|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
| ☐ | Preliminary Proxy Statement |
| ☐ | Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ☒ | Definitive Proxy Statement |
| ☐ | Definitive Additional Materials |
| ☐ | Soliciting Material under Rule 14a-12 |
HOUSTON AMERICAN ENERGY CORP.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| ☒ | No fee required |
| ☐ | Fees paid previously with preliminary materials |
| ☐ | Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11 |
HOUSTON AMERICAN ENERGY CORP.
801 Travis St., Suite 1425
Houston, Texas 77002
April 11, 2025
Dear Stockholder:
We cordially invite you to attend a special meeting of stockholders of Houston American Energy Corp. (HUSA, the Company, we, us, or our), which will be held virtually at 10:00 am Central Daylight Time on April 24, 2025. There will not be a physical meeting location. The virtual meeting url is www.virtualshareholdermeeting.com/HUSA2025SM . Stockholders as of the record date may participate in the meeting online, vote, or submit questions by visiting the meeting website and logging in with the control number on their proxy card or voting instruction form.
The board of directors of HUSA (the Board) has approved a Share Exchange Agreement dated as of February 20, 2025 (as amended from time to time, the Share Exchange Agreement) by and among HUSA, Abundia Financial, LLC, a Delaware limited liability company (Abundia Financial), and Bower Family Holdings, LLC, a North Carolina limited liability company (BFH, and together with Abundia Financial, the AGIG Unitholders). The AGIG Unitholders are the record and beneficial owners of all the issued and outstanding units of Abundia Global Impact Group, LLC, a Delaware limited liability company (AGIG). Under the terms of the Share Exchange Agreement, HUSA will acquire all of the outstanding units of AGIG in exchange for their pro rata portion of a number of shares of common stock, par value $0.001 per share, of HUSA (the Common Stock) equal to 94% of all the issued and outstanding common stock of HUSA at the time of the closing of the Share Exchange Agreement (the Share Exchange). Based on the number of shares of Common Stock outstanding as of April 3, 2025, the Share Exchange would require the issuance of 245,755,684 shares of Common Stock. The Share Exchange is subject to customary closing conditions, including the condition that our stockholders approve the Share Exchange Agreement. As a result of the Share Exchange, Abundia Financial will own approximately 84.6% of the Common Stock. As a result, HUSA will be a controlled company within the meaning of the corporate governance standards of the NYSE American rules. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance requirements, as disclosed in the enclosed proxy statement.
In addition, pursuant to the Share Exchange Agreement, we are also seeking approval of stockholders to amend and restate HUSAs Amended and Restated Certificate of Incorporation to conduct a reverse split of Common Stock as required to meet the NYSE American listing standards and increase the amount of our authorized Common Stock to 300,000,000 shares to facilitate the Share Exchange.
We will hold the special meeting of the stockholders to vote on these matters. The Board also asks that you approve a proposal to approve an adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the foregoing proposals. Please refer to the enclosed proxy statement for detailed information on the proposals and other important information about HUSA, AGIG, and the Share Exchange.
We hope you will be able to attend the special meeting, but we understand that not every stockholder will be able to do so. Whether or not you plan to attend, please complete, sign and return your proxy, or vote by telephone or via the Internet according to the instructions on the proxy card, so that your shares will be voted at the special meeting.
| Sincerely, | |
| STEPHEN HARTZELL | |
| Chairman of the Board |
HOUSTON AMERICAN ENERGY CORP.
801 Travis St., Suite 1425
Houston, Texas 77002
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
April 11, 2025
Dear Stockholder:
Please join us for the special meeting of stockholders (the special meeting) of Houston American Energy Corp. (HUSA or the Company), which will be held virtually at 10:00 am Central Daylight Time on April 24, 2025. There will not be a physical meeting location. The virtual meeting url is www.virtualshareholdermeeting.com/HUSA2025SM . Stockholders as of the record date may participate in the meeting online, vote, or submit questions by visiting the meeting website and logging in with the control number on their proxy card or voting instruction form. We encourage you to join us and participate online. We recommend that you log in a few minutes before 10:00 am, Central Daylight Time, on April 24, 2025 to ensure you are logged in when the special meeting starts. You will not be able to attend the special meeting in person.
The purposes of the special meeting are:
| 1. | To approve, in accordance with Sections 712 and 713 of the Rules of the NYSE American LLC Company Guide, the issuance of a number of shares of common stock, par value $0.001 per share, of HUSA (the Common Stock) equal to 94% of all the issued and outstanding common stock of HUSA at the time of the closing under that certain Share Exchange Agreement dated as of February 20, 2025 (as amended from time to time, the Share Exchange Agreement), by and among HUSA, Abundia Financial, LLC, a Delaware limited liability company, (Abundia Financial) and Bower Family Holdings, LLC, a North Carolina limited liability company (BFH and, together with Abundia Financial, the AGIG Unitholders) (such proposal, the Issuance Proposal); | |
| 2. | To approve and adopt an amendment to the certificate of incorporation of HUSA (as amended, the Charter), to effect a reverse stock split of all of the outstanding shares of Common Stock, at a ratio in the range of 1-for-5 to 1-for-60, with such ratio to be determined by the Board of Directors of HUSA (the Board, and such proposal, the Reverse Stock Split Proposal); |
| 3. | To approve and adopt an amendment to the Charter to increase the number of authorized shares of Common Stock that may be issued from 20,000,000 to 300,000,000 (the Share Increase Proposal); and | |
| 4. | To approve the adjournment of the special meeting, to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies if there are insufficient votes at the time of the special meeting to approve the Reverse Stock Split Proposal, the Issuance Proposal, or the Share Increase Proposal (the Adjournment Proposal). |
These items of business are more fully described in this proxy statement.
The Board has approved the Share Exchange Agreement and the other agreements and transactions contemplated by the Share Exchange Agreement and determined that the Share Exchange Agreement and the other agreements and transactions contemplated by the Share Exchange Agreement, are advisable and in the best interests of HUSA and its stockholders and unanimously recommends that HUSA stockholders vote FOR the adoption and approval of the Issuance Proposal and FOR each of the other proposals listed above, including the Adjournment Proposal, if necessary, to solicit additional proxies in favor of the Issuance Proposal or other proposals.
Only stockholders of record at the close of business on February 25, 2025 will be entitled to vote at the special meeting and any and all adjourned sessions thereof. Our stock transfer books will remain open.
Your vote is very important. To ensure that your vote is recorded promptly and to avoid the unnecessary waste of company resources seeking stockholder votes, PLEASE VOTE YOUR SHARES as soon as possible. If you are a stockholder of record, please complete, sign and mail the proxy card in the enclosed postage-paid envelope. If your shares are held in street name, that is held for your account by a broker or other nominee, you will receive instructions from the holder of record that you must follow for your shares to be voted.
In the event of a change in the time, date or meeting website of the special meeting, we will make an announcement, issue a press release or post information on the Investors Overview section of our website at www.houstonamerican.com to notify stockholders, as appropriate. Information on or accessible through our website is not incorporated by reference in this proxy statement.
THE BOARD UNANIMOUSLY RECOMMENDS THAT HUSA STOCKHOLDERS APPROVE THE ISSUANCE PROPOSAL, THE REVERSE STOCK SPLIT PROPOSAL, THE SHARE INCREASE PROPOSAL, AND THE ADJOURNMENT PROPOSAL.
| By Order of the Board of Directors, | |
| STEPHEN HARTZELL | |
| Chairman |
TABLE OF CONTENTS
| i |
HOUSTON AMERICAN ENERGY CORP.
801 Travis St., Suite 1425
Houston, Texas 77002
The Board of Directors (the Board) of Houston American Energy Corp. (HUSA or the Company) is soliciting your proxies to be voted at the special meeting of stockholders to be held virtually on April 24, 2025 at 10:00 am Central Daylight Time (the special meeting) and at any and all adjourned sessions of the special meeting. There will not be a physical meeting location. The virtual meeting url is www.virtualshareholdermeeting.com/HUSA2025SM . Stockholders as of the record date may participate in the meeting online, vote, or submit questions by visiting the meeting website and logging in with the control number on their proxy card or voting instruction form.
We are mailing this notice and proxy statement (including the form of proxy) to our stockholders on or about April 11, 2025.
Record Date and Quorum Requirements
Only stockholders of record at the close of business on February 25, 2025 (the record date) will be entitled to vote at the special meeting. The list of HUSA stockholders entitled to vote at the special meeting will be available at HUSAs headquarters during regular business hours for examination by any HUSA stockholder for any purpose germane to the special meeting for a period of at least ten days prior to the special meeting. The holders of more than one-third of HUSAs common stock, par value $0.001 per share (the Common Stock), issued and outstanding and entitled to vote on the record date must be present online (by remote communication) or by proxy to have a quorum for the transaction of business at the special meeting. Shares of Common Stock represented by proxy (includes shares which abstain, withhold the vote or do not vote with respect to one or more of the matters presented for stockholder approval) will be counted for purposes of determining whether a quorum exists for a matter presented at the special meeting. At the close of business on February 25, 2025, we had 15,686,533 shares of Common Stock issued and outstanding. Each share of Common Stock is entitled to one vote.
Items to be Voted Upon, Voting Your Shares and Votes Required
Stockholders will be voting upon four matters as well as any other business that may properly come before the meeting. The specific items to be voted on are:
|
PROPOSAL |
BOARD RECOMMENDATION |
PAGE REFERENCE |
||
| Proposal 1: To approve, in accordance with Sections 712 and 713 of the Rules of the NYSE American LLC Company Guide, the issuance of a number of shares of Common Stock equal to 94% of all the issued and outstanding Common Stock of HUSA at the time of the closing under the Share Exchange Agreement (the Issuance Proposal). | ☑ FOR | Page 42 |
| 1 |
| Proposal 2: To approve and adopt an amendment to the Companys Certificate of Incorporation (the Charter), substantially in the form appended hereto as Annex A (the Reverse Stock Split Amendment), to effect a reverse stock split of all of the outstanding shares of Common Stock at a ratio in the range of 1-for-5 to 1-for-60, with such ratio to be determined by the Board (the Reverse Stock Split Proposal). |
☑ FOR |
Page 101 |
||
| Proposal 3: To approve and adopt an amendment to the Charter to increase the number of authorized shares of Common Stock that may be issued from 20,000,000 to 300,000,000 (the Share Increase Proposal). |
☑ FOR |
Page 107 |
||
| Proposal 4: To approve the adjournment of the special meeting, to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies if there are insufficient votes at the time of the special meeting to approve the Issuance Proposal, the Reverse Stock Split Proposal, or the Share Increase Proposal (the Adjournment Proposal). |
☑ FOR |
Page 109 |
The Issuance Proposal, Reverse Stock Split Proposal, Share Increase Proposal, and Adjournment Proposal (collectively, the Proposals) are further described in this proxy statement, which we encourage you to read in its entirety before voting . Only holders of record of Common Stock at the close of business on February 25, 2025 are entitled to notice of the special meeting and to vote and have their votes counted at the special meeting and any adjournments or postponements of the special meeting. A complete list of HUSA stockholders of record entitled to vote at the special meeting will be available for ten days before the special meeting at the principal executive offices of HUSA for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting.
The Board unanimously recommends that HUSA stockholders vote FOR each of the Proposals.
The existence of any financial and personal interests of one or more of HUSAs directors may be argued to result in a conflict of interest on the part of such director(s) between what he, she, or they may believe is in the best interests of HUSA and its stockholders and what he, she, or they may believe is best for himself, herself, or themselves in determining to recommend that stockholders vote for the Proposals. See the section entitled Interests of HUSA Directors and Executive Officers in the AGIG Transaction in this proxy statement for a further discussion of this issue.
PLEASE VOTE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU LATER DESIRE TO REVOKE OR CHANGE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THIS PROXY STATEMENT. FOR FURTHER INFORMATION CONCERNING THE PROPOSALS BEING VOTED UPON, THE SHARE EXCHANGE AGREEMENT, USE OF THE PROXY AND OTHER RELATED MATTERS, YOU ARE URGED TO READ THIS PROXY STATEMENT .
| 2 |
Your vote is very important. Assuming a quorum is present at the special meeting, (i) the Reverse Stock Split Proposal and the Share Increase Proposal require the affirmative vote of the majority of the votes cast by the holders of Common Stock present at the special meeting, or represented by proxy, and entitled to vote thereon and (ii) the other Proposals require the affirmative vote of the majority of Common Stock present at the special meeting, or represented by proxy, and entitled to vote on the matter at the special meeting. If you do not attend the special meeting, either online (by remote communication) or by proxy, to vote your shares, you will not have an impact with respect to the Reverse Stock Split Proposal or the Share Increase Proposal. Whether or not you plan to attend the special meeting, please vote by proxy over the internet or telephone using the instructions included with the accompanying proxy card, or promptly complete your proxy card and return it in the enclosed postage-paid envelope, in order to authorize the individuals named on your proxy card to vote your shares of Common Stock at the special meeting. If you hold your shares by a broker, bank, or other nominee (i.e., in street name), you should receive instructions from your nominee which you must follow in order to vote your shares.
If you do not provide voting instructions with respect to shares held in street name, your broker, bank, or other nominee may vote your shares in its discretion with respect to routine, or discretionary, items but cannot vote your shares on non-discretionary items. We expect that the Reverse Stock Split Proposal, the Share Increase Proposal and the Adjournment Proposal will be considered routine and that your broker, bank, or other nominee may vote your shares with respect to such proposal even if you do not provide voting instructions. We expect that the Issuance Proposal will be considered a non-discretionary matter and that your broker, bank or other nominee will not be permitted to vote on such proposal unless you provide your broker with voting instructions on such proposal. Abstentions and broker non-votes will have no effect on the voting on a proposal that requires the affirmative vote of a certain percentage of the votes cast or shares voting on a proposal but will have the effect of a vote against proposals requiring the affirmative vote of all shares entitled to vote. However, abstentions are considered to be present or represented in determining whether a quorum exists on a given matter.
Submitting Your Proxy
If you complete and submit your proxy, the persons named as proxies will vote the shares represented by your proxy in accordance with your instructions. If you submit a proxy card but do not fill out the voting instructions on the proxy card, the persons named as proxies will vote the shares represented by your proxy as follows:
| ● | FOR the Issuance Proposal; | |
| ● | FOR the Reverse Stock Split Proposal; | |
| ● | FOR the Share Increase Proposal; and | |
| ● | FOR the Adjournment Proposal, if presented. |
To ensure that your vote is recorded promptly, please vote as soon as possible. To vote by proxy, please complete, sign, and mail the proxy card in the enclosed postage-paid envelope.
Stockholders that attend the special meeting and wish to vote online (by remote communication) will be given the opportunity to vote. If you want to vote shares that are held in street name or are otherwise not registered in your name, you will need to obtain a legal proxy from the holder of record and present it at the special meeting.
Revoking or Changing Your Proxy
You may revoke or change your proxy at any time before it is voted. For a stockholder of record, meaning one whose shares are registered in his or her own name, to revoke or change a proxy, the stockholder may submit another properly signed proxy, which bears a later date; deliver a written revocation to the Company at our address; or attend the special meeting and vote virtually.
If you are a beneficial owner of Common Stock, and not the stockholder of record (for example Common Stock is registered in street name with a brokerage firm), you must follow the procedures required by the holder of record, which is usually a brokerage firm or bank, to revoke or change a proxy. You should contact the stockholder of record directly for more information on these procedures.
| 3 |
Other Information
We will bear the expenses of soliciting proxies. Our officer and certain other employees, without additional remuneration, may solicit proxies personally or by telephone, e-mail or other means. We may reimburse brokerage houses and other custodians, nominees, and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to stockholders.
Our Annual Report on Form 10-K for the year ended December 31, 2024, which is not delivered with these proxy soliciting materials but can be obtained via our website at www.houstonamerican.com or at www.sec.gov, is incorporated by reference with this Proxy Statement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below shows the number of our shares of Common Stock beneficially owned as of April 3, 2025 by:
| ● | each person or group known by us to beneficially own more than 5% of our outstanding Common Stock; |
| ● | each director; |
| ● | the Chief Executive Officer; and |
| ● | all of our current directors and executive officers of the company as a group. |
The number of shares beneficially owned by each 5% holder, director, or executive officer is determined by the rules of the SEC, and the information does not necessarily indicate beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the person or entity has sole or shared voting power or investment power and also any shares that the person or entity can acquire within 60 days of April 3, 2025 through the exercise of any stock option or other right. For purposes of computing the percentage of outstanding shares of Common Stock held by each person or entity, any shares that the person or entity has the right to acquire within 60 days after April 3, 2025 are deemed to be outstanding with respect to such person or entity but are not deemed to be outstanding for the purpose of computing the percentage of ownership of any other person or entity. Unless otherwise indicated, each person or entity has sole investment and voting power (or shares such power with his or her spouse) over the shares set forth in the following table. The inclusion in the table below of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares. As of April 3, 2025, there were 15,686,533 shares of Common Stock issued and outstanding.
| Name and Address of Beneficial Owner |
Shares of Common Stock Beneficially Owned |
Percentage of Common Stock Outstanding |
||||||
| Bower Family Holdings, LLC (1) | 2,180,180 | (4) | 13.63 | % | ||||
| 3i Management LLC (2) | 1,300,000 | (5) | 8.13 | % | ||||
| Stephen Hartzell (3)* | 120,000 | (6) | ||||||
| Keith Grimes (3)* | 118,000 | (6) | ||||||
| Peter Longo (3)** | 56,179 | (7) | ||||||
| Robert Bailey (3)* | 15,000 | (8) | ||||||
| All current directors and executive officers as a group (4 persons) | 309,179 | (9) | 1.93 | % | ||||
| * | Director of our company |
| ** | CEO and director of our company |
| Less than 1% of the shares of total Common Stock outstanding as of April 3, 2025. | |
| (1) | The address of each of BFH and Kevin John Bower is 110 Kings Road, Kings Mountain, NC 28086. |
| (2) | Address is 2 Wooster Street, 2nd Floor, New York, NY 10013. |
| (3) | Address is 801 Travis St., Suite 1425, Houston, Texas 77002. |
| (4) | Information is based on a Schedule 13G filed by BFH on November 18, 2024. Mr. Bower is a director of BFH and may be deemed to have voting and dispositive power with respect to such shares. Mr. Bower disclaims beneficial ownership of the shares held by BFH. |
| (5) | Information is based on a Schedule 13G filed by (i) 3i, LP, a Delaware limited partnership (3i); (ii) 3i Management LLC, a Delaware limited liability company (3i Management); and (iii) Maier Joshua Tarlow (Mr. Tarlow) on January 1, 2025. 3i is the beneficial owner of all of the shares and has the power to dispose of and the power to vote the shares beneficially owned by it, which power may be exercised by 3i Management, the manager and general partner of 3i. Mr. Tarlow, as the manager of 3i Management, has shared power to vote and/or dispose of the shares beneficially owned by each of 3i and 3i Management. Therefore, Mr. Tarlow may be deemed to beneficially own the shares beneficially owned by 3i and 3i Management, and 3i Management may be deemed to beneficially own the Shares beneficially owned by 3i. |
| 4 |
| (6) | Includes 116,000 shares issuable upon exercise of stock options. |
| (7) | Includes 56,179 shares issuable upon exercise of stock options. |
| (8) | Includes 15,000 shares issuable upon exercise of stock options. |
| (9) | Includes 303,179 shares issuable upon exercise of stock options. |
Beneficial Ownership Assuming the Issuance of all Shares of Common Stock
under the Share Exchange Agreement
| Name and Address of Beneficial Owner |
Shares of Common Stock Beneficially Owned (1) |
Percentage of Common Stock Outstanding |
||||||
| Abundia Financial, LLC (2) | 221,180,116 | 84.6 | % | |||||
| Bower Family Holdings, LLC (3) | 26,755,748 | (5) | 10.2 | % | ||||
| Peter Longo (4)** | 56,179 | (6) | ||||||
| Robert Bailey (4)* | 15,000 | (7) | ||||||
| All current directors and executive officers as a group prior to the closing of the Share Exchange (2 persons) | 71,179 | (8) | ||||||
| * | Director of our company |
| ** | CEO and director of our company prior to the closing of the Share Exchange |
| Less than 1% of the shares of total Common Stock outstanding in the event the Issuance Proposal is approved. | |
| (1) | Calculation is based on the number of shares of Common Stock outstanding as of April 3, 2025 and assumes that an aggregate of 245,755,684 shares of Common Stock will be issued to the AGIG Unitholders. |
| (2) | Joseph M. Gasik is the Managing Member of Abundia Financial and may be deemed to have voting and dispositive power with respect to such shares. Mr. Gasik disclaims beneficial ownership of the shares held by Abundia Financial. The address of each of Abundia Financial and Mr. Gasik is 110 Kings Road, Kings Mountain, NC 28086. |
| (3) | The address of each of BFH and Kevin John Bower is 110 Kings Road, Kings Mountain, NC 28086. |
| (4) | Address is 801 Travis St., Suite 1425, Houston, Texas 77002. |
| (5) | Information is based on a Schedule 13G filed by BFH on November 18, 2024 and the assumption that the Issuance Proposal is approved. Mr. Bower is a director of BFH and may be deemed to have voting and dispositive power with respect to such shares. Mr. Bower disclaims beneficial ownership of the shares held by BFH. |
| (6) | Includes 56,179 shares issuable upon exercise of stock options. |
| (7) | Includes 15,000 shares issuable upon exercise of stock options. |
| (8) | Includes 71,179 shares issuable upon exercise of stock options. |
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement incorporates important business and financial information about HUSA from other documents that HUSA has filed with the U.S. Securities and Exchange Commission (SEC) and that are not contained in and are instead incorporated by reference in this proxy statement. For a list of documents incorporated by reference in this proxy statement, see Where You Can Find More Information . This information is available for you, without charge, to review through the SECs website at www.sec.gov.
The contents of the websites of the SEC, HUSA, AGIG, or any other entity are not incorporated in this proxy statement. The information about how you can obtain certain documents that are incorporated by reference in this proxy statement at these websites is being provided only for your convenience.
| 5 |
The following questions and answers briefly address some questions that you, as a HUSA stockholder, may have regarding the matters being considered at the special meeting. You are urged to carefully read this proxy statement and the other documents referred to in this proxy statement in their entirety because this section may not provide all the information that is important to you regarding these matters. See Summary for a summary of important information regarding the special meeting. Additional important information is contained in the annexes to, and the documents incorporated by reference in, this proxy statement. You may obtain the information incorporated by reference in this proxy statement, without charge, by following the instructions in the section titled Where You Can Find More Information.
Why am I receiving this proxy statement?
We sent you this proxy statement because our Board is soliciting your proxy to vote at the special meeting that HUSA is holding to seek stockholder approval on certain matters described in further detail herein. This proxy statement summarizes the information you need to vote at the special meeting. You do not need to attend the special meeting to vote your shares.
What is being voted on?
You are being asked to vote on four proposals:
| 1. | To approve the issuance of a number of shares of Common Stock equal to 94% of all the issued and outstanding Common Stock of HUSA at the time of the closing under the Share Exchange Agreement; |
| 2. | To approve and adopt the Reverse Stock Split Amendment, to effect a reverse stock split of all of the outstanding shares of Common Stock, at a ratio in the range of 1-for-5 to 1-for-60, with such ratio to be determined by the Board; | |
| 3. | To approve and adopt an amendment to the Charter to increase the number of authorized shares of Common Stock that may be issued from 20,000,000 to 300,000,000; and |
| 4. | To approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Issuance Proposal, the Reverse Stock Split Proposal, or the Share Increase Proposal. |
When are this proxy statement and the accompanying materials scheduled to be sent to stockholders?
On or about April 11, 2025, we will begin mailing our proxy materials, including the Notice of the Special Meeting, this proxy statement, and the accompanying proxy card or, for shares held in street name (i.e., shares held for your account by a broker or other nominee), a voting instruction form.
When and where will the special meeting take place?
The special meeting will be held virtually via a live, webcast on April 24, 2025, beginning at 10:00 a.m., Central Daylight Time. There will not be a physical meeting location. HUSA stockholders will be able to virtually attend and vote at the special meeting by visiting www.virtualshareholdermeeting.com/HUSA2025SM , which is referred to as the Special Meeting website. In order to virtually attend and vote at the special meeting, you will need the control number located on your proxy card or voting instruction form.
When is the record date for the special meeting?
The record date for determination of stockholders entitled to vote at the special meeting is the close of business on February 25, 2025.
| 6 |
Who is entitled to vote at the special meeting?
HUSA stockholders of record as of the close of business on the record date are entitled to attend and vote at the special meeting.
Does my vote matter?
Yes, your vote is very important, regardless of the number of shares that you own.
How does the HUSA Board recommend that I vote at the special meeting?
The HUSA Board unanimously recommends that HUSA stockholders vote FOR each of the Proposals.
What is the purpose of the Share Exchange Agreement?
HUSA and the AGIG Unitholders have agreed that HUSA will acquire AGIG from the AGIG Unitholders under the terms of a Share Exchange Agreement. The Share Exchange Agreement provides that we will acquire all of the issued and outstanding shares of AGIG in exchange for issuing to the AGIG Unitholders a number of shares equal to 94% of the issued and outstanding shares of Common Stock of HUSA at the time of the closing of the Share Exchange Agreement, after taking into account issuance to the AGIG Unitholders. Based on the number of shares of Common Stock outstanding as of April 3, 2025, the Share Exchange would require the issuance of 245,755,684 shares of Common Stock. The Share Exchange Agreement is attached to this proxy statement as Annex B , and is incorporated into this proxy statement by reference. You are encouraged to read this proxy statement, and all the annexes hereto, in their entirety.
Are there risks involved in undertaking the Share Exchange?
Yes. In evaluating the Share Exchange, you should carefully consider the factors discussed in Risk Factors of this proxy statement and other information about AGIG and us included in this proxy statement and the documents incorporated by reference into this proxy statement.
Why should I vote for the Issuance Proposal?
Based on a lengthy evaluation of possible acquisition transactions, and due diligence investigation of AGIG and the industry in which it operates, including the financial and other information provided by AGIG, our Board believes that the Share Exchange will provide HUSA stockholders with an opportunity to participate in the future growth potential of AGIG.
When does HUSA expect to complete the Share Exchange?
We are working to complete the Share Exchange as quickly as practicable. However, we cannot assure you when or if the Share Exchange will be completed, even if the HUSA stockholders approve the Issuance Proposal. Completion of the Share Exchange is subject to satisfaction or waiver of the conditions specified in the Share Exchange Agreement, including the approval of the HUSA stockholders. See Conditions to Closing in this proxy statement. It is possible that factors outside of our control could result in the Share Exchange being completed later than expected or not at all. Although the exact timing of the completion of the Share Exchange cannot be predicted with certainty, we anticipate completing the Share Exchange in the second quarter of 2025. If the Share Exchange is not completed on or before June 30, 2025, the Share Exchange Agreement may be terminated by the AGIG Unitholders or us.
What is the Reverse Stock Split Amendment and why is it necessary?
If the Reverse Stock Split Proposal is approved, then the Charter will be amended so that the outstanding shares of Common Stock will be combined into a lesser number of shares to be determined by the Board and publicly announced by HUSA. We agreed to seek stockholder approval for a reverse stock split in the Share Exchange Agreement to comply with the rules of the NYSE American LLC Company Guide (the NYSE American Rules).
| 7 |
What will happen to outstanding shares of Common Stock after the Reverse Stock Split?
If the stockholders approve and the Board elects to effect the Reverse Stock Split Proposal then, except for adjustments that may result from the treatment of fractional shares, each HUSA stockholder will hold the same percentage of outstanding common stock immediately following the reverse stock split as such stockholder held immediately prior to the reverse stock split. The par value of the common stock would remain unchanged at $0.001 per share.
Why should I vote for the Reverse Stock Split Proposal?
The Board believes that a reverse stock split is desirable for a number of reasons. We expect that a reverse stock split of Common Stock will increase the per share market price, enabling the Common Stock to comply with NYSE Americans minimum share price listing requirements, although we cannot assure that it will be able to do so. The Board intends to implement the reverse stock split at a ratio of between and including 1-for-5 and 1-for-60.
What is the Share Increase Proposal and why is it necessary?
The purpose of the Share Increase Proposal is to amend our Charter to increase the number of shares of common stock that HUSA is authorized to issue from 20,000,000 to 300,000,000 (without giving effect to the reverse stock split, if approved) so that we may issue the shares of common stock as part of the Share Exchange. We agreed to ask HUSA stockholders to approve the Share Increase Proposal in the Share Exchange Agreement.
As of April 3, 2025, there were 15,686,533 shares of Common Stock issued and outstanding. If, as contemplated by the Share Exchange Agreement, we issue the AGIG Unitholders 245,755,684 shares of Common Stock, there will be approximately 261,442,217 shares of Common Stock outstanding. Therefore, it is necessary to increase the authorized amount of common stock to at least such amount. As the Board believes it is important to ensure that we have sufficient shares of common stock available for other general corporate purposes, we are seeking to amend the Charter to increase the number of shares of common stock that HUSA is authorized to issue to 300,000,000.
What is the purpose of the Adjournment Proposal?
The purpose of the Adjournment Proposal is to provide more time for us to solicit proxies in favor of the Issuance Proposal or the Reverse Stock Split Proposal. In no event will we solicit proxies to adjourn the special meeting beyond the date by which we may properly do so under Delaware law.
Why should I vote for the Adjournment Proposal?
The Adjournment Proposal allows the Board to submit a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to approve the Issuance Proposal or the Reverse Stock Split Proposal.
What is a proxy?
A proxy is your legal designation of another person or persons to vote on your behalf. By completing and returning the enclosed proxy card, you are giving the person or persons designated in the proxy card the authority to vote your shares in the manner you indicate on your proxy card.
How many votes do I have at the special meeting?
Each share of Common Stock is entitled to one vote on all matters to be voted on at the special meeting, and can be voted only if the record owner is present to vote or is represented by proxy. The proxy card provided with this proxy statement indicates the number of shares of Common Stock that you own and are entitled to vote at the special meeting.
What constitutes a quorum for the special meeting?
A quorum of HUSAs stockholders at the special meeting is necessary to transact business. Under the HUSA by-laws, the holders of more than one-third of Common Stock issued and outstanding and entitled to vote, represented online (by remote communication) or by proxy, shall constitute a quorum for the transaction of business at the special meeting.
| 8 |
What stockholder vote is required for the approval of each of the Proposals at the special meeting?
The Reverse Stock Split Proposal and the Share Increase Proposal require the affirmative vote of the majority of the votes cast by the holders of Common Stock present at the special meeting, or represented by proxy, and entitled to vote thereon. The other Proposals require the affirmative vote of the majority of Common Stock present at the special meeting, or represented by proxy, and entitled to vote on the matter at the special meeting.
If I am a beneficial owner of shares of Common Stock, what happens if I dont provide voting instructions? What is discretionary voting? What is a broker non-vote?
If you are a beneficial owner and you do not provide voting instructions to your broker, bank, or other holder of record holding shares for you, your shares will not be voted with respect to any proposal for which your broker does not have discretionary authority to vote. The NYSE American Rules determine whether proposals presented at stockholder meetings are discretionary or non-discretionary. If a proposal is determined to be discretionary, your broker, bank, or other holder of record is permitted under the NYSE American Rules to vote on the proposal without receiving voting instructions from you. If a proposal is determined to be non-discretionary, your broker, bank, or other holder of record is not permitted under the NYSE American Rules to vote on the proposal without receiving voting instructions from you.
A broker non-vote occurs when a bank, broker, or other holder of record holding shares for a beneficial owner does not vote on a non-discretionary proposal because the holder of record has not received voting instructions from the beneficial owner.
We expect that the Reverse Stock Split Proposal, the Share Increase Proposal and Adjournment Proposal, if presented, will be considered discretionary and that your broker, bank, or other nominee may vote your shares with respect to such proposal even if you do not provide voting instructions. We expect that the Issuance Proposal will be considered a non-discretionary matter and that your broker, bank or other nominee will not be permitted to vote on such proposal unless you provide your broker with voting instructions on such proposal. Accordingly, if you are a beneficial owner and you do not provide voting instructions to your broker, bank, or other holder of record holding shares for you, your shares may be voted with respect to any of the Proposals other than the Issuance Proposal. Broker non-votes will have no effect on the outcome of the vote on the Issuance Proposal.
What will happen if I fail to vote or abstain from voting on any of the Proposals at the special meeting?
Your failure to vote your shares or your abstention from voting on the Issuance Proposal or the Adjournment Proposal, if presented, will have the effect of a vote against such proposal because each such proposal requires the affirmative vote of the majority of all shares present and entitled to vote. Your failure to vote or your abstention from voting on the Reverse Stock Split Proposal or the Share Increase Proposal will not have any effect on the outcome of the vote thereon.
What is the difference between holding shares as a stockholder of record and as a beneficial owner of shares held in street name?
If your shares of Common Stock are registered directly in your name with our transfer agent, you are considered the stockholder of record with respect to those shares. As the stockholder of record, you have the right to vote or to grant a proxy for your vote directly to us, or to a third party, to vote at the special meeting.
If your shares are held by a brokerage firm, bank, dealer, or other similar organization, trustee, or nominee, you are considered the beneficial owner of shares held in street name, and your brokerage firm, bank, dealer, or other similar organization, trustee, or nominee is considered the stockholder of record with respect to those shares. Your brokerage firm, bank, dealer, or other similar organization, trustee, or nominee will send you, as the beneficial owner, a package describing the procedure for voting your shares. You should follow the instructions provided by them to vote your shares. You will only be able vote your shares online (by remote communication) at the special meeting if you obtain a legal proxy from your brokerage firm, bank, dealer, or other similar organization, trustee, or nominee. Your brokerage firm, bank, dealer or other similar organization, trustee, or nominee is not permitted to vote on the Issuance Proposal unless you provide your broker with voting instructions on such proposal. We expect that your brokerage firm, bank, dealer or other similar organization, trustee, or nominee will be permitted to vote in favor of the Reverse Stock Split Proposal and the Share Increase Proposal if you do not vote but your broker is not obligated to do so.
| 9 |
What should I do if I receive more than one set of voting materials for the special meeting?
You may receive more than one set of voting materials for the special meeting, including multiple copies of this proxy statement, proxy cards, and/or voting instruction forms. This can occur if you hold your shares of common stock in more than one brokerage account, if you hold shares directly as a record holder and also in street name, or otherwise through a nominee. Other circumstances may apply. If you receive more than one set of voting materials, each should be voted and/or returned separately in order to ensure that all of your shares of common stock are voted.
How will my shares be voted if I return a blank proxy card?
If you sign and return your proxy card without indicating how to vote on one or more of the Proposals, the Common Stock represented by your proxy will be voted in accordance with the Boards recommendation for each such proposal. Proxy cards that are returned without a signature will not be counted as present at the special meeting and cannot be voted.
Can I change my vote after I have submitted my proxy?
You can change your vote at any time before the special meeting. For a stockholder of record, meaning one whose shares are registered in his or her own name, you can do this in one of three ways:
| ● | you can send a signed notice of revocation of proxy; |
| ● | you can grant a new, valid proxy bearing a later date; or |
| ● | if you are a holder of record, you can attend the applicable special meeting and vote virtually, but your attendance alone will not revoke any proxy that you have previously given. |
If you choose either of the first two methods to revoke your proxy, you must submit your notice of revocation or your new proxy to HUSA at 801 Travis St., Suite 1425, Houston, Texas 77002 Attention: Investor Relations, so that it is received no later than the beginning of the special meeting.
If you are a beneficial owner of Common Stock, and not the stockholder of record, as of the close of business on the record date, you must follow the instructions of your brokerage firm, bank, dealer or other similar organization, trustee, or nominee to revoke or change your voting instructions.
Where can I find the voting results of the special meeting?
Final voting results will be published in a Current Report on Form 8-K that we expect to file within four business days after the special meeting. If final voting results are not available to us in time to file a Current Report on Form 8-K within four business days after the special meeting, we intend to file a Current Report on Form 8-K to publish preliminary voting results and, within four business days after the final results are known to us, file an additional Current Report on Form 8-K to publish the final results.
What happens if I sell my shares of Common Stock after the record date but before the special meeting?
If you sell or transfer your shares of Common Stock after the record date but before the special meeting, you will retain your right to vote at the special meeting but ownership of the shares will be transferred as of the time the actions approved at the special meeting occur, if such actions occur.
Who will solicit and pay the cost of soliciting proxies?
HUSA will solicit and bear the expenses of soliciting proxies. In addition to solicitation by mail, our officers and certain other employees, without additional remuneration, may solicit proxies personally or by telephone, e-mail or other means. We may reimburse brokerage houses and other custodians, nominees, and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to our stockholders. We have engaged Okapi Partners LLC (Okapi) to assist in the solicitation of proxies. We have paid Okapi a fixed fee of $20,000 for services relating to solicitation and will reimburse Okapi for significant out-of-pocket expenses. If we utilize an additional direct telephone campaign service, we will pay Okapi a one-time modest set up and training fee and flat fees per incoming and outgoing proxy solicitation call and per telephone vote received.
| 10 |
What should I do now?
Read and consider the information contained in and incorporated by reference into this proxy statement, including its annexes.
Stockholders of Record . In order for your shares to be represented at the special meeting:
| ● | you can submit a proxy by telephone or through the Internet by following the instructions included on your proxy card; |
| ● | you can indicate on the enclosed proxy card how you would like to vote and sign and return the proxy card in the accompanying pre-addressed postage paid envelope; or |
| ● | you can attend the special meeting virtually and vote at the meeting. |
Beneficial owner . If you are a beneficial owner, please refer to the instructions provided by your brokerage firm, bank, dealer or other similar organization, trustee, or nominee to see which of the above choices are available to you. Please note that if you are a beneficial owner and you wish to vote at the special meeting online (by remote communication), you will need to obtain a legal proxy from your brokerage firm, bank, dealer or other similar organization, trustee, or nominee.
Whom do I call if I have questions about the special meeting?
If you have additional questions about the AGIG Transactions or the special meeting, you should contact:
Houston American Energy Corp.
801 Travis St., Suite 1425
Houston, Texas 77002
Attention: Investor Relations
Phone Number: 713-222-6966
E-mail Address: info@houstonamerican.com
If you would like additional copies of this proxy statement or you need assistance voting your shares, you should contact Okapi, our proxy solicitor, at the following:
Okapi Partners LLC
1212 Avenue of the Americas, 17th Floor
New York, New York 10036
Phone Number: 212-297-0720
Email Address: info@okapipartners.com
| 11 |
For your convenience, provided below is a brief summary of certain information contained in this proxy statement. This summary highlights selected information from this proxy statement and does not contain all of the information that may be important to you as an HUSA stockholder. To understand the Share Exchange Agreement and the transactions contemplated therein (the AGIG Transaction) fully and for a more complete description of the terms of the AGIG Transaction, you should read carefully this entire proxy statement, its annexes, and the other documents to which you are referred. You may obtain the information incorporated by reference in this proxy statement, without charge, by following the instructions under Where You Can Find More Information.
The AGIG Transaction
On February 20, 2025, we entered into a Share Exchange Agreement with the AGIG Unitholders. The AGIG Unitholders are the record and beneficial owners of all the issued and outstanding units of AGIG. The Share Exchange Agreement provides that we will acquire all of the outstanding units of AGIG in exchange for issuing a number of shares of Common Stock equal to 94% of all the issued and outstanding Common Stock of HUSA at the time of the closing under the Share Exchange Agreement, after taking into account issuance to the AGIG Unitholders. Based on the number of shares of Common Stock outstanding as of April 3, 2025, we expect that the Share Exchange Agreement would require the issuance of 245,755,684 shares of Common Stock to the AGIG Unitholders. The Share Exchange is subject to customary closing conditions, including the condition that our stockholders approve the Share Exchange Agreement.
