Attached files
file | filename |
---|---|
EX-32.1 - EX-32.1 - EQM Technologies & Energy, Inc. | v183951_ex32-1.htm |
EX-31.1 - EX-31.1 - EQM Technologies & Energy, Inc. | v183951_ex31-1.htm |
EX-31.2 - EX-31.2 - EQM Technologies & Energy, Inc. | v183951_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
(Mark
One)
|
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended December 31, 2009
or
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from
to
Commission
file number: 333-147261
BEACON
ENERGY HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
26-3254908
|
|
(State
or other jurisdiction
of
incorporation or organization)
|
(I.R.S.
Employer
Identification
No.)
|
186
North Avenue East
Cranford,
New Jersey
|
07016
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code:
(908) 497-9990
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock, $0.001 par value
|
Over
the Counter Bulletin Board (“OTCBB”)
|
|
(Title
of class)
|
(Name
of exchange on which
registered)
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o
No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to rule 405 of Regulations S-T during the
preceeding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes o No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the 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. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
|
|
|
Accelerated filer
|
o
|
||
Non-accelerated
filer o
|
|
(Do
not check if smaller reporting company)
|
|
Smaller Reporting Company
|
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No x
The
aggregate market value of the voting and non-voting stock held by non-affiliates
of the registrant, as of June30, 2009, was approximately $10,921,955 based upon
the selling price of the latest transaction reported for such date.
As of
April 30, 2010 there were 34,383,703 shares of common stock
outstanding.
BEACON
ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-K
ANNUAL REPORT
TABLE OF
CONTENTS
Page
|
||||
Part
I
|
4
|
|||
Item
1.
|
Business
|
4
|
||
Item
1A.
|
Risk
Factors
|
13
|
||
Item
2.
|
Properties
|
13
|
||
Item
3.
|
Legal
Proceedings
|
13
|
||
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
13
|
|
Part II | ||||
Item
5.
|
Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities
|
14
|
||
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
||
Item
8.
|
Financial
Statements and Supplementary Data
|
20
|
||
Item
9.
|
Changes in and
Disagreements With Accountants on Accounting and Financial
Disclosure
|
20
|
||
Item
9A(T).
|
Controls
and Procedures
|
20
|
||
Part
III
|
22
|
|||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
22
|
||
Item
11.
|
Executive
Compensation
|
23
|
||
Item
12.
|
Security Ownership
of Certain Beneficial Owners and Management and Related
Stockholder
Matters
|
24
|
||
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
25
|
||
Item
14.
|
Principal
Accountant Fees and Services
|
26
|
||
Part
IV
|
27
|
|||
Item
15.
|
Exhibits
and Financial Statement Schedules
|
27
|
2
FORWARD-LOOKING
STATEMENTS
This annual
report on Form 10-K and other written reports and oral statements made from time
to time by Beacon Energy Holdings, Inc. may contain so-called “forward-looking
statements,” all of which are subject to risks and uncertainties.
Forward-looking statements can be identified by the use of words such as
“expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and
other words of similar meaning. One can identify them by the fact that they do
not relate strictly to historical or current facts. These statements are likely
to address our growth strategy, financial results, ability to raise additional
capital and product and development programs. One must carefully consider any
such statement and should understand that many factors could cause actual
results to differ from our forward looking statements. These factors may include
inaccurate assumptions and a broad variety of other risks and uncertainties,
including some that are known and some that are not. No forward looking
statement can be guaranteed and actual future results may vary
materially.
Information
regarding market and industry statistics contained in this annual report on Form
10-K is included based on information available to us that we believe is
accurate. It is generally based on industry and other publications that are not
produced for purposes of securities offerings or economic analysis. We have not
reviewed or included data from all sources, and cannot assure investors of the
accuracy or completeness of the data included in this annual report on Form
10-K. Forecasts and other forward-looking information obtained from these
sources are subject to the same qualifications and the additional uncertainties
accompanying any estimates of future market size, revenue and market acceptance
of products and services. We do not assume any obligation to update any
forward-looking statement. As a result, investors should not place undue
reliance on these forward-looking statements.
The
forward-looking statements included in this annual report on Form 10-K are made
only as of the date of this annual report on Form 10-K. We do not intend, and do
not assume any obligations, to update these forward looking statements, except
as required by law.
3
Part
I
Item
1. Business
Overview
On July
2, 2008, Laurence Associates Consulting, Inc., a Nevada public company
(Laurence), was merged with and into Beacon Energy Holdings, Inc., a Delaware
corporation (Holdings), for the purpose of changing its state of incorporation
to Delaware from Nevada and changing its name. Under the terms of the
Certificate of Ownership and Merger, each share of Laurence was exchanged for
1.67 shares of Holdings.
Simultaneously,
Holdings entered into an Agreement and Plan of Merger and Reorganization (the
‘Merger Agreement’) by and among Holdings, Beacon Energy Corp., a privately held
Delaware corporation (Beacon).
At the
closing of the Merger, each share of Beacon’s common stock issued and
outstanding immediately prior to the closing of the Merger was converted into
the right to receive 37.41 shares of Holdings’s
common stock. In the aggregate, 30,000,000 shares of Holdings’s common stock
were issued in the Merger to the holders of Beacon’s common stock.
Following
the closing of the Merger there were 31,100,000 shares of Holdings’s common
stock issued and outstanding. Approximately 96.5% of such issued and outstanding
shares were held by the former stockholders of Beacon.
The
Merger was accounted for as a reverse acquisition and recapitalization. Beacon
is the acquirer for accounting purposes and Holdings is the acquired company.
Accordingly, Beacon’s historical financial statements for periods prior to the
acquisition become those of Holdings.
On
May 15, 2008 (prior to the merger), Beacon acquired through its subsidiary,
Beacon Energy (Texas) Corp. (“Beacon Energy Texas”), certain operating assets of
Smithfield BioEnergy LLC (“Smithfield”), an affiliate of Smithfield Foods, Inc.,
a publicly traded Virginia corporation (NYSE: SFD), for approximately
$11,546,000 in cash. Beacon acquired Smithfield’s biodiesel plant in
Cleburne, Texas. The plant specializes in the processing of animal
fats and other secondary feedstocks to produce biodiesel.
Sales of
biodiesel are made within the state of Texas and are delivered to the southern
region of the United States.
In early
March 2010, the Company indefinitely shut down its Texas operations due to cash
flow difficulties brought about by the expiration on December 31, 2009 of the
$1.00 per gallon credit and lower sales volume for the first two months of
2010. The Company intends to resume operations if the $1.00 per
gallon credit is reinstated by Congress and the Company is able to secure
additional funding through a raise of capital or additional
borrowings. To restart its plant, the Company expects to spend at
least $500,000. There is no assurance, however, that the $1.00 per
gallon credit will be reinstated or that the Company will be able to raise
additional funding. In which case, the Company will likely cease
operations.
In
addition, given the shutdown of the Company’s Texas operations, the Company
consulted with an outside third party appraiser to help in determining the fair
market value or liquidation value of the facility given the
shutdown. The purpose of this evaluation was to help to determine
whether the fair market or liquidation value of the facility has an indication
of impairment. No such impairment was present.
As used
herein, all references to the “Company,” “we,” “our” and “us” for periods prior
to the closing of the Merger refer to Beacon, and for periods subsequent to the
closing of the Merger refer to Holdings and its wholly owned
subsidiaries.
Since its
formation in 2006 and before the Merger, Beacon has completed strategic
investments in three companies dedicated to the production of biodiesel and one
company dedicated to the collection of low cost waste products that may serve as
the raw materials for biodiesel. Due to the dismal changes in the economy during
the later part of 2008, the Company concluded to impair all of their investments
and loans made to the unconsolidated entities.
4
Biodiesel
Industry Overview
Biodiesel
is a clean burning, biodegradable, non-toxic and renewable, natural alternative
fuel. It may be derived from a variety of sources including vegetable oils,
animal fats and recycled cooking oils. Biodiesel is typically blended with
petroleum diesel to create a biodiesel blend that is nearly indistinguishable
from, and in some respects superior to, 100% petroleum diesel. In addition, 100%
biodiesel fuel, or B100, can be used in all compression-ignition (diesel)
engines without modifications. The chemical name for biodiesel is “methyl
esters”. Biodiesel that is in pure form is typically designated in the
marketplace as B100. The “100” indicates that the fuel is 100% biodiesel.
According to the United States Environmental Protection Agency, B100 biodiesel
emits 78% less carbon dioxide, 67% fewer unburned hydrocarbons, 48% less carbon
monoxide and 47% less particulates than petroleum based diesel
fuel.
In the
United States, the typical consumption of biodiesel has been in blends ranging
from a “B5” blend of 5% biodiesel and 95% petroleum diesel to 20% biodiesel and
80% petroleum diesel, or “B20.” Similar blends are also commonly used in
Europe.
The
biodiesel market has grown significantly over the past several years with most
consumption concentrated in federal, state and local governments. According to
the National Biodiesel Board, United States biodiesel production was
approximately 15 million gallons in 2002 and has grown to an estimated 450
million gallons in 2007. By comparison, the European biodiesel market is more
mature than the United States market, having consumed approximately 1 billion
gallons of biodiesel in 2007. Currently, biodiesel is utilized in the United
States by industrial facilities, commercial vehicle fleets, government fleets,
mass transit vehicles and marine applications.
Our Investments
Beacon Energy Texas
In May
2008, through our wholly owned subsidiary Beacon Energy (Texas) Corp. (“Beacon
Energy Texas” or “Texas Facility”), we purchased certain operating assets of
Smithfield BioEnergy LLC, an affiliate of Smithfield Foods, Inc., a publicly
traded Virginia corporation (NYSE: SFD), for approximately $11.5 million in
cash. The assets acquired principally consist of an operating biodiesel plant
located in Cleburne, Texas (approximately 40 miles southwest of the Dallas/Fort
Worth metropolitan area of Texas) and related inventory. We have also executed
an unconditional guaranty for any indebtedness between our Texas Facility and
ConAgra Foods, Inc., a principal feedstock supplier. The Texas Facility was
designed and constructed to specialize in the processing of animal fats and
other secondary feedstocks.
The Texas
facility commenced full-scale operations in May 2007 and has produced biodiesel
at a rate of approximately 100,000 to 800,000 gallons per month for an
annualized rate of 1.2 to 9.6 million gallons per year, with the ability to
increase its production capacity to approximately 14 million gallons per
year.
Beacon
Energy Texas utilizes animal fats to produce its biodiesel and employs a
state-of-the-art fats processing technology. It utilizes a “two-stage” system
consisting of a “front-end” pre-treatment process that allows the plant to
process a wide variety of lower grade feedstocks. Traditionally, such lower
grade feedstocks, due to their lower quality, have a lower purchase price and
allow the plant to lower its raw material costs. On a technical basis, lower
quality refers to both a higher free fatty acid content (“FFA”) and a greater
level of other contaminants (ranging from sediments, water and solids to
elevated sulfur contents). This entire front-end process may be by-passed when
higher grade materials, typically food-grade animal fats (or plant oils), are
utilized. Feedstocks currently utilized by the plant run the entire range of
available animal fats, including tallow, choice white grease, edible lard,
technical tallow and poultry fat as well as palm retreat.
5
The
second stage of the system (also referred to as the “back-end”) consists of a
transesterification process to convert the remaining raw feedstock to biodiesel
and glycerin (a by-product of the process). The plant’s second stage also used a
proprietary system to achieve both a continuous flow process and a relatively
quick chemical reaction. As stated above, this back-end system may be utilized
to not only process higher quality animal fats but also various plant oils (soy,
canola, palm etc.) to the extent it is economically feasible to utilize such
plant oils.
The plant
has also recently installed an anaerobic waste-water treatment facility to
handle its wastewater. It is currently anticipated that, when fully operational
again, the anaerobic digester will adequately address the plant’s waste water
disposal requirements.
Off-take
(sales) of both biodiesel and the glycerin by-product are generally conducted on
a month-to-month and “spot basis” to a customer base that includes both local
and national scale companies. The Texas Facility has a full scale lab and a
rigorous quality assurance/quality control program that requires the testing of
both the shipments of incoming feedstock as well as the shipments of outgoing
fuel. The on-site lab at our Texas Facility has recently completed the field
audit portion of the National Biodiesel Board’s BQ-9000 quality control quality
control accreditation program and expects to receive the BQ-9000 designation
shortly. The BQ-9000 program is a voluntary program developed by the National
Biodiesel Board to designate producers that have implemented the highest
standards of quality assurance/quality control. To receive accreditation,
companies must pass a rigorous third party review and inspection of their
quality control processes by an independent auditor to ensure that quality
control is fully implemented and that all fuel produced by a facility
consistently meets the requirements of ASTM D6751 (the American Society for
Testing and Manufacturing’s fuel specification standard for B100
biodiesel).
In
September 2008, the City of Cleburne, Texas, (“City”), notified Beacon Texas of
certain waste water disposal issues related to the operations of the Beacon
Texas facility. After discussions and negotiations, the Company entered into a
consent decree with the City. As part of the agreement, the Company
made improvements to its waste water treatment facility at a cost of
approximately $320,000. In October 2009, we received notification
from the City that we were in compliance with the terms and conditions with the
consent decree. As of December 31, 2009, the project was basically
completed and operational.
In early
March 2010, the Company indefinitely shut down its Texas operations due to cash
flow difficulties brought about by the expiration on December 31, 2009 of the
$1.00 per gallon credit and lower sales volume for the first two months of
2010. The Company intends to resume operations if the $1.00 per
gallon credit is reinstated by Congress and the Company is able to secure
additional funding through a raise of capital or additional
borrowings. To restart its plant, the Company expects to spend at
least $500,000. There is no assurance, however, that the $1.00 per
gallon credit will be reinstated or that the Company will be able to raise
additional funding. In which case, the Company will likely cease
operations.
In
addition, given the shutdown of the Company’s Texas operations, the Company
consulted with an outside third party appraiser to help in determining the fair
market value or liquidation value of the facility given the
shutdown. The purpose of this evaluation was to help to determine
whether the fair market or liquidation value of the facility has an indication
of impairment. No such impairment was present.
Terra
Bioenergy LLC
In April
2007, we, through our wholly owned subsidiary, AgriFuel Terra Farms, LLC,
completed a $3.6 million investment in Terra Bioenergy LLC (“Terra”), a
development stage biodiesel production company located in St. Josephs, Missouri.
In addition, on February 21, 2008, we made a $600,000 investment in Terra and
agreed to guaranty a $250,000 portion of subordinated debt for Terra in exchange
for a fee of $10,000 per year plus the allocation of certain tax credits. On
November 17, 2008, we made additional investment of $400,000 in
Terra. As a result of these investments, we now own an approximately
20% interest in Terra.
Terra has
basically completed the construction of a biodiesel production plant in December
2009 but is waiting for the approval of the $1.00 per gallon government
incentive to be extended to start production. It is expected that Terra’s plant
will have an initial production capacity of approximately 15 million gallons per
year, with the ability to increase capacity to more than 30 million gallons per
year.
