Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act
o
Yes
x
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act.
x
Yes
o
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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.
o
Yes
x
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
o
Yes
x
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definition of “large accelerated filer”, “accelerated filer” and “small reporting company” Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes
o
No
x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recent completed second fiscal quarter. On April 17, 2018, the market value of the 70,065,448 shares held by non-affiliates was $705,654.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
Listed hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; (3) Any prospectus filed pursuant to Rule 424 (b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes.
This annual report on Form 10-K of North America Frac Sand, Inc. for the year ended December 31, 2017 contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations of historical fact, such statements constitute forward looking statements which, by definition involve risks and uncertainties. In particular, statements under the Sections; Description of Business, Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward looking statements. Where in any forward looking statements, the Company expresses an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished.
The following are factors that could cause actual results or events to differ materially from those anticipated, and include but are not limited to: general economic, financial and business conditions; changes in and compliance with governmental regulations; changes in tax laws; and the cost and effects of legal proceedings.
You should not rely on forward looking statements in this annual report. This annual report contains forward looking statements that involve risks and uncertainties. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” and similar expressions to identify these forward-looking statements. Prospective investors should not place undue reliance on these forward looking statements, which apply only as of the date of this annual report. Our actual results could differ materially from those anticipated in these forward-looking statements.
PART I
Item 1. Business
DESCRIPTION OF BUSINESS
North America Frac Sand, Inc. is a Florida corporation (“NAFS” or the “Company”). The Company’s original name, as incorporated, was New Found Shrimp, Inc. The Company has been providing marketing of consulting services primarily to independent aquatic farming operators and other market participants located in the Midwest of the United States of America (the “U.S.”). Historically, we conducted initial marketing and sales activities to take advantage of opportunities related to time, location and quality of aquatic farming operations. We have conducted our operations primarily in Indiana.
We were founded in April 2007 in Indianapolis, Indiana. In June of 2012, we changed our domicile from the state of Indiana to the State of Florida. On December 11, 2016, David Alexander resigned as CEO, President, and Joe Kistler (“Mr. Kistler”) has been appointed CEO and President.
In 2014, we reviewed opportunities in the modular building systems markets in Alberta, Canada. At that time, we changed our name, from New Found Shrimp, Inc., to Innovate Building Systems, Inc, and subsequently to Xterra Building Systems, Inc. On July 10, 2015, we entered into a share purchase agreement with Canadian Sandtech, Inc. (“CSI”) to acquire 100% of the issued and outstanding shares of North America Frac Sand (CA) Ltd. (“NAFS-CA”) by issuing to CSI 37,800,000 shares of the Company into escrow. At that time, we changed our name from Xterra Building Systems, Inc. to North America Frac Sand, Inc.
NAFS-CA was incorporated in Alberta, Canada on June 8, 2015, and was a wholly owned subsidiary of CSI. NAFS-CA owns approximately 30,000 acres of mineral leases about 30 kilometers east of Saskatchewan, Canada, called the Eagle Creek mineral leases. On August 29, 2016, these leases were assigned to the Company.
A description of the Eagle Creek mineral leases is as follows:
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Lease
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Description of Lease
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Lease Rate
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# 1
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Section 11, NE ¼ of Section 2, N (½) of Section 3, in Township 38, Range 10, West of the 3
rd
Meridian, as to the surface rights referenced in the Certificate of Title.
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Upfront payment of $3,000. Ten-year lease dated April 26, 2017, automatically extended for second 10 years if royalties are being paid. Lease rate is $1 per acre per year. Royalty rate is $5.00 per ton of processed ore sold at $80 per metric ton or less, and $5.00 plus 10% of the difference between the sales price greater than $80 and $80 per metric ton.
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There has been significant exploration activity on the 1,680 acres of the Eagle Creek property. Since 2008, CSI has drilled 173 holes on the Eagle Creek property. 149 of the drill holes were 300-foot spacing, and 7 drill holes and 17 backhoe holes were 600-foot spacing. The average sand thickness per hole was 10.5 feet, and the size of the tested area was approximately 12.9 million square feet. With respect to frac sand, there are approximately 75 lbs. of frac sand per cubic foot. CSI transferred ownership of the Eagle Creek property to its wholly owned subsidiary NAFS-CA in early August 2015. A summary of the activities undertaken on the property to date is as follows:
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Date
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Description of activities
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Aug-Oct 2008
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CSI recognized the sand qualities on the leased property and the fact that these sands warranted further testing. This lead to CSI entering into lease agreements.
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Jun 2009
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CSI tested 107 holes backhoed under the supervision of Independent Engineer Green Engineering Ltd. (“GEL) and determined that significant quantities of suitable sand were present and that additional testing from an Independent engineer was required.
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Nov-Dec 2009
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CSI core drilled 66 holes under the supervision of Independent Engineer GEL and began lab testing of core samples.
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June 2010
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Saskatchewan Government confirmed CSI’s sand deposit (frac sands) fall under “Sand and Gravel” and are the property of the surface right holder. No disposition under the Quarry Regulations, 1957 was required to exploit the frac sand deposit.
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Nov 2010 – Jan 2013
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Further laboratory testing was conducted by SGS & Met Solve Labs and results determined the sands tested passed American Petroleum Industry (API) standards.
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Jan 2013 – August 2015
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CSI began gathering production data, plant design and cost, financial data and compiled other data to assist in the preparation of a NI 43-101 report required for additional financing.
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Aug 2015
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Property lease was transferred to NAFS-CA
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July-Sept 2016
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North West Engineering completed a field testing program which was to test historic data by drilling and sampling 40 core holes to 10 meters.
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May 2017
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North West Engineering completed a second field testing program by drilling and sampling 45 core holes to 10 meters, and by completing an NI43-101 report.
