Notes to Condensed Consolidated Financial Statements
As used herein, the terms, “Sky Petroleum,” “Sky,” “Company,” “we,” “us,” and “our” refer to Sky Petroleum, Inc. and related subsidiaries.
Note 1 - Organization and Basis of Presentation
The Company was organized on August 22, 2002 under the laws of the State of Nevada, as The Flower Valet. On December 20,
2004 the Company amended its articles of incorporation to change its name to Seaside Explorations, Inc. Subsequently, on March 28, 2005 the Company changed its name to Sky Petroleum, Inc. ("Sky", "Sky Petroleum", or "Company"). The Company has four wholly-owned subsidiaries, two incorporated in Cyprus: Sastaro Limited (“Sastaro”) and Bekata Limited (Bekata”) which owns 100% of Sastaro, of which the companies relate to our Mubarek field operations, and a third Sky Petroleum (Albania) Inc., ("Sky Petroleum Albania") a Cayman Islands corporation, incorporated for the purposes of holding and operating interests in Albania. The company owns
100%
of Sky Petroleum UK Limited (the "JV Sub"), incorporated in England and Wales which owns
75%
of Hyde Resources Limited (the "JV Corporation"). The purpose of the "JV Corporation" is to obtain licenses and to conduct technical, environmental and exploration due diligence; raise capital and enter into one or more joint venture projects (each a “JVC Project”) for the purposes of conducting, Exploration, Development and Commercialization of oil and gas project in an Area of Interest. The Company is engaged in the exploration and development of oil and natural gas properties of others under arrangements in which we finance the costs in exchange for interests in the oil or natural gas revenue generated by the properties. Such arrangements are commonly referred to as farm-ins to us, or farm-outs by the property owners farming out to us.
As of
December 31, 2013
, the Company had four wholly-owned subsidiaries, two incorporated in Cyprus: Sastaro Limited (“Sastaro”) and Bekata Limited ("Bekata”) which owns 100% of Sastaro and a third Sky Petroleum (Albania) Inc., a Cayman Islands corporation and qualified branch in Albania, incorporated for the purposes of holding interests in Albania. On October 31, 2013, the Company entered into a Joint Venture Shareholders agreement, with Hyde Resources Ltd., incorporated in Northern Ireland (the " JV Corporation"). The company established Sky Petroleum UK Limited, incorporated in England and Wales (the "Sky JV Sub"), a wholly owned subsidiary of the Company. Sky JV Sub owns 75% of the Joint Venture shares.
The Company cannot be certain that its existing sources of cash will be adequate to meet our liquidity requirements. However,
management has implemented plans to improve liquidity through slowing or stopping certain planned expenditures and
negotiations with Creditors to reduce its debt obligations.. Management plans to obtain funding through equity, debt or other securities offerings. There can be no assurance that the capital raising efforts will be successful or that our results of operations will materially improve in either the short-term or long-term and accordingly, we may be unable to meet our obligations as they become due.
A fundamental principle of the preparation of financial statements in accordance with generally accepted accounting principles is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business. However, this principle is applicable to all entities except for entities in liquidation or entities for which liquidation appears imminent. In accordance with this requirement, our policy is to prepare our consolidated financial statements on a going concern basis unless we intend to liquidate or have no other alternative but to liquidate. The Company's consolidated financial statements have been prepared on a going concern basis and do not reflect any adjustments that might specifically result from the outcome of this uncertainty.
Note 2 - Summary of Significant Accounting Policies
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (U.S. G.A.A.P.) pursuant to the rules and regulations of the SEC and stated in US dollars.
Basis of Consolidation
The financial statements present the consolidated accounts of the Company and its wholly owned subsidiaries, Bekata, Sastaro
and Sky Petroleum (Albania) and Sky Petroleum UK Limited (which owns
75%
of Hyde Resources Limited (the "JV Corporation"). All intercompany account balances and transactions have been eliminated.
