Attached files
file | filename |
---|---|
EX-5.1 - COLOMBIA ENERGY RESOURCES, INC. | v211134_ex5-1.htm |
EX-21.1 - COLOMBIA ENERGY RESOURCES, INC. | v211134_ex21-1.htm |
EX-23.1 - COLOMBIA ENERGY RESOURCES, INC. | v211134_ex23-1.htm |
EX-10.17 - COLOMBIA ENERGY RESOURCES, INC. | v211134_ex10-17.htm |
As Filed
with the Securities and Exchange Commission on February 14, 2011
Registration
No. 333-_______
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES
ACT OF 1933
COLOMBIA
CLEAN POWER & FUELS, INC.
(Exact
name of Registrant as Specified in Its Charter)
Nevada
|
1221
|
87-0567033
|
(State
or other jurisdiction of incorporation or organization)
|
(Primary
Standard Industrial Classification Code Number)
|
(I.R.S.
Employer
Identification
No.)
|
181
3rd
Street
Suite
150-B
San
Rafael, CA 94901
(415)
460-1165
(Address,
including zip code, and telephone number, including area code,
of
registrant's principal executive offices)
Daniel
F. Carlson, CFO
Colombia
Clean Power & Fuels, Inc.
181
3rd
Street
Suite
150-B
San
Rafael, CA 94901
(415)
460-1165
(Name,
address, including zip code, and telephone number
including
area code, of agents for service)
Copies
to:
Ronald
N. Vance, P.C.
Attorney
at Law
1656
Reunion Avenue
Suite
250
South
Jordan, UT 84095
(801)
446-8802
(801)
446-8803 (fax)
_____________
Approximate
date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
Accelerated Filer o
|
Accelerated
Filer o
|
Non-Accelerated
Filer o
|
Smaller
reporting company x
|
CALCULATION
OF REGISTRATION FEE
|
||||||||||||||||
Title
of Each Class of Securities to be Registered
|
Amount
to be Registered (1)
|
Proposed
Maximum Offering Price Per Share
|
Proposed
Maximum Aggregate Offering Price
|
Amount
of Registration Fee
|
||||||||||||
Primary
Offering:
|
||||||||||||||||
Series
A Preferred Stock, $.001 par value(3)
|
3,000,000 | $ | 7.50 | $ | 22,500,000 | $ | 2,612 | |||||||||
Secondary
Offering:
|
||||||||||||||||
Common
Stock, $.001 par value
|
2,518,600 | $ | 2.175 | (2) | $ | 5,477,955 | $ | 636 | ||||||||
Common
Stock, $.001 par value issuable upon exercise of notes
|
3,200,000 | $ | 2.175 | (2) | $ | 6,960,000 | $ | 808 | ||||||||
TOTALS
|
9,532,001 | $ | 34,937,955 | $ | 4,056 |
_______________
(1) In
accordance with Rule 416(a), the registrant is also registering hereunder an
indeterminate number of shares that may be issued and resold to prevent dilution
resulting from stock splits, stock dividends or similar
transactions. Should the conversion ratio result in our having
insufficient shares, we will not rely upon Rule 416 but will file a new
registration statement to cover the resale of such additional shares should that
become necessary.
(2)
Estimated solely for the purpose of computing the amount of the registration fee
pursuant to Rule 457(c) based upon the average bid and asked price as reported
by the OTC Bulletin Board.
(3) In
addition to any preferred stock that may be issued directly under this
registration statement, there are being registered hereunder such indeterminate
amount of common stock shares as may be issued upon conversion of preferred
stock for which no separate consideration will be received by the
registrant.
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
The information contained in this
prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities
in any jurisdiction where the offer or sale is not
permitted.
Preliminary
Prospectus
Subject to Completion, February 14, 2011
Colombia
Clean Power & Fuels, Inc.
3,000,000
Shares of Series A Convertible Preferred Stock
$7.50
Per Share
5,718,600
Shares of Common Stock
We are
offering up to 3,000,000 shares of our Series A Convertible Preferred Stock at
$7.50 per share. Each preferred share is convertible at any time into
three shares of our common stock. The selling stockholders named in
this prospectus are offering 5,718,600 shares, including 3,200,000 shares
reserved for issuance upon exercise of outstanding convertible promissory notes
that we have issued to the selling stockholders. Our common stock is
currently quoted on the OTC Bulletin Board under the symbol
“CCPF.” The last reported sales price of our common stock on the OTC
Bulletin Board on February 9, 2011, was $2.15 per share.
The
offering of the preferred shares is being made on a “best efforts” basis either
by our management or one or more placement agents, which means that they will
use their best efforts to sell up to the maximum number of the preferred shares
but that no one has agreed to purchase any of these shares. There is
no minimum number of preferred shares to be sold in this offering. We
have authorized maximum selling commissions of 6% for any placement agents we
may engage, plus placement agent warrants equal to 6% of the common shares into
which the Series A preferred stock is convertible. We have entered
into preliminary discussions with prospective placement agents but have not
entered into any definitive agreements or arrangements. No selling
commissions will be paid to management for the sale of the preferred
shares. The offering of the preferred shares will terminate upon the
earlier of: (i) a date all of the preferred shares are sold, or (ii) six months
after the date of this prospectus, unless extended for up to 30 days by
us. The proceeds of this offering will not be placed into an escrow
account but will be immediately available to us.
Offering
Price
|
Selling
Commissions
|
Selling
Costs
|
Proceeds
to
Company
|
|||||||||||||
Per
Share
|
$ | 7.50 | $ | 0.45 | $ | 0.03 | $ | 7.02 | ||||||||
Total
|
$ | 22,500,000 | $ | 1,350,000 | $ | 100,000 | $ | 21,050,000 |
The
selling stockholders, or their pledgees, donees, transferees or other
successors-in-interest, may offer the shares of our common stock for resale on
the OTC Bulletin Board, in isolated transactions, or in a combination of such
methods of sale. They may sell their shares at fixed prices that may
be changed, at market prices prevailing at the time of sale, at prices related
to prevailing market prices, or at negotiated prices with institutional or other
investors, or, when permissible, pursuant to the exemption of Rule 144 under the
Securities Act of 1933. There will be no underwriter’s discounts or
commissions, except for the charges to a selling stockholder for sales through a
broker-dealer. All net proceeds from a sale will go to the selling
stockholder and not to us. We will pay the expenses of registering
these shares.
Investing
in our stock involves risks. You should carefully consider the
Risk Factors beginning on page 3 of this
prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date
of this prospectus is ____________, 2011
TABLE
OF CONTENTS
Page
|
|
Prospectus
Summary
|
1
|
Risk
Factors
|
3
|
Forward-Looking
Statements
|
15
|
Use
Of Proceeds
|
15
|
Dilution
|
16
|
Market
For Our Common Stock
|
16
|
Management’s
Discussion And Analysis Of Financial Condition And Results Of
Operations
|
18
|
Business
And Properties
|
21
|
Legal
Proceedings
|
38
|
Management
|
38
|
Executive
Compensation
|
44
|
Security
Ownership Of Certain Beneficial Owners And Management
|
48
|
Selling
Stockholders
|
50
|
Change
Of Accountants
|
54
|
Description
Of Securities
|
55
|
Plan
Of Distribution
|
56
|
Legal
Matters
|
58
|
Experts
|
58
|
Additional
Information
|
58
|
Appendix
A—Glossary Of Terms
|
59
|
We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We and the selling stockholders are
offering to sell, and seeking offers to buy, shares of our preferred and common
stock only in jurisdictions where offers and sales are permitted.
Throughout
this prospectus, unless otherwise designated, the terms “we,” “us,” “our,” “the
Company” and “our Company” refer to Colombia Clean Power & Fuels, Inc., a
Nevada corporation, and its subsidiaries. All amounts in this prospectus are in
U.S. Dollars, unless otherwise indicated.
ii
PROSPECTUS
SUMMARY
The
following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you
should consider before investing in the securities. Before making an
investment decision, you should read the entire prospectus carefully, including
the “Risk Factors” section, the financial statements and the notes to the
financial statements.
Colombia
Clean Power & Fuels, Inc.
We are an
exploration stage company with limited operations. We hold three coal
mining concession contracts, which grant us the right to exploit coal deposits
in approximately 17,481 acres. These mining concessions are located
in the Santander district of the Republic of Colombia, South
America. We have also made application for an additional 11
concessions in the Santander and Magdalena districts of Colombia covering
approximately 147,581 acres. There are no proven or probable reserves
on any of these mining concessions or applications at this time. We
have commenced an exploration drilling program to determine coal quantities and
qualities on these concessions. We own 99% of Energia Andina
Santander Resources Cooperatieve U.A., a company formed under the laws of the
Netherlands. The other 1% is owned by Colombia CPF LLC, Delaware
limited liability company, which is wholly owned by us. Our Dutch
subsidiary owns all of the outstanding shares of Energia Andina Santander
Resources SAS, a Colombian company that owns our assets and conducts our
operations in Colombia.
In
addition to conducting exploration activities on these mining concessions, our
plans include development of coal mining, coke manufacturing, coal gasification
and power generation operations using clean coal technologies. We
plan to develop our coking, gasification, power and other clean energy
facilities in an industrial energy park to be developed in the Santander
district of Colombia near our mining concessions (the “Santander Clean Energy
Park”). We anticipate that our primary operations and revenue sources
will include the mining of high-grade metallurgical coal, the manufacture of
metallurgical coke, the manufacture of petrochemicals derived from coal
gasification and power generation.
The
address of our principal executive office is 181 3rd Street,
Suite 150-B, San Rafael, CA 94901. Our telephone number is (415)
460-1165. Our Internet address is
www.colombiacleanpower.com. The information on our Internet website
is not incorporated by reference in this prospectus.
In May
2010, management of our company was changed to Edward P. Mooney, our current
President, Chief Executive Officer, and a member of our board of directors since
this change of control. LIFE Power and Fuels, LLC, a Delaware limited
liability company of which Mr. Mooney is the Managing Member, acquired
19,080,000 post-split shares of our common stock in this transaction for
$100,000. These shares represented approximately 94.1% of our issued
and outstanding shares of common stock at the time of the
transaction. In addition at the time, Daniel F. Carlson was appointed
our Chief Financial Officer, Secretary and Treasurer. With the change
of control, we commenced our current business through a wholly owned Colombian
operating subsidiary which we created for the purpose of conducting our business
activities in Colombia. From our inception in 1996 until October 2005
we had very limited business activity and from October 2005 until May 2010 we
had no business operations. Our present business strategy was adopted
in May 2010, in conjunction with a change of control and installation of a new
management team and board of directors.
In July
and October 2010, through our Colombian subsidiary, we completed acquisitions of
three mining concessions located in the Santander district of
Colombia. The first acquisition consisted of two concessions with an
aggregate of 6,608 acres, for which we paid 400,000,000 COP (approximately
$214,593) to the owner of the concessions and 125,266,709 COP (approximately
$67,348) in annual fees to the Colombian Ministry of Mines.1 In
addition to the purchase price, the seller is entitled to a royalty of $2.00 for
each ton of coal extracted under the concessions during the term of each
contract. In October 2010 we acquired a mining concession covering
10,873 acres for an aggregate purchase price of $1,515,000, of which we have
paid $95,000 with the balance due as follows: $220,000 payable on the date the
assigned concession rights are registered with the Colombian National Mining
Register and the balance of $1,200,000 in six quarterly payments of $200,000,
beginning three months after the date the rights are registered, with the amount
of each quarterly payment reduced by 50% of the value of any extraction
royalties paid to the assignor of the concession to us. The assignor
in this transaction is also entitled to receive royalty payments of $2.00 for
each ton of coal extracted under the mining concession during the term of the
concession. We also paid 215,377,844 COP (approximately $115,299) in
annual fees to the Colombian Ministry of Mines for this concession.
1
|
The
Colombian Ministry of Mines assesses annual fees to concessionaires prior
to production. Post-production concessionaires are required to
pay royalties to the Ministry pursuant to government
regulations.
|
1
In
December 2010 we completed a private placement of $8,000,000 in aggregate
principal amount of our 10% Secured Convertible Notes due June 30, 2012 and
five-year warrants to purchase in aggregate up to 3,200,000 shares of our common
stock at an exercise price of $0.01 per share. The promissory notes
are convertible at the rate of $2.50 per share and the 3,200,000 shares issuable
upon conversion of the promissory notes are included in the registration
statement of which this prospectus is a part.
In
January 2011 we commenced a core drilling program on our Colombian mining
concessions consisting of 50 holes through August 2011 with an aggregate of
4,550 meters at a projected average cost of $100 per meter. We also
plan to conduct a non-cored drilling program between April and August with an
aggregate of 3,300 meters at a projected average cost of $75 per
meter.
We have
produced no revenues from our new business operations and have achieved losses
since inception. As of February 1, 2011, our cash position was
approximately $4,100,000. Over the next 12 to 36 months we have the
following principal objectives: to complete our existing drilling program and,
if warranted, commence coal extraction operations on these properties; to secure
additional coal mining concessions in the Santander region of Colombia, with and
without developed operations; develop mine plans and obtain necessary licenses
and permits for these concessions; complete feasibility studies for the
Santander Clean Energy Park; and secure a lease for the proposed industrial
energy park. Following this, depending upon our ability to obtain
additional funding or entering into proposed joint venture agreements, we plan
to construct our coke and gasification plants and fully develop the industrial
energy park which we propose to supply with the coal from our mining
concessions.
The
Offering
Securities
offered by us
|
This
is a best-efforts public offering of up to 3,000,000 shares of our Series
A Convertible Preferred Stock. Each share of our Series A stock
is convertible at any time into three fully paid and nonassessable shares
of our common stock.
|
||
Common
stock offered by selling stockholders
|
Up
to 2,518,600 outstanding shares of common stock owned by the selling
stockholders; and
Up
to 3,200,000 shares of common stock issuable upon the conversion of the
10% Secured Convertible Notes held by the selling
stockholders.
|
||
Common
stock outstanding immediately prior to the offering
|
20,717,500
|
||
Common
stock to be outstanding after the offering by us and the selling
stockholders
|
32,917,500
|
||
Proceeds:
|
|||
Maximum Proceeds
|
$22,500,000
|
||
Offering Costs
|
(100,000)
|
||
Selling
Commissions
|
(1 ,350,000)
|
||
Net Proceeds
|
$21,050,000
|
2
Use
of proceeds
|
We
will use the net proceeds from the sale of the Series A preferred stock to
expand and complete our existing drilling program, to acquire additional
producing coal mining properties, to construct our coke coal plant and for
general operating expenses.
We
will not receive any proceeds from the sale of the common stock by the
selling stockholders.
|
|
OTC
Bulletin Board trading symbol
|
CCPF
|
The above
information regarding common stock to be outstanding after the offering assumes
the sale of all 3,000,000 of the shares of the Series A preferred stock by us in
this offering and the conversion of these shares into 9,000,000 shares of our
common stock, and the conversion of all of the outstanding 10% Secured
Convertible Notes held by the selling stockholders into 3,200,000 common
shares. It does not include the exercise of any outstanding warrants
or options.
RISK
FACTORS
This
investment has a high degree of risk. Before you invest you should
carefully consider the risks and uncertainties described below and the other
information in this prospectus. If any of the following risks
actually occur, our business, operating results and financial condition could be
harmed and the value of our stock could go down. This means you could
lose all or a part of your investment.
Risks
Related to Our Company
If
we fail to repay the holders of our 10% Secured Convertible Notes on or before
June 30, 2012 or otherwise breach our security agreement for these lenders, we
would likely lose our interest in our wholly owned Dutch subsidiary which in
turn owns all of the outstanding shares our Colombian subsidiary which holds our
mining properties and other assets.
In
December 2010 we completed a private placement of our 10% Secured Convertible
Notes in an aggregated amount of $8,000,000. These loans are secured
by our ownership interest in Energia Andina Santander Resources Cooperative
U.A., our wholly owned subsidiary, which in turn owns all of the outstanding
shares of our Colombian subsidiary, Energia Andina Santander Resources
SAS. Repayment of the promissory notes representing these loans must
be made on or before June 30, 2012, unless some or all of these notes are
otherwise converted into shares of our common stock prior to that
date. The security agreement for these loans also appoints a
third-party agent to hold the collateral pledged as security for the
loans. It further contains certain affirmative and negative covenants
which require us to perform certain obligations or refrain from certain actions
so long as any amounts owed to the lenders are outstanding. For
example we are required to defend the collateral agent’s right, title and
interest in and to the pledged collateral against claims and demands of any
other person. We have also agreed that, except with the collateral
agent’s prior written consent, we will not sell or otherwise dispose of, or
grant any option with respect to, any of the pledged collateral, or create or
permit to exist any other lien upon the pledged collateral. If we
fail to meet all of our covenants under the agreement or if we fail to make any
required payment of principal or interest when due, it is likely that the
pledgee holding the collateral would call the full amount of the outstanding
balances on our loans immediately due. If we are unable to repay the
outstanding balances at that time, we anticipate that the lenders, through the
pledge agent, would foreclose on the security interest and would likely take
control of or liquidate our operating assets. If we lose our
operating assets to these lenders in foreclosure, we would not be able to
continue our business operations as currently planned and you would lose your
entire investment.
Our
company has no operating history and therefore we cannot ensure the long-term
successful operation of our business or the execution of our business
plan.
We have
only been engaged in our current business operations since May
2010. As a result, we have no operating history upon which you may
evaluate our proposed business and prospects. In addition, only our most recent
financial statements for the interim periods ended June 30 and September 30,
2010, reflect our current operations. Our proposed business
operations will be subject to numerous risks, uncertainties, expenses and
difficulties associated with early stage enterprises. You should consider an
investment in our company in light of these risks, uncertainties, expenses and
difficulties. Such risks include:
|
•
|
the absence of an operating
history;
|
3
|
•
|
insufficient
capital;
|
|
•
|
our ability to purchase or lease
necessary equipment when required and at reasonable
prices;
|
|
•
|
our
ability to obtain regulatory and environmental approvals fo our proposed
mines and facilities;
|
|
•
|
expected continual losses for the
foreseeable future;
|
|
•
|
our ability to anticipate and
adapt to a developing
market(s);
|
|
•
|
acceptance by
consumers;
|
|
•
|
limited marketing
experience;
|
|
•
|
a competitive environment
characterized by well-established and well-capitalized
competitors;
|
|
•
|
the ability to identify, attract
and retain qualified personnel;
and
|
|
•
|
reliance on key
personnel.
|
Because
we are subject to these risks, you may have a difficult time evaluating our
business and your investment in our company. We may be unable to successfully
overcome these risks which could harm our business.
Our
business strategy may be unsuccessful and we may be unable to address the risks
we face in a cost-effective manner, if at all. If we are unable to successfully
address these risks our business will be harmed.
Because
of our historic losses from operations since inception, there is substantial
doubt about our ability to continue as a going concern.
In their
report dated February 24, 2010, our independent registered public accounting
firm stated that our financial statements for the year ended December 31, 2009,
were prepared assuming that we would continue as a going concern. Our
ability to continue as a going concern is an issue that was raised while we were
an inactive company operating under prior management as a result of recurring
losses from operations and then-current liabilities in excess of current
assets. However, our ability to continue as a going concern while
operating under our current management and with our existing business plan is
subject to our ability to generate a profit and/or to obtain necessary funding
from outside sources, including obtaining funding from the sale of our
securities, initiating sales or obtaining loans and grants from various
financial institutions where possible. Our recent adoption of a new business
plan under which we are effectively a start-up business operating under a new
management team increases the difficulty in meeting these goals. If
we are unsuccessful in doing so, our new business will fail and you will lose
your investment in our company.
We
intend to undertake acquisitions, investments, joint ventures or other strategic
alliances, which could have a material adverse effect on our ability to manage
our business. In addition, such undertakings may not be successful.
Our
strategy includes plans to grow both organically and through acquisitions,
participation in joint ventures or other strategic alliances. We
intend to implement a business plan which anticipates developing our existing or
future mining properties and processing coal from our mining concessions in
plants constructed and operated by us, all through joint ventures or strategic
alliances with other parties or through additional outside
funding. Joint ventures and strategic alliances may expose us to new
operational, regulatory and market risks, as well as risks associated with
additional capital requirements. We may not be able, however, to identify
suitable future acquisition candidates or alliance partners. Even if
we identify suitable candidates or partners, we may be unable to complete an
acquisition or alliance on terms commercially acceptable to us. If we fail to
identify appropriate candidates or partners, or complete desired acquisitions,
we may not be able to implement our strategies effectively or
efficiently.
4
In
addition, our ability to successfully integrate acquired companies and their
operations may be adversely affected by a number of factors. These factors
include:
|
•
|
diversion of management’s
attention;
|
|
•
|
difficulties in retaining
customers of the acquired
companies;
|
|
•
|
difficulties in retaining
personnel of the acquired
companies;
|
|
•
|
entry into unfamiliar
markets;
|
|
•
|
unanticipated problems or legal
liabilities; and
|
|
•
|
tax and accounting
issues.
|
If we
fail to integrate acquired companies efficiently, our earnings, revenues growth
and business could be negatively affected.
If
we are unable to secure suitable joint venture or strategic alliances to
commence our principal mining operations or contract and operate our proposed
facilities, we may seek additional outside debt or equity financing, which could
result in significant dilution to the percentage ownership held by existing
shareholders.
We
anticipate that the cost to commence mining operations on our existing or future
mining properties would be significant and we have no current source for this
funding. Additional offerings using our equity securities or debt
instruments convertible into our common stock could require the issuance of a
substantial number of additional shares of common stock. These
potential offerings and the issuance of additional shares of common stock would
have the effect of diluting the percentage ownership of the company held by
existing shareholders or purchasers of the Series A preferred shares in this
offering.
If
other professional duties of our current management team interfere or conflict
with their duties for our company, our business, results of operations and
financial condition could be materially and adversely affected.
Edward
Mooney, our president and chief executive officer, and Daniel F. Carlson, our
chief financial officer, currently serve as the president and the chief
financial officer, respectively, of LIFE, a company that is currently our
largest stockholder and that is, itself, engaged in the business of identifying
and developing opportunities globally for clean energy, including clean coal
technologies, such as coal gasification. The duties of Messrs. Mooney
and Carlson as executive officers of LIFE may require the devotion of a
substantial amount of their professional time and attention. Similarly, our
success and the execution of our growth strategy will require their significant
efforts and the devotion of a substantial amount of their professional time and
attention. If the performance of their duties on behalf of LIFE
interferes or conflicts with their duties as executive officers of our company,
we may not be able to achieve our anticipated growth and our business, results
of operations and financial condition could be materially adversely
affected.
Currency fluctuations may negatively affect costs we incur outside of the United States.
Currency
fluctuations may affect our costs as a significant portion of our expenses are
incurred in Colombian pesos. The exchange rate in 2009 ranged from an average
monthly low of 1,909 Colombian pesos per U.S. dollar to a high of 2,520 pesos
per dollar and in 2010 the exchange rates ranged from an average monthly
low of 1,804 Colombian pesos per U.S. dollar to a high of 1,986 pesos per
dollar. These fluctuations have meant that our in-country operational
and exploration expenses in U.S. dollar terms have been difficult to predict in
any specific reporting period. In addition, any significant decline
in the exchange rate could have a material negative impact on our operating
funds.
5
Future
acquisitions are expected to be a part of our growth strategy, and could expose
us to significant business risks.
One of
our strategies is to grow our business through acquisitions of coal mining
concessions and other assets. However, we cannot assure you that we
will be able to identify and secure suitable acquisition
opportunities. Our ability to consummate and integrate effectively
any future acquisitions on terms that are favorable to us may be limited by the
number of attractive acquisition targets, internal demands on our resources and,
to the extent necessary, our ability to obtain financing on satisfactory terms
for larger acquisitions, if at all. Moreover, if an acquisition
target is identified, the third parties with whom we seek to cooperate may not
select us as a potential partner or we may not be able to enter into
arrangements on commercially reasonable terms or at all. The
negotiation and completion of potential acquisitions, whether or not ultimately
consummated, could also require significant diversion of management’s time and
resources and cause potential disruption of our existing
business. Furthermore, we cannot assure you that the expected
synergies from future acquisitions will actually materialize. In
addition, future acquisitions could result in the incurrence of additional
indebtedness, costs, and contingent liabilities. Future acquisitions may also
expose us to potential risks, including risks associated with:
|
•
|
the integration of new
operations, services and
personnel;
|
|
•
|
unforeseen or hidden
liabilities;
|
|
•
|
the diversion of financial or
other resources from our existing
businesses;
|
|
•
|
our inability to generate
sufficient revenue to recover costs and expenses of the acquisitions;
and
|
|
•
|
potential loss of, or harm to,
relationships with employees or
customers.
|
Any of
the above could significantly disrupt our ability to manage our business and
materially and adversely affect our business, financial condition and results of
operations.
If
we are unable to hire and retain key personnel, we may not be able to implement
our plan of operation and our business may fail.
With the
exception of both our chief operating officer and the president of our Colombian
subsidiary, our existing executive management team is affiliated with LIFE, our
largest and controlling stockholder, and is performing services for us only on
an interim basis as we develop our new business operations, raise capital,
acquire our initial assets and recruit a new management team. Our
success will be largely dependent on our ability to hire and retain additional
highly-qualified personnel. These individuals may be in high demand and we may
not be able to attract the management staff we need. In addition, we
may not be able to afford the high salaries and fees demanded by qualified
personnel, or we may fail to retain such employees after they are hired. Our
failure to hire key personnel when needed will have a significant negative
effect on our business.
Our
principal stockholder owns a controlling interest in our voting stock and
investors will not have any voice in our management.
Our
principal stockholder, LIFE, for which Mr. Mooney, our president and chief
executive officer, serves as managing member, beneficially owns and controls the
votes of approximately 70% of our outstanding common stock and after this
offering, assuming the conversion of all of the outstanding promissory notes and
preferred shares, will beneficially own approximately 41% of the outstanding
shares. As a result, this stockholder has the ability to control
substantially all matters submitted to our stockholders for approval,
including:
|
•
|
election of our board of
directors;
|
|
•
|
removal of any of our
directors;
|
6
|
•
|
amendment of our certificate of
incorporation or bylaws; and
|
|
•
|
adoption of measures that could
delay or prevent a change in control or impede a merger, takeover or other
business combination involving
us.
|
In
addition, sales of significant amounts of shares held by our principal
stockholder, or the prospect of these sales, including shares being offered in
this prospectus, could adversely affect the market price of our common stock.
Such stock ownership may discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of us, which in turn could
reduce our stock price or prevent our stockholders from realizing a premium over
our stock price.
Risks
Associated With Our Proposed Coal Mining Operations
All
of the mining concessions we currently hold or properties we currently are
considering for purchase are in the exploration stage. There are no
proven or probable reverses on these properties. Until we can
establish the existence of any coal on any of the properties we acquire in
commercially exploitable quantities, we cannot earn any revenues from operations
and if we do not do so, we will lose all of the funds that we expend on
exploration. If we do not discover any coal in a commercially
exploitable quantity, our business could fail.
Despite
preliminary exploration work on our coal mining properties, we have not
established that any of them contain any proven or probable reserves of
coal. A mineral reserve is that part of a mineral deposit which
could be economically and legally extracted or produced at the time of the
reserve determination which is normally obtainable only upon completion of a
final feasibility study. Even if we do eventually establish proven or
probable coal reserves on one or more of our concessions, there can be no
assurance that we will be able to develop our properties into producing mines
and extract those resources. Both coal exploration and development
involve a high degree of risk and few properties which are explored are
ultimately developed into producing mines. The commercial viability
of an established coal deposit will depend on a number of factors including, by
way of example, the size, grade and other attributes of the coal deposit, the
proximity of the coal deposit to infrastructure, such as roads and a point for
shipping, government regulation and market prices. Most of these
factors will be beyond our control, and any of them could increase costs and
make extraction of any identified coal unprofitable.
7
Coal
mining operations are subject to applicable law and government
regulation. Even if we discover coal in a commercially exploitable
quantity, these laws and regulations could restrict or prohibit the exploitation
of that coal. If we cannot exploit any coal that we might discover on
our properties, our business may fail.
Both coal
exploration and extraction in the Republic of Colombia require permits from
various foreign, federal, state, provincial and local governmental authorities
and are governed by laws and regulations, including those with respect to
prospecting, mine development, mineral production, transport, export, taxation,
labor standards, occupational health, waste disposal, toxic substances, land
use, environmental protection, mine safety and other matters. There
can be no assurance that we will be able to obtain or maintain any of the
permits required by Ingeominas, the national mining authority in the Republic of
Colombia, for the continued exploration of our coal mining properties or for the
construction and operation of a mine on our properties at economically viable
costs. If we cannot accomplish these objectives, our business could
fail.
Once we
come into compliance with all material laws and regulations that currently apply
to our proposed business activities, if we are unable to continue to remain in
compliance, our business could fail. Current laws and regulations
could be amended and we might not be able to comply with them, as
amended. Further, there can be no assurance that we will be able to
obtain or maintain all permits necessary for our future operations, or that we
will be able to obtain them on reasonable terms. To the extent such
approvals are required and are not obtained, we may be delayed or prohibited
from proceeding with planned exploration or development of our coal mining
properties.
Our
mining production and delivery operations are subject to conditions and events
that are beyond our control, which could result in higher operating costs and
decreased production levels.
Our
mining operations are planned to be conducted in underground mines and surface
mines. The level of our production is subject to operating conditions
or events beyond our control that could disrupt operations, decrease production
and affect the cost of mining at particular mines for varying lengths of
time. Adverse operating conditions and events that coal producers
have experienced in the past include:
|
·
|
unfavorable geologic conditions,
such as the thickness of the coal deposits and the amount of rock embedded
in or overlying the coal
deposit;
|
|
·
|
poor mining conditions resulting
from geological conditions or the effects of prior
mining;
|
|
·
|
inability to acquire or maintain
necessary permits or mining or surface
rights;
|
|
·
|
changes in governmental
regulation of the mining industry or the electric utility
industry;
|
|
·
|
market
conditions could change and mean the sale of the type of coal being
produced from our concessions is no longer saleable at an economic
price;
|
|
·
|
coal
seam quality decreases so we cannot meet market
requirements;
|
|
·
|
adverse weather conditions and
natural disasters;
|
|
·
|
accidental mine water
flooding;
|
|
·
|
labor-related
interruptions;
|
|
·
|
interruptions due to
transportation delays;
|
8
|
·
|
mining and processing equipment
unavailability and failures and unexpected maintenance
problems;
|
|
·
|
accidents, including fire and
explosions from methane and other
sources;
|
|
·
|
surface subsidence from
underground mining, which could result in collapsed roofs at our
underground mines, among other
difficulties;
|
|
·
|
interruptions due to
transportation delays;
|
|
·
|
unexpected delays and
difficulties in acquiring, maintaining or renewing necessary permits or
mining or surface rights;
|
|
·
|
unavailability of mining
equipment and supplies and increases in the price of mining equipment and
supplies;
|
|
·
|
unexpected maintenance problems
or key equipment failures;
and
|
|
·
|
increased or unexpected
reclamation costs.
|
If any of
these or similar conditions or events occur in the future at any of the mines we
plan to develop or affect deliveries of our coal to customers, they may increase
our costs of mining and delay or halt production at particular mines or sales to
our customers, either permanently or for varying lengths of time, which could
adversely affect our results of operations, cash flows and financial
condition. Our current insurance coverage would cover some but not
all of these risks.
Inaccuracies
in our estimates of coal deposits could result in lower than expected revenues
and higher than expected costs.
We will
base our coal deposit information on engineering, economic and geological data
assembled and analyzed by our in house and contract workers, which will include
various engineers and geologists. The estimates of coal deposits as
to both quantity and quality will be continually updated to reflect the
production of coal from the deposits and new drilling or other data
received. There are numerous uncertainties inherent in estimating
quantities and qualities of coal deposits and costs to process these deposits,
including many factors beyond our control. Estimates of economically
recoverable coal reserves and net cash flows necessarily depend upon a number of
variable factors and assumptions, all of which may vary considerably from actual
results, such as:
|
·
|
geological and mining conditions
and/or effects from prior mining activities that may not be fully
identified by available exploration data or that may differ from
experience, in current
operations;
|
|
·
|
the assumed effects of
regulation, including the issuance of required permits, and taxes by
governmental agencies and assumptions concerning coal prices, operating
costs, mining technology improvements, severance and excise tax,
development costs and reclamation
costs;
|
|
·
|
historical production from the
area compared with production from other similar producing areas;
and
|
|
·
|
assumptions concerning future
coal prices, operating costs, capital expenditures, severance taxes and
development and reclamation
costs.
|
For these
reasons, estimates of the economically recoverable quantities and qualities
attributable to any particular group of properties, classifications of coal
reserves and non-reserve coal deposits based on risk of recovery and estimates
of net cash flows expected from particular reserves prepared by different
engineers or by the same engineers at different times may vary substantially and
vary materially from estimates. As a result, these estimates may not
accurately reflect actual coal reserves or non-reserve coal
deposits. Any inaccuracy in our estimates related to our coal
deposits could result in lower than expected revenues, higher than expected
costs and decreased profitability.
9
A
substantial or extended decline in coal prices could reduce our revenues and the
value of our coal resources.
Our
results of future operations will be dependent upon the prices we receive for
our coal as well as our ability to improve productivity and control
costs. Declines in the prices received for our coal could adversely
affect our results of operations. The prices charged for coal depend
upon factors beyond our control, including:
|
·
|
the supply of, and demand for,
domestic and foreign coal;
|
|
·
|
the price elasticity of
supply;
|
|
·
|
the demand for
electricity;
|
|
·
|
the proximity to and the capacity
and cost of transportation
facilities;
|
|
·
|
governmental regulations and
taxes;
|
|
·
|
air emission standards for
coal-fired power plants;
|
|
·
|
regulatory, administrative and
judicial decisions, including legislation to allow retail price
competition in the electric utility
industry;
|
|
·
|
the price and availability of
alternative fuels, including the effects of technological developments;
and
|
|
·
|
the effect of worldwide energy
conservation measures.
|
Decreased
demand for coal could result in declines in coal prices and require us to
increase productivity and lower costs in order to maintain our
margins. If we are not able to maintain our margins, our operating
results could be adversely affected. Therefore, price declines may
adversely affect our operating results for future periods and our ability to
generate cash flows necessary to improve productivity and invest in
operations.
