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[August 14, 2014]
DOUBLE CROWN RESOURCES INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, and should be read in conjunction with our financial statements and related notes. We incorporate by reference into this Report our audited financial statements for the years ended December 31, 2013 and 2012. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In addition, the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, including, but not limited to, those discussed in "Forward Looking Statements" and elsewhere in this Report.
The following management's discussion and analysis is intended to assist in understanding the principal factors affecting our results of operations, liquidity, capital resources and contractual cash obligations. This discussion should be read in conjunction with our consolidated financial statements which are incorporated by reference herein, information about our business practices, significant accounting policies, risk factors, and the transactions that underlie our financial results, which are included in various parts of this filing.
Overview of Business We are an exploration stage company and have not generated any revenue to date.
We have incurred recurring losses to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
Our business plan had been focused on building a portfolio of producing mineral properties through acquisition of properties that are in production or have the potential for near-term production. Pursuit of this business strategy requires our ability to secure significant funding, which we have not secured to date.
While we have not discontinued our prior business plan, we have expanded the plan and shifted our focus to the oilfield services sector. We are in the process of negotiating contracts to supply industrial quantities of commodities to on-shore oil and gas drilling operations in the United States. We believe that the growing movement for energy independence in the United States will lead to an increased number of oil and gas wells being drilled and put into production throughout the country. Many of these wells require hydraulic fracturing (fracking) to access the oil and gas reserves trapped in hundreds of miles of brittle shale rock thousands of feet below the surface. The hydraulic fracturing process requires a number of specialized commodities, including a unique type of sand, known as "frac-sand" or "proppant," that can hold its shape under intense pressure and heat and is porous enough to allow thousands of gallons of oil or millions of cubic feet of gas to seep through it to the drill pipe. A typical frac-well will use 2,200 tons of this type of frac-sand. Other materials required for hydraulic fracturing include, guar gum, barite, and a variety of industrial chemicals.
We intend to participate in negotiations and discussions with potential joint venture parties regarding sourcing frac-sand, barite, guar gum and various industrial chemicals and establishing the infrastructure to deliver these materials to oil and gas drilling sites. As part of this business strategy, in March of 2013, we became an authorized dealer for the chemicals division of American International Sealing, LLC, granting us U.S. marketing rights for a slate of industrial chemicals used in hydraulic fracturing, bioremediation and pipeline chemical cleaning functions.
14 --------------------------------------------------------------------------------Also in March 2013, we executed a Memorandum of Understanding with Synergy Natural Resources, LLC ("Synergy"), a Georgia-based industrial design and manufacturing company (the "Synergy MOU") to acquire Synergy and its assets, which included the PASS Box, a large capacity, single transfer method of shipping hydraulic fracturing sand or other critical aggregate materials used for petroleum drilling. Thereafter, we terminated the Synergy MOU and developed the Transprop AGG, our own double stack interlock single transfer container system for high efficiency transport of high tonnage aggregate cargo. We are continuing to fine-tune the design of, and intend to apply for a patent regarding, the Transprop AGG, with the intention of beginning commercial production if we are able to secure sufficient funding, which is not assured. As discussed elsewhere herein, in May 2013, we initiated suit against Synergy, requesting declaratory relief on claims relating to alleged trade secrets and rights to patent prosecution on our transport system. Synergy has filed counterclaims alleging that we misappropriated its trade secrets in developing the Transprop AGG. Although we dispute this allegation, and intend to vigorously defend ourselves, we cannot predict the outcome of the Synergy litigation at this time. (See Part II. Item 1. Legal Proceedings in this Report.).
During the third quarter of 2013, we executed a Sublease for use of a bulk terminal and mineral processing plant located in New Orleans, LA. The term of the Sublease, including optional extensions, is 27 years. We have engaged EDG Consulting Engineers to design a master plan for our use of the plant facilities. The master plan design work has now been completed. Blethen Mining Associates, PC will act as general contractor to oversee budgeting, as well as the reconstruction and operation of the plant and facility. The existing facility includes a cement drying plant and four ball mills designed to crush slag for cement production. We plan to convert the ball mills to crush barite and to convert the drying plant for use on hydrosize/wet frac sand. We have agreed to purchase the existing improvements on the property for $750,000, contingent on our securing the necessary funding. A budget for the reconstruction of the terminal and plant has not yet been completed; we anticipate the necessary conversion and improvements will require an investment of $10-14 million, not including the cost of leasing equipment and operating the facility. There is no guarantee that we will be able to raise sufficient capital to execute our plan to reconstruct the plant. The plant will be designed to accommodate containers that meet ISO standards, including our double stack interlock single transport container system designed for intermodal transport.
