10-Q 1 april0810q6-08.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2008 OR [ ] TRANSITION REPORT PURSUANT TO 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number: None GAS SALVAGE CORP. ------------------------------------- (Exact Name of Issuer as Specified in Its Charter) Nevada 36-4613360 ---------------------------- ------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) Suite 153, 333 River Front Ave., S.E. Calgary, Alberta Canada T2G 5R1 ------------------------------------------------- ---------- (Address of Issuer's Principal Executive Offices) (Zip Code) Issuer's telephone number: (866) 822-0325 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 preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) had been subject to such filing requirements for the past 90 days. Yes ____X_____ No __________ Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] (Do not check if a smaller reporting company) Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act). Yes ________ No X ------------------- Class of Stock No. Shares Outstanding Date Common 5,280,000 June 10, 2008 GAS SALVAGE CORPORATION (A Development Stage Company) Balance Sheet April 30, October 31, 2008 2007 --------------------------------- Unaudited ASSETS Current Assets Cash at bank $ 10,825 $ 36,169 Accounts Receivable 5,912 - Subscriptions Receivable - 18,000.00 ---------------- ---------------- Total Current Assets 16,737.00 54,169.00 ---------------- ---------------- Property and Equipment Equipment 100,000 100,000 Accumulated Depreciation 2,500 - ---------------- ---------------- 97,500 100,000 Other Assets Oil & Gas Leasehold Interest 190,000 190,000 ---------------- ---------------- TOTAL ASSETS $ 304,237 $ 344,169 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Current Liabilities Accounts Payable $ 1,231 $ 1,231 ---------------- ---------------- TOTAL LIABILITIES 1,231 1,231 ---------------- ---------------- Shareholders' Equity (Deficit) Common Stock, par value $0.001, authorized 50,000,000 shares; issued and outstanding 5,280,000 shares 5,280 5,280 Additional Paid-In Capital 351,021 351,021 Deficit accumulated during the development stage (53,295) (13,363) ---------------- ---------------- TOTAL SHAREHOLDERS' EQUITY 303,006 342,938 ---------------- ---------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 304,237 $ 344,169 ================ ================ The accompanying Notes are an integral part of these financial statements. 2 GAS SALVAGE CORPORATION (A Development Stage Company) Statement of Operations Unaudited For the Period of Inception For the three For the six from June 5, months ended months ended 2007, through April 30, 2008 April 30, 2008 April 30, 2008 ----------------------------------------------------- Revenue $ 4,363 $ 8,926 $ 8,926 Cost of Sales - - - ------------- ------------- ------------- Operating Income 4,363 8,926 8,926 ------------- ------------- ------------- General and Administrative Expenses: Professional Fees 900 15,950 27,450 Consulting Fees - 14,864 14,864 Occupancy Costs 2,500 6,000 6,000 Repairs & Maintenance - - 1,231 Depreciation 1,250 2,500 2,500 Other General and Administrative Expenses 6,579 9,544 10,176 ------------- ------------- ------------- Total General and Administrative Expenses 11,229 48,858 62,221 ------------- ------------- ------------- Net Loss $ (6,866) $ (39,932) $ (53,295) ============= ============= ============= Loss Per Common Share: Basic and Diluted $ (0.001) $ (0.008) ============= ============ Weighted Average Shares Outstanding, Basic and Diluted: 5,280,000 5,280,000 ============= ============
The accompanying Notes are an integral part of these financial statements. 3 GAS SALVAGE CORPORATION (A Development Stage Company) Statement of Cash Flows Unaudited For the Period of Inception For the three For the six from June 5, months ended months ended 2007, through April 30, April 30, April 30, 2008 2008 2008 ------------------------------------------ Cash flows from operating activities: Net (Loss) $ (6,865) $ (39,932) $ (53,295) Adjustments to reconcile net loss to net cash used by operating activities: Non-cash depreciation 1,250 2,500 2,500 Change in operating assets and liabilities: (Increase) Decrease in Accounts Receivable (2,780) (5,912) (5,912) Increase (Decrease) in Accounts Payable - 1,231 ---------- ------------ ----------- Net cash (used by) operating activities (8,395) (43,344) (55,476) ---------- ------------ ----------- Cash flows from investing activities Acquisition of equipment - - (100,000) Acquistion of oil & gas working interest - - (190,000) ---------- ------------ ----------- Net cash (used by) investing activities - - (290,000) ---------- ------------ ----------- Cash flows from financing activities: (Increase) Decrease Subscriptions Receivable - 18,000 - Common stock issued for cash - - 356,301 ---------- ------------ ----------- Net cash (used) provided by financing activitiies - 18,000 356,301 ---------- ------------ ----------- Net increase (decrease) in cash (8,395) (25,344) 10,825 Cash, beginning of the period 19,220 36,169 - ---------- ------------ ----------- Cash, end of the period $ 10,825 $ 10,825 $ 10,825 ========== ============ =========== Supplemental cash flow disclosure: Interest paid $ - $ - $ - ========== ============ =========== Taxes paid $ - $ - $ - ========== ============ ===========
