ITEM 1. DESCRIPTION OF BUSINESS
Overview
Indigo-Energy, Inc. (the “Company” or “Indigo” or “We”) was originally incorporated in 1981 in the State of Nevada. As of the date of this report, the State of Nevada has revoked the Company’s registration. The Company plans to reinstate its good standing with the State of Nevada as soon as practicable which requires the filing of its delinquent lists of officers by annual period and the payment of the associated annual fees with applicable penalties.
In December 2005, following a recapitalization that resulted in a change of control, Indigo was an independent energy company that engaged primarily in the exploration of natural gas and oil in the Appalachian Basin in Pennsylvania, West Virginia, Illinois, and Kentucky through December 2010. These activities were carried out on leased properties, some of which were proven, primarily through the entry into joint venture and other operating agreements.
In December 2010, the Company’s management was notified by a representative of the New Jersey Attorney General’s Office (“NJAG”) that they were pursuing a civil action against Everett Charles Ford Miller (“Everett Miller”) and related entities alleging violations of securities laws amongst others. At the time of the civil action, Everett Miller was a Board Member of the Company, a significant shareholder, and a significant note holder. On December 17, 2010, the Company was named as a nominal defendant in the civil complaint as a result of Carr Miller Capital’s significant investment in the Company. At the time, and through the date of this filing, there have been no allegations of wrongdoing on the Company’s part but the complaint does state that the Company was unjustly enriched by the actions of Carr Miller Capital. The Company had no knowledge of any wrongdoing alleged to have been committed by Everett Miller and a release from the NJAG was ultimately obtained on July 29, 2013.
On December 23, 2010, the Company entered into an Interim Relief Consent Order with the NJAG (the “Relief Order”). The Relief Order provided that Everett Miller and Hercules Pappas resign from the Company’s Board of Directors, which occurred on December 10 and December 18, 2010 respectively, and that the Company would not transfer any of its assets held or controlled by Everett Miller and related entities without the approval of the NJAG. The Company also agreed to accept the appointment of a third-party independent Fiscal Agent by the court who shall review all of the Company’s books and records and prepare a report to the court. The Fiscal Agent conducted a thorough review and analysis finding no wrongdoing on behalf of the Company.
As a result of the Interim Relief Consent Order, and the underlying civil action against Everett Miller and related entities, the Company was effectively prevented from raising additional capital necessary to continue its business operations or pay its on-going obligations.
On November 1, 2012, the Superior Court of the State of New Jersey, on behalf of the New Jersey attorney general’s office, appointed a receiver for the Company (see Current Report on Form 8-K filed August 5, 2013). As of the date of this appointment, the Company had defaulted, settled, and / or abandoned all of its previous oil and gas operations; there were no assets, with the exception of illiquid and insignificant deferred debt issuance costs; and total current obligations of approximately $12.5 million.
On July 29, 2013, a group of large equity and debt holders formed a new entity, New Hope Partners, LLC, and entered into a settlement agreement with the receiver to effectively purchase a majority interest in the Company. The closing of the transaction between the receiver and New Hope Partners resulted in a change of control of the Company (for more detail, including the settlement agreement, see Current Report on Form 8-K filed August 5, 2013).
Business
Since December 31, 2013, the Company has been engaged in organizational efforts, seeking to settle outstanding obligations on the best terms possible, and re-establishing its regulatory compliance. Subsequent to the Company’s re-entrance into the development stage, as defined by accounting principles generally accepted in the United States (“US GAAP”), on August 1, 2013, the Company’s primary objective is to seek the acquisition of, or merger with, an existing operating company.
The Company’s principal business objective for the next 12 months and beyond will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. The Company will not restrict its potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.
The analysis of new business opportunities will be undertaken by or under the supervision of James Walter, Sr., currently our sole officer and director; and other members of New Hope Partners, LLC and their advisors. Mr. Walters’ possesses over 30 years of business experience, primarily as an owner and consultant. The Company believes the contacts obtained along with the experience owning and analyzing business and investment opportunities is significantly beneficial in identifying potential acquisition targets.
As of this date, the Company has not entered into any definitive agreement with any party, nor have there been any specific discussions with any potential business combination candidates regarding business opportunities for the Company. The Registrant has unrestricted flexibility in seeking, analyzing and participating in potential business opportunities. In its efforts to analyze potential acquisition targets, the Registrant will consider the following kinds of factors:
(a) Potential for growth, indicated by new technology, anticipated market expansion or new products;
(b) Competitive position as compared to other firms of similar size and experience within the industry segment as well as within the industry as a whole;
(c) Strength and diversity of management, either in place or scheduled for recruitment;
(d) Capital requirements and anticipated availability of required funds, to be provided by the Registrant or from operations, through the sale of additional securities, through joint ventures or similar arrangements or from other sources;
(e) The cost of participation by the Registrant as compared to the perceived tangible and intangible values and potentials;
(f) The extent to which the business opportunity can be advanced;
(g) The accessibility of required management expertise, personnel, raw materials, services, professional assistance and other required items; and
(h) Other relevant factors.
In applying the foregoing criteria, no one of which will be controlling, management will attempt to analyze all factors and circumstances and make a determination based upon reasonable investigative measures and available data. Potentially available business opportunities may occur in many different industries, and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Due to the Registrant's limited capital available for investigation, the Registrant may not discover or adequately evaluate adverse facts about the opportunity to be acquired.
Form of Acquisition
The manner in which the Registrant participates in an opportunity will depend upon the nature of the opportunity, the respective needs and desires of the Registrant and the promoters of the opportunity, and the relative negotiating strength of the Registrant and such promoters.
It is likely that the Registrant will acquire its participation in a business opportunity through the issuance of its common stock, par value $0.001 per share (the “Common Stock”) or other securities of the Registrant. Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances the criteria for determining whether or not an acquisition is a so-called "tax free" reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code") depends upon whether the owners of the acquired business own 80% or more of the voting stock of the surviving entity. If a transaction were structured to take advantage of these provisions rather than other "tax free" provisions provided under the Code, all prior stockholders would in such circumstances retain 20% or less of the total issued and outstanding shares of the surviving entity. Under other circumstances, depending upon the relative negotiating strength of the parties, prior stockholders may retain substantially less than 20% of the total issued and outstanding shares of the surviving entity. This could result in substantial additional dilution to the equity of those who were stockholders of the Registrant prior to such reorganization.
The stockholders of the Registrant will likely not have control of a majority of the voting securities of the Registrant following a reorganization transaction. As part of such a transaction, the Registrant's directors may resign and one or more new directors may be appointed without any vote by stockholders.
