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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 000-29541
BRONCO ENERGY FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 86-0972709
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2920 NORTH SWAN ROAD, SUITE 206
TUCSON, AZ 85712
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (520) 977-9654
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark
if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X| The registrant's common stock
is not listed on any exchange nor does it trade on any established securities
market or other market. At March 30, 2004, the aggregate market value of all
shares of voting stock held by non-affiliates was $0.00. In determining this
figure, the Registrant has assumed that all directors and executive officers are
affiliates. Such assumption shall not be deemed conclusive for any other
purpose. The number of shares outstanding of each class of the Registrant's
common stock, as of March 30, 2005, was as follows: Common Stock $.001 par
value, 11,376,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated: (1) any annual report to security holders; (2) any
proxy or information statement; and (3) any prospectus filed pursuant to Rule
424(b) or (c) of the Securities Act of 1933 ("Securities Act"): NONE
TABLE OF CONTENTS
FORM 10-K
ITEM NO. REPORT PAGE
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PART I
1. Business 1
2. Properties 14
3. Legal Proceedings 14
4. Submission of Matters to a Vote of Security Holders 14
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 14
6. Selected Financial Data 16
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 16
7A. Quantitative and Qualitative Disclosures About Market Risk 17
8. Financial Statements and Supplementary Data 18
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 29
9A Controls and Procedures 29
PART III
10. Managers and Executive Officers of the Registrant 29
11. Executive Compensation 32
12. Security Ownership of Certain Beneficial Owners and Management 33
13. Certain Relationships and Related Transactions 35
14. Principal Accountant Fees and Services 35
PART IV
15. Exhibits and Financial Statement Schedules 36
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FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's prospects are subject to certain uncertainties and risks. This
Annual Report on Form 10-K contains certain forward-looking statements within
the meaning of the federal securities laws that also involve substantial
uncertainties and risks. The Company's future results may differ materially from
its historical results and actual results could differ materially from those
projected in the forward-looking statements as a result of certain risk factors.
READERS SHOULD PAY PARTICULAR ATTENTION TO THE CONSIDERATIONS DESCRIBED IN THE
SECTION OF THIS REPORT ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Readers should also carefully
review the risk factors described in the other documents the Company files, or
has filed, from time to time with the Securities and Exchange Commission.
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PART I
ITEM 1. BUSINESS.
GENERAL
Bronco Energy Fund, Inc. (the "Company"), is a Nevada corporation formed in June
1997, with its principal offices and operations center in Tucson, Arizona.
Bronco Energy Fund, Inc., formerly known as Green Clover Luck Corporation, filed
on December 21, 2004, a notification under Form N54a with the U.S. Securities
and Exchange Commission, (the "SEC") indicating its election to be regulated as
a business development company under the Investment Company Act of 1940 (the
"1940 Act"). In connection with this election, the Company has adopted corporate
resolutions and intends to operate as a closed-end management investment company
as a business development company (a "BDC"). We have conducted limited
operations to date and do not have not made any investments. Under this recent
election, we have been organized to provide investors with the opportunity to
participate, with a modest amount in venture capital, in investments that are
generally not available to the public and that typically require substantially
larger financial commitments. In addition, we will provide professional
management and administration that might otherwise be unavailable to investors
if they were to engage directly in venture capital investing. We have decided to
be regulated as a business development company under the 1940 Act, and will
operate as a non-diversified company as that term is defined in Section 5(b)(2)
of the 1940 Act. We will at all times conduct our business so as to retain our
status as a BDC. We may not change the nature of our business so as to cease to
be, or withdraw our election as, a BDC without the approval of the holders of a
majority of our outstanding voting stock as defined under the 1940 Act.
As a business development company, we are required to invest at least 70% of our
total assets in qualifying assets, which, generally, are securities of private
companies or securities of public companies whose securities are not eligible
for purchase on margin (which includes many companies with thinly traded
securities that are quoted in the pink sheets or the NASD Electronic Quotation
Service). We must also offer to provide significant managerial assistance to
these portfolio companies. Qualifying assets may also include:
o cash,
o cash equivalents,
o U.S. Government securities, or
o high-quality debt investments maturing in one year or less from the
date of investment.
We may invest a portion of the remaining 30% of our total assets in debt and/or
equity securities of companies that may be larger or more stabilized than target
portfolio companies.
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NATURE OF A BDC
The 1940 Act defines a BDC as a closed-end management investment company that
provides small businesses that qualify as an eligible portfolio company with
investment capital and also significant managerial assistance. A BDC is required
under the 1940 Act to invest at least 70% of its total assets in qualifying
assets consisting of eligible portfolio companies as defined in the 1940 Act and
certain other assets including cash and cash equivalents.
An eligible portfolio company generally is a United States company that is not
an investment company and that:
o does not have a class of securities registered on an exchange or
included in the Federal Reserve Board's over-the-counter margin list;
o is actively controlled by a BDC and has an affiliate of a BDC on its
board of directors; or
o meets such other criteria as may be established by the SEC.
Control under the 1940 Act is presumed to exist where a BDC owns more than 25%
of the outstanding voting securities of the eligible portfolio company. We may
or may not control our portfolio companies.
An example of an eligible portfolio company is a new start up company or a
privately owned company that has not yet gone public by selling its shares in
the open market and has not applied for having its shares listed on a nationally
recognized exchange such as the NYSE the American Stock Exchange, National
Association of Securities Dealers' Automated Quotation System, or the National
Market System. An eligible portfolio company can also be one which is subject to
filing, has filed, or has recently emerged from reorganization protection under
Chapter 11 of the Bankruptcy Act.
A BDC may invest the remaining 30% of its total assets in non-qualifying assets,
including companies that are not eligible portfolio companies. The foregoing
percentages will be determined, in the case of financings in which a BDC commits
to provide financing prior to funding the commitment, by the amount of the BDC's
total assets represented by the value of the maximum amount of securities to be
issued by the borrower or lessee to the BDC pursuant to such commitment.
As a BDC, we must invest at least 70% of our total assets in qualifying assets.
PRIMARY STRATEGY
We will have significant relative flexibility in selecting and structuring our
investments. We will not be subject to many of the regulatory limitations that
govern traditional lending institutions such as banks. We will seek to structure
our investments so as to take into account the uncertain and potentially
variable financial performance of our portfolio companies. This should enable
our portfolio companies to retain access to committed capital at different
stages in their development and eliminate some of the uncertainty surrounding
their capital allocation decisions. We will calculate rates of return on
invested capital based on a combination of up-front commitment fees, current and
deferred interest rates and residual values, which may take the form of common
stock, warrants, equity appreciation rights or future contract payments. We
believe that this flexible approach to structuring investments will facilitate
positive, long-term relationships with our portfolio companies and enable us to
become a preferred source of capital to them. We also believe our approach
should enable debt financing to develop into a viable alternative capital source
for funding the growth of target companies that wish to avoid the dilutive
effects of equity financings for existing equity holders.
Longer Investment Horizon - We will not be subject to periodic capital return
requirements. These requirements, which are standard for most private equity and
venture capital funds, typically require that these funds return to investors
the initial capital investment after a pre-agreed time, together with any
capital gains on such capital investment. These provisions often force such
funds to seek the return of their investments in portfolio companies through
mergers, public equity offerings or other liquidity events more quickly than
they otherwise might, which can result in a lower overall return to investors
and adversely affect the ultimate viability of the affected portfolio companies.
Because we may invest in the same portfolio companies as these funds, we are
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subject to these risks if these funds demand a return on their investments in
the portfolio companies. We believe that our flexibility to take a longer-term
view should help us to maximize returns on our invested capital while still
meeting the needs of our portfolio companies.
Established Deal Sourcing Network - We believe that, through our management and
directors, we have solid contacts and sources from which to generate investment
opportunities. These contacts and sources include:
o public and private companies,
o investment bankers,
o attorneys,
o accountants,
o consultants, and
o commercial bankers.
However, we cannot assure you that such relationships will lead to the
origination of debt or other investments.
INVESTMENT CRITERIA
We have adopted a policy to invest, under normal circumstances, at least 80% of
the value of our assets in companies in the energy industry. We will provide our
shareholders with at least 60 days prior notice of any change in this policy to
invest primarily in the energy industry.
As a matter of policy, we will not purchase or sell real estate or interests in
real estate or real estate investment trusts except that we may:
o purchase and sell real estate or interests in real estate in connection
with the orderly liquidation of investments, or in connection with
foreclosure on collateral;
o own the securities of companies that are in the business of buying,
selling or developing real estate; or
o finance the purchase of real estate by our portfolio companies.
We will limit our investments in more traditional securities (stock and debt
instruments) and will not, as a matter of policy:
o sell securities short except with regard to managing the risks
associated with publicly-traded securities issued by our portfolio
companies;
o Purchase securities on margin (except to the extent that we may
purchase securities with borrowed money); or
o engage in the purchase or sale of commodities or commodity contracts,
including futures contracts except where necessary in working out
distressed loan; or
o investment situations or in hedging the risks associated with interest
rate fluctuations, and, in such cases, only after all necessary
registrations or exemptions from registration with the Commodity
Futures Trading Commission have been obtained.
Prospective Portfolio Company Characteristics - We have identified several
criteria that we believe will prove important in seeking our investment
objective with respect to target companies. These criteria will provide general
guidelines for our investment decisions; however, we caution readers that not
all of these criteria will be met by each prospective portfolio company in which
we choose to invest.
Experienced Management - We will generally require that our portfolio companies
have an experienced president or management team. We will also require the
portfolio companies to have in place proper incentives to induce management to
succeed and to act in concert with our interests as investors, including having
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significant equity interests. We intend to provide assistance in this area
either supervising management or providing management for our portfolio
companies.
Products or Services - We will seek companies that are involved in products or
services that do not require significant additional capital or research
expenditures. In general, we will seek target companies that make innovative use
of proven technologies or methods.
Proprietary Advantage - We expect to favor companies that can demonstrate some
kind of proprietary sustainable advantage with respect to their competition.
Proprietary advantages include, but are not limited to:
o patents or trade secrets with respect to owning or manufacturing its
products, and
o a demonstrable and sustainable marketing advantage over its competition
Marketing strategies impose unusual burdens on management to be continuously
ahead of its competition, either through some kind of technological advantage or
by being continuously more creative than its competition.
