UNITED STATES
SECURITIES AND EXCHANGE COMMISSSION
WASHINGTON, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934: For the fiscal year ending December 31, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934: For the transition period from _________ to _________
Commission file number: 000-49950
TRITON PETROLEUM GROUP, INC.
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(Name of small business issuer in its charter)
Nevada 98-0232018
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1400 N. Gannon Drive, 2nd Floor, Hoffman Estates, IL 60194
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(Address of Principal executive offices) (Zip Code)
Issuer's telephone number: (847) 805-0125
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Securities registered under Section 12(b) of the "Exchange Act"
Common Share, Par Value, $.0001
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(Title of each Class)
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such a 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. |X| Yes |_| No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part II of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
The issuer's revenues for its most recent fiscal year: $1,965,330
The aggregate market value of the voting and non-voting common equity held by
non-affiliates based on the average bid and asked price of such common equity,
as of May 10, 2006, was approximately $1,173,500.
The number of shares of Common Stock outstanding, as of May 10, 2006 was:
17,803,500
Transitional Small Business Disclosure Format (check one): Yes |_|; No |X|
TRITON PETROLEUM GROUP, INC.
ANNUAL REPORT ON FORM 10-KSB
For Fiscal Year Ended December 31, 2005
INDEX
Page No:
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PART I............................................................... 3
ITEM 1. DESCRIPTION OF BUSINESS................................. 3
Plan of Operations.................................... 5
Results of Operations................................. 7
ITEM 2. DESCRIPTION OF PROPERTY................................. 11
ITEM 3. LEGAL PROCEEDINGS....................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDEDRS................................................ 13
PART II.............................................................. 13
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..................................... 13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION............................................... 16
Off Balance Sheet Arrangements........................ 16
ITEM 7. FINANCIAL STATEMENTS.................................... 17
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL
DISCLOSURE..............................................
ITEM 8A. CONTROLS AND PROCEDURES.................................
PART III.............................................................
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (a) OF
THE EXCHANGE ACT........................................
ITEM 10 EXECUTIVE COMPENSATION..................................
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT..........................................
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K........................
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES..................
Signatures...........................................................
Triton Petroleum Group, Inc.
Part I
Item 1. Description of Business
FORWARD LOOKING STATEMENTS
Because we want to provide investors with more meaningful and useful
information, this Annual Report on Form 10-KSB ("Form 10-KSB") contains, and
incorporates by reference, certain forward-looking statements that reflect our
current expectations regarding its future results of operations, performance and
achievements. We have tried, wherever possible, to identify these
forward-looking statements by using words such as "anticipates," "believes,"
"estimates," "expects," "designs," "plans," "intends," "looks," "may," and
similar expressions. These statements reflect our current beliefs and are based
on information currently available to us. Accordingly, these statements are
subject to certain risks, uncertainties and contingencies, including the factors
set forth herein, which could cause our actual results, performance or
achievements for 2006 and beyond to differ materially from those expressed in,
or implied by, any of these statements. You should not place undue reliance on
any forward-looking statements. Except as otherwise required by federal
securities laws, we undertake no obligation to release publicly the results of
any revisions to any such forward-looking statements that may be made to reflect
events or circumstances after the date of this prospectus or to reflect the
occurrence of unanticipated events.
OVERVIEW
History and Organization
Triton Petroleum Group, Inc., formerly American Petroleum Group, Inc., formerly
American Capital Alliance, Inc. until November 1, 2004 and formerly Prelude
Ventures, Inc. until February 23, 2004 (the "Company") was incorporated under
the laws of the State of Nevada on May 24, 2000, under the name of Prelude
Ventures, Inc. Prior to its acquisition of American Petroleum Products Company,
formally Alliance Petroleum Products Company, the Company had limited business
operations and was considered a development stage enterprise. The activities
during that period principally had been limited to organizational matters, and
examining business and financing opportunities for the Company.
Prior Business Matters and Failed Business Acquisitions.
On March 9, 2001, we acquired a 20-year mining lease from Steve Sutherland, the
owner of 24 unpatented lode-mining claims, sometimes referred to as the Medicine
Project, located in Elko County, Nevada. The lease was terminated at some point
by prior management.
During the nine months ended December 31, 2003, management of the Company
terminated the mining lease. As the Company terminated the lease, it is required
to pay all federal and state mining claim maintenance fees for the current year.
The Company is required to perform reclamation work on the property as required
by federal state and local law for disturbances resulting from the Company's
activities on the property. In the opinion of management, there will be no
continuing liability, due to the time period that has elapsed since the lease
was terminated. We have never received any claim or communication with respect
to this lease, and at this pointing time, do not expect any communication from
any party related thereto. If there was any communication, it would be the
position of the Company that any claim would be time barred.
On April 1, 2003, the Company entered into an agreement to acquire 100% of the
issued and outstanding shares of Pascal Energy, Inc., a Canadian corporation, by
the issuance of 273,750 post split common shares, restricted under Rule 144 of
the Securities Act of 1933 and at a later date, issue 273,750 post split common
shares, restricted under Rule 144 subject to the Company paying not less than
$1,000,000 accumulated dividends to its shareholders of record. Pascal Energy,
Inc.'s business was to provide servicing for the oil and gas industry.
The Company determined that the transaction mentioned above could not be
completed due to the inability to complete a comprehensive due diligence review.
The shares of common stock previously transferred in anticipation of the
completion of the transaction were returned to the treasury of the Company and
canceled.
"TSG" Acquisition
On October 9, 2003, the Company acquired an option for $500,000 to purchase the
assets and certain liabilities of Tri-State Stores, Inc., an Illinois
Corporation ("Tri-State"), GMG Partners LLC, an Illinois Limited Liability
Company ("GMG"), and SASCO Springfield Auto Supply Company, a Delaware
Corporation ("SASCO"). Tri-State, GMG and SASCO are collectively referred to
herein as "TSG." Upon exercise of the option, the Company was to pay $3,000,000
and assume certain liabilities, not exceeding $700,000. TSG is involved in the
automotive after market. During the first quarter of 2004, the Company elected
not to continue to pursue this acquisition. The contractual amount of the option
was never fully paid, however, amounts advanced for the option purchase and
associated expenses resulted in an $185,000 charge to operations for the year
ended December 31, 2003 and $10,000 for the year ended December 31, 2004. There
have been no further dealings, discussions or transactions related to this
matter.
Motor Parts Waterhouse, Inc.
The Company on or about October 9, 2003, issued 500,000 post split shares of
common stock for an option to acquire all the outstanding stock of Motor Parts
Warehouse, Inc. ("MPW"), of St. Louis, Missouri. In order to exercise the
option, the Company was to issue an additional 500,000 post split shares of
common stock to the shareholders of MPW and pay $2,200,000. This MPW option can
not be exercised until after the refinancing of the TSG debt of approximately
$3,000,000. MPW is also an auto parts distributor. As a result of the financing
not being completed, the Company elected not to continue to pursue this
acquisition and let the option lapse. There have been no further dealings,
discussions or transactions occurred related to this matter.
Oilmatic Systems, LLC Transaction
On December 3, 2004, the Registrant entered into a Letter of Intent, dated
December 1, 2004, with Oilmatic Systems LLC of East Orange, New Jersey, whereby
the Registrant would purchase Oilmatic Systems LLC and/or Oilmatic
International, Inc., for shares of common stock of the Registrant.
2
Oilmatic is a food service distribution company that supplies a closed loop Bulk
Cooking Oil Supply and Management system. Its patented state of the art handheld
Dipstick(R) design dispenses and removes cooking oil with the simple push of a
button at the deep fryers. The system also consists of separate fresh oil and
waste oil tanks. A key switch allows management to control unnecessary oil fills
and disposals. This system completely eliminates the practice of employees
manually removing hot used oil which significantly reduces slips, falls and
burns, as well as the hard labor of unloading and retrieving heavy boxes of oil.
Additionally, the system eliminates hazardous grease spills both inside and
outside of the store that cause grease fires and grease trap build-ups that
pollute our environment. As part of the transaction, Michael Allora, President
of Oilmatic was to assume, after the closing of the transaction, the position of
President and Chief Operating Officer of Triton Petroleum as well as Oilmatic.
Effective May 20, 2005, Management of the Registrant no longer felt that the
mutual goals of both parties were attainable and therefore the proposed
transaction with Oilmatic was cancelled between the parties. There have been no
further dealings, discussions or transactions occurred related to this matter.
Oilmatic Systems, LLC was advanced, interest free, a total of $300,000 by the
Company. The Letter of Intent stated that in the event that the proposed
transaction did not close, the money advanced was to be considered a loan to
Oilmatic, and repaid nine-months after being advanced. We have made repeated
demands for the re-payment of the loan. To date, we have not been able to
collect the money due. However, Management believes the advance will ultimately
be collected. (See Item 3, Legal Proceedings).
American Petroleum Products Company
On October 9, 2003, the Company also entered into a Stock Purchase Agreement
("Alliance Agreement") with Alliance Petroleum Products Company, now known as
American Petroleum Products Company ("Alliance"), an Illinois Corporation, and a
Rider to the Alliance Agreement ("Rider"). Alliance is in the business of
blending and bottling motor oil and anti-freeze. Under the Alliance Agreement,
the Company issued 1,250,000 shares of common stock for 100% of the issued and
outstanding shares of the common stock of American (757,864 common shares). An
additional 1,250,000 shares of common stock of the Company was issued to
Worldlink International Network, Inc. In addition, under the terms of the Rider,
the Company was required to provide funding of at least $3,500,000 to pay Harris
Bank, a secured creditor of Alliance, as a condition of the transaction. This
was a material contingency to the transactions and as a result had to be
resolved prior to recognition of a business combination. On June 24, 2004
(effective date July 1, 2004) the Company ("Prelude") now known as Triton
Petroleum Group, Inc., ("AMPE") and Alliance Petroleum Products Company, entered
into an Amendment to the original Alliance Agreement, dated October 9, 2003,
whereby all previous conditions and contingencies were deemed to have been
completed or waived. Therefore, the Company assumed the operations of the
subsidiary. However, after a change of management took place in September 2004,
the current management refused to recognize the obligation to pay certain
amounts arising from other non Company obligations and third party agreements
(See, Item 3, Legal Proceedings).
3
The Company
The operations of Alliance Petroleum Products Corp, which was later amended to
be American Petroleum Products Corp ("APPC") have been consolidated with the
results of Triton Petroleum Group, Inc. since July 1, 2004. Triton Petroleum
Group, Inc. which was formerly know as America Petroleum Group, Inc. (the
"Company") is a Chicago based holding company with an agenda to acquire, merge,
and manage various business opportunities.
The company, via its subsidiary (American Petroleum Products Company, or APPC),
is in the manufacturing and distribution of petroleum and related products for
the automotive industry. Specifically, APPC is in the business of blending,
bottling, and distributing private label motor oil, transmission fluid, and
related products for the automotive aftermarket. These products are sold, both
direct and through distributors, to retail outlets that include oil change
shops, automotive aftermarket chains, gas stations, department stores, and
convenience stores. Although most products are sold in 12-quart cases, some
products are sold in bulk. APPC sells to a wide variety of customers with a low
dependence on any one customer (the largest customer makes up less than 10% of
sales year to date).
In order to make finished motor oil, blenders and bottlers like APPC purchase
base oils and blend them with V.I. Improver and/or Additive Packages to create
motor oil, which is then sold either Bulk or Bottled. While there are several
major companies with huge markets, this is a highly fragmented market, with many
smaller players, especially in the private label market. Other major costs
include bottles, caps, labels, corrugated, labor, and transportation costs.
The U.S. market for aftermarket motor oil is approximately $11.3 billion
annually, making APPC a microscopic regional player. Most retail outlets for
motor oil carry a major brand and a lesser-known, lower-priced brand. APPC
primarily competes with those other, lesser-known brands, which consist of other
regional/national motor oil blenders and bottlers.
Given that the product is a commodity, APPC competes largely by managing a
competitive cost structure so that it can pass through competitive pricing and
by carefully managing customer relationships. By giving our customers fair
prices and providing excellent quality and service, APPC has maintained
relatively long term relations with its customer base and has had success
winning new customers.
Motor oil for late model year automobiles normally utilize the latest formulae
established by the American Petroleum Institute and the Society of Automotive
Engineers. The "standard" for current model year automobiles is referred to as
"SM," which recently replaced "SL." Only SM and SL motor oil can currently
receive the API "starburst" certification seal, and APPC must annually renew its
API license in order to use the "starburst" seal on its labels. Motor oil can
also be made without the API starburst and sold as oil with technology prior to
SM or SL. This API-certified oil must include what is referred to as "Group 2
Base Oils" as the foundation for the oil, as well as an additive package that
includes the most recently approved chemical blend. APPC, like other motor oil
blenders, must purchase Group 2 base oils from select, API-approved suppliers in
order to make API-certified premium motor oil. APPC primarily purchases Group 2
base oils from Motiva (Port Arthur, Texas) and from Evergreen Oil (Irvine,
California). Shortages of Group 2 base oils have caused price increases in
recent months, but APPC has temporarily been able to pass these increases on to
the customer.
