Registration No. 333-147567
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM S-1/A
(POST-EFFECTIVE AMENDMENT NO.
1)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Manas Petroleum
Corporation
(Exact name of registrant as specified in its
charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
1311
(Primary Standard Industrial
Classification Code Number)
91-1918324
(I.R.S. Employer Identification
Number)
Bahnhofstrasse 9
6341Baar,
Switzerland
Telephone: +41 (44) 718 10 30
(Address,
including zip code, and telephone number, including area code, of registrants
principal executive offices)
Nevada Corporate Services,
Inc.
8883 West Flamingo Road, Suite 102
Las Vegas, NV 89147
Telephone: (702) 947-4100
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
Copy of Communications To:
Clark Wilson LLP
Attention: Ethan Minsky
Suite 800 - 885 West Georgia Street
Vancouver, British Columbia V6C 3H1,
Canada
Telephone: (604) 643-3151
From time to time after
the effective date of this registration statement.
(Approximate date
of commencement of proposed sale to the public)
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box: [ x ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [
]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [
]
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [
]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of large accelerated filer, accelerated
filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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Accelerated filer
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[
]
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Non-accelerated filer
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[
]
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Smaller reporting company
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[ x ]
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(Do not check if a smaller reporting company)
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The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
Explanatory Note
We are filing this post-effective amendment to update the
financial statements and other information contained in our registration
statement (Registration No. 333-147567), which was declared effective by the
Securities and Exchange Commission on July 30, 2008.
Our private placement on September 4, 2008 required that we
adjust downward the exercise price provided for in the selling stockholders
warrants (to an exercise price of $0.59 per share) and to adjust upward the
number of shares of our common stock which may be issued upon exercise of the
warrants. We made this adjustment because (i) there was a clause in each warrant
agreement of each selling stockholder that requires us to reduce the exercise
price of the warrants and increase the number of shares of our common stock that
can be purchased upon exercise if, after the date of the warrant, we sell shares
of our common stock, or the right to purchase shares of our common stock, at a
price that is lower than the exercise price of the warrants then in effect and
(ii) because we did, in fact, sell the right to purchase shares of our common
stock at a lower price than the exercise price originally provided for in the
selling stockholders warrants. This clause is of the type commonly referred to
as a price protection clause. Accordingly, we updated the number of shares of
our common stock offered by each selling stockholder by (i) subtracting the
number of shares that were issuable upon exercise of the options and the expired
warrants and (ii) adding the number of some of additional shares of our common
stock which have been issued or may be issued upon exercise of the warrants as a
result of the adjustment for the subsequent equity sales.
This post-effective amendment does not change the aggregate
number of shares of our common stock registered under the registration
statement. To date, none of the options owned by the selling stockholders and
described in the registration statement have been exercised and none of the
underlying warrant shares or option shares have been sold by any of the selling
stockholders.
ii
The
information in this prospectus is not complete and may be changed. The
selling stockholders may not sell thesesecurities until the
registration statement filed with the Securities and Exchange Commission
is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in
any state
where the offer or sale is not permitted.
|
Subject to Completion, Dated ______________, 2010
Prospectus
22,683,989 Shares
Manas Petroleum Corporation
Common Stock
_________________________________
The selling stockholders identified in this prospectus may offer
and sell up to 22,683,989 shares of our common stock that have been issued or
may be issued upon exercise of warrants. The warrants were acquired by the
selling stockholders directly from our company in private placements that were
exempt from the registration requirements of the Securities Act of 1933.
The selling stockholders may sell all or a portion of the
shares being offered pursuant to this prospectus at fixed prices, at prevailing
market prices at the time of sale, at varying prices or at negotiated
prices.
Our common stock is quoted on Financial Industry Regulatory Authoritys
OTC Bulletin Board under the symbol MNAP.OB. On April 1, 2010, the
closing sale price for our common stock as reported by the OTC Bulletin Board
was $0.69 per share.
We will not receive any proceeds from the sale of the shares of
our common stock by the selling stockholders. We may, however, receive proceeds
upon exercise of the warrants by the selling stockholders. We will pay for
expenses of this offering, except that the selling stockholders will pay any
broker discounts or commissions or equivalent expenses and expenses of their
legal counsels applicable to the sale of their shares.
Investing in our common stock involves risks. See Risk
Factors beginning on page 4.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The date of this prospectus is _____________, 2010.
Table of Contents
2
As used in this prospectus, the terms we, us, and our
refer to Manas Petroleum Corporation, its wholly-owned subsidiaries DWM
Petroleum A.G., a Swiss company, Manas Petroleum A.G., a Swiss company, Manas
Energia Chile Limitada, a Chilean company, Manas Petroleum of Chile Corporation,
a Canadian company, and Manans Management Services Ltd., a Bahamian company, and
its partially owned subsidiaries CJSC Somon Oil Company, a Tajikistan company,
and Gobi Energy Partners LLC, a Mongolian company, and its 25% ownership
interest in CJSC South Petroleum Company, a Kyrgyz company and its 30.74%
ownership interest in Petromanas Energy Inc., a British Columbia company, as the
context may require.
Prospectus Summary
Our Business
We are in the business of exploring for oil and gas, primarily
in Central Asia and the Balkans. In particular, we focus on the exploration of
large under-thrust light oil prospects in areas where, though there has often
been shallow production, their deeper potential has yet to be evaluated. If we
discover sufficient reserves of oil or gas, we intend to exploit them. Although
we are currently focused primarily on projects located in certain geographic
regions, we remain open to attractive opportunities in other areas. We do not
have any known reserves on any of our properties.
We carry out operations both directly and through participation
in ventures with other oil and gas companies to whom we have farmed out a
project. We currently have or are involved in projects in the Kyrgyz Republic,
Albania, Tajikistan, Mongolia and Chile.
We have no operating income yet and, as a result, depend upon
funding from various sources to continue operations and to implement our growth
strategy. Because of our lack of operating revenues, operating losses since
inception and need to raise additional funds, our independent registered public
accounting firm included an explanatory paragraph regarding substantial doubt
about our ability to continue as a going concern in their report on our
financial statements for the year ended December 31, 2009.
Our principal executive office address is Bahnhofstrasse 9,
6341 Baar, Switzerland. Our telephone number is +41 (44) 718 10 30.
Number of Shares Being Offered
This prospectus covers the resale by the selling stockholders
named in this prospectus of up to 22,683,989 shares of our common stock which
have been issued or may be issued upon the exercise of warrants by the selling
stockholders.
Number of Shares Outstanding
There were 119,879,699 shares of our common stock issued and
outstanding as at April 1, 2010.
Use of Proceeds
We will not receive any proceeds from the sale of the shares of
our common stock by the selling stockholders. We may, however, receive proceeds
upon exercise of the warrants by the selling stockholders. If any warrants are
exercised, we intend to use the proceeds to finance our working capital needs.
We will pay for expenses of this offering, except that the selling stockholders
will pay any broker discounts or commissions or equivalent expenses and expenses
of their legal counsels applicable to the sale of their shares.
Summary of Financial Data
The following information represents selected financial
information for our company at December 31, 2009 and 2008 and for the then years
ended and for the period from May 25, 2004 (inception) to December 31, 2009. The
summarized financial information presented below is derived from and should be
read in conjunction with our audited financial statements including the notes to
those financial statements which are included elsewhere in this prospectus along
with the section entitled Managements Discussion and Analysis of Financial
Condition and Results of Operations beginning on page 79 of this
prospectus.
3
Statements
of
Operations Data
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Year Ended
December 31, 2009
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Year Ended
December 31, 2008
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From May 25, 2004
(Inception) to
December 31, 2009
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Total Revenues
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Nil
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$635,318
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$1,375,728
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Total Operating Expenses
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$(9,501,901)
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$(20,956,481)
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$(49,098,768)
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Net Loss
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$(21,618,015)
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$(30,296,106)
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$(65,799,877)
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Basic Earnings/(Loss) Per Share
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$(0.18)
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$(0.26)
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$(0.61)
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Balance Sheets
Data
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At December 31, 2009
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At December 31, 2008
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Cash and Cash Equivalents
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$804,663
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$225,993
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Working Capital
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$(7,528,797)
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$5,502,560
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Total Assets
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$2,753,648
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$9,163,608
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Total Liabilities
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$9,782,835
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$9,349,419
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Total Stockholders Equity (Deficit)
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$(7,029,187)
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$(185,811)
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Accumulated
Deficit
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$(56,731,607)
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$(44,200,563)
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Please read this
prospectus carefully. You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with different
information. You should not assume that the information provided by the
prospectus is accurate as of any date other than the date on the front of this
prospectus.
Risk Factors
An investment in our common stock involves a number of very
significant risks. You should carefully consider the following risks and
uncertainties in addition to other information in this prospectus in evaluating
our company and our business before purchasing shares of our common stock. Our
business, operating results and financial condition could be seriously harmed as
a result of the occurrence of any of the following risks. You could lose all or
part of your investment due to any of these risks. You should invest in our
common stock only if you can afford to lose your entire investment.
Risks Associated with Our Company
We engage in a significant portion of our operations
through ventures (farm-outs and other non-operating interests) that we do not
control. We may not be able to materially affect the success of those
ventures.
We participate in an oil and gas exploration project in the
Kyrgyz Republic through our 25% interest in CJSC South Petroleum Company. Santos
Limited, an Australian public company that is one of Australias largest onshore
gas producers, holds 70% of CJSC South Petroleum Company through its
wholly-owned subsidiary, Santos International Holdings PTY Limited, and Santos
International operates the project pursuant to a farm-in agreement. As the
operator, Santos International makes most of the decisions about exploration and
development of this project. We cannot assure you that Santos International or
its subsidiaries, affiliates, agents or management will make decisions
concerning this project that are reasonable, profitable or in our best interest.
In addition, if Santos International spends more than $42 million on this
project, we may be responsible for 30% of any expenditure in excess of $42
million. As a result, we cannot control our potential costs.
4
We participate in an oil and gas exploration project in Albania
through our ownership interest in Petromanas Energy Inc. Although management of
our company is also management of Petromanas Energy Inc., we do not own a
controlling interest in Petromanas Energy Inc. and we do not control its
activities. We cannot provide any assurance that Petromanas Energy Inc. will
make decisions about its business that are reasonable, profitable or in our best
interest.
We participate in an oil and gas project in Chile through a
joint venture with Improved Petroleum Recovery, GeoPark Holdings Ltd. and
Pluspetrol S.A. pursuant to a farm-out agreement. We are not the operator of
this project. Although we have entered into an agreement to sell our interest in
this project, the sale is subject to approval by the regulatory authorities.
Although we have applied for approval, there can be no assurance that it will be
granted. If the government does not approve of the sale, then we will continue
to participate in this project unless and until we can sell our interest. Under
the project agreements, we are to be carried for 8.6% of the first $14,360,000
to be spent during the first phase of this project, but we will be required to
fund the remaining 11.4% of this amount and we will be required to fund 20% of
all capital costs of this project in excess of $14,360,000. Because we are not
the operator of this project, we cannot control our potential costs. We cannot
assure you that the operator of this project will make decisions concerning this
project that are reasonable, profitable or in our best interest. If the operator
of this project incurs costs and demands payment of our share of those costs, we
may not have the resources available to pay them. If this should happen, we
could lose our interest in the project and our business could be harmed.
There is a substantial doubt about our ability to
continue as a going concern. If we cannot continue to operate our business, you
could lose your entire investment in our company.
We incurred a net loss of $21,618,015 for the year ended
December 31, 2009. As at December 31, 2009, we had an accumulated deficit of
$56,731,607. We anticipate that we will continue to incur substantial operating
losses unless and until we are able to sell or farm out additional resource
properties or identify oil and/or natural gas reserves in a commercially
exploitable quantity on one or more of our properties and begin production. We
estimate our monthly operating expenses to be approximately $190,000 on basic
operational activities. We do have sufficient cash on hand to fund our monthly
budget for the next 9 months. As we cannot assure a lender that we will be able
to successfully explore and develop our oil and gas properties, we will probably
find it difficult to raise debt financing from traditional sources. We have
traditionally raised our operating capital from the sale of equity and debt
securities but there can be no assurance that we will continue to be able to do
so.
As described in the report of our independent registered public
accounting firm and in note 2 to our consolidated financial statements included
in this prospectus, these circumstances raise substantial doubt about our
ability to continue as a going concern. Our consolidated financial statements do
not reflect any adjustments that might result if we are unable to continue our
business.
We have had negative cash flows from operations, and our
current resources are only sufficient to fund our operations for nine months
from March 2010. Our business operations may fail if our actual cash
requirements exceed our estimates and we are not able to obtain further
financing.
We have not earned any revenue from operations since inception
and we do not anticipate earning revenue from operations in the near future. We
currently spend approximately $190,000 per month on basic operational
activities. We believe that we have sufficient cash on hand to fund our
operations for nine months from March 2010. However, there is a substantial
likelihood that our actual cash requirements could exceed our estimates.
We have historically depended upon the sale of debt and equity
securities to provide the cash needed to fund our operations, but we cannot
assure you that we will be able to continue to do so. Our ability to continue in
business depends upon our continued ability to obtain financing. In light of our
operating history, we may not be able to obtain additional equity or debt
financing on acceptable terms if and when we need it. Even if financing is
available, it may not be available on terms that are favorable to us or in
sufficient amounts to satisfy our requirements.
If we require, but are unable to obtain, additional financing
in the future, we may be unable to implement our business plan and our growth
strategies, respond to changing business or economic conditions, withstand
adverse operating results, and compete effectively. More importantly, if we are
unable to raise further financing when required, our operations may have to be scaled or even ceased
altogether and our business would be negatively affected.
5
Our disclosure controls and procedures and internal
control over financial reporting were proven not effective, which may cause our
financial reporting to be unreliable and lead to misinformation being
disseminated to the public.
Our management evaluated our disclosure controls and procedures
as of December 31, 2009 and concluded that as of that date, our disclosure
controls and procedures were not effective. The ineffectiveness of our
disclosure controls and procedures was due to a lack of knowledge regarding U.S.
generally accepted accounting principles and the rules of the Securities and
Exchange Commission by responsible people within our company. As a result, we
failed to timely file certain disclosure that we were required to timely file on
Form 8-K.
In addition, our management evaluated our internal control over
financial reporting as of December 31, 2009 and concluded that that there was a
material weakness in our internal control over financial reporting as of that
date and that our internal control over financial reporting was not effective as
of that date. A material weakness is a deficiency or a combination of control
deficiencies in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely basis. We are
currently considering how best to correct this material weakness.
We have not yet remediated this material weakness and we
believe that our disclosure controls and procedures and internal control over
financial reporting continue to be ineffective. Until these issues are
corrected, our ability to report quarterly and annual financial results or other
information required to be disclosed on a timely and accurate basis may be
adversely affected and our financial reporting may continue to be unreliable,
which could result in additional misinformation being disseminated to the
public. Investors relying upon this misinformation may make an uninformed
investment decision.
Our lack of diversification increases the risk of an
investment in us, and our financial condition and results of operations may
deteriorate if we fail to diversify.
We have interests in a limited number of properties, primarily
in the Kyrgyz Republic, Albania, Tajikistan, Mongolia and Chile. We lack
diversification, in terms of both the nature and geographic scope of our
business. As a result, we will likely be impacted more acutely by factors
affecting our industry or the regions in which we operate than we would if our
business were more diversified.
We may not effectively manage the growth necessary to
execute our business plan.
Our business plan anticipates an increase in the number of our
strategic partners, equipment suppliers, manufacturers, dealers, distributors
and customers. This growth will place significant strain on our current
personnel, systems and resources. We expect that we will be required to hire
qualified employees to help us manage our growth effectively. We believe that we
will also be required to improve our management, technical, information and
accounting systems, controls and procedures. We may not be able to maintain the
quality of our operations, control our costs, continue complying with all
applicable regulations and expand our internal management, technical information
and accounting systems to support our desired growth. If we fail to manage our
anticipated growth effectively, our business could be adversely affected.
We may be forced to liquidate one or more subsidiaries
due to regulatory requirements which could have a material adverse effect on our
business and operations.
Substantially all of our licenses and assets are owned by our
subsidiaries. These subsidiaries are formed in various countries pursuant to
local laws and regulation. In some cases, local regulation could result in the
forced liquidation of one or more of these subsidiary companies. If any of our
subsidiaries is liquidated before we can transfer its assets, the licenses and
assets held by it could revert to the respective government. If this happens,
our business could be harmed.
6
We are subject to various risks of foreign
operations.
None of our projects are located in the United States. As such,
our business is subject to governmental, political, economic, and other
uncertainties including, by way of example and not in limitation, expropriation
of property without fair compensation, changes in energy policies or the
personnel administering them, nationalization, currency fluctuations and
devaluations, exchange controls and royalty increases, changes in oil or natural
gas pricing policy, renegotiation or nullification of existing concessions and
contracts, changes in taxation policies, economic sanctions, restrictions on the
repatriation of currency and the imposition of specific drilling obligations and
the other risks arising out of foreign governmental sovereignty over the areas
in which our operations (or those of our venture partners) are conducted, as
well as risks of loss due to civil strife, acts of war, guerrilla activities,
insurrections, the actions of national labour unions, terrorism and
abduction.
Our operations (and those of our venture partners) may also be
adversely affected by laws and policies of the United States affecting foreign
trade, taxation and investment. In the event of a dispute arising in connection
with our operations (and those of our venture partners) in foreign countries, we
may be subject to the exclusive jurisdiction of foreign courts or may not be
successful in subjecting foreign persons to the jurisdictions of the courts of
the United States or enforcing judgments in such other jurisdictions. We may
also be hindered or prevented from enforcing our rights with respect to a
governmental instrumentality because of the doctrine of sovereign immunity.
Accordingly, our exploration, development and production activities (or those of
our venture partners) could be substantially affected by factors beyond our
control, any of which could have a material adverse effect on our business or
our company.
We may in the future acquire additional oil and natural gas
properties and operations outside of the United States and any country in which
we currently do business, which expansion may present challenges and risks that
we have not faced in the past, any of which could adversely affect our results
of operations and/or financial condition.
Substantially all of our assets and all of our directors
and officers are outside the United States, with the result that it may be
difficult for investors to enforce within the United States any judgments
obtained against us or any of our directors or officers.
Substantially all of our assets are located outside the United
States. In addition, all of our directors and officers are nationals and/or
residents of countries other than the United States, and all or a substantial
portion of such persons assets are located outside the United States. As a
result, it may be difficult for investors to enforce within the United States
any judgments obtained against us or our officers or directors, including
judgments predicated upon the civil liability provisions of the securities laws
of the United States or any state thereof. Consequently, you may be effectively
prevented from pursuing remedies against us or them under U.S. federal
securities laws.
Our articles of incorporation exculpate our officers and
directors from any liability to our company or our stockholders.
Our articles of incorporation contain a provision limiting the
liability of our officers and directors for their acts or failures to act,
except for acts involving intentional misconduct, fraud or a knowing violation
of law. This limitation on liability may reduce the likelihood of derivative
litigation against our officers and directors and may discourage or deter our
stockholders from suing our officers and directors based upon breaches of their
duties to our company.
A decline in the price of our common stock could affect
our ability to raise further capital and our ability to continue our normal
operations.
Our operations have been financed in large part through the
sale of equity securities, and we believe that they will continue to be so
financed for some time. A prolonged decline in the price of our common stock
could make it difficult for us to raise capital through the sale of our equity
securities. Any reduction in our ability to raise equity capital in the future
would force us to reallocate funds from other planned uses and could have a
significant negative effect on our business plans and operations, including our
ability to develop and continue our current operations.
7
The loss of certain key management employees could have a
material adverse effect on our business.
The nature of our business, to perform technical exploration
and development depends, in large part, on our ability to attract and maintain
qualified key personnel. Competition for such personnel is intense, and we
cannot assure you that we will be able to attract and retain them. Our
development now and in the future will depend on the efforts of key management
figures, such as Heinz Scholz, the Chairman of our board of directors and
Michael Velletta, Executive Director. The loss of any of these key people could
have a material adverse effect on our business. We do not currently maintain
key-man life insurance on any of our key employees.
There are potential conflicts of interest between our
company and some of our directors and officers.
Some of our directors and officers are also directors and
officers of other companies, including Petromanas Energy Inc., which recently
purchased our project in Albania. Erik Herlyn is the Chief Executive Officer of
our company and he is the Chief Executive Officer of Petromanas Energy. Ari
Muljana is the Chief Financial Officer of our company and he is the Chief
Financial Officer of Petromanas Energy. Conflicts of interest may arise as a
result of Mr. Herlyn and Mr. Muljana being executive officers of both our
company and Petromanas Energy. In addition, one of our officers and one of our
directors have informed our company that they propose to pursue non-petroleum
resource opportunities in Mongolia. As of the date of this prospectus and to the
knowledge of our directors and officers, there are no existing conflicts of
interest between our company and any of these individuals but situations may
arise where the directors and/or officers of our company may be in competition
with our company. Any conflicts of interest will be subject to and governed by
the law applicable to directors and officers conflicts of interest. In the
event that such a conflict of interest arises at a meeting of our directors, a
director who has such a conflict will abstain from voting for or against the
approval of such participation or such terms.
Risks Associated with Our Business
We have not discovered any oil and gas reserves, and we
cannot assure you that that we ever will.
We are in the business of exploring for oil and natural gas and
the development and exploitation of any oil and gas that we might find in
commercially exploitable quantities. Oil and gas exploration involves a high
degree of risk that the exploration will not yield positive results. These risks
are more acute in the early stages of exploration. We have not discovered any
reserves, and we cannot guarantee you we ever will. Even if we succeed in
discovering oil or gas reserves, these reserves may not be in commercially
viable quantities or locations. Until we discover such reserves, we will not be
able to generate any revenues from their exploitation and development. If we are
unable to generate revenues from the development and exploitation of oil and gas
reserves, we will be forced to change our business or cease operations.
The nature of oil and gas exploration makes the estimates
of costs uncertain, and our operations may be adversely affected if we
underestimate such costs.
It is difficult to project the costs of implementing an
exploratory drilling program. Complicating factors include the inherent
uncertainties of drilling in unknown formations, the costs associated with
encountering various drilling conditions, such as over-pressured zones and tools
lost in the hole, and changes in drilling plans and locations as a result of
prior exploratory wells or additional seismic data and interpretations thereof.
If we underestimate the costs of such programs, we may be required to seek
additional funding, shift resources from other operations or abandon such
programs.
Even if we discover and then develop oil and gas
reserves, we may have difficulty distributing our production.
If we are able to produce oil and gas, we will have to make
arrangements for storage and distribution of that oil and gas. We would have to
rely on local infrastructure and the availability of transportation for storage
and shipment of oil and gas products, but any readily available infrastructure
and storage and transportation facilities may be insufficient or not available
at commercially acceptable terms. This could be particularly problematic to the
extent that operations are conducted in remote areas that are difficult to
access, such as areas that are distant from shipping or pipeline facilities.
Furthermore, weather conditions or natural disasters, actions by companies doing
business in one or more of the areas in which we will operate, or labor disputes
may impair the distribution of oil and gas. These factors may affect the ability to explore and develop
properties and to store and transport oil and gas and may increase our expenses
to a degree that has a material adverse effect on operations.
8
The oil and natural gas industry is highly competitive
and there is no assurance that we will be successful in acquiring leases,
equipment and personnel.
The oil and natural gas industry is intensely competitive.
Although we do not compete with other oil and gas companies for the sale of any
oil and gas that we may produce, as there is sufficient demand in the world
market for these products, we compete with numerous individuals and companies
for desirable oil and natural gas leases, suitable properties for drilling
operations and necessary drilling equipment, qualified personnel and access to
capital. Many of these individuals and companies with whom we compete have
substantially greater technical, financial and operational resources and staff
than we have. If we cannot compete for personnel, equipment and oil and gas
properties, our business could be harmed.
Exploration for economic reserves of oil and natural gas
is subject to a number of industry specific risks.
Exploration for economic reserves of oil and natural gas is
subject to a number of risks. Few properties that are explored are ultimately
developed into producing oil and/or natural gas wells. If we do not discover oil
or natural gas in any commercial quantity, our business will fail. In addition,
a productive well may become uneconomic in the event water or other deleterious
substances are encountered which impair or prevent the production of oil and/or
natural gas from the well. Production from any well may be unmarketable if it is
impregnated with water or other deleterious substances. Also, the marketability
of oil and natural gas which may be acquired or discovered will be affected by
numerous related factors, including the proximity and capacity of oil and
natural gas pipelines and processing equipment, market fluctuations of prices,
taxes, royalties, land tenure, allowable production and environmental
protection, all of which could result in greater expenses than revenue generated
by the well.
Prices and markets for oil are unpredictable and tend to
fluctuate significantly, which could reduce profitability, growth and the value
of our business if we ever begin exploitation of reserves.
Our revenues and earnings, if any, will be highly sensitive to
the prices of oil and gas. Prices for oil and gas are subject to large
fluctuations in response to relatively minor changes in the supply of and demand
for oil and gas, market uncertainty and a variety of additional factors beyond
our control. These factors include, without limitation, governmental fixing,
pegging, controls or any combination of these and other factors, changes in
domestic, international, political, social and economic environments, worldwide
economic uncertainty, the availability and cost of funds for exploration and
production, the actions of the Organization of Petroleum Exporting Countries,
governmental regulations, political stability in the Middle East and elsewhere,
war, or the threat of war, in oil producing regions, the foreign supply of oil,
the price of foreign imports and the availability of alternate fuel sources.
Significant changes in long-term price outlooks for crude oil or natural gas
could, if we ever discover and exploit any reserves of oil or natural gas, have
a material adverse effect on revenues as well as the value of our licenses or
other assets.
Our business will suffer if we cannot obtain or maintain
necessary licenses.
Our operations require that we obtain and maintain licenses and
permits from various governmental authorities. Our ability to obtain, maintain
or renew such licenses and permits on acceptable terms is subject to extensive
regulation and to changes, from time-to-time, in those regulations. Also, the
decision to grant or renew a license or permit is frequently subject to the
discretion of the applicable government. If we cannot obtain, maintain, extend
or renew these licenses or permits our business could be harmed.
Amendments to current laws and regulations governing our
proposed operations could have a material adverse impact on our proposed
business.
We are subject to substantial regulation relating to the
exploration for, and the development, upgrading, marketing, pricing, taxation,
and transportation of, oil and gas. Amendments to current laws and regulations
governing operations and activities of oil and gas exploration and extraction
operations could have a material adverse impact on our proposed business. In
addition, we cannot assure you that income tax laws, royalty regulations and
government incentive programs related to the oil and gas
industry generally or to us specifically will not be changed in a manner which
may adversely affect us and cause delays, inability to complete or abandonment
of projects.
9
Penalties we may incur could impair our
business.
Failure to comply with government regulations could subject us
to civil and criminal penalties, could require us to forfeit property rights or
licenses, and may affect the value of our assets. We may also be required to
take corrective actions, such as installing additional equipment, which could
require substantial capital expenditures. We could also be required to indemnify
our employees in connection with any expenses or liabilities that they may incur
individually in connection with regulatory action against them. As a result, our
future business prospects could deteriorate due to regulatory constraints, and
our profitability could be impaired by our obligation to provide such
indemnification to our employees.
Our inability to obtain necessary facilities could hamper
our operations.
Oil and gas exploration and development activities depend on
the availability of equipment, transportation, power and technical support in
the particular areas where these activities will be conducted, and our access to
these facilities may be limited. To the extent that we conduct our activities in
remote areas or in under-developed markets, needed facilities may not be
proximate to our operations or readily available, which will increase our
expenses. Demand for such limited equipment and other facilities or access
restrictions may affect the availability of such equipment to us and may delay
exploration and development activities. The quality and reliability of necessary
facilities may also be unpredictable and we may be required to make efforts to
standardize our facilities, which may entail unanticipated costs and delays.
Shortages or the unavailability of necessary equipment or other facilities will
impair our activities, either by delaying our activities, increasing our costs
or otherwise.
Emerging markets are subject to greater risks than more
developed markets, including significant legal, economic and political
risks.
In recent years the Kyrgyz Republic, Albania, Chile, Mongolia
and Tajikistan have undergone substantial political, economic and social change.
As in any emerging market, the Kyrgyz Republic, Albania, Chile, Mongolia and
Tajikistan do not possess as sophisticated and efficient business, regulatory,
power and transportation infrastructures as generally exist in more developed
market economies. Investors in emerging markets should be aware that these
markets are subject to greater risks than more developed markets, including in
some cases significant legal, economic and political risks. Investors should
also note that emerging economies are subject to rapid change and that the
information set out herein may become outdated relatively quickly. We cannot
predict what economic, political, legal or other changes may occur in these or
other emerging markets, but such changes could adversely affect our ability to
carry out exploration and development projects.
Strategic relationships upon which we may rely are
subject to change, which may diminish our ability to conduct our
operations.
Our ability to discover reserves, to participate in drilling
opportunities and to identify and enter into commercial arrangements depends on
developing and maintaining close working relationships with industry
participants and government officials and on our ability to select and evaluate
suitable properties and to consummate transactions in a highly competitive
environment. We may not be able to establish these strategic relationships, or
if established, we may not be able to maintain them. In addition, the dynamics
of our relationships with strategic partners may require us to incur expenses or
undertake activities we would not otherwise be inclined to undertake in order to
fulfill our obligations to these partners or maintain our relationships. If our
strategic relationships are not established or maintained, our business
prospects may be limited, which could diminish our ability to conduct our
operations.
Environmental risks may adversely affect our
business.
All phases of the oil and gas business present environmental
risks and hazards and are subject to environmental regulation pursuant to a
variety of laws and regulations. Environmental legislation provides for, among
other things, restrictions and prohibitions on spills, releases or emissions of
various substances produced in association with oil and gas operations. The
legislation also requires that wells and facility sites be operated, maintained,
abandoned and reclaimed to the satisfaction of applicable regulatory
authorities. Compliance with such legislation can require significant expenditures and a breach may result in the
imposition of fines and penalties, some of which may be material. The
application of environmental laws to our business may cause us to curtail our
production or increase the costs of any production, development or exploration
activities.
10
Losses and liabilities arising from uninsured or
under-insured hazards could have a material adverse effect on our
business.
If we develop and exploit oil and gas reserves, those
operations will be subject to the customary hazards of recovering, transporting
and processing hydrocarbons, such as fires, explosions, gaseous leaks, migration
of harmful substances, blowouts and oil spills. An accident or error arising
from these hazards might result in the loss of equipment or life, as well as
injury, property damage or other liability. We have not made a determination as
to the amount and type of insurance that we will carry. We cannot assure you
that we will obtain insurance on reasonable terms or that any insurance we may
obtain will be sufficient to cover any such accident or error. Our operations
could be interrupted by natural disasters or other events beyond our control.
Losses and liabilities arising from uninsured or under-insured events could have
a material adverse effect on our business, financial condition and results of
operations.
Fluctuations in current exchange rates could have a
material adverse impact on our operations.
All of our current operations are located in foreign countries.
Domestic oil and natural gas product sales are denominated in the currency of
the nation where the product is produced, as are operating and capital costs
incurred. Fluctuations in the value of the U.S. dollar or the local currency may
cause a negative impact on revenue and costs. These types of fluctuations could
have a material adverse impact on our operations.
Risks Associated with Our Common Stock
Trading on the OTC Bulletin Board may be volatile and
sporadic, which could depress the market price of our common stock and make it
difficult for our stockholders to resell their shares.
Our common stock is quoted on the OTC Bulletin Board of the
Financial Industry Regulatory Authority. Trading in stock quoted on the OTC
Bulletin Board is often thin and characterized by wide fluctuations in trading
prices, due to many factors that may have little to do with our operations or
business prospects. This volatility could depress the market price of our common
stock for reasons unrelated to operating performance and may have a material
adverse effect on our ability to raise additional capital. Moreover, the OTC
Bulletin Board is not a stock exchange, and trading of securities on the OTC
Bulletin Board is often more sporadic than the trading of securities listed on a
stock exchange like NASDAQ. Accordingly, our stockholders may have difficulty
reselling any of the shares of our common stock that they have purchased and may
lose all of their investments.
The price of our common stock may become volatile, which
could lead to losses by investors and costly securities litigation.
The trading price of our common stock is likely to be highly
volatile and could fluctuate in response to factors such as:
-
actual or anticipated variations in our operating results;
-
announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures, capital commitments, or other business
developments, such as oil or gas discoveries;
-
adoption of new accounting standards affecting our industry;
-
additions or departures of key personnel;
-
sales of our common stock or other securities in the open market;
-
conditions or trends in our industry; and
-
other events or factors, many of which are beyond our control.
11
The stock market has experienced significant price and volume
fluctuations, and the market prices of stock in exploration stage companies have
been highly volatile. In the past, following periods of volatility in the market
price of a companys securities, securities class action litigation has often
been initiated against the company. Litigation initiated against us, whether or
not successful, could result in substantial costs and diversion of our
managements attention and resources, which could harm our business and
financial condition.
There are a large number of unexercised share purchase
warrants and stock options outstanding. If these are exercised, your interest in
our company will be diluted.
On December 31, 2009, there were 119,051,733 shares of our
common stock issued and outstanding. If all of the share purchase warrants and
options that are currently issued and outstanding were to be exercised, we would
be required to issue up to an additional 58,643,129, shares of our common stock,
or approximately 49.3% of our issued and outstanding shares on December 31,
2009. This would substantially decrease the proportionate ownership and voting
power of all other stockholders. This dilution could cause the price of our
shares to decline and it could result in the creation of new control persons. In
addition, our stockholders could suffer dilution in the net book value per
share.
If we obtain additional financing through the sale of
additional equity in our company, the issuance of additional shares of common
stock will result in dilution to our existing stockholders.
We are authorized to issue 300,000,000 shares of common stock
and, as of April 1, 2010, 119,879,699 shares of our common stock were issued and
outstanding. Our board of directors has the authority to issue additional shares
of common stock up to the authorized capital without the consent of any of our
stockholders. Our board of directors may choose to issue some or all of such
shares to acquire one or more businesses or to provide additional financing in
the future. The issuance of any such shares may result in a reduction of the
book value or market price of the outstanding shares of our common stock. If we
do issue any such additional shares, such issuance will cause a reduction in the
proportionate ownership and voting power of all other stockholders. Further, any
such issuance may result in a change of control of our company.
Our directors and the financial advisor to our board of
directors own approximately 34.4% of our outstanding common stock.
In the aggregate, our directors and the financial advisor to
our board of directors own approximately 34.4% of our outstanding common stock
and they have the right to exercise options and warrants that would permit them
to acquire, in the aggregate, up to an additional 3.4% of our common stock
within the next 60 days. As a result, our directors and the financial advisor as
a group may have a significant effect in delaying, deferring or preventing any
potential change in control of our company, be able to strongly influence the
actions of our board of directors even if they were to cease being our directors
and control the outcome of actions brought to our stockholders for approval.
Such a high level of ownership may adversely affect the voting and other rights
of other stockholders.
We do not expect to pay dividends in the foreseeable
future.
We do not intend to declare dividends for the foreseeable
future, as we anticipate that we will reinvest any future earnings in the
development and growth of our business. Therefore, investors will not receive
any funds unless they sell their common stock, and stockholders may be unable to
sell their shares on favorable terms or at all. We cannot assure you of a
positive return on investment or that you will not lose the entire amount of
your investment in our common stock.
Our stock is a penny stock. Trading of our stock may be
restricted by the Securities and Exchange Commissions penny stock regulations
which may limit a stockholders ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange
Commission has adopted Rule 15g-9 which generally defines penny stock to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and accredited investors. The term
accredited investor refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the Securities and Exchange Commission which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customers
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customers confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.
12
The Financial Industry Regulatory Authority sales
practice requirements may also limit a stockholders ability to buy and sell our
stock.
In addition to the penny stock rules described above, the
Financial Industry Regulatory Authority, or FINRA, has adopted rules that
require that in recommending an investment to a customer, a broker-dealer must
have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low-priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customers financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low-priced securities
will not be suitable for at least some customers. The FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for shares of our common stock.
Forward-Looking Statements
This prospectus contains forward-looking statements.
Forward-looking statements are statements that relate to future events or future
financial performance. In some cases, you can identify forward looking
statements by the use of terminology such as may, should, intend,
expect, plan, anticipate, believe, estimate, project, predict,
potential, or continue or the negative of these terms or other comparable
terminology. These statements speak only as of the date of this prospectus.
Examples of forward-looking statements made in this prospectus include
statements pertaining to, among other things:
-
the quantity of potential natural gas and crude oil resources;
-
potential natural gas and crude oil production levels;
-
capital expenditure programs;
-
projections of market prices and costs;
-
supply and demand for natural gas and crude oil;
-
our need for, and our ability to raise, capital; and
-
treatment under governmental regulatory regimes and tax laws.
These statements are only predictions and involve known and
unknown risks, uncertainties and other factors, including:
-
our ability to establish or find resources or reserves;
13
-
our need for, and our ability to raise, capital;
-
volatility in market prices for natural gas and crude oil;
-
liabilities inherent in natural gas and crude oil operations;
-
uncertainties associated with estimating natural gas and crude oil
resources or reserves;
-
competition for, among other things, capital, resources, undeveloped lands
and skilled personnel;
-
political instability or changes of laws in the countries in which we
operate and risks of terrorist attacks;
-
incorrect assessments of the value of acquisitions;
-
geological, technical, drilling and processing problems;
-
other factors discussed under the section entitled Risk Factors beginning
on page 4 of this prospectus.
These risks, as well as risks that we cannot currently
anticipate, could cause our companys or our industrys actual results, levels
of activity or performance to be materially different from any future results,
levels of activity or performance expressed or implied by these forward looking
statements.
Although we believe that the expectations reflected in the
forward looking statements are reasonable, we cannot guarantee future results,
levels of activity or performance. Except as required by applicable law,
including the securities laws of the United States and Canada, we do not intend
to update any of the forward looking statements to conform these statements to
actual results.
The Offering
This prospectus covers the resale by the selling stockholders
named in this prospectus of up to 22,683,989 shares of our common stock which
have been issued or may be issued upon the exercise of warrants to purchase
shares of our common stock at a price of $0.59 per share by the selling
stockholders. The warrants were acquired by the selling stockholders directly
from our company in private placements that were exempt from the registration
requirements of the Securities Act of 1933.
Use of Proceeds
We will not receive any proceeds from the sale of the shares of
our common stock by the selling stockholders. We may, however, receive proceeds
upon exercise of the warrants by the selling stockholders. If any warrants are
exercised, we intend to use the proceeds to finance our working capital needs.
We will pay for expenses of this offering, except that the selling stockholders
will pay any broker discounts or commissions or equivalent expenses and expenses
of their legal counsels applicable to the sale of their shares.
Selling Stockholders
The selling stockholders may offer and sell, from time to time,
any or all of shares of our common stock that have been issued or may be issued
upon exercise of the warrants.
The following table sets forth, to the best of our knowledge,
certain information regarding the beneficial ownership of shares of common stock
by the selling stockholders as of April 1, 2010 and the number of shares of our
common stock being offered pursuant to this prospectus. Except as otherwise
described below, we believe that the selling stockholders have sole voting and
investment powers over their shares.
Because the selling stockholders may offer and sell all or only
some portion of the 22,683,989 shares of our common stock being offered pursuant
to this prospectus, the numbers in the table below representing the amount and
percentage of these shares of our common stock that will be held by the selling
stockholders upon termination of the offering are only estimates based on the assumption that
each selling stockholder will sell all of his or its shares of our common stock
being offered in the offering.
14
Except as disclosed herein, none of the selling stockholders
had or have any position or office, or other material relationship with us or
any of our affiliates over the past three years. To our knowledge, none of the
selling stockholders is a registered broker-dealer or an affiliate of a
registered broker-dealer.
We may require the selling stockholders to suspend the sales of
the shares of our common stock being offered pursuant to this prospectus upon
the occurrence of any event that makes any statement in this prospectus or the
related registration statement untrue in any material respect or that requires
the changing of statements in those documents in order to make statements in
those documents not misleading.
