ITEM 2.
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MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION
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FORWARD LOOKING STATEMENTS
The information in this discussion contains forward-looking
statements. These forward-looking statements involve risks and uncertainties,
including statements regarding our capital needs, business strategy and
expectations. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as may,
will, should, expect, plan, intend, anticipate, believe,
estimate, predict, potential or continue, the negative of such terms or
other comparable terminology. Actual events or results may differ materially. In
evaluating these statements, you should consider various factors, including the
risks discussed below, and, from time to time, in other reports we file with the
United States Securities and Exchange Commission (the SEC), including our
Annual Report on Form 10-KSB for the year ended April 30, 2007 filed with the
SEC on September 11, 2007. These factors may cause our actual results to differ
materially from any forward-looking statement.
As used in this Quarterly Report on Form 10-QSB, the terms
"we, "us, "our, Royalite and the Company mean Royalite Petroleum Company
Inc. and its subsidiaries unless otherwise indicated. All dollar amounts in this
Quarterly Report are in U.S. dollars unless otherwise stated.
OVERVIEW
We are an oil and gas exploration company with our current
exploration activities concentrated along the Utah Hingeline Trend of
South-Central Utah. To date we have leased 67,025 net acres covering 69,759
gross acres along the four main Hingeline faults located within a five county
area of Southern Utah. We do not currently own any productive wells or developed
acreage and we have not yet discovered any proven oil or gas reserves on any of
our properties.
We also own and operate an international business-to-business
and government-to-business facilitation service, which combines proprietary
software with the power of the Internet to bring buyers and sellers together
from around the world for interactive trade (the Worldbid Operations). We have
designed our Worldbid.com Internet website to enable companies throughout the
world to procure, source (buy) and tender (sell) products and services
nationally and internationally. Our Worldbid Operations are operated through our
wholly owned subsidiary, Worldbid International Inc. (formerly Worldbid Canada
Corporation).
RECENT DEVELOPMENTS
The following significant corporate developments have occurred
since the completion of our fiscal quarter ended October 31, 2007:
1.
|
On November 30, 2007, we entered into a Consulting
Agreement (the Consulting Agreement) with CRG Partners, Inc. (CRG) to
provide us with certain services including shareholder information and
public relations. The Consulting Agreement is for a term of six (6)
months.
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|
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In consideration for CRGs services, we issued 100,000
shares of common stock to CRG. The shares were issued pursuant to Rule 506
of Regulation D of the Securities Act of 1933
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3
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(the Securities Act). CRG has represented to us that it
is an accredited investor as defined under Rule 501 of Regulation
D.
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2.
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On December 4, 2007, our board of directors approved an
offering of up to $250,000 of 8% convertible notes. The convertible notes
will be due on December 31, 2009 and will bear interest at 8% per annum
payable annually and will be issued in reliance of exemptions from
applicable securities laws. The notes are convertible at the option of the
noteholder into shares of our common stock at a price equal to the lesser
of $0.40 or 75% of the average trading price of our common stock for the
10 days preceding the date of conversion. There is no assurance that the
offering of convertible notes will be completed on the above terms or at
all.
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3.
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Effective February 18, 2008, Michael Cass, our Chief
Executive Officer, President and a member of our board of directors,
resigned as our Chief Executive Officer, President and as a
Director.
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|
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We believe that Mr. Casss resignation was a result of an
ongoing conflict between him and the other directors of Royalite. In
particular, Mr. Cass did not have the confidence of the Board of Directors
with the result that the Board of Directors refused to enter into
transactions proposed by Mr. Cass. In addition, the Board of Directors
refused to permit Mr. Cass to pay his management company and an investor
relations consultant in priority to other creditors of Royalite. In
addition, Mr. Cass disagreed with the course of negotiations with a
potential financier. Mr. Cass also cited the other directors lack of
experience in the oil and gas industry which, in his view, contributed to
their disagreement on his proposals. The complete text of Mr. Casss
letter of resignation is attached as an exhibit to our Current Report on
Form 8-K filed on February 20, 2008.
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Effective February 18, 2008, our Board of Directors
accepted Mr. Casss resignation from all positions and appointed Mr. Logan
Anderson, as interim President and Chief Executive
Officer.
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PLAN OF OPERATION
We do not currently have sufficient capital resources to meet
all of the anticipated costs of our plan of operation for the next twelve
months. As such, our ability to complete the plan of operation for our oil and
gas exploration activities and pay for the ongoing costs of operating our
Worldbid Operations is dependent upon our ability to obtain additional
financing. The following summarizes our plan of operation for both our oil and
gas exploration activities and our Worldbid Operations. In addition to the costs
of pursuing our plan of operation, during the next twelve months we expect to
spend approximately $220,000 on management fees, an aggregate of $100,000 on
legal and accounting expenses, and an additional $60,000 on general
administrative expenses.
Oil and Gas Exploration Activities
Our oil and gas exploration and development operations have
been suspended pending our ability to obtain additional financing. The oil and
gas exploration and development activities that we engage in over the next
twelve months will depend upon the amount of financing that we are able to
obtain, and may involve:
(a)
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Drilling exploratory wells on the properties to which we
have secured oil and gas leases; and
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4
(b)
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Conducting seismic surveys.
