SPRN Supernova Energy Inc (CE)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

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FORM 10-Q

 

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[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(D) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the quarterly period ended September

30, 2015

 

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________

 

Commission File # 333-165373

 

SUPERNOVA ENERGY, INC.

(Exact name of small business issuer as specified in its charter)

 

Nevada

(State or other jurisdiction of incorporation or organization)

 

98-0628594

(IRS Employer Identification Number)

265 Sunrise Hwy

Ste 1-276

Rockville Centre, New York 11570

 

(Address of principal executive offices)

 

  (702) 839-4029

(Issuer’s telephone number)

 

Indicate by check mark whether the registrant(1) has filed all reports required 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) has been subject to such filing requirements for the past 90 day. [X }  Yes  [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [_]		Accelerated  filer [_]
Non-accelerated filer [_]  (Do not check if a smaller reporting company)		Smaller reporting company [X]

  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes    [X ] No

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. The issuer had 6,820,572 shares of common stock and 809,400 shares of preferred stock (with 100:1 conversion and voting rights) issued and outstanding as of November 20, 2015. 

  

 

 

TABLE OF CONTENTS

 

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Plan of Operations	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8
Item 4.	Controls and Procedures	8
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	9
Item 1A.	Risk Factors	9
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	9
Item 3.	Defaults Upon Senior Securities	9
Item 4.	Submission of Matters to a Vote of Security Holders	9
Item 5.	Other Information	9
Item 6.	Exhibits	10
SIGNATURES		11

 

CERTIFICATIONS

	Exhibit 31.1  Management Certification, Section 302
	Exhibit 31.2  Management Certification, Section 302
	Exhibit 32.1  Management Certification, Section 906

 

 

Item 1. Financial Statements.

 

SUPERNOVA ENERGY, INC.

INDEX TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

 

Financial Statements-
Balance Sheets (Unaudited)	F-1
Condensed Statements of Operations (Unaudited)	F-2
Condensed Statements of Cash Flows (Unaudited)	F-3
Notes to Financial Statements (Unaudited)	F-4

 

  

 

SUPERNOVA ENERGY, INC.
Balance Sheets
(Unaudited)
		September 30,				December 31,
		2015				2014
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	1,734			$	5
Related-party receivables			608				572
Deposits			1,400				1,400
Total Current Assets			3,742				1,977
PROPERTY AND EQUIPMENT
Oil and gas properties (full cost method)
Proved			626,397				626,397
Unproved			546,325				396,325
Support equipment			267,631				267,631
Total property, plant and equipment			1,440,353				1,290,353
Accumulated depletion, depreciation, and impairment			(1,290,353	)			(818,040	)
Total oil and gas properties, net			150,000				472,313
TOTAL ASSETS		$	153,742			$	474,290
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	274,760			$	279,348
Accounts payable and accrued expenses, related parties			140,412				137,500
Notes payable			142,500				—
Note payable - convertible			150,000				—
Notes payable - related parties			20,123				20,123
Total Current Liabilities			727,795				436,971
LONG TERM LIABILITIES
Asset retirement obligations, net			157,752				157,752
TOTAL LIABILITIES			885,547				594,723
STOCKHOLDERS' DEFICIT
Preferred stock, 2,000,000 shares authorized at par value of $0.10;
809,400 and 874,400 shares issued and outstanding, respectively			80,940				87,440
Common stock, 198,000,000 shares authorized at
par value of $0.001;6,820,572 and 320,572
shares issued and outstanding, respectively			6,817				317
Additional paid-in capital			2,709,137				2,559,137
Accumulated deficit			(3,528,699	)			(2,767,327	)
Total Stockholders' Deficit			(731,805	)			(120,433	)
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT		$	153,742			$	474,290
The accompanying notes are an integral part of these unaudited financial statements

 

 

 

