross E. Silvey
		President, Chief Executive Officer and
		Acting Chief Financial Officer

SurgePays, Inc. - FORM 10-Q - December 7, 2010

Attached files

SurgePays, Inc. Reports