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Worldbid Operations
Until we obtain sufficient financing to meet our anticipated
costs associated with our oil and gas exploration and development operations, we
have decided to refocus our business on our Worldbid Operations. During the next
twelve months, our plan of operation for our Worldbid Operations will involve
the following:
(a)
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Seeking new regional and industry-specific strategic
alliances with a focus on potential partners who already have a marketing
base and mature sales channels;
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(b)
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Focussing on the development of market share in
geographic areas such as China and India;
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(c)
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Further developing our advertising sales by targeting
companies who sell products or services related to international
trade;
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(d)
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Increasing our marketing expenditures subject to raising
additional financing;
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(e)
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Developing new sales channels through a revenue-sharing
relationship with a telemarketing firm in India or China;
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(f)
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Actively seeking acquisition targets with the goal of
becoming a consolidator in the international business-to-business (B2B)
field.
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RESULTS OF OPERATIONS
The merger with Royalite Petroleum Corp. (Royalite Corp.) has
been treated as a reverse merger for accounting purposes. As a result,
Royalite Corp. has been treated as the acquiring entity for accounting and
financial reporting purposes. As such, our consolidated financial statements
will be presented as a continuation of the operations of Royalite Corp. and not
Royalite Petroleum Company Inc. (formerly Worldbid Corporation). The operations
of Royalite Petroleum Company Inc. are included in the consolidated statement of
operations from the effective date of the merger, February 28, 2007.
Third Quarter and Nine Months Summary
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Third Quarter Ended
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Nine Months Ended
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January 31,
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Percentage
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January 31,
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Percentage
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Increase /
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Increase /
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2008
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2007
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(Decrease)
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2008
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2007
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(Decrease)
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Revenue
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$
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54,394
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$
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-
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n/a
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$
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167,949
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$
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-
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n/a
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Operating
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(270,090
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)
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(312,840
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)
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(13.7)%
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(1,398,832
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)
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(792,694
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)
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76.5%
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Expenses
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Other Expenses
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(3,902
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)
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-
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n/a
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(102,482
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)
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-
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n/a
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Net Loss
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$
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(219,598
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)
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$
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(312,840
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)
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(29.8)%
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$
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(1,333,365
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)
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$
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(792,694
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)
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68.2%
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5
Revenues
Our revenues are generated solely from our Worldbid Operations.
As discussed above, revenues from our Worldbid Operations have been included in
the Consolidated Statements of Operations included with this Quarterly Report
from February 28, 2007, the effective date of our acquisition of Royalite Corp.
Revenues from our Worldbid Operations for the nine months ended January 31, 2008
were $167,949. Revenues from our Worldbid Operations for the nine months ended
January 31, 2007 were $202,958.
Our primary sources of revenues during the nine months ended
January 31, 2008 were membership subscriptions to our Worldbid websites and fees
received from our strategic partnership arrangements. We did not earn any
revenue from data mining sources during the period.
Our revenues from our Worldbid Operations for the nine months
ended January 31, 2008 declined by approximately $35,009 or 17.2% from the nine
months ended January 31, 2007. Over the last year, we have decreased the amount
that we spend on advertising our Worldbid websites and network. This, in turn,
has resulted in a decrease in our revenues. We do not intend to significantly
increase the amount that we spend on advertising for our Worldbid Operations
during the next twelve months. As a result, the decrease in our Worldbid
revenues is expected to be permanent.
We do not anticipate earning revenue from our oil and gas
exploration activities in the near future.
Operating Expenses
The major components of our expenses for the quarter are
outlined in the table below:
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Third Quarter Ended
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Percentage
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Nine Months Ended
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Percentage
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January 31,
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Increase /
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January 31,
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Increase /
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(Decrease)
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(Decrease)
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2008
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2007
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2008
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2007
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|
|
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Oil and Gas Exploration
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$
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(380
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)
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$
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71,684
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(100.5
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)%
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$
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586,010
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$
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189,434
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209.3%
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Expenses
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Selling, General and
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266,893
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240,263
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11.1%
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806,389
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601,296
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34.1%
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Administrative Expenses
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Depreciation and
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1,428
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893
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59.9%
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4,284
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1,964
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118.1%
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Amortization
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Loss on Disposal of
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2,149
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-
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n/a
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2,149
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-
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n/a
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Assets
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Total Expenses
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$
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270,090
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$
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312,840
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|
|
(13.7
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)%
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$
|
1,398,832
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|
$
|
792,694
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|
76.5%
|
|
The decrease of our oil and gas exploration expenses for the
third quarter ended January 31, 2008 is due to the fact that we suspended our
oil and gas exploration and development activities.
Selling and administrative expenses for the quarter ended
January 31, 2008 primarily relate to Worldbids day-to-day operating costs;
remuneration paid to our officers and directors; and accounting and legal fees
in connection with our ongoing filing requirements under the Exchange Act.
