Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
____________________________________________________________
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
___________________________________________________________________
Date of
Report (Date of earliest event reported): April 13, 2009
MGMT Energy,
Inc.
(Exact
Name of Registrant as Specified in Charter)
Nevada
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333-152608
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26-1749145
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(State
or other jurisdiction
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(Commission File Number)
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(IRS
Employer
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of
incorporation)
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3203
Third Avenue North #300
Billings,
Montana
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59101
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (406) 259-0751
______________________________________________
(Former
name or former address, if changed since last report)
Check the appropriate box below if the
Form 8-K filing is intended to simultaneously satisfy the filing obligation of
the registrant under any of the following provisions:
o
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
1.01
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Entry
into a Material Definitive
Agreement
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On April
13, 2009, MGMT Energy, Inc., a Nevada corporation (the “Company”), entered into
that certain Strategic Consulting Services Agreement (“Consulting Agreement”)
between the Company and Charles S. Leykum. Pursuant to the Consulting
Agreement, the Company agreed to issue to Mr. Leykum (or Mr. Leykum’s designess)
an aggregate of 402,100 shares of the Company’s common stock as a payment, in
exchange for Charles S. Leykum’s agreement to provide services under the
Consulting Agreement.
The
foregoing description of the Consulting Agreement does not purport to be
complete and is qualified in its entirety by reference to the complete text of
the Consulting Agreement, which is filed as Exhibit 10.4 hereto.
Item
2.01
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Completion
of Acquisition or Disposition of
Assets
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As used
in this Current Report on Form 8-K, unless the context requires otherwise, all
references to the “Company,” “we,” “our” and “us” refer to MGMT Energy, Inc., a
Nevada corporation. Information regarding the Company and the
principal terms of the Mining Lease (as defined below) are set forth
below.
Acquisition
of Mining Lease
As
previously reported, on March 31, 2009, the Company entered into a Contribution
and Assignment Agreement (the “Contribution Agreement”) with Carbon County
Holdings, LLC, a Delaware limited liability company (“CCH”), John P. Baugues,
Jr., the Company’s Chief Executive Officer and a director, The John Paul
Baugues, Sr. Family Trust, the beneficiaries of which are John P. Baugues, Jr.
and his children (the “Baugues Trust”), and Tydus Richards, the
former Chairman of the Company’s board of directors. Pursuant to the
Contribution Agreement, CCH agreed to contribute and assign to the Company all
of CCH’s rights and obligations under that certain Mining Lease, dated on or
around January 16, 2009 (the “Mining Lease”), between CCH, on the one hand, and
Edith L. Bolzer and Richard L. Bolzer (together, “Lessor”), on the other hand,
for the purpose of mining and removing coal from approximately 6,254 acres of
land in the vicinity of Bridger, which is located in Carbon County, Montana (the
“Property”). In exchange for the contribution and assignment of the
Mining Lease, the Company agreed to issue to each of Mr. Baugues, the Baugues
Trust, and Mr. Richards, the sole members of CCH, the number of shares of the
Company’s Common Stock, par value $0.001 per share, set forth opposite such
member’s name below.
Name of
Member
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Number of
Shares
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John
P. Baugues, Jr.
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3,185,000
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The
John Paul Baugues, Sr. Family Trust
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3,315,000
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Tydus
Richards
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5,500,000
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Total
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12,000,000
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Under the
terms of the Mining Lease, the Company is required to pay to Lessor (1) a
minimum annual payment in an amount equal to $62,540.76 in each year during the
initial ten (10) year term of the Mining Lease, subject to increases in future
years (the “Minimum Annual Payment”) and (2) a royalty equal to 12.5% of the
gross proceeds (as defined in the Mining Lease) on all coal mined from the
Property (the “Royalty”). In addition, unless coal is mined from
minerals owned by Lessor, for each ton of coal mined from, stored on or
transported across the Property, the Company is required to pay a damage fee of
$0.15 per ton for such coal (the “Damage Fee”). In the event that the
Royalty and/or the Damage Fee in any year during the term exceeds twice the
Minimum Annual Payment, the Company is not required to make the Minimum Annual
Payment for that year.
The
Mining Lease is effective for a 10 year term. The Company has the
right to renew the Mining Lease for two additional 10 year terms upon at least
90 days written notice to Lessor prior to the expiration of the then-current
term. After 3 years from the effective date, the Company has the
right to terminate the Mining Lease, on any annual anniversary, upon 90 days
prior written notice to Lessor and upon payment of all damage fees, rentals and
royalties accrued through the date of termination.
The
consideration that the Company agreed to pay to acquire the Mining Lease was
approved by holders of a majority of our common stock.
The
closing of the transaction under the Contribution Agreement was subject to
approval of the Company’s stockholders. On April 11, 2009, the
Company’s stockholders approved the transaction. On April 13, 2009,
the Company consummated the transactions contemplated by the Contribution
Agreement, including acquisition of the Mining Lease. As a result,
the Company is no longer a “shell company” as defined in Section 12-b(2) of the
Securities Exchange Act of 1934, as amended.
Description
of our Business
Forward-Looking
Statements
This
Current Report on Form 8-K and other written reports and oral statements made
from time to time by the Company may contain so-called “forward-looking
statements,” all of which are subject to risks and
uncertainties. Forward-looking statements can be identified by the
use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,”
“intends,” “estimates,” and other words of similar meaning. One can
identify them by the fact that they do not relate strictly to historical or
current facts. These statements are likely to address the Company’s
growth strategy, financial results and product and development
programs. One must carefully consider any such statement and should
understand that many factors could cause actual results to differ from the
Company’s forward looking statements. These factors may include
inaccurate assumptions and a broad variety of other risks and uncertainties,
including some that are known and some that are not. No forward
looking statement can be guaranteed and actual future results may vary
materially.
Information
regarding market and industry statistics contained in this Report is included
based on information available to us that we believe is accurate. It
is generally based on industry and other publications that are not produced for
purposes of securities offerings or economic analysis. We have not
reviewed or included data from all sources, and cannot assure investors of the
accuracy or completeness of the data included in this Report. We do
not assume any obligation to update any forward-looking statement. As
a result, investors should not place undue reliance on these forward-looking
statements.
Company
Background
We were
initially incorporated in the State of Nevada on May 19, 2005, as Inkie
Entertainment Group, Inc., for the purpose of engaging in the production,
distribution and marketing of filmed entertainment products. On
January 15, 2008, we changed our name to Quantum Information, Inc. In January
2009, we announced that we would transition out of the filmed entertainment
products business and into the coal business.
As part
of that transition, on January 14, 2009, we sold all of our assets to Joel
Klandrud, our former officer and director, pursuant to that certain Asset Sale
Agreement, dated January 14, 2009, described in Item 1.01 of our Current Report
on Form 8-K filed with the U.S. Securities and Exchange Commission (“SEC”) on
March 4, 2009. We also changed our name to MGMT Energy, Inc. on
February 5, 2009, and moved our principal executive office to Billings,
Montana. On April 13, 2009, we acquired the Mining Lease pursuant to
the Contribution Agreement described in Item 2.01 above.
Current
Activities
Our
business plan is to engage in the exploration, extraction and distribution of
coal. We are currently considered to be an exploration stage
corporation because we are engaged in the search for coal deposits and are not
engaged in the exploitation of a coal deposit. We have not engaged in
the preparation of an established commercially mineable coal deposit for
extraction or in the exploitation of a coal deposit. We will be in the
exploration stage until we discover commercially viable coal deposits on the
Property or any other property that we acquire, if ever. In an exploration stage
company, management devotes most of its activities to acquiring and exploring
mineral properties.
Pursuant
to the Mining Lease described in Item 2.01 above, we lease approximately 6,254
acres on the Property located in Carbon County, Montana, for the purpose of
mining, removing, marketing and selling coal. Further exploration
will be required before a final evaluation as to the economic feasibility of
coal extraction on the Property can be determined. We have done
preliminary estimates of the surface seams on the Property, and intend to
perform phase 1 drilling commencing in the second quarter of 2009 in order to
determine whether it contains a commercially viable coal deposit.
There is
no assurance that a commercially viable coal deposit exists on the
Property. Furthermore, there is no assurance that we will be able to
successfully develop the Property or identify, acquire or develop other coal
properties that would allow us to profitably extract and distribute coal and to
emerge from the exploration stage.
Coal
Characteristics
Coal is a
combustible, sedimentary, organic mineral composition, which is composed mainly
of carbon, hydrogen and oxygen. Coal goes through the process of coalification
as it matures, affecting its chemical and physical properties. There are various
grades of coal, ranging from low rank coals (lignite and sub-bituminous) to hard
coals (bituminous and anthracite). Bituminous coal is used as either thermal
coal or coking coal, depending on its properties. The properties of the coal
determine its value in the market, and include but are not limited to calorific
value, sulfur, moisture and ash content.
In the
event the Property is found to contain commercially viable coal deposits, they
are expected to yield high-bituminous low-sulfur coal, which is primarily used
for power generation and industrial uses.