Profitable or Nearly Profitable Operations Based on Cash Flow from Operations -
We will focus on target companies that are profitable or nearly profitable on an
operating cash flow basis.
Potential for Future Growth - We will generally require that a prospective
target company, in addition to generating sufficient cash flow to cover its
operating costs and service its debt, demonstrate an ability to increase its
revenues and operating cash flow over time. The anticipated growth rate of a
prospective target company will be a key factor in determining the value that we
ascribe to any warrants or other equity securities that we may acquire in
connection with an investment in debt securities.
Exit Strategy - Prior to making an investment in a portfolio company, we will
analyze the potential for that company to increase the liquidity of its common
equity through a future event that would enable us to realize appreciation, if
any, in the value of our equity interest. Liquidity events may include:
o an initial public offering,
o a private sale of our equity interest to a third party,
o a merger or an acquisition of the portfolio company, or
o a purchase of our equity position by the portfolio company or one of
its stockholders.
We may acquire warrants to purchase equity securities and/or convertible
preferred stock of the eligible portfolio companies in connection with providing
financing. The terms of the warrants, including the expiration date, exercise
price and terms of the equity security for which the warrant may be exercised,
will be negotiated individually with each eligible portfolio company, and will
likely be affected by the price and terms of securities issued by the eligible
portfolio company to other venture capitalists and other holders. We anticipate
that most warrants will be for a term of five to ten years, and will have an
exercise price based upon the price at which the eligible portfolio company most
recently issued equity securities or, if a new equity offering is imminent,
equity securities. The equity securities for which the warrant will be exercised
generally will be common stock of which there may be one or more classes or
convertible preferred stock. Substantially all the warrants and underlying
equity securities will be restricted securities under the 1933 Act at the time
of the issuance. We will generally negotiate for registration rights with the
issuer that may provide:
o "piggyback" registration rights, which will permit us under certain
circumstances, to include some or all of the securities owned by us in
a registration statement filed by the eligible portfolio company, or
o in circumstances, "demand" registration rights permitting us under
certain circumstances, to require the eligible portfolio company to
register the securities under the 1933 Act, in some cases at our
expense. We will generally negotiate net issuance provisions in the
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warrants, which will allow us to receive upon exercise of the warrant
without payment of any cash a net amount of shares determined by the
increase in the value of the issuer's stock above the exercise price
stated in the warrant.
Liquidation Value of Assets - Although we do not intend to operate as an
asset-based lender, the prospective liquidation value of the assets, if any,
collateralizing any debt securities that we hold will be an important factor in
our credit analysis. We will emphasize both tangible assets, such as:
o accounts receivable,
o inventory, and
o equipment,
and intangible assets, such as:
o intellectual property,
o customer lists,
o networks, and
o databases.
INVESTMENT PROCESS
Due Diligence - If a target company generally meets the characteristics
described above, we will perform initial due diligence, including:
o company and technology assessments,
o existing management team,
o market analysis,
o competitive analysis,
o evaluation of management, risk analysis and transaction size,
o pricing, and
o structure analysis.
Much of this work will be done by management and professionals retained by
management. The criteria delineated above provide general parameters for our
investment decisions. We intend to pursue an investment strategy by further
imposing such criteria and reviews that best insures the value of our
investments. As unique circumstances may arise or be uncovered, not all of such
criteria will be followed in each instance but the process provides a guideline
by which investments can be prudently made and managed. Upon successful
completion of the preliminary evaluation, we will decide whether to deliver a
non-binding letter of intent and move forward towards the completion of a
transaction.
In our review of the management team, we look at the following:
o Interviews with management and significant shareholders, including any
financial or strategic sponsor;
o Review of financing history;
o Review of management's track record with respect to:
o product development and marketing,
o mergers and acquisitions,
o alliances,
o collaborations,
o research and development outsourcing and other strategic
activities;
o Assessment of competition; and
o Review of exit strategies.
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In our review of the financial conditions, we look at the following:
o Evaluation of future financing needs and plans;
o Detailed analysis of financial performance;
o Development of pro forma financial projections; and
o Review of assets and liabilities, including contingent liabilities, if
any, and legal and regulatory risks.
In our review of the products and services of the portfolio company, we look at
the following:
o Evaluation of intellectual property position;
o Review of existing customer or similar agreements and arrangements;
o Analysis of core technology;
o Assessment of collaborations;
o Review of sales and marketing procedures; and
o Assessment of market and growth potential.
Upon completion of these analyses, we will conduct on-site visits with the
target company's management team. Also, in cases in which a target company is at
a mature stage of development and if other matters that warrant such an
evaluation, we will obtain an independent appraisal of the target company.
ONGOING RELATIONSHIPS WITH PORTFOLIO COMPANIES
Monitoring - We will continuously monitor our portfolio companies in order to
determine whether they are meeting our financing criteria and their respective
business plans. We may decline to make additional investments in portfolio
companies that do not continue to meet our financing criteria. However, we may
choose to make additional investments in portfolio companies that do not do so,
but we believe that we will nevertheless perform well in the future.
We will monitor the financial trends of each portfolio company to assess the
appropriate course of action for each company and to evaluate overall portfolio
quality. Our management team and consulting professionals, who are well known by
our management team, will closely monitor the status and performance of each
individual company on at least a quarterly and, in some cases, a monthly basis.
We will use several methods of evaluating and monitoring the performance and
fair value of our debt and equity positions, including but not limited to the
following:
o Assessment of business development success, including product
development, financings, profitability and the portfolio company's
overall adherence to its business plan;
o Periodic and regular contact with portfolio company management to
discuss financial position, requirements and accomplishments;
o Periodic and regular formal update interviews with portfolio company
management and, if appropriate, the financial or strategic sponsor;
o Attendance at and participation in board meetings;
o Review of monthly and quarterly financial statements and financial
projections for portfolio companies.
Managerial Assistance - As a business development company, we will offer, and in
many cases may provide, significant managerial assistance to our portfolio
companies. This assistance will typically involve:
o monitoring the operations of our portfolio companies,
o participating in their board and management meetings,
o consulting with and advising their officers, and
o providing other organizational and financial guidance.
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DIVERSIFICATION
As a BDC, we must invest at least 70% of our total assets in qualifying assets
consisting of investments in eligible portfolio companies and certain other
assets including cash and cash equivalents. In order to receive favorable
pass-through tax treatment on its distributions to our shareholders, we intend
to diversify our pool of investments in such a manner so as to qualify as a
diversified closed end management investment company. However, because of the
limited size of the funding which is likely to be available to us, we will
likely be classified as a non-diversified closed end investment company under
the 1940 Act. Until we qualify as a regulated investment company, we will not be
subject to the diversification requirements applicable to RICs under the
Internal Revenue Code. Therefore, we will not receive favorable pass through tax
treatment on distributions to our shareholders. In the future, we will seek to
increase the diversification of our portfolio so as to make it possible to meet
the RIC diversification requirements, as described below. We cannot assure you,
however, that we will ever be able to meet those requirements.
To qualify as a RIC, we must meet the issuer diversification standards under the
Internal Revenue Code that require that, at the close of each quarter of our
taxable year,
o not more than 25% of the market value of our total assets is invested
in the securities of a single issuer, and
o at least 50% of the market value of our total assets is represented by
cash, cash items, government securities, securities of other RICs, and
other securities. Each investment in these other securities is limited
so that not more than 5% of the market value of our total assets is
invested in the securities of a single issuer and we do not own more
than 10% of the outstanding voting securities of a single issuer.
For purposes of the diversification requirements under the Internal Revenue
Code, the percentage of our total assets invested in securities of a portfolio
company will be deemed to refer, in the case of financings in which we commit to
provide financing prior to funding the commitment, to the amount of our total
assets represented by the value of the securities issued by the eligible
portfolio company to us at the time each portion of the commitment is funded.
INVESTMENT AMOUNTS
The amount of funds committed to a portfolio company and the ownership
percentage received will vary depending on the maturity of the portfolio
company, the quality and completeness of the portfolio company's management
team, the perceived business opportunity, the capital required compared to
existing capital, and the potential return. Although investment amounts will
vary considerably, we expect that the average investment, including follow-on
investments, will be between $25,000 and $500,000.
COMPETITION
Our primary competitors to provide financing to target companies will include
private equity and venture capital funds, other equity and non-equity based
investment funds and investment banks and other sources of financing, including
traditional financial services companies such as commercial banks and specialty
finance companies. Many of these entities have substantially greater financial
and managerial resources than we will have. We believe that our competitive
advantage with regard to quality target companies relates to our ability to
negotiate flexible terms and to complete our review process on a timely basis.
We cannot assure you that we will be successful in implementing our strategies.
THE COMPANY AND ITS STRUCTURE
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors is empowered to manage and oversee the operations of a
BDC. As such, these decisions will be made according to guidelines adopted for
that purpose. Directors will be paid up to $1,000 per board meeting, and will be
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reimbursed by the Company for any expenses incurred in attending directors'
meetings, provided that the Company has the cash resources to pay these fees.
The Company will consider applying for officers and directors liability
insurance at such time when it has the resources to do so.
AUDIT COMMITTEE
An Audit Committee charter has been accepted and under the independent
directorship control of a majority of independent directors. The audit committee
will review the results and scope of the audit and other services provided by
the independent auditors and review and evaluate the system of internal
controls. The audit committee will assist in determining the carrying values of
portfolio investments.
INVESTMENT COMMITTEE
An Investment Committee charter and policy has been approved by, and is under
the directorship control of, a majority of independent directors. The function
of the charter and the committee will be to review and approve all investments
in excess of $25,000 and assist in determining the carrying values of portfolio
investments.
COMPENSATION COMMITTEE
A Compensation Committee charter and policy has been approved by, and is under
the directorship of, a majority of independent directors. The purpose of the
compensation committee will be to manage any stock option plan and review and
recommend compensation arrangements for the directors and officers.
NOMINATING COMMITTEE
A Nominating Committee charter has been accepted and under the independent
directorship control of a majority of independent directors. The primary role of
the Nominating Committee is to actively seek individuals qualified to become
members of the board of directors, while ensuring that proper evaluations and
performances are upheld within the boards.
