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