6
Subject to our ability to obtain additional financing, we
expect that our total operating expenses will continue to increase in the
foreseeable future as we proceed with our oil and gas exploration and
development activities.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
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Nine Months ended
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Nine Months ended
|
|
|
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January 31, 2008
|
|
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January 31, 2007
|
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Cash Flows used in Operating Activities
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$
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(613,824
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)
|
$
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(745,349
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)
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Cash Flows used in Investing Activities
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(686,404
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)
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(1,772,172
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)
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Cash Flows from Financing Activities
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20,070
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2,081,706
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Net Increase (decrease) in Cash During Period
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$
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(1,280,158
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)
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$
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(435,815
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)
|
Working Capital
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Percentage
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Increase /
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At January 31, 2008
|
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At April 30, 2007
|
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(Decrease)
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Current Assets
|
$
|
82,869
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$
|
1,444,685
|
|
|
(94.3
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)%
|
Current Liabilities
|
$
|
(1,290,138
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)
|
$
|
(1,290,574
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)
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0.0%
|
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Working Capital Surplus (Deficit)
|
$
|
(1,207,269
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)
|
$
|
154,111
|
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883.4%
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We have two credit card facilities which require an aggregate
security deposit of approximately $31,000, which we continue to maintain. These
security deposits must be maintained by us in order to cover credit card
charge-backs. Credit card charge backs are amounts that are billed, and paid by,
the credit card company where the owner of the credit card later claims that it
was used without his or her authorization. In the event of a credit card
charge-back, we are required to reimburse the funds advanced to us by the credit
card company.
As of January 31, 2008, we had cash on hand of $45,592 and a
working capital deficit of $1,207,269.
During the quarter ended January 31, 2008, we recorded a net
loss of $219,598. We do not anticipate earning revenues from our oil and gas
activities in the near future and, to date, we have not earned sufficient
revenues from our Worldbid Operations to cover the costs of our operations.
Accordingly, we will require additional outside financing in order to carryout
our intended oil and gas exploration and development activities for the next
twelve months and to maintain our Worldbid Operations. We will also require
additional financing in order to pay our current liabilities as they come due.
If we fail to repay our creditors or fail to make satisfactory arrangements to
extend our current liabilities, our business could fail.
We are presently pursuing additional financing. On December 4,
2007, our board of directors approved an offering of up to $250,000 of 8%
convertible notes. The convertible notes will be due on December 31, 2009 and
will bear interest at 8% per annum payable annually and will be issued in
reliance of exemptions from applicable securities laws. The notes are
convertible at the option of the noteholder into shares of our common stock at a
price equal to the lesser of $0.40 or 75% of the average trading price of our
common stock for the 10 trading days immediately preceding the
7
conversion. There is no assurance that the offering of
convertible notes will be completed on the above terms or at all
Historically, we have been dependent on sales of equity
securities, issuances of convertible debt securities, and related party loans as
sources of financing. As of January 31, 2008, we owed a total of $21,680 to
Logan B. Anderson, currently our Chief Financial Officer, Treasurer and
Secretary and a member of our Board of Directors. The amounts owed to Mr.
Anderson bear interest at a rate of 10% per annum, are unsecured and due on
demand. There are no assurances that we will be able to obtain additional
financing from these sources in the future. We do not currently have any
underwriting, long-term debt financing or other financing arrangements in
place.
OFF-BALANCE SHEET ARRANGEMENTS
None.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with
generally accepted accounting principles requires our management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Our management routinely makes judgments and estimates about the effects of
matters that are inherently uncertain.
We have identified certain accounting policies, described
below, that are most important to the portrayal of our current financial
condition and results of operations. Our significant accounting policies are
disclosed in Note 1 to the audited financial statements included in our Annual
Report on Form 10-KSB, filed with the SEC on September 11, 2007.
Revenue Recognition
(i)
|
Oil and Gas Revenues We recognize oil and gas revenues
from our interests in producing wells as oil and gas is produced and sold
from these wells. We have no gas balancing arrangements in
place.
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|
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(ii)
|
Worldbid Operations We earn revenue by selling
subscriptions to our service, advertising on email communications to
businesses using our website services, direct advertising by businesses on
our website and from data sales to consumer oriented companies. Revenue is
recognized once the service or product is delivered. Subscriptions
received in advance for access to our website services are recognized as
income over the period of the subscriptions.
|
Oil and Gas Exploration Activities
We follow the full cost method of accounting for oil and gas
operations, whereby all costs associated with the exploration for, and
development of, oil and gas reserves, whether productive or unproductive, are
capitalized. Internal costs are capitalized only if they can be directly
identified with acquisition, exploration or development activities.
8
Expenditures that are considered unlikely to be recovered are
written off. On a quarterly basis, our Board of Directors assess whether or not
there is an asset impairment. The current oil and gas exploration and
development activities are considered to be in the exploration stage.
The costs of unproven leases that become productive are
reclassified to proved properties when proven reserves are discovered in the
property. Unproven oil and gas interests are carried at original acquisition
costs, including filing and title fees. Depreciation and depletion of the
capitalized costs for producing oil and gas properties will e proved by the
unit-of-production method based on proven oil and gas reserves.
Abandonment of properties are recognized as an expense in the
period of abandonment and accounted for as adjustments of capitalized costs.
