IRVINE, Calif., Aug. 23, 2012 (GLOBE NEWSWIRE) -- Universal Bioenergy Inc., (OTCMarkets:UBRG), a publicly traded independent diversified energy company, that markets natural gas, propane, and produces petroleum and coal, announced that it has filed its Second Quarter Report on Form 10-Q for the period ending June 30, 2012 with the Securities and Exchange Commission. The annual report contains the Company's audited financial statements, management's discussion and analysis (MD&A), its plans and future outlook and other disclosures. The following information was excerpted from the Form 10-Q Report.
Results of Operations
Our revenues for the three months period ended June 30, 2012 declined due to the following conditions in the U.S. energy market;
According to the Energy Information Administration, in its "Energy Today" Report on August 9, 2012, "Average spot natural gas prices in key regional markets, which reflect the wholesale price of natural gas at major trading points, declined about 38% to 49% during the first half (January 1 to June 30) of 2012 compared to the same period in 2011. Natural gas spot prices at the Henry Hub—a key benchmark and major trading location—averaged about $2.36 per million British thermal units (MMBtu) during the first half of 2012. Rising production, record end-of-winter storage inventories, and mild weather contributed to spot natural gas prices nearing their lowest levels in a decade until prices rebounded at most trading points to the high $2/MMBtu range by the end of June."
Specific factors contributing to lower average spot natural gas prices during the first half of 2012 include:
Supply: U.S. dry natural gas production was about 5% higher during the first half of 2012 compared to the same period in 2011, according to Bentek Energy. This growth has been largely driven by gains in the Marcellus shale, where production nearly doubled from June 2011 to June 2012.
Consumption: Overall natural gas consumption was up just over 1% through the first half of this year, so U.S. natural gas supply rose faster than consumption.
Storage: The U.S. Lower 48 states had record natural gas storage inventories at the close of the winter 2011/2012 (November 2011 through March 2012). As a result, storage operators or their customers have not needed to buy as much natural gas to inject in preparation for the upcoming winter or to manage day-to-day imbalances, and this has contributed to lower natural gas prices. Last month, total U.S. natural gas storage inventories in the Lower 48 states topped three trillion cubic feet for the first time ever during June. As of August 3, storage inventories were 14% above the five-year average.
Revenues
Our primary revenues from this period are from the sale of natural gas and propane. Our revenues for the three and six months ended June 30, 2012 were $8,620,964 and $21,628,124 respectively, as compared to $13,800,878 and $36,048,232 respectively for the same periods in 2011.
Our Cost of Sales for the three and six months ended June 30, 2012 were $8,603,129 and $21,593,068 respectively, as compared to $13,782,566 and $36,002,148 respectively, for the same periods in 2011. This has resulted in a gross profit margin for three and six months ended June 30, 2012 of $17,835 and $35,056, respectively, as compared to $18,312 and $46,084, respectively, for the same periods in 2011.
We incurred losses of $1,982,609 for the three months ended June 30, 2012 and $137,672 for the same period in 2011. For the six months ended June 30, 2012 our losses were $2,637,239 and $714,706 for the same period on 2011. Our accumulated deficit since our inception through June 30, 2012 amounts to $21,527,610. We issued 11,900,000 of common shares for services for the three months ended June 30, 2012 and no common shares for services for the same period in 2011. For the six months period ended June 30, 2012 we issued 12,127,925 of common shares for services with an aggregate fair value of $135,459 that was included in the $1,982,609 in operating expenses for the six months ended June 30, 2012 and 4,500,000 of common shares for services with an aggregate fair value of $193,250 that was included in the $496,684 in operating expenses for the same period in 2011. Excluding the value of the common shares of $114,480 from the operating expenses of $1,014,604 would reduce the actual net operating expenses to $900,124 for the six months ended June 30, 2012.
We also incurred interest expenses of $589,687 for the three months ended June 30, 2012. Excluding the value of the common stock that was issued for services, and interest expenses which together totaled $704,167, would correspondingly reduce our net loss of $1,982,609 to an adjusted net loss of $1,278,442 for the three month period ending June 30, 2012. For the six months ended June 30, 2012, we also incurred interest expenses of $867,244. Excluding the value of the common stock that was issued for services, and interest expenses which together totaled $114,480, would correspondingly reduce our net loss of $2,637,239 to an adjusted net loss of $1,655,515.
Based on an adjusted net loss of $1,655,515, this loss equals only 7.67% of our total revenues of $21,593,068 for the six months period ending June 30, 2012.
Note! Regarding Increase in Expenses and Losses. This increase in operating expenses and the resulting net loss was primarily due to increases in accrued interest, the current portion of long term debt and in embedded derivative liability costs as indicated below;
The Company issued convertible Promissory Notes, and determined that the conversion features contained in the Notes represent freestanding derivative instruments that meet the requirements for liability classification under Financial Accounting Standard Board ("FASB"), U.S. GAAP, Accounting Standards Codification, Derivatives and Hedging (Topic ASC 815). As a result, the fair value of the derivative financial instruments in the Promissory Notes is reflected in the Company's balance sheet as a liability. The fair value of the derivative financial instruments of the convertible Notes and warrants was measured at the inception date of the Promissory Notes and warrants and each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date.
The Company valued the conversion features in its convertible Promissory Notes using the Black-Scholes model. Included in our Statements of Operations for the three and six months ended June 30, 2012 are $872,029 and $169,945 in non-cash charges (totaling $1,041,974) pertaining to the derivative liability as it pertains to change in derivative liability and amortization of debt discount, respectively. This essentially means these "non-cash" charges of $1,041,974 were "paper losses", and not actual losses of cash.
