UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report under Section 13 or 15(d)
of the Securities Exchange
Act of 1934
For the quarterly period ended September 30,
2011
[ ] Transition report under Section 13 or
15(d) of the Exchange Act
For the transition period from ___________ to
___________
Commission File Number: 333-1416686
AVRO ENERGY INC.
(Exact name of Registrant as specified in its charter)
Nevada 20-8387017
(State or other jurisdiction (I.R.S.Employer
of incorporation or organization) Identification No.)
|
213 E Arkansas Ave Vivian, LA 71082, USA
(Address of principal executive offices)
318-734-4737
(Registrant's telephone number, including area code)
Former Name, Address and Fiscal Year, If
Changed Since Last Report
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES [X] NO
[ ]
We had a total of 54, 427,160 shares of common stock issued and
outstanding at November 21, 2011.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Transitional Small Business Disclosure Format: Yes [ ] No
[X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The interim financial statements included herein are unaudited
but reflect, in management's opinion, all adjustments, consisting
only of normal recurring adjustments that are necessary for a fair
presentation of our financial position and the results of our
operations for the interim periods presented. Because of the nature
of our business, the results of operations for the quarterly period
and the nine months ended September 30, 2011 are not necessarily
indicative of the results that may be expected for the full fiscal
year.
2
AVRO ENERGY INC.
(An Exploration Stage Company)
BALANCE SHEETS
(Stated in US Dollars)
(Unaudited)
September 30, December 31,
2010 2010
---------- ----------
ASSETS
CURRENT
Cash $ 203,076 $ 1,994
Accounts Receivable 15,288 3,789
---------- ----------
TOTAL ASSETS $ 218,364 $ 5,783
========== ==========
LIABILITIES
CURRENT LIABILITIES
Related Party Loan $ 5,957 $ 4,157
Loan Payable 815 815
Accounts payable and accrued liabilities 145,462 64,434
---------- ----------
TOTAL CURRENT LIABILITIES 152,234 69,406
---------- ----------
LONG TERM LIABILITIES
ARO Obligation 235,000 235,000
---------- ----------
TOTAL LONG TERM LIABILITIES 235,000 235,000
---------- ----------
TOTAL LIABILITIES 387,234 304,406
---------- ----------
STOCKHOLDERS' DEFICIT
Common Stock, 100,000,000 authorized $0.001 par value
shares 54,427,160 issued and outstanding
(40,457,160 as at December 31, 2010) 54,427 40,578
Additional Paid in Capital 1,146,198 1,085,047
Accumulated comprehensive income 2,803 2,803
Deficit accumulated during exploration stage (1,372,298) (1,427,051)
---------- ----------
TOTAL STOCKHOLDERS' DEFICIT (168,870) (298,623)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 218,364 $ 5,783
========== ==========
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The Accompanying notes are integral part of these financial
statements.
3
AVRO ENERGY INC.
(An Exploration Stage Company)
INTERIM STATEMENTS OF OPERATIONS
(Stated in US Dollars)
(Unaudited)
January 31, 2007
Date of
Nine Months Ended Three Months Ended Inception to
September 30, September 30, September 30, September 30, September 30,
2011 2010 2011 2010 2011
------------ ------------ ------------ ------------ ------------
REVENUES
Oil Revenues $ 150,559 $ 143,395 $ 50,242 $ 51,109 $ 364,651
------------ ------------ ------------ ------------ ------------
TOTAL REVENUES 150,559 143,395 50,242 51,109 364,651
------------ ------------ ------------ ------------ ------------
EXPENSES
Recognition of an Impairment
Loss -- -- -- -- 616,388
Operations Expense 329,621 241,576 171,562 34,830 618,330
Accretion Expense -- -- -- -- 235,000
Accounting and Professional
Fees -- 21,512 -- 13,408 239,846
Office and Administration 16,685 1,961 6,149 1,690 127,308
------------ ------------ ------------ ------------ ------------
TOTAL EXPENSES 346,306 265,049 177,711 49,928 1,526,887
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) FROM OPERATIONS (195,747) (121,654) (127,469) 1,181 (1,162,236)
OTHER INCOME AND EXPENSES
Gain on sale of lease properties -- 60,000 -- -- 60,000
Loss on conversion of debt -- (260,032) -- (260,032) (260,032)
Gain on sale of working interest 250,500 -- 200,000 -- 250,500
Interest Expense -- (20,441) -- (6,412) (25,530)
------------ ------------ ------------ ------------ ------------
TOTAL OTHER INCOME AND EXPENSES 250,500 (220,473) 200,000 (266,444) 24,938
NET INCOME (LOSS) 54,753 (342,127) 72,531 (265,263) (1,372,298)
============ ============ ============ ============ ============
Other comprehensive income (loss) -- -- -- -- (2,803)
------------ ------------ ------------ ------------ ------------
Total Comprehensive income (loss) $ 54,753 $ (342,127) $ 72,431 $ (265,263) $ (1,375,101)
============ ============ ============ ============ ============
BASIC AND DILUTED INCOME (LOSS) PER SHARE $ 0.00 $ (0.01) $ 0.00 $ (0.01)
============ ============ ============ ============
WEIGHTED AVERAGE # OF SHARES OUTSTANDING 41,769,431 27,126,484 45,622,812 29,021,212
============ ============ ============ ============
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The Accompanying notes are integral part of these financial
statements.