In the case of an acquisition, the transaction may be accomplished upon the sole determination of management without any vote or approval by stockholders. In the case of a statutory merger or consolidation directly involving the Company, it will likely be necessary to call a stockholders’ meeting and obtain the approval of the holders of a majority of the outstanding securities. The necessity to obtain such stockholder approval may result in delay and additional expense in the consummation of any proposed transaction and will also give rise to certain appraisal rights to dissenting stockholders. Most likely, management will seek to structure any such transaction so as not to require stockholder approval.
It is anticipated that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial cost for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity, the costs theretofore incurred in the related investigation might not be recoverable. Furthermore, even if an agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result in the loss to the Registrant of the related costs incurred.
We presently have no employees and are managed by our sole officer and director, Mr. Walter. Mr. Walter, and the other members of New Hope Partners, are engaged in outside business activities and anticipate that they will devote limited time, but as much as required to our business until the acquisition of a successful business opportunity has been identified. We expect no significant changes in the number of our employees other than such changes, if any, incident to a business combination.
Competition
The industry in which the Company was previously engaged in is intensely competitive and with other companies that are significantly larger and have greater resources.
Since August 1, 2013, the Company has focused its efforts on re-establishing its regulatory compliance and seeking business opportunities with an existing operating business. The Company’s limited resources make it less attractive than other companies seeking similar acquisitions.
Employees
As of December 31, 2013, the Company did not have any full-time employees.
ITEM 1A.
ITEM 1A. RISK FACTORS
Risks Related to our Business
There may be conflicts of interest between the Company’s management and the non-management stockholders of the Company.
Conflicts of interest create the risk that management may have an incentive to act adversely to the interests of the stockholders of the Company. A conflict of interest may arise between management's personal pecuniary interest and its fiduciary duty to our stockholders.
In addition, management may become involved with other companies, and in the pursuit of business opportunities, conflicts with such other companies with which it may, in the future, become affiliated may arise. If the Company and companies that management may become affiliated with desire to take advantage of the same opportunity, then those members of management that are affiliated with both companies would abstain from voting upon the opportunity. In the event of identical officers and directors, the officers and directors will arbitrarily determine the company that will be entitled to proceed with the proposed transaction. Management is not currently seeking, nor is there any plan or arrangement for any member of management to become involved in another company.
The Company has a limited operating history.
The Company had a limited operating history with its prior oil and gas exploration activities and is no longer pursuing those activities. Since being purchased from the court appointed receivership the Company has not actively pursued potential business opportunities. The Company has no revenues or earnings from operations since late 2010 through the date of this report, and there is a risk that the Company will be unable to continue as a going concern and consummate a business combination. The Company has no material assets. The Company is incurring operating expenses without corresponding revenues and will continue to do so, at least until the consummation of a merger or other business combination with an operating company. This results in incurring a net operating loss that will increase unless we consummate a business combination with a profitable business. There is no assurance the Company will identify a suitable business opportunity and consummate a business combination, or that any such business will be profitable at the time of its acquisition, or ever.
The Company has incurred and may continue to incur losses.
The Company’s previous oil and gas exploration activities, from December 2005 through July 31, 2013, resulted in the accumulation of a deficit in excess of $96 million. Since the commencement of the current business activities on August 1, 2013 through December 31, 2013; the Company incurred a net loss of approximately $561,000. The Company expects to incur losses at least until the completion of a business combination and perhaps after such a combination as well. There is a risk the Company will never become profitable.
The Company’s independent auditors have expressed substantial doubt about our ability to continue as a going concern.
The Company has incurred losses in each of the periods presented, does not have any assets, and has significant outstanding obligations, most of which are in default. Additionally, the Company has limited viable funding sources to pay its on-going obligations. Further, the Company is in the development stage. These factors, along with the Company having no substantial firm funding commitments results in substantial doubt about the Company’s ability to continue as a going concern. As such, the Company’s independent auditors included an explanatory paragraph regarding the substantial doubt about the ability to continue as a going concern. The financial statements contain additional note disclosures describing the circumstances that led to the inclusion of the explanatory paragraph.
The Company’s business is difficult to evaluate because there is no operating history subsequent to the termination of its prior activities.
The Company has been inactive since late 2010 and does not have any liquid assets. The Company has no recent operating history nor any material revenues or earnings from operations since its re-entrance into the development stage on August 1, 2013.
The time and cost of preparing a private company to become a public reporting company may preclude the Company from entering into a merger or acquisition with the most attractive private companies.
Target companies that fail to comply with SEC reporting requirements may delay or preclude acquisition. Sections 13 and 15(d) of the Exchange Act require reporting companies to provide certain information about significant acquisitions, including certified financial statements for the company acquired, covering one, two, or three years, depending on the relative size of the acquisition. The time and additional costs that may be incurred by some target entities to prepare these statements may significantly delay or essentially preclude consummation of an acquisition. Otherwise suitable acquisition prospects that do not have or are unable to obtain the required audited statements may be inappropriate for acquisition so long as the reporting requirements of the Exchange Act are applicable.
The Company may be subject to further government regulation which would adversely affect operations.
The Company and its management believe that government obligations associated with its prior business have been met and that the termination agreements sufficiently indemnify it from any futures complaints, claims, or monetary damages. Future operations may be subject to additional government regulations which may result in significant barriers to entry or other adverse impacts that may inhibit the Company from having profitable operations.
Our common stock is quoted on the OTC “pink sheets” market which does not provide investors with a meaningful degree of liquidity.
As of the date of this report, the Company is not current with its Exchange Act filing requirements which significantly limits the liquidity of the Company’s common stock. Our common stock is quoted and traded under the symbol “IDGG” on the OTC “pink sheets.” Bid quotations on the pink sheets can be sporadic and the pink sheets do not provide any meaningful liquidity to investors. An investor may find it difficult to dispose of shares or obtain accurate quotations as to the market value of the common stock. Our common stock is not listed on a national stock exchange or an automated quotation system. As a result of this limited trading market, our common stock has fewer market makers, lower trading volumes and larger spreads between bid and asked prices than securities listed on a national stock exchange or automated quotation system would typically have. These factors may result in higher price volatility and less market liquidity for our common stock.
The Company’s failure to have remained “current” in its periodic reports will affect the Company’s eligibility with respect to the use of certain rules and forms.
A number of rule and form eligibility standard under the Securities Act and the Exchange Act, require that the issuer wishing to avail itself of the rule or form have filed all material required to be filed pursuant to Section 13 of the Exchange Act for a specified period of time (this requirement is referred to commonly as the requirement that an issuer be “current” in its Exchange Act reporting obligations. Despite the Company’s best current efforts to provide all information that is currently relevant and material to the investing public, the Company will be ineligible to use certain rules and forms for a period of time going forward.
