SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date of
Report (Date of earliest event reported): January 30, 2009
PREMIER
ENERGY CORP.
(Exact
name of registrant as specified in its charter)
Florida
|
333-145569
|
20-8724818
|
(State
or Other Jurisdiction of Incorporation)
|
(Commission
File Number)
|
(IRS
Employer Identification Number)
|
14785
Preston Road, Suite 550, Dallas, Texas 75254
(Address
of principal executive offices) (zip code)
972-789-5151
(Registrant's
telephone number, including area code)
Copies to:
Stephen
M. Fleming, Esq.
Law
Offices of Stephen M. Fleming PLLC
110 Wall
Street, 11
th
Floor
New York,
New York 10005
Phone:
(516) 833-5034
Fax:
(516) 977-1209
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form
8-K and other reports filed by Premier Energy Corp. (“Premier”) from time to
time with the Securities and Exchange Commission (collectively the "Filings")
contain or may contain forward looking statements and information that are based
upon beliefs of, and information currently available to, Premier's management as
well as estimates and assumptions made by Premier's management. When used in the
filings the words "anticipate", "believe", "estimate", "expect", "future",
"intend", "plan" or the negative of these terms and similar expressions as they
relate to Premier or Premier's management identify forward looking
statements. Such statements reflect the current view of Premier with
respect to future events and are subject to risks, uncertainties, assumptions
and other factors (including the risks contained in the section of this report
entitled "Risk Factors") relating to Premier's industry, Premier 's operations
and results of operations and any businesses that may be acquired by Premier.
Should one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may differ significantly
from those anticipated, believed, estimated, expected, intended or
planned.
Although
Premier believes that the expectations reflected in the forward looking
statements are reasonable, Registrant cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, Premier does not intend to
update any of the forward-looking statements to conform these statements to
actual results. The following discussion should be read in conjunction with
Premier's pro forma financial statements and the related notes filed with this
Form 8-K.
In this
Form 8-K, references to "we," "our," "us," the "Company," or "Premier" refer to
Premier Energy Corp., a Florida corporation, and Premier’s majority owned
subsidiary, Karbon, CJSC, a Closed Joint Stock Company incorporated in the
Russian Federation.
Item
1.01 Entry into a Material Definitive Agreement.
Item
2.01 Completion of Acquisition or Disposition of Assets.
On
January 30, 2009, we entered into a Share Exchange Agreement with Auxerre
Trading Ltd., a British Virgin Islands Company (“Auxerre”) pursuant to which we
acquired 51% of the outstanding securities of Karbon in exchange for 107,406,000
shares of our common stock (the “Karbon Acquisition”). Considering that,
following the merger, Auxerre controls the majority of our outstanding voting
common stock and we effectively succeeded our otherwise minimal operations to
those that are theirs, Karbon is considered the accounting acquirer in this
reverse-merger transaction. A reverse-merger transaction is considered,
and accounted for as, a capital transaction in substance; it is equivalent to
the issuance of Karbon securities for our net monetary assets, which are
deminimus, accompanied by a recapitalization. Accordingly, we have not
recognized any goodwill or other intangible assets in connection with this
reverse merger transaction. Karbon is the surviving and continuing entities and
the historical financials following the reverse merger transaction will be those
of Karbon. We were a "shell company" (as such term is defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior
to our acquisition of 51% of KARBON pursuant to the terms of the share exchange
agreement. As a result of such acquisition, our operations, in
addition to the acquisition, exploration and development, if warranted, of
prospective oil and gas properties, will include (i) consulting and working
together with KARBON to plan and execute any exploration and development
activities they conduct, (ii) reviewing annualized budgets from KARBON, and
(iii) approving costs in excess of certain prescribed amounts by KARBON.
Consequently, we believe that acquisition has caused us to cease to be a shell
company as we no longer have nominal operations.
On
January 30, 2009, prior to the Karbon Acquisition and the issuance of the
107,406,000, ZRV Consulting, Inc., the former majority shareholder of Premier,
returned 107,406,000 shares of common stock of Premier for
cancellation.
Overview and
Strategy
Through
our majority owned subsidiary, KARBON, which was organized on October 16, 2000
as a Closed Joint Stock Company under the Civil Code of the Russian Federation,
we are engaged in the business of producing oil and gas from the
North-Kopanskoye Oilfield, exploring and, if warranted, developing new
commercial reserves of oil and gas. Our principal products are crude oil and
natural gas that are marketed and sold by our majority owned subsidiary, KARBON,
primarily through the third party operators of the wells and a third party
marketing company. Typically, oil is sold at the wellhead at field-posted prices
and natural gas is burned or “flared” near wells.
Our
objective is to increase stockholder value by pursuing our corporate strategy
of:
-
|
Economically
growing reserves and production, by acquiring under-valued properties with
reasonable risk-reward potential and by participating in, or actively
conducting, drilling operations in order to further exploit our existing
properties;
|
-
|
Seeking
high-quality exploration and development projects with potential for
providing operated, long-term drilling inventories;
and
|
-
|
Selectively
pursuing strategic acquisitions that may expand or complement our existing
operations.
|
The
pursuit of our strategy includes the following key elements:
Pursue Attractive Reserve and
Leasehold Acquisitions
To date,
we have closed one acquisition, the acquisition of 51 % of KARBON. We
will seek to effect opportunistic acquisitions that can provide upside
potential, including long-term drilling inventories and undeveloped leasehold
positions with attractive return characteristics within the Russian
Federation.
Drive Growth through
Drilling
We plan
to supplement our long-term reserve and production growth through drilling
operations. In 2009, we plan (a) to do a major workover of three
existing wells to grow production to 380 barrels of crude oil per day; (b) to
use two drilling rigs to drill three new production wells to produce additional
690 barrels of crude oil per day; and (c) to perform a 3-D seismic survey to
learn more about the deposit structure to enable us to better designate future
development drilling locations and expected growth of reserve estimates. The
workover, drilling, completion and seismic work will be done using the presently
available local labor, equipment and materials.
Maximize Operational
Control
It is
strategically important to our future growth and maturation as an independent
exploration and production company to be able to serve as operator of our
properties when possible to exert greater control over costs and timing in and
the manner of our exploration, development and production
activities. In 2009, we acquired 51 % of KARBON with assets that
include 3,213 gross acres (1,639 net) with currently estimated total oil
reserves of around 30.9 MMBbl. Although the assets also include similar amount
of equivalent natural gas resources, we do not plan to start gas production
during the first three years of development for reasons of reservoir pressure
maintenance. We are the owner of 51% of the outstanding securities of
KARBON and consequently control the activities of KARBON.
Operate
Efficiently and Effectively, and Maximize Economies of Scale Where
Practical
As we
manage our growth, we are actively focusing on reducing lease operating expenses
as well as finding and development costs. In addition, our acquisition efforts
are geared toward pursuing opportunities that fit well within existing
operations, in areas where we are establishing new operations or in areas where
we believe that a base of existing production will produce an adequate
foundation for economies of scale.
Distribution
Methods, Marketing and Major Customers
The
operated oilfield in the Volga-Urals basin has reasonably sufficient
infrastructure but may require some new infrastructure. A new oil discovery will
also require new infrastructure, such as oil tanks and pumps. Crude oil must be
moved from the production site to refineries. These movements can be made using
a number of different modes of transportation, including trucks and trains, and
also via an oil pipeline, which is available in close proximity with the
oilfield. We would not, on our own, be able to distribute any oil and gas we
currently produce and further discover, from our operations in Russia. We would
need to rely on third party contractors to distribute any such oil and gas or
sell any such oil and gas to third parties at the point of
production.
When
selling domestically, KARBON sells the crude oil to local refineries (on Ex
Works terms) or enters into processing agreements with local refineries (for
better bargains). Depending on terms and seasonal conditions, best
options are chosen at any particular period of time.
Once we
choose to sell crude oil for export, an existing long term contract of sale to
Trafigura Group (a global trading businesses, including the supply and offtake
of crude oil, petroleum products, liquefied petroleum gas (LPG), metals, ores
and concentrates) can be used. Crude oil can be made available for sale under
Contract No AUXTRAF-04/07 dated September 4, 2007, that provides KARBON the
right to sell to Trafigura during period of exploration up to 32 million barrels
of crude oil.
Competition
The oil
and gas industry is extremely competitive, particularly in the acquisition of
prospective oil and natural gas properties and oil and gas reserves. We compete
with numerous individuals and companies, including many major oil and gas
companies, which have substantially greater technical, financial and operational
resources and staffs. Accordingly, there is a high degree of competition for
desirable oil and gas interests, suitable properties for drilling
operations and necessary drilling equipment, as well as for access to funds. Our
competitive position also depends on our geological, geophysical and engineering
expertise, and our financial resources.
We
believe that the location of our leasehold acreage, our exploration, drilling
and production expertise and the experience and knowledge of our management and
industry partners enable us to compete effectively in our current operating
areas.
Seasonality
Generally,
but not always, the demand and price levels for natural gas increase during the
colder winter months and warmer summer months but decrease during the spring and
fall months (“shoulder months”). Pipelines, utilities, local distribution
companies and industrial users utilize natural gas storage facilities and
purchase some of their anticipated winter and summer requirements during the
shoulder months, which can lessen seasonal demand fluctuations.
In the
past, we have not entered into hedging contracts, but we are considering
entering various hedging contracts in the future for a portion of our production
to reduce our overall exposure to seasonal demand and resulting commodity price
fluctuations. The duration of our future hedging contracts will depend on our
view of market conditions, available contract prices and our operating strategy
at the time the contracts are initiated.
Regarding
natural gas, as a producer local to Russia, KARBON is obligated to approach FST
(Federalnaya Sluzba po Tarifam) to whom we must sell our gas under local
domestic prices that are generally much lower then export prices.
Since
December 31, 2007, KARBON has had sales delivery contracts in effect for
the entire daily production capacity.
Government
Approval and Regulation
We are
required to obtain licenses and permits from various governmental authorities.
We anticipate that we will be able to obtain all necessary licenses and permits
to carry on the activities which we intend to conduct, and that we intend to
comply in all material respects with the terms of such licenses and
permits.
KARBON
has been abiding by, and will continue to do so, all the Laws and Regulations of
the Russian Federation that are applicable to oil and gas exploration,
production and distribution activities. These include, but are not
limited to, the Russian Federation Tax Law for oil and gas production and
refining, including the following particular taxes: Minerals Extraction Tax
(MET: Russian acronym is NDPI), export tax if crude oil is shipped for export,
value-added tax (VAT) if crude oil is sold locally in Russia; profit and
property taxes, environmental protection taxes and payroll taxes.
Russian
joint stock companies are corporate entities with limited liability similar to
corporations formed under United States laws. Shareholders of Russian joint
stock companies generally are not liable for debts and obligations of the
company. However, shareholders of a bankrupt joint stock company may be held
liable for debts and obligations of the bankrupt company if they have exercised
their authority to undertake an action knowing that bankruptcy would be the
result of their actions. In closed joint stock companies, i.e. companies with a
limited number of shareholders, such as Karbon, any transfer of shares by a
shareholder to a third party is subject to the pre-emptive right of the other
shareholders to acquire such shares at the price offered to a third
party.
Under
Russian law, a simple majority of voting shares is sufficient to control
adoption of most resolutions. Resolutions concerning amendment of the company
charter, reorganizations (including mergers), liquidation, any increase in
authorized shares, or certain "large" transactions require the approval of the
shareholders holding in excess of 75% of the outstanding shares.
A Russian
joint stock company has no obligation to pay dividends to the holders of common
shares. Any dividends paid to shareholders must be recommended by the board of
directors and then approved by a majority vote at the general meeting of
shareholders. Dividends may be paid every quarter of a
year.
Environmental
Laws
The
government of the Russian Federations, Ministry of Natural Resources, and other
agencies establish special rules, restrictions and standards for enterprises
conducting activities affecting the environment. The general principle of
Russian environmental law is that any environmental damage must be fully
compensated. Under certain circumstances, top officers of the entity causing
substantial environmental damage may be subject to criminal
liability.
The law
of the Russian Federation on subsoil requires that all users of subsoil ensure
safety of works related to the use of subsoil and comply with existing rules and
standards of environment protection. Failure to comply with such rules and
standards may result in termination or withdrawal of the Karbon
license.
Number
of Employees
Other
than our directors and officers, presently we have no employees at the US
headquarters. We anticipate that we will be conducting most of our business
through our management and any consultants whom we may engage in the USA and
worldwide. KARBON has a staff of 35.
PROPERTY
Our
principal offices are located at 14785 Preston Road, Suite 550, Dallas,
TX 75254. We pay $2,500 per month in rent and our lease is
open-ended.
Pursuant
to a share exchange agreement among our Company and KARBON, we have acquired the
51 % controlling interest in KARBON.
KARBON
owns the license that contains the North-Kopanskoye Oilfield and operates the
field. As of September 30, 2008, through our ownership in the majority interest
of KARBON, we owned interests in a total of three producing wells and had an
interest in 3,213 gross acres (1,639 net) with over 26 prospective drilling
locations for oil production in the North-Kopanskoye Field (14 wells in the
Artinsky-1 Reservoir and 12 wells in the Bashkirian A-4 Reservoir, along with 3
injection wells). Concurrently, we have been evaluating other prospective
locations that we believe are hydrocarbon prone.
Acreage
The
following table sets forth the total gross and net acres of developed and
undeveloped oil and gas leases in which our company, through our subsidiary, had
working interests as of December 31, 2008:
|
|
Developed
Acres
|
|
Undeveloped
Acres
|
|
Total
Acres
|
|
|
Gross
|
|
Net
|
|
Gross
|
|
Net
|
|
Gross
|
|
Net
|
North-Kopanskoye
|
|
578
|
|
295
|
|
2,635
|
|
1,344
|
|
3,213
|
|
1,639
|
*
|
|
Represents
properties that are either currently operated by us or which are expected
to be operated by us when development commences on the
properties.
|
Title to
Properties
A title
opinion is usually obtained prior to the commencement of drilling operations on
properties. We have obtained title opinions or conducted a thorough title review
on substantially all of our producing properties and believe that we have
satisfactory title to such properties in accordance with standards generally
accepted in the oil and gas industry. We also perform a title investigation
before acquiring undeveloped leasehold interests.
Reserves
All our
reserves are presently located within the Russian Federation, in the
North-Kopanskoye Field. Over the last two years, 2007 and 2008, we
have produced over 45,000 barrels of crude oil (at an average rate of about 60
barrels per day).
The
independent petroleum engineering firm DeGolyer and MacNaughton of Dallas,
Texas, evaluated 100% of the properties and issued an appraisal report dated
November 27, 2007 on oil and gas reserve estimates as of December 31, 2006,
included in the table below. No new reserves were added since then;
thus the proved developed reserves for 2008 and 2007 shown in the table reflect
the yearly oil and gas production, as reserve depletion, equal to 27 and 17 MBbl
of oil and 26 and 17 MMcf of gas per year, respectively.
|
|
As
of
September
30, As of December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Proved
developed oil reserves (MBls)
|
|
|
20
|
|
|
37
|
|
|
64
|
Proved
undeveloped oil reserves (MBls)
|
|
|
8,029
|
|
|
8,029
|
|
|
8,029
|
Total
proved oil reserves (MBls)
|
|
8,049
|
|
8,066
|
|
8,093
|
|
|
|
|
|
|
|
|
|
|
Proved
developed gas reserves (MMcf)
|
|
|
134
|
|
|
151
|
|
|
177
|
Proved
undeveloped gas reserves (MMcf)
|
|
|
45,060
|
|
|
45,060
|
|
|
45,060
|
Total
proved gas reserves (MMcf)
|
|
|
45,194
|
|
|
45,211
|
|
|
45,237
|
|
|
|
|
|
|
|
|
|
|
Total
proved oil equivalents (MBbl) (1)
|
|
|
15,581
|
|
|
15,601
|
|
|
15,632
|
Total
proved gas equivalents (MMcfe) (1)
|
|
|
93,488
|
|
|
93,607
|
|
|
93,795
|
|
|
|
|
|
|
|
|
|
|
Present
value of estimated future net cash flows
|
|
|
|
|
|
|
|
|
|
before
income taxes, discounted at 10% (2)
|
|
$
|
38,671
|
|
$
|
44,461
|
|
$
|
58,076
|
|
|
|
|
|
|
|
Reconciliation
of non-GAAP financial measure:
|
|
|
|
|
|
|
|
|
|
PV-10
(3)
|
|
$
|
38,671
|
|
$
|
44,461
|
|
$
|
58,076
|
Less:
Undiscounted income taxes
|
|
|
18,587
|
|
|
19,754
|
|
|
24,736
|
Plus:
10% discount factor
|
|
|
2,371
|
|
|
2,521
|
|
|
3,156
|
Discounted
income taxes
|
|
16,216
|
|
17,233
|
|
21,580
|
Standardized
measure of discounted future net cash flows
|
|
$
|
22,455
|
|
$
|
27,778
|
|
$
|
37,844
|
|
|
|
(1)
|
|
Oil
is converted to Mcfe of gas equivalent at six Mcfe per barrel, and vice
versa.
|
|
|
|
(2)
|
|
Standardized
measure is the present value of estimated future net revenue to be
generated from the production of proved reserves, determined in accordance
with the rules and regulations of the SEC (using prices and costs in
effect as of the date of estimation), less future development, production
and income tax expenses, and discounted at 10% per annum to reflect the
timing of future net revenues.
|
|
|
|
(3)
|
|
Karbon’s
standardized measure does not reflect any future income tax expenses
because it was not subject to income taxes. The standardized measure shown
should not be construed as the current market value of the reserves. The
10% discount factor used to calculate present value, which is required by
FASB pronouncements, is not necessarily the most appropriate discount
rate. The present value, no matter what discount rate is used, is
materially affected by assumptions as to timing of future production,
which may prove to be inaccurate.
|
The
average prices utilized for the first 9 months of 2008, and at December 31
of 2007 and 2006, respectively, were $1.18, $0.87 and $0.54 per Mcf, and $32.67,
$31.86 and $31.67 per barrel of oil.
The
period of January 1, 2007 to September 30, 2008 has seen no significant changes
in either geological reserves or business activity of the company that could
significantly affect the oil and gas extraction activity within the
North-Kopanskoye Field. Therefore, apart of the reported oil and gas produced
during that period, the originally available data as of December 31, 2006 and
various assumptions prepared during the compilation of the underlying data are
believed to be reasonably accurate updates for September 30, 2008 and December
31, 2007.
The PV-10
values shown in the above table are not intended to represent the current market
value of the estimated proved oil and gas reserves owned by KARBON, our majority
owned subsidiary. Reserve estimates are inherently imprecise and are continually
subject to revisions based on production history, results of additional
exploration and development, prices of oil and gas, and other
factors.
The table
above also shows a reconciliation of our PV-10 to our standardized measure of
discounted future net cash flows (the most directly comparable measure
calculated and presented in accordance with GAAP). PV-10 is our estimate of the
present value of future net revenues from estimated proved oil and natural gas
reserves after deducting estimated production and ad valorem taxes, future
capital costs and operating expenses, but before deducting any estimates of
future income taxes. The estimated future net revenues are discounted at an
annual rate of 10% to determine their “present value.” We believe PV-10 to be an
important measure for evaluating the relative significance of our oil and
natural gas properties and that the presentation of the non-GAAP financial
measure of PV-10 provides useful information to investors because it is widely
used by professional analysts and sophisticated investors in evaluating oil and
gas companies. Because there are many unique factors that can impact an
individual company when estimating the amount of future income taxes to be paid,
we believe the use of a pre-tax measure is valuable for evaluating our company.