Name of
Selling
Stockholder
|
Shares
Owned by the
Selling
Stockholder
(1)
|
Number of
Shares
Issuable Upon
Exercise of All
of
the Warrants
|
Total Shares
Offered in the
Offering
|
Number of Shares to
Be Owned by
Selling
Stockholder After the
Offering and Percent
of
Total Issued and
Outstanding Shares
(2)
|
# of
Shares
(3)
|
% of
Class
(4)
|
Adelaar, Jay
|
-
|
33,898
|
18,400
|
15,498
|
*
|
Alvaro, Michael
Jose
|
30,000
|
50,895
|
27,626
|
53,269
|
*
|
Asset Protection
Fund Ltd.
|
-
|
1,864,407
|
1,012,000
|
852,407
|
*
|
Aton Ventures Fund
Ltd.
|
-
|
847,458
|
460,000
|
387,458
|
*
|
Aurora Fund Ltd.
|
200,000
|
677,966
|
368,000
|
509,966
|
*
|
Ballestraz, Eric
|
42,745
|
33,898
|
18,400
|
58,243
|
*
|
Barrington-Foote,
Joan Anne
|
20,000
|
33,898
|
18,400
|
35,498
|
*
|
Beer, Georg
|
24,420
|
41,390
|
22,466
|
43,344
|
*
|
Berbig, Roger
|
155,400
|
263,390
|
142,968
|
275,822
|
*
|
Bianchi, Gabriel
U.
|
-
|
84,746
|
46,000
|
38,746
|
*
|
Bittermann, Harald
|
-
|
50,847
|
27,600
|
23,247
|
*
|
Blatti, Frank
|
300,000
|
101,349
|
136,432
|
264,917
|
*
|
Both, Philip &
Susanne
|
20,000
|
67,797
|
36,800
|
50,997
|
*
|
Brox, Andreas
|
33,312
|
37,627
|
20,424
|
50,515
|
*
|
BSI SA
|
-
|
542,373
|
294,400
|
247,973
|
*
|
Chan, Danny
|
-
|
169,492
|
92,000
|
77,492
|
*
|
Clarion Finanz AG
|
150,000
|
1,016,949
|
552,000
|
614,949
|
*
|
Clearwaters
Management
|
100,000
|
338,983
|
184,000
|
254,983
|
*
|
Coglon, Richard
|
55,000
|
389,831
|
211,600
|
233,231
|
*
|
Cooper, Michael
|
7,815
|
84,746
|
46,000
|
46,561
|
*
|
CR Innovations AG
|
-
|
474,576
|
295,141
|
179,435
|
*
|
Curtis Family
Trust
|
-
|
338,983
|
184,000
|
154,983
|
*
|
Dorval-Dronyk,
JoAnne
|
15,000
|
101,695
|
55,200
|
61,495
|
*
|
Dragon Galaxy
|
105,000
|
372,881
|
202,400
|
275,481
|
*
|
Ebner,
Christa-Gerda
|
11,049
|
15,254
|
8,281
|
18,022
|
*
|
Edwards, Christa
|
40,000
|
135,593
|
73,600
|
101,993
|
*
|
Engmenn, Michael
|
46,650
|
47,031
|
25,528
|
68,153
|
*
|
Engmenn, Tobias
& Marion
|
13,986
|
23,702
|
12,865
|
24,823
|
*
|
Epsilon Partners
Ltd.
|
-
|
169,492
|
92,000
|
77,492
|
*
|
Ergas, Morris
|
30,000
|
101,695
|
55,200
|
76,495
|
*
|
Estate of James
Grant Morrison
|
25,000
|
84,746
|
46,000
|
63,746
|
*
|
Eternal Viceroy
|
95,000
|
322,034
|
174,800
|
242,234
|
*
|
Farlinger, Craig
|
20,000
|
67,797
|
36,800
|
50,997
|
*
|
Feibicke, Rene
|
13,098
|
88,705
|
48,149
|
53,654
|
*
|
Fennewald, Gary
|
11,100
|
37,627
|
20,424
|
28,303
|
*
|
15
Name of
Selling
Stockholder
|
Shares
Owned by the
Selling
Stockholder
(1)
|
Number of
Shares
I
ssuable Upon
Exercise of All
of
the Warrants
|
Total Shares
Offered in the
Offering
|
Number of Shares to
Be Owned by
Selling
Stockholder After the
Offering and Percent
of
Total Issued and
Outstanding Shares
(2)
|
# of
Shares
(3)
|
% of
Class
(4)
|
Fischer, Christine
& Helmut
|
23,875
|
33,898
|
18,400
|
39,373
|
*
|
Form, Duri
|
20,000
|
67,797
|
36,800
|
50,997
|
*
|
Frick, Peter
|
74,148
|
125,675
|
68,216
|
131,607
|
*
|
Froehli, Luzia
Maria
|
20,000
|
67,797
|
36,800
|
50,997
|
*
|
G.M. Capital
Partners Ltd.
|
2,000
|
1,176,325
|
731,562
|
446,763
|
*
|
GAIA Resources
Fund
|
-
|
508,475
|
276,000
|
232,475
|
*
|
Gerner, Peter
|
74,148
|
125,675
|
68,216
|
131,607
|
*
|
Global Project
Finance AG
|
-
|
1,694,915
|
919,999
|
774,916
|
*
|
Gringots Ventures
|
-
|
169,492
|
92,000
|
77,492
|
*
|
Hammerl, Armin
|
11,100
|
18,814
|
10,212
|
19,702
|
*
|
Haywood Securities
Inc.
|
-
|
3,683,380
|
2,290,712
|
1,392,668
|
1.13%
|
Heaney, Brian
|
-
|
169,492
|
92,000
|
77,492
|
*
|
Hessler, Georg
|
14,652
|
99,336
|
53,920
|
60,068
|
*
|
Hoffmann, Sonja
& Reinhard
|
20,000
|
30,169
|
16,376
|
33,793
|
*
|
Hsu, Chih-Cheng
|
-
|
338,983
|
184,000
|
154,983
|
*
|
Hunziker, Peter
|
74,148
|
125,675
|
68,216
|
131,607
|
*
|
Iban Immobilien AG
|
100,000
|
338,983
|
184,000
|
254,983
|
*
|
Inwentash, Sheldon
|
877,966
|
-
|
368,000
|
509,966
|
*
|
Johnson, Bati
|
14,159
|
22,034
|
11,961
|
24,232
|
*
|
Johnson, Ben. A.
Jr.
|
-
|
677,966
|
368,000
|
309,966
|
*
|
Johnson, Michael
|
25,000
|
84,746
|
46,000
|
63,746
|
*
|
JTE Finance Ltd.
|
140,000
|
1,152,542
|
625,599
|
666,943
|
*
|
JTE Finanz AG
|
-
|
230,508
|
143,354
|
87,154
|
*
|
Kathofer, Manuel
|
85,596
|
119,654
|
64,948
|
140,302
|
*
|
Kerasiotis,
Christopher J.
|
-
|
84,746
|
46,000
|
38,746
|
*
|
King, Paul John
|
-
|
169,492
|
92,000
|
77,492
|
*
|
Kirchmair, Doris
|
22,200
|
37,627
|
20,424
|
39,403
|
*
|
Koberl, Maximilian
|
22,200
|
37,627
|
20,424
|
39,403
|
*
|
Kozak, Fredrick
|
15,000
|
50,847
|
27,600
|
38,247
|
*
|
Krieger,
Claus-Peter
|
39,294
|
66,600
|
36,150
|
69,744
|
*
|
Leutscher, Inge
|
-
|
67,797
|
42,163
|
25,634
|
*
|
Liechtensteinische
Landesbank AG
|
-
|
169,492
|
92,000
|
77,492
|
*
|
Longshore,
Bridgitte
|
-
|
84,746
|
46,000
|
38,746
|
*
|
Luetscher, Peter
|
-
|
33,898
|
18,400
|
15,498
|
*
|
Lyall, David
|
-
|
338,983
|
184,000
|
154,983
|
*
|
Maedel,
Barry
(5)
|
100,000
|
338,983
|
184,000
|
254,983
|
*
|
Mancala Mercantile
Ltd.
|
150,000
|
508,475
|
276,000
|
382,475
|
*
|
Martin, John
|
-
|
89,831
|
55,866
|
33,965
|
*
|
Mazzoni, Paolo
|
31,468
|
213,346
|
115,804
|
129,010
|
*
|
McCarroll, Jason
|
13,000
|
169,492
|
92,000
|
90,492
|
*
|
McGinnis, Anne M.
|
-
|
101,695
|
55,200
|
46,495
|
*
|
McGinnis, Mark
|
-
|
338,983
|
184,000
|
154,983
|
*
|
McKnight, Michael
|
-
|
338,983
|
184,000
|
154,983
|
*
|
Meier, Andre
|
88,800
|
150,508
|
81,696
|
157,612
|
*
|
Milinkovic, Branko
|
37,975
|
44,068
|
23,920
|
58,123
|
*
|
Brigitte Moder
|
20,000
|
67,796
|
36,800
|
50,996
|
*
|
Moore, Court
|
-
|
33,898
|
18,400
|
15,498
|
*
|
16
Name of
Selling
Stockholder
|
Shares
Owned
by the
Selling
Stockholder
(1)
|
Number of
Shares
Issuable Upon
Exercise
of All of
the
Warrants
|
Total Shares
Offered in the
Offering
|
Number of Shares to
Be Owned by
Selling
Stockholder After the
Offering and Percent
of
Total Issued and
Outstanding Shares
(2)
|
# of
Shares
(3)
|
% of
Class
(4)
|
Morrison, Dorothy
M.
|
25,000
|
84,746
|
46,000
|
63,746
|
*
|
Moser, Urs
|
10,000
|
84,746
|
46,000
|
48,746
|
*
|
Muller, Hans
Ullrich
|
749,805
|
783,959
|
425,533
|
1,108,231
|
*
|
Muller, Klaus
|
27,750
|
47,031
|
25,528
|
49,253
|
*
|
OLS Ventures LLC
|
10,000
|
33,898
|
18,400
|
25,498
|
*
|
Peck, Keith
|
100,000
|
338,983
|
184,000
|
254,983
|
*
|
Petermeier,
Gerhard
|
55,500
|
94,068
|
51,060
|
98,508
|
*
|
Petschke, Fabian
Till
|
34,121
|
23,705
|
12,867
|
44,959
|
*
|
Pfeffer, Elisabeth
|
11,100
|
18,814
|
10,212
|
19,702
|
*
|
Power One Capital
Corp.
|
-
|
338,983
|
184,000
|
154,983
|
*
|
Priesmeyer, Gerd
& Gabriele
|
65,500
|
94,068
|
51,060
|
108,508
|
*
|
Ramoser, Helmut
|
29,082
|
49,288
|
26,754
|
51,616
|
*
|
Rechsteiner,
Margrit
|
-
|
33,898
|
18,400
|
15,498
|
*
|
Rechsteiner, Max
|
-
|
33,898
|
18,400
|
15,498
|
*
|
Redrock Strategies
Ltd.
|
-
|
84,746
|
46,000
|
38,746
|
*
|
Reitbacher, Martha
|
5,550
|
9,403
|
5,105
|
9,848
|
*
|
Rippon, Donald
|
-
|
169,492
|
92,000
|
77,492
|
*
|
Rohner, Kurt
|
20,000
|
67,797
|
36,800
|
50,997
|
*
|
Ross, Peter
|
-
|
84,746
|
46,000
|
38,746
|
*
|
Roxbury Capital
Group Ltd.
|
-
|
169,492
|
92,000
|
77,492
|
*
|
Rybinski, John
|
-
|
508,475
|
276,000
|
232,475
|
*
|
Sailer, Hermann F.
|
222,000
|
376,271
|
204,240
|
394,031
|
*
|
Salomon, Michael
|
50,000
|
169,492
|
92,000
|
127,492
|
*
|
Sanders, Steven
|
44,000
|
135,593
|
73,600
|
105,993
|
*
|
Sausilito Ltd.
|
50,000
|
169,492
|
92,000
|
127,492
|
*
|
Schaeppi, Renato
|
65,000
|
254,238
|
138,000
|
181,238
|
*
|
Schiller, Werner
|
3,775
|
6,780
|
3,681
|
6,874
|
*
|
Schmidli, Rene
|
33,300
|
37,627
|
20,424
|
50,503
|
*
|
Schmitt, Ludwig
|
13,986
|
23,702
|
12,865
|
24,823
|
*
|
Schoenberger,
Stephan
|
50,000
|
169,492
|
92,000
|
127,492
|
*
|
Schuster, Florian
|
16,650
|
28,217
|
15,316
|
29,551
|
*
|
Schuster, Karl
Jun.
|
20,868
|
35,369
|
19,198
|
37,039
|
*
|
Schwaninger, Sonja
|
118,687
|
132,542
|
71,944
|
179,285
|
*
|
Schwaninger,
Thomas
|
574,638
|
851,058
|
461,954
|
963,742
|
*
|
Schwarz, Adalbert
|
64,300
|
29,831
|
16,192
|
77,939
|
*
|
Sen Gupta, Rahul
(5)
|
229,992
|
389,817
|
211,593
|
408,216
|
*
|
Shalimar Business
S.A.
|
25,000
|
84,746
|
46,000
|
63,746
|
*
|
Sheikh, Asad
|
-
|
101,695
|
55,200
|
46,495
|
*
|
Sheikh,
Mazhar-Ul-Haq
|
-
|
169,492
|
92,000
|
77,492
|
*
|
Sidar, Ludwig
|
22,654
|
38,414
|
20,851
|
40,217
|
*
|
Siebenforcher,
Markus
|
18,648
|
31,607
|
17,156
|
33,099
|
*
|
Simmer, Ruediger
|
25,086
|
42,515
|
23,077
|
44,524
|
*
|
Song Oanh, Thi
|
27,000
|
16,271
|
8,833
|
34,438
|
*
|
Standard
Securities Capital Corp.
|
-
|
67,797
|
42,163
|
25,634
|
*
|
Steinhuebel,
Joachim
|
133,200
|
225,763
|
122,544
|
236,419
|
*
|
Steinmann, Conrad
|
-
|
67,797
|
36,800
|
30,997
|
*
|
Stronach, Frank
|
17,500
|
84,746
|
46,000
|
56,246
|
*
|
17
Name of
Selling Stockholder
|
Shares
Owned
by the
Selling
Stockholder
(1)
|
Number of Shares
Issuable Upon
Exercise
of
All of
the Warrants
|
Total Shares
Offered in the
Offering
|
Number of Shares to
Be Owned by Selling
Stockholder After the
Offering and Percent
of Total
Issued and
Outstanding Shares
(2)
|
# of
Shares
(3)
|
% of
Class
(4)
|
Sufran Investments Ltd.
|
-
|
169,492
|
92,000
|
77,492
|
*
|
Sundar, Jason
|
50,000
|
169,492
|
92,000
|
127,492
|
*
|
Superstep Healthcare Inc.
|
20,000
|
67,797
|
36,800
|
50,997
|
*
|
Swiss American Securities Inc.
|
400,000
|
1,355,932
|
736,000
|
1,019,932
|
*
|
Tang, Hao (Lawrence)
|
50,000
|
169,492
|
92,000
|
127,492
|
*
|
The Calneva Financial Group
Ltd.
|
-
|
338,983
|
184,000
|
154,983
|
*
|
Tognetti, John
|
-
|
6,016,949
|
3,265,998
|
2,750,951
|
2.20%
|
Townshend, Carolyn
|
50,000
|
169,492
|
92,000
|
127,492
|
*
|
Walker, Terry
|
-
|
271,458
|
147,347
|
124,111
|
*
|
Weisberg, Paul
|
20,000
|
84,746
|
46,000
|
58,746
|
*
|
Weiss, Conrad A.
|
-
|
89,831
|
55,866
|
33,965
|
*
|
Wiget, François
|
-
|
237,288
|
128,800
|
108,488
|
*
|
Winsome Capital Inc.
|
-
|
169,492
|
92,000
|
77,492
|
*
|
Wolfl, Sabine
|
6,550
|
3,390
|
1,841
|
8,099
|
*
|
Yardley, Abagail
|
15,000
|
44,068
|
23,920
|
35,148
|
*
|
Ye, Yingchun
|
30,000
|
84,746
|
46,000
|
68,746
|
*
|
Zauner, Thomas
|
16,100
|
16,949
|
9,201
|
23,848
|
*
|
Zemplenyi, Arpad
|
33,000
|
37,627
|
20,424
|
50,203
|
*
|
Total
|
6,513,680
|
40,933,785
|
22,683,989
|
24,763,476
|
15.48%
|
Notes
|
|
*
|
Less than 1%.
|
(1)
|
The number of shares of our common stock listed
as beneficially owned by such selling stockholder represents the number of
shares of our common stock currently owned and potentially issuable to
such selling stockholder, excluding those shares issuable upon exercise of
the warrants. For these purposes, any contractual or other restriction on
the number of securities the selling stockholder may own at any point have
been disregarded.
|
|
|
(2)
|
We have assumed that the selling stockholders
will sell all of the shares being offered in this offering.
|
|
|
(3)
|
Includes the shares of our common stock
issuable upon exercise of the warrants held by such selling stockholder
which are not being offered in this offering.
|
|
|
(4)
|
Based on 119,879,699 shares of our common stock
issued and outstanding as of April 1, 2010. Shares of our common stock
issuable upon exercise of the warrants held by such selling stockholder
are counted as outstanding for computing the percentage of that particular
selling stockholder but are not counted as outstanding for computing the
percentage of any other person.
|
|
|
(5)
|
Barry Maedel is the brother of Neil Maedel, who
was a director of our company from June 1, 2007 to July 8, 2009.
|
|
|
(6)
|
Rahul Sen Gupta was our Chief Financial Officer
from February 8, 2008 to February 28, 2009.
|
Plan of Distribution
The selling stockholders may, from time to time, sell all or a
portion of the shares of our common stock on any market upon which our common
stock may be listed or quoted (currently Financial Industry Regulatory
Authoritys OTC Bulletin Board ), in privately negotiated transactions or
otherwise. Such sales may be at fixed prices prevailing at the time of sale, at prices related to the market prices or
at negotiated prices. The shares of our common stock being offered for resale
pursuant to this prospectus may be sold by the selling stockholders by one or
more of the following methods, without limitation:
18
|
1.
|
block trades in which the broker or dealer so engaged
will attempt to sell the shares of our common stock as agent but may
position and resell a portion of the block as principal to facilitate the
transaction;
|
|
|
|
|
2.
|
purchases by broker or dealer as principal and resale by
the broker or dealer for its account pursuant to this
prospectus;
|
|
|
|
|
3.
|
an exchange distribution in accordance with the rules of
the exchange or quotation system;
|
|
|
|
|
4.
|
ordinary brokerage transactions and transactions in which
the broker solicits purchasers;
|
|
|
|
|
5.
|
privately negotiated transactions;
|
|
|
|
|
6.
|
market sales (both long and short to the extent permitted
under the federal securities laws);
|
|
|
|
|
7.
|
at the market to or through market makers or into an
existing market for the shares;
|
|
|
|
|
8.
|
through transactions in options, swaps or other
derivatives (whether exchange listed or otherwise); and
|
|
|
|
|
9.
|
a combination of any aforementioned methods of
sale.
|
In the event of the transfer by any of the selling stockholders
of his, her or its shares of our common stock or warrants to any pledgee, donee
or other transferee, we will amend this prospectus and the registration
statement of which this prospectus forms a part by the filing of a
post-effective amendment in order to have the pledgee, donee or other transferee
in place of the selling stockholder who has transferred his, her or its
shares.
In effecting sales, brokers and dealers engaged by the selling
stockholders may arrange for other brokers or dealers to participate. Brokers or
dealers may receive commissions or discounts from a selling stockholder or, if
any of the broker-dealers act as an agent for the purchaser of such shares, from
a purchaser in amounts to be negotiated which are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree with a
selling stockholder to sell a specified number of the shares of our common stock
at a stipulated price per share. Such an agreement may also require the
broker-dealer to purchase as principal any unsold shares of our common stock at
the price required to fulfill the broker-dealer commitment to the selling
stockholder if such broker-dealer is unable to sell the shares on behalf of the
selling stockholder. Broker-dealers who acquire shares of our common stock as
principal may thereafter resell the shares of our common stock from time to time
in transactions which may involve block transactions and sales to and through
other broker-dealers, including transactions of the nature described above. Such
sales by a broker-dealer could be at prices and on terms then prevailing at the
time of sale, at prices related to the then-current market price or in
negotiated transactions. In connection with such resale, the broker-dealer may
pay to or receive from the purchasers of the shares commissions as described
above.
The selling stockholders and any broker-dealers or agents that
participate with the selling stockholders in the sale of the shares of our
common stock may be deemed to be underwriters within the meaning of the
Securities Act of 1933 in connection with these sales. In that event, any
commissions received by the broker-dealers or agents and any profit on the
resale of the shares of common stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act of 1933.
From time to time, any of the selling stockholders may pledge
shares of our common stock pursuant to the margin provisions of customer
agreements with brokers. Upon a default by a selling stockholder, his, her or
its broker may offer and sell the pledged shares of our common stock from time
to time. Upon a sale of the shares of our common stock, we believe that the selling stockholders will comply
with the prospectus delivery requirements under the Securities Act of 1933 by
delivering a prospectus to each purchaser in the transaction. We will file any
amendments or other necessary documents in compliance with the Securities Act of
1933 which may be required in the event any of the selling stockholders defaults
under any customer agreement with brokers.
19
To the extent required under the Securities Act of 1933, a
post-effective amendment to the registration statement of which this prospectus
forms a part will be filed disclosing the name of any broker-dealers, the number
of shares of our common stock involved, the price at which our common stock is
to be sold, the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable, that such broker-dealers did not conduct any
investigation to verify the information set out or incorporated by reference in
this prospectus and other facts material to the transaction.
We and the selling stockholders will be subject to applicable
provisions of the Securities Exchange Act of 1934 and the rules and regulations
under it, including, without limitation, Rule 10b-5 and, insofar as a selling
stockholder is a distribution participant and we, under certain circumstances,
may be a distribution participant, under Regulation M. All of the foregoing may
affect the marketability of our common stock.
All expenses for the prospectus and related registration
statement including legal, accounting, printing and mailing fees are and will be
borne by us. Any commissions, discounts or other fees payable to brokers or
dealers in connection with any sale of the shares of common stock will be borne
by the selling stockholders, the purchasers participating in such transaction,
or both.
Any shares of our common stock being offered pursuant to this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
of 1933, may be sold under Rule 144 rather than pursuant to this prospectus.
Description of Securities
General
We are authorized to issue 300,000,000 shares of common stock
with a par value of $0.001 per share and no shares of preferred stock. The
authorized shares of our common stock are available for issuance without further
action or approval by our stockholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which our securities may be listed or traded.
As of April 1, 2010, there were 119,879,699 shares of our
common stock issued and outstanding held by approximately 164 holders of record
of our common stock.
Voting Rights
Each share of common stock entitles the holder to one vote on
all matters submitted to a vote of the stockholders including the election of
directors. Except as otherwise required by law the holders of our common stock
possess all voting power. According to our bylaws, in general, each director is
to be elected by a majority of the votes cast with respect to the directors at
any meeting of our stockholders for the election of directors at which a quorum
is present. According to our bylaws, in general, the affirmative vote of a
majority of the shares represented at the meeting and entitled to vote on any
matter (which shares voting affirmatively also constitute at least a majority of
the required quorum), except for the election of directors, is to be the act of
our stockholders. Our bylaws provide that stockholders holding at least 10% of
the shares entitled to vote, represented in person or by proxy, constitute a
quorum at the meeting of our stockholders. Our bylaws also provide that any
action which may be taken at any annual or special meeting of our stockholders
may be taken without a meeting and without prior notice if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
Our articles of incorporation and bylaws do not provide for
cumulative voting in the election of directors. Because the holders of our
common stock do not have cumulative voting rights and directors are generally to
be elected by a majority of the votes casts with respect to the directors at any
meeting of our stockholders for the election of directors, holders of more than fifty percent, and in some
cases less than 50%, of the issued and outstanding shares of our common stock
can elect all of our directors.
20
Dividend Rights
The holders of our common stock are entitled to receive the
dividends as may be declared by our board of directors out of funds legally
available for dividends. Our board of directors is not obligated to declare a
dividend. Any future dividends will be subject to the discretion of our board of
directors and will depend upon, among other things, future earnings, the
operating and financial condition of our company, its capital requirements,
general business conditions and other pertinent factors. We do not anticipate
that dividends will be paid in the foreseeable future.
Miscellaneous Rights and Provisions
In the event of our liquidation or dissolution, whether
voluntary or involuntary, each share of our common stock is entitled to share
ratably in any assets available for distribution to holders of our common stock
after satisfaction of all liabilities.
Our common stock is not convertible or redeemable and has no
preemptive, subscription or conversion rights. There are no conversions,
redemption, sinking fund or similar provisions regarding our common stock.
Our common stock, after the fixed consideration thereof has
been paid or performed, are not subject to assessment, and the holders of our
commons tock are not individually liable for the debts and liabilities of our
company.
Our bylaws provide that our board of directors may amend our
bylaws by a majority vote of our board of directors including any bylaws adopted
by our stockholders, but our stockholders may from time to time specify
particular provisions of these bylaws, which must not be amended by our board of
directors. Our current bylaws were adopted by our board of directors. Therefore,
our board of directors can amend our bylaws to make changes to the provisions
relating to the quorum requirement and votes requirements to the extent
permitted by the Nevada Revised Statutes.
Anti-Takeover Provisions
Some features of the Nevada Revised Statutes, which are further
described below, may have the effect of deterring third parties from making
takeover bids for control of our company or may be used to hinder or delay a
takeover bid. This would decrease the chance that our stockholders would realize
a premium over market price for their shares of common stock as a result of a
takeover bid.
Acquisition of Controlling Interest
The Nevada Revised Statutes contain provisions governing
acquisition of controlling interest of a Nevada corporation. These provisions
provide generally that any person or entity that acquires certain percentage of
the outstanding voting shares of a Nevada corporation may be denied voting
rights with respect to the acquired shares, unless the holders of a majority of
the voting power of the corporation, excluding shares as to which any of such
acquiring person or entity, an officer or a director of the corporation, and an
employee of the corporation exercises voting rights, elect to restore such
voting rights in whole or in part. These provisions apply whenever a person or
entity acquires shares that, but for the operation of these provisions, would
bring voting power of such person or entity in the election of directors within
any of the following three ranges:
The stockholders or board of directors of a corporation may
elect to exempt the stock of the corporation from these provisions through
adoption of a provision to that effect in the articles of incorporation or
bylaws of the corporation. Our articles of incorporation and bylaws do not
exempt our common stock from these provisions.
These provisions are applicable only to a Nevada corporation,
which:
21
-
has 200 or more stockholders of record, at least 100 of whom have addresses
in Nevada appearing on the stock ledger of the corporation; and
-
does business in Nevada directly or through an affiliated corporation.
At this time, we do not have 100 stockholders of record who
have addresses in Nevada appearing on the stock ledger of our company nor do we
believe that we do business in Nevada directly or through an affiliated
corporation. Therefore, we believe that these provisions do not apply to
acquisitions of our shares and will not until such time as these requirements
have been met. At such time as they may apply to us, these provisions may
discourage companies or persons interested in acquiring a significant interest
in or control of our company, regardless of whether such acquisition may be in
the interest of our stockholders.
Combination with Interested Stockholder
The Nevada Revised Statutes contain provisions governing
combination of a Nevada corporation that has 200 or more stockholders of record
with an interested stockholder. As of April 1, 2010, we had approximately 164
stockholders of record. Therefore, we believe that these provisions do not apply
to us and will not until such time as these requirements have been met. At such
time as they may apply to us, these provisions may also have effect of delaying
or making it more difficult to effect a change in control of our company.
A corporation affected by these provisions may not engage in a
combination within three years after the interested stockholder acquires his,
her or its shares unless the combination or purchase is approved by the board of
directors before the interested stockholder acquired such shares. Generally, if
approval is not obtained, then after the expiration of the three-year period,
the business combination may be consummated with the approval of the board of
directors before the person became an interested stockholder or a majority of
the voting power held by disinterested stockholders, or if the consideration to
be received per share by disinterested stockholders is at least equal to the
highest of:
-
the highest price per share paid by the interested stockholder within the
three years immediately preceding the date of the announcement of the
combination or within three years immediately before, or in, the transaction
in which he, she or it became an interested stockholder, whichever is higher;
-
the market value per share on the date of announcement of the combination
or the date the person became an interested stockholder, whichever is higher;
or
-
if higher for the holders of preferred stock, the highest liquidation value
of the preferred stock, if any.
Generally, these provisions define an interested stockholder as
a person who is the beneficial owner, directly or indirectly of 10% or more of
the voting power of the outstanding voting shares of a corporation. Generally,
these provisions define combination to include any merger or consolidation with
an interested stockholder, or any sale, lease, exchange, mortgage, pledge,
transfer or other disposition, in one transaction or a series of transactions
with an interested stockholder of assets of the corporation having:
-
an aggregate market value equal to 5% or more of the aggregate market value
of the assets of the corporation;
-
an aggregate market value equal to 5% or more of the aggregate market value
of all outstanding shares of the corporation; or
-
representing 10% or more of the earning power or net income of the
corporation.
Articles of Incorporation and Bylaws
There are no provisions in our articles of incorporation or our
bylaws that would delay, defer or prevent a change in control of our company and
that would operate only with respect to an extraordinary corporate transaction
involving our company or any of our subsidiaries, such as merger,
reorganization, tender offer, sale or transfer of substantially all of its
assets, or liquidation.
22
Experts and Counsel
The consolidated financial statements of Manas Petroleum
Corporation as of December 31, 2008, and for the year ended December 31, 2008
and for the period from May 25, 2004 (date of inception) to December 31, 2008
included in this prospectus have been audited by Deloitte AG, an independent
registered public accounting firm, as stated in their report appearing herein
and elsewhere in the registration statement of which this prospectus forms a
part (which report expresses an unqualified opinion on the consolidated
financial statements and includes an explanatory paragraph referring to the
preparation of the consolidated financial statements assuming that Manas
Petroleum Corporation will continue as a going concern), and have been so
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
The financial statements as of December 31, 2009 and for the
year ended December 31, 2009 and the period from May 25, 2004 (date inception)
to December 31, 2009 included in this prospectus and in the registration
statement of which this prospectus forms a part have been so included in
reliance on the report of BDO Visura International, an independent registered
public accounting firm (the report on the financial statements contains an
explanatory paragraph regarding Manas Petroleum Corporations ability to
continue as a going concern) appearing elsewhere herein and in the registration
statement of which this prospectus forms a part, given on the authority of said
firm as experts in auditing and accounting.
Clark Wilson LLP, of Suite 800 885 West Georgia Street,
Vancouver, British Columbia, Canada has provided an opinion on the validity of
the shares of our common stock being offered pursuant to this prospectus.
Interest of Named Experts and Counsel
No expert named in the registration statement of which this
prospectus forms a part as having prepared or certified any part thereof (or is
named as having prepared or certified a report or valuation for use in
connection with such registration statement) or counsel named in this prospectus
as having given an opinion upon the validity of the securities being offered
pursuant to this prospectus or upon other legal matters in connection with the
registration or offering such securities was employed for such purpose on a
contingency basis. Also at the time of such preparation, certification or
opinion or at any time thereafter, through the date of effectiveness of such
registration statement or that part of such registration statement to which such
preparation, certification or opinion relates, no such person had, or is to
receive, in connection with the offering, a substantial interest, direct or
indirect, in our company or any of its parents or subsidiaries. Nor was any such
person connected with our company or any of its parents or subsidiaries as a
promoter, managing or principal underwriter, voting trustee, director, officer
or employee.
Information with respect to Our Company
Description
of Business
Corporate History
We were incorporated in the State of Nevada on July 9, 1998 as
Express Systems Corporation.
We entered into a share exchange agreement dated November 23,
2006 with DWM Petroleum AG, a Swiss company, and the shareholders of DWM
Petroleum. The share exchange contemplated by this agreement was completed April
10, 2007, at which time the shareholders of DWM Petroleum received 80,000,000
shares of our common stock, equal to 79.9% of our outstanding common stock at
the time, in exchange for 100% of the shares of DWM Petroleum. In addition, the
share exchange agreement contained a post-closing covenant requiring that we
issue an aggregate of up to an additional 500,000 shares of our common stock
over time to the former shareholders of DWM Petroleum for every 50 million
barrels of P50 oil reserves net to us from exploration in the Kyrgyz Republic,
Albania, and Tajikistan up to a maximum of 2.5 billion barrels of P50 oil
reserves. At our option, this obligation can be extended to additional properties that are
acquired through the actions of the former shareholders of DWM Petroleum.
23
The acquisition of DWM Petroleum was accounted for as a merger
of a private operating company into a non-operating public shell. Consequently,
Manas Petroleum Corporation is the continuing legal registrant for regulatory
purposes and DWM Petroleum was treated as the continuing accounting acquirer for
accounting and reporting purposes. The assets and liabilities of DWM Petroleum
remained at historic cost. Under US GAAP, in transactions involving the merger
of a private operating company into a non-operating public shell, the
transaction is equivalent to the issuance of stock by DWM Petroleum for the net
monetary assets of Manas Petroleum Corporation, accompanied by a
recapitalization. The accounting is identical to a reverse acquisition, except
that no goodwill or other intangibles are recorded. The historical financial
statements prior to April 10, 2007 refer to the consolidated financial
statements of DWM Petroleum.
Contemporaneously with the share exchange, we sold our
wholly-owned subsidiary, Masterlist Inc. to its sole employee for a nominal cash
payment and five annual payments equal to 5% of the gross sales of Masterlist
for each respective year. As a result of the share exchange and the sale of
Masterlist, we abandoned our prior business and DWM Petroleum became our
wholly-owned subsidiary.
As a condition to completion of the share exchange, the
shareholders of DWM Petroleum entered into a written lock up agreement in which
they agreed to resale restrictions on the shares our common stock received by
them at closing. Each lock up agreement gave us the right to unilaterally waive
the resale restrictions so long as the waiver applied to all of the locked up
stockholders and, on April 15, 2009, we agreed to waive all of these resale
restrictions. Resale of the shares of our stock that were affected by these lock
up agreements continues to be subject to any resale restrictions imposed by law,
including the applicable securities laws.
As a pre-condition to the share exchange, we amended our
articles of incorporation on April 2, 2007 to increase our authorized capital
from 25,000,000 to 300,000,000 shares of common stock and to change our name to
our current name, Manas Petroleum Corporation. At the completion of the share
exchange transaction on April 10, 2007, all of our directors and officers
resigned and were replaced by the officers and directors of DWM Petroleum.
Our Current Business
Our wholly-owned subsidiary, DWM Petroleum A.G., is a Swiss
registered company based in Baar, Switzerland. DWM Petroleum was founded in 2004
to focus on the exploration of oil and gas in Central Asia. On April 7, 2004,
DWM Petroleum acquired a 90% interest in the CJSC South Petroleum Company in the
Kyrgyz Republic. Between April 2004 and August 2006, CJSC South Petroleum
Company was awarded six exploration licenses in the Kyrgyz Republic, five of
which were subsequently renewed. On June 28, 2006, DWM Petroleum and Anawak LLC
founded CJSC Somon Oil Company in Tajikistan.
On November 28, 2007, DWM Petroleum opened a branch office in
Albania to run our operations in the Balkan region. Effective February 24, 2010,
and in connection with the sale of our Albanian project, Petromanas Energy Inc.
and Manas Adriatic GmbH have assumed this office and the responsibility for its
rent and maintenance.
On August 29, 2007, we formed Manas Petroleum A.G., a Swiss
registered company based in Baar, Switzerland, a wholly owned subsidiary of
Manas Petroleum Corporation. We intended to use this subsidiary to consolidate
properties in the Balkans at a later stage of our business development. In light
of our recent sale to Petromanas Energy Inc. of our subsidiary Manas Adriatic
GmbH, we are currently reassessing the purpose for and the need to maintain this
subsidiary.
On March 26, 2008, we incorporated Manas Management Services
Limited in the Bahamas, which controls 99% of Manas Energia Chile Limitada,
which was incorporated on April 24, 2008. Both subsidiaries were formed to
consolidate our property in Chile. The remaining 1% of Manas Energia Chile
Limitada is owned directly by Manas Petroleum Corporation.
24
On April 29, 2008, Improved Petroleum Recovery and we entered
into a farm-out agreement with GeoPark Holdings Ltd. and Pluspetrol S.A.
Pursuant to the agreement, IPR and we each hold 20% of the project and Geopark
and Pluspetrol each hold 30%. A joint operating contract has been signed between
Improved Petroleum Recovery, Pluspetrol, Geopark and us, under which the
operatorship will be transferred from IPR to Geopark, On April 21, 2009, DWM
Petroleum signed two production contracts with the Petroleum Authority of
Mongolia for blocks 13 and 14. We have established an office in Mongolia and
commenced preparing a seismic exploration campaign.
On November 19, 2009, we entered into an arms length letter of
intent with WWI Resources Ltd., a Canadian public company whose common shares
are listed on the Canadian TSX Venture Exchange, pursuant to which we agreed to
sell all of the shares of DWM Petroleum or another subsidiary of our company
that would own, at the closing, 100% of our Albanian project, in exchange for
cash and common shares of WWI Resources. Completion of the transactions
described in this letter of intent was subject to, among other things, approval
by the shareholders of WWI Resources and applicable regulatory authorities, due
diligence investigations by both the seller and the purchaser, and execution of
a formal agreement.
On December 7, 2009, DWM Petroleum formed Manas Adriatic GmbH,
a Swiss company, and thereafter DWM Petroleum transferred title to our Albanian
project to Manas Adriatic. Also in December of 2009, WWI Resources advanced
$917,723 to Manas Adriatic for use by Manas Adriatic and our company as working
capital until the parties could complete the transaction.
On February 24, 2010, we signed a formal share purchase
agreement and completed the sale of all of the issued and outstanding shares of
Manas Adriatic to WWI Resources. As consideration for these shares, DWM
Petroleum received CDN$2,000,000 ($1,937,396) in cash on March 3, 2010 and
100,000,000 WWI Resources common shares. Pursuant to the purchase agreement, DWM
Petroleum is entitled to receive an aggregate of up to an additional 150,000,000
WWI Resources common shares as follows:
-
100,000,000 WWI Resources common shares upon completion of the first well
on the Albainian project by Manas Adriatic, or on the date that is 16 months
after the Closing Date, whichever occurs first;
-
25,000,000 WWI Resources common shares if, on or before the tenth
anniversary of the Closing Date, Manas Adriatic receives a report prepared
pursuant to Canadas National Instrument 51-101, Standards of Disclosure for
Oil and Gas Activities, confirming that the Albanian project has 2P reserves
of not less than 50,000,000 barrels of oil (BOE); and
-
if, on or before the tenth anniversary of the Closing Date, Manas Adriatic
receives a report prepared pursuant to Canadas National Instrument 51-101,
Standards of Disclosure for Oil and Gas Activities, confirming that the
Albanian project has 2P reserves in excess of 50,000,000 BOEs, then for each
50,000,000 BOEs over and above 50,000,000 BOEs, WWI Resources will be required
to issue 500,000 WWI common shares to DWM Petroleum to a maximum of 25,000,000
WWI Resources common shares.
In addition, at closing WWI Resources funded Manas Adriatic
with $8,500,000 to be used by Manas Adriatic to repay advances made by DWM
Petroleum and its predecessors in respect of the Albanian project.
At closing, WWI Resources changed its name to Petromanas Energy
Inc. (TSXV: PMI) and it appointed to its six member board of directors three
directors nominated by our company (Michael Velletta, Heinz Scholz and
Peter-Mark Vogel). In addition, and also at closing, the board of directors of
Petromanas appointed Erik Herlyn (our Chief Executive Officer) and Ari Muljana
(our Chief Financial Officer) as the Chief Executive Officer and Chief Financial
Officer, respectively, of Petromanas.
Contemporaneously with the completion of its purchase of Manas
Adriatic, Petromanas completed a private placement offering in which it sold
100,000,000 of its common shares for gross proceeds of CDN$25,000,000
(approximately $24,518,000). After adjustment for the 100,000,000 common shares
issued to DWM Petroleum at the completion of the sale of Manas Adriatic and the
100,000,000 common shares issued in this private placement, Petromanas had
328,231,466 common shares issued and outstanding, of which DWM Petroleum owns
100,000,000, or approximately 30.47% .
25
We have analyzed whether we have obtained control over
Petromanas by considering the resulting management of Petromanas, governing body
of Petromanas, undiluted and diluted voting interest, the terms of the exchange
of equity interest and the relative size of Petromans and Manas Adriatic. Based
on this analysis we concluded that:
-
Manas Petroleum Corporation does not have majority voting interest in
Petromanas (DWM, a wholly- owned subsidiary of Manas Petroleum Corporation,
holds 100,000,000 outstanding shares of Petromanas, and another 100,000,000
shares are issuable at the earlier of 16 months or the completion of the
drilling of the first well in Albania, i.e. DWM holds 30.47% or 46.70% of
Petromanas). We also determined that Manas shareholders do not represent the
majority shareholders.
-
Manas Petroleum Corporation does not have a majority in the Board, nor does
it have the ability to appoint, elect or remove a Director
-
Two out of three executive officers are current officers of Manas, which
due to conflicts of interest are subject to change in near future.
