ITEM 1. FINANCIAL STATEMENTS
NITRO PETROLEUM INCORPORATED
CONDENSED BALANCE SHEETS
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April 30, 2013
(Unaudited)
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January 31, 2013
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ASSETS
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|
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CURRENT ASSETS
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|
|
|
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Cash and cash equivalents
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$
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151,517
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|
|
$
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160,460
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|
Accounts receivable
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|
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302,506
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|
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148,933
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|
Due from related party
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|
|
—
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|
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52,337
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|
Other current assets
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2,600
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|
|
|
—
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|
Total current assets
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456,623
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|
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361,730
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|
PROPERTY AND EQUIPMENT, NET
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|
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37,250
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39,036
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OIL AND GAS PROPERTIES, NET
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1,111,785
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1,015,446
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Total assets
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$
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1,605,658
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$
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1,416,212
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
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Cash overdraft
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$
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78,069
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|
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$
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78,515
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Accounts payable
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266,077
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190,840
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Lease development liability
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289,299
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|
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—
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Accrued liabilities
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303,460
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224,915
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Due to related party
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309
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882
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Total current liabilities
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937,214
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495,152
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ASSET RETIREMENT OBLIGATION
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44,823
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49,843
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Total liabilities
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982,037
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544,995
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STOCKHOLDERS' EQUITY
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Common stock
Authorized:
20,000,000 common stock, $0.001 par value; 10,000,000 preferred stock, $0.001 par value
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Issued and outstanding:
5,488,442 common shares at April 30, 2013 and January 31, 2013, respectively
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5,488
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5,488
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Common stock, subscribed
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97,711
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|
|
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—
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Additional paid-in capital
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7,057,936
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7,057,936
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Treasury stock, 2,454 common shares at cost
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(1,200
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)
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—
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Accumulated deficit
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(6,536,314
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)
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(6,192,207
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)
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Total stockholders' equity
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623,621
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871,217
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Total liabilities and stockholders' equity
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$
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1,605,658
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$
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1,416,212
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See accompanying notes to financial statements.
NITRO PETROLEUM INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended April 30,
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2013
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2012
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REVENUES
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Oil and gas production
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$
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105,332
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$
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65,810
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Production services
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17,160
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17,160
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Total revenues
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122,492
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82,970
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COSTS AND EXPENSES
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Lease operating expenses
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181,438
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123,297
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General and administrative
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270,579
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14,115
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Depletion, depreciation, amortization and accretion
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14,582
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7,263
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Total expenses
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466,599
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144,675
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OPERATING LOSS
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(344,107
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)
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(61,705
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)
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OTHER INCOME
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—
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198,071
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INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
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(344,107
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)
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136,366
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PROVISION FOR INCOME TAXES
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—
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—
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NET INCOME (LOSS)
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$
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(344,107
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)
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$
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136,366
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Net income (loss) per common share, basic
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$
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(0.15
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)
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$
|
0.07
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Net income (loss) per common share, diluted
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$
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(0.13
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)
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$
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0.07
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Weighted average common shares outstanding, basic
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2,358,759
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2,074,242
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Weighted average common shares outstanding, diluted
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2,597,022
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2,074,242
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See accompanying notes to financial statements.
NITRO PETROLEUM INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended
April 30, 2013
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Three Months Ended
April 30, 2012
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net income (loss)
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$
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(344,107
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)
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$
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136,366
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|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
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Depletion, depreciation, and amortization
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13,142
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7,263
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Gain on disposals of oil and gas properties
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—
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(198,071
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)
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Accretion on asset retirement obligation
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1,440
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|
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—
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|
Net changes in operating assets and liabilities:
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Accounts receivable
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(153,573
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)
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(13,407
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)
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Other current assets
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(2,600
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)
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—
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Accounts payable
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75,237
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(219,881
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)
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Accrued liabilities
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78,545
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(90,373
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)
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Lease development liability
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289,299
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—
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Net cash (used in) operating activities
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(42,617
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)
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(378,103
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)
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CASH FLOWS FROM INVESTING ACTIVITIES
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Proceeds from sale of oil and gas properties
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—
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364,227
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Purchases of oil and gas properties
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(44,609
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)
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—
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Net cash (used in) provided by investing activities
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|
|
(44,609
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)
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364,227
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CASH FLOWS FROM FINANCING ACTIVITIES
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Common stock, subscribed
|
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97,711
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|
|
|
—
|
|
Purchase of treasury stock
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|
(1,200
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)
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|
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—
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Change in cash overdraft
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|
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(446
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)
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15,180
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|
Net payments to related parties
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(17,782
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)
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33,935
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|
Net cash provided by financing activities
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78,283
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|
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49,115
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Net increase (decrease) in cash
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(8,943
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)
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35,239
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|
Cash at beginning of period
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160,460
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|
|
|
6,199
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|
Cash at end of period
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$
|
151,517
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$
|
41,438
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SUPPLEMENTAL INFORMATION
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Cash paid for interest
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$
|
—
|
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$
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—
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Cash paid for income taxes
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$
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—
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$
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—
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NON-CASH TRANSACTIONS
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Purchase of assets in exchange for forgiven receivables
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$
|
69,546
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|
|
$
|
—
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|
Change in estimate for asset retirement obligation
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|
$
|
6,460
|
|
|
$
|
—
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|
See accompanying notes to financial statements.