VERIFICATION OF INDEPENDENT DIRECTORS
A resolution has been adopted and a policy for determination of Directors
independence has been established. Our independent directors have proclaimed and
established themselves as independent via the following proclamation as
established by the Independence Charter, including:
o within the last five (5) years, has not received more than $50,000 per
year in direct compensation from the Corporation or any of its
affiliates other than director and committee fees and pension or other
forms of deferred compensation for prior service (provided such
compensation is not contingent in any way on continued service);
o within the last five (5) years, has not been affiliated with or
employed by any independent audit firm presently acting as auditor of
the Corporation or an affiliate of the Corporation or having acted as
such an auditor during the previous 5 years;
o within the past five (5) years, has had no personal service
relationships and has not been affiliated with an organization that has
had a personal service relationship with the Corporation, or with a
member of the Corporation's senior management;
o within the past (5) years, has not accepted any fee or compensation
from the Corporation other than director's fees and compensation;
o within the last five (5) years, has not had any material business
relationship (such as commercial, industrial, consulting, legal, or
accounting) with the Corporation for which the Corporation has been
required to make disclosure under Regulation S-K of the Securities and
Exchange Commission; and;
o within the past five (5) years, has not been part of an interlocking
directorate in which an executive officer of the Corporation serves on
the compensation committee or a committee of a similar nature of
another company that concurrently employs the director.
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STOCK OPTION PLAN
There presently is no stock option plan.
EXECUTIVE COMPENSATION
No officer, director or employee has received any cash compensation to date, and
no director, officer or employee has a contract or commitment to receive annual
compensation in excess of $100,000. We have an employment contract with Dan
Baker, our President, for a salary in the amount of $60,000 per year. We have an
employment contract with James Marshall, our Treasurer, for a salary in the
amount of $36,000 per year. We have an employment contract with Kevin Sherlock,
our Secretary, for a salary in the amount of $36,000 per year. We have no other
employment contracts or commitments. These officer salaries are contingent on
the Company having the cash flow and/or cash reserves to meet its operating
expenses.
CONFLICTS OF INTEREST
None of our key personnel is required to commit full time to our affairs and,
accordingly, these individuals may have conflicts of interest in allocating
management time among their various business activities. In the course of their
other business activities, certain key personnel may become aware of investment
and business opportunities which may be appropriate for presentation to us, as
well as the other entities with which they are affiliated. As such, they may
have conflicts of interest in determining to which entity a particular business
opportunity should be presented.
Each officer and director is, so long as he is officer or director subject to
the restriction that all opportunities contemplated by our plan of operation
that come to his attention, either in the performance of his duties or in any
other manner, will be considered opportunities of, and be made available to us
and the companies that he is affiliated with on an equal basis. A breach of this
requirement will be a breach of the fiduciary duties of the officer or director.
If we, or the companies to which the officer or director is affiliated, desire
to take advantage of an opportunity, then the applicable officer or director
would abstain from negotiating and voting upon the opportunity. However, to the
extent permitted under the 1940 Act, the officer or director may take advantage
of opportunities if we should decline to do so. We have adopted a formal
conflict of interest policy in connection with these types of transactions.
CODE OF ETHICS
We have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that
establishes procedures for personal investments and restricts certain personal
securities transactions. Personnel subject to each code may invest in securities
for their personal investment accounts, including securities that may be
purchased or held by us, so long as such investments are made in accordance with
the code's requirements.
EMPLOYEES
As of March 30, 2005, we had 3 employees. Various aspects of due diligence of
prospective portfolio companies and monitoring the activities of portfolio
companies may be subcontracted to consultants. The Company may require
additional employees in the areas of administration, sales and marketing, etc.
in the future and as additional portfolio companies are added. There is intense
competition for capable, experienced personnel and there is no assurance the
Company will be able to obtain new qualified employees when required. The
Company believes its relations with its employees are good.
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FINANCIAL AND OTHER INFORMATION
FINANCIAL INFORMATION
We have conducted limited operations to date and do not have not made any
investments, and has no revenues or assets.
PORTFOLIO INVESTMENTS.
The Company presently has no portfolio investments. In February, 2005, the
Company formed four wholly owned subsidiaries:
Bronco Coal Co., an Arizona corporation
Bronco Emerging Technologies, Co., an Arizona corporation
Bronco Green Power Co., an Arizona corporation
Bronco Coal Company, an Utah corporation
TAX INFORMATION
The following is a general summary of certain of the United States Federal
income tax laws relating to us and our future investors if any. This discussion
is based on the Internal Revenue Code, regulations, published rulings and
procedures and court decisions as of the date hereof pertaining to Regulated
Investment Companies (an "RIC") and Ordinary Corporations (typically taxed
pursuant to Subchapter C of the Internal Revenue Code). The tax law, as well as
the implementation thereof, is subject to change, and any such change might
interfere with our ability ever to qualify as a RIC or, if we so qualify, to
maintain such qualification. This discussion does not purport to deal with all
of the United States Federal income tax consequences applicable to us or to all
categories of investors, some of whom may be subject to special rules. In
addition, it does not address state, local, foreign or other taxes to which we
or our investors may be subject, or any proposed changes in applicable tax laws.
Investors should consult their tax advisers with respect to an investment in our
securities.
Taxation of the Company as an Ordinary Corporation - We anticipate that, in the
future, we will seek to meet the requirements, including diversification
requirements, to qualify for the special pass-through status available to RICs
under the Internal Revenue Code, and thus to be relieved of Federal income tax
on that part of our net investment income and realized capital gains that we
distribute to shareholders. Unless and until we meet these requirements, we will
be taxed as an ordinary corporation on our taxable income even if that income is
distributed to shareholders, and all distributions out of our earnings and
profits will be taxable to shareholders as dividends. Thus, such income will be
subject to a double layer of tax although corporate shareholders may be entitled
to a dividends-received deduction. We cannot assure you that we will ever meet
the requirements to qualify as a RIC. If we are unable to qualify for treatment
as a RIC, we would not be able to deduct distributions to stockholders, nor
would they be required to be made.
Taxation of the Company as a RIC. Consequences of Converting from an Ordinary
Corporation to a RIC - In order to qualify as a RIC, we must, at the end of the
first year in which we so qualify, have no accumulated earnings and profits from
years in which we were not taxed as a RIC. To meet this requirement, we must,
before the end of the first year in which we qualify as a RIC, distribute as
dividends all of our accumulated earnings and profits.
RIC Qualification Requirements - To qualify as a RIC, we must distribute to our
shareholders for each taxable year at least 90% of our investment company
taxable income consisting generally of net investment income and net short-term
capital gains and must meet several additional requirements. Among the
requirements are the following:
o We must derive at least 90% of our gross income each taxable year from
dividends, interest, payments with respect to loans of securities and
gains from the sale or other disposition of securities or other income
derived with respect to our business of investing in securities;
o We must derive less than 30% of its gross income each taxable year from
gains from the sale or other disposition of securities held for less
than three months;
10
o We must diversify our assets so that, at the close of each quarter of
our taxable year, not more than 25% of the market value of our total
assets is invested in the securities of a single issuer or in the
securities of two or more issuers that we control and that are engaged
in the same or similar trades or businesses or related trades or
businesses; and
o at least 50% of the market value of our total assets is represented by
cash, cash items, government securities, securities of other RICs and
other securities, with each investment in such other securities limited
so that not more than 5% of the market value of our total assets is
invested in the securities of a single issuer and we do not own more
than 10% of the outstanding voting securities of a single issuer; and
o We must file an election to be treated as a RIC. If, after initially
qualifying as a RIC, we fail to qualify for treatment as a RIC for a
taxable year, we would be taxed as an ordinary corporation on our
taxable income for that year and all distributions out of our earnings
and profits would be taxable to shareholders as dividends (that is,
ordinary income). In such a case, there may be substantial tax and
other costs associated with re-qualifying as a RIC.
Taxation of the Company's Shareholders - Dividends paid to shareholders that are
attributable to our net investment income will be taxable to shareholders as
ordinary income. Capital gain distributions are taxable as long-term capital
gains regardless of how long the shareholder has held our shares. It is not
anticipated that a significant portion of our dividends will qualify for the
dividends received deduction for corporations. Distributions are generally
taxable to shareholders at the time the distribution is received. However, any
distribution declared by the Company in October, November or December, made
payable to shareholders of record in such a month and paid the following
January, is deemed to have been paid by the Company and received by shareholders
on December 31 of the year declared. This will prevent the application of the
excise tax to the Company as a result of the delay in the payment of the
dividends.
If, for any calendar year, the Company's total distributions exceed its net
investment income and net capital gains, the excess will generally be considered
a tax-free return of capital to a shareholder to the extent of the shareholder's
adjusted basis in its shares and then as capital gain. The amount treated as
tax-free return of capital will reduce the adjusted basis of a shareholder's
shares, thereby increasing the potential gain or reducing the potential loss on
the sale of the shares.
In general, upon the sale or other disposition of shares, the selling
shareholder will recognize a gain or loss equal to the difference between the
amount realized on the sale and the seller's adjusted basis in the shares. Any
loss realized will be disallowed to the extent the seller has acquired (or
entered into a contract to acquire) substantially identical shares within a
period beginning 30 days before the disposition of shares and ending 30 days
after the disposition. In such case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Gain or loss realized upon a sale of
shares generally will be treated as a capital gain or loss. The gain or loss
will be a long-term capital gain or loss if the shares were held for more than
one year. In addition, if the shares sold were not held for more than six
months, any loss on the sale will be treated as long-term capital loss to the
extent of any capital gain dividend received by the shareholder with respect to
these shares.
The Company is required to withhold amounts on distributions to individuals and
certain other non-corporate shareholders who do not provide the Company with a
correct taxpayer identification number or who otherwise are subject to backup
withholding.
Federal withholding taxes at a rate of 30%, or a lesser treaty rate, may apply
to distributions to shareholders who are nonresident aliens or foreign
partnerships, trust or corporations. The rules governing United States federal
income taxation of foreign shareholders are complex, and prospective non-U.S.
shareholders should consult with their own tax advisors to determine the impact
of federal, state and local income tax laws with regard to an investment in
shares, including any reporting requirements.
