ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
CERTAIN
STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-QSB (THIS "FORM 10-QSB"),
CONSTITUTE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A
OF THE
SECURITIES ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION
REFORM
ACT OF 1995 (COLLECTIVELY, THE "REFORM ACT"). CERTAIN, BUT NOT NECESSARILY
ALL,
OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "SHOULD",
OR
"ANTICIPATES", OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE
TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES.
SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF SIBERIAN ENERGY GROUP INC. ("SIBERIAN", THE "COMPANY", "WE",
"US" OR "OUR") TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE
OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
REFERENCES IN THIS FORM 10-QSB, UNLESS ANOTHER DATE IS STATED, ARE TO MARCH
31,
2007.
Investors
should also take note of the fact that some of the more technical terms relating
to the Company's operations as described below are explained in greater detail
under exhibit 99.1, incorporated by reference hereto.
BUSINESS
DEVELOPMENT:
Siberian
Energy Group Inc. was formed as a Nevada corporation on August 13, 1997,
as
Advanced Rehab Technology Corporation. Subsequently, on March 9, 2001, the
Company changed its name to Talking Cards, Inc.; on February 12, 2002, the
Company changed its name to Oysterking Incorporated; on December 3, 2002,
the
Company changed its name to 17388 Corporation Inc., at which point the
controlling interest of the Company was sold and a new board of directors
was
appointed; on May 5, 2003, the Company changed its name to Trans Energy Group
Inc.; and on December 3, 2003, the Company changed its name to Siberian Energy
Group Inc.
On
September 17, 1999, the Company affected a 1-for-30 reverse stock split.
A
subsequent 3-for-1 forward split was consummated on October 2, 2000. All
share
amounts subsequently listed are retroactively adjusted to reflect these stock
splits unless otherwise provided. All activities related to the Company's
business were discontinued prior to January 1, 2000 and the Company began
looking for opportunities to acquire an operating business.
In
the
spring of 2003, the balance of the Company's shares was purchased by new
shareholders who stepped into the management of the Company and defined its
new
business direction as an oil and gas exploration company. In contemplation
of
the Company's acquisition of a Russian oil and gas exploration company, the
Company changed its name to Trans Energy Group, Inc.
On
May 9,
2003, the Company entered into an Acquisition Agreement (the "Acquisition
Agreement") by and among the Company, Zaural Neftegaz, a Russian corporation
("ZNG"), the shareholders of ZNG and Oleg Zhuravlev, President of ZNG. Pursuant
to the Acquisition Agreement, the Company acquired a 51% interest in ZNG
by
issuing to ZNG 2,000,000 shares of the Company's common stock. In June 2004,
the
Company purchased the remaining 49% of ZNG in exchange for 6,900,000 shares
of
the Company's common stock, making ZNG a wholly owned subsidiary of the Company.
ZNG holds seven (7) oil and gas licenses (see "Patents, Trademarks and Licenses"
below) for the rights to prospect, explore, drill and remove oil and gas
(the
"Exploration Rights") in the eastern parts of Kurgan Province in Russia.
The
Company had no affiliation with ZNG prior to the acquisition in May
2003.
On
May 2,
2005, the Company affected a 1:2 reverse stock split and all share amounts
listed throughout this report on Form 10-QSB reflect such split unless otherwise
stated.
All
dollar amounts used throughout this Report are in United States dollars,
unless
otherwise stated. All amounts in Canadian dollars used throughout this Report
are proceeded by CDN, for example CDN $500, is referring to $500 Canadian
dollars.
BUSINESS
OPERATIONS:
We
are a
development stage company, which is seeking opportunities for investment
in
and/or acquisition of small to medium companies in Russia, specifically in
the
oil and gas industry. We are currently evaluating investment and joint venture
opportunities throughout Russia.
Until
October 14, 2005, the Company's operations were conducted solely through
its
then wholly owned subsidiary, Zaural Neftegaz ("ZNG") a development stage
oil
and gas exploration company located in the Western Siberian Region of Russia.
However, on October 14, 2005, the Company entered into a Joint Venture
agreement, whereby the Company transferred 100% of the ownership of ZNG to
a
newly formed Joint Venture company, Zauralneftegaz Limited ("ZNG, Ltd."),
of
which the Company owns 50% pursuant to the Joint Venture agreement entered
into
on October 14, 2005 (as described in greater detail below under Joint Venture
Agreement). From October 14, 2005 to December 13, 2006, the Company had no
oil
and gas operations except through its ownership of 50% of ZNG, Ltd. On December
13, 2006, the Company entered into an Interest Purchase Agreement with Key
Brokerage, whereby the Company purchased 100% of the issued and outstanding
common stock of Kondaneftegaz, LLC (“KNG”), a Russian limited liability company,
which was created in 2004 for the purpose of oil and gas exploration in the
Khanty-Mansiysk district of Western Siberia, Russia. KNG has previously applied
for 10 exploration and production licenses for parcels located within the
existing oil deposits of the Khanty-Mansiysk district, in Russia, four of
which
are expected to be auctioned off during the second or third quarter of 2007.