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During the most recent quarter, the Company released a NI-43-101 Report on the Eagle Creek properties. The NI-43-101 report, completed by Norwest Corporation, a Calgary based mineral engineering company, recommended that we continue to drill out the property, to establish both the size and quality of the frac sand resource evident on the mineral leases, and to provide working capital to the Company. The Company has continued to borrow funds from its management to complete the requisite work and to make the minimum lease payments.
Although we are not presently engaged in any other capital raising activities, we anticipate that we may engage in one or more private offerings of our Company’s securities. We would most likely rely upon the transaction exemptions from registration provided by Regulation D, Rule 506 or conduct a private offering under Section 4(2) of the Securities Act of 1933.
The implementation of our business strategy is estimated to take approximately 12 months. Once we are able to secure funding, implementation will begin immediately. The major parts of the strategy to be immediately implemented will be the sales and marketing and office equipment and human resources procurement.
Industry Overview
Frac Sand Industry
The practice of fracturing reservoir rock in the United States as a method to increase the flow of oil and gas from wells has a relatively long history, and can be traced back to 1858 in Fredonia, New York, when a gas well situated in shale of the Marcellus Formation was successfully fractured using black powder as a blasting agent. Nearly all domestic hydraulic fracturing, often referred to as hydro-fracking or fracking, is a process where fluids are injected under high pressure through perforations in the horizontal portion of a well casing in order to generate fractures in reservoir rock with low permeability (“tight”). Because the fractures are in contact with the well bore they can serve as pathways for the recovery of gas and oil. To prevent the fractures generated by the fracking process from closing or becoming obstructed with debris, material termed “proppant,” most commonly high silica sand, is injected along with water-rich fluids to maintain or “prop” open the fractures. The first commercial application of fracking in the oil and gas industry took place in Oklahoma and Texas during the 1940s. In 1949, over 300 wells, mostly vertical, were fracked (ALL Consulting, LLC, 2012; McGee, 2012; Veil, 2012) and used silica sand as a proppant (Fracline, 2011).
The resulting increase in well productivity demonstrated the significant potential that fracking might have for the oil and gas industry. The first horizontal well was successfully completed in 1948, and the first commercial “unconventional well,” a horizontal gas well in “tight” shale, was drilled in 1988. The Society of Petroleum Engineers describes unconventional resources as petroleum accumulations that are pervasive throughout a large area and are not significantly affected by pressure generated by water. The extremely small pore-size and absence of favorable permeability results in high resistance to hydrocarbon flow. Recovery of gas and oil from these units presents technological challenges. The extremely low permeability typically causes the hydrocarbons to remain in the source rock unless artificially induced fracturing is introduced and proppants are injected to maintain the fracture openings and to provide a pathway through the rock to facilitate the flow of hydrocarbons through the well (Ratner and Tiemann, 2014).
Technological advances in directional drilling and hydraulic fracturing coupled with increases in natural gas prices in the late 1990s and early 2000s spurred aggressive exploration drilling activities and eventually significant production from unconventional oil and gas reservoirs contained in several major sedimentary shale basins in the United States [U.S. Energy Information Administration (EIA), 2014]. Formations or basins, shown in Figure 2, include the Anadarko Basin in Oklahoma and Texas, the Bakken/Three Forks Basin in eastern Montana and North Dakota, the Barnett Formation in the Fort Worth Basin, the Eagle Ford and Woodbine Formations in the East Texas Basin, and the Appalachia Basin in the northeastern part of the United States. Most of the production from these formations is in the form of gas rather than oil because methane molecules and those of natural gas liquids are smaller than crude oil molecules, and are therefore more responsive to fracking when moving through fine-grained sedimentary rock such as shale (Ratner and Tiemann, 2014; Tucker, 2013).
In 2003, nearly 2.2 metric tons of sand was sold or used for fracking, a 45 percent increase over the previous year. The rapid growth in the demand for frac sand at this time was a direct result of the petroleum industry’s start of aggressive horizontal drilling and hydraulic fracturing programs in unconventional oil and gas targets contained in tight sedimentary formations. In 2009, the global recession and lower petroleum prices were reflected by a decrease in the number of active drilling rigs and a slowdown in the growth rate of frac sand consumption. By 2012, oil petroleum prices had recovered and the rate of growth in frac sand demand accelerated. In 2012, there was an average of approximately 1,150 horizontal rotary drilling rigs in the United States operating per week, which represented nearly 60 percent of the total number of active drilling rigs. At the same time, the number of vertical and directional (angled or deviated drilling, but not horizontal) active drilling rigs represented a 29 percent and 11 percent share, respectively (Baker Hughes Inc., 2014). The compound annual growth rate (CAGR) for frac sand sold or used for the years 2003 through 2012 was nearly 32 percent.
U.S. Production of Frac Sand
Common names of the frac sand stratigraphic units, which are mined from the Ordovician Saint Peter Sandstone, include Jordan Sand, Ottawa Sand, Northern White Sand, Saint Peter, and Sierra Gold. In addition, these sands are also used in glass making and in foundries. Nearly 70 percent of the estimated 2014 domestic frac sand, or about 38 metric tons (Mt), was mined in the Great Lakes Region owing to the premium sand deposits in the region; existing railway infrastructure, and long term presence in the industry. The states that comprise this region and their respective estimated annual production, rounded to the nearest Mt listed in descending order are Wisconsin (24 Mt), Illinois (8Mt), Minnesota (5 Mt), and Michigan (1 Mt). Iowa and Missouri produce approximately 2 million metric tons per year (Mt/yr) and 1 Mt/yr of frac sand, respectively. These sands are similar in character to the frac sands produced in the Great Lakes Region.
Nearly all of the premium sands are transported by rail to transfer points in areas where fracking is occurring and trucked to fracking sites or stockpiled at locations to await orders for frac sand. Some Great Lakes frac sand is also shipped to Canadian fracking sites since Canada produces only about 30 percent of its frac sand requirements. In 2014, Canada imported about 1.5 Mt of sand from the United States.