The
coal industry is highly competitive and there is no assurance that we will
continue to be successful in acquiring coal concessions. If we cannot
continue to acquire properties to explore for coal, we may be required to reduce
or cease operations.
The coal
exploration, development and production industry is generally not integrated. We
compete with other exploration companies looking for coal properties. While we
compete with other exploration companies in the effort to locate and acquire
coal properties, we will not compete with them for the removal or
sales of coal and coal by-products from our properties if we should eventually
discover the presence of them in quantities sufficient to make production
economically feasible. We do not have any definitive agreements or
arrangements for any coal which may eventually be produced from our existing
properties.
In
identifying and acquiring coal properties in Colombia or elsewhere,
we compete with many companies possessing greater financial resources and
technical facilities. This competition could adversely affect our
ability to acquire suitable prospects for exploration in the
future. Accordingly, there can be no assurance that we will acquire
any interest in additional coal properties that might yield reserves
or result in commercial mining operations.
A
decrease in the availability or increase in costs of labor, key supplies,
capital equipment or commodities could decrease our profitability.
We will
require access to contract miners at commercially acceptable
rates. We currently have no contracts or arrangements for necessary
mining personnel. Our proposed mining operations will also require a
reliable supply of steel-related products (including roof control for our
underground mines), replacement parts, belting products and lubricants, none of
which have been secured by definitive agreements or contracts. If the
cost of any of these or other supplies increases significantly, or if a source
for such mining equipment or supplies are unavailable to meet our replacement
demands, our profitability could be adversely affected. In addition,
industry-wide demand growth has recently exceeded supply growth for certain
underground surface and other capital equipment. As a result, lead
times for some items have increased significantly. Significant delays
in obtaining required parts and equipment could cause our profitability to be
reduced from our current expectations.
10
Risks
Associated with Our Common Stock
Trading
on the OTC Bulletin Board may be volatile and sporadic, which could depress the
market price of our common stock and make it difficult for our stockholders to
resell their shares.
The
over-the-counter market for securities has historically experienced extreme
price and volume fluctuations during certain periods. These broad
market fluctuations and other factors, such as our ability to implement our
business plan, as well as economic conditions and quarterly variations in our
results of operations, may adversely affect the market price of our common
stock. In addition, the spreads on stock traded through the
over-the-counter market are generally unregulated and higher than on national or
foreign stock exchanges, which means that the difference between the price at
which shares could be purchased by investors on the over-the-counter market
compared to the price at which they could be subsequently sold would be greater
than on these exchanges. Significant spreads between the bid and
asked prices of the stock could continue during any period in which a sufficient
volume of trading is unavailable or if the stock is quoted by an insignificant
number of market makers. In the past our trading volume has been
relatively light and we cannot insure that our trading volume will be sufficient
to significantly reduce this spread, or that we will have sufficient market
makers to affect this spread. These higher spreads could adversely
affect investors who purchase the shares at the higher price at which the shares
are sold, but subsequently sell the shares at the lower bid prices quoted by the
brokers. Unless the bid price for the stock increases and exceeds the
price paid for the shares by the investor, plus brokerage commissions or
charges, the investor could lose money on the sale. For higher
spreads such as those on over-the-counter stocks, this is likely a much greater
percentage of the price of the stock than for exchange listed
stocks. At the time the investor wishes to sell the shares, the bid
price may not have sufficiently increased to create a profit on the sale, in
which event the investor would either have to hold his shares or sell them at a
loss.
Our
common stock is a penny stock. Trading of our common stock may be restricted by
the SEC’s penny stock regulations and FINRA’s sales practice requirements, which
may limit a stockholder’s ability to buy and sell our stock.
Our
common stock is a penny stock. The Securities and Exchange Commission
has adopted Rule 15g-9, which generally defines a “penny stock” to be any equity
security that has a market price (as defined) less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules,
which impose additional sales practice requirements on broker-dealers who sell
to persons other than established customers and “accredited
investors”. The term “accredited investor” refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse.
The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the Securities and Exchange Commission which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer
with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer’s confirmation. In addition, the
penny stock rules require that prior to a transaction in a penny stock not
otherwise exempt from these rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser’s written agreement to the
transaction. These disclosure requirements may have the effect of
reducing the level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny
stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor
interest in, and limit the marketability of, our common stock.
11
In
addition to the “penny stock” rules promulgated by the Securities and Exchange
Commission, FINRA has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer’s financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA
believes there is a high probability that speculative low-priced securities will
not be suitable for at least some customers. FINRA’s requirements
make it more difficult for broker-dealers to recommend that their customers buy
our common stock, which may limit your ability to buy and sell our
stock.
Our
common stock price may be volatile, which could adversely affect our planned
business and cause our stockholders to suffer significant losses
The
volatility of our stock price depends upon many factors including:
|
•
|
decreases in prices for
coal;
|
|
•
|
variations in our operating
results and failure to meet expectations of investors and
analysts;
|
|
•
|
increases in interest
rates;
|
|
•
|
illiquidity of the market for our
common stock;
|
|
•
|
developments specifically
affecting the economies in South
America;
|
|
•
|
the level of indebtedness we
incur; and
|
|
•
|
other developments affecting us
or the financial markets.
|
A reduced
common stock price will result in a loss to investors and will adversely affect
our ability to issue our common stock to fund our activities.
We
do not expect to pay dividends on our common stock and therefore investors will
be able to receive cash in respect of the shares of common stock only upon the
sale of the shares.
We have
no intention in the foreseeable future to pay any cash dividends on our common
stock. Therefore, an investor in our common stock will obtain an
economic benefit from the common stock only after an increase in its trading
price and only by selling the common stock. We do not anticipate any
market developing for our preferred stock and thus a purchaser of the preferred
shares will obtain economic benefit from the preferred shares through conversion
of the shares into common stock.
Our board of directors can, without
stockholder approval, cause preferred stock to be issued on terms that adversely
affect common stockholders.
Under our
articles of incorporation, our board of directors is authorized to issue up to
5,000,000 shares of preferred stock, only 3,000,000 of which are being offered
for sale in this prospects, and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by our stockholders, except as limited by the rights
under our Series A Preferred Stock. If the board causes any
additional preferred stock to be issued, the rights of the holders of our common
stock could be adversely affected. The board’s ability to determine
the terms of preferred stock and to cause its issuance, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting
stock. Additional preferred shares issued by the board of directors
could include voting rights, or even super voting rights, which could shift the
ability to control the company to the holders of the preferred
stock. These preferred shares could also have conversion rights into
shares of common stock at a discount to the market price of the common stock
which could negatively affect the market for our common stock. In
addition, preferred shares could have preference in the event of liquidation of
the corporation, which means that the holders of preferred shares would be
entitled to receive the net assets of the corporation distributed in liquidation
before the common stock holders receive any distribution of the liquidated
assets.
12
Rule
144 will not be available for the outstanding shares acquired after 2005 for a
period of at least one year after we ceased to be a non-operating company, which
means that these shareholders may not be able to sell their shares in the open
market during this period.
Rule 144,
as recently amended, does not permit reliance upon this rule for the resale of
shares sold after the issuer first became a shell company, until the issuer
meets certain requirements, including cessation as a shell company, the filing
of Form 10-type information, and the filing for a period of one year periodic
reports required under the Exchange Act. We believe all of the issued
and outstanding shares of the selling stockholders in this prospectus were
acquired after 2005, which means that these persons would not be able to sell
their shares during this waiting period except pursuant to this
prospectus. If for any reason we withdraw this registration statement
or fail to file our periodic reports, these persons may not be able to publicly
resell their shares.
Risks
Associated with Doing Business in South America
The
government of the Republic of Colombia has placed a moratorium on the granting
of new mining concessions which may hinder our ability to acquire additional
mining properties.
Because
of recent mining explosions resulting in the deaths of miners in the Republic of
Colombia, the federal government of the Republic of Colombia has ceased granting
new mining concessions while the government evaluates the current mining laws,
particularly those involving mine safety. This six-month moratorium
commenced February 1, 2011, will prohibit any new applications made for
concessions after that date until the moratorium is lifted at the end of the
six-month period. We are unable to determine the specific changes in
existing mining law which may occur, but we anticipate that a national mining
agency will be created and that more stringent safety rules may be enacted which
could increase the level of review and monitoring of coal mining activities by
the government and could result in increased costs of conducting mining
operations in this country.
Adverse
economic and political conditions in the Republic of Colombia affect our
financial condition and results of operations.
Most of
our operations and property will be located in Colombia and accordingly our
business is subject to a variety of economic, political, market and credit
risks. The quality of our assets, financial condition and results of
operations significantly depend on macroeconomic and political conditions
prevailing in Colombia and the other jurisdictions in which we
operate. Colombia is subject to political, economic and other
uncertainties, including renegotiation, or nullification of existing contracts,
currency exchange restrictions, and international monetary
fluctuations. Furthermore, changes in monetary, exchange, and trade
policies could affect the overall business environment in Colombia, which would
in turn impact our financial condition and results of operations.
Furthermore,
decreases in the growth rate in the economies where we operate, particularly in
Colombia, periods of negative growth, or increases in inflation or interest
rates could result in lower demand for our services and products, lower real
pricing of our services and products, or in a shift toward lower margin services
and products. Because a large percentage of our costs and expenses
are fixed, we may not be able to reduce costs and expenses upon the occurrence
of any of these events, and our profit margins and results of operations could
suffer as a result.
13
The
economies of the countries where we operate remain vulnerable to external shocks
that could be caused by significant economic difficulties experienced by their
major regional trading partners or by more general “contagion” effects, which
could have a material adverse effect on their economic growth and their ability
to service their public debt.
Emerging-market
investment generally poses a greater degree of risk than investment in more
mature market economies because the economies in the developing world are more
susceptible to destabilization resulting from domestic and international
developments.
In the
case of Colombia, a significant decline in the economic growth of any of its
major trading partners, such as the United States, Venezuela and Ecuador, could
have a material adverse impact on Colombia’s balance of trade, and adversely
affect Colombia’s economic growth. In addition, a “contagion” effect,
in which an entire region or class of investment is disfavored by international
investors, could negatively affect Colombia or other economies where we
operate.
The
current global economic downturn, which began in the U.S financial sector and
then spread to different economic sectors and countries around the world, has
had, and is expected to continue to have, adverse effects on the economies of
the countries where we operate.
Government
policies in the jurisdictions where we operate could significantly affect the
local economy and, as a result, our business and financial
condition.
Our
business and financial condition could be adversely affected by changes in
policy, or future judicial interpretations of such policies, involving exchange
controls and other matters such as currency depreciation, inflation, interest
rates, taxation, laws and regulations and other political or economic
developments in or affecting Colombia or the other jurisdictions where we
operate.
In
particular, the government of Colombia has historically exercised substantial
influence over its economy, and its policies are likely to continue to have an
important effect on market conditions and prices and rates of return on
securities of local issuers (including our securities).
Future
developments in government policies could impair our business or financial
condition or the market value of our securities.
Any
additional taxes resulting from changes to tax regulations or the interpretation
thereof in Colombia or other countries where we operate, could adversely affect
our consolidated results.
Uncertainty
relating to tax legislation poses a constant risk to us. Colombian
national authorities have levied new taxes in recent years. Changes
in legislation, regulation and jurisprudence can affect tax burdens by
increasing tax rates and fees, creating new taxes, limiting stated expenses and
deductions, and eliminating incentives and non-taxed income.
Additional
tax regulations could be implemented that could require us to make additional
tax payments, negatively affecting our financial condition, results of
operation, and cash flow. In addition, either national or local taxing
authorities may not interpret tax regulations in the same way that we do.
Differing interpretations could result in future tax litigation and associated
costs.
If
we encounter local criminal or political violence in the region in which we
operate, we may be unable to attract and retain foreign personnel to work at our
mining locations.
Criminal
violence, kidnappings, and political unrest in may Central and South American
countries have made it more difficult to engage foreign professionals to work in
these areas. These conditions may also affect our ability to secure
and retain local professionals. We have not developed a policy to
protect our foreign or local employees from potential threats of violence or
kidnapping and have not retained any insurance to protect us against such
actions. Any criminal violence, kidnappings or political unrest in
the region in which our mining concessions are located, could have a material
negative impact on our ability to complete our planned business
operations.
14
FORWARD-LOOKING
STATEMENTS
The
statements contained in this prospectus that are not historical facts,
including, but not limited to, statements found in the section entitled “Risk
Factors,” are forward-looking statements that represent management’s beliefs and
assumptions based on currently available information. Forward-looking
statements include the information concerning our possible or assumed future
results of operations, business strategies, need for financing, competitive
position, potential growth opportunities, potential operating performance
improvements, ability to retain and recruit personnel, the effects of
competition and the effects of future legislation or
regulations. Forward-looking statements include all statements that
are not historical facts and can be identified by the use of forward-looking
terminology such as the words “believes,” “intends,” “may,” “should,”
“anticipates,” “expects,” “could,” “plans,” or comparable terminology or by
discussions of strategy or trends. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, we
cannot give any assurances that these expectations will prove to be
correct. Such statements by their nature involve risks and
uncertainties that could significantly affect expected results, and actual
future results could differ materially from those described in such
forward-looking statements.
Among the
factors that could cause actual future results to differ materially are the
risks and uncertainties discussed in this prospectus. While it is not
possible to identify all factors, we continue to face many risks and
uncertainties including, but not limited to, the cyclicality of the coal
industry, global economic and political conditions, global productive capacity,
customer inventory levels, changes in commodity pricing, changes in product
costing, changes in foreign currency exchange rates, competitive technology
positions and operating interruptions (including, but not limited to, labor
disputes, leaks, fires, explosions, unscheduled downtime, transportation
interruptions, war and terrorist activities). Mining operations are
subject to a variety of existing laws and regulations relating to exploration
and development, permitting procedures, safety precautions, property
reclamation, employee health and safety, air and water quality standards,
pollution and other environmental protection controls, all of which are subject
to change and are becoming more stringent and costly to comply
with. Should one or more of these risks materialize (or the
consequences of such a development worsen), or should the underlying assumptions
prove incorrect, actual results could differ materially from those
expected. We disclaim any intention or obligation to update publicly
or revise such statements whether as a result of new information, future events
or otherwise.
The risk
factors discussed in “Risk Factors” on page 3 of this prospectus could cause our
results to differ materially from those expressed in forward-looking
statements. There may also be other risks and uncertainties that we
are unable to predict at this time or that we do not now expect to have a
material adverse impact on our business.
USE
OF PROCEEDS
The net
maximum proceeds to us from the sale of the Series A preferred shares offered
hereby are estimated to be approximately $21,050,000, after payment of selling
commissions, general costs of the offering, including, but not limited to,
filing fees, legal and accounting fees, and other direct costs of the
offering. Pending use of the net proceeds, we intend to invest the
funds in interest-bearing accounts with one or more financial
institutions.
The use
of the net proceeds of this offering is based upon our cost estimates and
current business plans, in particular the cost to complete and implement the
mining plans based upon results of the current drilling program and the costs
associated with the construction of the coke plant, which is in the feasibility
stage. If actual costs exceed these estimates or unanticipated events
require a change in our plans, we may find it necessary or advisable to
reallocate some of the proceeds.
Although
no funds are allocated to the acquisition of additional mining claims, if we
locate such claims in the future, we may divert an undeterminable portion of the
funds allocated for expansion of the existing drilling program or construction
of the coke coal plant for these acquisitions. We currently have no
additional mining claims designated for acquisition.
15
The
following table sets forth the anticipated use of the total proceeds of this
offering and the applicable percentage of each use. In the event we
raise less than the maximum proceeds in this offering, we intend to allocate the
proceeds from the offering as determined by the Board of Directors at the time
the funds become available to us.
Uses of the Proceeds
|
Offering
Proceeds
|
Percentage
|
||||||
Selling
Commissions
|
$ | 1,350,000 | 6.0 | % | ||||
Offering
Costs
|
100,000 | 0.4 | % | |||||
Expansion
of Drilling Program
|
2,000,000 | 8.9 | % | |||||
Construction
of Coke Coal Plant
|
19,000,000 | 84.5 | % | |||||
Working
Capital
|
50,000 | 0.2 | % | |||||
Total
|
$ | 22,500,000 | 100 | % |
We
anticipate that the cost of constructing the coke coal plant will be
approximately $19,000,000. If we raise less than the maximum proceeds
in this offering, we plan to seek debt financing from private parties for the
balance of the funds required to complete the plant. In addition, if
through our negotiations for construction of the facility we receive overtures
for debt financing on favorable terms, we may allocate a portion of these funds
for other aspects of our business plan. We have no current agreements
or arrangements for this additional financing.
We will
not receive any proceeds from the sale of the common stock by the selling
stockholders.
DILUTION
If you
purchase the Series A preferred shares from us, your interest in the common
shares issuable upon conversion of these preferred shares will be diluted to the
extent of the difference between the amount of the offering price allocated to
the common shares and the adjusted net tangible book value per share of our
common stock after this offering. Our net tangible book value as of
September 30, 2010 was ($517,778), or ($0.03) per share of common stock (based
upon 20,280,001 common shares outstanding at September 30, 2010). We
calculate net tangible book value per share by determining the difference
between the total assets less goodwill and other intangible assets and total
liabilities, and dividing the result by the number of shares of common stock
outstanding at the time.
Net
tangible book value dilution per share represents the difference between the
amount per share paid by new investors who purchase the Series A preferred
shares in this offering (each of which shares is convertible into three common
shares) and the pro forma net tangible book value per share of common stock
immediately after completion of this offering as of September 30, 2010, after
giving effect to the sale of all of the Series A preferred shares in this
offering, less the costs of the offering, but not giving effect to the
conversion of any other outstanding convertible instruments.
Adjusted
|
||||
Public
offering price per share
|
$ | 2.50 | ||
Net
tangible book value as of September 30, 2010
|
$ | (0.03 | ) | |
Increase
attributable to this offering
|
$ | 0.73 | ||
Adjusted
net tangible book value per share after this offering
|
$ | 0.70 | ||
Dilution
in net tangible book value per share to new investors
|
$ | 1.80 |
MARKET
FOR OUR COMMON STOCK
Market
Information
Our
common stock is quoted on the OTC Bulletin Board under the symbol
“CCPF.” The table below sets forth for the periods indicated the
range of the high and low bid information as reported on the
Internet. These quotations reflect inter-dealer prices, without
retail mark-up, mark-down, or commission and may not necessarily represent
actual transactions.
Quarter
|
High
|
Low
|
||||||||||
FISCAL
YEAR ENDED DECEMBER 31, 2009
|
First
|
$ | 0.05 | $ | 0.05 | |||||||
Second
|
$ | 0.05 | $ | 0.05 | ||||||||
Third
|
$ | 0.05 | $ | 0.05 | ||||||||
Fourth
|
$ | 0.05 | $ | 0.05 | ||||||||
FISCAL
YEAR ENDED DECEMBER 31, 2010
|
First
|
$ | 0.125 | $ | 0.125 | |||||||
Second
|
$ | 0.125 | $ | 0.125 | ||||||||
Third
|
$ | 2.00 | $ | 0.125 | ||||||||
Fourth
|
$ | 1.733 | $ | 1.20 |
16
At
February 1, 2011, we had outstanding the following options or warrants to
purchase, and securities convertible into, our common shares:
|
·
|
2,870,000
warrants exercisable at $0.01 per share which expire on June 30,
2015;
|
|
·
|
340,640
warrants exercisable at $2.50 per share which expire on June 30,
2015;
|
|
·
|
100,000
warrants exercisable at $2.50 per share which expire on February 1,
2016;
|
|
·
|
10%
Secured Promissory Notes due June 30, 2012, which are convertible into
3,200,000 common shares, all of which are included in this
prospectus;
|
|
·
|
580,000
options exercisable at $0.05 which expire on May 27,
2015;
|
|
·
|
425,000
options exercisable at $1.50 per share, which expire on November 10, 2015;
and
|
|
·
|
858,334
options exercisable at prices ranging from $2.50 to $5.00, which expire on
December 28, 2015.
|
Holders
At
February 1, 2011, we had approximately 66 record holders of our common
stock. The number of record holders was determined from the records
of our transfer agent and does not include beneficial owners of common stock
whose shares are held in the names of various security brokers, dealers, and
registered clearing agencies. We have appointed Interwest Transfer
Company, Inc., 1981 East 4800 South, Suite 100, Salt Lake City, UT 84117, to act
as the transfer agent of our common stock and our Series A Preferred
Stock. We will act as transfer agent for the outstanding 10%
Convertible Promissory Notes and warrants.
Dividends
We have
never declared or paid any cash dividends on our common stock. We do
not anticipate paying any cash dividends to stockholders in the foreseeable
future. In addition, any future determination to pay cash dividends
will be at the discretion of the Board of Directors and will be dependent upon
our financial condition, results of operations, capital requirements, and such
other factors as the Board of Directors deem relevant
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table sets forth as of the most recent fiscal year ended December 31,
2010, certain information with respect to compensation plans (including
individual compensation arrangements) under which our common stock is authorized
for issuance:
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(a)
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a) and
(b))
(c)
|
||||||||||
Equity
compensation plans approved by security holders
|
1,863,334 | $ | 2.07 | 1,366,666 | ||||||||
Equity
compensation plans not approved by security holders
|
0 | 0 | 0 | |||||||||
Total
|
1,863,334 | 1,366,666 |
17
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
analyzes the major elements of our balance sheets and statements of
income. This section should be read in conjunction with our annual
and interim financial statements and accompanying notes and other detailed
information included in this prospectus.
Overview
We are an
exploration stage company with limited operations. We had no
significant operations prior to the acquisition of a controlling interest of our
company by LIFE Power and Fuels, LLC, a Delaware limited liability company, in
May 2010. Since May 2010, through our wholly owned Colombian
subsidiary, we have been engaged in the business of acquiring and developing
coal mining assets and propose to engage in the mining and sale of coal, coke
and coal by-products using traditional and clean coal technologies, initially in
the Republic of Colombia, South America. We own 99% of Energia Andina
Santander Resources Cooperatieve U.A., a company formed under the laws of the
Netherlands. The other 1% is owned by Colombia CPF LLC, Delaware
limited liability company which is wholly owned by us. Our Dutch
subsidiary owns all of the outstanding shares of Energia Andina Santander
Resources SAS, a Colombian company which owns our assets and operates our
business in Colombia.
In
Colombia, the state owns all hydrocarbon reserves and private companies operate
coal mines under concession contracts with the state. We have secured
three coal mining concessions and have filed applications for 11 additional
concessions in the Santander and Magdalena regions of Colombia. These
regions was selected because of their large metallurgical coal resources, their
location on the Magdalena River with river access for shipping, and their
proximity to Colombia’s main pipeline and several other refined products
pipelines. Colombia is the world’s tenth largest producer and fourth
largest exporter of coal, with an estimated 7 billion metric tons of recoverable
reserves and 17 billion metric tons of potential reserves.
We
anticipate that our primary operations will include the mining of high-grade,
metallurgical coal, coal coking, power generation and alternative energy
production, such as coal gasification and coal-to-liquids.
We were
incorporated under the name Freedom Resources Enterprises, Inc. in the State of
Nevada on November 6, 1996, to engage in the business of self-help publications
and workshops. Between November 1996 and September 2005, the company
generated only minimal revenues, and in October 2005 the Company ceased all
business operations. From October 2005 to early May 2010, the company
did not engage in any business activities. Prior to this period, our
management had been evaluating potential business opportunities that might be
available to us to preserve our shareholders’ investment in our common shares.
On July 28, 2010, we completed a name change to Colombia Clean Power &
Fuels, Inc.
Recent
Material Developments
In May
2010 control of our company changed to LIFE Power and Fuels, LLC and we
recommenced principal business operations. Since that date and during
the period covered by the financial statements included herein, we have
accomplished the following material activities:
|
·
|
On
May 6, 2010, we issued 19,080,000 shares of our common stock to LIFE,
which shares represented approximately 94.1% of our issued and outstanding
shares of common stock at the time of the transaction. The
shares were sold by us for $100,000. We also elected Edward P.
Mooney as our principal executive officer and as a director. Also, Daniel
F. Carlson was appointed our Chief Financial Officer, Secretary and
Treasurer. In connection with this change of control
transaction, we settled all of our outstanding debts using all of the
proceeds from the sale of the shares to LIFE. We also converted
the principal and interest on an outstanding promissory note in the
principal amount of $5,000 held by our president prior to the change of
control into 80,000 shares of our common
stock.
|
18
|
·
|
On
June 10, 2010, LIFE entered into a Stock Purchase Agreement with Daniel
Carlson, Renee Grossman, the Edward Mooney and Theresa Mooney Revocable
Living Trust, and Latin-American Fuels Corporation, pursuant to which LIFE
sold an aggregate of 4,680,000 post reverse split shares of our common
stock to these purchasers for an aggregate purchase price of
$23,076.96 in a privately-negotiated
transaction. Latin-American Fuels, Ms. Grossman, Mr. Carlson
and the Mooney Trust purchased 3,600,000, 600,000, 240,000 and 240,000
post reverse split shares of common stock, respectively, from LIFE in the
transaction.
|
|
·
|
In
May 2010 we commenced a non-public offering of 10% Secured Convertible
Notes due June 30, 2012, and five-year warrants to purchase shares of our
common stock at an exercise price of $0.01 per share. The
promissory notes are convertible at the rate of $2.50 per
share. The notes are secured by our ownership interest of our
wholly owned subsidiaries. At September 30, 2010, we had issued
notes in the aggregate amount of $1,890,000 and issued 756,000
warrants.
|
|
·
|
Since
May 2010 we have commenced implementing our new business strategy and
engaging our new executive management
team.
|
|
·
|
In
June 2010 we changed the name of our company from Freedom Resources
Enterprises, Inc. to our current name, effected a two-for-five reverse
split of our outstanding common shares, and adopted our 2010 Equity
Incentive Plan.
|
|
·
|
In
July 2010 we completed acquisitions of two mining concessions located in
the Santander district of Colombia covering a total of approximately 6,610
acres. The purchase price for these concessions was 400,000,000
COP (approximately $214,593). We also paid 125,266,709 COP
($67,348) in annual fees to the Colombian Ministry of Mines related to
these concessions.. In addition to the purchase price,
the seller is entitled to a royalty of $2.00 for each ton of coal
extracted under the concessions during the term of each
contract.
|
Subsequent
to the period covered by the financial statements included with this prospectus,
we have accomplished the following material activities:
|
·
|
In
October 2010 we acquired a mining concession covering 10,873 acres for an
aggregate purchase price of $1,515,000, of which we have paid $95,000 of
the purchase price and the balance is due as follows: $220,000 payable on
the date the assigned concession rights are registered with the Colombian
National Mining Register and the balance of $1,200,000 in six quarterly
payments of $200,000, beginning three months after the date the rights are
registered with the amount of each quarterly payment reduced by 50% of the
value of any extraction royalties paid to the assignor. The
assignor in this transaction is also entitled to receive royalty payments
of $2.00 for each ton of coal extracted under the mining concession during
the term of the concession. We also paid 215,377,844 COP
(approximately $115,299) in annual fees to the Colombian Ministry of Mines
for this concession.,
|
|
·
|
In
December 2010 we completed our non-public offering of 10% Secured
Convertible Notes and warrants. Since September 30, 2010, and
through December 31, 2010, we issued additional notes in the aggregate
amount of $6,110,000 and issued 2,444,000 additional
warrants
|
Results
of Operations for the Three- and Nine-Month Periods Ended September 30,
2010
Three-Month Period Ended
September 30, 2010 and 2009
Our
revenues since inception total $3,560 and we have a cumulative net loss of
$1,069,260 from inception through September 30, 2010. We did not have any
revenues for the three months ended September 30, 2010 or 2009. For
the three months ended September 30, 2010, our net loss was $718,825 compared to
$4,457 for the same period in 2009. The increase in our net loss was due to
increased expenses, primarily outside professional services for mine
engineering, legal, and accounting services, related to our recommencing
operations during the second quarter of 2010. Expenses during the
three months ended September 30, 2010, consisted of $ 698,978 in general and
administrative expense and $19,848 in interest expense. Expenses
during the same period in 2009 consisted of $2,391 in interest expense and
$2,066 in general and administrative expenses. Loss per share in the
three months ended September 30, 2010 was ($0.04) compared to a loss of ($0.00)
in the three months ended September 30, 2009, based on weighted averages of
20,280,001 and 1,120,000 shares outstanding during the respective
periods.
19
Nine-Month Period Ended
September 30, 2010 and 2009
We did
not have any revenues for the nine months ended September 30, 2010 or 2009. For
the nine months ended September 30, 2010, our net loss was $843,653 compared to
$19,665 for the same period in 2009. The increase in our net loss was due to
increased expenses, primarily outside professional services in mine engineering,
legal, and accounting (including options issued to outside professionals as part
of their compensation), related to our recommencing operations during the second
quarter of 2010. Expenses during the nine months ended September 30,
2010, consisted of $818,242 in general and administrative expense and $25,412 in
interest expense. Expenses during the same period in 2009 consisted of $6,848 in
interest expense, and $12,817 in general and administrative expenses. Loss per
share for the nine months ended September 30, 2010 was ($0.07), based on a
weighted average of 11,366,740 shares outstanding during the period compared to
a similar loss of ($0.02) in the same period of 2009, based on a weighted
average of 1,120,000 shares outstanding during the period.
Results
of Operations for the Years Ended December 31, 2009 and 2008
At
December 31, 2009, we had $89 available cash on hand and had a cumulative loss
since inception on November 6, 1996, of $225,607. We did not generate any
revenues or have operations during the years ended December 31, 2009 and
2008. Net loss during the year ended December 31, 2009, was $24,105
compared to $40,426 for year ended December 31, 2008. Expenses for
the year ended December 31, 2009, consisted of general and administrative
expenses of $14,817 and interest expense of $9,288. Expenses for the
year ended December 31, 2008, consisted of general and administrative expenses
of $33,150 and interest expense of $7,276. The general and administrative
expenses during 2009 and 2008 were primarily due to professional, legal, and
accounting fees associated with our public filings.
Liquidity
and Capital Resources
At
December 31, 2009, we had $89 in available cash on hand and $130,020 in
liabilities, including $6,681 of accounts payable, $117,000 in shareholder
advances, and $6,339 in convertible notes payable and accrued interest. We had a
working capital deficit of approximately $124,931 at December 31,
2009.
At
September 30, 2010, we had $861,655 in cash and $778,322 in working
capital. At September 30, 2010, we also had total liabilities of
$1,875,626, of which $1,628,754 were long-term.
As of
September 30, 2010, our total assets were $1,357,848 consisting of cash, prepaid
expenses and mining concessions. The increase in assets was a result of our Note
issuances, totaling $1,890,000 during the nine months ended September 30,
2010. The increase in accounts payable was a result of recommencing
operations in June, 2010. The loans from officers and directors bear no
interest, are due on demand, and were made by the President and one of our large
shareholders.
Management
anticipates that we will be dependent, for the near future, on additional
capital to fund our operating expenses and anticipated growth and the report of
our independent registered public accounting firm for the year ended December
31, 2009 expresses doubt about our ability to continue as a going
concern. Our operating losses have been funded through the issuance
of equity securities and convertible notes payable. We will need
additional funding in order to continue our business
operations. Additionally, if the owners of the convertible notes do
not exercise their conversion feature, we will likely be required to raise more
capital for the repayment of the notes, which are due on June 30,
2012. We currently do not have any source for these
funds.
While we
continually look for additional financing sources, in the current economic
environment, the procurement of outside funding is extremely difficult and there
can be no assurance that such financing will be available, or, if available,
that such financing will be at a price that will be acceptable to us. Failure to
generate sufficient revenue or raise additional capital would have an adverse
impact on our ability to achieve our longer-term business objectives, and would
adversely affect our ability to continue operating as a going
concern.
20
Critical
Accounting Policies
The
selection and application of accounting policies is an important process that
has developed as our business activities have evolved and as the accounting
rules have changed. Accounting rules generally do not involve a
selection among alternatives, but involve an implementation and interpretation
of existing rules, and the use of judgment, to the specific set of circumstances
existing in our business. Discussed below are the accounting policies
that we believe are critical to our financial statements due to the degree of
uncertainty regarding the estimates or assumptions involved and the magnitude of
the asset, liability, revenue or expense being reported. See Note 1
in our Consolidated Financial Statements for the nine months ended September 30,
2010, for a discussion of those policies.
Mineral Exploration and
Development Costs
We
account for mineral exploration costs in accordance with ASC 932 Extractive Activities Topic
of the FASB Accounting Standards Codification. All exploration
expenditures are expensed as incurred. Expenditures to explore new
mines, to define further mineralization in existing ore bodies, and to expand
the capacity of operating mines, are capitalized and amortized on a units of
production basis over proven and probable reserves.
Mineral
Properties
We
account for mineral properties in accordance with ASC 930 Extractive Activities-Mining
Topic of the FASB Accounting Standards Codification. Costs of
acquiring mineral properties are capitalized by project area upon purchase of
the associated claims. Mineral properties are periodically assessed
for impairment of value and any diminution in value.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements.
BUSINESS
AND PROPERTIES
General
Overview
We are an
exploration stage company with no significant business operations prior to May
2010. Since May 2010 we have focused on raising operating funds and
developing a business strategy to acquire coal concessions in the Santander
region of the Republic of Colombia, expand our technical and operational team in
Colombia, and develop strategic partnerships and potential joint ventures for
the extraction, processing and sale of coal and coal-based energy
products. We currently hold three mining concessions totaling 17,481
acres. Currently, coal is not being extracted from any of these
concessions, none of which have any proven or probable reserves, and we have no
contracts for the sale of any coal extracted from these
properties. We have identified additional mining concessions and have
made application filings with the government for 11 additional
concessions.
We have
commenced our mining exploration program on lands under our control and have
also entered into discussions with landholders, equipment providers and
contractors in anticipation of our planned development of proposed coal
processing facilities and facilities for the production of clean coal fuels. We
anticipate that our primary operations will initially focus on the mining and
sale of high-grade, metallurgical coal and subsequently on coal coking, power
generation and alternative energy production, such as coal gasification and
coal-to-liquids. We plan to market any coal extracted from our mining
concessions to third parties and, to the extent practicable at the time, to use
the coal in our planned coke facilities.
