SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K Amendment Number 1

 

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

 

Date of Report: March 2, 2011

 

HUNT GLOBAL RESOURCES, INC.

(Exact name of registrant as specified in its charter)

 

         
Colorado   333-138184   51-0431963

(State or other jurisdiction

of Incorporation)

  (Commission File Number)  

(IRS Employer incorporation)

Identification Number)

 

10001 Woodloch Forest Drive, Suite 325, The Woodlands, TX 77380

(Address of Principal Executive Offices) (Zip Code)

 

281-825-5000

Registrant's telephone number, including area code

                                   

 (Former name, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

[  ]     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

[  ]     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

[  ]     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

[  ]     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 



Item 1.01     Entry into a Material Definitive Agreement.


In a Form 8-K that was filed on March 8, 2011 by Hunt Global Resources, Inc. (“Hunt” or the “Company”), we disclosed that we had closed a transaction with certain shareholders of Carbon Green NA, Inc. (“CGNA”), a private Colorado corporation, whereby we agreed to acquire CGNA stock in exchange for an equity interest in us.  CGNA was the successor company to Carbon Green, Inc.  The first closing of this transaction took place on March 2, 2011 with the signing of a definitive Share Purchase Agreement and Plan of Merger (the “SPA”).  See Item 2.01.  This filing is an update since the transaction occurred and contains financial information required within 75 days of the acquisition date.


Item 2.01     Completion of Acquisition or Disposal of Assets.


Acquisition of CGNA


On March 2, 2011, the Company entered into an acquisition agreement (the "Acquisition Agreement") to acquire 85% of the common stock of CGNA and 96% of the preferred stock of CGNA in exchange for the issuance to ten selling shareholders of CGNA 30,249,256 shares of the Company's common stock, 123,675 shares of the Company's Class A preferred stock (“Class A”) and 123,675 shares of the Company's Class B preferred stock (“Class B”), The holders of Class A have the right to convert each share of Class A for 208 shares of common stock if the common stock trades at an average price of at least $3.00 per share for 10 consecutive trading days or after a period of one year, whichever occurs first. The holders of Class B have the right to convert each share of Class B for 248 shares of common stock if  the common stock trades at an average price of $7.00 per share for 10 consecutive trading days or after a period of two years, whichever occurs first.  In addition, warrants to acquire 24,000 shares of the Company's Class A preferred stock at an exercise price of $208 a share expiring on March 2, 2016, and warrants to purchase 38,285 shares of the Company's Class B preferred stock at an exercise price of $248 a share expiring on March 2, 2016.  Under the Acquisition Agreement, CGNA became a majority-owned subsidiary of the Company.  All of these securities issuable under the Acquisition Agreement are unregistered.


Once the second closing occurs, the Company will have acquired the remaining shares of CGNA common and preferred stock on the same basis as above.  The purpose of the additional acquisition of CGNA shares is to allow the Company to acquire the remaining equity interests in CGNA, resulting in CGNA becoming the Company's wholly-owned subsidiary.  We will issue to the remaining CGNA common and preferred shareholders 5,433,041 shares of the Company's common stock and warrants to purchase 8,027,900 shares of the Company's common stock at an exercise price between $1 and $2.50 a share expiring on various dates between 2012 and 2014. In addition, CGNA will return 17,626 shares of the Company's Class A preferred stock and 6,480 shares of the Company's Class B preferred stock received in connection with the first closing.  We anticipate this closing to occur before the end of the second quarter of 2011.


The Acquisition Agreement also includes provisions for the Company to issue certain directors, employees, advisers, vendors and consultants of CGNA stock options to purchase up to 10,000,000 shares of our common stock, 9,245,000 of which have been designated at an exercise price of $1.00 per share, expiring on March 2, 2014.  These options that have been designated will not begin vesting until September 1, 2011 and will then vest in equal portions over eight quarters.  The Company will also create a stock option plan for its employees.  The plan will provide for stock option grants to purchase up to 8,000,000 shares of Hunt’s common stock.

In connection with our acquisition of CGNA, we appointed Michael P. Horne, a consultant to and shareholder of CGNA’s predecessor, as a Director of our Company effective March 8, 2011.  Mr. Horne is our Chief Financial Officer and Principal Accounting Officer.  In the near future, we may increase the number of Directors to five and appoint one other person to be named by CGNA as an additional new Director.


Pursuant to the SPA, we will be responsible for the payment of CGNA’s and its predecessor’s existing liabilities and ongoing costs.  Included herein are unaudited interim financial statements for the six month period ended December 31, 2010 and the audited financial statements for the year ended June 30, 2011.  

The acquisition of Carbon Green under the Acquisition Agreement was intended to qualify as a tax-free reorganization under the provisions of Section 368 of the Internal Revenue Code of 1986, as amended, and to be accounted for on a purchase basis.




CGNA Valuation


In conjunction with the acquisition of CGNA, we engaged Lehrer Financial Economic Services (“Lehrer”) to complete a valuation of the CGNA technology and assets.  Lehrer had previously provided a valuation for Hunt common stock and is familiar with the Hunt operations.  The purpose of the valuation of CGNA assets and technology was to assist Hunt management in determining the value of the assets acquired. Lehrer concluded that the intangible assets of CGNA had a value of $139.1 million.  We determined the fair value of current assets, property, plant and equipment and current liabilities based approximated their book value.  In addition, we have made an initial allocation of the valuation of the technology to the individual patents and licenses.  We will continue to review this allocation throughout 2011 and review for impairment at the end of each fiscal year.    Lehrer’s valuation is included herein as Exhibit 99.1.  The value of the acquisition was made based upon the value of the assets of Carbon Green acquired and, as such no goodwill was created due to the thin capitalization of Hunt.


Post-Merger Capitalization of Hunt


Prior to the acquisition of CGNA, certain shareholders of CGNA purchased 1,350,000 shares of Hunt common stock.  The purpose of the issuance of these shares was to provide Hunt working capital and funds to complete the acquisition of CGNA.   The following summarized table assumes the capitalization of the combined company after final closing resulting in the issuance of 35,682,297 shares of Hunt common stock, 106,049 shares of Class A preferred stock (each share convertible into 208 shares of Hunt common stock), 117,195 shares of Class B preferred stock (each share convertible into 248 shares of Hunt common stock), warrants to purchase 8,027,900 shares of Hunt common stock between $1.00 and $2.50 per share, warrants to purchase 18,270 shares of Class A preferred stock at $208 per share and warrants to purchase 16,935 shares of Class B preferred stock at $248 per share.  The table is presented for both basic shares outstanding and fully diluted shares outstanding.


 

 

 

 

Hunt Shares Outstanding @ April 30, 2011

 

Hunt Shares Issued to Carbon Green

 

Total Outstanding First Closing

Basic:

 

 

 

 

 

 

 

 

Common Stock

 

        40,318,670

 

     35,682,297

 

     76,000,967

 

Series A Preferred

 

        25,680,392

 

     22,058,213

 

     47,738,605

 

Series B preferred

 

        31,000,000

 

29,064,238

 

     60,064,238

 

 

Shares Outstanding

        96,999,062

 

     86,804,748

 

   183,803,810

 

Pre-merger Carbon Green Holdings in Hunt

        (1,350,000)

 

       1,350,000

 

                      -

 

 

Basic Shares Outstanding

        95,649,062

 

88,154,748

 

   183,803,810

 

 

% Ownership

52.04%

 

47.96%

 

 

Fully Diluted:

 

 

 

 

 

 

 

Common Warrants

 

        19,835,000

 

        8,027,900

 

     27,862,900

 

Preferred A Warrants (18,270 Preferred)

                           -

 

       4,992,000

 

       4,992,000

 

Preferred B Warrants (16,935 Preferred)

                           -

 

       9,994,400

 

       9,994,400

 

 

Fully Diluted Shares Outstanding

      115,484,062

 

111,169,048

 

226,653,110

 

 

 % Ownership

 

50.95%

 

49.05%

 

 


In determining whether a change in ownership occurred, Hunt management reviewed all factors associated with the acquisition of CGNA.  Under the terms of the SPA, Hunt maintains control of the board of directors and all executive management positions except the Chief Financial Officer. The corporate and primary operational offices have been moved to the Hunt corporate office location in The Woodlands, Texas. On both a basic and fully diluted basis, majority ownership is maintained by Hunt shareholders. In addition, under the terms of an agreement between Hunt and CGNA, the final issuance of shares in the second closing will result in CGNA shareholders owning less than 50% of Hunt.  The Company did not consider the stock options to purchase up to 18,000,000 shares of Hunt common stock to be granted in the future as these stock options plans are subject to stockholder approval, will require vesting periods be met and the allocation between Hunt and CGNA stockholders is expected to maintain greater than 50% ownership for non-CGNA stockholders.  Based on these and other lesser factors, we concluded that reverse merger accounting was not required and that Hunt was both the legal and accounting acquirer.  Until the second closing occurs and 100% ownership of CGNA is obtained, Hunt will report a minority interest.  The pro forma financial information included in Exhibit 99.2 are based on Hunt obtaining 100% ownership of CGNA.





Item 2.03     Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.


See Item 2.01 for details of our unregistered sale of equity securities in connection with our acquisition of CGNA.  These transactions were made in reliance upon exemptions from registration under Section 4(2) of the Securities Act or Regulation S.  The certificates to be issued for these unregistered securities will contain a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did we pay any commissions or fees to any underwriter, in this transaction. These transactions did not involve a public offering. The recipients were knowledgeable about our operations and financial condition.  The recipients had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.  The recipients were accredited investors or foreigners not living in the United States.


Item 8.01     Other Events

The Company is in default on the payment of the first quarter dividend on the Class A preferred stock.  The total amount of dividend accrued as of March 31, 2011 and subsequently unpaid was $93,086.  The Company does not intend to pay these dividends until it has been properly capitalized and/or has sustainable cash flow from operations.


Item 9.01     Financial Statements and Exhibits.