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AVRO ENERGY INC.
(An Exploration Stage Company)
INTERIM STATEMENTS OF CASH FLOW
(Stated in US Dollars)
(Unaudited)
January 31, 2007
Date of
Nine Months Ended Inception to
September 30, September 30, September 30,
2011 2010 2011
------------ ------------ ------------
OPERATING ACTIVITIES
Net income (loss) for the period $ 54,753 $ (342,127) $ (1,372,298)
Adjustment to reconcile net income (loss) to net cash
used in operating activities:
Management fees paid with shares 75,000 -- 75,000
Impairment Loss -- -- 605,840
Foreign currency income (loss) -- -- 2,803
Imputed interest -- 20,442 25,529
Accretion Expense -- -- 235,000
Loss on conversion of debt -- 260,032 260,032
Change in:
Accounts Receivable (11,499) 7,730 (15,287)
Accounts payable and accrued liabilities 81,028 (328,430) 118,853
------------ ------------ ------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 199,282 (382,353) (64,529)
------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of Mineral Claim -- -- (575,000)
------------ ------------ ------------
CASH USED IN INVESTING ACTIVITIES -- -- (575,000)
------------ ------------ ------------
FINANCING ACTIVITIES
Capital Stock issued -- 251,125 420,334
Founder Shares -- -- 25,451
Loan Payable - Related Party 1,800 -- 5,957
Loan Payable -- 121,649 390,863
------------ ------------ ------------
CASH FROM FINANCING ACTIVITIES 1,800 372,774 842,6055
------------ ------------ ------------
INCREASE (DECREASE) IN CASH FOR PERIOD 201,082 (9,579) 203,076
Cash, beginning of period 1,994 14,046 --
------------ ------------ ------------
CASH, END OF PERIOD $ 203,076 $ 4,467 $ 203,076
============ ============ ============
Management fees paid with shares $ 75,000 $ -- $ 75,000
============ ============ ============
Cash paid for interest $ -- $ -- $ --
============ ============ ============
Cash paid for income tax $ -- $ -- $ --
============ ============ ============
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The Accompanying notes are integral part of these financial
statements.
5
AVRO ENERGY INC.
(An Exploration Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2010
(Stated in US Dollars)
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS AND HISTORY - Avro Energy, Inc.
(hereinafter referred to as the "Company") was incorporated on
January 31, 2007 by filing Articles of Incorporation under the
Nevada Secretary of State. The Company was formed to engage in the
exploration of resource properties.
The Company is currently engaged in the acquisition, exploration
and development of oil and natural gas properties in the United
States ArkLaTex region. The Company seeks to develop low risk
opportunities by itself or with joint venture partners in the oil
and natural gas sectors.
GOING CONCERN - The accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern, which contemplates the realization of assets and the
liquidation of liabilities in the normal course of business.
However, the Company has accumulated a loss and is new. This raises
substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any
adjustments that might result from this uncertainty.
As shown in the accompanying financial statements, the Company
has incurred an accumulated net loss of $1,372,298 for the period
from January 31, 2007 (inception) to September 30, 2011 and has
generated revenues of $364,651 over the same period. The future of
the Company is dependent upon its ability to obtain financing and
upon future profitable operations from the development of
acquisitions. Management has plans to seek additional capital
through a private placement and public offering of its common
stock. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded
assets, or the amounts of and classification of liabilities that
might be necessary in the event the Company cannot continue in
existence.