For example, the Company is currently ineligible to use a short-form registration statement on Form S-3 for both primary and secondary offerings. This will limit the Company’s ability to conduct certain kinds of registered securities offerings. In addition, the Company and its stockholders may not currently rely on the exemption from registration provided by Rule 144 of the Securities Act (“Rule 144”). The Company will not become eligible until such time that it has filed all reports required under Section 13 of the Exchange Act during the 12-month preceding period. Compliance with the criteria for securing exemptions under federal securities laws and the securities laws of the various states is extremely complex, especially in respect of those exemptions affording flexibility and the elimination of trading restrictions in respect of securities received in exempt transactions and subsequently disposed of without registration under the Securities Act or state securities laws.
We do not expect to be able to access the public U.S. capital markets until all of its periodic reporting with the Commission is up to date.
The Company will be unable to register its common stock with the Commission to access the U.S. public securities markets until it is up to date with respect to its periodic reports and financial statements. This precludes the Company from raising debt or equity financing in registered transactions in the U.S. public capital markets to support current business plans.
There are issues impacting liquidity of our securities with respect to the SEC’s review of any future resale registration statement.
The Company currently does not have any obligations or agreements to register shares of stockholders for resale. In the future, the Company may file a resale registration statement on Form S-1, or some other available form, to register for resale of such shares of Common Stock. We cannot control this future registration process in all respects as some matters are outside our control. Even if we are successful in causing the effectiveness of the resale registration statement, subsequent events may preclude our ability to maintain the effectiveness of the registration statement. Any of the foregoing items could have adverse effects on the liquidity of our shares of Common Stock.
In addition, the SEC has disclosed that it has developed internal guidelines concerning the use of a resale registration statement to register the securities issued to certain investors in private investment in public equity (PIPE) transactions, where the issuer has a market capitalization of less than $75 million and, in general, does not qualify to file a Registration Statement on Form S-3 to register its securities if the issuer’s securities are listed on the Over-the-Counter Bulletin Board or on the OTC Pink Sheets. The SEC has taken the position that these smaller issuers may not be able to rely on Rule 415 under the Securities Act (“Rule 415”), which generally permits the offer and sale of securities on a continued or delayed basis over a period of time, but instead would require that the issuer offer and sell such securities in a direct or "primary" public offering, at a fixed price, if the facts and circumstances are such that the SEC believes the investors seeking to have their shares registered are underwriters and/or affiliates of the issuer.
The Company’s stock is a penny stock. Trading of the stock may be restricted by the Securities and Exchange Commission’s penny stock regulations which may limit a stockholder’s ability to buy and sell stock.
The Company’s stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. The Company’s securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. The Company believes that the penny stock rules discourage investor interest in and limit the marketability of the Company’s common stock.
The Company is controlled by management.
Management and affiliates of management currently beneficially own and vote a majority of the issued and outstanding Common Stock of the Company. Consequently, management has the ability to influence control of the operations of the Company and, acting together, will have the ability to influence or control substantially all matters submitted to stockholders for approval, including:
· Election of the board of directors (the “Board of Directors”);
· Removal of directors;
· Amendment to the Company’s Articles of Incorporation or Bylaws; and
· Adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination.
These stockholders have complete control over our affairs. Accordingly, this concentration of ownership by itself may have the effect of impeding a merger, consolidation, takeover or other business consolidation, or discouraging a potential acquirer from making a tender offer for the Common Stock.
The Company has never paid dividends on its Common Stock.
The Company has never paid dividends on its Common Stock and does not presently intend to pay any dividends in the foreseeable future. The Company anticipates that any funds available for payment of dividends will be re-invested into the Company to further its business strategy.
The Company expects to issue more shares in a merger or acquisition, which will result in substantial dilution.
The Articles of Incorporation authorizes the issuance of a maximum of 2,100,000,000 shares of stock, consisting of 2,000,000,000 shares of Common Stock, par value $0.001 (the “Common Stock”), and 100,000,000 shares of Preferred Stock, par value $0.001 per share (the “Preferred Stock”). Any merger or acquisition effected by the Company may result in the issuance of additional securities without stockholder approval and may result in substantial dilution in the percentage of Common Stock held by the then existing stockholders. Moreover, the Common Stock issued in any such merger or acquisition transaction may be valued on an arbitrary or non-arm’s-length basis by management, resulting in an additional reduction in the percentage of Common Stock held by then existing stockholders. In addition, the Board of Directors has the sole discretion and power to set the designation, rights and preferences on any shares of Preferred Stock to be issued, which could have the effect of diluting or otherwise impacting the rights of holders of Common Stock. The Board of Directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of Common Stock or Preferred Stock are issued in connection with a business combination or otherwise, dilution to the interests of stockholders will occur and the rights of the holders of Common Stock might be materially adversely affected.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
As of December 31, 2013, the Company did not have any owned or leased property.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is quoted and traded under the symbol “IDGG” on the OTC pink sheets (“OTC”).
As of May 9, 2014, the closing price of our common stock was less than the par value of $0.001.
There is a limited trading market for our common stock. There is no assurance that a regular trading market for our common stock will develop or if developed that it will be sustained. Subsequent to the interim period ended September 30, 2010 until the filing of the Comprehensive Annual Report for the year ended December 31, 2012, the Company did not provide any financial information and was effectively inactive based on the Company’s agreements with New Jersey Attorney General’s office as described above. Since late 2010 our stock traded for less than $0.01 and throughout much of 2013 was traded at prices below the par value of $0.001. During all quarterly periods for the fiscal years ended December 31, 2013 and 2012, the completed trading price of our common stock has been below $0.01, and hence, such high and low quarterly quotations or traded prices are not reported in tabular format. (source: www.nasdaq.com).
Based on the quoted trading price of our common stock being under $0.01 and the delinquency of meeting our financial reporting requirements, a shareholder in all likelihood, may not be able to deposit shares with a financial institution for resale OTC.
Holders
On May 9, 2014, there were 1,195 holders of record of our common stock.
Dividends
The Company has not paid dividends. There are no plans to pay dividends.
Recent Sales of Unregistered Securities
On February 28, 2014 the Company entered into settlement agreements with three previous service providers in which a total of $578,730 of previously accrued expenses was converted to 11,574,600 shares of restricted and unregistered common stock.
On March 4, 2014 the Company entered into settlement agreements with note holders with a total principal balance of $1,141,740 via the issuance of 22,834,800 shares of restricted and unregistered common stock.
