Form 10-Q for UNIVERSAL PROPERTY DEVELOPMENT & ACQUISITION CORP
9-Nov-2007
Quarterly Report
Item 2. Management's Discussion and Analysis or Plan of Operation
Special Note on Forward-Looking Statements
Except for historical information contained herein, this document contains forward-looking statements. Such forward-looking statements involve risks and uncertainties and include, but are not limited to, statements regarding future events and the Company's plans and expectations. The Company's actual results may differ materially from such statements. Although the Company believes that the assumptions underlying the forward- looking statements herein are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in such forward-looking statements will be realized. In addition, the business and operations of the Company are subject to substantial risks which increase the uncertainties inherent in the forward-looking statements included in this document. The inclusion of such forward-looking information should not be regarded as a representation by the Company or any other person that the future events, plans or expectations contemplated by the Company will be achieved.
Recapitalizations and Reorganizations
On January 26, 2007, all of the Company's subsidiaries and all assets of the Company, except for the European distribution agreements, were sold to G. Richard Smith, Company's former Chairman, for $300,000 in cash and the assumption of certain trade debts (the "Sale of Assets").
On January 26, 2007, Mr. G. Richard Smith, Mr. Gary R. Smith and Mr. John LiVecchi sold to Mr. Marco Gutierrez a majority of the Company's outstanding common stock for a total of $100,000 cash.
On February 5, 2007, a 1-for-100 reverse stock split of Company's outstanding common stock (the "2007 Reverse Split") became effective. All common stock numbers set forth in this document have been adjusted for the 2007 Reverse Split. In addition, on February 16, 2007, the Company filed an amendment to its Restated Certificate of Incorporation to effect an increase in the authorized capital stock from 400,000,000 shares of $.001 par value common stock and 50,000,000 shares of $.001 par value preferred stock to 900,000,000 shares of $.001 par value common stock and 100,000,000 shares of $.001 par value preferred stock. Prior to the filing, the amendment was approved by the Company's shareholders at a special meeting and by the Company's Board of Directors. All share and per share information included in these consolidated financial statements has been adjusted to give retroactive effect of the Reverse Stock Split.
On February 6, 2007, Company completed the sale of 141,000,000 restricted shares of its post-2007 Reverse Split common stock to Ms. Karen Sandhu for $200,000 cash. Company used the proceeds from this offering to pay outstanding debts and liabilities.
On February 25, 2007, the Board of Directors approved the conversion of an aggregate of three hundred thousand dollars ($300,000) of an outstanding note of the Company payable to Mathews Investment, LLC (the "Note"), as discussed in Note 4, into shares of the Company's common stock. The conversion price of the shares of common stock to be issued was valued at $0.001 per share by the Company's Board of Directors. On March, 2007 Company's Board of Directors cancelled the conversion of the Note with the consent of the Note holder and terminated plans to issue 25,000,000 shares of common stock. The Company is in the process of issuing an aggregate of 32,042,928 of its $.001 Par Value Common Stock to Mathews Investment, LLC from the conversion of notes payable with a face value of $300,000. The conversion of the aforementioned notes payable into Common Stock has resulted in "Debt Conversion Costs" of $91,056,436 being charged to Operations during the nine months ended September 30, 2007. As of September 30, 2007, all outstanding notes owed to Mathews Investment, LLC were settled.
On March 14, 2007 Company announced the appointment of Mr. Timothy Brink as its President and Mr. Ernesto Haberer as its Vice President of Business Development.
On April 13, 2007, the Company's Board of Directors approved a 3-for-1 stock split (the "Forward Stock Split") of all of the Company's outstanding common stock. Pursuant to the terms of the Forward Stock Split, each share of the Company's common stock held by shareholders of record on April 13, 2007, on April 20, 2007 automatically became the equivalent of 3 shares of post-split common stock of the Company. The Forward Stock Split did not change the number of shares of common stock authorized under the Company's Articles of Incorporation or change the par value per share of its common stock. All share and per share information included in these consolidated financial statements has been adjusted to give retroactive effect of the Forward Stock Split.
