AFDG African Discovery Group Inc (PK)

Item 1. Description of Business.

We were incorporated as a Nevada corporation in May 2004 to be a mortgage brokerage firm. Prior to the change of control following the Stock Transaction (as hereinafter defined), our operations as a mortgage broker consisted of originating or locating possible mortgage loans, including, conventional loans, jumbo loans, home equity and second mortgages, non-conforming loans, sub-prime loans and construction loans, that we would refer to lending sources to fund. However, we never funded any loans. We now intend to engage in the oil and natural gas industry either by making acquisitions of oil and gas properties or by participating in strategic joint ventures.

We are a "shell company" as that term is defined in Rule 405 promulgated under the Securities Act of 1933 (the "Securities Act") and Rule 12b-2 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), and as such, are subject to rules of the Securities Exchange Commission (SEC) applicable to shell companies. To date, we have only conducted nominal operations and have only nominal assets.

Development of Business.

On April 28, 2006, Energy Venture, Inc., a privately-held Delaware corporation ("Energy Venture") consummated its acquisition of shares of the capital stock of the Company in accordance with the terms of that certain Stock Purchase Agreement, dated as of April 3, 2006, as amended by that Amendment, dated as of April 28, 2006, among Energy Venture and those certain selling stockholders of the Company named therein (as amended, the "Purchase Agreement"). Under the Purchase Agreement Energy Venture acquired a total of 8,200,000 shares of the Company's common stock, par value $.001 per share (the "Common Stock") for an aggregate purchase price of $433,037 (the "Stock Transaction"). Included among the selling stockholders in the Stock Transaction was the then Chief Executive Officer, Chief Financial Officer and Chairman of the Company, Harold Barson.

Prior to the completion of the Stock Transaction, Harold Barson and Jeffrey Brown, another former officer and director of the Company, held 9,160,000 and 100,000 shares of the Common Stock, respectively, representing collectively 92.6% of the Company's 10,000,000 shares of Common Stock then issued and outstanding. After giving effect to the Stock Transaction, Energy Venture held an aggregate of 8,200,000 shares constituting, in the aggregate, 82% of the issued and outstanding shares of Common Stock.

After giving effect to the Stock Transaction, each of Alan Gaines and Steven Barrenechea, our current directors were indirect owners of all 8,200,000 shares of the Common Stock acquired by Energy Venture as a result of their control of Energy Venture, which Messrs. Gaines and Barrenechea served as directors and of which Mr. Gaines owned a majority of the issued and outstanding shares of capital stock. Such securities ownership represented 82% of the issued and outstanding shares of the Common Stock of the Company and a controlling interest. In connection with the Stock Transaction, Messrs. Gaines and Barrenechea became directors and officers of the Company.

On May 26, 2006 (the "Effective Date"), the Company, and our wholly-owned subsidiary, EVI Acquisition Corp., a Nevada corporation ("EVI Acquisition"), entered into, and consummated, the Agreement and Plan of Merger (the "Merger Agreement") with Energy Venture. Pursuant to the Merger Agreement, on the Effective Date, Energy Venture merged with and into EVI Acquisition (the "Merger") and, in return: (i) each share of common stock of Energy Venture, par value $.0001 per share, then issued and outstanding was exchanged for one share of our Common Stock; (ii) each outstanding option to purchase shares of common stock of Energy Venture was exchanged for an option to purchase, at the same exercise price, an equal number of shares of our Common Stock; and (iii) all of the obligations and liabilities of Energy Venture, including those certain 10% Convertible Promissory Notes of Energy Venture in the aggregate principal amount of $1,500,000 (the "Notes"), were assumed by the Company. As part of the Merger, EVI Acquisition amended its Articles of Incorporation to change its name to "Energy Venture, Inc." Immediately prior to the issuance of shares of our Common Stock pursuant to the Merger Agreement, there were 10,000,000 shares of our common stock outstanding, of which 8,200,000 were held by Energy Venture and cancelled, on the Effective Date, pursuant to the Merger Agreement.

