UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended June 30, 2008
or
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from __________ to __________
Commission
file number 333-121070
(Exact
name of registrant as specified in its charter
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Nevada
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56-2458730
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(State
or other jurisdiction
of
incorporation or organization)
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(I.R.S.
Employer
Identification
No.)
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4606
FM 1960 West,
Suite
400
Houston,
Texas
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77069
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(Address
of principal executive offices)
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(Zip
Code)
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(281)
315-8890
Registrant’s
telephone number, including area code
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: None (Title of
class):
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Name
of each exchange on which registered
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Common
Stock, $0.001 par value
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OTC
Bulletin Board
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Check if
the Issuer is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934. [_]
Check
whether the Issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [_]
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [_]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [X] No
[ ]
Issuer’s
revenues for the fiscal year ended June 30, 2008 were zero.
As of
September 4, 2008, the aggregate market value of the common stock of the
registrant held by non-affiliates (excluding shares held by directors, officers
and other holding more than 5% of the outstanding shares of the class) was
$6,716,675, based upon the average bid and asked price as of such date on the
OTC Bulletin Board.
The
Registrant’s common stock outstanding as of September 4, 2008, was 23,363,136
shares.
DOCUMENTS
INCORPORATED BY REFERENCE: None
Transitional
Small Business Disclosure Format (Check One): Yes [_] No [X]
ABC
FUNDING, INC.
AND
SUBSIDIARY
INDEX
TO FORM 10-KSB
June
30, 2008
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Page
No.
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2
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5
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5
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5
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6
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8
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10
& F-1
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10
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10
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11
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12
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14
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19
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20
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21
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21
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Cautionary
Notice Regarding Forward Looking Statements
ABC Funding, Inc. (referred to herein
as "we" or the "Company") desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of
1995. This report contains a number of forward-looking statements
that reflect management's current views and expectations with respect to our
business, strategies, future results and events and financial
performance. All statements made in this annual report other than
statements of historical fact, including statements that address operating
performance, events or developments that management expects or anticipates will
or may occur in the future, including statements related to future reserves,
cash flows, revenues, profitability, adequacy of funds from operations,
statements expressing general optimism about future operating results and
non-historical information, are forward-looking statements. In
particular, the words "believe," "expect," "intend," " anticipate," "estimate,"
"may," "will," variations of such words and similar expressions identify
forward-looking statements, but are not the exclusive means of identifying such
statements and their absence does not mean that the statement is not
forward-looking. These forward-looking statements are subject to
certain risks and uncertainties, including those discussed below. Our
actual results, performance or achievements could differ materially from
historical results as well as those expressed in, anticipated or implied by
these forward-looking statements. We do not undertake any obligation
to revise these forward-looking statements to reflect any future events or
circumstances.
Readers should not place undue reliance
on these forward-looking statements, which are based on management's current
expectations and projections about future events, are not guarantees of future
performance, are subject to risks, uncertainties and assumptions (including
those described below) and apply only as of the date of this
report. Our actual results, performance or achievements could differ
materially from the results expressed in, or implied by, these forward-looking
statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "—Risk Factors"
below as well as those discussed elsewhere in this report, and the risks
discussed in our press releases and other communications to shareholders issued
by us from time to time, which attempt to advise interested parties of the risks
and factors that may affect our business. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
PART I
Item
1. Description
of Business.
Company
Overview
We were
incorporated as a Nevada corporation on May 13, 2004. Other than the
capital raising activity discussed elsewhere under “- Development of Business,”
during the period covered by this annual report we engaged in only nominal
operations and had only nominal assets. To date, our activities
primarily have involved such capital-raising activities and business planning,
with the stated intention to engage in the oil and natural gas industry by (i)
acquiring established oil and gas properties and exploiting them through the
application of conventional and specialized technology to increase production,
ultimate recoveries, or both, and (ii) participating in joint venture drilling
programs with repeatable low risk results.
At fiscal
year end June 30, 2008, we constituted a “shell company” as that term is defined
in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) and, as such, were subject to the rules of the Securities
and Exchange Commission (“SEC”) applicable to shell companies.
Development
of Business.
On April 28, 2006, Energy Venture,
Inc., a privately-held Delaware corporation ("Energy Venture") consummated its
acquisition of shares of the capital stock of our Company in accordance with the
terms of that certain Stock Purchase Agreement, dated as of April 3, 2006, as
amended by that Amendment, dated as of April 28, 2006, among Energy Venture and
those certain selling stockholders of our Company named
therein. Under the purchase agreement, Energy Venture acquired a
total of 8,200,000 shares of our common stock, par value $.001 per share (the
"Common Stock") for an aggregate purchase price of $433,037 (the "April 2006
Stock Transaction"). Included among the selling stockholders in the
April 2006 Stock Transaction was the then Chief Executive Officer, Chief
Financial Officer and Chairman of our Company, Harold Barson.
Prior to the
completion of the April 2006 Stock Transaction, Harold Barson and Jeffrey Brown,
another former officer and director of our Company, held 9,160,000 and 100,000
shares of the Common Stock, respectively, representing collectively 92.6% of our
10,000,000 shares of Common Stock then issued and outstanding. After
giving effect to the April 2006 Stock Transaction, Energy Venture held an
aggregate of 8,200,000 shares constituting, in the aggregate, 82% of the issued
and outstanding shares of Common Stock. As a result of the April 2006
Stock Transaction, each of Alan D. Gaines, a current director, and Steven
Barrenechea, a former director, became indirect owners of all 8,200,000 shares
of the Common Stock acquired by Energy Venture by reason of their control of
Energy Venture, in which Messrs. Gaines and Barrenechea served as directors and
Mr. Gaines owned a majority of the issued and outstanding shares of capital
stock. In connection with the April 2006 Stock Transaction, Messrs.
Gaines and Barrenechea became directors and officers of our
Company.
On May 26, 2006, we and our
wholly-owned subsidiary, EVI Acquisition Corp., a Nevada corporation, entered
into, and consummated, the Agreement and Plan of Merger (the "Merger Agreement")
with Energy Venture. Pursuant to the Merger Agreement, Energy Venture
merged with and into EVI Acquisition Corp. (the "May 2006 Merger") and, in
return: (i) each share of common stock of Energy Venture then issued and
outstanding was exchanged for one share of our Common Stock; (ii) each
outstanding option to purchase shares of common stock of Energy Venture was
exchanged for an option to purchase, at the same exercise price, an equal number
of shares of our Common Stock; and (iii) all of the obligations and liabilities
of Energy Venture, including those certain 10% Convertible Promissory Notes of
Energy Venture in the aggregate principal amount of $1,500,000 (the "2006
Notes"), were assumed by us. As part of the May 2006 Merger, EVI
Acquisition Corp. amended its Articles of Incorporation to change its name to
"Energy Venture, Inc." Immediately prior to the issuance of shares of
our Common Stock pursuant to the Merger Agreement, there were 10,000,000 shares
of our Common Stock outstanding, of which 8,200,000 were held by Energy Venture
and were cancelled pursuant to the Merger Agreement.
As a result of the May 2006 Merger, the
former stockholders of Energy Venture became the controlling stockholders of our
Company. Additionally, since we had no substantial assets immediately
prior to the May 2006 Merger, the transaction was treated for accounting
purposes as a reverse acquisition and was accounted for as a recapitalization of
Energy Venture rather than a business combination. Consequently, the
historical financial statements of Energy Venture became the historical
financial statements of our Company.
Recent
Developments
As previously disclosed in our Current
Report on Form 8-K filed with the SEC on May 23, 2008, on May 22, 2008 we
executed a Stock Purchase and Sale Agreement with Voyager Gas Holdings, L.P., as
seller, and Voyager Gas Corporation (the “Purchase Agreement”) to purchase of
all of the outstanding capital stock of Voyager Gas Corporation. On
September 2, 2008, we completed the transactions under the Purchase
Agreement and acquired ownership in oil and gas lease blocks located in Duval
County, Texas, including working and other interests in oil and gas leases,
wells, and properties, together with rights under related operating, marketing,
and service contracts and agreements, seismic exploration licenses and rights,
and personal property, equipment and facilities (the "Voyager
Acquisition"). The purchase price paid in the Voyager
Acquisition consisted of cash consideration of $35.0 million, plus 10,000 newly
issued shares of our preferred stock designated as Series D preferred stock (the
“Series D Preferred”), having an agreed upon value of $7.0
million. We financed the cash portion of the Voyager Acquisition with
funds advanced under a new credit facility entered into with CIT Capital USA
Inc. on September 2, 2008, (the "CIT Credit Facility").
As disclosed elsewhere in “
Item 6. Management’s Discussion and
Analysis or Plan of Operations – Liquidity and Capital Resources,
” on May
21, 2008 we issued $900,000 principal amount of 10% senior secured convertible
debentures (the “Debentures”) to fund the performance deposit required under the
Purchase Agreement. In conjunction with the Voyager Acquisition, on September 2,
2008 we satisfied in full the Debentures by repaying $450,000 redemption price
of the Debentures in cash and issuing 10,000 shares of our Series E Preferred
with respect to the other $450,000 redemption price.
Employees
We
currently have three employees, Robert P. Munn, our Chief Executive Officer,
Carl A. Chase, our Chief Financial Officer and Steven Barrenchea, our former
CEO, who serves as an advisor. We intend to add in the near term
additional employees to implement the Voyager Acquisition.
Risk
Factors
Our business operations and financial
condition could be materially adversely affected by the following
risks:
We
are a company with limited operating history and very limited
resources.
Since our inception in May 2004, we
have had limited operations and nominal revenues. To date, we have
been engaged principally in organization, capital-raising activities and early
business development planning matters related primarily to making acquisitions
or participating in strategic joint ventures in the oil and natural gas
industry. Except for the Voyager Acquisition (see “-
Recent Developments
”), to
date we have made no acquisitions or entered into any joint
ventures. Our prospects must be considered in light of the risks,
expenses, delays, problems and difficulties frequently encountered in the
establishment of a new business in the energy industry, given the volatile
nature of the energy markets. There can be no assurance that we will
achieve our objective and business plan, or that we will be able to succeed in
achieving our objective and business plan.
Substantial
doubt exists as to whether our Company can continue as a going
concern.
We have never generated revenues
since our inception and, except for anticipated revenue from the Voyager
Acquisition, for which there can be no assurances, we have no current source of
revenues. Our lack of revenues increases the likelihood that we may
be unable to continue as a going concern, particularly in the event that we are
unable to obtain additional financing and/or attain profitable
operations. The financial statements presented in this annual report
do not include any adjustments that might result from the outcome of this
uncertainty and if our Company cannot continue as a going concern, our shares
could become devalued or even worthless.
We
have future capital needs and without adequate capital we may go out of
business.
Our growth could be impaired by
limitations on our access to the capital markets or traditional secured sources
of credit. There is no assurance that capital will be available to
us, or if available, would be adequate for the long-range growth of our Company
or obtainable by us on acceptable terms. If financing is available,
it may involve issuing securities senior to our shares or equity financings
which are dilutive to holders of our shares. In addition, in the
event we do not raise additional capital from conventional sources, such as our
existing investors or commercial banks, there is every likelihood that our
growth will be restricted and we may need to scale back or curtail implementing
our business plan. Even if we are successful in raising capital, we
will likely need to raise additional capital to continue and/or expand our
operations. Without adequate capital resources, we may also be forced
to adopt an alternative strategy that may include actions such as reducing or
delaying acquisitions and capital expenditures, selling assets, restructuring or
refinancing our indebtedness or seeking equity capital. We cannot
assure you that any of these alternative strategies could be effected on
satisfactory terms, if at all, or that they would yield sufficient funds to
continue or expand our operations.
We
have not and do not anticipate paying any cash dividends on our Common Stock,
because of this our securities could face devaluation in the
market.
We have paid no cash dividends on our
Common Stock to date and it is not anticipated that any cash dividends will be
paid to holders of our Common Stock in the foreseeable future. While
our dividend policy will be based on the operating results and capital needs of
the business, it is anticipated that any earnings will be retained to finance
our future expansion. As an investor, you should take note of the
fact that a lack of a dividend can further affect the market value of our stock,
and could significantly affect the value of any investment in our
Company.
Our
Common Stock is listed on the OTC Bulletin Board.
Our Common Stock is not quoted on the
NASDAQ National Market System or listed on a national securities
exchange. The NASDAQ National Market System and national securities
exchanges require companies to fulfill certain requirements in order for their
shares to be listed and to continue to be listed. The securities of a
company may be ineligible for listing or, if listed, may be considered for
delisting if the company fails to meet certain financial thresholds, including
if the company has sustained losses from continuing operations and/or net losses
in recent fiscal years. There can be no assurance that we will not
report losses in the future or that we will be able to list or have our Common
Stock quoted on the NASDAQ National Market or a national securities
exchange. An inability to list our Common Stock could adversely
affect our ability to raise capital in the future by issuing Common Stock or
securities convertible into or exercisable for our Common Stock.
We
will continue to incur significant increased costs as a result of operating as a
public company and our management will be required to devote substantial time to
new compliance requirements.
In January 2006, we registered our
Common Stock under the Exchange Act and thereby became subject to the reporting
requirements promulgated by the SEC thereunder. As a public company,
we incur significant legal, accounting and other expenses under the
Sarbanes-Oxley Act of 2002, together with rules implemented by the SEC and
applicable market regulators. These rules impose various requirements
on public companies, including requiring certain corporate governance
practices. Our management and other personnel will need to devote a
substantial amount of time to these new compliance
requirements. Moreover, these rules and regulations will increase our
legal and financial compliance costs and will make some activities more
time-consuming and costly.
Item 2. Description of Property.
We maintain corporate office at 4606 FM
1960 West, Suite 400, Houston, Texas 77069 under a month-to-month executive
office suite lease. Minimum monthly rental payments are approximately
$1,612, plus the cost of rental furniture, telephone lines and Internet
connections, which costs average approximately$1,300 per month. We
intend to relocate to permanent office space in the near term to implement our
business plan of growth following the Voyager Acquisition.
Item 3. Legal Proceedings.
Our Company is not currently
subject to any litigation.
Item 4. Submission of Matters to a Vote of Security
Holders.
In connection with the proposed
amendments to our Articles of Incorporation to provide for an increase in the
authorized shares of Common Stock from 24,000,000 to 149,000,000 and changing
the corporate name to “Cross Canyon Gas Corp.” (the “Charter Amendment”), on
March 4, 2008 stockholders holding an aggregate of 14,151,000 shares of our
Common Stock, representing approximately 60.6% of the 23,363,136 shares then
outstanding and entitled to vote thereupon, consented in writing to the Charter
Amendment. On August 29, 2008, stockholders holding 14,151,000 shares
of our Common Stock redelivered a written consent in favor of the Charter
Amendment. Based upon the 23,363,136 shares outstanding
on August 29, 2008, such stockholders continued to represent 60.6% of the shares
then outstanding.
The effective date for the Charter
Amendment is subject to (i) our distribution to all stockholders as of the
Record Date of an Information Statement concerning such Charter Amendment in
compliance with Regulation 14C of the Exchange Act and (ii) our subsequent
filing of a Certificate of Amendment with the State of Nevada in accordance with
the Nevada Revised Statutes.
No other matters were submitted to the
vote or consent of the holders of the outstanding shares of our Common Stock
during the quarter ended June 30, 2008.
PART II
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Item 5.
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Market
for Common Equity, Related Stockholder Matters and Small Business Issuer
Purchases of Equity Securities.
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Our Common Stock is quoted on the OTC
Bulletin Board under the trading symbol "AFDG". The prices set forth
below reflect the quarterly high and low sale information for shares of our
Common Stock for the last two fiscal years ended June 30, 2008 and 2007,
respectively. These quotations reflect inter-dealer prices, without
retail markup, markdown or commission, and may not represent actual
transactions. There were no trades of our securities on the OTC
Bulletin Board prior to April 13, 2006.
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High
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Low
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2007-2008
Quarter Ended:
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June
30, 2008
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$
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0.76
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$
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0.46
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March
31, 2008
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$
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0.60
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$
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0.35
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December
31, 2007
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$
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0.50
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$
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0.30
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September
30, 2007
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$
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0.57
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$
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0.37
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2006-2007
Quarter Ended:
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June
30, 2007
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$
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0.51
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$
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0.28
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March
31, 2007
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$
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0.55
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$
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0.35
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December
31, 2006
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$
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0.60
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$
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0.21
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September
30, 2006
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$
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0.65
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$
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0.25
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As of September 4, 2008, there were
approximately 151 holders of record of our Common Stock.
Our Common Stock is covered by an SEC
rule that imposes additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors, which are generally institutions with assets in excess of $5,000,000,
or individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse. For transactions
covered by the rule, the broker-dealer must make a special suitability
determination for the purchaser and transaction prior to the
sale. Consequently, the rule may affect the ability of broker-dealers
to sell our securities, and also may affect the ability of purchasers of our
Common Stock to sell their shares in the secondary market. It may
also cause fewer broker-dealers to be willing to make a market in our Common
Stock, and it may affect the level of news coverage we receive.
We have not declared or paid any cash
dividends on our Common Stock since our inception, and our Board currently
intends to retain all earnings for use in the business for the foreseeable
future. Any future payment of dividends will depend upon our results
of operations, financial condition, cash requirements and other factors deemed
relevant by our Board.