Contained herein are the audited financial statements of Hunt Global Resources, Inc. (for the years ended December 31, 2010 and 2009) and Carbon Green, Inc (for the years ended June 30, 2010 and 2009), the predecessor entity of Carbon Green NA, Inc., a Colorado corporation that was acquired by the Company, as well as the unaudited financial statements of Carbon Green, Inc. (for the six months ended December 31, 2010 and 2009).  The unaudited pro forma information reflecting the combination of Hunt and Carbon Green, Inc., the predecessor company, is included herein as Exhibit 99.2.


Financial Statement Schedules:


 

 

Description

Page

Hunt Global Resources, Inc.:

 

     Report of Independent Registered Public Accounting Firm

F-1

     Consolidated Balance Sheets as of December 31, 2010 and 2009

F-2

     Consolidated Statements of Operations for the years ended December 31, 2010 and 2009

F-3

     Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2010 and  2009

F-4

     Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009

F-5

     Notes to Consolidated Financial Statements

F-6

     Independent Auditors’ Report

F-26

     Consolidated Balance Sheets as of June 30, 2009 and 2010

F-27

     Consolidated Statements of Operations and Comprehensive Income for the years ended June 30, 2010 and 2009

F-28

     Consolidated Statements of Changes In Shareholders’ Equity for the years ended June 30, 2010 and  2009

F-29

     Consolidated Statements of Cash Flows for the years ended June 30, 2010 and 2009

F-30

     Notes to the Consolidated Financial Statements

F-31

     Interim Consolidated Balance Sheets as of December 31, 2010

F-52

     Interim Consolidated Statements of Operations and Comprehensive Income for the six months ended December 31, 2010 and 2009

F-53

     Interim Consolidated Statements of Changes in Shareholders’ Equity for the six months ended December 31, 2010

F-54

     Interim Consolidated Statements of Cash Flows for the six months ended December 31, 2010 and 2009

F-55

     Notes to Unaudited Condensed Consolidated Interim Financial Statements

F-56


Exhibits

 

 

 

Exhibit #

 

Description

99.1

 

Lehrer Financial and Economic Advisory Services Specific Market Valuation

99.2

 

Unaudited Pro Forma Combined Condensed Consolidated Financial Information


4



 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.

 

HUNT GLOBAL RESOURCES, INC.
   
By: /s/ George T. Sharp
  George T. Sharp, Chief Executive Officer and Director
   
By: /s/ Michael P. Horne
  Michael P. Horne, Chief Financial Officer,
  Principal Accounting Officer and Director
   
Date: May 18, 2011

 

 

5



 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Management of

Hunt Global Resources, Inc.

 

We have audited the accompanying consolidated balance sheets of Hunt Global Resources, Inc. and Subsidiaries (a development stage company) (the “Company”), as of December 31, 2010 and 2009, and the consolidated statements of operations, shareholders’ equity (deficit), and cash flows for the years ended December 31, 2010 and 2009, and for the period from inception, December 1, 2008, to December 31, 2010.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  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.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years ended December 31, 2010 and 2009, and for the period from inception, from December 1, 2008 to December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

 

As shown in the financial statements, the Company incurred net losses of $5,316,805 and $10,903,514 for the years ended December 31, 2010 and 2009, respectively.  At December 31, 2010, current liabilities exceed current assets by $5,069,956.  These factors, and the others discussed in Note 3, raise substantial doubt about the Company’s ability to continue as a going concern.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

 

//s// Ham, Langston & Brezina, LLP

 

Houston, Texas

April 15, 2011

 

F-1



 

 

HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
                       

 

              December 31,
              2010   2009
ASSETS                
Current assets:                
  Cash and cash equivalents       $ 1,069,473   $     5,766
  Related party receivables         29,413       58,000
  Prepaid royalties to related parties         622,986     274,246
  Prepaid expenses and other         59,074        15,000
    Total current assets         1,780,946     353,012
Property, plant and equipment, net of accumulated                
  depreciation of $142,389 and $33,838, respectively         918,047           979,134
Surface mining rights and royalty agreement         3,696,177     3,696,177
Assets held for sale         -     536,265
Other assets         25,000          13,277
      Total assets       $ 6,420,170   $ 5,577,865
                       
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current liabilities:                
  Current portion of notes payable and long-term debt       $ 4,346,704   $   3,763,600
  Notes payable to related parties         1,100,000     1,106,144
  Accounts payable, including amounts due to related                
         parties of $162,252         757,879     -
  Accrued liability to a related party         276,000          36,000
  Accrued interest payable         323,653       429,983
  Accrued dividends payable         46,666              -
    Total current liabilities         6,850,902     5,335,727
Long-term debt, net of current portion         -     120,000
      Total liabilities         6,850,902     5,455,727
Commitments and contingencies:                
Shareholders' equity (deficit):                
  Preferred stock, no par value, 1,000,000 shares authorized            
    for issuance in classes:                
    Class A convertible preferred, 125,000 shares authorized,            
      123,463  and -0- shares issued and outstanding at     2,414,139     -
      December 31, 2010 and 2009, respectively            
    Class B convertible preferred, 125,000 shares authorized,            
      125,000  and -0- shares issued and outstanding at            
      December 31, 2010 and 2009, respectively     310,642     -
  Common stock, no par value per share, 100,000,000            
    shares authorized, 37,442,453 and 84,930,121            
    shares issued and outstanding at December 31, 2010            
    and 2009, respectively         13,884,175      11,845,021 
  Loss accumulated during the development stage         (17,039,688)     (11,722,883)
      Total shareholders' equity (deficit)         (430,732)     122,138 
      Total liabilities and shareholders' equity (deficit)   $ 6,420,170    $ 5,577,865 

 

The accompanying  notes are an integral part of these consolidated financial statements.

 

F-2



HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
                       

 

                    For the Period
                    From Inception
                    December 1, 2008,
        For the Year Ended December 31,   to December 31,
        2010   2009   2010
Operating expenses:                
  Selling, general, and administrative $ 4,269,663   $ 7,799,388   $ 12,142,931
  Depreciation and amortization   108,550     33,838     142,388
    Total operating expenses   4,378,213     7,833,226     12,285,319
                       
Loss from operations during the                
  development stage   (4,378,213)     (7,833,226)       (12,285,319)
                       
Other income and (expense):                
  Interest and other income   13,555           655     14,210 
  Interest expense   (758,396)     (945,447)         (2,449,332)
  Gain (loss) on debt conversion   -     (927,981)            (927,981)
  Equity in loss of Momentum   (188,671)     (30,000)     (218,671)
  Loss on investment   (5,080)     (1,167,515)     (1,172,595)
    Total other income and (expense), net   (938,592)     (3,070,288)         (4,754,369)
                       
Net loss   (5,316,805)     (10,903,514)     (17,039,688)
                       
Preferred stock dividends   (46,666)     -     (46,666)
Net loss attributable to common stock $ (5,363,471)   $     (10,903,514)   $ (17,086,354)
                       
Net loss per common share  -                
  basic and diluted $ (0.07)   $ (0.15)      
                       
Weighted average shares outstanding -                
  basic and diluted   76,507,008     71,510,060      

 

The accompanying  notes are an integral part of these consolidated financial statements.

 

F-3

 



                               
HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

 

  Class A Preferred Stock   Class B Preferred Stock   Common Stock   Losses
Accumulated
During the
Development
   
  Shares   Amount   Shares   Amount   Shares   Amount   Stage   Total

Balance at inception,

December 1, 2008

- $ -   - $ -   4,878,000 $ - $ - $
Issuance of common stock for leasehold agreement -   -   -   -   50,146,427   91,000   -   91,000  
Issuance of common stock to compensate debt-holders -   -   -   -   2,729,845   682,056   -   682,056  
Net loss -   -   -   -   -   -   (819,369)   (819,369)
Balance at December 31, 2008 -   -   -   -   57,754,272   773,056   (819,369)   (46,313)
                               
Issuance of common stock in settlement of debt and payment of interest expense -   -   -   -   55,108   13,770   -    13,770
Common stock and warrants sold as units in a private placement -   -   -   -   2,506,000   2,506,000   -   2,506,000
Common stock and warrants issued in units in settlement of debt -   -   -   -   2,052,000   2,052,000   -   2,052,000
Common stock and warrants issued in units to consolidate and extend debt -   -   -   -   950,000   950,000   -    950,000
Issuance of common stock to amend debt -   -   -   -   200,000   200,000   -   200,000
Issuance of common stock for services -   -   -   -   21,412,741   5,350,195   -   5,350,195 
Net loss -   -   -   -   -   -   (10,903,514)   (10,903,514)
Balance at December 31, 2009 -   -   -   -   84,930,121   11,845,021   (11,722,883)   122,138
                               
Common stock issued for debt settlement -   -   -   -   370,358   193,000   -   193,000
Sale of common stock -   -   -   -   3,819,537   1,699,000   -   1,699,000
Exercise of options -   -   -   -   73,333   9,000   -   9,000
Common stock and warrants sold as units in a private placement -   -   -   -   1,728,000   1,728,000   -   1,728,000
Common stock issued for investment -   -   -   -   220,451   55,080   -   55,080
Issuance of common stock for services -   -   -   -   2,981,145   1,126,521   -   1,126,521
Exchange of Class A and Class B preferred stock for common 123,463   2,414,139   125,000   357,308    (56,680,492)   (2,771,447)   -   -
Preferred stock dividends -   -   -   (46,666)   -   -   -   (46,666)
Net loss -   -   -     -   -   (5,316,805)   (5,316,805)
Balance at December 31, 2010 123,463   $   2,414,139   125,000   $    310,642   37,442,453   $    13,884,175   $ (17,039,688)  
$  (430,732)

 


The accompanying  notes are an integral part of these consolidated financial statements.

