LevelStock.com: Form 10-K for NITRO PETROLEUM INC.

Form 10-K for NITRO PETROLEUM INC.

17-May-2010

Annual Report ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 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 proven 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. Nitro is continuing its efforts to identify and assess investment opportunities in oil and natural gas properties, utilizing free labor of its directors and stockholders until such time as funding is sourced from the capital markets. It is anticipated that funding for the next twelve months will be required to maintain the Company. Attempts are ongoing to raise funds through private placements and said attempts will continue throughout 2010. The Company may also use various debt instruments as well as public offerings to raise needed capital during 2010.

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. This causes significant market opportunities for Nitro to possibly position itself with sellers that wish to divest themselves of production or proven 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 production acquisitions.

The Company may also finance acquisition of "proven producing reserves" with predictable production levels and cash flow by offering the secure investors with the mineral interests acquired. 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.

The 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.

The Company has now directed its attention to different areas outside of Oklahoma.

Montana

The Company located and was successful in obtaining an exploration opportunity in the Montana Powder River Basin. The company will farm out the exploration and development rights while maintaining a 10 percent carried interest. Prospective farm - in partners are presently examining the project.

The Company is continuing its efforts to identify and assess investment opportunities in oil and natural gas properties, utilizing free labor of its directors and stockholders until such time as funding is sourced from the capital markets. It is anticipated that funding for the next twelve months will be required to maintain the Company. Attempts are ongoing to raise funds through private placements and said attempts will continue throughout 2010. The Company may also use various debt instruments as well as public offerings to raise needed capital during 2010.

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. This causes significant market opportunities for the Company to possibly position itself with sellers that wish to divest themselves of production or proven 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 production acquisitions.

The Company may also finance acquisition of "proven producing reserves" with predictable production levels and cash flow by offering the secure investors with the mineral interests acquired. 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.

The 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.

During the fourth quarter, the Company had raised approximately $250,000 by virtue of issuing debt and converting debt into capital stock. The capital stock conversion has had two traunches of $25,000 of debt converted into capital stock, one occurring during the fiscal year ended January 31, 2010 and the other subsequent to the year end. The remaining $100,000 is expected to transact in the first three quarters of the year ending January 31, 2011.

Financial Condition and Results of Operations

For the fiscal year ended January 31, 2010, the Company had revenue of $120,035 from production of oil and gas, as compared to $358,497 for the fiscal year ended January 31, 2009.

Cost of continued operations for the fiscal year ended January 31, 2010 was $953,228, resulting in a net loss for the period of $823,059.

Cost of continued operations for the fiscal year ended January 31, 2009 was $1,445,469, resulting in a net loss for the period of $1,084,474.

The Company expects to continue to receive revenues from the properties on the Oklahoma properties and the Company expects for these revenues to increase. Planned exploration ventures should increase revenues for the fiscal year ending January 31, 2011.

Liquidity and Capital Resources

The Company had a cash balance of $2,502 as of January 31, 2010, compared to cash balance of $930 as of January 31, 2009. The Company had a working capital deficiency of $522,607 as of January 31, 2010, compared to working capital deficiency of $377,436 as of January 31, 2009.

The Company will continue to utilize the free labor of its directors and stockholder until such time as funding is sourced from the capital markets. It is anticipated that funding for the next twelve months will be required to maintain the Company.

Going Concern

The Company has not attained profitable operations and is dependent upon obtaining financing to pursue any extensive acquisitions and exploration activities. For these reasons, the Company's auditors stated in their report on the Company's audited financial statements 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 equity sales of the 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 the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.

Departure of Directors or Certain Officers, Election of Directors and Appointment of Certain Officers

On September 16, 2009, James Kirby and Sharon Farris resigned as members of the Board of Directors of the Company, effective immediately.

Effective October 1, 2009, Mr. Larry Wise resigned from his position as President and Chief Executive Officer of the Company and Mr. Shane Broesky resigned from his position as Chief Financial Officer of the Company. Mr. Wise will continue to be in charge of all field operations for Oklahoma, Texas and Montana and will also remain on the Board of Directors of the Company.

Effective October 1, 2009, Mr. James G. Borem has been appointed as Director, President, Chief Executive Officer and Interim Chief Financial Officer of the Company, effective as of October 1, 2009. Mr. Borem, age 62, has over 40 years of experience in the Petroleum Industry. He has vast experience in the areas of Petroleum Valuations, Development, Financing, Budgeting, Marketing, Materials Procurement and Risk Management. Mr. Borem currently serves, and has served for the past five years, as President of Premier Operating Inc. and Providen Reserves Inc., two Oklahoma oil and gas service and production companies that are not affiliated with Nitro Petroleum Incorporated.

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.

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