6
The Terra
plant is located in St. Josephs, Missouri, which is a one hour drive north of
Kansas City, Missouri. We believe that this location provides Terra with
strategic advantages, including a State of Missouri biodiesel incentive program
under which it provides grants of 30 cents per gallon for up to 15 million
gallons of biodiesel to producers that are at least fifty-one percent owned by
agricultural producers. The plant is located less than one mile from a large
pork processing plant that produces more than 12 million gallons of choice white
grease per annum. As with Beacon Energy Texas, it is currently anticipated that
the Terra plant will be designated as a BQ-9000 accredited producer shortly
after commencement of production.
As of
December 31, 2008, we have written off our investments of $ 4,654,179 in Terra
because of the financial and construction difficulties faced by
Terra.
United
Biofuels, Inc.
In
January 2007, we, through our wholly owned subsidiary AgriFuel United Biofuels
Inc., completed a $925,000 investment in United Biofuels, Inc. (“United”), the
owner and operator of a biodiesel plant located in York, Pennsylvania. This
$925,000 investment was comprised of $765,000 in 5% secured convertible notes
and $160,000 of 5% senior secured convertible notes. Following completion of our
full funding obligation under these convertible notes, these notes will convert
into 45% of the fully diluted equity capital of United. In addition, we will
have an option to purchase up to an additional 15% of United, giving us up to a
60% interest. In September 2007 and in November 2007, we purchased or issued
working capital term notes from United of $50,000 and $200,000, respectively,
bearing interest at the rate of 7% per annum and maturing on January 1, 2009. On
February 5, 2008, we loaned an additional $225,000 to United, pursuant to the
terms of a term note and security agreement, with such note bearing interest at
the rate of 7% per annum and maturing on January 1, 2009. This loan is secured
specifically by a grant of approximately $250,000 from the State of Pennsylvania
that has been awarded to United.
United
began producing biodiesel in the summer of 2006 at an annualized rate of
approximately 1,000,000 gallons per annum. In November 2007, as a result of the
investments described above, United completed an upgrade and expansion of the
plant’s production capacity.
In view
of the recent downturn in the economy and the difficulty of United to make
timely payments on its debt as of December 31, 2008, we have written off $21,569
of interest receivable and determined that 100% or $1,379,990 of the said notes
is impaired. During the year ended December 31, 2008, United paid $20,000 in
principal and $80,000 in interest.
Buffalo
Biodiesel, Inc.
In
January 2007, we through our wholly owned subsidiary, AgriFuel BBD Holding Co.
Inc. purchased a secured convertible note bearing interest at the rate of 10%
per annum from Buffalo Biodiesel, Inc. (“BBD”), and in April 2007, we purchased
a working capital note of up to $250,000, bearing interest at the rate of 7.75%.
Aggregate amounts outstanding under such notes are approximately $290,000. BBD
is a Buffalo, New York based company specializing in the collection of used
restaurant cooking oil from local restaurants (also known as waste vegetable
oil, or WVO), the processing and treatment of such WVO and then the sale of such
WVO to the animal feed market and/or the biodiesel production
market.
In view
of the recent downturn in the economy and the difficulty of BBD to make timely
payments on its debt as of December 31, 2008, we have written off $40,313 of
interest receivable and determined that 100% or $292,000 of the said notes is
impaired. During the year ended December 31, 2008, BBD paid $9,242 in
interest.
Competitive
Strengths
In the
event the Texas plant is operational again we will continue to focus on
improving and expanding the production capacity of our Texas Facility. We will
also strive to remain feedstock “neutral’ to achieve maximum flexibility, and
have worked, and will continue to work, to minimize technology
risk. The key aspect to this approach is “feedstock
neutrality”. This feedstock flexibility provides us with the ability
to both: (i) be opportunistic in the procurement of various feedstocks to take
advantage of pricing disparities and lower our raw material costs and (ii) be
operationally flexible by eliminating the cost and time associated with plant
shut downs to reset for differing feedstocks.
7
We plan
to utilize whichever feedstocks are the lowest cost and are available in usable
quantities. If necessary, feedstocks will be pre-treated and then
will be blended at the commencement of the production process. It is
currently anticipated that our primary feedstocks will consist of a variety of
rendered animal fats and “off-spec” plant oils. We also anticipate
taking advantage of the “next generation” of feedstocks as they are developed
and produced in commercially viable quantities, including camenila, jatropha,
mustard seed and algae. Feedstock flexibility also provides us with
greater operational flexibility since production will not be restricted if there
is a shortage or price disadvantage to any particular
feedstock. Lastly, it is anticipated that the continuous flow nature
of the production process will assist in minimizing our plants’ operating costs
as measured on a per gallon basis and maximize productivity.
Biodiesel
Markets
Our
ability to successfully market our biodiesel is heavily dependent upon two key
and essential factors: (i) the price of petroleum-based diesel fuel as compared
to the price of biodiesel and (ii) the availability of economic incentives to
produce and use biodiesel.
Biodiesel
is frequently used as fuel in transport trucks, ships, trains, in farming
activities and in many government vehicles. Government legislation that seeks to
encourage the use of renewable fuels could lead to an expansion of the market
for biodiesel in the future. Recently, biodiesel has been identified as a
potentially good substitute for diesel fuel in underground mining operations
because it burns cleaner and leads to less air pollution, a feature that is very
important in confined places such as mines. Further, biodiesel may be safer to
handle in a mine setting where fire can be disastrous. Additional markets may
become available as a result of growing environmental concerns by American
consumers as well as an increased awareness of energy security and the United
States’ ability to supply its own fuel needs. However, biodiesel still only
accounts for a very small percentage of the diesel fuel market as a whole. The
biodiesel industry will need to continue to grow in demand in order to sustain
the price of biodiesel into the future.
Wholesale
Market / Biodiesel Marketers
The
wholesale market involves selling biodiesel directly to fuel blenders or through
biodiesel marketers. Fuel blenders purchase B100 from biodiesel production
plants, mix it with petroleum diesel fuel according to specifications, and then
deliver a final product to retailers. There are few wholesale biodiesel
marketers in the United States. Three examples are World Energy in Chelsea,
Massachusetts; Eco-Energy, Inc. in Franklin, Tennessee; and REG, Inc. in Ames,
Iowa. These companies use their existing marketing relationships to market the
biodiesel of individual plants to end users for a fee.
Retail
Market
The
retail market consists of biodiesel distribution primarily through fueling
stations to transport trucks and “jobbers,” which buy products from
manufacturers and sell them to retailers for the purpose of supplying farmers,
maritime customers and home heating oil users. Retail level distributors include
oil companies, independent station owners, marinas and railroad operators. The
biodiesel retail market is still in its infancy as compared to other types of
fuel. The present marketing and transportation network must expand significantly
in order for us to effectively market our biodiesel to retail users. Areas
requiring expansion include, but are not limited to:
|
o
|
additional
rail capacity;
|
|
o
|
additional
storage facilities for biodiesel;
|
|
o
|
increases
in truck fleets capable of transporting biodiesel within localized
markets;
|
|
o
|
expansion
in refining and blending facilities to handle biodiesel;
and
|
8
|
o
|
growth
in service stations equipped to handle biodiesel
fuels.
|
With
increased government support of renewable fuels and greater consumer awareness
of renewable fuels, we anticipate that the availability of biodiesel for the
retail market may increase in the future. However, any increases in biodiesel
demand may be more than offset by future increases in biodiesel supply, and
significant investments in biodiesel distribution infrastructure must be made.
However, substantial investments required for these infrastructure changes and
expansions may not be made or they may not occur on a timely basis.
Government/Public
Sector
The
government has increased its use of biodiesel since the implementation of the
Energy Policy Act of 1992, amended in 1998 (the “EPACT”), which authorized
federal, state and public agencies to use biodiesel to meet the alternative fuel
vehicle requirements of EPACT.
General
Demand for Biodiesel
The
biodiesel industry is still relatively new and unknown, especially when compared
to the ethanol industry. In 2009, the Renewable Fuels Association reported that
a record 10.7 billion gallons of ethanol were produced in the United
States. However, the biodiesel industry only produced an estimated
700 million gallons of biodiesel in 2008, constituting only a small part of
the 60 billion gallon per year United States diesel fuel market and a
fraction of the amount of 2009 ethanol production. The National Biodiesel Board
estimates that as of January 25, 2008, national biodiesel production
capacity totaled approximately 2.24 billion gallons per year. However, some
plants are currently closed and many do not currently operate at full
capacity.
Several
factors may lead to an increase in biodiesel demand. Biodiesel has received
attention from consumers and policymakers in recent years for several reasons.
Biodiesel is made from renewable sources and provides environmental benefits
over petroleum-based diesel, including reduced emissions of carbon dioxide,
carbon monoxide, particulate matter, and sulfur. In addition, a 2007 study by
the United States Department of Energy and the United States Department of
Agriculture found that biodiesel has a positive energy balance: for every 3.5
units of energy produced, only 1.0 unit of energy is consumed in the production
process. Biodiesel mixes easily with diesel fuel at rates between 2% and 100%,
and it improves the lubricity of petroleum-based diesel fuel at levels as low as
2%. The increased lubricity reduces the friction of petroleum-based diesel fuel
and may result in longer equipment life and protection of fuel injectors. The
Environmental Protection Agency (EPA) Ultra Low Sulfur Diesel Mandate seeks
to reduce sulfur emissions through regulations that take effect over the next
several years. Because low-sulfur diesel and ultra-low-sulfur diesel have
lubricity problems, biodiesel may be an attractive alternative to satisfying the
requirements of the mandate. However, EPA regulations are subject to change. If
the mandate is cancelled or suspended, or if waiver of the mandate requirements
are allowed, future biodiesel demand may be less than expected.
We
anticipate that the EPA’s Renewable Fuel Standard (the “RFS”) may increase
demand for biodiesel, as it sets a minimum usage requirement for biodiesel and
other types of biomass-based diesel. However, there can be no assurance that the
RFS will increase demand for biodiesel, as it is estimated that current
biodiesel production capacity already exceeds the 2012 biodiesel mandate. We
also anticipate that the expanded RFS requirements will be satisfied primarily
by corn-based ethanol and other types of ethanol, including cellulose-based
ethanol.
The
Biodiesel Production Process
Biodiesel
can be made from renewable sources, such as:
|
o
|
vegetable
oils;
|
|
o
|
animal
fats; and
|
|
o
|
used
cooking oils and trap grease.
|
9
The
choice of feedstock is determined primarily by the price and availability of
each feedstock variety and the capabilities of the producer’s biodiesel
production technology to process the particular feedstock. Local governmental
and environmental considerations may also affect the choice of feedstock. The
biodiesel manufacturing process has three distinct steps — the chemical reaction
step, the separation step and the polishing step.
Chemical Reaction. In the
chemical reaction step, a mix of biodiesel, glycerin and soap is produced from
feedstock, alcohol and a catalyst. The collection of equipment that performs
this chemical reaction step in producing biodiesel is referred to as the
“reactor,” and the process typically requires an extended period of time.
Depending on the type of reactor used, the mix of biodiesel, glycerin and soap
produced requires differing degrees of further processing to separate the methyl
esters comprising the biodiesel from the glycerin and soap, to clean or “polish”
both the biodiesel and glycerin, and to recover excess alcohol from both the
biodiesel and glycerin. Generally, the more efficient the reactor, the less
downstream processing that is required. If the feedstock used is high in free
fatty acids, an esterification step is required before the chemical reaction
step is needed to form an ester having an acceptable free fatty acid
level.
Separation. The methyl esters
are separated from the glycerin and soap from the chemical reaction step
effluent.
Polishing. The methyl esters
are polished to remove impurities, if any. Any excess water, and soap is removed
and excess alcohol is recycled into earlier steps in the production process
train.
Quality Standards
In the
United States, biodiesel quality is measured by the American Society for Testing
and Materials (“ASTM”) Standard D6751, which specifies the required properties
of B100 biodiesel for use as a blend component with petroleum diesel fuel oils.
This standard specifies, among other qualities, maximum amounts of free
glycerin, total glycerin, water and sediment content, sulfated ash, total
sulfur, copper corrosivity, carbon residue, magnesium, calcium, sodium and
phosphorous. The standard also specifies minimum flash point and cetane number.
Compliance with these standards requires a process that provides for complete
transesterification and efficient and thorough separation and purification
processes.
ASTM
standards are likely to be modified in the near future. Recently, after nearly
six years of collaboration, ASTM subcommittees granted approval of a new
specification that will cover B6 to B20 blends of biodiesel. A revised biodiesel
blend specification was approved by ASTM International's D02 Subcommittee E at
the semi-annual ASTM meetings held in December 2007 and is intended to clear the
way for greater automaker approval of B20. According to the proposed revised
specification, the biodiesel portion of the B6-to-B20 specification must meet
the standard for B100 biodiesel prior to blending, and the finished blend must
meet the widest of the specifications for either No. 1 or No. 2
diesel. Parameters to measure acid number and stability were also added to the
finished blend specification as an additional assurance of the fuel's stability
over time. In addition, the proposed revised specifications allow the 90%
distillation point to be 5°C higher for the blend.
The
subcommittee also made refinements to the current standard for B100 biodiesel,
ASTM D6751. Changes to the B100 blend stock specification were needed to address
the potential issue of filter clogging above the cloud point with B20 and lower
blends. This proposed revision passed Subcommittee E in early December 2007.
This revision is important because ASTM members had previously voted in December
2006 that finished blends would not be allowed to pass until this issue was
addressed at the B100 level.
Other
revised ASTM specifications are likely to increase the use of biodiesel. ASTM
International's D02 Subcommittee E at the semi-annual ASTM meetings held in
December 2007 adopted revised specifications for diesel fuel (ASTM D975) and for
home heating oil (ASTM D396) that would allow the blending of biodiesel into
petroleum diesel or home heating oil. The biodiesel portion must meet the ASTM
D6751 standard prior to blending and the revised specifications limit the
biodiesel content to 5% and lower. Except for permitting the blending of B5
biodiesel, the specifications remain the same as those currently in place with
no changes.
All of
the revised specifications were approved by the Main Committee at the June 2008
ASTM meeting. Even without the approved revisions, hundreds of major fleets are
using B20 biodiesel, including all branches of the United States military for
administrative uses and more than 200 school districts. Biodiesel blends are
available to the public at more than 1,250 retail filling stations
nationwide.
10
Pricing
The price
of refined ASTM D6751 biodiesel is primarily related to the price of petroleum
diesel. As a result, the profitability of biodiesel production is largely
determined by the difference between the cost of feedstocks, which are
agricultural commodities not correlated to the price of petroleum diesel, and
the price for refined ASTM D6751 biodiesel, which typically sells at a premium
to petroleum diesel due to governmental mandates and incentives for use of
biodiesel, as well as environmental factors and other market
drivers.
Feedstocks
Biodiesel
production costs are highly dependent on feedstock costs. Typically, the costs
of fats, oils or greases used to make biodiesel are approximately 70% to 80% of
the finished product cost. To produce biodiesel profitability, a biodiesel
refiner must have a process that can efficiently convert low-cost feedstock into
high quality B100. Suitable feedstocks for biodiesel production include
vegetable oils, animal fats and recycled cooking oils and greases.
Animal Fats. Animal fats
used for biodiesel production include both edible and inedible fats, fish oil
and other types of rendered fats and lards with higher contaminant
levels.