Individuals and certain other shareholders will be required to include in their
gross income an amount of certain Company expenses relating to the production of
gross income that are allocable to the shareholder. These shareholders,
therefore, will be deemed to receive gross income from the Company in excess of
the distributions that they actually receive. These allocated expenses may be
11
deductible by an individual shareholder as a miscellaneous itemized deduction,
subject to the limitation on miscellaneous itemized deductions not exceeding 2%
of adjusted gross income. The Company will notify shareholders following the end
of each calendar year of the amounts of dividends and capital gain distributions
paid or deemed paid during the year.
Tax-Exempt Investors. Qualified plans, individual retirement accounts and
investors exempt from taxation under the internal Revenue Code Section 501(c)(3)
are generally exempt from taxation except to the extent that they have unrelated
business taxable income, determined in accordance with Internal Revenue Code
Sections 511-514. If the Company qualifies as a RIC, it is likely that
distributions to a tax-exempt entity shareholder that are treated as dividends
will not be considered UBTI and will therefore be exempt from federal income tax
even if the Company borrows to acquire its investment assets. Under Section
512(b) of the Internal Revenue Code, UBTI does not include dividends received by
a tax-exempt entity. As a general rule, the income tax provisions relating to
corporation apply to RICs, unless Subchapter M of the Internal Revenue Code
provides otherwise, and thus Section 512(b) should apply to exclude from UBTI
dividends paid by a RIC to a tax-exempt entity. This conclusion is also
supported by Revenue Ruling 66-106, which applies Section 512(b) to exclude from
UBTI dividends paid to the tax-exempt shareholders of a real estate investment
trust, a conduit entity that invests in real estate and is substantially similar
to a RIC for tax purposes, on the same theory. However, if a tax-exempt entity
borrows money to purchase its shares, a portion of its income from the Company
will constitute UBTI pursuant to the "debt-financed property rules."
Social clubs, voluntary employee benefit associations, supplemental unemployment
benefit trusts, and qualified group legal service organizations that are exempt
from taxation under Internal Revenue Code Sections 501(c)(7), (9), (17) and
(20), respectively, are subject to different UBTI rules, which generally will
require them to characterize distributions from the Company as UBTI. Dividends
distributions by the Company to a charitable organization that is a private
foundation should constitute investment income for purposes of the excise tax on
net investment income of private foundations imposed by Section 4940 of the
Internal Revenue Code.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We must report annually to the IRS the amount of dividends or other
distributions we pay to you on your shares of our common stock and the amount of
tax we withhold on these distributions regardless of whether withholding is
required. The IRS may make copies of the information returns reporting those
dividends and amounts withheld available to the tax authorities in the country
in which you reside pursuant to the provisions of an applicable income tax
treaty or exchange of information treaty.
The United States imposes a backup withholding tax (currently at the rate of
30%, but subject to future adjustment) on dividends and certain other types of
payments to certain U.S. persons, non U.S. Persons and non-resident U.S. aliens
With respect to certain U.S. persons, any amounts withheld with respect to your
shares of our common stock under the backup withholding rules will be refunded
to you or credited against your U.S. federal income tax liability, if any, by
the IRS if the required information is furnished in a timely manner.
OTHER REGULATORY MATTERS
We are a business development company under the 1940 Act. The 1940 Act contains
prohibitions and restrictions relating to transactions between business
development companies and their affiliates, including any investment advisers or
sub-advisers, principal underwriters and affiliates of those affiliates or
underwriters and requires that a majority of the directors be persons other than
interested persons, as that term is defined in the 1940 Act. In addition, the
1940 Act provides that we may not change the nature of our business so as to
cease to be, or to withdraw our election as, a business development company
unless approved by a majority of our outstanding voting securities.
12
We are permitted, under specified conditions, to issue multiple classes of
indebtedness and one class of stock senior to our common stock if our asset
coverage, as defined in the 1940 Act, is at least equal to 200% immediately
after each such issuance. In addition, while any senior securities remain
outstanding, we must make provisions to prohibit any distribution to our
stockholders or the repurchase of such securities or shares unless we meet the
applicable asset coverage ratios at the time of the distribution or repurchase.
We may also borrow amounts up to 5% of the value of our total assets for
temporary or emergency purposes. Regulations governing our operation as a BDC
will affect our ability to, and the way in which we raise additional capital,
which may expose us to risks, including the typical risks associated with
leverage.
No new pronouncement issued by the Financial Accounting Standards Board, the
American Institute of Certified Public Accountants or the Securities and
Exchange Commission is expected to have a material impact on the Company's
financial position or reported results of operations.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of our outstanding shares of common stock will be
determined quarterly, as soon as practicable after, and as of the end of each
calendar quarter, by dividing the value of total assets minus total liabilities
by the number of shares outstanding at the date as of which such determination
is made.
In calculating the value of our total assets, we will value securities that are
publicly traded at the closing price on the valuation date for exchange traded
and NASDAQ listed securities or the average of the bid and asked prices for
other securities. Debt and equity securities that are not publicly traded will
be valued at fair value as determined in good faith by a valuation committee of
our board of directors based on the recommendation by our investment adviser and
under valuation guidelines adopted by our board of directors, and then approved
by our entire board of directors. Initially, the fair value of these securities
will be their original cost. Debt securities valued at cost would be revalued
for significant events affecting the issuer's performance and equity securities
valued at cost would be revalued if significant developments or other factors
affecting the investment provide a basis for valuing the security at a price
other than cost, such as
o results of subsequent financing,
o the availability of market quotations,
o the portfolio company's operations and
o changes in market conditions.
For warrants, our cost usually will be a nominal amount, such as $.01 per share.
Debt securities with remaining maturities of 60 days or less at the time of
purchase will be valued at amortized cost. Debt securities which are publicly
traded will be valued by using market quotations obtained from pricing services
or dealers. Our valuation guidelines will be subject to periodic review by our
board of directors and may be revised in light of our experience, regulatory
developments or otherwise.
Determination of fair values involves subjective judgment and estimates not
susceptible to substantiation by auditing procedures. Accordingly, under current
auditing standards, the notes to our financial statements will refer to the
uncertainty with respect to the possible effect of such valuations, and any
change in such valuations, on our financial statements.
INTERNATIONAL
The Company has no international operations, investments or holdings.
13
TECHNOLOGY PROTECTION POLICY AND DISCLAIMERS
The Company does not presently maintain any patents, trademarks or trade names.
Due to the nature of business, it is presently anticipated that one or more of
its eligible portfolio companies as presently contemplated will benefit from
such protection and the Company will likely seek protection or advise its
eligible portfolio companies to do so. The Company does not rely on the
protections afforded under patents, trademarks or trade names laws generally but
advises that its eligible portfolio companies may and the failure to obtain such
protection or enforce rights granted there under may adversely affect the value
of such portfolio companies.
GOVERNMENT REGULATION
Aside from regulation associated with the Company's status as an investment
company under the Investment Company Act of 1940, and as a 1933 Act filer, the
Company is not subject to any additional government regulation.
INSURANCE
The Company does not carry director and officer liability insurance, but Nevada
law provides for indemnification of a company's officers and directors under
certain circumstances (see Indemnification). The Company does not carry any
additional insurance. The Company will consider applying for officers and
directors liability insurance at such time when it has the resources to do so.
LEGAL PROCEEDINGS
The Company is not presently named as a defendant in any case and is not aware
of any pending or threatened litigation.
INDEMNIFICATION
As permitted by the provisions of the Nevada General Corporation Law, the
Company has the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation if such officer or director acted in good faith and in
a manner reasonably believed to be in or not opposed to the best interest of the
Company. Any such person may be indemnified against expenses, including
attorneys' fees, judgments, fines and settlements in defense of any action, suit
or proceeding. This provision of state law may not be in conformity with laws
relating to investment companies. Further, governing state laws permit a
corporation to purchase and maintain liability insurance on behalf of its
officers, directors, employees and agents. The Company does not presently
maintain such liability insurance but intends to. The Company intends to obtain
such additional insurance as is required by investment companies relating to the
holding of securities and other assets.
ITEM 2. PROPERTIES.
The Company does not own or lease any physical properties.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
14
The Company has 100,000,000 shares of common stock, with $0.001 par value
authorized. As of March 30, 2005, 11,376,000 shares of common stock were issued
and outstanding. There is no established public trading market for the Company's
securities.
HOLDERS
There were 51 holders of record of our common stock as of March 30, 2005.
DIVIDENDS AND DISTRIBUTIONS
There were no dividends or distributions paid during fiscal year ends December
31, 2004 or 2003. The Company does not currently anticipate paying any dividends
on its common stock. In the event of a liquidation, dissolution or winding up of
its affairs, the holders of shares of common stock are entitled to share
pro-rata all assets remaining after payment in full of all liabilities, subject
however, to any rights of the shareholders of any preferred shares issued and
outstanding at the time of such liquidation, dissolution or winding up of the
Company. Holders of common stock have no preemptive rights to purchase our
common stock. There are no conversion rights or redemption or sinking fund
provisions with respect to the common stock.
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of 100,000,000
shares of common stock, with a par value of $0.001 per share, of which
11,376,000 shares are issued and outstanding as of March 30, 2005.
Holders of shares of common stock are entitled to one vote for each share on all
matters to be voted on by the shareholders. Holders of common stock have no
cumulative voting rights.
PREFERRED STOCK
The Company does not presently have any preferred stock authorized, issued, or
outstanding.
OPTIONS
The Company has a total of 4,300,000 stock options (all held by directors)
outstanding as of March 30, 2005.
WARRANTS
The Company does not presently have any warrants outstanding.
OTHER SECURITIES
There are no other securities or debt instruments outstanding as of the date
hereof.
RECENT SALES OF UNREGISTERED SECURITIES
On December 16, 2004, the Company purchased 800,000 of its outstanding common
shares for a note payable of $150,000. These shares were returned to treasury
and cancelled.
On January 4, 2005, the Company authorized the issuance of 4,300,000 shares of
common stock to nine directors for services rendered. As a result of this
issuance, $4,300 in compensation expense was recorded. Also on January 4, 2005,
the Company authorized the issuance of options for a total of 4,300,000 shares
of common stock, exercisable at $0.01 per share to nine directors.
