Anderson Property Historical Exploration | | | | | | Exploration Group | | Period | | Exploration Activities | | Mining Group Led by Mr. T. R. Anderson | | 1955−19591955-1959 | | Aerial scintillometer surveying, ground prospecting, and outcrop mining | | Getty Oil Company | | 1967−19681967-1968 | | Limited exploration drilling | | Urangesellschaft U.S.A., Inc. | | 1973−19791973-1979 | | Exploration drilling: 344 rotary and 33 core holes over a 1,505-acre area | | Minerals Exploration Company | | 1974−19781974-1978 | | Exploration drilling: 1,047 rotary holes and 72 core holes over a 583-acre area |
Depressed uranium prices stalled exploration activities until 1995 when Hanson consolidated portions of the former MinEx and Urangesellschaft claims under single ownership. We have controlled ownership of the Anderson Property since the date we re-staked these claims in 2004. Concentric Energy Corp. Drilling Program In 2006, we conducted the first drilling on the Anderson Property since the MinEx and Urangesellschaft field exploration programs were terminated in 1978 and 1979, respectively. Our 2006 drilling program was designed to confirm the authenticity of the historical MinEx exploration database by “twinning” a spatially-distributed and statistically significant number of existing drill holes. A total of 24 successful, vertical rotary holes and one rotary-core hole were drilled between June 23 and September 26, 2006, totaling 8,087 feet of drilling. All rotary holes were drilled 5½51/2 or 5¾53/4 inches in diameter. Drill depths varied from 90 to 660 feet depending upon location along dip. The core hole was rotary-drilled to the top of a target radiometric zone and then cored between 75 and 95 feet of depth. Three-inch diameter core was produced for assaying. No confirmation holes were drilled on the former Urangesellschaft portion of the Anderson Property. As funds allow, we intend to conduct a similar drilling campaign on the former Urangesellschaft portion of the Anderson Property. Sample Preparation, Analyses, and Security for the 2006 Drilling Program Industry standards require samples to be collected (generally) at 5 foot intervals. Because the radiometric beds at the Anderson Property can be fairly thin, the mineralized horizons there were sampled at 2.5 foot intervals. Non-mineralized zones were sampled at 5 foot intervals. Because the holes were twins of previously-drilled holes, the historical radiometric logs were used to identify the start points for 2.5-foot sampling intervals. Collection of Dry Samples Dry samples were collected in a 5-gallon bucket suspended beneath the cyclone dust and cuttings collector. When drilling in non-mineralized rock, the sample was split with a Gilson splitter to yield an archival sample and a small (about 2 ounce) subsample that was retained for logging purposes by the on-site geologist. In mineralized zones, an assay sample was caught in a clean 5-gallon bucket that was then poured into the hopper at the top of a Gilson-type splitter. The dividers below the hopper were set to provide about3/4 gallon (2 to 3 pounds) of dry sample for assay collected in a large pan from which it was poured into an orange bucket that was emptied into a plastic bag with the sample number written on it. A tear-out sample tag with the sample number was emplaced in the bag which was immediately sealed with a blue zip-tie. After each sample was collected, the Gilson splitter and the orange sample buckets were cleaned with a high-pressure air hose and/or steel brush. The remaining, much larger archival split was also collected on a large pan that was then emptied into a new, clean, pre-numbered white bucket with the sample number written on the side. Before the archival bucket was sealed, a logging sub-sample was collected from the archival bucket, lightly washed through a 12-to-l6-mesh standard sieve, and placed into a sample container that held one dozen samples representing 60 ft of drill hole. Oversized material from the wet sieving operation was placed back into the archival bucket. The logging sub-sample was delivered to the on-site geologist, who logged the borehole in real time, never more than 60 or 80 foot from the advancing bit. Often, if the drill penetration rate was low, samples would be logged at 20 foot intervals (at the end of each 20 foot length of drill steel). Geologic control and understanding of the units was thus closely maintained in the field. After the logging sub-sample had been collected, the archival sample bucket was sealed with a new lid with the sample number written on it, which was checked against the number on the bucket. The on-site geologist then recorded the sample number on the field logging form. No intervals in the 2006 drill campaign (comprising more than 2,100 samples) were mislabeled. The buckets containing the archival samples were temporarily stored in numerical order off to the side of the drill pad, with the plastic assay bag for each interval placed on top of the corresponding bucket to ensure that samples were not mixed up or misplaced in the field. The samples from the mineralized zones were transported nightly to and locked in our office/warehouse. Usually the entire sample run for the day was transported to the warehouse, but occasionally only the mineralized zone(s) could be carried back. On two occasions, samples from mineralized zones were left at the drill site overnight in a locked steel container. Collection of Wet Samples Below the water table, a modified sampling protocol was employed. After passing up through the cyclone receiver, wet cuttings were passed through an Anaconda wet splitter, which is a hydraulically-driven wet splitter that turns beneath the cyclone receiver, and is divided into 16 pie-shaped segments that can be covered. If all of the wedges are left uncovered, then 100% of the sample is recovered at the bottom of the splitter. If eight of the wedges are covered up, then the splitter yields an 8/16 or 50/50 split. The material that passes through the uncovered open wedges falls through the splitter and is collected in a 5-gallon bucket suspended beneath the outlet pipe. The other half passes outside the sampling area and is directed to a pipe on the side of the wet splitter. This side can be sampled as well, by suspending a bucket beneath the discharge pipe. In non-mineralized zones, the splitter is adjusted to yield a quantity sufficient to fill a standard 10-inch by 17-inch sample bag. We used SENTRY II spun-bonded polypropylene sample bags that drain readily in the field, thereby reducing forced-air drying charges at the preparation lab. The bag was propped up beneath the splitter in a 1-ft-long, 5-inch-diameter polyvinyl chloride or PVC pipe. After the sample 28
had been collected, the sample bag was lifted out of the pipe, the sample tag was inserted, and the bag was sealed and set aside for temporary storage. In mineralized zones, the number of covered wedges was regulated to yield a split that could be collected in a 5-gallon bucket which was suspended underneath the splitter. At the end of the 21/2-ft sample interval, the bucket was removed and a waterproof sample tag was placed in the bucket before the bucket was sealed with a new lid upon which a sample number was inscribed. The logging sub-sample for the geologist was collected through a standard 12- to 16-mesh testing sieve placed under the side discharge from the Anaconda splitter. A size- representative sample from the sieve was placed into a 12-compartment tray for logging by the on-site geologist. With both wet and dry samples, the on-site geologist prepared plastic 20-compartment archival chip trays from the chip samples that had been used to log the geology and mineralogy of the borehole. Each compartment was labeled not only with the footage interval, but also with the sample number unique to the sampled interval. These chip trays provide quick and easy access to the borehole geology for subsequent review or examination, and acted as a field check on sample continuity/accuracy at the drill site. The mineralized samples were always under the control of the site geologist, either locked in our warehouse, or, in two instances, locked at the drill site overnight before transport to the warehouse the next day. Sample Preparation Samples were either picked up at our warehouse by Jacobs Lab personnel or were transported to the Jacobs facility in Tucson, Arizona, by Company personnel. Upon arrival, the samples were placed in numerical order and logged into the computer system. Dry samples, which arrived in cloth or polypropylene bags, were poured into drying pans. A field tag remains with the sample and travels through the lab with it. Buckets containing wet samples were opened and carefully emptied into drying pans. The bucket and the lid were washed off over the drying pan to capture all of the fines. The drying pans were placed in an oven and dried for a minimum of 24 hours. Samples for the next batch for drying were also arrayed in the drying room, so that the heat of the oven would pre-dry them prior to placement in the drying oven. After removal from the oven and cooling, the contents of the pans were passed through a jaw roll crusher and reduced in size to nominal 10 mesh (approximately 1.8 mm). The sample was then homogenized by pouring it carefully back and forth from pan to pan several times. After homogenization, the sample was sent through a Jones-type riffle splitter several times until the final split yielded approximately 300 grams (g) of material per side. One side, the “Reject Cut,” was pulverized with a disc pulverizer. Everything else, (the Reject Cut itself) was placed back in the sample bucket, which was immediately resealed and stored in the warehouse. The 300-g Reject Cut, having passed through the disc pulverizer and thus reduced to 80% finer than 100 mesh (0.174 mm) in size, was now called the “Master Pulp.” The Master Pulp was further homogenized by rolling back and forth on a rolling cloth, the result being a cone-shaped pile in the center of a rolling cloth. Using a spatula, the sampler collected spoonfuls of material from the perimeter of the cone to form a 10-g “Assay Sample,” which was placed in a sample container for shipment to a laboratory for analysis. The remaining 290 g of Master Pulp was poured into a 3.5-inch by 5-inch envelope and stored in a box on a shelf for use in check assays or duplicate assays as required. The individual sample containers were placed in a container for shipment to a laboratory together with blanks, duplicates and standards, where specified by us. The containers were shipped either to Activation Laboratories (ACTLABS) in Ancaster, Ontario, Canada for delayed neutron counting (DNC) analysis or to American Assay Labs (AAL) in Sparks, NV for inductivity couple plasma (ICP) analysis. Sample Security After collection at the drill site, the samples were logged in on a Sample Submittal Sheet that accompanied the samples when they were either picked up by Jacobs Lab personnel or were transported to the Jacobs Lab facility in Tucson, Arizona, by our personnel. Upon arrival at Jacobs Lab’s facility, the samples were placed in numerical order and logged into the computer system. After the samples were prepared for analysis by Jacobs Lab, the individual sample containers were placed in a container for shipment to a laboratory together with blanks, duplicates and standards, where specified by us, and a copy of the Sample Log Sheet(s). The containers and the pulp samples were shipped by UPS either to ACTLABS in Ancaster, Ontario, Canada for DNC analysis or to AAL in Sparks, NV for ICP analysis. A copy of the UPS tracking number was kept at Jacobs Lab with a copy of the Sample Submittal Sheet(s) in the respective shipment. When the shipment of samples was received at the lab, a copy of the Sample Submittal Sheet(s) was sent by the lab back to us to indicate that they had been received. At each transfer, the transferor and the recipient each signed the Sample Log Sheet. When the lab results were submitted to us, a copy of the Sample Submittal Sheet(s) was attached to complete the chain of custody. 29
Assaying Practices Samples shipped to ACTLABS were analyzed by neutron-activated DNC. The technique consists of dual cyclic neutron activation in a differentiated neutron flux spectrum at bare and cadmium-covered irradiation positions and subsequent delayed-fission neutron counting. Uranium concentrations are determined from calibration curves determined for samples of known activity. Samples shipped to AAL were analyzed by ICP-atomic emission spectrometry (ICP-AES). Detection limits, sensitivity, and the optimum and linear concentration ranges of the elements can vary with the wavelength, spectrometer, matrix and operating conditions. Prior to analysis, samples must be solubilized or digested using appropriate sample preparation methods. The instrument measures characteristic emission spectra by optical spectrometry. Samples are nebulized and the resulting aerosol is transported to the plasma torch. Element-specific emission spectra are produced by a radio-frequency ICP. The spectra are dispersed by a grating spectrometer, and the intensities of the emission lines are monitored by photosensitive devices. Background correction is required for trace element determination. Laboratory Certifications Jacobs Labs, of Tucson, Arizona, (520 622 0813) is a recognized and registered State of Arizona Board of Technical Registration lab on the list of recommended assay labs issued by the Arizona Department of Mines and Mineral Resources. AAL is a registered and approved assay lab located in Sparks, Nevada with the following accreditations: | | • | | Certificate of International Standards Organization (ISO)\IEC 17025 | | | | | • | | Certificate of Laboratory Proficiency PTP-MAL, accredited by Standards Council of Canada | | | | | • | | Geostats of Australia certificate | | | | | • | | Society of Mineral Analysts, Round Robin testing. | |
ACTLABS in Ancaster, Ontario, Canada L9G 4V5 is used as a check lab by many of the uranium companies in Canada. They are accredited for assaying by the Standard Council of Canada, ISO 17025 (266). Quality Assurance/Quality Control Standards were obtained from CANMET Mining and Mineral Sciences Laboratories in Ottawa, Ontario, Canada for use in calibration of the Analysis equipment. Standard # BL-1, which grades 0.022% (±0.001%) U was used to verify the DNC results. Because the results of DNC analysis of the calibration standard always fell within the acceptable range, no changes or adjustments to the sample preparation were deemed necessary. Exploration Plans The historical exploration activity and the more recent exploration activities on the Anderson Property conducted by us in 2006 has produced a geological body of data sufficient to support additional exploration activities aimed at commencing the preparation of a pre-feasibility study on the Anderson Property. A preliminary budget has been prepared for this additional exploration activity. We will have to raise the funds necessary to conduct these studies and, as such, the timing of the conduct of these studies is dependent on obtaining this financing. The following preliminary budget is prepared based on a progressive evaluation of the Anderson Property. As we progress with the additional evaluation, each phase is expected to result in a decision point determining whether to advance to a subsequent phase of the exploration. Estimated order-of-magnitude costs for conducting each phase are summarized in the following table: 30
Budgetary Estimate for Further Anderson Project Evaluation | | | | | | | | | | | | | Budgetary Range | | | | Low | | High | | | | | Phase I | | | | | | | | | | Geologic Modeling | | $ | 50,000 | | | $ | 250,000 | | | Geostatistical Drilling | | | 500,000 | | | | 1,000,000 | | | Geostatistical Modeling | | | 50,000 | | | | 150,000 | | | Metallurgical Processing | | | 200,000 | | | | 750,000 | | | Concept Mine Plan | | | 100,000 | | | | 300,000 | | | Market Prices | | | 30,000 | | | | 100,000 | | | Revised Resource Estimate | | | 50,000 | | | | 150,000 | | | | | | | Subtotal | | $ | 980,000 | | | $ | 2,700,000 | | | | | | | | | | | | | | | | Phase II | | | | | | | | | | Additional drilling | | $ | — | | | $ | 1,000,000 | | | Isotopic analysis | | | 20,000 | | | | 50,000 | | | | | | | Subtotal | | $ | 20,000 | | | $ | 1,050,000 | | | | | | | | | | | | | | | | | Total | | $ | 1,000,000 | | | $ | 3,750,000 | | | | | |
At the present time and considering the uncertainty of the timing of the additional exploration, we have not identified the contractors that will conduct our additional exploration activities. Government Approval Many of our mineral rights and interests are subject to government approvals, licenses, and permits. No assurance can be given that we will be successful in maintaining any or all of the various approvals, licenses, and permits in full force and effect without modification or revocation. Obtaining the necessary governmental permits is a complex, time-consuming and costly process. To the extent such approvals are required and not obtained, we may be curtailed or prohibited from continuing or proceeding with planned exploration of the Anderson Property. We expect that we will process uranium at the Anderson Property if it is economically feasible to do so. Uranium processing requires licensing by the Nuclear Regulatory Commission, or NRC. The NRC has not issued uranium processing licenses for a conventional mill since 1982, and there can be no assurance that the NRC will review or approve new license applications in a timely manner, if at all. If we cannot obtain a uranium processing license, we will not be able to mine uranium. Governmental Regulation Our mineral exploration and related activities are subject to various laws that govern prospecting, mining, development, production, taxes, labor standards, occupational health, mine safety, toxic substances, land use, water use, land claims of local people and other matters. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in mining operations or in the exploration or development of mineral properties may be required to compensate those suffering loss or damage by reason of the mining activities and may be subject to civil or criminal fines or penalties for violations of applicable laws or regulations. Amendments to, or more stringent implementation of, current laws and regulations governing operations could have a substantial adverse impact on our business and cause increases in exploration expenses, capital expenditures or production costs, reduce levels of production at producing properties or require abandonment or delays in development of new mining properties. Mining Regulation Our federal mining claims are located on lands where the United States owns the surface and the minerals. Mining rights on federal lands are held under the General Mining Law, which operates on a claim-patent system. The claim-patent system allows for the staking of a claim on federal lands upon the discovery of a valuable mineral deposit. The holder of a claim has the full legal right to conduct mining operations, subject to compliance with the General Mining Law, Arizona state laws regarding the staking of mining claims and relevant operation and environmental laws and regulations. The holder does not have legal title to the surface of the claim, but in certain circumstances may apply to obtain a patent that gives the holder legal title to both the surface and the minerals of the claim. All current claims remain unpatented and there is currently a moratorium on processing new patent applications. The federal laws that govern our operations on federal lands are administered by the BLM.Bureau of Land Management (BLM). The BLM is concerned with land use and disturbance, wilderness impact, temporary uses and rights of explosives and safety and health issues. The Federal Land Policy Management Act, or FLPMA, provides the basis for the BLM surface management regulations. It gives the BLM authority to grant permits for mineral exploration, mining and reclamation actions on the public lands administered by the BLM. FLPMA mandates that any operations that will disturb the surface of the mining claim or site require authorization and full reclamation bonding. 31
The United States Congress has considered, and may consider in the future, a number of proposed amendments to the General Mining Law. The Hardrock Mining and Reclamation Act of 2007,2009, or HMRA, has been introduced into both houses of congress and, may, if enacted into law, as passed by the House of Representatives on November 1, 2007, change the current patenting procedures, limit the rights obtained in a patent, make changes to the land open to location, impose royalties on unpatented claims (currently proposed as eightfive percent of the net smelter returns) and enact new reclamation, environmental controls and restoration requirements. The extent of any such changes that may be enacted is not presently known, and the potential impact on us as a result of future congressional action is difficult to predict. If enacted, the proposed legislation could adversely affect the economics of exploration and development of operating mines on the federal unpatented mining claims. Our financial performance could therefore be materially and adversely affected by passage of all or pertinent parts of the HMRA. Environmental Regulation As a mining company doing business in the United States, we are required to comply with numerous environmental laws and regulations imposed by federal, state and local authorities designed to protect the environment, air quality, water quality and threatened or endangered species in the vicinity of our operations. These laws and regulations impose permit requirements, effluent standards, performance standards, air quality and emission standards, waste handling and disposal restrictions and other design or operational requirements on our operations. Federal environmental legislation in the United States and implementing regulations adopted and administered by the Environmental Protection Agency, or EPA, the BLM and other agencies have a direct influence on all of our present and future mining operations. These statutes and regulations include, but are not limited to, the National Environmental Policy Act, the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act and the Endangered Species Act. Federal environmental initiatives are often administered and enforced through state agencies operating under parallel statutes and regulations. In Arizona, the Arizona Department of Environmental Quality, or ADEQ, has the mandate to formulate policies, plans, and programs to protect the environment. We are subject to the laws, regulations and requirements established by the ADEQ and other state authorities, including, but not limited to, the Arizona Aquifer Protection Permit Program, the Arizona Pollution Discharge Elimination System Permit Program, the New Source Review Permitting Program and the Mined Land Reclamation Act. Uranium Regulation The mining of uranium requires compliance with a unique federal regulatory regime. The regulatory regime governs licensing, possession, storage, emissions from and transportation of uranium. Certain of our future activities or operations may be subject to these requirements. Such laws, regulations and requirements include, but are not limited to, the Atomic Energy Act, Uranium Mill Tailing Radiation Control Act, Health and Environmental Protection Standards for Uranium and Thorium Mill Tailings and Hazardous Materials Transportation Uniform Safety Act. Workplace Safety Regulation In addition to the regulatory scheme governing workplace safety generally, we must comply with any legislation that specifically addresses mine safety. Such legislation includes the Federal Mine Safety and Health Act, which sets safety and health standards for preventing hazardous and unhealthy conditions, establishes requirements for immediate notification of accidents, injuries and illnesses, and establishes standards for training programs. PropertyOffice
We lease 3,046 square feet of office space in Wickenburg, Arizona for $1,980 per month, plus $267 of monthly common area charges. The current lease term expires on August 31, 2010. This office space serves as our corporate headquarters. We believe that our current office space is adequate for our immediate and near-term needs. Additional space may be required as we expand our activities. We do not currently foresee any significant difficulties in obtaining any required additional office space.
Legal Proceedings
To our knowledge, no legal proceedings, government actions, administrative actions, investigations or claims are currently pending against us or involve us that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business and financial condition. 33
MANAGEMENT
Directors and Executive Officers The following table sets forth certain information regarding our executive officers and directors as of December 1, 2008:June 30, 2009: | | | | | | | | | | | | Name | | Age | | Position | | Rockell N. Hankin | | 61 | 62 | | | Chairman of the Board of Directors, Independent Director | | Andrew K. Simpson | | | 60 | | | Chief Executive Officer, Chief Financial Officer and Director | | Lynn F. Oates | | 60 | 61 | | | President, Vice President –— Finance and Controller | Bonita K. Bogaert | | 41 | | Vice President - Health, Safety and Environmental Compliance | | Ronald L. Parratt | | | 60 | | | Independent Director | | Richard P. Graff | | 61 | 62 | | | Independent Director |
Rockell N. Hankin - - —Mr. Hankin became our Chairmanchairman in November 2007. Mr. Hankin also serveshas served as a member of the Boardboard of Directorsdirectors of Semtech Corporation since 1988, where he is currently the Chairmanchairman of the Boardboard of Directorsdirectors and a member of its Nominatingnominating and Corporate Governance Committeecorporate governance committee and Finance Committee.finance committee. Mr. Hankin is also a member of the Boardboard of Directorsdirectors of three privately held corporations: Hoya Photonics, Inc. (since 1995), UVDI (since 1995), and SBA Materials, Inc. (since 2006). He is Vice-Chairmanvice-chairman of the Boardboard of Directorsdirectors of The Kavli Foundation on which he has served since 2000 as well as a principal of HC Private Equity (since 1986), through which he initiates and manages investments in operating companies on behalf of his family and others. UntilFrom 1991 until its sale in June 2008, Mr. Hankin was a member of the Boardboard of Directorsdirectors of SPARTA, Inc., where he was the Chairmanchairman and designated financial expert of the Audit Committee.audit committee. In 2004 and 2005, Mr. Hankin taught at the University of Southern California Gould School of Law as an adjunct faculty member. Prior to this, Mr. Hankin was an adjunct faculty member of the Anderson Graduate School of Management at the University of California, Los Angeles, where he taught a graduate course in business strategy and planning. Mr. Hankin graduated cum laude with his Bachelor of Science Degree in Accounting from the University of California, Los Angeles and received his Bachelor of Laws Degree from the Blackstone School of Law. Mr. Hankin is an inactive certified public accountant and a member of the State Bar of California. Andrew K. Simpson -— Mr. Simpson worked for us as a fee-based consultant from May 2006 to August 2006. He became our Chief Financial Officerchief financial officer in August 2006. At the Board’sboard’s invitation he became interim Chairmanchairman and CEOchief executive officer beginning in December 2006. He stepped down as CEOchief executive officer in March 2007 and stepped down as Chairmanchairman in November 2007, remaining as a non-independent director. Mr. Simpson was appointed CEO,chief executive officer, again, in June 2008. Mr. Simpson was Chairmanchairman and CEOchief executive officer of Silver Assets, Inc., an OTC BB silver mining company, from 1994 to 2000. He also spent 13 years in investment banking, where he worked extensively on project finance, mining, and energy transactions. He has a Master of Business Administration from the Wharton School of the University of Pennsylvania and a Bachelor of Arts in Economics from the University of California, Santa Barbara. Lynn F. Oates - —Mr. Oates, a certified public accountant, became our Controllercontroller and Vice Presidentvice president of Financefinance in August 2007 and Presidentpresident in December 2007. For the seven years prior toFrom July 2000 until joining us, Mr. Oates served as the Chief Financial Officerchief financial officer of Airgas NCN, Inc., a subsidiary of Airgas, Inc., a publicly traded supplier of compressed gases and welding supplies. Mr. Oates also spent two years as Chief Financial Officerwas a private consultant from July 1998 until July 2000. From August 1996 to July 1998 he was chief financial officer of Century Theatres, Inc. and five years as Chief Financial Officerfrom September 1991 to July 1998 he was chief financial officer of Sacramento Coca-Cola Bottling Company. He has a Bachelor Degree in Chemical Engineering and a Master of Accounting from the University of Arkansas and a Master of Taxation from Golden Gate University. Bonita K. Bogaert - Ms. Bogaert became our Vice President of Health, Safety and Environmental Compliance in November 2007. From August 1999 until joining us, she served as senior environmental engineer for Deere & Company, where she managed environmental compliance. Ms. Bogaert has a Bachelor of Science in Environmental Engineering from Montana Tech University.
Richard P. Graff-— Mr. Graff was appointed as a member of our Boardboard of Directorsdirectors in November 2007. Mr. Graff is a retired partner from PricewaterhouseCoopers LLP, where he served as the audit leader in the United States for the mining industry.industry until his retirement in 2001. Since 2002, Mr. Graff has been a consultant to the mining industry and has served as a member of the Financial Accounting Standards Board task force for establishing accounting and financial reporting guidance in the mining industry. He currently serves on the Boardboard of Directorsdirectors of Yamana Gold Inc., a mining company listed on the New York Stock Exchange and the Toronto Stock Exchange, Anatolia Minerals Development Limited, a mining company listed on the Toronto Stock Exchange and Dynamic Materials Corporation, an explosion-welded clad metal plates company listed on NASDAQ. He received his Bachelor of Science in Economics from Boston College and his Masters Degree in Accounting from Northeastern University. Ronald L. Parratt –— Mr. Parratt became a member of our Boardboard of Directorsdirectors in November 2007 and has served as an outside advisor to us since January 2004. Since January 2003, Mr. Parratt has been, and currently is, the President, Chief Executive Officer,president, chief executive officer, and a director of AuEx Ventures, Inc., a Nevada based gold and silver exploration company listed on the TSX VentureToronto Stock Exchange. He is an experienced exploration geologist and exploration manager with over 30 years of mining industry experience. Most recently, from June 1997 to February 2002, he served as Exploration Manager, North America for Homestake Mining Company with responsibilities for all of Homestakes’ grass roots and mine site exploration activity in North America. Prior to that, he served as Vice Presidentvice president of Explorationexploration for Santa Fe Pacific Gold, Inc. and worked as a mineral exploration consultant for approximately nine months for Parratt Geological Servicers, LLC. Mr. Parratt is a member of the Dean’sExecutive Advisory Board for the Mackay School of Mines. Since 2001, Mr. Parratt has also served as a directorEarth Sciences and as a memberEngineering of the Audit CommitteeUniversity of Golden Phoenix Minerals, Inc., a Minnesota corporation engaged in mineral exploration, development, and production in the state of Nevada.Nevada, Reno. Mr. Parratt earned both his Bachelor of Science in Geochemistry and his Master of Science in Economic Geology from Purdue University. Board Composition Board Composition
The number of directors constituting our Board of Directors is currently four and there are no vacancies. Rockell N. Hankin, Richard P. Graff and Ronald L. Parratt are independent directors, as provided in NASDAQ Marketplace Rule 4200(a)(15). Audit Committee We have established an audit committee of the board of directors, which consists of independent directors, of which one director qualifies as a qualified financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. The audit committee’s duties are to recommend to our board of directors the engagement of an independent auditorsregistered public accounting firm to audit our financial statements and to review our accounting and auditing principles. The audit committee reviews the scope, timing and fees for the annual audit and the results of audit examinations performed by our independent registered public accountants, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of our board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles. Compensation Committee We intend to establish a compensation committee of the board of directors. The compensation committee wouldwill review and approve our salary and benefits policies, including compensation of executive officers. The compensation committee wouldwill also administer our stock option plans and recommend and approve grants of stock options under such plans. Presently the full board of directors performs the function of a compensation committee. Of the members of our board of directors, Andrew K. Simpson in not an independent director, as provided in Nasdaq Marketplace Rule 4200(a)(15). Nominating Committee We intend to establish a nominating committee of the board of directors. The nominating committee will consider and make recommendations on matters related to the practices, policies and procedures of the board and take a leadership role in shaping our corporate governance. As part of its duties, the committee will assess the size, structure and composition of the board and board committees, coordinate evaluation of board performance and review board compensation. The committee will also act as a screening and nominating committee for candidates considered for election to the board. Presently the full board of directors performs the function of a nominating committee. Of the members of our board of directors, Andrew K. Simpson in not an independent director, as provided in Nasdaq Marketplace Rule 4200(a)(15). 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. 35
EXECUTIVE COMPENSATION Summary Compensation Table The following table provides information regarding the compensation of our chief executive officer, chief financial officer and each of our highly compensated executive officers for the years ended December 31, 20072008 and December 31, 2006.2007. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock | | Option | | All Other | | | | | | | Bonus | | Awards | | Awards | | Compensation | | Total | | Name | Year | | Salary ($) | | | Bonus ($) | | | Stock Awards ($) | | | Option Awards ($) | | | All Other Compensation ($) | | | Total ($) | | | Year | | Salary ($) | | ($) | | ($) | | ($)(1) | | ($) | | ($) | | Andrew K. Simpson | 2007 | | $ | 150,750 | | | $ | 200,000 | (1) | | — | | | $ | 330,638 | (2) | | $ | 6,898 | (4) | | $ | 688,286 | | | 2008 | | $ | 210,000 | | $ | — | | $ | 51,923 | (2) | | $ | — | | $ | 7,478 | (3) | | $ | 269,401 | | | | 2006 | | $ | 31,500 | | | — | | | — | | | $ | 164,732 | (3) | | $ | 43,743 | (5) | | $ | 239,975 | | | 2007 | | $ | 150,750 | | $ | 200,000 | (4) | | — | | $ | 330,638 | (5) | | $ | 6,898 | (6) | | $ | 688,286 | | | | | | | | | | | | | | | | | | | | | | | | | Lynn F. Oates | 2007 | | $ | 52,917 | | | — | | | — | | | $ | 158,240 | (6) | | $ | 88,433 | (7) | | $ | 299,590 | | | 2008 | | $ | 133,667 | | — | | $ | 20,769 | (7) | | $ | 61,760 | (9) | | $ | 10,000 | (8) | | $ | 226,196 | | | | 2006 | | — | | | — | | | — | | | $ | 16,436 | (8) | | $ | 15,560 | (9) | | $ | 31,996 | | | 2007 | | $ | 52,917 | | — | | $ | — | | $ | 158,240 | (9) | | $ | 89,267 | (10) | | $ | 300,424 | | | | | | | | | | | | | | | | | | | | | | | | Thomas F. Fudge, Jr., P. E.(10) | 2007 | | $ | 165,000 | | | — | | | — | | | $ | 153,763 | | | $ | 54,278 | (11) | | $ | 373,041 | | | Thomas F. Fudge, Jr., P. E.(11) | | | 2008 | | $ | 6,875 | | $ | 43,375 | (12) | | $ | — | | $ | — | | $ | 132,974 | (13) | | $ | 183,224 | | | | 2006 | | $ | 41,250 | | | — | | | — | | | $ | 329,464 | | | $ | 137,500 | (12) | | $ | 508,214 | | | 2007 | | $ | 165,000 | | — | | $ | — | | $ | — | | $ | 54,278 | (14) | | $ | 219,278 | | | | | | | | | | | | | | | | | | | | | | | | | Bonita K. Bogaert | 2007 | | $ | 16,248 | | | $ | 45,000 | (13) | | — | | | $ | 190,625 | | | — | | | $ | 251,873 | | | Bonita K. Bogaert(15) | | | 2008 | | $ | 133,400 | | $ | — | | $ | — | | $ | 114,375 | (17) | | $ | — | | $ | 247,775 | | | | 2006 | | — | | | — | | | — | | | — | | | — | | | — | | | 2007 | | $ | 16,248 | | $ | 45,000 | (16) | | $ | — | | $ | 190,625 | (17) | | $ | — | | $ | 251,873 | | | | | | | | | | | | | | | | | | | | | | | | | Anita Knipper | 2007 | | $ | 16,248 | | | — | | | — | | | $ | 190,625 | | | — | | | $ | 206,873 | | | Anita Knipper(18) | | | 2008 | | $ | 78,100 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 78,100 | | | | 2006 | | — | | | — | | | — | | | — | | | — | | | — | | | 2007 | | $ | 16,248 | | $ | — | | $ | — | | $ | 190,625 | (19) | | $ | — | | $ | 206,873 | |
(1) Mr. Simpson became a consultant to us in May 2006. He was hired as our part-time chief financial officer in August 2006 at a salary of $7,000 per month and with bonuses in cash and equity to be determined on the basis of performance. In connection with his efforts in restructuring us in late 2006 and the first half of 2007, he was awarded a $200,000 bonus.
(2) On March 3, 2007, we granted Mr. Simpson options to purchase 129,375 shares of common stock at an exercise price of $7.00 per share. These options vested in full at the time of issuance and expire March 7, 2012.
(3) On August 3, 2006, we granted Mr. Simpson options to purchase 50,000 shares of common stock at an exercise price of $3.00 per share. These options expire on August 3, 2011 and became fully vested by action of our board of directors in December 2006. We also granted Mr. Simpson options to purchase 93,750 shares of our common stock at an exercise price of $3.25 per share on December 31, 2006. These options vested in full at the time of issuance and expire December 27, 2011.
(4) Represents reimbursement of medical expenses.
(5) Represents $42,500 paid in consulting fees to Strategy Interactive Software, a company owned by Mr. Simpson, and $1,243 for reimbursement of medical expenses for Mr. Simpson.
(6) On July 2, 2007, we granted Mr. Oates options to purchase 35,000 shares of our common stock at an exercise price of $7.00 per share. These option vested 50% on July 2, 2007 and 50% on July 2, 2008. The options expire July 2, 2012.
(7) Mr. Oates received Other Compensation in 2007 consisting of: (i) $40,000 for moving allowance expenses, (ii) $45,100 for consulting services prior to joining us on August 1, 2007 and (iii) an auto allowance of $3,333.
(8) We granted Mr. Oates options to purchase 15,000 shares of our common stock at an exercise price of $3.25 per share on December 31, 2006. These options vested in full at the time of issuance and expire December 27, 2011.
(9) Represents $15,560 in consulting fees paid to Mr. Oates.
| | | | (1) | | See Note 8 to the December 31, 2008 and 2007 Financial Statements at F-22 for the assumptions made in determining the value of the option awards. | | | (2) | | On October 17, 2008, we made Mr. Simpson a restricted stock grant of 250,000 shares of common stock vesting over the three years from the grant date and valued at $3.00 per share. | | | (3) | | Represents reimbursement of medical expenses. | | | (4) | | Mr. Simpson became a consultant to us in May 2006. He was hired as our part-time chief financial officer in August 2006 at a salary of $7,000 per month and with bonuses in cash and equity to be determined on the basis of performance. In connection with his efforts in restructuring the Company in late 2006 and the first half of 2007, he was awarded a $200,000 bonus. | | | (5) | | On March 3, 2007, we granted Mr. Simpson options to purchase 129,375 shares of common stock at an exercise price of $7.00 per share. These options vested in full at the time of issuance and expire March 7, 2012. | | | (6) | | Represents reimbursement of medical expenses. | | | (7) | | On October 17, 2008, we made Mr. Oates a restricted stock grant of 100,000 shares of common stock vesting over the three years from the grant date and valued at $3.00 per share. | | | | (8) | | Mr. Oates received an auto allowance of $10,000. | | | | | (9) | | On July 2, 2007, we granted Mr. Oates options to purchase 35,000 shares of our common stock at an exercise price of $7.00 per share. These option vested 50% on July 2, 2007 and 50% on July 2, 2008. The options expire July 2, 2012. | | | | |
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| | | | | (10) | | Mr. Oates received Other Compensation in 2007 consisting of: (i) $40,000 for moving allowance expenses, (ii) $45,100 for consulting services prior to joining us on August 1, 2007 and (iii) an auto allowance of $4,167. | | | | | (11) | | Mr. Fudge resigned as our chief executive officer in December 2007. In December 2007, we entered into an agreement with Mr. Fudge in connection with his resignation in December 2007. Under that agreement, we granted 60,000 shares of stock, subject to vesting at the time we conduct an initial public offering, warrants to purchase 20,000 shares of common stock at $12.00 per share following an initial public offering, and warrants exercisable to purchase 20,000 shares of our common stock at $7.00 per share if we conduct a successful private placement. Further, we agreed to make cash payments to Mr. Fudge totaling $127,000, as well as additional contingent cash payments of as much as $125,000 in the event that we raise certain private placements during 2008 and $225,000 in the event that we conduct a public financing during 2008. | | | | | (12) | | As a result of our private placement financing during 2008, we have accrued a bonus for Mr. Fudge of $43,375. As we conducted no public financings during 2008, there are no other amount due to Mr. Fudge. | | | | | (13) | | Mr. Fudge received Other Compensation during 2008 consisting of (i) $127,000 in severance payments and (ii) $5,974 from the issuance of 20,000 warrants exercisable to purchase 20,000 shares of our common stock at $7.00 per share which terminate on December 29, 2010. | | | | | (14) | | Other compensation represents $32,167 paid in consulting fees to Mr. Fudge and a $22,111 housing allowance paid to Mr. Fudge. | | | | | (15) | | Ms. Bogaert resigned effective March 31, 2009. | | | | | (16) | | We paid Ms. Bogaert a one time $45,000 signing bonus in connection with her joining us and entering into an employment agreement with us. | | | | | (17) | | On September 28, 2007, we granted Ms. Bogaert options to purchase 50,000 shares of our common stock at an exercise price of $7.00 per share. These option vested 50% on September 28, 2007 and 50% on September 28, 2008. All of these options expired following Ms. Bogaert’s resignation. | | | | | (18) | | Ms. Knipper resigned on May 31, 2008 | | | | | (19) | | On September 28, 2007, we granted Ms. Knipper options to purchase 50,000 shares of our common stock at an exercise price of $7.00 per share. These option vested 50% on September 28, 2007 and all expired following Ms. Knipper’s resignation. | |
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(10) Mr. Fudge resigned as our chief executive officer in December 2007. In December 2007, we entered into an agreement with Mr. Fudge in connection with his resignation in December 2007. Under that agreement, we granted 60,000 shares of stock, subject to vesting at the time we conduct an initial public offering, warrants to purchase 20,000 shares of common stock at $12.00 per share following an initial public offering, and warrants exercisable to purchase 20,000 shares of our common stock at $7.00 per share if we conduct a successful private placement. Further, we agreed to make cash payments to Mr. Fudge totaling $127,000, as well as additional contingent cash payments of as much as $225,000 in the event that we conduct a public financing during 2008.
(11) Other compensation represents $32,167 paid in consulting fees to Mr. Fudge and a $22,111 housing allowance paid to Mr. Fudge. At October 1, 2008, we accrued a bonus of $43,375 which is payable to Mr. Fudge as a result of a successful private placement completed on July 31, 2008.
(12) Represents $137,500 paid in consulting fees to Mr. Fudge.
(13) We paid Ms. Bogaert a one time $45,000 signing bonus in connection with her joining us and entering into an employment agreement with us.
Outstanding Equity Awards at Fiscal Year-End The following table sets forth the outstanding equity awards at December 31, 2007.2008. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option | | | | | | | | | | Stock | | | | | | | | | | Awards | | | | | | | | | | Awards | | Market | | | | Number of | | Number of | | | | | | | | | | Number of | | Value of | | | | Securities | | Securities | | | | | | | | | | Shares or | | Shares or | | | | Underlying | | Underlying | | | | | | | | | | Units of | | Units of | | | | Unexercised | | Unexercised | | Option | | Option | | Stock that | | Stock that | | | | Options (#) | | Option (#) | | Exercise | | Expiration | | have not | | have not | | Name | | Exercisable | | Unexercisable | | Price ($) | | Date | | vested (#) | | vested ($) | | Andrew K. Simpson | | | 50,000 | (1) | | | — | | | $ | 3.00 | | | | 08/03/11 | | | | 250,000 | (8) | | $ | 750,000 | (9) | | | | | 93,750 | (2) | | | | | | $ | 3.25 | | | | 12/27/11 | | | | | | | | | | | | | | 129,375 | (3) | | | | | | $ | 7.00 | | | | 03/07/12 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Lynn Oates | | | 15,000 | (4) | | | — | | | $ | 3.25 | | | | 12/27/11 | | | | 100,000 | (10) | | $ | 300,000 | (11) | | | | | 35,000 | (5) | | | | | | $ | 7.00 | | | | 07/02/12 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Bonita Bogaert | | | 50,000 | (6) | | | | | | $ | 7.00 | | | | 09/28/12 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thomas F. Fudge, Jr. | | | 20,000 | (7) | | | | | | $ | 7.00 | | | | 12/27/2010 | | | | | | | | | | | | | | | | | | 20,000 | | | $ | 12.00 | | | | 12/27/2010 | | | | | | | | | |
| Name | | Number of Securities Underlying Unexercised Options (#) Excercisable | | | Number of Securities Underlying Unexercised Option (#) Unexercisable | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | | Option Exercise Price ($) | | Option Expiration Date | | | | | | | | | | | | | | | | | Andrew K. Simpson | | | 50,000 | (1) | | | - | | | | - | | | $ | 3.00 | | 08/03/11 | | | | | 93,750 | (2) | | | | | | | | | | $ | 3.25 | | 12/27/11 | | | | | 129,375 | (3) | | | | | | | | | | $ | 7.00 | | 03/07/12 | | | | | | | | | | | | | | | | | | | | | Lynn Oates | | | 15,000 | (4) | | | - | | | | - | | | $ | 3.25 | | 12/27/11 | | | | | 35,000 | (5) | | | | | | | | | | $ | 7.00 | | 07/02/12 | | | | | | | | | | | | | | | | | | | | | Bonita Bogaert | | | 50,000 | (6) | | | | | | | - | | | $ | 7.00 | | 09/28/12 | | | | | | | | | | | | | | | | | | | | Thomas F. Fudge, Jr., P. E. (7) | | | - | | | | 100,000 | | | | - | | | $ | 3.00 | | 03/27/08 | | | | | | | | | 187,500 | | | | | | | $ | 3.25 | | 03/27/08 | | | | | | | | | 20,000 | | | | | | | $ | 7.00 | | 12/27/2010 | | | | | | | | | 20,000 | | | | | | | $ | 12.00 | | 12/27/2010 |
| | | | (1) | | These options vested as to 16,667 shares on August 2, 2006 and the remaining options for 33,333 shares vested on December 27, 2006. | | | (2) | | These options vested in full on December 31, 2006. | | | (3) | | These options vested in full on March 3, 2007. | | | (4) | | These options vested in full on December 31, 2006. | | | (5) | | These options vested in full on July 2, 2008. | | | (6) | | These options vested in full on September 27, 2008. | | | (7) | | These warrants vested on December 31, 2008. | | | | (8) | | On October 17, 2008, we made Mr. Simpson a restricted stock grant of 250,000 shares of common stock vesting over the three years from the grant date. | | | | | (9) | | These shares were valued at $3.00 per share which was the price paid for common stock in our private placement which closed on July 31, 2008. For the year ended December 31, 2008, we recorded an expense of $51,923 associated with the shares awarded to Mr. Simpson. | | | | | (10) | | On October 17, 2008, we made Mr. Oates a restricted stock grant of 100,000 shares of common stock vesting over the three years from the grant date. | | | | | (11) | | These shares were valued at $3.00 per share which was the price paid for common stock in our private placement which closed on July 31, 2008. For the year ended December 31, 2008, we recorded an expense of $20,769 associated with the shares awarded to Mr. Oates. | |
(1) These options vested as to 16,667 shares on August 2, 2006 and the remaining options for 33,333 shares vested on December 27, 2006.
