UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-30503
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PANGEA PETROLEUM CORP.
(Name of small business issuer in its charter)
Colorado 76-0635938
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3600 Gessner, Suite 220, Houston, Texas 77063
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (281) 710-7103
Securities registered under Section 12(B) of the Exchange Act: None
Securities registered under Section 12(G) of the Exchange Act:
Common Stock, par value $.001 per share
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(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ( 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act) Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently computed second fiscal
quarter: $1,033,247
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 390,499,544 as of April 16, 2009
DOCUMENTS INCORPORATED BY REFERENCE
None.
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CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to known and
unknown risks, uncertainties and assumptions about us that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in this Annual Report on Form
10-K and in our other Securities and Exchange Commission filings.
PART I
ITEM 1. BUSINESS.
RECENT EVENTS
Our company, Pangea Petroleum Corp., is a Colorado corporation that was
organized on March 11, 1997. In recent years, we have conducted business as an
independent energy company focused on exploration and development of oil and
natural gas reserves. For reasons given hereinafter, we have adopted a
significant change in our corporate direction. We have decided to focus our
efforts on acquiring aviation related businesses and developing these businesses
to their commercial potential.
In connection with the change in our business focus, we have undertaken the
following activities:
* We entered into a Share Exchange Agreement fully executed on February
20, 2009 (the "Exchange Agreement") by and between us and AvStar Aviation
Services, Inc. ("AvStar"), providing for our acquisition of all of the
outstanding common stock in San Diego Airmotive ("SDA"), which (through its
predecessor entity) has been providing maintenance, repair and overhaul ("MRO")
services in California since 1987. For more information about the business of
SDA, see "Our New Business" below. In connection with this acquisition, we
issued to AvStar, the prior owner of SDA, 1,000,000 shares of our newly-created
series A preferred stock ("Series A Preferred Stock"), which shares constitute
in the aggregate approximately 90% of outstanding economic interest and voting
power in us.
* We expanded our Board of Directors from one member to a current
number of four members and elected Henry A. Schulle, Gregory H. Noble, James H.
Short and Russell Ivy to fill the current Board seats. For more information
about our directors, see "Item 10. Directors, Executive Officers, Promoters,
Control Persons and Corporate Governance; Compliance With Section 16(a) of the
Exchange Act" below.
* All of our then serving officers resigned, and we elected a new slate
of officers, who currently include the following persons in the offices
indicated to the right of their respective names:
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Russell Ivy Chief Executive Officer & President
Greg Noble Vice President & Treasurer
Henry A. Schulle Vice President & Secretary
Robert Wilson Vice President & Chief Financial Officer
For more information about our officers, see "Item 10. Directors,
Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance With Section 16(a) of the Exchange Act" below.
We are currently exploring the amendment and restatement of our Articles of
Incorporation to change our corporate name to "AvStar Aviation Group, Inc." to
reflect our new business focus, and to change our capital structure by effecting
a one-for-100 reverse split of our common stock to improve our capital
structure. There can be no assurance that our shareholders will approve the
preceding amendment and restatement of our Articles of Incorporation.
Prior to the consummation of the Exchange, there were no material
relationships between us, and our former officers, directors, affiliates,
associates or shareholders, and AvStar, and its officers, directors, affiliates,
associates or shareholders.
OUR NEW BUSINESS
GENERAL
Our new business plan is to acquire, consolidate and grow businesses in the
general aviation industry. We will place our initial focus on the maintenance,
repair and overhaul (MRO) of aircraft providing products and services for the
general aviation sector. We believe that since September 11, 2001, both private
air transportation and the number of aircraft owned by both individuals and
business have dramatically increased. Each of these sectors, in addition to
routine maintenance, has mandated a number of inspections by the FAA that are
commonly included in traditional MRO services.
Our recently acquired, wholly owned subsidiary, San Diego Airmotive
("SDA"), has been operating (through its predecessor entity) as an MRO for
approximately 19 years. SDA historically provided MRO services for single and
multi-engine aircraft. As capital is available to us, we intend to grow our
business through the expansion of our existing MRO business as well as by
acquisitions of existing MRO's, fixed base operations (FBO), charter operations
and other operational aircraft related businesses.
SERVICES
Through SDA, we now offer our customers the following major services:
- Annual and 100 hour FAA (Federal Aviation Administration)
inspections,
- Depot level maintenance which means all service, maintenance, repair,
rebuilding and inspections of light to medium single and multi-engine
aircraft,
- Maintenance on business jet aircraft,
- FAA mandated phase inspections for turbine airframes,
- Engine and propeller maintenance for piston and turbine engines,
- Airframe and sheet metal repair,
- Crash damage repairs,
- Pre-purchase inspections,
- Installation of STC (supplemental type certificate) approved
accessory items,
- FAA field approvals for minor to major modifications, and
- Special flight permits, also know as ferry permits, issued by the
FAA Flight Standards District Office which permit the transport of
an aircraft that may not currently meet all the applicable
airworthiness requirements but is capable of safe flight from
one location to another, and other FAA matters including the
acquisition of replacement aircraft documents and assisting FAA
inspectors in accident investigations as may be specifically
requested.
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LOCATION
SDA's operations are located in Southern California. It leases a 13,000
square foot hangar facility and 800 square feet of furnished office space, along
with outside storage space with tie-down facilitates at the French Valley
Airport in Southwest Riverside County, adjacent to the communities of Temecula,
Murrieta and Winchester. The airport is conveniently located to major highways
and nearby high-tech and manufacturing business and its 6,000-foot runway,
wide-open approaches and ground support services accommodate most aircraft
including jets and turbo-props. SDA moved its operations to this location in
August 2006 from its original location at the Ramona Municipal Airport in San
Diego County to take advantage of a more favorable location, with larger hangar
space, at a growing airport with the infrastructure to handles small to large
corporate jets.
CUSTOMER BASE
SDA has a diverse customer base and its customers typically include private
individuals, corporations, and governmental units. Its current customer base
includes over 500 accounts with approximately 315 considered active, and no
single customer accounts for more than 5% of our total revenue.
COMPETITION
The market for SDA's products and services are extremely competitive, and
SDA faces competition from a number of sources. SDA's competitors include
aircraft service companies and other companies providing MRO services. Its
primary competitors include Aircrafters and Air Mech, Inc. We believe that
SDA's experienced staff, facility amenities, scope of services, availability of
parts, and focus on customer service increase SDA's competitiveness. Most of
SDA's competitors, however, have substantially greater financial and other
resources than are available to us. We cannot assure anyone that competitive
pressures will not materially adversely affect our business, financial
conditions or results of operations or that we will ever attain any competitive
position within our market.
GOVERNMENT REGULATION
The aviation industry in the United States is highly regulated by the FAA.
The FAA regulates the manufacture, repair and operation of all aircraft and
aircraft equipment operated in the United States. FAA regulations are designed
to ensure that all aircraft and aircraft equipment are continuously maintained
in proper condition to ensure safe operation of the aircraft. All aircraft must
be maintained under a continuous condition-monitoring program and must
periodically undergo thorough inspection and maintenance. The inspection,
maintenance and repair procedures for the various types of aircraft and aircraft
equipment are prescribed by regulatory authorities and can be performed only by
certified repair facilities using certified technicians.
SDA is an approved Federal Aviation Administration FAR Part 145 general
aviation maintenance repair station that performs service and repair for most
single and multiengine aircraft through business jets. It is now pursuing two
factory-authorized maintenance facility for two major OEMs. We are approved for
providing maintenance and repair services on Jet aircraft including Raytheon
B-200, Premiere 1, Lear 55 and 31, and Westwind Aircraft.
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SDA's operations are also subject to a variety of worker and community
safety laws. The Occupational Safety and Health Act ("OSHA") mandates general
requirements for safe workplaces for all employees. Specific safety standards
have been adopted for workplaces engaged in the treatment, disposal and storage
of hazardous waste. SDA is also subject to various environmental laws including
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the
Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act,
the Toxic Substances Control Act, the Emergency Planning and Community
Right-to-Know Act, the California Hazardous Waste Control Law, the California
Solid Waste Management, Resource, Recovery and Recycling Act, the California
Water Code and the California Health and Safety Code.
We believe that our operations are in material compliance with all of these
laws, rules and regulations.
PRODUCT LIABILITY
Our new business exposes it to possible claims for personal injury or death
that may result from the failure of an aircraft or an aircraft part repaired or
maintained by us or from our negligence in the repair or maintenance of an
aircraft or aircraft part. While we maintain what we believes to be adequate
liability insurance to protect us from claims of this type, we cannot assure
anyone that claims will not arise in the future that may exceed available
coverages or that our insurance coverage will be adequate. Additionally, there
are no assurances that insurance coverages will be maintained in the future at
an acceptable cost. Any liability of this type that is not covered by adequate
insurance could materially adversely affect our business and operations.
EMPLOYEES
As of May 11, 2009 we had eight full-time employees.
OUR HISTORICAL BUSINESS
Our historical business involves the exploration and production of oil and
gas. The importance of this segment of business to our business as a whole is
greatly diminished. Management is currently exploring options for the future of
this business, which may include a sale of it or a spin-off of it to
shareholders, so that management can devote its entire attention to our new
business.
ITEM 1A. RISK FACTORS.
An investment in shares of our common stock is highly speculative and
involves a high degree of risk. You should carefully consider all of the risks
discussed below, as well as the other information contained in this Annual
Report. If any of the following risks develop into actual events, our business,
financial condition or results of operations could be materially adversely
affected and the trading price of our common stock could decline.
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RISKS RELATING TO OUR BUSINESS
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WE HAVE LIMITED HISTORY OF OPERATIONS AND WE CANNOT ASSURE YOU THAT OUR BUSINESS
MODEL WILL BE SUCCESSFUL IN THE FUTURE OR THAT OUR OPERATIONS WILL BE
PROFITABLE.