4
On July 1, 2005, TPG acquired the operating assets of Triton Petroleum, LLC
("Triton"). Triton is operated as a division of TPG. On the Payment Date, which
shall be the one year anniversary of the effectiveness of the Agreement, that
being July 1, 2006, , the Registrant shall pay to the Sellers the Purchase Price
equal to three and one half (3.5) times the net earnings of the assets and
operations formerly owned by Triton. The Purchase Price is to be paid as: (a)
twenty-five percent (25%) in cash on the payment date, and (b) with the balance
of seventy-five percent, payable over the following two years, in cash and
stock, as agreed to by the parties. In addition, current loans to Triton,
totaling approximately three hundred thousand dollars ($300,000), due and owing
to the members of Triton, shall be paid over the twelve months from the Closing
date to the Payment Date. It is anticipated that the total purchase price will
be approximately $300,000, plus the net book value of the assets acquired in the
amount of $230,625 at the time of payment, July 1, 2006. The assets purchased
include the right to the name, Triton Petroleum, all operations and assets,
including any leases, or sub-leases.
Triton purchases used oil from various consolidators of used petroleum such as
gear oil, machine oils, etc. that have never been burnt before. It then
transports the un-combusted, but unrefined oils back to its reclamation facility
in Detroit, Michigan, for refining. After a very detailed reclamation process,
all impurities and contaminants are extrapolated out of the oil, through
Triton's centrifuge operation, thus leaving it with a renewable petroleum base
oil. This base oil can be blended with new crude and other chemical components
and bottled in our Bedford Park, Illinois facility. Using the renewable oils
from Triton Petroleum will drastically reduce American Petroleum Products
Company's (APPC) cost of base oil by 35%, and management feels that the
acquisition of the assets of Triton petroleum, making APPC its only customer,
will be an advantage with respect to earnings.
Risks to Consider Regarding our Company
Our independent registered public accounting firm issued a report for the year
ended December 31, 2005 and December 31, 2004 that contained a "going concern"
explanatory paragraph.
Our independent registered public accounting firm issued a report on their audit
of our financial statements as of and for the years ended December 31, 2005 and
2004. Our notes to the financial statements disclose that The Registrant's cash
flows have been absorbed in operating activities and has incurred significant
net losses for fiscal 2004 and 2005, and have a working capital deficiency. In
the event that funding from internal sources or from public or private financing
is insufficient to fund the business at current levels, the Company will have to
substantially cut back our level of spending which could substantially curtail
our operations. The independent registered public accounting firm's report
contains an explanatory paragraph indicating that these factors raise
substantial doubt about the Company's ability to continue as a going concern.
Our going concern uncertainty may affect our ability to raise additional
capital, and may also affect our relationships with suppliers and customers.
Investors should carefully read the independent registered public accounting
firm's report and examine our financial statements before investing in the
Registrant's stock or any other type of investment.
5
The Company Has Substantial Near-Term Capital Needs; The Company May Be Unable
To Obtain Needed Additional Funding.
The Company will require funding over the next twelve months to develop the
business further. In fact, the Company has minimal capital for operations and
the Company has needs for immediate funding. Our capital requirements will
depend on many factors including, but not limited to, the timing of further
development of our business and the growth of the industry as a whole. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our current shareholders will be reduced. Moreover,
those equity securities may have rights, preferences, and privileges senior to
those of the holders of our common stock. There can be no assurance that
additional capital will be available on terms favorable to us or our
shareholders.
Our cash requirements may vary substantially depending on our rate of
development, research results, competitive and technological advances and other
factors. If adequate funds are not available, the Company may be required to
curtail operations or to obtain funds by entering into collaboration agreements
on unattractive terms. Our inability to raise capital would impair the current
and future operations and may cause the Company to cease business operations
enturely.
The Company Substantial Long-Term Capital Needs; The Company May Be Unable To
Obtain Needed Additional Funding.
Substantial expenditures will be required to further develop our business model.
The level of expenditures required for these activities will depend in part on
whether The Company develops and market our services independently or with other
companies through collaborative arrangements. Our future capital requirements
will also depend on one or more of the following factors:
o market acceptance of our products and services;
o the extent and progress of our research and development programs;
o competing technological and market developments; and
o the costs of commercializing our products and services.
There can be no assurance that funding will be available on favorable terms to
permit successful expansion of the business to allow the Company to exceed the
break even point, if at all.
In addition, the Company has no credit facility or other committed sources of
capital. The Company may be unable to establish credit arrangements on
satisfactory terms, if at all. If capital resources are insufficient to meet our
future capital requirements, the Company may have to raise additional funds to
continue development of our website. There can be no assurance that such funds
will be available on favorable terms, if at all.
To the extent that additional capital is raised through the sale of equity
and/or convertible debt securities, the issuance of such securities will likely
result in dilution to our shareholders. If adequate funds are not available, the
Company may be unable to develop our operations to a sufficient level to
generate revenues or become profitable.
6
We expect to issue additional stock in the future to finance our business plan
and the potential dilution caused by the issuance of stock in the future may
cause the price of our common stock to drop.
The Company is authorized to issue maximum stock of 100,000,000 common shares.
As of May 10, 2006 there were 17,803,500 issued and outstanding shares of Common
Stock. The Board of Directors has authority to issue the balance of 82,196,500
shares of our authorized stock without shareholder consent, on terms and
conditions set in the discretion of the Board, which may dilute the value of
your stock. If and when additional shares are issued, it may cause dilution in
the value of shares purchased in this offering and may cause the price of our
common stock to drop. These factors could also make it more difficult to raise
funds through future offerings of common stock.
Most of our competitors may be able to use their financial strength to dominate
the market, which may affect our ability to generate revenues.
Most of our competitors are much larger companies than us and very well
capitalized. They could choose to use their greater resources to finance their
continued participation and penetration of this market, which may impede our
ability to generate sufficient revenue to cover our costs. Their better
financial resources could allow them to significantly out spend us on price to
our customers, marketing and production. We might not be able to maintain our
ability to compete in this circumstance
The Company Has Never Paid Dividends.
The Company has never paid dividends. The Company does not anticipate declaring
or paying dividends in the foreseeable future. Our retained earnings, if any,
will finance the development and expansion of our business. Our dividends will
be at our Board of Directors' discretion and contingent upon our financial
condition, earnings, capital requirements and other factors. Future dividends
may also be affected by covenants contained in loan or other financing documents
The Company may execute. Therefore, there can be no assurance that cash
dividends of any kind will ever be paid.
Reporting requirements of a public company
As a public company, we are required to comply with the reporting obligations of
the Exchange Act and may be required to comply with Section 404 of the
Sarbanes-Oxley Act for our fiscal year ending December 31, 2007. If we fail to
comply with the reporting obligations of the Exchange Act and Section 404 of the
Sarbanes-Oxley Act, or if we fail to achieve and maintain adequate internal
controls over financial reporting, our business, results of operations and
financial condition, and investors' confidence in us, could be materially
adversely affected. As a public company, we are required to comply with the
periodic reporting obligations of the Exchange Act, including preparing annual
reports, quarterly reports and current reports. Our failure to prepare and
disclose this information in a timely manner could subject us to penalties under
federal securities laws, expose us to lawsuits and restrict our ability to
access financing. In addition, we are required under applicable law and
regulations to integrate our systems of internal controls over financial
reporting. We plan to evaluate our existing internal controls with respect to
the standards adopted by the Public Company Accounting Oversight Board. During
the course of our evaluation, we may identify areas requiring improvement and
may be required to design enhanced processes and controls to address issues
identified through this review. This could result in significant delays and cost
to us and require us to divert substantial resources, including management time,
from other activities.
7
It is more difficult for our shareholders to sell their shares because we are
not, and may never be, eligible for NASDAQ or any National Stock Exchange.
We are not presently, nor is it likely that for the foreseeable future we will
be, eligible for inclusion in NASDAQ or for listing on any United States
national stock exchange. To be eligible to be included in NASDAQ, a company is
required to have not less than $4,000,000 in net tangible assets, a public float
with a market value of not less than $5,000,000, and a minimum bid price of
$4.00 per share. At the present time, we are unable to state when, if ever, we
will meet the NASDAQ application standards. Unless we are able to increase our
net worth and market valuation substantially, either through the accumulation of
surplus out of earned income or successful capital raising financing activities,
we will never be able to meet the eligibility requirements of NASDAQ. As a
result, it will more difficult for holders of our common stock to resell their
shares to third parties or otherwise, which could have a material adverse effect
on the liquidity and market price of our common stock
We must also obtain additional financing to either purchase our operating assets
or obtain working capital for leasing arrangements.
To meet our need for cash, we are attempting to raise debt and equity financings
to complete the acquisitions either described in this document or contemplated
in the future and fund the Company's on-going operations. There is no assurance
that we will be able to raise these funds and stay in business. If we do not
raise the funds required to complete any of the acquisitions, we will have to
find alternate sources of capital such as a secondary public offering, private
placement of securities, or loans from officers or others. If we need additional
cash and can not raise it, we will either have to suspend operations until we do
raise the cash or cease operations entirely
Limited Operating History.
We cannot guarantee we will be successful in our business operations. Our
business is subject to the risks inherent in the establishment of a new business
enterprise, including limited capital resources and the ability to find and
finance suitable acquisition candidates. We are seeking equity and debt
financing to provide the capital required to fund additional proposed
acquisitions and our on-going operations.
We have no assurance that future financing will be available to the Company on
acceptable terms. If financing is not available on satisfactory terms, we may be
unable to continue, develop or expand our operations and possibly cease
operations totally. Equity financing could result in additional dilution to
shareholders.
Inflation
The amounts presented in the financial statements do not provide for the effect
of inflation on the Company's operations or its financial position. Amounts
shown for machinery, equipment and leasehold improvements and for costs and
expenses reflect historical cost and do not necessarily represent replacement
cost. The net operating losses shown would be greater than reported if the
effects of inflation were reflected either by charging operations with amounts
that represent replacement costs or by using other inflation adjustments.
8
Provision for Income Taxes
The company has determined that it will more likely than not use any tax net
operating loss carry forward in the current tax year and has taken and therefore
has a valuation amount equal to 100% of any asset.
Employees
As of December 31, 2005, we employed approximately 29 persons. None of our
employees are covered by collective bargaining agreements. We believe that our
relations with or employees are good.
Item 2. Description of Property
The Company currently occupies a sub-lease, for the administrative offices,
located at 1400 North Gannon Drive, Hoffman Estates, Illinois (847-805-0125). We
occupy approximately 700 square feet comprising three offices. Our rent is
$1,000 per month. We have no lease and have an oral month-to-month agreement
with the leaseholder of the office space, which is the former President of the
Company. The space is adequate for the currently needs of the Company. If the
month-to-month tenancy was to end, we would be able to move our operations
without a significant disruption of operations.
The Company's wholly-owned subsidiary, American Petroleum Products, Inc.,
operates from a manufacturing and distribution facility located at 5841 W. 66th
Street, Bedford Park, Il. The facility is comprised of approximately 36,000 sq.
ft. The facility is sufficient for the needs of the wholly-owned subsidiary for
the foreseeable future. The Company does not have a formal lease and is
presently not paying rent for this property due to a dispute with the former
President of the Company, who is also the owner of this property. We are
attempting to reach a resolution with the former President and landlord of the
property. If we are not able to successfully resolve the dispute, and are forced
to vacate the facility, it will have a substantial material effect on the
ability to operate the subsidiary. We have reached an agreement with respect to
all claims related to the property with the owner, which when executed, will
result in the Company purchasing the property.
Item 3. Legal Proceedings
Other than described below, there are no past, pending or, to our knowledge,
threatened litigation or administrative action which has or is expected by our
management to have a material effect upon our business, financial condition or
operations, including any litigation or action involving our officer, director
or other key personnel. There have been no changes in the company's accountants
or disagreements with its accountants since its inception.
The Company is currently in default of its obligations with respect to Cornell
Capital Partners LP and Highgate House Funds, Ltd., dated March 8, 2005. We have
entered discussions with Cornell Capital Partners LP and Highgate House Funds,
Ltd. in an attempt to resolve our default. The Company and Cornell Capital
Partners LP and Highgate House Funds, Ltd. have reached a payment arrangement
with Cornell Capital Partners LP and Highgate House Funds, Ltd. We believe that
upon the completion of a financing currently under negotiation with another
outside investor group, we can fund our agreed upon resolution and repay our
obligations to Cornell Capital Partners LP and Highgate House Funds, Ltd.
However, if such new financing fails, we will be unable to complete our
settlement agreement with Cornell Capital Partners LP and Highgate House Funds,
Ltd. In such a case, we have been informed that Cornell Capital Partners LP and
Highgate House Funds, Ltd. will institute litigation to foreclose on the
security issued to them and to seek full payment with interest and penalties.
Such litigation would be significant and materially affect the Company.
9
There is a threatened action by the Harris Bank of Chicago, Illinois with
respect to a defaulted loan agreement. Harris Bank claims to have a lien on the
equipment used by the Registrant in its operations. The Registrant has had
contact with Harris Bank and is attempting to resolve the matter. We believe
that we have reached a resolution with Harris Bank. The resolution is
anticipated to be closed within the second fiscal quarter of 2006. The exact
terms have not yet been finalized. It is hoped that discussions the Company is
involved in with various funding sources will reach an agreement and conclusion
begun within the fourth fiscal quarter so the Company may proceed with the
transactions.
The Company has paid no rent or compensation of any type to the entities that
claim to have legal title to the operating assets of APPC. Management has taken
the position that since there was no contract or agreement to purchase the
assets or for the payment of rentals for these assets, therefore nothing is
owed. The consolidated operations for the period since APPC was acquired do not
contain $90,000 of accrued rent for compensation for use of the facilities. The
owner (and former President of the Company and major shareholder) of the entity
that owns the real estate is claiming a monthly rental amount of $15,000. The
Company has been in discussion with the owner of the real estate and has a
tentative agreement that is not yet fully agreed upon. The terms under
discussion include the purchase of the real estate for approximately $1,900,000
and $185,000 for additional back-rent and other capital debt claimed by the
owner. This is a contingency relating to the business combination that could
potentially result in an adjustment of the purchase price of APPC and additional
charges to the Company's operations.