We have a
wholly owned subsidiary, Energia Andina Santander Resources Cooperatieve U.A., a
holding company formed under the laws of the Netherlands, which, together with
another wholly owned non-operating subsidiary of ours, owns all of the
outstanding shares of Energia Andina Santander Resources SAS, a Colombian
company which holds all of our mining concessions and conducts our exploration
activities in the Republic of Colombia. Our Colombian subsidiary has
established a corporate office in Bogota, Colombia, and is in the process of
recruiting its team of operations, technical, financial, logistics, mining and
marketing employees and consultants.
21
Our
Organizational History
We were
incorporated in the State of Nevada on November 6, 1996, under the name “Freedom
Resources Enterprises, Inc.” to research and publish a self-improvement book
based on the insights and understandings of major world cultures. As
of September 30, 2005, however, we had generated total revenue of only $3,560
since inception. Because we had not generated the expected revenue,
in October 2005 we ceased all business operations and decided to pursue other
business opportunities.
Between
2005 and 2010 we effected the following forward or reverse splits of our common
stock: Effective April 5, 2005, we forward split our outstanding
shares of common stock at the rate of 10-for-one; effective November 15, 2006,
we reverse split our outstanding common shares at the rate of one-for-2.5;
effective November 15, 2007, we reverse spit our authorized and outstanding
common shares at the rate of one-for-two; and effective July 28, 2010, we
reverse split our outstanding common shares at the rate of
two-for-five. Unless otherwise indicated in this prospectus, shares
are stated giving effect to all of these stock splits. On April 2,
2008, we increased the number of authorized shares to 100,000,000 common shares,
par value $0.001 per share, and 5,000,000 preferred shares, par value $0.001 per
share.
Effective
July 28, 2010, we changed the name of our company from Freedom Resources
Enterprises, Inc. to “Colombia Clean Power & Fuels, Inc.”
2010
Change of Control
From
October 2005 until May 10, 2010, we did not engage in any business
activities. On May 6, 2010, we entered into an agreement with LIFE
Power and Fuels, LLC, a Delaware limited liability company of which Edward P.
Mooney, our current President and Chief Executive Officer and a director, is the
managing member. Pursuant to this agreement we issued 19,080,000
shares of our common stock to LIFE, which shares represented approximately 94.1%
of our issued and outstanding shares of common stock at the time of the
transaction. We also appointed Mr. Mooney to our board of directors
and changed our management team. At the closing of the transaction,
Neil Christiansen resigned as our President and Edward P. Mooney was appointed
our President and Chief Executive Officer. Also, Daniel F. Carlson
was appointed our Chief Financial Officer, Secretary and
Treasurer. LIFE paid $100,000 for the shares. Concurrently
with the closing, we ceased to be a shell company, as defined in Rule 12b-2 of
the Exchange Act, and we adopted a new plan of operations. Following
the closing, we relocated our executive offices to the offices of LIFE located
at 4265 San Felipe Street, Suite 1100, Houston, Texas. We
subsequently relocated our principal executive offices to the current location
at 181 3rd Street, Suite 150-B, San Rafael, California.
In
connection with this change of control transaction, we settled all of our
outstanding debts using the proceeds from the sale of the shares to
LIFE. We settled outstanding cash advances totaling $119,000 made to
us by our president at the time, Neil Christiansen, and his associates for
operating expenses from 2006 until May 2010. We paid $80,647 to these
parties for settlement in full of these advances. In addition, we
paid all outstanding accounts payable and costs associated with the change of
control transaction totaling $19,353. We also converted the principal
and interest on an outstanding promissory note August 25, 2006, in the principal
amount of $5,000 held by Mr. Christiansen into 80,000 shares of our common stock
which we issued to him.
Acquisition
of Our Colombian Mining Concessions
Since the
change of control in May 2010, we have acquired interests in three mining
concessions located in the Santander region of the Republic of
Colombia. Set forth below is a brief description of the material
terms of these acquisitions completed on July 19, 2010, and on October 20, 2010,
respectively.
On July
19, 2010, through our Colombian subsidiary, Energia Andina Santander Resources
SAS, we entered into two agreements with unrelated private parties for the
assignment to our Colombian subsidiary of all of the assignors’ rights and
obligations under two mining concessions for the exploration and exploitation of
coal deposits on an aggregate of approximately 6,610 acres in consideration for
the aggregate payment of 400,000,000 COP (approximately
$214,593). These mining concession contracts are designated as
GG7-111 and GG7-11522X. The final payment under the purchase
agreement was made on November 18, 2010.
22
In
addition to the purchase price, the assignors in this transaction are entitled
to receive a royalty equal to approximately $2.00 for each ton of coal extracted
under each of the concession contracts during the term of each
contract. Our Colombian subsidiary also paid government filing
fees totaling 125,266,709 Colombian pesos (approximately $67,348) to the
Colombian Institute of Geology and Mining.
The
assignment of all rights and obligations of these mining concessions were
approved by the Colombian government on September 3, 2010. In
addition, we have agreed to assume the obligations of the assignors under the
contracts, including, without limitation, preserving the exploration and
exploitation rights granted under the mining concessions and ensuring that title
to the concessions comply with the requirements of the Colombian mining
code.
On
October 20, 2010, we also entered into an agreement with an unrelated private
party for the assignment to our Colombian subsidiary of all of the assignor’s
rights and obligations under a mining concession contract designated as FLG-092
for the exploration and exploitation of coal deposits on an aggregate of
approximately 10,873 acres in consideration for an aggregate payment of
$1,515,000.
The
aggregate purchase price was or will be paid as follows:
|
·
|
$55,000
was paid on execution of the assignment
agreement;
|
|
·
|
$40,000
was paid on October 27, 2010;
|
|
·
|
$220,000
will be paid in February 2011; and
|
|
·
|
the
balance of $1,200,000 will be paid in six quarterly payments of $200,000,
beginning in May 2011, provided, however, that the amount of each
quarterly payment will be reduced by 50% of the value of any extraction
royalties (as described below) paid to the
assignor.
|
In
addition to the purchase price, the assignor in this transaction is entitled to
receive royalty payments in an amount equal to $2.00 for each ton of coal
extracted under the mining concession during the term of the
concession. Our Colombian subsidiary also paid government filing fees
totaling 215,377,844 Colombian pesos (approximately $114,502) to the Colombian
Institute of Geology and Mining.
The
assignment of all rights and obligations of these mining concessions were
approved by the Colombian government for mining concession contract FLG-092 on
December 15, 2010 and for the other two mining concession contracts on September
3, 2010. The transfer of the registration of mining concession
contract GG7-111 as recorded and published in National Mining Register in
Colombia inaccurately stated that our Colombian subsidiary is the co-owner of
the mining concession contract with another entity, when in fact the
stipulations in the resolution issued September 3, 2010, firmly established and
approved the assignment of all rights solely in favor of our Colombian
subsidiary. On February 1, 2011, we formally requested that a
correction be made in the National Mining Register.
Pursuant
to the assignment agreements, we have agreed to assume the obligations of the
assignor in this transaction under the mining concession, including, without
limitation, preserving the exploration and exploitation rights granted under the
concession and ensuring that title to the concession complies with the
requirements of the Colombian mining code.
Completion
of Initial Funding
From May
through December 2010 we conducted a non-public offering of 10% Secured
Convertible Notes and warrants by which we raised an aggregate of $8,000,000 in
gross proceeds. The notes mature on June 30, 2012, and bear interest
at the rate of 10% per annum. Each note is convertible into shares of
our common stock at the rate of $2.50 per share. The shares of common
stock issuable upon exercise of the notes are registered for resale and included
in this prospectus. In addition, the investors received five-year
warrants to purchase an aggregate of 3,200,000 shares of our common stock at an
exercise price of $0.01 per share. We paid a total of $732,126 in
selling commissions in this offering and paid an aggregate of approximately
$11,846 for the costs of the offering, for net proceeds to us of approximately
$7,256,028. In addition, we issued a total of 340,640 common stock
purchase warrants to the placement agents.
23
To secure
our obligations under the promissory notes, we granted the investors a security
interest in all of our membership interests in Energia Andina Santander
Resources Cooperatieve U.A, our wholly-owned Dutch cooperative that owns all of
the outstanding stock of our Colombian subsidiary, which in turn holds all of
our operating assets, under the terms and conditions of the Pledge and
Collateral Agency Agreement, dated August 26, 2010, among us, our subsidiary,
Colombia CPF LLC, and Law Debenture Trust Company, as collateral agent, and the
Deed of Pledge dated as of August 26, 2010, among the same parties as the
Collateral Agency Agreement.
In
connection with their investment in this offering, and pursuant to letter
agreements dated December 3, 2010, each of Steelhead Navigator Master, L.P. and
Pinnacle Family Office Investments, L.P., the two largest investors in the
offering, were granted rights of first refusal to participate in future
offerings of our securities. The letter agreement with Steelhead
provides that Steelhead has the right to purchase up to 50% of any offering of
new preferred securities or debt securities, and 25% of any offering of new
common stock, issued by us. The letter agreement with Pinnacle
provides that Pinnacle has the right to purchase up to 12.5% of any offering of
new securities issued by us. These letter agreements each expire on
the earlier of the final closing of an offering by us of new securities with
minimum gross proceeds of $10,000,000 or the second anniversary of the date of
the letter agreements.
Of the
net proceeds from this private placement, approximately $2,500,000 was allocated
for payments to secure our mining concessions and $3,000,000 for the exploration
and testing of these properties. The balance of the funds has been
allocated for feasibility studies, operating costs, and working
capital.
Our
Business Plan
The first
phase of our business plan will be to complete our drilling program on our three
existing mining concessions, to complete the processing of our 11 applications,
to seek for, and if warranted, acquire additional mining concessions in the
Santander and Magdalena regions of the Republic of Colombia, and to commence
coal extraction operations on our mining concessions, none of which have proven
or probable reserves of recoverable coal. In our second phase we
intend to lease an industrial park and to develop clean energy solutions
consisting of economically viable projects with minimal environmental impact
achieved through capture and use of waste products including carbon
dioxide. Our focus will be on the cleaner use of
coal. With the funds from our recent private placement and from this
public offering, we intend to introduce new technologies and methods into the
Colombian mining industry, consistent with international environmental and
emissions standards and best practices for mine safety and community social
responsibility. We intend to focus on developing the following
business segments:
|
·
|
Metallurgical
coal mining;
|
|
·
|
Coke
production;
|
|
·
|
Coal
gasification to produce petrochemicals;
and
|
|
·
|
Renewable
energy, bio-fuels and
bio-chemicals.
|
We intend
to develop these clean energy facilities in an industrial energy park to be
developed in the Santander district of Colombia near our mining
concessions.
The
Coal Industry
World Coal
Market
Coal is
the most abundant and widely-distributed fossil fuel in the
world. There are an estimated 826 billion metric tons of proven coal
reserves worldwide, which will last 119 years at current production
levels. Coal provides 27% of global primary energy needs, generates
41% of the world’s electricity and is an essential fuel for steel making, cement
production and other industrial activities. In 2009, 6.7 billion
metric tons of coal was consumed worldwide, which is expected to rise 60% in the
next 20 years.2
Moreover, demand for coking coal (i.e., metallurgical coal) is expected to rise
from 220 million metric tons in 2009 to 337 million metric tons by 2015, an
increase of almost 50%.3
24
Since
2000, global consumption of coal has grown faster than that of any other
fuel. Accelerating worldwide energy demand, particularly in
rapidly-industrializing countries, such as China, India and Russia, coupled with
shifting import/export markets, recovery from the global economic downturn and
new clean coal technologies, are continuing to drive demand for
coal. By 2030, coal is expected to fuel 44% of the world’s
electricity. Global consumption and production of coal are highly
concentrated. In 2009, the five largest consumers accounted for 75%
of global coal use and the five largest producers accounted for 76% of global
coal production.4
Thermal or steam coal is primarily used in electric power
generation. Metallurgical or coking coal is mainly used in steel
production.
Properties and Uses of
Coal
Coal is a
combustible, sedimentary, organic rock composed mainly of carbon, hydrogen and
oxygen. Coal seams are formed from vegetation that has been
consolidated between rock strata and altered by the effects of pressure and heat
over millions of years. Coal quality will vary depending on the
pressure, heat and length of time in formation. There are four
classes of coal depending on the amount of carbon, oxygen and hydrogen
present. The higher the carbon content, the more energy the coal
contains.
|
·
|
Anthracite
is the highest value coal. It contains 86%-97% carbon and has
heat value of over 15,000 Btu per
pound.
|
|
·
|
Bituminous
coal is the most abundant coal in the world. It contains
45%-86% carbon and has heat values of 11,000–15,000 Btu per
pound. It includes thermal coal, which is used to generate
electricity, and metallurgical coal for the steel and iron
industries.
|
|
·
|
Sub-bituminous
coal has lower heating value and higher moisture content than bituminous
coal. It contains 35%-45% carbon and has heat values of
8,300–13,000 Btu per pound. It is used for power generation,
cement manufacturing and other industrial
uses.
|
|
·
|
Lignite
or brown coal is the lowest value coal. It contains 25%-35%
carbon and has heating values of 4,000–8,300 Btu per
pound.
|
The
higher-ranking coals generally sell at significantly higher prices than the
lower-ranking coals.
World Coal
Reserves
Coal
reserves are available in almost every country worldwide, with recoverable
reserves in approximately 70 countries. Global proven coal reserves
are estimated to be approximately 826 billion metric tons, which will last 119
years, at current production levels. In contrast, proven oil and gas
reserves are expected to last approximately 42 and 60 years, respectively, at
current production levels.1
World Coal Consumption and
Production
In 2009,
the world consumed 6.7 billion metric tons of coal, up 39% from 4.8 billion
metric tons in 1999 while 6.9 billion metric tons of coal was produced
worldwide, up 44% from 4.8 billion tons in 1989. Coal consumption has
outpaced production in 17 of the past 20 years. As markets continue
to rebound from the economic downturn in 2008, coal production is expected to
increase as projects previously put on hold are expected to be
built. However, coal consumption is expected to continue to outpace
production and infrastructure development in the next decade.4
2
|
Source: World
Coal Institute.
|
3
|
Source: Standard
Charter Equity Research, August 19,
2010.
|
4
|
Source: Source:
BP Statistical Review of World Energy,
2009.
|
25
In terms
of heating value, coal consumption was 127.4 quadrillion Btu in 2006 and is
expected to rise 49% to 190 quadrillion Btu by 2030.5 Several
factors are fueling continued growth in demand for coal, including: rising
population growth and continued economic development, particularly in China and
India; shifting import and export markets; and clean coal
technologies.
Historically,
coal was a domestic fuel source. However, accelerating consumption,
particularly in Asian markets, has led to large export markets for
coal. The following indicates the top export and import markets for
coal in 2009.6
Top
Coal Exporters
|
Top
Coal Importers
|
|||
Tons
|
Tons
|
|||
Australia
|
259
|
Japan
|
165
|
|
Indonesia
|
230
|
China
|
137
|
|
Russia
|
116
|
South
Korea
|
103
|
|
Colombia
|
69
|
India
|
67
|
|
South
Africa
|
67
|
Chinese
Taipei
|
60
|
|
USA
|
53
|
Germany
|
38
|
|
Canada
|
28
|
UK
|
38
|
Metallurgical Coal and Coke
Sectors
The
markets for metallurgical coal and coke continue to grow. Supply
shortages and logistics problems are leading to rising prices that are expected
to continue. Metallurgical coal or coking coal is high-grade
bituminous coal used to produce coke. Metallurgical coke is a solid
carbonaceous residue derived from metallurgical coal from which the volatile
constituents are driven off by baking in an oven without oxygen at high
temperatures. Metallurgical coke is used primarily in the production
of steel. In 2009, global demand and supply for metallurgical coal
was 220 million metric tons and 228 million metric tons,
respectively.
Metallurgical
coke is a carbon material resulting from the manufactured purification of
multifarious blends of bituminous coal. In manufacturing coke, the
volatile constituents of the coal, such as water, coal-gas and coal-tar, are
driven off by baking in an airless furnace or oven at temperatures as high as
2,000 degrees Celsius. This process fuses together the fixed carbon
and residual ash. Most modern facilities have “by-product” coking
ovens in which the volatile hydrocarbons are used, after purification, in a
separate combustion process to generate energy. Non by-product coking
furnaces or coke furnaces (ovens) burn the hydrocarbon gases produced by the
coke-making process to drive the carbonization process.
Bituminous
coal must meet a set of criteria for use as coking coal as determined by
particular coal assay techniques. These include moisture content, ash
content, sulfur content, volatile content, tar and plasticity. The
greater the volatile matter in coal, the more by-products can be
produced. It is generally considered that levels of 26% to 29%
percent of volatile matter in the coal blend are good for coking
purposes. Thus different types of coal are proportionally blended to
reach acceptable levels of volatility before the coking process
begins.
Uses of Metallurgical
Coke
Metallurgical
coke is primarily used by steel companies as a fuel and as a reducing agent in
smelting iron ore in a blast furnace. Since smoke-producing
constituents are driven off during the coking of coal, coke forms a desirable
fuel for stoves and furnaces in which conditions are not suitable for the
complete burning of bituminous coal itself. Coke may be burned with
little or no smoke under combustion conditions, while bituminous coal would
produce much smoke.
5
|
Sources: EIA,
International Energy Annual 2006, World Energy Projections
(2009).
|
6
|
Source: World
Coal Institute.
|
26
Properties of Metallurgical
Coke
The bulk
specific gravity of coke is typically around 0.77. It is highly
porous. The most important properties of coke are ash and sulfur
content, which are linearly dependent on the coal used for
production. Coke with less ash and sulfur content is highly priced on
the market. Other important characteristics are the M10, M25 and M40
test crush indexes, which convey the strength of coke during transportation into
the blast furnaces; depending on blast furnaces size, finely crushed coke pieces
must not be allowed into the blast furnaces because they would impede gas
dynamics. A related characteristic is the Coke Strength after
Reaction (“CSR”) index; it represents coke’s ability to withstand the violent
conditions inside the blast furnace before turning into fine
particles.
The water
content in coke is practically zero at the end of the coking process, but coke
is often water quenched to reduce its temperature so that it can be transported
inside the blast furnaces. The porous structure of coke absorbs some
water, usually 3-6% of its mass. In some more modern coke plants an advanced
method of coke cooling is by air quenching. The volatility of coke
reaches minimum levels at the end of the coking process.
World Coke
Production
In 2009,
522 million tons of metallurgical coke was produced worldwide, up 58% from 330
million metric tons in 1999. While world production has increased
over this period, it has shifted dramatically to Asia, particularly China.
China is
the world’s largest coke producer, accounting for over 66% of world coke
production in 2009, up from 18% in 1989. The next largest producers
are Europe with 7% and Japan with 6% in 2009.
From 1999
to 2009, Asian coke production more than doubled while coke production North
America and Europe fell by 39% and 32%, respectively. The geographic
shift in coke production is primarily the result of rising demand for coke in
Asia, economic distress in Europe and increased environmental legislation in the
U.S. and Canada. Coke production from 1999 to 2009 has declined in
every country except China, India, Vietnam, Brazil, Colombia and
Kazakhstan. Some of the largest declines have occurred in the U.S.,
Europe, Canada and Mexico.
Despite
the growth in world production, several factors are driving a tightening in the
supply market for metallurgical coke, including China’s change in export
policies, the world financial crisis, stricter environmental legislation and
rising metallurgical coal prices.
The
Chinese government gradually eliminated coke exports by switching from subsidies
to export taxes. These controls on Chinese exports of coke have
removed half the world’s supply of coke. In late 2008, China imposed
a 40% export tax on metallurgical coal and coke and has since switched from a
net exporter to a net importer. Before 2009, China coke accounted for
half of the world’s trade. China has since become a net importer of
coke with imports rising from 2.5 million tons in 2003 to approximately 34
million tons in 2009. In addition, China has reduced its coke
production by closing beehive ovens. With Chinese coke production
reduced and unavailable to the international market, there is an increasing
shortage of coke supply, which will be virtually impossible to fill from other
sources. The chart below illustrates the dramatic rise in coking coal
imports in China in 2009.
The world
financial crisis led to a global oversupply of coke because coke producers were
unable to reduce coke production in proportion to falls in hot metal
production. However, the resulting capacity closures are expected to
create demand deficits in many markets. In a coke battery, coke
production can be reduced only by about 30% by increasing the coking
time. To go beyond 30% reduction, it is necessary to hot-idle the
battery, but hot idling is risky for ageing batteries or batteries in poor
shape. Consequently, large amounts of coke were
stockpiled. However, approximately 12 million tons-per-annum of coke
capacity has been permanently closed, primarily in Europe. These
closures coupled with China’s withdraw is expected to cause substantial
shortages beginning in 2011.
In
addition, Western countries are experiencing stricter environmental regulations,
which has driven up the costs of compliance and resulted in more capacity
closures. Lower integrated steel production in Western countries has
lead to a smaller coke capacity base. Finally, higher coking coal
prices due to investments to alleviate port and rail bottlenecks, as well as for
new mine capacity, have negatively impacted supply.
27
World Coke
Demand
World
coke demand is forecast to outpace supply over the next several
years. In 2010 iron and steel production has begun rising again,
resulting in increased global demand for metallurgical coke from a rapidly
tightening market. Steel companies are rapidly depleting stockpiles,
which are expected to turn excess into shortages. As a result, prices
for metallurgical coke have more than doubled in the past twelve months and many
countries face a deficit in supply.
In 2009,
China shifted from a net exporter to a net importer; approximately 7% of its
coking coal demand was imported, as compared to less than 2% in previous
years. Also in 2009, China also imported 102,000 tons of
coke. Demand deficits for metallurgical coke are expected to persist
in North America, Latin America, Europe, India, Africa and the Middle
East. Historically demand deficits in many of these countries were
met, to a large extent, by exports from China. With China exports no
longer available, demand deficits are expected to remain unfulfilled thus
continuing upward pressure on prices.
From May
2009 to April 2010, metallurgical coal and coke prices rose more than 100% as
compared to oil, steel and thermal coal, which rose 48%, 42% and 25%,
respectively. Moreover from the first quarter of 2009 to the first
quarter of 2010, blast furnace prices worldwide have grown as follows: $415 to
$500 per ton for exports from China; $245 to $380 per ton Europe CIF; and $260
to $405 per ton India CIF.
Colombia Coal
Sector
Colombia
is the world’s tenth largest producer and fourth largest exporter of coal,
having produced 73 million metric tons and exported 69 million metric tons of
coal in 2009.7 Colombian coal
is recognized worldwide for its high BTU, low ash and low sulfur
contents. Colombia also has one of the largest proven coal reserves
in the word, with over 7 billion metric tons of recoverable reserves and 17
billion metric tons of potential reserves.8 At the current
rate of production, Colombia has more than 120 years of coal production.9
Coal
mining is a high priority for Colombia. It is a substantial source of
foreign investment and employment and accounts for almost half of the country’s
mining activities. Coal is Colombia’s second
largest national exportation product after oil, and it is estimated that under
the current market conditions, between the 2010 and 2015, coal may exceed oil
exportation. Several
multinational companies are mining in Colombia, such as Xstrata, Vale, BHP,
Drummond, Anglo American and MPX.
Colombia
is known as Latin America’s oldest and most stable democracy. Most
presidents have been elected democratically, except for a short period of
military dictatorship, between 1953 and 1957. Moreover, Colombia is recognized
for its consistent and transparent government policies. Since 2002,
the reforms introduced by the government of President Álvaro Uribe have
contributed strongly towards the country’s development, attracting large foreign
investments, especially due to an effective public safety policy that weakened
the guerrilla groups and dismantled para-militarism. Colombia
privatized its coal sector in 2004 and is committed to investing in
infrastructure to support increased mining. Foreign direct
investments in Colombia has exceeded $8.7 billion per year since 2007 and the
Colombian Ministry of Mines and Energy estimates $49 billion will be invested in
the mining/energy sector in Colombia between 2010 and 2015, 80% of which is
expected to come from foreign direct investment.10
Colombia
has established tax and commercial benefits to promote foreign direct
investment, such as free trade zones, special exchange rate regimes available
for mining and hydrocarbon companies and free trade
agreements. According to a report published by the World Bank,
Colombia placed 5th in the ranking of 183 countries in regards to investor
protection with clear rules and contractual guarantees.11 In
addition, Colombia has a long history in the hydrocarbon industry and, as such,
offers many advantages to foreign companies setting up
operations. Colombia has many local mining companies, a significant
pool of trained labor and many highly-trained engineering and support services
firms.
7
|
Source: World
Coal Institute.
|
8
|
Source:
Ingeominas Colombian Institute of Geology and
Mining.
|
9
|
Source: Colombian
Coal Source of Energy for the World, Ministry of Mines and
Energy.
|
10
|
Source: Colombia
Ministry of Mines and Energy, January
2010.
|
11
|
Source: “Doing
Business in Colombia 2010”, The World
Bank.
|
28
Coal Regions /
Districts
In
Colombia, the state owns all hydrocarbon reserves and private companies operate
coal mines under concession contracts with the state. The country’s
reserves are concentrated in two regions: the Guajira peninsula in the north
(left) and the Andean foothills in the interior of the country (right) –
Santander is noted by the yellow star.
|
|
The
Guajira peninsula along the Atlantic coast contains the country’s primary coal
mining operations. It is dominated by large-scale thermal coal mines
that account for the vast majority of Colombia’s current production and
exports. Operations in this region consist of integrated, open-pit
steam coal mines with rail transport and coastal export terminals operated by
global mining companies. The largest coal producer in the country is
the Carbones del Cerrejon consortium comprised of Anglo American, BHP Billiton
and Xtrata, which operates Cerrejon Zona Norte, the largest coal mine in Latin
America and the largest open-cast coal mine in the world. Cerrejon
Zona Norte consists of an integrated mine, railroad and coastal export terminal
and produces approximately 30 million metric tons of steam coal per
year. Drummond is the second largest operator in the region and MPX
recently acquired 66,225 hectares with 1.74 billion tons of resources to build a
steam coal mine in the region.
By
contrast, the Andean foothills have small local operations and contain
substantial unexploited reserves of very-high-quality metallurgical
coal. Historically, violence, political turmoil and lack of
transportation infrastructure rendered the interior region impossible to
mine. However, governmental policies and programs supporting mining
and infrastructure, coupled with substantially increased safety in the region,
have made it possible to commercially develop this coal.
Production and
Exports
Security
gains and capitalist-friendly investment rules are spurring an unprecedented
mining and oil boom in Colombia. Recent years have seen dramatic
increases in coal and oil production as the government has privatized assets,
implemented legislation, supported infrastructure development and improved
safety. In addition, given past safety issues and subpar
transportation infrastructure, mining in the interior region has been limited
and hence production of metallurgical coal has remained relatively
flat. Future production of coal, particularly metallurgical coal, in
Colombia is expected to rise, as exploration and profitable developments
continue throughout the north and interior of the country and export markets
continue to seek new sources of supply.
Colombian Coke
Production
In 2009,
Colombia produced approximately 1.0 million tons of metallurgical coke, which is
up from 400,000 tons in 1999 but down from the country’s high of 2.0 million
tons in 2007. In 2008, the world economic crisis softened demand and
resulted in stockpiling of coke. In 2010, coke production in Colombia
is expected to exceed 2.0 million tons and continuing growing. The
chart below illustrates historical coke production in Colombia.
29
As China
continues to curtail its exports and world coke supply tightens, consumers are
looking to new markets. Colombia is one of the top coke exporting
countries in the world. Colombia exports nearly 100% of its
metallurgical coke and accounted for 6% of world coke exports in
2009. Other major exporting countries in 2009 included Poland (31%),
Russia (26%), the Ukraine (8%) and Japan (6%). Colombia’s primary
export markets include Latin and North America, Europe and
India. China, which accounted for 40% of world exports of coke in
2008, accounted for approximately 3% in 2009.
The
metallurgical coke market in Colombia is dominated by three leading coke
producers, C.I. Milpa, Coquecol and C.I. Carbocoque, which account for
approximately 50% of the coke produced in the country. Currently, the
vast majority of coke currently produced in Colombia is done in beehive
ovens. Beehive ovens were introduced in the 1800’s and the technology
has not changed since. Coal is heated and carbonized with the
resulting gases and volatiles vented into the open air without environmental
controls. The beehive ovens produce inconsistent and low quality
coke, which does not meet international steel industry
requirements.
Coal
Gasification
There are
a number of alternative uses of coal. By gasifying coal, the thermal
energy contained in the coal is transferred to the Syngas stream while the
carbon dioxide created is easily captured and sequestered. Coal
gasification has taken place since the 1800’s in both Europe and the
U.S. By applying heat and pressure in a controlled environment, a
constant stream of Syngas can be created. With further processing,
the clean Syngas can be converted into many different end products, such as
urea, ammonia, jet fuel, diesel fuel and gasoline. We intend
initially to focus on coal gasification for the production of urea and ammonia,
which are used by the fertilizer industry.
Urea
Sector
World
demand for nitrogen fertilizers is expected to rise from 101.8 million tons in
2009 to 111.7 million tons in 2014 as markets continue to recover from the
global recession of 2008. Global capacity is expected to increase as
well, much of it associated with new urea capacity, which is forecasted to
expand 30% by 2014. In 2009, global demand and supply for urea was
151 million metric tons and 156 million metric tons,
respectively. While urea supply is expected to outpace demand over
the next five years, most of the increase in capacity is expected to be in
Asia. However, several South American countries including Colombia
import all of their urea creating a significant opportunity for a regional
supplier.12
Colombian Urea
Market
Urea
consumption in Colombian is estimated to be approximately 700,000 tons per
annum. Colombia, as well as Brazil, Peru and other South American,
countries imports all of its urea. Brazil is forecasted to import 2.1
million tons in 2010. According to Gobi International, Colombia
represents approximately 14% of the South American urea market and its
consumption is forecasted to grow 13% from 2009 to 2013. We plan to
manufacture urea for sale domestically as well as to export to Brazil, Peru and
the U.S.
Our
Colombian Coal Mining Concessions
In the
Santander district of Colombia, we have purchased three mining concessions
covering approximately 17,481 acres and have made applications with the
government for eleven additional mining concessions in the Santander and
Magdalena districts covering approximately 147,581 acres. The additional mining
concessions are being applied for under the governmentally mandated system in
Colombia. Applications are made for specific areas that are
registered with the Ministry. This leads to the granting of a concession once
basic criteria have been achieved in terms of exploration plans and proof of the
financial capacity to undertake such programs. Seven of the mining concession
applications are located in Santander, adjacent or near to the Company’s
existing coal mining concessions, in the Northern part of Santander, the
majority of which are clustered together in a single mining block in Northern
Santander referred to herein as the North Block. Four of the
concessions are located in Magdalena. Applications for these mining
concessions were made prior to the current moratorium initiated by the Colombian
government prohibiting new applications and should not be affected by
it.
12
|
Source: International
Fertilizer Association (“IFA”), June
2010.
|
30
Our
existing mining concessions are without known reserves and our proposed program
for these properties is exploratory in nature. Most of the current mining
activity in Santander uses underground mining methods since typically the coal
seams are relatively thin for opencast purposes but ideal thicknesses for
underground mining. The seams also dip at relatively steep angles
which means that opencast strip ratios can increase quickly. However,
in the North Block, early exploration work suggests some limited opencast coal
can be exploited, which provides a relatively quick access to mining operations
and means underground mining can start without the need for shaft sinking, as
the mineralized material is accessed from the open pit. However, it
is expected that most of the mining activity will be from underground
operations.
Location and
Access
Our three
existing mining concessions are located approximately 67 to 74 kilometers (42 to
46 miles) southeast of the city of Barrancabermeja, Santander,
Colombia. The two largest concessions are 68 and 69 kilometers
(approximately 42 to 43 miles) from Barrancabermeja,
respectively. They are accessed by traveling east on Route 66, the
Barrancabermeja-Bucaramanga highway, to the town of La Fortuna and then
traveling south on a secondary road. Approximately 54 kilometers
(approximately 34 miles) of this route consists of two-lane, paved road with a
one meter shoulder and five meter wide draining ditch. The last 15
kilometers (approximately 9 miles) consists of an unpaved road maintained by
Ecopetrol, the principal petroleum company in Colombia. The third
concession is approximately 74 kilometers (approximately 46 miles) from
Barrancabermeja and is reached by traveling south from the airport and picking
up Route 45, the Pan American highway, which is the major highway in the region,
and traveling north for approximately 10 kilometers (approximately 6 miles) and
then southeast on a paved secondary road for approximately 45 kilometers
(approximately 28 miles). Approximately 59 kilometers (approximately
37 miles) of this route consists of two-lane, paved road with a one meter
shoulder and five meter wide draining ditch. The last 15 kilometers
(approximately 9 miles) consists of an unpaved road maintained by
Ecopetrol.
Initial Geology and
Mineralization of Our Properties
The
initial geological review of the mining concessions performed by geologists
retained by us confirmed the presence of a known coal formation, studied
petroleum borings and seismic data, and analyzed ground samples to identify
productive coal seams. We confirmed that our mining concessions
are on the Umir formation, a known sedimentary structure which is associated
with the presence of coal. It is adjacent to the Lisama oil fields
and petroleum formation. Our third-party geologists also analyzed
numerous oil drillings and seismic lines, boring reports, electrographic data
and stratigraphy from work performed by Ecopetrol S.A., the principal petroleum
company in Colombia, and evaluated numerous oil drillings and seismic
lines. In doing so, we confirmed the presence of coal. The
geologists then extracted approximately 80 samples of coal from exposed seams to
determine the continuity and productivity of the coal seams.
Geologists
engaged by us detected 44 coal seams in the property and selected 15 productive
coal seams based on seams that are no less than 50 centimeters in thickness and
no more than 20 meters apart. Adding together the 15 seams, they
arrived at an aggregate seam thickness of 27.4 meters. They then
determined the continuity of the coal seams to be 10 kilometers in length from
north to south and one kilometer in width from east to west. The
geologists estimated the total width of the seam to be six kilometers but have
only measured and tested one kilometer in width at this time.
Government
Regulations
In
Colombia, the sub soils are generally owned by the state. The state
may authorize private parties to explore and develop mineral deposits under
concession contracts. Until 2001, they could also be developed under
Exploration and Exploitation Contracts executed with specialized agencies of the
state. However, as of 2001, Colombia’s new Mining Code modified by
Law 1382 of 2010, only permits concession contracts, which are awarded by a
single entity and are subject to a standard set conditions.
31
The
concession contract grants to a concessionaire the exclusive right to carry out
the geological studies, to execute the works and to build the installations
necessary within the given area to establish the existence of minerals and to
exploit them according to the principles, rules and criteria of the accepted
techniques of geology and mining engineering. It also covers the
right to install and build the equipment, services and works necessary to
efficiently exercise the rights set forth in the Colombian Mining Code modified
by Law 1382 of 2010. Concession contracts are generally granted for a
term that the proponent requests, up to a maximum of 30 years. Such
term starts from the date the contracts are inscribed at the National Mining
Register.
The
concession contract has three phases:
Exploration
Phase.
|
·
|
Starts
once the contract in inscribed in the National Mining Registry (Registro
Minero Nacional RMN).
|
|
·
|
Valid
for three years plus a two year extension. In case an extension
for longer than what has been determined, the concessionaire is entitled
to continue its explorations by means of requesting additional extensions
for two years each, for up to 11 years , for which it shall be necessary
to present technical reasons and economic perspectives ,
demonstrate the fulfillment of mining and environmental
guidelines, describe the works to be executed, specify the duration of the
works describe the investments to be made, and make the corresponding
payment of the surface fee for the
exploration.
|
|
·
|
Annual
surface fee based on the number of hectares in the
concession.
|
|
·
|
Requires
an annual Environmental Mining Insurance Policy for 5 % of the value of
the planned exploration expenditure for the
year.
|
|
·
|
Present
a mine plan (PTO) and an Environmental Impact Study (EIA) for the next
phase.
|
Construction
Phase.
|
·
|
Valid
for three years plus a one year
extension.
|
|
·
|
Annual
surface fee payments as in Exploration Phase based on the number of
hectares in the concession.
|
|
·
|
Requires
an annual Environmental Mining Insurance Policy for 5% of the value of the
planned investment as defined in the PTO for the
year.
|
|
·
|
Environmental
License issued on approval of the Environmental Impact
Study.
|
Exploitation
Phase.
|
·
|
Valid
for 30 years minus the time taken in the exploration and construction
phases and is renewable for 20
years.
|
|
·
|
Requires
an annual Environmental Mining Insurance Policy for 10 % of the result of
multiplying the volume of annual production estimated of mineral object of
the concession, by the price at the mine head of the mentioned mineral
determined annually by the
Government.
|
|
·
|
No
annual surface fee.
|
|
·
|
Pay
royalty based on regulations at time of granting of the
contract.
|
32
Two of
our existing mining concessions, designated as GG7-111 and GG7-11522X, are in
the exploration phase under Colombian mining law, which phase will expire for
these concessions in December and August 2013, respectively. We
believe we have met all requirements under this phase.
Our third
mining concession, namely FLG-092, is currently designated in the construction
phase under Colombian mining law. Under mining laws in Colombia, when
the exploration phase ends three years from granting of the concession, the
concession owner is required to file a PTO and EIA. We are
not in compliance with this requirement as it was inherited with the purchase of
the concession because the previous concession holder had applied for an
extension of the exploration phase for two additional years but was denied at
the time as the prior concession holder was not current with certain payments to
the government. On February 1, 2011, we filed a written petition
requesting that Ingeominas reconsider the request for extension of the
exploration phase for an additional two years. Ingeominas has orally
informed us that they would approve the extension, which we anticipate
receiving. If for any reason our reclassification is denied, we intend to submit
the PTO and EIA in conformity with Phase II/construction.
For our
existing three concessions, annual surface fees for 2011-2012 will be
approximately $129,823 (based upon a conversion rate of 1,847.67 Colombian Pesos
per Dollar at February 1, 2011).
Environmental
Laws
The
Colombian Mining Law 685 of 2001 modified by Law 1382 of 2010 requires an
Environmental Mining Insurance Policy for each concession
contract. We have provided the required insurance policy for our
three existing mining concessions. In addition, this provision states
that an Environmental Impact Study has to be presented at the end of the
Exploration Phase if the concession is to proceed to the Construction Phase, and
this study must be approved and an Environmental License issued before the
Exploitation Phase can begin.
Our
mining properties are subject to Colombian and local laws and regulations
regarding environmental matters, the abstraction of water, and the discharge of
mining wastes and materials. Any significant mining operations will
have some environmental impact, including land and habitat impact, arising from
the use of land for mining and related activities, and certain impact on water
resources near the project sites, resulting from water use, rock disposal and
drainage run-off. We believe our current concessions and those for
which we are currently applying are in material compliance with all
environmental rules and regulations. Nevertheless, no assurances can
be given that such environmental issues will not have a material adverse effect
on our operations in the future.
Also,
during the exploration phase we must maintain an environmental inventory and
record how we disturb the environment during the exploration and drillings,
which in turn forms the basis for compensating the land owner for any
disturbance to the environment during this phase. For example, before
we drill in an area, we take photographs and inventory the environment, such as
trees, streams, etc. We then get written permission from the land
owner to drill on his land. At present we have permissions from the
land owners where we are currently drilling. After we complete our
drilling program and the equipment is removed, we again will take photographs
and a second inventory. Any difference, such as removal of a tree,
will require us to compensate the land owner. The amount of the
compensation is determined by a schedule published by the local environmental
authority.
Prior to
acquiring additional concessions, we intend to make a thorough assessment to
mitigate possible unexpected environmental liabilities. Nevertheless,
any mining operations we acquire in the future may currently or historically
have used hazardous materials and, to the extent that such materials are not
recycled, they could become hazardous waste. We may be subject to
claims under federal, regional, or local statutes and/or common law doctrines
and their Colombian law equivalents for toxic torts and other damages, as well
as for natural resource damages and the investigation and clean up of soil,
surface water, groundwater, and other media. Such claims may arise,
for example, out of current or former conditions at sites that we acquire, and
at contaminated sites that have always been owned or operated by third
parties. Liability may be without regard to fault and may be strict,
joint and several, so that we may be held responsible for more than our share of
the contamination or other damages, or even for the entire share.
33
Exploration
Plans
Our
current three concessions are located on agricultural property which has not
been previously mined. Prior agricultural activities included small
scale farming and livestock grazing. Except for six boreholes
previously drilled by us, no work has commenced on the
property. Beginning in February 2011 we commenced a more extensive
drilling program on the property which we anticipate will cost approximately
$2.8 Million. This drilling program is expected to consist of
approximately 50 cored boreholes of about 4,550 meters and 30 non-cored
boreholes averaging about 3,300 meters. We anticipate that the cored
boreholes will be completed in approximately August 2011 and that the non-cored
boreholes will commence in April 2011 and be completed in approximately August
2011. We have retained an outside firm to conduct the drilling
program based on their extensive experience of conducting such programs in
Colombia. We intend to retain an outside international company
providing consulting expertise to the energy, mining, and natural resources
industries, to independently verify the results and reports created, and to
retain an outside company specializing in geophysical procedures, to provide
borehole wireline logging services. The drilling program will be a
mixture of fully-cored and non-cored to allow maximization of the budget and
time available while undertaking a full test program both on coal seams
intersected and rock mechanic analysis of the roof and floor strata, for
effective mine design and planning, as well as assessing seam methane gas
contents and desorbtion rates.
A full
suite of coal analytical tests will be conducted on the coal samples, including
proximate and ultimate analyses and specific tests on coke where appropriate by
an outside laboratory of international standard. We anticipate
completing this drilling program in the first half of 2011 and receiving the
test results in final quarter 2011.
We intend
to conduct the entire program to an appropriate standard to allow a reserve and
resource classification, verified by Norwest, as per the requirements of the US
Bureau of Mines and US Geological Survey set out in Geological Survey Bulletin
1450 – B of 2006.
There is
no mining equipment on site. A detailed drilling program using two
drilling rigs, a Longyear 44 and a Longyear 38 exploration drill, with ancillary
equipment including pick up vehicles to conduct the proposed drilling
program. All cores will be logged and stored in a central facility
based at a local farm.
Power for
the drilling program will be provided from the local grid, although a standby
generator may be acquired. Water will be sourced by borehole or a
local supply which management believes will be adequate for the drilling
program.
Future
Planned Facilities
In
addition to our current business plan to acquire and exploit these coal mining
concessions, our future plans include the development of economically-viable
projects with minimal environmental impact achieved through capture and use of
waste products, including carbon dioxide, with an emphasis in the cleaner use of
coal. We intend to concentrate our business efforts on advancing
clean coal technologies by developing an industrial energy park to house our
clean coal operations. Our initial projects include a heat-recovery
coke plant, a full-recovery coke plant; a coal gasification plant, and mines to
supply coal.
We are
negotiating a contract to lease, with an option to buy, the assets of a local
company through which we will control an industrial development with all
necessary business and environmental licenses for oil refining and a power plant
facility. The industrial development is located on approximately 222
to 247 acres of property located in the State of Santander. We have
agreed in principle to the terms of this lease, subject to confirmatory due
diligence. We anticipate finalizing the lease in the
first quarter 2011. The annual lease payments for the property are
anticipated to be approximately $120,000 commencing in March,
2011. We do not intend to conduct oil refining activities on this
site and are therefore in the process of seeking an amendment to the licenses to
include coal gasification and coking. We anticipate the licenses
being finalized in 3rd quarter 2011. We intend to locate these
operations at the refinery site as part of an industrial energy
park.
34
Heat-Recovery Coke
Plant
Our first
planned project is to build a 200,000 ton-per-annum heat-recovery coke
manufacturing plant. We have engaged a leading Chinese engineering
firm to prepare a feasibility study report on the plant and we anticipate
completion of the report during first quarter 2011. Depending upon
the results of the feasibility report, we expect construction to commence in the
third quarter of 2011 and for it to be operational by the fourth quarter of
2012, depending upon the success of this offering. The plant is
projected to cost a total of $19 million to build. We plan to locate
the facility at the industrial energy park and we are in the process of
expanding the environmental license to accommodate such a
plant. We anticipate receiving the necessary expanded
environmental license by the end of the second quarter of 2011.
We are
engaged in discussions with a Colombian coal trading company to be our exclusive
third-party supplier of coal for this facility. We are also engaged
in discussions to purchase and expand metallurgical coal mines in the Boyacà
district of Colombia to provide a lower-cost coal supply. Over the
next twelve months, we plan to purchase coal reserves and purchase and expand
mines for this plant.
We are
also in discussions with a global mining and minerals company with steel
operations in Brazil to enter into a metallurgical coke supply agreement to
purchase all of the production from this plant. In addition, we are
in preliminary discussions with potential lenders and equity investors to fund
these operations.
Beyond
funding for the heat-recovery coke plant from the proceeds of this offering, we
intend to secure debt financing for the remaining portions of this project prior
to commencing work on it. Nevertheless, we have not entered into any
definitive agreements or arrangements for the debt financing to complete
construction of the plant, to supply coal to it, or for the sale of any coke
products from this plant.
Santander Clean Energy
Park
We also
propose to construct four additional facilities in a power park in
Santander. The facilities will include a coal gasification plant, a
full-recovery coke manufacturing plant, a methanol plant and a 120 megawatt
power plant. We are working with a Chinese engineering firm and
Chinese equipment manufacturing firm to design, engineer, construct and finance
the energy park. We anticipate beginning the civil works construction
for the energy park in the first quarter of 2013. We have executed a
memorandum of understanding with the Chinese firms to design, engineer and
construct the facilities in the energy park and to provide financing for 80%-85%
of the estimated cost of construction of the plants. The remainder of
the funding is expected to come from strategic partners in exchange for partial
ownership of the operations. We anticipate our company will supply
80%-90% of the coal required by the energy park from our own mining
properties.
The coal
gasification plant is intended to be designed to process coal and convert it
into petrochemicals, such as ammonia and urea, and fuels, while employing carbon
capture and sequestration technology. The plant will be designed to
have a production capacity of 180,000 tons per annum of ammonia or 300,000 tons
per annum of urea. We are currently conducting pre-feasibility work
and expect to begin construction on the plant in the third quarter of 2013 and
for it to be operational by the third quarter of 2015. The coal
gasification plant is projected to cost a total of $235 million to
build.
Coal
gasification has taken place since the 1800’s in both Europe and the
U.S. By applying heat and pressure in a controlled environment, a
constant stream of Syngas can be created. With further processing,
the clean Syngas can be converted into many different end products, such as
urea, ammonia, jet fuel, diesel fuel and gasoline. Creating a coal
gasification plant would provide us with the flexibility to develop end products
based upon the demand and pricing characteristics of each
marketplace.
The power
plant will be a 120 megawatt power plant that will supply energy to the energy
park. Approximately half of the power to be generated by the plant
will be consumed by the other facilities with the remainder available for sale
locally. We are currently conducting pre-feasibility work and expect
to begin construction on the plant in the third quarter of 2013 and for it to be
operational by the third quarter of 2015. The power plant is
projected to cost a total of $100 million to build.
35
The
full-recovery coke plant and related methanol plant are being designed to
produce one million tons per annum of metallurgical coke and 100,000 tons per
annum of methanol. We are currently conducting pre-feasibility work
and expect to begin construction on the plant in the first quarter of 2014 and
for it to be operational by the first quarter of 2016. The
full-recovery coke plant and methanol plant are projected to cost a total of
$305 million to build.
In
addition to the recoveries of a heat-recovery coke plant, it will capture and
utilize all of its by-products and emissions, including carbon dioxide, which
can be sold for enhanced oil recovery. The plant will be designed to
have zero emissions and to be more efficient and have a lower operating cost
than existing technologies. Moreover, we anticipate it will produce
consistent, high-quality coke, which is critical to support a smooth operation
of the blast furnace in steel making. Introduction of high-quality
coke to a blast furnace will result in lower coke rate, higher productivity and
lower hot metal cost.
At
present we have no firm commitments for the funding of the energy
park.
Marketing
and Transportation Plans
If we are
able to implement our current business plan to extract coal from our mining
concessions, we plan to export all of the coal prior to completion of the
proposed coke plants. We are in preliminary discussions with parties
in China, Hong Kong, India, Korea, Brazil and the U.S. in regard to supply
agreements and sales and marketing partnerships. Nevertheless, we
have not entered into any definitive agreements or arrangements with any of
these parties. When we complete our plants, we plan to sell ammonia
and urea both domestically in Colombia and internationally
We are in
preliminary discussions with several parties regarding partnerships for the
marketing and sale of coal and coke from our properties, including negotiations
with an international trader and distributor of steel and raw materials to
purchase metallurgical coal and coke from us and to provide sales and marketing
services. We have not entered into a definitive agreement or
arrangement with this firm.
We plan
to export all of the coal and coke we produce utilizing three primary ports on
the Atlantic Ocean: Santa Marta, Barranquilla and
Cartagena. The port at Santa Marta has access to load Panamax
vessels, the port at Barranquilla has access to load Handy vessels, and the port
at Cartagena has access to load both types of vessels. We also have
the option to utilize the Buenaventura port along the Pacific
Ocean. At present, due to capacity constraints, there are delays at
the ports that may impact our operations. However, we are in
preliminary discussions for port agreements and there are six new ports being
built in Colombia along the Atlantic Ocean and two new ports are being built in
the Pacific region which may provide alternative export options in the
future.
The
distance between the existing ports and our planned operations is approximately
800 km (approximately 497 miles) from our mining concessions and approximately
600 km (approximately 373 miles) from the planned energy park. There
are three means by which to transport coal in the Santander region, namely road,
rail and river. We have determined that, for the next few years, the
most cost-effective means to transport the coal is by truck. The
majority of the roads between our property and these ports are paved highways
and management believes there are sufficient trucking companies available to
meet our requirements. The rail system consists of a narrow gauge
rail line that ends approximately half way between our mining concessions and
the ports and a wide gauge rail line to the ports. Utilizing rail
would require us to unload and reload coal. In addition, there is
currently no available capacity on the wide gauge rail line.
We have
reviewed a number of options for trucking and have identified a trucking and
logistics company that utilizes advanced technologies to minimize coal loss and
contamination in transport. The transportation tariffs set by the
Colombian government are approximately 100 to 130 Colombian Pesos per
kilometer. We have also conducted feasibility studies and plans to
develop a river barge transportation system along the Magdalena
River. The Colombian government has several projects underway to
upgrade its navigable waters infrastructure and is offering concessions and
incentives for private-sector companies to develop this infrastructure. We may
seek to participate in one or more joint ventures developing enhanced
infrastructure.
36
Competition
Initially
as a coal exploration company, we will be competing with other coal exploration
and development companies for financing and for the acquisition of new coal
mining properties. Many of the companies with whom we compete have
greater financial and technical resources than those available to
us. Accordingly, these competitors may be able to spend greater
amounts on acquisitions of coal mining properties of merit, on exploration of
their coal mining properties and on development of their coal mining
properties. In addition, they may be able to afford more geological
expertise in the targeting and exploration of coal mining
properties. This competition could result in competitors having coal
mining properties of greater quality and interest to prospective investors who
may finance additional exploration. This competition could adversely
impact on our ability to finance further exploration and to achieve the
financing necessary for us to develop our coal mining
properties. Nevertheless, most of the anticipated increase in mining
production in the future is expected to come from small mines with relatively
primitive operations located in Boyaca and Cundinamarca, areas in which we also
intend to enter into mining operations.
There are
four leading coke producers in the Republic of Colombia which account for
approximately 50% of the total reported exports of metallurgical coke, with
Coquecoal (Gerdau) being the largest producer.
We
believe we can successfully compete in the local metallurgical coal and coke
markets based upon our ability to provide financing and more sophisticated
technology to our mining operations, which are currently not available to local
competitors. We propose to develop coal processing facilities which
deploy state-of-the-art technologies which are more efficient, environmentally
friendly, safer for employees and the surrounding communities, and produce
higher quality products.
In
addition, we are currently aggregating coal resources and plan to develop our
own mines, into which we intend to incorporate state-of-the-art technologies
that are more automated and lower cost than the existing metallurgical coal
mines in the country. We also believe that owning resources and mines
will place us at a significant competitive advantage not only in costs but in
the guarantee of long-term supply. We also intend to select locations
for mines where resources recovery will not have substantial adverse effects on
the environment and where we can utilize technologies that do not require
special composition of the mineral fed into the processes. We believe
this will not limit us to use particular specifications materials to guarantee
that we have high quality product.
Research
and Development Expenditures
During
the years ended December 31, 2010 and 2009, we did not incur any research and
development expenditures.
Intellectual
Property
We do not
own, either legally or beneficially, any patents or trademarks.
Office
Space
We do not
own any real property. Our executive offices are located in the
offices of our largest stockholder, LIFE, located at 181 3rd Street, Suite
150-B, San Rafael, California. We currently use our offices on a
rent-free basis, but expect that we will either negotiate a rental payment to
LIFE or move to our own office facilities at which we will incur rental expenses
in the near future.
We also
maintain an office in Bogota, Colombia, consisting of approximately 500 square
feet located at the Third Stage of the World Trade Center Bogota Cien
Internacional Building, Calle 100 No. 8A – 55, Tower C, in the city of
Bogota. The initial term of the 24-month lease commenced
January 1, 2011, and is renewable automatically for two consecutive periods of
one year. Monthly lease payments are approximately
$5,530
37
Employees
Currently,
we have three employees, including our President and Chief Financial Officer,
all of which are full-time. Our Colombian subsidiary employs six
persons on a full-time basis, including its President We also
employ outside consultants, including our current Chief Operating Officer, to
provide various geological, mine planning, and financial planning services to
develop our business. We are actively seeking to identify
experienced, qualified industry professionals for senior executive and
operational positions. We have retained STM Associates, an executive
search firm specializing in the natural resources and energy industries, with
particular emphasis in the global mining and power sectors. We also
plan to engage contractors from time-to-time to perform specific tasks in
connection with our exploration and mining activities. LIFE Power
& Fuels LLC, our largest shareholder, will initially provide us with various
management support functions, including sales and marketing, contracting,
business development, finance, investor relations, and human
resources.
LEGAL
PROCEEDINGS
From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise in the ordinary course of business. However, litigation is
subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm our business. We
are currently not aware of any such legal proceedings or claims that we believe
will have, individually or in the aggregate, a material adverse affect on our
business, financial condition or operating results.
MANAGEMENT
Current
Management
The
following table sets forth as of February 1, 2011, the name and ages of, and
position or positions held by, our executive officers and directors and the
employment background of these persons:
Name
|
Age
|
Positions
|
Director
Since
|
Employment
Background
|
Edward
P. Mooney
|
51
|
President,
CEO & Director
|
2010
|
Edward
Mooney has served as our President and Chief Executive Officer since May
2010 and was elected as a member of our Board of Directors on May 6,
2010. Since June 2008, Mr. Mooney has been a managing member of
Summa Resource Holdings LLC, an investment firm in the national resources
and alternative energy fields. Since January 2009 he has been a
director of Clean Coal Ltd., a firm engaged in the global underground coal
gasification industry, and since January 2009 he has served as President
of its U.S. subsidiary, Clean Coal Inc. From 2006 until June
2008, Mr. Mooney was self-employed as a corporate development and
corporate finance consultant. Mr. Mooney is the sole managing
member of LIFE Power & Fuels LLC, a development stage company
proposing to develop clean energy products worldwide and our largest
stockholder. Prior to 2005, Mr. Mooney served in various
capacities over a twenty-year period with numerous investment advisory and
business development firms, and has served as an officer and director of
publicly-held and private corporations in the telecommunications,
technology, and education industries. Mr. Mooney also was a co-founder in
2007 and since 2008 has served as Chairman of the Global University for
Lifelong Learning, a not-for-profit organization focused on educational
initiatives for developing nations. Mr. Mooney received a
Masters Degree in Education in 1990 from California State University, Long
Beach and a Bachelors Degree in Geography in 1982 from San Francisco State
University.
|
38
Daniel
F. Carlson
|
43
|
Chief
Financial Officer & Director
|
2010
|
Mr.
Carlson was appointed to serve as our Chief Financial Officer and
Treasurer on May 6, 2010 and was appointed one of our directors on May 28,
2010. Mr. Carlson has also served as the Chief Financial
Officer for LIFE Power & Fuels LLC, our majority stockholder, since
2009. Mr. Carlson served as a Managing Director of European
American Equities, Inc., a registered broker-dealer, since January 2009
until June, 2010. Prior to joining European American Equities,
Inc., Mr. Carlson was employed by Primary Capital from October 2006 until
December 2008, as Head of Institutional Sales, where he focused on reverse
merger and PIPE transactions in the United States for Chinese
companies. Mr. Carlson currently serves on the board of
directors of China Precision Steel, Inc., a NASDAQ-listed Chinese steel
processor. Previously, Mr. Carlson was a Managing Director at
BayStar Capital, a leading hedge fund in the PIPE space, where he was Head
of Trading from 2004 through 2006; he was head of trading at both Husic
Capital and Coyote Capital between 2002 and 2004; he was the Head of
Trading/Analyst at Azure Capital Partners, a Venture Capital/Crossover
fund investing in the technology industry from 2000 through 2002; and,
from 1995 until 2000, he was a Senior Trader for RCM Capital Management, a
50+ billion dollar asset management firm, where he specialized in trading
small cap securities. Mr. Carlson holds a Bachelor of Arts
degree in Economics from Tufts University achieved in
1989.
|
Graham
Chapman
|
52
|
Chief
Operating Officer
|
--
|
Mr.
Chapman was appointed to serve as our Chief Operating Officer effective
September 20, 2010. Since March 2010 he has been the managing
director of Badger Resources Limited, a consulting firm in the mining
industry. From January 2010 until July 2010 he served as the
Chief Operating Officer of Clean Coal Ltd., a private firm engaged in the
business of developing underground coal gasification projects around the
world. In addition, Mr. Chapman has served as the Chief
Operating Officer of Clean Coal Ltd., since January
2007. From January 2005 until February 2008 Mr. Chapman
served as managing director of Energy Edge Ltd., an innovative
coal-focused consultancy firm. Mr. Chapman has over 30 years of
operational experience developing and commercializing coal and other
natural resources. In 2002 Mr. Chapman received an MBA from the
University of Leicester and in 1979 received a Bachelor of Science degree
from the University of Hull. He is a Fellow of the Geological
Society of London
(FGS).
|
39
James
J. Wolff
|
53
|
Director
|
2010
|
Mr.
Wolff was appointed one of our directors on May 28, 2010. He has served as
the Chief Financial Officer of US Coal Corporation since
2008. Prior to joining US Coal Corporation, Mr. Wolff was the
Executive Vice President and Chief Financial Officer of Energy Coal
Resources, Inc., from 2006 to 2008. From 2003 to 2006, Mr.
Wolff provided independent financial advisory services to transportation
and energy businesses. Previously, from 1992 to 2003, Mr. Wolff
held several positions with American Commercial Lines, LLC, including
Senior Vice President of Finance and Administration and Chief Financial
Officer and Chief Financial Officer of Danielson Holding Corporation, an
affiliated entity. Mr. Wolff holds a B.A. degree in Economics
from the University of
Texas.
|
Directors
are elected to hold office until the next annual meeting of shareholders and
until their successors are elected and qualified. Annual meetings of
the stockholders, for the selection of directors to succeed those whose terms
expire, are to be held at such time each year as designated by the Board of
Directors. Officers of the Company are elected by the Board of
Directors, which is required to consider that subject at its first meeting after
every annual meeting of stockholders. Each officer holds his office
until his successor is elected and qualified or until his earlier resignation or
removal.
Mr.
Mooney expects to continue his association with LIFE Power & Fuels LLC,
Clean Coal Ltd., and Clean Coal Inc. Mr. Carlson expects to
continue his association with LIFE Power & Fuels LLC and European American
Equities, Inc. We currently anticipate that Messrs Mooney and Carlson
will devote approximately 25 hours per week to the business of our
company. Mr. Chapman does not expect to devote his full-time business
efforts to our business, but this may expand in the future as our business
grows. The amount of time Mr. Chapman devotes to our business will be
dependent on the pace of our exploration and development efforts, timing of our
fundraising efforts and the amount of capital raised by us, among other
factors. He currently devotes approximately 75% of his time, or
approximately 30 hours per week, to our company.
There are
no family relationships between any of our directors or executive
officers.
We also
have a significant employee, Carlos Soto, age 58, who has been the President of
our Colombian subsidiary since January 2011. From April 2009
until December 2010 Mr. Soto, was the owner and managing director of CoalSupport
SAS, a consulting firm in the international energy market which provided support
services for the mining, transport and commercialization of coal, natural gas,
and other fossil fuels. From 1981 until March 2009 he was employed as
project manager by Carbones del Cerrejon LTD, the operator of a coal complex
located in Colombia. He was responsible for the development,
conceptual engineering, detailed design and construction of special projects for
the company. He received his MBA degree in finance and administration
from the Universidad de Cartagena in 2009 and received his undergraduate degree
in mining and metallurgical engineering from the Universidad Nacional de
Colombia in 2004. Mr. Soto is a licensed Mining and Metallurgical
Engineer in the Republic of Colombia.
Involvement
in Certain Legal Proceedings
During
the past ten years there have been no events under any bankruptcy act, no
criminal proceedings and no judgments, injunctions, orders or decrees material
to the evaluation of the ability and integrity of any of our directors or
executive officers, except as follows: James J. Wolff, one of our
directors, was the Chief Financial Officer of American Commercial Lines, a barge
line operator, which filed Chapter 11 bankruptcy in 2003. In 2005,
the company emerged from two years of Chapter 11 bankruptcy protection under a
reorganization plan.
40
We are
not aware of any legal proceedings in which any director, officer or affiliate
of our company, any owner of record or beneficially of more than five percent of
any class of our voting securities, or any associate of any such director,
officer, or affiliate of our company, or security holder is a party adverse to
us or our subsidiary or has a material interest adverse to us or our
subsidiary.
Audit
and Compensation Committees
Our Board
of Directors performs the duties that would normally be performed by an audit
committee. Given our recent recommencement of operations, our Board
of Directors believes that its current members have sufficient knowledge and
experience necessary to fulfill the duties and obligations of the audit
committee for our Company. The Board of Directors has determined that the
Company does not have an audit committee financial expert.
Nominating
Procedures
The Board
of Directors does not have a standing nominating committee or committee
performing similar functions. The Board of Directors also does not currently
have a policy for the qualification, identification, evaluation or consideration
of director candidates. The Board of Directors does not believe that a defined
policy with regard to the qualification, identification, evaluation or
consideration of candidates recommended by stockholders is necessary at this
time due to majority control of the company by a single shareholder and the fact
that we have not received any stockholder recommendations in the
past. Director nominees are considered solely by our Board of
Directors.
Code
of Ethics
We
adopted a code of ethics in 2003 that applies to its officers, directors and
employees.
Certain
Relationships and Related Transactions
Prior Management
Transactions
Neil
Christiansen served as a director and an executive officer of our company during
the years ended December 31, 2009 and 2008, and during the current fiscal year
through May 2010. During the years ended December 31, 2009 and 2008,
and during the current fiscal years, we have had the following transactions with
Mr. Christiansen:
|
·
|
During
the fiscal years ended December 31, 2009 and 2008, and during the current
fiscal year until May 2010 we utilized office space provided at no charge
by Mr. Christiansen. Management believed that the use of Mr.
Christiansen’s office was of negligible value since our operations during
that period did not require any staff or independent
facilities.
|
|
·
|
On
August 25, 2006, Mr. Christiansen loaned us $5,000 and we issued a
promissory note for this amount to Mr. Christiansen. The note
provided for interest at 8% per annum. Principal and interest
were due and payable on August 25, 2008. The note was
convertible by Mr. Christiansen at any time into 80,000 post-split shares
of our common stock. On August 24, 2008, Mr. Christiansen
extended the maturity date of the note to February 25, 2009, and on June
30, 2009, Mr. Christiansen again extended the maturity date of the note to
August 25, 2012. On April 28, 2010, Mr. Christiansen converted
the full principal amount of the note and all accrued interest thereon,
into 80,000 shares of our common
stock.
|
|
·
|
Between
March 15, 2006, and November 26, 2007, Mr. Christiansen advanced $72,500
to us for operating funds. On May 6, 2010, we entered into a
settlement agreement with Mr. Christiansen under which we paid him $48,872
as settlement in full for these
advances.
|
41
Stock Purchase by LIFE Power
& Fuels LLC
On May 6,
2010, we sold 19,080,000 of our common shares to LIFE Power & Fuels LLC, an
entity managed and controlled by Edward P. Mooney, who immediately thereafter
became one of our directors and our President and Chief Executive Officer, for
$100,000. The shares were sold pursuant to the terms of a
Subscription Agreement dated May 6, 2010, pursuant to which we also agreed to
add Mr. Mooney as a director and appoint him as President and CEO and to appoint
Daniel F. Carlson as Chief Financial Officer. The agreement also
grants piggyback registration rights to any of our shareholders prior to that
date who owned of record not less than 10,000 shares and to any holder prior to
that date who otherwise owned restricted shares.
LIFE Power & Fuels
Management and Services Agreement
On August
3, 2010, we entered into a Management and Services Agreement with LIFE Power
& Fuels LLC, a Delaware limited liability company and one of our principal
shareholders, pursuant to which LIFE agreed to provide certain
corporate, financial, and merger and acquisition advisory services
and assistance with securing equipment leases and other equipment
financing. In exchange for its services, LIFE is entitled to receive
a monthly fee equal to the lesser of 1% of our gross coal sales or $2 per ton of
coal sold by us; provided, however, that such monthly fee shall not be less than
$25,000. The term of the Management Agreement is initially 36 months,
but the agreement shall automatically renew for successive 12-month periods
unless it is terminated by either party in writing. Upon termination, and for a
period of five years thereafter, LIFE will continue to be entitled to receive an
amount equal to the lesser of 1% of our gross coal sales or $2 per ton of coal
sold by us from all mines and coking facilities on concessions acquired or coke
projects initiated during the term of the Management
Agreement. During the initial term of this agreement, we have agreed
to pay a minimum of $900,000 to LIFE. At the time of the transaction,
LIFE beneficially owned in excess of 5% of our outstanding common
stock. Edward P. Mooney, one of our directors and our President and
Chief Executive Officer, and Daniel F. Carlson, one of our directors and our
Chief Financial Officer, also serve as the managing member and chief financial
officer, respectively, of LIFE.
Repurchase
Agreement
On June
10, 2010, we entered into a Stock Repurchase Agreement with Latin-American Fuels
Corporation, a British Virgin Islands corporation, and Fernando Torres Casas,
the president and principal shareholder of that company, who were at the time of
the transaction and currently are joint beneficial owners of in excess of 5% of
our outstanding common stock at the time of the transaction. Under
the terms of the agreement, we have the option, but not the obligation, to
repurchase up to 2,400,000 shares owned by Latin-American Fuels under certain
conditions. After June 10, 2011, and before June 10, 2012, we have
the right to repurchase up to 1,200,000, and after June 10, 2012, we have no
further right to repurchase any of these shares. Latin-American Fuels
does not have the right to transfer any shares for which we have repurchase
rights. If we were to employ Mr. Casas and then terminate him or if
he were to terminate any employment with us without good reason, the shares
which are then subject to repurchase will be forfeited by Latin-American Fuels
to us without further consideration. In the event we were to
terminate him without cause or if Mr. Casas were to terminate his employment for
good reason, we have the right to repurchase the shares at fair market value as
of the date of termination. Our option to repurchase the shares
expires 30 days after termination of Mr. Casas as an employee. Mr.
Casas is currently not an employee of our company.
Options Granted to
Management
On May
28, 2010, our board of directors granted to James J. Wolff, one of our
directors, a nonqualified option to purchase up to 120,000 shares of our common
stock for $0.125 per share. These options expire on May 27, 2015, and
vest as follows: one-fourth immediately upon the grant date and
one-fourth on each anniversary date thereafter. These options were
granted under our 2010 Equity Incentive Plan.
Effective
January 2011 our board of directors granted 250,000 options exercisable at $2.50
per share and 250,000 options exercisable at $5.00 per share to Carlos Soto,
President of our Colombian subsidiary. We also granted 50,000 options
exercisable at $2.50 per share and 50,000 options exercisable at $5.00 per share
to each of Edward P. Mooney, our President, CEO, a director and principal
shareholder, Daniel Carlson, our Chief Financial Officer and a director, and
Graham Chapman, our Chief Operating Officer. Each option was granted
for a period of five years and is subject to the following vesting
schedule: 25% immediately and 25% on each anniversary of the grant
for three years. The options were granted under our 2010 Equity
Compensation Plan.
42
Consulting Agreement with
Graham Chapman
Mr.
Chapman provides consulting services to us and our operating subsidiary, and is
compensated as our Chief Operating Officer, under the terms of a Consultancy
Agreement dated January 1, 2011. The agreement is with Badger
Resources Limited, an entity for which Mr. Chapman is managing director, and it
is valid until terminated by one of the parties upon three months’
notice. We pay a monthly fee of $15,000 for the consulting
services. Mr. Chapman is required to provide a minimum of 15 days per
month in performing the consulting services. The services provided by
Mr. Chapman include review of mine plans and related documentation, review of
geologic studies related to our concessions, advising us on potential strategic
partners, including mine operators, and potential customers for our future
products, and development and implementation of our exploration
programs. We commenced this consulting arrangement effective January
1, 2011, and have paid an aggregate of $15,000 to Mr. Graham for the first month
under the agreement.
Parent
LIFE
Power & Fuels LLC which beneficially owns approximately 70% of our
outstanding stock, is deemed a parent of our company by virtue of the ownership
interest of our company.
Director
Independence
Our
securities are not listed on a national securities exchange or in an
inter-dealer quotation system which has requirements that directors be
independent. Therefore, we have adopted the independence standards of
the American Stock Exchange, now known as the NYSE Amex Equities, to determine
the independence of our directors and those directors serving on our
committees. These standards provide that a person will be considered
an independent director if he or she is not an officer of the company and is, in
the view of the company’s board of directors, free of any relationship that
would interfere with the exercise of independent judgment. Our board
of directors has determined that James J. Wolff meets this standard, and
therefore, would be considered to be independent.
Indemnification
Section
78.7502 of the Nevada Revised Statutes (the “Nevada Law”) permits a corporation
to indemnify any of its directors, officers, employees and agents against costs
and expenses arising from claims, suits and proceedings if such persons acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. Notwithstanding the foregoing, in an action by or in the
right of the corporation, no indemnification may be made in respect of any
claim, issue or matter, as to which such person is adjudged to be liable to the
corporation unless a court of competent jurisdiction determines that in view of
all the circumstances of the case, indemnification would be
appropriate. The indemnification provisions of the Nevada Law
expressly do not exclude any other rights a person may have to indemnification
under any bylaw, among other things.
Each of
our employment agreements with our President, Mr. Mooney, and our Chief
Financial Officer, Mr. Carlson, provides that we are required to indemnify, and
advance expenses as they are incurred to, the party who was or is a party or is
threatened to be made a party to any threatened or completed action, suit or
proceeding, whether civil or criminal, administrative or investigative, by
reason of the fact that such person is or was a director or officer of our
company, or who is serving at our request or direction as a director or officer
of another corporation or other enterprise, against expenses, including
attorneys’ fees, judgments, fines and amounts paid in settlement, actually and
reasonably incurred by such person in connection with the action, suit, or
proceeding, to the full extent permitted by Nevada law.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or controlling persons of our company, pursuant
to the foregoing provisions, or otherwise, we have been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person of our company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered hereunder,
we will, unless in the opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
43
EXECUTIVE
COMPENSATION
Executive
Compensation
The
following table sets forth information concerning the annual compensation
awarded to, earned by, or paid to the named executive officer for all services
rendered in all capacities to our company and its subsidiaries for the years
ended December 31, 2010 and 2009:
SUMMARY
COMPENSATION TABLE
Name
& Principal Position
|
Year
|
Salary
|
Bonus
|
Total
|
|||||||||||
Neil
Christiansen, President(1)
|
2010
|
0 | 0 | 0 | |||||||||||
2009
|
0 | 0 | 0 | ||||||||||||
Edward
P. Mooney, CEO(1)
|
2010
|
$ | 21,000 | $ | 35,000 | $ | 56,000 | ||||||||
2009
|
0 | 0 | 0 |
(1)
|
Mr.
Christiansen serviced as our President and principal executive officer
from 1996 until May 6, 2010, after which Mr. Mooney served as our Chief
Executive Officer.
|
On August
3, 2010, we entered into employment agreements with Edward P. Mooney, our
President and Chief Executive Officer, which was amended and restated in January
2011. Mr. Mooney is also a member of our board of
directors. The employment agreement is effective as of July 1,
2010, and has an initial two-year term. The initial term will
automatically be extended for an additional one-year period thereafter, unless
either we or the executive elects not to extend the term by written notice
delivered to the other party not later than 30 days prior to the start of the
extension period. Under the amended employment agreement, we will pay
Mr. Mooney an annual base salary of $48,000. In addition, at the
discretion of our board of directors, Mr. Mooney will be eligible to receive an
annual cash bonus of up a minimum of 50% and a maximum of 100% of his the then
applicable base salary. For the year ended December 31, 2010, we paid
Mr. Mooney a cash bonus of $35,000.
Mr.
Mooney may voluntarily terminate his employment agreement at any time by
providing us with at least 30 days written notice. Nevertheless, if
such termination is without “Good Reason,” as this term is defined in the
employment agreement, he will receive only his accrued benefits as of the
termination date and shall not be entitled to any other termination
payment. In addition, we may also terminate the employment agreement
for “Cause,” as this term is defined in the employment agreement, upon written
notice.
If the
employment of Mr. Mooney is terminated as a result of death or disability, he,
his surviving spouse or his estate, as the case may be, will be entitled to
receive his accrued benefits as of the termination date as a
termination payment. If his employment is terminated by him for Good
Reason or by us for any reason other than death, disability or Cause, Mr. Mooney
will receive a termination payment of $50,000.
The
employment agreement also contains customary provisions regarding nondisclosure
of proprietary information, assignment of inventions and shop
rights.
Equity
Awards
As of
December 31, 2010, there were no unexercised options, stock that had not vested,
or equity incentive plan awards for Mr. Christiansen or Mr. Mooney.
44
On May
12, 2010, our Board of Directors adopted, and our shareholders approved, our
2010 Equity Incentive Plan. The following summary briefly describes
the material features of the plan:
Shares
Available
Taking
into account the 5:2 reverse stock split effective July 28, 2010, our 2010
Equity Incentive Plan authorizes 1,320,000 shares of our common stock for
issuance under the plan. In the event of any change in the number of
our shares outstanding by reason of any stock dividend or split, reverse stock
split, recapitalization, merger, consolidation, combination or exchange of
shares or similar corporate change, the maximum number of shares of our common
stock with respect to which the Board of Directors may grant options, SARs,
shares of restricted stock, and stock bonuses, appropriate adjustments will be
made to the shares subject to the Incentive Plan and to any outstanding
awards. Shares available for awards under the Incentive Plan may be
either newly-issued shares or treasury shares. If an award or portion
thereof will expire or terminate for any reason without having been exercised in
full, the unexercised shares covered by the award will be available for future
grants of awards under the Incentive Plan.
Administration
The
Incentive Plan will be administered by the compensation committee of the Board
of Directors, or if a compensation committee is not appointed or unable to act,
then the entire Board of Directors. The committee will consist of at
least two members who are non-employee directors within the meaning of Rule
16b-3 under the Exchange Act. With respect to the participation of
individuals who are subject to Section 16 of the Exchange Act, the Incentive
Plan is administered in compliance with the requirements of Rule 16b-3 under the
Exchange Act. Subject to the provisions of the Incentive Plan, the committee
determines the persons to whom grants of options, SARs and shares of restricted
stock are to be made, the number of shares of common stock to be covered by each
grant and all other terms and conditions of the grant. If an option is granted,
the committee determines whether the option is an incentive stock option or a
non-statutory stock option, the option’s term, vesting and exercisability, the
amount and type of consideration to be paid to us upon the option's exercise and
the other terms and conditions of the grant. The committee will have the full
authority and discretion to interpret and construe any provision of the
Incentive Plan and the terms of any award issued under the Incentive Plan. All
determinations of the committee are final and binding on all parties having an
interest in the Incentive Plan or in any award made under the Incentive Plan.
The costs and expenses of administering the Incentive Plan are borne by
us. We have not yet formed the compensation committee to administer
the Incentive Plan and therefore our Board of Directors will act as plan
administrator of the Incentive Plan.
Eligibility
Eligible
individuals include our employees, officers and directors of our company or any
subsidiary of our company or consultants to our company or any subsidiary of our
company, in each case who are responsible for the management, growth and
protection of the business of our company; provided, however, that only
employees of our company or any subsidiary of the company will be eligible to
receive incentive awards consisting of incentive stock options.
Stock Options and
SARs
Under the
Incentive Plan, the plan administrator is authorized to grant both stock options
and SARs. Stock options may be either designated as non-qualified stock options
or incentive stock options. Incentive stock options, which are
intended to meet the requirements of Section 422 of the Internal Revenue Code
such that a participant can receive potentially favorable tax treatment, may
only be granted to employees. Therefore, any stock option granted to
consultants and non-employee directors are non-qualified stock options. SARs may
be granted either alone or in tandem with stock options (or on a stand-alone
basis). A SAR entitles the participant to receive a cash payment
equal to the excess, if any, of the fair market value of a share on the exercise
date over the exercise price of the SAR. In general, if a SAR is
granted in tandem with an option, the exercise of the option will cancel the
SAR, and the exercise of the SAR will cancel the option. Any shares
that are canceled will be made available for future awards. The plan
administrator, in its sole discretion, determines the terms and conditions of
each stock option and SAR granted under the Incentive Plan, including the grant
date, option or exercise price (which, in no event, will be less than the par
value of a share), the term of each option or SAR, exercise conditions and
restrictions, conditions of forfeitures, and any other terms, conditions and
restrictions consistent with the terms of the Incentive Plan, all of which will
be evidenced in an individual award agreement between us and the
participant.
45
Certain
limitations apply to incentive stock options and SARs granted in tandem with
incentive stock options. The per share exercise price of an incentive
stock option may not be less than 100% of the fair market value of a share of
common stock on the date of the option’s grant and the term of any such option
will expire not later than the tenth anniversary of the date of the option’s
grant. In addition, the per share exercise price of any incentive
stock option granted to a person who, at the time of the grant, owns stock
possessing more than 10% of the total combined voting power or value of all
classes of our stock must be at least 110% of the fair market value of a share
of common stock on the date of grant and such option will expire not later than
the fifth anniversary of the date of the option’s grant.
Options and SARs granted
under the Incentive Plan become exercisable at such times as may be specified by
the plan administrator. In general, options and SARs granted to
participants become exercisable in four equal annual installments, subject to
the optionee’s continued employment or service with our
company. However, the aggregate value (determined as of the grant
date) of the shares subject to incentive stock options that may become
exercisable by a participant in any year may not exceed $100,000. If
a SAR is granted in tandem with an option, the SAR will become exercisable at
the same time or times as the option becomes exercisable.
Each
option will be exercisable on such date or dates, during such period, and for
such number of shares of common stock as shall be determined by the plan
administrator on the day on which such stock option is granted and set forth in
the option agreement with respect to such stock option; provided, however the
maximum term of options and SARs granted under the Incentive Plan is ten
years. If any participant terminates employment due to death or
disability or retirement, the portion of his or her option or SAR awards that
were exercisable at the time of such termination will remain exerciseable until
the expiration of their term. In the case of any other termination,
the portion of his or her option or SAR awards that were exercisable at the time
of such termination may be exercised for 90 days from the date of
termination.
Restricted
Stock
Under the
Incentive Plan, the plan administrator is also authorized to make awards of
restricted stock. Before the end of a restricted period and/or lapse
of other restrictions established by the plan administrator, shares received as
restricted stock will contain a legend restricting their transfer, and may be
forfeited in the event of termination of employment or upon the failure to
achieve other conditions set forth in the award agreement.
An award
of restricted stock will be evidenced by a written agreement between us and the
participant. The award agreement will specify the number of shares of
common stock subject to the award, the nature and/or length of the restrictions,
the conditions that will result in the automatic and complete forfeiture of the
shares and the time and manner in which the restrictions will lapse, subject to
the participant's continued employment by us, and any other terms and conditions
the plan administrator imposes consistent with the provisions of the Incentive
Plan. The plan administrator also determines the amount, if any, that
the participant will pay for the shares of restricted stock. However,
the participant must be required to pay at least the par value for each share of
restricted stock. Upon the lapse of the restrictions, any legends on
the shares of common stock subject to the award will be re-issued to the
participant without such legend.
The plan
Administrator may impose such restrictions or conditions, to the vesting of such
shares as it, in its absolute discretion, deems appropriate. Prior to
the vesting of a share of restricted stock granted under the plan, no transfer
of a participant’s rights to such share, whether voluntary or involuntary, by
operation of law or otherwise, will vest the transferee with any interest, or
right in, or with respect to, such share, but immediately upon any attempt to
transfer such rights, such share, and all the rights related thereto, will be
forfeited by the participant and the transfer will be of no force or effect;
provided, however, that the plan administrator may, in its sole and absolute
discretion, vest in the participant all or any portion of shares of restricted
stock which would otherwise be forfeited .
In the
event that the employment of a participant with us terminates for any reason
other than for cause, as such term is defined in the Incentive Plan, prior to
the vesting of shares of restricted stock granted to such participant, the
restricted stock will be forfeited on the date of such termination; provided,
however, that the plan
administrator may, in its sole and absolute discretion, vest the in participant
all or any portion of shares of restricted stock which would otherwise be
forfeited. In the event of the termination of a participant’s
employment for cause, all shares of restricted stock granted to such participant
which have not vested as of the date of such termination will immediately be
forfeited.
46
Stock
Bonus
Under the
Incentive Plan, the plan administrator is also authorized to grant other bonuses
payable in shares of common stock in such amounts as it shall determine from
time to time. A stock bonus will be paid at such time and subject to
such conditions as the plan administrator will determine at the time of the
grant of the stock bonus. Certificates for shares of the common stock
granted as a stock bonus will be issued in the name of the participant to whom
such grant was made and delivered to such participant as soon as practicable
after the date on which the stock bonus is required to be paid.
Fair Market
Value
Under the
Incentive Plan, fair market value means the fair market value of the shares
based upon either the closing selling price of a share of our common stock as
quoted on the principal national securities exchange on which the stock is
traded, if the stock is then traded on a national securities exchange, or the
closing bid price per share last quoted on that date by an established quotation
service for over-the-counter securities, if the common stock is not then traded
on a national securities exchange.
Transferability
Restrictions
Generally
and unless otherwise provided in an award agreement, shares or rights subject to
an award cannot be assigned or transferred other than by will or by the laws of
descent and distribution and awards may be exercised during the participant’s
lifetime only by the participant or his or her guardian or legal
representative. However, a participant may, if permitted by the plan
administrator, in its sole discretion, transfer an award, or any portion
thereof, to one or more of the participant’s spouse, children or grandchildren,
or may designate in writing a beneficiary to exercise an award after his or her
death.
Termination or Amendment of
the Incentive Plan
Unless
sooner terminated, no awards may be granted under the Incentive Plan after May
12, 2020. The Board of Directors may amend or terminate the Incentive
Plan at any time, but the Board of Directors may not, without stockholder
approval, amend the Incentive Plan to increase the total number of shares of
common stock reserved for issuance of awards. In addition, any
amendment or modification of the Incentive Plan will be subject to stockholder
approval as required by any securities exchange on which common stock is
listed. No amendment or termination may deprive any participant of
any rights under awards previously made under the Incentive Plan.
Compensation
of Directors
The
following table sets forth certain information concerning the compensation of
our directors, excluding the named executive officers set forth in the Summary
Compensation Table above, for the last fiscal year ended December 31,
2010:
DIRECTOR
COMPENSATION
Name
|
Fees
Earned or Paid in Cash
|
All
Other Compensation
|
Total
|
|||||||||
Daniel
F. Carlson
|
0 | $ | 51,000 | (1) | $ | 51,000 | ||||||
James
Wolff
|
$ | 6,000 | 0 | $ | 6,000 |
(1)
|
This
was paid as a combination of the salary paid to Mr. Carlson during the
year ended December 20101, under his employment contract with us and the
bonus awarded to Mr. Carlson pursuant to his employment agreement as
described below.
|
47
On August
3, 2010, we entered into employment agreements with Daniel F. Carlson, our Chief
Financial Officer. Mr. Carlson is also a member of our board of
directors. The employment agreement is effective as of July 1,
2010, and has an initial two-year term. The initial term will
automatically be extended for an additional one-year period thereafter, unless
either we or the executive elects not to extend the term by written notice
delivered to the other party not later than 30 days prior to the start of the
extension period. Under the employment agreement, we will pay Mr.
Carlson an annual base salary of $42,000. In addition, at the
discretion of our board of directors, Mr. Carlson will be eligible to receive an
annual cash bonus of up to $50,000. For the year ended December 31,
2010, we paid Mr. Carlson a cash bonus of $30,000.
Mr.
Carlson may voluntarily terminate his employment agreement at any time by
providing us with at least 30 days written notice. Nevertheless, if
such termination is without “Good Reason,” as this term is defined in the
employment agreement, he will receive only his accrued benefits as of the
termination date and will not be entitled to any other termination
payment. In addition, we may also terminate the employment agreement
for “Cause,” as this term is defined in the employment agreement, upon written
notice.
If the
employment of Mr. Carlson is terminated as a result of death or disability, he,
his surviving spouse or his estate, as the case may be, will be entitled to
receive his accrued benefits as of the termination date as a
termination payment. If his employment is terminated by him for Good
Reason or by us for any reason other than death, disability or Cause, Mr.
Carlson will receive a termination payment equal to his accrued benefits plus
six months of base salary plus $25,000, if the termination occurs before
December 31, 2010, or $50,000, if the termination occurs after December 15,
2010.
We have
no arrangements or plans pursuant to which, or that provide for, pension,
retirement or similar benefits to our directors or executive
officers. We have no material bonus or profit sharing plans pursuant
to which cash or non-cash compensation is or may be paid to our or executive
officers.
Directors
are permitted to receive fixed fees and other compensation for their services as
directors. The Board of Directors has the authority to fix the
compensation of directors. The Board has agreed to pay Mr. Wolff
$1,500 per month for attending board meetings and performing his other duties as
a director. We have no pension or compensatory plans or other
arrangements that provide for compensation to our directors in the event of a
change in control of our company.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information concerning the ownership of our
common stock as of February 1, 2011, of (i) each person who is known to us to be
the beneficial owner of more than 5 percent of our common stock, without regard
to any limitations on conversion or exercise of convertible securities or
warrants; (ii) all directors and executive officers; and (iii) our directors and
executive officers as a group:
Percentage
of Ownership(2)
|
||||||||||||
Name
and Address
of
Beneficial Owner Percentage of Ownership(2)
|
Amount
and Nature of Beneficial Ownership(
|
Before
Offering
|
After
Offering
|
|||||||||
Edward
P. Mooney
4265
San Felipe St.
Suite
1100
Houston,
TX 77027
|
12,761,482 | (3) | 61.1 | % | 33.4 | % | ||||||
Daniel
F. Carlson
4265
San Felipe St.
Suite
1100
Houston,
TX 77027
|
432,734 | (4) | * | * | ||||||||
Graham
Chapman
16
Meadow Rd.
Great
Gransden, Dandy
Bedfordshire
XO SG19 3BD
|
25,000 | (5) | * | * | ||||||||
James
J. Wolff
140
Sagamore Rd.
Louisville,
KY 40207
|
30,000 | (6) | * | * | ||||||||
Executive
Officers and Directors as a Group (4 Persons)
|
13,249,216 | 63.4 | % | 34.4 | % | |||||||
LIFE
Power and Fuels LLC(7)
4265
San Felipe St.
Suite
1100
Houston,
TX 77027
|
12,304,000 | (8) | 59.2 | % | 33.0 | % | ||||||
Fernando
T. Casas(9)
Latin-American
Fuels Corporation
4265
San Felipe St.
Suite
1100
Houston,
TX 77027
|
3,600,000 | 17.4 | % | 10.6 | % | |||||||
Steelhead
Navigator Master, LP(10)
333
108th
Avenue NE
Bellevue,
WA 98004
|
2,400,000 | (11) | 11.0 | % | 3.5 | % |
48
_______________
*Less
than 1%.
(1)Under
Rule 13d-3 of the Exchange Act, a beneficial owner of a security includes any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or shares: (i) voting power, which
includes the power to vote, or to direct the voting of shares; and (ii)
investment power, which includes the power to dispose or direct the disposition
of shares. Certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the shares
(for example, upon exercise of an option) within 60 days of the date as of which
the information is provided. In computing the percentage ownership of
any person, the amount of shares outstanding is deemed to include the amount of
shares beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in this table does not necessarily reflect the
person’s actual ownership or voting power with respect to the number of shares
of common stock actually outstanding on February 1, 2011.
(2)Percentage
before the offering based on 20,717,500 shares of common stock outstanding as of
February 1, 2011. Percentage after offer assumes the sale and
conversion of all of the preferred shares in this offering and the conversion of
all promissory notes.
(3)These
shares include 12,240,000 shares, 32,000 shares issuable upon exercise of common
stock purchase warrants and 32,000 shares issuable upon the conversion of a 10%
Secured Convertible Note, all owned of record by LIFE Power and Fuels, Inc. and
are also included in this table as beneficially owned by that
company. Mr. Mooney and this entity have shared power to vote and
direct the disposition of, and therefore jointly beneficially own, these
shares. Mr. Mooney disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest therein. The remaining
457,482 shares consist of 25,000 shares issuable upon exercise of outstanding
options which are currently fully vested and held in the name of Edward P.
Mooney and 432,482 shares held of record by the Edward P. Mooney and Theresa M.
Mooney Revocable Living Trust. Mr. Mooney has the sole power to vote
and direct the disposition of the shares owned by the trust.
(4)Includes
25,000 shares issuable upon exercise of options held by Mr. Carlson which are
currently fully vested.
(5)Represents
shares issuable upon exercise of options held by Mr. Chapman which are currently
fully vested.
(6)Represents
shares issuable upon exercise of outstanding options which are currently fully
vested.
(7)As the
sole managing member of this entity, Mr. Mooney has sole voting and dispositive
power over these shares.
(8)Includes
32,000 shares issuable upon exercise of outstanding common stock purchase
warrants and 32,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
49
(9)These
shares are held of record by Latin-American Fuels Corporation. Mr.
Casas is the president and a principal shareholder of Latin-American Fuels
Corporation. Due to his relationship with this entity, Mr. Casas is
deemed to have shared voting and investment power with respect to, and as a
result, have shared beneficial ownership of, these shares. Mr. Casas,
however, disclaims beneficial ownership of these shares except to the extent of
his pecuniary interest therein.
(10)These
shares are held of record by Steelhead Navigator Master, LP (Steelhead
Navigator). Steelhead Partners, LLC (Steelhead Partners) is the
general partner of Steelhead Navigator, and J. Michael Johnston and Brian K.
Klein are the member-managers of Steelhead Partners, LLC. Due to
these relationships, Messrs Johnston and Klein and Steelhead Partners may be
deemed to have shared voting and investment power with respect to, and as a
result, have shared beneficial ownership of, these shares. Messrs
Johnston and Klein and Steelhead Partners, however, disclaim beneficial
ownership of these shares except to the extent of his or its pecuniary interest
therein.
(11)Includes
1,200,000 shares issuable upon exercise of outstanding common stock purchase
warrants and 1,200,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
SELLING
STOCKHOLDERS
The table
below sets forth information concerning the resale of the shares of common stock
by the selling stockholders. We will not receive any proceeds from
the resale of the common stock by the selling stockholders. Assuming
all the shares registered below are sold by the selling stockholders, none of
the selling stockholders will continue to own any shares of our common
stock. Except as set forth below, none of the selling stockholders is
a registered broker-dealer or an affiliate of a broker-dealer.
The
following table also sets forth the name of each person who is offering the
resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the percentage each person will own
after the offering, assuming they sell all of the shares offered.
Name
|
Amount
Beneficial Ownership Before Offering
|
Percentage
of Common Stock Owned Before Offering1
|
Amount
to be Offered for the Security Holder’s Account
|
Amount
to be Beneficially Owned After Offering1
|
Percentage
of Common Stock Owned After Offering2
|
|||||||||||||||
1st
Orion 3
|
171,2414 | * | 80,000 | 91,241 | * | |||||||||||||||
Alliance
Spielman
Investments**5
|
52,3746 | * | 20,000 | 32,374 | * | |||||||||||||||
Baroque7
|
80,0008 | * | 40,000 | 40,000 | * | |||||||||||||||
Ben
Joseph Partners9
|
80,00010 | * | 40,000 | 40,000 | * | |||||||||||||||
CIC
LC 401K Plan11
|
100,000 | * | 50,000 | 50,000 | * | |||||||||||||||
Crypto
Corporation12
|
40,00013 | * | 20,000 | 20,000 | * | |||||||||||||||
Dan
Suesskind**
|
34,18714 | * | 14,000 | 20,187 | * | |||||||||||||||
Daniel
F. Carlson**15
|
432,73416 | 2.1 | % | 120,000 | 312,734 | * | ||||||||||||||
Dana
Donnell
|
12,00017 | * | 6,000 | 6,000 | * | |||||||||||||||
EDJ
Limited18
|
60,00019 | * | 30,000 | 30,000 | * | |||||||||||||||
GRQ
Consultants, Inc. 401K20
|
80,00021 | * | 40,000 | 40,000 | * | |||||||||||||||
Edward
P. Mooney**22
|
12,761,48223 | 61.1 | % | 120,000 | 11,009,000 | 33.4 | %* | |||||||||||||
Howard
Worman**
|
21,23724 | * | 10,000 | 11,237 | * | |||||||||||||||
Hyposwiss Private
Bank Geneve SA for Swindells Family Trust**25
|
885,02926 | 4.2 | % | 100,000 | 785,029 | 2.4 | % |
50
Name
|
Amount
Beneficial Ownership Before Offering
|
Percentage
of Common Stock Owned Before Offering1
|
Amount
to be Offered for the Security Holder’s Account
|
Amount
to be Beneficially Owned After Offering1
|
Percentage
of Common Stock Owned After Offering2
|
|||||||||||||||
Jacob
Shasha**
|
13,547 | * | 6,000 | 7,547 | * | |||||||||||||||
Jeffrey
Grossman**
|
155,747 | * | 60,000 | 95,747 | * | |||||||||||||||
Jeffrey
McAdam
|
5,200 | * | 5,200 | 0 | * | |||||||||||||||
Jeffrey
McLaughlin29
|
16,00030 | * | 8,000 | 8,000 | * | |||||||||||||||
Jennifer
Graffman**
|
50,28731 | * | 20,000 | 30,287 | * | |||||||||||||||
Joesph
Nemelka**
|
124,99532 | * | 30,000 | 94,995 | * | |||||||||||||||
John
Guarino**33
|
85,49934 | * | 40,000 | 45,499 | * | |||||||||||||||
John
O'Shea IRA**35
|
86,18736 | * | 40,000 | 46,187 | * | |||||||||||||||
John
Steinmetz**37
|
352,82438 | 1.7 | % | 40,000 | 312,824 | * | ||||||||||||||
Ken
Edwards
|
10,60039 | * | 5,200 | 5,400 | * | |||||||||||||||
Kent
& Christine Barnard
|
20,00040 | * | 10,000 | 10,000 | * | |||||||||||||||
Kevin
McGrath
|
100,00041 | * | 50,000 | 50,000 | * | |||||||||||||||
Laura
Lee Madsen
|
186,24142 | * | 5,200 | 78,000 | * | |||||||||||||||
Leon
Barnard
|
40,00043 | * | 20,000 | 20,000 | * | |||||||||||||||
LIFE
Power & Fuels, LLP44
|
12,304,00045 | 59.2 | % | 1,440,000 | 10,864,000 | 33 | % | |||||||||||||
Michael
I. Fuchs**
|
33,54746 | * | 16,000 | 17,547 | * | |||||||||||||||
Miriam
Cogan-Karpf
|
40,00047 | * | 20,000 | 20,000 | * | |||||||||||||||
Moro
Inc.48
|
20,00049 | * | 10,000 | 10,000 | * | |||||||||||||||
Neil
Christiansen
|
237,36050 | 1.1 | % | 65,000 | 122,360 | * | ||||||||||||||
Next
View Capital51
|
220,00052 | 1.1 | % | 110,000 | 110,000 | * | ||||||||||||||
Norman
Pappas Trust**53
|
24,64154 | * | 10,000 | 14,641 | * | |||||||||||||||
Paragon
Capital55
|
119,63656 | * | 60,000 | 59,636 | * | |||||||||||||||
Paul
Winston
|
80,00057 | * | 40,000 | 40,000 | * | |||||||||||||||
Pinnacle
Family Office Investments, LP58
|
800,00059 | 3.8 | % | 400,000 | 400,000 | 1.2 | % | |||||||||||||
Porter
Family Living Trust60
|
80,00061 | * | 40,000 | 40,000 | * | |||||||||||||||
Porter
Partners LP62
|
340,00063 | 1.6 | % | 170,000 | 170,000 | * | ||||||||||||||
Renee
Grossman**
|
673,635 | 3.3 | % | 300,000 | 373,635 | 1.1 | % | |||||||||||||
RES
Limited64
|
40,00065 | * | 20,000 | 20,000 | * | |||||||||||||||
Roger
Lash**
|
43,09366 | * | 20,000 | 23,093 | * | |||||||||||||||
Seaside
88 LP67
|
800,00068 | 3.8 | % | 400,000 | 400,000 | 1.2 | % | |||||||||||||
SGS
M3 Resources**69
|
259,87670 | 1.3 | % | 100,000 | 159,876 | * | ||||||||||||||
Steelhead
Navigator Master, LP71
|
2,400,00072 | 11.0 | % | 1,200,000 | 1,200,00 | 3.5 | % | |||||||||||||
Steven
L. White
|
20,000 | * | 10,000 | 10,000 | * |
51
Name
|
Amount
Beneficial Ownership Before Offering
|
Percentage
of Common Stock Owned Before Offering1
|
Amount
to be Offered for the Security Holder’s Account
|
Amount
to be Beneficially Owned After Offering1
|
Percentage
of Common Stock Owned After Offering2
|
|||||||||||||||
Summer
Ventures, Inc.
73
|
220,00074 | 1.1 | % | 100,000 | 120,000 | * | ||||||||||||||
Vaziarani
Ventures LLC**75
|
53,74976 | * | 20,000 | 33,749 | * | |||||||||||||||
Ralph
Sanford Yashinsky**
|
36,00077 | * | 18,000 | 18,000 | * | |||||||||||||||
Latin-American
Fuels Corporation78
|
3,600,000 | 17.4 | % | 120,000 | 3,480,000 | 10.6 | % |
* Less
than 1%
** Member
of LIFE Power & Fuels, LLC.
1 Based
upon 20,717,500 shares outstanding at February 1, 2011.
2 Based
upon 32,917,500 shares outstanding after the offering.
3 Sole
voting and investment power is held by Laura Lee Madsen.
4 Includes
48,800 shares held in brokerage accounts.
5 Sole
voting and investment power is held Robert Spielman.
6 Includes
20,000 issuable upon conversion of 10% Convertible Note.
7 Sole
voting and investment power is held Bernard Pouliot.
8 Includes
40,000 common shares issuable upon exercise of outstanding warrants and 40,000
issuable upon conversion of 10% Convertible Note.
9 Sole
voting and investment power is held Jeffrey H. Porter.
10
Includes 40,000 common shares issuable upon exercise of outstanding warrants
warrants and 40,000 issuable upon conversion of 10% Convertible
Note.
11 Sole
voting and investment power is held Neil Christiansen.
12 Sole
voting and investment power is held Evelyn J. Cann.
13
Includes 20,000 common shares issuable upon conversion of 10% Convertible
Note.
14
Includes 14,000 common shares issuable upon exercise of
outstanding warrants and 14,000 issuable upon conversion of 10% Convertible
Note.
15 Mr.
Carlson is a officer and director of the Company. Mr. Carlson has an
employment agreement with the Company.
16
Includes 25,000 shares issuable upon exercise of options held by Mr.
Carlson which are currently fully vested.
17
Includes 6,000 common shares issuable upon exercise of outstanding
warrants and 6,000 issuable upon conversion of 10% Convertible
Note.
18 Sole
voting and investment power is held Jeffrey H. Porter.
19
Includes 30,000 common shares issuable upon exercise of outstanding
warrants and 30,000 issuable upon conversion of 10% Convertible
Note.
20 Sole
voting and investment power is held Barry Honig.
21
Includes 40,000 issuable upon conversion of 10% Convertible
Note
22 Mr.
Mooney is an officer and director of our company.
23 These
shares include 12,240,000 shares, 32,000 shares issuable upon exercise of common
stock purchase warrants and 32,000 shares issuable upon the conversion of a 10%
Secured Convertible Note, all owned of record by LIFE Power and Fuels, Inc. and
are also included in this table as beneficially owned by that
company. Mr. Mooney and this entity have shared power to vote and
direct the disposition of, and therefore jointly beneficially own, these
shares. Mr. Mooney disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest therein. The remaining
457,482 shares consist of 25,000 shares issuable upon exercise of outstanding
options which are currently fully vested and held in the name of Edward P.
Mooney and 432,482 shares held of record by the Edward P. Mooney and Theresa M.
Mooney Revocable Living Trust. Mr. Mooney has the sole power to vote
and direct the disposition of the shares owned by the trust.
24
Includes 10,000 issuable upon conversion of 10% Convertible
Note.
25 Sole
voting and investment power is Ashley Hickman.
52
26
Includes 100,000 common shares issuable upon exercise of outstanding
warrants and 100,000 issuable upon conversion of 10% Convertible
Note.
27
Includes 6,000 common shares issuable upon exercise of outstanding
warrants and 6,000 issuable upon conversion of 10% Convertible
Note.
28
Includes 60,000 common shares issuable upon exercise of outstanding
warrants and 60,000 issuable upon conversion of 10% Convertible
Note.
29 Mr.
McLaughin is a registered broker-dealer. Mr. McLaughlin is an
affiliate of a registered broker-dealer.
30
Includes 8,000 issuable upon conversion of 10% Convertible Note.31
Includes 20,000 issuable upon conversion of 10% Convertible Note and
includes 4,100 shares common shares held in a brokerage account.
32
Includes 10,000 shares common shares held in a brokerage account.
33 Mr.
Guarino is a affiliate of a registered broker-dealer.
34
Includes 40,000 issuable upon conversion of 10% Convertible
Note
35 Sole
voting and investment power is John O’Shea. Mr. O’Shea is a affiliate
of a registered broker-dealer.
36
Includes 40,000 common shares issuable upon exercise of outstanding warrants and
40,000 issuable upon conversion of 10% Convertible Note
37 Mr.
Steinmetz is a registered broker-dealer.
38
Includes 43,564 common shares underlying exercise of outstanding warrants
and Includes 40,000 issuable upon conversion of 10% Convertible
Note.
39
Includes 200 shares held by Debbie Edwards, Mr. Edwards’
wife.
40
Includes 10,000 common shares issuable upon exercise of
outstanding warrants and 10,000 issuable upon conversion of 10% Convertible
Note.
41 Includes
50,000 issuable upon conversion of 10% Convertible Note.
42
Includes 146,041 shares held by 1st Orion
which Ms. Madsen has sole voting and investment power. Includes 5,000
shares held in brokerage accounts, 9,000 shares held by 1st Zamora
Corp. which Ms. Madsen has sole voting and investment power and 20,000 shares
held by The Quest for the Gift of Life Foundation which Ms. Madsen is Trustee
and has sole voting and investment power.
43
Includes 20,000 issuable upon conversion of 10% Convertible
Note.
44 Sole
voting and investment power is held by Edward P. Mooney.
45
Includes 32,000 shares issuable upon exercise of outstanding common stock
purchase warrants and 32,000 shares issuable upon the conversion of a 10%
Secured Convertible Note.
46
Includes 16,000 common shares issuable upon exercise of outstanding
warrants and 16,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
47
Includes 20,000 common shares issuable upon exercise of outstanding
warrants and 20,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
48 Sole
voting and investment power is held by Stephen Schwartz.
49
Includes 10,000 common shares issuable upon exercise of outstanding
warrants and 10,000 shares issuable upon the conversion of a 10% Secured
Convertible Note..
50
Includes 100,000 shares held by CIC LC 401K which Mr. Christiansen has
sole voting and investment power.
51 Sole
voting and investment power is held by Stewart Flink.
52
Includes 110,000 common shares issuable upon exercise of outstanding
warrants and 110,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
53 Sole
voting and investment power is held Norman A. Pappas; Mr. Pappas is an affiliate
of a registered broker-dealer.
54
Includes 10,000 common shares issuable upon exercise of outstanding
warrants and 10,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
55 Sole
voting and investment power is held by Alan P. Donenfeld.
56
Includes 60,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
57
Includes 40,000 common shares issuable upon exercise of outstanding
warrants and 40,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
58 Sole
voting and investment power is held by Barry M. Kitt
59
Includes 400,000 common shares issuable upon exercise of
outstanding warrants and 400,000 shares issuable upon the conversion of a 10%
Secured Convertible Note.
60 Sole
voting and investment power is held by Jeffrey H. Porter.
61
Includes 40,000 common shares issuable upon exercise of outstanding
warrants and 40,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
62 Sole
voting and investment power is held by Jeffrey H. Porter.
63
Includes 170,000 common shares issuable upon exercise of outstanding
warrants and 170,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
53
64 Sole
voting and investment power is held by Evelyn Cann.
65
Includes 20,000 common shares issuable upon exercise of outstanding
warrants and 20,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
66
Includes 20,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
67 Sole
voting and investment power is held by William J. Ritger.
68
Includes 400,000 common shares issuable upon exercise of
outstanding warrants and 400,000 shares issuable upon the conversion of a 10%
Secured Convertible Note.
69 Sole
voting and investment power is held by Gary McAdam.
70
Includes 59,876 held in brokerage accounts.
71 The
securities are beneficially owned by Steelhead Navigator Master, L.P. (the
“Fund”), for which Steelhead Partners, LLC (“Steelhead”) serves as the
investment manager. James Michael Johnston and Brian Katz Klein are
Steelhead’s member-managers. Steelhead, Mr. Johnston and Mr. Klein
may be deemed to beneficially own the securities owned by the Fund insofar as
they may be deemed to have the power to direct the voting or disposition of such
securities. Each of the Fund, Steelhead, Mr. Johnston and Mr. Klein
expressly disclaims beneficial ownership of the securities, except to the extent
of their respective pecuniary interests therein.
72
Includes 1,200,000 shares issuable upon exercise of outstanding common
stock purchase warrants and 1,200,000 shares issuable upon the conversion of a
10% Secured Convertible Note.
73 Sole
voting and investment power is held by David R. Nemelka.
74 Includes 12,000 shares held in
Brokerage Accounts.
75Sole
voting and investment power is held by Raj Vazirani.
76
Includes 20,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
77
Includes 18,000 common shares issuable upon exercise of outstanding
warrants and 18,000 shares issuable upon the conversion of a 10% Secured
Convertible Note.
78 These
shares are held of record by Latin-American Fuels Corporation. Mr.
Casas is the president and a principal shareholder of Latin-American Fuels
Corporation. Due to his relationship with this entity, Mr. Casas is
deemed to have shared voting and investment power with respect to, and as a
result, have shared beneficial ownership of, these shares. Mr. Casas,
however, disclaims beneficial ownership of these shares except to the extent of
his pecuniary interest therein.
CHANGE
OF ACCOUNTANTS
On June
8, 2010, our board of directors recommended and approved the dismissal of
Pritchett, Siler & Hardy, P.C., as our independent auditor effective as of
that date. The reports of this firm on our financial statements as of
and for the fiscal years ended December 31, 2009 and December 31, 2008 did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles, except that
its reports for the fiscal years ended December 31, 2009 and 2008 contained
going concern qualifications because we had incurred losses since our inception
and we had, at the date of such reports, current liabilities in excess of
current assets.
During
our two most recent fiscal years ended 2009 and 2008 and during the subsequent
interim period through the date of the report on Form 8-K filed with the
Commission on June 10, 2010, there were no disagreements with this
firm on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements, if not
resolved to the satisfaction of Pritchett, Siler & hardy, P.C., would have
caused it to make reference to the subject matter of the disagreements in
connection with its reports, and no events of the type listed in
paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K
occurred.
On June
8, 2010, we engaged Burr Pilger Mayer, Inc., an independent registered public
accounting firm which is registered with, and governed by the rules of, the
Public Company Accounting Oversight Board, as our new independent registered
public accountant to audit our financial statements for the year ended
December 31, 2010. The decision to change our independent registered public
accounting firm was ratified by our board of directors on June 8,
2010. During the fiscal years ended 2009 and 2008 and through the
date of the Form 8-K report filed with the Commission on June 10, 2010, neither
we nor anyone acting on our behalf consulted Burr Pilger Mayer, Inc.
with respect to (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on our financial statements, and neither a written report was
provided to us or oral advice was provided that Burr Pilger Mayer, Inc.
concluded was an important factor considered by us in reaching a decision as to
the accounting, auditing or financial reporting issue; or (ii) any matter that
was the subject of a disagreement or reportable events set forth in Item
304(a)(1)(iv) and (v), respectively, of Regulation S-K.
54
We
furnished Pritchett, Siler & Hardy, P.C. with a copy of the disclosure in
this section on June 8, 2010, providing them with the opportunity to furnish it
with a letter addressed to the Securities and Exchange Commission stating
whether it agrees with the statements made by us above in response to Item
304(a) of Regulation S-K and, if not, stating the respect in which it does not
agree. A letter from Pritchett, Siler & Hardy, P.C. dated June 9, 2010, was
filed as Exhibit 16.1 to our report on Form 8-K filed with the Commission on
June 10, 2010.
DESCRIPTION
OF SECURITIES
General
Our
authorized capital stock consists of 100,000,000 shares of common stock, par
value of $0.001 per share, and 5,000,000 shares of preferred stock, par value of
$0.001 per share.
Common
Stock
All
common shares are equal to each other with respect to liquidation and dividend
rights. Holders of voting shares are entitled to one vote for each
share they own at any stockholders’ meeting.
Holders
of common shares of our common stock are entitled to receive such dividends as
may be declared by our board of directors out of funds legally available for
that purpose, and upon liquidation are entitled to participate pro-rata in a
distribution of assets available for such distribution to
stockholders. There are no conversion, preemptive, or other
subscription rights or privileges with respect to any shares.
Our
common stock does not have cumulative voting rights which means that the holders
of more than 50% of the voting shares voting for election of directors may elect
all of the directors if they choose to do so. In such event, the
holders of the remaining shares aggregating less than 50% will not be able to
elect any directors.
Series
A Preferred Stock
We are
authorized to issue 3,000,000 shares of Series A Preferred Stock. The
Series A shares have the following rights and preferences:
|
·
|
Each
outstanding Series A share is convertible into three shares of our common
stock at any time, subject to adjustment in the event of a stock split or
similar transaction.
|
|
·
|
The
holders of the Series A shares are entitled to the number of votes equal
to the number of whole shares of common stock into which they are
convertible. The Series A shares vote together with the holders
of the common stock, except as provided by
law.
|
|
·
|
In
the event of any voluntary or involuntary liquidation, dissolution or
winding up of our company, the holders of the Series A shares will be
entitled to receive a preferential distribution of the funds available for
liquidation up to an amount equal to $7.50 per Series A share before any
distribution to the holders of our common
stock.
|
|
·
|
The
holders of the Series A shares are entitled to such dividends paid and
distributions made to the holders of our common stock to the same extent
as if such holders of the Series A shares had converted their preferred
shares into common stock.
|
|
·
|
The
holders of the Series A shares do not have any preemptive rights to
purchase shares of our common
stock.
|
|
·
|
The
Series A shares are not subject to redemption or sinking fund
provisions.
|
55
PLAN
OF DISTRIBUTION
Series
A Preferred Stock Offering
We are
conducting a direct public offering of our Series A Preferred Stock by
management. These shares will be offered and sold by our executive
officers, for which they will receive no selling commissions or remuneration,
directly or indirectly. We may also engage licensed placement agents
to assist in this offering. We have authorized maximum selling
commissions of 6% of the gross proceeds from sales by any placement agents and
warrants equal to up to 6% of the number of common shares into which the Series
A Preferred Shares are convertible. These five-year warrants will be
immediately exercisable at $2.50 per share and will be
non-transferrable. We have commenced preliminary discussions with
potential placement agents but have not entered into any definitive agreements
or arrangements.
The
purchase price of the preferred shares is $7.50 per share. The
offering will remain open for a period of six months, unless extended by us for
up to an additional 30 days, and may close sooner upon the sale of all of the
preferred shares. The public offering price and conversion ratio of
the preferred shares offered by this prospectus has been determined solely by
our board of directors.
We
estimate that the expenses payable by us in connection with the offer and sale
of the preferred shares, as well as the registration of the common stock for the
selling stockholders, all of which will be borne by us, other than underwriting
discounts and commissions, will be as follows:
Securities
and Exchange Commission - Registration Fee
|
$ | 4,056 | ||
State
filing Fees
|
10,000 | |||
Printing
and Engraving Expenses
|
5,000 | |||
Edgarizing
Costs
|
10,000 | |||
Accounting
Fees and Expenses
|
20,000 | |||
Legal
Fees and Expenses
|
50,000 | |||
Miscellaneous
|
944 | |||
Total
|
$ | 100,000 |
Selling
Stockholders
We are
registering outstanding shares of our common stock and shares of our common
stock issuable upon conversion of our outstanding 10% Convertible Promissory
Notes to permit the resale of these shares of common stock by the selling
stockholders, from time to time after the date of this prospectus. We
will not receive any of the proceeds from the sale by the selling stockholders
of such shares of our common stock. We will bear all fees and
expenses incident to our obligation to register these shares of common stock and
the selling stockholders will pay all underwriting discounts and selling
commissions, if any, in connection with any sales of the shares.
The
selling stockholders, or their pledgees, donees, transferees or other
successors-in-interest, may offer the shares of our common stock for resale at
prevailing market prices on the OTC Bulletin Board, in isolated transactions, or
in a combination of such methods of sale. They may sell their shares
at fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices, or at negotiated prices
with institutional or other investors, or, when permissible, pursuant to the
exemption of Rule 144 under the Securities Act of 1933. These sales
may be effected in transactions, which may involve crosses or block
transactions, in any one or more of the following methods:
|
·
|
on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of
sale;
|
|
·
|
in
the over-the-counter market;
|
|
·
|
in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
|
56
|
·
|
through
the writing of options, whether such options are listed on an options
exchange or otherwise;
|
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
short
sales;
|
|
·
|
sales
pursuant to Rule 144;
|
|
·
|
broker-dealers
which have agreed with the selling security holders to sell a specified
number of such shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of sale;
and
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
If the
selling stockholders effect such transactions by selling shares of our common
stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of common stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with
sales of the shares of our common stock or otherwise, the selling stockholders
may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of common stock in the course of hedging in
positions they assume. The selling stockholders may also sell shares
of our common stock short and deliver shares of common stock covered by this
prospectus to close out short positions and to return borrowed shares in
connection with such short sales. The selling stockholders may also
loan or pledge shares of our common stock to broker-dealers that in turn may
sell such shares.
The
selling stockholders may pledge or grant a security interest in some or all of
the preferred shares and warrants or shares of our common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time pursuant to this prospectus or any amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of
1933, as amended, amending, if necessary, the list of selling stockholders to
include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus. The selling stockholders also may
transfer and donate the shares of common stock in other circumstances in which
case the transferees, donees, pledgees or other successors in interest will be
the selling beneficial owners for purposes of this prospectus.
The
selling stockholders and any broker-dealer participating in the distribution of
the shares of Common stock may be deemed to be “underwriters” within the meaning
of the Securities Act, and any commission paid, or any discounts or concessions
allowed to, any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act. At the time a particular
offering of the shares of common stock is made, a prospectus supplement, if
required, will be distributed which will set forth the aggregate amount of
shares of common stock being offered and the terms of the offering, including
the name or names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling stockholders and any
discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.
57
Under the
securities laws of some states, the shares of our common stock may be sold in
such states only through registered or licensed brokers or
dealers. In addition, in some states the shares of common stock may
not be sold unless such shares have been registered or qualified for sale in
such state or an exemption from registration or qualification is available and
is complied with.
There can
be no assurance that any selling stockholder will sell any or all of the shares
of common stock registered pursuant to the registration statement, of which this
prospectus forms a part.
The
selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of common stock by the selling
stockholders and any other participating person. Regulation M may
also restrict the ability of any person engaged in the distribution of the
shares of common stock to engage in market-making activities with respect to the
shares of common stock. All of the foregoing may affect the
marketability of the shares of common stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
common stock.
The
selling stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of the shares, nor is there an underwriter or
coordinating broker acting in connection with the proposed sale of the shares by
the selling stockholders. If we are notified by any one or more
selling stockholders that any material arrangement has been entered into with a
broker-dealer for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a broker or
dealer, we will file, or cause to be filed, a supplement to this prospectus, if
required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the
name of each such selling stockholder and of the participating broker-dealer(s),
(ii) the number of shares involved, (iii) the price at which such shares were
sold, (iv) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this prospectus, and (vi) other facts material to the
transaction.
Once sold
under the registration statement, of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other
than our affiliates.
The
selling stockholders are not restricted as to the price or prices at which they
may sell their shares. Sales of the shares may have an adverse effect
on the market price of the common stock. Moreover, the selling
stockholders are not restricted as to the number of shares that may be sold at
any time, and it is possible that a significant number of shares could be sold
at the same time, which may have an adverse effect on the market price of the
common stock.
LEGAL
MATTERS
The
validity of the shares of preferred and common stock offered under this
prospectus is being passed upon for us by Ronald N. Vance, Attorney at Law,
South Jordan, Utah.
EXPERTS
Our
financial statements for the years ended December 31, 2009 and 2008 appearing in
this prospectus which is part of a registration statement have been audited by
Pritchett, Siler & Hardy, P.C., and are included in reliance upon such
reports given upon the authority of Pritchett, Siler & Hardy, P.C., as
experts in accounting and auditing.
Certain
information with respect to the initial geological review of our mining
concessions incorporated in this prospectus is derived from a report by
Ingeandina S.A. and has been incorporated in this prospectus upon the authority
of Ingeandina S.A. as an expert with respect to the matters covered by the
report.
ADDITIONAL
INFORMATION
We have
filed a registration statement on Form S-1 under the Securities Act of 1933, as
amended, (SEC File No. 333-_______) relating to the shares of common stock being
offered by this prospectus, and reference is made to such registration
statement. This prospectus constitutes the prospectus of Colombia
Clean Power & Fuels, Inc. filed as part of the registration statement, and
it does not contain all information in the registration statement, as certain
portions have been omitted in accordance with the rules and regulations of the
Securities and Exchange Commission.
We are
required to file reports and other documents with the SEC. We do not
presently intend to voluntarily furnish you with a copy of our annual
report. You may read and copy any materials we file with the
Securities and Exchange Commission at the public reference room of the
Commission between the hours of 9:00 a.m. and 5:00 p.m., except federal holidays
and official closings, at 100 F Street, NE, Washington, D.C.
20549. You should call (800) SEC-0330 for more information on the
public reference room. Our filings with the Commission are also
available to you on the Internet website for the Securities and Exchange
Commission at http://www.sec.gov.
58
Appendix
A—Glossary of Terms
Certain
terms used in this prospectus are defined in the following
glossary:
BTU. British thermal unit, or Btu,
is the amount of heat required to raise the temperature of one pound of water
one degree Fahrenheit.
Coke or Metallurgical
Coke. A hard, dry carbon substance produced by heating coal to
a very high temperature in the absence of air. Coke is used in the manufacture
of iron and steel.
Coal
Gassification. Coal gasification is the process of producing
coal gas, a type of syngas–a mixture of carbon monoxide (CO) and hydrogen (H2)
gas–from coal.
Coal seam. Coal
deposits occur in layers typically separated by layers of rock. Each layer is
called a "seam." A seam can vary in thickness from inches to a hundred feet or
more.
Concession. In
Colombia, the state owns all hydrocarbon reserves and private companies operate
coal mines under coal concession contracts with the state.
Full-recovery coke
plant. A full-recovery coke plant is a coke manufacturing
plant that has all the advantages of a heat-recovery coke plant (defined herein)
plus it captures and utilizes all of its by-products and emissions, including
CO2, which can be sold.
Handy vessels. A
handy vessel is a type of ocean vessel with cargo capacities between 20,000 to
40,000 metric tons (0.8-1.5 million bushels). The handy-sized vessels are used
to service shallow water ports that have lower draft restrictions and for lower
volume trade routes.
Metallurgical
Coal. Metallurgical coal is high-value bituminous coal that
typically contains over 70% carbon and has heat values of 14,000–15,000 Btu per
pound. It is used primarily by the steel and iron
industries.
Heat-recovery coke
plant. A heat-recovery coke plant is a coke manufacturing
plant in which volatiles from the carbonization process are completely combusted
and not-recovered. The plants are lower cost, higher yield and more
environmentally-friendly than recovery byproduct and beehives
ovens.
Open Pit or Surface mine. A
mine in which the coal lies near the surface and can be extracted by removing
the covering layer of soil overburden.
Overburden. Layers
of earth and rock covering a coal seam. In surface mining operations, overburden
is removed prior to coal extraction.
Panamax vessels. A
Panamax vessel is a type of ocean vessel with cargo capacities between 40,000 to
80,000 that are designed to fit in the Panama canal’s locks--hence the name,
denoting that they both maximize the freight transported through the canal, and
that they are the biggest ships able to pass through the canal.
Probable (indicated)
reserves. Reserves for which quantity and grade and/or quality are
computed from information similar to that used for proven (measured) reserves,
but the sites for inspection, sampling, and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance, although lower than
that for proven (measured) reserves, is high enough to assume continuity between
points of observation.
Proven (measured) reserves.
Reserves for which (a) quantity is computed from dimensions revealed in
outcrops, trenches, workings or drill holes; grade and/or quality are computed
from the results of detailed sampling and (b) the sites for inspection, sampling
and measurement are spaced so closely and the geologic character is so well
defined that size, shape, depth and mineral content of reserves are
well-established.
59
Reclamation. The process of
restoring land to its prior condition, productive use or other permitted
condition following mining activities. The process commonly includes
"recontouring" or reshaping the land to its approximate original appearance,
restoring topsoil and planting native grass and shrubs. Reclamation operations
are typically conducted concurrently with mining operations. Reclamation is
closely regulated by both state and federal laws.
Reserve. That part of a
mineral deposit which could be economically and legally extracted or produced at
the time of the reserve determination.
Sulfur. One of the elements
present in varying quantities in coal that contributes to environmental
degradation when coal is burned. Sulfur dioxide (SO2) is produced as a gaseous
by-product of coal combustion.
Thermal Coal. A
term used to describe coal which is used primarily to generate heat. Also
referred to as steam coal.
Ton or Metric
Ton. The ton or metric ton is a unit of mass equal to 1,000
kg.
60
COLOMBIA
CLEAN POWER & FUELS, INC.
(AN
EXPLORATION STAGE COMPANY)
UNAUDITED
FINANCIAL STATEMENTS
September
30, 2010 & December 31, 2009
1
COLOMBIA
CLEAN POWER & FUELS, INC.
(AN
EXPLORATION STAGE COMPANY)
CONDENSED
BALANCE SHEETS
(unaudited)
September
30, 2010
|
December
31, 2009
|
(1)
|
||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and Cash Equivalents
|
$
|
861,655
|
$
|
89
|
||||
Other
Current Assets
|
163,540
|
-
|
||||||
Total
Current Assets
|
1,025,195
|
$
|
89
|
|||||
Property
and Equipment
|
||||||||
Mining
Concession
|
263,767
|
-
|
||||||
Other
Assets
|
68,886
|
-
|
||||||
TOTAL
ASSETS
|
$
|
1,357,848
|
$
|
89
|
||||
LIABILITIES
& STOCKHOLDERS' DEFICIT
|
||||||||
Liabilities
|
||||||||
Current
Liabilities
|
||||||||
Accounts
Payable and Accrued Liabilities
|
$
|
241,773
|
6,681
|
|||||
Accrued
Interest Related Party
|
-
|
1,339
|
||||||
Loans
from Officers & Directors
|
5,100
|
117,000
|
||||||
Total
Current Liabilities
|
246,873
|
125,020
|
||||||
Long
Term Liabilities
|
||||||||
Convertible
Notes - Related Party
|
-
|
5,000
|
||||||
Convertible
Notes Payable (Net of Issuance Discount)
|
1,607,617
|
-
|
||||||
Accrued
Interest on Convertible Notes Payable
|
21,137
|
-
|
||||||
Total
Long Term Liabilities
|
1,628,754
|
5,000
|
||||||
Total
Liabilities
|
1,875,626
|
130,020
|
||||||
Commitments
and Contingencies
|
||||||||
Stockholders'
Deficit
|
||||||||
Preferred
stock, $.001 par value, 5,000,000 shares authorized, no shares
issued and outstanding
|
-
|
-
|
||||||
Common
Stock, $.001 par value, 100,000,000 shares
authorized, 20,280,001 shares and 1,120,000 shares issued and
outstanding, respectively
|
20,280
|
1,120
|
||||||
Additional
Paid in Capital
|
533,664
|
94,556
|
||||||
Deficit
Accumulated during the Exploration Stage
|
(1,069,260
|
)
|
(225,607
|
)
|
||||
Other
Comprehensive Loss
|
(2,462
|
)
|
-
|
|||||
Total
Stockholders' Deficit
|
(517,778
|
)
|
(129,931
|
)
|
||||
TOTAL
LIABILITIES & STOCKHOLDERS' DEFICIT
|
$
|
1,357,848
|
$
|
89
|
(1)
Derived from the audited financial statements at December 31, 2009.
2
COLOMBIA
CLEAN POWER & FUELS, INC.
(AN
EXPLORATION STAGE COMPANY)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
For
the Three
|
For
the Nine
|
From
Inception on
|
||||||||||||||||||
Months
Ended
|
Months
Ended
|
Nov.
6, 1996
|
||||||||||||||||||
September
30,
|
September
30,
|
through
|
||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
September
30, 2010
|
||||||||||||||||
Revenue
|
$ | - | $ | - | $ | - | $ | - | $ | 3,560 | ||||||||||
Expenses
|
||||||||||||||||||||
Depreciation
and Amortization
|
- | - | - | - | 4,174 | |||||||||||||||
General
and Administrative
|
698,978 | 2,066 | 818,242 | 12,817 | 984,103 | |||||||||||||||
Research
and Development
|
- | - | - | - | 15,674 | |||||||||||||||
Impairment
of Long - Lived Assets
|
- | - | - | - | 21,285 | |||||||||||||||
Total
Expenses
|
698,978 | 2,066 | 818,242 | 12,817 | 1,025,236 | |||||||||||||||
Loss
Before Other Income (Expense)
|
(698,978 | ) | (2,066 | ) | (818,242 | ) | (12,817 | ) | (1,021,676 | ) | ||||||||||
Other
Income (Expense)
|
||||||||||||||||||||
Interest
Expense, net
|
(19,848 | ) | (2,391 | ) | (25,411 | ) | (6,848 | ) | (51,460 | ) | ||||||||||
Gain
on Settlement of Debt
|
- | - | - | - | 4,097 | |||||||||||||||
Total
Other Income (Expense)
|
(19,848 | ) | (2,391 | ) | (25,411 | ) | (6,848 | ) | (47,363 | ) | ||||||||||
Loss
Before Income Taxes
|
(718,825 | ) | (4,457 | ) | (843,653 | ) | (19,665 | ) | (1,069,039 | ) | ||||||||||
Current
Tax Expense
|
- | - | - | - | - | |||||||||||||||
Deferred
Tax Expense
|
- | - | - | - | - | |||||||||||||||
Net
loss before cumulative effect of change in accounting
principles
|
(718,825 | ) | (4,457 | ) | (843,653 | ) | (19,665 | ) | (1,069,039 | ) | ||||||||||
Cumulative
Effect of Change in accounting principles
|
- | - | - | - | (221 | ) | ||||||||||||||
Net
Loss
|
(718,825 | ) | (4,457 | ) | (843,653 | ) | (19,665 | ) | (1,069,260 | ) | ||||||||||
Other
Comprehensive Loss
|
||||||||||||||||||||
Loss
on Foreign Currency Translation
|
(3,786 | ) | - | (2,462 | ) | - | (2,462 | ) | ||||||||||||
Total
Comprehensive Loss
|
$ | (722,611 | ) | $ | (4,457 | ) | $ | (846,115 | ) | $ | (19,665 | ) | $ | (1,071,722 | ) | |||||
Basic
and Diluted Loss per Common Share
|
$ | (0.04 | ) | $ | (0.00 | ) | $ | (0.07 | ) | $ | (0.02 | ) | ||||||||
Weighted
Average Common Shares
|
20,280,001 | 1,120,000 | 11,366,740 | 1,120,000 |
3
COLOMBIA
CLEAN POWER & FUELS, INC.
(AN
EXPLORATION STAGE COMPANY)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For
the Nine Months Ended
September
30,
|
From
Inception on
November
6, 1996
through
|
|||||||||||
2010
|
2009
|
September
30, 2010
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$ | (843,653 | ) | $ | (19,665 | ) | $ | (1,069,260 | ) | |||
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
||||||||||||
Stock
compensation cost
|
26,253 | - | 26,253 | |||||||||
Amortization
of discount on note payable
|
1,833 | - | 1,833 | |||||||||
Depreciation
and amortization
|
- | - | 4,174 | |||||||||
Loss
on impairment of long-lived assets
|
- | - | 21,285 | |||||||||
Effect
of change in accounting principle
|
- | - | 221 | |||||||||
Gain
on settlement of debt
|
- | - | (4,097 | ) | ||||||||
Changes
in assets and liabilities:
|
||||||||||||
Other
current assets
|
460 | 300 | 460 | |||||||||
Other
assets
|
(68,886 | ) | - | (68,886 | ) | |||||||
Accounts
payable and accrued liabilities
|
235,192 | 4,464 | 273,235 | |||||||||
Accrued
Interest
|
21,138 | - | 21,138 | |||||||||
Net
cash used in operating activities
|
(627,663 | ) | (14,901 | ) | (793,644 | ) | ||||||
Cash
flows from investing activities:
|
||||||||||||
Increase
in property and equipment
|
(263,767 | ) | - | (265,509 | ) | |||||||
Increase
in other assets
|
- | - | (23,938 | ) | ||||||||
Net
cash used in investing activities
|
(263,767 | ) | - | (289,447 | ) | |||||||
Cash
flows from financing activities:
|
||||||||||||
Net
proceeds from issuance of convertible notes payable
|
1,726,000 | - | 1,746,000 | |||||||||
Net
proceeds from issuance of common stock
|
100,000 | - | 154,750 | |||||||||
Advances
from officers, directors and shareholders
|
(70,542 | ) | 14,500 | 46,458 | ||||||||
Net
cash provided by financing activities
|
1,755,458 | 14,500 | 1,947,208 | |||||||||
Effect
of exchange rate currency changes on cash and cash
equivalents
|
(2,462 | ) | - | (2,462 | ) | |||||||
Net
increase in cash and cash equivalents
|
861,566 | (401 | ) | 861,655 | ||||||||
Cash
and cash equivalents at beginning of period
|
89 | 809 | - | |||||||||
Cash
and cash equivalents at end of period
|
$ | 861,655 | $ | 408 | $ | 861,655 | ||||||
Supplemental
disclosure of noncash financing activities:
|
||||||||||||
Issuance
of stock warrants in connection with debt
|
$ | 284,217 | $ | - | $ | 284,217 | ||||||
Issuance
of common stock in connection with conversion of note
payable
|
$ | 6,439 | $ | - | $ | 6,439 | ||||||
Extinguishment
of payable to a related party
|
$ | 38,853 | $ | - | $ | 38,853 |
4
COLOMBIA
CLEAN POWER & FUELS, INC. AND SUBSIDIARIES
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND
ORGANIZATION
|
Overview
Colombia
Clean Power & Fuels, Inc. (the “Company”) is an exploration stage company
engaged in the business of acquiring and developing coal mining assets, and the
mining and sale of coal, coke and coal by-products using traditional and clean
coal technologies, initially in Colombia, South America. The Company
anticipates that its initial operations will include the mining of high-grade,
metallurgical coal and coal coking, and that, within the next several years, its
operations will include power generation and alternative energy production, such
as coal gasification and coal-to-liquids. The Company adopted its new
operating strategy based on the size of the Colombia coal market and
opportunities it has identified to acquire substantial coal resources and to
build mines in Colombia.
The
Company’s current operations are focused on exploration and development
activities. The Company has retained leading engineering and
geological services firms in the U.S. and Colombia to conduct exploration work
in selected concessions either acquired or under consideration for acquisition
by the Company. The Company’s team of executives, advisors and
partners is comprised of experienced entrepreneurs and business professionals in
the U.S., Colombia and China that have a broad breadth of experience in coal
mining and clean coal technologies and substantial industry
relationships.
Through a
wholly-owned subsidiary, the Company owns 100% of Energia Andina Santander
Resources S.A.S., a Colombian company established to acquire and develop coal
concessions. Energia Andina Santander Resources S.A.S. has
established a corporate office in Bogota and is in the process of recruiting its
team of operations, technical, financial, logistics, mining and marketing
employees and consultants.
The focus
of the Company since adopting its business strategy has been on (i) acquiring
coal concessions in the Santander region of Colombia, (ii) expanding the
Comapny’s technical and operational team in Colombia, and (iii) developing
strategic partnerships and potential joint ventures for the extraction,
processing and sale of coal and coal-based energy products. To date,
the Company has entered into agreements for the acquisition of three concessions
totaling 17,481 acres. The Company has identified additional
concessions available for purchase from private parties and is in the process of
applying for concessions directly from the Colombian government. The
Company has commenced its mining exploration program on lands under the
Company’s control and has also entered into discussions with landholders,
equipment providers and contractors in anticipation of its planned development
of state-of-the art coal processing facilities and facilities for the production
of clean coal fuels.
History
and Basis of Reporting
The
accompanying unaudited consolidated financial statements should be read in
conjunction with the Company's audited financial statements and accompanying
notes in the Company's Annual Report on Form 10-K for the year ended December
31, 2009 filed with the U.S. Securities and Exchange Commission (“SEC”) on
February 24, 2010. The accompanying (a) balance sheet as of December 31, 2009,
which has been derived from audited financial statements, and (b) unaudited
consolidated financial statements have been prepared pursuant to SEC Rule 10-01
of Regulation S-X. As a result, while the Company believes the
disclosures made are adequate to make the information not misleading, certain
information and note disclosures normally included in audited financial
statements prepared in accordance with generally accepted accounting principles
in the United States of America (“GAAP”) have been condensed or omitted pursuant
to those rules and regulations.
The
unaudited results of operations for the interim periods shown in these financial
statements are not necessarily indicative of operating results for the entire
year. In the opinion of management, the accompanying unaudited consolidated
financial statements recognize all adjustments of a normal recurring nature
considered necessary to fairly state the Company’s consolidated financial
position as of September 30, 2010, and its consolidated results of operations
and comprehensive loss, and cash flows for the three months and nine months
ended September 30, 2010.
The
consolidated financial statements have been prepared in accordance with GAAP
applicable to a going concern. Except as otherwise disclosed, these principles
assume that assets will be realized and liabilities will be discharged in the
ordinary course of business.
5
The
Company was incorporated in the State of Nevada on November 6, 1996 under the
name “Freedom Resources Enterprises, Inc.” to engage in the business of
self-help publications and workshops. Between November 1996 and
September 2005, the Company generated only minimal revenues, and in October
2005, the Company ceased all business operations. From October 2005
to early May 2010, the Company did not engage in any business
activities. Prior to this period, the Company’s management had been
evaluating potential business opportunities that might be available to the
Company to preserve its shareholder’s investment in its common
shares.
On May 6,
2010, the Company entered into a subscription agreement (the “Subscription
Agreement”) with LIFE Power & Fuels, LLC (“LIFE”), pursuant to which it
issued to LIFE 47,700,000 shares of its common stock, which shares represented
approximately 94.1% of its issued and outstanding shares of common stock at such
time, elected one new director to its board of directors and changed its
management team. Concurrently with the closing of the transactions
contemplated by the Subscription Agreement, the Company ceased to be a shell
company, as defined in Rule 12b-2 of the Exchange Act, and adopted a new plan of
operations. See Note 2. Subsequently, LIFE sold approximately 11,700,000 shares
of the Company's common stock to certain related parties. As of September 30,
2010, LIFE owned approximately 71.1% of the outstanding shares of the
Company.
On July
28, 2010, the Company effected a reverse stock split of two shares for every
five shares of common stock outstanding. Accordingly, outstanding shares of
common stock and stock options were adjusted to account for the effects of the
reverse stock split.
Effective
July 28, 2010, the Company changed its name from Freedom Resources Enterprises,
Inc. to “Colombia Clean Power & Fuels, Inc.”
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of the financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Concentrations
and Risks
Substantially
all of the Company's assets are located in the USA and in Colombia.
Cash
and Cash Equivalents
The
Company considers all highly-liquid investments with maturities of three months
or less at the date of purchase to be cash equivalents.
Fair
Value of Financial Instruments
The
Company’s financial instruments include cash and cash equivalents and
convertible notes payable. The Company believes its financial instruments
approximate their fair values due to their short-term maturities or the nature
and terms of the notes.
Debit
Issuance Costs
Debit
issuance costs include direct expenses incurred as a result of the Company’s
Note financing (see Note 4). Placement agent fees and other direct
costs incurred in this transaction were paid immediately but are amortized over
the life of the Notes using the effective-interest method.
6
Property
and Equipment - Mining Concession
Property
and Equipment consists of mining concessions costs, which are recorded at cost
as incurred. These costs will be amoritized using the units-of-production method
over the estimated recoverable reserves.
Derivative
Instruments
The
Company does not utilize derivative or hedge instruments in its financing
activities.
Foreign
Currency Translation
The
Company and its wholly-owned British Virgin Islands subsidiary, Energia Andina
Santander Ltd., maintain accounting records using U.S. dollars. Energia Andina
Santander Resources S.A.S., the Company’s Colombian subsidiary, maintains
accounting records using the Colombian Peso.
Foreign
currency transactions during the year are translated to their functional
currencies at the approximate rates of exchange on the dates of
transactions. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated at the approximate rates of
exchange at that date. Non-monetary assets and liabilities are
translated at the rates of exchange prevailing at the time the asset or
liability was acquired. Exchange gains or losses are recorded in the
statement of operations.
The
financial statements of Energia Andina Santander Resources S.A.S. are translated
into U.S. dollars using the closing rate method. The balance sheet
items are translated into U.S. dollars using the exchange rates at the
respective balance sheet dates. The capital account is translated at
the historical exchange rate prevailing at the time of the transactions while
income and expenses items are translated at the average exchange rate for the
period. All exchange differences are recorded as currency translation
adjustment within the “stockholder’s equity (deficit).”
Comprehensive
Income (loss)
The
foreign currency translation gain or loss resulting from the translation of the
financial statements expressed in Pesos to U.S. dollars is reported as currency
translation adjustment in the statements of operations and comprehensive loss
and stockholders’ equity (deficit).
Earnings
(Loss) Per Share
Earnings
(loss) per share are presented in accordance with the provisions of the
Financial Accounting Standards Board ("FASB") Accounting Standards Codification
("ASC") 260, “Earnings Per
Share.” ASC 260 requires presentation of basic and diluted
earnings per share in conjunction with the disclosure of the methodology used in
computing such earnings per share. Basic earnings per share excludes dilution
and is computed by dividing income available to common stockholders by the
weighted average common shares outstanding during the period. Diluted earnings
per share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock using the treasury method.
As of
September 30, 2010, the Company had stock warrants and stock options exercisable
to purchase, and convertible notes that were convertible into, an aggregate of
2,252,000 shares of common stock that were considered anti-dilutive because of a
net loss during the three months and nine months ended September 30, 2010 and
2009. See Note 5.
Earnings
(loss) per share are reflective of a two-for-five reverse stock split that
occurred on July 28, 2010. Per ASC 260, if the number of common shares
outstanding decreases as a result of a reverse stock split, the computations of
basic and diluted earnings per share shall be adjusted retroactively for all
periods presented to reflect that change in capital structure.
Segments
Substantially
all of the Company’s long lived assets are held by its wholly owned subsidiary,
Energia Andina Santander Resources, SAS, and are located in Colombia, South
America.
Reclassification
Certain
balances in the prior period financial statements were reclassified to conform
to the current period presentation.
7
2.
|
PRIVATE
PLACEMENT
|
On May 6,
2010, the Company entered into a Subscription Agreement with LIFE.
Pursuant to the Subscription Agreement, the Company sold an aggregate of
47,700,000 shares (the “Shares”) of its common stock to LIFE for an aggregate
purchase price of $100,000, which funds were used to eliminate the Company’s
then- current liabilities. The Shares (19,080,000 shares post reverse
stock split) represented 94.1% of the Company’s issued and outstanding
shares of common stock immediately following the transaction, and the
transaction resulted in a change in control of the Company.
At the
closing, Neil Christiansen resigned as the Company’s President, effective
immediately, and Edward P. Mooney was appointed the Company’s President and
Chief Executive Officer and as a member of the Company’s board of
directors. At the closing, Daniel F. Carlson was also appointed the
Company’s Chief Financial Officer, Secretary and Treasurer.
Simultaneous
with the closing of the Subscription Agreement, the following transactions
occurred to reflect the payment of $100,000 of the purchase price to reduce the
Company’s liabilities as follows: $10,664 to pay accounts payable; $8,689
to pay expenses incurred subsequent to March 31, 2010; and $80,647 to pay
advances to related parties. Related parties forgave $38,853 of loans due
to them, which has been recorded as a capital contribution.
Also
simultaneous with the closing of the Subscription Agreement, the Company issued
200,000 shares of its common stock upon conversion of a note payable in the
amount of $5,000 and related accrued interest of $1,439.
Subsequent
to the above-referenced transactions, the Company had 50,700,000 shares
outstanding prior to the reverse split on July 28, 2010. As of September 30,
2010, the adjusted shares outstanding were 20,280,001.
3.
|
CURRENT
LIABILITIES
|
Accounts
Payable and Accrued Liabilities
Accounts
payable and accrued liabilities of $246,873 existed at September 30, 2010.
This amount represented mainly professional fees incurred during July,
August and September, 2010 to mining engineers, accountants and
financial professionals, and management fees payable to LIFE.
4.
|
CONVERTIBLE
NOTES PAYABLE
|
Notes
Payable
On or
prior to September 30, 2010, in multiple closings, the Company issued $1,890,000
aggregate principal amount of 10% convertible promissory notes (the
“Notes”) to accredited investors in a private placement transaction. The
proceeds of the Note offering are being used to fund exploration-stage
activities of the Company, including the identification and analysis
of and negotiation for coal resources in Colombia that meet the Company’s
criteria for mining, processing and export potential.
This
offering was exempt from registration pursuant to Section 4(2) of the Securities
and Exchange Act of 1933, as amended, and Regulation D promulgated
thereunder. The Notes accrue interest at an annual rate of 10%.
Principal and interest are due on June 30, 2012. The Notes can be
converted at any time into common stock at a rate equal to $2.50 of principal
for each share of common stock. At the closings of the Note issuance, the
Company issued to the Note investors five-year warrants to purchase an aggregate
of 756,000 shares of common stock for a purchase price of $0.01 per share.
The total number of warrants issued and outstanding as of September 30,
2010 was 756,000. The discount on Notes Payable of $284,217 reflects the
Black-Scholes Fair Market Value of these warrants, which was also reflected as
an increase in Additional Paid in Capital. The discount on Notes
Payable is amortized over the life of the Notes and appears in the Statement of
Operations and Comprehensive Loss as an interest expense. The balance of the
notes payable was $1,607,617, net of unamoritized discount of $282,383, as of
September 30, 2010.
The
Company also paid cash fees associated with securing the notes payable of
approximately $164,000, which are included in the “other current assets” and
“other assets” in the consolidated balance sheets.
8
5.
|
EARNINGS
(LOSS) PER SHARE
|
The
elements for calculation of earnings (loss) per share for the three and nine
months ended September 30, 2010 and 2009 were as follows:
Three Months Ended
September 30
|
Nine Months Ended
September 30
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
loss
|
$
|
(718,825
|
)
|
$
|
(4,457
|
)
|
$
|
(843,653
|
)
|
$
|
(19,665
|
)
|
||||
Weighted
average shares used in basic and diluted computation
|
20,280,001
|
1,120,000
|
11,366,740
|
1,120,000
|
|
|||||||||||
Loss
per share:
|
||||||||||||||||
Basic
and diluted
|
$
|
(0.04
|
)
|
$
|
(0.00
|
)
|
$
|
(0.07
|
)
|
$
|
(0.02
|
)
|
6.
|
STOCKHOLDERS’
EQUITY
|
Reverse
Stock Split
On July
28, 2010, the Company executed a reverse stock split of its common stock in
which two new shares of common stock were issued for every five shares of common
stock held as of the date of the reverse stock split. This reverse split has
been applied retrospectively in the financial statements.
Stock
Options
The
Company is seeking to recruit and retain experienced professionals from the
global energy, natural resource development and mining
industries. The Company will seek to offer compensation that is
commensurate with the qualifications of future employees and advisors, including
the ability to offer equity participation with vesting provisions typical of
early-stage public companies. On May 12, 2010, the Board of Directors
adopted the 2010 Equity Incentive Plan (“Incentive Plan”), The Incentive Plan
gives the Company the ability to grant stock options, stock appreciation rights
(“SARs”), restricted stock and stock bonuses (collectively, “Awards”) to
employees or consultants of the Company or of any subsidiary of the Company and
to non-employee members of the Company’s advisory board or the board of
directors of the Company or the Company’s subsidiaries.
The Board
of Directors has authorized 3,300,000 shares of common stock for issuance
under the Incentive Plan. In the event of any change in the number of shares of
Company common stock outstanding by reason of any stock dividend or split,
reverse stock split, recapitalization, merger, consolidation, combination or
exchange of shares or similar corporate change, the maximum number of
shares of common stock with respect to which the Board of Directors may grant
awards, appropriate adjustments will be made to the shares subject to the
Incentive Plan and to any outstanding Awards. Shares available for Awards under
the Incentive Plan may be either newly-issued shares or treasury shares. If an
Award or portion thereof shall expire or terminate for any reason without having
been exercised in full, the unexercised shares covered by such Award shall be
available for future grants of Awards under the Incentive Plan.
On May
28, 2010, the Company granted options to purchase an aggregate of
740,000 shares of common stock to an independent board member and
various consultants to the Company. The options granted have a five-year term
and a strike price of $0.05 per share, with the exception of the options
granted to CleanTech IR, which options have a strike price of $0.01 per
share.
9
The
following table sets forth the number of options granted and
outstanding and the weighted average exercise price:
Number
of shares subject to
option
2010
|
Weighted
average exercise price
|
|||||||
Outstanding
beginning balance
|
0
|
-
|
||||||
Granted
during the period
|
740,000
|
|
$
|
0.1125
|
||||
Forfeited/Canceled/Expired
during the period
|
0
|
-
|
||||||
Exercised
during the period
|
0
|
-
|
||||||
Outstanding
at end of period
|
740,000
|
$
|
0.1125
|
|||||
Exercisable
at end of period
|
275,000
|
$
|
0.111
|
The
aggregate grant date fair value of stock option awards granted were determined
in accordance with ASC Topic 718 formerly SFAS 123R). The Company
determined fair value of all the options, at their respective dates of issuance,
to be $1,388,945. The Company uses the Black-Scholes Options Pricing
Model (Black-Scholes) to estimate fair value of its stock-based
awards. Black-Scholes requires various judgmental assumptions,
including estimating stock price volatility, expected option life and forfeiture
rates. If the Company had made different assumptions, the amount of its deferred
stock-based compensation, stock-based compensation expense, net loss and net
loss per share amounts could have been significantly different. The Company
believes that it has used reasonable methodologies, approaches and assumptions
to determine the fair value of its common stock and that deferred stock-based
compensation and related amortization were recorded properly for accounting
purposes. If any of the assumptions used change significantly, stock-based
compensation expense may differ materially in the future from that recorded in
the current period.
With
the exception of the 100,000 stock options granted to Cleantech IR, 25% of the
options shall vest immediately on the grant date, 25% of the options vest on the
first anniversary of the grant date, and 25% of the options vest annually on
each of the next two (2) anniversaries of the initial vesting date. 40% of
the 100,000 options granted to CleanTech IR vest immediately; while the
remaining 60% will vest upon meeting the condition that is tied to the Company's
financing. All options have a five-year term and expire on May 27, 2015.
The exercise price of the stock options is equal to the greater of $0.05 per
share or the closing price of the common stock on the grant date. The closing
bid price of the common stock on both May 28, 2010 and June 9, 2010 was $0.05
per share. The aggregate intrinsic value of the outstanding options at September
30, 2010 was $888,000. The actual value, if any, an optionee may realize
will depend on the excess of the stock price over the exercise price on the date
the option is exercised. There is no assurance the value realized by an optionee
will be at or near the value estimated by the Black-Scholes pricing
model.
Determining
Fair Value of Stock Options
The fair
value of stock options granted during the three and nine months ended September
30, 2010 were determined by the Company using the methods and assumptions
discussed below. Each of these inputs is subjective and generally requires
significant judgment to determine.
Valuation Method — The
Company estimates the fair value of stock options granted using the
Black-Scholes option-pricing model.
Expected Term — The expected
term represents the period that the Company’s stock-based awards are expected to
be outstanding.
Expected Volatility — The
expected volatility was based on the historical stock volatilities of several of
the Company’s publicly-listed peers as
the Company did not have a sufficient trading history to use the volatility of
its own common stock.
Fair Value of Common Stock
---- The fair value of the underlying common stock will be determined
based on the last traded price for the Company’s
common stock as noted on the OTCBB on the grant date.
Risk-Free Interest Rate — The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the time of grant for zero coupon
U.S. Treasury notes with maturities approximately equal to the option’s expected
term.
10
Expected Dividend — The
Company has never paid dividends and does not expect to pay
dividends.
As of
September 30, 2010, total cost related to unvested stock-based awards granted,
but not yet recognized, was $28,181. This cost will be amortized on a
straight-line basis over a weighted-average remaining period of 2.75 years.
Total compensation expense was $8,513 and $26,253 during the three months and
nine months ended September 30, 2010, respectively. Future option grants will
increase the amount of option related expense that will be
recorded.
Stock
Warrants
The
Company has issued a total of 756,000 warrants to investors in the Notes
offering. On June 9, 2010, the Company issued warrants to purchase 200,000
shares of common stock, on August 26, 2010 the Company issued warrants to
purchase 236,000 shares, and on September 30, 2010 the Company issued warrants
to purchase 320,000 shares. All the warrants issued to investors in the Notes
offering are 5 year warrants, expiring on June 30, 2015 and have an exercise
price of $0.01. The value of these warrants totaling $284,217 at
issuance has been accounted for in shareholder’s equity as an increase in
additional paid in capital.
Determining
Fair Value of Stock Warrants
The fair
value of stock warrants granted during the three and nine months ended September
30, 2010 were determined by the Company using the methods and assumptions
discussed below. Each of these inputs is subjective and generally requires
significant judgment to determine.
Valuation Method — The
Company estimates the fair value of stock warrants granted using the
Black-Scholes option-pricing model.
Expected Term — The expected
term represents the period that the Company’s stock-based awards are expected to
be outstanding.
Expected Volatility — The
expected volatility was based on the historical stock volatilities of several of
the Company’s publicly-listed peers as the Company did not have a sufficient
trading history to use the volatility of its own common stock.
Fair Value of Common Stock
---- The fair value of the underlying common stock will be determined
based on the last traded price for the Company’s common stock as noted on the
OTCBB on the grant date.
Risk-Free Interest Rate — The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the time of grant for U.S. Treasury Notes with maturities
approximately equal to the warrants’s expected term.
Expected Dividend — The
Company has never paid dividends and does not expect to pay
dividends.
7.
|
RELATED
PARTY TRANSACTIONS
|
As of the
date of this report, LIFE owns approximately 70.8% of the outstanding shares of
the Company.
On June
24, 2010, a large stockholder of the Company through his holdings in our
majority shareholder, LIFE, loaned the Company $5,000 to pay for certain
expenses related to mining concession acquisitions in
Colombia.
Edward P. Mooney, the
Company’s Chief Executive Officer and a Director, is the sole Managing Member of
LIFE. Daniel F. Carlson, the Company’s Chief Financial Officer, is
Chief Financial Officer of LIFE. Messrs. Mooney and Carlson have
entered into employment agreements with the Company.
On August
3, 2010, the Company entered into a 3-year management and services agreement
with LIFE pursuant to which LIFE agreed to provide certain corporate, financial,
and merger and acquisition advisory services to the Company and assistance with
securing equipment leases and other equipment financing through June 30, 2013.
Under the terms of the contract, LIFE is paid a fee equal to the lesser of 1% of
gross coal sales or $2 per ton of coal sold with a minimum monthly fee of
$25,000 plus expenses. Fees payable under the contract have been accrued and
included on the balance sheet as an account payable. Total management fee
expense and fees payable to LIFE for both the three and nine month periods ended
September 30, 2010 are $155,299.
11
8.
|
Commitments and
Contingencies
|
On July
19, 2010, the Company entered into an agreement to purchase two coal mining
concessions (see Note 1). The transaction was completed on September 3, 2010.
Under the terms of the contract, the Company will pay to the sellers a royalty
payment of $2.00 per ton of coal extracted under the term of the
concession. The concession agreements will expire 30 years from the date of
filing with the Colombia National Mining Registry. The term of the
exploration phase is three years, but can be extended for an additional two
years if necessary. The term of the construction and set up of
infrastructure is three years after the exploration phase, but can be extended
for one year. The term of exploitation is 24 years, but can be extended to
30 years.
The
Company is subject to certain environmental and regulatory obligations which
will require the Company to restore the mine properties after the mining has
been completed. As a result, the Company is required to recognize an asset
retirement obligation in the the period in which the obligation is incurred in
accordance wth ASC 410, Asset Retirement and Environmental Obligation. The
Company believes that any retirement obligation as of and for the period ended
September 30, 2010 is not material because it is still in the early exploration
stage.
9.
|
Recent
Accounting Pronouncements
|
There are
no recent accounting standards updates that have a material impact to the
Company during the three and nine months ended September 30, 2010.
10.
|
Subsequent
Events
|
In
accordance with the provisions of FASB Accounting Standards Codification 855,
Subsequent Events,
management evaluated all material events occurring subsequent to the balance
sheet date through the time of filing of this Form 10-Q for events requiring
disclosure or recognition in the Company’s consolidated financial statements.
Management determined there was one event that merited disclosure, the details
of which are below.
On
October 20, 2010, the Company, through its wholly-owned subsidiary, Energia
Andina Santander Resources SAS (“Energia”), entered into an agreement (the
“Assignment Agreement”) with Jose Alfonso Tamara Osorio ( the “Assignor”) for
the assignment to Energia of all of the Assignor’s rights and obligations under
a mining concession contract (file No. FLG – 092) (the “Concession”) for the
exploration and exploitation of coal deposits on an aggregate of approximately
4,400 hectares (10,873 acres) of land located in the Department of Santander,
Colombia, in consideration for an aggregate payment of $1,515,000.
The
aggregate purchase price was or will be paid as follows:
(i)
|
$55,000
was paid on execution of the Assignment
Agreement;
|
(ii)
|
$40,000
was paid on October 27, 2010;
|
(iii)
|
$220,000
will be paid on the date the assigned rights are registered with the
Colombian National Mining Register;
and
|
(iv)
|
the
balance of $1,200,000 will be paid in six quarterly payments of $200,000,
beginning three months after the date the rights are registered, provided,
however, that the amount of each quarterly payment will be reduced by 50%
of the value of any extraction royalties (as described below) paid to the
Assignor.
|
In
addition to the purchase price, the Assignor is entitled to receive royalty
payments in an amount equal to $2.00 for each ton of coal extracted under the
Concession during the term of the Concession. Energia also paid government
filing fees totaling 215,377,844 Colombian pesos (approximately $119,257, using
the exchange rate on October 20, 2010 of US1.00=1,804 Colombian Pesos) to the
Colombian Institute of Geology and Mining.
The
Assignment Agreement is subject to and conditional on the approval of the
Assignment Agreement by the appropriate governmental authorities, including the
Colombian Institute of Geology and Mining. Pursuant to the Assignment
Agreement, Energia has agreed to take all measures necessary to obtain such
approvals. In addition, Energia has agreed to assume the obligations
of the Assignor under the Concession, including, without limitation, preserving
the exploration and exploitation rights granted under the Concession and
ensuring that title to the Concession complies with the requirements of the
Colombian mining code.
On
November 12, 2010, the Company closed on an additional $600,000 aggregate
principal amount of its 10% convertible promissory notes, which brought the
outstanding aggregate principal amount of such notes to $2,490,000. The Company
may seek to issue up to $1,510,000 additional aggregate principal amount of such
notes to enable the Company to expand its operations and acquire additional coal
mining concessions.
12
The above
description of the Assignment Agreement is qualified in its entirety by
reference to the full text of the English translation of the Assignment
Agreement, a copy of which is filed as Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed with the SEC on November 1, 2010.
In
multiple closings with the most recent on December 21, 2010, the Company issued
additional Convertible Notes in the total amount of $6,110,000. These
Convertible Notes were issued under substantially the same terms and conditions
as the Convertible Notes described in Footnote 4 and bring the aggregate
issuance of Convertible Notes to $8,000,000.
13
FREEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 and 2008
1
FREEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
CONTENTS
PAGE
|
|||
- |
Report
of Independent Registered Public Accounting Firm
|
3
|
|
- |
Balance
Sheets, December 31, 2009 and 2008
|
4
|
|
- |
Statements
of Operations, for the years ended December 31, 2009 and 2008 and from
inception on November 6, 1996 through December 31, 2009
|
5
|
|
- |
Statement
of Stockholders’ Equity (Deficit), from inception on November 6, 1996
through December 31, 2009
|
6 –
7
|
|
- |
Statements
of Cash Flows, for the years ended December 31, 2009 and 2008 and from
inception on November 6, 1996 through December 31, 2009
|
8 –
9
|
|
- |
Notes
to Financial Statements
|
10
– 16
|
2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors
Freedom
Resources Enterprises, Inc.
Midvale,
Utah
We have
audited the accompanying balance sheets of Freedom Resources Enterprises, Inc.
[a development stage
company] as of December 31, 2009 and 2008 and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the years
in the two-year period ended December 31, 2009 and for the period from inception
on November 6, 1996 through December 31, 2009. Freedom Resources Enterprises
Inc.’s management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the 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, 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 financial statements referred to above present fairly, in all
material respects, the financial position of Freedom Resources Enterprises, Inc.
as of December 31, 2009 and 2008 and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2009 and
for the period from inception on November 6, 1996 through December 31, 2009, in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming Freedom Resources
Enterprises, Inc. will continue as a going concern. As discussed in Note 7 to
the financial statements, Freedom Resources Enterprises, Inc. has incurred
losses since its inception and has not yet established profitable operations.
These factors raise substantial doubt about the ability of the Company to
continue as a going concern. Management’s plans in regards to these matters are
also described in Note 7. The financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
/s/ PRITCHETT, SILER &
HARDY, P.C.
PRITCHETT,
SILER & HARDY, P.C.
Salt Lake
City, Utah
February
24, 2010
3
FREEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
BALANCE
SHEETS
ASSETS
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
CURRENT
ASSETS:
|
||||||||
Cash
|
$ | 89 | $ | 809 | ||||
Total
Current Assets
|
89 | 809 | ||||||
PROPERTY AND EQUIPMENT,
net
|
- | - | ||||||
OTHER
ASSETS:
|
||||||||
Manuscripts
and transcripts, net
|
- | - | ||||||
Total
Assets
|
$ | 89 | $ | 809 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable
|
$ | 6,681 | $ | 7,084 | ||||
Accrued
interest – related party
|
1,339 | 939 | ||||||
Advances
from a shareholder
|
117,000 | 102,500 | ||||||
Total
Current Liabilities
|
125,020 | 110,523 | ||||||
LONG-TERM
LIABILITIES:
|
||||||||
Convertible
notes – related party
|
5,000 | 5,000 | ||||||
Total
Liabilities
|
130,020 | 115,523 | ||||||
STOCKHOLDERS'
EQUITY (DEFICIT):
|
||||||||
Preferred
stock, $.001 par value,
|
||||||||
5,000,000
shares authorized,
|
||||||||
no
shares issued and outstanding
|
- | - | ||||||
Common
stock, $.001 par value,
|
||||||||
100,000,000
shares authorized,
|
||||||||
2,800,000
shares issued and outstanding
|
2,800 | 2,800 | ||||||
Capital
in excess of par value
|
92,876 | 83,988 | ||||||
Deficit
accumulated during the
|
||||||||
development
stage
|
(225,607 | ) | (201,502 | ) | ||||
Total
Stockholders' Equity (Deficit)
|
(129,931 | ) | (114,714 | ) | ||||
$ | 89 | $ | 809 |
The
accompanying notes are an integral part of these financial
statements.
4
FREEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
STATEMENTS
OF OPERATIONS
For
the Years Ended December 31
|
From
Inceptionon November 6,1996 Through
December
31
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
REVENUE
|
$ | - | $ | - | $ | 3,560 | ||||||
EXPENSES:
|
||||||||||||
Depreciation
and amortization
|
- | - | 4,174 | |||||||||
General
and administrative
|
14,817 | 33,150 | 165,861 | |||||||||
Research
and development
|
- | - | 15,674 | |||||||||
Impairment
of long-lived assets
|
- | - | 21,285 | |||||||||
Total
Expenses
|
14,817 | 33,150 | 206,994 | |||||||||
LOSS
BEFORE OTHER INCOME (EXPENSE)
|
(14,817 | ) | (33,150 | ) | (203,434 | ) | ||||||
OTHER
INCOME (EXPENSE):
|
||||||||||||
Interest
Income
|
- | - | 1,216 | |||||||||
Interest
Expense – related party
|
(9,288 | ) | (7,276 | ) | (27,265 | ) | ||||||
Gain
on settlement of debt
|
- | - | 4,097 | |||||||||
Total
Other Income (Expense)
|
(9,288 | ) | (7,276 | ) | (21,952 | ) | ||||||
LOSS
BEFORE INCOME TAXES
|
(24,105 | ) | (40,426 | ) | (225,386 | ) | ||||||
CURRENT
TAX EXPENSE
|
- | - | - | |||||||||
DEFERRED
TAX EXPENSE
|
- | - | - | |||||||||
LOSS
FROM CONTINUING OPERATIONS
|
(24,105 | ) | (40,426 | ) | (225,386 | ) | ||||||
CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
|
- | - | (221 | ) | ||||||||
NET
LOSS
|
$ | (24,105 | ) | $ | (40,426 | ) | $ | (225,607 | ) | |||
LOSS
PER COMMON SHARE:
|
||||||||||||
Continuing
operations
|
$ | (.01 | ) | $ | (.01 | ) | ||||||
Change
in accounting principle
|
- | - | ||||||||||
Loss
per common share
|
$ | (.01 | ) | $ | (.01 | ) |
The
accompanying notes are an integral part of these financial
statements.
5
REEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
STATEMENT
OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM
INCEPTION ON NOVEMBER 6, 1996 THROUGH DECEMBER 31, 2009
Deficit
|
||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Capital
in
|
During
the
|
|||||||||||||||||||||
Excess
of
|
Development
|
|||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Par
Value
|
Stage
|
|||||||||||||||||||
BALANCE, November 6,
1996
|
- | $ | - | - | $ | - | $ | - | $ | - | ||||||||||||||
Issued
500,000 shares of common stock for cash of $2,500, or $.005 per share,
November 1996
|
- | - | 500,000 | 500 | 2,000 | - | ||||||||||||||||||
Net
loss for the period ended December 31, 1996
|
- | - | - | - | - | (50 | ) | |||||||||||||||||
BALANCE, December 31,
1996
|
- | - | 500,000 | 500 | 2,000 | (50 | ) | |||||||||||||||||
Issued
47,500 shares of common stock for cash of $9,500, or $.20 per share,
August 1997
|
- | - | 47,500 | 48 | 9,452 | - | ||||||||||||||||||
|
||||||||||||||||||||||||
Net
loss for the year ended December 31, 1997
|
- | - | - | - | - | (1,661 | ) | |||||||||||||||||
BALANCE, December 31,
1997
|
- | - | 547,500 | 548 | 11,452 | (1,711 | ) | |||||||||||||||||
Issued
202,500 shares of common stock for cash of $40,500, or $.20 per share, net
of stock offering costs of $5,000, May and August 1998
|
- | - | 202,500 | 202 | 35,298 | - | ||||||||||||||||||
Net
loss for the year ended December 31, 1998
|
- | - | - | - | - | (4,942 | ) | |||||||||||||||||
BALANCE, December 31,
1998
|
- | - | 750,000 | 750 | 46,750 | (6,653 | ) | |||||||||||||||||
Net
loss for the year ended December 31, 1999
|
- | - | - | - | - | (2,243 | ) | |||||||||||||||||
BALANCE, December 31,
1999
|
- | - | 750,000 | 750 | 46,750 | (8,896 | ) | |||||||||||||||||
Net
loss for the year ended December 31, 2000
|
- | - | - | - | - | (40,956 | ) | |||||||||||||||||
BALANCE, December 31,
2000
|
- | - | 750,000 | 750 | 46,750 | (49,852 | ) | |||||||||||||||||
Net
loss for the year ended December 31, 2001
|
- | - | - | - | - | (15,669 | ) | |||||||||||||||||
BALANCE, December 31,
2001
|
- | - | 750,000 | 750 | 46,750 | (65,521 | ) | |||||||||||||||||
Net
loss for the year ended December 31, 2002
|
- | - | - | - | - | (13,921 | ) | |||||||||||||||||
BALANCE, December 31,
2002
|
- | - | 750,000 | 750 | 46,750 | (79,442 | ) |
[Continued]
6
FREEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
STATEMENT
OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM
INCEPTION ON NOVEMBER 6, 1996 THROUGH DECEMBER 31, 2009
[Continued]
Deficit
|
||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Capital
in
|
During
the
|
|||||||||||||||||||||
Excess
of
|
Development
|
|||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Par
Value
|
Stage
|
|||||||||||||||||||
BALANCE, December 31,
2002
|
- | - | 750,000 | 750 | 46,750 | (79,442 | ) | |||||||||||||||||
Net
loss for the year ended December 31, 2003
|
- | - | - | - | - | (20,946 | ) | |||||||||||||||||
BALANCE, December 31,
2003
|
- | - | 750,000 | 750 | 46,750 | (100,388 | ) | |||||||||||||||||
Issued
200,000 shares of common stock on conversion of note payable, September
2004
|
- | - | 200,000 | 200 | 4,968 | - | ||||||||||||||||||
Net
loss for the year ended December 31, 2004
|
- | - | - | - | - | (2,129 | ) | |||||||||||||||||
BALANCE, December 31,
2004
|
- | - | 950,000 | 950 | 51,718 | (102,517 | ) | |||||||||||||||||
Issued
1,450,000 shares of common stock for cash of $7,250, or $.005 per share
September 2005
|
- | - | 1,450,000 | 1,450 | 5,800 | - | ||||||||||||||||||
Net
loss for the year ended December 31, 2005
|
- | - | - | - | - | (19,843 | ) | |||||||||||||||||
BALANCE, December 31,
2005
|
- | - | 2,400,000 | 2,400 | 57,518 | (122,360 | ) | |||||||||||||||||
Issued
200,000 shares of common stock on conversion of note payable, June
2006
|
- | - | 200,000 | 200 | 5,348 | - | ||||||||||||||||||
Imputed
interest on shareholder advances
|
- | - | - | - | 3,409 | - | ||||||||||||||||||
Net
loss for the year ended December 31, 2006
|
- | - | - | - | - | (18,353 | ) | |||||||||||||||||
BALANCE, December 31,
2006
|
- | - | 2,600,000 | 2,600 | 66,275 | (140,713 | ) | |||||||||||||||||
Issued
200,000 shares of common stock on conversion of note payable, December
2007
|
- | - | 200,000 | 200 | 5,602 | - | ||||||||||||||||||
Imputed
interest on shareholder advances
|
- | - | - | - | 5,235 | - | ||||||||||||||||||
Net
loss for the year ended December 31, 2007
|
- | - | - | - | - | (20,363 | ) | |||||||||||||||||
BALANCE, December 31,
2007
|
- | - | 2,800,000 | 2,800 | 77,112 | (161,076 | ) | |||||||||||||||||
Imputed
interest on shareholder advances
|
- | - | - | - | 6,876 | - | ||||||||||||||||||
Net
loss for the year ended December 31, 2008
|
- | - | - | - | - | (40,426 | ) | |||||||||||||||||
BALANCE, December 31,
2008
|
- | - | 2,800,000 | 2,800 | 83,988 | (201,502 | ) | |||||||||||||||||
Imputed
interest on shareholder advances
|
- | - | - | - | 8,888 | - | ||||||||||||||||||
Net
loss for the year ended December 31, 2009
|
- | - | - | - | - | (24,105 | ) | |||||||||||||||||
BALANCE, December 31,
2009
|
- | $ | - | 2,800,000 | $ | 2,800 | $ | 92,876 | $ | (225,607 | ) |
The
accompanying notes are an integral part of these financial
statements.
7
FREEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
STATEMENTS
OF CASH FLOWS
From
Inception
|
||||||||||||
on
November 6,
|
||||||||||||
For
the Years Ended
|
1996
Through
|
|||||||||||
December
31,
|
December
31,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Cash
Flows from Operating Activities:
|
||||||||||||
Net
loss
|
$ | (24,105 | ) | $ | (40,426 | ) | $ | (225,607 | ) | |||
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
||||||||||||
Amortization
expense
|
- | - | 2,432 | |||||||||
Depreciation
expense
|
- | - | 1,742 | |||||||||
Loss
on impairment of long-lived assets
|
- | - | 21,285 | |||||||||
Effect
of change in accounting principal
|
- | - | 221 | |||||||||
Gain
on settlement of debt
|
- | - | (4,097 | ) | ||||||||
Non-cash
expenses
|
8,888 | 6,876 | 25,926 | |||||||||
Changes
in assets and liabilities:
|
||||||||||||
(Increase)
decrease in prepaid expense
|
- | 1,416 | - | |||||||||
Increase
(decrease) in accounts payable
|
(403 | ) | 1,869 | 10,778 | ||||||||
Increase
(decrease) in accrued taxes
|
- | (100 | ) | - | ||||||||
Increase
(decrease) in accrued interest – related party
|
400 | 400 | 1,339 | |||||||||
Net
Cash (Used) by Operating Activities
|
(15,220 | ) | (29,965 | ) | (165,981 | ) | ||||||
Cash
Flows from Investing Activities:
|
||||||||||||
Purchase
of property and equipment
|
- | - | (1,742 | ) | ||||||||
Organization
costs
|
- | - | (288 | ) | ||||||||
Cost
of manuscripts
|
- | - | (23,650 | ) | ||||||||
Net
Cash (Used) by Investing Activities
|
- | - | (25,680 | ) | ||||||||
Cash
Flows from Financing Activities:
|
||||||||||||
Net
proceeds from sale of common stock
|
- | - | 59,750 | |||||||||
Stock
Offering Costs
|
- | - | (5,000 | ) | ||||||||
Proceeds
from issuance of note payable
|
- | - | 20,000 | |||||||||
Advance
from a shareholder
|
14,500 | 30,000 | 117,000 | |||||||||
Net
Cash Provided by Financing Activities
|
14,500 | 30,000 | 191,750 | |||||||||
Net
Increase (Decrease) in Cash
|
(720 | ) | 35 | 89 | ||||||||
Cash
at Beginning of Period
|
809 | 774 | - | |||||||||
Cash
at End of Period
|
$ | 89 | $ | 809 | $ | 89 | ||||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||||||||
Cash
paid during the period for:
|
||||||||||||
Interest
|
$ | - | $ | - | $ | - | ||||||
Income
taxes
|
$ | - | $ | - | $ | - |
[Continued]
The
accompanying notes are an integral part of these financial
statements.
8
FREEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
STATEMENTS
OF CASH FLOWS
[CONTINUED]
Supplemental
Disclosures of Non-Cash Investing and Financing Activities:
For the
Year Ended December 31, 2009:
During
the year ended December 31, 2009, a shareholder made advances to the Company of
$14,500. These advances are non-interest bearing and due on demand. The Company
is imputing interest at 8%, which is accounted for as a capital contribution.
Total imputed interest for 2009 is $8,888.
For the
Year Ended December 31, 2008:
During
the year ended December 31, 2008, a shareholder made advances to the Company of
$30,000. These advances are non-interest bearing and due on demand. The Company
is imputing interest at 8%, which is accounted for as a capital contribution.
Total imputed interest for 2008 is $6,876.
During
the year ended December 31, 2008 the Property, Plant, and Equipment and the
Manuscripts and Transcripts were both disposed of.
The
accompanying notes are an integral part of these financial
statements.
9
FREEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
NOTES
TO FINANCIAL STATEMENTS
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Freedom
Resources Enterprises, Inc. (“the Company”) was organized under the laws of the
State of Nevada on November 6, 1996. The Company has not generated significant
revenues from its planned principal operations and is considered a development
stage company as defined in Accounting Standards Codification “ASC” No. 915. The
Company originally planned to research and publish a self-improvement book based
on the insights and understanding of major world cultures. However, the Company
never published the book but instead used the materials gathered from its
research to develop a series of eight self-help workshops. Because the Company
has not generated expected revenue, on October 1, 2005 the Company decided to
pursue other business opportunities. The Company, at the present time, is
defined by the SEC as a shell company. A shell company, (other than an
asset-backed issuer), is a company with no or nominal operations and either no
or nominal assets, or assets consisting solely of cash and cash equivalents, or
assets consisting of any amount of cash and cash equivalents and nominal other
assets. The Company has, at the present time, not paid any dividends and any
dividends that may be paid in the future will depend upon the financial
requirements of the Company and other relevant factors.
Cash and Cash Equivalents -
The Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
Property and Equipment -
Property and equipment are stated at cost. Expenditures for major
renewals and betterments that extend the useful lives of property and equipment
are capitalized upon being placed in service. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation is computed for
financial statement purposes on a straight-line method over the estimated useful
life of five years.
Long-Lived Assets - The
Company has adopted ASC No. 360, “Accounting for the Impairment or Disposal of
Long-Lived Assets”. The Company periodically reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. During the year ended
December 31, 2000, the Company recorded an impairment write-down of $21,285 of
manuscript costs.
Income Taxes - The Company
accounts for income taxes in accordance with ASC No. 740, “Accounting for Income
Taxes” [See Note 8].
The
Company adopted the provisions of ASC No. 740, “Accounting for Income Taxes”, on
January 1, 2007. As a result of the implementation of ASC No. 740, the Company
recognized approximately no increase in the liability for unrecognized tax
benefits.
The
Company has no tax positions at December 31, 2009 and 2008 for which the
ultimate deductibility is highly certain but for which there is uncertainty
about the timing of such deductibility.
The
Company recognizes interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses. During the years ended
December 31, 2009 and 2008, the Company recognized no interest and penalties.
The Company had no accruals for interest and penalties at December 31, 2009, and
2008.
Revenue Recognition - The
Company’s revenue has come from the sale of items where the Company acted as an
agent. The Company recognizes revenue when the product is delivered. The Company
records revenues generated by the sale of items that the Company produces or
purchases as inventory on the gross basis. On a gross basis, the entire sale
amount is recorded as revenue. The Company records revenue generated by the sale
of items where the Company only acts as an agent or when the Company has no risk
of loss on the net basis. The Company records revenue generated by Internet
sales utilizing third party websites on the net basis. On a net basis, only the
share of revenue belonging to the Company is recorded as revenue.
Stock-Based
Compensation - The Company has one
stock-based employee compensation plan [See Note 5]. The Company
accounts for its plan under the recognition and measurement principles of ASC
No. 718, “Compensation – Stock Compensation.” The Company has not issued any
stock options or warrants under the plan.
10
FREEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
NOTES
TO FINANCIAL STATEMENTS
Loss Per Share - The
computation of loss per share is based on the weighted average number of shares
outstanding during the period presented in accordance with ASC No. 260,
“Earnings Per Share” [See Note
10].
Accounting
Estimates -
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reported period. Actual results could differ from those
estimated.
Recently Enacted Accounting Standards
- In January 2010, the FASB issued Accounting Standards Update 2010-02,
Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership
of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the
scope of current US GAAP. It clarifies the decrease in ownership provisions of
Subtopic 810-10 and removes the potential conflict between guidance in that
Subtopic and asset derecognition and gain or loss recognition guidance that may
exist in other US GAAP. An entity will be required to follow the amended
guidance beginning in the period that it first adopts FAS 160 (now included in
Subtopic 810-10). For those entities that have already adopted FAS 160, the
amendments are effective at the beginning of the first interim or annual
reporting period ending on or after December 15, 2009. The amendments should be
applied retrospectively to the first period that an entity adopted FAS 160. The
Company does not expect the provisions of ASU 2010-02 to have a material effect
on the financial position, results of operations or cash flows of the
Company.
In
January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic
505): Accounting for Distributions to Shareholders with Components of Stock and
Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to
Topic 505 clarifies the stock portion of a distribution to shareholders that
allows them to elect to receive cash or stock with a limit on the amount of cash
that will be distributed is not a stock dividend for purposes of applying Topics
505 and 260. Effective for interim and annual periods ending on or after
December 15, 2009, and would be applied on a retrospective basis. The Company
does not expect the provisions of ASU 2010-01 to have a material effect on the
financial position, results of operations or cash flows of the
Company.
In
December 2009, the FASB issued Accounting Standards Update 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities. This Accounting Standards Update
amends the FASB Accounting Standards Codification for Statement
167.
In
December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers
and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This
Accounting Standards Update amends the FASB Accounting Standards Codification
for Statement 166.
In
October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance
or Other Financing. This Accounting Standards Update amends the FASB Accounting
Standard Codification for EITF 09-1. (See EITF 09-1 effective date
below.)
In
October 2009, the FASB issued Accounting Standards Update 2009-14, Software
(Topic 985): Certain Revenue Arrangements That Include Software Elements. This
update changed the accounting model for revenue arrangements that include both
tangible products and software elements. Effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010. Early adoption is permitted. The Company does not expect
the provisions of ASU 2009-14 to have a material effect on the financial
position, results of operations or cash flows of the Company.
In
October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update
addressed the accounting for multiple-deliverable arrangements to enable vendors
to account for products or services (deliverables) separately rather than a
combined unit and will be separated in more circumstances than under existing US
GAAP. This amendment has eliminated the residual method of allocation. Effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Early adoption is permitted.
The Company does not expect the provisions of ASU 2009-13 to have a material
effect on the financial position, results of operations or cash flows of the
Company.
11
FREEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
NOTES
TO FINANCIAL STATEMENTS
In
September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value
Measurements and Disclosures (Topic 820): Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent). This update provides
amendments to Topic 820 for the fair value measurement of investments in certain
entities that calculate net asset value per share (or its equivalent). It is
effective for interim and annual periods ending after December 15, 2009. Early
application is permitted in financial statements for earlier interim and annual
periods that have not been issued. The Company does not expect the provisions of
ASU 2009-12 to have a material effect on the financial position, results of
operations or cash flows of the Company.
In July
2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task
Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance" ("EITF 09-1"). The
provisions of EITF 09-1, clarifies the accounting treatment and disclosure of
share-lending arrangements that are classified as equity in the financial
statements of the share lender. An example of a share-lending arrangement is an
agreement between the Company (share lender) and an investment bank (share
borrower) which allows the investment bank to use the loaned shares to enter
into equity derivative contracts with investors. EITF 09-1 is effective for
fiscal years that beginning on or after December 15, 2009 and requires
retrospective application for all arrangements outstanding as of the beginning
of fiscal years beginning on or after December 15, 2009. Share-lending
arrangements that have been terminated as a result of counterparty default prior
to December 15, 2009, but for which the entity has not reached a final
settlement as of December 15, 2009 are within the scope. Effective for
share-lending arrangements entered into on or after the beginning of the first
reporting period that begins on or after June 15, 2009. The Company does not
expect the provisions of EITF 09-1 to have a material effect on the financial
position, results of operations or cash flows of the Company.
Reclassification - The
financial statements for years prior to December 31, 2009 have been reclassified
to conform to the headings and classifications used in the December 31, 2009
financial statements.
Restatement – In November
2007, the Company approved a 1 for 2 reverse stock split. In October 2006, the
Company approved a 1 for 2.5 reverse stock split. The financial statements have
been restated to reflect these reverse stock splits.
NOTE
2 - PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following at:
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Office
equipment
|
$ | - | $ | - | ||||
Less:
Accumulated depreciation
|
- | - | ||||||
$ | - | $ | - |
Depreciation
expense for the years ended December 31, 2009 and 2008 was $0 and $0,
respectively. The property and equipment was disposed of during
2008.
12
FREEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
NOTES
TO FINANCIAL STATEMENTS
NOTE
3 - MANUSCRIPTS, TRANSCRIPTS, ETC.
In 1999
and 2000, the Company paid consultants to prepare manuscripts which the Company
had planned to publish as a book. In December 2000 the Company recorded an
impairment write-down of $21,285 due to the Company not generating any revenues
from the manuscripts. A summary of manuscripts, transcripts, etc. consists of
the following at:
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Manuscripts,
transcripts, etc.
|
$ | - | $ | - | ||||
Less:
Accumulated amortization
|
- | - | ||||||
Less:
Loss on impairment
|
- | - | ||||||
$ | - | $ | - |
Amortization
expense for the years ended December 31, 2009 and 2008 was $0 and $0,
respectively. The manuscripts, transcripts, etc., were disposed of in
2008.
NOTE
4 - CONVERTIBLE NOTE PAYABLE – RELATED PARTY
In August
2006, the Company issued a $5,000 note payable to a shareholder of the Company.
The note accrues interest at 8% per annum, is due in August 2008, and is
convertible with accrued interest into 200,000 shares of common stock. At
December 31, 2009, accrued interest amounted to $1,339. The note payable has
been extended to August 2012.
NOTE
5 - CAPITAL STOCK
Preferred Stock - The Company has authorized
5,000,000 shares of preferred stock, $.001 par value with such rights,
preferences and designations and to be issued in such series as determined by
the Board of Directors. No shares are issued and outstanding at December 31,
2009 and 2008.
Common Stock – The Company has authorized
100,000,000 shares of Common Stock, $.001 par value, with such rights,
preferences and designations and to be issued in such series as determined by
the Board of Directors. At December 31, 2009 and 2008 there were 2,800,000
shares issued and outstanding.
During
November 1996, in connection with its organization, the Company issued 500,000
shares of its previously authorized but unissued common stock. Total proceeds
from the sale of stock amounted to $2,500 (or $.005 per share).
During
August 1997, the Company issued 47,500 shares of its previously authorized but
unissued common stock. Total proceeds from the sale of stock amounted to $9,500
(or $.20 per share).
During
May and August 1998, the Company issued 202,500 shares of its previously
authorized but unissued common stock. Total proceeds from the sale of stock
amounted to $40,500 (or $.20 per share). Stock offering costs of $5,000 were
offset against the proceeds.
In
September 2004, the Company issued 200,000 shares of its previously authorized
but unissued common stock on conversion of a note payable of $5,000 with accrued
interest of $168.
In
February 2005, the Company approved a 10 – for – 1 forward stock split. The
financial statements have been restated, for all periods presented, to reflect
this stock split.
13
FREEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
NOTES
TO FINANCIAL STATEMENTS
In
September 2005, the Company issued 1,450,000 shares of its previously authorized
but unissued common stock. Total proceeds from the sale of stock amounted to
$7,250 (or $.005 per share). The shares were issued to the President and
Director of the Company for cash.
In June
2006, the Company converted a $5,000 note payable made in February 2005, along
with accrued interest of $548, into 200,000 shares of common stock.
In
October 2006, the Company approved a 1 for 2.5 reverse stock split. The
financial statements have been restated to reflect the reverse stock
split.
In
November 2007, the Company approved a 1 for 2 reverse stock split. The financial
statements have been restated to reflect the reverse stock split.
In
December 2007, the Company converted a $5,000 note payable made in December
2005, along with accrued interest of $802, into 200,000 shares of common
stock.
Stock Option Plan - During
1997, the Board of Directors adopted the 1997 Stock Option Plan (“the Plan”).
Under the terms and conditions of the Plan, the Board was empowered to grant
stock options to employees, officers, directors and consultants of the Company.
Additionally, the Board could determine, at the time of the grant, vesting
provisions of the grant and whether the options would qualify as incentive stock
options under section 422 of the Internal Revenue code. The Plan was approved by
the shareholders of the Company at the 1997 shareholder meeting. The total
number of shares of common stock available under the Plan could not exceed
750,000 shares. As of December 31, 2009, no options had been issued under the
Plan. On February 20, 2008 the Board of Directors extinguished the
plan.
NOTE
6 - RELATED PARTY TRANSACTIONS
Advance from a Shareholder –
During 2009, 2008, 2007 and 2006, an officer/shareholder of the Company advanced
$117,000 to the Company. At December 31, 2009 and December 31, 2008, the Company
owed $117,000 and $102,500, respectively, to the officer/shareholder. The
advances bear no interest and are due on demand; however, the Company is
imputing interest at 8% per annum. For the years ended December 31, 2009 and
2008, respectively, the Company imputed interest expense of $8,888 and $6,876.
The imputed interest has been contributed to Capital in Excess of
Par.
Convertible Note Payable – In
August 2006, the Company issued convertible notes payable to a shareholder of
the Company [See Note
4].
Management Compensation - The
Company has not paid any compensation to its officers and
directors.
Office Space - The Company has not had a
need to rent office space. An officer/shareholder of the Company is allowing the
Company to use his office as a mailing address, as needed, at no expense to the
Company.
NOTE
7 - GOING CONCERN
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. However, the Company
has incurred losses since its inception and has current liabilities in excess of
current assets. These factors raise substantial doubt about the ability of the
Company to continue as a going concern. In this regard, management is proposing
to raise any necessary additional funds not provided by operations through loans
or through additional sales of its common stock. There is no assurance that the
Company will be successful in raising this additional capital or in achieving
profitable operations. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
14
FREEDOM
RESOURCES ENTERPRISES, INC.
[A Development Stage
Company]
NOTES
TO FINANCIAL STATEMENTS
NOTE
8 - INCOME TAXES
The
Company accounts for income taxes in accordance with ASC No. 740, “Income
Taxes.” ASC No. 740, requires the Company to provide a net deferred tax
asset/liability equal to the expected future tax benefit/expense of temporary
reporting differences between book and tax accounting methods and any available
operating loss or tax credit carryforwards.
The
Company has available at December 31, 2009, unused operating loss carryforwards
of approximately $202,000 which may be applied against future taxable income and
which expire in various years through 2029. The amount of and ultimate
realization of the benefits from the operating loss carryforwards for income tax
purposes is dependent, in part, upon the tax laws in effect, the future earnings
of the Company, and other future events, the effects of which cannot be
determined. Because of the uncertainty surrounding the realization of the loss
carryforwards, the Company has established a valuation allowance equal to the
tax effect of the loss carryforwards and, therefore, no deferred tax asset has
been recognized for the loss carryforwards. The net deferred tax assets are
approximately $70,700 and $ 60,400 as of December 31, 2009 and 2008,
respectively, with an offsetting valuation allowance of the same amount,
resulting in a change in the valuation allowance of approximately $10,300 during
the year ended December 31, 2009.
NOTE
9 - LOSS PER SHARE
The
following data show the amounts used in computing loss per share for the periods
presented:
For
the Year Ended
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Loss
from continuing operations available
|
||||||||
to
common shareholders (numerator)
|
$ | (24,105 | ) | $ | (40,426 | ) | ||
Cumulative
effect of change in accounting
|
||||||||
principle
(numerator)
|
$ | - | $ | - | ||||
Weighted
average number of common
|
||||||||
shares
outstanding used in loss per share
|
||||||||
for
the period (denominator)
|
2,800,000 | 2,800,000 |
At
December 31, 2009, the Company had notes payable convertible into 200,000 shares
of common stock which were not used in the computation of loss per share because
their effect would be anti-dilutive. Dilutive loss per share was not presented,
as the Company had no common stock equivalent shares for all periods presented
that would affect the computation of diluted loss per share.
NOTE
10 - CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In 1996,
the Company paid $288 in organization costs which reflect amounts expended to
organize the Company. The Company was previously amortizing the costs, but
during 1998, in accordance with ASC No. 720, the Company expensed the remaining
$221 in organization costs which has been accounted for as a change in
accounting principle.
NOTE
11 – SUBSEQUENT EVENTS
The
Company has evaluated subsequent events from the balance sheet date through
February 24, 2010 and has determined there are no items to
disclosed.
15
[OUTSIDE
BACK COVER]
Colombia
Clean Power & Fuels, Inc.
3,000,000
Shares of Series A Preferred Stock
5,718,600
Shares of Common Stock
PROSPECTUS
COLOMBIA
CLEAN POWER & FUELS, INC.
181
3rd
Street
Suite
150-B
San
Rafael, CA 94901
Telephone
(415) 460-1165
_______________,
2011
Until ,
2011, all dealers that effect transactions in our shares, whether or not
participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealer’s obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
16
PART
II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The
following is an itemized statement of the estimated amounts of all expenses
payable by us in connection with the registration of the common stock, other
than underwriting discounts and commissions. All amounts are
estimates except the SEC registration fee.
Securities
and Exchange Commission - Registration Fee
|
$ | 4,056 | ||
State
filing Fees
|
$ | 10,000 | ||
Printing
and Engraving Expenses
|
$ | 5,000 | ||
Edgarizing
Costs
|
$ | 10,000 | ||
Accounting
Fees and Expenses
|
$ | 20,000 | ||
Legal
Fees and Expenses
|
$ | 50,000 | ||
Miscellaneous
|
$ | 944 | ||
Total
|
$ | 100,000 |
None of
the expenses of the offering will be paid by the selling security
holders.
Item
14. Indemnification of Directors and Officers
Nevada
law expressly authorizes a Nevada corporation to indemnify its directors,
officers, employees, and agents against liabilities arising out of such persons’
conduct as directors, officers, employees, or agents if they acted in good
faith, in a manner they reasonably believed to be in or not opposed to the best
interests of the company, and, in the case of criminal proceedings, if they had
no reasonable cause to believe their conduct was unlawful. Generally,
indemnification for such persons is mandatory if such person was successful, on
the merits or otherwise, in the defense of any such proceeding, or in the
defense of any claim, issue, or matter in the proceeding. In
addition, as provided in the articles of incorporation, bylaws, or an agreement,
the corporation may pay for or reimburse the reasonable expenses incurred by
such a person who is a party to a proceeding in advance of final disposition if
such person furnishes to the corporation an undertaking to repay such expenses
if it is ultimately determined that he did not meet the
requirements. In order to provide indemnification, unless ordered by
a court, the corporation must determine that the person meets the requirements
for indemnification. Such determination must be made by a majority of
disinterested directors; by independent legal counsel; or by a majority of the
shareholders.
Each of
our employment agreements with our President, Mr. Mooney, and our Chief
Financial Officer, Mr. Carlson, provides that we are required to indemnify, and
advance expenses as they are incurred to, the party who was or is a party or is
threatened to be made a party to any threatened or completed action, suit or
proceeding, whether civil or criminal, administrative or investigative, by
reason of the fact that such person is or was a director or officer of our
company, or who is serving at our request or direction as a director or officer
of another corporation or other enterprise, against expenses, including
attorneys’ fees, judgments, fines and amounts paid in settlement, actually and
reasonably incurred by such person in connection with the action, suit, or
proceeding, to the full extent permitted by Nevada law.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 (the
“Act”) may be permitted to directors, officers and controlling persons of our
company pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
Item
15. Recent Sales of Unregistered Securities
Pursuant
to the terms of a Promissory Note dated December 27, 2005, issued to Sparrow,
Inc., an entity controlled by Steven L. White, in the principal amount of
$5,000, on December 28, 2007, this entity converted the full principal amount of
this note, together with accrued interest, into 80,000 shares of our common
stock. This transaction was exempt from registration pursuant to
Section 3(a)(9) of the Securities Act. No underwriting discounts or
commissions were paid in connection with this note conversion.
II-1
Pursuant
to the terms of a Promissory Note dated August 25, 2006, issued to Neil
Christiansen in the principal amount of $5,000, on April 28, 2010, Mr.
Christensen converted the full principal amount of this note, together with
accrued interest, into 80,000 shares of our common stock. This
transaction was exempt from registration pursuant to Section 3(a)(9) of the
Securities Act. No underwriting discounts or commissions were paid in
connection with this note conversion.
On May 6,
2010, we sold an aggregate of 19,080,000 shares of our common stock to LIFE
Power and Fuels, LLC, an entity controlled by Edward P. Mooney, for an aggregate
purchase price of $100,000. These shares were sold without
registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, and Rule 506
promulgated thereunder, as a transaction by an issuer not involving any public
offering. We filed a Form D with the Commission on May 6, 2010, for
this sale. LIFE was not an accredited investor but received
information required pursuant to Item 502(b) of Regulation D a reasonable time
prior to the sale. Each party delivered appropriate investment
representations with respect to these issuances and consented to the imposition
of restrictive legends upon the stock certificates representing the
shares. LIFE did not enter into the transaction with us as a result
of or subsequent to any advertisement, article, notice, or other communication
published in any newspaper, magazine, or similar media or broadcast on
television or radio, or presented at any seminar or
meeting. Representatives of LIFE were afforded the opportunity to ask
questions of our management and to receive answers concerning the terms and
conditions of the transaction. No underwriting discounts or
commissions were paid in connection with this stock sale.
In May
2010 we granted options to purchase 740,000 shares of our common stock to seven
persons. These five-year options are exercisable at $0.05 per share,
except for 100,000 which are exercisable at $0.01 per share. These
options were granted registration under the Securities Act by reason of the
exemption from registration afforded by the provisions of Section 4(2) thereof
as a transaction by an issuer not involving any public offering. Each
party received information similar to what would have been included in a
prospectus. Each party delivered appropriate investment
representations with respect to these issuances and consented to the imposition
of restrictive legends upon the option grant forms. Each party was
afforded the opportunity to ask questions of our management and to receive
answers concerning the terms and conditions of the option grants. No
underwriting discounts or commissions were paid in connection with these option
grants.
From May
through December 2010 we conducted a non-public offering of 10% Secured
Convertible Notes due June 30, 2012, and five-year warrants to purchase shares
of our common stock at an exercise price of $0.01 per share. We sold
notes in an aggregate amount of $8,000,000 and issued warrants to purchase
3,200,000 shares, of which 368,000 have been exercised. These notes
and warrants, and the warrant shares, were issued without registration under the
Securities Act by reason of the exemption from registration afforded by the
provisions of Section 4(6) and/or Section 4(2) thereof, and Rule 506 promulgated
thereunder, as a transaction by an issuer not involving any public
offering. We filed a Form D with the Commission for this offering on
July 6, 2010, and filed an amendment thereto on December 23, 2010, reflecting an
increase in the total amount of the offering. Each investor was an
accredited investor as defined in Regulation D. Each party delivered
appropriate investment representations with respect to these sales and consented
to the imposition of restrictive legends upon the promissory notes and the
warrant certificates, and the warrant share certificates. Each party
or its representative, was afforded the opportunity to ask questions of our
management and to receive answers concerning the terms and conditions of the
transaction. We paid $427,626.28 and issued 173,840 warrants as
selling commissions to European American Equities, Inc. and paid $304,500 and
issued 166,800 warrants to Sutter Securities Incorporated, registered
broker-dealers, for sales of the securities by them.
Effective
January 26, 2011, we granted 858,334 options each to officers, directors and
consultants of our company and 10,000 shares to a consultant. The
options and shares were granted under our 2010 Equity Compensation
Plan. The securities were granted without registration under the
Securities Act by reason of the exemption from registration afforded by Section
4(2) of the Act, and Rule 506 promulgated thereunder. Each recipient
was an accredited investor at the time of the grant. Each recipient
acknowledged appropriate investment representations with respect to the grants
and consented to the imposition of restrictive legends upon the certificates
representing the options and shares. Each recipient had a preexisting
relationship with persons representing our company at the time of the
transaction. Each party was afforded the opportunity to ask questions
of our management and to receive answers concerning the terms and conditions of
the option grants. No selling commissions were paid in connection
with these option and stock grants.
II-2
In
February 2011 we granted common stock purchase warrants to CCG Investor
Relations as compensation for investor relations services. These
five-year warrants authorize the purchase of up to 100,000 shares our common
stock at 2.50 per share and were granted without registration under the
Securities Act by reason of the exemption from registration afforded by Section
4(2) of the Act, and Rule 506 promulgated thereunder. This investor
was an accredited investor at the time of the issuance. CCG
acknowledged appropriate investment representations with respect to the warrant
issuance and consented to the imposition of restrictive legends upon the
document representing the warrants. CCG had a preexisting
relationship with persons representing our company at the time of the
transaction. Representatives of CCG were afforded the opportunity to
ask questions of our management and to receive answers concerning the terms and
conditions of the warrant issuance. No selling commissions were paid
in connection with this transaction.
Item
16. Exhibits
Incorporated by Reference
|
||||||
Exhibit Number
|
Exhibit Description
|
Form
|
File No.
|
Exhibit
|
Filing Date
|
Filed Here-
with
|
3.1
|
Articles
of Incorporation
|
10-K
|
000-32735
|
3.1
|
3/13/09
|
|
3.2
|
Current
Bylaws
|
8-K
|
000-32735
|
3
|
2/21/08
|
|
3.3
|
Certificate
of Designations for Series A Convertible Preferred Stock
|
8-K
|
000-32735
|
3.1
|
2/14/11
|
|
4.1
|
Form
of 10% Secured Convertible Note
|
8-K
|
000-32735
|
4.1
|
10/6/10
|
|
4.2
|
Form
of 10% Secured Convertible Note, as amended
|
8-K
|
000-32735
|
4.1
|
12/17/10
|
|
4.3
|
Form
of Warrant
|
8-K
|
000-32735
|
4.2
|
10/6/10
|
|
4.4
|
Form
of Warrant, as amended
|
8-K
|
000-32735
|
4.2
|
12/17/10
|
|
5.1
|
Opinion
re Legality of Shares
|
X
|
||||
10.1
|
Amended
and Restated Employment Agreement by and between Colombia Clean Power
& Fuels, Inc. and Edward P. Mooney, dated as of July 1,
2010*
|
8-K
|
000-32735
|
99.1
|
2/2/11
|
|
10.2
|
Indemnification
Agreement with Edward P. Mooney
|
8-K
|
000-32735
|
99.2
|
2/2/11
|
|
10.3
|
Amended
and Restated Employment Agreement by and between Colombia Clean Power
& Fuels, Inc. and Daniel F. Carlson, dated as of July 1,
2010*
|
8-K
|
000-32735
|
99.3
|
2/2/11
|
|
10.4
|
Indemnification
Agreement with Daniel F. Carlson
|
8-K
|
000-32735
|
99.4
|
2/2/11
|
|
10.5
|
Consultancy
Agreement dated January 1, 2011, with Badger Resources
Limited
|
8-K
|
000-32735
|
99.5
|
2/2/11
|
|
10.6
|
Management
and Services Agreement by and between LIFE Power & Fuels LLC and
Colombia Clean Power & Fuels, Inc., dated as of July 1,
2010*
|
8-K
|
000-32735
|
10.3
|
8/9/10
|
II-3
Incorporated by Reference
|
||||||
Exhibit Number
|
Exhibit Description
|
Form
|
File No.
|
Exhibit
|
Filing Date
|
Filed Here-
with
|
10.7
|
2010
Equity Incentive Plan*
|
8-K
|
000-32735
|
10.2
|
5/12/10
|
|
10.8
|
Subscription
Agreement, dated May 6, 2010, by and between Freedom Resources
Enterprises, Inc. and LIFE Power and Fuels LLC.
|
8-K
|
000-32735
|
10.1
|
5/12/10
|
|
10.9
|
GG7-111
Assignment Agreement by and between Energia Andina Santander Resources SAS
and Jorge Enrique Osorio Jimenez and Jose David Osorio Jiminez, dated as
of July 19, 2010 (English translation).
|
8-K
|
000-32735
|
10.1
|
9/16/10
|
|
10.10
|
GG7-11522X
Assignment Agreement by and between Energia Andina Santander Resources SAS
and Jorge Enrique Osorio Jimenez and Jose David Osorio Jiminez, dated as
of July 19, 2010 (English translation).
|
8-K
|
000-32735
|
10.2
|
9/16/10
|
|
10.11
|
Pledge
and Collateral Agency Agreement, dated August 26, 2010, among Colombia
Clean Power & Fuels, Inc., Colombia CPF LLC and Law Debenture Trust
Company, as collateral agent
|
8-K
|
000-32735
|
10.2
|
10/6/10
|
|
10.12
|
Amendment
to Pledge and Collateral Agency Agreement
|
8-K
|
000-32735
|
10.1
|
12/17/10
|
|
10.13
|
Deed
of Pledge, dated as of August 26, 2010, among Colombia Clean Power &
Fuels, Inc., CPF LLC, Energia Andina Santander Resources Cooperatieve U.A
and Law Debenture Trust Company
|
8-K
|
000-32735
|
10.3
|
10/6/10
|
|
10.14
|
Assignment
Agreement dated as of October 20, 2010 by and between Energia Andina
Santander Resources SAS and Jose Alfonso Tamara Osorio (English
translation)
|
8-K
|
000-32735
|
10.1
|
11/1/10
|
|
10.15
|
Letter
Agreement effective December 10, 2010, between Steelhead Partners, LLC and
Colombia Clean Power & Fuels, Inc.
|
8-K
|
000-32735
|
10.2
|
12/17/10
|
|
10.16
|
Letter
Agreement effective December 10, 2010, between Pinnacle Family Office
Investments, L.P. and Colombia Clean Power & Fuels,
Inc.
|
8-K
|
000-32735
|
10.3
|
12/17/10
|
|
10.17
|
Office
Lease for Bogota office
|
X
|
||||
16.1
|
Letter
from Pritchett, Siler & Hardy, PC to the Securities and Exchange
Commission dated June 9, 2010
|
8-K
|
000-32735
|
16.1
|
6/10/10
|
|
21.1
|
List
of Subsidiaries
|
X
|
||||
23.1
|
Consent
of Pritchett, Siler & Hardy, PC, independent registered public
accounting firm
|
X
|
||||
23.2
|
Consent
of Attorney (included in Exhibit 5.1)
|
--
|
*Management
contract, or compensatory plan or arrangement, required to be filed as an
exhibit.
II-4
Item
17. Undertakings
The
undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i)
Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii)
Reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement.
(iii)
Include
any material or changed information with respect to the plan of
distribution.
(2)
That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3)
To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4)
That, for the purpose of determining liability of the undersigned registrant
under the Securities Act to any purchaser in the initial distribution of the
securities, the undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to
the purchaser, if the securities are offered or sold to such purchaser by means
of any of the following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell such securities
to such purchaser:
(i) Any preliminary prospectus or
prospectus of the undersigned registrant relating to the offering required to be
filed pursuant to Rule 424 of Regulation C of the Securities Act;
(ii) Any free writing prospectus
relating to the offering prepared by or on behalf of the undersigned registrant
or used or referred to by the undersigned registrant;
(iii) The portion of any other
free writing prospectus relating to the offering containing material information
about the undersigned registrant or its securities provided by or on behalf of
the undersigned registrant; and
(iv) Any other communication that
is an offer in the offering made by the undersigned registrant to the
purchaser.
(5) For purposes of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
II-5
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B
or other prospectuses filed in reliance on Rule 430A, shall be deemed to be part
of and included in the registration statement as of the date it is first used
after effectiveness. Provided, however, that no statement
made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
[SIGNATURE
PAGE TO FOLLOW]
II-6
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Rafael, California,
on February 11, 2011.
Colombia
Clean Power & Fuels, Inc.
|
|||
By:
|
/s/ Edward P. Mooney
|
||
Edward
P. Mooney, President
|
|||
By:
|
/s/ Daniel F. Carlson
|
||
Daniel
F. Carlson, Chief Financial Officer
|
In
accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
NAME
|
TITLE
|
DATE
|
||
/s/ Edward P. Mooney
|
Director
& President (Principal Executive Officer)
|
February
11, 2011
|
||
Edward
P. Mooney
|
||||
/s/ Daniel F. Carlson
|
Director
& Chief Financial Officer (Principal Financial and Accounting
Officer)
|
February
11, 2011
|
||
Daniel
F. Carlson
|
||||
/s/ James J. Wolff
|
Director
|
February
11, 2011
|
||
James
J. Wolff
|
II-7