The Notes assumed by the Company in the Merger are for an aggregate principal amount of $1,500,000 and accrue interest thereon at a rate of 10% per annum. Subject to the rights of the holders thereof to convert the Notes at any time, the principal amount and all accrued interest is payable on August 31, 2007 (the "Maturity Date"). By the terms of the Notes, holders thereof may elect to receive interest in either cash or in shares of our common stock. Each Note is convertible into that number of shares of our common stock equal to the principal amount of the Note, together with interest accrued thereon, owing and unpaid as of the date of the notice of conversion divided by $0.50.

As a result of the Merger, the former stockholders of Energy Venture became the controlling stockholders of our Company. Additionally, since we had no substantial assets immediately prior to the Merger, the transaction was treated for accounting purposes as a reverse acquisition and has been accounted for as a recapitalization of Energy Venture rather than a business combination. Consequently, the historical financial statements of Energy Venture are now the historical financial statements of the Company.

Employees

At the current time, we do not have any employees other than our officers. Prior to the closing of the Stock Transaction, we had two fulltime employees, Harold Barson, our then President and a processor. We also had two part time loan originators. None of the employees were covered by a collective employment agreement.

Risk Factors

The reader should carefully consider each of the risks described below. If any of the following risks develop into actual events, our business, financial condition or results of operations could be materially adversely affected and the trading price of our common stock could decline significantly.

Risk Factors of the Company

We are a company with limited operating history and very limited resources.

We have commenced business of a limited basis, and to date have been engaged principally in organization, capital-raising activities and early business development planning matters related primarily to making acquisitions or participating in strategic joint ventures in the oil and natural gas industry. To date no acquisitions have been made nor have any joint ventures been entered into by the Company; in addition, we have had no revenues and anticipate significant expenses relating to the development of our infrastructure and business. Our prospects must be considered in light of the risks, expenses, delays, problems and difficulties frequently encountered in the establishment of a new business in the energy industry, given the volatile nature of the energy markets. There can be assurance that the Company will achieve its objective and business plan, or that it will be able to succeed in achieving its objective and business plan. Given factors that are described below, there exists a possibility that an investor could suffer a substantial loss as a result of an investment in the Company.

Substantial doubt exists as to whether our Company can continue as a going concern.

We have only generated nominal revenues since our inception and have no current source of revenues. Our lack of revenues increases the likelihood that the Company may be unable to continue as a going concern, particularly in the event that it is unable to obtain additional financing and/or attain profitable operations. The financial statements presented in this annual report do not include any adjustments that might result from the outcome of this uncertainty and if our Company cannot continue as a going concern, our shares could become devalued or even worthless.

Our common stock is listed on the OTC Bulletin Board. Our common stock is not quoted on the NASDAQ National Market System or listed on a national securities exchange. The NASDAQ National Market System and national securities exchanges require companies to fulfill certain requirements in order for their shares to be listed and to continue to be listed. The securities of a company may be ineligible for listing or, if listed, may be considered for delisting if the company fails to meet certain financial thresholds, including if the company has sustained losses from continuing operations and/or net losses in recent fiscal years. There can be no assurance that we will not report additional losses in the future or that we will be able to list or have our common stock quoted on the NASDAQ National Market or a national securities exchange. An inability to list our common stock could adversely affect our ability to raise capital in the future by issuing common stock or securities convertible into or exercisable for our common stock.

Continuing losses may mean that additional funding may not be available on acceptable terms, if at all. If adequate funds are unavailable from our operations or additional sources of financing, we might be forced to reduce or delay acquisitions or capital expenditures, sell assets, reduce operating expenses, refinance all or a portion of our debt, or delay or reduce important drilling or enhanced production initiatives.

In addition, in that instance, we may seek to raise any necessary additional funds through equity or debt financings, convertible debt financing, joint ventures with corporate partners or other sources, which may be dilutive to our existing shareholders and may cause the price of our common stock to decline.

We have future capital needs and without adequate capital we may go out of business.