Moving
forward the Company plans to focus on the exploration and potential development
of any licenses acquired by KNG through government auctions in fiscal 2007
and
working with its partner in the Joint Venture, Baltic Petroleum (E&P)
Limited ("BP" or "Baltic"), to continue the oil and gas exploration activities
through their co-ownership of the Joint Venture and ZNG.
Description
of KNG
On
December 13, 2006, we entered into an Interest Purchase Agreement (the "Purchase
Agreement") with Key Brokerage LLC ("Key Brokerage"), pursuant to which we
purchased 100% of the stock of Kondaneftegaz LLC ("KNG"), a Russian limited
liability company, which was created in 2004 for the purpose of oil and gas
exploration in the Khanty-Mansiysk district of Western Siberia, Russia. In
addition to acquiring 100% of the stock of KNG, we are receiving the geological
information package on the Karabashski zone of Khanty-Mansiysk Autonomous
district (Tuymen region of Russian Federation) ("Geological Data"). The
Geological Data is included in the total purchase price discussed
below.
From
2005
through 2007 KNG applied for a total of 15 exploration and production licenses
in the Khanty-Mansiysk district of Russia. We believe that through auctions
and/or tenders, KNG may obtain licenses to four of the licensed areas during
the
second or third quarters of 2007. We also believe four other license areas
will
be auctioned off during the third or fourth quarter of 2007; however, the
remaining other auction/tender dates are currently undetermined.
The
Purchase Agreement consummated the transactions contemplated by the Option
Agreement (the "Key Brokerage Option"), which we entered into with Key Brokerage
in September 2006. In consideration for agreeing to the Key Brokerage Option,
we
granted Key Brokerage 250,000 warrants to purchase shares of our common stock
at
an exercise price of $2.20 per share, exercisable for up to two (2) years
from
the date of the Key Brokerage Option (the "Key Brokerage Warrants") in September
2006.
In
connection with the purchase of KNG, we received certain geological information,
including well logs, surveys and structural maps regarding the Karabashsky
zone
of the Khanty-Mansiysk district, which an independent appraisal valued at
approximately $2,700,000.
In
consideration for the transfer of 100% of the stock of KNG, we issued Key
Brokerage an aggregate of 1,900,000 restricted shares of our common stock
valued
at approximately $2,700,000, which value approximated the value of geological
information relevant to the license blocks applied for by KNG.
Description
of ZNG
ZNG
was
created to explore and develop new hydrocarbon fields and oil and gas properties
in the Kurgan region of Southwest Siberia, Russia. ZNG has compiled data
in the
Eastern part of the Kurgan region by analyzing prior geological, geophysical
and
lithographic exploration works in the region, data, maps, and reports from
12
test wells drilled between 1979-1986, profile sections, correlation schemes,
and
geographic maps of the region. ZNG has also obtained core samples from
parametric wells drilled in prior years on the licensed areas and adjacent
territories in the Eastern part of Kurgan region during the initial search
for
oil and gas in the region, and performed analysis of the data provided by
the
samples.
In
March
2003, ZNG acquired four 5-year exploration licenses through a government
tender,
which licenses expire in March 2008, and which licenses are for concessions
covering a total territory of 643,000 acres. Upon expiration of the licenses,
ZNG will have, subject to the signing of the Subsoil Legislation, preferential
right to apply for the full production license for the term of 25
years.
The
Mokrousovsky license is the largest of the four licenses, encompassing a
total
of 240,000 acres, followed by the West Suersky, which covers 230,000 acres,
the
Privolny, which covers 123,000 acres, and the Orlovo-Pashkovsky license,
which
covers 50,000 acres.
In
June
2006, through participation in governmental auctions, ZNG successfully obtained
three more oil and gas licenses in the Kurgan region of Siberia, Russia:
the
Yuzhno-Voskresensky, Petuhovsky and Lebyazhevsky parcels. The new licenses
are
for the period of 25 years and allow both exploration and production on the
licensed areas. The total cost paid at the auctions for the three new licenses
by ZNG was approximately $425,000. The
acquisition of the three new licenses increased the total area covered by
the
licenses held by ZNG from 643,000 acres to over 1 million acres. All seven
licensed areas are located in the Eastern part of Kurgan region, have
well-developed infrastructure, including close proximity to the major oil
pipeline, and have available existing prior geological data.
ZNG
also
has outstanding applications for two more parcels in the same area -
Zapadno-Petukhovsky and Orlovo-Pashkovsky-2. The anticipated auction dates
for
these licenses are currently unknown and there can be no assurance that ZNG
will
be awarded the licenses to the parcels at auction.
