On
June 19, 2015, we registered a wholly-owned subsidiary in Australia, Nation
Energy (Australia) PTY Ltd. (“Nation Australia”).
On
July 6, 2015, we registered a wholly-owned subsidiary in Delaware, USA, Nation
GP, LLC (“Nation GP”), a Delaware limited liability company.
On
July 6, 2015, we registered a wholly-owned subsidiary in Delaware, USA, Nation
SLP, LLC (“Nation SLP”), a Delaware limited liability company.
On
July 8, 2015, we formed Paltar Nation Limited Partnership (“Paltar Nation”), a
Delaware limited partnership between Nation GP, as the general partner of the
partnership and Nation SL as the limited partner.
Paltar
Nation is a Delaware limited partnership with Nation GP, LLC, a Delaware
limited liability company, as the general partner, and Nation SLP, LLC, a Delaware
limited liability company, as a limited partner (which is currently a sole
limited partner of Paltar Nation). Nation Energy Inc. owns 100% of the
membership interests in Nation GP, LLC and Nation SLP, LLC.
Nation
Energy Inc. formed Paltar Nation for the purpose of funding exploration
expenditures required to be provided by the wholly-owned subsidiary of Nation
Energy Inc., Nation Energy (Australia) Pty Ltd., which is expected to become a
wholly-owned subsidiary of Paltar Nation, to explore and develop all or a
portion of 775,292 acres of certain Australian exploration permits.
Pursuant to the first amendment of the third amended and restated
agreement, Paltar farmed out three specific graticular blocks in each of the
six petroleum exploration permits identified in the Agreement and it caused
Officer Petroleum Pty Ltd., a wholly-owned Australian subsidiary of Paltar, to
farm out forty blocks in Exploration Permit 468 (“EP 468”). In addition, Paltar
agreed to enter into additional earning agreements with Nation Australia on
December 31, 2015 (or such other date as the parties mutually agree), in which
it will farm out to Nation Australia six additional graticular blocks selected
by Nation in EP136, three additional blocks in each of EP143 and EP231, eight
additional blocks in EP234 and seven additional blocks in EP237 in exchange for
the consideration specified in each additional earning agreement.
Each of the seven initial earning agreements, all of which
are dated August 30, 2015, (six of which are further amended by the Master
Amendment to Six Earning Agreements dated December 28, 2015 but effective as of
December 17, 2015 and by the Second Master Amendment to Six Earning Agreements
dated February 9, 2016 but effective as of February 8, 2016, and one of which
is amended by the First Amendment to EP 468 Earning Agreement dated December
28, 2015 but effective as of December 17, 2015 and by the Second Amendment to
EP 468 Earning Agreement dated February 9, 2016 but
effective
as of February 8, 2016) granted certain rights and imposes certain obligations
on Nation Australia in respect of the blocks of land described. In the
aggregate, these blocks of land comprise 1,003,400 acres of the 8,936,800 acres
covered by the seven Exploration Permits. Each of the seven earning agreements
follows one of two negotiated templates (depending on whether the underlying
interest in the Exploration Permit is 100% owned by Paltar), with variations in
the applicable standard form driven by the specific circumstances affecting
each Exploration Permit. Each earning agreement contains general terms and
conditions, a description of the area covered a list of the encumbrances
affecting the area, an amount of money to be paid by Nation Australia on or
before March 31, 2016 (since amended to a later date), and a commitment to pay
100% of the costs under applicable work programs and budgets. Paltar will act
as the operator subject to overall supervision by an Operating Committee comprised
of one representative from each of Paltar and Nation Australia. With respect
to the earning agreements covering the Exploration Permits for which Paltar
does not own a 100% interest, ownership of the Exploration Permits remains with
Paltar during the term of the earning agreements, but if Paltar discovers a
commercially exploitable accumulation of petroleum on any affected block it
must transfer any production license granted in respect of that discovery to
Nation Australia, insofar as it covers blocks subject to the earning
agreement. In connection with such transfer, Paltar is permitted to retain for
itself an overriding royalty equal to the difference between 25% and all
existing royalty burdens applicable to the production license. With respect to
the earning agreements covering the Exploration Permits for which Paltar owns a
100% interest, upon Nation Australia spending at least the Earning Amount
specified therein in expenditure before the end of the Earning Period also
specified therein, Nation Australia will acquire a beneficial interest of 25%
in the underlying Exploration Permit and any production license granted in
connection therewith. If a 25% interest in a production license is acquired by
Nation Australia pursuant to these earning agreements, Nation Australia may, at
its option for a period of ninety days thereafter, acquire the remaining 75%
interest held by Paltar in exchange for the grant of an overriding royalty
equal to the difference between 25% and all existing royalty burdens applicable
to the production license.
Loans Payable
We entered into
loan agreements with Caravel and John Hislop in 2003 and 2004 to fund
operations.
Caravel
is a private management company that is wholly-owned by John Hislop, our chief
financial officer and director.
The terms of these loan agreements
provided that any principal amount outstanding is payable upon demand and bears
interest at 15% per annum, payable quarterly. On March 31, 2006, we
consolidated and restructured the loans. As part of the restructuring, we
borrowed an additional C$250,000 (US $203,932). The new loan bore interest at
15% per annum, calculated and compounded monthly and payable quarterly. Any
principal amount outstanding under the loan was payable upon demand. The loan was
payable in Canadian dollars and was secured by a Promissory Note.
As of July 28, 2015, the principal balance of the loan
and accrued interest payable totalling $1,108,165 were settled in full as part
of the debt settlement agreement described below.
On July 18, 2014, we entered into a
promissory note with an officer and director, John Hislop for US$50,000. The
loan bore interest calculated quarterly, not in advance, at a rate of 15% per
annum. The note was payable upon demand by Mr. Hislop, both before and after
each of maturity, default and judgement commencing effective July 18, 2014. As
of July 28, 2015, the principal balance of the loan and accrued interest
payable totalling $ 57,726 were settled in full as part of the debt settlement
agreement described below.
On September 2, 2014, we entered into
a promissory note with an officer and director, John Hislop for C$20,000
(US$16,012). The loan bore interest calculated quarterly, not in advance, at a
rate of 15% per annum. The note was payable upon demand by Mr. Hislop, both
before and after each of maturity, default and judgement commencing effective
September 2, 2014. As of July 28 2015, the principal balance of the loan and
accrued interest payable totalling $17,690 were settled in full as part of the
debt settlement agreement described below.
On January 29, 2015, we entered into a
promissory note with an officer and director, John Hislop (“Lender”) for
C$50,000 (US$40,030). The loan bore interest calculated quarterly, not in
advance, at a rate of 15% per annum. The note was payable upon demand by the
Lender, both before and after each of maturity, default and judgement
commencing effective January 29, 2015. As of July 28, 2015, the principal
balance of the loan and accrued interest payable totalling $41,612 were settled
in full as part of the debt settlement agreement described below.