Immediately following the completion of the Share Exchange, AGIG will be a wholly-owned subsidiary of HUSA. Outstanding shares of Common Stock will remain outstanding and unaffected upon completion of the Share Exchange. Common Stock will continue to be registered under the Securities Exchange Act of 1934 immediately following the Share Exchange. Pursuant to a letter engagement between AGIG and Univest Securities, LLC (Univest), Univest will receive a fee equal to 3.5% of the aggregate transaction value, payable in shares of Common Stock, upon completion of the Share Exchange.
We refer to the Share Exchange and the other transactions contemplated by the Share Exchange Agreement, including the reverse stock split, collectively as the AGIG Transaction.
A copy of the Share Exchange Agreement, as amended, is included as Annex B to this proxy statement and is incorporated herein by reference. We urge you to read it in its entirety because it is the legal document that governs the AGIG Transaction.
The Parties to the AGIG Transaction
Houston American Energy Corp.
HUSA is an independent oil and gas company focused on the development, exploration, exploitation, acquisition, and production of natural gas and crude oil properties. Our principal properties, and operations, are in the U.S. Permian Basin. Additionally, we have properties in the Louisiana U.S. Gulf Coast region.
We were incorporated in Delaware in 2001. Our principal executive offices are located at 801 Travis Street, Suite 1425, Houston, Texas 77002 and our telephone number at that location is (713) 222-6966. Our website address is https://houstonamerican.com .
Abundia Financial, LLC
Abundia Financial, a Delaware limited liability company formed in 2019, is a venture capital and asset investment firm specializing in sustainable fuels, energy, and chemical technologies. AGIG focuses on early-stage renewable technology ventures, providing strategic support to achieve technical validation, secure critical agreements, and position its investments for significant growth. This approach ensures ventures are commercially prepared to attract larger capital funding rounds.
Abundia Financials mission is to scale innovative solutions that accelerate the energy transition while delivering measurable economic and environmental impact. AGIG has built a robust portfolio of investments designed to meet the growing global demand for renewable and sustainable alternatives.
| 12 |
Abundia Financials principal executive offices are located at 48 Wall Street, 11th floor, New York, New York 10005, and its phone number at that location is +1-888-547-0111. Its website address is https://abundiafinancial.com .
Bower Family Holdings, LLC
BFH, a North Carolina limited liability company, was formed in 2019. BFHs purpose is to invest in real estate and personal property including securities and to engage in any lawful business for which limited liability companies may be organized under the North Carolina Limited Liability Company Act. BFH holds approximately 10% of the issued and outstanding equity of AGIG. BFH also holds approximately 13.9% of the issued and outstanding shares of Common Stock.
BFHs principal executive offices are located at 110 Kings Road, Kings Mountain, NC 28086 and its phone number at that location is (704) 790-6012 .
Abundia Global Impact Group, LLC
AGIG, a Delaware limited liability company, was formed in 2019. AGIG is a technology solution company that operates in the recycling and renewable energy, environmental change, fuels and chemicals sectors. AGIG is focused on using waste products to decarbonize the energy, fuels and chemicals sector by providing renewable or recycled alternatives. AGIG uses a combination of proprietary, licensed and commercialized technologies to provide a complete process that turns waste plastics and biomass into drop-in alternatives to fossil-derived energy, fuels and chemicals. AGIGs holistic approach has brought together the complete commercial chain with feedstocks, technology, a diverse management team, and world class off-take partners for the growing suite of products in place.
Abundia Global Impact Groups strategy has four key aspects:
| 1. | identifying waste plastics and waste biomass feedstock supplies; | |
| 2. | identifying strategically advantaged sites; | |
| 3. | securing long-term off-take partners to distribute products; and | |
| 4. |
deploying our unique technology combination to provide a complete renewable solution. |
AGIGs principal executive offices are located at 48 Wall Street, 11th Floor, New York, New York, 10043 and its phone number is (646) 844-0960. Its website address is https://abundiaimpact.com .
The Special Meeting
The special meeting will be held virtually at 10:00 am Central Daylight Time on April 24, 2025. There will not be a physical meeting location. The virtual meeting url is www.virtualshareholdermeeting.com/HUSA2025SM . Stockholders as of the record date may participate in the meeting online, vote, or submit questions by visiting the meeting website and logging in with the control number on their proxy card or voting instruction form. At the special meeting, HUSA stockholders will be asked to:
| 1. | Issuance Proposal approve the issuance of a number of shares of Common Stock equal to 94% of all the issued and outstanding Common Stock of HUSA at the time of the closing under the Share Exchange Agreement; |
| 2. | Reverse Stock Split Proposal approve and adopt the Reverse Stock Split Amendment, to effect a reverse stock split of all of the outstanding shares of Common Stock, at a ratio in the range of 1-for-5 to 1-for-60, with such ratio to be determined by the Board; |
| 3. | Share Increase Proposal approve and adopt an amendment to the Charter to increase the number of authorized shares of Common Stock that may be issued from 20,000,000 to 300,000,000; and |
| 4. | Adjournment Proposal approve the adjournment of the special meeting, to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies if there are insufficient votes at the time of the special meeting to approve the Issuance Proposal, the Reverse Stock Split Proposal, or the Share Increase Proposal. |
| 13 |
The HUSA stockholder approval of the Issuance Proposal, the Reverse Stock Split Proposal, and the Share Increase Proposal is a condition for completing the Share Exchange. As such, our stockholders must approve the Proposals in order for the Share Exchange to be completed.
Voting at the Special Meeting
Record Date; Votes .
We have fixed the close of business on February 25, 2025 as the record date for determining the HUSA stockholders entitled to receive notice of and to vote at the special meeting. Only holders of record of Common Stock on the record date are entitled to receive notice of and vote at the special meeting and any adjournment or postponement thereof.
Each share of Common Stock is entitled to one vote on each matter brought before the special meeting. On the record date, there were 15,686,533 shares of Common Stock issued and outstanding.
Required Vote .
Approval of the Issuance Proposal and the Adjournment Proposal require the affirmative vote of the majority of Common Stock present at the special meeting, or represented by proxy, and entitled to vote on each of the Proposals at the special meeting at which a quorum is present. The Reverse Stock Split Proposal and the Share Increase Proposal require the affirmative vote of the majority of the votes cast by the holders of Common Stock present at the special meeting, or represented by proxy, and entitled to vote thereon.
Failure to Vote; Abstentions .
If you are a stockholder of record of Common Stock, then your failure to vote your shares or your abstention from voting on the Issuance Proposal or the Adjournment Proposal, if presented, will have the effect of a vote against such proposal because each such proposal requires the affirmative vote of the majority of all shares present and entitled to vote. Your failure to vote or your abstention from voting on the Reverse Stock Split Proposal or the Share Increase Proposal will not have any effect on the outcome of the vote thereon.
If you are a stockholder of record of Common Stock and you sign and return a proxy card or otherwise submit a proxy card without giving specific voting instructions, your shares will be voted:
| ● | FOR the approval of the Issuance Proposal; | |
| ● | FOR the approval of the Reverse Stock Split Proposal; | |
| ● | FOR the approval of the Share Increase Proposal; and | |
| ● | FOR the approval of the Adjournment Proposal. |
If you are a beneficial owner and you do not provide voting instructions to your broker, bank, or other holder of record holding shares for you (including by signing and returning a blank voting instruction card), your shares:
| ● | will be counted as present for purposes of establishing a quorum; | |
| ● | will be voted in accordance with the brokers, banks, or other nominees discretion on routine matters, which are the Reverse Stock Split Proposal, the Share Increase Proposal and the Adjournment Proposal, if applicable; and | |
| ● | will not be counted in connection with the Issuance Proposal or any other non-discretionary matters that are properly presented at the special meeting. For each of these proposals, your shares will be treated as broker non-votes. |
| 14 |
Revocation of Proxies .
With respect to shares of Common Stock that you hold of record, you have the power to revoke your proxy at any time before the proxy is voted at the special meeting. You can revoke your proxy in one of three ways:
| ● | you can send a signed notice of revocation of proxy; | |
| ● | you can grant a new, valid proxy bearing a later date; or | |
| ● | if you are a holder of record, you can attend the applicable special meeting and vote virtually, but your attendance alone will not revoke any proxy that you have previously given. |
If you choose either of the first two methods to revoke your proxy, you must submit your notice of revocation or your new proxy to HUSA at 801 Travis St., Suite 1425, Houston, Texas 77002 Attention: Investor Relations, so that it is received no later than the beginning of the special meeting.
If you are a beneficial owner of Common Stock, and not the stockholder of record, as of the close of business on the record date, you must follow the instructions of your brokerage firm, bank, dealer or other similar organization, trustee, or nominee to revoke or change your voting instructions.
Stock Ownership of Directors and Executive Officers .
On the record date, our directors and executive officers were entitled to vote 6,000 shares of Common Stock, or approximately 0.04% of the voting power of outstanding Common Stock. To our knowledge, our directors and executive officers intend to vote their shares of Common Stock in favor of all the Proposals presented at the special meeting, and any adjournment or postponement thereof.
Interests of HUSA Directors and Executive Officers in the AGIG Transaction
When you consider the Boards recommendations that stockholders vote in favor of the Proposals described in this proxy statement, you should be aware that some of our executive officers and directors may have interests that may be different from, or in addition to, HUSA stockholders interests in general, with the main interest in having certain indemnification and insurance provisions provided in the Share Exchange Agreement.
Ownership of HUSA after the Share Exchange
As of April 3, 2025, we had 15,686,533 shares of Common Stock issued and outstanding. Following our issuance of the shares of Common Stock in the Share Exchange, AGIG Unitholders would hold approximately 94% of the Companys outstanding voting power and capital stock and existing holders of Common Stock would hold approximately 6%.
Post Share Exchange Structure
Following the Share Exchange, AGIG will be a wholly-owned subsidiary of HUSA. The following chart illustrates the ownership structure of the combined company immediately following the Share Exchange.
| 15 |
Governance and Management of HUSA after the Share Exchange
Upon the completion of the Share Exchange, the Board will be comprised of five directors. Further, in accordance with the Share Exchange Agreement, the two current HUSA directors, Stephen P. Hartzell and R. Keith Grimes, will resign, and AGIGs Chief Executive Officer, Edward Gillespie, will be appointed to the Board. Therefore, upon the completion of the Share Exchange, the HUSA directors will be Edward Gillespie, Peter Longo, Robert Bailey, and the HUSA Board of Directors shall appoint two other persons to be nominated by AGIG, each of whom shall be required to qualify as an independent director (as defined under NYSE American Rules), to fill the vacancies left by such resignations.
We have agreed that within 45 days of the closing of the Share Exchange, our current Chief Executive Officer, Peter Longo, will resign as Chief Executive Officer, but not as a director. After the closing of the Share Exchange, our Chief Executive Officer will be Edward Gillespie, our Chief Operating Officer will be Joseph Gasik, and our Chief Financial Officer (principal accounting and financial officer) will be Lucie Harwood.
Opinion of HUSAs Financial Advisor
Our Board retained Evans Evans, Inc. (Evans Evans) on January 7, 2025, as its financial advisor in connection with the Share Exchange and requested they render an opinion as to the fairness to HUSA stockholders of the Share Exchange. On February 20, 2025, Evans Evans delivered its opinion to the Board that, as of that date, and based upon and subject to the factors and assumptions set forth in its written opinion, the Share Exchange was fair to HUSA stockholders from a financial perspective. The full text of this written opinion provided to the Board, which describes, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken, is attached as Annex C to this proxy statement and is incorporated by reference in its entirety. Holders of Common Stock are encouraged to read the opinion carefully in its entirety. Evans Evans opinion was provided to the Board in connection with its evaluation of the consideration provided for in the Share Exchange Agreement. It does not address any other aspect of the Share Exchange or any alternative to the Share Exchange and does not constitute a recommendation as to how any stockholders should vote or act in connection with the Share Exchange or otherwise.
| 16 |
HUSAs Reasons for the AGIG Transaction
The legacy HUSA business is primarily focused on the U.S. Oil and Gas markets. As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024, the Colombian based investments did not prove viable. The outlook for U.S. Oil and Gas markets for the next two years is declining prices and demand, and the Oil and Gas Markets have historically been volatile.
In addition, there is substantial competition for capital available for investment in the oil and natural gas industry. We may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital.
The AGIG business has proprietary technology and operates in a growing market for alternative products such as Sustainable Aviation Fuel (SAF) and the renewable diesel markets are also growing significantly. SAF is one of the fastest growing niches in energy as airlines are looking for more industry capacity. As a result, we believe the revenue growth potential for AGIG exceeds the HUSA Oil and Gas opportunity.
Following the completion of the AGIG Transaction, the combined company will be operating in a growing market with the potential to significantly increase revenue and cash flow over the next three to five years and beyond, and investors are eager to provide capital for required investments.
The Board and HUSA management believe the AGIG Transaction provides a strong opportunity for growth, which will benefit the existing HUSA stockholders.
Recommendation of the HUSA Board
YOUR VOTE IS IMPORTANT . The Issuance Proposal and the Reverse Stock Split Proposal to be presented at the special meeting are conditions to consummating the Share Exchange, and as such, HUSA stockholders must approve the Issuance Proposal and the Reverse Stock Split Proposal in order for the Share Exchange to be completed.
The Board unanimously recommends that HUSA stockholders vote:
| ● | FOR Proposal 1, the Issuance Proposal; | |
| ● | FOR Proposal 2, the Reverse Stock Split Proposal; | |
| ● | FOR Proposal 3, the Share Increase Proposal; and | |
| ● | FOR Proposal 4, the Adjournment Proposal. |
In making its recommendation that the stockholders vote to approve the Issuance Proposal, the Board considered, among other matters, the strategic benefits of combining HUSA and AGIG and the new growth opportunities available to the combined company.
| 17 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement and the documents incorporated by reference into this proxy statement include certain forward-looking statements within the meaning of, and subject to the safe harbor created by, Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995, which are referred to as the safe harbor provisions. Statements contained or incorporated by reference in this proxy statement that are not historical facts are forward-looking statements, including statements regarding HUSAs or AGIGs business and future financial and operating results, and other aspects of HUSAs or AGIGs operations or operating results. Words such as may, should, will, believe, expect, anticipate, target, project, and similar phrases that denote future expectations or intent regarding HUSAs or AGIGs financial results, operations, and other matters are intended to identify forward-looking statements that are intended to be covered by the safe harbor provisions. Investors are cautioned not to rely upon forward-looking statements as predictions of future events. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties, and other factors that may cause future events to differ materially from the forward-looking statements in this proxy statement, including:
| ● | risks relating to fluctuations of the market value of Common Stock, including as a result of uncertainty as to the long-term value of the common stock of HUSA or as a result of broader stock market movements; | |
| ● | the occurrence of any event, change, or other circumstances that could give rise to the termination of the Share Exchange Agreement; |
| ● | failure to attract, motivate and retain executives and other key employees; |
| ● | disruptions in the business of HUSA or AGIG, which could have an adverse effect on their respective businesses and financial results; |
| ● | the unaudited pro forma combined consolidated financial information in this proxy statement is presented for illustrative purposes only and may not be reflective of the operating results and financial condition of the combination of HUSA and AGIG; and | |
| ● | The other factors summarized under the section entitled Risk Factors . |
The forward-looking statements contained in this proxy statement are also subject to additional risks, uncertainties, and factors, including those described in financial statements of HUSA included in this proxy statement, as well as HUSAs most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other documents filed by either of them from time to time with the SEC. See the section titled Where You Can Find More Information .
The forward-looking statements included in this report are made only as of the date hereof. HUSA does not undertake to update, alter, or revise any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law.
| 18 |
In addition to the other information included and incorporated by reference into this proxy statement, including the matters addressed in Cautionary Statement Regarding Forward-Looking Statements, you should carefully consider the following risk factors before deciding how to vote on the matters presented to the stockholders at the special meeting. In addition to the risk factors set forth below, you should read and consider other risk factors specific to our business and securities that will also affect the combined company after the AGIG Transaction, which are described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 24, 2025, and all of which are incorporated by reference into this proxy statement. If any of the risks described below or in the periodic reports incorporated by reference into this proxy statement actually occur, the business, financial condition, results of operations, prospects, or stock price of HUSA or the combined company could be materially adversely affected. For more information, see Where You Can Find More Information.
Risk Factor Summary
We are providing the following summary of the risk factors contained in this proxy statement to enhance the readability and accessibility of our risk factor disclosures. We encourage you to carefully review the full risk factors in the proxy statement in their entirety for additional information regarding the material factors that make the AGIG Transaction, the Proposals, and an investment in our securities speculative or risky. These risks and uncertainties include, but are not limited to, the following:
| ● | AGIG has incurred losses and anticipate continuing to incur losses while it commercializes and scales its business. | |
| ● | AGIG will require substantial additional financing to fund its operations and complete the development and commercialization of its technologies and AGIG may not be able to do so on favorable terms. | |
| ● | AGIG has identified material weaknesses in its internal control over financial reporting. | |
| ● | AGIGs technology may not be successful in developing commercial products. | |
| ● | AGIG expects to rely on a limited number of industry partners for a significant portion of its near-term revenue. | |
| ● | AGIG is vulnerable to fluctuations in the supply and price of raw materials. | |
| ● | AGIG may face manufacturing capacity issues that may adversely affect its deployment targets. | |
| ● | AGIG and its industry partners are subject to extensive international, national and subnational laws and regulations, and any changes in relevant laws or regulations, or failure to comply with these laws and regulations could have a material adverse effect on its business. | |
| ● | AGIG may be subject to product liability claims, which could result in material expense, diversion of management time and attention and damage to its business, reputation and brand. | |
| ● | AGIGs failure to protect its intellectual property and proprietary technology may significantly impair its competitive advantage. | |
| ● | AGIG may be involved in lawsuits to protect or enforce its patents or the patents of its licensors, or lawsuits asserted by a third party, which could be expensive, time consuming and unsuccessful. | |
| ● | Governmental programs designed to incentivize the production and consumption of low carbon fuels and carbon capture and utilization, may be implemented in a way that does not include AGIGs products or could be repealed, curtailed or otherwise changed, which would have a material adverse effect on AGIGs business and financial condition. | |
| ● | If AGIG loses key personnel or are unable to attract, integrate and retain additional key personnel, it could harm AGIGs ability to meet its business objectives. | |
| ● | Natural or man-made disasters, social, economic and political instability, and other similar eventsincluding pandemicsmay significantly disrupt AGIGs and its industry partners businesses, and negatively impact AGIGs results of operations and financial condition. | |
| ● | HUSA may not complete the Share Exchange, yet we have incurred costs related to the Share Exchange. | |
| ● | The pendency of the proposed Share Exchange may cause disruption in HUSAs and AGIGs businesses. | |
| ● | After the Share Exchange, current HUSA stockholders will have reduced ownership and voting interest in the Company as compared to their current ownership and voting interest in the Company and therefore will be able to exercise less influence over management. | |
| ● | HUSAs failure to complete the Share Exchange in a timely manner could negatively impact the market price of Common Stock and, if the Share Exchange is eventually completed, the business of the combined company. | |
| ● | The combined company may not fully realize the anticipated benefits of the AGIG Transaction within the timing anticipated or at all. | |
| ● | Failure to complete the Share Exchange could negatively impact the price of shares of Common Stock, as well as our future businesses and financial results. | |
| ● | The combined company will be affected by factors beyond its control, which could have a material adverse effect on the combined companys business, results of operations, and financial condition. |
Risks Related to AGIGs Business and Operations
AGIG has incurred losses and anticipate continuing to incur losses while it commercializes and scales its business.
AGIG has incurred net losses since its inception, including net losses of $3,621,948 for the year ended December 31, 2024. AGIG believes that it will continue to incur operating and net losses in the future while it grows, including following AGIGs initial generation of revenues from the sale of its products, which may occur later than AGIG expects or not at all. AGIG does not expect to be profitable for the foreseeable future as it invests in its business, build capacity and ramp up operations, and AGIG cannot assure you that it will ever achieve or be able to maintain profitability in the future. Even if AGIG is able to successfully develop its products and attract customers, there can be no assurance that AGIG will be financially successful. For example, as AGIG expands its product portfolio and expands internationally, AGIG will need to manage costs effectively to sell those products at its expected margins. Failure to become profitable would materially and adversely affect the value of your investment. If AGIG is ever to achieve profitability, it will be dependent upon the successful development and commercial introduction and acceptance of AGIGs products.
| 19 |
Based on its assessment, management estimates that current available liquidity and forecasted net cash flows will not be sufficient to meet the AGIGs obligations, commitments and budgeted expenditures the next twelve months from the date of this proxy statement. These events and conditions are material uncertainties that raise substantial doubt upon AGIGs ability to continue as a going concern and accordingly, the appropriateness of the use of accounting principles applicable to a going concern.
Since its inception, AGIG has been in the pre-commercialization stage with no material revenues from customers, and its ongoing operations and commercialization plans have been financed primarily by funded by Abundia Financial. Therefore, AGIG has incurred net losses and negative cash flow from operating and investing activities since its inception and expects to incur additional net losses while it continues to develop and plan for commercialization.
AGIGs financial statements included elsewhere in this proxy statement have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. AGIGs independent auditor included an explanatory paragraph regarding its ability to continue as a going concern in its report on its financial statements for the years ended December 31, 2024 and 2023, due to the fact that AGIG has not generated revenue and its only source of income has been grant income of approximately $2.3 million received during the year ended December 31, 2024.
AGIGs ability to continue as a going concern is dependent on its ability to generate sufficient cash flows to meet its obligations and to obtain additional financing, as needed. There can be no assurance that AGIG will be able to achieve these objectives. If AGIG is unable to generate sufficient cash flows or obtain adequate financing, AGIG may be required to significantly reduce, delay, or eliminate planned expenditures and other costs, which could have a material adverse effect on its business, financial condition, and results of operations. Additionally, AGIG may be forced to seek protection under applicable bankruptcy laws and/or liquidate or reorganize its assets and liabilities.
The existence of a substantial doubt about AGIGs ability to continue as a going concern could materially limit its ability to raise additional funds through the issuance of new debt or equity securities or otherwise. The existence of substantial doubt about AGIGs ability to continue as a going concern may also adversely affect its relationships with current and potential customers, suppliers, and employees, making it more difficult to operate its business.
Investors should consider AGIGs financial condition, results of operations, and business prospects in light of the substantial doubt about its ability to continue as a going concern. If AGIG is unable to continue as a going concern, the stockholders of the combined company may lose all or a significant portion of their investment in the combined company, if the Issuance Proposal and the Reverse Stock Split Proposal are approved.
AGIG has identified material weaknesses in its internal control over financial reporting.
AGIG has identified material weaknesses in its internal controls over financial reporting with regard to the assessment of the formal control environment and control activities. AGIG has not performed a risk assessment in relation to segregation of duties, or for the risk that the financial statements may be materially misstated.
In addition, AGIG has identified a material weakness in its internal controls over financial reporting related to the accounting for significant and unusual transactions. This weakness could result in errors or misstatements in its financial statements, which may not be detected in a timely manner. AGIG is actively working to remediate this weakness by enhancing its control environment and implementing more robust procedures for the review and approval of such transactions.
The existence of these material weaknesses could adversely affect AGIGs ability to accurately report its financial condition and results of operations. It may also impact investor confidence, potentially leading to a decline in our stock price and increased scrutiny from regulatory authorities. AGIG is actively working to remediate these material weaknesses by enhancing its internal controls, including implementing additional review procedures, ensuring proper segregation of duties, and providing targeted training to our accounting and finance personnel.
AGIGs financial results could vary significantly from quarter to quarter and may be subject to macroeconomic influences, and its projections may differ materially from actual results.
AGIGs operating results could vary significantly from quarter to quarter due to a variety of factors, many of which are outside of its control. As a result, comparing AGIGs operating results on a period-to-period basis may not be meaningful. In addition, AGIG may not be able to predict its future revenues or results of operations. AGIG bases its current and future expense levels on its internal research and development plans and forecasts, and its operating costs vary to the extent of its research and development and the planning for additional products. As a result, AGIG may incur significant or unanticipated expenses associated with its research and development efforts of its products under development. In addition to other risk factors discussed in this section, factors that may contribute to the variability of AGIGs quarterly results include:
● AGIGs use of available cash resources;
● the timing of release of research and development and trial results and new products and services by AGIGs competitors, particularly those that may represent a significant portion of revenues in any given period;
● the popularity of new products, and products released in prior periods;
● changes by AGIGs competitors;
● AGIGs success in entering new geographic markets;
| 20 |
● decisions by AGIG to incur additional expenses, such as increases in research and development;
● the level of expenses associated with AGIGs regulatory applications or compliance; and
● the timing of compensation expense associated with equity compensation grants.
As a result of these and other factors, AGIGs quarterly and annual operating results could be materially adversely affected. Moreover, AGIGs operating results may not meet the expectations of research analysts or investors, in which case the price of its common stock could decrease significantly.
AGIG will require substantial additional financing to fund its operations and complete the development and commercialization of its technologies and AGIG may not be able to do so on favorable terms.
AGIG expects its expenses to increase in connection with its ongoing activities. AGIG also expects to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. AGIG cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of its products. If AGIG is unable to raise capital when needed or on attractive terms, it could be forced to delay, reduce or eliminate its research and development programs or any future commercialization efforts.
AGIG has based its estimates on assumptions that may prove to be wrong, and it could use its capital resources sooner than it currently expects. AGIGs operating plans and other demands on its cash resources may change as a result of many factors currently unknown, and it may need to seek additional funds sooner than planned, through public or private equity or debt financings or other capital sources, including potentially government funding, collaborations, licenses and other similar arrangements. In addition, AGIG may seek additional capital due to favorable market conditions or strategic considerations even if it believes it has sufficient funds for its current or future operating plans. Attempting to secure additional financing may divert AGIGs management from day-to-day activities, which may adversely affect its ability to develop products.
AGIGs future capital requirements will depend on many factors, including:
● the costs and timing of manufacturing for AGIGs products, including commercial manufacturing of its products;
● the costs of obtaining, maintaining and enforcing AGIGs intellectual property rights;
● the timing and amount of the milestone or other payments AGIG must make to the licensors and other third parties from whom AGIG has licensed or acquired technology;
● the costs and timing of establishing or securing sales and marketing capabilities for its products;
● AGIGs ability to achieve market acceptance and adequate market share and revenue for its products; and
● the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements.
In addition, AGIGs products may not achieve commercial success. Accordingly, AGIG will need to continue to rely on additional financing to achieve its business objectives. Adequate additional financing may not be available to AGIG on acceptable terms, or at all.
AGIGs technology may not be successful in developing commercial products.
AGIG and its potential future collaborators may spend many years and dedicate significant financial and other resources to developing its technology that may never be successfully commercialized. AGIGs technology may never become successfully commercialized for, among others, any of the following reasons:
● AGIG may not be able to secure sufficient funding to progress its technology through development and commercial validation;
● AGIG or its future collaborators may be unable to obtain the requisite regulatory approvals for its technology;
● Competitors may launch competing or more effective technology;
● AGIGs technology may not be commercially successful;
● Current and future collaborators may be unable to fully develop and commercialize products containing AGIGs technology or may decide, for whatever reason, not to commercialize such products; and
● AGIG may be unable to secure adequate patent protection in the necessary jurisdictions.
If any of these things were to occur, it could have an adverse effect on AGIGs ability to raise additional capital, execute its business plan, or remain in business.
| 21 |
If AGIG is unable to manage its growth and expand its operations successfully, its reputation and brand may be damaged and its business and results of operations may be harmed.
AGIG expects rapid growth and the number of facilities from which it operates to increase in the future. AGIGs ability to effectively manage its anticipated growth and expansion of its operations will require AGIG to do, among other things, the following:
● enhance its operational, financial and management controls and infrastructure, human resource policies, and reporting systems and procedures;
● effectively scale its operations, including accurately predicting the need for floor space, equipment, and additional staffing; and
● successfully identify, recruit, hire, train, develop, maintain, motivate and integrate additional employees.
These enhancements and improvements will require significant capital expenditures and allocation of valuable management and employee resources. Furthermore, AGIGs growth has placed, and will continue to place, a strain on its operational, financial and management infrastructure. AGIGs future financial performance and its ability to execute on its business plan will depend, in part, on its ability to effectively manage any future growth and expansion. There are no guarantees AGIG will be able to do so in an efficient or timely manner, or at all. AGIGs failure to effectively manage growth and expansion could have a material adverse effect on its business, results of operations, financial condition, prospects, reputation and brands, including impairing its ability to perform to its customers expectations.
AGIG competes in a competitive industry and its failure to successfully compete with other companies in its industry may have a material adverse effect on AGIGs business.
The bio-mass to liquid fuel market is relatively new and competition is still developing. Large early-stage markets, such as Europe, require early engagement across verticals and customers to gain market share, and ongoing effort to scale channels, installers, teams and processes. In addition, there are multiple competitors worldwide with limited funding, which could cause poor experiences, hampering overall adoption or trust in any particular provider.
Furthermore, AGIGs current or potential competitors may be acquired by third parties with greater available resources. As a result, competitors may be able to respond more quickly and effectively than AGIG to new or changing opportunities, technologies, standards or customer requirements and may have the ability to initiate or withstand substantial price competition. In addition, competitors may in the future establish cooperative relationships with vendors of complementary products, technologies or services to increase the availability of their solutions in the marketplace. This competition may also materialize in the form of costly intellectual property disputes or litigation.
New competitors or alliances may emerge in the future that have greater market share, more widely adopted proprietary technologies, greater marketing expertise and greater financial resources, which could put AGIG at a competitive disadvantage. Future competitors could also be better positioned to serve certain segments of AGIGs current or future target markets, which could create price pressure. In light of these factors, even if AGIGs offerings are more effective and higher quality than those of its competitors, current or potential customers may accept its competitors solutions instead of AGIGs. If AGIG fails to adapt to changing market conditions or continue to compete successfully with current charging platform providers or new competitors, its growth will be limited which would adversely affect its business and results of operations.
| 22 |
AGIG relies on industry partners to affect its growth strategy and to execute its business plan, and AGIGs failure to successfully maintain and manage these relationships could delay or prevent it from achieving or sustaining profitability.
AGIG has developed relationships with various third-party partners who enable and enhance its ability to bring its products various markets. These partners can provide critical support to enable AGIG to reach certain markets and better address customer needs, including through the development of joint reference designs, the establishment of relationships with key customers and the validation of its products. These partners may also be AGIGs competitors, which can negatively impact their willingness to collaborate with AGIG, to support the integration of its solutions with their products, and to pursue joint sales and marketing efforts. In addition, in some cases it may be necessary to share competitively sensitive information with AGIGs partners that could enable its partners to compete more effectively against AGIG or create uncertainty regarding ownership of intellectual property rights. If AGIG is unable to continue to successfully develop or maintain these relationships, it may not be able to compete effectively and its business and results of operations may be adversely affected.
AGIG expects to rely on a limited number of industry partners for a significant portion of its near-term revenue.
AGIGs ability to successfully enter into, maintain and manage partnering arrangements will be critical factors to the success of its business and growth. AGIG relies heavily and expects to continue to rely heavily on such arrangements. AGIG has limited or no control over the amount or timing of resources that any third party commits to negotiating a partnering arrangement with it or, if negotiated and entered into, the timing or the number of resources that a third party will commit to its projects. Any third party with which AGIG is in negotiations may experience a change of policy or priorities and may discontinue negotiations with it. Any of AGIGs industry partners may fail to perform their obligations as expected. These industry partners may breach or terminate their agreements with AGIG or otherwise fail to conduct their partnering activities successfully and in a timely manner. Further, AGIGs industry partners may not develop commercially viable products arising out of its partnering arrangements or devote sufficient resources to the development, manufacture, marketing and/or sale of AGIGs products. Moreover, disagreements with an industry partner regarding strategic direction, economics of the relationship between partners and AGIG, intellectual property or other matters could develop, and any such conflict could reduce AGIGs ability to enter into future partnering agreements and negatively impact its relationships with one or more existing industry partners. Any of these events could delay AGIGs anticipated timelines, prevent the successful development and commercialization of its products, negatively impact its financial results, and prevent AGIG from ever achieving or sustaining profitability. Moreover, these negative consequences could be augmented in the event that AGIG is forced to seek replacement partners, particularly for those whose plant locations would have allowed for favorable relevant feedstock acquisition costs.
AGIGs partnering opportunities could be harmed and its anticipated timelines could be delayed if:
● AGIG does not achieve its objectives under its arrangements in a timely manner, or at all;
● AGIGs existing or potential industry partners become unable, unwilling or less willing to expend their resources on research and development or commercialization efforts with AGIG due to general market conditions, their financial condition, feedstock pricing or other circumstances, many of which are beyond AGIGs control;
● AGIG disagrees with its industry partners as to rights to intellectual property they jointly develop, or their research programs or commercialization activities;
● AGIG is unable to successfully manage multiple simultaneous partnering arrangements;
● applicable laws and regulations, domestic or foreign, impede AGIGs ability to enter into strategic arrangements;
● AGIG develops processes or enter into additional partnering arrangements that conflict with the business objectives of its other arrangements;
● AGIGs industry partners become competitors of AGIG or enter into agreements with its competitors; or
● consolidation in AGIGs target markets limits the number of potential industry partners.
| 23 |
Additionally, because AGIG has entered into exclusive arrangements with industry partners, other potential partners in AGIGs industry may choose to compete against it, rather than partnering with it. This may limit AGIGs partnering opportunities and harm its business and prospects. Moreover, AGIGs business could be negatively impacted if any of its industry partners undergoes a change of control or assigns the rights or obligations under any of its agreements. If any of AGIGs industry partners were to assign these agreements to its competitors or to a third party who is not willing to work with AGIG on the same terms or commit the same resources as the current industry partner, AGIGs business and prospects could be adversely affected.
AGIGs and its industry partners failure to accurately forecast demand for any product produced using AGIGs process technologies could result in an unexpected shortfall or surplus that could negatively affect its results of operations.
Because of the length of time it takes to develop and commercialize AGIGs products using its technologies, AGIG must make development and production decisions well in advance of commercial production and sale of such products. AGIGs ability to accurately forecast demand for any of its products that are commercialized can be adversely affected by a number of factors, many of which are outside of AGIGs control, including actions by its competitors, changes in market conditions, environmental factors and adverse weather conditions. A shortfall or surplus in the supply of AGIGs products may reduce its revenues, damage its reputation and adversely affect customer or partner relationships, which could harm AGIGs business, results of operations and financial condition. In addition, surpluses of AGIGs products could result in its needing to record charges for excess inventory.
AGIG and its industry partners have a limited operating history utilizing its technology and different feedstocks, which may make it difficult to evaluate AGIGs future viability and predict its future performance.
AGIGs operations to date have been limited to financing and staffing its company, developing its technology and developing its product candidates. Consequently, predictions about AGIGs future success or viability may not be as accurate as they could be if AGIG had a longer history of successfully developing and commercializing products.
Additionally, the demand for AGIGs technologies may vary from quarter to quarter. A number of factors, over which AGIG has limited or no control, may contribute to fluctuations in its financial results, such as:
| ● | delays in receipt of anticipated purchase orders; | |
| ● | performance of its independent distributors; | |
| ● | positive or negative media coverage of its products or products of its competitors; | |
| ● | its ability to obtain further regulatory clearances or approvals; | |
| ● | delays in, or failure of, product and component deliveries by its subcontractors and suppliers; | |
| ● | customer response to the introduction of new product offerings; and | |
| ● | fluctuations in foreign currency. |
Technological innovation by others could render AGIGs technology and the products produced uneconomical.
The low carbon fuel industry is characterized by rapid and significant technological change. AGIGs success will depend on its ability to maintain a competitive position with respect to technological advances. AGIGs technology and the products derived from its technology may be rendered obsolete or uneconomical by technological advances, more efficient and cost-effective products or entirely different approaches developed by one or more of AGIGs competitors. Though AGIG plans to continue to expend significant resources to enhance its technology platform and processes, there are no assurances AGIG will be able to keep pace with technological change.
| 24 |
Risks Related to AGIGs Manufacturing and Commercialization
Fluctuations in the prices of waste-based feedstocks used to manufacture the products produced using AGIGs process technologies may affect AGIG or AGIGs industry partners cost structure, gross margin and ability to compete.
AGIG may experience increases in the cost or a sustained interruption in the supply or shortage of waste-based feedstocks necessary for the manufacture of its products. Any such increase in cost, supply interruption, or materials shortage could adversely impact AGIGs business, prospects, financial condition, and operating results. AGIGs suppliers use various materials. The prices and supply of these materials may fluctuate, depending on market conditions and global demand for these materials, including increased production of electric vehicles and other energy storage applications by AGIGs competitors and companies in adjacent markets such as passenger cars and stationary storage.
Substantial increases in the prices for AGIGs materials or prices charged to it could reduce its margins if AGIG cannot recoup the increased costs through increased sale prices on its systems. Furthermore, fluctuations in fuel costs, or other economic conditions, may cause AGIG to experience significant increases in freight charges and material costs. Moreover, any attempts to increase prices in response to increased material costs could increase the difficulty of selling at attractive prices to new and existing customers and lead to cancellations of customer orders. If AGIG is unable to effectively manage its supply chain and respond to disruptions to its supply chain in a cost-efficient manner, AGIG may fail to achieve the financial results it expects or that financial analysts and investors expect, and AGIGs business, prospects, financial condition, and operating results may be adversely affected.
AGIGs success is highly dependent on its ability to maintain and efficiently utilize its technology platform, and to effectively identify potential products for which to develop and commercialize new process technologies, and problems related to AGIGs technology platform could harm its business and result in wasted research and development efforts.
AGIG is highly dependent on its technology platform for the development and commercialization of its products. If AGIG experiences challenges in its technology platform, such as problems with engineering, or if AGIG encounters problems interpreting and analyzing data using its technology platform, AGIGs business may be harmed.
AGIG is vulnerable to fluctuations in the supply and price of raw materials.
AGIG will purchase raw materials and packaging supplies from several sources. While all such materials are available from independent suppliers, raw materials are subject to fluctuations in price and availability attributable to a number of factors, including general economic conditions, commodity price fluctuations, the demand by other industries for the same raw materials, and the availability of complementary and substitute materials. The profitability of AGIGs business also depends on the availability and proximity of these raw materials to its factories. The choice of raw materials to be used at AGIGs facility is determined primarily by the price and availability, yield loss of lower quality raw materials, and the capabilities of the producers production facility. Additionally, the cost of transportation could favor suppliers located in close proximity to AGIGs factories. If the quality of these raw materials is lower, the quality of AGIGs product may suffer. Economic and financial factors could impact AGIGs suppliers, thereby causing supply shortages. Increases in raw material costs could have a material adverse effect on AGIGs business, financial condition, or results of operations. AGIGs feedstock supply strategy, including any hedging procedures, may be insufficient, and AGIGs results could be materially impacted if costs of materials increase.
If AGIG is unable to successfully add additional process trains, AGIG may not meet its customer demand.
To be successful and compete economically, AGIG will have to add additional reactor trains to the currently operational design, this may bring challenges with feedstock preparation and product recovery portions of the technology train. AGIG may encounter difficulties in scaling up production, including problems with the supply of key components. Even if AGIG is successful in developing its manufacturing capability, AGIG does not know whether it will do so in time to satisfy the requirements of its customers. In order to fully implement AGIGs business plan, it will need operate larger industrial commercial facility, develop strategic partnerships, or find other means to produce greater volumes of finished product.
| 25 |
AGIG may face manufacturing capacity issues that may adversely affect its deployment targets.