Plant Oils. Plant oils
used for biodiesel production include soybean (the most commonly used biodiesel
feedstock in the United States), palm, rapeseed or canola (the most commonly
used biodiesel feedstock in Europe), cottonseed, groundnut, sunflower, corn,
coconut, olive, castor, sesame and linseed oils. Over 95% of biodiesel produced
by traditional processes in the United States use soybean oil as the primary
feedstock. Soybean oil can be obtained in various grades.
Recycled Cooking Oils and
Greases. Recycled cooking oils and greases used for biodiesel
production include yellow grease and brown grease with a free fatty acid content
of greater than 15%.
Feedstock Costs. The
costs of the various feedstocks depend largely on whether the feedstock may be
used in the food market. Recent increases in the entire range of commodities,
including agricultural commodities has greatly increased prices of various
biodiesel feedstocks from historic levels.
To the
extent that the cost for biodiesel production exceeds the price of petroleum
diesel, government incentives are necessary to maintain a commercially feasible
market for the production of biodiesel.
Government
Incentives
In the
interest of environmental protection and energy security, federal, state and
local governments have enacted a variety of incentives and mandates to promote
the production and use of biodiesel. These incentives and mandates generally
have three approaches:
|
o
|
To
lower the effective cost of biodiesel in order to make it more price
competitive with petroleum diesel, primarily through tax credits, rebates
and deductions;
|
|
o
|
To
increase the use of biodiesel through mandates, such as requirements for
use of a biodiesel blend for certain government fleets or requiring a
certain percentage of sales to consist of a biodiesel blend;
and
|
|
o
|
To
encourage investments in production and distribution capacity, as well as
technology to promote end use of biodiesel, through tax credits, rebates
and deductions, grants for construction or purchase of new equipment or
government loan guarantees.
|
11
Tax Incentives.
The
primary federal government incentive intended to lower the effective cost of
biodiesel is the Biodiesel Blenders Tax Credit, which is included in the
Volumetric Ethanol Excise Tax Credit created under the American Jobs Creation
Act of 2006. This incentive expired on December 31, 2009 and considering
the current political climate, we expect it to be extended in early 2010 on a
retroactive basis. This incentive generally provided for a $0.50 excise tax
credit per gallon of recycled feedstock biodiesel blended into petroleum diesel
and a $1.00 excise tax credit per gallon of virgin feedstock biodiesel,
including biodiesel derived from animal fats blended into petroleum diesel. In
December 2007, President Bush gave approval to the Energy Independence and
Security Act of 2007 which establishes a renewable fuels standard for biodiesel
use in the United States of one billion gallons by 2012 and as of January 2008,
the Volumetric Ethanol Excise Tax Credit was extended to January 1, 2011 as part
of the recently enacted Food, Conservation, and Energy Act of 2008.
Other
Incentive Programs Offered at the Federal and State Levels
The U.S.
Agricultural Department (USDA) implemented its Advanced Biofuel Payment Program
in 2009 to support and ensure an expanding production of Advanced Biofuels.
Under the program, qualified biodiesel producers received $0.0228 per gallon for
production output from mid-2008 to mid-2009.
Many
states are following the federal government’s lead and are offering similar
programs and incentives to spur biodiesel production and use. For example,
Illinois and Minnesota have mandated the use of B2 in all diesel fuel sold in
their respective states subject to certain conditions that include sufficient
annual production capacity (defined as at least 8 million gallons). The
mandate took effect in Minnesota in September 2005 and in Illinois in
July 2006.
Approximately
31 states provide either user or producer incentives for biodiesel. Several
provide both types of incentives. Approximately nine states provide incentives
to biodiesel producers to build facilities in their states, typically offering
tax credits, grants and other financial incentives. Two states provide fuel
rebate programs, and two provide revolving funds for fleet biodiesel
purchases.
International
Biodiesel Developments and Public Policy Initiatives
Various
non-European countries have also instituted public policy initiatives to
encourage biodiesel production and use, and have done so generally through a
combination of fiscal incentives and mandates or voluntary targets, including
Argentina, Australia, Brazil, Canada, Indonesia, Malaysia and New
Zealand.
The
following eight European countries have duty exemptions and, in most cases,
mandates to incentivize and require the use of biodiesel: Austria, France,
Germany, Italy, the Netherlands, Spain, Sweden and the United Kingdom. These
countries account for more than 80% of the EU25’s potential biodiesel
market.
Competition
The
National Biodiesel Board reports that, as of May 2009, there were approximately
176 commercial biodiesel refineries in the United States with an annual
production capacity of approximately 2.0 billion gallons per
year.
The
biodiesel production market is very dynamic as there are a number of new
entrants that may have greater access to capital or low cost feedstock. For
example, large international agricultural companies, such as Archer Daniels
Midland Corporation, or ADM, and Bunge Limited have begun to build biodiesel
refineries to take advantage of their access to agricultural feedstock. ADM is
already the largest ethanol producer in the United States and has publicly
stated an intention to build biodiesel refineries in the United States to
complement its ethanol production and to take advantage of its vertically
integrated agricultural supply chain.
While the
market for biodiesel may not be constrained by demand given the large volume of
consumption of diesel in the United States and worldwide, we may face
significant competition for feedstock and capital from these large, vertically
integrated competitors, in addition to the other independent entrants into the
market and from various other alternative fuels that are being developed and
marketed.
12
Patents
and Trademarks
One of
our main competitive strengths derives from the expertise, know-how, production
process and refinery technology utilized by the Texas facility. If we are able
to resume operation, we intend to continue research and development into
improvements in our process and into the use of alternative feedstocks for the
production of biodiesel, such as jatropha and algae. We do not expect our
research and development expenses to be borne by potential customers as the
price of our biodiesel will be determined primarily by commodity prices at the
time of sale. We currently do not have any patents or trademarks on our
processes.
Item
1A.
|
Risk
Factors
|
Not applicable.
Item
2.
|
Properties
|
We
sublease approximately 1,000 square feet of office space from a significant
shareholder, Metalico, Inc., pursuant to a sublease for $1,200 per month on a
month-to-month basis.
We
currently own a14 million gallons per year capacity biodiesel refinery in
Cleburne, Texas, which is situated on approximately 6.8 acres of land and
includes a building of approximately 15,000 square feet that houses the
production facility and associated offices.
Item
3.
|
Legal
Proceedings
|
The
Company is subject to various legal actions, regulatory investigations and
proceedings and claims threatened or pending in the normal course of its
business. The Company is not a party to any action or proceedings
which, in the opinion of management, to the extent not provided for through
insurance, indemnification or established reserves, is likely to have a material
adverse effect on its consolidated financial condition or consolidated results
of operations.
On July
9, 2009, the Company received a demand letter from Gavilon through Gavilon’s
legal counsel, McGrath North, for the payment of $357,729 in alleged raw
material purchases and commitments made by the Company in
2008. Gavilon used to be known as ConAgra Trade Group, (“ConAgra”),
an affiliate of the ConAgra Foods, Inc. until ConAgra was sold in the latter
part of June 2008 to an affiliate of Ospraie Management, a leading investment
management firm. As of December 31, 2009, the Company has accounts
payable due Gavilon in the amount of $145,329, which is part of the $357,729
claim by Gavilon. The Company believes it is not liable for any
amount exceeding the $145,329 which is recorded as a liability due
Gavilon. As such, no amounts in excess of the $145,329 have been
recorded for any potential losses from Gavilon’s claim.
On March
11, 2010, Gavilon filed a lawsuit against Beacon Energy Corp. in the Superior
Court of the State of Delaware with regards to Gavilon’s claims against the
Company amounting to $357,729 as indicated in Note 15 – Commitments and
Contingencies. The Company intends to hire legal counsel to represent
itself in the lawsuit but as of the filing date no legal counsel has been hired
yet.
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
None.
13
Part
II
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities
|
Our
common stock commenced trading on June 30, 2008 and is listed on the Over the
Counter Bulletin Board (“OTCBB”) sponsored by the National Association of
Securities Dealers, Inc. under the symbol “BCOE”.
We have
not declared or paid any cash dividends on our common stock nor do we anticipate
paying any in the foreseeable future. The payment of cash dividends
in the future will be at the discretion of its Board of Directors and will
depend upon its earnings levels, capital requirements, any restrictive loan
covenants and other factors the Board considers relevant. We have no
preferred stock outstanding.
The
information required by this item with respect to equity compensation plans is
set forth under item 11 of this report and incorporated herein by
reference.
The
reported high and low share bid prices for our common stock from and after June
30, 2008, as reported by the OTCBB are shown below for the periods
indicated.
Price Range
|
||||||||
Low
|
High
|
|||||||
Year
ended December 31, 2009
|
||||||||
First
Quarter (March 31, 2009)
|
$ | 0.09 | $ | 0.65 | ||||
Second
Quarter June 30, 2009)
|
$ | 0.16 | $ | 0.51 | ||||
Third
Quarter September 30, 2009)
|
$ | 0.08 | $ | 0.40 | ||||
Fourth
Quarter (December 31, 2009)
|
$ | 0.06 | $ | 0.11 | ||||
Year
ended December 31, 2008
|
||||||||
Third
Quarter (September 30, 2008)
|
$ | 3.52 | $ | 11.00 | ||||
Fourth
Quarter (December 31, 2008)
|
$ | 0.30 | $ | 10.25 |
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
The
following discussion should be read in conjunction with our condensed
consolidated financial statements and notes thereto included elsewhere in this
Report. This discussion contains forward-looking statements that
reflect our current views with respect to future events and financial
performance. Actual results may differ materially from those
anticipated in these forward-looking statements.
OVERVIEW
We were
originally formed in the State of Delaware on September 5, 2006 for the purpose
of engaging in the production and marketing of biodiesel. Our biodiesel efforts
are centered on the utilization and processing of lower grade feedstocks,
primarily animal fats such as beef tallow, choice white grease and poultry fat,
which lowers our raw material cost and enhances our flexibility to meet
historically volatile market conditions.
On May
15, 2008 we acquired certain operating assets of Smithfield BioEnergy LLC, an
affiliate of Smithfield Foods, Inc., (“Smithfield”), a publicly traded Virginia
corporation. Smithfield produced and sold biodiesel at its biodiesel
plant in Cleburne, Texas (“Texas Facility”), which was acquired and is now being
operated by Beacon.
Based on
the dramatic changes in the economy during the later part of 2008, and how
changes are affecting the alternative energy sector, review of their business
models and projected cash flow models and cash needs, the Company has concluded
to impair all our investments and loans made to unconsolidated entities in
2008.
14
Through
continued development of investments, the utilization of lower cost feedstocks
to manufacture biodiesel, and active exploration of new investment
opportunities, we intend to position ourselves as a leading low cost producer of
high quality biodiesel.
The
developments and economic turmoil in the recent months have substantially
affected the business environment in general and the alternative energy sector
in which we operate in. The availability of credit and capital investments has
dramatically slowed down making it difficult for most companies to borrow money
and/or raise capital to finance their operations. Oil prices have
dropped significantly from the record highs of 2008 and consequently selling
prices for petroleum and biodiesel fuel have dropped as well.
If we are
able to resume operations at our Texas plant we intend to increase revenue and
generate cash through the following: (i) expand our customer base by targeting
fleet transportation entities such as transport or distribution companies, local
and state government agencies, etc., (ii) minimize the seasonality of our sales
by selling to the maritime industry where fuel consumption is relatively stable
all year round; (iii) utilize lower cost feedstocks and investigate the use of
cheaper alternative raw materials; (iv) continue to explore the possibility of
tie-ups with major oil companies; and (v) improve and maintain the efficiency of
our Texas facility.
In early
March 2010, the Company indefinitely shut down its Texas operations due to cash
flow difficulties brought about by the expiration on December 31, 2009 of the
$1.00 per gallon credit and lower sales volume for the first two months of
2010. The Company intends to resume operations if the $1.00 per
gallon credit is reinstated by Congress and the Company is able to secure
additional funding through a raise of capital or additional
borrowings. To restart its plant, the Company expects to spend at
least $500,000. There is no assurance, however, that the $1.00 per
gallon credit will be reinstated or that the Company will be able to raise
additional funding. In which case, the Company will likely cease
operations.
In
addition, given the shutdown of the Company’s Texas operations, the Company
consulted with an outside third party appraiser to help in determining the fair
market value or liquidation value of the facility given the
shutdown. The purpose of this evaluation was to help to determine
whether the fair market or liquidation value of the facility has an indication
of impairment. No such indication of impairment was
present.
CRITICAL
ACCOUNTING POLICIES
Management’s
Discussion and Analysis of Financial Condition and Results of Operations is
based on the Company’s audited condensed consolidated financial statements,
which have been prepared in accordance with generally accepted accounting
principles in the United States of America (“U.S. GAAP”). The preparation of
these financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenue and expenses
and related disclosure of contingent assets and liabilities. Management bases
its estimates on historical experience and various other assumptions that it
believes to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. An accounting policy
is deemed to be critical if it requires an accounting estimate to be made based
on assumptions about matters that are highly uncertain at the time the estimate
is made, if different estimates reasonably could have been used, or if changes
in the estimate that are reasonably likely to occur could materially impact the
financial statements.
Revenue
Revenue
from product sales is recognized at the time the product is shipped, evidence of
an arrangement exists, the fee is fixed and determinable and collection is
probable. The Company records revenue from the IRS biodiesel excise
tax credit program related to the production of biodiesel when the Company has
produced and sold the biodiesel and completed all the requirements of the
applicable incentive program. Additionally, the Company was approved for payment
of approximately $69,000 from the USDA’s Advance Biofuel Producer Program
related to the production and sale of biofuel. The Company received
approximately $69,000 in December 2009 and as such had recorded the $69,000 as
revenue in Fiscal 2009.
15
The
Company applies the revenue recognition principles set forth under SEC Staff
Accounting Bulletin 104, (“SAB 104”) which provides for revenue to be recognized
when (i) persuasive evidence of an arrangement exists, (ii) delivery or
installation has been completed, (iii) the customer accepts and verifies
receipt, and (iv) collectability is reasonably assured.
Accounts
Receivable
Accounts
receivable are stated at the amount management expects to collect. An
allowance for doubtful accounts is recorded based on a combination of historical
experience, aging analysis and information on specific accounts.
Inventory
Inventories,
which consist of raw materials and finished goods, are stated at the lower of
cost (first-in, first-out) or market
Impairment
of Assets
The
Company accounts for its long-lived assets in accordance with ASC 360, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“ASC 360”), which requires that
long-lived assets be evaluated whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable or the useful life has
changed. Such indicators include significant technological changes, adverse
changes in market conditions and/or poor operating results. The carrying value
of a long-lived asset group is considered impaired when the projected
undiscounted future cash flows is less than its carrying value, and the amount
of impairment loss recognized is the difference between the estimated fair value
and the carrying value of the asset or asset group. Fair market value is
determined primarily using the projected future cash flows discounted at a rate
commensurate with the risk involved. In addition, given the shutdown of the
Company’s Texas operations, the Company consulted with an outside third party
appraiser to help in determining the fair market value or liquidation value of
the facility given the shutdown. The purpose of this evaluation was
to help to determine whether the fair market or liquidation value of the
facility has an indication of impairment. No such impairment was
present. However, as a result of the indefinite shutdown of
Texas facility starting in March 2010, we took an impairment charge of $141,750
on our customer list asset.