Most of the remaining frac sand production in the United States, approximately 13 Mt rounded to the nearest Mt, originates from outside the Great Lakes Region. In descending order of production, they are: Texas (8 Mt), Arkansas (2 Mt), Nebraska (2 Mt) and Arizona (1 Mt). A large percentage of the sand produced from the mines in these states is considered “brown sand” and sold as Brady, Brown, EF (economical frac), Hickory, and Texas Brown. These sands may contain minor amounts of impurities, have lower strength.
Frac Sand Pricing
Since the oil prices dropped in 2015, the previous high demand and tight supply of frac sand resulted in the prices dropping from a national average of about $63 per ton in 2013 to approximately 20% less than that today. The major factors that determine the cost and application for frac sand include: (1) grain strength, which is based on its SiO2 content and internal structure; (2) grain sphericity; (3) grain size; (4) grain size distribution; (5) and overall purity. In general, the relatively clean, coarse and high-silica high-strength “white” sands mined in Arkansas, Illinois, Minnesota, and Wisconsin bring the highest prices per ton FOB plant. The coarser-cleaner fractions bring premium prices, because of higher conductivity which is especially desirable for the recovery of oil.
In most cases, rail is the primary form of transportation to get sand from the mine to a transfer point and then, from there, trucked to the well site, and represents the highest post-mine cost. Adding to the cost burden of transportation some suppliers and consumers of frac sand are affected with logistical “bottlenecks” that result from the: lack of available hopper cars, limitations of branch lines to accommodate rail traffic, weight, and speed; complications associated with moving sand through the network of rail freight carriers that traverse the Midwest United States; shortages of truck drivers and truck availability; and constrained capacity at trans loading terminals (Gopinath and Pramanick, 2014; Minnesota Department of Transportation, 2012; Vectora Transportation, 2013).
Our Target Market
There are several factors which determine what our target market is:
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1.
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The geographic location of the Eagle Creek mineral leases is approximately 1,500 km closer to the major Canadian and Northern United States tight oil and gas formations, that are the major consumers of frac sand (Wisconsin);
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2.
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Canada’s train infrastructure is not geared towards frac sand. Most shipments of frac sand involve several bottlenecks in Canada where there are few rail cars dedicated to frac sand, few trans-loading facilities;
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3.
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The consequent logistics cause delays, increased costs, and poor customer service.
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We feel that being closer to the frac sand markets of B.C., Alberta, Saskatchewan, Manitoba, North Dakota, and Montana will give us a significant advantage, due to the fact that we are in the range of truck able distances. This will result in reduced transportation costs, ensured delivery schedules, and be able to meet the frac sand inventory needs of our potential customers on a just in time, cost efficient manner, resulting in increased customer service.
Eagle Creek Mineral Leases
In the Report prepared by Green Engineering, Ltd (“GEL”), dated December 15, 2014, GEL reported that GEL was retained by CSI to observe sand mineral exploration excavation work completed by CSI in the winter of 2011 on a potential frac-sands industrial property, the “Eagle Creek Property” (the “Target Property”), on land located 30 kilometers west of Saskatoon, Saskatchewan. At the Eagle Creek Property, thirteen (13) back-hoe holes were excavated to obtain 60 lb pails of sand to send to SGS laboratories for flotation process testing, including the crush testing of flotation quartz sand concentrate and:
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·
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Thirty-one (31) back-hoe holes were also excavated as mineral exploration holes at different locations on lease/optioned land on the target property where sand mineral could be expected to exist.
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·
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On samples taken from the target property, GEL observed all laboratory testing at CSI’s facility in Saskatoon, Saskatchewan, including screening and crush testing and;
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·
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GEL provided a report with the results of this field and laboratory work.
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The summary report prepared by GEL stated that 24 holes were excavated, logged and sampled during mid-February 2011. These holes were drilled on a nominal 600 ft. spacing pattern in a search for more sand mineral. The samples were placed into sample containers, sealed, and retained by GEL.
Of the samples obtained four composite samples were mixed and one single sample retained. These were placed in sample pails weighing 60 lb. each, and were sealed by D. Green, PEng of GEL and sent to SGS laboratories. D. Green, PEng observed the laboratory testing at the CSI facility.
Further sampling was done in April 2012 on the Target Property and 5 composite samples were placed in sample pails sealed by D. Green, PEng, and sent to Met-Solve Laboratories (“Met-Solve”). Met-Solve processed the sand with acid treatment and scrubbing. The following indicated the quality of the sand on tests conducted by Met-Solve:
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·
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The CSI crush test of flotation concentrate for -40/+70 size sand tested at average of 5.5% fines (3 tests) less than the 8% suggested maximum fines (API RP-56 standard);
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·
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SGS also crush tested the -40/+70 sample (1 test) and achieved 8% fines; and
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SGS also crush tested a flotation concentrate -70/+140 sample (1 test) and achieved 4.4% fines which is less than 5.5% suggested maximum fines (API RP-56 standard).
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Tested by a hand-held magnifier, the sand mineral’s quartz was in the rage of 80%-95%; and, spherical/ovaloid for all sand examined, within the range that likely could be flotation concentrated for the -40/+70 and -70/+140 sieve sizes and possibly for the -20/+40 size.
Met-Solve Laboratories/Stim-Labs Testing resulted in the following results:
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For the size fraction -20/+40% fines test result: 9.8% (meets 14% for API RP-56)
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For the size fraction -30/+50% fines test result: 4.6% (meets 10% for API RP-56)
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·
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For the size fraction -40/+70% fines test result: 7.2% (meets 8% for API RP-56)
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On May 27, 2016, we received a proposal from Norwest Corporation, a Calgary based engineering company, to complete a NI 43-101 Technical Report to determine resources for the Eagle Creek Project. Under the terms of this proposal, there are several Project Phases:
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1.
