ITEM 1. BUSINESS
Year of Organization and Corporate History
Nexgen Petroleum Corp. was incorporated in the State of Nevada on April 17, 2006, under the name DGT Corp. Our shares of common stock were quoted for trading on the Over-the-Counter Bulletin Board (the “OTCBB”) on December 22, 2006, under the symbol “DGTR”. On September 20, 2007, our Company and its wholly owned subsidiary, Blackrock Petroleum Corp. merged and our name changed to Blackrock Petroleum Corp. Our trading symbol on the OTCBB was changed to “BRPC”. On May 21, 2008, we underwent another merger with our wholly owned subsidiary Nexgen Petroleum Corp. At that time our name was changed to Nexgen Petroleum Corp. and our trading symbol on the OTCBB was changed to “NXPE” effective June 9, 2008.
Effective September 20, 2007, a forward stock split of our authorized, issued and outstanding common stock was undertaken on a fifteen to one basis. As a result, our authorized capital increased from 90,000,000 shares of common stock with a par value of $0.001 and 10,000,000 shares of preferred stock with a par value of $0.001 to 1,350,000,000 shares of common stock with a par value of $0.001 and 10,000,000 shares of preferred stock with a par value of $0.001. Our issued and outstanding share capital increased from 9,000,000 shares of common stock to 135,000,000 shares of common stock.
On April 18, 2008, Mr. Hsien Loong Wong, President, CEO and a director of the Company, who held in aggregate 94,500,000 post forward stock split shares of common stock of the Company, voluntarily agreed to surrender for cancellation in aggregate 80,000,000 shares of common stock in order to encourage equity investment into the Company. The cancellation of these 80,000,000 shares took place on April 18, 2008, resulting in Mr. Wong reducing his share holdings to only 14,500,000 shares registered in his name.
Our Business
When Nexgen Petroleum operated as DGT Corp., we were in the business of providing professional digital photo editing services for photo studios. However, we changed our business plan and have now focused our activities on the oil and gas industry as an exploration stage corporation. We intend to acquire interests in leases for oil and gas prospects either through farmout arrangements, participation arrangements or the straight acquisition of oil and gas interests, and then drill exploratory and development wells with the help of other industry participants. We do not intend to operate any properties. We intend to focus our oil and gas activities in North America as well as other regions.
It is our intention that in the projects in which we hold interests, another party will typically act as the operator of the project. With respect to the projects that we will participate in, we will provide the operator with timely funding for our proportionate share of costs as well as with technical input on how best to develop the property. As a way to keep our overhead down, we will engage the services of consultants who have technical expertise to best represent the Company’s interests.
The Company currently has an interest in an oil and gas property in Morgan County, Tennessee. Our principal capital expenditures to date have been $2,044,800 to acquire the interest in the oil and gas property in Morgan County, Tennessee. We continue to work on identifying new properties for acquisition.
Our Property - Morgan Highpoint Property, Tennessee, USA
On March 10, 2008, the Company entered into a farmout and participation agreement (the “Farmout Agreement”), which is effective as of February 26, 2008, with Montello Resources (USA) Ltd. (“Montello USA”), a subsidiary of Montello Resources Ltd. (TSX-V: MEO), Park Place Energy Corp. (OTCBB: PRPL) (“PRPL”), an Alberta corporation, and Austin Developments Corp. (TSX-V: AUL) (“AUL”), an Alberta corporation, with respect to two test wells on the oil and gas lease dated December 22, 2007, between Southeast Ventures, Inc., as lessor, and Montello USA, as lessee, located in Morgan County, Tennessee.
Under the Farmout Agreement the participating interests are as follows: Montello USA, as operator, is paying 15% of all costs associated with the test wells to earn a 35% interest in the associated production spacing units; AUL is paying 20% of the costs to earn a 30% interest; PRPL is paying 5% of the costs to earn a 5% interest; and the Company is paying 60% of the costs to earn a 30% interest. As of March 31, 2010, the Company has incurred $2,044,800 in capital expenditures on this property. The Morgan Highpoint #3 and the Morgan Highpoint #4 test wells were drilled, completed, cased and shut in. The Company earned its 30% interest in the associated production spacing units on these two wells on July 1, 2008.
The foregoing description of the Farmout Agreement does not purport to be complete and is qualified in its entirety by reference to the Farmout Agreement, which was attached as Exhibit 10.1 to the Form 8-K filed on March 17, 2008, which is incorporated herein by reference.
On or about April 11, 2008, the Company entered into a letter agreement (the “Letter Agreement #1”) with Montello USA, PRPL, and AUL, dated effective April 11, 2008, whereby the parties agreed to amend the March 10, 2008, Farmout Agreement as follows: (i) Article 8 (Area of Mutual Interest) of the Farmout & Royalty Procedure attached as Schedule “C” to the Farmout Agreement shall apply; (ii) the Mutual Interest Lands shall comprise all PNG rights 50% or more of which are located within the boundaries of that area of lands located within Morgan County, State of Tennessee, USA as outlined on the map attached to the Letter Agreement #1; (iii) the Area of Mutual Interest shall be in effect until 11:50 pm on April 10, 2010; and (iv) the participating interests of the parties hereto in the Area of Mutual Interest during the term thereof shall be Montello USA - 35%, PRPL - 5%, AUL - 30% and the Company - 30%.
The foregoing description of the Letter Agreement #1 does not purport to be complete and is qualified in its entirety by reference to the Letter Agreement #1, which was attached as Exhibit 10.2 to the Form 10-KSB filed on July 14, 2008, which is incorporated herein by reference.
In addition, on or about April 11, 2008, the Company entered into a farmout and participation agreement (the “Farmout Agreement #2”), which is effective as of April 11, 2008, with Montello USA, PRPL, and AUL with respect to one test well on the oil and gas lease dated March 25, 2008, between Robert and Kathy Lavender, as lessors, and Montello USA, as lessee, located in Morgan County, Tennessee. Under the Farmout Agreement #2, the participating interests are as follows: Montello USA, as operator, is paying 15% of all costs associated with the test well to earn a 35% interest in the associated production spacing unit; AUL is paying 20% of the costs to earn a 30% interest; PRPL is paying 5% of the costs to earn a 5% interest; and the Company is paying 60% of the costs to earn a 30% interest. As of March 31, 2010, the Company had incurred $132,000 in capital expenditures on this property for the Morgan Highpoint #5 test well, which was drilled, completed, cased and shut in. The funds for this operation were from the excess funds remaining from the Morgan Highpoint #3 and #4 drilling operations. The Company earned its 30% interest in the associated production spacing unit on the Morgan Highpoint #5 test well on July 1, 2008.
