CEIW 2.03 9m out, no pref:
biz.yahoo.com
kind of long but worth the read:
Business of the Company
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On September 12, 2003, Consolidated Energy, Inc. (the "Company") acquired
Eastern Consolidated Energy, Inc., a privately-held Kentucky Corporation
("Eastern"). Eastern's assets acquired by the Company include a coal lease in
Martin County, Kentucky that has been developed and is now operating. The
mine itself is known as the Warfield mine.
Eastern has completed the first and second phase of underground mine
development in the Alma seam of coal at the Warfield mine. This first and
second phase of mine development was completed in July of 2004. This mine
development will enable Eastern to have two active working sections even
though at present only one section is in production. However the second
prepared section provides for immediate additional production as soon as
Eastern acquires high production equipment which can be placed in this dormant
but prepared mining section. The current active section is being mined using
one production shift and one maintenance shift. Earlier, the company had
employed a second production shift in the Alma seam. However, management, in
order to conserve manpower, suspended the second production shift until the
company is able to upgrade the mining equipment. A single production shift is
currently mining using low production equipment which allows Eastern to
produce as much as 10,000 tons of mined coal per month. Management
anticipates that when high production equipment is obtained and installed into
both existing sections, Eastern will employ two production shifts and one
maintenance shift per section. When these four production shifts are
implemented, management expects that production will reach 50,000 to 60,000
tons per month from the Alma seam at Warfield. Much of the coal currently
being produced is being sold via spot sales week to week.
Eastern completed the negotiations and executed an agreement with American
Electric Power (AEP) for a long-term coal supply contract for Kentucky Power
Company's ("KPC") Big Sandy Plant on September 25, 2004. The contract has a
face value of more than $73,000,000 with additional incentives. The contract
provides that ECEI will deliver to the Big Sandy plant a minimum of 40,000
tons per month from one of several coal reserves held by ECEI beginning no
later than March 1st 2005 and continuing until February 29th 2008. Eastern is
solidifying plans to access two separate reserves held by Eastern which
contain coal capable of satisfying the coal contract with AEP.
8
One of the coal reserves held by Eastern, which contains coal with the quality
necessary to satisfy the AEP contract, is referred to as the Pond Creek coal
reserve. The Pond Creek reserve is located 90 feet directly under the Alma
seam at Warfield. Eastern has completed initial engineering which would allow
Eastern to slope down from the existing Alma mine at Warfield, into the Pond
Creek seam. The slope construction, which calls for three separate slopes,
and the subsequent Pond Creek mining activity will be conducted by Eastern's
existing management and labor.
Eastern initiated discussions with the N & S Railroad in an effort to obtain
an existing rail siding strategically located near the Warfield mine. Eastern
plans to conduct additional discussions to secure an appropriately located
rail loading site. Management believes that a rail siding will allow Eastern
to increase the number of customers with interest in the Warfield production.
This increased number of potential customers will help insure future sales
from the increased coal production at Warfield.
Eastern has determined that a coal preparation or coal "washing facility" is
needed at the Warfield mine in order to maximize the profitability of the
Warfield operation. Eastern's engineers have developed a plan for the
installation of a washing facility at the Warfield mine. We are still
expecting to have permits related to the construction of a washing facility in
hand by the fourth quarter of 2004. Management believes that the washing costs
associated with washing the Warfield coal will be between three and four
dollars per ton, and estimates that the value of the coal will be elevated
approximately twelve to fifteen dollars per ton.
Eastern Kentucky has historically been an enormous supplier of natural gas and
still contains some of the most abundant gas reserves in the nation. In order
to capitalize on this opportunity, Consolidated has acquired 400 acres which
are permitted in Morgan County to explore and develop the gas reserves. The
Company will refurbish one existing gas well which shows significant
production capacity. The Company is making plans to establish a delivery line
to the main gas line from the existing well and the anticipated other wells
which have already been permitted. This main line is approximately one half
mile from the 400 acre reserve. This gas activity is consistent with
management's long term plan to become a multifaceted energy supplier. The
Company will fund this activity by selling a percentage of the working
interest in the gas wells being developed. As funding is available, the
Company's plans are to continue the further acquisition of gas and oil leases
for further exploration, development and production in the region.
Eastern is being operated as a wholly-owned subsidiary of the Company. The
results of operations below reflect the financial condition of the combined
entities, including the operations of the subsidiary. Because neither the
Company nor Eastern had any operations prior to September 2003, the comparison
of prior year periods is not relevant to the discussion of operations.
9
Discussion and Analysis of Financial Condition and Results of Operations
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For the Nine Month Period Ended September 30, 2004
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For the nine month period ended September 30, 2004, the Company had revenues
of $2,180,868, with cost of revenues of $2,365,464 for a gross loss of
$184,596. Expenses for the nine months ended September 30, 2004 totaled
$1,215,010, consisting of legal and professional fees, consulting fees,
depreciation and amortization and other expenses. Including interest expenses
of $82,499, the Company reported a net loss from operations of $1,482,105, or
$.16 per share.
Management hopes to increase revenues over the next twelve months through an
increase in mining activities. Operating expenses are expected to increase as
well through increased payroll. This anticipated increase in payroll is
associated with the addition of a second shift in the Alma seam and the
addition of a second mining section. There will also be in increase in mining
consumables, including replacement parts, equipment and utilities, due to
increased production activities. |