RESULTS
OF OPERATIONS
The
following table sets forth information regarding average Beacon selling prices
for 2009 and 2008. The fluctuation in pricing is due primarily to the volatility
in the price of oil and petroleum diesel. The price of petroleum
diesel, which is a product substitute for biodiesel, basically dictates the
price at which we are able to sell biodiesel.
16
Petroleum
|
||||||||||||||||
No. 2 Diesel
|
||||||||||||||||
Beacon Biodiesel
|
Weighted
|
|||||||||||||||
Average
|
Increase (Decrease) Versus
|
Wholesale
|
||||||||||||||
Selling Price
|
Prior Period
|
Selling Price
|
||||||||||||||
per Gallon (a)
|
$
|
%
|
per Gallon (b)
|
|||||||||||||
|
||||||||||||||||
Year
ended December 31, 2009
|
||||||||||||||||
By
Quarter
|
||||||||||||||||
First
Quarter
|
$ | 2.27 | $ | (0.65 | ) | -22.26 | % | $ | 1.41 | |||||||
Second
Quarter
|
$ | 2.55 | $ | 0.28 | 12.33 | % | $ | 1.63 | ||||||||
Third
Quarter
|
$ | 2.84 | $ | 0.29 | 11.37 | % | $ | 1.86 | ||||||||
Fourth
Quarter
|
$ | 2.97 | $ | 0.13 | 4.58 | % | $ | 2.02 | ||||||||
Year
ended December 31, 2008
|
||||||||||||||||
By
Quarter
|
||||||||||||||||
Second
Quarter
|
$ | 4.58 |
na
|
na
|
$ | 3.66 | ||||||||||
Third
Quarter
|
$ | 4.38 | $ | (0.20 | ) | -4.37 | % | $ | 3.48 | |||||||
Fourth
Quarter
|
$ | 2.92 | $ | (1.46 | ) | -33.33 | % | $ | 2.01 |
The
following table sets forth information regarding average Beacon purchase prices
of feedstock items and methanol as well as the price of natural gas in 2009 and
2008:
|
Average Purchase Price per Pound
|
Natural Gas
|
||||||||||||||||||||||
Choice
|
Free Fatty
|
Industrial Price
|
||||||||||||||||||||||
Edible
|
Edible
|
White
|
Acid
|
per Thousand
|
||||||||||||||||||||
Lard
|
Tallow
|
Grease
|
(Retreat)
|
Methanol
|
Cubic Feet (a)
|
|||||||||||||||||||
Year
ended December 31, 2009
|
||||||||||||||||||||||||
First
Quarter
|
$ | - | $ | 0.22 | $ | 0.18 | $ | - | $ | 0.68 | $ | 6.48 | ||||||||||||
Second
Quarter
|
$ | 0.28 | $ | 0.28 | $ | 0.17 | $ | 0.17 | $ | 0.66 | $ | 4.61 | ||||||||||||
Third
Quarter
|
$ | 0.33 | $ | 0.37 | $ | - | $ | 0.19 | $ | 0.86 | $ | 4.25 | ||||||||||||
Fourth
Quarter
|
$ | 0.32 | $ | 0.31 | $ | - | $ | 0.20 | $ | 0.99 | $ | 5.38 | ||||||||||||
Year
ended December 31, 2008
|
||||||||||||||||||||||||
Second
Quarter
|
$ | 0.45 | $ | 0.44 | $ | 0.45 | $ | - | $ | 1.53 | $ | 11.18 | ||||||||||||
Third
Quarter
|
$ | 0.45 | $ | 0.47 | $ | 0.43 | $ | - | $ | 1.58 | $ | 10.76 | ||||||||||||
Fourth
Quarter
|
$ | - | $ | 0.31 | $ | 0.15 | $ | - | $ | 1.51 | $ | 7.79 |
(a) Based
on weighted monthly average price from the Energy Information
Administration.
17
The
following table sets forth information regarding Beacon’s sales by gallons for
2009 and 2008:
Increase (Decrease) Versus
|
||||||||||||
Sales
|
Prior Period
|
|||||||||||
in Gallons
|
$
|
%
|
||||||||||
Year
ended December 31, 2009
|
||||||||||||
Sales
By Quarter
|
||||||||||||
First
Quarter
|
446,680 | (850,268 | ) | -65.56 | % | |||||||
Second
Quarter
|
698,427 | 251,747 | 56.36 | % | ||||||||
Third
Quarter
|
646,329 | (52,098 | ) | -7.46 | % | |||||||
Fourth
Quarter
|
569,202 | (77,127 | ) | -11.93 | % | |||||||
Total
|
2,360,638 | |||||||||||
Year
ended December 31, 2008
|
||||||||||||
Sales
By Quarter
|
||||||||||||
Second
Quarter
|
1,114,544 |
na
|
na
|
|||||||||
Third
Quarter
|
2,497,219 | 1,382,675 | 124.06 | % | ||||||||
Fourth
Quarter
|
1,296,948 | (1,200,271 | ) | -48.06 | % | |||||||
Total
|
4,908,711 |
The year
2009 as compared to 2008 was marked by a steep decline in petroleum prices, the
benchmark on which Beacon relies to price and market its
biodiesel. Underlying raw material prices also declined but not to
the same degree as petroleum prices. While the Company was able to
raise $1.65 million in loans in April 2009, unfavorable gross margins, required
fixed assets additions and subsequent working capital problems in the latter
part of 2009 resulted in significant losses.
Year
Ended December 31, 2009 Compared to year Ended December 31, 2008
Revenues. During
the year ended December 31, 2009, we recognized revenues of $6,439,735, as
compared to $19,879,791 during the year ended December 31, 2008 representing a
decrease of $13,440,056 or 68%. The decrease in revenues was
attributable to 2,548,073 fewer gallons of biodiesel sold, or 52% amounting to
$10,292,756 and a decrease in average selling prices totaling $3,220.869 offset
by a decrease in glycerine sales of $24,650 and a one-time grant of $69,453 in
2009 from the USDA Advance Biodiesel Program. The average
selling price for biodiesel was approximately $2.68 per gallon for the year
ended December 31, 2009 compared to $4.04 per gallon for the year ended December
31, 2008.
Cost of Revenues. During the
year ended December 31, 2009, we recorded cost of revenues of $7,880,942, as
compared to $21,339,106 for the year ended December 31, 2008, a decrease of
$13,458,164 or 63%. This decrease is primarily due to a reduction of
$12,793,283 in costs of goods sold due to a decrease in production volume, drop
of $145,175 in labor cost, decrease of $122,068 in small tools and supplies
expense, lower utilities expense of $229,069, decrease of $100,485 in freight
costs, decline of $194,779 in waste water treatment and disposal expenses and
offset by an increase of $115,509 in commercial liability insurance
expense.
General and Administrative
Expenses. During the year ended December 31, 2009, we recorded general
and administrative expenses of $712,085, as compared to $1,734,987 for the year
ended December 31, 2008, representing a decrease of $1,022,902 or
59%. This decrease in general and administrative expenses was
primarily the result of the decline in wages expenses of $98,736, drop of
$140,030 in commissions and consulting fees, reduction in legal, accounting and
professional fees of $451,475 and a decrease of $71,956 in write-offs
with regards to an option to purchase land. The decline in legal,
accounting and professional fees was the result of higher expenses incurred in
the prior period related to the Smithfield acquisition in May 2008 and going
public in June 2008.
18
Depreciation and
amortization. During the year ended December 31, 2009, we recorded
depreciation and amortization expenses of $788,789, as compared to $484,433 for
the year ended December 31, 2008, representing an increase of $296,856 or
61%. The increase in depreciation expense of $228,606 between the two
comparable periods was primarily due to the longer depreciation period of twelve
months in 2009 versus seven and a half months in 2008. A reallocation
of part of the purchase price of the Texas facility from fixed assets to
customer list was made in June 2009 resulted in an increase of $68,250 in
amortization expense.
Other Income (Expense).
During the year ended December 31, 2009, we recorded interest income of $1,071
and other income of $20,000, which was offset by interest expense of $476,152, a
loss of $191,518 on disposal of an asset and impairment of customer list of
$141,750, as compared to interest income of $207,584 and loss of $6,482,231 in
subsidiaries’ investments for the year ended December 31,
2008. Interest expense for the year ended December 31, 2009 was
mainly due to the interest of $171,087 on the $1,650,000 debt financing,
$305,065 on the warrants debt discount and $7,500 on the deferred financing
costs. Interest income for the year ended December 31, 2008 was
principally derived from money market investments.
Net Loss. As a result of the
factors discussed above, we recorded a net loss of $3,730,430 during the year
ended December 31, 2009, as compared to a net loss of $9,953,382 during the year
ended December 31, 2008, representing an increase of $6,222,952 or
63%.
LIQUIDITY
AND CAPITAL RESOURCES
As of
December 31, 2009, our cash on hand was approximately $292,000. We
incurred a net loss of approximately $3,730,000 for the year ended December 31,
2009 and our accumulated deficit was approximately $14,670,000. We
have historically met our liquidity requirements principally through the sale of
equity and debt securities to both related parties, individual investors and
institutional investors. As indicated in Note 11 of accompanying
consolidated financial statements, in April 2009, the Company entered into a
Note Purchase Agreement with certain investors for an aggregate principal amount
of $1,650,000. Management believes that without the reopening of the
Texas facility, the reinstatement of the $1 per gallon credit, lack of
improvement in gross margins and no additional infusion of cash, we will not
have sufficient resources to meet the Company’s capital requirements through the
upcoming twelve months. We received the $69,453, award from the
USDA’s Advanced Biodiesel Producer Program in December 2009. In early
March, 2010, the Company indefinitely shut down its Texas operations due to cash
flow difficulties. The Company anticipates that to reopen the
facility will cost approximately $500,000.
The
Company is exploring alternative sources of capital but has no current
commitment for additional financing and may experience difficulty in obtaining
such additional financing on favorable terms, if at all. Even if the
Company obtains additional equity capital, the Company may not be able to
execute its current business plan and fund business operations. No
assurance can be given that any source of additional cash would be available to
the Company. If no source of additional cash is available to the
Company, then the Company may not resume its operations.
These
matters raise substantial doubt about the Company’s ability to continue as a
going concern. The accompanying consolidated financial statements have
been prepared on a going concern basis, which contemplate the realization of
assets and satisfaction of liabilities in the normal course of business. The
consolidated financial statements do not include any adjustments relating to the
recoverability of the recorded assets or the classification of the liabilities
that might be necessary should the Company be unable to continue as a going
concern.
Cash and Cash
Equivalents. As of December 31, 2009, we had cash and cash
equivalents of $291,897, as compared to cash and cash equivalents of $211,209 as
of December 31, 2008, representing an increase of $80,688 or 38%.
Net Cash Provided by Used in
Operating Activities. Net cash used in operating activities totaled
$775,398 for the year ended December 31, 2009, as compared to net cash used in
operating activities of $1,655,367 for the year ended December 31,
2008.
19
For the
year ended December 31, 2009, the Company’s net loss of $3,730,430, loss of
$191,518 on disposal of assets, change of $1,535,410 in working capital
components was offset by non-cash items of depreciation and amortization of
$923,039 and amortization of debt discount of $305,065. The $1,535,410 change in
working capital components include a decrease in accounts receivable of
$636,187, a decrease in inventories of $677,266 and an increase in accounts
payable, accrued expenses and other liabilities of $142,936. These items were
offset by a $5,630 increase in prepaid expenses and other current assets and a
$84,651 increase in due to related party. For the year ended December 31, 2008,
the Company’s net loss of $9,953,382, change of $1,424,262 in working capital
components was primarily offset by non-cash items of depreciation and
amortization of $484,434, impairment of notes receivable of $1,671,990 and
impairment of equity investment of $4,654,179. The $1,424,262 change in working
capital components include an increase in accounts receivable of $1,035,951, a
decrease in inventories of $971,645, a decrease in interest receivable of
$49,620 and an increase in prepaid expenses and other assets of $19,978. These
items were offset by a $830,926 increase in accounts payable, accrued expenses
and other liabilities and a $628,000 increase in due to related
party.
Net Cash Used in Investing
Activities. Net cash used in investing activities totaled $557,742 during
the year ended December 31, 2009, as compared to net cash used in investing
activities of $9,556,596 during the year ended December 31, 2008. Cash used in
investing activities during the year ended December 31, 2009 was for the
purchase of certain equipment at the Texas Facility for $557,742. Cash provided
during the year ended December 31, 2008 was the result of the sale of $3,350,000
of marketable securities offset by an investment of $1,000,000 in Terra,
issuance of a $225,000 note receivable, net of $20,000 payment received, due
from United, purchase of equipment for $155,439 and cash paid of $11,546,157
towards the acquisition of the Smithfield Texas plant.
Net Cash Provided By Financing
Activities. Net cash provided by financing activities totaled $1,413,828
during the year ended December 31, 2009, as compared to net cash provided by
financing activities of $5,541,176 during the year ended December 31,
2008. Cash provided during the year ended December 31, 2009 was from
debt financing of $1,650,000 and warrants exercised of $32,836 and offset by
repayment of advance to related party of $269,008. The cash
provided during the year ended December 31, 2008 were derived from the issuance
of convertible notes of $1,700,064 and common stock of $3,841,112.
Item
8.
|
Financial
Statements and Supplementary
Data
|
The financial statements required by
this item are set forth beginning on F-1.
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
As of
July 9, 2009, Beacon Energy Holdings, Inc. (the "Company") (a) dismissed
Friedman LLP ("Friedman") as its independent registered public accounting firm,
and (b) appointed Marcum LLP ("Marcum") to serve as the Company's independent
registered public accounting firm. The decision to dismiss Friedman was
recommended and approved by the Company's Board of Directors acting as the Audit
Committee.
Friedman's
audit reports on the Company's consolidated financial statements for the fiscal
years ended December 31, 2007 and 2008 did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.
During
the Company's two most recent fiscal years and the subsequent interim period
from January 1, 2009 through July 9, 2009, there were no disagreements between
the Company and Friedman on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Friedman, would have
caused Friedman to make reference to the subject matter of the disagreement in
its report on the Company's consolidated financial statements.
During
the Company's two most recent fiscal years and subsequent period from January 1,
2009 through March 31, 2009, there were no reportable events as defined by Item
304(a)(1)(v) of Regulation S-K.
During
the two most recent fiscal years and the subsequent interim period from January
1, 2009 through July 9, 2009, neither the Company nor anyone acting on behalf of
the Company consulted Marcum regarding any matters or events set forth in Item
3.04(a)(2) of Regulation S-K.
Item
9A(T).
|
Control and
Procedures
|
Controls and Procedures
We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange
Act’’). Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuer’s management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure. Based upon our evaluation, our principal executive officer
and principal financial officer concluded that our disclosure controls and
procedures are not effective, as of December 31, 2009, in ensuring that material
information that we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission rules and
forms.
20
Management’s Annual Report
on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a
process designed by, or under the supervision of, a company’s principal
executive and principal financial officers and effected by a company’s board of
directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Our internal control over financial reporting includes
those policies and procedures that:
|
·
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our
assets;
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and
directors; and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control — Integrated
Framework.
Based on
our assessment, our management has concluded that, as of December 31, 2009,
our internal control over financial reporting is not effective based on those
criteria.