(2) These options vested in full on December 31, 2006.
(3) These options vested in full on March 3, 2007.
(4) These options vested in full on December 31, 2006.
(5) These options vested, as to 17,500 shares on July 2, 2007, and as to 17,500 shares on July 2, 2008.
(6) These options vested as to 25,000 shares on September 27, 2007 and as to the remaining 25,000 shares on September 27, 2008.
(7) 287,500 of the options granted to Thomas Fudge expired by their terms on March 27, 2008.
Stock Option Plan In April 2005, our board of directors approved a non-qualified stock compensation program, which we refer to as the Plan. Awards under the Plan and their terms are approved by our board of directors. The maximum term of an option is ten years. The maximum aggregate number of shares which may be optioned and sold under the Plan is 1,600,000 shares. As of November 1,December 31, 2008, there were 645,375 shares of our common stock still available for future grants under the Plan.
Compensation of Directors The following table summarizes all compensation paid to our non-employee directors for fiscal year ended December 31, 2007.2008. | | | | | | | | | | | | | | | | | | | | | Fees | | | | | | | | | | Earned or | | | | | | | | | | Paid in | | Stock | | Option | | | | | | Cash | | Awards | | Awards | | Total | | Name | | ($) | | ($)(1) | | ($)(1) | | ($) | | Rockell N. Hankin | | $ | 70,000 | | | $ | 387,912 | (2) | | | — | (2) | | $ | 457,912 | | | Ronald L. Parratt | | $ | 18,750 | | | $ | 246,802 | (3) | | | — | (3) | | $ | 265,552 | | | Richard P. Graff | | $ | 58,331 | | | $ | 295,736 | (4) | | | — | (4) | | $ | 354,067 | | Stewart Hollingsworth(5) | | $ | 35,000 | | | | — | | | | — | | | $ | 35,000 | | Peter Ingersoll(6) | | $ | 27,500 | | | | — | | | | — | | | $ | 27,500 | |
| | | | | (1) | | The value of the stock grants was based upon the aggregate grant dated fair value determined in accordance with FASB Statement of Financial Accounting Standard No. 123R. See Note 8 to the December 31, 2008 and 2007 Financial Statements at F-22 for the assumptions made in determining the value of the option awards. | | | | | (2) | | Mr. Hankin was awarded 133,000 shares of our restricted common stock on November 7, 2007 which vest over the three years from the date of the award or on the date our common stock is being traded in a public market, whichever occurs later and was valued at $7.00 per share when issued. In addition, he was awarded 133,000 shares of our restricted common stock on October 17, 2008, which vest over the three years from the date of the award or on the date our common stock is being traded in a public market, whichever occurs later and which were valued at $3.00 per share when issued. He was awarded 16,667 shares of our restricted common stock on December 31, 2008 in lieu of the payment of cash director’s fees for a portion of 2008. These restricted shares will vest when our common stock is being traded on a public market and are valued at $3.00 per share. At December 31, 2008, a total of 282,667 shares of our restricted common stock have been awarded to Mr. Hankin, including the 16,667 restricted shares awarded as director’s fees. | | | | | (3) | | Mr. Parratt was awarded 75,000 shares of our restricted common stock on December 12, 2007 which vest over the three years from the date of the award or on the date our common stock is being traded in a public market, whichever occurs later and which were valued at $7.00 per share when issued. In addition, he was awarded 75,000 shares of our restricted common stock on October 17, 2008, which vest over the three years from the date of the award or on the date our common stock is being traded in a public market, whichever occurs later and which were valued at $3.00 per share when issued. He was awarded 18,750 shares of our restricted common stock on December 31, 2008 in lieu of the payment of cash director’s fees for a portion of 2008. These restricted shares will vest when our common stock is being traded on a public market and are valued at $3.00 per share. At December 31, 2008 a total of 168,750 shares of our restricted common stock have been awarded to Mr. Parratt, including 16,667 restricted shares awarded as director’s fees. | | | | | (4) | | Mr. Graff was awarded 100,000 shares of our restricted common stock on December 12, 2007 which vest over the three years from the date of the award or on the date our common stock is being traded in a public market, whichever occurs later and which were valued at $7.00 per share when issued. In addition, he was awarded 100,000 shares of our restricted common stock on October 17, 2008, which vest over the three years from the date of the award or on the date our common stock is being traded in a public market, whichever occurs later and which were valued at $3.00 per share when issued. He was awarded 13,889 shares of our restricted common stock on December 31, 2008 in lieu of the payment of cash director’s fees for a portion of 2008. These restricted shares will vest when our common stock is being traded on a public market and are valued at $3.00 per share. At December 31, 2008 a total of 213,889 shares of our restricted common stock have been awarded to Mr. Graff, including 13,889 restricted shares awarded as director’s fees. | | | | (5) | | Mr. Hollingsworth resigned as a director in November 2007, but remained as an advisory director until November 15, 2008. | | | (6) | | Mr. Ingersoll resigned as a director in November 2007 but remained as an advisory director until November 15, 2008. |
| | Fees Earned or Paid in Cash ($) | | | | | | | | | | | | | | | Rockell N. Hankin | | $ | 15,000 | | | $ | 45,250 | | | | — | | | $ | 41,969 | (2) | | $ | 102,219 | | | Ronald L. Parratt | | $ | 3,125 | | | $ | 9,721 | | | | — | | | | — | | | $ | 12,846 | | | Richard P. Graff | | $ | 4,167 | | | $ | 7,291 | | | | — | | | $ | 5,687 | (3) | | $ | 17,145 | | Stewart Hollingsworth(4) | | $ | 10,000 | | | __ | | | __ | | | __ | | | $ | 10,000 | | Peter Ingersoll(5) | | $ | 5,000 | | | __ | | | __ | | | __ | | | $ | 5,000 | |
(1) Stock awards issued to members of the board of directors are recorded at estimated fair market value on the date of issuance.
(2) Represents payment of legal fees incurred in connection with joining our board of directors.
(3) Represents consulting fees paid to Mr. Graff prior to joining our Board of Directors and legal fees incurred in connection with joining our board of directors.
(4) Mr. Hollingsworth resigned as a director in November 2007.
(5) Mr. Ingersoll resigned as a director in November 2007.
Director Compensation Arrangements We entered into a Retention Agreement, a Restricted Stock Purchase Agreement, and an Indemnification Agreement with each individual serving as a non-employee director (or, in the case of Rockell N. Hankin, we entered into a Restricted Stock Purchase Agreement with The Rockell Nathan Hankin Living Trust). at the time each of them became board members. In addition, we entered into an Indemnification Agreement with each of J. Stewart Hollingsworth and Peter Ingersoll in connection with their resignation from the board of directors. On December 12, 2007, we entered into a Restricted Stock Purchase Agreement with Richard P. Graff and with Ronald L. Parratt. On October 17, 2008, we entered into additional restricted stock agreements (which doubled their restrictive stock grants) with these directors in order to recognize their efforts and the diminished value of their initial restrictive stock grants. The terms of the agreements are identical for each non-employee director with the following exceptions: | | | | | | | | | | | | | | | | | Rockell N. Hankin | | Richard P. Graff | | Ronald L. Parratt | | | | Chairman of the | | | | | | Position | | Board | | Director | | Director | | Annual Fees | | $ | 120,000 | | | $ | 100,000 | | | $ | 75,000 | | | Restricted Stock | | 266,000 | shares | | 200,000 | shares | | 150,000 | shares |
| | Rockell N. Hankin | Richard P. Graff | Ronald L. Parratt | | Position | Chairman of the Board | Director | Director | | Annual Fees | $120,000 | $100,000 | $75,000 | Restricted Stock | 266,000 shares | 200,000 shares | 150,000 shares |
Retention Agreements Each Retention Agreement provides that each non-employee director will be nominated to serve on our board of directors for a term of three years; provided that the term will automatically extend for successive one year periods unless terminated by us or the individual director. As compensation for service on our board of directors, each non-employee director will be paid fees and will receive restricted stock. The complete terms of the restricted stock grants are delineated in the Restricted Stock Purchase Agreements (as described in “Restricted Stock Purchase Agreements” below). The Retention Agreement also provides for the indemnification of each independent director as delineated in the Indemnification Agreements (as described in “Indemnification Agreements” below). If, for any reason, a non-employee director is not re-elected to our board of directors, such non-employee director will be entitled to collect all compensation payable under the applicable Retention Agreement without being required to continue service. In the event that a non-employee director ceases to serve as a member of our board of directors as a result of resignation other than for “good reason,” or removal from the board of directors for breach of fiduciary duty, we will have no continuing payment obligations under the applicable Retention Agreement. The Retention Agreements define “good reason” as the refusal by us to pay when due amounts owed to a non-employee director or any circumstance whereby the non-employee director becomes aware of credible substantive allegations that we or one of our executives or senior officers has engaged in conduct that is illegal, fraudulent or against a material company policy. On October 17, 2008, our board of directors approved a plan under which directors’ fees either unpaid on that date or arising subsequent to that date will be paid on a quarterly basis in restricted common stock until such time as our liquidity is sufficient to resume such payments in cash. At September 30,For the year ended December 31, 2008, we had accrued $61,667 in directors’paid director’s fees that we will payof $147,917 by issuing 20,55649,306 shares of common stock. Restricted Stock Purchase Agreements Each Restricted Stock Purchase Agreement provides for the award of a certain number of shares of our common stock to each non-employee director at a purchase price of $0.001 per share (par value). The restricted shares will vest over a three-year period at a rate of 33⅓% each year on the anniversarythree years from the date of the Retention Agreement.award or on the date our common stock is being traded in a public market, whichever occurs later . Certificates representing the restricted shares will be held in escrow until vested. We retain the right to repurchase, at a price of $0.001 per share (par value), any non-vested restricted stock at any time during the 90-day period following the date on which the applicable non-employee director ceases to be a member of our board of directors as a result of such non-employee director’s voluntary resignation or removal from the board of directors for breach of fiduciary duty. However, in no event will the restricted shares be deemed to be vested if at the time the repurchase right lapses, the restricted shares are not then traded on national securities exchange (as defined in the Exchange Act) or the Toronto Stock Exchange. Until we exercise such purchaserepurchase right, the non-employee director will have all of the rights of a stockholder (including voting and dividend rights) with respect to such restricted shares, including any shares held in escrow; provided that the non-employee director cannot transfer, assign, encumber or otherwise dispose of any of the restricted shares subject to our repurchase right. The repurchase right will terminate immediately prior to the consummation of a “change in control.” Indemnification Agreements We have entered into Indemnification Agreements with each of our current non-employee directors as well as two of our former directors, J. Stewart Hollingsworth and Peter Ingersoll. Each Indemnification Agreement provides that we will indemnify, and advance expenses to, each indemnitee to the fullest extent permitted by law and provide for the continued coverage of the indemnitee under our directors’ and officers’ liability insurance policies. More specifically, in the event that the indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any “claim” by reason of (or arising in part out of) an “indemnifiable event,” we will indemnify such indemnitee to the fullest extent permitted by law as soon as practicable after written demand is presented to us, against any and all expenses, liabilities, and losses actually and reasonably incurred by such indemnitee or on such indemnitee’s behalf in connection with any such “claim,” including, without limitation, the following: judgments, fines, ERISA excise taxes and penalties, amounts paid and to be paid in settlement, interest, assessments and other charges imposed thereon, and any federal, state, local or foreign taxes. There is currently no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. Employment Contracts, Severance Provisions, and Change in Control Provisions We have entered into employment agreements with each of our named executive officers as summarized below. Andrew K. Simpson. In November 2006, we entered into an employment agreement with Andrew K. Simpson, to serve as our chief financial officer. Under his employment agreement, Mr. Simpson originally received an annual base salary of $84,000. The board of directors increased Mr. Simpson’s annual base salary to $150,000 per year on October 1, 2007 and then $240,000 per year effective on April 1, 2008. Mr. Simpson’s salary is subject to further increase by our chief executive officer (who is currently Mr. Simpson) or by our board of directors. In addition to a base salary, Mr. Simpson is eligible to receive a bonus as determined by our board of directors. 40
If Mr. Simpson’s employment is terminated without cause or if he resigns for good reason, we will be obligated to pay him, as severance, his then current annual base salary for 12 months and all stock or options granted to Mr. Simpson will become vested. If Mr. Simpson is terminated without cause or he resigns with good reason within 12 months following a change of control, we will be obligated to pay him his then current annual base salary for a period of 24 months. In connection with his employment agreement, Mr. Simpson agreed not to compete with us or engage in any unfair competition with us during the employment term including customary agreements regarding non-disparagement and non-solicitation. Lynn F. Oates. In July 2007, our board of directors approved an employment agreement with Mr. Oates to serve as our Vice Presidentvice president of Financefinance and Controller.controller. We originally agreed to pay Mr. Oates an annual salary of $125,000, which as subsequently increased by our board of directors to $137,000 effective April 1, 2008. In October, 2008, we entered into an employment agreement with Mr. Oates, to serve as our President.president. Under his employment agreement, Mr. Oates receives an annual base salary of $137,000, which may be increased by our Boardboard of Directorsdirectors after periodic review of Mr. Oates’ performance. In addition to his base salary, Mr. Oates receives an auto allowance of $10,000 per year and is eligible to receive a bonus as determined by our Boardboard of Directors.directors. If Mr. Oates’ employment is terminated without cause or if he resigns for good reason, we will be obligated to pay him, as severance, his then current annual base salary for 12 months and all stock or options granted to Mr. Oates will become vested. If Mr. Oates is terminated without cause or he resigns with good reason within 12 months following a change of control, we will be obligated to pay him his then current annual base salary for a period of 24 months. In connection with his Employment Agreement, Mr. Oates agreed not to compete with us or engage in any unfair competition with us during the employment term including customary agreements regarding non-disparagement and non-solicitation. Bonita Bogaert. On November 2, 2007, we entered into an employment agreement with Bonita Bogaert to serve as our Vice President - Health, Safety and Environmental Compliance. Ms. Bogaert’s employment agreement has a two-year term which automatically renews for additional one-year periods until terminated by us or Ms. Bogaert. Pursuant to her employment agreement, Ms. Bogaert is to receive a base salary at the monthly rate of $11,117, which is subject to increase by the Board of Directors after periodic (but not less frequently than annual) review of her performance of her duties. In addition to receiving an annual base salary, a signing bonus and standard employee benefits, Ms. Bogaert is eligible for an annual performance bonus of 40% of her base salary, based upon her achievement of personal performance objectives developed with the chief executive officer and achievement of corporation performance objectives developed by the executive staff. In addition, pursuant to the employment agreement, Ms. Bogaert was awarded 50,000 stock options with an exercise price of $7.00, half of which vested upon the execution of the employment agreement and the other half of which will vest on the first anniversary thereof. The vested options will be exercisable until the fifth anniversary of the execution of the employment agreement. Ms. Bogaert will also be eligible for additional equity compensation associated with high value added outcomes from significant strategies and transactions.Severance Agreements
If Ms. Bogaert’s employment is terminated without cause, if she resigns for good reason within 12 months following a change of control, or following her death or disability, we will be obligated to pay her all vested benefits under our benefit plans, any bonus previous declared but unpaid, and a lump sum payment of 24 months of her base salary. Upon termination due to death or disability, all of her stock or options will become vested and we will provide Ms. Bogaert and her eligible dependents, spouse and children under the age of 21 with continuation of health care benefits for one year. In connection with her employment agreement, Ms. Bogaert agreed not to compete with us or engage in any unfair competition with us during the employment term and agreed to customary provisions regarding non-disparagement and non-solicitation.
Severance Agreements
Thomas Fudge Severance Agreement. In connection with the termination of Mr. Fudge’s employment on December 27, 2007, we entered into a Severance and Consulting Agreement with Mr. Fudge. Pursuant to the agreement, Mr. Fudge has received during 2008 severance pay equivalent to six months of salary and medical reimbursements in the amount of $14,500 per month ($87,000 total), a relocation allowance of $15,000 and a signing amount of $25,000. 41
We also granted Mr. Fudge (i) 60,000 shares of restricted stock which vest upon our initial public offering, (ii) 20,000 non-transferable warrants to acquire shares of our common stock at $7.00 per share exercisable following a private placement of our equity securities or other financing with gross proceeds of at least $2 million, and (iii) 20,000 non-transferable warrants to acquire shares of our common stock at $12.00 per share, provided, however, that such warrants shall not be exercisable if we do not complete either (a) any private financing with a private placement price of $12.00 or more per share or (b) any public offering where the trading price per share is $12.00 or more with gross cash proceeds of more than $5 million. The warrants granted to Mr. Fudge expire on December 27, 2010. Under the terms of the Severance and Consulting Agreement with Mr. Fudge, we have accrued a bonus of $43,375 due him as a result of a private placement completed on July 31, 2008. In addition, if we complete an initial public offering of our common stock prior to December 27, 2008, we may owe Mr. Fudge an additional bonus of as much as $225,000 depending on the amount of gross proceeds raised. Ralph Kettell. Ralph Kettell resigned as chairman and chief executive officer in December 2006. As severance, Mr. Kettell received payments aggregating $40,000 plus one year of health insurance coverage valued at approximately $8,000. In 2006, we also paid Mr. Kettell management fees of approximately $95,000, salary payments totaling $26,000, and reimbursed him for office expenses totaling $10,500.
Anita Knipper. Ms. Knipper resigned as our Vice Presidentvice president of Permittingpermitting and Governmental Relationsgovernmental relations on May 31, 2008. As severance, Ms. Knipper received her salary through July 31, 2008 totaling $20,833. Bonita Bogaert. Ms. Bogaert resigned as our vice president of health and safety on March 31, 2009. As severance, Ms. Bogaert will receive separation fees of $91,000 paid over the eight months beginning of July 1, 2009 and 50,000 shares of our restricted common stock. 42
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS E-VAT, Inc. Originally, weWe invested $300,000 during 2006 in E-VAT, Inc., referred to herein as E-VAT, for 60,000 shares or approximately 3% of the common stock of E-VAT, a company involved in the research and development of non-cyanide-based mineral extraction for the mining industry. In addition, during fiscal year 2007, we entered into an agreement with E-VAT to provide an additional $300,000 in financing in exchange for royalties in the event the technology was successful. We decided to make this investment, as E-VAT’s extraction technology held the promise to be more environmentally safe than existing technology and would have been applicable to uranium and vanadium ore, thus benefiting our uranium project. Given these potential benefits, our board of directors determined that it was in our best interest to invest in E-VAT after Ralph Kettell, our founder and former Chief Executive Officer,chief executive officer, introduced the possibility of us making such an investment. Ralph Kettell, our founder and former chief executive officer, Thomas Fudge, our former Chief Executive Officerchief executive officer and President,president, Pete Ingersoll, a former member of our Board,board, as well as other of our former officers and current stockholders own approximately 74% of E-VAT’s common stock. stock. E-VAT’s President,president, Arden Larson, is a consultant to us, and he and his family own 100,000 shares of our common stock and holds options on an additional 168,000 shares. In addition, Mr. Larson beneficially owns 400,000 shares of our common stock that is held by E-VAT.E-VAT and 100,000 shares of our common stock that is held by Nevada Silver.
We have determined that based on the results of E-VAT’s research and development its technology is not suitable for use with uranium and vanadium ores. Accordingly, we will not provide further financing to E-VAT. Our investment in E-VAT was accounted for as the purchase of research and development, and accordingly was expensed during the years ended December 31, 2007 and 2006. Nevada Fluorspar, LLCInc. We acquired four non-uranium properties in Nevada prior to mid-2005. Our Boardboard of Directorsdirectors decided to concentrate our efforts solely on uranium properties, and in April 2005 approved the transfer of those non-uranium properties into a separate company, Nevada Fluorspar, Inc., which was held byhas been spun out to our then existing stockholders. At that time, we had expended approximately $166,000 on the non-uranium properties. The Boardboard also approved an advance to Nevada Fluorspar, Inc. in the amount of $100,000. The spin-out of Nevada Fluorspar, Inc., however, was not properly documented and was effectuated by having Nevada Fluorspar, Inc. was established,make a pro rata original issuances to each of the persons we believed were our stockholders at the time, rather than first forming Nevada Fluorspar, Inc. as a wholly owned subsidiary of ours and share certificates were distributedthen distributing our holdings in Nevada Fluorspar, Inc. to our shareholders, although not all documentation relatingstockholders of record through a board approved dividend. In addition, we failed to the transaction, including conveyance of theproperly transfer our non-uranium properties was completed atto Nevada Fluorspar, LLC until June 30, 2007. Notwithstanding the time. Subsequentfailure to properly transfer our non-uranium assets until 2007, subsequent to April 2005, we made additional advances aggregating approximately $80,000.to Nevada Fluorspar, Inc.. As of December 31, 2006, Nevada Fluorspar, Inc. owed us $85,000. During the year ended December 31, 2007, the Company received $80,000 all of which was repaid in 2007.these advances and wrote-off the remaining $5,000. At the time of the spin-off, the boardBoard also approved the contingent payment to Nevada Fluorspar, Inc. of a proportionate portion of the proceeds of the then outstanding warrants issued in connection with a private offering commenced in September 2004. Such warrants are exercisable for common stock at a price of $1.75 per share. If all of the warrants are exercised, sixty-two percent (62%) of the proceeds, if any, from the exercise of the warrants, or approximately $985,000, would be retained by us and the balance of approximately $604,000 would be paid to Nevada Fluorspar, Inc. Such warrants would have expired in November 2008, but the board agreed to extend the expiration date until AprilDecember 2009. We In 2005 and 2006, we consummated a private placement in which we failed to fully disclose the fact that we may face potential liability as a resultnot have properly effectuated the spin-off of such incomplete disclosure which may have resulted in our failure to comply with applicable law. As such, we cannot assure you that our stockholders at the time of theNevada Fluorspar, Inc. and did not properly transfer of our non-uranium propertiesassets to Nevada Fluorspar, Inc. receiveduntil June 30, 2007, exposing us to the prospect of shareholder lawsuits and claims of improper tax treatment. In an effort to remedy this failure, along with our failure at the same time to fully disclose our investment in E-Vat and Ralph Kettell’s correct beneficial holdings in us, on May 17, 2007, we offered all of our investors in our 2005 and 2006 private placement the opportunity to rescind their pro ratainvestments, in exchange for their original investment amount plus interest equal to the legal rate in Nevada Fluorspar, Inc.each investor’s home state. A Canadian investor who purchased $12,500 of shares in this private placement requested his original investment of $12,500 be rescinded, although Canadian law has prevented consummation of such request.
Piedmont Mining Company, Inc. On January 5, 2005 we paid $40,000 to Piedmont Mining Company, Inc., a mineral exploration company with respect to which Ralph Kettell and Peter Ingersoll are stockholders and members of its board of directors, in exchange for a convertible promissory note in the principal sum of $40,000. On October 10, 2005, we converted this promissory note into 656,298 shares of common stock of Piedmont Mining Company, Inc. and a warrant to purchase 656,298 shares of Piedmont Mining Company, Inc. for a purchase price of $.08 per share. We exercised this warrant in full in 2007. The decision to invest in Piedmont Mining Company, Inc. in 2005 and to exercise our warrant in 2007 was made by Ralph Kettell, our former chief executive officer, as we had a sufficient funds at the time and Mr. Kettell believed that Piedmont Mining Company, Inc. presented us with an opportunity for market appreciation. Our investments in Piedmont Mining Company, Inc. were made on terms no less favorable than could have been obtained from unaffiliated third parties. Voting Trust Agreement On September 30, 2008, Ralph W. Kettell, Laura Kettell and all persons and entities affiliated with Ralph Kettell and Laura Kettell entered into a voting trust with Andrew K. Simpson, our chief executive officer, chief financial officer and a member of our Board, whereby, subject to certain restrictions, they transferred all of their common stock in us to a voting rights trust, except for 40,000 shares purchased by Ralph W. Kettell on September 3, 2008. The agreement allows Ralph W. Kettell and Laura Kettell to dispose of up to 300,000 shares held in the voting trust on and after September 30, 2008; 600,000 additional shares held in the voting trust on or after June 30, 2009; 400,000 additional shares held in the voting trust on or after September 1, 2009; 400,000 additional shares held in the voting trust on or after March 31, 2010; and 400,000 additional shares held in the voting trust on or after September 1, 2010. The agreement gives Mr. Simpson, as the trustee of the voting trust, the control to vote all shares held in the voting trust. Reimbursement of Legal Fees In connection with Rockell Hankin joining our board of directors in November 2007, we reimbursed Mr. Hankin’s attorneys for $41,969 of legal fees incurred in connection with the preparation and negotiation of a form of director’s indemnification agreement, a form of directors’ retention agreement and a form of restricted stock agreement. We also reimbursed Mr. Haskin’s attorneys for legal fees in connection with a review of our directors’ and officers’ liability insurance. 43
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS The following table sets forth information as of December 31, 2008June 30, 2009 regarding the ownership of each class of our outstanding capital stock by: | | | ·• | | each named executive officer; |
| | | ·• | | all of our directors and executive officers as a group; and |
| | | ·• | | each person known by us to beneficially own more than 5% of the outstanding shares of our common stock. |
Unless otherwise indicated below and except to the extent authority is shared by spouses under applicable law, to our knowledge, each of the persons set forth below has sole voting and investment power with respect to all shares of each class or series of common stock shown as beneficially owned by them. The number of shares of common stock used to calculate each listed person’s percentage ownership of each such class includes the shares of common stock underlying options, warrants or other convertible securities held by such person that are exercisable within 60 days after December 31, 2008.June 30, 2009. Our common stock is the only class of our capital stock outstanding on December 31, 2008.June 30, 2009. On December 31, 2008June 30, 2009 there were 10,508,10110,631,086 shares of common stock outstandingissued for purposes of the following table. | | | | | | | | | | | | | Common Stock | | | | Beneficially Owned | | Directors and Named Executive Officers | | Number | | Percentage(1) | Directors and Named Executive Officers(2) : | | | | | | | | | Andrew K. Simpson(3) | | | 4,099,175 | | | | 39.6 | % | Lynn F. Oates(4) | | | 189,017 | | | | 1.8 | % | | Rockell N. Hankin | | | 331,847 | | | | 3.1 | % | | Richard P. Graff | | | 254,873 | | | | 2.4 | % | | Ronald L. Parratt | | | 309,488 | | | | 2.9 | % | | All directors and executive officers as a group (5 persons) | | | 5,184,400 | | | | 48.8 | % | Beneficial owners of more than 5%: | | | | | | | | | Ralph Kettell(5) | | | 4,071,468 | | | | 38.3 | % | Traxys North America LLC(6) | | | 1,406,557 | | | | 13.2 | % | Laura Kettell(7) | | | 1,254,399 | | | | 11.8 | % | Arden Larson(8) | | | 768,000 | | | | 7.2 | % | Passport Materials Master Fund, LP(9) | | | 644,500 | | | | 6.1 | % | Barbara J. Moriarty(10) | | | 549,000 | | | | 5.2 | % |
| | | | * | | Represents less than 1% | | | (1) | | Percentage calculations performed without assuming exercise of any of the 4,578,996 warrants and options outstanding on June 30, 2009. | | | | (2) | | Unless otherwise indicated, the address of each person is c/o Concentric Energy Corp., 3350 Sabin Brown Road, #3, Wickenburg, AZ 85390. | | | | (3) | | Mr. Simpson has been granted a proxy respecting the voting rights of 3,575,000 shares of common stock under the voting control of Ralph Kettell. Under the terms of the separation agreement between Ralph Kettell and Laura Kettell, Mr. Kettle’s former spouse, Laura Kettell has agreed to enter into voting arrangements that would provide Mr. Simpson with voting control over 3,575,000 shares. In addition, Mr. Simpson owns 1,050 shares directly, has been granted 250,000 restricted shares and has been granted 273,125 shares issuable on exercise of options under our equity compensation plans. |
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| | | | (4) | | Mr. Oates has been granted 100,000 restricted common shares, directly owns 2,100 common shares and has been granted 50,000 shares issuable on exercise of options under our equity compensation plans. In addition, Mr. Oates holds debentures convertible into 12,306 shares of common stock and warrants for the purchase of 24,611 shares of common stock. | | | | (5) | | Mr. Kettell has been granted 150,000 shares issuable on exercise of options under our equity compensation plans. In addition, Mr. Kettell owns 40,000 shares of common outside of the voting trust described below and holds debentures convertible into 102,156 shares of common stock and warrants for the purchase of 204,312 shares of common stock. Under the terms of a separation agreement between Mr. Kettell and Laura Kettell, Mr. Kettell directly has beneficial economic ownership of 774,000 shares of common stock. In addition, under the terms of this same agreement, Mr. Kettell will retain the assignable voting interest of all shares owned by his former wife. Mr. Kettell is the direct owner of LARK Enterprises. Ltd. which owns 436,000 shares of common stock. In addition, Mr. Kettell is the donor of and retains the voting power over 300,000 shares of common stock gifted to family members. Mr. Kettell has the contractual right to acquire 465,000 shares of common stock held by his mother. Mr. Kettell has executed an agreement to restrict his future resales of shares for one year from July 31, 2008 to 300,000 shares. Mr. Kettell and Laura Kettell entered into voting arrangements that would provide Mr. Simpson with voting control over 3,575,000 shares. Resales of shares by Mr. Kettell and Laura Kettell are restricted to 300,000 shares for one year from July 31, 2008, with additional restrictions on resales in future years. Mr. Kettell’s address is 3537 Spencerville Road, Ste 4, Burtonsville, MD 20866. | | | | | (6) | | Traxys North America LLC holds debentures convertible into 368,852 shares of common stock and warrants for the purchase of 1,037,705 shares of common stock. Traxy’s address is 825 Third Avenue, 9th Floor, New York, NY 10022 | | | | | (7) | | Ms. Kettell has been granted 30,000 shares issuable on exercise of options under our equity compensation plan. In addition, Ms. Kettell holds debentures convertible into 13,133 shares of common stock and warrants for the purchase of 26,266 shares of common stock. Under the terms of a separation agreement with Mr. Kettell, Ms. Kettell directly has beneficial economic ownership of 1,185,000 shares of common stock. Laura Kettell has the contractual right to acquire 455,000 shares of common stock held by her parents. Mr. Kettell and Laura Kettell have agreed to enter into voting arrangements that would provide Mr. Simpson with voting control over 3,575,000 shares. Upon execution of the voting trust agreement to implement this agreement, resales of shares by Mr. Kettell and Laura Kettell would be restricted to 300,000 shares for one year from July 31, 2008, with additional restrictions on resales in future years. Ms. Kettell’s address is 2905 Greencastle Road, Burtonsville, MD 20866. | | | | | (8) | | Mr. Larson controls 600,000 shares, 95,000 shares issued in his name, 5,000 shares issued in his wife’s name, 400,000 issued to E-VAT and 100,000 issued to Nevada Silver. In addition, he has 126,000 options granted in his name and 42,000 options granted in his son’s name. Mr. Larson’s address is PO Box 1893, Grand Junction, CO 81502. | | | | | (9) | | Passport Materials Master Fund, LP’s address is c/o Passport Management LLC, 30 Hotaling Place, Ste 300, San Francisco, CA 94111 | | | | | (10) | | Ms. Moriarity’s address is 6884 North Kendall Drive, Apt C-301, Miami, FL 33156. | |
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| Directors and Named Executive Officers | | Common Stock Beneficially Owned | | | | | Number | | | Percentage(1) | | Directors and Named Executive Officers(2): | | | | | | | Andrew K. Simpson(3) | | | 4,099,175 | | | | 39.0 | % | Lynn F. Oates(4) | | | 152,100 | | | | 1.4 | % | Bonita K. Bogaert(5) | | | 50,000 | | | | * | | | Rockell N. Hankin | | | 282,667 | | | | 2.7 | % | | Richard P. Graff | | | 213,889 | | | | 2.0 | % | | Ronald L. Parratt | | | 276,667 | | | | 2.6 | % | | All directors and executive officers as a group (6 persons) | | | 5,074,498 | | | | 48.2 | % | | Beneficial owners of more than 5%: | | | | | | | | | Ralph Kettell(6) | | | 3,825,000 | | | | 36.4 | % | Laura Kettell(7) | | | 1,670,000 | | | | 15.9 | % | Arden Larson (8) | | | 768,000 | | | | 7.3 | % | Nadine Osborn-Kettell(9) | | | 465,000 | | | | 4.4 | % | | Barbara J. Moriarty | | | 549,000 | | | | 5.2 | % | | Passport Materials Master Fund, LP | | | 644,500 | | | | 6.1 | % | LARK Enterprises, Ltd. (10) | | | 436,000 | | | | 4.1 | % |
*Represents less than 1%
(1) Percentage calculations performed without assuming exercise of any of the 3,330,911 warrants and options outstanding on December 31, 2008.
(2) Unless otherwise indicated, the address of each person is c/o Concentric Energy Corporation, 3350 Sabin Brown Road, #3, Wickenburg, AZ 85390.
(3) Mr. Simpson has been granted a proxy respecting the voting rights of 3,575,000 shares of common stock under the voting control of Ralph Kettell. Under the terms of the separation agreement between Ralph Kettell and Laura Kettell, Mr. Kettle’s former spouse, Laura Kettell has agreed to enter into voting arrangements that would provide Mr. Simpson with voting control over 3,575,000 shares. In addition, Mr. Simpson owns 1,050 shares directly, has been granted 250,000 restricted shares and has been granted 273,125 shares issuable on exercise of options under our equity compensation plans.
(4) Mr. Oates has been granted 100,000 restricted common shares, directly owns 2,100 common shares and has been granted 50,000 shares issuable on exercise of options under our equity compensation plans.
(5) Ms. Bogaert has been granted 50,000 shares issuable on exercise of options under our equity compensation plans.
(6) Mr. Kettell has been granted 150,000 shares issuable on exercise of options under our equity compensation plans. In addition, Mr. Kettell holds warrants for the purchase of 60,000 shares of common stock. Under the terms of a separation agreement between Mr. Kettell and Laura Kettell, Mr. Kettell directly has beneficial economic ownership of 774,000 shares of common stock. In addition, under the terms of this same agreement, Mr. Kettell will retain the assignable voting interest of all shares owned by his former wife. Mr. Kettell is the direct owner of LARK Enterprises. Ltd. which owns 436,000 shares of common stock. In addition, Mr. Kettell is the donor of and retains the voting power over 300,000 shares of common stock gifted to family members. Mr. Kettell has the contractual right to acquire 465,000 shares of common stock held by his mother. Mr. Kettell has executed an agreement to restrict his future resales of shares for one year from July 31, 2008 to 300,000 shares. Mr. Kettell and Laura Kettell entered into voting arrangements that would provide Mr. Simpson with voting control over 3,575,000 shares. Resales of shares by Mr. Kettell and Laura Kettell are restricted to 300,000 shares for one year from July 31, 2008, with additional restrictions on resales in future years.
(7) Ms. Kettell has been granted 30,000 shares issuable on exercise of options under our equity compensation plan. Under the terms of a separation agreement with Mr. Kettell, Ms. Kettell directly has beneficial economic ownership of 1,185,000 shares of common stock. Laura Kettell has the contractual right to acquire 455,000 shares of common stock held by her parents. Mr. Kettell and Laura Kettell have agreed to enter into voting arrangements that would provide Mr. Simpson with voting control over 3,575,000 shares. Upon execution of the voting trust agreement to implement this agreement, resales of shares by Mr. Kettell and Laura Kettell would be restricted to 300,000 shares for one year from July 31, 2008, with additional restrictions on resales in future years.
(8) Mr. Larson controls 600,000 shares, 95,000 shares issued in his name, 5,000 shares issued in his wife’s name, 400,000 issued to E-VAT. and 100,000 issued to Nevada Silver. In addition, he has 126,000 options granted in his name and 42,000 options granted in his son’s name.
(9) Ms. Osborn-Kettell is the mother of Ralph Kettell. She has granted Mr. Kettell an option to acquire her shares.
(10) Ralph Kettell is a control person of Lark Enterprises, Ltd.