 

F-4



 

                       
HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
                       
                    For the Period
                    From Inception,
                    December 1, 2008
        For the Year Ended December 31,   to December 31,
        2010   2009   2010
Cash flows from operating activities                
Net loss $ (5,316,805)   $ (10,903,514)   $  (17,039,688)
Adjustments to reconcile net income to                
  net cash flow from operating activities:                
  Depreciation and amortization   108,550          33,838     142,388
  Loss on investment   5,080           1,167,515     1,172,595
  Loss (gain) on debt conversion   -     927,981     927,981
  Equity in losses of Momentum   188,671     30,000     218,671
  Issuance of common stock for services   1,126,521     5,350,195     6,476,716
  Common stock issued for interest expense   -     206,885           888,941
  Investment exchanged for services   -     10,000     10,000
  Issuance of note payable for consulting   -              500,000        500,000
  Changes in operating assets and                
    liabilities, net of acquisitions:                
    Related party receivables   28,587         80,770              (29,413)
    Prepaid expenses and other   (379,537)      (271,969)     (682,060)
    Accounts payable and accrued liabilities   1,400,903     531,309     1,998,849  
Net cash used in operating activities   (2,838,030)     (2,336,990)     (5,415,020)
Cash flows from investing activities                
  Purchases of property, plant and equipment   (47,463)     (2,972)              (50,435)
  Investment in Momentum   (188,671)     -     (188,671)
  Other investments   (25,000)     -     (25,000)
  Investment in Reserve Oil Technologies   -     (46,416)              (46,416)
  Proceeds from sale of Reserve Oil Technologies   586,265     -     586,265 
Net cash used in investing activities   325,131         (49,388)     275,743
Cash flows from financing activities                
  Proceeds from notes payable   193,000     38,699     481,699 
  Payments on long term debt   (52,394)            (152,555)     (214,949)
  Proceeds from issuance of common  stock   3,436,000     2,506,000           5,942,000 
Net cash provided by financing activities   3,576,606           2,392,144     6,208,750
                       
Increase in cash and cash equivalents   1,063,707     5,766                 1,069,473
Cash and cash equivalents, beginning of period   5,766       -               -
Cash and cash equivalents, end of period $ 1,069,473   $ 5,766   $ 1,069,473
Supplemental disclosure of cash flow information:                
   Interest paid $ 355,372   $ 484,252      
   Income taxes paid $ -   $ -      

 

The accompanying  notes are an integral part of these consolidated financial statements.

 

F-5

 



 
HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.     ORGANIZATION AND NATURE OF BUSINESS

 

Hunt Global Resources, Inc.  (A Colorado corporation) and Subsidiaries (“Hunt” or the “Company”) is a Houston based development stage company focused on the production of aggregates, including sand and gravel. The Company’s business model centers on using new, “green” and more efficient extraction and processing methods to enhance profit and shareholder value. The Company has two wholly-owned Subsidiaries, Hunt Global Resources, Inc.   (A Texas Corporation) and Hunt BioSolutions, Inc. (A Texas Corporation).

 

Mining Property

 

On December 1, 2008, the Company entered into the Hunt Land and Mineral Lease Agreement (the “Mining Agreement”) and secured the surface mining rights to 350 acres of land in northwest Houston which contains high-grade sand and gravel reserves. The majority owners of the land are Jewel and Lisa Hunt (44.45%), officers and directors of the Company, and Mallie Hunt Adams (44.45%).

 

In exchange for the mining rights, the Company issued to the owners of the land 91,000,000 shares of common stock as founders’ shares valued at $91,000.  In addition, the Company assumed debt on the mining property and related accrued interest in the amount of $3,605,177.  Per the terms of the Mining Agreement, the Company will pay the land owners a royalty of 10% of the sold price of all products mined, processed, removed or manufactured and sold from the mining site.  The term of the lease is twenty years and expires on December 31, 2028 unless extended in writing by the parties to the lease.  The Company is responsible for the maintenance of the property and all property taxes during the term of the lease.  Management estimates that the land under the Mining Agreement has reserves of sand and gravel that are expected to provide production for 18 years.

 

Reverse Merger

 

On January 19, 2010, Tombstone Technologies, Inc. ("Tombstone"), a Colorado corporation, entered into a plan of merger with the Company that was completed on October 29, 2010.  Under the plan of merger, the Company's shareholders exchanged 100% of their equity interests in the Company for 94.6% of Tombstone's outstanding stock on a fully diluted,  as-converted basis. Although Tombstone was the surviving legal entity; the Company remains the financial reporting entity and the merger was treated as a recapitalization of the Company. The transaction was considered a recapitalization because, prior to the transaction, Tombstone was a public shell company with essentially no assets or operations and, upon completion of the transaction, the Company's shareholders emerged with a controlling 94.6% interest in the merged Company.

 

F-6



 

HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

When considering the merger, there were no dissenting shareholders of the Company. However, all shareholders have not tendered their shares and the Company is actively communicating with the non-tendering shareholders to effect their right to receive Tombstone shares. Subsequent to the transaction, Tombstone changed its name to match the Company's name, Hunt Global Resource, Inc.  In connection with the recapitalization, shareholders of the Company received Tombstone shares as follows:

 

      29,000,000 shares of restricted common stock to the holders of the Company's common and preferred Stock;

      125,000  shares of Class  A  convertible  preferred stock (having  a conversion ratio of one preferred share to 208 common shares) to certain holders of the Company's common stock.  The Class A has a deemed purchase price of $10.00 per share, ranks senior to common stock and all other classes of preferred stock, bear no dividends, has voting rights of two hundred eight (208) votes for each Class A share  and has a liquidation preference of $10,000 per share.  The holders of Class A have the right to convert each share of Class A for 208 shares of common stock if the Common Stock trades at an average price of at least $3.00 per share for 10 consecutive trading days or after a period of one year, whichever occurs first.

       125,000  shares of Class  B  convertible  preferred  stock (having  a conversion ratio of one preferred share to 248 common shares and a quarterly dividend of $0.56 per share) to certain “Controlling Stockholders” (Jewel Hunt, Lisa Hunt and George Sharp, through his company, Crown Financial) of the Company's common stock. The Class B includes a deemed purchase price of $10 per share, ranks senior to common stock and all other classes of preferred stock except Class A, bears a dividend of $0.56 per share on a quarterly basis commencing on January 1, 2011, has voting rights of two hundred forty eight (248) votes for each one (1) share of Class B shares and has a liquidation preference of $10,000 per share.  The holders of Class B have the right to convert each share of Class B for 248 shares of common stock if  the common stock trades at an average price of $7.00 per share for 10 consecutive trading days or after a period of two years, whichever occurs first.

     A reserve for issuance of  an additional  10,265,999 additional shares of common stock for the exercise of stock options for 1,689,999 shares of Hunt common stock that have been extended for two years and the exercise of Hunt warrants for  8,576,000 shares of Hunt common stock.

 

F-7



 

HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

At the date of the merger/ recapitalization transaction the Company's shareholders received Tombstone common shares as follows:

 

       The holders of 7,436,000 shares of the Company's preferred stock and warrants to purchase 8,576,000 shares of the Company's common stock received common stock of Tombstone on a one for one basis.  

       The holders of 142,564,001 shares of the Company's common stock received the equivalent of 82,564,000 shares of Tombstone common stock which, based on the conversion ratio, resulted in a the same effect as 1 for 1.814622 reverse split of the Company's existing common stock. The Company's common shareholders received Tombstone shares as follows:

         
    Number of
    Common Stock
    Equivalents
Common shares outstanding on the date of the merger transaction     142,564,001  
Less effect of exchange ratio     (64,000,001) 
             Tombstone common stock equivalents received     78,564,000 
Class B preferred stock received by Controlling Stockholders     (31,000,000)
             Remaining Tombstone common stock equivalents     47,564,000 
Class A preferred stock issued on a pro-rata basis based on the remaining        
  Tombstone common stock equivalents     (26,000,000)
Tombstone common stock issued on a pro-rata basis based on the      
  remaining Tombstone common stock equivalents     21,564,000 
Tombstone common stock issued to the Company’s      
  preferred shareholders on a one-for-one basis     7,436,000 
Shares of common stock of Tombstone outstanding prior to the merger     4,878,000 
  Total common shares outstanding or issuable at the date of merger       33,878,000 

 

The merger was intended to qualify as a tax-free reorganization under the provisions of Section 368 of the Internal Revenue Code of 1986, as amended, and to be accounted for on a purchase basis. The capital accounts of the Company have been adjusted on a retroactive basis to reflect the merger/recapitalization.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

In June 2009, the Financial Accounting Standards Board issued the FASB Accounting Standard Codification ™ (the “Codification” or "ASC"). The Codification becomes the single source of authoritative nongovernmental accounting standards generally accepted in the United States of America ("GAAP"), superseding existing authoritative literature. The codification establishes one level of authoritative GAAP. All other literature is considered non-authoritative. This Statement was effective beginning with our consolidated financial statements issued for the year ended December 31, 2009. As a result, references to authoritative accounting literature in our consolidated financial statement disclosures are referenced in accordance with the Codification.

 

F-8



HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

 

Principles of Consolidation

The consolidated financial statements include the accounts of Hunt and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.  

 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our significant estimates primarily relate to the assessment of warrants and debt and equity transactions and the estimated lives and methods used in determining depreciation of fixed assets. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments having maturities of three months or less at the date of purchase.

 

Equity Method Investments

The Company accounts for non-marketable investments using the equity method of accounting if the investment provides the Company with the ability to exercise significant influence over, but not control of, an investee. Significant influence generally exists with an ownership interest representing between 20% and 50% of the voting stock of an investee. Under the equity method of accounting, investments are stated at initial cost and adjusted for subsequent additional investments and the Company's proportionate share of earnings or losses and distributions. The Company currently has one equity method investee, Momentum, and we record our share of Momentum's earnings or losses in equity in losses of Momentum in the accompanying consolidated statements of operations. Where the Company's  investment balance is reduced to zero from its proportionate share of losses, as in the case of Momentum, the investments are accounted for under the cost method. Under the cost method, investments are carried at cost and adjusted only for other-than-temporary declines in fair value, distributions of earnings or additional investments.