In
performing their audit for 2009, our auditors detected certain deficiencies
which together in the aggregate we consider to constitute a material weakness.
The following are the deficiencies noted:
Lack of Segregation of
Duties for the preparation, approval and review of
transactions
The
Company needs to enhance its financial reporting process with respect to
separation of duties, adequate safeguards, proper authorization of transactions,
timely reconciliations and checks & balances be performed periodically by
appropriate personnel.
Inadequate documentation of
components of internal control
If a
control process is not documented it is not possible to determine if the
controls are designed and applied consistently. Administrative and operational
controls for each major functional area do not have documented policies and
procedure manuals. These manuals should be prepared and updated periodically and
provided to the necessary personnel of the Company. Governance is a key
component of internal control design. Strategic plans, budgets, audit committees
and whistleblower procedures are all part of a comprehensive governance policy.
The Company does not have a Code of Conduct policy or anti-fraud program in
place including a whistleblower policy. The Company should document and
implement Code of Conduct and Whistleblower policy to establish an anti-fraud
program. The anti-fraud program should have a Code of Conduct, confirmation
document of employee’s receipt of the Code of Conduct, reports on hotline
complaints and procedures for resolving complaints and logs of reported
incidents.
21
Management override of
controls
The
ability to override controls should be limited, restricted and documented.
Evidence of written authorization and explanation should be
maintained.
Inadequate Accounting
Professionals
The
Company does not have a full-time Chief Financial Officer with the necessary
knowledge required for a public company. Although the Company is considered
small in nature, as the Company expands, we will either need to consider hiring
a qualified CFO or utilize the resources of a qualified outsourced
consultant.
Changes in Internal Control
over Financial Reporting
There
were no changes in our internal control over financial reporting during the
fourth quarter of the year ended December 31, 2009 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
This
annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this
annual report.
Part
III
Item
10.
|
Directors,
Executive Officers and Corporate
Governance
|
Executive
Officers and Directors
The
following table sets forth information about the Company’s executive officer and
directors as of
December
31, 2009:
Name
|
Age
|
Position
|
||
Carlos
E. Agüero
|
57
|
President,
Chairman & Director
|
||
Joseph
DePalma
|
53
|
Director
|
||
John
Colin
|
53
|
Director
|
Our
directors hold office until the earlier of their death, resignation or removal
or until their successors have been qualified. Our officers are elected annually
by, and serve at the pleasure of, our board of directors.
Mr. Dylan
K. Remley was the President and a Director until his resignation from the
Company effective February 26, 2009.
Biographies
Carlos E. Agüero (Chairman and
Director). Carlos E. Aguero is the
founder and has served as our Chairman and as director since September 2006. Mr.
Agüero has spent the last twenty years involved in a variety of start-up and
development phase companies and projects. Among his many ventures, he founded
Metalico, Inc. (Amex: MEA), a ferrous and non-ferrous scrap metal recycling
company in August of 1997 and has served as Metalico’s Chairman, President and
Chief Executive Officer since that time. From February 1988 to December
1996, he held the position of President, Chief Executive Officer and Director of
Continental Waste Industries, Inc., a solid waste hauler and recycler, which he
founded in February 1988 and helped guide through more than thirty acquisitions
and mergers. Continental commenced trading on the NASDAQ National Market
in November of 1993 and was acquired by Republic Industries, Inc., in December
of 1996.
Joseph DePalma
(Director). Joseph DePalma has served as director since June
30, 2009. Mr. DePalma is the Managing Member of Lite DePalma, LLC of
Newark, New Jersey, a regional law firm that specializes in complex litigation.
He has more than twenty-five years of experience involving diverse industries in
the areas of securities, ERISA and anti-trust. He fills a vacancy on the
Board. Mr. DePalma also holds a Masters Degree in Business
Administration from Seton Hall University. He served as a member of the New
Jersey Supreme Court's District Ethics Committee.
22
John Colin
(Director). John Colin has served as director since June 30,
2009. Mr. Colin is currently President and Chief Executive Officer of
LifeStar Response, Inc., a healthcare transportation and logistics company.
Prior to joining LifeStar in 1997, Mr. Colin served as President and CEO of
Environmental Services of America, Inc., a publicly traded environmental
services company. He becomes the third member of Beacon's Board. He
is also a member of the Boards of Directors of Perma-Fix Environmental Services,
Inc. a publicly traded company and Environmental Quality Management, Inc., a
private equity-backed company. A cum laude graduate of the University of
Maryland, Mr. Colin has a Bachelor of Science degree in Accounting.
Directors’
and Officers’ Liability Insurance
We
currently have directors’ and officers’ liability insurance insuring our
directors and officer against liability for acts or omissions in their
capacities as director or officer, subject to certain exclusions. Such insurance
also insures us against losses which we may incur in indemnifying our officer
and director.
Code
of Ethics
We have
not adopted but intend to adopt a code of ethics that applies to our officers,
directors and employees, including our Chief Executive Officer and principal
financial officer, but have not done so to date due to our relatively small
size.
Board
Committees
We expect
our board of directors, in the future, to appoint a nominating committee and
compensation committee, and to adopt charters relative to each such committee.
We intend to appoint such persons to committees of the board of directors as are
expected to be required to meet the corporate governance requirements imposed by
a national securities exchange, although we are not required to comply with such
requirements until we elect to seek listing on a national securities
exchange. As of December 31, 2009, the Audit Committee is
composed of Mr. Agüero.
Item
11.
|
Executive
Compensation
|
Executive Compensation
Summary Compensation Table
The table
below sets forth, for the last two fiscal years, the compensation earned by our
Chief Executive Officer (the “Named Executive Officer”). Except for the Named
Executive Officer, none of our executive officers received annual compensation
in excess of $50,000 during the last three fiscal years.
Stock
|
Option
|
|||||||||||||||||||||||||
Name and
|
Awards
|
Awards
|
All Other
|
|||||||||||||||||||||||
Principal Position
|
Year
|
Salary
|
Bonus
|
(1)
|
(1)
|
Compensation
|
Total
|
|||||||||||||||||||
Carlos
E. Agüero
|
2009
|
$ | - | $ | - |
na
|
na
|
$ | - | $ | - | |||||||||||||||
Chairman
|
2008
|
$ | - | $ | - |
na
|
na
|
$ | - | $ | - | |||||||||||||||
2007
|
$ | - | $ | - |
na
|
na
|
$ | - | $ | - | ||||||||||||||||
Dylan
K. Remley
|
2009
|
$ | 51,809 | $ | - |
na
|
na
|
$ | 1,662 | $ | 53,471 | |||||||||||||||
President
and CEO
|
2008
|
$ | 221,404 | $ | 85,000 |
na
|
na
|
$ | 7,200 | $ | 313,604 | |||||||||||||||
2007
|
$ | 225,000 | $ | - |
na
|
na
|
$ | 7,200 | $ | 232,200 |
23
(1) Based
upon the aggregate grant date fair value calculated in accordance with ASC 718,
Compensation – Stock Compensation.. For information regarding our valuation of
option awards, see “Critical Accounting Policies — Stock-Based
Compensation.”
2008
Equity Incentive Plan
On June
30, 2008, our Board of Directors and stockholders adopted the 2008 Stock
Incentive Plan (the “2008 Plan”). The purpose of the 2008 Plan is to provide an
incentive to attract and retain officers, consultants, advisors and employees
whose services are considered valuable, to encourage a sense of proprietorship
and to stimulate an active interest of such persons into our development and
financial success. Under the 2008 Plan, we are authorized to issue
incentive stock options intended to qualify under Section 422 of the Code,
non-qualified stock options, stock appreciation rights, performance shares,
restricted stock and long term incentive awards. The 2008 Plan will be
administered by our Board of Directors until such time as such authority has
been delegated to a committee of the Board of Directors. As of the
filing date, the 2008 Plan has not been implemented.
Directors Compensation
The
employee director does not receive compensation for his services as
director. The non-employee members of our Board of Directors are paid
for attending board meetings. For the year ended December 31, 2009,
Messrs. DePalma and Colin were paid $250 each for services as members of our
Board.
Subject
to the approval by the shareholders, the new members of the Board of Directors
(“Board”), who were appointed on June 30, 2009, will each receive an option to
purchase 40,000 shares of the Company at $0.25 per share. Vesting
will be in equal quarterly installments over a period of two years (but ceasing
to vest at such time as they are no longer members of the Board) and expiring on
the seventh anniversary of the date of issuance.
At each
anniversary date, the new Directors will each receive a grant of 15,000 more
options with comparable vesting and expiration terms as the initial
grant. The strike price will be equal to 80% of the closing stock
price on the date of the grant.
Item 12.
|
Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters
|
Security Ownership of Certain
Beneficial Owners and Management
The
following tables set forth certain information as of December 31, 2009 regarding
the beneficial ownership of our common stock, taking into account the
consummation of the Merger and the consummation of the Split-Off in 2008 and the
exercise by certain noteholders of warrants issued to them in 2009, by (i) each
person or entity who, to our knowledge, owns more than 5% of our common stock;
(ii) each executive officer; (iii) each director; and (iv) all of our executive
officers and directors as a group. Unless otherwise indicated in the footnotes
to the following table, each of the stockholders named in the table has sole
voting and investment power with respect to the shares of our common stock
beneficially owned. Except as otherwise indicated, the address of each of the
stockholders listed below is: 186 North Avenue East, Cranford, New Jersey
07016.
24
Name of Beneficial Owner
|
Number of Shares
Beneficially Owned
(1)
|
Percentage
Beneficially Owned
(2)
|
||||||
5%
Owners:
|
||||||||
Metalico,
Inc. (3)
|
11,373,670 | 33.08 | % | |||||
Argentum
Capital Partners, L.P. (4)
Argentum
Capital Partners II, L.P.
Walter
Barandiaran
c/o
The Argentum Group
60
Madison Avenue, 7th Floor
New
York, New York 10010
|
3,467,797 | 10.09 | % | |||||
Heller
Capital Partners, LLC, Heller Capital Investments, LLC
Ron
Heller Family Foundation, Ronald I. Heller IRA
700
E. Palisade Avenue
Englewood
Cliffs, NJ 07632 (5)
|
2,848,094 | 8.28 | % | |||||
Charles
Hallinan (6)
|
1,795,843 | 5.22 | % | |||||
Executive
Officers and Directors:
|
||||||||
Carlos
E. Agüero (3)
|
3,393,585 | 9.87 | % | |||||
Dylan
K. Remley (7)
|
299,307 | 0.87 | % | |||||
All
executive officers and directors as a group (2
persons)
|
3,692,592 | 10.74 | % |
(1)
|
Unless
otherwise indicated, includes shares owned by a spouse, minor children,
and relatives sharing the same home, as well as entities owned or
controlled by the named beneficial
owner.
|
(2)
|
Based
on 34,383,703 shares of our common stock outstanding immediately following
the Merger and the cancellation of 15,566,667 shares of our common stock
in the Split-Off in 2008 and issuance of 3,283,703 shares of common stock
for warrants exercised by noteholders in
2009.
|
(3)
|
Carlos
Agüero is the Chairman, Chief Executive Officer, President and a
signifcant shareholder of Metalico, Inc. Mr. Agüero’s shares have not been
aggregated with Metalico, Inc.’s shares as Mr. Agüero does not have
dispositive control over Metalico, Inc.'s
shares.
|
(4)
|
The
Argentum Group is a common ultimate controlling party of the two named
funds, which hold the Company’s stock directly as follows: Argentum
Capital Partners II, L.P. (2,316,681) and Argentum Capital Partners, L.P.
(772,227 shares). Includes 3,788,889 shares of common stock
held by Walter Barandiaran who is control person of the two named
funds.
|
(5)
|
Ron
Heller is a common ultimate controlling party of the four named entities,
which hold the Company’s stock directly as follows: Heller Capital
Partners, LLC (778,198 shares), Heller Capital Investments, LLC (779,470
shares), Ron Heller Family Foundation (259,799 shares) and Ronald I.
Heller IRA (1,030,627 shares).
|
(6)
|
Includes
(i) 1,676,120 shares of common stock held by Charles Hallinan and (ii)
119,723 shares of common stock held by Rhea Hallinan, Mr. Hallinan’s
wife.
|
(7)
|
Dylan
Remley resigned as President effective February 26,
2009.
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Certain
Relationships and Related Transactions
We are a
party to that certain Shared Services Agreement with Metalico, Inc. pursuant to
which Metalico, Inc. provides us with a variety of services including (i)
offices, (ii) administrative personnel, (iii) financial, accounting and treasury
functions, (iv) information technology platform, (v) human resources and (vi)
operational support. We owe Metalico, Inc. a monthly fee for such services, as
determined in good faith by us and Metalico, Inc. During the years ended
December 31, 2009 and 2008, we incurred a liability for $75,825 and $123,300,
respectively, to Metalico under this agreement.
25
Board Independence
Messrs.
DePalma and Colin qualify as “independent” directors, as that term is defined by
applicable listing standards of The NASDAQ Stock Market and SEC rules, including
the rules relating to the independence standards of an audit committee and the
non-employee director definition of Rule 16b-3 promulgated under the Exchange
Act.
Item
14. Principal Accountant Fees and Services
The
Company did not engage its independent public accountants, Marcum LLP,
(“Marcum”), to provide advice regarding financial information systems design or
implementation, consulting services or other non-audit services since Marcum’s
appointment on July 9, 2009 to December 31, 2009. The Company did not
engage its independent public accountants, Friedman LLP, Marcum’s predecessor,
to provide advice regarding financial information systems design or
implementation, consulting services or other non-audit services since during
each of the years ended December 31, 2008 and 2007 and the period ended July 9,
2009. Audit related fees billed by Marcum were $93,000 for the year
ended December 31, 2009 and billed by Friedman LLP were $4,225 and $97,100 for
the years ended December 31, 2009 and 2008, respectively.