Following
detailed data collection, survey and seismic testing, ZNG will proceed with
development of the most promising licenses first. As of March 2007, ZNG has
performed the following research and exploration works on its licensed
areas:
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·
|
Obtained
core samples from parametric wells drilled in prior years on the
licensed
areas and adjacent territories in the Eastern part of Kurgan region
during
the initial search for oil and gas in the region, and performed
analysis
of the data provided by the samples;
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·
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Completed
a 2D seismic survey on the West-Suersky block (approximately 320
linear
kilometers), the Privolny block (approximately 140 linear kilometers),
and
the Mokrousovky block (approximately 340 linear kilometers) using
Bazneftgeophisica;
|
|
·
|
Performed
gravimetric surveys on the West-Suersky
block;
|
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· |
Completed
approximately 2,106 linear kilometers of gas seismotomographic
and
geochemical surveys performed by Exotrad on the Privolny, Mokrousovsky,
West-Suersky, Orlovo-Pashkovky, South-Voskresensky, Petukhovsky
and
Lebyazhevsky blocks Gas seismotomography is an advanced technique
of
combining active gas geochemistry, passive seismic and electromagnetic
methods. The surveys were performed by Exotrad, a world leader
in this
field. Exotrad has used this technology in more than 260 projects
as well
as “Caspian Pipeline Consortium”; “Sakhalin-2”; and “Blue Stream” in
diverse locations across Asia, Eastern Europe and the
Americas;
|
|
·
|
Scientific
and technical analysis was performed by the team of geologists,
which
included experts from Exploration Consultants Limited ("ECL"),
a leading
international oil and gas consulting firm (part of RPS Group);
|
|
·
|
Based
on the results of the gas seismotomographic surveys and high definition
2D
seismic survey shot over the geochemical anomalies found in the
Privolny
and Mokrousovsky blocks, two robust drilling prospects have been
identified in the northern part of the Privolny block;
and
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Seismic
Interpretation On Mokrousovsky Block
ZNG
has
completed an interim Seismic Interpretation and received a Mapping Report
created by RPS Energy (“RPS”), relating to the 2D seismic studies conducted on
the Mokrousovsky block to date. The Mokrousovsky block is the second licensed
area surveyed using conventional 2D seismic surveys, over which 339 kilometers
(“km”) of seismic surveys have been shot. The following results have been
obtained through those surveys:
·
|
One
structural prospect has been identified in the south west of the
Mokrousovsky license area. The structure has a maximum area of
approximately 72 square km, of which approximately 52 square km
lie within
the licensed area. The surface geochemical anomaly discovered in
the area
lies over the north eastern flank of the structure within the license
area.
|
|
|
·
|
A
drilling location has been recommended by RPS for the prospect,
based
on
the strong structure and geochemical coincidence, which drilling
has not
begun to date.
|
|
Drilling
On The Privolny Block
Drilling
of the first prospect located in the Privolny block is under way.
The
“Privolny-1” well is intended to provide physical data to enable the
seismic survey to be correlated to the geology of the block and
to better
determine the subsurface structures which are present in the block.
ZNG
believes that this will provide an improved analysis to create
a work
program including the drilling of at least two more exploration
wells. ZNG
expects to provide a geological update during the second or third
quarters
of 2007, which period of time is needed to drill and process data
from the
2,000 meter deep well.
ZNG's
Board of Directors decided to drill up to four exploration wells
in
connection with the recent Seismotomographic surveys and high definition
2D seismic shot over geochemical anomalies in Privolny and Mokrousovsky
blocks. At least two of these wells are proposed to be drilled
in northern
locations in the Privolny block and the other two wells are proposed
to be
drilled on the Mokrousovsky block.
In
the event that the wells prove successful in establishing the presence
of
hydrocarbons, of which there can be no assurance, the Board of
Directors
of ZNG intends that production testing will be supervised by a
leading
firm of reservoir evaluation consultants and the Board will then
determine
the most appropriate means of commercializing the license
blocks.
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Joint
Venture
Operating
activities described above are carried out through the Joint Venture
Shareholders' Agreement ("Joint Venture") entered into on October 14, 2005
with
Baltic Petroleum (E&P) Limited ("BP" or "Baltic") and Zauralneftegaz
Limited, the joint venture company ("ZNG, Ltd."), as contemplated by the
Option
Agreement, as amended (the "Option"). The Company closed the Joint Venture
and
transferred 100% of the outstanding stock of ZNG to ZNG, Ltd. in connection
with
the terms and conditions of the Joint Venture. As a result of such transfer,
the
Company holds 50% of the outstanding stock of ZNG, Ltd., which holds 100%
of the
outstanding stock of the Company's former wholly owned subsidiary, ZNG. ZNG,
Ltd., will, operate through ZNG and be engaged in the exploration and
development of, production and sale of, oil and gas assets in the Western
Siberian region of the Russian Federation and the former Soviet Union and
as a
result of such transfer, the Company no longer has any separate oil and gas
exploration activities in Kurgan, Russia, other than through its ownership
of
ZNG, Ltd.