Property, Plant and Equipment, Net

Property and equipment is recorded at original cost. Assets acquired in connection with business combinations are recorded at the assets’ fair value.  Repairs and maintenance are charged to expenses as incurred. Depreciation is computed using the straight-line method based on the estimated useful lives of assets.  This method is applied to group asset accounts, which in general have the following lives:  buildings and leasehold improvements – 15 years; machinery and equipment– 5 to 7 years; furniture, fixtures and software – 5 years; and computer hardware – 3 years.  When we retire or dispose of property, plant or equipment, we remove the related cost and accumulated depreciation from our accounts and reflect any resulting gain or loss in our consolidated statements of operations.

The recoverability of our long-lived assets and certain identifiable intangibles are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Such evaluations for impairment are significantly impacted by estimates of future prices, capital needs, economic trends in the applicable construction sector and other factors. If  such assets are considered  to be impaired, the impairment is measured by the amount by which the carrying amount of the assets exceed their fair value. Assets to be disposed of by sale are reflected at the lower of their carrying amounts, or fair values, less cost to sell.

 

 

F-9



 

HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Surface Mining Rights

 

A significant portion of our intangible assets are contractual rights in place associated with obtaining, zoning, permitting and other rights to access and extract aggregates reserves. Contractual rights in place associated with aggregates reserves are amortized using a unit-of-production method based on estimated recoverable units. Other intangible assets are amortized principally by the straight-line method.  

 

Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as described below:

 

Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Inputs that are derived principally from or corroborated by observable market data;
Level 3: Inputs that are unobservable and significant to the overall fair value measurement.

 

Stripping Costs

 

In the mining industry, the costs of removing overburden and waste materials to access mineral deposits are referred to as stripping costs.  Stripping costs incurred during the production phase are considered a cost of extracted minerals and are included as a component of inventory to be recognized in cost of sales in the same period as the revenue from the sale of the inventory.  Stripping costs incurred during the development stage of a mine (pre-production stripping) are excluded from inventory cost. Pre-production stripping costs will be expensed as incurred.

 

Other Costs

 

Costs are charged to earnings as incurred for the start-up of new plants and for normal recurring costs of mineral exploration and research and development.

 

Reclamation Costs

 

Reclamation costs resulting from the normal use of long-lived assets are recognized over the period the asset is in use only if there is a legal obligation to incur these costs upon retirement of the assets. Additionally, reclamation costs resulting from the normal use under a mineral lease are recognized over the lease term only if there is a legal obligation to incur these costs upon expiration of the lease. The obligation, which cannot be reduced by estimated offsetting cash flows, is recorded at fair value as a liability at the obligating event date and is accreted through charges to operating expenses. This fair value is also capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. If the obligation is settled for other than the carrying amount of the liability, a gain or loss is recognized on settlement.

 

In determining the fair value of the obligation, the cost for a third party to perform the legally required reclamation tasks, including a reasonable profit margin, is estimated. The estimated cost is then increased for both future estimated inflation and an estimated market risk premium related to the estimated years to settlement. Once calculated, this cost is discounted to fair value using present value techniques with a credit-adjusted, risk-free rate commensurate with the estimated years to settlement.

 

In estimating the settlement date, the current facts and conditions are evaluated to determine the most likely settlement date. If this evaluation identifies alternative estimated settlement dates, a weighted-average settlement date, considering the probabilities of each alternative, is used.

  

 

F-10



HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Reclamation obligations are reviewed at least annually for a revision to the cost or a change in the estimated settlement date. Additionally, reclamation obligations are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date. Examples of events that would trigger a change in the cost include a new reclamation law or amendment of an existing mineral lease. Examples of events that would trigger a change in the estimated settlement date include the acquisition of additional reserves or the closure of a facility.

 

Environmental Compliance

 

Environmental compliance costs are expected to include maintenance and operating costs for pollution control facilities, the cost of ongoing monitoring programs, the cost of remediation efforts and other similar costs. Although we have not incurred any significant environmental compliance expenses to date, we will expense or capitalize environmental expenditures for current operations or for future revenues consistent with our capitalization policy.

 

Costs for environmental assessment and remediation efforts will be accrued when the Company determines that a liability is probable and a reasonable estimate of the cost can be determined.  At the early stages of a remediation effort, environmental remediation liabilities are not easily quantified due to the uncertainties of varying factors. The range of an estimated remediation liability is defined and redefined as events in the remediation effort occur.

 

Earnings per share (EPS)

 

The Company reports two earnings per share numbers, basic and diluted. These are computed by dividing net earnings (loss) by the weighted-average common shares outstanding (basic) or weighted-average common shares outstanding assuming dilution (diluted).

 

All dilutive common stock equivalents are reflected in our earnings per share calculations. Anti-dilutive common stock equivalents are not included in our earnings per share calculations. The number of potentially dilutive common stock equivalents that have been excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive for the years ended December 31, 2010 and 2009, were 68,907,508 and 7,197,999, respectively. An analysis of the potentially dilutive common stock equivalents at December 31, 2010 and 2009 is as follows:

                     
              December 31,
              2010   2009
Warrants for purchase of common stock         11,270,000     6,168,000
Options for purchase of common stock         956,666     1,029,999
Preferred stock convertible to common stock         56,680,392     -
   Total common stock equivalents         68,907,508     7,197,999

 

Income Taxes

 

We use the liability method of accounting for income taxes. Under this method, we record deferred income taxes based on temporary differences between the financial reporting and tax bases of assets and liabilities and use enacted tax rates and laws that we expect will be in effect when we recover those assets or settle those liabilities, as the case may be, to measure those taxes. We record a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.

 

Fair Value of Financial Instruments

 

The carrying amounts of financial instruments including cash and cash equivalents, receivables, and payables approximated fair value because of the relatively short maturity of these instruments. The carrying values of other financial instruments approximate their respective fair values.

 

F-11



HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Share-Based Payment Arrangements

 

Compensation expense for all share-based payment awards, including employee stock options, is measured and recognized based on estimated fair values. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods, if any.

  

The fair value of stock option awards is estimated on the date of grant using an option-pricing model.  The Company uses the Black-Scholes option-pricing model (“Black-Scholes Model”) as its method of valuation for share-based awards. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company's stock price, as well as assumptions regarding a number of subjective variables.  These variables include, but are not limited to, expected stock price volatility over the term of the awards, as well as actual and projected exercise and forfeiture activity.

 

The Company follows the guidance of the Codification as described in ASC 505-50 “Equity Based Payments to Non-Employees” for transactions in which equity instruments are issued in exchange for the receipt of goods or services to non-employees. The Company accounts for the issuance of equity instruments to acquire goods and services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably measurable.

 

Recent Accounting Pronouncements

 

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), which requires additional disclosures about the various classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements and the transfers between Levels 1, 2, and 3. The disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for interim and annual reporting periods beginning after December 15, 2010. This guidance did not have a material impact on the Company's consolidated financial statements.

 

3.   GOING CONCERN CONSIDERATIONS

 

Hunt has incurred significant losses from operations since inception, has limited financial resources and a significant deficit in working capital at December 31, 2010. These factors raise substantial doubt about Hunt’s ability to continue as a going concern. Hunt’s consolidated financial statements for the year ended December 31, 2010 have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company currently has an accumulated deficit of $17,039,688 through December 31, 2010. Hunt’s ability to continue as a going concern is dependent upon its ability to develop additional sources of capital and, ultimately, achieve profitable operations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

4.    ACQUISITIONS AND DIVESTITURES

 

Reserve Oil Technologies, LLC

 

On February 27, 2009, the Company (along with four individual investors) formed Reserve Oil Technologies, LLC (the “LLC”). Under their agreement, the four investors agreed to provide a maximum of $1,000,000 in financing to the LLC (including $250,000 previously loaned to the Company) to purchase certain oil and gas leases in Bastrop County, Texas containing at least 70 previously drilled wells.  The original ownership of this LLC was to be 25% to Hunt, 10% to the managing individual investor, and 65% to the four individual investors as a group.

 

F-12



HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

ACQUISITIONS AND DIVESTITURES, continued

 

On March 1, 2009, the Company issued promissory notes to the four investors totaling $1,000,000 as guaranty for their maximum investment, including the conversion of the $250,000 in previous notes, and the four investors were issued a total of 950,000 shares of the Company's common stock along with 950,000 warrants to purchase common stock during the ensuing 4 years for $1.00 per share as a financing premium (see Note 7).

On December 15, 2009, the Company entered into agreements with the four investors to acquire the investors entire interest in the LLC and retire the outstanding $1,000,000 in notes payable with accrued interest to the four investors for the issuance of 2,052,000 shares of the Company's common stock along with 2,052,000 warrants to purchase common stock during the ensuing 4 years for $1.00 per share (see Note 7).

On December 22, 2009, the Company entered into a sales agreement for all  oil and gas leases owned by the LLC for a sales price of $1,100,000 less offsets for vendor liens, prospective vendor liens and defective leases.  The transaction funded during the first quarter of 2010 with net proceeds received by Hunt of $586,265.  The Company recorded a corresponding loss on investment of $1,167,515 in December 2009 to write down our investment in the LLC to its fair market value.

 

Momentum Biofuels, Inc.

 

On August 21, 2009, the Company entered into an agreement with Momentum Biofuels, Inc. (“Momentum”), under which the Company agreed to  acquire certain assets and assume certain liabilities, obligations and commitments of Momentum as shown in the analysis below. The assets received by the Company were Momentum's physical assets, including the biodiesel plant located in Pasadena, Texas, and all intellectual property, processes, techniques and formulas for creating biofuels and related products.

The Company also entered into a License Agreement with Momentum, which grants the Company the right  to use, improve, sublicense and commercialize the intellectual property described in the Agreement, in exchange for a 3% royalty on the gross and collected revenue received by the Company from the sale of bio-diesel and related products and from revenues received by the Company from its proposed commercial sand business. Momentum assigned its royalty rights to its parent, Momentum-Colorado, in exchange for 40,000,000 common shares of Momentum-Colorado, which was equal to approximately 39% of the issued and outstanding stock at the date of the License Agreement, to be issued to Hunt. The 40,000,000 shares are subject to a non dilution agreement.

