UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2007
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from to
Commission file number: 000-50284
UNIVERSAL ENERGY CORP.
(Exact name of Registrant as specified in its charter)
| Delaware | 80-0025175 | |
(State or other Jurisdiction of Incorporation or Organization) | (IRS Employer I.D. No.) |
30 Skyline Drive
Lake Mary, Florida 32746
(800) 975-2076
(Address and telephone number of principal executive offices)
Indicate by check mark whether registrant (1) has filed all reports required to be filed 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 days. x Yes ¨ No
The number of shares of the registrant’s common stock, par value $0.0001 per share, outstanding as of August 15, 2007 was 29,588,119 and there were 499 stockholders of record.
Transitional Small Business Issuer Format: ¨ YES x NO
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ YES x NO
FORM 10-QSB
INDEX
| PART I. | FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements (unaudited) | |||
| 3 | ||||
| 4 | ||||
Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2007 and 2006 | 5 | |||
| 6 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||
| Item 3. | Controls and Procedures | 19 | ||
| PART II | OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 19 | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 19 | ||
| Item 3. | Defaults Upon Senior Securities | 19 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 19 | ||
| Item 5. | Other Information | 19 | ||
| Item 6. | Exhibits | 20 | ||
| SIGNATURE PAGE | 22 | |||
And Subsidiaries
Consolidated Balance Sheet
June 30, 2007 | ||||
| (unaudited) | ||||
| Assets | ||||
Current assets: | ||||
Cash | $ | 182,648 | ||
Prepaid expenses | 16,300 | |||
Total current assets |
| 198,948 |
| |
Oil and gas properties, unproven (Note 4) | 446,985 | |||
Prepaid drilling costs | 252,289 | |||
Property and equipment, net | 7,231 | |||
Other assets | 1,545 | |||
Total assets | $ | 906,998 | ||
| Liabilities and Capital Deficiency | ||||
Current liabilities: | ||||
Accounts payable | $ | 66,028 | ||
Accrued expenses | 27,514 | |||
Promissory notes | 831,261 | |||
Total current liabilities | 924,803 | |||
Commitments and contingencies (Note 6) | ||||
Capital deficiency: | ||||
Common stock, $0.0001 par value, 250,000,000 shares authorized, 29,588,119 shares issued and outstanding | 2,959 | |||
Additional paid-in capital | 4,073,635 | |||
Accumulated deficit | (4,094,399 | ) | ||
Total capital deficiency | (17,805 | ) | ||
Total liabilities and capital deficiency | $ | 906,998 | ||
See accompanying notes to unaudited consolidated financial statements.
3
And Subsidiaries
Consolidated Statements of Operations
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Revenue | $ | — | $ | — | $ | — | $ | — | ||||||||
Cost of revenue | — | — | — | — | ||||||||||||
Gross profit | — | — | — | — | ||||||||||||
Investor/public relations expenses | 1,286,427 | — | 1,300,918 | — | ||||||||||||
Stock compensation expense | 479,051 | — | 941,451 | — | ||||||||||||
Selling, general and administrative expenses | 241,771 | 31,051 | 420,289 | 60,604 | ||||||||||||
Loss from continuing operations | (2,007,249 | ) | (31,051 | ) | (2,662,658 | ) | (60,604 | ) | ||||||||
Discontinued operations (Note 9) | ||||||||||||||||
Income (loss) from operations of discontinued operations | — | 3,091 | (34,186 | ) | 13,972 | |||||||||||
Gain (loss) from discontinued operations | — | 3,091 | (34,186 | ) | 13,972 | |||||||||||
Non-operating expense, net | (23,976 | ) | — | (23,976 | ) | — | ||||||||||
Net loss | $ | (2,031,225 | ) | $ | (27,960 | ) | $ | (2,720,820 | ) | $ | (46,632 | ) | ||||
Weighted average common shares outstanding | 28,954,696 | 18,935,395 | 28,011,088 | 18,924,010 | ||||||||||||
Net loss per share from continuing operations | ||||||||||||||||
– basic and diluted | $ | (0.07 | ) | $ | (0.00 | ) | $ | (0.10 | ) | $ | (0.00 | ) | ||||
Net loss per share from discontinued operations | ||||||||||||||||
– basic and diluted | $ | (0.07 | ) | $ | (0.00 | ) | $ | (0.10 | ) | $ | (0.00 | ) | ||||
See accompanying notes to unaudited consolidated financial statements.
4
And Subsidiaries
Consolidated Statements of Cash Flows
| Six months ended June 30, | ||||||||
| 2007 | 2006 | |||||||
| (unaudited) | (unaudited) | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,720,820 | ) | $ | (46,632 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock compensation expense – advisory board stock grants | 89,351 | — | ||||||
Stock compensation expense – employee stock grants | 161,686 | — | ||||||
Stock compensation expense – employee stock option grants | 690,413 | — | ||||||
Depreciation and amortization | 19,681 | |||||||
(Increase) decrease in assets: | ||||||||
Prepaid drilling costs | (252,289 | ) | — | |||||
Funds held in escrow | 25,206 | — | ||||||
Prepaid expenses | (3,354 | ) | — | |||||
Other current assets | (1,545 | ) | — | |||||
Increase (decrease) in liabilities: | ||||||||
Accounts payable | 36,129 | 26,491 | ||||||
Accrued expenses | 13,671 | — | ||||||
Net cash used in operating activities of continuing operations | (1,941,871 | ) | (20,141 | ) | ||||
Net cash provided by (used in) discontinued operations | (42,599 | ) | 20,086 | |||||
Net cash used in operating activities | (1,984,470 | ) | (55 | ) | ||||
Cash flows from investing activities: | ||||||||
Oil and gas properties | (340,056 | ) | — | |||||
Purchase of property and equipment | (8,163 | ) | — | |||||
Net cash used in investing activities of continuing operations | (348,219 | ) | — | |||||
Net cash provided by investing activities of discontinued operations | 7,600 | — | ||||||
Net cash used in investing activities | (340,619 | ) | — | |||||
Cash flows from financing activities: | ||||||||
Net proceeds from issuances of common stock | 1,056,887 | 43,500 | ||||||
Net proceeds from issuances of promissory notes | 1,000,000 | — | ||||||
Proceeds from advances from stockholder | — | 11,880 | ||||||
Net cash provided by financing activities | 2,056,887 | 55,380 | ||||||
Net increase (decrease) in cash | (268,202 | ) | 55,325 | |||||
Cash, beginning of period | 450,850 | — | ||||||
Cash, end of period | $ | 182,648 | $ | 55,325 | ||||
Supplemental Schedule of Non-cash Financing Activities: | ||||||||
Discounts on promissory notes | $ | 187,488 | $ | — | ||||
See accompanying notes to unaudited consolidated financial statements.