Our Articles of Incorporation
authorizes the issuance of up to 1,000,000 shares of preferred stock, par value
$ .001 per share, in one or more series with such designations; preferences;
conversions rights; cumulative, relative; participating; and optional or other
rights, including: voting rights; qualifications; limitations; or restrictions
as may be determined by the Board in its sole discretion. At year
ended June 30, 2008, our Board has issued (i) 99,395 shares of Series A
Preferred and (ii) 37,100 shares of Series B Preferred, convertible into
1,987,900 and 1,060,318 shares of our Common Stock, respectively, upon the
effectiveness of the Charter Amendment.
Equity
Compensation Plan Information
The following table provides
information as of June 30, 2008, about our equity compensation plans and
arrangements:
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Number
of Securities to be Issued Upon Exercise of Outstanding Options, Warrants
and Rights
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Weighted
Average Exercise Price of Outstanding Options, Warrants and
Rights
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Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected in Column
(a))
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Plan
Category
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(a)
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(b)
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(c)
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Equity
compensation plans
approved
by security holders
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--
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--
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1,500,000
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Equity
compensation plans
not
approved by security holders
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7,150,000
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(1)
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$0.41
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5,525,000
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(2)
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Total
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7,150,000
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$0.41
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7,025,000
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__________________
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(1)
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Consists
of warrants and options granted to our employees, officers, directors and
consultants, to the extent vested and exercisable (within the meaning of
Rule 13d-3(d)(1) promulgated by the Commission under the Securities and
Exchange Act of 1934, as amended) as of June 30,
2008.
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(2)
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Includes
an aggregate of: (i) 2,625,000 shares of our Common Stock underlying
restrictive stock awards not yet vested with respect to such shares
pursuant to Restricted Stock Agreements, each dated May 22, 2008, between
us and our Chief Executive Officer and Chief Financial Officer,
respectively, which awards vest with respect to one-third of the shares on
each of the effective date of the Charter Amendment and the first and
second year anniversary of the grant date; and (ii) 2,625,000
shares of our common stock underlying options granted but not yet vested
with respect to such shares pursuant to Option Agreements, each dated May
22, 2008, between us and our Chief Executive Officer and Chief Financial
Officer, respectively, which options vest with respect to one-third of the
shares on each of the effective date of the Charter Amendment and the
first and second year anniversary of the grant
date.
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Set forth below is a description of the
individual compensation arrangements or equity compensation plans not currently
approved by our security holders pursuant to which the 7,150,000 shares of our
Common Stock included in the chart above were issuable as of June 30,
2008:
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·
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Option
granted by Energy Venture on March 1, 2006 (and assumed by us under the
May 2006 Merger) to a non-employee in consideration of services performed,
which option expires five years from grant date and is currently
exercisable to purchase up to 350,000 shares of our Common Stock at an
exercise price of $0.05 per share;
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·
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Option
granted by Energy Venture on March 1, 2006 (and assumed by us under the
May 2006 Merger) to two non-employees in consideration of services
performed, which options expire five years from grant date and are
currently exercisable to purchase up to 1,950,000 shares of our Common
Stock at an exercise price of $0.60 per
share;
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·
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Options
granted on December 28, 2006 to four non-employees in consideration of
services performed, which options expire five years from grant date and
are currently exercisable to purchase up to 1,500,000 shares of our Common
Stock at an exercise price of $0.25 per
share;
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·
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Options
granted on May 22, 2007 to two non-employees in consideration of services
performed, which options expire five years from grant date and are
currently exercisable to purchase up to 800,000 shares of our Common Stock
at an exercise price of $0.30 per
share;
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·
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Option
granted on May 22, 2007 to our former Chief Financial Officer in
consideration of services performed, which option expires five years from
grant date and is currently exercisable to purchase up to 250,000 shares
of our Common Stock at an exercise price of $0.30 per
share;
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·
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Options
granted on October 22, 2007 to two non-employees in
consideration of services performed, which options expire five years from
grant date and are currently exercisable to purchase up to 1,000,000
shares of our Common Stock at an exercise price of $0.35 per
share;
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·
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Option
granted on October 22, 2007 to our former Chief Financial
Officer in consideration of services performed, which option expires five
years from grant date and is currently exercisable to purchase up to
250,000 shares of our Common Stock at an exercise price of $0.35 per
share;
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·
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Options
granted on December 19, 2007 to two non-employees in consideration of
services performed, which options expire five years from grant date and
are currently exercisable to purchase up to 1,100,000 shares of our Common
Stock at an exercise price of $0.35 per
share;
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·
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Option
granted on December 29, 2007 to our former Chief Executive Officer in
consideration of services performed, which option expires five years from
grant date and is currently exercisable to purchase up to 500,000 shares
of our Common Stock at an exercise price of $0.35 per
share;
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·
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Option
granted on February 28, 2008 to a non-employee in consideration of
services performed, which options expire five years from grant date and is
currently exercisable to purchase up to 3,300,000 shares of our Common
Stock at an exercise price of $0.52 per share;
and
|
|
·
|
Option
granted on February 28, 2008 to our former Chief Executive Officer in
consideration of services performed, which option expires five years from
grant date and is currently exercisable to purchase up to 250,000 shares
of our Common Stock at an exercise price of $0.52 per
share.
|
Item
6. Management's
Discussion and Analysis or Plan of Operation.
We were incorporated in the State of
Nevada on May 13, 2004.
By the May 2006 Merger, in which Energy
Venture merged into a newly created, wholly-owned subsidiary of ours, Energy
Venture was deemed the acquiring entity for financial accounting purposes and
the historical financial statements of our Company were restated to be those of
Energy Venture. We have not had any revenues from operations since
the May 2006 Merger and during the period covered by this annual
report.
Rather, since the May 2006 Merger we
have primarily been involved in conducting business planning and capital-raising
activities. To date, our activities primarily have involved such
capital-raising activities and business planning, with the stated intention to
engage in the oil and natural gas industry by (i) acquiring established oil and
gas properties and exploiting them through the application of conventional and
specialized technology to increase production, ultimate recoveries, or both, and
(ii) participating in joint venture drilling programs with repeatable low risk
results.
As
previously disclosed in our Current Report on Form 8-K filed with the SEC on May
23, 2008, our activities culminated in our recent entry into the Purchase
Agreement on May 22, 2008 with respect to Voyager Gas Corporation. On
September 2, 2008, we completed our purchase of all of the outstanding capital
stock of Voyager Gas Corporation, the owner of interests in oil and gas lease
blocks located in Duval County, Texas, including working and other interests in
oil and gas leases, wells, and properties, together with rights under related
operating, marketing, and service contracts and agreements, seismic exploration
licenses and rights, and personal property, equipment and facilities (the
"Voyager Acquisition"). The purchase price paid in the Voyager
Acquisition consisted of cash consideration of $35.0 million, plus 10,000 newly
issued shares of our preferred stock designated as Series D preferred stock,
having an agreed upon value of $7.0 million. We financed the cash
portion of the Voyager Acquisition with funds advanced under a new credit
facility entered into with CIT Capital USA Inc. on September 2,
2008.
Our
capital raising activities during the 2008 fiscal year consisted of the
following:
Convertible Debentures
(Bridge Financing)
On May
21, 2008, we entered into a Securities Purchase Agreement with those purchasers
identified therein, whereby we received proceeds of $800,000 evidenced by the
Debentures, with a principal amount of $900,000, issued at a discount of
$100,000. The proceeds from the Debentures were used by us to fund
our payment of the deposit required under the Voyager Acquisition pursuant to
the Purchase Agreement.
The
Debentures mature the earlier of September 29, 2008, or the completion of the
Voyager Acquisition, and may be satisfied in full by our payment of the
aggregate redemption price of $900,000 or, at the election of the purchasers, by
the conversion of the Debentures into shares of our Common Stock, at an initial
conversion price of $0.33 subject to adjustments and full-ratchet protection
under certain circumstances. On September 2, 2008, we satisfied in
full our obligations under the Debentures
While the
Debentures remained outstanding, we were precluded from incurring additional
indebtedness or suffering additional liens on our property, subject to limited
exceptions, including, without limitation, such indebtedness incurred by us in
connection with the financing of the consideration owing under the Voyager
Agreement. Our performance under the Debentures was secured by (i)
our grant of a security interest and first lien on all of our existing and
after-acquired assets, (ii) the guarantee of our wholly-owned subsidiary, Energy
Venture, Inc., and (iii) the pledge of an aggregate of 14,151,000 shares of our
Common Stock held by Alan D. Gaines, one of our directors, and his affiliates,
which pledged shares represent approximately 60.6% of the shares of our Common
Stock issued and outstanding as of the grant date. Upon satisfaction
of the Debentures, the security interest and accompanying liens automatically
terminates and all properties securing the obligations thereunder are
released.
On September 2, 2008, we repaid
$450,000 principal amount of the Debentures in cash from our CIT Credit Facility
and issued, in full satisfaction of our obligation with respect to the other
$450,000 principal amount, 10,000 shares of our Series E
Preferred. Each share of preferred stock is automatically convertible
into 136.3636 shares of our Common Stock, for an aggregate of 1,363,636 shares
of our Common Stock upon the effectiveness of the Charter Amendment, as provided
by the Certificate of Designation governing the Series E Preferred filed with
the State of Nevada on August 29, 2008.
2007 Convertible
Notes
On November 1, 2007, we sold $350,000
in convertible notes (the "2007 Notes"), which 2007 Notes mature on October 31,
2008 and bear interest at 10% per annum, payable in either cash or shares of our
Common Stock based upon a conversion price of $0.35 per share. The
investors in the 2007 Notes also received 200,004 shares of Common
Stock. As previously reported in our Current Report on Form 8-K filed
with the SEC on May 23, 2008, during May 2008 we exchanged 37,100 shares of our
Series B Preferred in full satisfaction of our obligation under the 2007 Notes
to pay $350,000 of principal and $21,000 of interest, with each share of such
preferred stock being automatically convertible into 28.58 shares of our Common
Stock, for an aggregate of 1,060,318 shares of our Common Stock, upon the
effectiveness of the Charter Amendment.
2006 Convertible
Notes
As a result of the May 2006 Merger, we
assumed $1,500,000 of convertible promissory notes (the "2006 Notes") previously
sold by Energy Venture. The 2006 Notes had an original maturity date
of August 31, 2007, carried an interest rate of 10% per annum, payable in either
cash or shares, and were convertible into shares of Common Stock at a conversion
price of $0.50 per share at the option of the investor. Each investor
also received a number of shares of Common Stock equal to 20% of his or her
investment divided by $0.50. Thus, a total of 600,000 shares were
initially issued to investors in the 2006 Notes.
On August 31, 2007 (the original
maturity date), we repaid in cash six of the holders of the 2006 Notes an
aggregate amount of $424,637, of which $410,000 represented principal and
$14,637 represented accrued interest. On September 4, 2007, an
additional $44,624 of accrued and current period interest was repaid through the
issuance of 89,248 shares of our Common Stock. The remaining holders
of the 2006 Notes entered into an agreement with us whereby the maturity date of
the 2006 Notes was extended to February 28, 2008 and, beginning September 1,
2007 until the 2006 Notes are paid in full, the interest rate on the outstanding
principal increased to 12% per annum. In addition, we agreed to issue
to the remaining holders of the 2006 Notes, 218,000 shares of our Common Stock
with a value of $98,100 as consideration for extending the 2006 Note's maturity
date.
On February 28, 2008, $1,090,000 of the
2006 Notes came due and we were unable to repay them. We continued to
accrue interest on the notes at 12%, the agreed upon rate for the extension
period. On March 6, 2008, we issued 130,449 shares of Common Stock in
lieu of cash in payment of $65,221 of accrued and current period interest to
holders of 2006 Notes. On April 22, 2008, we repaid $100,000
principal amount in cash to one of the holders of the 2006 Notes in satisfaction
thereof. As previously reported in our Current Report on Form 8-K
filed with the SEC on May 23, 2008, during May 2008 we exchanged 99,395 shares
of our Series A Preferred for the remaining 2006 Notes in payment of the
$965,000 of principal and $28,950 of interest thereunder. Each share
of Series A Preferred is automatically convertible into 20 shares of our Common
Stock, for an aggregate of 1,987,900 shares of our Common Stock, upon the
effectiveness of the Charter Amendment, as provided by the Certificate of
Designation with respect to the Series A Preferred filed with the State of
Nevada on May 15, 2008. At June 30, 2008, $25,000 principal amount of
the 2006 Notes held by one noteholder remained outstanding.
Recent Development
On
September 2, 2008, we entered into a credit agreement and a second lien term
loan agreement with CIT Capital USA Inc., as administrative agent and lender
(the “CIT Credit Facility”). The CIT Credit Facility provides for (i) a $50.0
million senior secured revolving credit facility which is subject to an initial
borrowing base of $14.0 million, or an amount determined based on semiannual
review of our proved oil and gas reserves, and (ii) a one-time term loan of
$22.0 million maturing in three and one-half years. Advances under
the revolver mature in three years and bear interest at LIBOR plus 1.75% to
2.50%, as the case may be. The term loan bears interest at a rate
equal to LIBOR plus 5% during the first twelve months after closing and LIBOR
plus 7.50%, thereafter. As of September 4, 2008, we had drawn down
the full amount under the term loan and $11.5 million under the revolver to
finance the Voyager Acquisition, to repay the related bridge loan and
transaction expenses, and to fund capital expenditures
generally. Both instruments evidencing the loan arrangements contain
various restrictive covenants and financial covenants. All borrowings
under the revolver are secured by a first lien on all of our assets and those of
our subsidiaries. All borrowings under the term loan are secured by a
second lien on all of our assets and those of our
subsidiaries.
Recent
Accounting and Reporting Pronouncements
During February 2007, the Financial
Accounting Standards Board (“FASB”) issued FASB Statement of Accounting
Standards (“SFAS”) No 159, “The Fair Value Option for Financial Assets and
Financial Liabilities” (“SFAS No. 159”) which permits all entities to choose, at
specified election dates, to measure eligible items at fair
value. SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value, and thereby mitigate volatility
in reported earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting
provisions. This Statement also establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and
liabilities. SFAS No. 159 is effective as of the beginning of an
entity’s first fiscal year that begins after November 15, 2007. We
are evaluating the impact that this Statement will have on its financial
statements.
During
September 2006, the FASB issued FASB Statement of Accounting Standards (“SFAS”)
No. 157. This Statement defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or permit fair value
measurements, where fair value has been determined to be the relevant
measurement attribute. This Statement is effective for fiscal years
beginning after November 15, 2007. We are evaluating the impact that
this Statement will have on its financial statements.
Critical
Accounting Policies
The preparation of financial statements
and related notes requires us to make judgments, estimates, and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses, and
related disclosure of contingent assets and liabilities. An
accounting policy is considered to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates that reasonably
could have been used, or changes in the accounting estimates that are reasonably
likely to occur periodically, could materially impact the financial
statements.
Because of our limited level of
operations, we have not had to make material assumptions or estimates other than
our assumption that we are a going concern. If our business
increases, our principal estimates will involve whether engagements in process
will be profitable.
Item
7.
Financial Statements.
The response to this item is included
in Item 13 – Financial Statements.
|
Item 8.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
Item
8A. Controls
and Procedures.
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the Securities Exchange Act of 1934, as
amended (the "Act") is accumulated and communicated to the issuer's management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure. It should be noted that the design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote. As of the end of the period covered by this Annual
Report, we carried out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer of
the effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our CEO and CFO have concluded
that our disclosure controls and procedures are not effective because of the
identification of a material weakness in our internal control over financial
reporting which is identified below, which we view as an integral part of our
disclosure controls and procedures.
Changes
in Internal Controls over Financial Reporting
We
have not yet made any changes in our internal controls over financial reporting
that occurred during the period covered by this report on Form 10-KSB that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control
system was 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. Because
of inherent limitations, a system of 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 due to change in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Our
management conducted an evaluation of the effectiveness of our internal control
over financial reporting using the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control—Integrated Framework. Based on its evaluation, our management concluded
that there is a material weakness in our internal control over financial
reporting. A material weakness is a deficiency, or a combination of control
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the Company’s annual or
interim financial statements will not be prevented or detected on a timely
basis.
The
material weakness relates to the lack of segregation of duties in financial
reporting, as our financial reporting and all accounting functions are performed
by
our Chief Financial
Officer, who was hired on May 22, 2008, and prior to that point, by an external
consultant
. Our CEO does not possess accounting expertise and
our Company does not have an audit committee. This weakness is due to
our lack of working capital to hire additional staff
during the period covered by this
report
. To remedy this material weakness,
with the consummation of
the Voyager Acquisition on September 2, 2008,
we intend
to
hire additional
accounting personnel
to assist with financial reporting as soon as our
finances will allow.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to the attestation by
our registered public accounting firm pursuant to temporary rules of the SEC
that permit us to provide only management’s report in this annual
report.
The
Company’s management carried out an assessment of the effectiveness of the
Company’s internal control over financial reporting as of June 30, 2008. The
Company’s management based its evaluation on criteria set forth in the framework
in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that assessment, management
has concluded that the Company’s internal control over financial reporting was
not effective as of June 30, 2008.
Item
8B. Other
Information.
None.
PART III
|
Item
9.
|
Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange
Act.
|
The following table sets forth
information with respect to the current directors and executive officers of our
Company:
|
Name
of Individual
|
Age
|
Position
with our Company
|
|
Robert
P. Munn
|
49
|
President,
Chief Executive Officer,
Chairman
and Director
|
|
Carl
A. Chase
|
58
|
Chief
Financial Officer and Secretary
|
|
Alan
D. Gaines
|
52
|
Director
|
The business experience of each
director and executive officer of our Company is set forth below:
Robert P.
Munn.