On April 21, 2015, we entered into a
debt settlement and subscription agreement with our chief financial officer and
director, John Hislop whereby we agreed to settle a portion of the
indebtedness, in the amount of $1,340,000, by allotting and issuing to John
Hislop 134,000,000 shares of our common stock at a deemed price of $0.01 per
share. On April 24, 2015, we announced that we had issued 134,000,000 shares
of our common stock at a deemed price of $0.01 per share to Mr. Hislop.
However, due to a technical flaw in the process of adopting the amendment to our
Articles of Incorporation (announced on February 3, 2014), we were only
authorized to issue 100,000,000 shares of our common stock on April 23, 2015,
and the issuance to Mr. Hislop on April 23, 2015, was therefore void. On June
29, 2015, we sent to our shareholders a proxy statement for a shareholder meeting
to be held July 22, 2015, at which meeting we proposed to rectify the technical
flaw in our earlier effort to increase our authorized capital. On July 28,
2015, we closed the debt settlement agreement and reissued the 134,000,000
shares to Mr. Hislop pursuant to the debt settlement and subscription agreement
which settled a debt to Mr. Hislop equal to $1,340,000 immediately following
shareholder approval of the increase in our authorized capital on July 23,
2015. The shares were valued at $4,690,000 ($0.035 per share based upon market
price). The Company recorded a loss on extinguishment of debt of $3,350,000.
As
of August 4, 2015, Paltar Nation Limited Partnership (“Paltar Nation”) entered
into a secured convertible note purchase agreement with David N. Siegel Dynasty
Trust dated November 16, 2015 (the “2015 Secured Note Purchase Agreement”),
pursuant to which Paltar Nation issued a secured convertible promissory note in
the principal amount of $584,000 in consideration for $584,000. The secured
convertible promissory note bears interest at the rate of 10% per annum (15%
per annum on and after the maturity date or an Event of Default (as defined
below)) and matures on August 4, 2016. The entire
unpaid
principal sum of the secured convertible promissory note will become
immediately due and payable upon a material breach by (a) Paltar Nation of the
note, another note or the 2015 Secured Note Purchase Agreement, or (b) Wotan
Group Limited, an Australian limited company, of the Wotan Pledge, described
below, in each case that is not cured within 30 days of such breach (referred
to as an “Event of Default”).
The
2015 Secured Note Purchase Agreement also contemplates sales of additional
secured convertible promissory notes up to an aggregate maximum of $5,000,000
(including the initial $584,000 sale to David N. Siegel Dynasty Trust dated
November 16, 2015). The secured convertible promissory note issued to Michael
B. Cox, described below, has been issued pursuant to the 2015 Secured Note
Purchase Agreement.
Upon
a sale of Paltar Nation’s limited partnership interests (“Interests”) in a
single transaction or a series of related transactions yielding gross cash
proceeds to Paltar Nation of at least $20,000,000 (including $584,000 from the
sale of the secured convertible promissory note to David N. Siegel Dynasty
Trust dated November 16, 2015 and including $100,000 from the sale of the
secured convertible promissory note to Michael B. Cox) on or before the
maturity dates of the notes (the “Qualified Financing”), the principal and any
accrued but unpaid interest under the notes will automatically be converted
into Interests. The Interests to be issued to David N. Siegel Dynasty Trust dated
November 16, 2015 upon conversion will be equal to the quotient obtained by
dividing (i) the entire principal amount of the note plus any accrued but
unpaid interest under the note by (ii) 80.00% of the per-Interest price of the
Interests sold to persons other than David N. Siegel Dynasty Trust dated
November 16, 2015 and other holders of the notes, if any, in the Qualified
Financing.
In
connection with the secured convertible note purchase agreement, Paltar Nation
entered into a pledge agreement dated as of August 4, 2015 with Wotan Group
Limited (the “Wotan Pledge”), pursuant to which Wotan Group Limited pledged to each
of David N. Siegel Dynasty Trust dated November 16, 2015 and any future secured
noteholders pursuant to the 2015 Secured Note Purchase Agreement (of which
Michael B. Cox is one) a continuing first priority security interest in a
number of Wotan Group Limited’s shares of Paltar Petroleum Limited equal to
five multiplied by the sum of the aggregate outstanding principal amounts owed
under each noteholder’s respective note and Paltar Nation agreed to pay a
commitment fee to Wotan Group Limited equal to $250,000 from the proceeds of
the secured convertible promissory notes upon the receipt by Paltar Nation of
proceeds from the sale of such notes equal to or greater than $2,500,000 in the
aggregate and an additional commitment fee of $250,000 upon conversion of all
of such notes.
As of
March 31, 2016
, the principal balance of the loan was $584,000 and
accrued interest payable of $38,400.
On August 5, 2015, we entered into a
promissory note with an officer and director, John Hislop for C$10,000
(US$7,623). The loan bears interest calculated quarterly, not in advance, at a
rate of 15% per annum. The note is payable upon demand by Mr. Hislop, both
before and after each of maturity, default and judgement commencing effective
August 5, 2015. The principal sum and all accrued and unpaid interest will
become due and payable on August 5, 2017. As of
March 31, 2016
, the principal balance of the loan was $7,700 and
accrued interest payable of $8,456.
On August 25, 2015, we entered into a
promissory note with an officer and director, John Hislop for $10,000. The loan
bears interest calculated quarterly, not in advance, at a rate of 15% per
annum. The note is payable upon demand by Mr. Hislop, both before and after
each of maturity, default and judgement commencing effective August 25, 2015. The
principal sum and all accrued and unpaid interest will become due and payable
on August 25, 2017. As of
March 31, 2016
,
the principal balance of the loan was $10,000 and accrued interest payable of $896.
On September 10, 2015, we entered into
a promissory note with an officer and director, John Hislop for C$6,000
(US$4,528). The loan bears interest calculated quarterly, not in advance, at a
rate of 15% per annum. The note is payable upon demand by Mr. Hislop, both
before and after each of maturity, default
and
judgement commencing effective September 10, 2015. The principal sum and all
accrued and unpaid interest will become due and payable on September 10, 2017.
As of
March 31, 2016
, the principal
balance of the loan was $4,620 and accrued interest payable of $385.
On September 24, 2015, we entered into
a promissory note with an officer and director, John Hislop for $5,000. The
loan bears interest calculated quarterly, not in advance, at a rate of 15% per
annum. The note is payable upon demand by Mr. Hislop, both before and after
each of maturity, default and judgement commencing effective September 24,
2015. The principal sum and all accrued and unpaid interest will become due and
payable on September 24, 2017. As of
March
31, 2016
, the principal balance of the loan was $5,000 and accrued
interest payable of $386.
On September 30, 2015, Paltar Nation
entered into a promissory note with a director, David N. Siegel Dynasty Trust dated
November 16, 2015 for $14,210. The loan bears interest at a rate of 10% per
annum from the disbursement date of the funds. The principal sum and all
accrued and unpaid interest will become due and payable on September 30, 2016.
