U.
S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB/A
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the
fiscal year ended April
30, 2006
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the
transition period from ___________ to _____________
Commission
File Number: 000-31032
AMERICAN
SOUTHWEST MUSIC DISTRIBUTION, INC.
f/k/a
GL
Energy & Exploration, Inc.
(Name
of
small business issuer as specified in its charter)
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Delaware
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52-2190362
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|
(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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|
8721
Sunset Blvd., Penthouse 7
Hollywood,
California 90069
________________________________________________________________________
(Address
of principal executive offices, including zip
code)
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| Registrant’s telephone number, including area
code: |
(310) 659-8770 |
| Securities registered pursuant to
Section
12(b) of the Act: |
None |
| Securities registered pursuant to
Section
12(g) of the Act: |
$.001 par value common
stock |
___________________
Check
whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes x
No o
Check
if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB. o
The
issuer’s revenues for the most recent fiscal year were $0.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was approximately $379,078 as of August 8,
2006. Shares of common stock held by each officer and director and by each
person or group who owns 10% or more of the outstanding common stock amounting
to 27,077,042 shares have been excluded in that such persons or groups may
be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As
of September 19, 2006, 8,922,933 shares of our common stock were issued and
outstanding.
Documents
Incorporated by Reference: None.
Transitional
Small Business Disclosure Format: No.
PART
I
Item
1. Description of Business
Overview
American
Southwest Music Distribution, Inc. f/k/a GL Energy & Exploration, Inc. (“we”
or the “Company”) was incorporated in the state of Delaware in 1998. Previously,
the company engaged in the exploration of mining prospects in the western United
States. As of January 1, 2006, we were a “shell” company (as defined in Rule
12b-2 of the Exchange Act).
On
March
13, 2006, we entered into an agreement (the “Exchange Agreement”) pursuant to
which we acquired all of the equity of American Southwest Music Distribution,
Inc., a Texas corporation (“American”). Pursuant to the Exchange Agreement, we
issued 22,500,000 shares of our common stock and 23,980 shares of our series
A
convertible preferred stock to David Michery and Kent Puckett, the sole
shareholders of American. On August 18, 2006, we filed a certificate of
amendment to our certificate of incorporation with the Delaware secretary of
state changing our name to “American Southwest Music Distribution,
Inc.”
As
a
result, our business is the business of American. American’s current
business
is the
production, acquisition, marketing and sale of pre-recorded music. American’s
pre-recorded music products will include releases of the new musical
performances of recording artists, as well as compilations featuring various
artists or repackaged releases of previously recorded music from our master
music catalog and derived from licenses of music masters from third-parties.
The
exchange will be accounted for as a reverse acquisition. The accounting rules
for reverse acquisitions require that, beginning with the date of the
acquisition (March 13, 2006), our balance sheet include the assets and
liabilities of American and our equity accounts be recapitalized to reflect
the
net equity of American. Accordingly, our historical operating results are now
the operating results of American.
Our
current executive offices are located at 8721 Sunset Blvd., Penthouse 7, West
Hollywood, California 90069. Our telephone number is (310) 659-8770.
Company
History
We
produce, acquire, market and sell pre-recorded music through our wholly owned
subsidiary, American. American was incorporated in the State of Texas in May
2004. In July 2004, American acquired the assets of Celestial Breakaway Records’
and Out of Control Records’ music catalog, which consisted of rights to various
master recordings previously released commercially. Pursuant to that
acquisition, American procured the exclusive right to commercially market and
sell those master recordings worldwide.
On
October 13, 2004, American entered into that certain Agreement and Plan of
Reorganization with the Company (the “Merger Agreement”), pursuant to which all
of American’s outstanding shares were to be converted into shares of the
Company’s capital stock, with the Company being the surviving corporation.
Although the Merger Agreement was executed, certain closing conditions were
never satisfied, including the filing of a certificate of merger with the
Delaware Secretary of State and as such the merger was never consummated. The
Board of Directors of both American and the Company deemed it in the best
interest of their respective companies and shareholders to terminate the Merger
Agreement and to enter into the Exchange Agreement.
On
March
13, 2006, American, their shareholders and the Company entered into the Exchange
Agreement pursuant to which the Company issued an aggregate of 22,500,000 shares
of its common stock and 23,980 shares of its series A convertible preferred
stock to the American stockholders in exchange of their transfer of American
shares to the Company.
American’s
executive offices are located at 8721 Sunset Blvd., Penthouse 7, West Hollywood,
California 90069. American’s telephone number is (310) 659-8770.
Recent
Developments
Our
Board
of Directors approved an amendment to our certificate of incorporation (the
“Charter Amendment”) to: (i) change our name to “American Southwest Music
Distribution” and (ii) effectuate a reverse stock split of our common stock by
changing and reclassifying each seventy four (74) shares of our issued and
outstanding common stock, par value $.001 per share (“Common Stock”) into one
(1) fully paid and non-assessable share of Common Stock (the “Reverse Split”). A
majority of our stockholders approved the Charter Amendment by written consent
on July 7, 2006. A notice of shareholder action by written consent was mailed
to
all stockholders of record as of July 7, 2006 informing them of this action
on
July 27, 2006. The Charter Amendment was filed with the Delaware Secretary
of
State on August 17, 2006. Nasdaq effectuated the name change and reverse split
on Thursday August 24, 2006. Information in this Annual Report (other
than our audited financial statements) has been adjusted to give effect
to the Reverse Split.
Our
Business
Our
business is the production, acquisition, marketing and sale of pre-recorded
music. Our pre-recorded music products will include releases of the new musical
performances of recording artists, as well as compilations featuring various
artists or repackaged releases of previously recorded music from our master
music catalog and derived from licenses of music masters from third-parties.
Our
expansion and exploitation of its music catalog is an integral part of its
business and growth strategy. American owns a music catalog with 25 album
masters, and intends to add to the music catalog through strategic and
complementary acquisitions, licensing agreements, and by executing recording
agreements with artists, production companies and other record labels with
new
recordings.
We
will
enter into rights acquisition, licensing, distribution and recording agreements
("Recording Agreements") with artists, third party record labels and production
companies ("Labels") to provide us with master recordings that have not been
previously released for sale to consumers ("New Masters"). Through each
Recording Agreement, we will acquire the worldwide copyright and exclusive
right
to distribute and license music products derived from the New Masters that
will
be recorded and produced by the Labels, during the term of the Recording
Agreement or any extension thereof. We will also acquire the exclusive right
to
record and market all New Masters of the recording artist(s) featured on any
and
all New Masters recorded by the Labels during the term of the Recording
Agreements. We will also have the right to extend the term of the Recording
Agreement through the exercise of multiple options pursuant to the terms of
the
Recording Agreements.
Most
of
our Recording Agreements will have an initial term and will usually have up
separate, consecutive, irrevocable options, to renew the term for additional
periods, at our sole discretion. As a condition of the initial term, and prior
to exercising each option, we will be required to pay recoupable advances to
the
Label.
Pursuant
each Recording Agreement, each Label will agree to deliver one or more New
Masters to us during the term of the Recording Agreement. Each New Master will
be required to contain at least twelve (12) newly recorded compositions of
the
featured recording artist(s), having an aggregate playing time of no less than
forty (40) minutes ("Album”), and must be complete and satisfactory to us, in
our managements’ sole discretion.
If
an
Album is satisfactory us, we will market and advertise the consumer release
of
the Album, and after the Label's delivery of an Album to us, we will
commercially release the Album in the United States and Canada. Whether or
when
an Album is commercially released to consumers is within our sole discretion.
The actual amount of money spent marketing an Album will be determined by us
Depending
upon the initial success of any single, we will advance to the Label the costs
to film and produce a music video featuring the single song selected by us.
Pursuant to the terms of the Recording Agreement, we have the right to supervise
and approve all elements of the music video. Once an acceptable music video
is
completed, we will use our efforts and pay third-party promoters to secure
airplay of the music video on regional and national music video shows, as part
of our marketing of the particular Album.
The
marketing expenses we spend on any Album are variable, because the actual amount
of expenditures for each Album will depend upon our management’s business
judgment and discretion, about the commercial success (or lack thereof) of
any
Album, or the effectiveness of any Album’s marketing. At any point, we can elect
to continue to or discontinue spending money to market any individual Album.
If
the Album realizes commercial success in the United States and Canada, the
Album
will be released in foreign territories.
Depending
upon the terms of each Recording Agreement, we will pay each Label royalties
from the net profits we actually receive from the sale of music products
delivered during the term of the Recording Agreement. According to the terms
of
each Recording Agreement, we will only be required to pay royalties to a Label
after we recoup all advances (we make to or on behalf of the Label) from Label’s
percentage of net sales of all music products derived from the New Master(s)
delivered by the subject Label.
Contracts
with Universal
Distribution
Agreement
On
January 25, 2006, we entered into and Exclusive Manufacturing and Distribution
Agreement (“Domestic Distribution Agreement”) with Universal Records, a division
of UMG Recordings, Inc. (“Universal”). Pursuant to this Agreement, Universal
will sell our music products, including compact discs, cassettes, and digital
versatile discs (DVD) to consumers mainly through retailers and wholesalers
in
the United States and Canada. During the term of the Domestic Distribution
Agreement, Universal will be our exclusive manufacturer and distributor, through
every distribution channel of recorded music in the United States and Canada.
Universal will also exclusively handle all of our on-line sales during the
term
of the Domestic Distribution Agreement.
In
exchange for its distribution services, through normal retail channels,
Universal is entitled to a distribution fee equal to twenty five percent (25%)
of our Net Billings. After the end of the calendar month, where our cumulative
Net Billings exceed $8,000,000, Universal’s distribution fee will be twenty two
and one half percent (22.5%) of our Net Billings. After the end of the calendar
month, in which our cumulative Net Billings exceeds $15,000,000, Universal’s
distribution fee will be twenty percent (20%) of our Net Billings. According
to
the Domestic Distribution Agreement, Net Billings means the cumulative wholesale
price for sale of our products, less actual returns and credits to customers
for
such returns for the applicable accounting period.
In
consideration for Universal’s services related to sales of our products in the
United States and Canada, through channels other than normal retail channels,
Universal shall be entitled to a licensing fee equal to fifteen percent (15%)
of
our Net Licensing Billings. According to the Domestic Distribution Agreement,
Net Licensing Billings mean royalties or flat payments received by Universal,
on
our behalf, attributed to sales, other than sales through normal retail
channels.
At
the
end of the month, immediately following our first commercial release of a
product pursuant to the Domestic Distribution Agreement, Universal will compute
our Total Net Billings from the sale of American’s products, and Universal will
compute such Total Net Billings, thereafter, on a calendar monthly basis. Sixty
(60) days, after the close of each such monthly period, Universal will send
us
an accounting statement covering the Total Net Billings and the Net Proceeds
payable to us. Along with each accounting statement, Universal will pay us
the
Net Proceeds realized by sales during the particular accounting period, if
any,
after deducting any taxes that Universal is required to withhold.
Under
the
terms of the Domestic Distribution Agreement, Total Net Billings means all
Net
Billings and Net Licensing Billings that Universal receives from the sale and
licensing of our products. Net Proceeds mean Total Net Billings less the
following:
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Universal’s
applicable distribution fees and license
fees;
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Reserves
held, by Universal, against anticipated returns of our products;
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Universal’s
charges for manufacturing and handling of our
products;
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All
Advances, if any, made by Universal on behalf of
us;
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All
applicable taxes imposed on Universal directly related to the manufacture
and sale of our products;
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All
co-op advertising costs advanced by Universal on our
behalf;
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Universal’s
charges for handling returns and refurbishing our
products;
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Credits
to Universal’s customers for actual returns of our
products;
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Costs
of any special program discounts or price reduction programs;
and
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Any
other amounts that Universal is entitled to
receive.
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To
secure
our payment of any fees, advances or monies that become due and payable to
Universal, pursuant to the Domestic Distribution Agreement, we executed a
security agreement, granting Universal a first position security interest in
the
following collateral:
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§
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All
master recordings contained solely on records actually distributed
under
the Domestic Distribution Agreement, and all contract rights and
licenses
relating to the master recordings;
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All
sound recordings contained in the all master recordings contained
solely
on records actually distributed under the Domestic Distribution Agreement,
and all copyrights to such sound
recordings;
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Any
derivatives or duplicates of all master recordings contained solely
on
records actually distributed under the Domestic Distribution
Agreement;
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All
proceeds derived from all master recordings contained solely on records
actually distributed under the Domestic Distribution
Agreement;
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Any
and all monies which become payable to us under the Distribution
Agreement;
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All
inventory now owned or hereafter acquired by us and all proceeds
of the
sale or other disposition of the inventory;
and
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Our
names and logos used on records, including
trademarks.
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In
addition to our obligations under the security agreement, David Michery,
executed an inducement letter wherein he agreed that his active participation
in
the performance his duties as an employee is a vital part of the Domestic
Distribution Agreement. In the event of his death or incapacity or in the event
that David Michery ceases to be actively engaged in our management, in a
controlling capacity, Universal will have the right to terminate the Domestic
Distribution Agreement.
In
addition to distributing and selling our products, Universal will supervise
and
advance the costs of all of American’s manufacturing, and will warehouse all of
American’s inventory. The Domestic Distribution Agreement became effective
January 25, 2006 and will continue until January 25, 2008. Universal has the
right to extend the term of the Domestic Distribution Agreement for an
additional two years, until January 25, 2010.
For
each
separate title of music products released, our management, along with Universal
shall determine the applicable wholesale price per unit.
Under
the
Distribution Agreement, we are responsible for all recording costs and rights
acquisition costs in securing all intellectual property rights and licenses
necessary to allow us to sell records. We will be responsible for paying all
marketing and promotion costs for each Album title that it releases
commercially, and will be responsible to pay artist royalties and royalties
related to all licenses related to the exploitation of the Album and its
content.
Upstream
Agreement
On
January 25, 2006, we entered into another agreement with Universal, pursuant
to
which we granted Universal the right to enter into exclusive recording services
contracts with recording artists that have recording contracts with us, and
whose performances are featured on Albums, distributed by Universal, on our
behalf, that achieve sales in the United States equal to or in excess of 25,000
units (as reported by Soundscan) (“Upstream Agreement”).
Under
the
Upstream Agreement, Universal may exercise its rights to any recording artist,
under contract with us, by providing us with written notice, at any time after
we deliver an Album featuring the performances of the subject Artist, and ending
on the date that Universal releases the Album to retail; or at any time during
the period commencing on the date after the Album has been commercially released
in the United States and has achieved sales in the United States equal to or
in
excess of twenty five thousand (25,000) units (as reported by Soundscan), and
ending on the date such Album has achieved sales in the United States equal
to
fifty thousand (50,000) units. If, however, Universal does not exercise its
rights under the Upstream Agreement for a particular Artist with sales exceeding
50,000, we have an obligation to provide Universal with written notice that
an
Artist reached such sales levels, and Universal will have an additional thirty
(30) days to exercise its right to the particular recording artist.
If
Universal exercises its rights under the Upstream Agreement, we will enter
into
to a contract to provide the exclusive recording services of the selected Artist
to Universal. Pursuant to the recording agreement and the Upstream Agreement,
we
will grant to Universal a fifty percent (50%) ownership interest in and to
all
Albums and related materials, relating to the selected artist, that exist prior
to Universal’s exercise of its rights. Although we will retain an ownership
interest in the such Masters, we lose our right to sell, transfer, grant,
convey, assign, mortgage, pledge, hypothecate, or otherwise dispose of, or
create any liens, encumbrances or security interests on any nature in respect
to
our rights to the existing master that become subject to Upstream
Agreement.