SELLING STOCKHOLDERS
The selling stockholders named in this prospectus are offering all of the 1,808,1451,389,645 shares of common stock offered through this prospectus. The registered shares may be sold directly or through brokers or dealers, or in a distribution by one or more underwriters on a firm commitment or best efforts basis. To the extent required, the names of any agent or broker-dealer and applicable commissions or discounts and any other required information with respect to any particular offer will be set forth in an accompanying prospectus supplement. See the section entitled “Plan“Plan of Distribution.”Distribution” of this prospectus. Each of the selling stockholders reserves the sole right to accept or reject, in whole or in part, any proposed purchase of the registered shares to be made directly or through agents. The selling stockholders and any agents or broker-dealers that participate with the selling stockholders in the distribution of their registered shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, and any commissions received by them and any profit on the resale of the registered shares may be deemed to be underwriting commissions or discounts under the Securities Act of 1933, as amended. We will receive no proceeds from the sale of the registered shares. We have agreed to bear the expenses of registration of the shares, other than commissions and discounts of agents or broker-dealers and transfer taxes, if any. The following table provides information regarding the beneficial ownership of our common stock held by each of the selling stockholders as of December 31, 2008.June 30, 2009. The named party beneficially owns and has sole voting and investment power over all shares or rights to the shares, unless otherwise shown in the table.
| | | | | | | | | | | | | | | | | | | | | Shares | | | | | | Total Shares to be | | | | Beneficially | | | | | | Owned and Percent | | | | Owned | | | | | | of Total | | | | Prior | | Number of | | Outstanding After | | Name of Selling | | to this | | Shares to be | | Completion of this | | Shareholder | | Offering | | Offered | | Offering(1) | Blue Sky Securities Limited(2) | | | 90,427 | (3) | | | 70,427 | | | | 20,000 | | | | * | | | John Averett | | | 198,450 | (4) | | | 198,450 | | | | — | | | | — | | | John O’Shea | | | 139,984 | (5) | | | 120,630 | | | | 19,354 | | | | * | | | David R. Holbrooke | | | 50,244 | (6) | | | 40,244 | | | | 10,000 | | | | * | | | Jonathan B. Dangar | | | 14,747 | (7) | | | 14,747 | | | | — | | | | — | | | John T. and Peggy M. Cella | | | 108,533 | (8) | | | 108,533 | | | | — | | | | — | | | Herbert Arnold Duke | | | 33,475 | (9) | | | 23,475 | | | | 10,000 | | | | * | | Holmes Revocable Trust(10) | | | 88,478 | (11) | | | 88,478 | | | | — | | | | — | | | Armand E. and Dicky L. Balsano | | | 58,985 | (12) | | | 58,985 | | | | — | | | | — | | | Timothy M. and Rosemary A. Schmidt | | | 20,057 | (13) | | | 20,057 | | | | — | | | | — | | | Thomas D. and Mary M. Miller | | | 58,985 | (14) | | | 58,985 | | | | — | | | | — | | | Daniel Harper Meek | | | 10,061 | (15) | | | 10,061 | | | | — | | | | — | | Mere Lane Investment Fund LP(16) | | | 32,981 | (17) | | | 32,981 | | | | — | | | | — | | J. Wayne Hill IRA(18) | | | 20,061 | (19) | | | 10,061 | | | | 10,000 | | | | * | | | James R. Echols | | | 29,492 | (20) | | | 29,492 | | | | — | | | | — | |
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| | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | Shares | | Number of | | Total Shares to be | | | | Beneficially | | Shares to be | | Owned and Percent | | | | Owned | | Offered for | | of Total | | | | Prior | | Selling | | Outstanding After | | Name of Selling | | to this | | Stockholders | | Completion of this | | Shareholder | | Offering | | Account | | Offering(1) | Michael Harvey Revocable Trust(21) | | | 34,492 | (22) | | | 29,492 | | | | 5,000 | | | | * | | | Richard & Eleanor C. Trevison | | | 29,492 | (23) | | | 29,492 | | | | — | | | | — | | | Scott Bowman | | | 29,492 | (24) | | | 29,492 | | | | — | | | | — | | | Theodore E. & Theresa M. Kwiatkowski | | | 29,492 | (25) | | | 29,492 | | | | — | | | | — | | | Gail Flynn | | | 5,030 | (26) | | | 5,030 | | | | — | | | | — | | | Judith Phillips | | | 14,747 | (27) | | | 14,747 | | | | — | | | | — | | Judith Phillips IRA 6UA001294(28) | | | 14,747 | (29) | | | 14,747 | | | | — | | | | — | | | Richard Louise | | | 38,627 | (30) | | | 33,627 | | | | 5,000 | | | | * | | AWM Holding LLC(31) | | | 121,266 | (32) | | | 121,266 | | | | — | | | | — | | | Nicholas Hammond | | | 60,244 | (33) | | | 40,244 | | | | 20,000 | | | | * | | | Richard Price | | | 90,074 | (34) | | | 84,749 | | | | 5,325 | | | | * | | | Joe Wolfe | | | 9,642 | (35) | | | 9,642 | | | | — | | | | — | | | Michael Strauss | | | 9,861 | (36) | | | 9,861 | | | | — | | | | — | | | Todd Kice | | | 10,452 | (37) | | | 10,452 | | | | — | | | | — | | | Jason Lagomarsino | | | 1,706 | (38) | | | 1,706 | | | | — | | | | — | | | Ralph Kettell | | | 4,071,468 | (39) | | | 40,000 | | | | 4,031,468 | | | | 38.3 | % |
| | | | * | | Less than 1% | | | | (1) | | Based on 10,631,086 shares issued as of June 30, 2009. The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholders has sole or shared voting power or investment power and also any shares, which the selling stockholders has the right to acquire within 60 days from the current date. | | | | (2) | | Michel Clemence, as Director of Blue Sky Securities Limited, has voting and dispositive power over these securities. | | | (3) | | Includes 427 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share. | | | (4) | | Includes 86,717 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 44,445 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (5) | | Includes 34,588 shares of our common stock issuable upon exercise of warrants having an exercise price of $2.44 per share, and 28 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share. |
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| | | | (6) | | Includes 244 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share. | | | (7) | | Includes 6,444 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 3,303 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (8) | | Includes 3,955 shares of our common stock issuable upon exercise of warrants having an exercise price of $2.44, 47,104 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 24,141 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (9) | | Includes 131 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 11 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (10) | | Gordon Holmes, as Trustee of Holmes Revocable Trust, has voting and dispositive power over these securities. | | | (11) | | Includes 38,662 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 19,816 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (12) | | Includes 25,775 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 13,210 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | | (13) | | Includes 57 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share. | | | | (14) | | Includes 25,775 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 13,210 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (15) | | Includes 61 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share. | | | (16) | | Hugh Cohen, as Managing Member of the General Partner of Mere Lane Investment Fund, LP, has voting and dispositive power over these securities. | | | (17) | | Includes 12,981 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share. | | | (18) | | James Wayne Hill, as control person of the J. Wayne Hill IRA, has voting and dispositive power over these securities. | | | (19) | | Includes 61 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share. | | | (20) | | Includes 12,887 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 6,605 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (21) | | Michael and Lyn Harvey, as Trustees of the Michael Harvey Revocable Trust, have voting and dispositive power over these securities. | | | (22) | | Includes 12,887 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 6,605 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (23) | | Includes 12,887 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 6,605 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. |
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| | | | (24) | | Includes 12,887 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 6,605 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (25) | | Includes 12,887 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 6,605 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (26) | | Includes 30 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share. | | | (27) | | Includes 6,444 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 3,303 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (28) | | Judith Phillips, as control person of the Judith Phillips IRA, has voting and dispositive power over these securities. | | | (29) | | Includes 6,444 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 3,303 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (30) | | Includes 11,083 shares of our common stock issuable upon exercise of warrants having an exercise price of $2.44 per share, 14,258 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share, and 3,286 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (31) | | Anna McNeur, as Member of AWM Holding LLC, has voting and dispositive power over these securities. | | | (32) | | Includes 31,265 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share. | | | (33) | | Includes 244 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share. | | | (34) | | Includes 14,353 shares of our common stock issuable upon exercise of warrants having an exercise price of $2.44 per share and 71 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share. | | | (35) | | Includes 3,729 shares of our common stock issuable upon exercise of warrants having an exercise price of $2.44 per share, 3,909 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share and 2,004 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (36) | | Includes 3,814 shares of our common stock issuable upon exercise of warrants having an exercise price of $2.44 per share, 3,998 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share and 2,049 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (37) | | Includes 4,043 shares of our common stock issuable upon exercise of warrants having an exercise price of $2.44 per share, 4,237 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share and 2,172 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | (38) | | Includes 660 shares of our common stock issuable upon exercise of warrants having an exercise price of $2.44 per share, 692 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.50 per share and 354 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.55 per share. | | | | (39) | | Mr. Kettell has been granted 150,000 shares issuable on exercise of options under our equity compensation plans. In addition, Mr. Kettell owns 40,000 shares of common outside of the voting trust described below and holds debentures convertible into 102,156 shares of common stock and warrants for the purchase of 204,312 shares of common stock. Under the terms of a separation agreement between Mr. Kettell and Laura Kettell, Mr. Kettell directly has beneficial economic ownership of 774,000 shares of common stock. In addition, under the terms of this same agreement, Mr. Kettell will retain the assignable voting interest of all shares owned by his former wife. Mr. Kettell is the direct owner of LARK Enterprises. Ltd. which owns 436,000 shares of common stock. In addition, Mr. Kettell is the donor of and retains the voting power over 300,000 shares of common stock gifted to family members. Mr. Kettell has the contractual right to acquire 465,000 shares of common stock held by his mother. Mr. Kettell has executed an agreement to restrict his future resales of shares for one year from July 31, 2008 to 300,000 shares. Mr. Kettell and Laura Kettell entered into voting arrangements that would provide Mr. Simpson with voting control over 3,575,000 shares. Resales of shares by Mr. Kettell and Laura Kettell are restricted to 300,000 shares for one year from July 31, 2008, with additional restrictions on resales in future years. See SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS. | |
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Name of Selling Shareholder | | Shares Owned Prior to this Offering | | | Total Number of Shares to be Offered for Selling Stockholders Account | | | Total Shares to be Owned and Percent of Total Outstanding After Completion of this Offering(1) | | Westminster Securities Corp. (2) | | | 35,000 | (3) | | | 35,000 | | | ─ | | | ─ | | Blue Sky Securities Limited (4) | | | 195,332 | (5) | | | 175,332 | | | | 20,000 | | | | * | | | John Averett | | | 168,539 | (6) | | | 168,539 | | | ─ | | | ─ | | | John O’Shea | | | 217,593 | (7) | | | 198,239 | | | | 19,354 | | | | * | | | David R. Holbrooke | | | 110,190 | (8) | | | 100,190 | | | | 10,000 | | | | * | | | Jonathan B. Dangar | | | 12,524 | (9) | | | 12,524 | | | ─ | | | ─ | | | John T. and Peggy M. Cella | | | 91,548 | (10) | | | 91,548 | | | ─ | | | ─ | | | Herbert Arnold Duke | | | 68,443 | (11) | | | 58,443 | | | | 10,000 | | | | * | | Holmes Revocable Trust (12) | | | 75,142 | (13) | | | 75,142 | | | ─ | | | ─ | | | Armand E. and Dicky L. Balsano | | | 50,095 | (14) | | | 50,095 | | | ─ | | | ─ | | | Timothy M. and Rosemary A. Schmidt | | | 50,095 | (15) | | | 50,095 | | | ─ | | | ─ | | | Thomas D. and Mary M. Miller | | | 50,095 | (16) | | | 50,095 | | | ─ | | | ─ | | | Daniel Harper Meek | | | 25,047 | (17) | | | 25,047 | | | ─ | | | ─ | | Mere Lane Investment Fund LP (18) | | | 50,095 | (19) | | | 50,095 | | | ─ | | | ─ | | J. Wayne Hill IRA (20) | | | 35,047 | (21) | | | 25,047 | | | | 10,000 | | | | * | | | James R. Echols | | | 25,047 | (22) | | | 25,047 | | | ─ | | | ─ | |
Name of Selling Shareholder | | Shares Owned Prior to this Offering | | | Total Number of Shares to be Offered for Selling Stockholders Account | | | Total Shares to be Owned and Percent of Total Outstanding After Completion of this Offering(1) | | Michael Harvey Revocable Trust (23) | | | 30,047 | (24) | | | 25,047 | | | | 5,000 | | | | * | | | Richard & Eleanor C. Trevison | | | 25,047 | (25) | | | 25,047 | | | ─ | | | ─ | | | Scott Bowman | | | 25,047 | (26) | | | 25,047 | | | ─ | | | ─ | | | Theodore E. & Theresa M. Kwiatkowski | | | 25,047 | (27) | | | 25,047 | | | ─ | | | ─ | | | Gail Flynn | | | 12,524 | (28) | | | 12,524 | | | ─ | | | ─ | | | Judith Phillips | | | 12,524 | (29) | | | 12,524 | | | ─ | | | ─ | | Judith Phillips IRA 6UA001294 (30) | | | 12,524 | (31) | | | 12,524 | | | ─ | | | ─ | | | Richard Louise | | | 40,102 | (32) | | | 35,102 | | | | 5,000 | | | | * | | AWM Holding LLC (33) | | | 225,427 | (34) | | | 225,427 | | | ─ | | | ─ | | | Nicholas Hammond | | | 120,190 | (35) | | | 100,190 | | | | 20,000 | | | | * | | | Richard Price | | | 99,566 | (36) | | | 94,241 | | | | 5,325 | | | | * | | | Joe Wolfe | | | 7,597 | (37) | | | 7,597 | | | ─ | | | ─ | | | Michael Strauss | | | 7,770 | (38) | | | 7,770 | | | ─ | | | ─ | | | Todd Kice | | | 8,236 | (39) | | | 8,236 | | | ─ | | | ─ | | | Jason Lagomarsino | | | 1,345 | (40) | | | 1,345 | | | ─ | | | ─ | |
* Less than 1%
(1) Based on 10,508,101 shares outstanding as of December 31, 2008. The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholders has sole or shared voting power or investment power and also any shares, which the selling stockholders has the right to acquire within 60 days.
(2) Richard J. Price, as President of Westminster Securities Corp., has voting and dispositive power over these securities.
(3) Represents 35,000 shares of common stock owned directly.
(4) Michel Clemence, as Director of Blue Sky Securities Limited, has voting and dispositive power over these securities.
(5) Includes 70,156 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 35,176 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(6) Includes 67,438 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 33,813 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(7) Includes 28,132 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.00 per share, 79,322 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share and 39,771 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(8) Includes 40,089 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 20,101 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(9) Includes 5,011 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 2,513 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(10) Includes 3,217 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.00, 36,631 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 18,366 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(11) Includes 23,385 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 11,725 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(12) Gordon Holmes, as Trustee of Holmes Revocable Trust, has voting and dispositive power over these securities.
(13) Includes 30,067 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 15,075 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(14) Includes 20,045 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 10,050 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(15) Includes 20,045 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 10,050 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(16) Includes 20,045 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 10,050 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(17) Includes 10,022 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 5,025 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(18) Hugh Cohen, as Managing Member of the General Partner of Mere Lane Investment Fund, LP, has voting and dispositive power over these securities.
(19) Includes 20,045 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 10,050 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(20) James Wayne Hill, as control person of the J. Wayne Hill IRA, has voting and dispositive power over these securities.
(21) Includes 10,022 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 5,025 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(22) Includes 10,022 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 5,025 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(23) Michael and Lyn Harvey, as Trustees of the Michael Harvey Revocable Trust, have voting and dispositive power over these securities.
(24) Includes 10,022 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 5,025 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(25) Includes 10,022 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 5,025 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(26) Includes 10,022 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 5,025 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(27) Includes 10,022 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 5,025 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(28) Includes 5,011 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 2,513 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(29) Includes 5,011 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 2,513 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(30) Judith Phillips, as control person of the Judith Phillips IRA, has voting and dispositive power over these securities.
(31) Includes 5,011 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 2,513 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(32) Includes 9,014 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.00 per share, 14,045 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 7,043 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(33) Anna McNeur, as Member of AWM Holding LLC, has voting and dispositive power over these securities.
(34) Includes 90,200 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 45,226 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(35) Includes 40,089 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share, and 20,101 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(36) Includes 11,674 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.00 per shares, 11,700 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share and 5,867 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(37) Includes 3,033 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.00 per shares, 3,040 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share and 1,525 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(38) Includes 3,102 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.00 per shares, 3,109 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share and 1,559 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(39) Includes 3,288 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.00 per shares, 3,295shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share and 1,652 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
(40) Includes 537 shares of our common stock issuable upon exercise of warrants having an exercise price of $3.00 per shares, 538 shares of our common stock issuable upon exercise of warrants having an exercise price of $4.50 per share and 269 shares of our common stock issuable upon exercise of warrants having an exercise price of $6.00 per share.
None of the selling stockholders has held any position or office or has had any other material relationship with us or any of our predecessors or affiliates during the past three years except for Ralph Kettell, who served as our chairman and chief executive officer until December 2006. In addition, each of Richard J. Price, John P. O’Shea, Richard Louise, John Cella, Jonathan B. Dangar, Scott Bowman, Joe Wolfe, Michael Strauss, Todd Kice and Jason Lagomarsino who are affiliates of Westminster Securities Corporation (“Westminster”), a registered broker-dealer that served as placement agent in our July 2008 and December 2008 private placements. The shares being offered for resale by these persons were acquired directly from us in connection with investments in our July 2008 private placement and from Westminster, which distributed the warrants it received for serving as our placement agent in the July 2008 private placement to certain of its employees. As such, each of Mr. Price, Mr. O’Shea, Mr. Louise, Mr. Cella, Mr. Dangar, Mr. Bowman, Mr. Wolfe, Mr. Strauss, Mr. Kice and Mr. Lagomarsino acquired the shares to be resold hereunder in the ordinary course of business, and at the time of the purchase of the shares of common stock, there were no agreements or understandings, directly or indirectly with any person to distribute the shares of common stock. Information concerning the selling stockholders may change from time to time and any such changed information will be set forth in supplements to this prospectus if and when necessary. 50
PLAN OF DISTRIBUTION Each selling stockholder and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of the following methods when selling shares: | | ·• | | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| | | ·• | | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| | | ·• | | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| | | ·• | | an exchange distribution in accordance with the rules of the applicable exchange; |
| | | ·• | | privately negotiated transactions; |
| | | ·• | | settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part; |
| | | ·• | | broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; |
| | | ·• | | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| | | ·• | | a combination of any such methods of sale; or |
| | | ·• | | any other method permitted pursuant to applicable law. |
The selling stockholders will be offering our shares of common stock under this prospectus at a price of $0.90 per share until our shares are quoted on the Over-the-Counter Bulletin Board and thereafter at prevailing market prices or privately negotiated prices. The selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus. Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440. In connection with the sale of the shares of common stock, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933, as amended. Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock. In no event shall any broker-dealer receive fees, commissions and markups, in the aggregate, exceedexceeding eight percent (8%). 51
We are required to pay certain fees and expenses incurred by us incident to the registration of the shares. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933, as amended. Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, they will be subject to the prospectus delivery requirements of the Securities Act of 1933, as amended, including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholders. We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with the current public information under Rule 144 under the Securities Act of 1933, as amended, or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act of 1933, as amended, or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with. Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act). 52
DESCRIPTION OF CAPITAL STOCK General General
We are authorized to issue 150,000,000 shares of common stock, par value $0.001 per share, and 50,000,000 shares of preferred stock, par value $0.001 per share. On December 31, 2008,June 30, 2009, there were 10,508,10110,631,086 shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding. Common Stock The holders of common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Generally, all matters to be voted on by stockholders must be approved by a majority of the votes entitled to be cast by all shares of common stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. Except as otherwise provided by law, and subject to any voting rights granted to holders of any preferred stock, amendments to our Articles of Incorporation generally must be approved by a majority of the votes entitled to be cast by all outstanding shares of common stock. Our Articles of Incorporation doesdo not provide for cumulative voting in the election of directors. Subject to any preferential rights of any outstanding series of preferred stock created by the board of directors from time to time, our common stock holders will be entitled to such cash dividends as may be declared, if any, by the board of directors from funds available. Subject to any preferential rights of any outstanding series of preferred stock, upon our liquidation, dissolution or winding-up, our common stock holders will be entitled to receive pro rata all assets available for distribution to such holders. Preferred Stock Our board of directors is vested with authority to divide the shares of preferred stock into series and to fix and determine the relative designation, powers, preferences and rights of the shares of any such series and the qualifications, limitations, or restrictions or any wholly unissued series of preferred stock. Warrants $1.75 Warrants During 2004 and 2005, we issued warrants to purchase up to an aggregate of up to 908,280 shares of common stock at an exercise price of $1.75 per share. These warrants will expire on April 30,December 31, 2009. As the holders of these warrants are independent investors, the extension of the term was determined to be non-compensatory as the holders are not providing any services to us and no expense was recognized by us on the extension of these warrants. The exercise price and number of shares of our common stock issuable on exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. $4.50 Warrants
$3.50 Warrants In connection with the private placementplacements of our common stock and warrants completed on July 31, 2008 and on September 3, 2008, we issued investors four year warrants to purchase up to an aggregate of 619,968659,968 shares of common stock at an exercise price of $4.50 per share to the investors. The exercise price and number of shares of our common stock issuable on exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. In addition, should we, at any time while the warrants are outstanding, sell or grant any option to purchase or sell or grant any right to reprice, or otherwise dispose of or issue any common stock or common stock equivalents entitling any party to acquire shares of our common stock at a per share price less than the then existing exercise price of the warrants, the exercise price shall be reduced by multiplying the exercise price by a fraction, the numerator of which is the number of shares of common stock issued and outstanding immediately prior to the dilutive issuance plus the number of shares of common stock which the offering price for such dilutive issuance would purchase at the then exercise price, and the denominator of which shall be the sum of the number of shares of common stock issued and outstanding immediately prior to the dilutive issuance plus the number of shares of common stock so issued or issuable in connection with the dilutive issuance. Additionally, upon such a dilutive issuance, the number of shares of common stock issuable under these warrants shall be increased such that the aggregate exercise price payable thereunder, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment. We are prohibited from effecting the exercise of the warrants to the extent that as a result of such exercise the holder of the exercised warrants beneficially owns more than 4.99% (or, if such limitation is waived by the holder upon no less than 61 days prior notice to us, 9.99%) in the aggregate of the issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of our common stock upon the exercise of the warrants. At any time after the earlier of July 31, 2009 orand the completion of the then applicable holding period under Rule 144 of the Securities Act of 1933, as amended, if there is no effective Registration Statement registering, or no current prospectus available for the resale of the warrant shares, the holders of such warrants have the right to exercise the warrants by means of a cashless exercise. In addition, on the expiration date, this warrant shall be automatically exercised via cashless exercise. 53
If, at any time while these warrants are outstanding, the volume weighted average price of our common stock for 22 or more consecutive trading days equals or exceeds $11.25 per share, we shall have the option to redeem these warrants, upon 20 days prior written notice, for $0.001 per share issuable upon exercise of the warrants. Unless any warrant with respect to which we have properly delivered notice of our intent to redeem is exercised prior to the termination of the notice period, such warrant shall be immediately terminated and the holder thereof shall only be entitled to receive the redemption consideration. In connection with the private placement of our common stock and warrants completed on July 31, 2008, as consideration for serving as our placement agent, we issued Westminster Securities Corporation a four year warrant to purchase up to 61,997 shares of common stock at an exercise price of $4.50 per share. Such warrant has the same terms as the $4.50 warrants issued to the investors in the private placement completed on July 31, 2008. $6.00 Warrants
In December 2008, holders surrendered 427,581 of these warrants as part of their subscription to our 15% cumulative convertible debenture offering. As a result of the private placements which have occurred subsequent to the original issuance of these warrants and the antidilution protections contained within these warrants, as of June 30, 2009, the exercise price of these warrants was reduced from $4.50 per share to $3.50 per share and the holders of such warrants were issued additional warrants to purchase an aggregate of 86,111 shares of common stock at an exercise price of $3.50 per share. $4.55 Warrants In connection with the private placementplacements of our common stock and warrants completed on July 31, 2008 and September 3, 2008, we issued investors four year warrants to purchase up to an aggregate of 309,984329,985 shares of common stock at an exercise price of $6.00 per share to the investors. The exercise price and number of shares of our common stock issuable on exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. In addition, should we, at any time while the warrants are outstanding, sell or grant any option to purchase or sell or grant any right to reprice, or otherwise dispose of or issue any common stock or common stock equivalents entitling any party to acquire shares of our common stock at a per share price less than the then existing exercise price of the warrants, the exercise price shall be reduced by multiplying the exercise price by a fraction, the numerator of which is the number of shares of common stock issued and outstanding immediately prior to the dilutive issuance plus the number of shares of common stock which the offering price for such dilutive issuance would purchase at the then exercise price, and the denominator of which shall be the sum of the number of shares of common stock issued and outstanding immediately prior to the dilutive issuance plus the number of shares of common stock so issued or issuable in connection with the dilutive issuance. Additionally, upon such a dilutive issuance, the number of shares of common stock issuable under these warrants shall be increased such that the aggregate exercise price payable thereunder, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment. We are prohibited from effecting the exercise of the warrants to the extent that as a result of such exercise the holder of the exercised warrants beneficially owns more than 4.99% (or, if such limitation is waived by the holder upon no less than 61 days prior notice to us, 9.99%) in the aggregate of the issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of our common stock upon the exercise of the warrants. At any time after the earlier of July 31, 2009 orand the completion of the then applicable holding period under Rule 144 of the Securities Act of 1933, as amended, if there is no effective Registration Statement registering, or no current prospectus available for the resale of the warrant shares, the holders of such warrants have the right to exercise the warrants by means of a cashless exercise. In addition, on the expiration date, this warrant shall be automatically exercised via cashless exercise. If, at any time while these warrants are outstanding, the volume weighted average price of our common stock for 22 or more consecutive trading days equals or exceeds $15.00 per share, we shall have the option to redeem these warrants, upon 20 days prior written notice, for $0.001 per share issuable upon exercise of the warrants. Unless any warrant with respect to which we have properly delivered notice of our intent to redeem is exercised prior to the termination of the notice period, such warrant shall be immediately terminated and the holder thereof shall only be entitled to receive the redemption consideration. In connection with the private placement of our common stock and warrants completed on July 31, 2008, as consideration for serving as our placement agent, we issued Westminster Securities Corporation a four year warrant to purchase up to 30,999 shares of common stock at an exercise price of $6.00 per share. Such warrant has the same terms as the $6.00 warrants issued to the investors in the private placement completed on July 31, 2008. In December 2008, holders surrendered 235,164 of these warrants as part of their subscription to our 15% cumulative convertible debenture offering. $3.00 Warrants
As a result of the private placements which have occurred subsequent to the original issuance of these warrants and the antidilution protections contained within these warrants, as of June 30, 2009, the exercise price of these warrants was reduced from $6.00 per share to $4.55 per share and the holders of such warrants were issued additional warrants to purchase an aggregate of 41,812 shares of common stock at an exercise price of $4.55 per share. 54
$2.44 Warrants In connection with the private placement of our common stock and warrants completed on July 31, 2008, as consideration for serving as our placement agent, we issued to employees of Westminster Securities Corporation, as sales commissions, a four year warrant to purchase up to an aggregate of 61,997 shares of common stock at an exercise price of $3.00 per share. The exercise price and number of shares of our common stock issuable on exercise of this warrant may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. In addition, should we, at any time while the warrants are outstanding, sell or grant any option to purchase or sell or grant any right to reprice, or otherwise dispose of or issue any common stock or common stock equivalents entitling any party to acquire shares of our common stock at a per share price less than the then existing exercise price of the warrant, the exercise price shall be reduced by multiplying the exercise price by a fraction, the numerator of which is the number of shares of common stock issued and outstanding immediately prior to the dilutive issuance plus the number of shares of common stock which the offering price for such dilutive issuance would purchase at the then exercise price, and the denominator of which shall be the sum of the number of shares of common stock issued and outstanding immediately prior to the dilutive issuance plus the number of shares of common stock so issued or issuable in connection with the dilutive issuance. Additionally, upon such a dilutive issuance, the number of shares of common stock issuable under this warrant shall be increased such that the aggregate exercise price payable thereunder, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment. We are prohibited from effecting the exercise of this warrant to the extent that as a result of such exercise Westminster Securities Corporationholders beneficially owns more than 4.99% (or, if such limitation is waived by Westminster Securities Corporationthe holders upon no less than 61 days prior notice to us, 9.99%) in the aggregate of the issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of our common stock upon the exercise of the warrant. At any time after the earlier of July 31, 2009 orand the completion of the then applicable holding period under Rule 144 of the Securities Act of 1933, as amended, Westminster Securities Corporationif there is no effective Registration Statement registering, or no current prospectus available for the resale of the warrant shares, the holder has the right to exercise this warrant by means of a cashless exercise. In addition, on the expiration date, this warrant shall be automatically exercised via cashless exercise. If, at any time while this warrant is outstanding, the volume weighted average price of our common stock for 22 or more consecutive trading days equals or exceeds $8.75 per share, we shall have the option to redeem this warrant, upon 20 days prior written notice, for $0.001 per share issuable upon exercise of this warrant. Unless this warrant is exercised prior to the termination of the notice period, this warrant shall be immediately terminated and Westminster Securities Corporationthe holders shall only be entitled to receive the redemption consideration. As a result of the private placements which have occurred subsequent to the original issuance of these warrants and the antidilution protections contained within these warrants, as of June 30, 2009, the exercise price of these warrants was reduced from $3.00 per share to $2.44 per share and the holders of such warrants were issued additional warrants to purchase an aggregate of 14,288 shares of common stock at an exercise price of $2.44 per share. $1.00 Warrants In connection with the private placement of our 15% convertible debentures and warrants completed on December 31, 2008, we issued investors four year warrants to purchase up to an aggregate of 1,605,856 shares of common stock at an exercise price of $1.00 per share to the investors. The exercise price and number of shares of our common stock issuable on exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. In addition, should we, at any time while the warrants are outstanding, sell or grant any option to purchase or sell or grant any right to reprice, or otherwise dispose of or issue any common stock or common stock equivalents entitling any party to acquire shares of our common stock at a per share price less than the then existing exercise price of the warrants, the exercise price shall be reduced to an exercise price calculated by dividing the price per share of the newly issued common stock or common stock equivalents by 0.90. Additionally, upon such a dilutive issuance, the number of shares of common stock issuable under these warrants shall be increased such that the aggregate exercise price payable thereunder, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment. We are prohibited from effecting the exercise of this warrant to the extent that as a result of such exercise the holder beneficially owns more than 4.99% (or, if such limitation is waived by Westminster Securities Corporation upon no less than 61 days prior notice to us, 9.99%) in the aggregate of the issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of our common stock upon the exercise of the warrant. At any time after the earlier of December 31, 2009 and the completion of the then applicable holding period under Rule 144 of the Securities Act of 1933, as amended, there is no effective Registration Statement or no current prospectus available for the resale of the warrant shares, the holders of such warrants have the right to exercise the warrants by means of a cashless exercise. In addition, on the expiration date, this warrant shall be automatically exercised via cashless exercise. In connection with the private placement of our 15% convertible debentures and warrants completed on December 31, 2008, as consideration for serving as our placement agent, we issued Westminster Securities Corporation a four year warrant to purchase up to 204,349 shares of common stock at an exercise price of $1.00 per share. Such warrant has the same terms as the $1.00 warrants issued to the investors in the private placement completed on December 31, 2008. 55
In connection with the private placement of our 15% convertible debentures and warrants completed on May 21, 2009, we issued investors four year warrants to purchase up to an aggregate of 817,449 shares of common stock at an exercise price of $1.00 per share to the investors. The exercise price and number of shares of our common stock issuable on exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. In addition, should we, at any time while the warrants are outstanding, sell or grant any option to purchase or sell or grant any right to reprice, or otherwise dispose of or issue any common stock or common stock equivalents entitling any party to acquire shares of our common stock at a per share price less than the then existing exercise price of the warrants, the exercise price shall be reduced to an exercise price calculated by dividing the price per share of the newly issued common stock or common stock equivalents by 0.90. Additionally, upon such a dilutive issuance, the number of shares of common stock issuable under these warrants shall be increased such that the aggregate exercise price payable thereunder, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment. At any time after the earlier of May 21, 2010 and the completion of the then applicable holding period under Rule 144 of the Securities Act of 1933, as amended, there is no effective Registration Statement or no current prospectus available for the resales of the warrant shares, the holders of such warrants have the right to exercise the warrants by means of a cashless exercise. In addition, on the expiration date, this warrant shall be automatically exercised via cashless exercise. In connection with the signing of an exclusive marketing agreement with a metals trading company on May 21, 2009, as part consideration for such services, we issued a four year warrant to purchase up to 300,000 shares of common stock at an exercise price of $1.00 per share. Such warrant has the same terms as the $1.00 warrants issued to the investors in the private placement which closed on May 21, 2009. Series A 15% Convertible Debentures On December 31, 2008, we issued debentures in the aggregate principal amount of $628,376. The debentures mature on December 31, 2012. The entire outstanding principal balance and any outstanding fees or interest are due and payable in full on the maturity date. The debentures bear interest at the rate of 15% per annum, which rate may be increased by up to an additional 8% upon the occurrence of an event of default, as described below. The debentures are convertible at the option of the holders into shares of our common stock at an initial conversion price of $0.90 per share, subject to adjustment for stock splits, combinations or similar events. The conversion price is also subject to a “full ratchet” anti-dilution adjustment which, in the event that we issue or are deemed to have issued certain securities at a price lower than the then applicable conversion price, immediately reduces the conversion price to equal the price at which we issued or are deemed to have issued common stock; provided, however, the adjustment has a floor of not less than $0.10. The debentures contain certain limitations on conversion. For example, the debentures provide that no conversion may be made if, after giving effect to the conversion, the holders would own in excess of 4.99% of the outstanding shares of our common stock. This percentage may, however, be raised or lowered to an amount not to exceed 9.99%, at the option of the holders, upon 61-days’ prior notice to us. The debentures contain events of default which we consider normal and customary, as well as the following: | | • | | Our failure to timely pay any State of Nevada (or other applicable state) filing fees or fees owed to the Federal Bureau of Land Management, when required to be paid, other than those fees being disputed in good faith. | | | | | • | | Our withdrawal of a registration statement registering both the shares of common stock issued and underlying the warrants issued in our July 2008 private placement. | | | | | • | | Subject to our obligation to use commercially reasonable efforts to have our common stock traded on a trading market, if, while this debenture remains outstanding, and subsequent to attaining an initial listing or quotation on a trading market, our common stock ceases to be traded on a trading market for 10 consecutive business days or more during any 12 month period. | |
If there is an event of default, the holders may force us to redeem all or any portion of the Debentures at 135% of the outstanding principal, plus interest and late fees, depending on the nature of the default. The debentures contain standard covenants, as well as the following: | | • | | We will at all time reserve a number of shares equal to the number of shares of our common stock issuable upon conversion of the debentures. | | | | | • | | We shall use commercially reasonable efforts to have our common stock listed for trading on a trading market within 180 calendar days after December 31, 2008. | |
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| | • | | We will not enter into any transaction with any affiliate of ours that would be required to be disclosed in any public filing with the Securities and Exchange Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of our disinterested directors (even if less than a quorum otherwise required for board approval); | | | | | • | | We will not issue or agree to issue any securities at a price of less than $0.10 per share. | |
Series B 15% Convertible Debentures On May 21, 2009, we issued debentures in the aggregate principal amount of $498,644. Debentures in the principal amount of $48,644 mature on April 22, 2013 and debentures in the amount of $450,000 mature on May 21, 2013. The entire outstanding principal balance and any outstanding fees or interest are due and payable in full on the maturity date. The debentures bear interest at the rate of 15% per annum, which rate may be increased by up to an additional 8% upon the occurrence of an event of default, as described below. The debentures are convertible at the option of the holders into shares of our common stock at an initial conversion price of $1.22 per share, subject to adjustment for stock splits, combinations or similar events. The conversion price is also subject to a “full ratchet” anti-dilution adjustment which, in the event that we issue or are deemed to have issued certain securities at a price lower than the then applicable conversion price, immediately reduces the conversion price to equal the price at which we issued or are deemed to have issued common stock; provided, however, the adjustment has a floor of not less than $0.10. The debentures contain a mandatory redemption provision under which if we are a party to a transaction involving a change of control or transaction involving a merger or consolidation or a single transaction or series of transaction in which we sell all or substantially all of our assets while 33% or more of the debentures remain outstanding, the holder may upon 10 days written notice require us to redeem the debentures for an amount equal to 135% of the outstanding principal amount together with all accrued and unpaid interest. In the event that the we breach any material term, covenant or representation in that certain Exclusive Marketing Agreement between us and Traxys North America LLC, dated May 21, 2009, and such breach has not been cured within 30 days after written notice of such breach has been given to us, then the holder upon 3 days written notice can require us to redeem the debentures for an amount equal to 135% of the outstanding principal amount together with all accrued and unpaid interest. The debentures contain events of default which we consider normal and customary, as well as the following: | | • | | Our failure to timely pay any State of Nevada (or other applicable state) filing fees or fees owed to the Federal Bureau of Land Management, when required to be paid, other than those fees being disputed in good faith. | | | | | • | | Our withdrawal of a registration statement registering both the shares of common stock issued and underlying the warrants issued in our July 2008 private placement. | | | | | • | | Subject to our obligation to use commercially reasonable efforts to have our common stock traded on a trading market, if, while this debenture remains outstanding, and subsequent to attaining an initial listing or quotation on a trading market , our common stock ceases to be traded on a trading market for 10 consecutive business days or more during any 12 month period. | |
If there is an event of default, the holders may force us to redeem all or any portion of the debentures at 135% of the outstanding principal, plus interest and late fees, depending on the nature of the default. The debentures contain standard covenants, as well as the following: | | • | | We will at all time reserve a number of shares equal to the number of shares of our common stock issuable upon conversion of the debentures. | | | | | • | | We shall use commercially reasonable efforts to have our common stock listed for trading on a trading market within 180 calendar days after December 31, 2008. | | | | | • | | We will not enter into any transaction with any affiliate of ours that would be required to be disclosed in any public filing with the Securities and Exchange Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of our disinterested directors (even if less than a quorum otherwise required for board approval); | | | | | • | | We will not issue or agree to issue any securities at a price of less than $0.10 per share. | |
Registration Rights On July 31, 2008, in connection with our private placement of common stock and warrants, we entered into a registration rights agreement with the purchasers pursuant to which we agreed to provide certain registration rights with respect to the common stock issued and the common stock issuable upon exercise of the warrants. Specifically, we agreed to file a registration statement (of which this prospectus forms a part) with the Securities and Exchange Commission covering the resale of the common stock issued and underlying the warrants on or before September 14, 2008 and to cause such registration statement to be declared effective by the Securities and Exchange Commission on or before January 12, 2009, or January 27, 2009 if the registration statement receives a full review by the Securities and Exchange Commission.April 30, 2009. The following delinquency events (i) through (v) in respect of timely registration, if they occur, trigger payments beginning January 31, 2009 as described under “Liquidated Damages” in the next paragraph: If (i) the registration statement is not filed on or before September 14, 2008 (which requirement was not met), (ii) we fail to file with the Securities and Exchange Commission a request for acceleration of the registration statement in accordance with Rule 461 promulgated by the Securities and Exchange Commission pursuant to the Securities Act, within five trading days of the date that we are notified by the Securities and Exchange Commission that such registration statement will not be “reviewed” or will not be subject to further review (unless the failure to make such request for acceleration is the result of our determination that events affecting us will require the filing of an amendment to the registration statement), (iii) we fail to file a pre-effective amendment or otherwise respond to Securities and Exchange Commission comments within 10 trading days, (iv) all of the registrable securities are not registered for resale on or before April 30, 2009, or (v) the registration statement ceases to remain continuously effective for more than 10 consecutive calendar days or more than an aggregate of 15 calendar days during any 12-month period after its first effective date, then, liquidated damages will be payable to the holders of the shares. 57
Liquidated Damages
Commencing on January 31, 2009, we are subject to liquidated damage payments to the holders of the shares sold in the private placement in an amount equal to 0.5% of the aggregate purchase price paid by such purchasers per month (approximately $9,300 per month) of delinquency with respect to any unregistered shares. Such monthly payments would cease when we have satisfied the requirement which triggered these liquidated damage payments or on July 31, 2011, which everwhichever comes first. Therefore, the maximum aggregate amount of liquidated damages that we might have to pay would be approximately $288,000 if we are unable to file a registration statement. At June 30, 2009, we have accrued $44,000 to satisfy our liability under this requirement. Pursuant to the registration rights agreement, we must maintain the effectiveness of the registration statement from the effective date until the date on which all securities registered under the registration statement have been sold, or are otherwise able to be sold pursuant to Rule 144, subject to our right to suspend or defer the use of the registration statement in certain events. Piggyback Registration Rights Pursuant to those certain securities purchase agreements, dated as of December 31, 2008 and May 21, 2009, between us and the purchasers of our convertible debentures and $1.00 warrants, we granted the holders of our debentures and $1.00 warrants “piggyback” registration rights with respect to the shares of common stock underlying the debentures and the $1.00 warrants. Under the terms of the securities purchase agreement, we agreed to include these shares in a registration statement filed by us after the date of issuance of such debentures and warrants. Furthermore, we agreed to bear all costs and expenses, other than the commission costs related to the resale of the shares, with respect to the registration of the shares. Anti-Takeover Effect of Nevada Law and Certain By-Law Provisions
Our bylaws provide that special meetings of stockholders may be called only by our president or by a majority of our stockholders. Such a provisions thatprovision could have the effect of discouraging potential acquisition proposals or tender offers or delaying or preventing a change of control of our company. In the future we may also become subject to Nevada’s control share law. A corporation is subject to Nevada’s control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of record and residents of Nevada, and if the corporation does business in Nevada or through an affiliated corporation. The law focuses on the acquisition of a “controlling interest” which means the ownership of outstanding voting shares is sufficient, but for the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the corporation in the election of directors: (1) one-fifth or more but less than one-third, (2) one-third or more but less than a majority or (3) a majority or more. The ability to exercise voting power may be direct or indirect, as well as individual or in association with others. The effect of the control share law is that the acquiring person, and those acting in association with that person, obtain only voting rights in the control shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to take away voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest, their shares do not become governed by the control share law. If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of record, other than an acquiring person, who has not voted in favor of approval of voting rights is entitled to demand fair value for the stockholder’s shares. Nevada’s control share law may have the effect of discouraging corporate takeovers. In addition to the control share law, Nevada has a business combination law, which prohibits some business combinations between Nevada corporations and “interested stockholders” for three years after the “interested stockholder” first becomes an “interested stockholder” unless the corporation’s board of directors approves the combination in advance. For purposes of Nevada law, an “interested stockholder” is any person who is (1) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation, or (2) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition of the term “business combination” is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders. 58
The effect of Nevada’s business combination law is to potentially discourage parties interested in taking control of our company from doing so if it cannot obtain the approval of our board of directors. Indemnification of Directors and Officers Sections 78.7502 and 78.751 of the Nevada Revised Statutes provide us with the power to indemnify any of our directors and officers. The director or officer must have conducted himself/herself in good faith and reasonably believe that his/her conduct was in, or not opposed to, our best interests. In a criminal action, the director or officer must not have had reasonable cause to believe his/her conduct was unlawful. Under Section 78.751 of the Nevada Revised Statutes, advances for expenses may be made by agreement if the director or officer affirms in writing that he/she believes he/she has met the standards and will personally repay the expenses if it is determined the officer or director did not meet the standards. We have entered into agreements to indemnify each of our officers and directors to the fullest extent permitted under Nevada against all expenses, liability and loss reasonably incurred by reason of being or having been a director, officer or representative of ours or any of our subsidiaries. We are also permitted to apply for insurance on behalf of any director, officer, employee or other agent for liability arising out of his actions. Disclosure of Commission Position on Indemnification for Securities Act Liabilities Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to our directors, officers and persons controlling us, we have been advised that it is the Securities and Exchange Commission’s opinion that such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. 59
SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for any class of our capital stock, and a significant public market for our common stock may not develop or be sustained after this offering. Future sales of significant amounts of our capital stock, including shares of our outstanding stock and shares of our stock issued upon exercise of outstanding options, in the public market after this offering, or the perception that such sales could occur, could adversely affect any prevailing market price of our common stock and could impair our future ability to raise capital through the sale of our equity securities. As of December 31, 2008,June 30, 2009, we have 10,508,10110,631,086 shares of common stock issued and outstanding.issued. In addition, options to purchase an aggregate of 954,625 common shares are outstanding, all of which 954,625 were vested as of December 31, 2008June 30, 2009 and 2,379,5184,578,996 common shares are reserved for issuance upon exercise of warrants. Of these shares, theOn conversion of outstanding convertible debentures, we would issue an additional 1,106,921 common shares. The 1,389,645 common shares registered for resale under this prospectus (including 1,088,177624,351 shares underlying various warrants) will be freely tradable. The remaining shares of our common stock outstanding upon completion of this offering are deemed “restricted” securities under Rule 144 under the Securities Act. These restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 under the Securities Act. This rule is summarized below. Rule 144 Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person (or persons whose shares are aggregated) who is deemed to be an affiliate of our company at the time of sale, or at any time during the preceding three months, and who has beneficially owned restricted shares for at least six months, would be entitled to sell within any three-month period a number of our common shares that does not exceed the greater of 1% of the then outstanding common shares or the average weekly trading volume of common shares during the four calendar weeks preceding such sale. Sales under Rule 144 are subject to certain manner of sale provisions, notice requirements and the availability of current public information about our company. A person who has not been our affiliate at any time during the three months preceding a sale, and who has beneficially owned his or her common shares for at least six months, would be entitled under Rule 144 to sell such shares without regard to any manner of sale, notice provisions or volume limitations described above. Any such sales must comply with the public information provision of Rule 144 until our common shares have been held for one year. Lock-Up Agreement 3,575,000 shares of our common stock held or controlled by Ralph Kettell are subject to a lock-up agreement, pursuant to which, subject to certain exceptions, Mr. Kettell has agreed not to sell or otherwise dispose of these shares of common stock or any securities convertible into or exchangeable for shares of common stock from the date hereof until December 31, 2010; provided however that each such stockholder may dispose of up 300,000 shares of common stock on or after September 30, 2008; an additional 400,000 shares of common stock on or after June 30, 2009; an additional 400,000 shares of common stock on or after September 1, 2009; an additional 400,000 shares of common stock on or after March 31, 2010; and an additional 400,000 shares of common stock on or after September 1, 2010. 60
LEGAL MATTERS
The validity of the issuance of the common stock offered by the selling stockholders under this prospectus will be passed upon for us by Haynes and Boone,Sichenzia Ross Friedman Ference LLP, New York, New York. EXPERTS The consolidated financial statements for the years ended December 31, 20072008 and 2006,2007, included in this prospectus and elsewhere in the registration statement, have been audited by Semple, Marchal & Cooper, LLP, an independent registered public accounting firm, to the extent and for the periods indicated in their report appearing elsewhere herein, and are included in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. 61
WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock offered by this prospectus. This prospectus, which is part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. For further information pertaining to us and our common stock, reference is made to the registration statement and the exhibits and schedules to the registration statement. Statements contained in this prospectus as to the contents or provisions of any documents referred to in this prospectus are not necessarily complete, and in each instance where a copy of the document has been filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matters involved. You may read and copy all or any portion of the registration statement without charge at the public reference room of the SEC at 100 F Street, N. E., Washington, D. C. 20549. Copies of the registration statement may be obtained from the SEC at prescribed rates from the public reference room of the SEC at such address. You may obtain information regarding the operation of the public reference room by calling 1-800-SEC-0330. In addition, registration statements and certain other filings made with the SEC electronically are publicly available through the SEC’s web site athttp://www.sec.gov. The registration statement, including all exhibits and amendments thereto, has been filed electronically with the SEC. After effectiveness of the registration statement, of which this prospectus is a part, we will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended and, accordingly, will file annual reports containing financial statements audited by an independent registered public accounting firm, quarterly reports containing unaudited financial data, current reports, proxy statements and other information with the SEC. We do not presently intend to voluntarily distribute copies of our annual reports to our stockholders following the effectiveness of the registration statement, of which this prospectus is a part. However, you will be able to inspect and copy each of our periodic reports, proxy statements and other information at the SEC’s public reference room, and at the web site of the SEC referred to above. 62
INDEX TO FINANCIAL STATEMENTS | | | | | F-2 | | | F-3 | | | F-5 | | | F-6 | | | F-7 | Notes to Consolidated Financial Statements2008 | | F-8 | | | F-10 | | | F-29F-35 | | | F-31 | Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2007 and September 30,March 31, 2008 and for the cumulative period from Inception (July 20, 2001) through September 30, 2008March 31, 2009 | | F-32F-37 | | | F-33F-38 | | | F-40 | | | F-34F-42 |
Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders
Concentric Energy Corporation
(An Exploration Stage Company)
We have audited the accompanying consolidated balance sheets of Concentric Energy Corporation (An Exploration Stage Company) as of December 31, 20072008 and 20062007 and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the years ended December 31, 20072008 and 20062007 and for the cumulative period from inception (July 20, 2001) through December 31, 2007.2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As indicated in Note 2, the accompanying consolidated financial statements of Concentric Energy Corporation have been restated for the year ended December 31, 2006.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Concentric Energy Corporation (An Exploration Stage Company) as ofat December 31, 20072008 and 2006,2007, and the results of its operations and comprehensive loss, changes in stockholders’ equity and its cash flows for the years ended December 31, 20072008 and 20062007 and for the cumulative period from inception (July 20, 2001) through December 31, 20072008 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 32 to the consolidated financial statements, the Company is in the exploration stage, has suffered recurring losses from operations, and requires additional funds for further exploratory activity prior to attaining a revenue generating status. In addition, the Company may not find sufficient ore reserves to be commercially mined. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3.2. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. /s/ Semple, Marchal & Cooper LLP Certified Public Accountants
Phoenix, Arizona
July 23, 2009 May 1, 2008
Concentric Energy Corporation Corp.