Nature of Operations
The Company's focus is on the acquisition, development and exploitation of long-lived oil and natural gas reserves and, to a lesser extent, exploration for new oil and natural gas reserves.
Property and Equipment
Oil and natural gas properties:
The Company uses the full cost method of accounting for its oil and natural gas producing activities. Accordingly, all costs associated with acquisition, exploration, and development of oil and natural gas reserves, including directly related overhead costs, are capitalized. Management and service fees received under contractual arrangements, if any, are treated as reimbursement of costs, offsetting the costs incurred to provide those services.
Depletion is provided using the units-of-production method based upon estimates of proved oil and natural gas reserves with oil
and natural gas production being converted to a common unit of measure based upon their relative energy content. 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. If the results of an assessment indicate that the properties are impaired, the carrying
value of the assets is reduced accordingly. Once the assessment of unproved properties is complete and when major development projects are evaluated, the costs previously excluded from amortization are transferred to the full cost pool and amortization begins.
Under the full cost method of accounting, the net book value of oil and natural gas properties, less related deferred income taxes, may not exceed a calculated “ceiling”. The ceiling limitation is the discounted estimated after-tax future net cash flows from proved oil and natural gas properties. In calculating future net cash flows, current prices and costs are generally held constant indefinitely. The net book value of oil and natural gas properties, less related deferred income taxes is compared to the ceiling on a quarterly and annual basis. Any excess of the net book value, less related deferred income taxes, is generally written off as an expense. Under rules and regulations of the SEC, all or a portion of the excess above the ceiling may not be written off if, subsequent to the end of the quarter or year but prior to the release of the financial results, prices have increased sufficiently that all or a portion of such excess above the ceiling would not have existed if the increased prices were used in the calculations.
As of
March 31, 2014
, the net carrying value of the Company's acquisition and development costs for oil and gas projects in
Albania was
$0
.
Sales of proved and unproved properties are accounted for as an adjustment of capitalized costs with no gain or loss recognized,
unless such adjustments would significantly alter the relationship between capitalized costs and proved oil and natural gas reserves, in which case the gain or loss is recognized.
Other Property and Equipment:
Maintenance and repairs are charged to operations. Renewals and betterments are capitalized to the appropriate property and
equipment accounts.
Upon retirement or disposition of assets other than oil and natural gas properties, the cost and related accumulated depreciation
are removed from the accounts with the resulting gains or losses, if any, recognized in income. Depreciation of other property and equipment is computed using the straight-line method based on the estimated useful lives of the property and equipment.
Income Taxes
Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related
to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
Undistributed earnings of the Company's foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no
provision for U.S. federal income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends
or otherwise, the Company may be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the foreign countries.
The Company's wholly owned subsidiaries have prepared required foreign tax returns that were due for the years ended
December 31, 2005 through 2012. The Company has accrued approximately
$33,000
. This amount includes potential tax
liabilities, penalties and interest which will be due upon filing the returns with the appropriate countries.
Stock-Based Compensation
The Company measures all share-based payments, including grants of employee stock options, using a fair-value based method
in accordance with U.S. GAAP. The cost of services received in exchange for awards of equity instruments is recognized in the consolidated statement of operations based on the grant date fair value of those awards amortized over the requisite service period.
Basic and Diluted Net Loss Per Share
Basic net loss per share is computed based on the weighted average shares of common stock outstanding for the period which included
250,000
shares outstanding and earned but unissued. Common stock equivalents which represent stock options (approximately
2,100,000
stock options) have been excluded from the computation of diluted net loss per share as their effect is anti-dilutive. Convertible debentures (principal and accrued interest) outstanding at
March 31, 2014
, and
2013
totaling
$164,630
and
$161,704
, respectively, were convertible into common stock at a price of
$.25
have been excluded from the computation of diluted net loss per share as their effect is antidilutive. There were
no
remaining warrants that are outstanding as of
March 31, 2014
.