SUPERNOVA ENERGY, INC.
Condensed Statements of Operations
(Unaudited)
		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2015				2014				2015				2014
REVENUES		$	1,209			$	54,942			$	3,753			$	193,366
OPERATING EXPENSES
Depletion, depreciation, amortization
and accretion expense			—				67,081				32,608				235,976
Lease operating expenses			2,500				22,420				11,000				144,446
Professional fees			20,530				57,055				69,015				212,692
Impairment of oil and gas properties			396,325				—				439,705				—
General and administrative expenses			6,950				10,468				52,061				42,455
Total Operating Expenses			426,305				157,024				604,389				635,569
NET LOSS FROM OPERATIONS			(425,096	)			(102,082	)			(600,636	)			(442,203	)
OTHER INCOME (EXPENSE)
Interest expense			(4,064	)			—				(160,736	)			(123	)
Total Other Income (Expense)			(4,064	)			—				(160,736	)			(123	)
LOSS BEFORE INCOME TAXES			(429,160	)			(102,082	)			(761,372	)			(442,326	)
NET LOSS		$	(429,160	)		$	(102,082	)		$	(761,372	)		$	(442,326	)
BASIC AND DILUTED LOSS
PER COMMON SHARE		$	(0.06	)		$	(0.32	)		$	(0.13	)		$	(1.39	)
BASIC AND DILUTED WEIGHTED
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING			6,817,266				317,266				5,983,933				317,266
The accompanying notes are an integral part of these condensed unaudited financial statements

 

 

 

SUPERNOVA ENERGY, INC.
Condensed Statements of Cash Flows
(Unaudited)
		For the Nine Months Ended
		September 30,
		2015				2014
OPERATING ACTIVITIES
Net loss		$	(761,372	)		$	(442,326	)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization of debt discount			150,000				—
Impairment of oil and gas properties			439,705				—
Depreciation, depletion, amortization
and accretion			32,608				235,976
Changes in operating assets and liabilities:
Prepaid expenses			—				3,314
Related-party receivables			(36	)			—
Accounts payable and accrued expenses			(4,588	)			226,519
Accounts payable and accrued expenses - related party			2,912				27,500
Net Cash Used in Operating Activities			(140,771	)			50,983
INVESTING ACTIVITIES
Capitalized exploration and development costs			—				(28,234	)
Purchase of well operating equipment			—				(87,412	)
Net Cash Used in Investing Activities			—				(115,646	)
FINANCING ACTIVITIES
Proceeds from note payable			142,500				—
Preferred stock issued for cash			—				65,000
Net Cash Provided by Financing Activities			142,500				65,000
NET DECREASE IN CASH			1,729				337
CASH AT BEGINNING OF PERIOD			5				2,035
CASH AT END OF PERIOD		$	1,734			$	2,372
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
CASH PAID FOR:
Interest		$	757			$	—
Income Taxes		$	—			$	—
NON-CASH FINANCING AND INVESTING ACTIVITIES		$	—			$	—
Sale of oil & gas properties		$	—			$	379,453
Common stock issued in conversion of preferred stock		$	6,500			$	—
Cash paid by lender in oil and gas property purchase		$	150,000			$	—
The accompanying notes are an integral part of these condensed unaudited financial statements.

 

 

 

SUPERNOVA ENERGY, INC.

Notes to Unaudited Financial Statements

 

NOTE 1 – NATURE OF BUSINESS

 

Supernova Energy, Inc. (“the Company”) is an oil and gas exploration and production company incorporated in the state of Nevada on June 22, 2009. On October 21, 2013 the Company elected to change its corporate name from Northumberland Resources, Inc. to Supernova Energy, Inc.

 

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, 2015, 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, 2014 audited financial statements.  The results of operations for the period ended September 30, 2015 are not necessarily indicative of the operating results for the full year.

 

NOTE 2 – GOING CONCERN

 

The Company's financial statements are prepared using generally accepted accounting principles 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 allow it to continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. 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 operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  

Recent Accounting Pronouncements

 

The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position or statements.

 

Reclassification of Financial Statement Accounts

 

Certain amounts in the December 31, 2014 financial statements have been reclassified to conform to the presentation in the September 30, 2015 financial statements.

 

NOTE 4 – OIL AND GAS PROPERTIES

 

On January 29, 2015, the registrant entered into a Drilling Agreement with an unrelated third party whereby the Company will pay $100,000 to drill the well and $50,000 to complete the well. In return the Company will receive a 100% working interest and an 87.5% net revenue interest in and to the aforementioned well. During the six months ended June 30, 2015 the $50,000 paid for drilling costs was repaid to the Company/

 

On January 28, 2015, the registrant entered into an Assignment of Oil & Gas Lease with an unrelated third party whereby the Company was assigned the entire 87.5% working interest in and to certain leaseholds in Russell County, Kentucky.

 

During the nine months ended September 30, 2015, the Company impaired the value of its proven and unproven reserves and support equipment of $439,705  due to lower oil prices.  

