UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2008
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________.
Commission File Number: None
PINNACLE ENERGY CORP.
---------------------
(Exact name of Registrant as specified in its charter)
Nevada 36-4613360
--------------------------- ---------------------
State or other jurisdiction (IRS) Employer
of incorporation Identification Number
Suite 153, 333 River Front Ave., S.E.
Calgary, Alberta
Canada T2G 5R1
------------------------------------------
Address of principal executive offices
(866) 822-0325
------------------------------------
Registrant's telephone number, including area code
GAS SALVAGE CORP.
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(Former name, former address and formal fiscal year,
if changed since last report)
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, and
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__
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Class of Stock No. Shares Outstanding Date
-------------- ---------------------- ----
Common 15,840,000 September 8, 2008
GAS SALVAGE CORP.
(A Development Stage Company)
BALANCE SHEET
July 31, October 31,
2008 2007
-------------- --------------
Unaudited
ASSETS
Current Assets
Cash at bank $ 8,905 $ 36,169
Accounts Receivable 3,133 -
Subscriptions Receivable - 18,000.00
-------------- --------------
Total Current Assets 12,038.00 54,169.00
-------------- --------------
Property and Equipment
Equipment 100,000 100,000
Accumulated Depreciation 3,750 -
-------------- --------------
96,250 100,000
Other Assets
Oil & Gas Leasehold Interest 190,000 190,000
-------------- --------------
TOTAL ASSETS $ 298,288 $ 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 (59,245) (13,363)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 297,056 342,938
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 298,287 $ 344,169
============== ==============
2
GAS SALVAGE CORP.
(A Development Stage Company)
STATEMENT OF OPERATIONS
Unaudited
For the Period For the Period
of Inception of Inception
from June 5, For the three For the nine from June 5,
2007, through months ended months ended through 2007,
July 31, 2007 July 31, 2008 July 31, 2008 July 31, 2008
-------------- ------------- ------------- --------------
Revenue
Natural Gas Production $ - $ 872 $ 9,798 $ 9,798
Cost of Sales - - - -
-------------- ------------- ------------- --------------
Operating Income - 872 9,798 9,798
-------------- ------------- ------------- --------------
General and Administrative Expenses:
Professional Fees - 850 16,800 28,300
Consulting Fees - - 14,864 14,864
Occupancy Costs - - 6,000 6,000
Repairs & Maintenance - - - 1,231
Depreciation - 1,250 3,750 3,750
Other General and Administrative
Expenses - 4,722 14,266 14,898
-------------- ------------- ------------- --------------
Total General and Administrative
Expenses - 6,822 55,680 69,043
-------------- ------------- ------------- --------------
Net Loss $ - $ (5,950) $ (45,882) $ (59,245)
============== ============= ============= ==============
Loss Per Common Share:
Basic and Diluted $ - $ (0.001) $ (0.009)
============== ============= =============
Weighted Average Shares Outstanding,
Basic and Diluted: - 5,280,000 5,280,000
============== ============= =============
3
GAS SALVAGE CORP.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Unaudited
For the Period For the Period
of Inception of Inception
from June 5, For the three For the nine from June 5,
2007, through months ended months ended through 2007,
July 31, 2007 July 31, 2008 July 31, 2008 July 31, 2008
-------------- ------------- ------------- --------------
Cash flows from operating
activities:
Net (Loss) $ - $ (5,950) $ (45,882) $ (59,245)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Non-cash depreciation - 1,250 3,750 3,750
Change in operating assets and
liabilities:
(Increase) Decrease in
Accts Receivable - 2,780 (3,132) (3,132)
Increase (Decrease) in
Accounts Payable - - - 1,231
-------------- ------------- ------------- --------------
Net cash (used by) operating
activities - (1,920) (45,264) (57,396)
-------------- ------------- ------------- --------------
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:
Decrease Subscriptions Receivable - - 18,000 -
Common stock issued for cash - - - 356,301
-------------- ------------- ------------- --------------
Net cash (used) provided by
financing activities - - 18,000 356,301
-------------- ------------- ------------- --------------
Net increase (decrease) in cash - (1,920) (27,264) 8,905
Cash, beginning of the period - 10,825 36,169 -
-------------- ------------- ------------- --------------
Cash, end of the period $ - $ 8,905 $ 8,905 $ 8,905
============== ============= ============= ==============
Supplemental cash flow disclosure:
Interest Paid $ - $ - $ - $ -
============== ============= ============= ==============
Taxes Paid $ - $ - $ - $ -
============== ============= ============= ==============
4
GAS SALVAGE CORP.
