The 10q has been out:
Form 10QSB for VOYAGER PETROLEUM, INC.
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20-Aug-2007
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements of Voyager Petroleum, Inc. and related notes included elsewhere in this filing as well as the 10-KSB filed with the Securities and Exchange Commission on April 13, 2007. References in this section to "Voyager Petroleum, Inc.," the "Company," "we," "us," and "our" refer to Voyager Petroleum, Inc. and our direct and indirect subsidiaries on a consolidated basis unless the context indicates otherwise.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this Plan of Operation of this Quarterly Report on Form 10-QSB and elsewhere in this filing that are not statements of historical or current fact constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause the actual results of the Company, performance (financial or operating) or achievements expressed or implied by such forward-looking statements not to occur or be realized. Such forward-looking statements generally are based upon the Company's best estimates of future results, general merger and acquisition activity in the marketplace, performance or achievement, current conditions and the most recent results of operations. Forward-looking statements may be identified by the use of forward-looking terminology such as "may," "will," "project," "expect," "believe," "estimate," "anticipate," "intends," "continue," "potential," "opportunity," or similar terms, variations of those terms or the negative of those terms or other variations of those terms or comparable words or expressions.
OVERVIEW
Voyager Petroleum, Inc. intends to acquire reputable middle-market petroleum-based lubricant companies that compound, blend and package private label motor oil and related products as well as acquire facilities to conduct like operations. Acquisition candidates also include suppliers and distributors of these products.
The Company's strategy is to target companies with established wholesale and third-party labeled products, regional distribution channels and seasoned management that would recognize increased revenue and/or significant cost savings from an injection of working capital, wider distribution channels and vertical integration of supply, processing, packaging and distribution.
RECENT DEVELOPMENTS
On March 23, 2007, the Company formed a wholly-owned subsidiary, Sovereign Oil, Inc., a Nevada corporation, to run its Illinois operations. Our President, Sebastien C. DuFort will also serve as the President of Sovereign Oil as well. To assist Mr. DuFort, Sovereign Oil recently hired Richard Stiefel, who has over fifty years experience in the petroleum industry to serve as Vice President. Mr. Stiefel was a founder of and built one of the largest independent oil companies in its time. Prior to coming to Voyager, Mr. Stiefel blended and packaged in excess of 400,000,000 quarts of oil annually, this included blending, packaging, and distribution for three major brands as well as marketing private label oil. Mr. Stiefel signed a standard employment agreement with the company for an unspecified term. In June, 2007, Sovereign Oil hired Mazen Khatib as its Vice President of Distribution. Mr. Khatib has over 20 years experience in the marketing and distribution of petroleum products which include various grades of oil and anti-freeze.
On April 19, 2007, Sovereign entered into a lease agreement with North American Refining Co. ("North American Refining"), a Delaware corporation, located in McCook, Illinois. North American Refining is a local compounding and blending facility with bottling capabilities. Sovereign will lease the blending facility for a ninety-day trial period which will be used to blend and dry reclaimed used oil for use in lubricant oil products which will be sold to the automotive and industrial after-markets. We will also have access to a loading dock, up to twenty storage tanks and associated equipment. The total lease price is $10.00 for the ninety-day lease period with blending and drying fees at $0.15 per gallon which are payable monthly on the tenth day following the last day of each month for the previous month's activity. North American has the right to terminate the Agreement within fifteen days written notice. The agreement was terminated on July 12, 2007 and a similar agreement was entered into on July 13, 2007 with a lease term of six-months for a total lease price of $10.00. The new lease required Sovereign to maintain general liability insurance.
On April 30, 2007, Cathy A. Persin was appointed the Company's Chief Financial Officer to fill the vacancy created upon Jefferson's Stanley's resignation on April 24, 2007. Ms. Persin has served as the Company's Vice President and Corporate Secretary since March, 2004.
On May 4, 2007, the Company formed two additional wholly-owned subsidiaries. The Company anticipates that 600 S. Deacon LLC and Monarch Petroleum, Inc., will respectively own and operate the Detroit blending facility provided due diligence is satisfactorily completed. In November, 2006, Voyager hired a Vice President of supply operations with twenty-four years of experience sourcing and processing used oil who will oversee the Detroit facility once it is operational. As of the date of this filing, these corporations are inactive.