As of
March 31, 2016
, the principal
balance of the loan was $14,210 and accrued interest payable of $907.
On October 29, 2015, the Company
entered into a promissory note with a related party, John Hislop for $7,960.
The loan bears interest calculated quarterly, not in advance, at a rate of 15%
per annum. The note is payable upon demand by Mr. Hislop, both before and after
each of maturity, default and judgement commencing effective October 29, 2015. The
principal sum and all accrued and unpaid interest will become due and payable
on October 29, 2022. As of March 31, 2016, the principal balance of the loan
was $7,960 and accrued interest payable of $507.
On
November 27, 2015, pursuant to the 2015 Secured Note Purchase Agreement, Paltar
Nation issued a secured convertible promissory note to Michael B. Cox in the
principal amount of $100,000 in consideration for $100,000. The secured
convertible promissory note bears interest at the rate of 10% per annum (15%
per annum on and after the maturity date or an Event of Default) and matures on
November 30, 2016. The entire unpaid principal sum of the secured convertible
promissory note will become immediately due and payable upon an Event of
Default. The Interests to be issued to Michael B. Cox upon conversion will be
equal to the quotient obtained by dividing (i) the entire principal amount of
the note plus any accrued but unpaid interest under the note by (ii) 80.00% of
the per-Interest price of the Interests sold to persons other than Michael B.
Cox and other holders of the notes, if any, in the Qualified Financing. The
note is secured by the Wotan Pledge.
As of March 31, 2016, the principal
balance of the loan was $100,000 and accrued interest payable of $4,247.
On March 31, 2016, Paltar Nation
entered into a promissory note with a director, David N. Siegel Revocable Trust
2009 for $188,483. The loan bears interest at a rate of 10% per annum from the
disbursement date of the funds. The principal sum and all accrued and unpaid
interest will become due and payable on March 31, 2017. As of
March 31, 2016
, the principal balance of
the loan was $188,483 and accrued interest payable of $1,698.
Future Financings
As
of March 31, 2016, we had cash of $1,334.
We
currently do not have sufficient funds to acquire and develop any opportunities,
including the opportunity presented by our first amendment to the third
amended and restated agreement with Paltar
Petroleum
. Paltar Nation was formed for
the purpose of funding exploration expenditures required to be provided by the
wholly-owned subsidiary of Nation Energy Inc., Nation Energy (Australia) Pty
Ltd., which is expected to become a wholly-owned subsidiary of Paltar Nation,
to explore and develop all or a portion of 775,292 acres of certain Australian
exploration permits. We also anticipate continuing to rely on shareholder loans
or equity sales of our common stock in order to fund our business operations.
Issuances of additional shares will result in dilution to our existing
stockholders. There is no assurance that we will achieve any additional sales
of our equity or arrange for more debt or other financing to fund any future
activities.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Nation Energy, Inc.
We have audited the accompanying balance sheets of Nation Energy, Inc., as of March 31, 2015 and 2014, and the related statements of operations, stockholders' (deficit), 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nation Energy, Inc., as of March 31, 2015 and 2014, and the results of its operations, stockholders' (deficit), 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 1 to the financial statements, the Company has suffered recurring losses from operations, has no current source of operating revenues, and needs to secure financing to
remain a going concern. These factors raise substantial doubt about the Companys 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/ StarkSchenkein, LLP
Denver, Colorado
June 3, 2015
Nation Energy, Inc.
|
Condensed Consolidated
Balance Sheets
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
2016
|
|
2015
|
|
|
|
|
ASSETS
|
Current
assets:
|
|
|
|
Cash
|
$ 1,334
|
|
$ 47,479
|
Total
current assets
|
1,334
|
|
47,479
|
|
|
|
|
Non-current
assets:
|
|
|
|
Petroleum and natural gas interests
|
29,559,563
|
|
-
|
Total
non-current assets
|
29,559,563
|
|
$
-
|
|
|
|
|
Total
assets
|
$
29,560,897
|
|
$
47,479
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
|
$ 9,710,946
|
|
$ 12,282
|
Accounts payable and accrued expenses - related party
|
497,842
|
|
774,456
|
Loans payable - related party, current
|
827,698
|
|
872,936
|
Loans payable - current
|
104,247
|
|
-
|
Total
current liabilities
|
11,140,733
|
|
1,659,674
|
|
|
|
|
Long
term liabilites
|
|
|
|
Loans payable - related party, noncurrent
|
38,211
|
|
112,977
|
|
11,178,944
|
|
1,772,651
|
Stockholders'
equity (deficit)
|
|
|
|
Common stock, no par value; 5,000,000,000
|
$ 1,356,020
|
|
$ 16,020
|
shares authorized; 150,020,000 (2016) and 16,020,000
|
|
|
|
(2015) shares issued and outstanding
|
|
|
|
Obligation to issue shares
|
20,000,000
|
|
-
|
Additional paid-in capital
|
10,218,380
|
|
6,868,380
|
Accumulated (deficit) prior to the development stage
|
(6,839,714)
|
|
(6,839,714)
|
Accumulated (deficit) during the development stage
|
(6,398,445)
|
|
(1,785,225)
|
Accumulated comprehensive income:
|
|
|
|
Foreign currency translation income
|
45,713
|
|
15,367
|
Total
stockholders' equity (deficit)
|
18,381,953
|
|
(1,725,172)
|
|
|
|
|
Total
liabilities and stockholders' equity (deficit)
|
$
29,560,897
|
|
$
47,479
|
|
|
|
|
The accompanying notes are an
integral part of these financial statements
|
|
|
|
|
Nation Energy, Inc.
|
Condensed Consolidated
Statements of Operations and Comprehensive Loss
|
For the Years Ended March
31, 2016 and 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
Revenue:
|
|
$ -
|
|
$ -
|
Direct
expenses:
|
|
|
|
|
Royalties
|
|
-
|
|
-
|
Operating
|
|
-
|
|
-
|
|
|
|
|
|
Operating income
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
1,157,753
|
|
136,803
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before other income (expense)
|
|
(1,157,753)
|
|
(136,803)
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
(Loss) on extinguishment of debt
|
|
(3,350,000)
|
|
-
|
Interest (expense)
|
|
(105,468)
|
|
(182,961)
|
Total
other income (loss)
|
|
(3,455,468)
|
|
(182,961)
|
|
|
|
|
|
Net
loss
|
|
(4,613,220)
|
|
(319,764)
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
45,713
|
|
172,132
|
|
|
|
|
|
Comprehensive loss
|
|
$
(4,567,508)
|
|
$
(147,632)
|
|
|
|
|
|
Per share information:
|
|
|
|
|
Weighted average number of
|
|
|
|
|
common shares outstanding
|
|
|
|
|
- basic and diluted
|
|
150,020,000
|
|
16,020,000
|
|
|
|
|
|
Net loss per common
|
|
|
|
|
share - basic and diluted
|
|
$ (0.030)
|
|
$ (0.009)
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements
|
|
|
|
|
|
Nation Energy, Inc.
