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EX-32.1 - CERTIFICATIONS PURSUANT TO SECTION 906 OF SARBANES OXLEY ACT OF 2002 - LILIS ENERGY, INC.f10q0909a1ex32_recoveryengy.htm
EX-31.1 - CERTIFICATIONS PURSUANT TO SECTION 302 OF SARBANES OXLEY ACT OF 2002 - LILIS ENERGY, INC.f10q0909a1ex31_recoveryengy.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
 
FORM 10-Q/A
_______________
 
 
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2009
 
o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the transition period from ______to______.
 
RECOVERY ENERGY, INC.
 (Exact name of registrant as specified in Charter)
 
NEVADA
 
333-152571
 
74-3231613
(State or other jurisdiction of
incorporation or organization)
 
(Commission File No.)
 
(IRS Employee Identification No.)

1515 Wynkoop Street, Suite 200
Denver, CO 80202
 (Address of Principal Executive Offices)
 _______________
 
     1 (888) 887-4449
 (Issuer Telephone number)
_______________
Universal Holdings, Inc.
PO Box 8851, Rocky Mount, NC 27804
(252) 407-7782
 (Former Name or Former Address if Changed Since Last Report)
 
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
 
Large Accelerated Filer o    Accelerated Filer o     Non-Accelerated Filer o     Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.
Yes o No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of March 31, 2010:  13,292,334 shares of Common Stock.  
 
 
 
 

 
 
 
Explanatory Note

The Company is filing this amended report on Form 10-Q to reflect the Company’s decision to change the accounting treatment for its September 21, 2009 merger with Coronado Acquisitions, LLC.  The Company initially reported the merger for accounting purposes as the acquisition of Coronado by the Company.  The Company believes that the proper accounting treatment is to report the merger as the acquisition of the Company by Coronado (See Note 6).
 
 
 
 
 

 
 

 
 
Recovery Energy, Inc.
(Formerly, Universal Holdings, Inc.)

FORM 10-Q/A
September 30, 2009
INDEX
 
PART I-- FINANCIAL INFORMATION
 
Item 1.
Financial Statements
4
Item 2.
Management’s Discussion and Analysis of Financial Condition
13
Item 3
Quantitative and Qualitative Disclosures About Market Risk
15
Item 4T.
Control and Procedures
15
 
PART II-- OTHER INFORMATION
 
Item 1
Legal Proceedings
16
Item 1A
Risk Factors
16
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
16
Item 3.
Defaults Upon Senior Securities
16
Item 4.
Submission of Matters to a Vote of Security Holders
17
Item 5.
Other Information
17
Item 6.
Exhibits and Reports on Form 8-K
17
 
SIGNATURE
 
 
-3-

 
 
Item 1. Financial Information
 
RECOVERY ENERGY, INC.
f/k/a UNIVERSAL HOLDINGS, INC.
(A Development Stage Company)

 
RESTATED CONSOLIDATED BALANCE SHEETS
       
   
September 30, 2009
 
Assets
 
Property, plant and equipment
  $ 3,250,000  
         
Total assets
  $ 3,250,000  
         
Liabilities and Shareholder’s Equity
 
Current Liabilities
       
         
Accounts payable
  $ 71,375  
Accrued liabilities
    37,068  
   Total Current Liabilities
    108,443  
         
Total liabilities
    108,443  
         
         
Common Stock subject to redemption rights, $0.0001 par value,
       
85,000 shares issued and outstanding
    172,516  
         
Other Shareholders’ Equity
       
Common Stock, $0.0001 par value: 100,000,000 shares authorized;
       
9,199,000 shares issued (excluding 85,000 shares subject to redemption rights)
       
and outstanding
    920  
Additional paid-in capital
    3,224,452  
Accumulated deficit during development stage
    (256,331 )
Total other shareholders’ equity
    2,969,041  
         
Total Liabilities, Common Stock subject to redemption and Other Shareholders’ Equity
  $ 3,250,000  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
-4-

 
 
 
RECOVERY ENERGY, INC.
 
f/k/a UNIVERSAL HOLDINGS, INC.
 