5
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2007
NOTE 1 – ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Reporting Entity. Universal Energy Corp. and Subsidiaries (“Universal” or the “Company”) were incorporated in the State of Delaware on January 4, 2002, January 24, 2002 and February 26, 2007, respectively. The Company is authorized to issue 250,000,000 shares of common stock, par value $0.0001. The Company’s office is located in Lake Mary, Florida. Universal Energy Corp. is an independent energy company engaged in the acquisition and development of crude oil and natural gas leases in the United States and Canada.
Principles of Consolidation.The Company’s consolidated financial statements for the periods ended June 30, 2007 and 2006, include the accounts of its wholly owned subsidiaries UT Holdings, Inc. and Universal Explorations Corp. (new in 2007), both Delaware corporations. All intercompany balances and transactions have been eliminated.
Discontinued Operations. Due to our inability to expand our tanning operations, on May 21, 2006, the Board of Directors approved changing the business direction from operating our single tanning salon to fully pursuing plans to acquire and develop oil and natural gas properties. The Company sold the assets and ceased operations of its tanning business in February 2007. The results of operations from the tanning salon are included in discontinued operations on the consolidated statements of operations.
Name Change. On May 21, 2006 a majority of the stockholders approved changing the name of the Company from “Universal Tanning Ventures, Inc.” to “Universal Energy Corp.” and increasing the number of shares of our capital stock we are authorized to issue to 250,000,000 shares, of which all 250,000,000 shares will be Common Stock.
Stock-Split.On February 20, 2007, the Company declared a two and one-half-for-one stock split in the form of a stock dividend, payable March 14, 2007 to stockholders of record as of March 13, 2007. The Company retained the current par value of $0.0001 for all shares of common stock. Stockholders’ equity has been restated to give retroactive recognition to the stock split in prior periods by reclassifying from additional paid-in-capital to common stock the par value of the 16,531,285 shares arising from the split. Except where and as otherwise stated to the contrary in this annual report, all share and prices per share have been adjusted to give retroactive effect to the change in the price per share of the common stock resulting from the two and one-half-for-one forward split of the common stock that took effect on March 14, 2007.
Reclassifications. Certain prior periods’ balances have been reclassified to conform to the current year consolidated financial statement presentation. These reclassifications had no impact on previously reported consolidated results of operations or stockholders’ equity.
NOTE 2 – BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared by Universal Energy Corp. (the “Company”) without audit, pursuant to the rules and regulations of the U. S. Securities and Exchange Commission for Form 10-QSB. 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 omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The unaudited consolidated financial statements included herein reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. Interim results are not necessarily indicative of the results that may be expected for the year. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operation, for the year ended December 31, 2006, contained in the Company’s December 31, 2006 Annual Report on Form 10-KSB.
6
UNIVERSAL ENERGY CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
NOTE 2 – BASIS OF PRESENTATION, CONTINUED
The Company’s consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has experienced net losses since January 4, 2002 (date of inception), which losses have caused an accumulated deficit of approximately $4,094,000 as of June 30, 2007. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management has been able, thus far, to finance the losses, as well as the growth of the business, mostly through private placements of our common stock and promissory notes. The Company continues to seek other sources of financing and is attempting to increase revenues by acquiring additional domestic oil and gas prospects while completing the drilling on the prospects the Company currently has an interest in.
In view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations. Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company cannot continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes. The Company accounts for income taxes utilizing the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enacted date. The Company has net operating loss carryforwards that may be offset against future taxable income. Due to the uncertainty regarding the success of future operations, management has valued the deferred tax asset allowance at 100% of the related deferred tax assets.
Loss per Share. The Company utilizes Financial Accounting Standards Board Statement No. 128, “Earnings Per Share.” Statement No. 128 requires the presentation of basic and diluted loss per share on the face of the statement of operations. Basic loss per share has been calculated using the weighted average number of common shares outstanding during the period. The Company’s common stock warrants and options have been excluded from the diluted loss per share computation since their effect is anti-dilutive.
Full Cost Method. The Company utilizes the full-cost method of accounting for petroleum and natural gas properties. Under this method, the Company capitalizes all costs associated with acquisition, exploration and development of oil and natural gas reserves, including leasehold acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling of productive and non-productive wells into the full cost pool. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves proved and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. The costs of unproved properties are not amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such determination is made, the Company assesses quarterly whether impairment has occurred, and includes in the amortization base drilling exploratory dry holes associated with unproved properties.
7
UNIVERSAL ENERGY CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Stock Based Compensation.Effective January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment,” which requires the Company to record as an expense in its financial statements the fair value of all stock-based compensation awards. The Company currently utilizes a standard option pricing model (i.e., Black-Scholes) to measure the fair value of stock options granted to employees using the “modified prospective” method. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123(R) for all share-based payments granted after that date, and based on the requirements of SFAS No. 123(R) for all unvested awards granted prior to the effective date of SFAS No. 123(R). During 2005, no share-based payments were granted under the Company’s stock option plan and therefore the Company did not have any share-based compensation expense under the modified prospective method for that period.
Fair Value of Financial Instruments. The carrying amount of accounts payable, accrued expenses and promissory notes approximates fair value because of the short maturity of those instruments.