   

NOTE 5 – NOTES PAYABLE

 

During the nine months ended September 30, 2015 the Company borrowed a total $142,500 from an unrelated third party pursuant to four note agreements The note bear interest at a rate of 5% per annum and are due one year from the date of issuance..

 

NOTE 6 – NOTES PAYABLE - CONVERTIBLE

 

On January 29, 2015, the Company entered into a  Promissory Note in the amount of $150,000  with an unrelated third party whereby the Company will pay interest in the amount of 10% annually and the note is due June 29, 2015. The proceeds were paid directly to the third party. The lender has the option to convert any remaining outstanding balance after the due date to preferred shares of the registrant at the price of $1.00 per share. As the conversion price is fixed the Company has determined there is no embedded financial derivative.  The Company recorded beneficial conversion feature debt discount of $150,000 related to the conversion option. This debt discount has been fully amortized during the nine months ended September 30, 2015 to interest expense. The Note is currently in default.

 

NOTE 7 – NOTES PAYABLE – RELATED PARTIES

 

As of December 31, 2011, the Company owed $123 to a related party. On August 21, 2013 the Company borrowed an additional $5,000 from the related party, with principal due in full on August 21, 2014, along with an additional $500 in accrued interest. As of June 30, 2015 and December 31, 2014 the note is in default.

 

On November 20, 2014 the Company entered into a promissory note agreement with a related party. Pursuant to the terms of the note, the Company borrowed $15,000, which accrues interest at a rate of five percent per annum. The note is unsecured and is due in full, along with all accrued interest, on November 20, 2015.

  

NOTE 8 – PREFERRED STOCK

 

The Company is authorized to issue 2,000,000 shares of preferred stock at a par value of $0.10. As of September 30, 2015 and December 31, 2014, there were 809,400 and 874,400 shares of preferred stock issued and outstanding, respectively.

 

On February 26, 2014 the Company issued 65,000 shares of preferred stock for cash at $1.00 per share, resulting in total cash proceeds of $65,000. The preferred shares have 1:100 conversion and voting rights. As the conversion price is fixed the Company has determined there is no embedded financial derivative.

 

On February 4, 2015 the holder of 65,000 shares of preferred stock converted 65,000 shares of preferred stock into 6,500,000 shares of common stock.

  

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

Compensation to Directors – The Company has entered into an employee contract with its sole officer and director for $2500 per month

 

Other Commitments – The Company has a consulting agreement with a third party whereby the consultant provides consulting services for a fee of $12,000 per month. In addition, the Company has an agreement with a third party investor relations firm whereby the firm provides investor relations services to the Company for a fee of $6,000 per month. These agreements were not renewed as of April 1^st.

Office Rent - The Company had an office lease agreement for $500 per month which was not renewed as of June 30, 2015.

NOTE 10 – SUBSEQUENT EVENTS 

On September 1, 2015 we borrowed $135,000 from an unrelated 3^rd party with an interest rate of 5%. to be repaid on September 1, 2016.  The proceeds were not funded until October 5, 2015.

 

On September 30, 2015 we borrowed $50,000 from a unrelated 3^rd party with an interest rate of 5% to be repaid on September 30, 2016.   The proceeds were not funded until October 5, 2015.

 

On October 5, 2015, the registrant entered into a Lease and Well Purchase Agreement (the “Lease”) with OMR Drilling and Acquisition, LLC. Under the Lease, the registrant will pay OMR $135,000 to purchase a 50% working interest and a 37.5% net revenue interest on the Monroe Lease with three wells located in Monroe County. OMR agreed to carry the registrant’s share of the operation and maintenance expenses associated with the operation of the three wells for the first twelve months of the registrant’s ownership.

On October 9, 2015 the Company entered into a settlement agreement with Lasso Energy LLC to settle multiple lawsuits filed by our Company. Our Company paid a total of $41,500 for he transfer of title and operations I the following leases: Anderson lease 8.375% working interest and lease operation, Dannebohm lease 72% working interest and lease operations, Sanders lease 30% working interest and lease operations, Harrel D, Thompson, Keyes A, Keyes B, Larrison, Mason leases 30% working interest and lease operations, Asmussen Lease 27% working interest and lease operation. OTE 12

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

Forward-looking statements

 

This quarterly report on Form 10-Q contains “forward-looking statements” relating to the registrant which represent the registrant’s current expectations or beliefs, including statements concerning registrant’s operations, performance, financial condition and growth.  For this purpose, any statement contained in this quarterly report on Form 10-Q that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “anticipation”, “intend”, “could”, “estimate”, or “continue” or the negative or other comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, such as credit losses, dependence on management and key personnel and variability of quarterly results, ability of registrant to continue its growth strategy and competition, certain of which are beyond the registrant’s control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statements.