(A Development Stage Company)
 
 
 
RESTATED CONSOLIDATED STATEMENTS OF OPERATIONS
 
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND
 
FOR THE PERIOD MARCH 6, 2009 (INCEPTION) THROUGH SEPTEMBER 30, 2009
 
(UNAUDITED)
 
 
   
RESTATED
   
RESTATED
 
   
March 6, 2009
   
Three
 
   
(Inception) through
   
Months
Ended
 
   
September 30, 2009
   
September 30, 2009
 
             
             
Expenses
           
General and administrative (non-cash compensation $209,119)
  $ 256,331     $ 256,131  
                 
                 
Net Loss
  $ (256,331 )   $ (256,331 )
                 
Earnings per common share
               
Basic and diluted
  $ (0.03 )   $ (0.03 )
                 
Weighted average shares outstanding
               
 Basic and diluted
    9,284,000       9,284,000  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
-5-

 
 
RECOVERY ENERGY, INC.
 
f/k/a UNIVERSAL HOLDINGS, INC.
 
(A Development Stage Company)
 
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
FOR THE PERIOD MARCH 6, 2009 (INCEPTION) THROUGH SEPTEMBER 30, 2009
 
(UNAUDITED)
 
    6-Mar-09  
    (Inception) through  
    30-Sep-09  
    (UNAUDITED)  
Cash flows from operating activities
     
Net loss
  $ (256,331 )
Adjustments to reconcile net income to net cash provided by operating activities:
       
Stock based compensation
    9,119  
Reorganization and merger costs
    200,000  
         
Changes in operating assets and liabilities:
       
Accounts payable
    37,489  
Accrued expenses
    9,583  
Net cash used in operating activities
    (140 )
         
Cash flows from investing activities
       
Acquisition of cash purchased in acquisition
    140  
Net cash provided by investing activities
    140  
         
Cash flows from financing activities
    -  
         
         
Net increase in cash and cash equivalents
    -  
Cash and cash equivalents, beginning of period
    -  
         
Cash and cash equivalents, end of period
  $ -  
Supplemental disclosure of Non-cash investing and financing activities
       
Cash paid for interest
  $ -  
Cash paid for federal income taxes
  $ -  
         
Non-cash transactions
       
Shares issued for non-cash settlement of note payable in reverse merger
  $ 3,250,000  
Purchase of rigs for notes payable
  $ 3,250,000  
         
Liabilities assumed in reverse merger
       
Accounts Payable
  $ 1,386  
Notes Payable
  $ 32,500  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
-6-

 
 
RECOVERY ENERGY, INC.
f/k/a UNIVERSAL HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009
(UNAUDITED)
 
 
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
 
Basis of Presentation and Going Concern

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which contemplate our continuation as a going concern, whereby the realization of assets and liquidation of liabilities are in the ordinary course of business. We are currently in the development stage as we have not realized any revenue since inception. Activities have included raising capital and acquisitions.  We have incurred net losses since inception, and as of September 2009, had an accumulated deficit of $256,331.  These conditions raise substantial doubt as to our ability to continue as a going concern.  These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be different should we be unable to continue as a going concern.

Management recognizes that the Company must generate additional cash resources to enable it to continue operations.  We intend to raise additional financing through equity financings or through other means that we deem necessary, with a view to generating operating cash flow from oil and gas producing activities.  However, there is no assurance that we will be successful in raising additional capital.  Further, even if we raise additional capital, there is no assurance that we will achieve profitability or positive cash flow. If we are unable to raise additional capital and ultimately unable to achieve profitable operations and positive cash flows, we will not be able to meet our obligations and may have to cease operations.

On September 21, 2009, Universal Holdings, Inc. (“Universal”), a Nevada corporation, completed the acquisition of Coronado Acquisitions, LLC (“Coronado”) pursuant to the terms of the Membership Unit Purchase Agreement (“Agreement”) from its sole member and unit holder, Michael Hlavsa.  Under the terms of the Agreement, Coronado was merged into Universal.  On October 12, 2009, Universal changed its name to Recovery Energy, Inc. (“Recovery”).  The Agreement was accounted for as a reverse acquisition with Coronado being treated as the acquirer for accounting purposes.  Accordingly, the financial statements of Coronado have been adopted as the historical financial statements of Recovery.  