We have our business focus near the end of February 2009 when we acquired
the operations of San Diego Airmotive ("SDA"). Although SDA (through its
predecessor entity) has been providing maintenance, repair and overhaul services
in California since 1987, we are essentially new to this business. Accordingly,
investors have a limited history of operations upon which to evaluate our
business. There can be no assurances whatsoever that we will be able to
successfully implement our business model, identify and close acquisitions of
operating companies, penetrate our target markets or attain a wide following for
our services. We are subject to all the risks inherent in an early stage
enterprise which has experienced rapid growth through acquisitions and our
prospects must be considered in light of the numerous risks, expenses, delays,
problems and difficulties frequently encountered in those businesses.
WE HAVE HAD A HISTORY OF LOSSES, AND WE HAVE A WORKING CAPITAL DEFICIT AND AN
ACCUMULATED DEFICIT. WE MAY NEVER REPORT PROFITABLE OPERATIONS.
We have incurred net losses since our inception, and we had a working
capital deficit of approximately $138,439, an accumulated deficit of
approximately $19,504,879, and our total liabilities exceeded our total assets
by $617,476, all as of December 31, 2008. There can be no assurance that we
will become profitable. Our new business has had a history of losses as well.
Unless we are able to raise additional capital to fund our operating expenses,
pay our obligations as they become due and implement our business model, we may
not be able to continue as a going concern, and we could be forced to
discontinue some or all of our operations if our capital resources become
exhausted by losses or expenditures.
OUR AUDITOR HAS GIVEN TO US A "GOING CONCERN" QUALIFICATION, WHICH QUESTIONS OUR
ABILITY TO CONTINUE AS A GOING CONCERN WITHOUT ADDITIONAL FINANCING.
Our independent certified public accountant has added an emphasis paragraph
to its report on our consolidated financial statements for the year ended
December 31, 2008 regarding our ability to continue as a going concern. Key to
this determination is our historical losses of $312,682 in 2008 and $402,979 in
2007. Management plans to try to fund our company partially through the raising
of capital through the sale of our equity instruments or issuance of debt,
although there can be no assurance of success in this regard. Moreover,
management plans on additional revenues from operations from our new business as
a source to finance our company, although there can be no assurance of that
these revenues will materialize at the expected rates. There can be no assurance
that we will be successful in achieving these objectives, becoming profitable or
continuing our business without either a temporary interruption or a permanent
cessation.
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WE MAY BE UNABLE TO OBTAIN ADDITIONAL CAPITAL WHEN NECESSARY OR ON TERMS THAT
ARE ACCEPTABLE TO US, IF AT ALL. IF WE ARE SUCCESSFUL IN RAISING ADDITIONAL
CAPITAL AS NECESSARY, THESE ADDITIONAL FINANCING TRANSACTIONS WILL BE DILUTIVE
TO OUR SHAREHOLDERS AND COULD INCREASE OUR INTEREST EXPENSE.
We expect that we will need significant additional cash resources to
operate and expand our business in the future. Our future capital requirements
will depend on many factors, including our ability to significantly increase our
revenues, maintain or reduce our operating expenses and execute our business and
strategic plans as currently conceived. If we raise additional funds through
the issuance of equity or convertible debt securities, the percentage ownership
of our company held by existing shareholders will be reduced and those
shareholders may experience significant dilution. In addition, new securities
may contain certain rights, preferences or privileges that are senior to those
of our common stock. There can be no assurance that acceptable financing can be
obtained on suitable terms, if at all. If we are unable to raise additional
working capital as needed, our ability to continue our current business will be
adversely affected and may be forced to curtail some or all of our operations.
OUR INDUSTRY IS HEAVILY REGULATED AND WE MAY FAIL TO COMPLY WITH ALL SUCH
REGULATIONS. ANY FAILURE BY US COULD REQUIRE US TO INCUR SUBSTANTIAL COSTS IN
COMPLYING WITH SUCH REGULATION AND WE COULD BE FORCED TO CEASE OUR OPERATIONS.
The aviation industry is subject to extensive regulation by the Federal
Aviation Administration (FAA). In addition, our business is subject to numerous
federal, state and local laws, regulations and policies governing environmental
protection and other matters. Although we believe that we are presently in
material compliance with applicable laws and regulations, there is no assurance
that we are correct or that our operations will be deemed to be in compliance in
the future. We may not be able to comply with current laws and regulations, or
any future laws and regulations. To the extent that new regulations are
adopted, we will be required to conform our activities in order to comply with
such regulations. We may be required to incur substantial costs in order to
comply. Our failure to comply with applicable laws and regulations could
subject us to civil remedies, including fines, injunctions, recalls or seizures,
as well as potential criminal sanctions which could have a material and adverse
effect on our business operations and finances and we could be forced to cease
our operations
WE MAY NOT HAVE SUFFICIENT INSURANCE COVERAGE TO PROTECT US FROM LIABILITY
CLAIMS.
Our business exposes us to possible claims for personal injury or death
that may result if we were negligent in repairing an airplane. We cannot assure
you that claims will not arise in the future or that our insurance coverage will
be adequate to protect us in all circumstances. Additional, we cannot assure
you that we will be able to maintain adequate insurance coverage sin the future
at an acceptable cost. Any liability claim not covered by adequate insurance
will adversely affect our business, financial condition and results of
operations.
OUR FINANCIAL PERFORMANCE MAY BE ADVERSELY AFFECTED BY COMPETITION.
We expect our market to be intensely competitive. The majority of our
anticipated competitors will be more established, benefit from greater market
recognition and have substantially greater financial, marketing and other
resources than we do. In addition, larger competitors may be able to absorb the
burden of any changes in federal, state and local laws and regulations more
easily than we can, which would adversely affect our competitive position.
Moreover, some of our competitors have been operating in our core area for a
long time and have demonstrated the ability to operate through industry cycles.
Intense competition could materially adversely affect our business, results of
operations and financial condition.
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IF WE GROW OUR BUSINESS AS PLANNED, WE MAY NOT BE ABLE TO MANAGE PROPERLY OUR
GROWTH, AND WE EXPECT OPERATING EXPENSES TO INCREASE, WHICH MAY IMPEDE OUR
ABILITY TO ACHIEVE PROFITABILITY.
If we are successful in growing our business as we plan, our operations may
expand rapidly and significantly. Any rapid growth could place a significant
strain on our management, operational and financial resources. In order to
manage the growth of our operations, we will be required to expand existing
operations; to improve on a timely basis existing and implement new operational,
financial and inventory systems, procedures and controls, including improvement
of our financial and other internal management systems; and to train, manage and
expand our employee base. If we are unable to manage growth effectively, our
business, results of operations and financial condition will be materially
adversely affected. In addition, if we are successful in growing our business as
we plan, we expect operating expenses to increase, and as a result, we will need
to generate increased quarterly revenue to achieve and maintain profitability.
In particular, as we grow our business, we would incur additional costs and
expenses related to:
* The expansion of our sales force and distribution channels
* The expansion of our product and services offerings
* Development of relationships with strategic business partners
* The expansion of management and infrastructure
* Brand development, marketing and other promotional activities.
These additional costs and expenses could delay our ability to achieve
profitability.
FUTURE ACQUISITIONS COULD EXPOSE US TO NUMEROUS RISKS.
As part of our business strategy, we may acquire complementary companies,
products, services or technologies. Any acquisition would be accompanied by the
risks commonly encountered in a transaction. Such risks include the following:
* Difficulty of assimilating the operations and personnel of the
acquired companies
* Potential disruption of our ongoing business
* Inability of management to maximize our financial and strategic
position through the successful incorporation of acquired
businesses and technologies
* Additional expenses associated with amortization of acquired
intangible assets
* Maintenance of uniform standards, controls, procedures and policies
* Impairment of relationships with employees, customers, vendors and
advertisers as a result of any integration of new management
personnel
* Potential unknown liabilities associated with acquired businesses
There can be no assurance that we would be successful in overcoming these
risks or any other problems encountered in connection with such acquisitions.
Due to all of the foregoing, any future acquisition may materially and adversely
affect our business, results of operations, financial condition and cash flows.
Although we do not expect to use cash for acquisitions, we may be required to
obtain additional financing if we choose to use cash in the future. There can be
no assurance that such financing will be available on acceptable terms. In
addition, if we issue stock to complete any future acquisitions, existing
stockholders will experience further ownership dilution.
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WE HIGHLY DEPEND ON OUR CURRENT MANAGEMENT. THE LOSS OF ANY MEMBER OF OUR
CURRENT MANAGEMENT COULD HARM OUR ABILITY TO EXECUTE OUR BUSINESS PLAN.
Our success depends heavily upon the continued contributions of current
management. The loss of the services of one or more of our members of
management could materially adversely affect our business, operating results and
financial condition. No member of our management has entered into an employment
agreement or a covenant not to compete agreement with us. As a result, any one
of them may discontinue providing his services to us at any time and for any
reason, and even thereafter commence competition with us. We cannot guarantee
that we will be able to retain our key personnel. Moreover, we currently have
no key person insurance on any members of management.
OUR CURRENT MANAGEMENT RESOURCES MAY NOT BE SUFFICIENT FOR THE FUTURE, AND WE
HAVE NO ASSURANCE THAT WE CAN ATTRACT ADDITIONAL QUALIFIED PERSONNEL.
There can be no assurance that the current level of management is
sufficient to perform all responsibilities necessary or beneficial for
management to perform. Our future success also depends on our continuing
ability to attract, assimilate and retain highly qualified sales, technical and
managerial personnel. Competition for these individuals is intense, and there
can be no assurance that we can attract, assimilate or retain necessary
personnel in the future.
ONE STOCKHOLDER OWNS A CONTROLLING PERCENTAGE OF OUR VOTING STOCK, AND
CUMULATIVE VOTING IS NOT AVAILABLE TO STOCKHOLDERS.