-
Regarding the terms of the exchange of equity interests we concluded that
no assessment can be made concerning whether or not a significant premium was
paid by either party
-
Regarding the relative size of Petromanas and Manas Adriatic, we concluded
that both entities are small and have not yet generated any revenue and that
neither one of the entities is significantly larger than the other.
Based on the above, Manas Petroleum Corporation did not obtain
control over Petromanas.
The transaction therefore is accounted for in accordance with
ASC 810-10-40, which results in a derecognition of the subsidiary Manas Adriatic
GmbH in exchange for cash consideration received, liabilities assumed and
200,000,000 of Petromanas common shares. The shares of Petromanas are traded on
the TSX-V, which we deem an active market and we therefore believe that the
quoted market price of the Petromanas share (PMI.V) is generally a readily
determinable fair value and it can be taken as a basis for the calculation of
the fair value.
We reached this conclusion based on an assessment on the
following criteria:
-
The shares are traded in a foreign market of breadth and scope comparable
to the OTCBB, which according to ASC 820 provides readily determinable fair
value for equity securities;
-
Bid/ask-spreads are narrow; and
-
Trading activity is regular and frequent.
Since the shares are held in escrow and are subject to a four
months holding period and an escrow release schedule, we deem the shares as a
Level 2 input for the calculation of the fair value in accordance with ASC 820
(Fair value measurements and disclosures). We apply an annual discount rate of
12% on the quoted market price (represents an initial estimate for purpose of
this pro forma statement) based on the time before the shares become freely
tradable.
26
Each escrowed and issued share entitles Manas Petroleum
Corporation to exercise voting rights and each escrowed and issued share
corresponds to one vote.
The 50,000,000 additional Petromanas common shares which are
issuable upon achievement of certain conditions (see above (i) and (ii)) will be
accounted for in accordance with ASC 450 (Contingencies). These are contingent
and will only be recognized when realized.
A gain on sale of asset is recognized on the income statement
under non-operating income and is calculated according to ASC 810-10-40 as the
difference between the fair value of the consideration received and the carrying
amount of Manas Adriatic GmbHs assets and liabilities resulting in a gain on
sale of subsidiary on a pro forma basis of $57,715,177 Please refer to the pro
forma consolidated financial statement in Exhibit 99.1 of the registration
statement of which this prospectus forms a part for further information.
We have signed an agreement dated January 29, 2010, pursuant to
which we have agreed to assign our interest in our Chilean project in exchange
for a return of all of the money that we have invested in this project to date
and relief from all currently outstanding and future obligations in respect of
the project. This agreement and the assignment of our interest in this project
are subject to approval by the Ministry of Energy in Chile. If the Ministry of
Energy in Chile approves our agreement and the assignment of our interest in the
Tranquilo blocks, the partners involved on a go-forward basis will be Pluspetrol
Chile S.A. (as to a 25% interest), Wintershall Chile Limitada (as to a 25%
interest), International Finance Corporation of the World Bank (as to a 12.5%
interest), Methanex Chile S.A. (as to a 12.5% interest) and GeoPark Magallanes
Limitada (as to a 25% interest).
We are in the business of exploring for oil and gas, primarily
in Central Asia and the Balkans. In particular, we focus on the exploration of
large under-thrust light oil prospects in areas where, though there has often
been shallow production, their deeper potential has yet to be evaluated. If we
discover sufficient reserves of oil or gas, we intend to exploit them. Although
we are currently focused primarily on projects located in certain geographic
regions, we remain open to attractive opportunities in other areas. We do not
have any known reserves on any of our properties.
We carry out operations both directly and through participation
in ventures with other oil and gas companies to whom we have farmed out a
project. We currently have or are involved in projects in the Kyrgyz Republic,
Albania, Tajikistan, Mongolia and Chile. The following is a brief description of
each of our current projects:
Kyrgyz Republic:
We own 25% of South Petroleum Company, a joint stock company
formed in Kyrgyz Republic. Santos International Holdings PTY Limited, an
Australian company, owns 70% of South Petroleum and Kyrgyzneftgaz, a Kyrgyz
government entity, owns the remaining five percent. Santos International
Holdings PTY Limited is the wholly-owned subsidiary of Santos Limited, which is
listed on the Australian Securities Exchange and is one of Australias largest
onshore gas producers. South Petroleum owns five exploration licenses that cover
a total area of approximately 569,578 acres (or 2,305 km
2
) located in
the Fergana Basin which is an intermontane basin, the greater part of which lies
mainly in the eastern part of Uzbekistan. South Petroleum has no known reserves
on lands covered by these licenses.
South Petroleum Company
At inception, DWM Petroleum, our wholly-owned subsidiary, owned
90% of South Petroleum. The Kyrgyz government, through its operating entity
Kyrgyzneftgaz, owned the other 10%.
Farm-In Agreement
On October 4, 2006, we agreed to sell 70% of South Petroleum to
Santos International Operations PTY Ltd. We sold the 70% interest in South
Petroleum and wrote off $905,939 in debt owed to us by South Petroleum in
exchange for an upfront cash payment of $4 million. In addition, Santos
International Holdings PTY Ltd. agreed to fund and carry out a two-phase work
program on the licensed area. The agreement called for overall expenditures of
approximately $11,500,000 during Phase 1 and approximately
$42,000,000 during Phase 2, for a total work program of approximately $53.5
million. In addition, Santos International is responsible for general
administration and office overhead costs incurred during the work program, which
we estimate to be approximately $1,000,000 per year. Phase 1, which is described
below, was completed on October 24, 2008. On December 2, 2008, Santos
International commenced Phase 2.
27
Phase 1
During Phase 1 of the work program, Santos International was
required to:
-
undertake geological studies (at an estimated expenditure of $500,000);
-
subject to the availability and quality of original data, reprocess up to
5,000 kilometers of 2D seismic (at an estimated expenditure of $1,000,000);
and
-
at its election, acquire and process either: (i) 1,000 kilometers of 2D
seismic; or (ii) a combination of 2D seismic and 3D seismic, the total cost of
which would be equivalent to the total cost of acquiring and processing 1,000
kilometers of 2D seismic, up to a maximum expenditure of $10,000,000 (with
Santos International having the right to deduct those seismic acquisition and
processing costs above U.S. $10,000,000 from the maximum expenditure caps).
Phase 2
On December 2, 2008, Santos International entered into Phase 2
of the work program. During Phase 2, Santos International is to:
23 drill three exploration wells in
the license area to a maximum expenditure of $7,000,000 per well; and
23 drill three appraisal wells in the
license area to a maximum expenditure of $7,000,000 per well.
If Santos International spends in excess of $42,000,000 on the
exploration and appraisal wells, we will be obligated to pay 30% of the excess.
Such excess expenditure would be subtracted from future dividend payments out of
future revenues, but if there are no future revenues, we have no future
obligation to fund such expenditure. Santos International is required to consult
with us, and endeavor to reach agreement with us, on the location of each of
these wells but if Santos International and we cannot agree then Santos
International will have the right to determine the location. Santos
International agreed to use its best efforts to begin drilling the first of
these exploration wells as soon as practicable after December 2, 2008, which has
happened in June 2009, and to begin drilling the second exploration well in the
Phase 2 work program within twelve months after the date that it finishes
drilling the first exploration well, but there is no penalty if Santos
International fails to meet this schedule. Within 60 days after completion of
the drilling of the second exploration well, Santos International may withdraw
from the farm-in agreement without any additional penalty.
Share Purchase Agreement
On December 7, 2006, we entered into an agreement with
Kyrgyzneftgaz to purchase half of its 10% interest in South Petroleum for KGS
10,005,000, which at that time represented approximately $241,375. At title
transfer on January 25, 2007, we paid KGS 2,005,000 (approximately $48,372 at
the exchange rate at that time); on June 6, 2007, we paid an additional KGS
4,000,000 (approximately $96,800 at the exchange rate at that time); and on
December 7, 2007 we paid an additional KGS 4,000,000 (approximately $109,560 at
the exchange rate at that time).
Licenses
The Kyrgyz government granted South Petroleum six licenses
between April 2004 and August 2006, five of which were subsequently renewed.
These five existing licenses are set to expire between April 29, 2010 and
January 28, 2013 but are automatically renewable for up to ten years once a
report has been submitted to the Kyrgyz government detailing the progress of a
work program and once the associated minimum expenditures have been made. Upon
the discovery of reserves that may be commercially exploited,
licenses can be exclusively converted into exploitation licenses.
28
Exploitation licenses are granted for 20 years with subsequent
extensions depending on the depletion of the resource. There is a yearly fee
payable to the government of approximately $150 per license and a minimum annual
work program of $50 per km
2
(approximately $115,250 per year for the
land covered by the licenses). All taxes and work commitments on the five
licenses are current. There is a 3% royalty and a corporate tax of 10% payable
to the Kyrgyz government on revenue from production from the areas covered by
these licenses.
The table below summarizes the licenses; the map below sets out
their locations and a brief description of each active license follows.
License
|
Area (km
2
)
|
Date of Award
|
Date Renewed
|
Current Expiry
Date
|
Nanai
|
999
|
July
9, 2004
|
February 5, 2009
|
January 28, 2013
|
Soh
|
631
|
April 29, 2004
|
April 29, 2006
|
April 29, 2010
|
West Soh
|
160
|
April 29, 2004
|
April 29, 2006
|
April 29, 2010
|
Tuzluk
|
474
|
April 29, 2004
|
April 29, 2006
|
April 29, 2010
|
Naushkent
|
41
|
April 29, 2004
|
February 5, 2009
|
January 28, 2013
|
Nanai Exploration License
The Nanai exploration license is located in the northern zone
of the Fergana Basin bordering Uzbekistan to the south. We have identified three
structures in this zone called Alabuka 1, 2 and 3. We believe that the target
structures are situated in a footwall of a large shallow-dipping thrust bringing
the Paleozoic rocks on the top of the tertiary and quaternary sequence. The
seismic database consists of seven dip and four strike lines although only the
ends of three of these lines cover any part of the structures. Therefore the
structural definition relies heavily on the use of analogies to proven
structures mapped in Uzbekistan to the south. The current mapping covers only
approximately 10% of the available area, and we believe that similar structures
may exist elsewhere within the license. As a result, we cannot quantify the
potential in this license with the current database. Between 1993 and 1996
Kyrgyzneftgaz drilled the Alabuka-1 well on this license. Kyrgyzneftgaz aimed
this well at a shallower target in the upper thrust sheet and did not penetrate
into the lower thrust sheet. This well encountered in excess of 1,000 meters of Paleozoic rocks thrust over Paleocene to Pliocene
rocks and proved presence of tertiary reservoir rocks beneath the Paleozoic
rocks in the hanging wall of the thrust.
29
Naushkent Exploration License
The Naushkent exploration license is located in the northern
zone of the Fergana Basin bordering Uzbekistan to the south. Currently, there is
no seismic or well data in this license. The only available data is an old
Soviet map showing a closed structure. Seismic exploration is required to get
volumetric characteristics for the structure shown on the Soviet map.
Soh and West Soh Exploration Licenses
The Soh and West Soh exploration licenses are located in the
southern zone of the Fergana Basin bordering Uzbekistan to the north. We have
identified two deep lower thrust sheet structures called Burdalyk and Kyzyl
Kurgan as well as a number of other structures, including undrilled fourway dip
closures at the upper thrust sheet level (Katran, Kan) and a shallow structure
with a topseal provided by a tar mat (West Chaur). There are several producing
oil and gas fields within the region that are excluded from the exploration
license.
The seismic database consists of eleven dip and four strike
lines. Of these lines only seven are relevant to the Kyzyl Kurgan structure and
none relate to the Burdalyk structure. Data from the North Soh field indicates
that in this area the Oligocene and Eocene pay beds are predominantly oil prone
and that the Cretaceous pay beds are predominantly gas prone.
Tuzluk Exploration License
The Tuzluk exploration license is located in the southern zone
of the Fergana Basin bordering Tajikistan to the north. There are a number of
established oilfields in this area (Beshkent-Togap, Tashravat, Tamchi,
Karagachi) that have produced from the upper thrust sheet. These fields are
excluded from the exploration license. More significant for the exploration
potential is the North Karakchikum field which straddles the Tajikistan/Kyrgyz
Republic border and is analogous to the South and West Tuzluk prospects. Five
structures called Selkan, Arka, West Tuzluk, South Tuzluk and the Tashravat
Monocline have been identified. The seismic database is relatively large but
rather uneven in coverage. Five deep stratigraphic wells were drilled at a depth
of over four kilometers by the Soviets in the area of Tuzluk structures. The
wells intersected thrust faults and proved the structural concept. Two of them
intersected oilwater contact at the South Tuzluk structure.
Operating Activities
Seismic operations in the Tuzluk license began on September 30,
2007 and were completed on June 27, 2008 with a total of 315.4 km of seismic
data having been acquired in the Tuzluk license. Following completion of
operations in the Tuzluk licence, seismic operations on the Nanai license began
on July 18, 2008 and were completed by the end of October 2008. During the third
quarter of 2008, 100.2 km of seismic data was recorded for this license. During
the first quarter of 2009, seismic operations were initiated on the Soh license.
So far we have acquired a total of 352.83 km of 2D seismic data on the Soh
license. In addition, we have acquired a total of 19.62 km of 2D seismic data on
the Naushkent license since and a total of 31.47 km of 2D seismic data on the
West Soh license. Also, several initiatives have been undertaken in relation to
the seismic program including data exchange agreements for neighboring
licenses.
The new data are being integrated into prior data sets and
reprocessing and scanning of Soviet era seismic data and digitizing of well logs
has continued. Also technical review works have been conducted for generating
new prospects and leads for future drilling.
In June 2009, South Petroleum and Caspian Oil and Gas, through
its subsidiary CJSC Sherik, commenced a shallow drilling program in the Soh and
Tuzluk licenses with the drilling of an exploration well at the North Aizar-1
prospect (on the Tuzluk license). CJSC Sherik carried out the drilling
operations. During 2009, two wells were drilled as follows:
30
-
North Aizar well within the Tuzluk license area was drilled to a total
depth of 1,860 m (between June 2009 and July 2009). Minor hydrocarbon shows
were encountered and the well was plugged. After drilling the North Aizar well
the rig was moved to the Soh license area.
-
Within the Soh license area the Khudai-Nazar SPC #1 well was drilled. The
drilling started in August with the projected depth 2,405 m and finalized on
September 23 at 2,202 m depth. Minor hydrocarbon shows were encountered and
the well was plugged.
According to the above data South Petroleum has completed its
commitments according to license agreements: Field seismic acquisition works in
2D format (403,92 km), their complete processing and partial interpretation;
drilling in an aggregate depth of 4,062 meters; South Petroleum obtained,
digitized and analyzed a significant amount of field geophysical survey data of
wells of previous years (>150 wells); regional models of possible hydrocarbon
migrations were designed; elaborated preliminary structural maps along the roof
of the Paleogene sediments; petrophysical data of principal reservoirs and
screen horizons were obtained and generalized.
Work has been underway to assess rig availability,
infrastructure, import and transport routes, import procedures, national and
local planning, and contractual requirements and preliminary location and access
scouting for the drilling of up to four deep wells in 2010. In 2010 we are
planning to release a tender to drilling companies and other service providers.
The above stated works are planned to be continued, including the interpretation
of seismic data, more detailed thematic studies, preparation and realization of
drilling of deep wells. We do not expect to commence a deep drilling program
until the third quarter of 2010.
Albania
In December of 2007, DWM Petroleum (our wholly-owned
subsidiary) was granted two production sharing contracts with the Ministry of
Economy, Trade and Energy of Albania. One of the production sharing contracts
covers licenses for the areas known as Block A and B and the other covers
licenses for the areas referred to as Blocks D and E. In July of 2009, DWM
Petroleum was granted a production sharing contract with the Ministry of
Economy, Trade and Energy of Albania covering the licenses for the areas known
as Blocks 2 and 3. DWM Petroleum recently assigned all of its rights and
obligations under these production sharing contracts to Manas Adriatic GmbH, a
Swiss company formed for this purpose, and, on February 24, 2010, DWM Petroleum
sold all of the issued and outstanding shares of Manas Adriatic to Petromanas
Energy Inc.
The location of these blocks is set out in the map below.
31
Blocks A and B
The production sharing contract for Blocks A and B require the
following minimum work and financial programs to maintain them in good
standing:
Phase 1 Minimum Work and Financial Program
Manas Adriatic has until December 25, 2010 to complete the
requirements in Phase 1. After Phase 1, Manas Adriatic has the option to either
continue pursuing or relinquish the exploration rights. The Phase 1 minimum work
and financial program requires the following:
-
the undertaking of a minimum of $400,000 in geological and geophysical
studies;
-
the re-processing of at least 200 kilometers of seismic data at a minimum
cost of $120,000; and
-
the acquisition and processing of either 300 kilometers of 2D seismic at a
minimum cost of $2,500,000 or the drilling of an exploration well to a depth
of at least 3,000 meters at a minimum cost of US$6,000,000.
The Albanian National Agency of Natural Resources has approved
a reduction in the minimum seismic work commitment for the Phase 1 minimum work
and financial program on Blocks A and B from 300 km to 190 km (from a minimum of
$2,500,000 to $1,583,270).
Phase 2 Minimum Work and Financial Program
Manas Adriatic has two years from the completion of Phase 1 to
complete Phase 2. The Phase 2 minimum work and financial program requires the
following:
-
the undertaking of a minimum of $300,000 in geological and geophysical
studies; and
-
the drilling of an exploration well to a depth of at least 3,000 meters at
a minimum cost of $6,000,000.
32
Phase 3 Minimum Work and Financial Program
Manas Adriatic has two years from the completion of Phase 2 to
complete the requirements in Phase 3. The Phase 3 minimum work and financial
program requires the following:
-
the undertaking of a minimum of $300,000 in geological and geophysical
studies; and
-
the drilling of an exploration well to a depth of at least 3,000 meters at
a minimum cost of $6,000,000.
The Phase 1 work program was commenced on December 26, 2007 and
to date the following work has been completed.
Initial Petroleum Potential Evaluation:
-
Seismic and geological interpretation based on existing Albpetrol and
Shell lines
Reprocessing
-
Reprocessing of key lines selected from Albpetrol and SHELL (total 328km)
-
Integrating data into existing comprehensive database
-
Seismic & geological interpretation
-
Prospect identification (Jubani new prospect on Block A and West Gjurica on
Block B and reconfirmation of Rinasi, Gjurica prospects of previously
identified from SHELL)
2D New Seismic Using Vibro Technology
-
Preparing new seismic program for field acquisition
-
2D new seismic acquisition and processing (75km on Block A and 115km on
Block B)
-
Loading processed new seismic into system
-
Final interpretation based on 2D new seismic and reprocessed data
Mapping
-
Time and depth map (Jubani on block A, West Gjurica, Rinasi, Gjurica on
Block B)
-
Geological cross sections generation through Jubani prospect block A
-
Oil shows map generation Blocks A and B
Volumetrics
-
Resources calculation for Jubani prospect (DWM conservative case).
33
The following expenditures have been claimed for cost recovery
since the effective date of the production sharing contract on Blocks A and B up
to December 31, 2009:
Description
|
|
Blocks A-B
|
|
Geological and geophysical work
|
$
|
600,651.87
|
|
Reprocessing
|
$
|
61,529.69
|
|
Seismic
|
$
|
3,048,611.02
|
|
Geological and
geophysical work
|
$
|
859,534.51
|
|
Total
|
$
|
4,570,327.09
|
|
Blocks D and E
The production sharing contract for Blocks D and E require the
following minimum work and financial programs to maintain them in good
standing:
Phase 1 Minimum Work and Financial Program
Manas Adriatic has until December 25, 2010 to complete the
requirements in Phase 1. After Phase 1, Manas Adriatic has the option to either
continue pursuing or relinquish the exploration rights. The Phase 1 minimum work
and financial program requires the following:
-
the undertaking of a minimum of $400,000 in geological and geophysical
studies;
-
the re-processing of at least 200 kilometers of seismic data at a minimum
cost of $150,000; and
-
the acquisition and processing of either 300 kilometers of 2D seismic at a
minimum cost of $2,500,000 or the drilling of an exploration well to a depth
of at least 3,000 meters at a minimum cost of $6,000,000.
The Albanian National Agency of Natural Resources has approved
a reduction in the minimum seismic work commitment for the Phase 1 Minimum Work
and Financial Program on Blocks D and E, from 300 km to 105 km (from a minimum
of $2,500,000 to $875,000)
Phase 2 Minimum Work and Financial Program
Manas Adriatic has two years from the completion of Phase 1 to
complete Phase 2. The Phase 2 minimum work and financial program requires the
following:
-
the undertaking of a minimum of $300,000 in geological and geophysical
studies; and
-
the drilling of an exploration well to a depth of at least 3,000 meters at
a minimum cost of $6,000,000.
Phase 3 Minimum Work and Financial Program
Manas Adriatic has two years from the completion of Phase 2 to
complete the requirements in Phase 3. The Phase 3 minimum work and financial
program requires the following:
-
the undertaking of a minimum of US$300,000 in geological and geophysical
studies; and
34
-
the drilling of an exploration well to a depth of at least 3,000 meters at
a minimum cost of US$6,000,000.
The Phase 1 work program was commenced on December 26, 2007 and
to date the following work has been completed
.
Initial Petroleum Potential Evaluation
-
Seismic and geological interpretation based on existing Albpetrol and
COPAREX lines
Reprocessing
-
Reprocessing of key lines selected from Albpetrol and COPAREX (total 334km)
-
Integrating data into existing comprehensive database
-
Seismic & geological Interpretation
-
Prospect identification (West Rova & Papri new prospects identified and
reconfirmation of Rova, Sauku, Kamza, Kashari and Nikla prospects, previously
identified from COPAREX)
Mapping
2D New Seismic
-
Preparation of new seismic program on block E (min.105km)
The following expenditures have been claimed for cost recovery
since the effective date of the production sharing contract on Blocks D and E up
to December 31, 2009:
Description
|
|
Blocks D-E
|
|
Geological and geophysical work
|
$
|
615,354.17
|
|
Reprocessing
|
$
|
83,719.00
|
|
Seismic
|
$
|
41,539.01
|
|
Geological and
geophysical work
|
$
|
917,819.89
|
|
Total
|
$
|
1,658,432.07
|
|
35
Blocks 2 and 3
The production sharing contract for Blocks 2 and 3 require the
following minimum work and financial programs to maintain them in good
standing:
Phase 1 Minimum Work and Financial Program
Manas Adriatic has until July 30, 2012 to complete the
requirements in Phase 1. After Phase 1, Manas Adriatic has the option to either
continue pursuing or relinquish the exploration rights. The Phase 1 minimum work
and financial program requires the following:
-
the undertaking of a minimum of $400,000 in geological and geophysical
studies;
-
the re-processing of at least 150 kilometers of seismic data at a minimum
cost of $100,000; and
-
the drilling of an exploration well to a depth of at least 4,000 meters at
a minimum cost of $8,000,000.
Phase 2 Minimum Work and Financial Program
Manas Adriatic has two years from the completion of Phase 1 to
complete Phase 2. The Phase 2 minimum work and financial program requires the
following:
-
the undertaking of a minimum of $300,000 in geological and geophysical
studies; and
-
the drilling of an exploration well to a depth of at least 4,000 meters at
a minimum cost of $8,000,000.
Phase 3 Minimum Work and Financial Program
Manas Adriatic has two years from the completion of Phase 2 to
complete the requirements in Phase 3. The Phase 3 minimum work and financial
program requires the following:
-
the undertaking of a minimum of $300,000 in geological and geophysical
studies; and
-
the drilling of an exploration well to a depth of at least 4,000 meters at
a minimum cost of $8,000,000.
The Phase 1 work program was commenced on July 31, 2009 and to
date the following work has been completed.
Data Base:
-
Obtaining geologic, drilling, seismic data (Albpetrol and OXY)
-
Loading OXY 1998 and 2003 seismic data into system
Initial Petroleum Potential Evaluation
-
Seismic & geologic interpretation and Shpiragu south prospects
identification
Mapping
-
Prospects Time map generation (Shpiragu, block 2, Shpiragu south, block 3)
36
Volumetrics
-
Reserve calculation (DWM conservative case)
2D New Seismic
-
Preparation of 2D new seismic program 2010-11 (optimum 150km)
The following expenditures have been claimed for cost recovery
since the effective date of the production sharing contract on Blocks 2 and 3 up
to December 31, 2009:
Description
|
|
Blocks 2-3
|
|
Geological and geophysical work
|
$
|
26,046.72
|
|
Geological and
geophysical work
|
$
|
385,648.23
|
|
Total
|
$
|
411,694.95
|
|
Requirements Applicable to all of the
Licenses
The production sharing contracts governing each of the licenses
also include the following additional terms:
-
The Phase 1, Phase 2 and Phase 3 minimum work and financial programs will
be automatically extended for a period of time necessary to allow for: (i)
completion of drilling or testing of a well; and/or (ii) evaluation of results
from the drilling or testing of a well; provided that the evaluation period
will not exceed six months after the date drilling or testing ceases.
-
If Manas Adriatic elects to commence drilling of a Phase 1, Phase 2 or
Phase 3 exploration well and fails to timely commence drilling or after
commencing drilling abandons the well without having completed it or meeting
the minimum expenditures for that well, it must pay the Albanian National
Agency of Natural Resources the difference between the minimum expenditures
and the expenditures actually incurred.
-
If Manas Adriatic elects to conduct a Phase 2 or Phase 3 minimum work and
financial program, it must, within 180 days after the end of the previous
program, relinquish to the Albanian National Agency of Natural Resources 25%
of the License area, less any portion of the License area previously
relinquished.
-
Each production sharing contract provides for recovery of Manas Adriatics
costs and expenses, profit sharing with the Albanian National Agency of
Natural Resources ranging from nil to 15%, an allocation on production to the
Albanian National Agency of Natural Resources (ranging from 10% to 15% on
Blocks A, B, D and E and nil to 5% on Blocks 2 and 3), a 50% profits tax and,
on Blocks 2 and 3, a 10% royalty tax.
-
Each production sharing contract provides for payment of $100,000 per
contract year for training of Albanian National Agency of Natural Resources
personnel and purchase of technical data.
Plans for Future Work
Using the funds currently available to it resulting from the
private placement recently completed by Petromanas Energy Inc., we understand
that Manas Adriatic expects to complete the following business objectives:
37
-
Drill two wells to a maximum of 3,000 metres each.
-
Plan a seismic program and acquire a minimum of 105 kilometres of 2 D
seismic in Blocks D and E.
-
Reprocessing of seismic lines from previous exploration activities.
-
Perform geological and geophysical activities and provide final reports for
Blocks A, B, D and E.
-
Decide whether or not to conduct the Phase 2 minimum work and financial
program on Blocks A, B, D and E.
There are no known reserves on this property.
Tajikistan
On July 25, 2007, the Tajikistan government awarded our
subsidiary, CJSC Somon Oil Company, an exploration license in the Fergana Basin
covering approximately 303,198 acres (approximately 1,227 km
2
). This
license, the West (Novobod-Obchai-Kalacha) license, expires in October 2014. In
addition, on July 27, 2009, the Tajikistan government granted Somon Oil the
North-West petroleum license covering 615,748 acres (approximately 2,492
km
2
) of exploration area. This North-West license entitles Somon Oil
to explore the license area for a seven year term expiring in July 2016. In case
of discovery, Somon Oil has an exclusive right to explore on the discovered
field in the North-West license. We own 90% of Somon Oil, which was formed on
June 28, 2005, while Anavak LLC owns the remaining 10%.
In an option agreement with Santos International Ventures Pty
Ltd. dated December 10, 2007, Santos International agreed to pay an amount
equivalent to the seismic acquisition costs in the Tajik area (approximately
$1.3 million) in consideration for an option to farm-in to CJSC Somon Oils
prospecting licenses. Santos International has funded the entire amount of the
option premium. Under the terms of our option agreement, Santos had the right to
exercise the option until June 10, 2008, subject to extension if we had not
fulfilled certain obligations imposed on us. We have not yet fulfilled those
obligations and the right to exercise the option remains open until we do so. If
Santos International were to exercise its option to enter into a farm in
agreement, Santos would acquire a 70% interest in Somon from us in exchange for
certain future expenditure commitments for the exploration and development of
the licenses.
In connection with the option agreement, Somon Oil has entered
into a seismic agreement with Saratovneftegeofizika (referred to as SNG) under
which SNG was to carry out approximately 110 kilometers of 2D seismic
acquisition in Tajikistan. This agreement underlies the option agreement and was
designed to meet a condition set by the Tajik authorities, whereby the
North-West license was granted to Somon Oil after work has commenced for the
West licence. Consequently, the North-West license was granted to Somon Oil in
2009.
The West license contains a number of under-thrust leads and
prospects including the Khodja-Bakirgan which is several kilometers north of
South Petroleums South Tuzluk prospect in the Kyrgyz Republic. The West license
is also adjacent to the Niyazbek, North Karachikum oil field which is in
Tajikistan. We have no rights to production or reserves contained in oil fields
which already exist on the Novobod-Obchai-Kalacha license. Approximately 60% of
the block in the license is covered by former Soviet-era seismic data. Our
targeted leads and prospects are found within this area and the geological and
structural setting appears to be similar to South Petroleums Tuzluk block.
Seven prospects of a size similar to or larger than South Petroleums South
Tuzluk prospect have been seismically identified on the license.
The North-West license area is located in the north part of the
Sugd region, and borders with Uzbekistan and the Uzbek pipeline network. In the
south-west the license area is adjacent to Somon Oils West license areas
Novobod and Obchai-Kalacha. Existing exploration data within the
North-West license area contain 6 wells and 1,100 km of 2D seismic which was
acquired during Soviet exploration campaigns between 1964 and 1992. Somon Oil
targets large four-way closure prospects in the North-West license area at a
depth of 3.5 4.5 km. The seven year work program calls for 400 km of 2D
seismic, 100 km
2
of 3D seismic and 2 deep wells. Financing for the
exploration up to discovery is secured by the existing option farmout to Santos
International.
38
There are no known reserves on this property.
Operating Activities
Starting in late December 2007, operations across the border
into Tajikistan were conducted on the first of a number of seismic line
extensions with the aim of obtaining long receiver offset data to improve
imagery of the Tuzluk subthrust leads. This data will be available to South
Petroleum through a trade agreement with Somon Oil. A total of 123 km of 2D
seismic data were acquired in the Somon Oil block by the end of June 2008.
During the first quarter of 2009, we prepared a business plan
for the northern Tajik area and the report for carrying out the first phase 2D
seismic exploratory work. In October 2009 Somon Oil established an office in the
center of Khudjant City from which it can stage future field and seismic work.
In December 2009 Somon Oil signed an agreement with the company DANK
(Kazakhstan) for the realization of 230 km of 2D seismic acquisition work in
2010 within the Western license area. During 2009, Santos International paid an
amount of $760,752 in connection with the seismic program.
Mongolia
On April 21, 2009, our wholly-owned subsidiary DWM Petroleum AG
won a tender for Blocks 13 and 14 , following an extensive review process by the
Mongolian Government and Security Council and formal ratification by parliament
and signed two production contracts with the Petroleum Authority of Mongolia for
these blocks. After payment of fees, this represented the final step in
assigning these blocks for exploration and exploitation according to Mongolian
law.
On April 30, 2009, we formed Manasgobi Co. Ltd. as a
wholly-owned Mongolian subsidiary of DWM Petroleum AG to hold the license and to
fully operate our exploration in Mongolia. On November 12, 2009, we changed the
name of this company to Gobi Energy Partners LLC.
Through DWM Petroleum, we own a 84% interest in Blocks 13 and
14, which cover an aggregate of over 20,000 square kilometers (almost five
million acres) of land located on Mongolias southern border. The production
contracts provide for a five-year exploration period (with two optional six
month extensions allowed) beginning on April 21, 2009, and a twenty-year
exploitation period (with two five year extensions allowed). The remaining 16%
interest in Blocks 13 and 14 is held by a Mongolian oil and gas company and two
investors.
39
The financial and work commitment of each production sharing
contract for Blocks 13 and 14 is as follows:
Period
|
Contract
Year
|
THE WORK PLAN
|
Cost
|
Investment
per
year
|
I
|
1
|
Collection and processing of geological data
|
150,000
|
625,000
|
Reconnaissance of work of the block, 4000 km
|
40,000
|
Geological Mapping 500 km
2
|
50,000
|
Geological Mapping 100 km
2
|
30,000
|
Geologic structural sections 400 km
|
140,000
|
Lithologic-stratigraphical sections 1900m
|
95,000
|
Paleontologic stratigraphical works
|
40,000
|
Sampling 300
|
15,000
|
Laboratory analytical works
|
35,000
|
Data
Processing
|
30,000
|
II
|
2
|
Geological Mapping 850 km
2
|
85,000
|
825,000
|
Geological Mapping 400 km
2
|
120,000
|
Lithologic-stratigraphical sections 3200m
|
160,000
|
Paleontologic stratigraphical works
|
80,000
|
Sampling 800
|
40,000
|
Laboratory analytical works
|
75,000
|
Data
Processing
|
55,000
|
3
|
Data
Processing
|
15,000
|
1,740,000
|
Topographic geodesic works
|
50,000
|
Exploration seismology 2D, 200 km
|
1,600,000
|
Exploration seismology 3D, 5 km
|
75,000
|
III
|
4
|
Data
Processing
|
40,000
|
4,360,000
|
Topographic geodesic works
|
20,000
|
Exploration seismology 2D, 100 km
|
800,000
|
Exploration seismology 3D, 20 km
|
300,000
|
Preparation to drilling, well 1
|
30,000
|
Well
Drilling, 1 well
|
2,870,000
|
Log
survey, 1 well
|
300,000
|
III
|
5
|
Data
Processing
|
50,000
|
6,900,000
|
Preparation to drilling, well 2
|
60,000
|
Well
Drilling, 2 well
|
5,740,000
|
Log
survey, 1 well
|
600,000
|
Well
test, 3 well
|
450,000
|
|
|
TOTAL
|
|
14,450,000
|
There are no known reserves on this property.
Operating Activities
During 2009, our geologists supported by experts from the
Geological Institute of Israel, A.P. Karpinsky Russian Geological Research
Institute (St. Petersburg) and the University of Novosibirsk completed the Phase
1 field work program, defining structural trends with potential petroleum
accumulations. Based on these results and previous data we are currently
designing a seismic acquisition program. Also during 2009, we opened an office
in Ulan Bator, the capital of Mongolia. The office serves as a base camp for
geological expeditions within our blocks in Mongolia. Our geologists performed
several geological field trips within our Blocks 13 and 14.
40
By the end of December, 2009, we completed and over-fulfilled
our work commitment for both production sharing contracts for the first period
ending on April 21, 2010. Each contract comprised a minimum investment of
$625.000. As a consequence, a deposit of US$2 million was released and used to
pay back the loan with the Mongolian Trade and Development Bank.
Chile
On August 10, 2007, we created a consortium with Improved
Petroleum Recovery, a Texas company, with exploration and production operations
in North America, North Africa, the Middle East, and Southwest Asia. A joint
operating agreement signed on April 16, 2008 formalized the governance of the
consortium and the legal entity that will carry out its operations.
On November 21, 2007, the consortium was awarded a license to
explore and exploit the onshore Tranquilo block by Empresa Nacional del
Petróleo-Chile. The contract relating to this license was ratified by the
Council of Ministers in July 2008. The block, the largest among the 10
exploration blocks offered (6,760 km
2
) is situated in the Magallanes
Basin in the southern part of Chile, with high exploration potential acreage
with fields and infrastructure nearby. We incorporated Manas Energia Limitada, a
Chilean company, to hold the license. Improved Petroleum Recovery was the
designated operator.
The July 2008 contract relating to the license establishes
three exploration periods of three, two and two years, respectively, and a
production period of 25 years. We believe that the minimum exploration
commitment by the consortium in Phase I will be a minimum of $14,360,000, of
which we and Improved Petroleum Recovery each were responsible for half. We
anticipate that the total minimum outlay for the exploration project in Chile
will be $33,260,000. The obligations under the contract are substantially as
follows:
Phase 1, the first exploration phase (three years), consists of
a minimum work and financial program of:
-
shooting 370 km2 of 2D seismic at a minimum cost of $2,960,000;
-
shooting 160 km2 of 3D seismic at a minimum cost of $3,600,000; and
-
drilling six exploration wells at a total minimum cost of $7,800,000.
Phase 2, the second exploration phase (two years), consists of
a minimum work and financial program of:
-
shooting 370 km2 of 2D seismic;
-
shooting 220 km2 of 3D seismic; and
-
drilling four exploration wells at a total minimum cost of $10,200,000.
Phase 3, the third exploration phase (two years), consists of a
minimum work and financial program of:
-
shooting 150 km2 of 2D seismic at a minimum cost of $8,700,000;
-
shooting 150 km2 of 3D seismic; and
-
drilling four wells.
On April 29, 2008, Improved Petroleum Recovery and we entered
into a farm-out agreement with GeoPark Holdings Ltd. and Pluspetrol S.A. GeoPark
is a publicly traded Bermuda company (its shares trade on the AIM market of the
London Stock Exchange) with extensive oil and gas holdings in Chile, while
Pluspetrol is a privately owned oil and gas exploration company headquartered in
Argentina with oil and gas interests in Argentina, Peru, Bolivia and Chile.
Pursuant to the agreement, Improved Petroleum Recovery and we will each hold 20%
of the project and Geopark and Pluspetrol each hold 30%. An application for the
transfer of the shares to the ministry was made after the first operations meeting with the Chilean
ministry on August 26, 2008. A joint operating contract has been signed between
Improved Petroleum Recovery, Pluspetrol, Geopark and us, under which the
operatorship will be transferred from Improved Petroleum Recovery to Geopark.
Geopark is already operator for another petroleum block located in the
Magallanes basin.
41
Under the farm-out agreement we are carried for 8.6% and have
to fund the remaining 11.4% of the capital expenditures during the first phase
of work. We are responsible to finance our 20% share of all capital expenditures
exceeding $ 14,360,000 of the first phase.
There are no known reserves on this property.
Sale of Our Chilean Project
We have signed an agreement dated January 29, 2010, pursuant to
which we have agreed to assign our interest in our Chilean project in exchange
for a return of all of the money that we have invested in this project to date
and relief from all currently outstanding and future obligations in respect of
the project. This agreement and the assignment of our interest in this project
are subject to approval by the Ministry of Energy in Chile. If the Ministry of
Energy in Chile approves our agreement and the assignment of our interest in the
Tranquilo blocks, the partners involved on a go-forward basis will be Pluspetrol
Chile S.A. (as to a 25% interest), Wintershall Chile Limitada (as to a 25%
interest), International Finance Corporation of the World Bank (as to a 12.5%
interest), Methanex Chile S.A. (as to a 12.5% interest) and GeoPark Magallanes
Limitada (as to a 25% interest).
Operating Activities
In 2009, Geopark presented the final seismic program to
Improved Petroleum Recovery, Pluspetrol and us including a project plan for
phase 1, results of scouting with a seismic crew and geological interpretation
of the prospects. Geopark has performed a number of field trips. Geopark made a
tender for the 2D and 3D seismic acquisition project and the consortium selected
a seismic crew to perform a 370 km 2D seismic program and, depending upon the
results, additional 3D seismic. The seismic campaign is planned to commence in
the first quarter of 2010. Geopark reprocessed and reinterpreted the existing
1,428 km 2D seismic and evaluation of the existing wells to determine the
upcoming seismic and future drilling program was performed.
Competition
The oil and gas industry is intensely competitive. We compete
with numerous individuals and companies, including many major oil and gas
companies that have substantially greater technical, financial and operational
resources and staff. We compete with these individuals and companies for
desirable oil and gas leases, exploration and exploitation licenses, suitable
properties for drilling operations and necessary drilling equipment, as well as
for access to funds.
We believe several factors that differentiate us from our
competitors include our extensive personal network among public officials and
private employees in the oil and gas industry in the Commonwealth of Independent
States and the Balkan countries, an ability to increase value through
exploration of known structures and our command of modern geological knowledge
and new concepts implemented to existing seismic and well data bases.
Need for Government Approval
Our business depends on the approval of different governments
for various matters, including land tenure, prices, royalties, production rates,
environmental protection, income, the grant of exploration and exploitation
rights for oil and gas projects and the imposition of drilling obligations in
connection with these grants, and the exportation of crude oil, natural gas and
other products. Government regulations may change from time-to-time in response
to economic or political conditions. The exercise of discretion by governmental
authorities under existing regulations, the implementation of new regulations or
the modification of existing regulations affecting the oil and gas industry
could reduce demand for crude oil and natural gas, increase our costs and have a
material adverse impact on our operations. Before proceeding with a project, the
participants in the project must obtain all required regulatory approvals. The
process of obtaining these approvals can involve stakeholder consultation,
environmental impact assessments and public hearings, among other things. In
addition, regulatory approvals can involve conditions, including the payment of
security deposits and other financial commitments.