On
the
first full calendar month following the date that Universal exercises its rights
under the Upstream Agreement, if the sum of the advances, recording costs,
marketing costs and promotion costs actually expended by us, on any existing
Album that becomes subject to the Upstream Agreement, exceeds the total Net
Proceeds credited to us in connection with the sale of such Album, Universal
will pay us, as an advance against our future Net Profits under the recording
agreement and the Upstream Agreement, fifty percent (50%) of our actual
expenditures.
From
the
date that Universal receives its rights to any existing Album, Universal
becomes, solely responsible for paying all artist royalties, third-party
licensing fees and royalties, marketing, promotion and advertising costs related
to the existing Album.
Under
the
Upstream Agreement, Universal grants us a fifty percent (50%) ownership interest
in the copyright of each master subsequently recorded by the selected Artist,
under the recording contract with Universal. Universal, however, has the
exclusive and unlimited right to sell or license such masters, and we will
not
have the right to sell, transfer, grant, convey, assign, mortgage, pledge,
hypothecate, or otherwise dispose of, or create any liens, encumbrances or
security interests on any nature in respect to our rights to such
masters.
For
all
subsequently recorded masters, Universal will be responsible for paying all
recording costs and rights acquisition costs in securing all intellectual
property rights and licenses necessary to allow Universal to sell Albums.
Universal will, also, be responsible for paying all marketing and promotion
costs for each Album title that it releases commercially, and will be
responsible to pay artist royalties and royalties related to all licenses
related to the exploitation of the Album and its content. According to the
Upstream Agreement, Universal shall pay all advances, royalties and other monies
payable directly to the particular Artist.
In
consideration for the rights granted to Universal, under the Upstream Agreement,
Universal agrees to pay us fifty percent (50%) of Universal’s Net Profits earned
from the sale or other exploitation of any and all of the masters and Albums
that are subject to the Upstream Agreement. According to the Upstream Agreement,
Net Profits mean the amount equal to Gross Revenues less the
Deductions.
Under
the
Upstream Agreement, Gross Revenue include:
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All
monies actually received or credited to Universal from the sale of
records
in the United States minus reasonable reserves anticipated returns,
actual
returns and credits for returns, price discounts, and a distribution
fee
equal to twenty-five (25%) of United States Net Sales;
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One
hundred percent (100%) of Universal’s Net Receipts in respect to
licenses;
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Royalties
of calculated at a basic rate of nineteen percent (19%) of the applicable
Royalty Base Price for records sold through normal retail channels
outside
the United States by Universal’s direct and immediate principal foreign
licensees; and
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Fifty
percent (50%) net receipts received by Universal, with respect to
licenses
of masters outside the United States on flat-fee or other royalty
basis.
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Deductions
are:
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§
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A
reserve for all reasonably anticipated future costs in connection
with the
particular Artist and/or masters recorded under the contract for
anticipated marketing and promotions costs, recording costs, and
music
video costs; and
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All
direct costs and expenses incurred by Universal.
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Under
the
Upstream Agreement, Universal will prepare accounting statements for us on
a
semi-annual basis. On or before each September 30, or March 31, Universal will
send such accounting statements to us for the semi-annual accounting period
ending the immediately preceding June 30th
or
December 31st,
and
will send American the amount of our share of any Net Profits, if any are then
due and payable.
Foreign
License Agreement
On
January 25, 2006, we entered into the Exclusive Foreign License Agreement
(“Foreign License Agreement”) with Universal. The term of the Foreign License
Agreement runs simultaneously with the term of the Domestic Distribution
Agreement. During the term of the Foreign License Agreement, Universal has
the
exclusive right to sell, license or otherwise exploit records and videos that
its distributes under the Domestic Distribution Agreement through the rest
of
the Universe, excluding the United States.
In
consideration of the rights granted, Universal agrees to pay us royalties on
Net
Sales. Under the Foreign License Agreement, Universal will prepare accounting
statements for us on a semi-annual basis. On or before each September 30, or
March 31, Universal will send such accounting statements to American for the
semi-annual accounting period ending the immediately preceding June
30th
or
December 31st,
and
will send us the amount of our Royalties, if any, that are then due and payable.
Competition
The
entertainment and recorded music industry is highly competitive. We face
competition, from many other record companies, and from entertainment companies
from other sectors of the entertainment industry (film and video games) for
consumer household discretionary purchases of entertainment products. Record
companies also compete for talented artists, producers and songwriters. Although
there are many independent record labels, similar to American, three major
record companies (BMG/Sony, Warner Music and Universal) currently control the
distribution and market for pre-recorded music in the United States and around
the world. Many of these record companies have significantly longer operating
histories, greater financial resources, assets and larger music catalogs, and
larger staffs than us. Our ability to compete in this industry depends on many
factors, including but not limited to:
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Our
management’s and employees’ creativity, skills and relationships with
artists, promoters, radio stations, distributors and
retailers;
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Our
ability to sign Recording Agreements to secure new artists and Masters,
and to expansion its music catalog;
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Our
ability to effectively market and sell its music products;
and
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Our
ability to establish, and maintain a reputation for commercially
releasing
high quality music products.
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Employees
As
of
August 8, 2006, we currently have 7 employees, and 6 are full-time. None of
our
employees are represented by a labor union and we have not entered into a
collective bargaining agreement with any union. We have not experienced any
work
stoppages and consider our relations with our employees to be good.
Item
1A. Risk Factors and Cautionary Statement Regarding Forward-Looking
Information
An
investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors and the other information in
this
annual report before investing in our common stock. Our business and results
of
operations could be seriously harmed by any of the following risks. The trading
price of our common stock could decline due to any of these risks.
Risks
Associated with our Business
There
is substantial doubt about our ability to continue as a going
concern.
We
incurred recurring net losses totaling $2,071,520 for the period from inception
(July 1, 2004) through April, 30, 2006. As of April 30, 2006 we have an
accumulated deficit of $3,465,741 and a working capital deficit of $2,300,702.
These conditions raise substantial doubt about our ability to continue as a
going concern. Management's plans in this regard are to raise equity or
loan financings as required. There are no assurances that we will be successful
in this regard.
We
are a development stage company, and we have no significant operating history.
We
are a
development stage company that has not had operations for many years. Our plans
and businesses are “proposed” and “intended” but we may not be able to
successfully implement them. Our primary business is the production,
acquisition, marketing and sale of pre-recorded music. However, we have not
yet
released a music product and have not earned any revenues and have incurred
losses since our incorporation. To date, our management’s efforts have been
limited to organizational activities, business planning and seeking initial
funding. We currently lack sufficient capital to generate revenue or operate
our
business in a profitable manner. As a development stage company, our prospects
are subject to all the risks and uncertainties frequently encountered by
companies in the music industry. In addition, we are subject to all of the
risks, uncertainties, expenses, delays, problems, and difficulties typically
encountered in the establishment of a new business. We expect that unanticipated
expenses, problems, and technical difficulties will occur and that they will
result in material delays in the development of our business. We may not obtain
sufficient capital or achieve a significant level of operations and, even if
we
do, we may not be able to conduct such operations on a profitable
basis.
We
have limited financial resources which if not corrected will prevent and inhibit
our ability to implement its business plan.
We
have
limited financial resources and have not generated any revenues to date. We
cannot achieve revenues until we release and market new records from our catalog
or from new musical performances of recording artists pursuant to Recording
Contracts with those recording artists, their production companies or record
labels. To secure new Recording Contracts requires us to pay substantial
advances to the recording artists, their production companies or record labels.
Prior to and concurrent with any commercial release of a new music product
requires us to pay substantial marketing costs and consultant fees related
to
the marketing of the product. To begin generating revenues, we must have
substantial funding. There can be no assurance that we will raise sufficient
funds to release its music products, and therefore no assurances that we will
receive any revenues from its operation, nor operate on a profitable basis.
We
may not be able to find music products with mass consumer acceptance and we
cannot predict sales revenues from the release of music
products.
Although
we will attempt to locate and secure Recording Agreements with record labels,
production companies, producers, and recording artists, the record industry
is
very competitive, there is no assurance that we will secure contracts with
talented record labels, production companies, producers, and recording artists.
Although we may secure Recording Agreements, the music products derived from
the
master recordings delivered pursuant to those Recording Agreements and the
compilation albums derived from American’s music catalog may not receive mass
consumer appeal and may not generate significant sales revenues despite our
marketing efforts and expenditures. The sale of recorded music products to
consumers is entirely speculative, and there is no way to assure the amount
of
music products that will be sold from any of our commercial releases of its
music products.
We
may not be able to obtain sufficient capital to implement our business
plan.
To
successfully implement our business plan, we need access to capital. Our ability
to implement our business plan will be limited unless we are able to obtain
capital through additional debt or equity financing. We cannot assure that
such
debt or equity financing will be obtained or that, if obtained, such financing
will be on terms that are favorable to us or sufficient for our needs. If we
are
unable to obtain sufficient financing, we may be unable to fully implement
our
business plan, and we may be required to limit or discontinue our operations.
Acquisitions
involve risks that could cause our actual growth to differ from our expectations
and lower the market price for our common stock
While
we
are not currently a party to any agreements regarding any material acquisitions,
we expect to continue to seek to acquire master recordings, music publishing
rights and other record companies. Acquisitions involve risks that could cause
our actual growth to differ from our expectations. For example:
| |
§
|
We
may not be successful in identifying attractive acquisitions. We
compete
with other companies to acquire master recordings, music publishing
rights
and other record companies. We expect that this competition will
continue,
which may inhibit our ability to complete suitable acquisitions on
favorable terms.
|
| |
§
|
We
may be unable to successfully integrate acquired businesses and realize
anticipated economic, operational and other benefits in a timely
manner.
If we are unable to successfully integrate acquired businesses, product
lines and personnel, we may incur substantial costs and delays or
other
operational, technical or financial problems. In addition, efforts
to
integrate or failure to successfully integrate acquisitions may divert
management's attention from our existing business and may damage
our
relationships with our key employees and customers.
|
The
recorded music industry is highly competitive, and we cannot assure the success
of our individual products, or the overall success of our business
plan.
The
recorded music industry is highly competitive. We face competition for
discretionary consumer purchases of our products from other record companies
and
other entertainment companies, such as film and video companies. Many of these
competitors have greater financial and other resources, larger development
staffs, and more effective marketing organizations than we do. In the United
States three record companies control eighty percent (80%) of record sales:
Warner Music Group, Universal Music Group, and Sony Music Entertainment/BMG.
Independent record companies generate the balance of record sales. Our ability
to compete in this market depends largely on:
| |
§
|
The
skill and creativity of our employees and their relationships with
artists;
|
| |
§
|
Our
ability to sign new and established artists and songwriters;
|
| |
§
|
The
expansion and utilization of our music catalog;
|
| |
§
|
The
acquisition of licenses to enable us to create compilation packages;
|
| |
§
|
The
effective and efficient distribution our products; and
|
| |
§
|
Our
ability to build and maintain a reputation for producing, licensing,
acquiring, marketing and distributing high quality music.
|
Since
we are in a creative industry, we may be able to generate sufficient revenues
from successful releases to exceed the costs of unsuccessful product
releases.
The
recorded music industry, like other creative industries, involves a substantial
degree of risk. Each recording is an individual artistic work, and its
commercial success is primarily determined by consumer taste, which is
unpredictable and constantly changing. As a result, we cannot assure the
financial success of any particular release, the timing of success or the
popularity of any particular artist. We may be unable to generate sufficient
revenues from successful releases to cover the costs of unsuccessful releases.
Delays
in the delivery of new master records by third-party labels could materially
adversely affect our business, financial results, and operating
results.
The
timing of releases of New Records may materially affect our business, financial
condition and results of operations. To secure New Records for release and
sale
to consumers, we will enter into Distribution Agreements with third party
Labels. Pursuant to these Distribution Agreements, the third party Labels agree
to deliver to us commercially satisfactory master recordings that have not
been
previously released for sale to consumers. Our results of operations are subject
to seasonal variations. In particular, our revenues and operating income are
affected by end-of-the-year holiday sales. In accordance with industry practice,
we record revenues for music products when the products are shipped to
retailers. In anticipation of holiday sales, retailers purchase products from
us
prior to December. As a result, our revenues and operating income typically
decline during December, January and February. If releases planned for the
peak
holiday season are delayed, our business, financial results and operating
results could be materially adversely affected.
If
we experience higher than expected returns, our financial condition could be
materially and adversely affected.
Our
products are sold on a returnable basis, which is standard music industry
practice. We set reserves for future returns of products estimated based on
return policies and experience. We expect that our actual return experience
will
be within standard industry parameters. However, we may experience an increase
in returns over our established reserves. If this occurs our business, results
of operations and financial condition could be materially and adversely
affected.
Losses
of Key Personnel could materially and adversely affect our business, financial
condition or results of operations.
Our
success depends largely on the skills, experience and efforts of our executive
officers and key employees, especially our Chairman and Chief Executive Officer,
David Michery. The loss of the services of Mr. Michery or other members of
our
senior management, could materially adversely affect our business, financial
condition or results of operations. In addition, in large part, our success
will
depend on our ability to attract and retain qualified management, marketing
and
sales personnel. We experience competition for qualified personnel with other
companies and organizations. Our inability to hire or retain qualified personnel
could have a material adverse effect on our business, financial condition or
results of operations.
We
may not manage our growth properly.
We
intend
to grow in the future, and our growth presents numerous challenges and places
significant additional pressure on our managerial, financial and other
resources. To manage such growth it is necessary that we continue to implement
and improve our operating systems, attract and train more qualified personnel,
integrate acquired businesses and products, and expand our facilities. If we
fail to effectively manage our growth, our business, operating results or
financial condition could be materially adversely affected.
Our
operations are seasonal.
Our
results of operations are subject to seasonal variations. In particular, our
revenues and operating income are affected by end-of-the-year holiday sales.
In
accordance with industry practice, we record revenues for music products when
the products are shipped to retailers. In anticipation of holiday sales,
retailers purchase products from us prior to December. As a result, our revenues
and operating income typically decline during December, January and February.
In
addition, timing of a new release may materially affect our business, financial
condition and results of operations. For example, if releases planned for the
peak holiday season are delayed, our business, financial results and operating
results could be materially adversely affected.
We
are dependent on third parties for certain licensing
rights.
We
license the rights to numerous master recordings and compositions from third
parties for recording and re-recording of music to produce compilations and
to
expand of our catalog. We also seek to license the rights to our master
recordings and compositions to third parties for use in albums for a royalty
or
a flat fee. These cross-licensing arrangements are generally made possible
by
existing industry practices based on reciprocity. If these practices change,
we
cannot assure that we will be able to obtain licenses from third parties on
satisfactory terms, or at all, and our business, financial condition and
operating results, particularly with respect to compilation products, could
be
materially and adversely affected.
If
David Michery dies or becomes incapacitated or in the event that he ceases
to be
actively engaged in management, in a controlling capacity, Universal will have
the right to terminate the Domestic Distribution
Agreement.
Our
Exclusive Manufacturing and Distribution Agreement with Universal is a material
contract to our current and future operations (see “Business - Contracts with
Universal”). Pursuant to the terms of the Domestic Distribution Agreement, David
Michery’s active and full time participation in our business affairs is
required. In the event of his death or incapacity or in the event that he
ceases, for whatever reason to be actively engaged in our management in a
controlling capacity, Universal has the right, without liability of any kind
to
us whatsoever, to terminate the Domestic Distribution Agreement. Currently,
this
is our only agreement in place, and its termination would have a material effect
on our business, financial condition and operating results.
Risks
Associated with Investing in our Common Stock
There
is a limited trading market for our common stock.
Our
common stock is traded on the OTC Bulletin board under the symbol “ASWD.OB.”