In connection with the Unit Purchase Agreement, the Company also agreed to convert a note that was issued by Coronado to certain noteholders on May 31, 2009 in the principal amount of $3,250,000 (the “Coronado Note”).  The Coronado Note was issued by Coronado to an agent for Capital Asset Lending, Inc., a California corporation, Westmoore Lending, LLC, a California limited liability company, and Westmoore Lending Opportunities, LLC, a California limited liability company (collectively, the “Coronado Noteholders”).  Pursuant to the terms of the Coronado Note, Coronado, at its option, may pay the principal amount of $3,250,000 in shares of a publicly listed company at the rate of one dollar and fifty-five cents per share provided the publicly traded company is in current status with its SEC filing requirements and at the time of tender is quoted on the OTCBB.  Accordingly, under the terms of the Coronado Note, the Company has agreed to issue an aggregate of 2,100,000 shares of its common stock, par value $0.0001 per share, to the Coronado Noteholders in full satisfaction of the Coronado Note.

Since the Company is still in the development stage of its operations, there has been no revenue or earnings of the Company since the date of acquisition of Coronado for this reporting period.

These consolidated financial statements include all of the adjustments, which, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations.  All such adjustments are of a normal recurring nature only.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year.

Principles of Consolidation

The accompanying 2009 condensed consolidated financial statements include the accounts of Recovery Energy, Inc. from March 6, 2009 (inception). All inter-company accounts have been eliminated in the consolidation.

Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period.  Actual results could differ from those estimates.


 
-7-

 
 
RECOVERY ENERGY, INC.
f/k/a UNIVERSAL HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009
(UNAUDITED)
 
 
Cash and Cash Equivalents

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At September 30, 2009 the Company had no cash equivalents.
 
Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

In accordance with FASB new codification of, “Accounting for Impairment or Disposal of Long-Lived Assets”, the Company carries long-lived assets at the lower of the carrying amount or fair value. Impairment is evaluated by estimating future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected undiscounted future cash flow is less than the carrying amount of the assets, an impairment loss is recognized. Fair value, for purposes of calculating impairment, is measured based on estimated future cash flows, discounted at a market rate of interest.

There was no impairment losses recorded during the period ended September 30, 2009.

Loss Per Share

Basic earnings (loss) per share is computed based on the weighted average number of common shares outstanding during the period presented.  In addition to common shares outstanding, and in accordance with ASC 260 – Earnings per share.  Diluted loss per share is computed using the weighted average number of common shares outstanding plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares had been issued.  Potentially dilutive securities, such as stock grants and stock purchase warrants, are excluded from the calculation when their effect would be anti-dilutive.  For the period ending September 30, 2009, 464,200 restricted common stock grants have been excluded from the diluted share calculations as they were anti-dilutive as a result of net losses incurred.  Accordingly, basic shares equal diluted shares for all periods presented.

Income Taxes

The Company accounts for income taxes under the FASB new codification of, “Accounting for Income Taxes”, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
 
 
-8-

 
RECOVERY ENERGY, INC.
f/k/a UNIVERSAL HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009
(UNAUDITED)

 

Revenue Recognition

Other than interest income, the Company did not have any revenues for the year ended 2009.   The Company will record the sale of natural gas and oil as they are produced and sold.
 
Accounting Standards Updates

In June 2009, the Financial Accounting Standards Board (FASB) issued its final Statement of Financial Accounting Standards (SFAS) No. 168,The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162”. SFAS No. 168 made the FASB Accounting Standards Codification (the "Codification") the single source of U.S. GAAP used by nongovernmental entities in the preparation of financial statements, except for rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws, which are sources of authoritative accounting guidance for SEC registrants. The Codification is meant to simplify user access to all authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into roughly 90 accounting topics within a consistent structure; its purpose is not to create new accounting and reporting guidance. The Codification supersedes all existing non-SEC accounting and reporting standards and was effective for the Company beginning July 1, 2009. Following SFAS No. 168, the Board will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates (ASU). The FASB will not consider ASUs as authoritative in their own right; these updates will serve only to update the Codification, provide background information about the guidance, and provide the basis for conclusions on the change(s) in the Codification.

Other ASUs not effective until after September 30, 2009, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
NOTE 2
MERGER TRANSACTIONS
 
On September 21, 2009 Recovery Energy, Inc (formerly known as Universal Holdings, Inc.), a non-operating public shell corporation, was merged into Coronado Resources, LLC (“Coronado”), with Universal Holdings, Inc. (“Universal”) being the surviving legal entity.  The primary reason for the merger was to create an entity which allowed Coronado additional opportunities to raise capital and to provide investors a long-term, public trading market for their common shares.