Mr. Munn joined our Company on May 22, 2008, as Chief
Executive Officer and also serves as a member of our Board, and
Chairman. His work experience spans over 27 years' involvement in the
United States and International oil and gas arenas, where he has worked for both
small and large independent E&P companies in different basins throughout the
United States, the Gulf of Mexico and offshore West Africa. Prior to
joining us, Mr. Munn served as President, Chief Executive Officer and a director
of Striker Oil & Gas, Inc. (formerly Unicorp, Inc.), a publicly traded
independent E&P company from September 2007 until his resignation in
February 2008. In 2003, he opened the U.S. office for Sterling
Energy, PLC and, until September 2007, served as Executive Vice-President and
director for Sterling, where he managed the growth of its U.S. operations by
successfully adding oil and gas reserves through drilling and acquiring
producing properties. Prior to his tenure with Sterling, Mr. Munn
served as Vice-President of Exploration for FW Oil. From 1987 through
2001, he served in supervisory and senior technical roles with Amerada Hess
working in oil and gas basins located both onshore and offshore the United
States. From 1981 to 1987, Mr. Munn worked as an exploration and
exploitation geologist for Buckhorn Petroleum and Harper Oil Company in Denver,
Colorado. Mr. Munn received a B.A. degree in Geology from the
University of Colorado in 1981.
Carl A. Chase
. Mr.
Chase joined our Company on May 22, 2008, as Chief Financial Officer, Secretary
and Treasurer. He has over 33 years' experience with major and
independent E&P companies and has held various financial and administrative
positions with publicly traded companies. Most recently, he served as
Chief Financial Officer and a director of Striker Oil & Gas, Inc. (formerly
Unicorp, Inc.), a publicly traded independent E&P company from August 2004
until his resignation in April 2008. From May 2007 until March 2008,
he served as a consultant and director of Oncolin Therapeutics, Inc., a
publicly-traded bio-technology company involved in developing products to treat
cancer, infectious diseases and other medical conditions associated with
compromised immune systems. From August 2000 to May 2006, Mr. Chase
served as both a consultant and senior vice president to Rockport Healthcare
Group, Inc., a publicly-traded preferred provider organization, PPO, for
work-related injuries and illnesses. From 2003 until 2006, Mr. Chase
served as a director of eLinear, Inc., an integrated technology solutions
provider of security, IP telephony and network and storage solutions
infrastructure. In September 2006, eLinear filed a voluntary petition
in the United States Bankruptcy Court for the Southern District of Texas,
Houston Division, seeking relief under Chapter 7 of the United States
Code. From August 1999 to May 2000, Mr. Chase was Chief Financial
Officer of ClearWorks.net, Inc., an information technology company providing IT
consulting and computer hardware and software solutions. From
December 1992 to August 1999, Mr. Chase served as Chief Financial Officer of
Bannon Energy Incorporated, a privately held, independent E&P company, where
his responsibilities included acquisitions, financing and accounting and
administration. Mr. Chase has held various financial and
administrative positions with various oil and gas companies, including Amoco
Production Company and Union Pacific Resources Corporation. Mr. Chase
received a Bachelor of Accountancy degree from the University of Oklahoma in
1975.
Alan D.
Gaines.
Mr. Gaines served as our Chief Executive Officer from
April 2006 to September 2007, as Chairman from April 2006 to May 2008 and a
director of our Company since April 2006. He is currently the
Chairman of Dune Energy, Inc., an independent E&P company engaged in the
development, exploration and acquisition of oil and gas properties, with
operations presently concentrated onshore the Louisiana/Texas Gulf
Coast. He served from April 2005 until August 2008 as Vice-Chairman
and from April 2005 until July 18, 2008 as a director of Baseline Oil & Gas
Corp., a public company engaged in the development, exploration and acquisition
of oil and gas properties. Mr. Gaines has 25 years’ of experience as
an energy investment and merchant banker. In 1983, he co-founded
Gaines, Berland Inc., an investment bank and brokerage firm, specializing in
global energy markets, with particular emphasis given to small to medium
capitalization companies involved in exploration and production, pipelines,
refining and marketing, and oilfield services. Prior to selling his
interest in Gaines, Berland, the firm managed or co-managed, and participated in
$4 billion of equity and debt financings during a three year
period. He has acted as an advisor to financier Carl Icahn during
such corporate takeovers as USX Corporation (Marathon Oil) and
Texaco. Mr. Gaines holds a BBA in Finance from Baruch College, and an
MBA in Finance (with distinction) from Zarb School, Hofstra University School of
Graduate Management.
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of
the Securities Exchange Act of 1934 requires our directors, executive officers
and persons who own beneficially more than ten percent (10%) of our Common
Stock, to file reports of ownership and changes of ownership with the
SEC. Based solely on the reports received by us and on written
representations from certain reporting persons, we believe that the directors,
executive officers and greater than ten percent beneficial owners have complied
with all applicable filing requirements during the year ended June 30,
2008.
Code
of Ethics
We have not adopted a Code of Ethics
with respect to our directors or officers (including our chief executive
officer, chief financial officer, chief accounting officer and any person
performing similar functions) because we have not been an operating
company.
Audit
Committee
Presently we do not have an Audit
Committee.
Item 10.
Executive
Compensation
The
following sets forth the annual and long-term compensation received by (i) our
Chief Executive Officer ("CEO"), (ii) our two most highly compensated executive
officers, if any, other than the CEO, whose total compensation during fiscal
year 2008 exceeded $100,000 and who were serving as executive officers at the
end of the 2008 fiscal year and (iii) the two most highly compensated former
officers (collectively, the "Named Executive Officers"), at our fiscal years
ended June 30, 2008 and 2007:
|
Summary
Compensation Table
|
|
|
Name
and Principal Position
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards ($)
|
|
|
Non-Equity
Incentive Plan Compensation
($)
|
|
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
Robert
P. Munn
Chief
Executive
Officer
(1)
|
2008
|
|
|
24,716
|
|
|
|
--
|
|
|
|
780,000
|
|
|
|
738,674
|
|
|
|
--
|
|
|
|
--
|
|
|
|
650
|
(2)
|
|
|
1,544,040
|
|
|
Carl
A. Chase
Chief
Financial
Officer
(3)
|
2008
|
|
|
19,773
|
|
|
|
--
|
|
|
|
585,000
|
|
|
|
554,006
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,158,779
|
|
|
Steven
Barrenechea
Chief
Executive
Officer
(4)
|
2008
|
|
|
27,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
239,423
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
266,423
|
|
|
Richard
Cohen
Chief
Financial
Officer
(5)
|
2008
|
|
|
36,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
72,564
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
108,564
|
|
|
|
2007
|
|
|
72,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
294,623
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
366,623
|
|
________________
|
(1)
|
Mr.
Munn was employed as our Chief Executive Officer on May 22,
2008.
|
|
(2)
|
Includes
$650 monthly car allowance.
|
|
(3)
|
Mr.
Chase was employed as our Chief Financial Officer on May 22,
2008.
|
|
(4)
|
Mr.
Barrenechea served as our Chief Executive Officer and a director from
September 2007 until his resignation on May 22, 2008, and continues to be
employed by us as an advisor.
|
|
(5)
|
Mr.
Cohen served as our Chief Financial Officer until his resignation in
January 2008.
|
The following table indicates the
total number and value of exercisable stock options and restricted stock awards
held by the Named Executive Officers during the 2008 fiscal year:
|
|
Outstanding
Equity Awards at June 30, 2008
|
|
Name
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Rights That
Have Not Vested
(#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
($)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
|
(h)
|
(i)
|
(j)
|
|
Robert
P. Munn,
Chief
Executive
Officer
(1)
|
--
|
500,000
|
--
|
$0.52
|
5/20/13
|
1,500,000
|
(2)
|
825,000
|
--
|
--
|
|
--
|
500,000
|
--
|
$0.57
|
5/20/13
|
--
|
|
--
|
|
|
|
--
|
500,000
|
--
|
$0.62
|
5/20/13
|
--
|
|
--
|
|
|
|
Carl
A. Chase,
Chief
Financial
Officer
(3)
|
--
|
375,000
|
--
|
$0.52
|
5/20/13
|
1,125,000
|
(4)
|
618,750
|
--
|
--
|
|
--
|
375,000
|
--
|
$0.57
|
5/20/13
|
--
|
|
--
|
--
|
--
|
|
--
|
375,000
|
--
|
$0.62
|
5/20/13
|
--
|
|
--
|
--
|
--
|
|
Steven
Barrenechea,
Chief
Executive
Officer
(5)
|
--
|
500,000
|
--
|
$0.35
|
12/29/12
|
--
|
|
--
|
--
|
--
|
|
--
|
250,000
|
--
|
$0.52
|
2/27/13
|
--
|
|
--
|
--
|
--
|
|
Richard
Cohen,
Chief
Financial
Officer
(6)
|
--
|
250,000
|
--
|
$0.30
|
5/22/12
|
--
|
|
--
|
--
|
--
|
|
--
|
250,000
|
--
|
$0.35
|
10/26/12
|
--
|
|
--
|
--
|
--
|
____________
|
(1)
|
Mr.
Munn was employed as our Chief Executive Officer on May 22,
2008.
|
|
(2)
|
Restricted
Stock Awards vest with respect to 1/3
rd
of the total shares, or 500,000 shares, awarded on each of the effective
date of the Charter Amendment and the first and second year anniversary of
the grant date.
|
|
(3)
|
Mr.
Chase was employed as our Chief Financial Officer on May 22,
2008.
|
|
(4)
|
Restricted
Stock Awards vest with respect to 1/3
rd
of the total shares, or 375,000 shares, awarded on each of the effective
date of the Charter Amendment and the first and second year anniversary of
the grant date.
|
|
(5)
|
Mr.
Barrenechea served as our Chief Executive Officer and a director from
September 2007 until his resignation on May 22, 2008, and continues to be
employed by us as an advisor.
|
|
(6)
|
Mr.
Cohen served as our Chief Financial Officer until his resignation in
January 2008.
|
On May 22, 2008, Steven Barrenechea
resigned as our President, Chief Executive Officer and acting Chief Financial
Officer and Robert P. Munn and Carl A. Chase were appointed our President and
Chief Executive Officer, and Chief Financial Officer, respectively.
Employment
Agreements
We currently have in place employment
agreements with respect to our principal executive and financial officers,
providing for the following:
|
·
|
Robert
P. Munn to serve as our President and Chief Executive Officer, at an
initial annual base salary of $225,000, which base salary shall increase
to $260,000 at the first anniversary date of his employment, subject to
increase upon review of our Board;
and
|
|
·
|
Carl
A. Chase to serve as our Chief Financial Officer, at an initial annual
base salary of $180,000, which base salary shall increase to $210,000 at
the first anniversary date of his employment, subject to increase upon
review of our Board.
|
The initial term of employment under
the Employment Agreements is two (2) years, unless earlier terminated by us or
the executive officer by reason of death, disability, without cause, for cause,
for "good reason," change of control or otherwise.
In addition to their base salaries,
Messrs. Munn and Chase are guaranteed an annual bonus of $45,000 and $36,000,
respectively, on the first year anniversary and an amount up to 100% and 75%,
respectively, of such officer's then applicable base salary, as determined by
our Board or committee thereof, based on such officer's performance and
achievement of quantitative and qualitative criteria set by our Board, for such
year. Each of Messrs. Munn and Chase is further eligible under his
employment agreement to participate, subject to any eligibility, co-payment and
waiting period requirements, in all employee health and/or benefit plans offered
or made available to our senior officers.
Upon termination of an officer without
"cause", upon the resignation of either officer for "good reason", or upon his
termination following a "change of control" (each as defined in the employment
agreements), such officer will be entitled to receive from us, in addition to
his then current base salary through the date of resignation or termination, as
applicable, and pro rata bonus and fringe benefits otherwise due and unpaid at
the time of resignation or termination, a severance payment equal to twelve (12)
months base salary at the then current rate plus pro rata performance bonus
earned and unpaid through the date of termination or resignation, as
applicable. Each such officer shall also be entitled to any unpaid
bonus from the preceding year of employment, and any restricted stock granted to
him shall immediately vest and all other stock options or grants, if any, made
to him pursuant to any incentive or benefit plans then in effect shall vest and
be exercisable, as applicable, in accordance with the terms of any such plans or
agreements.
We have also agreed to pay these
executive officers an additional gross-up amount equal to all Federal, state or
local taxes that may be imposed upon them by reason of the severance
payments.Each of Messrs. Munn and Chase have agreed that, during the respective
term of his employment and for a one-year period after his termination (other
than termination by him for good reason or by us without cause or following a
change of control), not to engage, directly or indirectly, as an owner,
employee, consultant or otherwise, in any business engaged in the exploration,
drilling or production of natural gas or oil within any five (5) mile radius
from any property that we then have an ownership, leasehold or participation
interest. Each officer is further prohibited during the above time
period from soliciting or inducing, directly or indirectly, any of our
then-current employees or customers, or any customers of ours during the one
year preceding the termination of his employment.
Restricted
Stock Agreements
Pursuant to the restricted stock
agreements, we have agreed upon the effectiveness of the Charter Amendment to
grant restricted stock awards to each of Messrs. Munn and Chase, as
follows:
|
·
|
1,500,000
shares of our Common Stock to Mr. Munn, which vest equally as to one-third
of the shares over a two year period, commencing on the effective date of
the Charter Amendment in the State of Nevada and each of the first and
second year anniversary of the grant
date;
|
|
·
|
1,125,000
shares of our Common Stock to Mr. Chase, which vest equally as to
one-third of the shares over a two year period, commencing on the
effective date of the Charter Amendment in the State of Nevada and each of
the first and second year anniversary of the grant
date.
|
The above vesting schedule is subject
to the officer being continuously employed by us at the applicable vesting
date.
As provided in the restricted stock
agreements, we have also agreed to pay each above executive officer an
additional gross-up amount equal to all federal, state or local taxes imposed
upon him by reason of the restricted stock awards.
Each officer has, with respect to all
of the restricted shares (whether then vested or not), all of the rights of a
holder of our Common Stock, including the right to vote such shares and to
receive dividend as may be declared. Notwithstanding the proceeding
sentence, the restricted stock shall not be transferable until and unless they
have become vested in accordance with the vesting schedule.
Option
Agreements
As part of the employment agreement
with Mr. Munn, on May 22, 2008, we granted stock options, exercisable for up to
1,500,000 shares of our Common Stock, as follows:
|
·
|
option
exercisable for up to 500,000 shares, at an exercise price of $0.52 per
share (the closing price of our Common Stock, as reported by the OTC
Bulletin Board on May 22, 2008), which option vests with respect to these
shares on the effectiveness of the Charter Amendment in the State of
Nevada;
|
|
·
|
option
exercisable for up to 500,000 shares, at an exercise price of $0.57 per
share, which option vests with respect to these shares on May 22, 2009;
and
|
|
·
|
option
exercisable for up to 500,000 shares, at an exercise price of $0.62 per
share, which option vests with respect to these shares on May 22,
2010.
|
As part of the Employment Agreement
with Mr. Chase, on May 22, 2008 we granted stock options, exercisable for up to
1,125,000 shares of our Common Stock, as follows:
|
·
|
option
to Mr. Chase for up to 375,000 shares, at an exercise price of $0.52 per
share (the closing price of our Common Stock, as reported by the OTC
Bulletin Board on May 22, 2008), which option vests with respect to these
shares upon the effectiveness of the Charter Amendment in the State of
Nevada;
|
|
·
|
option
to Mr. Chase for up to 375,000 shares, at an exercise price of $0.57 per
share, which option vests with respect to these shares on May 22, 2009;
and
|
|
·
|
option
to Mr. Chase for up to 375,000 shares, at an exercise price of $0.62 per
share, which option vests with respect to these shares on May 22,
2010.
|
Options vesting on May 22, 2009 and May
22, 2010 are subject to acceleration in the event we undergo a "change of
control" while such executive officer is still employed by us. All
options expire on May 22, 2015.
The holders of the options shall have
none of the rights and privileges of a stockholder of our Company with respect
to any of the underlying shares of Common Stock, in whole or in part, prior to
the exercise of the options with respect to such underlying shares.
We granted "piggy-back" registration
rights to the option holders affording each of them the opportunity to include
for sale in any registration statement under the Securities Act (other than in
connection with a Form S-8 or any successor form registering any employment
benefit plan ) we propose to file with respect to our securities any time during
the next five (5) years, commencing May 22, 2009.
2004
Non-Statutory Stock Option Plan
Pursuant to the May 14, 2004 Board’s
approval and subsequent stockholder approval, our Company adopted our 2004
Non-Statutory Stock Option Plan (the "Plan") whereby we reserved for issuance up
to 1,500,000 shares of our Common Stock. Non-Statutory Stock Options
do not meet certain requirements of the Internal Revenue Service as compared to
Incentive Stock Options which meet the requirements of Section 422 of the
Internal Revenue Code. Nonqualified options have two disadvantages
compared to incentive stock options. One is that recipients have to
report taxable income at the time that they exercise the option to buy stock,
and the other is that the income is treated as compensation, which is taxed at
higher rates than long-term capital gains. We may file a Registration
Statement on Form S-8 so as to register those 1,500,000 shares of Common Stock
underlying the options in the Plan.
As of June 30, 2008, no options have
been issued under the Plan.