The accompanying Notes are an integral part of these financial statements. 4 GAS SALVAGE CORPORATION (A Development Stage Company) Statement of Shareholders' Equity (Unaudited) Deficit Common Stock Accumulated Total Number Additional during the Shareholders' of Paid-In Development Equity Shares Amount Capital Stage (Deficit) ----------------------------------------------------------------- Inception, June 5, 2007 - $ - $ - $ - $ - Common stock issued for cash at $0.096 per share September 5, 2007 2,580,000 2,580 245,721 248,301 Common stock issued for cash at $0.01 per share September 5, 2007 1,800,000 1,800 16,200 18,000 Common stock issued for oil and gas working interest at $0.10 per share September 5, 2007 900,000 900 89,100 90,000 Net loss for the period ended Oct. 31, 2007 (13,363) (13,363) ------------ ------------ ------------ ------------ ------------ Balances, September 30, 2007 5,280,000 $ 5,280 $ 351,021 $ (13,363) $ 342,938 Net loss for the six months ended Apr. 30, 2008 (39,932) (39,932) ------------ ------------ ------------ ------------ ------------ Balances, April 30, 2008 5,280,000 $ 5,280 $ 351,021 $ (53,295) $ 303,006 ============ ============ ============ ============ ============
The accompanying Notes are an integral part of these financial statements. 5 Gas Salvage, Inc. (A Developmental Stage Company) Notes to Financial Statements April 30, 2008 1. Organization Gas Salvage Inc. (the "Company") was incorporated under the laws of the State of Nevada June 5, 2007. The Company was organized for the purpose of engaging in any activity or business not in conflict with the laws of the State of Nevada or of the United States of America. The company became engaged in the oil and gas industry. Current Business of the Company The Company purchased a 44.5% leasehold interest in a producing gas well on 40 acres in Lincoln County, Oklahoma, known as Holmes #1. The well was initially shut in awaiting repairs to its Nitrogen Rejection Unit. The well was put into production in November, 2007. Volumetric calculations of the Holmes Lease reservoir have not yet been performed. Property Acquisition Costs: Unproved Holmes Lease $190,000 2. Summary of Significant Accounting Policies Basis of Presentation --------------------- The financial statements of the Company have been prepared using the accrual basis of accounting in accordance with generally accepted accounting principles in the United States. 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 certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates. Significant estimates made by management are, among others, realizability of long-lived assets, deferred taxes and stock option valuation. The financial statements presented include all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the period presented in accordance with the accounting principles generally accepted in the United States of America. All adjustments are of a normal recurring nature. Cash and equivalents -------------------- Cash and equivalents include investments with initial maturities of three months or less. 6 Recognition of Revenue ---------------------- Revenue is recognized as earned. Revenue from the sale of gas is reported by the gas gathering company monthly and paid two months in arrears. Fair Value of Financial Instruments ----------------------------------- The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial Instruments." SFAS No. 107 requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. The carrying amounts of the Company's financial instruments as of March 31, 2008 approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts payable and accrued expenses. The fair value of related party payables is not determinable. Income Taxes ------------ The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company generated a deferred tax credit through net operating loss carryforward. However, a valuation allowance of 100% has been established, as the realization of the deferred tax credits is not reasonably certain, based on going concern considerations outlined as follows. Going Concern ------------- The Company's financial statements are prepared using accounting principles generally accepted in the United States of America 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 to allow it to continue as a going concern. The company experienced a loss of $39,932 and a negative cash flow of $43,344 from operations in the six months ended April 30, 2008. 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 development of operations. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish its plans to generate revenue from well head machinery and oil and gas leases. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classifications or liabilities or other adjustments that might be necessary should the Company be unable to continue as a going concern. 7 Development-Stage Company ------------------------- The Company is considered a development-stage company, with limited operating revenues during the periods presented, as defined by Statement of Financial Accounting Standards ("SFAS") No. 7. SFAS. No. 7 requires companies to report their operations, shareholders deficit and cash flows since inception through the date that revenues are generated from management's intended operations, among other things. Management has defined inception as June 5, 2007. Since inception, the Company has incurred an operating loss of $53,295. The Company's working capital has been generated through the sales of common stock. Management has provided financial data since June 5, 2007, "Inception", in the financial statements, as a means to provide readers of the Company's financial information to make informed investment decisions. Basic and Diluted Net Loss Per Share ------------------------------------ Net loss per share is calculated in accordance with SFAS 128, Earnings Per Share for the period presented. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilative convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby we used to purchase common stock at the average market price during the period. The Company has no potentially dilutive securities outstanding as of April 30, 2008. The following is a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations for the six months ended April 30, 2008. There is no comparable period in 2007. Numerator: --------- Basic and diluted net loss per share: Net Loss $ (39,932) Denominator ----------- Basic and diluted weighted average number of shares outstanding 5,280,000 Basic and Diluted Net Loss Per Share $ (0.008) ------------------------------------- 8 3. Property and Equipment Equipment $100,000 The Company purchased a 50% interest in a skid mounted Nitrogen Rejection unit. The unit strips out excessive nitrogen and oxygen from gas wells to an acceptable level of contaminants in the gas stream. The unit is intended for use on the Company's gas wells. The unit commenced operations in November, 2007 under the control of the Operator, Southside Oil and Gas, Inc. 4. Capital Structure During the period from inception through January 31, 2008, the Company entered into the following equity transactions: September 5, 2007: Sold 2,580,000 shares of common stock at $.096 per share realizing $248,301. September 5, 2007: Sold 1,800,000 shares of common stock at $.01 per share realizing $18,000. September 5, 2007: Issued 900,000 shares of common stock at $.10 per share in payment of $90,000 toward 44.5% working interest in an oil and gas lease. As at April 30, 2008, the Company was authorized to issue 50,000,000 shares of $0.001 par common stock, of which 5,280,000 shares were issued and outstanding. The Company was also authorized to issue 5,000,000 shares of preferred stock, of which nil shares were issued and outstanding. 5. Legal Proceedings There were no legal proceedings against the Company with respect to matters arising in the ordinary course of business. Neither the Company nor any of its officers or directors is involved in any other litigation either as plaintiffs or defendants, and have no knowledge of any threatened or pending litigation against them or any of the officers or directors. 9 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION The following discussion of financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes to the consolidated financial statements, which are included elsewhere in this report. Gas Salvage was incorporated on June 5, 2007. Gas Salvage plans to evaluate undeveloped oil and gas prospects and participate in drilling activities on those prospects which in the opinion of management are favorable for the production of oil or gas. If, through its review, a geographical area indicates geological and economic potential, Gas Salvage will attempt to acquire leases or other interests in the area. Gas Salvage will then attempt to sell portions of its leasehold interests in a prospect to unrelated third parties, thus sharing risks and rewards of the exploration and development of the prospect with the joint owners pursuant to an operating agreement. One or more exploratory wells may be drilled on a prospect, and if the results indicate the presence of sufficient oil and gas reserves, additional wells may be drilled on the prospect. Gas Salvage may also: o acquire a working interest in one or more prospects from others and participate with the other working interest owners in drilling, and if warranted, completing oil or gas wells on a prospect, and o purchase producing oil or gas properties. In September 2007 Gas Salvage acquired a 44.5% working interest (35.6% net revenue interest) in a gas well located in Lincoln County, Oklahoma, for $100,000 in cash and 900,000 shares of its restricted common stock. The gas well was put into production in November 2007. During the six months ended April 30, 2008 Gas Salvage had revenue of $8,926 from the sale of gas produced from this well. At the time it acquired its interest in the gas well, Gas Salvage also acquired, for $100,000, a 50% interest in a portable unit which reduces the amount of nitrogen and oxygen from the gas produced by the well. Gas Salvage's future activities will primarily be dependent upon available financing. RESULTS OF OPERATIONS The factors that most significantly affect Gas Salvage's results of operations will be (i) the sale prices of crude oil and natural gas, (ii) the amount of production from oil or gas wells in which Gas Salvage has an interest, and (iii) and lease operating expenses. Gas Salvage's revenues will also be significantly impacted by its ability to maintain or increase oil or gas production through exploration and development activities. 