The
Coal Industry
Generally. Global
economic growth, the primary driver of energy demand, is conservatively
forecasted to increase by an average of 3.2% per annum between 2002 and 2030,
according to the World Coal Institute (“WCI”). The world’s population is
expected to increase from its current level of 6.4 billion to 8 billion by 2030,
according to the United Nations’ 2004 world population prospects report.
International Energy Agency (“IEA”) projections indicate that if governments
continue with current energy policies, global demand for energy will increase by
almost 60% by 2030, with more than two-thirds of this increase coming from
developing countries.
Fossil
fuels will continue to dominate energy consumption – accounting for around 85%
of the increase in world primary energy demand over the next 30 years, according
to the IEA. Although nuclear energy provides a significant proportion of energy
in some economies, it can face very long permitting and construction cycles and
private financing is difficult to find. Renewable energies are growing fast, but
from a small base and, by 2030, they are still only expected to meet 14% of
total energy demand, according to the IEA.
Coal
prices in the western United States increased during 2008 according to the
Energy Information Administration (“EIA”). This price escalation is primarily
attributable to increased international demand, escalation of oil prices, and
the weakening of the United States dollar. Although it is impossible to predict
whether prices for coal will continue to escalate, as a result of the recent
drop in oil prices and the worldwide economic downturn, we believe that a large
amount of the electricity in the United States will continue to be generated by
coal.
We
believe that rapid economic expansion in developing nations, particularly China
and India, has increased global demand for coal. We expect coal exports from the
United States to increase in response to growing global coal demand,
particularly as some of the traditional coal export nations experience mine,
port, rail and labor challenges. We estimate that higher domestic demand for
coal and higher U.S. coal exports will positively influence domestic coal
demand. Additionally, we expect decreased production, particularly in the
Central Appalachian region of the United States, to adversely impact domestic
coal supply in the coming years. We anticipate continuing demand growth and
weaker coal supplies to exert upward pressure on coal pricing in the
future.
Global Coal Supply and
Demand. Because of its availability, stability and
affordability, coal is a major contributor to the global energy supply,
providing approximately 40% of the world’s electricity, according to the WCI.
Coal is also used in producing approximately 70% of the world’s steel supply,
according to the WCI. Coal reserves can be found in 70 countries around the
world.
Coal is
traded worldwide and can be transported to demand centers by ship and by rail.
Worldwide coal production approximated 5.9 billion tons in 2006 and 5.4 billion
tons in 2005, according to the WCI. China produces more coal than any other
country in the world. Historically, Australia has been the world’s largest coal
exporter, exporting more than 200 million tons in each of the last three years,
according to the WCI. China, Indonesia and South Africa have also historically
been significant exporters in the global coal markets. However,
growing demand in China has resulted in declining coal exports and increasing
coal imports. These trends have caused China to become a less significant
seaborne coal supply source.
U.S. Coal
Consumption. In the United States, coal is used primarily by
power plants to generate electricity, by steel companies to produce coke for use
in blast furnaces and by a variety of industrial users to heat and power
foundries, cement plants, paper mills, chemical plants and other manufacturing
and processing facilities. Coal consumption in the United States has increased
from 505.8 million tons in 1973 to approximately 1.2 billion tons in 2007, based
on information provided by the EIA.
Throughout
the United States, coal has long been favored as a fuel to produce electricity
because of its cost advantage and its availability. Since 1973, the use of coal
to generate electricity in the United States has nearly tripled in response to
growing electricity demand. According to the EIA, coal accounted for
approximately 49% of U.S. electricity generation in 2007 and is projected to
account for approximately 55% in 2030. Much of the projected growth
in U.S. coal consumption occurs after 2015, when a substantial amount of new
coal-fired generating capacity is projected to come on line.
According
to the National Mining Association (“NMA”), coal is the lowest-cost fossil fuel
used in producing electricity. We estimate that the cost of generating
electricity from coal is less than one-third of the cost of generating
electricity from other fuels. According to the EIA, the average delivered cost
of coal to electric power generators during the first ten months of 2007 was
$1.77 per million British thermal units (“BTUs”).
The EIA
projects that power plants will increase their demand for coal as demand for
electricity increases. The EIA estimates that electricity demand may increase up
to 39% by 2030, despite continuing efforts throughout the United States to
become more energy efficient. Coal consumption has generally grown at the pace
of electricity growth because coal-fueled electricity generation is used in most
cases to meet baseload requirements.
Coal is
expected to remain the fuel of choice for domestic power generation through at
least 2030, according to the EIA. Through that time, we expect new technologies
intended to lower emissions of mercury, sulfur dioxide, nitrogen oxide and
particulate matter will be introduced into the power generation industry. We
believe these technological advancements will help coal retain its role as a key
fuel for electric power generation well into the future.
The other
major market for coal is the steel industry. Coal is essential for iron and
steel production. According to the WCI, approximately 64% of all steel is
produced from iron made in blast furnaces that use coal. The steel industry uses
metallurgical coal, which is distinguishable from other types of coal because of
its high carbon content, low expansion pressure, low sulfur content and various
other chemical attributes. As such, the price offered by steel makers for
metallurgical coal is generally higher than the price offered by power plants
and industrial users for steam coal. Rapid economic expansion in China, India
and other parts of Southeast Asia has significantly increased the demand for
steel in recent years.
Over the
past year, prices for oil and natural gas in the United States have reached
record levels because of increasing demand and tensions regarding international
supply, although recently prices have dropped markedly. Historically, high oil
and gas prices and global energy security concerns have increased government and
private sector interest in converting coal into liquid fuel, a process known as
liquefaction. Liquid fuel produced from coal can be refined further to produce
transportation fuels, such as low-sulfur diesel fuel, gasoline and other oil
products, such as plastics and solvents. We expect advances in technologies
designed to convert coal into electricity through coal gasification processes
and to capture and sequester carbon dioxide emissions from electricity
generation and other sources. These technologies have garnered greater attention
in recent years due to developing concerns about the impact of carbon dioxide on
the global climate. We believe the advancement of coal-conversion and other
technologies represent a positive development for the long-term demand for
coal. We believe that this advancement will continue despite the
recent decline in oil and natural gas prices.
U.S. Coal
Production. The United States produces approximately
one-fifth of the world’s coal and is the second largest coal producer in the
world, exceeded only by China. Coal in the United States represents
approximately 94% of the domestic fossil energy reserves with over 250 billion
tons of recoverable coal, according to the U.S. Geological Survey. The U.S.
Department of Energy estimates that current domestic recoverable coal reserves
could supply enough electricity to satisfy domestic demand for more than 200
years.
Our
Site
Property Location and
Access. We have the rights to mine the Property situated
approximately two miles west of Bridger, which is located in Carbon County,
Montana. The Burlington Northern’s railroad line provides the
principal means of transport to bring in goods and heavy equipment and export
coal. The road network in Carbon County is Highway
308. Access to the areas where we intend to mine is by county
road.
Claim
Status. Pursuant to the Contribution Agreement and Mining
Lease described in Item 2.01 above, we have a leasehold interest in the
Property.
History. Historically,
the Bridger, Bearcreek and Red Lodge coal fields in Montana were mined from the
late 1880’s until the early 1950’s. Records indicated that there were
over 700 million tons of coals in these three indicated fields. The
major customer base for the fields at the time was the railroads. There were 16
different underground mines in operations at various times during the
period. Pacific Corp mined in this location in
1975.
Property
Condition. The Property currently is ranch land, and has
access to power lines sufficient to provide power for our currently forecasted
needs.
Geology. The Property is
sparsely populated, with no streams and no environmental impediments to
mining. There are three mineable coal seams in the Property we
currently hold with seam thickness ranging from three to eight
feet. Some of the lower seams may contain metallurgical coal
characteristics. There are approximately four to eight mineable coal
seams in the Bridger, Bearcreek and Red Lodge coal fields, taken as a whole. The
seams contain upper cretaceous mesaverde meeteetsc formations and also paleocene
fort union formations.
Distribution
The
railroad loading for the Property would be located near Bridger, Montana on
Burlington Northern’s Thermopolis / Casper railroad line. We plan to build a
rail line of approximately 5 miles to connect our mines to the Burlington
Northern railroad line. We currently have no distribution contracts
in place.
Strategic
Positioning
Our
strategy is to identify and acquire under-valued mining rights to undeveloped
coal reserves and add significant value by applying our project development
expertise in the following areas:
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verification
of reserves;
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acquisition
of government permitting;
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development
of a project plan;
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implementation
of mining operations;
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development
of distribution relationships; and
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development
of customer relationships.
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We
believe this strategic focus will position us to compete effectively against our
larger competitors. Possible purchasers of our products include
larger coal producers, electric utilities and financial institutions (private
equity and hedge funds) who invest in the basic materials and/or energy sectors,
for example: National Coal Corp., AES Corp. Cline Energy, Sempra, James River
Coal Company, Sumitomo, Chinese Coal Company, DTE Energy, Arch Coal, Inc. and
Peabody Energy Corp.
We also
believe we will benefit from the following market factors and
trends:
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Long-Term Demand
Growth: Coal-based electricity generation represents
approximately 50% of total electricity produced in the United States and
is projected to maintain its power generation share as total electricity
demand continues to grow through 2030 according to the
WCI.