|
Condensed Consolidated Statement of Changes in Stockholders' Equity Deficit
|
|
For the Years Ended March 31, 2016 and 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
|
|
(Deficit)
|
|
|
|
|
|
Common Stock
|
|
Additional
|
|
Obligation
|
|
Accumulated
|
|
Prior to the
|
|
During the
|
|
Total
|
|
|
|
Number of
|
|
|
|
Paid-in
|
|
to issue
|
|
Comprehensive
|
|
Development
|
|
Development
|
|
Stockholders' Equity
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Shares
|
|
Income (loss)
|
|
Stage
|
|
Stage
|
|
(Deficit)
|
Balance at March 31, 2013
|
|
|
16,020,000
|
|
16,020
|
|
6,868,380
|
|
|
|
(245,036)
|
|
(6,839,714)
|
|
(1,214,152)
|
|
(1,414,502)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
88,272
|
|
|
|
|
|
88,272
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251,309)
|
|
(251,309)
|
Balance at March 31, 2014
|
|
|
16,020,000
|
|
16,020
|
|
6,868,380
|
|
|
|
(156,765)
|
|
(6,839,714)
|
|
(1,465,461)
|
|
(1,577,540)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
172,132
|
|
|
|
|
|
172,132
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(319,764)
|
|
(319,764)
|
Balance at March 31, 2015
|
|
|
16,020,000
|
|
16,020
|
|
6,868,380
|
|
|
|
15,367
|
|
(6,839,714)
|
|
(1,785,225)
|
|
(1,725,172)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
30,345
|
|
|
|
|
|
30,345
|
Share issuance, debt settlement
|
134,000,000
|
|
1,340,000
|
|
3,350,000
|
|
|
|
|
|
|
|
|
|
4,690,000
|
Shares for exploration permits
|
|
|
|
|
|
|
20,000,000
|
|
|
|
|
|
|
|
20,000,000
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,613,220)
|
|
(4,613,220)
|
Balance at March 31, 2016
|
|
|
150,020,000
|
|
1,356,020
|
|
10,218,380
|
|
20,000,000
|
|
45,712
|
|
(6,839,714)
|
|
(6,398,445)
|
|
18,381,953
|
The accompanying notes are an integral part of these financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nation Energy, Inc.
|
Condensed Consolidated Statements of Cash Flows
|
For the Years March 31, 2016 and 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net (loss)
|
$ (4,613,220)
|
|
$ (319,764)
|
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
provided by (used in) operating activities:
|
|
|
|
|
Loss on extinguishment of debt
|
3,350,000
|
|
-
|
|
Changes in working capital:
|
|
|
|
|
Increase in accounts payable
|
894,741
|
|
2,182
|
|
Increase (decrease) in accounts payable -
|
|
|
|
|
related party
|
(629,815)
|
|
77,667
|
|
Net cash (used in) operating activities
|
(998,295)
|
|
(239,915)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Net cash provided by investing activities
|
-
|
|
-
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Proceeds from loan payable - related party
|
821,804
|
|
112,513
|
|
Proceeds from loan payable
|
100,000
|
|
-
|
|
Net cash provided by financing activities
|
921,804
|
|
112,513
|
|
|
|
|
|
|
Effect of currency rate change gain
|
30,346
|
|
172,132
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
(46,145)
|
|
44,730
|
|
|
|
|
|
|
Beginning balance, cash
|
47,479
|
|
2,749
|
|
|
|
|
|
|
Ending balance, cash
|
$ 1,334
|
|
$ 47,479
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
Share issuance for debt settlement
|
$ 1,340,000
|
|
-
|
|
Obligation to issue shares
|
20,000,000
|
|
-
|
|
Petroleum and natural gas interests
|
29,559,563
|
|
-
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements
|
|
|
|
|
|
|
|
|
|
|
Nation Energy Inc.
Notes to Financial Statements
Note 1. NATURE OF OPERATIONS AND ABILITY TO CONTINUE AS A GOING CONCERN
Nation Energy Inc. (the “Company”), was incorporated on April 19, 1988, in the State of Florida as Excalibur Contracting, Inc. The Company was reincorporated as a Delaware corporation and changed its name to Nation Energy, Inc. in February 2000. On June 13, 2003, the Company reincorporated as a Wyoming corporation. The Company was an oil and gas exploration, development and production company with properties located in Alberta Canada. Effective June 1, 2008, the Company sold all of its oil and gas properties in the Smoky Hill area of Alberta and is currently reviewing other prospects. Following the sale of all of our oil and gas operations effective June 1, 2008, we began to actively seek new oil and gas opportunities. On
October 11, 2013, we entered into a letter agreement with Paltar Petroleum Limited, an Australian company, pursuant to which we agreed to acquire four exploration and development permits and twenty-nine applications for exploration and development permits in respect of prospective acreage located in northern Australia. On March 31, 2014, we amended this letter agreement and, on November 27, 2014, we amended and restated the letter agreement to add additional exploration properties and provide for new closing terms. On June 13, 2015, we entered into a second amended and restated agreement, replacing in its entirety the amended and restated agreement dated November 27, 2014. On August 28, 2015, we entered into a third amended and restated agreement, replacing in its entirety the second amended restated agreement dated June 13, 2015. Also on August 30, 2015, and pursuant to the terms of the third amended and restated letter agreement (the “Agreement”), Paltar or its wholly-owned subsidiary, Officer Petroleum Pty Ltd (“Officer”), and our wholly-owned subsidiary, Nation Energy (Australia) Pty Ltd., entered into seven separate earning agreements and an option agreement. Effective December 17, 2015, the Company entered into a first amendment to the third amended and restated agreement to extend the time allowed for certain actions contemplated in the third amended and restated agreement and to provide further information concerning the additional earning agreements as such term is defined in the third amended and restated agreement. Also effective December 17, 2015, the seven earning agreements were amended to make compatible extensions of time for actions contemplated by the third amended and restated agreement and to extend the deadline for cash payments under the earning agreements. Effective February 8, 2016, the Company entered into a second amendment to the third amended and restated agreement to extend again the time allowed for certain actions contemplated in the third amended and restated agreement.
Also effective February 8, 2016, the seven earning agreements were amended to make compatible extensions of time for actions contemplated by the third amended and restated agreement. Effective February 12, 2016, the Company entered into an amendment to the option agreement to change the purchase price for the assets subject to the option. Effective May 31, 2016, the Company entered into a third amendment to the third amended and restated agreement to revise the payment of consideration by Nation contemplated in the third amended and restated agreement.
Also effective May 31, 2016, the seven earning agreements were amended to make compatible changes in consideration payable by Nation Australia and Nation contemplated by the third amended and restated agreement, and the option agreement was terminated.