On October 9, 2009, the Momentum transaction was consummated and on December 31, 2009, the Company received the 40,000,000 shares of common stock of Momentum described in the previous paragraph and transferred 10,000,000 shares to Crown Financial, LLC (see Note 10 below for further details). The 40,000,000 shares of Momentum common stock issued to Hunt were valued at their par value due to the doubt about Momentum’s ability to continue as a going concern as disclosed in its annual report.  During 2009, the Company recognized loss from its investment in Momentum only to the extent of its initial investment of $30,000. During 2010, the Company recognized a loss in Momentum of $188,671.  The following table summarizes the fair values of the assets acquired and the liabilities assumed under the Momentum agreement: 

    
  Estimated
  Value
Assets acquired:     
Plant  $998,000 
Plant equipment   12,000 
Investment in Momentum   40,000 
Total assets acquired  $1,050,000 
Liabilities assumed:     
Accrued interest  $45,000 
Bathgate notes payable   600,000 
Brand Energy notes payable   185,000 
Other notes payable   220,000 
Total liabilities assumed  $1,050,000 

 

 

F-13



HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

ACQUISITIONS AND DIVESTITURES, continued

 

Not shown in the analysis, the Company further agreed to assume Momentum’s commitment under a sub-lease agreement between Momentum and Brand Infrastructure and Services, Inc., including any past due rent, assessments and other charges related to the property.

 

Momentum Biofuels, Inc.

 

Summarized financial information for Momentum, assuming a 100% ownership interest, is as follows:

 

                 
        December 31,
        2010   2009
Balance Sheets            
  Current liabilities   $ 2,100,000    $   2,124,527 
  Noncurrent liabilities           120,000 
  Stockholder' deficit     (2,100,000)      (2,244,527)

 

                 
              October 9, 2009
              (Acquisition Date)
              To
        2010   December 31, 2009
Statements of Operations            
  Plant expenses   $   $ 26,891 
  General and administrative expenses     195,831        541,845 
  Loss from operations     (195,831)      (568,736)
  Net loss attributable to shareholders     (193,831)      (590,268)
  Equity in losses of Momentum     (188,671)      (30,000)

 

5.    PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consist of the following:

 

                   
          December 31,
          2010   2009
  Plant     $  998,000    $ 998,000 
  Machinery and equipment      12,000      12,000 
  Vehicles     25,000     
  Furniture and fixtures     22,464      2,972 
            1,057,464      1,012,972 
  Less accumulated depreciation     (142,389)     (33,838)
    Property, plant  and equipment, net   $ 918,047    $ 979,134 

 

Total depreciation expense for the years ended December 31, 2010 and 2009 was $108,550 and $33,838, respectively.

 

F-14



 

HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

6.    NOTES PAYABLE AND LONG-TERM DEBT, INCLUDING RELATED PARTY NOTES PAYABLE

 

Notes payable and long-term debt consists of the following:

                     
            December 31,
            2010   2009
Mortgage note payable to an individual, bearing interest of 18% per            
  year, payable on October 18, 2008, collateralized by Deed of            
  Trust and Security Agreement on real property owned by a            
  company owned by a stockholder of the Company and by            
  officers, directors and stockholders of the Company, consisting            
  in an undivided 88.89 percent interest in a tract of land            
  containing 553.735 acres in Montgomery County, Texas.   $ 2,959,354    $  2,450,000 
Mortgage note payable to a company, bearing interest of 18% per            
  year, payable on October 18, 2008, collateralized by Deed of            
  Trust and Security Agreement on real property owned by an            
  unrelated individual and by officers, directors and stockholders            
  of the Company, consisting of 6.066 acres in Montgomery            
  County, Texas.           635,000      35,000 
Mortgage note payable to a company, bearing interest of 15% per            
  year, payable on April 1, 2010, collateralized by Deed of Trust            
  and Security Agreement on real property owned by officers,            
  directors and stockholders of the Company, consisting of            
   21.676 acres in Montgomery County, Texas.        123,600      123,600 
Mortgage note payable to a company, bearing interest of 18% per            
  year, payable on April 17, 2008, collateralized by Deed of Trust            
  and Security Agreement on real property owned by officers,            
  directors and stockholders of the Company, consisting of Lot            
  13 of Carriage Hills subdivision in Montgomery County, Texas.     60,000        60,000 
Note payable to an individual for consulting services, bearing            
  interest of 8% per year, payable on December 1, 2009,            
  collateralized by personal guaranty of officers, directors and            
  stockholders of the Company.         250,000      250,000 
Note payable to a company, bearing interest of 8% per year,            
  payable January 9, 2010, collateralized by personal guaranty of            
  officers, directors and stockholders of the Company.     138,750      185,000 
Notes payable to an individual, bearing interest of 10% per year,            
   payable on May 1, 2013, unsecured.         95,000      95,000 
Note payable to an individual, bearing interest of 10% per year,            
  payable on demand, collateralized by Security Agreement            
  covering certain equipment which the Company acquired from            
  Momentum.         60,000      60,000 
Note payable to an individual, bearing interest of 10% per year,            
  payable on April 8, 2014, collateralized by Security Agreement            
  covering 250,000 shares of stock of Momentum.     25,000      20,000 
Total notes payable and long-term debt         4,346,704      3,883,600 
Less current portion         (4,346,704)     (3,763,600)
Long term debt       $   $ 120,000 

 

F-15



 

HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

6. NOTES PAYABLE AND LONG-TERM DEBT, INCLUDING RELATED PARTY NOTES PAYABLE, continued

 

Notes payable to related parties consist of the following:

                     
            December 31,
            2010   2008
                     
Notes payable to two individual stockholders, non-interest bearing,            
  payable on demand, unsecured.       $ -   $ 6,144
Notes payable to fourteen stockholders of Momentum assembled by an            
  investment banking company, bearing interest of 10% per year,            
  payable on December 31, 2010, collateralized by a Security            
  Agreement covering all property, plant and equipment, and other            
  assets which the Company acquired from Momentum     600,000     600,000
Note payable to a company controlled by an officer of the Company            
  for financial and management consulting services, bearing            
  interest of 8% per year, payable on January 1, 2010, unsecured.     500,000     500,000
Notes payable to related parties       $ 1,100,000   $ 1,106,144

 

The Company was in default on $5,446,704 and $3,395,000 of the total notes payable balance as a result of being past due on payments as of December 31, 2010 and 2009, respectively.

 

Following is analysis of the contractual future annual maturities of notes payable and long-term debt, including related party notes payable, at December 31, 2010: 

             
Year ending December 31,     Amount
           
2011     $ 5,326,704
2012       -
2013       95,000
2014       25,000
        $ 5,446,704

 

7.    SHAREHOLDERS’ EQUITY

 

All share amounts and characteristics presented in these consolidated financial statements have been adjusted on a retroactive basis to reflect the recapitalization transaction with Tombstone as described in Note 1.  The primary effects of this transaction were as follows:

 

      The common share exchange ratio for Tombstone shares had the impact of a 1 for 1.814622 reverse split of the Company's existing common stock.

      The Company's existing preferred stock was exchanged for Tombstone common stock on a one for one basis and accordingly, the consolidated statements of shareholders' equity does not present preferred stock until new preferred shares were issued by Tombstone at the October 29, 2010 recapitalization date.

      Tombstone shares, both common and preferred are no par value shares and, accordingly, amounts previously presented in additional paid-in capital are included in the share value in the consolidated statement of shareholders' equity.

      Options and warrants of both Tombstone and the Company that were outstanding at the date of the recapitalization remain outstanding without adjustment after the recapitalization.

      Tombstone shares outstanding at the date of the recapitalization are considered to be outstanding in all periods presented.

 

F-16



HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

7. SHAREHOLDERS’ EQUITY, continued

Common Stock

Presented below is an analysis of common stock activity during the years ended December 31, 2010 and 2009:

                     
        Shares Issued   Per Share Value   Total Value
2008 Share Issuances                
  Acquisition of mining lease, with shares                  
    valued based on estimated predecessor                
    Cost (1) 50,146,427   $ 0.00   $ 91,000
  Interest to debt-holders (2) 2,729,845     0.25     682,056
                     
2009 Share Issuances                
  Issuance of common stock in settlement of                
    debt (2) 27,554     0.25     6,885
  Issuance of common stock in settlement of                
    accrued interest (2) 27,554     0.25     6,885
  Sale of common stock and warrants in units                
    in a private placement (3) 2,506,000     1.00     2,506,000
  Issuance of common stock with warrants in                
    units in settlement of debt (4) 2,052,000     1.00     2,052,000
  Issuance of common stock with warrants in                
    units to extend and consolidate debt (4) 950,000     1.00     950,000
  Issuance of common stock with warrants in                
    units for debt amendment (4) 200,000     1.00     200,000
  Issuance of common stock for services (2) 21,412.741     0.25     5,350,195
                     
2010 Share Issuances                
  Issuance of common stock in settlement of                
    debt (5) 370,358     0.45  -  0.91     193,000
  Sale of common stock in a private placement (6) 3,819,537     0.25  -  1.00     1,699,000
  Sale of common stock and warrants in units                
    in a private placement (3) 1,728,000     1.00     1,728,000
  Issuance of common stock for an investment (2) 220,451     0.25     55,080
  Issuance of common stock for services (7) 2,981,145     0.25  -  1.30     1,126,521
  Issuance of common stock upon exercise of                
    options (6) 73,333     0.10  -  0.20     9,000

 

(1)   These shares were issued to the three property owners of the sand and gravel mining land that forms the basis of the Company's Mining Agreement (see Note 1). The value of the shares issued to the property owners was recorded at $91,000, which approximates the owners historic cost in the property under lease.

(2)    The value assigned to these shares was based on a valuation of the Company at June 30, 2010, adjusted for changes during period from the valuation date through December 31, 2010 and after consideration of the value of preferred shares and warrants sold for cash as described in (3) below.  The actual number of shares and value of these shares have been adjusted on a retroactive basis for the share exchange that occurred in connection with the October 29, 2010 recapitalization transaction with Tombstone (see Note 1).