 

The following discussion and analysis should be read in conjunction with the information set forth in the Company’s audited financial statements for the period ended December 31, 2014.

 

Overview

 

We are in the business of precious minerals exploration and oil and gas exploration and production.  The Company was incorporated in the State of Nevada on June 22, 2009.

 

On January 5, 2015 we borrowed $22,500 from an unrelated party with an interest rate of 5% to be repaid January 5, 2016.

 

On January 29, 2015 we borrowed $75,000 from an unrelated party with an interest rate of 5% to be repaid January 29, 2016.

 

On January 29, 2015, the Company entered into a Promissory Note in the amount of $150,000 with an unrelated third party whereby the Company will pay interest in the amount of 10% annually and the note is due June 29, 2016 The lender has the option to convert any remaining outstanding balance after the due date to preferred shares of the registrant at the price of $1.00 per share.

 

On January 29, 2015, The Company entered into an agreement to purchase an 87.5% working interest in a certain oil and gas lease for $150,000. The lease is located in Russell County, Kentucky and includes the drilling of one well. A well has been drill on the lease and completion shall occur with the next two months.

 

On March 3, 2015 Supernova Energy was issued an operator license for the state of Kansas.

 

On February 4, 2015 the 65,000 shares of our preferred stock was converted to 6,500,000 common shares.

 

On March 4, 2015 we borrowed $20,000 from an unrelated party with an interest rate of 5% to be repaid March 4, 2016.

 

On June 10, 2015 we borrowed $25,000 from an unrelated party with an interest rate of 8%. The loan is unsecured and due on demand.

 

On June 25, 2015, the registrant entered into a Lease Deposit Agreement (the “Lease”) with OMR Drilling and Acquisition, LLC. Under the Lease, the registrant will pay OMR a $5,000 deposit to place a 30 day hold on the Lease. Before the 30-day period expires, the registrant shall pay the balance of $135,000, for a total purchase price of $140,000 for the Lease. If the registrant does not pay the $135,000 before the expiration of the 30-day period,

then the $5,000 deposit will be forfeited. This agreement has been verbally extended to November 24, 2015 The Company is currently negotiating a further extension of 30 days

On June 25, 2015, the registrant entered into a Farmout Agreement (the “Agreement”) with OMR Drilling and Acquisition, LLC (“OMR”). Under the Agreement, OMR agrees to market up to eight new drill locations and maintain a minimum of 10% Net Revenue Interest for the registrant in each of the eight new drill locations. OMR further agrees to market one location that has a partially drilled dry well that could be deepened and will maintain a minimum of 15% Net Revenue Interest for the registration in this one location.

 

On September 1, 2015 we borrowed $135,000 from an unrelated 3^rd party with an interest rate of 5%. to be repaid on September 1, 2016. The proceeds were not funded until October 5, 2015

 

On September 9, 2015, the Company terminated the services of its transfer agent, Quicksilver Transfer Agent and appointed Action Stock Transfer as its new transfer agent.

 

On September 30, 2015 we borrowed $50,000 from a unrelated 3^rd party with an interest rate of 5% to be repaid on September 30, 2016. The proceeds were not funded until October 5, 2015.

 

On October 5, 2015, the registrant entered into a Lease and Well Purchase Agreement (the “Lease”) with OMR Drilling and Acquisition, LLC. Under the Lease, the registrant will pay OMR $135,000 to purchase a 50% working interest and a 37.5% net revenue interest on the Monroe Lease with three wells located in Monroe County. OMR agreed to carry the registrants share of the operation and maintenance expenses associated with the operation of the three wells for the first twelve months of the registrants ownership.

 

On October 9, 2015. A settlement agreement was closed. The agreement satisfied all claims. As part of the settlement our Company paid $41,500 for the transfer of operations and assignments of the following lease: Anderson lease 8.375% working interest and lease operation, Dannebohm lease 72% working interest and lease operations, Sanders lease 30% working interest and lease operations, Harrel D, Thompson, Keyes A, Keyes B, Larrison, Mason leases 30% working interest and lease operations, Asmussen Lease 27% working interest and lease operation. Supernova has transfers a 23% working interest to Lasso Energy LLC.