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Phase One Data Review and Database Creation
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The data base consists of 66 core holes and 107 backhoe trenches, along with laboratory analysis that conforms to standard API RP56 or ISO 13-502-2, which was analyzed by certified laboratories. Phase 1 tasks include:
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·
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Compilation of all geological descriptive information;
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Compilation of all analytical sample data
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Verification of each hole’s collar and backhoe trench spatial locations through review of a federal government topographic surface.
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Assessment of the frac sand resource quality following a review of the available analytical data.
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Surface delineation based on the frac sand spatial data obtained from the holes and backhoe trenches; and
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·
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Frac sand volume estimation and resource classification.
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3.
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Site Visit
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4.
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NI 43-101 Report Preparation. Cost of NI 43-101 Report Preparation Project was estimated to be CAD$50,532 (US$37,900).
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Upon completion of Phase One, it was determined that additional data was required and that a field program was necessary to confirm results from the previous field program datasets with a certified laboratory, and to expand on existing high potential areas. The field program is outlined as follows:
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1.
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Pre-Field Preparation and Project Management
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·
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Finalize sample site locations;
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Obtain subsurface site clearances;
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Prepare a Health and Safety program;
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Field supplies preparation and shipment; and
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Cost tracking and logistics support.
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An M10 Truck auger rig will systematically collect samples to an approximate depth of 10 meters;
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Geological descriptive strip logs will be generated for each drill hole;
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Samples from the auger flights will be collected and will not cross geological facies.
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·
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Samples will be split for Company storage (if required for subsequent re-testing), balance sent to laboratory.
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3.
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Post-Field Data Finalization and Database upload.
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Cost of Auger Drilling Program and Testing was estimated at CAD $58,615 (US$44,000).
Drilling commenced in early July 2016. Reports are expected to be issued before the end of August 2016.
Item 1A. Risk Factors
Because we are a Smaller Reporting Company, we are not required to provide the information required by this item.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
Our office is located at 215 North Jefferson, Box 591, Ossian, Indiana 46777. We do not believe that we will need to obtain additional office space at any time in the foreseeable future, approximately 12 months.
Item 3. Legal Proceedings
We are not currently a party to any legal proceedings, nor are any contemplated by us at this time. On March 30, 2017, the Company received a letter from the lawyers representing Canadian Sandtech, Inc. disputing the legality of the acquisition of NAFS-CA from them by the Company. The Company has retained lawyers and is disputing this allegation within the full extent of the law. It is our lawyers and the Company’s opinion that this letter is without merit.
Item 4. Mine safety disclosures
Not Applicable
PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
North America Frac Sand, Inc. trades on the OTC-QB market under the trading symbol NAFS. Trading for NAFS for the last two years by quarter is as follows:
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Period
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High
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Low
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Close
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Q1-2016
|
|
$
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0.18
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
Q2-2016
|
|
$
|
0.09
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|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
Q3-2016
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
Q4-2016
|
|
$
|
0.06
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1-2017
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
Q2-2017
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
Q3-2017
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
Q4-2017
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Holders
As of April 5, 2018, there were 423 shareholders of record of our common stock.
Dividends
Since inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, that our Board of Directors may deem relevant.
Recent Sales of Unregistered Securities
None
Item 6. Selected Financial Data
Because we are a smaller reporting company, we are not required to provide the information required by this item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this report
.
The management’s discussion, analysis of financial condition, and results of operations should be read in conjunction with our financial statements and notes thereto contained elsewhere in this prospectus.
Our Business Overview
North America Frac Sand, Inc. is a Florida corporation (“NAFS” or the “Company”). NAFS was incorporated in Alberta, Canada on June 8, 2015, and was a wholly owned subsidiary of Canadian Sandtech, Inc. (“CSI”). During the year ended December 31, 2015, the Company entered into an agreement to acquire North America Frac Sand (CA) Ltd (“NAFS-CA”), an Alberta Corporation. We completed the due diligence on February 29, 2016. We finalized the audit of NAFS-CA in August of 2016, and completed a Form 8-K on August 31, 2016. Consequently, the acquisition was completed as of August 31, 2016. The mineral leases have been assigned to the Company as of July 28, 2016. This allowed the Company to complete lease payments and commence exploration activities.
The Company was providing consulting services to independent aquatic farming operators and other market participants located in the Midwest of the United States. Historically, we conducted initial marketing and sales activities to take advantage of opportunities related to time, location and quality of aquatic farming operations. We have conducted our operations primarily in Indiana.
On April 25, 2014, the Company entered into a Share Purchase Agreement to acquire the issued and outstanding shares of Innovate Building Systems, Inc., (“Innovate”) a manufacturer of modular buildings located in Edmonton Alberta, Canada. In accordance with the Share Purchase Agreement, the Company changed its name from New Found Shrimp, Inc. to Innovate Building Systems, Inc. In the course of the due diligence, Innovate (the Alberta Company) was unable to supply audited financial statements. For this and other reasons, the Company decided not to proceed with the acquisition. On September 9, 2014, the Company changed its name from Innovate Building Systems, Inc. to Xterra Building Systems, Inc.
On July 10, 2015, the Company entered into a Share Purchase Agreement to acquire the issued and outstanding shares of North America Frac Sand (CA) Ltd. (“NAFS-CA”) where the Company would issue 37,800,000 shares of common stock in exchange for the issued and outstanding shares of NAFS-CA. In accordance with this Share Purchase Agreement, the Company changed its name from Xterra Building Systems, Inc. to North America Frac Sand, Inc (“NAFS” or the “Company”). The final release of the shares held in escrow is subject to the completion of the audit of NAFS-CA, and the requisite filings.