In connection with the merger, the Company also agreed to convert a note that was issued by Coronado on May 31, 2009 in the principal amount of $3,250,000 (the “Coronado Note”).  The Coronado Note was issued by Coronado to an agent for Capital Asset Lending, Inc., a California corporation, Westmoore Lending, LLC, a California limited liability company, and Westmoore Lending Opportunities, LLC, a California limited liability company (collectively, the “Coronado Noteholders”).  Pursuant to the terms of the Coronado Note, Coronado, at its option, may pay the principal amount of $3,250,000 in shares of a publicly listed company at the rate of one dollar and fifty-five cents per share provided the publicly traded company is in current status with its SEC filing requirements and at the time of tender is quoted on the OTCBB.  Accordingly, under the terms of the Coronado Note, the Company has agreed to issue an aggregate of 2,100,000 shares of its common stock, par value $0.0001 per share, to the Coronado Noteholders in full satisfaction of the Coronado Note.  As part of the reorganization, certain persons, including the company’s chairman of the Board purchased 5,000,000 shares of common stock from the prior shareholders of Universal in November 2009.  This has been accounted for as a fourth quarter transaction and will result in $17,500,000 of expense being recorded with an offset to equity.
 
Recovery issued a total of 2,185,000 shares of its common stock as a result of the reverse merger.

 
 
-9-

 
 
RECOVERY ENERGY, INC.
f/k/a UNIVERSAL HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009
(UNAUDITED)


 
As a result of this merger, Coronado was deemed the acquirer for accounting purposes, and the transaction was accounted for as a reverse acquisition.  Further, we followed the current guidance of the SEC related to reverse mergers between a private company and a public shell company, and considered the reverse merger as equivalent to a reverse capitalization.  Accordingly, as per SEC guidance for this type of transaction, we recorded no goodwill in the merger.
 
Assets acquired and liabilities assumed of Universal by Coronado on September 21, 2009 based on their fair values were as follows:
 
Cash
  $ 140  
Accounts payable
    (1,386 )
Note payable related party
    (32,500 )
Net liabilities assumed
  $ (33,746 )
 
In the consolidated statement of operations, expenses include the operations of Universal since September 21, 2009 which is the acquisition date.  The following proforma information presents the results of operations for the period ended September 30, 2009 as if the acquisition had occurred on March 6, 2009:
 
Revenue
  $ 0  
Net Loss
    256,331  
Earnings (loss) per share
  $ (0.03 )
 
For all periods presented, the financial statements of Coronado have been adopted as the historic financial statements of Recovery.
 
NOTE 3
DRILLING RIGS
 
In May 2009, two drilling rigs were contributed to the Company for a note of $3,250,000.  These rigs were recorded at estimated fair value and this approximated their predecessor cost basis.  The note holder subsequently converted the note for 2,100,000 shares of common stock (Note 2).  These rigs require certain capital improvements prior to their ability to be functional in operations.
 
NOTE 4
STOCKHOLDERS’ EQUITY

On September 21, 2009 Coronado Resources, LLC merged with Recovery Energy, Inc (f/k/a Universal Holdings, Inc).  Coronado assumed all existing assets and liabilities of Recovery.  Recovery issued 85,000 additional shares in conjunction with the reverse merger under a lock-up agreement and Recovery exchanged an existing $3,250,000 note payable into 2,100,000 shares simultaneous with the reverse merger.  The controlling shareholder group acquired five million shares previously owned by Universal Holdings, Inc’s executives in conjunction with the merger.  During the fourth quarter, Recovery issued 1,825,000 shares, of which 250,000 were reacquired by the Company under a contractual repurchase requirement.


 
-10-

 
 
RECOVERY ENERGY, INC.
f/k/a UNIVERSAL HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009
(UNAUDITED)
 

As of September 30, 2009 Recovery has 100,000,000 shares of common stock and 10,000,000 shares of preferred stock authorized, of which 9,199,000 of common shares were issued and outstanding (not including the 85,000 shares issued and outstanding under a lock-up agreement).  No preferred shares were issued or outstanding, such shares, however, may be issued in such series and preferences as determined by the Board of Directors.  85,000 shares of common stock were issued and outstanding under a lock-up agreement that has terms which may result in the Company reacquiring the shares due to circumstances outside of the Company’s control and therefore the shares are preferential to common shares.  The 85,000 shares covered by the lock-up agreement are treated as temporary equity and reported separately from other shareholders’ equity.