(see Note 3 for further details).
To implement any new business plan, significant financing will be required and the Company will need to be successful in its efforts to identify, acquire and develop a new business venture.
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has incurred losses since inception of ($13,238,159) has both a working capital and a stockholders’ deficit of ($11,177,610) and is reliant on raising capital to implement its business plan.
The Company is currently in the development stage as defined by Accounting Standards Codification subtopic 915-10 “Development Stage Entities” (“ASC 915-10”). Upon the sale of all of its oil and gas assets, the Company re-entered the exploration stage. Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise. For the period from inception
through June 1, 2008, the Company has accumulated a deficit of ($6,839,714) and a deficit accumulated during the development stage of ($6,398,445).
The Company’s ability to continue as a going concern is contingent upon being able to secure financing and attain sustained profitable operations. The Company is pursuing financing for its operations.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
Certain prior year amounts have been reclassified for comparative purposes.
Note 2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.
Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The exact results experienced by the Company may differ materially and adversely from the Company’s estimates.
Foreign Currency Translation
The Company’s reporting currency is the United States dollar. The functional currency of the Company is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in other comprehensive income.
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2016. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts payable and loans payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
Net Income (Loss) Per Common Share
Basic earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted
average number of common shares and dilutive common share equivalents outstanding. During the periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation.
Impairment of Exploration Costs
Assets that are not subject to amortization are tested for impairment at least annually. In assessing whether it is more likely than not an asset is impaired, the Company assess all relevant events and circumstances that could affect the significant inputs used to determine the fair value of the asset. Some examples of such events and circumstances are cost factors that could have a negative effect on cash flows, financial performance of the asset, legal and other regulatory factors, changes in management, industry and market considerations and general economic conditions.
Oil and Gas Properties
The Company followed the full cost method of accounting for oil and gas operations whereby all costs associated with the acquisition, exploration for and development of oil and gas reserves, whether productive or unproductive, were capitalized. Such expenditures included land acquisition costs, drilling, exploratory dry holes, geological and geophysical costs not associated with a specific unevaluated property, completion and costs of well equipment. Internal costs were capitalized only if they were directly identified with acquisition, exploration, or development activities. The Company did not capitalize any internal costs.
On June 1, 2008, the Company sold its oil and gas properties, which were located in the Smoky Hill Area of Alberta, Canada. From that date the Company is considered a shell company (see Note 3).
Other Comprehensive Income (Loss)
For the years ended March 31, 2016 and 2015, the only components of comprehensive loss were foreign currency translation adjustments.
Stock-Based Compensation
The Company has a stock based compensation plan whereby stock options are granted in accordance with the policies of regulatory authorities. The Company accounts for stock-based compensation in accordance with ASC Subtopic 718 “Compensation – Stock Compensation”. (“ASC 718”)
ASC 718-10 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. This ASC establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement in accounting for share-based payment transactions with employees. It also establishes fair value as the measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based transactions.
There was no material effect on the financial statements.
Revenue Recognition
Oil and natural gas revenues were recorded using the sales method whereby our company recognized oil and natural gas revenue based on the amount of oil and gas sold to purchasers when title passes, the amount is determinable and collection is reasonably assured. Actual sales of gas are based on sales, net of the associated volume charges for processing fees and for costs associated with delivery, transportation, marketing, and royalties in accordance with industry standards. Operating costs and taxes are recognized in the same period of which revenue is earned.
Recent Pronouncements
Accounting standards-setting organizations frequently issue new or revised accounting rules. We regularly review all new pronouncements that have been issued to determine their impact, if any, on our financial statements.
In May 2014, the FASB issued ASU No. 2014-09, ”Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on December 15, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09. The amendment defers the effective date of ASU No. 2015-14 by one year. The new standard is effective for the Company on December 15, 2018.
In June 2014, the FASB issued ASU No. 2014-10 “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation” (“ASU 2014-10”). ASU 2014-10 addresses the cost and complexity associated with the incremental reporting requirements for development stage entities, such as start-up companies, without compromising the availability of relevant information and eliminates an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The Company elected to apply ASU 2014-10 effective the quarter ended September 30, 2014. ASU 2014-10 impacts financial statement presentation only and removes the requirement to present additional inception-to-date information.
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Specifically, ASU 2014-15 provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The new standard will be effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The Company will evaluate the going concern considerations in this ASU; however, as of the current period, management believes that is current disclosures meet the requirement under this ASU.
In January 2015, the FASB issued ASU No. 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”. This ASU is effective for annual and interim reporting periods beginning after December 15, 2015. ASU No. 2015-01 eliminates the concept of extraordinary items. Management does not anticipate that this accounting pronouncement will have any material future effect on the Company’s consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. This ASU is effective for annual and interim reporting periods beginning after December 15, 2015. ASU No 2015-02 amends the analysis required by a reporting entity to determine if it should consolidate certain types of legal entities. Management does not anticipate that this accounting pronouncement will have any material future effect on our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. This ASU is effective for annual and interim periods beginning after December 15, 2015. ASU No. 2015-03 changes the presentation of debt issuance costs in financial statements. Management does not anticipate that this accounting pronouncement will have a material future effect on the Company’s consolidated financial statements.
Note 3. Oil and Gas Properties
On September 18, 2008, Nation and Netco Energy, Inc. (“Netco”), entered into a sales and purchase agreement to sell their assets in the Smoky Area of Alberta for total net proceeds of C$1,600,000. The agreement was effective June 1, 2008. The sale of the oil and gas assets closed September 18, 2008, with a second closing in April 2009, for total net proceeds to Nation of C$1,102,939 (US $1,029,385) from Encana, plus C$160,000 (US$ 129,324) from Netco. In April 2009, the Company received its final payment from Encana pursuant to the sale of its oil and gas properties, of C$150,894 (US$ 88,689). The Company is now considered a shell company.
On
October 11, 2013, the Company entered into a letter agreement with Paltar Petroleum Limited (“Paltar”), an Australian company, pursuant to which the Company agreed to acquire four exploration and development permits and twenty-nine applications for exploration and development permits in respect of prospective acreage located in northern Australia. On March 31, 2014, the Company amended this letter agreement and, on November 27, 2014 and April 29, 2015, the parties amended and restated the letter agreement to add additional exploration properties and provide for new closing terms and to extend the closing date and maturity dates of certain promissory notes, respectively. On June 13, 2015, the parties entered into a second amended and restated agreement, replacing in its entirety the amended and restated agreement dated November 27, 2014. On August 30, 2015, the Company entered into a third amended and restated agreement, replacing in its entirety the second amended restated agreement dated June 13, 2015. Also on August 30, 2015, and pursuant to the terms of the third amended and restated letter agreement, Paltar or its wholly-owned subsidiary, Officer Petroleum Pty Ltd (“Officer”), and the Company’s wholly-owned subsidiary, Nation Energy (Australia) Pty Ltd., entered into seven separate earning agreements. And also on August 30, 2015, the Company and Paltar entered into an option agreement, pursuant to which the Company may acquire exploration permits and related assets in respect of prospective acreage in Australia. Effective December 17, 2015, the Company entered into a first amendment to the third amended and restated agreement to extend the time allowed for certain actions contemplated in the third amended and restated agreement and to provide further information concerning the additional earning agreements as such term is defined in the third amended and restated agreement.
