Filing summary
Identity and period: The supplied filing is for North American Energy Resources, Inc. and its subsidiary, not Surgepays, Inc. It is a Form 10-Q for the quarter ended January 31, 2014 (the company’s fiscal third quarter), filed March 13, 2014. The company describes itself as a development-stage oil and gas business. Financial statement amounts below are reported in dollars.
Financial performance and position
- Quarter revenue: $421, versus $388 in the prior-year quarter. Net gas production was 166 MCF at an average $2.53/MCF, compared with 167 MCF at $2.32/MCF.
- Quarter results: Operating expenses were $18,792, including $18,462 of general and administrative expense. Operating loss was $18,371; interest expense was $10,429; net loss was $28,800, versus a $13,262 net loss a year earlier. Basic and diluted loss per share was reported as $0.00.
- Nine-month results: Revenue was $1,297, versus $1,036; net loss was $75,270, versus $51,564. General and administrative expense was $45,119, versus $23,511. Interest expense was $30,449, versus $28,103.
- Margins: Revenue is nominal relative to operating costs, and the company reported operating and net losses. The filing does not present a separate margin measure.
- Cash flow: Nine-month cash used in operations was $35,943, compared with $67,865 in the prior-year period. Financing provided $35,547, principally through officer loans and related-party advances. Investing cash flow was zero. Cash declined from $482 at April 30, 2013 to $86 at January 31, 2014.
- Liquidity and debt: Current assets were $347 and current liabilities were $908,568, resulting in a $908,221 working-capital deficit. Total liabilities were current. These included a $497,909 convertible officer note, a $38,678 convertible note, $290,800 in accrued expenses (primarily related-party amounts), and accounts payable.
- Equity: Stockholders’ deficit was $906,273. Shares outstanding were 21,554,945 at January 31, 2014 and February 28, 2014.
Changes, outlook, and risks
- Quarterly revenue rose modestly, while the quarterly net loss more than doubled, mainly alongside higher general and administrative costs. Management attributed higher costs to professional services and travel associated with fundraising and a potential acquisition. For the nine-month period, management also cited additional audit and accounting work related to an amended 2012 Form 10-K and the 2013 Form 10-K.
- The company is seeking an acquisition candidate and expects any acquisition and related development to require external debt and/or equity financing. The target, financing amount, and timing had not been determined; management gave no quantified forecast or revenue guidance.
- The CEO had loaned the company approximately $497,909 for due diligence and operations; the note’s maturity was extended to June 30, 2014. Another convertible note of $38,678 was also due June 30, 2014.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, limited liquidity, and operations insufficient to fund current requirements. The company stated it depended on additional investment capital and provided no assurance that financing or an acquisition would be achieved.
- The company reported no off-balance-sheet arrangements, legal proceedings, or applicable market-risk disclosures. Management stated disclosure controls were effective as of January 31, 2014 and reported no significant changes in internal control.
Important facts to verify
- Confirm whether this filing is relevant to the requested company: the filing names North American Energy Resources, Inc., not Surgepays, Inc.
- Reconcile the nine-month general and administrative expense: the financial statements report $45,119, while one MD&A sentence says the amount increased to $40,889.
- Confirm the exact officer-note balance: the balance sheet and MD&A report $497,909, while the related note reports $497,908.
- Assess near-term funding and repayment capacity given $86 in cash, a $908,221 working-capital deficit, and notes due June 30, 2014.
- Review the going-concern disclosure and the status, financing needs, and likelihood of any proposed acquisition.