On October 9 2015 a settlement agreement was closed between Supernova Energy and Lasso Energy LLC as a result of the settlement agreement and the transfer of ownership from Supernova Energy now holds a combined working interest on the following on leases in Kansas. Barton County – Anderson lease 8.375%, Dannebohn lease

95% working interest, Stafford County - Sanders lease 65% working interest. Butler County – Asmussen 39.5% working interest. Pratty County – Harrel D, Larrison #2, Mason #2, Keyes A, Keys B, Thompson 100% working interest. The Company will assess the leases for viability and determine costs to bring producing online.

 

Plan of Operation

 

Our plan of operations is to further develop our recent oil and gas acquisitions in Kansas and Kentucky and to carry out further exploration and acquisition in the oil and gas sectors. SPRN has upgraded the facilities on its acquired Mason, Keyes and Harrell D, Larrison, Sanders, and Asmussen leases with the objective to improve current oil and gas production. Supernova Energy has drill one well on its recently acquired Antle lease, in Kentucky and plans to farmout additional drilling on this lease. Supernova Energy plans to acquire addition properties in both Kentucky and Kansas.

 

Results of Operations for the Three Months Ended September 30, 2015

 

Revenues

 

We had revenues of $1,209 during the three months ending September 30, 2015, compared to $54,952 in revenues during the corresponding period in 2014. Our revenues decreased from 2015 to 2014 due primarily to decreased

production from our proven wells during the period. Revenues were from oil and gas production occurring at previously purchased property sites.

 

The Company has filed seven lawsuits against one of its oil lease operators charging that during the time period that the Defendants operated oil and gas leases on behalf of the Company, the operator failed and refused to timely submit a complete accounting detailing expenses incurred incident its operations of the oil and gas lease and income derived there from in question. That during the time period the Defendants operated the oil and gas leases, Defendants received all income attributed to the interest of the Plaintiff’s ownership interest in and to the oil and gas leases and have failed and refused to account to the Plaintiff for income received. No date has been set for a court hearing.

 

Expenses

 

We incurred operating expenses in the amount of $426,305 during the three months ended September 30, 2015, compared to $157,024  for the corresponding period in 2014. The 2015 operating expenses consisted primarily of $6,950 in general and administrative expenses such as office expenses,$20,530 in professional fees, $2,500 in lease operating expenses, $0  in depletion, depreciation, amortization, and accretion expenses, asset retirement obligations are $0 as it has been fully accreted and impairment of oil and gas properties of $396,325. The 2014 operating expenses consisted primarily of $10,468 in general and administrative expenses such as office expenses, $57,055 in professional fees, $22,420 in lease operating expenses and $67,081 in depletion, depreciation, amortization, and accretion expenses. We expect our operating costs to continue over the next 12 months.

 

Other Expenses 

 

We incurred interest expense in the amount of $4,064 and $0 during the three months ended September 30, 2015 and 2014, respectively.

 

Net Loss

 

We incurred a net loss of $429,160 during the three months ended September 30, 2015, compared to a net loss of $102,082 during the corresponding period in 2014. This translates to a loss per share of $.06  and $.32 for the three months ended September 30, 2015 and 2014, respectively.

 

Results of Operations for the Nine Months Ended September 30, 2015

 

Revenues

 

We had revenues of $3,753 during the nine months ending September 30, 2015, compared to $193,366 in revenues during the corresponding period in 2014. Our revenues decreased from 2015 to 2014 due primarily to decreased production from our proven wells during the period. Revenues were from oil and gas production occurring at previously purchased property sites.

 

The Company has filed seven lawsuits against one of its oil lease operators charging that during the time period that the Defendants operated oil and gas leases on behalf of the Company, the operator failed and refused to timely submit a complete accounting detailing expenses incurred incident its operations of the oil and gas lease and income derived there from in question. That during the time period the Defendants operated the oil and gas leases, Defendants received all income attributed to the interest of the Plaintiff’s ownership interest in and to the oil and gas leases and have failed and refused to account to the Plaintiff for income received. No date has been set for a court hearing.