EXPLORATION STAGE - The Company complies with Accounting
Codification Standard 915-10 for its characterization of the
Company as exploration stage.
The accompanying financial statements have been prepared by the
Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations, and cash flows at September 30, 2011, and for all
periods presented herein, have been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have
been condensed or omitted. It is suggested that these condensed
financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31,
2010 audited financial statements. The results of operations for
the period ended September 30, 2011 is not necessarily indicative
of the operating results for the full year.
YEAR END - The Company's fiscal year end is December 31.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENT - The Company considers all highly
liquid instruments with a maturity of three months or less at the
time of issuance to be cash equivalents. As at September 30, 2011
and December 31, 2010, the Company had no cash equivalents.
REVENUE RECOGNITION - The Company recognizes revenue from oil in
the period of delivery. Revenue will be recognized only when the
price is fixed and determinable, persuasive evidence of an
arrangement exists, the service has been provided, and
collectability is assured. The Company is not exposed to any credit
risks as amounts are prepaid prior to performance of services.
BASIC AND DILUTED NET LOSS PER SHARE - The Company computes net
loss per share in accordance with ASC 260, Earnings per Share. ASC
260 requires presentation of both basic and diluted earnings per
share ("EPS") on the face of the income statement. Basic EPS is
computed by dividing net loss available to common shareholders
(numerator) by the weighted average number of shares outstanding
(denominator) during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period
using the treasury stock method and convertible preferred stock
using the if-converted method. In computing diluted EPS, the
average stock price for the period is used in determining the
number of shares assumed to be purchased from the exercise of stock
options or warrants. Diluted EPS excludes all dilutive potential
shares if their effect is anti dilutive. As at September 30, 2011,
the Company had no potentially dilutive shares.
FINANCIAL INSTRUMENTS - Pursuant to ASC 820, Fair Value
Measurements and Disclosures and ASC 825, Financial Instruments, an
entity is required to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.
ASC 820 and 825 establishes a fair value hierarchy based on the
level of independent, objective evidence surrounding the inputs
used to measure fair value. A financial instrument's categorization
within the fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. ASC 820
and 825 prioritizes the inputs into three levels that may be used
to measure fair value:
LEVEL 1
Level 1 applies to assets or liabilities for which there are quoted
prices in active markets for identical assets or liabilities.
LEVEL 2
Level 2 applies to assets or liabilities for which there are inputs
other than quoted prices that are observable for the asset or
liability such as quoted prices for similar assets or liabilities
in active markets; quoted prices for identical assets or
liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in
which significant inputs are observable or can be derived
principally from, or corroborated by, observable market data.
LEVEL 3
Level 3 applies to assets or liabilities for which there are
unobservable inputs to the valuation methodology that are
significant to the measurement of the fair value of the assets or
liabilities.
The Company's financial instruments consist principally of cash,
accounts payable, accrued liabilities, and amounts due to related
parties. Pursuant to ASC 820 and 825, the fair value of our cash is
determined based on "Level 1" inputs, which consist of quoted
prices in active markets for identical assets. We believe that the
recorded values of all of our other financial instruments
approximate their current fair values because of their nature and
respective maturity dates or durations.
RESOURCE PROPERTIES - Company follows the successful efforts
method of accounting for its oil and gas properties. Unproved oil
and gas properties are periodically assessed and any impairment in
value is charged to exploration expense. The costs of unproved
properties, which are determined to be productive are transferred
to proved resource properties and amortized on an equivalent
unit-of-production basis. Exploratory expenses, including
geological and geophysical expenses and delay rentals for
unevaluated resource properties, are charged to expense as
incurred. Exploratory drilling costs are initially capitalized as
unproved property but charged to expense if and when the well is
determined not to have found proved oil and gas reserves.