On
November 9, 2005, ZNG entered into a New Loan with Caspian (the "New Loan").
Under the loan agreement, Caspian Finance Limited ("Caspian") agreed to provide
a loan of up to $6,874,325 representing the assumed commitment under a prior
loan equal to $1,739,658, of which ZNG had received $1,110,624 as of November
9,
2005, and a new commitment of up to $5,134,667, to be used for operations
in the
Kurgan region in 2005 and through the first half of 2006. The New Loan is
available to ZNG until the sixth anniversary of the date of the New Loan,
or
November 9, 2011 (the "Term"). On January 16, 2007, ZNG entered into an
“Addition to the Loan Agreement of November 9, 2005,” with Caspian,
whereby ZNG agreed to increase the amount of the New Loan from $6,874,325
to $8,874,325 under the same terms and conditions as the New Loan. The New
Loan
had a total outstanding balance, including principal and accrued interest
of
$9,289,219 as of April 27, 2007.
Interest
on any amounts loaned under the New Loan bears interest at the following
rates,
calculated and accrued on a daily basis, 14% per annum during the first two
years of the Term, 13% per annum during the third year of the Term; and 12%
thereafter until the end of the Term. In the event that ZNG does not make
the
Interest Payments when due, interest on the unpaid amounts shall be payable
from
the due date to the date paid at the rate of 6% per annum, calculated and
accrued on a daily basis. The New Loan is unsecured by ZNG, but Caspian reserved
the right to request security over all or some of the assets and/or undertaking
of
ZNG at
any time prior to any drawdown of the New Loan, or while any money is
outstanding under the New Loan.
Pursuant
to the New Loan, ZNG is responsible for satisfying all requirements of Russian
Federation law and regulations in connection with each advance made under
the
New Loan, and ZNG shall indemnify Caspian for any loss or damage it may suffer
as a result of the New Loan.
On
November 9, 2005, ZNG, Ltd. and Caspian entered into a Debenture, whereby
ZNG,
Ltd. granted Caspian a security interest in substantially all of its assets,
including its 100% ownership of ZNG, to secure the repayment of the New Loan
Agreement. Pursuant to the Debenture, ZNG, Ltd. granted Caspian a continuing
security interest for the payment, performance and discharge of all of the
liabilities owing to Caspian by ZNG, Ltd., in the following assets, both
present
and future, from time to time to the extent owned by ZNG, Ltd., or to the
extent
in which it has an interest.
Additionally,
on November 9, 2005, ZNG, Ltd. and Caspian entered into an "Agreement for
the
Pledge of the Participatory Interest in OOO Zauralneftegaz" (the "Pledge
Agreement"). Pursuant to the Pledge Agreement, ZNG, Ltd., pledged its 100%
ownership interest in ZNG to Caspian, which included any proceeds, dividends,
distributions or income deriving from ZNG and any compensation, whether monetary
or in-kind, deriving from ZNG, received due to the liquidation or reorganization
of ZNG. The Pledge Agreement shall remain in effect until all amounts owed
to
Caspian by ZNG, Ltd. are repaid. Pursuant to the Pledge Agreement, ZNG, Ltd.,
agreed to hold all dividends, interest and other income deriving from and
by it
for the account of Caspian, and agreed to pay such dividends, interest and
other
income to Caspian upon Caspian's request.
If
ZNG,
Ltd., fails to pay the amounts owed to Caspian, pursuant to the Pledge
Agreement, Caspian can sell the 100% interest in ZNG at public auction, in
one
or several sales, with an opening bid price of seventy-five percent (75%)
of the
value set forth for the value of ZNG in the Pledge Agreement ($7,705,079)
at the
first public auction and fifty percent (50%) of the value set forth in the
Pledge Agreement at the second public auction. If the opening bid for ZNG
is not
met at either the first or second public auction, Caspian shall have the
right
to retain ZNG, with its value equal to 90% of the value set at the second
auction, and set-off its claims secured by ZNG, Ltd. by such value. If ZNG
is
sold at public auction, any and all proceeds from such sale received by Caspian
shall be applied towards the discharge of the amounts owed by ZNG, Ltd. to
Caspian.
The
total
budget for the exploration program and further seismic studies, which the
Board
has proposed to shoot on ZNG's Lebyazhevsky licensed block, totals approximately
$8 million British pounds or $15 million US dollars. The funds were raised
by
BP's parent via a placement of shares. ZNG is currently in the process of
entering into new loan agreements covering such funds. The loans will not
be
dilutive to the Company's ownership in ZNG. In connection with the funding
provided by Baltic, ZNG entered into a gross override royalty agreement with
Baltic, as described below under "Deed of Agreement," and “Gross Override
Royalty Agreement.”
