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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K

þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2013

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-52397

TRAILBLAZER RESOURCES, INC.
(Exact name of registrant as specified in its charter)

Nevada
88-0409170
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

2520 St. Rose Parkway, Suite 319, Henderson, NV
89074
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code: (800) 787-5439

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨    No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨    No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Fail required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ¨           No þ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
 
1

 

                    Large accelerated filer  o
Accelerated filer  o
                    Non-accelerated filer  o
Smaller reporting company  þ

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:  $12,091,335 as of June 30, 2013.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:  28,272,504 shares as of March 26, 2014.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report includes “forward-looking statements”.  All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements.  In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “believe,” or “continue” or the negative thereof or variations thereon or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurance that such expectations will prove to have been correct.  Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) include, but are not limited to:

·  
the lack of liquidity of our common stock;
·  
the availability of capital and sufficiency of our working capital;
·  
our ability to identify and acquire a viable business opportunity;
·  
our ability to recruit and retain skilled and qualified personnel;
·  
the strength and financial resources of our competitors;
·  
general economic conditions; and
·  
the securities or capital markets and other factors disclosed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this report.

You should consider these Cautionary Statements when you evaluate our forward-looking statements.  All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the Cautionary Statements.  We assume no duty to update or revise our forward-looking statements based on changes in internal estimates or expectations or otherwise.
 
 
 
2

 

TRAILBLAZER RESOURCES, INC.

ANNUAL REPORT ON
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 2013

INDEX

   
Page
PART I
Item 1.
Business
4
Item 1A.
Risk Factors
5
Item 1B.
Unresolved Staff Comments
5
Item 2.
Properties
5
Item 3.
Legal Proceedings
5
Item 4.
Mine Safety Disclosures
5
     
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
5
Item 6.
Selected Financial Data
6
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
6
Item 7A.
Quantitative and Qualitative Disclosure About Market Risk
9
Item 8.
Financial Statements and Supplementary Data
9
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
25
Item 9A.
Controls and Procedures
25
Item 9B.
Other Information
27
     
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
27
Item 11.
Executive Compensation
29
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
32
Item 13.
Certain Relationships and Related Transactions, and Director Independence
33
Item 14.
Principal Accountant Fees and Services
35
     
PART IV
Item 15.
Exhibits, Financial Statement Schedules
35

 
 

 
 
3

 
PART I
Item 1.     Business.

Overview and History

Trailblazer Resources, Inc., formerly Energy Composites Corporation (“we,” “us,” “our,” or the “Company”) currently is a holding company with no ongoing business operations.   We were incorporated on October 29, 1992 under the laws of the State of Nevada.  Prior to October 14, 2008, we were defined as a “shell” company whose sole purpose was to locate and consummate a merger or acquisition with a private entity.  As of October 14, 2008, we completed a reverse acquisition of Advanced Fiberglass Technologies, Inc., a Wisconsin corporation (“AFT”).  Pursuant to the reverse acquisition, we issued 28,750,000 shares of our common stock to AFT’s shareholders (approximately 72% of the then issued and outstanding common stock) and AFT’s shareholders gained voting control of our Company.  As a result of the reverse acquisition, we were no longer considered a “shell” company and AFT became our wholly-owned subsidiary.  On August 23, 2010, AFT changed its name to ECC Corrosion, Inc. (“ECC-C”).

ECC-C was incorporated in the state of Wisconsin on January 1, 2005, following nearly ten years operating as M&W Fiberglass, LLC (“M&W”).  Founded in 1995 by Jamie and Jennifer Mancl, M&W was the operating entity that developed and operated ECC-C’s business.  In January 2005, M&W transferred all operating assets and liabilities into a newly formed S-Corporation: ECC-C.  

On December 15, 2008, we closed a private offering of units consisting of (i) a 3-year, 6% convertible debenture (the “Debentures”) with a conversion price of $2.50 per share, and (ii) a number of warrants (the “Warrants”) exercisable into shares of the Company’s common stock equal to the number of shares issuable upon conversion of the principal amount of the Debentures.  Each Warrant was originally exercisable into shares of common stock for a term of 3 years at $5.00 per share.  We issued Debentures with a face amount of $6,370,000 and Warrants exercisable into 2,548,000 shares of common stock.  As of December 31, 2013, Debentures in the total principal amount of $5,820,000 have been converted into common stock of the Company, the majority of which occurred prior to 2013.  The number of shares of common stock issued as principal and interest for these conversions has totaled 2,474,926 shares.

On March 8, 2010, the Company’s Board of Directors approved the temporary reduction of the exercise price of outstanding Warrants to $2.50 per share from $5.00 per share. The temporary exercise price reduction was valid from March 22, 2010 through May 6, 2010.  After May 6, 2010, the warrants reverted back to their original terms. During 2010, the Company received $590,823 related to the exercise of 236,329 warrants to purchase its common stock at $2.50 per share from warrant holders. 

On September 2, 2011 the Board of Directors of the Company, acting on the recommendation of its disinterested directors, approved the sale of all of the stock of ECC-C to Jamie and Jennifer Mancl and their affiliated entities who were the majority shareholders of the Company (the “Mancls”) in exchange for substantially all of the Mancls’ shares of the Company’s common stock pursuant to the terms of a Stock Purchase Agreement dated August 12, 2011 (the “ECC-C Sale”).  This decision was made due to the continuing operating losses that had been incurred since the reverse acquisition of AFT on October 14, 2008.  As additional funding was going to be required, it was determined to be in the best interests of the Company to dispose of this operating subsidiary.  On October 21, 2011, the Company completed the ECC-C Sale and the Company cancelled 24,039,180 shares of the Company that had been owned by the Mancls. After the ECC-C Sale, we were once again a shell company. We changed the name of the Company to Trailblazer Resources, Inc. effective October 17, 2011.

On December 15, 2011, the Board of Directors extended the expiration date of the remaining 2,311,671 Warrants that had been issued in connection with the convertible Debentures in 2008 to December 31, 2012 and reduced the exercise price to $1.50 per share.  Since December 31, 2012, the expiration date has been extended several times and the exercise price was further reduced. The Warrants currently expire on June 30, 2014 and are exercisable at $1.00 per share.
 
 
 
4

 
Our Plan of Operations

Since the disposition of ECC-C, our plan of operations has been to identify and evaluate industries and business opportunities in order to find a suitable acquisition target for the Company.
 
                On July 20, 2012, we executed an agreement with Temple Mountain Energy, Inc., a Minnesota corporation (“TME”), to acquire TME’s assets.  On April 12, 2013, we determined not to proceed with the proposed transaction since the results of our due diligence investigation were not satisfactory.
 
                On September 9, 2013, we executed an asset acquisition agreement with Solus Industries, LLC, a Minnesota limited liability company (“Solus”) engaged in providing commercial roofing, heating/ventilation/air-conditioning and refrigeration systems.  Effective October 25, 2013, we terminated the asset acquisition agreement with Solus due to unsatisfactory results of our due diligence investigation.
 
                As a result of the aforementioned acquisition agreement terminations, our plan of operations for the next twelve months is to continue to seek, identify and acquire a suitable business.
 
Employees

As of the date of this report, we did not have any employees. All administrative functions are performed by JIMMAR Consulting, Inc. for which we pay an hourly rate and shares.

Item 1A.    Risk Factors.

Not applicable to smaller reporting companies.

Item 1B.    Unresolved Staff Comments.

Not applicable to smaller reporting companies.

Item 2.     Properties.

Until such time as we pursue a new business opportunity, we are using the offices of our registered agent in Nevada as the offices of the Company.

Item 3.     Legal Proceedings.

We are not currently involved in any pending or threatened legal proceedings.

Item 4.     Mine Safety Disclosures.

Not applicable.
 
PART II

Item 5.    
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

From July 17, 2007 to February 22, 2011, our common stock was quoted and traded on the OTC Bulletin Board.  Since February 23, 2011, our common stock has traded on the OTCQB due to quoting inactivity under SEC Rule 15c2-11.  The trading symbol was changed from “LPME” to “ENCC” effective October 15, 2008 and to “TBLZ” effective October 27, 2011.  The following table sets forth the range of high and low bid quotations for each quarter for our last two completed fiscal years.  These quotations reflect inter-dealer prices without retail mark-up, markdown, or commissions and may not necessarily represent actual transactions.
 
5

 
   
Bid Prices ($)
 
   
High
   
Low
 
2012 Fiscal Year:
           
March 31, 2012
    $0.60       $0.11  
June 30, 2012
    $0.36       $0.11  
September 30, 2012
    $0.45       $0.17  
December 31, 2012
    $0.44       $0.05  
                 
2013 Fiscal Year:
               
March 31, 2013
    $1.50       $0.09  
June 30, 2013
    $1.20       $0.20  
September 30, 2013
    $0.75       $0.35  
December 31, 2013
    $0.51       $0.19  

On May 7, 2014, the closing bid price for the common stock was $0.27.

Holders

The number of record holders of our common stock, as of March 26, 2014, was 186 according to our transfer agent.

Dividends

Holders of shares of common stock are entitled to dividends when, and if, declared by the board of directors out of legally available funds.  To date, we have not declared or paid any dividends on our common stock.  We do not intend to declare or pay any dividends on our common stock in the foreseeable future, but rather to retain any earnings to finance the growth of our business.  Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual and legal restrictions and other factors the board of directors deems relevant.

Recent Sales of Unregistered Securities

During the fourth quarter ended December 31, 2013, $16,636 of interest on our outstanding convertible debentures had accrued, bringing the total accrued interest on the outstanding convertible debentures to $74,704.  We had not yet issued the 32,235 shares of common stock to pay this accrued interest at December 31, 2013.

Item 6.     Selected Financial Data.

Not applicable to smaller reporting companies.

Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The discussion contained herein contains “forward-looking statements” that involve risk and uncertainties. These statements may be identified by the use of terminology such as “believes,” “expects,” “may,” “should” or “anticipates” or expressing this terminology negatively or similar expressions or by discussions of strategy. Our actual results could differ materially from those discussed in this report. The following discussion should be read in conjunction with the financial statements and the related notes included herein as Item 8.

Accounting Policies and Estimates

The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on the results that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. We also have other policies that we consider key accounting policies; however, these policies typically do not require us to make estimates or judgments that are difficult or subjective.
 
 
 
6

 

We have identified the accounting policies that we consider critical in Note 1 “Nature of Business and Significant Accounting Policies” of the notes to our financial statements included in this report, of which the most significant are accounting for valuation of stock based compensation and fair value of financial instruments.