The foregoing description of the Farmout Agreement #2 does not purport to be complete and is qualified in its entirety by reference to the Farmout Agreement #2, which was attached as Exhibit 10.3 to the Form 10-KSB filed on July 14, 2008, which is incorporated herein by reference.
On or about August 26, 2008, the Company entered into an equalization and joint operating agreement (the “Equalization and JO Agreement”), dated July 7, 2008, with Montello USA, PRPL and AUL, with respect to interests in the joint lands and wells more particularly described in Schedule “A” to the Equalization and JO Agreement (collectively, the “Property”). The Equalization and JO Agreement supersedes and replaces all previous agreements between the parties with respect to the Property and establishes the manner in which operations will be conducted on the Property. The initial working interests of the parties in the Property are: (i) with respect to the Bowen Block (as defined in the Equalization and JO Agreement), PRPL 5%, Montello USA 55% and AUL 40%; and (ii) with respect to the balance of the leases on the Property, PRPL 5%, Montello USA 35%, AUL 30% and the Company 30%. Among other terms and conditions, as between Montello USA and the Company, the Company will bear on Montello USA’s behalf $1,250,000 with respect to Montello USA’s working interest share of any joint expense incurred on the Property and when the Company has paid such amount, it shall have earned from Montello USA an undivided 15% working interest in the Bowen Block. As among Montello USA, AUL and the Company, if warranted upon completion of certain anticipated operations on the Property, the Company shall commission (at its own expense) an engineering report to evaluate the 100% working interest in the proven and probable oil and gas assets in the Bowen Block (the “Evaluation”). Among other terms and conditions, within 30 days of receipt of the Evaluation, the Company may acquire an undivided 5% working interest from Montello USA and an undivided 10% working interest from AUL in the Bowen Block for: (i) a pro rata percentage dollar amount as calculated from the Evaluation; and (ii) a pro rata percentage of the sum of $325,000.
The foregoing description of the Equalization and JO Agreement does not purport to be complete and is qualified in its entirety by reference to the Equalization and JO Agreement, which was attached as Exhibit 10.1 to the Form 10-Q filed on November 14, 2008, which is incorporated herein by reference.
As of March 31, 2010, the Company had incurred $185,000 in capital expenditures on the Bowen Block property.
On August 21, 2008, the Company and Montello USA entered into an amending agreement (the “Amending Agreement”) to the Equalization and JO Agreement which was amended as follows:
(i)
If the Company does not advise Montello USA in writing on or prior to September 1, 2008, that it intends to be bound by all of the provisions of clause 4 of the Equalization and JO Agreement, then all of the terms and conditions of said clause 4 shall thereafter not apply as between the parties; and
(ii)
Notwithstanding the foregoing, Montello USA may at any time at its sole, unfettered discretion unilaterally terminate the provisions of said clause 4 of the Equalization and JO Agreement as between the parties by so advising the Company in writing. The sole exception to Montello USA’s exercising this unilateral right to terminate is if the Company had already paid the Carried Amount of $1,250,000 in total on behalf of Montello USA.
The foregoing description of the Amending Agreement does not purport to be complete and is qualified in its entirety by reference to the Amending Agreement, which was attached as Exhibit 10.2 to the Form 10-Q filed on November 14, 2008, which is incorporated herein by reference.
On August 31, 2009, the Company entered into a letter agreement dated August 25, 2009 (the “Letter Agreement #2”), with MEO, which is to be effective as of April 1, 2009. The Letter Agreement #2 evidences the parties’ mutual agreement with respect to a 7.5% undivided interest to be granted to the Company by MEO pursuant to the terms of the Equalization and JO Agreement entered into among the Company, Montello USA (a wholly owned subsidiary of MEO), PRPL and AUL on August 26, 2008, and dated July 7, 2008.
Pursuant to the terms of the Equalization and JO Agreement, the Company was entitled to earn a 15% undivided interest in and to leases C through G set out in Schedule “A” to the Equalization and JO Agreement (the “Leases”) upon incurring an aggregate of $1,250,000 in Carried Amounts (as this term is defined in the Equalization and JO Agreement ). As at April 1, 2009, the Company had incurred an aggregate of $461,000 of the Carried Amount and had transferred an additional $200,000 to MEO’s current AFE project from the monies set aside by the Company for MEO’s Petrojet AFE project (collectively, the “Payments”).
Pursuant to the Letter Agreement #2, MEO has agreed that, in consideration for the Payments, the Company has earned an undivided 7.5% interest in and to the Leases. The Company has agreed to relinquish 0.5% of its 7.5% undivided interest to the Leases in exchange for MEO depositing to the Company’s account an aggregate of $15,000 and MEO has agreed to take all action necessary to deliver to the Company recordable transfers of its 7.0% undivided interest to the Leases.
In addition to the foregoing, pursuant to the Letter Agreement #2, MEO has agreed to provide the Company with an option to earn a further 7.5% undivided interest in and to the Leases by paying to MEO an additional $400,000 on or before September 30, 2009. All partial payments of the $400,000 made by Company by or before September 30, 2009, shall entitle the Company to a pro-rated interest of the additional 7.5% undivided interest in and to the Leases. However, as at September 30, 2009, the Company failed to provide any additional funds to MEO, and therefore, the Company’s option to earn a further 7.5% has expired.
The foregoing description of the Letter Agreement #2 does not purport to be complete and is qualified in their entirety by reference to the Letter Agreement #2, which was attached as Exhibit 10.1 to the Form 8-K filed on September 11, 2009, which is incorporated herein by reference.
During the year ended March 31, 2010, the Company recognized an impairment in its oil and gas properties of $ 1,672,350.
Competition
The Company operates in a highly competitive industry, competing with other oil and gas exploration companies, independent producers and institutional and individual investors, which are actively seeking oil and gas properties throughout the world as well as the equipment, labor and materials required to operate such properties. Most of the Company’s competitors have financial resources, employees and facilities substantially greater than the Company’s. The principal area of competition is encountered in the financial ability for the Company to acquire acreage positions and drill wells to explore for oil and gas, then, if warranted install production equipment. Competition for the acquisition of oil and gas wells is intense with many oil and gas properties and or leases or concessions available in a competitive bidding process in which the Company may lack technological information or expertise available to other bidders. Therefore, we may not be successful in acquiring and developing profitable properties in the face of this competition. No assurance can be given that the Company will be successful in its efforts to secure additional properties and or develop its existing oil and gas property.