Also effective December 17, 2015, the seven earning agreements were amended to make compatible extensions of time for actions contemplated by the third amended and restated agreement and to extend the deadline for cash payments under the earning agreements.
Effective February 8, 2016, the Company entered into a second amendment to the third amended and restated agreement to extend again the time allowed for certain actions contemplated in the third amended and restated agreement.
Also effective February 8, 2016, the seven earning agreements were amended to make compatible extensions of time for actions contemplated by the third amended and restated agreement. Effective February 12, 2016, the Company entered into an amendment to the option agreement to change the purchase price for the assets subject to the option.
Effective May 31, 2016, the Company entered into a third amendment to the third amended and restated agreement to revise the payment of consideration by Nation contemplated in the third amended and restated agreement.
Also effective May 31, 2016, the seven earning agreements were amended to make compatible changes in consideration payable by Nation Australia and Nation contemplated by the third amended and restated agreement, and the option agreement was terminated.
To implement any new business plan, significant financing will be required and the Company will need to be successful in its efforts to identify, acquire and develop a new business venture.
Note 4. Stockholders’ Equity (Deficit)
Equity Incentive Plan
On May 6, 1999 the Board of Directors
adopted a stock option plan (“The Plan”) which was subsequently approved by
over 50% of our shareholders. The Plan allows for the issuance of incentive
stock options to employees, consultants, directors, and others providing
service of special significance to our company. The Plan is administered by
the Board of Directors. The Plan provides for the issuance of up to 2,500,000
options. The exercise price of each option shall be determined by the Board or
by the CEO with reference to such factors as current fair market value of the
common stock, net book value per share, other remuneration already being
received by the optionee. No option may be exercised more than five years from
the date of grant and they vest on the date granted. The Plan does not have an
expiry date.
At March 31, 2016 and
2015, there were no options outstanding.
Note
5. Income Taxes
The Company accounts for income taxes
under the liability method, which provides that deferred tax assets and
liabilities are recorded based on the differences between the tax bases of
assets and liabilities and their carrying amounts for financial reporting
purposes, referred to as temporary differences. Deferred tax assets and
liabilities at the end of each period are determined using the currently
enacted tax rates applied to taxable income in the periods in which the
deferred tax assets and liabilities are expected to be settled or realized.
The
provision (benefit) for income taxes consists of the following components:
|
|
|
March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
Current
|
|
$
|
---
|
|
$
|
---
|
|
Deferred
|
|
$
|
---
|
|
$
|
---
|
|
The
tax effects of temporary differences and carry forwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:
|
|
March 31,
|
|
|
|
|
2016
|
|
2015
|
|
|
Deferred tax
assets:
|
|
|
|
|
|
|
Net operating loss
carryforwards
|
$
|
3,360,000
|
$
|
1,957,000
|
|
Less valuation
allowance
|
|
(3,360,000)
|
|
(1,957,000)
|
|
|
$
|
---
|
$
|
---
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of the statutory U.S. federal rate and effective rates is as
follows:
Statutory
U.S. federal rate
|
34.00%
|
State
income taxes
|
--- %
|
Total
|
34.00%
|
The Company’s provision for income
taxes differs from applying the statutory United States federal income tax rate
to income before income. The primary differences result from net operating
losses.
Net operating loss
carry-forwards of approximately $3,360,000 will expire through 2034. The
deferred tax asset has been fully reserved at March 31, 2016. The change in
the valuation allowance during the year ended March 31, 2016 was $1,403,000.
In December 2013, the Company received
a letter from the Department of the Treasury, Internal Revenue Service (“IRS”)
charging a penalty of $10,000 under Section 6038A of the Internal Revenue Code
for failure to provide information with respect to certain foreign-owned US
Corporations on Form 5472. In January 2014, the Company responded to the IRS
and requested an abatement of the penalties assessed. In April 2014, the
Company received another letter from the IRS requesting additional information
in order to consider our request for penalty adjustment. No accrual was made at
March 31, 2016 and, to date, this matter remains unresolved.
Note 6. Related Party Transactions
(a)
Administrative
Services Agreement
During
March 2002, the Company entered into a verbal agreement with a related party,
Caravel Management Corp. (“Caravel”), in which Caravel will provide
administrative services on a month-to-month basis. On January 1, 2009, the
Company entered into a written agreement revising the previous verbal agreement
with Caravel. The agreement provides for administrative services, office rent
and supplies for $7,865 per month. Subsequently, effective November 1, 2010
the Company revised its agreement with Caravel to provide administrative
services for $3,500 per month. In addition to administrative services, the
agreement also provides for office rent and supplies. Total expenses recognized
under this agreement were $42,000 for the years ended March 31, 2016 and 2015.
We
currently have a compensation arrangement with Carmen J. Lotito, our Vice
President, to provide operational and management services for $20,000 per
month, on a month-to-month agreement.
(b)
Loans
Payable – Related Party
We entered into
loan agreements with Caravel and John Hislop in 2003 and 2004 to fund
operations.
Caravel
is a private management company that is wholly-owned by John Hislop, our chief
financial officer and director.
The terms of these loan agreements
provided that any principal amount outstanding is payable upon demand and bears
interest at 15% per annum, payable quarterly. On March 31, 2006, we
consolidated and restructured the loans. As part of the restructuring, we
borrowed an additional C$250,000 (US $203,932). The new loan bore interest at
15% per annum, calculated and compounded monthly and payable quarterly. Any
principal amount outstanding under the loan was payable upon demand. The loan was
payable in Canadian dollars and was secured by a Promissory Note.
As of July 28, 2015, the principal balance of the loan
and accrued interest payable totalling $1,108,165 were settled in full as part
of the debt settlement agreement described below.
On July 18, 2014, we entered into a
promissory note with an officer and director, John Hislop for US$50,000. The
loan bore interest calculated quarterly, not in advance, at a rate of 15% per
annum. The note was payable upon demand by Mr. Hislop, both before and after
each of maturity, default and judgement commencing effective July 18, 2014. As
of July 28, 2015, the principal balance of the loan and accrued interest
payable totalling $ 57,726 were settled in full as part of the debt settlement
agreement described below.
On September 2, 2014, we entered into
a promissory note with an officer and director, John Hislop for C$20,000
(US$16,012). The loan bore interest calculated quarterly, not in advance, at a
rate of 15% per annum. The note was payable upon demand by Mr. Hislop, both
before and after each of maturity, default and judgement commencing effective
September 2, 2014. As of July 28 2015, the principal balance of the loan and
accrued interest payable totalling $17,690 were settled in full as part of the
debt settlement agreement described below.