There has been virtually no trading activity in our stock recently, and when
it
has traded, the price has fluctuated widely. We consider our common stock to
be
“thinly traded” and any last reported sale prices may not be a true market-based
valuation of the common stock. A consistently active trading market for our
stock may not develop at any time in the future. Stockholders may experience
difficulty selling their shares if they choose to do so because of the illiquid
market and limited public float for our stock. It is possible that even
a
limited public market for our common stock will not be sustained after the
date
of this annual report or at a time at which you may desire to sell your shares.
The
volatility of our stock price affect our may adversely affect the market price
for our common stock.
The
market price of our common stock has historically been volatile. We believe
the
market price of the common stock could continue to fluctuate substantially,
based on a variety of factors, including quarterly fluctuations in results
of
operations, timing of product releases, announcements of new products and
acquisitions or acquisitions by our competitors, changes in earnings estimates
by research analysts, and changes in accounting treatments or principles. The
market price of our common stock may be affected by our ability to meet or
exceed analysts' or "street" expectations, and any failure to meet or exceed
such expectations could have a material adverse effect on the market price
of
our common stock. Furthermore, stock prices for many companies, particularly
entertainment companies, fluctuate widely for reasons that may be unrelated
to
their operating results. These fluctuations and general economic, political
and
market conditions, such as recessions or international currency fluctuations
and
demand for our products, may adversely affect the market price of our common
stock.
Our
common stock is considered to be a “penny stock” and, as such, the market for
our common stock may be further limited by certain SEC rules applicable to
penny
stocks.
As
long
as the price of our common stock remains below $5.00 per share or we have net
tangible assets of $2,000,000 or less, our shares of common stock are likely
to
be subject to certain “penny stock” rules promulgated by the SEC. Those rules
impose certain sales practice requirements on brokers who sell penny stock
to
persons other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000). For transactions covered by the penny stock rules,
the
broker must make a special suitability determination for the purchaser and
receive the purchaser’s written consent to the transaction prior to the sale.
Furthermore, the penny stock rules generally require, among other things, that
brokers engaged in secondary trading of penny stocks provide customers with
written disclosure documents, monthly statements of the market value of penny
stocks, disclosure of the bid and asked prices and disclosure of the
compensation to the brokerage firm and disclosure of the sales person working
for the brokerage firm. These rules and regulations make it more difficult
for
brokers to sell our shares of our common stock and limit the liquidity of our
securities.
We
do not expect to pay dividends for the foreseeable future.
For
the
foreseeable future, it is anticipated that earnings, if any, that may be
generated from our operations will be used to finance our operations and that
cash dividends will not be paid to holders of our common stock.
Any
projections used in this report may not be accurate.
Any
and
all projections and estimates contained in this report or otherwise prepared
by
us are based on information and assumptions which management
believes
to
be
accurate; however, they are mere projections and no assurance can be given
that
actual performance will match or approximate the projections.
Because
stock ownership is concentrated, you and other investors will have minimal
influence on stockholders’ decisions.
Assuming
that issued and outstanding warrants and options for our common stock have
not
been exercised, our executive officers and/or their affiliated companies
directly or beneficially own approximately 93% of our outstanding common stock
(on a fully converted basis) as of August, 2006. As a result our executive
officers may be able to significantly influence the management of the company
and all matters requiring stockholder approval, including the election of
directors. Such concentration of ownership may also have the effect of delaying
or preventing a change in control of our company.
Our
directors and executive officers control the company.
Our
directors, executive officers and/or their affiliated companies directly or
beneficially own approximately 93% of our outstanding common stock (on a fully
converted basis). Accordingly, these persons, as a group, may be able to exert
significant influence over the direction of our affairs and business, including
any determination with respect to our acquisition or disposition of assets,
future issuances of common stock or other securities, and the election of
directors. Such a concentration of ownership may also have the effect of
delaying, deferring, or preventing a change in control of the company.
Substantial
sales of our stock may impact the market price of our common stock.
Future
sales of substantial amounts of our common stock, including shares that we
may
issue upon exercise of options and warrants, could adversely affect the market
price of our common stock. Further, if we raise additional funds through the
issuance of common stock or securities convertible into or exercisable for
common stock, the percentage ownership of our stockholders will be reduced
and
the price of our common stock may fall.
Issuing
preferred stock with rights senior to those of our common stock could adversely
affect holders of common stock.
Our
charter documents give our board of directors the authority to issue series
of
preferred stock without a vote or action by our stockholders. The board also
has
the authority to determine the terms of preferred stock, including price,
preferences and voting rights. The rights granted to holders of preferred stock
may adversely affect the rights of holders of our common stock. For example,
a
series of preferred stock may be granted the right to receive a liquidation
preference - a pre-set distribution in the event of a liquidation - that would
reduce the amount available for distribution to holders of common stock. In
addition, the issuance of preferred stock could make it more difficult for
a
third party to acquire a majority of our outstanding voting stock. As a result,
common stockholders could be prevented from participating in transactions that
would offer an optimal price for their shares.
Cautionary
Statement Concerning
Forward-Looking
Statements
Some
of
the statements in this annual report are forward looking statements, which
are
subject to risks and uncertainties. These risks and uncertainties could cause
actual results to differ materially from those expressed in forward-looking
statements. We base these forward-looking statements on our expectations and
projections about future events, which we derive from the information currently
available to us. Such forward-looking statements relate to future events or
our
future performance. Forward-looking statements are only predictions. The
forward-looking events discussed in this annual report, the documents to which
we refer you and other statements made from time to time by us or our
representatives, may not occur, and actual events and results may differ
materially and are subject to risks, uncertainties and assumptions about us.
For
these statements, we claim the protection of the “bespeaks caution” doctrine.
The forward-looking statements speak only as of the date hereof, and we
expressly disclaim any obligation to publicly release the results of any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this filing.
Item
2. Description of Property
Our
executive office is located at 8721 Sunset Blvd., Penthouse 7, West Hollywood,
California 90069, telephone (310) 659-8770. We have a two-year lease that began
on November 2005 and expires on October 31, 2007 for which we pay $1,685 per
month. Other than the office in West Hollywood, California, we do not currently
maintain any other office facilities. We plan to open an office in Houston,
Texas in the next 12 months. We believe there is an adequate supply of suitable
office space for lease on terms acceptable to us.
Item
3. Legal Proceedings
Vestcom,
Ltd. was seeking not less than $1.2 million from all the defendants including
us, to be awarded ownership of all Subject Assets, punitive damages, and other
remuneration.
We
have
entered a stipulation for Settlement/Term Sheet in the action entitled Vestcom
v. AMC; Case No. CV-04-03745, which is expected to close on or about September
15, 2006. Pursuant to the stipulation, American agreed to pay Vestcom the
damages Vestcom alleges to have incurred in the above referenced action equal
to
the sum of $500,000 plus interest thereon at a rate of 9.5% from July 3, 2003
through the expected Closing Date, $360,000 as a supplemental damages payment
and $250,000 for legal fees and expenses of Vestcom. Assuming a September 15,
2006 closing, the principal amount will equal $1,300,000 (the “Principal
Amount”). On the Closing Date, we will issue Vestom a 9.5% promissory note for
the Principal Amount, which note will be payable as follows: $150,000 payable
on
the Closing Date, $250,000 payable on or before January 1, 2007, and the balance
to be paid in 8 equal installments paid quarterly beginning April 3,
2007.
The
note
will be convertible into shares of our common stock at 90% of the average bid
price for the five (5) days immediately prior to conversion, subject to certain
limitations. The note will be secured by our assets as well as a pledge of
a
certain amount of David Michery’s shares. We have agreed to register the shares
of common stock underlying the note
Item
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of shareholders in the fourth quarter of the
fiscal year ended April 30, 2006.
PART
II
Item
5. Market for Common Equity and Related Stockholder
Matters
Beginning
August 24, 2006, in connection with our name change, our common stock trades
on
the OTC Bulletin Board under the symbol “ASWD.OB.” Previously, our common stock
traded on the OTC Bulletin Board under the symbol “GEEX.OB.” The following table
shows the high and low bid or close prices for our common stock for each quarter
since May 1, 2004 as reported by the OTC Bulletin Board. We consider our stock
to be “thinly traded” and any reported sale prices may not be a true
market-based valuation of the stock. All share prices have been adjusted to
provide for a 1-for-74 reverse stock spit effected on August 24, 2006. Some
of the bid quotations from the OTC Bulletin Board set forth below may reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not
represent actual transactions.
|
May
1, 2005 to April 30, 2006
|
High
Close
|
Low
Close
|
|
First
quarter
|
$
7.40
|
$
2.22
|
|
Second
quarter
|
4.81
|
1.56
|
|
Third
quarter
|
3.70
|
1.48
|
|
Fourth
quarter
|
2.22
|
0.74
|
| |
|
|
|
May
1, 2004 to April 30, 2005
|
High
Bid
|
Low
Bid
|
|
First
quarter
|
$
1.48
|
$
0.30
|
|
Second
quarter
|
1.33
|
0.52
|
|
Third
quarter
|
4.07
|
0.67
|
|
Fourth
quarter
|
2.96
|
0.89
|
As
of
August 8, 2006, there were approximately 26 record holders of our common
stock.
We
have
not paid any cash dividends since our inception and do not contemplate paying
dividends in the foreseeable future. It is anticipated that earnings, if any,
will be retained to retire debt and for the operation of the
business.
Shares
eligible for future sale could depress the price of our common stock, thus
lowering the value of a buyer’s investment. Sales of substantial amounts of
common stock, or the perception that such sales could occur, could adversely
affect prevailing market prices for shares of our common stock.
Securities
Authorized for Issuance Under Equity Compensation Plans. The
following provides information concerning compensation plans under which our
equity securities are authorized for issuance as of April 30, 2006 (on a
adjusted basis for the Reverse Split):
| |
|
(a)
|
|
(b)
|
|
(c)
|
|
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
Equity
compensation plans approved by security holders(1)
|
|
--
|
|
$--
|
|
1,486(1)
|
|
Equity
compensation plans not approved by security holders (2)(3)
|
|
--
|
|
--
|
|
135,135(2)
432,432(3)
|
|
Total
|
|
--
|
|
$--
|
|
569,053
|
(1)
On
April 23, 2003, a majority of the stockholders of the Company approved a
performance equity plan for 10,000,000 shares of Common Stock ("2003 Performance
Equity Plan"). The rights of the common stock were not changed. We intend to
issue the shares of common stock from time to time as determined by the board
of
directors to directors, employees, consultants and others. The board of
directors of the Company believes the 2003 Plan will provide flexibility in
structuring compensation arrangements and provide an equity incentive for
employees and others who are awarded shares under the 2003 Plan. The shares
under an award may be issued at less than market price at the discretion of
the
board of directors. None of the awards as provided under the 2003 Plan are
allocated to any particular person or class of persons among those eligible
to
receive awards. As of April 30, 2006 we have issued a total of 9,890,000 shares
of common stock to various consultants under the Plan.
(2)
On
February 27, 2004, the board of directors of the Company (and approved by a
majority of the Company’s stockholders in March 2004) approved a performance
equity plan for 10,000,000 shares of common stock. The rights of the common
stock were not changed. The purpose of the GL Energy and Exploration, Inc.
2004
Equity Performance Plan is to enable the Company to offer to its employees,
officers, directors and consultants whose past, present and/or potential
contributions to the Company and its Subsidiaries have been, or will be
important to the success of the Company. The various types of long-term
incentive awards that may be provided under the Plan will enable the Company
to
respond to changes in compensation practices, tax laws, accounting regulations
and the size and diversity of its business. As of April 30, 2006, no shares
have
been issued under this plan.
On
October 7, 2004, the board of directors of the Company approved the 2004 Stock
Incentive Plan for 35,000,000 shares of Common Stock. The rights of the common
stock were not changed. The purpose of the Plan is to encourage and enable
officers, directors, and employees of GL Energy and Exploration, Inc. and its
Subsidiaries and other persons to acquire a proprietary interest in the Company.
It is anticipated that providing such persons with a direct stake in the
Company's welfare will assure a closer identification of their interests with
those of the Company and its shareholders, thereby stimulating their efforts
on
the Company's behalf and strengthening their desire to remain with the Company.
As of April 30, 2006, we have issued a total of 4,500,000 shares of common
stock
to various consultants and employees.
RECENT
SALES OF UNREGISTERED SECURITIES
On
August
6, 2006, we issued a 15% promissory note to a single investor. The
issuance was exempt under Section 4(2) of the Securities Act of 1933, as
amended.
On
August
4, 2006, American issued a 15% $750,000 promissory note to Generation
Leasing Inc, an accredited investor. This promissory note consolidated
certain other promissory notes previously issued by American. The note is
guaranteed by the Company and David Michery, The issuance was exempt under
Section 4(2) of the Securities Act of 1933, as amended.
On
July
10, 2006, we issued 500,000 shares of our common stock to a consultant as a
compensatory stock grant. The issuance was exempt under Section 4(2) of the
Securities Act of 1933, as amended.
On
July
12, 2006, the Company and American jointly issued a 10% $50,000 promissory
note
to a single accredited investor. The issuance was exempt under Section 4(2)
of
the Securities Act of 1933, as amended.
On
June
13, 2006, the Company issued 2,000,000 shares of its common stock to a
consultant as a compensatory stock grant under a service agreement. The issuance
was exempt under Section 4 (2) of the Securities Act of 1933, as amended.
Pursuant
to the Exchange Agreement, in March 2006, the Company issued 22,500,000 shares
of its common stock and 23,980 shares of its series A preferred stock to David
Michery and Kent Puckett, the sole stockholders of American, in exchange for
all
of the American stock held by them. This issuance was exempt under Section
4(2)
of the Securities Act of 1933, as amended.
During
the year ending December 31, 2004, the Company issued 2,900,000 shares of common
stock for as compensatory stock grants. The Company’s board valued the common
stock at $0.079 for a total value of $229,001. These issuances were exempt
under
Section 4(2) of the Securities Act of 1933, as amended.
On
September 23, 2004, American issued 0% promissory notes to a single accredited
investor in the amount of $175,000. These notes are, at the option of the
holder, convertible into shares of our common stock at market value. The
maturity date of the notes was March 23, 2005. Upon default, the notes bear
interest at 10%. The notes are currently in default.
In
August
2004, American issued 3,746 shares of its common stock to David Michery and
Kent
Puckett as consideration for its purchase of all of the assets of Celestial
Breakaway Records, a company owned solely by Messrs. Michery and Puckett.
American’s board of directors valued these assets at $3,746,000. This issuance
was exempt under Section 4(2) of the Securities Act of 1933, as
amended.
In
August
2004, American issued 470 shares of our common stock to David Michery as
consideration for its purchase of all of the assets of Out of Control Records,
a
company owned by Messrs. Michery and Puckett. American’s board of directors
valued these assets at $470,000 This issuance was exempt under Section 4(2)
of
the Securities Act of 1933, as amended.
In
August
2004, American issued 76 shares of our common stock to Mr. Michery in exchange
for certain furniture, fixtures and equipment contributed to us by Mr. Michery.
This issuance was exempt under Section 4(2) of the Securities Act of 1933,
as
amended.
In
August
2004, American issued 2 shares of our common stock to Mr. Michery for a cash
purchase price of $2,000. This issuance was exempt under Section 4(2) of the
Securities Act of 1933, as amended.
From
February through September 30, 2004, the Company issued 538,401 shares of common
stock to 25 non-U.S. investors in a private placement for an aggregate purchase
price of $110,428.. These issuances were exempt under Regulation S of the
Securities Act of 1933, as amended. During the quarter ended June 30, 2004,
the
Company sold 538,401 shares from the trust for net proceeds of $110,428. The
Company also issued a total of 1,370,000 shares of stock through December 31,
2004 as compensatory stock grants to 2 consultants. The Company’s board valued
the common stock at $.098 for a total value of $134,300. This issuance was
exempt under Section 4(2) of the Securities Act of 1933, as
amended.