(An Exploration Stage Company) Consolidated Balance Sheets
ASSETS
ASSETS
| | | December 31, | | | December 31, | | | | | 2007 | | | 2006 | | | | | | | | (as restated)* | | | Current Assets: | | | | | | | | Cash and cash equivalents | | $ | 825,908 | | | $ | 141,874 | | | Certificates of deposit | | | 507,822 | | | | - | | | Trading securities | | | 374,654 | | | | 207,858 | | | Receivables from related parties | | | 235 | | | | 90,330 | | | Receivable - other | | | 10,607 | | | | 31,497 | | | Deposits | | | 7,065 | | | | - | | | Prepaid expenses | | | 142,873 | | | | 7,673 | | | Asset held for sale | | | 2,309,048 | | | | - | | | | | | | | | | | | | Total current assets | | | 4,178,212 | | | | 479,232 | | | | | | | | | | | | | Property and equipment: | | | | | | | | | | Mineral rights | | | 100,000 | | | | 100,000 | | | Leasehold improvements | | | 13,044 | | | | 17,775 | | | Office equipment | | | 44,335 | | | | 44,557 | | | Field equipment | | | 35,469 | | | | - | | | Vehicles | | | 148,531 | | | | 91,785 | | | | | | | | | | | | | | | | 341,379 | | | | 254,117 | | | | | | | | | | | | | Less accumulated depreciation | | | (59,073 | ) | | | (42,287 | ) | | | | | | | | | | | | Total property and equipment, net | | | 282,306 | | | | 211,830 | | | | | | | | | | | | | Deposits | | | 1,991 | | | | 2,911 | | | | | | | | | | | | | Total assets | | $ | 4,462,509 | | | $ | 693,973 | |
* See Note 2
| | | | | | | | | | | | | December 31, | | | December 31, | | | | | 2008 | | | 2007 | | | Current Assets: | | | | | | | | | | Cash and cash equivalents | | $ | 24,750 | | | $ | 825,908 | | | Certificates of deposit | | | — | | | | 507,822 | | | Receivable from debenture offering | | | 471,339 | | | | — | | | Trading securities | | | 29,604 | | | | 374,654 | | | Receivables from related parties | | | 716 | | | | 235 | | | Receivable — other | | | 4,596 | | | | 10,607 | | | Deposits | | | — | | | | 7,065 | | | Prepaid expenses | | | 5,794 | | | | 142,873 | | | Asset held for sale | | | — | | | | 2,309,048 | | | | | | | | | | | Total current assets | | | 536,799 | | | | 4,178,212 | | | | | | | | | | | | | | | | | | | | | Property and equipment: | | | | | | | | | | Mineral rights | | | 100,000 | | | | 100,000 | | | Leasehold improvements | | | 13,044 | | | | 13,044 | | | Office equipment | | | 45,835 | | | | 44,335 | | | Field equipment | | | 35,469 | | | | 35,469 | | | Vehicles | | | 148,531 | | | | 148,531 | | | | | | | | | | | | | | 342,879 | | | | 341,379 | | | | | | | | | | | | | Less accumulated depreciation | | | (107,122 | ) | | | (59,073 | ) | | | | | | | | | | | | | | | | | | | | Total property and equipment, net | | | 235,757 | | | | 282,306 | | | | | | | | | | | | | | | | | | | | | Deferred charges — financing costs | | | 207,035 | | | | — | | | Drilling bonds | | | 6,021 | | | | — | | | Deposits | | | 1,991 | | | | 1,991 | | | | | | | | | | | | | | 215,047 | | | | 1,991 | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 987,603 | | | $ | 4,462,509 | | | | | | | | | |
The Accompanying Notes are an Integral Part of
the Consolidated Financial Statements
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS’ EQUITY
| | | December 31, | | | December 31, | | | | | 2007 | | | 2006 | | | | | | | | (as restated)* | | | Current liabilities: | | | | | | | | Accounts payable | | $ | 308,729 | | | $ | 129,813 | | | Accrued expenses | | | 359,656 | | | | 128,231 | | | Current portion of notes payable | | | 2,325,435 | | | | 6,731 | | | Convertible note payable - related party | | | 45,000 | | | | - | | | | | | | | | | | | | Total current liabilities | | | 3,038,820 | | | | 264,775 | | | | | | | | | | | | | Note payable - long-term portion | | | 48,775 | | | | 30,796 | | | | | | | | | | | | | Total liabilities | | | 3,087,595 | | | | 295,571 | | | | | | | | | | | | | Commitments and contingencies (Note 10) | | | - | | | | - | | | | | | | | | | | | | Stockholders' Equity | | | | | | | | | | Preferred stock; $0.001 par value; 50,000,000 shares authorized; no shares issued and outstanding | | | - | | | | - | | | Common stock; $0.001 par value; 150,000,000 shares authorized; 9,085,410 and 7,708,420, shares issued and outstanding at December 31, 2007 and 2006, respectively | | | 9,085 | | | | 7,708 | | | Additional paid-in capital | | | 11,919,947 | | | | 4,656,307 | | | Deficit accumulated during exploration stage | | | (10,554,118 | ) | | | (4,265,613 | ) | | | | | | | | | | | | Total stockholders' equity | | | 1,374,914 | | | | 398,402 | | | | | | | | | | | | | Total liabilities and stockholders' equity | | $ | 4,462,509 | | | $ | 693,973 | |
* See Note 2
| | | | | | | | | | | | | December 31, | | | December 31, | | | | | 2008 | | | 2007 | | | Current liabilities: | | | | | | | | | | Accounts payable | | $ | 335,646 | | | $ | 308,729 | | | Accounts payable — related parties | | | 22,436 | | | | — | | | Accrued expenses | | | 255,665 | | | | 359,656 | | | Current portion of notes payable | | | 17,792 | | | | 2,325,435 | | | Convertible note payable — related party | | | — | | | | 45,000 | | | | | | | | | | | Total current liabilities | | | 631,539 | | | | 3,038,820 | | | Long-term debt, less discounts of $633,601 and $9,686 at December 31, 2008 and 2007, respectively | | | 30,983 | | | | 48,775 | | | | | | | | | | | | | | | | | | | | | Total liabilities | | | 662,522 | | | | 3,087,595 | | | | | | | | | | | | | | | | | | | | | Commitments and contingencies | | | — | | | | — | | | | | | | | | | | | | Stockholders’ Equity | | | | | | | | | | Preferred stock; $0.001 par value; 50,000,000 shares authorized; no shares issued or outstanding | | | — | | | | — | | | Common stock; $0.001 par value; 150,000,000 shares authorized; 10,510,184 and 9,085,410, shares issued and 9,377,378 and 8,717,410 shares outstanding, respectively, at December 31, 2008 and 2007 | | | 10,510 | | | | 9,085 | | | Additional paid-in capital | | | 15,869,598 | | | | 11,919,947 | | | Deficit accumulated during exploration stage | | | (15,555,027 | ) | | | (10,554,118 | ) | | | | | | | | | | | | | | | | | | | | Total stockholders’ equity | | | 325,081 | | | | 1,374,914 | | | | | | | | | | | | | | | | | | | | | Total liabilities and stockholders’ equity | | $ | 987,603 | | | $ | 4,462,509 | | | | | | | | | |
The Accompanying Notes are an Integral Part of
the Consolidated Financial Statements
Concentric Energy Corporation Corp.
(An Exploration Stage Company) Consolidated Statements of Operations and Comprehensive Loss
| | | | | | Year Ended | | | Inception | | | | | Year Ended | | | December 31, | | | (July 20, 2001) | | | | | December 31, | | | 2006 | | | to December 31, | | | | | 2007 | | | (as restated)* | | | 2007 | | | Revenue | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | | General and administrative | | | 5,804,866 | | | | 1,856,011 | | | | 8,235,682 | | | Geological and geophysical costs | | | 482,366 | | | | 987,800 | | | | 2,353,637 | | | Total operating expenses | | | 6,287,232 | | | | 2,843,811 | | | | 10,589,319 | | | | | | | | | | | | | | | | | Loss from operations | | | (6,287,232 | ) | | | (2,843,811 | ) | | | (10,589,319 | ) | | | | | | | | | | | | | | | | Other income (expense): | | | | | | | | | | | | | | Interest income | | | 55,898 | | | | 2,112 | | | | 60,692 | | | Interest expense | | | (102,327 | ) | | | (928 | ) | | | (104,310 | ) | | Recognized gain (loss) on investments | | | 193,924 | | | | 52,439 | | | | 241,363 | | | Recognized loss on transfer of securities from available for sale to trading | | | - | | | | (18,776 | ) | | | (18,776 | ) | | Loss on disposal of fixed assets | | | (147,322 | ) | | | - | | | | (147,322 | ) | | Other income (expense) | | | (1,446 | ) | | | - | | | | 3,554 | | | Total other income (expense) | | | (1,273 | ) | | | 34,847 | | | | 35,201 | | | | | | | | | | | | | | | | | Net Loss | | | (6,288,505 | ) | | | (2,808,964 | ) | | | (10,554,118 | ) | | | | | | | | | | | | | | | | Other Comprehensive Income: | | | | | | | | | | | | | | Unrealized losses on available-for-sale securities | | | - | | | | - | | | | (18,776 | ) | | Reclassification adjustment for losses recognized on transfer from available-for-sale to trading | | | - | | | | 18,776 | | | | 18,776 | | | Comprehensive loss | | $ | (6,288,505 | ) | | $ | (2,790,188 | ) | | $ | (10,554,118 | ) | | | | | | | | | | | | | | | | Net loss per share | | | | | | | | | | | | | | Basic and diluted | | $ | (0.76 | ) | | $ | (0.38 | ) | | $ | (1.70 | ) | | | | | | | | | | | | | | | | Weighted average number of common shares - basic and diluted | | | 8,260,932 | | | | 7,387,712 | | | | 6,211,873 | |
* See Note 2
| | | | | | | | | | | | | | | | | | | | | | | | | Inception | | | | | Year Ended | | | Year Ended | | | (July 20, 2001) | | | | | December 31, | | | December 31, | | | to December 31, | | | | | 2008 | | | 2007 | | | 2008 | | | Revenue | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | | General and administrative | | | 4,360,877 | | | | 5,858,527 | | | | 12,743,881 | | | Geological and geophysical costs | | | 403,001 | | | | 571,101 | | | | 2,756,638 | | | | | | | | | | | | | | Total operating expenses | | | 4,763,878 | | | | 6,429,628 | | | | 15,500,519 | | | | | | | | | | | | | | Loss from operations | | | (4,763,878 | ) | | | (6,429,628 | ) | | | (15,500,519 | ) | | | | | | | | | | | | | Other income (expense): | | | | | | | | | | | | | | Interest income | | | 4,785 | | | | 55,898 | | | | 65,477 | | | Interest expense | | | (19,165 | ) | | | (102,327 | ) | | | (123,475 | ) | | Recognized gain (loss) on investments | | | (224,517 | ) | | | 193,924 | | | | 16,846 | | | Recognized loss on transfer of securities from available for sale to trading | | | — | | | | — | | | | (18,776 | ) | | Other income (expense) | | | 1,866 | | | | (6,372 | ) | | | 5,420 | | | | | | | | | | | | | | Total other income (expense) | | | (237,031 | ) | | | 141,123 | | | | (54,508 | ) | | | | | | | | | | | | | Net Loss | | | (5,000,909 | ) | | | (6,288,505 | ) | | | (15,555,027 | ) | | Other Comprehensive Income: | | | | | | | | | | | | | | Unrealized losses on available-for-sale securities | | | — | | | | — | | | | (18,776 | ) | | Reclassification adjustment for losses recognized on transfer from available- for-sale to trading | | | — | | | | — | | | | 18,776 | | | | | | | | | | | | | | Comprehensive loss | | $ | (5,000,909 | ) | | $ | (6,288,505 | ) | | $ | (15,555,027 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss per share | | | | | | | | | | | | | | Basic and diluted | | $ | (0.55 | ) | | $ | (0.76 | ) | | $ | (2.36 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average number of common shares outstanding — basic and diluted | | | 9,075,888 | | | | 8,237,781 | | | | 6,593,600 | | | | | | | | | | | | |
The Accompanying Notes are an Integral Part of
the Consolidated Financial Statements
Concentric Energy Corporation Corp.
(An Exploration Stage Company) Consolidated Statements of Stockholders’ Equity
| | | Number of | | | | | | | | | | | | Accumulated | | | Accumulated | | | | | | | | Shares of | | | | | | | | | Additional | | | Other | | | Deficit During | | | | | | | | Common | | | Members' | | | Common | | | Paid-in | | | Comprehensive | | | Exploration | | | Total | | | | | Stock | | | Equity | | | Stock | | | Capital | | | Loss | | | Stage | | | Equity | | | Members' contributions inception, July 20, 2001 to December 31, 2003 | | | - | | | $ | 71,315 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 71,315 | | | Net loss inception, July 20, 2001, to December 31, 2003 | | | - | | | | (111,066 | ) | | | - | | | | - | | | | - | | | | - | | | | (111,066 | ) | | Balance, December 31, 2003 | | | - | | | | (39,751 | ) | | | - | | | | - | | | | - | | | | - | | | | (39,751 | ) | | Members' contributions | | | - | | | | 12,000 | | | | - | | | | - | | | | - | | | | - | | | | 12,000 | | | Conversion from LLC to C Corporation on June 1, 2004 | | | 5,000,000 | | | | 27,751 | | | | 5,000 | | | | 78,315 | | | | - | | | | (111,066 | ) | | | - | | | Issuance of common stock for services | | | 534,280 | | | | - | | | | 534 | | | | 303,566 | | | | - | | | | - | | | | 304,100 | | | Sale of common stock, net | | | 1,044,000 | | | | - | | | | 1,044 | | | | 1,088,606 | | | | - | | | | - | | | | 1,089,650 | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (608,638 | ) | | | (608,638 | ) | | Balance, December 31, 2004 | | | 6,578,280 | | | | - | | | | 6,578 | | | | 1,470,487 | | | | - | | | | (719,704 | ) | | | 757,361 | | | Sale of common stock, net | | | 85,200 | | | | - | | | | 85 | | | | 187,915 | | | | - | | | | - | | | | 188,000 | | | Issuance of stock options | | | - | | | | - | | | | - | | | | 33,880 | | | | - | | | | - | | | | 33,880 | | | Exercise of stock options | | | 80,000 | | | | - | | | | 80 | | | | 99,920 | | | | - | | | | - | | | | 100,000 | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (736,945 | ) | | | (736,945 | ) | | Other comprehensive loss | | | - | | | | - | | | | - | | | | - | | | | (18,776 | ) | | | - | | | | (18,776 | ) | | Balance, December 31, 2005 | | | 6,743,480 | | | | - | | | | 6,743 | | | | 1,792,202 | | | | (18,776 | ) | | | (1,456,649 | ) | | | 323,520 | | | Sale of common stock, net | | | 907,000 | | | | - | | | | 907 | | | | 2,176,743 | | | | - | | | | - | | | | 2,177,650 | | | Issuance of common stock for services | | | 45,940 | | | | - | | | | 46 | | | | 137,185 | | | | - | | | | - | | | | 137,231 | | | Exercise of stock options | | | 12,000 | | | | - | | | | 12 | | | | 14,988 | | | | - | | | | - | | | | 15,000 | | | Issuance of stock options for services | | | - | | | | - | | | | - | | | | 535,189 | | | | - | | | | - | | | | 535,189 | | | Net loss (as restated)* | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,808,964 | ) | | | (2,808,964 | ) | | Other comprehensive income | | | - | | | | - | | | | - | | | | - | | | | 18,776 | | | | - | | | | 18,776 | | | Balance, December 31, 2006 (as restated)* | | | 7,708,420 | | | | - | | | | 7,708 | | | | 4,656,307 | | | | - | | | | (4,265,613 | ) | | | 398,402 | | | Sale of common stock, net | | | 850,000 | | | | - | | | | 850 | | | | 5,367,096 | | | | - | | | | - | | | | 5,367,946 | | | Issuance of common stock for services | | | 120,660 | | | | - | | | | 121 | | | | 376,879 | | | | - | | | | - | | | | 377,000 | | | Issuance of restricted stock for services | | | 368,000 | | | | - | | | | 368 | | | | 61,954 | | | | - | | | | - | | | | 62,322 | | | Issuance of stock options for services | | | - | | | | - | | | | - | | | | 827,216 | | | | - | | | | - | | | | 827,216 | | | Extension of expiry of previously issued stock options | | | - | | | | - | | | | - | | | | 256,838 | | | | - | | | | - | | | | 256,838 | | | Issuance of warrants for services | | | - | | | | - | | | | - | | | | 159,776 | | | | - | | | | - | | | | 159,776 | | | Conversion of notes payable | | | 38,330 | | | | - | | | | 38 | | | | 213,881 | | | | - | | | | - | | | | 213,919 | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (6,288,505 | ) | | | (6,288,505 | ) | | Balance, December 31, 2007 | | | 9,085,410 | | | $ | - | | | $ | 9,085 | | | $ | 11,919,947 | | | $ | - | | | $ | (10,554,118 | ) | | $ | 1,374,914 | |
* See Note 2
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of | | | | | | | | | | | | | | | Accumulated | | | Accumulated | | | | | | | | | Shares of | | | | | | | | | | | Additional | | | Other | | | Deficit During | | | | | | | | Common | | | Members’ | | | Common | | | Paid-in | | | Comprehensive | | | Exploration | | | Total | | | | | Stock | | | Equity | | | Stock | | | Capital | | | Loss | | | Stage | | | Equity | | | Members’ contributions inception, July 20, 2001 to December 31, 2003 | | | — | | | $ | 71,315 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 71,315 | | | Net loss inception, July 20, 2001, to December 31, 2003 | | | — | | | | (111,066 | ) | | | — | | | | — | | | | — | | | | — | | | | (111,066 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2003 | | | — | | | | (39,751 | ) | | | — | | | | — | | | | — | | | | — | | | | (39,751 | ) | | Members’ contributions | | | — | | | | 12,000 | | | | — | | | | — | | | | — | | | | — | | | | 12,000 | | | Conversion from LLC to C Corporation on June 1, 2004 | | | 5,000,000 | | | | 27,751 | | | | 5,000 | | | | 78,315 | | | | — | | | | (111,066 | ) | | | — | | | Issuance of common stock for services | | | 534,280 | | | | — | | | | 534 | | | | 303,566 | | | | — | | | | — | | | | 304,100 | | | Sale of common stock, net | | | 1,044,000 | | | | — | | | | 1,044 | | | | 1,088,606 | | | | — | | | | — | | | | 1,089,650 | | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (608,638 | ) | | | (608,638 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2004 | | | 6,578,280 | | | | — | | | | 6,578 | | | | 1,470,487 | | | | — | | | | (719,704 | ) | | | 757,361 | | | Sale of common stock, net | | | 85,200 | | | | — | | | | 85 | | | | 187,915 | | | | — | | | | — | | | | 188,000 | | | Issuance of stock options | | | — | | | | — | | | | — | | | | 33,880 | | | | — | | | | — | | | | 33,880 | | | Exercise of stock options | | | 80,000 | | | | — | | | | 80 | | | | 99,920 | | | | — | | | | — | | | | 100,000 | | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (736,945 | ) | | | (736,945 | ) | | Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (18,776 | ) | | | — | | | | (18,776 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2005 | | | 6,743,480 | | | | — | | | | 6,743 | | | | 1,792,202 | | | | (18,776 | ) | | | (1,456,649 | ) | | | 323,520 | | | Sale of common stock, net | | | 907,000 | | | | — | | | | 907 | | | | 2,176,743 | | | | — | | | | — | | | | 2,177,650 | | | Issuance of common stock for services | | | 45,940 | | | | — | | | | 46 | | | | 137,185 | | | | — | | | | — | | | | 137,231 | | | Exercise of stock options | | | 12,000 | | | | — | | | | 12 | | | | 14,988 | | | | — | | | | — | | | | 15,000 | | | Issuance of stock options for services | | | — | | | | — | | | | — | | | | 535,189 | | | | — | | | | — | | | | 535,189 | | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,808,964 | ) | | | (2,808,964 | ) | | Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | 18,776 | | | | — | | | | 18,776 | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2006 | | | 7,708,420 | | | $ | — | | | $ | 7,708 | | | $ | 4,656,307 | | | $ | — | | | $ | (4,265,613 | ) | | $ | 398,402 | | | | | | | | | | | | | | | | | | | | | | | | |
The Accompanying Notes are an Integral Part of
the Consolidated Financial Statements
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Consolidated Statements of Cash FlowsStockholders’ Equity (Continued)
| | | | | | Year Ended | | | Inception | | | | | Year Ended | | | December 31, | | | (July 20, 2001) to | | | | | December 31, | | | 2006 | | | December 31, | | | | | 2007 | | | (as restated) * | | | 2007 | | | | | | | | | | | | | | Cash Flows from Operating Activities | | | | | | | | | | | Net loss | | $ | (6,288,505 | ) | | $ | (2,808,964 | ) | | $ | (10,554,118 | ) | | Adjustments to reconcile net loss to net cash used in operating activities | | | | | | | | | | | | | | Depreciation and amortization | | | 52,979 | | | | 31,949 | | | | 95,266 | | | Recognized loss from the transfer from available-for-sale securities to trading securities | | | - | | | | 18,776 | | | | 18,776 | | | Recognized (gain) loss on securities | | | (193,924 | ) | | | (52,439 | ) | | | (241,363 | ) | | Issuance of stock options for services | | | 827,216 | | | | 535,189 | | | | 1,396,285 | | | Extension of expiry of previously issued warrants | | | 256,838 | | | | - | | | | 256,838 | | | Issuance of stock for services | | | 377,000 | | | | 137,231 | | | | 818,331 | | | Issuance of warrants for services | | | 159,776 | | | | - | | | | 159,776 | | | Issuance of restricted stock for services | | | 62,322 | | | | - | | | | 62,322 | | | Loss on sale of fixed assets | | | 147,322 | | | | - | | | | 147,322 | | | Amortization of debt discount | | | 4,769 | | | | 928 | | | | 5,697 | | | Interest paid through conversion to stock | | | 13,919 | | | | - | | | | 13,919 | | | Changes in assets and liabilities | | | | | | | | | | | | | | Trading securities | | | 27,128 | | | | (45,000 | ) | | | (17,872 | ) | | Receivables from related parties | | | 90,095 | | | | (70,330 | ) | | | (235 | ) | | Receivable - other | | | 20,890 | | | | (31,497 | ) | | | (10,607 | ) | | Prepaid expenses | | | (135,200 | ) | | | (25 | ) | | | (142,873 | ) | | Deposits | | | (6,145 | ) | | | (2,911 | ) | | | (9,056 | ) | | Payable to shareholder | | | - | | | | (10,929 | ) | | | - | | | Accounts payable | | | 178,916 | | | | 68,669 | | | | 308,729 | | | Accrued expenses | | | 231,425 | | | | 128,231 | | | | 359,656 | | | Net cash used in operating activities | | | (4,173,179 | ) | | | (2,101,122 | ) | | | (7,333,207 | ) | | Cash Flows from Investing Activities | | | | | | | | | | | | | | Purchase of fixed assets | | | (231,582 | ) | | | (63,675 | ) | | | (346,706 | ) | | Purchase of mineral rights | | | - | | | | - | | | | (100,000 | ) | | Purchase of certificates of deposit | | | (507,822 | ) | | | - | | | | (507,822 | ) | | Purchase of available-for-sale securities | | | - | | | | - | | | | (134,195 | ) | | Net cash used in investing activities | | | (739,404 | ) | | | (63,675 | ) | | | (1,088,723 | ) | | Cash Flows from Financing Activities | | | | | | | | | | | | | | Net proceeds from the sale of common stock | | | 5,367,946 | | | | 2,177,650 | | | | 8,823,246 | | | Exercise of stock options | | | - | | | | 15,000 | | | | 115,000 | | | Proceeds from members contributions | | | - | | | | - | | | | 83,315 | | | Proceeds from notes payable | | | 245,000 | | | | - | | | | 291,326 | | | Repayment of notes payable | | | (16,329 | ) | | | (2,394 | ) | | | (65,049 | ) | | Net cash provided by financing activities | | | 5,596,617 | | | | 2,190,256 | | | | 9,247,838 | | | Net increase (decrease) in cash and cash equivalents | | | 684,034 | | | | 25,459 | | | | 825,908 | | | Cash and cash equivalents at beginning of period | | | 141,874 | | | | 116,415 | | | | - | | | Cash and cash equivalents at end of period | | $ | 825,908 | | | $ | 141,874 | | | $ | 825,908 | | | Supplemental Disclosure of Cash Flow Information | | | | | | | | | | | | | | Cash paid during the year for interest | | $ | 25,000 | | | $ | - | | | $ | 26,055 | | | Cash paid during the year for income taxes | | $ | - | | | $ | - | | | $ | - | | | Non-Cash Investing and Financing Activities | | | | | | | | | | | | | | Purchase of a vehicle with a note payable | | $ | 39,195 | | | $ | 38,993 | | | $ | 78,188 | | | Conversion of debt to equity | | $ | 200,000 | | | $ | - | | | $ | 200,000 | | | Purchase of building with a note payable | | $ | 2,309,048 | | | $ | - | | | $ | 2,309,048 | | | Transfer of investments from available-for-sale to trading | | $ | - | | | $ | 110,419 | | | $ | 110,419 | | | Unrecognized loss on available-for-sale investments | | $ | - | | | $ | - | | | $ | 18,776 | |
* See Note 2
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of | | | | | | | | | | | | | | | Accumulated | | | Accumulated | | | | | | | | Shares of | | | | | | | | | | | Additional | | | Other | | | Deficit During | | | | | | | | Common | | | Members’ | | | Common | | | Paid-in | | | Comprehensive | | | Exploration | | | Total | | | | | Stock | | | Equity | | | Stock | | | Capital | | | Loss | | | Stage | | | Equity | | | Balance, December 31, 2006 | | | 7,708,420 | | | $ | — | | | $ | 7,708 | | | $ | 4,656,307 | | | $ | — | | | $ | (4,265,613 | ) | | $ | 398,402 | | | Sale of common stock, net | | | 850,000 | | | | — | | | | 850 | | | | 5,367,096 | | | | — | | | | — | | | | 5,367,946 | | | Issuance of common stock for services | | | 488,660 | | | | — | | | | 489 | | | | 438,833 | | | | — | | | | — | | | | 439,322 | | | Issuance of stock options for services | | | — | | | | — | | | | — | | | | 827,216 | | | | — | | | | — | | | | 827,216 | | | Extension of expiry of previously issued stock options | | | — | | | | — | | | | — | | | | 256,838 | | | | — | | | | — | | | | 256,838 | | | Issuance of warrants for services | | | — | | | | — | | | | — | | | | 159,776 | | | | — | | | | — | | | | 159,776 | | | Conversion of notes payable | | | 38,330 | | | | — | | | | 38 | | | | 213,881 | | | | — | | | | — | | | | 213,919 | | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (6,288,505 | ) | | | (6,288,505 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2007 | | | 9,085,410 | | | | — | | | | 9,085 | | | | 11,919,947 | | | | — | | | | (10,554,118 | ) | | | 1,374,914 | | | Issuance of common stock for services | | | 764,806 | | | | — | | | | 765 | | | | 1,013,562 | | | | — | | | | — | | | | 1,014,327 | | | Conversion of stock options to warrants | | | — | | | | — | | | | — | | | | 166,060 | | | | — | | | | — | | | | 166,060 | | | Amortization of stock options | | | — | | | | — | | | | — | | | | 144,997 | | | | — | | | | — | | | | 144,997 | | | Issuance of warrants for services | | | — | | | | — | | | | — | | | | 265,474 | | | | — | | | | — | | | | 265,474 | | | Issuance of warrants in conjunction with debenture offering | | | — | | | | — | | | | — | | | | 11,325 | | | | — | | | | — | | | | 11,325 | | | Discount on issuance of debentures | | | — | | | | — | | | | — | | | | 346,148 | | | | — | | | | — | | | | 346,148 | | | Discount on beneficial conversion feature | | | — | | | | — | | | | — | | | | 245,549 | | | | — | | | | — | | | | 245,549 | | | Sale of common stock, net | | | 541,666 | | | | — | | | | 542 | | | | 1,401,748 | | | | — | | | | — | | | | 1,402,290 | | | Conversion of notes payable | | | 118,302 | | | | — | | | | 118 | | | | 354,788 | | | | — | | | | — | | | | 354,906 | | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (5,000,909 | ) | | | (5,000,909 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2008 | | | 10,510,184 | | | $ | — | | | $ | 10,510 | | | $ | 15,869,598 | | | $ | — | | | $ | (15,555,027 | ) | | $ | 325,081 | | | | | | | | | | | | | | | | | | | | | | | | |
The Accompanying Notes are an Integral Part of
the Consolidated Financial Statements
Concentric Energy Corporation Corp.
(An Exploration Stage Company) Consolidated Statements of Cash Flows | | | | | | | | | | | | | | | | | | | | | | | | | Inception | | | | | Year Ended | | | Year Ended | | | (July 20, 2001) to | | | | | December 31, | | | December 31, | | | December 31, | | | | | 2008 | | | 2007 | | | 2008 | | | Cash Flows from Operating Activities | | | | | | | | | | | | | | Net loss | | $ | (5,000,909 | ) | | $ | (6,288,505 | ) | | $ | (15,555,027 | ) | | Adjustments to reconcile net loss to net cash used in operating activities | | | | | | | | | | | | | | Depreciation and amortization | | | 48,949 | | | | 52,979 | | | | 144,215 | | | Recognized loss from the transfer from available-for-sale securities to trading securities | | | — | | | | — | | | | 18,776 | | | Recognized (gain) loss on securities | | | 224,517 | | | | (193,924 | ) | | | (16,846 | ) | | Amortization of stock options issued for services | | | 144,997 | | | | 827,216 | | | | 1,541,282 | | | Extension of expiry of previously issued warrants | | | — | | | | 256,838 | | | | 256,838 | | | Issuance of stock for services | | | 1,014,327 | | | | 439,322 | | | | 1,894,980 | | | Issuance of warrants for services | | | 122,108 | | | | 159,776 | | | | 281,884 | | | Loss on sale of fixed assets | | | 1,415 | | | | 147,322 | | | | 148,737 | | | Amortization of debt discount | | | 4,461 | | | | 4,769 | | | | 10,158 | | | Interest paid through conversion to stock | | | 4,906 | | | | 13,919 | | | | 18,825 | | | Professional fees paid with debt | | | 50,000 | | | | — | | | | 50,000 | | | Conversion of stock options to warrants | | | 166,060 | | | | — | | | | 166,060 | | | Changes in assets and liabilities | | | | | | | | | | | | | | Trading securities | | | 147,721 | | | | 27,128 | | | | 129,849 | | | Receivables from related parties | | | (481 | ) | | | 90,095 | | | | (716 | ) | | Receivable — other | | | (10 | ) | | | 20,890 | | | | (10,617 | ) | | Prepaid expenses | | | 137,079 | | | | (135,200 | ) | | | (5,794 | ) | | Deposits | | | 7,065 | | | | (6,145 | ) | | | (1,991 | ) | | Accounts payable | | | 26,917 | | | | 178,916 | | | | 335,646 | | | Accounts payable — related parties | | | 22,436 | | | | — | | | | 22,436 | | | Accrued expenses | | | (140,670 | ) | | | 231,425 | | | | 218,986 | | | | | | | | | | | | | | Net cash used in operating activities | | | (3,019,112 | ) | | | (4,173,179 | ) | | | (10,352,319 | ) | | | | | | | | | | | | | Cash Flows from Investing Activities | | | | | | | | | | | | | | Purchase of fixed assets | | | (3,815 | ) | | | (231,582 | ) | | | (350,521 | ) | | Purchase of mineral rights | | | — | | | | — | | | | (100,000 | ) | | (Purchase) Sale of certificates of deposit | | | 507,822 | | | | (507,822 | ) | | | — | | | Purchase of available-for-sale securities | | | — | | | | — | | | | (134,195 | ) | | | | | | | | | | | | | Net cash provided (used) by investing activities | | | 504,007 | | | | (739,404 | ) | | | (584,716 | ) | | | | | | | | | | | | | Cash Flows from Financing Activities | | | | | | | | | | | | | | Net proceeds from the sale of common stock | | | 1,402,290 | | | | 5,367,946 | | | | 10,225,536 | | | Exercise of stock options | | | — | | | | — | | | | 115,000 | | | Sale of warrants | | | 11,325 | | | | — | | | | 11,325 | | | Proceeds from members contributions | | | — | | | | — | | | | 83,315 | | | Proceeds from notes payable, net | | | 366,180 | | | | 245,000 | | | | 657,506 | | | Repayment of notes payable | | | (65,848 | ) | | | (16,329 | ) | | | (130,897 | ) | | | | | | | | | | | | | Net cash provided by financing activities | | | 1,713,947 | | | | 5,596,617 | | | | 10,961,785 | | | | | | | | | | | | | | Net increase (decrease) in cash and cash equivalents | | | (801,158 | ) | | | 684,034 | | | | 24,750 | | | Cash and cash equivalents at beginning of period | | | 825,908 | | | | 141,874 | | | | — | | | | | | | | | | | | | | Cash and cash equivalents at end of period | | $ | 24,750 | | | $ | 825,908 | | | $ | 24,750 | | | | | | | | | | | | |
The Accompanying Notes are an Integral Part of
the Consolidated Financial Statements F-8
Concentric Energy Corp.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows (continued) | | | | | | | | | | | | | | | | | | | | | | | | | Inception | | | | | Year Ended | | | Year Ended | | | (July 20, 2001) to | | | | | December 31, | | | December 31, | | | December 31, | | | | | 2008 | | | 2007 | | | 2008 | | | Supplemental Disclosure of Cash Flow Information | | | | | | | | | | | | | | Cash paid during the year for interest | | $ | 68,422 | | | $ | 25,000 | | | $ | 94,477 | | | | | | | | | | | | | | Cash paid during the year for income taxes | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | | Non-Cash Investing and Financing Activities | | | | | | | | | | | | | | Purchase of a vehicle with a note payable | | $ | — | | | $ | 39,195 | | | $ | 78,188 | | | | | | | | | | | | | | Conversion of debt to equity | | $ | 350,000 | | | $ | 200,000 | | | $ | 550,000 | | | | | | | | | | | | | | Purchase of building with a note payable | | $ | — | | | $ | 2,309,048 | | | $ | 2,309,048 | | | | | | | | | | | | | | Resale of building and extinguishment of note payable | | $ | 2,309,048 | | | $ | — | | | $ | 2,309,048 | | | | | | | | | | | | | | Transfer of investments from available-for-sale to trading | | $ | — | | | $ | — | | | $ | 110,419 | | | | | | | | | | | | | | Unrecognized loss on available-for-sale investments | | $ | — | | | $ | — | | | $ | 18,776 | | | | | | | | | | | | | | Trading securities exchanged for debt | | $ | 27,188 | | | $ | — | | | $ | 27,188 | | | | | | | | | | | | | | Subscriptions receivable exchanged for debt | | $ | 471,339 | | | $ | — | | | $ | 471,339 | | | | | | | | | | | | | | Debt discount | | $ | 628,376 | | | $ | — | | | $ | 628,376 | | | | | | | | | | | | | | Professional fees paid with debt | | $ | 50,000 | | | $ | — | | | $ | 50,000 | | | | | | | | | | | | | | Warrants issued as deferred financing costs | | $ | 143,366 | | | $ | — | | | $ | 143,366 | | | | | | | | | | | | | | Warrants issued classified as a liability | | $ | 36,679 | | | $ | — | | | $ | 36,679 | | | | | | | | | | | | |
The Accompanying Notes are an Integral Part of
the Consolidated Financial Statements F-9
Concentric Energy Corp.
(An Exploration Stage Company) Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies
Nature of Business–— Concentric Energy CorporationCorp. (“Concentric Energy”) was incorporated on June 1, 2004 under the laws of the State of Nevada and is currently an exploration stage company and does not have any mining operations which generate revenue or profit. The CompanyConcentric Energy is the successor to Concentric Energy, LLC which was founded on July 20, 2001 under the laws of the State of Nevada and converted to a corporate form on June 1, 2004. The CompanyConcentric Energy is currently conducting the advanced exploration of one property located in Arizona through its wholly owned subsidiary, Anderson Mining Company. Anderson Mining Company was incorporated under the laws of the State of Arizona on June 23, 2006. The generation of revenue from its mining operations is dependent on the existence of economically recoverable reserves at its uranium property, and the ability of the CompanyConcentric Energy to obtain financing to complete the development of such reserves and meet its obligations under various agreements.
Basis of Presentation— The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Certain balances have been reclassified in the accompanying financial statements to conform to the current year presentation.
Basis of Presentation – The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
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Basis of Consolidation— The accompanying consolidated financial statements include the accounts of Concentric Energy and its wholly owned subsidiary, Anderson Mining Company (collectively, the “Company”). All significant intercompany accounts and transactions, if any, have been eliminated in consolidation.
Basis of Consolidation – The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Anderson Mining Company (collectively, the “Company”). All significant intercompany accounts and transactions, if any, have been eliminated in consolidation.
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Use of Estimates –Use of Estimates— The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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Significant estimates are used when accounting for the carrying value of mineral properties, reclamation liabilities, depreciation, taxes and the valuation of stock, stock options and warrants, which are discussed in their respective notes to the consolidated financial statements. Due to uncertainties inherent in the estimation process and the significance of these items, it is at least reasonably possible that the estimates in connection with these items could be further materially revised within the next year.
Property and Equipment— Mineral exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, costs incurred prospectively to develop the property are capitalized as incurred and will be amortized using the units-of-production (“UOP”) method over the estimated life of the ore body based on estimated recoverable reserve quantities from proven and probable reserves. Major development costs incurred after the commencement of production will also be amortized using the UOP method.
Property and equipment are recorded at cost. Depreciation is provided for on the straight line method over the estimated useful lives of the assets. Leasehold improvements are recorded at cost and are amortized over their estimated useful lives or their lease term, whichever is shorter. Expenditures for new facilities or equipment and expenditures that extend the useful lives of existing facilities or equipment are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the estimated productive lives of such facilities and equipment. The estimated useful lives of property and equipment are as follows: Property & Equipment – Mineral exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, costs incurred prospectively to develop the property are capitalized as incurred and are amortized using the units-of-production (“UOP”) method over the estimated life of the ore body based on estimated recoverable reserve quantities from proven and probable reserves. Major development costs incurred after the commencement of production are amortized using the UOP method.
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Property and equipment are recorded at cost. Depreciation is provided for on the straight line method over the estimated useful lives of the assets. Leasehold improvements are recorded at cost and are amortized over their estimated useful lives or their lease term, whichever is shorter. Expenditures for new facilities or equipment and expenditures that extend the useful lives of existing facilities or equipment are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the estimated productive lives of such facilities and equipment. The estimated useful lives of property and equipment are as follows: |
| Leasehold improvements | | 1 –- 3 years | | Office equipment | 3 – 7 years | Vehicles | 5 years | Field equipment | 3 –- 7 years |
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies(continued) | | | | Vehicles | | 5 years | | Field equipment | | 3 - 7 years |
Depreciation expensesexpense for the years ended December 31, 2008 and 2007 2006 and the period from inception (July 20, 2001) to December 31, 20072008 was $48,949; $52,979; $31,949; and $95,266,$144,215, respectively.
Reclamation Obligations - —The Company has engaged in exploration activities on its uranium property which consist of the drilling of a limited number of test wells to confirm previously acquired geologic and geophysical data. At December 31, 2008 and 2007, the Company has accrued no costs for any reclamation obligations relating to its mineral properties because of the limited scope of these operations and management’s estimate that no material reclamation costs have been incurred.
Cash and Cash Equivalents –— The Company considers all holdings of highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The Company maintains its cash in bank deposit accounts which may exceed federally insured limits. At December 31, 2008 and 2007, the Company had approximately $0 and $1,200,000, respectively, in accounts that exceeded federally insured limits.
Investments –— The Company accounts for its investments in accordance with Statement of Financial Accounting Standard (SFAS) No. 115,Accounting for Certain Investments in Debt and Equity Securities. under SFAS No. 115. The Company’s security investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Trading securities are stated at fair value and any change in the fair value during a period is recorded as a charge or credit in the statement of operations and comprehensive loss. Available-for-sale securities are stated at fair value. Unrealized holding gains and losses are included in accumulated other comprehensive loss until such time as the underlying securities are sold or written off. Declines in the fair value of available-for-sale securities below their cost that are other than temporary result in write downs of the individual securities to their estimated fair value. Realized gains and losses from the sale or write down of available-for-sale securities are included in other income (expense). The Company determines the cost of an investment sold based on the specific identification method.
Net Loss Per Share –— Basic net loss per common share is computed by dividing net loss available to common stockholders for the period by the weighted average number of common shares of stock outstanding during the period.
At December 31, 2008 and 2007, unvested restricted common shares of 1,132,806 and 368,000, respectively, were not included in the calculation of basic net loss per common share.