Equity Compensation Plan Information
Prior to December 31, 2011, the Company issued options to both employees and non-employees under the 2007 Stock Option Plan of Indigo-Energy, Inc. which reserved 40,000,000 shares of common stock pursuant to the issuance of stock options under the Plan. As of December 31, 2013 the Company had 25,000,000 shares of common stock subject to outstanding common stock options with a weighted average exercise price of $0.15. As of December 31, 2013, and the date of this report, 15,000,000 shares of common stock were available for future award grants under the 2007 Stock Option Plan.
In addition, the Company issued warrants to employees and non-employees not reserved under a formal Plan. As of December 31, 2013, and the date of this report, the Company had 38,350,000 warrants outstanding with a weighted average exercise price of $0.02.
The following table sets forth the number of shares of our common stock subject to outstanding common stock options, warrants and stock rights, the weighted average exercise price of outstanding common stock options, warrants and stock rights, and the number of shares remaining available for future award grants under our equity compensation plans as of December 31, 2013:
Number of Securities to be
Issued Upon Exercise of
Outstanding Common Stock
Options, Warrants Weighted Average Exercise
Price of Outstanding
Common Stock Options,
Warrants Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
Equity plans approved by
security holders 25,000,000 $0.15 15,000,000
Equity plans not approved by
security holders 38,350,000 $0.02 -
Total 63,350,000
15,000,000
Issuer Purchases of Equity Securities
There were no issuer purchases of equity securities during the years ended December 31, 2013 and 2012.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
The information set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) expected changes in the Company’s revenues and profitability, (ii) prospective business opportunities and (iii) the Company’s strategy for financing its business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes,” “anticipates,” “intends” or “expects.” These forward-looking statements relate to the plans, objectives and expectations of the Company for future operations. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this Annual Report should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved.
You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Annual Report.
The Company’s results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risks set forth under Item 1A of the Annual Report, the risk of significant natural disaster, the inability of the Company to insure against certain risks, such as changing government regulations affecting our products and businesses.
Overview
From December 2005 through the fourth quarter of 2010 we were an energy Company engaged in the exploration and development of oil and natural gas, primarily on acquired leasehold interests. In the fourth quarter of 2010 through July 29, 2013, the Company was inactive and essentially controlled by the New Jersey Attorney General’s office based its investigation of a significant investor.
As of December 31, 2012, the Company was inactive and had formally disposed of all of its prior oil and gas leasehold interests and did not have any assets with the exception of some immaterial unamortized, non-cash debt issuance costs associated with a debt in default controlled by the court appointed receiver.
Upon the July 29, 2013 acquisition of the NJAG’s ownership in the Company by New Hope Partners, LLC (for more detail, including the settlement agreement, see Current Report on Form 8-K filed August 5, 2013), resulting in a change of control, the Company has been engaged in organizational efforts and re-establishing its regulatory compliance. Subsequent to the Company’s re-entrance into the development stage on August 1, 2013, the Company’s objective is to seek the acquisition of, or merger with, an existing operating company.
Any change in the Company’s operational activities is heavily dependent upon the ability to raise capital. The current ability to raise capital is severely hampered by the lack of regulatory compliance. While members of New Hope Partners are working diligently towards re-establishing the Company’s compliance, there is a risk that the Company may not be able to achieve success in re-establishing reporting compliance in a timely manner, or if it proves too costly, at all.
The Company currently does not have any full-time employees. Since the emergence from receivership, third party consultants and members of New Hope Partners have carried out the affairs of the Company. One member of New Hope Partners LLC, James C. Walter Sr. is acting as the interim sole officer and director of the Company.
Results of Operations
Upon the change in control of the Company on July 29, 2013, and the corresponding emergence from court-appointed receivership, the Company re-entered the development stage on August 1, 2103. For much of the comparative annual periods, consisting of December 31, 2013 and 2012, the Company was effectively inactive. Based on the inactivity and re-entrance into the development stage, the Company does not expect the analysis of the results of the periods below to be indicative of future results.
For the financial statement periods presented in this report, and through the date of this report, we did not recognize any revenue. We do not expect to recognize revenue until the consummation of business transaction with an operating entity.
During the year ended December 31, 2013 the Company incurred $7,468 of general and administrative expenses, all of which were subsequent to August 1, 2013. These expenses, consisting of office supplies, utilities, and filing fees, decreased by approximately $14,000 from $21,740 for the year ended December 31, 2012. The decrease is primarily associated with expenses incurred during 2012 to finalize the settlement and abandonment of our previously leased unproved oil and gas properties that were not recurring. Management expects that are general and administrative expenses will increase throughout 2014 as we attempt to increase the Company’s business operations.
The Company incurred $106,622 of professional fees since August 1, 2013 and for the year ended December 31, 2013. No professional fees were incurred in the prior annual period. The increase is associated with accounting and legal fees incurred as the Company emerged from court appointed receivership and began the process of re-establishing its regulatory compliance. The Company expects its professional fees to increase for at least the next twelve to meet its filing requirements and perform due diligence on potential business targets.
During the year ended December 31, 2013, as part of the settlement agreement between New Hope Partners, the Company, and the New Jersey Attorney General, notes payable with a principal balance of $8,376,169 (previously owed to a related party) and accrued interest of $3,284,562, were considered compromised and the total obligation was adjusted to $8,750,000. As part of the settlement, New Hope Partners, another related party, become an 88% beneficial owner of the compromised note with the remaining 12% interest retained by the Jew Jersey Attorney General. In connection with the settlement agreement, the Company fully amortized the remaining debt discount on this note of $772,415 classified as interest expense, and previously accrued interest forgiven of $2,910,731, by a related party, was determined to be in the nature of a capital contribution with no additional gain or loss recognized.
For the year ended December 31, 2013 the Company incurred interest expense of $2,629,131, of which $446,903 was incurred subsequent to the August 1, 2013 re-entry into the development stage. This is an approximate increase of $406,000 from the prior year. The increase is primarily associated with the remaining unamortized discount on outstanding notes payable of approximately $8,376,000 being recognized as part of the NJAG settlement in July 2013 as noted above. The Company expects interest expense to fluctuate based on its ability to settle its outstanding, interest bearing obligations. Subsequent to December 31, 2013 and as of the date of this report, the Company settled notes payable with a total principal balance of $1,141,740 via the issuance of 22,834,800 shares of common stock. The Company is actively pursuing settlements of its currently outstanding note payable obligations, all of which are in default, via the issuance of equity instruments or cash, but there is no assurance it will be successful in these efforts.
In 2012, the Company recognized a non-recurring gain of $663,617 in connection with the settlement of certain liabilities related to the settlement and abandonment of previously leased unproved oil and gas properties.