Ceiling Test
. Under the full-cost accounting rules,
capitalized costs included in the full-cost pool, net of accumulated
depreciation, depletion and amortization (DD&A), cost of unevaluated
properties and deferred income taxes, may not exceed the present value of our
estimated future net cash flows from proved oil and gas reserves, discounted at
10%, plus the lower of cost or fair value of unproved properties included in the
costs being amortized, net of related tax effects. These rules generally require
that, in estimating future net cash flow, we assume that future oil and gas
production will be sold at the unescalated market price for oil and gas received
at the end of each fiscal quarter and that future costs to produce oil and gas
will remain constant at the prices in effect at the end of the fiscal quarter.
We are required to write-down and charge to earnings the amount, if any, by
which these costs exceed the discounted future net cash flows, unless prices
recover sufficiently before the date of our financial statements. Given the
volatility of oil and gas prices, it is likely that our estimates of discounted
future net cash flows from proved oil and gas reserves will change in the near
term. If oil and gas prices decline significantly, even if only for a short
period of time, it is possible that writedowns of oil and gas properties could
occur in the future.
RISKS AND UNCERTAINTIES
Risks Relating to the Company
If we do not obtain additional financing, our business will
fail.
Our current revenues are not sufficient to pay for our
anticipated operating expenses. In addition, our cash reserves are minimal and
we have a substantial working capital deficit. Accordingly, we will require
additional financing in order to complete our plan of operation for our oil and
gas activities, meet the ongoing costs of operating the Worldbid Operations, and
satisfy our existing creditors. In addition, we may not be able to make the
required rental payments on our existing oil and gas leases when they become
due. If we fail to make the required rental payments when they are due, we may
lose our rights under those leases.
We have financed our operations to date from sales of equity
securities, the issuance of convertible notes and loans advanced by related
parties. However, we do not currently have any agreements in place to obtain
additional financing from these, or any other, sources. There is no assurance
that we will be able to continue to obtain financing in amounts sufficient to
enable us to maintain our business operations. If we are not able to obtain
additional financing if and when need, our business could fail.
9
If we never generate operating profit, then our business
will fail.
We have sustained net losses from operations since our
inception. We recorded a net loss of $219,598 during the nine months ended
January 31, 2008 and we expect to incur net losses for the foreseeable future.
We may never generate operating profits or, even if we do become profitable from
operations at some point, we may be unable to sustain that profitability. We
will not be able to achieve operating profits until we generate substantial
revenues from our business operations. Our business model is not proven and
there is no assurance that we will be able to generate the revenues. If we do
not realize significant revenues from our business operations, then our
operating expenses will continue to exceed our revenues and we will not achieve
profitability.
If we are unable to hire and retain key personnel, then we
may not be able to implement our business plan.
We depend on the services of our senior management and key
technical personnel. In particular, our future success will depend on the
continued efforts of our President, Chief Executive Officer and Chief Financial
Officer, Logan Anderson. The loss of the services of Mr. Anderson and the
further erosion of staff could have an adverse effect on our business, financial
condition and results of operations.
The quotation price of our common stock may be volatile,
with the result that an investor may not be able to sell any shares acquired at
a price equal to or greater than the price paid by the investor.
Our common shares are quoted on the OTC Bulletin Board under
the symbol "RYPE. Companies quoted on the OTC Bulletin Board have traditionally
experienced extreme price and volume fluctuations. In addition, our stock price
may be adversely affected by factors that are unrelated or disproportionate to
our operating performance. Market fluctuations, as well as general economic,
political and market conditions such as recessions, interest rates or
international currency fluctuations may adversely affect the market price of our
common stock. In addition, to date, the trading volume for our shares on the OTC
Bulletin Board has been limited. As a result of this potential volatility and
potential lack of a trading market, an investor may not be able to sell any of
our common stock that they acquire that a price equal or greater than the price
paid by the investor.
We may conduct further offerings of our equity securities in
the future, in which case your shareholdings will be diluted.
Since our inception, we have been reliant upon sales of our
common stock to fund our operations. We may conduct further equity offerings in
the future to finance our current projects or to finance subsequent projects
that we decide to undertake. If common stock is issued in return for additional
funds, the price per share could be lower than that paid by our current
stockholders. We anticipate continuing to rely on equity sales of our common
stock in order to fund our business operations. If we issue additional stock,
your percentage interest in us will be diluted.
Because our stock is a penny stock, stockholders will be
more limited in their ability to sell their stock.
The SEC has adopted rules that regulate broker-dealer practices
in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00, other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or quotation system.
10
Because our securities constitute "penny stocks" within the
meaning of the rules, the rules apply to us and to our securities. The rules may
further affect the ability of owners of shares to sell our securities in any
market that might develop for them. As long as the quotation price of our common
stock is less than $5.00 per share, the common stock will be subject to rule
15g-9 under the Exchange Act. The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock, to deliver a standardized risk
disclosure document prepared by the SEC, that:
1.
|
contains a description of the nature and level of risk in
the market for penny stocks in both public offerings and secondary
trading;
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2.
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contains a description of the broker's or dealer's duties
to the customer and of the rights and remedies available to the customer
with respect to a violation to such duties or other requirements of
securities laws;
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3.