Government Regulation
General
Our oil and gas operations are subject to various federal, state and local governmental regulations in the United States. Matters subject to regulation include exploration permits, discharge permits for drilling operations, drilling and abandonment bonds, operating practices, reports concerning operations, the spacing of wells, pooling of properties, taxation and environmental protection. These laws and regulations are under constant review for amendment or expansion. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas. The production, handling, storage, transportation and disposal of oil and gas, by-products thereof, and other substances and materials produced or used in connection with oil and gas operations are also subject to regulation under state and local laws and regulations relating primarily to the protection of human health and the environment. To date, expenditures related to complying with these laws, and for remediation of existing environmental contamination, have not been significant in relation to the results of operations of our Company. The requirements imposed by such laws and regulations are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. Changes in these regulations could require us to expend significant resources to comply with new laws or regulations or changes to current requirements and could have a material adverse effect on us.
Oil and Gas Regulation
Each state has legislation and regulations which govern land tenure, royalties, production rates, environmental protection and other matters. The royalty regime is a significant factor in the profitability of oil and natural gas production. Royalties payable on production from lands other than government lands are determined by negotiations between the mineral owner and the lessee. Royalties on government land are determined by government regulation and are generally calculated as a percentage of the value of gross production, and the rate of royalties payable generally depends upon prescribed reference prices, well productivity, geographical location, field discovery date and the type or quality of the petroleum product produced.
Management believes that we are in substantial compliance with current applicable environmental laws and regulations.
Employees
As of March 31, 2010, we have no employees. The Company relies on consultants to carry out its corporate activities. Consultants are engaged to look out for the Company’s best interests in its non-operated oil and gas property.
Material Agreements
See “Our Property - Morgan Highpoint Property, Tennessee, USA” above for a description of the Farmout Agreement, the Letter Agreement, the Farmout Agreement #2, the Equalization and JO Agreement, the Amending Agreement and the Letter Agreement #2. Other than these agreements, the Company is not a party to any other material agreements.
Loan Obligations
On March 3, 2008, a shareholder loaned the Company $622,500 which is due on demand bearing no interest. On July 22, 2008, the Company authorized the repayment of $40,000 of this loan to the shareholder. On March 20, 2008, the same shareholder loaned the Company $800,000 which is due on demand bearing no interest. As of the date of this annual report, the Company has not repaid any of this loan to the shareholder.
On March 25, 2008, another shareholder of the Company loaned the Company $225,000 which is due on demand bearing no interest. On May 20, 2008, the Company authorized the repayment of $100,000 of this loan to the shareholder. This same shareholder has loaned the Company the following amounts on the following dates which are due on demand bearing no interest:
On March 18, 2009, our sole officer and director loaned the Company $400, which is due on demand bearing no interest. In addition, on April 30, 2009, our sole officer and director loaned the Company $1,000, which is also due on demand bearing no interest.
ITEM 1A.
ITEM 1A. RISK FACTORS
As a “smaller reporting company” (as defined by §229.10(f)(1)), we are not required to provide the information required by this Item.
ITEM 2.
ITEM 2. PROPERTIES
See “Item 1. Business - Our Property - Morgan Highpoint Property, Tennessee, USA” above for a description our property.
Reserves Reported to Other Agencies
We have filed no estimates of total, proved net oil or gas reserves with any other federal authority or agency.
Production
As of March 31, 2010, we do not own any producing properties.
Productive Wells and Acreage
The following table sets forth our leasehold interest in productive oil wells, as of March 31, 2010:
(1)
A gross well is a well in which a working interest is owned. The number of gross wells is the total number of wells in which a working interest is owned.
(2)
A net well is deemed to exist when the sum of fractional ownership working interest in gross wells equals one. The number of net wells is the sum of the fractional working interests owned in gross wells expressed as whole numbers and fractions thereof.
(3)
At March 31, 2010, the Company has a 30% interest in three wells that were cased and shut in, in Tennessee, USA as well as a 7% interest in two other wells that were cased and shut in, in Tennessee, USA.
The following table sets forth the amount of our net and gross productive wells and acreage(1) as of March 31, 2010:
(1)
Consists of acres spaced or assignable to productive wells.
(2)
A gross acre is an acre in which a working interest is owned. The number of gross acres is the total number of acres in which a working interest is owned.
(3)
A net acre is deemed to exist when the sum of fractional ownership working interests in gross acres equals one. The number of net acres is the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof.
Undeveloped Acreage
The following table sets forth the amounts of our undeveloped acreage as of March 31, 2010:
(1)
Undeveloped acreage is considered to be those lease acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and gas regardless of whether or not such acreage contains proved reserves.
Drilling Activity
The following table sets forth the results of our oil and gas drilling and acquisition activities as of March 31, 2010:
(1)
No wells are presently on stream.
Present Activities
To the date of this annual report, we have earned a 30% working interest in three wells known as the Morgan Highpoint #3, #4 and #5 wells and a 7% working interest in two wells known as the John Bowen #1 and #2 wells that were all drilled in Morgan County, Tennessee.
At this time, we intend to commence discussions with the other participants under the Equalization and JO Agreement in order to determine our future activities.
Delivery Commitments
Not applicable.
Office Properties
The Company maintains its business office at 2808 Cowan Circle, Las Vegas, NV 89107. In addition, our President supplies the Company with approximately 300 square feet of space free of charge located at 117A Owen Road, Singapore, 218923.
We believe that our current office space and facilities are sufficient to meet our present needs and do not anticipate any difficulty securing alternative or additional space, as needed, on terms acceptable to the Company.
At the present time, we do not have any real estate holdings and there are no plans to acquire any real property interests.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, active or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 4.
ITEM 4. [REMOVED AND RESERVED]
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s common stock is traded on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “NXPE”. The Company’s common stock previously traded under the symbol “BRPC” from September 20, 2007 until June 9, 2008, and “DGTR” from December 22, 2006, to September 20, 2007, without any trading or volume.
The following historical quotations obtained from online sources reflects the high and low bids for our common stock based on inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions:
As of March 31, 2010, the Company’s common stock closed at price of $0.025.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system and certain other requirements are met. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type, size and format, as the SEC shall require by rule or regulation. The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.
These disclosure requirements may have the effect of reducing the trading activity and price of our common stock. Therefore, stockholders may have difficulty selling those securities.
Holders
As of June 29, 2010, there are 56,413,000 shares of common stock issued and outstanding held by 51 shareholders of record.
Dividend Policy
We have never paid any cash dividends and have no plans to do so in the foreseeable future. Our future dividend policy will be determined by our Board of Directors and will depend upon a number of factors, including our financial condition and performance, our cash needs and expansion plans, income tax consequences and the restrictions that applicable laws and other arrangements then impose.
Securities Authorized for Issuance Under Equity Compensation Plans
As of the end of the fiscal year ended March 31, 2010, we do not have any compensation plans under which equity securities are authorized for issuance.
Recent Sales of Unregistered Securities
Not Applicable.