To successfully commercialize any of AGIGs products, AGIG and its partners must have the capability to produce in significantly larger quantities than AGIG has to date at acceptable quality levels on a cost-effective basis, and otherwise effectively scale up its operations. Any products that AGIG develops to the point of commercial production may not perform in the same manner, or AGIG may encounter operational challenges for which it is unable to devise a workable solution. If this occurs, AGIGs ability to commercially scale its technology and processes will be adversely affected, and with respect to any products that are brought to market, AGIG may not be able to lower it and its partners cost of production, which would adversely affect AGIGs ability to increase the future profitability of its business. AGIGs expectations and estimates and the underlying assumptions regarding anticipated capital efficiencies and lower operating costs for plants using its processes compared to conventional fossil-derived energy, fuels and chemicals may prove to be incorrect. AGIG may never achieve the necessary results to produce at larger scale or achieve other production process efficiencies. Moreover, upon commercial production of AGIGs alternative energy, fuels and chemicals, it anticipates it taking multiple months to ramp up production to target production rate. Even if AGIG and its partners are able to successfully produce on a larger scale, it may take longer than anticipated for the plants to produce at target productions rates, which would affect AGIGs profitability. In addition, although AGIGs management team has significant experience in chemical technology, the skills and knowledge gained in these fields and in operating similar production facilities may prove insufficient in connection with its operation of large-scale facilities.
While abundant, if the availability of the waste-based feedstocks declines or competition for them increases, AGIG may be required to raise the prices of its products which could reduce the demand and affect AGIGs revenue.
The production from AGIGs processes will require large volumes of feedstocks. AGIG cannot predict the future availability of any feedstock necessary to produce products using its processes, or be sure that the suppliers of these feedstocks will be able to supply them in sufficient quantities, in a timely manner or at a cost that allows AGIG to competitively price chemicals produced using its processes. The supply of feedstocks might be impacted by a wide range of factors, including a shift in supply demand, supply chain problems and competition for the feedstock and price. Declines in the availability of the feedstocks used for AGIGs products could force it to delay or reduce production, raise the prices of products, and result in reduced demand and reduced revenue.
Failure to continuously reduce operating and capital costs for AGIGs facilities that deploy its technologies may impact adoption of its products and could negatively impact AGIGs business, financial condition, results of operations and prospects.
AGIGs business and results of operations are sensitive to a number of factors, both within and outside its control. In the event of a sustained reduction in revenues, for whatever reason, it may be necessary to implement an expense reduction plan. The successful implementation of an expense reduction plan, if and when deemed advisable by management, depends on many factors, including AGIGs ability to identify the need for such a plan in a timely manner, to effectively implement such a plan, as well as certain factors which are beyond its control, including economic conditions, labor market conditions and ability to maintain its management team to implement AGIGs plan. Any one of these factors, or other unforeseen factors, could have a material adverse effect on AGIGs ability to implement any targeted cost savings to stabilize its results of operations. Furthermore, if AGIG is unable to reduce operating costs, it may be unable or substantially delayed from expanding and commercializing AGIGs business.
Construction of AGIGs facilities may not be completed in the expected timeframe or in a cost-effective manner. Any significant delays in the construction of plants could severely impact AGIGs business, financial condition, results of operations and prospects.
AGIG has not completed development for all of its planned properties, and do not expect to have full annual production from all of its properties until market conditions permit AGIG to complete these development plans. AGIG expects to incur significant capital expenditures until AGIG has completed the development of its properties. In addition, the development of AGIGs properties involves numerous regulatory, environmental, political and legal uncertainties that are beyond its control and that may cause delays in, or increase the costs associated with, their completion. Accordingly, AGIG may not be able to complete the development of the properties on schedule, at the budgeted cost or at all, and any delays beyond the expected development periods or increased costs above those expected to be incurred could have a material adverse effect on its business, financial condition, results of operations, and cash flows.
| 26 |
If AGIG is unable to complete or are substantially delayed in completing the development of any of its properties, its business, financial condition, and results of operations cash flows.
AGIG may face supply chain issues for the procurement of critical components that may impact its technology deployment cost estimates and schedule timelines.
AGIG has experienced and may in the future experience increases in the cost or a sustained interruption in the supply or shortage of materials necessary for the production, maintenance and service of its systems and related technologies. Any such increase in cost, supply interruption, or materials shortage could adversely impact AGIGs business, prospects, financial condition, and operating results. AGIGs suppliers use various materials. The prices and supply of these materials may fluctuate, depending on market conditions and global demand for these materials.
Substantial increases in the prices for AGIGs materials or prices charged to it could reduce its margins if AGIG cannot recoup the increased costs through increased sale prices on its systems. Furthermore, fluctuations in fuel costs, or other economic conditions, may cause AGIG to experience significant increases in freight charges and material costs. Moreover, any attempts to increase prices in response to increased material costs could increase the difficulty of selling at attractive prices to new and existing customers and lead to cancellations of customer orders. If AGIG is unable to effectively manage its supply chain and respond to disruptions to its supply chain in a cost-efficient manner, AGIG may fail to achieve the financial results it expects or that financial analysts and investors expect, and its business, prospects, financial condition, and operating results may be adversely affected.
Risks Related to AGIGs Legal, Regulatory, and Environmental, Health and Safety Matters
AGIG and its industry partners use hazardous materials and must comply with applicable environmental, health and safety laws and regulations. Any claims relating to improper handling, storage or disposal of these materials or noncompliance with applicable laws and regulations could adversely affect AGIGs business.
AGIGs and its industry partners use hazardous chemicals and biological materials and are subject to a variety of international, federal, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials. Although AGIG and its industry partners have implemented safety procedures for handling and disposing of these materials and waste products, AGIG cannot be sure that its safety measures are compliant with legal requirements or adequate to eliminate the risk of accidental injury or contamination. In the event of contamination or injury, AGIG could be held liable for any resulting damages, and any liability could exceed its insurance coverage. There can be no assurance that neither AGIG nor any of its industry partners will violate environmental, health and safety laws as a result of human error, accident, equipment failure or other causes. Compliance with applicable environmental laws and regulations is expensive and time consuming, and the failure to comply with past, present, or future laws could result in the imposition of fines, third-party property damage, product liability and personal injury claims, investigation and remediation costs, the suspension of production, or a cessation of operations. AGIGs liability in such an event may exceed its total assets. Liability under environmental laws can be joint and several and without regard to comparative fault. Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations, which could impair AGIGs research, development or production efforts and harm its business. Accordingly, violations of present and future environmental laws by AGIG or any of its industry partners could restrict AGIGs ability to develop and commercialize chemicals using its processes, build out or expand facilities, or pursue certain technologies, and could require AGIG and its industry partners to acquire equipment or incur potentially significant costs to comply with environmental regulations. In addition, AGIGs hazardous materials and environmental laws and regulations related risks may augment as AGIG expands its international operations, including imposition of laws and regulations impacting its ability to transfer hazardous chemicals and biological materials between countries.
| 27 |
AGIG and its industry partners are subject to extensive international, national and subnational laws and regulations, and any changes in relevant laws or regulations, or failure to comply with these laws and regulations could have a material adverse effect on its business.
AGIGs primary operations are in United States and it maintains contractual relationships with partners and suppliers in the United Kingdom, Europe and other locations. AGIG is also continuing to invest to increase its presence in the United States. Managing this expansion requires additional resources and controls, and could subject AGIG to risks associated with international operations, including:
● conformity with applicable business customs, including translation into foreign languages and associated expenses;
● challenges in arranging, and availability of, financing for customers;
● potential changes to AGIGs established business model;
● cost of alternative power sources, which could vary meaningfully in each location;
● difficulties in staffing and managing foreign operations in an environment of diverse culture, laws, and customers, and the increased travel, infrastructure, and legal and compliance costs associated with international operations;
● installation challenges, including those associated with local licensing and permitting requirements;
● differing driving habits and transportation modalities in other markets;
● different levels of demand among commercial, industrial and residential customers;
● compliance with multiple, potentially conflicting and changing governmental laws, regulations, certifications, and permitting processes including environmental, banking, employment, tax, information security, privacy, and data protection laws and regulations such as the European Union (the EU) General Data Protection Regulation (GDPR), national legislation implementing the same and changing requirements for legally transferring data out of the European Economic Area;
● compliance with U.S. and foreign anti-bribery laws including the Foreign Corrupt Practices Act (FCPA) and the United Kingdom Anti-Bribery Act;
● conforming products to various international regulatory and safety requirements;
● difficulty in establishing, staffing and managing foreign operations;
● difficulties in collecting payments in foreign currencies and associated foreign currency exposure;
● restrictions on repatriation of earnings;
● compliance with potentially conflicting and changing laws of taxing jurisdictions and compliance with applicable tax laws as they relate to international operations, the complexity and adverse consequences of such tax laws, and potentially adverse tax consequences due to changes in such tax laws; and
● challenges in obtaining intellectual property protection, policing the unauthorized use of intellectual property or pursuing enforcement of intellectual property rights;
● geopolitical turmoil, including the ongoing invasion of the Ukraine by Russia or increased trade restrictions between European Union, Russia, China and other countries, social unrest, political instability, terrorism, or other acts of war which may further adversely impact supply chains, transportation and logistics; and
● regional economic and political conditions.
In addition, any continued expansion is likely to involve the incurrence of significant upfront capital expenditures. As a result of these risks, AGIGs current expansion efforts and any potential future international expansion efforts may not be successful.
AGIGs technology deployment sites require permitting and planning, some of which are in line with petrochemical standards, delays or being unable to secure these may adversely affect its deployment schedule.
As a technology company partnering with other companies in the alternative energy, fuel, and chemical industry, AGIG and its industry partners are subject to extensive regulatory laws, rules and regulations in a variety of jurisdictions. For example, the Toxic Substances Control Act, or TSCA, and analogous state laws and regulations impose requirements on the use, storage and disposal of chemicals. A similar program exists in the European Union, called REACH (Registration, Evaluation, Authorization, and Restriction of Chemical Substances). The Occupational Safety and Health Act and analogous state laws and regulations govern the protection of the health and safety of employees. The Clean Air Act and analogous state laws and regulations impose obligations related to air emissions. CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act) and analogous state laws and regulations govern the cleanup of hazardous substances. The Water Pollution Control Act, also known as the Clean Water Act, and analogous state laws and regulations govern discharges into waters. In addition, AGIG and its industry partners are or will be required to obtain and maintain various approvals, permits, licenses, registrations, certifications and other requirements, such as air emission and water discharge permits, construction permits, boiler licenses and obtaining Microbial Commercial Activity Notices from the EPA. The development of new processes, manufacture of new products, commercial sales of AGIGs products as well as geographic expansion, and in particular international expansion, will subject AGIG and/or its industry partners to additional regulatory rules and regulations.
| 28 |
As a condition to granting the permits and other approvals necessary for operating AGIG and its partners production plants, regulators could likewise make demands that increase AGIGs construction and operating costs, and result in the procurement of additional financing. Failure to obtain and comply with all applicable permits and other approvals could halt construction and subject AGIG and its partners to future claims. AGIG therefore cannot guarantee procurement or compliance with the terms of all permits and all other approvals needed to complete AGIG and its partners production plants.
In addition to actual plant operations, liabilities could arise from investigation and cleanup of environmental contamination at AGIG and its partners production plants. AGIG and its partners may also be subject to third-party claims alleging property damage or personal injury due to the release of or exposure to hazardous substances. In addition, new laws, new regulations, new interpretations of existing laws or regulations, future governmental enforcement of environmental laws or other developments could result in significant expenditures.
Any failure by AGIG or its industry partners to comply with applicable regulatory rules and regulations could harm AGIGs reputation as well as its business, financial condition and operating results. In addition, regulatory approvals, registrations, permits, licenses, certifications and other requirements may be denied or rescinded, resulting in significant delays, additional costs and abandonment of certain planned activities, or require AGIG to engage in costly and time-consuming efforts to remediate. Compliance with applicable regulatory rules and regulations can be costly and time consuming.
AGIG may be subject to product liability claims, which could result in material expense, diversion of management time and attention and damage to its business, reputation and brand.
AGIG could be subject to claims that its products or technologies are defective or have malfunctioned, or even that persons were injured or purported to be injured as a result of such defects, and AGIGs customers may bring legal claims against the AGIG to attempt to hold it liable. Any insurance that AGIG carries may not be sufficient or it may not apply to all situations. Similarly, to the extent that such malfunctions are related to components obtained from third-party vendors, such vendors may not assume responsibility for such malfunctions. Any of these events could adversely affect AGIGs brand, relationships with customers and vendors, operating results or financial condition.
Any defects or errors in product or services offerings, or the perception of such defects or errors, or other performance problems could result in any of the following, each of which could adversely affect AGIGs business and results of its operations:
● expenditure of significant financial and product development resources, including recalls, in efforts to analyze, correct, eliminate or work around errors or defects;
● loss of existing or potential customers or partners;
● interruptions or delays in sales;
● delayed or lost revenue;
● delay or failure to attain market acceptance
● delay in the development or release of new functionality or improvements;
● negative publicity and reputational harm;
● sales credits or refunds;
● exposure of confidential or proprietary information;
● diversion of development and customer service resources;
● breach of warranty claims;
● legal claims under applicable laws, rules and regulations; and
● an increase in collection cycles for accounts receivable or the expense and risk of litigation.
Although AGIG has contractual protections, such as warranty disclaimers and limitation of liability provisions, in many of its agreements with customers, resellers and other business partners, such protections may not be uniformly implemented in all contracts and, where implemented, may not fully or effectively protect from claims by customers, reseller, business partners or other third parties. Any insurance coverage or indemnification obligations of suppliers may not adequately cover all such claims, or cover only a portion of such claims. A successful product liability, warranty, or other similar claim could have an adverse effect on AGIGs business, operating results and financial condition. In addition, even claims that ultimately are unsuccessful could result in expenditure of funds in litigation, divert AGIGs time and other resources and cause reputational harm.
| 29 |
Risks Related to AGIGs Intellectual Property
AGIG has non-exclusive service agreements or licenses to some of its intellectual property related to its technological offering.
AGIG is a party to master license and service agreements with Alterra Energy, which allows AGIG access to develop multiple facilities. AGIG expects to enter into additional strategic partnering arrangements in the future. Under AGIGs existing agreements, AGIG shares, and would share, develop, to various degrees, intellectual property and know-how. Any disputes as to ownership of intellectual property and know-how with a partner that may arise could encumber or prevent AGIGs use of the disputed technology, could harm its relationship with the relevant partner and would likely negatively affect its commercialization plans with respect to that technology. Additionally, litigation may be necessary to resolve disputes as to the ownership of intellectual property rights as between AGIG and its industry partners, which can be costly, distracting to management and can harm its reputation and the value of its company. Further, AGIG may not be successful in defending its intellectual property rights in any such litigation, and if AGIG is unsuccessful, the value of its company could be seriously harmed.
AGIGs failure to protect its intellectual property and proprietary technology may significantly impair its competitive advantage.
AGIGs success and ability to compete depend in large part upon protecting its proprietary technology. AGIG relies on a combination of patent, trademark and trade secret protection, confidentiality, nondisclosure and non-use agreements to protect its proprietary rights. The steps AGIG has taken may not be sufficient to prevent the misappropriation of its intellectual property, particularly in foreign countries where the laws may not protect its proprietary rights as fully as in the United States. The patent and trademark law and trade secret protection may not be adequate to deter third party infringement or misappropriation of AGIGs patents, trademarks and similar proprietary rights.
AGIGs patent rights may not provide commercially meaningful protection against competition .
The rights granted under any issued patents may not provide AGIG with proprietary protection or competitive advantages. The claims under any patents that issue from AGIGs patent applications may not be broad enough to prevent others from developing technologies that are similar or that achieve results similar to AGIGs. It is also possible that the intellectual property rights of others will bar AGIG from licensing and from exploiting any patents that are issued from its pending applications. Numerous patents and pending patent applications owned by others exist in the fields in which AGIG has developed and are developing its technology. These patents and patent applications might have priority over AGIGs patent applications and could subject its patent applications to invalidation. Finally, in addition to those who may claim priority, any of AGIGs existing or pending patents may also be challenged by others on the basis that they are otherwise invalid or unenforceable.
AGIG may face costly intellectual property infringement claims, the result of which would decrease the amount of cash available to operate and complete its business plan.
AGIG anticipates that, from time to time, it will receive communications from third parties asserting that AGIG is infringing certain patents and other intellectual property rights of others or seeking indemnification against alleged infringement. If anticipated claims arise, AGIG will evaluate their merits. Any claims of infringement brought forth by third parties could result in protracted and costly litigation, damages for infringement, and the necessity of obtaining a license relating to one or more of AGIGs products or current or future technologies, which may not be available on commercially reasonable terms or at all. Litigation, which could result in substantial costs to AGIG and diversion of its resources, may be necessary to enforce its patents or other intellectual property rights or to defend AGIG against claimed infringement of the rights of others. Any intellectual property litigation and the failure to obtain necessary licenses or other rights could have a material adverse effect on AGIGs business, financial condition and results of operations.
| 30 |
AGIG may be involved in lawsuits to protect or enforce its patents or the patents of its licensors, or lawsuits asserted by a third party, which could be expensive, time consuming and unsuccessful.
Competitors may infringe AGIGs patent, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, AGIG may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of its management and scientific personnel. Any claims AGIG asserts against perceived infringers could provoke these parties to assert counterclaims against it alleging that AGIG infringes their patents, in addition to counterclaims asserting that AGIGs patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of AGIG is invalid or unenforceable, in whole or in part, and that it does not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patents claims narrowly or decide that AGIG does not have the right to stop the other party from using the invention at issue on the grounds that its patent claims do not cover the invention. An adverse outcome in a litigation or proceeding involving AGIGs patent could limit its ability to assert those patents against those parties or other competitors, and may curtail or preclude its ability to exclude third parties from making and selling similar or competitive products. Similarly, if AGIGs assets trademark infringement claims, a court may determine that the marks AGIG has asserted are invalid or unenforceable, or that the party against whom AGIG has asserted trademark infringement has superior rights to the trademarks in question. In this case, AGIG could ultimately be forced to cease use of such trademarks.
Even if AGIG establishes infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of AGIGs confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could adversely affect the price of AGIGs common shares. Moreover, there can be no assurance that AGIG will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if AGIG ultimately prevails in such claims, the monetary cost of such litigation and the diversion of the attention of its management and scientific personnel could outweigh any benefit AGIG receives as a result of the proceedings.
Additionally, for certain of AGIGs existing and future in-licensed patent rights, AGIG may not have the right to bring suit for infringement and may have to rely on third parties to enforce these rights for it. If AGIG cannot or choose not to take action against those it believes infringe its intellectual property rights, AGIG may have difficulty competing in certain markets where such potential infringers conduct their business, and its commercialization efforts may suffer as a result.
AGIG relies in part on trade secrets to protect its technology, and its failure to obtain or maintain trade secret protection could harm AGIGs business.
AGIG relies on trade secrets to protect some of its technology and proprietary information, especially where AGIG believes patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. Litigating a claim that a third party had illegally obtained and used AGIGs trade secrets would be expensive and time-consuming, and the outcome would be unpredictable. Moreover, if AGIGs competitors independently develop similar knowledge, methods and know-how, it will be difficult for AGIG to enforce its rights and its business could be harmed.
Trade secrets can be difficult to protect and enforce, and AGIGs inability to do so could adversely affect its competitive position.
In addition to the protection afforded by patents, AGIG relies on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that AGIG elects not to patent, processes for which patents are difficult to enforce and information or technology that is not covered by patents. Aspects of AGIGs manufacturing process are protected by trade secrets. However, trade secrets can be difficult to protect and some courts inside and outside the United States are less willing or unwilling to protect trade secrets.
| 31 |
AGIG seeks to protect its proprietary know-how, trade secrets and processes, in part, by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with its employees, consultants, scientific advisors, CROs, manufacturers and contractors. These agreements typically limit the rights of third parties to use or disclose AGIGs confidential information. However, AGIG may not be able to prevent the unauthorized disclosure or use of its technical know-how or other trade secrets by the parties to these agreements, despite the existence generally of confidentiality agreements and other contractual restrictions. AGIG cannot guarantee that it has entered into such agreements with each party that may have or have had access to its trade secrets or proprietary processes. Monitoring unauthorized uses and disclosures is difficult and AGIG does not know whether the steps it has taken to protect its proprietary know-how and trade secrets will be effective. If any of AGIGs employees, collaborators, CROs, manufacturers, consultants, advisors and other third parties who are parties to these agreements breaches or violates the terms of any of these agreements, AGIG may not have adequate remedies for any such breach or violation. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. As a result, AGIG could lose its trade secrets. AGIG also seeks to preserve the integrity and confidentiality of its data and trade secrets by maintaining physical security of its premises and physical and electronic security of its information technology systems. While AGIG has confidence in these security measures, they may still be breached, and AGIG may not have adequate remedies for any breach.
In addition, AGIGs trade secrets may otherwise become known or be independently discovered by competitors. Competitors could purchase AGIGs product candidates, if approved, and attempt to replicate some or all of the competitive advantages AGIG derives from its development efforts, willfully infringe, misappropriate or otherwise violate AGIGs intellectual property rights, design around AGIGs protected know-how and trade secrets, or develop their own competitive technologies that fall outside of AGIGs intellectual property rights. If any of AGIGs trade secrets were to be lawfully obtained or independently developed by a competitor, AGIG would have no right to prevent them, or those to whom they communicate such trade secrets, from using that technology or information to compete with AGIG. If AGIGs trade secrets are not adequately protected so as to protect its market against competitors products and technologies, AGIGs competitive position could be adversely affected.
AGIG depends on certain technologies that are sold or licensed to it. AGIG does not control these technologies or own the intellectual rights to these properties, and any loss of AGIGs rights to them could prevent it from developing its process technologies.
AGIG depends on certain technologies that are sold or licensed to it. AGIG does not currently own any intellectual property rights, including the patents that underlie these licenses. AGIGs rights to use the technologies it licenses are subject to the negotiation of, continuation of and compliance with the terms of those licenses. Thus, these patents and patent applications are not written by AGIG or its attorneys, and AGIG did not have control over the drafting and prosecution. The former patent owners and AGIGs licensors might not have given the same attention to the drafting and prosecution of these patents and applications as AGIG would have if it had been the owners of the patents and applications and had control over the drafting. Moreover, under certain of AGIGs licenses, patent prosecution activities remain under the control of the licensor. AGIG cannot be certain that drafting of the licensed patents and patent applications, or patent prosecution, by the licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights.
Legal action could be initiated against the owners of the technologies that AGIG licenses and an adverse outcome in such legal action could harm its business because it might prevent such companies or institutions from continuing to license technology that AGIG may need to operate its business. In addition, such licensors may resolve such litigation in a way that benefits them but adversely affects AGIGs ability to have freedom to operate to develop and commercialize its products.
General Risks Related to AGIG
Governmental programs designed to incentivize the production and consumption of low carbon fuels and carbon capture and utilization, may be implemented in a way that does not include AGIGs products or could be repealed, curtailed or otherwise changed, which would have a material adverse effect on AGIGs business and financial condition.
AGIG and other participants in the alternative energy and fuel industry rely on governmental programs requiring or incentivizing the consumption of low carbon fuels. Renewable fuel has historically been more expensive to produce than fossil-based fuel, and these governmental programs support a market for biomass-based fuel that might not otherwise exist. If any of these governmental incentives are repealed, curtailed, or otherwise changed, AGIG would likely see a decrease in demand for low carbon fuels and reduced revenue. If AGIG is unable to effectively respond to governmental changes in a cost-efficient manner, AGIG may fail to achieve the financial results it expects or that financial analysts and investors expect, and AGIGs business, prospects, financial condition, and operating results may be adversely affected.
| 32 |
Products produced by AGIGs process technologies compete with or are intended to displace comparable products produced using fossil resources. The market prices for these alternatively produced products and commodities are subject to volatility and there is a limited amount of referenceable market data.
AGIG believes that there are a number of trends affecting its industry, including significant volatility in the price of the fossil-fuel feedstocks used to produce nearly all intermediate and basic chemicals, dramatic swings in earnings and difficulty in forecasting future performance; the increased availability of natural gas, especially in North America, and the growing spread between the price of crude oil and natural gas; the chemical industry increasingly building large-scale manufacturing facilities; and increasing interest in the environmental consequences of product purchases. While AGIGs business may be positively affected by these trends, its results may also be favorably or unfavorably impacted by these and other trends that affect demand and pricing for intermediate and basic chemicals, including, among others, changes in feedstock availability and pricing, developments in AGIGs industry and among its competitors, and changes in consumer preferences and demand. AGIGs failure to effectively manage these trends could have a material adverse effect on its business, results of operations, financial condition, prospects, reputation and brands, including impairing AGIGs ability to perform to its customers expectations. Additionally, AGIG must often rely on its own market research to forecast sales, as detailed forecasts are not generally obtainable from other sources at this early stage of the industry. Market research and projections by AGIG of estimated total retail sales, demographics, demand, and similar consumer research are based on assumptions from limited and unreliable market data, and generally represent the personal opinions of AGIGs management team. A failure in the demand for AGIGs products to materialize as a result of competition, technological change or other factors could have a material adverse effect on the business, results of operations, financial condition or prospects of AGIG.
AGIG is subject to risks associated with currency fluctuations, and changes in foreign currency exchange rates could impact its results of operations.
AGIG operates mainly through two entities, Abundia Global Impact Group LLC (AGIG), which is a Delaware corporation and has a U.S. dollar functional currency, and AGIGs wholly-owned subsidiary, Abundia Global Impact Group (Ireland) Limited (AGIG Ireland), which is based in Kilpheak, Glenswilly, Co. Donegal Ireland and has a Euro functional currency. AGIGs reporting currency is the U.S. dollar.
Significant fluctuations in U.S. dollar to Euro exchange rates could affect AGIGs result of operations, cash position and funding requirements. To the extent that fluctuations in currency exchange rates cause AGIGs results of operations to differ materially from its expectations or the expectations of its investors, the trading price of the combined companys common stock could be adversely affected.
From time to time, AGIG may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. As part of AGIGs risk management program, AGIG may enter into foreign exchange forward contracts to lock in the exchange rates for future foreign currency transactions, which is intended to reduce the variability of its operating costs and future cash flows denominated in currencies that differ from its functional currencies. AGIG does not enter into these contracts for trading purposes or speculation, and its management believes all such contracts are entered into as hedges of underlying transactions. Nonetheless, these instruments involve costs and have risks of their own in the form of transaction costs, credit requirements and counterparty risk. If AGIGs hedging program is not successful, or if AGIG changes its hedging activities in the future, AGIG may experience significant unexpected expenses from fluctuations in exchange rates. Any hedging technique AGIG implements may fail to be effective. If AGIGs hedging activities are not effective, changes in currency exchange rates may have a more significant impact on the trading price of its common stock.
| 33 |
Conditions in the financial markets and economic conditions in general may adversely affect AGIGs ability to raise additional capital, execute its business plan or remain in business.
The business environment in which AGIG operates has been impacted by the effects of worldwide macroeconomic uncertainty. Economic activity improved slightly during 2024; however, economic concerns remain as a result of the cumulative weight of uncertainty regarding the economic conditions domestically and in foreign countries, including global political hostilities and other financial crises. Inflation has become elevated, reflecting demand and supply imbalances, supply chain issues, higher energy prices, fiscal stimulus and broader price pressures. Uncertainty surrounding the near-term direction of global markets, and the potential impact of these trends on the global economy, are expected to persist for the near term. Strategic risk, including threats to business models from rising interest rates and modest economic growth, remain high.
It is difficult to predict the extent to which these challenging economic conditions will persist or whether recent progress in the economic recovery will instead shift to the potential for further decline. If the economy does weaken in the future, it is uncertain how AGIGs business would be affected and whether it would be able successfully to mitigate any such effects on its business. Accordingly, these factors in the global economy could have an adverse effect on AGIGs ability to raise additional capital, execute its business plan or remain in business.
In 2023, multiple regional banks were either taken over by the Federal Deposit Insurance Corporation (FDIC) or entered receivership. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, AGIGs ability to access its existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on AGIGs business and financial condition. Weakness and volatility in capital markets and the economy, in general or as a result of bank failures or macroeconomic conditions such as rising inflation, could limit AGIGs access to capital markets and increase its costs of borrowing.
If AGIG loses key personnel or are unable to attract, integrate and retain additional key personnel, it could harm AGIGs ability to meet its business objectives.
AGIGs success depends to a significant degree upon the technical and management skills of its senior management team. The loss of the services of any of these individuals could have a material adverse effect on AGIGs ability to achieve its corporate objectives and successfully execute its business plan. AGIG plans to implement an executive compensation policy that includes variable compensation based on performance as well as share-based compensation plans for the benefit of its key employees; however, AGIG cannot guarantee that this policy will be sufficient to retain these key employees. AGIGs success also will depend upon its ability to attract and retain additional qualified management, marketing, technical, and sales executives and personnel. AGIG competes for key personnel against numerous companies, including larger, more established companies with significantly greater financial resources than AGIG possesses. There can be no assurance that AGIG will be successful in attracting or retaining such personnel, and the failure to do so could harm its operations and its growth prospects.
If AGIG experiences a significant disruption in its information technology systems, including security breaches, or if AGIG fails to implement new systems and software successfully, its business operations and financial condition could be adversely affected.
AGIG relies on information technology systems to keep financial records and corporate records, communicate with staff and external parties and operate other critical functions, including sales and manufacturing processes. AGIGs information technology systems are potentially vulnerable to disruption due to breakdown or malicious intrusion and computer viruses. If AGIG were to experience a prolonged system disruption in its information technology systems, it could negatively impact the coordination of AGIGs sales, planning and manufacturing activities, which could adversely affect its business. In addition, in order to maximize AGIGs information technology efficiency, AGIG has physically consolidated its primary corporate data and computer operations. This concentration, however, exposes AGIG to a greater risk of disruption to its internal information technology systems. Although AGIG maintain offsite back-ups of its data, if operations at its facilities were disrupted, it may cause a material disruption in AGIGs business if it is not capable of restoring function on an acceptable time frame.
In addition, AGIGs information technology systems are potentially vulnerable to cyber-attacks or other data security breaches-whether by employees or others-which may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of sensitive and confidential information of AGIGs employees, customers, suppliers and others, any of which could have a material adverse effect on its business, financial condition and results of operations.
| 34 |
While AGIG has implemented a number of protective measures, including firewalls, antivirus and malware detection tools, patches, log monitors, routine back-ups, system audits, routine password modifications and disaster recovery procedures, such measures may not be adequate or implemented properly to prevent or fully address the adverse effect of such events, and in some cases, AGIG may be unaware of an incident or its magnitude and effects. If AGIG is unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, its operations could be disrupted, and AGIG may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.
Natural or man-made disasters, social, economic and political instability, and other similar eventsincluding pandemicsmay significantly disrupt AGIGs and its industry partners businesses, and negatively impact AGIGs results of operations and financial condition.
AGIGs corporate headquarters are located in the U.S., with planned facilities in Houston, Texas, U.S., and AGIG anticipates working with its industry partners in multiple other locations, including non-U.S. sites. AGIGs locations, including potential non-U.S. locations, may be subject to social, economic and political instability, such as social uprisings. Additionally, any of AGIGs or its industry partners facilities may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, tornadoes, hurricanes, wildfires, floods, tsunamis, nuclear disasters, acts of terrorism or other criminal activities, infectious disease outbreaks and power outages, which may render it difficult or impossible for AGIG or its industry partners to operate AGIGs business for some period of time. AGIG and its industry partners facilities would likely be costly to repair or replace, and any such efforts would likely require substantial time. Any disruptions in AGIGs or its industry partners operations could negatively impact AGIGs business and results of operations, and harm its reputation. AGIGs disaster recovery plan may not be sufficient to address an actual disaster, in particular any events that negatively impact AGIGs or its industry partners physical infrastructures. In addition, AGIG and its industry partners may not carry sufficient business insurance to compensate for losses that may occur. Any such losses or damages could have a material adverse effect on AGIGs results of operations and financial condition, and success as an overall business.
Risks Related to the AGIG Transaction
Completion of the Share Exchange is subject to the conditions contained in the Share Exchange Agreement, and if these conditions are not satisfied, we may not complete the AGIG Transaction.
The completion of the Share Exchange is subject to various closing conditions, including but not limited to HUSAs stockholders approving the Issuance Proposal and Reverse Stock Split Proposal, filing of an additional listing application with the NYSE American Stock Exchange operated by NYSE American LLC (the NYSE American) with respect to the Common Stock issued pursuant to the Share Exchange Agreement (the NYSE Listing Application), NYSE Americans approval of the NYSE Listing Application, the accuracy of the parties representations and warranties in the Share Exchange Agreement (subject to the standards set forth in the Share Exchange Agreement), and the parties compliance with their covenants in the Share Exchange Agreement.
Many of the conditions to the closing of the Share Exchange Agreement are not within our control, and we cannot predict with certainty when or if these conditions will be satisfied. The failure to satisfy any of the required conditions could delay the completion of the AGIG Transaction or prevent it from occurring. Any delay in completing the AGIG Transaction could cause us not to realize some or all of the benefits that we expect to achieve if the AGIG Transaction is successfully completed within the expected timeframe. There can be no assurance that the conditions to the closing of the Share Exchange Agreement will be satisfied or that the Share Exchange will be completed or that, if completed, we will realize the anticipated benefits.
Our failure to complete the AGIG Transaction could negatively impact our stock price, our financial condition, and our future business and financial results.
If the AGIG Transaction is not completed for any reason, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the AGIG Transaction, we could be subject to a number of negative consequences, including, among others: (i) we may experience negative reactions from the financial markets, including negative impacts on our stock price; and (ii) we will still be required to pay certain costs relating to the AGIG Transaction, including legal, accounting, and financial advisor costs. If the AGIG Transaction is not completed or if completion of the AGIG Transaction is delayed, any of these risks could occur and may adversely affect our business, financial condition, financial results, and stock price.
| 35 |
Until the completion of the Share Exchange or the termination of the Share Exchange Agreement in accordance with its terms, we are prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to us or our stockholders.
The Share Exchange Agreement prohibits us from taking specified actions without the consent of the AGIG Unitholders and generally requires that our business be conducted in the ordinary course of business. These restrictions may prevent us from taking actions prior to the Share Exchange that might otherwise be beneficial. Adverse effects arising from these restrictions could be exacerbated by any delays in completing the Share Exchange.
We may waive one or more of the closing conditions without re-soliciting stockholder approval from HUSA stockholders.
To the extent permitted by law, if the HUSA stockholders approve the Issuance Proposal at the special meeting, we may determine to waive, in whole or part, one or more of the conditions to our obligations to consummate the Share Exchange. We expect to evaluate the materiality of any waiver and its effect on HUSA stockholders in light of the facts and circumstances at the time to determine whether any amendment of this proxy statement or any re-solicitation of proxies is required in light of such waiver. Any determination as to whether to waive any condition to the consummation of the AGIG Transaction, and as to whether to re-solicit stockholder approval and/or amend this proxy statement as a result of such waiver, will be made by us at the time of such waiver based on the facts and circumstances as they exist at that time.
We cannot predict whether the reverse stock split will increase the market price for Common Stock .
Although the Board believes that a higher stock price may help Common Stock qualify for listing on NYSE American and generate the interest of new investors, the reverse stock split may not result in a per-share price that will satisfy NYSE American Rules or successfully attract certain types of investors and such resulting share price may not satisfy the investing guidelines of institutional investors or investment funds. Further, other factors, such as our financial results, market conditions, and the market perception of our business, may adversely affect the interest of new investors in the shares of Common Stock. As a result, the trading liquidity of the shares of Common Stock may not improve as a result of the reverse stock split and there can be no assurance that the reverse stock split, if completed, will result in the intended benefits described above.
Additionally, the market price of Common Stock will also be based on our performance and other factors, some of which are unrelated to the number of shares outstanding. There can be no assurance that the market price of Common Stock will not decrease in the future.
Our announcement or implementation of the reverse stock split may adversely affect the trading price of Common Stock.
The reverse stock split could be viewed negatively by the market and other factors, such as those described above, may adversely affect the market price of the shares of Common Stock. Consequently, the market price of the post-reverse stock split shares may not increase in proportion to the reduction of the number of shares of Common Stock outstanding before the implementation of the reverse stock split. Accordingly, the total market capitalization of our shares of common stock after the reverse stock split may be lower than the total market capitalization before the reverse stock split.
Any reduction in our total market capitalization as the result of the reverse stock split may make it more difficult for us to meet the NYSE American Rules regarding minimum value of listed securities, which could delay or prevent shares of Common Stock from being listed on NYSE American.
Univest, advisor to the Company, may have had a potential conflict of interest in rendering services to the Company in connection with the Share Exchange.
The Company has sought Univests assistance in assessing various growth options for the Company, pursuant to which Univest identified the potential for a transaction with AGIG to strategically expand its presence in the renewable energy sector and provided the Company recommendations of independent financial advisors to render an opinion as to the fairness to HUSA stockholders of the Share Exchange. Previously, Univest has also acted as an exclusive placement agent for the Companys private placement offering with BFH, a unitholder of AGIG. Univest was also formally engaged by AGIG to provide corporate finance and strategic advice regarding the potential sale of AGIG, including the contemplated Share Exchange.
Univest will receive a fee of 3.5% of the aggregate transaction value from AGIG, payable in shares of Common Stock, upon completion of the Share Exchange. The contingent nature of such fee arrangement might be viewed as giving Univest a financial interest in the successful completion of the Share Exchange.
The Board was aware of these potential conflicts and considered them in their determination to approve the Share Exchange Agreement. Stockholders should carefully consider these conflicts when evaluating the AGIG Transaction.
Risks Related to the Combined Company and our Ownership Structure After the AGIG Transaction
HUSA stockholders will experience dilution because of the issuance of the common stock in connection with the AGIG Transaction.
HUSA stockholders will experience dilution upon the issuance of additional shares of common stock pursuant to the Share Exchange Agreement. Such dilution will, among other things, for the foreseeable future significantly limit the ability of the current HUSA stockholders to influence our management, including through the election of directors.
| 36 |
The AGIG Unitholders, as our largest stockholders, will have the ability to exert substantial influence over us .
After the closing of the AGIG Transaction, the AGIG Unitholders will beneficially own approximately 94% of the voting power in the combined company. The AGIG Unitholders interests in or actions with respect to HUSA could be different from or adverse to those of other holders of Common Stock and could materially and adversely affect your investment in Common Stock.
Upon the completion of the AGIG Transaction, the combined company is likely to be a controlled company within the meaning of NYSE American Company Guide and, as a result, the combined company may qualify for, and may choose to rely on, exemptions from certain corporate governance requirements.
Upon the completion of the AGIG Transaction, it is anticipated that Abundia Financial will beneficially own more than 50% of the voting power of all the Common Stock. As a result, the combined company could be considered a controlled company as defined in Section 801 of the NYSE American Company Guide. Under the NYSE American Company Guide, a company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain NYSE American corporate governance requirements, including:
| ● | the requirement that a majority of the board of directors consist of independent directors; | |
| ● | the requirement that the nominating and corporate governance committee have a formal written charter and be comprised of independent directors or by a majority of the independent directors on the board of directors; and | |
| ● | the requirement that the compensational committee have a formal written charter and be comprised of independent directors or by a majority of the independent directors on the board of directors. |
Accordingly, if the combined company qualifies as a controlled company, and elected to be exempt from some or all of these corporate governance requirements, you may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE American corporate governance requirements.
Anti-takeover provisions under Delaware corporate law may make it difficult for stockholders to replace or remove the board of directors of the combined company and could deter or delay third parties from acquiring the combined company, which may be beneficial to its stockholders .
The combined company is subject to the anti-takeover provisions of Delaware law, including Section 203 of the Delaware General Corporation Law (DGCL). Under these provisions, which will become effective upon the closing of the AGIG Transaction, if anyone becomes an interested stockholder, the combined company may not enter into a business combination with such stockholder for three (3) years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203 of the DGCL, interested stockholder means, generally, someone owning fifteen percent (15%) or more of the outstanding voting stock of the combined company during the past three (3) years, subject to certain exceptions as described in Section 203 of the DGCL.
AGIG may have liabilities that are not known, probable or estimable at this time.