Quarterly Results
During the years ended December 31, 2013 and 2012 the Company did not publish any of its operating results on a quarterly basis. The following provides a comparison of the results of operations for each quarterly period contained in the fiscal years ended December 31, 2013 and 2012:
During the three months ended March 31, 2013 the Company did not incur any operating expenses as it had disposed of all of its previous oil and gas exploration activities as of December 31, 2012. Additionally, in both periods, the Company was still effectively controlled by a court-appointed receiver and did not have the ability to raise capital. General and administrative expenses incurred during the three months ended March 31, 2012 were related to non-recurring travel and other administrative costs associated with the negotiations of the disposal of the Company’s unproved properties finalized in the third quarter of 2012.
During the three months ended March 31, 2013 interest expense increased compared to the prior period due the continued compounding of interest on outstanding debt in default and increased recognition of the remaining debt discount accretion using the effective interest rate method.
During the three months ended June 30, 2013 and 2012 the Company did not incur any operating expenses. Additionally, in both periods, the Company was still effectively controlled by a court-appointed receiver and did not have the ability to raise capital.
During the three months ended June 30, 2013 interest expense increased compared to the prior period due the continued compounding of interest on outstanding debt in default and increased recognition of the remaining debt discount accretion using the effective interest rate method.
During the three months ended September 30, 2013, the Company recorded a non-recurring gain on settlement of liabilities of $663,617 in connection with the settlement of certain liabilities related to its settlement and abandonment of previously leased unproved oil and gas properties.
During the three months ended September 30, 2013 the Company did not incur any operating expenses. Similarly, the Company did not incur any operating expenses in the comparable period of 2012. Additionally, in both periods, the Company was still effectively controlled by a court-appointed receiver and did not have the ability to raise capital.
During the three months ended September 30, 2013 interest expense increased compared to the prior period due the continued compounding of interest on outstanding debt in default and the accelerated recognition of the remaining debt discount associated with the settlement agreement between New Hope Partners, the Company, and the New Jersey Attorney General as noted above.
During the three months ended December 31, 2013 the Company incurred operating expenses totaling $114,085 primarily consisting of payments to third party consultants engaged in preparing the Company’s delinquent financial and other required filings under the ’34 Exchange Act.
During the three months ended December 31, 2013 interest expense decreased from the prior comparable period as a result of the all previously unamortized debt discounts being recognized in the prior periods.
Liquidity and Capital Resources
As of December 31, 2013 and 2012 we did not have any liquid assets. During the years ended December 31, 2013 and 2012 the Company’s cash receipts consisted of operational loans and other direct payments made on behalf of the Company by related parties.
As of December 31, 2013 and 2012 we had accrued expense obligations from our prior exploration activities of $1,014,585, all of which were incurred in periods prior to those presented in this report. We are actively pursuing settlement agreements with these creditors in which we have offered to issue each holder shares of unregistered and restricted common stock in exchange for outstanding principal. As of the date of this report and subsequent to December 31, 2013, the Company has successfully settled $578,730 of these obligations via the issuance of 11,574,600 shares of unregistered and restricted common stock.
Accounts payable, inclusive of those due to related parties of $59,009, totaled $114,085. These obligations principally consist of payments to consultants on behalf of the Company by related parties in an effort to become compliant with our regulatory reporting requirements.
We expect to meet these on-going obligations at their current levels through continued related party advances in the near-term, however, there are no guarantees these related parties will continue to make advances, nor is there any contractual obligation for them to do so. These related parties have informally agreed to defer repayment of these obligations until we commence revenue generating operating activities, if any.
We had current promissory and other note payable obligations totaling $11,192,429, inclusive of accrued interest of $1,025,689, at December 31, 2013. All of these obligations are in default and notes with a principal balance totaling $9,026,740 are held by related parties. While our related parties have informally agreed to defer the payment of these obligations, and may ultimately settle them via the issuance of shares of unregistered and restricted common stock, they are not contractually obligated. During the first quarter of 2014, notes payable with a total principal amount of $1,141,740 was settled via the issuance of 22,834,800 shares of unregistered and restricted common stock.
Our operations did not use or generate cash in 2013, and consisted of our net loss of $2,743,216 off-set by increases in related party and other accounts payable totaling $114,085 and non-cash discount amortization of $1,420,487 and the increase in accrued interest of $1,208,644. We currently do not have the ability to generate operational cash flows and do not expect to have such ability until the consummation of a business combination transaction with an operating company. There is no assurance we will be successful consummating such transaction or that the completion of such transaction will result in the generation of operational cash flow.
For the periods presented, we did not have the capital resources to engage in any investing activities, nor do we expect to do so for the next twelve months unless we successfully complete a merger transaction with an operating company, or generate significant amounts of cash from financing activities.
During the year ended December 31, 2013 we did not use or generate cash from any financing activities. We are actively pursuing several financing options; however, these activities are severely hampered by the lack of liquidity in our equity instruments, partially caused by not being in compliance with our ’34 Act filing requirements. As of the date of this report we do not have any firm funding commitments. Any funding arrangements entered into in the next twelve months, if any, will likely not be at terms favorable to the Company based on its current risk profile.
Any potential future business operations are dependent upon the ability of the Company raise to additional capital. As of the date of this report, the Company does not have firm funding commitments.
Critical Accounting Policies and Estimates
The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and have been presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These accounting principles require management to use estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and revenues and expenses during the reporting period.
Off Balance Sheet Arrangements
The Company did not have any off balance sheet arrangements as of and for the years ended December 31, 2013 or 2012.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS.
FINANCIAL STATEMENT TABLE OF CONTENT
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Indigo-Energy, Inc.
(A Development Stage Company)
Henderson, NV
We have audited the accompanying consolidated balance sheets of Indigo-Energy, Inc. (a Development Stage Company) as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended and for the period from August 1, 2013 (Re-entrance into the Development Stage) to December 31, 2013. These consolidated financial statements are the responsibility of Indigo-Energy, Inc.’s management. Our responsibility is to express an opinion on these consolidated 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 Indigo-Energy, Inc., as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended and for the period from August 1, 2013 (Re-entrance into the Development Stage) to December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has no source of recurring revenue; negative working capital; and has suffered recurring losses from operations; which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ GBH CPAs, PC
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
May 7, 2014
INDIGO-ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(A Development Stage Company)
The accompanying notes are an integral part of these consolidated financial statements.
INDIGO-ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(A Development Stage Company)
The accompanying notes are an integral part of these consolidated financial statements.
INDIGO-ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(A Development Stage Company)
The accompanying notes are an integral part of these consolidated financial statements.