Operating Costs and Expenses
Our Cost of Sales for the three months ended June 30, 2012 were $8,603,129 as compared to $13,782,566 for the same period in 2011, and for the six months ended June 30, 2012 were $21,593,068 as compared to $36,002,148 for the same period in 2011. Our primary operation is the marketing of natural gas to our major customers nationwide. Our total operating expenses for the three months ended June 30, 2012 were $574,063, as compared to $159,596 for the same period in 2011 and for the six months ended June 30, 2012 were $1,014,604 as compared to $496,684 for the same period in 2011. We pay our employees and consultants largely in common shares as our cash availability is currently limited.
Based on business our plans for growth and expansion, and increasing revenues through sales of natural and other products, we believe we will reduce our net losses down to zero, and then move our company toward solid profitability.
Assets
Our "total assets" have increased by $2,281,045, or 26.34% to $8,657,693 for the period ending June 30, 2012, compared to $6,376,648 for the same period in 2011. A total of $2,000,000 was primarily from our investment in the Whitesburg Friday Branch Mine LLC acquisition, which was also offset from a reduction in the amount of our Accounts Receivables from the sales of natural gas due to the unseasonably warm winter on the east coast, a reduced demand in natural gas for heating, a decline in natural gas prices, and an increase in natural gas working inventories. Our Property and Equipment and long-term physical assets were also reduced by $126,678 due to the discontinued operations of our biodiesel refinery in Nettleton, Mississippi. See – Universal Bioenergy North America Inc., Discontinued Operations for more information. However, this reduction in our "total assets", was offset somewhat by an increase in our investment in the Whitesburg Friday Branch Mine, LLC acquisition. Oil and gas companies generally book their inventories and supplies of oil and gas reserves as assets on their balance sheets, since these are very valuable assets owned by the company.
Cash Flows
The prices and margins in the energy industry are normally volatile, and are driven to a great extent by market forces over which we have no control. Taking into consideration other extenuating factors, as these prices and margins fluctuate, this would result in a corresponding change in our revenues and operating cash flows. Our cash flows for the six months ended June 30, 2012 and 2011 were as follows:
Our cash used in operating activities for the six months ended June 30, 2012 was $(617,937) as compared to ($266,400) for the six months ended June 30, 2011. The decrease was primarily attributable to the accruing certain management salaries, issuing stock for professional services in lieu of cash payments and the reduction of Notes payable and interest with stock in lieu of cash payments.
Cash used in investing activities for the six months ended June 30, 2012 was $2,000,000 as compared to cash used in investing activities of $189,500 for the six months ended June 30, 2011.
Our cash provided by financing activities for the six months ended June 30, 2012 was $2,615,404 as compared to $466,524 for the six months ended June 30, 2011. The net cash provided by financing activities is primarily attributable to our Notes Payables.
Liabilities
Current liabilities increased to $7,159,403 for the six months ended June 30, 2012, compared to $6,320,403 for the same period in 2011. This 11.72% increase was primarily due to increases in accrued interest of $239,834, and $326,708 in current portion of long term debt and $510,728 in derivative liability cost, offset by a decrease of $325,158 in accounts payable. Our long term liabilities are $2,233,882 for the period ending June 30, 2012, compared to $317,862 for the period ending June 30, 2011. This increase was primarily due to the conversion of the accrued compensation and expenses of certain officers and employees into long term notes payable, to reduce our current liabilities, improve our cash flow, and improve the Balance Sheet and our acquiring interest in Whitesburg Friday Branch Mine.
Universal's President Vince M. Guest says, "The price of natural gas is still depressed due to, futures contracts set back in the mild winter, and the record high storage inventories of natural gas. These factors had a caused a major decline on the revenues and profits of nearly all companies in the natural gas industry for this period. However, we still feel very positive on the future outlook of the industry and the other potential use of natural gas in the marketplace. The EIA projects the consumption of natural gas in the residential and commercial sectors increases in 2013 because of the forecast return to near-normal temperatures next winter. The EIA also expects that Henry Hub spot prices will average $3.96 per MMBtu in 2013. We have diversified our marketing strategy to include more term deals, gas storage, and sales of natural gas for power generation, to insulate the company from some of the volatility in the market. Instead of just gas for heating. We believe we will see an upward trend in the volume of our natural gas sales in the third quarter, along with our coal mining operations and other planned acquisitions. This should have a positive effect on our future revenues and earnings."
The full Form 10-Q Quarterly Report is available for viewing on the SEC's website and it is also available at our website at www.universalbioenergy.com Investor Relations, SEC Filings section.
About Universal Bioenergy Inc.
Founded in 2004, Universal Bioenergy Inc., is a publicly traded independent diversified energy company that produces and markets natural gas, petroleum, coal and propane. We market energy resources to the largest public utilities, electric power producers and local gas distribution companies in the U.S., that serve millions of commercial, industrial and residential customers. We are also engaged in the acquisition and development of existing or recently discovered oil and gas fields, leases and surface coal mines. For more information visit www.universalbioenergy.com
The Universal Bioenergy Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=6784
Safe Harbor Statement- There are matters discussed in this media information that are forward looking statements within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and are subject to the safe harbor created by those rules. Such statements are only forecasts and actual events or results may differ materially from those discussed. For a discussion of important factors which could cause actual results to differ from the forward looking statements, refer to Universal Bioenergy Inc.'s most recent annual report and accounts and other SEC filings. The company undertakes no obligation to update publicly, or revise, forward looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.