NOTE 4 – OIL AND GAS PROPERTIES, UNPROVEN
The total costs incurred and excluded from amortization are summarized as follows:
| Acquisition | Exploration | Impairment Loss | Net Carrying Value June 30, | ||||||||||||
| 2007 | 2006 | ||||||||||||||
Canada | $ | — | $ | 131,174 | $ | — | $ | 131,174 | $ | — | |||||
United Sates |
| 315,811 | — | — |
| 315,811 | — | ||||||||
Totals | $ | 315,811 | $ | 131,174 | $ | — | $ | 446,985 | $ | — | |||||
All of the Company’s oil and gas properties are unproven and are located in Louisiana and Alberta, Canada
Alberta, Canada. In September 2006, we acquired an interest in a property located in the Pembina Nisku oil field. We have an agreement to earn a 95% working interest in 480 acres of leased lands by drilling a test well to the base of the Nisku formation, subject to a convertible 15.0% GORR (gross overriding royalty) to the lease holder. The allowable 160 acre spacing does permit for up to three wells to be drilled on this prospect. The costs of this property will not be amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such determination is made, the Company assesses quarterly whether impairment has occurred, and includes in the amortization base drilling exploratory dry holes associated with unproved properties. As of June 30, 2007, no impairment has occurred.
Plaquemines Parish, Louisiana - Caviar.In March 2007,we signed a participation agreement with Yuma Exploration and Production Company to expand our oil and gas exploration and production segment of the Company into Southeastern Louisiana. The agreement allows us to earn a 10% working interest before casing point and a 7.5% interest after casing point based on the participation in the drilling of a test well. This obligation will allow us to participate on three remaining wells within the prospect. This prospect, named Caviar, lies in the prolific Middle Miocene Trend, which is located in the Plaquemines Parish of Southeastern Louisiana. Drilling is scheduled to begin on this project in September 2007 to achieve wells between 9,000 and 11,000 feet deep. As of June 30, 2007, no impairment has occurred.
8
UNIVERSAL ENERGY CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
NOTE 4 – OIL AND GAS PROPERTIES, UNPROVEN, CONTINUED
Plaquemines Parish, Louisiana – Amberjack.In May 2007, we signed a participation agreement to earn a 7.5% working interest before casing point and a 5.625% interest after casing point based on the participation in the drilling of a test well. This prospect, named Amberjack, is a quality through-peak amplitude anomaly which ties numerous analogous productive amplitudes to the immediate area. Amberjack also lies in the prolific Middle Miocene Trend. Drilling is scheduled to begin on this project in August 2007 to achieve wells between 10,200 and 10,600 feet deep. As of June 30, 2007, no impairment has occurred.
Plaquemines Parish, Louisiana –Lake Campo.In May 2007, we signed a participation agreement to earn a 12.5% working interest before casing point and a 9.375% interest after casing point based on the participation in the drilling of a test well. This prospect, named Lake Campo, is a established productive structure that produces gas from water drive sands down-dip to the proposed drill location. Lake Campo also lies in the prolific Middle Miocene Trend. Drilling is scheduled to begin on this project in November 2007 to achieve wells between 8,200 and 9,800 feet deep. As of June 30, 2007, no impairment has occurred.
NOTE 5 – PROMISSORY NOTES
Promissory Note with Stockholder - $250,000. On June 12, 2007, the Company issued an unsecured promissory note in the amount of $250,000 to a stockholder. Interest accrues on the outstanding principal balance from and after June 12, 2007 at a rate of 11 percent per annum. Interest shall be calculated on the basis of a 360-day year, and shall be charged on the principal outstanding from time to time for the actual number of days elapsed. The Company shall pay the Holder all accrued interest and the outstanding principal on the maturity date. The maturity date of the note is December 12, 2007.
Promissory Notes - $750,000. On or about June 12, 2007, the Company issued unsecured promissory notes in the amount of $750,000 to certain investors. Interest accrues on the outstanding principal balance from and after June 12, 2007 at a rate of 11 percent per annum. Interest shall be calculated on the basis of a 360-day year, and shall be charged on the principal outstanding from time to time for the actual number of days elapsed. The Company shall pay the Holders all accrued interest and the outstanding principal on the maturity date. The maturity date of the notes is December 12, 2007.
Contemporaneous with the issuance of the promissory notes, a total of 750,000 warrants were issued at an exercise price of $1.25. The warrants have 5 year term from the date of the promissory note. If at any time after one year from the Initial Exercise Date there is no effective registration statement (“Registration Statement”) registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where (A) = the Volume Weighted Average Price (“VWAP”) on the Trading Day immediately preceding the date of such election; (B) = the Exercise Price of this Warrant, as adjusted; and (X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.
The fair value of the warrants issued was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 5.13%; no dividend yields; volatility factors of the expected market price of our common stock of 23.12; an estimated forfeiture rate of 15%; and an expected life of the warrants of 5 years. This generates a price of $0.39 per warrants based on a strike price of $1.25 at the date of grant, which was June 12, 2007. As a result, approximately $187,500 of discount on promissory notes and additional paid-in capital was recorded during the six month period ended June 30, 2007 relating to the issuance of promissory notes.
9
UNIVERSAL ENERGY CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
NOTE 6 – COMMITMENTS AND CONTINGENCIES
On September 14, 2006, the Company entered into a three-year employment agreement with Mr. Dyron Watford to be its chief financial officer and chairman. The employment agreement provides for a base salary of $6,000 per month subject to certain increases throughout the term of the contract. Pursuant to the agreement, Mr. Watford received 6,250,000 options to purchase common stock in the company at a price of $0.78 per share. The options will vest monthly over the term of the employment agreement and will expire five years after the vesting date. The Board of Directors amended Mr. Watford’s annual base salary to $180,000 in March 2007.
On September 15, 2006, the Company entered into a three-year employment agreement with Mr. Billy Raley to be its chief executive officer. The employment agreement provides for a base salary of $8,000 per month subject to certain increases throughout the term of the contract. Pursuant to the agreement, Mr. Raley received 6,250,000 options to purchase common stock in the company at a price of $0.78 per share. The options will vest monthly over the term of the employment agreement and will expire five years after the vesting date. The Board of Directors amended Mr. Raley’s annual base salary to $225,000 in March 2007.