INDIGO-ENERGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2013 AND
AND FOR THE PERIOD FROM RE-ENTRANCE INTO THE DEVELOPMENT STAGE (AUGUST 1, 2013) TO DECEMBER 31,
(A Development Stage Company)
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
NOTE 1 - DESCRIPTION OF BUSINESS
Indigo-Energy, Inc. (the “Company” or “Indigo” or “We”) was originally incorporated in 1981. As of the date of this report, the State of Nevada has revoked the Company’s registration. The Company plans to reinstate its good standing with the State of Nevada as soon as practicable which requires the filing of its delinquent lists of officers by annual period and the payment of the associated annual fees with applicable penalties. In December 2005, following a recapitalization that resulted in a change of control, Indigo was an independent energy company that engaged primarily in the exploration of natural gas and oil in the Appalachian Basin in Pennsylvania, West Virginia, Illinois, and Kentucky through December 2010. These activities were carried out on leased properties, some of which were proven, primarily through the entry into joint venture and other operating agreements.
Upon the July 29, 2013 change in control and emergence from the New Jersey Superior court appointed receivership, the Company has been engaged in organizational efforts, re-establishing its regulatory compliance and seeking to settle outstanding obligations on the best terms possible. Subsequent to the Company’s re-entrance into the development stage on August 1, 2013, the Company’s objective is to seek the acquisition of, or merger with, an existing operating company. The Company’s principal business objective for the next 12 months and beyond will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and have been presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
Development Stage Enterprise
In accordance with GAAP, the Company is currently considered a development stage entity since it has not commenced its principal revenue generating activities. The date at which the Company re-entered the development stage has been determined to be August 1, 2013.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management periodically reviews its estimates, including those related to the impairment and abandonment of its oil and gas leasehold interests, and the recognition of certain debt discount amortization with estimated effective interest rates, and the valuation of restricted equity instruments in an illiquid market. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. The Company did not have any cash or cash equivalents at December 31, 2013 or 2012.
Fair Value Measurements
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the party’s own credit risk.
Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
Financial Instruments
The carrying value of certain notes payable is recorded at face value less unamortized discounts using the effective interest rate method.
Debt discount
The Company amortizes debt issuance costs to interest expense using the effective interest method.
Income Taxes
Income taxes are recorded in the period in which the related transactions have been recognized in the financial statements. Deferred tax assets and liabilities are recorded for expected future tax consequences of loss carryforwards and temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities in the financial statements and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Loss Per Common Share
Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding. Dilutive loss per common share includes additional dilution from common stock equivalents, such as stock options and warrants, and convertible instruments, if the impact is not antidilutive.
NOTE 3 - GOING CONCERN
Through late calendar 2010, the Company was engaged in the exploration and development of oil and gas resources. Through the year ended December 31, 2010 the Company generated revenues significantly deficient of its ability to meet its operating obligations resulting in the incurrence of significant amounts of additional debt.
From late 2010 through the period ended December 31, 2012 and up to July 29, 2013, the Company’s assets and capital raising ability were effectively frozen by way of a relief order with the New Jersey Attorney General’s office and eventual court ordered receivership through July 29, 2013. For most of these periods the Company was inactive with the exception of incurring interest on its debt obligations, all of which were in default; accruing other unpaid administrative fees; and recognizing the impacts of settlement agreements entered into with its former oil and gas operating partners.
Subsequent to the emergence from receivership on July 29, 2013 the Company plans to raise funds from private offerings of equity as applicable and pursue entry into a business agreement with an operating entity. Since the Company does not have any source of recurring revenue, has suffered recurring losses from operations and has negative working capital, there is a substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 - OIL AND GAS PROPERTIES
In July 2012, the Company entered in a settlement agreement to transfer its interest in future production from it previously leased unproved properties in exchange for the forgiveness of its previously accrued and unpaid obligations. As a result, the Company exchanged its rights to receive the benefits from any applicable future production from unproved oil and gas properties with a net carrying value of $1,680,350 in exchange for the forgiveness of accrued obligations totaling $2,343,967 (including notes payable of $457,317). As a result, the Company recorded a $663,617 gain on settlement of liabilities. At December 31, 2013 and 2012, the Company had no oil and gas properties.
NOTE 5 - NOTES PAYABLE
Notes payable consist of the following:
As of December 31, 2013 and 2012 the Company was in default on all of its notes payable, correspondingly, all obligations have become due on demand and are classified as current liabilities in the accompanying balance sheets. At December 31, 2013 and 2012 notes payable totaling $9,026,740 and $276,740 were held by members of New Hope Partners, the Company’s control group, a related party since 2013. As a result, the corresponding notes payable and accrued interest due to New Hope Partners have been reclassified to related party notes payable, net and related party accrued interest, respectively, in the accompanying balance sheets.
During the year ended December 31, 2013, as part of the settlement agreement between New Hope Partners, the Company, and the New Jersey Attorney General, notes payable with an unamortized principal balance of $8,376,169 and accrued interest of $3,284,562, were considered “compromised” and the total obligation was adjusted to $8,750,000. In addition, New Hope Partners become an 88% beneficial owner of the note. In accordance with the terms of the transaction, the Company fully recognized the remaining unamortized discount, classified as interest expense, of $1,403,000. The forgiveness of previously accrued interest totaling $2,910,731 was recognized as an increase in additional paid in capital since settlements with related parties are considered to be in the nature of capital contributions with no additional gain recognized.
As part of the final settlement of the Company’s former oil and gas exploration business associated with its previously held unproven oil and gas properties, holders of notes totaling $457,317 agreed to forgive their obligations in exchange for the Company giving up its right to any future revenue generated from the property. During the year ended December 31, 2012 the Company recognized the settlement of $534,187 related to these notes, inclusive of the previously accrued interest of $76,870.
NOTE 6 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 2013 related parties made operational advances for the payment of professional fees and general and administrative expenses totaling $59,009 which remained outstanding at December 31, 2013. No such advances were made during the year ended December 31, 2012. For a discussion of notes payable due to related parties for the years ended December 31, 2013 and 2012. See Note 5.
During the year ended December 31, 2013 related parties forgave previously accrued interest totaling $2,910,731 within the nature of a capital contribution. See Note 5.
NOTE 7 - STOCKHOLDERS’ EQUITY
Common Stock
As of December 31, 2013and 2012, the Company had 1,187,956,895 shares of common stock issued and outstanding. The Company did not issue any of the shares of common stock during the years ended December 31, 2013 and 2012.
Stock Options
Prior to December 31, 2011, the Company issued stock options to both non-employees and employees. The options are fully vested and all associated compensation expense was recognized in periods prior to those presented. The stock option grant date fair value was estimated using a Black-Scholes pricing model.
As of December 31, 2013 the Company had 25,000,000 stock options outstanding. During the periods presented there were no options granted, exercised, cancelled, or forfeited, correspondingly, no additional compensation expense was recognized for the periods presented. All options outstanding are exercisable and do not have any intrinsic value at December 31, 2013 and 2012 and are set to expire in October of 2017. At December 31, 2013 the weighted average exercise price of the outstanding options was $0.15 with a weighted average remaining term of 3.83 years.