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INCOME TAXES - Potential benefits of income tax losses are not
recognized in the accounts until realization is more likely than
not. The Company has adopted ASC
740 "Accounting for Income Taxes" as of its inception. Pursuant to
ASC 740, the Company is required to compute tax asset benefits for
net operating losses carried forward. The potential benefits of net
operating losses have not been recognized in this financial
statement because the Company cannot be assured it is more likely
than not it will utilize the net operating losses carried forward
in future years.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS - In February 2010,
the FASB
Accounting Standards Update 2010-10 (ASU 2010-10), "Consolidation
(Topic 810):
Amendments for Certain Investment Funds." The amendments in this
Update are effective as of the beginning of a reporting entity's
first annual period that begins after November 15, 2009 and for
interim periods within that first reporting period. Early
application is not permitted. The Company's adoption of provisions
of ASU 2010-10 did not have a material effect on the financial
position, results of operations or cash flows.
In February 2010, the FASB issued ASU No. 2010-09 "Subsequent
Events (ASC Topic 855) "Amendments to Certain Recognition and
Disclosure Requirements" ("ASU No. 2010-09"). ASU No. 2010-09
requires an entity that is an SEC filer to evaluate subsequent
events through the date that the financial statements are issued
and removes the requirement for an SEC filer to disclose a date, in
both issued and revised financial statements, through which the
filer had evaluated subsequent events. The adoption did not have an
impact on the Company's financial position and results of
operations.
In January 2010, the Financial Accounting Standards Board
("FASB") issued Accounting Standards Update ("ASU") No. 2010-06,
"Improving Disclosures about Fair Value Measurements." ASU No.
2010-06 amends FASB Accounting Standards Codification ("ASC") 820
and clarifies and provides additional disclosure requirements
related to recurring and non-recurring fair value measurements and
employers' disclosures about postretirement benefit plan assets.
This ASU is effective for interim and annual reporting periods
beginning after December 15, 2009. The adoption of ASU 2010-06 did
not have a material impact on the Company's financial
statements.
In January 2010, the FASB issued an amendment to ASC 505,
Equity, where entities that declare dividends to shareholders that
may be paid in cash or shares at the election of the shareholders
are considered to be a share issuance that is reflected
prospectively in EPS, and is not accounted for as a stock dividend.
This standard is effective for interim and annual periods ending on
or after December 15, 2009 and is to be applied on a retrospective
basis. The adoption of this standard did not have a significant
impact on the Company's financial statements.
In January 2010, the FASB issued an amendment to ASC 820, Fair
Value Measurements and Disclosure, to require reporting entities to
separately disclose the amounts and business rationale for
significant transfers in and out of Level 1 and Level 2 fair value
measurements and separately present information regarding purchase,
sale, issuance, and settlement of Level 3 fair value measures on a
gross basis. This standard, for which the Company is currently
assessing the impact, is effective for interim and annual reporting
periods beginning after December 15, 2009 with the exception of
disclosures regarding the purchase, sale, issuance, and settlement
of Level 3 fair value measures which are effective for fiscal years
beginning after December 15, 2010. The adoption of this standard is
not expected to have a significant impact on the Company's
financial statements.
In October 2009, FASB issued an amendment to the accounting
standards related to the accounting for revenue in arrangements
with multiple deliverables including how the arrangement
consideration is allocated among delivered and undelivered items of
the arrangement. Among the amendments, this standard eliminated the
use of the residual method for allocating arrangement
considerations and requires an entity to allocate the overall
consideration to each deliverable based on an estimated selling
price of each individual deliverable in the arrangement in the
absence of having vendor-specific objective evidence or other third
party evidence of fair value of the undelivered items. This
standard also provides further guidance on how to determine a
separate unit of accounting in a multiple-deliverable revenue
arrangement and expands the disclosure requirements about the
judgments made in applying the estimated selling price method and
how those judgments affect the timing or amount of revenue
recognition. This standard, for which the Company is currently
assessing the impact, will become effective on January 1, 2011.
8
The Company has implemented all new accounting pronouncements
that are in effect. These pronouncements did not have any material
impact on the financial statements unless otherwise disclosed, and
the Company does not believe that there are any other new
accounting pronouncements that have been issued that might have a
material impact on its financial position or results of
operations.
NOTE 3. OIL AND GAS PROPERTIES
JOINT VENTURE
On May 24, 2011 the Company entered into a Farm-Out Agreement
with First Pacific Oil and Gas Ltd. ("First Pacific"). Under this
Agreement First Pacific has acquired the right to earn 50% of the
Company's working interest in its existing 12 hydrocarbon wells
located in Southern Arkansas. Under this Agreement First Pacific
paid the Company $50,000 within 21 days of the Agreement date; will
pay $200,000 within 45 days of the Agreement date; and will pay
$800,000 on or before 6 months of the Agreement date. As of
September 30, 2011 the Company has collected $250,500 and recorded
as gain on sale of working interest under other income.