At December 31, 20072008 and 2006,2007, there were outstanding potentially dilutive securities as follows: | | | | | | | | | | | | | 2008 | | 2007 | | Options | | | 954,625 | | | | 1,340,985 | | | | | | | | | | | | | Warrants | | | 3,396,901 | | | | 1,097,480 | | | | | | | | | | | | | Convertible debentures | | | 698,196 | | | | — | | | | | | | | | | | | | Total potentially dilutive securities | | | 5,049,722 | | | | 2,438,465 | | | | | | | | | | | |
| | | 2007 | | | 2006 | | | Options | | | 1,340,985 | | | | 1,148,110 | | | Warrants | | | 1,097,480 | �� | | | 956,680 | | | Contingent stock | | | - | | | | 188,000 | | | Total potentially dilutive securities | | | 2,438,465 | | | | 2,292,790 | |
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies(continued)
As of December 31, 20072008 and 2006,2007, the above listed potentially dilutive securities were not included in the determination of diluted net loss per share as their effect was anti-dilutive.
Income Taxes – —The Company provides for income taxes under SFAS 109, “AccountingAccounting for Income Taxes”, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities using the enacted income tax rate expected to apply to taxable income in the period in which the deferred tax liability or asset is expected to be settled or realized. SFAS 109 requires that a valuation allowance be established, if necessary, to reduce the deferred tax assets to the amount that management believes is more likely than not to be realized. The provision for federal income tax differs from that computed by applying federal statutory rates to income (loss) before federal income tax expense mainly due to expenses that are not deductible for federal income taxes, including permanent differences such as non-deductible meals and entertainment.entertainment, as well as the effect of limiting the value of the net operating losses currently incurred.
Stock Options – Effective January 1, 2006, theBased Compensation— The Company adoptedrecognizes stock based compensation expense under SFAS 123(R),Share-Based Payments, based on the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), using the modified prospective transition method and therefore the Company has not restated its results for prior periods. Under this transition method, stock-based compensation expense for the year ended December 31, 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, basedaward on the grant date fair value estimated in accordance with the original provision of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”).grant. The Company recognizes thesethis compensation costscost on a straight-line basis over the requisite service period of the award. Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).
Prior to the adoption of SFAS 123(R), the Company recognized stock-based compensation expense in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123(R) and the valuation of share-based payments for public companies. The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R). See Note 9 to the financial statements for a further discussion of stock-based compensation.
Comprehensive Loss –— Comprehensive loss is composed of the Company’s net loss and other comprehensive loss. Other comprehensive loss includes unrealized gains and losses on available-for-sale securities.
Impairment of Long-Lived Assets –— The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash flows generated by the asset are less than the carrying amount of the asset. An impairment loss is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Reclassifications— Certain balances have been reclassified in the accompanying financial statements to conform to the current year presentation. Fair Value Measurements— The Company adopted Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“SFAS 157”) effective January 1, 2008 for financial assets and liabilities measured on a recurring basis, except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in FSP FAS 157-2, which defers the effective date of SFAS 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed in the financial statements on a recurring basis. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market at the measurement date. This statement also establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly in active markets; and (Level 3) unobservable inputs in which there is little or no market data available. F-12
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies(continued)
The Company’s assets carried at fair value measured on a recurring basis are as follows at December 31, 2008:
| | | | | | | | | At and For The | | | | | Year Ended | | | | | December 31, 2008 | | | Trading securities | | $ | 29,604 | | | | | | | | Quoted prices in active market for identical securities (Level 1) | | $ | 29,604 | | | | | | | | Significant other observable inputs (Level 2) | | $ | — | | | | | | | | Significant unobservable inputs (Level 3) | | $ | — | | | | | | | | Total losses attributable to net unrealized losses included in Other Income or Expense | | $ | (126,832 | ) | | | | | |
The Company determines the fair value of trading securities based upon quoted market prices of identical securities supplied by national securities exchanges. Total realized and unrealized losses of $224,517 include unrealized losses of $126,832. Effective January 1, 2008, the Company also adopted Statement of Financial Accounting Standards No. 159,The Fair Value Option of Financial Assets and Financial Liabilities - including an Amendment of Statement of Financial Accounting Standards No. 115(“SFAS 159”), which allows an entity to choose to measure certain financial instruments and liabilities at fair value on a contract by contract basis. The Company did not elect such option for its financial instruments and liabilities. As such, the adoption of SFAS 159 had no impact on its consolidated results of operations or financial position at December 31, 2008. Recent Accounting Pronouncements –— In December 2007, the FASB issued FASB Statement No. 141(R), “Business Combinations” (“Business Combinations(“SFAS 141(R)”). This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. The Statement’s scope is broader than that of Statement 141, which applied only to business combinations in which control was obtained by transferring consideration. By applying the same method of accounting—the acquisition method—to all transactions and events in which one entity obtains control over one or more other businesses, this Statement improves the comparability of the information about business combinations provided in financial reports. The provisions of SFAS 141(R) are effective for fiscal years beginning after December 15, 2008. We are currently evaluatingAs the impactCompany has had no acquisitions, the adoption of adopting SFAS 141(R) will have no impact on ourits consolidated results of operations and financial position, but as the company has had no acquisitions, we do not expect that adopting SFAS 141(R) will have any impact at all on our consolidated results of operations and financial position. In December 2007, the FASB issued FASB Statement No. 160, “NoncontrollingNoncontrolling Interest in Consolidated Financial Statements” (“Statements(“SFAS 160”). This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also changes the way the consolidated income statement is presented. The provisions of SFAS 160 are effective for fiscal years beginning after December 15, 2008. We are currently evaluatingAs the impactCompany has no noncontrolling interests in its F-13
Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements Note 1. Nature of adoptingBusiness and Significant Accounting Policies(continued) subsidiary, the adoption of SFAS 160 will have no impact on ourits consolidated results of operations and financial position, but do not expect it to have a material impact. position. In March 2008, the FASB issued FASB Statement No. 161, “DisclosuresDisclosures about Derivative Instruments and Hedging Activities –— an amendment of FASB Statement No. 133.”133(“SFAS 161”). This Statement requires enhanced disclosures about an entity’s derivative and hedging activities and improves the transparency of financial reporting. The Statement is effective for fiscal years and interim periods beginning after November 25,15, 2008. SinceAs the Company is involved in no hedging activities and has no derivative instruments, it does not expect thisthe adoption of SFAS 161 will have no impact on its consolidated results of operations and financial position. In May 2008, the FASB issued FSP APB 14-1,Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Conversion).This Staff Position clarifies the accounting pronouncement to havefor convertible debt instruments and specifies that convertible debt instrument issuers should separately account for the liability and the equity component in a material impact.
Note 2. Restatement of Financial Statements – manner that will reflect the entity’s nonconvertible borrowing rate when interest cost is recognized in subsequent accounting periods. This Staff Position is effective for fiscal years and interim periods beginning after December 15, 2008. The Company determinedhas issued convertible debt instruments and is currently evaluating the effect that $48,000 in severance payments madethe adoption of FSP APB 14-1 will have upon its consolidated results of operations and financial position.
In June 2008, the FASB ratified Emerging Issues Task Force Issue No. 07-5,Determining Whether An Instrument (or Embedded Feature) Is Indexed to a former officer which were paid duringan Entity’s Own Stock(“EITF 07-5”). Under FASB Statement No. 133,Accounting for Derivative Instruments and Hedging Activities(“FASB 133”), an instrument that otherwise meets the year endeddefinition of derivative is excluded from the scope of FASB 133 if it is both (i) indexed to an entity’s own stock and (ii) classified as shareholder’s equity. The purpose of EITF 07-5 is to define the meaning of “indexed to an entity’s own stock.” This Issue is effective for fiscal years and interim periods beginning after December 31, 2007, should15, 2008. The Company has outstanding warrants to purchase common stock that have been accrued duringpreliminarily evaluated as ineligible for equity classification under EITF 07-5 because of certain provisions that may result in an adjustment to the year ended December 31, 2006 whenexercise price of the former officer resigned.warrants and the number of warrants exercisable. Accordingly, the adjustment feature may cause the warrant to fail to be indexed solely to the Company’s own stock. The warrants would therefore be classified as liabilities and re- measured at fair value with changes in the fair value recognized in operating results. The Company is restatinghas not completed its analysis of these instruments nor determined the year ended December 31, 2006 in theseeffects pending adoption, if any, on the Company’s consolidated financial statements. In June 2006, the FASB issued FASB Interpretation No. 48, “An Interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in income taxes in a company’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” This restatement resulted in an increase of $48,000 in deficit accumulated during exploration stage as of December 31, 2006Interpretation prescribes a recognition threshold and an increase in net loss of $48,000measurement attribute for the year ended December 31, 2006.financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 reflects the benefit recognition approach, where a tax benefit is recognized when it is “more likely than not” to be sustained based on the technical merits of the position. The Company is currently evaluating the effect that the adoption of FIN No. 48 will have on its consolidated results of operations and financial position. F-14
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 3.2. Going Concern - —The Company has incurred losses since inception and requires additional funds for further exploration activities. The Company is an exploration stage company, exploring one mineral property, but not yet generating any revenue from that property. In addition, the Company may not find economically recoverable reserves. These factors create an uncertainty as to how the Company will fund its operations and maintain sufficient cash flow to operate as a going concern.
In response to these adverse conditions, management is continuing to look for financing from various sources, including private placements from investors and institutions. Management believes these efforts will contribute toward funding the Company’s activities until revenue can be earned from future operations or dispositions. In addition, management believes that the net proceeds from private placements, if successful, will be sufficient to meet its working capital and its currently anticipated expenditure levels for the next year. The Company’s ability to meet its cash requirements in the next year is dependent upon obtaining this financing. If this is not achieved, the Company may be unable to obtain sufficient cash flow to fund its operations and obligations, and therefore, may be unable to continue as a going concern.
The accompanying consolidated financial statements have been prepared on a going concern basis, and accordingly, do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor do they include adjustments to the amounts and classification of liabilities that might be necessary should the Company be unable to continue operations or be required to sell its assets.
Note 4.3. Exploration Stage Company –— As discussed in Note 1, the Company’s predecessor was founded on July 20, 2001. The Company is currently in an exploration stage, which is characterized by significant expenditures for the examination and development of exploration opportunities. The Company’s focus for the foreseeable future will continue to be on exploration of its existing mineral property. Note 5.4. Investments – —Investments in securities are summarized as follows at and for the years ended December 31, 20072008 and 2006.2007. | | | | | | | | | | | | | | | | | | | | | | | | | Gross | | | Gross | | | Gross | | | Gross | | | | | | | | Unrecognized | | | Unrecognized | | | Recognized | | | Recognized | | | | | | | | Gain | | | Loss | | | Gain | | | Loss | | | Fair Value | | 2008 | | | | | | | | | | | | | | | | | | | | | | Trading securities: | | | | | | | | | | | | | | | | | | | | | | Common stock | | $ | — | | | $ | — | | | $ | — | | | $ | 224,517 | | | $ | 29,604 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2007 | | | | | | | | | | | | | | | | | | | | | | Trading securities: | | | | | | | | | | | | | | | | | | | | | | Common stock | | $ | — | | | $ | — | | | $ | 242,500 | | | $ | 48,576 | | | $ | 374,654 | | | | | | | | | | | | | | | | | | |
| | | Gross | | | Gross | | | Gross | | | Gross | | | | | | | | Unrecognized | | | Unrecognized | | | Recognized | | | Recognized | | | | | | | | Gain | | | Loss | | | Gain | | | Loss | | | Fair Value | | | 2007 | | | | | | | | | | | | | | | | | Trading securities: | | | | | | | | | | | | | | | | | Common stock | | $ | - | | | $ | - | | | $ | 242,500 | | | $ | 48,576 | | | $ | 374,654 | | | | | | | | | | | | | | | | | | | | | | | | | 2006 | | | | | | | | | | | | | | | | | | | | | | Trading securities: | | | | | | | | | | | | | | | | | | | | | | Common stock | | $ | - | | | $ | - | | | $ | 66,630 | | | $ | 32,967 | | | $ | 207,858 | |
During the year ended December 31, 2006, the Company reclassified its available-for-sale securities to trading securities. Gross losses recognized in the statement of operations and comprehensive loss as a result of this reclassification were $18,776.
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 5. Investments (continued) During the year endedLong-term debt —At December 31, 2006,2008 and 2007, long-term debt consisted of the following:
| | | | | | | | | | | | | December 31, | | | December 31, | | | | | 2008 | | | 2007 | | | 15% convertible debentures | | $ | 628,376 | | | $ | — | | | Office condo promissory note | | | — | | | | 2,309,048 | | | Installment notes payable | | | 54,000 | | | | 74,848 | | | | | | | | | | | | | | 682,376 | | | | 2,383,896 | | | | | | | | | | | | | Less: | | | | | | | | | | Discounts | | | (633,601 | ) | | | (9,686 | ) | | Current portion of long-term debt | | | (17,792 | ) | | | (2,325,435 | ) | | | | | | | | | | Long-term debt | | $ | 30,983 | | | $ | 48,775 | | | | | | | | | |
15% Convertible Debentures On December 31, 2008, the Company completed a security classified asprivate placement offering in which it sold an aggregate principal amount of $628,376 of 15% cumulative convertible debentures and an aggregate of 1,396,391 common stock warrants. The debentures are convertible at the initial conversion price of $0.90 per share and the warrants have an initial exercise price of $1.00 per share. The warrants have an exercise term of four years. The debentures are due and payable on December 31, 2012. The Company received net cash proceeds and trading securities was written downof $514,707, net of expenses of $63,669 associated with the debenture offering and $50,000 of current period financial advisory fees not associated with the debenture offering. The expenses associated with the debenture offering have been capitalized as deferred charges. In addition, the Company issued 136,233 warrants with an exercise price of $1.00 and 68,116 warrants with an exercise price of $0.90 as sales commissions related to its estimated realizablethe debenture offering. The Company has also capitalized the fair value of $0, because,these warrants, $143,366, as deferred charges. The deferred charges of $207,035 will be amortized over the term of the debentures using the effective interest method. In connection with the December 31, 2008 private placement, the Company entered into an agreement with each of the investors, whereby the investors purchased units comprised of the debentures and the $1.00 warrants. In addition, each of the subscribers surrendered, as part of the purchase price of the 15% convertible debentures, 427,581 warrants with an exercise price of $4.50 and 235,164 warrants with an exercise price of $6.00 held by them which they had acquired in the opinionCompany’s prior private placement of management,common stock, which closed on July 31, 2008. The Company has recorded a discount on the decline in market15% convertible debentures of $382,827 which represents the relative fair value of that security was considered to be other than temporary. This Company determines the cost of an investment sold based onwarrants purchased by the specific identification method. Thesubscribers in this private placement. In addition, the Company recognized a lossan additional discount of $9,712 during$245,549 which represents the year endedrelative fair value of the beneficial conversion feature which arises from the issuance of these convertible debentures. A total discount of $628,376 has been recognized and will be amortized over the term of the debentures using the effective interest method. F-16
Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements Note 5. Long-term debt(continued) Included in the 1,396,391 warrants issued in the Company’s December 31, 2006, related2008 private placement of convertible debentures are 145,718 warrants issued to two of the Company’s major stockholders. Under the terms of the subscription agreement associated with these warrants, holders cannot exercise their warrants if they beneficially own more than 9.99% of the Company following the exercise of these warrants. Each of these two stockholders beneficially own in excess of 9.99% of the Company on December 31, 2008 and cannot exercise their warrants. As a result, the Company has classified $36,679 as a liability associated with the issuance of these warrants until such time as this other than temporary decline in value.exercise restriction is no longer effective. Office Condo Promissory Note Note 6. Notes Payable – On August 17, 2007, the Company acquired an office condominium in Phoenix, Arizona for approximately $2.4 million. This purchase was financed by issuing an approximate $2.3 million promissory note to the seller. The note bearscarried a simple interest atrate of 6.5% and the principal and interest arewere due on the earlier of December 31, 2007 or 15 days after the Company completes an initial public offering.
On November 8, 2007, the promissory note was amended (i) to change the maturity date of the note to March 31, 2008 or 15 days after the Company completes an initial public offering, (ii) to require the payment of interest accrued through December 31, 2007 on or before January 15, 2008 and (iii) to clarify language in the promissory note under which the seller acknowledges that in the event of default the note is non-recourse to the Company. The Company paid the seller an additional $25,000 at the time of this amendment. Subsequent to December 31, 2007,On January 23, 2008, under the terms of an amendment to this promissory note, the Company paid the interest accrued on the note of approximately $66,000 plus closing costs and executed a deed returning the property to the original seller. As a result, the original seller cancelled the promissory note. In addition, at December 31, 2007, the Company expensed the $125,000 in down payments that it had made for this property. See Note 12, Subsequent Events.
Convertible Notes
On March 13, 2008, the Company issued a convertible note for $150,000 and on April 27, 2008, the Company issued a convertible note for $200,000. Both of these notes bear interest at 10% per annum. The notes are convertible into the common stock of the Company at the lesser of $7.00 per share or the lowest price per share received by the Company in any subsequent financing that occurs while this note is still outstanding. Principal and interest on this note is payable one year from the date of issue. Both the notes plus accrued interest totaled approximately $355,000 and were converted into 118,302 shares of common stock on May 29, 2008, in connection with the private placement of the Company’s common stock which closed on July 31, 2008. On January 1, 2007, the Company issued $110,000 of convertible notes to certain officers and directors. The notes bear interest at 6% per annum. Principal and interest is payable on December 31, 2007 or at the Company’s election, upon the closing of any financing in which proceeds of at least $1,000,000 are generated. The notes are convertible into the Company’s common stock at $5.00 per share. The Company can elect to repay the notes, without conversion rights, upon the completion of a financing in which the F-17
Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements Note 5. Long-term debt(continued) proceeds are at least $2,000,000. On November 1, 2007, the holders of $65,000 of these convertible notes elected to convert their notes plus accrued interest of approximately $3,000 into 13,652 shares of the common stock of the Company.
The remaining note totaling $45,000 together with accrued interest of $2,737 was repaid in cash on January 5, 2008.
On March 1, 2007 and May 9, 2007, the Company issued convertible notes totaling $100,000 and $35,000, respectively. These notes bear interest at 10% per annum. The notes are convertible into the common stock of the Company at $5.60 and $7.00, respectively, per share, respectively.share. Principal and interest on these notes is payable one year from the date of issue. On November 15, 2007, the holders of both of these notes elected to convert the notes plus accrued interest of approximately $11,000 into 24,678 shares of the Company’s common stock.
Installment Notes Payable
The Company has two notes payable to Ford Credit that are payable in monthly installments totaling $1,763. These notes mature in May and September 2011 and are secured by liens on vehicles. The notes have a balance of $74,848 at December 31, 2007 and an imputed interest rate of 8.25%. The carrying value of the vehicles that serve as collateral is $65,745 on$56,860 at December 31, 2007.2008. The principal balance of these notes at December 31, 20072008 is $65,162$48,775 net of unamortized discount of $9,686.$5,225. For the yearyears ended December 31, 2008 and 2007, the Company recorded amortization of the debt discount into interest expense on the statement of operations and comprehensive loss in the amount of $4,769. Concentric Energy Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 6. Notes Payable (continued)
$4,461 and $4,769, respectively.
Future minimum principal payments for the Company’s debt over the next four years are: | | | | | | | Period ended December 31, | | Amount | | | | | 2009 | | $ | 20,951 | | | 2010 | | | 21,054 | | | 2011 | | | 11,995 | | | 2012 | | | 628,376 | | | | | | | | | | | 682,376 | | | Less: Discount | | | (633,601 | ) | | | | | | | | | | 48,775 | | | Less: Current portion | | | (17,792 | ) | | | | | | | | | $ | 30,983 | | | | | | |
Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements | Period ended December 31, | | Amount | | | 2008 | | $ | 2,374,896 | | | 2009 | | | 20,951 | | | 2010 | | | 21,054 | | | 2011 | | | 11,995 | | | | | | 2,428,896 | | | Less: Discount | | | (9,686 | ) | | | | | 2,419,210 | | | Less: Current portion | | | (2,370,435 | ) | | | | $ | 48,775 | |
Note 7.6. Related Party Transactions –— Ralph Kettell, who wasis the founder and former CEO of the Company, and ownscontrols approximately 21%36% of the outstanding stock of the Company, is a member of the Board of Directors of Piedmont Mining Company (“Piedmont”), as is Pete Ingersoll, a former Director of the Company. As of December 31, 2007,2008, the Company owns 1,212,596700,512 shares of Piedmont.Piedmont common stock. During 2007,2008, we sold 1,199,184 shares of Piedmont common stock and received 687,500 shares of Piedmont common stock in exchange for a $56,784 15% debenture. The 687,500 shares were received from Mr. Kettell. The fair market value of these securities on December 31, 2008 was $22,000. In addition, Mr. Kettell contributed additional trading securities which had a fair market value of $5,188 on December 31, 2008 as part of his subscription. Mr. Kettell’s total subscription, including $26,812 in cash, was $54,000. The value of Mr. Kettell’s debenture and the number of warrants issuable to him associated with this subscription will be increased or decreased based upon the amount of net sales proceeds the Company exercised a warrant to purchasereceives from the sale of these trading securities over the 120 days ending on April 30, 2009 or on the market value of any unsold trading securities on April 30, 2009. Included in the subscriptions receivable from the debenture offering on December 31, 2008 is an additional 656,298300,000 shares for $52,504of Piedmont common stock, valued at $9,600 on December 31, 2008, contributed by Laura Kettell as a part of her subscription. In addition, Mrs. Kettell contributed additional trading securities which had a fair market value of $5,188 on December 31, 2008 increasing her total subscription to $14,788. The value of Mrs. Kettell’s debenture and sold 100,000 shares.
the number of warrants issuable to her associated with this subscription will be increased or decreased based upon the amount of net sales proceeds the Company receives from the sale of these trading securities over the 120 days ending on April 30, 2009 or on the market value of any unsold trading securities on April 30, 2009.
Certain principals of the Company have been involved in the creation and development of E-VAT, Inc. (“E-VAT”), a start-up company that is developing extractive technologies for use in mining in which non-arsenic-based leaching techniques are employed. The Company provided no financing to E-VAT during the year ended December 31, 2008 and provided financing in the amount of $300,000 during each of the yearsyear ended December 31, 2007, and 2006, which was expensed as purchased research and development. Based on the results of the research completed to date, the Company has determined that no additional funding will be provided to E-VAT, Inc.
E-VAT is a significant shareholder of the Company owning 400,000 shares of the Company’s common stock at December 31, 20072008 and 2006.2007. As of December 31, 2007,2008, 60,000 E-VAT shares are held by the Company. Pete Ingersoll, a former Director of the Company, holds 343,000 shares, Ralph Kettell, former CEO and major shareholder of the Company, holds 575,000 shares, Tom Fudge, former President of the Company, holds 5,000 shares, and a former officer of the Company holds 692,100 shares of E-VAT and is the President of E-VAT. Combined, these shareholdings represent a majority of the outstanding E-VAT shares. The company has determined that E-VAT is a variable interest entity as defined inFASB Interpretation 46(R), Variable Interest Entities. However, the Company was not determined to be the primary beneficiary of E-VAT and, as such, E-VAT was not consolidated into the Company’s financial statements for the years ended December 31, 20072008 and 2006.2007.
On September 30, 2008, Ralph W. Kettell, Laura Kettell and all persons and entities affiliated with Ralph Kettell resigned asand Laura Kettell entered into a voting trust with Andrew K. Simpson, the Company’s CEO, CFO and a member of the Board. Subject to certain restrictions, they transferred all of their common stock in the Company in 2006 and grantedto a voting proxyrights trust, except for his common stock to Andrew Simpson, the current CFO, with respect to40,000 shares over which Mr.purchased by Ralph W. Kettell holds voting control. In December 2006, the Company agreed to pay Mr. Kettell severance payments aggregating $40,000 plus one year of health insurance coverage approximating $8,000.on September 3, 2008. At December 31, 2007 and 2006, Mr. Kettell owed2008, the Company $0 and $5,330, respectively, for travel advances.voting trust controls 3,575,000 shares of the Company’s common stock.
F-19
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 7.6. Related Party Transactions–— (continued)
The voting trust agreement allows Ralph W. Kettell and Laura Kettell to dispose of up to 300,000 shares held in the voting trust on and after September 30, 2008; 400,000 additional shares held in the voting trust on or after June 30, 2009; 400,000 additional shares held in the voting trust on or after September 1, 2009; 400,000 additional shares held in the voting trust on or after March 31, 2010; and 400,000 additional shares held in the voting trust on or after September 1, 2010. The agreement gives Mr. Simpson, as the trustee of the voting trust, the control to vote all shares held in the voting trust.
Prior to January 1, 2007, Nevada Fluorspar, Inc., which is owned by shareholders of the Company as a result of a spin-off during 2005, owed the Company $0 and $85,000 at December 31, 2007 and 2006, respectively as a result of advances made by the Company. During the year ended December 31, 2007, the Company received $80,000 of these advances and wrote-off the remaining $5,000. The Company’s shareholders, as of the date of the spin-off, became shareholders of Nevada Fluorspar, Inc. Warrants were issued by the Company during a private placement of its common stock initiated on September 7, 2004, at which time it had previously been decided to form Nevada Fluorspar, Inc. At the time of the spin-off, it was determined that an equitable treatment of any future receipt of proceeds from the exercise of these warrants should be split between the Company and Nevada Fluorspar, Inc. As a result, the proceeds, if any, resulting from the exercise of these warrants will be split with 62% going to the Company and with 38% going to Nevada Fluorspar, Inc. See Note 9,8, Stock Based Compensation and Other Equity Transactions and Note 10, Commitments and Contingencies, for further information.
At December 31, 2008, the Company owed an officer $22,436 for advances and travel advances and had $716 in receivables from its directors, officers and employees for their purchases of restricted common stock. At December 31, 2007, the Company owed director’s fees of approximately $9,200 to two of its directors and had $235 in receivables from two of its directors for their purchase of restricted common stock.
Note 8.7. Income Taxes –— A reconciliation of the Company’s provision for income tax and the expected tax benefit using the statutory U.S. federal income tax rate is as follows:
| | | Year Ended | | | Year Ended | | | | | | | | | | | | | December 31, | | | December 31, | | | Year Ended | | Year Ended | | | | | 2007 | | | 2006 | | | December 31, | | December 31, | | | | | | | | | | | 2008 | | 2007 | | | Federal tax benefit of net operating losses | | $ | (2,004,000 | ) | | $ | (873,000 | ) | | $ | (1,593,000 | ) | | $ | (2,004,000 | ) | | | | | | | | | | | | | (Decrease) increase in taxes resulting from: | | | | | | | | | | | Permanent differences | | | 2,000 | | | | - | | | 5,000 | | 2,000 | | | State income tax | | | (443,000 | ) | | | (193,000 | ) | | | (353,000 | ) | | | (443,000 | ) | | Increase in valuation allowance | | | 2,445,000 | | | | 1,066,000 | | | 1,941,000 | | 2,445,000 | | | | | | | | | | | | | | | | | | | | | | Income tax expense | | $ | - | | | $ | - | | | $ | — | | $ | — | | | | | | | | | |
For the years ended December 31, 20072008 and 2006,2007, the Company did not record a tax benefit as the Company has fully reserved its deferred tax assets.
F-20
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 8.7. Income Taxes-— (continued)
The tax effect of the major items recorded as deferred tax assets and liabilities are as follows:
| | | | | | | | | | | | | | December 31, | | | December 31, | | | December 31, | | December 31, | | | | | 2007 | | | 2006 | | | 2008 | | 2007 | | | Deferred tax assets | | | | | | | | | Depreciation | | $ | - | | | $ | 3,000 | | | | | | | | Cash basis accounting differences, net | | | 203,000 | | | | 80,000 | | | $ | 204,000 | | $ | 203,000 | | | Capital loss | | | 2,000 | | | | 2,000 | | | 2,000 | | 2,000 | | | Unrealized loss on trading securities | | | 49,000 | | — | | | Share based payments | | | 742,000 | | | | 237,000 | | | 790,000 | | 742,000 | | | Net operating loss carryforwards | | | 3,152,000 | | | | 1,272,000 | | | 4,945,000 | | 3,152,000 | | | | | | 4,099,000 | | | | 1,594,000 | | | | | | | | | | | 5,990,000 | | 4,099,000 | | | | | | | Deferred tax liabilities | | | | | | | | | | | Unrealized gain on trading security | | | (60,000 | ) | | | - | | | | Depreciation | | | | (10,000 | ) | | — | | | Unrealized gain on trading securities | | | — | | | (60,000 | ) | | | | | | | | | | | | | 4,039,000 | | | | 1,594,000 | | | 5,980,000 | | 4,039,000 | | | Less: valuation allowance | | | (4,039,000 | ) | | | (1,594,000 | ) | | | (5,980,000 | ) | | | (4,039,000 | ) | | | | | | | | | | Total deferred tax assets | | $ | - | | | $ | - | | | $ | — | | $ | — | | | | | | | | | |
The Company has established a valuation allowance equal to the net deferred tax asset primarily due to the uncertainty in the utilization of net operating loss carryforwards.
For the years ended December 31, 20072008 and 2006,2007, the valuation allowance was increased by $2,445,000$1,941,000 and $1,066,000,$2,445,000, respectively, to reflect the status of the net operating loss carry forwardscarryforwards and increases in other deferred tax assets in the respective periods. The deferred tax assets result primarily from net operating loss carry-forwards and cash basis accounting differences. These assets will reverse upon their utilization against taxable income or upon their statutory expiration. The Company had federal and state net operating loss carry-forwardscarryforwards of $8,156,000approximately $11,638,000 at December 31, 2007,2008, which expire as follows: | | | | | | | | | | | | | Net | | | Federal | | State | | Operating | | | Expiration | | Expiration | | Loss Carryforwards | | | 2024 | | 2009 | | $ | 618,000 | | | 2025 | | 2010 | | | 653,000 | | | 2026 | | 2011 | | | 2,025,000 | | | 2027 | | 2012 | | | 4,860,000 | | | 2028 | | 2013 | | | 3,482,000 | | | | | | | | | | | | | | $ | 11,638,000 | | | | | | | | |
| | | | | Net | | | Federal | | State | | Operating | | | Expiration | | Expiration | | Loss Carryforwards | | | | | | | | | | 2024 | | 2009 | | $ | 618,000 | | | 2025 | | 2010 | | | 653,000 | | | 2026 | | 2011 | | | 2,025,000 | | | 2027 | | 2012 | | | 4,860,000 | | | | | | | | | | | | | | | $ | 8,156,000 | |
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 9.8. Stock Based Compensation and Other Equity Transactions –— The Company sponsors a non-qualifiednon- qualified stock compensation program (the “Plan”). Awards under the Plan and their terms are recommended by the Company’s Compensation Committee and approved by the Company’s Board of Directors. The maximum term of an option is ten years. The Company is authorized to issue up to 1,600,000 shares under this Plan from its authorized but unissued common shares. Under the Plan, if employment is terminated, an employee may exercise options which have vested within ninety days of the termination date.
Effective January 1, 2006, the Company accounts for stock based compensation using the fair value method of SFAS No. 123(R), Share-Based Payments. Prior to January 1, 2006, the Company accounted for share based payments under the recognition and measurement provisions of APB 25, and related Interpretations, as permitted by FAS 123. In accordance with APB 25, no compensation cost was required to be recognized for options granted that had an exercise price equal to the market value of the underlying common stock at the date of grant.
Fair value is determined using the Black-Scholes option pricing model with the following assumptions: | | | | | | | | | | | | | 2008 | | | 2007 | | | Risk-free interest rate | | | 0.82% - 4.45 | % | | | 4.23% - 4.90 | % | | Expected volatility | | | 79% - 142 | % | | | 127% - 131 | % | | Expected life (in years) | | | 2-4 | | | | 5 | | | Expected dividends | | $ | — | | | $ | — | |
| | | 2007 | | | 2006 | | | | | | | | | | | Risk-free interest rate | | | 4.23% - 4.90% | | | | 4.69% - 4.90% | | | Expected volatility | | | 127% - 131% | | | | 56% - 61% | | | Expected life (in years) | | | 5 | | | | 2 - 5 | | | Expected dividends | | $ | - | | | $ | - | |
We estimate fair value using the Black-Scholes valuation method. Assumptions used to estimate the compensation expense are determined as follows:
| | ·• | | Expected term is determined using the contractual term which management believes approximates the actual expected term; |
| | | ·• | | Expected volatility is measured using the average historical daily changes in the market price of comparable publicly traded mining companies’ common stock over the expected term of the award; |
| | | ·• | | Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; and, |
| | | ·• | | Forfeitures are based on the history of cancellations of similar awards granted by the Company and management’s analysis of potential forfeitures. |
The Company adopted SFAS 123(R) using the modified prospective transition method. Under this transition method, compensation cost recognized duringsubsequent to the year ended December 31, 2006 includes: a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, if any, based on the grant date fair value estimate in accordance with the original provisions of SFAS 123, and b) compensation cost for all share-based payments granted subsequent to January 1, 2006,2007, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). The results for the prior periods have not been restated.
Concentric Energy Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 9. Stock Based CompensationDuring the year ended December 31, 2008, the Company granted no stock options under the Plan and Other Equity Transactions - (continued)
no options were exercised under the Plan. Total compensation expense resulting from the Plan for the year was $144,997. The fair value of the options that vested during the year ended December 31, 2008 was $271,605. At December 31, 2008, all of the Company’s outstanding stock options were vested.
During the year ended December 31, 2007, the Company granted 342,875 stock options under the Plan. The grant date fair value of these options was $1,154,835. 211,125 of these options vested immediately and 81,750 of these options will vest on the first anniversary of their issuancerespective issuances between March 3, 2008 and September 28, 2008. 50,000 of the options granted during the year ended December 31, 2007 vest upon the fulfillment of a performance condition by December 31, 2007. The grant date fair value of these options is $23,650. At December 31, 2007, the Company reversed the recognition of the $23,650 expense as the F-22
Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements Note 8. Stock Based Compensation and Other Equity Transactions— (continued) performance condition was not achieved and thus, the options did not vest. In addition, the Company extended the maturity of 480,110 stock options held by seven employees and issued during 2006 by two years and recorded an additional cost of $256,838 during the year ended December 31, 2007.
No options were exercised during the year ended December 31, 2007. Total compensation expense resulting from the Plan for the 2007 year was $827,216. The fair value of the options that vested during the year ended December 31, 2007 was $692,380. At December 31, 2007, 81,750 of the Company’s outstanding stock options were not vested, and $438,805 in compensation costs associated with these non-vested options will be recognized between March 3, 2008 and September 28, 2008.
During the year ended December 31, 2006, the Company granted 600,110 stock options under the Plan. The grant date fair value of the options awarded during the year ended December 31, 2006 was $311,893 and the weighted average grant date fair value was $0.52. All of these options vested immediately. In addition, the terms of stock options awarded on April 21, 2005 and August 3, 2006 were changed so that they became fully vested on December 27, 2006. The effect of this change was to advance the vesting of 299,333 stock options which would otherwise have vested between April 21, 2007 and August 3, 2013. As a result of this modification, which affected a total of 12 people including board members, members of management and employees, the Company recorded additional compensation expense of $204,239.
Options for 12,000 shares were exercised during the year ended December 31, 2006 and the intrinsic value of these options was $15,000. Total compensation expense resulting from the Plan for the year ended December 31, 2006 was $535,189. The fair value of the options that vested during the year ended December 31, 2006 was $498,933. At December 31, 2006, all of the Company’s outstanding stock options were vested, and there was no compensation costs yet to be recognized.
The following table summarizes the Company’s option activity under the Plan as of December 31, 20072008 and during the year then ended.
| Granted Options | | | | | Weighted | | | | | | | | Average | | | | | | | | Exercise | | | | | Stock Options | | | Price | | | Outstanding, December 31, 2006 | | | 1,148,110 | | | $ | 2.26 | | | Exercised | | | - | | | | - | | | Granted | | | 342,875 | | | | 7.73 | | | Forfeited | | | (150,000 | ) | | | (6.17 | ) | | Outstanding, December 31, 2007 | | | 1,340,985 | | | $ | 3.22 | |
Concentric Energy Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 9. Stock Based Compensation and Other Equity Transactions - (continued)
| | | | | | | | | | | | | | | | | Weighted | | | | | | | | | Average | | | | | | | | | Exercise | | | | | Stock Options | | | Price | | Granted Options | | Outstanding, December 31, 2007 | | | 1,340,985 | | | $ | 3.22 | | | Exercised | | | — | | | | — | | | Granted | | | — | | | | — | | | Converted to warrants | | | (48,860 | ) | | | 4.32 | | | Forfeited | | | (337,500 | ) | | | 3.73 | | | | | | | | | | | | Outstanding, December 31, 2008 | | | 954,625 | | | $ | 2.98 | | | | | | | | | |
The following table summarizes the status of the Company’s non-vested options at December 31, 20072008 and changes during the year then ended. | | | | | | | | | | | | | | | | | Weighted | | | | | | | | | Average | | | | | | | | | Grant Date | | | | | Stock Options | | | Fair Value | | Non-Vested Options | | Non-vested options, December 31, 2007 | | | 81,750 | | | $ | 5.37 | | | Granted | | | — | | | | — | | | Vested | | | (49,250 | ) | | | 5.51 | | | Converted to warrants | | | (7,500 | ) | | | 1.96 | | | Forfeited | | | (25,000 | ) | | | 6.10 | | | | | | | | | | | | Non-vested options, December 31, 2008 | | | — | | | $ | — | | | | | | | | | |
Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements | Non-Vested Options | | | | | Weighted | | | | | | | | Average | | | | | | | | Grant Date | | | | | Stock Options | | | Fair Value | | | Non-vested options, December 31, 2006 | | $ | - | | | $ | - | | | Granted | | | 342,875 | | | | 3.37 | | | Vested | | | (211,125 | ) | | | 3.28 | | | Forfeited | | | (50,000 | ) | | | (0.47 | ) | | Non-vested options, December 31, 2007 | | $ | 81,750 | | | $ | 5.37 | |
If the options are exercised, the Company will issue stock from shares authorized but unissued. The following table summarizes information and terms of the options outstanding and exercisable:
| As of December 31, 2007 | | Options Outstanding | | | Options Exercisable | | | | | | | | Weighted | | | | | | | | | Weighted | | | | | | | | | | | Average | | | | | | | | | Average | | | | | | | | | | | Remaining | | | Weighted | | | | | | Remaining | | | Weighted | | | Range of | | | | | Contractual | | | Average | | | | | | Contractual | | | Average | | | Exercise | | Number of | | | Life (in | | | Exercise | | | Number of | | | Life (in | | | Exercise | | | Prices | | Shares | | | years) | | | Price | | | Shares | | | years) | | | Price | | | | | | | | | | | | | | | | | | | | | | | $ 1.25 - 7.00 | | | 1,340,985 | | | | 3.84 | | | $ | 3.22 | | | | 1,259,235 | | | | 3.80 | | | $ | 2.97 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2008 | | | | | Options Outstanding | | | Options Exercisable | | | | | | | | | | | | | Weighted | | | | | | | | | | | Weighted | | | | | | | | | | | | | | | | Average | | | | | | | | | | | Average | | | | | | | | | | | | | | | | Remaining | | | Weighted | | | | | | | Remaining | | | Weighted | | | | | Range of | | | | | | | Contractual | | | Average | | | | | | | Contractual | | | Average | | | | | Exercise | | | Number of | | | Life (in | | | Exercise | | | Number of | | | Life (in | | | Exercise | | | | | Prices | | | Shares | | | years) | | | Price | | | Shares | | | years) | | | Price | | | | | $ | 1.25 - 7.00 | | | | 954,625 | | | | 2.74 | | | $ | 2.98 | | | | 954,625 | | | | 2.74 | | | $ | 2.98 | | | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2007,2008, the intrinsic value of the Company’s stock options is estimated to be nil as there is no trading market for its common stock.
Contingent Stock Grants – During the year ended December 31, 2007, no contingent stock grants were made. However, during 2007 the Company had recognized compensation expense of $402,857 from the issuance of previously issued contingent stock grants. As the performance condition associated with these contingent stock grants was not achieved these options did not vest. Therefore, as of December 31, 2007, the compensation expense associated with these contingent stock grants was reversed.
Warrants
During the year ended December 31, 2006,2008, the Company granted 188,000 sharesissued 2,879,546 warrants. On January 22, 2008, the Company converted 48,860 stock options to warrants with the same exercise price and expiry and recognized general and administrative expense on this transaction of its$166,060. On July 16, 2008, the Company issued 35,000 warrants with a $4.50 exercise price and a four year life and 50,000 warrants with a $4.50 exercise price and a two year life to consultants for services and recognized general and administrative expense of $116,154 on this transaction. On July 31, 2008, in conjunction with a sale of common stock, the Company issued 619,968 four year warrants with a $4.50 exercise price and 309,985 four year warrants with a $6.00 exercise price. In addition, on July 31, 2008, the Company issued as sales commissions for this private placement, 61,997 four year warrants with a $3.00 exercise price, 61,997 four year warrants with a $4.50 exercise price and 30,998 four year warrants with a $6.00 exercise price. On September 3, 2008, in conjunction with a sale of common stock, the Company issued 40,000 four year warrants with a $4.50 exercise price and 20,000 four year warrants with a $6.00 exercise price. On December 31, 2008, as part of the sale of the 15% convertible debentures, the Company issued warrants equal to officers200% of the shares into which these convertible debentures are convertible, or 1,396,391 four year warrants with a $1.00 exercise price. In addition, the Company paid sales commissions equal to 10% of the warrants and directors contingentconvertible shares to be issued to non-affiliates and 8% of the warrants and convertible shares to be issued to affiliates in the 15% debenture offering. As a result, the Company issued 136,233 four year warrants with an exercise price of $1.00 and 68,116 four year warrants with an exercise price of $0.90 as sales commissions. In addition to the warrants that were issued in conjunction with the sale of debentures that closed on December 31, 2008, subscribers who were participants in the private placement of common stock which closed on July 31, 2008, were required to surrender either a $4.50 four year warrant or a $6.00 four year warrant for each share which is issuable to them on the conversion of their debentures into common stock. As a result, subscribers surrendered 427,581 $4.50 four year warrants and 235,164 $6.00 four year warrants in this transaction. Subscribers who were not participants in the private placement of common stock trading in a public market during 2007 at awhich closed on July 31, 2008, were required to purchase warrants with an aggregate purchase price of $7.50 per share or more. The fair value of this contingently issuable common stock$11,325 and then surrender such warrants in the debenture offering which closed on the date of issue, December 18, 2006, was $470,000. For the year ended December 31, 2006, the Company recognized compensation expense of $22,381 from the issuance of these contingent stock grants.2008.