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Favorable Regulatory
Environment: The current White House administration recently
outlined a stimulus package providing tax credits and business incentives
to produce lower cost and cleaner coal, the type of coal we believe is
represented by our potential
reserves.
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Potential Industry-Wide Coal
Supply Constraints: We believe that incremental coal supply has
recently been constrained by the limited availability of the capital
markets, and potential concerns over regulatory changes, such as the
prohibition of mountaintop removal mining. These supply constraints could
limit production of various types of coal throughout the United States,
creating a stronger pricing environment for our
coal.
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Competition
The coal
industry is intensely competitive. Some of the most important
competitive factors are quality (including sulfur and heat content),
transportation costs from the mine to the customer, and the reliability of
supply. Currently, some of the largest coal producers and competitors include
Alpha Natural Resources, Inc., Arch Coal, Inc., CONSOL Energy, Inc., Foundation
Coal Holdings, Inc., International Coal Group, Inc., James River Coal Company,
Massey Energy Company, Murray Energy, Inc., Patriot Coal Corporation and Peabody
Energy Corp. These coal producers are larger and have greater financial
resources and larger reserve bases than we do. We also compete
directly with a number of smaller producers in both Montana and
Indiana. As the price of domestic coal increases, we may also begin
to compete with companies that produce coal from one or more foreign
countries.
Additionally,
coal competes with other fuels, such as petroleum, natural gas, hydropower and
nuclear energy for steam and electrical power generation. Over time, costs and
other factors, such as safety and environmental considerations, may affect the
overall demand for coal as a fuel.
Regulations
and Laws
The coal
mining industry is subject to regulation by federal, state and local authorities
on matters such as:
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employee
health and safety;
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mine
permits and other licensing
requirements;
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water
quality standards;
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storage
of petroleum products and substances which are regarded as hazardous under
applicable laws or which, if spilled, could reach waterways or
wetlands;
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plant
and wildlife protection;
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reclamation
and restoration of mining properties after mining is
completed;
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storage
and handling of explosives;
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surface
subsidence from underground mining;
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reduction
of carbon dioxide emissions; and
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the
effects, if any, that mining has on groundwater quality and
availability.
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In
addition, the utility industry is subject to extensive regulation regarding the
environmental impact of its power generation activities, which could affect
demand for our coal. It is possible that new legislation or regulations may be
adopted, or that existing laws or regulations may be differently interpreted or
more stringently enforced, any of which could have a significant impact on our
mining operations or our customers’ ability to use coal.
We are
committed to conducting mining operations in compliance with applicable federal,
state and local laws and regulations. However, because of the extensive and
detailed nature of these regulatory requirements, compliance with all of these
regulations could be a significant expense. Although it is not
possible to quantify the costs of compliance with applicable federal and state
laws and the associated regulations, these potential costs are expected to be
significant. Compliance with these laws and regulations has
substantially increased the cost of coal mining for domestic coal
producers.
Property
Other
than the Property, the Company does not currently own or lease any real
property.
Employees
We
currently have a total of one full time employee as of April 16,
2009. None of our employees is represented by a labor union and we
consider our employee relations to be good. We believe that our
future success will depend, in part, on our continued ability to attract, hire
and retain qualified personnel.
Legal
Proceedings
No legal
proceedings are currently pending or, to our knowledge, threatened against us
that, in the opinion of our management, could reasonably be expected to have a
material adverse effect on our business or financial condition or results of
operations.
Risk
Factors
There
are numerous and varied risks, known and unknown, that may prevent us from
achieving our goals. If any of these risks actually occur, our
business, financial condition or results of operation may be materially
adversely affected. In such case, the trading price of our common
stock could decline and investors could lose all or part of their
investment.
Risks
Relating to Our Company and Business
Because
of the early stage of development and the nature of our business, our securities
are considered highly speculative.
Our
securities are highly speculative because of the nature of our business and the
early stage of its development. We have largely been engaged in the business of
producing motion pictures and only recently entered the coal business.
Accordingly, we have not generated significant revenues nor have we realized a
profit from our operations to date and there is little likelihood that we will
generate significant revenues or realize any profits in the short term. Any
profitability in the future from our business will be dependent upon attaining
adequate levels of internally generated revenues through locating and developing
recoverable reserves of coal, which itself is subject to numerous risk factors
as set forth herein. Since we have not generated significant revenues, we will
have to raise additional monies through either securing industry reserve based
debt financing, or the sale of our equity securities or debt, or combinations of
the above in order to continue our business operations, and there is not
assurance that we will be able to obtain such financing or that such financing
will be on terms attractive to us.
We
have a history of losses and fluctuating operating results.
From
inception through to January 31, 2009, we have incurred aggregate losses of
approximately $107,769. Our loss from continuing operations for the nine-month
period ended January 31, 2009 was $23,496 and our loss from discontinued
operations for the nine-month period ended January 31, 2009 was $60,986. There
is no assurance that we will operate profitably or will generate positive cash
flow in the future. In addition, our operating results in the future may be
subject to significant fluctuations due to many factors not within our control,
such as our ability to acquire mining properties and leases, the demand for our
production and/or services, and the level of competition and general economic
conditions. If we cannot generate positive cash flows in the future, or raise
sufficient financing to continue our operations, then we may be forced to scale
down or even close our operations. Until such time as we generate significant
revenues, we expect an increase in development costs and operating costs.
Consequently, we expect to continue to incur operating losses and negative cash
flow until we receive significant commercial production from our
properties.
We
will need additional capital to execute our business plan and fund operations
and may not be able to obtain such capital on acceptable terms or at
all.
Our
business strategy will require additional substantial capital investment in
future periods. We require capital for, among other purposes,
acquiring new supplies and equipment, acquiring additional reserves, and
maintaining compliance with environmental laws and regulations. Because cash
generated internally is not sufficient to fund capital requirements in 2009, we
will require additional debt and/or equity financing. However, this type of
financing may not be available or, if available, may not be available on
attractive terms.
Future
debt financing, if available, may result in increased interest and amortization
expense, increased leverage and decreased income available to fund
operations. In addition, future debt financing may limit our ability
to withstand competitive pressures and render us more vulnerable to economic
downturns.
Our
ability to obtain additional capital on acceptable terms or at all is subject to
a variety of uncertainties, including:
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investors'
perceptions of, and demand for, coal
products;
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conditions
of the U.S. and other capital markets in which we may seek to raise
funds;
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our
future results of operations, financial condition and cash
flows;
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governmental
regulation of coal mining; and
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economic,
political and other conditions in the United States and other
countries.
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Future
financings through equity investments are likely to be dilutive to the existing
stockholders. Also, the terms of securities we may issue in future capital
transactions may be more favorable for our new investors. Newly issued
securities may include preferences, superior voting rights, the issuance of
warrants or other derivative securities, and the issuances of incentive awards
under equity employee incentive plans, which may have additional dilutive
effects. Further, we may incur substantial costs in pursuing future capital
and/or financing, including investment banking fees, legal fees, accounting
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities we
may issue, such as convertible notes and warrants, which will adversely impact
our financial condition and results of operations.
If we
fail to generate sufficient cash flow from operations in future periods or to
obtain required capital in the future, we could be forced to reduce or delay
capital expenditures, sell assets or restructure or refinance our indebtedness,
or our business may fail.
There
can be no assurance that we will establish commercial discoveries and/or
profitable production programs on any properties.
Exploration
for recoverable reserves of coal is subject to a number of risk factors. Few
properties that are explored are ultimately developed into producing
coal. There can be no assurance that any property or lease we acquire
will lead to profitable production programs.
Our
future success depends upon our ability to acquire and develop coal reserves
that are economically recoverable.
Our
recoverable reserves, if any, will decline as we produce coal. Our future
success depends upon our conducting successful exploration and development
activities and acquiring properties containing economically recoverable coal
deposits. Our current strategy includes building our coal deposits base through
acquisitions of mineral rights, leases, or producing properties.
Our
planned development and exploration projects and acquisition activities may not
result in the acquisition of significant coal deposits and we may not have
success developing mines. In order to develop coal deposits, we must
obtain various governmental leases and permits. We cannot predict
whether we will obtain the leases and permits necessary for us to operate
profitably in the future.
There
are uncertainties in estimating our economically recoverable coal reserves, and
inaccuracies in our estimates could result in lower than expected revenues,
higher than expected costs and decreased profitability.
There are
uncertainties inherent in estimating quantities and values of economically
recoverable coal reserves, including many factors beyond our control. As a
result, estimates of economically recoverable coal reserves are by their nature
uncertain. Information about our reserves consists of estimates based on
engineering, economic and geological data assembled and analyzed by our staff.
Some of the factors and assumptions which impact economically recoverable
reserve estimates include:
|
·
|
historical
production from the area compared with production from other producing
areas;
|
|
·
|
the
assumed effects of regulations and taxes by governmental
agencies;
|
|
·
|
assumptions
governing future prices; and
|
|
·
|
future
operating costs, including cost of
materials.
|
Each of
these factors may, in fact, vary considerably from the assumptions used in
estimating reserves. For these reasons, estimates of the
economically recoverable quantities of coal attributable to a particular group
of properties, and classifications of these reserves based on risk of recovery
and estimates of future net cash flows, may vary
substantially. Actual production, revenues and expenditures with
respect to our reserves will likely vary from estimates, and these variances may
be material. As a result, our estimates may not accurately
reflect our actual reserves.