Purchase of Equity Securities by the Company and Affiliated Purchasers
Not Applicable.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
As a “smaller reporting company” (as defined by §229.10(f)(1)), we are not required to provide the information required by this Item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following plan of operation together with our financial statements and related notes appearing elsewhere in this annual report. This plan of operation contains forward-looking statements that involve risks, uncertainties, and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors.
Overview
We are a development stage company, focusing on acquiring and exploring oil and gas properties primarily in North America. We currently have interests in oil and gas properties located in Morgan County, Tennessee. We intend to acquire interests in leases for oil and gas prospects either through farmout arrangements, participation arrangements or straight acquisition of oil and gas interests, and then drill exploratory and development wells with the help of other industry participants. We do not intend to operate any properties. See “Item 1. Business - Our Business” for further details of our business and “Item 2. Properties” for details of our property interests.
Plan of Operations
We have not yet generated or realized any revenues from our business operations. Our auditors have issued a going concern opinion. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have not generated any revenues and no revenues are anticipated until we are able to acquire oil and gas prospects, explore and develop such prospects and are able to produce oil and/or gas from our exploration and development. There is no assurance we will ever reach this point. Accordingly, we must raise cash from sources other than the sale of oil and/or gas. Our only other source for cash at this time is investments by others in us. We must raise cash to implement our plan and stay in business. If we require additional money and are unable to raise it, we may have to suspend or cease operations.
We intend to acquire interests in leases for oil and gas prospects either through farmout arrangements, participation arrangements or straight acquisition of oil and gas interests, and then drill exploratory and development wells with the help of other industry participants. We do not intend to operate any properties at this time. We intend to focus our oil and gas activities in North America as well as other regions.
On the Morgan Highpoint Project and the John Bowen Project, we intend to commence discussions with the other participants under the Equalization and JO Agreement in order to determine our future activities and estimated costs associated with any future activities.
We do not intend to hire any employees at this time.
Limited Operating History; Need for Additional Capital
There is limited historical financial information about us upon which to base an evaluation of our performance. We are a development stage exploration corporation and have not generated any revenues from operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the exploration of our oil and gas interests, and possible cost overruns due to price and cost increases in services.
We are seeking equity financing to provide for the capital required to implement our business plans.
We have no assurance that future financings will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations. Equity financing could result in additional dilution to existing shareholders.
Liquidity and Capital Resources
As of March 31, 2010, we had total current assets of $7,350 and total assets of $654,800. Our total current assets as of March 31, 2010 comprise of cash in the amount of $7,350. Our total current liabilities as of March 31, 2010 were $1,823,657 represented by accounts payable and accrued liabilities of $134,864 and shareholders’ loans of $1,688,793. As a result, on March 31, 2010, we had a working capital deficiency of $1,168,857.
Operating activities used $262,940 in cash for the period from inception (April 17, 2006) to March 31, 2010. Our net loss of $2,240,248 was the primary component of our negative operating cash flow. Investing activities for the period from inception (April 17, 2006) to March 31, 2010, used $4,391 for the purchase of equipment and $2,319,800 for the acquisition of oil and gas property interests, offset by proceeds received on the sale of equipment of $1,688 for a total of $2,322,503. Net cash flows provided by financing activities for the period from inception (April 17, 2006) to March 31, 2010 was $2,592,793 represented as loans from shareholders of $1,688,793, which includes the repayment of shareholders loans of $140,000, and proceeds from the sale of our stock of $904,000.
We are a development stage corporation and have not generated any revenue to date from our activities. Despite our hope for revenues in the foreseeable future, we believe that revenues will be sparse and irregular and, if we receive any at all, will be far less than necessary to carry out our business forward without additional financing. We have cash in the amount of $7,350 as of March 31, 2010, which is not enough to meet our projected expenditures in the next twelve months. Thus, in order to meet our capital needs, we will most likely need to raise funds from other sources to remain in business. We intend to raise additional money through private placements, however, there can be no assurance that we will be able to raise additional money in the future. If we need additional capital and cannot raise the necessary amount, we will either be required to suspend activities until we do raise the cash or cease activity entirely.
Results of Operation
Fiscal Year Ended March 31, 2010
Professional fees: Professional fees were $69,970 and $109,390 for the fiscal years ended March 31, 2010 and 2009, respectively. This decrease was due to the decreased activity of the Company during the fiscal year ended March 31, 2010.
Depreciation: Depreciation expenses were $385 and $761 for the fiscal years ended March 31, 2010 and 2009, respectively.
Bank Charges: Bank Charges expenses were $196 and $390 for the fiscal years ended March 31, 2010 and 2009, respectively.
Filing and Registration fees: Filing and Registration fees were $5,120 and $5,350 for the fiscal years ended March 31, 2010 and 2009, respectively. This decrease was due to the decreased activity of the Company resulting in decreased filings for the Company during the fiscal year ended March 31, 2010.
Office and Miscellaneous: Office and Miscellaneous expenses were $668 and $2,802 for the fiscal years ended March 31, 2010 and 2009, respectively. This decrease was due to the decreased activity of the Company during the fiscal year ended March 31, 2010.
Interest Expense: Interest expenses were $82,767 and $80,720 for the fiscal years ended March 31, 2010 and 2009, respectively.
Impairment: Impairment of the oil and gas properties expenses were $1,672,350 and Nil for the fiscal years ended March 31, 2010 and 2009, respectively. This impairment expense was due to the Company recognizing impairment on its oil and gas properties during the fiscal year ended March 31, 2010.
Net Loss: Net loss was $1,831,371 and $199,588 for the fiscal years ended March 31, 2010 and 2009, respectively. This increase in net loss of $1,631,783 resulted primarily from the impairment write down of $1,672,350 on the Company’s oil and gas properties during the fiscal year ended March 31, 2010.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Going Concern Statement
We have negative working capital, have not yet received revenues from sales of products or services, and have recurring losses from operations. Our continuation as a going concern is dependent upon us attaining and maintaining profitable operations and raising additional capital. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should we discontinue operations.
Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above, in their report on the annual financial statements for the year ended March 31, 2010, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” (as defined by §229.10(f)(1)), we are not required to provide the information required by this Item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NEXGEN PETROLEUM CORP.
(formerly Blackrock Petroleum Corp.)
(AN EXPLORATION STAGE COMPANY)
FINANCIAL STATEMENTS
MARCH 31, 2010
NEXGEN PETROLEUM CORP.
(formerly Blackrock Petroleum Corp.)
(AN EXPLORATION STAGE COMPANY)
MARCH 31, 2010
Silberstein Ungar, PLLC CPAs and Business Advisors
Phone (248) 203-0080
Fax (248) 281-0940
Telegraph Road, Suite 2175
Bingham Farms, MI 48025-4586
www.sucpas.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Nexgen Petroleum Corp.