We believe that most other companies in the oil and gas industry calculate PV-10
on the same basis. PV-10 should not be considered as an alternative to the
standardized measure of discounted future net cash flows as computed under GAAP.
Reference should also be made to the Supplemental Oil and Gas Information
included in the Consolidated Financial Statements for additional
information.
North-Kopanskoye
Oilfield
The
North-Kopanskoye field covers an approximate area of 13 square kilometers and
lies about 55 kilometers southeast of the city of Orenburg and 30 kilometers
south of the Orenburg gas-condensate field.
The field
is in the Urals Foredeep Province in the Volga-Urals Basin.
The North
Kopanskoye field is a broad north/south-oriented elongated anticline structure.
There are four domes on the structure. The central dome is the largest of the
four. There are two smaller domes to the south and one smaller dome to the
north. The field contains two reservoirs, the Pennsylvanian Bashkirian A-4 and
Permian Artinskian Artinsky-1.
The
Bashkirian A-4 and Artinsky-1 are structurally trapped, carbonate reservoirs.
The Bashkirian A-4 reservoir accumulated oil on two of the four individual domes
and is limited by OWCs. The Artinsky-1 reservoir has a larger accumulation of
oil limited by an OWC, an associated gas cap, and a separate nonassociated gas
accumulation that is limited by a GWC.
The
Artinsky-1 reservoir accumulations are trapped on three of the structural domes
in two separate accumulations. The central and northern domes contain a
continuous accumulation. This accumulation consists of oil and an associated gas
cap. It is mapped as high as 1,900 meters true vertical depth subsea (TVDSS)
with a GOC at 1,979.5 meters TVDSS and an OWC at 2,021 meters
TVDSS.
The area
of the Artinsky-1 oil accumulation is about 10.2 square kilometers and the
average thickness is 8.8 meters. The estimated volumes above the highest known
oil in the 131 well on the northern dome as well as the volumes located in the
saddle area between the northern and central domes have been associated with
probable reserves. The highest oil test in the 127 well was at 1,976.9 meters
TVDSS. The 127 and 128 wells tested oil and water across the intervals of
2,021.9 to 2,028.9 meters TVDSS and 2,008.9 to 2,029.9 meters TVDSS,
respectively. The highest water-only test at 2,043.9 meters TVDSS occurred in
the 128 well. The 129 well tested "no flow" in the Artinsky-1 reservoir over a
low porosity and low permeability interval, as indicated by log interpretation.
The northern dome of this accumulation tested oil from two different intervals
down to 2,015 meters TVDSS in the 131 well.
The gas
cap above the central dome of the Artinsky-1 oil reservoir is defined by gas and
condensate tests in the 127 and 129 wells. The deepest gas test was at 1,984.9
meters TVDSS in the 129 well. The average thickness in this gas cap is 5.1
meters with an area of approximately 2.8 square kilometers.
The
Artinsky-1 accumulation on the small southern structure, tested by the 109 well,
is a nonassociated gas reservoir with a GWC estimated at 2,030 meters TVDSS.
This gas reservoir has an area of approximately 1.2 square kilometers and
estimated average thickness of 5.8 meters (Figure 5). The 109 well tested gas
and condensate down to 2,027.6 meters TVDSS and the adjacent 101 well tested
water as high as 2,036.7 meters TVDSS.
The
Bashkirian A-4 Central reservoir is mapped as high as 2,800 meters TVDSS. The
OWC is estimated at 2,839 meters TVDSS. This reservoir encompasses about 4.3
square kilometers with an average thickness of 12.4 meters. Oil was successfully
tested in the 130 and 133 wells. Both wells tested water-free oil with the
deepest oil test in the 130 well at 2,839 meters TVDSS. A test in the 133 well
over an interval of 2,832.2 to 2,842.8 meters TVDSS produced oil and
water.
The
accumulation on the smaller southern dome, the Bashkirian A-4 South reservoir,
is mapped as high as 2,900 meters TVDSS with an OWC at 2,905 meters TVDSS. This
reservoir covers approximately 0.7 square kilometers and has an average
thickness of 3.4 meters. The smaller southern accumulation was proved by a test
in the 108 well with oil-only down to 2,900.8 meters TVDSS and water tested as
high as 2,929.8 meters TVDSS.
The
Concession area of the North-Kopanskoye field for Exploration is located and
delimited by the following geographic coordinates:
COORDINATES
|
LATITUDE:
|
LONGITUDE
|
1
|
51°
22,3'
|
51°
32,8'
|
2
|
51°
27,3'
|
51°
32,8'
|
3
|
51°
27,3'
|
51°
36,4'
|
4
|
51°
22,3'
|
51°
36,4'
|
Approximate
area: 3,213 acres.
RISK
FACTORS
Our limited operating history makes
it difficult for us to evaluate our future business prospects and make decisions
based on those estimates of our future performance
.
Although
our management team has been engaged in the oil and gas business for an extended
period of time, we did not begin operations of our current business concept
until our recent acquisition of Karbon in January 2009. We have a
limited operating history. As a consequence, it is difficult, if not
impossible, to forecast our future results based upon our historical data.
Reliance on the historical results of our acquisition targets may not be
representative of the results we will achieve, particularly in our combined
form. Because of the uncertainties related to our lack of historical
operations, we may be hindered in our ability to anticipate and timely adapt to
increases or decreases in revenues or expenses. If we make poor budgetary
decisions as a result of unreliable historical data, we could be less profitable
or incur losses, which may result in a decline in our stock
price.
Karbon’s
results of operations have not been consistent, and we may not be able to
achieve profitability going forward.
Karbon
incurred a net loss from our continuing operations amounting to ($733,602),
($553,470) and ($662,876) for the nine months ended September 30, 2008 and the
years ended December 31, 2007 and 2006, respectively. In addition, as
of September 30, 2008, Karbon has a working capital deficiency of ($3,086,680).
If we incur additional significant operating losses, our stock price, may
decline, perhaps significantly.
Our
management is developing plans to alleviate the negative trends and conditions
described above. Our management believes that our current business
plan will be successful and that we believe we will be able to limit our losses;
however, our business plan is speculative and unproven. Although there is no
assurance that we will be successful in executing our business plan or that even
if we successfully implement our business plan, that we will be able to curtail
our losses now or in the future.
Our
business depends on the level of activity in the oil industry, which is
significantly affected by volatile oil prices.
Our
business depends on the level of activity in oil exploration, development and
production in markets worldwide. Oil prices, market expectations of potential
changes in these prices and a variety of political and economic factors
significantly affect this level of activity. Oil prices are extremely volatile
and are affected by numerous factors, including:
-
|
worldwide
demand for oil and gas;
|
-
|
the
ability of the Organization of Petroleum Exporting Countries, commonly
called "OPEC," to set and maintain production levels and
pricing;
|
-
|
the
level of production in non-OPEC
countries;
|
-
|
the
policies of the various governments regarding exploration and development
of their oil and gas reserves;
|
-
|
advances
in exploration and development technology;
and
|
-
|
the
political environment of oil-producing
regions.
|
The
nature of oil and gas business exposes us to potential liability claims and
contract disputes which may reduce our profits.
We have
been and may in future be named as a defendant in legal proceedings where
parties may make a claim for damages or other remedies with respect to our
projects or other matters. These claims generally arise in the normal course of
our business.
We
are vulnerable to the cyclical nature of the oil and gas business.
The oil
and gas business involves many operating risks that can cause substantial
losses. Insurance may not be adequate to protect against all these risks. The
oil and gas business involves a variety of operating risks,
including:
-
fire;
-
explosion;
-
blow-out;
-
uncontrollable flows of oil, gas, or well fluids;
- natural
disasters;
- pipe
failure;
- casing
collapse;
- stuck
tools;
-
abnormally pressured formations; and
-
environmental hazards such as oil spills, gas leaks, pipeline ruptures and
discharges of toxic gases.
Our
business involves numerous operating hazards.
Our
operations are subject to the usual hazards inherent in drilling for oil, such
as blowouts, reservoir damage, loss of production, loss of well control,
punchthroughs, craterings or fires. The occurrence of these events could result
in the suspension of drilling operations, damage to or destruction of the
equipment involved and injury or death to rig personnel. Operations also may be
suspended because of machinery breakdowns, abnormal drilling conditions, failure
of subcontractors to perform or supply goods or services or personnel shortages.
Damage to the environment could also result from our operations, particularly
through oil spillage or extensive uncontrolled fires. We may also be subject to
damage claims by oil and gas companies.
Although
we maintain insurance in the areas in which we operate, pollution and
environmental risks generally are not fully insurable. Our insurance policies
and contractual rights to indemnity may not adequately cover our losses, and we
do not have insurance coverage or rights to indemnity for all risks. If a
significant accident or other event occurs and is not fully covered by insurance
or contractual indemnity, it could adversely affect our financial position and
results of operations.
If
oil and natural gas prices decrease, we may be required to take write-downs of
the carrying values of our oil and natural gas properties.
Accounting
rules require that we review periodically the carrying value of our oil and
natural gas properties for possible impairment. Based on specific market factors
and circumstances at the time of the prospective impairment reviews, and the
continuing evaluation of development plans, production data, economics and other
factors, we may be required to write down the carrying value of our oil and
natural gas properties. A write-down constitutes a non-cash charge to earnings.
We may incur impairment charges in the future, which could have material adverse
effect on our results of operations in the periods taken. Our international
operations involve additional risks not associated with domestic
operations.
We
primarily operate in Russia and any change in any law or policy by the
government could have a negative impact on our operations
While
there have been improvements in the Russian economic situation, such as an
increase in gross domestic product and a reduced rate of inflation, Russia
continues economic reforms and development of its legal, tax and regulatory
frameworks as required by a market economy. The future stability of the Russian
economy is largely dependent upon these reforms and developments and the
effectiveness of economic, financial and monetary measures undertaken by the
government. In addition, laws and regulations, including interpretations,
enforcement and judicial processes, continue to evolve in Russia. Other laws and
regulations and certain other restrictions have a significant effect on the
Company's industry, including, but not limited to the following
issues:
-
|
rights
to use subsurface resources,
|
-
|
transportation
and export,
|
Any shift
in any policy or law by the Russian government or courts may negatively impact
our results of operations.
The
tax laws in Russia provide the government with flexibility in levying taxes
which could result in additional taxes having an adverse effect on the Company’s
financial condition and result of operations.
The
taxation system in the Russian Federation is relatively new and is characterized
by frequent changes in legislation, official pronouncements and court decisions,
which are often unclear, contradictory and subject to varying interpretation by
different tax authorities. Taxes are subject to review and investigation by a
number of authorities, which have the authority to impose severe fines,
penalties and interest charges. A tax year remains open for review by the tax
authorities during the three subsequent calendar years.
Russian
transfer pricing rules were introduced in 1999, giving Russian tax authorities
the right to make transfer pricing adjustments and impose additional tax
liabilities in respect of all “controlled” transactions, provided that the
transaction price deviates from the market price by more than 20%. Controlled
transactions include transactions between related entities and certain other
types of transactions between independent parties, such as foreign trade
transactions with significant (by more than 20%) price
fluctuations.
The
Russian transfer pricing rules are vaguely drafted, leaving wide scope for
interpretation by Russian tax authorities and courts. Due to the uncertainties
in interpretation of transfer pricing legislation, the tax authorities may
challenge the Company’s prices and propose an adjustment. If such price
adjustments are upheld by the Russian courts and implemented, the Company’s
future financial results could be adversely affected. In addition, the Company
could face significant losses associated with the assessment of prior tax
underpaid and related interest and penalties, which could have an adverse effect
on the Company’s financial condition and results of operations.
Fluctuations
in exchange rates could result in losses to us.
Another
risk inherent in our international operations is the possibility of currency
exchange losses where revenues are received and expenses are paid in
nonconvertible currencies. We may also incur losses as a result of an inability
to collect revenues because of a shortage of convertible currency available to
the country of operation.
We
depend upon key personnel and need additional personnel.
Our
success depends on the continuing services of Anton Prodanovic, Alexey Goleshev,
Bosko Popovic and Aslanbi Kodzokov, our Chief Executive Officer, Chief Financial
Officer, Chief Operating Officer and Secretary, respectively. The
loss of any of these individuals could have a material and adverse effect on our
business operations.
Additionally,
the success of the Company’s operations will largely depend upon its ability to
successfully attract and maintain competent and qualified key management
personnel. As with any company with limited resources, there can be no guaranty
that the Company will be able to attract such individuals or that the presence
of such individuals will necessarily translate into profitability for the
Company. Our inability to attract and retain key personnel may
materially and adversely affect our business operations.
We
may engage in acquisitions, which will consume resources and may be unsuccessful
or unprofitable.
We have
pursued, and we intend to continue to pursue, a strategy of other oil and gas
reserves that fit within our business model. However, acquisitions are not
always successful or profitable. Any future acquisitions could expose us
to risks, including risks associated with assimilating new operations and
personnel; diversion of resources from our existing businesses; inability to
generate revenues sufficient to offset associated acquisition costs; and risks
associated with the maintenance of uniform standards, controls, procedures and
policies. Acquisitions may also result in additional expenses from
amortizing acquired intangible assets. If we attempt an acquisition and
are unsuccessful in its completion, we will likely incur significant expenses
without any benefit to our company. If we are successful in completing an
acquisition, the risks and other problems we face may ultimately make the
acquisition unprofitable. Failed acquisition transactions and
underperforming completed acquisitions would burden us with significant costs
without any corresponding benefits to us, which could cause our stock price to
decrease, perhaps significantly.
We
have not paid dividends in the past and do not expect to pay dividends in the
future. Any return on investment may be limited to the value of our
common stock
We have
never paid cash dividends on our common stock and do not anticipate paying cash
dividends in the foreseeable future. The payment of dividends on our common
stock will depend on earnings, financial condition and other business and
economic factors affecting it at such time as the board of directors may
consider relevant. If we do not pay dividends, our common stock may be less
valuable because a return on your investment will only occur if its stock price
appreciates.
We
have not voluntary implemented various corporate governance measures, in the
absence of which, shareholders may have more limited protections against
interested director transactions, conflict of interest and similar
matters.
Recent
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in
the adoption of various corporate governance measures designed to promote the
integrity of the corporate management and the securities markets. Some of these
measures have been adopted in response to legal requirements. Others have been
adopted by companies in response to the requirements of national securities
exchanges, such as the NYSE or the NASDAQ Stock Market, on which their
securities are listed. Among the corporate governance measures that are required
under the rules of national securities exchanges are those that address board of
directors' independence, audit committee oversight, and the adoption of a code
of ethics. While we intend to adopt certain corporate governance measures such
as a code of ethics and established an audit committee, Nominating and Corporate
Governance Committee, and Compensation Committee of our board of
directors, we presently do not have any independent directors.
We intend to expand our board membership in future periods to include
independent directors. It is possible that if we were to have independent
directors on our board, stockholders would benefit from somewhat greater
assurances that internal corporate decisions were being made by disinterested
directors and that policies had been implemented to define responsible conduct.
For example, in the absence of audit, nominating and compensation committees
comprised of at least a majority of independent directors, decisions concerning
matters such as compensation packages to our senior officers and recommendations
for director nominees may be made by our sole director who has an interest in
the outcome of the matters being decided. Prospective investors should bear in
mind our current lack of both corporate governance measures and independent
directors in formulating their investment decisions.
We
may be exposed to potential risks relating to our internal controls over
financial reporting and our ability to have those controls attested to by our
independent auditors.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX 404"), the
Securities and Exchange Commission adopted rules requiring smaller reporting
companies, such as our company, to include a report of management on the
company's internal controls over financial reporting in their annual reports for
fiscal years ending on or after December 15, 2007. We did not include a
management report or an attestation report of our independent registered public
accounting firm regarding internal control over financial reporting for the year
ended December 31, 2007 pursuant to temporary rules of the Securities and
Exchange Commission that do not require us to provide the management's report or
attestation report in that annual report. We will be required to include the
management report in the annual report for the year ending December 31, 2008. In
addition, for our fiscal year ending December 31, 2008 the independent
registered public accounting firm auditing our financial statements must also
attest to and report on management's assessment of the effectiveness of our
internal controls over financial reporting as well as the operating
effectiveness of our internal controls. In the event we are unable to receive a
positive attestation from our independent auditors with respect to our internal
controls, investors and others may lose confidence in the reliability of our
financial statements and our ability to obtain financing as needed could
suffer.
There
is no public market for our common stock and our shares of common stock are
subject to significant restrictions on their transferability.
There is
currently no developed public market for the shares of our common stock. While
we intend to seek a broker dealer who will file an application with the OTC
Bulletin Board and make a market in our securities, there is no assurance that a
broker dealer will be interested in making a market in our stock or that an
active market in our stock will ever develop. In addition, all the shares of
common stock have not been registered under the Securities Act or under the
securities laws of any state or other jurisdiction. As a result, such securities
can be transferred without registration under the Securities Act or, if
applicable, the securities laws of any state or other jurisdiction only if such
registration is not then required because of an applicable exemption therefrom.
Compliance with the criteria for securing exemptions under the Securities Act
and the securities laws of various states is extremely complex. While we have no
requirement to register the shares of our common stock under the Securities Act
so as to permit the public resale thereof, we intend to file a registration
statement under the Securities Act with the Securities and Exchange Commission
in order to register the resale of shares of our Common Stock. Accordingly, an
investment in our company is suitable only for persons who have no need for
liquidity in the investment, and can afford to hold unregistered securities for
an indefinite period of time.
If
a public market for our common stock develops, trading will be limited under the
SEC’s penny stock regulations, which will adversely affect the liquidity of our
common stock.
The
trading price of our common stock is less than $5.00 per share and, as a result,
our common stock is considered a "penny stock," and trading in our common stock
would be subject to the requirements of Rule 15g-9 under the Exchange Act. Under
this rule, broker/dealers who recommend low-priced securities to persons other
than established customers and accredited investors must satisfy special sales
practice requirements. Generally, the broker/dealer must make an individualized
written suitability determination for the purchaser and receive the purchaser's
written consent prior to the transaction.
SEC
regulations also require additional disclosure in connection with any trades
involving a "penny stock," including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and its
associated risks. These requirements severely limit the liquidity of securities
in the secondary market because few broker or dealers are likely to undertake
these compliance activities. In addition to the applicability of the
penny stock rules, other risks associated with trading in penny
stocks could also be price fluctuations and the lack of a liquid market. An
active and liquid market in our common stock may never develop due to these
factors.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Forward
Looking Statements
Some of
the statements contained in this Form 8-K that are not historical facts are
"forward-looking statements" which can be identified by the use of terminology
such as "estimates," "projects," "plans," "believes," "expects," "anticipates,"
"intends," or the negative or other variations, or by discussions of strategy
that involve risks and uncertainties. We urge you to be cautious of the
forward-looking statements, that such statements, which are contained in this
Form 8-K, reflect our current beliefs with respect to future events and involve
known and unknown risks, uncertainties and other factors affecting our
operations, market growth, services, products and licenses. No assurances can be
given regarding the achievement of future results, as actual results may differ
materially as a result of the risks we face, and actual events may differ from
the assumptions underlying the statements that have been made regarding
anticipated events. Factors that may cause actual results, our performance or
achievements, or industry results, to differ materially from those contemplated
by such forward-looking statements include without limitation:
·
|
Our
ability to attract and retain management, and to integrate and maintain
technical information and management information
systems;
|
·
|
Our
ability to raise capital when needed and on acceptable terms and
conditions;
|
·
|
The
intensity of competition;
|
·
|
General
economic conditions; and
|
All
written and oral forward-looking statements made in connection with this Form
8-K that are attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Given the
uncertainties that surround such statements, you are cautioned not to place
undue reliance on such forward-looking statements.