As
previously indicated, our Board, on May 14, 2004, adopted the Plan so as to
provide a long-term incentive for employees, non-employee directors,
consultants, attorneys and advisors of our Company and our subsidiaries, if
any. The Board believes that our policy of granting stock options to
such persons will provide us with a potential critical advantage in attracting
and retaining qualified candidates. In addition, the Plan is intended
to provide us with maximum flexibility to compensate plan
participants. We believe that such flexibility will be an integral
part of our policy to encourage employees, non-employee directors, consultants,
attorneys and advisors to focus on the long-term growth of stockholder
value. The Board believes that important advantages to ABC are gained
by an option program such as the Plan which includes incentives for motivating
our employees, while at the same time promoting a closer identity of interest
between employees, non-employee directors, consultants, attorneys and advisors
on the one hand, and the stockholders on the other.
The principal terms of the Plan are
summarized below; however, it is not intended to be a complete description
thereof and such summary is qualified in its entirety by the actual text of the
Plan, a copy of which has been filed as an exhibit to our registration statement
of which this prospectus is a part.
Summary Description of the
ABC Funding Inc, Inc. 2004 Non-Statutory Stock Option Plan
The purpose of the Plan is to provide
directors, officers and employees of, as well as consultants, attorneys and
advisors to, our Company and our subsidiaries, if any, with additional
incentives by increasing their ownership interest in our
Company. Directors, officers and other employees of our Company and
our subsidiaries are eligible to participate in the Plan. Options in
the form of Non-Statutory Stock Options ("NSO") may also be granted to directors
who are not employed by us and consultants, attorneys and advisors to us
providing valuable services to us and our subsidiaries. In addition,
individuals who have agreed to become an employee of, director of or an
attorney, consultant or advisor to us and/or our subsidiaries are eligible for
option grants, conditional in each case on actual employment, directorship or
attorney, advisor and/or consultant status. T he Plan provides for the issuance
of NSO's only, which are not intended to qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code, as
amended. Further, NSO's have two disadvantages compared to ISO's in
that recipients of NSO's must report taxable income at the time of NSO option
exercise and income from NSO's is treated as compensation which is taxed at
higher rates than long-term capital gains.
Our Board or a compensation committee
(once established) will administer the Plan with the discretion generally to
determine the terms of any option grant, including the number of option shares,
exercise price, term, vesting schedule and the post-termination exercise
period. Notwithstanding this discretion (i) the term of any option
may not exceed ten (10) years and (ii) an option will terminate as follows: (a)
if such termination is on account of termination of employment for any reason
other than death, without cause, such options shall terminate one year
thereafter; (b) if such termination is on account of death, such options shall
terminate fifteen (15) months thereafter; and (c) if such termination is for
cause (as determined by our Board and/or compensation committee), such options
shall terminate immediately. Unless otherwise determined by our Board
or compensation committee, the exercise price per share of Common Stock subject
to an option shall be equal to no less than ten percent (10%) of the fair market
value of the Common Stock on the date such option is granted. No NSO
shall be assignable or otherwise transferable except by will or the laws of
descent and distribution or except as permitted in accordance with SEC Release
No.33-7646 as effective April 7, 1999.
The Plan may be amended, altered,
suspended, discontinued or terminated by our Board without further stockholder
approval, unless such approval is required by law or regulation or under the
rules of the stock exchange or automated quotation system on which the Common
Stock is then listed or quoted. Thus, stockholder approval will not
necessarily be required for amendments which might increase the cost of the Plan
or broaden eligibility except that no amendment or alteration to the Plan shall
be made without the approval of stockholders which would:
|
·
|
decrease
the NSO price (except as provided in paragraph 9 of the Plan) or change
the classes of persons eligible to participate in the Plan,
or
|
|
·
|
extend
the NSO period, or
|
|
·
|
materially
increase the benefits accruing to Plan participants,
or
|
|
·
|
materially
modify Plan participation eligibility requirements,
or
|
|
·
|
extend
the expiration date of the Plan.
|
Unless
otherwise indicated the Plan will remain in effect for a period of ten years
from the date adopted unless terminated earlier by our Board except as to NSOs
then outstanding, which shall remain in effect until they have expired or been
exercised.
Director
Compensation
Directors of our Company are not
compensated in cash for their services but are reimbursed for out-of-pocket
expenses incurred in furtherance of our business.
|
Item
11.
|
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder
Matters.
|
The following table sets forth certain
information regarding the beneficial ownership of our Common Stock as of
September 4, 2008 by (i) each person who, to our knowledge, beneficially owns
more than five percent (5%) of the outstanding shares of our Common Stock; (ii)
each of our current directors and executive officers; and (iii) all of our
current directors and executive officers as a group. Unless otherwise
noted below, we believe that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially owned
by them. We have 23,363,136 shares of Common Stock outstanding as of
September 4, 2008.
|
Name
of Beneficial Owner
|
Amount
(1)
|
Percent
of Class
|
|
Directors
and Executive Officers
(2)
|
|
|
|
Robert
P. Munn, President, Chief Executive Officer and Director
|
1,000,000
(3)
|
4.1%
|
|
Alan
D. Gaines, Director
|
11,151,000
(4)
|
47.7%
|
|
Carl
A. Chase, Chief Financial Officer
|
750,000
(5)
|
3.1%
|
|
Officers
and Directors as a Group (3 persons)
|
12,901,000
(3) (4)
(5)
|
51.4%
|
|
Five
Percent and Above Holders
|
|
|
|
Amiel
David
|
5,000,000
(6)
|
17.8%
|
|
Natural
Gas Partners VII, LP
|
17,500,000
(7)
|
42.8%
|
|
CIT
Capital USA Inc.
|
24,199,996
(8)
|
50.9%
|
_____________________
|
(1)
|
For
purposes hereof, a person is deemed to be the beneficial owner of
securities that can be acquired by such person within sixty (60) days from
the date hereof upon the exercise of warrants or options or the conversion
of convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that any warrants, options or
convertible securities that are held by such person (but not those held by
any other person) and which are exercisable within sixty (60) days from
the date hereof, have been
exercised.
|
|
(2)
|
The
address for each of our officers and directors is 4606 FM 1960 West, Suite
400, Houston, Texas 77069.
|
|
(3)
|
Represents
(i) option exercisable to purchase 500,000 shares of our Common Stock at a
purchase price of $0.52 per share, which option will be exercisable upon
the effectiveness of the Charter Amendment and (ii) 500,000 shares of
restricted stock awarded May 22, 2008, issuable upon the effectiveness of
the Charter Amendment. Excludes (i) options to purchase 500,000
shares at $0.57 per share and options to purchase 500,000 shares at $0.62,
per share, which options become exercisable on May 22, 2009 and 2010,
respectively, and (ii) 500,000 shares of restricted stock that vest on May
22, 2009 and 500,000 shares of restricted stock that vests on May 22,
2010.
|
|
(4)
|
Excludes
an aggregate of 3,000,000 shares of Common Stock held by two sons and a
daughter of Mr. Gaines, each of whom is more than 18 years of age, which
shares Mr. Gaines may be deemed a beneficial owner thereof because of such
relationship. Mr. Gaines expressly disclaims beneficial
ownership of these securities, and this report shall not be deemed to be
an admission that he is the beneficial owner of these securities for
purposes of Sections 13(d) or 16 or for any other
purpose.
|
|
(5)
|
Represents
(i) option exercisable to purchase 375,000 shares of our Common Stock at a
purchase price of $0.52 per share, which option will be exercisable upon
the effectiveness of the Charter Amendment and (ii) 375,000 shares of
restricted stock awarded May 22, 2008, issuable upon the effectiveness of
the Charter Amendment. Excludes (i) options to purchase 375,000
shares at $0.57 per share and options to purchase 375,000 shares at $0.62
per share, which options become exercisable on May 22, 2009 and 2010,
respectively, and (ii) 375,000 shares of restricted stock that vest on May
22, 2009 and 375,000 shares of restricted stock that vests on May 22,
2010.
|
|
(6)
|
Includes
(i) options currently exercisable at $0.35 per share for an aggregate of
1,500,000 shares of Common Stock and (ii) option currently exercisable at
$0.53 per share for 3,300,00 shares of Common Stock. Mr.
David’s address is 5707 Spanish Oak Drive, Houston, Texas
77066.
|
|
(7)
|
Represents
17,500,000 shares of our Common Stock underlying 10,000 shares of Series D
Preferred issued by us in the Voyager Acquisition which automatically
convert upon the effectiveness of the Charter Amendment. Holder’s address
is c/o Natural Gas Partners, 125 E. John Carpenter Fwy., Ste. 600, Irving,
TX 75062
|
|
(8)
|
Represents
up to 24,199,996 shares of our Common Stock underlying a warrant we
granted in connection with the CIT Credit Facility, which warrant is
exercisable upon the effectiveness of the Charter Amendment at an exercise
price of $0.35 per share, subject to adjustments and full-ratchet
protection under certain circumstances. CIT Capital USA Inc.’s
address is 505 Fifth Avenue, 10
th
Floor, New York, NY 10017.
|
Change
in Control
In connection with the Voyager
Acquisition, we issued 10,000 shares of our Series D Preferred, which shares
will automatically convert into 17.5 million shares of our Common Stock upon the
effectiveness of the Charter Amendment, as provided by our Certificate of
Designation with respect to the Series D Preferred filed with the State of
Nevada on August 27, 2008. After giving effect to the issuance of
shares of Common Stock under the Series D Preferred, and assuming no additional
issuance of our securities, the shares of Common Stock issuable upon conversion
of the Series D Preferred represents a ownership interest of approximately
42.8% of our issued and outstanding shares.
Item
12.
Certain
Relationships and Related Transactions.
Except as set forth below, since July
1, 2007 there have been no transactions, or currently proposed transactions, of
an amount exceeding or to exceed $120,000, to which we were or are to be a
party, in which any of our executive officers, directors or other
Related Party (as defined below) had or is to have a direct or indirect material
interest.
On August 20, 2008, we issued 500
shares of our newly designated Series C Preferred (defined below) to Alan D.
Gaines, our largest stockholder and a director of our Company, in exchange for
the cancellation of a promissory note made by us in favor of Mr. Gaines, in the
principal amount of $50,000. In addition to these shares of Series C
Preferred, on August 20, 2008 we also issued an additional 500 shares of Series
C Preferred to Mr. Gaines for cash consideration of $50,000. The
Series C Preferred are automatically redeemable by our Company at the rate of
$100 for every one (1) share of Series C Preferred being redeemed upon the
closing of a debt or equity financing whereby we realize gross proceeds in
excess of $5,000,000. Shares of preferred stock, $.001 par value,
designated out of our authorized “blank check preferred stock” by our Board as
“Series C Preferred Stock” (the “Series C Preferred”), have the rights,
preferences, powers, restrictions and obligations set forth in the Certificate
of Designation filed with the Secretary of State of the State of Nevada on
August 20, 2008, including the redemption rights referenced
above. However, holders of the Series C Preferred are not entitled to
any dividends, preemption, voting, conversion or other rights as a stockholder
of our Company.
Pursuant to the April 2006 Stock
Transaction, Energy Venture acquired 8,200,000 of the issued and outstanding
shares of our Common Stock. After giving effect to the stock
transaction, Mr. Gaines, on of our directors, became an indirect owner of
8,200,000 shares of the Common Stock acquired (or otherwise previously owned) by
Energy Venture as a result of his controlling interest in Energy Venture, in
which he served as a director and owned a majority of the issued and outstanding
shares of its capital stock. Such securities ownership represented
82% of the then issued and outstanding shares of our Common Stock and a
controlling interest. By reason of the April 2006 Stock Transaction,
Mr. Gaines became a director of our Company at that time.
For purposes hereof, “Related Party”
includes (a) any person who is or was (at any time during the last fiscal year)
an executive officer, director or nominee for election as a director; (b) any
person or group who is a beneficial owner of more than 5% of our Company’s
voting securities; (c) any immediate family member of a person described in
provisions (a) or (b) of this sentence; or (d) any entity in which any of the
foregoing persons is employed, is a partner or has a greater than 5% beneficial
ownership interest.
Item
13.
Exhibits
.
|
Exhibit
Nos.
|
Description
of Exhibit
|
|
|
|
|
2.1
|
Agreement
and Plan of Merger, dated as of May 26, 2006, among the Company, Energy
Venture and EVI Acquisition Corp. (incorporated herein by reference to
Exhibit 2.1 of the Company's Form 8-K report, filed June 2,
2006).
|
|
3.1
|
Articles
of Incorporation of the Company (incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on Form SB-2, filed
December 8, 2004).
|
|
3.2
|
By-Laws
of the Company (incorporated herein by reference to Exhibit 3.2 of
Company's Registration Statement on Form SB-2, filed December 8,
2004).
|
|
4.1
|
Form
of 10% Convertible Promissory Note, issued by Energy Venture (and assumed
by the Company ) in March 2005 (incorporated herein by reference to
Exhibit 4.1 of the Company's Form 8-K report, filed June 2,
2006).
|
|
4.2
|
Certificate
of Designation, dated May 15, 2008, with respect to Series A Preferred
Stock (incorporated herein by reference to Exhibit 99.1 to the Company’s
Form 8-K report, filed May 21, 2008).
|
|
4.3
|
Certificate
of Designation, dated May 15, 2008, with respect to Series B Preferred
Stock (incorporated herein by reference to Exhibit 99.2 to the Company’s
Form 8-K report, filed May 21, 2008).
|
|
4.4
|
Certificate
of Designation, dated August 19, 2008, with respect to Series C Preferred
Stock (incorporated herein by reference to Exhibit 99.1 to the Company’s
Form 8-K report, filed August 21, 2008).
|
|
4.4
|
Form
of Registration Rights Agreement, dated May 21, 2008, among the Company
and the purchasers named therein (incorporated herein by reference to
Exhibit 99.10 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.1
|
2004
Non-Statutory Stock Option Plan of the Company (incorporated herein by
reference to Exhibit 10.1 to the Company's Registration Statement on Form
SB-2, filed December 8, 2004).
|
|
10.2
|
Stock
Purchase Agreement dated as of April 3, 2006 among Energy Venture, as
buyer, and the named selling stockholders of the Company (incorporated
herein by reference to Exhibit 10.1 of the Company's Form 8-K report,
filed April 28, 2006).
|
|
10.2.2
|
Amendment
to Stock Purchase Agreement dated April 28, 2006 among Energy Venture and
each of the named selling stockholders of the Company (incorporated herein
by reference to Exhibit 10.2 of the Company's Form 8-K report, filed April
28, 2006).
|
|
10.3
|
Form
of Stock Option Agreement issued by Energy Venture (and assumed by the
Company) to the Optionees (incorporated herein by reference to Exhibit
10.4 of the Company's Annual Report on Form 10-KSB, filed September 28,
2006).
|
|
10.4
|
Form
of Agreement between the Company and the holders of the Company's 10%
Convertible Promissory Note (incorporated herein by reference to Exhibit
10.5 of the Company’s Annual Report on Form 10-KSB, filed September 27,
2007).
|
|
10.5
|
Stock
Purchase and Sale Agreement, dated May 22, 2008, among the Company,
Voyager Gas Holdings, L.P. and Voyager Gas Corporation (incorporated
herein by reference to Exhibit 99.1 to the Company’s Form 8-K report,
filed May 23, 2008).
|
|
10.6
|
Form
of Exchange Agreement between the Company and the 12% Note holders, with
respect to Series A Preferred (incorporated herein by reference to Exhibit
99.2 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.7
|
Form
of Exchange Agreement between the Company and the 10% Note holder, with
respect to Series B Preferred (incorporated herein by reference to Exhibit
99.3 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.8
|
Form
of Securities Purchase Agreement, dated May 21, 2008, among the Company
and the purchasers named therein (the "Purchasers") (incorporated herein
by reference to Exhibit 99.4 to the Company’s Form 8-K report, filed May
23, 2008).
|
|
10.9
|
Form
of Senior Secured Convertible Debenture due September 29, 2008, from the
Company to the Purchasers (incorporated herein by reference to Exhibit
99.5 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.10
|
Form
of Common Stock Purchase Warrant, dated May 21, 2008, from the Company to
the Purchasers (incorporated herein by reference to Exhibit 99.6 to the
Company’s Form 8-K report, filed May 23, 2008).
|
|
10.11
|
Form
of Security Agreement, dated May 21, 2008, among the Company, Energy
Venture, Inc. and the Purchasers (incorporated herein by reference to
Exhibit 99.7 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.12
|
Form
of Subsidiary Guarantee, dated May 21, 2008, by Energy Venture, Inc. for
the benefit of the Purchasers (incorporated herein by reference to Exhibit
99.8 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.13
|
Form
of Security and Pledge Agreement, dated May 21, 2008, among the Company,
each of Alan Gaines, Brent Gaines, Derek Gaines and Ilana Gaines, as
Pledgors, and the Purchasers (incorporated herein by reference to Exhibit
99.9 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.14
|
Employment
Agreement, dated May 22, 2008, between the Company and Robert P. Munn
(incorporated herein by reference to Exhibit 99.11 to the Company’s Form
8-K report, filed May 23, 2008).
|
|
10.15
|
Employment
Agreement, dated May 22, 2008, between the Company and Carl A. Chase
(incorporated herein by reference to Exhibit 99.12 to the Company’s Form
8-K report, filed May 23, 2008).
|
|
10.16
|
Restricted
Stock Agreement, dated May 22, 2008, between the Company and Robert P.
Munn (incorporated herein by reference to Exhibit 99.13 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
10.17
|
Restricted
Stock Agreement, dated May 22, 2008, between the Company and Carl A. Chase
(incorporated herein by reference to Exhibit 99.14 to the Company’s Form
8-K report, filed May 23, 2008).
|
|
10.18
|
Stock
Option Agreement, dated May 22, 2008, between the Company and Robert P.