F-24
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 9.8. Stock Based Compensation and Other Equity Transactions(continued)
Under the terms of the Company’s agreements with the participants in its July 31, 2008 private placement of common stock, when common stock or rights to purchase common stock are issued at less than exercise prices of $3.00, $4.50 or $6.00, the Company is required to decrease the exercise price and increase the number of warrants exercisable for the warrants previously issued to such holders (the “weighted average ratchet” feature). As a result of the terms of the warrants issued in the debenture offering closing on December 31, 2008, the weighted average ratchet feature will require the Company to decrease the exercise price of the $3.00 warrants to $2.64 and to issue an additional 8,454 warrants. In addition, the Company will decrease the exercise price of the $4.50 warrants to $3.86 and will issue an additional 49,814 warrants. Finally, the Company will decrease the exercise price of the $6.00 warrants to $5.07 and will issue an additional 24,352 warrants. All of these adjustments are effective as of December 31, 2008.
Warrants – In November 2008, the Company extended the expiration date of 908,280 warrants issued during 2004 and 2005 to April 30, 2009. These warrants originally expired two years from the date of issue and have an exercise price of $1.75 per share. In addition, the Company extended the expiration date of 38,400 warrants issued during 2006. These warrants originally expired two years from the date of issue and have an exercise price of $3.00 per share. As the holders of these 946,680 warrants are independent investors, the extension of the term was determined to be non-compensatory as the holders are not providing any services to the Company and no expense has been recognized by the Company on the extension of these warrants.
During the year ended December 31, 2007, the Company issued 100,800 warrants. The Company issued 20,000 warrants with an exercise price of $3.25 that expire on January 10, 2010 to non-employees as compensation for services. The Company issued 22,000 warrants with an exercise price of $7.00 that expire on July 2, 2012 to non-employees for services. The Company recognized general and administrative expense of $159,766$159,776 for the issuance of these 42,000 warrants. In addition, the Company issued 58,800 warrants with an exercise price of $7.00 that expire on July 16, 2010 as compensation for marketing efforts on the private placement that closed on July 16, 2007. In January 2007, the Company extended the expiration date of 908,280 warrants issued during 2004 and 2005 to May 15, 2008.2008 and, subsequently, to November 30, 2008 (as discussed above). These warrants originally expired two years from the date of issue and have an exercise price of $1.75 per share.
F-25
During the year ended December 31, 2006, the Company issued 48,400 warrants. The Company issued 38,400 warrants with an exercise price of $3.00 per share that expire on July 15, 2008Concentric Energy Corp.
(An Exploration Stage Company)
Notes to non-employees as compensation for marketing efforts. The Company also issued 10,000 warrants with an exercise price of $3.25 per share that expire December 27, 2009 to a non-employee for services.Consolidated Financial Statements
During the year ended December 31, 2005, the Company issued 28,160 warrants to holders who purchased the Company’s common stock in a private placement initiated on September 7, 2004. These warrants entitle the holder to purchase one share of the Company’s common stock at a price of $1.75 per shareNote 8. Stock Based Compensation and expire two years from the date of issue. In January 2007, the Company extended the expiration date of these warrants until May 15, 2008.
Other Equity Transactions(continued)
The following table summarizes information and terms of warrants outstanding at December 31, 2007.2008. | | | | | | | | | | | | | | | | | | | Warrants Outstanding at December 31, 2008 | | | | | | | | | | | | | Weighted | | | | | | | | | | | | | | | | Average | | | | | | | | | | | | | | | | Remaining | | | Weighted | | | | | | | | | | | | | Contractual | | | Average | | | Exercise | | | Number of | | | Expiration | | Life | | | Exercise | | | Prices | | | Shares | | | Date | | (in years) | | | Price | | | $ | 0.90 | | | | 68,116 | | | 12/31/12 | | | 4.00 | | | $ | 0.90 | | | $ | 1.00 | | | | 1,532,624 | | | 12/31/12 | | | 4.00 | | | $ | 1.00 | | | $ | 1.75 | | | | 908,280 | | | 4/30/09 | | | 0.33 | | | $ | 1.75 | | | $ | 2.64 | | | | 70,451 | | | 5/29/12 | | | 3.41 | | | $ | 2.64 | | | $ | 3.00 | | | | 53,400 | | | Various through 8/3/11 | | | 0.96 | | | $ | 3.00 | | | $ | 3.25 | | | | 48,860 | | | Various through 12/27/11 | | | 1.78 | | | $ | 3.25 | | | $ | 3.86 | | | | 344,198 | | | 5/29/11 | | | 3.41 | | | $ | 3.86 | | | $ | 4.50 | | | | 85,000 | | | Various through 7/16/12 | | | 2.36 | | | $ | 4.50 | | | $ | 5.07 | | | | 150,172 | | | 5/29/11 | | | 3.41 | | | $ | 5.07 | | | $ | 7.00 | | | | 115,800 | | | Various through 7/15/12 | | | 3.22 | | | $ | 7.00 | | | $ | 12.00 | | | | 20,000 | | | 12/28/10 | | | 2.00 | | | $ | 12.00 | | | | | | | | | | | | | | | | | | | | | | | 3,396,901 | | | | | | 2.76 | | | $ | 2.12 | | | | | | | | | | | | | | | | |
| Warrants Outstanding at December 31, 2007 | | | | | | | | Weighted | | | | | | | | | | | Average | | | | | | | | | | | Remaining | | | Weighted | | | Range of | | | | | Contractual | | | Average | | | Exercise | | Number of | | | Life | | | Exercise | | | Prices | | Shares | | | (in years) | | | Price | | | | | | | | | | | | | | $ 1.75 – 12.00 | | | 1,097,480 | | | | 0.86 | | | $ | 2.50 | |
Contingent Warrants - The During the year ended December 31, 2007, the Company issued 20,000 contingent warrants with an exercise price of $7.00 per share to a former officer that will expire on December 28, 2010. The exercisevesting of these warrants is contingent on the Company raising at least $2 million in a private placement prior to December 28, 2010. The Company issued an additional 20,000 contingent warrants to the same individual that expire on December 28, 2010. The exercisevesting of these warrants prior to their expiration is contingent on either the Company’s (i) privately placing its common stock at a price of $12 per share or (ii) completing a public offering of its common stock at a trading price of at least $12 per share with gross cash proceeds of at least $5,000,000. The Company recognized no general and administrative expense associated with these contingent warrants during the year ended December 31, 2007 as they are subject to a performance condition and a market condition and such expense, if any, will be recognized when the performance condition is met. F-20During the year ended December 31, 2008, the Company issued no contingent warrants. However, on December 31, 2008, the $2 million private placement contingency on 20,000 contingent warrants with an exercise price of $7.00 was met. As a result, 20,000 warrants with a $7.00 exercise price and an expiration date of December 28, 2010 were vested on December 31, 2008 and has recognized general and administrative expense of $5,954 on this transaction.
Concentric Energy Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 9. Stock Based Compensation and Other Equity Transactions (continued)
Preferred Stock – The Company has authorized 50,000,000 shares of $0.001 par value, preferred stock. At December 31, 20072008 and 2006,2007, there were no shares of preferred stock issued and outstanding. The pertinent rights and privileges of the authorized preferred stock is at the discretion of the Company’s Board of Directors.
F-26
Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements Note 8. Stock Based Compensation and Other Equity Transactions(continued) Restricted Common Stock – During the year ended December 31, 2008, the Company issued 715,500 shares of restricted stock to its directors, officers and employees for various services and as compensation. This restricted stock has a purchase price of $0.001 per share and will vest over a three year period. For the year ended December 31, 2008, the Company recorded general and administrative expense of $865,693 from the issuance of this restricted stock and the amortization of restricted stock issued during the year ended December 31, 2007. During the year ended December 31, 2008, the Company issued 49,306 shares of restricted common stock to its directors, officers and employees. This restricted stock was issued in lieu of the payment of cash directors fees. For the year ended December 31, 2008, the Company recorded general and administrative expense of $147,918 from the issuance of this restricted stock. At December 31, 2008, the Company has awarded a total of 1,132,806 restricted common shares of which none are vested. During the year ended December 31, 2007, the Company issued 308,000 shares of restricted stock to its Directors.directors. This restricted stock has a purchase price of $0.001 per share and will vest over a three year period. For the year ended December 31, 2007, the Company recorded general and administrative expense of $62,322 from the issuance of this restricted stock.
On December 28, 2007, the Company issued 60,000 shares of restricted stock to a former officer. This restricted stock has a purchase price of $0.001 per share and will vest on the completion of certain financing transactions. The expense associated with this award is subject to a performance condition which must be met prior to December 28, 2010. As such, expense, if any, will be recognized when the performance condition is met.
At December 31, 2007, the Company had awarded a total of 368,000 restricted common shares of which none were vested.
Common Stock– The holders of the Company’s common stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders.stockholders. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available. The Company has not declared or paid any dividends since its inception and has no plans to do so in the future. On July 31, 2008, the Company closed a private placement of 501,666 shares of common stock at a price of $3.00 per share. The Company received $1,282,290 in sales proceeds from this offering, net of sales commission and other expenses of $222,706. As part of this offering, the holders of $350,000 of the Company’s convertible notes payable converted their notes payable plus accrued interest totaling $354,906 into 118,302 shares of common stock. On September 3, 2008, Ralph Kettell, the founder of the Company and its former President, purchased 40,000 shares of the Company’s common stock at a price of $3.00 per share. The Company received $120,000 in sales proceeds from this offering. F-27
Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements Note 8. Stock Based Compensation and Other Equity Transactions(continued) On January 11, 2007, the Company issued 100,000 shares of common stock to an investment bankerbankers for services associated with the private placement of the Company’s common stock and for other financial services. For the year ended December 31, 2007, the Company recorded general and administrative expense of $325,000 from the issuance of this common stock. At various other dates during 2007, as noted in the following table, the Company issued an additional 20,660 shares of its common stock as compensation for services and recorded general and administrative expense of $74,650 from the issuance of this common stock.
On November 1, 2007, the certain holders of the Company’s convertible notes converted $200,000 in principal plus approximately $14,000 in accrued interest into 38,330 shares of the Company’s common stock at conversion rates between $5.00 and $7.00 per share. See Note 5 for additional information.
During the year ended December 31, 2007, the Company issued 368,000 shares of restricted common stock for services at a price of $0.001 per share. See Note 8 for additional information. On July 16, 2007, the Company closed a private placement of 840,000 shares of common stock at a price of $7.00 per share. The Company received $5,367,946 in sales proceeds from this offering, net of sales commissions and other expenses of $411,600. F-28
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 9.8. Stock Based Compensation and Other Equity Transactions(continued)
Supplementary Stockholders' Equity Information
| | | | | | | | | | | | | | | | | Number of | | | | | | | | | | | Shares of | | | Cash Price | | | Value Assigned | | | | | Common | | | Per Share | | | Per Share | | | | | Stock | | | Received | | | For Services | | | | | | | Conversion from LLC to C Corporation (1) | | | 5,000,000 | | | $ | 0.01 - $0.02 | | | | — | | | Issuance of common stock for services (2) | | | 485,000 | | | | — | | | $ | 0.50 | | | Private placement of common stock (3) | | | 205,000 | | | $ | 0.50 | | | | — | | | Private placement of common stock (4) | | | 839,000 | | | $ | 1.25 | | | | — | | | Issuance of common stock for services (5) | | | 49,280 | | | | — | | | $ | 1.25 | | | | | | | | | | | | | | | Balance, December 31, 2004 | | | 6,578,280 | | | | | | | | | | | Private placement of common stock (6) | | | 20,000 | | | $ | 1.25 | | | | — | | | Private placement of common stock (7) | | | 65,200 | | | $ | 2.50 | | | | — | | | Exercise of stock options (8) | | | 80,000 | | | $ | 1.25 | | | | — | | | | | | | | | | | | | | | Balance, December 31, 2005 | | | 6,743,480 | | | | | | | | | | | Exercise of stock options (9) | | | 12,000 | | | $ | 1.25 | | | | — | | | Private placement of common stock (10) | | | 907,000 | | | $ | 2.50 | | | | — | | | Issuance of common stock for services (11) | | | 45,940 | | | | — | | | $ | 2.50 | | | | | | | | | | | | | | | Balance, December 31, 2006 | | | 7,708,420 | | | | | | | | | | | Private placement of common stock (12) | | | 10,000 | | | $ | 2.50 | | | | — | | | Private placement of common stock (13) | | | 840,000 | | | $ | 7.00 | | | | — | | | Issuance of common stock for services (14) | | | 120,660 | | | | — | | | $ | 2.50 - $7.00 | | | Note payable conversion (15) | | | 38,330 | | | $ | 5.00 | | | | — | | | Issuance of restricted stock for services (16) | | | 368,000 | | | | | | | $ | 7.00 | | | | | | | | | | | | | | | Balance, December 31, 2007 | | | 9,085,410 | | | | | | | | | | | Private placement of common stock (17) | | | 501,666 | | | $ | 3.00 | | | | — | | | Note payable conversion (18) | | | 118,302 | | | $ | 3.00 | | | | — | | | Private placement of common stock (19) | | | 40,000 | | | $ | 3.00 | | | | — | | | Issuance of restricted stock for services (20) | | | 715,500 | | | | — | | | $ | 3.00 | | | Issuance of restricted stock for services (21) | | | 49,306 | | | | — | | | $ | 3.00 | | | | | | | | | | | | | | | Balance, December 31, 2008 | | | 10,510,184 | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of | | | | | | | | | | | Shares of | | | Cash Price | | | Value Assigned | | | | | Common | | | Per Share | | | Per Share | | | | | Stock | | | Received | | | For Services | | | Conversion from LLC to C Corporation (1) | | | 5,000,000 | | | | $0.013 - $0.02 | | | $ | - | | | Issuance of common stock for services (2) | | | 485,000 | | | | - | | | | $0.50 | | | Private placement of common stock (3) | | | 205,000 | | | | $0.50 | | | | - | | | Private placement of common stock (4) | | | 839,000 | | | | $1.25 | | | | - | | | Issuance of common stock for services (5) | | | 49,280 | | | | - | | | | $1.25 | | | Balance, December 31, 2004 | | | 6,578,280 | | | | | | | | | | | Private placement of common stock (6) | | | 20,000 | | | | $1.25 | | | | - | | | Private placement of common stock (7) | | | 65,200 | | | | $2.50 | | | | - | | | Exercise of stock options (8) | | | 80,000 | | | | $1.25 | | | | - | | | Balance, December 31, 2005 | | | 6,743,480 | | | | | | | | | | | Exercise of stock options (9) | | | 12,000 | | | | $1.25 | | | | - | | | Private placement of common stock (10) | | | 907,000 | | | | $2.50 | | | | - | | | Issuance of common stock for services (11) | | | 45,940 | | | | - | | | | $2.50 | | | Balance, December 31, 2006 | | | 7,708,420 | | | | | | | | | | | Private placement of common stock (12) | | | 10,000 | | | | $2.50 | | | | - | | | Private placement of common stock (13) | | | 840,000 | | | | $7.00 | | | | - | | | Issuance of common stock for services (14) | | | 120,660 | | | | - | | | | $2.50 - $7.00 | | | Note payable conversion (15) | | | 38,330 | | | | $5.00 | | | | - | | | Issuance of restricted stock for services (16) | | | 368,000 | | | | - | | | | $7.00 | | | Balance, December 31, 2007 | | | 9,085,410 | | | | | | | | | |
| | | | (1) | | On June 1, 2004, the Company converted from an LLC to a C corporation and issued 5,000,000 shares of common stock for LLC members’ cash contributions of $83,315. 2,500,000 common shares were issued at $0.013326$0.01 per share and 2,500,000 common shares were issued at $0.02 per share. |
| | (2) | | On June 1, 2004, the Company issued 285,000 shares of common stock at $0.50 per share for directors’ fees and 200,000 shares of common stock for consulting services. |
| | (3) | | On June 1, 2004, the Company completed a private placement of 205,000 shares of common stock at a price of $0.50 per share. |
| | (4) | | At December 31, 2004, the Company had sold 839,000 shares of common stock at $1.25 per share in a private placement that commenced on October 29, 2004 and subsequently closed on April 5, 2005. |
| | (5) | | At December 31, 2004, the Company issued 49,280 shares of common stock as sales commissions for the private placement that commenced on October 29, 2004. |
| | (6) | | On April 5, 2005, the Company completed the private placement initiated on October 29, 2004 and sold an additional 20,000 shares of common stock at $1.25 per share. |
| | (7) | | At December 31, 2005, the Company had sold 65,200 shares of common stock at a price of $2.50 per share in a private placement that commenced on October 11, 2005. |
| | (8) | | On November 15, 2005, a holder exercised 80,000 stock options issued on April 21, 2005 at an exercise price of $1.25 per share. |
| | (9) | | On January 12, 2006, a holder exercised 12,000 stock options issued on April 21, 2005 at an exercise price of $1.25 per share. |
| | (10) | | On November 14, 2006, the Company completed a private placement of common stock that commenced on January 20, 2006 selling 907,000 shares of common stock at a price of $2.50 per share. |
F-29
Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements Note 8. Stock Based Compensation and Other Equity Transactions(continued) | | | | (11) | | At December 31, 2006, the Company issued 45,940 shares of common stock valued at $2.50 per share as sales commissions for the private placement that closed on November 14, 2006. |
Concentric Energy Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 9. Stock Based Compensation and Other Equity Transactions (continued)
| | (12) | | On May 3, 2007, the Company issued 10,000 shares of common stock at a price of $2.50 to a subscriber to the private placement that closed on November 14, 2006 who had inadvertently failed to pay the subscription price. |
| | (13) | | On July 16, 2007, the Company closed a private placement for 840,000 shares of common stock at a price of $7.00 per share. |
| | (14) | | During the year ended December 31, 2007, the Company issued the following common shares for services as follows: |
a. On January 11, 2007, the Company issued 100,000 shares of common stock valued at $3.25 per share for financial advisory and consulting services.
b. On February 22, 2007, the Company issued 10,000 shares of common stock valued at $2.40 per share to an employee as compensation expense for services which were accrued as of December 31, 2006.
c. On March 8, 2007, the Company issued 3,060 shares of common stock valued at $2.50 per share as an adjustment of sales commissions associated with the private placement that closed on November 14, 2006.
d. On July 2, 2007, the Company issued 5,600 shares of common stock valued at $5.00 per share to employees as compensation expense for services completed on April 30, 2007.
e. On July 2, 2007, the Company issued 2,000 shares of common stock valued at $7.00 per share as sales commissions associated with the private placement that closed on July 16, 2007.
| a. | | On January 11, 2007, the Company issued 100,000 shares of common stock valued at $3.25 per share for financial advisory and consulting services. | | | b. | | On February 22, 2007, the Company issued 10,000 shares of common stock valued at $2.50 per share to an employee as compensation expense for services which were accrued as of December 31, 2006. | | | c. | | On March 8, 2007, the Company issued 3,060 shares of common stock valued at $2.50 per share as an adjustment of sales commissions associated with the private placement that closed on November 14, 2006. | | | d. | | On July 2, 2007, the Company issued 5,600 shares of common stock valued at $5.00 per share to employees as compensation expense for services completed on April 30, 2007. | | | e. | | On July 2, 2007, the Company issued 2,000 shares of common stock valued at $7.00 per share as sales commissions associated with the private placement that closed on July 16, 2007. |
| | | | (15) | | On November 1, 2007, the Company issued 38,330 shares of common stock ranging from $5.00 to $7.00 per share in conversion of principal and interest on convertible notes which were issued on January 1, 2007. See Note 6 Notes Payable.5 Long-term debt. |
| | (16) | | On November 16, 2007, the Company issued 133,000 restricted shares of common stock valued at $7.00 per share to a director for services. On December 12, 2007, the Company issued 175,000 restricted shares of common stock valued at $7.00 to directors for services. On December 27, 2007, the Company issued 60,000 restricted shares of common stock valued at $7.00 per share to a former officer. See Note 1110 Commitments and Contingencies. | | | (17) | | On July 31, 2008, the Company issued 501,666 shares of common stock at a price of $3.00 per share to subscribers to a private placement. | | | (18) | | On July 31, 2008, the Company issued 118,302 shares of common stock at a price of $3.00 per share to convert notes payable with an aggregate principal and accrued interest balance of $354,906. | | | (19) | | On September 3, 2008, the Company issued 40,000 shares of common stock at a price of $3.00 to a subscriber in a private placement. | | | (20) | | On October 17, 2008, the Company issued 715,500 restricted shares of common stock valued at $3.00 per share to directors, officers and employees for services. | | | (21) | | On December 31, 2008, the Company issued 49,306 restricted shares of common stock valued at $3.00 per share to directors in lieu of the payment of cash director’s fees. |
F-30
F-23Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 10.9. Disclosure About Fair Value of Financial Instruments by a Nonfinancial Entity – —The estimated fair values of the Company’s financial instruments are as follows as of December 31, 20072008 and 2006:2007:
| | | 2007 | | | 2006 | | | | | | | | | | | | | | | | | | | | | | | | | | | (as restated, see Note 2) | | | 2008 | | 2007 | | | | Carrying | | | Fair | | | Carrying | | | Fair | | | Carrying | | Fair | | Carrying | | Fair | | | | Amount | | | Value | | | Amount | | | Value | | | Amount | | Value | | Amount | | Value | | Cash and cash equivalents | | $ | 825,908 | | | $ | 825,908 | | | $ | 141,874 | | | $ | 141,874 | | | $ | 24,750 | | $ | 24,750 | | $ | 825,908 | | $ | 825,908 | | | Receivable from debenture offering | | | 471,339 | | 471,339 | | — | | — | | | Certificates of deposit | | 507,822 | | | 507,822 | | | - | | | - | | | — | | — | | 507,822 | | 507,822 | | | Trading securities | | 374,654 | | | 374,654 | | | 207,858 | | | 207,858 | | | 29,604 | | 29,604 | | 374,654 | | 374,654 | | | Receivables from related parties | | 235 | | | 235 | | | 90,330 | | | 90,330 | | | 716 | | 716 | | 235 | | 235 | | | Receivable - other | | 10,607 | | | 10,607 | | | 31,497 | | | 31,497 | | | | Receivable — other | | | 4,596 | | 4,596 | | 10,607 | | 10,607 | | | Deposits | | 7,065 | | | 7,065 | | | - | | | - | | | — | | — | | 7,065 | | 7,065 | | | Prepaid expenses | | 142,873 | | | 142,873 | | | 7,673 | | | 7,673 | | | 5,794 | | 5,794 | | 142,873 | | 142,873 | | | Accounts payable | | 308,729 | | | 308,729 | | | 129,813 | | | 129,813 | | | 335,646 | | 335,646 | | 308,729 | | 308,729 | | | Accounts payable — related parties | | | 22,436 | | 22,436 | | — | | — | | | Accrued expenses | | 359,656 | | | 359,656 | | | 128,231 | | | 128,231 | | | 255,665 | | 225,665 | | 359,656 | | 359,656 | | | Current portion of notes payable | | 2,325,435 | | | 2,325,435 | | | 6,731 | | | 6,731 | | | 17,792 | | 17,792 | | 2,325,435 | | 2,325,435 | | Convertible note payable - related party | | 45,000 | | | 45,000 | | | - | | | - | | | — | | — | | 45,000 | | 45,000 | | | Long-term debt | | | 30,983 | | 30,983 | | 48,775 | | 48,775 | |
The Company determined the estimated fair value amounts by using available market information where applicable and historical cost where market information iswas not available. The Company believes that the use of historical cost as an estimate for fair value is appropriate considering the current classification of the assets and liabilities which are so valued.valued or for long-term debt based on borrowing rates currently available to the Company for loans with similar terms and maturities. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Concentric Energy Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 10. Disclosure About Fair Value of Financial Instruments by a Nonfinancial Entity (continued)
Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company or holders of the instruments could realize in a current market exchange. The use of different assumptions and estimation methodologies may have a material effect on the estimated fair value.
Note 11.10. Commitments and Contingencies – —The Company granted 908,280 warrants during fiscal years 2004 and 2005 with an expiration date 3two years from the date of issuance and an exercise price of $1.75 per share of common stock. As mentioned in Note 9,8, Stock Based Compensation and Other Equity Transactions, the Company extended the expiration date on all of these warrants until May 15, 2008.April 30, 2009. If all of these warrants are exercised, the Company will be obligated to pay Nevada Fluorspar, Inc. 38% of the proceeds or a total of approximately $604,000 (see Note 7,6, Related Party Transactions).
The Company leases office space from a third partiesparty for total monthly rent payments of $7,787$2,397 per month and under a leasing agreements with no more than three year terms.agreement which expires on August 31, 2010. The minimum future lease payments for 2008, 2009 and 2010 are $55,604, $26,964$26,962 and $17,976.$17,975, respectively. Rent expense under these lease agreements for the years ended December 31, 2008 and 2007 was $65,048 and 2006 was $35,751, and $17,800 respectively. There are no leases with related parties.
F-31
In November 2007, two of the Company’s directors resignedConcentric Energy Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 10. Commitments and joined the Company’s advisory board. The Company will pay these former directors for consulting services $7,500 per month for one year. After March 31, 2008, this amount will decrease to $3,000 per month. During the year ended December 31, 2007, the Company paid these former directors $7,500. During 2008, the Company will pay these directors $82,500 if certain financing transactions are completed and $46,500 if these financing transactions are not completed.
Contingencies —(continued)
On December 28, 2007, the Company’s former President and CEO resigned. The Company will compensatehas compensated this individual as follows: | | (i) | | Separation fees and allowances of $127,000 inwere paid during the year ended December 31, 2008. |
| | | (ii) | | 60,000 shares of restricted common stock will be issued which will vest on the completion of certain financing transactions. |
| | | (iii) | | Contingent on the completion of certain financing transactions, 20,000 three year warrants with an exercise price of $7$12 per share andwill vest for this individual. During the year ended December 31, 2008, contingencies on 20,000 three year warrants with an exercise price of $12$7 per share will vest for this individual.were met and such warrants were issued. |
| | | (iv) | If | On the Company completescompletion of a successful private placement within six months,on July 31, 2008, a bonus of $43,375 was earned by this individual and this bonus has been accrued as much as $125,000 may be earned. In addition, if the Company completes a public offering within the next 12 months, a bonus of as much as $225,000 may be earned.December 31, 2008. |
During the fourth quarter of 2007, theThe Company has entered into agreements with three individuals who will serve on the Company’s board of directors. Terms of these agreements are as follows:
| | (i) | | The Company will pay aggregate directors’ fees of $295,000, annually. Subsequent to July 31, 2008, the directors have agreed to receive their director’s fees in common stock through November 30, 2009. As a result, during the year ended December 31, 2008, directors received cash director’s fees of $147,082 and 49,306 shares of the Company’s common stock valued at $3 per share, or $147,918 in non-cash director’s fees. |
| | | (ii) | The | During the years ended December 31, 2008 and 2007, the Company issued a total of 308,000616,000 restricted shares of its common stock to these directors with a purchase price of $0.001 per share that will vest over a three-year period.period from the date of issue. |
| | | (iii) | | The Company has entered into indemnification agreements with these directors under which it will indemnify the directors during their service to the Company. |
Concentric Energy Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 11. Commitments and Contingencies – (continued)
The Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of such officer’s or director’s service to the Company. The Company’s obligations under this indemnification remain in force for as long as the officers and directors serve the Company and thereafter as long as they are subject to any possible proceedings by reason of such service. However, the Company has obtained directors and officers liability insurance policies that enable it to recover a portion of any future amounts paid up to its policy limits. As a result of its insurance policy coverage and no current or expected litigation against the Company’s officers and directors, the Company believes the estimated fair value of these indemnification agreements is minimal and has no liabilities recorded for these agreements as of December 31, 2007.
2008.
At December 31, 2007,2008, the Company has employment agreements with fourthree of its officers. Two of these officers have employment agreements which provide for monthly payments for a period of one year equal to their salary following their termination without cause or in the event that the Company experiences a change of control. These agreements renew automatically for a period of one year on their anniversary date unless the Company elects to change the agreement in the sixty days prior to their anniversary dates. At December 31, 2007,2008, if these agreements became operative, the Company would be obligated to pay these officers $285,000.$377,000. F-32
Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements Note 10. Commitments and Contingencies —(continued) The Company has an employment agreementsagreement with twoone of its officers which provideprovides for monthly payments equal to theirher salary for a period of two years following their termination without cause or in the event that the Company experiences a change of control. These agreements renewThis agreement renews automatically for a period of one year on theirher anniversary date unless the Company elects to change the agreement in the sixty days prior to theirher anniversary dates.date. At December 31, 2007,2008, if these agreementsthis agreement became operative, the Company would be obligated to pay these officers $258,000 for each of the next two years ended Decemberthis officer $266,000. As noted below, this officer resigned on March 31, 2008 and 2009.
2008.
In addition to the terms discussed above, each of these fourthree employment agreements provides that in the event of termination without cause or a change of control, any outstanding but unvested stock options or restricted stock grants held by these fourthree officers would vest immediately. At December 31, 2007,2008, if these employment agreements became effective, 67,500350,000 unvested restricted stock optionsgrants would vest immediately.
On May 24, 2007, the Company notified participants in the private placement of common stock dated September 15, 2005, that it would be willing to offer rescission of the purchase price of the shares they purchased in that offering, in order to forestall possible claims that such former private placement might have omitted material information. The total shares in that offering were 1,021,200 common shares acquired at a price of $2.50. Of those shares, the Company could not confirm delivery of the notice to investors in that private placement holding an aggregate of 51,040 shares ($127,600 in original purchase price). One investor indicated the desire to rescind the investment in 5,000 shares for the price of $12,500 (plus interest). No other rescissions were requested.
Note 12.11. Subsequent Events – Since—On December 31, 20072008, the following events have occurred:
Company filed an S-1 Registration Statement with the Securities and Exchange Commission. As of June 30, 2009, this Registration Statement has not been declared effective.
On January 23, 2008, under the terms of an amendment to the $2.3 million promissory note dated November 8, 2007,5, 2009, the Company transferred its ownership interestcollected the $471,339 in an office building back to the holdersubscriptions receivable that were outstanding on December 31, 2008. Effective on March 31, 2009, a former officer of the promissory noteCompany resigned. As consideration for settling all claims under this officer’s employment agreement, the Company will pay the following: | (i) | | Separation fees of $91,000 will be paid over the eight months beginning on July 1, 2009, and | | | (ii) | | 50,000 shares of restricted common stock will be issued which will vest when the Company’s common stock begins to trade publicly. |
On May 21, 2009, the Company completed a private placement offering in return forwhich it sold an aggregate principal amount of $498,644 of 15% cumulative convertible debentures and an aggregate of 817,449 common stock warrants. The debentures are convertible at the cancellationinitial conversion price of the note$1.22 per share and the paymentwarrants have an initial exercise price of approximately $66,000$1.00 per share. The warrants have an exercise term of four years. The debentures are due and payable on May 20, 2013. The Company received net cash proceeds of $498,644 as there were no cash expenses associated with the debenture offering. As discussed above in accrued interest plus closing costs.Note 6, Related Party Transactions, Ralph Kettell and Laura Kettell subscribed for $54,000 and $14,788, respectively, in the Company’s December 31, 2008 debenture offering using marketable securities to pay for a portion of their subscriptions. Based upon the net sales proceeds received by the Company from the sale of these marketable securities over the 120 days ending on April 30, 2009 or on the market value of any unsold trading securities on April 30, 2009, Ralph Kettell’s subscription increased to $56,784 and Laura Kettell’s subscription increased to $16,010. F-33
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 12.11. Subsequent Events(continued)
On March 13,May 21, 2009, the Company entered into an exclusive marketing agreement with a metal trading company that purchased $450,000 of the 15% convertible debentures issued on May 21, 2009. Under the terms of this agreement, this company will act as the Company’s sole marketing agent for the sales of uranium produced by the Company and perform other administrative services associated with the marketing, sale and transportation of uranium for the Company. As compensation for these services, the agent will receive a commission of 5% of the invoice price of the uranium sold. The agreement has a term of five years and may automatically renew for one or more additional terms of one year. After the initial five year term, the agreement is terminable by either party without cause on six months written notice to the other party. As compensation for entering into this agreement, the Company has awarded the agent 300,000 $1 four year warrants. As a result of the anti-dilution provisions of the warrants issued with the Company’s private placement of common stock on May 29, 2008, the issuance of the $498,644 in 15% debentures on May 21, 2009, the issuance of the 300,000 $1 warrants associated with the execution of the marketing agreement and the adjustment to the 15% debentures purchased by Ralph Kettell and Laura Kettell on December 31, 2008, the Company issued a convertible note for $150,000. This note bears interest at 10% per annuman additional 5,775 $2.44 warrants, 35,403 $3.50 warrants and matures17,163 $4.55 warrants. In connection with the private placement of March 13, 2009. The note is convertible into the common stock of the Company at the lesser of (i) $7.00 or (ii) the lowest purchase price per share paid for the Company’s common stock in any financing entered into prior to the conversion of this note. Principal and interest on these notes is payable one year from the date of issue.
On April 23,May 29, 2008, the Company issuedentered into a convertible note for $200,000. This note bears interest at 10% per annum and maturesregistration rights agreement which requires the Company to register the shares of March 29, 2009. The note is convertible into the common stock and warrants by September 14, 2008 and to cause it to become effective by January 12, 2009, or by January 27, 2009 in the event of a full review by the Securities and Exchange Commission. If the Company fails to meet certain requirements under the registration rights agreement, we are required to pay each investor a monthly cash payment of one-half percent of the Company at the lesser of (i) $7.00 or (ii) the lowestaggregate purchase price (approximately $9,300 per sharemonth in the aggregate) paid forby such investor commencing on January 31, 2009 and continuing until the default is cured (but in no event beyond the 3-year anniversary of the closing of the securities purchase agreement). The Company’s common stock in any financing entered into priormaximum liability under this requirement would be approximately $288,000 if it is unable to file a registration statement and it is required to make payments from January 31, 2009 until July 31, 2011. At June 30, 2009, the conversion ofCompany had not met this note. Principalrequirement and interest on these notes is payable one year from the date of issue.has accrued $43,573 to satisfy its liability under this requirement.
F-34
Concentric Energy Corp.
CONCENTRIC ENERGY CORPORATION
(An Exploration Stage Company) UNAUDITED CONDENSED FINANCIAL STATEMENTS
For The Nine Months Ended
September 30, 2008 and 2007
Concentric Energy Corporation
(An Exploration Stage Company)
Condensed Consolidated Balance Sheets
ASSETS
ASSETS
| | | | | | | | | | | | | | September 30, | | | | | | March 31, | | | | | | | 2008 | | | December 31, | | | 2009 | | December 31, | | | | | (Unaudited) | | | 2007 | | | (Unaudited) | | 2008 | | | Current Assets: | | | | | | | | | Cash and cash equivalents | | $ | 220,103 | | | $ | 825,908 | | | $ | 38,160 | | $ | 24,750 | | | Certificates of deposit | | | - | | | | 507,822 | | | | Receivable from debenture offering | | | — | | 471,339 | | | Trading securities | | | 75,223 | | | | 374,654 | | | 33,957 | | 29,604 | | | Receivables from related parties | | | 10,795 | | | | 235 | | | 710 | | 716 | | | Receivable - other | | | 10,617 | | | | 10,607 | | | | Deposits | | | 1,315 | | | | 7,065 | | | | Drilling bonds — current | | | 4,596 | | 4,596 | | | Prepaid expenses | | | 55,911 | | | | 142,873 | | | 1,697 | | 5,794 | | | Asset held for sale | | | - | | | | 2,309,048 | | | | | | | | | | | | | | | | | | | | | | | Total current assets | | | 373,964 | | | | 4,178,212 | | | 79,120 | | 536,799 | | | | | | | | | | | | | | | | | | | | | | Property and equipment: | | | | | | | | | | | Mineral rights | | | 100,000 | | | | 100,000 | | | 100,000 | | 100,000 | | | Leasehold improvements | | | 13,044 | | | | 13,044 | | | 13,044 | | 13,044 | | | Office equipment | | | 48,150 | | | | 44,335 | | | 45,835 | | 45,835 | | | Field equipment | | | 35,469 | | | | 35,469 | | | 35,469 | | 35,469 | | | Vehicles | | | 148,531 | | | | 148,531 | | | 148,531 | | 148,531 | | | | | | | | | | | | | | | | | | | | | 345,194 | | | | 341,379 | | | | | | | | | | | | | | 342,879 | | 342,879 | | | | | | | Less: accumulated depreciation | | | (94,726 | ) | | | (59,073 | ) | | | (120,169 | ) | | | (107,122 | ) | | | | | | | | | | | | | | | | | | | | | Total property and equipment, net | | | 250,468 | | | | 282,306 | | | 222,710 | | 235,757 | | | | | | | | | | | | | | | | | | | | | | Deferred charges — debentures | | | 200,425 | | 207,035 | | | Drilling bonds | | | 6,021 | | 6,021 | | | Deposits | | | 1,991 | | | | 1,991 | | | 1,991 | | 1,991 | | | | | | | | | | | | | | | | | | | | | 208,437 | | 215,047 | | | | | | | | | | | | | | | Total assets | | $ | 626,423 | | | $ | 4,462,509 | | | $ | 510,267 | | $ | 987,603 | | | | | | | | | |
The Accompanying Notes are an Integral Part of the Condensed Consolidated Financial Statements F-35
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Condensed Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | March 31, | | | December 31, | | | | | 2009 | | | 2008 | | | | | (Unaudited) | | | (as restated)* | | | Current liabilities: | | | | | | | | | | Accounts payable | | $ | 366,158 | | | $ | 335,646 | | | Accounts payable — related parties | | | 380 | | | | 22,436 | | | Accrued expenses | | | 266,810 | | | | 218,986 | | | Current portion of notes payable | | | 18,161 | | | | 17,792 | | | | | | | | | | | Total current liabilities | | | 651,509 | | | | 594,860 | | | Warrant liability | | | 1,098,392 | | | | 1,211,979 | | | Long-term debt, less discounts of $603,840 and $ 633,601 at March 31, 2009 and December 31, 2008, respectively | | | 55,273 | | | | 30,983 | | | | | | | | | | | | | | | | | | | | | Total liabilities | | | 1,805,174 | | | | 1,837,822 | | | | | | | | | | | | | | | | | | | | | Commitments and contingencies | | | | | | | | | | | | | | | | | | | | Stockholders’ Equity | | | | | | | | | | Preferred stock; $0.001 par value; 50,000,000 shares authorized; no shares issued and outstanding | | | — | | | | — | | | Common stock; $0.001 par value; 150,000,000 shares authorized; 10,570,635 and 10,510,184 shares issued and 9,377,378 and 9,377,378 shares outstanding, at March 31, 2009 and December 31, 2008, respectively | | | 10,571 | | | | 10,510 | | | Additional paid-in capital | | | 15,738,709 | | | | 15,306,564 | | | Deficit accumulated during exploration stage | | | (17,044,187 | ) | | | (16,167,293 | ) | | | | | | | | | | | | | | | | | | | | Total stockholders’ equity | | | (1,294,907 | ) | | | (850,219 | ) | | | | | | | | | | | | | | | | | | | | Total liabilities and stockholders’ equity | | $ | 510,267 | | | $ | 987,603 | | | | | | | | | |
The Accompanying Notes are an Integral Part of the Condensed Consolidated Financial Statements
Concentric Energy Corp.
(An Exploration Stage Company) Condensed Consolidated Statements of Operations (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | Inception | | | | | | | | | | | | | (July 20, 2001) to | | | | | | | | | | | | | March 31, | | | | | Three Months Ended March 31, | | | 2009 | | | | | 2009 | | | 2008 | | | (as restated)* | | | Revenue | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | | General and administrative | | | 918,337 | | | | 1,353,895 | | | | 13,662,218 | | | Geological and geophysical costs | | | 11,013 | | | | 102,163 | | | | 2,767,651 | | | | | | | | | | | | | | Total operating expenses | | | 929,350 | | | | 1,456,058 | | | | 16,429,869 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loss from operations | | | (929,350 | ) | | | (1,456,058 | ) | | | (16,429,869 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Other income (expense): | | | | | | | | | | | | | | Interest income | | | 289 | | | | 2,471 | | | | 65,766 | | | Interest expense | | | (60,012 | ) | | | (10,930 | ) | | | (212,150 | ) | | Gain (Loss) on investments | | | 13,573 | | | | (96,050 | ) | | | 30,419 | | | Change in fair value of warrants | | | 113,587 | | | | — | | | | (470,016 | ) | | Recognized loss on transfer of securities from available-for-sale to trading | | | — | | | | — | | | | (18,776 | ) | | Other income (expense) | | | (14,981 | ) | | | 2,960 | | | | (9,561 | ) | | | | | | | | | | | | | Total other income (expense) | | | 52,456 | | | | (101,549 | ) | | | (614,318 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Net Loss | | | (876,894 | ) | | | (1,557,607 | ) | | | (17,044,187 | ) | | Other comprehensive income: | | | | | | | | | | | | | | Unrealized losses on available-for-sales securities | | | — | | | | — | | | | (18,776 | ) | | Reclassification adjustment for losses recognized on transfer from available- for-sale to trading | | | — | | | | — | | | | 18,776 | | | | | | | | | | | | | | Comprehensive loss | | $ | (876,894 | ) | | $ | (1,557,607 | ) | | $ | (17,044,187 | ) | | | | | | | | | | | | | Net loss per share Basic and diluted | | $ | (0.09 | ) | | $ | (0.17 | ) | | $ | (2.55 | ) | | | | | | | | | | | | | Weighted average number of common shares — basic and diluted | | | 9,377,378 | | | | 9,085,410 | | | | 6,682,729 | | | | | | | | | | | | |
The Accompanying Notes are an Integral Part of the Condensed Consolidated Financial Statements F-37
Concentric Energy Corp.