  

Expenses

 

We incurred operating expenses in the amount of $604,389 during the nine months ended September 30, 2015, compared to $635,569 for the corresponding period in 2014. The 2015 operating expenses consisted primarily of $52,061 in general and administrative expenses such as office expenses,$69,015 in professional fees, $11,000 in lease operating expenses, $32,608 in depletion, depreciation, amortization, and accretion expenses and impairment of oil and gas properties of $439,705 . The 2014 operating expenses consisted primarily of $42,455 in general and administrative expenses such as office expenses, $212,692in professional fees, $144,446 in lease operating expenses and $235,976 in depletion, depreciation, amortization, and accretion expenses. We expect our operating costs to continue over the next 12 months.

 

Other Expenses

 

We incurred interest expense in the amount of $160,7360 and $123 during the nine months ended September 30, 2015 and 2014, respectively.

 

Net Loss

 

We incurred a net loss of $761,372 during the nine months ended September 30, 2015, compared to a net loss of $442,326 during the corresponding period in 2014. This translates to a loss per share of $.13 and $1.39 for the nine months ended September 30, 2015 and 2014, respectively.

  

LIQUIDITY AND CAPITAL RESOURCES

 

Since its inception, the Company has financed its cash requirements from the sale of common stock. Uses of funds have included activities to establish our business, professional fees and other general and administrative expenses.

 

The Company’s principal sources of liquidity as of September 30, 2015 consisted of $1,734 in cash.

 

During the nine months ended September 30, 2015 the Company borrowed a total $142,500 from an unrelated third party pursuant to four note agreements The note bear interest at a rate of varies from 5%-10% per annum and are due one year from the date of issuance.

 

On January 29, 2015, the Company entered into a Promissory Note in the amount of $150,000 with an unrelated third party whereby the Company will pay interest in the amount of 10% annually and the note is due June 29, 2016 The lender has the option to convert any remaining outstanding balance after the due date to preferred shares of the registrant at the price of $1.00 per share.

 

Going Concern

The future of our company is dependent upon its ability to obtain financing and upon future profitable operations from the sale of products and services through our websites. Management has plans to seek additional capital through a private placement and public offering of its common stock, if necessary. Our auditors have expressed a going concern opinion because uncertainties raise doubts about the Issuers ability to continue as a going concern.

Material Events and Uncertainties

 

Our operating results are difficult to forecast. Our prospects should be evaluated in light of the risks, expenses and difficulties commonly encountered by comparable exploration stage companies.

 

There can be no assurance that we will successfully address such risks, expenses and difficulties.

On June 25, 2015, the registrant entered into a Lease Deposit Agreement (the “Lease”) with OMR Drilling and Acquisition, LLC. Under the Lease, the registrant will pay OMR a $5,000 deposit to place a 30 day hold on the Lease. Before the 30-day period expires, the registrant shall pay the balance of $135,000, for a total purchase price of $140,000 for the Lease. If the registrant does not pay the $135,000 before the expiration of the 30-day period,

then the $5,000 deposit will be forfeited. This agreement has been verbally extended to November 24, 2015 The Company is currently negotiating a further extension of 30-90 days

On June 25, 2015, the registrant entered into a Farmout Agreement (the “Agreement”) with OMR Drilling and Acquisition, LLC (“OMR”). Under the Agreement, OMR agrees to market up to eight new drill locations and maintain a minimum of 10% Net Revenue Interest for the registrant in each of the eight new drill locations. OMR further agrees to market one location that has a partially drilled dry well that could be deepened and will maintain a minimum of 15% Net Revenue Interest for the registration in this one location.

 

On January 5, 2015 we borrowed $22,500 from an unrelated party with an interest rate of 5% to be repaid January 5, 2016.

 

On January 29, 2015 we borrowed $75,000 from an unrelated party with an interest rate of 5% to be repaid January 29, 2016.

 

On January 29, 2015, the Company entered into a Promissory Note in the amount of $150,000 with an unrelated third party whereby the Company will pay interest in the amount of 10% annually and the note is due June 29, 2016 The lender has the option to convert any remaining outstanding balance after the due date to preferred shares of the registrant at the price of $1.00 per share.

 

On February 4, 2015 the 65,000 shares of our preferred stock was converted to 6,500,000 common shares

 

On March 4, 2015 we borrowed $20,000 from an unrelated party with an interest rate of 5% to be repaid March 4, 2016.On June 10, 2015 we borrowed $25,000 from an unrelated party with an interest rate of 8%. The loan is unsecured and due on demand

 

As of September 30, 2015 The Company has changed its primary address to 265 Sunrise Hwy. ste. 1-276 Rockville Centre, New York 11570

On September 1, 2015 we borrowed $135,000 from an unrelated 3rd party with an interest rate of 5%. To be repaid on September 1, 2016. The proceeds were not funded until October 5, 2015.