Munn (incorporated herein by reference to Exhibit 99.15 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
10.19
|
Stock
Option Agreement, dated May 22, 2008, between the Company and Robert P.
Munn (incorporated herein by reference to Exhibit 99.16 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
10.20
|
Stock
Option Agreement, dated May 22, 2008, between the Company and Robert P.
Munn (incorporated herein by reference to Exhibit 99.17 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
10.21
|
Stock
Option Agreement, dated May 22, 2008, between the Company and Carl A.
Chase (incorporated herein by reference to Exhibit 99.18 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
10.22
|
Stock
Option Agreement, dated May 22, 2008, between the Company and Carl A.
Chase (incorporated herein by reference to Exhibit 99.19 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
10.23
|
Stock
Option Agreement, dated May 22, 2008, between the Company and Carl A.
Chase (incorporated herein by reference to Exhibit 99.20 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
31.1*
|
Certification
of Chief Executive Officer required by Rule 13a-14(a) under the Exchange
Act.
|
|
31.2*
|
Certification
of Chief Financial Officer required by Rule 13a-14(a) under the Exchange
Act.
|
|
32.1*
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted
|
|
32.2*
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted
|
________________
Numbers with (*) indicate exhibits that
are filed herewith.
Item
14.
Principal
Accountant Fees and Services.
For fiscal year 2008 and fiscal year
2007, the aggregate fees billed by Malone & Bailey, PC, our principal
independent accounting firm, for professional services were as
follows:
|
|
|
Fiscal
Year Ended
|
|
|
|
|
June 30,
2008
|
|
|
June
30, 2007
|
|
|
Audit
fees
|
|
$
|
39,038
|
|
|
$
|
29,899
|
|
|
Audit-related
fees
|
|
$
|
--
|
|
|
$
|
--
|
|
|
Tax
fees
|
|
$
|
--
|
|
|
$
|
5,610
|
|
|
All
other fees
|
|
$
|
--
|
|
|
$
|
--
|
|
As of June 30, 2008, we did not have a
formal documented pre-approval policy for the fees of our principal accounting
firm.
Index
to Financial Statements
|
Description of Exhibit
|
Page
No.
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets at June 30, 2008 and 2007
|
F-3
|
|
Consolidated
Statements of Operations for the Years Ended June 30, 2008
and
2007 and the Period February 21, 2006 (Inception) through June 30,
2008
|
F-4
|
|
Consolidated
Statement of Changes in Stockholders’ Deficit for the
Years
Ended
June 30, 2008 and 2007 and the Period February 21, 2006
(Inception)
through June 30, 2008
|
F-5
|
|
Consolidated
Statements of Cash Flows for the Years Ended June 30, 2008
and
2007 and the Period February 21, 2006 (Inception) through June 30,
2008
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-8
|
|
|
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
ABC
Funding, Inc.
(a
Development Stage Company)
Houston,
Texas
We have audited the accompanying
consolidated balance sheet of ABC Funding, Inc. ("the Company") (a Development
Stage Company) as of June 30, 2008 and 2007, and the related consolidated
statements of operations, cash flows and changes in stockholders' deficit for
the years ended June 30, 2008 and 2007, and for the period from February 21,
2006 (inception) through June 30, 2008, respectively. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance
with standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of the Company as of June 30, 2008 and 2007,
and the consolidated results of its operations and its cash flows for the
periods described in conformity with accounting principles generally accepted in
the United States of America.
/s/ Malone & Bailey,
PC
www.malone-bailey.com
Houston,
Texas
September
8, 2008
ABC
FUNDING, INC.
AND
SUBSIDIARY
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
BALANCE SHEETS
JUNE
30, 2008 AND 2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
12,158
|
|
|
$
|
550,394
|
|
|
Prepaid
expenses and other current assets
|
|
|
31,215
|
|
|
|
30,428
|
|
|
Deferred
financing costs, net of amortization of $55,871
|
|
|
143,472
|
|
|
|
--
|
|
|
Total
current assets
|
|
|
186,845
|
|
|
|
580,822
|
|
|
Acquisition
costs
|
|
|
976,284
|
|
|
|
--
|
|
|
Fixed
assets, net of accumulated depreciation of $183
|
|
|
7,881
|
|
|
|
--
|
|
|
Total
assets
|
|
$
|
1,171,010
|
|
|
$
|
580,822
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
404,027
|
|
|
$
|
7,180
|
|
|
Accounts
payable – related parties
|
|
|
20,825
|
|
|
|
--
|
|
|
Accrued
liabilities
|
|
|
1,397
|
|
|
|
188,996
|
|
|
Convertible
debt, net of unamortized discount of $0 and $36,973
at
June
30, 2008 and 2007, respectively
|
|
|
25,000
|
|
|
|
1,463,027
|
|
|
Senior
secured convertible debentures, net of unamortized
discount
of $778,362
|
|
|
121,638
|
|
|
|
--
|
|
|
Derivative
liabilities
|
|
|
11,893,573
|
|
|
|
--
|
|
|
Total
current liabilities
|
|
|
12,466,460
|
|
|
|
1,659,203
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
|
Preferred
stock - 863,505 undesignated authorized, $0.001 par value at June 30, 2008
and 2007
|
|
|
|
|
|
|
|
|
|
Series A Preferred stock, $0.001 par value, 99,395 authorized and
outstanding at June 30, 2008
|
|
|
99
|
|
|
|
--
|
|
|
Series B Preferred stock, $0.001 par value, 37,100 authorized and
outstanding at June 30, 2008
|
|
|
37
|
|
|
|
--
|
|
|
Common
stock, $0.001 par value, 24,000,000 shares authorized,
24,378,376
and 22,065,000 issued and outstanding at June 30,
2008
and 2007, respectively
|
|
|
24,378
|
|
|
|
22,065
|
|
|
Additional
paid-in capital
|
|
|
769,318
|
|
|
|
1,244,765
|
|
|
Deficit
accumulated during the development stage
|
|
|
(12,089,282
|
)
|
|
|
(2,345,211
|
)
|
|
Total
stockholders’ deficit
|
|
|
(11,295,450
|
)
|
|
|
(1,078,381
|
)
|
|
Total
liabilities and stockholders' deficit
|
|
$
|
1,171,010
|
|
|
$
|
580,822
|
|
See the
accompanying summary of accounting policies and notes to financial
statements.
ABC
FUNDING, INC.
AND
SUBSIDIARY
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED JUNE 30, 2008 AND 2007 AND
THE
PERIOD FEBRUARY 21, 2006 (INCEPTION) THROUGH JUNE 30, 2008
|
|
|
|
|
|
February
21,
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
(Inception)
|
|
|
|
|
|
|
|
Through
|
|
|
|
|
Years
Ended June 30,
|
|
|
June
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative:
|
|
|
|
|
|
|
|
|
|
|
Payroll
and related expenses
|
|
$
|
3,593,652
|
|
|
$
|
589,346
|
|
|
$
|
4,608,516
|
|
|
Office
and administration
|
|
|
40,263
|
|
|
|
72,216
|
|
|
|
123,491
|
|
|
Professional
fees
|
|
|
307,508
|
|
|
|
267,945
|
|
|
|
732,294
|
|
|
Depreciation
expense
|
|
|
183
|
|
|
|
--
|
|
|
|
183
|
|
|
Other
|
|
|
110,755
|
|
|
|
14,319
|
|
|
|
567,414
|
|
|
Total
general and administrative
|
|
|
4,052,361
|
|
|
|
943,826
|
|
|
|
6,031,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
5,174
|
|
|
|
31,163
|
|
|
|
41,523
|
|
|
Interest
expense
|
|
|
(2,039,213
|
)
|
|
|
(332,329
|
)
|
|
|
(2,441,236
|
)
|
|
Change
in fair value of derivatives
|
|
|
(3,657,671
|
)
|
|
|
--
|
|
|
|
(3,657,671
|
)
|
|
Total
other expense
|
|
|
(5,691,710
|
)
|
|
|
(301,166
|
)
|
|
|
(6,057,384
|
)
|
|
Net
loss
|
|
$
|
(9,744,071
|
)
|
|
$
|
(1,244,992
|
)
|
|
$
|
(12,089,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
Basic
and diluted
|
|
$
|
(0.42
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
Basic
and diluted
|
|
|
23,067,241
|
|
|
|
22,065,000
|
|
|
|
|
|
See the
accompanying summary of accounting policies and notes to financial
statements.
ABC
FUNDING, INC.
AND
SUBSIDIARY
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR
THE YEARS ENDED JUNE 30, 2008 AND 2007 AND
THE
PERIOD FEBRUARY 21, 2006 (INCEPTION) THROUGH JUNE 30, 2008
|
|
|
Series
A Preferred
|
|
|
Series
B Preferred
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Deficit
Accumulated
During
Development
|
|
|
Total
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 21, 2006
|
|
|
--
|
|
|
$
|
--
|
|
|
|
--
|
|
|
$
|
--
|
|
|
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
Proceeds
from issuance of
common stock
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
19,665,000
|
|
|
|
19,665
|
|
|
|
(17,698
|
)
|
|
|
--
|
|
|
|
1,967
|
|
|
Proceeds
from issuance of
common stock
to
note holders
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
600,000
|
|
|
|
600
|
|
|
|
249,400
|
|
|
|
--
|
|
|
|
250,000
|
|
|
Shares
issued in reverse merger
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,800,000
|
|
|
|
1,800
|
|
|
|
(1,800
|
)
|
|
|
--
|
|
|
|
--
|
|
|
Stock
based compensation
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
425,518
|
|
|
|
--
|
|
|
|
425,518
|
|
|
Net
loss
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(1,100,219
|
)
|
|
|
(1,100,219
|
)
|
|
Balance,
June 30, 2006
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
22,065,000
|
|
|
|
22,065
|
|
|
|
655,420
|
|
|
|
(1,100,219
|
)
|
|
|
(422,734
|
)
|
|
Stock
based compensation
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
589,345
|
|
|
|
--
|
|
|
|
589,345
|
|
|
Net
loss
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(1,244,992
|
)
|
|
|
(1,244,992
|
)
|
|
Balance,
June 30, 2007
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
22,065,000
|
|
|
|
22,065
|
|
|
|
1,244,765
|
|
|
|
(2,345,211
|
)
|
|
|
(1,078,381
|
)
|
|
Shares
issued for services
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,365,240
|
|
|
|
1,365
|
|
|
|
672,060
|
|
|
|
--
|
|
|
|
673,425
|
|
|
Stock
based compensation
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,865,196
|
|
|
|
--
|
|
|
|
2,865,196
|
|
|
Convertible
debenture tainted
warrants
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(5,856,395
|
)
|
|
|
--
|
|
|
|
(5,856,395
|
)
|
|
Stock
issued for note extensions
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
218,000
|
|
|
|
218
|
|
|
|
97,882
|
|
|
|
--
|
|
|
|
98,100
|
|
|
Stock
issued with convertible
notes
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
200,004
|
|
|
|
200
|
|
|
|
58,133
|
|
|
|
--
|
|
|
|
58,333
|
|
|
Beneficial
conversion feature
related to convertible
notes
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
58,333
|
|
|
|
--
|
|
|
|
58,333
|
|
|
Stock
issued for payment of
interest
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
530,132
|
|
|
|
530
|
|
|
|
264,530
|
|
|
|
--
|
|
|
|
265,060
|
|
|
Preferred
stock issued for note
conversions
|
|
|
96,500
|
|
|
|
96
|
|
|
|
35,000
|
|
|
|
35
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,314,869
|
|
|
|
--
|
|
|
|
1,315,000
|
|
|
Preferred
stock issued for
payment of
interest
|
|
|
2,895
|
|
|
|
3
|
|
|
|
2,100
|
|
|
|
2
|
|
|
|
--
|
|
|
|
--
|
|
|
|
49,945
|
|
|
|
--
|
|
|
|
49,950
|
|
|
Net
loss
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(9,744,071
|
)
|
|
|
(9,744,071
|
)
|
|
Balance,
June 30, 2008
|
|
|
99,395
|
|
|
$
|
99
|
|
|
|
37,100
|
|
|
$
|
37
|
|
|
|
24,378,376
|
|
|
$
|
24,378
|
|
|
$
|
769,318
|
|
|
$
|
(12,089,282
|
)
|
|
$
|
(11,295,450
|
)
|
See the
accompanying summary of accounting policies and notes to financial
statements.
ABC
FUNDING, INC.
AND
SUBSIDIARY
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED JUNE 30, 2008 AND 2007 AND
THE
PERIOD FEBRUARY 21, 2006 (INCEPTION) THROUGH JUNE 30, 2008
|
|
|
|
|
|
|
|
|
February
21,
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
(Inception)
|
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
|
Years
Ended June 30,
|
|
|
June
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(9,744,071
|
)
|
|
$
|
(1,244,992
|
)
|
|
$
|
(12,089,282
|
)
|
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
183
|
|
|
|
--
|
|
|
|
183
|
|
|
Share
based compensation
|
|
|
3,538,621
|
|
|
|
589,345
|
|
|
|
4,553,484
|
|
|
Common
stock issued for interest
|
|
|
225,704
|
|
|
|
--
|
|
|
|
225,704
|
|
|
Preferred
stock issued for interest
|
|
|
49,950
|
|
|
|
--
|
|
|
|
49,950
|
|
|
Common
stock issued for loan extensions
|
|
|
98,100
|
|
|
|
--
|
|
|
|
98,100
|
|
|
Amortization
of deferred financing costs
|
|
|
55,871
|
|
|
|
--
|
|
|
|
55,871
|
|
|
Amortization
of debt discounts
|
|
|
1,743,593
|
|
|
|
182,482
|
|
|
|
1,956,620
|
|
|
Change
in fair value of derivatives
|
|
|
3,657,671
|
|
|
|
--
|
|
|
|
3,657,671
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
and other current assets
|
|
|
896
|
|
|
|
36,033
|
|
|
|
(29,532
|
)
|
|
Accounts
payable, related parties and other
|
|
|
417,672
|
|
|
|
(56,407
|
)
|
|
|
424,852
|
|
|
Accrued
liabilities
|
|
|
(148,245)
|
|
|
|
134,417
|
|
|
|
40,751
|
|
|
Net
cash used in operating activities
|
|
|
(104,055
|
)
|
|
|
(359,122
|
)
|
|
|
(1,055,628
|
)
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
costs of oil and gas properties
|
|
|
(976,284
|
)
|
|
|
--
|
|
|
|
(976,284
|
)
|
|
Purchase
of fixed assets
|
|
|
(8,064
|
)
|
|
|
--
|
|
|
|
(8,064
|
)
|
|
Deposits
|
|
|
(1,682
|
)
|
|
|
--
|
|
|
|
(1,682
|
)
|
|
Net
cash used in investing activities
|
|
|
(986,030
|
)
|
|
|
--
|
|
|
|
(986,030
|
)
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
--
|
|
|
|
--
|
|
|
|
1,967
|
|
|
Proceeds
from convertible debentures
|
|
|
800,000
|
|
|
|
--
|
|
|
|
800,000
|
|
|
Debt
issuance costs
|
|
|
(88,151
|
)
|
|
|
--
|
|
|
|
(88,151
|
)
|
|
Proceeds
from convertible notes
|
|
|
350,000
|
|
|
|
15,000
|
|
|
|
1,850,000
|
|
|
Repayment
of convertible notes
|
|
|
(510,000
|
)
|
|
|
--
|
|
|
|
(510,000
|
)
|
|
Net
cash provided by financing activities
|
|
|
551,849
|
|
|
|
15,000
|
|
|
|
2,053,816
|
|
|
Net
increase (decrease) in cash
|
|
|
(538,236
|
)
|
|
|
(344,122
|
)
|
|
|
12,158
|
|
|
Cash
at beginning of period
|
|
|
550,394
|
|
|
|
894,516
|
|
|
|
--
|
|
|
Cash
at end of period
|
|
$
|
12,158
|
|
|
$
|
550,394
|
|
|
$
|
12,158
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
14,637
|
|
|
$
|
--
|
|
|
$
|
14,637
|
|
|
Cash
paid for income taxes
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
See the
accompanying summary of accounting policies and notes to financial
statements.
ABC
FUNDING, INC.
AND
SUBSIDIARY
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED JUNE 30, 2008 AND 2007 AND
THE
PERIOD FEBRUARY 21, 2006 (INCEPTION) THROUGH JUNE 30, 2008
(Continued)
|
|
|
Years
Ended June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Investing and Financing Activities:
|
|
|
|
|
|
|
|
Common
shares issued in payment of interest
|
|
$
|
39,355
|
|
|
$
|
--
|
|
|
Preferred
shares issued in payment of principal
|
|
$
|
1,315,000
|
|
|
$
|
--
|
|
|
Warrants
issued for convertible debenture commission
|
|
$
|
111,192
|
|
|
$
|
--
|
|
|
Discount for beneficial conversion feature and debt discount
|
|
$
|
116,666
|
|
|
$
|
--
|
|
See the
accompanying summary of accounting policies and notes to financial
statements.
ABC
FUNDING, INC.
AND
SUBSIDIARY
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
NOTE
1.
ORGANIZATION AND BASIS OF PREPARATION
Headquartered
in Houston, Texas, ABC Funding, Inc. (the “Company”, “ABC”, “we” or “us”), is a
development stage company incorporated in Nevada, with our primary business
focus to engage in the acquisition, exploitation and development of
properties for the production of crude oil and natural gas. We intend
to explore for oil and gas reserves through the drill bit and acquire
established oil and gas properties. We intend to exploit oil and
gas properties through the application of conventional and specialized
technology to increase production, ultimate recoveries, or both, and participate
in joint venture drilling programs with repeatable low risk
results.