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contains a brief, clear, narrative description of a
dealer market, including bid and ask prices for penny stocks and the
significance of the spread between the bid and ask price;
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4.
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contains a toll-free telephone number for inquiries on
disciplinary actions;
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5.
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defines significant terms in the disclosure document or
in the conduct of trading in penny stocks; and
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6.
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contains such other information and is in such form,
including language, type, size and format, as the SEC shall require by
rule or regulation.
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The broker-dealer also must provide, prior to effecting any
transaction in a penny stock, the customer with: (a) bid and offer quotations
for the penny stock; (b) the compensation of the broker-dealer and its
salesperson in the transaction; (c) the number of shares to which such bid and
ask prices apply, or other comparable information relating to the depth and
liquidity of the market for such stock; and (d) a monthly account statements
showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules; the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably statement. These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for our stock.
Risks Relating to Our Oil and Gas Operations
We have no proven reserves or current production and may
never have any.
We do not have any proven reserves or current production of oil
or gas. There are no assurances that any wells will be completed or, if
completed, that such wells will produce oil or gas in commercially profitable
quantities.
If we do not find any oil or gas reserves or if we cannot
complete the exploration of the mineral reserve, either because we do not have
the money to do it or because we will not be economically feasible to do it, we
may have to cease operations. Oil and gas exploration is a highly speculative
endeavor. It involves many risks and is often non-productive. Even if we are
able to find oil and gas reserves on our properties our ability to put those
reserves into production is subject to further risks including:
1.
|
costs of bringing the property into production including
exploration work, preparation of production feasibility studies, and
construction of production facilities, all of which we have not budgeted
for;
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11
2.
|
availability and costs of financing;
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3.
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ongoing costs of production; and
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4.
|
environmental compliance regulations and
restraints.
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The marketability of any oil and gas deposits acquired or
discovered may be affected by numerous factors which are beyond our control and
which cannot be accurately predicted, such as market fluctuations, the lack of
drilling equipment near our oil and gas properties, and such other factors as
government regulations, including regulations relating to allowable drilling,
production, importing and exporting of oil and gas deposits, and environmental
protection.
Our oil and gas operations are in the exploration stage with
a limited operating history, which may hinder our ability to successfully meet
our objectives.
Our oil and gas operations are in the exploration stage with
only a limited operating history upon which to base an evaluation of our future
prospects. We acquired Royalite Corp. on February 28, 2007 and we do not have an
established history of locating and developing properties that have oil and gas
reserves. As a result, the revenue and income potential of our oil and gas
operations is unproven. In addition, because of our limited operating history,
we have limited insight into trends that may emerge and affect our business. We
may make errors in predicting and reacting to relevant business trends and will
be subject to the risks, uncertainties and difficulties frequently encountered
by early-stage companies in evolving markets. We may not be able to successfully
address any or all of these risks and uncertainties. Failure to adequately do so
could cause our business, results of operations and financial condition to
suffer.
The successful implementation of our business plan is
subject to risks inherent in the oil and gas business, which if not adequately
managed could result in additional losses.
Our oil and gas operations will be subject to the economic
risks typically associated with exploration and development activities,
including the necessity of making significant expenditures to locate and acquire
properties and to drill exploratory wells. In addition, the availability of
drilling rigs and the cost and timing of drilling, completing and, if warranted,
operating wells is often uncertain. In conducting exploration and development
activities, the presence of unanticipated pressure or irregularities in
formations, miscalculations or accidents may cause our exploration, development
and, if warranted, production activities to be unsuccessful. This could result
in a total loss of our investment in a particular well. If exploration efforts
are unsuccessful in establishing proved reserves and exploration activities
cease, the amounts accumulated as unproved costs will be charged against
earnings as impairments.
In addition, in the event that we commence production, of which
there are no assurances, market conditions or the unavailability of satisfactory
oil and gas transportation arrangements may hinder our access to oil and gas
markets and delay production. The availability of a ready market for our
prospective oil and gas production depends on a number of factors, including the
demand for and supply of oil and gas and the proximity of reserves to pipelines
and other facilities. Our ability to market such production depends in
substantial part on the availability and capacity of gathering systems,
pipelines and processing facilities, in most cases owned and operated by third
parties. A failure to obtain such services on acceptable terms could materially
harm our business. We may be required to shut in wells for lack of a market or
because of inadequacy or unavailability of pipelines or gathering system
capacity. If that occurs, we would be unable to realize revenue from those wells
until arrangements are made to deliver such production to market.
12
Our future performance is dependent upon our ability to
identify, acquire and develop oil and gas properties, the failure of which could
result in under use of capital and losses.
The future performance of our business will depend upon an
ability to identify, acquire and develop oil and gas reserves that are
economically recoverable. Success will depend upon the ability to acquire
working and revenue interests in properties upon which oil and gas reserves are
ultimately discovered in commercial quantities, and the ability to develop
prospects that contain proven oil and gas reserves to the point of production.
Without successful acquisition and exploration activities, we will not be able
to develop oil and gas reserves or generate revenues. There are no assurances
oil and gas reserves will be identified or acquired on acceptable terms, or that
oil and gas deposits will be discovered in sufficient quantities to enable us to
recover our exploration and development costs or sustain our business.