On January 29, 2015, we entered into a
promissory note with an officer and director, John Hislop (“Lender”) for
C$50,000 (US$40,030). The loan bore interest calculated quarterly, not in
advance, at a rate of 15% per annum. The note was payable upon demand by the
Lender, both before and after each of maturity, default and judgement
commencing effective January 29, 2015. As of July 28, 2015, the principal
balance of the loan and accrued interest payable totalling $41,612 were settled
in full as part of the debt settlement agreement described below.
On April 21, 2015, we entered into a
debt settlement and subscription agreement with our chief financial officer and
director, John Hislop whereby we agreed to settle a portion of the indebtedness,
in the amount of $1,340,000, by allotting and issuing to John Hislop
134,000,000 shares of our common stock at a deemed price of $0.01 per share.
On April 24, 2015, we announced that we had issued 134,000,000 shares of our
common stock at a deemed price of $0.01 per share to Mr. Hislop. However, due
to a technical flaw in the process of adopting the amendment to our Articles of
Incorporation (announced on February 3, 2014), we were only authorized to issue
100,000,000 shares of our common stock on April 23, 2015, and the issuance to
Mr. Hislop on April 23, 2015, was therefore void. On June 29, 2015, we sent to
our shareholders a proxy statement for a shareholder meeting to be held July
22, 2015, at which meeting we proposed to rectify the technical flaw in our
earlier effort to increase our authorized capital. On July 28, 2015, we closed
the debt settlement agreement and reissued the 134,000,000 shares to Mr. Hislop
pursuant to the debt settlement and subscription agreement which settled a debt
to Mr. Hislop equal to $1,340,000 immediately following shareholder approval of
the increase in our authorized capital on July 23, 2015. The shares were valued
at $4,690,000 ($0.035 per share based upon market price). The Company recorded
a loss on extinguishment of debt of $3,350,000.
As
of August 4, 2015, Paltar Nation Limited Partnership (“Paltar Nation”) entered
into a secured convertible note purchase agreement with David N. Siegel Dynasty
Trust dated November 16, 2015 (the “2015 Secured Note Purchase Agreement”),
pursuant to which Paltar Nation issued a secured convertible promissory note in
the principal amount of $584,000 in consideration for $584,000. The secured
convertible promissory note bears interest at the rate of 10% per annum (15% per
annum on and after the maturity date or an Event of Default (as defined below))
and matures on August 4, 2016. The entire unpaid principal sum of the secured
convertible promissory note will become immediately due and payable upon a
material breach by (a) Paltar Nation of the note, another note or the 2015
Secured Note Purchase Agreement, or (b) Wotan Group Limited, an Australian
limited company, of the Wotan Pledge, described below, in each case that is not
cured within 30 days of such breach (referred to as an “Event of Default”).
The
2015 Secured Note Purchase Agreement also contemplates sales of additional
secured convertible promissory notes up to an aggregate maximum of $5,000,000
(including the initial $584,000 sale to David N. Siegel Dynasty Trust dated
November 16, 2015).
Upon
a sale of Paltar Nation’s limited partnership interests (“Interests”) in a
single transaction or a series of related transactions yielding gross cash
proceeds to Paltar Nation of at least $20,000,000 (including $584,000 from the
sale of the secured convertible promissory note to David N. Siegel Dynasty
Trust dated November 16, 2015 and including $100,000 from the sale of the
secured convertible promissory note to Michael B. Cox) on or before the
maturity dates of the notes (the “Qualified Financing”), the principal and any
accrued but unpaid interest under the notes will automatically be converted
into Interests. The Interests to be issued to David N. Siegel Dynasty Trust dated
November 16, 2015 upon conversion will be equal to the quotient obtained by
dividing (i) the entire principal amount of the note plus any accrued but
unpaid interest under the note by (ii) 80.00% of the per-Interest price of the
Interests sold to persons other than David N. Siegel Dynasty Trust dated
November 16, 2015 and other holders of the notes, if any, in the Qualified
Financing.
In
connection with the secured convertible note purchase agreement, Paltar Nation
entered into a pledge agreement dated as of August 4, 2015 with Wotan Group
Limited (the “Wotan Pledge”), pursuant to which Wotan Group Limited pledged to each
of David N. Siegel Dynasty Trust dated November 16, 2015 and any future secured
noteholders pursuant to the 2015 Secured Note Purchase Agreement a continuing
first priority security interest in a number of Wotan
Group Limited’s shares of Paltar Petroleum Limited equal to five multiplied by
the sum of the aggregate outstanding principal amounts owed under each
noteholder’s respective note and Paltar Nation agreed to pay a commitment fee
to Wotan Group Limited equal to $250,000 from the proceeds of the secured
convertible promissory notes upon the receipt by Paltar Nation of proceeds from
the sale of such notes equal to or greater than $2,500,000 in the aggregate and
an additional commitment fee of $250,000 upon conversion of all of such notes.
As of
March 31, 2016
, the principal balance of the loan was $584,000
and accrued interest payable of $38,400.
On August 5, 2015, we entered into a
promissory note with an officer and director, John Hislop for C$10,000
(US$7,623). The loan bears interest calculated quarterly, not in advance, at a
rate of 15% per annum. The note is payable upon demand by Mr. Hislop, both
before and after each of maturity, default and judgement commencing effective
August 5, 2015. The principal sum and all accrued and unpaid interest will
become due and payable on August 5, 2017. As of
March 31, 2016
, the principal balance of the loan was $7,700 and
accrued interest payable of $8,456.
On August 25, 2015, we entered into a
promissory note with an officer and director, John Hislop for $10,000. The loan
bears interest calculated quarterly, not in advance, at a rate of 15% per
annum. The note is payable upon demand by Mr. Hislop, both before and after
each of maturity, default and judgement commencing effective August 25, 2015. The
principal sum and all accrued and unpaid interest will become due and payable
on August 25, 2017. As of
March 31, 2016
,
the principal balance of the loan was $10,000 and accrued interest payable of $896.
On September 10, 2015, we entered into
a promissory note with an officer and director, John Hislop for C$6,000
(US$4,528). The loan bears interest calculated quarterly, not in advance, at a
rate of 15% per annum. The note is payable upon demand by Mr. Hislop, both
before and after each of maturity, default and judgement commencing effective
September 10, 2015. The principal sum and all accrued and unpaid interest will
become due and payable on September 10, 2017. As of
March 31, 2016
, the principal balance of the loan was $4,620 and
accrued interest payable of $385.
On September 24, 2015, we entered into
a promissory note with an officer and director, John Hislop for $5,000. The
loan bears interest calculated quarterly, not in advance, at a rate of 15% per
annum. The note is payable upon demand by Mr. Hislop, both before and after
each of maturity, default and judgement commencing effective September 24,
2015. The principal sum and all accrued and unpaid interest will become due and
payable on September 24, 2017. As of
March
31, 2016
, the principal balance of the loan was $5,000 and accrued
interest payable of $386.
