MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's principal business is, and historically has been, the
acquisition of unproven oil and gas leaseholds, with the intent of
reselling or drilling and developing such leaseholds with third-parties.
Historically, the Company has acquired primarily federal oil and gas
leaseholds through the BLM leasing program. The Company also obtains leases
through purchases in competitive bidding programs offered by various state
agencies, principally the States of Utah and Wyoming.
Fundamentally, the Company has three principal businesses. They are
its traditional oil and gas lease activities, its producing and non-
producing lease and royalty holdings and its "Biofuel Projects".
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During the 2008 fiscal period, the Company continues to research and
develop (R&D) its Biofuel Technologies for the recycle of ordinary
municipal solid waste (MSW), garbage, trash, paper and plastic material
streams into recycled saleable products and the recovery of cellulosic
materials ("Celmat") believed by the Company to be convertible into:
Approximately (1/3) lignin fuel for generating electric power,
Approximately (1/3) commercial-grade bottled CO2 gas,
Approximately (1/3) ethanol-based E85 gasoline.
As a result of its R&D efforts management believes that the Company
has developed what appears to be a commercial application of its biofuel
technologies for the future recovery of Celmat inorganic materials from the
recycle of "Municipal Waste". A Biofuels Project would most likely be
located in the western and Northeast U.S. where Municipal Waste landfills
and transfer stations charge the highest dump rates ("Tip Fee") in the U.S.
for the disposal of Municipal Waste and other cellulosic waste materials.
There can be no assurance that the required capital will be available
to construct a Biofuels Project and there can be no assurance that the
biofuels technologies will perform on a commercial basis. The Company's
future operating results will depend on its ability to obtain adequate
financing to construct a Biofuels Project. Expenses incurred for a Biofuels
Project would be accounted for under line item "Biofuel Project Costs".
Results of Operations
The Company realized revenues of $26,642 for the six-month period
ended September 30, 2007, compared with $34,248 for the corresponding
period ended September 30, 2006. Cash requirements during the period were
obtained from a combination of internally generated cash flow from
operations, loans, asset sales, and the sale of Rule 144 investment stock
to private individuals.
Revenues from the Company's oil and gas lease services were $1,050 for
the six-month period ended September 30, 2007, compared with $900 for the
corresponding period ended September 30, 2006. Recent world crude oil and
natural gas price increases may stimulate domestic drilling activity which
would, once again, create a need for the Company's geologic information
services. Revenue from oil production was $25,592 for the six-month period
ended September 30, 2007, compared to $33,348 for the corresponding period
ended September 30, 2006.
The Company incurred expenses related to its oil and gas activities
were $7,314 for the six-month period ended September 30, 2007, compared to
$3,798 for the comparable period ended September 30, 2006. General and
administrative expenses for the period ended September 30, 2007 were
$88,504, compared to $55,345 for the comparable period ended September 30,
2006. These low figures reflect the Company's basic inactivity in its oil
and gas sector.
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During the 2005 fiscal period, the Company created a line item for R&D
costs to better distinguish expenses between general and administrative
expenses and the expenses related to its various biofuels plant projects.
These costs are being accounted for under line item Biofuel Project Costs
and were $63,780 for the six-month period ended September 30, 2007,
compared to $77,975 for the comparable period ended September 30, 2006.
The Company's net loss for the six-month period ended September 30,
2007 was ($98,222), compared to a net loss of ($78,531) for the comparable
six-month period ended September 30, 2006, and the Company expects to
operate at a loss for the 2008 fiscal period, due to continued R&D costs
incurred for a Biofuels Project, and costs related to its oil and gas
business.
The Company does not expect to realize significant cash flows from its
oil and gas activities during fiscal 2008, nor does it expect significant
leasehold sales in the foreseeable future, as the domestic oil industry
activity continues to change due to uncertain world crude oil and natural
gas price fluctuations.
The Company has available at March 31, 2007, unused tax operating loss
carry forward of approximately $2,100,000 that may be applied against
future taxable income through 2027. No tax benefit has been reported in the
financial statements, because the Company believes there is a 50% or
greater chance the carry forwards will expire unused. Accordingly, the
potential tax benefits of the loss carry forwards are offset by a valuation
account of the same amount.