As part of the lock-up agreement, the holder of the shares has the right to put the shares back to Recovery based on certain valuations of the shares at specific dates.  The holder of the shares may require Recovery to repurchase 42,500 shares on September 21, 2010 at $0.59 per share ($25,000) if the market value of the shares is less than $25,000 (First Lock-Up period).  Additionally, the holder of the shares may require Recovery to repurchase 42,500 shares on March 21, 2011 at $0.59 per share ($25,000) if the market value of the shares is less than $25,000 (Second Lock-Up period). To properly account for the option held by the holder of the shares in accordance with ASC 815 and ASR 99-1, Recovery calculated the fair value of the put agreement for each lock-up period utilizing Black-Scholes and recorded a liability equal to the fair value of the put options.  Additionally, Recovery recorded the difference between the fair value of the put options and the agreed upon value of the shares as temporary equity.

To calculate the fair value of the put option utilizing Black-Scholes, the Company utilized a price of stock at issuance $5.00, expected volatility of 230%, a strike price of  $0.59 ($25,000/42,500 shares = $0.59), an expected term of 12 months (9/21/2010) for one-half (1/2) of the Shares and 18 for  one-half (1/2) of the Shares (3/21/2011), a risk free rate: 0.88%, and a dividend yield: 0%.  The Company realized the fair value of the non-cash expense and liability associated with put option rights of $27,484 and classified the equity related to these shares as $172,516 in temporary equity.
 
NOTE 5
SHARE-BASED COMPENSATION
 
Recovery has not adopted a Stock Incentive Plan for its management team.

Recovery accounts for stock based compensation arrangements in accordance with the provisions of   ASC 718 Compensation – Stock Compensation.  ASC 718 requires measurement and recording to the financial statements of the costs of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, recognized over the period during which an employee is required to provide services in exchange for such award. Recovery implemented ASC 718 effective March 6, 2009.

On September 21, 2009, we granted 464,200 shares of restricted common stock to our new Chief Executive Officer. 20% of the shares vest on January 1, 2011 with the remaining 371,360 shares vesting quarterly in equal amounts on April 1, July 1, October 1, and January 1, 2011, 2012, 2013 and 2014. The fair value of these shares was $719,510 based on the price we obtained for the restricted stock private placements prior to or concurrent with the stock grants.

We recognized stock compensation expense of $9,119 for the period ended September 30, 2009.
 
NOTE 6
RESTATEMENT OF PRIOR FORM 10-Q
 
Subsequent to the filing of the initial Form 10-Q for the period ended September 30, 2009, the Company engaged new auditors.  Based upon a review by the new auditors, management recognized that the previous Form 10-Q had been erroneously filed.  Primarily, the merger transaction between Coronado and Recovery was treated similar to a “pooling of interest” as opposed to a reverse purchase transaction of Recovery acquiring Coronado.
 
 
-11-

 

 
RECOVERY ENERGY, INC.
f/k/a UNIVERSAL HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009
(UNAUDITED)


Below is a summary of the changes:
 
    As Previously Presented     Adjusted    
As
Presented
 
                   
Balance Sheet:
                 
Total assets
  $ 3,439,029     $ (189,029 )   $ 3,250,000  
Total liabilities
  $ 92,158     $ 16,285     $ 108,443  
                         
Common stock subject to redemption
  $ -     $ 172,516     $ 172,516  
Other  stockholder equity
  $ 3,346,871     $ (377,830 )   $ 2,969,041  
Total liabilities and equity
  $ 3,439,029     $ (189,029 )   $ 3,250,000  
                         
Statement of Operations:
                       
Expenses
  $ 168,694     $ 87,437     $ 256,131  
Total net loss
  $ 168,694     $ 87,437     $ 256,131  
                         
Statement of Cash Flows:
                       
Cash flows
  $ (9,032 )   $ 9,032     $ -  
Cash flows from operations
  $ (179,532 )   $ 179,392     $ (140 )
Cash flows from investing
  $ (3,250,000 )   $ 3,250,140     $ 140  
Cash flows from financing
  $ 3,420,500     $ (3,420,500 )   $ -  
 
In addition, the Company’s initial Form 10-Q presented expenses of $110,571 in the financial statements, which were not applicable as these expenses relate to the activity of Universal Holdings, Inc. from May 1, 2009 through September 20, 2009 prior to the merger transaction.