42
We have an interest in a venture that has licenses from the
Kyrgyzstan government for the exploration and possible exploitation on land
covering approximately 3,153 km
2
, we have an interest in a company
that has entered into production sharing contracts with an agency of the
Albanian government for the exploration and possible exploitation of land
covering approximately 3,100 km
2
, we have licenses from the
government of Tajikistan for the exploration of approximately 1,227 km
2
of land and we have licenses from the government of Mongolia for the
exploration and exploitation of land covering 20,957 km
2
.
We have signed an agreement dated January 29, 2010, pursuant to
which we have agreed to assign our interest in our Chilean project in exchange
for a return of all of the money that we have invested in this project to date
and relief from all currently outstanding and future obligations in respect of
the project. This agreement and the assignment of our interest in this project
are subject to approval by the Ministry of Energy in Chile.
Regulation
Our industry is affected by numerous laws and regulations,
including discharge permits for drilling operations, drilling and abandonment
bonds, reports concerning operations, the spacing of wells, pooling of
properties, taxation and other laws and regulations relating generally to the
energy industry. These laws and regulations vary according to where each project
is located. Changes in any of these laws and regulations or the denial or
vacating of permits and licenses could have a material adverse effect on our
business.
Our operations are in, and our focus will continue to be on,
operations in emerging markets. Generally, legal structures, codes and
regulations in emerging markets are not as well defined as they can be in more
developed markets and they are therefore more likely to change rapidly. In view
of the many uncertainties with respect to current and future laws and
regulations, including their applicability to us, we cannot predict the overall
effect of such laws and regulations on our future operations.
We believe that our operations currently comply in all material
respects with applicable laws and regulations. There are no pending or
threatened enforcement actions related to any such laws or regulations. We
believe that the existence and enforcement of such laws and regulations will
have no more restrictive effect on our operations than on other similar
companies in the energy industry.
Environmental Matters
We and the projects that we have invested in are subject to
national and local environmental laws and regulations relating to water, air,
hazardous substances and wastes, and threatened or endangered species that
restrict or limit our business activities for purposes of protecting human
health and the environment. Compliance with the multitude of regulations issued
by the appropriate administrative agencies can be burdensome and costly. We
believe that our operations currently comply in all material respects with
applicable national and local environmental laws and regulations.
Research and Development
Our business plan is focused on a strategy to maximize the
long-term exploration and development of our oil and gas projects. To date, the
execution of our business plan has largely focused on acquiring prospective oil
and gas licenses and negotiating production sharing and farm-out agreements, in
addition to some exploration work on our properties. Except in connection with
the exploration of our properties or the conduct of due diligence on properties
that we might be interested in acquiring, we do not conduct research and
development.
Employees
We have 28 full time employees, including our directors. Of our
28 employees, three are located in Switzerland and the rest are located in
Albania, Canada and Central Asia. Although we do not expect to increase our
number of employees over the next twelve months, we are not currently able to
predict if new employees will be employed in the coming twelve months. We
outsource contract employment as needed and will continue to do so.
43
Description of Property
Executive Offices and Registered Agent
Our principal business office is located at Bahnhofstrasse 9,
6341 Baar, Switzerland, where we have rented 300 square feet of office space for
approximately $848 per month (CHF900).
Until February 24, 2010, we maintained a branch office in
Albania located at Rruga: Ismail Qemali, Pallati 2K, Ap. 1&2, Kati i Trete
in Tirana, the capital of Albania. The office covers 4,026 square feet of office
space for approximately $3,726 per month (EUR2,600). We entered into a leasing
contract on September 1, 2007 for 12 months. The contract provides for automatic
extension on the same terms and conditions for two additional 12 month periods
covering September 1, 2008 to August 31, 2009 and September 1, 2009 to August
31, 2010, respectively. Effective February 24, 2010, Petromanas Energy Inc. and
Manas Adriatic GmbH took over the obligations for this office.
Our registered office for service in the State of Nevada is
located at Nevada Corporate Services, Inc., 8883 West Flamingo Road Suite 102,
Las Vegas. NV 89147. In addition, the offices of Velletta and Company, located
in Victoria, British Columbia, is our registered office in the Province of
British Columbia. Velletta and Companys address is 4th Floor 931 Fort Street,
Victoria, British Columbia, Canada V8V 3K3.
Oil and Gas Properties
For information regarding our oil and gas properties, see
Description of Business.
Legal Proceedings
We know of no material pending legal proceedings to which our
company or any of our subsidiaries is a party or of which any of our properties,
or the properties of any of our subsidiaries, is the subject. In addition, we do
not know of any such proceedings contemplated by any governmental
authorities.
We know of no material proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial stockholder
is a party adverse to our company or any of our subsidiaries or has a material
interest adverse to our company or any of our subsidiaries.
Market Price of and Dividends
on Our Common Equity
and Related Stockholder Matters
Market information
Our common stock is quoted on the OTC Bulletin Board of
Financial Industry Regulatory Authority and on the over the counter market of
Pink OTC Markets Inc. Quotations of our common stock on the OTC Bulletin Board
and on the Pink OTC Markets Inc. have been sporadic, and trading volume has been
low. Our symbol is MNAP, and our CUSIP number is 56176Q 10 2.
Set forth below are the range of high and low bid quotations
for the periods indicated as reported by the OTC Bulletin Board. The market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions
Quarter
Ended
|
High Bid
|
Low Bid
|
December 31, 2009
|
$0.71
|
$0.421
|
September 30, 2009
|
$0.80
|
$0.33
|
June 30, 2009
|
$1.00
|
$0.10
|
March 31, 2009
|
$0.25
|
$0.076
|
44
December 31, 2008
|
$0.70
|
$0.15
|
September 30, 2008
|
$0.88
|
$0.45
|
June 30, 2008
|
$1.85
|
$0.80
|
March 31, 2008
|
$2.95
|
$1.60
|
On April 1, 2010, the closing price for our common stock as reported
by the OTC Bulletin Board was $0.69 per share.
Transfer Agent
Our shares of common stock are issued in registered form. The
transfer agent and registrar for our common stock is Island Stock Transfer. Its
address is 100 First Avenue South, Suite 287, St. Petersburg, Florida 33701.
Holders of Common Stock
As of April 1, 2010, there were approximately 164 registered
holders of record of our common stock. As of such date, 119,879,699 shares were
issued and outstanding.
Dividends
The payment of dividends, if any, in the future, rests within
the sole discretion of our board of directors. The payment of dividends will
depend upon our earnings, our capital requirements and our financial condition,
as well as other relevant factors. We have not declared any cash dividends since
our inception and have no present intention of paying any cash dividends on our
common stock in the foreseeable future.
There are no restrictions in our articles of incorporation or
bylaws that prevent us from declaring dividends. The Nevada Revised Statutes,
however, do prohibit us from declaring dividends where, after giving effect to
the distribution of the dividend:
|
1.
|
We would not be able to pay our debts as they become due
in the usual course of business; or
|
|
|
|
|
2.
|
Our total assets would be less than the sum of our total
liabilities plus the amount that would be needed to satisfy the rights of
shareholders who have preferential rights superior to those receiving the
distribution.
|
45
Financial Statements
Financial Statements For the Years Ended December 31, 2009
and 2008
Report of Independent Registered Public Accounting
Firm
Report of Independent Registered Public Accounting
Firm
Consolidated Balance Sheets
Consolidated Statements of
Operations and Comprehensive Loss
Consolidated Cash Flow
Statements
Consolidated Statements of Shareholders Equity
(Deficit)
Notes to the Consolidated Financial Statements
46
Report of Independent Registered Public Accounting Firm
Board of Directors
Manas Petroleum Corporation (An
Exploration Stage Company)
We have audited the accompanying consolidated balance sheet of
Manas Petroleum Corporation (An Exploration Stage Company) as of December 31,
2009 and the related consolidated statements of operations and comprehensive
loss, statements of shareholders equity (deficit), and cash flow statements for
the year ended December 31, 2009 and the period from May 25, 2004 (date of
inception) to December 31, 2009. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit. We did not audit the
financial statements of Manas Petroleum Corporation for the period from
inception to December 31, 2008. Such statements are included in the cumulative
inception to December 31, 2009 totals of the statements of operations and cash
flows and reflect total revenues and net losses of 100% and 67%, respectively of
the related cumulative totals. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
amounts for the period from inception to December 31, 2008, included in the
cumulative totals, is based solely on the report of the other auditors.
We conducted our audit 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. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included 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 Companys 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 audit and the
report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Manas Petroleum
Corporation at December 31, 2009 , and the results of its operations and its
cash flows for the year ended December 31, 2009 and the period from May 25, 2004
(date of inception) to December 31, 2009
,
in conformity with accounting
principles generally accepted in the United States of America.
As more fully disclosed in Note 9 to the consolidated financial
statements, effective January 1, 2009, the Company changed its method of
accounting for certain warrants with the adoption of new guidance on determining
whether an instrument is indexed to an entitys own stock.
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 and
negative cash flows from operations that raise substantial doubt about its
ability to continue as a going concern. Managements plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Zurich, March 17, 2010
|
|
BDO Visura International
|
|
/s/ Andreas Wyss
|
/s/ Christoph Tschumi
|
Andreas Wyss
|
Christoph Tschumi
|
Auditor in Charge
|
|
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Stockholders of
MANAS PETROLEUM CORPORATION
We have audited the accompanying consolidated balance sheets of
Manas Petroleum Corporation (an exploration stage company) and its subsidiaries
(the Company) as of December 31, 2008, and the related consolidated statements
of operations, cash flows and changes in shareholders equity/(deficit) for the
year ended December 31, 2008, and for the period from May 25, 2004 (date of
inception) to December 31, 2008 (not presented herein). These consolidated
financial statements are the responsibility of Companys management. Our
responsibility is to express an opinion on these consolidated 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. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits include 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 Companys internal control over financial
reporting. Accordingly, we express no such opinion. 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 the 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, such consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of
December 31, 2008, and the results of its operations and its cash flows for the
year ended December 31, 2008, and for the period from May 25, 2004 (date of
inception) to December 31, 2008 (not presented herein), in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The Company
is a development stage enterprise engaged in exploration and development of oil
and gas resources. As discussed in Note 2 to the consolidated financial
statements, the Companys lack of operating revenues, operating losses since
inception and need to raise additional funds raises substantial doubt about its
ability to continue as a going concern. Managements plans concerning these
matters are also described in Note 2 to the financial statements. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Deloitte AG
/s/ Roland Müller
|
/s/ Cameron Walls
|
|
|
Roland Müller
|
Cameron Walls
|
Auditor in charge
|
|
|
|
Zurich, Switzerland
|
|
April 15, 2009 (July 21, 2009 as to the effects of
|
|
the restatement discussed in Note 23)
|
|
48
MANAS PETROLEUM CORPORATION
|
|
|
|
|
|
|
(AN EXPLORATION STAGE COMPANY)
|
|
|
|
|
|
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.31.2009
|
|
|
12.31.2008
|
|
|
|
USD
|
|
|
USD
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
804'663
|
|
|
225'993
|
|
Restricted cash
|
|
908'888
|
|
|
7'951'784
|
|
Accounts receivable
|
|
60'611
|
|
|
96'339
|
|
Prepaid expenses
|
|
450'372
|
|
|
165'632
|
|
Total current assets
|
|
2'224'534
|
|
|
8'439'748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
|
112'619
|
|
|
254'311
|
|
Tangible fixed assets
|
|
178'191
|
|
|
231'245
|
|
Investment in associate
|
|
238'304
|
|
|
238'304
|
|
Total non-current assets
|
|
529'114
|
|
|
723'860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
2'753'648
|
|
|
9'163'608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
610'581
|
|
|
1'047'315
|
|
Bank overdraft
|
|
196'154
|
|
|
-
|
|
Bank loan
|
|
-
|
|
|
1'220'000
|
|
Short-term loan
|
|
917'698
|
|
|
-
|
|
Promissory notes to shareholders
|
|
540'646
|
|
|
-
|
|
Contingently convertible loan
|
|
1'886'905
|
|
|
-
|
|
Debentures
|
|
3'887'179
|
|
|
-
|
|
Warrant liability
|
|
683'305
|
|
|
-
|
|
Accrued expenses Exploration costs
|
|
713'992
|
|
|
120'000
|
|
Accrued expenses Professional fees
|
|
220'449
|
|
|
259'129
|
|
Accrued expenses Interest
|
|
82'749
|
|
|
98'678
|
|
Accrued expenses Commissions
|
|
-
|
|
|
70'000
|
|
Other accrued
expenses
|
|
13'673
|
|
|
122'066
|
|
Total current liabilities
|
|
9'753'331
|
|
|
2'937'188
|
|
|
|
|
|
|
|
|
Participation liabilities
|
|
-
|
|
|
640'000
|
|
Promissory notes to shareholders
|
|
-
|
|
|
540'646
|
|
Contingently convertible loan
|
|
|
|
|
1'739'178
|
|
Debentures
|
|
|
|
|
3'448'540
|
|
Pension liabilities
|
|
29'504
|
|
|
43'867
|
|
Total
non-current liabilities
|
|
29'504
|
|
|
6'412'231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
9'782'835
|
|
|
9'349'419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock (300,000,000 shares authorized, USD 0.001 par
value,
119'051'733 and 119'051'733 shares, respectively, issued and
outstanding)
|
|
119'052
|
|
|
119'052
|
|
Additional paid-in capital
|
|
49'532'367
|
|
|
43'852'378
|
|
Deficit accumulated during the exploration stage
|
|
(56'731'607
|
)
|
|
(44'200'563
|
)
|
Accumulated other comprehensive income /
(loss)
|
|
|
|
|
|
|
Currency
translation adjustment
|
|
51'001
|
|
|
43'322
|
|
Total shareholders' deficit
|
|
(7'029'187
|
)
|
|
(185'811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' DEFICIT
|
|
2'753'648
|
|
|
9'163'608
|
|
49
MANAS PETROLEUM CORPORATION
|
|
|
|
|
|
|
|
|
|
(AN EXPLORATION STAGE COMPANY)
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
|
|
|
|
For the year ended
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
05.25.2004
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
12.31.2009
|
|
|
12.31.2008
|
|
|
12.31.2009
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
OPERATING
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
-
|
|
|
635'318
|
|
|
1'375'728
|
|
Total
revenues
|
|
-
|
|
|
635'318
|
|
|
1'375'728
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
(5'586'429
|
)
|
|
(10'476'663
|
)
|
|
(22'057'227
|
)
|
Exploration costs
|
|
(1'067'986
|
)
|
|
(4'649'549
|
)
|
|
(7'092'517
|
)
|
Depreciation
|
|
(67'687
|
)
|
|
(52'877
|
)
|
|
(167'196
|
)
|
Consulting fees
|
|
(1'109'121
|
)
|
|
(3'052'920
|
)
|
|
(7'894'120
|
)
|
Administrative
costs
|
|
(1'670'678
|
)
|
|
(2'724'471
|
)
|
|
(11'887'708
|
)
|
Total operating expenses
|
|
(9'501'901
|
)
|
|
(20'956'481
|
)
|
|
(49'098'768
|
)
|
|
|
|
|
|
|
|
|
|
|
Gain from sale of investment
|
|
-
|
|
|
-
|
|
|
3'864'197
|
|
Loss from sale of
investment
|
|
-
|
|
|
-
|
|
|
(900
|
)
|
OPERATING LOSS
|
|
(9'501'901
|
)
|
|
(20'321'162
|
)
|
|
(43'859'743
|
)
|
|
|
|
|
|
|
|
|
|
|
NON-OPERATING INCOME / (EXPENSE)
|
|
|
|
|
|
|
|
|
|
Exchange differences
|
|
164'937
|
|
|
64'799
|
|
|
145'145
|
|
Changes in fair value of warrants
|
|
(10'974'312
|
)
|
|
-
|
|
|
(10'974'312
|
)
|
Warrants issuance
expense
|
|
-
|
|
|
(9'439'775
|
)
|
|
(9'439'775
|
)
|
Interest income
|
|
93'565
|
|
|
160'556
|
|
|
597'471
|
|
Interest expense
|
|
(1'395'903
|
)
|
|
(758'657
|
)
|
|
(2'236'200
|
)
|
Loss before taxes and equity in net loss of
associate
|
|
(21'613'614
|
)
|
|
(30'294'240
|
)
|
|
(65'767'413
|
)
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
(4'401
|
)
|
|
(1'867
|
)
|
|
(7'941
|
)
|
Equity in net loss
of associate
|
|
-
|
|
|
-
|
|
|
(24'523
|
)
|
Net loss
|
|
(21'618'015
|
)
|
|
(30'296'106
|
)
|
|
(65'799'877
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income / (loss) attributable to non-controlling
interest
|
|
-
|
|
|
-
|
|
|
(18'700
|
)
|
Net loss
attributable to Manas
|
|
(21'618'015
|
)
|
|
(30'296'106
|
)
|
|
(65'818'577
|
)
|
|
|
|
|
|
|
|
|
|
|
Currency
translation adjustment attributable to Manas
|
|
7'679
|
|
|
(13'212
|
)
|
|
51'001
|
|
Net comprehensive loss attributable to Manas
|
|
(21'610'336
|
)
|
|
(30'309'318
|
)
|
|
(65'767'576
|
)
|
Net comprehensive
loss attributable to non-controlling interest
|
|
-
|
|
|
-
|
|
|
18'700
|
|
Net comprehensive loss
|
|
(21'610'336
|
)
|
|
(30'309'318
|
)
|
|
(65'748'876
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of outstanding shares (basic)
|
|
119'051'733
|
|
|
114'856'922
|
|
|
107'623'556
|
|
Basic earnings
/ (loss) per share attributable to Manas
|
|
(0.18
|
)
|
|
(0.26
|
)
|
|
(0.61
|
)
|
50
MANAS PETROLEUM CORPORATION
|
|
|
|
|
|
|
|
|
|
(AN EXPLORATION STAGE COMPANY)
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED CASH FLOW STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
05.25.2004
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
12.31.2009
|
|
|
12.31.2008
|
|
|
12.31.2009
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(21'618'015
|
)
|
|
(30'296'106
|
)
|
|
(65'799'877
|
)
|
|
|
|
|
|
|
|
|
|
|
To reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
Gain from sale of investment
|
|
-
|
|
|
-
|
|
|
(3'864'197
|
)
|
Loss from sale of investment
|
|
-
|
|
|
-
|
|
|
900
|
|
Equity in net loss of associate
|
|
-
|
|
|
-
|
|
|
24'523
|
|
Depreciation
|
|
67'687
|
|
|
52'877
|
|
|
167'196
|
|
Amortization of debt issuance costs
|
|
141'692
|
|
|
95'599
|
|
|
237'291
|
|
Warrant issuance expense / (income)
|
|
10'974'312
|
|
|
9'439'775
|
|
|
20'414'087
|
|
(Decrease) / increase in participation
liabilities
|
|
(640'000
|
)
|
|
640'000
|
|
|
640'000
|
|
Exchange differences
|
|
(164'936
|
)
|
|
(64'799
|
)
|
|
(145'144
|
)
|
Interest expense on contingently
convertible loan
|
|
147'727
|
|
|
59'178
|
|
|
206'905
|
|
Interest expense on debentures
|
|
438'639
|
|
|
246'529
|
|
|
685'168
|
|
Stock-based compensation
|
|
4'475'953
|
|
|
9'790'874
|
|
|
21'512'116
|
|
Decrease / (increase) in receivables and prepaid expenses
|
|
(249'012
|
)
|
|
12'298
|
|
|
(505'789
|
)
|
Decrease / (increase) in other non-current
assets
|
|
-
|
|
|
62'279
|
|
|
-
|
|
(Decrease) / increase in accounts payables
|
|
(436'734
|
)
|
|
937'159
|
|
|
74'259
|
|
(Decrease) / increase in accrued expenses
|
|
426'220
|
|
|
(642'165
|
)
|
|
954'671
|
|
Change in pension
liability
|
|
(14'363
|
)
|
|
43'867
|
|
|
29'504
|
|
Cash flow (used in)/from operating activities
|
|
(6'450'830
|
)
|
|
(9'622'635
|
)
|
|
(25'368'387
|
)
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of tangible fixed assets and
computer software
|
|
(14'633
|
)
|
|
(131'048
|
)
|
|
(424'429
|
)
|
Sale of tangible
fixed assets and computer software
|
|
-
|
|
|
-
|
|
|
79'326
|
|
Proceeds from sale of investment
|
|
-
|
|
|
-
|
|
|
4'000'000
|
|
Decrease / (increase) restricted cash
|
|
7'042'896
|
|
|
(7'951'784
|
)
|
|
(908'888
|
)
|
Acquisition of investment in associate
|
|
-
|
|
|
-
|
|
|
(67'747
|
)
|
Cash flow (used
in)/from investing activities
|
|
7'028'263
|
|
|
(8'082'833
|
)
|
|
2'678'262
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution share capital founders
|
|
-
|
|
|
-
|
|
|
80'019
|
|
Issuance of units
|
|
-
|
|
|
1'849'429
|
|
|
15'057'484
|
|
Issuance of contingently convertible loan
|
|
-
|
|
|
1'680'000
|
|
|
1'680'000
|
|
Issuance of debentures
|
|
-
|
|
|
3'760'000
|
|
|
3'760'000
|
|
Issuance of promissory notes to shareholders
|
|
-
|
|
|
540'646
|
|
|
540'646
|
|
Issuance of warrants
|
|
-
|
|
|
670'571
|
|
|
670'571
|
|
Cash arising on recapitalization
|
|
-
|
|
|
-
|
|
|
6'510
|
|
Shareholder loan repaid
|
|
-
|
|
|
(39'329
|
)
|
|
(3'385'832
|
)
|
Shareholder loan raised
|
|
-
|
|
|
-
|
|
|
4'653'720
|
|
Repayment of bank loan
|
|
(2'520'000
|
)
|
|
-
|
|
|
(2'520'000
|
)
|
Increase in bank loan
|
|
1'300'000
|
|
|
1'220'000
|
|
|
2'520'000
|
|
Increase in short-term loan
|
|
917'698
|
|
|
-
|
|
|
917'698
|
|
Payment of debt issuance costs
|
|
-
|
|
|
(279'910
|
)
|
|
(279'910
|
)
|
(Decrease) / increase in bank overdraft
|
|
196'154
|
|
|
(2'305
|
)
|
|
196'154
|
|
Cash flow (used
in)/from financing activities
|
|
(106'148
|
)
|
|
9'399'102
|
|
|
23'897'060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
471'285
|
|
|
(8'306'366
|
)
|
|
1'206'935
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning
of the period
|
|
225'993
|
|
|
8'480'771
|
|
|
-
|
|
Currency translation effect on cash and cash equivalents
|
|
107'385
|
|
|
51'588
|
|
|
237'729
|
|
Cash and cash equivalents at the end of the period
|
|
804'663
|
|
|
225'993
|
|
|
804'663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplement schedule of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
Forgiveness of debt by major shareholder
|
|
-
|
|
|
-
|
|
|
1'466'052
|
|
Deferred consideration for interest in CJSC South Petroleum
Co.
|
|
-
|
|
|
-
|
|
|
193'003
|
|
Warrants issued to pay placement commission
expenses
|
|
-
|
|
|
-
|
|
|
2'689'910
|
|
Debenture interest paid in common shares
|
|
-
|
|
|
213'479
|
|
|
213'479
|
|
51
MANAS PETROLEUM CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(AN EXPLORATION STAGE COMPANY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY / (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during the
|
|
|
Other Compre-
|
|
|
Total share-
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
development
|
|
|
hensive Income
|
|
|
holders' equity
|
|
SHAREHOLDERS'
EQUITY / (DEFICIT)
|
|
Shares
|
|
|
Share Capital
|
|
|
paid-in capital
|
|
|
stage
|
|
|
(Loss)
|
|
|
/
(deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance May 25, 2004
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Contribution share capital from founders
|
|
80'000'000
|
|
|
80'000
|
|
|
19
|
|
|
-
|
|
|
-
|
|
|
80'019
|
|
Currency translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(77'082
|
)
|
|
(77'082
|
)
|
Net loss for the period
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(601'032
|
)
|
|
-
|
|
|
(601'032
|
)
|
Balance December 31, 2004
|
|
80'000'000
|
|
|
80'000
|
|
|
19
|
|
|
(601'032
|
)
|
|
(77'082
|
)
|
|
(598'095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January
1, 2005
|
|
80'000'000
|
|
|
80'000
|
|
|
19
|
|
|
(601'032
|
)
|
|
(77'082
|
)
|
|
(598'095
|
)
|
Currency translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
218'699
|
|
|
218'699
|
|
Net loss for the
year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1'993'932
|
)
|
|
-
|
|
|
(1'993'932
|
)
|
Balance December 31, 2005
|
|
80'000'000
|
|
|
80'000
|
|
|
19
|
|
|
(2'594'964
|
)
|
|
141'617
|
|
|
(2'373'328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2006
|
|
80'000'000
|
|
|
80'000
|
|
|
19
|
|
|
(2'594'964
|
)
|
|
141'617
|
|
|
(2'373'328
|
)
|
Forgiveness of debt by major shareholder
|
|
-
|
|
|
-
|
|
|
1'466'052
|
|
|
-
|
|
|
-
|
|
|
1'466'052
|
|
Currency translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(88'153
|
)
|
|
(88'153
|
)
|
Net income for the year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1'516'004
|
|
|
-
|
|
|
1'516'004
|
|
Balance
December 31, 2006
|
|
80'000'000
|
|
|
80'000
|
|
|
1'466'071
|
|
|
(1'078'960
|
)
|
|
53'464
|
|
|
520'575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2007
|
|
80'000'000
|
|
|
80'000
|
|
|
1'466'071
|
|
|
(1'078'960
|
)
|
|
53'464
|
|
|
520'575
|
|
Recapitalization
transaction (Note 1)
|
|
20'110'400
|
|
|
20'110
|
|
|
(356'732
|
)
|
|
-
|
|
|
-
|
|
|
(336'622
|
)
|
Stock-based compensation
|
|
880'000
|
|
|
880
|
|
|
7'244'409
|
|
|
-
|
|
|
-
|
|
|
7'245'289
|
|
Private placement
of Units, issued for cash
|
|
10'330'152
|
|
|
10'330
|
|
|
9'675'667
|
|
|
-
|
|
|
-
|
|
|
9'685'997
|
|
Private placement of Units
|
|
10'709
|
|
|
11
|
|
|
(11
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Private placement of Units, issued for cash
|
|
825'227
|
|
|
825
|
|
|
3'521'232
|
|
|
-
|
|
|
-
|
|
|
3'522'057
|
|
Currency translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3'069
|
|
|
3'069
|
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(12'825'496
|
)
|
|
-
|
|
|
(12'825'496
|
)
|
Balance December 31, 2007
|
|
112'156'488
|
|
|
112'156
|
|
|
21'550'636
|
|
|
(13'904'456
|
)
|
|
56'533
|
|
|
7'814'870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January
1, 2008
|
|
112'156'488
|
|
|
112'156
|
|
|
21'550'636
|
|
|
(13'904'456
|
)
|
|
56'533
|
|
|
7'814'870
|
|
Stock-based compensation
|
|
2'895'245
|
|
|
2'895
|
|
|
9'787'978
|
|
|
-
|
|
|
-
|
|
|
9'790'874
|
|
Private placement of Units, issued for cash
|
|
4'000'000
|
|
|
4'000
|
|
|
1'845'429
|
|
|
-
|
|
|
-
|
|
|
1'849'429
|
|
Issuance of warrants
|
|
-
|
|
|
-
|
|
|
10'110'346
|
|
|
-
|
|
|
-
|
|
|
10'110'346
|
|
Beneficial Conversion Feature
|
|
-
|
|
|
-
|
|
|
557'989
|
|
|
-
|
|
|
-
|
|
|
557'989
|
|
Currency translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(13'212
|
)
|
|
(13'212
|
)
|
Net loss for the period
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(30'296'106
|
)
|
|
-
|
|
|
(30'296'106
|
)
|
Balance December 31, 2008
|
|
119'051'733
|
|
|
119'052
|
|
|
43'852'378
|
|
|
(44'200'563
|
)
|
|
43'322
|
|
|
(185'811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January
1, 2009
|
|
119'051'733
|
|
|
119'052
|
|
|
43'852'378
|
|
|
(44'200'563
|
)
|
|
43'322
|
|
|
(185'811
|
)
|
Adoption of ASC 815-40
|
|
-
|
|
|
-
|
|
|
(9'679'775
|
)
|
|
9'086'971
|
|
|
-
|
|
|
(592'804
|
)
|
Reclassification warrants
|
|
-
|
|
|
-
|
|
|
10'883'811
|
|
|
-
|
|
|
-
|
|
|
10'883'811
|
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
4'475'953
|
|
|
-
|
|
|
-
|
|
|
4'475'953
|
|
Currency translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7'679
|
|
|
7'679
|
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(21'618'015
|
)
|
|
-
|
|
|
(21'618'015
|
)
|
Balance
December 31, 2009
|
|
119'051'733
|
|
|
119'052
|
|
|
49'532'367
|
|
|
(56'731'607
|
)
|
|
51'001
|
|
|
(7'029'187
|
)
|
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years
ended December 31, 2009 and 2008
1. CORPORATE INFORMATION
The consolidated financial statements of Manas Petroleum
Corporation (Manas or the Company) and its subsidiaries (collectively, the
Group) for the year ended December 31, 2009 and 2008 and the period from May
25, 2004 (inception) to December 31, 2009, were authorized for issue by a
majority of directors. In terms of the oil and gas industry lifecycle, the
Company considers itself to be an exploration stage company. Since it has not
realized any revenues from its planned principal operations, the Company
presents its financial statements in conformity with accounting principles
generally accepted in the United States of America (US GAAP) that apply in
establishing operating enterprises, i.e. development stage companies. As an
exploration stage enterprise, the Company discloses the deficit accumulated
during the exploration stage and the cumulative statements of operations and
cash flows from inception to the current balance sheet date.
The Company, formerly known as Express Systems Corporation, was
incorporated in the State of Nevada on July 9, 1998. The Group has a focused
strategy on exploration and developing oil and gas resources in Central Asia
(Kyrgyz Republic and subsidiary in Republic of Tajikistan), in the Balkan Region
(subsidiary in Albania) as well as in Latin America (subsidiary in Chile).
On April 10, 2007, the Company completed the Exchange
Transaction whereby it acquired its then sole subsidiary DWM Petroleum AG, Baar
(DWM Petroleum) pursuant to an exchange agreement signed in November 2006
whereby 100% of the shares of DWM Petroleum were exchanged for 80,000,000 common
shares of the Company. As part of the closing of this exchange transaction, the
Company issued 800,000 shares as finders fees at the closing price of
$3.20.
The acquisition of DWM Petroleum was accounted for as a merger
of a private operating company into a non-operating public shell. Consequently,
the Company is the continuing legal registrant for regulatory purposes and DWM
Petroleum is treated as the continuing accounting acquirer for accounting and
reporting purposes. The assets and liabilities of DWM Petroleum remained at
historic cost. Under US GAAP in transactions involving the merger of a private
operating company into a non-operating public shell, the transaction is
equivalent to the issuance of stock by DWM Petroleum for the net monetary assets
of the Company, accompanied by a recapitalization. The accounting is identical
to a reverse acquisition, except that no goodwill or other intangibles are
recorded.
2. GOING CONCERN
The consolidated financial statements have been prepared on the
assumption that the Group will continue as a going concern. The Group has
historically incurred losses and it incurred a loss of $21,618,015 for the year
ended December 31, 2009. Because we have no operating revenues, the Group will
require additional working capital to develop its business operations. The cash
balance as of December 31, 2009 was $1,713,551, of which $908,888 had been
restricted for a bank guarantee for the first phase of the work program in
Albania (covering the seismic and geological and geographical (G&G) costs
in Albania), leaving an available balance of $804,663.
On November 19, 2009 we entered into a binding letter of intent
with WWI Resources Ltd., a TSX Venture Exchange listed company, pursuant to
which we will sell all of the shares of one of our wholly-owned subsidiaries in
exchange for a minimum of 100,000,000 common shares of WWI and a signing bonus
in cash. To ensure funding for our Albanian short-term operations WWI has
advanced $917,698, which were available to our Company on December 3, 2009.
On February 24, 2010, DWM, a wholly-owned subsidiary of the
Company, successfully completed the sale of DWMs subsidiary holding the
Albanian asset, Manas Adriatic GmbH, to Petromanas Energy Inc. (TSXV: PMI,
former WWI Resources Ltd.). In turn, DWM receives 100,000,000 common shares of
Petromanas (approximately 30% of Petromanas), a consideration of $2,000,000 and
loans previously made from DWM to Manas Adriatic GmbH of approximately
$8,500,000 are reimbursed to DWM. Further, another 100,000,000 common shares are
issued to DWM on the earlier of June 23, 2011 and the completion of the first
well on the Licenses by Manas Adriatic, and another 50,000,000 common shares
issuable to DWM upon the satisfaction of certain performance goals. Assuming DWM
acquired the additional 150,000,000 common shares it would hold 250,000,000
common shares representing approximately 52% of Petromanas.
53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
Based on our expected monthly burn rate of $190,000 on basic
operation activities, the Group estimates that it has sufficient working capital
to fund operations for nine months from March 2010. In order to continue to fund
operations through April 2011 and execute the strategy to develop its assets,
the Group will require further funds. It expects to secure these additional
funds through possible disposals or farm-outs of its existing interests and the
Group is currently in active negotiations with interested parties for such
transactions.
On March 4, 2010, we obtained additional financing of
$10,500,000 from external sources, relating to the sale of the Albanian asset.
Based on our business plan, we will need additional funding from external
sources of at least $750,000 to cover our annual burn rate and minimum
commitments for the next 12 months through April 2011.
The Group intends to raise additional working capital through
private placements, public offerings, bank financing and/or advances from
related parties or shareholder loans as well as limit its financial obligations
by farming-out projects to third parties. During 2008, the Group intended to
float additional shares on the TSX Venture Exchange in Toronto, Canada. It still
plans to do so, however, given the turbulence in the global equity markets, it
now anticipates that the planned financing on the TSX will be postponed until
late 2010.
The continuation of business is dependent upon obtaining such
further financing. The issuance of additional equity securities could result in
a significant dilution in the equity interests of current or future
stockholders. Obtaining commercial loans, assuming those loans would be
available, will increase liabilities and future cash commitments.
There are no assurances that the Group will be able to complete
the disposals or farm-outs of its existing interests or to obtain additional
financing through either private placement, public offerings and/or bank
financing necessary to support its working capital requirements. Nevertheless
after making enquiries, and considering the uncertainties above, the directors
have a reasonable expectation that the Group will have adequate resources to
continue in operations for the foreseeable future.
These conditions raise substantial doubt about the Groups
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 be
necessary should it be unable to continue as a going concern.
3. ACCOUNTING POLICIES
The Groups Consolidated Financial Statements are prepared in
accordance with accounting principles generally accepted in the United States of
America (US GAAP). The preparation of financial statements in conformity with US
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities and disclosures, if any, of contingent
assets and liabilities at the date of the financial statements. Actual results
could differ from these estimates.
Scope of consolidation
The consolidated financial statements include Manas Petroleum
Corporation and all companies which Manas Petroleum Corporation directly or
indirectly controls (over 50% of voting interest). The companies included in the
consolidation are listed in Note 15.
Investments in which the Company exercises significant
influence, but not control (generally 20% to 50% ownership) are accounted for
using the equity method. The Groups share of earnings or losses is included in
consolidated net income and the Groups share of the net assets is included in
long-term assets.
Principles of consolidation
The annual closing date of the individual financial statements
is December 31, with all cost and income items being reported in the period to
which they relate. Intercompany income and expenses, including unrealized gross
profits from internal Group transactions and intercompany receivables, payables
and loans, have been eliminated.
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
Companies acquired or divested in the course of the year are
included in the consolidated financial statements as of the date of purchase
respectively up to the date of sale.
Non-controlling interests in the net assets of consolidated
subsidiaries are reported as equity. The amount of net income attributable to
the non-controlling interest is identified in the consolidated statements of
operations and comprehensive loss.
Foreign currency translation
The consolidated financial statements of the Group are
presented in US dollars (USD or $). The parent Companys functional currency
is the US dollar. Transactions in currencies other than the book currency are
recorded using the appropriate exchange rate at the time of the transaction.
The functional currency for all of our consolidated
subsidiaries is US dollar. For our subsidiary in Tajikistan that keeps its books
in a currency other than US dollars, the company remeasures the Tajik financials
as follows: Monetary assets and liabilities are translated using the balance
sheet period-end date, while for the non-monetary assets and liabilities the
historical rate is used. Expenses are translated using the average rate for the
reporting period, except for depreciation and amortization, where the historical
rate of the related asset or liability applies. Foreign currency translation
gains and losses are reported on the statement of operations.
Concentrations of Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash and cash equivalents. Cash and
cash equivalents are maintained with several financial institutions. Deposits
held with banks may exceed the amount of insurance provided on such deposits.
Generally these deposits may be redeemed upon demand. Cash and cash equivalents
are subject to currency exchange rate fluctuations.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments
with original maturities of three months or less (petty cash, bank balances and
fiduciary deposits).
Accounts receivable and prepaid expenses
This position includes receivables from third parties, value
added taxes, withholding taxes, loans to employees, prepaid expenses for goods
and services not yet received as well as income from the current year that will
not be received until the following year. The carrying amount of these assets
approximates their fair value. There is currently no reserve for bad debt.
Tangible fixed assets, computer software and
depreciation
Tangible fixed assets (office equipment, vehicles and
furniture) and computer software are recorded at cost and are depreciated on a
straight-line basis over the following estimated useful lives:
Office equipment
|
4
years
|
Vehicles
|
5
years
|
Furniture
|
5
years
|
Computer software
|
2
years
|
Tangible fixed assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. The carrying value of a long-lived asset or asset
group is considered to be impaired when the undiscounted expected cash flows
from the asset or asset group are less than its carrying amount. In that event,
an impairment loss is recognized to the extent that the carrying value exceeds
its fair value. Fair value is determined based on quoted market prices, where
available, or is estimated as the present value of the expected future cash
flows from the asset or asset group discounted at a rate commensurate with the
risk involved.
55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years
ended December 31, 2009 and 2008
Leased assets
Rentals payable under operating leases are charged to the
income statement on a straight line basis.
Current liabilities
Current liabilities include current or renewable liabilities
due within a maximum period of one year. Current liabilities are carried at
their nominal value, which approximates fair market value. Exceptions are the
Contingently Convertible Loan and the Debenture which were initially recorded at
fair value and are subsequently carried at amortized cost and the warrant
liability, which is carried at fair value.
Valuation of Freestanding Warrants
ASC 815 (
Prior authoritative literature:
FAS 133,
Accounting for Derivative Instruments and Hedging Activities
) requires
measurement of free standing warrants classified as liability at fair value. In
determining the appropriate fair value, the Company used a Black Scholes model.
These warrants are adjusted to reflect fair value at each period end, with any
increase or decrease in the fair value being recorded in results of operations
as change in fair value of warrants.
Fair Value of Financial Instruments
The Companys financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable, bank loan/overdraft,
short-term loan, warrant liability, contingently convertible loan, debentures
and promissory notes to shareholders. The fair value of these financial
instruments approximate their carrying value due to the short maturities of
these instruments, unless otherwise noted.
Non-current liabilities
Non-current liabilities include all known liabilities as per
year end, which can reliably be quantified with a due date of at least one year
after the date of the balance sheet.
Income taxes
Taxes on income are accrued in the same period as the revenues
and expenses to which they relate.
Deferred taxes are calculated on the temporary differences that
arise between the tax base of an asset or liability and its carrying value in
the balance sheet of the Group companies prepared for consolidation purposes,
with the exception of temporary differences arising on investments in foreign
subsidiaries where the Group has plans to permanently reinvest profits into the
foreign subsidiaries.
Deferred tax assets on tax loss carry-forwards are only
recognized to the extent that it is more likely than not that future profits
will be available and the tax loss carry-forward can be utilized.
Changes to tax laws or tax rates enacted at the balance sheet
date are taken into account in the determination of the applicable tax rate
provided that they are likely to be applicable in the period when the deferred
tax assets or tax liabilities are realized.
The Group is required to pay income taxes in a number of
countries. Significant judgment is required in determining income tax provisions
and in evaluating tax positions.
The Group recognizes the benefit of uncertain tax positions in
the financial statements when it is more likely than not that the position will
be sustained on examination by the tax authorities. The benefit recognized is
the largest amount of tax benefit that is greater than 50 percent likely of
being realized on settlement with the tax authority, assuming full knowledge of
the position and all relevant facts. The Group adjusts its recognition of these
uncertain tax benefits in the period in which new information is available
impacting either the recognition of measurement of its uncertain tax positions.
