Quarterly Report
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
INTRODUCTION
The following discussion is intended to facilitate an understanding of our business and results of operations and includes forward-looking statements that reflect our plans, estimates, and beliefs. It should be read in conjunction with our financial statements and the accompanying notes to the financial statements included herein. Our actual results could differ materially from those discussed in these forward-looking statements.
The Company has never earned a profit, and has incurred an accumulated deficit of $12,229,569 as of December 31, 2008. The acquisition of a controlling interest in the Company by MA&N proved the Company access to additional funds directly from MA&N, and the business plan developed by MA&N has enabled the Company to raise additional funds from third parties as well. The Company has used the funds to purchase three oil and gas fields to begin its operations as an oil and gas exploration and production company. The Company has begun oil production in March 2008 the Company placed into production 3 wells located in
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS-CONT'D
INTRODUCTION-CONT'D
the Parks' leases. The Company has also begun development of the Contract Area 1 leases. If our development plan is successful, and sufficient funds are raised to pay for the development, it is estimated that it will take approximately one year to reach production levels to sufficiently capitalize the Company on an ongoing basis. During this initial ramp up period, the Company believes that it will need to raise additional funds to fully develop its fields, purchase equipment, and meet general administrative expenses. The Company may seek both debt and equity financing. The Company currently has in excess of seventy wells located on the three fields located in Texas. Each of the wells will need to be reworked in order to establish production at a cost of approximately $7,000 to $10,000 per well. Initial production from each well is estimated to be between two to five barrels per day. Once initial production has been established, the Company will begin a water flood program that injects water into the oil producing zone through injector wells. The water then forces the oil towards the producing well and may increase production of each well up to an estimated four to seven barrels per day per well. If the Company is able to produce its wells upon the recompletion, the Company will be profitable if 40 barrels of oil are produced and the price of oil remains above $55.00 per barrel. The Company's success is dependent on if and how quickly it can reach these levels of production. The Company plans to use all revenues for general corporate purposes and future expansion of its current oil producing properties. There is no certainty that the Company can achieve profitable levels of production or that it will be able to raise additional capital through any means.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2008 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2007
REVENUES FROM OPERATIONS
Revenues for the three months ended December 31, 2008 and 2007 were $449 and zero respectively. On December 5, 2004, the Company began to structure itself into an oil and gas production and exploration company. The Company has acquired three oil and gas leases in the counties of Eastland and Callahan, Texas and has begun development of oil and gas. The Company received its first revenues from oil and gas operations in March 2008. The Company believes that it will place additional wells into operation during the current fiscal year. Since it ceased its former business operations, the Company has devoted its efforts to research prospective leases and business combinations and secure financing.
EXPENSES FROM CONTINUING OPERATIONS
The Company operating expenses for the three months ended December 31, 2008 were $169,985. The current quarter operating expenses represent a favorable variance of $17,369 when compared to operating expenses of $187,354 for the quarter ended December 31,, 2007. The favorable variance results primarily from lower payroll expense of $72,783. Payroll was reduced to $26,000 for the current quarter as compared to $98, 783 for the same period in the prior year. The favorable variance was partially offset by higher legal fees of $23,742 and higher contract Labor of $24,400.
NET INCOME/LOSS
For the quarter ended December 31, 2008, the Company had a net loss of $199,397 representing a positive variance of $16,437 when compared to a net loss of $215,834 for the quarter ended December 31, 2007. The positive variance results from lower payroll cost of $72,783. The lower payroll cost is the result of having the company substituting lower cost contract labor in lieu of staff and a reduction in the Chief Executive Officer Compensation. During the current quarter, the Company realized legal expenses of $84,000 representing a negative variance of $23,741 when compared to $60,258 for the three months period ended December 31, 2007.