 
-12-

 

 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

Overview of Our Business

General

We are a Denver based development stage independent energy company engaged in the services sector of the oil and gas industry through our ownership and operation of medium depth oil drilling rigs. In connection with our change in business direction, we principally intend to engage in the development, production, and marketing of oil & gas in North America through the application of engineering expertise, to enhance recovery and achieve the most effective results possible. Specifically, we intend to specialize in using modern secondary and tertiary recovery techniques on older, historically productive fields. Higher oil & gas prices, and advances in technology such as 3-D seismic acquisition and evaluation and carbon dioxide (CO2) injection, should enable us to capitalize on attractive sources of potential recoverable oil & gas.

We currently own two drilling rigs consisting of a Spencer Harris 5000 Rig and a Cardwell Rig, both capable of medium depth drilling to approximately 6,500 feet. Subject to certain equipment upgrades being completed, our current business is to continuously deploy our rigs in the field to generate daily lease revenue from third parties. We intend to focus our efforts on acquiring and developing producing properties in established mature basins within the United States, as such, the drilling component of the business will become less material as time progresses.

Recovery Energy will employ a business strategy that focuses on a balanced program of opportunistic acquisitions of existing producing properties that possess incremental value opportunities through low risk development.  We intend to efficiently deploy capital as a low cost operator and acquirer.  We intend to grow our assets base by acquiring neglected and underperforming or distressed oil centric assets which Recovery can operate.  As an operator, Recovery will be able to enhance the value of its acquisitions by focusing the appropriate resources to drive production growth.

Over the past several years there has been a renewed focus on domestic exploration and production within the United States.  Buoyed by growing international demand and coupled with continued political stress in major oil producing nations, the value of domestic hydrocarbon reserves has increased and should continue to command a premium for the foreseeable future.  When evaluating the outlook for natural gas as compared to oil, we believe the pricing curve favors oil and, thus, through our focus on on-shore domestic oil production we believe we are positioned to generate above average investment returns in the future.

We will focus on applying technology and services to increase the incremental recovery factor of certain mature oil basins within the United States.  Over the past fifteen years the energy industry has been focused on innovation, with new technological breakthroughs enabling the industry to pursue hydrocarbon reserves in previously inaccessible formations or areas. The impact of technology has not only improved the economics of drilling but it has dramatically impacted the recovery factor of existing oil in place.  For decades certain basins have been water-flooded, steam flooded, or CO2 flooded.  All of these efforts have been focused on increasing the recovery factor of known oil reserves that could not be produced or produced economically prior to the evolution of varying technologies.

For the majority of domestic U.S. oil basins the easily attainable oil has been found, suggesting in our opinion that new found oil production will be discovered through deeper, more complex conventional drilling activities, and through un-conventional shale-type opportunities, however, we believe significant opportunities exist in neglected and over looked conventional formations.

 
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The decline in oil prices in the 1980’s created a trend of the major oil companies to underemphasize and under-invest in the United States oil properties into more lucrative international oil development opportunities.   We plan to utilize our know-how, to identify, acquire and enhance properties that provide either down-hole improvements, additional behind-pipe zones or down spacing opportunities.  Furthermore, re-completion, modern frac technology and enhanced recovery will all be taken into consideration for both the acquisition and exploitation of various properties.  Furthermore, the significant volatility in commodity prices over the last twelve months has created opportunities to acquire reserves from financial constrained competitors who acquired assets at or near the top of the market.
 
Plan of Operation

We are a development stage independent energy company engaged in the services sector of the oil and gas industry through our ownership and operation of medium depth oil drilling rigs. In connection with our change in business direction, we principally intend to engage in the development, production, and marketing of oil & gas in North America through the application of engineering expertise, to enhance recovery and achieve the most effective results possible. Specifically, we intend to specialize in using modern secondary and tertiary recovery techniques on older, historically productive fields. Higher oil & gas prices, and advances in technology such as 3-D seismic acquisition and evaluation and carbon dioxide (CO2) injection, should enable us to capitalize on attractive sources of potential recoverable oil & gas.