The successful acquisition and development of oil and gas
properties requires an assessment of recoverable reserves, future oil and gas
prices and operating costs, potential environmental and other liabilities, and
other factors. Such assessments are necessarily inexact and their accuracy
inherently uncertain. In addition, no assurance can be given that our
exploration and development activities will result in the discovery of any
reserves. Operations may be curtailed, delayed or canceled as a result of lack
of adequate capital and other factors, such as lack of availability of rigs and
other equipment, title problems, weather, compliance with governmental
regulations or price controls, mechanical difficulties, or unusual or unexpected
formations, pressures and or work interruptions. In addition, the costs of
exploration and development may materially exceed our initial estimates.
The geographic concentration of all of our properties in the
Utah Hingeline Trend may subject us to an increased risk of loss of revenue or
curtailment of production from factors affecting that area.
The geographic concentration of all of our leasehold interests
in the Utah Hingeline Trend means all of our properties could be affected by the
same event should the region experience severe weather; delays or decreases in
production; an unavailability of equipment, facilities or services; delays or
decreases in the availability of capacity to transport, gather or process
production; or changes in the regulatory environment.
The oil and gas exploration and production industry
historically is a cyclical industry and market fluctuations in the prices of oil
and gas could adversely affect our business.
Prices for oil and gas tend to fluctuate significantly in
response to factors beyond our control. These factors include, but are not
limited to:
|
(a)
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weather conditions in the United States and
elsewhere;
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(b)
|
economic conditions, including demand for petroleum-based
products, in the United States and elsewhere;
|
|
(c)
|
actions by OPEC, the Organization of Petroleum Exporting
Countries;
|
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(d)
|
political instability in the Middle East and other major
oil and gas producing regions;
|
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(e)
|
governmental regulations, both domestic and
foreign;
|
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(f)
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domestic and foreign tax policy;
|
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(g)
|
the pace adopted by foreign governments for the
exploration, development, and production of their national
reserves;
|
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(h)
|
the price of foreign imports of oil and gas;
|
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(i)
|
the cost of exploring for, producing and delivering oil
and gas; the discovery rate of new oil and gas
reserves;
|
13
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(j)
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the rate of decline of existing and new oil and gas
reserves;
|
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(k)
|
available pipeline and other oil and gas transportation
capacity;
|
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(l)
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the ability of oil and gas companies to raise
capital;
|
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(m)
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the overall supply and demand for oil and gas;
and
|
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(n)
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the availability of alternate fuel
sources.
|
Changes in commodity prices may significantly affect our
capital resources, liquidity and expected operating results. Price changes will
directly affect revenues and can indirectly impact expected production by
changing the amount of funds available to reinvest in exploration and
development activities. Reductions in oil and gas prices not only reduce
revenues and profits, but could also reduce the quantities of reserves that are
commercially recoverable. Significant declines in prices could result in
non-cash charges to earnings due to impairment. We do not currently engage in
any hedging program to mitigate our exposure to fluctuations in oil and gas
prices. Changes in commodity prices may also significantly affect our ability to
estimate the value of producing properties for acquisition and divestiture and
often cause disruption in the market for oil and gas producing properties, as
buyers and sellers have difficulty agreeing on the value of the properties.
Price volatility also makes it difficult to budget for and project the return on
acquisitions and the development and exploitation of projects. Commodity prices
are expected to continue to fluctuate significantly in the future.
Our ability to produce oil and gas from our properties may
be adversely affected by a number of factors outside of our control.
The business of exploring for and producing oil and gas
involves a substantial risk of investment loss. Drilling oil and gas wells
involves the risk that the wells may be unproductive or that, although
productive, the wells may not produce oil or gas in economic quantities. Other
hazards, such as unusual or unexpected geological formations, pressures, fires,
blowouts, loss of circulation of drilling fluids or other conditions may
substantially delay or prevent completion of any well. Adverse weather
conditions can also hinder drilling operations. A productive well may become
uneconomic if water or other deleterious substances are encountered that impair
or prevent the production of oil or gas from the well. In addition, production
from any well may be unmarketable if it is impregnated with water or other
deleterious substances. There can be no assurance that oil and gas will be
produced from the properties in which we have interests. In addition, the
marketability of oil and gas that may be acquired or discovered may be
influenced by numerous factors beyond our control. These factors include the
proximity and capacity of oil and gas, gathering systems, pipelines and
processing equipment, market fluctuations in oil and gas prices, taxes,
royalties, land tenure, allowable production and environmental protection.
The unavailability or high cost of drilling rigs, equipment,
supplies, personnel and oil field services could adversely affect our ability to
execute our exploration and development plans on a timely basis and within our
budget.
Shortages or the high cost of drilling rigs, equipment,
supplies or personnel could delay or adversely affect our exploration and
development operations, which could have a material adverse effect on our
business, financial condition and results of operations. Since our operations
and properties are concentrated in the Utah Hingeline Trend, we could be
materially and adversely affected if drilling rigs are unavailable or cost of
rigs, equipment supplies or personnel increase significantly over current
costs.