Deed
of Agreement
On
July
26, 2006, we entered into a Deed of Agreement with Baltic Petroleum (E&P)
Limited ("BP" or "Baltic") and ZNG. Pursuant to the Deed of Agreement, BP
agreed
to allow the drawdown by ZNG, within 10 days of the date of the Deed of
Agreement, of certain funds from Caspian under the New Loan,
including:
o
|
$185,000
to be paid to Business Standard, which was owed to Business Standard
from
ZNG in consideration for Business Standard assisting ZNG with the
process
of the granting of the three oil and gas licenses awarded to ZNG
in June
2006;
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|
|
o
|
$170,000
to be paid to Mr. Victor Repin (a significant shareholder of the
Company)
and Sergey Potapov (a Director of the Company) in final settlement
of
amounts due to them by ZNG; and
|
|
|
o
|
$44,000
to ZNG's landlord in full settlement of all sums due in connection
with
the rent on ZNG's offices in Kurgan,
Russia.
|
The
Deed
of Agreement also contemplated ZNG's entry into a further loan agreement
with
Caspian (assuming Caspian is able to raise such financing on terms acceptable
to
BP), substantially with the same terms as the New Loan (other than due dates
and
interest amounts), whereby Caspian would provide ZNG funds for seismic drilling
and work programs of approximately $12,000,000 (the "Additional
Loan").
The
Deed
of Agreement also provided that upon the entry into the Additional Loan,
we, BP
and ZNG will enter into a gross override royalty agreement, whereby ZNG will
grant a gross override royalty ("GOR") to BP equal to 3% of the gross turnover
on all production of oil and gas at the wellhead in Kurgan by ZNG until BP
has
received in aggregate $20,000,000 from such GOR (the "GOR Sum"). In December
2006, ZNG entered into a Gross Overriding Royalty Agreement with Baltic,
which
is described in greater detail below.
On
January 16, 2007, ZNG entered into an “Addition to the Loan Agreement of
November 9, 2005,” with Caspian, whereby Caspian agreed to increase the amount
of the New Loan from $6,874,325 to $8,874,325 under the same terms and
conditions as the New Loan. The increase in the new loan was intended to
allow
continuous cash flow to ZNG for its operating needs during the first two
quarters of 2007 until the companies enter into the anticipated loan agreements
to finance the current program of seismic studies and drilling of the first
four
(4) planned wells in ZNG's license blocks, two of which are planned for
2007.
Baltic
agreed to pay additional fees of $300,000 in connection with consulting services
rendered in connection with the acquisition of the licenses by ZNG during
the
year ended December 31, 2006. The $300,000 expense was added to the total
amounts loaned by Baltic to the Joint Venture.
Gross
Overriding Royalty Agreement
In
December 2006, ZNG entered into a Gross Overriding Royalty Agreement (the
“Royalty Agreement”) with Baltic, which was contemplated by the Deed of
Agreement dated July 26, 2006, described above and entered into in connection
with the addition to the New Loan, described above. The Royalty Agreement
provided that ZNG would grant Baltic a gross overriding royalty interest
equal
to 3% of ZNG’s interest in any and all the hydrocarbons found in, produced,
marketed and/or extracted from ZNG’s licensed blocks (the “Royalty”). Pursuant
to the Royalty Agreement, the Royalty shall be paid free and clear of any
expenses associated with the exploration and/or production of any hydrocarbons
discovered on the licensed blocks. The Royalty will apply until ZNG has received
an aggregate of $20,000,000 from the gross sales of any hydrocarbon production
produced or occurring on any wells owned or operated by ZNG. The Royalty
Agreement also provides that Baltic may at any time, upon not less than one
(1)
week prior notice, take the Royalty in oil and/or gas production, instead
of in
cash. ZNG also granted Baltic a security interest on any and all of its future
hydrocarbon production to secure the payment of the Royalty.
Agreement
With Alternative Energy Finance, Ltd.
We
previously agreed to issue Alternative Energy Finance Ltd. ("AEF"), of which
Tim
Peara is the Managing Director as well as a Director of the Company, certain
warrants in connection with Mr. Peara introducing the parties who formed
the
joint venture. Pursuant to an agreement between AEF and the Company,
AEF will receive compensation based on the total investment made by Baltic
Petroleum Ltd. in the Joint Venture. This compensation included a commission
of
approximately $18,024 (1% of Baltic's first $1,802,441 investment in the
Joint
Venture), which amount has not been paid as of the date of this filing, and
50,068 options to purchase shares of our common stock at $0.63 per share
which
were granted to Mr. Peara on March 6, 2006 and a commission of $6,673 (1%
of
Baltic's $667,313 investment in the Joint Venture in the first quarter of
2006),
and 17,561 options to purchase shares of our common stock at $0.67 per share
for
the first quarter of 2006, which were granted to Mr. Peara on March 31, 2006,
which options contain a cashless exercise provision.