We currently own two drilling rigs consisting of a Spencer Harris 5000 Rig and a Cardwell Rig, both capable of medium depth drilling to approximately 6,500 feet. Subject to certain equipment upgrades being completed, our current business is to continuously deploy our rigs in the field to generate daily lease revenue from third parties. We intend to focus our efforts on acquiring and developing producing properties in established mature basins within the United States, as such, the drilling component of the business will become less material as time progresses.

Recovery Energy will employ a business strategy that focuses on a balanced program of opportunistic acquisitions of existing producing properties that possess incremental value opportunities through low risk development.  We intend to efficiently deploy capital as a low cost operator and acquirer.  We intend to grow our assets base by acquiring neglected and underperforming or distressed oil centric assets which Recovery can operate.  As an operator, Recovery will be able to enhance the value of its acquisitions by focusing the appropriate resources to drive production growth.

Liquidity and Capital Resources
 
As of September 30, 2009 we had $0 in cash.  The only fixed assets we have are two medium depth drilling rigs which are valued at $3,250,000.
 
While we are attempting to commence operations and produce revenues, our cash position may not be significant enough to support our daily operations. Management intends to raise additional funds by way of a public or private offering.  Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While we believe in the viability of this strategy to generate revenues and in our ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.

We anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.
 
Revenues

For the period from inception through September 30, 2009, we had no revenue. Expenses incurred while under development for the period from inception (March 6, 2009) through September 30, 2009 were $256,331 resulting in a net loss of $256,331.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
 

 
 
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Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based 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.
 
Item 3.     Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4T.  Controls and Procedures

(a) Management of Recovery Energy is responsible for establishing and maintaining adequate internal control over financial reporting under the supervision of the President and Chief Executive Officer and the Chief Financial Officer. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the "1934 Act"), as of September 30, 2009, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out by our Chief Executive Officer (our principal executive/financial officer), who concluded, that because of the material weakness in our internal control over financial reporting (see Item 9A(T).  CONTROLS AND PROCEDURES in the Company’s Form 10-K filed for the year ended December 31, 2009), our disclosure controls and procedures were not effective as of September 30, 2009.  Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
 
(b)   Changes in internal control over financial reporting. During the quarter ended September 30, 2009, the Company elected a new CEO/CFO as a result of the change in control and new business focus.  This was not as a result of any control weaknesses or acts by the incumbent CEO or CFO.  Other than these changes, there were no changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
  
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 
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INHERENT LIMITATIONS OF INTERNAL CONTROLS
 
Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:
 
–  
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
–  
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with the U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
 
Management does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
Currently we are not aware of any litigation pending or threatened by or against the Company.
 
Item 1A. Risk Factors.
 
Not applicable for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
On September 21, 2009, we issued 2,100,000 shares of our Common Stock to Capital Asset Lending, Inc., a California corporation, Westmoore Lending, LLC, a California limited liability company, and Westmoore Lending Opportunities, LLC, a California limited liability company pursuant to the terms of a convertible note that automatically converted at the time of the reverse merger at a $1.55 per share conversion price.

Pursuant to the Lock-Up Agreement on September 21, 2009, we issued 85,000 shares of our Common Stock to Tryon under certain conditions.

Item 3. Defaults Upon Senior Securities.
 
None.
 
 
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Item 4. Submission of Matters to a Vote of Security Holders.
 
On September 28, 2009, we changed our name to Recovery Energy, Inc.  This name change was effected through an Amendment to the Company’s Articles of Incorporation which was approved by the Company’s shareholders at a special meeting held on September 28, 2009.   The Amendment became effective upon its filing with the Secretary of State of Nevada on October 2, 2009.  

As of the opening of trading on October 20, 2009, our Common Stock, which previously traded on the Over-the-Counter Bulletin Board under the ticker symbol “UVHO” began trading under the new ticker symbol “RECV”.  
 
Item 5. Other Information.
 
None
 
Item 6. Exhibits and Reports of Form 8-K.
 
(a)           Exhibits
 
31.1 Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
 
32.1 Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002
 
(b)           Reports of Form 8-K  
 
None.

 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Recovery Energy, Inc.
   
Date: April 29, 2010
By:
/s/ Jeffrey A. Beunier
   
Jeffrey A. Beunier
   
Chief Executive Officer and Principal Accounting Officer
     
 
 

 
 
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