Overview

Trailblazer Resources, Inc., formerly Energy Composites Corporation (“we,” “us,” “our,” or the “Company”), a Nevada corporation, currently has no business operations.

The Company had one operating subsidiary, ECC Corrosion, Inc. (“ECC-C”), which was sold on October 21, 2011 due to the continuing losses that the Company had incurred since the reverse acquisition in October 2008. Formerly known as Advanced Fiberglass Technologies (“AFT”), ECC-C was incorporated in the state of Wisconsin on January 1, 2005, following nearly ten years operating as M&W Fiberglass, LLC (“M&W”). Founded in 1995 by Jamie and Jennifer Mancl, M&W was the operating entity that developed and operated AFT’s business. In January 2005, M&W transferred all operating assets and liabilities into a newly formed S-Corporation: AFT.  On September 1, 2010, AFT changed its name to ECC Corrosion, Inc.

On October 21, 2011, the Company sold all of the stock of ECC-C to Jamie and Jennifer Mancl and their affiliated entities (the “Mancls”) in exchange for substantially all of the Mancls’ shares of the Company’s common stock (the “ECC-C Sale”). These shares were then cancelled, reducing the number of shares issued and outstanding of the Company to 22,752,955. In addition, we changed the name of the Company to “Trailblazer Resources, Inc.” effective October 17, 2011.

Results of Operations

We currently do not generate any revenues, but incur general and administrative expenses related to our status as a publicly-held company, such as legal, accounting and transfer agent fees, as well as other applicable expenses such as investor relations expenses.

General and administrative expenses
 
Total general and administrative expenses were $302,908 for the fiscal year ended December 31, 2013 and $1,862,411 for the fiscal year ended December 31, 2012.

For the 2013 fiscal year, legal and accounting fees were $169,430, compared to $112,411 for 2012.  The increase is due to increased legal and accounting costs associated with due diligence activities related to pursuing acquisition targets. In 2013, the Company incurred $107,773 of bad debt expense, arising from funds advanced to two potential acquisition targets that were subsequently deemed uncollectible.

A significant portion of the Company’s 2012 general and administrative expenses was due to $1,750,000 of consulting expense amortization, related to the Company’s consulting agreement with Advanced Equity Solutions, Inc., an entity owned by minority shareholders of the Company. The expense was paid in shares and valued based on the market price of the shares on the date issued.

Investor relations expense
 
Investor relations expense was $778,060 and $0 for the years ended December 31, 2013 and 2012, respectively. $739,992 of investor relations expense represents a non-cash charge to earnings for the change in fair value of warrants arising from the modification of the term of previously issued warrants, as described in Note 6 - Stockholders' Equity to the financial statements. $38,068 of investor relation expense for the year ended December 31, 2013 resulted from the amended conversion price used to convert accrued interest on outstanding convertible debentures, as described in Note 3 - Convertible Notes Payable to the financial statements.
 
 
 
7

 

Net loss from operations

The Company’s net loss from operations was $1,080,968 and $1,862,411 for the years ended December 31, 2013 and 2012, respectively. The decrease in our net loss from operations was due to lower general and administrative costs, offset by an increase in non-cash investor relations expense in 2013.

Interest expense

Interest expense was $129,902 for the year ended December 31, 2013 compared to  $38,228 for the 2012 fiscal year.  Interest expense during 2013 consisted of accrued interest on (a) convertible promissory notes of $36,731, (b) a revolving convertible note of $14,992, and (c)  notes payable to a related party of $12,735, along with non-cash amortization of the beneficial conversion feature related to the convertible line of credit of $65,444 as described in Note 5 - Revolving Convertible Note - Shareholder to the financial statements. Interest expense in 2013 increased over 2012 due to the financing costs associated with the convertible line of credit.

Income tax benefit

In 2009, the Company established a full valuation allowance against its deferred tax assets because it was deemed more likely than not, that the net deferred tax assets would not be realized. Since 2009, the Company has continued to record a full valuation allowance and therefore, there is no tax provision recorded for the years ended December 31, 2013 and 2012.

Net loss

The Company’s net loss decreased from $1,900,639 in 2012 to a loss of $1,210,870 in 2013 due to the factors described above.

Liquidity and Capital Resources

At December 31, 2013, the corporate shell Company had only $985 of cash and a working capital deficiency of $1,042,355.

Operating Cash Flows

Operating activities used $82,766 in cash during the 2013 fiscal year compared to using $64,999 during the 2012 fiscal year.

Investing Cash Flows

There were no investing transactions during the years ended December 31, 2013 and 2012.

Financing Cash Flows

Financing activities provided $78,750 and $70,000 of cash for the years ended December 31, 2013 and 2012, respectively. Financing cash activity in both 2013 and 2012 consisted of shareholder advances.

Debenture Financing

From August 2008 to December 2008, we raised $6,370,000 by selling units, each unit consisting of (i) a 3-year, 6% convertible debenture (the “Debentures”) with a conversion price of $2.50 per share (subject to adjustment for stock splits and stock dividends), and (ii) a number of warrants equal to the number of shares issuable upon conversion of the principal amount of the Debenture (the “Warrants”). The Debentures sold included the issuance of 2,548,000 Warrants. Each Warrant was originally exercisable into shares of common stock for a term of 3 years at $5.00 per share. The Warrants also provide anti-dilution protection for the following events: reorganization, reclassification, consolidation, merger or sale; subdivision, combination or dividend of our common stock.
 
 
 
8

 

At December 31, 2013, Debentures totaling $550,000 remain outstanding and are overdue.  Debentures in the aggregate principal amount of $5,820,000 have been converted to common stock as of December 31, 2013. Many of the remaining Debenture holders have elected to receive interest in the form of common stock, lowering our cash outlays for debt service on the Debentures. Since the Company does not have the capital resources at this time to repay these Debentures, we are working with the Debenture holders in an attempt to convert them to common stock, extend or otherwise renegotiate their terms.

Shareholder Financing

On February 21, 2013, we established a revolving convertible promissory note in the amount of $250,000 with Diversified Equities Partners, LLC (“DEP”), a shareholder and entity owned by a minority shareholder of the Company.  Under the terms of the note, DEP has agreed to make loans to us during a three-year period.  Interest accrues on the unpaid principal balance at the rate of 8% per annum and is to be paid quarterly beginning May 31, 2013.  All outstanding and unpaid principal and all outstanding and accrued unpaid interest shall become due and payable on February 21, 2016.  We may prepay the note at any time without penalty and re-borrow under the note.  DEP has the right to convert all or any portion of the note into shares of our common stock at any time at the rate of $0.067 per share, but the number of shares that may be issued pursuant to this conversion privilege cannot exceed 3,731,343 in the aggregate. The Company has relied upon an additional $100,000 provided by DEP in October 2013 to make partial payments to vendors. This advance, net of a partial repayment, is included in Advances from Shareholders on the Company's Balance Sheet at December 31, 2013. We will need additional funding to continue our operations. See Note 2 - Going Concern Uncertainty to the financial statements.

Going Forward

The illiquidity suffered by ECC-C led to its sale to the Mancls in exchange for their shares in the Company. This allows the Company to potentially acquire another business operation, which hopefully will have a greater potential for profitability. The Company will still need to convert, extend or otherwise renegotiate the terms of the Debentures and other financing described above. The Company is relying upon the limited funds from shareholders to continue to operate as a public company in good standing while the Company looks for a target business. We anticipate any acquisition with a target company will be consummated primarily through the issuance of  shares of the Company's stock.

We will likely need to seek additional funding for operations.  Our present plan of operations for the next twelve months is to identify and evaluate industries and business opportunities in order to find a suitable acquisition target for the Company.  We cannot give any assurance that we will be successful in this effort or that if a suitable acquisition target is obtained, it will result in profitable operations nor can we give any assurances that we will obtain adequate funding to stay in business until a suitable acquisition target is identified.

Off-Balance Sheet Arrangements

As of December 31, 2013, we did not have any off-balance sheet arrangements.

Item 7A.    Quantitative and Qualitative Disclosure About Market Risk.

Not applicable to smaller reporting companies

Item 8.       Financial Statements and Supplementary Data.
 
 
 
 
 
9

 


Report of Independent Registered Public Accounting Firm
 
To the Board of Directors and Stockholders
Trailblazer Resources, Inc.
Henderson, Nevada

We have audited the accompanying balance sheet of Trailblazer Resources, Inc. as of December 31, 2013 and the related statements of operations, stockholders’ deficit, and cash flows for the year then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with 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 also 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 audit provides 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 Trailblazer Resources, Inc. at December 31, 2013, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As described in Note 2 to the financial statements, the Company has sustained continued losses from operations and net losses and has an accumulated deficit at December 31, 2013 with no foreseeable source of income, which raises substantial doubt about its ability to continue as a going concern.  Management’s plans regarding those matters are also described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 

 
/s/ BDO USA, LLP
 
Edina, Minnesota
 
May 8 , 2014
 
 
 
10

 

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Trailblazer Resources, Inc.

We have audited the accompanying balance sheet of Trailblazer Resources, Inc. as of December 31, 2012 and the related statements of operations, stockholders’ deficit, and cash flows for the year then ended.  Trailblazer Resources, Inc.’s management is responsible for these financial statements.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit 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 also 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 audit provides 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 Trailblazer Resources, Inc. as of December 31, 2012, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As described in Note 2 to the financial statements, the Company had a net loss for the year ended December 31, 2012, had an accumulated deficit at December 31, 2012, and the Company has no foreseeable source of revenue.  These conditions raise substantial doubt about its ability to continue as a going concern.  Management’s plans regarding those matters are also described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Moquist Thorvilson Kaufmann LLC

Edina, Minnesota
April 15, 2013
 
 
 
 
 
11

 
 
TRAILBLAZER RESOURCES, INC.
           