10 Prices received by Gas Salvage for sales of crude oil and natural gas may fluctuate significantly from period to period. The fluctuations in oil prices during these periods reflect market uncertainty regarding the inability of the Organization of Petroleum Exporting Countries ("OPEC") to control the production of its member countries, as well as concerns related to the global supply and demand for crude oil. Gas prices received by Gas Salvage will fluctuate with changes in the spot market price for gas. Changes in natural gas and crude oil prices will significantly affect the revenues and cash flow of the wells and the value of the oil and gas properties. Declines in the prices of crude oil and natural gas could have a material adverse effect on the success of Gas Salvage's operations and activities, recoupment of the costs of acquiring, developing and producing its wells and profitability. Gas Salvage is unable to predict whether the prices of crude oil and natural gas will rise, stabilize or decline in the future. Other than the foregoing, Gas Salvage does not know of any trends, events or uncertainties that have had or are reasonably expected to have a material impact on Gas Salvage's net sales, revenues or expenses. LIQUIDITY AND CAPITAL RESOURCES It is expected that Gas Salvage's principal source of cash flow will be from the production and sale of crude oil and natural gas reserves which are depleting assets. Cash flow from the sale of oil and gas production depends upon the quantity of production and the price obtained for the production. An increase in prices will permit Gas Salvage to finance its operations to a greater extent with internally generated funds, may allow Gas Salvage to obtain equity financing more easily or on better terms, and lessens the difficulty of obtaining financing. However, price increases heighten the competition for oil and gas prospects, increase the costs of exploration and development, and, because of potential price declines, increase the risks associated with the purchase of producing properties during times that prices are at higher levels. A decline in oil and gas prices (i) will reduce the cash flow internally generated by Gas Salvage which in turn will reduce the funds available for exploring for and replacing oil and gas reserves, (ii) will increase the difficulty of obtaining equity and debt financing and worsen the terms on which such financing may be obtained, (iii) will reduce the number of oil and gas prospects which have reasonable economic terms, (iv) may cause Gas Salvage to permit leases to expire based upon the value of potential oil and gas reserves in relation to the costs of exploration, (v) may result in marginally productive oil and gas wells being abandoned as non-commercial, and (vi) may increase the difficulty of obtaining financing. However, price declines reduce the competition for oil and gas properties and correspondingly reduce the prices paid for leases and prospects. Between June and September 2007 Gas Salvage sold 2,580,000 shares of its common stock at a price of $0.10 CDN per share to a group of private investors. 11 Gas Salvage's material sources and (uses) of cash during the period from its inception (June 5, 2007) through April 30, 2008 were: Cash used in operations $ (55,476) Sale of common stock $356,301 Purchase of oil and gas property $190,000 Purchase of equipment $100,000 Gas Salvage's future plans will be dependent upon the amount of capital Gas Salvage is able to raise. Gas Salvage may attempt to raise additional capital through the private sale of its equity securities or borrowings from third party lenders. Gas Salvage does not have any commitments or arrangements from any person to provide Gas Salvage with any additional capital. If additional financing is not available when needed, Gas Salvage may continue to operate in its present mode or Gas Salvage may need to cease operations. Gas Salvage does not have any plans, arrangements or agreements to sell its assets or to merge with another entity. Gas Salvage plans to generate profits by drilling productive oil or gas wells. However, Gas Salvage will need to raise the funds required to drill new wells from third parties willing to pay Gas Salvage's share of drilling and completing the wells. Gas Salvage may also attempt to raise needed capital through the private sale of its securities or by borrowing from third parties. Gas Salvage may not be successful in raising the capital needed to drill oil or gas wells. In addition, any future wells which may be drilled by Gas Salvage may not be productive of oil or gas. The inability of Gas Salvage to generate profits may force Gas Salvage to curtail or cease operations. Contractual Obligations ----------------------- As of June 10, 2008 Gas Salvage did not have any material capital commitments, other than funding its operating losses. It is anticipated that any capital commitments that may occur will be financed principally through the sale of shares of Gas Salvage's common stock or other equity securities. However, there can be no assurance that additional capital resources and financings will be available to Gas Salvage on a timely basis, or if available, on acceptable terms. ITEM 4T. CONTROLS AND PROCEDURES Nolan Weir, Gas Salvage's President and Principal Financial Officer, has evaluated the effectiveness of Gas Salvage's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report, and in his opinion Gas Salvage's disclosure controls and procedures are effective. There were no changes in Gas Salvage's internal controls over financial reporting that occurred during the fiscal quarter ended April 30, 2008 that have materially affected, or are reasonably likely to materially affect, Gas Salvage's internal control over financial reporting. 12 PART II -OTHER INFORMATION ITEM 6. EXHIBITS Exhibit Number Description of Exhibits --------- ----------------------- 31 Rule 13a-14(a) Certifications 32 Section 1350 Certifications 13 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GAS SALVAGE CORP. Date: June 12, 2008 By: /s/ Nolan Weir ----------------------------------- Nolan Weir, President and Principal Financial and Accounting Officer 14