Interest and penalties related to uncertain tax positions are recognized as
income tax expense.
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
Revenue Recognition
Revenue is recognized to the extent that it is probable that
the economic benefits will flow to the Group and the revenue can be reliably
measured. We consider amounts to be earned once evidence of an arrangement has
been obtained, services are delivered, fees are fixed or determinable, and
collectability is reasonably assured. The Groups revenue during the year 2008
consists of consulting fees from contracts with fees based on time and materials
which are recognized as the services are performed and amounts are earned and
options premiums received for the farm-out of the Groups exploration interests.
The Group did not earn revenue during the year 2009.
Exploration and evaluation costs
For exploration and evaluation costs the successful efforts
method is applied. All current costs represent geological and geophysical
exploration costs and have therefore been charged to the statement of operations
as incurred.
Related parties
Parties are considered to be related if one party directly or
indirectly controls, is controlled by, or is under common control with the other
party, if it has an interest in the other party that gives it significant
influence over the party, if it has joint control over the party, or if it is an
associate or a joint venture. Senior management of the company or close family
members are also deemed to be related parties.
Pension plans
In accordance with ASC 715-30 (
Prior authoritative
literature:
SFAS 158,
Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans
), the Group recognizes the funded status of
the defined benefit plans in the balance sheet. Actuarial gains and losses are
fully recognized in the statement of operations of the respective period.
Stock based compensation
Stock-based compensation costs are recognized in earnings using
the fair-value based method for all awards granted. Compensation costs for
unvested stock options and awards are recognized in earnings over the requisite
service period based on the fair value of those options and awards. For
employees fair value is estimated at the grant date and for non-employees fair
value is remeasured at each reporting date as required by ASC 718 and ASC 505-50
(
prior authoritative literature:
SFAS 123R and EITF 96-18). Fair values
of awards granted under the share option plans are estimated using a
Black-Scholes option pricing model. The model input assumptions are determined
based on available internal and external data sources. The risk free rate used
in the model is based on the US treasury rate for the expected contractual term.
Expected volatility is based on a weighted basket of historic peer group
data.
Earnings per Share
Basic earnings per share is calculated using the Companys
weighted-average outstanding common shares. When the effects are not
anti-dilutive, diluted earnings per share is calculated using the
weighted-average outstanding common shares and the dilutive effect of warrants
and stock options as determined under the treasury stock method.
4. NEW ACCOUNTING STANDARDS NOT YET ADOPTED
Adoption of New Account Standards
In June 2009, the FASB issued ASC 105-10-65 (
prior
authoritative literature:
SFAS No. 168,
The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principlesa
replacement of FASB Statement No. 162
)
.
On the effective date of
this standard, FASB Accounting Standards Codification
(ASC) will become
the source of authoritative U.S. accounting and reporting standards for
nongovernmental entities, in addition to guidance issued by the Securities and
Exchange Commission (SEC). ASC significantly changes the way financial statement
preparers, auditors, and academics perform accounting research but is not
intended to change GAAP. This statement is effective for financial statements
issued for interim and annual periods ending after September 15, 2009. ASC 105-10-65 was adopted by
the Company as of July 1, 2009 and the principal impact on our financial
statements is limited to disclosures as all future references to authoritative
accounting literature will be referenced in accordance with the Codification. In
order to ease the transition to the Codification, the Company is providing the
Codification cross-reference alongside the references to the standards issued
and adopted prior to the adoption of the Codification.
57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
In December 2007, the FASB issued ASC 805 (
prior
authoritative literature:
SFAS No. 141(R
),Business Combinations
).
ASC 805 requires all business combinations completed after the effective date to
be accounted for by applying the acquisition method (previously referred to as
the purchase method). Companies applying this method will have to identify the
acquirer, determine the acquisition date and purchase price and recognize at
their acquisition date fair values of the identifiable assets acquired,
liabilities assumed, and any non-controlling interests in the acquirer. In the
case of a bargain purchase the acquirer is required to reevaluate the
measurements of the recognized assets and liabilities at the acquisition date
and recognize a gain on that date if an excess remains. ASC 805 becomes
effective for fiscal periods beginning after December 15, 2008. This statement
did not have an effect on the Companys financial statements.
In February 2008, the FASB issued ASC 820-10-65 (
prior
authoritative literature:
Staff Position (FSP) FAS 157-2), Effective Date of
FASB Statement No. 157, which defers the implementation for non-recurring
financial assets and liabilities from fiscal years beginning after November 15,
2007 to fiscal years beginning after November 15, 2008. The provisions of SFAS
157 will be applied prospectively. The statement provisions effective as of
January 1, 2008, do not have a material effect on the Companys financial
position and results of operations. The adoption as of January 1, 2009 of the
remaining provisions did not have a material effect on the Companys financial
position and results of operations.
In April 2009, the FASB issued ASC 820-10-65 (
prior
authoritative literature:
Staff Position (FSP) FAS 157-4), which is
effective for interim or annual reporting ending after June 15, 2009 and shall
be applied prospectively. This FSP provides additional guidance for estimating
fair value in accordance with FASB Statement No. 157,
Fair Value
Measurements
, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. The
adoption did not have an impact on the Companys financial statements.
In August 2009, FASB issued ASC 820-10 (ASU No. 2009-05 which
amends Fair Value Measurements and Disclosures Overall) to provide guidance on
the fair value measurement of liabilities. This update requires clarification
for circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more of the following techniques: 1) a valuation technique that
uses either the quoted price of the identical liability when traded as an asset
or quoted prices for similar liabilities or similar liabilities when traded as
an asset; or 2) another valuation technique that is consistent with the
principles in ASC 820 such as the income and market approach to valuation. The
amendments in this update also clarify that when estimating the fair value of a
liability, a reporting entity is not required to include a separate input or
adjustment to other inputs relating to the existence of a restriction that
prevents the transfer of the liability. This update further clarifies that if
the fair value of a liability is determined by reference to a quoted price in an
active market for an identical liability, that price would be considered a Level
1 measurement in the fair value hierarchy. Similarly, if the identical liability
has a quoted price when traded as an asset in an active market, it is also a
Level 1 fair value measurement if no adjustments to the quoted price of the
asset are required. The adoption of this update in the fourth quarter 2009 did
not have a significant effect on the Companys financial statements.
In December 2007, the FASB issued ASC 810-10-65 (prior
authoritative literature:
FAS No. 160,
Non-controlling Interests in
Financial Statementsan amendment of ARB No. 51
). ASC 810-10-65 requires
that a non-controlling interest in a subsidiary be reported as equity and the
amount of net income specifically attributable to the non-controlling interest
be identified in the financial statements. It also calls for consistency in the
manner of reporting changes in the parents ownership interest and requires fair
value measurement of any non-controlling equity investment retained in a
deconsolidation. ASC 810-10-65 was adopted by the Company effective January 1,
2009 and did not have a significant effect on the Companys financial
statements.
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
In March 2008, the FASB issued ASC 815-10-50 (
prior
authoritative literature:
SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133
). ASC 815-10-50 amends and expands the disclosure requirements of ASC 815
(
prior authoritative literature
SFAS 133,
Accounting for Derivative
Instruments and Hedging Activities
), by requiring enhanced disclosures
about how and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for under ASC 815 and its
related interpretations, and how derivative instruments and related hedged items
affect an entitys financial position, financial performance, and cash flows.
ASC 815-10-50 requires qualitative disclosures about objectives and strategies
for using derivatives, quantitative disclosures about fair value amounts of, and
gains and losses on, derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. ASC 815-10-50
was adopted by the Company as of January 1, 2009, and did not have an impact on
the Companys results of operations, cash flows or financial positions. .
However, the Company was required to expand its disclosures around the use of
and purpose for its derivative instruments.
In May 2008 the FASB issued ASC 470-20-25 (
prior
authoritative literature:
FSP APB 14-1,
Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)
, which alters the accounting for Convertible Debentures. ASC
470-20-25 requires issuers to account for convertible debt securities that allow
for either mandatory or optional cash settlement (including partial cash
settlement) by separating the liability and equity components in a manner that
reflects the issuers nonconvertible debt borrowing rate at the time of issuance
and requires recognition of additional (non-cash) interest expense in subsequent
periods based on the nonconvertible rate. Additionally, ASC 470-20-25 requires
that when such debt instruments are repaid or converted any consideration
transferred at settlement is to be allocated between the extinguishment of the
liability component and the reacquisition of the equity component. ASC 470-20-25
is effective for the Companys fiscal year beginning January 1, 2009, and has
been applied retrospectively, as required. The adoption of this pronouncement
did not have an impact on the Companys results of operations or financial
positions.
In November 2008, ASC 323-10-65 was issued (
prior
authoritative literature:
EITF 08-06,
Equity Method Investment
Accounting Considerations
. ASC 323-10-65 addresses the impact that ASC 805
(
prior authoritative literature:
SFAS 141(R)) and ASC 810-10-65 (
prior
authoritative literature:
SFAS 160) might have on the accounting for equity
method investments including how the initial carrying value of an equity method
investment should be determined, how it should be tested for impairment and how
changes in classification from equity method to cost method should be treated.
ASC 323-10-65 is to be implemented prospectively and is effective for fiscal
years beginning after December 15, 2008. The adoption of ASC 323-10-65 did not
have a significant impact on the Companys results of operations or financial
positions.
In May 2009, the FASB issued Statement of ASC 855 (
prior
authoritative literature:
FAS No. 165,
Subsequent Events,
) which
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before the financial statements are
issued or are available to be issued. ASC 855 provides guidance on the period
after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements, the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements and the disclosures that an entity should make
about events or transactions that occurred after the balance sheet date. The
Company adopted ASC 855 during the second quarter of 2009, and its application
had no impact on the Companys condensed consolidated financial statements.
Accounting Standards Not Yet Effective
In June 2009, the FASB issued ASC 810-10 (
prior
authoritative literature:
SFAS No. 167,
Amendments to FASB
Interpretation (FIN) No. 46(R)
) which changes how a reporting entity
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to consolidate another
entity is based on, among other things, the other entitys purpose and design
and the reporting entitys ability to direct the activities of the other entity
that most significantly impact the other entitys economic performance. ASC
810-10 will require a reporting entity to provide additional disclosures about
its involvement with variable interest entities and any significant changes in
risk exposure due to that involvement. A reporting entity will be required to
disclose how its involvement with a variable interest entity affects the
reporting entitys financial statements. ASC 810-10 is effective for fiscal
years beginning after November 15, 2009, and interim periods within those fiscal
years. Management is currently evaluating the requirements of ASC 810-10 and has not yet
determined the impact on the Companys consolidated financial statements.
59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
5. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
|
|
|
|
|
|
|
|
|
|
|
USD (held
|
|
|
|
|
|
|
|
|
|
USD (held
|
|
|
USD (held
|
|
|
USD (held
|
|
|
in other
|
|
|
USD TOTAL
|
|
|
USD TOTAL
|
|
|
|
in
USD)
|
|
|
in
EUR)
|
|
|
in
CHF)
|
|
|
currencies)
|
|
|
Dec 31, 2009
|
|
|
Dec 31, 2008
|
|
Bank and postal accounts
|
|
790'147
|
|
|
649
|
|
|
5'169
|
|
|
8'699
|
|
|
804'663
|
|
|
225'993
|
|
Cash and cash equivalents are available at the Groups own
disposal, and there is no restriction or limitation withdrawal and/or use of
these funds. The Groups cash equivalents are placed with high credit rated
financial institutions. The carrying amount of these assets approximates their
fair value.
As of December 31, 2009 and 2008 the Groups restricted cash
was $908,888 and $7,951,784 respectively follows:
As of December 31, 2009 and 2008, the Group had a bank
guarantee for the Albanian project of $875,000 $3,951,784, respectively, to be
used for investments in G&G and seismic work carried out in Albania. The
funds the bank guarantee will be continuously reduced on a monthly basis in
accordance with negotiations with Albanian government and are available at the
Groups own disposal thereafter (there is no restriction or limitation these
funds after their release). This decrease is due to a reduction of the work
program for phase 1 of Blocks A, D and E, as well as due to the successful
completion of phase 1 for Blocks A and B, during the year December 31, 2009.
As of December 31, 2008, the Group had two escrow accounts of
$2,000,000 each for the Phase 1 in the Mongolian Blocks. During the year ended
December 31, 2009, the Group also successfully negotiated a reduction of these
commitments as well as successfully completed Phase 1. The two escrow accounts
of $2,000,000 each $4,000,000) therefore were successfully released.
As of December 31, 2009, the Group further has an escrowed
amount for the paid-in share capital of the founded subsidiary Manas Adriatic
GmbH, which will be released in the beginning of 2010 and a rental deposit its
office in Switzerland, totaling in $33,888.
6. TANGIBLE FIXED ASSETS
2008
|
|
Office Equipment
|
|
|
Vehicles
|
|
|
Leasehold
|
|
|
Total
|
|
|
|
& Furniture
|
|
|
|
|
|
Improvements
|
|
|
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Cost at January 1
|
|
77,845
|
|
|
53,000
|
|
|
42,424
|
|
|
173,269
|
|
Additions
|
|
51,718
|
|
|
74,379
|
|
|
4,952
|
|
|
131,048
|
|
Cost at December 31
|
|
129,563
|
|
|
127,379
|
|
|
47,375
|
|
|
304,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation at January
1
|
|
(10,471
|
)
|
|
(9,000
|
)
|
|
(724
|
)
|
|
(20,195
|
)
|
Depreciation
|
|
(26,083
|
)
|
|
(17,400
|
)
|
|
(9,394
|
)
|
|
(52,877
|
)
|
Accumulated depreciation at December 31
|
|
(36,554
|
)
|
|
(26,400
|
)
|
|
(10,117
|
)
|
|
(73,072
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value at December 31
|
|
93,008
|
|
|
100,979
|
|
|
37,258
|
|
|
231,245
|
|
60
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
|
|
|
|
|
|
|
|
For the years ended December 31, 2009 and
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
Office Equipment
|
|
|
Vehicles
|
|
|
Leasehold
|
|
|
Total
|
|
|
|
& Furniture
|
|
|
|
|
|
Improvements
|
|
|
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Cost at January 1
|
|
129'563
|
|
|
127'379
|
|
|
47'375
|
|
|
304'317
|
|
Additions
|
|
14'633
|
|
|
-
|
|
|
-
|
|
|
14'633
|
|
Sales
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Cost at
December 31
|
|
144'196
|
|
|
127'379
|
|
|
47'375
|
|
|
318'950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation at January 1
|
|
(36'554
|
)
|
|
(26'400
|
)
|
|
(10'117
|
)
|
|
(73'072
|
)
|
Depreciation
|
|
(31'534
|
)
|
|
(26'677
|
)
|
|
(9'476
|
)
|
|
(67'687
|
)
|
Sales
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Accumulated depreciation at December 31
|
|
(68'088
|
)
|
|
(53'077
|
)
|
|
(19'593
|
)
|
|
(140'759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value at December 31
|
|
76'108
|
|
|
74'302
|
|
|
27'782
|
|
|
178'191
|
|
Depreciation expense for the years ended December 31, 2009 and
2008 were $67,687 and $52,877, respectively.
7. STOCK COMPENSATION PROGRAM
On May 1, 2007 the Board of Directors approved the granting of
stock options according to a Nonqualified Stock Option Plan. This stock option
plan has the purpose (a) to ensure the retention of the services of existing
executive personnel, key employees, and Directors of the Company or its
affiliates; (b) to attract and retain competent new executive personnel, key
employees, consultants and Directors; (c) to provide incentive to all such
personnel, employees, consultants and Directors to devote their utmost effort
and skill to the advancement and betterment of the Company, by permitting them
to participate in the ownership of the Company and thereby in the success and
increased value of the Company; and (d) allowing vendors, service providers,
consultants, business associates, strategic partners, and others, with or that
the Board of Directors anticipates will have an important business relationship
with the Company or its affiliates, the opportunity to participate in the
ownership of the Company and thereby to have an interest in the success and
increased value of the Company.
This plan constitutes a single omnibus plan, the Nonqualified
Stock Option Plan (NQSO Plan) which provides grants of nonqualified stock
options (NQSOs). The maximum number of shares of common stock that may be
purchased under the plan is 20,000,000.
On February 1, 2008, the Company granted 1,000,000 stock
options to Officers at a price of $2.10 per share. The strike price represents
the closing share price on the grant date. These stock options vest over 36
months with 1/12 vested per quarter. Compensation cost, being the fair value of
the options at the grant date, is calculated to be $1,127,410 of which $93,951
will be expensed every quarter as the remainder vest.
On March 3, 2008, the Company granted 150,000 shares to
employees in Albania and 1,219,893 shares to consultants as payment for services
(market price at grant date $2.05 per share). Compensation costs are calculated
to be $2,808,281. Of this charge, $307,500 and $2,500,781 were recorded in
personnel costs and consulting fees respectively in the year ended December 31,
2008.
On October 21, 2008, the Company granted 1,160,000 shares to
employees as a bonus payment (market price at grant date $0.50 per share).
Compensation costs are calculated $580,000, all of which was recorded in
personnel costs in the year ended December 31, 2008.
Due to the termination of employment of Thomas Flottmann,
Peter-Mark Vogel and Rahul Sen Gupta, their stock option plans have been
terminated. Their 1,388,685 non-vested stock options forfeited upon the
termination of their employment agreement and 1,361,315 vested stock options
remained exercisable for 90 days after termination and forfeited unexercised
during the year ended December 31, 2009. 900,000 stock options granted to
consultants also forfeited during the year ended December 31, 2009.
On April 28, 2009, we granted stock options to an aggregate of
three people, one of whom is an officer of our Company, one was an employee of
our Company at grant date and one is an executive officer of a corporate
consultant to our Company, to purchase an aggregate of 4,400,000 shares of our
common stock at an exercise price of $0.26 per share, for a term expiring April 28, 2012. The
options will vest in 12 installments every three months, with each installment
equal to 1/12th of the total number of options granted to the optionee.
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
Due to the termination of the consulting agreements with Neil
Maedel and Alexander Becker, their 925,396 non-vested stock options forfeited
upon the termination of their consulting agreements and their 2,324,604 vested
options remained exercisable for 90 days after the termination and expired
October 8, 2009.
On August 10, 2009, we granted two tranches of 500,000 stock
options each to a Director at a price of $0.43 per share. The strike price for
one tranche was set at a premium of 58.1% to the closing share price on the
grant date or $0.68 and the strike price for the second tranche was set at a
premium of 83.7% to the closing share price on the grant date or $0.79. These
stock options vest over 36 months with 1/12 vested per quarter.
The fair value of all of the options was determined using the
Black-Scholes option pricing model applying the weighted average assumptions
noted in the following table.
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
Expected dividend yield
|
|
0%
|
|
|
0%
|
|
Expected
volatility
|
|
87%
|
|
|
50%
|
|
Risk-free interest rate
|
|
1.463%
|
|
|
4.851%
|
|
Expected term (in years)
|
|
3.1
|
|
|
6
|
|
The expected volatility is based on a peer group of companies
in a similar or the same industry, and with whom the Company is of a comparable
size and life cycle stage, for a period equal to the expected term of the
options. During the year ended December 31, 2009 and 2008, the weighted average
fair value of options granted was $0.16 and $1.13 at the grant date,
respectively.
A summary of the status of the Companys non-vested shares as
of December 31, 2009 and changes during the year is presented below:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
average
|
|
|
|
Shares under
|
|
|
grant date
|
|
Nonvested
options
|
|
option
|
|
|
fair value
|
|
Nonvested at December 31, 2008
|
|
5'506'548
|
|
|
1.79
|
|
Granted
|
|
5'400'000
|
|
|
0.16
|
|
Vested
|
|
(3'352'995
|
)
|
|
1.30
|
|
Forfeited
|
|
(2'715'456
|
)
|
|
1.71
|
|
Nonvested at December 31, 2009
|
|
4'838'097
|
|
|
0.35
|
|
As of December 31, 2009, there was $2,115,669 of total
unrecognized compensation expense related to non-vested stock based compensation
arrangements. These expenses are expected to be recognized over a weighted
average period of 1.4 years.
The following table summarizes the Companys stock option
activity for the years ended December 31, 2009 and 2008:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
average
|
|
|
|
Shares under
|
|
|
exercise
|
|
Options
|
|
option
|
|
|
price
|
|
Outstanding at December 31, 2007
|
|
10'650'000
|
|
|
4.18
|
|
Granted
|
|
1'000'000
|
|
|
2.10
|
|
Exercised
|
|
-
|
|
|
|
|
Forfeited or expired
|
|
-
|
|
|
|
|
Outstanding at December 31, 2008
|
|
11'650'000
|
|
|
4.00
|
|
Exercisable at December 31, 2008
|
|
6'143'452
|
|
|
4.07
|
|
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
average
|
|
|
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
Aggregate
|
|
|
|
Shares under
|
|
|
exercise
|
|
|
contractual
|
|
|
intrinsic
|
|
Options
|
|
option
|
|
|
price
|
|
|
term
|
|
|
value
|
|
Outstanding at December 31, 2008
|
|
11'650'000
|
|
|
4.00
|
|
|
|
|
|
|
|
Granted
|
|
5'400'000
|
|
|
0.35
|
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
(6'900'000
|
)
|
|
3.92
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
10'150'000
|
|
|
2.12
|
|
|
5.33
|
|
|
1'276'000
|
|
Exercisable at
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
5'311'903
|
|
|
3.32
|
|
|
6.46
|
|
|
286'282
|
|
For the year ended December 31, 2009 and 2008, the Company
recorded a total charge of $4,475,953 and $9,790,874 respectively, with respect
to equity awards granted under the stock compensation and stock option plans.
For the year ended December 31, 2009 $4,296,079 and $179,874 were recorded in
personnel costs and consulting fees respectively. During the comparable period
2008 the stock based compensation expenses of $7,399,063 and $2,391,811 were
recorded in personnel costs and consulting fees respectively.
The following table summarizes information about the Companys
stock options outstanding as of December 31, 2009:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of
Exercise Prices
|
|
Number
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
$0.00 to $2.00
|
|
5'400'000
|
|
$
|
0.35
|
|
|
1'276'000
|
|
|
3.54
|
|
|
1'116'710
|
|
$
|
0.32
|
|
|
286'282
|
|
$2.01 to $4.00
|
|
4'350'000
|
|
$
|
4.00
|
|
|
-
|
|
|
7.34
|
|
|
3'860'028
|
|
$
|
4.00
|
|
|
-
|
|
$4.01 to $6.00
|
|
400'000
|
|
$
|
5.50
|
|
|
-
|
|
|
7.49
|
|
|
335'165
|
|
$
|
5.50
|
|
|
-
|
|
Total
|
|
10'150'000
|
|
$
|
2.12
|
|
|
1'276'000
|
|
|
5.33
|
|
|
5'311'903
|
|
$
|
3.32
|
|
|
286'282
|
|
8. DEBENTURE
On April 30, 2008, the Company successfully negotiated a
mezzanine tranche of bridge financing and raised $4,000,000 through the issuance
of 4,000 debenture notes (Debentures) of $1,000 each and 1,000,000 detachable
warrants. The warrants are exercisable to purchase the Companys unregistered
common shares at $2.10 per share and will expire on April 30, 2010. The net
proceeds after paying a finders fee were $3,790,000. The Debentures bear an
interest of 8% per annum payable twice a year (June and December) and are due
and payable in full two years from the date of issuance (April 30, 2010). The
Debentures can be prepaid along with any unpaid interest at the Companys
request without prepayment premium or penalty. The Debentures can be converted
into unregistered common shares at any time on demand of the holder at a
conversion price based upon the average price of the 20 days trading price prior
to conversion. The conversion price of 2,000 of the Debentures is subject to a
floor of $1.00 per share. Interest can be paid in the equivalent amount of
unregistered common shares of the Company. If the Company issues shares for
proceeds in excess of $40,000,000, then up to 50% of the proceeds are required
to be used to pay down the Debentures.
The aggregate proceeds received have been allocated between the
detachable warrants and the Debentures on a relative fair value basis.
Accordingly, $240,000 was credited to additional paid in capital with respect to
the warrants.
At the date of issuance the conversion price determined in
accordance with the Debenture agreement was less than the actual share price on
the issuance date. This resulted in a beneficial conversion feature of $557,989,
which has been amortized using the effective interest rate method and recorded
as part of interest expense over the term of the Debenture.
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years
ended December 31, 2009 and 2008
Debt issuance costs of $210,000 were incurred and will be
amortized over the term of the Debentures using the effective interest rate
method.
For the year ended December 31, 2009 and 2008 we have accreted
the Debentures for the discount, including the beneficial conversion feature of
$438,640 and $246,529, respectively. At December 31, 2009 and 2008, the
unamortized debt discount relating the debenture amounted to $112,822 and
$551,460, respectively.
9. WARRANTS
The Companys risk management objectives are to ensure that
business and financial exposures to risk that have been identified and measured
are minimized using the most effective and efficient methods to reduce, transfer
and, when possible, eliminate such exposures. Operating decisions contemplate
associated risks and management strives to structure proposed transactions to
avoid or reduce risk whenever possible. ASC 815 (
prior authoritative
literature
SFAS No. 133) requires companies to recognize all derivative
instruments as either assets or liabilities at fair value in the statement of
financial position. In accordance with ASC 815, the Company determined that
5,581,532 of the warrants outstanding at December 31, 2009 are not considered
indexed to the Companys own stock under ASC 815-40 (
prior authoritative
literature:
EITF 07-05), as the respective agreements include reset
features. As such, the Company determined these warrants to be under the scope
of ASC 815. The fair value of the warrants subject to ASC 815-40, and therefore
under the scope of ASC 815, are adjusted to fair market value at the end of each
reporting period.
For the year ended December 31, 2008, the Company issued
5,000,000 warrants to purchase common stock. These warrants include:
-
1,000,000 warrants exercisable at $2.10 each pursuant to the issuance of a
Debenture unit offering. These warrants expire on April 30, 2010.
-
4,000,000 warrants exercisable at $0.95 each pursuant to the issuance of a
private placement unit offering. These warrants expire on September 4, 2010.
The fair value of the warrants was determined using the
Black-Scholes option pricing model using a 2-year term of the warrants, a
volatility of 50%, a risk free rate of 5.0% and no assumed dividend rate.
As a result of the subsequent equity sales adjustment clause
included in most of the Companys warrant agreements, the private placement on
September 4, 2008 caused the Company to reprice 13,933,989 warrants to the last
equity issuance price ($0.59) and increase the number of common shares to be
issued upon exercise of the warrants to 69,966,707. The accounting impact of
this repricing is to record an expense for the difference in the fair value of
the new warrant agreements and the fair value of the original warrant agreements
immediately prior to the adjustment. The result was a charge of $9,439,775
recorded in the year ended December 31, 2008 and a corresponding increase to
additional paid in capital.
In April 2008, the FASB issued ASC 815-40 (
Prior
authoritative literature:
Emerging Issues Task Force (EITF) 07-05
,
Determining whether an Instrument (or Embedded Feature) Is Indexed to an
Entitys Own Stock (EITF 07-05)
). ASC 815-40 provides guidance on
determining what types of instruments or embedded features in an instrument held
by a reporting entity can be considered indexed to its own stock for the purpose
of evaluating the first criteria of the scope exception in ASC 815-10-15-74
(
Prior authoritative literature
: SFAS 133, paragraph 11(a)). ASC 815-40
is effective for financial statements issued for fiscal years beginning after
December 15, 2008 (our fiscal year 2009). We adopted ASC 815-40 on the first day
of our fiscal year 2009. Based on our analysis we determined that 69,966,707 out
of the 73,966,707 warrants outstanding are not considered indexed to the
Companys own stock under ASC 815-40 as the respective agreements include reset
features. Hence, we reclassified $592,804, comprising of an adjustment of
$(9,679,775) to additional paid in capital and $9,086,971 to deficit accumulated
during the development stage, from stockholders equity to a short-term
liability upon adoption. Additionally, thefair value of the warrants subject to ASC 815-40 are adjusted
to fair market value at the end of each reporting period. The impact of the
adoption on net loss and on basic and diluted loss per share for the year ended
December 31, 2009 were $10,974,312 and $0.09, respectively.
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years
ended December 31, 2009 and 2008
On May 14, 2009 we asked each holder of the Warrants that had a
price protection clause to agree to amend their Warrants to delete the price
protection clause. As and when any of the holders of these Warrants agree to the
proposed amendment, we will provide them with an amended Warrant certificate
that shows the price protection clause as having been deleted. As of December
31, 2009, the following Warrant agreements have been amended and, in accordance
with ASC 815-40, needed to be reclassified as stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at date of
|
|
|
Warrant series
|
|
# of
Warrants
|
|
|
Strike price
|
|
|
Grant
date
|
|
|
Expiry date
|
|
|
reclassification
|
|
|
Warrant B Equity PP1
|
|
29'917'145
|
|
|
0.59
|
|
|
April 10, 2007
|
|
|
April 10, 2010
|
|
$
|
8'024'421.00
|
|
|
Brokerage Warrant
PP # 1
|
|
5'880'044
|
|
|
0.59
|
|
|
April
10, 2007
|
|
|
April
10, 2010
|
|
$
|
1'930'710.00
|
|
|
Debenture Warrants
|
|
3'114'408
|
|
|
0.59
|
|
|
April 30, 2008
|
|
|
April 30, 2010
|
|
$
|
722'288.00
|
|
|
Total warrants reclassified
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10'677'419.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at date of
|
|
|
Warrant series - expired
|
|
# of Warrants
|
|
|
Strike price
|
|
|
Grant date
|
|
|
Expiry date
|
|
|
reclassification
|
|
|
Brokerage Warrant PP # 2
|
|
139'958
|
|
|
0.59
|
|
|
July 31, 2007
|
|
|
July 31, 2009
|
|
$
|
6'810.00
|
|
*
|
Warrant Equity PP2 31-07-2007
|
|
3'315'550
|
|
|
0.59
|
|
|
July 31, 2007
|
|
|
July 31, 2009
|
|
$
|
199'582.00
|
|
*
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
206'392.00
|
|
|
* expired unexercised July 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassified
|
|
$
|
10'883'811.00
|
|
|
The following table summarizes the Companys warrant activity
for the years ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
Classifed as
|
|
|
Classified as
|
|
|
|
|
|
exercise
|
|
Options
|
|
liability
|
|
|
equity
|
|
|
#
of warrants
|
|
|
price
|
|
Outstanding at December 31,
2008
|
|
-
|
|
|
73'966'707
|
|
|
73'966'707
|
|
|
0.61
|
|
Reclassification upon adoption of ASC 815-40
|
|
69'966'707
|
|
|
(69'966'707
|
)
|
|
-
|
|
|
|
|
Granted
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
Reclassification upon
amendment of warrant agreement
|
|
(42'367'105
|
)
|
|
42'367'105
|
|
|
-
|
|
|
|
|
Forfeited or expired
|
|
(22'018'070
|
)
|
|
(3'455'508
|
)
|
|
(25'473'578
|
)
|
|
0.59
|
|
Outstanding at December 31,
2009
|
|
5'581'532
|
|
|
42'911'597
|
|
|
48'493'129
|
|
|
0.62
|
|
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
Classifed as
|
|
|
Classified as
|
|
|
|
|
|
exercise
|
|
Options
|
|
liability
|
|
|
equity
|
|
|
#
of warrants
|
|
|
price
|
|
Outstanding at December 31, 2007
|
|
-
|
|
|
12'933'989
|
|
|
12'933'989
|
|
|
3.03
|
|
Granted
|
|
-
|
|
|
5'000'000
|
|
|
5'000'000
|
|
|
1.18
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase of number of warrants due to
repricing
|
|
-
|
|
|
56'032'718
|
|
|
56'032'718
|
|
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
-
|
|
|
73'966'707
|
|
|
73'966'707
|
|
|
0.61
|
|
On April 10, 2009 17,526,881 Warrants from the Warrant A Equity
Series granted on April 10, 2007 expired unexercised.
On July 31, 2009
7,692,798 Warrants from the Warrant Equity PP2 Series granted on July 31, 2007
expired unexercised.
On July 31, 2009 253,899 Warrants from the Brokerage
Warrant PP2 Series granted on July 31, 2007 expired unexercised.
As of December 31, 2009 and December 31, 2008, the Company had
a total of 48,493,129 and 73,966,707 warrants outstanding to purchase common
stock, respectively. Each warrant entitles the holder to purchase one share of
the Companys common stock. The Company has enough shares of common stock
authorized in the event that these warrants are exercised.
The following table summarizes information about the Companys
warrants outstanding as of December 31, 2009:
Warrant series
|
|
# of
Warrants
|
|
|
Strike price
|
|
|
Grant
date
|
|
|
Expiry date
|
|
Warrant B Equity PP1
|
|
35'053'763
|
|
|
0.59
|
|
|
April 10, 2007
|
|
|
April 10, 2010
|
|
Brokerage Warrant
PP # 1
|
|
5'880'044
|
|
|
0.59
|
|
|
April
10, 2007
|
|
|
April
10, 2010
|
|
Debenture Warrants
|
|
3'559'323
|
|
|
0.59
|
|
|
April 30, 2008
|
|
|
April 30, 2010
|
|
Equity PP3 Sept
2008
|
|
4'000'000
|
|
|
0.95
|
|
|
August 18, 2008
|
|
|
August 18, 2010
|
|
Total outstanding warrants
|
|
48'493'129
|
|
|
|
|
|
|
|
|
|
|
10. BANK LOAN/SHORT-TERM LOAN
On September 21, 2008, the Company entered into a loan
agreement (Debt) with a group of investors and raised a principal amount
equaling $2,440,000. Proceeds of $1,220,000 were received in the year ended
December 31, 2008. The Debt carries interest of 12% per annum payable at the
date of maturity and is payable in full on September 21, 2009. No issuance costs
apply. Due to the global financial crises, the counter party asked the company
to forfeit the second tranche of $1,220,000 late in November 2008. Therefore,
the total Debt amount raised during the year ended December 31, 2008 was
$1,220,000 and no interest has to be paid on the outstanding portion of
$1,220,000.
On January 22, 2009, the restricted cash in Mongolia was
reduced from $4,000,000 to $2,000,000 in agreement with the Mongolian
authorities. The Group immediately paid back its bank loan of $1,220,000 and
accumulated interest of $34,248 relating to a loan agreement with a group of
investors that was signed on September 21, 2008.
On April 24, 2009, we finalized negotiation for an additional
loan of $1,300,000, which will be secured by the remaining escrow funds in
Mongolia. The basic terms negotiated include a 10.8 percent per annum interest,
which is netted with the interest accrued on the escrow agreement in Mongolia,
and a repayment date of April 24, 2010. On May 1, 2009, $1,000,000 of this loan
was made available to our Company. The remaining $300,000 were wired on September 7, 2009, are to be paid back within 12 months and
with an interest of 12%. The funds obtained will be used for financing the oil
exploration carried out in Mongolia. The loan of $1,300,000 was repaid in
December 2009.
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
On December 3, 2009, as part of ongoing negotiations on the
sale of the Albanian asset, WWI advanced $917,698 to the Company, which is due
on demand and free of interest. In case of a successful closing of the agreement
to sell the asset, the amount is considered part of the purchase price
consideration.
On December 31, 2009, we had a bank overdraft of $196,828 which
is due on demand and free of interest.
11. CONTINGENTLY CONVERTIBLE LOAN
On August 18, 2008, the Company issued contingently convertible
loans (the Loans) with a principal amount of $2,000,000 and disposed of 8% of
its interest in its operations in Mongolia related to Blocks 13 and 14 for
aggregate proceeds of $2,000,000. The net proceeds after paying finders fee were
$1,860,000. The Company is responsible for the Loan holders share of the
exploration costs attributable to Blocks 13 and 14 through phases 1, 2 and 3,
hereinafter referred to as the Participation Liability.
The Company has allocated part of the gross proceeds to a
Participation Liability for the exploration costs related to the 8% interest in
Blocks 13 and 14 in Mongolia provided to the unit holder. The Company has
estimated that there is a range of costs that could be incurred through
exploration phases 1, 2 and 3. The total minimum estimated spends for phase 1,
the only phase that is currently probable, is $4,000,000 and therefore, a
Participation Liability of $320,000 has been recorded. This liability will be
reduced as expenses are incurred. Also refer to Note 14 for additional
information.
The Loans carry an interest rate of 8% per annum and all
principal and accrued interest is payable in full two years from the date of
issuance (August 18, 2010). The Loans are secured by the Groups assets in the
Kyrgyz Republic.
The principal and any accrued but unpaid interest on the Loans
are convertible, in whole or in part, at the option of the holders if the Group
conducts a public offering at the prevailing market price. The loan was
accounted for as a liability in accordance with ASC 480-10-25 (
Prior
authoritative literature:
FAS150
Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity
). Because
the financial instrument embodies a conditional obligation that the Company must
or may settle by issuing a variable number of equity shares and the monetary
value of the obligation is based on a fixed monetary amount known at
inception.
The initial carrying amount of the Loans of $1,680,000 will be
accreted to the redemption amount of $2,000,000 over the term of the loans using
the effective interest method.
We have accreted the Loans for the discount that relates to the
year ended December 31, 2009 and 2008 of $147,727 and $59,178 respectively. At
December 31, 2009 and 2008 the unamortized debt discount relating the
contingently convertible loan amounted to $113,095 and $260,822,
respectively.
12. PROMISSORY NOTES TO SHAREHOLDERS
On December 5, 2008, the Company borrowed $540,646 from four
Directors at no discount to the principal amount by selling promissory notes to
shareholders (Shareholder Notes). The parties agreed that no interest shall
accrue on the Shareholder Notes unless the Company breaches the repayment
schedule. The repayment of the principal amount of the Shareholder Notes has to
occur if the Company raises greater than $1,000,000 in financing or 90 days
after written demand for repayment by the Shareholder Notes holder, whichever is
first. The Company may also repay any or all of the principal amount of the
Shareholder Notes at any time without notice, bonus or penalty. In the event
that the Company fails to make a payment when it is due, the Company will pay
interest on the outstanding principal amount of the Shareholder Notes at the
rate of 12% per annum until the Shareholder Notes are paid in full.
On May 1, 2009 the Company received $1,000,000 in financing
(refer to Note 10). Therefore, as the payment falls due immediately, but so far
has not been paid yet, interest is being accrued.
67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
For the year ended December 31, 2009 we have accrued $43,370
interest expense.
13. PRIVATE PLACEMENT
On September 4, 2008, the Company conducted a private placement
in which it sold 4,000,000 units for $2,600,000, or $0.65 per unit. Each unit
consisted of one share of common stock, one warrant and an interest in rights
granted to us by the Mineral Resources and Petroleum Authority of Mongolia with
respect to certain production sharing contracts governing areas in Mongolia
referred to as Blocks 13 and 14. The Company agreed to cover the unit holders
share of the exploration costs on Blocks 13 and 14 through exploration phases 1,
2 and 3 herein after referred to as the Participation Liability.
Each of the 4,000,000 warrants granted under the Securities
Purchase Agreement is exercisable for two years at $0.95 per warrant. The
warrants carry tag-along registration rights such that if a registration
statement (other than on Form S-4 or S-8) is filed, the holders may demand that
the shares underlying their warrants be included in such registration statement.
If no such registration statement is filed by January 4, 2009, the Company has
to undertake its best efforts to file a registration statement for the shares
underlying the warrants by May 4, 2009. Based on this best effort clause and the
fact that the Company has undertaken its best effort to file a registration
statement the warrants are accounted for as an equity instrument.
Of the aggregate proceeds received of $2,600,000, $430,571 has
been allocated to the warrants based on their estimated fair value, $320,000 has
been allocated to the Participation Liability and the balance has been allocated
to the Shareholders Equity.
The amount allocated to the Participation Liability was
determined in the same manner as the Participation Liability arising in
connection with the Loans described in Note 11.
14. PARTICIPATION LIABILITY
On August 18, 2008, the Company completed the issuance of
contingently convertible loans (the Loans) and in addition to the interest
payable under the Loans, the Loan holders will obtain an interest in 8% of our
interest in our operations in Mongolia related to the Blocks 13 and 14 without
having to undertake any of the obligations of work programs connected to those
lots (governing areas in Mongolia referred to as Tsagaan-Els 13 and Zuuabayan
14).
On September 4, 2008, we conducted a private placement and each
unit consisted of one share of common stock, one warrant and an interest in
rights granted to us by the Mineral Resources and Petroleum Authority of
Mongolia with respect to certain production sharing contracts governing areas in
Mongolia referred to as Tsagaan-Els 13 and Zuuabayan 14. A total of 8% of our
interest in our operations in Mongolia related to the Blocks 13 and 14 without
having to undertake any of the obligations of work programs connected to those
lots (governing areas in Mongolia referred to as Tsagaan-Els 13 and Zuuabayan
14).