 BALANCE SHEETS            
   
December 31,
   
December 31,
 
   
2013
   
2012
 
ASSETS
           
             
Current assets:
           
    Cash
  $ 985     $ 5,001  
        Total current assets
    985       5,001  
                 
Debt issuance costs, net
    184,556       -  
                Total assets
  $ 185,541     $ 5,001  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current liabilities:
               
    Convertible notes payable
  $ 550,000     $ 625,000  
    Accounts payable
    59,105       106,363  
    Advances from shareholders
    262,216       193,466  
    Note payable to shareholder
    67,588       -  
    Accrued expenses
    104,431       73,264  
        Total current liabilities
    1,043,340       998,093  
                 
Long-term advance from shareholders
    -       60,000  
Revolving convertible note, shareholder
    250,000       -  
        Total liabilities
    1,293,340       1,058,093  
                 
Stockholders' deficit:
               
    Common stock - $.001 par value; 100,000,000 shares
               
        authorized, 28,272,504 and 28,069,882 shares issued and outstanding at
               
        December 31, 2013 and 2012, respectively
    28,272       28,070  
    Additional paid-in capital
    23,318,911       22,162,950  
    Accumulated deficit
    (24,454,982 )     (23,244,112 )
        Total stockholders' deficit
    (1,107,799 )     (1,053,092 )
                  
                Total liabilities and stockholders' deficit
  $ 185,541     $ 5,001  
 
 
 
 
 
 
 
See notes to the financial statements.
 
12

 
 
 
TRAILBLAZER RESOURCES, INC.
           
STATEMENTS OF OPERATIONS
           
      Years Ended  
      December 31,  
   
2013
   
2012
 
             
 Revenue
  $ -     $ -  
                 
Operating expenses:
               
 General and administrative expenses
    302,908       1,862,411  
 Investor relations expense
    778,060       -  
       Total operating expenses
    1,080,968       1,862,411  
                 
Loss from operations
    (1,080,968 )     (1,862,411 )
                 
Interest expense
    (129,902 )     (38,228 )
                 
         Loss before income tax benefit
    (1,210,870 )     (1,900,639 )
                 
Income tax benefit
    -       -  
                 
Net loss
  $ (1,210,870 )   $ (1,900,639 )
                 
Net loss per common share - basic and diluted
  $ (0.04 )   $ (0.07 )
                 
Weighted average shares outstanding - basic and diluted
    28,183,546       26,757,555  
                 
                 
                 
 
 
 
See notes to the financial statements.
 
 
 
 
13

 
TRAILBLAZER RESOURCES, INC.
                         
Statements of Stockholders' Deficit
                         
Years Ended December 31, 2013 and 2012
                         
                           
 
Common Stock
   
Additional
 
Accumulated
   
Stockholders'
 
 
Shares
   
Amount
   
Paid-in Capital
 
Deficit
   
Equity (Deficit)
 
                           
                           
Balance at January 1, 2012
23,019,175     $ 23,019     $ 20,311,309   $ (21,343,473 )   $ (1,009,145 )
                                   
  Convertible notes payable converted to common stock
20,000       20       49,980     -       50,000  
  Stock issued for interest owed on convertible debt
10,707       11       26,681     -       26,692  
  Restricted stock issued for consulting services
5,020,000       5,020       1,774,980     -       1,780,000  
  Net loss
-       -       -     (1,900,639 )     (1,900,639 )
Balance at December 31, 2012
28,069,882       28,070       22,162,950     (23,244,112 )     (1,053,092 )
                                   
  Convertible notes payable converted to common stock
30,000       30       74,970     -       75,000  
  Stock issued for interest owed on convertible debt
23,337       23       33,267     -       33,290  
  Stock warrants modified for investor relations expense
-       -       739,992     -       739,992  
  Stock issued for professional services
20,000       20       4,980     -       5,000  
  Shareholder advances converted to common stock
20,000       20       9,980     -       10,000  
  Stock issued for investor relations expense
109,285       109       37,959     -       38,068  
  Beneficial conversion feature
-       -       250,000     -       250,000  
  Stock issuable for professional services
-       -       4,813     -       4,813  
  Net loss
-       -       -     (1,210,870 )     (1,210,870 )
Balance at December 31, 2013
28,272,504     $ 28,272     $ 23,318,911   $ (24,454,982 )   $ (1,107,799 )
                                   
                                   
 
 
 
See notes to the financial statements.
 
 
 
14

 
             
TRAILBLAZER RESOURCES, INC.
           
STATEMENTS OF CASH FLOWS
           
      Years Ended  
      December 31,  
   
2013
   
2012
 
Cash flows from operating activities:
           
  Net loss
  $ (1,210,870 )   $ (1,900,639 )
  Adjustments to reconcile net loss to net cash used in
               
   operating activities:
               
      Amortization of debt issuance costs
    65,444       -  
     Non-cash investor relations expense
    778,060       -  
     Bad debt expense
    107,773       -  
     Expenses paid directly by shareholders and added to revolving convertible note
    82,227       -  
     Amortization of prepaid consulting expense
    -       1,750,000  
     Stock issued for professional services
    5,000       -  
     Stock issuable for professional services
    4,813       -  
  Changes in operating assets and liabilities:
               
     Accounts payable
    20,330       47,412  
     Accrued expenses
    64,457       38,228  
       Net cash used in operating activities
    (82,766 )     (64,999 )
 
               
Cash flows from investing activities:
               
      Net cash used in investing activities
    -       -  
                 
Cash flows from financing activities:
               
  Increase in advances from shareholders
    78,750       70,000  
                 
       Net cash provided by financing activities
    78,750       70,000  
                 
       Net decrease in cash and cash equivalents
    (4,016 )     5,001  
Cash and cash equivalents:
               
  Beginning of period
    5,001       -  
  End of period
  $ 985     $ 5,001  
                 
Supplemental cash flow information:
               
     Cash paid during the period for interest
  $ -     $ -  
                 
Non-cash investing and financing activities:
               
   Accounts payable paid directly by certain shareholders as advances
  $ -     $ 127,516  
   Increase in debt isuance costs in connection with beneficial conversion feature on
               
         revolving convertible note, shareholder
  $ 250,000     $ -  
   Accrued interest paid with common stock
  $ 33,290     $ 26,691  
   Convertible notes payable converted to common stock
  $ 75,000     $ 50,000  
   Accrued expenses paid with common stock
  $ -     $ 30,000  
   Common stock issued for prepaid consulting agreement
  $ -     $ 1,750,000  
   Expenses and advances to unrelated parties paid directly by shareholder in exchange
               
        for revolving convertible note, shareholder
  $ 190,000     $ -  
   Shareholder advances converted to revolving convertible note, shareholder
  $ 60,000     $ -  
   Shareholder advances converted to shares of common stock
  $ 10,000     $ -  
  Accounts payable converted to note payable, shareholder
  $ 67,588     $ -  
 
See notes to the financial statements.
 
 
15

 

 
 
Note 1.     Nature of Business and Significant Accounting Policies

Nature of Business

Trailblazer Resources, Inc., (the “Company”), is a public shell company that is seeking a business opportunity. We currently have no on-going business operations.

The Company formerly engaged in the manufacture, sale, installation and service of fiberglass tank and piping products through ECC Corrosion, Inc. (“ECC-C”), a former wholly owned subsidiary of the Company. On September 2, 2011, the Board of Directors of the Company, acting on the recommendation of its disinterested directors, approved the sale of all of the stock of ECC-C to Jamie and Jennifer Mancl and their affiliated entities who were the majority shareholders of the Company (the “Mancls”) in exchange for substantially all of the Mancls’ shares of the Company’s common stock pursuant to the terms of a Stock Purchase Agreement dated August 12, 2011 (the “ECC-C Sale”). On October 21, 2011, the Company completed the ECC-C Sale.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Accordingly, actual results could differ from those estimates.

Concentrations of Risk

The Company maintained its cash in high-quality financial institutions.  The balances, at times, may exceed the federally insured limits.

Cash and Cash Equivalents

For purposes of balance sheet presentation, the Company considers all unrestricted demand deposits, money market funds, savings funds and investments with an original maturity of three months or less to be cash and cash equivalents.

Income Taxes

Income taxes are provided for using the asset and liability method of accounting. A deferred tax asset or liability is recorded for all differences between the reported amounts of assets and liabilities and their respective tax basis, and for tax credit carryforwards.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

The Company accounts for income taxes pursuant to Financial Accounting Standards Board (“FASB”) guidance.  This guidance prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.  For those benefits to be recognized, a tax position must be more-likely-than not to be sustained upon examination by taxing authorities. The Company believes its income tax filing positions and deductions will be sustained upon examination and, accordingly, no reserves, or related accruals for interest and penalties has been recorded at December 31, 2013 and 2012.  In accordance with the guidance, the Company has adopted a policy under which, if required to be recognized in the future, interest related to the underpayment of income taxes will be classified as a component of interest expense and any related penalties will be classified in operating expenses in the statements of operations.  The Company’s remaining open tax years subject to examination include the years ended December 31, 2008 through 2013.
 
 
 
16

 
 
 
Advertising Expense

The Company expenses advertising costs as incurred.  The Company had no advertising expense during  the years ended December 31, 2013 and 2012, respectively.

Stock-Based Compensation

The Company recognizes the cost of stock-based compensation plans and awards in net earnings on a straight-line basis over the service period of the awards.  The Company estimates the fair value of option awards using the Black-Scholes-Merton option-pricing formula and records compensation expense for stock options ratably over the vesting period of each stock option grant.

Fair Value of Financial Instruments

The Company’s financial instruments included on the balance sheet include cash, accounts payable, and debt. Fair values of accounts payable and cash were assumed to approximate cost or carrying values.

At December 31, 2013 and 2012, it is deemed impracticable to estimate the fair value of the Company’s debt, as quoted market prices are not available, a valuation model necessary to estimate the fair value has not been developed, and the cost of obtaining an independent valuation is deemed excessive in relation to the value of the debt held by the Company.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) and items defined as other comprehensive income (loss).  Items defined as other comprehensive income (loss) include items such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities.  For the years ended December 31, 2013 and 2012, there were no adjustments to net loss to arrive at comprehensive loss.

Recent Accounting Pronouncements

There were no new accounting standards issued or effective during the year ended December 31, 2013 that had or are expected to have a material impact on the Company’s results of operations, financial condition, or cash flows.

Note 2.     Going Concern Uncertainty
 
The accompanying financial statements have been prepared in conformity with GAAP, assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. At December 31, 2013, the Company had a working capital deficiency of $1,042,355 and an accumulated deficit of $24,454,982, and reported a net loss for the year then ended of $1,210,870.  