During
the year ending December 31, 2003, the Company issued 8,490,000 shares of common
stock for services valued at $1,896,600 and issued 20,000,000 shares for an
investment in a joint venture valued at $20,000. These issuances were exempt
under Section 4(2) of the Securities Act of 1933, as amended.
In
June
2003, the Company issued 20,000,000 shares of common stock valued at $20,000
to
two directors for an investment in a mining claim in Chile. These shares were
issued to two individuals, as follows: Donald Byers - 17,500,000 and Arthur
Lang
- 2,500,000. These issuances were exempt under Section 4(2) of the Securities
Act of 1933, as amended.
Item
6. Management’s Discussion and Analysis or Plan of
Operation
The
following discussion and analysis should be read in conjunction with our audited
consolidated financial statements and related notes included in this report.
This report contains “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. The statements contained
in
this report that are not historic in nature, particularly those that utilize
terminology such as “may,” “will,” “should,” “expects,” “anticipates,”
“estimates,” “believes,” or “plans” or comparable terminology are
forward-looking statements based on current expectations and
assumptions.
Various
risks and uncertainties could cause actual results to differ materially from
those expressed in forward-looking statements. Factors that could cause actual
results to differ from expectations include, but are not limited to, those
set
forth under the section “Risk Factors” set forth in this report.
The
forward-looking events discussed in this annual report, the documents to which
we refer you and other statements made from time to time by us or our
representatives, may not occur, and actual events and results may differ
materially and are subject to risks, uncertainties and assumptions about us.
For
these statements, we claim the protection of the “bespeaks caution” doctrine.
All forward-looking statements in this document are based on information
currently available to us as of the date of this report, and we assume no
obligation to update any forward-looking statements. Forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results to differ materially from any future results, performance
or
achievements expressed or implied by such forward-looking
statements.
General
We
produce, acquire, market and sell pre-recorded music through our wholly owned
subsidiary, American. American was incorporated in the State of Texas in May
2004. In July 2004, American acquired the assets of Celestial Breakaway Records’
and Out of Control Records’ music catalog, which consisted of rights to various
master recordings previously released commercially. Pursuant to that
acquisition, American procured the exclusive right to commercially market and
sell those master recordings worldwide.
On
March
13, 2006, American, their shareholders and the Company entered into the Exchange
Agreement pursuant to which the Company issued an aggregate of 22,500,000 shares
of its common stock and 23,980 shares of its series A convertible preferred
stock to the American stockholders in exchange of their transfer of American
shares to the Company.
Our
executive offices are located at 8721 Sunset Blvd., Penthouse 7, West Hollywood,
California 90069. Our telephone number is (310) 659-8770.
Significant
Accounting Policies
Financial
Statement Presentation
The
financial statements presented herein reflect the consolidated financial
statements of the Company and American Southwest after giving effect to the
reverse merger of the two companies on a historical basis.
Music
catalog
Cost
Basis
The
cost
basis in the music catalog is recorded at cost. Amortization will be computed
using the straight-line method over periods ranging from 1 to 5 years.
Amortization will be recorded once revenues commence.
Risk
of Obsolescence
A
number
of the Music Catalogues date from contracts entered into from 1997 -
1998 that
provide for a limited number of album or single release recordings and
options
for extension thereon. Accordingly, there is a risk that the Music Catalogues
owned by the Company are subject to competition from later releases by
the
artists through other entities besides the Company, as well as the risk
of the
passage of time on the salability on the masters owned by the
Company.
Impairment
of Long-Lived and Other Intangible Assets
The
Company reviews the carrying value of both its long-lived and other intangible
assets annually, or whenever events or changes in circumstances indicate that
the historical cost-carrying value of an asset may no longer be appropriate.
The
Company assesses recoverability of the carrying value of the asset by estimating
the future net cash flows expected to result from the asset, including eventual
disposition. If the future net cash flows are less than the carrying value
of
the asset, an impairment loss is recorded equal to the difference between the
asset’s carrying value and fair value. At April 30, 2006 the Company’s
evaluation determined that no provision for impairment of either its other
intangible assets (its “Music Library”) or its fixed assets was required at that
date.
Consideration
of Other Comprehensive Income Items
SFAS
130
Reporting Comprehensive Income requires companies to present comprehensive
income (consisting primarily of net income plus other direct equity changes
and
credits) and its components as part of the basic financial statements. The
Company's financial statements do not contain any changes in equity that are
required to be reported separately in comprehensive income.
Recent
Accounting Pronouncements
In
December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which
establishes standards for transactions in which an entity exchanges its equity
instruments for goods or services. This standard requires a public entity to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant date fair value of the award. This
eliminates the exception to account for such awards using the intrinsic method
previously allowable under APB Opinion No. 25. SFAS No. 123 (R) became effective
for the interim period beginning July 1, 2005. The Company does not anticipate
that the adoption of SFAS No. 123(R) will have a significant impact on the
Company’s overall results of operations or financial position.
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 20, Accounting for Nonmonetary Transactions.”
The amendments made by SFAS No. 153 are based on the principle that exchanges
of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a broader
exception for exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the
exchange. This statement shall be applied prospectively and is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June
15,
2005. Earlier application is permitted for nonmonetary asset exchanges occurring
in fiscal periods beginning after the date of issuance. The Company does not
anticipate that the adoption of SFAS No. 153 will have a significant impact
on
the Company’s overall results of operations or financial position.
In
May
2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections,” that
applies to all voluntary changes in accounting principle. This Statement
requires retrospective application to prior periods’ financial statements of
changes in accounting principle, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change. When it
is
impracticable to determine the period-specific effects of an accounting change
on one or more individual prior periods presented, this Statement requires
that
the new accounting principle be applied to the balances of assets and
liabilities as of the beginning of the earliest period for which retrospective
application is practicable and that a corresponding adjustment be made to the
opening balance of retained earnings (or other appropriate components of equity
or net assets in the statement of financial position) for that period rather
than being reported in an income statement. When it is impracticable to
determine the cumulative effect of applying a change in accounting principle
to
all prior periods, this Statement requires that the new accounting principle
be
applied as if it were adopted prospectively from the earliest date practicable.
SFAS 154 will be effective for the Company for fiscal year ended December 31,
2007. The Company does not anticipate that the adoption of SFAS No. 154 will
have an impact on the Company’s overall results of operations or financial
position.
Plan
of Operation
We
had no
revenues for the year-ended April 30, 2006 or since its inception. We incurred
$643,463 in operating expenses and $1,310,811 of other costs and expenses,
which
includes a $1,244,583 loss incurred on legal settlement on behalf of an entity
formerly owned by David Michery for the year-ended April 30, 2006. We have
also
incurred $133,941 in legal and accounting fees. These fees were related to
negotiating Recording Agreements, the Exchange Agreement, litigation and SEC
compliance requirements. We paid our management $166,795.
We
remain
a development stage company. Since our inception, we have had minimum working
capital to fund our operations. In order to pay the expenses of its operations,
we have relied on third-party loans and loans from shareholders. As a result,
we
have incurred debt in the total amount of $937,580 to pay our expenses.
Consequently, our balance sheet for the period of May 2004 (inception) through
April 30, 2006, reflects a current asset value of $0 and a total asset value
of
$4,280,739 of which $0 is in the form of cash.
During
the next twelve months of operations, we plan to carry out its plan of operation
as described herein. Our management is currently seeking to execute several
recording agreements with various production companies, labels and artists.
There is no assurance as to when or whether we will locate suitable production
companies, labels and artist or suitable master recordings. Also, there are
not
assurances that we will have sufficient capital to secure the rights under
any
Recording Agreement negotiated.
On
January 25, 2006, we entered into an Exclusive Manufacturing and Distribution
Agreement, Upstream Agreement and Exclusive Foreign License Agreement with
Universal Records, a division of UMG Recordings, Inc.
Our
management plans to select masters from its catalog for commercial release
in
2006, and seeking third-party licensing agreements to be included in the
proposed compilation Albums derived from its catalog.
In
the
second calendar quarter of 2006, we plan to begin marketing the release of
new
Albums it intends to commercially release in the third and fourth calendar
quarters of 2006. During the remainder of 2006 to mid-November 2006, we plan
to
release nine (9) separate Albums.
In
the
next 12 months, we plan to hire up 5 additional employees.
We
have a
working capital deficit and only a minimum amount of operating cash with which
to fund our future operations. We must obtain adequate funding in order to
fulfill our obligations under any recording agreement that we intend to execute,
and adequate funding to market and advertise any of music products that we
intend to release. If we do not receive adequate funding, its management must
either discontinue or substantially scale back our planned
operations.
We
intend
to seek either debt or equity capital or both. As of the date of this report,
we
do not have commitments for funding or any other agreements that will provide
us
with adequate working capital to conduct its full operating plan for the next
twelve months. We cannot give any assurance that we will locate any funding
or
enter into any agreements that will provide the required operating capital
to
fund our planned business operations. In addition, we may consider receiving
advances against future sales from Universal (as customary in the music
industry) or to agree to sell rights to Master recordings, copyrights, or rights
to any artist under a Recording Agreement or in our catalog. In addition, we
may
consider strategic alliances, mergers or acquisition as a means of pursuing
our
business plan or otherwise funding our business plan.
Our
existing capital is currently not sufficient to enable us to meet our cash
needs
in conjunction with complying with our reporting obligations under Securities
Exchange Act of 1934, as amended, for a period of twelve months following the
date hereof.
Regardless
of whether our cash assets are adequate to meet its operational needs, we will
seek to compensate its management, consultants, employees and other service
providers by issuing its shares of stock, or options to buy shares of its common
stock in lieu of cash. For information as to our policy in regard to payment
for
services, see "Other Compensation Arrangements."
We
anticipate obtaining funding from the sale of our common stock and from
additional loans.
Off-Balance
Sheet Arrangements
None.
Item
7. Financial Statements
Table
of Contents
|
Registered
Independent Independent Auditors’ Report
|
F-1
|
|
Consolidated
Balance Sheets
|
F-2
|
|
Consolidated
Statements of Operations
|
F-3
|
|
Consolidated
Statements of Stockholders’ Equity
|
F-4
|
|
Consolidated
Statements of Cash Flows
|
F-5
|
|
Notes
to Financial Statements
|
F-7
|
Registered
Independent Auditors' Report
To
the
Board of Directors and Stockholders
GL
Energy
and Exploration, Inc. (now known as American Southwest Music Distribution,
Inc.)
Hollywood,
California
We
have
audited the accompanying consolidated balance sheets of GL Energy and
Exploration, Inc. (now known as American Southwest Music Distribution, Inc.),
a
development stage company, (hereon referred to as “the Company”) as of April 30,
2006 and 2005, and the related consolidated statements of operations, cash
flows, and changes in stockholders’ equity for the year ended April 30, 2006,
and for the period from inception (July 1, 2004) to April 30, 2005. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (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. An
audit includes examining, on a test basis, evidence supporting the amounts
and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of GL Energy and Exploration,
Inc. (now known as American Southwest Music Distribution, Inc.) as of April
30,
2006 and 2005, and the results of its operations and its cash flows for the
year
ended April 30, 2006, and for the period from inception (July 1, 2004) to April
30, 2005 in conformity with accounting principles generally accepted in the
United States.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, and is dependent upon debt and equity financing to provide
sufficient working capital to maintain continuity. These circumstances create
substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KBL,
LLP
Certified
Public Accountants
August
24, 2006
|
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION,
INC.)
(
A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
BALANCE SHEETS
|
|
| |
|
|
|
|
|
| |
|
April
30,
|
|
April
30,
|
|
| |
|
2006
|
|
2005
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Officer
loan receivable
|
|
$
|
-
|
|
$
|
15,142
|
|
|
Prepaid
expenses
|
|
|
|
|
|
10,746
|
|
|
Total
current assets
|
|
|
-
|
|
|
25,888
|
|
| |
|
|
|
|
|
|
|
|
Fixed
assets:
|
|
|
|
|
|
|
|
|
Furniture
and fixtures
|
|
|
42,488
|
|
|
40,671
|
|
|
Equipment
|
|
|
40,501
|
|
|
38,237
|
|
|
Leasehold
improvements
|
|
|
7,000
|
|
|
-
|
|
| |
|
|
89,989
|
|
|
78,908
|
|
|
Accumulated
depreciation
|
|
|
(28,620
|
)
|
|
(10,568
|
)
|
|
Total
fixed assets
|
|
|
61,369
|
|
|
68,340
|
|
| |
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
Music
catalog, net of accumulated amortization of $0
|
|
|
4,216,000
|
|
|
4,216,000
|
|
|
Security
deposits
|
|
|
3,370
|
|
|
|
|
|
Deferred
transaction costs
|
|
|
-
|
|
|
183,900
|
|
|
Total
other assets
|
|
|
4,219,370
|
|
|
4,399,900
|
|
| |
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
4,280,739
|
|
$
|
4,494,128
|
|
| |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses payable
|
|
$
|
118,539
|
|
$
|
44,628
|
|
|
Liability
for legal settlement by Company on behalf of entity formerly owned
by
significant Company stockholder
|
|
|
1,244,583
|
|
|
- |
|
|
Notes
and loans payable, stockholders and entities owned by them
|
|
|
247,711
|
|
|
49,009 |
|
|
Notes
and loans payable, others - unrelated third parties
|
|
|
689,869
|
|
|
223,000
|
|
|
TOTAL
LIABILITIES
|
|
|
2,300,702
|
|
|
316,637
|
|
| |
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Preferred
stock - $0.001 par value; 5,000,000 shares authorized, 23,980 issued
and
outstanding in 2006; $0 par value; 1,000 shares authorized, 0 shares
issued and outstanding in 2005
|
|
|
24
|
|
|
-
|
|
Common
stock - $0.001 par value; 100,000,000 shares authorized, 59,977,042
issued
and outstanding in 2006; $.001 par value; 9,000 shares authorized,
4,294
shares issued and outstanding in 2005
|
|
|
59,977
|
|
|
4
|
|
|
Additional
paid-in capital
|
|
|
5,385,777
|
|
|
4,294,733
|
|
|
Deficit
accumulated during the development stage
|
|
|
(3,465,741
|
)
|
|
(117,246
|
)
|
|
Total
stockholders' equity
|
|
|
1,980,037
|
|
|
4,177,491
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
4,280,739
|
|
$
|
4,494,128
|
|
| |
|
|
|
|
|
|
|
|
See
registered independent auditors' report
|
|
|
|
|
|
|
|
|
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION,
INC.)
(
A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
Inception
(July 1, 2004)
|
|
Inception
|
|
| |
|
Year
ended
|
|
through
|
|
through
|
|
| |
|
April
30,
|
|
April
30,
|
|
April
30,
|
|
| |
|
2006
|
|
2005
|
|
2006
|
|
| |
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Related
party consulting fees and services
|
|
$
|
348,975
|
|
$
|
-
|
|
$
|
348,975
|
|
|
General
and administrative
|
|
|
258,520
|
|
|
94,289
|
|
|
352,809
|
|
|
Depreciation
and amortization
|
|
|
35,968
|
|
|
10,568
|
|
|
46,536
|
|
|
Total
expenses
|
|
|
643,463
|
|
|
104,857
|
|
|
748,320
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(643,463
|
)
|
|
(104,857
|
)
|
|
(748,320
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Other
costs and expenses
|
|
|
|
|
|
|
|
|
|
|
Loss
incurred on legal settlement by Company on behalf of entity formerly
owned
by significant Company stockholder
|
|
|
(1,244,583
|
)
|
|
-
|
|
|
(1,244,583
|
)
|
|
Interest
expense
|
|
|
(66,228
|
)
|
|
(12,389
|
)
|
|
(78,617
|
)
|
|
Total
other costs and expenses
|
|
|
(1,310,811
|
)
|
|
(12,389
|
)
|
|
(1,323,200
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(1,954,274
|
)
|
$
|
(117,246
|
)
|
$
|
(2,071,520
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.25
|
)
|
$
|
(34.15
|
)
|
$
|
(0.48
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
7,891,121
|
|
|
3,433
|
|
|
4,306,887
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
See
registered independent auditors' report
|
|
|
|
|
|
|
|
|
|
|
|
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION,
INC.)