Some
of our officers and directors have limited or no prior experience in the coal
business and that lack of experience could harm our business.
Although
many members of our management team have significant experience in the coal
business, our chairman of the board and certain other members of management were
not involved in the coal industry prior to the time they joined
us. This lack of experience could place us at a competitive
disadvantage.
Public
company compliance may make it more difficult to attract and retain officers and
directors.
The
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and new rules subsequently
implemented by the SEC have required changes in the corporate governance
practices of public companies. As a public company, we expect these new rules
and regulations to increase our compliance costs in 2009 and beyond and to make
certain activities more time consuming and costly. As a public company, we also
expect that these new rules and regulations may make it more difficult and
expensive for us to obtain director and officer liability insurance and we may
be required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a result, it may be more
difficult for us to attract and retain qualified persons to serve on our board
of directors or as executive officers.
If
we lose our key personnel or are unable to attract and retain additional
qualified personnel, the quality of our services may decline and our business
may be adversely impacted.
We rely
heavily on the expertise, experience and continued services of our senior
management, including our chief executive officer. The loss of certain of our
senior management or other key personnel could adversely impact our ability to
achieve our business objectives. We believe our future success will depend upon
our ability to retain these key employees and our ability to attract and retain
other skilled personnel. We cannot guarantee that any employee will
remain employed by us for any definite period of time and the loss of personnel
could have a material adverse effect on our business. Qualified
employees periodically are in great demand and may be unavailable in the time
frame required to satisfy our requirements. Expansion of our business could
require us to employ additional personnel. We expect competition for such
personnel to increase as the demand for coal and other energy sources expand.
There can be no assurance that we will be able to attract and retain sufficient
numbers of highly skilled employees in the future. The loss of personnel or our
inability to hire or retain sufficient personnel at competitive rates could
impair the growth of our business.
Risks
Relating to Our Industry
Competition
within the coal industry may adversely affect our ability to sell our coal and
overcapacity in the coal industry could adversely affect pricing, either of
which could impair our profitability.
The
market for coal is intensely competitive. Currently, some of the
largest coal producers and competitors include Alpha Natural Resources, Inc.,
Arch Coal, Inc., CONSOL Energy, Inc., Foundation Coal Holdings, Inc.,
International Coal Group, Inc., James River Coal Company, Massey Energy Company,
Murray Energy, Inc., Patriot Coal Corporation and Peabody Energy Corp. These
coal producers are larger and have greater financial resources and larger
reserve bases than we do. We also compete directly with a number of smaller
producers in both Montana and Indiana. As the price of domestic coal
increases, we may also begin to compete with companies that produce coal from
one or more foreign countries.
Additionally,
coal competes with other fuels such as petroleum, natural gas, hydropower and
nuclear energy for steam and electrical power generation. Over time, costs and
other factors, such as safety and environmental considerations, may affect the
overall demand for coal as a fuel.
If we are
not as successful as our competitors, our sales could decline, which could
materially harm our business, prospects, financial condition, results of
operations and cash flows.
The
characteristics of coal may make it difficult for coal users to comply with
various environmental standards, which are continually under review by
international, federal and state agencies, related to coal
combustion. As a result, they may switch to other fuels, which
would adversely affect our sales.
Coal
contains impurities, including sulfur, mercury, chlorine and other elements or
compounds, many of which are released into the air when coal is
burned. Stricter environmental regulations of emissions from
coal-fired electric generating plants could increase the costs of using coal
thereby reducing demand for coal as a fuel source, the volume of our coal sales
and price. Stricter regulations could make coal a less
attractive fuel alternative in the planning and building of utility power plants
in the future.
For
example, in order to meet the federal Clean Air Act limits for sulfur dioxide
emissions from electric power plants, coal users will need to install scrubbers,
use sulfur dioxide emission allowances (some of which they may purchase), or
switch to other fuels. Each option has
limitations. Lower sulfur coal may be more costly to purchase
on an energy basis than higher sulfur coal depending on mining and
transportation costs. The cost of installing scrubbers is
significant and emission allowances may become more expensive as their
availability declines. Switching to other fuels may require
expensive modification of existing plants. The extent to which power generators
switch to alternative fuel could materially affect us if we cannot offset the
cost of sulfur removal by lowering the delivered costs of our higher sulfur
coals on an energy equivalent basis.
Proposed
reductions in emissions of mercury, sulfur dioxides, nitrogen oxides,
particulate matter or greenhouse gases may require the installation of
additional costly control technology or the implementation of other measures,
including trading of emission allowances and switching to other
fuels. For example, in 2005 the Environmental Protection Agency
proposed separate regulations to establish mercury emission limits nationwide
and to reduce the interstate transport of fine particulate matter and ozone
through reductions in sulfur dioxides and nitrogen oxides throughout the eastern
United States. The Environmental Protection Agency continues to
require reduction of nitrogen oxide emissions in a number of eastern states and
the District of Columbia and will require reduction of particulate matter
emissions over the next several years for areas that do not meet air quality
standards for fine particulates. In addition, Congress and
several states may consider legislation to further control air emissions of
multiple pollutants from electric generating facilities and other large
emitters. Any new or proposed reductions will make it more
costly to operate coal-fired plants and could make coal a less attractive fuel
alternative to the planning and building of utility power plants in the
future.
To
the extent that any new or proposed requirements affect our customers, this
could adversely affect our operations and results.
Proposals
to regulate greenhouse gas emissions could impact the market for our fossil
fuels, increase our costs, and reduce the value of our coal assets. Numerous
proposals have been made at the international, national, regional, and state
levels of government that are intended to limit emissions of greenhouse gas
(“GHGs”), such as carbon dioxide and methane. Combustion of
fossil fuels, such as the coal we seek to produce, results in the creation of
carbon dioxide that is currently emitted into the atmosphere by coal end
users. Several states have already adopted measures requiring
reduction of GHGs within state boundaries. If comprehensive
regulations focusing on GHGs emission reductions were to be enacted by the
United States or additional individual states, it may adversely affect the use
of and demand for fossil fuels, particularly coal. Further regulation
of GHGs could occur in the United States pursuant to treaty obligations,
regulation under the Clean Air Act, or regulation under state law. In
2007, the U.S. Supreme Court held in Massachusetts v. Environmental
Protection Agency, that the Environmental Protection Agency had authority to
regulate GHG's under the Clean Air Act, reversing the Environmental Protection
Agency's interpretation of the Clean Air Act. This decision
could lead to federal regulation of GHGs under the existing Clean Air Act of
coal-fired electric generation stations, which could adversely affect demand for
our coal.
Our
mines will be subject to stringent federal and state safety regulations that may
increase our cost of doing business, and may place restrictions on our methods
of operation. In addition, government inspectors under certain
circumstances, have the ability to order our operation to be shut down based on
safety considerations.
Stringent
health and safety standards were imposed by federal legislation when the Federal
Coal Mine Health and Safety Act of 1969 was adopted. The
Federal Coal Mine Safety and Health Act of 1977 expanded the enforcement of
safety and health standards of the Coal Mine Health and Safety Act of 1969 and
imposed safety and health standards on all (non-coal as well as coal) mining
operations. Regulations are comprehensive and affect numerous aspects
of mining operations, including training of mine personnel, mining procedures,
the equipment used in mine emergency procedures, mine plans and other
matters. The various requirements mandated by law or regulation
can have a significant effect on operating costs and place restrictions on our
methods of operations. In addition, government inspectors under
certain circumstances, have the ability to order our operation to be shut down
based on safety considerations.
Coal
mining is a dangerous industry, and lapses in our safety practices or natural
disasters beyond our control could close our coal mine for an extended period of
time, which would likely cause the failure of our operations.
Coal
mining, especially underground coal mining, is dangerous. Great care
must be taken to assure safe, continued operations. Past experiences
of others in the industry indicate that lapses in safety practices can result in
catastrophic collapse of a coal mining operation. Even when best
mining practices are strictly observed, natural disasters such as an earthquake
could possibly destroy a coal mine's operations. Any catastrophic
event at our coal mine which would close our mine for an extended period of time
likely would cause the failure of our operations.
The
marketability of natural resources will be affected by numerous factors beyond
our control, which may result in us not receiving an adequate return on invested
capital to be profitable or viable.
The
marketability of natural resources, which may be acquired or discovered by us,
will be affected by numerous factors beyond our control. These factors include
market fluctuations in coal pricing and demand, the proximity and capacity of
natural resource markets and processing equipment, governmental regulations,
land tenure, land use, regulation concerning the importing and exporting of coal
and environmental protection regulations. The exact effect of these factors
cannot be accurately predicted, but the combination of these factors may result
in us not receiving an adequate return on invested capital to be profitable or
viable.
Exploratory
and development drilling involves many risks and we may become liable for
pollution or other liabilities, which may have an adverse effect on our
financial position.