Use of Estimates in the Preparation of Consolidated Financial Statements
Preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management for each period presented herein. Fair values were assumed to approximate carrying values for cash and cash equivalents, and accounts payable and accrued expenses because they are short term in nature and their carrying amounts approximate fair values.
The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short maturity of these instruments. None of these instruments are held for trading purposes.
U.S. GAAP establishes a framework for measuring fair value and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available (Level 1). If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters (Level 2). Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer's creditworthiness, among other things, as well as unobservable parameters (Level 3). Any such valuation adjustments are applied consistently over time.
Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers all demand deposits, money market accounts
and certificates of deposit purchased with an original maturity of three months or less to be cash equivalents.
Revenue Recognition
Oil and natural gas revenues are recorded using the sales method, whereby the Company recognizes oil and natural gas revenue
based on the amount of oil and natural gas sold to purchasers. As of December 31, 2013 and December 31, 2012, the Company
did not have any oil or natural gas imbalances recorded. The Company does not recognize revenues until they are realized or
realizable and earned. Revenues are considered realized or realizable and earned when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller's price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.
Note 3 - Investment in Oil and Gas Properties
As of
March 31, 2014
, the Company's investment in oil and gas properties was
zero
.
On June 24, 2010, Sky entered into a Production Sharing Contract (“PSC”) with the Ministry of Economy, Trade and Energy of
Albania, acting through the National Agency of Natural Resources of Albania (“AKBN”). The PSC grants Sky Petroleum exclusive rights to
three
exploration blocks (Block Four, Block Five and Block Dumre) in the Republic of Albania (the “Concession Area”). The Concession Area covered approximately
1.2 million
acres, representing approximately
20%
of the landmass of Albania.
On December 23, 2011, Sky Petroleum delivered Notice of Arbitration under the Arbitration Rules of the United Nations
Commission on Internal Trade Law to National Agency of Natural Resources and to the Ministry of Economy, Trade and Energy of Albania to institute an arbitration proceeding against the Ministry of Economy, Trade and Energy of Albania, acting by and through AKBN, for breach of the PSC in accordance with Article XXI of the PSC. The arbitration proceeding arose out of the alleged termination of the PSC in breach of the expressed termination provisions in the PSC. The Arbitration Tribunal ruled that the PSC was properly terminated. See "Contingencies" in Note 7 to Consolidated Financial Statements for further details.
On May 18, 2005, our wholly owned subsidiary Sastaro entered into a Participation Agreement with Buttes Gas and Oil Co.
International Inc. (which we refer to as “Buttes”), a wholly-owned subsidiary of Crescent Petroleum Company International
Limited (which we refer to as “Crescent”) for the financing of a drilling program in the Mubarek field. The field is an offshore
region in a concession area surrounding Abu Musa Island in the Arabian Gulf. Under the terms of the Participation Agreement,
the Company participated in a share of the future production revenue by contributing
$25 million
in drilling and completion
costs related to two wells in an off-shore oil and gas project in the United Arab Emirates. The operator of the drilling program,
Crescent completed the first well in 2006 and the second well in 2007. As of December 31, 2009, the first well produced a total
of
150,413
gross barrels, and the second well produced a total of
149,471
gross barrels. Both wells terminated production in
2009.
On December 31, 2009, Sastaro received written notice from Buttes that Buttes unilaterally and solely determined that the
Mubarek Field had reached the end of its economic life. Buttes also notified Sastaro that the Concession Agreement, dated
December 29, 1969, between the His Highness Sheikh Sultan bin Mohamed Al-Qassimi III, The Ruler of Sharjah, UAE and
Buttes with respect to the Mubarek Field was terminated. Buttes stated it handed over the Mubarek Field operations and
facilities to representatives of His Highness Sheikh Sultan bin Mohamed Al-Qassimi III on December 28, 2009.
On May 7, 2013, the Arbitration Tribunal ruled that the PSC was properly terminated on November 17, 2011, and ruled Sky
Petroleum to reimburse AKBN for fees and expenses in connection with the Arbitration.