On February 9, 2004, the Company authorized the issuance of 900,000 shares of
common stock to three directors for services rendered. As a result of this
issuance, $900 in compensation expense was recorded.
15
Also on February 9, 2005, the Company authorized the issuance of options for a
total of 900,000 shares of common stock, exercisable at $0.01 per share to three
directors.
During February and March of 2005, directors options for 900,000 common shares
were exercised at the price of $0.01 per share.
On January 24, 2005, the Company filed a Form 1-E with the SEC, proposing to
sell up to $5,000,000 of its common stock at prices between $0.05 and $5.00.
On February 8, 2005, pursuant to the Regulation 1-E exemption, the Company
converted its outstanding promissory notes in the amount of $250,000 for
5,000,000 shares of common stock at the price of $0.05.
During February and March of 2005, pursuant to the Regulation 1-E exemption, the
Company sold a total of 76,000 shares of common stock at the price of $0.50 to
14 purchasers.
ITEM 6. SELECTED FINANCIAL DATA.
FISCAL YEAR ENDED 12/31/04 12/31/03 12/31/02
- ----------------- -------- -------- --------
FINANCIAL POSITION
Investments in securities $ 0 $ 0 $ 0
Other Assets 0 0 0
Total Assets 0 0 0
Liabilities 260,318 818 518
Net Assets (260,318) (818) (518)
CHANGES IN NET ASSETS
Net investment income (loss) 0 0 0
Net gain (loss) on investments 0 0 0
Dividends -- -- --
PER SHARE DATA
Net Assets (1.30) -- --
Dividends Paid -- -- --
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
We have conducted limited operations to date. We have been organized to provide
investors with the opportunity to participate, with a modest amount in venture
capital, in investments that are generally not available to the public and that
typically require substantially larger financial commitments. In addition, we
will provide professional management and administration that might otherwise be
unavailable to investors if they were to engage directly in venture capital
investing.
At December 31, 2004, the Company held $0 in assets as compared to $0 in assets
at December 31, 2003.
Cash and cash equivalents from inception to date have been insufficient to
provide the operating capital necessary to operate the Company. The necessary
capital to operate the Company was initially provided by the principals and
founders of the Company in the form of both debt and capital stock issuances as
set forth in the financial statements incorporated herein. In order to raise
capital, the Company, On January 24, 2005, filed a Form 1-E with the SEC,
proposing to sell up to $5,000,000 of its common stock at prices between $0.05
and $5.00. Pursuant to the 1-E exemption, the Company, through March 30, 2005,
16
converted outstanding promissory notes in the amount of $250,000 for 5,000,000
shares of common stock at the price of $0.05, and sold a total of 76,000 shares
of common stock at the price of $0.50 to 14 purchasers.
In summary, there has been an absence of liquidity and capital resources to
operate the Company self-sufficiently. Such inadequacy will continue until the
Company is able to raise additional funds pursuant to the filed 1-E exemption,
or by securing funding partners.
The Company believes that its liquidity and capital resources are adequate to
satisfy its current operational needs as well as its investment objectives.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
For the fiscal year ended December 31, 2004, the Company had no investment
income, and operating expenses of $109,500, resulting in a net loss of
($109,500). For the fiscal year ended December 31, 2003, the Company had no
investment income, and operating expenses of $300, resulting in a net loss of
($300). The increase in expenses is due primarily to consulting expenses in the
amount of $100,000 associated with obtaining guidance for the Company on
becoming a business development company.
NET ASSETS
The Company's net assets were $(260,318), or a net asset value per share of
$(1.30), at December 31, 2004. This represents a decline of $(259,500), or
($1.2975) per share, from net assets of $(818), at December 31, 2003. This
decline in net asset value per unit is comprised primarily of short term notes
payable totaling $250,000 at December 31, 2004, consisting of $100,000 for
consulting expenses and $150,000 for the purchase and cancellation of 800,000
shares of treasury stock.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Under the supervision of the Company's Valuation and Audit Committees,
consisting of the independent directors of the Company, the Investment Advisers
will make certain critical accounting estimates with respect to the valuation of
private portfolio investments. As the Company had not yet commenced its
investing activities, the Company has no portfolio investments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
EQUITY PRICE RISK
The Company anticipates that a majority of its investment portfolio will consist
of securities in private companies and private investment funds, which are not
publicly traded. These investments would be recorded at fair value as determined
by the Investment Advisers in accordance with valuation guidelines adopted by
the Board of Directors. This method of valuation does not result in increases or
decreases in the fair value of these securities in response to changes in market
prices. Thus, these securities would not be subject to equity price risk
normally associated with public equity markets, except that to the extent that
the private investment funds hold underlying public securities, the Company is
indirectly exposed to equity price risk associated with the public markets.
Thus, there is no exposure to equity price risk, estimated as the potential loss
in fair value due to a hypothetical 10% decrease in quoted market prices. At
December 31, 2004, the Company held no publicly traded equity securities.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Auditor
Balance Sheets at December 31, 2004, and December 31, 2003
Statements of Operations for the years ended December 31, 2004, December 31,
2003 and December 31, 2002
Statements of Stockholders' Equity Since June 19, 1997 (inception) to December
31, 2004
Statements of Cash Flows for the years ended December 31, 2004, December 31,
2003 and December 31, 2002
Notes to Financial Statements
* * *
CONTENTS
Page
Independent Auditor's Report............................................F - 1
Balance Sheets
December 31, 2004 and 2003............................................F - 2
Statements of Operations for the
Years Ended December 31, 2004, 2003 and 2002..........................F - 3
Statement of Stockholders' Equity
Since June 19, 1997 (inception) to December 31, 2004...................F - 4
Statements of Cash Flows for the
Years Ended December 31, 2004, 2003 and 2002..........................F - 5
Notes to Financial Statements...........................................F - 6
18
INDEPENDENT AUDITOR'S REPORT
Bronco Energy Fund, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheets of Bronco Energy Fund,
Inc. (formerly known as Green Clover Luck Corporation) (a development stage
company) as of December 31, 2004 and 2003, and the related statements of
operations, and cash flows for the three years ended December 31, 2004, and the
statement of stockholders' equity from June 19, 1997 (inception) to December 31,
2004. 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, the financial statements referred to above present
fairly, in all material respects, the financial position of Bronco Energy Fund,
Inc. (formerly known as Green Clover Luck Corporation) (a development stage
company) as of December 31, 2004 and 2003, and the results of its operations and
its cash flows for the three years ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of America..
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Respectfully submitted
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
February 28, 2005
F - 1
19
BRONCO ENERGY FUND, INC.
(formerly known as Green Clover Luck Corporation)
(A Development Stage Company)
BALANCE SHEETS
December 31,
-------------------------------------
2004 2003
----------------- ------------------
Assets: $ - $ -
================= ==================
Liabilities
Accounts Payable $ 10,318 $ 818
Short-term Notes Payable 250,000 -
----------------- ------------------
Total Liabilities 260,318 818
Stockholders' Equity:
Common Stock, Par value $.001
Authorized 100,000,000 shares,
Issued 200,000 Shares at December 31, 2004
1,000,000 Shares at December 31,
2003 and 2002 200 1,000
Paid-In Capital - 3,588
Retained Deficit (1,200) (1,200)
Deficit Accumulated During the
Development Stage (259,318) (4,206)
----------------- ------------------
Total Stockholders' Equity (260,318) (818)
----------------- ------------------
Total Liabilities and
Stockholders' Equity $ - $ -
================= ==================
The accompanying notes are an integral part of these financial statements.
F - 2
20
BRONCO ENERGY FUND, INC.
(formerly known as Green Clover Luck Corporation)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
since
October 20,
1999
For the year ended inception of
December 31, development
-------------------------------------------------------
2004 2003 2002 stage
----------------- ------------------ ------------------ ------------------
Revenues: $ - $ - $ - $ -
Expenses:
Consulting Expense 100,000 - - 100,000
General and Administrative 9,500 300 300 13,706
----------------- ------------------ ------------------ ------------------
Net Loss (109,500)$ (300)$ (300) $ (113,706)
================= ================== ================== ==================
Basic & Diluted loss per share $ (0.11) $ - $ -
================= ================== ==================
The accompanying notes are an integral part of these financial statements.
F - 3
21
BRONCO ENERGY FUND, INC.
(formerly known as Green Clover Luck Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
SINCE JUNE 19, 1997 (INCEPTION) TO DECEMBER 31, 2004
Deficit
Accumulated
Since
October 20,
1999
inception of
Common Stock Paid-In Retained Development
Shares Par Value Capital Deficit Stage
--------------- ------------- ------------ ------------- ----------------
Balance at June 19, 1997
(inception) - $ - $ - $ - $ -
November 4, 1997 Issuance of
Stock for Services and payment
of Accounts Payable 1,000,000 1,000 - - -
Net Loss - - - (1,100) -
--------------- ------------- ------------ ------------- ----------------
Balance at December 31, 1997 1,000,000 1,000 - (1,100)
Net Loss - - - (100) -
--------------- ------------- ------------ ------------- ----------------
Balance at December 31, 1998 1,000,000 1,000 - (1,200) -
Capital contributed by shareholder - - 350 - -
Net Loss - - - - (150)
--------------- ------------- ------------ ------------- ----------------
Balance at December 31, 1999 1,000,000 1,000 350 (1,200) (150)
Capital contributed by shareholder - - 2,181 - -
Net Loss - - - - (2,181)
--------------- ------------- ------------ ------------- ----------------
Balance at December 31, 2000 1,000,000 1,000 2,531 (1,200) (2,331)
Capital contributed by shareholder - - 1,057 - -
Net Loss - - - - (1,275)
--------------- ------------- ------------ ------------- ----------------
Balance at December 31, 2001 1,000,000 1,000 3,588 (1,200) (3,606)
Net Loss - - - - (300)
--------------- ------------- ------------ ------------- ----------------
Balance at December 31, 2002 1,000,000 1,000 3,588 (1,200) (3,906)
--------------- ------------- ------------ ------------- ----------------
Net Loss - - - - (300)
--------------- ------------- ------------ ------------- ----------------
Balance at December 31, 2003 1,000,000 1,000 3,588 (1,200) (4,206)
Purchase and retire Treasury Stock (800,000) (800) (3,588) - (145,612)
Net Loss - - - - (109,500)
--------------- ------------- ------------ ------------- ----------------
Balance at December 31, 2004 200,000 $ 200 $ - $ (1,200) $ (259,318)
=============== ============= ============ ============= ================
The accompanying notes are an integral part of these financial statements.