The Company received a letter, dated February 28, 2005, from the Attorney for
Concentric Consumer Marketing, Inc., in connection with certain sums owed by
American Petroleum Products Corporation ("APPC"), a wholly owned subsidiary of
the Company, in the amount of $13,000 per month for the past four (4) months,
for services. There is no way to determine at this time the validity of the
claim, or any possible outcome or if the claim is material to the Company, or
even if litigation will be commenced against the Company and/or APPC. The
Company has reached a settlement with Concentric Consumer Marketing, Inc., which
has been paid.
10
Indemnification of Officers and Directors
At present we have not entered into individual indemnity agreements with our
Officer or Director. However, our By-Laws and Certificate of Incorporation
provide a blanket indemnification that we shall indemnify, to the fullest extent
under Nevada law, our directors and officers against certain liabilities
incurred with respect to their service in such capabilities. In addition, the
Certificate of Incorporation provides that the personal liability of our
directors and officers and our stockholders for monetary damages will be
limited.
Item 4. Submission of Matters to a Vote of Security Holders
On February 15, 2005, the majority of shares entitled to vote approved certain
actions as set forth in the Schedule 14C filed with the SEC on February 24,
2005, consisting of:
1. Electing and appointing the Board of Directors and Officers of
Triton Petroleum Group, Inc.;
2. Ratified the appointment of Brown Smith Wallace LLC as our
independent public accountants for the fiscal year ending December
31, 2003 and 2004;
3. Adoption of a Code of Ethics for the Executive Officers of Triton
Petroleum Group, Inc., and
4. Approving the purchase of all interest in, all assets and stock of
Oilmatic Systems, LLC ("Oilmatic Transaction" or "Transaction").
On May 20, 2005, the Letter of Intent with Oilmatic was terminated by the
Company.
On October 21, 2005, The Board of Directors (the "Board") by unanimous written
consent and a majority of stockholders (the "Majority Stockholders"), owning a
majority of issued and outstanding capital stock of the Company entitled to
vote, by written consent dated as of October 21, 2005, approved and adopted
resolutions to amend the Company's Certificate of Incorporation. The Certificate
of Amendment to the Company's Certificate of Incorporation, already filed with
the Secretary of State of the State of Nevada changed the Company's name to
"Triton Petroleum Group, Inc." or such similar available name, and will not be
effective earlier than 20 days after the mailing of this Information Statement.
The Company was not able to complete the name change due to financial
restraints, but expects to do so within the second fiscal quarter.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
General:
11
We are authorized to issue 100,000,000 shares of Common Stock, at a par value
$.001 per share. As of May 12, 2006, the latest practicable date, there are
17,803,500 shares of common stock outstanding. The number of record holders of
Common Stock as of May 12, 2006 is approximately 50.
Common Stock
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors then up for election. The holders of Common Stock are
entitled to receive ratably such dividends when, as and if declared by the Board
of Directors out of funds legally available therefore. In the event we have a
liquidation, dissolution or winding up, the holders of Common Stock are entitled
to share ratably in all assets remaining which are available for distribution to
them after payment of liabilities and after provision has been made for each
class of stock, if any, having preference over the Common Stock. Holders of
shares of Common Stock, as such, have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
Common Stock
Price Ranges of Triton Petroleum Group, Inc. Common Stock
Market Information
The Company's Common Stock is traded on the Pink Sheets under the symbol "AMPE"
and on the NASD operated Over the Country Bulletin Board until May 31, 2006. It
was previously traded under the symbol "AMAI" until October 29, 2004, "PLUD"
until February 23, 2004, and "PLUV from September 12, 2002 until December 31,
2002.
There is currently a limited trading market for the Company's Common Stock with
the price being very volatile. The following chart lists the high and low
closing bid prices for shares of the Company's Common Stock for each month
within the last fiscal year. These prices are between dealers and do not include
retail markups, markdowns or other fee and commissions, and may not represent
actual transactions.
Fiscal Year 2004: High Bid Low Bid High Ask Low Ask
----------------- -------- ------- -------- -------
January 2004 1.05 0.71 1.07 0.75
February 2004 0.81 0.37 0.85 0.41
March 2004 0.43 0.022 0.048 0.025
April 2004 0.32 0.11 0.35 0.13
May 2004 0.17 0.05 0.18 0.06
June 2004 0.12 0.045 0.015 0.032
July 2004 0.1 0.03 0.12 0.05
August 2004 0.13 0.025 0.15 0.032
September 2004 0.05 0.021 0.055 0.025
October 2004 0.06 0.025 0.07 0.029
November 2004(1) 1.40 0.01 5.00 0.07
December 2004 1.10 0.56 2.00 0.9
12
1 Taking into effect a reverse split of 20 to 1, effective November
2004
Fiscal Year 2005: High Bid Low Bid High Ask Low Ask
----------------- -------- ------- -------- -------
January 2005 0.92 0.65 1.12 0.75
February 2005 1.03 0.65 1.10 0.80
March 2005 1.05 0.60 1.05 0.60
April 2005 0.85 0.40 0.85 0.40
May 2005 0.75 0.35 0.85 0.78
June 2005 0.65 0.25 0.80 0.50
July 2005 0.70 0.51 0.80 0.50
August 2005 0.90 0.35 1.20 0.45
September 2005 0.85 0.468 0.86 0.51
October 2005 0.56 0.31 0.57 0.35
November 2005 0.42 0.16 0.45 0.17
December 2005 0.20 0.12 0.21 0.125
Fiscal Year 2006: High Bid Low Bid High Ask Low Ask
----------------- -------- ------- -------- -------
January 2006 0.19 0.11 0.20 0.115
February 2006 0.135 0.11 0.14 0.12
March 2006 0.17 0.11 0.18 0.12
April 2006 0.17 0.101 0.185 0.13
Liquidation
In the event of a liquidation of the Company, all stockholders are entitled to a
pro rata distribution after payment of any claims.
Dividend Policy
The Company has never declared or paid cash dividends on its common stock and
anticipates that all future earnings will be retained for development of its
business. The payment of any future dividends will be at the discretion of the
Board of Directors and will depend upon, among other things, future earnings,
capital requirements, the financial condition of the Company and general
business conditions.
Stock Transfer Agent
Effective March 1, 2005, our transfer agent and registrar of the Common Stock is
Manhattan Transfer Registrar Co., 1 West Street, New York, NY 10004, (212)
425-2750; fax (212) 425-2751.
Recent Sales of Unregistered Securities
The information concerning the recent sales of unregistered securities required
by Item 5 is incorporated by reference to the information set forth in Item 12
"Certain Relationships and Related Transactions" set forth hereafter
13
Item 6. Management's Discussion and Analysis or Plan of Operation.
Forward-looking Information
Certain statements in this document are forward-looking in nature and relate to
trends and events that may affect the Company's future financial position and
operating results. The words "expect" "anticipate" and similar words or
expressions are to identify forward-looking statements. These statements speak
only as of the date of the document; those statements are based on current
expectations, are inherently uncertain and should be viewed with caution. Actual
results may differ materially from the forward-looking statements as a result of
many factors, including changes in economic conditions and other unanticipated
events and conditions. It is not possible to foresee or to identify all such
factors. The Company makes no commitment to update any forward-looking statement
or to disclose any facts, events or circumstances after the date of this
document that may affect the accuracy of any forward-looking statement.
PLAN OF OPERATIONS
We were a startup, development stage Company prior to the acquisition of
American Petroleum Products Company ("APPC") beginning with operations as of
July 1, 2004, and did not realize any revenues from our business operations
until that time. However at time of acquiring APPC its sales volume was at a
point below its break even point and therefore was losing money. Management of
the Company feels that APPC is operating at a small percentage of its capacity
with its major constraint on increasing volume being that of financing raw
materials for manufacturing and some other limited variable manufacturing costs.
In addition, it is currently not generating profits of sufficient amount to
support the other operations of the parent Company. Accordingly, we must raise
money from sources other than the operations of this business. Our only other
source of cash at this time is investments by others (primarily from existing
shareholders and others) in our Company. We must raise additional cash to
complete any future acquisitions and maintain current operations, otherwise the
business will fail.
In order to raise capital for operations of the parent Company and to attempt to
complete the proposed Oilmatic transaction, the Company entered into a
transaction with Cornell Capital Partners LP and Highgate House Funds, Ltd.,
dated March 8, 2005, whereby the Company entered into a Convertible debenture
for a total amount of $500,000 at 7% interest. The Note is convertible into
shares of common stock at a conversion price of $0.85 per share, at the option
of the Lender. At the same time the Company entered into with Cornell Capital
Partners LP a total Standby Equity Distribution Agreement for up to $10,000,000
equity line (See Item 3, Legal Proceedings).
Liquidity, Capital Resources and Operations
Since the Company's inception, the Company raised funds from officer/stockholder
advances, from private sales of its common shares, including approximately
$500,000 from the sale of borrowed stock contributed by the Company's promoters.
We have repaid this stock borrowing with the issuance of 50,000 shares of common
stock (taking in to account a reverse of the common shares of the Company in
November 2004). This money was utilized for certain start-up costs and operating
capital.
14
In this regard, the Company's plan of operations for the next 12 months is to
pursue profitable business acquisitions, and obtain financing to increase the
sales volume of APPC. Product research and development is expected to be minimal
during the period. Additionally, the Company does not expect any change in
number of employees other than through acquisitions.
Financings
In order to raise capital for operations of the parent Company and to complete
the Oilmatic transaction at the time, the Company entered into a transaction
with Cornell Capital Partners LP and Highgate House Funds, Ltd., dated March 8,
2005, whereby the Company entered into a Convertible debenture for a total
amount of $500,000 at 7% interest. The Note is convertible into 588,325 shares
of common stock at a conversion price of $0.85 per share, at the option of the
Lender. At the same time the Company entered into with Cornell Capital Partners
LP a total Standby Equity Distribution Agreement for up to $10,000,000 equity
line. Pursuant to the Standby Equity Distribution Agreement we are to file a
registration statement 180 days after execution.
The Company must still obtain additional financing to either purchase our
operating assets or obtain working capital for leasing arrangements, and to
operate our business.
To meet our need for cash, we are attempting to raise debt and equity financing
to complete the acquisitions described in this document and fund the Company's
on-going operations. There is no assurance that we will be able to raise these
funds and stay in business. If we do not raise the funds required to complete
any of the acquisitions mentioned in this document or any contemplated
acquisition, we will have to find alternate sources such as a secondary public
offering, private placement of securities, or loans from officers or others. If
we need additional cash and can not raise it, the Company will either have to
suspend operations until we do raise the cash or cease operations entirely.
On July 25, 2005, we conducted a Rule 504, Regulating D offering of $1,000,000
worth of Convertible Debentures of our subsidiary American Petroleum Products
Company ("APPC"), to accredited investors in the State of Texas. The Offering
was amended in October 10, 2005 to include the State of Pennsylvania. Pursuant
to the Offering, APPC issued the convertible debentures, which were convertible
into shares of common stock. As part of the Offering, APPC was to be merged into
the Registrant. This event did not occur. Upon conversion into shares and merger
of APPC into the Registrant, the offering shares are issuable as shares of
Triton Petroleum Group, Inc. Pursuant to the amendment to the original offering,
the amount of shares to be offered for sale was raised to a total of 3,108,000
shares of common stock.
We are also currently in discussions with several investors to raise the capital
via an equity offering, involving the issuance of convertible debentures to be
converted upon the effectiveness of a Registration Statement. The funds raised
are necessary to complete the transactions with Harris Bank to obtain clear
title to the equipment used by the Company, in its APPC operations and to
purchase the real property that our plant is situated on from its owner, as well
as general business purposes. We anticipate that this financing would close
sometime in the second fiscal quarter 2006.
15
Results of Operations:
For the Years Ending December 31, 2005 vs. December 31, 2004 and December 31,
2003
Until July 1, 2004, the Company did not have an operating unit. Therefore, a
comparison of revenues and cost of sales between the years ended December 31,
2004 and 2003 is meaningless. For the year ended December 31, 2004, the Company
had $857,172 in sales and cost of revenues of $732,722. This is in comparison to
total sales of $1,965,330 and cost of revenues of $1,453,426 for the year ended
December 31, 2005.
Non-cash compensation expense resulting from shares of the Company's common and
preferred being issued for services rendered totaled $8,778,000 in 2003,
$1,523,200 in 2004 and $5,197,500 in 2005 The increase in 2005 or both non cash
compensation and financing expenses, is attributable to a large number of shares
issued by the Company in lieu of cash paid for services rendered. Financing
expense for 2005 was $2,857,500, 2004 and 2003 was $0 and $0, respectively.
Total payroll and payroll related expenses for 2005 were $1,122,181, in
comparison to $390,152 for 2004 and $0 in 2003. The increase is the result of
having a full year of operations at the subsidiary level and adding headcount at
the corporate level during 2005.
In 2005, the Company incurred $549,642 in bad debts, including $525,000 related
to the write-off of the remaining balance due from a working capital financing
arrangement. Total bad debts related to normal operating activities totaled
$24,642 for 2005 and $22,700 for 2004. Interest expense for 2005 totaled
$150,517, in comparison to a total of $32,000 in 2004. The increase is the
result of increase in working capital financing in 2005.