AvStar Aviation Services, Inc. ("AvStar") owns approximately 91.1% of our
outstanding voting stock. Cumulative voting in the election of Directors is not
provided for. Accordingly, AvStar has the ability to elect all of our Board of
Directors. AvStar's large percentage ownership of our outstanding voting stock
essentially vests fully in it full control of our company.
WE WILL BE REQUIRED TO COMPLY WITH SECTION 404 OF THE SARBANES OXLEY ACT OF
2002.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, in connection
with this Annual Report and future Annual Reports, we are and will be required
to furnish a report by management on our internal controls over financial
reporting which will contain, among other matters, an assessment of the
effectiveness of our internal control over financial reporting, including a
statement as to whether or not our internal control over financial reporting is
effective. This assessment must include disclosure of any material weaknesses
in our internal control over financial reporting identified by our management.
Based on current information, we expect that in 2009, Section 404 will require
that our independent auditors also provide an attestation on management's
assertion of internal control over financial reporting. During the evaluation
and testing process, if we identify one or more material weaknesses in our
internal control over financial reporting, we will be unable to assert that such
internal control is effective. If we are unable to assert that our internal
control over financial reporting is effective or if in the future our auditors
are unable to attest that our management's report is fairly stated or they are
unable to express an opinion on the effectiveness of our internal controls, we
could lose investor confidence in the accuracy and completeness of our financial
reports. Furthermore, we expect that our compliance with the regulatory
requirements described herein will likely increase our legal and professional
expenses.
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RISKS RELATED TO OUR COMMON STOCK
WE HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN
THE ABSENCE OF WHICH, SHAREHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST
INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.
Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has
resulted in the adoption of various corporate governance measures designed to
promote the integrity of the corporate management and the securities markets.
Some of these measures have been adopted in response to legal requirements.
Others have been adopted by companies in response to the requirements of
national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on
which their securities are listed. Among the corporate governance measures that
are required under the rules of national securities exchanges are those that
address board of directors' independence, audit committee oversight, and the
adoption of a code of ethics. Although we have adopted a Code of Ethics, we
have not yet adopted any of these other corporate governance measures and, since
our securities are not yet listed on a national securities exchange, we are not
required to do so. We have not adopted corporate governance measures such as an
audit or other independent committees of our board of directors as we presently
do not have any independent directors. If we expand our board membership in
future periods to include additional independent directors, we may seek to
establish an audit and other committees of our board of directors. It is
possible that if we were to adopt some or all of these corporate governance
measures, shareholders would benefit from somewhat greater assurances that
internal corporate decisions were being made by disinterested directors and that
policies had been implemented to define responsible conduct. For example, in
the absence of audit, nominating and compensation committees comprised of at
least a majority of independent directors, decisions concerning matters such as
compensation packages to our senior officers and recommendations for director
nominees may be made by a majority of directors who have an interest in the
outcome of the matters being decided. Prospective investors should bear in mind
our current lack of corporate governance measures in formulating their
investment decisions.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DELAY OR PREVENT A
TAKEOVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR SHAREHOLDERS.
Provisions of our certificate of incorporation and bylaws may be deemed to
have anti-takeover effects, which include when and by whom special meetings of
our shareholders may be called, and may delay, defer or prevent a takeover
attempt. In addition, certain provisions of Texas law also may be deemed to
have certain anti-takeover effects which include that control of shares acquired
in excess of certain specified thresholds will not possess any voting rights
unless these voting rights are approved by a majority of a corporation's
disinterested shareholders.
In addition, our certificate of incorporation authorizes the issuance of up
to 10,000,000 shares of preferred stock with such rights and preferences, as may
be determined by our board of directors. Of this authorized preferred stock,
1,000,000 shares are currently issued and outstanding. Our board of directors
may, without shareholder approval, issue up to an additional 9,000,000 preferred
stock with dividends, liquidation, conversion or voting rights that could
adversely affect the voting power or other rights of our common shareholders.
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OUR COMMON STOCK HAS EXPERIENCED ONLY EXTREMELY LIMITED TRADING.
Our common stock had been quoted and traded on the OTC Electronic Bulletin
Board under the symbol "PAPO." Frequently, the volume of trading in our common
stock has been light, and the prices and volumes at which our common stock has
traded have fluctuated fairly widely on a percentage basis. Until shares of our
common stock become more broadly held and orderly markets develop and even
thereafter, the prices of our common stock may fluctuate significantly. Prices
for our common stock will be determined in the marketplace and may be influenced
by many factors, including the following:
* The depth and liquidity of the markets for our common stock;
* Investor perception of us and the industry in which we participate;
* General economic and market conditions;
* Responses to quarter-to-quarter variations in operating results;
* Failure to meet securities analysts' estimates;
* Changes in financial estimates by securities analysts;
* Conditions, trends or announcements in our industry;
* Announcements of significant acquisitions, strategic alliances, joint
ventures or capital commitments by us or our competitors;
* Additions or departures of key personnel;
* Sales of our common stock;
* Accounting pronouncements or changes in accounting rules that affect our
financial statements; and
* Other factors and events beyond our control.
The market price of our common stock could experience significant
fluctuations unrelated to our operating performance. As a result, a stockholder
(due to personal circumstances) may be required to sell such stockholder's
shares of our common stock at a time when our stock price is depressed due to
random fluctuations, possibly based on factors beyond our control.
THE TRADING PRICE OF OUR COMMON STOCK MAY ENTAIL ADDITIONAL REGULATORY
REQUIREMENTS, WHICH MAY NEGATIVELY AFFECT SUCH TRADING PRICE.
The trading price of our common stock historically has been below $5.00 per
share. As a result of this price level, trading in our common stock is subject
to the requirements of certain rules promulgated under the Securities Exchange
Act of 1934. These rules require additional disclosure by broker-dealers in
connection with any trades generally involving any non-NASDAQ equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions. Such rules require the delivery, before any penny stock transaction,
of a disclosure schedule explaining the penny stock market and the risks
associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally institutions). For these types of
transactions, the broker-dealer must determine the suitability of the penny
stock for the purchaser and receive the purchaser's written consent to the
transaction before sale. The additional burdens imposed upon broker-dealers by
such requirements may discourage broker-dealers from effecting transactions in
our common stock. As a consequence, the market liquidity of our common stock
could be severely affected or limited by these regulatory requirements.
STOCKHOLDERS HAVE NO GUARANTEE OF DIVIDENDS.
The holders of our Common Stock are entitled to receive dividends when, as
and if declared by the Board of Directors out of funds legally available
therefore. To date, we have paid no cash dividends. The Board of Directors
does not intend to declare any dividends in the foreseeable future, but instead
intends to retain all earnings, if any, for use in our business operations. If
we obtain additional financing, our ability to declare any dividends will
probably be limited contractually.
12
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
Our principal executive offices are located in approximately 2,000 square
feet of executive office space. We sub-lease these facilities from a related
party under an agreement expiring in August 2011 for an annual rent of
approximately $29,000.
We lease approximately 13,000 square feet of undivided hangar space and 800
square feet of furnished office space at the French Valley Airport in Murrieta,
California from a third party pursuant to a year-to-year lease. We can extend
the term of the sublease upon 30 days notice to the lessor. Under the terms of
the sublease we pay a base rent of approximately $117,000 annually for the first
year. If we elect to extend the term of the sublease, the base rent will
increase by the greater of 4% or the increase percentage of the Consumer Price
Index All Items - Los Angeles over the 90 days prior to the renewal of the
sublease. We intend to renew the lease at the increased rate.
ITEM 3. LEGAL PROCEEDINGS.
We are not presently a party to any pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 2008.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is quoted on the OTC Bulletin Board under the symbol PAPO.
The following table sets forth certain information as to the high and low bid
quotations quoted on the OTC Bulletin Board for the fiscal years ended December
31, 2007 and December 31, 2008. Information with respect to over-the-counter
bid quotations represents prices between dealers, does not include retail
mark-ups, mark-downs or commissions, and may not necessarily represent actual
transactions.
COMMON STOCK
------------
2007 HIGH LOW
---- ---- ---
First Quarter $0.009 $0.003
Second Quarter $0.12 $0.005
Third Quarter $0.008 $0.004
Fourth Quarter $0.0095 $0.003
COMMON STOCK
------------
2008 HIGH LOW
---- ---- ---
First Quarterer $0.0049 $0.0025
Second Quarter $0.005 $0.0028
Third Quarter $0.0049 $0.0008
Fourth Quarter $0.0015 $0.0005
As of April 16, 2009, we had approximately 665 common shareholders of
record and 390,499,544 common shares outstanding. As of such date, we had one
holder of our 1,000,000 outstanding Series A Preferred Stock. Such preferred
stock is not traded.
We have not paid any cash dividends on the common stock, and we do not
intend to pay any dividends prior to the consummation of a business combination.
13
On January 7, 2009, we issued 25 million shares of our common stock to Sage
Office Services, an entity controlled by Mary Pollock Merritt, daughter of a
person who served as our chief executive officer during a part of 2009. This
stock issuance was in consideration of services previously rendered having an
aggregate value of approximately $17,500. These issuances are claimed to be
exempt pursuant to Rule 506 of Regulation D under the Securities Act of 1933
(the "Act"). No advertising or general solicitation was employed in offering
these securities. The offering and sale was made only to accredited investors,
and subsequent transfers were restricted in accordance with the requirements of
the Act.
EQUITY COMPENSATION PLANs
We currently do not have any equity compensation plans under which our
equity securities are authorized for issuance.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
We have historically been an independent energy company focused on
exploration and development of oil and natural gas reserves, whose core business
is directed to the development of oil and gas prospects in proven onshore
production areas. We have adopted a significant change in its corporate
direction. We have decided to focus our efforts on acquiring aviation related
businesses and developing these businesses to their commercial potential.