NITRO PETROLEUM INCORPORATED
NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1
Interim Reporting
The accompanying financial statements of Nitro Petroleum Incorporated (the “Company”) have not been audited by independent public accountants. In the opinion of management, the accompanying financial statements reflect all adjustments necessary to present fairly our financial position at April 30, 2013 and our income and cash flows for the three months ended April 30, 2013. All such adjustments are of a normal recurring nature. In preparing the accompanying financial statements, management has made certain estimates and assumptions that affect reported amounts in the financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.
Certain disclosures have been condensed or omitted from these financial statements. Accordingly, these financial statements should be read with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended January 31, 2013.
Note 2
Nature and Continuance of Operations
The Company was incorporated in October 2003 in the State of Nevada and has established its corporate offices in Shawnee, Oklahoma. On February 27, 2006, the Company changed its name from Ingenium Capital Corp. to Nitro Petroleum Incorporated. The Company is engaged primarily in the acquisition, development, production, exploration for, and the sale of oil, gas and natural gas liquids. All business activities are conducted in Texas and Oklahoma and the Company sells its oil and gas to a limited number of domestic purchasers.
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. As of April 30, 2013, the Company has not achieved profitable operations. The Company has accumulated losses of $6,536,314 since its inception, has a working capital deficiency of $480,591 and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related-party advances; however there is no assurance of additional funding being available.
Note 3
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and gas operations whereby all costs of exploring for and developing oil and gas reserves are initially capitalized on an aggregate (one cost center) basis. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling and overhead charges directly related to acquisition and exploration activities.
Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed annually to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion calculations.
Future net cash flows from proved reserves using average monthly prices, non-escalated and net of future operating and development costs, are discounted to present value and compared to the carrying value of oil and gas properties.
Note 4
Reverse Stock Split
Effective as of October 31, 2012, the Company effected a 1-for-100 reverse split (“Reverse Split”) of the Company’s common stock. Pursuant to the Reverse Split, the common stock was combined and reclassified based on a ratio of 100 shares of issued and outstanding common stock being combined and reclassified into one share of common stock. Fractional shares were rounded up to the next whole share. All share and per share amounts for common stock have been restated to reflect the Reverse Split on a retro-active basis.
Note 5
Related Party Transactions
The Company paid management fees to various companies under the control of Executive Officers of the Company totaling $63,000 and $11,488, for the quarter ended April 30, 2013 and 2012, respectively. These management fees are included in general and administrative expenses.
Note 6
Subsequent Events
The Company evaluated events through June 14, 2013 that warrant disclosure in the financial statements. The Company obtained additional financing of approximately $562,275 from sales of working interests and equity subscriptions after April 30, 2013, but before June 14, 2013.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. This discussion and analysis should be read in conjunction with our financial statements and the accompanying notes included in this report, as well as our audited financial statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended January 31, 2013. The following discussion contains forward-looking statements that are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, market prices for natural gas and crude oil, economic and competitive conditions, regulatory changes, estimates of proved reserves, potential failure to achieve production from development projects, capital expenditures and other uncertainties, as well as those factors discussed below and elsewhere in this report and in our Annual Report on Form 10-K for the year ended January 31, 2013, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.
The financial information with respect to the three month periods ended April 30, 2013 and 2012 that is discussed below is unaudited. In the opinion of management, this information contains all adjustments, consisting only of normal recurring accruals, necessary to state fairly the unaudited financial statements. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full fiscal year.