The location of the facility allows for materials to be delivered and distributed by rail, barge or truck.
In October 2013, we formed DDCC Marketing Group, LLC, which is a wholly owned subsidiary, to market minerals and other commodities to oil and gas industry customers. We opened an office in Houston, Texas to serve as the headquarters of the marketing group. In addition to housing the marketing and support staff, the Houston office includes office facilities for our executive officers.
2014 Developments In January 2014, we entered into a strategic alliance with Logistica US Terminals, LLC ("Logistica") for the purchase, sale and distribution of minerals and other commodities in the oilfield services industry. This was an expansion of our April 2013 agreement with Logistica, under which they agreed to supply us with key minerals and related materials for our resale to oil and gas well drillers. Under the terms of our January 2014 alliance with Logistica, Logistica will provide logistics and transportation of the materials, and we will provide all sales and marketing of the materials through our subsidiary, DDCC Marketing Group, LLC.
We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
Subsequent Events Effective July 15, 2014, the Board of Directors of Double Crown Resources, Inc., a Nevada corporation (the "Company"), accepted the resignation of Antonio B.
Castillo as Chief Operating Officer and as a member of the Board of Directors.
Mr. Castillo did not resign as a result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices.
15 --------------------------------------------------------------------------------Effective on July 15, 2014, the Board of Directors of Double Crown Resources, Inc., a Nevada corporation (the "Company"), accepted the consent of Tricia Oakley to be appointed as a member of the Board of Directors. Therefore, as of the date of this Current Report, the Board of Directors consists of Jerold S.
Drew, Allen E. Lopez, and Tricia Oakley.
Tricia Oakley. Mrs. Oakley has worked as a legal secretary for over 30 years.
She was appointed as Corporate Secretary and Treasurer of Double Crown Resources, Inc. in August 2011. Since that time, she has served a variety of roles at the Company, including acting as the primary liaison between the Board of Directors and the Company's shareholders and vendors. For additional information about Mrs. Oakley, please see our Current Report on Form 8-K, filed with the Commission on July 25, 2014.
Liquidity and Capital Resources During the six-month period ended June 30, 2014, we generated working capital to fund operations through the sale of our common stock. In the second half of 2014, we anticipate that revenue from our oilfield services operations will support our operating expenses, including our general and administrative expenses. However, if we do not generate sufficient revenue through operations, we will need to raise additional capital through the issuance of equity and/or debt securities in order to support our operations. The issuance of such securities could have a dilutive effect on our shareholders.
Planned Capital Expenditures At June 30, 2014, we had no material commitments for capital expenditures.
A summary of our cash flows during the six month periods ended June 30, 2014 and 2013 follows.
Operating Activities We have not generated positive cash flows from operating activities. Cash used in operating activities during the six month period ended June 30, 2014 increased to $509,415, as compared to $404,748 used during the six month period ended June 30, 2013. The increase is a result of the increased activity, including hiring employees and opening a marketing office in Houston, Texas, as we ramped up our oilfield services operations.
Investing Activities Cash used for investing activities during the six month period ended June 30, 2014 was $11,860, as compared to $-0- for the six month period ended June 30, 2013. We used the capital to acquire a second vehicle for our Houston, Texas office.
Financing Activities Total net cash provided by financing activities was $495,000 for the six month period ended June 30, 2014, which consisted of private placement offerings generating $346,000 in proceeds from the issuance of our common stock and $149,000 in proceeds from subscriptions payable. Total net cash provided by financing activities was $406,350 for the six month period ended June 30, 2013, which consisted of private placement offerings generating $406,350 in proceeds from the issuance of our common stock.
At June 30, 2014, we had cash totaling $16,876, as compared to $4,875 at June 30, 2013. We anticipate that current cash expected to be generated from operations will sustain our operations through December 31, 2014. We are not aware of any trends or potential events that are likely to adversely impact our short term liquidity in 2014.
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