Las Vegas, Nevada
We have audited the accompanying balance sheets of Nexgen Petroleum Corp. as of March 31, 2010 and 2009, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the periods then ended and the period from April 17, 2006 (date of inception) through March 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nexgen Petroleum Corp., as of March 31, 2010 and 2009 and the results of its operations and cash flows for the periods then ended and the period from April 17, 2006 (date of inception) through March 31, 2010, in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that Nexgen Petroleum Corp. will continue as a going concern. As discussed in Note 7 to the financial statements, the Company has incurred losses from operations, has negative working capital, and is in need of additional capital to grow its operations so that it can become profitable. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regard to these matters are described in Note 7. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Silberstein Ungar, PLLC
Silberstein Ungar, PLLC
Bingham Farms, Michigan
July 8, 2010
NEXGEN PETROLEUM CORP.
(formerly Blackrock Petroleum Corp.)
(AN EXPLORATION STAGE COMPANY)
BALANCE SHEETS
AS OF MARCH 31, 2010 AND 2009
See accompanying notes to financial statements.
NEXGEN PETROLEUM CORP.
(formerly Blackrock Petroleum Corp.)
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2010 AND 2009
PERIOD FROM APRIL 17, 2006 (INCEPTION) TO MARCH 31, 2010
See accompanying notes to financial statements.
NEXGEN PETROLEUM CORP.
(formerly Blackrock Petroleum Corp.)
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
AS OF MARCH 31, 2010
See accompanying notes to financial statements.
NEXGEN PETROLEUM CORP.
(formerly Blackrock Petroleum Corp.)
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2010 AND 2009
PERIOD FROM APRIL 17, 2006 (INCEPTION) TO MARCH 31, 2010
See accompanying notes to financial statements.
NEXGEN PETROLEUM CORP.
(formerly Blackrock Petroleum Corp.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2010
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Nature of Business
Nexgen Petroleum Corp. (“Nexgen”) was incorporated as DGT Corp. in Nevada on April 17, 2006. On September 20, 2007, the Company completed a merger with subsidiary Blackrock Petroleum Corp. and changed its name from DGT Corp. to Blackrock Petroleum Corp. On June 5, 2008, the Company completed a merger with subsidiary Nexgen Petroleum Corp. and changed its name from Blackrock Petroleum Corp. to Nexgen Petroleum Corp.
Nexgen is an exploration stage company which intends to acquire interests in leases for oil and gas prospects and then drill exploratory and development wells with industry participants.
On March 10, 2008, Nexgen entered into a Farmout and Participation Agreement with respect to two test wells on an oil and gas lease dated December 22, 2007. Under the Farmout Agreement, Nexgen is paying 60% of all costs associated with the test wells to earn a 30% interest in the associated production spacing units. See Note 8.
Oil and Gas Properties
Nexgen accounts for oil and gas exploration and development costs using the successful efforts method. Geological and geophysical costs and the costs of carrying and retaining undeveloped properties are expensed as incurred. Exploratory well costs are capitalized pending further evaluation of whether economically recoverable reserves have been found. If economically recoverable reserves are not found, explanatory well costs will be expensed as dry holes. All exploratory wells are evaluated for economic viability within one year of well completion and the related capital costs are reviewed quarterly. Exploratory well costs that discover potentially economically recoverable reserves in areas where a major capital expenditure would be required before production could begin and where the economic viability of that major capital expenditure depends upon the successful completion of further exploratory work in the area, remain capitalized as long as the additional exploratory work is underway or firmly planned.
During the year ended March 31, 2010, the Company recognized impairment in its oil and gas properties of $ 1,672,350.
Property and Equipment
The Company’s capital asset has been capitalized and is being depreciated over its estimated useful life on a straight line basis over a three year period.
Cash and Cash Equivalents
For the purposes of presenting cash flows, Nexgen considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents and payables. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
NEXGEN PETROLEUM CORP.
(formerly Blackrock Petroleum Corp.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2010
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basic loss per share
Basic loss per share has been calculated based on the weighted average number of shares of common stock outstanding during the period.
Recent Accounting Pronouncements
Nexgen does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at March 31:
The capital asset is being depreciated on a straight-line basis over its estimated useful life of three years.
NOTE 3 - INCOME TAXES
For the period ended March 31, 2010, Nexgen has incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $2,240,248 at March 31, 2010, and will expire beginning in the year 2026.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
NEXGEN PETROLEUM CORP.
(formerly Blackrock Petroleum Corp.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2010
NOTE 4 - SHAREHOLDERS’ LOANS
During the year ended March 31, 2008, the Company received loans from two shareholders in the principal amounts of $622,500, $800,000 and $225,000.
During the year ended March 31, 2009, the Company repaid $100,000 of the $225,000 loan received and $40,000 of the $622,500 loan. During the year ended March 31, 2009 Nexgen received loans of $132,840 and $1,053 from a shareholder.
During the year ended March 31, 2010, Nexgen received loans of $8,000, $20,000 and $18,000 from a shareholder.
All shareholder loans are unsecured, non-interest bearing and due on demand.
During the year ended March 31, 2009, the sole officer and director loaned the Company $400, which is due on demand bearing no interest. Additionally, during the year ended March 31, 2010, the sole officer and director loaned the Company $1,000, which is also due on demand bearing no interest.
Imputed interest at 5% per annum has been recorded as an increase in additional paid in capital for all of the above loans.
NOTE 5 - COMMON STOCK
At inception, Nexgen issued 9,000,000 shares of stock for $90,000 cash.
Effective September 20, 2007, Nexgen affected a fifteen (15) for one (1) forward stock split.
On September 18, 2007, Nexgen received stock subscription proceeds related to a private placement of 1,000,000 shares at $.50 per share. Subsequently, $455,000 of the subscription proceeds were returned. On February 20, 2008, Nexgen received stock subscriptions proceeds of $425,000 related to a private placement of shares at $ .50 per share.
During the year ended March 31, 2009 Nexgen received stock subscriptions proceeds of $129,000 related to a private placement of shares at $.50 per share and $215,000 related to a private placement of shares at $1.00 per share.
NOTE 6 - COMMITMENTS
On March 10, 2008, Nexgen entered into a Farmout and Participation Agreement with respect to two test wells on an oil and gas lease dated December 22, 2007. Under the Farmout Agreement, Nexgen is paying 60% of all costs associated with the test wells to earn a 30% interest in the associated production spacing units.