We were
incorporated in Nevada on May 13, 2004. In May 2006, Energy
Venture, Inc., a Delaware corporation ("EV Delaware") merged into EVI
Acquisition Corp. ("EVI"), a wholly-owned subsidiary of ABC. In
connection with the merger, EVI, a Nevada corporation, changed its name to
Energy Venture, Inc. ("EV Nevada"). The merger transaction was
accounted for as a reverse merger with EV Delaware being deemed the acquiring
entity for financial accounting purposes. Thus, the historical
financial statements of the Company prior to the effective date of the merger
have been restated to be those of EV Delaware. Since the merger, we
have primarily been involved in conducting business planning and capital-raising
activities.
As of June 30, 2008, we have one
subsidiary, Energy Venture, Inc., a Nevada corporation. Energy
Venture, Inc. currently has no operations, assets or
liabilities. However, we intend to use this subsidiary in the future
as an operating company to perform the operations of our oil and gas
business.
The
consolidated financial statements include the accounts of ABC Funding, Inc. and
its subsidiary, which is wholly owned. All inter-company transactions
are eliminated upon consolidation.
NOTE
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Use of
Estimates.
In preparing financial statements, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities in the balance sheet and revenue and expenses in the statement of
operations. Actual results could differ from those
estimates.
Cash and Cash
Equivalents.
For purposes of the statement of cash flows, we
consider all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
Revenue
Recognition.
Revenue is recognized when persuasive evidence of
an arrangement exists, services have been rendered, the sales price is fixed or
determinable, and collectability is reasonably assured. There were no
revenues from inception (February 21, 2006) through June 30, 2008.
Income Taxes
. We
recognize deferred tax assets and liabilities based on differences between the
financial reporting and tax bases of assets and liabilities using the enacted
tax rates and laws that are expected to be in effect when the differences are
expected to be recovered. We provide a valuation allowance for
deferred tax assets for which we do not consider realization of such assets to
be more likely than not.
Basic and Diluted Net Loss Per
Share.
We compute net income (loss) per share pursuant to
Statement of Financial Accounting Standards No. 128 “Earnings per
Share”. Basic net income (loss) per share is computed by dividing
income or loss applicable to common shareholders by the weighted average number
of shares of our Common Stock outstanding during the period. Diluted
net income (loss) per share is determined in the same manner as basic net income
(loss) per share except that the number of shares is increased assuming exercise
of dilutive stock options, warrants and convertible debt using the treasury
stock method and dilutive conversion of our convertible preferred
stock.
During the
year ended June 30, 2008, convertible preferred stock convertible into 3,048,218
shares of common stock; a convertible note and accrued interest convertible into
52,000 shares of common stock; vested options to purchase 11,150,000 shares of
common stock; convertible debt convertible into 2,777,273 shares of common
stock; and warrants to purchase 3,225,000 shares of common stock were excluded
from the calculation of net loss per share since their inclusion would have been
anti-dilutive. During the year ended June 30, 2007, convertible debt
and accrued interest, convertible into 3,377,992 shares of common stock and
vested stock options to purchase 3,650,000 shares of common stock were excluded
from the calculation of net loss per share since their inclusion would have been
anti-dilutive. During the year ended June 30, 2007, there was no
convertible preferred stock outstanding.
Stock Based
Compensation
. In December 2004, the FASB issued SFAS No. 123R,
"Share-Based Payments" ("FAS 123R"). We adopted the disclosure
requirements of FAS 123R as of July 1, 2006 using the modified prospective
transition method approach as allowed under FAS 123R. FAS 123R
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. FAS 123R
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. FAS 123R
requires that the fair value of such equity instruments be recognized as expense
in the historical financial statements as services are performed.
Valuation of the Embedded and
Warrant Derivatives.
The valuation of our embedded derivatives and
warrant derivatives is determined primarily by a lattice model using probability
weighted discounted cash flow based upon future projections over a range of
potential outcomes and the Black-Scholes option pricing model. An embedded
debenture derivative is a derivative instrument that is embedded within a
contract, which under the convertible debenture (the host contract) includes the
right to convert the debenture by the holder, reset provisions with respect to
the conversion provisions, call/redemption options and liquidated damages.
In accordance with FASB Statement 133, as amended, Accounting for Derivative
Instrumments and Hedging Activities, these embedded derivatives are
marked-to-market each reporting period, with a corresponding non-cash gain or
loss charged to the current period. A warrant derivative liability is
determined in accordance with Emerging Issues Task Force ("EITF") Issue No.
00-19, "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock" ("EITF 00-19"). Based on
EITF 00-19, warrants which are determined to be classified as derivative
liabilities are marked-to-market each reporting period, with a corresponding
non-cash gain or loss charged to the current period. The practical effect
of this has been that when our stock price increases so does our derivative
liability, resulting in a non-cash loss charge that reduces earnings and
earnings per share. When our stock price declines, we record a non-cash
gain, increasing our earnings and earnings per share.
To determine the fair
value of our embedded derivativs, management evaluates assumptions regarding the
probability of certain events. Other factors used to determine fair value
include our period end stock price, historical stock volatility, risk free
interest rate and derivative term. The fair value recorded for the
derivative liability varies from period to period. This variability may
result in the actual derivative liability for a period either above or below the
estimates recorded on our consolidated financial statements, resulting in
significant fluctuations in other income (expense) because of the corresponding
non-cash gain or loss recorded.
Fair Value of Financial
Instruments
. Our financial instruments consist of cash and
cash equivalents, accounts payable and notes payable. The carrying
amounts of cash and cash equivalents, accounts payable and notes payable
approximate fair value due to the highly liquid nature of these short-term
instruments.
Reclassifications.
Certain prior period
amounts have been reclassified to conform to the current year
presentation.
New Accounting
Pronouncements
. During February 2007, the Financial
Accounting Standards Board (“FASB”) issued FASB Statement of Accounting
Standards (“SFAS”) No 159, “The Fair Value Option for Financial Assets and
Financial Liabilities” (“SFAS No. 159”) which permits all entities to choose, at
specified election dates, to measure eligible items at fair
value. SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value, and thereby mitigate volatility
in reported earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting
provisions. This Statement also establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and
liabilities. SFAS No. 159 is effective as of the beginning of an
entity’s first fiscal year that begins after November 15, 2007. We
are evaluating the impact that this Statement will have on our financial
statements.
During
September 2006, the FASB issued FASB Statement of Accounting Standards (“SFAS”)
No. 157, "Fair Value Measurements." This Statement defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, where fair value
has been determined to be the relevant measurement attribute. This
Statement is effective for fiscal years beginning after November 15,
2007. We are evaluating the impact that this Statement will have on
our financial statements.
NOTE
3. ACQUISITION
COSTS
We have entered into a stock purchase
and sale agreement to acquire from Voyager Gas Holdings, L.P. all of the issued
and outstanding shares of common stock of Voyager Gas Corporation, a Delaware
corporation. (See Note 8. “Subsequent Events”). The
following table summarizes costs incurred pursuant to the acquisition as of June
30, 2008.
|
Acquisition
costs:
|
|
|
|
|
Earnest
money deposit
|
|
$
|
800,000
|
|
|
Legal
fees
|
|
|
99,731
|
|
|
Third
party engineering fees
|
|
|
71,915
|
|
|
Other
|
|
|
4,638
|
|
|
Total
acquisition costs
|
|
$
|
976,284
|
|
NOTE
4. NOTES
PAYABLE
Convertible
Debentures
On May
21, 2008, we entered into a Securities Purchase Agreement with those purchasers
identified therein (the “Bridge Financing”), whereby we received proceeds of
$800,000 evidenced by senior secured convertible debentures (the “Debentures”)
with a principal amount of $900,000, issued at a discount of
$100,000. The proceeds from the Debentures were used to fund our
payment of the deposit under the Voyager Gas Corporation stock purchase and sale
agreement (the “Voyager Agreement”).
The
Debentures mature the earlier of September 29, 2008, or the closing date under
the Voyager Agreement, and may be satisfied in full by our payment of the
aggregate redemption price of $900,000 or, at the election of the purchasers, by
the conversion of the Debentures into shares of our common stock (the
“Conversion Shares”), at an initial conversion price of $0.33, subject to
adjustments and full-ratchet protection under certain
circumstances. Alternatively, the purchasers may elect to participate
in a Subsequent Financing (as such term is defined in the Securities Purchase
Agreement) by exchanging all or some of their Debentures for securities issued
in the Subsequent Financing, upon the same terms being offered under the
Subsequent Financing.
Under the
Debentures, so long as any portion of the Debentures remain outstanding, we are
precluded from incurring additional indebtedness or suffering additional liens
on our property, subject to limited exceptions therein, including, without
limitation, such indebtedness incurred by us in connection with the financing of
the consideration owing under the Voyager Agreement.
As
additional consideration for the bridge loan evidenced by the Debentures, we
issued common stock purchase warrants to the purchasers and their affiliates,
exercisable to purchase up to 3,000,000 shares of our common stock (the “Warrant
Shares”), based upon an initial exercise price of $0.33 subject to adjustments
and full-ratchet protection under certain circumstances.
Our
performance under the Debentures, including payment of the redemption amount
thereof or conversion thereunder, is secured by (i) our grant of a security
interest and first lien on all of our existing and after-acquired assets, (ii)
the guarantee of our wholly-owned subsidiary, Energy Venture, Inc., and (iii)
the pledge of an aggregate of 14,151,000 shares of our common stock currently
held by Mr. Alan D. Gaines, one of our directors, and his affiliates, which
pledged shares represent approximately 60.6% of the shares of our common stock
issued and outstanding as of the grant date.
We
incurred debt issuance costs of $199,343 associated with the issuance of the
Debentures. These costs were capitalized as deferred financing costs
and are being amortized over the life of the Debentures using the effective
interest method. Amortization expense related to the deferred
financing costs was $55,871 for the period May 21, 2008 through June 30,
2008.
Common
shares issuable if the Debentures were converted would exceed the number of
authorized shares we have available for issuance. In addition, the
Debentures contain more than one embedded derivative feature which would
individually warrant separate accounting as derivative instruments under SFAS
No. 133 and EITF 00-19. We evaluated the application of SFAS No. 133 and
EITF 00-19 and determined the various embedded derivative features have been
bundled together as a single, compound embedded derivative instrument that has
been bifurcated from the debt host contract, and referred to as the "Single
Compound Embedded Derivatives within Convertible Note". The single
compound embedded derivative features include the conversion feature with the
reset provisions within the Debentures, the call/redemption options and
liquidated damages. The value of the single compound embedded
derivative liability was bifurcated from the debt host contract and recorded as
a derivative liability, which results in a reduction of the initial carrying
amount (as unamortized discount) of the Debentures of the value at
inception. The value of the embedded derivative at issuance exceeded
the notional amount of the loan, and the excess amount was expensed to interest
in the amount of $1,468,316. The unamortized discount has been
amortized to interest expense using the effective interest method over the life
of the Debentures. At June 30, 2008, $121,638 has been amortized with
an unamortized discount balance remaining of $778,362.
Due to
the insufficient unissued authorized shares to share settle the Debentures, this
caused other convertible instruments, specifically the Series A and B Preferred,
the convertible note and non-employee stock options, to also be classified as
derivative liabilities under FAS 133. Each reporting period, this
derivative liability is marked-to-market with the non-cash gain or loss recorded
in the period as a gain or loss on derivatives. At June 30, 2008, the
aggregate derivative liability was $11,893,573.
On
September 2, 2008, we satisfied in full the Debentures by repayment of $450,000
of principal with funds advanced under the CIT Credit Facility (as defined in
Note 8 hereto) and by delivery of shares of our Series E Preferred in exchange
for the principal amount of $450,000, which shares of preferred stock
automatically convert into an aggregate of 1,363,636 shares of our common stock,
based upon an implied conversion price of $0.33 per share of common stock upon
the effectiveness of the Charter Amendment.
Probability
- Weighted Expected Cash Flow Methodology
Assumptions: Single
Compound Embedded Derivative within Debentures
|
|
|
Transaction
Date
|
|
|
As
of
|
|
|
|
|
May
21, 2008
|
|
|
June
30, 2008
|
|
|
Risk
free interest rate
|
|
|
4.53
|
%
|
|
|
4.59
|
%
|
|
Timely
registration
|
|
|
95.00
|
%
|
|
|
95.00
|
%
|
|
Default
status
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
Alternative
financing available and exercised
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Trading
volume, gross monthly dollars monthly rate increase
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
|
Annual
growth rate stock price
|
|
|
29.14
|
%
|
|
|
29.20
|
%
|
|
Future
projected volatility
|
|
|
150.00
|
%
|
|
|
150.00
|
%
|
The stock
purchase warrants are freestanding derivative financial instruments which were
valued using the Black-Scholes method. The fair value of the
derivative liability of the single compound embedded derivatives, the warrants
issued with the Debentures and the other tainted convertible instruments and
options was recorded at $1,470,868 and $5,967,587, respectively, on May 21,
2008. Consequently, the Debentures were initially recorded at zero, after
application of the discounts. The unamortized discount will be
accreted to interest expense using the effective interest method over the life
of the Debentures. The total accretion expense was $121,638 for
the period May 21, 2008 through June 30, 2008. The remaining value of
$1,468,316 was expensed at inception to interest expense since the total fair
value of the derivatives at inception exceeded the face value of the
Debentures. The effective interest rate on the Debentures is
1,441.9%.
So long
as the Debentures were outstanding, they were potentially convertible into an
unlimited number of common shares, resulting in us no longer having the control
to physically or net share settle existing non-employee stock
options. Thus under EITF 00-19, all non-employee stock options that
are exercisable during the period that the Debentures are outstanding are
required to be treated as derivative liabilities and recorded at fair value
until the provisions requiring this treatment have been settled.
As of the
date of issuance of the notes on May 21, 2008, the fair value of options to
purchase 8,900,000 shares and other tainted convertible
instruments totaling $5,856,395 was reclassified to the liability caption
“Derivative liabilities” from additional paid-in capital. The change
in fair value of $2,703,694 as of June 30, 2008, has been included in earnings
under the caption “Change in fair value of derivatives.”
Variables
used in the Black-Scholes option-pricing model include: (1) 4.53% to 4.59%
risk-free interest rate; (2) expected warrant life is the actual remaining life
of the warrant as of each period end; (3) expected volatility is 150.00%; and
(4) zero expected dividends.
Both the
embedded and freestanding derivative financial instruments were recorded as
liabilities in the consolidated balance sheet and measured at fair
value. These derivative liabilities will be marked-to-market each
quarter with the change in fair value recorded as either a gain or loss in the
income statement.
The
impact of the application of SFAS No. 133 and EITF 00-19 in regards to the
derivative liabilities on the balance sheet and statements of operations as of
inception (May 21, 2008) and through June 30, 2008 are as follows:
|
|
|
|
|
|
Liability
As
of
|
|
|
|
|
May
21, 2008
|
|
|
June
30, 2008
|
|
|
Derivative
liability – single compound embedded derivatives
within
the debentures
|
|
$
|
797,447
|
|
|
$
|
797,447
|
|
|
Derivative
liability – warrants, non-employee options and other tainted convertible
instruments
|
|
|
7,438,455
|
|
|
|
7,438,455
|
|
|
Net
change in fair value of derivatives
|
|
|
--
|
|
|
|
3,657,671
|
|
|
Derivative
liabilities
|
|
$
|
8,235,902
|
|
|
$
|
11,893,573
|
|
The
following summarizes the financial presentation of the Debentures at inception
(May 21, 2008) and at June 30, 2008:
|
|
|
At
Inception
|
|
|
As
of
|
|
|
|
|
May
21, 2008
|
|
|
June
30, 2008
|
|
|
Notional
amount of debentures
|
|
$
|
900,000
|
|
|
$
|
900,000
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Discount
for single compounded embedded derivatives
within
debentures and original issue discount
|
|
|
(900,000
|
)
|
|
|
(900,000
|
)
|
|
Amortized
discount on debentures
|
|
|
--
|
|
|
|
121,638
|
|
|
Convertible
debentures balance, net
|
|
$
|
--
|
|
|
$
|
121,638
|
|
Convertible
Notes
At June 30, 2008 and 2007,
convertible short-term debt consisted of the following:
|
|
|
June
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
12%
convertible notes due February 28, 2008
|
|
$
|
25,000
|
|
|
$
|
1,500,000
|
|
|
Unamortized
discount
|
|
|
--
|
|
|
|
(36,973
|
)
|
|
Total
convertible debt
|
|
$
|
25,000
|
|
|
$
|
1,463,027
|
|
2006
Convertible Notes
During 2006, EV Delaware sold
$1,500,000 of convertible promissory notes (the "2006 Notes") which were
expressly assumed by us. The 2006 Notes had an original maturity date
of August 31, 2007, carried an interest rate of 10% per annum, payable in either
cash or shares, and were convertible into shares of Common Stock at a conversion
rate of $0.50 per share at the option of the investor. Each investor
also received a number of shares of Common Stock equal to 20% of his or her
investment divided by $0.50. Thus, a total of 600,000 shares were
initially issued to investors in the 2006 Notes. The relative fair
value of these shares was $250,000 and was recorded as a debt discount and as
additional paid-in capital. The debt discount was amortized over the
original term of the notes payable using the effective interest
method. The original issue discount rate was
23.44%. During the period from February 21, 2006 (inception) to
August 31, 2007, the entire discount of $250,000 was amortized and recorded as
interest expense.