Our
Management’s Discussion and Analysis should be read in conjunction with our
financial statements included herein.
Overview
We are an
independent energy company engaged primarily in the development, production and
marketing of oil and natural gas in the Russian Federation through our
majority-owned subsidiary. Our current operations are focused on the
North-Kopanskoye Oilfield in the Volga-Urals basin in the Russian
Federation. We control approximately 3,213 acres in the Field, thanks
to our acquisition of 51% of KARBON, the operating company that holds the
license for exploration and development of the Field.
The
independent petroleum engineering firm DeGolyer and MacNaughton of Dallas,
Texas, evaluated 100% of the properties and issued an appraisal report dated
November 27, 2007 on oil and gas reserve estimates as of December 31, 2006,
summarized in the table below.
Reserve
Category
|
Oil
(MMBbl)
|
Gas
(Bcf)
|
|
|
|
Proved
Developed
|
0.064
|
0.177
|
Proved
Undeveloped
|
8.029
|
45.060
|
|
|
|
Total
Proved
|
8.093
|
45.237
|
|
|
|
Reserve
Category
|
Oil
(MMBbl)
|
Gas
(Bcf)
|
Probable*
|
21.56
|
9.96
|
Possible*
|
1.21
|
3.00
|
*
Probable and possible reserves have not been risk adjusted to make them
comparable to proved reserves.
Definition
- Reserves
Reserves
are those quantities of crude oil, natural gas, and natural gas liquids that are
anticipated to be commercially recovered from known accumulations from a given
date forward. Reserve estimates involve varying degrees of uncertainty,
depending largely on the amount of reliable geological and engineering data
available at the time of the estimate and the interpretation of the data. The
relative degree of uncertainty can be conveyed by broadly placing reserves into
one of two categories -- proved or unproved. Two basic methods are commonly used
by industry to prepare reserve estimates -- the deterministic and probabilistic
methods. The deterministic method yields a single best estimate of reserves
based on known geological, engineering and economic data. The probabilistic
method uses known geological, engineering and economic data to generate a range
of estimated reserve quantities and their associated probabilities. Each reserve
classification gives an indication of the probability of recovery.
Definition
- Proved Reserves
Proved
reserves are those quantities of crude oil, natural gas, and natural gas liquids
which geological and engineering data demonstrate with reasonable certainty to
be recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves include proved developed
producing reserves and proved developed behind-pipe reserves. Proved developed
producing reserves are only those reserves expected to be recovered from
existing completion intervals in existing wells. Proved developed behind-pipe
reserves are those reserves expected to be recovered from existing wells where a
relatively minor capital expenditure is required for recompletion. Proved
undeveloped reserves are those reserves expected to be recovered from new wells
on undrilled acreage or from existing wells where a relatively major expenditure
is required for recompletion.
Definition
- Unproved Reserves
Unproved
reserves are considered less certain to be recovered than proved reserves.
Estimates of unproved reserves are based on geologic and/or engineering data
similar to that used to estimate proved reserves, but technical, contractual,
economic considerations and/or SEC, state or other regulations preclude such
reserves from being classified as proved. Unproved reserves may be further
sub-classified as probable and possible to denote progressively increasing
uncertainty of recoverability.
Importantly,
estimation of unproved reserves may assume future economic conditions different
than those prevailing at the time of the estimate. The effect of possible future
improvements in economic conditions and technological developments can be
expressed by allocating appropriate quantities of reserves to the probable and
possible classifications.
Definition
- Probable Reserves
Probable
reserves are estimates of unproved reserves which analysis of geological and
engineering data suggests are more likely than not to be recoverable. For
estimates of probable reserves based on probabilistic methods, there should be
at least a 50% probability that the quantities of reserves actually recoverable
will equal or exceed the sum of the estimated proved plus probable
reserves.
Probable
reserves may include:
1.
reserves in formations known to be productive where SEC regulations limit
recognition of proved reserves to direct-offset locations one legal spacing-unit
away from a producing well;
2.
reserves anticipated to be proved by normal step-out drilling where subsurface
control is currently inadequate to classify these reserves as
proved;
3.
reserves in formations that appear to be productive based on well-log
characteristics but lack core data or other definitive tests to indicate
productive potential and which are not analogous to producing or proved reserves
in the area;
4.
incremental reserves attributable to infill drilling that could have been
classified as proved if closer statutory spacing had been approved at the time
of the estimate;
5.
reserves attributable to improved recovery methods that have been established by
repeated commercially successful applications where:
a. a project or pilot is planned but not in operation;
and
b. rock,
fluid and reservoir characteristics appear favorable for commercial
application;
6.
reserves in an area of the formation that appears to be separated from the
proved area by faulting and where geologic interpretation indicates that the
area is structurally higher than the proved area;
7.
reserves attributable to future workover, treatment, re-treatment, change of
equipment, or other mechanical procedures, where such mechanical procedure has
not been proved successful in wells which exhibit similar behavior in analogous
reservoirs; and/or
8.
incremental reserves in proved reservoirs where an alternative interpretation of
performance or volumetric data indicates more reserves are present than can be
classified as proved.
Definition
- Possible Reserves
Possible
reserves are estimates of unproved reserves which analysis of geological and
engineering data suggests are less likely to be recovered than probable
reserves. For estimates of possible reserves based on probabilistic methods,
there should be at least a 10% probability that the quantities of reserves
actually recovered will equal or exceed the sum of the estimated proved plus
probable plus possible reserves.
Possible
reserves may include:
1.
reserves which, based on geological interpretations, could possibly extend
beyond areas classified as probable;
2.
reserves in formations that appear to be petroleum bearing based on log and core
analysis but may not be productive at commercial rates;
3.
incremental reserves attributed to infill drilling that are subject to technical
uncertainty;
4.
reserves attributed to improved recovery methods where:
a. a
project or pilot is planned but not in operation; and
b. rock,
fluid and reservoir characteristics are such that there is a reasonable doubt
that the project will be commercial; and/or
5.
reserves in an area of the formation that appears to be separated from the
proved area by faulting and where geological interpretation indicates the area
is structurally lower than the proved area.
As of
December 31, 2006 we had estimated proved reserves of 8.1 MMBbl of oil and
45.2 Bcf of natural gas, or a total of 15.6 MMBble or 93.8 Bcfe, with a PV-10
value of $37,8 million. Of the total proved reserves, 9.3% was proved
developed oil and 8.7% was proved developed natural gas.
We intend
economically to grow reserves and production, primarily by: (1) major workover
of four of the six existing wells and drilling of three new development wells in
2009 (one in the Artinsky-1 Reservoir and two in the Bashkirian A-4 Reservoir);
(2) acquiring under-valued properties with reasonable risk-reward potential
and by participating in or actively conducting drilling operations in order to
further exploit the existing properties; (3) seeking high-quality
exploration and development projects with potential for providing operated,
long-term drilling inventories; and (4) selectively pursuing strategic
acquisitions that may expand or complement our existing operations.
Financial
highlights for the year ended December 31, 2007 include the
following:
·
|
Improvement
in current ratio (defined as current assets divided by current
liabilities) of 0.07 to 1.00 at December 31, 2007 as compared to 0.03 to
1.00 at December 31, 2006;
|
·
|
Discounted
value of proved reserves was down by 36%; value falling from $37.8 million
at the prior year end to $27.8 million at December 31,
2007;
|
·
|
Profitable
operations resulting in net income of $0.5
million;
|
·
|
Debt
outstanding was up 10%, value climbed from $2.9 million at the prior year
end to $3.2 million at December 31,
2007;
|
·
|
Capital
expenditures of $0.2 million for finalized development drilling of Well #
130bis;
|
·
|
Increased
depreciation, depletion and amortization rate per unit as a result of
capital expenditures related to oil and gas properties at the end of 2006
and 2007.
|
·
|
General
and administrative expenses were down by 70%, value falling from $0.144
million at the prior year end to $0.048 million at December 31,
2007;
|
·
|
Marketing
and transportation expenses were down by 28%, value falling from $0.283
million at the prior year end to $0.205 million at December 31,
2007.
|
KARBON’s
operating results for the years ended December 31, 2007 and 2006 are as follows
(in US
Dollars):
|
|
For
year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Oil
revenue - domestic
|
|
$
|
779,174
|
|
|
$
|
809,268
|
|
|
|
|
|
|
|
|
|
|
Oil
production expense - domestic
|
|
$
|
(451,355
|
)
|
|
$
|
(320,629
|
)
|
Mineral
extraction tax
|
|
$
|
(258,769
|
)
|
|
$
|
(354,866
|
)
|
Depreciation,
depletion and amortization
|
|
$
|
(348,940
|
)
|
|
$
|
(321,498
|
)
|
Taxes
other than income taxes
|
|
$
|
(28,807
|
)
|
|
$
|
(41,534
|
)
|
Loss
on sales support equipment
|
|
$
|
-
|
|
|
$
|
(5,876
|
)
|
Marketing
and transportation expenses
|
|
$
|
(204,797
|
)
|
|
$
|
(283,131
|
)
|
General
and administrative expenses
|
|
$
|
(43,975
|
)
|
|
$
|
(144,610
|
)
|
Currency
translation gain
|
|
$
|
23,764
|
|
|
$
|
47,432
|
|
Interest
expense
|
|
$
|
(53,272
|
)
|
|
$
|
(45,986
|
)
|
Benefit
for Income Taxes
|
|
$
|
1,064,973
|
|
|
$
|
115,010
|
|
Net Income/(Loss)
|
|
$
|
477,995
|
|
|
$
|
(546,421
|
)
|
|
|
|
|
|
|
|
|
|
Basic
Net Income/(Loss) Per share of common stock
|
|
$
|
0.80
|
|
|
$
|
(0.91
|
)
|
Diluted
Income/(Loss) Per share of common stock
|
|
$
|
0.80
|
|
|
$
|
(0.91
|
)
|
Balance
Sheet Summary
(in US
Dollars)
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
Current
ratio (1)
|
|
0.07
to 1
|
|
|
0.03
to 1
|
|
Working
capital (2)
|
|
$
|
(2,965,074
|
)
|
|
$
|
(2,359,244
|
)
|
Cash
and cash equivalents
|
|
$
|
162
|
|
|
$
|
12,317
|
|
Total
debt
|
|
$
|
3,196,468
|
|
|
$
|
2,861,800
|
|
Stockholders`
Equity
|
|
$
|
2,476,292
|
|
|
$
|
1,836,344
|
|
Total
Liabilities to Equity
|
|
1.91
to 1
|
|
|
2.92
to 1
|
|
(1)
Current ratio is calculated as current assets divided by current
liabilities.
(2)
Working capital is the difference between current assets and current
liabilities.
The
following summarizes our operational highlights during 2007:
KARBON’s
oil operations consist of its development and production efforts in the Russian
Federation. The following table sets forth its domestic oil operating results
for 2007 and 2006 years ended December 31, 2007 (in US Dollars):
|
|
For
year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Oil
revenue
|
|
$
|
779,174
|
|
|
$
|
809,268
|
|
|
|
|
|
|
|
|
|
|
Net
Oil sold (Bbls)
|
|
$
|
27,173
|
|
|
$
|
33,398
|
|
Average
price of oil sold (per bbl)
|
|
$
|
28.67
|
|
|
$
|
24.23
|
|
Average
production and transportation cost (per bbl)
|
|
$
|
33.67
|
|
|
$
|
28.70
|
|
During
2007, KARBON’s domestic oil revenues were down by 3.7%, due to decreased oil
production by 19.3% and increase of selling price by 18.3%.
KARBON’s
domestic oil operating expenses increased 7.2%, falling from $1.5 million in
2006 to $1.3 million in 2007. The decrease in workover activity in KARBON’s
field is the primary reason for the overall decrease in the operating expenses.
Rising oilfield costs and lower production during 2007 resulted in higher costs
per bbl, however.
The
exploration for, and the acquisition, development, production, and sale of,
natural gas and crude oil is highly competitive and capital intensive. As in any
commodity business, the market price of the commodity produced and the costs
associated with finding, acquiring, extracting, and financing the operation are
critical to profitability and long-term value creation for stockholders.
Generating reserve and production growth while containing costs represents an
ongoing focus for management and is made particularly important in our business
by the natural production and reserve decline associated with oil and gas
properties. In addition to developing new reserves, we compete to acquire
additional reserves, which involve judgments regarding recoverable reserves,
future oil and gas prices, operating costs and potential environmental and other
liabilities, title issues and other factors.
Since
December 31, 2007
there has been no
significant material developments.
Results
of Operations for nine months period ended September 30, 2008 compared to nine
months period ended September 30, 2007
We had
net loss from continuing operations for the nine months period ended September
30, 2008 of $0.77 million compared to a net income of $0.65 million for the same
period in 2007. Factors contributing to the $1.42 million decrease in net income
from the nine months period ended September 30, 2008 to the same period in 2007
included the following:
Oil
production net to our interest for the nine months period ended September 30,
2008 was 16,743 Bbls resulting in $732,292 in oil sales, at an average wellhead
price of $47.05 per Bbls. For the nine months period ended September 30, 2007
our net production was 21,052 Bbls resulting in $574,281 worth of oil sales, at
an average wellhead price of $28.75. The 20.5% drop in production volumes
resulted from decrease of oil output by Well 131.
Our
marketing and transportation expenses and production taxes (mineral extraction
tax) for the nine months period ended September 30, 2008 increased to $275,888
(43% over 2006) and $331,419 (67% over 2006), respectively.
General
and administrative expenses decreased from $38,080 for the nine months period
ended September 30, 2007 to $252,063 for the nine months period ended
September 30, 2008, due largely to:
|
•
|
|
A
increase in provision for claim of approximately $Nil (in 9m period of
2007) due to approximately $100,741 (in 9m period of 2008) due to
litigating with Tintrade Limited,
a lender of the Company, with regard to repayment of a $300,000 loan that
matured in June 2003 and payment of penalties and of court
fees.
|
|
|
|
|
|
|
|
An
increase in fines and penalty charges from approximately $ 912 (in 9m
period of 2007) to $58,190 (in 9m period of 2008) was seen due to
worsening economic conditions.
|
|
|
|
|
|
•
|
|
An
increase in provision for inventory valuation expense from $ 21,671 (in 9m
period of 2007) to approximately $41,191 (in 9m period of 2008)
resulted from a drop in net realizable value of crude
oil.
|
|
|
|
An
increase in
audit, legal,
advisory and information expenses
from approximately $ 4,661 (in 9m
period of 2007) to approximately $34,925 (in 9m period of 2008) was
due to the Company’s appointed auditors and advisers charging increased
professional fees associated with pre-transaction commercial and
pre-disposal due diligence
exercises.
|
Depletion
and depreciation expense increased from $258,895 in 2006 to $303,845 in 2007 due
to the lower oil production volumes in 2008 compared to 2007.
Benefit
for Income Taxes decrease from $1,068,640 for the nine months period ended
September 30, 2007 to $5,391 for the nine months period ended September 30, 2008
due settlement in 2007 of deferred tax liability brought down from
the previous period.
Results of Operations 2007 Compared
to 2006
We had
net income from continuing operations for the year ended December 31, 2007
of $0.5 million compared to a net loss of $0.5 million for the same period in
2006. Factors contributing to the $1.0 million increase in net income from 2006
to 2007 included the following:
Oil production net of our interest in
2007
was 27,173 Bbls resulting in $779,174 worth of oil sales, at an
average wellhead price of $28.67 per Bbls for the year. In 2006 our net
production was 33,398 Bbls resulting in $809,268 worth of oil sales, at an
average wellhead price of $24.23. The 19.3% decrease in production volumes
resulted from abandonment of oil production from Well 130 due to operating
necessity of workover activities.
Our
marketing and transportation expenses and production taxes (mineral extraction
tax) for 2007 decreased to $204,797 (28% over 2006) and $258,769 (27% over
2006), respectively.
General
and administrative expenses decreased from $144,610 for the year ended
December 31, 2006 to $43,975 for the year ended December 31, 2007, due
largely to:
|
•
|
|
A
decrease in fines and penalties expense of approximately $ 43,712 due to
approximately $2,867 as a result of financial discipline in settlements of
accounts payable owed to most vendors of the Company, coupled with
increased discipline in settlement of tax liabilities and following the
proper environmental compliance performance;
|
|
|
|
|
|
|
|
A
decrease in bad debt allowance expense of approximately $ 21,317 due to
approximately $Nil as a result of prepaid offtake introduced as a
trading condition;
|
|
|
|
|
|
•
|
|
A
decrease in provision for inventory valuation expense of approximately $
48,849 due to approximately $21,671 as a result of decrease in markup
“spread” (between sales and cost of sales
points).
|
Depletion
and depreciation expense increased from $321,498 in 2006 to $348,940 in 2007 due
to capital expenditures related to oil and gas properties at the end of 2006 and
2007.
Benefit
for Income Taxes increase from $115,010 in 2006 to $1,064,973 in 2007 due
settlement of deferred tax liability brought down from the previous
period.
Outlook for 2009
The
following summarizes our goals and objectives for 2009:
|
•
|
|
Rework
the existing four wells to increase production to 380 barrels of crude oil
per day from the properties in which we own interests at
December 31, 2008.
|
|
|
|
|
|
•
|
|
Continue
to develop the North-Kopanskoye acreage by drilling and completing three
production wells – for an expected additional production of 690 barrels
per day.
|
|
|
|
|
|
•
|
|
Pursue
additional operated oil and gas asset and project
acquisitions.
|
|
|
|
|
|
•
|
|
Maintain
liquidity through increases in cash flow provided by operations and our
senior credit facility borrowing base.
|
|
|
|
|
|
•
|
|
Continue
to build our operating staff and related capabilities.
|
|
|
|
|
|
|
|
|
Liquidity and Capital
Resources
Historically,
our primary sources of liquidity have been cash provided by key shareholders. In
the past, these sources have been sufficient to meet the needs of the business.
As a result of our developmental drilling program progress, we expect that cash
flow from operating activities will also contribute to our cash requirements
during 2009 and for the foreseeable future thereafter. We can give no assurances
that the historical sources of liquidity and capital resources, or cash flow
from operating activities, will be available for future development projects,
and we may be required to seek additional or alternative financing sources.
Product prices and volumes, as well as the timely collection of receivables and
the availability of oil field services and supplies such as pipe and compression
equipment are all expected to have a significant influence on our future net
cash provided by operating activities. Additionally, our future growth will be
dependent upon the success and timing of our exploration and production
activities, new project development, efficient operation of our facilities and
our ability to obtain financing at favorable terms.
Depending
on the timing and amount of future projects, as well as the amount of the
increase we receive in our borrowing base related to the reserves we intend to
purchase, we may be required to seek additional sources of capital. While we
believe that we would be able to secure additional financing if required, we can
provide no assurance that we will be able to do so or as to the terms of any
additional financing.
Credit Facility
Presently
we have no revolving Credit Facility established, but may do so in the future.
The borrowing base for such a Credit Facility at any time will be the loan value
assigned to the proved reserves attributable to our direct or indirect oil and
gas interests. The borrowing base will be re-determined on a semi-annual basis,
based upon an engineering report delivered by us from an approved petroleum
engineer. The Credit Facility is to be available for working capital
requirements, capital expenditures, acquisitions, general corporate purposes and
to support letters of credit.
Cash Flows and Capital
Expenditures
Our
capital budget for 2009 is currently estimated at $19.3 million for the planned
drilling of four
new wells and
undertaking workover and maintenance operations for three wells
in the North Kopanskoye
Field and $8.5 millions for the oil field construction of surface facilities.
Our planned 2009 development and exploration expenses could also increase if any
of the operations associated with our properties experience cost
overruns.