The Company has limited financial resources, has been unprofitable since its inception and currently has no source of revenue generating activities.   These factors raise substantial doubt about its ability to continue as a going concern. Management plans to rely on advances from certain shareholders to fund its ongoing obligations; however, there is no guarantee that the Company will be able to obtain an adequate amount of funding. If the Company is unable to obtain the necessary funding, the Company may need to liquidate. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Note 3.     Convertible Notes Payable

In August 2008, the Company began a private placement offering of Units, each Unit consisting of (i) a 3-year, 6% convertible debenture with a conversion price of $2.50 (the “Conversion Price”) per share (subject to adjustment for stock splits and stock dividends) (the “Debentures”), and (ii) a number of warrants equal to the number of shares issuable upon conversion of the principal amount of the Convertible Debenture (the “Warrants”).  
 
 
 
17

 
 
 
 
At issuance, each Warrant was immediately exercisable into shares of common stock for a term of 3 years at $5.00 per share. As of December 31, 2013, the Warrants had been extended through June 2014 and the exercise price has been reduced to $1.00 per share (Note 6).  The Warrants also provide anti-dilution protection for the following events: reorganization, reclassification, consolidation, merger or sale; subdivision, combination or other dividend of the Company’s common stock. The debt discount created by the detachable Warrants, was fully amortized before December 31, 2011.
 
     The private placement closed on December 14, 2008.  Debentures in the aggregate principal amount of $6,370,000 were sold which included the issuance of 2,548,000 Warrants.  The Debentures are considered to be conventional convertible debt.
 
     The following table summarizes the convertible notes balance as of December 31, 2013 and 2012:

 Balance at January 1, 2012
  $ 675,000  
         
   Less: conversion of debt to common stock
    (50,000 )
         
 Balance at December 31, 2012
    625,000  
         
   Less: conversion of debt to common stock
    (75,000 )
         
 Balance at December 31, 2013
  $ 550,000  
         
All outstanding Debentures at December 31, 2013 and 2012, totaling $550,000 and $625,000, respectively, are past their maturity dates and are currently due on demand.

The effective annual interest rate for both of the years ended December 31, 2013 and 2012 was 6%. Prior to July 2, 2013, the Debentures provided holders the option to convert any accrued interest owed to them at $2.50 per share. On July 2, 2013, the Company's Board of Directors amended the conversion price to be the average of the trading price of the shares for the 21 trading days preceding each quarterly interest payment date and retroactively adjusted all previously accrued interest conversions since the original maturity dates in 2011. The Company issued 109,285 shares valued at $38,068 in July 2013 as part of this retroactive adjustment, which was recorded as investor relations expense. 
 
Note 4.     Advances From Shareholders

Subsequent to the divestiture of ECC-C on October 21, 2011, the Company’s operating expenses have been funded primarily by advances from certain shareholders. Going forward, the Company will continue to incur ongoing professional and other fees in connection with being a public company. As of December 31, 2013 and 2012, $262,216 and $253,466, respectively, is owed to certain shareholders who have made unsecured advances to the Company to fund operations. $125,000 of the December 31, 2013 and 2012 balances bear a 3.5% interest rate, and is due upon demand. The remaining December 31, 2013 and 2012 shareholder advance balances are non-interest bearing and due on demand.

In February 2013, $60,000 of the non-interest bearing shareholder advances were refinanced into a revolving convertible note from Diversified Equities Partners, LLC ("DEP"), a shareholder and entity owned by a minority shareholder of the Company (Note 5). On April 1, 2013, $10,000 of the non-interest bearing shareholder advances was converted into 20,000 shares of the Company's common stock, at a conversion rate of $0.50 per share.

In October 2013, DEP advanced the Company an additional $103,750, which, after repayment of $25,000, resulted in net proceeds of $78,750 to fund payment of Company operating expenses. This advance is unsecured, noninterest bearing, and due on demand.
 
 
 
18

 

 
 
    During 2013 and 2012, $7,899 and $0, respectively, of interest expense was incurred on advances from shareholders, all of which was outstanding and included in accrued expenses at December 31, 2013.

Note 5.     Revolving Convertible Note, Shareholder

On February 21, 2013; the Company established an unsecured revolving convertible note in the amount of $250,000 with DEP.  Under the terms of the note, DEP has agreed to make loans to the Company during the three-year term of the revolving credit commitment period.  Interest accrues on the unpaid principal balance at a rate of eight percent per annum and is payable quarterly beginning May 31, 2013; however, none has been paid as of December 31, 2013. DEP has waived its right to call payment on the loan if all accrued interest is paid prior to February 21, 2016. Accrued expenses include $14,992 of interest due to shareholders relating to this revolving convertible note as of December 31, 2013.  All outstanding and unpaid principal and accrued interest shall become due and payable at maturity, February 21, 2016.  The Company may prepay the note at any time without penalty and re-borrow under the agreement.  DEP has the right to convert all or a portion of the note into shares of the Company’s common stock at any time at the rate of $0.067 per share, but the number of shares that may be issued pursuant to this conversion privilege cannot exceed 3,731,343. Because the conversion price was lower than the Company's per share market price at note inception, the Company recognized additional beneficial conversion costs, as described below, upon each new borrowing.

As of December 31, 2013, the Company has drawn an aggregate $250,000 on the note which includes:  (1) $60,000 of advances from shareholders outstanding at December 31, 2012 that were refinanced into this note; (2) professional services aggregating $82,227 paid directly by DEP on behalf of the Company; (3) advances made by DEP, on behalf of the Company, to a previous acquisition target, Temple Mountain Energy, Inc. (“TME”) aggregating $82,773; and (4) $25,000 advanced to Solus Industries, LLC ("Solus"), another previous acquisition target.  The advances to both TME and Solus, aggregating $107,773, were written off in their entirety with a corresponding bad debt expense recorded on the accompanying statement of operations during the year ended December 31, 2013. The Company is no longer considering an acquisition of either TME or Solus.

The fair value of the beneficial conversion feature, aggregating $250,000, was recorded as debt issuance costs with a corresponding increase in paid-in capital. The amortization of debt issuance costs, which is classified as interest expense, is recognized on a straight-line basis over the term of the revolving note and aggregated $65,444, during the year ended December 31, 2013. The unamortized balance of $184,556 at December 31, 2013 will be fully amortized through the maturity date, February 21, 2016.

Note 6.     Stockholders’ Equity
 
Stock Issuances
 
Pursuant to the Company’s Director Compensation Plan, the Company, in January 2012, granted 20,000 shares of common stock to a former director in settlement of $30,000 in accrued director compensation.

During the year ended December 31, 2013, the Company issued 109,285 shares of common stock in connection with the retroactive adjustment of conversions of previously accrued interest, aggregating $38,068. The $38,068 was recorded as investor relations expense on the accompanying statement of operations. The Company also extinguished $10,000 of advances from shareholders by issuing 20,000 shares of common stock and also issued 20,000 shares of common stock for $5,000 in professional fees.

Converted Debt
 
During the years ended December 31, 2013 and 2012, $75,000 and $50,000, respectively, of the debt was converted to common shares of the Company, at $2.50 per share.  A total of 53,337 and  30,707 common shares were issued for the debt and related interest on the debt during the years ended December 31, 2013 and 2012, respectively.
 
 
19

 
 
 
 
Warrants
 
    On December 15, 2011, the Board of Directors of the Company approved the extension of the expiration dates of the remaining Warrants to December 31, 2012 at a reduced exercise price of $1.50 per share in order to potentially raise capital in the future. On December 31, 2012, the Board of Directors approved an extension of all outstanding warrant expiration dates to April 30, 2013. On March 18, 2013, the Board of Directors approved the further extension of the expiration date of all of its outstanding Warrants to June 30, 2013. As of June 30, 2013, the Warrants to purchase 2,311,671 shares of the Company's stock at $1.50 per share lapsed. However, on July 2, 2013, the Company's Board of Directors approved further extending the expiration date to June 30, 2014, as well as reducing their exercise price to $1.00 per share. The estimated warrant modification value, aggregating $739,992 was recognized as investor relations expense during the year ended December 31, 2013. As of December 31, 2013, there were 2,311,671 Warrants outstanding, which are exercisable at $1.00 per share until June 30, 2014.

Using the Black-Scholes-Merton option pricing model, the following assumptions were used to calculate the fair value of the warrant extensions during 2013:

       
 
 Contractual life in years   0.2 - 1.0%  
 
 Expected volatility   133.0% - 285.9%  
 
 Expected dividend rate   0.00%  
 
 Risk free interest rate   0.07% - 0.14%  

The contractual life of the Warrants is based on the amended warrant terms. The expected volatility and dividend rate is based upon historical data. The risk free rate of return is based upon the Treasury Rate for maturities of bond obligations of the U.S. government with terms comparable to the contractual life of the modified warrants being valued.

Stock Option Awards
 
On June 18, 2008, the Board of Directors approved the Company's 2008 Stock Incentive Plan (the “2008 Plan”) which reserves 3,300,000 shares of common stock, under which officers, other key employees, and directors may be granted options to purchase shares of the Company's common stock at not less than the fair market value of such shares on the date of the grant. Options generally become exercisable ratably on the anniversary of the date of the grant over a period of up to four years.  Vesting for all outstanding options is based solely on continued service as an employee of the Company and generally vest upon retirement. Options to purchase shares expire not later than ten years after the grant of the option. The 2008 plan was approved by a majority of the shareholders on August 29, 2008. The 2008 Plan also authorizes the issuance of stock appreciation rights, restricted shares, unrestricted shares, deferred shares, and performance awards under which the Plan Committee has discretion in determining vesting conditions of the awards.

The only awards outstanding as of December 31, 2011, were vested options for the purchase of 60,500 shares which were exercisable at a weighted exercise price of $3.24, and expired in January 2012.

No stock options were granted and no expense (benefit) related to stock option awards was recorded during the years ended December 31, 2013 and 2012.
 
 
 
 
20

 
 
         
Weighted
       
         
Average
       
     
Weighted
 
Remaining
   
Aggregate
 
 
Number of
 
Average
 
Contract Life
   
Intrinsic
 
 
Options
 
Exercise Price
 
(Years)
   
Value(1)
 
                   
 Outstanding January 1, 2011
  60,500   $ 3.24   0.08       -  
 Granted
  -   $ -   -       -  
 Canceled or expired
  (60,500)   $ (3.24)   -       -  
 Exercised
  -   $ -   -       -  
 Outstanding December 31, 2012
  -   $ -   -       -  
 Granted
  -   $ -   -       -  
 Canceled or expired
  -   $ -   -       -  
 Exercised
  -   $ -   -       -  
 Outstanding December 31, 2013
  -   $ -   -       -  
                         
  Exerecisable at December 31, 2013
  -   $ -              
                         
                         
 
(1)  
The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price.
 