We evaluated the application of SFAS
No. 133 and EITF 00-19. Based on the guidance of SFAS No. 133 and
EITF 00-19, we concluded that these instruments were not required to be
accounted for as derivatives.
On August 31, 2007 (the original
Maturity Date), we repaid in cash six of the holders of the 2006 Notes an
aggregate amount of $424,637, of which $410,000 represented principal and
$14,637 represented accrued interest. On September 4, 2007, an
additional $44,624 of accrued and current period interest was repaid through the
issuance of 89,248 shares of our Common Stock. The remaining holders
of the 2006 Notes entered into an agreement with us whereby the maturity date of
the 2006 Notes was extended to February 28, 2008 and, beginning September 1,
2007 until the 2006 Notes are paid in full, the interest rate on the outstanding
principal increased to 12% per annum. In addition, we agreed to issue
to the remaining holders of the 2006 Notes, 218,000 shares of our common stock
with a value of $98,100 as consideration for extending the 2006 Note's maturity
date. We evaluated the application of EITF 96-19, "Debtor's
Accounting for a Modification or Exchange of Debt Instruments" and concluded
that the revised terms constituted a debt modification rather than a debt
extinguishment and accordingly, the value of the common stock has been treated
as interest expense in the accompanying statements of operations.
On February 28, 2008, $1,090,000 of
the 2006 Notes came due and we were unable to repay them. We
continued to accrue interest on the notes at 12%, the agreed upon rate for the
extension period. On March 6, 2008, we issued 130,449 shares of
common stock in lieu of cash in payment of $65,221 of accrued and current period
interest to holders of 2006 Notes. On April 22, 2008, we repaid
$100,000 principal amount in cash to one of the holders of the
notes. During May 2008, we exchanged 99,395 shares of our Series A
Preferred in full satisfaction of our obligation under the notes to pay $965,000
of principal and $28,950 of interest, with each share of such preferred stock
being automatically convertible into 20 shares of our common stock, for an
aggregate of 1,987,900 shares of our common stock. The Series A
Preferred will automatically convert into shares of our Common Stock upon the
effectiveness of the Charter Amendment. At June 30, 2008, we have
outstanding $25,000 principal amount of the 2006 Notes with one
noteholder.
2007
Convertible Notes
On November 1, 2007, we sold $350,000
in convertible notes (the "2007 Notes") on the following terms: each note
matures October 31, 2008 and a 10% interest rate payable in shares of our Common
Stock based upon a conversion price of $ 0.35 per share. The
investors in the 2007 Notes also received 200,004 shares of Common
Stock. The total proceeds from the sale of the 2007 Notes were
allocated between the 2007 Notes and the related common stock based upon the
relative fair value, which resulted in the allocation of $58,333 to the common
stock and $291,667 to the 2007 Notes. The $58,333 was recorded as a
discount to the 2007 Notes and as additional paid in capital. The
debt discount was being amortized over the term of the 2007 Notes using the
effective interest method.
We evaluated the application of SFAS
133 and EITF 00-19 for the 2007 Notes and concluded these instruments were not
required to be accounted for as derivatives. We also evaluated the
application of EITF 98-05, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,"
and EITF 00-27, "Application of Issue No. 98-5 to Certain Convertible
Instruments" and concluded that the conversion option was a beneficial
conversion feature with intrinsic value. After allocation of the
proceeds between the 2007 Notes and the common stock, the conversion option had
an intrinsic value of $58,333. This resulted in an additional
discount to be amortized over the term of the 2007 Notes as additional interest
expense using the effective interest method. The original issue
discount rate was 53.83%.
During May 2008, we exchanged 37,100
shares of our Series B Preferred in full satisfaction of our obligation under
the notes to pay $350,000 of principal and $21,000 of interest, with each share
of such preferred stock being automatically convertible into 28.58 shares of our
common stock, for an aggregate of 1,060,318 shares of our common
stock. The Series B Preferred will automatically convert into shares
of our Common Stock upon the effectiveness of the Charter
Amendment.
NOTE
5. PREFERRED
STOCK AND COMMON STOCK
Preferred
Stock
Certain
of our outstanding (i) convertible promissory notes, in the aggregate principal
amount of $965,000 and bearing interest at 12% per annum from September 1, 2007
and (ii) convertible promissory notes, in the aggregate principal amount of
$350,000 and bearing interest of 10% per annum, due October 31, 2008, were
exchanged for shares of our Series A and Series B Preferred stock in
full satisfaction of our obligations under the notes including, without
limitation, the repayment of principal and accrued unpaid interest
thereon.
Pursuant
to the exchange transaction, we issued 99,395 shares of Series A Preferred in
exchange for the redemption of $965,000 of principal and $28,950 of accrued
interest on the 12% notes, with each share of such preferred stock being
automatically convertible into 20 shares of our common stock, for an aggregate
of 1,987,900 shares of our common stock. Additionally, we issued
37,100 shares of Series B Preferred in exchange for the redemption of $350,000
of principal and $21,000 of accrued interest on the 10% notes, with each share
of such preferred stock being automatically convertible into 28.58 shares of our
common stock, for an aggregate of 1,060,318 shares of our common
stock. The Series A and Series B Preferred stock will automatically
convert into shares of our common stock upon the effectiveness of the Charter
Amendment. The 12% notes matured on February 28, 2008 and the 10%
notes were due to mature on October 31, 2008.
Common
Stock
On August 21, 2007, we issued 100,000
shares of common stock with a value of $45,000 to a non-employee as compensation
for services rendered.
On September 4, 2007, we issued
89,248 shares of common stock in lieu of cash in payment of $44,624 of accrued
and current period interest to noteholders who chose to redeem their
notes. (See Note 4.)
On September 4, 2007, we issued
218,000 shares of common stock with a value of $98,100 as consideration to those
noteholders who chose to extend the maturity date of their notes to February 28,
2008. (See Note 4.)
On September 17, 2007, we issued
100,000 shares of common stock with a value of $45,000 to a non-employee as
compensation for services rendered.
On September 19, 2007, our Board of
Directors approved the issuance of 150,000 shares of common stock with a value
of $55,500 to a former member of our Board of Directors as compensation for
assuming the role of Chief Executive Officer.
On November 1, 2007, we issued
200,004 shares of common stock with a relative fair market value of $58,333 to
purchasers of $350,000 of our newly issued convertible notes. (See
Note 4.)
On November 7, 2007, we issued
310,435 shares of common stock in lieu of cash in payment of $155,215 of accrued
interest to holders of convertible notes issued in 2006 who chose to extend the
maturity date of their notes through February 28, 2008. (See Note
4.)
On March 4, 2008, our Board of
Directors and the holders of a majority of the Company's outstanding shares of
common stock, approved an increase in the number of authorized common shares
that the Company may issue to 149,000,000 shares. As of the date
hereof, the number of shares of common stock that the Company may issue is
24,000,000, pending the effectiveness of the Charter Amendment.
On March 6, 2008, we issued 130,449
shares of common stock in lieu of cash in payment of $65,221 of accrued and
current period interest to holders of our 2006 Notes. (See Note
4.)
Pursuant
to restricted stock agreements entered into with Robert P. Munn, our Chief
Executive Officer and Carl A. Chase, our Chief Financial Officer, we have agreed
upon the effectiveness of the Charter Amendment to grant restricted stock to
each of Messrs. Munn and Chase. Mr. Munn is to receive 1,500,000
shares and Mr. Chase is to receive 1,125,000 shares of our Common Stock, each
which vests equally as to one-third of the shares over a two year period,
commencing on the effectiveness of the Charter Amendment and each of the first
and second year anniversary of the grant dates. We valued the
restricted stock issuances on the grant date of their respective restricted
stock agreements, May 22, 2008, at $0.52 per share and recorded compensation
expense for Mr. Munn of $301,671 and Mr. Chase of $226,254 for the vested
portion of their restricted stock awards. In addition, we
represent on our consolidated balance sheets and consolidated statement of
changes in stockholders’ deficit the issuance 580,137 shares of the restricted
stock to Mr. Munn and 435,103 shares of restricted stock to Mr.
Chase.
NOTE
6. GRANTS
OF WARRANTS AND OPTIONS
Effective
July 1, 2006, we adopted the fair value recognition provisions of Statement of
Financial Accounting Standard 123(R) “
Share-Based Payment”
(“SFAS
123(R)”) using the modified prospective transition method. In
addition, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 107 “
Share-Based
Payment
” (“SAB 107”) in March 2005, which provides supplemental SFAS
123(R) application guidance based on the views of the SEC. Under the
modified prospective transition method, compensation cost recognized in the
fiscal year ended June 30, 2007, includes: (a) compensation cost for all
share-based payments granted prior to, but not yet vested as of July 1, 2006,
based on the grant date fair value estimated in accordance with the original
provisions of SFAS No. 123, and (b) compensation cost for all share-based
payments granted beginning July 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of SFAS 123(R). In
accordance with the modified prospective transition method, results for prior
periods have not been restated.
We use
the Black-Scholes option-pricing model to estimate option fair values. The
option-pricing model requires a number of assumptions, of which the most
significant are: expected stock price volatility, the expected pre-vesting
forfeiture rate and the expected option term (the amount of time from the grant
date until the options are exercised or expire).
Volatilities
are based on the historical volatility of our closing common stock
price. Expected term of options and warrants granted represents the
period of time that options and warrants granted are expected to be
outstanding. The risk-free rate for periods within the contractual
life of the options and warrants is based on the comparable U.S. Treasury rates
in effect at the time of each grant. The weighted average grant-date
fair value of options granted during the years ended June 30, 2008 and 2007, was
$2.26 and $3.56, respectively. The weighted average grant date fair
value of warrants granted during the years ended June 30, 2008 and 2007 was
$2.36 and $4.39, respectively. There have been no options or warrants
exercised during the period May 12, 2006 through June 30, 2008.
None of the stock options or warrants
listed below are exercisable until such time as we file our Articles of
Amendment to our Articles of Incorporation with the State of Nevada to increase
our authorized shares of common stock from the current authorized of 24,000,000
shares to 149,000,000 shares.
O
n
December 28, 2006, we granted two non-employees warrants to purchase up to an
aggregate of 1,500,000 shares of our common stock at an exercise price of $0.25
per share for services rendered. The options vested immediately and terminate on
December 28, 2011. The fair value of the warrants was determined utilizing the
Black-Scholes stock option valuation model. The significant assumptions used in
the valuation were: the exercise price as noted above; the market value of our
common stock on December 28, 2006, $0.25; expected volatility of 105%; risk free
interest rate of 4.69%; and a term of five years. The fair value of the warrants
was $294,722 at December 28, 2006 and was recorded as share based
compensation.
On May
22, 2007, we granted three non-employees warrants to purchase up to an aggregate
of 1,050,000 shares of our common stock at an exercise price of $0.30 per share
for services rendered. The warrants vested immediately and terminate on May 22,
2012. The fair value of the warrants was determined utilizing the Black-Scholes
option-pricing model. The significant assumptions used in the valuation were:
the exercise price as noted above; the market value of our common stock on May
22, 2007, $0.30; expected volatility of 160%; risk free interest rate of 4.76%;
and a term of five years. The fair value of the warrants was $294,623 at May 22,
2007 and was recorded as share based compensation.
On October 26, 2007, we granted 250,000 employee options and 1,000,000 warrants
to two non-employees to purchase up to an aggregate of 1,250,000 shares of
our common stock at an exercise price of $0.35 per share for services
rendered. The options and warrants vested immediately and terminate
on October 26, 2012. The fair value of the options and warrants of
$362,822, which was expensed immediately due to the vesting provisions and the
lack of a future service requirement, was determined utilizing the Black-Scholes
option-pricing model. The significant assumptions used in the
valuation were: the exercise price as noted above; the market value of ABC's
common stock on October 26, 2007, $0.35; expected volatility of 170%; risk free
interest rate of 4.04%; and an expected term of 2.5 years. Due to the
limited trading history of our common stock, the volatility assumption was
estimated by averaging the volatility of two active companies that have
operations similar to ours. The warrants qualify as “plain vanilla”
warrants under the provisions of Staff Accounting Bulletin No. 107 ("SAB 107")
and, due to limited warrant exercise data available to us, the term was
estimated pursuant to the provisions of SAB 107.
On
December 19, 2007, we granted our former CEO, options to purchase up to 500,000
shares of our common stock at an exercise price of $0.35 per share for services
rendered. The options vested immediately and terminate on December
19, 2012. The fair value of the options of $124,997, which was
expensed immediately due to the vesting provisions and the lack of a future
service requirement, was determined utilizing the Black-Scholes option-pricing
model. The significant assumptions used in the valuation were: the
exercise price as noted above; the market value of ABC's common stock on
December 19, 2007, $0.30; expected volatility of 177%; risk free interest rate
of 3.46%; and a term of 2.5 years. Due to the limited trading history
of our common stock, the volatility assumption was estimated by averaging the
volatility of two active companies that have operations similar to
ours. The options qualify as “plain vanilla” options under the
provisions of Staff Accounting Bulletin No. 107 ("SAB 107") and, due to limited
option exercise data available to us, the term was estimated pursuant to the
provisions of SAB 107.
On December 19, 2007, we granted two
non-employees warrants to purchase up to an aggregate of 1,100,000 shares of our
common stock at an exercise price of $0.35 per share for services
rendered. The warrants vested immediately and terminate on December
19, 2012. The fair value of the warrants of $274,993, which was
expensed immediately due to the vesting provisions and the lack of a future
service requirement, was determined utilizing the Black-Scholes option-pricing
model. The assumptions and term utilized in the valuation were
identical to those described above for valuation of the options granted to our
former CEO on December 19, 2007.
On February 28, 2008, we granted our
former CEO, additional options to purchase up to 250,000 shares of our common
stock at an exercise price of $0.54 per share for services
rendered. The options vested immediately and terminate on February
27, 2013. The fair value of the options of $114,425, which was
expensed immediately due to the vesting provisions and the lack of a future
service requirement, was determined utilizing the Black-Scholes option-pricing
model. The significant assumptions used in the valuation were: the
exercise price as noted above; the market value of ABC's common stock on
February 28, 2007, $0.54; expected volatility of 178%; risk free interest rate
of 2.73%; and a term of 2.5 years. Due to the limited trading history
of our common stock, the volatility assumption was estimated by averaging the
volatility of two active companies that have operations similar to
ours. The options qualify as “plain vanilla” options under the
provisions of Staff Accounting Bulletin No. 107 ("SAB 107") and, due to limited
option exercise data available to us, the term was estimated pursuant to the
provisions of SAB 107.
On February 28, 2008,
we granted a non-employee warrant to purchase up to an aggregate of 3,300,000
shares of our common stock at an exercise price of $0.54 per share for services
rendered. The warrants vested immediately and terminate on February
27, 2013. The fair value of the warrants of $1,510,408, which was
expensed immediately due to the vesting provisions and the lack of a future
service requirement, was determined utilizing the Black-Scholes option-pricing
model. The assumptions and term utilized in the valuation were
identical to those described above for valuation of the options granted to our
former CEO on February 28, 2008.
As part
of our employment agreement with Mr. Munn, our CEO, we granted stock options,
exercisable for up to 500,000 shares of our common stock, at an exercise price
of $0.52 per share, which option vests with respect to these shares on the
effectiveness of the Articles of Amendment to the Articles of Incorporation,
500,000 shares, at an exercise price of $0.57 per share, which option vests on
May 22, 2009, and 500,000 shares, at an exercise price of $0.62 per share, which
option vests on May 22, 2010. The fair value of the $0.52 options of
$232,369, which was expensed immediately due to the vesting provisions; the
$0.57 options of $252,090 which is being amortized over the one year vesting
period and the $0.62 options of $254,215 which is being amortized over the two
year vesting period, was determined using the Black-Scholes option-pricing
model. The significant assumptions used in the valuation were: (i)
for the $0.52 options; the exercise price, the market value of our Common Stock
on May 22, 2007, $0.52; expected volatility of 169%; risk free interest rate of
3.52%; and a term of 3.5 years; (ii) for the $0.57 options; the exercise price,
the market value of our Common Stock on May 22, 2007, $0.52; expected volatility
of 216%; risk free interest rate of 3.52%; and a term of 4.0; and (iii) for the
$0.62 options; the exercise price, the market value of our Common Stock on May
22, 2007, $0.52; expected volatility of 216%; risk free interest rate of 3.52%;
and a term of 4.5 years. The options qualify as “plain vanilla”
options under the provisions of Staff Accounting Bulletin No. 107 ("SAB 107")
and, due to limited option exercise data available to us, the term was estimated
pursuant to the provisions of SAB 107.
As part of our employment agreement
with Mr. Chase, our CFO, we granted stock options, exercisable for up to 375,000
shares of our common stock, at an exercise price of $0.52 per share, which
option vests with respect to these shares on the effectiveness of the Articles
of Amendment to the Articles of Incorporation, 375,000 shares, at an exercise
price of $0.57 per share, which option vests on May 22, 2009, and 375,000
shares, at an exercise price of $0.62 per share, which option vests on May 22,
2010. The fair value of the $0.52 options of $174,277, which was
expensed immediately due to the vesting provisions; the $0.57 options of
$189,068 which is being amortized over the one year vesting period and the $0.62
options of $190,661 which is being amortized over the two year vesting period,
was determined using the Black-Scholes option-pricing model. The
assumptions and term utilized in the valuation were identical to those described
above for valuation of the options granted to our CEO on May 22,
2008.