Our
primary capital needs for the two years, as of September 30, 2008 and
December 31, 2007 were:
|
|
For
year ended December 31,
|
|
(in
thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Property
acquisition costs
|
|
$
|
230
|
|
|
$
|
2,373
|
|
Exploration
|
|
|
-
|
|
|
|
-
|
|
Development
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
230
|
|
|
$
|
2,373
|
|
Operating
Activities
During
the year ended December 31, 2007, we used $ 0.6 million of net cash for
operating activities.
During
the year ended December 31, 2006, some $0.1 million was provided by our
operating activities.
Investing
Activities
To date
we have not been involved in any investing activity, other than our drilling and
completion programs in the North-Kopanskoye Field.
Financing
Activities
On
January 24, 2007, we increased authorized share capital and completed a rights
issue with a total of 600,000 shares outstanding, at a price of $ 3.75 per share
distributed to the existing shareholders.
During
the year ended December 31, 2007 some $0.96 million was provided by
related party as interest-free loans.
During
the year ended December 31, 2006 some $0.33 million was provided by
related party as interest free loans.
Contractual
Obligations
Presently
we have no Company hedging policy in place. Collared hedges have the
effect of providing a protective floor while allowing us to share in upward
pricing movements to a fixed point. Consequently, while these hedges are
designed to decrease our exposure to price decreases, they also have the effect
of limiting the benefit of price increases beyond the ceiling. As we need, we
may pursue hedging to protect a portion of our production against future pricing
fluctuations, or enter into derivative contracts to decrease exposure to
commodity price volatility.
Income Taxes, Net Operating Losses
and Tax Credits
At
December 31, 2007, we had no net operating loss carryforwards, for federal
income tax purposes.
Deferred
tax assets and liabilities are measured using the balance sheet liability
method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax assets are recognized to the extent it is more
likely than not that future taxable profit will be available against which the
temporary differences can be applied. Deferred tax is calculated using the tax
rates (and laws) that have been enacted or substantively enacted by the balance
sheet date and that are expected to apply when the deferred tax asset concerned
is realized or the deferred tax liability is settled.
Operations
in the Russian Federation are subject to Federal and city income tax rates that
total 9.5% and a regional income tax rate that varies from 10.5% to 14.5% at the
discretion of the individual regional administration. The combined statutory tax
rate in the Russian Federation is 24% until December 31, 2008. Since January 01,
2009 the combined statutory tax rate in the Russian Federation is
20%.
Off-Balance Sheet
Arrangements
We do not
participate in transactions that generate relationships with unconsolidated
entities or financial partnerships. Such entities are often referred to as
structured finance or special purpose entities (“SPEs”) or variable interest
entities (“VIEs”). SPEs and VIEs can be established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. We were not involved in any unconsolidated SPEs or VIEs at any
time during any of the periods presented in this Form Super 8-K.
From time
to time, we enter into contracts that might be construed as off-balance sheet
obligations but are normal in the day-to-day course of business in the oil and
gas industry. Those contracts could include the contracts discussed directly
above under Contractual Obligations. We do not believe we will be affected by
these contracts materially differently than other similar companies in the
energy industry.
Critical Accounting Policies and
Estimates
This
discussion and analysis of our financial condition and results of operations are
based on the consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of our financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. Our significant accounting policies are described in Note 1 to the
Consolidated Financial Statements, included in Item 8 of this Annual Report
on Form 10-K. In the following discussion, we have identified the accounting
estimates which we consider as the most critical to aid in fully understanding
and evaluating our reported financial results. Estimates regarding matters that
are inherently uncertain require difficult, subjective or complex judgments on
the part of our management. We analyze our estimates, including those related to
oil and gas reserves, oil and gas properties, income taxes, contingencies and
litigation, and base our estimates on historical experience and various other
assumptions that we believe reasonable under the circumstances. Actual results
may differ from these estimates.
Successful Efforts Method of
Accounting
We
account for our natural gas and crude oil exploration and development activities
utilizing the successful efforts method of accounting. Under this method, costs
of productive exploratory wells, development dry holes and productive wells, and
undeveloped leases are capitalized. Oil and gas lease acquisition costs are also
capitalized. Exploration costs, including personnel costs, certain geological
and geophysical expenses, and delay rentals for oil and gas leases are charged
to expense as incurred. Exploratory drilling costs are initially capitalized but
charged to expense if and when the well is determined not to have found reserves
in commercial quantities. The sale of a partial interest in a proved property is
accounted for as a cost recovery and no gain or loss is recognized as long as
this treatment does not significantly affect the unit-of-production amortization
rate. A gain or loss is recognized for all other sales of producing
properties.
The
application of the successful efforts method of accounting requires managerial
judgment to determine the proper classification of wells designated as
developmental or exploratory which will ultimately determine the proper
accounting treatment of the costs incurred. The results from a drilling
operation can take considerable time to analyze and the determination that
commercial reserves have been discovered requires both judgment and industry
experience. Wells may be completed that are assumed to be productive and
actually deliver oil and gas in quantities insufficient to be economic, which
may result in the abandonment of the wells at a later date. Wells are drilled
which have targeted geologic structures which are both developmental and
exploratory in nature and an allocation of costs is required to properly account
for the results. The evaluation of oil and gas leasehold acquisition costs may
require managerial judgment to estimate the fair value of these costs with
reference to drilling activity in a given area. Drilling activities in an area
by other companies may also effectively condemn leasehold
positions.
The
successful efforts method of accounting can have a significant impact on the
operational results reported when we are entering a new exploratory area in
hopes of finding an oil and gas field that will be the focus of future
development drilling activity. The initial exploratory wells may be unsuccessful
and will be expensed.
Reserve Estimates
Estimates
of oil and gas reserves, by necessity, are projections based on geologic and
engineering data, and there are uncertainties inherent in the interpretation of
such data as well as the projection of future rates of production and the timing
of development expenditures. Reserve engineering is a subjective process of
estimating underground accumulations of oil and gas that are difficult to
measure. The accuracy of any reserve estimate is a function of the quality of
available data, engineering and geological interpretation and judgment.
Estimates of economically recoverable oil and natural gas reserves and future
net cash flows necessarily depend upon a number of variable factors and
assumptions, such as historical production from the area compared with
production from other producing areas, the assumed effects of regulations by
governmental agencies and assumptions governing future oil and natural gas
prices, future operating costs, severance taxes, development costs and workover
costs, all of which may in fact vary considerably from actual results. For these
reasons, estimates of the economically recoverable quantities of oil and natural
gas attributable to any particular group of properties, classifications of such
reserves based on risk of recovery, and estimates of the future net cash flows
expected there from may vary substantially. Any significant variance in the
assumptions could materially affect the estimated quantity and value of the
reserves, which could affect the carrying value of oil and gas properties and/or
the rate of depletion of the oil and gas properties. Actual production, revenues
and expenditures with respect to our reserves will likely vary from estimates,
and such variances may be material.
Impairment of Oil and Gas
Properties
We review
the carrying values of our long-lived assets whenever events or changes in
circumstances indicate that such carrying values may not be recoverable. If,
upon review, the sum of the undiscounted pretax cash flows is less than the
carrying value of the asset group, the carrying value is written down to
estimated fair value. Individual assets are grouped for impairment purposes at
the lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets, generally on a
field-by-field basis. The fair value of impaired assets is determined based on
quoted market prices in active markets, if available, or upon the present values
of expected future cash flows using discount rates commensurate with the risks
involved in the asset group. The long-lived assets of the Company, which are
subject to periodic evaluation, consist primarily of oil and gas properties and
undeveloped leaseholds.
Stock-Based
Compensation
Stock and
stock-based grants are charged to earnings over the period services are
provided, which is generally equivalent to the vesting period.
We accrue
for anticipated vesting of stock grants in interim reporting periods based upon
our best estimates at the time of the interim period of the conditions and
criteria under which the options will vest. These conditions and criteria
include service through the vesting date, announced future terminations,
performance criteria based upon most recent forecasts and market conditions
where appropriate. The estimates used are subjective and based upon management’s
judgment and may change over time as experience emerges. Changes to the interim
accruals due to changes in the estimates of the conditions and criteria are
recorded in the period in which the estimate changes occur.
Asset Retirement
Obligations
Legal
obligations associated with the retirement of long-lived assets result from the
acquisition, construction, development and normal use of the asset. The
Company’s asset retirement obligations relate primarily to the retirement of oil
and gas properties and related production facilities, lines and other equipment
used in the field operations. The fair value of a liability for an asset
retirement obligation is recognized in the period in which it is incurred, if a
reasonable estimate of fair value can be made. The estimated fair value of the
liability is added to the carrying amount of the associated asset. This
additional carrying amount is then depreciated over the life of the asset. The
liability increases due to the passage of time based on the time value of
money until the obligation is settled.
Recently Adopted Accounting
Pronouncements
In
June 2006, the Financial Accounting Standards Board (“FASB”) issued
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an
Interpretation of SFAS No. 109” (“FIN 48”). The interpretation creates a
single model to address accounting for uncertainty in tax positions.
Specifically, the pronouncement prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. The interpretation
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition of certain tax
positions.
The
Company adopted the provisions of FIN 48 effective January 1, 2007. The
adoption of this accounting principle did not have an effect on the Company’s
financial statements as of December 31, 2008.
Recently Issued Accounting
Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS No. 157”). SFAS No. 157 establishes a single
authoritative definition of fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurements. This
standard requires companies to disclose the fair value of their financial
instruments according to a fair value hierarchy. SFAS No. 157 does not
require any new fair value measurements, but will remove inconsistencies in fair
value measurements between various accounting pronouncements. SFAS No. 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years (fiscal
2008 for the Company). The adoption of SFAS No. 157 is not expected to have
a material effect of the Company’s financial position, results of operations or
cash flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (“SFAS No. 159”) which
permits an entity to measure certain financial assets and financial liabilities
at fair value. The objective of SFAS No. 159 is to improve financial
reporting by allowing entities to mitigate volatility in reported earnings
caused by the measurement of related assets and liabilities using different
attributes, without having to apply complex hedge accounting provisions. Under
SFAS No. 159, entities that elect the fair value option (by instrument)
will report unrealized gains and losses in earnings at each subsequent reporting
date. The fair value option election is irrevocable, unless a new election date
occurs. SFAS No. 159 establishes presentation and disclosure requirements to
help financial statement users understand the effect of the entity’s election on
its earnings, but does not eliminate disclosure requirements of other accounting
standards. Assets and liabilities that are measured at fair value must be
displayed on the face of the balance sheet. SFAS No. 159 is effective for
financial statements issued for fiscal years beginning after November 15,
2007 (fiscal 2008 for the Company). The adoption of SFAS No. 159 is not
expected to have a material effect of the Company’s financial position, results
of operations or cash flows.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141R”), which replaces FASB Statement No. 141.
SFAS No. 141R will change how business acquisitions are accounted for and
will impact financial statements both on the acquisition date and in subsequent
periods. SFAS No. 141R is effective as of the beginning of an entity’s
fiscal year that begins after December 15, 2008 (fiscal 2009 for the
Company). The Company is in the process of evaluating the impacts, if any, of
adopting this pronouncement.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statement, an amendment of ARB No. 51” (“SFAS
No. 160”). SFAS No. 160 will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
and classified as a component of equity. This statement is effective as of the
beginning of an entity’s first fiscal year beginning after December 15,
2008 (fiscal 2009 for the Company). The Company is in the process of evaluating
the impacts, if any, of adopting this pronouncement.
MANAGEMENT
Executive
Officers and Directors
Below are
the names and certain information regarding Premier’s executive officers and
directors following the acquisition of Premier.
Name
|
|
Age
|
|
Position
|
Dr. Anton
Prodanovic
|
|
63
|
|
Chief
Executive Officer and Director
|
Michael
Yuster
|
|
51
|
|
President
and Director
|
Alexey
Goleshev
|
|
37
|
|
Chief
Financial Officer and Director
|
Bosko
Popovic
|
|
46
|
|
Chief
Operating Officer and Director
|
Aslanbi
Kodzokov
|
|
42
|
|
Secretary
and Director
|
|
|
|
|
|
Officers
are elected annually by the Board of Directors (subject to the terms of any
employment agreement), at its annual meeting, to hold such office until an
officer’s successor has been duly appointed and qualified, unless an officer
sooner dies, resigns or is removed by the Board.
Background
of Executive Officers and Directors
Dr. Anton Prodanovic
, our
Chief Executive Officer and a director of the Company, has been focused on the
evaluation, planning, permitting, contracting, construction and management of
various energy projects. From 2000 until joining our company,
Dr. Prodanovic has served as a consultant to various oil and gas projects,
renewable energy sources and emerging alternative fuel projects. Between 1984
and 2000, Dr. Prodanovic served in various capacities with Mobil
Corporation as an officer or senior executive with various divisions and
projects within Mobil Corporation, and from 1976 until 1984 he was a Senior
Research Associate with Exxon Production Research Co., a division of Exxon
Corporation. Dr. Prodanovic is a member of the American Society of Civil
Engineers and the American Society of Mechanical Engineers. He was co-founder or
organizer of Offshore Mechanics & Arctic Engineering, Polar Offshore Arctic
Conferences, Offshore Technology Conferences and Russian Arctic Offshore
Conferences. A Fulbright scholar (1973), Dr. Prodanovic also served as
Assistant Professor at the University of Sarajevo, Yugoslavia and was a Research
Assistant at Rice University. Dr. Prodanovic holds a Ph.D. in Structural
Engineering from Rice University, an M.A. in International Business from the
University of Texas and a B.S. in Civil Engineering from the University of
Sarajevo.
Michael Yuster,
our President
and a director, has served as principal executive officer and sole director of
ZRV Consulting Inc., West Orange, New Jersey, which provides consulting services
to various commercial companies and businesses since June 11, 2008. Between
March 2001 and April 1, 2007, Mr. Yuster was Vice President of Medical
Adult Daycare Center and Always Care Adult Center Inc., Old Bridge, New Jersey.
Between 1996 and 2001, Mr. Yuster was Director of Operations for Available
Care Inc., Medical Transportation Company and Ambulance and Invalid Coach,
Milltown, New Jersey.
Alexey Goleshev,
our Chief
Financial Officer and a director, has served as Vice President of National
Republic Bank (Russia) since June 2003 where has been responsible for planning
of oil and gas project financing. From November 1998 through June
2001, Mr. Goleshev has served as the President of Codexbank. Mr.
Goleshev holds a MBA from the Pacific Coast University.
Bosko Popovic
, our Chief
Operating Officer and a director, has served as a Director of a Representation
Office for Auxerre Trading Ltd, a significant shareholder of the Company, since
October 2005 where he has monitored and controlled assets in Russia and traded
crude oil and products. From July 2003 through September 2005, Mr.
Popovic served as Director of the Moscow office where he was responsible for
processing and supplying crude oil. Mr. Popovic holds an engineering
degree from the University of Belgrade.
Aslanbi Kodzokov,
our
Secretary and a director, has since 2006, served as the Deputy General Director
for the Legal Department of OOO Rossgaz and the Director of the Legal Department
for OAO Hydrometalurg from 2002 to 2006. From 2000 to 2002, Mr.
Kodzokov served as the General Director of Moscow Institute of Economy and
Law. Mr. Kodzokov
earned an
economics degree from the Government University of Kabardino-Balkaria and a law
degree from the Moscow Institute of Economy and Law.
Executive
Compensation
Neither
Karbon nor Premier have paid their executive officers any compensation during
the last two fiscal years.
Employment
Agreements
On
October 16, 2008 we entered into an employment agreement with
Dr. Prodanovic. Under the terms of this
24 month agreement, he
will serve as Chief Executive Officer. In addition, during the term of the
agreement we agreed to cause him to be successively nominated for election to
the Board of Directors. As compensation, we agreed to pay Dr. Prodanovic an
annual base salary of $100,000, which such base is subject to annual merit
review and increase as deemed appropriate by the Board, together with bonus
compensation in amounts as may be determined by the Board. We have agreed to
grant Dr. Prodanovic options to purchase 200,000 of our common stock at an
exercise price equal to fair market value on the date of grant. He is also
entitled to participate in such benefit packages as we provide to similarly
situated employees, four weeks paid vacation and 10 paid holidays. The agreement
contains customary provisions related to non-compete, confidentiality,
non-solicitation and invention assignment
.
The
agreement may be terminated by us for cause as set forth in the agreement, by us
without cause, or by Dr. Prodanovic under certain circumstances. If we
terminate the agreement for cause, he is not entitled to any severance benefits.
If we should terminate the agreement without cause, we are obligated to pay
Dr. Prodanovic an amount equal to his monthly base salary for the greater
of 24 months or until he is hired in a new position which is consistent with his
experience and stature. If such new position pays less than his then current
base salary we are obligated to pay the difference for the balance of the 24
month severance period. If his employment in the new position should terminate
prior to the expiration of the 24 month severance period, we are obligated to
pay his monthly base salary during the remaining period. In the event we should
fail to appoint Dr. Prodanovic Chief Executive Officer and a member of our
Board of Directors in any successive periods during the term of the agreement,
should we fail to compensate him pursuant to the terms of the agreement, or if
there is a material breach of the agreement, Dr. Prodanovic is entitled to
terminate the agreement and we shall be obligated to pay him the same severance
benefits had we terminated the agreement without cause.
We have
entered two year employment agreements with each of Alexey Goleshev, Bosko
Popovic and Aslanbi Kodzokov providing annual salaries of $50,000.
Outstanding Equity Awards at
Fiscal Year-End
The
Company’s Named Executive Officers did not hold unexercised options or any other
stock awards as of the end of our third quarter and year ended September 30,
2008 and December 31, 2007, respectively. As such, the table
has been omitted.
Director Compensation and
Committees
We
presently are considering to pay compensation to our directors for acting in
such capacity, including the grant of shares of common stock or options and
reimbursement for reasonable out-of-pocket expenses in attending
meetings.
We intend
to appoint an audit committee. Accordingly, we will designate a
director as an "audit committee financial expert", as that term is defined in
the rules of the Securities and Exchange Commission.
The Board
of Directors does not have a standing nominating
committee. Nominations for election to the Board of Directors may be
made by the Board of Directors or by any shareholder entitled to vote for the
election of directors in accordance with our bylaws and Florida
law.
Meetings
may be held from time to time to consider matters for which approval of our
Board of Directors is desirable or is required by law.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
On
January 30, 2009, we entered into a Share Exchange Agreement with Auxerre
Trading Ltd., a British Virgin Islands Company (“Auxerre”) pursuant to which we
acquired 51% of the outstanding securities of Karbon in exchange for 107,406,000
shares of our common stock (the “Karbon Acquisition”). Bosko Popovic,
an executive officer and director of the Company, is an employee of
Auxerre.
On
January 30, 2009, prior to the Karbon Acquisition, ZRV Consulting Inc., the
former majority shareholder of Premier, returned 107,406,000 shares of common
stock of Premier for cancellation. Michael Yuster, a director
and officer of the Company, is the sole owner and director of ZRV Consulting,
Inc.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information, as of January 30, 2009 with
respect to the beneficial ownership of the outstanding common stock by (i) any
holder of more than five (5%) percent; (ii) each of the Premier’s executive
officers and directors; and (iii) Premier’s directors and executive officers as
a group. Except as otherwise indicated, each of the stockholders listed below
has sole voting and investment power over the shares beneficially
owned.