The Company incurred a charge for the write-off of goodwill in 2005 of $312,807,
related to the acquisition of Triton Petroleum, LLC. In 2004, the Company
incurred a charge for the write-off of goodwill of $803,615, related to the
acquisition of American Petroleum Products, Inc.
In 2005, the Company realized a gain of $492,500 related to the repayment of
shares borrowed under a Stock Borrowing Arrangement with certain shareholders.
Total operating expense for the year 2005 totaled $7,896,346. This is in
comparison to total operating expense of $2,461,325 for 2004 and $9,602,136 for
2003. The increase in 2005 was attributed to a higher level of financing and
compensation expenses in order to keep the Company operating.
Liquidity and Financial Resources
During the years ended December 31, 2005 and 2004, net cash used by operating
activities was $1,716,783 and $614,767, respectively. The Company incurred net
losses of $7,342,210, and $3,175,458 for the years ended December 31, 2005 and
2004, respectively. The Company still would have incurred net operating losses
in 2005 and 2004 even if the non-cash stock compensation, financing expense and
goodwill impairment expenses, detailed above did not occur. Additionally at
December 31, 2005 and December 31, 2004, current liabilities exceeded current
assets by $2,580,611 and $1,289,213, respectively.
16
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The Company anticipates that in order to fulfill its plan of
operation including payment of certain past liabilities of the Company, it will
need to seek financing from outside sources. The Company is currently pursuing
private debt and equity sources. It is the intention of the Company's management
to also improve profitability by significantly reducing operating expenses and
to increase revenues significantly, through growth and acquisitions.
The Company is actively in discussion with one or more potential acquisition or
merger candidates. There is no assurance that the Company will be successful in
raising the necessary funds nor there a guarantee that the Company can
successfully execute any acquisition or merger transaction with any company or
individual or if such transaction is effected, that the Company will be able to
operate such company profitably or successfully.
The increases in recurring administrative expenses detailed above in The Results
of Operations section are due to the start up of the operations, increases in
personnel and professional fees, and a generally higher level of fixed
administrative expenses. It is anticipated by the Registrant that General and
Administrative costs will remain relatively the same, while Revenues and Gross
Profit will increase as a result of the business derived from APPC and Triton.
This can be achieved only if the Company can obtain financing from outside
sources since additional capital is needed to operate and expand operations from
current levels.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.
17
Item 7. Financial Statements
Triton Petroleum Group, Inc. and Subsidiary
Index to Financial Statements
CONTENTS
18
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
On November 16, 2004, the current Interim President of the Registrant in
discussions with Amisano Hanson, became aware that the Registrant had not
properly informed Amisano Hanson of its dismissal, and the Registrant had failed
to comply with the notification provisions of Form 8-K for dismissal of the
previous auditor and appointment of the new auditor. Accordingly, the current
management, on November 16, 2004 notified its previous independent auditor,
Amisano Hanson, Chartered Accountants, 750 West Pender Street, Suite 604,
Vancouver Canada, V6C 2T7, 604-689-0188, that it was replaced as the Independent
Auditor of the Registrant, by Brown Smith Wallace LLC. This action was
previously approved by the Board of Directors on or about February 19, 2004.
Members of The Board of Directors and Officers of the Registrant have discussed
these facts with Amisano Hanson, and have discussed the actions necessary to
correct the problem.
The audit reports of, Amisano Hanson, Chartered Accountants, 750 West Pender
Street, Suite 604, Vancouver Canada, V6C 2T7, 604-689-0188 on the Company's
consolidated financial statements as of and for the fiscal years ended December
31, 2002 and 2001 did not contain an adverse opinion or a disclaimer of opinion,
or modified as to audit scope or accounting principles, however the auditors
qualified their report as to the uncertainty that the Company would continue as
a going concern. During the period of their engagement, there were no
disagreements between Amisano Hanson, and the Registrant on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Amisano Hanson, would have caused them to make reference to the subject matter
of the disagreement in connection with its reports on the Registrant's financial
statements, other than the fee dispute that has arisen between the parties.
On February 19, 2004, the management of the Registrant engaged Brown Smith
Wallace LLC, located at 1050 N. Lindbergh Blvd. St. Louis, MO 63132, Telephone
314.983.1200, as its independent auditors to audit its financial statements for
the fiscal year ended December 31, 2003. The decision to retain Brown Smith
Wallace LLC was approved by the Registrant's board of directors at that time.
Prior to the engagement, Registrant did not consult with Brown Smith Wallace LLC
regarding the application of accounting principles to a specified transaction,
or the type of audit opinion that may be rendered with respect to the
Registrant's financial statements, as well did not consult with Brown Smith
Wallace LLC, as to the application of accounting principles to a specific
completed or contemplated transaction, or the type of audit opinion that might
be rendered on the small business issuer's financial statements and either
written or oral advice was provided that was an important factor considered by
the small business issuer in reaching a decision as to the accounting, auditing
or financial reporting issue.
Item 8a. Controls and Procedures
We recently acquired American Petroleum Products Corp., our main operating
entity, after taking control of the parent Company in September 2004. As such,
the company is just developing and implementing systems of internal and
disclosure controls. Within the ninety-day period preceding the filing of this
report, our management evaluated the effectiveness of the design and operation
of its disclosure controls and procedures (the "Disclosure Controls") as of the
end of the period covered by this Form 10-KSB and (ii) any changes in internal
controls over financial reporting that occurred during the last quarter of our
fiscal year. This evaluation ("Controls Evaluation") was done under the
supervision and with the participation of management, including the Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), who became CFO in
September 2004, and the Controller, who became CFO in March 2005.
19
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected. Because of
the inherent limitations in a cost effective control system, misstatements due
to error or fraud may occur and not be detected. We will conduct periodic
evaluations of our internal controls to enhance, where necessary, our procedures
and controls.
Conclusions
Based upon the Controls Evaluation, the CEO and CFO have concluded that the
Disclosure Controls are effective in reaching a reasonable level of assurance
that management is timely alerted to material information relating to the
Company during the period when its periodic reports are being prepared. In
accord with the U.S. Securities and Exchange Commission's requirements, the CEO
and CFO conducted an evaluation of the Company's internal control over financial
reporting (the "Internal Controls") to determine whether there have been any
changes in Internal Controls that occurred during the quarter which have
materially affected or which are reasonable likely to materially affect Internal
Controls. Based on this evaluation, there have been no such changes in Internal
Controls during the last quarter of the period covered by this report.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
The following were elected to the Board of Directors, effective February 15,
2005:
Ron Shapss 58 Chairman of the Board
Michael Margolies 78 CEO, President and Director
Michael S. Krome, Esq. 44 Director and General Counsel
Elliot Cole Esq. 71 Director
James Carroll 55 Chief Financial Officer
20
Ron Shapss, 58, Chairman of the Board
Mr. Shapss is the founder of Ronald Shapss Corporate Services, Inc., ("SCS") a
company engaged in consolidating fragmented industries since 1992. RSCS was
instrumental in facilitating the roll-up of several companies into such entities
as U.S. Delivery, Inc., Consolidated Delivery & Logistics, Inc. Mr. Shapss was
also the founder of Coach USA, Inc. A 1970 graduate of Brooklyn Law School, Mr.
Shapss is a member of the New York bar.
Michael Margolies, 78, CEO, President and Director
Michael Margolies became Vice Chairman and Secretary of Headliners in January
2002, after having served on the Board of Directors for the prior 3 years. Mr.
Margolies resigned from his position as Vice Chairman in March 2005. From 1998
until December 2005 Mr. Margolies was employed as Chief Executive Officer of
Global Concepts, Ltd. a conglomerate primarily involved in providing and
transportation services in the United States and Europe.
Michael S. Krome, Esq., 44, Director and General Counsel
Michael S. Krome was admitted to practice Law in the State of New York in
February 1991, and in the United States District Court for the Eastern District
of New York in June 1991 and Southern District of New York in November 1994. He
has been a Director of Human Trans Services Holding Corp ("HTSC") since January
2004. Since 1991 he has practiced law as a sole practitioner with a General
Practice. Since 2001 he has concentrated his practice in representing Public
Corporations. He is a graduate of the State University of New York at Albany and
graduated from the Benjamin N. Cardozo School of Law in June 1990. From February
1999 to November 1999, he was Vice President of Legal Affairs of Fortune Media,
Inc., (now known as Wayne's Famous Phillies, Inc.). From April 2000 until
January 2001, he was a Director and Counsel to Universal Media Holdings, Inc.,
now known as Genio Group, Inc.
Elliot Cole, Esq., 71, Director
Partner, Patton Boggs LLP. Elliot Cole has practiced corporate law for 40-plus
years, more than 30 of which he has been a partner at Patton Boggs LLP. He has
been a Director of Human Trans Services Holding Corp (OTC BB "HTSC") since May
2004. His expertise is rooted in the representation of early-stage companies. As
a counselor of startups through mezzanine and later-stage financing, Mr. Cole
assists with bringing companies in a wide range of businesses along to maturity.
His broad-based contacts with financiers and investors have provided capital and
management assistance to a number of the firm's clients over the years. Mr. Cole
has served on the boards of several business, community and social
organizations. He has been a trustee of Boston University, his alma mater, for
over 20 years, having served on its Investment Committee and Community
Technology Fund.
James J. Carroll, 55, Chief Financial Officer and Director
James J. Carroll was the founder of Kevney Consulting Group, Ltd (Kevney) and
has been active in Kevney since 2001. Kevney provides diversified financial and
management services to its clients, including merger and acquisition,
reorganization and debt financing consulting and interim chief financial officer
services. Mr. Carroll has over 30 years of financial experience, including 13
years in public accounting with 5 years as a partner with a regional public
accounting firm. He also has over 15 years of experience in private industry,
including positions as COO and CFO for various manufacturing and distribution
companies.
21
Item 10. Executive Compensation
For the fiscal year ended December 31, 2005, no Officer/Director has been
compensated with salaries or other form of remuneration except as set forth
below:
2005
---------------------------------------------------------------------
Aggregate
Capacities in Restricted
Which Remuneration Cash Share
Name was Received Period Ended Payment Remuneration
------------------------ ----------------------- ----------------- -------- ------------
Ronald Shapss (1) Chairman of the Board December 31, 2005 $ 4,615 $800,000 (2)
James W. Zimbler Interim President December 31, 2005 $112,192 $200,000 (2)
Richard Carter Vice-President December 31, 2005 $ 66,000 $200,000 (2)
George L. Riggs, III (3) Chief Financial Officer December 31, 2005 $ 13,846 $ - 0 -
Michael S. Krome, Esq General Counsel December 31, 2005 $ 32,308 $ 37,500 (2)
James J. Carroll (4) Chief Financial Officer December 31, 2005 $ 45,923 $ 75,000 (2)
George Campbell (5) President December 31, 2005 $ 23,076 $125,000 (2)
Elliot Cole Director December 31, 2005 - 0- $120,000 (2)
(1) Mr. Shapss was elected Chairman of the Board on February 15, 2005
(2) Based upon shares of restricted common stock of the Company, discounted
(3) Mr. Riggs resigned as CFO on March 17, 2005
(4) Mr. Carroll was elected Chief Financial Officer on March 17, 2005
(5) Mr. Campbell was elected President on August 1, 2005
2004
---------------------------------------------------------------------
Aggregate
Capacities in Restricted
Which Remuneration Cash Share
Name was Received Period Ended Payment Remuneration
------------------------ ----------------------- ----------------- -------- ------------
Ronald Shapss (1) Chairman of the Board December 31, 2004 - 0 - - 0 -
James W. Zimbler Interim President December 31, 2004 $52,250 $600,000 (2)
Richard Carter Vice-President December 31, 2004 $51,100 $600,000 (2)
George L. Riggs, III (3) Chief Financial Officer December 31, 2004 $20,193 $ 90,000 (2)
Michael S. Krome, Esq General Counsel December 31, 2004 $13,846 $ 90,000 (2)
(1) Mr. Shapss was elected Chairman of the Board on February 15, 2005
(2) Based upon shares of restricted common stock of the Company, discounted
(3) Mr. Riggs resigned as CFO on March 17, 2005
Director Compensation
Our directors receive no compensation for their services as director, at this
time, other than what has already been paid by the issuance of shares of common
stock.
Director and Officer Insurance
The Company does not have directors and officers ("D & O") liability insurance
at this time.
22
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of May 12, 2006, with respect to
the beneficial ownership of the 17,793,500 outstanding shares of the Company's
Common Stock by (i) each person known by the Company to beneficially own five
percent or more of the outstanding shares; (ii) the Company's officers and
directors; and (iii) the Company's officers and directors as a group. A person
is deemed to be a beneficial owner of any securities of which that person has
the right to acquire beneficial ownership within sixty (60) days. There are
currently no Preferred Series A shares issued and outstanding. All Preferred
Series A shares have been converted into shares of common stock.
No. of Common % ownership
------------- -----------
Ronald Shapss (1) 1,750,000 9.8
James J Carroll (1) 160,000 *
Elliot Cole (1) 225,000 *
Michael S. Krome, Esq. (1) (2) 260,000 *
James W. Zimbler (2) 1,633,000 9.5
Richard Carter 1,685,000 9.8
Alpha Advisors, LLC (2) 391,250 *
Richard Steifel 290,000 *
Jesse Fuller 887,893 5.2
Highgate House Funds Ltd.(3)
101 Hudson Street, Suite 3700
Jersey City, NJ 07302 3,175,000 18.5
Alliance Financial
Networks Inc. (4)
2291 Arapahoe
Boulder, CO 80302 600,000 *
William Boussung (4)
10300 West Charleston #13-378
Las Vegas, NV 89135 500,000 *
Cornell Capital Partners LP.