Critical Accounting Policies
We prepare our financial statements in conformity with U.S. GAAP, which requires management to make certain estimates and assumptions and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared, and actual results could differ from our estimates, and such differences could be material. We have identified below the critical accounting policies which are assumptions made by management about matters that are highly uncertain and that are of critical importance in the presentation of our financial position, results of operations and cash flows. On a regular basis, we review our accounting policies and how they are applied and disclosed in our financial statements.
Use of Estimates
- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Results of Operations for the year ended December 31, 2017 and December 31, 2016
2017 operating expenses are $88,342 lower than 2016 operating expenses due to the decrease of business activities.
Financial Condition
Total Assets.
Total assets at December 31, 2017 and 2016 were $-0-$-0 and $-0-$-0, respectively.
Total Liabilities.
Total liabilities at December 31, 2017 and 2016 were $825,444 and $573,931, respectively.
Liquidity
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern which contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business.
The Company sustained a loss for the years ended December 31, 2017 and 2016 of ($251,514) and ($1,670,950), respectively. The Company has an accumulated deficit of ($36,421,654) as of December 31, 2017. Because of the absence of positive cash flows from operations, the Company will require additional funding for continuing the development and marketing. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We are presently not able to meet our obligations as they come due. At December 31, 2017, we had a working capital deficit of ($825,444). Our working capital deficit is due to the results of operations.
Net cash provided by operating activities for the years ended December 31, 2017 and 2016 was $105,475 and $1,491,294, respectively.
Net cash used by investment activities for the years ended December 31, 2017 and 2016 was $-0- and was ($1,429,178), respectively.
Net cash used by financing activities for the years ended December 31, 2017 and 2016 was ($96,563) and ($62,116), respectively.
We anticipate that our future liquidity requirements will arise from the need to fund our growth from operations, pay current obligations and future capital expenditures. The primary sources of funding for such requirements are expected to be cash generated from operations and raising additional funds from the private sources and/or debt financing. However, we can provide no assurances that we will be able to generate sufficient cash flow from operations and/or obtain additional financing on terms satisfactory to us, if at all, to remain a going concern. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis and ultimately to attain profitability. Our Plan of Operation for the next twelve months is to raise capital to continue to expand our operations. Although we are not presently engaged in any capital raising activities, we anticipate that we may engage in one or more private offerings of our Company’s securities after the completion of this offering. We would most likely rely upon the transaction exemptions from registration provided by Regulation D, Rule 506 or conduct another private offering under Section 4(2) of the Securities Act of 1933. See “Note 2 – Going Concern” in our financial statements for additional information as to the possibility that we may not be able to continue as a “going concern.”
We have no known demands or commitments and are not aware of any events or uncertainties that will result in or that are reasonably likely to materially increase or decrease our current liquidity.
We are not aware of any trends or known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in material increases or decreases in liquidity.
Capital Resources
We have no material commitments for capital expenditures as of and for the year ending December 31, 2017.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Because we are a smaller reporting company, we are not required to provide the information required by this item.
Item 8. Financial Statements and Supplementary Data
The report of the independent registered public accounting firm and the financial statements listed on the accompanying index at page F-1 of this report are filed as part of this report, and incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On July 3, 2015, the Company dismissed Messineo & Co. CPA’s LLC. On July 6, 2015, the Company appointed BF Borgers CPA P.C. There have been no changes in or disagreements with BF Borgers CPA P.C. on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures
(a) Management’s Annual Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting, and the preparation of the Company’s financial statements for external purposes in accordance with the U.S. generally accepted accounting principles (“GAAP”).
As of December 31, 2017, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 and based on the criteria for effective internal control described
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on this evaluation, management concluded that our financial disclosure controls and procedures were not effective so as to timely identify correct and disclose information required to be included on our Securities and Exchange Commission (“SEC”) reports due to the Company’s limited internal resources and lack of ability to have multiple levels of transaction review. Through the use of external consultants and the review process, management believes that the financial statements and other information presented herewith are materially correct.
The management including its Chief Executive Officer and Chief Financial Officer, our sole officer, does not expect that its disclosure controls and procedures, or its internal controls will prevent all error and all fraud. A control system no matter how well conceived and operated, can provide only reasonable not absolute assurance that the objectives of the control system are met. Further, the design of control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any within the Company have been detected.
Material weaknesses identified by management included: lack of an audit committee and audit committee financial expert; lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; inadequate segregation of duties consistent with control objectives and affecting the functions of authorization, recordkeeping, custody of assets, and reconciliation; and, management dominated by a single individual without adequate compensating controls.
Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. And, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.
Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.
We will work as quickly as possible to implement these initiatives; however, the lack of adequate working capital and positive cash flow from operations will likely slow this implementation.
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the temporary rules of the SEC that permit the Company to provide only management’s report in this Annual Report.
This report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of this section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Change in internal controls
We have not made any significant changes to our internal controls subsequent to the Evaluation Date. We have not identified any significant deficiencies or material weaknesses or other factors other than those specified above that could significantly affect these controls, and therefore, no corrective action was taken.
Item 9B. Other Information
None
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS
ORGANIZATION
The Company was incorporated in Florida on April 26, 2007. The Company was formed as New Found Shrimp, Inc. to provide consultation to the aquatic farming industry. It was the Company’s plan to provide consolidation opportunities for on-going and start up aquatic farming operations. The Company’s approach was to be to assist aquatic farming operations with the organizational structure, customer service and marketing aspects of their business, allowing our customers to focus on the business aspects of operating the farms. On April 25, 2014, the Company changed its name to Xterra Building Systems, Inc. On July 10, 2015, the Company entered into a Share Purchase Agreement with Canadian Sandtech Inc. to acquire its wholly owned subsidiary, North America Frac Sand (CA) Ltd. (“NAFS-CA”). In accordance with this Share Purchase Agreement, the Company issued 37,800,000 shares of common stock and placed these shares in escrow. On September 17, 2015, the Company changed its name to North America Frac Sand, Inc. On August 29, 2016, all subjects were removed by the Company to close on the acquisition of NAFS-CA. NAFS-CA has approximately 30,000 acres of mineral leases located approximately 30 kilometers east of Saskatoon Saskatchewan.