Note 7.     Income Taxes

The income tax provision (benefit) consisted of the following for the years ended December 31, 2013 and 2012:
 
 
Years ended December 31,
 
 
2013
 
2012
 
 Current
$ -   $ -  
 Deferred tax expense (benefit)
  1,120,000     (59,000)  
     Subtotal
  1,120,000     (59,000)  
 Change in valuation allowance
  (1,120,000)     59,000  
 Total income tax expense (benefit)
$ -   $ -  
             
 
At December 31, 2013 and 2012, the Company reviewed all available evidence pertaining to the realization of the Company’s recorded deferred tax assets. The negative evidence available to the Company at December 31, 2013 and 2012 included the Company’s continued significant operating losses recorded through December 31, 2013 and 2012 and the divestiture of the Company’s only operating business on October 31, 2011.  Based on the weighting of the evidence, the Company concluded that a full valuation allowance was needed as of December 31, 2013 and 2012.

Significant components of the Company’s estimated deferred tax assets and liabilities at December 31 are as follows:
 
 
21

 
 
 
 
   
Years ended December 31,
 
   
2013
   
2012
 
             
Deferred tax assets:
           
 Accruals and reserves
  $ 1,000     $ 1,000  
 Expenses related to warrants and options
    286,000       1,550,000  
 Net operating loss carryforwards
    2,014,000       1,870,000  
 Total deferred tax assets
  $ 2,301,000     $ 3,421,000  
                 
 Less: valuation allowance
    (2,301,000)       (3,421,000)  
 Net deferred income tax assets
  $ -     $ -  
                 
 
As of December 31, 2013, the Company had federal net operating loss carryforwards of approximately $5,125,000 expiring in various years from 2028 through 2033. Due to the significant ownership change that occurred with the divestiture of ECC-C on October 21, 2011, these federal operating loss carryforwards will likely be severely limited after a U.S. Internal Revenue Code Section 382 study is performed if the Company becomes profitable in the future.

The reconciliation of the tax provision (benefit) compared at the statutory rate to the effective tax rate is as follows for the years ended December 31:
         
 
2013
 
2012
 
Statutory U.S. federal income tax rate
  (34.0%)     (34.0%)  
State and local income taxes, net of federal income tax benefit
  (5.3%)     (5.3%)  
Permanent differences
  131.8%     36.2%  
    92.5%     (3.1%)  
Change in valuation allowances
  (92.5%)     3.1%  
      Effective income tax rate
  0.0%     0.0%  
             
             
 
Note 8.     Related Party Transactions
 
In February 2012, the Company entered into a consulting agreement with AES, an entity owned by minority shareholders of the Company, in exchange for strategic and financial advisory consulting services and issued 5,000,000 restricted shares of common stock valued at $1,750,000 using the closing market price of $0.35 on the date the agreement was executed. The expense was recognized all during 2012 over the term of the contract.

Certain minority shareholders (a) directly paid legal, accounting and other administrative fees, totaling  $127,516, on behalf of the Company during 2012, and (b) advanced cash funds aggregating $103,750 and $70,000 during the years ended December 31, 2013 and 2012, respectively. These transactions were recorded as advances from shareholders. During 2013, $95,000 of the advances were settled or refinanced into other debt (Note 4). As of December 31, 2013 and 2012, $262,216 and $253,466 were due to minority shareholders, respectively. $125,000 of the December 31, 2013 and 2012 balances bear a 3.5% interest rate, and are due upon demand. The remaining December 31, 2013 and 2012 shareholder advance balances are non-interest bearing and due on demand.
 
 
On February 21, 2013, the Company established a revolving convertible line of credit arrangement in the amount of $250,000 with DEP as described in Note 5, Revolving Convertible Note, Shareholder.

In July 2013, the Company entered into a revised consulting agreement with the Company's contract controller and shareholder, JIMMAR Consulting, Inc., providing for consulting fees on an hourly basis, plus the Company agreed to issue shares of the Company's common stock as follows: 5,000 shares on August 31, 2013, 5,000 shares on November 30, 2013, and 10,000 shares on March 15, 2014. The Company also formally acknowledged its existing debt to JIMMAR Consulting, Inc., which aggregated $67,588 at December 31, 2013. The debt agreement required payment of the entire outstanding balance on or before December 31, 2013, with interest accruing at a rate of 15% per annum. Interest was to be paid in cash, or, at the Company's option, in common shares
 
 
 
22

 
 
 
of the Company's stock, based on a conversion price of $0.37 per share. Interest expense for the year ended December 31, 2013 was $4,836, all of which remained unpaid at December 31, 2013 and is included in accrued expenses on the accompanying balance sheet. The Company is in default of the provisions of this agreement, and has not made any principal or interest payments as of December 31, 2013. As of December 31, 2013, the Company has not issued the shares that were to be issued in August and November 2013. Based on the share price of the stock at the date of the consulting agreement, July 23, 2013, the stock to be issued is valued at $0.35 per share, and are being recognized over the term of the agreement. As a result, the Company recorded stock issuable of $4,813 with an offsetting expense recorded in general and administrative expenses for the year ending December 31, 2013.

Note 9.     Commitments and Contingencies

Legal Proceedings

The Company may be subject to legal proceedings and claims arising in the ordinary course of business.  As of the date hereof, we are not currently involved in any pending or threatened legal proceedings.

Note 10.    Loss Per Share

The Company computes earnings (loss) per share using two different methods, basic and diluted, and presents per share data for all periods in which statements of operations are presented. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common stock and common stock equivalents outstanding, so long as such equivalents are not anti-dilutive.

The following tables provide a reconciliation of the numerators and denominators used in calculating basic and diluted earnings (loss) per share for the years ended December 31, 2013 and 2012:

             
   
2013
   
2012
 
             
Basic loss per share calculation:
           
 Net loss from continuing operations to common shareholders
  $ (1,210,870 )   $ (1,900,639 )
         Net loss to common shareholders
  $ (1,210,870 )   $ (1,900,639 )
                 
 Weighted average common shares outstanding
    28,183,546       26,757,555  
                 
 Net loss per common share from continuing operations
  $ (0.04 )   $ (0.07 )
 Basic net loss per common share
  $ (0.04 )   $ (0.07 )
                 
 Diluted loss per share calculation:
               
 Net Loss from continuing operations to common shareholders
  $ (1,210,870 )   $ (1,900,639 )
         Net income loss to common shareholders
  $ (1,210,870 )   $ (1,900,639 )
                 
 Weighted average common shares outstanding
    28,183,546       26,757,555  
 Convertible debentures (1)
    -       -  
 Warrants (2)
    -       -  
 Options (3)
    -       -  
 Revolving convertible promissory note  (4)
    -       -  
 Diluted weighted average common shares outstanding
    28,183,546       26,757,555  
 Diluted net loss per common share from continuing operations
  $ (0.04 )   $ (0.07 )
 Diluted net loss per common share
  $ (0.04 )   $ (0.07 )
                 
 
The following common stock equivalents have been excluded from the diluted per share calculations because they are anti-dilutive:
 
 
 
23

 
 
 
(1).           At December 31, 2013 and 2012, there were outstanding convertible debentures equivalent to 220,000 and 250,000 common shares, respectively.
 
(2).           At both December 31, 2013 and 2012, there were outstanding warrant equivalents of 2,311,671.
 
(3).           At December 31, 2013 and 2012, there were no outstanding option equivalents.
 
(4).           At December 31, 2013 and 2012, there were outstanding revolving convertible note equivalents of 3,731,343 and 0, respectively.
 

Note 11.    Acquisition Agreements

On July 20, 2012, the Company executed an agreement with Temple Mountain Energy, Inc., a Minnesota corporation (“TME”), with regard to our proposed acquisition of TME’s assets.  TME is a privately-held company with mineral leases, large mining permits and operational assets focused on oil sands mining and processing in the Vernal, Utah area.  On April 12, 2013, the Company determined not to proceed with the proposed transaction since the results of our due diligence investigation were not satisfactory.

On September 9, 2013, the Company executed an asset acquisition agreement with Solus Industries, LLC, a Minnesota limited liability company (“Solus”) engaged in providing commercial roofing, heating/ventilation/air-conditioning and refrigeration systems.  Effective October 25, 2013, we terminated the asset acquisition agreement with Solus due to unsatisfactory results of our due diligence investigation.

We had advanced $82,773 to TME and $25,000 to Solus while the transactions were pending.  These advances were written off in their entirety with a corresponding bad debt expense recorded on the accompanying statement of operations during the year ended December 31, 2013.
 
 
 
24

 


Item 9.     Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

On July 1, 2013, the practice of Moquist Thorvilson Kaufmann LLC (“MTK”), which was engaged as our independent registered public accounting firm, was combined with BDO USA, LLP (“BDO”) and the professional staff and partners of MTK joined BDO either as employees or partners of BDO. As a result of this transaction, MTK resigned as our independent registered public accounting firm on August 16, 2013. On August 16, 2013, following the resignation of MTK, the Company, through and with the approval of its Board of Directors, appointed BDO as its independent registered public accounting firm.

Other than for the inclusion of a paragraph describing the uncertainty of the Company’s ability to continue as a going concern, MTK's reports on the Company's financial statements for the years ended December 31, 2012 and 2011 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the Company's two most recent fiscal years and the subsequent interim period preceding MTK's resignation, there were: (i) no “disagreements” (within the meaning of Item 304(a) of Regulation S-K) with MTK on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of MTK, would have caused it to make reference to the subject matter of the disagreements in its reports on the consolidated financial statements of the Company; and (ii) except as noted below, no “reportable events” (as such term is defined in Item 304(a)(1)(v) of Regulation S-K).

In connection with its audit of the Company’s financial statements for the years ended December 31, 2012 and 2011, MTK reported the existence of material weaknesses in the Company's internal control over financial reporting to the Audit Committee of the Company. The material weaknesses relate to the fact that the Company has a lack of segregation of duties and does not have the internal resources to routinely prepare the Company’s financial statements and lacks documentation of corresponding review procedures. These material weaknesses have not been corrected at this time due to the Company’s lack of employees and the lack of cash resources.

During the Company's two most recent fiscal years and the subsequent interim period preceding BDO's engagement, neither the Company nor anyone on its behalf consulted BDO regarding either: (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 the Company's financial statements, and no written report or oral advice was provided to the Company that BDO concluded was an important factor considered by the Company 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 event” (within the meaning of Item 304(a) of Regulation S-K and Item 304(a)(1)(v) of Regulation S-K, respectively).