(A Development Stage Company)
STATEMENT OF SHARHEOLDERS' EQUITY
(Unaudited)
Deficit
Accumulated Total
Common Stock Additional during the Shareholders'
Number 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 nine months
ended July 31, 2008 (45,882) (45,882)
---------- ---------- ---------- ---------- ----------
Balances, July 31, 2008 $5,280,000 $ 5,280 $ 351,021 $ (59,245) $ 297,056
=========== ========== ========== ========== ==========
5
Gas Salvage Corp.
(A Developmental Stage Company)
NOTES TO FINANCIAL STATEMENTS
July 31, 2008
1. Organization
Gas Salvage Corp. (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 (35.6% net revenue
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. A geologist's report on December 18, 2007 indicated that the lease is
selling between 85 and 100 MCF per day, however volumetric calculations of
the Holmes Lease reservoir have not yet been performed. An annual review of
the gas well will be performed at the fiscal year end October 31, 2008 to
determine whether the well warrants impairment based on expected revenue.
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.
6
Gas Salvage Corp.
(A Developmental Stage Company)
NOTES TO FINANCIAL STATEMENTS
July 31, 2008
Cash and equivalents
--------------------
Cash and equivalents include investments with initial maturities of three
months or less.
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 July 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 $45,882 and a negative cash flow of $45,264 from
operations in the nine months ended July 31, 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
7
Gas Salvage Corp.
(A Developmental Stage Company)
NOTES TO FINANCIAL STATEMENTS
July 31, 2008
classifications or liabilities or other adjustments that might be necessary
should the Company be unable to continue as a going concern.
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 $59,245. 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 nine months ended
July 31, 2008 and 2007.
2007 2008
---- ----
Numerator:
----------
Basic and diluted net loss per share:
Net Loss $ (44,632) 0
Denominator
-----------
Basic and diluted weighted average
number of shares outstanding 5,280,000 0
Basic and Diluted Net Loss Per Share $ (0.009) 0
------------------------------------
8
Gas Salvage Corp.
(A Developmental Stage Company)
NOTES TO FINANCIAL STATEMENTS
July 31, 2008
Accounting for Oil and Gas Producing Activities
-----------------------------------------------
The company uses the successful efforts method of accounting for oil and
gas producing activities. Under this method, acquisition costs for proved
and unproved properties are capitalized when incurred.
Acquisition costs are capitalized when incurred pending the determination
of whether a well has found proved reserves. A determination of whether a
well has found proved reserves is made within a year of acquisition.
If after that year has passed, a determination that proved reserves exist
cannot be made, the well is assumed to be impaired, and its costs are
charged to expense. It's costs can however, continue to be capitalized if a
sufficient quantity of reserves are discovered in the well to justify its
completion as a producing well and sufficient progress is made assessing
the reserves and the well's economic and operating feasibility. The
impairment of unamortized capital costs is measured at a lease level and is
reduced to fair value if it is determined that the sum of expected future
net cash flows is less than the net book value. The company determines if
impairment has occurred through either adverse changes or as a result of
the annual review of all fields. During 2008 the company did not record any
impairment. Development costs of proved oil and gas properties, including
estimated dismantlement, restoration and abandonment costs and acquisition
costs, are depreciated and depleted on a field basis by the
units-of-production method using proved reserves, respectively.
The Costs of unproved oil and gas properties are generally combined and
impaired over a period that is based on the average holding period for such
properties and the company's experience of successful operations.
Oil and Gas Revenue Recognition
-------------------------------
The company applies the sales method of accounting for natural gas revenue.
Under thus method, revenues are recognized based on the actual volume of
natural gas sold to purchasers. Revenue from the sale of gas is reported by
the gas gathering company monthly and paid two months in arrears.
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.
9
Gas Salvage Corp.
(A Developmental Stage Company)
NOTES TO FINANCIAL STATEMENTS
July 31, 2008
4. Capital Structure
During the period from inception through July 31, 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 July 31, 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.
6. Subsequent Events
In August, 2008 the Company changed its name from Gas Salvage Corporation
to Pinnacle Energy Corporation.
In August, 2008 the Company's director adopted a resolution approving a
three-for-one forward split of the company's common stock. The stock split
is subject to the approval of FINRA.
On August 27, 2008 the Company acquired working interests in six oil and
gas wells located in Pawnee County, Oklahoma for $1,000,000, payable
September 1, 2013. Interest at an annual rate of 8% is due monthly. The
working interests consist of a 25.5% working interest (20.4% net revenue
interest) in two wells, a 20% working interest (16% net revenue interest)
in three wells and a 17% working interest (13.6% net revenue interest) in
the remaining well.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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.