(
A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
Period
from July 1, 2004 (Inception) through April 30,
2006
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Additional
|
|
During
the
|
|
|
|
| |
|
Preferred
Stock
|
|
Common
Stock
|
|
Paid
in
|
|
Development
|
|
|
|
| |
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Stage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to Company's founders
in exchange for music catalog, furniture and fixtures, and equipment
|
|
|
-
|
|
$
|
-
|
|
|
4,292
|
|
$
|
4
|
|
$
|
4,292,733
|
|
$
|
-
|
|
$
|
4,292,737
|
|
|
Capital
contribution
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
2,000
|
|
|
|
|
|
2,000
|
|
Net
loss for period from inception (July
1, 2004) to April 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117,246
|
)
|
|
(117,246
|
)
|
|
Balance,
April 30, 2005
|
|
|
-
|
|
|
-
|
|
|
4,294
|
|
|
4
|
|
|
4,294,733
|
|
|
(117,246
|
)
|
|
4,177,491
|
|
Recapitalization
of common and preferred shares
of GL Energy and Exploration, Inc. as acquiree in merger with
Company
as
acquirer
|
|
|
23,980
|
|
|
24
|
|
|
59,972,748
|
|
|
59,973
|
|
|
1,091,044
|
|
|
(1,394,401
|
)
|
|
(243,360
|
)
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,954,094
|
)
|
|
(1,954,094
|
)
|
|
Balance,
April 30, 2006
|
|
|
23,980
|
|
$
|
24
|
|
|
59,977,042
|
|
$
|
59,977
|
|
$
|
5,385,777
|
|
$
|
(3,465,741
|
)
|
$
|
1,980,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
registered independent auditors' report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION,
INC.)
(
A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
Inception
|
|
| |
|
Year
ended
|
|
Year
ended
|
|
through
|
|
| |
|
April
30,
|
|
April
30,
|
|
April
30,
|
|
| |
|
2006
|
|
2005
|
|
2006
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,954,094
|
)
|
$
|
(117,246
|
)
|
$
|
(2,071,340
|
)
|
|
Adjustments
to reconcile net deficit to cash used
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
35,968
|
|
|
10,568
|
|
|
46,536
|
|
Loss
incurred on legal settlement by Company on behalf of entity formerly
owned by significant Company stockholder
|
|
|
1,244,583
|
|
|
-
|
|
|
1,244,583
|
|
|
Net
changes in:
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
(increase) in prepaid expenses
|
|
|
10,746
|
|
|
(10,746
|
)
|
|
-
|
|
|
Increase
in security deposits
|
|
|
(3,370
|
)
|
|
-
|
|
|
(3,370
|
)
|
|
Increase
in accounts and accrued expenses payable
|
|
|
48,393
|
|
|
44,628
|
|
|
93,021
|
|
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(617,774
|
)
|
|
(72,796
|
)
|
|
(690,570
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
(increase) in officer loan receivable
|
|
|
15,142
|
|
|
(15,142
|
)
|
|
|
|
|
Acquisition
of furniture and equipment
|
|
|
(11,081
|
)
|
|
(2,171
|
)
|
|
(13,252
|
)
|
NET
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
4,061
|
|
|
(17,313
|
)
|
|
(13,252
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
(increase) in deferred transaction costs
|
|
|
183,900
|
|
|
(183,900
|
)
|
|
-
|
|
Notes
and loans payable, stockholders and entities owned
by them
|
|
|
24,813
|
|
|
49,009
|
|
|
73,822
|
|
|
Notes
and loans payable, others - unrelated third parties
|
|
|
405,000
|
|
|
223,000
|
|
|
628,000
|
|
|
Common
shares issued for cash
|
|
|
-
|
|
|
2,000
|
|
|
2,000
|
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
613,713
|
|
|
90,109
|
|
|
703,822
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT
END OF PERIOD
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Supplementary
disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Interest
expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Non-cash
operating, investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets (liabilities) acquired by Company as part of
|
|
|
|
|
|
|
|
|
|
|
|
Merger
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Assets
acquired:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Total
assets acquired
|
|
|
0
|
|
|
-
|
|
|
0
|
|
|
Liabilities
acquired:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
and accrued expenses payable
|
|
|
3,306
|
|
|
-
|
|
|
3,306
|
|
|
Loans
payable, shareholders
|
|
|
240,053
|
|
|
-
|
|
|
150,753
|
|
|
Total
liabilities acquired
|
|
|
243,359
|
|
|
-
|
|
|
154,059
|
|
|
Net
liabilities assumed
|
|
|
(243,359
|
)
|
|
-
|
|
|
(154,059
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Change
in Company's stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock issued at par value
|
|
|
24
|
|
|
-
|
|
|
24
|
|
|
Common
stock issued at par value
|
|
|
59,973
|
|
|
-
|
|
|
59,973
|
|
Increase
in additional paid-in capital resulting from difference in
value of shares exchanged between GL Energy and American
Southwest Music Distribution, Inc.
|
|
|
1,091,044
|
|
|
-
|
|
|
1,091,044
|
|
Increase
in accumulated deficit resulting from difference in
value of shares exchanged between GL Energy and American
Southwest Music Distribution, Inc.
|
|
|
(1,394,400
|
)
|
|
-
|
|
|
(1,394,400
|
)
|
| |
|
|
(243,359
|
)
|
|
-
|
|
|
(243,359
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Common
shares issued for music catalog
|
|
|
-
|
|
|
4,216,000
|
|
|
4,216,000
|
|
|
Common
shares issued for furniture, fixtures, and equipment
|
|
|
-
|
|
|
76,737
|
|
|
76,737
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
See
registered independent auditors' report
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
GL
ENERGY AND EXPLORATION, INC.
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION, INC.)
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE
1 - NATURE OF BUSINESS / ORGANIZATION
Nature
of Business
GL
Energy
and Exploration, Inc. (herein referred to as “GL Energy” and the “Company”) was
a development stage company with no business operations through March 2006.
GL
Energy was incorporated in Delaware on October 7, 1998 under the name LRS Group
Incorporated. On October 15, 1998, the name was changed to LRS Capital, Inc.
On
October 10, 2001, the company changed its name to GL Energy and Exploration,
Inc. GL Energy was traded on the OTC Bulletin board under the symbol “GEEX.OB.”
Merger
with American Southwest Music Distribution, Inc.
American
Southwest Music Distribution, Inc. (“American Southwest”) was incorporated in
the State of Texas in May of 2004. American Southwest remained inactive until
it
commenced development stage activity in July of 2004.
American
Southwest was created to generate revenue through music licensing, recording,
and distribution. American Southwest acquired the rights to several music master
catalogs for the purpose of generating revenues from the sale of records derived
from these catalogs. The expansion and exploitation of its music catalog is
an
integral part of American Southwest’s business and growth strategy. American
Southwest owns a music catalog with 25 album masters, and intends to add to
the
music catalog through strategic and complementary acquisitions, licensing
agreements, and by executing recording agreements with artists, production
companies, and other record labels with new recordings.
On
March
13, 2006, American Southwest and GL Energy entered into a Securities Purchase
Agreement and Plan of Reorganization. As part of the agreement GL Energy issued
22,500,000 shares of their $.001 par value common stock and 23,980 shares of
their $.001 par value Series A convertible preferred stock to David Michery
and
Kent Puckett, the sole shareholders of American Southwest, in exchange for
all
of the issued and outstanding $.001 par value common shares of American
Southwest, totaling 4,294 shares.
Since
GL
Energy had no assets of substance prior to the transaction, for accounting
purposes the acquisition has been treated as a merger of both companies and
recapitalization of the shares of American Southwest, with GL Energy as the
acquirer and American Southwest as the surviving entity (reverse acquisition).
The accounting rules for reverse acquisitions require that, beginning with
the
date of the acquisition (March 13, 2006), the balance sheet include the assets
and liabilities of American Southwest and the equity accounts be recapitalized
to reflect the net equity of American Southwest. Accordingly, the historical
operating results are now the operating results of American Southwest. The
historical development stage entity financial statements prior to March 13,
2006
are those of American Southwest.
On
August
18, 2006 the State of Delaware approved the Company changing its name from
“GL
Energy and Exploration, Inc.” to “American Southwest Music Distribution,
Inc.” Effective
August 24, 2006 the Company is now traded
on
the OTC Bulletin board under the symbol “ASWD.OB.”
See
registered independent auditors’ report.
GL
ENERGY AND EXPLORATION, INC.
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION, INC.)
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE
2 - SUMMARY OF ACCOUNTING POLICIES
Financial
Statement Presentation
The
financial statements presented herein reflect the consolidated financial
statements of GL Energy and American Southwest after giving effect to the
reverse merger of the two companies on a historical basis.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current year
presentation.
Use
of Estimates
In
preparing financial statements, management makes estimates and assumptions
that
affect the reported amounts of assets and liabilities in the balance sheet
and
revenue and expenses in the statement of expenses. Actual results could differ
from those estimates.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the merged entities.
All significant intercompany transactions and balances have been eliminated
in
consolidation.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to
be
cash equivalents.
Revenue
Recognition
The
Company recognizes revenue when persuasive evidence of an arrangement
exists,
services
have been rendered, the sales price is fixed or determinable, and collectability
is reasonably assured.
Music
Catalog
Cost
Basis
The
cost
basis in the music catalog is recorded at cost. Amortization will be computed
using the straight-line method over periods ranging from 1 to 5 years.
Amortization will be recorded once revenues commence.
Risk
of Obsolescence
A
number
of the Music Catalogues date from contracts entered into from 1997 - 1998
that
provide for a limited number of album or single release recordings and
options
for extension thereon. Accordingly, there is a risk that the Music Catalogues
owned by the Company are subject to competition from later releases by
the
artists through other entities besides the Company, as well as the risk
of the
passage of time on the salability on the masters owned by the
Company.
Fixed
assets
Fixed
assets are stated at cost. Depreciation is computed using the straight-line
method over the following estimated useful lives:
| |
Estimated
|
|
Description
|
useful
life
|
| |
|
| |
|
|
Furniture
and fixtures
|
5
years
|
|
Equipment
|
5
years
|
|
Leasehold
improvements
|
2
years
|
See
registered independent auditors’ report.
GL
ENERGY AND EXPLORATION, INC.
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION, INC.)
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS
NOTE
2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Impairment
of Long-Lived and Other Intangible Assets
The
Company reviews the carrying value of both its long-lived and other intangible
assets annually, or whenever events or changes in circumstances indicate that
the historical cost-carrying value of an asset may no longer be appropriate.
The
Company assesses recoverability of the carrying value of the asset by estimating
the future net cash flows expected to result from the asset, including eventual
disposition. If the future net cash flows are less than the carrying value
of
the asset, an impairment loss is recorded equal to the difference between the
asset’s carrying value and fair value. At April 30, 2006 the Company’s
evaluation determined that no provision for impairment of either its other
intangible assets (its “Music Library”) or its fixed assets was required at that
date.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities based on differences
between the financial reporting and tax bases of assets and liabilities using
the enacted tax rates and laws that are expected to be in effect when the
differences are expected to be recovered. The Company provides a valuation
allowance for deferred tax assets for which it does not consider realization
of
such assets to be more likely than not.
Basic
and Diluted Loss per Share
The
Company complies with the requirements of the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128, “Earning per
Share” (“SFAS No. 128”). SFAS No. 128 specifies the compilation, presentation
and disclosure requirements for earnings per share for entities with publicly
held common stock or potentially common stock. Net loss per common share, basic
and diluted, is determined by dividing the net loss by the weighted average
number of common shares outstanding.
Net
loss
per common share-diluted does not include potential convertible preferred shares
(See Note 1).
Consideration
of Other Comprehensive Income Items
SFAS
130
Reporting Comprehensive Income requires companies to present comprehensive
income (consisting primarily of net income plus other direct equity changes
and
credits) and its components as part of the basic financial statements. The
Company's financial statements do not contain any changes in equity that are
required to be reported separately in comprehensive income.
Recent
Accounting Pronouncements
In
December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which
establishes standards for transactions in which an entity exchanges its equity
instruments for goods or services. This standard requires a public entity to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant date fair value of the award. This
eliminates the exception to account for such awards using the intrinsic method
previously allowable under APB Opinion No. 25. SFAS No. 123 (R) became effective
for the interim period beginning July 1, 2005. The Company does not anticipate
that the adoption of SFAS No. 123(R) will have a significant impact on the
Company’s overall results of operations or financial position.
See
registered independent auditors’ report.
GL
ENERGY AND EXPLORATION, INC.
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION, INC.)
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Recent
Accounting Pronouncements (continued)
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets,
an amendment of APB Opinion No. 20, Accounting for Non-monetary Transactions.”
The amendments made by SFAS No. 153 are based on the principle that exchanges
of
non-monetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
non-monetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of non-monetary assets that do not have
commercial substance. A non-monetary exchange has commercial substance
if the future cash flows of the entity are expected to change significantly
as a
result of the exchange. This statement shall be applied prospectively and is
effective for non-monetary asset exchanges occurring
in fiscal periods beginning after June 15, 2005. Earlier application is
permitted for non-monetary asset exchanges occurring in fiscal periods beginning
after the date of issuance. The Company does not anticipate that the adoption
of
SFAS No. 153 will have a significant impact on the Company’s overall results of
operations or financial position.
In
May
2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections,” that
applies to all voluntary changes in accounting principle. This Statement
requires retrospective application to prior periods’ financial statements of
changes in accounting principle, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change. When it
is
impracticable to determine the period-specific effects of an accounting change
on one or more individual prior periods presented, this Statement requires
that
the new accounting principle be applied to the balances of assets and
liabilities as of the beginning of the earliest period for which retrospective
application is practicable and that a corresponding adjustment be made to the
opening balance of retained earnings (or other appropriate components of equity
or net assets in the statement of financial position) for that period rather
than being reported in an income statement. When it is impracticable to
determine the cumulative effect of applying a change in accounting principle
to
all prior periods, this Statement requires that the new accounting principle
be
applied as if it were adopted prospectively from the earliest date practicable.
SFAS 154 will be effective for the Company for fiscal year ended December 31,
2007. The Company does not anticipate that the adoption of SFAS No. 154 will
have an impact on the Company’s overall results of operations or financial
position.
NOTE
3 - GOING CONCERN
As
shown
in the accompanying consolidated financial statements, the Company incurred
recurring net losses totaling $2,071,520 as a development stage entity for
the
period from inception (July 1, 2004) through April 30, 2006. The Company has
an
accumulated deficit of $3,465,741 and a deficiency in working capital of
$2,300,702 as of April 30, 2006. These conditions raise substantial doubt as
to
the Company’s ability to continue as a going concern. Management is trying to
raise additional capital through sales of stock or loan financing arrangements.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
See
registered independent auditors’ report.
GL
ENERGY AND EXPLORATION, INC.
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION, INC.)