We may be unable to retain our leases and working interests
in leases, which would result in significant harm to our business.
14
Our properties are held under oil and gas leases. If we fail to
meet the specific requirements of each lease, that lease may terminate or
expire. There are no assurances the obligations required to maintain those
leases will be met. Our property interests will terminate unless we fulfill
certain obligations under the terms of our leases and other agreements related
to such properties, including making any applicable rental payments.
As of the date of filing of this Quarterly Report, we had a
substantial working capital deficit and there are no assurances that we will be
able to meet the rental obligations under our federal and state oil and gas
leases. If we are unable to make our rental payments and satisfy any other
conditions on a timely basis, we may lose our rights in these properties. The
termination of our interests in these properties may harm our business.
Title deficiencies could render our leases
worthless.
The existence of a material title deficiency can render a lease
worthless and can result in a large expense to our business. It is our practice
in acquiring oil and gas leases or undivided interests in oil and gas leases to
forgo the expense of retaining lawyers to examine the title to the oil or gas
interest to be placed under lease or already placed under lease. Instead, we
rely upon the judgment of oil and gas landmen who perform the field work in
examining records in the appropriate governmental office before attempting to
place under lease specific oil or gas interest. This is customary practice in
the oil and gas industry. However, we do not anticipate that we, or the person
or company acting as operator of the wells located on the properties that we
currently lease or may lease in the future, will obtain counsel to examine title
to the lease until the well is about to be drilled. As a result, we may be
unaware of deficiencies in the marketability of the title to the lease. Such
deficiencies could render the lease worthless.
If we fail to maintain adequate insurance, our business
could be materially and adversely affected.
Our operations are subject to risks inherent in the oil and gas
industry, such as blowouts, cratering, explosions, uncontrollable flows of oil,
gas or well fluids, fires, pollution, earthquakes and other environmental risks.
These risks could result in substantial losses due to injury and loss of life,
severe damage to and destruction of property and equipment, pollution and other
environmental damage, and suspension of operations. We could be liable for
environmental damages caused by previous property owners. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could have a material adverse effect on our
financial condition and results of operations. Any prospective drilling
contractor or operator which we hire will be required to maintain insurance of
various types to cover its operations with policy limits and retention liability
customary in the industry. Therefore, we do not plan to acquire our own
insurance coverage for such prospects. The occurrence of a significant adverse
event on such prospects that is not fully covered by insurance could result in
the loss of all or part of our investment in a particular prospect which could
have a material adverse effect on our financial condition and results of
operations.
Complying with environmental and other government
regulations could be costly and could negatively impact prospective
production.
Our business is governed by numerous laws and regulations at
various levels of government. These laws and regulations govern the operation
and maintenance of our facilities, the discharge of materials into the
environment and other environmental protection issues. Such laws and regulations
may, among other potential consequences, require that we acquire permits before
commencing drilling and restrict the substances that can be released into the
environment with
15
drilling and production activities. Under these laws and
regulations, we could be liable for personal injury, clean-up costs and other
environmental and property damages, as well as administrative, civil and
criminal penalties. Prior to commencement of drilling operations, we may secure
limited insurance coverage for sudden and accidental environmental damages as
well as environmental damage that occurs over time. However, we do not believe
that insurance coverage for the full potential liability of environmental
damages is available at a reasonable cost. Accordingly, we could be liable, or
could be required to cease production on properties, if environmental damage
occurs.
The costs of complying with environmental laws and regulations
in the future may harm our business. Furthermore, future changes in
environmental laws and regulations could occur, resulting in stricter standards
and enforcement, larger fines and liability, and increased capital expenditures
and operating costs, any of which could have a material adverse effect on our
financial condition or results of operations.
The oil and gas industry is highly competitive, and we may
not have sufficient resources to compete effectively.
The oil and gas industry is highly competitive. We compete with
oil and natural gas companies and other individual producers and operators, many
of which have longer operating histories and substantially greater financial and
other resources than it does, as well as companies in other industries supplying
energy, fuel and other needs to consumers. Our larger competitors, by reason of
their size and relative financial strength, can more easily access capital
markets than we can and may enjoy a competitive advantage in the recruitment of
qualified personnel. They may be able to absorb the burden of any changes in
laws and regulation in the jurisdictions in which we do business and handle
longer periods of reduced prices for oil and gas more easily than we can. Our
competitors may be able to pay more for oil and gas leases and properties and
may be able to define, evaluate, bid for and purchase a greater number of leases
and properties than we can. Further, these companies may enjoy technological
advantages and may be able to implement new technologies more rapidly than we
can. Our ability to acquire additional properties in the future will depend upon
its ability to conduct efficient operations, evaluate and select suitable
properties, implement advanced technologies and consummate transactions in a
highly competitive environment.
Risks Relating to Our Worldbid Operations
Financial results for our Worldbid Operations are difficult
to predict and our Worldbid Operations may fail.
The future financial results of our Worldbid Operations are
uncertain due to a number of factors, many of which are outside our control.
These factors include:
1.
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our ability to increase usage of the Worldbid
Websites;
|
2.
|
our ability to generate revenue through the sale of
membership subscriptions for the Worldbid Websites;
|
3.