(An Exploration Stage Company) Condensed Consolidated Statements of Stockholders’ Equity For the Period from Inception (July 20, 2001) to March 31, 2009 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of | | | | | | | | | | | | | | | Accumulated | | | Accumulated | | | | | | | | Shares of | | | | | | | | | | | Additional | | | Other | | | Deficit During | | | | | | | | Common | | | Members’ | | | Common | | | Paid-in | | | Comprehensive | | | Exploration | | | Total | | | | | Stock | | | Equity | | | Stock | | | Capital | | | Loss | | | Stage | | | Equity | | | Members’ contributions inception, July 20, 2001 to December 31, 2003 | | | — | | | $ | 71,315 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 71,315 | | | Net loss inception, July 20, 2001, to December 31, 2003 | | | — | | | | (111,066 | ) | | | — | | | | — | | | | — | | | | — | | | | (111,066 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2003 | | | — | | | | (39,751 | ) | | | — | | | | — | | | | — | | | | — | | | | (39,751 | ) | | Members’ contributions | | | — | | | | 12,000 | | | | — | | | | — | | | | — | | | | — | | | | 12,000 | | | Conversion from LLC to C Corporation on June 1, 2004 | | | 5,000,000 | | | | 27,751 | | | | 5,000 | | | | 78,315 | | | | — | | | | (111,066 | ) | | | — | | | Issuance of common stock for services | | | 534,280 | | | | — | | | | 534 | | | | 303,566 | | | | — | | | | — | | | | 304,100 | | | Sale of common stock, net | | | 1,044,000 | | | | — | | | | 1,044 | | | | 1,088,606 | | | | — | | | | — | | | | 1,089,650 | | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (608,638 | ) | | | (608,638 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2004 | | | 6,578,280 | | | | — | | | | 6,578 | | | | 1,470,487 | | | | — | | | | (719,704 | ) | | | 757,361 | | | Sale of common stock, net | | | 85,200 | | | | — | | | | 85 | | | | 187,915 | | | | — | | | | — | | | | 188,000 | | | Issuance of stock options | | | — | | | | — | | | | — | | | | 33,880 | | | | — | | | | — | | | | 33,880 | | | Exercise of stock options | | | 80,000 | | | | — | | | | 80 | | | | 99,920 | | | | — | | | | — | | | | 100,000 | | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (736,945 | ) | | | (736,945 | ) | | Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (18,776 | ) | | | — | | | | (18,776 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2005 | | | 6,743,480 | | | | — | | | | 6,743 | | | | 1,792,202 | | | | (18,776 | ) | | | (1,456,649 | ) | | | 323,520 | | | Sale of common stock, net | | | 907,000 | | | | — | | | | 907 | | | | 2,176,743 | | | | — | | | | — | | | | 2,177,650 | | | Issuance of common stock for services | | | 45,940 | | | | — | | | | 46 | | | | 137,185 | | | | — | | | | — | | | | 137,231 | | | Exercise of stock options | | | 12,000 | | | | — | | | | 12 | | | | 14,988 | | | | — | | | | — | | | | 15,000 | | | Issuance of stock options for services | | | — | | | | — | | | | — | | | | 535,189 | | | | — | | | | — | | | | 535,189 | | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,808,964 | ) | | | (2,808,964 | ) | | Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | 18,776 | | | | — | | | | 18,776 | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2006 | | | 7,708,420 | | | | — | | | | 7,708 | | | | 4,656,307 | | | | — | | | | (4,265,613 | ) | | | 398,402 | | | Sale of common stock, net | | | 850,000 | | | | — | | | | 850 | | | | 5,367,096 | | | | — | | | | — | | | | 5,367,946 | | | Equity component of convertible debt* | | | — | | | | — | | | | — | | | | 26,924 | | | | — | | | | — | | | | 26,924 | | | Issuance of common stock for services | | | 488,660 | | | | — | | | | 489 | | | | 438,833 | | | | — | | | | — | | | | 439,322 | | | Issuance of stock options for services | | | — | | | | — | | | | — | | | | 827,216 | | | | — | | | | — | | | | 827,216 | | | Extension of expiry of previously issued stock options | | | — | | | | — | | | | — | | | | 256,838 | | | | — | | | | — | | | | 256,838 | | | Issuance of warrants for services | | | — | | | | — | | | | — | | | | 159,776 | | | | — | | | | — | | | | 159,776 | | | Conversion of notes payable | | | 38,330 | | | | — | | | | 38 | | | | 206,446 | | | | — | | | | — | | | | 206,484 | | | Net loss, as restated* | | | — | | | | — | | | | — | | | | — | | | | — | | | | (6,307,994 | ) | | | (6,307,994 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2007 | | | 9,085,410 | | | $ | — | | | $ | 9,085 | | | $ | 11,939,436 | | | $ | — | | | $ | (10,573,607 | ) | | $ | 1,374,914 | | | | | | | | | | | | | | | | | | | | | | | | |
The Accompanying Notes are an Integral Part of the Condensed Consolidated Financial Statements F-38
Concentric Energy Corp.
(An Exploration Stage Company)
Condensed Consolidated Statements of Stockholders’ Equity
For the Period from Inception (July 20, 2001) to March 31, 2009 (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of | | | | | | | | | | | | | | | Accumulated | | | Accumulated | | | | | | | | Shares of | | | | | | | | | | | Additional | | | Other | | | Deficit During | | | | | | | | Common | | | Members’ | | | Common | | | Paid-in | | | Comprehensive | | | Exploration | | | Total | | | | | Stock | | | Equity | | | Stock | | | Capital | | | Loss | | | Stage | | | Equity | | | Balance, December 31, 2007 | | | 9,085,410 | | | $ | — | | | $ | 9,085 | | | $ | 11,939,436 | | | $ | — | | | $ | (10,573,607 | ) | | $ | 1,374,914 | | | Issuance of common stock for services | | | 764,806 | | | | — | | | | 765 | | | | 1,013,562 | | | | — | | | | — | | | | 1,014,327 | | | Conversion of stock options to warrants | | | — | | | | — | | | | — | | | | 166,060 | | | | — | | | | — | | | | 166,060 | | | Equity component of convertible debt* | | | — | | | | — | | | | — | | | | 48,102 | | | | — | | | | — | | | | 48,102 | | | Amortization of stock options | | | — | | | | — | | | | — | | | | 144,997 | | | | — | | | | — | | | | 144,997 | | | Issuance of warrants for services | | | — | | | | — | | | | — | | | | 265,474 | | | | — | | | | — | | | | 265,474 | | | Issuance of warrants | | | — | | | | — | | | | — | | | | 11,325 | | | | — | | | | — | | | | 11,325 | | | Sale of common stock, net | | | 541,666 | | | | — | | | | 542 | | | | 1,401,748 | | | | — | | | | — | | | | 1,402,290 | | | Conversion of notes payable | | | 118,302 | | | | — | | | | 118 | | | | 315,860 | | | | — | | | | — | | | | 315,978 | | | Net loss, as restated* | | | — | | | | — | | | | — | | | | — | | | | — | | | | (5,593,686 | ) | | | (5,593,686 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2008 | | | 10,510,184 | | | | — | | | | 10,510 | | | | 15,306,564 | | | | — | | | | (16,167,293 | ) | | | (850,219 | ) | | Issuance of common stock for services | | | 60,451 | | | | — | | | | 61 | | | | 432,145 | | | | — | | | | — | | | | 432,206 | | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (876,894 | ) | | | (876,894 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balance, March 31, 2009 | | | 10,570,635 | | | $ | — | | | $ | 10,571 | | | $ | 15,738,709 | | | $ | — | | | $ | (17,044,187 | ) | | $ | (1,294,907 | ) | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, | | | | | | | | 2008 | | | December 31, | | | | | (Unaudited) | | | 2007 | | | Current liabilities: | | | | | | | | Accounts payable | | $ | 198,985 | | | $ | 308,729 | | | Accrued expenses | | | 190,546 | | | | 359,656 | | | Current portion of notes payable | | | 17,429 | | | | 2,325,435 | | | Convertible note payable-related parties | | | - | | | | 45,000 | | | | | | | | | | | | | Total current liabilities | | | 406,960 | | | | 3,038,820 | | | | | | | | | | | | | Notes payable - long-term portion | | | 35,570 | | | | 48,775 | | | | | | | | | | | | | Total liabilities | | | 442,530 | | | | 3,087,595 | | | | | | | | | | | | | Commitments and contingencies | | | | | | | | | | | | | | | | | | | | Stockholders' Equity | | | | | | | | | | Preferred stock; $0.001 par value; 50,000,000 shares | | | | | | | | | | authorized; no shares issued and outstanding | | | - | | | | - | | | Common stock; $0.001 par value; 150,000,000 shares | | | | | | | | | | authorized; 9,745,378 and 9,085,410 issued and outstanding at | | | | | | | | | | September 30, 2008 and December 31, 2007, respectively | | | 9,745 | | | | 9,085 | | | Additional paid-in capital | | | 14,641,143 | | | | 11,919,947 | | | Deficit accumulated during exploration stage | | | (14,466,995 | ) | | | (10,554,118 | ) | | | | | | | | | | | | Total stockholders' equity | | | 183,893 | | | | 1,374,914 | | | | | | | | | | | | | Total liabilities and stockholders' equity | | $ | 626,423 | | | $ | 4,462,509 | |
F-39
Concentric Energy Corp.
(An Exploration Stage Company) Condensed Consolidated Statements of Cash Flows (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | Inception | | | | | Three | | | Three | | | (July 20, 2001) to | | | | | Months Ended | | | Months Ended | | | March 31, | | | | | March 31, | | | March 31, | | | 2009 | | | | | 2009 | | | 2008 | | | (as restated)* | | | Cash Flows from Operating Activities | | | | | | | | | | | | | | Net loss | | $ | (876,894 | ) | | $ | (1,557,607 | ) | | $ | (17,044,187 | ) | | Adjustments to reconcile net loss to net cash used in operating activities | | | | | | | | | | | | | | Depreciation and amortization | | | 13,047 | | | | 12,797 | | | | 157,262 | | | Recognized loss from the transfer from available-for-sale securities to trading securities | | | — | | | | — | | | | 18,776 | | | Change in fair value of warrants | | | (113,587 | ) | | | — | | | | 470,016 | | | Recognized (gain) loss on investments | | | (13,573 | ) | | | 96,050 | | | | (30,419 | ) | | Amortization of stock options issued for services | | | — | | | | 109,701 | | | | 1,541,282 | | | Extension of expiry of previously issued stock options | | | — | | | | — | | | | 256,838 | | | Conversion of stock options to warrants | | | — | | | | 166,060 | | | | 166,060 | | | Issuance of stock for services | | | 432,206 | | | | 179,149 | | | | 2,327,186 | | | Issuance of warrants for services | | | — | | | | — | | | | 281,884 | | | Loss on sale of fixed assets | | | — | | | | — | | | | 148,737 | | | Amortization of debt discount | | | 29,761 | | | | — | | | | 39,919 | | | Amortization of deferred charges on debentures | | | 6,610 | | | | — | | | | 6,610 | | | Interest paid through conversion to stock | | | — | | | | — | | | | 18,825 | | | Professional fees paid with debt | | | — | | | | — | | | | 50,000 | | | Changes in assets and liabilities | | | | | | | | | | | | | | Trading securities | | | 24,051 | | | | 62,255 | | | | 153,900 | | | Receivables from related parties | | | 6 | | | | 100 | | | | (710 | ) | | Receivable — other | | | — | | | | — | | | | (10,617 | ) | | Prepaid expenses | | | 4,097 | | | | (12,339 | ) | | | (1,697 | ) | | Deposits | | | — | | | | — | | | | (1,991 | ) | | Acccounts payable | | | 30,512 | | | | (89,016 | ) | | | 366,158 | | | Acccounts payable — related parties | | | (22,056 | ) | | | — | | | | 380 | | | Accrued liabilities | | | 47,824 | | | | (210,483 | ) | | | 266,810 | | | | | | | | | | | | | | Net cash used in operating activities | | | (437,996 | ) | | | (1,243,333 | ) | | | (10,818,978 | ) | | | | | | | | | | | | | Cash Flows from Investing Activities | | | | | | | | | | | | | | Purchase of fixed assets | | | — | | | | (2,500 | ) | | | (350,521 | ) | | Purchase of mineral rights | | | — | | | | — | | | | (100,000 | ) | | Purchase of certificates of deposit | | | — | | | | — | | | | (507,822 | ) | | Redemption of certificates of deposit | | | — | | | | 507,822 | | | | 507,822 | | | Purchase of available-for-sale securities | | | — | | | | — | | | | (134,195 | ) | | | | | | | | | | | | | Net cash provided (used) by investing activities | | | — | | | | 505,322 | | | | (584,716 | ) | | | | | | | | | | | | | Cash Flows from Financing Activities | | | | | | | | | | | | | | Net proceeds from the sale of common stock/member contributions | | | — | | | | — | | | | 10,225,536 | | | Exercise of stock options | | | — | | | | — | | | | 115,000 | | | Sale of warrants | | | — | | | | — | | | | 11,325 | | | Proceeds from member contributions | | | — | | | | — | | | | 83,315 | | | Proceeds from notes payable | | | — | | | | 150,000 | | | | 611,143 | | | Equity component of convertible debt | | | — | | | | — | | | | 75,026 | | | Proceeds from debentures | | | 456,508 | | | | — | | | | 456,508 | | | Repayment of notes payable | | | (5,102 | ) | | | (48,976 | ) | | | (135,999 | ) | | | | | | | | | | | | | Net cash provided by financing activities | | | 451,406 | | | | 101,024 | | | | 11,441,854 | | | | | | | | | | | | | | Net increase (decrease) in cash and cash equivalents | | | 13,410 | | | | (636,987 | ) | | | 38,160 | | | Cash and cash equivalents at beginning of period | | | 24,750 | | | | 825,908 | | | | — | | | | | | | | | | | | | | Cash and cash equivalents at end of period | | $ | 38,160 | | | $ | 188,921 | | | $ | 38,160 | | | | | | | | | | | | |
The Accompanying Notes are an Integral Part of the Condensed Consolidated Financial Statements F-40
Concentric Energy Corporation Corp.
(An Exploration Stage Company) Condensed Consolidated Statements of OperationsCash Flows (continued)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | Inception | | | | | Three Months | | | Three Months | | | (July 20, 2001) to | | | | | Ended | | | Ended | | | March 31, | | | | | March 31, | | | March 31, | | | 2009 | | | | | 2009 | | | 2008 | | | (as restated)* | | | Supplemental Disclosure of Cash Flow Information | | | | | | | | | | | | | | Cash paid during the period for interest | | $ | 400 | | | $ | 1,312 | | | $ | 94,877 | | | | | | | | | | | | | | Cash paid during the period for income taxes | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-Cash Investing and Financing Activities | | | | | | | | | | | | | | Purchase of a vehicle with a note payable | | $ | — | | | $ | — | | | $ | 78,188 | | | | | | | | | | | | | | Conversion of debt to equity | | $ | — | | | $ | — | | | $ | 550,000 | | | | | | | | | | | | | | Purchase of building with a note payable | | $ | — | | | $ | — | | | $ | 2,309,048 | | | | | | | | | | | | | | Resale of building and extinguishment of note payable | | $ | — | | | $ | 2,309,048 | | | $ | 2,309,048 | | | | | | | | | | | | | | Transfer of investments from available-for-sale to trading | | $ | — | | | $ | — | | | $ | 110,419 | | | | | | | | | | | | | | Unrecognized loss on available-for-sale investments | | $ | — | | | $ | — | | | $ | 18,776 | | | | | | | | | | | | | | Trading securities exchanged for debt | | $ | 14,831 | | | $ | — | | | $ | 42,019 | | | | | | | | | | | | | | Subscriptions receivable exchanged for debt | | $ | — | | | $ | — | | | $ | 471,339 | | | | | | | | | | | | | | Professional fees paid with debt | | $ | — | | | $ | — | | | $ | 50,000 | | | | | | | | | | | | | | Warrants issued as deferred financing costs | | $ | — | | | $ | — | | | $ | 143,366 | | | | | | | | | | | | | | Warrants issued classified as a liability | | $ | — | | | $ | — | | | $ | 36,679 | | | | | | | | | | | | | | Debt discount | | $ | — | | | $ | — | | | $ | 628,376 | | | | | | | | | | | | |
| | | | | | | | | Inception | | | | | Nine Months Ended September 30, | | | (July 20, 2001) to | | | | | | | | | | | September 30, | | | | | 2008 | | | 2007 | | | 2008 | | | | | | | | | | | | | | Revenue | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | | General and administrative | | | 3,340,559 | | | | 3,883,797 | | | | 11,576,241 | | | Geological and geophysical costs | | | 381,080 | | | | 303,442 | | | | 2,734,717 | | | Total operating expenses | | | 3,721,639 | | | | 4,187,239 | | | | 14,310,958 | | | | | | | | | | | | | | | | | Loss from operations | | | (3,721,639 | ) | | | (4,187,239 | ) | | | (14,310,958 | ) | | | | | | | | | | | | | | | | Other income (expense): | | | | | | | | | | | | | | Interest income | | | 4,628 | | | | 35,412 | | | | 65,320 | | | Interest expense | | | (19,826 | ) | | | (33,962 | ) | | | (124,136 | ) | | Gain (Loss) on investments | | | (181,515 | ) | | | 43,844 | | | | 59,848 | | | Recognized loss on transfer of securities from available-for-sale to trading | | | - | | | | - | | | | (18,776 | ) | | Loss on disposal of fixed assets | | | - | | | | - | | | | (147,322 | ) | | Other income (expense) | | | 5,475 | | | | (27,569 | ) | | | 9,029 | | | Total other income (expense) | | | (191,238 | ) | | | 17,725 | | | | (156,037 | ) | | | | | | | | | | | | | | | | Net Loss | | $ | (3,912,877 | ) | | $ | (4,169,514 | ) | | $ | (14,466,995 | ) | | | | | | | | | | | | | | | | Net loss per share | | | | | | | | | | | | | | Basic and diluted | | $ | (0.42 | ) | | $ | (0.52 | ) | | $ | (2.21 | ) | | | | | | | | | | | | | | | | Weighted average number of common shares - basic and diluted | | | 9,342,658 | | | | 8,080,641 | | | | 6,538,170 | |
The Accompanying Notes are an Integral Part of the Condensed Consolidated Financial Statements F-41
Concentric Energy Corporation Corp.
(An Exploration Stage Company) Condensed Consolidated Statements of Stockholders’ EquityFor the Period from Inception (July 20, 2001) to September 30, 2008
| | | Common | | | Members' | | | Common | | | Paid-in | | | Comprehensive | | | Exploration | | | Total | | | | | Stock | | | Equity | | | Stock | | | Capital | | | Loss | | | Stage | | | Equity | | | Members' contributions inception, | | | | | | | | | | | | | | | | | | | | | | | July 20, 2001 to December 31, 2003 | | | - | | | $ | 71,315 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 71,315 | | | Net loss inception, July 20, 2001, to | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2003 | | | - | | | | (111,066 | ) | | | - | | | | - | | | | - | | | | - | | | | (111,066 | ) | | Balance, December 31, 2003 | | | - | | | | (39,751 | ) | | | - | | | | - | | | | - | | | | - | | | | (39,751 | ) | | Members' contributions | | | - | | | | 12,000 | | | | - | | | | - | | | | - | | | | - | | | | 12,000 | | | Conversion from LLC to C Corporation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | on June 1, 2004 | | | 5,000,000 | | | | 27,751 | | | | 5,000 | | | | 78,315 | | | | - | | | | (111,066 | ) | | | - | | | Issuance of common stock for services | | | 534,280 | | | | - | | | | 534 | | | | 303,566 | | | | - | | | | - | | | | 304,100 | | | Sale of common stock, net | | | 1,044,000 | | | | - | | | | 1,044 | | | | 1,088,606 | | | | - | | | | - | | | | 1,089,650 | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (608,638 | ) | | | (608,638 | ) | | Balance, December 31, 2004 | | | 6,578,280 | | | | - | | | | 6,578 | | | | 1,470,487 | | | | - | | | | (719,704 | ) | | | 757,361 | | | Sale of common stock, net | | | 85,200 | | | | - | | | | 85 | | | | 187,915 | | | | - | | | | - | | | | 188,000 | | | Issuance of stock options | | | - | | | | - | | | | - | | | | 33,880 | | | | - | | | | - | | | | 33,880 | | | Exercise of stock options | | | 80,000 | | | | - | | | | 80 | | | | 99,920 | | | | - | | | | - | | | | 100,000 | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (736,945 | ) | | | (736,945 | ) | | Other comprehensive loss | | | - | | | | - | | | | - | | | | - | | | | (18,776 | ) | | | - | | | | (18,776 | ) | | Balance, December 31, 2005 | | | 6,743,480 | | | | - | | | | 6,743 | | | | 1,792,202 | | | | (18,776 | ) | | | (1,456,649 | ) | | | 323,520 | | | Sale of common stock, net | | | 907,000 | | | | - | | | | 907 | | | | 2,176,743 | | | | - | | | | - | | | | 2,177,650 | | | Issuance of common stock for services | | | 45,940 | | | | - | | | | 46 | | | | 137,185 | | | | - | | | | - | | | | 137,231 | | | Exercise of stock options | | | 12,000 | | | | - | | | | 12 | | | | 14,988 | | | | - | | | | - | | | | 15,000 | | | Issuance of stock options for services | | | - | | | | - | | | | - | | | | 535,189 | | | | - | | | | - | | | | 535,189 | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,808,964 | ) | | | (2,808,964 | ) | | Other comprehensive income | | | - | | | | - | | | | - | | | | - | | | | 18,776 | | | | - | | | | 18,776 | | | Balance, December 31, 2006 | | | 7,708,420 | | | | - | | | | 7,708 | | | | 4,656,307 | | | | - | | | | (4,265,613 | ) | | | 398,402 | | | Sale of common stock, net | | | 850,000 | | | | - | | | | 850 | | | | 5,367,096 | | | | - | | | | - | | | | 5,367,946 | | | Issuance of common stock for services | | | 120,660 | | | | - | | | | 121 | | | | 376,879 | | | | - | | | | - | | | | 377,000 | | | Issuance of restricted stock for services | | | 368,000 | | | | - | | | | 368 | | | | 61,954 | | | | - | | | | - | | | | 62,322 | | | Issuance of stock options for services | | | - | | | | - | | | | - | | | | 827,216 | | | | - | | | | - | | | | 827,216 | | | Extension of expiry of previously | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | issued stock options | | | - | | | | - | | | | - | | | | 256,838 | | | | - | | | | - | | | | 256,838 | | | Issuance of warrants for services | | | - | | | | - | | | | - | | | | 159,776 | | | | - | | | | - | | | | 159,776 | | | Conversion of notes payable | | | 38,330 | | | | - | | | | 38 | | | | 213,881 | | | | - | | | | - | | | | 213,919 | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (6,288,505 | ) | | | (6,288,505 | ) | | Balance, December 31, 2007 | | | 9,085,410 | | | | - | | | | 9,085 | | | | 11,919,947 | | | | - | | | | (10,554,118 | ) | | | 1,374,914 | | | Amortization of restricted stock for services (unaudited) | | | - | | | | - | | | | - | | | | 537,447 | | | | - | | | | - | | | | 537,447 | | | Conversion of options to warrants (unaudited) | | | - | | | | - | | | | - | | | | 166,060 | | | | - | | | | - | | | | 166,060 | | | Amortization of stock options (unaudited) | | | - | | | | - | | | | - | | | | 144,997 | | | | - | | | | - | | | | 144,997 | | | Sale of common stock, net (unaudited) | | | 541,666 | | | | - | | | | 542 | | | | 1,401,870 | | | | - | | | | - | | | | 1,402,412 | | | Conversion of notes payable (unaudited) | | | 118,302 | | | | - | | | | 118 | | | | 354,668 | | | | - | | | | - | | | | 354,786 | | | Issuance of warrants for services (unaudited) | | | - | | | | - | | | | - | | | | 116,154 | | | | - | | | | - | | | | 116,154 | | | Net loss (unaudited) | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3,912,877 | ) | | | (3,912,877 | ) | | Balance, September 30, 2008 (unaudited) | | | 9,745,378 | | | $ | - | | | $ | 9,745 | | | $ | 14,641,143 | | | $ | - | | | $ | (14,466,995 | ) | | $ | 183,893 | |
The Accompanying Notes are an Integral Part of the Condensed Consolidated Financial Statements
Concentric Energy Corporation
(An Exploration Stage Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | Nine | | | Nine | | | Inception | | | | | Months Ended | | | Months Ended | | | (July 20, 2001) to | | | | | September 30, | | | September 30, | | | September 30, | | | | | 2008 | | | 2007 | | | 2008 | | | Cash Flows from Operating Activities | | | | | | | | | | | Net loss | | $ | (3,912,877 | ) | | $ | (4,169,514 | ) | | $ | (14,466,995 | ) | | Adjustments to reconcile net loss to net | | | | | | | | | | | | | | cash used in operating activities | | | | | | | | | | | | | | Depreciation and amortization | | | 35,653 | | | | 39,805 | | | | 130,919 | | | Recognized loss from the transfer from available-for-sale | | | | | | | | | | | | | | securities to trading securities | | | - | | | | - | | | | 18,776 | | | Recognized (gain) loss on investments | | | 181,515 | | | | (43,844 | ) | | | (59,848 | ) | | Amortization of stock options issued for services | | | 144,997 | | | | 993,297 | | | | 1,541,282 | | | Extension of expiry of previously issued stock options | | | - | | | | - | | | | 256,838 | | | Conversion of stock options to warrants | | | 166,060 | | | | - | | | | 166,060 | | | Issuance of restricted stock for services | | | 537,447 | | | | - | | | | 599,769 | | | Issuance of stock for services | | | - | | | | 364,000 | | | | 818,331 | | | Issuance of warrants for services | | | 116,154 | | | | 169,059 | | | | 275,930 | | | Loss on sale of fixed assets | | | - | | | | 33,655 | | | | 147,322 | | | Amortization of debt discount | | | - | | | | 3,223 | | | | 5,697 | | | Interest paid through conversion to stock | | | 4,786 | | | | - | | | | 18,705 | | | Changes in assets and liabilities | | | | | | | | | | | | | | Trading securities | | | 117,916 | | | | 36,798 | | | | 100,044 | | | Receivables from related parties | | | (10,560 | ) | | | 90,330 | | | | (10,795 | ) | | Receivable - other | | | (10 | ) | | | 23,901 | | | | (10,617 | ) | | Prepaid expenses | | | 86,962 | | | | 7,673 | | | | (55,911 | ) | | Deposits | | | 5,750 | | | | 920 | | | | (3,306 | ) | | Acccounts payable | | | (109,744 | ) | | | 73,029 | | | | 198,985 | | | Accrued liabilities | | | (169,110 | ) | | | 20,949 | | | | 190,546 | | | Net cash used in operating activities | | | (2,805,061 | ) | | | (2,356,719 | ) | | | (10,138,268 | ) | | Cash Flows from Investing Activities | | | | | | | | | | | | | | Purchase of fixed assets | | | (3,815 | ) | | | (210,923 | ) | | | (350,521 | ) | | Purchase of mineral rights | | | - | | | | - | | | | (100,000 | ) | | (Purchase)/Redemption of certificates of deposit | | | 507,822 | | | | (501,674 | ) | | | - | | | Purchase of available-for-sale securities | | | - | | | | - | | | | (134,195 | ) | | Net cash provided (used) by investing activities | | | 504,007 | | | | (712,597 | ) | | | (584,716 | ) | | Cash Flows from Financing Activities | | | | | | | | | | | | | | Net proceeds from the sale of common stock/member contributions | | | 1,402,412 | | | | 5,367,946 | | | | 10,308,973 | | | Exercise of stock options | | | - | | | | - | | | | 115,000 | | | Proceeds from notes payable | | | 350,000 | | | | 135,000 | | | | 641,326 | | | Proceeds from notes payable - related parties | | | - | | | | 110,000 | | | | - | | | Repayment of notes payable | | | (57,163 | ) | | | (10,892 | ) | | | (122,212 | ) | | Net cash provided by financing activities | | | 1,695,249 | | | | 5,602,054 | | | | 10,943,087 | | | Net increase (decrease) in cash and cash equivalents | | | (605,805 | ) | | | 2,532,738 | | | | 220,103 | | | Cash and cash equivalents at beginning of period | | | 825,908 | | | | 141,874 | | | | - | | | Cash and cash equivalents at end of period | | $ | 220,103 | | | $ | 2,674,612 | | | $ | 220,103 | | | Supplemental Disclosure of Cash Flow Information | | | | | | | | | | | | | | Cash paid during the period for interest | | $ | 71,819 | | | $ | 30,739 | | | $ | 97,874 | | | Cash paid during the period for income taxes | | $ | - | | | $ | - | | | $ | - | | | Non-Cash Investing and Financing Activities | | | | | | | | | | | | | | Purchase of a vehicle with a note payable | | $ | - | | | $ | 39,195 | | | $ | 78,188 | | | Conversion of debt to equity | | $ | 350,000 | | | $ | - | | | $ | 550,000 | | | Resale of a building and extinguishment of a note payable | | $ | 2,309,048 | | | $ | - | | | $ | 2,309,048 | | | Purchase of a building with a note payable | | $ | - | | | $ | 2,309,048 | | | $ | 2,309,048 | | | Transfer of investments from available-for-sale to trading | | $ | - | | | $ | - | | | $ | 110,419 | | | Unrecognized loss on available-for-sale investments | | $ | - | | | $ | - | | | $ | 18,776 | |
The Accompanying Notes are an Integral Part of the Condensed Consolidated Financial Statements
Concentric Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1. Nature of Business and Significant Accounting Policies
Nature of Business–— Concentric Energy CorporationCorp. was incorporated on June 1, 2004 under the laws of the State of Nevada and is currently an exploration stage company and does not have any mining operations which generate revenue or profit. The Company is the successor to Concentric Energy, LLC which was founded on July 20, 2001 under the laws of the State of Nevada and converted to a corporate form on June 1, 2004. The Company is currently conducting advancedconducts exploration operations for uranium on one property in Arizona through its wholly owned subsidiary, Anderson Mining Company. Anderson Mining Company was incorporated under the laws of the State of Arizona on June 23, 2006. The generation of revenue from its mining operations is dependent on the existence of economically recoverable reserves at its uranium property, and the ability of Concentric Energy CorporationCorp. to obtain the financing to complete the development of such reserves and meet its obligations under various agreements.
Basis of Presentation –— The condensed consolidated financial statements included herein have been prepared by Concentric Energy CorporationCorp. without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) and should be read in conjunction with our annual audited financial statements for the year ended December 31, 2007.2008. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, as permitted by the SEC, although we believe the disclosures which are made are adequate to make the information presented not misleading. The condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position at September 30, 2008March 31, 2009 and the results of operations and cash flows for the periods presented.
Interim results are subject to significant variations and the results of operations for the ninethree months ended September 30, 2008March 31, 2009 are not necessarily indicative of the results to be expected for the full year.
Basis of Consolidation –— The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Anderson Mining Company (collectively, the “Company”). All significant intercompany accounts and transactions, if any, have been eliminated in consolidation.
Property and Equipment –— Mineral exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, costs incurred prospectively to develop the property will be capitalized as incurred and will be amortized using the units-of-production (“UOP”) method over the estimated life of the ore body based on estimated recoverable reserve quantities from proven and probable reserves. Major development costs incurred after the commencement of production will be capitalized and amortized using the UOP method.
Expenditures for new facilities or equipment and expenditures that extend the useful lives of existing facilities or equipment are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the estimated productive lives of such facilities and equipment. F-42
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Unaudited)
Note 1. Nature of Business and Significant Accounting Policies – —(continued) Reclamation Obligations -— The Company has engaged in exploration activities on its uranium property which consist of the drilling of a limited number of test wells to confirm previously acquired geologic and geophysical data. At September 30, 2008March 31, 2009 and December 31, 2007,2008, the Company has accrued no costs for any reclamation obligations relating to its mineral properties because of the limited scope of these operations and management’s estimate that no material reclamation costs have been incurred. Net Loss Per Share – Basic net loss per common share is computed by dividing net loss available to common stockholders for the period by the weighted average number of common shares of stock outstanding during the period.
|
Net Loss Per Share— Basic net loss per common share is computed by dividing net loss available to common stockholders for the period by the weighted average number of common shares of stock outstanding during the period. At March 31, 2009 and 2008, unvested restricted common shares of 1,193,257 and 368,000, respectively, were not included in the calculation of basic loss per share as not all conditions necessary for vesting of this stock have been met. At September 30,March 31, 2009 and 2008, and 2007, there were outstanding potentially dilutive securities as follows: | | | | | | | | | | | | | 2009 | | 2008 | | Options | | | 954,625 | | | | 1,004,625 | | | | | Warrants | | | 3,396,901 | | | | 1,146,340 | | | | | Convertible debentures/notes | | | 698,196 | | | | 50,041 | | | | | | | | | | | | | Total potentially dilutive securities | | | 5,049,722 | | | | 2,201,006 | | | | | | | | | | | |
For the three months ended March 31, 2009 and 2008, the above listed potentially dilutive securities were not included in the determination of diluted net loss per share as their effect was anti-dilutive. Income Taxes— The Company provides for income taxes under SFAS 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities using the enacted income tax rate expected to apply to taxable income in the period in which the deferred tax liability or asset is expected to be settled or realized. SFAS 109 requires that a valuation allowance be established, if necessary, to reduce the deferred tax assets to the amount that management believes is more likely than not to be realized. The Company has realized significant losses since inception and, as an exploration stage company, is dependent on the existence of economically recoverable reserves at its uranium property. As a result of these losses the Company has recorded no income tax benefit for the periods ended March 31, 2009 and 2008. All of the tax benefits of net operating loss carryforwards and other temporary differences have been fully reserved at March 31, 2009 and December 31, 2008. Fair Value Measurements— The Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”) effective January 1, 2008 for financial assets and liabilities measured on a recurring basis. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market at the measurement date. | | | 2008 | | | 2007 | | | | | | | | | | | | | Options | | | 954,625 | | | | 1,490,985 | | | | | | | | | | | | | Warrants | | | 2,376,286 | | | | 1,057,480 | | | | | | | | | | | | | Contingent stock | | | - | | | | 188,000 | | | | | | | | | | | | | Convertible notes | | | - | | | | 47,086 | | | Total potentially dilutive securities | | | 3,330,911 | | | | 2,783,551 | |
For the nine months ended September 30, 2008 and 2007, the above listed potentially dilutive securities were not included in the determination of diluted net loss per share as their effect was anti-dilutive. |
Income Taxes – The Company provides for income taxes under SFAS 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities using the enacted income tax rate expected to apply to taxable income in the period in which the deferred tax liability or asset is expected to be settled or realized. SFAS 109 requires that a valuation allowance be established, if necessary, to reduce the deferred tax assets to the amount that management believes is more likely than not to be realized. The Company has realized significant losses since inception and, as an exploration stage company, is dependent on the existence of economically recoverable reserves at its uranium property. As a result of these losses the Company has recorded no income tax benefit for the periods ended September 30, 2008 and 2007. All of the tax benefits of net operating loss carryforwards and other temporary differences have been fully reserved at September 30, 2008 and December 31, 2007.
|
Fair Value Measurements - The Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”) effective January 1, 2008 for financial assets and liabilities measured on a recurring basis. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market at the measurement date.
|
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Unaudited)
Note 1. Nature of Business and Significant Accounting Policies – —(continued)
This statement also establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly in active markets; and (Level 3) unobservable inputs in which there is little or no market data available.
The Company’s assets carried at fair value measured on a recurring basis are as follows at September 30, 2008:March 31, 2009: | | | | | | | | | | | At and For the | | | | | | Three Months | | | | | | Ended | | | | | At and For the Nine Months Ended September 30, 2008 | | | March 31, 2009 | | | Trading securities | | $ | 75,223 | | | $ | 33,957 | | | | | | | | | Quoted prices in active market for identical securities (Level 1) | | $ | 75,223 | | | $ | 33,957 | | | | | | | | | Significant other observable inputs (Level 2) | | $ | - | | | $ | — | | | | | | | | | Significant unobservable inputs (Level 3) | | $ | - | | | $ | — | | | Total losses attributable to net unrealized gains or losses included in Other Income or Expense | | $ | 124,786 | | | | | | | | | | Total gains attributable to net unrealized gains included in Other Income or Expense | | | $ | 8,511 | | | | | | | |
The Company determines the fair value of trading securities based upon quoted market prices of identical securities supplied by national securities exchanges. Total realized and unrealized lossesgains of $181,515$13,573 include unrealized lossesgains of $124,876.$8,511. The unrealized lossesgains are included in Gain (Loss) on investments on the condensed consolidated statement of operations for the ninethree months ended September 30, 2008.March 31, 2009.
Effective January 1, 2008, the Company also adopted Statement of Financial Accounting Standards No. 159, “The Fair Value Option of Financial Assets and Financial Liabilities – including an Amendment of Statement of Financial Accounting Standards No. 115” (“SFAS 159”), which allows an entity to choose to measure certain financial instruments andThe Company’s liabilities carried at fair value measured on a contract by contract basis. At September 30, 2008recurring basis are as follows at March 31, 2009:
| | | | | | | | | At and For the | | | | | Three Months | | | | | Ended | | | | | March 31, 2009 | | | Warrant liability | | $ | 1,098,392 | | | | | | | | Quoted prices in active market for identical securities (Level 1) | | $ | — | | | | | | | | Significant other observable inputs (Level 2) | | $ | — | | | | | | | | Significant unobservable inputs (Level 3) | | $ | 1,098,392 | | | | | | | | Change in fair value of warrants included in Other Income or Expense | | $ | 113,587 | | | | | | |
The Company determines the Company did not elect suchfair value of warrant liability using the Black-Scholes option for its financial instruments and liabilities. As such,pricing model. The gains of $113,587 are included in Change in fair value of warrants on the adoption of SFAS 159 had no impact on ourcondensed consolidated resultsstatement of operations or financial position at September 30, 2008.for the three months ended March 31, 2009.
F-44
Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited) Note 1. Nature of Business and Significant Accounting Policies —(continued) Recent Accounting Pronouncements – With the exception of those discussed below, there— There have been no recent accounting pronouncements or changes in accounting pronouncements during the ninethree months ended September 30, 2008,March 31, 2009, that are of significance, or potential significance, to us. Note 2. Adoption of FSP APB 14-1 Effective January 1, 2009, the Company retroactively adopted the provisions of FASB Staff Position APB 14-1 which requires the Company to separately account for the liability and equity components of convertible debt instruments which may be settled partially or wholly for cash. As a result of adopting this pronouncement, on January 1, 2009, the Company recognized as the cumulative effect of this change in accounting an increase in accumulated deficit of $28,663 together with a corresponding increase in additional paid-in capital. For the three months ended March 31, 2009, the Company recognized no change in its net loss and no change in basic and diluted net loss per share as a result of the adoption of FSP APB 14-1. Note 3. Adoption of EITF 07-5 Effective on January 1, 2009, the Company adopted the provisions of EITF 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF 07-5 applies to any freestanding instruments or embedded features that have the characteristics of a derivative, as defined in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and to any freestanding instruments that are potentially settled in an entity’s own common stock. As a result of adopting EITF 07-5, 2,165,561 of our issued and outstanding common stock purchase warrants previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment. These warrants have exercise prices ranging from $1.00 to $5.07 and expire on May 29, 2012 or December 31, 2012. Effective January 1, 2009, the Company reclassified the fair value of these common stock purchase warrants, which have exercise price and share reset features, from equity to liability status as if these warrants were treated as a derivative liability since their date of issue on December 31, 2008. On January 1, 2009, the Company recorded a retroactive adjustment in which it recognized a loss of $583,603, reduced additional paid-in capital by $591,697 and increased the warrant liability by $1,175,300 to account for the adoption of EITF 07-5. For the three months ended March 31, 2009, the Company recognized a decrease in basic and diluted net loss per share of $0.01 per share as a result of the adoption of EITF 07-5.The fair value of these common stock purchase warrants declined to $1,098,392 at March 31, 2009. The common stock purchase warrants were not issued with the intent of effectively hedging any future cash flow, the fair value of any asset, liability or any net investment in foreign operation. The warrants do not qualify for hedge accounting, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire. These common stock purchase warrants do not trade in any securities market, and as such, we estimate the fair value of these warrants using the Black-Scholes option pricing model using the following assumptions: | | | | | | | | | | | | | March 31, 2009 | | January 1, 2009 | | Annual dividend yield | | | — | | | | — | | | Risk-free interest rate | | | 1.1 - 1.3 | % | | | 1.3 - 1.4 | % | | Expected life (years) | | | 3.15 - 3.75 | | | | 3.4 - 4 | | | Expected volatility | | | 111 | % | | | 123 | % |
F-45
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Unaudited)
Note 1. Nature3. Adoption of Business and Significant Accounting Policies – EITF 07-5(continued)
In December 2007, the FASB issued FASB Statement No. 141(R), “Business Combinations” (“SFAS 141(R)”). This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. The Statement’s scope is broader than that of Statement 141, which applied only to business combinations in which control was obtained by transferring consideration. By applying the same method of accounting—the acquisition method—to all transactions and events in which one entity obtains control over one or more other businesses, this Statement improves the comparability of the information about business combinations provided in financial reports.
The provisions of SFAS 141(R) are effective for fiscal years beginning after December 15, 2008. We are currently evaluatingCompany determines expected volatility using the impact of adopting SFAS 141(R), but as the Company has had no acquisitions, we do not expect that adopting SFAS 141(R) will have a material impact on our consolidated results of operations and financial position. In December 2007, the FASB issued FASB Statement No. 160, “Noncontrolling Interest in Consolidated Financial Statements” (“SFAS 160”). This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It alsoaverage historical daily changes the way the consolidated income statement is presented. The provisions of SFAS 160 are effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact of SFAS 160, but as the Company has no noncontrolling interests, we do not expect it to have a material impact on our consolidated results of operations and financial position.
In March 2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB No. 133” (“SFAS 161”). This Statement requires enhanced disclosures about an entity’s derivative and hedging activities. The provisions of SFAS 161 are effective for years beginning after November 15, 2008. We are currently evaluating the impact of SFAS 161, but as the Company has no derivative instruments and has engaged in no hedging activities, we do not expect it to have a material impact on our consolidated results of operations and financial position.
In May 2008, the FASB issued FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). This Statement identifies the sources of accounting principles to be used in the preparationmarket price of financial statements of nongovernment entities that are presented in conformity with generally accepted accounting principles incomparable publicly traded mining companies’ common stock over the United States. This Statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” We are currently evaluating the impact of SFAS 162, but we do not expect that it will have a material impact on our consolidated results of operations and financial position.expected life.