Our new business plan is to acquire, consolidate and grow businesses in the
general aviation industry. We will place our initial focus on the maintenance,
repair and overhaul (MRO) of aircraft providing products and services for the
general aviation sector. We believe that since September 11, 2001, both private
air transportation and the number of aircraft owned by both individuals and
business have dramatically increased. Each of these sectors, in addition to
routine maintenance, has mandated a number of inspections by the FAA that are
commonly included in traditional MRO services.
Our recently acquired, wholly owned subsidiary, San Diego Airmotive
("SDA"), has been operating (through its predecessor entity) as an MRO for
approximately 19 years. SDA historically provided MRO services for single and
multi-engine aircraft. As capital is available to us, we intend to grow our
business through the expansion of our existing MRO business as well as by
acquisitions of existing MRO's, fixed base operations (FBO), charter operations
and other operational aircraft related businesses.
RESULTS OF OPERATIONS
With the current price of oil, none of wells are producing sufficient to
support our operations. To that end, a decision was made to enter into a Share
Exchange Agreement fully by and between us and AvStar Aviation Services, Inc.
("AvStar"), providing for our acquisition of all of the outstanding common stock
in San Diego Airmotive ("SDA"), which (through its predecessor entity) has been
providing maintenance, repair and overhaul ("MRO") services in California since
1987.
14
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of its financial condition and results of
operations as of December 31, 2008 are based upon its consolidated financial
statements, which have been prepared in accordance with generally accepted
accounting principles in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate our
estimates. We base the estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. These
estimates and assumptions provide a basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions, and these differences may be material.
We believe the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
OIL AND GAS PRODUCING ACTIVITIES
We follow the "successful efforts" method of accounting for our oil and gas
properties. Under this method of accounting, all property acquisition costs
(cost to acquire mineral interests in oil and gas properties) and costs (to
drill and equip) of exploratory and development wells are capitalized when
incurred, pending determination of whether the well has found proved reserves.
If an exploratory well has not found proved reserves in commercial quantities,
the costs associated with the well are charged to expense. The costs of
development wells are capitalized whether productive or nonproductive.
Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred. Management estimates the
future liability for plugging and abandonment of the related wells. Accordingly,
a net cost of $8,193 has been recorded for plugging and abandonment.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the average holding period. Capitalized costs
of producing oil and gas properties after considering estimated dismantlement
and abandonment costs and estimated salvage values are depreciated and depleted
by the unit-of-production method. On the sale or retirement of a complete unit
of a proved property, the cost and related accumulated depreciation, depletion,
and amortization are eliminated from the property accounts, and the resultant
gain or loss is recognized. On the retirement or sale of a partial unit of
proved property, the cost is charged to accumulated depreciation, depletion, and
amortization with a resulting gain or loss recognized in the statement of
operations.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
15
OIL AND GAS REVENUES
Oil and gas revenues are recorded under the sales method. We recognize oil
and gas revenues as production occurs. As a result, we accrued revenue relating
to production for which we have not received payment.
COMPARISON OF YEAR ENDED DECEMBER 31, 2008 TO YEAR ENDED DECEMBER 31, 2007.
Revenues were $29,404 in 2008 compared to revenue of $53,447 in 2007
reflecting an decrease of 44% or $24,043 in revenue in 2008. This decrease in
revenue reflects a loss of production during the year. During the fiscal year
2008, $32,000 was used for capital and exploratory expenditures compared to
$17,202 in 2007 (using the successful effort method of accounting).
The $90,297 decrease in the net loss from continuing operations to $312,682
for the year ended December 31, 2008 from $402,979 for the year ended December
31, 2007 is due to a few factors. Impairment of oil and gas properties increased
to $42,926 in 2008 from $23,634 in 2007. This was due to the plug and
abandonment costs recorded in 2007 for the drilled and abandoned wells of
$73,105, while $0 costs were recorded in 2008. There was a decrease in Selling,
General and Administrative expenses including stock based compensation, which
decreased by $108,433 to $197,717 in 2008 compared to $306,150 in 2007. This was
due to a decrease in stock issued for compensation as well as a decrease in
share value.
During the year ended December 31, 2008, we reported a net loss of $312,682
compared to a net loss of $402,979 for the year ended December 31, 2007.
LIQUIDITY AND CAPITAL RESOURCES
Currently, we have limited financial ability to pursue our new business
plan. We are currently trying to determine the scope of the business activities
that we will pursue in the foreseeable future. The amount of capital that we
will need depends on the scope of the business activities that we ultimately
decide to pursue. This scope is uncertain at this time. However, we know that
we must obtain additional financing to pursue our business plan at any level
that we are likely to pursue. We are currently searching for sources of
financing, but we currently do not have any binding commitments for, or readily
available sources of, financing. We cannot assure anyone that financing will be
available to us when needed or, if available, that such financing can be
obtained on commercially reasonably terms. If we do not obtain financing we
will be constrained to contract the scope of our business plan. Under certain
circumstances, we may be constrained to attempt to sell some of our assets.
However, we cannot assure anyone that we will be able to find interested buyers
or that the funds received from any such sale would be adequate to fund our
activities. Under certain circumstances, we could be forced to cease our
operations and liquidate our remaining assets, if any.
OFF-BALANCE SHEET ARRANGEMENTS
During the year ended December 31, 2008, we had no off balance sheet
arrangements.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Management of
Pangea Petroleum Corporation
Houston, Texas
I have audited the accompanying consolidated balance sheet of Pangea Petroleum
Corporation as of December 31, 2008 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the year ended
December 31, 2008. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit. The financial statements for the period
January 1, 2007 through December 31, 2007, were audited by other auditors whose
reports expressed unqualified opinions on those statements.
I conducted my audit of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Pangea Petroleum Corporation as of
December 31, 2008, and the results of its operations and its cash flows for the
period then ended in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered significant losses and will
require additional capital to develop its business until the Company either (1)
achieves a level of revenues adequate to generate sufficient cash flows from
operations; or (2) obtains additional financing necessary to support its working
capital requirements. 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 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Clay Thomas, P.C.
www.claythomaspc.com
Houston, Texas
May 14, 2009
PANGEA PETROLEUM CORP
BALANCE SHEET
ASSETS
Current assets
Cash 2,595
Accounts receivable 1,844
-----
Total Current Assets 4,439
Property and equipment:
Proven oil and gas properties (successful efforts
method), net of accumulated depletion of $143,978 28,734
Unproven oil and gas properties (successful effort
method) 152,000
-------
Total Fixed Assets 180,734
-------
Total assets $ 185,173
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable 43,595
Credit Card Payable 18,374
Accrued interest payable to related parties 79,090
Notes payable to related parties 11,500
Notes Payable -
Stock Payable -
------
Total current liabilities 152,559
Long term debt to related parties 659,771
Asset Retirement Obligations 8,193
--------
Total liabilities 820,523
-------
Stockholders' deficit:
Preferred stock: $.001 par value; 10,000,000
shares authorized, none issued and outstanding -
Common stock: $.001 par value; 500,000,000
shares authorized; 365,499,544 shares
issued and outstanding 365,499
Additional paid-in capital 18,521,904
Accumulated deficit (19,522,753)
-----------
Total stockholders' deficit (635,350)
-----------
Total liabilities and stockholders' deficit 185,173
===========
PANGEA PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year ended December 31, 2008
2008
Oil and gas revenue 29,404
Costs and expenses:
Lease operating expenses 19,154
Production tax 1,864
Selling, general and administrative,
including stock based compensation 211,589
Dry hole costs -
Impairment of oil and gas properties 42,926
Plug and abandonment costs -
Depletion and depreciation 5,335
Gain/Loss on sale of assets -
-----------
Total costs and expenses 280,869
-----------
Loss from operations (251,465)
Other income and (expenses):
Interest expense (79,090)
Settlement income -
-----------
Net loss (330,555)
===========
Weighted average common shares outstanding 298,865,393
Basic and diluted net loss per common share (0)
PANGEA PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For the Year ended December 31, 2008
Additional Total
Common Stock Paid-In Accumulated Deferred Stockholders'
Shares Amount Capital Deficit Compensation Deficit
Balance at
December 31,
2007 306,339,544 306,340 18,373,829 (19,192,197) $0 (512,028)
Stock issued for
compensation 49,160,000 49,160 49,160 0 175,234
Common Stock issued
for property
acquisition 10,000,000 10,000 10,000 32,000
Net (Income) / Loss (330,555) (330,555)
-----------------------------------------------------------------
Balances as of
December 31,
2008 365,499,544 365,500 18,432,989 0 (635,350)
==================================================================
PANGEA PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year ended December 31, 2008
2008
Cash flows from operating activities:
Net loss (330,555)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depletion and depreciation expense 5,335
Impairment of oil and gas properties 42,926
Dry hole expense -
Plug and abandonment costs -
Stock-based compensation (10,180)
Changes in assets and liabilities:
Accounts receivable (1,844)
Prepaid expenses -
Payroll taxes refundable -
Accounts payable and accrued liabilities (7,206)
Other 0
-------
Net cash (used in) operating activities (301,524)
Cash flows (used in) investing activities:
Capital and exploratory expenditures (32,000)
Cash flows from financing activities:
Proceeds from the sale of common stock 206,671
Proceeds from notes payable 126,730
-------
Net cash provided by financing activities 333,401
-------
Net change in cash and cash equivalents (123)
Cash and cash equivalents at beginning of year 2,718
-------
Cash and cash equivalents at end of year 2,595
=======
PANGEA PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------
ORGANIZATION
- ------------
Pangea Petroleum Corporation (the "Company") is a Colorado corporation that has
historically engaged in oil and gas exploration and development. The Company
was originally incorporated in 1997 as Zip Top, Inc. and subsequently adopted a
name change to Pangea Petroleum Corporation. On April 26, 2000, the Company was
recapitalized when the Company acquired the non-operating public shell, Segway
II Corporation. Segway II Corporation had no significant assets or liabilities
at the date of acquisition and, accordingly, the transaction was accounted for
as a recapitalization. In February 2009, the Company adopted a significant
change in its corporate direction by deciding to focus its efforts on acquiring
aviation related businesses and developing these businesses to their commercial
potential.