Mining
operations generally involve a high degree of risk. Hazards such as unusual or
unexpected geological formations, power outages, labor disruptions, blow-outs,
fire, inability to obtain suitable or adequate machinery, equipment or labor,
and other risks are involved. We may become subject to liability for pollution
or hazards against which we cannot adequately insure or which we may elect not
to insure. Incurring any such liability may have a material adverse effect on
our financial position and operations.
Any
change to government regulation/administrative practices may have a negative
impact on our ability to operate and our profitability.
The laws,
regulations, policies or current administrative practices of any government
body, organization or regulatory agency in the United States, or any other
jurisdiction, may be changed, applied or interpreted in a manner which will
fundamentally alter the ability of our company to carry on our business. The
actions, policies or regulations, or changes thereto, of any government body or
regulatory agency, or other special interest groups, may have a detrimental
effect on us. Any or all of these situations may have a negative impact on our
ability to operate and/or our profitably.
Disruption
of rail, barge, overland conveyor and other systems that may deliver our coal or
an increase in transportation costs could make our coal less
competitive.
Coal
producers depend upon rail, barge, trucking, overland conveyor and other systems
to provide access to markets. Disruption of transportation
services because of weather-related problems, strikes, lock-outs, break-downs of
locks and dams or other events could temporarily impair our ability to supply
coal to customers and adversely affect our
profitability. Transportation costs represent a significant
portion of the delivered cost of coal and, as a result, the cost of delivery is
a critical factor in a customer's purchasing decision. Increases in
transportation costs could make our coal less competitive.
Terrorist
attacks and threat, escalation of military activity in response to such attacks
or acts of war may negatively affect our business, financial condition and
results of operations.
Terrorist
attacks and threats, escalation of military activity in response to such attacks
or acts of war may negatively affect our business, financial condition and
results of operations. Our business is affected by general economic
conditions, fluctuations in consumer confidence and spending, and market
liquidity, which can decline as a result of numerous factors outside of our
control, such as terrorist attacks and acts of war. Future terrorist
attacks against United States targets, rumors or threats of war, actual
conflicts involving the United States or its allies, or military or trade
disruptions affecting our customers may materially adversely affect our
operations. As a result, there could be delays or losses in
transportation and deliveries of coal to our customers, decreased sales of our
coal and extension of time for payment of accounts receivable from our
customers. Strategic targets such as energy-related assets may be at
greater risk of future terrorist attacks than other targets in the United
States. In addition, disruption or significant increases in energy
prices could result in government-imposed price controls. It is
possible that any, or a combination, of these occurrences could have a
materially adverse effect on our business, financial condition and results of
operations.
Risks
Relating to Our Common Stock
Some
of our officers and directors beneficially own a substantial percentage of our
outstanding common stock, which gives them control over certain major decisions
on which our stockholders may vote, which may discourage an acquisition of
us.
As a
result of the transactions consummated pursuant to the Contribution Agreement,
John P. Baugues, Jr., our Chief Executive Officer and a director, beneficially
owns, in the aggregate, approximately 41.2% of our outstanding common
stock. The interests of Mr. Baugues may differ from the interests of
other stockholders, and Mr. Baugues may, by virtue of his ownership stake, be
able to exert substantial influence or otherwise control many corporate actions
requiring stockholder approval, including the following actions:
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·
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electing
or defeating the election of
directors;
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|
·
|
amending
or preventing amendment of our articles of incorporation or
bylaws;
|
|
·
|
effecting
or preventing a merger, sale of assets or other corporate transaction;
and
|
|
·
|
controlling
the outcome of any other matter submitted to the stockholders for
vote.
|
Mr.
Baugues’ stock ownership may discourage a potential acquirer from seeking to
acquire shares of our common stock or otherwise attempting to obtain control of
us, which in turn could reduce our stock price or prevent our stockholders from
realizing a premium over our stock price.
Provisions
of our Articles of Incorporation, our Bylaws and Nevada law could delay or
prevent a change in control of us, which could adversely affect the price of our
common stock.
Our
articles of incorporation, our bylaws and Nevada law could delay, defer or
prevent a change in control of us, despite the possible benefit to our
stockholders, or otherwise adversely affect the price of our common stock and
the rights of our stockholders. For example, our Articles of Incorporation
permit our board of directors to issue one or more series of preferred stock
with rights and preferences designated by our board of directors. We are also
subject provisions of the Nevada control share laws that may limit voting rights
in shares representing a controlling interest in us. These provisions
could also discourage proxy contests and make it more difficult for you and
other stockholders to elect directors other than the candidates nominated by our
board. Please see “Description of Capital Stock —
Anti-Takeover Effect of Nevada Law, Certain By-Law Provisions” for a
discussion of these provisions.
Trading
in our common shares on the OTC Bulletin Board is limited and sporadic making it
difficult for our stockholders to sell their shares or liquidate their
investments.
Our
common shares are currently listed for public trading on the OTC Bulletin
Board. The trading price of our common shares has been subject to
wide fluctuations. Trading prices of our common shares may fluctuate in response
to a number of factors, many of which will be beyond our control. The stock
market has generally experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of
companies with no current business operation. There can be no assurance that
trading prices previously experienced by our common shares will be matched or
maintained. These broad market and industry factors may adversely affect the
market price of our common shares, regardless of our operating
performance.
In the
past, following periods of volatility in the market price of a company's
securities, securities class-action litigation has often been instituted. Such
litigation, if instituted, could result in substantial costs for us and a
diversion of management's attention and resources.
A
decline in the price of our common stock could affect our ability to raise
further working capital and adversely impact our operations.
A
prolonged decline in the price of our common stock could result in a reduction
in the liquidity of our common stock and a reduction in our ability to raise
capital. Because our operations currently are, expected to be
primarily financed through the sale of equity securities, a decline in the price
of our common stock could be especially detrimental to our liquidity and our
continued operations. Any reduction in our ability to raise equity capital in
the future would force us to reallocate funds, if any are available, from other
planned uses and would have a significant negative effect on our business plans
and operations, including our ability to continue our current operations. If our
stock price declines, we may not be able to raise additional capital or generate
funds from operations sufficient to meet our obligations.
Our
common stock may be deemed a “penny stock”, which would make it more difficult
for our investors to sell their shares.
Our
common stock may be subject to the “penny stock” rules adopted under Section
15(g) of the Exchange Act. The penny stock rules apply to non-Nasdaq listed
companies whose common stock trades at less than $5.00 per share or that have
tangible net worth of less than $5,000,000 ($2,000,000 if the company has been
operating for three or more years). These rules require, among other things,
that brokers who trade penny stock to persons other than “established customers”
complete certain documentation, make suitability inquiries of investors and
provide investors with certain information concerning trading in the security,
including a risk disclosure document and quote information under certain
circumstances. Many brokers have decided not to trade penny stocks because of
the requirements of the penny stock rules and, as a result, the number of
broker-dealers willing to act as market makers in such securities is limited. If
we remain subject to the penny stock rules for any significant period, it could
have an adverse effect on the market, if any, for our securities. If our
securities are subject to the penny stock rules, investors will find it more
difficult to dispose of our securities.
The
Financial Industry Regulatory Authority, or FINRA, has adopted sales practice
requirements which may also limit a stockholder's ability to buy and sell our
stock.
In
addition to the “penny stock” rules described above, FINRA has adopted rules
that require that in recommending an investment to a customer, a broker-dealer
must have reasonable grounds for believing that the investment is suitable for
that customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer's financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
Investors
should not anticipate receiving cash dividends on our common stock.
We have
never declared or paid any cash dividends or distributions on our common stock
and intend to retain our future earnings, if any, to support operations and to
finance expansion. Therefore, we do not anticipate paying any cash dividends on
our common stock in the foreseeable future.
Sales
of a substantial number of shares of our common stock may adversely affect the
market price of our common stock or our ability to raise additional
capital.
Sales of
a substantial number of shares of our common stock in the public market, or the
perception that large sales could occur, could cause the market price of our
common stock to decline or limit our future ability to raise capital through an
offering of equity securities. The sale of substantial amounts of our common
stock in the public market could create a circumstance commonly referred to as
an “overhang” and in anticipation of which the market price of our common stock
could fall. The existence of an overhang, whether or not sales have occurred or
are occurring, also could make more difficult our ability to raise additional
financing through the sale of equity or equity-related securities in the future
at a time and price that we deem reasonable or appropriate. Our articles of
incorporation permits the issuance of up to 75,000,000 shares of common stock
and 10,000,000 shares of preferred stock. As of April 16, 2009, we had an
aggregate of 59,212,900 shares of our common stock and 10,000,000 shares of our
preferred stock authorized but unissued. Thus, we have the ability to
issue substantial amounts of stock in the future. No prediction can be made as
to the effect, if any, that market sales of our common stock will have on the
market price for our common stock. Sales of a substantial number could adversely
affect the market price of our shares.