Warrants
Prior to December 31, 2011, the Company issued warrants to non-employees primarily in conjunction with notes payable. As of the balance sheet dates contained in these financial statements, the Company had outstanding warrants of 38,350,000. The weighted average exercise price of the outstanding warrants at December 31, 2013 and 2012 was $0.02 with a weighted average remaining term of 3.83 years as of December 31, 2013. The warrants did not have any intrinsic value as of December 31, 2013 and 2012 and were fully vested. Of the outstanding warrants, 37,950,000 are contingently exercisable only in the event that other equity-linked instruments are exercised.
NOTE 8 - INCOME TAXES
Income taxes from continued operations for the years ended December 31, 2013 and 2012 consist of the following:
At December 31, 2013, the Company had federal net operating losses of approximately $42,300,000 which will begin to expire in 2027 and could be subject to certain limitations under section 382 of the Internal Revenue Code. Under the provision of the Internal Revenue Code, and as the result of the change in control, the Company may be deemed to have net operating loss carry-forwards of approximately $561,000, based on the net loss from the re-entrance into the development stage on August 1, 2013. As of the date of this report, the Company has not fully analyzed the potential tax assets or limitations under the applicable provisions of the Internal Revenue Code.
The Company has provided a full valuation allowance for all periods for its net deferred tax assets as it cannot conclude it is more likely than not that they will be realized or limited and / or forfeited under the applicable provisions of the Internal Revenue Code.
As of December 31, 2013 and 2012, the Company did not have any unrecognized tax benefits. The Company's policy is to recognize interest and penalties related to income tax matters in income tax expense. The Company currently has no federal or state tax examinations in progress. The Company is subject to U.S. federal and state income tax examination for tax years from 2009 and forward.
NOTE 9 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
During the year ended December 31, 2013 the Company did not publish any of its operating results on a quarterly basis. The following provides the balance sheets and income statements for each quarterly period contained in the fiscal year ended December 31, 2013:
NOTE 10 - SUBSEQUENT EVENTS
On February 28, 2014 the Company entered into settlement agreements with three previous service providers in which a total of $578,730 of previously accrued expenses was converted to 11,574,600 shares of restricted and unregistered common stock at $0.05 per share.
On March 4, 2014 the Company entered into settlement agreements with note holders with a total principal balance of $1,141,740 via the issuance of 22,834,800 shares of restricted and unregistered common stock.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
No disclosure is required with respect Item 304(b) of Regulation S-K. Please see our disclosure contained under Item 4.01 filed in a Current Report on Form 8-K on April 1, 2014 with respect to disclosure pursuant to Item 304(a) of Regulation S-K.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Exchange Act and SEC’s rules, and that such information is accumulated and communicated to our management, including our Principal Executive Officer (who is also our Principal Financial Officer), to allow timely decisions regarding required disclosures. As of the end of the period covered by this Annual Report, management performed, with the participation of our Principal Executive Officer (who is also our Principal Financial Officer), an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”). Based on this evaluation, our Principal Executive Officer (who is also our Principal Financial Officer) concluded that, as of December 31, 2013, our disclosure controls and procedures were not effective.
(b) MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company in accordance with and as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (“Exchange Act”). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized transactions.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management has evaluated the effectiveness of the Company's internal control over financial reporting as of December 31, 2013. Management based its assessment on the framework set forth in COSO’s Internal Control - Integrated Framework (1992) in conjunction with Securities and Exchange Commission Release No. 33-8820 entitled "Commission Guidance Regarding Management’s Report on Internal Control Over Financial Reporting Under Section 13(a) or 15(d) of the Securities and Exchange Commission". Based on this evaluation, management concluded that internal control over financial reporting was not effective as of December 31, 2013.
As of December 31, 2013 the Company resumed its financial reporting activities that were dormant since the interim period ended September 30, 2010. The Company’s activities were subject to restrictions and limitations during this period due to a Court Order entered by the New Jersey Attorney General’s office based on its investigation of a significant investor, as reported elsewhere in this Annual Report and by the court appointment of a fiscal agent. As a result of the Company’s inactivity for the majority of the periods contained in this report, despite the Company’s efforts to accurately provide information regarding these periods, it is possible that the recognition of certain transactions may have been summarized and reported within the wrong period or not appropriately recognized. The Company is researching its options for remediating these weaknesses and establishing stronger internal control over financial reporting on a cost-effective basis.
(c) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There were no significant changes in our internal controls over financial reporting during the fiscal quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
Directors and Executive Officers
Our bylaws provide that we have at least one director, and as of the date this report was filed, our Board consisted of one director. The number of Directors may from time to time be increased or decreased to not less than one nor more than seven (7) by action of the Board of Directors. The Directors shall be elected at the annual meeting of the stockholders and each Director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Vacancies in the Board of Directors including those caused by an increase in the number of directors, may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, and each Director so elected shall hold office until his successor is elected at an annual or a special meeting of the stockholders. The holders of two-thirds of the outstanding shares of stock entitled to vote may at any time peremptorily terminate the term of office of all or any of the Directors by vote at a meeting called for such purpose or by a written statement filed with the secretary or, in his absence, with any other officer. Such removal shall be effective immediately, even if successors are not elected simultaneously and the vacancies on the Board of Directors resulting therefrom shall only be filled from the stockholders.
A vacancy or vacancies in the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any Directors, or if the authorized number of Directors be increased, or if the stockholders fail at any annual or special meeting of stockholders at which any Director or Directors are elected to elect the full authorized number of Directors to be voted for at that meeting.
The stockholders may elect a Director or Directors at any time to fill any vacancy or vacancies not filled by the Directors. If the Board of Directors accepts the resignation of a Director tendered to take effect at a future time, the Board or the stockholders shall have power to elect a successor to take office when the resignation is to become effective.
No reduction of the authorized number of Directors shall have the effect of removing any Director prior to the expiration of his term of office.
Current Director and Executive Officer
The sole director and executive officer of the Company currently serving is as follows:
Name
Age
Office
James C. Walter, Sr.
Director, Chief Executive Officer, Chief Financial Officer and Secretary
James C. Walter, Sr.