The Company intends to continue to acquire high quality oil and gas properties, primarily “proved producing and proved undeveloped reserves” in the United States. The Company sees significant opportunities in acquiring properties with proved producing reserves and undeveloped acreage in fields that have a long history of production. The Company will also explore low-risk development drilling and work-over opportunities with experienced, strong operators. The Company will attempt to finance oil and gas operations through a combination of privately placed debt and/or equity. There can be no assurance that the Company will be successful in finding financing, or even if financing is found, that the Company will be successful in acquiring oil and/or gas assets that result in profitable operations.
As oil and gas properties become available and appear attractive to the Company’s management, funds, when they become available, will be spent on due diligence and research to determine if said prospects could be purchased to provide income for the Company. Established oil companies continue to strive to reduce costs and debt. The Company believes that this results in significant market opportunities for the Company to possibly position itself with sellers that wish to divest themselves of production or proved undeveloped properties in order to provide liquidity. The Company’s management believes that current market conditions are creating situations that could result in the opportunity for such acquisitions.
The Company may also hedge price risk by selling forward a portion of future production acquired under fixed-price contracts to minimize risk associated with commodity prices. In some cases the future value of such fixed-price contracts may be greater that the initial investments, thereby hedging the inherent acquisition risk, without limiting the upside available the stockholders and investors. There can be no assurance, however, that any of these methods of financing will be successful in helping fund the Company.
Operating expenses will increase as the Company undertakes its plan of operations. The increase will be attributable to the continuing geological exploration and acquisition programs and continued professional fees that will be incurred.
Financial Condition and Results of Operations
Revenues
For the three months ended April 30, 2013, the Company’s revenues were $122,492, an increase of $39,522 compared to revenues during the three months ended April 30, 2012 of $82,970. This increase is attributed to an increase in oil and gas production during the first quarter of 2013, which is a result of completing the Branch Well.
Lease operating expenses
For the three months ended April 30, 2013, the Company’s lease operating expenses were $181,438, an increase of approximately 47% compared to the three months ended April 30, 2012 of $123,297. This increase was a result of variable costs relating to increased oil and gas production during the 2013 period.
General and administrative expenses
For the three months ended April 30, 2013, the Company’s general administrative expenses were $270,579, an increase of $256,464 over the three months ended April 30, 2012 of $14,115. This increase is a result of an increase in management fees, accounting service expenses, and legal expenses.
Liquidity and Capital Resources
As of April 30, 2013 and January 31, 2013, the Company’s cash balances were $151,517 and $160,460, respectively. The decrease in cash for the three months ended April 30, 2013 relates primarily to an increase of $153,573 in accounts receivable balance, primarily resulting from unpaid joint interest billings due to the Company. The cash decrease was offset by an increase in accounts payable and accrued liabilities. Operating losses were offset by capital raised through equity subscriptions and sales of well interests.
The Company will continue to utilize the labor of its directors and a stockholder until such time as funding is sourced from the capital markets. At the present time, these directors and stockholder are not being paid cash compensation, but have been compensated in the form of equity grants, and through management fees paid to related party management firms. It is anticipated that additional funding for the next twelve months will be required to maintain the Company’s operations.
Going Concern
The Company has not attained profitable operations and is dependent upon obtaining financing to pursue any acquisitions and exploration activities. For these reasons, the Company’s auditors stated in their report on the Company’s audited financial statements for the year ended January 31, 2013 that they have substantial doubt the Company will be able to continue as a going concern without further financing.
Future Financings
The Company will continue to rely on sales of the Company’s common shares in order to continue to fund the Company’s business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that the Company will achieve any additional sales of its equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities. The Company obtained additional financing of approximately $97,711 in equity securities and $289,299 through other financing during the quarter ended April 30, 2013.
Off-Balance Sheet Arrangements
The Company has no significant off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by it in the reports that it files or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that information is accumulated and communicated to the Company’s management, including its principal executive and principal financial officer (referred to in this periodic report as the Certifying Officer), as appropriate to allow timely decisions regarding required disclosure. The Company’s management evaluated, with the participation of its Certifying Officer, the effectiveness of the Company’s disclosure controls and procedures as of April 30, 2013, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Our Certifying Officer concluded that, as of April 30, 2013, our disclosure controls and procedures were not effective. We are taking steps to remedy these deficiencies as quickly as possible.
Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended April 30, 2013, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Management has concluded that the design and operations of our internal controls over financial reporting at April 30, 2013 were not effective due to lack of segregation of duties and did not provide reasonable assurance that the books and records accurately reflected our transactions. We are taking steps to remedy these deficiencies as quickly as possible.