In approving the selection of BDO as the Company's independent registered public accounting firm, the Board of Directors considered all relevant factors, including that no non-audit services were previously provided by BDO to the Company.
 
 
Item 9A.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures and Changes in Internal Controls

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our President (principal executive officer and principal financial officer) as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance the objectives of the control system are met.

As of December 31, 2013, our management carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act. Based on
 
 
 
25

 
 
this evaluation, the Chief Executive Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2013, because of the identification of the material weakness in internal control over financial reporting described below. Notwithstanding the material weakness that existed as of December 31, 2013, our President has concluded that the financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, the financial position, results of operations and cash flows of the Company and its subsidiaries in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
 
·    
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;
·    
Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
 ·    
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
 
Under the supervision and with the participation of our management, including our Chief Executive Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 1992, as of December 31, 2013.

As a result of our material weakness described below, management has concluded that, as of December 31, 2013, our internal control over financial reporting was not effective based on the criteria in “Internal Control-Integrated Framework” issued by COSO.

Material Weakness in Internal Control over Financial Reporting

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility, that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with its assessment, management identified the following material weaknesses at December 31, 2013: 

·  
With the Company now operating as a shell company, there is a lack of segregation of duties within the accounting and financial reporting process.
·  
Since we use external consultants to prepare our financial statements and provide sufficient documentation of such preparation and review procedures, our sole officer must rely on such documentation.
 
Due to our limited resources as a public shell company, we expect these weaknesses in internal control to continue while we search for an acquisition target.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our
 
 
 
26

 
 
 independent registered public accounting firm pursuant to the  rules of the SEC that permit us to provide only management’s report in this annual report.
 
Changes in Internal Control over Financial Reporting

During the period covered by this annual report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.          Other Information.

None.

PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

Our directors and officers, and their ages as of the date of this report, are as follows:

Name
Age
Current Position with Company
Samuel W. Fairchild
59
President, Interim Chief Executive Officer, Interim Chief Financial Officer and Director
Mark Huelskamp
59
Director
Michael T. Murray
64
Corporate Secretary and Director

The term of office of each officer ends at the next annual meeting of our board of directors, expected to take place immediately after the next annual meeting of stockholders, or when such officer’s successor is elected and qualified.  The Board of Directors expects that it will elect the current officers (including those also currently serving as directors) to return to their positions as officers of our Company until the next annual meeting of stockholders.

Samuel W. Fairchild.  Mr. Fairchild has served as a director since October 2008 and as our President and Interim Chief Financial Officer since October 2011. Since March 2013, he has been the Chief Financial Officer and Interim Chief Executive Officer of Estrella Group, LLC, a privately-held real-estate investment company specializing in multi-family housing in regions of the US experiencing rapid growth in Hispanic population.  Before, he had served as the Chief Executive Officer of Optiwind Corp., a privately-held company located in Torrington, Connecticut, that markets and distributes wind turbines to mid-sized users.  Previous to that, he served as Chief Executive Officer and Director of Tower Tech Holdings (TWRT), the predecessor to Broadwind Energy (BWEN), from 2006 – 2007, where he led the growth in market capitalization from $40 million to nearly $1 billion through process restructuring, market repositioning, capital formation and responsive corporate governance.  Mr. Fairchild has been the President of the Tadpole Group, an investment portfolio-holding company focused on harvesting value from transformation, since August 2004. Prior to founding Tadpole in 2004, Mr. Fairchild co-led the Global Government, Transport & Infrastructure Group of PA Consulting Group, a role he assumed in 1999 as a result of PA’s acquisition of GKMG Consulting Services, a strategic consulting firm he founded in 1992.  During that period, he also served as “shadow CEO” of Air New Zealand following the demise of its wholly-owned subsidiary, Ansett Airlines, where he led the Crown’s acquisition of most of the outstanding shares and the comprehensive turnaround of the airline.  He has also served in the White House as senior advisor to President Reagan and Vice President Bush for transportation and regulatory policy, and was George Bush’s Acting Assistant Secretary of Transportation for Policy and International Affairs.  Following his government service, Mr. Fairchild was a member of the management group at the Carlyle Group, where he helped to establish BDM International’s transportation group before BDM was sold to TRW, Inc.  Since May 1996, Mr. Fairchild has been the Chairman of the Board of Schiphol North America, the owner of JFK’s $1.4 billion Terminal Four and the international arm of Amsterdam Airport’s Schiphol Group.
 
 
 
27

 

Mark Huelskamp has been a director since October 2011.  Since February 2001, he has been the President of the Spokane Division of Core-Mark International, Inc., which is wholesale distributor of packaged consumer products to the convenience retail industry in North America.
 
Michael T. Murray has been the corporate secretary and a director since October 2011.  Since 2001, he has been the managing partner of R&R Management Funds, LLC, a family owned investment company that focuses on energy, oil and gas, real estate and technology opportunities.  The real estate projects have been throughout the United States, with concentration in Colorado, Florida and Minnesota. The energy related projects are national and international involvements.

We are not aware of any material proceedings to which any of the non-director executive officers, or any associate of any such officer, is a party adverse to us or has a material interest adverse to us or to any of our subsidiaries.  There are no family relationships between any of our non-director executive officers.  During the last five years, none of the non-director officers has (i) had any bankruptcy petition filed by or against any business of which such person was an officer; (ii) had any conviction in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (iii) been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or (iv) been found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.

No directorships are held by any director in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or any company registered as an investment company, under the Investment Company Act of 1940.

Nominees to the Board of Directors
 
                Since our last proxy statement, we have not made any material changes to the procedures by which stockholders may recommend nominees to our board of directors.

Committees
 
                As Mark Huelskamp and Michael Murray are considered our only independent directors at this time, the entire board of directors, rather than committees, acts on various items.  The board of directors has determined that it does not have an audit committee financial expert.

Code of Ethics

Our Board has adopted a Code of Ethics that applies to all of our employees, including our principal executive officer and principal financial officer and persons performing similar functions. The Code of Ethics addresses such topics as protection and proper use of our assets, compliance with applicable laws and regulations, accuracy and preservation of records, accounting and financial reporting, and conflicts of interest. The Code of Ethics is available in print, free of charge to any stockholder who sends a request for a paper copy to Trailblazer Resources, Inc., 2520 St. Rose Parkway, Suite 319, Henderson, Nevada 89074.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our officers, directors, and persons who beneficially own more than 10% of our common stock to file reports of securities ownership and changes in such ownership with the Securities and Exchange Commission (“SEC”).  Officers, directors and greater than 10% beneficial owners are also required by rules promulgated by the SEC to furnish us with copies of all Section 16(a) forms they file.

Based solely upon a review of the copies of such forms furnished to us, or written representations that no Form 5 filings were required, we believe that during the fiscal year ended December 31, 2013, there was compliance
 
 
 
28

 
 
  with all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners.

Item 11.    Executive Compensation.

The following table sets forth information regarding the remuneration of our principal executive officer and our executive officers that earned in excess of $100,000 per annum during any part of the last two completed fiscal years:
Summary Compensation Table
Name and Principal Position
Fiscal Year
Salary
($)
Bonus
($)
Stock Awards
($)
 
Option Awards
($)
All Other
Compensation
($)
Total
($)
Samuel Fairchild,
Chief Executive Officer
2013
-
-
-
-
-
-
2012
-
-
-
-
-
-

Outstanding Equity Awards at 2013 Year End
 
                There were no outstanding equity awards at December 31, 2013.

Director Compensation

During the fiscal year ended December 31, 2013, we did not pay any compensation to our directors.

Stock Plans

Our stockholders adopted the 2008 Stock Incentive Plan on August 29, 2008, in order to attract, retain and motivate the employees, officers, directors and consultants of our Company and our affiliates and to provide incentives and rewards for superior performance.

Shares Subject to the Stock Incentive Plan.  We may issue Awards equal to no more than 10% of our issued and outstanding common stock under the Stock Incentive Plan, which are outstanding as of the last completed fiscal year.  As of our last fiscal year end, we had 28,272,504 issued and outstanding shares of common stock.  Thus, we are currently authorized to issue Awards representing 2,827,250 shares of common stock.  The number of shares available for Awards, as well as the terms of outstanding Awards, is subject to adjustment as provided in the Stock Incentive Plan for stock splits, stock dividends, recapitalizations and other similar events.

Shares that are subject to any Award that expires, or is forfeited, cancelled or becomes un-exercisable will again be available for subsequent Awards, except as prohibited by law.  In addition, shares that we refrain from delivering pursuant to an Award as payment of either the exercise price of an Award or applicable withholding and employment taxes will be available for subsequent Awards.

Administration.  Either the Board of Directors or a committee appointed by the Board is authorized to administer the Stock Incentive Plan.  The Board and any committee exercising discretion under the Stock Incentive Plan from time to time are referred to as the “Committee.”  To the extent permitted by law, the Committee may authorize one or more persons who are reporting persons for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or other officers, to make Awards to directors, officers or employees who are not reporting persons for purposes of Rule 16b-3 under the Exchange Act, or other officers whom we have specifically authorized to make Awards.  With respect to decisions involving an award intended to satisfy the requirements of Section 162(m) of the Code, the Committee is to consist of two or more directors who are “outside directors” for purposes of that Code section.

Subject to the terms of the Stock Incentive Plan, the Committee has express authority to determine the directors, employees and consultants who will receive Awards, the number of Shares, units or share appreciation rights to be covered by each award, and the terms and conditions of Awards.  The Committee has broad discretion to prescribe, amend and rescind rules relating to the Stock Incentive Plan and its administration, and to interpret and construe the Stock Incentive Plan and the terms of all award agreements.  Within the limits of the Stock Incentive
 
 
 
29

 
 
Plan, the Committee may accelerate the vesting of any award, allow the exercise of unvested Awards, and may modify, replace, cancel or renew them.  In addition, the Committee may under certain circumstances buy out options or SARs or, subject to stockholder approval, reduce the exercise price for outstanding options or SARs.

                 The Stock Incentive Plan provides that we will indemnify members of the Committee and their delegates against any claims, liabilities or costs arising from the good faith performance of their duties under the Stock Incentive Plan.  The Stock Incentive Plan releases these individuals from liability for good faith actions associated with the Stock Incentive Plan’s administration.