Name
of Beneficial Owner (1)
|
|
Common
Stock
Beneficially
Owned
|
|
|
Percentage
of
Common
Stock (2)
|
|
Dr. Anton
Prodanovic *
|
|
|
0
|
|
|
|
**
|
|
Michael
Yuster *(3)
|
|
|
54,594,000
|
|
|
|
25.9
|
%
|
Alexey
Goleshev *
|
|
|
0
|
|
|
|
**
|
|
Bosko
Popovic *
|
|
|
0
|
|
|
|
**
|
|
Aslanbi
Kodzokov *
|
|
|
0
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
Auxerre
Trading Ltd.
|
|
|
107,406,000
|
|
|
|
51.0
|
%
|
|
|
|
|
|
|
|
|
|
All
officers and directors as a group (5 persons)
|
|
|
54,594,000
|
|
|
|
25.9
|
%
|
*Executive
officer and/or director of Premier.
** Less than 1%
(1)
|
Except
as otherwise indicated, the address of each beneficial owner is c/o
Premier Energy Corp., 14785 Preston Road, Suite 550, Dallas,
Texas 75254.
|
(2)
|
Applicable
percentage ownership is based on 210,600,000 shares of common stock
outstanding as of January 30, 2009, together with securities exercisable
or convertible into shares of common stock within 60 days of January 30,
2009 for each stockholder. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to
securities. Shares of common stock that are currently
exercisable or exercisable within 60 days of January 30, 2009 are deemed
to be beneficially owned by the person holding such securities for the
purpose of computing the percentage of ownership of such person, but are
not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
|
(3)
|
Shares
are held by ZRV Consulting, Inc. which is wholly owned by Mr.
Yuster.
|
DESCRIPTION
OF SECURITIES
Premier’s
authorized capital stock consists of 250,000,000 shares of common stock at a par
value of $0.0001 per share and 20,000,000 shares of preferred stock at a par
value of $0.0001 per share. As of January 30, 2009, there are
210,600,000 shares of Premier’s common stock issued and outstanding
that are held by approximately 23 stockholders of record and no shares of
Preferred Stock issued and outstanding.
Holders
of Premier’s common stock are entitled to one vote for each share on all matters
submitted to a stockholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the
shares of common stock voting for the election of directors can elect all of the
directors. Holders of the Premier’s common stock representing a
majority of the voting power of Premier’s capital stock issued, outstanding and
entitled to vote, represented in person or by proxy, are necessary to constitute
a quorum at any meeting of stockholders. A vote by the holders of a
majority of Premier’s outstanding shares is required to effectuate certain
fundamental corporate changes such as liquidation, merger or an amendment to
Premier’s articles of incorporation.
Holders
of Premier’s common stock are entitled to share in all dividends that the board
of directors, in its discretion, declares from legally available
funds. In the event of liquidation, dissolution or winding up, each
outstanding share entitles its holder to participate pro rata in all assets that
remain after payment of liabilities and after providing for each class of stock,
if any, having preference over the common stock. Premier’s common stock has no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to the Premier’s common stock.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock is quoted on the OTC Bulletin Board trades under the symbol “PNRC.”
The following table sets forth, for the periods indicated, the high and low bid
prices of our common stock. These prices reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
|
|
|
|
|
|
Year
Ended December 31, 2009
|
|
|
|
First
Quarter (through January 27, 2009)
|
$0.34
|
|
$0.20
|
|
|
|
|
Year
Ended December 31, 2008
|
|
|
|
First
Quarter
|
NA
|
|
NA
|
Second
Quarter
|
NA
|
|
NA
|
Third
Quarter
|
$1.50
|
|
$0.70
|
Fourth
Quarter
|
$1.20
|
|
$0.20
|
__________________
(1) The
above tables set forth the range of high and low closing bid prices per share of
our common stock as reported by www.nasdaq.com for the periods indicated.
Holders
of our Common Stock
As of
January 30, 2009, there were approximately 23 stockholders of record of our
common stock. This number does not include shares held by brokerage
clearing houses, depositories or others in unregistered form.
Dividends
Premier
has never declared or paid any cash dividends on its common stock. Premier
currently intends to retain future earnings, if any, to finance the expansion of
its business. As a result, Premier does not anticipate paying any cash dividends
in the foreseeable future.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table shows information with respect to each equity compensation plan
under which Premier’s common stock is authorized for issuance as of the fiscal
year ended December 31, 2007.
EQUITY
COMPENSATION PLAN INFORMATION
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)
|
|
(a)
|
(b)
|
(c)
|
Equity
compensation plans approved by security holders
|
-0-
|
-0-
|
-0-
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
-0-
|
-0-
|
-0-
|
|
|
|
|
Total
|
-0-
|
-0-
|
-0-
|
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Premier’s
directors and executive officers are indemnified as provided by the Florida
General Corporation law and its Bylaws. These provisions state that the Premier
directors may cause Premier to indemnify a director or former director against
all costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, actually and reasonably incurred by him as a result of him
acting as a director. The indemnification of costs can include an amount paid to
settle an action or satisfy a judgment. Such indemnification is at
the discretion of Premier’s board of directors and is subject to the Securities
and Exchange Commission’s policy regarding indemnification.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, or otherwise, Premier has been advised that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable.
Item
3.02 Unregistered Sales of Equity Securities.
On
January 30, 2009, we entered into a Share Exchange Agreement with Auxerre
Trading Ltd., a British Virgin Islands Company pursuant to which we acquired 51%
of the outstanding securities of Karbon in exchange for 107,406,000 shares of
our common stock.
On
January 30, 2009, prior to the Karbon Acquisition, ZRV Consulting, Inc., the
former majority shareholder of Premier, returned 107,406,000 shares of common
stock of Premier for cancellation.
In
addition, pursuant to a retainer agreement entered with for legal services with
the Law Offices of Stephen M. Fleming, PLLC (“Fleming”) we issued 100,000 shares
of our common stock for services rendered.
This
issuance of these above securities is exempt from the registration requirements
under Rule 4(2) of the Securities Act of 1933, as amended, and/or Rule 506 as
promulgated under Regulation D.
Item
5.01 Changes in Control of Registrant.
See Item
2.01.
Item 5.02 Departure of Directors
or Principal Officers; Election of Directors; Appointment of Principal
Officers.
See Item
1.01.
Item
5.06 Change in Shell Company Status.
See Item
2.01
Item
9.01 Financial Statements and Exhibits
Financial
Statements of Business Acquired
(a) Filed
herewith are the following:
1. Audited
financial statements of Karbon, CJSC for the fiscal years ended December 31,2007
and 2006. (EXHIBIT A)
2. Unaudited
financial statements of Karbon, CJSC for the nine months ended September30, 2008
and 2007. (EXHIBIT A)
(b) Pro
Forma Financial Information
Combined
unaudited pro forma financial statements as of September 30, 2008 and December
31, 2007. (EXHIBIT B)
(c) Shell
Company Transactions
Combined
unaudited pro forma financial statements as of September 30, 2008 and December
31, 2007. (EXHIBIT B)
(d)
Exhibits
Exhibit
No.
|
|
Description
|
10.1
|
|
Share
Exchange Agreement dated as of January 30, 2009 by and among Auxerre
Trading Ltd., Karbon, CJSC and Premier Energy Corp.
|
|
|
|
10.2
|
|
Employment
Agreement between Premier Energy Corp. and Alexey
Goleshev
|
|
|
|
10.3
|
|
Employment
Agreement between Premier Energy Corp. and Bosko
Popovic
|
|
|
|
10.4
|
|
Employment
Agreement between Premier Energy Corp. and Aslanbi
Kodzokov
|
|
|
|
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
|
PREMIER ENERGY
CORP.
|
|
|
|
|
|
Dated:
February 2, 2009
|
By:
|
/s/ Dr. Anton
Prodanovic
|
|
|
|
Name:
Dr. Anton
Prodanovic
|
|
|
|
Title:
Chief Executive Officer and Director
|
|
|
|
|
|
EXHIBIT
A
KARBON,
CJSC
Financial
Statements
for the
years ended December 31, 2007 and 2006
and nine
month periods ended September 30, 2008 and 2007 (unaudited)
KARBON,
CJSC
Contents
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
3
|
Balance
sheets
|
|
|
|
|
|
|
|
4
|
Statements
of operations
|
|
|
|
|
|
|
|
5
|
Statements
of stockholders’ equity and comprehensive income
|
|
|
|
|
|
|
|
6
|
Statements
of cash flows
|
|
|
|
|
|
|
|
7
|
Notes
to the financial statements
|
|
|
|
|
|
|
|
8-25
|
|
«Audit Firm
«FEMIDA-AUDIT», LLC
·
AUDIT
·
TAXES
·
LAW
·
IT
127051, Moscow, Tsvetnoy Boulevard, 30, Bld.
1
Tel.:
+7 (495) 785-71-36, Fax +7 (495) 694-23-62
e-mail:
office@femida-audit.com www:
http://www.femida-audit.com
|
|
|
|
|
Report of Independent
Registered Public Accounting Firm
To
the Board of Directors and stockholders of
KARBON,
CJSC
Orenburg,
Russia
We have
audited the accompanying balance sheets of KARBON, CJSC as of December 31,
2007 and 2006 and the related statements of operations, stockholders` equity and
comprehensive income and cash flows for the years then ended. These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of KARBON, CJSC as of December
31, 2007 and 2006, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has suffered recurring losses from operations and has a
significant working capital deficit that raise doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
Audit
Firm “Femida-Audit”, LLC
Audit
Firm “Femida-Audit”, LLC
Moscow,
Russia
January
29, 2009
KARBON,
CJSC
Balance sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Dollars
|
|
Note
|
|
|
As
of September 30, 2008
|
|
|
As
of December 31, 2007
|
|
|
As
of September 30, 2007
|
|
|
As
of December 31, 2006
|
|
ASSETS
|
|
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
$
|
120
|
|
|
$
|
162
|
|
|
$
|
28,148
|
|
|
$
|
12,317
|
|
Accounts
and notes receivable, net
|
|
|
|
|
|
199,509
|
|
|
|
291,482
|
|
|
|
191,578
|
|
|
|
98,458
|
|
Inventories
|
|
|
4
|
|
|
|
234,143
|
|
|
|
151,443
|
|
|
|
170,267
|
|
|
|
148,465
|
|
Prepaid
taxes and expenses
|
|
|
5
|
|
|
|
596,847
|
|
|
|
640,225
|
|
|
|
732,932
|
|
|
|
850,448
|
|
Prepaid
and other assets
|
|
|
6
|
|
|
|
25,476
|
|
|
|
14,830
|
|
|
|
15,418
|
|
|
|
282,898
|
|
TOTAL
CURRENT ASSETS
|
|
|
|
|
|
|
1,056,095
|
|
|
|
1,098,142
|
|
|
|
1,138,344
|
|
|
|
1,392,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proven
Oil and Gas properties (successful efforts), at cost
|
|
|
|
|
|
|
9,620,493
|
|
|
|
10,108,778
|
|
|
|
9,945,453
|
|
|
|
9,197,027
|
|
Less
- accumulated depletion, depreciation and amortization
|
|
|
|
|
|
|
(4,105,308
|
)
|
|
|
(4,037,837
|
)
|
|
|
(3,883,371
|
)
|
|
|
(3,435,916
|
)
|
Other
property, plant and equipment
|
|
|
|
|
|
|
119,163
|
|
|
|
124,885
|
|
|
|
122,867
|
|
|
|
116,420
|
|
Less
- accumulated depreciation
|
|
|
|
|
|
|
(92,512
|
)
|
|
|
(90,091
|
)
|
|
|
(85,555
|
)
|
|
|
(70,168
|
)
|
NET
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
5,541,836
|
|
|
|
6,105,736
|
|
|
|
6,099,394
|
|
|
|
5,807,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
|
|
|
$
|
6,597,931
|
|
|
$
|
7,203,877
|
|
|
$
|
7,237,738
|
|
|
$
|
7,199,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS
’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
7
|
|
|
$
|
326,012
|
|
|
$
|
711,982
|
|
|
$
|
683,295
|
|
|
$
|
828,978
|
|
Short-term
borrowings
|
|
|
8
|
|
|
|
3,655,602
|
|
|
|
3,196,468
|
|
|
|
3,149,670
|
|
|
|
2,861,800
|
|
Production
Taxes payable
|
|
|
|
|
|
|
161,161
|
|
|
|
154,767
|
|
|
|
152,387
|
|
|
|
61,052
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
|
|
|
|
4,142,775
|
|
|
|
4,063,216
|
|
|
|
3,985,353
|
|
|
|
3,751,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income tax liabilities
|
|
|
9
|
|
|
|
39,164
|
|
|
|
48,185
|
|
|
|
43,646
|
|
|
|
1,089,578
|
|
Provision
for litigations
|
|
|
10
|
|
|
|
96,709
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Asset
retirement obligations
|
|
|
11
|
|
|
|
644,027
|
|
|
|
616,185
|
|
|
|
592,451
|
|
|
|
522,196
|
|
TOTAL
LONG-TERM LIABILITIES
|
|
|
|
|
|
|
779,900
|
|
|
|
664,370
|
|
|
|
636,098
|
|
|
|
1,611,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS
’
EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
12
|
|
|
|
2,251,569
|
|
|
|
2,251,569
|
|
|
|
2,251,569
|
|
|
|
2,251,569
|
|
Additional
paid-in capital
|
|
|
|
|
|
|
5,175,344
|
|
|
|
5,175,344
|
|
|
|
5,175,344
|
|
|
|
5,175,344
|
|
Accumulated
Deficit
|
|
|
|
|
|
|
(5,772,562
|
)
|
|
|
(5,005,553
|
)
|
|
|
(4,829,961
|
)
|
|
|
(5,483,548
|
)
|
Accumulated
other comprehensive income
|
|
|
|
|
|
|
20,905
|
|
|
|
54,932
|
|
|
|
19,336
|
|
|
|
(107,020
|
)
|
TOTAL
STOCKHOLDERS
’
EQUITY
|
|
|
|
|
|
|
1,675,256
|
|
|
|
2,476,292
|
|
|
|
2,616,287
|
|
|
|
1,836,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
$
|
6,597,931
|
|
|
$
|
7,203,877
|
|
|
$
|
7,237,738
|
|
|
$
|
7,199,949
|
|
The
accompanying notes are an integral part of these financial
statements.
KARBON,
CJSC
Statements
of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Dollars
|
|
Note
|
|
|
For
the nine months ended September 30, 2008
|
|
|
For
year ended December 31, 2007
|
|
|
For
the nine months ended September 30, 2007
|
|
|
For
year ended December 31, 2006
|
|
Operating
revenues:
|
|
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
Oil
and gas production revenue
|
|
|
|
|
$
|
732,292
|
|
|
$
|
779,174
|
|
|
$
|
574,281
|
|
|
$
|
809,268
|
|
Other
revenue
|
|
|
|
|
|
9,485
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
operating revenue
|
|
|
|
|
|
741,777
|
|
|
|
779,174
|
|
|
|
574,281
|
|
|
|
809,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas production expense
|
|
|
|
|
|
(129,464
|
)
|
|
|
(451,355
|
)
|
|
|
(244,034
|
)
|
|
|
(320,629
|
)
|
Mineral
extraction tax
|
|
|
|
|
|
(331,419
|
)
|
|
|
(258,769
|
)
|
|
|
(231,165
|
)
|
|
|
(354,866
|
)
|
Depreciation,
depletion and
amortization
|
|
|
|
|
|
(303,845
|
)
|
|
|
(348,940
|
)
|
|
|
(258,895
|
)
|
|
|
(321,498
|
)
|
Taxes
other than income taxes
|
|
|
|
|
|
(72,722
|
)
|
|
|
(28,807
|
)
|
|
|
(30,205
|
)
|
|
|
(41,534
|
)
|
Loss on sales
support equipment
|
|
|
|
|
|
(111,979
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,876
|
)
|
Marketing
and transportation
expenses
|
|
|
13
|
|
|
|
(275,888
|
)
|
|
|
(204,797
|
)
|
|
|
(165,559
|
)
|
|
|
(283,131
|
)
|
General
and administrative
expenses
|
|
|
14
|
|
|
|
(252,063
|
)
|
|
|
(43,975
|
)
|
|
|
(38,080
|
)
|
|
|
(144,610
|
)
|
Total
operating expenses
|
|
|
|
|
|
|
(1,477,379
|
)
|
|
|
(1,336,644
|
)
|
|
|
(967,938
|
)
|
|
|
(1,472,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
|
|
|
|
(735,602
|
)
|
|
|
(557,470
|
)
|
|
|
(393,657
|
)
|
|
|
(662,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation gain
|
|
|
|
|
|
|
10,393
|
|
|
|
23,764
|
|
|
|
18,436
|
|
|
|
47,432
|
|
Interest
expense
|
|
|
|
|
|
|
(47,191
|
)
|
|
|
(53,272
|
)
|
|
|
(39,832
|
)
|
|
|
(45,986
|
)
|
Loss
before Income Taxes
|
|
|
|
|
|
|
(772,400
|
)
|
|
|
(586,977
|
)
|
|
|
(415,053
|
)
|
|
|
(661,431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
for Income Taxes
|
|
|
9
|
|
|
|
5,391
|
|
|
|
1,064,973
|
|
|
|
1,068,640
|
|
|
|
115,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME/(LOSS)
|
|
|
|
|
|
$
|
(767,009
|
)
|
|
$
|
477,995
|
|
|
$
|
653,587
|
|
|
$
|
(546,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share of common stock
(US
dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
(1.28
|
)
|
|
|
0.80
|
|
|
|
1.09
|
|
|
|
(0.91
|
)
|
Diluted
|
|
|
|
|
|
|
(1.28
|
)
|
|
|
0.80
|
|
|
|
1.09
|
|
|
|
(0.91
|
)
|
The
accompanying notes are an integral part of these financial
statements.