The Company's expenditures related to the Albania exploration blocks consisted of acquisition costs totaling
$50,000
, and
$700,000
for fees to consultants for locating and negotiating the Company's investment in the Albania exploration blocks,
$415,220
for fees related to evaluations and assessments of the concession area, and
$50,000
towards the
$100,000
allocation
for training and education for the first year exploration period. In addition,
3 million
shares of common stock with a fair value
of
$1,170,000
, plus
3,863,636
Preferred Shares Series B with a value of
$7,820,000
, were issued to a Consultant for expertise
provided to the Company in acquiring and negotiating the acquisition of oil and gas properties.
As a result of the ruling Sky Petroleum impaired Investment in Oil and Gas Properties, net, related to acquisition and
development costs for oil and gas projects in Albania to
$0
, and for the year ended December 31, 2013, Sky Petroleum had an
impairment charge of
$10,205,220
; and accrued a liability of
$501,511
(EUR
382,774
) related to liability arising from the
obligation to reimburse AKBN for total fees and expenses in connection with the Arbitration proceeding. As of
March 31, 2014
, the obligation to pay AKBN remains outstanding.
Note 4 – Bank Guarantee
On August 10, 2011, the Company delivered a bank guarantee in the form of a letter of credit under the terms of the PSC with
AKBN. In connection with the bank guarantee, Sky Petroleum made a cash deposit of
$1,500,000
with Texas Citizens Bank N.A. in 2011. The cash deposit was considered restricted cash.
The Letter of Credit was effective through February 22, 2013. The principal under the Letter of Credit would be reduced every
month or three months, as agreed between AKBN and the Company during the First Exploration Period, as defined under the PSC, by an amount equal to the sum spent by the Company on its Work Program obligations, as defined under the PSC, during such month or three months, such reductions to be effected in accordance with monthly or quarterly written statements issued by AKBN to the Company. As of March 29, 2013 the Letter of Credit had matured and the proceeds were moved to unrestricted cash.
Note 5 - Stockholders' Equity
Preferred Stock
We have authorized
10 million
shares of
$0.001
par value Series A Preferred Stock. There were
no
shares of Series A Preferred
Stock outstanding as of
March 31, 2014
and
March 31, 2013
, respectively.
On October 8, 2010, pursuant to the terms of a Consulting Agreement, dated May 18, 2010, as amended September 29, 2010 and
October 3, 2010, by and between the Company and Consultant, the Company filed a Certificate of Designation with the Secretary of
State for the State of Nevada to designate
5,000,000
shares of the Company's preferred stock as shares of Series B Preferred Stock (the "Series B Preferred Shares").
The Series B Preferred Shares are participating with no preferences or voting rights, and shall not be converted by any holder, in whole or in part for a period of twelve months from the date of initial issuance. Each Series B Preferred Share is convertible into
4.4
shares of common stock of the Company, however, the shares may not be converted into more than
4.99%
of beneficial
ownership unless the holder waives the beneficial ownership limitation with 61 days notice.
In connection with the Series B designation and the Consultant Agreement, the Company issued
3,863,636
shares, with a fair
value of
$7,820,000
. These shares were issued to the Consultant for expertise provided to the Company in acquiring and negotiating the acquisition of oil and gas properties in Albania. As of
March 31, 2014
and
December 31, 2013
,
3,863,636
shares of Series B Preferred Stock were outstanding.
On June 25, 2012, the Company issued a stop order notice to its transfer agent under which the transfer agent was instructed to:
not to remove the restrictive legends from the share certificates representing the Shares; not to effect or facilitate the transfer, assignment, conveyance or sale of any of the Series B Preferred Shares; and not to effect the conversion of the Series B Preferred Stock into shares of common stock of the Corporation, unless the transfer agent receives the expressed written instructions of the Secretary of the Registrant. The Company has determined that Consultant breached numerous terms of the Consulting Agreement and committed other actions that resulted in substantial harm and damage to the Company and its shareholders.
