10-Q: Norris Industries Reports Continued Losses Amidst Declining Revenue and Increased Operating Costs in Q1 2026

Norris Industries, Inc. reported a net loss of $167,408 for the three months ended May 31, 2025, alongside a decrease in oil and gas sales and an increase in cash used in operating activities, highlighting ongoing liquidity challenges and reliance on related-party financing.

Summary

• Norris Industries, Inc. incurred a net loss of $167,408 for the three months ended May 31, 2025, a slight improvement from the $169,037 net loss in the same period of 2024.
• Total revenues from oil and gas sales decreased to $92,770 for the three months ended May 31, 2025, down from $100,267 in the prior year, primarily due to a decrease in oil and gas production.
• Operating expenses slightly decreased to $232,830 from $235,400, however, lease operating expenses increased to $134,937 from $127,857, and general and administrative expenses rose to $83,324 from $72,577.
• Cash used in operating activities increased to $98,239 for the three months ended May 31, 2025, compared to $85,278 for the same period in 2024.
• As of May 31, 2025, the company had a cash balance of $87,388 and negative working capital of approximately $39,000.
• The company's total assets decreased to $317,695 as of May 31, 2025, from $360,335 as of February 28, 2025.
• Total liabilities increased to $4,591,638 as of May 31, 2025, from $4,466,870 as of February 28, 2025, driven by an increase in convertible notes payable to related parties.
• The company's accumulated deficit grew to $12,041,239 as of May 31, 2025, from $11,873,831 as of February 28, 2025.
• Proved reserves as of March 1, 2025, were 22.11 Mbbl in oil net reserves and 64.19 MMcf in natural gas net reserves, totaling 33 Mbbl BOE equivalent in gross reserves, an increase of 3 Mbbl from the prior year due to reduced expected production from well workover issues.
• Four unprofitable wells were plugged during the period.

Sentiment

Score: 3

Explanation: The company faces significant financial distress, marked by persistent losses, negative working capital, and increasing cash burn from operations. While there's a slight reduction in net loss and an increase in reserves, these are overshadowed by declining revenues, rising operating costs, and heavy reliance on related-party financing with no legal obligation for continued support. The 'going concern' warning and material weaknesses in internal controls indicate high risk and instability.

Positives

• Net loss slightly decreased to $167,408 from $169,037 year-over-year, primarily attributed to an increase in the market price of the company's oil and gas.
• Interest expense decreased to $27,348 from $33,904 due to notes conversion in November 2024, resulting in less outstanding loans.
• The company's credit line with JBB was increased by an additional $500,000, totaling $4,800,000, and its maturity date extended to September 30, 2026, providing additional liquidity.
• Proved reserves increased by 3 Mbbl BOE equivalent from the prior year, reaching 33 Mbbl in gross reserves as of March 1, 2025.
• Management believes in competitive strengths including a simple capital structure, de-risked inventory, moderate risk shallow well exploration, and an 'under the radar' asset base not typically pursued by major oil companies.

Negatives

• The company continues to incur significant net losses, with a loss of $167,408 for the three months ended May 31, 2025, and has incurred continuing losses since 2016.
• Revenues from oil and gas sales decreased by 7.58% to $92,770 for the three months ended May 31, 2025, compared to $100,267 in the prior year, mainly due to decreased production.
• Cash used in operating activities increased to $98,239, indicating a higher cash burn from core operations.
• The company had negative working capital of approximately $39,000 as of May 31, 2025.
• Total stockholders' deficit increased to $4,273,943 as of May 31, 2025, from $4,106,535 as of February 28, 2025.
• Lease operating expenses increased to $134,937 from $127,857, and general and administrative expenses increased to $83,324 from $72,577.
• The company's financial statements are prepared assuming it will continue as a going concern, but it faces significant liquidity challenges and requires additional financing.
• The majority shareholder (JBB) has no legal obligation to continue providing funding, despite past support and current assurances.

Risks

• The company has incurred continuing losses since 2016 and has negative working capital, raising substantial doubt about its ability to continue as a going concern.
• Uncertainty regarding the timeline and potential magnitude of global conflicts (e.g., Middle East, Russia-Ukraine) and their impact on the company's future operations and energy prices.
• Inflation leading to higher costs for materials, equipment, personnel, and service providers, impacting profitability.
• Tightened financial conditions due to interest rate policies, making it harder to secure financing.
• Anticipation of not being able to cover operating costs, necessitating cost-cutting measures and continued operational financing.
• Expected continued delays or disruptions and temporary suspensions of operations due to shortages of labor and increased costs from suppliers.
• No assurance that the company will be able to secure necessary additional capital on acceptable terms, or at all, from sources other than JBB.
• Risk of curtailing operations, foregoing opportunities, or ceasing operations if unable to fund its activities.
• The company's oil and gas leasehold acreage is subject to expiration if not drilled or held by production, or if options to extend are not exercised.
• Material weaknesses in internal control over financial reporting were identified in the 2025 annual report on Form 10-K, and no changes were made during the current quarter to address them.

Future Outlook

The company plans to focus on existing fields and selectively consider larger-reserve oil and gas properties with low production for Enhanced Oil Recovery (EOR) methods to improve near-to-medium-term cash flow. For long-term cash flow enhancement, it aims to identify and acquire oilfield-related and niche non-oilfield enterprises, potentially using capital partners and outside capital. The company anticipates continued volatility in energy prices due to global conflicts, expecting that it may not be able to cover operating costs and will need to implement cost-cutting measures and seek continued operational financing. It expects to seek additional capital from restricted private placement sales of equity and debt securities from sources other than JBB if needed for higher operational losses or property purchases.

