PRESS RELEASES
Form 10QSB/A for UNIVERSAL PROPERTY DEVELOPMENT & ACQUISITION CORP
Tuesday, November 21st, 2006 09:43 AM EST
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - For the Three Months Ended March 31, 2006
Oil and natural gas sales. For the three months ended March 31, 2006, oil and natural gas sales revenue was $85,078, compared to none for the same period during 2005. Oil sales were $70,047 and natural gas sales were $15,031. The revenues were the result of our producing wells in the Canyon Creek subsidiary, formed as a joint venture in late 2005. For the three months ended March 31, 2006, oil sales volume was 1,167 barrels, compared to none for the same period in 2005. For the three months ended March 31, 2006, gas sales volume was 2,746 thousand cubic feet (MCF, compared to none for the same period in 2005.
Oil and gas production costs. Our production costs were $4,526 and other cost of goods sold were $6,251 for the three months ended March 31, 2006.
Depreciation and depletion. Our depreciation and depletion expense was $5,043 and none for the three months ended March 31, 2006, and March 31, 2005, respectively. The increase was a result of our entry into the energy business, and our recent purchases of office equipment.
General and administrative expenses. General and administrative expenses increased by $134,644 to $188,533 for the three months ended March 31, 2006, compared to the same period in 2005. The increase was primarily related to increases in compensation expense associated with an increase in personnel required to administer our growth and entry into the energy business.
Interest expense, net. Interest expense, net decreased by $12,060 to $670 for the three months ended March 31, 2006 when compared to the same period in 2005. The decrease was due to lower outstanding debt over the quarter.
Income tax expense. Our effective tax rate was 25% during the three months ended March 31, 2005 and remained steady at 25% for the three months ended March 31, 2006.
Net loss after minority interest. Net loss decreased by $5,574,613 to $384,626 for the three months ended March 21, 2006 compared to the same period in 2005. The reasons for this decrease include the large decrease in stock issued for consulting fees and services due to the new management team, our exit from the real estate business, and our entry into the energy business.
Revenues Year to Date by Geographic Section
All revenue from sales of crude oil and gas during the three months ended March 31, 2006 were in the State of Texas.
Capital Resources and Liquidity
As shown in the consolidated financial statements, as of March 31, 2006, the Company had cash on hand of $291,482, compared to $132,935 as of December 31, 2005. The Company had negative net cash flows from operations for the three months ended March 31, 2006 of $318,792, compared to $175,457 for the same period in 2005 due principally to the efforts of the management team to settle or reduce older payables.
The Company had negative cash flows from investing activities for the three months ended March 31, 2006 of $1,312,661, compared to $21,354 in the same period in 2005 due to investments in oil and gas leaseholds including expenditures for revitalization of the wells.
Cash inflows from financing activities during the three months ended March 31, 2006 consisted of $1,790,000 of cash raised through the sales of Class B Convertible Preferred Stock, compared to inflows of $214,182 from sales of common stock and notes payable during the same period in 2005.
We had losses of approximately $385,000 for the three months ended March 31, 2006, and do not currently generate positive cash flows from operations. In order for us to continue during the next twelve months we will need to secure approximately $1.5 million of debt or equity financing. While we expect to raise the additional financing in the future, there can be no guarantee that we will be successful.
Disclosures About Market Risks
Like other natural resource producers, we face certain unique market risks. The two most salient risk factors are the volatile prices of oil and gas and certain environmental concerns and obligations.
Oil and Gas Prices
Current competitive factors in the domestic oil and gas industry are unique. The actual price range of crude oil is largely established by major international producers. Pricing for natural gas is more regional. Because domestic demand for oil and gas exceeds supply, there is little risk that all current production will not be sold at relatively fixed prices. To this extent we do not see the Company as directly competitive with other producers, nor is there any significant risk that the Company could not sell all production at current prices with a reasonable profit margin. The risk of domestic overproduction at current prices is not deemed significant. The primary competitive risks would come from falling international prices which could render current production uneconomical.
It is also significant that more favorable prices can usually be negotiated for larger quantities of oil and/or gas product, such that the Company views itself as having a price disadvantage to larger producers. Large producers also have a competitive advantage to the extent they can devote substantially more resources to acquiring prime leases and resources to better find and develop prospects.
Environmental
Oil and gas production is a highly regulated activity which is subject to significant environmental and conservation regulations both on a federal and state level. Historically, most of the environmental regulation of oil and gas production has been left to state regulatory boards or agencies in those jurisdictions where there is significant gas and oil production, with limited direct regulation by such federal agencies as the Environmental Protection Agency. However, while the Company believes this generally to be the case for its production activities in Texas, Oklahoma, Kansas and New Mexico, it should be noticed that there are various Environmental Protection Agency regulations which would govern significant spills, blow-outs, or uncontrolled emissions.
In Oklahoma, Texas, Kansas and New Mexico specific oil and gas regulations exist related to the drilling, completion and operations of wells, as well as disposal of waste oil. There are also procedures incident to the plugging and abandonment of dry holes or other non-operational wells, all as governed by the Oklahoma Corporation Commission, Oil and Gas Division, the Texas Railroad Commission, Oil and Gas Division, the Kansas Corporation Commission, Oil and Gas Division or the New Mexico Oil Conservation Division.
Compliance with these regulations may constitute a significant cost and effort for UPDA. No specific accounting for environmental compliance has been maintained or projected by UPDA to date. UPDA does not presently know of any environmental demands, claims, or adverse actions, litigation or administrative proceedings in which it or the acquired properties are involved or subject to or arising out of its predecessor operations. In the event of a breach of environmental regulations, these environmental regulatory agencies have a broad range of alternative or cumulative remedies to include: ordering a clean up of any spills or waste material and restoration of the soil or water to conditions existing prior to the environmental violation; fines; or enjoining further drilling, completion or production activities. In certain egregious situations the agencies may also pursue criminal remedies against the Company or its principals.
Forward-Looking Information
Certain statements in this Section and elsewhere in this report are forward-looking in nature and relate to trends and events that may affect the Company's future financial position and operating results. Such statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. The terms "expect," "anticipate," "intend," and "project" and similar words or expressions are intended to identify forward-looking statements. These statements speak only as of the date of this report. The statements are based on current expectations, are inherently uncertain, are subject to risks, and should be viewed with caution. Actual results and experience may differ materially from the forward-looking statements as a result of many factors, including changes in economic conditions in the markets served by the company, increasing competition, fluctuations in raw materials and energy prices, and other unanticipated events and conditions. It is not possible to foresee or identify all such factors. The company makes no commitment to update any forward-looking statement or to disclose any facts, events, or circumstances after the date hereof that may affect the accuracy of any forward-looking statement.