On October 6, 2006, the Company entered into a two-year employment agreement with Mr. Kevin Tattersall to be its chief exploration officer. The employment agreement provides for a base salary of $5,000 per month. Pursuant to the agreement, Mr. Tattersall received 812,500 shares of common stock in the company. The stock issued to Mr. Tattersall is restricted as defined by the Securities Act of 1933, as amended. The shares will vest monthly over the term of the employment agreement and vesting is contingent upon continued employment with the Company. Any remaining unvested shares of common stock at the time of termination or resignation from the Company will be forfeited by the executive.
NOTE 7 – CAPITAL DEFICIENCY
On February 20, 2007, the Company declared a two and one-half-for-one stock split in the form of a stock dividend, payable March 14, 2007 to stockholders of record as of March 13, 2007. The Company retained the current par value of $0.0001 for all shares of common stock. Stockholders’ equity has been restated to give retroactive recognition to the stock split in prior periods by reclassifying from additional paid-in-capital to common stock the par value of the 16,531,285 shares arising from the split. Except where and as otherwise stated to the contrary in this report, all share and prices per share have been adjusted to give retroactive effect to the change in the price per share of the common stock resulting from the two and one-half-for-one forward split of the common stock that took effect on March 14, 2007.
Between January 2007 and May 2007, the Company issued 976,038 shares of restricted common stock to offshore investors and was exempt from registration pursuant to Regulation S for net proceeds of $283,886.
On October 15, 2006 we offered for sale $1,500,000 in $15,000 units. The offering closed in February 2007 and the all of the warrants were redeemed in April 2007. Pursuant to this offering, the Company sold 2,070,000 shares of restricted stock to investors for net proceeds of $773,000 between January and April 2007. Each investor had access to and was provided with relevant information concerning the company. The securities were exempt from registration pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended.
On October 6, 2006, the Company entered into a two-year employment agreement with Mr. Kevin Tattersall to be its chief exploration officer. As part of his compensation and pursuant to the agreement, we issued Mr. Tattersall 812,500 shares of common stock in the company. The stock issued to Mr. Tattersall is restricted as defined by the Securities Act of 1933, as amended. The shares will vest monthly over the term of the employment agreement and vesting is contingent upon continued employment with the Company. Any remaining unvested shares of common stock at the time of termination or resignation from the Company will be forfeited by the executive. At the date of issuance, the shares were valued at the closing bid price on October 6, 2006 at $0.80. For the six month period ended June 30, 2007, the Company recorded approximately $161,700 as compensation expense under this agreement for the vesting of 203,124 shares.
During 2007, the Company issued 75,000 shares of restricted common stock to members of the Company’s advisory board. At the date of each issuance, the shares were valued at the closing bid price. For the six month period ended June 30, 2007, the Company recorded approximately $89,350 as compensation expense under these agreements.
10
UNIVERSAL ENERGY CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
NOTE 8 – STOCK OPTION PLAN
The 2006 Non-Statutory Stock Option Plan was adopted by the Board of Directors on September 13, 2006. Under this plan, options for a maximum of 37,500,000 shares of our common stock, par value $0.0001, were authorized for issue. The vesting and terms of all of the options are determined by the Board of Directors and may vary by optionee; however, the term may be no longer than 10 years from the date of grant.
In September 2006, the Company awarded 12,500,000 stock options to certain employees, officers, and directors for services rendered. Under FASB Statement No. 123R, “Share-Based Payment,” these options were valued at fair value at the date of grant. The fair value of the options issued was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 4.65%; no dividend yields; volatility factors of the expected market price of our common stock of 0.71; an estimated forfeiture rate of 15%; and an expected life of the options of 3 years. This generates a price of $0.39 per option based on a strike price of $0.78 at the date of grant, which was September 15, 2006. As a result, approximately $690,400 of compensation expense and additional paid-in capital was recorded during the six month period ended June 30, 2007 relating to the vesting of 2,083,334 options awarded. As of June 30, 2007, a total of 9,204,388 nonvested shares remained outstanding with a weighted average price of $0.78 and a grant date value of $0.39 per share. At June 30, 2007, the aggregate intrinsic value of the stock options issued and vested was $10,875,000 and $2,867,200, respectively.
Options | Number of Shares | Option Price | |||
Granted | 12,500,000 | $ | 0.78 | ||
Exercised | — | — | |||
Cancelled | — | — | |||
Outstanding at June 30, 2007 | 12,500,000 | $ | 0.78 | ||
NOTE 9 – DISCONTINUED OPERATIONS
The Property and equipment, formerly classified as current assets of discontinued operations in our financial statements, was sold in February 2007 for net proceeds of $7,600. Contemporaneous with the sale of the assets the business operations of the tanning salon ceased.
NOTE 10 – SUBSEQUENT EVENTS
In August 2007, we signed a participation agreement with Yuma Exploration and Production Company for the East OMG prospect in Cameron, Louisiana.
East OMG Prospect –This agreement allows us to earn a 17.5% working interest before casing point and a 13.125% interest after casing point based on the participation in the drilling of a test well. This prospect, named East OMG is located in Cameron Parish, Louisiana. The combined reserve potential of the four principal objective sandstones that comprise the East OMG prospect is estimated to be greater than 59 BCFE. The project will be drilled during the fall of 2007.
11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
The following discussion of our plan of operation, financial condition and results of operations should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, included elsewhere herein. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those discussed in this Quarterly Report. See “Special Note Regarding Forward Looking Statements” included elsewhere in this Quarterly Report. Additional risk factors are also identified in our annual report to the U. S. Securities and Exchange Commission filed on Form 10-KSB and in other SEC filings.
Corporate History
Our company was incorporated in the State of Delaware on January 4, 2002, under the name of “Universal Tanning Ventures, Inc.” On May 21, 2006, we changed our name to “Universal Energy Corp.” and became a company focused on the acquisition and development of oil and natural gas properties.
Plan of Operation
We are an independent diversified energy company engaged in the acquisition and development of crude oil and natural gas leases in the United States and Canada. We pursue oil and gas prospects in partnership with oil and gas companies with exploration, development and production expertise. Our prospect areas consist of land in Alberta, Canada and Plaquemines Parish, Louisiana.