COMPARISON WITH 2007 FINANCIAL RESULTS
- --------------------------------------
The financial statements are not presented in comparison with the results for
2007, because a consent has not yet been received from the predecessor auditor
for such period. Once the consent is received, the financial statements will be
amended to include such a comparison.
ACCOUNTING ESTIMATES
- --------------------
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. These estimates
mainly involve the useful lives of property and equipment, the impairment of
unproved oil and gas properties, the valuation of deferred tax assets and the
realizability of accounts receivable.
CASH AND CASH EQUIVALENTS
- -------------------------
For purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less when purchased to
be cash equivalents.
OIL AND GAS PRODUCING ACTIVITIES
- ------------------------------------
The Company follows the "successful efforts" method of accounting for its oil
and gas properties. Under this method of accounting, all property acquisition
costs (cost to acquire mineral interests in oil and gas properties) and costs
(to drill and equip) of exploratory and development wells are capitalized when
incurred, pending determination of whether the well has found proved reserves.
If an exploratory well has not found proved reserves in commercial quantities,
the costs associated with the well are charged to expense. The costs of
development wells are capitalized whether productive or nonproductive.
Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred.
In 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations"
which was adopted by Pangea when Pangea first acquired oil and gas properties.
SFAS 143 requires entities to record the fair value of a liability for asset
retirement obligations ("ARO") in the period in which it is incurred and a
corresponding increase in the carrying amount of the related long-lived asset.
The present value of the estimated asset retirement cost is capitalized as part
of the carrying amount of the long-lived asset and is depreciated over the
useful life of the asset. Pangea accrues an abandonment liability associated
with its oil and gas wells when those assets are placed in service. The ARO is
recorded at its estimated fair value and accretion is recognized over time as
the discounted liability is accreted to its expected settlement value. Fair
value is determined by using the expected future cash outflows discounted at
Pangea's credit adjusted risk-free interest rate. No market risk premium has
been included in Pangea's calculation of the ARO balance. Pangea's ARO liability
at December 31, 2008 is $7,897.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and, if necessary, a loss is
recognized by providing an impairment allowance. Pangea recorded $ 42,926 and
$23,634 of impairment expense in the years ended December 31, 2008 and 2007,
respectively. Other unproved properties are amortized based on the Company's
average holding period.
OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
- --------------------------------------------
Capitalized costs of producing oil and gas properties after considering
estimated dismantlement and abandonment costs and estimated salvage value, are
depreciated and depleted by the unit-of-production method. On the sale or
retirement of a complete unit of proved property, the cost and related
accumulated depreciation, depletion, and amortization are eliminated from the
property accounts, and the resultant gain or loss is recognized. On the
retirement or sale of a partial unit of proved property, the cost is charged to
accumulated depreciation, depletion, and amortization with a resulting gain or
loss recognized in the statement of operations.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
OTHER PROPERTY AND EQUIPMENT
- ----------------------------
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of 3 to 5 years for office
furniture and equipment and transportation and other equipment. Additions or
improvements that increase the value or extend the life of an asset are
capitalized. Expenditures for normal maintenance and repairs are expensed as
incurred. Disposals are removed from the accounts at cost less accumulated
depreciation and any gain or loss from disposition is reflected in operations.
OIL AND GAS REVENUES
- -----------------------
Revenues from the sale of oil and natural gas are recognized when the product is
delivered at a fixed or determinable price, title has transferred,
collectibility is reasonably assured and evidenced by a contract. The Company
follows the "sales method" of accounting for its oil and natural gas revenue, so
it recognizes revenue on all natural gas or crude oil sold to purchasers,
regardless of whether the sales are proportionate to its ownership in the
property. A receivable or liability is recognized only to the extent that the
Company has an imbalance on a specific property greater than the expected
remaining proved reserves
IMPAIRMENT OF LONG-LIVED ASSETS
- -------------------------------
In the event facts and circumstances indicate the carrying value of a long-lived
asset, including associated intangibles, may be impaired, an evaluation of
recoverability is performed by comparing the estimated future undiscounted cash
flows associated with the asset to the asset's carrying amount to determine if a
write-down to fair market value or discounted cash flow is required. Based upon
a recent evaluation by management, an impairment write-down of the Company's
long-lived assets was recorded to write such assets down to their estimated net
realizable value resulting in an impairment expense of $42,926 and $23,634 in
2008 and 2007, respectively.
STOCK BASED COMPENSATION
- ------------------------
Financial Accounting Standard No. 123, "Accounting for StockBased Compensation"
established financial accounting and reporting standards for stockbased employee
compensation plans. It defines a fair value based method of accounting for an
employee stock option or similar equity instrument. In January 2006, the Company
implemented SFAS No. 123R, and accordingly, the Company accounts for
compensation cost for stock option plans in accordance with SFAS No. 123R.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
- ------------------------------------------------
Financial instruments which subject the Company to concentrations of credit risk
include cash and cash equivalents and accounts receivable. The Company has
concentrated its credit risk for cash by maintaining deposits in a financial
institution, which may at times exceed the amounts covered by insurance provided
by the United States Federal Deposit Insurance Corporation ("FDIC") The Company
has not experienced any losses on deposits. During the years ended December 31,
2008 and 2007, 100% of the Company's revenues were received from five customers.
INCOME TAXES
- ------------
The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and income tax carrying amounts of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. A
valuation allowance, if necessary, is provided against deferred tax assets,
based upon management's assessment as to their realization.
BASIC AND DILUTED NET LOSS PER SHARE
- ------------------------------------------
Basic loss per share is computed using the weighted average number of shares of
common stock outstanding during each period. Diluted loss per share includes the
dilutive effects of common stock equivalents on an "as if converted" basis. For
the years ended 2008 and 2007, potential dilutive securities had an
anti-dilutive effect and were not included in the calculation of diluted net
loss per common share.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- --------------------------------------------
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flow.
2. GOING CONCERN CONSIDERATIONS
----------------------------
Since its inception, the Company has suffered recurring losses from operations
and has been dependent on existing stockholders and new investors to provide the
cash resources to sustain its operations. During the years ended December 31,
2008 and 2007, the Company reported losses of $ 312,682 and $402,979,
respectively. These conditions raise substantial doubt as to Pangea's ability to
continue as a going concern.
The Company developed a multi-step plan and during 2008 took actions to improve
its financial position and deal with its liquidity problems. The final steps of
the plan are still being developed, but may include additional private
placements of the Company's common stock, and efforts to raise additional debt
financing or equity offerings.
The Company's long-term viability as a going concern is dependent on certain key
factors, as follows:
- - The Company's ability to obtain adequate sources of outside financing to
support near term operations and to allow the Company to continue forward with
current strategic plans.
- - The Company's ability to locate, prove and produce from economically
viable oil and gas reserves.
- - The Company's ability to ultimately achieve adequate profitability and
cash flows to sustain continuing operations.
The consolidated financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern. In
addition, the Company acquired AvStar Aviation.
3. OIL AND GAS PROPERTIES
----------------------
Oil and gas properties consist of the following at December 31, 2008:
Oil and gas properties 307,866
Less accumulated depletion (144,008)
---------
Net oil and gas properties $ 163,878
=========
During the years ended December 31, 2008 and 2007, the Company recorded dry
hole, abandonment and impairment charges of $ 42,926 and $23,916, respectively.
At December 31, 2008, the Company has working interests in two wells.
4. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following at December 31, 2008:
Office equipment 3 to 5 years $15,594
Furniture and fixtures 3 to 5 years 2,580
-------
18,174
Less accumulated depreciation (18,174)
-------
Net property and equipment $ 0
=======
5. INCOME TAXES
------------
The Company has incurred losses since its inception and, therefore, has not been
subject to federal income taxes. As of December 31, 2008, the Company had net
operating loss ("NOL") carryforward for income tax purposes of approximately
$8,240,528 which expire in various tax years through 2027. Additionally, because
United States tax law limits the time during which NOL carryforwards may be
applied against future taxable income, the Company will, in all likelihood, be
unable to take full advantage of its NOL for federal income tax purposes should
the Company generate taxable income.
The composition of deferred tax assets and the related tax effects at December
31, 2008 are as follows:
Net operating losses $3,081,173
Less valuation allowance (3,081,173)
----------
Net deferred tax asset $ -
==========
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
OPERATING LEASE
- ---------------
The Company leased office space under a one year operating lease that expired in
March 31, 2007 for monthly rent of $763. The lease was not renewed due to
rising costs and the company continued on a month to month basis until June
2007. The Company currently maintains mail service at the location, but is
sharing offices until additional space is found. Rent expense incurred under
operating leases during the years ended December 31, 2008 and 2007 was $1,243
and $4,864, respectively.
EMPLOYMENT AGREEMENT
- --------------------
The Company has no employment agreements.
8. STOCKHOLDERS' EQUITY
--------------------
PREFERRED STOCK
- ---------------
The Company's articles of incorporation authorize the issuance of up to
10,000,000 shares of series preferred stock, with a par value of $.001 and other
characteristics determined by the Company's board of directors. As of December
31, 2008, there was no preferred stock issued or outstanding. Subsequent to
December 31, 2008, the Company issued 1,000,000 shares of its Series A Preferred
Stock.
COMMON STOCK
- ------------
During the years ended December 31, 2008 and 2007, the Company issued shares for
cash under private placements of securities and as compensation to employees and
consultants.
During 2008, Pangea:
- - .
During 2007:
- - Issued 25,080,978 shares of common stock valued at $229,440 to employees
and consultants for services.
STOCK OPTIONS
- -------------
The Company periodically issues incentive stock options to key employees,
officers, and directors to provide additional incentives to promote the success
of the Company's business and to enhance the ability to attract and retain the
services of qualified persons. The Board of Directors approves the issuance of
such options. The exercise price of an option granted is determined by the fair
market value of the stock on the date of grant.