On May 15, 2007, an unaffiliated third party purchased the total outstanding principal and interest of our convertible debentures with Cornell Capital and Trey Resources. Installment payments under the purchase agreement are secured by the debentures and, in the event of default, Cornell Capital and Trey Resources have the option to exercise all rights there under. The Company consented to the purchase and adjusted the principal of the Trey Resources' debenture dated March 8, 2007 in the original principal amount of $50,000 by an increase of $991 to account for difference in outstanding balance due.
On May 15, 2007, the Company entered into an investor relations service agreement for a term of one year with Prominence Media Corporation to design and execute a fully integrated investor relations and media communications program to increase flow of information to the Company's shareholders, business publications, investor media, broker-dealers, fund managers, institutional investors, market makers, analysts, investment advisors, and other members of the financial community as well as the general public. All expenses, including out of pocket expenses, incurred by Prominence will be its responsibility. The agreement contains a confidentiality provision and reciprocating indemnification clauses. Prominence is to receive 4,000,000 restricted shares of the Company's common stock and warrants to purchase an additional four million shares of the Company's common stock at $0.15 per share which are exercisable for three years from the date of grant.
On May 24, 2007, the Company was listed on the Frankfurt Stock Exchange in Germany under the trading symbol Dxd.f.
On June 18, 2007, Voyager Petroleum, Inc. entered into a Third Amendment to the Purchase and Sale Agreement with Deacon Enterprises, Inc., a Michigan corporation, for the purchase of a processing facility located in Detroit, Michigan. Pursuant to the terms of the Third Amendment, the Company's right to inspect and evaluate the property was extended from June 18, 2007 until July 18, 2007. On July 18, 2007, the Company entered into a Fourth Amendment extending these rights to August 17, 2007 at which time, the Company verbally agreed with Deacon to enter into a Fifth Amendment to further extend these rights to August 23, 2007. The Company did not incur any additional cost for any extensions. The sublease for the facility expired on August 1, 2007, however, under the terms of the sublease agreement, an extension of up to three months may be agreed upon provided we are diligently working toward the purchase of the facility and if the sales agreement is still in effect. As of the date of this filing, we have not obtained a written extension of the sublease but are continuing to pay rent. The rent payment for the month of August has been accepted by the subleasor.
Analysis of Business
The Company's recent introduction into the oil industry will allow the Company to continue its development stage operations and to concentrate its strategy toward the acquisition of middle-market companies as well as facilities that can be used to blend, bottle, and distribute petroleum-based products for the automotive and manufacturing aftermarket. We believe there is ample room for revenue producing activities in this market that have not yet been tapped.
CRITICAL ACCOUNTING POLICIES
The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements, which we discuss under the heading "Results of Operations" following this section of our MD&A. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our most critical accounting estimates include the assessment of our inventory valuation and patent valuation.
We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements:
INTANGIBLE ASSETS
On November 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." The new standard requires that goodwill and indefinite-lived intangible assets no longer be amortized. In addition, goodwill and indefinite-lived intangible assets are tested for impairment at least annually. These tests will be performed more frequently if there are triggering events. Impairment losses after initial adoption will be recorded as a part of income from continuing operations.
Definite-lived intangible assets, such as patents, are amortized over their estimated useful lives. The Company continually evaluates the reasonableness of the useful lives of these assets. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," if a revision in the useful lives of these assets is deemed necessary, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life of the definite-lived intangible asset.