On September 30, 2015, Paltar Nation
entered into a promissory note with a director, David N. Siegel Dynasty Trust dated
November 16, 2015 for $14,210. The loan bears interest at a rate of 10% per
annum from the disbursement date of the funds. The principal sum and all
accrued and unpaid interest will become due and payable on September 30, 2016.
As of
March 31, 2016
, the principal
balance of the loan was $14,210 and accrued interest payable of $907.
On October 29, 2015, the Company
entered into a promissory note with a related party, John Hislop for $7,960.
The loan bears interest calculated quarterly, not in advance, at a rate of 15%
per annum. The note is payable upon demand by Mr. Hislop, both before and after
each of maturity, default and judgement commencing effective October 29, 2015. The
principal sum and all accrued and unpaid interest will become due and payable
on October 29, 2022. As of March 31, 2016, the principal balance of the loan
was $7,960 and accrued interest payable of $507.
On March 31, 2016, Paltar Nation
entered into a promissory note with a director, David N. Siegel Revocable Trust
2009for $188,483. The loan bears interest at a rate of 10% per annum from the
disbursement date of the funds. The principal sum and all accrued and unpaid
interest will become due and payable on March 31, 2017. As of
March 31, 2016
, the principal balance of
the loan was $188,483 and accrued interest payable of $1,698.
Note 7. Loss on Extinguishment of
Debt
On April 21, 2015, we entered into a
debt settlement and subscription agreement with our chief financial officer and
director, John Hislop whereby we agreed to settle a portion of the
indebtedness, in the amount of $1,340,000, by allotting and issuing to John
Hislop 134,000,000 shares of our common stock at a deemed price of $0.01 per
share. On April 24, 2015, we announced that we had issued 134,000,000 shares
of our common stock at a deemed price of $0.01 per share to Mr. Hislop.
However, due to a technical flaw in the process of adopting the amendment to our
Articles of Incorporation (announced on February 3, 2014), we were only
authorized to issue 100,000,000 shares of our common stock on April 23, 2015,
and the issuance to Mr. Hislop on April 23, 2015, was therefore void. On June
29, 2015, we sent to our shareholders a proxy statement for a shareholder
meeting to be held July 22, 2015, at which meeting we proposed to rectify the
technical flaw in our earlier effort to increase our authorized capital. On
July 28, 2015, we closed the debt settlement agreement and reissued the
134,000,000 shares to Mr. Hislop pursuant to the debt settlement and
subscription agreement which settled a debt to Mr. Hislop equal to $1,340,000 immediately
following shareholder approval of the increase in our authorized capital on
July 23, 2015. The shares were valued at $4,690,000 ($0.035 per share based
upon market price). The Company recorded a loss on extinguishment of debt of $3,350,000.
Note 8. Subsequent Events
On April 8, 2016, Paltar Nation
entered into a promissory note with a director, David N. Siegel Revocable Trust
2009for $25,000. The loan will bear interest at a rate of 10% per annum. The
principal sum and all accrued and unpaid interest will become due and payable
on April 8, 2017.
On May 3, 2016, Paltar Nation entered
into a promissory note with a director, David N. Siegel Revocable Trust 2009for
$34,000. The loan will bear interest at a rate of 10% per annum. The principal
sum and all accrued and unpaid interest will become due and payable on May 3,
2017.
On May 31, 2016, we entered into a
promissory note with an officer and director, John Hislop for $23,100. The loan
bears interest calculated quarterly, not in advance, at a rate of 15% per
annumboth before and after each of maturity, default and judgement commencing
effective May 31, 2016. The principal sum and all accrued and unpaid interest
will become due and payable on May 31, 2023.
Effective May 31, 2016, Nation
Australia and Paltar amended the seven earning agreements by entering into the May
31, 2016 Earning Agreements.
Effective May 31, 2016,
Nation Australia issued to Paltar a promissory note
in the principal amount of
AUD$24,322,501, with payment guaranteed by
Nation.
Effective May 31, 2016, Nation and
Paltar entered into the third amendment to the third amended and restated
agreement.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
Evaluation
of disclosure controls and procedures and remediation
As
required by Rule 13a-15 under the
Securities Exchange Act of 1934,
in
connection with this annual report on Form 10-K, under the direction of our
Chief Executive Officer and Chief Financial Officer, we have evaluated our
disclosure controls and procedures as of March 31, 2016, including the remedial
actions discussed below, we have concluded that, as of March 31, 2016, our
disclosure controls and
procedures were ineffective as discussed in greater detail below. As of the date of this filing, we are still in the process of remediating such material weaknesses in our internal controls and procedures.
Management’s annual report on internal control over financial reporting
Management is responsible for establishing and maintaining internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our management evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our internal control over financial reporting as of March 31, 2016.
Based on its evaluation under the framework in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission, our management concluded that our internal control over financial reporting was not effective as of March 31, 2016, due to the existence of significant deficiencies constituting material weaknesses, as described in greater detail below. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Limitations on Effectiveness of Controls
Our Chief Executive Officer and Chief Financial Officer does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additional controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Material Weaknesses Identified
In connection with the preparation of our financial statements for the year ended March 31, 2016, certain significant deficiencies in internal control became evident to management that represent material weaknesses, including:
-
Insufficient segregation of duties in our finance and accounting functions due to limited personnel. During the year ended March 31, 2016, we had limited staff that performed nearly all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statement. This creates certain incompatible duties and lack of review over the financial reporting process that would likely result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC. These control deficiencies could result in a material misstatement of our interim or annual financial statements that would not be prevented or detected; and
ii.
Insufficient
corporate governance policies. Although we have a code of ethics which
provides broad guidelines for corporate governance, our corporate governance
activities and processes are not always formally documented. Specifically,
decisions made by the board to be carried out by management should be
documented and communicated on a timely basis to reduce the likelihood of any
misunderstandings regarding key decisions affecting our operations and
management.
Plan
for Remediation of Material Weaknesses
We
intend to take appropriate and reasonable steps to make the necessary
improvements to remediate these deficiencies. We intend to consider the
results of our remediation efforts as part of our year-end 2016 assessment of
the effectiveness of our internal control over financial reporting.
Subject
to receipt of additional financing, we intend to undertake the below remediation
measures to address the material weaknesses described in this annual report.
Such remediation activities include the following:
1.
We
intend to continue to update the documentation of our corporate governance and
internal control processes, including formal risk assessment of our financial
reporting processes.
It should be
noted that a control system, no matter how well conceived or operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within our company have
been detected. These inherent limitations include the realities that judgments
in decision making can be faulty, and that breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of internal
control is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting during the
fiscal year ended March 31, 2016 that have materially affected or are
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM
9B. OTHER INFORMATION
None.