A summary of the Company's stock option activity and related information for the
years ended December 31, 2008 and 2007 follows:
NUMBER OF WEIGHTED
SHARES AVERAGE
UNDER EXERCISE EXERCISE
OPTION PRICE PRICE
--------------------------------------
Balance outstanding at
January 1, 2006 350,000 $ 0.200-$1.000 $ 0.56
Balance outstanding at
December 31, 2006 350,000 $ 0.200-$1.000 $ 0.56
Balance outstanding at
December 31, 2007 350,000 $ 0.200-$1.000 0.56
Balance outstanding at
December 31, 2008 350,000 $ 0.200-$1.000 0.56
All outstanding stock options are exercisable at December 31, 2008. A summary
of outstanding stock options at December 31, 2008 follows:
REMAINING
NUMBER OF COMMON EXPIRATION CONTRACTED
STOCK EQUIVALENTS DATE LIFE (YEARS) EXERCISE PRICE
50,000 May 2010 2.1 $0.500
100,000 May 2010 2.1 1.000
100,000 August 2010 2.6 0.200
100,000 January 2011 2.9 0.500
--------
350,000
=========
Effective June 1, 2005, the Company adopted the 2005 Equity Compensation Plan
(the "Plan") under which stock in lieu of cash compensation awards may be
granted from time to time to employees and consultants of the Company. The Plan
allows for grants to other individuals contributing to the success of the
Company at the discretion of the Company's board of directors. The purpose of
the Plan is to provide additional incentives to promote the success of the
Company and to enhance the Company's ability to attract and retain the services
of qualified individuals. The Company has reserved 25,000,000 shares of stock
for issuance under the Plan and until 2013
There are no non-vested shares at December 31, 2008.
STOCK WARRANTS
- --------------
The Company did not grant any warrants in 2008.
STOCK WARRANTS
- --------------
A summary of the Company's stock warrant activity and related information for
the years ended December 31, 2008 and 2007 follows:
NUMBER OF WEIGHTED
SHARES AVERAGE
UNDER EXERCISE EXERCISE
WARRANT PRICE PRICE
-------------------------------------------------
Warrants outstanding at
December 31, 2007 22,589,487 $ 0.008-$3.75 0.015
Issued 9,000,000 $ 0.010-$0.015 0.014
Exercised (3,626,100) $ 0.007-$0.019 0.015
Expired (3,428,000) $ 3.75 0.016
----------
Warrants outstanding at
December 31, 2006 24,535,387 $ 0.008-$0.02 0.016
Issued 0
Exercised 0
Expired (0)
-----------
Warrants outstanding at
December 31, 2007 24,535,387 $ 0.008-$0.02 0.016
Issued 0
Exercised 0
Expired (0)
-----------
Warrants outstanding at
December 31, 2008 24,535,387 $ 0.008-$0.02 0.016
===========
All stock warrants are exercisable at December 31, 2008. A summary of
outstanding stock warrants at December 31, 2008 follows:
REMAINING
NUMBER OF COMMON CONTRACTED
STOCK EQUIVALENTS EXPIRATION LIFE EXERCISE
DATE (YEARS) PRICE
----------------------------------------------------------------
2,520,000 July 2009 1.2 0.010
800,000 September 2009 1.3 0.015
800,000 October 2009 1.4 0.010
3,600,000 December 2009 1.5 0.010
600,000 January 2010 1.6 0.010
300,000 February 2010 1.7 0.120
1,125,000 June 2010 1.9 0.008
2,000,000 January 2012 3.8 0.01
7,000,000 February 2012 3.9 0.015
---------
18,745,000
==========
7. SUPPLEMENTAL OIL AND GAS INFORMATION - UNAUDITED
== ------------------------------------------------
The following supplemental information regarding the oil and gas activities of
the Company is presented pursuant to the disclosure requirements promulgated by
the Securities and Exchange Commission ("SEC") and SFAS No. 69, Disclosures
about Oil and Gas Producing Activities ("Statement 69").
Production from one field accounted for 53% and 46% of the Company's oil and gas
sales revenues for the years ended December 31, 2008 and 2007, respectively.
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES
- ---------------------------------------------------
Set forth below is a summary of the changes in the estimated quantities of the
Company's crude oil and condensate, and gas reserves for the periods indicated,
as estimated by the Company as of December 31, 2008. All of the Company's
reserves are located within the United States. Proved reserves cannot be
measured exactly because the estimation of reserves involves numerous judgmental
determinations. Accordingly, reserve estimates must be continually revised as a
result of new information obtained from drilling and production history, new
geological and geophysical data and changes in economic conditions.
Proved reserves are estimated quantities of gas, crude oil, and condensate,
which geological and engineering data demonstrate, with reasonable certainty, to
be recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves that can be
expected to be recovered through existing wells with existing equipment and
operating methods.
OIL GAS
QUANTITY OF OIL AND GAS RESERVES (BBLS) (MCF)
Total proved reserves at December 31, 2006 75 35,743
Discoveries and Purchase Property 1,410 181
Production (147) (2,682)
Revision of previous estimates (276) (28,296)
Sales of Property - -
-------------------------
Total proved reserves at December 31, 2007 1,062 4,946
Discoveries and Purchase Property - 5,585
Production (452) (2,670)
Revision of previous estimates 153 (2,903)
Sales of Property - -
-------------------------
Total proved reserves at December 31, 2007 763 4,958
=========================
Proved developed reserves:
December 31, 2008 763 4,958
=========================
CAPITALIZED COSTS OF OIL AND GAS PRODUCING ACTIVITIES
- -----------------------------------------------------
The following table sets forth the aggregate amounts of capitalized costs
relating to the Company's oil and gas producing activities and the related
accumulated depletion as of December 31, 2008:
2008
====
Unproved properties and prospect generation costs 152,000
not being depleted
Proved properties being depleted 167,376
Less accumulated depletion (28,734)
-------
Net capitalized costs 261,908
=======
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
- --------------------------------------------------
The following table reflects the costs incurred in oil and gas property
acquisition, exploration and development activities during the years ended
December 31, 2007 and 2006:
2008 2007
==== ====
Exploration costs $ 31,768 $ -
Development costs 17,202
-----------------------------
$ 31,768 $17,202
=============================
8. SUBSEQUENT EVENTS
-----------------
The Company entered into a Share Exchange Agreement fully executed on February
20, 2009 (the "Exchange Agreement") by and between the Company and AvStar
Aviation Services, Inc. ("AvStar"), providing for the Company's acquisition of
all of the outstanding common stock in San Diego Airmotive ("SDA"), which
(through its predecessor entity) has been providing maintenance, repair and
overhaul ("MRO") services in California since 1987. In connection with this
acquisition, the Company issued to AvStar, the prior owner of SDA, 1,000,000
shares of the Company's newly-created series A preferred stock ("Series A
Preferred Stock"), which shares constitute in the aggregate approximately 92.8%
of outstanding economic interest and voting power in the Company All
descriptions of the share exchange contained herein and all references to the
terms, provisions and conditions of the Exchange Agreement are qualified in
their entirety by reference to the Exchange Agreement which was detailed in the
8-K filed on February 25, 2009.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with accountants on
accounting and financial disclosure.
16
ITEM 9A(T). CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period of this report, our principal executive and
principal financial officer carried out an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
our management, including our Chief Executive Officer and Principal Financial
Officer. We have concluded, based on that evaluation, that, as of such date, the
disclosure controls and procedures were not effective to ensure that information
required to be disclosed in reports filed or submitted under the Exchange Act is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure. Although the evaluation did not detect
any material weaknesses in the Company's system of internal accounting controls
over financial reporting, management identified significant deficiencies with
respect to the timely public reporting of events requiring such reporting. We
are instituting corrective action to ensure that such events are timely reported
publicly.
Notwithstanding management's assessment that our internal control over
financial reporting was ineffective as of December 31, 2008, and the significant
deficiencies described above, we believe that the consolidated financial
statements included in this Annual Report on Form 10-K correctly present our
financial condition, results of operations and cash flows for the fiscal years
covered thereby in all material respects.
A controls system cannot provide absolute assurance, however, that the
objectives of the controls system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
using accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance of achieving
their control objectives.
There were no adjustments at year-end and so management considers the controls
in place are adequate for the company.
Management uses a separation of function approach to insure adequate
controls. There were no material weakness identified during the preparation of
year end financial reports.
This annual report does not include an attestation report of the company's
registered public accounting firm regarding internal controls over financial
reporting. Management's report was not subject to attestation by the company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that the company to provide only management's report in
the annual report.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the fourth fiscal quarter of 2008, there were no changes in our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION.
Not applicable.
17
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
Our current directors and executive officers are as follows:
NAME AGE POSITIONS
Russell Ivy 42 Chief Executive Officer, President and
director
Gregory H. Noble 46 Vice President - Business Development, and
director
Henry A. Schulle 45 Vice President, Secretary, and director
James H. Short 66 Director
Robert Wilson 52 Vice President and Chief Financial Officer
The following is the background of our officers and director:
RUSSELL IVY. Mr. Ivy has served as President and Chief Executive Officer
of AvStar Aviation Services, Inc., the Company's operating subsidiary, since
January 2009. From January 1996 through the present, he has been a principal of
the Ivy Companies, several companies that provided various merger and
acquisition consulting services for various operating entities both private and
public. From September 2002 to May 2004, Mr. Ivy was a principal of Seafood
Anywhere, LLC., a Houston-based startup seafood distribution company supplying
various types of seafood to restaurants in the Houston, Austin, San Antonio, and
Dallas areas. He earned a Bachelors Degree in International Trade/Economics in
1991 from Texas Tech University.