After the AGIG Transaction, AGIG will remain subject to certain past, current, and future liabilities. There could be unasserted claims or assessments against or affecting AGIG, including the failure to comply with applicable laws and regulations. In addition, there may be liabilities of AGIG that are neither probable nor estimable at this time that may become probable or estimable in the future, including indemnification requests received from customers of AGIG relating to claims of infringement or misappropriation of third party intellectual property or other proprietary rights, tax liabilities arising in connection with ongoing or future tax audits and liabilities in connection with other past, current and future legal claims and litigation. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our financial results. We may learn additional information about AGIG that adversely affects us, such as unknown, unasserted, or contingent liabilities and issues relating to compliance with applicable laws or infringement or misappropriation of third party intellectual property or other proprietary rights.
AGIG may require additional capital to finance AGIGs operations, which may not be available on acceptable terms, or at all. If AGIG is unable to raise capital when needed, AGIG may be forced to delay, reduce or eliminate its development programs or commercialization efforts.
AGIG expects its existing cash and cash equivalents and short-term investments will not be sufficient to fund its planned operations for the next twelve months from the date of filing this proxy statement based upon its current operating plans. AGIG will be required to seek additional funding in the future and currently intends to do so through public or private equity or debt financings or other capital sources, including potentially government funding, collaborations, licenses and other similar arrangements.
If AGIG raises additional funds by issuing equity securities, its stockholders will suffer dilution and the terms of any financing may adversely affect the rights of the stockholders. In addition, as a condition to providing additional funds to AGIG, future investors may demand, and may be granted, rights superior to those of existing stockholders. Debt financing, if available, is likely to involve restrictive covenants limiting AGIGs flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of AGIGs equity securities would receive any distribution of AGIGs corporate assets. Additionally, global economic instability, higher interest rates and diminished credit availability may limit AGIGs ability to obtain debt financing on favorable terms.
AGIGs ability to raise additional funds will depend on financial, economic and other factors, many of which are beyond AGIGs control. Fundraising efforts may divert AGIGs management from their day-to-day activities, which may adversely affect AGIGs ability to develop products. Disruptions in the financial markets in general, and due to public health crises, geopolitical conflicts and economic instability, may make equity and debt financing more difficult to obtain, and may have a material adverse effect on AGIGs ability to meet its fundraising needs. The combined company will not be able to guarantee that future financing will be available in sufficient amounts or on terms acceptable to AGIG, if at all.
The combined company may not fully realize the anticipated benefits of the AGIG Transaction within the timing anticipated or at all .
We and the AGIG Unitholders entered into the Share Exchange Agreement because each party believes that the AGIG Transaction will be beneficial primarily as a result of the anticipated benefits resulting from the combined companys operations. We and AGIG may not be able to achieve the anticipated long-term strategic benefits of the AGIG Transaction. An inability to realize the full extent of, or any of, the anticipated benefits of the AGIG Transaction, as well as any delays that may be encountered in the integration process, which may delay the timing of such benefits, could have an adverse effect on the business and results of operations of the combined company, and may affect the value of Common Stock after the completion of the AGIG Transaction.
If we fail to effectively manage our growth, our business and operating results could be harmed.
With the closing of the Share Exchange Agreement, we will experience growth in our operations. This growth will place, significant demands on our management, operational and financial infrastructure. If we do not manage our growth effectively, the quality of our business could suffer, which could negatively affect our operating results. To effectively manage our growth, we must continue to improve our operational, financial and management controls and reporting systems and procedures. These systems improvements may require significant capital expenditures and management resources. Failure to implement these improvements could hurt our ability to effectively manage our growth and would in its turn have a material adverse impact on our business and future operating results.
| 37 |
The Board is using this proxy statement to solicit proxies from stockholders of HUSA who hold shares of Common Stock on the record date for use at the HUSA special meeting and any adjournments or postponements thereof. We are first mailing this proxy statement and accompanying proxy card to HUSA stockholders on or about April 11, 2025.
Date, Time and Place of the Special Meeting
The special meeting will be held virtually on April 24, 2025 at 10:00 am Central Daylight Savings Time. There will not be a physical meeting location. The virtual meeting url is www.virtualshareholdermeeting.com/HUSA2025SM . Stockholders as of the record date may participate in the meeting online, vote, or submit questions by visiting the meeting website and logging in with the control number on their proxy card or voting instruction form.
Matters to Be Considered at the Special Meeting
At the special meeting, HUSA stockholders will be asked to consider and vote upon the following proposals:
1. Issuance Proposal approve the issuance of a number of shares of Common Stock equal to 94% of all the issued and outstanding Common Stock of HUSA at the time of the closing under the Share Exchange Agreement;
2. Reverse Stock Split Proposal approve and adopt the Reverse Stock Split Amendment, to effect a reverse stock split of all of the outstanding shares of Common Stock, at a ratio in the range of 1-for-5 to 1-for-60, with such ratio to be determined by the Board;
3. Share Increase Proposal approve and adopt an amendment to the Charter to increase the number of authorized shares of Common Stock that may be issued from 20,000,000 to 300,000,000; and
4. Adjournment Proposal approve the adjournment of the special meeting, to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies if there are insufficient votes at the time of the special meeting to approve the Issuance Proposal or the Reverse Stock Split Proposal.
The HUSA stockholder approval of the Issuance Proposal and the Reverse Stock Split Proposal is a condition for completing the Share Exchange. As such, our stockholders must approve the Proposals in order for the Share Exchange to be completed.
Recommendation of the HUSA Board
The Board has approved the AGIG Transaction, including the Share Exchange as well as the reverse stock split, and determined that the AGIG Transaction and each of the Proposals are advisable and in the best interests of HUSA and its stockholders. The Board unanimously recommends HUSA stockholders vote:
| ● | FOR the approval of the Issuance Proposal; | |
| ● | FOR the Reverse Stock Split Proposal; | |
| ● | FOR the Share Increase Proposal; and | |
| ● | FOR the Adjournment Proposal. |
Record Date and Outstanding Shares for the Special Meeting and Voting Rights
The Board has fixed the close of business on February 25, 2025 as the record date for determining the HUSA stockholders entitled to receive notice of and to vote at the HUSA special meeting. Only holders of Common Stock on the record date are entitled to receive notice of and vote at the special meeting and any adjournment or postponement thereof.
| 38 |
Each share of Common Stock is entitled to one vote on each matter brought before the special meeting. On the record date, there were 15,686,533 shares of Common Stock issued and outstanding.
Quorum Requirement
A quorum of HUSAs stockholders at the special meeting is necessary to transact business. Under the HUSA by-laws, the holders of more than one-third of the Common Stock issued and outstanding and entitled to vote, represented online (by remote communication) or by proxy, shall constitute a quorum for the transaction of business at the special meeting.
All shares of Common Stock represented online (by remote communication) or by proxy at the special meeting, including abstentions, will be treated as present for purposes of determining the presence or absence of a quorum at the HUSA special meeting.
Abstentions and Broker Non-Votes
If you are a stockholder of record of Common Stock, then your abstention from voting on the Issuance Proposal or the Adjournment Proposal, if presented, will have the effect of a vote against such proposal because each such proposal requires the affirmative vote of the majority of all shares present and entitled to vote. Your abstention from voting on the Reverse Stock Split Proposal will not have any effect on the outcome of the vote thereon.
If you are a stockholder of record of Common Stock and you sign and return a proxy card or otherwise submit a proxy card without giving specific voting instructions, your shares will be voted:
| ● | FOR the approval of the Issuance Proposal; | |
| ● | FOR the approval of the Reverse Stock Split Proposal; | |
| ● | FOR the approval of the Share Increase Proposal; | |
| ● | FOR the approval of the Adjournment Proposal. |
If you are a beneficial owner and you do not provide voting instructions to your broker, bank, or other holder of record holding shares for you (including by signing and returning a blank voting instruction card), your shares:
● will be counted as present for purposes of establishing a quorum;
● will be voted in accordance with the brokers, banks, or other nominees discretion on routine matters, which are the Reverse Stock Split Proposal, the Share Increase Proposal and the Adjournment Proposal, if applicable; and
● will not be counted in connection with the Issuance Proposal or any other non-discretionary matters that are properly presented at the special meeting. For each of these proposals, your shares will be treated as broker non-votes.
Required Votes
Approvals of the Proposals to be considered at the HUSA special meeting require the vote thresholds described below. You may vote for or against any of the Proposals submitted at the HUSA special meeting or you may abstain from voting.
Required Vote for Approval of the Issuance Proposal (Proposal 1)
Approval of the Issuance Proposal requires the affirmative vote of the majority of Common Stock present at the special meeting, or represented by proxy, and entitled to vote on such proposal at the special meeting at which a quorum is present. An abstention from voting will have the same effect as a vote against the Issuance Proposal. A broker non-vote will have no effect on the outcome of the vote on the Issuance Proposal.
| 39 |
Required Vote for Approval of the Reverse Stock Split Proposal (Proposal 2)
Approval of the Reverse Stock Split Proposal requires the affirmative vote of a majority of the votes cast by the holders of Common Stock present at the special meeting, or represented by proxy, and entitled to vote thereon. An abstention from voting will have no effect on the Issuance Proposal.
Required Vote for Approval of the Share Increase Proposal (Proposal 3)
Approval of the Share Increase Proposal requires the affirmative vote of the majority of votes cast by the holders of Common Stock present at the special meeting, or represented by proxy, and entitled to vote thereon. An abstention from voting will have no effect on the Share Increase Proposal.
Required Vote for Approval of the Adjournment Proposal (Proposal 4)
Approval of the Adjournment Proposal requires the affirmative vote of the majority of Common Stock present at the special meeting, or represented by proxy, and entitled to vote on such proposal at the special meeting at which a quorum is present. An abstention from voting will have the same effect as a vote against the Adjournment Proposal.
Vote of HUSA Directors and Executive Officers
On the record date, our directors and executive officers were entitled to vote 6,000 shares of common stock, or approximately 0.04% of the voting power of outstanding HUSA stock. To our knowledge, our directors and executive officers intend to vote their shares of Common Stock in favor of all the Proposals presented at the special meeting, and any adjournment or postponement thereof.
Methods of Voting
By Mail
A proxy card is enclosed for your use. To submit your proxy by mail, please sign and date the accompanying proxy card and, if you are a stockholder of record, return it as soon as possible in the enclosed postage-paid envelope or pursuant to the instructions set out in the proxy card. If you are a beneficial owner, please refer to your proxy card or the information provided to you by your bank, broker, custodian, or record holder. When the accompanying proxy card is returned properly executed, the shares of Common Stock represented by it will be voted at the special meeting in accordance with the instructions contained in the proxy.
If proxies are returned properly executed without indication as to how to vote, the Common Stock represented by each such proxy will be voted as follows: (1) FOR the Issuance Proposal, (2) FOR the Reverse Stock Split Proposal, (3) FOR the Share Increase Proposal, and (4) FOR the Adjournment Proposal.
Your vote is important. Accordingly, please sign, date, and return the enclosed proxy card whether or not you plan to attend the meeting online (by remote communication).
By Telephone
If you are a stockholder of record, you may also submit your proxy by telephone by dialing the toll-free telephone number on your proxy card and providing the unique control number indicated on the enclosed proxy card. Telephone proxy submission is available 24 hours a day and will be accessible until 11:59 p.m. Eastern Time on April 23, 2025. Easy-to-follow voice prompts allow you to submit your proxy and confirm that your instructions have been properly recorded. If you are a beneficial owner, please refer to your proxy card or the information provided by your bank, broker, custodian, or record holder for information on telephone proxy submission. If you are located outside the United States, Canada, and Puerto Rico, see your proxy card or other materials for additional instructions. If you submit your proxy by telephone, you do not need to return your proxy card. If you hold shares through a bank, broker, custodian, or other record holder, please check the voting form used by such holder to see if it offers telephone proxy submission.
By Internet
If you are a stockholder of record, you may also choose to submit your proxy on the Internet. The website for Internet proxy submission and the unique control number you will be required to provide are on the proxy card. Internet proxy submission is available 24 hours a day and will be accessible until 11:59 p.m. Eastern Time on April 23, 2025. If you are a beneficial owner, please refer to your proxy card or the information provided by your bank, broker, custodian, or record holder for information on Internet proxy submission. As with telephone proxy submission, you will be given the opportunity to confirm that your instructions have been properly recorded. If you submit your proxy on the Internet, you do not need to return your proxy card. If you hold shares through a bank, broker, custodian, or record holder, please check the voting form used by such holder to see if it offers Internet proxy submission.
| 40 |
Virtually Attending the Special Meeting
The HUSA special meeting of stockholders will be held virtually at 10:00 am Central Daylight Savings Time on April 24, 2025. There will not be a physical meeting location. The virtual meeting url is www.virtualshareholdermeeting.com/HUSA2025SM . Stockholders as of the record date may participate in the meeting online, vote, or submit questions by visiting the meeting website and logging in with the control number on their proxy card or voting instruction form.
Revocability of Proxies
With respect to shares of Common Stock that you hold of record, you have the power to revoke your proxy at any time before the proxy is voted at the special meeting. You can revoke your proxy in one of three ways:
● you can send a signed notice of revocation of proxy;
● you can grant a new, valid proxy bearing a later date; or
● if you are a holder of record, you can attend the applicable special meeting and vote virtually, but your attendance alone will not revoke any proxy that you have previously given.
If you choose either of the first two methods to revoke your proxy, you must submit your notice of revocation or your new proxy to HUSA at 801 Travis St., Suite 1425, Houston, Texas 77002 Attention: Investor Relations, so that it is received no later than the beginning of the special meeting.
If you are a beneficial owner of Common Stock, and not the stockholder of record, as of the close of business on the record date, you must follow the instructions of your brokerage firm, bank, dealer, or other similar organization, trustee, or nominee to revoke or change your voting instructions.
Proxy Solicitation Costs
This solicitation is made on behalf of the Board, and HUSA will bear the expenses of soliciting and obtaining proxies. Our officer and certain other employees, without additional remuneration, may solicit proxies personally or by telephone, e-mail, or other means. We may reimburse brokerage houses and other custodians, nominees, and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to our stockholders. We have engaged Okapi Partners LLC (Okapi) to assist in the solicitation of proxies. We have paid Okapi a fixed fee of $20,000 for services relating to solicitation and will reimburse Okapi for significant out-of-pocket expenses. If we utilize an additional direct telephone campaign service, we will pay Okapi a one-time modest set up and training fee and flat fees per incoming and outgoing proxy solicitation call and per telephone vote received.
Assistance
If you have additional questions about the AGIG Transactions or the special meeting, you should contact:
Houston American Energy Corp.
801 Travis St., Suite 1425
Houston, Texas 77002
Attention: Investor Relations
Phone Number: 713-222-6966
E-mail Address: info@houstonamerican.com
If you would like additional copies of this proxy statement or you need assistance voting your shares, you should contact Okapi, our proxy solicitor, at the following:
Okapi Partners LLC
1212 Avenue of the Americas, 17th Floor
New York, New York 10036
Phone Number: 212-297-0720
Email Address: info@okapipartners.com
HUSA STOCKHOLDERS SHOULD CAREFULLY READ THIS PROXY STATEMENT IN ITS ENTIRETY FOR MORE DETAILED INFORMATION CONCERNING THE SHARE EXCHANGE AGREEMENT AND THE AGIG TRANSACTION. IN PARTICULAR, HUSA STOCKHOLDERS ARE DIRECTED TO THE SHARE EXCHANGE AGREEMENT, WHICH IS ATTACHED AS ANNEX B HERETO.
| 41 |
Overview
On February 20, 2025, we entered into a Share Exchange Agreement with the AGIG Unitholders. The AGIG Unitholders are the record and beneficial owners of all the issued and outstanding units of AGIG. The Share Exchange Agreement provides that we will acquire all of the outstanding units of AGIG in exchange for issuing a number of shares of Common Stock equal to 94% of all the issued and outstanding common stock of HUSA at the time of the closing of the Share Exchange Agreement, after taking into account issuance to the AGIG Unitholders. Based on the number of shares of Common Stock outstanding as of April 3, 2025, we expect that the Share Exchange Agreement would require the issuance of 245,755,684 shares of Common Stock to the AGIG Unitholders. The Share Exchange is subject to customary closing conditions, including the condition that our stockholders approve this Issuance Proposal.
Immediately following the completion of the Share Exchange, AGIG will be a wholly-owned subsidiary of HUSA. Outstanding shares of Common Stock will remain outstanding and unaffected upon completion of the Share Exchange. Common Stock will continue to be registered under the Securities Exchange Act of 1934 immediately following the Share Exchange.
A copy of the Share Exchange Agreement, as amended, is included as Annex B to this proxy statement. We urge you to read it in its entirety because it is the legal document that governs the Share Exchange.
Purpose of the Issuance Proposal
The primary purpose of the Issuance Proposal is to facilitate the AGIG Transaction. The legacy Oil and Gas businesses of HUSA are declining, and future investment requires significant levels of financial resources. The markets in which HUSA operates are extremely competitive, and we have experienced recurring operating losses and may not attain future profitability. The attainment of future profitability will require successful drilling and development operations to support substantial increases in production and revenues. Competition for financial and other resources in the oil and natural gas industry is intense, which may adversely affect our ability to compete in the future.
HUSA believes that the market for AGIGs offerings is substantial and that the value of recycled or renewable alternatives for the fuel, energy and chemical markets have grown substantially over the past few years. Corporations have been pledging significant changes, and the European Union has introduced mandates to set minimum requirements for recycled or renewable content.
The value of technology companies offering renewable or recycling solutions has grown over the past few decades as well, with a global focus on reducing greenhouse gas emissions. This change has been largely spurred by the increased investment capital dedicated to the development and provision of scalable and commercially viable solutions to a global problem.
We believe AGIG is strategically positioned to take advantage of the significant growth potential and will provide new opportunities for growth in value for existing HUSA stockholders. The AGIG Transaction is necessary for HUSA and its stockholders to obtain these growth opportunities, and the Issuance Proposal is necessary to facilitate the AGIG Transaction.
Required Vote
Approval of the Issuance Proposal requires the affirmative vote of the majority of Common Stock present at the special meeting, or represented by proxy, and entitled to vote at the special meeting at which a quorum is present.
THE HUSA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HUSA STOCKHOLDERS VOTE FOR THE ISSUANCE PROPOSAL.
| 42 |
DESCRIPTION OF THE SHARE EXCHANGE
The following discussion contains important information relating to the Share Exchange. The Share Exchange Agreement is included as Annex B to this proxy statement. We encourage you to carefully read the Share Exchange Agreement in its entirety because it is the principal legal agreement that governs the Share Exchange and the AGIG Transaction. Capitalized terms used but not defined herein have the meanings ascribed to such terms in the Share Exchange Agreement attached hereto as Annex B .
Description of the Share Exchange Agreement
General
On February 20, 2025, HUSA entered into the Share Exchange Agreement with the AGIG Unitholders.
Pursuant to the Share Exchange Agreement, the AGIG Unitholders shall sell and transfer to HUSA, and HUSA shall acquire and accept from the AGIG Unitholders, all of the issued and outstanding units of AGIG. As full consideration for the sale and transfer of such units by the AGIG Unitholders to HUSA, HUSA shall issue to the AGIG Unitholders a number of newly issued, fully paid and nonassessable shares of Common Stock, which resulting number of shares of Common Stock issued shall equal to 94% of the all the issued and outstanding Common Stock at the time of the Closing under the Share Exchange Agreement, after taking into account issuance to the AGIG Unitholders.
Consideration
HUSA Stockholders
No consideration is being paid to holders of Common Stock in the AGIG Transaction. Holders of Common Stock will continue to own their existing shares of Common Stock after the AGIG Transaction.
AGIG
Under the terms of the Share Exchange Agreement, we will acquire all of the outstanding units of AGIG in exchange for issuing to the AGIG Unitholders a number of shares of Common Stock equal to 94% of all the issued and outstanding Common Stock at the time of the closing under the Share Exchange Agreement, after taking into account issuance to the AGIG Unitholders.
Representations and Warranties
The Share Exchange Agreement contains customary representations and warranties made by HUSA and the AGIG Unitholders. Specifically, the representations and warranties in the Share Exchange Agreement (many of which are qualified by concepts of knowledge, materiality and/or dollar thresholds, as may or may not be specifically indicated in the text of the Share Exchange Agreement) relate to the following subject matters, among other things:
● due incorporation, valid existence, good standing, and qualification to do business;
● corporate power and authority to enter into the Share Exchange Agreement, and to consummate the transactions under the Share Exchange Agreement, which are duly authorized and binding obligations;
● corporate structure;
● capitalization, including the authorized capital and issued and outstanding shares;
● financial statements;
● solvency;
● the absence of certain liabilities; and
● good title to assets.
Many of the representations and warranties contained in the Share Exchange Agreement are qualified by a materiality standard, including in some cases a material adverse effect. Moreover, the representations and warranties contained in the Share Exchange Agreement are complicated and not easily summarized. You are urged to carefully read the articles of the Share Exchange Agreement, which is attached hereto as Annex B , titled Representations and Warranties of AGIG Unitholders and Representations of HUSA.
| 43 |
The representations and warranties contained in the Share Exchange Agreement (as well as the covenants described herein and set forth in the Share Exchange Agreement), which were made solely for purposes of the Share Exchange Agreement and solely for the benefit of the parties to the Share Exchange Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by references to HUSAs filings with the SEC and confidential disclosures, were made for the purposes of allocating contractual risk among the parties to the agreements instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to stockholders. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Share Exchange Agreement, which subsequent information may or may not be fully reflected in HUSAs public disclosures. HUSA will provide additional disclosure in its public reports to the extent that it is aware of the existence of any material facts that are required to be disclosed under federal securities laws that might contradict the terms and information contained in the Share Exchange Agreement and will update such disclosure as required by federal securities laws. The representations and warranties will not survive the Closing.
Covenants of the Parties
HUSA and the AGIG Unitholders have agreed to use commercially reasonable efforts to carry on its and AGIGs business, respectively, in the ordinary course business and in the same manner currently conducted. HUSA has further agreed to not take any of the following actions, without the prior written consent of the AGIG, such consent not to be unreasonably withheld, conditioned or delayed:
● sell or otherwise transfer, or agree, commit or offer to sell or otherwise transfer any interest in its assets or business;
● permit, or agree, commit or offer to permit, any interest in its assets to become subject, directly or indirectly, to any Lien (other than Permitted Liens);
● terminate (other than by expiration) or amend or modify (other than by automatic extension or renewal if deemed an amendment or modification of any such contract) in any material respect any Contract;
● incur, assume or otherwise become subject to any Liability, except for liabilities incurred in the ordinary course of business;
● commence or settle any Proceeding;
● enter into any transaction outside the ordinary course of business;
● enter into any transaction or take any other action that might cause or constitute a material breach of any representation or warranty made by HUSA in the Share Exchange Agreement if (A) such representation or warranty had been made as of the time of such transaction or action, (B) such transaction had been entered into, or such action had occurred, on or prior to the date of the Share Exchange Agreement, or (C) such representation or warranty had been made as of the date of Closing; and
● agree, commit or offer (in writing or otherwise) to take any of the actions described above.
More agreements of HUSA and AGIG are given in the Share Exchange Agreement. You are urged to carefully read the article of the Share Exchange Agreement, which is attached hereto as Annex B , titled Agreements of HUSA and AGIG.
Conditions to Closing
The Share Exchange Agreement contains customary conditions to closing made by HUSA and the AGIG Unitholders. Specifically, the Share Exchange Agreement provides that, at or prior to the Closing:
● HUSA and the AGIG Unitholders shall have timely obtained from each Governmental Authority all approvals, waivers and consents, if any, necessary for consummation of, or in connection with the AGIG Transaction;
● HUSA shall have filed the NYSE American initial listing application and taken all necessary actions to effectuate a reverse stock split, in order to satisfy the applicable NYSE American listing standards for HUSA following the Share Exchange, and NYSE American shall have approved such listing following the effective date of the reverse stock split; and
● The HUSA stockholders approval of the Issuance Proposal and the Reverse Stock Split Proposal shall have been obtained.
| 44 |
More conditions to closing are given in the Share Exchange Agreement. You are urged to carefully read the article of the Share Exchange Agreement, which is attached hereto as Annex B , titled Conditions to Closing.
We cannot provide assurance as to when, or if, all of the closing conditions will be satisfied or waived by the relevant party. As of the date of this proxy statement, we have no reason to believe that any of the conditions will not be satisfied.
Governing Law
All claims or causes of action arising out of or relating to the Share Exchange Agreement shall be governed by and construed in accordance with the law of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws.
Efforts to NYSE American Listing
We are also required to use our commercially reasonable best efforts to cause the Exchange Shares to be approved for listing on NYSE American and to submit the NYSE American Application.
Background to the Share Exchange and AGIG Transaction
The following chronology summarizes key meetings and events that led to the signing of the Share Exchange Agreement. This chronology does not purport to catalogue every conversation of, by, with or among members of the Board, the Companys management, the Companys financial advisors, legal advisors or other representatives or any other person.
During the first quarter of 2024, the Companys management and Board recognized that with deteriorating capital markets related to its core business, the Companys ability to raise funds to continue its engagement in small scale oil and gas exploration and production would continue to be increasingly difficult. To address these external market conditions, the Companys management and the Board commenced an assessment of our business, financial condition, results of operations and prospects, including inorganic options.
John Terwilliger, founder and former CEO of HUSA, and Brad Richmond, Chief Operating Officer of Univest, have been business acquaintances for approximately seven years. Over the course of their relationship, they periodically discussed options for transactions and structures that could offer HUSA more opportunities than those that existed in the Oil and Gas markets in which the Company operated.
Ed Gillespie, CEO of AGIG, and Mr. Richmond have been business acquaintances since 2014. In November 2022, Univest facilitated AGIG in connection with a private capital raise consisting of a convertible loan note of $5 million by JCE Partners. Since then, Mr. Gillespie and Mr. Richmond have remained in contact and occasionally discussed options for AGIGs entry into a public stock market.
In August 2024, BFH and AGIG continued their assessment of options for listing AGIG in a public stock market. These options included direct listing through an initial public offering, a SPAC and reverse mergers. As part of this process, they contacted various banks, including Univest, to assist in identifying the best solution.
In August 2024, with the assistance of Univest, the Company accelerated our assessment of growth options. Univest identified the potential for a transaction with AGIG. The Company subsequently concluded that the renewable energy sector represented a strategic opportunity to re-energize the Company and to support a strategic shift away from the traditional oil and gas explorations sector. The Company determined that the primary path to accelerate growth was to align with a strategic investor, such as BFH, that was also interested in potential renewable energy projects through follow-on mergers and acquisitions.
In September 2024, as a result of financial challenges in the HUSA business, such as the capital requirements of the Colombian drilling operations, we contacted Univest to seek their assistance in arranging a possible investment in the range of $1.5 million to $3 million of the Common Stock of the Company. We also continued to consider possible joint development opportunities, mergers, acquisitions, and the potential sale of the Company.
In October 2024, Mr. Gillespie introduced Mr. Richmond to Kevin Bower (principal of BFH) at a meeting held in Charlotte, North Carolina. At this introductory meeting, the parties discussed the potential for alternative transactions and strategies, including a transaction with HUSA and other potential opportunities for BFH portfolio companies.
| 45 |
On October 26, 2024, HUSA entered into an agreement with Univest, pursuant to which Univest served as the exclusive placement agent in connection with the Companys private placement offering of shares of its Common Stock for a maximum amount of $2.5 million.
On November 8, 2024, the Company entered into a subscription agreement with BFH for the sale and issuance of 2,180,180 shares of its Common Stock at a purchase price of $1.15 per share. This investment represented approximately 19% of the Companys outstanding shares of Common Stock at the time. The aggregate gross proceeds to the Company from such offering were approximately $2.5 million, before deducting placement agent fees and other offering expenses. Univest acted as the exclusive placement agent for such offering. The Company intended to use the net proceeds from the offering for general corporate purposes and to pursue strategic growth initiatives, such as acquisitions and investments in the energy sector; including oil gas, energy transition, renewable energy, and companies that service these sectors. BFH made the investment with the understanding that the Company would consider various opportunities with BFHs portfolio companies and other investors of the Company in future transactions.
On November 11, 2024, the Company concluded management changes, including the departure of John Terwilliger as CEO, the appointment of Peter Longo as the new CEO and director, as well as other changes to the Board.
On November 12, 2024, we filed a Current Report on Form 8-K with the SEC, reporting that we had raised $2.5 million from BFH, the resignation of John Terwilliger as CEO, the appointment of Peter Longo as CEO and changes to the Board.
On November 19, 2024, an introductory meeting was held between the new management of HUSA and AGIG. Attendees included Ed Gillespie, Lucie Harwood (CFO of AGIG), Joseph Gasik (COO of AGIG), Peter Longo (CEO of HUSA), Robert Bailey (director of HUSA) and Brad Richmond. The purpose of the meeting was for AGIG to provide an overview of its business in connection with a potential transaction with the Company. At this meeting, AGIG management discussed AGIGs technology, the market potential for AGIG products and the potential financial profile of AGIG. AGIG referenced internal assessments that its management had performed that quantified the current value of AGIG at approximately $300 million.
On November 25, 2024, AGIG formally engaged Univest as an advisor to provide corporate finance and strategic advice regarding the potential sale of AGIG, the potential transaction with the Company and other matters as may be mutually agreed.
On December 10, 2024, Mr. Gillespie, Ms. Harwood, Mr. Longo, Mr. Bailey and Mr. Richmond met at the offices of Univest to further discuss the AGIG businesses and the potential structure and benefits of the proposed transaction between the Company and AGIG. The elements of a non-binding letter of intent were also discussed.
On December 11, 2024, the Company and AGIG entered into a non-binding letter of intent, which outlined the general terms and conditions pursuant to which the Company proposed to acquire all the issued and outstanding membership interests of AGIG. The key terms of the letter of intent included the post-closing ownership of 100% of AGIG. The letter of intent represented a mutual interest in the transaction but did not specify the detailed elements of the potential arrangement. This proposal was subject to the terms and conditions of the letter of intent, including the negotiation and execution of a mutually acceptable definitive agreement or agreements governing the proposed transaction.
On December 11, 2024, Mr. Longo and Mr. Bailey met with representatives from Norton Rose Fulbright US LLP (Norton Rose) for the purposes of engaging Norton Rose for support in the Companys negotiations with AGIG and preparation of related documents. The Companys management subsequently commenced legal and commercial due diligence on AGIG.
On December 23, 2024, a conversation took place between Mr. Gillespie, Mr. Longo, Mr. Bailey and Mr. Richmond. As follow up to the discussions between the parties that were held on November 19 and December 10, 2024, it was conditionally agreed that an indicative valuation of AGIG was approximately $300 million and the HUSA valuation was in the range of $20 million as supported by the market value of its Common Stock. This indicative value of AGIG would be used during the negotiations of the Share Exchange Agreement but was subject to financial due diligence to be performed by the Company and its advisors, and a separate assessment of the value by a valuation expert to be selected by HUSA.
In connection with the negotiations, on December 30, 2025, the Company contacted Evans Evans to serve as our valuation advisors in the process of assessing a potential transaction between the Company and AGIG with the purpose of providing a fairness opinion on any resulting transaction. An Engagement Letter was subsequently signed on January 7, 2025.
On January 3, 2025, Sullivan Worcester LLP, counsel to AGIG (Sullivan), shared with the Company and Norton Rose the first draft of the Share Exchange Agreement, which included the first documented offer. This proposed the Companys acquisition of 100% of the AGIG ownership, and in exchange AGIG would receive 86% of the Companys outstanding shares of Common Stock. In addition, if necessary, there would potentially be preferred stock issued to AGIG to achieve the $300 million assumed AGIG value (the preferred stock true up). The valuation of the stock provided was proposed to be based on a 10-day average of HUSAs Common Stock price in the period leading up to a transaction closing.
On January 9, 2025, our Board met for an update of the status of the negotiations including the proposed terms, the challenges and the benefits of the proposed merger. At the conclusion of this meeting, the Board indicated their support for continuing to pursue the transaction.
On January 10, 2025, the parties with their respective advisors conducted a meeting by phone call to discuss the Share Exchange Agreement and the Share Exchange. This included a review of the preferred stock true up concept proposed by AGIG. At this time the Preferred Stock Certificate of Designation was not yet completed. The parties agreed to assess the concepts further once the Preferred Stock Certificate of Designation was completed.
| 46 |
On January 13, 2025, Norton Rose sent a revised draft of the Share Exchange Agreement to Sullivan, which included comments regarding the representations and warranties of the Company and AGIG, the interim covenants governing AGIGs conduct between the signing of the Share Exchange Agreement and the Closing, a covenant to use commercially reasonable efforts to provide AGIGs monthly financial statements to the Company, covenant to obtain a tail insurance policy and some miscellaneous provisions. The parties also agreed to obtain a fairness opinion and AGIGs members consent prior to the signing of the Share Exchange Agreement.
On January 15, 2025, Norton Rose circulated an initial draft of the proxy statement for the HUSA stockholders to approve the issuance of shares pursuant to the Share Exchange Agreement and, if necessary, a reverse stock split to maintain compliance with NYSE American listing standards (the Proxy Statement).
On January 20, 2025, Sullivan shared for the first time the Preferred Stock Certificate of Designation with the Company and Norton Rose.
On January 23, 2025, Sullivan sent a revised draft of the Share Exchange Agreement to Norton Rose, which included comments regarding the representations and warranties of the Company and AGIG, the closing conditions, and the preferred voting stock in order to guarantee AGIGs post-closing ownership to exceed 80%.
On January 28, 2025, Mr. Gillespie, Ms. Harwood, Mr. Richmond, Mr. Longo and Mr. Bailey met to review the preferred stock true up concept proposed by AGIG including the additional convertible features of the preferred stock, which were included in the Preferred Stock Certificate of Designation. Mr. Longo and Mr. Bailey expressed their concerns with the convertible nature of the preferred stock, which they viewed as overly beneficial to AGIG. In addition, they expressed their concerns with the weighted average pricing mechanism in the calculation, which they believed could be influenced by outside market factors unrelated to the value of AGIG. As a result, the parties agreed to discuss an alternative approach that reflected a fixed percentage ownership share for AGIG and that excluded the issuance of preferred stock. The parties recognized that without the preferred stock true up there was less assurance that an AGIG value of $300 million could be achieved, and therefore, a higher, yet to be determined, fixed percentage of Common Stock would be warranted.
On January 28, 2025, Norton Rose sent a revised draft of the Share Exchange Agreement to Sullivan, which included comments regarding the consideration to be paid at the Closing.
On January 31, 2025, AGIG submitted a revised Share Exchange Agreement which included an updated Common Stock share for AGIG of 95% and excluded the preferred stock true up mechanism. The increase in the percentage of Common Stock to be exchanged was intended to compensate for the removal of the preferred stock true up mechanism and to reflect the risks of fluctuations in the value of Common Stock. The Company reviewed the revised proposal and agreed that an increase in the percentage of Common Stock was reasonable but felt that 95% was not appropriate based on assessments of the potential result of the purchase price calculation pursuant to the Share Exchange Agreement and a separate review of preliminary information provided by Evans Evans.
That same day, Mr. Gillespie, Mr. Longo and Mr. Bailey met to discuss AGIGs revised proposal and Mr. Longo and Mr. Bailey proposed a lower percentage of Common Stock of 93% for the AGIG Unitholders, with consideration of internal assessments and information they had reviewed in Evans Evans materials. Mr. Gillespie, Mr. Longo and Mr. Bailey discussed the percentages at length and at the conclusion of the meeting agreed that AGIG would receive 94% of all the issued and outstanding shares of Common Stock, a decrease from the 95% in AGIGs revised proposal, which was ultimately reflected in the executed Share Exchange Agreement.
Between February 3, 2025, and February 19, 2025, Norton Rose and Sullivan exchanged drafts and negotiated the terms of the Share Exchange Agreement. Regular meetings by phone call and video conference took place during this period, some of which included the parties respective legal counsel and financial advisors.
A key element of the negotiations referenced above included the post-closing status of the board, as well as the assumption of the CEO position by Ed Gillespie and his appointment to the HUSA board of directors. These negotiations resulted in an agreement for two of the existing HUSA board members to resign as of closing and for Peter Longo to resign as CEO but to remain as a director, with appointment as Chairman. As a result of the immediate post-closing composition of the Board (two legacy HUSA board members and one AGIG board member), the parties agreed to include language in the Share Exchange Agreement that the two replacement board members would be nominated by AGIG.
During the week of February 3, 2025, Norton Rose received comments from various parties on the Proxy Statement.
On February 5, 2025, our Board met to review the results of the activities of the prior months including the terms, benefits and challenges of the proposed Share Exchange Agreement. This meeting included a presentation by Evans Evans regarding their opinion of the proposed transaction. The results of Evans Evans process supported the 94 / 6% sharing agreement. After reviewing the information presented and following a thorough discussion, our Board, in consultation with our advisors, determined that the Share Exchange was the best possible strategy for our stockholders and the Company. At the conclusion of this meeting our Board unanimously approved moving forward with the AGIG Transaction.
On February 11, 2025, Norton Rose circulated an interim draft of the Proxy Statement to the working group.
On February 20, 2025, the parties executed the Share Exchange Agreement, and the Company and AGIG issued a press release announcing the transaction prior to the commencement of trading on NYSE American on February 24, 2025.
On February 21, 2025, Norton Rose received additional comments to the Proxy Statement from Sullivan, AGIG, and the Company.
During the week of February 24, 2025, Norton Rose turned several drafts of the Proxy Statement and received several rounds of comments, ultimately filing the preliminary Proxy Statement on February 28, 2025.
| 47 |
The HUSA Board of Directors Reasons for the AGIG Transaction
Our Board has unanimously approved the Share Exchange Agreement and the transactions contemplated therein, including the Share Exchange. In reaching its decision to approve the Share Exchange Agreement and unanimously recommend that stockholders approve the Issuance Proposal, the Board consulted with our management and financial and legal advisors and considered a number of factors, including the following material factors, which the Board viewed as supporting its determination:
● The legacy HUSA business is primarily focused on the U.S. Oil and Gas markets and, as disclosed in the 2024 HUSA Form 10-K, the Colombian based investments did not prove viable.
● The outlook for U.S. Oil and Gas markets for the next two years indicates declining prices and demand and the oil and gas markets have historically been volatile.
● There is substantial competition for capital available for investment in the oil and natural gas industry and we may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital.
● The AGIG business has proprietary technology and operates in a growing market for alternative products such as SAF and renewable diesel markets, which are also growing significantly.
● SAF is one of the fastest growing niches in energy with airlines specifically looking for more industry capacity.
● We believe the revenue growth potential for AGIGs business exceeds the legacy HUSA oil and gas business.
The Board also considered the potential adverse consequences of the proposed Share Exchange, including:
● HUSA stockholders will experience dilution upon the issuance of additional shares of Common Stock pursuant to the Share Exchange Agreement. Such dilution will, among other things, for the foreseeable future significantly limit the ability of the current HUSA stockholders to influence our management, including through the election of directors.
● The Company may require additional capital to finance AGIGs operations, which may not be available on acceptable terms, or at all. If we are unable toraise capitalwhen needed, we may be forced to delay, reduce or eliminate key elements of AGIGs development programs or commercialization efforts.
● The combined company may not fully realize the anticipated benefits of the AGIG Transaction within the timing anticipated or at all.
The Board was aware that Univest was an active participant in the AGIG Transaction and had previously been engaged and was currently engaged by both the Company and AGIG for the purposes of raising capital and identifying opportunities for strategic transactions. The nature of these relationships is discussed further in Background to the Share Exchange and AGIG Transaction on pages 45-46. In addition, the Board was aware that in the event the AGIG Transaction successfully consummates, Univest will be paid a success fee by AGIG that is equal to 3.5% of the shares of Common Stock that AGIG will receive from the Company. The Board did not consider this situation as unusual given the nature of the investment banking business, the relatively small size of the markets where the Company operates and the frequency with which a firm such as Univest identifies opportunities for two companies to come together in a mutually beneficial business transaction. The Board also gave consideration to the fact that the prior CEO of HUSA had a multi-year business relationship with Univest.