On September 9, 2015, the Company terminated the services of its transfer agent, Quicksilver Transfer Agent and appointed Action Stock Transfer as its new transfer agent.

On September 30, 2015 we borrowed $50,000 from a unrelated 3rd party with an interest rate of 5% To be repaid on September 30, 2016 On September. The proceeds were not funded until October 5, 2015.

On October 5, 2015, the registrant entered into a Lease and Well Purchase Agreement (the “Lease”) with OMR Drilling and Acquisition, LLC. Under the Lease, the registrant will pay OMR $135,000 to purchase a 50% working interest and a 37.5% net revenue interest on the Monroe Lease with three wells located in Monroe County. OMR agreed to carry the registrants share of the operation and maintenance expenses associated with the operation of the three wells for the first twelve months of the registrants ownership.

The Company has filed seven lawsuits against one of its oil lease operators charging that during the time period that the Defendants operated oil and gas leases on behalf of the Company, the operator failed and refused to timely submit a complete accounting detailing expenses incurred incident its operations of the oil and gas lease and income derived there from in question. That during the time period the Defendants operated the oil and gas leases, Defendants received all income attributed to the interest of the Plaintiff’s ownership interest in and to the oil and gas leases and have failed and refused to account to the Plaintiff for income received. No date has been set for a court hearing.

 

The above Lawsuits have been settled out of court. A settlement agreement was closed on October 9, 2015. The agreement satisfied all claims. As part of the settlement our Company paid $41,500 for the transfer of operations and

assignments of the following lease: Anderson lease 8.375% working interest and lease operation, Dannebohm lease 72% working interest and lease operations, Sanders lease 30% working interest and lease operations, Harrel D, Thompson, Keyes A, Keyes B, Larrison, Mason leases 30% working interest and lease operations, Asmussen Lease 27% working interest and lease operation. Supernova has transfers a 23% working interest to Lasso Energy LLC as

On October 9 2015 a settlement agreement was closed between Supernova Energy and Lasso Energy LLC as a result of the settlement agreement and the transfer of ownership from Supernova Energy now holds a combined working interest on the following on leases in Kansas. Barton County – Anderson lease 8.375%, Dannebohn lease 95% working interest, Stafford County - Sanders lease 65% working interest. Butler County – Asmussen 39.5% working interest. Pratty County – Harrel D, Larrison #2, Mason #2, Keyes A, Keys B, Thompson 100% working interest. The Company will assess the leases for viability and determine costs to bring producing online.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

Item 4. Controls and Procedures

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

As of September 30, 2015, under the direction of the Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a — 15(e) under the Securities Exchange Act of 1934, as amended.  Based on the evaluation of these controls and procedures required by paragraph (b) of Sec. 240.13a-15 or 240.15d-15 the disclosure controls and procedures have been found to be ineffective. The company intends, prior to the next fiscal year as the company's finances improve, to hire additional accounting staff and implement additional controls.

 

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in our reports filed under the securities Exchange Act, is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms.  Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Evaluation of Internal Control Over Financial Reporting

 

Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2015.  In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. In management’s assessment of the effectiveness of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) as required by Exchange Act Rule 13a-15(c), our management concluded as of the end of the fiscal year covered by this Quarterly Report on Form 10-Q that our internal control over financial reporting has not been effective. The company intends, prior to the next fiscal year as the company's finances improve, to hire additional accounting staff and implement additional controls.

 

As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board ("PCAOB"), a material weakness is a deficiency or

combination of deficiencies that results more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of March 31, 2015:

 

i)	Lack of segregation of duties.  At this time, our resources and size prevent us from being able to employ sufficient resources to enable us to have adequate segregation of duties within our internal control system.  Management will periodically reevaluate this situation.

 

ii)

Lack of an independent audit committee. Although we have an audit committee it is not comprised solely of independent directors. We may establish an audit committee comprised solely of independent directors when we have sufficient capital resources and working capital to attract qualified independent directors and to maintain such a committee.

 

iii)	Insufficient number of independent directors. At the present time, our Board of Directors does not consist of a majority of independent directors, a factor that is counter to corporate governance practices as set forth by the rules of various stock exchanges.