Common Stock and Stock Options
On July 26, 2005, the Company adopted the Sky Petroleum, Inc. Non-U.S. Stock Option Plan (the “Non-U.S. Plan”), effective as of April 1, 2005. The Non-U.S. Plan authorizes the issuance of stock options to acquire up to
10%
of the Company's issued and outstanding shares of common stock.
On August 25, 2005, the Company adopted the Sky Petroleum, Inc. 2005 U.S. Stock Incentive Plan (the “U.S. Plan”). The U.S.
Plan authorizes the issuance of stock options and other awards to acquire up to a maximum of
3,321,600
shares of the Company's common stock (less the number of shares issuable upon exercise of options granted by the Company under all other stock incentive plans on the date of any grant under the U.S. Plan). The U.S. Plan provides for the grant of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended), options that are not incentive stock options, stock appreciation rights and various other stock-based grants.
On August 19, 2012, the Company granted
150,000
common shares valued at
$24,000
to a new Advisory board member.
Additionally, on October 11, 2012, the Company granted
100,000
common shares valued at
$17,000
to a second Advisory board member. The common shares were all valued based on the quoted market price at date the shares were approved by the Board. The share certificates have been issued. On August 7, 2012, the Company granted
300,000
stock options under the Non-US Plan. The options are exercisable at
$0.25
per share with vesting over the next
three
years and were valued at
$56,767
.
The 2012 stock options fair value was determined using the following attributes and assumptions for each separate issuance: share prices ranging from
$0.05
to
$0.18
, risk-free interest rates of approximately
1.55%
, expected dividend yields of
0%
, expected life of
4
years, and expected volatility of
207%
to
291%
. The Company estimates forfeitures based on historical experience.
For the
three months ended March 31, 2014
, the Company recorded
$6,174
of compensation expense based on its use of
the Black Scholes model to estimate the grant-date fair value of these stock option awards. No options were exercised for the
three months ended March 31, 2014
. Compensation expense is based upon straight-line amortization of the grant-date fair value over the vesting period of the underlying stock option. In accordance with FASB ASC Topic No. 718 and No. 505, the fair value of each stock option grant was estimated on the date of the grant, using the Black-Scholes option-pricing model. As of
March 31, 2014
, there was approximately
$43,223
unrecognized compensation expenses related to non-vested stock option agreements.
A summary of stock options outstanding as of
March 31, 2014
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Underlying Options Outstanding
|
|
Shares Underlying Options Exercisable
|
|
Range of
Exercise Prices
|
|
Shares
Underlying
Options
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Weighted
Average
Exercise
Price
|
|
Shares
Underlying
Options
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.18
|
|
|
|
750,000
|
|
|
|
4.22
|
|
|
|
$
|
0.18
|
|
|
|
716,667
|
|
|
|
$
|
0.18
|
|
|
$
|
0.25
|
|
|
|
550,000
|
|
|
|
4.50
|
|
|
|
$
|
0.25
|
|
|
|
350,000
|
|
|
|
$
|
0.25
|
|
|
$
|
0.50
|
|
|
|
200,000
|
|
|
|
2.60
|
|
|
|
$
|
0.50
|
|
|
|
200,000
|
|
|
|
$
|
0.50
|
|
|
$
|
1.29
|
|
|
600,000
|
|
|
|
1.50
|
|
|
|
$
|
1.29
|
|
|
|
600,000
|
|
|
|
$
|
1.29
|
|
The aggregate intrinsic value of exercisable options as of
March 31, 2014
is
$0
. The aggregate intrinsic value of options outstanding as of
March 31, 2014
is
$0
.