Concentric Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2.4. Going Concern The Company has incurred losses since inception and requires additional funds for further exploration activities. The Company is an exploration stage company, exploring one mineral property, but not yet generating any revenue from that property. In addition, the Company may not find economically recoverable reserves. These factors create an uncertainty as to how the Company will fund its operations and maintain sufficient cash flow to operate as a going concern. In response to these financial difficulties, management is continuing to pursue financing from various sources, including private placements from investors and institutions. Management believes these efforts will contribute toward funding the Company’s activities until revenue can be earned from future operations or dispositions. Management believes that the net proceeds from private placements, if successful, will be sufficient to meet its working capital and its currently anticipated expenditure levels for the next year. The Company’s ability to meet its cash requirements in the next year is dependent upon obtaining this financing. If this is not achieved, the Company may be unable to obtain sufficient cash flow to fund its operations and obligations, and therefore, may be unable to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, and accordingly, do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor do they include adjustments to the amounts and classification of liabilities that might be necessary should the Company be unable to continue operations or be required to sell its assets. Note 3.5. Related Party Transactions During January 2007,March 2009, the Company issued convertible notes60,451 shares of its restricted common stock valued at $73,750 to certain officers andits independent directors in lieu of the Company. These notes were converted to common stockpayment of the company in November 2007.cash director’s fees. Note 4.6. Stock Based Compensation and Other Equity Transactions The Company sponsors a non-qualified stock compensation program (the “Plan”). Awards under the Plan and their terms are recommended and approved by the Company’s Board of Directors. The maximum term of an option is ten years. Under the Plan, if employment is terminated, an employee may exercise options which have vested within ninety days of the termination date. During the three months ended March 31, 2009, the Company did not grant any stock options under the Plan. No options were exercised during the three months ended March 31, 2009. Total compensation expense resulting from the Plan for the three months ended March 31, 2009 was nil. At March 31, 2009, all of the Company’s outstanding stock options were vested. F-46
Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited) Note 6. Stock Based Compensation and Other Equity Transactions(continued) During the ninethree months ended September 30,March 31, 2008, the Company did not grant any stock options under the Plan. No options were exercised during the ninethree months ended September 30,March 31, 2008. Total compensation expense resulting from the Plan for the ninethree months ended September 30,March 31, 2008 was $144,997.$109,701. The fair value of the options that vested during the three months ended March 31, 2008 was $13,230. At September 30,March 31, 2008, all67,500 of the Company’s outstanding stock options were not vested. During the ninethree months ended September 30,March 31, 2008, the Company converted 48,860 stock options issued to former employees and consultants to warrants and recognized compensation expense of $166,060. During the nine months ended September 30, 2007, the Company granted 342,875 stock options under the Plan. The grant date fair value of these options was $1,154,835. 211,125 of these options vested immediately. 81,750 of these options were not vested at September 30, 2007 and vested over the period ending on September 28, 2008. 50,000 of these options were contingent options which expired on December 31, 2007 as the performance condition associated with this award was not met. Concentric Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4. Stock Based Compensation and Other Equity Transactions – (continued)
No options were exercised during the period ended September 30, 2007. Total compensation expense resulting from the Plan for the nine months ended September 30, 2007 was $735,836. During the nine months ended September 30, 2007, the Company extended the expiry of stock options previously issued from 3 years to 5 years. The Company recognized compensation expense associated with the extension of $257,461.
The following table summarizes the Company’s option activity under the Plan for the ninethree months ended September 30, 2008.March 31, 2009. Options Outstanding | Options Outstanding | | | | | Weighted | | | | | | | | | Average | | | | | | | | | | | | | | | | Exercise | | | Weighted | | | | | Stock Options | | | Price | | | Average | | | Outstanding, December 31, 2007 | | | 1,340,985 | | | $ | 3.22 | | | | | | | Exercise | | | | | | Stock Options | | Price | | | Outstanding, December 31, 2008 | | | 954,625 | | $ | 2.98 | | | Exercised | | | - | | | - | | | — | | — | | | Forfeited or converted | | | (386,360 | ) | | 3.81 | | | — | | — | | | Granted | | | - | | | | - | | | — | | — | | | Outstanding, September 30, 2008 | | | 954,625 | | | $ | 2.98 | | | | | | | | | | | | Outstanding, March 31, 2009 | | | 954,625 | | $ | 2.98 | | | | | | | | | |
If the options are exercised, the Company will issue stock from shares authorized but unissued. The following table summarizes information and terms of the options outstanding and exercisable: | As of September 30, 2008 | | | Options Outstanding | | | Options Exercisable | | | | | | | | Weighted | | | | | | | | | Weighted | | | | | | | | | | | | | | Average | | | | | | | | | Average | | | | | | | | | | | | | | Remaining | | | Weighted | | | | | | Remaining | | | Weighted | | | | | | Range of | | | | | Contractual | | | Average | | | | | | Contractual | | | Average | | | | | | Exercise | | Number of | | | Life (in | | | Exercise | | | Number of | | | Life (in | | | Exercise | | | | | | Prices | | Shares | | | years) | | | Price | | | Shares | | | years) | | | Price | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $1.25 -$7.00 | | | 954,625 | | | | 2.99 | | | $ | 2.98 | | | | 954,625 | | | | 2.99 | | | $ | 2.98 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | As of March 31, 2009 | | | Options Outstanding | | | Options Exercisable | | | | | | | | | Weighted | | | | | | | | | | | Weighted | | | | | | | | | | | | Average | | | | | | | | | | | Average | | | | | | | | | | | | Remaining | | | Weighted | | | | | | | Remaining | | | Weighted | | | Range of | | | | | | Contractual | | | Average | | | | | | | Contractual | | | Average | | | Exercise | | Number of | | | Life (in | | | Exercise | | | Number of | | | Life (in | | | Exercise | | | Prices | | Shares | | | years) | | | Price | | | Shares | | | years) | | | Price | | | $1.25 - - $7.00 | | | 954,625 | | | | 2.49 | | | $ | 2.98 | | | | 954,625 | | | | 2.49 | | | $ | 2.98 | | | | | | | | | | | | | | | | | | | | | |
At September 30, 2008,March 31, 2009, the intrinsic value of the Company’s stock options is nil as there is no trading market for its common stock. Warrants – — During the ninethree months ended September 30,March 31, 2009 and 2008, the Company issued 1,278,806 warrants, with exercise prices ranging from $3.00 to 7.00 per share. These warrants expire from July 15, 2010 to January 22, 2013. 1,144,946 of these warrants were issued in conjunction with the sale of common stock, as discussed below. 48,860 of these warrants were issued when the Company converted certain stock options tono warrants. The Company recognized general and administrative expense of $166,060 for the nine month period ended September 30, 2008 in connection with the issuance of these warrants. 85,000 of these warrants were issued as compensation for services during the nine months ended September 30, 2008 and the Company recognized general and administrative expense of $116,154 for the nine months ended September 30, 2008 in connection with the issuance of these warrants.
Concentric Energy Corporation Corp.
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Unaudited)
Note 4.6. Stock Based Compensation and Other Equity Transactions – —(continued) In May 2008, the Company extended the expiration date of 908,280 warrants issued during 2004 and 2005 to November 30, 2008. These warrants originally expired two years from the date of issue, had previously had their expiration date extended until May 15, 2007 and have an exercise price of $1.75 per share.
During the nine months ended September 30, 2007, the Company issued 42,000 warrants with exercise prices ranging from $3.25 to $7.00 that expire from January 10, 2010 to July 2, 2012 to non-employees as compensation for services. The Company recognized general and administrative expense of $169,059 for the issuance of these 42,000 warrants. In addition, during the nine months ended September 30, 2007, the Company issued 58,800 warrants with an exercise price of $7.00 that expire on July 14, 2012 to non-employees as compensation for marketing efforts.
The following table summarizes information and terms of warrants outstanding. | | | | | | | | | | | | | | | Warrants Outstanding and Exercisable at March 31, 2009 | | | | | | | | | Weighted | | | | | | | | | | | | Average | | | | | | | | | | | | Remaining | | | Weighted | | | Range of | | | | | | Contractual | | | Average | | | Exercise | | Number of | | | Life | | | Exercise | | | Prices | | Shares | | | (in years) | | | Price | | | $1.00 — 12.00 | | | 3,396,901 | | | | 2.52 | | | $ | 2.12 | | | | | | | | | | | | |
| Warrants Outstanding at September 30, 2008 | | | | | | | | Weighted | | | | | | | | | | | Average | | | | | | | | | | | Remaining | | | Weighted | | | Range of | | | | | Contractual | | | Average | | | Exercise | | Number of | | | Life | | | Exercise | | | Prices | | Shares | | | (in years) | | | Price | | | | | | | | | | | | | | | | | $ 1.75 – 12.00 | | | 2,376,286 | | | | 2.20 | | | $ | 3.76 | |
Common stock – On July 31, 2008, the — The Company closed a private placement ofissued no common stock and sold 501,666 shares at a price of $3.00 per share. In connection withduring the private placement the Company converted certain notes payable in the amount of $350,000 plus accrued interest into 118,302 shares of common stock. The Company received net proceeds of $1,282,412 from this transaction. The Company paid the placement agent cash commissions of 10% of the gross sales proceeds. In addition, it issued the placement agent 61,997 four-year warrants with an exercise price of $3.00 per share, 61,997 four-year warrants with an exercise price of $4.50 per share and 30,999 four-year warrants with an exercise price of $6.00 per share. Each of the purchasers in this private placement received four-year warrants with a $4.50 exercise price equal to the number of common shares purchased. In addition, each purchaser also received four-year warrants with a $6.00 exercise price equal to half of the number of shares that they purchased. As a result, the Company has issued 619,968, $4.50 warrants and 309,984, $6.00 warrants to the subscribers in this private placement.
Concentric Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4. Stock Based Compensation and Other Equity Transactions – (continued)
Under the terms of the private placement which closed on July 31, 2008, the Company granted registration rights to the subscribers of such private placement and was required to file a registration statement for the common stock sold and for the common stock underlying the warrants issued to the subscribers and the placement agent by September 14, 2008. The Company has been unable to meet this commitment and will be required to make monthly payments to the subscribers in the amount of ½ percent of the aggregate purchase price paid by the subscribers (approximately $9,300 per month), commencing on Januarythree months ended March 31, 2009 but not extending past the latter of July 31, 2011 or the date on which the commitment is met.and 2008.
On September 3, 2008, the Company’s founder and major shareholder purchased 40,000 shares of common stock at a price of $3.00 per share. As part of this transaction, 40,000 four-year warrants with an exercise price of $4.50 and 20,000 four-year warrants with an exercise price of $6.00 were issued to him.
During the nine months ended September 30, 2007, the Company closed a private placement of common stock and sold 850,000 shares at a price of $7.00 per share. The Company received net proceeds of $5,367,946 from this transaction net of sales commissions and expenses of $537,054.
During the nine months ended September 30, 2007,Restricted Stock — In March 2009, the Company issued 120,660 shares of common stock as compensation for services and recorded general and administrative expense of $363,879.
Restricted Stock – In late 2007, the Company issued 308,00060,451 shares of restricted stock to its independent Directors. This restricted stock has a purchase price of $0.001 per share and will vest over a three year period. Foras soon as the nine months ended September 30, 2008,Company’s common stock is publicly trading. This restricted common stock was issued in lieu of the payment of cash director’s fees and the Company recorded general and administrative expenseexpenses of $537,447 from the issuance$73,750 as a result of this restricted common stock for services. No such expense was recorded for the nine months ended September 30, 2007.issuance.
Note 5. Debt
On January 23, 2008, under the terms of an amendment to the $2.3 million promissory note dated November 8, 2007, the Company transferred its ownership interest in an office building back to the holder of the promissory note in return for the cancellation of the note and paid approximately $66,000 in accrued interest plus closing costs.
On March 13, 2008, the Company issued a convertible note totaling $150,000. This note bears interest at 10% per annum. The note is convertible into the common stock of the Company at the lesser of $7.00 per share or the lowest price per share received by the Company in any subsequent financing that occurs while this note is still outstanding. Principal and interest on this note is payable one year from the date of issue.
Concentric Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5. Debt (continued)
On April 27, 2008, the Company issued a convertible note totaling $200,000. This note bears interest at 10% per annum. The note is convertible into the common stock of the Company at the lesser of $7.00 per share or the lowest price per share received by the Company in any subsequent financing that occurs while this note is still outstanding. Principal and interest on this note is payable one year from the date of issue.
Both of these notes plus accrued interest were converted into 118,302 shares of common stock in connection with the private placement of the Company’s common stock on May 29, 2008.
Future minimum principal payments for the Company’s debt over the next five years are:
| Period ended September 30, | | Amount | | | 2009 | | $ | 17,429 | | | 2010 | | | 18,923 | | | 2011 | | | 16,647 | | | 2012 | | | - | | | 2013 | | | - | | | | | | 52,999 | | | Less: Current portion | | | (17,429 | ) | | | | $ | 35,570 | |
Note 6.7. Commitments and Contingencies
The Company entered into a lease agreement for a field office beginning September 1, 2007 and expiring on August 31, 2010. Under this lease the Company will make monthly lease payments of $1,980. The future annual minimum lease payments due under this lease at March 31, 2009 are $23,760. Effective on March 31, 2009, a former officer of the Company resigned. As consideration for settling all claims under this officer’s employment agreement, the Company will pay the following: | (i) | | Separation fees of $91,000 will be paid over the eight months beginning on July 1, 2009, and | | | (ii) | | 50,000 shares of restricted common stock will be issued which will vest when the Company’s common stock begins to trade publicly. |
All of the expense associated with this settlement transaction has been recorded as general and administrative expense by the Company as of March 31, 2009. In connection with the private placement of common stock which closed on July 31, 2009, the Company also entered into a registration rights agreement with the investors requiring it to register the shares of common stock purchased and the shares of common stock issuable upon conversion of the warrants purchased pursuant to the securities purchase agreement by September 14, 2008 and to cause it to become effective by April 30, 20082009 in the event of a full review by the Securities and Exchange Commission. Once a registration statement for these shares becomes effective, the Company is obligated to keep this registration statement continuously effective until all shares covered by such registration rights agreement have been sold, or until July 31, 2012. If the Company fails to meet certain requirements F-48
Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited) Note 7. Commitments and Contingencies(continued) Under the registration rights agreement, it is required to pay each investor a monthly cash payment of one- half percent of the aggregate purchase price (approximately $9,300 per month in the aggregate) paid by such investor commencing on January 31, 2009 and continuing until the default is cured (but in no event beyond the 3-year anniversary of the closing of the securities purchase agreement). Our maximum liability under this requirement would be approximately $288,000 if we are $45,540.unable to file a registration statement and we are required to make payments from January 31, 2009 until July 1, 2011. At March 31, 2009, the Company has accrued $15,000 to satisfy our liability under this requirement.
Note 7.8. Subsequent Events
On October 17, 2008, the Company decided that directors’ fees of $24,583 per month which have previously been paid in cash will in the future be paid in common stock of the Company. Each quarter, the Company will pay directors fees of 24,583 shares of common stock. At September 30, 2008, the Company has accrued $61,667 in directors’ fees which it will pay by issuing 20,556 shares of common stock.
On October 17, 2008, the Company issued 715,500 shares of its restricted common stock to its directors, officers, employees and consultants. This restricted stock has a purchase price of $0.001 per share and will vest over a three year period. Stock compensation expense in the amount of $3 per share will be recognized over the three year vesting period.
Concentric Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5. Subsequent Events (continued)
On October 17, 2008,April 10, 2009, the Company extended the expiry of its908,280 warrants with an exercise price of $1.75 and 38,400 warrants with an exercise price of $3.00 all of which were to expire on November 30, 2008 to April 30, 2000 until December 31, 2009. As the holders of these 946,680 warrants are independent investors, the extension of the term was determined to be non-compensatory as the holders are not providing any services to the Company and no expense has been recognized by the Company on the extension of these warrants.
On May 21, 2009, the Company completed a private placement offering in which we sold an aggregate of $498,644 principal amount of 15% convertible debentures and an aggregate of 817,449 common stock warrants. The private placement was conducted so as to comply with the private placement exemption under Rule 506 of Regulation D promulgated pursuant to Section 4(2) of the Securities Act of 1933, as amended. The debentures are convertible at the initial conversion price of $1.22 per share and the warrants have an initial exercise price of $1.00 per share. The warrants have an exercise term of four years. The debentures are due and payable between April 22, 2013 and May 21, 2013. The Company’s founder subscribed for $48,644 in this debenture offering. The Company has agreed to accept as payment for his subscription marketable securities at an amount equal to their volume weighted average trading price on the day prior to the closing. If the net sales proceeds realized by the Company from the sale of such marketable securities over a period not to exceed 120 from closing are more or less than the subscription amount, then the debenture issued to the founder will be increased or decreased to equal the net proceeds realized by the Company. These marketable securities were sold for $48,644 during May 2009. On May 21, 2009, the Company entered into an Agency & Advisory Agreement for Uranium Concentrates and Other Metals with the metals trading company that purchased $450,000 of its 15% convertible debentures in the offering that closed on May 21, 2009. Under the terms of this agreement, the metals trader has the exclusive right to sell all uranium placed for sale by the Company for sales commissions of 5% of the invoice price of uranium sold under long-term contracts and 4.5% of the invoice price of uranium spot sales. Additional bonus commissions may be paid if certain conditions are met. In addition, the metals trader will assist the Company with additional administrative and distribution services associated with the sale of uranium. This agreement will expire on May 21, 2013. However, it is subject to automatic one-year extensions unless either party opts to cancel the contract by giving the other party written notice of such intent no later than six months prior to the expiration date. The Company has issued 300,000 $1.00 four year warrants to the other party as an engagement fee for these services. F-49
F-43Concentric Energy Corp.
(An Exploration Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8. Subsequent Events(continued)Under the anti-dilution terms of the Company’s agreements with the purchasers in its private placement which closed on July 31, 2008, when common stock or rights to purchase common stock are issued which allow the holders to purchase common stock at a price that is less than the adjusted exercise prices of the $2.63, $3.86 and $5.07 warrants, the Company is required to decrease the exercise price and increase the number of warrants exercisable for the warrants previously issued to such holders. As a result of the May 2009 debenture offering, the issuance of the 300,000 engagement fee warrants and the adjustments to the December 2008 debentures purchased by the founder and another major stockholder, the Company has decreased the exercise price of the $2.63 warrants to $2.44 and will issue an additional 5,774 of such warrants. In addition, the Company will decrease the exercise price of the $3.86 warrants to $3.50 and will issue an additional 36,297 of such warrants and it will decrease the exercise price of the $5.07 warrants to $4.55 and will issue an additional 17,460 of such warrants. F-50
PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. Other Expenses of Issuance and Distribution. The following table sets forth a list of the registrant’s expenses in connection with the issuance and distribution of the securities being registered hereby: | | | | | | | | | Amount | | | SEC registration fee | | $ | 63.95 | | | Legal expenses* | | $ | 100,000.00 | | | Accounting expenses* | | $ | 20,000.00 | | | Printing expenses* | | $ | 5,000.00 | | | Miscellaneous expenses* | | $ | 4,936.05 | | | | | | | | Total* | | $ | 130,000.00 | | | | | | |
* Estimated
ITEM 14. Indemnification of Directors and Officers. Sections 78.7502 and 78.751 of the Nevada Revised Statutes provide us with the power to indemnify any of our directors and officers. The director or officer must have conducted himself/herself in good faith and reasonably believe that his/her conduct was in, or not opposed to, our best interests. In a criminal action, the director or officer must not have had reasonable cause to believe his/her conduct was unlawful. Under Section 78.751 of the Nevada Revised Statutes, advances for expenses may be made by agreement if the director or officer affirms in writing that he/she believes he/she has met the standards and will personally repay the expenses if it is determined the officer or director did not meet the standards. Our bylaws include an indemnification provision under which we have the power to indemnify, to the fullest extent permitted under Nevada law, our current and former directors and officers, or any person who serves or served at our request for our benefit as a director or officer of another corporation or our representative in a partnership, joint venture, trust or other enterprise, against all expenses, liability and loss reasonably incurred by reason of being or having been a director, officer or representative of ours or any of our subsidiaries. We may make advances for expenses upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he/she is not entitled to be indemnified by us. In addition, our by-laws that will be in effect upon completion of this offering provide that we must indemnify our directors and officers and we must advance expenses, including attorneys’ fees, to our directors and officers in connection with legal proceedings, subject to very limited exceptions. We have entered into indemnification agreements with certain of our directors and former directors which may, in certain cases, be broader than the specific indemnification provisions contained in our certificate of incorporation and by-laws. The indemnification agreements may require us, among other things, to indemnify such directors against certain liabilities that may arise by reason of their status or service as directors of the Company and to advance the expenses incurred by such parties as a result of any threatened claims or proceedings brought against them as to which they could be indemnified.
We have purchased insurance on behalf of our respective directors and officers against certain liabilities that may be asserted against, or incurred by, such persons in their capacities as our directors or officers, or that may arise out of their status as our directors or officers, including liabilities under the federal and state securities laws. ITEM 15. Recent Sales of Unregistered Securities. In late 2005 and early 2006, we sold 972,200 shares of common stock at $2.50 per share to individual and institutional private investors in a private placement offering. As part of this private placement transactions, in December 2005, we issued 45,940 shares of common stock as sales commission for this private placement. One subscriber in this private placement received 10,000 shares of common stock on May 3, 2007, the date which we received the subscriber’s subscription payment. On July 16, 2007, we sold 840,000 shares of common stock at $7.00 per share to individual and institutional private investors in a private placement offering. We received $5,368,000 in proceeds from this offering, net of sales commissions and other expenses of $537,000. Westminster Securities Corporation served as our placement agent for this private placement. We issued warrants to purchase 58,500 shares of common stock at a price of $7.00 per share with an expiration date of July 16, 2010 as compensation for marketing efforts of this private placement. On January 1, 2007, we issued $110,000 in convertible notes to certain of our officers and directors. The notes bear interest at 6% per annum and are convertible into shares of our common stock at $5.00 per share. Principal and interest on these notes was payable December 31, 2007. On November 1, 2007, the holders of $65,000 of these convertible notes elected to convert their notes plus accrued interest of approximately $3,000 into 13,652 shares of our common stock. On March 1, 2007 and May 9, 2007, we issued convertible notes totaling $100,000 and $35,000, respectively. These notes bear interest at 10% per annum. The notes are convertible into our common stock at $5.60 and $7.00 per share, respectively. On November 15, 2007, the holders of both of these notes elected to convert the notes plus accrued interest of approximately $11,000 into 24,678 shares of common stock. The holders, dates, principal amount, interest rate, conversion rate, and number of shares issued upon conversion of these notes are summarized in the table below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number | | | | | | | | | | | | | | | | | | | | Principal | | | | | | of | | Convertible | | Date of | | Date | | Principal | | Interest | | & Interest | | Conversion | | Shares | | Note Holder | | Note | | Converted | | Amount | | Rate | | Converted | | Rate/Share | | Issued | | Thomas Fudge* | | | 1/1/2007 | | | | N/A | | | $ | 45,000 | | | | 6 | % | | | — | | | $ | 5.00 | | | | — | | | Andrew Simpson | | | 1/1/2007 | | | | 11/1/2007 | | | $ | 5,000 | | | | 6 | % | | $ | 5,250.68 | | | $ | 5.00 | | | | 1,050 | | | Stew Hollingsworth | | | 1/1/2007 | | | | 11/1/2007 | | | $ | 5,000 | | | | 6 | % | | $ | 5,250.68 | | | $ | 5.00 | | | | 1,050 | | | Pete Ingersoll | | | 1/1/2007 | | | | 11/1/2007 | | | $ | 45,000 | | | | 6 | % | | $ | 47,256.16 | | | $ | 5.00 | | | | 9,451 | | | Lynn Oates | | | 1/1/2007 | | | | 11/1/2007 | | | $ | 10,000 | | | | 6 | % | | $ | 10,501.37 | | | $ | 5.00 | | | | 2,100 | | | John O’Shea | | | 2/28/2007 | | | | 11/1/2007 | | | $ | 100,000 | | | | 10 | % | | $ | 108,383.56 | | | $ | 5.60 | | | | 19,354 | | | Dick Price | | | 5/8/2007 | | | | 11/1/2007 | | | $ | 35,000 | | | | 10 | % | | $ | 37,272.60 | | | $ | 7.00 | | | | 5,325 | |
| | | | * | | Note was paid in January 2008. |
Convertible Note Holder | | Date of Note | | Date Converted | | | Principal Amount | | | Interest Rate | | | Principal & Interest Converted | | | Conversion Rate/Share | | | Number of Shares Issued | | | Thomas Fudge* | | 1/1/2007 | | N/A | | | $ | 45,000 | | | | 6 | % | | | - | | | $ | 5.00 | | | | - | | | Andrew Simpson | | 1/1/2007 | | 11/1/2007 | | | $ | 5,000 | | | | 6 | % | | $ | 5,250.68 | | | $ | 5.00 | | | | 1,050 | | | Stew Hollingsworth | | 1/1/2007 | | 11/1/2007 | | | $ | 5,000 | | | | 6 | % | | $ | 5,250.68 | | | $ | 5.00 | | | | 1,050 | | | Pete Ingersoll | | 1/1/2007 | | 11/1/2007 | | | $ | 45,000 | | | | 6 | % | | $ | 47,256.16 | | | $ | 5.00 | | | | 9,451 | | | Lynn Oates | | 1/1/2007 | | 11/1/2007 | | | $ | 10,000 | | | | 6 | % | | $ | 10,501.37 | | | $ | 5.00 | | | | 2,100 | | | John O’Shea | | 2/28/2007 | | 11/1/2007 | | | $ | 100,000 | | | | 10 | % | | $ | 108,383.56 | | | $ | 5.60 | | | | 19,354 | | | Dick Price | | 5/8/2007 | | 11/1/2007 | | | $ | 35,000 | | | | 10 | % | | $ | 37,272.60 | | | $ | 7.00 | | | | 5,325 | |
* Note was paid in January 2008.
In March 2008, we issued a $150,000 convertible promissory note to John O’Shea of Westminster and a $200,000 convertible to promissory note to John Averett of Westminster. The notes mature in March 2009 and bear interest at 10% per annum payable in cash or in kind with common stock at the option of the holder. The note is convertible at the lesser of (i) $7.00 or (ii) the lowest purchase price of any subsequent financing we conduct prior to maturity. Additionally, the note provided us the option to force the noteholder to exchange the note if we raised more than $500,000 in a subsequent financing. On May 27, 2008, we notified the holders of these notes of our exercise of our option to convert the notes into shares of our common stock at a price of $3.00 per share.
On July 31, 2008, we sold 619,968 shares of our common stock and warrants to purchase an additional 929,952 shares of our common stock to certain investors pursuant to a private placement. With respect to each share of common stock purchased pursuant to the Securities Purchase Agreement entered into with respect to the private placement, the investors received two warrants exercisable for a period of four years from the date of issuance -— one to purchase one share of common stock at an exercise price of $4.50 per share for each share of common stock purchased in the private placement and the other to purchase one share of common stock at an exercise price of $6.00 per share for every two shares of common stock purchased in the private placement. We received proceeds of approximately $1,282,000 in connection with this private placement. Westminster Securities Corporation acted as our placement agent in connection with the Securities Purchase Agreement.private placement. As part compensation for its services, we issued Westminster Securities Corporation warrants to purchase 61,997 shares of our common stock at $3.00 per share, warrants to purchase 61,997 shares of our common stock at $4.50 per share, and warrants to purchase 30,999 shares of our common stock at $6.00 per share which we refer to as the commission warrants. The commission warrants are exercisable for a period of four years from the date of issuance. In addition, in January 2007, Westminster Securities Corporation and its President, Richard Price, were issued 35,000 shares and 65,000 shares of common stock, respectively, as fees for investment advisory services. On September 3, 2008, Ralph Kettell, our founder, purchased 40,000 shares of common stock for $3.00 per share and in addition received 40,000 warrants to purchase common stock at an exercise price of $4.50 per share and 20,000 warrants to purchase common stock at an exercise price of $6.00. All of these warrants are exercisable for a period of four years from the date of issuance. On December 31, 2008, we completed a private placement of 15% cumulative convertible debentures in the principal amount of $628,376 that are convertible into shares of common stock at $0.90 per share and have a maturity date of December 31, 2012 and four year warrants to purchase 1,396,391 shares of common stock at an exercise price of $1.00 per share. In connection with this private placement, the investors surrendered, as part of the purchase price, 427,581 warrants with an original exercise price of $4.50 and 235,164 warrants with an original exercise price of $6.00. In addition, investors who failed to hold sufficient warrants to satisfy the warrant portion of their subscription price tendered an aggregate of $11,325 to us, representing the Black and Scholes valuation of such number of warrants having an original exercise price of $6.00 as was necessary to satisfy their subscription price, assuming a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of such $6.00 warrants as of December 31, 2008 and an expected volatility equal to 105%. We received net cash proceeds of $514,707, net of expenses of approximately $63,669 in connection with this private placement and $50,000 of financial advisory fees not connected with the private placement. We granted each of the investors in this private placement piggy back registration rights in a future registration statement with respect to the shares of common stock underlying these debentures and warrants. Westminster Securities Corporation acted as our placement agent in connection with this private placement. As part compensation for its services, we issued Westminster Securities Corporation four year warrants to purchase 204,349 shares of our common stock at $1.00 per share. On May 21, 2009, we completed a private placement of 15% cumulative convertible debentures in the principal amount of $498,644 that are convertible into shares of common stock at $1.22 per share and have a maturity date of April 22, 2009 for $48,644 in principal and May 21, 2009 for $450,000 in principal and four year warrants to purchase 817,449 shares of common stock at an exerciase price of $1.00 per share. The Company received net cash proceeds of $498,644 as there were no placement agent or cash expenses associated with the debenture offering. We granted each of the investors in this private placement piggy back registration rights in a future registration statement with respect to the shares of common stock underlying these debentures and warrants. All of the foregoing securities were offered and sold in reliance on the exemption from registration afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended, and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering. II-3
ITEM 16. Exhibits and Financial Statement Schedules. | | | | Exhibit No. | | Description | | | | | 3.1* | | Articles of Incorporation of Concentric Energy Corp., a Nevada corporation | | | | | 3.2* | | By-Laws of Concentric Energy Corp., a Nevada corporation | | | | | 3.3* | | Articles of Incorporation for the Anderson Mining Company, an Arizona corporation | | | | | 3.4* | | By-Laws of the Anderson Mining Company, an Arizona corporation | | | | | 5.1† | | Form of Legal Opinion of Haynes and Boone,Sichenzia Ross Friedman Ference LLP | | | | | 9.1† | | Voting Trust Agreement dated as of September 30, 2008 among Concentric Energy Corp., Ralph Kettell, II, Laura Kettell, Chloe Kettell UGM Trust, Collin Kettell UGM Trust, Ralph Kettell, III UGM Trust, George Ollinger, Helen Ollinger, Nadine Osborn, LARK Enterprises, Ltd., and Andy Simpson as the Voting Trustee | | | | | 10.1† | | Concentric Energy Corp. Stock Option Plan | | | | | 10.2* | | Form of $1.75 Warrant Agreement between Concentric Energy Corp. and Purchaser | | | | | 10.3* | | Form of Securities Purchase Agreement between Concentric Energy Corp. and Purchaser, dated July 31, 2008 | | | | | 10.4* | | Form of Registration Rights Agreement between Concentric Energy Corp. and Purchaser, dated July 31, 2008 | | | | | 10.5* | | Form of $4.50 Warrant Agreement between Concentric Energy Corp. and Purchaser | | | | | 10.6* | | Form of $6.00 Warrant Agreement between Concentric Energy Corp. and Purchaser | | | | | 10.7* | | Lock-up Agreement, dated May 31, 2008, between Concentric Energy Corp. and Ralph Kettell | | | | | 10.8* | | Warrant Agreement dated December 28, 2007 between Concentric Energy Corp. and Thomas F. Fudge, Jr. | | | | | 10.9* | | Indemnification Agreement dated November 15, 2007 by and between Concentric Energy Corp. and Rockell N. Hankin | | | | | 10.10* | | Indemnification Agreement dated December 12, 2007 by and between Concentric Energy Corp. and Richard P. Graff | | | | | 10.11* | | Indemnification Agreement dated December 12, 2007 by and between Concentric Energy Corp. and Ronald L. Parratt | | | | | 10.12* | | Retention Agreement dated November 7, 2007 by and between Concentric Energy Corp. and Rockell N. Hankin | | | | | 10.13* | | Retention Agreement dated December 12, 2007 by and between Concentric Energy Corp. and Richard P. Graff | | | | | 10.14* | | Retention Agreement dated December 12, 2007 by and between Concentric Energy Corp. and Ronald L. Parratt | | | | | 10.15* | | Restricted Stock Purchase Agreement dated November 15, 2007 by and between Concentric Energy Corp. and The Rockell Nathan Hankin Living Trust | | | | | 10.16* | | Restricted Stock Purchase Agreement dated February 14, 2008 by and between Concentric Energy Corp. and Richard P. Graff | | | | | 10.17* | | Restricted Stock Purchase Agreement dated January 2, 2008 by and between Concentric Energy Corp. and Ronald L. Parratt | | | | | 10.18* | | Employment Agreement dated November 2, 2007 by and between Concentric Energy Corp. and Bonita Bogaert | | | | | 10.19* | | Employment Agreement entered into in November 1, 2006 by and between Concentric Energy Corp. and Andrew Simpson | | | | | 10.20* | | Employment Agreement between Concentric Energy Corp. and Lynn Oates | | | | | 10.21* | | Consulting Agreement dated January 15, 2007 by and between Concentric Energy Corp. and Arden Larson | | | | | 10.22* | | Severance and Consulting Agreement dated December 27, 2007 by and between Concentric Energy Corp. and Thomas F. Fudge | | | | | 10.23* | | Restricted Stock Purchase Agreement dated January 4, 2008 by and between Concentric Energy Corp. and Thomas F. Fudge | | | | | 10.24* | | Quitclaim Transfer of Title and Claims dated July 30, 2007, executed by Concentric Energy Corp. to benefit Nevada Fluorspar, Inc., effective as of July 29, 2005 | | | | | 10.25* | | Quitclaim Deed dated April 13, 2007 executed by Ralph W. Kettell to the benefit of Concentric Energy Corp. | | | | | 10.26** | | Form of Securities Purchase Agreement between Concentric Energy Corp. and Purchaser, dated December 31, 2008 | | | | | 10.27** | | Form of 15% Cumulative Convertible Debenture due December 31, 2012 | | | | | 10.28** | | Form of $1.00 Warrant to Purchase Common Stock dated December 31, 2008 | | | | | 10.29** | | Form of Securities Purchase Agreement between Concentric Energy Corp. and Purchaser, dated May 21, 2009 | | | | | 10.30** | | Form of 15% Cumulative Convertible Debenture due May 21, 2013 | | | | | 10.31** | | Form of $1.00 Warrant to Purchase Common Stock dated May 21, 2009 | | | | | 10.32† | | Exclusive Marketing Agreement dated May 21, 2009 between Concentric Energy Corp. and Traxys North America LLC | | | | | 10.33** | | Amendment to Employment Agreement between Concentric Energy Corp. and Andrew K. Simpson dated October 17, 2008 | | | | | 23.1** | | Consent of Semple, Marchal & Cooper, LLP |
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| | | | Exhibit No. | | Description | | | | | 23.2† | | Consent of Haynes and Boone,Sichenzia Ross Friedman Ference LLP (included in Exhibit 5.1). | | | | | 24.1* | | Power of Attorney (included on signature page) |
* Filed herein.
† To be filed by Amendment.
| | | | | * | | Previously filed. | | | | | ** | | Filed herein. | | | | † | | To be filed by Amendment. |
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ITEM 17. Undertakings. The undersigned Registrant hereby undertakes: | (1) | | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| | | (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
| | | (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and |
| | | (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
| | (2) | | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| | (3) | | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| | (4) | | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
| | (a) | | If the Company is relying on Rule 430B: |
| | | i. Each prospectus filed by the Company pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and |
| | | ii. Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or |
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| (b) | | If the Company is subject to Rule 430C: |
| | | Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.. |
| | (5) | | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of securities: The undersigned registrant undertakes that in a primary offering of securities of the registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer and sell such securities to the purchaser: (i) any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; (ii) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; (iii) the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
| | (6) | | Insofar as Indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provision, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. |
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SIGNATURES SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Wickenburg, State of Arizona, on December 31, 2008.August 10, 2009. CONCENTRIC ENERGY CORP. | | | | | By: | | | | By: | /s/ Andrew K. Simpson | | | Name: | | Andrew K. Simpson | | | Title: | | Chief Executive Officer | | |
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Andrew K. Simpson and Lynn F. Oates, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and his name, place and stead, and in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments), and to file the same, and any subsequent registration statement for the same offering which may be filed under Rule 462(b), with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date or dates indicated, | | | | | | Signature | | Title | | Date | | | | | | | /s/ Andrew K. Simpson Andrew K. Simpson | | Chief Executive Officer, Chief Financial Officer and Director (Principal Executive | | December 31, 2008 | Andrew K. Simpson | | Officer and Principal Financial and Accounting Officer) | | August 10, 2009 | | | | | | | /s/ Lynn F. OatesBy: /s/ Andrew K. Simpson | | President, Vice President –— Finance, | | December 31, 2008August 10, 2009 | | Andrew K. Simpson | | | | | | | | | | | Lynn F. Oates | | Controller | | | | | | | | | /s/ Rockell N. HankinBy: /s/ Andrew K. Simpson | | Chairman of the Board | | December 31, 2008August 10, 2009 | | Andrew K. Simpson | | | | | Attorney-in-factRockell N. Hankin | | | | | | | | | | | | By: /s/ Andrew K. Simpson | | Director | | December 31, 2008August 10, 2009 | | Andrew K. Simpson | | | | | Attorney-in-factRichard P. Graff | | | | | | | | | | | /s/ Ronald L. ParrattBy: /s/ Andrew K. Simpson | | Director | | December 31, 2008August 10, 2009 | | Andrew K. Simpson | | | | | Attorney-in-factRonald L. Parratt | | | | |
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EXHIBIT INDEX | | | | Exhibit No. | | Description | | | | | 3.1* | | Articles of Incorporation of Concentric Energy Corp., a Nevada corporation | | | | | 3.2* | | By-Laws of Concentric Energy Corp., a Nevada corporation | | | | | 3.3* | | Articles of Incorporation for the Anderson Mining Company, an Arizona corporation | | | | | 3.4* | | By-Laws of the Anderson Mining Company, an Arizona corporation | | | | | 5.1† | | Form of Legal Opinion of Haynes and Boone,Sichenzia Ross Friedman Ference LLP | | | | | 9.1† | | Voting Trust Agreement dated as of September 30, 2008 among Concentric Energy Corp., Ralph Kettell, II, Laura Kettell, Chloe Kettell UGM Trust, Collin Kettell UGM Trust, Ralph Kettell, III UGM Trust, George Ollinger, Helen Ollinger, Nadine Osborn, LARK Enterprises, Ltd., and Andy Simpson as the Voting Trustee | | | | | 10.1† | | Concentric Energy Corp. Stock Option Plan | | | | | 10.2* | | Form of $1.75 Warrant Agreement between Concentric Energy Corp. and Purchaser | | | | | 10.3* | | Form of Securities Purchase Agreement between Concentric Energy Corp. and Purchaser | | | | | 10.4* | | Form of Registration Rights Agreement between Concentric Energy Corp. and Purchaser | | | | | 10.5* | | Form of $4.50 Warrant Agreement between Concentric Energy Corp. and Purchaser | | | | | 10.6* | | Form of $6.00 Warrant Agreement between Concentric Energy Corp. and Purchaser | | | | | 10.7* | | Lock-up Agreement, dated May 31, 2008, between Concentric Energy Corp. and Ralph Kettell | | | | | 10.8* | | Warrant Agreement dated December 28, 2007 between Concentric Energy Corp. and Thomas F. Fudge, Jr. | | | | | 10.9* | | Indemnification Agreement dated November 15, 2007 by and between Concentric Energy Corp. and Rockell N. Hankin | | | | | 10.10* | | Indemnification Agreement dated December 12, 2007 by and between Concentric Energy Corp. and Richard P. Graff | | | | | 10.11* | | Indemnification Agreement dated December 12, 2007 by and between Concentric Energy Corp. and Ronald L. Parratt | | | | | 10.12* | | Retention Agreement dated November 7, 2007 by and between Concentric Energy Corp. and Rockell N. Hankin | | | | | 10.13* | | Retention Agreement dated December 12, 2007 by and between Concentric Energy Corp. and Richard P. Graff | | | | | 10.14* | | Retention Agreement dated December 12, 2007 by and between Concentric Energy Corp. and Ronald L. Parratt | | | | | 10.15* | | Restricted Stock Purchase Agreement dated November 15, 2007 by and between Concentric Energy Corp. and The Rockell Nathan Hankin Living Trust | | | | | 10.16* | | Restricted Stock Purchase Agreement dated February 14, 2008 by and between Concentric Energy Corp. and Richard P. Graff | | | | | 10.17* | | Restricted Stock Purchase Agreement dated January 2, 2008 by and between Concentric Energy Corp. and Ronald L. Parratt | | | | | 10.18* | | Employment Agreement dated November 2, 2007 by and between Concentric Energy Corp. and Bonita Bogaert | | | | | 10.19* | | Employment Agreement entered into in November 1, 2006 by and between Concentric Energy Corp. and Andrew Simpson | | | | | 10.20* | | Employment Agreement between Concentric Energy Corp. and Lynn Oates | | | | | 10.21* | | Consulting Agreement dated January 15, 2007 by and between Concentric Energy Corp. and Arden Larson | | | | | 10.22* | | Severance and Consulting Agreement dated December 27, 2007 by and between Concentric Energy Corp. and Thomas F. Fudge | | | | | 10.23* | | Restricted Stock Purchase Agreement dated January 4, 2008 by and between Concentric Energy Corp. and Thomas F. Fudge | | | | | 10.24* | | Quitclaim Transfer of Title and Claims dated July 30, 2007, executed by Concentric Energy Corp. to benefit Nevada Fluorspar, Inc., effective as of July 29, 2005 | | | | | 10.25* | | Quitclaim Deed dated April 13, 2007 executed by Ralph W. Kettell to the benefit of Concentric Energy Corp. |
Exhibit No. | | Description | | 10.26** | | Form of Securities Purchase Agreement between Concentric Energy Corp. and Purchaser, dated December 31, 2008 | | | | | 10.27** | | Form of 15% Cumulative Convertible Debenture due December 31, 2012 | | | | | 10.28** | | Form of $1.00 Warrant to Purchase Common Stock dated December 31, 2008 | | | | | 10.29** | | Form of Securities Purchase Agreement between Concentric Energy Corp. and Purchaser, dated May 21, 2009 | | | | | 10.30** | | Form of 15% Cumulative Convertible Debenture due May 21, 2013 | | | | | 10.31** | | Form of $1.00 Warrant to Purchase Common Stock dated May 21, 2009 | | | | | 10.32† | | Exclusive Marketing Agreement dated May 21, 2009 between Concentric Energy Corp. and Traxys North America LLC | | | | | 10.33** | | Amendment to Employment Agreement between Concentric Energy Corp. and Andrew K. Simpson dated October 17, 2008 | | | | | | 23.1** | | Consent of Semple Marchal & Cooper, LLP |
| | | | Exhibit No. | | Description | | 23.2† | | Consent of Haynes and Boone,Sichenzia Ross Friedman Ference LLP (included in Exhibit 5.1). | | | | | 24.1* | | Power of Attorney (included on signature page) |
* Filed herein.
† To be filed by Amendment.
| | | | * | | Previously filed. | | | ** | | Filed herein. | | | † | | To be filed by Amendment. |
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