101 Hudson Street, Suite 3700
Jersey City, NJ 0730 735,000 *
Officers and Directors as a
Group (5 persons) (3) 4,068,000 22.9
(1) Officer/Director of the Company
(2) Alpha Advisors, LLC is controlled by James W. Zimbler (1,633,000 shares),
George L. Riggs (225,000 shares), and Michael S. Krome (who is a Director
of the Company, with 300,000 shares). When all of the ownership
percentages are added, totaling 2,545,250 shares, the control percentage
for Alpha Advisors LLC is 14.3%, if voted as a block.
(3) Highgate House Funds, Ltd. is the owner of record of 3,000,000 shared of
common stock issued as security with respect to the financing with
Highgate House in March 2005.
(4) Alliance Financial Networks, Inc. is controlled by William Boussung.
Combined, the total number of shares is 1,100,000, equaling 6.4%.
23
Item 12. Certain Relationships and Related Transactions Issuance of Stock:
We issued a total of 48,275,000 shares of the Company, as set forth on the Form
8-K filed September 20, 2004, and incorporated by reference, in connection with
the change of control of the Company. In November 2004, we executed a 20 to one
reverse split of our commons shares
We issued 75,000 shares of common stock, and 150,000 shares of Series A
preferred stock, to Ronald Shapss as part of his compensation for accepting the
position of Chairman of the Board of Directors, January 2005. We issued 500,000
shares of common stock, and 1,000,000 shares of Series A preferred stock, to
Ronald Shapss as part of his compensation for accepting the position of Chairman
of the Board of Directors, on February 15, 2005.
On September 22, 2005, we issued the following shares to various employees,
Officers and/or Directors, of the Company and others, as follows:
James W. Zimbler 500,000
Ronald Shapss 500,000
Richard Carter 500,000
Elliot Cole 75,000
Michael S. Krome 150,000
Alpha Advisors, LLC 113,750
George Campbell 250,000
James Carroll 150,000
Rose Tarasiuk 50,000
Jeff Neiman 50,000
Michael Cahr 100,000
Subsequent Events
On May 18, 2006, with the appointment of Michael Margolies as CEO, President and
Director of the Company, as part of his compensation, we will issue a total of
1,500,000 shares of common stock. This issuance has not taken place as of this
date.
Item 13. Exhibits
Index to Exhibits
SEC REFERENCE
NUMBER TITLE OF DOCUMENT
------------- ----------------------------------------------------------------
3.1 Articles of Incorporation of the Registrant, as amended (1)
3.2 By-laws of the Registrant, as amended (1)
23.1 Consent of Brown Smith Wallace, LLC
99.1 Certification of President Officer pursuant to 18 U.S.C. Section
1350, as adopted, Pursuant to section 906 of the Sarbanes-Oxley
act of 2002 (2)
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted, Pursuant to section 906 of the
Sarbanes-Oxley act of 2002 (2)
24
----------
(1) Previously filed as an exhibit to the Company's Form 10-SB filed on June
26, 2001, and subsequent filings
(2) Filed herewith
Item 14. Principal Accounting Fees and Services
During the fiscal year ended December 31, 2005, we paid a total of $74,800 in
audit, audit-related, tax or other fees paid for professional services rendered
by the independent certified public accountant who audited the financial
statements of the Nevada corporation that are filed herewith as those of the
Company. See Item 7, "Financial Statements", above.
During the fiscal year ended December 31, 2005, the Registrant did not have an
audit committee.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Triton Petroleum Group, Inc. has duly caused this Report to be
signed on behalf of the undersigned thereunto duly authorized on June 23, 2006.
TRITON PETROLEUM GROUP, INC.
By: /s/ Michael Margolies
------------------------------------
Michael Margolies, President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons in the capacities indicated and on
March 31, 2005.
Signature Title Date
--------------------- -------------------------- -------------
/s/ Ronald Shapss Chairman June 23, 2006
-----------------
Ronald Shapss
/s/ Michael Margolies CEO, President June 23, 2006
--------------------
Michael Margolies
/s/ James J. Carroll Chief Financial/Accounting June 23, 2006
-------------------- Officer
James J. Carroll
/s/ Michael S. Krome Director June 23, 2006
---------------------
Michael S. Krome
/s/ Elliot Cole Director June 23, 2006
---------------------
Elliot Cole
26
TRITON PETROLEUM GROUP, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 2005
TABLE OF CONTENTS
Page
----
Report of Independent Registered Public Accounting Firm.................. 1
Consolidated Financial Statements
Consolidated Balance Sheets............................................ 2
Consolidated Statements of Operations.................................. 3
Consolidated Statements of Stockholders' Equity (Deficit).............. 4
Consolidated Statements of Cash Flows.................................. 5
Notes to Consolidated Financial Statements............................. 6
Report of Independent Registered
Public Accounting Firm
To the Board of Directors and Stockholders
Triton Petroleum Group, Inc.
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of Triton Petroleum
Group, Inc., f/k/a American Petroleum Group, Inc. and subsidiary (f/k/a American
Capital Alliance, Inc.) as of December 31, 2005 and 2004, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinions.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Triton Petroleum
Group, Inc. and subsidiary as of December 31, 2005 and 2004, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note B to the
consolidated financial statements, the Company is dependent on its ability to
obtain the necessary financing to meet its obligations and pay its liabilities
arising from normal business operations when they come due. These factors, along
with other matters set forth in Note B, raise substantial doubt that the Company
will be able to continue as a going concern. Management's plan regarding those
matters is also described in Note B. The consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
In connection with a business combination the Company entered into as of July 1,
2004 as discussed in Note F, certain contingencies remain to be resolved as
discussed in Note L in order to finalize this transaction.
Brown Smith Wallace, L.L.C.
May 24, 2006
St. Louis, Missouri
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2005 and 2004
(See Independent Auditors' Report)
2005 2004
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ -- $ 801
Trade accounts receivable, net of allowance of $22,700
for doubtful accounts 324,403 291,846
Advances to others 304,200 100,000
Inventory 527,500 254,944
Prepaid expenses 28,579 -
------------ ------------
Total Current Assets 1,184,682 647,591
------------ ------------
Equipment
Equipment 6,068 6,068
Less accumulated depreciation 4,023 2,023
------------ ------------
2,045 4,045
------------ ------------
Other Assets
Idle plant, net of accumulated depreciation of $7,720 147,770 --
Other 24,700 --
------------ ------------
172,470 --
------------ ------------
TOTAL ASSETS $ 1,359,197 $ 651,636
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Book overdraft $ 97,712 $ 5,523
Trade accounts payable 1,122,234 629,825
Accrued interest 149,213 32,000
Accrued professional fees - 45,000
Accrued expenses 83,967 11,187
Notes payable, banks and others 77,167 --
Advances from former president of subsidiary 232,915 142,915
Convertible notes payable 550,000 50,000
Notes payable for Triton purchase 300,000 --
Notes payable to stockholders -- 500,000
Loans payable to officers/stockholders 1,152,085 520,354
------------ ------------
Total Current Liabilities 3,765,293 1,936,804
Commitments and Contingences (Notes B, E, F, G, I, K and L)
Stockholders' Equity (Deficit)
Preferred stock; 5,000,000 shares authorized; 2,527,500
shares issued and outstanding in 2004 -- 25,275
Common stock, $0.001 par value; 100,000,000 shares
authorized;17,803,500 and 3,740,000 shares issued and
outstanding in 2005 and 2004, respectively 17,804 3,740
Additional paid-in capital 17,755,928 11,523,435
Retained (deficit) (20,179,828) (12,837,618)
------------ ------------
(2,406,096) (1,285,168)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,359,197 $ 651,636
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 2005 and 2004
(See Independent Auditors' Report)
2005 2004
----------- -----------
Net sales $ 1,965,330 $ 857,172
Cost of goods sold 1,453,426 732,722
----------- -----------
Gross Profit 511,904 124,450
Expenses
Financing expense 2,857,500 --
Compensation expense 2,340,000 1,523,200
Payroll, payroll taxes and employee benefits 1,122,181 390,152
Bad debts 549,642 22,700
Other 197,736 69,099
Professional fees 192,312 145,293
Outside sales 153,600 83,707
Rent, taxes and insurance 195,138 --
Auto, travel and entertainment 101,836 --
Telephone and utilities 83,665 --
Advertising and promotion 62,440 60,640
Repairs and maintenance 17,740 14,293
Office expense 12,836 140,218
Acquisition expense -- 10,000
Depreciation 9,720 2,023
----------- -----------
Total Expenses 7,896,346 2,461,325
----------- -----------
Loss Before Other Items (7,384,442) (2,336,875)
Other Income (Expense)
Forgiveness of debt 492,500 --
Other income 13,056 --
Interest expense (150,517) (32,000)
Other expense -- (2,968)
Impairment of goodwill (312,807) (803,615)
----------- -----------
Total Other Income ( Expense) 42,232 (838,583)
----------- -----------
NET LOSS $(7,342,210) $(3,175,458)
=========== ===========
Loss per share $ (0.62) $ (1.62)
=========== ===========
Diluted loss per share $ (0.55) $ (1.62)
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 2005 and 2004
(See Independent Auditors' Report)
Preferred Stock Common Stock Additional Retained
---------------------- ---------------------- Paid-In Earnings
Number Par Value Number Par Value Capital (Deficit) Total
---------- --------- ---------- --------- ----------- ------------ -----------
Balance at December 31, 2003 -- $ -- 1,415,000 $ 1,415 $ 9,328,585 $ (9,662,160) $ (332,160)
Net loss -- -- -- -- -- (3,175,458) (3,175,458)
Stock shares issued 2,527,500 25,275 2,598,700 2,599 2,194,576 -- 2,222,450
Retired common shares -- -- (273,700) (274) 274 -- --
---------- --------- ---------- --------- ----------- ------------ -----------
Balance at December 31, 2004 2,527,500 25,275 3,740,000 3,740 11,523,435 (12,837,618) (1,285,168)
Net loss -- -- -- -- -- (7,342,210) (7,342,210)
Stock shares issued 1,150,000 11,500 12,224,750 12,225 6,197,557 -- 6,221,282
Preferred shares exchanged
for common stock (3,677,500) (36,775) 1,838,750 1,839 34,936 --
---------- --------- ---------- --------- ----------- ------------ -----------
Balance at December 31, 2005 -- $ -- 17,803,500 $17,804 $17,755,928 $(20,179,828) $(2,406,096)
========== ========= ========== ========= =========== ============ ===========
* No other comprehensive income or loss for any period shown
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 2005 and 2004
(See Independent Auditors' Report)
2005 2004
----------- -----------
Cash flows from operating activities:
Net loss $(7,342,210) $(3,175,458)
Compensation, consulting and termination expenses in
exchange for shares 5,122,500 1,523,200
Impairment of goodwill 312,807 803,615
Adjustments to reconcile net loss to net cash used in
operating activities:
Bad debts 549,642 22,700
Forgiveness of debt (492,500)
Depreciation 9,720 2,023
(Increase) decrease in operating assets:
Trade accounts receivable (31,837) (291,846)
Advances to others (204,200) (100,000)
Inventory (262,503) (254,944)
Acquisition deposits -- 200,200
Prepaid expenses (28,579) --
Other assets (14,700) --
Increase (decrease) in operating liabilities:
Book overdraft 92,383 5,523
Trade accounts payable 427,701 639,033
Accrued expenses 144,993 11,187
----------- -----------
Net cash used in operating activities (1,716,783) (614,767)
Cash flows from investing activities:
Acquisition of division (530,625) --
Acquisition of subsidiary -- (856,200)
Purchases of equipment (3,251) (3,068)
----------- -----------
Net cash used in investing activities (533,876) (859,268)
Cash flows from financing activities:
Issuance of common stock 3,826 2,325
Increase in additional paid-in capital 1,008,946 698,535
Issuance of preferred stock -- 25,275
Proceeds from loans payable 1,239,181 713,269
Payments on loans payable (2,095) --
----------- -----------
Net cash provided by financing activities 2,249,858 1,439,404
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (801) (34,631)
Cash and cash equivalents, beginning of year 801 35,432
----------- -----------
Cash and cash equivalents, end of year $ -- $ 801
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2005
(See Independent Auditors' Report)
Note A - Nature of Operations
The Board of Directors (the "Board") by unanimous written consent dated as
of November 18, 2003, and certain stockholders (the "Majority
Stockholders") owning a majority of issued and outstanding capital stock
of the Company entitled to vote, by written consent dated as of November
18, 2003, approved and adopted resolutions to amend the Company's
Certificate of Incorporation. The Certificate of Amendment to the
Company's Certificate of Incorporation, already filed with the Secretary
of State of Nevada, changed the Company's name to "American Capital
Alliance, Inc." from Prelude Ventures, Inc. The name of the Company was
changed again on November 1, 2004 to American Petroleum Group, Inc. by a
vote of the security holders. On October 21, 2005, The Board of Directors
(the "Board") by unanimous written consent and a majority of stockholders
(the "Majority Stockholders"), owning a majority of issued and outstanding
capital stock of the Company entitled to vote, by written consent dated as
of October 21, 2005, approved and adopted resolutions to amend the
Company's Certificate of Incorporation. This new Certificate of Amendment
to the Company's Certificate of Incorporation, already filed with the
Secretary of State of the State of Nevada changed the Company's name to
"Triton Petroleum Group, Inc." ("TPG"). The Company was not able to
complete the name change due to financial restraints, but expects to do so
within the second fiscal quarter.