The company entered into an outsourcing agreement with Dolphin Industries Limited. Under the terms of the agreement, Nexgen agrees to pay Dolphin Industries Limited the sum of $ 10,000 for carrying out the beta testing of the quality of their photo-editing services and testing of the internet bandwidth for file transmission. Upon successful completion of the beta testing stage, Nexgen guarantees Dolphin Industries Limited for a period of 90 days, the greater of $5,000 per month or a minimum of 3,300 images to be edited for each 30 day period at $1.50 per image. During the period, Dolphin Industries Limited returned $ 14,145 of payments previously made and the agreement was cancelled.
NEXGEN PETROLEUM CORP.
(formerly Blackrock Petroleum Corp.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2010
NOTE 6 - COMMITMENTS (continued)
On or about April 11, 2008, the Company entered into a letter agreement (the “Letter Agreement”) with Montello Resources (USA) Ltd., Park Place Energy Corp., and Austin Developments Corp., dated effective April 11, 2008, whereby the parties agreed to amend the March 10, 2008 Farmout Agreement as follows: (i) Article 8 (Area of Mutual Interest) of the Farmout & Royalty Procedure attached as Schedule “C” to the Farmout Agreement shall apply; (ii) the Mutual Interest Lands shall comprise all PNG rights 50% or more of which are located within the boundaries of that area of lands located within Morgan County, State of Tennessee, USA as outlined on the map attached to the Letter Agreement; (iii) the Area of Mutual Interest shall be in effect until 11:50 pm on April 10, 2010; and (iv) the participating interests of the parties hereto in the Area of Mutual Interest during the term thereof shall be Montello - 35%, Park Place - 5%, Austin - 30% and the Company - 30%.
In addition, on or about April 11, 2008, the Company entered into a Farmout and Participation Agreement (the “Farmout Agreement”), which is effective as of April 11, 2008, with Montello Resources (USA) Ltd., a subsidiary of Montello Resources Ltd., Park Place Energy Corp., an Alberta corporation, and Austin Developments Corp., an Alberta corporation, with respect to two test wells on the oil and gas lease dated March 25, 2008 between Robert and Kathy Lavender, as lessors, and Montello Resources (USA) Ltd., as lessee, located in Morgan County, Tennessee. Under the Farmout Agreement the participating interests are as follows: Montello Resources (USA) Ltd., as operator, is paying 15% of all costs associated with the test well to earn a 35% interest in the associated production spacing units; Austin Developments Corp. is paying 20% of the costs to earn a 30% interest; Park Place Energy Corp. is paying 5% of the costs to earn a 5% interest; and the Company is paying 60% of the costs to earn a 30% interest. As of June 30, 2008, the Company has incurred $132,000 in capital expenditures on this property by participating in the drilling and completion of the Morgan Highpoint #5 test well, which has been cased and shut in.
On or about August 26, 2008, the Company entered into an equalization and joint operating agreement (the “Equalization and JO Agreement”), dated July 7, 2008, with Montello USA, PRPL and AUL, with respect to interests in the joint lands and wells more particularly described in Schedule “A” to the Equalization and JO Agreement (collectively, the “Property”). The Equalization and JO Agreement supersedes and replaces all previous agreements between the parties with respect to the Property and establishes the manner in which operations will be conducted on the Property. The initial working interests of the parties in the Property are: (i) with respect to the Bowen Block (as defined in the Equalization and JO Agreement), PRPL 5%, Montello USA 55% and AUL 40%; and (ii) with respect to the balance of the leases on the Property, PRPL 5%, Montello USA 35%, AUL 30% and the Company 30%. Among other terms and conditions, as between Montello USA and the Company, the Company will bear on Montello USA’s behalf $1,250,000 with respect to Montello USA’s working interest share of any joint expense incurred on the Property and when the Company has paid such amount, it shall have earned from Montello USA an undivided 15% working interest in the Bowen Block. As among Montello USA, AUL and the Company, if warranted upon completion of certain anticipated operations on the Property, the Company shall commission (at its own expense) an engineering report to evaluate the 100% working interest in the proven and probable oil and gas assets in the Bowen Block (the “Evaluation”). Among other terms and conditions, within 30 days of receipt of the Evaluation, the Company may acquire an undivided 5% working interest from Montello USA and an undivided 10% working interest from AUL in the Bowen Block for: (i) a pro rata percentage dollar amount as calculated from the Evaluation; and (ii) a pro rata percentage of the sum of $325,000.
As of March 31, 2010, the Company had incurred $185,000 in capital expenditures on the Bowen Block property.
NEXGEN PETROLEUM CORP.
(formerly Blackrock Petroleum Corp.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2010
NOTE 6 - COMMITMENTS (continued)
On August 21, 2008, the Company and Montello USA entered into an amending agreement (the “Amending Agreement”) to the Equalization and JO Agreement which was amended as follows:
(i) If the Company does not advise Montello USA in writing on or prior to September 1, 2008, that it intends to be bound by all of the provisions of clause 4 of the Equalization and JO Agreement, then all of the terms and conditions of said clause 4 shall thereafter not apply as between the parties; and
(ii) Notwithstanding the foregoing, Montello USA may at any time at its sole, unfettered discretion unilaterally terminate the provisions of said clause 4 of the Equalization and JO Agreement as between the parties by so advising the Company in writing. The sole exception to Montello USA’s exercising this unilateral right to terminate is if the Company had already paid the Carried Amount of $1,250,000 in total on behalf of Montello USA.
On August 31, 2009, the Company entered into a letter agreement dated August 25, 2009 (the “Letter Agreement #2”), with MEO, which is to be effective as of April 1, 2009. The Letter Agreement #2 evidences the parties’ mutual agreement with respect to a 7.5% undivided interest to be granted to the Company by MEO pursuant to the terms of the Equalization and JO Agreement entered into among the Company, Montello USA (a wholly owned subsidiary of MEO), PRPL and AUL on August 26, 2008, and dated July 7, 2008.
Pursuant to the terms of the Equalization and JO Agreement, the Company was entitled to earn a 15% undivided interest in and to leases C through G set out in Schedule “A” to the Equalization and JO Agreement (the “Leases”) upon incurring an aggregate of $1,250,000 in Carried Amounts (as this term is defined in the Equalization and JO Agreement). As at April 1, 2009, the Company had incurred an aggregate of $461,000 of the Carried Amount and had transferred an additional $200,000 to MEO’s current AFE project from the monies set aside by the Company for MEO’s Petrojet AFE project (collectively, the “Payments”).
Pursuant to the Letter Agreement #2, MEO has agreed that, in consideration for the Payments, the Company has earned an undivided 7.5% interest in and to the Leases. The Company has agreed to relinquish 0.5% of its 7.5% undivided interest to the Leases in exchange for MEO depositing to the Company’s account an aggregate of $15,000 and MEO has agreed to take all action necessary to deliver to the Company recordable transfers of its 7.0% undivided interest to the Leases.