We plan to grow our business by acquiring (i) low risk in-field oil and gas rights that are primarily developmental in nature that offset existing production and (ii) energy services companies that when combined with our management expertise in that area will display strong top line growth and cash flows.
Since inception, we have funded our operations primarily from private placements of our common stock and debt issuances. Although we expect that, during the next 12 months, our operating capital needs will be met from our current economic resources and by additional private capital stock transactions, there can be no assurance that funds required will be available on terms acceptable to us or at all. Without additional financing, we expect that our current working capital will be able to fund our operations through October 2007. If we are unable to raise sufficient funds on terms acceptable to us, we may be unable to complete our business plan. If equity financing is available to us on acceptable terms, it could result in additional dilution to our stockholders.
As of June 30, 2007, we have yet to generate any revenues from operations of our new core business. From inception to June 30, 2007, we have accumulated losses of approximately $4,094,400 and expect to incur further losses in the development of our business, all of which casts doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due.
Our Prospects
Nisku Reef Prospect – Alberta, Canada
In September 2006, we acquired a working interest in a project situated in the Pembina oil field in an area that is concentrated with Nisku Pinnacle Reef occurrence. We have an agreement to earn a 95% working interest in 480 acres of leased lands by drilling a test well to the base of the Nisku formation, subject to a convertible 15.0% GORR (gross overriding royalty) to the lease holder. The allowable 160 acre spacing does permit for up to three wells to be drilled on this prospect. This prospect can be characterized as a “high impact” oil and gas prospect in central Alberta. The project is characterized as having a high potential in terms of production capability with a more moderate risk factor due to indicative seismic data and good well control from the offset wells. The offset wells within 2 miles of our property that have been successfully completed in the Nisku formation have averaged the following initial production rates of 1,000 barrels of oil to as high as 7,000 barrels per day demonstrated by a well two miles northeast of our current prospect. We have performed 3-D seismic programs and magneto telluric programs on our prospect during the 4th quarter of 2006 and the first quarter of 2007.
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Amberjack Prospect – Plaquemines Parish, Louisiana
We can earn a 7.5% working interest before casing point and a 5.625% interest after casing point based on the participation in the drilling of a test well. This prospect, named Amberjack, is a quality through-peak amplitude anomaly which ties numerous analogous productive amplitudes to the immediate area. Amberjack also lies in the prolific Middle Miocene Trend. Drilling is scheduled to begin on this project in August 2007 to achieve wells between 10,200 and 10,600 feet deep.
Caviar Prospect – Plaquemines Parish, Louisiana
In March 2007,we signed a participation agreement with Yuma Exploration and Production Company to expand our oil and gas exploration and production segment of the company into Southeastern Louisiana. The agreement allows us to earn a 10% working interest before casing point and a 7.5% interest after casing point based on the participation in the drilling of a test well. This obligation will allow us to participate on three remaining wells within the prospect. This prospect, named Caviar, lies in the prolific Middle Miocene Trend, which stretches across most of Southeastern Louisiana. Drilling is scheduled to begin on this project this in the 3rd quarter of 2007 to achieve wells between 9,000 and 11,000 feet deep.
East OMG Prospect – Cameron Parish, Louisiana
We signed a participation agreement in August 2007 that allows us to earn a 17.5% working interest before casing point and a 13.125% interest after casing point based on the participation in the drilling of a well on this prospect named East OMG. Wells adjacent to the prospect have produced outstanding returns such as Chalkley Miogyp field and S. Lake Arthur, which have cumulative production of 500 billion cubic feet equivalent (“BCFE”) and 800 billion cubic feet, respectively. Production from the adjacent wells listed above is from the same Upper Miogyp sandstones that are the main objective of the East OMG Prospect. The combined reserve potential of the four principal objective sandstones that comprise the East OMG prospect is estimated to be greater than 59 BCFE. The project will be drilled during the fall of 2007.
Lake Campo Prospect – Plaquemines Parish, Louisiana
We can earn a 12.5% working interest before casing point and a 9.375% interest after casing point based on the participation in the drilling of a test well. This prospect, named Lake Campo, is a established productive structure that produces gas from water drive sands down-dip to the proposed drill location. Lake Campo also lies in the prolific Middle Miocene Trend. Drilling is scheduled to begin on this project in November 2007 to achieve wells between 8,200 and 9,800 feet deep.
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CONSOLIDATED FINANCIAL INFORMATION
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
| 2007 | 2006 | 2007 | 2006 | ||||||||||
Investor/public relations expense | $ | 1,286,400 | $ | — | $ | 1,300,900 | $ | — | |||||
Stock compensation expense | $ | 479,100 | $ | — | $ | 941,500 | $ | — | |||||
Selling, general and administrative | $ | 241,800 | $ | 31,100 | $ | 420,300 | $ | 60,600 | |||||
Gain (loss) from discontinued operations | $ | — | $ | 3,100 | $ | (34,200 | ) | $ | 14,000 | ||||
Comparison of Three Months Ended June 30, 2007 and June 30, 2006.
Investor/public relations Expense. Investor/public relations expenses for the three months ended June 30, 2007 increased $1,286,400 to approximately $1,286,400 from $0 for the same period in 2006. The increase was primarily attributable to investor/public awareness campaigns to help develop a brand name for the Company.
Stock Compensation Expense. Stock compensation expenses for the three months ended June 30, 2007 increased $479,100 to approximately $479,100 from $0 for the same period in 2006. The increase was primarily attributable to stock option awards to our executive officers and advisory board members.
Selling, General and Administrative. Selling, general and administrative expenses for the three months ended June 30, 2007 increased $210,700 (or 677%) to approximately $241,800 from approximately $31,100 for the same period in 2006. The increase was primarily attributable to increased wages, travel and other acquisition costs associated with changing the direction of the Company to pursue oil and gas prospects.
Discontinued Operations. Gain (loss) from discontinued operations for the three months ended June 30, 2007 decreased $3,100 to $0 from $3,100 for the same period in 2006. During the three months ended June 30, 2007, there were no further operations of the discontinued operations.