Eligibility.  The Committee may grant options that are intended to qualify as incentive stock options, or ISOs, only to employees, and may grant all other Awards to directors, employees and consultants.  The Stock Incentive Plan and the discussion below use the term “participant” to refer to a director, employee or consultants who has received an Award.  The Stock Incentive Plan provides that no more than 1,000,000 Shares may be issued during any calendar year to any participant pursuant to options and SARs Awards under the Stock Incentive Plan.

Options.  Options granted under the Stock Incentive Plan provide participants with the right to purchase Shares at a predetermined exercise price.  The Committee may grant options that are intended to qualify as ISOs or options that are not intended to so qualify, or Non-ISOs.  The Stock Incentive Plan also provides that ISO treatment may not be available for options that become first exercisable in any calendar year to the extent the value of the underlying shares that are the subject of the option exceeds $100,000 (based upon the fair market value of the common stock on the option grant date).

Share Appreciation Rights (SARs).  A SAR generally permits a participant who receives it to receive, upon exercise, cash and/or Shares equal in value to the excess of (i) the fair market value, on the date of exercise, of the common stock with respect to which the SAR is being exercised, over the exercise price of the SAR for such shares multiplied by (ii) the number of shares with respect to which the SAR is being exercised.  The Committee may grant SARs in tandem with options or independently of them.  SARs that are independent of options may limit the value payable on its exercise to a percentage, not exceeding 100%, of the excess value.

Exercise Price for Options and SARs.  The exercise price of ISOs, Non-ISOs, and SARs may not be less than 100% of the fair market value on the grant date of the common stock subject to the award.  The exercise price of ISOs for participants who own more than 10% of our common stock on the grant date may not be less than 110% of the fair market value on the grant date of the underlying Shares subject to the Award.  Neither the Company nor the Committee shall, without shareholder approval, allow for a repricing within the meaning of the federal securities laws applicable to proxy statement disclosures.

Exercise of Options and SARs.  To the extent exercisable in accordance with the agreement granting them, an option or SAR may be exercised in whole or in part, and from time to time during its term; subject to earlier termination relating to a holder’s termination of employment or service.  With respect to options, the Committee has the discretion to accept payment of the exercise price in any of the following forms, or combination of them: cash or check in U.S.  dollars, certain shares of our common stock, and cashless exercise under a plan the Committee approves.

The term over which participants may exercise options and SARs may not exceed ten years from the date of grant (five years in the case of ISOs granted to employees who, at the time of grant, own more than 10% of our common stock).

Restricted Shares, Restricted Share Units, Unrestricted Shares and Deferred Share Units.  Under the Stock Incentive Plan, the Committee may grant restricted shares that are forfeitable until certain vesting requirements are met, may grant restricted share units which represent the right to receive Shares after certain vesting requirements are met, and may grant unrestricted shares as to which the participant’s interest is immediately vested.  For restricted Awards, the Stock Incentive Plan provides the Committee with discretion to determine the terms and conditions under which a participant’s interests in such Awards become vested.  The Stock Incentive Plan provides for deferred share units in order to permit certain directors, consultants or select members of management to defer their receipt of compensation payable in cash or Shares (including Shares that would otherwise be issued upon the vesting of restricted shares and restricted share units).  Deferred share units represent a future right to receive Shares.
 
 
 
30

 

Whenever Shares are released pursuant to these Awards, the participant will be entitled to receive additional Shares that reflect any stock dividends that stockholders received between the date of the award and issuance or release of the Shares.  Likewise, a participant will be entitled to receive a cash payment reflecting cash dividends paid to our stockholders during the same period.  Such cash dividends will accrue interest, at 5% per annum, from their payment date to our stockholders until paid in cash when the Shares to which they relate are either released from restrictions in the case of restricted shares or issued in the case of restricted share units.

Performance Awards.  The Stock Incentive Plan authorizes the Committee to grant performance-based Awards in the form of performance units that the Committee may or may not designate as “performance compensation awards” that are intended to be exempt from Code section 162(m) limitations.  In either case, performance awards vest and become payable based upon the achievement, within the specified period of time, of performance objectives applicable to the individual, our Company or any affiliate.  Performance awards are payable in Shares, cash or some combination of the two, subject to an individual participant limit of 1,000,000 Shares and $1,000,000 in cash.  The Committee decides the length of performance periods, but the periods may not be less than one fiscal year.

With respect to performance compensation awards, the Stock Incentive Plan requires that the Committee specify in writing the performance period to which the Award relates, and an objective formula by which to measure whether and the extent to which the Award is earned on the basis of the level of performance achieved with respect to one or more performance measures.  Once established for a performance period, the performance measures and performance formula applicable to the Award may not be amended or modified in a manner that would cause the compensation payable under the Award to fail to constitute performance-based compensation under Code Section 162(m).

Under the Stock Incentive Plan, the possible performance measures for performance compensation awards include basic, diluted or adjusted earnings per share; sales or revenue; earnings before interest, taxes and other adjustments (in total or on a per share basis); basic or adjusted net income; returns on equity, assets, capital, revenue or similar measure; economic value added; working capital; total stockholder return; and product development, product market share, research, licensing, litigation, human resources, information services, mergers, acquisitions and sales of assets of affiliates or business units.  Each measure will be, to the extent applicable, determined in accordance with generally accepted accounting principles as consistently applied by us (or such other standard applied by the Committee) and, if so determined by the Committee, and in the case of a performance compensation award, to the extent permitted under Code section 162(m), adjusted to omit the effects of extraordinary items, gain or loss on the disposal of a business segment, unusual or infrequently occurring events and transactions and cumulative effects of changes in accounting principles.  Performance measures may vary from performance period to performance period and from participant to participant, and may be established on a stand-alone basis, in tandem or in the alternative.

Income Tax Withholding.  As a condition for the issuance of Shares pursuant to Awards, the Stock Incentive Plan requires satisfaction of any applicable federal, state, local or foreign withholding tax obligations that may arise in connection with the Awards or the issuance of Shares.

Transferability.  Awards may not be sold, pledged, assigned, hypothecated, transferred or disposed of other than by will or the laws of descent and distribution, except to the extent the Committee permits lifetime transfers to charitable institutions, certain family members or related trusts or as otherwise approved by the Committee.

Certain Corporate Transactions.  The Committee shall equitably adjust the number of Shares covered by each outstanding Award, and the number of Shares that have been authorized for issuance under the Stock Incentive Plan but as to which no Awards have yet been granted or that have been returned to the Stock Incentive Plan upon cancellation, forfeiture or expiration of an Award, as well as the price per share covered by each such outstanding Award, to reflect any increase or decrease in the number of issued and outstanding common stock resulting from a stock split, reverse stock split, stock dividend, combination, recapitalization or reclassification of the common stock, or any other increase or decrease in the number of issued and outstanding common stock effected without receipt of consideration by us.  In the event of any such transaction or event, the Committee may provide in substitution for any or all outstanding Awards under the Stock Incentive Plan such alternative consideration (including securities of any surviving entity) as it may in good faith determine to be equitable under the circumstances and may require in
 

 
 
31

 
connection therewith the surrender of all Awards so replaced.  In any case, such substitution of securities will not require the consent of any person who is granted Awards pursuant to the Stock Incentive Plan.
 
In addition, in the event or in anticipation of a Change in Control, the Committee may at any time in its sole and absolute discretion and authority, without obtaining the approval or consent of our stockholders or any participant with respect to his or her outstanding Awards (except to the extent an Award provides otherwise), take one or more of the following actions: (a) arrange for or otherwise provide that each outstanding Award will be assumed or substituted with a substantially equivalent Award by a successor corporation or a parent or subsidiary of such successor corporation; (b) accelerate the vesting of Awards for any period (and may provide for termination of unexercised options and SARs at the end of that period) so that Awards shall vest (and, to the extent applicable, become exercisable) as to the Shares that otherwise would have been unvested; (c) arrange or otherwise provide for payment of cash or other consideration to participants in exchange for the satisfaction and cancellation of outstanding Awards; or (d) terminate outstanding Awards upon the consummation of the transaction, provided that the Committee may in its sole discretion provide for vesting of all or some outstanding Awards in full as of a date immediately prior to consummation of the Change of Control.  To the extent that an Award is not exercised prior to consummation of a transaction in which the Award is not being assumed or substituted, such Award shall terminate upon such consummation.

Term of Stock Incentive Plan; Amendments and Termination.  The term of the Stock Incentive Plan expires on July 31, 2018.  The Board of Directors may from time to time, amend, alter, suspend, discontinue or terminate the Stock Incentive Plan; provided that no amendment, suspension or termination of the Stock Incentive Plan shall materially and adversely affect Awards already granted unless it relates to an adjustment pursuant to certain transactions that change our capitalization or it is otherwise mutually agreed between the participant and the Committee.  In addition, the Committee may not cancel an outstanding option that is underwater for the purpose of reissuing the option to the participant at a lower exercise price or granting a replacement Award of a different type.  Notwithstanding the foregoing, the Committee may amend the Stock Incentive Plan to eliminate provisions which are no longer necessary as a result of changes in tax or securities laws or regulations, or in the interpretation thereof.

Termination, Rescission and Recapture.  Each Award under the Stock Incentive Plan is intended to align the participant’s long-term interest with our interests.  If the participant engages in certain activities (such as disclosure of confidential or proprietary information without appropriate authorization, breaches certain agreements relating to the protection of our intellectual property, solicits our employees to leave our Company or renders services to an organization or business which is, or working to become, competitive to us), either during employment or after the participant has terminated his employment or other relationship with us for any reason, the participant is deemed to be acting contrary to our long-term interests.  In such cases, except as otherwise expressly provided in the Award Agreement, we may terminate any outstanding, unexercised, unexpired, unpaid or deferred Awards, rescind any exercise, payment or delivery pursuant to the Award, or recapture any Shares (whether restricted or unrestricted) or proceeds from the participant’s sale of Shares issued pursuant to the Award.

As of December 31, 2013, there were no outstanding options or other awards under the Stock Incentive Plan.