On July 1, 2005, TPG, then known as American Petroleum Group, Inc.,
acquired the operating assets of Triton Petroleum, LLC ("Triton"). Triton
is operated as a division of TPG.
On July 1, 2004, TPG acquired 100% of the outstanding stock of American
Petroleum Products Company ("APPC"). The accompanying consolidated
financial statements include the results of operations of APPC beginning
on July 1, 2004. After the above acquisition, the Company was no longer
considered a "development stage entity" and had officially begun
operations.
TPG is a Chicago based holding company with an agenda to acquire, merge,
and manage various business opportunities. TPG's current direction is in
the manufacturing and distribution of petroleum and related products for
the automotive industry.
-6-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note B - Continuance of Operations
The financial statements have been prepared using accounting principles
generally accepted in the United States of America applicable for a going
concern which assumes that the Company will realize its assets and
discharge its liabilities in the ordinary course of business. At December
31, 2005, the Company had accumulated losses of $20,179,828 since its
inception. Its ability to continue as a going concern is dependent upon
the ability of the Company to obtain the necessary financing to meet its
obligations and pay its liabilities arising from normal business
operations when they come due. The Company is currently pursuing new debt
and equity financing in conjunction with future acquisitions and
operations. Additionally, approximately $632,000 was raised during the
year ended December 31, 2005 from loans payable to officers/stockholders
(see Note I) whose proceeds were used for working capital needs, as well
as a down payment toward the purchase of an option on one of the proposed
acquisitions. In addition, the Company has continually used, rather than
provided, cash in its operations. Consistent with these facts, the
accompanying report from Brown Smith Wallace, L.L.C., the Company's
independent registered public accounting firm, includes the comment that
there is substantial doubt about the Company's ability to continue as a
going concern.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown in
the accompanying balance sheet is dependent upon profitable operations of
the Company, which in turn is dependent upon the Company's ability to meet
its financing requirements on a continuing basis, to maintain present
financing, and to succeed in its future operations. The financial
statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or amounts and classification
of liabilities that might be necessary should the Company be unable to
continue in existence.
The Company has incurred, and continues to incur, losses from operations.
For the years ended December 31, 2005 and 2004, the Company incurred net
losses of $7,342,210 and $3,175,458, respectively. During those years the
Company implemented strategies to reduce its cash used in operating
activities. The Company's strategy included a targeted reduction of the
employee workforce, increasing the efficiency of the Company's processes,
focusing development efforts on products with a greater probability of
commercial sales, reducing professional fees and discretionary
expenditures, and negotiating favorable payment arrangements with
suppliers and service providers.
-7-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note B - Continuance of Operations (Continued)
To date, the Company has financed its operations primarily through private
equity (primarily through existing stockholders) and debt financings. The
Company believes that it does not have sufficient funds to operate its
business through the end of 2006. However, the Company has an outstanding
commitment from a private equity investor to infuse approximately
$1,000,000 amount of capital, through a convertible debenture and
accompanying registration statement to register the converted shares and
warrants with an interest rate above market rates. Assuming the Company is
able to close this transaction, it is expected that the Company will be
able to increase its purchases of base oil and other products. This should
also increase Company sales and generate more revenue to service its
current operations and debt structure.
Note C - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Triton
Petroleum Group, Inc. and its wholly owned subsidiary, American Petroleum
Products Company (the "Company") after elimination of significant
intercompany transactions and accounts.
Revenue
Revenue is earned and recognized when the product title passes from the
Company to the buyer. Depending on the shipping contract (FOB shipping
point/FOB destination), revenue is recognized and earned when the product
is delivered and accepted by the buyer.
Trade Receivables
Concentration of credit risk with respect to receivables, which are
unsecured are generally limited due to the wide variety of customers and
markets using the Company's products, as well as their dispersion across
many geographic areas. The Company maintains allowances for potential
credit losses, and such losses have been minimal and within management's
expectations. The allowance for doubtful accounts is estimated based on
various factors including revenue, historical credit losses and current
trends.
Inventory
Inventory consisted of primarily raw materials (oil, additives and
packaging material) and is valued at the lower of cost or market applied
on a first-in, first-out basis.
-8-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note C - Summary of Significant Accounting Policies (Continued)
Use of Estimates in Financial Statement Preparation
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could vary from the estimates that were used.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Depreciation
Depreciation of equipment is computed using the straight-line method over
3 to 10 years for financial statements and income tax reporting purposes.
Advertising Costs
Advertising costs are expensed as incurred. Total advertising costs
charged to expense were $62,440 in 2005.
Income Taxes
The Company uses the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards, No. 109,
"Accounting for Income Taxes". Under this method, deferred taxes are
determined based on the estimated future tax effects of differences
between the financial statement and tax basis of assets and liabilities
given the provisions of the enacted tax laws. Valuation allowances are
recorded to reduce deferred tax assets when it is more likely than not
that a tax benefit will not be realized (see Note D).
Loss Per Share
The Company reports basic loss per share in accordance with the Statement
of Financial Accounting Standards No. 128, "Earnings Per Share". Basic
loss per share is computed using the weighted average number of shares
outstanding during the period. Diluted loss per share reflect per share
amounts that would have resulted if dilutive potential common stock had
been converted to common stock. The following reconciles amounts reported
in the financial statements:
-9-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note C - Summary of Significant Accounting Policies (Continued)
Loss Per Share (Continued)
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
For the year ended December 31, 2005:
Loss from continued operations -
Basic earnings per share (7,342,210) 11,833,088 ($0.62)
Effect of dilutive securities
Warrants 74,715 592,203
9% convertible notes payable 10,479 150,000
7% convertible notes payable 25,601 481,869
Diluted loss per share (7,231,415) 13,057,160 ($0.55)
For the year ended December 31, 2004:
Loss from continued operations -
Basic earnings per share (3,175,458) 1,965,414 ($1.62)
Diluted loss per share (3,175,458) 1,965,414 ($1.62)
Stock-Based Compensation
The Company utilizes the fair value method of recording stock-based
compensation of employees and others for services rendered, applied on the
prospective method. The prospective method requires expense to be
recognized for all awards granted and vested during the period.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, and accrued expenses approximate fair value because of
the short maturity of those instruments. At December 31, 2005 and 2004,
the Company estimates that the fair value of its notes payable are not
materially different from its financial statement carrying value, except
for the liability for stock borrowings as of December 31, 2004. (see Note
G) and the advance to Oilmatic Systems, LLC (see Note F).
-10-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note C - Summary of Significant Accounting Policies (Continued)
New Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an
amendment of ARB No. 43, Chapter 4." This statement amends the guidance in
Accounting Research Bulletin (ARB) No. 43, Chapter 4, "Inventory Pricing,"
to clarify the accounting for abnormal amounts of idle facility expense,
freight, handling costs and wasted material (spoilage) and requires that
those items be recognized as current-period charges regardless of whether
they meet the criterion of "so abnormal." The statement also requires that
allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. The provisions
of this statement are effective for inventory costs incurred during fiscal
years beginning after June 15, 2005 (as of January 1, 2006 for the
Company) and are to be applied prospectively. The Company does not expect
adoption of SFAS No. 151 to have a material effect on its results of
operations or financial position.
The weighted average interest rates on short-term borrowings outstanding
were 4% and 7.2% for 2005 and 2004, respectively.
In June 2005, the FASB issued SFAS No. 154 "Accounting Changes and Error
Corrections" ("SFAS No. 154"), which will require entities that
voluntarily make a change in an accounting principle to apply that change
retrospectively to prior periods' financial statements, unless such
retrospective application would be impracticable. SFAS No. 154 supersedes
Accounting Principles Board Opinion No. 20, Accounting Changes ("APB No.
20"), which previously required that most voluntary changes in accounting
principle be recognized by including in the current period's net income
the cumulative effect of changing to the new accounting principle. SFAS
No. 154 also makes a distinction between "retrospective application" of an
accounting principle and the "restatement" of financial statements to
reflect the correction of an error. Another significant change in practice
under SFAS No. 154 will be the requirement that if an entity changes its
method of depreciation, amortization, or depletion for long-lived,
non-financial assets, the change must be accounted for as a change in
accounting estimate. Under APB No. 20, such a change would have been
reported as a change in accounting principle. SFAS No. 154 applies to
accounting changes and error corrections that are made in fiscal years
beginning after December 15, 2005 and will have an effect on the Company
to the extent the Company makes an accounting change or corrects an error.
-11-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note C - Summary of Significant Accounting Policies (Continued)
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" (SFAS No. 123R). This statement requires that the
compensation cost relating to share-based payment transactions be
recognized in the financial statements. Compensation cost is to be
measured based on the estimated fair value of the equity-based
compensation awards issued as of the grant date. The related compensation
expense will be based on the estimated number of awards expected to vest
and will be recognized over the requisite service period (often the
vesting period) for each grant. The statement requires the use of
assumptions and judgments about future events and some of the inputs to
the valuation models will require considerable judgment by management.
SFAS No. 123(R) replaces FASB Statement No. 123 (SFAS No. 123),
"Accounting for Share-Based Compensation," and supersedes APB Opinion No.
25, "Accounting for Stock Issued to Employees." The provisions of SFAS No.
123(R) are required to be applied by public companies that do not file as
small business issuers, as of the first interim or annual reporting period
that begins after June 15, 2005, and all other public companies as of the
first interim or annual reporting period that begins after December 15,
2005.
On April 14, 2005, the SEC adopted a new rule amending the effective date
for Statement 123(R). The amended rule allows registrants to implement
Statement 123(R) as of the first annual period beginning after June 15,
2005, which is January 1, 2006 for the Company.
The Company applied APB Opinion No. 25 to equity-based compensation awards
until the effective date of SFAS No. 123(R). At the effective date of SFAS
No. 123(R), the Company used the modified prospective application
transition method without restatement of prior interim periods in the year
of adoption. This will result in the Company recognizing compensation cost
based on the requirements of SFAS No. 123(R) for all equity-based
compensation awards issued after the effective date of this statement with
respect to the Company. For all equity-based compensation awards that are
unvested as of that date, compensation cost will be recognized for the
unamortized portion of compensation cost. At December 31, 2005, the
Company had no outstanding awards or formal plan.
-12-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note C - Summary of Significant Accounting Policies (Continued)
Impairment of Long Lived Assets
The Company evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful life of long lived assets may
warrant revision or that the remaining balance of an asset may not be
recoverable. The measurement of possible impairment is based on the
ability to recover the balance of assets from expected future operating
cash flows on an undiscounted basis. In the opinion of management, no such
impairment existed at December 31, 2005. See Note F concerning impairment
of goodwill.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current year presentation.
Note D - Income Taxes
Deferred Tax Assets
The Financial Accounting Standards Board issued Statement No. 109 in
Accounting for Income Taxes ("FAS 109") which is effective for fiscal
years beginning after March 15, 1992. FAS 109 requires the use of the
asset and liability method of accounting for income taxes. Under the
assets and liability method of FAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
temporary differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
The following table summarizes the significant components of the Company's
deferred tax assets:
2005 2004
----------- -----------
Gross deferred tax assets (non-capital loss carryforward) $ 6,830,000 $ 4,365,000
Valuation allowance for deferred tax asset (6,830,000) (4,365,000)
----------- -----------
$ -- $ --
=========== ===========
-13-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note D - Income Taxes (Continued)
Income Taxes
No provision for income taxes has been provided in these consolidated
financial statements due to the net loss. At December 31, 2005, the
Company has net operating loss carryforwards, which expire commencing in
2022, totaling approximately $19,899,548 the benefit of which has not been
recorded in the financial statements due to the future uncertainty of the
generation of earnings by the Company.
Note E - Non-Cash Transactions and Supplemental Information
Investing and financing activities that do not have a direct impact on
current cash flows are excluded from the cash flow statement.
On July 1, 2005, TPG acquired the operating assets of Triton Petroleum,
LLC ("Triton"). Triton is operated as a division of TPG. On the Payment
Date, which shall be the one year anniversary of the effectiveness of the
Agreement, that being July 1, 2006, , the Registrant shall pay to the
Sellers the Purchase Price equal to three and one half (3.5) times the net
earnings of the assets and operations formerly owned by Triton. The
Purchase Price is to be paid as: (a) twenty-five percent (25%) in cash on
the payment date, and (b) with the balance of seventy-five percent,
payable over the following two years, in cash and stock, as agreed to by
the parties. In addition, current loans to Triton, totaling approximately
three hundred thousand dollars ($300,000), due and owing to the members of
Triton, shall be paid over the twelve months from the Closing date to the
Payment Date. It is anticipated that the total purchase price will be
approximately $300,000, plus the net book value of the assets acquired in
the amount of $230,625, at the time of payment, July 1, 2006. The assets
purchased include the right to the name, Triton Petroleum, all operations
and assets, including any leases, or sub-leases.
Triton purchases used oil from various consolidators of used petroleum
such as gear oil, machine oils, etc. that have never been burnt before. It
then transports the un-combusted, but unrefined oils back to its
reclamation facility in Detroit, Michigan, for refining. After a very
detailed reclamation process, all impurities and contaminants are
extrapolated out of the oil, through Triton's centrifuge operation, thus
leaving it with a renewable petroleum base oil. This base oil can be
blended with new crude and other chemical components and bottled in our
Bedford Park, Illinois facility. Using the renewable oils from Triton
Petroleum will drastically reduce American Petroleum Products Company's
(APPC) cost of base oil by 35%, and management feels that the acquisition
of the assets of Triton petroleum, making APPC its only customer, will be
an advantage with respect to earnings.