On April 23, 2007, the Board of Directors of the Company adopted a resolution providing for the designation, rights, powers and preferences and the qualifications, limitation and restrictions of 500,000 shares of Series A Convertible Preferred Stock (the "Series A Preferred"). Each share of the Series A Preferred is convertible into 10,000 shares of the Company's common stock. In the event of a stock dividend, stock split, reclassification, reorganization, consolidation or merger, adjustments in the conversion ratio will be made in a manner which will provide the preferred holders, upon full conversion into common stock, the same percentage ownership of the Company that existed immediately prior to such action. The Series A Preferred has the same voting rights as the common stock, on an as converted basis, with the preferred holders having one vote for each share of common stock into which their Series A Preferred is convertible. The Series A Preferred has a liquidation preference over the Company's common stock up to the one-hundred dollar ($100) per share.
On April 23, 2007, the Company and UPDA closed the SPA business combination transaction. Pursuant to the SPA, the Company acquired one hundred percent (100%) of the capital stock of US Petroleum Depot, Inc. and Continental Trading Enterprizes, Inc. f/k/a UPDA Texas Trading, two wholly-owned subsidiaries of UPDA. The consideration received by UPDA for the Subsidiary Shares consisted of $2,500,000 in cash, receivable within 30 days of the Effective Date, and 50,000 shares of the Company's Series A Preferred stock valued at $5,000,000 (the "Preferred Stock"). The Preferred Stock is currently convertible into 500,000,000 shares of our common stock and UPDA has the right to vote the shares of Preferred Stock on an "as converted" basis in any matters for which the holders of the common stock are entitled to vote. On April 23, 2007, the Company had 149,815,833 shares of commons stock issued and outstanding. As a result of the issuance of the Preferred Stock to UPDA, on an "as converted" basis UPDA had the power to vote 500,000,000 shares of our common stock. Therefore, UPDA has the power to control the vote of approximately 77% of our common stock.
Subsequent to the closing of the SPA transaction, the Company and UPDA mutually agreed to extend the due date for the payment of the $2,500,000 cash portion of the consideration described above. In connection with the agreement to extend the due date, the Company paid $150,000 in cash to UPDA and executed a promissory note payable that was due to be paid on June 18, 2007 to UPDA for $2,350,000. The note is now due and payable on demand and bears an interest rate of 5%.
Critical Accounting Policies
"Management's Discussion and Analysis of Financial Condition and Results of Operations" discusses our consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions about assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, valuation allowances for inventory and accounts receivable, and impairment of long-lived assets. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. The result of these estimates and judgments form the basis for making conclusions about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The SEC suggests that all registrants list their most "critical accounting policies" in Management's Discussion and Analysis section. A critical accounting policy is one which is both important to portrayal of the Company's financial condition and results of operations and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management believes the following critical accounting policies affect its more significant judgments and estimates in the preparation of its consolidated financial statements.
These policies include, but are not limited to, the carrying value of the inventory and fixed assets, the life of fixed assets, the expensing of the costs relating to FDA and European licensing activities, and the valuation of common stock and options related to compensation and other services.
Complex judgments and estimates underlie these critical accounting policies, such as the estimated life of fixed assets for depreciation purposes, the market valuation of inventory in reporting inventory at the lower of cost or market, dividing consultants' compensation between expense categories of FDA licensing activities and sales activities, dividing compensation and payments to third parties between cost of goods sold category and general and administrative expense, and the determination of the market value of restricted stock when issued as compensation or as repayment for loans.
Three and Nine Months Ended September 30, 2007 and, 2006
Results of Operations.
Pursuant to the Sale of Assets to G. Richard Smith on January 26, 2007, all of the Coronado's subsidiaries and all assets of Coronado, except for the European distribution agreements, were sold to Smith for $300,000 in cash and the assumption of certain trade debts. Therefore, the Company had no operations in the first quarter of 2007.
For the three and nine months ended September 30, 2007, total revenue was $11,656,792 and $17,440,493 with a cost of goods sold of$10,132,303 and$15,516,847, respectively. For the three and nine months ended September 30, 2006, total revenues were $17,868 and $65,868 and cost of goods sold were $7,688 and $43,620, respectively.