Our growth and continued operations could be impaired by limitations on our access to the capital markets or traditional secured sources of credit. There is no assurance that capital will be available to us, or if available, would be adequate for the long-range growth of our Company. If financing is available, it may involve issuing securities senior to our shares or equity financings which are dilutive to holders of our shares. In addition, in the event we do not raise additional capital from conventional sources, such as our existing investors or commercial banks, there is every likelihood that our growth will be restricted and we may need to scale back or curtail implementing our business plan. Even if we are successful in raising capital, we will likely need to raise additional capital to continue and/or expand our operations. If we do not raise the additional capital, the value of our shares may become substantially devalued.

Management's decision to change the business focus of the Company from the mortgage industry to the oil and natural gas industry could ultimately prove to be unsuccessful, harming our business operations and prospects.

Management has changed the Company's business focus from the mortgage industry to the oil and natural gas industry. Accordingly, a substantial portion of our management's time will be directed toward the pursuit of identifying and acquiring business opportunities in the oil and natural gas industry. There can be no assurance that new management will be able to properly manage the direction of the Company or that any ultimate change in the Company's business focus will be successful. If new management fails to properly manage and direct the Company, the Company may be forced to scale back or abandon its existing operations, which will cause the value of our shares to decline.

Our Chairman possesses significant control over our operations based, in part, upon being our controlling stockholder, and because of this he could choose a plan of action which could devalue our outstanding securities.

Our Chairman, Alan Gaines controls 51.2% of our outstanding shares of capital stock as of the date hereof. Accordingly, our Chairman could significantly influence the Company on matters submitted to the stockholders for approval. These matters include the election of directors, mergers, consolidations, the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. This amount of control gives Mr. Gaines virtually limitless ability to determine the future of our Company, and as such, he could unilaterally elect to close the business, change the business plan or make any number of other major business decisions without the approval of other stockholders. This control may eventually make the value of our shares worthless.

Conflicts of interest for our Chairman may exist with regards to his obligations to the Company and his obligations to businesses in which he continues to own interests and manage.

Our Chairman, Alan Gaines, also serves as an executive officer and director of each of Dune Energy, Inc. and Baseline Oil & Gas Corp., public companies also engaged in the oil and gas industry. Mr. Gaines is required to devote his time (and in the case of Dune Energy, Inc., substantially all of his business time as provided in his employment agreement) to the business and affairs of each of these entities, and his responsibilities to these other entities may have the effect of diverting his time and attention that he might have otherwise had available to devote solely to the business and operations of our Company. There can be no guarantee that Mr. Gaines will be able to devote adequate time to the affairs of the Company given his fiduciary and contractual obligations to Dune Energy, Inc. and Baseline Oil & Gas Corp.

In addition, our officers and directors are be subject to the certain duties imposed on them under the Nevada law, including a general requirement that opportunities which come to their attention may be considered opportunities that should be made available to our Company as well as the companies that they may be affiliated with on an equal basis. A breach of this requirement will be a breach of the fiduciary duties of the officer and director. If our Company or any of the other companies with which any of our officers or directors is affiliated both desire to take advantage of an opportunity, then those officers and directors would abstain from negotiating and voting upon the business opportunity. Even in the event these procedures are followed, we cannot assure you that conflicts of interests among us, our officers and directors, and such other companies will not develop.

We have not and do not anticipate paying any cash dividends on our common stock, because of this our securities could face devaluation in the market

We have paid no cash dividends on our common stock to date and it is not anticipated that any cash dividends will be paid to holders of our common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of the business, it is anticipated that any earnings will be retained to finance our future expansion. As an investor, you should take note of the fact that a lack of a dividend can further affect the market value of our stock, and could significantly affect the value of any investment in our Company.

Notwithstanding our financial position, we will continue to incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance requirements.

In January 2006, we registered our common stock under the Securities Exchange Act of 1934, as amended, and thereby became subject to the reporting requirements promulgated by the Securities and Exchange Commission thereunder. As a public company, we incur significant legal, accounting and other expenses under the Sarbanes-Oxley Act of 2002, together with rules implemented by the Securities and Exchange Commission and applicable market regulators. These rules impose various requirements on public companies, including requiring certain corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these new compliance requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, for fiscal years ending on or after December 15, 2007, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. For fiscal years ending on or after December 15, 2008, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Compliance with Section 404 may require that we incur substantial accounting expense and expend significant management efforts. If we are not able to comply with the requirements of Section 404 in a timely manner or if our

independent registered public accounting firm later identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other applicable regulatory authorities.