Financial Condition
On January 11, 2007, Delta Petroleum Corp's (Delta) website
deltapetro. com/PressRelease reported . . .
"The GreenTown State 32-42 has been completed in 8 of 12 pay
intervals, and production tested at a combined rate of 2.0 million cubic
feet of gas per day (Mmcfg/d) and 500 barrels of condensate per day
(Bc/d)." And said further . . .
"The GreenTown State 36-11 has been completed in 2 of 12 pay
intervals, and production tested at a combined rate of 4.5 Mmcfg/d and 125
Bc/d" and that "the wells are located 7.5 miles apart yet appear very
analogous, with 1,077 and 906 feet of potential productive clastics,
respectively, over the 12 separate intervals".
Delta also said "it is projecting that future wells will be drilled to
an average depth of 9,800' for expected costs of $3.0 to $3.5 million each.
Initial expectations are that wells will be drilled on 80-acre spacing.
Numerous well locations are being permitted and drilling activity should
resume within the next 60 days."
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The Company and its affiliate, Trachyte, own 100% interest in
approximately 6,000 adjacent federal, state and fee lands to the Delta
32-42 and 36-11 discovery wellls which could be of great potential
importance to future Company operations.
Management continues to explore additional financing alternatives for
ongoing and future operations of the Company. There is no assurance that
the efforts of management to locate and secure additional financing will be
successful, and the failure to secure a Biofuels Project financing would
substantially alter management's assumptions as herein presented.
Revenue decreases in the Company's overall oil and gas lease royalties
reflect the effects of depletion and the worldwide fluctuation of oil and
gas prices. The fluctuation of oil and gas prices could also cause a
fluctuation of the amount of oil/gas produced by the several and various
well operators.
The Company had limited participation in the Leasing Programs for the
six-month period ended September 30, 2007, except through its participation
agreements with certain unrelated third parties on a limited basis, due to
limited availability of funds and presently has limited funds available to
participate in the Leasing Programs. The Company's limited ability to
participate in the BLM's leasing program and to obtain oil and gas
leaseholds for resale could continue to effect its future operations.
The Company's most significant assets are its oil and gas production
income, its oil and gas leaseholds held for resale, approximating 14,000
net acres at September 30, 2007, including leaseholds acquired under its
unrelated third-party agreements and its plan for the full development of a
Biofuels Project.
There can be no assurance that the required capital will be available
to construct a Biofuels Project and there can be no assurance that the
biofuels technologies will perform on a commercial basis. The Company's
future operating results will depend on its ability to obtain adequate
financing to construct a Biofuels Project. Expenses incurred for a Biofuels
Project would be accounted for under line item "Biofuel Project Costs".
In order to continue in existence the Company is in need of additional
financing from outside sources or from internal operations. These
conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management can give no assurances that it will be
successful in its endeavors to resolve its cash flow difficulties or that
it will be able to retain and ultimately recover its costs in oil and gas
leaseholds held for resale. The financial statements do not include any
adjustments relating to the amounts and classification of assets,
liabilities, income or expenses that might be necessary should the Company
be unable to successfully resolve these uncertainties and continue in
existence.
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The Company foresees a need for additional equity financing in order
to continue in existence, and may, in the future, seek to raise additional
funds through asset sales, bank and/or other loans, debt, or equity
offerings. Any such equity offerings, asset sales, or other financing may
either be private or public and may result in substantial dilution to the
then existing shareholders of the Company. Because of uncertainties
existing in the domestic oil and gas industry and a Biofuels Project, the
Company is not in a position to forecast future earnings or cash flow. The
Company's future is very fluid and largely dependent on factors outside of
its management's control.
For the six-month period ended September 30, 2007, Dean W. Rowell, the
President of the Company, continues to secure and guarantee loans for the
Company and he has guaranteed one credit card up to approximately $102,925
with an outstanding balance of approximately $102,925 at the end of the
period. It is currently in default.