GREGORY H. NOBLE. Mr. Noble has served as one of our directors and our
Vice President - Business Development since February 2009. Since March 2007 to
the present, he served in similar capacities with our subsidiary AvStar Aviation
Services, Inc. ("AvStar"). From 2003 until January 2007, Mr. Noble was Vice
President of Equity Market of Petrosearch Energy Corporation (OTCBB: PTSG), an
exploration and production company based in Houston, Texas. Mr. Noble worked in
the capital raising side with a private equity/angel group in Houston from March
2003 to June 2003. Previously, he was Public Finance Officer for Texas
Commercial Resources in Houston from February 2002 to March 2003. Prior
thereto, Mr. Noble was Senior Vice President of Investments at UBS Paine Webber,
Houston from 1998 to 2002. His previous employment included senior equity
trading positions with Sanders Morris Mundy in Houston; and Morgan Keegan in
Memphis, Tennessee. He was Vice President, OTC Trading at Dean Witter, New
York, NY and Senior Vice President, Kidder Peabody, New York, NY and Vice
President, OTC Listed and Trading at Paine Webber, New York, NY. He graduated
from the University of Vermont in 1986 with a Bachelor of Arts Degree in
Political Science.
HENRY A. SCHULLE. Mr. Schulle has served as one of our directors and our
Vice President and Secretary since February 2009. Mr. Schulle has served as
AvStar's Vice President and a member of AvStar's Board of Directors since July
2006; from July 2006 until January 2008 he also served as AvStar's President and
Chairman of the Board of Directors. Since January 8, 2004 he has served as
Chairman of the Board of Directors and a principal of Martex Trading Company, a
privately held company active in the oil and gas industry as well as real estate
investments and development. Martex Trading Company was the controlling member
of Aurora Financial Services, LLC, a FINRA-registered broker dealer that has
acted as a placement agent for AvStar. From December 2003 until July 2004 Mr.
Schulle served as a member of the Board of Directors of TexCom, Inc. (Pink
Sheets: TEXC). AvStar acquired San Diego Airmotive from TexCom, Inc. From
January 1997 to November 2003, he was President and a Director of Texas
Commercial Resources, Inc. (Pink Sheets: TCRI) from its inception as a privately
held company that merged with EZUtilities in 2001. Mr. Schulle continued as an
officer and director of Texas Commercial Resources, Inc. through its subsequent
successful combination with Petrosearch Energy Corporation (OTCBB: PTSG), a
Houston based energy company. He served as Chairman of the Board of Unicorp,
Inc., which was quoted on the OTC Bulletin Board from November 1991 until
January 1998. Mr. Schulle negotiated the merger of Unicorp, Inc. with United
States Refining Company, a diversified, vertically integrated petroleum refining
and petrochemical company that was acquired by Houston American Energy Corp. in
April 2001. From January 1998 to July 2004, Mr. Schulle was employed by Dell
Computer Corporation as a database support specialist working on international
assignments.
18
JAMES H. SHORT. Mr. Short has served as one of our directors since
February 2009. Hehas been a member of AvStar's Board of Directors since July
2006. Since December 2003 he has served as a member of the Board of Directors
of TexCom, Inc. (Pink Sheets: TEXC). AvStar acquired San Diego Airmotive from
TexCom, Inc. He also served as a member of the Board of Directors of Texas
Commercial Resources, Inc. (Pink Sheets: TCRI) from 2001 until 2003. Mr. Short
is currently a principal and Vice president of Finance & Administration for
Sabine Storage & Operations, Inc., an engineering and a consulting firm
specializing in the design, engineering, permitting, construction management,
and operations of hydrocarbon storage facilities in subsurface salt dome
formations. In addition, he is a principal and Vice President of Marketing for
Sabine Resources, Inc., a surface and mineral owner of property having
hydrocarbon storage potential in a salt dome formation. Mr. Short was
previously associated with Energy Consultants, Inc., a natural gas marketing
entity serving municipalities in South Illinois and Indiana, on an independent
contractor basis, from 1984 until 2001.From 1979 to 1984, he was Senior Vice
President and a director of Coronado Transmission Company with responsibilities
for gas acquisition, transportation, and sales throughout the Southern States
and Rocky Mountain area. Mr. Short served as Vice President of Corporate
Planning and Vice President of Gas Supply, Transportation and Sales of Lovaca
Gathering Company from 1972 to 1979. He was an employee of Cities Service Oil
Company from 1966 to 1972. Mr. Short holds a B.S. degree from the University of
Tennessee.
ROBERT WILSON. Mr. Wilson has served as our Vice President and Chief
Financial Officer since April 2008. He has also served as AvStar's Vice
President and Chief Financial Officer since July 2004. Mr. Wilson also serves
as the Chief Financial Officer and Operations Principal for several broker
dealers and investment banking firms where his duties include compliance with
FINRA, SEC and NYSE rules and regulations, the design and implementation of
accounting and operations control procedures, representing firms as an expert
witness and with FINRA examinations. He currently serves as a director and audit
committee chairman for American Security Resources, Inc. and American Enterprise
Development Corporation and as a consultant with The Professional Directors
Institute. Mr. Wilson is a CPA and has over 15 years of experience as the owner
of a certified public accounting firm, was previously a member of the FINRA
Board of Arbitrators and has several FINRA and NYSE licenses. Mr. Wilson has
previously served as operations compliance manager of the AIM Management Group,
Vice President Compliance/Internal Audit of the Kemper Securities Group and an
auditor with Price Waterhouse. Mr. Wilson is a 1977 graduate of Houston Baptist
University and pursued additional studies at Georgetown University.
Our Board of Directors has four members. Each director serves a one-year
term that expires at the following annual meeting of stockholders. Executive
officers are appointed by the Board of Directors and serve until their
successors are appointed. There are no family relationships among our directors
or executive officers.
CORPORATE GOVERNANCE
Our Board of Directors has not established any standing committees,
including an Audit Committee, Compensation Committee or a Nominating Committee.
The Board of Directors as a whole undertakes the functions of those committees.
The Board of Directors may establish one or more of these committees whenever it
believes that doing so would benefit us.
CODE OF ETHICS
We adopted a Code of Ethics for our Principal Executive and Senior
Financial Officers on February 6, 2005. Anyone can obtain a copy of the Code of
Ethics by contacting us at the following address: 3600 Gessner, Suite 220,
Houston, Texas 77063, attention: Chief Executive Officer, telephone: (281)
710-7103. The first such copy will be provided without charge.
19
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors, executive officers and persons who are the beneficial owners of
more than ten percent of our common stock (collectively, the "Reporting
Persons") to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and to furnish us with copies of these
reports. To the best of our knowledge based solely on information available to
us, the following persons have failed to file, on a timely basis, the identified
reports required by Section 16(a) of the Exchange Act during fiscal year ended
December 31, 2008: Scott Duncan failed to file three required Form 4's and a
Form 5 to correct the failure to file the Form 4's; Christopher P. Scully failed
to file one required Form 4 and a Form 5 to correct the failure to file the Form
4; and Mark Weller failed to file three required Form 4's and a Form 5 to
correct the failure to file the Form 4's.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation we paid during the fiscal
years ended December 31, 2008 and 2007 to our principal executive officer, our
principal financial officer, and any other executive officer whose total
compensation exceeded $100,000. The executive officers listed in the table
below are referred to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE (1)
STOCK
AWARDS
NAME AND PRINCIPAL POSITION YEAR ($) TOTAL ($)
- ---------------------------- -------- -------- ----------
Alan Premel, 2008 (2) 0 0
President
Charles B. Pollock, 2008 (3) 0 0
Chief Executive Officer 2007 $ 79,058 (4) $79,058
(1) The Columns designated by the Securities and Exchange Commission for the
reporting of salaries, bonuses, option awards, non-equity incentive plan
compensation, nonqualified deferred compensation earnings or all other
compensation have been eliminated as no such salaries, bonuses, awards,
compensation or earnings were made to, earned by, or paid to or with respect to
any person named in the table during any fiscal year covered by the table.
(2) Mr. Premel was elected President effective December 23, 2008, and he
served as such until December 31, 2008
(3) Mr. Pollock served as Chief Executive Officer and President until
December 23, 2008.
(4) Represents 8,459,894 shares of restricted common stock were issued in
lieu of cash salary.
The table below sets forth information pertaining to outstanding stock
awards owned by our Named Executive Officers as of December 31, 2008.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (1)
------------------------------------------------
Name Number of Number of Equity Incentive Option Option
Securities Securities Plan Awards Exercise Expira-
Underlying Underlying Number of Price tion
Unexercised Unexercised Securities ($) Date
Options Options Underlying (e) (f)
(#) (#) Unexercised
Exercisable Unexercisable Unearned Options
(b) (c) (#)
(d)
- --------------------------------------------------------------------------------
Charles B. Pollock 600,000 -0- -0- .01 7/30/2009
Chief Executive
Officer 1,800,000 .01 12/22/2009
- --------------------------------------------------------------------------------
(1) No stock awards of any kind have been granted; accordingly, the Columns
designated by the U.S. Securities and Exchange Commission for the reporting of
certain stock awards have been eliminated.
20
DIRECTOR COMPENSATION
The following table sets forth director compensation paid during the fiscal
year ended December 31, 2008(1).
STOCK AWARDS TOTAL
NAME ($) ($)
(a) (c) (h)
- --------------------------------------------------------------------------------
Edward Skaggs $1,020(2) $1,020
- --------------------------------------------------------------------------------
(1) The columns designated by the SEC for the reporting of certain fees
earned or paid in cash, option awards, non-equity incentive plan compensation,
nonqualified deferred compensation earnings or all other compensation have been
eliminated as no such awards, compensation or earnings were made to, earned by,
or paid to or with respect to any person named in the table during fiscal 2008.
(2) 300,000 shares of our restricted common stock.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The table sets forth below contains certain information as of April 16,
2009 concerning the beneficial ownership of our voting stock by each stockholder
who is known by us to own beneficially in excess of 5% of an outstanding class
of voting stock. As of April 16, 2009, none of our directors or executive
officers directly owned any shares of an outstanding class of voting stock.