F - 4
22
BRONCO ENERGY FUND, INC.
(formerly known as Green Clover Luck Corporation)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
since October
20, 1999
For the years ended Inception of
December 31, Development
-----------------------------------------
2004 2003 2002 Stage
------------- ------------- ------------- ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss (109,500)$ (300)$ (300) $ (113,706)
Increase (Decrease) in Accounts Payable 9,500 300 300 10,118
------------- ------------- ------------- ------------------
Net Cash Used in operating activities (100,000) - - (103,588)
------------- ------------- ------------- ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net cash provided by investing activities - - -
------------- ------------- ------------- ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from notes payable 250,000 250,000
Purchase and cancel treasury stock (150,000) - - (150,000)
Capital contributed by shareholder - - - 3,588
------------- ------------- ------------- ------------------
Net Cash Provided by
Financing Activities 100,000 - - 103,588
------------- ------------- ------------- ------------------
Net (Decrease) Increase in
Cash and Cash Equivalents - - - -
Cash and Cash Equivalents
at Beginning of Period - - - -
------------- ------------- ------------- ------------------
Cash and Cash Equivalents
at End of Period $ - $ - $ - $ -
============= ============= ============= ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ - $ - $ -
Franchise and income taxes $ - $ - $ - $ 500
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
None
The accompanying notes are an integral part of these financial statements.
F - 5
23
BRONCO ENERGY FUND, INC.
(formerly known as Green Clover Luck Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN
The accompanying financial statements have been prepared on the basis
of accounting principles applicable to a "going concern", which assume that the
Company will continue in operation for at least one year and will be able to
realize its assets and discharge its liabilities in the normal course of
operations.
Several conditions and events cast doubt about the Company's ability to
continue as a "going concern." The Company has incurred net losses of
approximately $109,500, $300 and $300 for the year ended December 31, 2004, 2003
and 2002 respectively, has a liquidity problem, and requires additional
financing in order to finance its business activities on an ongoing basis. The
Company is actively pursuing alternative financing and has had discussions with
various third parties, although no firm commitments have been obtained. The
Company's future capital requirements will depend on numerous factors including,
but not limited to, continued progress in finding a merger candidate and the
pursuit of business opportunities.
These financial statements do not reflect adjustments that would be
necessary if the Company were unable to continue as a "going concern". While
management believes that the actions already taken or planned, will mitigate the
adverse conditions and events which raise doubt about the validity of the "going
concern" assumption used in preparing these financial statements, there can be
no assurance that these actions will be successful. If the Company were unable
to continue as a "going concern," then substantial adjustments would be
necessary to the carrying values of assets, the reported amounts of its
liabilities, the reported revenues and expenses, and the balance sheet
classifications used.
Nature of Business
The Company has no products or services as of December 31, 2004. The
Company was organized as a vehicle to seek merger or acquisition candidates. The
Company intended to acquire interests in various business opportunities, which
in the opinion of management would provide a profit to the Company. On December
16, 2004 the Company filed a notification under Form N54a with the United States
Securities and Exchange Commission ("SEC") indicating its election to be
regulated as a business development company ("a BDC") under the Investment
Company Act of 1940. In connection with this election, the Company has adopted
corporate resolutions and intends to operate as a closed-end management
investment company.
F - 6
24
BRONCO ENERGY FUND, INC.
(formerly known as Green Clover Luck Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(Continued)
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN (continued)
Organization and Basis of Presentation
The Company was incorporated under the laws of the State of Nevada on
June 19, 1997. The Company ceased all operating activities during the period
from June 19, 1997 to October 20, 1999 and was considered dormant. Since October
20, 1999, the Company is in the development stage, and has not commenced planned
principal operations.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
This summary of accounting policies for Bronco Energy Fund, Inc. (a
development stage company) is presented to assist in understanding the Company's
financial statements. The accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the financial statements.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required 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 period. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements.
F - 7
25
BRONCO ENERGY FUND, INC.
(formerly known as Green Clover Luck Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (Continued)
Loss per Share
The reconciliations of the numerators and denominators of the basic
loss per share computations are as follows:
Income Shares Per-Share
------ ------
(Numerator) (Denominator) Amount
For the year ended December 31, 2004
BASIC LOSS PER SHARE
Loss to common shareholders $ (109,500) 967,123 $ (0.11)
================== =================== ==================
For the year ended December 31, 2003
BASIC LOSS PER SHARE
Loss to common shareholders $ (300) 1,000,000 $ -
================== =================== ==================
The effect of outstanding common stock equivalents would be
anti-dilutive for December 31, 2004, 2003 and 2002 and are thus not considered.
At December 31, 2004 there are 5,000,000 outstanding common stock equivalents.
At December 31, 2003 there are no common stock equivalents outstanding.
NOTE 3 - INCOME TAXES
As of December 31, 2004, the Company had a net operating loss
carryforward for income tax reporting purposes of approximately $110,500 that
may be offset against future taxable income through 2024. Current tax laws limit
the amount of loss available to be offset against future taxable income when a
substantial change in ownership occurs. Therefore, the amount available to
offset future taxable income may be limited. No tax benefit has been reported in
the financial statements, because the Company believes there is a 50% or greater
chance the carryforwards will expire unused. Accordingly, the potential tax
benefits of the loss carryforwards are offset by a valuation allowance of the
same amount.
F - 8
26
BRONCO ENERGY FUND, INC.
(formerly known as Green Clover Luck Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(Continued)
NOTE 4 - DEVELOPMENT STAGE COMPANY
The Company has not begun principal operations and as is common with a
development stage company, the Company has had recurring losses during its
development stage. The Company's financial statements are prepared using
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. However, the Company does not have significant cash
or other material assets, nor does it have an established source of revenues
sufficient to cover its operating costs and to allow it to continue as a going
concern. In the interim, shareholders of the Company have committed to meeting
its minimal operating expenses.
NOTE 5 - COMMITMENTS
As of December 31, 2004 all activities of the Company have been
conducted by corporate officers from either their homes or business offices.
Currently, there are no outstanding debts owed by the company for the use of
these facilities and there are no commitments for future use of the facilities.
NOTE 6 - SUBSEQUENT EVENTS
Commencing on January 1, 2005, the Company entered into employment
agreements with Dan Baker, Jim Marshall and Kevin Sherlock, the President,
Treasurer and Secretary, in the amounts of $60,000 $36,000 and 36,000
respectively. The officer salaries are contingent on the Company having the cash
flow and/or cash reserves to meet the Company's operating expenses.
During January and February, 2005 the Company issued 5,200,000 shares
of common stock to officers and directors at the rate of $.001.
During January and February the Company granted 5,200,000 stock options
to Board of Directors exercisable at $.01.
On January 24, 2005 the Company filed an offering to sell common stock
equal to $5,000,000 under Regulation E promulgated under the Securities Act of
1933 at prices between $.05 and $5.00 per share. The offering became effective
on February 8, 2005. As of February 28, 2005 the Company sold 68,000 shares at
$.50 per share.
F - 9
27
BRONCO ENERGY FUND, INC.
(formerly known as Green Clover Luck Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(Continued)
NOTE 6 - SUBSEQUENT EVENTS (continued)
On February 8, 2005 notes payable in the amount of $250,000 were
converted into 5,000,000 shares of common stock under the 1-E exemption.
During February, 2005, director's options for 600,000 common shares
were exercised at $.01
F - 10
28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. There have been no changes in, disagreements with, or
reportable events regarding the Company's independent public accountants.
ITEM 9A. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures. As of December 31, 2004
(the end of the period covered by this report), the Company's principal
executive officer and principal financial officer evaluated the effectiveness of
the Company's disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e))and have concluded that, based on such evaluation,
the Company's disclosure controls and procedures were adequate and effective to
ensure that material information relating to the Company was made known to them
by others within those entities.
(b) Changes in Internal Controls. There were no significant changes in the
Company's internal controls over financial reporting or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation, nor were there any significant deficiencies or material weaknesses
in the Company's internal controls over financial reporting. Accordingly, no
corrective actions were required or undertaken.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND OFFICERS
Set forth below are names, ages, positions and certain other information
concerning the current Directors and executive officers of the Company as of
March 30, 2005.
Dan R. Baker, President and Director, age 55.
Mr. Baker received a B.S. in Mining Engineering from the University of Utah and
has been involved in the mining industry in both management and production for
more than 33 years. Most recently, he served as President of C&P Coal Company in
Salt Lake City, was Executive Vice President of COSOL Energy, Inc. in
Pittsburgh, and also held various senior management positions with PacifiCorp,
Interwest Mining Company. He also serves as a director of Hazelwood Power
Company in Australia, Interwest Mining Company, and several other companies, and
is a member of the National Mining Association and the Utah Mining Association.
James Marshall, CFO and Director, age 60.
Mr. Marshall is a certified public accountant in the state of Arizona, and has
previously held certificates from Michigan, California, Illinois and Florida.
James was the founder and chief executive officer of Residential Resources
Mortgage Investments Corporation, RRR AMEX, a mortgage based REIT with assets in
excess of $400 million and a staff of 42. Prior to March 1985, Mr. Marshall was
the National Finance Partner for Kenneth Leventhal & Company and was Managing
Partner of that firms Phoenix Office for five years. Career experiences include
responsibilities for major land acquisitions and dispositions and their
structuring. His audit and tax experience included publicly-held companies for
which Mr. Marshall was responsible for banks, savings and loan associations,
real estate developers, mortgage bankers, insurance companies, builders and
contractors. Mr. Marshall is a member of the AICPA, performs audits, consulting
and tax services for his clients. Mr. Marshall has more than 30 years audit and
tax experience on a wide range of public and private companies. Mr. Marshall is
current on all SEC, auditing, accounting and tax matters. In addition to a
strong background in auditing and taxation, Mr. Marshall is a proven innovator
and solution developer relying on both traditional and nontraditional
alternatives. Extensive experience has been developed on SEC filings from IPOs,
shelf registrations, to annual and quarterly reporting.