With awareness of the potential for conflicts of interest to exist on the part of Univest, the Company reviewed proposals and requests from AGIG during the negotiation process from the perspective of what would be an appropriate financial outcome for the existing stockholders of the Company. In support of this, the Company engaged counsel in the development of the Share Exchange Agreement and on a variety of matters during the negotiations. In addition, the Company also engaged Evans Evans to provide an independent professional assessment of the AGIG Transaction, which resulted from the negotiation process. Based upon the above, the Board was satisfied that any risk of a potential conflict of interest on the part of Univest would be mitigated by the business experience of the Companys CEO and the advisors who had been engaged to assist in the negotiation process.
In determining whether to approve and recommend the Share Exchange Agreement, the Board did not assign any relative or specific weights to any of the foregoing factors, and individual directors may have weighed factors differently. After deliberating with respect to the Share Exchange and the Share Exchange Agreement, considering, among other things, the reasons discussed above, the Board approved the Share Exchange agreement and the Share Exchange as being in the best interests of HUSA and its stockholders, based on the total mix of information available to the Board.
| 48 |
This explanation of the Boards reasons for the Share Exchange and other information presented in this section is forward-looking in nature and should be read in light of the section entitled Cautionary Statement Regarding Forward-Looking Statements and the factors discussed under Risk Factors .
The Parties to the AGIG Transaction
Houston American Energy Corp.
Houston American Energy Corp. is an independent oil and gas company focused on the development, exploration, exploitation, acquisition, and production of natural gas and crude oil properties. Our principal properties, and operations, are in the U.S. Permian Basin. Additionally, we have properties in the Louisiana U.S. Gulf Coast region.
We focus on early identification of, and opportunistic entrance into, existing and emerging resource plays. We do not operate properties but typically seek to partner with, or invest along-side, larger operators in the development of resources or retain interests, with or without contribution on our part, in prospects identified, packaged and promoted to larger operators. By entering these plays earlier, identifying stranded blocks and partnering with, investing along-side or promoting to, larger operators, we believe we can capture larger resource potential at lower cost and minimize our exposure to drilling risks and costs and ongoing operating costs.
We, along with our partners, actively manage our resources through opportunistic acquisitions and divestitures where reserves can be identified, developed, monetized and financial resources redeployed with the objective of growing reserves, production and shareholder value.
We were incorporated in Delaware in 2001. Our principal executive offices are located at 801 Travis Street, Suite 1425, Houston, Texas 77002 and our telephone number at that location is (713) 222-6966. Our website address is https://houstonamerican.com .
Abundia Financial, LLC
Abundia Financial, a Delaware limited liability company formed in 2019, is a venture capital and asset investment firm specializing in sustainable fuels, energy, and chemical technologies. AGIG focuses on early-stage renewable technology ventures, providing strategic support to achieve technical validation, secure critical agreements, and position its investments for significant growth. This approach ensures ventures are commercially prepared to attract larger capital funding rounds. Abundia Financial holds approximately 90% of the issued and outstanding equity of AGIG.
Abundia Financials principal executive offices are located at 48 Wall Street, 11th floor, New York, New York 10005, and its phone number at that location is +1-888-547-0111. Its website address is https://abundiafinancial.com .
Bower Family Holdings, LLC
BFH, a North Carolina limited liability company, was formed in 2019. BFHs purpose is to invest in real estate and personal property including securities and to engage in any lawful business for which limited liability companies may be organized under the North Carolina Limited Liability Company Act. BFH holds approximately 10% of the issued and outstanding equity of AGIG. BFH also holds approximately 13% of the issued and outstanding Common Stock of the Company.
BFHs principal executive offices are located at 110 Kings Road, Kings Mountain, NC 28086 and its phone number at that location is (704) 790-6012.
Abundia Global Impact Group, LLC
AGIG, a Delaware limited liability company, was formed in 2019. AGIG is a technology solution company that operates in the recycling and renewable energy, environmental change, fuels and chemicals sectors. AGIG is focused on using waste products to decarbonize the energy, fuels and chemicals sector by providing renewable or recycled alternatives. AGIG uses a combination of proprietary, licensed and commercialized technologies to provide a complete process that turns waste plastics and biomass into drop-in alternatives to fossil-derived energy, fuels and chemicals. AGIGs holistic approach has brought together the complete commercial chain with feedstocks, technology, a diverse management team, and world class off-take partners for the growing suite of products in place.
| 49 |
Abundia Global Impact Groups strategy has four key aspects:
1. identifying waste plastics and waste biomass feedstock supplies;
2. identifying strategically advantaged sites;
3. securing long-term off-take partners to distribute products; and
4. deploying our unique technology combination to provide a complete renewable solution.
AGIGs principal executive offices are located at 48 Wall Street, 11th Floor, New York, New York, 10043 and its phone number at that location is (646) 844-0960. Its website address is https://abundiaimpact.com .
INFORMATION ABOUT THE BUSINESS OF THE COMBINED COMPANY
Our Company
The combined company will continue to be incorporated in Delaware as of 2001 with its principal executive office located at 801 Travis St., Suite 1425, Houston, Texas 77002. The main business of the combined company will be as a technology solution company that operates in the recycling and renewable energy, environmental change, fuels and chemicals sectors, but the combined company will retain its principal oil and gas properties in the U.S. Permian Basin and the Louisiana U.S. Gulf Coast region. The combined company will focus on using waste products to decarbonize the energy, fuels and chemicals sector by providing renewable or recycled alternatives. The combined company will use a combination of proprietary, licensed and commercialized technologies to provide a complete process that turns waste plastics and biomass into drop-in alternatives to fossil-derived energy, fuels and chemicals.
Management and Board Changes Following the AGIG Transaction
Upon the completion of the Share Exchange, the Board will be comprised of five directors. Further, in accordance with the Share Exchange Agreement, the two current HUSA directors, Stephen P. Hartzell and R. Keith Grimes, will resign, and AGIGs Chief Executive Officer, Edward Gillespie, will be appointed to the Board. Therefore, upon the completion of the Share Exchange, the HUSA directors will be Edward Gillespie, Peter Longo, Robert Bailey, and the HUSA Board of Directors shall appoint two other persons to be nominated by AGIG, each of whom shall be required to qualify as an independent director (as defined under NYSE American Rules), to fill the vacancies left by such resignations.
Following the Share Exchange, Abundia Financial is expected to beneficially own more than 50% of the voting power of the Common Stock of the combined company. As a result, the combined company will be a controlled company as defined under NYSE American Rules. Notwithstanding this designation, the combined company does not intend to rely on the controlled company exemptions under the NYSE American Rules, which would otherwise permit exemptions from certain corporate governance rules, including: (a) the exemption from the rule requiring a majority of the board of directors to be independent directors; (b) the exemption from the rule requiring that the nominating and corporate governance committee be comprised solely of independent directors or a majority of independent directors on the board; and (c) the exemption from the rule requiring that the compensation committee be comprised solely of independent directors or a majority of independent directors on the board.
We have agreed that within 45 days of the closing of the Share Exchange, our current Chief Executive Officer, Peter Longo, will resign as Chief Executive Officer, but not as a director. After the closing of the Share Exchange, our Chief Executive Officer will be Edward Gillespie, who is currently AGIGs CEO; our Chief Operating Officer will be Joseph Gasik, who is currently AGIGs COO; and our Chief Financial Officer (principal accounting and financial officer) will be Lucie Harwood, who is currently AGIGs CFO.
Recent Acquisitions
None.
NYSE American Compliance
The combined company will work to submit the NYSE American Application and to cause the Exchange Shares to be approved for listing on NYSE American. Further, the combined company plans to effectuate the Reverse Stock Split Amendment to comply with the rules of the NYSE American.
| 50 |
Overview
The Abundia Global Impact Group
AGIG is a technology solutions company that operates in the recycling and renewable energy, environmental change, fuels and chemicals sectors. AGIG is focused on using waste products to decarbonize the energy, fuels and chemicals sector by providing renewable or recycled alternatives. AGIG uses a combination of proprietary, licensed and commercialized technologies to produce a complete process that turns waste plastics and biomass into crude or drop-in alternatives to fossil derived energy, fuels and chemicals. AGIGs holistic approach has brought together the complete commercial chain with feedstocks, technology, a diverse management team, and world class off-take partners for the growing suite of products in place.
Abundia Financial LLC
Abundia Financial LLC, a Delaware limited liability company (Abundia Financial) invests in, develops, and supports companies through their initial incorporation, validation of technologies, the establishment of management teams, supply chains, and ongoing execution of business plans. Abundia Financial owns approximately 90% of the issued and outstanding units of AGIG.
Business Strategy and Key Strengths
AGIGs strategy includes the following key aspects:
● identifying and licensing already commercialized base technologies and enhancing by adding AGIGs unique upgrading technologies, thereby creating high-value end products while securing intellectual property rights (IP);
● enlisting industry recognized, independent resources to validate both the technologies and products;
● identifying and securing pre-sales in the form of commercial terms sheets for transportation grade fuel and recycled products to establish the technology chain and breed market confidence;
● identifying and negotiating multi-year agreements for waste plastics and waste biomass feedstock supplies;
● identifying sites that are strategically advantaged and repurposing existing petrochemical infrastructure;
● securing long-term off-take partners to distribute and sell AGIGs various products;
● establishing the technology combination to provide the complete solution;
● identifying additional projects, establishing complete process chains, securing feedstock and off-takes from credit worthy counter parties and funding additional projects through a blend of equity and debt;
● identifying industry partners for the additional divisions, which include Recycled Chemicals, Sustainable Aviation Fuel, Bio-derived Chemicals, Green Hydrogen; and
● developing strategy for additional revenue streams through the development of projects, co-development of projects and licensing of the additional divisions.
AGIGs technology offering is complimented by a highly experienced team of industry experts and synergistic commercial skill sets that provide a holistic management approach. AGIG supplements the team with external, industry recognized resources who support and validate its technology, products and commercial claims.
AGIGs selection criteria for projects on which to deploy its resources is detailed and robust, including: feedstock for long term supply agreements, off-take agreements to match the feedstock terms, suitable sites with access to utilities and relevant permits or planning conditions, man-power and suitable resources to execute and political or government considerations.
| 51 |
Market Opportunity
AGIG believes that the market for AGIGs offering is substantial and that the value of recycled or renewable alternatives for the fuel, energy and chemical markets have grown substantially over the past few years. Corporations have been pledging significant change and the European Union has introduced mandates to set minimum requirements for recycled or renewable content.
The value of technology companies offering renewable or recycling solutions has grown over the past few decades as well, with a global focus on reducing greenhouse gas emissions. This change has been largely spurred by the increased investment capital dedicated to the development and provision of scalable and commercially viable solutions to a global problem.
Market demand and government mandates have detached the value of recycled or renewable derived products from traditional fossil derived products. For example, Hydrogenated Vegetable Oil now trades at almost twice the price of its fossil fuel counterpart and recycled Polyester (PET) trades at a ~60% premium to virgin PET.
AGIG established its initial off-take pipeline, via commercial term sheets, in a few months, some of which have now been converted to full off-take contracts, and has a significant pool of new off-take partners established for its additional divisions and products. AGIG consciously chose its sales and marketing pace in order to devote itself to implementing its business plan. AGIG believes that it has the ability to increase its numbers as market demand remains unsatisfied.
AGIG believes that AGIG has a once-in-a-generation opportunity to take advantage of global and societal demand for the decarbonization of the energy, fuel and chemicals industry.
AGIGs Product Strategy
AGIGs Products
Pyrolysis Oil from Waste Plastic
AGIG provides a crude pyrolysis oil that can be blended into feedstock at existing refineries and displace fossil derived feedstock.
Recycled Diesel
AGIG provides a drop-in product that can blend into existing distribution channels by hydrogenating the syncrude fuel from the waste plastic pyrolysis process, and the recycled diesel has met specifications for transportation grade fuel EN590.
Recycled Naphtha
AGIG creates Recycled Naphtha, which is the feedstock for polyethylene, polypropylene and other plastics, by adding an additional hydrocracking step to the hydrogenation of the syncrude fuels from the waste plastic gasification process.
Recycled Waxes and Lubricants
AGIG creates high value, recycled waxes and lubricant feedstocks by hydrogenating the crude product from the waste plastic pyrolysis process.
Bio-fuels
AGIG is refining the technology pathway for its Bio-fuel products to provide a drop-in product that can blend into existing distribution channels to service the transportation industry.
Bio-Sustainable Aviation Fuels
By adding additional process steps to its Bio-fuel pathways, AGIG intends to meet required specifications for SAF.
| 52 |
Research and Development and Pipeline Products
AGIG will continue to work on its pipeline of projects, including building on the work already commenced during 2023 and 2024, and ongoing through 2025, which was supported by the UK Government through its Advanced Fuels Fund, to compete the development and technology pathway to large scale SAF projects which will also lead to marine industry and transportation industry solutions.
Intellectual Property
AGIG owns or has access to a combined suite of technologies, which comprise three key stages to the process: (1) flow process gasification of waste plastics or biomass technologies, (2) upgrading of the crude output from the gasification processes through hydrogenation, and (3) final upgrading of the products. AGIG, through subsidiaries, protects its technological advantages using a mix of patent protection, license agreements, trade secret and know-how strategies. AGIGs portfolio owns or draws on a suite of 18 patents pending or granted, including, in Australia, Argentina, Brazil, Canada, China, Europe, Hong Kong, India, Indonesia, Japan, Malaysia, Mexico, New Zealand, South Africa, South Korea, Thailand, UK, USA and Vietnam.
Competition
The renewable fuels and chemicals industry is increasingly competitive, driven by the need for sustainable solutions and the entry of diverse players. Competitors include companies employing pyrolysis, hydrothermal processing, Fischer-Tropsch process and gasification technologies to convert waste streams into renewable fuels and chemicals. These competitors range from well-established industry leaders to new entrants exploring innovative pathways. Additionally, oil and gas majors and petrochemical companies are leveraging their resources to develop in-house renewable solutions or fund external projects, intensifying competition.
AGIGs differentiation lies in its continuous, not batch-based, processing technology, which provides operational efficiency and scalability while minimizing capital expenditure. This approach allows AGIG to deliver effective capital expenditure solutions, optimizing costs while maintaining high production reliability. AGIGs proprietary upgrading and hydrotreating processes utilize proven refinery methodologies to produce drop-in fuels that integrate seamlessly with existing infrastructure and distribution networks. This eliminates the need for customers to make significant modifications, enhancing AGIGs value proposition.
AGIG is supported by a diverse, multi-skilled management team with deep expertise in technology development, construction, and scaling. This team has substantial industry cache and a track record of delivering complex projects. AGIGs approach leverages long-standing refinery solutions to produce its products from waste feedstocks, addressing critical industry needs.
By combining strong industry relationships, rigorous product validation through extensive testing programs, and operational flexibility, AGIG is positioned to compete effectively. While the landscape includes significant players and emerging technologies, AGIGs ability to provide reliable, scalable, and economically attractive solutions ensures its competitiveness in the growing renewable fuels and chemicals market.
Sales, Distribution, Marketing and Advertising
AGIGs sales strategy is built on leveraging strong industry relationships and the proven quality of its renewable products. AGIG has successfully executed offtake agreements with leading global energy companies, supported by long-term testing programs. These collaborations have validated the technical specifications and compliance of AGIGs products with stringent industry standards, demonstrating its readiness to meet the needs of Tier 1 oil and gas and petrochemical partners, once operations commence.
Through these partnerships, AGIG has established strong relationships with industry leaders, enabling close collaboration to refine and align its products with market requirements. Third-party validation of AGIGs technology has further strengthened these relationships and provided a strong foundation for future growth.
AGIGs logistics framework is designed for scalability, ensuring seamless delivery through a flexible transportation and distribution network. This network incorporates trucking, rail, hauling, and shipping solutions, alongside strategically located storage facilities, to efficiently serve global markets. By working with industry-leading service providers, AGIG maintains strict compliance with regulatory and environmental standards, preparing for smooth and sustainable operations.
In marketing and advertising, AGIG focuses on highlighting its rigorous testing programs, advanced technologies, sustainability commitments, and strategic collaborations. By building trust and confidence through AGIGs relationships and demonstrated capabilities, AGIG is well-positioned to deliver renewable solutions that address the evolving needs of the oil and gas and petrochemical industries as AGIGs operations come online.
| 53 |
HUSA Managements Discussion and Analysis of Financial Condition
and Results of Operations
You should read the following discussion in conjunction with our financial statements and related notes included elsewhere in this proxy statement. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth under Risk Factors and elsewhere in this proxy statement.
General
We are an independent energy company focused on the development, exploration, exploitation, acquisition, and production of natural gas and crude oil properties with principal holdings in the U.S. Permian Basin and additional holdings in the U.S. Gulf Coast region.
Our mission is to deliver outstanding net asset value per share growth to our investors via attractive oil and gas investments. Our strategy is to focus on early identification of, and opportunistic entrance into, existing and emerging resource plays. We do not operate wells but typically seek to partner with larger operators in development of resources or retain interests, with or without contribution on our part, in prospects identified, packaged and promoted to larger operators. By entering these plays earlier, identifying stranded blocks and partnering with, or promoting to, larger operators, we believe we can capture larger resource potential at lower cost and minimize our exposure to drilling risks and costs and ongoing operating costs.
We, along with our partners, actively manage our resources through opportunistic acquisitions and divestitures where reserves can be identified, developed, monetized and financial resources redeployed with the objective of growing reserves, production and shareholder value.
Generally, we generate nearly all our revenues and cash flows from the sale of produced natural gas and crude oil, whether through royalty interests, working interests or other arrangements. We may also realize gains and additional cash flows from the periodic divestiture of assets.
Recent Developments
Lease Activity
Colombia . In 2023, we released our interest in the last of our legacy non-Hupecol Meta properties in Colombia, formally terminating our interests in the Picachos and Macaya blocks. We recognized a loss on disposal of oil and gas properties of $ 2,343,126 as a result of this transaction.
At December 31, 2024, our sole holdings in Colombia consisted of our interest in Hupecol Meta which holds a working interest in the 639,405 gross acre CPO-11 block in the Llanos Basin in Colombia, comprised of the 69,128 acre Venus Exploration Area and 570,277 acres, which was 50% farmed out by Hupecol Meta. Through our ownership interest in Hupecol Meta, we hold an approximately 16% interest in the Venus Exploration Area and an approximately 8% interest in the remainder of the block.
Hupecol Meta has (i) proposed to relinquish approximately 62,139 gross acres within the Venus Exploration Area, decreasing its holding within that area to approximately 7,157 gross, and 1,145 net, acres; and (ii) agreed to acquire the 50% interest in the CPO-11 block farmed out to Parex Resources, which would increase Hupecol Metas net acreage position in the block to 91,244 acres. The relinquishment of such acreage and acquisition of the Parex interest are both subject to approval of the Colombian hydrocarbons agency, or ANH.
As of December 31, 2024, the company determined it was necessary to take an impairment charge for our investment in Hupecol Meta due to indications that its earnings performance has deteriorated, and the investment is no longer viewed as viable. We determined that we are unlikely to receive any substantial amount of proceeds upon the sale of Hupecol Meta, rendering the value of the investment fully impaired.
United States. During 2023, we experienced lease expirations in Yoakum County, Texas (46 net acres).
Drilling Activity and Well Operations
Colombia. During 2023, Hupecol Meta drilled and completed, and production commenced on, two wells in Colombia, the Venus 1-H horizontal well and the Venus 2-H ST1 horizontal well. The Saturno 1 ST -1 vertical well, drilled in 2022, was shut-in during the third quarter of 2023 and brought back onto production in late 2023. The legacy well Venus 2A was in production through 2023. At December 31, 2024, Hupecol Meta had 4 wells on production.
| 54 |
United States. During 2023, we drilled no wells on our U.S. properties. During 2024, the operator of the OBrien Lease, EOG, decided to drill six new wells on the Finkle State Unit. We decided to participate in the drilling of those wells. We anticipate production from those wells to begin in the second quarter of 2025.
At December 31, 2024, we had 4 wells on production in the U.S. Permian Basin.
Capital Investments
During 2024, our capital investment expenditures for acreage acquisitions, drilling, completion and related operations, as well as investments relating to Hupecol Meta, totaled $1,887,516, all of which was attributable to direct investments in Hupecol Meta to fund our share of drilling and operating costs.
Distributions from Equity Investment
During 2024, we received distributions, totaling $922,719, from Hupecol Meta, representing our share of distributable net income and reflected as Other Income on our Statement of Operations.
Impairment of Hupecol Meta Investment
Hupecol has advised that it intends to evaluate potential monetization of its assets in Colombia, including the interest in the CPO-11 block held by Hupecol Meta. Pending the outcome of Hupecols evaluation of, and potential efforts regarding, monetization of the CPO-11 block, we have no planned drilling operations, or other planned operations, in Colombia and we expect to continue to operate our existing wells on the CPO-11 block. There is no assurance as to the timing or outcome of Hupecols potential monetization of assets.
As of December 31, 2024, the Company determined it was necessary to take an impairment charge for our investment in Hupecol Meta due to indications that its earnings performance has deteriorated, and the investment is no longer viewed as viable. We determined that we are unlikely to receive any substantial amount of proceeds upon the sale of Hupecol Meta, rendering the value of the investment fully impaired.
Financing Activities
In November 2022, we entered into an At-the-Market Sales Agreement (the Sales Agreement) with Univest pursuant to which we could sell (the 2022 ATM Offering), at our option, up to an aggregate of $3.5 million in shares of common stock through Univest, as sales agent. Sales of shares under the Sales Agreement (the 2022 ATM Offering) were made, in accordance with placement notices delivered to Univest, which notices set parameters under which shares could be sold. The 2022 ATM Offering was made pursuant to a shelf registration statement by methods deemed to be at the market, as defined in Rule 415 promulgated under the Securities Act of 1933. We pay Univest a commission in cash equal to 3% of the gross proceeds from the sale of shares in the 2022 ATM Offering. We reimbursed Univest for $25,000 of expenses incurred in connection with the 2022 ATM Offering.
During 2023, we sold an aggregate of 578,707 shares in connection with the 2022 ATM Offering and received proceeds, net of commissions and expenses, of $1,652,000.
In 2024, we sold 2,180,180 shares of our common stock in a private placement for net proceeds of $2,325,000.
In January 2025, we sold 2,600,000 shares of our common stock in a registered direct offering for net proceeds of $3,897,000.
| 55 |
Executive Compensation Changes
In November 2024, we entered into an agreement with John Terwilliger, our then Chief Executive Officer, to pay Mr. Terwilliger $800,000 in exchange for terminating his change of control agreement with the Company. Mr. Terwilliger retired as a director on December 31, 2025 and remains an advisor to the Company for $2,500 per month.
Impairment Charge
During 2024, we incurred an impairment charge of $6,668,634. The impairment charge was attributable to the conclusion to write down our investment in Hupecol Meta ($6,392,874) and impairment of our US assets ($275,760) attributable to declines in energy prices and production relating to our Reeves County properties, partially offset by our proved non-producing properties.
Planned Acquisitions
On December 12, 2024, the Company entered into two non-binding letters of intent relating to the acquisition of AGIG and RPD Technologies, LLC (RPD).
On February 20, 2025, the Company entered into a Share Exchange Agreement with the members of AGIG. In the Share Exchange Agreement, the Company has agreed to issue to the members of AGIG a number of shares of our Common Stock equal to 94% of the Companys issued and outstanding shares of Common Stock at the time of the closing under the Share Exchange Agreement, after taking into account issuance to the AGIG Unitholders. As a result of entering into the Share Exchange Agreement, we will acquire all of the issued and outstanding units of AGIG, and AGIG will become a wholly-owned subsidiary of the Company. Under the Share Exchange Agreement, the Company is obligated to obtain shareholder approval for the amendment of our Certificate of Incorporation to increase the number of authorized shares of common stock to 300,000,000 shares and for the issuance of approximately 246,000,000 shares to the members of AGIG. The Company expects the AGIG acquisition to close early in the second quarter. The acquisition is subject to shareholder approval and standard closing conditions.
On February 7, 2025, the Company amended the non-binding letter of intent for the acquisition of RPD. Under the amended letter of intent, the Company will acquire all of the assets of RPD. Upon entering into this letter of intent, the Company paid RPD a refundable deposit of $160,000, which will be applied toward the purchase price. The Company expects the RPD acquisition to close in the second quarter.
As a result of the AGIG and RPD transactions, the Company will focus on developing a production plant for plastics and petrochemicals in the Houston area. The acquisition supports a strategy that will diversify the Companys portfolio into the energy transition sector.
Critical Accounting Estimates and Policies
The following describes the critical accounting policies used in reporting our financial condition and results of operations. In some cases, accounting standards allow more than one alternative accounting method for reporting. Such is the case with accounting for oil and gas activities described below. In those cases, our reported results of operations would be different should we employ an alternative accounting method.
Full Cost Method of Accounting for Oil and Gas Activities. We follow the full cost method of accounting for oil and gas property acquisition, exploration and development activities. Under this method, all productive and nonproductive costs incurred in connection with the exploration for and development of oil and gas reserves are capitalized. Capitalized costs include lease acquisition, geological and geophysical work, delay rentals, costs of drilling, completing and equipping successful and unsuccessful oil and gas wells and related internal costs that can be directly identified with acquisition, exploration and development activities, but does not include any cost related to production, general corporate overhead or similar activities. Gain or loss on the sale or other disposition of oil and gas properties is not recognized unless significant amounts of oil and gas reserves are involved. No corporate overhead has been capitalized as of December 31, 2024. The capitalized costs of oil and gas properties, plus estimated future development costs relating to proved reserves, are amortized on a units-of-production method over the estimated productive life of the reserves. Unevaluated oil and gas properties are excluded from this calculation. The capitalized oil and gas property costs, less accumulated amortization, are limited to an amount (the ceiling limitation) equal to the sum of: (a) the present value of estimated future net revenues from the projected production of proved oil and gas reserves, calculated using the average oil and natural gas sales price received by the company as of the first trading day of each month over the preceding twelve months (such prices are held constant throughout the life of the properties) and a discount factor of 10%; (b) the cost of unproved and unevaluated properties excluded from the costs being amortized; (c) the lower of cost or estimated fair value of unproved properties included in the costs being amortized; and (d) related income tax effects. Costs in excess of this ceiling are charged to proved properties impairment expense.
| 56 |
Revenue recognition. On January 1, 2018, we adopted the new revenue guidance using the modified retrospective method for contracts that were not complete at December 31, 2017. ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. We adopted Topic 606 on January 1, 2018, using the modified retrospective method applied to contracts that were not completed as of January 1, 2018. Under the modified retrospective method, prior period financial positions and results are not adjusted. The cumulative effect adjustment recognized in the opening balances included no significant changes as a result of this adoption. While our 2018 net earnings were not materially impacted by revenue recognition timing changes, Topic 606 requires certain changes to the presentation of revenues and related expenses beginning January 1, 2018.
Our revenue is comprised principally of revenue from exploration and production activities. Our oil is sold primarily to marketers, gatherers, and refiners. Natural gas is sold primarily to interstate and intrastate natural-gas pipelines, direct end-users, industrial users, local distribution companies, and natural-gas marketers. Natural gas liquids, or NGLs, are sold primarily to direct end-users, refiners, and marketers. Payment is generally received from the customer in the month following delivery.
Contracts with customers have varying terms, including spot sales or month-to-month contracts, contracts with a finite term, and life-of-field contracts where all production from a well or group of wells is sold to one or more customers. We recognize sales revenues for oil, natural gas, and NGLs based on the amount of each product sold to a customer when control transfers to the customer. Generally, control transfers at the time of delivery to the customer at a pipeline interconnect, the tailgate of a processing facility, or as a tanker lifting is completed. Revenue is measured based on the contract price, which may be index-based or fixed, and may include adjustments for market differentials and downstream costs incurred by the customer, including gathering, transportation, and fuel costs.
The Company estimated the December 2024 revenue and related drilling expenses for two US wells. Using actual oil production results for the month, the Company used historical lease operating expenses and average price per BBL from prior months to calculate these estimates. No gas or NGL related revenue or expenses are included in the estimate.
Revenues are recognized for the sale of our net share of production volumes.
Stock-Based Compensation. We use the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions. These assumptions include estimating the volatility of our common stock price over the expected life of the options, dividend yield, an appropriate risk-free interest rate and the number of options that will ultimately not complete their vesting requirements. Changes in the subjective assumptions can materially affect the estimated fair value of stock-based compensation and consequently, the related amount recognized on the Statements of Operations.
Results of Operations
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Oil and Gas Revenues . Total oil and gas revenues decreased 30% to $560,180 to in 2024 from $794,027 in 2023.
The decrease in revenues was attributable to (i) declines in oil production, down 18%, and gas production, down 11% from 2023 levels; and (ii) declines in average sales price of natural gas, down 99% from 2023 levels.
| 57 |
The following table sets forth the gross and net producing wells, net oil, natural gas liquids, and gas production volumes and average hydrocarbon sales prices for 2024 and 2023 (excluding information pertaining to Hupecol Meta):
| 2024 | 2023 | |||||||
| Gross producing wells | 4 | 4 | ||||||
| Net producing wells | 0.68 | 0.68 | ||||||
| Net oil production (Bbls) | 5,992 | 7,971 | ||||||
| Net gas production (Mcf) | 53,476 | 57,360 | ||||||
| Net natural gas liquids production (Gallons) | 159,680 | 179,506 | ||||||
| Oil-Average sales price per barrel | $ | 73.08 | $ | 74.08 | ||||
| Gas-Average sales price per mcf | $ | 0.17 | $ | 1.38 | ||||
| Natural gas liquids-Average sales price per gallon | $ | 0.71 | $ | 0.69 | ||||
The change in production volumes reflects natural production declines. The change in average oil and natural gas prices realized reflects movements in global energy prices.
All oil and gas sales revenues for 2024 and 2023, by region (excluding information pertaining to Hupecol Meta), were as follows:
| Colombia | U.S. | Total | ||||||||||
| 2024 | ||||||||||||
| Oil sales | $ | - | $ | 473,900 | $ | 473,900 | ||||||
| Gas sales | $ | - | $ | 8,869 | $ | 8,869 | ||||||
| Gas Liquids sales | $ | - | $ | 113,411 | $ | 113,411 | ||||||
| 2023 | ||||||||||||
| Oil sales | $ | - | $ | 590,486 | $ | 590,586 | ||||||
| Gas sales | $ | - | $ | 79,443 | $ | 79,443 | ||||||
| Gas Liquids sales | $ | - | $ | 124,098 | $ | 124,098 | ||||||
Lease Operating Expenses. Lease operating expenses, excluding expenses attributable to our cost method investment in Colombia, increased 24% to $747,559 in 2024 from $473,925 in 2023.
Lease operating expense, by region, for 2024 and 2023 (excluding information pertaining to Hupecol Meta), were as follows:
|
Colombia |
U.S. |
Total |
||||||||||
| 2024 | $ | - | $ | 747,559 | $ | 747,559 | ||||||
| 2023 | $ | - | $ | 473,925 | $ | 473,925 | ||||||
The change in lease operating expenses was principally attributable to the increased expenses in production during 2024 and approximately $125,000 related to the six new wells in development.
Depreciation and Depletion Expense. Depreciation and depletion expense decreased by 5% to $160,001 in 2024 from $167,527 in 2023. The decrease in depreciation and depletion during 2024 was attributable to the increase in the depletion rate during 2024 due to the naturally occurring reduction in reserves which is used in the calculation. .
Impairment Expense and Loss on Disposal of Oil and Gas Properties . During 2024, we realized an impairment expense of $6,392,874 on our investment in Hupecol Meta attributable to indications that its earnings performance has deteriorated, and the investment is no longer viewed as viable. An additional $275,760 impairment on the US properties was realized in 2024, attributable to declines in energy prices and production relating to our Reeves County properties, partially offset by the addition of our proved non-producing properties . The loss on disposal of oil and gas properties in 2023 for 2,343,126 was attributable to the release of our interest in properties in Colombia.
| 58 |
General and Administrative Expenses (Excluding Stock-Based Compensation). General and administrative expense increased by 32% to $2,123,051 in 2024 from $1,614,245 in 2023. The change in general and administrative expense was primarily attributable to the payment to our former CEO to terminate his change of control agreement with the Company.
Stock-Based Compensation. Stock-based compensation decreased to $101,508 in 2024 from $238,314 in 2023. The decrease was attributable to a lower fair value of newly issued options compared to the prior period.
Other Income . Other income totaled $ 1,024,461 in 2024 compared to $1,369,518 in 2023. Other income consisted of (i) equity investment distributions from Hupecol Metal totaling $922,719 during 2024 compared to $1,220,954; and (ii) interest earned on cash balances, totaling $101,742 in 2024 and $148,565 in 2023.
Distributions from Hupecol Meta reflect, generally, our share of distributable net income of Hupecol Meta. Distributions should not be viewed as a measure of actual operating results of Hupecol Meta for the period of such distributions or any other periods. Distributions merely reflect determinations by the managers of Hupecol Meta to make distributions in accordance with contractual rights of the various members of Hupecol Meta within the discretion of the managers as permitted under the contracts governing Hupecol Meta. We report distributions from Hupecol Meta as Other Income to the extent that the character of the distributions is in the nature of income and not a return of capital. The distributions received during 2024 are, generally, attributable to operations of Hupecol Metas initial wells, the Saturno ST1 vertical well, the Venus 2A vertical well, a legacy well that had been shut-in, the Venus 1-H well, Hupecol Metas first horizontal well, which began production in May 2023, and the Venue 2-H ST1 well, which began production in August 2023. The decrease in interest income from 2023 to 2024 was attributable to the decrease in our cash balances during 2024.
Financial Condition
Liquidity and Capital Resources. At December 31, 2024, we had a cash balance of $2,960,151 and working capital of $3,072,783, compared to a cash balance of $4,059,182 and working capital of $3,917,231 at December 31, 2023.
Cash Flows . Operating activities used cash of $1,536,515 during 2024, compared to $263,191 used during 2023. The change in cash flows from operating activities was attributable to the $800,000 payment to our former CEO.
Investing activities used cash of $1,887,516 during 2024, compared to $2,403,219 used during 2023. The decrease in cash used in investing activities is attributable to the reduced activities in Hupecol Meta to fund our share of costs associated with commencement of Hupecol Metas drilling program on the CPO-11 block.
Financing activities provided cash of $2,325,000 during 2024, compared to $1,652,000 provided during 2023. Cash provided by financing activities in 2024 was due to our private placement, in which we received aggregate net proceeds of $2,325,000. Cash provided by financing activities in 2023 was attributable to funds received from the sale of common stock under our 2022 ATM Offering.
Long-Term Liabilities. At December 31, 2024, we had long-term liabilities of $57,180, compared to $134,167 at December 31, 2023. Long-term liabilities, as of December 31, 2024, consisted of a reserve for plugging costs of $57,180.
Capital and Exploration Expenditures and Commitments. Our principal capital and exploration expenditures relate to ongoing efforts to acquire, drill and complete prospects. During 2023, capital expenditures relating to Hupecol Meta increased with our investments in Hupecol Meta to fund our share of costs associated with the initial wells drilled on the CPO-11 block. We believe that we have the ability, through our cash on-hand, to fund operations during 2024 and for the twelve months following the issuance of these financial statements.
| 59 |
AGIG Managements Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with our financial statements and related notes included elsewhere in this proxy statement. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth under Risk Factors and elsewhere in this proxy statement.
Critical Accounting Policies and Estimates
The following outlines the critical accounting policies and estimates used in reporting our financial condition and results of operations. These policies conform to GAAP and have been consistently applied.
Going Concern . AGIGs consolidated financial statements are prepared on a going concern basis, which contemplates the realization of assets and the liquidation of liabilities during the normal course of business. Since inception, AGIG has had no revenue generating activities and its only source of income has been grant income of $2,545,783 recognized during the year ended December 31, 2024. For the year ended December 31, 2024, AGIG reported a net loss of $3,621,948, negative working capital of $5,340,035 and an accumulated deficit of $16,671,765. These conditions raise substantial doubt about AGIGs ability to continue as a going concern. The financial statements do not include any adjustments resulting from the outcome of this uncertainty. AGIGs ability to continue as a going concern is dependent upon its ability to develop additional sources of capital and implement its proposed business plan of building and operating biomass and plastic recycling plants on a profitable basis. AGIG intends to rely upon continued financial support from its principal majority shareholder to fund its working capital needs. No assurances can be given that the majority will continue to fund AGIGs working capital needs, AGIG will be able to raise the equity and debt required to implement its business plan or that AGIG will be successful in building and operating biomass and plastic recycling plants on a profitable basis. As a result, there is substantial doubt about AGIGs ability to continue as a going concern within one year after the date the consolidated financial statements are available to be issued.
Convertible Promissory Note Receivable and Current Expected Credit Losses. AGIG has the intent and ability to hold the convertible note receivable for the foreseeable future, or until maturity or prepayment, the convertible note receivable is reported at its recorded investment, less deferred fundings and any allowance for expected credit losses.
The recorded investment of the convertible note receivable includes unpaid principal, accrued interest and fees, net of deferred loan fees or costs and unamortized premium or discount (if any). The recorded investment is reduced by any full or partial charge-offs and by any receipts of interest applied under the cost recovery method of accounting.
AGIG evaluates its convertible note receivable for expected credit losses in accordance with ASC 326, Financial Instruments Credit Losses , and records an allowance for losses based on the current expected credit loss model. The allowance is determined based on an assessment of specific identifiable amounts considered at risk or uncollectible, incorporating estimated forward-looking losses due to potential borrower default and an evaluation of the recoverability of the note.
| 60 |
Deposits on License Agreements. Deposits paid in connection with license agreements that are to be applied against future license fees are capitalized as other assets pending the commencement of fee generating operations under the license agreements. When fee generating operations under the license agreements commence , the deposits will be applied against the balance of fees due and payable. In the event fee generating operations under the license agreements fail to occur , the deposits will be expensed as abortive transaction costs.
Warrants. Warrants are accounted in accordance with the guidance contained in ASC 815-40-15-7D. AGIG accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrants specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to AGIG s own common stock and whether the warrant holders could potentially require net cash settlement in a circumstance outside of AGIG s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.
The relative fair value of the warrants issued in conjunction with the convertible note have been treated as a debt discount with an offsetting credit to warrant liabilities. The debt discount related to the warrant issuances is being accreted to interest expense over the term of the note.
Grant Income and Government Grant Receivable. In the absence of comprehensive recognition and measurement guidance within the scope of authoritative US generally accepted accounting principles (GAAP) for the government grant that AGIG has been awarded, in accordance with guidance in ASC 832 Government Assistance , AGIG has accounted for the grant it has received from the government by analogy using the terms of IAS 20, Accounting for Government Grants and Disclosures of Government Accounting Assistance . AGIG receives funding under a government grant which reimburses AGIG for certain qualifying research and development and related expenditures. Grant funding for research and development received under grant agreements where there is no obligation to repay grant funds is recognized as grant income in the period during which the related qualifying expenses are incurred, provided that the grants are fully approved by the granting agencies and the conditions under which the grants were provided have been met. Grant income recognized upon incurring qualifying expenses in advance of receipt of grant funding is recorded in the consolidated balance sheet as government grants receivable.