(3)   These shares were recorded based on actual cash proceed received. These units were, at the time of the sales, preferred shares with detachable warrants for a similar number of common shares that were exercisable for a period of 2 to 4 years at a price of $1.00 per share.   Preferred shares were exchanged for common shares on a one for one basis in the recapitalization transaction with Tombstone that closed on October 29, 2010 (see Note 1). The warrants for common shares remained exercisable for the same number of pre-recapitalization shares subsequent to the recapitalization transaction.

(4)  These shares were valued based on the cash proceeds received in cash sales of  similar units as described in (3) above.

(5)   These shares were valued based on the cash proceeds received in cash sales of common stock near the time of the debt conversions.

(6)   These shares were recorded based on actual cash proceeds received.

(7)   These shares were value in two ways as follows: (i) based on the cash proceeds received in cash sales of common stock near the time of the service awards, and (ii) based on a valuation of the Company at June 30, 2010, adjusted for changes during the period from the valuation date through December 31, 2010 and after consideration of the value of preferred shares and warrants sold for cash as described in (3) below. The actual number of shares and value of these shares have been adjusted on a retroactive basis for the share exchange that occurred in connection with the October 29, 2010 recapitalization transaction with Tombstone (see Note 1).

 

F-17



 

HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

On January 31, 2011, the shareholders of the Company approved an increase in the authorized shares from 100,000,000 to 500,000,000.

 

SHAREHOLDERS’ EQUITY, continued

Preferred Stock

 

At the date of the recapitalization, Tombstone issued two classes of preferred stock in exchange for a portion of the Company's common stock as follows:

 

       123,463  shares of Class  A  convertible  preferred stock (having  a conversion ratio of one preferred share to 208 common shares) were exchanged on a pro-rata basis for 25,680,304 shares of the Company's common stock to all holders of the Company's common stock.  The Class A has a deemed purchase price of $10.00 per share, ranks senior to common stock and all other classes of preferred stock, bears no dividends, has voting rights of two hundred eight (208) votes for each one (1) Class A share  and has a liquidation preference of $10,000 per share.  The holders of Class A have the right to convert each share of Class A into 208 shares of common stock if the common stock trades at an average price of at least $3.00 per share for 10 consecutive trading days or after a period of one year, whichever occurs first.

       125,000  shares of Class  B  convertible  preferred  stock (having  a conversion ratio of one preferred share to 248 common shares and a quarterly dividend of $0.56 per share) were exchanged for 31,000,000 shares of the Company's common stock held by certain “Controlling Stockholders” (Jewel Hunt, Lisa Hunt and George Sharp, through his company, Crown Financial) of the Company's common stock. The Class B includes a deemed purchase price of $10 per share, ranks senior to common stock and all other classes of preferred stock except Class A, bears a dividend of $0.56 per share on a quarterly basis commencing on January 1, 2011, has voting rights of two hundred forty eight (248) votes for each one (1) share of Class B shares and has a liquidation preference of $10,000 per share.  The holders of Class B have the right to convert each share of Class B into 248 shares of common stock if  the common stock trades at an average price of $7.00 per share for 10 consecutive trading days or after a period of two years, whichever occurs first.

 

Warrants

 

A summary of warrant activity for the years ended December 31, 2010 and 2009 follows:

 

                         
                  Weighted-      
            Weighted-   Average   Aggregate
        Shares   Average   Remaining    Intrinsic
        Underlying    Exercise   Contractual   Value
Description   Warrants   Price   Term (in years)   (In-The-Money)
                         
Outstanding at December 31, 2008   2,390,000    $ 3.77   1.2   $ 1,614,000 
                         
  Issued in private placements   2,506,000      1.00   2.0     5,012,000 
  Issued in debt settlement   2,052,000      1.00   4.0     4,104,000 
  Issued as note premium   950,000      1.00   4.0     1,900,000 
  Expired   (1,730,000)     5.00   -    
Outstanding at December 31, 2009   6,168,000      0.95   2.9     12,630,000 
                         
  Issued in private placements   5,762,000      0.89   2.0     12,750,500 
  Expired   (660,000)     0.55   -     (1,614,000)
Outstanding at December 31, 2010   11,270,000    $ 0.94   1.9   $ 23,766,500 
Exercisable at December 31, 2010   11,270,000    $ 0.94   1.9   $ 23,766,500 

 

 

F-18



 

HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

7. SHAREHOLDERS’ EQUITY, continued

The following summarizes outstanding warrants and their respective exercise prices at December 31, 2010:

Description  

 

Shares Underlying
Warrants

   

 

Exercise
Price

 

 

 

Date of Expiration

 

Remaining Contractual

Term (in years)

 

 

Intrinsic
Value

Warrants   30,000   $ 1.00     July 2011   0.5   $ 60,000
Warrants   10,000     1.00     August 2011   0.3     20,000
Warrants   2,466,000     1.00     December 2011   1.0     4,932,000
Cashless Warrants   150,000     0.55     December 2011   1.0     367,500
Warrants   50,000     1.00     January 2012   1.0     100,000
Warrants   555,000     1.00     February 2012   1.2     1,110,000
Warrants   8,000     1.00     April 2012   1.3     16,000
Warrants   1,060,000     1.00     May 2012   1.4     2,120,000
Warrants   600,000     1.00     July 2012   1.6     1,200,000
Warrants   5,000     1.00     August 2012   1.7     10,000
Warrants   300,000     0.55     August 2012   1.7     735,000
Warrants   60,000     0.60     August 2012   1.7     144,000
Cashless Warrants   840,000     1.00     September 2012   1.7     1,680,000
Warrants   2,000,000     0.50     December 2012   2.0     5,000,000
Warrants   134,000     1.00     December 2012   2.0     268,000
Warrants   2,052,000     1.00     November 2013   2.9     4,104,000
Warrants   950,000     1.00     December 2013   3.0     1,900,000
        11,270,000                   $ 23,766,500

Stock Options

A summary of option activity for the years ended December 31, 2010 and 2009 follows:

                           
        Shares   Weighted   Weighted Average   Aggregate
        Underlying   Average   Remaining Contractual   Intrinsic Value
Description   Options   Exercise Price   Term (in years)   (In-The-Money)
Outstanding at December 31, 2008   900,000   $ 0.65  -  1.50   3.33   $ 1,935,832
  Granted   129,999     0.10  - 0.20   3.00     370,330
Outstanding at December 31, 2009   1,029,999     0.95   2.33     2,306,162
  Exercised   (73,333)     0.10  -  0.20   -     (159,331)
Outstanding at December 31, 2010   956,666   $ 0.76   1.33   $ 2,146,831 
Exercisable at December 31, 2010   956,666   $ 0.76   1.33   $ 2,146,831

 

The following summarizes outstanding options and their respective exercise prices at December 31, 2010:

 

                             
        Shares             Remaining   Aggregate
        Underlying     Exercise   Date of   Contractual   Intrinsic
Description   Options     Price   Expiration   Term (in years)   Value
Options   6,666   $ 0.10   August 2012   1.33   $ 19,331
Options           50,000     0.20   August 2012   1.33     140,000
Options         150,000     0.55   August 2012   1.33     367,500
Options   375,000     0.65   August 2012   1.33     881.250
Options        155,000     0.75   August 2012   1.33     348,750
Options         70,000     1.00   August 2012   1.33     140,000
Options        100,000     1.25   August 2012   1.33     175,000
Options         50,000     1.50   August 2012   1.33     75,000
        956,666                 $ 2,146,831

 

F-19



HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8.     INCOME TAXES

 

There is no current or deferred tax expense for the years ended December 31, 2010 and 2009 due to the Company’s loss position. The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized, as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income. Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes and has recorded a valuation allowance against all deferred tax assets at December 31, 2010 and 2009. The income tax effect of temporary differences comprising deferred tax assets and liabilities are summarized as follows: 

             
    December 31,
    2010   2009
Net operating loss carryforward   $ 2,221,900    $ 1,066,614 
Charitable contribution carryover     3,220     
Book versus  tax basis of property, plant and equipment     (10,682)     (2,216)
Prepaid royalty expense     (207,055)     (93,254)
      2,007,383      971,144 
Valuation allowance     (2,007,383)     (971,144)
       Net deferred tax assets   $ -   $ -

 

The Company has available net operating loss carryforwards of approximately $6,535,000 for tax purposes to offset future taxable income which expire in 2028 to 2030. The tax years 2008 to 2010 remain open to examination by federal authorities and other jurisdictions in which the company operates and is subject to taxation.

 

A reconciliation between the statutory federal income tax rate of 34% and the effective rate of income tax expense is as follows:

                     
            For the Year Ended  December 31,
            2010   2009
Tax benefit at federal statutory rate       $ 1,771,799    $ 3,707,195 
Non-deductable stock based compensation         (380,091)     (1,819,077)
Non-deductable business meals and entertainment       (8,473)     (6,073)
Non-deductable interest expense             (72,682)
Non-deductible (gain)  loss on investment and debt conversion     32,375      (697,680)
Non-deductible transaction costs         (169,289)    
Miscellaneous non deductible items             (188,888)
Non-deductible loss on equity investment             2,216 
Change in valuation allowance         (1,036,239)     (925,011)
       Provision for income taxes       $ -   $ -

 

9.    OPERATING LEASES

 

The Company leases certain equipment, office and manufacturing facilities under operating lease arrangements. At December 31, 2010, future annual minimum lease payments due under non-cancelable operating leases were as follows:

    
Year ending December 31,  Amount
2011  $412,307 
2012   161,211 
   $573,518 

 

The total rent expense under operating lease arrangements was $227,204 and $271,675 for the years ended December 31, 2010 and 2009, respectively.

 

F-20



HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

10.  RELATED PARTY TRANSACTIONS

 

During the years ended December 31, 2010 and 2009, the Company engaged in certain related party transactions. These transactions were approved by the Company's board of directors and management and are described below:

 

Jewel Hunt is the Chairman of the Board of Directors of the Company and his wife is a member of the board and the Company's secretary (collectively, the “Hunts”).  The Hunts are also the founders and primary shareholders of the Company and the primary owners of 350 acres of land in northwest Houston containing sand and gravel reserves to which the Company has obtained surface mining rights.