The following is a summary of stock option activity for the
three months ended March 31, 2014
and for the year ended
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
Of Shares
|
|
Weighted
Average
Exercise Price
|
|
Weighted Average
Remaining Contract Life (Years)
|
|
Balance, December 31, 2012
|
2,100,000
|
|
|
$
|
0.55
|
|
|
4.61
|
|
|
Options canceled
|
—
|
|
|
|
|
|
|
Options granted
|
—
|
|
|
|
|
|
|
Balance, December 31, 2013
|
2,100,000
|
|
|
0.55
|
|
|
3.61
|
|
|
Options canceled
|
—
|
|
|
|
|
|
|
Options granted
|
—
|
|
|
|
|
|
|
Balance, March 31, 2014
|
2,100,000
|
|
|
0.55
|
|
|
3.36
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2014
|
1,866,667
|
|
|
$
|
0.58
|
|
|
3.23
|
|
Class A Units and Class A Warrants and Class B Units and Class B Warrants
In October 2011, the Company initiated subscriptions agreements for a non-brokered private placement to raise
$1,000,000
. Upon receipt of proceeds the Company issued
4,000,000
Class A Units at
$0.25
per unit to investors. Each Class A Unit consisted of one share of common stock of the Company, par value
$0.001
and one Class A Warrant. Each Class A Warrant is exercisable to acquire one Class B Unit of the Company at an exercise price of
$0.35
per Class B Unit until January 20, 2013, which expired. Each Class B Unit consists of one share of common stock of the Company, par value
$0.001
and one Class B Warrant. Each Class B Warrant is exercisable to acquire one common share of the Company, par value
$0.001
at an exercise price of
$0.60
per Class B Warrant Share until January 20, 2014 which expired. The Company received
$860,000
in proceeds prior to the year ended December 31, 2011 for the offering, and received
$140,000
in 2012.The Company had received all
$1,000,000
in proceeds as of December 31, 2012.
In connection with the offering of the Class A Units, the Corporation issued a reservation order reserving Common Shares for
issuance as follows:
|
|
|
|
|
|
|
Warrant Class/
Exercise Price
|
Number of Shares
Common Stock
(Reserved)
|
Aggregate Exercise
Price
|
|
Class A Warrants
(US$0.35)
|
4,000,000
|
1,400,000
|
|
Class B Warrants
(US$0.60)
|
4,000,000
|
2,400,000
|
|
Total
|
8,000,000
|
3,800,000
|
In May 2012, the Company initiated subscriptions agreements for a non-brokered private placement to raise
$500,000
. The
Company issued
2,000,000
Class A Units at
$0.25
per unit to an investor in May 2012. Each Class A Unit consisted of one share of common stock of the Company, par value
$0.001
and one Class A Warrant. Each Class A Warrant is exercisable to acquire one Class B Unit of the Company at an exercise price of
$0.35
per Class B Unit until May 14, 2013, which expired. Each Class B Unit consists of one share of common stock of the Company, par value
$0.001
and one Class B Warrant. Each Class B Warrant is exercisable to acquire one common share of the Company, par value
$0.001
at an exercise price of
$0.60
per Class B Warrant Share until May 14, 2014. The Company received
$500,000
in proceeds as of December 31, 2012.
In connection with the offering of the Class A Units, the Corporation issued a reservation order reserving Common Shares for
issuance as follows:
|
|
|
|
|
|
|
Warrant Class/
Exercise Price
|
Number of Shares
Common Stock
(Reserved)
|
Aggregate Exercise
Price
|
|
Class A Warrants
(US$0.35)
|
2,000,000
|
700,000
|
|
Class B Warrants
(US$0.60)
|
4,000,000
|
2,400,000
|
|
Total
|
8,000,000
|
3,100,000
|
Note 6 - Income Taxes
For the
three months ended March 31, 2014
, the Company had net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At
March 31, 2014
, the Company has accumulated operating losses totaling approximately $
60 million
. The net operating loss carry forwards will begin to expire in
2020
if not utilized. The Company has recorded net operating losses in each year since its inception through
March 31, 2014
. Based upon all available objective evidence, including the Company’s loss history, management believes it is more likely than not that, the net deferred assets will not be fully realized. Therefore, the Company has provided a valuation allowance against its deferred tax assets at
March 31, 2014
.
Undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no
provision for U.S. federal income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends
or otherwise, the Company may be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the foreign countries.