26
Part
IV
Item
15. Exhibits and Financial Statement
Schedules
INDEX
TO EXHIBITS
2.1
|
Agreement
and Plan of Merger, dated June 26, 2008, between Laurence Associates
Consulting, Inc., a Nevada corporation, and Beacon Energy Holdings, Inc.,
a Delaware corporation; previously filed as an Exhibit to our Form 8-K
which was filed on June 26, 2008 and incorporated herein
by reference.
|
2.2
|
Certificate
of Ownership and Merger merging Laurence Associates Consulting, Inc., a
Nevada corporation, with and into Beacon Energy Holdings, Inc., a Delaware
corporation; previously filed as an Exhibit to our Form 8-K which was
filed on June 26, 2008 and incorporated herein
by reference.
|
2.3
|
Articles
of Merger merging Laurence Associates Consulting, Inc., a Nevada
corporation, with and into Beacon Energy Holdings, Inc., a Delaware
corporation; previously filed as an Exhibit to our Form 8-K which was
filed on June 26, 2008 and incorporated herein
by reference.
|
2.4
|
Agreement
of Merger and Plan of Reorganization, dated as of June 30, 2008, by and
among Beacon Energy Holdings, Inc., Beacon Energy Corp. and Beacon
Acquisition Corp. ; previously filed as an Exhibit to our Form 8-K which
was filed on July 2, 2008 and incorporated herein
by reference.
|
2.5
|
Certificate
of Merger, dated June 30, 2008, merging Beacon Acquisition Corp. with and
into Beacon Energy Corp., filed with the Secretary of State of the State
of Delaware; previously filed as an Exhibit to our Form 8-K which was
filed on July 2, 2008 and incorporated herein
by reference.
|
3.1
|
Certificate
of Incorporation of Beacon Energy Holdings, Inc., a Delaware corporation;
previously filed as an Exhibit to our Form 8-K which was filed on June 26,
2008 and incorporated herein by reference.
|
3.2
|
By-laws
of Beacon Energy Holdings, Inc., a Delaware corporation; previously filed
as an Exhibit to our Form 8-K which was filed on June 26, 2008 and
incorporated herein by reference.
|
10.1
|
Form
of Directors and Officers Indemnification Agreement; previously filed as
an Exhibit to our Form 8-K which was filed on July 2, 2008 and
incorporated herein by reference.
|
10.2
|
Beacon
Energy Holdings, Inc. 2008 Equity Incentive Plan; previously filed as an
Exhibit to our Form 8-K which was filed on July 2, 2008 and incorporated
herein by reference.
|
10.3
|
Form
of 2008 Incentive Stock Option Agreement; previously filed as an Exhibit
to our Form 8-K which was filed on July 2, 2008 and incorporated herein by
reference.
|
10.4
|
Form
of 2008 Non-Qualified Stock Option Agreement; previously filed as an
Exhibit to our Form 8-K which was filed on July 2, 2008 and incorporated
herein by reference.
|
10.5
|
Agreement
of Conveyance, Transfer and Assignment of Assets and Assumptions of
Obligations, dated as of June 30, 2008, between Beacon Energy Holdings,
Inc. and Laurence Associates Consulting Holdings, Inc. ; previously filed
as an Exhibit to our Form 8-K which was filed on July 2, 2008 and
incorporated herein by
reference.
|
27
10.6
|
Stock
Purchase Agreement, dated as of June 30, 2008 among Beacon Energy
Holdings, Inc., Frederick L. Sliva, Arthur R. Lawson and Carol Lawson ;
previously filed as an Exhibit to our Form 8-K which was filed on July 2,
2008 and incorporated herein by reference.
|
10.7
|
Asset
Purchase Agreement, dated as of February 5, 2008 between Beacon Energy
Corp. and Smithfield Bioenergy LLC; previously filed as an Exhibit to our
Form 8-K which was filed on July 2, 2008 and incorporated herein by
reference.
|
10.8
|
Shared
Services Agreement, dated as of November 6, 2008 between Metalico, Inc.
and Agrifuel Co. previously filed as an Exhibit to our Form 8-K which was
filed on July 2, 2008 and incorporated herein by
reference.
|
10.9
|
Beacon
Energy Corp. Voting Agreement, dated as of May 15, 2008 among Beacon
Energy Corp., Metalico, Inc., Argentum Capital Partners, L.P. and Argentum
Capital Partners II, L.P.; previously filed as an Exhibit to our Form 8-K
which was filed on July 2, 2008 and incorporated herein
by reference.
|
10.10
|
Limited
Continuing Guaranty of Payment, dated as of February 25, 2008 by Beacon
Energy Corp. previously filed as an Exhibit to our Form 8-K which was
filed on July 2, 2008 and incorporated herein by
reference.
|
10.11
|
Form
of Note Purchase Agreement dated as of April 10, 2009 between Beacon
Energy Holdings, Inc. and the individual investors ; previously filed as
an Exhibit to our Form 8-K which was filed on April 16, 2009 and
incorporated herein by reference.
|
16.1
|
Letter
from Li & Company, PC dated June 30, 2008; previously filed as an
Exhibit to our Form 8-K which was filed on July 2, 2008 and incorporated
herein by reference.
|
21.1
|
List
of Subsidiaries previously filed as an Exhibit to our Form 8-K which was
filed on July 2, 2008 and incorporated herein by
reference.
|
23.1
|
Consent
of Independent Registered Public Accounting Firm
|
31.1
|
Section
302 Certification by Principal Executive Officer
|
31.2
|
Section
302 Certification by Principal Financial Officer
|
32.1
|
Section
906 Certificate by Principal Executive Officer and the Principal Financial
Officer
|
28
BEACON
ENERGY HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO
FINANCIAL STATEMENTS
Page
|
||
Reports
of Independent Registered Public Accounting Firms
|
F-1
|
|
Consolidated
Balance Sheets as of December 31, 2009, and 2008
|
F-3
|
|
Consolidated
Statements of Operations for the years ended December 31, 2009 and
2008
|
F-4
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the years ended December
31, 2009 and 2008
|
F-5
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and
2008
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
29
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Audit Committee of the
Board of
Directors and Shareholders
of Beacon
Energy Holdings, Inc.
We have
audited the accompanying consolidated balance sheet of Beacon Energy Holdings,
Inc. and Subsidiaries (the “Company”) as of December 31, 2009 and the related
consolidated statements of operations, changes in stockholders’ equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 Beacon Energy Holdings, Inc. and
Subsidiaries, as of December 31, 2009, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements for the year ended December 31,
2009 have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial statements, the
Company’s negative working capital, insufficient revenue and recurring losses
from operations since inception and shutdown of its operating facility raise
substantial doubt about its ability to continue as a going concern. Management’s
plans concerning these matters are also discussed in Note 2 to the consolidated
financial statements. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Marcum
LLP
New York,
New York
May 7,
2010
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Stockholders of
Beacon
Energy Holdings, Inc.
We have
audited the accompanying consolidated balance sheet of Beacon Energy Holdings,
Inc and subsidiaries (the “Company”) as of December 31, 2008, and the
related statements of operations, changes in stockholders’ equity and cash flows
for the year ended December 31, 2008. The Company’s management
is responsible for these financial statements and for maintaining effective
internal controls over financial reporting. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit 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. Our audit of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and 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 Beacon Energy Holdings, Inc. as of
December 31, 2008, and the results of their operations and their cash flows
for year ended December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America.
Friedman
LLP
East
Hanover, New Jersey
May 18,
2009
F-2
Beacon
Energy Holdings, Inc. and Subsidiaries
Consolidated
Balance Sheets
December 31,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 291,897 | $ | 211,209 | ||||
Accounts
receivable
|
399,764 | 1,035,951 | ||||||
Inventory
|
244,875 | 922,141 | ||||||
Prepaid
expense and other current assets
|
102,378 | 119,248 | ||||||
Total
current assets
|
1,038,914 | 2,288,549 | ||||||
Property
and equipment, net
|
8,768,369 | 9,325,184 | ||||||
Deferred
financing costs
|
22,500 | - | ||||||
Total
assets
|
$ | 9,829,783 | $ | 11,613,733 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$ | 667,513 | $ | 474,993 | ||||
Accrued
expenses and other liabilities
|
170,222 | 390,893 | ||||||
Due
to related party
|
630,173 | 814,530 | ||||||
Total
current liabilities
|
1,467,908 | 1,680,416 | ||||||
Long-Term
Liabilities
|
||||||||
Interest
payable
|
171,087 | - | ||||||
Long-term
debt, net of discount of $419,554
|
1,230,446 | - | ||||||
Total
long-term liabilities
|
1,401,533 | - | ||||||
Total
liabilities
|
2,869,441 | 1,680,416 | ||||||
Commitments
and Contingencies (Note 15)
|
||||||||
Stockholders'
Equity
|
||||||||
Preferred
stock, 5,000,000 shares authorized, none issued and
outstanding
|
- | - | ||||||
Common
stock, $0.001 par value, 70,000,000 shares authorized; issued and
outstanding 34,383,703 and 31,100,000 shares, respectively
|
34,384 | 31,100 | ||||||
Additional
paid-in capital
|
21,595,710 | 20,841,539 | ||||||
Accumulated
deficit
|
(14,669,752 | ) | (10,939,322 | ) | ||||
Total
stockholders' equity
|
6,960,342 | 9,933,317 | ||||||
Total
liabilities and stockholders' equity
|
$ | 9,829,783 | $ | 11,613,733 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
Beacon
Energy Holdings, Inc. and Subsidiaries
Consolidated
Statements of Operations
Twelve Months Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Revenues
|
$ | 6,439,735 | $ | 19,879,791 | ||||
Cost
of revenues
|
7,880,942 | 21,339,106 | ||||||
Gross
loss
|
(1,441,207 | ) | (1,459,315 | ) | ||||
Operating
expenses:
|
||||||||
General
and administrative
|
712,085 | 1,734,987 | ||||||
Impairment
of customer list
|
141,750 | - | ||||||
Depreciation
and amortization
|
788,789 | 484,433 | ||||||
Total
operating expenses
|
1,642,624 | 2,219,420 | ||||||
Operating
loss
|
(3,083,831 | ) | (3,678,735 | ) | ||||
Other
income (expense)
|
||||||||
Interest
expense
|
(476,152 | ) | - | |||||
Interest
income
|
1,071 | 207,584 | ||||||
Other
income
|
20,000 | - | ||||||
Loss
on disposal of assets
|
(191,518 | ) | - | |||||
Impairment
on equity investment and notes
|
- | (6,482,231 | ) | |||||
Total
operating expenses
|
(646,599 | ) | (6,274,647 | ) | ||||
Loss
before provision for income taxes
|
(3,730,430 | ) | (9,953,382 | ) | ||||
Net
loss
|
$ | (3,730,430 | ) | $ | (9,953,382 | ) | ||
Net
loss per share - basic and diluted
|
$ | (0.11 | ) | $ | (0.33 | ) | ||
Weighted
average shares outstanding - basic and diluted (1)
|
34,137,339 | 30,556,011 |
(1)
|
Weighted
average shares outstanding for the year ended December 31, 2009 include
the underlying shares exercisable with respect to the issuance of 884,074
warrants exercisable at $0.01 per share. In accordance with ASC 260,
Earnings Per Share, the Company has given effect to the issuance of these
warrants in computing basic net loss per
share.
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
Beacon
Energy Holdings, Inc. and Subsidiaries
Consolidated
Statements of Stockholders' Equity
Additional
|
||||||||||||||||||||
Common Stock
|
Paid-In
|
Accumulated
|
||||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
||||||||||||||||
Balance,
December 31, 2007
|
24,205,941 | $ | 24,205 | $ | 15,244,108 | $ | (985,940 | ) | $ | 14,282,373 | ||||||||||
Issuance
of common stock for cash
|
4,027,250 | 4,028 | 3,837,084 | - | 3,841,112 | |||||||||||||||
Issuance
of common stock for convertible notes
|
1,766,809 | 1,767 | 1,698,297 | - | 1,700,064 | |||||||||||||||
Issuance
of common stock in connection with the reverse merger
|
1,100,000 | 1,100 | (1,100 | ) | - | - | ||||||||||||||
Compensation
expense on option grants
|
- | - | 63,150 | - | 63,150 | |||||||||||||||
Net
loss
|
- | - | - | (9,953,382 | ) | (9,953,382 | ) | |||||||||||||
Balance,
December 31, 2008
|
31,100,000 | $ | 31,100 | $ | 20,841,539 | $ | (10,939,322 | ) | $ | 9,933,317 | ||||||||||
Issuance
of common stock in connection with the warrants exercised
|
3,283,703 | 3,284 | 29,552 | - | 32,836 | |||||||||||||||
Fair
value of warrants issued in connection with debt
|
- | - | 724,619 | - | 724,619 | |||||||||||||||
Net
loss
|
- | - | - | (3,730,430 | ) | (3,730,430 | ) | |||||||||||||
Balance,
December 31, 2009
|
34,383,703 | $ | 34,384 | $ | 21,595,710 | $ | (14,669,752 | ) | $ | 6,960,342 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-5
Beacon
Energy Holdings, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
Twelve
Months Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
Flows from Operating Activities
|
||||||||
Net
loss
|
$ | (3,730,430 | ) | $ | (9,953,382 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
788,789 | 484,434 | ||||||
Stock
based compensation
|
- | 63,150 | ||||||
Impairment
of notes
|
- | 1,671,990 | ||||||
Impairment
of equity investment
|
- | 4,654,179 | ||||||
Impairment
of customer list
|
141,750 | - | ||||||
Amortization
of debt discount
|
305,065 | - | ||||||
Loss
on disposal of property and equipment
|
191,518 | - | ||||||
Change
in assets and liabilities:
|
||||||||
Accounts
receivable
|
636,187 | (1,035,951 | ) | |||||
Inventory
|
677,266 | 971,645 | ||||||
Interest
receivable
|
- | 49,620 | ||||||
Prepaid
expenses and other current assets
|
16,870 | (19,978 | ) | |||||
Accounts
payable, accrued expenses and income taxes payable
|
142,936 | 830,926 | ||||||
Due
to related party
|
84,651 | 628,000 | ||||||
Net
cash used in operating activities
|
(745,398 | ) | (1,655,367 | ) | ||||
Cash
Flows from Investing Activities
|
||||||||
Sale
of marketable securities
|
- | 3,350,000 | ||||||
Purchase
of equipment
|
(557,742 | ) | (155,439 | ) | ||||
Issuance
of notes receivable
|
- | (225,000 | ) | |||||
Repayment
of notes receivable
|
- | 20,000 | ||||||
Cash
paid for business acquisition
|
- | (11,546,157 | ) | |||||
Purchase
of equity investment
|
- | (1,000,000 | ) | |||||
Net
cash used in investing activities
|
(557,742 | ) | (9,556,596 | ) | ||||
Cash
Flows from Financing Activities
|
||||||||
Repayment
of advance to related party, net of proceeds
|
(269,008 | ) | - | |||||
Payment
of financing cost
|
(30,000 | ) | - | |||||
Proceeds
from issuance of notes payable
|
1,650,000 | - | ||||||
Proceeds
from exercise of warrants
|
32,836 | - | ||||||
Proceeds
from issuance of convertible notes
|
- | 1,700,064 | ||||||
Proceeds
from issuance of common stock
|
- | 3,841,112 | ||||||
Net
cash provided by financing activities
|
1,383,828 | 5,541,176 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
80,688 | (5,670,787 | ) | |||||
Cash
and cash equivalents, beginning of year
|
211,209 | 5,881,996 | ||||||
Cash
and cash equivalents, end of year
|
$ | 291,897 | $ | 211,209 | ||||
Supplemental
Disclosures of Cash Flow Information
|
||||||||
Cash
paid during the periods for:
|
||||||||
Interest
|
$ | - | $ | - | ||||
Income
taxes
|
$ | 24,537 | $ | 11,475 | ||||
Non-cash
investing and financing activities:
|
||||||||
Conversion
of long-term debt into shares of common stock
|
$ | - | $ | 1,698,297 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-6
BEACON
ENERGY HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
Note
1 - BUSINESS
Overview
On July
2, 2008, Laurence Associates Consulting, Inc., a Nevada public company
(Laurence), was merged with and into Beacon Energy Holdings, Inc., a Delaware
corporation (Holdings), for the purpose of changing its state of incorporation
to Delaware from Nevada and changing its name. Under the terms of the
Certificate of Ownership and Merger, each share of Laurence was exchanged for
1.67 shares of Holdings.
Simultaneously,
Holdings entered into an Agreement and Plan of Merger and Reorganization (the
‘Merger Agreement’) by and among Holdings, Beacon Energy Corp., a privately held
Delaware corporation (Beacon).