HOSS HOLMES LEASE
On August 26, 2009, Avro entered into an agreement to acquire
for $100,000 the Hoss Holmes Lease located near Hosston, Louisiana,
from Fredco LLC, a Louisiana private oil and gas operator. The
company closed the acquisition of the property on September 30,
2009. This purchase was charged as an exploration expense.
On February 23, 2010 the company divested a non core assets
being the Hoss Holmes, near Hosston Louisiana for $60,000. The sale
of the resulted in an gain on sale of $60,000 recorded as other
income.
HERRINGS LEASE
On August 10, 2009, Avro Energy, Inc. entered into an agreement
to acquire various oil leases near Hosston, Louisiana, from S.A.M.,
a Louisiana private partnership, and private oil and gas operator.
Under the terms of the agreement, the Company has agreed to pay a
total of ten dollars ($10) plus a one-fifth royalty interest in
exchange for the exclusive grant, lease, and let of the following
oil and gas leases:
One, Two, Three and Four (1-4) inclusive, Block One (1) Town of
Hosston, together with all abandoned alleyways and streets insofar
as it covers and affects the surface of the earth and the base of
the Nacatosh Formation together with wells being Herring No. 1,
Serial No 184124, and Herring No. 2, Serial No. 184735.
MUSLOW LEASE
On September 9, 2009, Avro Energy, Inc. entered into an
agreement to acquire four oil and gas leases in Caddo Parish,
Louisiana, from a private oil and gas operator. The first three
leases are the Muslow A, B, and C Leases, which in total comprise
of 8 wells and equipment, of which 2 are currently producing. The
fourth lease is the Caddo Levee Board Lease, comprising of 13 wells
and equipment, of which 4 are currently producing.
ARKANSAS LEASE
On October 24, 2009 Avro Energy, Inc. signed a letter agreement
to acquire eleven producible deep oil wells north of Hosston,
Louisiana, and in Southern Arkansas. Seven of these wells are in
production. The deepest of these wells produce from the Smackover
formation at 7800 feet. Four other wells are capable of production
after work over operation has been completed. Also included with
the agreement are three disposal wells.
The terms of this agreement allowed the Company to pay $385,000,
over a seven month period, with the first payment of $50,000 paid
on November 24, 2009. The terms of the agreement allow Avro to
receive production starting from November 1, 2009. On September 30,
2010 the last payment to complete the purchase for this property
was made.
9
NOTE 4. LOANS PAYABLE
As of September 30, 2011 the company owed Mike P. Kurtanjek,
company's previous president, the amount of $4,157. The loan had no
interest and no fixed repayment date.
As of September 30 2011, the Company owed a shareholder who owns
264,000 (approximately 1.037% of issued and outstanding) shares a
total of $815. The loan is unsecured, is payable in five years from
August 13, 2009 and bears interest at 3% per annum.
On September 13, 2010, the company entered agreements to convert
various outstanding loans into restricted shares of the Company.
The total amount owing to its creditors was $390,048, and each
agreed to the issuance of restricted shares of the Company to
settle this outstanding debt. As a result, the Company agreed to
issue a total of 13,001,600 shares in settlement of this debt, or
at a price of $0.03 per share. The total fair value of the shares
was $650,080 based on the closing price resulting in a loss of
settlement of debt of $260,032.
NOTE 5. COMMON STOCK
On January 31, 2007 (inception), the Company issued 25,000,000
founders' shares for $86,250.
On September 1, 2007, the Company issued 264,000 shares for
$66,000.
On October 1, 2007, the Company issued 186,560 shares for
$46,640.
On May 31, 2010, the Company issued 1,000,000 Units at a price
of $0.25 per Unit for total proceeds of $250,000. Each Unit issued
consisted of one restricted common share and one half share
purchase warrant. Two half warrants entitles a Subscriber to
acquire one restricted common share at a purchase price of $0.50
per Share for a period of 18 months from the date of issue. There
relative fair market value of the warrants is $4,851.
On July 8, 2010 the company issued 1,125,000 restricted shares
at par for total proceeds of $1,125.