Security
Ownership of Certain Beneficial Owners and Management
The
following tables set forth certain information as of April 16, 2009 regarding
the beneficial ownership of our common stock by (i) each person or entity who,
to our knowledge, owns more than 5% of our common stock; (ii) each named
executive officer; (iii) each director; and (iv) all of our executive officers
and directors as a group. Unless otherwise indicated in the footnotes
to the following table, each of the stockholders named in the table has sole
voting and investment power with respect to such shares of common
stock. Shares of common stock subject to options, warrants, or other
rights currently exercisable or exercisable within 60 days of April 16, 2009,
are deemed to be beneficially owned and outstanding for computing the share
ownership and percentage of the stockholder holding such options, warrants or
other rights, but are not deemed outstanding for computing the percentage of any
other stockholder.
Name and Address of Beneficial
Owner(1)
|
|
Amount and Nature of Beneficial
Ownership (2)
|
|
|
Percent of Class(3)
|
|
|
|
|
|
|
|
|
John
P. Baugues, Jr., Chief Executive Officer and Chairman of the
Board
|
|
|
6,500,000 |
(4) |
|
|
41.2 |
% |
|
|
|
|
|
|
|
|
|
Charles
S. Leykum
Nine
Greenwick Office Park
Greenwich,
CT 06831
|
|
|
1,402,100 |
(5) |
|
|
8.9 |
% |
|
|
|
|
|
|
|
|
|
Tydus
Richards
|
|
|
5,500,000 |
|
|
|
34.8 |
% |
Matt
Szot, Chief Financial Officer, Treasurer and Secretary
30950
Rancho Viejo Road
Suite
120
San
Juan Capistrano, CA 92675
|
|
|
32,500 |
|
|
|
* |
|
David
Walters, Director
30950
Rancho Viejo Road
Suite
120
San
Juan Capistrano, CA 92675
|
|
|
146,250 |
|
|
|
* |
|
All
officers and directors as a group (3 persons)
|
|
|
6,678,750 |
(4) |
|
|
42.3 |
% |
*
Represents less than 1%
(1)
|
Unless
otherwise indicated, the address of each of the named parties in this
table is: 3203 Third Avenue North #300, Billings, Montana,
59101.
|
(2)
|
This
table is based upon information supplied by our officers, directors,
principal stockholders and our transfer agent. Unless
otherwise indicated, this table includes shares owned by a spouse, minor
children, and relatives sharing the same home, as well as entities owned
or controlled by the named beneficial owner. Unless otherwise noted,
we believe the shares reflected in this table are owned of record and
beneficially by the named beneficial
owner.
|
(3)
|
Based
on 15,787,100 shares outstanding as of April 16,
2009.
|
(4)
|
Includes:
(1) 3,185,000 shares of common stock owned by John P. Baugues, Jr., and
(2) 3,315,000 shares of common stock held by The John Paul Baugues, Senior
Family Trust, the beneficiaries of which are John P. Baugues, Jr. and his
children. Mr. Baugues disclaims beneficial ownership of the
3,315,000 share of common stock held by The John Paul Baugues, Senior
Family Trust.
|
(5)
|
Includes:
(1) 350,525 shares of common stock owned by Charles S. Leykum, (2) 913,402
shares of common stock owned by CSL Energy Fund, L.P., and (3) 138,173
shares of common stock owned by CSL Energy Master Fund,
L.P. Mr. Leykum is the managing member of CSL Capital
Management, LLC, which is the investment manager of CSL Energy Fund, L.P.
and CSL Energy Master Fund, L.P.
|
Executive
Officers and Directors
The
following persons are our current executive officers and directors and hold the
positions set forth opposite their respective names.
Name
|
Age
|
Position
|
John
Baugues, Jr.
|
52
|
Chief
Executive Officer and Chairman of the Board of
Directors
|
David
Walters
|
46
|
Director
|
Matt
Szot
|
34
|
Chief
Financial Officer, Treasurer and
Secretary
|
Our
directors hold office for one-year terms and until their successors have been
elected and qualified. Our officers are elected by the board of
directors and serve at the discretion of the board.
Biographies
John P. Baugues, Jr. has
served as our Chief Executive Officer and a director since January 2009, and
Chairman of our board of directors since April 2009. Mr. Baugues has
been involved in the coal industry as an owner and operator since
1980. From 1995 to 2008, Mr. Baugues was a minority owner and
President of Bull Mountain Coal Properties, Inc., which owns the Bull Mountain
Mine at Roundup, Montana, and is a minority owner in Carpenter Creek, LLC, which
owns the Carpenter Creek coal mining project northeast of Roundup, Montana.
Prior thereto from 1988 to 1993, Mr. Baugues was President at James Spur
Corporation. Prior thereto from 1980 to 1988, Mr. Baugues was
President at Balmont Corp which was sold in 1988. Mr. Baugues is a
fourth-generation coal miner, and in the 1980s was instrumental in selling coal
properties to Arch Mineral and Tampa Electric Company.
Matt Szot has served as our
Chief Financial Officer, Secretary and Treasurer since January
2009. Mr. Szot has significant experience in financial implementation
processes, mergers and acquisitions, financial valuation and public company SEC
reporting and compliance. Since February 2007, Mr. Szot has served as
the Chief Financial Officer for Strands Management Company, LLC, a strategic
consulting company which provides executive financial services to various
publicly traded and privately held companies. He is currently the Chief
Financial Officer of Monarch Bay Associates, LLC. Prior thereto, from
2003 to 2006, Mr. Szot served as Chief Financial Officer and Secretary of Rip
Curl, Inc., a market leader in wetsuit and action sports apparel
products. From 1996 to 2003, Mr. Szot was a Certified Public
Accountant with KPMG in the San Diego and Chicago offices and served as an Audit
Manager for various publicly traded companies. Mr. Szot is on the
Board of Directors of 4-A Energy Services Acquisition Corp. and Secured Federal
Funding Acquisition Corp. and also serves as Treasurer of Kazz Global, Inc. and
Lathian Health. Mr. Szot graduated with High Honors from the
University of Illinois, Champaign-Urbana, with a Bachelor of Science degree in
Accounting and Agricultural Economics. Mr. Szot is a Certified Public Accountant
in the State of California.
David Walters has served as a
Director since April 2009. Mr. Walters is a founder and principal of
Strands and Monarch Bay Associates, LLC (“Monarch Bay”), and has extensive
experience in investment management, corporate growth development strategies and
capital markets. From 1992 through 2000, he was an executive vice president and
managing director in charge of capital markets for Roth Capital (formerly
Cruttenden Roth), were he managed the capital markets group and led over 100
financings (public and private), raising over $2 billion in growth capital.
Additionally, Mr. Walters oversaw a research department that covered over 100
public companies, and was responsible for the syndication, distribution and
after-market trading of the public offerings. From 1992 through 2000, he managed
the public offerings for Cruttenden Roth, which was the most prolific public
underwriter in the U.S. for deals whose post-offering market cap was less than
$100 million. Mr. Walters sat on Roth's Board of Directors from 1994 through
2000. Previously, he was a vice president for both Drexel Burnham Lambert and
Donaldson Lufkin and Jenrette in Los Angeles, and he ran a private equity
investment fund. Mr. Walters earned a B.S. in Bioengineering from the University
of California, San Diego. Mr. Walters also serves as Chairman of the
Board of Directors of Monarch Staffing, Inc., Remote Dynamics, Inc. and STI
Group, Inc. and a member of the Board of Directors of Precision Aerospace
Components, Inc.
There are
no family relationships among our directors and executive officers.
To the best of our knowledge, our
officers and directors have neither been convicted in any criminal
proceedings during the past
five years nor are parties to any judicial or administrative proceeding during
the last five years that resulted in a judgment, decree or final order enjoining
then from future violations of, or prohibiting activities subject to,
federal or state securities laws or a finding
of any violation of federal or state securities laws or commodities
laws. No bankruptcy petitions have been filed by or against any
business or property of any of our directors or officers, nor has a bankruptcy
petition been filed against a partnership
or business association in which these persons were general partners or
executive officers.
Executive
Compensation
The following table sets forth, for the
years indicated, all compensation paid, distributed or accrued for services, including salary and
bonus amounts, rendered in all capacities by the Company’s principal executive officer, principal financial officer and all other
executive officers who received or are entitled to receive remuneration in
excess of $100,000 during
the stated periods. These officers are referred to herein as the “named executive officers.” The compensation table excludes other
compensation in the form of perquisites and other personal benefits that constituted less
than $10,000 in value during the eleven months ended March 31,
2009 and the year ended April 31, 2008.1
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Non-Equity
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Non-Qualified
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Incentive
Plan
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Deferred
Comp-
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All
Other
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Total
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Name
and Principal
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Year
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Salary
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Bonus
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Stock
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Option
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Comp-
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ensation
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Comp-
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Position
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Awards
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Awards
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ensation
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Earnings
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ensation
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(a)
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(b)
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(c)
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(d)
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(e)
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(f)
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(g)
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(h)
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(i)
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(j)
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John
P. Baugues
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2009
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$ |
- |
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$ |
- |
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- |
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$ |
- |
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- |
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$ |
- |
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$ |
- |
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$ |
- |
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Chief
Executive Officer
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2008
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$ |
- |
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$ |
- |
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- |
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$ |
- |
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- |
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$ |
- |
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$ |
- |
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$ |
- |
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and
Chairman
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Matt
Szot
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2009
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$ |
- |
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$ |
- |
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112,125 |
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$ |
- |
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- |
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$ |
- |
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$ |
- |
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$ |
- |
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Chief
Financial Officer,
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2008
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$ |
- |
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$ |
- |
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- |
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$ |
- |
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- |
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$ |
- |
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$ |
- |
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$ |
- |
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Treasurer,
and Secretary
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1 As stated above, as part of our
transition to the coal business, on January 14, 2009, we sold all of our assets
to Joel Klandrud, our former officer and director, pursuant to that certain
Asset Sale Agreement, dated January 14, 2009, described in Item 1.01 of our
Current Report on Form 8-K filed with the U.S. Securities and Exchange
Commission (“SEC”) on March 4, 2009. As a result of this transaction,
we became a “shell company” as defined in Section 12-b(2) of the Securities
Exchange Act of 1934, as amended. Moreover, as part of this
transaction, all of our officers and directors that were involved in our prior
business resigned. Accordingly, the table below omits information
related to the compensation of the officers engaged in our prior business, as we
believe this information would be misleading and not otherwise add to an
understanding of our current business and compensation
practices.