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 - INCOME TAXES
The
Company incurred no federal income tax expense for the years ended April 30,
2006 and 2005. The Company has net operating loss carryforwards available of
approximately $2,071,000 to offset future net income. Due to uncertainty
surrounding the realization of the favorable tax attributes in future tax
returns, the Company has placed a full valuation allowance against its net
deferred tax asset. At such time as it is determined that it is more likely
than
not that the deferred tax asset is realizable, the valuation allowance will
be
reduced. Furthermore, the net operating loss carry forward may be subject to
further limitation pursuant to Section 382 of the Internal Revenue Code.
The
cumulative net operating loss carryforward will expire in accordance with the
following schedule:
|
April
30, 2025
|
|
$
|
117,246
|
|
|
2026
|
|
|
1,954,274
|
|
| |
|
$
|
2,071,520
|
|
| |
|
|
|
|
|
Deferred
income taxes consist of the following:
|
|
|
|
|
| |
|
|
|
|
|
Deferred
tax assets
|
|
$
|
704,256
|
|
|
Less:
valuation allowance
|
|
|
704,256
|
|
|
|
|
$ |
--
|
|
See
registered independent auditors’ report.
GL
ENERGY AND EXPLORA TION, INC.
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION, INC.)
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 - NOTES AND LOANS PAYABLE
Details
regarding notes and loans payable follow below:
|
Donald
Byers, former President
and Chairman of the Board of pre-merger GL Energy and
Exploration, Inc. and a holder of approximately 16,190,000 of the
post-merger entity’s
$.001 par value common shares:
|
|
|
|
| |
|
|
|
|
Unsecured
$49,009 note dated April 25, 2005 held by Byers and Associates,
an entity
owned
by Donald Byers. The note was due and payable on February 28, 2006.
The
note accrued interest at a rate of 10% per annum, in the event
of default,
on the entire
unpaid principal balance. The note included an amount equal to
$10,916,
which represents
prior interest expense incurred added to the note balance. The
principal
balance
plus accrued interest that was due on February 28, 2006 had not
been paid
and the
note was in default. It continues to accrue interest and the holder
has
indicated the intention
not to demand payment of the amount due for a period of at least
one year
from the
April 30, 2006 balance sheet date.
|
|
$
|
49,009
|
|
|
|
|
|
|
|
|
Unsecured
$16,592 note dated May 26, 2005 held by Byers and Associates, an
entity
owned
by Donald Byers. The note was due and payable on February 28, 2006.
The
note accrued
interest at a rate of 10% per annum. The principal balance plus
accrued
interest that
was due on February 28, 2006 had not been paid and the note was
in
default. It continues
to accrue interest and the holder has indicated the intention not
to
demand payment
of the amount due for a period of at least one year from the April
30,
2006 balance
sheet date.
|
|
|
16,592
|
|
| |
|
|
|
|
|
Unsecured
$101,180 loans payable to Don Byers. The loans are due on demand
and accrue
interest at 10% per annum. They continues to accrue interest and
the
holder has indicated
the intention not to demand payment of the amount due for a period
of at
least one
year from the April 30, 2006 balance sheet date.
|
|
|
101,180
|
|
|
|
|
|
|
|
|
Unsecured
$24,409 loan payable to Wellstar International, an entity owned
by Don
Byers.
The loan is due on demand and accrues interest at 10% per annum.
It continues
to accrue interest and the holder has indicated the intention not
to
demand payment
of the amount due for a period of at least one year from the April
30,
2006 balance
sheet date.
|
|
|
24,409
|
|
|
|
|
|
|
|
|
Unsecured
$10,800 loan payable to Northern Business, entity owned by Don
Byers.
The
loan is due on demand and accrues interest at 10% per annum. It
continues
to accrue
interest and the holder has indicated the intention not to demand
payment
of the amount
due for a period of at least one year from the April 30, 2006 balance
sheet date.
|
|
|
10,800
|
|
| |
|
|
|
|
| |
|
|
201,990
|
|
See
registered independent auditors’ report.
GL
ENERGY AND EXPLORATION, INC.
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION, INC.)
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE
5 - NOTES AND LOANS PAYABLE (CONTINUED)
|
Other
Stockholders
|
|
|
|
| |
|
|
|
|
Unsecured
$37,500 loan payable to Chris Lotito, a minority shareholder. The
loan is
due on demand and accrue interest at 10% per annum. It continues
to accrue
interest and the holder has indicated the intention not to demand
payment
of the amount due for a period of at least one year from the April
30,
2006 balance sheet date.
|
|
$
|
37,500
|
|
| |
|
|
|
|
|
Unsecured
$8,221 loan payable to David Michery, the Company’s Chief Executive
Officer. The loan is non-interest bearing and due on demand. It
continues
to accrue interest and the holder has indicated the intention not
to
demand payment of the amount due for a period of at least one year
from
the April 30, 2006 balance sheet date.
|
|
|
8,221
|
|
| |
|
|
|
|
|
Notes
and loans payable, stockholders and the entities owned by
them
|
|
|
247,711
|
|
| |
|
|
|
|
|
Other
unrelated third parties
|
|
|
|
|
| |
|
|
|
|
|
$150,000
unrelated third party note dated March 30, 2006 held by Generation
Leasing, LLC, net of unamortized deferred loan origination fees
of
$13,333. The note was due and payable on December 30, 2006. The
note
called for a monthly payment of $1,875, which represented interest
only
calculated on an annual interest rate of 15%. All assets of the
Company,
including intangibles, patents, and purchase contracts, were to
be
security for repayment.
|
|
|
136,667
|
|
| |
|
|
|
|
|
$150,000
unrelated third party note dated November 30, 2005 held by Generation
Leasing,LLC, net of unamortized deferred loan origination fees
of $8,750.
The note was due and payable on November 30, 2006. The note called
for a
monthly payment of $1,875, which represented interest only calculated
on
an annual interest rate of 15%. All assets of the Company, including
intangibles, patents, and purchase contracts, were to be security
for
repayment.
|
|
|
141,250
|
|
| |
|
|
|
|
|
$150,000
unrelated third party note dated August 26, 2005 held by Generation
Leasing,LLC, net of unamortized deferred loan origination fees
of $5,000.
The note was due and payable on August 31, 2006. The note called
for a
monthly payment of $1,875, which represented interest only calculated
on
an annual interest rate of 15%. All assets of the Company, including
intangibles, patents, and purchase contracts, were to be security
for
repayment.
|
|
|
145,000
|
|
| |
|
|
|
|
|
$150,000
unrelated third party note dated September 23, 2004 held by Pegasus
Capital, Inc.The note accrued interest at a rate of 6.5% per annum.
The
entire outstanding unpaid principal balance plus accrued interest
was due
and payable on November 21, 2004 in either cash or common stock
of the
Company equal to the fair market value of the unpaid obligation.
In the
event of default, the entire unpaid principal balance and all accrued
interest was to become immediately due and payable, while interest
was to
accrue at a rate of 10% starting from the date of the note. The
principal
balance plus accrued interest that was due on November 21, 2004
was not
paid and the note was in default. It continues to accrue interest
and the
holder has indicated the intention not to demand payment of the
amount due
for a period of at least one year from the April 30, 2006 balance
sheet
date.
|
|
|
150,000
|
|
See
registered independent auditors’ report.
GL
ENERGY AND EXPLORATION, INC.
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION, INC.)
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 - NOTES AND LOANS PAYABLE (CONTINUED)
|
Other
unrelated third parties (continued)
|
|
|
|
| |
|
|
|
|
$38,000
unrelated third party note dated April 25, 2005 held by Pegasus
Capital,
Inc. The note was due and payable on March 1, 2006, and under the
note
provision did not accrue interest. In the event of default, interest
was
to accrue at a rate 10% per annum. The entire outstanding unpaid
principal
balance plus accrued interest was due and payable in either cash
or common
stock of the Company equal to the fair market value of the unpaid
obligation. The principal balance plus accrued interest that was
due on
March 1, 2006 had not been paid and the note was in default. It
continues
to accrue interest and the holder has indicated the intention not
to
demand payment of the amount due for a period of at least one year
from
the April 30, 2006 balance sheet date.
|
|
$
|
38,000
|
|
| |
|
|
|
|
|
$25,000
unrelated third party note dated September 23, 2004 held by Pegasus
Capital, Inc.The note accrues interest at a rate of 6.5% per annum.
The
entire outstanding unpaid principal balance plus accrued interest
was due
and payable on November 21, 2004 in either cash or common stock
of the
Company equal to the fair market value of the unpaid obligation.
In the
event of default, the entire unpaid principal balance and all accrued
interest was to become immediately due and payable, while interest
was to
accrue at a rate of 10% starting from the date of the note. The
principal
balance plus accrued interest that was due on November 21, 2004
had not
been paid and the note was in default. It continues to accrue interest
and
the holder has indicated the intention not to demand payment of
the amount
due for a period of at least one year from the April 30, 2006 balance
sheet date.
|
|
|
25,000
|
|
| |
|
|
|
|
|
$10,000
unrelated third party note dated August 31, 2004 held by Pegasus
Capital,
Inc.The note accrued interest at a rate of 6.5% per annum. The
entire
outstanding unpaid principal balance plus accrued interest was
due and
payable on August 31, 2005. There was to be no pre-payment of any
kind
without the written consent of both parties. In the event of default
the
entire unpaid principal balance and all accrued interest was to
become
immediately due and payable, while interest was to accrue at a
rate of 25%
starting from the date of the note. The principal balance plus
accrued
interest that was due on August 31, 2005 had not been paid and
the note
was in default. It continues to accrue interest and the holder
has
indicated the intention not to demand payment of the amount due
for a
period of at least one year from the April 30, 2006 balance sheet
date.
|
|
|
10,000
|
|
| |
|
|
|
|
|
Unsecured
$43,952 loan payable to Three Sisters Investment Corp. The loan
is due on
demand and accrues interest at 10% per annum. It continues to accrue
interest and the holder has indicated the intention not to demand
payment
of the amount due for a period of at least one year from the April
30,
2006 balance sheet date.
|
|
|
43,952
|
|
| |
|
|
|
|
|
Notes
and loans payable, others - unrelated third parties
|
|
|
689,869
|
|
| |
|
$
|
937,580
|
|
Accounts
payable and accrued expenses payable at April 30, 2006 includes $9,390 of
accrued interest payable to Company stockholders and entities owned by them.
Prepaid expenses at April 30, 2005 include $10,746 of prepaid interest paid
by
the Company in advance to a Company stockholder, Donald Byers. Accounts payable
and accrued expenses payable at April 30, 2006 and 2005, includes $51,212 and
$12,219 of accrued interest payable to unrelated parties, respectively.
See
registered independent auditors’ report.
GL
ENERGY AND EXPLORATION, INC.
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION, INC.)
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 - NOTES AND LOANS PAYABLE (CONTINUED)
Interest
expense incurred by the Company to Company stockholders and entities owned
by
them was $14,920 and $170 for years ended April 30, 2006 and 2005, respectively,
and $15,090 for the period from inception of the development stage (July 1,
2004) to April 30, 2006. Interest expense incurred by the Company to unrelated
third parties was $51,308 and $12,219 for year ended April 30, 2006 and for
the
period from inception (July 1, 2004) through April 30, 2005, respectively,
and
$63,527 for the period from inception of the development stage (July 1, 2004)
to
April 30, 2006.
See
Note
11 concerning additional borrowing and promissory notes made subsequent to
the
balance sheet date.
NOTE
6 - OPERATING FACILITIES
The
Company maintained offices in Santa Fe Springs, California under a sublease
agreement dated August 1, 2004, whereby it was required to make monthly payments
of $3,900 to a third party landlord under a lease which was to expire in August
31, 2006, on behalf of American Music Corporation, Inc. (“AMC”), an entity
formerly owned by David Michery. The landlord agreed to terminate the lease
in
April 2005 and the lease was settled by the Company for a final payment of
$12,592, which amount was charged to rent expense by the Company.
The
Company entered into a new lease for office space located in West Hollywood,
California, which commenced November 2005 and will expire on October 31, 2007.
The lease agreement requires monthly payments of $1,685. Future minimum lease
payments are as follows:
|
April
30, 2007
|
|
$
|
20,220
|
|
|
2008
|
|
|
10,110
|
|
Rent
expense incurred by the Company was $10,106 and $30,352 for year ended April
30,
2006 and for the period from inception (July 1, 2004) through April 30, 2005,
respectively, and $40,458 for the period from inception of the development
stage
(July 1, 2004) to April 30, 2006.
NOTE
7 - RELATED PARTY TRANSACTIONS
|
(A)
|
CONTRIBUTED
INTANGIBLE ASSETS AND EQUITY CAPITALIZATION OF AMERICAN SOUTHWEST
PRIOR TO
THE MARCH 13, 2006 MERGER
TRANSACTION
|
During
2004, American Southwest issued 470 shares and 3,746 shares of its $.001 par
value common stock to Out of Control Records, Inc. and Celestial Breakaway
Records (“Celestial”) in exchange for Music Catalogs valued at the actual cost
paid by those entities to obtain the underlying contracts and “Masters” in the
Catalogs of $470,000 and $3,746,000, respectively. Out of Control Records,
Inc.
and Celestial are owned and controlled by David Michery. In addition, the
American Southwest issued 76 shares of its $.001 par value common stock to
David
Michery in exchange for furniture and fixtures, and equipment valued at $76,737.
David Michery also paid $2,000 for 2 shares of $.001 par value common stock.
A
settlement by the Company with Vestcom, Ltd involving assets transferred to
Celestial that included the Music Catalogues received by the Company in exchange
for its shares in the preceding paragraph is described in detail in (B) below.
See
registered independent auditors’ report.
GL
ENERGY AND EXPLORATION, INC.
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION, INC.)
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 - RELATED PARTY TRANSACTIONS (CONTINUED)
| B) |
WRITE-OFF
OF DEFERRED TRANSACTION COSTS IN CONNECTION WITH TERMINATION OF
UNSUCCESSFUL PRE-EXISTING MERGER AGREEMENT BETWEEN GL ENERGY AND
AMERICAN
SOUTHWEST
|
On
March
10, 2006, GL Energy’s board of directors approved the termination of an
Agreement and Plan of Reorganization dated as of October 13, 2004 (the “Merger
Agreement”). Pursuant to the Merger Agreement, all of American Southwest’s
outstanding shares were to be converted into shares of GL Energy’s capital
stock, with American Southwest being the surviving corporation. Although the
Merger Agreement was executed, certain closing conditions were never satisfied,
including the successful filing of a certificate of merger with the Delaware
Secretary of State and as such the merger was never consummated. The Board
of
Directors of the Company deemed it in the best interest of GL Energy and its
stockholders to terminate the Merger Agreement, and to enter into the
transaction described below.
During
the year ended April 30, 2005 American Southwest incurred $183,900 of deferred
transaction costs in connection with the transaction. Below is a summary of
the
$183,900 of deferred transaction costs:
| |
Facilitation
fee incurred to Donald Byers
|
|
$
|
150,000
|
|
| |
Legal
and other professional fees
|
|
|
26,780
|
|
| |
Transfer
agent fees
|
|
|
5,878
|
|
| |
Other
|
|
|
1,242
|
|
| |
|
|
$
|
183,900
|
|
As
a
result of the March 10, 2006 GL Energy Board resolution, these costs were
written off to expense during the year ended April 30, 2006, of which $150,000
represents and is classified as “related party consulting fees and services” in
the consolidated financial statements. The other items are included in “general
and administrative expenses” in those statements..
| (C) |
RELATED
PARTY CONSULTING FEES AND SERVICES
|
The
Company has also incurred related party consulting fees and services of $32,000
during the year ended April 30, 2006 to Robert Guillerman, former President
of
American Southwest.
The
Company has also incurred related party consulting fees and services of $99,295
during the year ended April 30, 2006 to David Michery, CEO of American
Southwest.