The Company considers each of the 8% participation in the
interest of our operations in Mongolia as a Participation Liability of $320,000
each (totalling $640,000).
For the year ended December 31, 2009, the participation
liability was reduced to $0 as the phase 1 of the work program in Mongolia was
successfully completed ahead of schedule. The exploration costs were reduced by
$640,000 during the year ended December 31, 2009.
15. RELATED PARTY DISCLOSURE
The consolidated financial statements include the financial
statements of Manas Petroleum Corporation and the entities listed in the
following table:
68
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
|
|
|
For the years ended December 31, 2009 and
2008
|
|
|
|
|
|
|
|
|
Equity share
|
Equity share
|
|
Country
|
Dec 31, 2009
|
Dec 31, 2008
|
DWM Petroleum AG, Baar (1)
|
Switzerland
|
100%
|
100%
|
Manas Petroleum
AG, Baar (2)
|
Switzerland
|
100%
|
100%
|
Manas Adriatic GmbH, Baar (3)
|
Switzerland
|
100%
|
n/a
|
CJSC South
Petroleum Company, Jalalabat (4)
|
Kyrgyz
Republic
|
25%
|
25%
|
CJSC Somon Oil Company, Dushanbe (5)
|
Rep of Tajikistan
|
90%
|
90%
|
Manas Petroleum of
Chile Corporation, Victoria (6)
|
Canada
|
100%
|
100%
|
Manas Management Services Ltd., Nassau (7)
|
Bahamas
|
100%
|
100%
|
Manas Chile
Energia Limitada, Santiago (8)
|
Chile
|
100%
|
100%
|
Gobi Energy Partners LLC, Ulaan Baator (9)
|
Mongolia
|
84%
|
n/a
|
(1) Including Branch in Albania
(2) Founded in 2007
(3)
Manas Adriatic GmbH was founded by DWM Petroleum AG in 2009
(4) CJSC South
Petroleum Company was founded by DWM Petroleum AG; equity method investee that
is not consolidated (5) CJSC Somon Oil Company was founded by DWM Petroleum
AG
(6) Founded in 2008
(7) Founded in 2008
(8) Manas Chile Energia
Limitada was founded by Manas Management Services Ltd.; founded in 2008
(9)
Gobi Energy Partners LLC was founded by DWM Petroleum AG (former Manas Gobi
LLC); founded in 2009
Ownership and voting right percentages in the subsidiaries
stated above are identical to the equity shares.
CJSC South Petroleum Company
On October 4, 2006 a contract was signed with Santos
International Holdings PTY Ltd. (Santos) to sell a 70% interest in CJSC South
Petroleum Company, Jalalabat for a payment of $4,000,000, a two phase work
program totalling $53,500,000 (Phase 1: $11,500,000, Phase 2: $42,000,000),
additional working capital outlays of $1,000,000 per annum and an earn-out of
$1,000,000 to former DWM shareholders to be settled in shares of Santos if they
elect to enter into Phase 2 of the work program. If Santos does not exercise the
option to enter into Phase 2, the 70% interest is returned to DWM Petroleum at
no cost. On December 2, 2008, Santos announced to enter into Phase 2 and the
earn-out was paid to former DWM shareholders.
In the event Santos spends in excess of $42,000,000 on the
appraisal wells, the Company would be obligated to pay 30% of the excess
expenditure.
The following summarized financial information as of December
31, 2009 and for the period from January 1, 2009 to December 31, 2009 as well as
of December 31, 2008 and for the period from January 1, 2008 to December 31,
2008, is presented for CJSC South Petroleum Company which is a material equity
method investee that is not consolidated:
|
Dec 31, 2009
|
Dec 31, 2008
|
Condensed Balance Sheet
|
Thousand USD
|
Thousand USD
|
Current assets
|
3'804
|
4'327
|
Non-current assets
|
672
|
5'044
|
Current liabilities
|
142
|
161
|
Non-current liabilities
|
32'740
|
11'207
|
|
|
|
Condensed Income Statement
|
Thousand USD
|
Thousand USD
|
Gross revenues
|
26
|
-
|
Gross profit
|
1
|
-
|
Loss from operating
activities
|
18'650
|
5'509
|
Net loss
|
20'059
|
5'509
|
The Group is not recording its share of the losses. The
contractual agreement requires Santos to pay all of the costs currently.
69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
CJSC Somon Oil (Tajikistan)
On December 10, 2007 DWM Petroleum (100% subsidiary of Manas)
& Santos entered into an Option Agreement under which Santos has a
unilateral option to elect for those parties to execute at a later stage, a Farm
In Agreement for a 70% interest in DWM Petroleums West (area Navobod-Obchai
Kalacha) Tajikistan License and a proposed North Tajik licence. Manas Petroleum
expects the North Tajik Licence to be granted to Somon Oil in the near
future.
Under the Option Agreement, Santos will pay an amount
equivalent to the seismic acquisition costs in the Tajik area (approximately
$1.3 million) in consideration for a call option to farm in to Somon Oils
prospecting licences. The Option may be exercised by Santos any time during the
option period. The option period commences on the date of the option agreement
and expires after 6 months unless extended due to certain conditions not being
met.
1.
|
Somon Oil must have been granted exclusive rights to
develop any field development covered by the Petroleum Licenses;
|
|
|
2.
|
A royalty or profit sharing agreement is entered into
between Somon Oil and the Tajik Authorities; and
|
|
|
3.
|
Santos must have Board approval.
|
Santos has only a period of 3 months after (1) and (2) are
satisfied, to satisfy (3). As condition (2) was not fully satisfied yet, the
option period is being further extended.
In connection with the option agreement, DWM Petroleums
subsidiary Somon Oil has entered into a seismic agreement with
Saratovneftegeofizika (SNG) under which SNG is to carry out approximately 110 km
of 2D seismic acquisition in Tajikistan (Seismic Agreement). The Seismic
Agreement underlies the option agreement and is designed to meet a condition set
by the Tajik authorities, whereby once work has commenced in the West licence,
an additional licence area, the North Tajik license, may be granted to Somon
Oil.
In the event that Santos elects to exercise its option, Somon
Oil, DWM Petroleum and Santos will execute the Farm-in Agreement under which
future funding obligations are set out over three phases. Santos obligations
will include costs associated with the acquisition of additional 2D seismic
(Phase 1), the drilling of a number of exploration wells (Phase 2) and further
appraisal drilling (Phase 3). Santos may elect to withdraw at the completion of
Phase 2.
Related Parties
The following table provides the total amount of transactions
that have been entered into with related parties for the relevant financial
period:
Board of directors
|
|
01.01.-12.31.09
|
|
|
01.01.-12.31.08
|
|
|
|
USD
|
|
|
USD
|
|
Payments to directors for office rent
|
|
36'923
|
|
|
187'867
|
|
Payments to related companies controlled by
directors for rendered consulting services
|
|
369'700
|
|
|
11'391
|
|
|
|
|
|
|
|
|
|
|
12.31.09
|
|
|
12.31.08
|
|
|
|
USD
|
|
|
USD
|
|
Promissory notes from directors
|
|
233'812
|
|
|
540'646
|
|
Promissory notes from former directors
|
|
306'834
|
|
|
-
|
|
Interest on Promissory notes from directors
|
|
30'989
|
|
|
-
|
|
Interest on Promissory notes from former directors
|
|
24'614
|
|
|
-
|
|
16. INCOME TAXES
The components of income from continuing operations before
income taxes are as follows:
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
|
|
Years ended
|
|
|
|
Dec 31, 2009
|
|
|
Dec 31, 2008
|
|
|
|
USD
|
|
|
USD
|
|
Domestic
|
|
(18'576'407
|
)
|
|
(22'197'776
|
)
|
Foreign
|
|
(3'037'207
|
)
|
|
(8'096'464
|
)
|
Income/(Loss) from operations before
income tax
|
|
(21'613'614
|
)
|
|
(30'294'240
|
)
|
Income taxes relating to the Companys continuing operations
are as follows:
|
|
Years ended
|
|
|
|
Dec 31, 2009
|
|
|
Dec 31, 2008
|
|
|
|
USD
|
|
|
USD
|
|
Current income taxes:
|
|
|
|
|
|
|
US Federal, state and local
|
|
-
|
|
|
-
|
|
Foreign
|
|
4'401
|
|
|
1'867
|
|
Deferred income taxes
|
|
-
|
|
|
-
|
|
Income tax expense/(recovery)
|
|
4'401
|
|
|
1'867
|
|
Income taxes at the United States federal statutory rate
compared to the Companys income tax expense as reported is as follows:
|
|
Years ended
|
|
|
|
Dec 31, 2009
|
|
|
Dec 31, 2008
|
|
|
|
USD
|
|
|
USD
|
|
Net income/(loss) before income tax
|
|
(21'613'614
|
)
|
|
(30'294'240
|
)
|
Statutory tax rate
|
|
35%
|
|
|
35%
|
|
Expected income tax
expense/(recovery)
|
|
(7'564'765
|
)
|
|
(10'602'984
|
)
|
Impact on income tax expense/(recovery) of the
following:
|
|
-
|
|
|
-
|
|
Permanent differences
|
|
5'312'606
|
|
|
5'257'434
|
|
Change in valuation allowance
|
|
4'620'385
|
|
|
5'617'836
|
|
Impact of tax rate changes and
differences
|
|
(2'368'226
|
)
|
|
(272'286
|
)
|
Other
|
|
4'401
|
|
|
1'867
|
|
Income tax expense/(recovery)
|
|
4'401
|
|
|
1'867
|
|
The permanent differences relate to non-cash charges, mainly
the change in fair value of warrants, stock based compensation and the
participation liability.
The Company assesses the recoverability of its deferred tax
assets and, to the extent recoverability does not satisfy the more likely than
not recognition criterion under ASC740, records a valuation allowance against
its deferred tax assets. The Company considered its recent operating results and
anticipated future taxable income in assessing the need for its valuation
allowance.
As of December 31, 2009 and 2008, the total uncertain tax
positions were zero. We have not identified any tax positions for which it is
reasonably possible that a significant change will occur during the next 12
months.
The Companys deferred tax assets consist of the following:
|
|
Years ended
|
|
|
|
Dec 31, 2009
|
|
|
Dec 31, 2008
|
|
|
|
USD
|
|
|
USD
|
|
Operating loss carryforwards
|
|
11'976'830
|
|
|
7'356'445
|
|
Valuation allowance
|
|
(11'976'830
|
)
|
|
(7'356'445
|
)
|
Deferred tax
assets/(liabilities)
|
|
-
|
|
|
-
|
|
The Companys operating loss carryforwards expire according to
the following schedule:
71
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
|
|
For the years ended December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
Dec 31, 2009
|
|
|
|
USD
|
|
2010
|
|
4'223'609
|
|
2011
|
|
7'993'721
|
|
2012
|
|
1'890'800
|
|
2014
|
|
577'355
|
|
2015
|
|
1'006'487
|
|
2016
|
|
295'789
|
|
2026
|
|
869'600
|
|
2027
|
|
907'508
|
|
2028
|
|
6'272'791
|
|
2029
|
|
4'248'151
|
|
Total operating loss carryforwards
|
|
28'285'811
|
|
The following tax years remain subject to examination:
Significant Jurisdictions
|
|
Open Years
|
|
US Federal
|
|
2006 - 2009
|
|
Switzerland
|
|
2008 - 2009
|
|
Albania
|
|
2009
|
|
Tajikistan
|
|
2009
|
|
Mongolia
|
|
2009
|
|
17. ISSUED CAPITAL AND RESERVES
|
|
12 month period ended
|
|
Shares Manas
Petroleum Corporation
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
Total number of authorized shares
|
|
300'000'000
|
|
|
300'000'000
|
|
Total number of fully paid-in shares
|
|
119'051'733
|
|
|
119'051'733
|
|
Par value per share (in USD)
|
|
0.001
|
|
|
0.001
|
|
Total share capital (in USD)
|
$
|
119'052
|
|
$
|
119'052
|
|
All shares are common shares. There are no different share
categories, and all shares are quoted on a stock exchange.
18. COMMITMENTS & CONTINGENT LIABILITIES
Legal actions and claims (Kyrgyz Republic, Republic of
Tajikistan, Mongolia, Chile and Albania)
In the ordinary course of business, the associate/subsidiaries
or branches in the Kyrgyz Republic, Republic of Tajikistan, Mongolia, Chile and
Albania may be subject to legal actions and complaints. Management believes that
the ultimate liability, if any, arising from such actions or complaints will not
have a material adverse effect on the financial condition or the results of
future operations of the associate/subsidiaries in the Kyrgyz Republic, Republic
of Tajikistan, Mongolia, Chile and Albania.
During the initial phase of applying for our Chilean
Exploration license, a joint bidding group was formed with Manas, IPR and Energy
Focus. Each had a one-third interest. Of its own accord, Energy Focus left the
bidding group. Energy Focus prepared a side letter, which was signed by Manas
and IPR. By the terms of this side letter, Energy Focus was granted the option
to rejoin the consortium under certain conditions.
Even though Energy Focus has been asked many times to join the
group by contributing its prorated share of capital, they have failed to do so.
Despite this, Energy Focus claims that they are entitled to participate in the
consortium at any future time, not just under certain conditions. IPR and Manas
disagree with this interpretation.
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
No litigation has been commenced as of December 31, 2009. Manas
and IPR are firmly of the view that Energy Focus no longer has any right to join
the consortium, as the previously agreed-upon conditions are no longer valid.
While Energy Focus has not accepted this position, they have not commenced
litigation.
At December 31, 2009, there had been no legal actions against
the associate/subsidiaries or branches in the Kyrgyz Republic, Republic of
Tajikistan, Mongolia, Chile and Albania.
Management believes that the Group, including
associate/subsidiaries or branches in the Kyrgyz Republic, Republic of
Tajikistan, Mongolia, Chile and Albania are in substantial compliance with the
tax laws affecting its operations. However, the risk remains that relevant
authorities could take differing positions with regards to interpretative
issues.
In 2007, the Group entered into a share exchange agreement with
DWM Petroleum and the shareholders of DWM Petroleum. Under the share exchange
agreement, the shareholders of DWM Petroleum received 80,000,000 shares of the
Groups common stock, equal to 79.9% of the Groups outstanding common stock at
the time, in exchange for 100% of the shares of DWM Petroleum. In addition, the
share exchange agreement requires that the Group issue an aggregate of up to an
additional 500,000 shares of the Groups common stock over time to the former
shareholders of DWM Petroleum for every 50 million barrels of P50 oil reserves
net to the Group from exploration in the Kyrgyz Republic, Albania, and
Tajikistan up to a maximum of 2.5 billion barrels of P50 oil reserves. At the
Groups option, this obligation can be extended to additional properties that
are acquired through the actions of the former shareholders of DWM Petroleum.
License agreements held by CJSC South Petroleum Company
(Kyrgyz Republic)
According to the License Agreements the minimum remaining
investments are as follows (met in full by Santos):
License
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Tuzluk
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
West Soh
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Nanay
|
|
2'391'553
|
|
|
60'605
|
|
|
5'072'143
|
|
|
11'655
|
|
Naushkent
|
|
6'993
|
|
|
3'517'401
|
|
|
6'993
|
|
|
6'993
|
|
Soh
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
License agreement held by CJSC Somon Oil (Republic of
Tajikistan)
According to the License Agreement the minimum remaining
investment is as follows:
License
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Western
|
|
1'780'000
|
|
|
3'550'000
|
|
|
4'510'000
|
|
|
2'530'000
|
|
|
|
|
North-Western
|
|
739'500
|
|
|
8'259'500
|
|
|
120'000
|
|
|
8'650'000
|
|
|
8'660'000
|
|
To date, Santos has fully carried our work commitment in
Tajikistan including the seismic program in 2010.
License agreements held by DWM Petroleum Albania
Branch
According to the signed Production Sharing Contracts (PSCs) the
minimum remaining investments are as follows:
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years
ended December 31, 2009 and 2008
License
|
|
2010
|
|
|
2011 - 2012
|
|
|
2013 - 2014
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
PSC 1 (Block A&B)
|
|
-
|
|
|
6'300'000
|
|
|
6'300'000
|
|
PSC 2 (Block D&E)
|
|
875'000
|
|
|
6'300'000
|
|
|
6'300'000
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
2010 - 2012
|
|
|
2013 - 2014
|
|
|
2015 - 2016
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
PSC 3 (Block 2&3)
|
|
8'500'000
|
|
|
8'300'000
|
|
|
8'300'000
|
|
License agreements held by Gobi Energy Partners
(Mongolia)
According to the signed Production Sharing Contracts (PSCs) the
minimum remaining investments are as follows:
License
|
2010*
|
2011*
|
2012*
|
2013*
|
|
USD
|
USD
|
USD
|
USD
|
PSC 1 (Block 13)
|
825'000
|
1'740'000
|
4'360'000
|
6'900'000
|
PSC 2 (Block 14)
|
825'000
|
1'740'000
|
4'360'000
|
6'900'000
|
|
* starting April 21
|
|
|
|
Chile Project (Joint Consortium IPR Mans Petroleum
Corp.)
We have signed an agreement dated January 29, 2010, pursuant to
which we have agreed to assign our interest in our Chilean project in exchange
for a return of all of the money that we have invested in this project to date
and relief from all currently outstanding and future obligations in respect of
the project. This agreement and the assignment of our interest in this project
are subject to approval by the Ministry of Energy in Chile. If the government
does not approve of the sale, then we will continue to participate in this
project unless and until we can sell our interest. Under the project agreements,
we are to be carried for 8.6% of the first $14,360,000 to be spent during the
first phase of this project, but we will be required to fund the remaining 11.4%
of this amount and we will be required to fund 20% of all capital costs of this
project in excess of $14,360,000.
Operating leases
The Group has entered into operating leases as lessee for three
cars for related parties, of which one expired on June 30, 2008 and one has been
taken over by a former director on January 31, 2009. For the year ended December
31, 2009 we had expenses for these items of $16,834. During the corresponding
period in 2008 we had expenses of $40,341. Future net lease payments for one
remaining leased car are:
|
|
Year ended
|
|
|
|
December 31, 2009
|
|
|
|
USD
|
|
2010
|
|
15'314
|
|
2011
|
|
10'209
|
|
2012
|
|
-
|
|
2013
|
|
-
|
|
2014
|
|
-
|
|
19. PERSONNEL COSTS AND EMPLOYEE BENEFIT PLANS
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years
ended December 31, 2009 and 2008
|
|
For the year ended
|
|
|
For the year ended
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
USD
|
|
|
USD
|
|
Wages and salaries
|
|
5'488'255
|
|
|
10'127'282
|
|
Social security contributions
|
|
78'167
|
|
|
156'511
|
|
Pension fund contribution
|
|
34'371
|
|
|
86'245
|
|
Pension (surplus)/underfunding
|
|
(14'363
|
)
|
|
106'146
|
|
Other personnel expenses
|
|
-
|
|
|
479
|
|
Total Personnel Costs
|
|
5'586'429
|
|
|
10'476'663
|
|
Defined Benefit Plan
The Company maintains a Swiss defined benefit plans for 2 of
its employees. The plan is part of an independent collective fund which provides
pensions combined with life and disability insurance. The assets of the funded
plan are held independently of the Companys assets in a legally distinct and
independent collective trust fund which serves various unrelated employers. The
funds benefit obligations are fully reinsured by AXA Winterthur Insurance
Company. The plan is valued by independent actuaries using the projected unit
credit method. The liabilities correspond to the projected benefit obligations
of which the discounted net present value is calculated based on years of
employment, expected salary increases, and pension adjustments.
The actuarial valuation was carried out as of December 31,
2009. The amounts recognized in the Consolidated Balance Sheets, shown in other
non-current liabilities, as at December 31, 2009 and as at December 31, 2008
respectively, were determined to be as follows:
|
|
2009
|
|
|
2008
|
|
|
|
USD
|
|
|
USD
|
|
ABO End of Year
|
|
214'416
|
|
|
477'185
|
|
|
|
|
|
|
|
|
Change in PBO During Year
|
|
|
|
|
|
|
PBO at Beginning of Period
|
|
590'693
|
|
|
13'651
|
|
Service Cost
|
|
(13'832
|
)
|
|
10'329
|
|
Interest Cost
|
|
13'277
|
|
|
9'159
|
|
Employee Contributions
|
|
81'438
|
|
|
25'670
|
|
Plan Amendments
|
|
-
|
|
|
-
|
|
Liability (Gain)/Loss
|
|
51'260
|
|
|
60'392
|
|
Actuarial (Gain)/Loss due to Changes in Assumptions
|
|
11'159
|
|
|
-
|
|
Benefit Payments
|
|
(475'035
|
)
|
|
453'450
|
|
currency translation adjustment
|
|
12'454
|
|
|
18'041
|
|
PBO at End of Year
|
|
271'412
|
|
|
590'693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Assets During Year
|
|
|
|
|
|
|
Fair Value of Assets at Beginning of period
|
|
546'826
|
|
|
76'009
|
|
Actual Return on Assets
|
|
(4'359
|
)
|
|
(54'878
|
)
|
Company Contributions
|
|
81'438
|
|
|
25'670
|
|
Employee Contributions
|
|
81'438
|
|
|
25'670
|
|
Benefit Payments
|
|
(475'035
|
)
|
|
453'450
|
|
currency translation adjustment
|
|
11'600
|
|
|
20'906
|
|
Fair Value of Assets at End of Year
|
|
241'908
|
|
|
546'826
|
|
Net assets/(liabilities) in balance sheet
|
|
(29'504
|
)
|
|
(43'867
|
)
|
The following table provides the weighted average assumptions
used to calculate net periodic benefit cost and the actuarial present value of
projected benefit obligations:
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years
ended December 31, 2009 and 2008
Assumptions at year-end
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
USD
|
|
|
USD
|
|
Discount rate
|
|
3.25%
|
|
|
3.50%
|
|
Expected rate of return on plan assets
|
|
2.75%
|
|
|
2.75%
|
|
Salary increases
|
|
1.00%
|
|
|
1.00%
|
|
Future benefits, to the extent that they are based on
compensation, include assumed salary increases, as presented above, consistent
with past experience and estimates of future increases in the Swiss industrial
labor market.
Net periodic pension cost has been included in the Companys
results as follows:
Pension expense
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
USD
|
|
|
USD
|
|
Net service cost
|
|
(13'832
|
)
|
|
10'329
|
|
Interest cost
|
|
13'277
|
|
|
9'159
|
|
Expected return on assets
|
|
(10'746
|
)
|
|
(9'031
|
)
|
Actuarial (gain)/loss
|
|
66'364
|
|
|
0
|
|
Net periodic pension cost
|
|
55'063
|
|
|
10'457
|
|
All of the assets are held under the collective contract by the
plans re-insurer AXA Winterthur Insurance Company and are invested in a mix of
Swiss and international bond and equity securities within the limits prescribed
by the Swiss Pension Law.
The expected future cash flows to be paid by the Group in
respect of employer contributions to the pension plan for the year ended
December 31, 2010 are $24,185.
Future projected benefit payments in the next ten years are
expected to be zero.
For its employees in subsidiaries outside of Switzerland, the
social security policy does not require a pension funding from the employer.
20. FAIR VALUE MEASUREMENT
ASC 820 (
Prior authoritative literature:
SFAS 157
Fair Value Measurements
) establishes a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1, defined as observable inputs such as quoted prices in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are
either directly or indirectly observable; and Level 3, defined as unobservable
inputs in which little or no market data exists, therefore requiring an entity
to develop its own assumptions. Financial assets carried at fair value as of
December 31, 2009 are classified in one of the three categories as follows:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Warrants
|
$
|
-
|
|
$
|
-
|
|
$
|
683'305
|
|
$
|
683'305
|
|
Total
|
$
|
-
|
|
$
|
-
|
|
$
|
683'305
|
|
$
|
683'305
|
|
The following table summarizes the changes in the fair value of
the Companys level 3 financial assets and liabilities for the year ended
December 31, 2009:
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years
ended December 31, 2009 and 2008
Fair Value Measurement Using Level 3 Inputs
|
|
|
|
|
|
|
|
Balance at January 1, 2009
|
|
-
|
|
Total gains (losses) realized and unrealized:
|
|
|
|
Included in earnings,
as a part of change in fair value of warrants
|
|
10'974'312
|
1 )
|
Included in other comprehensive income
|
|
-
|
|
Purchase, sale, or settlement
|
|
(10'883'812
|
) 2 )
|
Net transfer in / (out) of level 3
|
|
592'805
|
3 )
|
Balance at December 31, 2009
|
|
683'305
|
|
1) Recorded in Change in fair value of warrants.
2)
Reclassification as equity instrument.
3) Transfer in upon adoption of ASC
815-40
The fair value of the warrants was determined using the
Black-Scholes option pricing model applying the assumptions noted in the
following table.
|
|
Years ended
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008*
|
|
Expected dividend yield
|
|
0%
|
|
|
0%
|
|
Expected
volatility
|
|
120%
|
|
|
50%
|
|
Risk-free interest rate
|
|
0.070%
|
|
|
5.000%
|
|
Expected term (in years)
|
|
0.028
|
|
|
1.65
|
|
* assumptions for latest grant in
2008, as warrants were classified as equity
|
The expected volatility is based on a peer group of companies
in a similar or the same industry, and with whom the Company is of a comparable
size and life cycle stage, for a period equal to the expected term of the
warrants. During the year ended December 31, 2008, the weighted average fair
value of options granted was $0.17 at the date of grant, respectively.
21. EARNINGS PER SHARE
Loss per share is calculated as Net Loss for the years ended
December 31, 2009 and December 31, 2008 divided by 119,051,733 and 114,856,922
outstanding shares, respectively.
For the years ended December 31, 2009 and December 31, 2008 all
outstanding share options, 10,150,000 and 11,650,000, respectively, and all
outstanding warrants, 48,493,129 and 73,966,707, respectively, were excluded
from the calculation of the diluted weighted average number of shares, because
the Group made a net loss during the calculation period and the effect of their
inclusion would be anti-dilutive.
22. SEGMENT INFORMATION
The chief operating decision maker (CODM) is the Group CEO.
Neither the CODM, Executive Officers, or the Directors receive disaggregated
financial information about the locations in which exploration is occurring.
Therefore, the Group considers that it has only one reporting segment. The
majority of our long lived assets are located in Switzerland.
23. SUBSEQUENT EVENTS
We have signed an agreement dated January 29, 2010, pursuant to
which we have agreed to assign our interest in our Chilean project in exchange
for a return of all of the money that we have invested in this project to date
and relief from all currently outstanding and future obligations in respect of
the project. This agreement and the assignment of our interest in this project
are subject to approval by the Ministry of Energy in Chile. If the Ministry of
Energy in Chile approves our agreement and the assignment of our interest in the
Tranquilo blocks, the partners involved on a go-forward basis will be Pluspetrol
Chile S.A. (as to a 25% interest), Wintershall Chile Limitada (as to a 25% interest), International Finance Corporation of the
World Bank (as to a 12.5% interest), Methanex Chile S.A. (as to a 12.5%
interest) and GeoPark Magallanes Limitada (as to a 25% interest).
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2009 and 2008
On February 24, 2010, the wholly-owned subsidiary DWM
successfully completed the sale of DWMs subsidiary holding the Albanian asset,
Manas Adriatic GmbH, to Petromanas Energy Inc. (TSXV: PMI, former WWI Resources
Ltd.). In turn, DWM receives 100,000,000 common shares of Petromanas
(approximately 30% of Petromanas), a consideration of CAD $2,000,000 and loans
previously made from DWM to Manas Adriatic GmbH of approximately $8,500,000 are
reimbursed to DWM. Further, another 100,000,000 common shares are issued to DWM
on the earlier of June 23, 2011 and the completion of the first well on the
Licenses by Manas Adriatic, and another 50,000,000 common shares issuable to DWM
upon the satisfaction of certain performance goals.
78
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Our managements discussion and analysis of financial condition
and results of operations provides a narrative about our financial performance
and condition that should be read in conjunction with the audited consolidated
financial statements and related notes thereto included in this prospectus. This
discussion contains forward looking statements reflecting our current
expectations and estimates and assumptions about events and trends that may
affect our future operating results or financial position. Our actual results
and the timing of certain events could differ materially from those discussed in
these forward-looking statements due to a number of factors, including, but not
limited to, those set forth in the sections of this prospectus titled Risk
Factors beginning at page 4 above and Forward-Looking Statements beginning at
page 13 above.
Overview
We are an exploration stage company. Our growth strategy is
focused on petroleum exploration and development in selected Central Asian
countries of the former Soviet Union, in the Balkan Region and in Latin America.
Our goal is to increase stockholder value through the successful acquisition and
exploration of oil and gas resources. We do not have any known reserves on any
of our properties.
We have no operating income yet and, as a result, depend upon
funding from various sources to continue operations and to implement our growth
strategy.
Results of Operations
For the year ended December 31, 2009 we had a net loss of
$21,618,015 as compared to a net loss of $30,296,106 for the year ended December
31, 2008.
In the year ended December 31, 2009 our operating expenses
decreased to $9,501,901 from $20,956,481 reported for the same period in 2008.
The 55% decrease in our total operating expenses is attributable, firstly, to
personnel changes and reduction of administrative costs due to managements
decision to cut down costs, and secondly, to reduced exploration costs. 47% of
the total operating expenses, or $4,475,953 for the year ended December 31,
2009, is related to stock-based or stock option-based compensation payments,
which are non-cash. In the same period in 2008, we recorded stock-based or stock
option-based compensation of $9,790,874.
Finally, we had non-operating losses of $12,111,713,
significantly affected by a non-cash charge of $10,974,312 for the adjustment of
the fair values of warrants in the year ended December 31, 2009, compared to
non-operating losses in the year ended December 31, 2008 of $9,973,078, also
significantly affected by a non-cash charge for the subsequent equity sales
adjustment clause of $9,439,775.
Personnel costs
In the year ended December 31, 2009 our personnel costs have
decreased to $5,586,429 from $10,476,663 reported for the same period in 2008.
This 45% decrease in our personnel cost is due to managements decision to cut
down costs from the beginning of 2009 by reducing the number of employees from 9
to 4 and replacing several employee contracts with consulting agreements.
In the year ended December 31, 2009 77% of the total personnel
costs, or $4,296,079, is related to a non-cash charge for stock compensation and
our stock option plan to obtain and retain qualified management. In the same
period in 2008, 71% of the total personnel costs, or $7,399,063, is related to a
non-cash charge for stock compensation and our stock option plan to obtain and
retain qualified management.
79
Exploration costs
For the year ended December 31, 2009, we incurred exploration
costs of $1,067,986 as compared to $4,649,549 for the corresponding period in
2008. This decrease of 77% is mostly attributable to reduced exploration
activity in Albania and Tajikistan. We have started geological and geophysical
in Mongolia during the second half of 2009. The $1,067,986 cover the expenses
for our projects in Albania, Tajikistan, Mongolia and Chile, the major positions
being, firstly, the start of our exploration activities in Mongolia with
$930,310 which includes geological and geophysical work, environmental studies,
training and signing fees and, secondly, the continuation of our exploration
activities in Albania with $692,654, which included demobilization fee for the
seismic team, training and signing fees and a Gustavson research report.
Exploration costs were positively affected by a non-cash charge of $640,000
through the reduction of the Participation Liability in Mongolia (see note 14 to
our financial statements contained in this prospectus).
For the year ended December 31, 2008, the exploration costs in
Albania amount to $3,231,780 and include an environmental study, a volumetric
and an economic report by an independent engineering consulting agency,
reprocessing of data as well as a payment for the seismic work by Geological
Institute of Israel. The costs in Tajikistan amount to $792,125 for the year
ended December 31, 2008. The costs in Mongolia amount to $227,233 for the year
ended December 31, 2008,
Consulting fees
For the year ended December 31, 2009, we paid consulting fees
in the amount of $1,109,121 as compared to consulting fees of $3,052,920 for the
year ended December 31, 2008. This decrease of 64% is related to non-cash
charges for stock compensation and our stock option plan to obtain and retain
qualified management.
Administrative costs
For the year ended December 31, 2009, our administrative costs
declined to $1,670,678 from $2,724,471 during the same period in 2008. This
decrease of 39% or $1,053,793 is attributable to managements decision to cut
down costs from the beginning of 2009, these measures included the change of the
audit company, the change of the securities counsel firm, the reduction of
out-of-pocket expenses and the reduced use of the outside accounting firm.
Liquidity and Capital Resources
Our cash balance as of December 31, 2009 was $1,713,551 of
which $908,888 is restricted to finance the bank guarantees for the first phase
of our work program in Albania (covering the seismic and geological and
geophysical costs for Block D&E in Albania), leaving a balance of
$804,663.
Given the turbulence on the global equity markets, we now
anticipate that the planned financing of up to $80,000,000, which we targeted
for 2008 and then for 2009, will be postponed further. We will use any window of
opportunity to tap the equity markets, should the possibility arise from a
shareholders and companys perspective. In order to continue to fund operations
for the next twelve months and implement the geological work program for our
projects particular in Central Asia and the Balkan Region as well as to finance
continuing operations, we will require further funds. We might raise these funds
either through additional equity and/or debt financing (private placements) or
by farming-out projects in order to reduce our financial commitments.
On January 22, 2009, the restricted cash in Mongolia was
reduced from $4,000,000 to $2,000,000 in agreement with the Mongolian
authorities. We immediately paid our bank loan of $1,220,000 and accumulated
interest of $34,248. As a result, we were able to free up cash in the amount of
$745,752 net of all costs and charges at our own disposal (no restriction or
limitation of these funds after release).
On March 6, 2009, we negotiated new work programs for the two
production sharing contracts for Blocks A, B and D, E with the Albanian National
Petroleum Agency (which has since changed its name to the National Agency of
Natural Resources and referred to as AKBN). On April 3, 2009, we successfully
ratified the new work programs for these exploration blocks A, B and D, E in
Albania and had them approved with the Albanian authorities (AKBN), which
allowed us to reduce the bank guarantee, held as restricted cash on our accounts
on behalf of exploration work in Albania, by $2,541,800 at our own disposal
without any restrictions or limitations to these funds after the release, which took place by April 23, 2009 following
completion of the procedural formalities. In addition, we finalized negotiation
for an additional loan of $1,300,000, which will be secured by the remaining
escrow funds in Mongolia. On May 1, 2009, $1,000,000 of this loan was made
available to our company. On September 7, 2009 the remaining $300,000 was made
available to our company.
80
As of December 31, 2009, we had a bank guarantee for the
Albanian project of $875,000 to be used for investments in geological and
geophysical and seismic work carried out in Albania. The funds in the bank
guarantee will be continuously reduced on a monthly basis in accordance with
negotiations with the Albanian government and are available at our own disposal
thereafter (there is no restriction or limitation of these funds after their
release).
On November 19, 2009 we entered into a binding letter of intent
with WWI Resources Ltd., a TSX Venture Exchange listed company, pursuant to
which we agreed to sell all of the shares of a wholly-owned subsidiary that at
closing would own our Albanian project in exchange for a minimum of 100,000,000
common shares of WWI and a signing bonus in cash. In addition, WWI advanced
$917,723 to our company on December 3, 2009 to ensure funding for the short term
needs of the Albanian project.
On December 18, 2009, the Petroleum Authority of Mongolia
approved the fulfillment of the work commitment for the first phase in Mongolia
and the bank escrow of $2,000,000 was released. The proceeds were used to repay
the $1,300,000 bank loan and its interest and the proceeds of $687,573 were
available to our company.
On February 24, 2010, we signed a formal share purchase
agreement and completed the sale of all of the issued and outstanding shares of
Manas Adriatic to WWI Resources. As consideration for these shares, DWM
Petroleum received CDN$2,000,000 ($1,937,396) in cash. In addition, at closing
WWI Resources funded Manas Adriatic with $8,500,000 to be used by Manas Adriatic
to repay advances made by DWM Petroleum and its predecessors in respect of the
Albanian project. The proceeds from repayment of the $8,500,000 debt owed by
Manas Adriatic GmbH to DWM Petroleum AG (our wholly-owned subsidiary) have been
used by our company to repay all of our debt securities prior to maturity.
Cash Flows
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
Net cash used in Operating Activities
|
$
|
(6,450,830
|
)
|
$
|
(10,262,635
|
)
|
Net cash used in Investing Activities
|
$
|
7,028,263
|
|
$
|
(8,082,833
|
)
|
Net cash provided by Financing Activities
|
$
|
(106,148
|
)
|
$
|
10,039,102
|
|
Change in Cash and Cash Equivalents During the Period
|
$
|
471,285
|
|
$
|
(8,306,366
|
)
|
Operating Activities
Net cash used in operating activities of $6,450,830 for the
year ended December 31, 2009 has decreased from $10,262,635 in the comparable
period in 2008. This is mainly due to managements decision to cut down costs
from beginning of 2009. As a consequence, the number of employees and the
administrative costs have been reduced. Additionally, during the first two
quarters of 2008, we had extensive exploration activities in Albania and
Tajikistan, whereas in 2009, we only had significant exploration expenses in
Mongolia from the second half of 2009.
Investing Activities
Net cash used in investing activities has changed to an inflow
of $7,028,263 for the year ended December 31, 2009 from an outflow of $8,082,833
in the comparable period in 2008. This is due to the establishment of the bank
guarantee for the first exploration phase in Albania and the bank escrow in
Mongolia in the second quarter of 2008.
81
In 2009, the reduction of the bank guarantee in Albania and the
release of the escrowed amount Mongolia have positively affected the cash flow
from investing activities by $7,042,896.
Financing Activities
Net cash used in from financing activities of $106,148 for the
year ended December 31, 2009 has changed from net cash provided of $10,039,102
in the comparable period in 2008. In the year ended December 31, 2009, cash flow
from financing activities was positively affected by a contribution of $917,698
by WWI Resources Inc. to ensure ongoing operations in our Albania project and a
bank account overdraft. The total cash flow from financing activities for the
year ended December 31, 2009 was negatively affected due to the net repayment of
the bank loan of $1,220,000.
In the year ended December 31, 2008, cash flow from financing
activities was positively affected by the issuance of debentures in the second
quarter of 2008 by $3,760,000, the issuance of the convertible loan in the third
quarter of 2008 by $1,680,000, a private placement in the third quarter of 2008
by $1,849,429, a bank loan of $1,220,000 in the fourth quarter of 2008 and the
issuance of promissory notes to shareholders of $540,646.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Cash Requirements
We will require additional funds to fund our operations. These
funds may be raised through equity financing, debt financing, or other sources,
such as additional farm-out agreements, which may result in further dilution in
the equity ownership of our shares. There is still no assurance that we will be
able to maintain operations at a level sufficient for an investor to obtain a
return on his investment in our common stock. Further, we may continue to be
unprofitable.
Specifically, we estimate our operating expenses and working
capital requirements for the next 12 months to be as follows:
Expense
|
|
Amount
|
|
Geological & Geophysical
|
|
1'700'000
|
|
General & Administrative
|
|
1'900'000
|
|
Financing
|
|
6'700'000
|
|
Legal
|
|
300'000
|
|
Audit
|
|
100'000
|
|
Open Commitments
|
|
550'000
|
|
Total Expenses planned for next 12
months
|
|
11'250'000
|
|
With the sale of the Albanian assets to Petromanas Inc. all
work commitments were transferred and will be fully borne by our associate
Petromanas Inc. In Mongolia, we have currently as an operator a geological &
geophysical commitment of $1,650,000 for the next 12 months. As an operator, our
seismic or drilling work commitments for the next 12 months in Tajikistan amount
to $2,519,500. The seismic work in Tajikistan beginning in 2010 is borne by
Santos. In Kyrgyz Republic, the operational costs, including seismic are fully
carried by our partner Santos. As a non-operator, we have no seismic or drilling
work commitments in Chile for the next 12 months: We have signed an agreement
dated January 29, 2010, pursuant to which we have agreed to assign our interest
in our Chilean project in exchange for a return of all of the money that we have
invested in this project to date and relief from all currently outstanding and
future obligations in respect of the project. This agreement and the assignment
of our interest in this project are subject to approval by the Ministry of
Energy in Chile. Should we be able to raise funds through equity financing, debt
financing or other sources, such as additional farm-out agreements, we would
increase or speed up our programs.
There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, if and when it is needed, we will be forced to
scale down or perhaps even cease the operation of our business.
82
Going Concern
The consolidated financial statements have been prepared on the
assumption that we will continue as a going concern. We have historically
incurred losses and it incurred a loss of $21,618,015 for the year ended
December 31, 2009. Because we have no operating revenues, we will require
additional working capital to develop our business operations. The cash balance
as of December 31, 2009 was $1,713,551, of which $908,888 had been restricted
for a bank guarantee for the first phase of the work program in Albania
(covering the seismic and geological and geographical costs in Albania), leaving
an available balance of $804,663.