Management Comments

• "The Company believes that it has sufficient cash on hand and available funds from its credit line to fund its costs for such expenditures as well as other operating costs, for the 12-month period subsequent to the issuance of these consolidated financial statements."
• "In the event that the Company requires additional capital to fund higher operational losses or oil and gas property lease purchases for the next 12 months, the Company expects to seek additional capital from one or more sources via restricted private placement sales of equity and debt securities from those other than JBB."
• "The Company is currently managed by business and oil and gas exploration veterans who specialize in the oil and gas acquisition and exploration markets of the Central West Texas region."
• "Management believes that focusing on the development of existing small producing fields is one of the key differentiators of the Company."
• "Management believes that the use of current generally available technology has greatly increased the success rate of finding commercial oil or natural gas deposits."
• "Our majority shareholder expects, but is not legally obligated, to provide funding for the Companys capital expenditure program for fiscal year 2026."

Industry Context

The oil and gas industry faces significant volatility due to global geopolitical events, including the Russia-Ukraine war and Middle East conflicts, which have caused energy prices to fluctuate. While commodity prices have increased, so has inflation, leading to higher costs for materials, equipment, personnel, and services. The US Federal Reserve's interest rate policies have further tightened financial conditions. Norris Industries, as a small E&P company, operates in a niche focusing on shallow well exploration and 'under the radar' assets that are not economically viable for major oil companies, attempting to leverage technology and EOR methods to improve production and cash flow in this challenging environment.

Comparison to Industry Standards

• Norris Industries operates as a small Exploration and Production (E&P) company, focusing on shallow well exploration (sub 5,000 feet) which is less expensive and carries lower risk compared to the deep well drilling often undertaken by major oil companies.
• The company targets 'under the radar' asset bases, specifically leases with wells producing less than 300 barrels of oil per day (bopd), which are generally not economically justifiable for larger oil and gas companies in the region.
• While the document does not provide specific comparable companies or projects, Norris Industries' strategy of focusing on existing small producing fields and implementing Enhanced Oil Recovery (EOR) methods aligns with a common approach for smaller operators seeking to maximize value from mature assets, rather than large-scale frontier exploration typical of industry giants.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently involved in any litigation that it believes could have a material adverse effect on its financial condition or results of operations.
• There are no pending or threatened actions, suits, proceedings, inquiries, or investigations that, to the knowledge of executive officers, could have a material adverse effect.

Related Party Transactions

• The company has a convertible note payable to JBB, a related party, with $3,400,000 outstanding as of May 31, 2025 (up from $3,300,000 on February 28, 2025).
• Accrued interest to related parties (JBB) was $666,880 as of May 31, 2025 (up from $639,532 on February 28, 2025).
• During the three months ended May 31, 2025, the loan agreement with JBB was amended to increase available borrowing by $500,000, and the total credit line was extended to $4,800,000 with a maturity date of September 30, 2026.
• In November 2024, $1,300,000 of outstanding notes and $89,014 of respective accrued interests were converted into 17,362,675 common shares at $0.08 per share with JBB.
• Net cash provided by financing activities for the three months ended May 31, 2025, was $100,000, entirely from related party loans.
• Subsequent to May 31, 2025, the company drew down an additional $200,000 on its credit line with JBB.
• The largest shareholder (JBB) has provided funding during the past three fiscal years and has indicated a willingness to selectively review and determine added funding for certain low-risk initiatives, though there is no legal obligation to continue providing funding.

Stakeholder Impact

• **Shareholders**: Face significant risk of investment loss due to continuing losses, negative working capital, reliance on non-obligated related-party funding, and the 'going concern' warning. Dilution risk exists from potential future equity raises and past conversions of debt to common shares.
• **Creditors (especially JBB)**: JBB, as the primary lender, has substantial exposure through convertible notes and credit lines. While the maturity date has been extended, the company's financial instability poses a risk to repayment.
• **Employees**: Potential impact from cost-cutting measures, operational curtailments, or even cessation of operations if the company cannot secure sufficient funding.
• **Customers (Oil & Gas Buyers)**: Potential for inconsistent supply if the company's production is curtailed due to financial constraints or operational delays.
• **Suppliers/Service Providers**: Risk of delayed payments or reduced business volume if the company implements aggressive cost-cutting or curtails operations due to financial difficulties.

Next Steps

• Focus on selected well workovers on Jack and Palo Pinto County acreages for principal capital and exploration expenditures in the next fiscal year.
• Seek additional capital from restricted private placement sales of equity and debt securities from sources other than JBB if higher operational losses or oil and gas property lease purchases require it.
• Actively seek to identify and consider acquisition opportunities in oilfield services companies and other non-oilfield companies to implement a diversified growth strategy.
• Continue to assess existing and recently acquired wells and review options for future development.
• Limit operating budget for current wells to basic maintenance and defer decisions on new drill programs in the near future.
• Implement cost-cutting measures if unable to cover operating costs.

Key Dates

Recommendation

Keywords

Oil and Gas, Exploration and Production (E&P), Texas, SEC Filing, 10-Q, Financial Results, Net Loss, Revenue, Operating Expenses, Liquidity, Going Concern, Related Party Debt, Convertible Notes, Proved Reserves, Well Workovers, Enhanced Oil Recovery (EOR), Capital Raise, Risk Factors, Corporate Governance, Internal Controls