Net Loss. Net loss for the three months ended June 30, 2007 was approximately $2,031,200 compared to $28,000 for 2006. The increase in our net loss was due to the reasons described herein above.
Comparison of Six Months Ended June 30, 2007 and June 30, 2006.
Investor/public relations Expense. Investor/public relations expenses for the six months ended June 30, 2007 increased $1,300,900 to approximately $1,300,900 from $0 for the same period in 2006. The increase was primarily attributable to investor/public awareness campaigns to help develop a brand name for the Company.
Stock Compensation Expense. Stock compensation expenses for the six months ended June 30, 2007 increased $941,500 to approximately $941,500 from $0 for the same period in 2006. The increase was primarily attributable to stock option awards to our executive officers and advisory board members.
Selling, General and Administrative. Selling, general and administrative expenses for the six months ended June 30, 2007 increased $359,300 (or 592%) to approximately $420,300 from approximately $60,600 for the same period in 2006. The increase was primarily attributable to increased wages, travel and other acquisition costs associated with changing the direction of the Company to pursue oil and gas prospects.
Discontinued Operations. Gain from discontinued operations for six months ended June 30, 2007 increased $48,200 to approximately $(34,200) from approximately $14,000 for the same period in 2006. During 2006, the loss was primarily attributable to a loss of a significant portion of the business and increased administrative costs associated with ceasing operations.
Net Loss. Net loss for the six months ended June 30, 2007 was approximately $2,720,800 compared to approximately $46,600 for 2006. The increase in our net loss was due to the reasons described herein above.
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Liquidity and Capital Resources
Net cash used in continuing operating activities of continuing operations totaled approximately $1,941,900 during the six months ended June 30, 2007, compared to net cash used in continuing operating activities of approximately $20,100 for the same period in 2006. Net cash used in discontinued operating activities totaled approximately $42,600 during the six months ended June 30, 2007, compared to net cash provided by discontinued operations of approximately $20,100 for the same period in 2006.
Cash provided by investing activities from discontinued operations totaled $7,600 and $0 during the six months ended June 30, 2007 and 2006, respectively. Cash used in investing activities from continuing operations totaled approximately $348,200 and $0 during the six months ended June 30, 2007 and 2006, respectively. The increase was primarily attributable to investments in oil and gas properties.
Net cash provided by financing activities totaled approximately $2,056,900 and $55,400 during the six months ended June 30, 2007 and 2006, respectively. During the six months ended June 30, 2007, financing activities consisted of proceeds from private offerings of our common stock and the issuance of promissory notes.
At June 30, 2007 we had cash balances in the amount of approximately $182,600. Our principal source of funds has been cash generated from financing activities. We have been unable to generate significant liquidity or cash flow from our current operations. We anticipate that cash flows from continuing operations or discontinued operations will be insufficient to fund our business operations for the full year 2007 and that we must continue attempting to raise additional capital to fund our operations and implement our business plan.
Additional Financing
We will require additional financing in order to complete our stated plan of operations for the next twelve months. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. We currently have no firm commitments for any additional capital.
The trading price of our shares of common stock and a downturn in the United States stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
Variables and Trends
We have very limited history with respect to our acquisition and development of oil and gas properties. In the event we are able to obtain the necessary financing to move forward with our business plan, we expect our expenses to increase significantly as we grow our business. Accordingly, the comparison of the financial data for the periods presented may not be a meaningful indicator of our future performance and must be considered in light these circumstances.
Critical Accounting Policies
We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available to us. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
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revenues and expenses during the periods presented. The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
Net operating loss carryforwards. As of June 30, 2007, we have incurred a net operating loss of approximately $4,076,000 since inception. This net operating loss may be used to reduce future federal income taxes, if any. No provision for federal or state income taxes has been recorded, and we have not recorded any benefit was not recognized due to the possibility that the net operating loss carryforward would not be utilized, for various reasons, including the potential that we might not have sufficient profits to use the carryforward or that the carryforward may be limited as a result of changes in our equity ownership. We intend to use this carryforward to offset our future taxable income. If we were to use any of this net operating loss carryforward to reduce our future taxable income and the Internal Revenue Service were to then successfully assert that our carryforward is subject to limitation as a result of capital transactions occurring in 2002 or otherwise, we may be liable for back taxes, interest and, possibly, penalties prospectively.
Impairment of Long Lived Assets.We assess the impairment of long-lived assets on an ongoing basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable based upon an estimate of future undiscounted cash flows. Factors we consider that could trigger an impairment review include the following: (i) significant underperformance relative to expected historical or projected future operating results; (ii) significant changes in the manner of our use of the acquired assets or the strategy for our overall business; (iii) significant negative industry or economic trends; (iv) significant decline in our stock price for a sustained period; and (v) our market capitalization relative to net book value.
When we determine that the carrying value of any long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure impairment based on the difference between an asset’s carrying value and an estimate of fair value, which may be determined based upon quotes or a projected discounted cash flow, using a discount rate determined by our management to be commensurate with our cost of capital and the risk inherent in our current business model, and other measures of fair value.
Full Cost Method. The Company utilizes the full-cost method of accounting for petroleum and natural gas properties. Under this method, the Company capitalizes all costs associated with acquisition, exploration and development of oil and natural gas reserves, including leasehold acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling of productive and non-productive wells into the full cost pool. As of June 30, 2007, the Company had no properties with proven reserves. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves proved and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. The costs of unproved properties are not amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such determination is made, the Company assesses annually whether impairment has occurred, and includes in the amortization base drilling exploratory dry holes associated with unproved properties.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Glossary of Industry Terms
The following is a description of the meanings of some of the natural gas and oil industry terms used in this report.
Bcf. Billion cubic feet of natural gas.
Casing Point. The location, or depth, at which drilling an interval of a particular diameter hole ceases, so that casing of a given size can be run and cemented.
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Completion. The installation of permanent equipment for the production of natural gas or oil.
Gross acres or gross wells. The total acres or wells, as the case may be, in which a working interest is owned.
Mcf. Thousand cubic feet of natural gas.