At the
closing of the Merger, each share of Beacon’s common stock issued and
outstanding immediately prior to the closing of the Merger was converted into
the right to receive 37.41 shares of Holdings’s
common stock. In the aggregate, 30,000,000 shares of Holdings’s common stock
were issued in the Merger to the holders of Beacon’s common stock.
Following
the closing of the Merger there were 31,100,000 shares of Holdings’s common
stock issued and outstanding. Approximately 96.5% of such issued and outstanding
shares were held by the former stockholders of Beacon.
The
Merger was accounted for as a reverse acquisition and recapitalization. Beacon
is the acquirer for accounting purposes and Holdings is the acquired company.
Accordingly, Beacon’s historical financial statements for periods prior to the
acquisition become those of Holdings.
On
May 15, 2008 (prior to the merger), Beacon acquired through its subsidiary,
Beacon Energy (Texas) Corp. (“Beacon Energy Texas”), certain operating assets of
Smithfield BioEnergy LLC (“Smithfield”), an affiliate of Smithfield Foods, Inc.,
a publicly traded Virginia corporation (NYSE: SFD), for approximately
$11,546,000 in cash. Beacon acquired Smithfield’s biodiesel plant in
Cleburne, Texas. The plant specializes in the processing of animal
fats and other secondary feedstocks to produce biodiesel.
Sales of
biodiesel are made within the state of Texas and are delivered to the southern
region of the United States.
In early
March 2010, the Company indefinitely shut down its Texas operations due to cash
flow difficulties brought about by the expiration on December 31, 2009 of the
$1.00 per gallon credit and lower sales volume for the first two months of
2010. The Company intends to resume operations if the $1.00 per
gallon credit is reinstated by Congress and the Company is able to secure
additional funding through a raise of capital or additional
borrowings. To restart its plant, the Company expects to spend at
least $500,000. There is no assurance, however, that the $1.00 per
gallon credit will be reinstated or that the Company will be able to raise
additional funding. In which case, the Company will likely cease
operations.
In
addition, given the shutdown of the Company’s Texas operations, the Company
consulted with an outside third party appraiser to help in determining the fair
market value or liquidation value of the facility given the
shutdown. The purpose of this evaluation was to help to determine
whether the fair market or liquidation value of the facility has an indication
of impairment. No such impairment was present.
F-7
Note
2 – LIQUIDITY AND GOING CONCERN
As of
December 31, 2009, our cash on hand was approximately $292,000 (approximately
$90,000 as of May 6, 2010). We incurred a net loss of approximately
$3,730,000 for the year ended December 31, 2009 and our accumulated deficit was
approximately $14,670,000. We have historically met our liquidity
requirements principally through the sale of equity and debt securities to both
related parties, individual investors and institutional investors. As
indicated in Note 11 of accompanying consolidated financial statements, in April
2009, the Company entered into a Note Purchase Agreement with certain investors
for an aggregate principal amount of $1,650,000. Management believes
that without the reopening of the Texas facility, the reinstatement of the $1
per gallon credit, lack of improvement in gross margins and no additional
infusion of cash, we will not have sufficient resources to meet the Company’s
capital requirements through the upcoming twelve months. We received
a $69,453, award from the USDA’s Advanced Biodiesel Producer Program in December
2009. In early March, 2010, the Company indefinitely shut down its
Texas operations due to cash flow difficulties. The Company
anticipates that to reopen the facility will cost approximately
$500,000.
The
Company is exploring alternative sources of capital but has no current
commitment for additional financing and may experience difficulty in obtaining
such additional financing on favorable terms, if at all. Even if the
Company obtains additional equity capital, the Company may not be able to
execute its current business plan and fund business operations. No
assurance can be given that any source of additional cash would be available to
the Company. If no source of additional cash is available to the
Company, then the Company may not resume its operations.
These
matters raise substantial doubt about the Company’s ability to continue as a
going concern. The accompanying consolidated financial statements have
been prepared on a going concern basis, which contemplate the realization of
assets and satisfaction of liabilities in the normal course of business. The
consolidated financial statements do not include any adjustments relating to the
recoverability of the recorded assets or the classification of the liabilities
that might be necessary should the Company be unable to continue as a going
concern.
Note
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
for Presentation
The
consolidated financial statements include the accounts of the Company, Beacon
and its wholly owned subsidiaries, Beacon Energy (Texas) Corp. (“Beacon Texas”),
AgriFuel United Biofuels Inc., AgriFuel BBD Holding Co. Inc. and AgriFuel Terra
Farms, LLC. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. Management periodically assesses the
accuracy of these estimates and assumptions. Actual results could differ from
those estimates. Estimates are used when accounting for various items, such as
allowances for doubtful accounts, investments, asset impairments, depreciation
and amortization, income taxes, and other contingencies. A more complete
discussion of all of the Company’s significant accounting policies is discussed
below.
Reclassifications
Certain
balances reported in the 2008 income statement have been reclassified to conform
to this current year’s presentations. This has no effect on the net
loss for the prior period previously reported and the financial conditions and
cash flows of the Company.
F-8
Revenue
Revenue
from product sales is recognized at the time the product is shipped , evidence of
an arrangement exists, the fee is fixed and determinable and collection is
probable. The Company records revenue from federal incentive programs
related to the production of biodiesel when the Company has produced and sold
the biodiesel and completed all the requirements of the applicable incentive
program.
Accounts
Receivable
Accounts
receivable are stated at the amount management expects to collect. An
allowance for doubtful accounts is recorded based on a combination of historical
experience, aging analysis and information on specific accounts.
Inventory
Inventories,
which consist of raw materials and finished goods, are stated at the lower of
cost (first-in, first-out) or market.
Cash
and Cash Equivalents
For the
purpose of reporting cash flows, the Company considers all highly liquid debt
instruments purchased with original maturities of three months or less, and
money market accounts to be cash equivalents.
Concentrations
of Credit Risk
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist principally of cash balances in financial institutions that are
insured by the Federal Depository Insurance Corporation and the Securities
Investor Protection Corporation which may be subject to certain
limitations. At times, cash in banks is in excess of the FDIC
insurance limit. The Company has not experienced any loss as a result of those
deposits.
As of
December 31, 2009, accounts receivable due from the Internal Revenue Service
(“IRS”) related to the federal incentive programs on the production of biodiesel
was approximately $216,162. As of April 14, 2010, the Company has
collected all outstanding receivables from the IRS.
Property
and Equipment
Property,
plant and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated service lives of the respective classes’
assets ranging between (i) 3 years for office furniture and vehicles, (ii) 15 to
31 years for building and building improvements and (iii) 7 to 18 years for
machinery and equipment.
Accounting
for Investments
The
Company makes investments through its wholly-owned
subsidiaries. These subsidiaries then invest or make loans to
non-related entities, except for Beacon Texas. The loans made by
Beacon United and Beacon Buffalo Biodiesel, Inc. are recorded at their net
realizable value. The investment by Beacon Terra in limited liability
company interests in Terra Bioenergy LLC (“Terra”) has been accounted for under
the equity method of accounting. The investments in the operations of
Beacon Texas have been consolidated into the operating results of the Company
since acquisition.
Impairment
of Assets
The
Company accounts for its long-lived assets in accordance with ASC 360, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“ASC 360”) which requires that long-lived
assets be evaluated whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable or the useful life has changed. Such
indicators include significant technological changes, adverse changes in market
conditions and/or poor operating results. The carrying value of a long-lived
asset group is considered impaired when the projected undiscounted future cash
flows is less than its carrying value, and the amount of impairment loss
recognized is the difference between the estimated fair value and the carrying
value of the asset or asset group. Fair market value is determined primarily
using the projected future cash flows discounted at a rate commensurate with the
risk involved. Given the shutdown of the Company’s Texas operations,
the Company consulted with an outside third party appraiser to help in
determining the fair market value or liquidation value of the facility given the
shutdown. The purpose of this evaluation was to help to determine
whether the fair market or liquidation value of the facility has an indication
of impairment. No such indication of impairment was
present. However, as a result of the indefinite shutdown of Texas
facility starting in March 2010, we took an impairment charge of $141,750 on our
customer list asset.
F-9
Income
Taxes
Income
taxes are accounted for under the provisions of ASC 740, “Accounting for Income Taxes”
(“ASC 740”). Accordingly, deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. The measurement of net deferred tax assets is reduced by
the amount of any tax benefit that, based on available evidence, is not expected
to be realized, and a corresponding valuation allowance is established. The
determination of the required valuation allowance against net deferred tax
assets was made without taking into account the deferred tax liabilities created
from the book and tax differences on indefinite-lived assets.
When the
Company has claimed tax benefits that may be challenged by a tax authority,
these uncertain tax positions are accounted for under ASC 740, “Accounting for Uncertainty in Income
Taxes, an
Interpretation of ASC 740” (“ASC 740”). The Company adopted ASC 740
beginning January 1, 2007. Prior to 2007, income tax contingencies were
accounted for under ASC 450, “Accounting for
Contingencies”. Under ASC 740, tax benefits are recognized only for tax
positions that are more likely than not to be sustained upon examination by tax
authorities. The amount recognized is measured as the largest amount of benefit
that is greater than 50 percent likely to be realized upon settlement. A
liability for “unrecognized tax benefits” is recorded for any tax benefits
claimed in the Company’s tax returns that do not meet these recognition and
measurement standards. The adoption of ASC 740 did not have a material effect on
the Company’s Consolidated Financial Statements.
Fair
Value of Financial Instruments
Effective
January 1, 2008, the Company adopted the provisions of ASC 820 that relate
to our financial assets and financial liabilities. The effect of adopting this
standard was not significant. ASC 820 establishes a hierarchy that prioritizes
fair value measurements based on the types of inputs used for the various
valuation techniques (market approach, income approach and cost approach). The
levels of the hierarchy are described below:
|
•
|
Level
1: Observable inputs such as quoted prices in active markets for identical
assets or liabilities;
|
|
•
|
Level
2: Inputs other than quoted prices that are observable for the asset or
liability, either directly or indirectly; these include quoted prices for
similar assets or liabilities in active markets and quoted prices for
identical or similar assets or liabilities in markets that are not active
;
|
|
•
|
Level
3: Unobservable inputs that are supported by little or no market activity,
which require the reporting entity’s judgment or
estimation.
|
The
assessment of the significance of a particular input to the fair value
measurement requires judgment and may affect the valuation of financial assets
and financial liabilities and their placement within the fair value
hierarchy. The adoption of this pronouncement did not have any effect
on the Company.
F-10
Recent
Accounting Pronouncements
In
September 2006, the FASB issued an accounting standard which defines fair
value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. The Company adopted this standard on January 1,
2008 for its financial assets and financial liabilities. On January
1, 2009, the Company adopted the fair value measurement requirements for
nonfinancial assets and nonfinancial liabilities that are not recognized or
disclosed at fair value on a recurring basis. The adoption of this
standard did not have a material impact on the Company’s consolidated financial
position or results of operations.
In
December 2007, the FASB issued an accounting standard related to accounting for
business combinations and related disclosures. This standard addresses the
recognition and accounting for identifiable assets acquired, liabilities assumed
and noncontrolling interests in business combinations. The standard also expands
disclosure requirements for business combinations. The standard became effective
on January 1, 2009.
In
December 2007, the FASB issued an accounting standard related to accounting and
reporting for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Noncontrolling interests are reported as a
separate component of consolidated stockholders’ equity, and net income
allocable to noncontrolling interests and net income attributable to
stockholders are reported separately in the consolidated statement of
operations. This standard became effective on January 1, 2009 and did not have a
material impact on the Company’s consolidated financial position or results of
operations.
In March
2008, the FASB issued an accounting standard related to disclosures about
derivative instruments and hedging activities. This standard amends and enhances
disclosure requirements to provide a better understanding of how and why a
company uses derivative instruments, how derivative instruments and related
hedged items are accounted for, and their effect on a company’s financial
position, financial performance and cash flows. This standard became effective
on January 1, 2009 and did not have a material impact on the Company’s
consolidated financial position or results of operations.
In April
2008, the FASB issued an accounting standard which provides guidance for
determining the useful life of an intangible asset and the period of expected
cash flows used to measure the fair value of the asset. The adoption of this
standard on January 1, 2009 did not impact the Company’s
consolidated financial position or results of
operations.
In May
2008, the FASB issued an accounting standard that requires the liability and
equity components of convertible debt instruments to be accounted for separately
if the debt can be settled in cash upon conversion. The Company’s debt may not
be settled in cash upon conversion. This standard became effective
January 1, 2009. Accordingly, there was no impact on the Company’s
consolidated financial position or results of operations upon
adoption.
In April
2009, the FASB issued an accounting standard which affirmed that there is no
change in the measurement of fair value when the volume and level of activity
for an asset or a liability has significantly decreased. This
standard also identifies circumstances that indicate when a transaction is not
orderly. The adoption of this standard in the second quarter of 2009
had no material impact on the Company’s consolidated financial position and
results of operations.
In April
2009, the FASB issued an accounting standard which requires disclosures about
the fair value of financial instruments whenever a public company issues
financial information for interim reporting periods. This standard became
effective in the second quarter of 2009 and did not have a material impact on
our financial position and results of operations.
In June
2009, the FASB issued the FASB Accounting Standards Codification
(“Codification”). Effective in the third quarter of 2009, the Codification
became the single source for all authoritative generally accepted accounting
principles (“GAAP”) recognized by the FASB and is required to be applied to
financial statements issued for interim and annual periods ending after
September 15, 2009. The Codification does not change GAAP and did not
impact the Company’s consolidated financial position or results of
operations.
F-11
In August
2009, the FASB issued an accounting standard to provide clarification on
measuring liabilities at fair value when a quoted price in an active market is
not available. This standard became effective for the Company on
October 1, 2009 and did not have a significant impact on its consolidated
financial position or results of operations.
In
October 2009, the FASB issued an accounting standard that amended the rules on
revenue recognition for multiple-deliverable revenue arrangements. This
guidance establishes a selling price hierarchy for determining the selling price
of a deliverable, which is based on: (i) vendor-specific objective evidence;
(ii) third-party evidence; or (iii) estimates. This guidance also eliminates the
residual method of allocation and requires that arrangement consideration be
allocated at the inception of the arrangement to all deliverables using the
relative selling price method and also requires expanded disclosures. This
standard is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. The adoption of this standard is not expected
to have any impact on the Company’s financial position and results of
operations.
In
February 2010, the FASB issued an amendment to a standard which requires an
entity that is an SEC filer to evaluate subsequent events through the date that
the financial statements are issued and removes the requirement that an SEC
filer disclose the date through which subsequent events have been evaluated. The
standard was effective upon issuance. The adoption of this standard had no
effect on our consolidated financial position or results of
operations.
Note 4 -
ACQUISITION
On
May 15, 2008 (the “Closing Date”), the Company acquired certain operating
assets of Smithfield BioEnergy LLC (“Smithfield”), an affiliate of Smithfield
Foods, Inc., a publicly traded Virginia corporation (NYSE: SFD), for
approximately $11.5 million in cash. Beacon acquired Smithfield’s
biodiesel plant in Cleburne, Texas. The plant was designed and
constructed to specialize in the processing of animal fats and other secondary
feedstocks to produce biodiesel.