Since fiscal 1991, Trachyte has materially supported the Company
financially largely due to Mr. Rowell's efforts to secure loans from
Trachyte for the Company and contribute the value of an assumed salary of
$50,000 per year to additional paid in capital. The several transactions
with Trachyte have provided the financial means for the Company to pursue
its R&D of the biofuels technologies and the commercialization of a
Biofuels Project. Without such additional contributions by Mr. Rowell the
Company would have been unable to pursue these goals. Final plans and final
financial arrangements had not been completed for a Biofuels Project at
November 9, 2007.
Plan of Operation
There have been no significant changes in capitalization or financial
status during the past two years that are not reflected in the financial
statements. The Company's plan of operation during the next twelve (12)
months includes the following:
1. Pursue financing for a Biofuels Project.
2. Continue R&D, testing Municipal Waste processing
equipment and testing existing and newly developed
cellulose enzymes.
3. Continue the design and development of a Biofuels
Project into three businesses -- Municipal Waste
recycle, ethanol fuel production and electric power
generation.
4. Pursue oil and gas lease acquisition with third party
investors and investigate the possibility of entering
into the wholesale electric power generation business.
5. Continue to receive royalty income through Company owned
overriding royalty interests.
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Inflation
Inflation continues to apply moderate upward pressure on the cost of
goods and services including those purchased by the Company. Management
believes the net effect of inflation on operations has been minimal during
the past two years.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that will have a
material impact on the Company's financial statements.
Government Regulations
The Company's business is subject to extensive federal, state and
local regulation. Management believes that the Company operations are in
material compliance with applicable laws, but is unable to predict what
additional government regulations, if any, affecting the Company's
business, may be enacted in the future; how existing or future laws and
regulations might be interpreted; or whether the Company will be able to
comply with such laws and regulations either in the markets in which it
presently conducts business or wishes to commence business.
There can be no assurance that either the states or the federal
government would not impose additional regulations upon the Company's
activities which might adversely affect the Company's business.
Off-Balance Sheet Arrangements
There are currently no off-balance sheet arrangements.
Management's Conflicts of Interest
Material conflicts of interest exist and will continue to exist
between the Company, Trachyte, and Mr. Rowell, who is also the President of
Trachyte, a privately-held Utah corporation, whose current major activities
are the exploration and production of oil and gas resources. The Company's
policy is to offer any new oil and gas property purchase first to the
Company and then to Trachyte if the Company is unable to accept the
financial obligation of any transaction. At November 9, 2007, Mr. Rowell
beneficially owned approximately 65% of the common stock of the Company and
100% of the common stock of Trachyte.
Mr. Rowell owes a duty of due care and fair dealing to both the
Company and Trachyte and the resolution of duties and conflicts in favor of
one company over the other may impair his duties to each company. It is
likely that any conflict of interest between the Company and Trachyte
requiring a determination may have to be settled in favor of the Company to
the detriment of Trachyte, as well as to the detriment of the current and
future shareholders of Trachyte.
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Transactions with Management and Others
Geologic and other information which PIC has or develops is available
to Rowell as an officer of the Company, and he may use such information for
the benefit of the Company in determining which leases to buy or sell. Such
information is also available to Rowell, without cost, in connection with
Rowell's participation in the Leasing Programs.
During the fifteen year period since fiscal 1991, Trachyte has helped
financially support the Company largely due to Rowell's efforts to secure
loans from Trachyte for the Company during periodic cash flow difficulties.
During such periods, the several transactions with Trachyte have provided
the financial means for the Company to pursue commercialization of a
Biofuels Project, otherwise the Company would have been unable to pursue
this goal. Final plans and final financial arrangements had not been
completed for a Biofuels Project as of November 9, 2007.
On July 15, 1996, the Company formed Biofuels, Inc. ("Biofuels"), a
wholly-owned subsidiary, for the purpose of investing in and developing the
Biofuel Technologies for a Biofuels Project. This effort was centered on
management's belief that a Celmat to ethanol technology could be
commercialized, based on the Company's extensive experience at its former
research center from 1982 through 1992, and its experience in developing a
Biofuels Project.
On September 18, 2007, Donald Falls an unrelated third party bought
1,500,000 newly issued shares of the Company's common stock at $0.025 per
share in exchange for $37,500 cash. These share are to be held for
investment purposes.