-14-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note E - Non-Cash Transactions and Supplemental Information(Continued)
The results of operations from July 1, 2005 are included in the
consolidated financial statements. Such operations have been minimal, with
no sales being recorded during the period. Plant acquired has been
reported as idle plant on the accompanying consolidated balance sheet.
A condensed balance sheet of the net assets acquired, as of the
acquisition date, is as follows:
Current assets $ 11,380
Idle plant 152,239
Other assets 10,000
Goodwill 312,807
--------
$486,426
========
Notes payable $356,432
Advances from TPG 62,591
Other current liabilities 67,403
--------
$486,426
========
Because the plant has been significantly idle since acquisition, no pro
forma or prior period financial statements have been included.
Because the Company has not been able to operate the assets acquired and
is unable to demonstrate the ability to do so, goodwill has been recorded
as impaired during the year ended December 31, 2005.
In 2006, the Company recorded a termination expense with respect to the
termination of its former President and has issued 200,000 common shares
at $2.35 per share to satisfy the total liability which includes the
termination expense, unpaid management fees and unpaid advances to the
Company (see Note I).
During 2004, the Company entered into a business combination and acquired
certain operating assets of APPC in exchange for Company stock (see Note
F).
During 2005, the Company authorized an exchange of its preferred stock
outstanding (3,677,500 shares) for 1,838,750 shares of common stock.
Interest in the amount of $1,304 was paid during the year ended December
31, 2005.
-15-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note F - Business Combinations
Business Acquisition Cancelled
On April 1, 2003, the Company entered into an agreement to acquire 100% of
the issued and outstanding shares of Pascal Energy, Inc., a Canadian
corporation, by the issuance of 273,750 common shares post split,
restricted under Rule 144 of the Securities and Exchange Act and at a
later date, issue an additional 273,750 common shares post split,
restricted under Rule 144 of Securities and Exchange Act, subject to the
Company paying not less than $1,000,000 in accumulated dividends to its
shareholders of record. Pascal Energy, Inc.'s business is to provide
servicing for the oil and gas industry.
The Company has determined that the transaction cannot be completed due to
the inability to complete a comprehensive due diligence. Therefore, the
shares previously outstanding were returned to the treasury of the Company
on February 25, 2004.
"TSG" Acquisition
On October 9, 2003, the Company acquired an option for $500,000 to
purchase the assets and certain liabilities of Tri-State Stores, Inc., an
Illinois Corporation ("Tri-State"), GMG Partners LLC, an Illinois Limited
Liability Company ("GMG"), and SASCO Springfield Auto Supply Company, a
Delaware Corporation ("SASCO"). Tri-State, GMG and SASCO are collectively
referred to herein as "TSG." Upon exercise of the option, the Company was
to pay $3,000,000 and assume certain liabilities, not exceeding $700,000.
TSG is involved in the automotive after market. During the first quarter
of 2004, the Company elected not to continue to pursue this acquisition.
The contractual amount of the option was never fully paid, however,
amounts advanced for the option purchase and associated acquisition
expenses resulted in an $185,000 charge to operations for the year ended
December 31, 2003 and $10,000 for the year ended December 31, 2004. There
have been no further dealings, discussions or transactions occurred
related to this matter.
Motor Parts Waterhouse, Inc.
The Company issued 500,000 shares post split of common stock for an option
to acquire all the outstanding stock of Motor Parts Warehouse, Inc.
("MPW"), of St. Louis, Missouri. In order to exercise the option, the
Company must issue an additional 500,000 shares post split of common stock
to the shareholders of MPW and pay $2,200,000. This MPW option cannot be
exercised until after the refinancing of the TSG debt of approximately
$3,000,000. MPW is also an auto parts distributor. As a result of the
financing not being completed, the Company elected not to continue to
pursue this acquisition. There have been no further dealings, discussions
or transactions occurred related to this matter.
-16-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note F - Business Combinations (Continued)
Oilmatic Systems, LLC
On December 3, 2004, the Registrant entered into a Letter of Intent, dated
December 1, 2004, with Oilmatic Systems LLC of East Orange, New Jersey,
whereby the Registrant would purchase Oilmatic Systems LLC and/Oilmatic
International, Inc., for shares of common stock of the Registrant. It was
anticipated that the transaction would close after the end of the first
fiscal quarter of 2005. While there was no assurance the transaction would
close, the Company was confident that the parties will execute definitive
agreements as scheduled. Effective May 20, 2005, Management of the
Registrant no longer felt that the mutual goals of both parties were
attainable and therefore the proposed transaction with Oilmatic was
cancelled between the parties. There have been no further dealings,
discussions or transactions occurred related to this matter.
Oilmatic Systems, LLC was advanced interest free a total of $300,000 by
the Company. The Letter of Intent stated that in the event that the
proposed transaction did not close, the money advanced was to be
considered an interest free loan to Oilmatic, and repaid nine-months after
being advanced. No provision for interest accrual has been made. We have
made repeated demands for the re-payment of the loan. To date, we have not
been able to collect the money due, however, management believes the
advance will ultimately be collected.
American Petroleum Products Company
On October 9, 2003, the Company also entered into a Stock Purchase
Agreement ("Alliance Agreement") with Alliance Petroleum Products Company,
now known as American Petroleum Products Company ("Alliance"), an Illinois
Corporation, and a Rider to the Alliance Agreement ("Rider"). Alliance is
in the business of blending and bottling motor oil and anti-freeze. Under
the Alliance Agreement, the Company issued 1,250,000 shares of post split
common stock for 100% of the issued and outstanding shares of the common
stock of American (757,864 common shares). An additional 1,250,000 shares
of post split common stock of the Company was issued to Worldlink
International Network, Inc. In addition, under the terms of the Rider, the
Company was required to provide funding of at least $3,500,000 to pay
Harris Bank, a secured creditor of Alliance, as a condition of the
transaction. This was a material contingency to the transactions and as a
result had to be resolved prior to recognition of a business combination.
On June 24, 2004 (effective date July 1, 2004) the Company ("Prelude") now
known as Triton Petroleum Group, Inc., ("AMPE") and Alliance Petroleum
Products Company, entered into an Amendment to the original Alliance
Agreement, dated October 9, 2003, whereby all previous conditions and
contingencies were deemed to have been completed or waived. Therefore, the
Company assumed the operations of the subsidiary. However, after a change
of management took place in September 2004, the current management refused
to recognize the obligation to pay certain amounts arising from other non
Company obligations and third party agreements.
-17-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note F - Business Combinations (Continued)
American Petroleum Products Company (Continued)
The Company has paid no rent or compensation of any type to the entities
that claim to have legal title to the operating assets of APPC. Management
has taken the position that since there was no contract or agreement to
purchase the assets or for the payment of rentals for these assets,
therefore nothing is owed. The consolidated operations for the period
since APPC was acquired, contain $90,000 of accrued rent for compensation
for use of the facilities. The owner (and former President of the Company
and major shareholder) of the entity that owns the real estate is claiming
a monthly rental amount of $15,000. The Company has been in discussion
with the owner of the real estate and has a tentative agreement that is
not yet fully agreed upon. The terms under discussion include the purchase
of the real estate for approximately $1,900,000 and $185,000 for
additional back-rent and other capital debt claimed by the owner. This is
a contingency relating to the business combination that could potentially
result in an adjustment of the purchase price of APPC and additional
charges to the Company's operations.
The operations of APPC have been consolidated with the results of TPG
since July 1, 2004.
The aggregate acquisition price was $856,200, which consisted of 1,000,000
of the Company's common stock valued at $0.60 and cash advances
outstanding to Company at the time of consummation of the transactions.
The value of the stock was determined based on the approximate average
market price of the shares on August 11, 2004 (change in control date) and
discounted for factors such a limited market for the stock.
Following is a condensed balance sheet showing the fair values of the
assets acquired and the liabilities assumed as of the date of acquisition:
Current assets $ 516,734
Property and equipment 3,068
Goodwill arising in the acquisition 803,615
----------
$1,323,417
==========
Current liabilities $ 341,642
Current maturities of long-term debt 125,575
Net assets acquired 856,200
----------
$1,323,417
==========
-18-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note F - Business Combinations (Continued)
American Petroleum Products Company (Continued)
The Company acquired only minimal property, plant and equipment in the
transaction; APPC does not have title to these production assets.
Additionally, no expense including depreciation has been recognized during
the year ended December 31, 2005, and the six months ended December 31,
2004, for compensation for the use of the machinery and equipment to a
corporation representing the predecessor operation to APPC and to an
entity that owned the real estate. The predecessor company was owned by
the former officers of APPC who are also stockholders and directors of the
Company; the real estate company is owed by the former president and a
major stockholder of the Company; The assets of these entities secure
obligations to Harris Bank as a result of certain transactions entered
into by the predecessor company, the real estate company or their owners.
A security interest had been entered into to as a result of these prior
lending activities with appropriate lien filed and personal guarantee of
the principals, some who are currently officers of the Company or APPC.
Harris Bank has threatened foreclosure if the prior borrowers can not
reach terms allowing the bank to forebear the defaults. (See Note K)
Goodwill (excess of purchase price over net assets acquired) of $803,615
arising in the above described acquisition had been recognized at the time
of purchase. Subsequently, management determined that the goodwill value
was totally impaired as APPC is operating on a negative cash flow basis
and, therefore, the recoverability of the asset is uncertain and was fully
written off in December 31, 2004.
Pro Forma Information
On July 1, 2004, the Company purchased 100% of the voting stock of APPC.
Results of operations for APPC are included in the consolidated financial
statements since that date. The acquisition was made for the purpose of
the reasons as stated above. Following are pro forma amounts assuming that
the acquisition was made on January 1, 2004:
Net sales $ 1,487,007
Cost of good sold 1,217,846
-----------
Gross profit 269,161
Expenses 3,836,886
-----------
Net income (loss) $(3,567,725)
===========
Loss per share:
Basic $ 1.82
===========
-19-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note G - Notes Payable to Stockholders
The Company entered into a stock borrowing arrangement whereby several
stockholder/officers of the Company transferred approximately 1,000,000
shares pre-split or 50,000 shares on a post split basis of common stock
into an escrow account. The shares were subsequently sold with the
proceeds of $500,000 being transferred to the Company. The Company was
obligated to return the shares to the original holders by April 2005. This
obligation was subsequently extended.
The shares were returned on December 30, 2005. 50,000 post-reverse split
shares were issued with a value of $7,500 ($0.15 per share)
The Company entered into a transaction with Cornell Capital Partners LP
and Highgate House Funds, Ltd., dated March 8, 2005, whereby the Company
entered into a Convertible debenture for a total amount of $500,000 at 7%
interest. The Note is convertible into 588,235 shares of common stock at a
conversion price of $0.85 per share, at the option of the Lender. At the
same time, the Company entered into with Cornell Capital Partners LP a
total Standby Equity Distribution Agreement for up to $10,000,000 equity
line. Upon the completion of a financing currently under negotiation with
a private equity group (See Note B), the Company can fund our agreed upon
resolution and repay the obligations to Cornell Capital Partners LP and
Highgate House Funds, Ltd. However, if such new financing fails, the
Company will be unable to complete our settlement agreement with Cornell
Capital Partners LP and Highgate House Funds, Ltd. In such a case, the
Company has been informed that Cornell Capital Partners LP and Highgate
House Funds, Ltd. will institute litigation to foreclose on the security
issued to them and to seek full payment with interest and penalties. Such
litigation would be significant and materially affect the Company.
Note H - Related Party Transactions
Payroll Services
The Company had its payroll processed though a "professional employer
organization" owned by a publicly traded corporation that has common
shareholders, directors and officers. This company processed $801,225 of
payroll, taxes and benefits, along with an administration fee of $49,350.
Included in accounts payable at December 31, 2005 and 2004 is a balance
due for these services of $38,214 and $113,858, respectively.
Expense Reimbursements
The Company reimburses Company officer/directors for travel, office and
other expenses. In addition, certain officers make temporary advances.
Accounts Payable includes $8,879 and $14,987 of advances of these types
for the years ended December 31, 2005 and 2004.
-20-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note H - Related Party Transactions (Continued)
Due Alpha Advisors
A professional services agreement dated October 9, 2003 was entered into
with Alpha Advisors, LLC for a term of one year and renewable for an
additional year. Alpha Advisors LLC is an entity owned by
stockholders/directors/officers of the Company. The fee for these services
was the issuance of 50,000 shares of post split common stock of the
Company upon execution of the agreements, $25,000 due at signing of the
Tri-State Stores and American Petroleum Group, Inc. agreements and $6,000
payable on the first of each month thereafter. In addition, a finder's fee
of 10% of any new financing was to be paid on funds being committed.
Accounts Payable includes $31,000 of such amounts due as of December 31,
2004. The Company and Alpha are currently in the process of converting the
debt into equity based upon a discount of 80% from the market price.
Operating Assets
The operations of APPC are performed in a plant owned by the former
President and current shareholder of the Company. The Company does not
have a lease and is presently not paying rent for this property due to a
dispute with the former President (see Notes F and L).
Note I - Related Party Loans Payable to Officers/Stockholders
Interest 2005 2004
Warrants Rate Amount Amount
-------- -------- ---------- --------
Richard Carter 150,000 8% $ 148,500 $ 6,000
Ronald Shapps 250,000 8% 350,000 200,000
Michael Cahr 100,000 8% 100,000 100,000
Michael S. Krome -- 8% 20,000 --
James W. Zimbler -- 7% 6,000 --
Warren Field 50,000 8% 50,000 50,000
Keystone Nittany Ventures -- 8% 177,585 113,354
Malibu Management Company 16,000 8% 16,000 16,000
Jeff Neiman 50,000 8% 50,000 --
John Neistrom 20,000 8% 20,000 --
Ronald Ruble 30,000 8% 30,000 --
APPC Finance Network -- 8% 184,000 35,000
------- ---------- --------
Total 666,000 $1,152,085 $520,354
======= ========== ========
These warrants are exercisable at $0.01 per common share.
