Filing identity and reporting period
The supplied filing is for North American Energy Resources, Inc. and its subsidiary, not SurgePays, Inc. It reports the unaudited three months ended July 31, 2014, compared with the three months ended July 31, 2013; this does not match the request metadata of SurgePays, Inc., 2014 Q1.
Financial results and liquidity
Amounts below are reported in dollars. Revenue was $542, versus $460 a year earlier. Production volume increased to 170 MCF from 165 MCF, and average price rose to $3.19 from $2.79.
- Total costs and expenses were $12,603, down from $19,472; general and administrative expense declined to $12,241 from $19,132, primarily due to $4,580 lower accounting and auditing costs.
- Operating loss was $12,061, compared with $19,012. Interest expense increased to $14,402 from $9,880, including $5,468 amortization of convertible-note conversion features. Net loss improved to $26,463 from $28,892; basic and diluted loss per share was reported as $0.00.
- Operating cash outflow was $3,171 in the cash flow statement, compared with $4,638 in 2013. Financing provided $4,610, and cash rose by $1,439 to $1,761. No investing cash flows were reported.
- At July 31, cash was $1,761 and accounts receivable was $182. Current liabilities were $911,444 and working capital deficit was $909,501. Total assets were $3,822; stockholders’ deficit was $907,622.
- Convertible notes payable totaled $585,821, all classified as current and due April 30, 2015. Related-party notes were $530,043; other notes were $55,778. The notes accrue interest at 4% and are convertible at $0.015 per common share.
Material changes and management commentary
The company is an upstream oil and gas business with a non-operated gas-well interest in Oklahoma and an interest in a currently shut-in pipeline. Management is seeking additional acquisition opportunities, but says any acquisition would require significant external financing and may materially change the capital structure. No acquisition is assured.
Management disclosed limited liquidity, insufficient operating cash flow, recurring losses, and dependence on further investment capital. The filing states these conditions raise substantial doubt about the company’s ability to continue as a going concern; the financial statements contain no adjustments for the outcome of that uncertainty.
On July 1, 2014, certain amounts owed to related parties and a consultant were exchanged for or renewed as convertible notes. The filing reports a $54,677 conversion-feature value to be amortized over the notes’ ten-month term; $5,468 was amortized in the quarter. After quarter-end, Alan G. Massara resigned as President and CFO, with CEO Clinton W. Coldren assuming those roles; director Larry Hall resigned on August 28, 2014. Management said disclosure controls were effective and reported no significant changes in internal controls. No legal proceedings or off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Confirm the issuer and period: this filing is for North American Energy Resources, Inc., not SurgePays, Inc., and covers the quarter ended July 31, 2014.
- Reconcile operating cash use: the cash flow statement reports $3,171, while MD&A says $3,129 for the quarter.
- Review going-concern disclosures, the $909,501 working capital deficit, and the company’s ability to obtain financing.
- Assess related-party debt terms, conversion dilution potential, and the April 30, 2015 maturity.
- Verify funding requirements and prospects for the acquisition strategy; the filing provides no committed acquisition financing or quantified outlook.