 

On December 1, 2008, the Company approved the acquisition of the surface mining rights discussed in the previous paragraph in exchange for the issuance of 50,146,427 shares of common stock to the Hunts and the assumption of debts totaling $3,605,177. The surface mining rights were valued based on the historical cost of the underlying property to the Hunts less the debt assumed by the Company.  The value was estimated to be approximately $91,000 as the property has been in the Hunt family for over a century.

 

The surface mining rights agreement provides for the payment of a royalty to the Hunts equal to 10 percent of the sales price of all products mined, processed, removed or manufactured and sold from the property. On December 1, 2008, the Company's board of directors approved the prepayment of royalties to the Hunts, not to exceed $450,000 per year. The Company made advanced or prepaid royalty payments to the Hunts of $348,740 and $274,246 during the years ended December 31, 2010 and 2009, respectively. Advances or prepaid royalty payments are included in prepaid royalties to related parties in the accompanying consolidated balance sheet.

 

The Hunts maintain an office in their home that is used for Company business. This office houses certain computer equipment used by the Company and is located near the property subject to surface mining rights. On December 1, 2008, the Company approved monthly rent and utility payments to the Hunts of $9,000 per month for this space. Rent and utilities expense recognized by the Company related to this home office was $108,000 during each of the years ended December 31, 2010 and 2009.

 

In December 2008, $250,000 received from the issuance of debt was deposited into a checking account of Jewel Hunt, the Company's Chairman of the Board.  These funds were used for operating expenses of the Company, with the remaining balance classified as a related party receivable at December 31, 2008. The balance of the funds were used for operating expenses of the Company in 2009.

 

On August 21, 2009, the Company entered into an agreement with Momentum Biofuels, Inc. (“Momentum”), under which the Company agreed to acquire certain assets and assume certain liabilities, obligations and commitments of Momentum.  On October 9, 2009, the Momentum transaction was consummated and on December 31, 2009, the Company received 40,000,000 shares of Momentum common stock and became a 39% owner of Momentum.  The Momentum transaction is described in Note 4 and resulted in the following:

 

       George Sharp, the Company's Chief Executive Officer and a member of the Company's Board of Directors, became the Chief Executive Officer and Chairman of the Board of Directors of Momentum.  

       Jewel Hunt, the Company's Chairman of the Board of Directors, became a member of the Board of Directors of Momentum.

       The Company transferred 10,000,000 shares of Momentum to a company controlled by George Sharp, Crown Financial, LLC ("Crown"), for consulting services. In connection with the transfer, the Company recognized $10,000 of expense, included in selling, general and administrative expenses in the accompanying consolidated statements of operations, based on the estimated value of the Momentum shares.  

 

Included in the payment of selling, general and administrative expenses in the accompanying consolidated statements of operations were amounts paid to the Hunts, George Sharp and Crown for compensation as follows:

 

F-21



HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

10. RELATED PARTY TRANSACTIONS, continued 

             

 

December 31,
    2010   2009
George Sharp for cash compensation   $ 216,000   $ 119,000
George Sharp for stock compensation     137,700     1,459,620
The Hunts for rent,  utilities and other     108,000     108,306
Crown for compensation     240,000     36,000
Crown for compensation in the form of Momentum stock     -     10,000
    $ 677,200   $ 1,732,926

 

On October 5, 2009, the Company entered into a service agreement that included a note payable to Crown whereby the Company will pay Crown a total of $500,000 plus interest at the rate of 8% until paid in full for past executive and advisory services, including equity and debt funding (See Note 6).  The Company further agreed to compensate Crown for services during the period  October 1, 2009 through December 31, 2012 as follows: 

           
        Amount
October through December 2009   $ 36,000
Year ending December 31, 2010     240,000
Year ending December 31, 2011     360,000
Year ending December 31, 2012     600,000
Total due under the agreement   $ 1,236,000

 

The service agreement with Crown is non cancelable and is fully collateralized by Hunt assets. All payments due under this agreement  are due semi-monthly. If payments are not paid within ten days of the date due or if the Company elects to terminate the agreement for any reason, all payments due under the contract will be accelerated and immediately payable in full. Further, the Company waived all notice in the event of foreclosure notices on assets. At December 31, 2010 and 2009, the amount due to Crown for services provided during the period from October 2009 to December 2010 was $276,000 and $36,000, respectively, which is included in accrued liability to a related party in the accompanying consolidated balance sheets.  

 

In addition to services provided through Crown, in 2009, George Sharp was awarded 5,841,181 shares of the Company's common stock for services performed. These shares were valued at approximately $0.25 per share as described in Note 7. Included in selling, general and administrative expenses for the year ended December 31, 2009 was expense of $1,459,620 related to this share issuance. In 2010, Mr. Sharp was awarded 551,186 shares of Company’s the common stock for services performed. These shares were valued at approximately $0.25 per share as described in Note 7. Included in selling, general and administrative expenses for the year ended December 31, 2010 was expense of $137,770 related to this share issuance.

 

George Sharp is the owner and primary officer of a start-up company, US Med Alerts. During 2010 and 2009, the Company loaned US Med Alerts $206,000 and $0, respectively, which was principally used to pay his step-daughter for consulting services provided to the Company. These loans were recognized as compensation expense in 2010. Mr. Sharp is also a shareholder and the primary officer in Momentum.  During 2010 and 2009, the company advanced $188,671 and $3,000 to Momentum, was for payment of advanced royalties.  These funds were used to fund Momentum’s operations as it has no revenues.  During 2010, the Company deemed these advances uncollectible and wrote them off as a loss on its equity investment.

 

11. NON-CASH INVESTING AND FINANCING ACTIVITIES

                 
        For the Year Ended December 31,
        2010   2009
Preferred stock  dividend accrued   $ 46,666   $ -
Common stock issued for satisfaction of debt     193,000     2,052,000
Debt assumed for mining rights     -     3,605,177
Investment acquired for common stock     50,000     -
Accrued interest transferred to note balance     509,354     -

 

F-22



HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

12.  SUBSEQUENT EVENTS

 

Carbon Green N.A., Inc. (CGNA) Acquisition

 

On March 2, 2011, the first closing, the Company entered into an acquisition agreement (the "Acquisition Agreement") to acquire approximately 85% of the common stock of CGNA and 95% of the preferred stock of CGNA in exchange for the issuance to ten selling shareholders of CGNA 30,249,256 shares of the Company's common stock, 123,675 shares of the Company's Class A preferred stock, 123,675 shares of the Company's Class B preferred stock, 24,000 warrants to acquire shares of the Company's Class A preferred stock at an exercise price of $208 a share expiring on March 2, 2016, and 38,285 warrants to purchase share of the Company's Class B preferred stock at an exercise price of $248 a share expiring on March 2, 2016.  Under the Acquisition Agreement, CGNA will become a  majority-owned subsidiary of the Company.  At the second closing, expected to occur on or before April 8, 2011, a physical exchange of securities will occur.  

 

Under the Acquisition Agreement the Company also agreed to issue to the remaining eligible shareholders of CGNA offers to acquire their CGNA stock on the same basis as above and to cause CGNA to enter into a merger during the next 90 days. Once the second closing occurs, the Company will have acquired the remaining shares of CGNA common and preferred stock on the same basis as above.  The purpose of the additional acquisition of CGNA shares is to allow the Company to acquire the remaining equity interests in CGNA, resulting in CGNA becoming the Company's wholly-owned subsidiary.  We will issue to the remaining CGNA common and preferred shareholders 5,433,041 shares of the Company's common stock and warrants to purchase 8,027,900 shares of the Company's common stock at an exercise price between $1 and $2.50 a share expiring on various dates between 2012 and 2014. In addition, CGNA will return 17,626 shares of the Company's Class A preferred stock and 6,480 shares of the Company's Class B preferred stock received in connection with the first closing. We anticipate this closing to occur before the end of the second quarter of 2011.

 

The Acquisition Agreement also includes provisions for the Company to issue certain directors, employees, advisers, vendors and consultants of CGNA up to 10,000,000 options (9,245,000 of which have been designated) to purchase shares of the Company's common stock at an exercise price of $1.00 per share, expiring on March 2, 2014.  These options will not begin vesting until September 1, 2011 and will then vest in equal portions over eight quarters.  

 

The CGNA assets that we acquired under the Acquisition Agreement include an operating tire recycling plant, license agreements and 189 worldwide patents for a method of recycling 100% of scrap tires with a near zero carbon footprint (the “Carbon Green System”).  The Carbon Green System was created during a five year timeframe that was devoted to developing, testing, patenting and building a fully operational system that breaks down, separates and recycles 100% of scrap tires into reusable materials. The operating plant, located in the nation of Cyprus, is currently the world’s largest commercially operating “pyrolysis” plant.  Under the Acquisition Agreement the Company will also assume existing license agreements that call for the Company to receive $2 million dollars per year for five years beginning 2011 from licensees (who would otherwise forfeit licenses), and additional royalties projected to be $60 million by year end 2011, if sales and construction goals are met by licensees.  It is The Company's intention to build ten tire recycling plants in North America during the next five years to address the growing environmental problems caused by hundreds of millions of waste tires annually .

 

Pursuant to the SPA, we will be responsible for the payment of CGNA’s and its predecessor’s existing liabilities and ongoing costs.  These amounts have not been quantified at this time.  The acquisition of Carbon Green under the Acquisition Agreement was intended to qualify as a tax-free reorganization under the provisions of Section 368 of the Internal Revenue Code of 1986, as amended, and to be accounted for on a purchase basis.