The
Company has also incurred related party consulting fees and services of $42,500
during the year ended April 30, 2006 to Marcus Sanders, former COO of American
Southwest.
The
Company has also incurred related party consulting fees and services of $25,000
during the year ended April 30, 2006 to Kent Puckett, CFO of American
Southwest.
Accordingly,
related party consulting fees and services totaled $348,975 and $0 during the
year ended April 30, 2006 and the period from inception (July 1, 2004) through
April 30, 2005, respectively, and $348,975 for the period from inception of
the
development stage (July 1, 2004) to April 30, 2006, including the $150,000
incurred to Donald Byers described in (B) above.
See
registered independent auditors’ report.
GL
ENERGY AND EXPLORATION, INC.
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION, INC.)
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 - RELATED PARTY TRANSACTIONS (CONTINUED)
|
(D)
|
LOSS
INCURRED ON LEGAL SETTLEMENT ON BEHALF OF ENTITY FORMERLY OWNED BY
SIGNIFICANT COMPANY
STOCKHOLDER
|
In
May
2005, Vestcom, Ltd. filed suit against American Southwest and its officers.
The
lawsuit arose from a loan made by Vestcom on or about July 3, 2003 in the amount
of $500,000 to American Music Corporation, Inc. (“AMC”). Vestcom alleged that
AMC fraudulently transferred its assets which principally included the Music
Catalogue (“Subject Assets”) to Celestial, which was owned and controlled by the
Company’s Chief Executive Officer, David Michery. American Southwest contended
that none of its assets previously belonged to AMC.
Vestcom,
Ltd. was seeking not less than $1.2 million from all the defendants, including
American Southwest, to be awarded ownership of all subject assets, punitive
damages, and other remuneration.
On
July
12, 2006 American Southwest reached a settlement with Vestcom whereby American
Southwest agreed to pay Vestcom as follow: $500,000, which represents the
principal amount of the above loan made by Vestcom on or about July 3, 2003,
plus interest thereon at the rate of 9.5% from July 3, 2003 through to the
closing date of the settlement. The closing date of the settlement is expected
to be no later than September 15, 2006. In addition, American Southwest agreed
to pay to Vestcom $360,000 as a supplemental damages payment and $250,000 for
legal fees and expenses incurred by Vestcom. Assuming that September 15, 2006
is
the closing date, the total amount will be $1,244,583 which includes accrued
interest to the date of the settlement, which has been accrued by the Company
as
of April 30, 2006, with a commensurate loss reflected in the Company’s
consolidated statement of operations for the year then ended since the Company
is absorbing the loss on behalf of the entity formerly owned by David
Michery.
Assuming
the settlement closing takes place as planned, American Southwest will issue
a
promissory note to Vestcom which will bear interest at 9.5%. The note will
be
payable as follows: $150,000 payable at the closing date, which will be applied
to the final payments of interest on the note, $250,000 payable on or before
January 1, 2007, and the balance of $1,102,772 payable in 8 equal installments
paid quarterly in the amount of $137,847.
The
note
will also be convertible in whole or in part at any time into American
Southwest’s common stock at 90% of the average bid price for the 5 days
immediately prior to conversion. American Southwest is also to secure its
obligation with a lien on all of its assets, which apparently will be junior
in
position to the obligation to Pegasus described in Note 5 above. David Michery
has agreed to personally guarantee this settlement should American Southwest
breach any of its obligations.
The
company’s ability to exploit the Music Catalogue received from Celestial is
dependent on the Settlement closing taking place as planned and the Company’s
meeting the scheduled payments as due, in particular the $250,000 due in January
1, 2007.
| (E) |
OTHER
RELATED PARTY AMOUNTS
|
At
April
30, 2005, the Company had a loans receivable of $15,142 from David Michery,
the
Company’s Chief Executive Officer. The loan was non-interest bearing and due on
demand.
See
registered independent auditors’ report.
GL
ENERGY AND EXPLORATION, INC.
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION, INC.)
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 - STOCK INCENTIVE PLAN
In
2004,
the Board of Directors of GL Energy adopted a 2004 Stock Incentive Plan (‘the
plan’) under which 35,000,000 shares of GL Energy’s common stock have been
reserved for issuance to employees, officers, directors and consultants whose
past, present and/or potential contributions to GL Energy have been, or will
be
important to the success of GL Energy.
Options
granted under the Plan may be either incentive stock options or nonqualified
stock options. Incentive stock options (“ISO”) may be granted only to GL Energy
employees (including officers and directors who are also employees).
Nonqualified stock options (“NSO”) may be granted to GL Energy employees and
consultants. Options under the Plan may be granted for periods of up to ten
years and at an exercise price equal to the estimated fair value of the shares
on the date of grant as determined by the Board of Directors, provided, however,
that the exercise price of an ISO and NSO granted to a 10% shareholder shall
not
be less than 110% of the estimated fair value of the shares on the date of
grant. To date, options granted generally are exercisable immediately as of
the
effective date of the option agreement.
During
2004, 3,000,000 one year options were granted to two consultants. The exercise
price was $.01 and all 3,000,000 vested immediately. The options were exercised
prior to the effective date of the merger and reflected in the pre-merged
entities financial statements. No options were granted during 2006 or 2005
and
there are no options outstanding at April 30, 2006.
NOTE
9 - EQUITY PERFORMANCE PLAN
In
February 2004, the Board of Directors of GL Energy adopted a 2004 Equity
Performance Plan under which 10,000,000 shares of GL Energy’s common stock have
been reserved for issuance to employees, officers, directors and consultants
whose past, present and/or potential contributions to GL Energy have been,
or
will be important to the success of GL Energy. As of April 30, 2006, no common
shares have been issued under this plan.
NOTE
10 - AGREEMENTS WITH UNIVERSAL RECORDS
On
January 25, 2006, American Southwest entered into an exclusive manufacturing
and
distribution agreement (“Domestic Distribution Agreement”) with Universal
Records, a division of UMG Recordings, Inc. (“Universal”). Pursuant to this
agreement, Universal will sell American Southwest’s music products, including
compact discs, cassettes, and digital versatile discs to consumers mainly
through retailers and wholesalers in the United States and Canada. During the
term of the Domestic Distribution Agreement, Universal will be American
Southwest’s exclusive manufacturer and distributor, through every distribution
channel of recorded music in the United States and Canada. Universal will also
exclusively handle all of American Southwest’s on-line sales during the term of
the Domestic Distribution Agreement.
In
exchange for its distribution services, through normal retail channels,
Universal is entitled to a distribution fee equal to twenty five percent (25%)
of American Southwest’s net billings. After the end of the calendar month, where
American Southwest’s cumulative net billings exceed $8,000,000, Universal’s
distribution fee will be twenty two and one half percent (22.5%) of American
Southwest’s net billings. After the end of the calendar month, in which American
Southwest’s cumulative net billings exceeds $15,000,000, Universal’s
distribution fee will be twenty percent (20%) of American Southwest’s net
billings. According to the Domestic Distribution Agreement, net billings means
the cumulative wholesale price for sale of American Southwest’s products, less
actual returns and credits to customers for such returns for the applicable
accounting period.
See
registered independent auditors’ report.
GL
ENERGY AND EXPLORATION, INC.
(NOW
KNOWN AS AMERICAN SOUTHWEST MUSIC DISTRIBUTION, INC.)
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 - AGREEMENTS WITH UNIVERSAL RECORDS (CONTINUED)
In
consideration for Universal’s services related to sales of American Southwest’s
products in the United States and Canada, through channels other than normal
retail channels, Universal shall be entitled to a licensing fee equal to fifteen
percent (15%) of American Southwest’s net licensing billings. According to the
Domestic Distribution Agreement, net licensing billings mean royalties or flat
payments received by Universal, on American Southwest’s behalf, attributed to
sales, other than sales through normal retail channels.
The
Domestic Distribution Agreement became effective January 25, 2006 and will
continue until January 25, 2008. Universal has the right to extend the term
of
the Domestic Distribution Agreement for an additional two years, until January
25, 2010.
On
January 25, 2006, American Southwest entered into another agreement with
Universal “(Upstream Agreement”) pursuant to which American Southwest granted
Universal the right to enter into exclusive recording services contracts with
recording artists that have recording contracts with American Southwest, and
whose performances are featured on albums distributed by Universal, on American
Southwest’s behalf, that achieve sales in the United States equal to or in
excess of 25,000 units.
On
January 25, 2006, American Southwest entered into the Exclusive Foreign License
Agreement (“Foreign License Agreement”) with Universal. The term of the Foreign
License Agreement runs simultaneously with the term of the Domestic Distribution
Agreement. During the term of the Foreign License Agreement, Universal has
the
exclusive right to sell, license or otherwise exploit records and videos that
its distributes under the Domestic Distribution Agreement through the rest
of
the universe, excluding the United States.
NOTE
11- SUBSEQUENT EVENTS
On
May
5th,
2006,
the
Company received the proceeds of an additional $150,000 borrowing from
Generation Leasing, Inc. and the Company issued its promissory note that was
due
and payable on December 30, 2006. The note called for a monthly payment of
$1,875, which represents interest only calculated on an annual interest rate
of
15%. All assets of the Company, including intangibles, patents, and purchase
contracts, were pledged as security for repayment.
On
August
4, 2006 the Company received the proceeds of an additional $150,000 borrowing
from Generation Leasing, Inc. This August 4, 2006 note, the May 5, 2006 $150,000
note described above, plus the three other $150,000 Generation Leasing,
Inc. notes
described in Note 5 were cancelled by the holder and consolidated into one
$750,000 note pursuant to the Company’s agreement to do so. The terms of this
new note calls for monthly payments of interest only of $9,375, which is
calculated at a rate of 15%. The note is due December 30, 2006. All assets
of
the Company, including intangibles, patents, and purchase contracts, remain
pledged as security for repayment of the new note.
Effective
August 24, 2006 the Company is now traded on the OTC Bulletin board under the
symbol “ASWD.OB.”
See
registered independent auditors’ report.
Item
8. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure.
On
August
11, 2006, we dismissed Malone & Bailey PC as our independent accountants,
and we engaged KBL, LLP as our independent accountants.
The
reports of Malone & Bailey PC on the financial statements of GL Energy &
Exploration, Inc. for the fiscal years ended December 31, 2005 and 2004 did
not
contain an adverse opinion or a disclaimer of opinion, nor were such reports
qualified or modified as to uncertainty, audit scope or accounting principles,
except that the accountant’s reports of Malone & Bailey PC on our financial
statements for the fiscal years ended December 31, 2005 and 2004 stated that
we
had recurring losses from operation and a working capital deficiency which
raised raised substantial doubt about our ability to continue as a going
concern.
The
decision
to change accountants from Malone & Bailey PC to KBL, LLP was approved by
our board of directors. KBL, LLP was American’s auditor prior to its acquisition
by GL Energy pursuant to the Exchange Agreement on March 13, 2006 and KBL,
LLP
audited American’s financial statements for the year ended April 30, 2005 which
were included in GL Energy’s current report on Form 8K filed with the Commission
on March 14, 2006.
During
our fiscal years ended December 31, 2004 and 2005 and April 30, 2006 (after
our
change in fiscal year) and the subsequent interim period through August 11,
2006, the date of the dismissal of Malone & Bailey PC, we did not have any
disagreement with Malone & Bailey PC on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
except as follows:
Malone
& Bailey PC expressed concern with the accounting principles applied to the
valuation of intangible assets acquired by American in exchange for shares
of
its own common stock issued to a control person, or an entity owned by that
control person. Malone and Bailey PC refers to Staff Accounting Bulletin
SAB.T.5G. “Transfers of Non-monetary Assets by promoters or Shareholders” which
indicates that the transfer of assets to a company by its promoters or
shareholders in exchange for stock prior to or at the time of the company’s
initial public offering should normally be recorded at the transferor’s cost
basis determined under GAAP. Malone & Bailey stated their opinion that the
intangible assets were recorded at an estimated fair value which does not
represent the transferor’s cost and that the audited financial statements as of
and for the year ended April 30, 2005 included in GL Energy’s Current Report on
Form 8-K dated March 10, 2006 to announce the merger of the two companies (GL
Energy and American) are misleading and need to be restated.
KBL,
LLP
previously audited American’s financial statements for the period ended April
30, 2005, which period encompassed the transaction which Malone & Bailey
expressed concern above. The intangible assets discussed above by Malone &
Bailey were recorded at the transferor’s cost basis that was reflected on the
transferor’s internal financial statements and corporate income tax returns.
Accordingly, KBL had previously determined the valuation of intangibles as
accurate per their previous audit and applied the Staff’s Guidance under SABT 5G
in applying the transferors cost basis as discussed above.
Other
than the matters discussed above, there have been no “reportable events” as set
forth in Item 304(a)(1)(i-v) of Regulation S-B adopted by the Securities and
Exchange Commission
We
engaged KBL, LLP on August 11, 2006. As stated above, KBL, LLP previously
audited American’s financial statements for the period ended April 30, 2005,
Since the transaction pursuant to which GL Energy acquired American has been
accounted for as a reverse acquisition with American being treated as the
acquirer for accounting purposes, our management and our board determined it
appropriate to engage American’s accountants as our independent auditor. This
engagement was approved by our board of directors. While we did not specifically
consult KBL, LLP regarding any of the matters specified in Item 304(a)(2) of
Regulation S-B, KBL LLP has previously audited the valuation of the intangible
assets acquired by American and agreed with American’s valuation contained in
their audited statements for the period ended April 30, 2005.
We
disagree with Malone & Bailey’s assessment that the assets were estimated at
fair value. We contend that American used the “Transferor’s Cost Basis” to
determine the value for the subject intangible assets. We discussed this matter
with our Board and with American’s auditor. This matter was fully discussed in
connection with American’s audit for the period ended April 30, 2005. American’s
cost basis was determined based on the actual advances disbursed to artists.
KBL, LLP advised us that they tested over 80% of the asset value as part of
their audit of the assets. Their test of transactions included tracing the
basis
of over 80% of the dollar value of the assets to the dollar value of the advance
received by the artist as recorded on the artists’ contracts as well as tracing
the dollar amounts to our books and records, and cancelled checks. They found
no
discrepancies in their sample. Further, given that Malone and Bailey was
provided with no documentation related to the asset amount, we do not understand
how they were able to make an assertion that the asset was being recorded at
fair market value. Accordingly, management does not believe that any statements
contained in American’s audit for the period ended April 30, 2005 (and contained
herein) were misleading nor do we believe they need to be restated. In addition,
we are continuing discussions with Malone & Bailey and have agreed to
provide them with additional information which we believe will alleviate
concerns. We hope to resolve this disagreement in the near future in which
case
an amendment to this Current Report on 8-K will be filed disclosing the
same.
We
have
provided Malone & Bailey PC with a copy of this disclosure prior to its
filing with the Commission. As of the date of this report, Mantyla McReynolds,
LLC has not provided any response to this disclosure.
Item
8A. Controls and Procedures.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in its Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure
based closely on the definition of "disclosure controls and procedures" in
Rule
13a−15(e). In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving
the
desired control objectives, and management necessarily was required to apply
its
judgment in evaluating the cost−benefit relationship of possible controls and
procedures.
At
the
end of the period covered by this Annual Report, we carried out an evaluation,
under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of
the design and operation of the Company's disclosure controls and procedures.
Based upon the foregoing, our Chief Executive Officer and Chief Financial
Officer concluded that, as of April 30, 2006, the disclosure controls and
procedures of the Company were effective to ensure that the information required
to be disclosed in the Company's Exchange Act reports was recorded, processed,
summarized and reported on a timely basis.
