Surgepays, Inc. quarterly report, Q1 FY2011

Filing identity and reporting period

Important source mismatch: The request identifies SurgePays, Inc. and 2010 Q1, but the supplied filing is for North American Energy Resources, Inc. and covers the three months ended July 31, 2011. The summary below reflects the supplied filing, not the company or period in the request.

The company describes itself as a development-stage oil and natural gas business. Its unaudited interim statements consolidate the company and its wholly owned subsidiary.

Financial results and position

• Revenue fell 72% year over year; the 2011 amount was from sales of 177 Mcf of gas. The 2010 revenue came from oil sales.
• Cash and cash equivalents were $574 at July 31, 2011, down from $716 at April 30, 2011. The working-capital deficit widened to $220,817 from $115,572.
• Total assets were $8,456 and current liabilities were $226,998. Stockholders’ deficit was $218,542.
• Current liabilities included $62,983 trade payables, $93,714 due to related parties, $31,255 accrued expenses, and a $38,678 convertible note. The note is due January 6, 2012, bears 4% interest, and is convertible at $0.10 per share.
• Oil and gas properties, net, were $2,275. The filing does not present a separate margin measure.
• Basic and diluted loss per share was reported as $(0.00), versus $(0.01) in 2010. Weighted-average shares were 21,554,945 versus 17,375,539.

Material changes versus the prior period

• Net loss improved by $58,801, principally reflecting lower production costs, no non-cash compensation expense in the quarter, and lower interest expense. General and administrative expense increased to $105,113 from $23,167.
• Management attributed higher general and administrative costs to the expanding staff and new office, including increased rent, executive compensation, legal, and travel costs.
• The company sold its prior producing oil and non-producing gas properties effective October 1, 2010, and acquired an interest in a producing gas well. Management said the new well produced a small profit, but quarterly revenue remained minimal.
• Interest expense declined to $386 from $15,441, primarily following the December 2010 exchange of convertible notes for common stock.

Outlook, risks, and unusual items

• Management estimated approximately $100,000 in cash expenditures over the next 12 months for basic corporate overhead, assuming no increase in operations. It planned to rely principally on related-party advances to meet near-term capital needs.
• The company is seeking additional oil and gas acquisitions. Management said acquisitions would require significant external financing and could materially change the company’s capital structure; completion is not assured.
• The filing states that substantial doubt exists about the company’s ability to continue as a going concern, citing its working-capital deficit, accumulated losses, nominal revenue, and dependence on financing. The statements contain no adjustments for the outcome of that uncertainty.
• Executives were granted warrants covering up to 30 million shares at exercise prices of $0.025, $0.04, and $0.055, subject to vesting and other terms. The filing reports 21,554,945 common shares outstanding at July 31, 2011; the warrants represent potential dilution.
• No off-balance-sheet arrangements or legal proceedings were reported. Management said disclosure controls were effective and reported no significant changes in internal control during the quarter.
• The filing provides no specific revenue or earnings guidance. Its interim financial statements are unaudited.

Key facts for investors to verify

• Confirm the correct issuer and reporting period: the supplied document names North American Energy Resources, Inc., not SurgePays, Inc.
• Assess whether the company can fund operations given $574 in cash, a $220,817 working-capital deficit, and its stated dependence on related-party financing.
• Review the terms, balances, and repayment or conversion status of related-party obligations and the $38,678 convertible note.
• Verify the operating and production status of the acquired gas-well interest and whether it can generate meaningful revenue.
• Review the executive warrant terms, vesting conditions, and potential dilution relative to shares outstanding.