Our articles of incorporation provide for indemnification of officers and directors at our expense and limit their liability.

Our articles of incorporation and applicable Nevada law provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of the Company. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person's promise to repay us therefor if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us which we will be unable to recoup.

We have been advised that in the opinion of the SEC, this type of indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against these types of liabilities, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

Our board of directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stock holders and with the ability to adversely affect stockholder voting power and perpetuate the board's control over the Company.

Our certificate of incorporation authorizes the issuance of up to 1,000,000 shares of preferred stock, par value $ .001 per share.

The specific terms of the preferred stock have not been determined, including: designations; preferences; conversions rights; cumulative, relative; participating; and optional or other rights, including: voting rights; qualifications; limitations; or restrictions of the preferred stock.

The board of directors is entitled to authorize the issuance of up to 1,000,000 shares of preferred stock in one or more series with such limitations and restrictions as may be determined in its sole discretion, with no further authorization by security holders required for the issuance thereof.

The issuance of preferred stock could adversely affect the voting power and other rights of the holders of common stock. Preferred stock may be issued quickly with terms calculated to discourage, make more difficult, delay or prevent a change in control of our Company or make removal of management more difficult. As a result, the board of directors' ability to issue preferred stock may discourage the potential hostile acquirer, possibly resulting in beneficial negotiations. Negotiating with an unfriendly acquirer may result in, among other things, terms more favorable to us and our stockholders. Conversely, the issuance of preferred stock may adversely affect any market price of, and the voting and other rights of the holders of the common stock. We presently have no plans to issue any preferred stock.

Oil and Natural Gas Prices are Volatile.

If any of the projects we participate in are successful, the prices we receive for future oil and natural gas production will heavily influence our revenue, profitability, access to capital and rate of growth. Oil and natural gas are commodities and their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand or global macroeconomic disruptions. Historically, the markets for oil and natural gas have been volatile. These markets will likely continue to be volatile in the future. The prices we may receive for any future production, and the levels of this production, depend on numerous factors beyond our control. These factors include the following:

o changes in global supply and demand for oil and natural gas;
o the actions of the Organization of Petroleum Exporting Countries, or OPEC;
o the price and quantity of imports of foreign oil and natural gas in the U.S.;
o political conditions, including embargoes, which affect other oil-producing activities;
o the level of global oil and natural gas exploration and production activity;
o the level of global oil and natural gas inventories;
o weather conditions affecting energy consumption;
o technological advances affecting energy consumption; and
o the price and availability of alternative fuels.

Lower oil and natural gas prices may not only decrease our revenues on a per unit basis but also may reduce the amount of oil and natural gas that we can produce economically. Lower prices will also negatively impact the value of our proved reserves. A substantial or extended decline in oil or natural gas prices may materially and adversely affect our future business, financial condition, results of operations, liquidity or ability to finance planned capital expenditures.

Competition in the oil and natural gas industry is intense.

We intend to operate in a highly competitive environment for developing properties, marketing of oil and natural gas and securing trained personnel. Many of our competitors possess and employ financial, technical and personnel resources substantially greater than ours, which can be particularly important in the areas in which we operate. Those companies may be able to pay more for productive oil and natural gas properties and prospects and to evaluate, bid for and purchase a greater number of properties and prospects than our financial or personnel resources permit. Our ability to acquire additional prospects and to find and develop reserves in the future will depend on our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, there is substantial competition for capital available for investment in the oil and natural gas industry. We may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing oil and natural gas, attracting and retaining quality personnel and raising additional capital.

Drilling for and producing oil and natural gas are high risk activities with many uncertainties that could adversely affect our business, financial condition or results of operations.