The Company is now headquartered in 215 North Jefferson Box 591 Ossian Indiana 46777.
NOTE 2. GOING CONCERN
The Company has a history of losses, including ($251,514) and ($1,670,950) the years ending December 31, 2017 and 2016, respectively. Total losses since inception have resulted in an accumulated deficit of ($36,421,654). The Company has negative working capital (deficit) of ($825,444) and ($573,931) as at December 31, 2017 and 2016 respectively. The Company’s financial statements are prepared using U.S. generally accepted accounting principles (“GAAP”) applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs, and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan to obtain such resources for the Company include, obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.
There is no assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. In addition, profitability will ultimately depend upon the level of revenues received from business operations. However, there is no assurance that the Company will attain profitability. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NORTH AMERICA FRAC SAND, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The Company prepares its financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”), which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. Cash and cash equivalents totaled $-0- at December 31, 2017 and 2016, respectively.
CASH FLOWS REPORTING
The Company follows ASC 230, Statement of Cash Flows, for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities, and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by ASC 230, Statement of Cash Flows, to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments; and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows, and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period.
INTANGIBLE ASSETS
The Company has applied the provisions of ASC topic 350 – Intangible
s
– Goodwill and Other, in accounting for its intangible assets. Intangible assets are being amortized by straight-line method on the basis of a useful life of 3 years, to begin upon the operational commencement. Intangible assets consist of website development costs. The balance at December 31, 2017 and 2016 was $-0- and $-0-, respectively.
IMPAIRMENT OF LONG- LIVED ASSETS
The Company reviews and evaluates long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The assets are subject to impairment consideration under FASB ASC 360-10-35-17 if events or circumstances indicate that their carrying amount might not be recoverable. When the Company determines that an impairment analysis should be done, the analysis will be performed using the rules of FASB ASC 930-360-35, Asset Impairment, and 360-0 through 15-5, Impairment or Disposal of Long- Lived Assets.
FINANCIAL INSTRUMENTS
The Company’s balance sheet includes financial instruments, specifically accounts payable, accrued expenses, and payables to related parties. The carrying amounts of current assets and current liabilities approximate their fair values because of the relatively short period of time between the origination of these instruments and their expected realization.
NORTH AMERICA FRAC SAND, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
ASC 820,
Fair Value Measurements and Disclosures
, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs); and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
|
|
·
|
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
|
|
|
|
|
|
|
·
|
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
|
|
|
|
·
|
Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
|
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2017. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.
REVENUE RECOGNITION
The Company follows ASC 605, Revenue Recognition -The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. The Company has not generated any revenues for the periods presented.
RESEARCH AND DEVELOPMENT
The Company expenses research and development costs when incurred. Research and development costs include engineering and testing of product and outputs. Indirect costs related to research and developments are allocated based on percentage usage to the research and development. We spent $-0- in research and development costs for the years December 31, 2017 and 2016.
DEFERRED INCOME TAXES AND VALUATION ALLOWANCE
The Company accounts for income taxes under ASC 740
Income Taxes
. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. No deferred tax assets or liabilities were recognized as of December 31, 2017, or December 31, 2016.
NORTH AMERICA FRAC SAND, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per share is calculated in accordance with ASC 260, Earnings Per Share. The weighted-average number of common shares outstanding during each period is used to compute basic earning or loss per share. Diluted earnings or loss per share is computed using the weighted average number of shares and diluted potential common shares outstanding. Dilutive potential common shares are additional common shares assumed to be exercised.
Basic net income (loss) per common share is based on the weighted average number of shares of common stock outstanding at December 31, 2017 and 2016. The Series B Preferred stock can be converted to common shares at a rate determined by the Board of Directors.
SHARE-BASED EXPENSE
ASC 718,
Compensation – Stock Compensation
, prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50,
Equity – Based Payments to Non-Employees.
Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued.
Share-based expense for the years ended December 31, 2017 and 2016 totaled $-0- and $-0-, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2014, FASB issued Accounting Standards Update (ASU) No. 2014-12
Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.
A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition under Accounting Standards Codification (ASC) 718,
Compensation — Stock Compensation
. As a result, the target is not reflected in the estimation of the award’s grant date fair value. Compensation cost would be recognized over the required service period, if it is probable that the performance condition will be achieved. The guidance is effective for annual periods beginning after 15 December 2015 and interim periods within those annual periods. Early adoption is permitted. Management has reviewed the ASU and believes that they currently account for these awards in a manner consistent with the new guidance, therefore there is no anticipation of any effect to the consolidated financial statements.
NORTH AMERICA FRAC SAND, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
In August 2014, FASB issued Accounting Standards Update (ASU) No. 2014-15
Preparation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.
Under U.S. generally accepted accounting principles (“GAAP”)continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Subtopic 205-30,
Presentation of Financial Statements—Liquidation Basis of Accounting
. Even when an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the amendments in this Update should be followed to determine whether to disclose information about the relevant conditions and events. The amendments in this Update are effective for the year ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company will evaluate the going concern considerations in this ASU, however, at the current period, management does not believe that it has met conditions which would subject these financial statements for additional disclosure.
We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
On April 26, 2017, the Company acquired the rights to the by entering into a leasing agreement for the mineral rights of the Eagle Creek Properties.
NOTE 4. INVESTMENT IN EAGLE CREEK PROPERTY
On August 29, 2016, the Company acquired the Eagle Creek Properties through NAFS-CA.
A description of the Company’s mineral leases is as follows:
|
Lease
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Description of Lease
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Lease Rate
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# 1
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Section 11, NE ¼ of Section 2, N (½) of Section 3, in Township 38, Range 10, West of the 3
rd
Meridian, as to the surface rights referenced in the Certificate of Title.