Outstanding
Equity Awards at Fiscal Year-End
As of
April 16, 2009, there were no outstanding equity awards held by any named
executive officer.
Employment
Agreements
As of
April 16, 2009, we were not a party to any employment agreement with any named
executive officer.
Director
Compensation
We do not
currently compensate our directors for acting as such, although we may do so in
the future, including with cash and/or equity. We reimburse our
directors for reasonable expenses incurred in connection with their service as
directors. As of April 16, 2009, none of our directors, in their
capacity as such, received any compensation from us.
Directors’
and Officers’ Liability Insurance
We
currently anticipate that we will obtain directors’ and officers’ liability
insurance insuring our directors and officers against liability for acts or
omissions in their capacities as directors or officers, subject to certain
exclusions. Such insurance is expected to insure us against losses
which we may incur in indemnifying our officers and directors. In
addition, we expect to enter into indemnification agreements with our executive
officers and directors and such persons shall also have indemnification rights
under applicable laws, and our articles of incorporation and
bylaws.
Code
of Ethics
We intend
to adopt a code of ethics that applies to our officers, directors and employees,
including our Chief Executive Officer and Chief Financial Officer, but have not
done so to date due to our relatively small size.
Board
Independence
None of
our directors qualifies as an “independent” director as that term is defined by
Rule 16b-3 promulgated under the Exchange Act.
Board
Committees
Our board
of directors is expected to appoint an audit committee, nominating committee and
compensation committee, and to adopt charters relative to each such
committee. We intend to appoint such persons to the board of
directors and committees of the board of directors as are expected to be
required to meet the corporate governance requirements imposed by a national
securities exchange, although we are not required to comply with such
requirements until we elect to seek listing on a securities
exchange.
Certain
Relationships and Related Transactions
On
January 14, 2009, we sold all of our assets to Joel Klandrud, our former officer
and director, pursuant to that certain Asset Sale Agreement, dated January 14,
2009, described in Item 1.01 of our Current Report on form 8-K filed with the
SEC on March 4, 2009, which disclosure is incorporated herein by
reference.
On
January 14, 2009, we entered into a Support Services Agreement with Strands
Management Company, LLC (“Strands”). Matt Szot, our Chief Financial
Officer, Treasurer, and Secretary, is the Chief Financial Officer of
Strands. David Walters, a director, owns a 50% interest and is a
managing member of Strands. The terms of the Support Services Agreement are
described in Note 3 of Notes to Unaudited Financial Statements of our Quarterly
Report on Form 10-Q filed with the SEC on March 17, 2009, which disclosure is
incorporated herein by reference.
On
January 14, 2009, we entered into a Placement Agency and Advisory Services
Agreement with Monarch Bay Associates (“MBA”). Matt Szot, our Chief
Financial Officer, Treasurer, and Secretary, is the Chief Financial Officer of
MBA. David Walters, a director, owns a 50% interest and is a managing
member of MBA. The terms of the Placement Agency and Advisory Services Agreement
are described in Note 3 of Notes to Unaudited Financial Statements of our
Quarterly Report on Form 10-Q filed with the SEC on March 17, 2009, which
disclosure is incorporated herein by reference.
Reference
is hereby made to the disclosure in respect of the Contribution Agreement and
Mining Lease set forth under Item 2.01 of this Current Report on Form 8-K, and
the disclosure in respect of the Termination Letter set forth under Item 1.02 of
our Current Report on Form 8-K filed with the SEC on April 6, 2009, which
disclosures are incorporated herein by reference.
Item
3.02
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Unregistered
Sales of Equity Securities
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On April
13, 2009, we consummated the issuance and sale of shares of our Common Stock
pursuant to the Contribution Agreement described under Item 2.01
above. There were no underwriting discounts or commissions in
connection with any such sales. The shares were sold solely to
“accredited investors,” as that term is defined in Regulation D of the
Securities Act. The securities were not registered under the
Securities Act, or the securities laws of any state, and were offered and sold
in reliance on the exemption from registration afford by Section 4(2) under the
Securities Act and corresponding provisions of state securities laws, which
exempt transactions by an issuer not involving any public offering.
Reference
is hereby made to the disclosure in respect of the Contribution Agreement set
forth under Item 2.01 of this Current Report on Form 8-K, which disclosure is
incorporated herein by reference.
Pursuant
to that certain Strategic Consulting Services Agreement between the Company and
Charles S. Leykum, dated April 13, 2009, we are required to issue to Mr. Leykum,
CSL Energy Fund, L.P., and CSL Energy Master Fund, L.P. an aggregate of 402,100
shares of our common stock, in exchange for the provision by Mr. Leykum of
certain advisory consulting services. There were no underwriting
discounts or commissions in connection with any such sales. The
shares were sold solely to “accredited investors,” as that term is defined in
Regulation D of the Securities Act. The securities were not
registered under the Securities Act, or the securities laws of any state, and
were offered and sold in reliance on the exemption from registration afford by
Section 4(2) under the Securities Act and corresponding provisions of state
securities laws, which exempt transactions by an issuer not involving any public
offering.
Description
of Capital Stock
Authorized
Capital Stock
We have
authorized 85,000,000 shares of capital stock, par value $0.001 per share, of
which 75,000,000 are shares of common stock and 10,000,000 are shares of
preferred stock.
Capital
Stock Issued and Outstanding
After
giving effect to the issuance of 12,000,000 shares pursuant to the Contribution
Agreement, as of April 16, 2009, we had 15,787,100 shares of Common Stock
outstanding and no shares of Preferred Stock outstanding.
Common
Stock
The
holders of common stock are entitled to one vote per share. Our articles of
incorporation do not provide for cumulative voting. The holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared by
our board of directors out of legally available funds; however, the current
policy of our board of directors is to retain earnings, if any, for operations
and growth. The holders of common stock have no preemptive,
subscription, redemption or conversion rights. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of any series of preferred stock, which
may be designated solely by action of our board of directors and issued in the
future.
Preferred
Stock
Our board
of directors is authorized, subject to any limitations prescribed by law,
without further vote or action by our stockholders, to issue from time to time
shares of preferred stock in one or more series. Each series of
preferred stock will have such number of shares, designations, preferences,
voting powers, qualifications, and special or relative rights or privileges as
shall be determined by our board of directors, which may include, among others,
dividend rights, voting rights, liquidation preferences, conversion rights and
preemptive rights.
Dividend
Policy
We have
not previously paid any cash dividends on our common stock and do not anticipate
paying dividends on our common stock in the foreseeable future. We
currently intend to utilize all available funds to develop our
business. We can give no assurances that we will ever have excess
funds available to pay dividends. Our future dividend policy will
also depend on the requirements of any future financing agreements to which we
may be a party and other factors considered relevant by our board of directors,
including the provisions of the Nevada Revised Statutes which govern
corporations. The Nevada Revised Statutes generally provide that distributions
may not be made if after any distribution we would not be able to pay our debts
as they become due in the usual course of business or our total assets would be
less than the sum of our total liabilities plus any amounts needed to satisfy
the preferential rights of stockholders if we were dissolved at the time of the
distribution.
Indemnification
of Directors and Officers
Our
articles of incorporation empower us to indemnify our officers and directors to
the fullest extent provided by Nevada law. The articles of
incorporation eliminate liability of our directors for damages for breach of
fiduciary duty as a director, except to the extent otherwise required by Nevada
law and in cases in which the breach involves intentional misconduct or a
knowing violation of law, a violation of the director’s duty of loyalty to the
company, or any transaction from such director derived an improper personal
benefit.
Our
bylaws and Sections 78.7502 and 78.751 of Chapter 78 of the Nevada Revised
Statutes contain provisions for indemnification of officers and directors of the
Company and, in certain cases, employees and other persons, in addition to any
other rights to which those indemnified may be entitled by Nevada law, under any
bylaw agreement, vote of stockholders, or otherwise. The bylaws
require the Company to indemnify such persons in any proceeding unless such
persons shall have been adjudged in any action, suit, or proceeding to be liable
for negligence or misconduct in the performance of any duty owed to the
Company.