On
June
30, 2006, in connection with our agreement with AEF, we agreed to grant AEF
a
warrant to purchase 20,412 shares of our common stock at an exercise price
of
$2.02, which warrants contained a cashless exercise feature. The warrants
expire
three years from the grant date. We were also obligated to pay AEF $23,562
during the quarter ended June 30, 2006 (equal to 1% of Baltic's $2,356,153
investment in the Joint Venture in the second quarter 2006).
On
September 30, 2006, in connection with our agreement with AEF, we agreed
to
grant AEF a warrant to purchase 20,952 shares of our common stock at an exercise
price of $1.53 per share, which warrants contained a cashless exercise feature.
The warrants expire three years from the grant date. We were also obligated
to
pay AEF $18,303 during the quarter ended September 30, 2006 (equal to 1%
of
Baltic's $1,830,292 investment in the Joint Venture in the third quarter
of
2006).
On
December 31, 2006, in connection with our agreement with AEF, we agreed to
grant
AEF a warrant to purchase 38,648 shares of our common stock at an exercise
price
of $1.44 per share, which warrants contained a cashless feature. The warrants
expire three years from the grant date. We were also obliged to pay AEF $31,794
during the three months ended December 31, 2006 (equal to 1% of Baltic’s
approximately $3,197,400 investment in the Joint Venture in the fourth quarter
of 2006).
On
March
13, 2007, Mr. Peara personally, and on behalf of AEF agreed to accept 58,134
shares of our restricted common stock in consideration for the forgiveness
of
$45,626 owed personally to Mr. Peara in Directors fees and accrued expenses
and
$47,969 owed to AEF in connection with our agreement with AEF, which shares
have
been issued to date and which debt has been forgiven by Mr. Peara and
AEF.
On
March
31, 2007, in connection with our agreement with AEF, we agreed to grant AEF
a
warrant to purchase 48,925 shares of our common stock at an exercise price
of
$1.10 per share, which warrants contained a cashless feature. The warrants
expire three years from the grant date. We were also obliged to pay AEF
approximately $30,695 during the three months ended March 31, 2007 (equal
to 1%
of Baltic’s approximately $3,069,482 investment in the Joint Venture in the
first quarter of 2007); which amount has not been paid to date.
Consulting
Agreement with Business Standard
On
January 25, 2007, our Board of Directors took action to ratify the Company’s
entry into a Consulting Agreement with Business Standard, a Russian company
(the
“Consulting Agreement”), which Consulting Agreement provides for Business
Standard to provide us certain consulting services in connection with
investigating financing opportunities, assisting in the Company's day to
day
business management, assisting in negotiations with potential investment
partners, as well as assisting in the application for oil and gas exploration
and production licenses by our wholly owned subsidiary KNG or current and
potential investee companies in the Western Siberia region of Russia. We
agreed to pay Business Standard $15,000 per month pursuant to the Consulting
Agreement and also agreed to issue Business Standard 200,000 shares of our
restricted common stock as a signing bonus in connection with its entry into
the
Consulting Agreement and 200,000 restricted shares of common stock in connection
with the acquisition of KNG. The Consulting Agreement ends on December 31,
2007,
but is automatically extended for additional one (1) year terms unless either
party communicates its desire to terminate the agreement to the other party
fifteen (15) days prior to the end of the then current term.
Also
on
January 25, 2007, we approved an annual salary of $180,000 (plus a performance
based bonus to be determined by the Board of Directors at the end of the
2007
fiscal year) for our Chief Executive Officer and Director, David Zaikin for
the
2007 fiscal year. On January 31, 2007, Mr. Zaikin notified us that effective
February 1, 2007, he was withdrawing his previous request to not accrue any
salary until we had sufficient funds to pay such salary, and instead requested
that we pay him his 2007 salary if funds were available for such payments
and/or
that we accrue such salary until we have sufficient funds to repay him any
accrued amounts. In February 2007, our Board of Directors approved the issuance
of 350,000 shares of our restricted common stock to Mr. Zaikin, in consideration
for compensation for the year ended December 31, 2006, which compensation
was
granted by our Board of Directors in its sole discretion, even though Mr.
Zaikin
had previously agreed not to be paid or accrue any salary for fiscal
2006.
Uptick
Capital Agreement
On
January 31, 2007, we entered into an agreement with Uptick Capital Ltd.
(“Uptick”), whereby Uptick agreed to assist us in developing market links and
strategic initiatives as well as financing introductions for us as requested
from time to time. The initial agreement was for a period of three (3) months,
but can be renewed indefinitely thereafter for additional three (3) month
periods, unless we provide written notice ten (10) days prior to the expiration
of any additional three (3) month term. We agreed to issue Uptick 10,000
shares
of our restricted common stock for each month that the agreement with Uptick
is
in place. We also agreed to indemnify Uptick for certain costs and damages
in
connection with its performance of its duties under the Uptick agreement,
as
described in greater detail in the agreement.