KARBON,
CJSC
Statements
of changes in stockholders’ equity and comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
US
Dollars
|
|
Сompre
-hensive
income/ (loss)
|
|
|
Share
capital
|
|
|
Additional
paid-in capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
other comprehensive income
|
|
|
Total
Stockholders’ equity
|
|
|
|
Share
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2005
|
|
|
|
|
|
601,000
|
|
|
$
|
3,435
|
|
|
$
|
5,175,344
|
|
|
$
|
(4,937,127
|
)
|
|
$
|
-
|
|
|
$
|
241,651
|
|
Capital
contributions
|
|
|
|
|
|
|
|
|
|
2,248,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,248,134
|
|
Net
loss
|
|
|
(546,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(546,421
|
)
|
|
|
|
|
|
|
(546,421
|
)
|
Foreign
currency translation adjustment
|
|
|
(107,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107,020
|
)
|
|
|
(107,020
|
)
|
Total
comprehensive loss
|
|
|
(653,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2006
|
|
|
|
|
|
|
601,000
|
|
|
|
2,251,569
|
|
|
|
5,175,344
|
|
|
|
(5,483,548
|
)
|
|
|
(107,020
|
)
|
|
|
1,836,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
477,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
477,995
|
|
|
|
|
|
|
|
477,995
|
|
Foreign
currency translation adjustment
|
|
|
161,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161,952
|
|
|
|
161,952
|
|
Total
comprehensive income
|
|
|
639,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2007
|
|
|
|
|
|
|
601,000
|
|
|
|
2,251,569
|
|
|
|
5,175,344
|
|
|
|
(5,005,553
|
)
|
|
|
54,932
|
|
|
|
2,476,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss (unaudited)
|
|
|
(767,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(767,009
|
)
|
|
|
|
|
|
|
(767,009
|
)
|
Foreign
currency translation adjustment (unaudited)
|
|
|
(34,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,027
|
)
|
|
|
(34,027
|
)
|
Total
comprehensive loss
|
|
|
(801,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of September 30, 2008 (unaudited)
|
|
|
|
|
|
|
601,000
|
|
|
$
|
2,251,569
|
|
|
$
|
5,175,344
|
|
|
$
|
(5,772,562
|
)
|
|
$
|
20,905
|
|
|
$
|
1,675,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
KARBON,
CJSC
Cash
flow statements
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Dollars
|
|
For
the nine months ended September 30, 2008
|
|
|
For
year ended December 31, 2007
|
|
|
For
the nine months ended September 30, 2007
|
|
|
For
year ended December 31, 2006
|
|
Cash
flows from operating activities
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
Net
income/(loss)
|
|
$
|
(767,009
|
)
|
|
$
|
477,995
|
|
|
$
|
653,587
|
|
|
$
|
(546,421
|
)
|
Adjustments
to reconcile net income (loss) to cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
303,845
|
|
|
|
345,272
|
|
|
|
258,895
|
|
|
|
321,498
|
|
Interest
expense
|
|
|
47,191
|
|
|
|
53,272
|
|
|
|
39,832
|
|
|
|
45,986
|
|
Loss
on disposals and impairments of assets
|
|
|
111,979
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,876
|
|
Deferred
income taxes
|
|
|
(14,412
|
)
|
|
|
(1,060,434
|
)
|
|
|
(1,068,640
|
)
|
|
|
(115,052
|
)
|
Provision
for litigations
|
|
|
96,709
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
and notes receivable
|
|
|
91,973
|
|
|
|
(193,024
|
)
|
|
|
(93,121
|
)
|
|
|
(33,092
|
)
|
Inventories
|
|
|
(82,700
|
)
|
|
|
(2,978
|
)
|
|
|
(21,802
|
)
|
|
|
2,066
|
|
Prepaid
expenses and taxes
|
|
|
43,377
|
|
|
|
210,224
|
|
|
|
117,516
|
|
|
|
(246,327
|
)
|
Prepaid
and others assets
|
|
|
(10,645
|
)
|
|
|
268,068
|
|
|
|
267,480
|
|
|
|
106,994
|
|
Accounts
payable and accrued expenses
|
|
|
(385,970
|
)
|
|
|
(116,996
|
)
|
|
|
(145,682
|
)
|
|
|
(185,972
|
)
|
Taxes
payable
|
|
|
6,394
|
|
|
|
93,715
|
|
|
|
91,335
|
|
|
|
8,167
|
|
Net
Cash Flows used in operating activities
|
|
|
(559,269
|
)
|
|
|
75,113
|
|
|
|
99,400
|
|
|
|
(636,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from Sales and disposal of Property, Plant and Equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,205
|
|
Payments
to Acquire Oil and Gas properties
|
|
|
-
|
|
|
|
(230,366
|
)
|
|
|
(230,366
|
)
|
|
|
(2,340,276
|
)
|
Payments
to Acquire Property, Plant and Equipment
|
|
|
(2,123
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(32,374
|
)
|
Net
cash used in investing activities
|
|
|
(2,123
|
)
|
|
|
(230,366
|
)
|
|
|
(230,366
|
)
|
|
|
(2,364,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
proceeds from issuing shares and additional capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,248,134
|
|
Short-term
Borrowings
|
|
|
459,135
|
|
|
|
334,668
|
|
|
|
287,870
|
|
|
|
964,643
|
|
Net
cash provided by financing activities
|
|
|
459,135
|
|
|
|
334,668
|
|
|
|
287,870
|
|
|
|
3,212,777
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
102,215
|
|
|
|
(191,569
|
)
|
|
|
(141,073
|
)
|
|
|
(216,989
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(43
|
)
|
|
|
(12,155
|
)
|
|
|
15,832
|
|
|
|
(4,934
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
162
|
|
|
|
12,317
|
|
|
|
12,317
|
|
|
|
17,251
|
|
Cash
and cash equivalents at end of period
|
|
$
|
120
|
|
|
$
|
162
|
|
|
$
|
28,148
|
|
|
$
|
12,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income
taxes paid
|
|
|
1,130
|
|
|
|
1,130
|
|
|
|
1,130
|
|
|
|
45
|
|
The
accompanying notes are an integral part of these financial
statements.
KARBON,
CJSC
Notes
to the financial statements
Note
1. Organization and environment
KARBON,
CJSC (the “Company”) was organized October 16, 2000 as a Closed Joint Stock
Company Company under the Civil Code of the Russian Federation and carries on
its principal activity in the territory of the Russian Federation.
The
registered address of the Company is: 1A Ilekskaya street, 460034, Orenburg
Russia.
The
principal activity of the Company is the exploration and production of oil and
gas within the Russian Federation.
Note
2. Summary of significant accounting policies
Business
and economic environment
The
Russian Federation has been experiencing political and economic change, which
has affected and will continue to affect the activities of enterprises operating
in this environment. Consequently, operations in the Russian Federation involve
risks, which do not typically exist in other markets.
The
accompanying financial statements reflect management’s assessment of the impact
of the business environment in the country in which the Company operates and the
financial position of the Company. The future business environments may differ
from management’s assessment.
Basis
of Presentation
The
accompanying financial statements include the accounts of the Company and have
been prepared in accordance with accounting principles generally accepted in the
United States of America ("generally accepted accounting
principles").
Use
of Estimates in the Preparation of Financial Statements
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of oil and gas reserves, assets
and liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Estimates of oil and gas reserve quantities provide the
basis for calculations of depletion, depreciation, and amortization (“DD&A”)
and impairment, each of which represents a significant component of the
accompanying financial statements.
Going
concern
As
reflected in the accompanying Statements of Operations, the Company has had a
history of losses. In addition, the Company has a significant working capital
deficit and is currently experiencing liquidity problems.
As
further disclosed in Note 10, the Company is litigating with Tintrade Limited, a
lender of the Company, with regard to repayment of a $300,000 loan that matured
in July 2003. The Company is contesting the claim for repayment of the loan,
accrued penalties and applicable court fees and also has appealed against the
court ruling made in favour of the settlement demand of the
plaintiff.
As
further disclosed in Note 19 the Company was presented with a claim from
StroyStile, LLC, a claimant under a credit line facility established for
RossGas, LLC, that borrows under the facility. The $ 13,85 mln. capital portion
of the debt (loan overdue) demanded for repayment is compounded by accrued
interest of $ 1,3 mln. claimable to date. As at the date of approving the
accounts, there was no certainty about the outcome of this matter.
Due to
the uncertainties related to these matters, there exists doubt about the
Company’s ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going
concern.
Revenue
The
Company derives revenue primarily from the sale of produced natural gas and
crude oil. The Company reports revenue as the gross amount received before
taking into account production taxes and transportation costs, which are
reported as separate expenses. Revenue is recorded in the month the
Company’s production is delivered to the purchaser, but payment is generally
received between 30 days after the date of production. No revenue is
recognized unless it is determined that title to the product has transferred to
a purchaser.
Reporting
currency
The
Company maintains its accounting records in Russian roubles. The Company’s
functional currency is the Russian rouble.
The
Company’s reporting currency is United States Dollar ($). The balance sheet is
translated into US Dollars at a principal rate of exchange. The statement of
income is translated at average principal rate of exchange for the appropriate
periods.
The
principal rate of exchange used for translating foreign currency balances was
following:
as
of September 30, 2008
|
|
|
$1
= RUB25.25;
|
as
of December 31, 2007
|
|
|
$1
= RUB24.55;
|
as
of September 30, 2007
|
|
|
$1
= RUB24.95;
|
as
of December 31, 2006
|
|
|
$1
= RUB26.33.
|
Average
principal rate used of exchange income and expenses were following:
for
9 months ended September 30, 2008
|
|
$1
= RUB24.04;
|
for
year ended December 31, 2007
|
|
$1
= RUB25.08;
|
for
9 months ended September 30, 2007
|
|
$1
= RUB25.89;
|
for
year ended December 31, 2006
|
|
$1
= RUB27.18.
|
Resulting
translation adjustments are reflected as a separate component of comprehensive
income.
The
exchange rate fluctuation of the Russian Rouble against the US Dollar may affect
the book value of the Company’s assets and liabilities.
Accordingly,
the translation of amounts recorded in this currency into US dollars should not
be construed as a representation that such currency amounts have been, could be
or will in the future be converted into US dollars at the exchange rate shown or
at any other exchange rate.
Cash
and cash equivalents
Cash and
cash equivalents comprise cash on hand, deposits held with banks, and other
short-term highly liquid investments with original maturities of three months or
less.
Inventories
Inventories
are stated at the lower of cost (first-in, first-out) or market (net realizable
value). The cost of inventories comprises all costs of purchase, costs of
conversion and other costs incurred in bringing the inventories to their present
location and condition.
Accounts
and notes receivable
Accounts
and notes receivable are recorded at their transaction amounts less provisions
for doubtful debts. Provisions for doubtful debts are recorded to the extent
that there is a likelihood that any of the amounts due will not be obtained. As
of December 31, 2006 and 2007 the Company did not have an allowances for
uncollectable accounts receivable.
Property,
plant and equipment
Fixtures
and fittings are stated at cost, less accumulated depreciation. Depreciation is
calculated using the straight-line method over the expected economic life of the
asset. Gains and losses on the sale of property, plant and equipment are
included in other business income. Costs related to repair and maintenance
activities are expensed in the period in which they are incurred and significant
renewals and improvements are capitalized.
Vehicles
under capital leases are initially recorded at the present value of minimum
lease payments. These assets are amortized using the straight-line method over
the shorter of lease term or the estimated useful life of the
asset.
Expected
economic life of the assets is summarized as follows:
Office
equipment 5
years
Vehicles 5
years
Useful
life and depreciation methods are regularly reviewed in order to ensure the
methods and depreciation periods remain appropriate.
Oil
and Gas Properties
In
accordance with Statement of Financial Accounting Standard ("SFAS") 19,
Financial Accounting and Reporting by Oil and Gas Producing Companies, oil and
gas properties and the related expenses are recognized under the successful
efforts method. This method prescribes that certain exploration costs, including
the costs of exploratory dry holes, delay rentals, geological and geophysical
costs are charged to expense when incurred.
Exploratory
well costs (including costs associated with stratigraphic test wells) are
initially capitalized pending determination of whether commercial oil and gas
reserves have been discovered by the drilling effort. The length of time
necessary for this determination depends on the specific technical or economic
difficulties in assessing the recoverability of the reserves. If a determination
is made that the well did not encounter oil and gas in economically viable
quantities, the well costs are expensed and are reported in "exploration
expenses".
Exploratory
drilling costs are temporarily capitalized pending determination of whether the
well has found proved reserves if both of the following conditions are
met:
·
|
The
well has found a sufficient quantity of reserves to justify, if
appropriate, its completion as a producing well, assuming that the
required capital expenditure is made;
and
|
·
|
Satisfactory
progress toward ultimate development of the reserves is being achieved,
with the Company making sufficient progress assessing the reserves and the
economic and operating viability of the
project.
|
The
Company evaluates the progress made on the basis of regular project reviews
which take into account the following factors:
·
|
First,
if additional exploratory drilling or other exploratory activities (such
as seismic work or other significant studies) are either underway or
firmly planned, the Company deems there to be satisfactory progress. For
these purposes, exploratory activities are considered firmly planned only
if they are included in the Company’s three-year exploration
plan/budget.
|
·
|
In
cases where exploratory activity has been completed, the evaluation of
satisfactory progress takes into account indicators such as the fact that
costs for development studies are incurred in the current period, or that
governmental or other third-party authorizations are pending or that the
availability of capacity on an existing transport or processing facility
awaits confirmation.
|
Costs,
including "internal" costs relating to drilling and equipping of development
wells, including development dry holes, as well as costs required for drilling
and equipping of injection wells in the process of oil and gas reserves
development, are capitalized. These costs are included in oil and gas properties
in the balance sheet.
Depreciation,
depletion and amortization of capitalized costs of oil and gas properties is
calculated using the unit-of-production method based upon proved reserves for
the cost of property acquisitions and proved developed reserves for development
costs.
Production
and related overhead costs are expensed as incurred.
Impairment
of long-lived assets
Long-lived
assets, including blocks with proved oil and gas reserves, are assessed for
potential impairment in accordance with SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets.
Oil and
gas properties are assessed whenever events or circumstances indicate potential
impairment. If the carrying value of oil and gas properties is not recoverable
through undiscounted cash flows, an impairment is recognized. The impairment is
determined on the basis of the estimated fair value of oil and gas properties
which, in turn, is measured by discounting future net cash flows. Discounted
future cash flows from oil and gas fields are based on the management estimates
of future prices that rely on recent actual prices and published prices for
forward transactions; such prices are applied to forecast production volumes at
particular fields with further discounting for the expected risk
level.
Forecast
production volumes shall be understood as reserves, including probable reserves
that are proposed to be extracted using a known amount of capital expenditures.
Production volumes and prices correspond to the internal plans and forecasts, as
well as other data in the published financial statements. Assumptions regarding
future prices and costs used to assess oil and gas properties for impairment
differ from those used in the Standardized measure of proved oil and gas
reserves. During the years ended December 31, 2007 and 2006, no property
impairments were recorded.
Grouping
of assets for the purpose of impairment is performed on the basis of the lowest
level of identifiable cash flows that are largely independent of the cash flows
from other groups of assets – as a rule, for oil and gas properties such level
is represented by the field. Long-lived assets intended by management for use
during a period not exceeding one year are recorded at the lower of depreciated
value or fair value, less selling expenses.
Acquisition
costs of unproved oil and gas properties are assessed for impairment on a
regular basis and any estimated impairment is charged to expense.
Asset
retirement obligations
The
Company has asset retirement obligations associated with its core business
activities. The nature of the assets and potential obligations are as
follows:
Exploration
and Production – The Company’s exploration, development and production
activities involve the use of the following assets: wells, related equipment,
operating site and in-field pipeline.
Generally,
licenses and other regulatory acts require that such assets be decommissioned
upon the completion of production. According to these requirements, the Company
is obliged to decommission wells, dismantle equipment, restore the sites and
perform other related activities. The Company’s estimates of these obligations
are based on current regulatory or license requirements, as well as actual
dismantling and other related costs. Asset retirement obligations are calculated
in accordance with the provisions of SFAS 143, Accounting for Asset Retirement
Obligations.
Deferred
tax
Deferred
tax assets and liabilities are measured using the balance sheet liability
method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax assets are recognized to the extent it is more
likely than not that future taxable profit will be available against which the
temporary differences can be applied. Deferred tax is calculated using the tax
rates (and laws) that have been enacted or substantively enacted by the balance
sheet date and that are expected to apply when the deferred tax asset concerned
is realized or the deferred tax liability is settled.
Interest-bearing
borrowings
The
Company’s financial instruments including cash and cash equivalents, accounts
receivable, and accounts payable are carried at cost, which approximates fair
value due to the short-term maturity of these instruments. The recorded value of
the Company’s credit facility approximates its fair value as it bears interest
at a floating rate.
The
Company had $ 3,196,468 in loans outstanding under its credit agreements as of
December 31, 2007, and $ 2,861,800 in loans outstanding under its credit
agreements as of December 31, 2006.
The
Company had $ 3,655,602 in loans outstanding under its credit agreements as of
September 30, 2008, and $ 3,149,670 in loans outstanding under its credit
agreements as of September 30, 2007.
Contingencies
Certain
conditions may exist as of the balance sheet date, which may result in losses to
the Company but the impact of which will only be resolved when one or more
future events occur or fail to occur.
If a
Company’s assessment of a contingency indicates that it is probable that a
material loss has been incurred and the amount of the liability can be
estimated, then the estimated liability is accrued and charged to the statement
of income. If the assessment indicates that a potentially material loss is not
probable, but is reasonably possible, or is probable, but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the
range of possible loss, is disclosed in the notes to the financial statements.
Loss contingencies considered remote or related to unasserted claims are
generally not disclosed unless they involve guarantees, in which case the nature
of the guarantee is disclosed.
Income
Taxes
Operations
in the Russian Federation are subject to Federal and city income tax rates that
total 9.5% and a regional income tax rate that varies from 10.5% to 14.5% at the
discretion of the individual regional administration. The combined statutory tax
rate in the Russian Federation is 24%.
Recent
accounting pronouncements
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities.” This Statement improves financial reporting about
derivative instruments and hedging activities by enhanced disclosures of their
effects on entity’s financial position, financial performance and cash flows.
The Company is required to adopt the provisions of SFAS No. 161 no later than
the first quarter of 2009 and does not expect any material impact on its results
of operations, financial position or cash flows upon adoption.
In
December 2007, the FASB issued SFAS No. 141 (Revised), “Business combinations.”
This Statement will apply to all transactions in which an entity obtains control
of one or more businesses. SFAS No. 141 (Revised) requires an entity to
recognize the fair value of assets acquired and liabilities assumed in a
business combination; to recognize and measure the goodwill acquired in the
business combination or gain from a bargain purchase and modifies the disclosure
requirements. The Company is required to prospectively adopt the provisions of
SFAS No. 141 (Revised) for business combinations for which the acquisition date
is on or after January 1, 2009. Early adoption of SFAS No. 141 (Revised) is
prohibited.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.” This Statement
will apply to all entities that prepare consolidated financial statements
(except not-for-profit organizations) and will affect those which have an
outstanding noncontrolling interest (or minority interest) in their subsidiaries
or which have to deconsolidate a subsidiary. This Statement changes the
classification of a non-controlling interest; establishing a single method of
accounting for changes in the parent company’s ownership interest that does not
result in deconsolidation and requires a parent company to recognize a gain or
loss when a subsidiary is deconsolidated. The Company is required to
prospectively adopt the provisions of SFAS No. 160 in the first quarter of 2009,
except for the presentation and disclosure requirements which shall be applied
retrospectively. Early adoption of SFAS No. 160 is prohibited.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” This Statement expands the
possibility of using fair value measurements and permits enterprises to choose
to measure certain financial assets and financial liabilities at fair value.
Enterprises shall report unrealized gains and losses on items for which the fair
value option has been elected in earnings in each subsequent period. The Company
adopted the provisions of SFAS No. 159 in the first quarter of
2008.
The
Company elected not to use the fair value option for its financial assets and
financial liabilities not already carried at fair value in accordance with other
standards. Therefore the adoption of SFAS No. 159 did not have any impact on the
Company’s results of operations, financial position or cash flows.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
establishes a single authoritative definition of fair value, sets out a
framework for measuring fair value and requires additional disclosures about
fair value measurements. In February 2008, the FASB issued Staff Position FSP
No. 157-2, “Effective date of FASB Statement No. 157,” which defers the
effective date of SFAS No. 157 for certain nonfinancial assets and nonfinancial
liabilities to the first quarter of 2009. The initial adoption of the provisions
of SFAS No. 157 did not have a material impact on the Company’s results of
operations, financial position or cash flows.
In June
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109.” This Interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes.” The Company adopted the provisions of FIN No. 48
in the first quarter of 2007. The adoption of the provisions of FIN No. 48 did
not have a material impact on the Company’s results of operations, financial
position or cash flows.
Note
3. Concentration of credit risk
Substantially
all of the Company's receivables are within the oil and gas industry, primarily
from purchasers of oil and gas. Although diversified among many companies,
collectability is dependent upon the financial wherewithal of each individual
company as well as the general economic conditions of the industry. The
receivables are not collateralized. To date the Company has had minimal bad
debts.
The
Company’s customers are located in Orenburg region, Russia. Sales to major
customers as a percent of total sales were 89%, 7% and 3% in nine months period
ended September 30, 2008. Two out of those three major customers accounted for
99 % of accounts receivable
as of September 30,
2008.
During
2007, sales to
four
unrelated
customers represented 36 %, 33%, 16% and 11% of total revenue. During 2006,
sales to five unrelated customers represented 42%, 35%, 9%, 7% and 5% of total
revenue.