Section
78.752 of Chapter 78 of the Nevada Revised Statutes also provides that our board
of directors may cause the Company to purchase and maintain insurance on behalf
of any present or past director or officer insuring against any liability
asserted against such person incurred in the capacity of a director or officer
or arising out of such status, whether or not the Company would have the power
to indemnify such person. We do not currently maintain directors’ and
officers’ liability insurance, but expect to in future.
The
Company plans to enter into indemnification agreements with each director and
certain officers, employees and agents of the Company.
Anti-Takeover
Effect of Nevada Law, Certain By-Law Provisions
Our
articles of incorporation authorize our board of directors to issue a class of
preferred stock commonly known as a “blank check” preferred
stock. Specifically, the preferred stock may be issued from time to
time by the board of directors as shares of one or more classes or series. Our
board of directors, subject to the provisions of our articles of incorporation
and limitations imposed by law, is authorized to adopt resolutions to issue the
shares, to fix the number of shares, and to designate the rights, preferences,
and limitations of each series.
In each
such case, we will not need any further action or vote by our stockholders. One
of the effects of undesignated preferred stock may be to enable the board of
directors to render more difficult or to discourage an attempt to obtain control
of us by means of a tender offer, proxy contest, merger or otherwise, and
thereby to protect the continuity of our management. The issuance of shares of
preferred stock pursuant to the board of director's authority described above
may adversely affect the rights of holders of common stock. For example,
preferred stock issued by us may rank prior to the common stock as to dividend
rights, liquidation preference or both, may have full or limited voting rights
and may be convertible into shares of common stock. Accordingly, the issuance of
shares of preferred stock may discourage bids for the common stock at a premium
or may otherwise adversely affect the market price of the common
stock.
Subject
to Nevada’s Control Share Acquisition Act (Nevada Revised Statutes 78.378
-78.3793), which prohibits an acquirer, under certain circumstances, from voting
shares of a corporation’s stock after crossing specific threshold ownership
percentages, unless the acquirer obtains the approval of the issuing
corporation's stockholders. The first such threshold is the acquisition of at
least one-fifth but less than one-third of the outstanding voting
power. We may become subject to Nevada’s Control Share Acquisition
Act if we have 200 or more stockholders of record, at least 100 of whom are
residents of the State of Nevada, and do business in the State of Nevada
directly or through an affiliated corporation, unless our articles of
incorporation or bylaws are amended to provide that the provisions of the
sections do not apply.
We are
subject to the provisions Sections 78.411 through 78.444 of the Nevada Revised
Statutes, which prohibits an “interested stockholder” from entering into a
“combination” with a corporation, unless certain conditions are
met. An “interested stockholder” is a person who, together with
affiliates and associates, beneficially owns (or within the prior three years,
did beneficially own) 10 percent or more of the corporation’s voting
stock.
These
laws may deter certain transactions if our articles of incorporation or bylaws
are not amended to provide that these provisions do not apply to us or to an
acquisition of a controlling interest, or if our disinterested stockholders do
not confer voting rights in the control shares.
Trading
Information
Our
common stock is currently approved for quotation on the OTC Bulletin Board
maintained by FINRA under the symbol MGEG. As soon as practicable,
and assuming we satisfy all necessary initial listing requirements, we intend to
apply to have our common stock listed for trading on the American Stock Exchange
or The Nasdaq Stock Market, although we cannot be certain that any of these
applications will be approved.
Transfer
Agent
The
transfer agent for our common stock is Transhare Corporation, 5105 DTC Parkway,
Suite 325, Greenwood Village, Colorado 80111.
Item
5.01
|
Changes
in Control of Registrant.
|
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report on
Form 8-K, which disclosure is incorporated herein by reference.
Item
5.06
|
Change
in Shell Company Status.
|
As a
result of the consummation of the transactions described in Item 2.01 of this
Current Report on Form 8-K, we believe that we are no longer a shell corporation
as that term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the
Exchange Act.
Item
9.01
|
Financial
Statements and Exhibits.
|
There is
no historical revenue stream or assets outside of the rights and the assets
acquired under the Contribution Agreement. Accordingly, the
transaction consummated under the Contribution Agreement does not meet the
definition of a business and, as a result, pro forma and financial statement
information has not been presented.
Exhibit
No.
|
Description
|
2.1
|
Agreement
for Sale of Assets, dated January 14, 2009, entered into between the
registrant and Joel Klanrud, incorporated herein by reference to Exhibit
10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on
March 4, 2009.
|
2.2
|
Contribution
and Assignment Agreement, dated as of March 31, 2009, by and among the
registrant, Carbon County Holdings, LLC, a Delaware limited liability
company, John P. Baugues, Jr., The John Paul Baugues, Sr. Family Trust,
and Tydus Richards, incorporated herein by reference to Exhibit 10.1 of
the registrant’s Current Report on Form 8-K filed with the SEC on April 6,
2009.
|
3.1
|
Articles
of Incorporation, as amended, incorporated herein by reference to Exhibit
3.1 of the registrant’s Registration Statement on Form S-1 filed with the
SEC on July 29, 2008, and Exhibit 3.1 of the registrant’s Current Report
on Form 8-K, filed with the SEC on March 4, 2009.
|
3.2
|
Bylaws,
incorporated herein by reference to Exhibit 3.2 of the registrant’s
Registration Statement on Form S-1 filed with the SEC on July 29,
2008.
|
10.1
|
Support
Services Agreement, dated January 8, 2009, between Strands Management
Company, LLC and the registrant, incorporated herein by reference to
Exhibit 10.1 of the registrant’s Quarterly Report on From 10-Q filed with
the SEC on March 17, 2009.
|
10.2
|
Engagement
Letter, dated January 8, 2009, between the registrant and Monarch Bay
Associates, LLC, incorporated herein by reference to Exhibit 10.1 of the
registrant’s Quarterly Report on From 10-Q filed with the SEC on March 17,
2009.
|
10.3
|
Mining
Lease, dated as of January 16, 2009, by and between Carbon County
Holdings, LLC, a Delaware limited liability company, on the one hand, and
Edith L. Bolzer and Richard L. Bolzer, on the other hand, incorporated
herein by reference to Exhibit 10.1 of the registrant’s Current Report on
Form 8-K filed with the SEC on April 6, 2009.
|
10.4
|
Consulting
Agreement, dated April 13, 2009, by and among the Company and Charles S.
Leykum.
|
|
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
Date: April
16, 2009
|
MGMT Energy,
Inc. |
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By:
|
/s/
Matthew
Szot |
|
|
|
Matthew
Szot, Chief Financial Officer, Treasurer and Secretary
|
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|
By:
|
/s/
John P. Baugues |
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|
John
P. Baugues, Chief Executive Officer and Chairman of the Board of
Directors
|
|
|
|
|
INDEX
TO EXHIBITS
Exhibit
No.
|
Description
|
2.1
|
Agreement
for Sale of Assets, dated January 14, 2009, entered into between the
registrant and Joel Klanrud, incorporated herein by reference to Exhibit
10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on
March 4, 2009.
|
2.2
|
Contribution
and Assignment Agreement, dated as of March 31, 2009, by and among the
registrant, Carbon County Holdings, LLC, a Delaware limited liability
company, John P. Baugues, Jr., The John Paul Baugues, Sr. Family Trust,
and Tydus Richards, incorporated herein by reference to Exhibit 10.1 of
the registrant’s Current Report on Form 8-K filed with the SEC on April 6,
2009.
|
3.1
|
Articles
of Incorporation, as amended, incorporated herein by reference to Exhibit
3.1 of the registrant’s Registration Statement on Form S-1 filed with the
SEC on July 29, 2008, and Exhibit 3.1 of the registrant’s Current Report
on Form 8-K, filed with the SEC on March 4, 2009.
|
3.2
|
Bylaws,
incorporated herein by reference to Exhibit 3.2 of the registrant’s
Registration Statement on Form S-1 filed with the SEC on July 29,
2008.
|
10.1
|
Support
Services Agreement, dated January 8, 2009, between Strands Management
Company, LLC and the registrant, incorporated herein by reference to
Exhibit 10.1 of the registrant’s Quarterly Report on From 10-Q filed with
the SEC on March 17, 2009.
|
10.2
|
Engagement
Letter, dated January 8, 2009, between the registrant and Monarch Bay
Associates, LLC, incorporated herein by reference to Exhibit 10.1 of the
registrant’s Quarterly Report on From 10-Q filed with the SEC on March 17,
2009.
|
10.3
|
Mining
Lease, dated as of January 16, 2009, by and between Carbon County
Holdings, LLC, a Delaware limited liability company, on the one hand, and
Edith L. Bolzer and Richard L. Bolzer, on the other hand, incorporated
herein by reference to Exhibit 10.1 of the registrant’s Current Report on
Form 8-K filed with the SEC on April 6, 2009.
|
10.4
|
Consulting
Agreement, dated April 13, 2009, by and among the Company and Charles S.
Leykum.
|
|
|