In addition to the foregoing, pursuant to the Letter Agreement #2, MEO has agreed to provide the Company with an option to earn a further 7.5% undivided interest in and to the Leases by paying to MEO an additional $400,000 on or before September 30, 2009. All partial payments of the $400,000 made by Company by or before September 30, 2009, shall entitle the Company to a pro-rated interest of the additional 7.5% undivided interest in and to the Leases. However, as at September 30, 2009, the Company failed to provide any additional funds to MEO, and therefore, the Company’s option to earn a further 7.5% has expired.
NEXGEN PETROLEUM CORP.
(formerly Blackrock Petroleum Corp.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2010
NOTE 7 - LIQUIDITY AND GOING CONCERN
The Company has negative working capital and has not yet received revenues from sales of products or services. These factors create substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.
NOTE 8 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date on which the financial statements were submitted to the Securities and Exchange Commission and has determined it does not have any material subsequent events to disclose.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Silberstein Ungar, PLLC are our auditors. During the Company's two most recent fiscal years, there were no disagreements with our auditors which were not resolved on any matter concerning accounting principles or practices, financial statement disclosure, or auditing scope and procedure, which disagreements, if not resolved to the satisfaction of our auditors would have caused them to make reference to the subject matter of the disagreements in connection with their reports.
ITEM 9A(T).
ITEM 9A(T). CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. Under the direction of our Chief Executive Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) there continue to be material weaknesses in the Company’s internal controls over financial reporting, that the weaknesses constitute a “deficiency” and that this deficiency could result in misstatements of the foregoing accounts and disclosures that could result in a material misstatement to the financial statements for the period covered by this report that would not be detected, and (ii) accordingly, our disclosure controls and procedures were not effective as of March 31, 2010.
Annual Report of Management on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company and our consolidated subsidiaries; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company and our consolidated subsidiaries are being made only in accordance with authorizations of management and directors of the Company and our consolidated subsidiaries, as appropriate; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of the Company and our consolidated subsidiaries that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial statement preparation.
As of March 31, 2010 management, with the participation of our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, our management concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our Board of Directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of March 31, 2010.
Management believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our Board of Directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
This annual report does not include an attestation report of the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during our fourth fiscal quarter of the period covered by this annual report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Directors, Executive Officers and Significant Employees
The following table sets forth certain information regarding the members of our Board of Directors, executive officers and our significant employees as of March 31, 2010:
Name
Age
Positions and Offices Held
Hsien Loong Wong(1)
President, CEO, CFO, Secretary, Treasurer and director
R. Shane Starnes(2)
Former Director
Edmund Leung(3)
Former Director
Notes:
(1)
Mr. Hsien Loong Wong was appointed as a director and Secretary of the Company on August 10, 2007, and the President, CEO, CFO and Treasurer of the Company on December 31, 2007.
(2)
Mr. R. Shane Starnes was appointed as a director of the Company June 23, 2009, and resigned as a director on August 31, 2009.
(3)
Mr. Edmund Leung was appointed as a director of the Company on October 12, 2007, and resigned as a director on June 19, 2009.
Family Relationships
There are no family relationships between any of the Company’s directors or executive officers.
Business Experience
Mr. Hsien Loong Wong (age 35) is our President, CEO, CFO, Secretary, Treasurer and a director of our Company. Mr. Wong worked as an independent consultant to various public companies advising on matters pertaining to business in China and Singapore from 2004 to August 2007. From January 2003 to December 2003, Mr. Wong worked for Froebel Academy, a provider of early childhood education training in Singapore. Mr. Wong served as Senior Manager for Business Development of Froebel Academy whereby he oversaw the initial set up of the new Froebel Academy Campus in Singapore and helped build the Froebel Academy’s brand in Singapore and China. From June 2001 to December 2002, Mr. Wong worked for Nxtech Wireless, an IT consultancy firm based in Vancouver, Canada. During his term with Nxtech Wireless, Mr. Wong helped deploy Nxtech Wireless’ services in Singapore and rendered consultancy services for 5G Wireless, a California based Wireless Internet service provider. Mr. Wong received his Bachelors or Arts (Honors in Communications) from Simon Fraser University in British Columbia, Canada in 2001. Mr. Wong is not an officer or director of any other reporting issuer at this time.
Involvement in Certain Legal Proceedings
We are not aware of any material legal proceedings that have occurred within the past five years concerning any director, director nominee, or control person which involved a criminal conviction, a pending criminal proceeding, a pending or concluded administrative or civil proceeding limiting one’s participation in the securities or banking industries, or a finding of securities or commodities law violations.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires executive officers and directors and persons who own more than ten percent of our common stock to file reports of ownership and changes in ownership with the SEC. Such executive officers, directors and greater than ten percent stockholders are also required by SEC rules to furnish us with copies of all Section 16(a) forms they file. Based on information supplied to the Company and filings made with the SEC, the Company believes that during the fiscal year ended March 31, 2010, all Section 16(a) filing requirements applicable to its directors, executive officers, and greater than ten percent beneficial owners were complied with, except as follows:
1.
Mr. Hsien Loong Wong failed to timely file his Form 4 within two days of April 18, 2008 relating to his voluntary surrender for cancellation of 80,000,000 shares of common stock. Mr. Wong filed his Form 4 on May 9, 2008; and
2.
Mr. R. Shane Starnes failed to file his Form 3 within 10 days of June 23, 2009 relating to becoming a director of the Company. Mr. Starnes filed his Form 3 on July 15, 2009.
Code of Ethics
At the present time, the Company has not adopted a code of ethics. The Company intends to adopt a code of ethics in the near future.
Audit Committee
We do not have a separately designated standing audit committee. The Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board when performing the functions of what would generally be performed by an audit committee. The Board approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor.
We intend to appoint an audit committee in the future.
Nomination Committee
At the present time, the Company does not have a nomination committee. The Company intends to adopt a nomination committee in the future.
When evaluating director nominees, our directors consider the following factors:
·
the appropriate size of our Board of Directors;
·
our needs with respect to the particular talents and experience of our directors;
·
the knowledge, skills and experience of nominees, including experience in finance, administration or public service, in light of prevailing business conditions and the knowledge, skills and experience already possessed by other members of the Board;
·
experience in political affairs;
·
experience with accounting rules and practices; and
·
the desire to balance the benefit of continuity with the periodic injection of the fresh perspective provided by new Board members.
Our goal is to assemble a Board that brings together a variety of perspectives and skills derived from high quality business and professional experience. In doing so, the Board will also consider candidates with appropriate non-business backgrounds.