-21-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note I - Related Party Loans Payable to Officers/Stockholders (Continued)
New Century Capital Consultants, Inc.-Note Payable
The Company on March 16, 2004 entered into a convertible unsecured
revolving promissory note agreement with New Century Capital Consultants,
Inc. The lender is a stockholder in the Company via compensation it
received (see Note H). The agreement allows for borrowings up to $500,000
of which $50,000 has been advanced currently. Interest accrues at the rate
of 9% per annum payable along with the any outstanding principle balance
on March 16, 2005, unless the note is in default. The lender may convert
the principal amount and any accrued interest into common stock of the
Company based upon a formula equal to 40% below the closing bid price of
the stock starting after six months from execution of this agreement
(150,000 shares at December 31, 2005). Additionally, on a one time basis
the lender upon written demand after the six months can require the
Company to prepare and file a registration statement under the Securities
and Exchange Act of 1933 for an offering of up to 1,000,000 shares. Also,
the agreement allows for "piggyback registration" rights in that the
Company must notify the lender and allow the lender to register its shares
if the companies file such a registration statement. The agreement
contains events of default such as bankruptcy, insolvency, defaults or
rendering of judgments on indebtedness in excess of $75,000 on from any
other lender. Additionally, the agreement contains certain covenants as
prohibition of payment of dividends, retirements or redemptions of capital
stock, or the transfer of material assets of the Company. Upon these acts
of defaults, the entire amount of principal and interest is immediately
due, and interest accrues at a rate of 15% per annum.
On October 18, 2004, the Company received notice from the lender that, in
its opinion, the Company was in default on the arrangement as a result of
distributions to classes of equity holders and possibly transfer of
material assets. The lender has made assertions about misappropriation of
corporate funds. Management of the Company finds these assertions as
unfounded and the Company is in compliance with the terms of the
agreement. Discussions regarding the resolution are continuing.
Keystone Nittany Ventures, Malibu Management Company and APPC Financial
Network
Keystone Nittany Ventures, Inc. (Keystone) and Malibu Management Company
(Malibu) are corporations owned by the President of the Company who is
also a director and a major shareholder. APPC Financial Network ("AFN") is
a corporation owned by a Vice President of the Company who is also a
director and shareholder. Keystone, Malibu and AFN have from time-to-time
made advances to the Company. The loans are unsecured due on demand and
call for interest of 8% per annum.
-22-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note I - Related Party Loans Payable to Officers/Stockholders (Continued)
Former President
In 2004, the $142,915 recorded by the Company represents the estimated
fair value of the liability of the amount assumed at the time of purchase
of APPC. It appears that the liability represents funds advanced for
working capital. The $90,000 recorded by the Company in 2005 represents
rent payable to the former president. The obligations are unsecured, have
no terms for repayment, and are non-interest bearing. As a result of other
contingencies related to the purchase of AAPC, the final settled amount of
these liabilities could be significantly different from the present
recorded amounts.
Other Stockholders
Warren Field, Rick Carter, Michael Cahr and Ron Shapps are related to the
Company by virtue of being stockholders. The loans payable are unsecured,
due on demand, and accrue interest of 8% per annum. Certain notes have
provisions including warrants to purchase additional common shares at $.01
per share.
Note J - Other Notes Payable
The Company is indebted to outside parties as of December 31, 2005 as
follows:
7.06% note payable to bank in monthly
installments of $1,798, unsecured and
in default due to non-payment $59,718
15% note payable to bank, due on
demand, unsecured 491
7.95% note payable, unsecured 2,735
12.15% note payable, unsecured 14,223
-------
$77,167
=======
-23-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note K - Stockholders' Equity
On January 27, 2004, the Company entered into a manufacturing agreement
with the shareholders of International Pit Crew Express, Inc. ("IPC"), a
Texas corporation, to acquire the exclusive right to manufacture petroleum
products for IPC's customers within the United States, including the
United States convenience store industry. As consideration for these
rights, the Company issued 700,000 shares post split of common stock on
April 2, 2004 to the shareholders of IPC. Additionally, the Company is to
provide one half of the funds necessary for the purchase of machinery, and
all related parts, supplies, and installation costs.
In conjunction with the change of control of the Company on August 11,
2004, 649,375 shares post split of common and 2,527,500 shares of
preferred stock were issued to newly elected officers of the Company. The
Company recognized the issuance as compensation expense of $1,516,500 for
the year ended December 31, 2004. The value was based upon the closing
price of the stock as quoted on the "electronic bulletin board market" on
August 11, 2004. Series A Preferred Stock is convertible at a ratio of one
share of Series A Preferred Stock to .5 shares of common stock. In
addition, the Company entered into certain compensation agreements with
these newly elected officers (see Note I).
The Company in connection with its compensation agreement with its
Chairman of the Board of Directors issued 75,000 shares of common stock,
and 150,000 shares of Series A preferred stock, to Ronald Shapss as part
of his compensation for accepting the position in, January 2005. The
Company thereafter issued 500,000 shares of common stock, and 1,000,000
shares of Series A preferred stock, to Ronald Shapss as part of his
compensation for accepting the position of Chairman of the Board of
Directors, on February 15, 2005.
On September 22, 2005, the Company issued common stock shares to various
employees, Officers and/or Directors, of the Company and others. The
shares were issued to the stockholders for the repayment of certain debt,
payment for services rendered and compensation for employees and
consultants, as follows:
Shares Issued
-------------
James W. Zimbler 500,000
Ronald Shapss 500,000
Richard Carter 500,000
Elliot Cole 75,000
Michael S. Krome 150,000
Alpha Advisors, LLC 113,750
George Campbell 250,000
James Carroll 150,000
-24-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note K - Stockholders' Equity (Continued)
Rose Tarasiuk 50,000
Jeff Neiman 50,000
Michael Cahr 100,000
Note L - Commitments and Contingencies
Compensation Agreements
In August 2004, the Company entered into a compensation agreement with Mr.
William Bossung for the position of Vice President of Corporate Finance
and a Director of the Company through December 2005 with a one year
renewal.
Compensation included fees of $100,000 per annum and the issuance of
common and preferred stock. The agreement was terminated by mutual
agreement on August 1, 2005
In August 2004, the Company entered into a compensation agreement with Mr.
Rick Carter for the position of Vice President through December 2005 with
a one year renewal. Compensation included fees of $80,000 per annum and
the issuance of common and preferred stock. The agreement was terminated
by mutual agreement on June 24, 2005
In August 2004, the Company entered into a compensation agreement with Mr.
James W. Zimbler for the position of President and a Director of the
Company through December 2005 with a one year renewal. Compensation
included fees of $144,000 per annum and the issuance of common and
preferred stock. The agreement was terminated by mutual agreement on
August 1, 2005 and Mr. Zimbler continued to provide consulting services to
the Company
Effective January 1, 2005, the Company entered into a compensation
agreement with Ronald Shapps for the position of Chairman of the Board of
Directors through December 31, 2005 with a one year renewal. Compensation
included fees of $144,000 and the issuance of common and preferred stock.
During 2005, certain stockholders were issued warrants in conjunction with
the issuance of promissory notes, see Note I.
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TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note L - Commitments and Contingencies (Continued)
Harris Bank
In conjunction with the Harris Bank attempting to collect their debt
against certain parties as indicated above in Note F, the bank is
requesting that the Company become a party to any forbearance as to
collection of the debt, such as becoming a guarantor or buying life
insurance for the original makers of the debt. The basis of their claims
is that the Company is using facilities that secure the original
borrowings. It is the opinion of management and counsel of the Company
that there is no basis for claims or commitments since neither APPC nor
TPG was not a borrower or a guarantor of the debt (management of APPC are
guarantors of the original debt based on their role as former
shareholders/officers of APPC before its acquisition by the Company). The
Company entered into negotiations with the bank and believes that it has
reached a tentative agreement to purchase the assets from the bank for a
total payment of $1,100,000 with payments amortized over 20 years, and a
five year payout schedule at an interest rate of 6%. The Company is
attempting to secure financing to purchase the operating assets being
utilized in the operations at fair value.
Compensation for Utilizing Operating Assets
As indicated in Note H, no rent or compensation of any type has been paid
to the entities that claim to have legal title to the operating assets of
APPC. Management has taken the position that since there was no contract
or agreement to purchase the assets or for the payment of rentals for
these assets, therefore nothing is owed. The consolidated operations for
the period since APPC was acquired do not contain any provision for
compensation for use of the facilities. The owner (and former President of
the Company and major shareholder) of the entity that owns the real estate
is claiming a monthly rental amount of $15,000. The Company has been in
discussion with the owner of the real estate and has a tentative agreement
that is not yet fully agreed upon. The terms under discussion include the
purchase of the real estate for approximately $1,900,000 and $275,000 for
back-rent and other capital debt claimed by the owner. This is a
contingency relating to the business combination that could potentially
result in a material adjustment of the purchase price of APPC and
additional charges to the Company's operations.
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TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note L - Commitments and Contingencies (Continued)
Amendment of American Petroleum Products Company Agreement
On June 24, 2004 (effective date July 1, 2004) the Company ("TPG") and
Alliance Petroleum Products Company, entered into an Amendment to the
original Alliance Agreement, dated October 9, 2003, whereby all previous
conditions and contingencies were deemed to have been completed or waived.
Therefore, the Company assumed the operations of the subsidiary. However,
after a change of management took place in September 2004, the current
management refused to recognize the obligation to pay certain amounts
arising from other non Company obligations and third party agreements.
Mining Lease
By a lease letter agreement effective March 9, 2001, and amended March 4,
2002 and September 4, 2002, the Company was granted the exclusive right to
explore, develop and mine the Medicine Project property located in Elko
County of the State of Nevada. The term of the lease was for 20 years,
with automatic extensions so long as the conditions of the lease are met.
During the year ended December 31, 2003, management of the Company
terminated the mining lease. As the Company terminated the lease, it was
required to pay all federal and state mining claim maintenance fees for
the current year. The Company is required to perform reclamation work on
the property as required by federal state and local law for disturbances
resulting from the Company's activities on the property. In the opinion of
management, there will be no continuing liability.
Termination
During 2003, the Company agreed to issue 10,000 common shares post split
to its former President for the settlement of management fees payable
($105,000), advances to the Company ($10,000) and termination expense
($355,000). The shares were valued at $2.35 per share, by prior
consultants. These shares were issued to the former President and were
accounted for as an addition to paid-in capital.
Operating Leases
The Company leases its Triton plant facility and certain equipment with
various base monthly rental amounts. The facility lease expires in 2008
and the equipment leases expire in 2008 and 2011. Lease expense under the
agreements totaled $53,190 for the year ended December 31,2005.
-27-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note L - Commitments and Contingencies (Continued)
Operating Leases (Continued)
Minimum lease payments on these leases by year, and in aggregate at
December 31, 2005, are as follows:
Year ending December 31,
------------------------
2006 $ 76,572
2007 76,572
2008 56,572
2009 22,056
2010 22,056
2011 11,866
--------
$265,694
========
Cornell Capital Partners LP and Highgate House Funds, Ltd.
The Company is currently in default of its obligations with respect to
Cornell Capital Partners LP and Highgate House Funds, Ltd., dated March 8,
2005. The Company and Cornell Capital Partners LP and Highgate House
Funds, Ltd. have reached a payment arrangement, contingent on the
completion of a financing agreement currently under negotiation with
another outside investor group. However, if such new financing fails, the
Company would be unable to complete the settlement agreement with Cornell
Capital Partners LP and Highgate House Funds, Ltd. (see Note G).
Note M- Quarterly Unaudited Financial Information
Quarterly unaudited financial information for the fiscal years ended
December 31, 2005 and December 31, 2004 was as follows:
Fiscal
March June September December Year
----------- ----------- --------- ----------- -----------
2005
Net sales $ 384,901 $ 380,147 $ 537,692 $ 662,590 $ 1,965,330
Gross profit 104,306 115,629 321,253 (29,284) 511,904
Operating loss (3,841,032) (1,115,352) (591,141) (1,836,917) (7,384,442)
Net loss (3,846,043) (1,140,014) (599,629) (1,756,524) (7,342,210)
Net loss per share
Basic, as previously reported (0.71) (0.11) (0.05) -- (0.62)
Basic, as restated (0.77) (0.11) (0.04) (0.001) (0.62)
Diluted, as previously reported -- -- -- -- --
Diluted, as restated (0.66) (0.10) (0.04) (0.09) (0.55)
-28-
TRITON PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
December 31, 2005
(See Independent Auditors' Report)
Note M- Quarterly Unaudited Financial Information (Continued)
Fiscal
March June September December Year
-------- --------- ----------- ----------- -----------
2004
Net sales $ -- $ -- $ 345,515 $ 511,657 $ 857,172
Gross profit -- -- 128,707 (4,257) 124,450
Operating loss (49,825) (101,372) (1,679,253) (506,425) (2,336,875)
Net loss (49,825) (102,347) (1,681,753) (1,341,533) (3,175,458)
Net loss per share
Basic (0.066) (0.004) (0.59) -- (1.62)
Diluted (0.066) (0.004) (0.59) -- (1.62)
Loss per share as previously reported was in error due to incorrectly
weighting of share issued.
-29-