 

The accompanying pro forma condensed consolidated financial statements are unaudited and illustrate the effect of Hunt’s acquisition (“Pro Forma”) of Carbon Green. The pro forma condensed consolidated balance sheet as of December 31, 2010 is based on the historical balance sheets of Hunt and Carbon Green as of those dates and assumes the acquisition took place on that date. The pro forma condensed consolidated statements of operations for the year ended December 31, 2010 are based on the historical statements of operations of Hunt and Carbon Green for that period. The pro forma condensed consolidated statements of operations assume the acquisition took place on January 1, 2010.

 

F-23



 

HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

12. SUBSEQUENT EVENTS, continued

Carbon Green N.A., Inc. (CGNA) Acquisition, continued

 

The pro forma condensed consolidated financial statements may not be indicative of the actual results of the acquisition. In particular, the pro forma condensed consolidated financial statements are based on management’s current estimate of the allocation of the purchase price, the actual allocation of which may differ.  The accompanying pro forma condensed consolidated financial statements should be read in connection with the historical financial statements of Hunt and Carbon Green, including the related notes, and other financial information included in filing. 

                                 
HUNT GLOBAL RESOURCES, INC.
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2010
          Pro Forma Adjustments    
  Carbon Green   Hunt   Debit   Credit  

Pro Forma

Consolidated

ASSETS                            
Current assets                            
  Cash and short term investments $ 411,952   $ 1,069,473   $   $     $ 1,481,424
  Marketable securities   181,459     -               181,459
  Related party receivables   984,689     29,413               1,014,102
  Accounts receivable   177,181     -                 177,181
  Inventory   232,727     -                 232,727
  Prepaid royalties to related parties   -     622,986                 622,986
  Prepaid rent and other   124,502     59,074                 183,576
    Total current assets   2,112,510     1,780,946                 3,893,456
                                 
Property and equipment, net   10,593,660     918,047                 11,511,707
Surface mining rights   -     3,696,177                 3,696,177
Intangible assets, net   6,717,034      -     132,382,966 [2]         139,100,000
Deposits and other assets   -     25,000                 25,000
 Total assets $ 19,423,204   $ 6,420,170   $ 132,382,966   $ -   $ 158,226,340
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                    
Current liabilities                            
  Accounts payable $ 2,797,373   $ 757,879   $     $     $ 3,555,252
  Accrued expenses/other liabilities   476,194     646,319                 1,122,513
  Payables to related parties   1,429,536     1,100,000                 2,529,536
  Due to shareholders   1,900,000     -                 1,900,000
  Current portion of long term debt   544,277     4,346,704                 4,890,981
    Total  current liabilities   7,147,380     6,850,902                 13,998,282
Stockholders' equity (deficit)                            
  Class A preferred stock   -     2,414,139           3,445,399 [1]    
                        37,371,711 [2]   43,231,249
  Class B preferred stock   -     310,642           3,716,344 [1]    
                        40,310,613 [2]   44,337,599
  Common stock   71,082     13,884,175           5,042,999 [1]    
                        54,700,642 [2]   73,698,898
  Additional paid in capital   52,658,188     -     52,658,188 [1]          
  Accumulated deficit   (38,983,622)     (17,039,688)           38,983,622 [1]   (17,039,688)
  Accumulated other comprehensive income   (1,469,824)                 1,469,824 [1]   -
 Total stockholders' equity (deficit)   12,275,824     (430,732)     52,946,763     185,041,154     144,228,058
Total liabilities and                            
     stockholders' equity $ 19,423,204   $ 6,420,170   $ 52,946,763   $ 185,041,154   $ 158,226,340

 

See pro forma adjustments for explanation of [1] to [3].

 

F-24



HUNT GLOBAL RESOURCES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

12. SUBSEQUENT EVENTS, continued

Carbon Green N.A., Inc. (CGNA) Acquisition, continued 

 

  HUNT GLOBAL RESOURCES, INC.  
  PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)  
  FOR THE YEAR ENDED DECEMBER 31, 2010  
                Pro Forma Adjustments   Pro Forma  
        Carbon Green   Hunt   Debit   Credit   Consolidated  
  Sales $ 251,223   $      -   $ -   $ -   $ 251,223  
  Cost of sales   1,046,228      -     -     -     1,046,228  
    Gross profit   (795,170)           -     -     -     (795,160)  
                      -              
  General and administrative expenses   10,448,207     4,269,663     -     -     14,612,293  
  Depreciation and amortization   1,280,188     108,550     13,239,167  [3]   -     14,627,905  
    Loss from continuing operations   (12,523,565)     (4,378,213)     -     -     (30,035,368)  
  Other income and (expense):                              
    Interest expense   -     (758,396)     -     -     (758,395)  
    Interest income   3,128     13,555     -     -     16,683  
    Loss on debt conversion   (64,191)     -     -     -     (64,191)  
    Loss on investments   (42,632)     (193,751)     -     -     (236,329)  
      Net loss   (12,627,260)     (5,316,805)     -     -     (31,077,601)  
  Preferred stock dividends   -        (46,666)     288,575 [4]   -     (335,241)  
      Net loss attributable to common $ (12,627,260)   $ (5,363,471)   $ 13,527,742   $ -   $ (31,412,842)  
  Loss per common share       $ (0.07)     -     -   $ (0.28)  
  Weighted average number of common shares outstanding     76,507,008     35,682,297 [5]   -     112,189,305  
                                     

 See pro forma adjustments for explanation of [3] and [4]. 

                       
  PRO FORMA ADJUSTMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31,2010  
          Debit   Credit    
  Pro Forma Adjustment 1  
    Additional paid in capital $   52,658,188   $ $                   -    
        Class A Preferred Stock   -     3,445,399    
        Class B Preferred Stock   -     3,716,344    
        Common stock   -     5,042,999    
        Accumulated deficit   -     38,983,622    
        Accumulated other comprehensive income   -     1,469,824    
          $   52,658,188   $  52,658,199    
   To eliminate the capital accounts of Carbon Green at December 31, 2010, the balance sheet date.  
  Pro Forma Adjustment 2  
    Intangible assets, net $ 132,382,966   $                   -    
        Class A Preferred Stock   -     37,371,711    
        Class B Preferred Stock   -     40,310,613    
        Common stock   -     54,700,642    
            $ 132,382,966     $ 132,382,966    
  To record the effects of the acquisition of Carbon Green as if it occurred on December 31, 2010, the balance sheet date.  
    Pro Forma Adjustment 3              
  Amortization of intangibles   $ 13,239,167          
  Pro Forma Adjustment 4            
  Preferred stock dividends $ 288,575          
Pro Forma Adjustment 5      
                                   
To record the effect of common shares issued in connection with the Carbon Green acquisition as if they occurred at January 1, 2010, the beginning of the reporting period. Preferred shares that are convertible to common stock and warrants have not been considered because their effect is anti-dilutive.  

 

F-25




[ddd001.jpg]

Tel: (284) 494 3783

Fax: (284) 494 2220

www.bdo.vg

PO Box 34

Sea Meadow House

Tobacco Wharf

Road Town

Tortola   VG1110

British Virgin Islands



Independent Auditors' Report


To The Shareholders Of:

Carbon Green, Inc.

Tortola, British Virgin Islands


We have audited the accompanying balance sheets of Carbon  Green, Inc. and its subsidiaries (collectively referred to as the “Company”), as of June 30, 2010 and 2009, and the related statements of operations and comprehensive income, shareholders' equity (deficit), and cash flows for the year then ended, and the related notes. These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at June 30, 2010 and 2009 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

As explained in Note 1, as a result of a share purchase agreement whereby the Company purchased all of the issued and outstanding shares of Greenwood Commerce Ltd. (“Greenwood”) from CBp Carbon Industries, Inc. (“CBp Carbon”) in exchange for the issuance to CBp Carbon of one common share of the Company for each four CBp Carbon common shares outstanding.  This acquisition has been accounted for as a recapitalization of Greenwood and, as such, Greenwood has been treated as the acquiring entity for accounting purposes and the Company is the surviving entity for legal purposes.  As a result, financial information as at and for the year ended June 30, 2009 is that of Greenwood.  

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2a) to the financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit of $33,217,158 that raises substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are described in Note 2a).  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.    

//s// BDO Limited

Tortola, British Virgin Islands

February 9, 2011


BDO Limited, a BVI Business Company, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.


F-26



CARBON GREEN, INC. (Formerly NEEMA, Inc.)
Consolidated Balance Sheets
As at June 30, 2010 and 2009
(Expressed in U.S. dollars)

 

                     
    Notes   2010   2009  
ASSETS                    
Current Assets                    
Cash and cash equivalents           70,927     3,534,497  
Trading securities     3     355,594     1,025,882  
Available-for-sale investment     8     1,073,064      
Accounts receivable           39,754      
Inventory           91,487      
Prepaid expenses and deposits           112,925     297,851  
Due from related parties     13     296,810      
Receivable on disposition of subsidiary – related party     13         157,990  
Assets of discontinued operations     5         180,632  
                     
            2,040,561     5,196,852  
Non-current assets                    
Property, plant and equipment     7     9,984,488     10,965,856  
Technology rights     6     6,679,167      
Trademark           387,867      
Assets of discontinued operations     5         814  
                     
            17,051,522     10,966,670  
                     
TOTAL ASSETS         $ 19,092,083   $ 16,163,522  
                     
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)                    
Current Liabilities                    
Accounts payable and accrued liabilities - other           1,746,155     584,936  
Accounts payable and accrued liabilities - related parties     13     1,417,188     93,662  
Borrowings     9     72,475      
Bank overdraft           19,134      
Shares to be issued     10     1,349,900      
Liabilities of discontinued operations     5         510,007  
                     
            4,604,852     1,188,605  
Non-Current Liabilities                    
Due to related parties     4, 13         38,667,105  
                     
TOTAL LIABILITIES           4,604,852     39,855,710  
Shareholders’ Equity (Deficit)                    
Issued share capital     10     69,956     1,000  
Additional paid-in capital           47,560,776     9,603,131  
Employee equity-benefits reserve     11     2,601,456      
Accumulated other comprehensive loss           (2,201,775 )   (586,365 )
Accumulated deficit           (33,543,182 )   (32,709,954 )
                     
Total Shareholders’ Equity (Deficit)