Other than the foregoing, there are no stated minimum criteria for director nominees, although the Board may also consider such other factors as it may deem are in our best interests as well as our stockholders. In addition, the Board identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of the Board does not wish to continue in service or if the Board decides not to re-nominate a member for re-election, the Board then identifies the desired skills and experience of a new nominee in light of the criteria above. Current members of the Board are polled for suggestions as to individuals meeting the criteria described above. The Board may also engage in research to identify qualified individuals. To date, we have not engaged third parties to identify or evaluate or assist in identifying potential nominees, although we reserve the right in the future to retain a third party search firm, if necessary. The Board does not typically consider shareholder nominees because it believes that its current nomination process is sufficient to identify directors who serve our best interests.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
In this item, “Named Executive Officer” means:
(i)
all individuals serving as the Company’s principal executive officer or acting in a similar capacity during the last completed fiscal year (“PEO”), regardless of compensation level;
(ii)
the Company’s two most highly compensated executive officers other than the PEO who were serving as executive officers at the end of the last completed fiscal year and whose total compensation exceeds $100,000; and
(iii)
up to two additional individuals for whom disclosure would have been provided pursuant to paragraph (ii) but for the fact that the individual was not serving as an executive officer of the Company at the end of the last completed fiscal year.
Summary Compensation Table
The following table contains disclosure of all plan and non-plan compensation awarded to, earned by, or paid to the Company’s Named Executive Officers by any person for all services rendered in all capacities to the Company and its subsidiaries during the Company’s fiscal years completed March 31, 2010, 2009 and 2008:
Notes:
(1)
Mr. Hsien Loong Wong was appointed as a director and Secretary of the Company on August 10, 2007, and the President, CEO, CFO and Treasurer of the Company on December 31, 2007.
(2)
Mr. Zhu Hua Yin was appointed the President, CEO, CFO, Treasurer and a Director of the Company on August 10, 2007, and he resigned from the positions of President, CEO, CFO, Treasurer and Director of the Company on December 31, 2007.
(3)
Mr. Jurgen Ballmaier was appointed the President, CEO, Secretary and a Director of the Company on June 8, 2006, and he resigned from the positions of President, CEO, Secretary and Director of the Company on August 10, 2007.
Narrative Disclosure to the Summary Compensation Table
We do not pay any compensation to our Named Executive Officers at this time. However, we reserve the right to compensate our Named Executive Officers in the future with cash, stock, options, or some combination of the foregoing.
Outstanding Equity Awards at Fiscal Year-End
We do not have any equity compensation plans in effect.
Retirement Benefits and Change of Control
Not Applicable.
Director Compensation
The following table discloses the compensation of the directors of the Company for the Company’s fiscal year ended March 31, 2010 (unless already disclosed above):
Notes:
(1)
Mr. Hsien Loong Wong was appointed as a director and Secretary of the Company on August 10, 2007, and the President, CEO, CFO and Treasurer of the Company on December 31, 2007.
(2)
Mr. Edmund Leung was appointed as a director of the Company on October 12, 2007, and resigned on June 19, 2009.
(3)
Mr. R. Shane Starnes was appointed as a director of the Company on June 23, 2009, and resigned on August 31, 2009.
Narrative Disclosure to the Director Compensation Table
We do not pay any compensation to our directors at this time. However, we reserve the right to compensate our directors in the future with cash, stock, options, or some combination of the foregoing.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information as of June 29, 2010 (the “Determination Date”), with respect to the Company’s directors, Named Executive Officers, and each person who is known by the Company to own beneficially, more than five percent (5%) of the Company’s common stock, and with respect to shares owned beneficially by all of the Company’s directors and executive officers as a group. Common stock not outstanding but deemed beneficially owned by virtue of the right of an individual to acquire shares within 60 days is treated as outstanding only when determining the amount and percentage of common stock owned by such individual. Except as noted, each person or entity has sole voting and sole investment power with respect to the shares shown.
As of the Determination Date, there are 56,413,000 (post forward stock split) shares of common stock issued and outstanding.
Notes:
(1)
Beneficial ownership of common stock has been determined for this purpose in accordance with Rule 13d-3 under the Exchange Act, under which a person is deemed to be the beneficial owner of securities if such person has or shares voting power or investment power with respect to such securities, has the right to acquire beneficial ownership within 60 days or acquires such securities with the purpose or effect of changing or influencing the control of the Company.
Securities Authorized for Issuance Under Equity Compensation Plans
We do not have any equity compensation plans.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Since the beginning of our last fiscal year, neither of our directors, officers or principal stockholders, nor any associate or affiliate of the foregoing, have any material interest, direct or indirect, in any transaction, or in any proposed transaction, in which our Company was or is to be a participant and in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years.
Director Independence
As of the date of this annual report, our common stock is traded on the OTC Bulletin Board (the “OTCBB”). The OTCBB does not impose on us standards relating to director independence or the makeup of committees with independent directors, or provide definitions of independence. However, under the definition of “Independent Director” as set forth in the NYSE AMEX Company Guide Section 8.03A, we currently have one of our two directors that would qualify as independent directors under the definition in the AMEX Company Guide.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table discloses the fees billed by our auditor in connection with the audit of the Company’s annual financial statements for the years ended March 31, 2010, and 2009.
Notes:
(1)
The aggregate fees billed for the fiscal year for professional services rendered by the principal accountant for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory engagements for that fiscal year.
(2)
The aggregate fees billed in the fiscal year for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported in Note 1.
(3)
The aggregate fees billed in the fiscal year for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning.
(4)
The aggregate fees billed in the fiscal year for the products and services provided by the principal accountant, other than the services reported in Notes (1), (2) and (3).
Audit Committee’s Pre-Approval Practice
Our Board of Directors pre-approves all audit services to be performed by our independent registered public auditor unless certain services to be provided meet certain de minimis standards.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS
Exhibits
(1)
Previously filed on Form SB-2 with the SEC via EDGAR on September 19, 2006, and incorporated herein by reference.
(2)
Previously filed on Form 8-K with the SEC via EDGAR on September 21, 2007, and incorporated herein by reference.
(3)
Previously filed on Form 8-K with the SEC via EDGAR on June 9, 2008, and incorporated herein by reference.
(4)
Previously filed on Form 8-K with the SEC via EDGAR on March 17, 2008, and incorporated herein by reference.
(5)
Previously filed on Form 10-KSB with the SEC via EDGAR on July 14, 2008, and incorporated herein by reference.
(6)
Previously filed on Form 10-Q with the SEC via EDGAR on November 14, 2008, and incorporated herein by reference.
(7)
Previously filed on Form 8-K with the SEC via EDGAR on September 11, 2009, and incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 12th day of July, 2010.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated:
EXHIBIT INDEX