For the three and nine months ended September 30, 2007, the Company experienced a net loss of $37,834,419 and $91,292,338, respectively, which comprised primarily of general and administrative expenses of $395,175 and $649,742, consulting fees and services of $231,135 and $520,477, interest expenses of $179,536 and $304,547, and debt conversion costs of $38,367,846 and $91,056,436, offset by a gain on sale incurred from the Sale of Assets of $114,963 as part of the proceeds from the sale of restricted common stock sold in private placement to Karen Sandhu for $200,000.
For the three and nine months September 30, 2006, the Company experienced a net loss of $783,703 and $3,352,279, respectively. The loss for the three months ended September 30, 2006 was comprised primarily of, general and administrative expenses incurred at the corporate level of $770,947, and interest expense of $22,936. 92.1% of Registrant's third quarter 2006 corporate expenses consisted of salaries and wages of $245,372 (31.8%), stock option and bonus compensation of $252,000 (32.7%), professional expenses of $91,478 (11.9%) and selling and media promotion of $120,773 (15.7%).
Liquidity and Capital Resources.
As shown in the consolidated financial statements, at September 30, 2007, the Company had cash on hand of $425,566, compared to none at December 31, 2006. Net cash used in operating activities was $1,172,810 for the nine months ended September 30, 2007. We had a net loss of $91,292,338. We had non-cash charges of $114,963 due to a gain on sale of assets and $1,414,093 due to an increase in accounts receivable, offset by $91,056,436 due to loss on settlement of notes payable and $721,158 increase in accounts payable and accrued expenses payable.
Net cash used in operating activities was $256,491 for the nine months ended September 30, 2006. We had a net loss of $3,352,279. We had non- cash charges of $417,367 due to services related to the issuance of common shares, $732,000 due to stock and options issued for salaries, $1,979,700 related to stock and options issued for bonuses, and $1,522 related to depreciation.
Cash flows provided by investing activities was $298,491 during the nine months ended September 30, 2007, consisting of $879,020 cash acquired as part of the acquisition of the Subsidiaries offset by $48,400 related to the purchase of a surety bond, $100,000 deposit on a pending acquisition, and $432,129 for the purchase of property and equipment.
There was no cash flow provided by or used in investing during the nine months ended September 30, 2006.
The cash flows provided by financing activities of $1,299,885 during the nine months ended September 30, 2007, consisted of $200,000 of proceeds from the sale of our common stock, $950,000 proceeds from notes payable to others, $450,000 received from advances from the line of credit, offset by a note payable repayment of $700,000 to UPDA.
The cash flows provided by financing activities of $250,375 during the nine months ended September 30, 2006, consisted of an increase in notes payable.
On April 1, 2007, the Company obtained financing in the form of a note from Kamal Abdallah for $110,000 at an interest rate of 10% per year commencing on April 30, 2007. As of March, 31, 2007, the Company received $60,000 on this note. The remaining amount was received in April 2007. On May 31, 2007 the Company obtained an additional note from Kamal Abdallah for $50,000 at an interest rate of 10% per year commencing on June 1, 2007. This note, along with all related interests, was settled on July 30, 2007. On July 31, 2007 the Company also repaid the $110,000 note to Kamal Abdallah and all related interest.
On April 1, 2007, the Company also obtained financing in the form of a note from Brainard Management Associates for $550,000 at an interest rate of 10% per year commencing on April 30, 2007. As of March, 31, 2007, the Company received $150,000 on this note. The remaining amount was received in April 2007.
On May 31, 2007, the Company obtained financing the form of a note from Aztec Well Services, Inc., for $547,952 at an interest rate of 5% per annum payable on demand. On August 13, 2007, the Company repaid the full $547,952 note due to Aztec Wells Services, Inc, along with all related interests.
We have historically incurred recurring losses from operations. Our continuation is dependent upon a successful program of acquisitions and achieving a profitable level of operations. We will need $6 million of additional financing for ongoing operations and acquisitions. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining loans, assuming those loans would be available, would increase our liabilities and future cash commitments. We cannot assure that we will be able to obtain further funds we desire for our continuing operations or, if available, that funds can be obtained on commercially reasonable terms. If we are not able to obtain additional financing on a timely basis, we would cease our operations.
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