Recent Developments
AGIG may obtain a bridge loan to maintain complete expenses related to a grant awarded by the UK government to AGIGs UK subsidiary company, obligations and AGIG overhead of up to $1 million, which will be repayable from the proceeds of such grant.
| 61 |
Components of Results of Operations
Consolidated Results and Financial Condition. The following results and financial condition include the financial results and financial condition of AGIG and the following subsidiary companies from the date of their formation or incorporation:
| Company Name | Country of Formation / Incorporation | Date of Incorporation | Percentage Ownership | |||||
| Abundia Biomass LLC | USA | March 26, 2019 | 100 | % | ||||
| Abundia Biomass-to-Liquids Limited | UK | July 10, 2020 | 77.5 | % | ||||
| Abundia Plastics to Liquids LLC | US | September 10, 2021 | 100 | % | ||||
| Abundia Plastics Europe Limited | UK | January 14, 2020 | 100 | % | ||||
| Abundia Global Impact Group (Ireland) Limited | Ireland | February 4, 2022 | 100 | % | ||||
| Abundia Global Impact Group (UK) Limited | UK | May 5, 2023 | 100 | % | ||||
All intercompany balances and transactions have been eliminated in consolidation.
Results of Operations
AGIGs business plan is to raise the necessary debt or equity funding to build and operate biomass and plastic recycling plants on a global basis using a combination of proprietary, licensed and commercialized technologies to provide a complete process which turns waste plastics and biomass into drop-in alternatives to fossil derived energy, fuels and chemicals.
AGIGs activities to date have focused on the research and development and fund-raising activities required to implement its business plan.
| 2024 | 2023 | |||||||
| General and administrative | $ | 1,912,292 | $ | 1,111,036 | ||||
| Research and development | 1,651,170 | 839,243 | ||||||
| Professional fees | 543,364 | 685,969 | ||||||
| Total | $ | 4,106,826 | $ | 2,636,248 | ||||
The increase in General and Administrative expenses and Research and Development costs versus the prior year is the direct result of work undertaken and funded by the Advanced Fuel Fund Grant awarded to Abundia-Biomass-to-Liquids Limited, an AGIG subsidiary. Costs incurred for work under the scope of the grant that meet the eligibility requirements are reclaimed under the terms of the Grant on a quarterly basis. During the year ended December 31, 2024, approximately $2,340,359 of grant income was received against these costs.
Grant Income and Government Grant Receivable. Grant income relates to a grant awarded by the UK government to AGIGs UK subsidiary company, Abundia Biomass-to-Liquids Limited, under its Advance Fuel Fund competition for the development of sustainable aviation fuel production plants in the UK. The total grant amount awarded was 4,484,431 ($5,400,000) and is delivered as a reclaim for eligible project-related expenditure paid each quarter.
The grant reimburses AGIG for pre-approved eligible project research and development costs, related professional fees and general and administrative costs. These costs are included in AGIGs operating expenses in AGIGs consolidated statements of operations. The eligible expenses for reimbursement also include a 20% mark up on certain related administrative and staff costs.
| 62 |
During the year end December 31, 2024, AGIG incurred $2,545,783 in expenditure eligible for reimbursement which has been recognized as grant income in other income in the consolidated statements of operations. AGIG received reimbursement of $2,340,359 during the year ended December 31, 2024 and the balance of $205,424 is recorded on the consolidated balance sheets at December 31, 2024 as government grant receivable.
Asset Impairment. AGIG holds license agreements relating to the base technology used in the Biomass and Plastics pyrolysis processes. Deposits have been paid towards each of these licenses. These deposits are expected to be applied against future license fees and have been capitalized as such. During the year ended December 31, 2024, AGIG determined that a license deposit of $1,000,000 was impaired. The impairment was recognized as management determined that these assets no longer have a future economic benefit. The fair value of the impaired assets was determined to be zero, as there were no expected future cash flows, no alternative use, and no marketability for sale or transfer.
During the year ended December 31, 2023, AGIG determined that $165,843 in capitalized fees related to an abandoned asset acquisition costs were impaired. The impairment was recognized as management determined that these assets no longer have a future economic benefit. The fair value of the impaired assets was determined to be zero, as there were no expected future cash flows, no alternative use, and no marketability for sale or transfer.
|
Deposit on License Agreements |
2024 | 2023 | ||||||
| Opening balance | $ | 3,115,000 | $ | 2,375,000 | ||||
| Additional deposits | 740,000 | |||||||
| Impairment | (1,000,000 | ) | ||||||
| Closing balance | $ | 2,115,000 | $ | 3,115,000 | ||||
Convertible Promissory Note Receivable and Current Expected Credit Losses. E ffective November 23, 2022, AGIG entered into an agreement to provide $4,000,000 to an unrelated third party (the Borrower) by way of convertible promissory note: $2,000,000 million on signature of the agreement and the remaining balance of $2,000,000 on or before January 31, 2023. Accordingly, AGIG made an initial advance of $2,000,000 to Borrower by way of a secured convertible promissory note. The convertible promissory note had a two-year term beginning on November 23, 2022, bore interest at 8% per annum, was secured on the assets of the Borrower and was convertible, at AGIGs option, into a membership interest in the Borrower. In December 2022, AGIG advanced a further $300,000 under the terms, bringing the total outstanding balance to $2,300,000 as of December 31, 2022. During the year ended December 31, 2023, AGIG advanced a further $200,000, bringing the total principal outstanding to $2,500,000 as of December 31, 2023.
As of November 23, 2024, repayment was due to AGIG of $2,500,000 in principal, together with accrued interest of $396,791. No repayment was received from the Borrower and the term of the convertible promissory note was extended to December 31, 2025 and the interest rate was increased from 8% to 15%.
As of December 31, 2024 and 2023, the balance due in respect of the Note and accrued interest was $2,942,029 and $2,699,570, respectively.
During the year ended December 31, 2024, AGIG recorded a full allowance of $2,942,029 for expected credit losses on its convertible promissory note receivable. Given the Borrowers failure to repay the principal balance and accrued interest on the scheduled repayment date and availability of further information on the Borrowers financial position, management determined that any future economic benefit was highly uncertain, with no expected future cash flows and no marketability for sale or transfer.
| 2024 | 2023 | |||||||
| Principal | $ | 2,500,000 | $ | 2,500,000 | ||||
| Accrued interest receivable | 442,029 | 199,570 | ||||||
| Loss provision on convertible promissory note receivable | (2,942,029 | ) | ||||||
| Convertible promissory note receivable, net | $ | $ | 2,699,570 | |||||
| 63 |
Warrant Liabilities. In November 7, 2022, AGIG entered into a $5,000,000 convertible promissory note. As part of the funding agreement AGIG, in the event that AGIG closed a private offering of equity securities or securities convertible into equity securities (Next Round Funding), AGIG would issue a warrant with a term of 5 years to the Lender to purchase $5,000,000 worth of the securities issued in the Next Round Financing with an exercise price equivalent to 80% of the price paid by investors in the Next Round Financing.
AGIG evaluated the warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance from ASC 480 and ASC 815-40. AGIG determined the warrants failed the indexation guidance under ASC 815-40, as they contain provisions that provide note holders with rights to a variable number of shares based on future financing terms. Specifically, should AGIG undertake a private equity offering before the maturity date, the note holder will receive equity warrants to purchase securities issued in the Next Round Financing at an aggregate value of $5,000,000, with an exercise price equal to 80% of the price paid by investors in the offering. This embedded feature represents a deemed redemption feature due to the substantial premium received by the note holder. As a result, AGIG concluded that the redemption feature require bifurcation from the convertible note and subsequent accounting as a freestanding warrant liability in accordance with ASC 815-40. The warrants had a fair value of $1,866,243 on issuance and were classified as liabilities with a corresponding decrease to the Note outstanding balance of $5,000,000 as a discount resulting in Debt Net of Discount Balance of $3,133,757. This discount was accreted over the initial one-year term of the Note as interest expense to par using the effective interest method as noted above. The effective interest rate was 42.10%. As of December 31, 2024 and 2023, the debt discount arising on the issuance of the warrants had been fully amortized.
Accordingly, pursuant to ASC 815-40, AGIG recorded the fair value of the warrants as a liability upon issuance and marked to market at each reporting period in AGIG s consolidated statement of operations until their exercise or expiration.
The estimated fair value of the warrants was calculated using the Black Scholes model with the assumptions set out below, weighted for managements estimate of the probability of a Next Round Financing being completed and discounted back to the valuation date using estimated venture capital rates of return.
| Input | 2024 | 2023 | ||||||
| Expected term | 5 years | 5 years | ||||||
| Principal | $ | 5,000,000 | $ | 5,000,000 | ||||
| Exercise price | $ | 4,000,000 | $ | 4,000,000 | ||||
| Volatility | 74.5 | % | 76.3 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Risk free rate of return | 4.3 | % | 3.8 | % | ||||
| Estimated probability of occurrence of a Next Round Financing | 2 | % | 70 | % | ||||
| Estimated venture capital rates of return | 30 | % | 30 | % | ||||
Financial Condition
Liquidity and Capital Resources. At December 31, 2024, AGIG had a cash balance of $525,809 and negative working capital of $5,340,035 compared to a cash balance of $390,324 and negative working capital of $4,793,780 at December 31, 2023.
Cash Flows
Operating activities used cash of $1,924,700 during 2024, compared to $2,456,621 used during 2023. The change in cash outflows from operating activities was attributable in part to the grant income received from the Advanced Fuels Fund which funded the increased level of Research and Development and contributed towards a portion of the General and Administrative costs of AGIG as existing resources were allocated full time to the AFF related project. The remaining reduction was due to a decrease in the level of professional fees paid in 2024 versus 2023. This was associated to a number of offtake contracts were being negotiated in 2023, leading to a higher level of legal fees.
Investing activities used cash of $318,538 during 2024, compared to $1,539,517 used during 2023. The decrease in cash used in investing activities is due to a reduction in patent application costs, as the level of work required reduces as patents are granted. The cash used in investing activities in 2023 also included payments made towards license deposits $740,000 and an advance $200,000 under a promissory note receivable which were one-off payments in 2023.
Financing activities provided cash of $2,395,000 during 2024, compared to $3,388,185 provided during 2023. Cash provided by financing activities during both 2024 and 2024 was fully attributable to capital contributions from the principal shareholder.
| 64 |
Opinion of HUSAs Financial Advisor
Our Board retained Evans Evans as its financial advisor in connection with the Share Exchange and requested they render an opinion as to the fairness to HUSA stockholders of the Share Exchange.
In the last part of December 2024, Univest provided the Company with the name and contact information for Evans Evans and another firm, who could provide a fairness opinion for the transaction. Neither the Company nor Univest had any prior engagements with Evans Evans. It was also noted during the selection process that the number of providers for this type of service for relatively small enterprises, such as HUSA, was limited.
Mr. Longo, our Company CEO, held introductory phone conversations with both firms discussing the scope, timing, fees, and other matters associated with the potential engagement. During these conversations, Evans Evans distinguished themselves with the nature of the questions they asked regarding the Company and AGIG and with their responses to Mr. Longos questions. Mr. Longo then requested both firms introduced by Univest to send proposals detailing key aspects of the engagement. Evans Evans was very prompt in their response in comparison to the other firm. Mr. Longo then performed web research on Evans Evans and noted that the Canadian boutique investment banking firm employs chartered business valuators and accredited senior appraisers experienced in the preparation of fairness opinions, investor presentations, financial projections, valuations, goodwill impairment analysis, due diligence reports and pricing analyses for private and public companies involved in mergers and acquisitions and other corporate transactions. He noted that they have been in business since 1989 and have worked with clients in a broad range of sectors in Canada, the United States and internationally. In addition, his research did not identify any negative feedback.
Evans Evans submitted their proposal on December 30, 2024. After review of their proposal and further discussions with our internal team and Norton Rose, the Board decided to select Evans Evans. An engagement letter was subsequently signed on January 7, 2025.
The Evans Evans proposal included a fixed fee of $75,000 for the work to be performed, which was determined by Evans Evans. After discussion with our internal team and Norton Rose, the Board concluded that the requested fee was reasonable. The fee was paid with one progress payment of $50,000 at the commencement of services and a final payment of $25,000 upon completion. The fee was not contingent upon the outcome of the Share Exchange.
On February 5, 2025, Evans Evans presented their findings to the HUSA Board via a detailed written presentation, with a draft of their opinion, which was subsequently issued in final form as described below. On February 20, 2025, Evans Evans delivered its final opinion to the Board that, as of that date, and based upon and subject to the factors and assumptions set forth in its written opinion, the Share Exchange was fair to HUSA stockholders from a financial perspective. The full text of this written opinion provided to the Board, which describes, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken, is attached as Annex C to this proxy statement and is incorporated by reference in its entirety. Holders of Common Stock are encouraged to read the opinion carefully in its entirety. The Evans Evans opinion was provided to the Board in connection with its evaluation of the consideration provided for in the Share Exchange Agreement. It does not address any other aspect of the Share Exchange or any alternative to the Share Exchange and does not constitute a recommendation as to how any stockholders should vote or act in connection with the Share Exchange or otherwise.
The consideration to be received by AGIG Unitholders in the Share Exchange was determined in arms-length negotiations between AGIG and the Company. Evans Evans did not recommend the consideration to be paid in the Share Exchange.
Evans Evans is not a current auditor of the Company and is not an associated, affiliated entity, or insider of the Company. Evans Evans has no past, present, or future interest in the Company, AGIG, or any entity related to the fairness opinion, and they have no personal interest in the parties involved. There are no agreements or understandings between Evans Evans and the Company regarding future business dealings. While Evans Evans may, in the ordinary course of its business, provide valuation services to the Company in the future, Evans Evans has confirmed that their partners do not own, directly or indirectly, any outstanding securities of the Company, AGIG, or their respective associates and affiliates.
Discounted Cash Flow Analysis (Income Approach) - AGIG
A discounted cash flow analysis is a valuation technique that provides an estimation of the value of a business based on the cash flows that a business can be expected to generate (the DCF Analysis). The DCF Analysis begins with an estimation of the annual cash flows the subject business is expected to generate over a discrete projection period. The estimated cash flows for each of the years in the discrete projection period are then converted to their present value equivalents using a rate of return appropriate for the risk of achieving the projected cash flows. The present value of the estimated cash flows is then added to the present value equivalent of the residual/terminal value of the business at the end of the discrete projection period to arrive at an estimate of value.
Evans Evans performed a DCF Analysis of the estimated future unlevered free cash flows attributable to AGIG for the years ending December 31, 2025 to 2034, with unlevered free cash flow defined as cash that is available either to reinvest or to distribute to security holders. In applying the DCF Analysis, Evans Evans relied on the financial model prepared by management of AGIG (the Financial Projections). The time frame for the DCF Analysis was selected as 10 years as this was the time frame for the initial seven plants planned by AGIG and the timeframe for such plants to reach a stabilized level of earnings before interest, taxes, depreciation and amortization (EBITDA).
Evans Evans estimated the net present value of the unlevered free cash flows for AGIG after fiscal year 2034 (the Terminal Value) by deducting the long-term growth rate of 2.0% from the selected discount rates of 16% to 17% to arrive at a multiple of 6.9x. Evans Evans discounted the unlevered free cash flows in the discrete projection period and the Terminal Value in 2034 back to the present to obtain a range of the estimated current enterprise value of AGIG.
Certain Unaudited Prospective Financial Information of AGIG
AGIG does not as a matter of course make public projections as to future sales, revenues or other results. However, AGIGs management has provided financial models for the years ended December 31, 2024 to 2034 to Evans Evans, which utilized such financial models to prepare the prospective financial information for the years ended December 31, 2024 to 2034 set forth below in connection with its consideration and financial analyses of the potential Share Exchange.
| 65 |
The financial models and the prospective financial information were not prepared with the view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of AGIGs management, the financial models and the prospective financial information were prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of managements knowledge and belief, the expected course of action and the expected future financial performance of AGIG. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement are cautioned not to place undue reliance on the prospective financial information.
Furthermore, neither AGIGs independent auditors nor any other independent accountants have audited, reviewed, examined, compiled or applied agreed-upon procedures with respect to the prospective financial information and, accordingly, assume no responsibility for, and express no opinion or other form of assurance on, such information or its achievability.
Because the financial models and prospective financial information cover multiple years, such information by its nature becomes less predictive with each successive year. Furthermore, the prospective financial information does not necessarily reflect AGIGs current estimates and does not take into account any circumstances or events occurring after the date it was prepared, and some or all of the assumptions that have been made regarding, among other things, the timing of certain occurrences or impacts, may have changed since such date. In particular, the prospective financial information set forth below does not give effect to the Share Exchange, nor does it take into account the effect of any failure of the Share Exchange to occur, and should not be viewed as accurate in those contexts.
The prospective financial information should be evaluated in conjunction with the historical financial statements and other information regarding AGIG contained in this proxy statement. The Companys stockholders are urged to review the consolidated financial statements of AGIG as of December 31, 2024 and 2023, and the risk factors included in this proxy statement. See Risk Factors , Cautionary Statement Regarding Forward-Looking Statements and Where You Can Find More Information .
The prospective financial information constitutes forward-looking statements and no assurances can be given that the assumptions made in preparing the prospective financial information will accurately reflect future conditions. In addition, the prospective financial information will be affected by AGIGs or the combined companys, as applicable, ability to achieve strategic goals, objectives and targets over the applicable periods. As a result, there can be no assurance that the projected results will be realized, and actual results likely will differ, and may differ materially, from those reflected in the prospective financial information, whether or not the Share Exchange is completed.
None of AGIGs management, board of directors, affiliates, advisors or other representatives assumes responsibility to update the below information and future results may be materially different from those discussed. Any projections set forth below are not necessarily indicative or predictive of future results or values, which may be significantly more or less favorable. Accordingly, the prospective financial information is inherently subject to substantial uncertainty.
| (United States Dollars) | For the fiscal years ending December 31, | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | |||||||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||||||||||
| Biomass | - | - | - | - | 38,407,003 | 155,423,122 | 290,229,429 | 382,730,429 | 519,629,379 | 530,021,967 | ||||||||||||||||||||||||||||||
| Plastics | - | - | 36,766,497 | 86,754,156 | 226,307,980 | 322,809,781 | 329,265,977 | 335,851,296 | 342,568,322 | 349,419,689 | ||||||||||||||||||||||||||||||
| Revenue | - | - | 36,766,497 | 86,754,156 | 264,714,983 | 478,232,904 | 619,495,406 | 718,581,725 | 862,197,701 | 879,441,655 | ||||||||||||||||||||||||||||||
| Biomass | - | - | - | - | 25,093,483 | 101,107,098 | 184,262,449 | 232,990,020 | 311,854,398 | 316,509,714 | ||||||||||||||||||||||||||||||
| Plastics | - | 54,247 | 21,902,852 | 48,530,831 | 128,896,527 | 182,526,011 | 184,382,273 | 187,503,737 | 190,511,077 | 195,852,467 | ||||||||||||||||||||||||||||||
| Cost of Goods Sold | - | 54,247 | 21,902,852 | 48,530,831 | 153,990,010 | 283,633,109 | 368,644,722 | 420,493,757 | 502,365,475 | 512,362,180 | ||||||||||||||||||||||||||||||
| Gross Profit | - | (54,247 | ) | 14,863,645 | 38,223,325 | 110,724,974 | 194,599,795 | 250,850,684 | 298,087,968 | 359,832,226 | 367,079,475 | |||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||||||||||
| Research Development | 2,546,563 | 3,049,578 | 4,142,958 | 6,799,691 | 6,855,901 | 6,942,182 | 6,975,263 | 7,035,171 | 7,096,278 | 7,160,916 | ||||||||||||||||||||||||||||||
| SGA | 3,601,189 | 8,735,798 | 10,070,974 | 12,948,862 | 16,404,196 | 17,255,556 | 17,727,062 | 18,187,044 | 18,670,826 | 19,183,216 | ||||||||||||||||||||||||||||||
| Total operating expenses | 6,147,751 | 11,785,377 | 14,213,932 | 19,748,553 | 23,260,097 | 24,197,738 | 24,702,325 | 25,222,215 | 25,767,104 | 26,344,133 | ||||||||||||||||||||||||||||||
| EBITDA | (6,147,751 | ) | (11,839,623 | ) | 649,713 | 18,474,772 | 87,464,877 | 170,402,057 | 226,148,359 | 272,865,752 | 334,065,123 | 340,735,342 | ||||||||||||||||||||||||||||
| Capex | 22,116,810 | 39,743,306 | 115,669,575 | 212,084,173 | 165,632,266 | 156,559,820 | 157,357,893 | 119,788,696 | - | - | ||||||||||||||||||||||||||||||
Assumptions Underlying the Prospective Financial Information
The prospective financial information was based on the following assumptions that the AGIG management believed to be material, appropriate and reasonable at the time the financial information was prepared, based on the information AGIG had at that time.
Revenue Growth and Facility Ramp-Up Assumptions
| ● | Revenue projections are based on the staged construction and commissioning of several plastics and biomass pyrolysis plants. | |
| ● | The first plastics pyrolysis operations are projected to begin in 2027, with forecast revenue reaching approximately $36.8 million for 2027 and increasing to $349.4 million by 2034 with four plants fully operational. | |
| ● | Biomass pyrolysis revenue is projected to commence in Q2 2029 at $38.4 million with one pyrolysis plant fully operational and increase to $530.0 million by 2034 with three pyrolysis plants fully operational. | |
| ● | Total combined revenue across all segments is forecasted to reach approximately $879.4 million by 2034. |
| 66 |
Production Capacity and Output Assumptions
| ● | Plastics pyrolysis facilities are assumed to have an initial output of 48.7 kilotons per annum (ktpa), with capacity utilization assumptions increasing over time from partial to full operation. | |
| ● | Biomass pyrolysis facilities are assumed to have a full production capacity of approximately 62.6 ktpa, with staggered commissioning based on a phased development schedule. | |
| ● | Plant ramp-up assumptions vary from 65% to 85% utilization based on time in operation. |
Product Pricing and Indexation Assumptions
| ● | Total plant output capacity is assumed to be sold out for all plants with price escalation provisions: 1.0% annually until 2027 and 2.0% annually thereafter. | |
| ● | Base product pricing assumptions range from approximately $1,200 to $3,000 per ton, depending on the specific products, which include pyrolysis oil, sustainable aviation fuel (SAF), renewable diesel, and chemical feedstocks. | |
| ● | AGIG did not include in its forecasts any additional revenue from decarbonization-related incentives, carbon offsets or other environmental attribute monetization. |
Capital Expenditures Assumptions
AGIG assumes that the capital expenditures will be phased to support the planned build-out schedules. Numbers below reflect indicative pricing at the time of making such assumptions.
Capital Deployment for Plastics Pyrolysis Plants Forecast
| ● | $28.0 million in 2025 | |
| ● | $50.79 million in 2026 | |
| ● | $95.43 million in 2027 | |
| ● | $91.27 million in 2028 | |
| ● | $24.02 million in 2029 |
Capital Deployment for Biomass Pyrolysis Plants Forecast
| ● | $81.0 million in 2027 | |
| ● | $111.8 million in 2028 | |
| ● | $142.5 million in 2029 | |
| ● | $156.6 million in 2030 | |
| ● | $157.4 million in 2031 | |
| ● | $39.9 million in 2032 |
Operating Model Assumptions
Cost of goods sold (COGS) scales proportionally with production volume and includes major cost drivers such as feedstock, utilities, process chemicals, catalysts, labor and maintenance.
| ● | COGS is projected to grow from $21.9 million in 2027 to approximately $512.3 million by 2034, reflecting the commissioning and operation of multiple pyrolysis facilities. | |
| ● | The model includes pre-Front End Engineering Design unit cost assumptions for key operating inputs, based on current market standards and vendor estimates. |
Feedstock Pricing (USD/ton):
| ● | Feedstock costs range from $100 to $400 per ton, depending on material type, quality, and preprocessing requirements. |
| 67 |
Process Chemicals (USD/ton):
| ● | Activated carbon: $4,185 | |
| ● | Calcium oxide: $130 | |
| ● | Nitrogen: $280 | |
| ● | Hydrogen: $907 | |
| ● | Catalysts and Sorbents: $6,200 60,000 |
Utility and Energy Price Assumptions
Assumptions include utility estimates at current industrial market rates for key energy inputs. The assumed pricing by unit is as follows:
| ● | Natural Gas: $1.90 per gigajoule (GJ) | |
| ● | Electricity: $197.37 per GJ |
Inflation Assumption COGS
The assumptions apply an annual inflation factor to COGS, including utilities and other variable operating costs. Inflation is applied as follows: 3.0% annually until 2030 and 2.0% annually until 2034.
SGA, RD, and Corporate Overhead Assumptions
| ● | Selling, general and administrative (SGA) expenses, and research and development (RD) investment are projected to grow proportionally as operations scale. | |
| ● | SGA and RD costs are forecasted to increase from $3.6 million in 2027 to approximately $19.1 million in 2034. | |
| ● | Headcount assumptions are based on detailed function-level staffing plans and reflect market-based salaries and benefits. | |
| ● | SGA includes ongoing corporate costs such as finance, human resources, legal, information technology, investor relations and strategic leadership. RD expenditures support technical optimization, process improvements and product development initiatives related to fuel upgrading, by-product valorization and environmental performance. | |
| ● | Assumptions reflect a centralized organizational structure, with shared corporate services supporting all facilities to drive cost efficiency and consistency in execution |
Working Capital and Cash Flow Assumptions
| ● | Working capital assumptions reflect standard industrial payment terms, including 3045 days receivables and supplier payment cycles. | |
| ● | Inventory turnover is assumed to be at 46x annually depending on the segment. |
Foreign Exchange and Time Basis Assumptions
| ● | All projections are presented in U.S. dollars. A Great Britain Bound to U.S. dollar exchange rate of 1.2435 is assumed for UK-linked assumptions. | |
| ● | Calendar assumptions include 30.5 days per month and 365 days per year for operational phasing and accrual estimates. |
Tax and Regulatory Assumptions
| ● | The forecast assumes the current U.S. federal corporate tax rate of 21% remains unchanged. | |
| ● | No material regulatory delays, penalties, or compliance-related disruptions are assumed. |
| 68 |
Depreciation Assumptions
Depreciation assumptions are based on the estimated useful economic life (UEL) of key asset categories and are applied using straight-line depreciation rates. These rates are consistent across the forecast period (20242034) and are as follows:
| ● | Plant and Equipment: |
| ● | UEL: 15 years | |
| ● | Annual Depreciation Rate: 6.67% |
| ● | RD Assets: |
| ● | UEL: 10 years | |
| ● | Annual Depreciation Rate: 10.00% |
| ● | Land and Buildings: |
| ● | UEL: 20 years | |
| ● | Annual Depreciation Rate: 5.00% |
These assumptions are applied uniformly across all operating years and reflect standard accounting practices for industrial infrastructure, RD investments, and physical property. Depreciation is assumed to begin when assets are commissioned.
Selected Guideline Public Companies Analysis (Market Approach) - AGIG
A selected guideline public companies (GPC) analysis is a valuation technique that provides an estimation of value by applying a valuation multiple to a specific financial metric for the subject company. These valuation multiples are either observed or derived from market prices of actively traded public companies, publicly available historical financial information, and consensus equity research analyst estimates of future financial performance. The valuation process includes, but is not limited to, a comparison of various quantitative and qualitative factors between the subject business and other similar businesses (the Selected GPC Analysis).
Evans Evans utilized the Selected GPC Analysis to select a weighting of fiscal 2029 and 2030 EBITDA multiples to estimate a range of enterprise values for AGIG.
Evans Evans initially identified 17 companies whose shares trade on recognized stock exchanges and thereafter upon further review of financial and operating results selected nine publicly traded companies that it deemed relevant in its analysis (the Selected Publicly Traded Companies). Evans Evans selected the Selected Publicly Traded Companies based on their relative similarity, primarily in terms of business focus, revenue growth history and outlook, capital requirements, profit margins and other characteristics, to that of AGIG. Companies were removed from the analysis for the following reasons: (1) in the process of building their own plants and as such had no operating metrics; (2) feedstock was not comparable to that of the AGIG plants; (3) if the focus was primarily on engineering / construction design services for companies like AGIG; and (4) a focus on different outputs such as green hydrogen or syngas.
Evans Evans noted that none of the Selected Publicly Traded Companies are perfectly comparable to AGIG. Evans Evans does not have access to non-public information of any of the Selected Publicly Traded Companies. Accordingly, a complete valuation analysis of AGIG cannot rely solely upon a quantitative review of the Selected Publicly Traded Companies but involves complex considerations and judgments concerning differences in financial and operating characteristics of such companies, as well as other factors that could affect their value relative to that of AGIG. Therefore, the Selected GPC Analysis is subject to certain limitations.
| 69 |
The tables below summarize certain observed historical and projected financial performance and trading multiples of the Selected Publicly Traded Companies (N/A denotes not publicly available).
| 2025E | 2026E | 2027E | 2025E | 2026E | 2027E | |||||||||||||||||||
| Revenue | Revenue | Revenue | EBITDA | EBITDA | EBITDA | |||||||||||||||||||
| Growth | Growth | Growth | Growth | Growth | Growth | |||||||||||||||||||
| Calumet, Inc. | -0.3 | % | 2.0 | % | 3.8 | % | -11.9 | % | 66.4 | % | 30.7 | % | ||||||||||||
| Gevo, Inc. | -11.8 | % | 74.6 | % | 595.1 | % | -48.3 | % | -17.3 | % | -316.6 | % | ||||||||||||
| Koninklijke Vopak N.V. | -14.6 | % | 1.8 | % | 2.8 | % | 36.2 | % | 3.1 | % | 3.3 | % | ||||||||||||
| Neste Oyj | -17.0 | % | 6.9 | % | 2.7 | % | -0.7 | % | 38.8 | % | 29.7 | % | ||||||||||||
| LanzaTech Global, Inc. | 0.3 | % | 85.5 | % | 12.6 | % | -17.5 | % | -16.2 | % | 14.0 | % | ||||||||||||
| Aemetis, Inc. | 61.7 | % | 52.2 | % | 60.7 | % | -62.7 | % | -602.0 | % | 169.3 | % | ||||||||||||
| Agilyx ASA | -81.1 | % | 299.1 | % | 374.0 | % | -27.0 | % | -37.4 | % | -144.6 | % | ||||||||||||
| Enrestec Inc. | n/a | n/a | n/a | n/a | n/a | n/a | ||||||||||||||||||
| Pryme N.V. | n/a | n/a | n/a | -164.9 | % | n/a | n/a | |||||||||||||||||
Sources: SP Capital IQ, SEC Filings, Annual and Interim Reports, Investor Presentations
| TTM | TTM | |||||||||||||||||||
| 2024E | 2025E | 2026E | Debt/ | Capital | ||||||||||||||||
| EBITDA | EBITDA | EBITDA | Total | Expenditure / | ||||||||||||||||
| Margin | Margin | Margin | Capital | Revenue | ||||||||||||||||
| Calumet, Inc. | 4.4 | % | 7.9 | % | 13.7 | % | 49.8 | % | 2.0 | % | ||||||||||
| Gevo, Inc. | -257.8 | % | -122.1 | % | 38.1 | % | 11.4 | % | 189.2 | % | ||||||||||
| Koninklijke Vopak N.V. | 71.8 | % | 71.4 | % | n/a | 0.0 | % | n/a | ||||||||||||
| Neste Oyj | 6.8 | % | 8.7 | % | n/a | 31.4 | % | 7.6 | % | |||||||||||
| LanzaTech Global, Inc. | -124.5 | % | -56.3 | % | -57.0 | % | 16.1 | % | 8.6 | % | ||||||||||
| Aemetis, Inc. | -3.2 | % | 12.2 | % | 28.1 | % | 75.8 | % | 9.6 | % | ||||||||||
| Agilyx ASA | -918.5 | % | -144.1 | % | 13.5 | % | 0.0 | % | 162.9 | % | ||||||||||
| Enrestec Inc. | n/a | n/a | 8 | % | 11.0 | % | 23.1 | % | ||||||||||||
| Pryme N.V. | n/a | n/a | n/a | 47.6 | % | 11814.2 | % | |||||||||||||
Sources: SP Capital IQ, SEC Filings, Annual and Interim Reports, Investor Presentations
| EV/ | EV/ | EV/ | EV/ | EV/ | EV/ | EV/ | ||||||||||||||||||||||
| TTM | 2024E | 2025E | 2026E | TTM | 2025E | 2026E | ||||||||||||||||||||||
| EBITDA | EBITDA | EBITDA | EBITDA | Revenue | Revenue | Revenue | ||||||||||||||||||||||
| Calumet, Inc. | 16.9 x | 19.2 x | 11.5 x | 8.8 x | 0.89 x | 0.88 x | 0.88 x | |||||||||||||||||||||
| Gevo, Inc. | n/a | n/a | n/a | 3.9 x | 17.49 x | 10.30 x | 1.48 x | |||||||||||||||||||||
| Koninklijke Vopak N.V. | 11.1 x | 8.1 x | 7.9 x | 7.6 x | 5.32 x | 5.61 x | 5.46 x | |||||||||||||||||||||
| Neste Oyj | 9.6 x | 9.6 x | 6.9 x | 5.3 x | 0.57 x | 0.60 x | 0.58 x | |||||||||||||||||||||
| LanzaTech Global, Inc. | n/a | n/a | n/a | n/a | 3.50 x | 1.74 x | 1.55 x | |||||||||||||||||||||
| Aemetis, Inc. | n/a | n/a | 10.6 x | 3.9 x | 1.90 x | 1.22 x | 0.77 x | |||||||||||||||||||||
| Agilyx ASA | n/a | n/a | n/a | 106.6 x | 178.49 x | 68.42 x | 14.43 x | |||||||||||||||||||||
| Enrestec Inc. | 53.9 x | n/a | n/a | n/a | 16.71 x | n/a | n/a | |||||||||||||||||||||
| Pryme N.V. | n/a | 1.1 x | n/a | n/a | 137.06 x | n/a | n/a | |||||||||||||||||||||
Historical and projected years indicate 12-month periods ending December 31, 2024
TTM = Trailing Twelve Months
EV: Enterprise Value = Market capitalization plus debt, net of cash and cash equivalents
Summary Financial Analyses - AGIG
Discounted Cash Flow Analysis (Income Approach)
The starting point of the DCF Analysis was the Financial Projections. Evans Evans adjusted the start date for the Financial Projections for a six month period to reflect a delay in the start of construction of AGIGs first plant. Evans Evans also adjusted the exchange rates used in the analysis to reflect the average US dollar exchange rates for calendar year 2024. Lastly, Evans Evans also adjusted the diesel price used in the Financial Projects to consensus diesel prices as of the date of the DCF Analysis.
Using the Financial Projections for fiscal 2025 to 2034, Evans Evans analyzed projected 2025 and 2026 revenue growth, projected 2025 and 2026 EBITDA growth, TTM and projected 2025 and 2026 EBITDA margins, and multiples of enterprise value-to-2024 and -2025 projected EBITDA for the Selected Publicly Traded Companies compared to the projected EBITDA margins of AGIG. Capital expenditures considered in the analysis were provided by AGIG. Annual working capital requirements were based on benchmarking of the Selected Publicly Traded Companies and professional judgement. Evans Evans assumed that annually AGIG would require an amount of debt-free-net-working capital of 10% of revenues.
| 70 |
Determination of an appropriate discount rate to use in the DCF Analysis requires a degree of judgment. Evans Evans considered a number of factors in determining the discount rate range, including the results of published studies on discount rates, and used a build-up method for the cost of equity and the cost of debt, which was used in calculating a weighted average cost of capital. Evans Evans also considered (i) AGIGs business plan, (ii) AGIGs projected financial performance and growth and (iii) risks facing AGIG in order to achieve projected results, including execution risk, financing, regulatory and competitive risks, among others. Evans Evans also considered the offtake agreements in place or under negotiation, the experience of the management team and the ability to secure future financing from the AGIG investor base. Based on these factors, Evans Evans used discount rates ranging from 16% to 17% to discount the projected unlevered free cash flows and the Terminal Value. Evans Evans believes that this range of discount rates is consistent with the rate of return that shareholders would require on alternative investment opportunities with similar risk profiles, including risks of achieving the projected cash flows based on the Financial Projections. In developing the discount rate, Evans Evans considered a capital structure of 20% debt and 80% equity based on benchmarking of the Selected Guideline Companies and professional judgement.
In determining the unlevered cash flows, Evans Evans deducted approximately $990 million in capital expenditures over the first ten years.
Based on the above assumptions and the accompanying AGIG forecasts and projections in the table above, Evans Evans DCF Analysis resulted in an estimated enterprise value range for AGIG of $248.3 million to $287.6 million. In arriving at equity value under the DCF Analysis, Evans Evans assumed AGIGs existing cash and debt balances were $nil.
Selected GPC Analysis (Market Approach) - AGIG
Based on the data shown in the tables above, Evans Evans also selected a range of valuation multiples to apply to a weighting of AGIGs 2029 and 2030 forecast EBITDA. Calendar years 2029 and 2030 represent the first two years of material EBITDA for AGIG. Thereafter, Evans Evans deducted the capital expenditures necessary to achieve such forecast EBITDA and discounted the value to the date of the Opinion using a risk adjusted rate of return.
Evans Evans considered the multiple for the Selected Publicly Traded Companies as outlined in the tables above in its determination of reasonable multiples for AGIG given the Selected Publicly Traded Companies relative similarities to AGIG. Evans Evans analyzed 2024 through 2026 EBITDA growth and 2024 through 2026 EBITDA margins for the Selected Publicly Traded Companies and compared these metrics to those of AGIG for 2029 and 2030, based on the Financial Projections. Evans Evans used these comparisons and the multiples of enterprise value-to-2024 projected EBITDA for the Selected Publicly Traded Companies to select an EBITDA multiple range of 10.0x to 11.0x to apply to a weighting of AGIGs projected 2029 and 2030 EBITDA, resulting in an estimated current enterprise value range for AGIG. Evans Evans selected multiples that, in its judgment, reflected AGIGs revenue growth outlook, capital requirements, profit margins, offtake agreements, management experience and other characteristics relative to the Selected Publicly Traded Companies.
Evans Evans Selected GPC Analysis resulted in an estimated enterprise value range for AGIG of $1.088 billion to $1.107 billion. Thereafter, Evans Evans deducted the approximately $550 million in capital required to achieve the 2029 and 2030 EBITDA to arrive at an adjusted enterprise value for AGIG of $538.6 million to $557.3 million. Lastly, Evans Evans discounted the adjusted enterprise value to the current date using a discount rate of 18% to arrive at an equity value of AGIG at the current date in the range of $235.6 million to $243.8 million. As noted above, AGIG had nominal cash and no debt and as such its enterprise value was equal to its equity value.
AGIG Conclusion
Evans Evans calculated the equity value of AGIG using both the DCF Analysis and the GPC Analysis. Evans Evans then weighted the two approaches equally to calculate an equity value of $241.96 million to $265.71 million. The equity value and the enterprise value for AGIG were equal as it was assumed AGIG had nominal cash and no debt as of the date of the Opinion.
| 71 |
Selected Guideline Public Companies Analysis (Market Approach) - HUSA
Evans Evans utilized the Selected GPC Analysis to calculate the value of HUSA.
Evans Evans initially identified 12 companies whose shares trade on recognized stock exchanges and thereafter upon further review of financial and operating results selected nine publicly traded companies that it deemed relevant in its analysis (the HUSA Selected GPCs). Evans Evans selected the HUSA Selected GPCs based on their relative similarity, primarily in terms of business focus, revenue growth history and outlook, oil production and other characteristics, to that of HUSA. Companies with revenues in excess of $100 million were removed from the analysis as they were not deemed comparable to HUSA.
Evans Evans noted that none of the HUSA Selected GPCs are perfectly comparable to HUSA. Evans Evans does not have access to non-public information of any of the HUSA Selected GPCs. Accordingly, a complete valuation analysis of HUSA cannot rely solely upon a quantitative review of the HUSA Selected GPCs but involves complex considerations and judgments concerning differences in financial and operating characteristics of such companies, as well as other factors that could affect their value relative to that of HUS. Therefore, the Selected GPC Analysis is subject to certain limitations.