Note
4. Inventories.
Inventories
are summarized as follows:
US
Dollars
|
|
As
of September 30, 2008
|
|
|
As
of December 31, 2007
|
|
|
As
of September
30,
2007
|
|
|
As
of December 31, 2006
|
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
Crude
oil
|
|
$
|
121,347
|
|
|
$
|
-
|
|
|
$
|
50,332
|
|
|
$
|
74,068
|
|
Valuation
allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
(22,488
|
)
|
|
|
(50,428
|
)
|
Drilling
supplies
|
|
|
112,796
|
|
|
|
151,443
|
|
|
|
142,423
|
|
|
|
124,825
|
|
|
|
$
|
234,143
|
|
|
$
|
151,443
|
|
|
$
|
170,267
|
|
|
$
|
148,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
5. Prepaid taxes and expenses.
Prepaid
taxes and expenses include:
US
Dollars
|
|
As
of September 30, 2008
|
|
|
As
of December 31, 2007
|
|
|
As
of September 30, 2007
|
|
|
As
of December 31, 2006
|
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
VAT
receivable
|
|
$
|
519,082
|
|
|
$
|
558,642
|
|
|
$
|
583,372
|
|
|
$
|
688,516
|
|
Current
Income Tax Receivables
|
|
|
-
|
|
|
|
901
|
|
|
|
886
|
|
|
|
-
|
|
Other
taxes receivable
|
|
|
77,527
|
|
|
|
80,682
|
|
|
|
8,257
|
|
|
|
20,564
|
|
Deferred
expenses
|
|
|
238
|
|
|
|
-
|
|
|
|
140,417
|
|
|
|
141,369
|
|
|
|
$
|
596,847
|
|
|
$
|
640,225
|
|
|
$
|
732,932
|
|
|
$
|
850,448
|
|
Note
6. Prepaid and other assets.
Prepaid
and other assets include:
US
Dollars
|
|
As
of September 30, 2008
|
|
|
As
of December 31, 2007
|
|
|
As
of September 30, 2007
|
|
|
As
of December 31, 2006
|
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
Prepayments
|
|
$
|
25,476
|
|
|
$
|
14,830
|
|
|
$
|
15,418
|
|
|
$
|
55,031
|
|
Loans
to related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
227,867
|
|
|
|
$
|
25,476
|
|
|
$
|
14,830
|
|
|
$
|
15,418
|
|
|
$
|
282,898
|
|
Note
7 Accounts payable
Accounts
payable are summarized as follows:
US
Dollars
|
|
As
of September 30, 2008
|
|
|
As
of December 31, 2007
|
|
|
As
of September 30, 2007
|
|
|
As
of December 31, 2006
|
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
Trade
accounts payable
|
|
$
|
278,882
|
|
|
$
|
659,352
|
|
|
$
|
637,558
|
|
|
$
|
766,192
|
|
Wages
and salaries payable
|
|
|
1,760
|
|
|
|
21,854
|
|
|
|
15,353
|
|
|
|
34,338
|
|
Other
accounts payable
|
|
|
45,369
|
|
|
|
30,775
|
|
|
|
30,385
|
|
|
|
28,448
|
|
|
|
$
|
326,012
|
|
|
$
|
711,982
|
|
|
$
|
683,295
|
|
|
$
|
828,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
8 Borrowings
The
Company borrows operating funds under several loans agreements with
non-financial institutions:
US
Dollars
|
|
As
of September 30, 2008
|
|
|
As
of December 31, 2007
|
|
|
As
of September 30, 2007
|
|
|
As
of December 31, 2006
|
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
Interest
free, unsecured loans from RossGas, LLC a related party (debt is repayable
on mutual consent)
|
|
$
|
3,355,602
|
|
|
$
|
2,896,468
|
|
|
$
|
2,849,670
|
|
|
$
|
2,561,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
free, unsecured loan from Tintrade Limited ($ 300 000 is overdue, for
disclosure see Note 10)
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
$
|
3,655,602
|
|
|
$
|
3,196,468
|
|
|
$
|
3,149,670
|
|
|
$
|
2,861,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
9. Recognized deferred tax assets and liabilities
Deferred
tax assets and liabilities are composed of the following items:
US
Dollars
|
|
Asset
|
|
|
Liability
|
|
|
Net
|
|
|
|
As
of September 30, 2008
|
|
|
As
of December 31, 2007
|
|
|
As
of September 30, 2007
|
|
|
As
at December 31, 2006
|
|
|
As
of September 30, 2008
|
|
|
As
of December 31, 2007
|
|
|
As
of September 30, 2007
|
|
|
As
at December 31, 2006
|
|
|
As
of September 30, 2008
|
|
|
As
of December 31, 2007
|
|
|
As
of September 30, 2007
|
|
|
As
at December 31, 2006
|
|
|
|
Unaudited
|
|
|
|
|
|
Unaudited
|
|
|
|
|
|
Unaudited
|
|
|
|
|
|
Unaudited
|
|
|
|
|
|
Unaudited
|
|
|
|
|
|
Unaudited
|
|
|
|
|
Property,
plant and equipment
|
|
$
|
-
|
|
|
$
|
652
|
|
|
$
|
641
|
|
|
$
|
607
|
|
|
$
|
(17,987
|
)
|
|
$
|
(14,179
|
)
|
|
$
|
(13,950
|
)
|
|
$
|
(19,029
|
)
|
|
$
|
(17,987
|
)
|
|
$
|
(13,528
|
)
|
|
$
|
(13,309
|
)
|
|
$
|
(18,422
|
)
|
Proved
Oil and Gas properties
|
|
|
34,644
|
|
|
|
36,047
|
|
|
|
29,614
|
|
|
|
349,494
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,644
|
|
|
|
36,047
|
|
|
|
29,614
|
|
|
|
349,494
|
|
Inventories
|
|
|
31,226
|
|
|
|
-
|
|
|
|
5,397
|
|
|
|
12,103
|
|
|
|
(59,643
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(28,416
|
)
|
|
|
-
|
|
|
|
5,397
|
|
|
|
12,103
|
|
Accounts
payable
|
|
|
3,803
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,803
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Assets
retirement obligations
|
|
|
47,121
|
|
|
|
25,666
|
|
|
|
21,945
|
|
|
|
11,393
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47,121
|
|
|
|
25,666
|
|
|
|
21,945
|
|
|
|
11,393
|
|
Borrowings
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,444,147
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,444,147
|
)
|
Deferred
tax assets/(liabilities)
|
|
$
|
82,150
|
|
|
$
|
26,317
|
|
|
$
|
27,983
|
|
|
$
|
373,597
|
|
|
$
|
(42,985
|
)
|
|
$
|
21,867
|
|
|
$
|
15,664
|
|
|
$
|
(1,463,175
|
)
|
|
$
|
39,164
|
|
|
$
|
48,185
|
|
|
$
|
43,646
|
|
|
$
|
(1,089,578
|
)
|
Temporary
differences between these financial statements and tax records gave rise to
deferred income tax assets and liabilities as of September 30, 2008 as
above.
Income
tax expenses for the years ended September 30 and December 31 comprise the
following:
US
Dollars
|
|
For
the nine months ended September 30, 2008
|
|
|
For
year ended December 31, 2007
|
|
|
For
the nine months ended September 30, 2007
|
|
|
For
year ended December 31, 2006
|
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
Current
tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(42
|
)
|
Adjustments
for prior periods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination
and reversal of temporary differences
|
|
|
5,391
|
|
|
|
1,064,973
|
|
|
|
1,068,640
|
|
|
|
115,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income tax expense in income statement
|
|
$
|
5,391
|
|
|
$
|
1,064,973
|
|
|
$
|
1,068,640
|
|
|
$
|
115,010
|
|
A
reconciliation of expected income tax expense to the actual tax expense for the
nine months ended September 30 and for the years ended December 31 is as
follows:
US
Dollars
|
|
For
the nine months ended September 30, 2008
|
|
|
For
year ended December 31, 2007
|
|
|
For
the nine months ended September 30, 2007
|
|
|
For
year ended December 31, 2006
|
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
before Income tax
|
|
$
|
(772,400
|
)
|
|
$
|
(586,977
|
)
|
|
$
|
(415,053
|
)
|
|
$
|
(661,431
|
)
|
Statutory
income tax rate
|
|
|
24
|
%
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
Theoretical
income tax benefit/(expense)
|
|
|
185,376
|
|
|
|
140,875
|
|
|
|
99,613
|
|
|
|
158,743
|
|
Permanent
accounting differences arising from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible
items, net
|
|
|
(179,985
|
)
|
|
|
924,098
|
|
|
|
969,028
|
|
|
|
(43,734
|
)
|
Other
permanent differences
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,391
|
|
|
$
|
1,064,973
|
|
|
$
|
1,068,640
|
|
|
$
|
115,010
|
|
Note
10. Provision for litigation
The
Company is litigating with Tintrade Limited, a lender of the Company, with
regard to repayment of a $300,000 loan that matured in June 2003. The lender is
also claiming $ 73,970 of penalties in addition to $2,772 and $ 19,965 of court
fees to be recovered.
The
Company is contesting this claim and appealing against the court ruling made in
favour of the settlement demand of the plaintiff.
Full
provision for the amounts in question has been recognized in the reporting
period.
Note
11. Assets retirement obligations
The asset
retirement obligations represent the estimated future costs associated with the
plugging and abandonment of oil and gas wells, removal of equipment and
facilities from owned and leased acreage, and land restoration.
US
Dollars
|
|
As
of September 30, 2008
|
|
|
As
of December 31, 2007
|
|
|
As
of September 30, 2007
|
|
|
As
of December 31, 2006
|
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
Beginning
asset retirement obligation
|
|
$
|
616,185
|
|
|
$
|
522,196
|
|
|
$
|
522,196
|
|
|
$
|
434,292
|
|
Liabilities
incurred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
settled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accretion
expense
|
|
|
47,191
|
|
|
|
53,272
|
|
|
|
39,832
|
|
|
|
45,986
|
|
Revision
to estimated cash flows
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign
currency translation
|
|
|
(75,034
|
)
|
|
|
(147,261
|
)
|
|
|
(110,087
|
)
|
|
|
(133,890
|
)
|
Ending
asset retirement obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
644,027
|
|
|
$
|
616,185
|
|
|
$
|
592,451
|
|
|
$
|
522,196
|
|
Note
12. Share capital
At
September 30, 2008 the Company's authorized share capital was 601,000 shares of
common stock, par value of $3.75 each.
At
September 30, 2008 the Company had issued 601,000 (2008 – unaudited), 601,000
(2007), and 601,000 (2006) shares of common stock, all of which are
outstanding.
Note
13. Marketing and transportation expenses
Marketing
and transportation
expenses
are summarized as follows:
US
Dollars
|
|
For
the nine months ended September 30, 2008
|
|
|
For
year ended December 31, 2007
|
|
|
For
the nine months ended September 30, 2007
|
|
|
For
year ended December 31, 2006
|
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
Staff
cost
|
|
$
|
190,188
|
|
|
$
|
142,090
|
|
|
$
|
111,488
|
|
|
$
|
187,101
|
|
Transport
expense
|
|
|
46,264
|
|
|
|
24,502
|
|
|
|
24,307
|
|
|
|
50,091
|
|
Insurance
expense
|
|
|
1,049
|
|
|
|
389
|
|
|
|
389
|
|
|
|
381
|
|
Rental
expense
|
|
|
35,248
|
|
|
|
35,769
|
|
|
|
29,200
|
|
|
|
34,876
|
|
Business
trips
|
|
|
3,139
|
|
|
|
1,945
|
|
|
|
77
|
|
|
|
8,007
|
|
Laboratory
analysis
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Evaporative
losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
expenses
|
|
|
-
|
|
|
|
102
|
|
|
|
97
|
|
|
|
2,676
|
|
|
|
$
|
275,888
|
|
|
$
|
204,797
|
|
|
$
|
165,559
|
|
|
$
|
283,131
|
|
Note
14. General and administrative expenses
General
and administrative expenses are summarized as follows:
US
Dollars
|
|
For
the nine months ended September 30, 2008
|
|
|
For
year ended December 31, 2007
|
|
|
For
the nine months ended September 30, 2007
|
|
|
For
year ended December 31, 2006
|
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
Provision
for inventory valuation
|
|
$
|
41,191
|
|
|
$
|
21,671
|
|
|
$
|
21,671
|
|
|
$
|
48,849
|
|
Bad
debt allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,317
|
|
Bank
cost
|
|
|
3,674
|
|
|
|
1,225
|
|
|
|
1,048
|
|
|
|
3,964
|
|
Consumables
|
|
|
1,471
|
|
|
|
996
|
|
|
|
649
|
|
|
|
1,282
|
|
Audit,
legal, advisory and information expense
|
|
|
34,925
|
|
|
|
4,956
|
|
|
|
4,661
|
|
|
|
10,483
|
|
Telephone
and mobile
|
|
|
7,953
|
|
|
|
7,798
|
|
|
|
6,223
|
|
|
|
8,277
|
|
Charitable
contribution and corporate events
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
905
|
|
Fines
and penalties
|
|
|
58,190
|
|
|
|
2,867
|
|
|
|
912
|
|
|
|
43,712
|
|
Provision
for claim
|
|
|
100,741
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
operating expenses
|
|
|
3,918
|
|
|
|
4,462
|
|
|
|
2,918
|
|
|
|
5,821
|
|
|
|
$
|
252,063
|
|
|
$
|
43,975
|
|
|
$
|
38,080
|
|
|
$
|
144,610
|
|
Note
15. Operating lease
The
following is a schedule by years of future minimum rental payments required
under operating lease that have initial or remaining noncancelable lease terms
in excess of one year as of September 30, 2008:
US
Dollars
|
|
|
|
|
|
|
|
The
three months ended December 31, 2008
|
|
$
|
23,205
|
|
Year
ended December 31, 2009
|
|
|
92,820
|
|
|
|
$
|
116,025
|
|
The
Company rents office space and the monthly rental at September 2008 was $ 1,485.
The Monthly Rental is paid on or before the first day of each month. The Tenancy
Agreement expires in December 2009. The Company has the exclusive right to
extend the term of the Tenancy whereas the Owner has the right to revise the
Monthly Rental.
Further,
the company rents 3 plots of land and the monthly rental at September 2008 was
$6,250. The Monthly Rental is paid on or before the first day of each month. The
Land Lease Agreement expires in November 2009. The Company has the exclusive
right to extend the term of the Lease through to December 2014 whereas the Owner
has the right to revise the Monthly Rental.
Note
16. Related party transactions
In the
years ended December 31, 2006 and 2007 and 9 months period ended September 30,
2008 the Company did not enter into transactions with related parties that are
material either to the Company or any related party, or that are unusual in
their nature of conditions.
Year end
balances with related parties are set out below:
|
|
As
of September 30, 2008
|
|
|
As
of December 31, 2007
|
|
|
As
of September 30, 2007
|
|
|
As
of December 31, 2006
|
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
|
|
Receivable
from related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
from companies under common control, trade
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Receivable
from companies under common control, interest bearing
loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Receivable
from companies under common control, non-interest bearing
loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
227,867
|
|
Total
receivable from related parties
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
227,867
|
|
Payable
to related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable
to companies under common control, trade
|
|
$
|
159,330
|
|
|
$
|
163,875
|
|
|
$
|
161,227
|
|
|
$
|
71,530
|
|
Payable
to companies under common control, interest bearing loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Payable
to companies under common control, non interest bearing
|
|
|
3,355,602
|
|
|
|
2,896,468
|
|
|
|
2,849,670
|
|
|
|
2,561,800
|
|
Total
payable to related parties
|
|
$
|
3,514,932
|
|
|
$
|
3,060,342
|
|
|
$
|
3,010,897
|
|
|
$
|
2,633,331
|
|
Note
17. Disclosure about Oil and Gas Producing Activity
Oil
and Natural Gas Reserves (Unaudited)
Net
proved oil and natural gas reserve estimates for all years presented were
prepared by a firm of independent petroleum engineers located in Texas, and
interpreted by the management as contained herein. The reserves were prepared in
accordance with guidelines established by the Securities and Exchange Commission
and, accordingly, were based on existing economic and operating conditions. Oil
and natural gas prices in effect as of the reserve report date were used without
any escalation. (See “Standardized Measure of Discounted Future Net Cash Flows
and Changes Therein Relating to Proved Oil and Natural Gas Reserves” below for a
discussion of the effect of the different prices on reserve quantities and
values.) Operating costs, production and ad valorem taxes and future development
costs were based on current costs with no escalation.
There are
numerous uncertainties inherent in estimating quantities of proved reserves and
in projecting the future rates of production and timing of development
expenditures. The following reserve data represents estimates only and should
not be construed as being exact. Moreover, the present values should not be
construed as the current market value of our oil and natural gas reserves or the
costs that would be incurred to obtain equivalent reserves. All of our reserves
are located in the Russian Federation.
Presented
below is a summary in estimated proved reserves of the company:
|
|
For
the nine months ended September 30, 2008
|
|
|
For
year ended December 31, 2007
|
|
|
For
year ended December 31, 2006
|
|
|
|
Oil
or Conden-sate
|
|
|
Gas
|
|
|
Oil
or Conden-sate
|
|
|
Gas
|
|
|
Oil
or Conden-sate
|
|
|
Gas
|
|
|
|
(TBbl)
|
|
|
(MMcf)
|
|
|
(TBbl)
|
|
|
(MMcf)
|
|
|
(TBbl)
|
|
|
(MMcf)
|
|
Developed
and undeveloped:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of period
|
|
|
8,066
|
|
|
|
45,211
|
|
|
|
8,093
|
|
|
|
45,237
|
|
|
|
8,127
|
|
|
|
45,262
|
|
Revision
of previous estimate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Discoveries
and extensions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Infill
reserves in an existing
proved
fields
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchase
of minerals in place
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Sales
of reserves
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Production
|
|
|
(17
|
)
|
|
|
(16
|
)
|
|
|
(27
|
)
|
|
|
(26
|
)
|
|
|
(34
|
)
|
|
|
(25
|
)
|
End
of period
|
|
|
8,049
|
|
|
|
45,194
|
|
|
|
8,066
|
|
|
|
45,211
|
|
|
|
8,093
|
|
|
|
45,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved
developed reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of period
|
|
|
37
|
|
|
|
151
|
|
|
|
64
|
|
|
|
177
|
|
|
|
98
|
|
|
|
152
|
|
End
of period
|
|
|
20
|
|
|
|
134
|
|
|
|
37
|
|
|
|
151
|
|
|
|
64
|
|
|
|
177
|
|
Standardized
Measure of Discounted Future Net Cash Flows and Changes Therein Relating to
Proved Oil and Natural Gas Reserves (Unaudited)
Statement
of Financial Accounting Standard No. 69, “Disclosures about Oil and Gas
Producing Activity” (SFAS No. 69”) prescribes guidelines for computing a
standardized measure of future net cash flows and changes therein to estimated
proven reserves. The Company follows these guidelines, which are briefly
discussed below.
Future
cash inflows and future production and developments costs are determined by
applying benchmark prices and costs, including transportation, quality, and
basis differentials, in effect at year (period) end to the year(period)-end
estimated quantities of oil and gas to be produced in future. Each property the
Company operates is also charged with field-level overhead in the estimated
reserve calculation. Estimated future income taxes are computed using current
statutory income taxes rate, including consideration for estimated future
statutory depletion. The resulting future cash flows are reduced to present
value amounts by applying a ten percent annual discount factor.
Future
operating costs are determined based on estimates of expenditures to be incurred
in developing and producing the proved oil and gas reserves in place at the end
period using year(period)-end costs and assuming continuation of existing
economic conditions, plus Company overheads incurred by the administrative
office attributable to operating activities.