29
Kevin M. Sherlock, Secretary and Director, age 43.
Mr. Sherlock graduated from Florida State University in 1984 with a B.S. degree
in Multinational Business Operations. In 1988, he received his Juris Doctorate
from the Georgetown University Law Center. Mr. Sherlock is licensed to practice
law in Washington D.C., Florida and Arizona. He began his legal career as an
associate in the Washington D.C. office of the New York law firm Condon &
Forsyth, with a practice area of aviation law, insurance defense litigation
(including complex multi-district air-crash disaster litigation) and general
corporate matters. After 5 years with Condon & Forsyth, Mr. Sherlock opened his
solo practice in 1993, with a focus on small business mergers and acquisitions,
and public company issues.
Daniel L. Hodges, age 38.
Chairman of the Board of Directors
Daniel Hodges has been President and Chairman of Fidelis Energy, Inc. (OTCBB:
FDEI), an oil and gas exploration company, since 2004, as well as an instructor
in the F-16 Fighter jet in Tucson, Arizona since 1997. From 1995 to 2002, Mr.
Hodges took part in the formation and/or public registration of multiple public
companies as an investor. Privately, Mr. Hodges has been involved in real estate
developments and residential subdivisions in Southern Arizona since 1993. Mr.
Hodges also serves on the board of directors of iWorld Projects & Systems, Inc.
James C. Balserak, Director, age 40.
James Balserak is a general surgeon who has practiced with the Southwest Surgery
Associates, Ltd., in Tucson Arizona since 1996. Dr. Balserak graduated from the
U.S. Air Force School of Aerospace Medicine in 1989 and earned his doctorate of
medicine from the Medical College of Virginia in 1990. He also serves as an
Assistant Clinical Professor of Surgery at the College of Medicine, University
of Arizona from 1995 to present. Dr. Balserak is presently a colonel in the
Arizona Air National Guard.
David P. Hinkins, Director, age 51.
David Hinkins is currently the President of Industrial Electrical Motor Service,
Inc., a position he has held from 1976 to the Present; he also serves as
President of Industrial Mine Supply, Inc. a position he has held from 1988 to
the present. Previously, Mr. Hinkins established Rainbow Glass Ranch, in Ferron,
Utah in 1978; founded Coal Equipment Co., Inc. of Denver, Colo. in 1980: and he
founded Generator Starter Service, Inc. in Aurora, Utah in 1982. Presently, Mr.
Hinkins is also serving on Board of Trustees of the College of Eastern Utah, the
Utah State Racing Commission, and Board of Trustees of the Emery County
Community Foundation. He is also the President of ITT National Mining Council.
Robert J. Hipple, Director,
Robert Hipple is an attorney licensed to practice law in the States of Georgia
and Virginia and has experience serving a number of public companies in senior
management positions; serving on the boards of directors as well as serving as
an administrative, legal and finance professional, including as chief financial
officer and/or general counsel. He has taught federal tax and securities law at
Georgetown University Law School, Emory University Law School, the University of
San Diego School of Law and, most recently, as a Visiting Professor of Law at
Florida A&M University College of Law. Mr. Hipple also serves as President of
iTrustFinancial, Inc., an international business, tax, legal and financial
consulting company, and as Chief Executive Officer of iWorld Projects & Systems,
Inc., a publicly traded project management holding company, operating as a
Business Development Company under The Investment Company Act of 1940. He
received a BA in Economics and Finance from Wesleyan University, a JD and LLM
degrees from Georgetown University Law School, and completed the MBA program in
Finance at Emory University School of Business.
George H. Gregor, Director, age 59
George Gregor is a senior banking executive with multi-disciplinary experience
in wholesale banking services for domestic and international capital markets.
Mr. Gregor has led or actively participated in several important securities
industry initiatives and innovations, with a heavy emphasis on international and
cross-border activity, including emerging markets. Since August 2003, Mr. Gregor
has held the position of Business Concierge at North Fork Bank, and from May
2003, has been the Managing Director of Global Capital Service Group, Ltd., a
Wall Street-based investment banking and advisory firm concentrating on
international finance, capital markets and real estate transactions. From 1995
through August 2002, Mr. Gregor was Senior Product Manager-Global Custody
Services at Deutsche Bank, New York.
30
Stanley A. Hirschman, Director,
Stanley Hirschman is President of CPointe Associates, Inc., a Plano, Texas
executive management and consulting firm which he founded in 1996 that
specializes in solutions for companies with emerging technology-based products.
He is Chairman of Bravo Foods International Corporation (BRVO), Director of 5G
Wireless, Inc. (FGWC), former Chairman of Mustang Software and former director
of Imaging Diagnostic Systems, Inc. He is also an advisor to Redwood Grove
Capital Management LLC. Prior to establishing CPointe Associates, he was Vice
President Operations, Software Etc., Inc., a 406 retail store software chain,
from 1989 until 1996. He has held senior executive management positions with
T.J. Maxx, Gap Stores and Banana Republic. He is active in community affairs and
serves on the Advisory Board of the Salvation Army Adult Rehabilitation Centers.
Phil E. Pearce, Director, age 76
Phil E. Pearce has been an independent business consultant with Phil E. Pearce &
Associates since 1990, Chairman and Director of Financial Express Corporation
since 1990. Prior to 1990, Mr. Pearce was Senior Vice President and a director
of E.F. Hutton, Chairman of the Board of Governors of the National Association
of Securities Dealers and was closely involved in the formation of the Nasdaq
Stock Market, a Governor of the New York Stock Exchange and a member of the
Advisory Council to the United States Securities and Exchange Commission on the
Institutional Study of the Stock Markets. Mr. Pearce also is a director of XR
Medical, a diagnostic laboratory company, 5G Wireless, Inc., GoldSpring, Inc,
Bravo! Foods International Corporation and Xybernaut Corporation. He is also an
advisor to Redwood Grove Capital Management LLC. Mr. Pearce is a graduate of the
University of South Carolina (B.A. 1953) and the Wharton School of Investment
Banking at the University of Pennsylvania.
Robert M. Smith, Director,
Robert Smith is a retired electric utility executive and has been an energy
industry consultant since 1990. From 1988 to 1990, Nr. Smith was the Executive
Vice President of Power Supply at Pacificorp. Prior to that, Mr. Smith was
employed by Pacific Power and Light Company as Vice President of Human Resources
from 1977 to 1979, as Vice President of Construction from 1979 to 1982, as Vice
President of Power Generation from 1982 to 1985, and as Senior Vice President of
Power Supply from 1985 to 1988.
Brian J. Delfs, Director of subsidiary, Bronco Green Power Co., age 40.
Mr. Delfs has a strong background in public service and political involvement.
Throughout his career as a firefighter, he has also held offices in the Local,
State and International unions. He is currently the Local President of the
Tucson Firefighters Association, and is the Southern Arizona Trustee of the
Professional Firefighters of Arizona. In addition to emergency response, Mr.
Delfs has extensive experience in media relations, fire investigation and code
compliance issues. As a Commissioner of the Industrial Commission of Arizona,
Mr. Delfs is appointed by the Governor of Arizona to oversee the Arizona
Division of Occupational Safety and Health, the Industrial Injury Claims
Division, the Administrative Law Division, the Self Insurance Authority Division
and the State Special Fund of the ICA. Mr. Delfs also serves as a gubernatorial
appointee as a Fund Manager of three State retirement plans. The Fund Managers
are charged to manage over five billion dollars in assets and to oversee the
administration of the Public Safety, Corrections Officer and Elected Official's
retirement plans. As a commissioner, Mr. Delfs is a registered lobbyist in the
State of Arizona. He has also honed his advocacy skills in Washington, D.C.,
where he lobbies for emergency responder issues on Capitol Hill. Mr. Delfs has
served on numerous boards and committees, including: the State Public Safety
Retirement System Tucson Board, the Pima Association of Government's Regional
Transportation Authority, the City of Tucson Fire Code Committee, the Governor's
Committee on EMT Licensure, and the State of Arizona Arson Task Force. As a
consultant, Mr. Delfs teaches courses in hazardous materials management, the
HazCom standard, media relations and negotiation technique. Mr. Delfs has a long
history of community involvement, volunteering with the United Way of Arizona,
the American Cancer Society, the Muscular Dystrophy Association, and as a youth
football coach.
John A. Sylvester, Director of subsidiary, Bronco Coal Co., age 45.
John Sylvester is currently a captain for Southwest Airlines and also works as
an F-16 A/B Military Instructor Pilot for the Arizona Air National Guard. He
presently serves as the 162nd Fighter Wing Airspace Manager and was previously
an A-6E Squadron Attack Pilot. Mr. Sylvester is certified as an Airline
31
Transport Pilot for multiengine, land airplanes and a Certified Flight
Instructor for single engine, land airplanes. He is also a Certified Aircraft
Mechanic for Airframes and Power plants and has a FAA First Class Medical
certificate with no restrictions. Mr. Sylvester earned a B.S. in political
science from the U.S. Naval Academy in 1984.
AUDIT COMMITTEE FINANCIAL EXPERT
Mr. Hipple is the audit committee financial expert as defined by SEC rules and
is "independent," as the term is used in Item 7(d)(3)(iv) of Schedule 14A under
the Securities Exchange Act of 1934.
CODE OF ETHICS
As of the end of the period, December 31, 2004, the Company has adopted a code
of ethics, which complies with the criteria provided in SEC rules, and applies
to its principal executive officer, the principal financial officer and any
other officers who serve a similar function. A copy of the code of ethics is
incorporated herein by reference in Item 15 of this Form 10-K.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, the Company's Directors and executive
officers and any persons holding more than 10% of the Company's outstanding
units are required to report their ownership of units and any changes in the
ownership of the Company's units to the Company and the Securities and Exchange
Commission. To the best of the Company's knowledge, none of the Company's
Directors and executive officers have satisfied these filings by filing reports
of their initial holdings.