Item 12.    
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth certain information regarding beneficial ownership of our common stock on March 26, 2014 by each person who is known by us to own beneficially more than 5% of the outstanding shares of common stock and our current directors and executive officers.  Shares of common stock subject to  warrants currently exercisable or exercisable within 60 days of March 26, 2014 are deemed outstanding for purposes of computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
 
 
 
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Name and Address of Beneficial Owners (1)
Amount and Nature of
Beneficial Ownership
Percent of Class for Vote (2)
Diversified Equities Partners, LLC
2600 Paseo Verde Parkway #200
Henderson, NV 89074
   4,380,841 (3) 
15.5%
Advanced Equity Solutions Inc.
564 Wedge Drive
Fernley, NV 89408
2,000,000   
7.1%
Samuel W. Fairchild
      956,503 (4) 
3.4%
Mark Huelskamp
322,428
1.1%
Michael Murray
0
--
Officers and directors as a group (3 persons)
1,278,931   
4.5%
*           Less than 0.1%
______________
(1)  
To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, it is anticipated that each person named in the table will have sole voting and investment power with respect to the shares set forth opposite such person’s name.
(2)  
Based on 28,272,504 shares of common stock outstanding as of March 26, 2014.
(3)  
Includes 3,731,343 shares issuable upon conversion of amounts owed under a convertible promissory note.
(4)  
Includes 40,000 shares of common stock held by Mr. Fairchild’s spouse and minor children and 33,400 shares of common stock issuable upon exercise of warrants.

Changes in Control

There are no agreements known to management that may result in a change of control of the Company.

Equity Compensation Plan Information

The following table provides information as of December 31, 2013, with respect to shares of our common stock that may be issued under our existing equity compensation plans:

Plan Category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance
Equity compensation plans approved by security holders
-0-
--
2,827,250

Item 13.    Certain Relationships and Related Transactions, and Director Independence.

Our officers and directors are now and may in the future become stockholders, officers or directors of other companies that may be engaged in business activities similar to those conducted by us.  Accordingly, direct conflicts of interest may arise in the future with respect to such individuals acting on our behalf or other entities.  Moreover, additional conflicts of interest may arise with respect to opportunities which come to the attention of such individuals in the performance of their duties or otherwise.  Although we do not currently have a right of first refusal pertaining to opportunities that come to management’s attention insofar as such opportunities may relate to our business operations, we have established a conflict of interest policy intended to ensure timely disclosure and avoidance of activities and relationships that conflict with the interests of the Company.

Our officers and directors are subject to the restriction that all opportunities contemplated by our business plan which come to their attention, either in the performance of their duties or in any other manner, will be considered opportunities of, and be made available to our Company.  A breach of this requirement will be a breach of the fiduciary duties of the officer or director.

All future affiliated transactions will be made or entered into on terms that are no less favorable to us than those that can be obtained from any unaffiliated third party.  A majority of the independent, disinterested members of our board of directors will approve future affiliated transactions.
 
 
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Diversified Equity Partners, LLC   On August 24, 2010, our Board of Directors approved the issuance of 3,375,000 restricted shares of common stock to Diversified Equities Partners, LLC (“Diversified”) an entity owned by a minority shareholder, as a non-refundable retainer for financial advisory consulting services to be rendered through September 30, 2012.  These shares were valued at $4,725,000 using the closing market price of our stock on August 24, 2010 of $1.40 per share.

On February 21, 2013 we established an unsecured revolving convertible promissory note in the amount of $250,000 with Diversified.  Under the terms of the note, Diversified has agreed to make loans to us during a three-year period.  Interest accrues on the unpaid principal balance at the rate of 8% per annum and is to be paid quarterly beginning May 31, 2013.  All outstanding and unpaid principal and all outstanding and accrued unpaid interest shall become due and payable on February 21, 2016.  We may prepay the note at any time without penalty and re-borrow under the note.  Diversified has the right to convert all or any portion of the note into shares of our common stock at any time at the rate of $0.067 per share, but the number of shares that may be issued pursuant to this conversion privilege cannot exceed 3,731,343 in the aggregate. As of December 31, 2013, we had drawn $250,00 on the note.

In October 2013, Diversified advanced the Company an additional $103,750, which, after repayment of $25,000, resulted in net available proceeds of $78,750 to fund payment of Company operating expenses. This advance is unsecured, noninterest bearing, and due on demand.

AES Consulting Agreement.  On February 21, 2012, the Company entered into a consulting agreement with Advanced Equity Solutions, Inc. (“AES”), an entity owned by minority shareholders of the Company, to provide for strategic and financial advisory consulting services. The Company’s Board of Directors approved the issuance of 5,000,000 restricted shares of common stock as compensation for this agreement.  The shares were issued on April 5, 2012, and valued at $1,750,000.

JIMMAR Consulting, Inc. Consulting Agreement. In July 2013, the Company entered into a revised consulting agreement with the Company's contract controller and shareholder, JIMMAR Consulting, Inc., providing for consulting fees on an hourly basis, plus the Company agreed to issue shares of the Company's common stock as follows: 5,000 shares on August 31, 2013, 5,000 shares on November 30, 2013, and 10,000 shares on March 15, 2014. The Company also formally acknowledged its existing debt to JIMMAR Consulting, Inc., which aggregated $67,588 at December 31, 2013. The debt agreement required payment of the entire outstanding balance on or before December 31, 2013, with interest accruing at a rate of 15% per annum. Interest was to be paid in cash, or, at the Company's option, in common shares of the Company's stock, based on a conversion price of $0.37 per share. Interest expense for the year ended December 31, 2013 was $4,836, all of which remained unpaid at December 31, 2013 and is included in accrued expenses on the accompanying balance sheet. The Company is in default of the provisions of this agreement, and has not made any principal or interest payments as of December 31, 2013. As of December 31, 2013, the Company has not issued the shares that were to be issued in August and November 2013. Based on the share price of the stock at the date of the consulting agreement, July 23, 2013, the stock to be issued is valued at $0.35 per share, and are being recognized over the term of the agreement. As a result, the Company recorded stock issuable of $4,813 with an offsetting expense recorded in general and administrative expenses for the year ended December 31, 2013.

Director Independence

The Board of Directors has determined that the following members of the Board are independent directors as that term is defined by NASDAQ Marketplace Rule 5605(a)(2): Mark Huelskamp and Michael Murray.  In assessing the independence of the directors, the Board considers any transactions, relationships and arrangements between our Company and our independent directors or their affiliated companies.  This review is based primarily on responses of the directors to questions in a director and officer questionnaire regarding employment, business, familial, compensation and other relationships with our Company or our management.
 
 
 
34

 

Item 14.    Principal Accountant Fees and Services.

Fees paid to BDO USA, LLC ("BDO") and to Moquist Thorvilson Kaufmann LLC ("MTK") during 2013 and 2012, respectively, were as follows:
 
             
   
Years ended December 31,
 
             
   
2013
   
2012
 
 Audit Fees - BDO (1)
  $ 23,150     $ -  
 Audit Fees - MTK (1)
    3,000       46,150  
 Audit-Related Fees - MTK (2)
    1,535       2,248  
 Tax Fees
    1,300       -  
 All Other Fees
    -       -  
 Total Fees
  $ 28,985     $ 48,398  
                 

 
(1)  
The amount billed or to be billed to us for professional services related to the audit of our annual financial statements for the years ended December 31, 2013 and 2012 and included reviews of our quarterly reports on Form 10-Q.
(2)
This amount was billed to us for discussions with our auditors related to potential acquisitions and complex accounting matters.

The Board of Directors has considered whether the provision of the non-audit services described above by an external auditor is compatible with maintaining the auditor’s independence, and determined that these non-audit services are compatible with the required independence.  The Board of Directors pre-approves all services to be provided to our Company by the independent auditors.  This includes the pre-approval of (i) all audit services, and (ii) any significant (i.e., not de minimis) non-audit services.  Before granting any approval, the Board of Directors gives due consideration to whether approval of the proposed service will have a detrimental impact on the auditor’s independence.  All services provided by and fees paid to our independent auditors in 2013 and 2012 were pre-approved by the Board of Directors.

PART IV

Item 15.    Exhibits, Financial Statement Schedules.

Regulation
S-K Number
Document
3.1
Amended and Restated Articles of Incorporation effective October 14, 2008 (1)
3.2
Amended and Restated Bylaws adopted October 14, 2008 (1)
3.3
Certificate of Amendment to Articles of Incorporation (2)
4.1
Form of Debenture (3)
4.2
Form of Warrant (3)
10.1
2008 Stock Incentive Plan (1)
10.2
Stock Purchase Agreement dated August 12, 2011 (4)
10.3
Consulting Agreement with Advanced Equity Solutions, Inc. dated February 21, 2012 (5)
10.4
Revolving Convertible Promissory Note to Diversified Equities Partners, LLC dated February 21, 2013 (6)
14.1
Code of Ethics
16.1
Letter from Moquist Thorvilson Kaufmann LLC (7)
31.1
Rule 13a-14(a) Certification of Samuel W. Fairchild
32.1
Certification of Samuel W. Fairchild Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
35

 

Regulation
S-K Number
Document
101*
Financial statements from the Annual Report on Form 10-K of Trailblazer Resources, Inc. for the fiscal year ended December 31, 2013, formatted in XBRL: (i) the Balance Sheets; (ii) the Statements of Operations; (iii) the Statements of Stockholders’ Deficit; (iv) the Statements of Cash Flows; and (v) the Notes to Financial Statements.

______________________________________________
(1)  
Filed as an exhibit to the Current Report on Form 8-K dated October 14, 2008, filed October 17, 2008.
(2)  
Filed as an exhibit to the Current Report on Form 8-K dated October 21, 2011, filed October 27, 2011.
(3)  
Filed as an exhibit to the Current Report on Form 8-K dated December 15, 2008, filed December 19, 2008.
(4)  
Filed as an exhibit to the Current Report on Form 8-K dated August 12, 2011, filed August 19, 2011.
(5)  
Filed as an exhibit to the Current Report on Form 8-K dated April 5, 2012, filed April 10, 2012.
(6)  
Filed as an exhibit to the Current Report on Form 8-K dated February 21, 2013, filed February 27, 2013.
(7)  
Filed as an exhibit to the Current Report on Form 8-K dated August 16, 2013, filed August 20, 2013.

*In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
 
 
 
 
 
 
 
36

 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
TRAILBLAZER RESOURCES, INC.
     
     
     
Dated:  May __, 2014
By:
 /s/ Samuel W. Fairchild
   
Samuel W. Fairchild, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Signature
Title
Date
 
 
 
 
 
/s/ Samuel W. Fairchild          
Samuel W. Fairchild
President, Interim Chief Financial Officer and Director (Principal Executive Officer and Interim Principal Financial Officer)
 
 
 
May 8, 2014
 
 
 
 
/s/ Mark Huelskamp            
Mark Huelskamp
 
 
Director
 
 
May 8, 2014
 
 
 
 
/s/ Michael Murray            
Michael Murray
 
 
Director
 
 
May 8, 2014