The tables below summarize certain observed historical and projected financial performance and trading multiples of the HUSA Selected GPCs (N/A denotes not publicly available).
| 2024E | 2025E | 2026E | ||||||||||||||
| Revenue | Revenue | Revenue | Production | |||||||||||||
| Growth | Growth | Growth | Boe/d | |||||||||||||
| Empire Petroleum Corporation | n/a | n/a | n/a | 2,460 | ||||||||||||
| Kolibri Global Energy Inc. | 12.3 | % | 23.5 | % | 31.4 | % | 3,128 | |||||||||
| Evolution Petroleum Corporation | 6.4 | % | n/a | n/a | 6,790 | |||||||||||
| PEDEVCO Corp. | 25.0 | % | 2.8 | % | 68.8 | % | 1,488 | |||||||||
| Touchstone Exploration Inc. | 47.4 | % | 20.0 | % | 58.2 | % | 5,883 | |||||||||
| U.S. Energy Corp. | 1.9 | % | 51.0 | % | n/a | 1,149 | ||||||||||
| Mexco Energy Corporation | n/a | n/a | n/a | 153,812 | ||||||||||||
Sources: SP Capital IQ, SEC Filings, Annual and Interim Reports, Investor Presentations
Boe/d=Barrels of oil equivalent per day
| 2024E | 2025E | 2026E | ||||||||||
| EBITDA | EBITDA | EBITDA | ||||||||||
| Margin | Margin | Margin | ||||||||||
| Empire Petroleum Corporation | n/a | n/a | n/a | |||||||||
| Kolibri Global Energy Inc. | 75.5 | % | 73.1 | % | 72.6 | % | ||||||
| Evolution Petroleum Corporation | 40.1 | % | n/a | n/a | ||||||||
| PEDEVCO Corp. | 60.9 | % | 57.3 | % | 66.4 | % | ||||||
| Touchstone Exploration Inc. | 42.3 | % | 49.5 | % | 53.6 | % | ||||||
| U.S. Energy Corp. | 13.7 | % | 34.2 | % | n/a | |||||||
| Mexco Energy Corporation | n/a | n/a | n/a | |||||||||
Sources: SP Capital IQ, SEC Filings, Annual and Interim Reports, Investor Presentations
| EV/ | EV/ | EV/ | EV/ | |||||||||||||
| TTM | TTM | 2025E | 2026E | |||||||||||||
| Boe/d | Revenue | Revenue | Revenue | |||||||||||||
| Empire Petroleum Corporation | 93,858 x | 5.34 x | n/a | n/a | ||||||||||||
| Kolibri Global Energy Inc. | 78,192 x | 4.48 x | 4.31 x | 3.49 x | ||||||||||||
| Evolution Petroleum Corporation | 30,682 x | 2.41 x | 2.28 x | n/a | ||||||||||||
| PEDEVCO Corp. | 49,101 x | 2.05 x | 1.90 x | 1.85 x | ||||||||||||
| Touchstone Exploration Inc. | 16,392 x | 1.94 x | 1.82 x | 1.51 x | ||||||||||||
| U.S. Energy Corp. | 48,334 x | 2.70 x | 2.65 x | 1.75 x | ||||||||||||
| Mexco Energy Corporation | 160 x | 3.43 x | n/a | n/a | ||||||||||||
Historical and projected years indicate 12-month periods ending December 31, 2024
TTM = Trailing Twelve Months
EV: Enterprise Value = Market capitalization plus debt, net of cash and cash equivalents
Boe/d=Barrels of oil equivalent per day
| 72 |
Summary Financial Analyses - HUSA
Selected GPC Analysis (Market Approach)
Based on the data shown in the tables above, Evans Evans also selected a range of valuation multiples to apply to HUSAs TTM revenues and reported production.
Evans Evans considered the multiple for the HUSA Selected GPCs as outlined in the tables above in its determination of reasonable multiples for HUSA given the HUSA Selected GPCs relative similarities to HUSA. Evans Evans analyzed 2023 and TTM revenues and production metrics for the HUSA Selected GPCs and compared these metrics to those of HUSA. Evans Evans used these comparisons and the multiples of enterprise value-to-TTM revenues for the HUSA Selected GPCs to select a TTM revenue multiple range of 2.0x to 2.5x to apply to HUSAs TTM revenues, resulting in an estimated current enterprise value range for HUSA. Evans Evans also selected an EV / boe/d multiple in the range of 18,000x to 19,000x to apply to HUSAs production interests. Evans Evans selected multiples that, in its judgment, reflected HUSAs revenue growth outlook, revenues of less than $1.0 million annual, capital requirements to increase production, negative EBITDA, production outlook and other characteristics relative to the HUSA Selected GPCs.
Evans Evans Selected GPC Analysis resulted in an estimated enterprise value range for HUSA of $320,000 to $1.44 million. Thereafter, Evans Evans added back cash on hand and deducted interest bearing debt to arrive at an equity value of HUSA in the range of $7.1 million to $8.2 million.
Trading Price Analysis (Market Approach)
Evans Evans reviewed HUSAs trading prices over the 10, 30, 90 and 180 trading days preceding the date of the Opinion and the date of the announcement of the Transaction on December 14, 2024. Evans Evans did find the trading price of HUSA did increase materially following the announcement of the LOI. Using the 30-day and 60-day volume weighted average price (VWAP) of HUSA as of the date of the Opinion, Evans calculated the equity value of HUSA in the range of $34.1 million to $35.7 million.
HUSA Conclusion
Evans Evans calculated the equity value of HUSA using both the Trading Price Analysis and the GPC Analysis. Evans Evans then weighted the two approaches equally to calculate an equity value of $15.23 million and $16.5 million for HUSA. Evans Evans noted that HUSAs 20-day VWAP increased 68% between the announcement of the LOI and the date of the Opinion. There were no material announcements regarding the operations of HUSA in the aforementioned timeframe to account for a significant increase in trading price. Accordingly, Evans Evans weighted the GPC Analysis 70% and the Trading Price Analysis 30% in arriving at its conclusions. In the view of Evans Evans, this weighting reflected the fundamental value of HUSAs oil gas operations and a premium for providing a public vehicle to the AGIG shareholders.
Fairness Conclusions
Evans Evans calculated the equity value of both HUSA and AGIG two ways and weighted those approaches as outlined above. Evans Evans calculated the relative values of HUSA and AGIG and found their relative positions in HUSA post-Transaction were supported by the calculated equity values.
| 73 |
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
Transaction summary
On February 20, 2025, HUSA entered into a Share Exchange Agreement with the AGIG Unitholders. The AGIG Unitholders are the record and beneficial owners of all the issued and outstanding units of AGIG. The Share Exchange Agreement provides that HUSA will acquire all of the outstanding units of AGIG in exchange for issuing a number of shares of Common Stock equal to 94% of all the issued and outstanding Common Stock of HUSA at the time of the closing of the Share Exchange Agreement, after taking into account issuance to the AGIG Unitholders (the Share Exchange). The Share Exchange is subject to customary closing conditions, including the condition that HUSA stockholders approve the Share Exchange Agreement. Following the Share Exchange, AGIG will be a wholly-owned subsidiary of HUSA and referred to herein as the Combined Company.
The Share Exchange will be accounted for as a reverse acquisition in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) within Accounting Standards Codification (ASC) Topic 805, Business Combinations (ASC 805), whereby AGIG, the legal acquiree, is considered the accounting acquirer and HUSA, the legal acquirer, is treated as the acquired company for financial reporting purposes. AGIG was considered the accounting acquirer as its controlling shareholder, Abundia Financial LLC, will hold approximately 84.6% of the issued and outstanding common stock and will control the Combined Company following the Share Exchange, including nominating and approving the majority of the board of directors within 45 days of Closing.
As HUSA is the acquired company, the purchase price for HUSA is estimated, as described in Note 5 of this unaudited pro forma combined consolidated financial information, and HUSAs net assets acquired and liabilities assumed in connection with the Share Exchange are recorded at their estimated acquisition date fair values. Any excess of the fair value of HUSAs identified net assets acquired over the estimated purchase price will be recognized as goodwill. The pro forma adjustments are preliminary and based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed and are prepared to illustrate the estimated effect of the Share Exchange. The Combined Company will finalize the accounting for the Share Exchange as soon as practicable within the measurement period in accordance with ASC 805, but in no event later than one (1) year from the closing date of the Share Exchange. The purchase price allocation will remain preliminary until management determines the fair values of assets acquired and liabilities assumed. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented in the unaudited pro forma combined consolidated financial statements.
On January 22, 2025, HUSA entered into a securities purchase agreement with a certain purchaser to which HUSA agreed to issue and sell 2,600,000 shares of HUSAs common stock, which carries a par value of $0.001 per share, at a price of $1.70 per share in a registered direct offering (HUSA Equity Offering). The net proceeds of the HUSA Equity Offering were $3,897,200, after deducting the placement agents fees and other estimated offering expenses. HUSA intends to use the net proceeds from the HUSA Equity Offering for general corporate purposes, which may include among other things, capital expenditures and working capital. For the purposes of the unaudited pro forma combined consolidated financial information, the HUSA Equity Offering is described in Note 4 to the unaudited pro forma combined consolidated financial information.
In connection with the Share Exchange, the Company expects to effect the Reverse Stock Split, which is a condition precedent to the consummation of the transactions contemplated by the Share Exchange Agreement with the AGIG Unitholders.
The unaudited pro forma combined consolidated balance sheet as of December 31, 2024, gives pro forma effect to the HUSA Equity Offering, the Share Exchange and the Reverse Stock Split, as though such transactions had occurred as of December 31, 2024. The unaudited pro forma combined consolidated statements of operations for the year ended December 31, 2024, present our combined consolidated results of operations giving pro forma effect to the HUSA Equity Offering and the Share Exchange as described above as if they had occurred as of January 1, 2024.
The unaudited pro forma combined consolidated financial information should be read in conjunction with:
● the accompanying notes to the unaudited pro forma combined consolidated financial statements;
● the audited consolidated financial statements of HUSA as of and for the year ended December 31, 2024, which are included in HUSA’s Annual Report on Form 10-K incorporated by reference in this proxy statement; and
● the audited consolidated financial statements of AGIG as of and for the year ended December 31, 2024, which are included elsewhere in this proxy statement.
The unaudited pro forma combined consolidated financial information and related notes are provided for illustrative purposes only and do not purport to represent what the combined companys actual results of operations or financial position would have been had the Share Exchange been completed on the dates indicated, nor are they necessarily indicative of the combined companys future results of operations or financial position for any future period. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein. The unaudited pro forma combined consolidated financial information does not reflect any anticipated synergies or dis-synergies, operating efficiencies or cost savings that may result from the Share Exchange and integration costs that may be incurred. The pro forma adjustments represent the Combined Companys best estimates and are based upon currently available information and certain assumptions that the Combined Company believes are reasonable under the circumstances. The Combined Company is not aware of any material transactions between HUSA and AGIG during the periods presented. Accordingly, adjustments to eliminate transactions between HUSA and AGIG have not been reflected in the unaudited pro forma combined consolidated financial information.
| 74 |
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
As of December 31, 2024
| Abundia Global Impact Group (Historical) | Houston American Energy Corp (Historical) 1 |
HUSA Equity Offering (Note 4) |
Transaction Accounting Adjustments | Pro forma Combined | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Current Assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 525,809 | $ | 2,960,151 | $ | 3,897,200 | $ | - | $ | 7,383,160 | ||||||||||
| Accounts receivable oil and gas sales | - | 75,074 | - | - | 75,074 | |||||||||||||||
| Government grant receivable | 205,424 | - | - | - | 205,424 | |||||||||||||||
| Prepaid expenses and other current assets | 122,283 | 175,866 | - | - | 298,149 | |||||||||||||||
| Total Current Assets | 853,516 | 3,211,091 | 3,897,200 | - | 7,961,807 | |||||||||||||||
| Property and equipment | ||||||||||||||||||||
| Oil and gas properties, full cost method | - | 62,770,657 | - | 430,473 | 5(A) | 1,548,109 | ||||||||||||||
| - | (61,653,021) | 5(B) | ||||||||||||||||||
| Office equipment | 3,602 | 90,004 | - | (90,004) | 5(B) | 3,602 | ||||||||||||||
| Total | 3,602 | 62,860,661 | - | (61,312,552 | ) | 1,551,711 | ||||||||||||||
| Accumulated depletion, depreciation, amortization, and impairment | (3,290 | ) | (61,743,025 | ) | - | 61,743,025 | 5(B) | (3,290 | ) | |||||||||||
| Property and equipment, net | 312 | 1,117,636 | - | 430,473 | 1,548,421 | |||||||||||||||
| Other Assets | ||||||||||||||||||||
| Capitalized patents, net | 1,145,860 | - | - | - | 1,145,860 | |||||||||||||||
| Goodwill | - | - | - | 3,795,545 | 5(C) | 3,795,545 | ||||||||||||||
| Right of use asset | - | 69,901 | - | (69,901) | 5(D) | - | ||||||||||||||
| Deposits on license agreements | 2,115,000 | - | - | - | 2,115,000 | |||||||||||||||
| Other assets | - | 3,167 | - | - | 3,167 | |||||||||||||||
| Total Other Assets | 3,260,860 | 73,068 | - | 3,725,644 | 7,059,572 | |||||||||||||||
| Total Assets | $ | 4,114,688 | $ | 4,401,795 | $ | 3,897,200 | $ | 4,156,117 | $ | 16,569,800 | ||||||||||
| 75 |
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
As of December 31, 2024
| Abundia Global Impact Group (Historical) | Houston American Energy Corp (Historical) 1 |
HUSA Equity Offering (Note 4) |
Transaction Accounting Adjustments | Pro forma Combined | ||||||||||||||||
| LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||||||||||||||
| LIABILITIES | ||||||||||||||||||||
| Current Liabilities | ||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 279,537 | $ | 67,226 | $ | - | $ | 1,672,530 | 5(E) | $ | 2,019,293 | |||||||||
| Convertible promissory note | 5,860,274 | - | - | - | 5,860,274 | |||||||||||||||
| Warrant liabilities | 45,965 | - | - | - | 45,965 | |||||||||||||||
| Other payables | 7,775 | - | - | - | 7,775 | |||||||||||||||
| Short-term lease liability | - | 71,082 | - | (71,082) | 5(D) | - | ||||||||||||||
| Total Current Liabilities | 6,193,551 | 138,308 | - | 1,601,448 | 7,933,307 | |||||||||||||||
| Long-term Liabilities | ||||||||||||||||||||
| Reserve for plugging and abandonment costs | - | 57,180 | - | (19,071) | 5(F) | 38,109 | ||||||||||||||
| Total Long-term Liabilities | - | 57,180 | - | (19,071 | ) | 38,109 | ||||||||||||||
| Total Liabilities | $ | 6,193,551 | $ | 195,488 | $ | - | $ | 1,582,377 | $ | 7,971,416 | ||||||||||
| EQUITY | ||||||||||||||||||||
| Shareholders Equity (Deficit) | ||||||||||||||||||||
| Members deficit | $ | (2,053,910 | ) | $ | - | $ | - | $ | 2,053,910 | 5(I) | $ | - | ||||||||
| Common stock, par value $ 0.001 | - | 13,087 | 2,600 | 15,687 | 5(G) | 261,442 | ||||||||||||||
| (15,687) | 5(H) | |||||||||||||||||||
| 237,154 | 5(I) | |||||||||||||||||||
| 8,601 | 5(E) | |||||||||||||||||||
| Additional paid-in capital | - | 89,408,329 | 3,894,600 | 10,494,290 | 5(G) | 31,240,492 | ||||||||||||||
| (93,302,929) | 5(H) | |||||||||||||||||||
| 14,380,701 | 5(I) | |||||||||||||||||||
| 611,131 | 5(G) | |||||||||||||||||||
| 5,754,370 | 5(E) | |||||||||||||||||||
| Accumulated deficit | - | (85,215,109 | ) | - | (7,435,501) | 5(E) | (22,878,597 | ) | ||||||||||||
| 86,443,778 | 5(H) | |||||||||||||||||||
| (16,671,765) | 5(I) | |||||||||||||||||||
| Noncontrolling interest | (24,953 | ) | - | - | - | (24,953 | ) | |||||||||||||
| Total Shareholders Equity (Deficit) | (2,078,863 | ) | 4,206,307 | 3,897,200 | 2,573,740 | 8,598,384 | ||||||||||||||
| Total Equity | (2,078,863 | ) | 4,206,307 | 3,897,200 | 2,573,740 | 8,598,384 | ||||||||||||||
| Total Liabilities and Equity | $ | 4,114,688 | $ | 4,401,795 | $ | 3,897,200 | $ | 4,156,117 | $ | 16,569,800 | ||||||||||
1 Refer to Note 3 for reconciliation of HUSAs historical as reported presentation.
| 76 |
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 31, 2024
| Abundia Global Impact Group (Historical) | Houston American Energy Corp (Historical) 1 | Transaction Accounting Adjustments | Pro Forma Combined | |||||||||||||
| Revenues | ||||||||||||||||
| Oil and gas revenue | $ | - | $ | 560,180 | $ | - | $ | 560,180 | ||||||||
| Total operating revenue | - | 560,180 | - | 560,180 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Professional fees | 543,364 | 327,413 | 7,435,501 | 5(E) | 8,306,278 | |||||||||||
| Research and development | 1,651,170 | - | - | 1,651,170 | ||||||||||||
| Lease operating expense and severance tax | - | 747,559 | - | 747,559 | ||||||||||||
| General and administrative expense | 1,896,786 | 1,897,146 | - | 3,793,932 | ||||||||||||
| Depreciation, depletion and amortization | 15,507 | 160,001 | 6,421 | 5(J) | 181,929 | |||||||||||
| Provision for loss on convertible note receivable | 2,942,029 | - | - | 2,942,029 | ||||||||||||
| Impairment expense - oil and gas properties | - | 275,760 | (17,344) | 5(K) | 258,416 | |||||||||||
| Impairment expense - equity investment Hupecol Meta LLC | - | 6,392,874 | - | 6,392,874 | ||||||||||||
| Impairment of license deposit | 1,000,000 | - | - | 1,000,000 | ||||||||||||
| Foreign exchange loss (gain) | 44,388 | - | - | 44,388 | ||||||||||||
| Total operating expenses | 8,093,244 | 9,800,753 | 7,424,578 | 25,318,575 | ||||||||||||
| Loss from operations | (8,093,244 | ) | (9,240,573 | ) | (7,424,578 | ) | (24,758,395 | ) | ||||||||
| Other income and (expense), net | ||||||||||||||||
| Grant income | 2,545,783 | - | - | 2,545,783 | ||||||||||||
| Interest income | 242,459 | 101,742 | - | 344,201 | ||||||||||||
| Other income | - | 922,719 | - | 922,719 | ||||||||||||
| Change in fair value of warrant liability | 2,084,150 | - | - | 2,084,150 | ||||||||||||
| Interest expense | (401,096 | ) | - | - | (401,096 | ) | ||||||||||
| Total other income and (expense), net | 4,471,296 | 1,024,461 | - | 5,495,757 | ||||||||||||
| Net loss | $ | (3,621,948 | ) | $ | (8,216,112 | ) | $ | (7,424,578 | ) | $ | (19,262,638 | ) | ||||
| Basic and diluted (loss) income per common share | (0.73 | ) | - | (0.07 | ) | |||||||||||
| Basic and diluted weighted average number of common shares outstanding | 11,288,019 | 248,355,684 | 5(L) | 259,643,703 | ||||||||||||
1 Refer to Note 3 for reconciliation of HUSAs historical as reported presentation.
| 77 |
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
Note 1. Basis of Presentation
The accompanying unaudited pro forma combined consolidated financial information is prepared in accordance with Article 11 of Regulation S-X and is intended to reflect the impact of both the Share Exchange and HUSA Equity Offering. The presentation of the unaudited pro forma balance sheet and statement of operations are based on the historical financial statements of the Combined Company.
The unaudited pro forma combined consolidated financial information was prepared using the acquisition method of accounting in accordance with ASC 805. The acquisition method of accounting requires use of the fair value concepts defined in ASC 820, Fair Value Measurement (ASC 820). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements can be highly subjective, and it is possible the application of reasonable judgment could develop different assumptions from those to prepare the pro forma adjustments resulting in a range of alternative estimates using the same facts and circumstances.
The Share Exchange did not have an impact on HUSAs oil and gas reserve information and as a result, supplemental oil and gas disclosures were not included in the pro forma financial information.
After the Share Exchange, the Combined Company will file a consolidated tax return that will include AGIG. As such, there were no pro forma adjustments related to taxes as HUSA has a pre-existing full valuation allowance against its deferred tax assets and the tax effect of pro forma adjustments are fully offset by an increase in the valuation allowance. In addition, it is expected that AGIG will have net deferred tax assets offset by a full valuation allowance at acquisition and thus have no effect on HUSA. The actual deferred tax assets and liabilities may differ materially based on changes resulting from finalizing the allocation of purchase price and valuing the assets acquired and liabilities assumed in the Share Exchange.
Note 2. Significant Accounting Policies
The accounting policies used in the preparation of the unaudited pro forma combined consolidated financial information are those set out in AGIGs audited consolidated financial statements as of and for the year ended December 31, 2024. Based on that initial review, AGIG does not believe there are any material differences between the accounting policies of the two companies, other than certain reclassifications necessary to conform financial statement presentation. These reclassifications are described in Note 3 below. Upon completion of the Share Exchange, management will perform a comprehensive review of its accounting policies in which additional differences that may be identified, when conformed, could have a material impact on the unaudited pro forma combined consolidated financial information.
Note 3. Reclassification Adjustments
Certain reclassifications are reflected in the pro forma adjustments to conform HUSAs financial statement presentation to that of the accounting acquirer, AGIG, in the unaudited pro forma combined consolidated balance sheet and statements of operations. These reclassifications have no effect on previously reported shareholders equity, or income from continuing operations of HUSA or AGIG. The pro forma financial information may not reflect all reclassifications necessary to conform HUSAs presentation to that of AGIG due to limitations on the availability of information as of the date of this proxy statement. Accounting policy differences and additional reclassification adjustments may be identified as more information becomes available.
| 78 |
The following reclassification adjustments were made to conform HUSAs presentation to AGIGs presentation:
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET ADJUSTMENTS
As of December 31, 2024
| HUSA (Historical) | Reclassification adjustments to AGIG presentation | HUSA Historical Adjusted | ||||||||||
| Accounts payable | $ | 49,542 | $ | (49,542 | ) | $ | - | |||||
| Accrued expenses | 17,684 | (17,684 | ) | - | ||||||||
| Accounts payable and accrued liabilities | - | 67,226 | 67,226 | |||||||||
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS
For the year ended December 31, 2024
| HUSA (Historical) | Reclassification adjustments to AGIG presentation | HUSA Historical Adjusted | ||||||||||
| Professional fees | $ | - | $ | 327, 413 | $ | 327,143 | ||||||
| General and administrative expense | 2,224,559 | (327,413 | ) | 1,897,146 | ||||||||
Note 4. HUSA Equity Offering
Represents the effects of the HUSA Equity Offering, as described above, to reflect the net proceeds, common stock issued at par and additional paid-in capital. The HUSA Equity Offering results in $3,897,200 of net proceeds, $2,600 of common stock at par and $3,894,600 of additional paid-in capital.
Note 5. Transaction Accounting Adjustments
The estimated preliminary purchase price for the Share Exchange is calculated as follows:
| Preliminary estimated purchase price | Amounts | |||
| Estimated fair value of outstanding common stock of HUSA (i) | $ | 10,509,977 | ||
| Estimated fair value of vested HUSA stock option awards (ii) | 611,131 | |||
| Estimated preliminary purchase price | $ | 11,121,108 | ||
i. Represents the estimated fair value of the common stock of the Combined Company to be retained by Common Stockholders. The estimated preliminary purchase price was determined using the close price of Common Stock ($0.67 per share) as of April 3, 2025, the most recent date practicable prior to the preparation of this proxy statement and is calculated based on the total number of shares of Common Stock outstanding as of April 3, 2025 of 15,686,533 shares.
ii. Represents the estimated fair value of vested HUSA stock options which were valued using a lattice-based model.
The Combined Company assessed multiple scenarios considering the current market volatility. Continued market volatility would impact the amount of the goodwill, as the value of the Share Exchange consideration and the fair value of the net identifiable assets acquired will continue to fluctuate. Based upon current valuation assumptions, a 10% increase in HUSAs share price will result in a total consideration of $12,233,219 and corresponding goodwill of approximately $4,907,656. Likewise, based on current valuation assumptions, a 10% decrease in HUSAs share price will result in consideration of $10,008,997 and a $2,683,434 goodwill.
| 79 |
The preliminary estimated purchase price allocation for the Share Exchange is as follows:
| Preliminary estimated purchase price allocation | Amounts | |||
| Cash | $ | 6,857,351 | ||
| Accounts receivable oil and gas sales | 75,074 | |||
| Prepaid expenses and other current assets | 175,866 | |||
| Oil and gas properties, full cost method | 1,548,109 | |||
| Other assets | 3,167 | |||
| Total assets | $ | 8,659,567 | ||
| Accounts payable and accrued liabilities | (1,295,895 | ) | ||
| Reserve for plugging and abandonment costs | (38,109 | ) | ||
| Total liabilities | $ | (1,334,004 | ) | |
| Estimated net assets | $ | 7,325,563 | ||
| Estimated purchase consideration | $ | 11,121,108 | ||
| Estimated goodwill | $ | 3,795,545 | ||
The preliminary estimated purchase price is subject to change due to several factors, including but not limited to, changes in the estimated preliminary purchase price based on share price at closing and changes in the estimated fair value of HUSA assets acquired and liabilities assumed as of the date of the closing of the Share Exchange, resulting from the finalization of the detailed valuation analysis, including changes in future oil and gas commodity prices, reserve estimates, interest rates and other factors.
The allocation of the estimated fair value of consideration transferred (based on the preliminary estimated purchase price described above) to the estimated fair value of HUSA assets acquired and liabilities assumed resulted in the following purchase price allocation adjustments:
5(A). Represents an adjustment to the historical Oil and gas properties, full cost method to reflect at fair value.
5(B) . Represents the elimination of historical accumulated depletion, depreciation, amortization and impairment, including Office equipment that was fully depreciated as of December 31, 2024, for which the fair value was not considered material.
5(C). Represents the recognition of estimated goodwill resulting from the Share Exchange and represents the excess of preliminary estimated purchase consideration over the preliminary fair value of the underlying assets acquired and liabilities assumed.
5(D). Represents the elimination of the Short-term lease liability and Right of use asset which reflects the AGIGs policy to not recognize assets or liabilities for leases that, at the acquisition date, have a remaining lease term of 12 months or less.
5(E). Represents transaction related fees and expenses of $1,228,669 and $6,206,832 estimated to be incurred subsequent to December 31, 2024 by HUSA and AGIG, respectively in connection with the Share Exchange. Transaction costs to be incurred by AGIG include 8,601,449 shares of Common Stock that are expected to be issued to the investment banker at close of the Share Exchange as a success fee. The estimated value of the success fee is $5,762,971 which was calculated using the close price of Common Stock ($0.67 per share) as of April 3, 2025. This adjustment includes $8,601 in common stock at $0.001 par value and $5,754,370 to additional-paid-in-capital. The remaining transaction costs of $0 and $37,729 are included in the historical Statements of Operations of HUSA and AGIG, respectively, for the twelve months ended December 31, 2024. Transaction costs will not affect the Combined Companys Statements of Operations beyond 12 months after the acquisition date.
5(F). Represents an adjustment to the historical Reserve for plugging and abandonment cost to reflect at estimated fair value.
5(G). Represents the preliminary estimated purchase price of $11,121,108, including $15,687 in common stock at $0.001 par value and $10,494,290 to additional paid-in capital for the common stock retained by Common Stockholders, and $611,131 to additional paid-in capital related to the estimated fair value of the vested HUSA stock option awards.
| 80 |
5(H). Represents the elimination of HUSAs historical common stock, additional paid-in capital and accumulated deficit balances, which includes the elimination of estimated HUSA transaction costs.
5(I). Represents the adjustments to the historical AGIG total members deficit:
i. Adjustment to reclassify the historical members deficit of AGIG of $2,053,910 to common stock, accumulated deficit and additional paid-in capital;
ii. Represents an adjustment to increase common stock to reflect the 237,154,235 shares (221,180,116 shares issued to Abundia Financial LLC and 24,575,568 shares issued to BFH) issued to AGIG Unitholders, net of the 8,601,449 shares issued to Univest as a result of the Share Exchange; and
iii. Represents a reclassification of historical AGIG accumulated deficit and reclassification of historical book value AGIG members deficit to additional paid-in capital.
| Amounts | ||||
| No. of shares to be issued by HUSA to AGIG Unitholders at par value of $0.001 | 237,154,235 | |||
| Par value per common share | $ | 0.001 | ||
| Pro forma adjustment for shares issued by HUSA to AGIG Unitholders | $ | 237,154 | ||
| Pro forma reclassification of historical AGIG accumulated deficit | $ | (16,671,765 | ) | |
| Pro forma reclassification of historical carry value of AGIG members deficit to additional paid-in capital | $ | 14,380,701 | ||
5(J) . Represents an adjustment to the historical depletion, depreciation and amortization (DDA) to the estimated DDA for Oil and Gas properties recalculated using the fair values of OG properties under the Full Cost method of accounting to compute the estimated pro forma DDA provisions.
5(K). Represents an adjustment to the impairment of Oil and gas properties to reflect the remeasurement of the capitalized costs of Oil and gas properties as described in Note 5 that exceeds the calculated ceiling amount under the full cost method of accounting for Oil and gas properties.
5(L) . Represents an adjustment to the basic and diluted weighted average common shares outstanding of 248,355,684 to reflect the HUSA Equity Offering of 2,600,000 shares of Common Stock and anticipated issuance of 237,154,235 and 8,601,449 shares of Common Stock to AGIG Unitholders and investment bank as a result of the Share Exchange.
To present the estimated effect of the proposed Reverse Stock Split range, the unaudited pro forma combined consolidated earnings per share has been prepared using the assumptions below:
| Proposed Reverse Stock Split |
Minimum (1 for 5) |
Mid (1 for 30) |
Maximum (1 for 60) |
|||||||||
| Historical weighted average number of HUSA common shares outstanding | 2,257,604 | 376,267 | 188,134 | |||||||||
| Shares of HUSA common stock issued in the HUSA Equity Offering | 520,000 | 86,667 | 43,333 | |||||||||
| Shares of common stock to be issued to investment banker as success fee | 1,720,290 | 286,715 | 143,357 | |||||||||
| Shares of common stock to be issued to AGIG Unitholders upon close of Share Exchange | 47,430,847 | 7,905,141 | 3,952,571 | |||||||||
| Pro forma combined weighted average number of common shares outstanding | 51,928,741 | 8,654,790 | 4,327,395 | |||||||||
| Pro forma basic and diluted (loss) income per common share | $ | (0.37 | ) | $ | (2.23 | ) | $ | (4.45 | ) | |||
| 81 |
AGIG INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| 82 |
AGIG CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Abundia Global Impact Group LLC
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Abundia Global Impact Group LLC (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, changes in members equity and cash flows for each of the two years ended December 31, 2024, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provide a reasonable basis for our opinion.
Emphasis of Matter - Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company is pre-revenue and has suffered recurring losses from operations, has a net capital deficiency and has a significant financing facility maturing within the next twelve months. These conditions raise substantial doubt about the Companys ability to continue as a going concern. Managements plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| 83 |
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation for Warrant
As described in Notes 8 to the consolidated financial statements, the Company has issued a warrant in connection with their convertible debt agreement. The accounting for these financial instruments was identified as a critical audit matter due to the valuation of the warrant involving significant judgment, as it requires the use of the Black-Scholes model, weighted by managements estimate of the probability of occurrence. The Black-Scholes model relies on several assumptions, including stock price volatility, risk-free interest rates, discount rates, and the expected life of the warrant.
How the Matter Was Addressed in the Audit
Our audit procedures related to the accounting and valuation of the convertible debt instruments and warrants included the following, among others:
● We obtained an understanding of the relevant controls over the Companys process the valuation of the convertible note instrument and warrant.
● We involved our valuation specialists to assist in assessing the reasonableness of the assumptions and methodologies used by the Company in valuing the conversion features and warrant, including the use of the Black-Scholes model.
● We tested the completeness and accuracy of the underlying data used in the valuation models.
● We assessed the adequacy of the Companys disclosures related to the convertible debt instruments and warrant.
● We assessed the adequacy of the Companys disclosures related to the convertible debt instruments and warrants.
We have served as the Companys auditor since 2020.
/s/ Baker Tilly US, LLP
Houston, Texas
February 24, 2025
| 84 |
ABUNDIA GLOBAL IMPACT GROUP LLC
CONSOLIDATED BALANCE SHEETS
| DECEMBER 31, | ||||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 525,809 | $ | 390,324 | ||||
| Convertible promissory note receivable, net | 2,699,570 | |||||||
| Government grant receivable | 205,424 | |||||||
| Prepaid expenses and other current assets | 122,283 | 13,367 | ||||||
| Total Current Assets | 853,516 | 3,103,261 | ||||||
| Property and equipment, net | 312 | 1,516 | ||||||
| Other Assets | ||||||||
| Capitalized patents, net | 1,145,860 | 841,626 | ||||||
| Deposits on license agreements | 2,115,000 | 3,115,000 | ||||||
| Total Other Assets | 3,260,860 | 3,956,626 | ||||||
| Total Assets | $ | 4,114,688 | $ | 7,061,403 | ||||
| LIABILITIES AND MEMBERS DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 279,537 | $ | 294,225 | ||||
| Convertible promissory note | 5,860,274 | 5,459,178 | ||||||
| Warrant liabilities | 45,965 | 2,130,115 | ||||||
| Other payables | 7,775 | 13,523 | ||||||
| Total Current Liabilities | 6,193,551 | 7,897,041 | ||||||
| Total Liabilities | 6,193,551 | 7,897,041 | ||||||
| Commitments and Contingencies (Note 11) | ||||||||
| Members Deficit | (2,053,910 | ) | (824,284 | ) | ||||
| Noncontrolling Interest | (24,953 | ) | (11,354 | ) | ||||
| Total Members Deficit | (2,078,863 | ) | (835,638 | ) | ||||
| Total Liabilities and Members Deficit | $ | 4,114,688 | $ | 7,061,403 | ||||
The accompanying notes are an integral part of these audited consolidated financial statements.
| 85 |
ABUNDIA GLOBAL IMPACT GROUP LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| FOR THE | ||||||||
| YEARS ENDED | ||||||||
| DECEMBER 31, | ||||||||
| 2024 | 2023 | |||||||
| OPERATING EXPENSES | ||||||||
| General and administrative | $ | 1,912,293 | $ | 1,111,036 | ||||
| Research and development | 1,651,170 | 839,243 | ||||||
| Professional fees | 543,364 | 685,969 | ||||||
| Foreign exchange loss (gain) | 44,388 | (16,862 | ) | |||||
| Provision for loss on convertible note receivable | 2,942,029 | |||||||
| Impairment of license deposit | 1,000,000 | |||||||
| Impairment of capitalized fees on abandoned asset acquisition | 165,843 | |||||||
| Total Operating Expenses | 8,093,244 | 2,785,229 | ||||||
| OTHER INCOME AND (EXPENSE) | ||||||||
| Grant income | 2,545,783 | |||||||
| Change in fair value of warrant liabilities | 2,084,150 | (119,313 | ) | |||||
| Interest income | 242,459 | 181,804 | ||||||
| Other income | 65,000 | |||||||
| Interest expense | (401,096 | ) | (2,399,430 | ) | ||||
| Total Other Income and (Expense) | 4,471,296 | (2,271,939 | ) | |||||
| NET LOSS | (3,621,948 | ) | (5,057,168 | ) | ||||
| Net loss attributable to noncontrolling interest | 13,599 | 10,682 | ||||||
| NET LOSS ATTRIBUTABLE TO ABUNDIA GLOBAL IMPACT GROUP LLC | (3,608,349 | ) | (5,046,486 | ) | ||||
| OTHER COMPREHENSIVE LOSS | ||||||||
| Foreign currency translation adjustment | (16,377 | ) | (48,535 | ) | ||||
| COMPREHENSIVE LOSS | $ | (3,624,726 | ) | $ | (5,095,021 | ) | ||
The accompanying notes are an integral part of these audited consolidated financial statements.
| 86 |
ABUNDIA GLOBAL IMPACT GROUP LLC
Consolidated statements of changes in members equity (deficit)
for the years ended December 31, 2024 and 2023
| Members Contributions | Accumulated Deficit | Non-controlling Interest |
Total Members Equity (Deficit) |
|||||||||||||
| Balance at January 1, 2023 | $ | 8,834,570 | $ | (7,952,018 | ) | $ | (672 | ) | $ | 881,880 | ||||||
| Capital Contributions | 3,388,185 | 3,388,185 | ||||||||||||||
| Net Loss | (5,046,486 | ) | (10,682 | ) | (5,057,168 | ) | ||||||||||
| Other Comprehensive Loss | (48,535 | ) | (48,535 | ) | ||||||||||||
| Balance at December 31, 2023 | $ | 12,222,755 | $ | (13,047,039 | ) | $ | (11,354 | ) | $ | (835,638 | ) | |||||
| Capital Contributions | 2,395,100 | 2,395,100 | ||||||||||||||
| Net Loss | (3,608,349 | ) | (13,599 | ) | (3,621,948 | ) | ||||||||||
| Other Comprehensive Loss | (16,377 | ) | (16,377 | ) | ||||||||||||
| Balance at December 31, 2024 | $ | 14,617,855 | $ | (16,671,765 | ) | $ | (24,953 | ) | $ | (2,078,863 | ) | |||||
The accompanying notes are an integral part of these audited consolidated financial statements.
| 87 |
ABUNDIA GLOBAL IMPACT GROUP LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| FOR THE | ||||||||
| YEARS ENDED | ||||||||
| DECEMBER 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | (3,621,948 | ) | $ | (5,057,168 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 15,507 | 5,300 | ||||||
| Provision for loss on convertible note receivable | 2,942,029 | |||||||
| Change in fair value of warrant liabilities | (2,084,150 | ) | 119,313 | |||||
| Amortization of debt discount | 1,999,430 | |||||||
| Impairment of license deposit | 1,000,000 | |||||||
| Impairment of capitalized fees on abandonment of asset acquisition | 165,843 | |||||||
| Accrued interest receivable | (242,459 | ) | (181,804 | ) | ||||
| Accrued interest payable | 401,096 | 400,000 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Government grant receivable | (205,424 | ) | ||||||
| Prepaid expenses and other current assets | (108,915 | ) | 18,757 | |||||
| Accounts payable and accrued expenses | (14,688 | ) | 78,168 | |||||
| Other payables | (5,748 | ) | (4,460 | ) | ||||
| Net Cash Flows Used In Operating Activities | (1,924,700 | ) | (2,456,621 | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Deposits on license agreements | (740,000 | ) | ||||||
| Advances under convertible promissory note receivable | (200,000 | ) | ||||||
| Acquisition costs related to other long-term assets | (5,355 | ) | ||||||
| Payments related to patent application costs | (318,538 | ) | (594,162 | ) | ||||
| Net Cash Flows Used In Investing Activities | (318,538 | ) | (1,539,517 | ) | ||||
| Net Cash Flows from Financing Activities | ||||||||
| Capital contributions | 2,395,100 | 3,388,185 | ||||||
| Net Cash Flows Provided by Financing Activities | 2,395,100 | 3,388,185 | ||||||
| Effect of exchange rate changes | (16,377 | ) | (48,535 | ) | ||||
| Net Change in Cash and Cash Equivalents: | 135,485 | (656,488 | ) | |||||
| Beginning Cash and Cash Equivalents: | $ | 390,324 | $ | 1,046,812 | ||||
| Ending Cash and Cash Equivalents: | $ | 525,809 | $ | 390,324 | ||||
The accompanying notes are an integral part of these audited consolidated financial statements
| 88 |
ABUNDIA GLOBAL IMPACT GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
NOTE 1.DESCRIPTION OF BUSINESS AND ORGANIZATION
Abundia Global Impact Group LLCs (AGIGs or the Companys) business plan is to raise the necessary debt or equity funding to build and operate biomass and plastic recycling plants on a global basis using a combination of proprietary, licensed and commercialized technologies to provide a complete process which turns waste plastics and biomass into drop-in alternatives to fossil derived energy, fuels and chemicals.