COMPENSATION OF DIRECTORS
We have no standard arrangement, pursuant to which our Directors are compensated
for services provided as a Director. Our outside directors are reimbursed for
travel and expenses, and may be paid up to $1,000 per meeting as consideration
for their services to the Board.
ITEM 11. EXECUTIVE COMPENSATION.
The Company has three employees.
The Company does not have a stock option plan, other long-term incentive plan,
retirement plan or other retirement benefits.
SUMMARY COMPENSATION TABLE. The following table sets forth information with
respect to compensation we paid for the years ended December 31, 2004, 2003, and
2002, for services of Dan Baker, our Chief Executive Officer, and James
Marshall, our Treasurer, and Kevin Sherlock, our Secretary. We have not paid any
other current executive officer in excess of $100,000 (including salaries and
benefits) during the years ended December 31, 2004, 2003 or 2002. Dan Hodges,
the former CEO, did not receive compensation in prior years.
Annual Compensation Long-Term Compensation Awards
Year Salary Bonus ($) Other Annual Restricted Securities
($) Compensation ($) Stock Underlying Options
Award(s)($) SARs (#)
Dan Baker 2005 60,000* -0- -0- 1,500,000 1,500,000
2004 -0- -0- -0- -0- -0-
2003 -0- -0- -0- -0- -0-
2002 -0- -0- -0- -0- -0-
James Marshall 2005 36,000* -0- -0- 500,000 500,000
2004 -0- -0- -0- -0- -0-
2003 -0- -0- -0- -0- -0-
2002 -0- -0- -0- -0- -0-
32
Kevin Sherlock 2005 36,000* -0- -0- 500,000 500,000
2004 -0- -0- -0- -0- -0-
2003 -0- -0- -0- -0- -0-
2002 -0- -0- -0- -0- -0-
* Year 2005 salary figure based on employment contract. Restricted stock awards
and options were issued on January 4, 2005.
EMPLOYMENT AGREEMENTS
We have an employment contract with Dan Baker, our President, for a salary in
the amount of $60,000 per year. We have an employment contract with James
Marshall, our Treasurer, for a salary in the amount of $36,000 per year. We have
an employment contract with Kevin Sherlock, our Secretary, for a salary in the
amount of $36,000 per year. We have no other employment contracts or
commitments. These officer salaries are contingent on the Company having the
cash flow and/or cash reserves to meet its operating expenses. The Company does
not have any other employment agreements in place.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of March 30, 2005, certain beneficial owners, the directors, the chief
executive officer and the directors and executive officers as a group held of
record the following shares and percentages, based on 15,676,000 fully diluted
shares of common stock outstanding (consisting of 11,376,000 issued and
outstanding shares and 4,300,000 outstanding options).
AMOUNT AND NATURE
OF BENEFICIAL
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
- -------------- ------------------------------------------------------- ---------------- ----------------
Common Stock Dan R. Baker 3,000,000 (1) 19.1%
President and Director
2920 N. Swan, #206
Tucson, AZ 85712
Common Stock James Marshall 1,000,000 (2) 6.37%
Treasurer and Director
2920 N. Swan, #206
Tucson, AZ 85712
Common Stock Kevin M. Sherlock 1,000,000 (3) 6.37%
Secretary and Director
2920 N. Swan, #206
Tucson, AZ 85712
Common Stock Daniel L. Hodges 3,000,000 (4) 19.1%
Director Chairman of the Board
2920 N. Swan, #206
Tucson, AZ 8571
Common Stock Brian J. Delfs 608,000 (5) 3.87%
Director of Subsidiary
2920 N. Swan, #206
Tucson, AZ 85712
Common Stock John A. Sylvester 608,000 (6) 3.87%
Director of Subsidiary
2920 N. Swan, #206
Tucson, AZ 85712
33
Common Stock James C. Balserak 600,000 (7) 3.82%
Director
2920 N. Swan, #206
Tucson, AZ 85712
Common Stock George H. Gregor 600,000 (8) 3.82%
Director
2920 N. Swan, #206
Tucson, AZ 85712
Common Stock David P. Hinkins 600,000 (9) 3.82%
Director
2920 N. Swan, #206
Tucson, AZ 85712
Common Stock Robert J. Hipple 600,000 (10) 3.82%
Director
2920 N. Swan, #206
Tucson, AZ 85712
Common Stock Stanley A. Hirschman 600,000 3.82%
Director
2920 N. Swan, #206
Tucson, AZ 85712
Common Stock Phil E. Pearce 600,000 3.82%
Director
2920 N. Swan, #206
Tucson, AZ 85712
Common Stock Robert M. Smith 600,000 3.82%
Director
2920 N. Swan, #206
Tucson, AZ 85712
Common Stock All directors and executive officers 3,416,000 (11) 85.6%
as a group (13 persons) 1
Persons holding 5% or more:
Common Stock D Intel, Inc. 2,000,000 12.75%
3lan Lomax
A002 A Guadalupe Street
2uite 187
Sustin Texas 78705
- ------
(1) Includes options held by Mr. Baker to purchase 1,500,000 shares at the rate
of $0.01.
(2) Includes options held by Mr. Marshall to purchase 500,000 shares at the rate
of $0.01.
(3) Includes options held by Mr. Sherlock to purchase 500,000 shares at the rate
of $0.01.
(4) Includes all 3,000,000 shares held by Joshua & Grace Investments, LLC.
(5) Includes options held by Mr. Delfs to purchase 300,000 shares at the rate of
$0.01.
(6) Includes options held by Mr. Sylvester to purchase 300,000 shares at the
rate of $0.01.
(7) Includes options held by Mr. Balserak to purchase 300,000 shares at the rate
of $0.01.
(8) Includes options held by Mr. Gregor to purchase 300,000 shares at the rate
of $0.01.
(9) Includes options held by Mr. Hinkins to purchase 300,000 shares at the rate
of $0.01.
(10) Includes options held by Mr. Hipple to purchase 300,000 shares at the rate
of $0.01.
(11) Includes all outstanding officer and director options of 4,300,000 shares.
- ------
34
The issuer is not aware of any person who owns of record, or is known to own
beneficially, five percent or more of the outstanding securities of any class of
the issuer, other than as set forth above. The issuer is not aware of any person
who controls the issuer as specified in section 2(a)(9) of the Investment
Company Act of 1940. The Company does not have an investment advisor.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On December 16, 2004, the Company issued a promissory note in the amount of
$150,000 to its then president, Daniel Hodges, in return for Mr. Hodges
tendering his resignation effective December 16, 2004 and for returning for
cancellation his 800,000 shares of common stock of the Company, then
representing 80% control of the company. The terms of the note provided Mr.
Hodges the option to convert the note into common stock in the event that the
Company filed with the SEC a Form 1-E. On January 24, 2005, the Company did file
a Form 1-E. Mr. Hodges assigned the note to his children's trust investment arm,
Joshua & Grace Investments, LLC, which subsequently converted the note in the
Form 1-E offering on February 8, 2005, at the rate of $0.05 per share, resulting
in 3,000,000 shares being issued, representing approximately 19% control of the
Company. On February, 9, 2005, Mr. Hodges was appointed to the Board of
Directors as Chairman. The Company has engaged in no transactions with the
directors or executive officers other than as described above or in the notes to
the financial statements.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
(a) The aggregate fees billed for each of the last two fiscal
years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings
or engagements for those fiscal years are $9000 for 2004 and
$0 for 2003.
Audit-Related Fees
(b) The aggregate fees billed in each of the last two fiscal years
for assurance and related services by the principal accountant
that are reasonably related to the performance of the audit of
the registrant's financial statements and are not reported
under paragraph (a) of this Item are $0 for 2004 and $0 for
2003.
Tax Fees
(c) The aggregate fees billed in each of the last two fiscal years
for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning are $0 for
2004 and $0 for 2003.
All Other Fees
(d) The aggregate fees billed in each of the last two fiscal years
for products and services provided by the principal
accountant, other than the services reported in paragraphs (a)
through (c) of this Item are $0 for 2004 and $0 for 2003.
35
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) 1. FINANCIAL STATEMENTS
The financial statements listed in Item 8, "Financial Statements and
Supplementary Data," beginning on page 12 are filed as part of this
report.
2 FINANCIAL STATEMENT SCHEDULES
The financial statement schedules listed in Item 8, "Financial
Statements and Supplementary Data," beginning on page 18 are filed as
part of this report.
3. EXHIBITS
(3)(i) Articles of Incorporation, as amended
(3)(ii)Bylaws
(14) Code of Ethics
(21) List of Subsidiaries
(31.1) Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
(31.2) Certification of Treasurer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
(32.1) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(99)(a)Audit Committee Charter
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36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BRONCO ENERGY FUND, INC.
Date: March 31, 2005 By: /s/ DANIEL BAKER
-----------------------------
Daniel Baker
Chief Executive Officer
(principal executive officer)
Date: March 31, 2005 By: /s/ JAMES MARSHALL
-----------------------------
James Marshall
Chief Financial Officer and Treasurer
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DANIEL BAKER Chief Executive Officer March 31, 2005
- ------------------- (principal executive officer) and
Daniel Baker Director
/s/ JAMES MARSHALL Chief Financial Officer and Treasurer March 31, 2005
- ------------------- (principal financial and accounting
James Marshall officer) and Director
/s/ DANIEL HODGES Chairman of the Board March 31, 2005
- -------------------
Daniel Hodges
/s/ ROBERT HIPPLE Director and Chairman of audit March 31, 2005
- ------------------- committee
Robert Hipple
/s/ STANLEY HIRSCHMAN Director and member of audit committee March 31, 2005
- -------------------
Stanley Hirschman
/s/ PHIL PEARCE Director and member of audit committee March 31, 2005
- -------------------
Phil Pearce
/s/ KEVIN SHERLOCK Director March 31, 2005
- -------------------
Kevin Sherlock
/s/ JAMES BALSERAK Director March 31, 2005
- -------------------
James Balserak
/s/ GEORGE GREGOR Director March 31, 2005
- -------------------
George Gregor
/s/ DAVID HINKINS Director March 31, 2005
- -------------------
David Hinkins
/s/ ROBERT SMITH Director March 31, 2005
- -------------------
Robert Smith
37