Mcfe. Thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
MMcf. Million cubic feet of natural gas.
Prospect. A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.
Proved developed oil and gas reserves. Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery should be included as “proved developed reserves” only after testing by a pilot project or after the operation of an installed program has confirmed through production responses that increased recovery will be achieved.
Proved oil and gas reserves. The estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes (a) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any, and (b) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the “proved” classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based. Estimates of proved reserves do not include the following: (a) oil that may become available from known reservoirs but is classified separately as “indicated additional reserves”; (b) crude oil, natural gas and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics or economic factors; (c) crude oil, natural gas and natural gas liquids that may occur in undrilled prospects; and (d) crude oil, natural gas and natural gas liquids that may be recovered from oil shales, coal, gilsonite and other such sources.
Proved properties. Properties with proved reserves.
Proved undeveloped reserves. Reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Proved undeveloped reserves may not include estimates attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir.
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Unproved properties. Properties with no proved reserves.
Working interest. The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive a share of production.
Special Note Regarding Forward Looking Statements
This report includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements included in this report, other than statements of historical facts, address matters that the Company reasonably expects, believes or anticipates will or may occur in the future. Forward-looking statements may relate to, among other things:
| • | the Company’s future financial position, including working capital and anticipated cash flow; |
| • | amounts and nature of future capital expenditures; |
| • | operating costs and other expenses; |
| • | wells to be drilled or reworked; |
| • | oil and natural gas prices and demand; |
| • | existing fields, wells and prospects; |
| • | diversification of exploration; |
| • | estimates of proved oil and natural gas reserves; |
| • | reserve potential; |
| • | development and drilling potential; |
| • | expansion and other development trends in the oil and natural gas industry; |
| • | the Company’s business strategy; |
| • | production of oil and natural gas; |
| • | effects of federal, state and local regulation; |
| • | insurance coverage; |
| • | employee relations; |
| • | investment strategy and risk; and |
| • | expansion and growth of the Company’s business and operations. |
Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Disclosure of important factors that could cause actual results to differ materially from the Company’s expectations, or cautionary statements, are included under “Risk Factors” and elsewhere in this report , including, without limitation, in conjunction with the forward-looking statements. The following factors, among others that could cause actual results to differ materially from the Company’s expectations, include:
| • | unexpected changes in business or economic conditions; |
| • | significant changes in natural gas and oil prices; |
| • | timing and amount of production; |
| • | unanticipated down-hole mechanical problems in wells or problems related to producing reservoirs or infrastructure; |
| • | changes in overhead costs; and |
| • | material events resulting in changes in estimates. |
All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on the Company’s behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
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A more comprehensive list of such factors and related discussion are set forth in our Annual Report on Form 10-KSB and our other filings made with the SEC from time to time.
ITEM 3 - CONTROLS AND PROCEDURES
We have evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of June 30, 2007. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that our disclosure controls and procedures are effective to ensure that we record, process, summarize, and report information required to be disclosed by us in our quarterly reports filed under the Securities Exchange Act within the time periods specified by the Securities and Exchange Commission’s rules and forms.
During the quarterly period covered by this report, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect its internal controls subsequent to the Evaluation Date.
The Company is not a party to any pending legal proceedings nor is any of its property subject to pending legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
| (a) | Not applicable. |
| (b) | Not applicable. |
| (c) | In 2007, the Company issued 976,038 shares of restricted common stock to offshore investors and was exempt from registration pursuant to Regulation S for net proceeds of $283,886. |
In 2007, the Company sold 2,070,000 shares of restricted stock to investors for net proceeds of $773,000. Each investor had access to and was provided with relevant information concerning the company. The securities were exempt from registration pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended
During 2007, the Company issued 75,000 shares of restricted common stock to members of the Company’s advisory board. At the date of each issuance, the shares were valued at the closing bid price. For the six month period ended June 30, 2007, the Company recorded approximately $89,350 as compensation expense under these agreements.
The proceeds from the above stock issuances were used for general and administrative expenses as well as the acquisition of oil and gas properties.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Not Applicable.
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| EXHIBIT NUMBER | DESCRIPTION | |
| 3.1 | Form of Articles of Incorporation of Universal Tanning Ventures, Inc. (previously filed in registration statement on Form SB-2 File No. 333-101551, filed with the Securities and Exchange Commission on November 27, 2002). | |
| 3.2 | By-laws of Universal Tanning Ventures (previously filed in registration statement on Form SB-2 File No. 333-101551, filed with the Securities and Exchange Commission on November 27, 2002). | |
| 3.3 | Certificate of Renewal and Revival, filed June 23, 2006 (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006). | |
| 3.4 | Certificate of Amendment of Certificate of Incorporation, filed June 23, 2006 (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006). | |
| 10.1 | Investment Advisory Agreement, dated as of May 5, 2006, by and among Universal Tanning Ventures, Inc. and Galileo Asset Management SA (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006). | |
| 10.2 | Stock Purchase Agreement, dated as of May 6, 2006, by and among Universal Tanning Ventures, Inc. and Rhino Island Capital, Ltd. (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006). | |
| 10.3 | Share Deposit Escrow Agreement, dated as of May 6, 2006, by and among Universal Tanning Ventures, Inc., Rhino Island Capital, Ltd. and Madison Stock Transfer, Inc. (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006). | |
| 10.4 | Stock Purchase Agreement, dated August 14, 2006, between Universal Energy Corp. and Mr. Isaac Rotnemer (previously filed on Form 8-K, filed with the Securities and Exchange Commission on August 18, 2006). | |