On January 22, 2009, the restricted cash in Mongolia was
reduced from $4,000,000 to $2,000,000 in agreement with the Mongolian
authorities. We immediately repaid our bank loan of $1,220,000 and accumulated
interest of $34,248. As a result, we were able to free up cash in the amount of
$746,752 net of all costs and charges at our own disposal (no restriction or
limitation of these funds after release).
As of February 1, 2009, the corporate cost base had been
reduced significantly and therefore, also the expected monthly burn rate from
around $650,000 to around $320,000. The main source of the cost savings stem
from a reduction in the number of personnel as well as significant salary cuts
at the Board of Directors level.
On April 3, 2009, we successfully ratified the new work
programs for our exploration blocks A, B and D, E in Albania and had them
approved with the Albanian authorities (AKBN), which allows us to reduce the
bank guarantee, held as restricted cash on our accounts on behalf of exploration
work in Albania, by $2,541,800 at our own disposal without any restrictions or
limitations to these funds after the release, which took place by April 23, 2009
following completion of the procedural formalities. In addition, we finalized
negotiation for an additional loan of $1,300,000, which will be secured by the
remaining escrow funds in Mongolia. On May 1, 2009, $1,000,000 of this loan was
made available to our company. On September 7, 2009 the remaining $300,000 was
made available to our company. Through the sale of the Albanian asset on
February 24, 2010, we do have no further commitments in Albania.
On December 18, 2009, the Petroleum Authority of Mongolia
approved the fulfillment of the work commitment for the first phase in Mongolia
and the bank escrow of $2,000,000 was released. The proceeds were used to repay
the $1,300,000 bank loan and its interest and the proceeds of $687,573 were
available to our company in December 2009.
On November 19, 2009 we entered into a binding letter of intent
with WWI Resources Ltd., a TSX Venture Exchange listed company, pursuant to
which we agreed to sell all of the shares of one of our wholly-owned
subsidiaries in exchange for a minimum of 100,000,000 common shares of WWI and a
signing bonus in cash. To ensure funding for our Albanian short-term operations
WWI Resources has advanced $917,723, which were available to our company on
December 3, 2009.
On February 24, 2010, we signed a formal share purchase
agreement and completed the sale of all of the issued and outstanding shares of
Manas Adriatic to WWI Resources. As consideration for these shares, DWM
Petroleum received CDN$2,000,000 ($1,937,396) in cash on the closing date and
100,000,000 WWI Resources common shares. Pursuant to the purchase agreement, DWM
Petroleum is entitled to receive an aggregate of up to an additional 150,000,000
WWI Resources common shares upon the occurrence of certain events.
In addition, at closing WWI Resources funded Manas Adriatic
with $8,500,000 to be used by Manas Adriatic to repay advances made by DWM
Petroleum and its predecessors in respect of the Albanian project. The proceeds
have been used to repay all of our outstanding debt securities.
Based on our expected monthly burn rate of $190,000 on basic
operation activities, we estimate that we have sufficient working capital to
fund operations for nine months from March 2010. In order to continue to fund
operations through April 2011 and execute the strategy to develop its assets, we
will require further funds. We expect to secure these additional funds through
possible disposals or farm-outs of its existing interests and we are currently
in active negotiations with interested parties for such transactions.
83
On March 4, 2010, we obtained additional financing of
$10,500,000 from external sources, relating to the sale of the Albanian asset.
Based on our business plan, we will need additional funding from external
sources of at least $750,000 to cover our annual burn rate and minimum
commitments for the next 12 months through April 2011.
We intend to raise additional working capital through private
placements, public offerings, bank financing and/or advances from related
parties or shareholder loans as well as limit our financial obligations by
farming-out projects to third parties. During 2008, we intended to obtain an
additional listing for our shares on the TSX Venture Exchange in Vancouver,
British Columbia, Canada. We still plan to do so, however, given the turbulence
in the global equity markets, we now anticipate that the planned listing on the
TSX will be postponed until late 2010.
The continuation of business is dependent
upon obtaining such further financing. The issuance of additional equity
securities could result in a significant dilution in the equity interests of
current or future stockholders. Obtaining commercial loans, assuming those loans
would be available, will increase liabilities and future cash commitments.
There are no assurances that we will be able to dispose of or
farm-out our existing interests or that we will be able to obtain additional
financing through either private placement, public offerings and/or bank
financing necessary to support our working capital requirements. We do not
currently have any arrangements in place to raise any additional funds.
These conditions raise substantial doubt about our 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 be necessary
should it be unable to continue as a going concern.
Application of Critical Accounting Policies
Our financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. These estimates and assumptions are affected by managements
application of accounting policies. We believe that understanding the basis and
nature of the estimates and assumptions involved with the following aspects of
our financial statements is critical to an understanding of our financial
statements.
We base our assumptions and estimates on historical experience
and other sources that we believe to be reasonable at the time. Actual results
may vary from our estimates due to changes in circumstances, weather, politics,
global economics, mechanical problems, general business conditions and other
factors. Our significant estimates are related to the valuation of warrants and
options.
There are accounting policies that we believe are significant
to the presentation of our financial statements. The most significant of these
are described below.
Exploration and evaluation costs
We account for our exploration costs on a successful efforts
basis and therefore all geological and geophysical costs, which include costs of
topographical, geological, and geophysical studies, rights of access to
properties to conduct those studies, and salaries and other expenses of
geologists, geophysical crews, and others conducting those studies, are expensed
as incurred.
Stock-based Compensation
We account for all of our stock-based payments and awards under
the fair value based method.
Stock-based payments to non-employees are measured at the fair
value of the consideration received, or the fair value of the equity instruments
issued, or liabilities incurred, whichever is more reliably measurable. The fair
value of stock-based payments to non-employees is periodically re-measured until
the counterparty performance is complete, and any change therein is recognized
over the vesting period of the award and in the same manner as if we had paid
cash instead of paying with or using equity based instruments. The cost of the
stock-based payments to non-employees that are fully vested and non-forfeitable
as at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case
such compensation would be amortized over the contractual term.
84
We account for the granting of share purchase options to
employees using the fair value method whereby all awards to employees will be
recorded at fair value on the date of the grant. The fair value of all share
purchase options are expensed over their vesting period with a corresponding
increase to additional capital surplus. Upon exercise of share purchase options,
the consideration paid by the option holder, together with the amount previously
recognized in additional capital surplus, is recorded as an increase to share
capital.
We use the Black-Scholes option valuation model to calculate
the fair value of share purchase options at the date of the grant. Option
pricing models require the input of highly subjective assumptions, including the
expected.
Valuation of Freestanding Warrants
ASC 815 (
Prior authoritative literature:
FAS 133,
Accounting for Derivative Instruments and Hedging Activities
) requires
measurement of free standing warrants classified as liability at fair value. In
determining the appropriate fair value, we used a Black Scholes model. These
warrants are adjusted to reflect fair value at each period end, with any
increase or decrease in the fair value being recorded in results of operations
as change in fair value of warrants.
Recently Issued But Not Yet Adopted Accounting
Pronouncements Affecting Us
In June 2009, the FASB issued ASC 810-10 (
prior
authoritative literature:
SFAS No. 167,
Amendments to FASB
Interpretation (FIN) No. 46(R)
) which changes how a reporting entity
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to consolidate another
entity is based on, among other things, the other entitys purpose and design
and the reporting entitys ability to direct the activities of the other entity
that most significantly impact the other entitys economic performance. ASC
810-10 will require a reporting entity to provide additional disclosures about
its involvement with variable interest entities and any significant changes in
risk exposure due to that involvement. A reporting entity will be required to
disclose how its involvement with a variable interest entity affects the
reporting entitys financial statements. ASC 810-10 is effective for fiscal
years beginning after November 15, 2009, and interim periods within those fiscal
years. Management is currently evaluating the requirements of ASC 810-10 and has
not yet determined the impact on our condensed consolidated financial
statements.
Directors and Executive Officers
Directors and Executive Officers
Our directors hold office until the next annual meeting or
until their successors have been elected and qualified, or until they resign or
are removed. Our board of directors appoints our officers, and our officers hold
office for such term as may be prescribed by our board of directors and until
their successors are chosen and qualify, or until their death or resignation, or
until their removal.
Our directors and executive officers, their ages, positions
held, and duration of such are as follows:
Name
|
Position Held
|
Age
|
Date First Elected or Appointed
|
Heinz J. Scholz
|
Executive Director, Chairman of
the Board
|
67
|
April 10, 2007
|
Michael Velletta
|
Executive Director
|
53
|
April 10, 2007
|
Dr. Richard Schenz
|
Independent Director
|
70
|
November 21, 2008
|
Erik Herlyn
|
Executive Director
|
41
|
July 9, 2009
|
|
Chief Executive Officer
|
|
February 1, 2009
|
Ari Muljana
|
Chief Financial Officer
|
31
|
July 9, 2009
|
Yaroslav Bandurak
|
Chief Technology Officer
|
38
|
April 10, 2007
|
85
Business Experience
The following is a brief account of the education and business
experience of directors and executive officers during at least the past five
years, indicating their principal occupation during the period, and the name and
principal business of the organization by which they were employed.
Heinz J. Scholz, Executive Director and
Chairman
Heinz J. Scholz is a physicist and engineer. In the 1980s Mr.
Scholz built factories and telecommunication networks in the former Soviet
Union. After the German Reunification he also advised Soviet Ministries
regarding the negotiations on the sale of Russias East German telecommunication
network to Deutsche Telecom. He has worked in collaboration with scientific
institutes in the Russian Federation. Mr. Scholz plays a critical role in
targeting, appraising and subsequently acquiring the rights to major oil and gas
assets in the former Soviet Union and its satellite countries.
Mr. Scholz has been our Executive Director since August 25,
2008 and the Chairman of our board of directors and one of our directors since
April 10, 2007. Since May 2004, he has acted as the Chairman of the board of
directors for DWM Petroleum A.G., and from May 2004 to February 2008, he acted
as Chief Executive Officer for DWM Petroleum A.G. Mr. Scholz earned his
Engineering degree in 1975 and MSc equivalent in Physics in 1979 at University
(Bremen) Engineer for Electro Technology, University for Technology (Bremen).
We believe Mr. Scholz is qualified to serve on our board of
directors because of his extensive knowledge of our companys history and
current operations. Mr. Scholz is also a co-founder of DWM Petroleum AG, our
wholly-owned subsidiary and beneficially owns approximately 19% of outstanding
shares of our common stock. Mr. Scholz plays a critical role in targeting,
appraising and subsequently acquiring the rights to major oil and gas assets in
the Former Soviet Union and its satellite countries.
Michael Velletta, Executive Director
Michael Velletta was called to the Bar of British Columbia,
Canada in 1990 and presented to the Supreme Court as a barrister and solicitor
that same year. Mr. Vellettas private practice with the law firm of Velletta
& Company focuses on corporate and commercial law, and commercial
litigation. He is a governor of the Trial Lawyers Association of British
Columbia, and is a member of the Canadian Bar Association, Association of
International Petroleum Negotiators and the International Institute of Business
Advisors. Mr. Velletta serves on the board of directors of several corporations
and is a governor of the University Canada West Foundation.
Mr. Velletta has been our Executive Director since August 25,
2008 and one of our directors since April 10, 2007. He served as our general
counsel from April 10, 2007 to August 25, 2008. Mr. Velletta received his LL.B.
degree in Law from the University of Victoria in 1989.
We believe Mr. Velletta is qualified to serve on our board of
directors because of his extensive knowledge of our companys history and
current operations, his legal background and skills, and his experience as a
director on the board of other companies. In particular, Mr. Vellettas
background as a lawyer provides a unique perspective to our board of
directors.
Richard Schenz, Director
Richard Schenz studied technical physics in Vienna and finished
with a Ph.D. In 1969 he started his career with the Austrian oil & gas
company OMV, and was its CEO from 1992 to 2001. In 2001, Dr. Schenz was
appointed representative for the Austrian Capital Market by the Austrian
government. Additionally, Dr. Schenz holds the positions of vice President of
the Austrian Federal Economic Chamber and President of the International Chamber
of Commerce in Austria (ICC-Austria). In 2002, he was appointed Chairman of the
Austrian commission for corporate governance.
Dr. Schenz was appointed as one of our directors on November
21, 2008.
We believe Dr. Schenz is qualified to serve on our board of
directors because of his extensive energy experience. Dr. Schenz has over 30
years of energy experience which he obtained with the Austrian Oil and Gas
company OMV, where he was CEO and President from 1992 to 2001. Dr.
Schenz sits on various boards of private and listed companies in Europe. We
believe Dr. Schenzs strong network to investment banking firms as well as
sovereign funds will prove invaluable to us as we attempt to grow our
company.
86
Erik Herlyn, President, Chief Executive Officer,
Secretary and Director
Erik Herlyn is a mechanical and production engineer (Trinity
University Dublin BSc, Manufacturing Engineering 1993, University of Bremen
Masters Diploma Production Engineering 1996). Mr. Herlyn has extensive
experience in the finance and hydrocarbon industries. He was in several
managerial positions in large international business consulting firms such as
KPMG, BearingPoint and Capgemini. His specialization lies in a process
optimization method which he developed over many years using synergies from
different industries. Mr. Herlyn was supporting major oil companies in the
Americas and Arabic countries in strategic, technical and financial projects.
Switzerland based Mr. Herlyn plays a key role in managing the global office
operations of our company as well as acquisition of licenses.
Mr. Herlyn has been our President and Secretary since July 9,
2009, one of our directors since July 8, 2009 and our Chief Executive Officer
since February 1, 2009. Mr. Heryln was our interim Chief Financial Officer from
February 28, 2009 to July 9, 2009 and our Chief Operating Officer from June 25,
2007 to February 1, 2009. From 2000 to 2006, Mr. Herlyn ran major projects in
the finance and hydrocarbon industries as a consultant with KPMG Consulting (a
larger management and technical consulting firm which later changed its name to
BearingPoint Management Consulting) and later as a consultant with Capgemini
from 2006 to 2007.
We believe Mr. Herlyn is qualified to serve on our board of
directors because of his extensive knowledge about our company, which he gained
from serving as our Chief Operating Officer and later as our Chief Executive
Officer and his experience in the finance industries and consultancy for large
oil and gas companies.
Ari Muljana, Chief Financial Officer and
Treasurer
Ari Muljana has been our Chief Financial Officer and Treasurer
since July 9, 2009. From 2007 to 2009 Mr. Muljana worked at Capgemini Consulting
as strategic consultant, focusing on controlling and performance measurement
topics in various industries. In 2005, he began his career in the Risk
Management department at Deloitte, where he audited and advised within the oil
and commodity trading industry. He is also specialized in the area of SOX
consulting, where he implemented financial and risk management processes for
multinational companies to comply with SEC regulations. He has a Master of
Science in Computer Science (University of Zurich 2004) with a major in
Financial Statement Analysis and Artificial Intelligence.
Yaroslav Bandurak, Chief Technical Officer
Yaroslav Bandurak received his geological degree from Ukraines
Lvov State University in 1995 where he subsequently served as a member of the
geology faculty from 1989 to 1995. Mr. Bandurak was later leading the geological
activities for several Central Asian oil and gas companies from 2000 to 2005 and
was a senior geologist of South Kyrgyz Geological Expedition from1995 to 2000.
Mr. Bandurak is responsible for our prospect developments, exploration
activities and acquisition of new projects.
Mr. Bandurak has been our Chief Technology Officer since April
10, 2007. From April 2004 to April 2007, Mr. Bandurak worked for Talas Gold,
where he primarily focused on a geological consultancy service for us.
Family Relationships
There are no family relationships between any director or
executive officer.
Involvement in Certain Legal Proceedings
Except as disclosed below, our directors or and executive
officers have not been involved in any of the following events during the past
ten years:
87
|
1.
|
any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer either at
the time of the bankruptcy or within two years prior to that
time;
|
|
|
|
|
2.
|
any conviction in a criminal proceeding or being subject
to a pending criminal proceeding (excluding traffic violations and other
minor offenses);
|
|
|
|
|
3.
|
being subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities; or
|
|
|
|
|
4.
|
being found by a court of competent jurisdiction (in a
civil action), the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated a federal or state securities
or commodities law, and the judgment has not been reversed, suspended, or
vacated.
|
|
|
|
|
5.
|
being the subject of, or a party to, any federal or state
judicial or administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of: (i) any federal or state securities or commodities law or
regulation; or (ii) any law or regulation respecting financial
institutions or insurance companies including, but not limited to, a
temporary or permanent injunction, order of disgorgement or restitution,
civil money penalty or temporary or permanent cease- and-desist order, or
removal or prohibition order; or (iii) any law or regulation prohibiting
mail or wire fraud or fraud in connection with any business entity;
or
|
|
|
|
|
6.
|
being the subject of, or a party to, any sanction or
order, not subsequently reversed, suspended or vacated, of any
self-regulatory organization (as defined in Section 3(a)(26) of the
Securities Exchange Act of 1934), any registered entity (as defined in
Section 1(a)(29) of the Commodity Exchange Act), or any equivalent
exchange, association, entity or organization that has disciplinary
authority over its members or persons associated with a
member.
|
On October 9, 2007, the British Columbia Securities Commission
of Canada issued a cease trader order against our company in British Columbia,
Canada pursuant to section 164(1) of the
Securities Act
(British
Columbia). At the time of the order, we were not a reporting issuer in British
Columbia, Canada and had our securities quoted on the OTC Bulletin Board. We
distributed securities to residents of British Columbia and failed to file a
Report of Exempt Distribution with the British Columbia Securities Commission
according to National Instrument 45-106. As a result, the British Columbia
Securities Commission ordered that trading in our securities cease in British
Columbia until the order was revoked. We filed the Report of Exempt Distribution
and on April 1, 2008, the British Columbia Securities Commission partially
revoked the cease trade order to permit trading in our securities except by
certain offshore entities. The British Columbia Securities Commission left the
order in effect with respect to those offshore entities because it was unable to
determine the beneficial ownership of the shares registered in the name of those
entities.
Executive Compensation
Summary Compensation
The particulars of compensation paid to the following
persons:
(a)
|
all individuals serving as our principal executive
officer during the year ended December 31, 2009;
|
|
|
(b)
|
each of our two most highly compensated executive
officers other than our principal executive officer who were serving as
executive officers at December 31, 2009 who had total compensation
exceeding $100,000; and
|
|
|
(c)
|
up to two additional individuals for whom disclosure
would have been provided under (b) but for the fact that the individual
was not serving as our executive officer at December 31,
2009,
|
who we will collectively refer to as the named executive
officers, for the years ended December 31, 2009 and 2008, are set out in the
following summary compensation table:
88
Name and Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
1
|
Option
Awards
($)
2
|
All Other
Compensation
($)
|
Total
($)
|
Erik Herlyn
CEO and Director
|
2009
2008
|
218'000
212'500
|
nil
nil
|
nil
125'000
|
280'000
nil
|
10'800
10'800
|
508'800
348'300
|
Ari Muljana
CFO
|
2009
2008
|
82'766
nil
|
nil
nil
|
nil
nil
|
56'000
nil
|
nil
nil
|
138'766
nil
|
Yarsolav Bandurak
CTO
|
2009
2008
|
98'000
120'000
|
nil
nil
|
nil
nil
|
nil
nil
|
nil
nil
|
98'000
120'000
|
Tomas Flottmann
Former CEO
|
2009
2008
|
28'000
308'000
|
nil
nil
|
nil
nil
|
nil
676'446
|
1'000
12'000
|
29'000
996'446
|
Rahul Sen Gupta
Former CFO
|
2009
2008
|
56'000
187'500
|
nil
nil
|
nil
nil
|
nil
450'964
|
2'700
10'800
|
58'700
649'264
|
Notes
(1)
|
This amount represents the fair value of these shares at
the date of grant. The fair value of these shares was determined using the
market price at the date of grant ($0.50 per share). Please see note 7 to
our financial statements contained in this prospectus.
|
|
|
(2)
|
These amounts represent the fair value of these options
at the date of grant. The fair value of all of the options was determined
using the Black-Scholes option pricing model using a 2.5- or 6-year
expected life of the option, a volatility factor between 50% and 90%, a
risk-free rate between 1.17% and 4.85% and no assumed dividend rate.
Please see note 7 to our financial statements contained in this
prospectus.
|
Compensation of Executive Officers and Directors
We have employment agreements with our executive officers and
some of our directors, which are described below. Also, under our 2007 Omnibus
Stock Option Plan, as amended, our board of directors may grant our qualified
directors, officers, employees, consultants and advisors stock options (which
may be designated as nonqualified stock options or incentive stock options),
stock appreciation rights, restricted stock awards, performance awards or other
forms of stock-based incentive awards, up to a maximum of 20,000,000 shares.
Other than compensation arrangements with Michael Velletta,
Richard Schenz, our 2007 Omnibus Stock Option Plan and our employment
agreements, we have no formal plan for compensating our directors for their
service in their capacity as directors. Directors are entitled to reimbursement
for reasonable travel and other out-of-pocket expenses incurred in connection
with attendance at meetings of our board of directors. Our board of directors
may award special remuneration to any director undertaking any special services
on our behalf other than services ordinarily required of a director.
There is no plan that provides for the payment of retirement
benefits, or benefits that will be paid primarily following retirement,
including but not limited to tax-qualified defined benefit plans, supplemental
executive retirement plans, tax-qualified defined contribution plans and
nonqualified defined contribution plans.
The descriptions of the materials terms of each contract,
agreement, plan or arrangement, whether written or unwritten, that provides for
payments to a named executive officer or director at, following, or in
connection with the resignation, retirement or other termination of a named
executive officer or director, or a change in control of our company or a change
in the named executive officers or directors responsibilities following a
change in control, with respect to each named executive officer or director are
provided below.
Employment Agreement with Erik Herlyn
On June 25, 2007, we entered into an employment and
non-competition agreement with Erik Herlyn, pursuant to which Mr. Herlyn agreed
to serve as our Chief Operating Officer. In consideration for the services that
Mr. Herlyn agreed to render pursuant to his employment agreement, Mr. Herlyn was
entitled to receive an annual base salary of $180,000 and options to purchase
400,000 shares of our common stock at an exercise price of $5.50 per share
pursuant to the 2007 Omnibus Stock Option Plan. Effective May 1, 2008, Mr.
Herlyns annual salary was raised to $210,000. Effective February 1, 2009, Mr.
Herlyn has agreed to reduce his compensation from $20,000 per month to $18,000 per month. Effective March 1, 2010, Mr. Herlyn has
agreed to reduce his compensation to $17,232 per year. This salary decrease
results from the sale of our Albanian project to Petromanas Energy Inc. in
exchange for cash and shares of Petromanas Energy Inc. and reflect our agreement
that Mr. Herlyn will spend some of his time working for our company and some of
his time working for Petromanas Energy Inc.
89
If we terminate Mr. Herlyn without cause or Mr. Herlyn resigns
as a result of our breach of any provision of the employment agreement, or
requiring Mr. Herlyn to move to a location outside Switzerland, or a material
change in his duties, or if Mr. Herlyns employment is terminated for any reason
during the 90-day period subsequent to a change in control of our company, we
must make certain payments and provide him certain benefits in addition to the
payment of all compensation accrued through the effective date of resignation
and reimbursement for all expenses incurred before the termination. Under such
circumstances, we must (i) pay him in a lump sum an amount equal to three months
of his annual guaranteed salary, and (ii) provide for the three months after his
termination continued coverage under all benefit plans in which he participated.
In addition, all options granted to him would immediately vest and become
exercisable upon the termination of Mr. Herlyns employment as described above.
Our stock option agreement also provides that all options granted to him would
immediately vest and become exercisable upon the occurrence of a change in
control.
As of December 31, 2009, 2,400,000 of the outstanding options
were held by Mr. Herlyn.
Employment Agreement with Ari Muljana
On April 1, 2009, we entered into an employment and
non-competition agreement with Ari Muljana, pursuant to which Mr. Muljana agreed
to serve as our Senior Finance Manager. In consideration for the services that
Mr. Muljana agreed to render pursuant to his employment agreement, Mr. Muljana
was entitled to receive an annual base salary of CHF130,000 and options to
purchase 400,000 shares of our common stock at an exercise price of $0.26 per
share pursuant to the 2007 Omnibus Stock Option Plan. Effective July 1, 2009,
Mr. Muljanas annual salary was raised to CHF136,500. In addition, we and Mr.
Muljana agreed to amend Mr. Muljanas employment agreement to adjust for the
fact that the exercise price of the options should have been set at a price of
$0.14 per share instead of $0.26 per share by providing that we will reimburse
Mr. Muljana for the difference ($0.12 for each share purchased by him pursuant
to the exercise of his options) if and at such time he exercises any of his
options. Effective January 1, 2010, Mr. Muljanas annual salary was raised to
CHF160,000. Effective March 1, 2010, Mr. Muljana has agreed to reduce his
compensation to $52,093 per year. This salary decrease results from the sale of
our Albanian project to Petromanas Energy Inc. in exchange for cash and shares
of Petromanas Energy Inc. and reflect our agreement that Mr. Muljana will spend
some of his time working for our company and some of his time working for
Petromanas Energy Inc.
If we terminate Mr. Muljana without cause or Mr. Muljana
resigns as a result of our breach of any provision of the employment agreement
or a material change in his duties, we must make certain payments and provide
him certain benefits in addition to the payment of all compensation accrued
through the effective date of resignation and reimbursement for all expenses
incurred before the termination. Under such circumstances, we must (i) pay him
in a lump sum an amount equal to two months of his annual guaranteed salary
(three months of his annual guaranteed salary if such termination occurs on or
after April 1, 2011), and (ii) provide for the first year after his termination
continued coverage under all benefit plans in which he participated. In
addition, all options granted to him would immediately vest and become
exercisable upon the termination of Mr. Muljanas employment as described above.
Our stock option agreement also provides that all options granted to him would
immediately vest and become exercisable upon the occurrence of a change in
control.
Employment Agreement with Yaroslav Bandurak
On April 1, 2007, we entered into an employment and
non-competition agreement with Yaroslav Bandurak, pursuant to which Mr. Bandurak
agreed to serve as our Chief Technical Officer. In consideration for the
services that Mr. Bandurak agreed to render pursuant to his employment
agreement, Mr. Bandurak was entitled to receive an annual base salary of $63,000
and options to purchase 1,500,000 shares of our common stock at a price of $4.00
per share pursuant to the 2007 Omnibus Stock Option Plan.
We and Mr. Bandurak have agreed to amend his employment
agreement to reduce his salary from $10,000 per month to $8,000 per month,
effective February 1, 2009.
90
On February 8, 2010, our board of directors approved changes to
the terms of our employment of Yaroslav Bandurak. These changes are the result
of our having been advised by Mr. Bandurak that, on a going forward basis, he
intends to spend part of his time exploring for, developing or otherwise having
an interest in non-petroleum resources in Mongolia. Our Board has confirmed that
Mr. Bandurak may do so provided that he continues to spend 50% or more of his
time working for our company and that he accepts a 50% reduction of the salary
that we pay him.
If we terminate Mr. Bandurak without cause or Mr. Bandurak
resigns as a result of our breach of any provision of the employment agreement,
our requiring Mr. Bandurak to move to a location outside the Kyrgyz
Republic/Ukraine, or a material change in his duties, or if Mr. Banduraks
employment is terminated for any reason during the 90-day period subsequent to a
change in control of our company, we must make certain payments and provide him
certain benefits in addition to the payment of all compensation accrued through
the effective date of resignation and reimbursement for all expenses incurred
before the termination. Under such circumstances, we must (i) pay him in a lump
sum an amount equal to his annual guaranteed salary, and (ii) provide for the
first year after his termination continued coverage under all benefit plans in
which he participated. In addition, all options granted to him would immediately
vest and become exercisable upon the termination of Mr. Banduraks employment as
described above. Our stock option agreement also provides that all options
granted to him would immediately vest and become exercisable upon the occurrence
of a change in control.
Employment Agreement with Thomas Flottmann
On December 1, 2007, we entered into an employment agreement
with Thomas Flottmann for an open term commencing February 8, 2008. As
compensation for his employment as our Chief Executive Officer, Mr. Flottmann
was to receive an annual salary of $336,000. Additionally, Mr. Flottmann was to
receive 600,000 stock options, a car lease limited to a total cost of $1,000 per
month and five weeks paid vacation.
On January 28, 2009, Mr. Flottmann signed a termination
agreement with us and resigned as our Chief Executive Officer effective February
1, 2009. According to the termination agreement, we are released from all
obligations in regards of the employment agreement with Mr. Flottmann after
February 1, 2009. We and Mr. Flottmann have entered into a new consulting
agreement, effective February 1, 2009. The terms of the consulting agreement
with Mr. Flottmann contemplate that he will provide services on an on call
basis at a daily consulting rate. As a result of his termination, all of his
options were cancelled on May 1, 2009.
Employment Agreement with Rahul Sen Gupta
On February 1, 2008, we entered into an employment agreement
with Rahul Sen Gupta for an open term commencing on February 8, 2008. As
compensation for his employment as Chief Financial Officer, Mr. Sen Gupta was to
receive a salary of $17,500 per month for the first six months and $20,000 per
month thereafter. Additionally, Mr. Sen Gupta was to receive 400,000 stock
options, a car lease limited to a total cost of $900 per month and 30 days paid
vacation.
We and Mr. Sen Gupta agreed to amend his employment agreement
to reduce his salary from $20,000 per month to $18,000 per month, effective
February 1, 2009. On February 28, 2009, Mr. Sen Gupta resigned. Mr. Sen Gupta
agreed to stay for another 30 days to support us in filing our annual report on
Form 10-K. As a result of his termination, all of his options were cancelled on
May 28, 2009. In connection with his resignation, Mr. Sen Gupta asked us to
transfer open salary payments by the end of March 2009 (50% for January 2009,
100% for February 2009 and 100% for March 2009) and transfer pension fund by the
end of March 2009. On March 31, 2009, Mr. Sen Gupta agreed to extend his support
for finishing our annual report until April 15, 2009 for $9,000 excluding
communication costs.
91
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth for each named executive officer
certain information concerning the outstanding equity awards as of December 31,
2009.
|
Option awards
|
Stock awards
|
Name and
Principal
Position
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
|
Option
Exercise
Price
|
Option
Expiration
Date
|
Number
of
Shares
or Units
of Stock
that
Have Not
Vested
|
Market
Value
of
Shares or
Units of
Stock
that
Have Not
Vested
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights that
Have Not
Vested
|
Equity
Incentive Plan
Awards:
Market or
Payout Value
of
Unearned
Shares, Units
or Other
Rights
that
Have Not
Vested
|
Erik Herlyn
CEO and Director
|
335'165
448'718
|
64'835
1'551'282
|
$ 5.50
$ 0.26
|
Jun 25, 2017
Apr 21, 2012
|
nil
nil
|
nil
nil
|
nil
nil
|
nil
nil
|
Ari Muljana
CFO
|
89'744
|
310'256
|
$ 0.26
|
Apr 21, 2012
|
nil
|
nil
|
nil
|
nil
|
Yarsolav Bandurak
CTO
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
Tomas Flottmann
Former CEO
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
Rahul Sen Gupta
Former CFO
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
On February 24, 2010, we re-priced an aggregate of 4,350,000
stock options originally granted to three of our directors and/or officers
(1,750,000 stock options for Heinz Scholz, 1,100,000 stock options for Michael
Velletta, and 1,500,000 stock options for Yaroslav Bandurak) on May 2, 2007 from
an original exercise price of $4.00 to $0.70. We also re-priced 400,000 stock
options granted to Erik Herlyn, one of our directors and officers, on June 25,
2007 from an original exercise price of $5.50 to $0.70.
Director
Compensation
Name and Principal
Position
|
Fees
Earned or
Paid in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
1
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
|
All Other
Compensation
($)
|
Total
($)
|
Heinz Scholz
|
194'000
|
nil
|
nil
|
nil
|
nil
|
1'667
|
195'667
|
Michael Velletta
|
107'000
|
nil
|
nil
|
nil
|
nil
|
24'000
|
131'000
|
Dr. Richard Schenz
|
15'000
|
nil
|
246'489
|
nil
|
nil
|
nil
|
261'489
|
Alexander
Becker
2
|
100'000
|
nil
|
nil
|
nil
|
nil
|
1'667
|
101'667
|
Neil
Maedel
3
|
15'000
|
nil
|
nil
|
nil
|
nil
|
1'000
|
16'000
|
Peter-Mark
Vogel
4
|
28'000
|
nil
|
nil
|
nil
|
nil
|
1'667
|
29'667
|
Notes
(1)
|
This amount represents the fair value of these options at
the date of grant. The fair value of these options was determined using
the Black-Scholes option pricing model using a 6-year expected life of the
option, a volatility factor of 70%, a risk- free rate between 2.75% and no
assumed dividend rate. Please see note 7 to our financial statements
contained in this prospectus.
|
|
|
(2)
|
Dr. Becker resigned as our Chief Executive Officer on
February 8, 2008 and ceased to be our Vice Chairman and Executive Director
at our annual meeting of stockholders on July 8, 2009 as he did not run
for re-election as a director.
|
|
|
(3)
|
Mr. Maedel was not re-elected as a director at our annual
meeting of stockholders on July 8, 2009.
|
|
|
(4)
|
Mr. Vogel resigned as our Executive Director on February
1, 2009.
|
92
Compensation for Heinz Scholz
On April 1, 2007, we entered into an employment and
non-competition agreement with Heinz Scholz, pursuant to which Mr. Scholz agreed
to serve as the Chairman of our board of directors. In consideration for the
services that Mr. Scholz agreed to render pursuant to his employment agreement,
Mr. Scholz was entitled to receive an annual base salary of $336,000, stock
options to purchase 1,750,000 shares of our common stock at a price of $4.00 per
share pursuant to our 2007 Omnibus Stock Option Plan and a non-accountable
automobile and monthly parking allowance of $20,000 per year.
We and Mr. Scholz have agreed to terminate his employment
agreement and to enter into a new consulting agreement. The new arrangement
resulted in the reduction of his monthly compensation from a salary of $31,000
per month to a consulting fee of $15,000 per month, effective February 1, 2009.
Effective March 1, 2010, Mr. Scholz has agreed to reduce his compensation to
$114,552 per year. This consulting fee decrease results from the sale of our
Albanian project to Petromanas Energy Inc. in exchange for cash and shares of
Petromanas Energy Inc. and reflect our agreement that Mr. Scholz will spend some
of his time working for our company and some of his time working for Petromanas
Energy Inc.
As of December 31, 2009, 1,750,000 of the outstanding options
were held by Mr. Scholz.
Compensation for Michael Velletta
On April 10, 2007, we granted our director, Michael Velletta,
stock options to purchase 1,100,000 shares of our common stock at a price of
$4.00 per share for a term of 10 years as consideration for his service on our
board of directors. Such options vest in equal quarterly installments over the
three years from the date of the grant. Mr. Velletta also receives $6,000 each
quarter for his services as a director.
We and Mr. Velletta have agreed to terminate his employment
agreement and to enter into a new consulting agreement. The new arrangement
resulted in the reduction of his monthly compensation from a salary of $12,000
per month to a consulting fee of $5,000 per month, effective February 1, 2009.
Effective July 1, 2009, Mr. Vellettas monthly consulting fee was raised to
$12,000. Additionally, Mr. Velletta receives $2,000 as an office allowance.
Effective March 1, 2010, Mr. Velletta has agreed to reduce his compensation to
$97,944 per year. This consulting fee decrease results from the sale of our
Albanian project to Petromanas Energy Inc. in exchange for cash and shares of
Petromanas Energy Inc. and reflect our agreement that Mr. Velletta will spend
some of his time working for our company and some of his time working for
Petromanas Energy Inc.
As of December 31, 2009, 1,100,000 of the outstanding options
were held by Mr. Velletta.
Compensation for Dr. Richard Schenz
On August 10, 2009 we entered into a consulting agreement with
Dr. Richard Schenz. In return for acting as a member of our board of directors,
we have agreed to pay Dr. Schenz a fee of $5,000 per quarter starting the first
day of the second quarter, and to grant stock options to purchase 1,000,000
shares of our common stock, 500,000 at a price of $0.68 and 500,000 at a price
of $0.79 per share, expiring on November 21, 2018.
As of December 31, 2009, 1,000,000 of the outstanding options
were held by Mr. Schenz.
Compensation for Peter-Mark Vogel
On April 1, 2007, we entered into an employment and
non-competition agreement with Peter-Mark Vogel, pursuant to which Mr. Vogel
agreed to serve as our Chief Financial Officer and member of our board of
directors. In consideration for the services that Mr. Vogel agreed to render
pursuant to his employment agreement, Mr. Vogel was entitled to receive an
annual base salary of approximately $348,000 (CHF 417,600), stock options to
purchase 1,750,000 shares of our common stock at a price of $4.00 per share
pursuant to our 2007 Omnibus Stock Option Plan and a non-accountable automobile
and monthly parking allowance of $20,000 (CHF 24,000) per year.
On February 1, 2009, we entered into a termination agreement
with Mr. Vogel, releasing him as our Executive Director. We have agreed that we
will have compensation obligations after his termination. As a result of his
termination, all of his options were cancelled on May 1, 2009.
93
On March 26, 2009, we entered into a consulting frame contract
with Mr. Vogel, whereby Mr. Vogel agreed to perform tasks on an as-requested
basis, from time-to-time. We agreed to compensate Mr. Vogel on either a fixed
price arrangement or a time and material arrangement at Mr. Vogels election in
respect of each task that we ask him to complete. Mr. Vogel has agreed to
provide us with consulting services relating to finance and auditing matters on
a fixed price arrangement with monthly compensation of $12,000 per month. If the
compensation arrangement is a time and material arrangement, we agreed to pay
Mr. Vogel a daily rate of $1,400 excluding VAT.
On February 24, 2010, we granted stock options to Peter-Mark
Vogel, a director of one of our subsidiaries and a beneficial owner of
approximately 13.36% of outstanding shares of our common stock, to purchase an
aggregate of 1,000,000 shares of our common stock at an exercise price of $0.70
per share for a term expiring February 22, 2015. The options vest in 12
quarterly installments, subject to proration to account for any partial calendar
quarter at the beginning of the vesting period, with the first installment to
vest on the first day of the first full calendar quarter after the date of his
stock option agreement, and with each subsequent installment to vest on the
first day of each calendar quarter thereafter. The grant is subject to the
execution of stock option agreements by Mr. Vogel and the terms of our 2008
stock option plan.
Effective March 1, 2010, Mr. Vogel has agreed to reduce his
compensation to $88,733 per year. This consulting fee decrease results from the
sale of our Albanian project to Petromanas Energy Inc. in exchange for cash and
shares of Petromanas Energy Inc. and reflect our agreement that Mr. Vogel will
spend some of his time working for our company and some of his time working for
Petromanas Energy Inc.
Compensation for Alexander Becker
On April 1, 2007, we entered into an employment and
non-competition agreement with Alexander Becker pursuant to which Dr. Becker
agreed to serve as our Chief Executive Officer and member of our board of
directors. In consideration for the services that Dr. Becker agreed to render
pursuant to his employment agreement, Dr. Becker was entitled to receive an
annual base salary of $336,000, stock options to purchase 1,750,000 shares of
our common stock at a price of $4.00 per share pursuant to our 2007 Omnibus
Stock Option Plan and a non-accountable automobile and monthly parking allowance
of $20,000 per year.
We and Dr. Becker have agreed to terminate his employment
agreement and to enter into a new consulting agreement. The new arrangement
resulted in the reduction of his monthly compensation from a salary of $29,666
per month to a consulting fee of $12,000 per month, effective February 1,
2009.
Dr. Becker resigned as our Chief Executive Officer on February
8, 2008. He ceased to be our Vice Chairman and Executive Director at our annual
meeting of stockholders on July 8, 2009 as he did not run for re-election as a
director, and since then his consulting agreement was terminated and he does not
work for us any more.
Compensation for Neil Maedel
On June 1, 2007, we entered into an employment and
non-competition agreement with Neil Maedel whereby he agreed to serve as our
Director, Business Development in exchange for an annual base salary of
$180,000, stock options to purchase 1,500,000 shares of our common stock
pursuant to our 2007 Omnibus Stock Option Plan at a strike price of $4.90 to
expire on May 31, 2017 and a non-accountable automobile and monthly parking
allowance of $12,000 per year. The term of this agreement was open ended.
We and Mr. Maedel have agreed to terminate his employment
agreement and to enter into a new consulting agreement. The new arrangement
resulted in the reduction of his monthly compensation from a salary of $16,000
per month to nil, effective February 1, 2009.
On July 8, 2009, Mr. Maedel was not re-elected as a director at
our annual meeting of stockholders, and since then his consulting agreement was
terminated and he does not work for us any more.