There were no changes in internal controls over financial reporting that
occurred during the fiscal quarter ended April 30, 2006, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Item
8B. Other Information.
None.
PART
III
|
Item
9.
|
Directors,
Executive Officers, Promoters And Control Persons; Compliance With
Section
16(A) Of The Exchange Act
|
Executive
Officer and Directors
The
directors and executive officers currently serving the Company are as
follows:
|
Name
|
Age
|
Position
|
| |
|
|
|
David
Michery
|
38
|
Chief
Executive Officer, President, Director
|
| |
|
|
|
Kent
Puckett
|
40
|
Chief
Financial Officer, Secretary, Treasurer, Director
|
| |
|
|
David
Michery has
served as our Chief Executive Officer and Director since October 2004. Mr.
Michery has worked in the music business for 17 years. His area's of expertise
include, but are not limited to, domestic distribution, intellectual properties,
music publishing, copyrights; licensing, international distribution, sales,
marketing and promotion. He was Chief Executive Officer and President of
American Southwest Music Distribution since its inception in June 2004. He
was
the founder and Chief Executive Officer of AMC American Music Corporation from
September 1999 to May 2004. He was also President of Celestial Breakaway
Entertainment from October 1996 to October 1998.
Kent
Puckett has
served as our Chief Financial Officer, Secretary and Treasurer since October
2004 and as a Director since May 2005. Mr. Puckett has been an accountant for
15
years and has accounting, tax and financial experience in corporations, mergers
and acquisitions, intellectual property, copyrights and licensing in the
entertainment industry. From 1999 to 2003 he worked for A-1 Business Service
with a focus on clients in the entertainment industry and as a tax specialist.
From January 2004 to the present he has been working for Direct Business Service
as an entertainment accountant and tax specialist, corporate structure advisor,
financial analyst, and financial transaction specialist. Mr. Puckett is also
a
part owner of this business. Mr. Puckett received a Bachelors degree in Business
Administration from Pensacola Christian College.
Audit
Committee
We
do not
have an audit committee at this time.
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our directors,
executive officers, and stockholders holding more than 10% of our outstanding
common stock, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in beneficial ownership of our
common stock. Executive officers, directors and greater-than-10% stockholders
are required by SEC regulations to furnish us with copies of all
Section 16(a) reports they file. To our knowledge, based solely on review
of the copies of such reports furnished to us for the period ended April 30,
2006, no Section 16(a) reports required to be filed by our executive
officers, directors and greater-than-10% stockholders were filed on a timely
basis.
Item
10. Executive Compensation
Set
forth
below is information for our Chief Executive Officer for the years ended April
30, 2006 and 2005. No other officer received compensation in excess of $100,000
for 2006 or 2005.
| |
|
Annual
Compensation
|
|
Long-Term
Compensation
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
All
|
| |
|
|
|
|
|
|
|
|
|
Restricted
|
|
Options
|
|
Other
|
| |
|
|
|
|
|
|
|
Other
Annual
|
|
Stock
|
|
Granted
|
|
Compen
|
|
Name
and Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Compensation
|
|
Awards
($)
|
|
(#
Shares)
|
|
-sation
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Michery
|
|
2006
|
|
$99,295
|
|
-0-
|
|
$---
|
|
-0-
|
|
------
|
|
-0-
|
President,
Chief Executive Officer and Director
|
|
2005
|
|
$76,206
|
|
-0-
|
|
$---
|
|
-0-
|
|
------
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
the
next twelve months, we intend to enter into employment agreements with each
of
our executive officers at an annual salary to be determined based on their
then
levels, time devoted and the scope of their responsibilities. In addition to
cash compensation, we intend to use shares of our common stock, and options
to
purchase shares of its common stock to compensate its officers. In addition,
we
may use common stock to compensate others for services provided.
There
is
no plan in place for compensation of persons who are salary directors, but
it is
expected that in the future that we will create a remuneration and reimbursement
plan for such directors.
Other
Compensation Arrangements
In
March
2004, a majority of our shareholders approved an equity performance plan for
10,000,000 shares of common stock ("2004 Equity Performance Plan"), and in
October 2004, the board of directors approved the registration of an additional
35,000,000 shares of common stock on form S-8 for the purpose of having shares
of common stock available to compensate directors, consultants, employees,
management and others for services. The rights of the common stock were not
changed. We intend to issue the shares of common stock from time to time as
determined by the board of directors to directors, employees, management,
consultants and others. The Company’s board of directors believes the 2004
Equity Performance Plan, and the additional 35,000,000 shares of common stock
will provide flexibility in structuring compensation arrangements and provide
an
equity incentive for employees and others who are awarded these shares. These
shares may be issued at less than market price at the discretion of the board
of
directors. None of the shelf-registered shares are allocated to any particular
person or class of persons among those eligible to receive awards. As of March
2006, GL Energy has issued a total of 4,500,000 shares of common stock to
various consultants and employees.
Compensation
of Directors
All
directors receive reimbursement for reasonable out-of-pocket expenses in
attending board of directors meetings and for promoting our business. From
time
to time we may engage certain members of the board of directors to perform
services on our behalf. In such cases, we compensate the members for their
services at rates no more favorable than could be obtained from unaffiliated
parties.
Item
11. Security Ownership of Certain Beneficial Owners and
Management.
The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of September 19, 2006 (and reflects our recent
1-for-74 reverse split) by the following persons:
| |
·
|
each
person who is known to be the beneficial owner of more than five
percent
(5%) of our issued and outstanding shares of common
stock;
|
| |
·
|
each
of our directors and executive officers;
and
|
| |
·
|
all
of our directors and executive officers as a
group.
|
Except
as
set forth in the footnotes to the table, the persons names in the table have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them, subject to community property laws where
applicable. A person is considered the beneficial owner of any securities as
of
a given date that can be acquired within 60 days of such date through the
exercise of any option, warrant or right. Shares of common stock subject to
options, warrants or rights which are currently exercisable or exercisable
within 60 days are considered outstanding for computing the ownership percentage
of the person holding such options, warrants or rights, but are not considered
outstanding for computing the ownership percentage of any other person.
|
Name
And Address (1)
|
|
Number
Of Shares
Beneficially
Owned
|
|
Percentage
Owned (2)
|
|
David
Michery (3)
|
|
7,581.689
|
|
92.5%
|
|
Kent
Puckett (4)
|
|
823,716
|
|
48.9%
|
|
Donald
Byers
#300
- 1497 Marine Drive
West
Vancouver, BC Canada
V7T
1B8
|
|
218,787
|
|
24.5%
|
| |
|
|
|
|
|
All
directors and officers as a group (2 persons)
|
|
8,405,405
|
|
93.5%
|
----------------------------------------------
*
Less
than 1% of the outstanding shares of common stock.
| |
(1)
|
Unless
otherwise noted, the address for each person is 8721 Sunset Blvd.,
Penthouse 7, West Hollywood, California
90069.
|
| |
(2)
|
Based
on 8,992,933 common shares issued and
outstanding.
|
| |
(3)
|
Mr.
Michery is our President and Chief Executive
Officer.
|
| |
(4)
|
Mr.
Puckett is our Chief Financial
Officer.
|
Item
12. Certain Relationships and Related Transactions.
In
March
2006, the Company and American consummated the Exchange Agreement pursuant
to
which the Company issued 22,500,000 shares of its common stock and 23,980 shares
of its series A preferred stock to the stockholders of American in exchange
for
all of their capital stock in American. David Michery and Kent Puckett, the
Company’s officers and directors, were the sole stockholders of American.
Messrs. Michery and Puckett were appointed as officers of the Company in October
2004 in connection with the original Merger Agreement entered into between
the
Company and American. The Merger Agreement was never consummated and recently
terminated.
Byers
and
Associates advanced money to American and the Company in the form of a loan
represented in a promissory note in the amount $49,009. Donald Byers is the
sole
owner of Byers and Associates and owns 16,190,000 of the Company’s common stock.
At the time of the loan, Donald Byers was the majority shareholder of the
Company. The loaned funds were used to pay expenses for both the Company and
American. The original loan principal in January 2005 was $23,500, and the
principal was due April 30, 2005. Byers and Associates loaned additional funds
to American and the Company bringing the balance to $38,092.57. As American’s
and the Company’s consideration for Byers and Associates’ agreement to renew the
loan that was in default, American and the Company agreed to increase the
principal due to $49,009.00, to include unpaid interest due and to take into
consideration fluctuations in the exchange rate between the United States and
Canada since the original date of the loan. Byers and Associates agreed to
extend the due date of the loan to February 28, 2006. The Promissory Note was
a
zero coupon promissory note. If American and the Company fail to pay the
principal on the Note or any other Note issued to Byers and Associates on or
before their due date the promissory note will be considered in default. If
the
promissory note is in default, the entire balance of the loan principal, then,
outstanding, shall bear interest at the rate of 10% per annum. Such
interest shall accrue from the date of the promissory note until the promissory
note is paid. This note is currently in default.
Byers
and
Associates advanced money to American in the form of a loan represented in
a
promissory note in the amount $16,592. Donald Byers is the sole owner of Byers
and Associates and owns 16,400,000 of the Company’s common stock. At the time of
the loan, Donald Byers was the majority shareholder of the Company. The loaned
funds were used to pay expenses for American. The promissory note was due and
payable on February 28, 2005. The Promissory Note was a zero coupon promissory
note. If American fails to pay the principal on the Note or any other Note
issued to Byers and Associates on or before their due date, the promissory
note
will be considered in default. If the promissory note is in default, the entire
balance of the loan principal, then, outstanding, shall bear interest at the
rate of 10% per annum. Such interest shall accrue from the date of the
promissory note until the promissory note is paid. This note is currently in
default.
In
September 2004, American entered into an agreement with Donald Byers, in his
capacity as the majority shareholder of the Company. Pursuant to the agreement,
in September 2004, American paid Mr. Byers $150,000. As consideration for
American’s payment, Messrs. Byers and Frank Rossi resigned from the Company’s
board of directors and appointed Marcus Sanders and David Michery to the
Company’s board of directors. As additional consideration, Mr. Byers approved
the Merger Agreement and cooperated and provided assistance in connection with
the same.
In
September 2004, as additional consideration for Mr. Byer’s cooperation and
assistance, American agreed to pay Mr. Byers an additional $50,000, on the
date
that is sixty (60) days, after the Closing date of the Reorganization Agreement.
Pursuant to the same agreement, American also agreed to pay the Company’s
Current Liabilities, as of the date of the agreement, in the aggregate amount
of
$126,925.00 (the sum of Accounts Payable in the amount of $30,000, and debts
Due
to Shareholders in the amount of $96,925). Pursuant to this agreement, David
Michery unconditionally and irrevocably guaranteed the payments when due, and
granted to Mr. Byers a security interest in 1,250,000 shares of the Compay’s
common stock that shall be issued to Mr. Michery pursuant to the Reorganization
Agreement. Mr. Michery’s obligation to make such guarantee and provide such
security to Mr. Byers was conditioned upon the close of the Reorganization
Agreement.
In
August
2004, Mr. Michery loaned American $20,877 for working capital. To evidence
the
loan, we issued a promissory note with an interest rate of 5.5%. This note
is
currently in default.
In
August
2004, American entered into an Asset Purchase Agreement with Celestial Breakaway
Records pursuant to which we purchased all of their assets in exchange for
3,746
shares of our common stock. Their assets were valued at $3,746,000. David
Michery and Kent Puckett, American’s officers and directors, were the sole
stockholders of Celestial Records.
In
August
2004, American entered into an Asset Purchase Agreement with Out of Control
Records pursuant to which we purchased all of their assets in exchange for
470
shares of our common stock. Their assets were valued at $470,000. David Michery
and Kent Puckett, American’s officers and directors, were the sole stockholders
of Out of Control Records.
On
June
1, 2004, the Company entered into a management services agreement with Wellstar
International, Inc. (`Wellstar") pursuant to which Wellstar agreed to provide
management services and office facilities on an ongoing basis for $10,000 per
month for the 12-month period ending May 31, 2005. This agreement was terminated
in September 2004. The Company's former President and Chairman, Donald Byers,
was the sole director of Wellstar.
In
June
2003, the Company entered into an agreement with its then President and
Chairman, Donald Byers, pursuant to which it agreed to pay him $8,000 per month
as compensation and office rental through May 2004. These management fees have
been paid through May 2004 and the agreement was terminated.
In
June
2003, the Company issued 20,000,000 shares of common stock valued at $20,000
to
two directors for an investment in a mining claim in Chile. These shares were
issued to two individuals, as follows: Donald Byers - 17,500,000 and Arthur
Lang
- 2,500,000. These issuances were exempt under Section 4(2) of the Securities
Act of 1933, as amended.
Item
13. Exhibits.
|
Exhibit
No.
|
Description
|
| |
|
|
2.1
|
Securities
Purchase Agreement and Plan of Reorganization (2)
|
|
4.1
|
Certificate
of Designation of the Series A Preferred Stock (2)
|
|
4.2
|
Form
of 2003 Equity Performance Plan (2)
|
|
4.3
|
Form
of 2004 Equity Performance Plan (2)
|
|
4.4
|
Form
of 2004 Stock Incentive Plan (2)
|
|
4.5
|
Certificate
of Amendment to Certificate of Incorporation (2)
|
|
10.1
|
Domestic
Distribution Agreement (2)
|
|
10.2
|
Upstream
Agreement (2)
|
|
10.2
|
Foreign
License Agreement (2)
|
|
21
|
Subsidiaries
(2)
|
|
23.1
|
Consent
of KBL, LLP (1)
|
|
31.1
|
Certification
of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange
Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
(1)
|
|
31.2
|
Certification
of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange
Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
(1)
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer, pursuant
to 18
United States Code Section 1350, as enacted by Section 906 of the
Sarbanes-Oxley Act of 2002.
(1)
|
(1)
Filed
herewith.
(2)
Previously filed.
Item
14. Principal Accountant Fees and Services.
Appointment
of Auditors
Our
Board
of Directors selected KBL, LLP, certified public accountants, as our auditors
for the year ended April 30, 2006.
Audit
Fees
KBL,
LLP,
billed us $25,000 in fees for our annual audit for the year ended April 30,
2006, and $0 in fees for the review of our quarterly financial statements
for that year.
Audit-Related
Fees
KBL,
LLP,
billed us $ -0- for assurance and related services in 2006 and are not reported
under Audit Fees above.
Tax
and All Other Fees
We
did
not pay any fees to KBL, LLP for tax compliance, tax advice, tax planning or
other work during our fiscal year ending April 30, 2006.
Pre-Approval
Policies and Procedures
We
have
implemented pre-approval policies and procedures related to the provision of
audit and non-audit services. Under these procedures, our board of directors
pre-approves all services to be provided by KBL, LLP and the estimated fees
related to these services.
With
respect to the audit of our financial statements as of April 30, 2006 and the
review of our quarterly financial statements for the year then ended, none
of
the hours expended on KBL LLP’s engagement to audit those financial statements
were attributed to work by persons other than KBL LLP’s full-time, permanent
employees.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| |
|
|
| |
AMERICAN
SOUTHWEST MUSIC DISTRIBUTION, INC. (f/k/a GL Energy & Exploration,
Inc.) |
|
|
|
| |
By: |
/s/ David
Michery |
| |
David
Michery
Chief
Executive Officer
|
| |
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
|
Signatures
|
|
Title
|
Date
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
|
/s/
David Michery
|
|
Chief
Executive Officer, President, Director
|
September
20, 2006
|
|
David
Michery
|
|
|
|
| |
|
|
|
| |
|
|
|
|
/s/Kent
Puckett
|
|
Chief
Financial Officer, Secretary, Treasurer, Director
|
September
20, 2006
|
|
Kent
Puckett
|
|
|
|