Global
Consulting Group Agreement
With
an
effective date of April 10, 2007, we entered into an agreement with The Global
Consulting Group (“Global”), whereby Global agreed to perform investor relations
and medial communications services for us for the period of one (1) year,
which
agreement is automatically renewable for additional one (1) year periods
if not
terminated prior as described below. Pursuant to the Global agreement, we
agreed
to pay Global $12,000 per month during the term of the agreement (subject
to 3%
yearly increases, if such agreement is not terminated prior to the one (1)
year
anniversary of the agreement), and pay Global one time bonuses of $5,000
upon
the achievement of any of the following goals: our common stock being listed
on
the AMEX; a valuation of our common stock of at least $40 million for more
than
30 days; and/or any feature story in a top tier media outlet (The Wall Street
Journal, The New York Times or similar publication). We also agreed to pay
Global’s reasonable out of pocket expenses, subject to prior approval for any
expense over $300 and to indemnify Global against any losses they may incur
as a
result of the Global agreement up to a maximum of $10,000.
The
Global agreement can be terminated by either party after six (6) months upon
thirty (30) days prior written notice, and can be terminated immediately
at any
time due to a material breach of the agreement by either party, which breach is
not cured within 15 days of notice thereof from the non-breaching party,
and/or
if any party becomes bankrupt or ceases to carry on business.
Exercise
of Stock Options
On
May 1,
2007 at 9:00 a.m., Tim Peara, our Director, exercised 50,000 of the options
he
held to purchase shares of our common stock at an exercise price of $0.30
per
share, which options would have expired on May 1, 2007 at 5:00 p.m. if not
previously exercised by Mr. Peara. Mr. Peara used the cashless exercise
provision of the options and will receive 41,925 shares of our common stock
in
connection with the exercise of the options, based on the fair market value
of
the common stock on the date he exercised of $1.86. The 41,925 shares of
common
stock had not been issued as of May 10, 2007, and as such have not been included
in the number of issued and outstanding shares disclosed throughout this
report.
Amendment
to Employment Agreement with Elena Pochapski
On
or
about April 2, 2007, with an effective date of April 1, 2007, we entered
into
“Amendment 2 to the Employment Agreement Dated August 1, 2003” with Elena
Pochapski, our Chief Financial Officer and Director,
which amended the terms of the first amendment to Ms. Pochapski’s Employment
Agreement, in September 2005, to provide that Ms. Pochapski’s annual salary
shall thereafter be $75,000 per year.
Appointment
of New Officer and Director
Effective
May 1, 2007, Helen Teplitskaia was appointed as the Company’s President and as a
Director of the Company.
Helen
Teplitskaia is Executive Vice President and Head of Eurasia Practice at Imnex
International, Inc. She also serves as President of the American-Russian
Chamber
of Commerce & Industry, President of the American-Eurasian Chamber of
Commerce, Director of the International Energy Advisory Council and Adjunct
Associate Professor of International Business and Markets - Global Initiatives
in Management at Northwestern University Kellogg School of Management.
Throughout
her career, Ms. Teplitskaia has successfully assisted a variety of government
agencies and private sector companies, including the United States Agency
for
International Development, US State Department, Ministry of Foreign Affairs
of
the Republic of Uzbekistan, AT&T, Baker & McKenzie, Case New Holland,
Gazprom, Gillette, HeidelbergCement, Ingersoll-Rand, Maytag, Motorola,
Pepsi-Cola and Morgan Stanley with start-up operations in markets, direct
investment, mergers and acquisitions, joint ventures and licensing, marketing
research, political interfacing and media relations.
Helen
Teplitskaia received her BA/MIS from the St. Petersburg University of Culture
and MBA degree from Northwestern University Kellogg School of
Management.
It
is
anticipated that Ms. Teplitskaia will receive shares and options for her
services and terms of such compensation will be disclosed in the future.
Critical
Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of operations
is
based upon our unaudited financial statements, which have been prepared in
accordance with accounting principals generally accepted in the United States.
The preparation of these financial statements requires us to make estimates
and
judgments that affect the reported amounts of assets, liabilities, revenues
and
expenses, and related disclosure of any contingent assets and liabilities.
On an
on-going basis, we evaluate our estimates. We base our estimates on various
assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about carrying values
of
assets and liabilities that are not readily apparent from other sources.
Actual
results may differ from these estimates under different assumptions or
conditions.