As part of a commission due to the
investment banking firm that identified the holders of the Convertible
Debentures, we have agreed to grant warrants, exercisable for up to 225,000
shares of our Common Stock, at an exercise price of $0.33 per
share. The warrants vested immediately and terminate on May 22,
2013. The fair value of the warrants of $111,192, which was
capitalized as deferred financing costs to be amortized over the life of the
Debentures using the effective interest rate method, was determined
utilizing the Black-Scholes option-pricing model. The significant
assumptions used in the valuation were: the exercise prices as noted above; the
market value of ABC's common stock on May 22, 2008, $0.52; expected volatility
of 216%; risk free interest rate of 3.24%; and a term of 2.5
years. The options qualify as “plain vanilla” options under the
provisions of Staff Accounting Bulletin No. 107 ("SAB 107") and, due to limited
option exercise data available to us, the term was estimated pursuant to the
provisions of SAB 107.
Due to
the limited trading history of our common stock, the volatility assumption was
estimated by using the volatility of two active companies that have operations
similar to ours.
A summary
of stock option transactions for the years ended June 30, 2008 and 2007 is
as follows:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Options
|
|
|
Wtd.
Avg.
Exercise
Price
|
|
|
Options
|
|
|
Wtd.
Avg.
Exercise
Price
|
|
|
Outstanding
beginning of year
|
|
|
150,000
|
|
|
$
|
0.30
|
|
|
|
--
|
|
|
$
|
--
|
|
|
Granted
|
|
|
3,625,000
|
|
|
$
|
0.52
|
|
|
|
150,000
|
|
|
$
|
0.30
|
|
|
Exercised
|
|
|
--
|
|
|
$
|
--
|
|
|
|
--
|
|
|
$
|
--
|
|
|
Forfeited
|
|
|
--
|
|
|
$
|
--
|
|
|
|
--
|
|
|
$
|
--
|
|
|
Outstanding
end of year
|
|
|
3,775,000
|
|
|
$
|
0.51
|
|
|
|
150,000
|
|
|
$
|
0.30
|
|
|
Exercisable
end of year
|
|
|
2,025,000
|
|
|
$
|
0.44
|
|
|
|
150,000
|
|
|
$
|
0.30
|
|
|
Weighted
average fair value of options granted
|
|
|
|
|
|
$
|
2.26
|
|
|
|
|
|
|
$
|
3.56
|
|
At June
30, 2008, the range of exercise prices and weighted average remaining
contractual life of outstanding options was $0.30 to $0.62 and 4.75 years,
respectively.
A summary
of warrant transactions for the years ended June 30, 2008 and 2007 is as
follows:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Warrants
|
|
|
Wtd.
Avg.
Exercise
Price
|
|
|
Warrants
|
|
|
Wtd.
Avg.
Exercise
Price
|
|
|
Outstanding
beginning of year
|
|
|
3,500,000
|
|
|
$
|
0.32
|
|
|
|
1,100,000
|
|
|
$
|
0.43
|
|
|
Granted
|
|
|
8,625,000
|
|
|
$
|
0.42
|
|
|
|
2,400,000
|
|
|
$
|
0.27
|
|
|
Exercised
|
|
|
--
|
|
|
$
|
--
|
|
|
|
--
|
|
|
$
|
--
|
|
|
Forfeited
|
|
|
--
|
|
|
$
|
--
|
|
|
|
--
|
|
|
$
|
--
|
|
|
Outstanding
end of year
|
|
|
12,125,000
|
|
|
$
|
0.39
|
|
|
|
3,500,000
|
|
|
$
|
0.32
|
|
|
Exercisable
end of year
|
|
|
12,125,000
|
|
|
$
|
0.39
|
|
|
|
3,500,000
|
|
|
$
|
0.32
|
|
|
Weighted
average fair value of warrants granted
|
|
|
|
|
|
$
|
2.36
|
|
|
|
|
|
|
$
|
4.39
|
|
At June
30, 2008, the range of exercise prices and weighted average remaining
contractual life of outstanding warrants was $0.05 to $0.60 and 3.8 years,
respectively.
NOTE
7.
INCOME TAXES
ABC uses the liability method, where
deferred tax assets and liabilities are determined based on the expected future
tax consequences of temporary differences between the carrying amounts of assets
and liabilities for financial and income tax reporting
purposes. During fiscal years ended June 30, 2008,and 2007, ABC
incurred net losses and, therefore, has no tax liability. The net
deferred tax asset generated by the loss carry-forward has been fully
reserved. The cumulative net operating loss carry-forward is
approximately $2,684,552 at June 30, 2008.
At June 30, 2008 and 2007, deferred
tax assets consisted of the following:
|
|
2008
|
|
2007
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
Net
operating loss
|
$
939,593
|
|
$
|
465,622
|
|
|
Less:
valuation allowance
|
(939,593)
|
|
|
(465,622
|
)
|
|
Net
deferred tax assets
|
$
--
|
|
$
|
--
|
|
The net operating loss will expire
beginning in 2027. The valuation allowance increased by $473,971
during the year ended June 30, 2008.
NOTE
8. SUBSEQUENT
EVENTS
Acquisition
of Voyager Gas Corporation
On May
22, 2008, we entered into a Stock Purchase and Sale Agreement (the “Voyager
Agreement”) with Voyager Gas Holdings, L.P. (“Seller”) and Voyager Gas
Corporation (“Voyager”). On September 2, 2008, we completed our
purchase of all of the outstanding capital stock of Voyager Gas Corporation, the
owner of interests in oil and gas lease blocks located in Duval County, Texas,
including working and other interests in oil and gas leases, wells, and
properties, together with rights under related operating, marketing, and service
contracts and agreements, seismic exploration licenses and rights, and personal
property, equipment and facilities (the "Voyager Acquisition"). Upon
the completion of the Voyager Acquisition, Voyager Gas Corporation became a
wholly-owned subsidiary of our Company. Our newly acquired
subsidiary’s properties consist of approximately 14,300 net acres located in
Duval County, Texas, or the Duval County Properties, as defined and more
particularly described elsewhere in this annual report under “
Item 2. Description of
Properties
.” The purchase price also included a proprietary
3-D seismic data base covering a majority of the property.
The purchase price
paid in the Voyager Acquisition consisted of cash consideration of $35.0
million, plus 10,000 newly issued shares of our preferred stock designated as
Series D preferred stock (the “Series D Preferred”), having an agreed upon value
of $7.0 million. Upon the effectiveness of an amendment to our
Articles of Incorporation increasing the number of shares of Common Stock that
we may issue (the “Charter Amendment”), the Series D Preferred will
automatically convert into 17.5 million shares of our Common Stock, as provided
by the Certificate of Designation with respect to the Series D Preferred filed
with the State of Nevada on August 27, 2008.
CIT
Credit Facility
On
September 2, 2008, we entered into (i) a First Lien Credit Agreement (the
“Revolving Loan”) among the Company, CIT Capital USA Inc. (“CIT Capital”), as
Administrative Agent and the lenders named therein and party thereto (the
“Lenders”) and (ii) a Second Lien Term Loan Agreement (the “Term Loan”) among
the Company, CIT Capital and the Lenders. The Revolving Loan and Term
Loan are collectively referred to herein as the “CIT Credit
Facility.”
The
Revolving Loan provides for a $50.0 million senior secured revolving credit
facility which is subject to an initial borrowing base of $14.0 million, or an
amount determined based on semi-annual review of our proved oil and gas
reserves. As of September 4, 2008, we had borrowed $11.5 million
under the Revolving Loan to finance the Voyager Acquisition, to repay the
related bridge loan and transaction expenses, and to fund capital expenditures
generally. Monies advanced under the Revolving Loan mature in three
years and bear interest at a rate equal to LIBOR plus 1.75% to 2.50% based upon
a percentage of funds advanced against the Revolving Loan as it relates to the
borrowing base.
The Term
Loan provides for a one-time advance to us of $22.0 million. We drew
down the full amount on September 2, 2008 to finance the Voyager Acquisition and
to repay the related bridge loan and transaction expenses. Monies
borrowed under the Term Loan mature in three and one-half years and bear
interest at a rate equal to LIBOR plus 5% during the first twelve months after
closing and LIBOR plus 7.50%, thereafter.
All of
the oil and natural gas properties acquired in the Voyager Acquisition are
pledged as collateral for the CIT Credit Facility. We have also agreed not to
pay dividends on our Common Stock.
As further
consideration for entering into the CIT Credit Facility, we issued to CIT
Capital a warrant exercisable at an exercise price of $0.35 per share for up to
24,199,996 shares of our common stock, or approximately 27.5% of our common
stock on a fully-diluted basis at September 2, 2008. The warrant is
exercisable for a period of seven years, contains certain anti-dilution
provisions and is not exercisable until the effective date of the Charter
Amendment
.
Related
Party Transaction
On August 20, 2008, we issued 500
shares of our newly designated Series C Preferred (defined below) to Alan D.
Gaines, our largest stockholder and a director of our Company, in exchange for
the cancellation of a promissory note made by us in favor of Mr. Gaines, in the
principal amount of $50,000. In addition to these shares of Series C
Preferred, on August 20, 2008 we also issued an additional 500 shares of Series
C Preferred to Mr. Gaines for cash consideration of $50,000. The
Series C Preferred are automatically redeemable by our Company at the rate of
$100 for every one (1) share of Series C Preferred being redeemed upon the
closing of a debt or equity financing whereby we realize gross proceeds in
excess of $5,000,000.
Shares of preferred stock, $.001 par
value, designated out of our authorized “blank check preferred stock” by our
Board as “Series C Preferred Stock” (the “Series C Preferred”), have the rights,
preferences, powers, restrictions and obligations set forth in the Certificate
of Designation filed with the Secretary of State of the State of Nevada on
August 20, 2008, including the automatic redemption rights referenced
above. However, holders of the Series C Preferred are not entitled to
any dividends, preemption, voting, conversion or other rights as a stockholder
of our Company.
SIGNATURES
In accordance with Section 13 or
15(d) of the Exchange Act, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
|
|
ABC
FUNDING, INC.
|
|
|
|
|
Date: September
9, 2008
|
By: /s/ Robert
P. Munn
|
|
|
Robert
P. Munn
|
|
|
Chief
Executive Officer
|
In accordance with the Exchange Act,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
|
Signature
|
Date
|
|
|
|
|
/s/ Robert
P. Munn
|
September
9, 2008
|
|
Robert
P. Munn
|
|
|
Chief
Executive Officer and Director
|
|
|
|
|
|
/s/ Carl
A. Chase
|
September
9, 2008
|
|
Carl
A. Chase
|
|
|
Chief
Financial Officer and Principal
Accounting
Officer
|
|
|
|
|
|
/s/ Alan
D. Gaines
|
September
9, 2008
|
|
Alan
D. Gaines
|
|
|
Director
|
|
INDEX
TO EXHIBITS
|
Nos.
|
Description
of Exhibit
|
|
|
|
|
2.1
|
Agreement
and Plan of Merger, dated as of May 26, 2006, among the Company, Energy
Venture and EVI Acquisition Corp. (incorporated herein by reference to
Exhibit 2.1 of the Company's Form 8-K report, filed June 2,
2006).
|
|
3.1
|
Articles
of Incorporation of the Company (incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on Form SB-2, filed
December 8, 2004).
|
|
3.2
|
By-Laws
of the Company (incorporated herein by reference to Exhibit 3.2 of
Company's Registration Statement on Form SB-2, filed December 8,
2004).
|
|
4.1
|
Form
of 10% Convertible Promissory Note, issued by Energy Venture (and assumed
by the Company ) in March 2005 (incorporated herein by reference to
Exhibit 4.1 of the Company's Form 8-K report, filed June 2,
2006).
|
|
4.2
|
Certificate
of Designation, dated May 15, 2008, with respect to Series A Preferred
Stock (incorporated herein by reference to Exhibit 99.1 to the Company’s
Form 8-K report, filed May 21, 2008).
|
|
4.3
|
Certificate
of Designation, dated May 15, 2008, with respect to Series B Preferred
Stock (incorporated herein by reference to Exhibit 99.2 to the Company’s
Form 8-K report, filed May 21, 2008).
|
|
4.4
|
Certificate
of Designation, dated August 19, 2008, with respect to Series C Preferred
Stock (incorporated herein by reference to Exhibit 99.1 to the Company’s
Form 8-K report, filed August 21, 2008).
|
|
4.4
|
Form
of Registration Rights Agreement, dated May 21, 2008, among the Company
and the purchasers named therein (incorporated herein by reference to
Exhibit 99.10 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.1
|
2004
Non-Statutory Stock Option Plan of the Company (incorporated herein by
reference to Exhibit 10.1 to the Company's Registration Statement on Form
SB-2, filed December 8, 2004).
|
|
10.2
|
Stock
Purchase Agreement dated as of April 3, 2006 among Energy Venture, as
buyer, and the named selling stockholders of the Company (incorporated
herein by reference to Exhibit 10.1 of the Company's Form 8-K report,
filed April 28, 2006).
|
|
10.2.2
|
Amendment
to Stock Purchase Agreement dated April 28, 2006 among Energy Venture and
each of the named selling stockholders of the Company (incorporated herein
by reference to Exhibit 10.2 of the Company's Form 8-K report, filed April
28, 2006).
|
|
10.3
|
Form
of Stock Option Agreement issued by Energy Venture (and assumed by the
Company) to the Optionees (incorporated herein by reference to Exhibit
10.4 of the Company's Annual Report on Form 10-KSB, filed September 28,
2006).
|
|
10.4
|
Form
of Agreement between the Company and the holders of the Company's 10%
Convertible Promissory Note (incorporated herein by reference to Exhibit
10.5 of the Company’s Annual Report on Form 10-KSB, filed September 27,
2007).
|
|
10.5
|
Stock
Purchase and Sale Agreement, dated May 22, 2008, among the Company,
Voyager Gas Holdings, L.P. and Voyager Gas Corporation (incorporated
herein by reference to Exhibit 99.1 to the Company’s Form 8-K report,
filed May 23, 2008).
|
|
10.6
|
Form
of Exchange Agreement between the Company and the 12% Note holders, with
respect to Series A Preferred (incorporated herein by reference to Exhibit
99.2 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.7
|
Form
of Exchange Agreement between the Company and the 10% Note holder, with
respect to Series B Preferred (incorporated herein by reference to Exhibit
99.3 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.8
|
Form
of Securities Purchase Agreement, dated May 21, 2008, among the Company
and the purchasers named therein (the "Purchasers") (incorporated herein
by reference to Exhibit 99.4 to the Company’s Form 8-K report, filed May
23, 2008).
|
|
10.9
|
Form
of Senior Secured Convertible Debenture due September 29, 2008, from the
Company to the Purchasers (incorporated herein by reference to Exhibit
99.5 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.10
|
Form
of Common Stock Purchase Warrant, dated May 21, 2008, from the Company to
the Purchasers (incorporated herein by reference to Exhibit 99.6 to the
Company’s Form 8-K report, filed May 23, 2008).
|
|
10.11
|
Form
of Security Agreement, dated May 21, 2008, among the Company, Energy
Venture, Inc. and the Purchasers (incorporated herein by reference to
Exhibit 99.7 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.12
|
Form
of Subsidiary Guarantee, dated May 21, 2008, by Energy Venture, Inc. for
the benefit of the Purchasers (incorporated herein by reference to Exhibit
99.8 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.13
|
Form
of Security and Pledge Agreement, dated May 21, 2008, among the Company,
each of Alan Gaines, Brent Gaines, Derek Gaines and Ilana Gaines, as
Pledgors, and the Purchasers (incorporated herein by reference to Exhibit
99.9 to the Company’s Form 8-K report, filed May 23,
2008).
|
|
10.14
|
Employment
Agreement, dated May 22, 2008, between the Company and Robert P. Munn
(incorporated herein by reference to Exhibit 99.11 to the Company’s Form
8-K report, filed May 23, 2008).
|
|
10.15
|
Employment
Agreement, dated May 22, 2008, between the Company and Carl A. Chase
(incorporated herein by reference to Exhibit 99.12 to the Company’s Form
8-K report, filed May 23, 2008).
|
|
10.16
|
Restricted
Stock Agreement, dated May 22, 2008, between the Company and Robert P.
Munn (incorporated herein by reference to Exhibit 99.13 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
10.17
|
Restricted
Stock Agreement, dated May 22, 2008, between the Company and Carl A. Chase
(incorporated herein by reference to Exhibit 99.14 to the Company’s Form
8-K report, filed May 23, 2008).
|
|
10.18
|
Stock
Option Agreement, dated May 22, 2008, between the Company and Robert P.
Munn (incorporated herein by reference to Exhibit 99.15 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
10.19
|
Stock
Option Agreement, dated May 22, 2008, between the Company and Robert P.
Munn (incorporated herein by reference to Exhibit 99.16 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
10.20
|
Stock
Option Agreement, dated May 22, 2008, between the Company and Robert P.
Munn (incorporated herein by reference to Exhibit 99.17 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
10.21
|
Stock
Option Agreement, dated May 22, 2008, between the Company and Carl A.
Chase (incorporated herein by reference to Exhibit 99.18 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
10.22
|
Stock
Option Agreement, dated May 22, 2008, between the Company and Carl A.
Chase (incorporated herein by reference to Exhibit 99.19 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
10.23
|
Stock
Option Agreement, dated May 22, 2008, between the Company and Carl A.
Chase (incorporated herein by reference to Exhibit 99.20 to the Company’s
Form 8-K report, filed May 23, 2008).
|
|
|
|
|
|
|
|
|
|
|
|
|
________________
Numbers with (*) indicate exhibits that
are filed herewith.
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