94
Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of April 1, 2010, certain
information with respect to the beneficial ownership of our common stock by each
stockholder known by us to be the beneficial owner of more than 5% of our common
stock and by each of our current directors, our named executive officers and our
current executive officers and by our current directors and executive officers
as a group. We have determined the number and percentage of shares beneficially
owned by such person in accordance with Rule 13d-3 under the
Securities
Exchange Act of 1934
. This information does not necessarily indicate
beneficial ownership for any other purpose.
Title of
Class
|
Name and Address of
Beneficial Owner
|
Amount and Nature of
Beneficial
Ownership
(1)
|
Percent of
Class
(1)
|
Common Stock
|
Heinz Scholz
Seegartenstrasse 45
Horgen 8810
Switzerland
|
24,071,676
(2)
|
Direct
|
19.78%
|
Common Stock
|
Peter-Mark Vogel
Haabweg 2
Baech 8806
Switzerland
|
15,992,428
(3)
|
Direct
|
13.33%
|
Common Stock
|
Alexander Becker
1051 Brickley Close
Sidney, BC V8L 5L1
Canada
|
15,601,943
(4)
|
Direct
|
13.01%
|
Common Stock
|
Michael Velletta
4th Floor, 931 Fort
Street
Victoria, British Columbia V8V 3K3,
Canada
|
3,879,896
(5),(6)
|
Indirect
|
3.21%
|
Common Stock
|
Yaroslav Bandurak
Moskovskaya Str, H 86
AP 38
Bishkek 720021
Kyrgyz Republic
|
3,140,766
(7)
|
Direct
|
2.59%
|
Common Stock
|
Erik Herlyn
Am Rain 11
Windisch 5210
Switzerland
|
1,369,439
(8)
|
Direct
|
1.13%
|
Common Stock
|
Richard Schenz
Hauptstrasse 70
A-2372
Giesshuebl
Austria
|
269,346
(9)
|
Direct
|
*
|
Common Stock
|
Ari Muljana
Hirzenbachstrasse 77
Zurich 8051
Switzerland
|
145,669
(10)
|
Direct
|
*
|
Common Stock
|
Rahul Sen Gupta
Alte Wollerauerstrasse 36
Wollerau 8832
Switzerland
|
829,992
|
-
|
*
|
Common Stock
|
Thomas Flottmann
251 Verney Rd East
Graceville, Qld 4075
Australia
|
333,333
(11)
|
-
|
*
|
Common Stock
|
Directors and Current Executive
Officers
as a group (6 persons)
(12)
|
32,876,792
|
|
26.12%
|
95
Notes
|
|
*
|
Less than 1%.
|
|
|
(1)
|
Percentage of ownership is
based on 119,879,699 shares of our common stock issued and outstanding as
of April 1, 2010. Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed above, based on information
furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where
applicable. 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 subject to options or warrants currently exercisable, or exercisable
within 60 days, are deemed outstanding for purposes of computing the
percentage ownership of the person holding such option or warrants, but
are not deemed outstanding for purposes of computing the percentage
ownership of any other person.
|
|
|
(2)
|
Consists of 22,007,450 shares of our common stock, 1,797,560 options exercisable within 60 days and 266,666 shares of our common stock held in trust for Peter-Mark Vogel pursuant to an agreement which we are not a party.
|
|
|
(3)
|
Consists of 15,904,466 shares of our common stock, 87,962 options exercisable within 60 days and does not include 266,666 shares held in trust for Mr. Vogel by Mr. Heinz Scholz
|
|
|
(4)
|
Consists of 15,268,610 shares
of our common stock and 333,333 shares of our common stock held in trust
for Thomas Flottmann pursuant to an agreement which are not a party.
|
|
|
(5)
|
Held by Velletta Resources
& Technology Corp. of which Mr. Velletta holds voting and dispositive
control.
|
|
|
(6)
|
Consists of 2,750,000 shares of our common stock and 1,129,896 stock options exercisable within 60 days.
|
|
|
(7)
|
Consists of 1,600,000 shares of our common stock and 1,540,766 stock options exercisable within 60 days.
|
|
|
(8)
|
Consists of 250,000 shares of our common stock and 1,119,439 stock options exercisable within 60 days.
|
|
|
(9)
|
Consists of 269,346 stock options exercisable within 60 days.
|
|
|
(10)
|
Consists of 145,669 stock options exercisable within 60 days.
|
|
|
(11)
|
Consists of 333,333 shares of
our common stock and does not include 333,333 shares of our common stock
held in trust for Mr. Flottmann by Alexander Becker.
|
|
|
(12)
|
Does not include Thomas
Flotmann, who resigned as our Chief Executive Officer on February 1, 2009
and Rahul Sen Gupta, who resigned as our Chief Financial Officer on
February 28, 2009.
|
Changes in Control
We are unaware of any contract or other arrangement the
operation of which may at a subsequent date result in a change in control of our
company.
Transactions with Related Persons, Promoters and Certain
Control Persons and Corporate Governance
Other than as disclosed below, there has been no transaction,
since January 1, 2007, or currently proposed transaction, in which Manas
Petroleum Corporation was or is to be a participant and the amount involved
exceeds the lesser of $120,000 or one percent of the average of our total assets
at year end for the last two completed fiscal years ($595,863), and in which any
of the following persons had or will have a direct or indirect material
interest:
|
(i)
|
Any director or executive officer of Manas Petroleum
Corporation;
|
|
|
|
|
(ii)
|
Any beneficial owner of shares carrying more than 5% of
the voting rights attached to our outstanding shares of common
stock;
|
|
|
|
|
(iii)
|
Any promoter of Manas Petroleum Corporation;
and
|
96
|
(iv)
|
Any immediate family member (including spouse, parents,
children, siblings and in-laws) of any of the foregoing
persons.
|
Share Exchange Transaction
On April 10, 2007, we completed the transactions contemplated
under a share exchange agreement that we entered into with DWM Petroleum AG, a
Swiss company, and the shareholders of DWM Petroleum on November 23, 2006. Under
this share exchange agreement, the shareholders of DWM Petroleum received
80,000,000 shares of our common stock, equal to 79.9% of our outstanding common
stock at the time, in exchange for 100% of the shares of DWM Petroleum. The
following table shows the number of shares of our common stock received by our
current or former officers, directors, and beneficial holders of more than 5% of
our common stock, or entities affiliated with them in exchange for the shares of
DWM Petroleum owned by them.
|
Number of Shares of Our
|
Number of Shares of DWM
|
Name
|
Common Stock Received
|
Petroleum Exchanged
|
Alexander Becker
|
17,929,943
|
237,634
|
Heinz J. Scholz
|
22,736,616
|
301,267
|
Peter-Mark Vogel
|
17,748,599
|
227,136
|
Velletta Resources & Technology Corp.
(1)
|
2,000,000
|
25,000
|
Neil Maedel
|
800,000
|
10,000
|
Yaroslav Bandurak
|
1,600,000
|
20,000
|
Rahul Sen Gupta
|
114,996
|
1,036
|
|
|
|
(1) Velletta Resources &
Technology is a company owned by Michael Velletta.
|
The share exchange agreement also requires us to issue an
aggregate of up to an additional 500,000 shares of our common stock over time to
the former shareholders of DWM Petroleum for every 50 million barrels of P50 oil
reserves net to us from exploration in the Kyrgyz Republic, Albania and
Tajikistan up to a maximum of 2.5 billion barrels of P50 oil reserves. At our
option, this obligation can be extended to additional properties that are
acquired through the actions of the shareholders of DWM Petroleum. The following
table shows the number of shares of our common stock to be received by our
current or former officers, directors, and beneficial holders of more than 5% of
our common stock, or entities affiliated with them.
|
Number of Shares of Our Common
|
Name
|
Stock to be Received
|
Alexander Becker
|
118,817
|
Heinz J. Scholz
|
150,634
|
Peter-Mark Vogel
|
113,550
|
Michael Velletta
|
12,500
|
Neil Maedel
|
5,000
|
Yaroslav Bandurak
|
10,000
|
Rahul Sen Gupta
|
518
|
As a condition to completion of the share exchange, the
shareholders of DWM Petroleum agreed to lock up the shares of our common stock
received by them at closing. Each affiliate of DWM Petroleum entered into a lock
up agreement restricting sales of his shares of our common stock until April 10,
2010, provided that beginning December 10, 2008, he was to be permitted to sell
up to 3% of the number of shares of our common stock held by him in any three
month period. Heinz Scholz, Alexander Becker, Michael Velletta, Neil Maedel,
Peter-Mark Vogel and Yaroslav Bandurak are our current or former officers and
directors who were subject to the above mentioned the lock up agreements. On
April 15, 2009, we agreed to waive all of the resale restrictions imposed by
these lock up agreements. Resale of the shares of our stock affected by these
agreements continues to be subject to any resale restrictions imposed by law,
including the applicable securities laws.
97
On February 20, 2007, we entered into a consulting agreement
with Talas Gold whereby Talas Gold agreed to provide geological consulting
services for a monthly fee of $21,166. Talas Gold is a British Columbia
corporation controlled by Alexander Becker. This agreement was cancelled on
August 31, 2007.
On September 5, 2005, we entered into a current account
agreement with Heinz Scholz to cover the terms of an outstanding loan that he
had made to us. Under the terms of the agreement, either party may borrow from
the other up to CHF 1,000,000 (approximately $855,500) for an open-ended term
with an interest rate to be reset once a year. Since January 1, 2006, the
largest amount of principal outstanding on this loan has been CHF 6,182,091.26
(approximately $4,938,956) owed by us to Mr. Scholz, the amount of principal
repaid on this loan was approximately $5,710,425 (of which approximately
$1,837,901 was in the form of debt forgiveness) and the amount of interest
repaid on this loan was CHF 18,070 (approximately $14,505). On June 30, 2008, we
repaid the remaining balance of the loan of $27,979. Mr. Scholz has not borrowed
funds under this arrangement.
On September 5, 2005, we entered into a current account
agreement with Varuna AG, a related company belonging to Heinz Scholz, to cover
the terms of an outstanding loan that Varuna had made to us. Under the terms of
the agreement, either party may borrow from the other up to CHF 1,000,000
(approximately $855,500) for an open-ended term with an interest rate to be
reset once a year. Since January 1, 2006, the largest amount of principal
outstanding on this loan has been CHF 313,442 (approximately $242,264), the
amount of principal repaid on this loan was CHF 853,244.00 (approximately
$681,429) and the amount of interest repaid on this loan was CHF 6,843.15
(approximately $5,482). On March 29, 2007, this loan has been fully repaid and
the agreement has been terminated. Varuna did not borrow funds under this
arrangement.
On October 26, 2006, we entered into a sub-tenancy agreement
with Heinz Scholz to rent office space in Switzerland. Under the terms of the
agreement, we paid Mr. Scholz CHF 10,000 per month (approximately $8,744) for
use of the space. This agreement was for an indefinite term and might be
terminated by either party with three months notice.
Effective May 1, 2007, we and Heinz Scholz agreed to terminate
the sub-tenancy agreement dated October 26, 2006, pursuant to which we have been
renting office space in the City of Horgen, Switzerland for a monthly rental of
CHF 10,000 (approximately $8,744).
On May 1, 2007, we entered into a sub-tenancy agreement with
Heinz Scholz to rent the same office space and further space in Switzerland.
Under the terms of the agreement, we paid Mr. Scholz CHF 15,000 per month
(approximately $13,115) for use of the space. This agreement was for an
indefinite term and could be terminated by either party on three months
notice.
Effective February 1, 2009, we and Heinz Scholz agreed to
terminate the sub-tenancy agreement dated May 1, 2007, pursuant to which we have
been renting office space in the City of Horgen, Switzerland for a monthly
rental of CHF 15,000 (approximately $13,115).
On December 5, 2008, we entered into arrangements with Michael
Velletta, Heinz Scholz, Alexander Becker and Peter-Mark Vogel pursuant to which
they lent us a total of $540,646 ($16,043 from Michael Velletta, $217,769 from
Heinz Scholz, $152,493 from Alexander Becker, and $154,341 from Peter-Mark
Vogel) in exchange for promissory notes. The promissory notes are for an
indefinite period of time. We can prepay the promissory notes at any time
without notice, bonus or penalty and must repay the promissory notes upon the
earlier of the date that we raise $1,000,000 or more in debt or equity
financings or the ninetieth day after we receive written notice from the
noteholder of a demand for repayment. No interest is due under the notes as long
as we do not default on our obligations thereunder. However, if we default on
the repayment of the promissory note, we will be liable for interest accruing at
a rate of 12% per annum on the principal outstanding until we repay the
promissory note in full. On May 1, 2009 we received $1,000,000 in financing. The
payment therefore falls due immediately, but so far has not been paid yet.
98
Employment Agreements
For information regarding compensation for our executive
officers and directors, see Executive Compensation.
Corporate Governance
Our common stock is quoted on the OTC Bulletin Board operated
by the Financial Industry Regulatory Authority and on the over-the-counter
market operated by Pink OTC Markets Inc., which do not impose any director
independence requirements. Under NASDAQ rule 5605(a)(2), a director is not
independent if he or she is also an executive officer or employee of the
corporation. Under that definition of independent director, we only have one
independent director, Richard Schenz.
Where You Can Find More Information
We are not required to deliver an annual report to our
stockholders unless our directors are elected at a meeting of our stockholders
or by written consents of our stockholders. If our directors are not elected in
such manner, we are not required to deliver an annual report to our stockholders
and will not voluntarily send an annual report.
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. Such filings
are available to the public over the internet at the Securities and Exchange
Commissions website at
http://www.sec.gov
.
We have filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act of 1933 with respect
to the securities offered under this prospectus. This prospectus, which forms a
part of that registration statement, does not contain all information included
in the registration statement. Certain information is omitted and you should
refer to the registration statement and its exhibits.
You may review a copy of the registration statement at the
Securities and Exchange Commissions public reference room at 100 F Street, N.E.
Washington, D.C. 20549 on official business days during the hours of 10 a.m. to
3 p.m. You may obtain information on the operation of the public reference room
by calling the Securities and Exchange Commission at 1-800-SEC-0330. You may
also read and copy any materials we file with the Securities and Exchange
Commission at the Securities and Exchange Commissions public reference room.
Our filings and the registration statement can also be reviewed by accessing the
Securities and Exchange Commissions website at
http://www.sec.gov
.
99
22,683,989 Shares
Manas Petroleum Corporation
Common Stock
End of Prospectus
_____________, 2010
Dealer Prospectus Delivery Obligation
Until ________________, all dealers that effect
transactions in these securities whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to the dealers
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
No finder, dealer, sales person or other person has been
authorized to give any information or to make any representation in connection
with this offering other than those contained in this prospectus and, if given
or made, such information or representation must not be relied upon as having
been authorized by our company. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
by anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such offer or
solicitation. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of these securities. Our business, financial condition,
results of operation and prospects may have changed after the date of this
prospectus.
100
Information Not Required in Prospectus
Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable
by us in connection with the issuance and distribution of the securities being
registered hereunder. The selling stockholders will bear no expenses associated
with this offering except for any broker discounts and commissions or equivalent
expenses and expenses of the selling stockholders legal counsels applicable to
the sale of their shares. All of the amounts shown are estimates, except for the
Securities and Exchange Commission registration fees.
Securities and Exchange Commission
registration fees
|
$
|
3,003
|
|
Accounting fees and expenses
|
$
|
70,000
|
|
Legal fees and expenses
|
$
|
50,000
|
|
Transfer agent and registrar fees
|
$
|
5,000
|
|
Miscellaneous expenses
|
$
|
5,000
|
|
Total
|
$
|
133,003
|
|
Indemnification of Directors and Officers
Nevada Revised Statutes provide that:
-
a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with the action, suit or proceeding if he or she acted in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful;
-
a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys fees actually
and reasonably incurred by him or her in connection with the defense or
settlement of the action or suit if he or she acted in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the corporation. Indemnification may not be made for any claim,
issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action
or suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court
deems proper; and
-
to the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit
or proceeding, or in defense of any claim, issue or matter therein, the
corporation must indemnify him or her against expenses, including attorneys
fees, actually and reasonably incurred by him or her in connection with the
defense.
101
Nevada Revised Statutes provide that we may make any
discretionary indemnification only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances. The determination must be made:
-
by our stockholders;
-
by our board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding;
-
if a majority vote of a quorum consisting of directors who were not parties
to the action, suit or proceeding so orders, by independent legal counsel in a
written opinion;
-
if a quorum consisting of directors who were not parties to the action,
suit or proceeding cannot be obtained, by independent legal counsel in a
written opinion; or
-
by court order.
Our bylaws provide that we, to the maximum extent permitted by
applicable law, have the power to indemnify each of our agents against expenses
and have the power to advance to each such agent expenses incurred in defending
any such proceeding to the maximum extent permitted by that law.
Under our bylaws, the term an agent includes any person who
is or was a director, officer, employee or other agent of our company; or is or
was serving at the request of our company as a director, officer, employee or
agent of our company or another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise; or was a director, officer, employee
or agent of a foreign or domestic corporation which was a predecessor
corporation of our company or of another enterprise at the request of such
predecessor corporation. The term proceeding means any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative or
investigative. The term expenses includes, without limitation, all costs,
charges and expenses, including an amount paid to settle an action or satisfy a
judgment, and other amounts actually and reasonably incurred in connection with
any proceeding arising by reason of the fact any such person is or was an agent
of our company.
Recent Sales of Unregistered Securities
On February 24, 2010, we granted stock options to a director of
one of our subsidiaries to purchase an aggregate of 1,000,000 shares of our
common stock at an exercise price of $0.70 per share for a term expiring
February 22, 2015. The options vest in 12 quarterly installments, subject to
proration to account for any partial calendar quarter at the beginning of the
vesting period, with the first installment to vest on the first day of the first
full calendar quarter after the date of the optionees stock option agreement,
and with each subsequent installment to vest on the first day of each calendar
quarter thereafter. The grant is subject to the execution of stock option
agreements by the optionees and the terms of our 2008 stock option plan. All of
the optionees are non-U.S. persons (as that term is defined in Regulation S of
the Securities Act of 1933), and we issued all of these options in offshore
transactions relying on Regulation S and/or Section 4(2) of the Securities Act
of 1933.
On August 10, 2009, pursuant to the consulting agreement that
we entered into with Richard Schenz and in return for acting as a member of our
board of directors, we granted Dr. Schenz 500,000 stock options exercisable at
$0.68 per share of common stock until November 21, 2018, and granted 500,000
stock options exercisable at $0.79 per share of common stock until November 21,
2018, vesting in 12 installments, with the first installment consisting of
46,196 shares, each of the second through the 11th installments consisting of
83,334 shares and the 12th installment consisting of 37,130 shares (with each
installment comprised of 50% $0.68 stock options and 50% $0.79 stock options).
Dr. Schenz is not a U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933), and we issued these stock options to him in an offshore
transaction relying on the registration exemption provided by Regulation S
and/or Section 4(2) of the Securities Act of 1933.
On April 28, 2009, we granted stock options to an aggregate of
three people, one of whom is an officer of our company, one is an employee of
our company and one is an executive officer of a corporate consultant to our
company, to purchase an aggregate of 4,400,000 shares of our
common stock at an exercise price of $0.26 per share, for a term expiring April
28, 2012. The options will vest in 12 installments every three months, with each
installment equal to 1/12th of the total number of options granted to the
optionee. Each grant is subject to the execution of a stock option agreement by
the grantee.
102
Two of the grantees are not U.S. persons (as that term is
defined in Regulation S of the Securities Act of 1933), and we issued 2,400,000
of these options to these two grantees in offshore transactions relying on the
registration exemption provided by Regulation S and/or Section 4(2) of the
Securities Act of 1933. The third grantee is a U.S. person and we issued the
options to him relying on the registration exemption provided by Section 4(2) of
the Securities Act of 1933.
On October 21, 2008, we issued 1,160,000 shares of our common
stock as bonus shares to employees, officers and a director. All of these shares
were subject to a six month lock up, and all but 60,000 were subject to a 3%
dribble out clause per quarter. The shares were issued to non-US persons relying
on the exemption from the registration requirements of the Securities Act of
1933 provided by Regulation S and/or Section 4(2) of the Securities Act of
1933.
On September 4, 2008, we sold 4,000,000 units to two U.S.
investors for aggregate proceeds of $2,600,000, or $0.65 per unit. Each unit
consisted of one share of our common stock, one warrant and an interest in
rights granted to us by the Mineral Resources and Petroleum Authority of
Mongolia with respect to certain production sharing contracts governing areas in
Mongolia referred to as Sulinkheer 13 and Sulinkheer 14. The units were issued
in a private placement and, in issuing them, we relied on the exemption from the
registration requirements of the Securities Act of 1933 provided by Section 4(2)
of the Securities Act of 1933 and Rule 506 promulgated by the Securities and
Exchange Commission thereunder.
Each of the 4,000,000 unit warrants entitles the holder to
purchase one additional share of our common stock for a price of $0.95 per share
until September 4, 2010. We agreed to use our best efforts to file, on or before
May 4, 2009, a registration statement with the Securities and Exchange
Commission registering for resale (i) the unit shares and (ii) the shares that
may be issued upon exercise of the warrants.
Each unit contained a 0.000002% interest in rights granted to
us by the Mineral Resources and Petroleum Authority of Mongolia with respect to
certain production sharing contracts, totaling 8% of our interests therein. If
permitted by the production sharing contracts and Mongolian law, the holders of
those interests may demand that these interests be transferred directly to the
holders. We have agreed that the holders of these interests are not responsible
for any costs associated with the projects being undertaken in connection with
the production sharing agreements.
On August 18, 2008, we issued convertible debentures with a
two-year term for the aggregate principal amount of $2,000,000. The debentures
carry a per annum interest rate of 8% payable annually on the first business day
of December. In addition to the interest payable under the debentures, the
debenture holders obtained 8% of our interest in Mongolia lots 13 and 14 without
having to undertake any of the obligations of work programs connected to those
lots. The principals and any accrued but unpaid interests on the debentures are
convertible, in whole or in part, at the option of the debenture holders if we
conduct a public offering. In the event of a conversion, the conversion price is
to be the per share price in the public offering. The debentures are secured by
our assets in the Kyrgyz Republic. The debentures were issued to four non-US
persons relying on the exemption from the registration requirements of the
Securities Act of 1933 provided by Regulation S and/or Section 4(2) of the
Securities Act of 1933.
On June 2, 2008, we issued 43,741 shares of our common stock to
pay our interest on the debenture issued on April 30, 2008 at a cost of $57,479.
These shares were issued to four non-US person relying on the exemption from the
registration requirements of the Securities Act of 1933 provided by Regulation S
under the Securities Act of 1933.
On April 30, 2008, we sold 4,000 units to four non-U.S.
investors for aggregate proceeds of $4,000,000, or $1,000 per unit. Each unit
consisted of one convertible debenture with a two-year term in the principal
amount of $1,000 and 250 warrants. The units were issued in a private placement
and, in issuing them, we relied on the exemption from the registration requirements of the Securities Act of
1933 provided by Regulation S promulgated by the Securities and Exchange
Commission thereunder.
103
The debentures carry a per annum interest rate of 8% payable
semi-annually. Upon certain events, the debentures are convertible into shares
of our common stock at a non-fixed rate. Each of these 1,000,000 warrants
entitled the holder to purchase one share of our common stock for a price of
$2.10 per share until April 30, 2010.
On March 3, 2008, we issued 1,369,893 shares of our common
stock as bonus shares to our Albanian team. These shares were issued to non-U.S.
persons relying on the exemption from the registration requirements of the
Securities Act of 1933 provided by Regulation S of the Securities Act of
1933.
On February 1, 2008, we granted 600,000 stock options to Thomas
Flottmann, our former Chief Executive Officer, and 400,000 stock options to
Rahul Sen Gupta, our former Chief Financial Officer. These options were to vest
in 12 equal installments beginning on the date of the grant and every three
months thereafter. Each of these options is exercisable at $2.10, which was the
closing price of our common stock on the Over-the-Counter Bulletin Board on
February 1, 2008, the day that the options were granted. Neither of the persons
receiving the options was a U.S person or resided in the United States. We
issued these options in offshore transactions relying on Regulation S and/or
Section 4(2) of the Securities Act of 1933.
On July 31, 2007, we arranged a private placement of 825,227
units at a purchase price of $4.50 per unit for total gross proceeds of up to
$3,687,992. Each unit consisted of one share of our common stock and one warrant
to purchase one share of our common stock exercisable at $5.50 until July 31,
2009. The units were issued to non-U.S. persons in an offshore transaction
relying on Regulation S and/or Section 4(2) of the Securities Act of 1933.
Commissions paid in connection with this offering totaled $155,759 and 33,289
warrants exercisable at $4.50 until July 31, 2009. These warrants were issued in
an offshore transaction relying on Regulation S of the Securities Act of
1933.
In June 2007, we issued 80,000 shares of our common stock as a
bonus to one of our employees, who was neither an executive officer or a
director as consideration for past services. These shares were issued to a
non-U.S. person relying on the exemption from the registration requirements of
the Securities Act of 1933 provided by Regulation S and/or Section 4(2) of the
Securities Act.
On April 10, 2007, in connection with the share exchange
carried out for our acquisition of DWM Petroleum AG, we issued an aggregate of
80,000,000 shares of our common stock to the former shareholders of DWM
Petroleum. Issuances of these shares were exempt from the registration
requirements of the Securities Act of 1933, pursuant to Regulation S under the
Securities Act of 1933. At the time of purchase, each shareholder of DWM
Petroleum represented that such shareholder: (i) was outside the U.S. and was a
not a U.S person (and was not purchasing for the account or benefit of a U.S.
person) within the meaning of Regulation S; (ii) would abide by the restrictions
on resale pursuant to Rule 904 of Regulation S; and (iii) if such shareholder
was a dealer or a person receiving a selling concession fee or other
remuneration within the meaning of Regulation S, would not, until the expiration
of the one-year restricted period within the meaning of Rule 903 of Regulation
S, offer or sell such shares to a U.S. person or for the account or benefit of a
U.S. person.
Also on April 10, 2007, we issued 400,000 shares of our common
stock to each of Anderson Properties Incorporated and John Martin as finders
fees in connection with the share exchange carried out for our acquisition of
DWM Petroleum AG. The sales of these securities were exempt from registration
under the Securities Act of 1933 pursuant to Regulation S under the Securities
Act of 1933.
Also on April 10, 2007, we completed a private placement of
10,340,860 units at a price of $1.00 per unit for the aggregate offering price
of $10,340,860. Each unit consisted of one share of our common stock, one half
of one Series A warrant with each whole warrant granting the holder the right to
acquire one share of common stock at $2 per share for 2 years, and one half of
one Series B warrant with each whole warrant granting the holder the right to
acquire one share of common stock at $4 per share for 3 years. Prior to making
these sales, each purchaser represented that the purchaser was either a non-U.S.
person within the meaning of Regulation S under the Securities Act or an accredited investor within the meaning of Regulation
D under the Securities Act. The sales of these securities were exempt from
registration under the Securities Act of 1933 pursuant to Regulation S and/or
Regulation D under the Securities Act of 1933. Commissions paid in connection
with this offering totaled $607,114.60 and 1,734,613 warrants exercisable at
$2.00 until April 10, 2010. These warrants were issued in an offshore
transaction relying on Regulation S and/or Section 4(2) of the Securities Act of
1933.
104
On October 3, 2006, we completed raising $140,000 through a
private placement of 14,000,000 shares of our common stock at $0.01 per share.
These shares were issued to non-U.S. persons relying on the exemption from the
registration requirements of the Securities Act of 1933 provided by Regulation
S.
On March 31, 2010, we issued 150,000 shares of our common stock at an exercise price of $0.59 per share upon exercise of the warrants which we issued previously. These shares were issued to a non-U.S. person relying on the exemption from the registration requirements of the Securities Act of 1933 provided by Regulation S.
On April 1, 2010, we issued 677,966 shares of our common stock at an exercise price of $0.59 per share upon exercise of the warrants which we issued previously. These shares were issued to a non-U.S. person relying on the exemption from the registration requirements of the Securities Act of 1933 provided by Regulation S.
Exhibits
Exhibit
|
|
Number
|
Description
|
|
|
(3)
|
Articles of Incorporation
and Bylaws
|
|
|
3.1
|
Articles of Incorporation
(incorporated by reference to an exhibit to our Registration Statement on
Form SB-2 filed on July 14, 2003)
|
|
|
3.2
|
Certificate of Amendment to
Articles of Incorporation of Express Systems Corporation filed on April 2,
2007 (changing name to Manas Petroleum Corporation) (incorporated by
reference to an exhibit to our Current Report on Form 8-K filed on April
17, 2007)
|
|
|
3.3
|
Amended and Restated Bylaws
(incorporated by reference to an exhibit to our Current Report on Form 8-K
filed on June 15, 2009)
|
|
|
(4)
|
Instruments Defining the
Rights of Security Holders, including Indentures
|
|
|
4.1
|
Form of Debenture (incorporated
by reference to an exhibit to our Current Report on Form 8-K filed on May
16, 2008)
|
|
|
4.2
|
Form of Loan Agreement
(incorporated by reference to an exhibit to our Current Report on Form 8-K
filed on August 25, 2008)
|
|
|
(5)
|
Opinion regarding
Legality
|
|
|
5.1**
|
Opinion of Clark Wilson LLP
regarding the legality of the securities being registered
|
|
|
(10)
|
Material Contracts
|
|
|
10.1
|
Share Exchange Agreement, dated
November 23, 2006 (incorporated by reference to an exhibit to our Current
Report on Form 8-K filed on April 17, 2007)
|
|
|
10.2
|
Form of Warrant B to Purchase
Manas Petroleum Corporation Common Stock (incorporated by reference to an
exhibit to our Current Report on Form 8-K filed on April 17, 2007)
|
105
10.3
|
Yaroslav Bandurak employment
agreement, dated April 1, 2007 (incorporated by reference to an exhibit to
our Current Report on Form 8-K filed on April 17, 2007)
|
|
|
10.4
|
Farm-In Agreement, dated April
10, 2007 (incorporated by reference to an exhibit to our Current Report on
Form 8-K filed on April 17, 2007)
|
|
|
10.5
|
2007 Omnibus Stock Option Plan
(incorporated by reference to an exhibit to our Current Report on Form 8-K
filed on April 17, 2007)
|
|
|
10.6
|
Form of Debenture (incorporated
by reference to an exhibit to our Current Report on Form 8-K filed on May
16, 2008)
|
|
|
10.7
|
Form of Warrants (incorporated
by reference to an exhibit to our Current Report on Form 8-K filed on May
16, 2008)
|
|
|
10.8
|
Form of Subscription Agreement
(incorporated by reference to an exhibit to our Current Report on Form 8-K
filed on May 16, 2008)
|
|
|
10.9
|
Form of Loan Agreement
(incorporated by reference to an exhibit to our Current Report on Form 8-K
filed on August 25, 2008)
|
|
|
10.10
|
Form of Securities Purchase
Agreement, Including the Form of the Warrant (incorporated by reference to
an exhibit to our Current Report on Form 8-K filed on September 15, 2008)
|
|
|
10.11
|
Letter Agreement Phase 2 Work
Period with Santos International Operations Pty. Ltd, dated August 19,
2008 (incorporated by reference to an exhibit to our Annual Report on Form
10-K filed on April 15, 2009)
|
|
|
10.12
|
Side Letter Agreement Phase 1
Completion and Cash Instead of Shares with Santos International Holdings
Pty Ltd, dated November 24, 2008 (incorporated by reference to an exhibit
to our Annual Report on Form 10-K filed on April 15, 2009)
|
|
|
10.13
|
Amended 2007 Omnibus Stock
Option Plan (incorporated by reference to an exhibit to our Annual Report
on Form 10-K filed on April 15, 2009)
|
|
|
10.14
|
Production Sharing Contract for
Exploration, Development and Production of Petroleum in Onshore Albania
Block A-B between Ministry of Economy, Trade and Energy of Albania and
DWM Petroleum dated July 31, 2007 (incorporated by reference to an exhibit
to our Quarterly Report on Form 10-Q/A filed on July 24, 2009)
|
|
|
10.15
|
Production Sharing Contract for
Exploration, Development and Production of Petroleum in Onshore Albania
Block D-E between Ministry of Economy, Trade and Energy of Albania and
DWM Petroleum dated July 31, 2007 (incorporated by reference to an exhibit
to our Quarterly Report on Form 10-Q/A filed on July 24, 2009)
|
|
|
10.16
|
Promissory note issued to Heinz
Scholz dated December 5, 2008 (incorporated by reference to an exhibit to
our Quarterly Report on Form 10-Q/A filed on July 24, 2009)
|
|
|
10.17
|
Promissory Note issued to
Peter-Mark Vogel dated December 5, 2008 (incorporated by reference to an
exhibit to our Quarterly Report on Form 10-Q/A filed on July 24, 2009)
|
|
|
10.18
|
Promissory note issued to
Alexander Becker dated December 5, 2008 (incorporated by reference to an
exhibit to our Quarterly Report on Form 10-Q/A filed on July 24, 2009)
|
|
|
10.19
|
Promissory note issued to
Michael Velletta dated December 5, 2008 (incorporated by reference to an
exhibit to our Quarterly Report on Form 10-Q/A filed on July 24, 2009)
|
106
10.20
|
Cancellation of Sub-Tenancy
Contract with Heinz Scholz dated January 19, 2009 (incorporated by
reference to an exhibit to our Quarterly Report on Form 10-Q/A filed on
July 24, 2009)
|
|
|
10.21
|
Consulting Frame Contract with
Varuna AG dated February 1, 2009 (incorporated by reference to an exhibit
to our Quarterly Report on Form 10-Q/A filed on July 24, 2009)
|
|
|
10.22
|
Termination Agreement with
Thomas Flottmann dated January 31, 2009 (incorporated by reference to an
exhibit to our Quarterly Report on Form 10-Q/A filed on July 24, 2009)
|
|
|
10.23
|
Consulting Frame Contract with
Thomas Flottmann dated January 22, 2009 (incorporated by reference to an
exhibit to our Quarterly Report on Form 10-Q/A filed on July 24, 2009)
|
|
|
10.24
|
Amendment to the Notice with
Terms and Condition for the Termination of Employment Agreement with Rahul
Sen Gupta dated February 26, 2009 (incorporated by reference to an exhibit
to our Quarterly Report on Form 10-Q/A filed on July 24, 2009)
|
|
|
10.25
|
Amendment to the Termination
Agreement with Rahul Sen Gupta dated March 31, 2009 (incorporated by
reference to an exhibit to our Quarterly Report on Form 10-Q/A filed on
July 24, 2009)
|
|
|
10.26
|
Termination Agreement with
Peter-Mark Vogel dated January 30, 2009 (incorporated by reference to an
exhibit to our Quarterly Report on Form 10-Q/A filed on July 24, 2009)
|
|
|
10.27
|
Consulting Frame Contract with
Peter-Mark Vogel dated March 26, 2009 (incorporated by reference to an
exhibit to our Quarterly Report on Form 10-Q/A filed on July 24, 2009)
|
|
|
10.28
|
Employment and Non-Competition
Agreement with Erik Herlyn dated June 25, 2007 (incorporated by reference
to an exhibit to our Quarterly Report on Form 10-Q/A filed on July 24,
2009)
|
|
|
10.29
|
Amendment to Employment
Agreement with Erik Herlyn dated May 14, 2008 (incorporated by reference
to an exhibit to our Quarterly Report on Form 10-Q/A filed on July 24,
2009)
|
|
10.30
|
Amendment to Employment
Agreement with Yaruslav dated November 4, 2007 (incorporated
by reference to an exhibit to our Quarterly Report on Form
10-Q/A filed on July 24, 2009)
|
|
|
10.31
|
Production Sharing Contract for
Contract Area Tsagaan Els-XIII between the Petroleum Authority of Mongolia
and DWM Petroleum (incorporated by reference to an exhibit to our
Quarterly Report on Form 10-Q/A filed on July 24, 2009)
|
|
|
10.32
|
Production Sharing Contract for
Contract Area Zuunbayan-XIV between the Mineral Resources and Petroleum
Authority of Mongolia and DWM Petroleum (incorporated by reference to an
exhibit to our Quarterly Report on Form 10-Q/A filed on July 24, 2009)
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10.33
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Letter from AKBN regarding
Production Sharing Contracts for Blocks A-B and D-E dated May 5, 2009
(incorporated by reference to an exhibit to our Quarterly Report on Form
10-Q/A filed on July 24, 2009)
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|
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10.34
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Employment Agreement between
Ari Muljana and Manas Petroleum Corporation dated April 1, 2009
(incorporated by reference to an exhibit to our Registration Statement on
Form S-1 filed on July 30, 2009)
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10.35
|
Consultancy Agreement dated
November 21, 2008 with Dr. Richard Schenz (incorporated by reference to an
exhibit to our Current Report on Form 8-K filed on August 13, 2009)
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10.36
|
Non Statutory Stock Option
Agreement dated August 10, 2009 with Dr. Richard Schenz ($0.68)
(incorporated by reference to an exhibit to our Current Report on Form 8-K
filed on August 13, 2009)
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107
10.37
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Non Statutory Stock Option
Agreement dated August 10, 2009 with Dr. Richard Schenz ($0.79)
(incorporated by reference to an exhibit to our Current Report on Form 8-K
filed on August 13, 2009)
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10.38
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Production Sharing Contract for
Exploration, Development and Production of Petroleum in Onshore Albania
Block 2-3 between Ministry of Economy, Trade and Energy of Albania and
DWM Petroleum dated November 7, 2008 (incorporated by reference to an
exhibit to our Quarterly Report on Form 10-Q filed on November 23, 2009)
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10.39
|
Letter of Intent with WWI
Resources Ltd. dated November 19, 2009 (incorporated by reference to an
exhibit to our Quarterly Report on Form 10-Q filed on November 23, 2009)
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10.40
|
Share Purchase Agreement dated
February 12, 2010 between WWI Resources Ltd., DWM Petroleum AG and Manas
Adriatic GmbH (incorporated by reference to an exhibit to our Current
Report on Form 8-K filed on February 25, 2010)
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10.41
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Form of Stock Option Agreement
(Investor Relations) (incorporated by reference to an exhibit to our
Annual Report on Form 10-K filed on March 18, 2010)
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10.42
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Form of Stock Option Agreement
(Non-Investor Relations) (incorporated by reference to an exhibit to our
Annual Report on Form 10-K filed on March 18, 2010)
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10.43
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Agreement dated January 29,
2010 relating to the assignment of the interest in the Chilean project
(incorporated by reference to an exhibit to our Annual Report on Form 10-K
filed on March 18, 2010)
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(21)
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Subsidiaries
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21.1
|
Subsidiaries of Manas Petroleum
Corporation
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CJSC Somon Oil, Dushanbe, Tajikistan, 90%
interest
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DWM Petroleum A.G.,
Switzerland, 100% interest
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Manas Petroleum A.G., Switzerland, 100%
interest
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Manas Energia Limitada, Chile,
100% interest
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Manas Petroleum of Chile Corporation, Canada,
100% interest
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Manas Management Services Ltd.,
Bahamas, 100% interest
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Gobi Energy Partners, Mongolia, 84% interest
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Petromanas Energy Inc., British
Columbia, Canada, 30.74% interest
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(23)
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Consents of Experts and Counsel
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23.1*
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Consent of Deloitte AG
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23.2*
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Consent of BDO Visura
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23.3**
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Consent of Clark Wilson LLP (included in
Exhibit 5.1)
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(99)
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Additional Exhibits
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99.1
|
Unaudited Pro Forma Condensed Consolidated
Financial Information
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*Filed herewith.
** To be filed by an amendment.
Undertakings
The undersigned registrant hereby undertakes:
1. To file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
108
|
i.
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To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
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ii.
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To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the Calculation of Registration
Fee table in the effective registration statement; and
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iii.
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To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration
statement;
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2. That, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof;
3. To remove from
registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering; and
4. That, for the purpose of
determining liability under the Securities Act of 1933 to any purchaser, each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on 430B or
other than prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
109
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in Baar, Switzerland on
April 1, 2010.
Manas Petroleum Corporation
By:
/s/ Erik Herlyn
Erik Herlyn
President, Chief
Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Erik Herlyn
Erik Herlyn
President, Chief
Executive Officer and Director
(Principal Executive Officer)
Date: April
1, 2010
/s/ Ari Muljana
Ari Muljana
Chief Financial
Officer and Treasurer
(Principal Financial Officer and Principal Accounting
Officer)
Date: April 1, 2010
/s/ Heinz Scholz
Heinz Scholz
Chairman and
Executive Director
Date: April 1, 2010
/s/ Michael Velletta
Michael Velletta
Executive
Director
Date: April 1, 2010
/s/ Richard
Schenz
Richard
Schenz
Director
Date: April 1, 2010
110
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