| 10.5 | 2006 Non-Statutory Stock Option Plan, dated September 13, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006). | |
| 10.6 | Employment Agreement, dated as of September 14, 2006, by and between Universal Energy Corp. and Dyron M. Watford (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006). | |
| 10.7 | Stock Option Agreement between Universal Energy Corp. and Dyron M. Watford, dated September 14, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006). | |
| 10.8 | Employment Agreement, dated as of September 15, 2006, by and between Universal Energy Corp. and Billy Raley (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006). | |
| 10.9 | Stock Option Agreement between Universal Energy Corp. and Billy Raley, dated September 15, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006). | |
| 10.10 | Seismic Option, Farmout and Net Carried Interest Agreement between 1097885 Alberta Ltd., 0700667 BC Ltd., and Universal Energy Corp., dated September 22, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 26, 2006). | |
| 10.11 | Employment Agreement, dated as of October 6, 2006, by and between Universal Energy Corp. and Kevin Tattersall (previously filed on Form 8-K, filed with the Securities and Exchange Commission on October 12, 2006). | |
| 10.12 | Participation Agreement, dated as Of March 28, 2007, by and Between Universal Explorations Corp. and Yuma Exploration And Production Company, Inc. (previously filed on Form 8-K, filed with the Securities and Exchange Commission on April 5, 2007) | |
| 10.13 | Agreement, dated as Of May 2, 2007, by and Between Universal Energy Corp. and Capital Financial Media, LLC * | |
| 10.14 | Participation Agreement, dated as Of May 2, 2007, by and Between Universal Explorations Corp. and Yuma Exploration And Production Company, Inc. (previously filed on Form 8-K, filed with the Securities and Exchange Commission on May 8, 2007) | |
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| EXHIBIT NUMBER | DESCRIPTION | |
| 10.15 | Participation Agreement, dated as Of May 2, 2007, by and Between Universal Explorations Corp. and Yuma Exploration And Production Company, Inc. (previously filed on Form 8-K, filed with the Securities and Exchange Commission on May 8, 2007) | |
| 10.16 | Agreement, dated as Of June 11, 2007, by and Between Universal Energy Corp. and Capital Financial Media, LLC * | |
| 14 | Code of Ethics (previously filed on Form 10-KSB, filed with the Securities and Exchange Commission on March 29, 2004). | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended* | |
| 31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended* | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.* | |
| 32.2 | Certification of 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 herewith. |
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In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 20, 2007
| Universal Energy Corp. | ||
| By: | /s/ Billy Raley | |
| Name: | Billy Raley | |
| Title: | Chief Executive Officer | |
| By: | /s/ Dyron M. Watford | |
| Name: | Dyron M. Watford | |
| Title: | Chief Financial Officer | |
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EXHIBIT INDEX
| EXHIBIT NUMBER | DESCRIPTION | |
| 3.1 | Form of Articles of Incorporation of Universal Tanning Ventures, Inc. (previously filed in registration statement on Form SB-2 File No. 333-101551, filed with the Securities and Exchange Commission on November 27, 2002). | |
| 3.2 | By-laws of Universal Tanning Ventures (previously filed in registration statement on Form SB-2 File No. 333-101551, filed with the Securities and Exchange Commission on November 27, 2002). | |
| 3.3 | Certificate of Renewal and Revival, filed June 23, 2006 (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006). | |
| 3.4 | Certificate of Amendment of Certificate of Incorporation, filed June 23, 2006 (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006). | |
| 10.1 | Investment Advisory Agreement, dated as of May 5, 2006, by and among Universal Tanning Ventures, Inc. and Galileo Asset Management SA (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006). | |
| 10.2 | Stock Purchase Agreement, dated as of May 6, 2006, by and among Universal Tanning Ventures, Inc. and Rhino Island Capital, Ltd. (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006). | |
| 10.3 | Share Deposit Escrow Agreement, dated as of May 6, 2006, by and among Universal Tanning Ventures, Inc., Rhino Island Capital, Ltd. and Madison Stock Transfer, Inc. (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006). | |
| 10.4 | Stock Purchase Agreement, dated August 14, 2006, between Universal Energy Corp. and Mr. Isaac Rotnemer (previously filed on Form 8-K, filed with the Securities and Exchange Commission on August 18, 2006). | |
| 10.5 | 2006 Non-Statutory Stock Option Plan, dated September 13, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006). | |
| 10.6 | Employment Agreement, dated as of September 14, 2006, by and between Universal Energy Corp. and Dyron M. Watford (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006). | |
| 10.7 | Stock Option Agreement between Universal Energy Corp. and Dyron M. Watford, dated September 14, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006). | |
| 10.8 | Employment Agreement, dated as of September 15, 2006, by and between Universal Energy Corp. and Billy Raley (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006). | |
| 10.9 | Stock Option Agreement between Universal Energy Corp. and Billy Raley, dated September 15, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006). | |
| 10.10 | Seismic Option, Farmout and Net Carried Interest Agreement between 1097885 Alberta Ltd., 0700667 BC Ltd., and Universal Energy Corp., dated September 22, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 26, 2006). | |
| 10.11 | Employment Agreement, dated as of October 6, 2006, by and between Universal Energy Corp. and Kevin Tattersall (previously filed on Form 8-K, filed with the Securities and Exchange Commission on October 12, 2006). | |
| 10.12 | Participation Agreement, dated as Of March 28, 2007, by and Between Universal Explorations Corp. and Yuma Exploration And Production Company, Inc. (previously filed on Form 8-K, filed with the Securities and Exchange Commission on April 5, 2007) | |
| 10.13 | Agreement, dated as Of May 2, 2007, by and Between Universal Energy Corp. and Capital Financial Media, LLC * | |
| 10.14 | Participation Agreement, dated as Of May 2, 2007, by and Between Universal Explorations Corp. and Yuma Exploration And Production Company, Inc. (previously filed on Form 8-K, filed with the Securities and Exchange Commission on May 8, 2007) | |
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| EXHIBIT NUMBER | DESCRIPTION | |
| 10.15 | Participation Agreement, dated as Of May 2, 2007, by and Between Universal Explorations Corp. and Yuma Exploration And Production Company, Inc. (previously filed on Form 8-K, filed with the Securities and Exchange Commission on May 8, 2007) | |
| 10.16 | Agreement, dated as Of June 11, 2007, by and Between Universal Energy Corp. and Capital Financial Media, LLC * | |
| 14 | Code of Ethics (previously filed on Form 10-KSB, filed with the Securities and Exchange Commission on March 29, 2004). | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended* | |
| 31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended* | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.* | |
| 32.2 | Certification of 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 herewith. |
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