Management periodically reviews the carrying value of acquired intangible assets that are being amortized to determine whether impairment may exist. The Company considers relevant cash flow and profitability information, including estimated future operating results, trends and other available information, in assessing whether the carrying value of intangible assets being amortized can be recovered. If the Company determines that the carrying value of intangible assets will not be recovered from the undiscounted future cash flows of the acquired business, the Company considers the carrying value of such intangible assts as impaired and reduces them by a charge to operations in the amount of the impairment. An impairment charge is measured as any deficiency in the amount of estimated undiscounted future cash flows of the acquired business available to recover the carrying value related to the intangible assets that are being amortized. No impairment losses were recorded in the second quarter of 2007. An impairment loss of $135,275 was recorded for the loss of one patent on March 31, 2006.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2007 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 2006
Results of operations consist of the following:
JUNE 30, JUNE 30,
2007 2006 $ CHANGE % CHANGE
--------- --------- --------- ---------
Revenues $ 48,290 $ -- $ 48,290 100%
Cost of Revenues (27,505) -- (27,505) 100%
--------- --------- ---------
Gross Profit 20,785 -- 20,785 100%
Operating, General and
Administrative Costs 948,266 123,169 825,098 670%
--------- --------- ---------
Net Operating Loss $(927,481) $(123,169) $(804,313) 653%
========= ========= =========
In the second quarter of 2007, we began to see increased revenues to $48,290 from the sale of anti-freeze, base oil and automatic transmission fluid as compared with no sales for the comparable period in 2006. The costs associated with goods sold increased by the same margin resulting in a gross profit of $20,785.
Our operating, general and administrative costs increased by 670% or $825,098 primarily due to a $13,082 increase in communications resulting from the set-up of a computer and phone system in our corporate office, a $176,517 increase in payroll expenses largely resulting from the hiring of new personnel and a $35,000 bonus to Mr. Stanley, our then Chief Financial Officer, a $14,800 increase in rent resulting from a higher monthly rent expense of $1,200 at our new executive office and a $4,000 monthly expense to lease the Detroit processing facility, a $21,727 increase in depreciation and amortization resulting from the depreciation of newly acquired assets and patent amortization, and a $601,466 increase in professional fees largely resulting from an increase of $20,140 in accounting fees, $197,500 in consulting fees, $65,502 in legal fees, $17,062 in engineering fees and $264,367 as a result of the amortization of prepaid business and financial consulting fees.
An increase in our net operating loss for the three months ending June 30, 2007 of $927,481 as compared to $123,169 as of June 30, 2006 is largely attributable to an option and warrant expense of $805,881.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2007 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 2006
Results of operations consist of the following:
JUNE 30, JUNE 30,
2007 2006 $ CHANGE % CHANGE
----------- --------- ------------ ---------
Revenues $ 97,250 $ -- $ 97,250 100%
Cost of Revenues (63,505) -- (63,505) 100%
----------- --------- -----------
Gross Profit 33,745 -- 33,745 100%
Operating, General and
Administrative Costs 1,674,298 303,498 1,370,801 452%
----------- --------- -----------
Net Operating Loss $(1,640,553) $(303,498) $(1,337,056)
Revenues continued to increase to $97,250 for the six months ended June 30, 2007 as compared to the six months ended June 30, 2006 as we shifted our focus to selling petroleum-based products resulting in a gross profit of $33,745.
Operating, general and administrative costs increased dramatically by $1,370,800 from $303,498 for the six months ended June 30, 2006 to $1,674,298 for the six months ended June 30, 2007, mostly attributable to cost increases of $15,099 in communication expense, $352,508 in payroll expense, $919,238 in professional fees expense, $28,000 in rent expense and $53,539 in other expenses.
An increase in our net operating loss for the six months ending June 30, 2007 of $1,640,553 as compared to $303,498 as of June 30, 2006 is largely attributable to an option and warrant expense of $805,881.
LIQUIDITY AND CAPITAL RESOURCES
Voyager Petroleum is accounted for as a development stage company. We are
currently seeking to expand our operations and are investigating additional
business opportunities and potential acquisitions. Accordingly we will require
additional capital to complete the expansion and to undertake any additional
business opportunities.
JUNE 30, DECEMBER 31,
2007 2006 $ CHANGE % CHANGE
----------- ----------- ----------- -----------
Cash $ 33,497 $ -- $ 33,497 100%
Accounts Receivable $ 48,290 $ 20,328 $ 27,962 138%
Inventory $ 106,988 $ -- $ 106,988 100%
Accounts Payable, Accrued $ 1,638,747 $ 1,732,924 $ (94,177) -5%
Expenses and Accrued Interest
Notes Payables $ 732,153 $ 1,102,925 $ (370,772) -34%
Proceeds from sale of Common Stock $ 672,508 $ 1,541,514 $ (869,006) -56%
As of June 30, 2007, we had current assets of $925,117 and total current liabilities of $2,270,900. As a result, we had a working capital deficit of $1,345,783. Our working capital deficit means that we do not have sufficient current assets to satisfy all of our current liabilities.