This
acquisition was accounted for under the purchase method of accounting, with the
Company as the acquirer in accordance with ASC 805, Business Combination. The
following table summarizes the fair value of assets acquired and liabilities
assumed by the Company:
Inventory
and other current assets
|
$ | 1,920,000 | ||
Customer
list
|
210,000 | |||
Property
and equipment
|
9,416,000 | |||
Total
purchase price, net of cash acquired
|
$ | 11,546,000 |
The
results of operations from the Texas Plant are included in the accompanying
consolidated financial statements from the Closing Date. The following table
summarizes, on an unaudited, pro forma basis, the estimated combined results of
operations of the Company for the year ended December 31, 2008 as though
the acquisition was completed at the beginning of 2008. These pro forma
statements have been prepared for comparative purposes only and are not intended
to be indicative of what the Company’s results would have been had the
acquisition occurred at the beginning of the period presented or the results
which may occur in the future.
F-12
Unaudited
|
||||
Pro forma Year ended
|
||||
December 31, 2008
|
||||
Revenues,
net
|
$ | 29,728,651 | ||
Net
loss
|
$ | (12,788,663 | ) | |
Net
loss per common share, basic and diluted
|
$ | (0.42 | ) |
Note
5 – INVENTORY
Inventory
as of December 31, 2009 and 2008 are indicated below.
December 31, 2009
|
December 31, 2008
|
|||||||
Raw
materials
|
$ | 111,472 | $ | 541,442 | ||||
Finished
goods
|
133,403 | 380,699 | ||||||
$ | 244,875 | $ | 922,141 |
Note
6 - PROPERTY AND EQUIPMENT
Property
and equipment consist of the following as of December 31, 2009 and December 31,
2008:
December 31, 2009
|
December 31, 2008
|
|||||||
Land
|
$ | 214,018 | $ | 200,000 | ||||
Buildings
and improvements
|
2,424,000 | 2,424,000 | ||||||
Machinery
and equipment
|
6,851,238 | 7,111,839 | ||||||
Furniture
and fixtures
|
80,137 | 80,137 | ||||||
Construction
in progress
|
369,325 | - | ||||||
9,938,718 | 9,815,976 | |||||||
Less
- Accumulated depreciation
|
1,170,349 | 490,792 | ||||||
$ | 8,768,369 | $ | 9,325,184 |
As
discussed in Impairment of Assets in Note 3 – Summary of Significant Accounting
Policies, the Company performed an impairment analysis and concluded that no
impairment of property and equipment existed.
Note
7 - RELATED PARTY TRANSACTIONS
As of
December 31, 2009, Metalico, Inc. (“Metalico”), the largest stockholder of the
Company, held a 33.1% interest in the Company compared to a 36.6% interest in
the Company as of December 31, 2008. Metalico did not participate in
the Company’s stock offering in May and June 2008 and as a result Metalico’s
percentage ownership declined.
Metalico
provides office space, management and administrative support to the Company on a
month to month basis. General and administrative expenses associated with the
related party are as follows:
F-13
December 31, 2009
|
December 31, 2008
|
|||||||
Management
fees
|
$ | 41,250 | $ | 66,000 | ||||
Rent
|
18,000 | 28,800 | ||||||
Administrative
fees
|
16,575 | 28,500 | ||||||
$ | 75,825 | $ | 123,300 |
The
Company’s liabilities include $399,673 for general and administrative expenses
and $230,500 for advances made for feedstock purchases due to Metalico at
December 31, 2009 and $315,022 for general and administrative expenses and
$499,508 for advances made for feedstock purchases due to Metalico at December
31, 2008.
The
Chairman of Beacon Energy Holdings, Inc. (a stockholder) is also the Chairman
and Chief Executive Officer of Metalico, Inc.
Note
8 – MAJOR CUSTOMER
For the
year ended December 31, 2009, revenues from the Company’s largest customer were
approximately $2,749,000 or 43.3%. As of December 31, 2009, accounts
receivable due from the Company’s largest customer was approximately $90,600 or
23% of the outstanding accounts receivable.
For the
year ended December 31, 2009, subsidies from the IRS federal incentive programs
on the production of biodiesel was approximately $2,321,000 or 36% of total
revenues and approximately $216,000 or 54% was included in accounts
receivable.
For the
year ended December 31, 2008, revenues from the Company’s two largest customers
were approximately $10,184,000 or 40% and 11%, respectively, totaling
51%. As of December 31, 2008, accounts receivable due from the
Company’s largest customer was approximately $151,000 or 15% of the outstanding
accounts receivable.
For the
year ended December 31, 2008, subsidies from the IRS federal incentive programs
on the production of biodiesel was approximately $4,370,000 or 22% of total
revenues and approximately $628,000 and 61% was included in accounts
receivable.
Sales of
biodiesel continue to be made within the state of Texas and delivered to the
southern region of the United States.
Note
9 – MAJOR SUPPLIER
For the
year ended December 31, 2009, total feedstock purchases from the Company’s three
largest suppliers were approximately $3,449,000 or 63%. As of
December 31, 2009, payables due to one of the Company’s largest supplier were
approximately $145,000 or 23% of accounts payable.
For the
year ended December 31, 2008, total feedstock purchases from the Company’s two
largest suppliers were approximately $13,743,000 or 78%. As of
December 31, 2008, payables due to one of the Company’s largest supplier were
approximately $164,000 or 35% of accounts payable.
Note
10 - INCOME TAXES
Deferred
income taxes reflect temporary differences in the recognition of revenue and
expense for tax reporting and financial statement purposes. Temporary
differences that give rise to a significant portion of deferred tax assets and
liabilities at December 31, 2009 and 2008 are approximately as
follows:
F-14
2009
|
2008
|
|||||||
Net
operating loss carryforwards
|
$ | 3,115,000 | $ | 1,812,000 | ||||
Capital
loss carryforward
|
1,859,000 | 1,859,000 | ||||||
Allowance
for notes receivable
|
693,000 | 693,000 | ||||||
Stock-based
compensation
|
25,000 | 25,000 | ||||||
Other,
net
|
105,000 | 17,000 | ||||||
Subtotal
|
5,797,000 | 4,406,000 | ||||||
Valuation
allowance
|
(5,523,000 | ) | (4,368,000 | ) | ||||
Total
deferred tax asset
|
274,000 | 38,000 | ||||||
Property,
plant, and equipment
|
274,000 | 38,000 | ||||||
Total
long-term deferred tax liabilities
|
274,000 | 38,000 | ||||||
Net
long-term deferred tax liabilities
|
$ | - | $ | - |
The
(benefit)/provision for income taxes on continuing operations varies from the
amounts computed by applying the U.S. federal statutory tax rate as a result of
the following approximate differences:
Year ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Net
loss
|
$ | (3,730,000 | ) | $ | (9,953,000 | ) | ||
Total
(benefit) provision for income taxes
|
- | - | ||||||
Loss
before provision for income taxes
|
(3,730,000 | ) | (9,953,000 | ) | ||||
Federal
income tax benefit at statutory rate
|
(1,268,000 | ) | (3,384,000 | ) | ||||
State
income taxes, net of federal income tax provision
|
(222,000 | ) | (591,000 | ) | ||||
Change
in valuation allowance
|
1,155,000 | 3,974,000 | ||||||
Other
|
335,000 | 1,000 | ||||||
Total
(benefit) provision for income taxes
|
$ | - | $ | - |
As of
December 31, 2009 and December 31, 2008, the Company has approximately $7.8
million and $4.5 million of net operating losses, respectively. These
net operating losses will begin to expire in 2026.
The
Company’s ability to use these NOLs can be negatively impacted if there is a
future “ownership change” as defined in Section 382 of the Internal Revenue
Code. In general, this would occur if shareholders that each own 5 percent
or more of the Company in the aggregate were to own 50 percentage points
more than the lowest amount they owned in the previous three year period. In the
event an “ownership change” were to occur, the Company’s ability to utilize
these net operating losses could be significantly limited and could cause the
Company to pay federal income taxes much sooner than currently
anticipated.
The net
change in the valuation allowance for the years ended December 31, 2009 and
December 31, 2008 was $1.2 million and $4.0 million, respectively. The
establishment of the valuation allowance is primarily due to the uncertainty of
realizing the full benefit of the NOL carryforwards. In evaluating the amount of
the valuation allowance needed, the Company considers the prior operating
results and future plans and expectations. The utilization period of the NOL
carryforwards and the turnaround period of other temporary differences are also
considered. As of December 31, 2009, the Company has fully reserved against its
net deferred tax assets since it is not considered more likely than not that
these benefits will be realized.
The
Company files consolidated federal income tax returns and also files returns in
various state and local jurisdictions. While the Company is not
currently under audit, the Company’s tax returns are subject to audit in federal
and state jurisdictions beginning with the 2006 tax year.
F-15
Effective
January 1, 2007, the Company adopted the FASB’s guidance on accounting for
uncertainty in income taxes. In accordance with this guidance,
interest costs and related penalties related to unrecognized tax benefits are
required to be calculated, if applicable. No interest and penalties
were recorded during the years ended December 31, 2009 and 2008,
respectively. As of December 31, 2009 and 2008, no liability for
unrecognized tax benefits was required to be recorded. The Company
does not expect any significant changes in its unrecognized tax benefits in the
next year.
Note
11–TERM DEBT
In April
2009, the Company entered into a Note Purchase Agreement, (the “Notes”) with
certain investors, including $150,000 from the Chairman of the Company, for an
aggregate principal amount of $1,650,000. The Notes accrue interest
at 14% per annum. Both principal and interest are due at the maturity
date of April 10, 2012. In conjunction with the issuance of the
Notes, the note holders were issued warrants to exercise 4,167,777 shares of the
Company’s common stock at an exercise price of $0.01 per share with an
expiration date of April 10, 2019. The fair value of the warrants aggregating
$1,292,010 was computed using the Black-Sholes option-pricing
model. Variables used in the Black-Sholes option-pricing model
include (i) risk-free interest rate at the date of the grant which was 2.02%,
(ii) expected option life based on the weighted average of 5 years, (iii)
expected volatility computed at 122% and (iv) zero expected
dividends. Additionally, a Deed of Trust and Security Agreement was
executed whereby the Texas plant and other assets were put up as collateral for
the Notes. As of December 31, 2009, the term debt, net of discount of
$419,554 was $1,230,446.
For the
year ended December 31, 2009, the Company has amortized the debt discount
relating to warrants for $305,065 and has accrued interest expense on the Notes
of $171,087.
As of
December 31, 2009, a total of 3,283,703 common shares were issued to the note
holders who exercised their warrants bringing the total of outstanding common
shares to 34,383,703.
Note
12 – STOCK WARRANTS
Warrants
outstanding and exercisable totaled 884,074 with an exercise price of $0.01 as
of December 31, 2009. A total of 3,283,703 warrants were exercised
during the year ended December 31, 2009 at $0.01 per warrant.
Note
13 – STOCKHOLDERS’ EQUITY
In May
and June 2008, pursuant to the Series C Stock Subscription and Investment
Agreement (“Series C Agreement”), the Company received approximately $3,841,112
(net of $34,000 in issuance costs) in additional investments for 107,642 shares
of common stock before the Merger or the equivalent of 4,027,250 shares of
common stock after the Merger on June 30, 2008.
On May
15, 2008, the Company issued approximately $1,700,000 in Convertible Notes
(“Convertible Notes”). The Convertible Notes were converted into the
equivalent of 1,766,809 shares of common stock after the Merger on June 30,
2008.
A total
of 1,100,000 shares of Holdings’ common stock were retained by the pre-Merger
shareholders of Laurence following the Merger, and related
transactions.
As of
December 31, 2008, Holdings had authorized 75,000,000 shares of capital stock,
par value $0.001 per share, of which 70,000,000 are shares of common stock and
5,000,000 are shares of preferred stock. No preferred shares were issued and
31,100,000 common stock shares were issued and outstanding.
As of
December 31, 2009, the Company had authorized 75,000,000 shares of capital
stock, par value $0.001 per share, of which 70,000,000 are shares of common
stock and 5,000,000 are shares of preferred stock. No preferred shares were
issued and 34,383,703 common stock shares were issued and
outstanding.
F-16
Note
14 – LOSS PER SHARE
Basic and
diluted net loss per share has been computed by dividing net loss by the
weighted average number of common shares outstanding during the
period. There were no potentially dilutive common share equivalents
for the years ended December 31, 2009 and 2008. In accordance with
ASC 260, “Earnings Per Share”, the Company has given effect to the issuance of
the remaining outstanding 884,074 warrants issued in conjunction with the
Company’s April 2009 financing and exercisable at $0.01 per share (see Note 12)
in computing basic net loss per share.
Note
15 – COMMITMENTS AND CONTINGENCIES
On
February 21, 2008, Beacon purchased an additional 600,000 limited liability
company interests from Terra for $600,000 and guaranteed $250,000 (plus accrued
but unpaid interest and related expenses) of $1,250,000 of subordinated debt
incurred by Terra. Beacon will receive a fee of approximately $10,000
per year plus the allocation of certain tax credits in exchange for such
guarantee. As of December 31, 2009, the $250,000 guarantee is still
in place.
On July
9, 2009, the Company received a demand letter from Gavilon through Gavilon’s
legal counsel, McGrath North, for the payment of $357,729 in alleged raw
material purchases and commitments made by the Company in
2008. Gavilon used to be known as ConAgra Trade Group, (“ConAgra”),
an affiliate of the ConAgra Foods, Inc. until ConAgra was sold in the latter
part of June 2008 to an affiliate of Ospraie Management, a leading investment
management firm. As of December 31, 2009, the Company has recorded
accounts payable due to Gavilon in the amount of $145,329, which is part of the
$357,729 claim by Gavilon. The Company believes it is not liable for
any amount exceeding the $145,329 which is recorded as a liability due
Gavilon. As such, no amounts in excess of the $145,329 have been
recorded for any potential losses from Gavilon’s claim.
On March
11, 2010, Gavilon filed a lawsuit against Beacon Energy Corp. in the Superior
Court of the State of Delaware with regards to Gavilon’s claims against the
Company amounting to $357,729. The Company intends to hire legal
counsel to represent itself in the lawsuit but as of the filing date no legal
counsel has been hired yet.
F-17
Exhibits
Exhibit
No.
|
Description
|
|
31.1*
|
Section
302 Certification by Principal Executive Officer
|
|
31.2*
|
Section
302 Certification by Principal Financial Officer
|
|
32.1*
|
Section
906 Certificate by Principal Executive Officer and the Principal Financial
Officer
|
|
* Filed
herewith
30
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
BEACON
ENERGY HOLDINGS, INC.
|
||||
Date:
May 7, 2010
|
By:
|
/s/ Carlos E.
Agüero
|
||
Carlos
E. Agüero
|
||||
Chairman
(Principal
Executive
Officer and Principal
Financial
Officer)
|
31
EXHIBIT
INDEX
Exhibit No.
|
Description
|
|
31.1*
|
Section
302 Certification by Principal Executive Officer
|
|
|
||
31.2*
|
Section
302 Certification by Principal Financial Officer
|
|
32.1*
|
Section
906 Certificate by Principal Executive Officer and the Principal Financial
Officer
|
* Filed
herewith
32