Our future success will depend on the success of our exploitation, exploration, development and production activities. Our oil and natural gas exploration and production activities will be subject to numerous risks beyond our control, including the risk that drilling will not result in commercially viable oil or natural gas production. Our decisions to purchase, explore, develop or otherwise exploit prospects or properties will depend in part on the evaluation of data obtained through geophysical and geological analyses, production data and engineering studies, the results of which are often inconclusive or subject to varying interpretations. Please read "- Reserve estimates depend on many assumptions that may turn out to be inaccurate" (below) for a discussion of the uncertainties involved in these processes. Our costs of

drilling, completing and operating wells is often uncertain before drilling commences. Overruns in budgeted expenditures are common risks that can make a particular project uneconomical. Further, many factors may curtail, delay or cancel drilling, including the following:

o delays imposed by or resulting from compliance with regulatory requirements;
o pressure or irregularities in geological formations;
o shortages of or delays in obtaining equipment and qualified personnel;
o equipment failures or accidents;
o adverse weather conditions;
o reductions in oil and natural gas prices;
o oil and natural gas property title problems; and
o market limitations for oil and natural gas.

Prospects that we decide to drill may not yield oil or natural gas in commercially viable quantities.

There is no way to predict in advance of drilling and testing whether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically viable. The use of seismic data and other technologies and the study of producing fields in the same area will not enable us to know conclusively prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in commercial quantities. We cannot assure you that the analogies we draw from available data from other wells, more fully explored prospects or producing fields will be applicable to our drilling prospects.

We may incur substantial losses and be subject to substantial liability claims as a result of our oil and natural gas operations.

We are not insured against all risks. Losses and liabilities arising from uninsured and underinsured events could materially and adversely affect our business, financial condition or results of operations. Our oil and natural gas exploration and production activities will be subject to all of the operating risks associated with drilling for and producing oil and natural gas, including the possibility of:

o environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater and shoreline contamination;
o abnormally pressured formations;
o mechanical difficulties, such as stuck oil field drilling and service tools and casing collapses;
o fires and explosions;
o personal injuries and death; and
o natural disasters.

Any of these risks could adversely affect our ability to conduct operations or result in substantial losses to the Company. We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, then that accident or other event could adversely affect our results of operations, financial condition and cash flows.

We may not have enough insurance to cover all of the risks that we face.

In accordance with customary industry practices, we will maintain insurance coverage against some, but not all, potential losses in order to protect against the risks we face. We do not carry business interruption insurance. We may elect not to carry insurance if our management believes that the cost of available insurance is excessive relative to the risks presented. In addition, we cannot insure fully against pollution and environmental risks. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial condition and results of operations.

Our operations may cause us to incur substantial liabilities for failure to comply with environmental laws and regulations.

Our oil and natural gas operations will be subject to stringent federal, state and local laws and regulations relating to the release or disposal of materials into the environment or otherwise relating to environmental protection. These laws and regulations may require the acquisition of a permit before drilling commences, restrict the types, quantities and concentration of substances that can be released into the environment in connection with drilling and production activities, limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas, and impose substantial liabilities for pollution resulting from our operations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, incurrence of investigatory or remedial obligations or the imposition of injunctive relief. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to maintain compliance, and may otherwise have a material adverse effect on our results of operations, competitive position or financial condition as well as the industry in general. Under these environmental laws and regulations, we could be held strictly liable for the removal or remediation of previously released materials or property contamination regardless of whether we were responsible for the release or if our operations were standard in the industry at the time they were performed.

If our access to markets is restricted, it could negatively impact our production, our income and ultimately our ability to retain our leases.

Market conditions or the unavailability of satisfactory oil and natural gas transportation arrangements may hinder our access to oil and natural gas markets or delay our production. The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for and supply of oil and natural gas and the proximity of reserves to pipelines and terminal facilities. Our ability to market our production depends in substantial part on the availability and capacity of gathering systems, pipelines and processing facilities owned and operated by third parties. Our failure to obtain such services on acceptable terms could materially harm our business.

Our productive properties may be located in areas with limited or no access to pipelines, thereby necessitating delivery by other means, such as trucking, or requiring compression facilities. Such restrictions on our ability to sell our oil or natural gas could have several adverse affects, including higher transportation costs, fewer potential purchasers (thereby potentially resulting in a lower selling price) or, in the event we were unable to market and sustain production from a particular lease for an extended time, possibly causing us to lose a lease due to lack of production.