The Company’s wholly owned subsidiaries have prepared the required foreign tax returns for the years ended December 31, 2005 through December 31, 2008. Foreign taxes have been estimated at approximately
$33,000
for tax years 2005 through 2008, however, we do not believe that we will be required to pay these. Management has engaged qualified firms to identify and prepare foreign tax returns for filing for the years ended December 31, 2005 through 2012. The Company believes amounts due, if any, would not be material due to changes in Cyprus tax laws during those periods, and due to net operating losses from foreign operations carried forward.
Note 7 - Contingencies
Oil and Gas Properties Commitments and Contingencies
On May 7, 2013, the Arbitration Tribunal ruled that the PSC was properly terminated on November 17, 2011, and ruled Sky
Petroleum to reimburse AKBN for total fees and expenses in connection with the Arbitration proceeding in the amount of EUR
382,774
(
$501,511
). As a result of the ruling Sky Petroleum impaired Investment in Oil and Gas Properties, net, related to
acquisition and development costs for oil and gas projects in Albania to
$0
, and for the period ended September 30, 2013, Sky
Petroleum had an impairment charge of
$10,205,220
; and accrued a liability of
$501,511
(EUR
382,774
) related to liability
arising from the obligation to reimburse AKBN for total fees and expenses in connection with the Arbitration proceeding. We
have not had sufficient funds to pay this award and have received demands for payment from the Tribunal.
Note 8 - Note Payable, Related Party Transactions
On January 8, 2013, Mark Rachovides, Director with the Company, gave proceeds in the amount of
$150,000
for a convertible
promissory note at
8%
to mature on January 8, 2014. The note converts to
600,000
shares of Common Stock of SKPI.
Subsequent to the period-end, the note was extended to May 8, 2015.
Note 9 - Subsequent Events
Effective May 8, 2014, the Company entered into a Second Note Extension Agreement with Mark Rachovides, a director of the Company (the "
Holder
") in connection with the extension of the maturity date of an issued and outstanding
8%
Convertible Promissory Note, due May 8, 2014 (the "
Note
"), in the principal amount of
$150,000
. Under the terms of the Note Extension Agreement, the Company and the Holder agreed to extend the maturity date of the Note from May 8, 2014 to May 8, 2015, and the Company agreed to prepay $25,000 in interest. The Company issued the Holder an Amended and Restated
8%
Convertible Promissory Note, due May 8, 2015, which shall amend, superseded and replace in its entirety the originally issued Note.
Effective May 15, 2014, the Company and Dorsey & Whitney LLP , ("
Dorsey
") entered into a Fee Settlement Arrangement to settle an obligation for professional fees for services rendered and for expenses and other disbursement through April 30, 2014 in an amount of
$1,088,886
. On the terms and subject to the conditions of this Agreement, the Company hereby agrees to pay Dorsey an aggregate of
$350,000
(the "
Settlement Payment
") in full satisfaction of these obligations. The Settlement Payment will be paid as follows: (a)
$50,000
on or before May 30, 2014, and (b)
$300,000
paid in eighteen (
18
) monthly installments of
$16,667
beginning on September 1, 2014: provided, however, the Company will pay the original balance on the earlier of (i) the date the Company raises financing in the aggregate of
$5,000,000
or more in one or more transactions or (ii) the date the Company closes an Acquisition Transaction. "Acquisition Transaction" means (i) any sale of equity securities or securities convertible into equity securities of the Company; (ii) any merger, consolidation, statutory share exchange or acquisition transaction involving the Company or any material subsidiary of the Company; (iii) any sale of substantially all of the assets of the Company or any material subsidiary of the Company; of (iv) any similar transaction involving the issuance, cancellation or restructuring of equity securities of the Company unless, following the completion of such transaction, the then existing shareholder of Company own or control, directly or indirectly,at least
50%
of the voting power or liquidation rights of Company or the successor of such merger, consolidation or statutory share exchange.