The Company was incorporated in Nevada on June 5, 2007 and is involved in
the exploration and development of oil and gas.
The Company was incorporated under the name Gas Salvage Corp. In August
2008 the Company approved a 3-for-1 forward split of its common stock and
changed its name to Pinnacle Energy Corp.
The Company 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, the
Company will attempt to acquire leases or other interests in the area. The
Company may then attempt to sell portions of its leasehold interests in a
prospect to third parties, thus sharing the risks and rewards of the exploration
and development of the prospect with the other owners. One or more 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.
The Company 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, or
o purchase producing oil or gas properties.
In September 2007 the Company acquired a 44.5% working interest (35.6% net
revenue interest) in an oil and gas lease covering 40 acres in Lincoln County,
Oklahoma. The lease was acquired for $100,000 in cash and 2,700,000 shares of
the Company's restricted common stock. In November 20007 the gas well drilled on
the lease was placed into production. As of August 31, 2008 the well was
producing approximately 30 MCF of gas per day, net to the Company's net revenue
interest.
At the time it acquired its interest in the oil and gas lease, the Company
also acquired, for $100,000, a 50% interest in a portable nitrogen rejection
unit. The unit removes excessive nitrogen and oxygen from the gas produced from
the well and allows the gas to be sold to buyers who will not always purchase
gas with a high level of contaminants.
On August 27, 2008 the Company acquired working interests in six oil and
gas wells located in Pawnee County, Oklahoma. The Company has a 25.5% working
interest (20.4% net revenue interest) in two wells, a 20% working interest (16%
11
net revenue interest) in three wells , and a 17% working interest (13.6% net
revenue interest) in the remaining well.
As of August 31, 2008 five wells were producing 20 barrels of oil and 30
MCF of gas per day, net to the Company's interest. The sixth well is being used
as a salt water disposal well.
The price for the Company's interest in the six wells was $1,000,000. The
purchase price requires monthly interest payments at 8% per year until September
1, 2013, at which time the entire $1,000,000 is due.
The Company's future plans will be dependent upon the amount of capital the
Company is able to raise. The Company may attempt to raise additional capital
through the private sale of its equity securities or borrowings from third party
lenders. The Company does not have any commitments or arrangements from any
person to provide it with any additional capital. If additional financing is not
available when needed, the Company may continue to operate in its present mode
or the Company may need to cease operations. The Company does not have any
plans, arrangements or agreements to sell its assets or to merge with another
entity.
The Company plans to generate profits by drilling productive oil or gas
wells. However, the Company will need to raise the funds required to drill new
wells from third parties willing to pay the Company's share of drilling and
completing the wells. The Company may also attempt to raise needed capital
through the private sale of its securities or by borrowing from third parties.
The Company 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 the Company may
not be productive of oil or gas. The inability of the Company to generate
profits may force it to curtail or cease operations.
Contractual Obligations
- -----------------------
As of December 31, 2007 and July 31, 2008 the Company did not have any
material capital commitments, other than funding its operations and paying for
the six wells it acquired in August 2008. It is anticipated that any capital
commitments that may occur will be financed principally through the sale of
shares of the Company's common stock or other equity securities. However, there
can be no assurance that additional capital resources and financings will be
available to the Company on a timely basis, or if available, on acceptable
terms.
Item 4.T. CONTROLS AND PROCEDURES
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting as required by Sarbanes-Oxley
(SOX) Section 404.A. The Company's internal control over financial reporting is
a process designed under the supervision of its Chief Executive and Financial
Officer to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of its financial statements for external purposes
in accordance with Generally Accepted Accounting Principles.
12
There were no changes in the Company's internal controls over financial
reporting that occurred during the quarter ended July 31, 2008 that have
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
Nolan Weir, the Company's President and Principal Financial Officer,
evaluated the effectiveness of the Company's disclosure controls and procedures
as of the end of the period covered by this report; and in his opinion the
Company's disclosure controls and procedures were effective.
PART II
Item 6. (a) Exhibits
Number Exhibit
- ------ -------
31 Rule 13a-14(a) Certifications
32 Section 1350 Certifications
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PINNACLE ENERGY CORP.
Date: September 9, 2008 /s/ Nolan Weir
------------------------------
Nolan Weir, President, Principal
Financial Officer and Principal
Accounting Officer
14