The
assumptions used to compute the standardized measure are those prescribed by the
FASB and the Securities and Exchange Commission. These assumptions do not
necessarily reflect the Company’s expectations of actual revenues to be derived
from those reserves, nor their present value. The limitations inherent in the
reserve quantity estimation process, as discussed previously, are equally
applicable to the standardized measure computation since these reserve quantity
estimates are the basis for the valuation process. The following prices as
adjusted for transportation, quality and basis differentials, were used in
calculation of standardized measure:
US
Dollars
|
|
As
of September 30, 2008
|
|
|
As
of December 31, 2007
|
|
|
As
of December 31, 2006
|
|
Gas
(per Mcf)
|
|
$
|
1.18
|
|
|
$
|
0.87
|
|
|
$
|
0.54
|
|
Oil
(per Bbl)
|
|
$
|
32.67
|
|
|
$
|
31.86
|
|
|
$
|
31.67
|
|
The
following summary sets forth the Company’s future net cash flows relating to
proved oil and gas reserves based on the standardized measure prescribed in SFAS
No. 69:
US
Dollars (In thousands)
|
|
As
of September 30, 2008
|
|
|
As
of December 31, 2007
|
|
|
As
of December 31, 2006
|
|
Future
cash inflows
|
|
$
|
305,843
|
|
|
$
|
288,431
|
|
|
$
|
275,487
|
|
Future
production costs
|
|
|
(191,360
|
)
|
|
|
(169,257
|
)
|
|
|
(135,746
|
)
|
Future
development cost
|
|
|
(70,157
|
)
|
|
|
(68,211
|
)
|
|
|
(73,171
|
)
|
Future
income taxes
|
|
|
(18,587
|
)
|
|
|
(19,754
|
)
|
|
|
(24,736
|
)
|
Future
net cash flows
|
|
|
25,739
|
|
|
|
31,209
|
|
|
|
41,834
|
|
10
percent annual discount
|
|
|
(3,284
|
)
|
|
|
(3,431
|
)
|
|
|
(3,990
|
)
|
Standardized
measure of discounted future net cash flows
|
|
$
|
22,455
|
|
|
$
|
27,778
|
|
|
$
|
37,844
|
|
The
principle sources of change in the standardized measure of discounted future net
cash flows are:
US
Dollars (In thousands)
|
|
For
the nine months ended September 30, 2008
|
|
|
For
year ended December 31, 2007
|
|
|
For
year ended December 31, 2006
|
|
Standardized
measure, beginning of period
|
|
$
|
27,778
|
|
|
$
|
37,844
|
|
|
$
|
37,844
|
|
Sales
of oil and gas produced, net of production costs
|
|
|
(208
|
)
|
|
|
(294
|
)
|
|
|
-
|
|
Net
charge in prices and production costs
|
|
|
(6,429
|
)
|
|
|
(15,313
|
)
|
|
|
-
|
|
Extensions,
discoveries and other including infill reserves in an existing proved
field, net of production costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchase
of mineral in place
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Development
costs incurred during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Change
in estimated future development costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Revisions
of previous quantity estimates
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accretions
of discount
|
|
|
147
|
|
|
|
559
|
|
|
|
-
|
|
Sales
of reserves in place
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net
charge of income taxes
|
|
|
1,167
|
|
|
|
4,982
|
|
|
|
-
|
|
Changes
in timing and other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Standardized
measure, end of period
|
|
$
|
22,455
|
|
|
$
|
27,778
|
|
|
$
|
37,844
|
|
Note
18. Commitments, contingencies and operating risks
Capital
expenditure, exploration and investment programs
The
entity owns and operates the asset (natural gas and crude oil reserves located
in the North Kopanskoye Field) under which it has commitments for capital
expenditure in relation to its exploration programs. It relates to an existing
license agreement in the Russian Federation.
Development
plan calls for the implementing of pressure maintenance by water flooding both
the Artinsky-1 and Bashkirian A4 Central oil reservoirs. A combination of
procedures and injectors totaling 18 wells in Artinsky-1 reservoir and 9 wells
in the Bashkirian A4 Central reservoir are scheduled to be active when the water
flood development plant are fully implemented. Additionally, two wells are
scheduled to be completed in the Bashkirian A4 South reservoir, which
will be produced by primary depletion.
The
capital commitments to undertake the drilling and oilfield construction
activities envisaged by the North Kopanskoye Field exploration and development
plan, were assessed and estimated by the management to be in the region of $
70,000,000 to $ 73,000,000. Unless the Company is able to raise sufficient
capital, the Company will not be able to meet its licence obligations and may
not be able to continue as a going concern.
Guarantees
and Security
RossGas,
LLC, a related party to the Company, borrows funds from Sviaz Bank, an
arm’s length lender,under the Loan Agreement Nr. 133 dated June 27, 2005. The
Company is a Guarantor under this arrangement and secures financial commitments
of RossGas, LLC before the bank.
The
credit limit under the facility is $16,6 mln. with an annual interest of 16 %.
The facility matured on April 1, 2008. Further notes see in the Note 19.
“Subsequent events”.
Russian
Business Environment.
While
there have been improvements in the Russian economic situation, such as an
increase in gross domestic product and a reduced rate of inflation, Russia
continues economic reforms and development of its legal, tax and regulatory
frameworks as required by a market economy. The future stability of the Russian
economy is largely dependent upon these reforms and developments and the
effectiveness of economic, financial and monetary measures undertaken by the
government. In addition, laws and regulations, including interpretations,
enforcement and judicial processes, continue to evolve in Russia. Other laws and
regulations and certain other restrictions have a significant effect on the
Company's industry, including, but not limited to the following issues: rights
to use subsurface resources, environmental matters, site restoration,
transportation and export, corporate governance, taxation, etc.
Political
environment.
Trading
activity and the profit derived therefrom may be affected by political,
statutory, financial and administrative changes, including the changes in
environment protection legislation, that are currently underway in
Russia.
Insurance.
During
the normal course of business disputes and claims may arise and there can be
uncertainties surrounding the ultimate resolution of these matters.
Taxation.
The
taxation system in the Russian Federation is relatively new and is characterized
by frequent changes in legislation, official pronouncements and court decisions,
which are often unclear, contradictory and subject to varying interpretation by
different tax authorities. Taxes are subject to review and investigation by a
number of authorities, which have the authority to impose severe fines,
penalties and interest charges. A tax year remains open for review by the tax
authorities during the three subsequent calendar years.
Russian
transfer pricing rules were introduced in 1999, giving Russian tax authorities
the right to make transfer pricing adjustments and impose additional tax
liabilities in respect of all “controlled” transactions, provided that the
transaction price deviates from the market price by more than 20%. Controlled
transactions include transactions between related entities and certain other
types of transactions between independent parties, such as foreign trade
transactions with significant (by more than 20%) price
fluctuations.
The
Russian transfer pricing rules are vaguely drafted, leaving wide scope for
interpretation by Russian tax authorities and courts. Due to the uncertainties
in interpretation of transfer pricing legislation, the tax authorities may
challenge the Company’s prices and propose an adjustment. If such price
adjustments are upheld by the Russian courts and implemented, the Company’s
future financial results could be adversely affected. In addition, the Company
could face significant losses associated with the assessment of prior tax
underpaid and related interest and penalties, which could have an adverse effect
on the Company’s financial condition and results of operations. The Company’s
management believes that such transfer pricing related tax contingencies are
remote and therefore may not have any significant impact on the Company’s
financial statements.
Environmental
liabilities.
Potential
liabilities that may arise as a result of changes in laws and regulations and
settlement of the civil disputes can not be reliably assessed but they may prove
to be material. Under existing legislation, management believes that there are
no significant unrecorded liabilities which could have a significant adverse
effect on the operating results or financial position of the
Company.
Environmental
protection
Environmental
protection liabilities are carried in accounts when they arise and can be
reliably measured and when there are probabilities of arising of such
liabilities.
Pension
Benefits
The
Company makes payments to State Pension Fund of Russian Federation. These
payments are calculated by the employer as a percentage of salary expense and
are expensed as they are incurred.
Note
19. Subsequent events
On
November 19, 2008 the Company was presented with a claim from StroyStile, LLC, a
claimant under a credit line facility established for RossGas, LLC, that borrows
under the facility. RossGas, LLC is a related party to CJSC KARBON and the
latter is a surety that bears joint liability together with SpetsKrit, LLC, also
a related party to CJSC KARBON, under the terms and conditions of the facility.
The $ 13,85 mln. capital portion of the debt (loan overdue) demanded for
repayment is compounded by accrued interest of $ 1,3 mln. claimable to
date.
EXHIBIT B
KARBON, CJSC AND
SUBSIDIARY
PRO FORMA CONDENSED COMBINED BALANCE
SHEET
The
following unaudited pro forma balance sheet has been derived from the unaudited
balance sheet of KARBON, CJSC ("KARBON") at September 30, 2008 (a Russian
Federation Closed Stock Company) and the unaudited balance sheet of PREMIER
ENERGY CORP (PREMIER)(fka Premier Nursing Products Corp.) at November 30, 2008
as reported on its form 10-Q for that period and gives the effect to
the exchange of 107,406,000 shares of newly issued stock by PREMIER(representing
51% of the outstanding shares after the issuance of such shares) for 51% of the
shares (306,510 shares) of KARBON as if the transaction will occur on January
30, 2009. The transaction has been accounted for as a reverse merger
where PREMIER is the legal aquirer however for accounting purposes the
transaction is accounted for as a recapitalization of KARBON in terms of
PREMIER's stock. Subsequent to the transaction, PREMIER will no longer be a
development stage company in that it will have significant operations by the
combination with KARBON. The pro forma balance sheet is presented for
informational
purposes only and does not purport to be indicative of the financial condition
that actually would have resulted if the transaction had been consummated at
January 30, 2009. The pro forma balance sheet should be read in
conjunction with the notes thereto and KARBON's financial statements and related
notes thereto contained elsewhere in this filing and PREMIER's
financial statements contained in the 1934 act filings on forms 10-K and
10-Q.
|
|
KARBON,
|
|
|
PREMIER
ENERGY
|
|
|
|
|
|
|
|
|
|
|
CJSC
|
|
|
CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
A
Development Stage Company
|
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
|
November 30, 2008
|
|
|
Adjustments
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
120
|
|
|
$
|
554
|
|
|
|
|
|
|
$
|
674
|
|
Accounts
receivables
|
|
|
199,509
|
|
|
|
|
|
|
|
|
|
|
|
199,509
|
|
Inventories
|
|
|
234,143
|
|
|
|
|
|
|
|
|
|
|
|
234,143
|
|
Other
current assests
|
|
|
622,323
|
|
|
|
|
|
|
|
|
|
|
|
622,323
|
|
|
|
|
1,056,095
|
|
|
$
|
554
|
|
|
|
|
|
|
$
|
1,056,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT
IN SUBSIDIARY
|
|
|
-
|
|
|
|
-
|
|
|
|
10,740
|
|
a
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,740
|
)
|
b
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
PROPERTY, PLANT AND EQUIPMENT
|
|
|
5,541,836
|
|
|
|
-
|
|
|
|
|
|
|
|
|
5,541,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
6,597,931
|
|
|
$
|
554
|
|
|
|
|
|
|
|
$
|
6,598,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
326,012
|
|
|
$
|
4,167
|
|
|
|
|
|
|
|
$
|
330,179
|
|
Short-term
borrowings
|
|
|
3,655,602
|
|
|
|
11,101
|
|
|
|
|
|
|
|
|
3,666,703
|
|
Production
Taxes payable
|
|
|
161,161
|
|
|
|
|
|
|
|
|
|
|
|
|
161,161
|
|
|
|
|
4,142,775
|
|
|
|
15,268
|
|
|
|
|
|
|
|
|
4,158,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
779,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
779,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
4,922,675
|
|
|
|
15,268
|
|
|
|
|
|
|
|
|
4,937,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
shares, $0.0001 par value, issued and
|
|
|
|
|
|
|
|
|
|
|
outstanding
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Capital, $3.75 par value
|
|
|
2,251,569
|
|
|
|
-
|
|
|
|
(2,251,569
|
)
|
a
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares , $0.0001 par value
|
|
|
|
21,060
|
|
|
|
(10,740
|
)
|
b
|
|
|
10,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
5,175,344
|
|
|
|
14,940
|
|
|
|
2,251,569
|
|
a
|
|
|
7,452,593
|
|
|
|
|
|
|
|
|
|
|
|
|
10,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Accumulated
deficit)
|
|
|
(5,772,562
|
)
|
|
|
|
|
|
|
(50,714
|
)
|
c
|
|
|
(5,823,276
|
)
|
Deficit
accumulated during the development stage
|
|
|
(50,714
|
)
|
|
|
50,714
|
|
c
|
|
|
-
|
|
Accumulated
other comprehensive (loss)
|
|
|
20,905
|
|
|
|
|
|
|
|
|
|
|
|
|
20,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
1,675,256
|
|
|
|
(14,714
|
)
|
|
|
|
|
|
|
|
1,660,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
$
|
6,597,931
|
|
|
$
|
554
|
|
|
|
|
|
|
|
$
|
6,598,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRO FORMA FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b
|
To
record the issuance of 107,406,000shares (par value $.0001) of
PREMIER ENERGY CORP. in exchange for 306,510 shares of KARBON,
CJSC
|
|
|
|
|
|
|
|
|
|
|
c
|
To
reclassify PREMIER'S deficit accumulated during the development stage to
Accumulated defecit
|
|
|
|
|
|
|
|
|
|
|
a
|
To
record the reverse merger and the recapitalization in terms of the legal
acquiror's common stock
|
PRO FORMA FINANCIAL DATA
The
following unaudited pro forma statement of operations has been derived from the
unaudited statement of operations of KARBON, CJSC (KARBON) for the year ended
December 31, 2008, and gives the effect to the exchange of 107,407,000 shares of
newly issued stock by PREMIER ENERGY CORP. for 51% of the outstanding shares
(306,510) of KARBON as if the transaction occurred as of the beginning of the
period of KARBON's period using PREMIER'S twelve months ended November 30,
2008. The original stockholders of KARBON are receiving 51% of the
stock of PREMIER. The pro forma statement of operations is presented
for informational purposes only and does not purport to be indicative of the
results of operations that actually would have resulted if the transaction had
been consummated at January 1, 2007. The pro forma
statement
of operations should be read in conjunction with KARBON's financial statements
and related notes thereto contained elsewhere in this form 8-K and PREMIER’s
recently filed 10-K and 10-Qs. The transaction has been accounted for
as a reverse merger where through a recapitalization of KARBON equity where
PREMIER is the legal acquirer, however for accounting purposes, the transaction
is accounted for as a recapitalization of KARBON in terms of PREMIER’s stock.
Subsequent to the transaction, PREMIER will no longer be development stage
company, in that it will have significant operations by the combination with
KARBON.
KARBON,
CJSC AND SUBSIDIARY
(A
Development Stage Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KARBON,
CJC
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year
|
|
|
twelve
months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
February 29, 2008
|
|
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
REVENUES
|
|
$
|
779,174
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
$
|
779,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
1,336,644
|
|
|
|
12,446
|
|
|
A
|
|
|
|
|
|
|
1,349,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS FROM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATIONS
|
|
|
(557,470
|
)
|
|
|
(12,446
|
)
|
|
|
|
|
|
|
|
|
(569,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES
|
|
|
|
(29,508
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
(29,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE INCOME TAX EXPENSE
|
|
|
(586,978
|
)
|
|
|
(12,446
|
)
|
|
|
|
|
|
|
|
|
(599,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE(BENEFIT)
|
|
|
1,064,973
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
1,064,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
$
|
477,995
|
|
|
$
|
(12,446
|
)
|
|
|
|
|
|
|
|
$
|
465,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and fully diluted
|
|
$
|
0.80
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
NUMBER OF COMMON
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
601,000
|
|
|
|
11,700,000
|
|
|
|
|
|
107,407,000
|
*
|
|
|
119,107,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
Determination
of operating expenses for Premier Energy Corp:
|
|
|
|
Nine
months ended February 29, 2008
|
|
$
|
8,638
|
|
Approximate
for three monts ended May 31, 2007
|
|
|
3,808
|
|
|
|
$
|
12,446
|
|
|
|
|
|
|
*
Effect
of newly issued 107,407,000 shares of PREMIER at beginning of
period
The
following unaudited pro forma statement of operations has been derived from the
unaudited statement of operations of KARBON, CJSC (KARBON) for the nine months
ended September 30, 2008, and gives the effect to the exchange of 107,407,000
shares of newly issued stock by PREMIER ENERGY CORP. for 51% of the outstanding
shares (306,510) of KARBON as if the transaction occurred as of the beginning of
the period of KARBON's period using PREMIER'S nine months ended November 30,
2008. The original stockholders of KARBON are receving 51% of the
stock of PREMIER. The pro forma statement of operations is presented
for informational purposes only and does not purport to be indicative of the
results of operations that actually would have resulted if the transaction had
been consummated at January 1, 2008. The pro forma statement of
operations should be read in conjunction with KARBON's financial statements and
related notes thereto contained elsewhere in this form 8-K and PREMIER's
recently filed 10-K and 10-Qs. The transaction has been accounted for
as a reverse merger where through a recapitalization of KARBON equity where
PREMIER is the legal acquirer, however for accounting purposes, the transaction
is accounted for as a recapitalization of KARBON in terms of PREMIER's
stock.
Subsequent
to the the transaction, PREMIER will no longer be development stage
company, in that it will have significant operations by the combination with
KARBON.
KARBON,
CJSC AND SUBSIDIARY
PREMIER
ENERGY CORP
(A
Development Stage Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KARBON,
CJC
|
|
|
|
|
|
|
|
|
|
|
(unauditd)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months
|
|
|
Nine
months
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
|
|
Pro
Forma
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
November 30, 2008
|
|
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
REVENUES
|
|
$
|
741,777
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
$
|
741,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
1,477,379
|
|
|
|
41,788
|
|
|
A
|
|
|
.
|
|
|
|
1,519,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS FROM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATIONS
|
|
|
(735,602
|
)
|
|
|
(41,788
|
)
|
|
|
|
|
.
|
|
|
|
(777,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES
|
|
|
|
36,798
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
36,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE INCOME TAX EXPENSE
|
|
|
(772,400
|
)
|
|
|
(41,788
|
)
|
|
|
|
|
|
|
|
|
(814,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE(BENEFIT)
|
|
|
5,391
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
5,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
$
|
(767,009
|
)
|
|
$
|
(41,788
|
)
|
|
|
|
$
|
-
|
|
|
$
|
(808,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and fully diluted
|
|
$
|
(1.28
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
NUMBER OF COMMON
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
601,000
|
|
|
|
11,242,623
|
|
|
|
|
|
107,407,000
|
*
|
|
|
11,242,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Determination
of estimated operating expenses for Premier Energy
Corp:
|
Derived
from Premier quarterly filings:
|
|
|
A
|
|
Six
months ended November 30, 2008
|
$ 38,621
|
|
|
|
|
|
Three
months ended November 30, 2008
|
3,167
|
(increase
from prior year-estimate for three months)
|
|
|
|
|
|
$ 41,788
|
|
|
|
*
|
To
record Effect of issuance of 107,407,000 shares of PREMIER stock at
beginning of period.
|
Exhibit B-3
Premier Energy (GM) (USOTC:PNRC)
Historical Stock Chart
Von Mai 2024 bis Jun 2024
Premier Energy (GM) (USOTC:PNRC)
Historical Stock Chart
Von Jun 2023 bis Jun 2024