 

Our management determined that these deficiencies constituted material weaknesses.  Due to a lack of financial resources, we are not able to, and do not intend to, immediately take any action to remediate these material weaknesses. We will not be able to do so until we acquire sufficient financing to do so.  We will implement further controls as circumstances, cash flow, and working capital permit.  Notwithstanding the assessment that our ICFR was not effective and that there were material weaknesses as identified in this report, we believe that our financial statements fairly present our financial position, results of operations and cash flows for the years covered thereby in all material respects.

 

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.

 

The Company has not taken any steps at this time to address these weaknesses but will formulate a plan before fiscal year ending December 31, 2015.

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

During the three months ending September 30, 2015 the Company has filed seven lawsuits against one of its oil lease operators in Kansas, charging that during the time period that the Defendants operated oil and gas leases on behalf of the Company, the operator failed and refused to timely submit a complete accounting detailing expenses incurred incident its operations of the oil and gas lease and income derived therefrom in question. That during the time period the Defendants operated the oil and gas leases, Defendants received all income attributed to the interest of the Plaintiff’s ownership interest in and to the oil and gas leases and have failed and refused to account to the Plaintiff for income received. The defendants have also failed to record the Company’s ownership in various leases. Supernova has taken steps to have this issue rectified.

 

The above Lawsuits have been settled out of court. A settlement agreement was closed on October 9, 2015. The agreement satisfied all claims and lead to the transfer of operations and assignments of multiple leases. 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

The Company has no senior securities outstanding.

 

ITEM 4. MINE SAFTEY DISCLOSURES

 

None

 

ITEM 5. OTHER INFORMATION

 

None 

 

 

 

 ITEM 6. EXHIBITS

EXHIBIT INDEX 

 

Number	Exhibit Description
3.1	Articles of Incorporation of Supernova Energy, Inc.*
3.2	Bylaws of Supernova Energy, Inc.*
3.3	Certificate of Change with Nevada Secretary of State. Incorporated by reference in 8K filed 9/16/11.
10	Materials Contracts-leases and ThorFinn documents. Incorporated by reference in 10Q filed 5/21/12.
10.1	Purchase Agreement and Investors Rights Agreement with Thorfinn Partners. Incorporated by reference in 8K filed 5/02/12.
10.2	Property acquisitions. Incorporated by reference in 8K filed 10/03/11 and August 14, 2012.
10.3	Convertible Debenture September 26, 2011 Incorporated by reference in 10Q/a filed 11/25/11.
10.4	Addendum to ThorFinn Partners Purchase Agreement dated 3/19/13.
14.1	Code of Ethics, Corporate Charters and Governances. Incorporated by reference in 8K filed 5/02/12.
31.1	Certificate of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certificate of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certificate of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

*    Filed as an exhibit to our registration statement on Form S-1 filed March 9, 2010 and incorporated herein by this reference

 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

SUPERNOVA ENERGY, INC.
/s/ Kevin Malone
Kevin Malone
President, Secretary, CEO, CFO (Principal Executive and Accounting Officer)
November 20, 2015

 

 

EXHIBIT 31.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Kevin Malone, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Supernova Energy Inc.

 

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to date a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this quarterly report;

 

4. The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(3)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the small business issuer and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

 

5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and

 

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls and procedures for financial reporting.

Date: November 20, 2015

/S/ Kevin Malone

Signature:  Kevin Malone

Title:   President, Secretary, CEO, CFO

Principal Executive Officer

 

EXHIBIT 31.2

 

CERTIFICATION

 

I, Kevin Malone, certify that:

 

1.               I have reviewed this Quarterly Report on Form 10-Q of Supernova Energy Inc.;

 

2.               Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the report;

 

4.               The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d) - 15(f)) for the registrant and have:

 

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.               The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 20, 2015

  

/s/ Kevin Malone
Kevin Malone
Chief Financial Officer
(Principal Accounting Officer)

  

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

The undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to their knowledge, the Quarterly Report on Form 10-Q for the period ended September 30, 2015 of Supernova Energy, Inc. (the “Company”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in such periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in such report.

 

Very truly yours,
/s/ Kevin Malone
Kevin Malone
Chief  Executive and Financial Officer
Dated: November 20, 2015

  

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Supernova Energy, Inc. and will be furnished to the Securities and Exchange Commission or its staff upon request.