On September 13, 2010, the company entered agreements to convert
various outstanding loans into restricted shares of the Company.
The total amount owing to its creditors was $390,048, and each
agreed to the issuance of restricted shares of the Company to
settle this outstanding debt. As a result, the Company agreed to
issue a total of 13,001,600 shares in settlement of this debt, or
at a price of $0.03 per share. The total fair value of the shares
was $650,080 based on the closing price resulting in a loss of
settlement of debt of $260,032.
On May 15, 2011, the Company cancelled 1,150,840 common shares previously
issued.
On August 23, 2011, the Company issued 15,000,000 common shares at a deemed
|
price of $0.005 per share to its president and direct, Donald
Fitzgerald. The total fair value of the shares was $75,000 based on
the closing price on date of grant and expensed as management
fees.
NOTE 6. RELATED PARTY TRANSACTIONS
As of September 30, 2011 the company owed Mike P. Kurtanjek, the
company's previous president, the amount of $4,157. The loan had no
interest and no fixed repayment date.
NOTE 7. IMPAIRMENT LOSS
The company's accumulated impairment loss as per the income
statement is $616,388 from January 31, 2007 (inception) through
December 31, 2010. This consists of all expenses related to the
company's oil and gas properties which have been expensed in
accordance with Generally Accepted Accounting Principles for the
industry. The company performed an impairment analysis at the end
of 2009 and determines that the properties were not economically
viable, at that point the company impaired the properties.
10
NOTE 8. ASSET RETIREMENT OBLIGATION
The Company accounts for asset retirement obligations as
required by the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") 410--Asset Retirement and
Environmental Obligations. Under these standards, the fair value of
a liability for an asset retirement obligation is recognized in the
period in which it is incurred if a reasonable estimate of fair
value can be made. If a reasonable estimate of fair value cannot be
made in the period the asset retirement obligation is incurred, the
liability is recognized when a reasonable estimate of fair value
can be made. If a tangible long-lived asset with an existing asset
retirement obligation is acquired, a liability for that obligation
shall be recognized at the asset's acquisition date as if that
obligation were incurred on that date. In addition, a liability for
the fair value of a conditional asset retirement obligation is
recorded if the fair value of the liability can be reasonably
estimated.
The company incurred an accretion expense of $235,000 for the
year ending December 31, 2010 for the net present value cost of
plugging all its oil wells upon the ending of the useful life of
the wells.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
FORWARD-LOOKING STATEMENTS
The information set forth in this section contains certain
"forward-looking statements," including, among other things, (i)
expected changes in our revenues and profitability, (ii)
prospective business opportunities, and (iii) our strategy for
financing our business. Forward-looking statements are statements
other than historical information or statements of current
condition. Some forward-looking statements may be identified by use
of terms such as "believes," "anticipates," "intends," or
"expects." These forward-looking statements relate to our plans,
objectives and expectations for future operations. Although we
believe that our expectations with respect to the forward-looking
statements are based upon reasonable assumptions within the bounds
of our knowledge of our business and operations, in light of the
risks and uncertainties inherent in all future projections, the
inclusion of forward-looking statements in this report should not
be regarded as a representation by us or any other person that our
objectives or plans will be achieved.
PLAN OF OPERATION
Avro Energy Inc. is an independent energy company engaged in the
acquisition, exploration and development of oil and natural gas
properties in North America, with current operations in the
ArkLaTex region. Avro's objective is to seek out and develop
opportunities in the oil and natural gas sectors that represent low
risk opportunities for the Company and its shareholders. In
addition, Avro aims to seek larger projects that can be developed
and produced with Joint Venture partners.
The ArkLaTex is a U.S. socio-economic region where Arkansas,
Louisiana, Texas, and Oklahoma intersect. The region is centered on
the Shreveport/Bossier metropolitan area in Northwest Louisiana.
The region's history is heavily linked with the oil industry. The
geology associated with the deposition of sediments from the
Mississippi River, in particular, makes this area an abundant
source for the oil and gas industries, which leads to the high
levels of oil production within the region.
RESULTS OF OPERATIONS
Avro Energy Inc. has acquired oil and natural gas properties in
the ArkLaTex region. Specifically the company has acquired the Hoss
Holmes Lease and the Herrings Lease and has begun work on these
properties.