We had an increase in current liabilities of $290,234 as of June 30, 2007 from December 31, 2006 primarily due to an increase of $103,496 in accrued interest and a reclassification of convertible debentures from long-term to short-term debt. There was, however, a reduction in Accrued Expenses of $233,221 as management is attempting to pay down its older financial obligations.
As we began to implement our business plan through growth and increased sales, our accounts receivable more than doubled to $48,290 at June 30, 2007 as compared to $20,328 at December 31, 2006 and our inventory grew with the acquisition of base oils and packaging and shipping materials from $0 at December 31, 2006 to $106,988 as of June 30, 2007. We anticipate a steady increase in sales based on management's determination to apply available cash to the purchase of inventory to enable the Company to meet the demand for its products.
Notes payable decreased by 34% from $1,102,925 at December 31, 2006 to $732,153 at June 30, 2007 as a result of both conversions by note holders of outstanding principal as well as our ongoing effort to pay off old debt.
As of June 30, 2007, 500,000 shares of Series A preferred stock were converted into 500,000 shares of common stock at par value.
We had $33,497 cash on hand as of June 30, 2007 compared to $0.00 as of December 31, 2006. In the six months ended June 30, 2007, we financed our operations primarily through the sales of securities of $672,508, sales of securities not yet issued of $155,000, loans by an officer of $23,000, loans by unaffiliated third parties of $55,000, receipt of payments on accounts receivable of $47,288 from the sales of motor oil, anti-freeze, automatic transmission fluid and lubricant-based air freshener, and receipt of payments on other receivables of $50,000. The proceeds were used for general corporate obligations, the payment of promissory notes, the purchase of a 1999 truck capable of transporting both liquid and packaged goods and the purchase of raw materials and packaging and shipping materials. We will continue to need additional cash during the following twelve months to satisfy current liabilities of $2,270,900, specifically, the payment of notes payable which will mature and some past due accounts. These needs will coincide with the cash demands resulting from our general operations and planned expansion. Management believes that the demand for its products is strong. We are and intend to continue selling motor oil, automatic transmission fluid, anti-freeze and petroleum-based air freshener. While we are seeking additional factory capacity to meet this demand, we need the ability to purchase raw materials, primarily base oil, anti-freeze and additives as well as packaging and shipping materials. Since our entry into the petroleum-based lubricant market is recent and we don't have an established credit history, our ability to obtain credit and negotiate favorable terms for the purchase of raw materials is reduced. In general, the time gap between the Company's investments in materials and payment for the finished product is several months. Without cash resources and storage capacity, the Company can only maintain a limited level of inventory and service only a small portion of potential orders for its products. By September 30, 2007, we anticipate a need to raise $500,000 to satisfy our cash demands. In addition, we will need to seek financing in the amount of $1.5 million from outside sources to fund the purchase of processing equipment at about $500,000 for and the ultimate purchase of the Detroit processing facility at $750,000, assuming due diligence is satisfactory.
We will continue to rely upon the sale of securities, funds provided by certain officers, loans and other debt or equity financing arrangements with third parties with an emphasis on debt financing arrangements. While we currently do not have any financing arrangements or agreements in place to obtain the funds necessary to cover these operational expenses, capital expenditures and potential acquisitions, we are actively pursuing private debt sources and are in negotiations with third parties regarding debt financing of the Detroit processing equipment and for the facility itself if due diligence is satisfactory completed. Management anticipates that there will be an increase in operating expenses for the start-up of operations in the Detroit facility and, generally, a higher level of fixed administrative expenses. But the Company also expects that these administrative expenses will remain relatively constant over time and that there will be a significant increase in sales to offset them. There is no assurance that we will be able to obtain additional capital as required, or obtain the capital on acceptable terms and conditions. If we are unsuccessful in obtaining additional working capital, we may need to curtail operations which may result in a lower stock price or cause us to cease operations altogether.
AI