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our ability to sell advertising on the Worldbid websites
and the timing, cost and availability of advertising on websites
comparable to ours and over other media;
|
4.
|
the success of our strategic alliances in generating
revenues for our Worldbid Websites;
|
5.
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the amount and timing of costs relating to expansion of
our operations;
|
6.
|
the announcement or introduction of competing websites
and products of competitors;
|
7.
|
the general economic conditions and economic conditions
specific to the Internet and electronic commerce;
and
|
16
8.
|
with the reduction in staffing levels we no longer employ
a full time person responsible for security or technical problems that may
occur on the websites.
|
These factors could negatively impact on our financial results,
with the result that our Worldbid Operations may never achieve profitability and
may fail.
If we do not succeed in selling subscription fees to users
of our Worldbid websites, then we may not be able to achieve our projected
revenues.
Our business and marketing strategy contemplates that we will
earn the majority of our revenues from subscription fees sold to registered
users of our Worldbid websites. There is no assurance that we will be able to
generate substantial revenues from subscription fees or that the revenues
generated will exceed our operating costs. Businesses using our Worldbid
websites may not accept paying subscription fees for access to the Worldbid
websites and may decide not to use our Worldbid websites rather than pay a
subscription fee. Businesses may not be prepared to pay a fee in order to post
requests for tenders or offers for sales on the website or to receive e-mails of
requests for tenders. If businesses are not prepared to pay a fee for the use of
Worldbid websites, then our business may fail.
If our strategic relationships for our Worldbid websites do
not provide the benefits we expect, then we may not realize significant revenues
from these relationships.
We have entered into strategic relationships for the marketing
of our Worldbid websites. These include our referral agreements and our sub-site
strategic alliance agreements. We anticipate the benefits from the strategic
relationships will be increased usage of our Worldbid websites, additional
exposure of our brand name and subsequent increases in sales of membership
subscriptions and advertising. We believe that these relationships are critical
to our success because they offer us the possibility of generating additional
revenues for each of our revenue streams and increasing our public recognition.
However, there is no assurance that these strategic relationships will generate
further revenues. Apart from one of our sub-site alliances, none of these
strategic relationships guarantee us revenue. We are relying on these strategic
relationships as a means for marketing of our Worldbid websites.
If our strategic alliance agreements for our regional and
industry specific sub-sites do not attract new users to our websites, then we
will not realize significant revenues from these strategic alliances.
We have entered into strategic alliance agreements with our
partners for the operation of our regional and industry specific sub-sites. We
are relying on these partners to market our Worldbid sub-sites and to attract
business in the particular region or industry that the sub-site is focused on.
There is no assurance that our partners will be successful in attracting new
businesses to the Worldbid websites or creating public recognition of our
Worldbid websites in the target market. The failure of our partners to attract
new businesses and create public recognition in any target market will mean that
we may not create revenues from the sub-site that exceed our costs of
development and operation of the sub-site, with the result that our business and
financial condition will be harmed.
If we do not succeed in generating public recognition of the
Worldbid websites, then we may not be able to attract a sufficient number of
users to the Worldbid websites in order for us to achieve profitability.
We believe that the successful marketing, development and
promotion of the Worldbid websites are
17
critical to our success in attracting businesses and
advertisers. Furthermore, we believe that the importance of customer awareness
will increase as low barriers to entry encourage the proliferation of websites
targeting the business to business market. If our marketing and promotion
efforts are not successful in developing strong public recognition of the
Worldbid websites, then we may not be able to achieve revenues and our business
may fail.
If the computer systems that we depend on for the operation
of the Worldbid Websites fail, then we may lose revenues.
Substantially all of our communications hardware and computer
hardware is located at a facility in Victoria, British Columbia, Canada, owned
by an arms-length Internet service provider. Our systems are vulnerable to
damage from earthquake, fire, floods, power loss, telecommunications failures,
break-ins and similar events. Despite our implementation of network security
measures, our servers are also vulnerable to computer viruses, physical or
electronic break-ins, deliberate attempts by third parties to exceed the
capacity of our systems and similar disruptive problems. Our coverage limits on
our property and business interruption insurance may not be adequate to
compensate for all losses that may occur. If our computer systems are rendered
inoperable by any of these factors, then we may not be able to operate our
Worldbid websites until the problem with our computer systems is cured. We may
lose users and potential revenue if we are unable to operate our Worldbid
websites for any extended period or if we have successive periods of
inoperability.
We may be unable to protect our intellectual
property.
Our performance and ability to compete are dependent to a
significant degree on our ability to protect and enforce our intellectual
property rights, which include the following:
1.
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the proprietary technology that is incorporated into our
Worldbid websites;
|
2.
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our trade names; and
|
3.
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our Internet domain names, the vast majority of which
relate to our Worldbid brand.
|
We may not be able to protect our proprietary rights, and our
inability or failure to do so could result in loss of competitive and commercial
advantages that we hold. Additionally, we may choose to litigate to protect our
intellectual property rights, which could result in a significant cost of
resources and money. We cannot assure success in any such litigation that we
might undertake.