Each of Russell Ivy, Henry A. Schulle, Gregory H. Noble and James H. Short are
officers and directors of AvStar Aviation Services, Inc. and thus may be deemed
to be the beneficial owners of the shares owned by such corporation, provided,
however, each of them has disclaimed beneficial ownership of such shares.
Except as otherwise indicated, all persons listed below have (i) sole
voting power and investment power with respect to their shares, except to the
extent that authority is shared by spouses under applicable law, and (ii) record
and beneficial ownership with respect to their shares. Shares not outstanding
but deemed beneficially owned by virtue of the right of a person or member of a
group to acquire them within 60 days of April 16, 2009 are treated as
outstanding only for determination of the number and percent owned by such group
or person.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
Name and Address Title of Number of % of Number of % of
of Beneficial Owner Class Shares Class Votes Total
Beneficially Votes
Owned
NON-MANAGEMENT 5%
- ------------------
STOCKHOLDERS
- ------------
AvStar Aviation Services, Inc.
3600 Gessner, Suite 220
Houston, Texas 77063 Preferred (1) 1,000,000 100% 5,000,000,000 92.8%
Mark F. Weller
9801 Westheimer, Suite 302
Houston, Texas 77042 Common 56,477,858(2) 14.3% 52,352,858 *
Charles B. Pollock
9801 Westheimer, Suite 302
Houston, Texas 77042 Common 43,662,122 (3) 11.1% 41,262,122 *
Christopher P. Scully
777 Post Oak Blvd., Suite 610
Houston, TX 77056 Common 30,000,000 7.7% 30,000,000 *
Sage Office Services
9801 Westheimer, Suite 302
Houston, Texas 77042 Common 27,500,000 7.0% 27,500,000 *
Elizabeth Pollock
9801 Westheimer, Suite 302
Houston, Texas 77042 Common 21,468,198 5.5% 21,468,198 *
21
(1) Each share of Preferred Stock is entitled to 5,000 votes.
(2) Includes 52,352,858 restricted common shares and 4,125,000 warrants that
include 1,200,000 warrants with an exercise price of $0.01 that expire July 18,
2009; 1,800,000 warrants with an exercise price of $0.01 that expire December
22, 2009 and 1,125,000 warrants with an exercise price of $0.01 that expire June
28, 2010.
(3) Includes 41,262,122 restricted common shares held directly and 2,400,000
warrants which include 600,000 warrants with an exercise price of $0.01 that
expire July 30, 2009 and 1,800,000 warrants with an exercise price of $0.01 that
expire December 22, 2009
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Except as described below, none of the following persons has any direct or
indirect material interest in any transaction to which we were or are a party
since the beginning of the last fiscal year, or in any proposed transaction to
which we propose to be a party:
(a) any of our directors or executive officers;
(b) any nominee for election as one of our directors;
(c) any person who is known by us to beneficially own,
directly or indirectly, shares carrying more than 5% of the voting rights
attached to our common stock; or
(d) any member of the immediate family (including spouse, parents,
children, siblings and in-laws) of any of the foregoing persons named in
paragraph (a), (b) or (c) above.
We had the following related party notes that became due and payable at
December 31, 2008 totaling $659,771 and related accrued interest of $98,313. We
are currently starting negotiations to satisfy these amounts.
(a) Note payable to Mary Pollock Merritt, daughter of our former chief
executive officer. This note bears interest at rates of 12% per year and became
due on December 31, 2008. This note is not collateralized. The current
outstanding balance on this note as of December 31, 2008 was $168,683.
(b) Note payable to Charles Pollock, our former chief executive officer and
a significant stockholder of ours. This note bears interest of 12% per year and
became due on December 31, 2008. This note is not collateralized. The current
outstanding balance on this note as of December 31, 2008 was $461,015.
(c) Note payable to Mark Weller, our former president and a significant
stockholder of ours. This note bears interest of 12% per year and became due on
December 31, 2008. This note is not collateralized. The current outstanding
balance on this note as of December 31, 2008 was $128,387.
22
We entered into a Share Exchange Agreement fully executed on February 20,
2009 providing for our acquisition of all of the outstanding common stock in San
Diego Airmotive ("SDA"). In connection with this acquisition, we issued to
AvStar Aviation Services, Inc. ("AvStar"), the prior owner of SDA, 1,000,000
shares of our newly-created series A preferred stock, which shares constitute in
the aggregate approximately 90% of outstanding economic interest and voting
power in us. Each of Henry A. Schulle, Gregory H. Noble and James H. Short
(each now a director of ours, and in the cases of Messrs. Schulle and Noble,
officers as well) were a director or an officer or both of AvStar prior to the
completion of this transaction. For more information about this transaction,
see "Item 1. Business - Recent Events."
INDEPENDENCE OF DIRECTORS
The rules of the American Stock Exchange (the "AMEX") generally require
that a listed company's Board of Directors be composed of a majority of
independent directors. However, these rules provide that a "smaller reporting
company" need only maintain a Board of Directors comprised of at least 50%
independent directors. Although we are not listed on the AMEX, we use the
standards established by the AMEX for determining whether or not each of our
directors is "independent." We have determined that, as of March 31, 2009, James
H. Short is an "independent" director in accordance with the AMEX independence
standards.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
During 2008 and 2007, the aggregate fees that we paid to Malone & Bailey, PC,
our independent auditors, for professional services were as follows:
YEAR ENDED DECEMBER 31,
2008 2007
---- ----
Audit Fees (1) $ 15,000 $ 43,378
Audit-Related Fees N/A N/A
Tax Fees N/A N/A
All Other Fees N/A N/A
(1) Fees for audit services include fees associated with the annual audit
and the review of our quarterly reports on Form 10-QSB.
AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE
NON-AUDIT SERVICES OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
We do not have an audit committee, but our entire Board of Directors
functions as such. Our Board of Directors pre-approves the engagement of
Malone & Bailey, PC for all audit and permissible non-audit services. Our Board
of Directors annually reviews the audit and permissible non-audit services
performed by Malone & Bailey, PC, and reviews and approves the fees charged by
Malone & Bailey, PC. Our Board of Directors has considered the role of Malone &
Bailey, PC in providing tax and audit services and other permissible non-audit
services to us and has concluded that the provision of such services was
compatible with the maintenance of Malone & Bailey, PC's independence in the
conduct of its auditing functions.
23
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are filed as part of this report.
Exhibit No. Description
- ------------ -----------
2.1 Stock Acquisition and Reorganization Agreement between us and Segway II
Corp. dated April 26, 2000 is incorporated herein by reference to our
Current Report on Form 8-K (SEC File No. 0-30503) filed with the SEC
on April 28, 2000, Exhibit 2.1.
2.2 Share Exchange Agreement by and between us and AvStar Aviation Services,
Inc. is incorporated herein by reference to our Current Report on Form
8-K (SEC File No. 0-30503) filed with the SEC on February 25,
2009, Exhibit 2.1.
3.1 Articles of Incorporation, as amended through April 28, 2000, are
incorporated herein by reference to our Current Report on Form 8-K (SEC
File No. 0-30503) filed with the SEC on April 28, 2000, Exhibit
3.1.
3.2 Articles of Amendment dated February 5, 2001 to Articles of
Incorporation is incorporated herein by reference to Amendment No. 1
(filed with the SEC on March 2, 2001) to our Registration Statement
on Form S-1 (SEC File No. 333-55220), Exhibit 3.1.
3.3 Articles of Amendment to Articles of Incorporation filed with the
Secretary of State of Colorado on October 3, 2003 - filed
herewith.
3.4 Articles of Amendment to Articles of Incorporation filed with the
Secretary of State of Colorado on July 21, 2005 - filed
herewith.
3.5 Articles of Amendment to Articles of Incorporation creating the
Company's Series A Preferred Stock is incorporated herein by reference
to our Current Report on Form 8-K (SEC File No. 0-30503) filed with the
SEC on February 25, 2009, Exhibit 3.1.
3.6 By-laws are incorporated herein by reference to our Current Report on
Form 8-K (SEC File No. 0-30503) filed with the SEC on April 28, 2000,
Exhibit 3.2.
10.1 $235,000 principal amount note dated November 22, 2006 issued by AvStar
Aviation Services, Inc. (AvStar") to TexCom, Inc. - filed
herewith.
10.2 Modification agreement regarding promissory note dated November 22,
2006 - filed herewith.
10.3 Pledge of Shares of Stock dated November 17, 2006 - filed herewith.
10.4 Hangar Sublease dated May 1, 2007 between AvStar and French Valley
Aviation, Inc. - filed herewith.
14.1 Code of Ethics is incorporated herein by reference to Annual Report on
Form 10-KSB for the year ended December 31, 2005 (SEC File No. 0-30503),
Exhibit 14.1.
21.1 Subsidiaries - filed herewith.
31.01 Sarbanes Oxley Section 302 Certifications - filed herewith
32.01 Sarbanes Oxley Section 906 Certifications - filed herewith
24
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PANGEA PETROLEUM CORP.
By: /s/ Russell Ivy
---------------
Russell Ivy
Chief Executive Officer & President
Date: May 15, 2009
In accordance with the Exchange Act, this report had been signed below by
the following persons on behalf of the registrant in the capacities and on the
dates indicated.
/s/ Russell Ivy
- -----------------
Russell Ivy
Director, Chief Executive Officer & President (Principal executive officer)
Date: May15, 2009
/s/ Henry A. Schulle
- -----------------------
Henry A. Schulle
Director
Date: May 15, 2009
/s/ Gregory H. Noble
- -----------------------
Gregory H. Noble
Director
Date: May 15, 2009
/s/ James H. Short
James H. Short
- ----------------
Director
Date: May 15, 2009
/s/ Robert Wilson
- -------------------
Robert Wilson
Vice President and Chief Financial Officer (Principal financial and accounting
officer)
Date: May 15, 2009
25