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Ten-year lease dated April 26, 2017, automatically extended for second 10 years if royalties are being paid. Lease rate is $1 per acre per year. Royalty rate is $5.00 per ton of processed ore sold at $80 per metric ton or less, and $5.00 plus the 10% of the difference between sales price greater than $80 and $80 per metric ton.
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Prior to acquisition, the leases were explored through extensive drilling operations. Unfortunately, the data provided by the previous exploration activities were not consistent with the methodology required for providing NI 53-101 guidance. Consequently, because no third party valuation could be provided through an economic evaluation of the mineral resources, the Company expensed as Impairment of mineral leases the total of $1,539,430. On May 27, 2016, the Company entered into an agreement with Northwest Corporation to undertake exploration activities and to prepare an economic evaluation through the preparation NI43-101 report on the mineral leases. As of December 31, 2017, the Company had expended approximately $113,934. As these expenditures were undertaken prior to the effective date of the transaction, they have not been incorporated into the consolidated financial statements.
NORTH AMERICA FRAC SAND, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INCOME TAXES
At December 31, 2017, the Company had a net operating loss carry–forward for Federal income tax purposes of $780,537 that may be offset against future taxable income through 2032. No tax benefit has been reported with respect to these net operating loss carry-forwards in the accompanying financial statements because the Company believes that the realization of the Company’s net deferred tax assets of $295,520 calculated at an effective tax rate of 34%, was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by a valuation allowance of $295,520.
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Year Ended
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Net Loss
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|
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Permanent Differences
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Taxable Loss
|
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|
|
|
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December 31, 2011
|
|
$
|
7,789
|
|
|
$
|
-
|
|
|
$
|
7,789
|
|
|
December 31, 2012
|
|
|
20,533,321
|
|
|
|
20,450,000
|
|
|
|
83,321
|
|
|
December 31, 2013
|
|
|
122,089
|
|
|
|
-
|
|
|
|
122,089
|
|
|
December 31, 2014
|
|
|
13,780,487
|
|
|
|
13,741,679
|
|
|
|
38,808
|
|
|
December 31, 2015
|
|
|
64,416
|
|
|
|
-
|
|
|
|
64,416
|
|
|
December 31, 2016
|
|
|
1,670,950
|
|
|
|
1,360,800
|
|
|
|
310,150
|
|
|
December 31, 2017
|
|
|
242,602
|
|
|
|
-
|
|
|
|
242,602
|
|
|
Estimated Loss carried forward
|
|
$
|
36,421,654
|
|
|
$
|
35,552,479
|
|
|
$
|
869,175
|
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|
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|
Tax rate
|
|
|
|
|
|
|
|
|
|
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34
|
%
|
|
Potential Tax Benefit Carried Forward
|
|
|
|
|
|
|
|
|
|
$
|
295,520
|
|
Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its ability to be realized.
The Company has open tax periods, subject to IRS audit for the years ending December 31, 2013 through 2017.
NOTE 6. SHAREHOLDERS’ EQUITY
COMMON STOCK
On September 17, 2014, the Company amended its Articles of Incorporation. The Company has been authorized to issue 10,000,000,000 shares of common stock, $0.00001 par value. Each share of issued and outstanding common stock shall entitle the holder thereof to fully participate in all shareholder meetings, to cast one vote on each matter with respect to which shareholders have the right to vote, and to share ratably in all dividends and other distributions declared and paid with respect to common stock, as well as in the net assets of the corporation upon liquidation or dissolution. On July 27, 2016, the Company amended its Articles of Incorporation reducing the authorized capital from 10,000,000,000 to 500,000,000 shares of common stock, $0.00001 par value
On July 10, 2015, the Company issued 37,800,000 shares of the Company pursuant to a Share Purchase Agreement. The 37,800,000 shares were placed into escrow pending the Closing of the acquisition of NAFS-CA.
On July 17, 2015, the Company allowed several non-related parties to convert a total of 15 shares of Series B Preferred stock into 3,750,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation.
NORTH AMERICA FRAC SAND, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
On August 25, 2015, the Company allowed several non-related parties to convert a total of 2 shares of Series B Preferred stock into 500,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation.
On September 18, 2015, the Company allowed several non-related parties to convert a total of 3 shares of Series B Preferred stock into 750,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation
On October 13, 2015, the Company allowed several non-related parties to convert a total of 8 shares of Series B Preferred stock into 2,000,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation
At December 31, 2015, there were 45,665,448 shares of common stock issued and outstanding.
On March 28, 2016, the Company allowed a non-related party to convert a total of 2 shares of Series B Preferred stock into 500,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation.
On April 1, 2016, the Company allowed several non-related parties to convert a total of 5 shares of Series B Preferred stock into 1,250,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation
On June 20, 2016, the Company allowed a non-related party to convert a total of 10 shares of Series B Preferred stock into 2,500,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation.
On July 28, 2016, the Company allowed a non-related party to convert a total of 14 shares of Series B Preferred stock into 3,500,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation.
On October 28, 2016, the Company allowed a non-related party to convert a total of 10 shares of Series B Preferred stock into 2,500,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation.
At December 31, 2016, there were 55,915,448 shares of common stock issued and outstanding.
On January 10, 2017, the Company allowed a non-related party to convert a total of 10 shares of Series B Preferred stock into 2,500,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation.
On May 17, 2017, the Company allowed a non-related party to convert a total of 11 shares of Series B Preferred stock into 2,750,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation.
NORTH AMERICA FRAC SAND, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
On May 23, 2017, the Company allowed a non-related party to convert a total of 11 shares of Series B Preferred stock into 2,750,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation.
On May 25, 2017, the Company allowed a non-related party to convert a total of 6 shares of Series B Preferred stock into 1,500,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation.