Since the date of our inception, January 31, 2007, we have
generated $364,651 in oil revenues, $250,500 on the sale of
properties for farm in purposes and $60,000 in the sale of a
non-core property. Over the three months ending September 30, 2011
and September 30, 2010 we have generated $50,242 and $51,109,
respectively, in oil and gas revenue. Also during the quarter we
received the second tranche on the sale of working interests
generating $200,000 this quarter. Over the same period of time we
incurred $177,711 and $49,928 respectively in expenses giving the
company a net income (loss) for the three months ended 2011 and
2010 of $72,531 and ($265,263) respectively. The bulk of our
operating expenses were incurred in connection with the
improvement, expenses, and maintenance of our oil producing
properties. $75,000 of these expenses are attributed to management
fees paid by shares to management.
Over the nine months ending September 30, 2011 and September 30,
2010 we have generated $150,559 and $143,395, respectively in oil
and gas revenue. Over the same period of time we incurred $346,306
and $265,049 in expenses, and $250,500 and $0 in sales of working
interests, giving the company a net income (loss) of $54,769 and
($342,127) respectively. The bulk of our operating expenses were
incurred in connection with the improvement, expenses, and
maintenance of our oil producing properties.
SELECTED FINANCIAL INFORMATION
30-Sep-11 31-Dec-10
--------- ---------
Current Assets $218,365 $ 5,783
Total Assets $218,365 $ 5,783
Current Liabilities $152,234 $ 69,406
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2011, we had cash in the bank of approximately
$203,076. We are contemplating raising additional capital to
finance our exploration programs. No final decisions regarding the
program or financing have been made at this time. We issued
15,000,000 shares on August 28, 2011 in order to pay management
fees due.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES
We have not changed our accounting policies since December 31,
2007.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our reports
filed under the Securities Exchange Act of 1934 , as amended, is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules
and forms, and that such information is accumulated and
communicated to our management, including our president (also our
principal executive officer) and our secretary, treasurer and chief
financial officer (also our principal financial and accounting
officer) to allow for timely decisions regarding required
disclosure.
As of September 30, 2011, we carried out an evaluation, under
the supervision and with the participation of our president (also
our principal executive officer), and our chief financial officer
(also our principal financial and accounting officer) of the
effectiveness of the design and operation of our disclosure
controls and procedures. Based on the foregoing, our President and
Chief Financial Officer concluded that our disclosure controls and
procedures were not effective in providing reasonable assurance in
the reliability of our corporate reporting as of the end of the
period covered by this Quarterly Report due to certain deficiencies
that existed in the design or operation of our internal controls
over financial reporting as disclosed below and that may be
considered to be material weaknesses.
CHANGES IN INTERNAL CONTROLS.
There was no change in our internal controls or in other factors
that could affect these controls during our last fiscal quarter
that has materially affected, or is reasonably likely to materially
affect our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings and to our
knowledge, no such proceedings are threatened or contemplated.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. REMOVED AND RESERVED
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit Number Description of Exhibit
-------------- ----------------------
3.1 Articles of Incorporation - Filed by Form SB-1 on March 30, 2007
3.2 Bylaws - - Filed by Form SB-1 on March 30, 2007
10.1 Lease Acquisition Agreement between the Company and Fredco LLC
filed on August 26, 2009, and has been incorporated herein by
reference.
10-2 Lease Acquisition Agreement filed on September 9, 2009 and has
been incorporated herein by reference.
10-3 Farmout and Acquisition Agreement filed on May 17, 2011 and has
been incorporated herein by reference.
31.1 Certification by Chief Executive Officer and Chief Financial
Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the
Exchange Act, promulgated pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith.
32.1 Certification by Chief Executive Officer and Chief Financial
Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the
Exchange Act and Section 1350 of Chapter 63 of Title 18 of the
United States Cod of the Sarbanes-Oxley Act of 2002 filed
herewith.
101 Interactive data files pursuant to Rule 405 of Regulation S-T.
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SIGNATURES
In accordance with 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.
Date: November 16, 2011
Signature Title Date
--------- ----- ----
By: /s/ Donald Fitzgerald Chief Executive Officer, November 21, 2011
--------------------------- Chief Financial Officer,
Donald Fitzgerald President, Secretary,
Treasurer and Director
(Principal Executive Officer
and Principal Accounting
Officer)
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