James C. Walter Sr., age 70, was appointed by the sole remaining Director of Indigo-Energy, Inc. on October 18, 2013 to the offices of President, Chief Financial Officer, Secretary, and sole Director, all of which to serve until replaced by the Board of Directors. Mr. Walter has had a 30 year career as an independent insurance broker and is a shareholder of the Company. Walter Insurance Agency, Inc. was owned and operated by Mr. Walter for 30 years before the company was sold in 2001. Since 2001, Mr. Walter has served as a business consultant. Additionally, Mr. Walter is a member of New Hope Partners LLC, which owns a majority of our outstanding common stock. Mr. Walter has assumed the duties as identified primarily in an interim capacity while the company goes through a restructuring and efforts to become filing and reporting current. In these capacities he has agreed to serve without remuneration or compensation of any kind other than reimbursement of out of pocket expenses relating to the execution of his duties.
Significant Employees
None.
Family Relationships
None.
Involvement in certain legal proceedings
The information under “Legal Proceedings” under Item 3 in Part 1 is incorporated herein by reference.
Other than such disclosure incorporated herein by reference, no director, person nominated to become a director, executive officer, promoter or control person of the Company has, during the last ten years: (i) been convicted in or is currently subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to any Federal or state securities or banking or commodities laws including, without limitation, in any way limiting involvement in any business activity, or finding any violation with respect to such law, nor (iii) any bankruptcy petition been filed by or against the business of which such person was an executive officer or a general partner, whether at the time of the bankruptcy or for the two years prior thereto.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, our directors, executive (and certain other) officers, and any persons holding ten percent or more of our common stock must report on their ownership of the common stock and any changes in that ownership to the Commission. Specific due dates for these reports have been established. Based solely on our review of reports received by us or written representations from the Reporting Persons, we believe that all of the Reporting Persons complied timely with all applicable Section 16(a) filing requirements during the fiscal year ended December 31, 2013.
Code of Ethics
We maintain the Code of Ethics for Senior Financial Officers, which is our code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, controller and other persons performing similar functions. A copy may also be obtained without charge upon request by writing to the following address: Corporate Secretary, Indigo-Energy, Inc. 74 N. Pecos Rd. Suite D. Green Valley Pkwy., Suite D, Henderson, Nevada 89074. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our code of ethics by posting the required information on our website, at the address and location specified above.
Security Holder Nominating Procedures
We do not have any formal procedures by which our stockholders may recommend nominees to our board of directors.
Corporate Governance; Committees of the Board of Directors
We do not have a nominating, compensation or audit committee, nor do we have an audit committee financial expert. As such, our sole Director acts as our audit committee and handles matters related to compensation and nominations of directors.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Executives and Directors Compensation
No compensation was provided to the Company’s executive officers with respect to the fiscal year ended December 31, 2013. Mr. James C. Walter is the only executive who served as a principal executive officer during fiscal 2013, and he is referred to herein as the “named executive officer.” The following table provides certain summary information concerning the named executive officer:
Summary Compensation Table
(1)As of October 18, 2013 Mr. Walter was appointed to serve as the President, Secretary, and sole Director of the Company.
Compensation of Executive Officers
As of December 31, 2013, we had no formal compensation plans in place for our named executive officer with regards to expected remuneration, including both salary and/or potential bonus programs. The Company is not party to any active employment agreement with respect to our named executive officer, or with any other director or executive officers.
James C. Walter Sr.
The Company has not entered into any written employment agreement or consulting agreement with Mr. Walter, Sr., who was not compensated for his services with respect to fiscal year 2013, and did not serve as an officer or director with respect to fiscal year 2012. Mr. Walter, Sr. is a significant stockholder of the Company.
Outstanding Equity Awards at Fiscal Year End
The table below sets forth the options and stock awards received by the named executive officer of the Company with respect to fiscal year 2013, and which remained outstanding as of December 31, 2013.
Option Awards Stock Awards
Name Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock that
Have Not
Vested
(#)
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
($)
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights that
Have Not
Vested
(#)
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights that
Have Not
Vested
(#)
James C. Walter Sr. 250,000 - - $0.25 10/16/17 - - - -
Compensation of Directors
The following table sets forth information regarding total compensation paid to each director who served during the fiscal years ended December 31, 2013 who is not a named executive officer. No compensation for service on the Board was paid to any director who was also one of our executive officers during fiscal 2013.
(1)Resigned as Board Member effective October 18, 2013.
As of the date of this report, the Company sole officer and director is James C. Walter Sr. who was appointed on October 18, 2013. See Current Report on Form 8-K filed on December 18, 2013 for more detail.
There are no current arrangements pursuant to which directors are or will be compensated in the future for any services provided as a director.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information, as of May 9, 2014, with respect to the beneficial ownership of the Company’s common stock by each person known by the Company to be the beneficial owner of more than 5% of the outstanding common stock, by each of the Company’s officers and directors, and by the officers and directors of the Company as a group.
*Each stockholder’s address is c/o Indigo Energy, Inc. 74 N. Pecos Road, Suite D, Henderson, Nevada 89074
** Less than 1%
(1) Based on an aggregate of 1,187,956,895 shares outstanding as of April 10, 2014, and outstanding options and warrants convertible into shares of common totaling 63,350,000 for a grand total of 1,252,306,895.
(2) Consists of (i) 10,000,000 stock options pursuant to the Company’s 2007 Stock Option Plan, all of which are currently exercisable (ii) 23,959,031 shares of common stock issued in the name of Mr. Durdin and (iii) 100,000 shares of common stock issued in the name of S. Durdin Insurance Agency, Inc, an entity of which Mr. Durdin is the controlling person.
Changes in Control
We are unaware of any arrangement the operation of which may at a subsequent date result in a change of control of the Company.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Other than as disclosed below, none of the following persons have, since our date of incorporation, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:
· Any person proposed as a nominee for election as a director;
· Any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of common stock;
· Any of our promoters;
· Any relative or spouse of any of the foregoing persons who has the same house as such person.
Related Transactions
During the years ended December 31, 2013 and 2012 certain members of New Hope Partners, significant debt and equity holders, provided the Company funding through operating advances, direct payments to service providers on behalf of the Company, and the entry into note payable arrangements in which the Company received gross proceeds of $nil and $21,740 respectively. During the year ended December 31, 2013 New Hope partners made payments on behalf of the Company totaling $59,009 which remained outstanding as of the date of this report.
Director Independence
Our sole director is not “independent.”
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company’s Board of Directors pre-approved all audit and non-audit services provided to us and during the periods listed below. The Company’s Board approves discrete projects on a case-by-case basis that may have a material effect on our operations and also considers whether proposed services are compatible with the independence of the public accountants.
The following table presents fees for professional services rendered by our auditors for the calendar years 2013 and 2012:
ITEM 15.
ITEM 15. EXHIBITS
Exhibits and Index of Exhibits
(1) Previously filed.
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
INDIGO-ENERGY, INC.
By: /s/ James C. Walter, Sr.
James C. Walter, Sr.
Sole Director, Principal Executive and Financial Officer
Date: May 9, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated.