siberian10k123108.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
[X]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the
fiscal year ended December 31, 2008
[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the
transition period from __________ to __________
Commission
file number: 333-118902
SIBERIAN ENERGY GROUP
INC.
(Exact
name of small business issuer as specified in its charter)
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NEVADA
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52-2207080
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(State
or other jurisdiction of
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(IRS
Employer Identification No.)
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incorporation
or organization)
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275 Madison Ave, 6th Floor,
New York, NY 10016
(Address
of principal executive offices)
(212)
828-3011
(Registrant's
telephone number)
Securities
registered under Section 12(b) of the Exchange Act:
NONE
Securities
registered under Section 12(g) of the Exchange Act:
NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes [ ] No
[X]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [ ] No
[X]
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer [ ]
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Accelerated
filer[ ]
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Non-accelerated
filer [ ]
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Smaller
reporting company [X]
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(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X].
The
issuer's revenues for the most recent fiscal year ended December 31, 2008 were
$0.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the closing value of the Registrant's
common stock on June 30, 2008, was approximately $4,374,198.
As of
March 31, 2009, the issuer had 18,645,585 shares of common stock, $.001 par
value per share outstanding.
Documents
Incorporated by Reference: NONE
Transitional
Small Business Disclosure Format: Yes [ ] No [X]
SIBERIAN
ENERGY GROUP INC.
FORM
10-K
YEAR
ENDED DECEMBER 31, 2008
INDEX
Part
I
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Item
1. Business
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4
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Item
1A. Risk Factors
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13
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Item
2. Properties
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19
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Item
3. Legal Proceedings
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20
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Item
4. Submission of Matters to a Vote of Security Holders
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20
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Part
II
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Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
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21
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Item
6. Selected Financial Data
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22
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Item
7. Management's Discussion and Analysis or Plan of
Operation
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22
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Item
8. Financial Statements and Supplementary Data
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F-1
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Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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28
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Item
9A. Controls and Procedures
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28
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Item
9B. Other Information
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29
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Part
III
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Item
10. Directors, Executive Officers and Corporate Governance
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30
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Item
11. Executive Compensation
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36
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Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
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48
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Item
13. Certain Relationships and Related Transactions
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50
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Item
14. Principal Accountant Fees and Services
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52
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Part
IV
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Item
15. Exhibits, Financial Statement Schedules
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53
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PART
I
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN
STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K (THIS "FORM 10-K"), INCLUDING
STATEMENTS UNDER "ITEM 1. BUSINESS," AND "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS", CONSTITUTE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (COLLECTIVELY, THE "REFORM ACT"). CERTAIN, BUT NOT
NECESSARILY ALL, OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE
OF FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "SHOULD",
OR "ANTICIPATES", OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND
UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF SIBERIAN ENERGY GROUP INC. AND KONDANEFTEGAZ, LLC, A RUSSIAN
LIMITED LIABILITY, THE REGISTRANT’S 44% OWNED SUBSIDIARY, AND ZAURALNEFTEGAZ
LIMITED, A COMPANY ORGANIZED UNDER THE LAWS OF THE COUNTRY OF ENGLAND, WHICH THE
REGISTRANT OWNS 50% OF (COLLECTIVELY "SIBERIAN", THE "COMPANY", "WE", "US" OR
"OUR") TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. REFERENCES
IN THIS FORM 10-K, UNLESS ANOTHER DATE IS STATED, ARE TO DECEMBER 31,
2008.
Investors
should also take note of the fact that some of the more technical terms relating
to the Company's operations as described below are explained in greater detail
under exhibit 99.1, incorporated by reference hereto.
BUSINESS
DEVELOPMENT:
Siberian
Energy Group Inc. was formed as a Nevada corporation on August 13, 1997, as
Advanced Rehab Technology Corporation. Subsequently, on March 9, 2001, the
Company changed its name to Talking Cards, Inc.; on February 12, 2002, the
Company changed its name to Oysterking Incorporated; on December 3, 2002, the
Company changed its name to 17388 Corporation Inc., at which point the
controlling interest of the Company was sold and a new board of directors was
appointed; on May 5, 2003, the Company changed its name to Trans Energy Group
Inc.; and on December 3, 2003, the Company changed its name to Siberian Energy
Group Inc.
On
September 17, 1999, the Company affected a 1-for-30 reverse stock split. A
subsequent 3-for-1 forward split was consummated on October 2, 2000 and a
further 1:2 reverse stock split was affected on May 2, 2005 (collectively the
“Stock Splits”). All share amounts subsequently listed are retroactively
adjusted to reflect these stock splits unless otherwise provided.
In the
spring of 2003, a majority of the Company's shares were purchased by new
shareholders who stepped into the management of the Company and defined its new
business direction as an oil and gas exploration company.
On May 9,
2003, the Company entered into an Acquisition Agreement (the "Acquisition
Agreement") by and among the Company, Zaural Neftegaz, a Russian corporation
("ZNG"), the shareholders of ZNG and Oleg Zhuravlev, President of ZNG. Pursuant
to the Acquisition Agreement, the Company acquired a 51% interest in ZNG by
issuing to ZNG 2,000,000 shares of the Company's common stock. In June 2004, the
Company purchased the remaining 49% of ZNG in exchange for 6,900,000 shares of
the Company's common stock, making ZNG a wholly owned subsidiary of the Company.
The Company had no affiliation with ZNG prior to the acquisition in May
2003.
Currently,
the operating activities of ZNG are carried out through the Joint Venture
Shareholders' Agreement ("Joint Venture") entered into on October 14, 2005 with
Baltic Petroleum (E&P) Limited ("BP" or "Baltic") and Zauralneftegaz
Limited, the joint venture company ("ZNG, Ltd."), as contemplated by the Option
Agreement, as amended (the "Option"). The Company closed the Joint Venture and
transferred 100% of the outstanding stock of ZNG to ZNG, Ltd. in connection with
the terms and conditions of the Joint Venture. As a result of such transfer, the
Company holds 50% of the outstanding stock of ZNG, Ltd., which holds 100% of the
outstanding stock of the Company's former wholly owned subsidiary,
ZNG. ZNG, Ltd. operates through ZNG and is engaged in the exploration
and development of, production and sale of, oil and gas assets in the Western
Siberian region of the Russian Federation and the former Soviet
Union.
On
December 13, 2006, we entered into an Interest Purchase Agreement (the "Purchase
Agreement") with Key Brokerage LLC ("Key Brokerage"), pursuant to which we
purchased 100% of the stock of Kondaneftegaz LLC ("KNG"), a Russian limited
liability company, which was created in 2004 for the purpose of oil and gas
exploration in the Khanty-Mansiysk district of Western Siberia, Russia. In
addition to acquiring 100% of the stock of KNG, we received the geological
information package on the Karabashski zone of Khanty-Mansiysk Autonomous
district (Tuymen region of Russian Federation) ("Geological Data").
On or
about September 30, 2008, we entered into an Agreement of Purchase and Sale with
Limited Liability Company Neftebitum, a Russian limited liability company, and
two Russian individuals, pursuant to which we sold fifty-six percent (56%) of
the ownership interest of KNG, as described in greater detail
below.
All
dollar amounts used throughout this Report are in United States dollars, unless
otherwise stated. All amounts in Canadian dollars used throughout this Report
are preceded by CDN, for example CDN $500, is referring to $500 Canadian
dollars.
BUSINESS
OPERATIONS:
We are a
development stage company, which is seeking opportunities for investment in
and/or acquisition of small to medium companies in Russia, specifically in the
oil and gas industry.
We
currently hold investments in ZNG, Ltd. and KNG. Both companies are
operating in the Western Siberia region of Russia and are involved in oil and
gas exploration.
Moving
forward the Company plans to focus on those assets that involve less exploration
risk and is also actively seeking and negotiating the acquisition of production
or close-to-production assets in Russia and countries of the former Soviet
Union; however, the Company has not entered into any definitive agreements to
date, and there can be no assurance that any such agreements will be entered
into on favorable terms, if at all.
Description of
KNG
KNG was
created in 2004 for the purpose of oil and gas exploration in the
Khanty-Mansiysk district of Western Siberia, Russia. In October 2007, KNG was
awarded two oil and gas exploration licenses in Khanty-Mansiysk region in West
Siberia, Russia for the Karabashsky-61 and Karabashsky-67 blocks located in the
Khanty-Mansiysk Autonomous Region, Russian Federation. The license areas
together cover 166,000 acres and are situated in the territory of the Urals oil
and gas bearing area. KNG also has eight more outstanding
applications for exploration licenses filed with the Russian authorities, which
auctions have not occurred to date.
The right
to use the subsurface resources of the Karabashsky-61 and Karabashky-67 Fields
is granted for the term of validity of the license (five (5) years), from the
date of its state registration (October 22, 2007), subject to the completion of
certain exploration activities on the license blocks. The term of use of the
subsurface resources can be extended to finish exploration and estimation of
deposit or for liquidation work, if the terms of usage of the subsurface
resources are not breached.
KNG has
prepared and coordinated with the Russian authorities an exploration works
program on the Karabashski 61 and Karabashski 67 license areas to stay in
compliance with the license agreements requirements described below in further
detail:
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to
begin 2D seismic works during the 2009-2010 fieldwork season and to
perform not less than 176.26 linear kilometers of seismic profiles on
Karabashky-61 and 158 linear km on Karabashky-67 (minimal density of the
profile not less than 1 linear kilometer per 1 square kilometer of license
area), and
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No
later than 2011, to start drilling an exploratory well and to complete not
less than 2 exploratory wells by April 1,
2012.
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KNG is
currently re-interpreting the existing seismic data from prior studies and is
evaluating the possibility of using this data in the current program of seismic
studies.
On or
about September 30, 2008, we entered into an Agreement of Purchase and Sale with
Limited Liability Company Neftebitum, a Russian limited liability company
(“Neftebitum”), Sergey V. Prokopiev, an individual and Russian citizen, and Oleg
G. Shelepov, an individual and Russian citizen (collectively, the “Purchasers”
and the “Sale Agreement”). The Company’s Board of Directors approved
and ratified the Company’s entry into the Sale Agreement and the transactions
contemplated therein on our about October 30, 2008. Pursuant to the
Sale Agreement, the Company agreed to sell to the Purchasers an aggregate of
fifty-six percent (56%) of the registered capital of KNG for aggregate
consideration of 5,600 Russian Rubles (approximately
$223). Neftebitum agreed to purchase a 51% interest for total
consideration of 5,100 Russian Rubles (approximately $203) and Mr. Prokopiev and
Mr. Shelepov agreed to each purchase a 2.5% interest for consideration of 250
Russian Rubles each (approximately $10).
Pursuant
to the Sale Agreement, the Sellers are obligated to maintain KNG’s main priority
of performing geological studies and exploring for hydrocarbon deposits in the
Karabashsky-61 and Karabashsky-67 blocks (the “Blocks”). Further, the
Purchasers are obligated to provide financing, by way of direct financing or
third-party loans, in the amounts necessary to comply with the licensing
agreements for the Blocks. The Company’s and the Purchasers’
relationship is to be regulated by the Operating Agreement (as described below),
which was entered into in connection with the Sale Agreement. Lastly,
the Sale Agreement provides that in connection with Neftebitum obtaining a
majority interest in KNG, it is obligated to be a guarantor and accept joint
responsibility with KNG for repayment of any financing the Purchasers obtain for
KNG.
On or
about November 5, 2008, and in connection with their entry into the Sale
Agreement, Neftebitum, the Company and KNG entered into an Operating Agreement
that defines the rights and responsibilities of the parties (the “Operating
Agreement”). Pursuant to the Operating Agreement, Neftebitum is
designated the exclusive Operator of KNG and all of its current and future
mineral claims and has the right to appoint all members of KNG’s
management. As Operator, Neftebitum has exclusive control of all
technical, management, operational and associated matters involving KNG and the
Blocks and any potential hydrocarbon exploration and production licenses (the
“Operations”). Neftebitum must manage and conduct the Operations by
itself, its agents, independent contractors and/or servants in general
accordance with standard oil and gas field practices. Neftebitum must
use all reasonable endeavors to:
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Prepare
annual programs and budgets pursuant to the Operating Agreement and the
licensing agreements for the
Blocks;
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Begin
2D seismic works on the Blocks during the 2009-2010 fieldwork season and
perform not less than 176.26 linear kilometers of seismic profiles on the
Karabashky-61 Block and not less than 158 linear kilometers of seismic
works on the Karabashky-67 Block;
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Start
drilling an exploratory well no later than 2011, and complete no less than
2 exploratory wells by April 1,
2012;
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Provide
adequate financing to carry out KNG’s planned activities;
and
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Supervise
implementation of all programs and budgets and provide written progress
reports on a quarterly basis relating to KNG’s activities and
programs.
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Further,
as Operator, Neftebitum may enter into and negotiate contracts on behalf of KNG
and the Company and represent KNG or the Company in all dealings with
governmental and regulatory bodies. Neftebitum must guarantee any
financial obligations entered into on KNG’s behalf. Neftebitum may be
reimbursed for expenses incurred in its role as Operator, and if KNG has
inadequate resources to reimburse such expenses, these unreimbursed expenses may
be accounted for at the time of the distribution of profits from KNG’s
operations, if any. Neftebitum, however, will not charge operator’s
management fees in connection with its role as
Operator. Additionally, the Company made available all geological
data to the operator to be used in the program of geological studies in the
region and will not charge fees for the use of geological data it
provides. Neftebitum must also use its best efforts to maintain
insurance for the Company. Lastly, Neftebitum’s responsibilities as
Operator under the Operating Agreement may not be assigned or
transferred.
As of
December 31, 2008, the Company owned a 44% interest in KNG. Operating results of
KNG were included in the consolidated financial statements contained herein for
the year ended December 31, 2007, and the nine months ended September 30, 2008.
After September 30, 2008, the Company’s investment in KNG is accounted for on
the equity method of accounting. Accordingly, the assets, liabilities and equity
of KNG are no longer presented on the Company’s balance sheet.
After
careful consideration of the current financial position of KNG, the Company has
applied an impairment charge to the value of investment in KNG which resulted in
carrying it at zero value.
Description of
ZNG
ZNG has
been involved in the oil and gas research activities in the Kurgan region of the
Russian Federation. During 2003-2008 it has completed seismic studies and
drilling program in the Kurgan region of Siberia, Russia. The Company believes
ZNG, Ltd. has created value through the geological results of the two
exploratory wells and other data gathered in the area and ZNG, Ltd. is
considering its options with regard to realizing this value by either farming
out or more likely, a direct sale of geophysical and seismic data to a third
party operating in the area.
Between
2003 and 2007, ZNG carried out extensive seismic and gas seismotomographic
studies on its 4 licensed blocks acquired in 2003 through a government tender:
the Privolny, Mokrousovsky, West-Suersky and Orlovo-Pashkovsky blocks, and
drilled 2 exploratory wells on the Privolny and Mokrousovsky blocks. Based on
the interpretation of seismic and seismotomographic surveys and analysis of
samples from the wells, ZNG prepared a comprehensive analysis of geological
resources of the Kurgan region. Both the Privolny-1 and
Mokrousovsky-1 studies confirmed the presence of hydrocarbons and contributed
greatly to the understanding of geological resources in the region. However, a
substantial amount of further exploration studies and work is required before a
conclusion on the future potential of the blocks can be drawn. Decision on
potential further exploration on these blocks has not been reached yet, as this
decision has to take into account general market conditions and specifically the
trend of oil prices. Upon the expiration of the license terms of these blocks in
March 2008, ZNG kept the preferential right to re-apply for the licenses to
continue exploration works on these blocks in the event it decides to continue
exploration. In the case of further exploration on ZNG’s licensed areas, the
Joint Venture will seek to “farm out” its interest in the
acreage.
The
Company’s investment in the Joint Venture is recorded on the equity method of
accounting. Since cumulative losses of Joint Venture exceed the
Company’s investment, the investment asset is carried at zero value as of and
through December 31, 2008.
Joint
Venture
The
operations of the Joint Venture are funded via loans provided to ZNG, Ltd. and
ZNG by Caspian Finance Limited ("Caspian"), a financing company wholly owned by
Baltic. Loans are guaranteed by ZNG, Ltd.’s holdings in
ZNG. As of December 31, 2008, the total funding provided to ZNG, Ltd.
and ZNG by Baltic was equal to approximately $23.5 million plus accrued interest
of approximately $5 million. The loans are not dilutive to the Company's
ownership in ZNG.
Agreement With Alternative
Energy Finance, Ltd.
We
previously agreed to issue Alternative Energy Finance Ltd. ("AEF"), of which Tim
Peara is the Managing Director as well as a Director of the Company, certain
warrants in connection with Mr. Peara introducing the parties who formed the
joint venture. Pursuant to an agreement between AEF and the Company, AEF will
receive compensation based on the total investment made by Baltic Petroleum Ltd.
in the Joint Venture.
In
connection with that agreement, the following warrants were granted to AEF:
17,561 warrants to purchase shares of our common stock at $0.67 per share, which
were granted to Mr. Peara on March 31, 2006; 20,412 warrants to purchase shares
of our common stock at an exercise price of $2.02 per share, granted effective
June 30, 2006; 20,952 warrants to purchase shares of our common stock at an
exercise price of $1.53 per share effective September 30, 2006; and 38,648
warrants to purchase shares of our common stock at an exercise price of $1.44
per share effective December 31, 2006. All of the warrants are
exercisable for three years from the date of issuance and contain a cashless
exercise provision.
From
January 1, 2007 to December 31, 2007, we accrued approximately $108,827 in fees
payable to AEF in connection with the AEF agreement, which funds have not been
paid to date, and we also issued AEF the following securities pursuant to the
agreement: 48,925 warrants to purchase shares of our common stock at an exercise
price of $1.10 per share effective March 31, 2007; 55,233 warrants to purchase
shares of our common stock at an exercise price of $1.14 per share, effective
June 30, 2007; 51,352 warrants to purchase shares of our common stock at an
exercise price of $0.74 per share, effective September 30, 2007; and 78,130
warrants to purchase shares of our common stock at an exercise price of $0.46
per share, effective December 31, 2007. All of the warrants are
exercisable for three years from the date of issuance and contain a cashless
exercise provision.
On March
13, 2007, Mr. Peara personally, and on behalf of AEF agreed to accept 58,134
shares of our restricted common stock in consideration for the forgiveness of
$45,626 owed personally to Mr. Peara in Director’s fees and accrued expenses and
$47,969 owed to AEF in connection with our agreement with AEF for fees due from
the period from March 31, 2006 to December 31, 2006, which shares have been
issued to date and which debt has been forgiven by Mr. Peara and
AEF.
We have
not been required to pay AEF any additional consideration and/or issue AEF any
additional warrants since December 31, 2007, as Baltic has not invested any
additional funds into the Joint Venture since the end of that
period.
ZNG
Loans
To date,
Caspian has provided ZNG various loans, as described below:
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On
November 9, 2005, ZNG entered into a New Loan with Caspian (the "New
Loan"). Under the loan agreement, Caspian agreed to provide a loan of up
to $6,874,325 representing the assumed commitment under a prior loan and a
new commitment, to be used for operations in the Kurgan region in 2005 and
through the first half of 2006. The New Loan is available to ZNG until the
sixth anniversary of the date of the New Loan, or November 9, 2011 (the
"Term");
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On
January 16, 2007, ZNG and Caspian entered into a Deed of Variation of the
Loan Agreement, whereby, inter alia, the Lender agreed to make available
to ZNG an additional loan facility of
US$2,000,000;
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On
April 23, 2007, ZNG and Caspian further entered into a Deed of Variation
of the Loan Agreement whereby, inter alia, the Lender agreed to make
available to ZNG an additional loan facility of US$300,000;
and
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·
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On
June 18, 2007, ZNG and Caspian entered into another Deed of Variation to
the Loan Agreement, whereby Caspian agreed to make available to ZNG an
additional loan facility of US$7,359,190 (the “June 2007 Deed of
Variation”).
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Funding
to ZNG, Ltd. is provided by Caspian on the same terms as to ZNG, through the
mechanism of intercompany billing within Baltic and certain companies affiliated
with Baltic. As of December 31, 2008, the total loan to ZNG, Ltd. from Caspian
totaled $10,235,000, including $9,380,000 of principal and accrued interest of
$855,000. In addition, ZNG, Ltd. owes $1,482,000 directly to Baltic for unpaid
management fees and accrued interest through December 31, 2008.
The loans
will not be dilutive to the Company's ownership in ZNG. In connection with the
funding provided by Baltic, ZNG entered into a gross override royalty agreement
with Baltic, as described below under "Deed of Agreement," and “Gross Override
Royalty Agreement.”
Terms of loans to ZNG, Ltd.
and ZNG:
Interest
on any amounts loaned under the New Loan bears interest at the following rates,
calculated and compounded on a daily basis, 14% per annum during the first two
years of the Term, 13% per annum during the third year of the Term; and 12%
thereafter until the end of the Term.
Additionally,
under the terms of the June 2007 Deed of Variation, interest on the loans made
by Baltic to ZNG is payable on:
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a)
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the
earlier of (i) the date on which ZNG’s monthly turnover as shown by its
monthly management accounts exceeds US $200,000 and (ii) the fifth
anniversary of the Deed of Variation dated June 18, 2007;
and
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b)
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thereafter,
on a monthly basis on the final day of each calendar month using all
available turnover, provided that in the event the interest due thereafter
exceeds the monthly turnover of ZNG then all of the turnover except for
the direct budgeted operating expenses of ZNG and management fees agreed
to be paid to Siberian Energy Group Inc. under the Joint Venture Agreement
will be allocated prior to the payment of such interest and any interest
not able to be paid will accrue and be payable as soon as the level of
turnover (less the fees payable to us) permits (collectively the
“Interest Payments”).
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In the
event that ZNG does not make the Interest Payments when due, interest on the
unpaid amounts shall be payable from the due date to the date paid at the rate
of 6% per annum, calculated and accrued on a daily basis. The New Loan is
unsecured by ZNG, but Caspian reserved the right to request security over all or
some of the assets and/or undertaking of ZNG at any time prior to any drawdown
of the New Loan, or while any money is outstanding under the New
Loan.
On
November 9, 2005, ZNG, Ltd. and Caspian entered into a Debenture, whereby ZNG,
Ltd. granted Caspian a security interest in substantially all of its assets,
including its 100% ownership of ZNG, to secure the repayment of the New Loan
Agreement. Pursuant to the Debenture, ZNG, Ltd. granted Caspian a continuing
security interest for the payment, performance and discharge of all of the
liabilities owing to Caspian by ZNG, Ltd., in the following assets, both present
and future, from time to time to the extent owned by ZNG, Ltd., or to the extent
in which it has an interest.
Additionally,
on November 9, 2005, ZNG, Ltd. and Caspian entered into an "Agreement for the
Pledge of the Participatory Interest in OOO Zauralneftegaz" (the "Pledge
Agreement"). Pursuant to the Pledge Agreement, ZNG, Ltd., pledged its 100%
ownership interest in ZNG to Caspian, which included any proceeds, dividends,
distributions or income deriving from ZNG and any compensation, whether monetary
or in-kind, deriving from ZNG, received due to the liquidation or reorganization
of ZNG. The Pledge Agreement shall remain in effect until all amounts owed to
Caspian by ZNG, Ltd. are repaid. Pursuant to the Pledge Agreement, ZNG, Ltd.,
agreed to hold all dividends, interest and other income deriving from and by it
for the account of Caspian, and agreed to pay such dividends, interest and other
income to Caspian upon Caspian's request.
If ZNG,
Ltd. fails to pay the amounts owed to Caspian pursuant to the Pledge Agreement,
Caspian can sell the 100% interest in ZNG at public auction, in one or several
sales, with an opening bid price of seventy five percent (75%) of the value set
forth for the value of ZNG in the Pledge Agreement ($7,705,079) at the first
public auction and fifty percent (50%) of the value set forth in the Pledge
Agreement at the second public auction. If the opening bid for ZNG is not met at
either the first or second public auction, Caspian shall have the right to
retain ZNG, with its value equal to 90% of the value set at the second auction,
and set-off its claims secured by ZNG, Ltd. by such value. If ZNG is sold at
public auction, any and all proceeds from such sale received by Caspian shall be
applied towards the discharge of the amounts owed by ZNG, Ltd. to
Caspian.
Gross Overriding Royalty
Agreement
In
December 2006, ZNG entered into a Gross Overriding Royalty Agreement (the
“Royalty Agreement”) with Baltic, which was contemplated by the Deed of
Agreement dated July 26, 2006, described above and entered into in connection
with the addition to the New Loan, described above. The Royalty Agreement
provided that ZNG would grant Baltic a gross overriding royalty interest equal
to 3% of ZNG’s interest in any and all of the hydrocarbons found in, produced,
marketed and/or extracted from ZNG’s licensed blocks (the “Royalty”). Pursuant
to the Royalty Agreement, the Royalty shall be paid free and clear of any
expenses associated with the exploration and/or production of any hydrocarbons
discovered on the licensed blocks. The Royalty will apply until ZNG has received
an aggregate of $20,000,000 from the gross sales of any hydrocarbon production
produced or occurring on any wells owned or operated by ZNG. The Royalty
Agreement also provides that Baltic may at any time, upon not less than one (1)
week prior notice, take the Royalty in oil and/or gas production, instead of in
cash. ZNG also granted Baltic a security interest on any and all of its future
hydrocarbon production to secure the payment of the Royalty.
Estimate
of Amount of Time Spent On Research and Development
An
initial business plan was developed over the course of three months in 2003.
During that time period, market research was conducted. Research and development
activities on the licensed blocks in the Kurgan Region were directly borne by
the Company up to the time the Joint Venture was closed in October 2005. As a
result of the closing of the Joint Venture, these research and development costs
are now paid by both by ZNG, Ltd. (as described above) and ZNG. Research
activities include gravimetric, seismic works and seismotomography studies on
the previously licensed areas. Costs incurred by ZNG and ZNG Ltd. in connection
with these studies as of December 31, 2008 totaled approximately $18
million.
Moving
forward we expect additional research and development costs will be paid by
Neftebitum in connection with KNG’s exploration of KNG’s blocks and any of the
blocks that KNG may obtain at auction in the future, of which there can be no
assurance.
Employees
Siberian
Energy Group Inc. currently employs two (2) employees in management. KNG, which
we own a 44% interest in, has two (2) part-time employees. Zauralneftegaz
("ZNG"), which is 50% owned by the Company through its joint venture ZNG, Ltd.,
employs nineteen (19) full-time employees and one (1) part-time employee;
however, ZNG has suspended its employment contracts with its employees until
such time as the decision on further exploration is reached.
Critical
Accounting Policies and Estimates
The
Company prepares its consolidated financial statements in accordance with
accounting principals generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of any contingent assets and liabilities. On an on-going
basis, we evaluate our estimates. We base our estimates on various assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
We
believe the following critical accounting policy affects our more significant
judgments and estimates used in the preparation of our financial
statements:
Going
Concern
The
Company's financial statements have been prepared assuming that the Company will
continue as a going concern; however, since inception of its current endeavors
in 2003, the Company has not earned any revenues from production of hydrocarbons
and is considered to be in the development stage, which raises substantial doubt
about its ability to continue as a going concern. The Company is of the opinion
that sufficient financing will be obtained from external sources to provide the
Company with the ability to continue the process of development to achieve
commercial production and sales of products. Since inception, the Company has
obtained cash financing from organizing stockholders and employees in the form
of loans, advances and deferred salaries, as well as through financing
previously received $25,000 to $85,000 per month in management fees from its
Joint Venture, which management fees the Company has not received since October
2007, and which the Company can provide no assurances will ever resume. There
can be no certainty as to availability of continued financing in the future.
Failure to obtain sufficient financing may require the Company to reduce its
operating activities. A failure to continue as a going concern would require
stated amounts of assets and liabilities to be reflected on a liquidation basis
which could differ from the going concern basis.
Competition
Competition
among Russian producers occurs in two distinct tiers. The first tier includes
large corporations such as Surgutneftegaz, LUKoil, Sibneft, Tatneft, Slaveft,
YUKOS, TNK, Bashneft, Rosneft and Sidanco which together control more than 90%
of the Russian oil and gas market. These companies operate large-scale fields
and are primarily oriented towards exportation. The second tier, so called
junior players, includes a large number of smaller companies that operate small
and medium sized oil and gas fields. These companies enjoy a limited but stable
range of customers within Russia's domestic market, and their customers include
the larger companies which purchase this product for export. Like other junior
players, the Company believes it has potential to succeed given the continued
high demand for oil both domestically and internationally.
A healthy
level of competition currently exists among local oil service companies and
recent reductions in demand for their services are leading to a surplus of
supply. The Company believes that having the wide range of service companies
within such close proximity creates an opportunity for ZNG and KNG to choose the
best combination of price and quality while signing the service contract, due to
the fact that service companies may compete with each other for providing
exploration, drilling and other services to ZNG and/or KNG.
Additionally,
the Company believes ZNG's geographic location presents a significant
competitive advantage that should provide for cost reductions in the development
of its fields and the necessary support infrastructure. The specific factors
contributing to this competitive advantage include:
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The
relatively flat topography which is dry and bog free;
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Non
permafrost lands which reduce drilling costs;
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Significantly
short distances to major pipelines which reduce the time and cost of
installing the collector infrastructure from the wells to the main
pipelines; and
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Proximity
to main railroads and highways which allow for greater and easier access
to the producing site as well as for initial delivery of
product.
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We
believe that KNG’s license areas, and those which KNG has applied for, have the
following advantages:
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the
licenses are within existing oil deposits;
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the
licenses are close to a previously developed river transportation system
on the Ob river and the North Sosva river, close to the river port of
Igrim, through which KNG will be able to deliver equipment for the
wells;
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the
licensed blocks for which KNG applied are close to other developed
deposits; and
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the
blocks are close to major oil and gas
pipelines.
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Another
type of competition, which ZNG and KNG expect to face is competition in the
process of acquisition of new licenses. The Company expects that competitive
pressures will further increase if hydrocarbon reservoirs are found in the
Kurgan province and/or Khanty-Mansiysk district of Western Siberia, Russia.
However, the Company believes that by the time new parcels become available for
distribution in this region, the Company will have an advantage over companies
with less experience in the region. The Company believes this will be due to its
acquired experience and through the expertise of its employees, of which there
can be no assurance. Many of the Company’s directors and officers have many
years of experience in the oil and gas industry, specifically in the
West-Siberian Basin. Additionally, the Company feels that it will have a
competitive advantage because many of its Directors and employees reside in the
West-Siberian Basin and are dedicated to developing the local
infrastructure.
Dependence
on One or A Few Major Customers
The
nature of the oil industry is not based on individual customers. Crude and
refined products are sold to local and international brokers as well as to
refineries.
Patents,
Trademarks and Licenses
KNG
currently holds two five-year oil and gas exploration licenses, awarded in
October 2007. KNG has also applied for 8 other licenses in Western Siberia,
Russia, with no date currently planned for the remaining auctions as
of the date of this filing.
Need
For Government Approval
Federal
and local government approval will not be required for conversion of exploration
licenses to production licenses and for extension of licenses beyond their
initial term. The Company has already received approval for its exploration
licenses, however, additional approval is required if the Company is to deliver
its crude or refined products on the national pipeline system. These approvals
can only be guaranteed once the Company has proved reserves. Alternatively, the
Company has also developed plans to deliver crude and product by truck and via
rail transport for the early years if there are any delays in gaining pipeline
approval, and the Company finds hydrocarbon reserves, of which there can be no
assurance.
Additionally,
under new federal laws the Company does not require the approval of state and/or
federal agencies for conversion of the Company's exploration licenses to
production licenses and extension of production licenses beyond their initial
term as they automatically convert to 25 year production licenses upon the
discovery of oil and gas, of which the Company provides no
assurance.
Costs and Effects of Compliance with
Environmental Laws
According
to the laws and regulations of the Russian Federation, organizations are
permitted to carry out seismic and other development activities on licensed
fields, provided the companies conform to ecological standards. Accordingly, ZNG
and KNG have encountered two costs associated with environmental law compliance:
costs associated with obtaining licenses and costs associated with obtaining
permission from the Russian Ministry of Natural Resources (the "Ministry").
ZNG’s costs have totaled approximately $186,900, which includes $2,000 relating
to the ecological review by the Ministry and $184,900 in legal costs and fees to
obtain the Company's licenses. ZNG has also previously successfully passed a
review by the Ministry and KNG will need to pass an ecological review at the
drilling stage of activities, which has not yet started.
The
Company will face additional costs to comply with environmental laws, which may
be significant. In addition, the Ministry imposes certain environmental
obligations on the Company, such as clean-up procedures.
ITEM 1A. RISK
FACTORS
Our
securities are highly speculative and should only be purchased by persons who
can afford to lose their entire investment in our Company. If any of the
following risks actually occur, our business and financial results could be
negatively affected to a significant extent. The Company's business is subject
to many risk factors, including the following:
RISK OF CONTINUING OUR BUSINESS PLAN
WITHOUT ADDITIONAL FINANCING.
We depend
to a great degree on the ability to attract external financing in order to
conduct future exploratory and development activities. The Company believes it
can satisfy its cash requirements during the next twelve months, estimated at
approximately $300,000, through funding provided by existing stockholders. As of
December 31, 2008, the total funding provided to ZNG, Ltd. and ZNG by Baltic was
equal to $23.5 million plus accrued interest of approximately $5 million, which
has been spent on various purposes, including seismic and gas seismotomography
surveys, drilling of two exploratory wells, and paying consultants for services
performed in connection with surveys performed on the licensed area. The Joint
Venture is responsible for the funding of the operations of ZNG.
However, if the Joint Venture is unable to raise the additional funds
required for the planned activities of ZNG or attract interest from external
parties and we are unable to raise financing for additional activities, separate
from the Joint Venture, our Company may be forced to abandon its current
business plan.
The
Company’s partner in KNG, Neftebitum, is responsible for financing the research
work of KNG. Neftebitum is currently attempting to raise external funds;
however, no significant amounts have been raised to date. If you invest in our
Company and we are unable to raise the required funds, your investment could
become worthless.
RISK
OF FUNDING PARTNER NOT MOVING FORWARD WITH JOINT VENTURE
Our
revenues have been generated from a monthly management fee received from ZNG,
which management fees have not been received since October 2007, in connection
with the “transition period” of Kurgan activities. In the event that
our funding partner does not move forward with the joint venture and/or
continues to not pay us management fees, this will hurt our financial condition
and the Company may be forced to abandon or curtail its business plan which
could cause the value of the Company’s common stock to decline in value or
become worthless.
WE WILL NEED SUBSTANTIAL FINANCING
AND SUBSTANTIAL TIME BEFORE WE ANTICIPATE GENERATING
REVENUES THROUGH OUR OWNERSHIP OF ZNG, LTD., IF ANY.
The
Company does not expect to generate any revenues through the operations of
ZNG. Therefore, investors should keep in mind that even if ZNG
is able to raise the substantial amounts of additional financing it requires for
its operations, it could still be years before ZNG generates any revenue, if
ever. Even if generated, such revenues will likely not be great enough to
sustain ZNG. If no revenues are generated and hydrocarbon reserves are not
located, we may be forced to abandon or curtail our current business plan. If
ZNG, which is 100% owned by the Company’s 50/50 joint venture ownership of ZNG,
Ltd., were forced to abandon its business plan, the Company could be forced to
abandon or curtail its business plan as well, which could cause the value of the
Company's common stock to substantially decline or become
worthless.
KNG
WILL NEED SUBSTANTIAL FINANCING AND SUBSTANTIAL TIME BEFORE WE ANTICIPATE
GENERATING REVENUES THROUGH KNG, IF ANY.
The
Company anticipates the need for approximately $15,000,000 prior to KNG's
expected generation of any revenues. In connection with the Agreement of
Purchase and Sale, as described in more detail above, the Company sold a 56%
interest in KNG to Neftebitum and various individuals in September
2008. Pursuant to this agreement and the related Operating Agreement,
Neftebitum is responsible for providing financing for the operations of KNG.
Currently, the Company is not aware of Neftebitum raising any of this financing
and the Company can make no assurances that this financing will ever be raised.
The Company also does not expect to generate any revenues through the operations
of KNG, until such financing can be raised, of which there can be no assurance.
Therefore, investors should keep in mind that even if Neftebitum is able to
raise the substantial amounts of additional financing that KNG requires for its
operations, it could still be years before KNG generates any revenue, if ever.
If Neftebitum does not raise the $15,000,000 which the Company anticipates KNG
needs to generate revenues, which, even if generated, will likely not be great
enough to sustain KNG if no revenues are generated and hydrocarbon reserves are
not discovered, KNG may be forced to abandon its business plan, and the Company
could be forced to abandon or curtail its business plan as well, which could
cause the value of the Company's common stock to substantially decline or become
worthless.
OUR AUDITORS HAVE EXPRESSED
SUBSTANTIAL DOUBT AS TO WHETHER OUR COMPANY CAN CONTINUE AS A GOING
CONCERN.
Our
Company is in its early development stage, as planned principal activities have
not begun. We have generated only minimal revenues since inception and have
incurred substantial losses including a net loss of $5,863,560 for the year
ended December 31, 2008, and had a total accumulated deficit of $14,856,389 as
of December 31, 2008. These factors among others indicate that the Company may
be unable to continue as a going concern, particularly in the event that it
cannot generate sufficient cash flow to conduct its operations and/or obtain
additional sources of capital and financing.
WE LACK AN OPERATING HISTORY WHICH
YOU CAN USE TO EVALUATE US, MAKING ANY INVESTMENT IN OUR
COMPANY RISKY.
Our
Company lacks a long standing operating history which investors can use to
evaluate our Company's previous earnings. Therefore, an investment in our
Company is risky because we have no business history and it is hard to predict
what the outcome of our business operations will be in the future.
WE MAY CONTINUE TO BE UNPROFITABLE
AND MAY NOT GENERATE PROFITS TO CONTINUE OUR BUSINESS
PLAN.
As a
development stage company, we have had limited revenues and no profits to date
and our net cumulative deficit attributable to our development stage as of
December 31, 2008, was $14,406,604, and our total cumulative deficit was
$14,856,389 which included $449,785 of pre-development stage deficit. We had
$824,744 in accrued and unpaid salaries and a working capital deficit of
$1,743,957 as of December 31, 2008. The Company is currently being funded by
existing shareholders, but there can be no assurance this amount will be
sufficient to continue our planned operations or that we will have enough money
to repay our outstanding debts. There is a risk that ZNG will never begin
production and our Company will never generate any revenues through our
ownership of 50% of ZNG, Ltd. If throughout ZNG's and KNG’s oil exploration no
viable wells are found, and consequently, we generate only minimal revenues
through ZNG, Ltd. (and/or through KNG), we will likely be forced to curtail or
abandon our business plan. If this happens, you could lose your investment in
our Company. If we are unable to generate profits, we will be forced to rely on
external financing, of which there is no guarantee, to continue with our
business plan.
LICENSES
TO A TOTAL OF FOUR OF ZNG’S LICENSED BLOCKS EXPIRED IN MARCH 2008 AND THREE
ADDITIONAL LICENSES HAVE SINCE EXPIRED, AND THERE IS A RISK THAT THE RIGHTS TO
SUCH LICENSED BLOCKS MAY NOT BE RENEWED.
In or
around March 2008, ZNG’s rights to four licensed blocks acquired in 2003, the
Privolny, Mokrousovsky, West-Suersky and Orlovo-Pashkovsky blocks, expired and
since that time, additional rights to three license blocks have expired. Between
2003 and 2007, ZNG carried out extensive seismic and gas seismotomographic
studies on the four licensed blocks, and drilled 2 exploratory wells on the
Privolny and Mokrousovsky blocks. Based on the interpretation of seismic and
seismotomographic surveys and analysis of samples from the wells, ZNG prepared a
comprehensive analysis of geological resources of the Kurgan region. Both the
Privolny and Mokrousovsky studies confirmed the presence of hydrocarbons;
however, a substantial amount of further exploration studies and work is
required before a conclusion on the future potential of the blocks can be drawn.
The licenses to four of the blocks expired in March 2008 and an additional three
licenses have expired since then, and although ZNG kept the preferential right
to re-apply for the licenses to continue exploration works on these blocks in
the event it decides to continue exploration, there can be no assurance that
such blocks will be able to be re-licensed by ZNG and/or that they will not be
re-auctioned and awarded to alternative parties. If ZNG were to decide to
re-license the blocks and they had already been auctioned off to other parties
and/or were not eligible to be re-licensed, all of ZNG’s exploration work and
studies performed on the licensed areas may become worthless and any exploration
expenditures made by ZNG for exploration wells and other expenditures will
likely not be able to be recouped by ZNG. Additionally, if ZNG were unable to
re-license the blocks, the value of the Company’s securities could decline in
value and/or become worthless.
WE HAVE A POOR FINANCIAL POSITION AND
IF WE DO NOT GENERATE REVENUES, WE MAY BE FORCED TO ABANDON
OUR BUSINESS PLAN.
Our
Company currently has a poor financial position. We have generated only minimal
revenues to date, and we have not discovered any hydrocarbon reserves or begun
production on any wells. There is a risk that we will not find enough, or even
any, viable wells which we require to generate enough profits for your
investment in our Company to appreciate. If we never generate any revenues, our
Company may be forced to curtail or abandon its business plan and your shares
may become worthless.
OUR BUSINESS IS SPECULATIVE AND RISKY
AND IF ZNG OR KNG DOES NOT FIND HYDROCARBON RESERVES, WE MAY BE
FORCED TO CURTAIL OUR BUSINESS PLAN.
There is
a risk that ZNG and KNG will not find any hydrocarbon reserves and the cost of
exploration will become too high for ZNG, Ltd. to continue ZNG's business plan
and/or us to continue KNG’s business plan. As our only current operations are
through our 50% ownership of ZNG, Ltd. which in turn owns 100% of ZNG, and
through our 44% ownership of KNG, if ZNG, ZNG, Ltd. or KNG were to cease
operations, your investment in our Company could become devalued or could become
worthless.
OUR INDUSTRY IS COMPETITIVE AND AS
SUCH, COMPETITIVE PRESSURES COULD PREVENT US FROM OBTAINING
PROFITS.
The main
factor determining success in the oil exploration and extraction industry is
finding viable wells. If our Company, through ZNG, Ltd., KNG or other joint
ventures we may enter into in the future, are unable to find producing wells and
our competition is, it is likely that our Company will be driven out of
business. Additionally, our industry is subject to significant capital
requirements and as such, larger companies may have an advantage should they
compete with us for exploration licenses, because they may have resources
substantially greater than ours. Investors should take into account the above
factors and understand that if we are unable to raise additional capital or
generate the profits, the Company may be forced to liquidate its assets and an
investment in our Company could become worthless.
OUR
GROWTH WILL PLACE SIGNIFICANT STRAINS ON OUR RESOURCES.
The
Company's growth is expected to place a significant strain on the Company's
managerial, operational and financial resources. Furthermore, as the Company
receives contracts, the Company will be required to manage multiple
relationships with various customers and other third parties. These requirements
will be exacerbated in the event of further growth of the Company or in the
number of its contracts. There can be no assurance that the Company's systems,
procedures or controls will be adequate to support the Company's operations or
that the Company will be able to achieve the rapid execution necessary to
succeed and implement its business plan. The Company's future operating results
will also depend on its ability to add additional personnel commensurate with
the growth of its business. If the Company is unable to manage growth
effectively, the Company's business, results of operations and financial
condition will be adversely affected.
WE
RELY ON KEY PERSONNEL AND IF THEY LEAVE OUR COMPANY OUR BUSINESS PLAN COULD BE
ADVERSELY AFFECTED.
We rely
on the Company's Chief Executive Officer and Chief Financial Officer, David
Zaikin and Elena Pochapski, for the success of our Company, who are performing
their duties, but did not finalize new employment agreements after expiration of
their previous agreements on December 31, 2008, and are therefore not bound to
the Company by employment agreements. Their experience and input create the
foundation for our business and they are responsible for the directorship and
control over the Company's development activities. The Company does not hold
"key man" insurance on either member of management. Moving forward, should they
be lost for any reason, the Company will incur costs associated with recruiting
replacement personnel and any potential delays in operations. If we are unable
to replace Mr. Zaikin and/or Ms. Pochapski, or if Mr. Zaikin or Ms. Pochapski
are unable to spend a sufficient amount of time on Company matters, the Company
may be forced to scale back or curtail its business plan. As a result of this,
any securities you hold in our Company could become devalued.
ZNG’S
OR KNG’S PROJECTIONS, ESTIMATES AND STATISTICAL ANALYSIS MAY BE INACCURATE OR
SUBSTANTIALLY WRONG, WHICH MAY PREVENT ZNG AND/OR KNG FROM EXECUTING THEIR
BUSINESS PLANS.
Projections
on future revenues as well as costs and required capital expenditures are based
on estimates. Business statistical analysis is used in projection of drilling
success ratios, average production costs, world oil price fluctuations and their
correspondence to Russian domestic market. If ZNG’s or KNG’s projections or
estimates are wrong or our statistical analysis faulty, ZNG's or KNG’s revenues
may be adversely affected which could prevent ZNG and/or KNG from executing
their business strategy. As an investor, if this happens your securities in our
Company could be adversely affected and you could lose your investment in our
Company due to the fact that our only current oil and gas operations are through
our 50% ownership of ZNG, Ltd., which in turn owns 100% of ZNG and through our
44% ownership of KNG, which has been awarded two exploration oil and
gas licenses to date.
THERE
IS UNCERTAINTY AS TO OUR ABILITY TO ENFORCE CIVIL LIABILITIES BOTH IN AND
OUTSIDE OF THE UNITED STATES DUE TO THE FACT THAT OUR OFFICERS, DIRECTORS AND
ASSETS ARE NOT LOCATED IN THE UNITED STATES.
Our
officers and Directors, our properties and licenses, and the majority of our
assets are located in countries other than the United States, including Canada
and Russia. As a result, it may be difficult for shareholders to effect service
of process within the United States on our officer and Director. In addition,
investors may have difficulty enforcing judgments based upon the civil liability
provisions of the securities laws of the United States or any state thereof,
both in and outside of the United States.
WE
FACE RISKS ASSOCIATED WITH THE FACT THAT THE MAJORITY OF OUR OPERATIONS THROUGH
OUR HOLDINGS ARE CONDUCTED IN RUSSIA, AND THE LICENSES OWNED THROUGH OUR
HOLDINGS ARE IN RUSSIA.
Zauralneftegaz,
Ltd. which we own 50% of through our Joint Venture and KNG, which we own 44% of,
hold certain licenses and rights to reapply for licenses to certain oil and gas
properties in the Kurgan Region of Russia. As a result, we are
subject to various risks associated with doing business in Russia relating to
Russia's economic and political environment. As is typical of an emerging
market, Russia does not possess a well-developed business, legal and regulatory
infrastructure that would generally exist in a more mature free market economy
and, in recent years, Russia has undergone substantial political, economic and
social change. Furthermore, in recent years the Russian government has
unilaterally annexed certain oil and gas properties and companies for the
government, and there can be no assurance that if commercially exploitable oil
and gas reserves are found on our properties, that such properties will not be
annexed or otherwise claimed by the Russian government. Our failure
to manage the risks associated with doing business in Russia could have a
material adverse effect upon our results of operations.
IF
WE ARE LATE IN FILING OUR QUARTERLY OR ANNUAL REPORTS WITH THE SEC, WE MAY BE
DE-LISTED FROM THE OVER-THE-COUNTER BULLETIN BOARD.
Under
Over-The-Counter Bulletin Board ("OTCBB") rules relating to the timely filing of
periodic reports with the SEC, any OTCBB issuer who fails to file a periodic
report (Form 10-Q's or 10-K's) by the due date of such report (not withstanding
any extension granted to the issuer by the filing of a Form 12b-25), three (3)
times during any twenty-four (24) month period are de-listed from the OTCBB.
Such removed issuer would not be re-eligible to be listed on the OTCBB for a
period of one-year, during which time any subsequent late filing would reset the
one-year period of de-listing. Therefore, if we are late in filing a periodic
report three times in any twenty-four (24) month period and are de-listed from
the OTCBB, our securities may become worthless and we may be forced to curtail
or abandon our business plan.
WE
INCUR SIGNIFICANT COSTS AS A RESULT OF OPERATING AS A FULLY REPORTING COMPANY IN
CONNECTION WITH SECTION 404 OF THE SARBANES OXLEY ACT, AND OUR MANAGEMENT IS
REQUIRED TO DEVOTE SUBSTANTIAL TIME TO NEW COMPLIANCE INITIATIVES.
We
anticipate incurring significant legal, accounting and other expenses in
connection with our status as a fully reporting public company. The
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and new rules subsequently
implemented by the SEC have imposed various new requirements on public
companies, including requiring changes in corporate governance practices. As
such, our management and other personnel will need to devote a substantial
amount of time to these new compliance initiatives. Moreover, these rules and
regulations will increase our legal and financial compliance costs and will make
some activities more time-consuming and costly. In addition, the Sarbanes-Oxley
Act requires, among other things, that we maintain effective internal controls
for financial reporting and disclosure of controls and procedures. In
particular, for fiscal year 2009, Section 404 will require us to obtain a report
from our independent registered public accounting firm attesting to the
assessment made by management. Our testing, or the subsequent testing
by our independent registered public accounting firm, may reveal deficiencies in
our internal controls over financial reporting that are deemed to be material
weaknesses. Our compliance with Section 404 will require that we incur
substantial accounting expense and expend significant management efforts. We
currently do not have an internal audit group, and we may need to hire
additional accounting and financial staff with appropriate public company
experience and technical accounting knowledge. Moreover, if we are not able to
comply with the requirements of Section 404 in a timely manner, or if we or our
independent registered public accounting firm identifies deficiencies in our
internal controls over financial reporting that are deemed to be material
weaknesses, the market price of our stock could decline, and we could be subject
to sanctions or investigations by the SEC or other regulatory authorities, which
would require additional financial and management resources.
AS
THERE IS CURRENTLY ONLY A LIMITED MARKET FOR OUR COMMON STOCK, THE MARKET FOR
OUR COMMON STOCK MAY CONTINUE TO BE ILLIQUID, SPORADIC AND
VOLATILE.
There is
currently only a limited market for our common stock, and as such, we anticipate
that such market will be illiquid, sporadic and subject to wide fluctuations in
response to several factors moving forward, including, but not limited
to:
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(1)
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actual
or anticipated variations in our results of operations;
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(2)
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our
ability or inability to generate new revenues;
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(3)
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the
number of shares in our public
float;
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(4)
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increased
competition;
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(5)
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the
political atmosphere in Russia; and
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(6)
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conditions
and trends in the oil, gas, and energy industries in
general.
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Furthermore,
because our common stock is traded on the Over-The-Counter Bulletin Board, our
stock price may be impacted by factors that are unrelated or disproportionate to
our operating performance. These market fluctuations, as well as general
economic, political and market conditions, such as recessions, interest rates or
international currency fluctuations may adversely affect the market price of our
common stock. Additionally, at present, we have a limited number of shares in
our public float, and as a result, there could be extreme fluctuations in the
price of our common stock. Further, due to the limited volume of our shares
which trade and our limited public float, we believe that our stock prices (bid,
ask and closing prices) are entirely arbitrary, are not related to the actual
value of the Company, and do not reflect the actual value of our common stock
(and in fact reflect a value that is much higher than the actual value of our
common stock). Shareholders and potential investors in our common stock should
exercise caution before making an investment in the Company, and should not rely
on the publicly quoted or traded stock prices in determining our common stock
value, but should instead determine value of our common stock based on the
information contained in the Company's public reports, industry information, and
those business valuation methods commonly used to value private
companies.
INVESTORS
FACE A RISK THAT THE COMPANY WILL NOT BE SUBJECT TO THE REPORTING REQUIREMENTS
OR WILL ENTER INTO A TRANSACTION THAT RESULTS IN NEW MANAGEMENT AND A NEW
OPERATING BUSINESS OF THE COMPANY
Management
of the Company is analyzing steps to no longer be subject to the reporting
requirements of the Securities and Exchange Commission (the “SEC”) and/or
considering entering into a reverse merger transaction. In the event
that the Company is no longer subject to the reporting requirements of the SEC,
the Company’s stock would likely trade on the Pinksheets and would likely have
less liquidity on such market and may trade at a lower share price than it
currently trades. In the event that the Company enters into a reverse
merger transaction, new management would run the Company and would likely
operate a new business which may result in a loss on your
investment.
INVESTORS
MAY FACE SIGNIFICANT RESTRICTIONS ON THE RESALE OF OUR COMMON STOCK DUE TO
FEDERAL REGULATIONS OF PENNY STOCKS.
Our
common stock will be subject to the requirements of Rule 15(g)9, promulgated
under the Securities Exchange Act as long as the price of our common stock is
below $5.00 per share. Under such rule, broker-dealers who recommend low-priced
securities to persons other than established customers and accredited investors
must satisfy special sales practice requirements, including a requirement that
they make an individualized written suitability determination for the purchaser
and receive the purchaser's consent prior to the transaction. The Securities
Enforcement Remedies and Penny Stock Reform Act of 1990, also requires
additional disclosure in connection with any trades involving a stock defined as
a penny stock.
Generally,
the Commission defines a penny stock as any equity security not traded on an
exchange or quoted on NASDAQ that has a market price of less than $5.00 per
share. The required penny stock disclosures include the delivery, prior to any
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated with it. Such requirements could severely limit the market
liquidity of the securities and the ability of purchasers to sell their
securities in the secondary market.
In
addition, various state securities laws impose restrictions on transferring
"penny stocks" and as a result, investors in the common stock may have their
ability to sell their shares of the common stock impaired.
ITEM 2.
PROPERTIES
The
Company's United States office is located at 275 Madison Avenue, 6th Floor, New
York, New York 10016, USA. The lease is at a monthly rate of $250 and is on a
month to month basis. This space is leased from Office Escape, an operator of
business centers in New York and other United States cities. The Company is not
the sole occupant of the space and consequently the cost of the rental is shared
with other occupants. The Company does not use the office for any purposes
falling outside of its business needs.
KNG
currently rents office space in Khanty-Mansiysk City, Russia, under a one year
lease expiring in December 2009, at a monthly rental cost of approximately $650
per month.
ITEM 3. LEGAL
PROCEEDINGS
In
January 2007, we learned that certain of our former officers, Directors and
shareholders, had attempted to transfer shares of our common stock, which those
individuals had agreed to cancel in connection with the purchase of a majority
of the Company’s outstanding shares from those individuals by our current
officers, Directors and majority shareholders in April 2003. In February 2007,
we filed for a Temporary Restraining Order and Motion for Preliminary Injunction
against those individuals in the District Court of Clark County,
Nevada.
On
February 20, 2007, our Temporary Restraining Order and Motion for Preliminary
Injunction was heard by the District Court of Clark County, Nevada, and we were
granted an indefinite injunction without a hearing by the court. As such, those
individuals who previously attempted to transfer and sell the shares which they
held will be prevented from transferring or selling such shares until they can
show good cause with the court why such indefinite injunction should be
lifted.
From time
to time, we may become party to other litigation or other legal proceedings that
we consider to be a part of the ordinary course of our business. We are not
currently involved in legal proceedings that could reasonably be expected to
have a material adverse effect on our business, prospects, financial condition
or results of operations, other than the proceeding described above. We may
become involved in material legal proceedings in the future.
ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS
The
Company had no matters submitted to a vote of security holders during the fiscal
quarter ended December 31, 2008.
PART
II
ITEM 5. MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
On March
22, 2005, the Company's common stock began trading on the OTC Bulletin Board
under the symbol "SIBE." Effective May 2, 2005, in connection with the Company's
1:2 reverse stock split, the Company's common stock began trading under the
symbol "SIBN." We had 2,600,781 shares of common stock subject to outstanding
options and warrants to purchase, or securities convertible into, the Company's
common stock as of December 31, 2008. We have no outstanding shares of preferred
stock. As of March 31, 2009, there were 18,645,585 shares of common stock
outstanding, held by approximately 125 shareholders of record.
The
following table sets forth the high and low closing prices for the Company's
common stock for the periods indicated as reported by the NASDAQ OTC-Bulletin
Board. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
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Closing
Prices
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Quarter
Ended
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High
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Low
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March
31, 2009
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$0.07
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$0.03
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December
31, 2008
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$0.19
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$0.04
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September
30, 2008
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$0.39
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$0.10
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June
30, 2008
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$0.50
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$0.25
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March
31, 2008
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$0.61
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$0.25
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December
31, 2007
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$0.84
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$0.36
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September
30, 2007
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$1.65
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$0.65
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June
30, 2007
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$2.00
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$1.26
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March
31, 2007
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$1.90
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$1.25
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RECENT
SALES OF UNREGISTERED SECURITIES
In June
2007, we issued 70,000 shares of restricted common stock to our President, Helen
Teplitskaia, of which 50,000 shares were a sign-on bonus in connection with her
agreeing to be an officer of the Company in May 2007, and 20,000 shares were
part of her compensation package with the Company, whereby she is to be paid
10,000 shares per month for her service to the Company, which shares were issued
for services rendered in May and June 2007. During the period from July to
December 2007, 50,000 shares were issued for services rendered in July through
November 2007. In June 2008, we issued an aggregate of 70,000
restricted shares of common stock to Ms. Teplitskaia in consideration for
services rendered during the months of December 2007, and January through June
2008. Ms. Teplitskaia was subsequently issued the shares she was due
for the months ended July 2008 through December 2008 in November
2008. The Company claims an exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended (the “Act”) since the
foregoing issuances did not involve a public offering, the recipient took the
shares for investment and not resale and the Company took appropriate measures
to restrict transfer. No underwriters or agents were involved in the foregoing
issuance and no underwriting discounts or commissions were paid by the
Company.
In
November 2008, the Company agreed to issue 107,520 shares of restricted common
stock to a related party of Amir Rosenfeld, an individual, which shares were
agreed to be issued to Mr. Rosenfeld in lieu of repayment of a $10,753 debt owed
by the Company to Mr. Rosenfeld. The debt was in connection with a
$10,000 loan Mr. Rosenfeld provided to the Company in November 2007, which loan
had accrued $753 of interest as of September 30, 2008. The Company
claims an exemption from registration afforded by Section 4(2) of the Act since
the foregoing issuance did not involve a public offering, the recipient took the
shares for investment and not resale and the Company took appropriate measures
to restrict transfer. No underwriters or agents were involved in the foregoing
issuance and no underwriting discounts or commissions were paid by the
Company.
ITEM 6. SELECTED FINANCIAL
DATA
Not
required.
ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THIS
REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934. THESE FORWARD LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT. THE FOLLOWING DISCUSSION
AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL DATA" AND
THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS
REPORT.
PLAN
OF OPERATIONS FOR THE NEXT TWELVE MONTHS
In
coordination with Neftebitum, the Company plans to focus on the exploration
activities of KNG in the Khanty-Mansiysk region of Russia, to satisfy the
requirements of the licensing agreements and to conduct preparatory work for the
seismic surveys on these areas, funding permitting (which funding is the
responsibility of Neftebitum), of which there can be no assurance.
The
operations of ZNG in the Kurgan region of Russia, conducted through the Joint
Venture, are currently in the “transition period” awaiting the decision on the
feasibility of further exploration and potential steps moving forward for
further exploration in the Kurgan region.
Moving
forward, we anticipate targeting other potential long term investments in Russia
and countries in the former Soviet Union, separate from our involvement in the
Joint Venture and KNG, funding permitting, of which there can be no assurance.
Additionally, the Company currently plans to change its business focus from
targeting early stage exploration projects to acquiring assets in producing
fields, funding permitting, of which there can be no assurance, in order to
decrease its exploration risks.
Currently
we are evaluating different business opportunities in the oil and gas industry,
including advanced development stage and revenue-producing enterprises and are
in preliminary discussions with a potential partner which owns several oil and
gas producing properties in Western Siberia; however, as no definitive agreement
has been reached, we can provide no assurances that the discussions will result
in any definitive understandings or partnerships, and it is likely that any
agreement would be conditioned on us raising substantial additional funding,
which we can provide no assurances will be available on favorable terms, if at
all.
Historically,
we have obtained cash financing from organizing stockholders in the form of
loans and advances. Additionally, during the fourth quarter of 2005, we
restructured much of our debt through the issuance of shares of our common
stock to our creditors and obtained waiver letters, postponing certain of
our liabilities until such time as we have generated sufficient profits to pay
such debts. These waiver letters related to the payment of certain trade debts
as well as shareholder loans and accrued salaries.
In
connection with the Joint Venture, the Company previously received
monthly management fees, which varied from $25,000 to $85,000 per month.
Due to the “transition period” of the Joint Venture’s exploration
activities, no management fees have been paid since October 2007, and there
is no assurance that the Joint Venture will pay any management fees or that fees
received will be adequate to pay its upcoming expenses and liabilities in the
future. If the Company does not receive any management fees moving
forward, the Company plans that its organizing stockholders will continue to
provide financing for the Company, of which there can be no
assurance.
In the
past, we have obtained cash financing from organizing stockholders in the form
of loans and advances, as a result, amounts totaling $447,663 and $370,500 were
payable to the stockholders as of December 31, 2008 and December 31, 2007,
respectively. However, there can be no certainty as to the availability of
continued financing in the future. Failure to obtain sufficient financing may
require us to reduce our operating activities. A failure to continue as a going
concern would then require stated amounts of assets and liabilities to be
reflected on a liquidation basis which could differ from the going concern
basis.
COMPARISON
OF OPERATING RESULTS
RESULTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008, COMPARED TO THE YEAR ENDED
DECEMBER 31, 2007
We had no
management fees from joint venture for the year ended December 31, 2008,
compared to management fees from joint venture of $700,000 for the year ended
December 31, 2007, a decrease of $700,000 from the prior
period. During year ended December 31, 2007, the Company received
monthly management fees of $55,000 during the three months ended March 31, 2007,
$65,000 during the three months ended June 30, 2007, and $85,000 during the
three months ended September 30, 2007 and for the month ended October 30, 2007,
pursuant to our Joint Venture. However, the Company has not received
any monthly management fees since October 2007, as a result of the restructuring
of the Company’s Kurgan operations.
We have
not generated any revenues to date through the sale of oil and/or
gas.
We had
total expenses of $740,043 for the year ended December 31, 2008, compared to
total expenses of $2,760,487 for the year ended December 31, 2007, a decrease of
$2,020,444 or 73.2% from the prior period.
The main
reason for the decrease in expenses for the year ended December 31, 2008,
compared to the year ended December 31, 2007, was a decrease of $486,747 or
58.4% in salaries to $346,710 for the year ended December 31, 2008, compared to
salaries of $833,457 for the year ended December 31, 2007, which decrease is
largely attributable to the fact that the Company issued a significant amount of
shares to its officers and Directors during the year ended December 31, 2007,
which issuances were not represented in such significant amounts, and which
shares had a lower fair market value due to decreases in the trading prices of
the Company’s common stock, for the year ended December 31, 2008, compared to
the year ended December 31, 2007; a decrease of $913,610 or 74.3% in
professional and consulting fees, to $315,983 for the year ended December 31,
2008, compared to professional and consulting fees of $1,229,593 for the year
ended December 31, 2007, which decrease is largely attributable to the fact that
the Company used less third party consultants and advisors and used less stock
based compensation during the year ended December 31, 2008, compared to the same
period of 2007; a decrease of $32,781 or 69.9% in rent and occupancy to $14,101
for the year ended December 31, 2008, compared to rent and occupancy of $46,882
for the year ended December 31, 2007, mainly due to the fact that the Company
discontinued its office space lease in Toronto (Canada) and Moscow (Russia); and
a decrease of $588,747 or 91.6% in marketing and other expenses, to $54,225 for
the year ended December 31, 2008, compared to marketing and other expenses of
$642,972 for the year ended December 31, 2007, mainly attributable to the
discontinuance of certain marketing contracts and less travel performed by
management for marketing purposes for the year ended December 31, 2008, compared
to the year ended December 31, 2007.
We had
loss from sale of investment of $669,570 for the year ended December 31, 2008,
compared to no loss from sale of investment for the year ended December 31,
2007, an increase of $669,570 from the prior period. The $669,570 of loss from
sale of investment can be attributed to our sale of a controlling interest in
KNG, as described above.
We had
loss on deemed disposition of oil and gas properties, unproved of $3,928,000 for
the year ended December 31, 2008, which was not present during the year ended
December 31, 2007. The $3,928,000 loss on deemed disposition of oil
and gas properties, unproved, for the year ended December 31, 2008, can be
attributed to the fact that the Company no longer has any plans to utilize the
geological data, valued at $3,928,000, other than through KNG’s activities, and
no consideration was received for the use of such geological data in connection
with the sale of the controlling interest in KNG, although the Company has
committed to providing such information to Neftebitum.
We had
impairment charge on investment of $525,947 for the year ended December 31,
2008, which was not present during the year ended December 31,
2007. Since 56% of KNG was sold for a nominal amount, a non-cash
impairment charge of $525,947 was recorded to reduce the carrying value of the
44% investment in KNG to zero. The sale of KNG is described in greater detail
above..
We had
net loss of $5,863,560 for the year ended December 31, 2008, compared to net
loss of $2,060,487 for the year ended December 31, 2007, an increase of
$3,803,073 or 184.6% from the prior period. The increase in net loss
was mainly attributable to the $3,928,000 increase in loss on deemed disposition
of oil and gas properties, unproved, the $669,570 increase in loss from sale of
investment, the $525,947 increase in impairment charge on investment and the
$700,000 decrease in management fees received, offset by the $2,020,444 or 73.2%
decrease in total expenses for the year ended December 31, 2008, compared to the
year ended December 31, 2007.
LIQUIDITY
AND CAPITAL RESOURCES
We had
current assets of $1,260 as of December 31, 2008, which included cash of $739;
and prepaid expenses and other current assets of $521.
We had
total assets of $32,543 as of December 31, 2008, which included current assets
of $1,260 and non-current assets of $31,283. Non-current assets included
a $29,500 loan receivable from affiliate in connection with amounts
previously loaned to KNG, which, because of the sale of majority control of KNG,
it is no longer eliminated in consolidation and has been presented
separately in our financial statements, and $1,783 of property and
equipment, net. Total assets of $32,543 as of December 31, 2008, were
$5,224,933 or 99.4% less than total assets of $5,257,476 as of December 31,
2007. Total assets decreased mainly due to a $5,248,000 decrease in
oil and gas properties, unproved, due to our sale of 56% of KNG as described
above.
We had
total liabilities of $1,745,217 as of December 31, 2008, which were solely
current liabilities and which included $447,663 of accounts payable to related
party stockholders in connection with those shareholders paying certain of our
expenses from the period between January 1, 2003 to December 31, 2008; $62,771
of accounts payable to Baltic in connection with a $29,000 loan advanced to the
Company from Baltic and certain other expenses owed to Baltic; $410,039 of
accounts payable to others for advisory and professional services rendered; and
$824,744 of accrued payroll, which included $472,500 payable to our Chief
Executive Officer, David Zaikin, of which $360,000 was accrued in 2007 and 2008,
and $112,500 which was owed to Mr. Zaikin for services rendered prior to
September 2005, at which time he agreed to stop accruing salary until January
2007, when he provided us notice of his intent to once again begin accruing
salary until such time as we have sufficient funds to pay such accrued salary,
$156,019 payable to our Chief Financial Officer, Elena Pochapski, and
$69,242 of accrued salary payable to our former Chief Executive Officer, Shakeel
Adam. Total liabilities increased $552,802 or 46.4% to $1,745,217 as
of December 31, 2008, from $1,192,415 as of December 31, 2007, which increase
was mainly due to increased accounts payable and additional accrued payroll from
the period from December 31, 2007 to December 31, 2008.
We had
negative working capital of $1,743,957 and a total pre-development and
development stage accumulated deficit of $14,856,389 as of December 31,
2008.
Because
our cumulative losses associated with the operations of ZNG exceeded our
investment as of the date of the Joint Venture, ZNG, Ltd. is carried on our
balance sheet at $-0- as of December 31, 2008. Our investment in ZNG,
Ltd. will exceed $-0- at such time as ZNG, Ltd. has cumulative
earnings sufficient to repay all loans to Baltic as provided in the Joint
Venture, if ever.
As of
December 31, 2008, the Company owns a 44% interest in KNG. The Company’s
investment in KNG is recorded on the equity method of accounting
effective October 1, 2008. After careful consideration of the current financial
position of KNG, the Company applied an impairment charge to the value of the
investment in KNG which resulted in carrying it at zero value.
We had
$1,865 of net cash flows from operating activities for the year ended December
31, 2008, which is attributable to adjustments to reconcile $3,928,000 of loss
on deemed disposition of oil and gas properties, unproved, $794,192 of loss on
sale of investment, $525,947 impairment charge on investment, $563,555 of
increase in accounts payable and accrued expenses, $48,053 of common stock and
warrants granted for professional services and in connection with the
issuance of shares and options to employees for salaries, $3,764 of prepaid
expenses and other assets and $885 of depreciation and amortization, offset by
$5,863,560 of net loss.
For the
year ended December 31, 2008, we had net cash flows for investing activities of
$29,393, primarily due to loan to an affiliate in connection with amounts
previously loaned to KNG, which, because of the sale of majority control of KNG,
is required to be unconsolidated in our financial statements.
In
connection with the Joint Venture (described under "Joint Venture Agreement,"
above), the Company historically received management fees, which varied from
$25,000 to $85,000 per month. Due to the “transition period” of the Joint
Venture’s exploration activities, no management fees were paid during the
year ended December 31, 2008, and there is no assurance that the Joint Venture
will pay any management fees or that fees received will be adequate to pay our
upcoming expenses and liabilities in the future. If the Company does
not receive any management fees moving forward, the Company anticipates that its
stockholders and management will continue to provide financing for the Company,
of which there can be no assurance.
In
connection with the activities of KNG, we are currently not receiving
compensation for the use of the Company’s geological data. According to the
Operating agreement with Neftebitum, such fees may be paid to us in future years
depending on the financial position of KNG, of which there can be no
assurance.
We are
taking steps in an attempt to raise equity capital and/or to borrow additional
funds. There can be no assurance that any new capital will be available to us or
that adequate funds for our operations, whether from our financial markets, or
other arrangements will be available when needed or on terms satisfactory to us,
if at all. We have no commitments from officers, directors or affiliates to
provide funding. Our failure to obtain adequate financing may require us to
delay, curtail or scale back some or all of our operations. Additionally, any
additional financing may involve dilution to our then-existing
shareholders.
Further,
we are currently reviewing our status as a U.S. reporting company, and our
management may decide it is more advantageous for us to go private, cease our
public reporting in the future, and/or trade our common stock on alternative
markets or exchanges in Europe in the future (or to dual list our stock on
multiple exchanges), which could cause any investment in the Company to become
illiquid or worthless if such transaction were to occur (see also “Risk Factors”
below”).
Critical
Accounting Policies
Use
of Estimates:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP) requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Principles
of Consolidation:
The
accompanying consolidated financial statements include the accounts of the
Company and its then wholly-owned subsidiaries, ZNG (through October 14, 2005),
Siberian Energy Group (Canada) and KNG (December 31, 2006 through September 30,
2008). All intercompany transactions and balances have been
eliminated. After October 14, 2005, the Company’s investment in ZNG
is accounted for on the equity method of accounting. After September
30, 2008, the Company’s investment in KNG is accounted for on the equity method
of accounting. Accordingly, the assets, liabilities and equity are no longer
presented on the Company’s balance sheet.
Foreign
Currency Translation:
The
Russian subsidiaries ZNG and KNG use the Ruble as their functional currency;
Siberian Energy Group (Canada) uses the Canadian dollar as its functional
currency. The books and records of ZNG, KNG and Siberian Energy Group
(Canada) are kept in their functional currencies. The Company
translates to U.S. dollars the assets and liabilities of ZNG, KNG, and Siberian
Energy Group (Canada) at the year-end exchange rates; income statement amounts
are converted at the average rates of exchange for the
year. Translation gains and losses are included within other
comprehensive income (loss).
Oil
and Gas Properties:
The
Company follows the full cost method of accounting for oil and gas
properties. Accordingly, all costs associated with acquisition,
exploration, and development of oil and gas reserves, including directly related
overhead costs, are capitalized.
All
capitalized costs of oil and gas properties, including the estimated future
costs to develop proved reserves, will be amortized on the unit-of production
method using estimates of proved reserves. Investments in unproved
properties and major development projects are not amortized until proved
reserves associated with the projects can be determined or until impairment
occurs. When applicable, if the results of an assessment indicate
that the properties are impaired, the amount of the impairment is added to the
capitalized costs to be amortized.
In
addition, the capitalized costs are subject to a “ceiling test,” which basically
limits such costs to the aggregate of the “estimated present value,” discounted
at a 10-percent interest rate of future net revenues from proved reserves, based
on current economic and operating conditions, plus the lower of cost or fair
market value of unproved properties.
Sales of
proved and unproved properties are accounted for as adjustments of capitalized
costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and proved
reserves of oil and gas, in which case the gain or loss is recognized in
income. Abandonments of properties are accounted for as adjustments
of capitalized costs with no loss recognized.
Property
and Equipment:
Property
and equipment is stated at cost, net of accumulated
depreciation. Depreciation is provided using the straight-line
method.
Long-Lived
Assets:
Long
lived assets to be held and used or disposed of other than by sale are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. When required, impairment
losses on assets to be held and used or disposed of other than by sale are
recognized based on the fair value of the asset. Long-lived assets to
be disposed of by sale are reported at the lower of its carrying amount or fair
value less cost to sell.
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
|
The Board
of Directors and Stockholders
Siberian
Energy Group Inc.
We have
audited the accompanying consolidated balance sheets of Siberian Energy Group
Inc. (a development stage company) as of December 31, 2008 and 2007 and the
related consolidated statements of operations, stockholders’ equity and cash
flows for the years then ended, and the cumulative period of Development Stage
Activity – January 1, 2003 through December 31, 2008. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Siberian Energy Group Inc.
as of December 31, 2008 and 2007 and the results of its operations and its cash
flows for the years then ended and the cumulative period of Development Stage
Activity – January 1, 2003 through December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that Siberian
Energy Group Inc. will continue as a going concern. As discussed in
Note 11 to the financial statements, Siberian Energy Group Inc. has not earned
significant revenue since inception of its current endeavor, and is considered
to be in the development stage which raises substantial doubt about its ability
to continue as a going concern. Management’s plans relative to these
matters are also described in Note 11 and throughout the financial
statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Lumsden
& McCormick, LLP
Buffalo,
New York
March 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$ |
739 |
|
|
$ |
1,248 |
|
|
Prepaid
expenses and other
|
|
|
521 |
|
|
|
4,285 |
|
|
|
|
|
1,260 |
|
|
|
5,533 |
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in joint venture, at equity
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in KNG, at equity
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas properties, unproved
|
|
|
- |
|
|
|
5,248,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Loan
receivable - affiliate
|
|
|
29,500 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
1,783 |
|
|
|
3,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
32,543 |
|
|
$ |
5,257,476 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Demand
loan from stockholder, interest at 9%
|
|
$ |
- |
|
|
$ |
10,000 |
|
|
Accounts
payable:
|
|
|
|
|
|
|
|
|
|
Related party - stockholders
|
|
|
447,663 |
|
|
|
370,500 |
|
|
Related
party - Baltic Petroleum, interest at 14%
|
|
|
62,771 |
|
|
|
56,693 |
|
|
Others
|
|
|
410,039 |
|
|
|
213,854 |
|
|
Accrued
payroll
|
|
|
824,744 |
|
|
|
541,368 |
|
|
|
|
|
1,745,217 |
|
|
|
1,192,415 |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
Common
stock - authorized 100,000,000 shares, $.001 par value,
|
|
|
|
|
|
|
|
|
|
18,645,550
and 18,383,030 issued and outstanding
|
|
|
18,646 |
|
|
|
18,383 |
|
|
Additional
paid-in capital
|
|
|
13,112,299 |
|
|
|
13,053,756 |
|
|
Accumulated
deficit:
|
|
|
|
|
|
|
|
|
|
Pre-development
stage
|
|
|
(449,785 |
) |
|
|
(449,785 |
) |
|
Development
stage
|
|
|
(14,406,604 |
) |
|
|
(8,543,044 |
) |
|
Accumulated
other comprehensive income (loss)
|
|
|
12,770 |
|
|
|
(14,249 |
) |
|
|
|
|
(1,712,674 |
) |
|
|
4,065,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
32,543 |
|
|
$ |
5,257,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
|
|
|
|
|
|
|
|
|
|
SIBERIAN
ENERGY GROUP INC. (A Development Stage Company)
|
|
|
|
|
|
|
|
|
|
|
For
the
|
|
|
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
cumulative
|
|
|
|
|
|
|
|
|
|
|
period
of
|
|
|
|
|
|
|
|
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
Stage
Activity-
|
|
|
|
|
|
|
|
January
1, 2003
|
|
|
|
|
|
|
|
through
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
For
the years ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
and other income:
|
|
|
|
|
|
|
|
|
|
|
Management
fees from joint venture |
|
$ |
- |
|
|
$ |
700,000 |
|
|
$ |
1,135,000 |
|
|
Gain
from entrance into joint venture |
|
|
- |
|
|
|
- |
|
|
|
364,479 |
|
|
Other |
|
|
- |
|
|
|
- |
|
|
|
6,382 |
|
|
Total
revenues and other income |
|
|
- |
|
|
|
700,000 |
|
|
|
1,505,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
346,710 |
|
|
|
833,457 |
|
|
|
3,437,605 |
|
|
Professional
and consulting fees |
|
|
315,983 |
|
|
|
1,229,593 |
|
|
|
4,862,809 |
|
|
Rent
and occupancy |
|
|
14,101 |
|
|
|
46,882 |
|
|
|
237,226 |
|
|
Depreciation
and amortization |
|
|
885 |
|
|
|
635 |
|
|
|
104,237 |
|
|
Finance
charges and interest |
|
|
8,139 |
|
|
|
6,948 |
|
|
|
112,063 |
|
|
Marketing
and other |
|
|
54,225 |
|
|
|
642,972 |
|
|
|
2,035,008 |
|
|
Total
expenses |
|
|
740,043 |
|
|
|
2,760,487 |
|
|
|
10,788,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from sale of investment
|
|
|
669,570 |
|
|
|
- |
|
|
|
669,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on deemed disposition of oil and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gas
properties, unproved |
|
|
3,928,000 |
|
|
|
- |
|
|
|
3,928,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
charge on investment
|
|
|
525,947 |
|
|
|
- |
|
|
|
525,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes |
|
|
5,863,560 |
|
|
|
2,060,487 |
|
|
|
14,406,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes (benefit)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss (development stage)
|
|
$ |
5,863,560 |
|
|
$ |
2,060,487 |
|
|
$ |
14,406,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$ |
(0.32 |
) |
|
$ |
(0.13 |
) |
|
$ |
(1.25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of basic and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted
common shares outstanding |
|
|
18,437,156 |
|
|
|
15,766,523 |
|
|
|
11,519,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
SIBERIAN
ENERGY GROUP INC. (A Development Stage Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the cumulative period of Development Stage Activity - January 1, 2003
through December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
Shares
|
|
|
Par
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
(Loss)
|
|
|
Total
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2003 (pre-development stage)
|
|
|
4,902,886 |
|
|
$ |
4,903 |
|
|
$ |
430,195 |
|
|
$ |
(449,785 |
) |
|
$ |
- |
|
|
$ |
(14,687 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for the year - 2003
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(422,516 |
) |
|
|
- |
|
|
|
(422,516 |
) |
|
$ |
(422,516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in acquisition (ZNG)
|
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
(1,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2003
|
|
|
5,902,886 |
|
|
$ |
5,903 |
|
|
$ |
429,195 |
|
|
$ |
(872,301 |
) |
|
|
- |
|
|
$ |
(437,203 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for the year - 2004
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(833,567 |
) |
|
|
- |
|
|
|
(833,567 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(53,120 |
) |
|
|
(53,120 |
) |
|
$ |
(886,687 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in acquisition (ZNG)
|
|
|
3,450,000 |
|
|
|
3,450 |
|
|
|
746,550 |
|
|
|
- |
|
|
|
- |
|
|
|
750,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for professional services
|
|
|
50,000 |
|
|
|
50 |
|
|
|
9,950 |
|
|
|
- |
|
|
|
- |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
34,426 |
|
|
|
- |
|
|
|
- |
|
|
|
34,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
9,402,886 |
|
|
$ |
9,403 |
|
|
$ |
1,220,121 |
|
|
$ |
(1,705,868 |
) |
|
$ |
(53,120 |
) |
|
$ |
(529,464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Number
of Shares
|
|
|
|
Par
Value
|
|
|
|
Additional
Paid
-In Capital
|
|
|
|
Accumulated
Deficit |
|
|
|
Accumulated
Other Comprehensive Income (Loss) |
|
|
|
Total |
|
|
|
Comprehensive
Loss |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for the year - 2005
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,153,686 |
) |
|
|
- |
|
|
|
(1,153,686 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
50,614 |
|
|
|
50,614 |
|
|
$ |
(1,103,072 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for professional services
|
|
|
385,000 |
|
|
|
385 |
|
|
|
197,829 |
|
|
|
- |
|
|
|
- |
|
|
|
198,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for accrued salaries
|
|
|
1,700,000 |
|
|
|
1,700 |
|
|
|
301,871 |
|
|
|
- |
|
|
|
- |
|
|
|
303,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
granted for professional services
|
|
|
- |
|
|
|
- |
|
|
|
310,000 |
|
|
|
- |
|
|
|
- |
|
|
|
310,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
11,487,886 |
|
|
$ |
11,488 |
|
|
$ |
2,029,821 |
|
|
$ |
(2,859,554 |
) |
|
$ |
(2,506 |
) |
|
$ |
(820,751 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for the year - 2006
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,072,788 |
) |
|
|
- |
|
|
|
(4,072,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,939 |
) |
|
|
(1,939 |
) |
|
$ |
(4,074,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for employee stock option plan and warrants
|
|
|
195,000 |
|
|
|
195 |
|
|
|
45,305 |
|
|
|
- |
|
|
|
- |
|
|
|
45,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for geological data
|
|
|
1,900,000 |
|
|
|
1,900 |
|
|
|
3,323,100 |
|
|
|
- |
|
|
|
- |
|
|
|
3,325,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for professional services
|
|
|
1,139,499 |
|
|
|
1,140 |
|
|
|
2,120,320 |
|
|
|
- |
|
|
|
- |
|
|
|
2,121,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
granted for professional services
|
|
|
- |
|
|
|
- |
|
|
|
1,201,960 |
|
|
|
- |
|
|
|
- |
|
|
|
1,201,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
cancelled
|
|
|
(609,424 |
) |
|
|
(610 |
) |
|
|
610 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
14,112,961 |
|
|
$ |
14,113 |
|
|
$ |
8,721,116 |
|
|
$ |
(6,932,342 |
) |
|
$ |
(4,445 |
) |
|
$ |
1,798,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Number
of Shares
|
|
|
|
Par
Value
|
|
|
|
Additional
Paid
-In Capital
|
|
|
|
Accumulated
Deficit |
|
|
|
Accumulated
Other Comprehensive Income (Loss) |
|
|
|
Total |
|
|
|
Comprehensive
Loss |
|
| |
|
|
|
Loss
for the year - 2007
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,060,487 |
) |
|
|
- |
|
|
|
(2,060,487 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(9,804 |
) |
|
|
(9,804 |
) |
|
$ |
(2,070,291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for employee stock option plan and warrants
|
|
|
566,935 |
|
|
|
567 |
|
|
|
(567 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for geological data
|
|
|
200,000 |
|
|
|
200 |
|
|
|
349,800 |
|
|
|
- |
|
|
|
- |
|
|
|
350,000 |
|
|