Research and Development of the Biofuels Technology
Essentially, the Company's oil and gas activities have supported its
Biofuel Projects, during the past 20-years and provided in excess of
$15,000,000 to conduct the R&D effort to commercialize the commercial
development of its Biofuel Technologies, designed to economically solve the
critical problem of disposing of Municipal Waste through the 100% recycle
of Municipal Waste into useful recycled products saleable at a profit.
Management of the Company believes its R&D efforts have produced trade
secret and know-how protection which, in the future, should produce
valuable patent protection to the Company's biofuel technologies from the
Company's long experience and work conducted at its current and former
"Research Centers".
Based on its R&D efforts, the Company believes a Biofuels Project
would be the first business to economically produce ethanol transportation
fuel from low-cost organic celmat consisting of mostly paper products
easily harvested from Municipal Waste through new generation enviro-
friendly manufacturing plants fed by Municipal Waste derived paper and
woodchips, which Biofuels plants would combine paper waste recycling,
lignin based electric power generation, ethanol production and E85 fuels
production at several regional Biofuel Plant sites.
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The Company further believes that its innovative Biofuel Technologies
would create a profit generating solution for three major contemporary
domestic issues.
First, it would provide an opportunity to significantly reduce the
volume of Municipal Waste that currently must be landfilled.
Second, it offers a low-cost method of producing ethanol based E85
gasoline, the only known commercially viable and publicly accepted
renewable low-polluting transportation fuel, that today is competitive in
price at the pump with gasoline.
Third, it offers a low-cost method of producing electric power from
low pollution lignin fuel. The reason for such optimism is the high Tip Fee
currently paid by U.S. municipalities to landfills for the disposal of
Municipal Waste. Paper waste in MSW together with woodchips could be used
to make lignin and ethanol fuels convertible into E85 common carrier
transportation fuels.
There can be no assurance that the required capital will be available
to construct a Biofuels Project and there can be no assurance that the
biofuels technologies will perform on a commercial basis. The Company's
future operating results will depend on its ability to obtain adequate
financing to construct a Biofuels Project. Expenses incurred for a Biofuels
Project would be accounted for under line item "Biofuel Project Costs".
Forward Looking Statements
The forgoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operation" contain forward-looking
statements, within the meaning of Section 27A of the Securities Act of
1933, as amended (the "Act") and Section 21E of the Act, which reflect
Managements current views with respect to the future events and financial
performance. The Company cautions that words used in this document such as
"experts", "anticipates", "believes" and "may" as well as similar words and
expressions identify and refer to statements describing events that may or
may not occur in the future, including among other things, statements
relating to anticipated growth and increased profitability, as well as to
statements relating to the Company's strategic plan, including plans to
develop a Biofuels Project and to selectively acquire other companies.
These forward-looking statements and the matters to which they refer to are
subject to considerable risks and uncertainties that may cause actual
results to be materially different from those described in this document,
including, but not limited to future financial performance and future
events, competitive pricing for services, costs of obtaining capital as
well as national, regional and local economic conditions. Actual results
could differ materially from those addressed in the forward-looking
statements. Due to such uncertainties and risks, readers are cautioned not
to place undue reliance on such forward-looking statements, which speak
only as of the date of this Form 10-QSB report.
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PART 1 - ITEM 3
CONTROL AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the
participation of Management, as of a date within 90 days of the filing date
of this Quarterly Report on Form 10-QSB, the Company's principal executive
officer and principal financial officer have concluded that the Company
disclosures controls and procedures (as defined in Rule 13a-14(c) and 25d-
14(c) and 15d-14(c) under the Securities Act of 1934, are effective to
ensure the information required to be disclosed in reports that the Company
file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time specified in SEC rules and forms.
(b) Changes in Internal Controls
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the
date of their evaluation. There is a material weakness dealing with timely
reconciling of accounts, and therefore corrective actions will be taken.
However, the design of any system of controls is based on part upon certain
assumptions about the likelihood of future events and there is no certainty
that any design will succeed in achieving its stated goal under all
potential future considerations, regardless of how remote.