On June 19, 2017, the Company allowed a non-related party to convert a total of 8 shares of Series B Preferred stock into 2,000,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation.
On July 10, 2017, the Company allowed a non-related party to convert a total of 10 shares of Series B Preferred stock into 2,500,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation.
On July 19, 2017, the Company allowed a non-related party to convert a total of 2.6 shares of Series B Preferred stock into 650,000 unrestricted shares of common stock. The conversion rate was done at par, $0.00001 according to the stated articles of designation.
At December 31, 2017, there were 70,065,448 shares of common stock issued and outstanding. For the years ending December 31, 2015 – 2017, the Company allowed non-related parties to convert a total of 127.6 shares of Series B Preferred stock into 31,900,000 unrestricted shares of common stock.
PREFERRED STOCK
On September 17, 2014, the Company amended its Articles of Incorporation. The Company has been authorized to issue 1,000,000,000 shares of $0.00001 par value Preferred Stock. The Board of Directors is expressly vested with the authority to divide any or all of the Preferred Stock into series and to fix and determine the relative rights and preferences of the shares of each series so established, within certain guidelines established in the Articles of Incorporation. On July 28, 2016, the Company amended its Articles of Incorporation reducing the authorization to issue 1,000,000,000 to 100,000,000 shares of $0.00001 par value Preferred Stock.
Series A: 10 shares of preferred stock have been designated as Series A. The certificate of designations for the Preferred A Stock provides that it may only be issued in exchange for the partial or full retirement of debt held by management, employees or consultants, or as directed by a majority vote of the Board of Directors. Whereas the September 17, 2014 amendment enabled the Series A may be convertible into the number of shares of common stock which equals four times the sum of (i) the total number of shares of common stock which are issued and outstanding at the time of conversion, plus (ii) the total number of shares of Series B and Series C preferred stocks which are issued and outstanding at the time of conversion; the July 28, 2016 amendment eliminated all conversion rights associated with this class of stock. The Series A class possesses a number of votes equal to the number of common stock equivalents, if converted.
NORTH AMERICA FRAC SAND, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Series B: 99,999,990 shares of preferred stock have been designated as Series B. This is a reduction from the 999,999,990 shares of preferred stock previously designated as Series B. The certificate of designation for the Preferred B Stock provides that as a class shall be entitled to receive dividends when, as and if declared by the Board of Directors, in its sole discretion. Preferred Series B will have liquidation rites, an amount equal to $1.00 per share, plus any declared but unpaid dividends for each share held. Each share will have 10 votes. Each share of Series B Preferred Stock shall be convertible into common shares, at any time, and/or from time to time, into the number of shares of the Corporation’s Common Stock, par value $0.00001 per share, equal to the price of the Series B Preferred Stock, divided by the par value of the Common Stock, subject to adjustment as may be determined by the Board of Directors from time-to-time (the “Conversion Rate”).
On September 17, 2014, the Company’s amended its Articles of Incorporation and modified the terms of the Preferred Series A conversion exchange to common stock. Because of this modification, the Company did not have sufficient common shares to settle both the Preferred Series A and Preferred Series B share conversions. Consequently, the requirement for extinguishment accounting was triggered. Under the terms of extinguishment accounting, the Company is required to determine a fair value of the Preferred Series A. SEC guidelines request that the Company use fair value as determined by an arm’s length transaction with an unrelated third party, and that there are no unstated rights or privileges. The Preferred Series A was deemed to have a fair value of $13,741,679, based upon the converted valuation approach as the primary driver of value in the instrument, its common stock equivalency. The Preferred Series A were to be classified as mezzanine equity. On July 28, 2016, the Company eliminated the rights of the Preferred Series A to convert into common stock. Consequently, the requirement for extinguishment accounting has been removed.
As a result of the July 28, 2016 amendment, the Company now has sufficient shares to settle Preferred Series A and Preferred Series B and accordingly has re-classed the shares to permanent equity from mezzanine equity.
At December 31, 2017 and December 31, 2016, there was 1 share of Series A Convertible Preferred Stock issued and outstanding.
At December 31, 2016 and December 31, 2015, there were 116 and 76,105 shares of Series B Convertible Preferred Stock issued and outstanding, respectively.
At December 31, 2017 and December 31, 2016, there was 1 and 1 share of Series A Convertible Preferred Stock issued and outstanding.
At December 31, 2017 and December 31, 2016 there were 70 and 116 shares of Series B Convertible Preferred Stock issued and outstanding, respectively.
OPTIONS AND WARRANTS
There are no warrants or options outstanding to acquire any additional shares of common stock of the Company.
NORTH AMERICA FRAC SAND, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. RELATED PARTY TRANSACTIONS
NOTES PAYABLE
In support of the Company’s efforts and cash requirements, it has relied on advances from related parties until such time that the Company can support its operations, or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by these related parties. Amounts represent advances or amounts paid in satisfaction of liabilities of the Company. The advances are considered temporary in nature and have not been formalized by a promissory note.
As of December 31, 2017, Mr. David Alexander accrued unpaid consulting fees per month of $10,000, or $120,000 annually ($14,000 – 2016).
Amounts due to related parties at December 31, 2017 and December 31, 2016 totaled $294,783 and $195,627, respectively. See the current liabilities section of the balance sheet.
OTHER
The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities that become available. They may face a conflict in selecting between the Company and other business interests. The Company has not formulated a policy for the resolution of such conflicts.
The Company does not own or lease property, or lease office space. The Company has been provided office space by a member of the Board of Directors at no cost. The above amounts are not necessarily indicative of the amounts that would have been incurred had comparable transactions been entered into with independent third parties.
NOTE 8. COMMITMENTS AND CONTINGENCIES
From time-to-time, the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.
NOTE 9. SUBSEQUENT EVENTS
NA.