AGIGs activities to date have focused on the research and development and fund-raising activities required to implement its business plan.
Effective December 9, 2024, AGIG entered into a non-binding LOI to be acquired by Houston American Energy Corp (HUSA) subject to due diligence.
NOTE 2.GOING CONCERN
The Companys consolidated financial statements are prepared on a going concern basis, which contemplates the realization of assets and the liquidation of liabilities during the normal course of business. Since inception, the Company has had no revenue generating activities and its only source of income has been grant income of $2,545,783 recognized during the year ended December 31, 2024. For theyear endedDecember 31, 2024, the Company reported a net loss of $3,621,948, negative working capital of $5,340,035 and an accumulated deficit of $16,671,765.
These conditions raise substantial doubt about the Companys ability to continue as a going concern. The financial statements do not include any adjustments resulting from the outcome of this uncertainty. The Companys ability to continue as a going concern is dependent upon its ability to develop additional sources of capital and implement its proposed business plan of building and operating biomass and plastic recycling plants on a profitable basis. The Company intends to rely upon continued financial support from its principal majority shareholder to fund its working capital needs. No assurances can be given that the majority will continue to fund the Companys working capital needs, the Company will be able to raise the equity and debt required to implement its business plan or that the Company will be successful in building and operating biomass and plastic recycling plants on a profitable basis. As a result, there is substantial doubt about the Companys ability to continue as a going concern within one year after the date the consolidated financial statements are available to be issued.
NOTE 3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis of Presentation
The summary of significant accounting policies is presented to assist in the understanding of the financial statements. These policies conform to GAAP and have been consistently applied.
| 89 |
Consolidated Financial Statements
These consolidated statements include the financial statements of the Company and the following subsidiary companies from the date of their formation or incorporation:
| Company Name | Country of Formation / Incorporation | Date of Incorporation | Percentage Ownership | |||||||
| Abundia Biomass LLC | USA | March 26, 2019 | 100 | % | ||||||
| Abundia Biomass-to-Liquids Limited | UK | July 10, 2020 | 77.5 | % | ||||||
| Abundia Plastics to Liquids LLC | US | September 10, 2021 | 100 | % | ||||||
| Abundia Plastics Europe Limited | UK | January 14, 2020 | 100 | % | ||||||
| Abundia Global Impact Group (Ireland) Limited | Ireland | February 4, 2022 | 100 | % | ||||||
| Abundia Global Impact Group (UK) Limited | UK | May 5, 2023 | 100 | % | ||||||
All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Significant estimates include the allowance for estimated credit losses on convertible notes receivable and other financial assets, impairment evaluations of long-lived assets, fair value measurements of warrant liabilities and other financial instruments, and assessments of contingent liabilities.
Foreign Currency Translation
The Company has functional currencies in Euros, US Dollars and British Pounds Sterling and its reporting currency is the US Dollar. Management has adopted Accounting Standards Codification (ASC) 830-20, Foreign Currency Matters Foreign Currency Transactions . All assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. For revenues and expenses, the weighted average exchange rate for the period is used. Gains and losses arising on translation of foreign currency denominated transactions are included in other comprehensive loss.
Related Party Transactions
A related party is generally defined as (i) any person that holds 10% or more of our membership interests including such persons immediate families, (ii) our management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with us, or (iv) anyone who can significantly influence our financial and operating decisions. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. See Note 12 below for details of related party transactions during the years ended December 31, 2024 and 2023, respectively.
Cash and Cash Equivalents:
Cash represents cash deposits held at financial institutions. Cash equivalents include short-term highly liquid investments of sufficient credit quality that are readily convertible to known amounts of cash and have original maturities of three months or less. Cash equivalents are held for meeting short-term liquidity requirements, rather than for investment purposes. Cash and cash equivalents are held at major financial institutions and are subject to credit risk to the extent they exceed government deposit insurance limits in the country in which they are located. The Company has not experienced any losses to date on depository accounts.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of amounts paid in advance for goods or services to be received in future periods, refundable deposit related to a feasibility study for a potential real estate acquisition, and a receivable from the Irish government for recoverable value-added tax (VAT) incurred on expenses.
| 90 |
Convertible Promissory Note Receivable and Current Expected Credit Losses
As the Company has the intent and ability to hold the convertible note receivable for the foreseeable future, oruntil maturity or prepayment, the convertible note receivable is reported at its recorded investment, less deferred fundings and any allowance for expected credit losses.
The recorded investment of the convertible note receivable includes unpaid principal, accrued interest and fees, net of deferred loan fees or costs and unamortized premium or discount (if any). The recorded investment is reduced by any full or partial charge-offs and by any receipts of interest applied under the cost recovery method of accounting.
The Company evaluates its convertible note receivable for expected credit losses in accordance with ASC 326, Financial Instruments Credit Losses , and records an allowance for losses based on the current expected credit loss model. The allowance is determined based on an assessment of specific identifiable amounts considered at risk or uncollectible, incorporating estimated forward-looking losses due to potential borrower default and an evaluation of the recoverability of the note.
During the year ended December 31, 2024, t he Company recorded a full allowance of $2,942,029 for expected credit losses on its convertible note receivable, as management determined that the future economic benefit from the convertible note receivable was highly uncertain, with no expected future cash flows and no marketability for sale or transfer During the year ended December 31, 2023, t he Company evaluated the likelihood of expected credit losses on its convertible note receivable and determined that no allowance for expected credit losses was required at that time.
See Note 4 below for further details.
Fair Value of Financial Instruments
The fair value of a financial instrument is the amount the Company would receive to sell an asset or pay to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In the absence of such data, fair value is estimated using internal information consistent with what market participants would use in a hypothetical transaction.
According to ASC 820, Fair Value Measurement , the fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The Companys assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. The Company uses appropriate valuation techniques based on available inputs to measure the fair value of its assets and liabilities. The fair value hierarchy is defined in the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The Company holds certain assets and liabilities that are required to be measured at fair value on a recurring and non-recurring basis . See Note 9 for further details.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Additions and major replacements or betterments are added to the assets at cost. Maintenance and repair costs and minor replacements are charged to expense when incurred.
| 91 |
Capitalized Patent Costs:
Patent costs, including legal fees associated with the creation of intellectual property and patent registration costs are capitalized as incurred. These costs are amortized over the estimated useful life of the patent commencing from the date the patent has been granted.
Deposits on License Agreements:
Deposits paid in connection with license agreements that are to be applied against future license fees are capitalized as other assets pending the commencement of fee generating operations under the license agreements. When fee generating operations under the license agreements commence , the deposits will be applied against the balance of fees due and payable. In the event fee generating operations under the license agreements fail to occur , the deposits will be expensed as abortive transaction costs.
Other Long-term Assets
Fees incurred in respect of proposed real estate acquisitions are capitalized as other long-term assets pending completion of the acquisition. When the acquisition of the real estate is completed, in accordance with ASC 805-50-30-1, the fees are included as part of the acquisition cost of the real estate. In the event the real estate acquisition fails to be completed, the fees are expensed as abandoned transaction costs.
During the year ended December 31, 2023, the Company incurred $5,355 in fees related to its proposed acquisition of certain real estate. Subsequently, during the year ended December 31, 2023, the proposed acquisition of the real estate in question was abandoned and previously capitalized fees totaling $165,843 were expensed in full immediately upon the abandonment of the proposed acquisition in operating expenses as an impairment of capitalized fees on abortive asset acquisition. This impairment is disclosed as impairment of capitalized fees on abortive asset acquisition in the Companys consolidated statements of operations.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment in accordance with ASC 360, Property, Plant, and Equipment , whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. These events or changes in circumstances include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for the overall business, significant negative industry or economic trends. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset group to the estimated undiscounted cash flows over the estimated remaining useful life of the primary asset included in the asset group. If the asset group is not recoverable, the impairment loss is calculated as the excess of the carrying value over the fair value.
During the year ended December 31, 2024, the Company determined that a license deposit of $1,000,000 was impaired. The impairment was recognized as management determined that this asset no longer have a future economic benefit. The fair value of the impaired asset was determined to be zero, as there were no expected future cash flows, no alternative use, and no marketability for sale or transfer.
During the year ended December 31, 2023, the Company determined that $165,843 in capitalized fees related to an abandoned asset acquisition costs were impaired. The impairment was recognized as management determined that the asset no longer have a future economic benefit. The fair value of the impaired asset was determined to be zero, as there were no expected future cash flows, no alternative use, and no marketability for sale or transfer.
See Note 6 for further details.
Derivative Instruments
The Company evaluates its convertible promissory note, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with Topic 480 of the FASB ASC and Topic 815 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative, if required to be bifurcated, is marked-to-market at each balance sheet date and recorded as a liability. The change in fair value is recorded in the consolidated statements of operations as a component of other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.
| 92 |
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.
Warrants
Warrants are accounted in accordance with the guidance contained in ASC 815-40-15-7D. The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrants specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Companys own common stock and whether the warrant holders could potentially require net cash settlement in a circumstance outside of the Companys control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.
The relative fair value of the warrants issued in conjunction with the convertible note have been treated as a debt discount with an offsetting credit to warrant liabilities. The debt discount related to the warrant issuances is being accreted to interest expense over the term of the note.
Income Taxes
The Company is taxed in the US as a partnership for federal and state tax purposes with all tax benefits or liabilities of its operations passing through to its members. Accordingly, the Company itself does not recognize any tax benefits or liabilities in its financial statements in respect of its operations.
In accordance with the Companys operating agreement, to the extent possible, without impairing the Companys ability to continue to conduct its business and activities, if the Company generates taxable income for its members, the Company is required to distribute an amount equal to the estimated tax liability of its members. As the Company has incurred taxable losses since inception, no distributions have been made to members under this provision.
The Companys subsidiaries are subject to tax and retain all tax benefits or liabilities arising from their operations in the country in which they operate. Accordingly, the Company recognizes any tax benefits or liabilities arising in its subsidiary companies in its consolidated financial statements in respect of their operations.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating losses and tax credit carryforwards, as well as the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance will be provided against deferred tax assets if the Company determines it is more-likely-than-not such assets will not ultimately be realized.
| 93 |
Research and Development
In accordance with ASC 730, Research and Development the Company expenses third-party research and development consulting costs as incurred. Research and development expenses for the years ended December 31, 2024 and 2023, were $1,651,170and $839,243, respectively.
Deferred Financing Costs
The Company capitalizes costs incurred in connection with the establishment of the convertible promissory note and the costs that are related to a recognized liability in the balance sheet are presented as a direct deduction to that liability. These deferred costs are amortized as an adjustment to interest expense over the life of the borrowing or life of the credit facility using the straight-line method of amortization, which approximates the effective interest method. Deferred financing costs could be accelerated, written-off or replaced to the extent the Companys financing obligations are extinguished, modified or changed in future periods. The Company incurred deferred financing costs of $441,696 at the inception of the convertible promissory note. Amortization expense on deferred financing costs for the was $388,966 for the year ended December 31, 2023 and are included in interest expense on the consolidated statements of operations and comprehensive loss.
Grant Income and Government Grant Receivable
In the absence of comprehensive recognition and measurement guidance within the scope of authoritative US generally accepted accounting principles (GAAP) for the government grant that the Company has been awarded, in accordance with guidance in ASC 832 Government Assistance , the Company has accounted for the grant it has received from the government by analogy using the terms of IAS 20, Accounting for Government Grants and Disclosures of Government Accounting Assistance . The Company receives funding under a government grant which reimburses the Company for certain qualifying research and development and related expenditures. Grant funding for research and development received under grant agreements where there is no obligation to repay grant funds is recognized as grant income in the period during which the related qualifying expenses are incurred, provided that the grants are fully approved by the granting agencies and the conditions under which the grants were provided have been met. Grant income recognized upon incurring qualifying expenses in advance of receipt of grant funding is recorded in the consolidated balance sheet as government grants receivable.
Recent Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2023-09,Improvements to Income Tax Disclosures(ASU 2023-09). ASU 2023-09 includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate. The standard also requires that entities disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) each disaggregated between domestic and foreign. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company is currently assessing the impact of ASU 2023-09 on its disclosures.
In November 2023, the FASB issued Accounting Standards Update 2023-07,Improvements to Reportable Segment Disclosures(ASU 2023-07). ASU 2023-07 includes requirements that an entity disclose the title of the chief operating decision maker (CODM) and on an interim and annual basis, significant segment expenses and the composition of other segment items for each segments reported profit. The standard also permits disclosure of additional measures of segment profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently assessing the impact of ASU 2023-07 on its disclosures.
| 94 |
During March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting . ASU No. 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. Entities could elect the optional expedients and exceptions included in ASU No. 2020-04 as of March 12, 2020 and through December 31, 2022. During December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 . These amendments defer the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company is currently assessing the effect that electing the optional expedients and exceptions included in ASU No. 2020-04 would have on its results of operation, financial position and cash flows.
During June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments . ASU No. 2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. During November 2018, April 2019, May 2019, November 2019 and March 2020, respectively, the FASB also issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses ; ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses ; ASU No. 2019-05 T argeted Transition Relief ; ASU No. 2019-11, C odification Improvements to Topic 326, Financial Instruments - Credit Losses ; and ASU No. 2020-03 Codification Improvements to Financial Instruments . ASU No. 2018-19 clarifies the effective date for nonpublic entities and that receivables arising from operating leases are not within the scope of Subtopic 326-20, ASU Nos. 2019-04 and 2019-05 amend the transition guidance provided in ASU No. 2016-13, and ASU Nos. 2019-11 and 2020-03 amend ASU No. 2016-13 to clarify, correct errors in, or improve the guidance. ASU No. 2016-13 (as amended) is effective for annual periods and interim periods within those annual periods beginning after December 15, 2022. Early adoption is permitted for annual and interim periods beginning after December 15, 2018. The implementation of ASU No. 2016-13 (as amended) on a prospective basis effective January 1, 2023 has had no material impact on the Companys results of operations, financial position or cash flows.
NOTE 4. CONVERTIBLE PROMISSORY NOTE RECEIVABLE
| December 31 | December 31 | |||||||
| 2024 | 2023 | |||||||
| Principal | $ | 2,500,000 | $ | 2,500,000 | ||||
| Accrued interest receivable | 442,029 | 199,570 | ||||||
| Loss provision on convertible promissory note receivable | (2,942,029 | ) | ||||||
| Convertible promissory note receivable, net | $ | $ | 2,699,570 | |||||
E ffective November 23, 2022, AGIG entered into an agreement to provide $4,000,000 to an unrelated third party (the Borrower) by way of convertible promissory note: $2,000,000 million on signature of the agreement and the remaining balance of $2,000,000 on or before January 31, 2023. Accordingly, AGIG made an initial advance of $2,000,000 to Borrower by way of a secured convertible promissory note. The convertible promissory note had a two-year term beginning on November 23, 2022, bore interest at 8% per annum, was secured on the assets of the Borrower and was convertible, at AGIGs option, into a membership interest in the Borrower. In December 2022, AGIG advanced a further $300,000 under the terms, bringing the total outstanding balance to $2,300,000 as of December 31, 2022. During the year ended December 31, 2023, AGIG advanced a further $200,000, bringing the total principal outstanding to $2,500,000 as of December 31, 2023.
Effective November 23, 2024, repayment was due to the Company of $2,500,000 in principal, together with accrued interest of $396,791. No repayment was received from the Borrower and the term of the convertible promissory note was extended to December 31, 2025 and the interest rate was increased from 8% to 15%.
As of December 31, 2024 and 2023, the balance due in respect of the convertible promissory note and accrued interest was $2,942,029 and $2,699,570, respectively.
During the year ended December 31, 2024, t he Company recorded a full allowance of $2,942,029 for expected credit losses on its convertible promissory note receivable. Given the Borrowers failure to repay the principal balance and accrued interest on the scheduled repayment date and availability of further information on the Borrowers financial position, management determined that any future economic was highly uncertain, with no expected future cash flows and no marketability for sale or transfer.
| 95 |
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following :
| Estimated Useful Life | December 31, 2024 | December 31, 2023 | ||||||||
| Computer equipment | 3 years | $ | 3,602 | $ | 3,602 | |||||
| Accumulated depreciation | (3,290 | ) | (2,086 | ) | ||||||
| Total property and equipment, net | $ | 312 | $ | 1,516 | ||||||
For the years ended December 31, 2024 and 2023, depreciation expense was $1,204 and $1,200, respectively.
NOTE 6. OTHER ASSETS
Capitalized Patent Costs
AGIG, through its 77.5% owned subsidiary, Abundia Biomass-to-Liquids Limited, has applied for a number of patents and a trademark relating to its proposed business plan. During the year ended December 31, 2024, a number of pending patents related to recycling of plastics were transferred from Abundia Biomass-to-Liquids Limited to a 100% AGIG owned subsidiary, Abundia Plastics Europe Limited. During the years ended December 31, 2024 and 2023, five and two patent applications, respectively, were granted. The only trademark application made by AGIG was abandoned during the year ended December 31, 2023.
| Estimated Useful Life | Cost |
Accumulated Amortization |
Net Book Value | |||||||||||
| December 31, 2024 | ||||||||||||||
| Pending patent applications | N/A | $ | 826,203 | $ | $ | 826,203 | ||||||||
| Granted patents | 20 years | 338,061 | (18,404 | ) | 319,657 | |||||||||
| Total patent costs | $ | 1,164,264 | $ | (18,404 | ) | $ | 1,145,860 | |||||||
| December 31, 2023 | ||||||||||||||
| Pending patent applications | N/A | $ | 665,062 | $ | $ | 665,062 | ||||||||
| Granted patents | 20 years | 180,664 | (4,100 | ) | 176,564 | |||||||||
| Total patent costs | $ | 845,726 | $ | (4,100 | ) | $ | 841,626 | |||||||
During the years ended December 31, 2024 and 2023, the Company recognized amortization expense in respect of granted patents of $14,305 and $4,100, respectively.
| 96 |
Deposits on License Agreements
| December 31 | December 31 | |||||||
| 2024 | 2023 | |||||||
| Opening balance | $ | 3,115,000 | $ | 2,375,000 | ||||
| Additional deposits | 740,000 | |||||||
| Impairment | (1,000,000 | ) | ||||||
| Closing balance | $ | 2,115,000 | $ | 3,115,000 | ||||
Effective September 24, 2021, AGIG Plastics to Liquids LLC, a wholly owned subsidiary of AGIG, entered into a technology license and service agreement with, an unrelated third party that has developed the technology to transform plastic waste into petrochemical products, which can be further refined into fuels, waxes, and new plastic production. The purpose of the license agreement was to permit AGIG to utilize this technology in its plastics recycling plants. An initial non-refundable deposit of $500,000 was paid in respect of this agreement during the year ended December 31, 2022, which has been capitalized and is creditable against future license fees. A further non-refundable deposit of $500,000 was paid in respect of this agreement during the year ended December 31, 2023, which has also been capitalized and is creditable against future license fees. As of December 31, 2024 and 2023, the total non-refundable deposit that had been paid in respect of this agreement was $1,000,000. Further ongoing license fees become due and payable indefinitely as plants are built and commissioned.
Effective May 11, 2022, AGIG entered into a Services Agreement with a third-party manufacturer. The purpose of the Service Agreement is for the third party to manufacture and sell to AGIG the units required for the pyrolysis process used in our biomass to energy, fuels and chemicals process. At times through the terms of the agreement, the Company may be requested to provide payments at the request of the third party to fund costs associated with the agreement utilizing a cost-plus fixed fee method. These payments are applied to the initial deposit of the Services Agreement. During the year ended December 31, 2023, $240,000 was paid in additional deposits in respect of this agreement. As of December 31, 2024 and 2023, the total non-refundable deposits that had been paid in respect of this agreement was $1,115,000. The Services Agreement has an indefinite term. In connection with the Services Agreement, the Company entered into a separate License Agreement with the third-party manufacturer. The License Agreement provides the Company a defined number of units of the Licensors intellectual property and the proprietary rights know-how to the successful assembly, installation and operation of the units. The effective date of the agreement is the earlier of (i) an event of default, (ii) an intellectual property transfer amongst the parties, and (iii) a force majeure termination. In an event of default, the Company acquires the proprietary, patent-protected, clean energy system if the third-party manufacturer defaults on the Services Agreement for cash considerations.
Effective November 23, 2022, AGIG entered into a Development, Collaboration License Agreement (DCLA) agreement with a third-party technology company. Under the term the DCLA, which has an initial term of 3 years, both parties entered into a Joint Development Project with both parties being entitled to license each others existing intellectual property. During the year ended December 31, 2022, AGIG paid a $1 million collaboration fee to support the development of the project, which is creditable against future license payments under the terms of DCLA. No further payments were made during the years ended December 31, 2024 and 2023 in respect of this agreement.
Effective December 31, 2024, upon assessment of all three license deposits, it was determined with respect to one of the licenses described above, that due to obtaining further information about the effectiveness of the technology of the License in question, the Company now does not intend to use the technology going forward. Accordingly, management determined that this license deposit no longer had any future economic benefit as there were no expected future cash flows, no alternative use, and no marketability for sale or transfer. The Company therefore wrote off $1,000,000 at December 31, 2024 representing the full carrying value of this License. The impairment was recognized in operating expenses as impairment of license deposit in the Companys consolidated statements of operations. It was determined that no impairment was required in respect of the remaining two other license deposits at December 31, 2024.
Effective December 31, 2023, the Company performed a similar assessment for all three licenses and at that time determined that no write off was required in respect of any of the licenses.
NOTE 7. CONVERTIBLE NOTE PAYABLE
| December 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Convertible note payable | $ | 5,000,000 | $ | 5,000,000 | ||||
| Unamortized debt issuance costs | ||||||||
| Accrued interest | 860,274 | 459,178 | ||||||
| Convertible note payable, net debt issuance costs | $ | 5,860,274 | $ | 5,459,178 | ||||
| 97 |
Effective November 7, 2022, AGIG entered into a $5,000,000 convertible note payable (the Note) with an interest rate of 8%. Repayment or conversion of this note into equity securities of AGIG occurs as follows (a) repayment at the Maturity date of November 7, 2023, or (b) at the Lenders sole option, conversion of the outstanding principal and interest into equity securities of AGIG upon the closing of a private offering of AGIG equity securities (Next Round Funding). If the Lender exercises its option to convert the Note into equity securities, the Note is convertible into a variable number of equity securities at the same price paid by investors in the Next Round Funding to satisfy the outstanding Note balance. The Company has the option to extend the maturity date of the Note by 12 months with the mutual consent of the Lender.
At maturity , the term of the Note was extended for 3 months to February 7, 2024. Subsequent to December 31, 2023, the term of the Note was further extended to May 7, 2024 and subsequently to May 1, 2025.
As part of the funding agreement, AGIG undertook that, in the event that AGIG closed a future private offering of equity securities or securities convertible into equity securities (Next Round Funding), AGIG would issue a warrant with a term of 5 years to the Lender to purchase $5,000,000 worth of the securities issued in the Next Round Financing with an exercise price equivalent to 80% of the price paid by investors in the Next Round Financing.
As discussed further in Note 8 Warrant Liabilities below, the issued warrants were determined to have a fair value of $1,866,243 . The $1,866,243 estimated value of the potential issuance of a future warrant, has been accounted for a debt issuance cost and amortized over the initial one-year term of the Note using the effective interest method.
During the years ended, December 31, 2024 and 2023, the Company incurred interest expense, including the amortization of debt discount costs, of $401,096 and $2,399,430, respectively, i n respect of this Note.
NOTE 8: WARRANT LIABILITIES
As discussed in Note 7 Convertible Note Payable above, effective November 7, 2022, AGIG entered into a $5,000,000 convertible promissory note. As part of the funding agreement AGIG undertook that, in the event that AGIG closed a private offering of equity securities or securities convertible into equity securities (Next Round Funding), AGIG would issue a warrant with a term of 5 years to the Lender to purchase $5,000,000 worth of the securities issued in the Next Round Financing with an exercise price equivalent to 80% of the price paid by investors in the Next Round Financing.
The Company evaluated the warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance from ASC 480 and ASC 815-40. The Company determined the warrants failed the indexation guidance under ASC 815-40, as they contain provisions that provide note holders with rights to a variable number of shares based on future financing terms. Specifically, should the Company undertake a private equity offering before the maturity date, the note holder will receive equity warrants to purchase securities issued in the Next Round Financing at an aggregate value of $5,000,000, with an exercise price equal to 80% of the price paid by investors in the offering. This embedded feature represents a deemed redemption feature due to the substantial premium received by the note holder. As a result, the Company concluded that the redemption feature require bifurcation from the convertible note and subsequent accounting as a freestanding warrant liability in accordance with ASC 815-40. The warrants had a fair value of $1,866,243 on issuance and were classified as liabilities with a corresponding decrease to the Note outstanding balance of $5,000,000 as a discount resulting in Debt Net of Discount Balance of $3,133,757. This discount was accreted over the initial one-year term of the Note as interest expense to par using the effective interest method as noted above. The effective interest rate was 42.10%. As of December 31, 2024 and 2023, the debt discount arising on the issuance of the warrants had been fully amortized.
Accordingly, pursuant to ASC 815-40, the Company recorded the fair value of the warrants as a liability upon issuance and marked to market each reporting period in the Companys consolidated statement of operations until their exercise or expiration.
| 98 |
The estimated fair value of the warrants was calculated using the Black Scholes model with the assumptions set out below, weighted for managements estimate of the probability of a Next Round Financing being completed and discounted back to the valuation date using estimated venture capital rates of return.
| December 31 | December 31, | |||||||
| Input | 2024 | 2023 | ||||||
| Expected term | 5 years | 5 years | ||||||
| Principal | $ | 5,000,000 | $ | 5,000,000 | ||||
| Exercise price | $ | 4,000,000 | $ | 4,000,000 | ||||
| Volatility | 74.5 | % | 76.3 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Risk free rate of return | 4.3 | % | 3.8 | % | ||||
| Estimated probability of occurrence of a Next Round Financing | 2 | % | 70 | % | ||||
| Estimated venture capital rates of return | 30 | % | 30 | % | ||||
AGIG Plastics to Liquids LLC
Effective September 24, 2021, AGIG Plastics to Liquids LLC, a wholly owned subsidiary of AGIG, entered into a technology license and services agreement with a third-party technology provider. As part of the agreement, AGIG Plastics to Liquids LLC issued a warrant to the licensor to acquire the number of membership units in AGIG Plastics to Liquids LLC equivalent to 1.5% of its fully diluted capitalization. The warrant has an exercise price of $0.01 per membership unit, a term of 10 years and is exercisable in the event of a change of control or public listing of AGIG Plastics to Liquids LLC or its parent.
The Company evaluated the warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance from ASC 480 and ASC 815-40. The Company determined the warrants failed the indexation guidance under ASC 815-40, as they contain provisions that provide note holders with rights to a variable number of shares. Accordingly, pursuant to ASC 815-40, the Company recorded the fair value of the warrants as a liability upon issuance and marked to market each reporting period in the Companys consolidated statements of operations until their exercise or expiration. However, no fair value has been assigned to these warrants as AGIG Plastics to Liquids LLC has no equity, no planned operations, and consequently only nominal projected value.
The remaining outstanding term of the warrants was 6.7 years and 7.7 years at December 31, 2024 and 2023, respectively.
NOTE 9: FAIR VALUE MEASUREMENTS
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, government grant receivables, prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair value given the short-term nature of these instruments.
The carrying amounts of convertible promissory note approximates fair value given these instruments bear prevailing market interest rates.
Recurring Fair Value Measurements
The fair value of financial instruments measured on a recurring basis as of December 31, 2024 and 2023 consisted of the following:
| Description | Level 1 | Level 2 | Level 3 |
Total December 31, 2024 |
||||||||||||
| Warrant liabilities | $ | $ | $ | 45,965 | $ | 45,965 | ||||||||||
| Description | Level 1 | Level 2 | Level 3 |
Total December 31, 2023 |
||||||||||||
| Warrant liabilities | $ | $ | $ | 2,130,115 | $ | 2,130,115 | ||||||||||
The changes in the fair value of the warrant liabilities for the years ending December 31, 2024 and 2023 are summarized as follows:
| Fair value at issuance January 1, 2023 | $ | 2,010,802 | ||
| Change in fair value of warrant liabilities | 119,313 | |||
| Fair value at December 31, 2023 | 2,130,115 | |||
| Change in fair value of warrant liabilities | (2,084,150 | ) | ||
| Fair value at December 31, 2024 | $ | 45,965 |
| 99 |
Non-recurring Fair Value Measurements
Certain assets, including long-lived assets and certain financial instruments, are measured at fair value on a non-recurring basis if it is determined that impairment indicators are present using Level 3 inputs.
During the year ended December 31, 2024, the Company recorded impairments of $1,000,000 related to a license deposit and $2,942,029 related to expected credit losses on its convertible note receivable.
During the year ended December 31, 2023, the Company recorded impairment of $165,843 related to capitalized fees from an abandoned asset acquisition.
NOTE 10: GRANT INCOME AND GOVERNMENT GRANT RECEIVABLE
Grant income relates to a grant awarded by the UK government to the Companys UK subsidiary company, Abundia Biomass-to-Liquids Ltd, under its Advance Fuel Fund competition for the development of sustainable aviation fuel production plants in the UK. The total grant amount awarded was 4,484,431 ($5,400,000) and is delivered as a reclaim for eligible project-related expenditure paid each quarter.
The grant reimburses the Company for pre-approved eligible project research and development costs, related professional fees and general and administrative costs. These costs are included in the Companys operating expenses in the Companys consolidated statements of operations. The eligible expenses for reimbursement also include a 20% mark up on certain related administrative and staff costs.
During the year end December 31, 2024, the Company incurred $2,545,783 in expenditure eligible for reimbursement which has been recognized as grant income in other income in the consolidated statements of operations. The Company received reimbursement of $2,340,359 during the year ended December 31, 2024 and the balance of $205,424 is recorded on the consolidated balance sheets at December 31, 2024 as government grant receivable.
NOTE 11: COMMITMENTS AND CONTINGENCIES
From time to time, the Company may become involved in various legal disputes in the normal course of business. While management cannot predict the outcome of these proceedings with certainty, management does not believe that an adverse result in any pending legal or regulatory proceeding, individually or in the aggregate, would be material to the Companys financial position, results of operations or cash flows. Management is not aware of any adversarial legal proceedings against the Company during the years ended December 31, 2024 and 2023 or pending as at December 31, 2024.
NOTE 12. MEMBERSEQUITY (DEFICIT)
Members Interests
The Company has been constituted as a limited liability corporation and as such has no designated share capital of any description. Each Member owns a Membership Interest in the Company.
During the years ended December 31, 2024 and 2023, AGIG received members contributions totaling $2,395,100 and $3,388,185, respectively.
NOTE 13. SUBSEQUENT EVENTS
The Company evaluated subsequent events after December 31, 2024, in accordance with FASB ASC 855 Subsequent Events , through the date of the issuance of these financial statements and has determined that no material subsequent events have occurred for which disclosure is required other than as described below:
Effective February 20, 2025, AGIG signed a Share Exchange Agreement with Houston American Energy Corp (HUSA). Under the terms of the agreement, HUSA will acquire 100% of AGIGs issued and outstanding units from AGIGs members and HUSA will issue to AGIGs members a number of shares of HUSA common stock which shall equal 94% of HUSAs aggregate issued and outstanding common stock at the time of the Closing.
| 100 |
PROPOSAL 2: THE REVERSE STOCK SPLIT PROPOSAL
Background
We are seeking approval of the Reverse Stock Split Proposal, which is a condition precedent to the consummation of the transactions contemplated by the Share Exchange Agreement with the AGIG Unitholders.
On February 5, 2025, the Board unanimously approved, subject to stockholder approval, the Reverse Stock Split Amendment to our Charter to effect a reverse stock split of HUSAs outstanding common stock by combining outstanding shares of common stock into a lesser number of outstanding shares of common stock by a ratio of not less than 1-for-5 and not more than 1-for-60, with the exact ratio to be set within this range by the Board. The par value of the Common Stock would remain unchanged at $0.001 per share.
If our stockholders approve the Reverse Stock Split Proposal amending our Charter to enact the reverse stock split, our Board will have the sole discretion to elect, as it determines to be in the best interests of the Company and its stockholders, whether to effect a reverse stock split and, if so, the number of shares of Common Stock within the stockholder-approved range (between 5 and 60 shares) which will be combined into one share of Common Stock. Our Board believes that stockholder approval of this range of reverse stock split ratios (as opposed to approval of a single reverse stock split ratio) provides the Board with maximum flexibility to achieve the purposes of the reverse stock split and, therefore, is in the best interests of the Company and its stockholders.
If, following stockholder approval of the Reverse Stock Split Proposal, the Board determines that it is in the best interests of the Company and its stockholders to effect the reverse stock split, the Board would determine the reverse stock split ratio (within the approved range) and authorize the filing of the applicable amendment to our Charter with the Secretary of State of the State of Delaware reflecting the reverse stock split.
The text of the proposed amendment to the Charter implementing the reverse stock split, which we refer to as the Reverse Stock Split Amendment is as follows:
Article IV.1 of the Certificate of Incorporation is hereby amended to read as follows:
Upon the filing and effectiveness (the Effective Time), pursuant to the General Corporation Law of the State of Delaware, of this Certificate of Amendment to the Certificate of Incorporation of the Company, each [ ( ) ] shares of Common Stock either issued and outstanding or held by the Company in its treasury immediately prior to the Effective Time shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one (1) share of Common Stock (the Reverse Stock Split). No fractional shares shall be issued in connection with the Reverse Stock Split, and any fractional shares resulting from the Reverse Stock Split will be rounded up at the participant level with The Depository Trust Company. Each certificate that immediately prior to the Effective Time represented shares of Common Stock (Old Certificates), shall thereafter represent that number of shares of Common Stock into which the shares of Common Stock represented by the Old Certificate shall have been combined, subject to the elimination of fractional share interests as described above.
If, following stockholder approval of the Reverse Stock Split Proposal, our Board elects to effect the proposed reverse stock split, then except for adjustments that may result from the treatment of fractional shares as described below, each stockholder will hold the same percentage of outstanding Common Stock immediately following the reverse stock split as such stockholder held immediately prior to the reverse stock split. The par value of the Common Stock would remain unchanged at $0.001 per share.
Our Board may alternatively elect to abandon such proposed Reverse Stock Split Amendment and not complete the Reverse Stock Split even if authorized by stockholders. Upon the effectiveness of the Reverse Stock Split Amendment effecting the Reverse Stock Split, the outstanding shares of Common Stock will be reclassified and combined into a lesser number of shares such that one share of Common Stock will be issued for a specified number of shares.
| 101 |
If our Board determines to complete the Reverse Stock Split following stockholder approval, the text of the Reverse Stock Split Amendment will state the reverse stock split ratio fixed by the Board within the range approved by HUSA stockholders and the actual number of legally authorized shares at such time. The form of the Reverse Stock Split Amendment is subject to any changes that may be required by the Delaware Secretary of State.
The Reverse Stock Split will be implemented simultaneously for all outstanding shares of Common Stock. The Reverse Stock Split will affect all of HUSAs stockholders uniformly and will not affect any stockholders percentage ownership interest in Common Stock, except to the extent described below in Treatment of Fractional Shares. The Reverse Stock Split will not change the terms of Common Stock. The Reverse Stock Split will proportionately reduce the number of shares of Common Stock issued and outstanding after giving effect to any increase in the number of shares of Common Stock authorized following any approval of the Issuance Proposal (Proposal 1).
If stockholders approve the Reverse Stock Split Amendment, the Board would have the sole discretion to file the Reverse Stock Split Amendment and implement the reverse stock split at any time prior to June 30, 2025, and to fix the specific ratio for the Reverse Stock Split, provided that the ratio would be not less than 1-for-5 and not more than 1-for-60. We believe that enabling the Board to fix the specific ratio of the reverse stock split within the stated range will provide us with the flexibility to implement the split in a manner designed to maximize the anticipated benefits for the HUSA stockholders. The determination of the ratio of the reverse stock split will be based on a number of factors, described further below under the heading Criteria our Board will use to Determine the Ratio of the Reverse Stock Split.
The exact timing of the Reverse Stock Split Amendment will be determined by the Board based on its evaluation as to when such action will be the most advantageous to the Company and its stockholders, but will not occur after June 30, 2025. In addition, the Board reserves the right, notwithstanding stockholder approval and without further action by our stockholders, to abandon the Reverse Stock Split Amendment and the Reverse Stock Split if, at any time prior to the effectiveness of the filing of the Reverse Stock Split Amendment with the Delaware Secretary of State, the Board determines that it is no longer in the best interest of the Company and its stockholders to proceed.
The Boards Reasons for the Reverse Stock Split Proposal
Upon completion of the AGIG Transaction and issuance of the required shares of Common Stock to the AGIG Unitholders, we anticipate that the initial dilution associated with the incremental shares will potentially bring the per share pricing of HUSAs Common Stock below the NYSE American minimum share price standard of $3.00 per share.
As a result, the Company is prepared to effect a reverse split of the Common Stock as necessary be compliant with the rules and regulations of the NYSE American.
Effects of the Amendment
Maintenance of Ownership Percentage : If the reverse stock split is approved and effected, each stockholder will own a reduced number of shares of Common Stock. This will affect all of our stockholders uniformly and would not affect any stockholders percentage ownership in the Company, except to the extent that the reverse stock split results in a stockholder owning a fractional share, as described below. The number of stockholders of record would not be affected by the reverse stock split.
Voting Rights : Proportionate voting rights and other rights of the holders of Common Stock would not be affected by the reverse stock split, except to the extent that the reverse stock split results in a stockholder owning a fractional share, as described below. For example, a holder of 1% of the voting power of the outstanding shares of Common Stock immediately prior to the reverse stock split would continue to hold 1% of the voting power of the outstanding shares of common stock after the reverse stock split, regardless of the exchange ratio chosen by the board.
| 102 |
Equity Incentive Plans : All shares of Common Stock subject to outstanding equity awards (including stock options and stock appreciation rights) under our 2008 Equity Incentive Plan, which has expired, our 2017 Equity Incentive Plan, and our 2021 Equity Incentive Plan (collectively, the Plans) and the number of shares of common stock which have been authorized for issuance under the Plans but as to which no equity awards have yet been granted or which have been returned to respective Plan pools upon cancellation or expiration of such equity awards, will be converted on the effective date of the reverse stock split in proportion to the reverse split ratio of the reverse stock split (subject to adjustment for fractional interests). In addition, the exercise price of outstanding stock awards will be proportionately increased such that approximately the same aggregate price will be required to be paid after the reverse stock split as immediately preceding the reverse stock split. No fractional shares with respect to the shares subject to the outstanding equity awards (including stock options and stock appreciation rights) under our Plans will be issued following the reverse stock split. Therefore, if the number of shares subject to any outstanding equity awards under our Plans immediately before the reverse stock split is not evenly divisible (in other words, it would result in a fractional interest following the reverse stock split), the number of shares of Common Stock subject to such equity award (including upon exercise of stock options and stock appreciation rights) will be rounded up to the nearest whole number. This will result in an increase to the proportion of shares reserved for issuance under our Plans to the number of authorized shares of Common Stock following the reverse stock split.
The number of shares of Common Stock subject to awards under the Plans as of April 3, 2025 was 1,059,845.
Summary Table Regarding the Effects of the Reverse Stock Split
The following table contains approximate information relating to Common Stock based upon certain reverse stock split ratios within the range that has been submitted for stockholder approval, and based on share information as of April 3, 2025.