We
believe the following critical accounting policy affects our more significant
judgments and estimates used in the preparation of our financial
statements:
Going
Concern
The
Company's financial statements have been prepared assuming that the Company
will
continue as a going concern; however, since inception of its current endeavors
in 2003, the Company has not earned any revenues from production of hydrocarbons
and is considered to be in the development stage, which raises substantial
doubt
about its ability to continue as a going concern. The Company is of the opinion
that sufficient financing will be obtained from external sources to provide
the
Company with the ability to continue the process of development to achieve
commercial production and sales of products. Since inception, the Company
has
obtained cash financing from organizing stockholders and employees in the
form
of loans, advances and deferred salaries, as well as through debt financing
and
more recently has received $55,000 per month in a management fee from its
Joint
Venture. There can be no certainty as to availability
of continued financing in the future. Failure to obtain sufficient financing
may
require the Company to reduce its operating activities. A failure to continue
as
a going concern would require stated amounts of assets and liabilities to
be
reflected on a liquidation basis which could differ from the going concern
basis.
PLAN
OF OPERATIONS FOR THE NEXT TWELVE MONTHS
As
a
result of the Joint Venture, the Company will work with its partner in the
Joint
Venture, Baltic Petroleum (E&P) Limited ("BP" or "Baltic") to continue the
oil and gas exploration activities through their co-ownership of the Joint
Venture, ZNG, Ltd., which in turn owns ZNG. The Company believes that ZNG
has
adopted an aggressive but sensible work program. In connection with the Joint
Venture, BP will supply ZNG with both the technical and financial support
that
is required to fulfill the work program. If circumstances permit and ZNG
is
awarded additional blocks in the Kurgan Region, we believe that BP will be
able
to ensure that adequate funding is available to support the Work Programs
on
these blocks.
The
Company also plans to put a large part of its resources into KNG, and the
licenses which KNG has applied for. If KNG is granted any or all of the 10
licenses it applied for in November 2005 and May 2006, or the 5 additional
licenses which it submitted applications for during the first quarter of
2007,
the Company anticipates conducting oil and gas exploration surveys and studies
on those licenses.
Moving
forward, we anticipate targeting other potential long term investments in
Russia, separate from our involvement in the Joint Venture and KNG. Currently
we
are evaluating different business opportunities in the oil and gas industry,
including both development stage and revenue-producing enterprises. As of
the
filing of this report on Form 10-QSB, the Company is researching certain
other
projects which involve the potential purchase of oil and gas interests in
Western Siberia, Russia; however no formal agreements or understandings have
been entered into as of the filing date of this report, other than the purchase
of KNG as described above.
Historically,
we have obtained cash financing from organizing stockholders in the form
of
loans and advances. Additionally, during the fourth quarter of 2005, we
restructured much of our debt through the issuance of shares to our creditors
and obtained waiver letters, postponing certain of our liabilities until
such
time as we have generated sufficient profits to pay such debts. These waiver
letters related to the payment of certain trade debts as well as shareholder
loans and accrued salaries.
In
connection with the Joint Venture (described under "Joint Venture Agreement,"
above), the Company received $25,000 per month in management fees in connection
with the Joint Venture from the date the Joint Venture was entered into until
November 2006, at which time the management fees were increased to $55,000
per
month. The Company, however, can make no assurance that $55,000 per month
will
be adequate to pay its upcoming expenses and liabilities, in which case the
Company plans that its organizing stockholders will continue to provide
financing for the Company, of which there can be no assurance.
In
the
past, we have obtained cash financing from organizing stockholders in the
form
of loans and advances, as a result, amounts totaling $322,357 and $362,166
were
payable to the stockholders as of March 31, 2007 and March 31, 2006,
respectively. However, there can be no certainty as to the availability of
continued financing in the future. Failure to obtain sufficient financing
may
require us to reduce our operating activities. A failure to continue as a
going
concern would then require stated amounts of assets and liabilities to be
reflected on a liquidation basis which could differ from the going concern
basis.
COMPARISON
OF OPERATING RESULTS
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007, COMPARED TO THE
THREE
MONTHS ENDED MARCH 31, 2006
We
had
revenues and other income of $165,000 for the three months ended March 31,
2007,
which was solely due to $55,000 of monthly management fees received from
ZNG,
Ltd. We had $75,000 of revenue and other income for the three months ended
March
31, 2006, due solely to $75,000 of management fees received. In November
2006,
the management fees we received pursuant to our Joint Venture increased from
$25,000 per month to $55,000 per month. Revenues increased $90,000 or 120%
for
the three months ended March 31, 2007, compared to the three months ended
March
31, 2006, which increase was due solely to the $30,000 monthly increase in
the
management fees we receive from the Joint Venture.
We
have
not generated any revenues to date through the sale of oil and/or
gas.
We
had
total expenses of $474,093 for the three months ended March 31, 2007, compared
to total expenses for the three months ended March 31, 2006, of $394,189,
which
represented an increase in total expenses from the prior period of $79,904
or
20.3%.
Total
expenses for the three months ended March 31, 2007, included $83,643 of
salaries; $202,388 of professional and consulting fees, including amounts
paid
to our legal counsel and accountants in connection with the preparation and
filing of our annual report on Form 10-KSB, and certain warrants and shares
granted for professional services during the three months ended March 31,
2007
including 400,000 shares of common stock issued to Business Standard in
connection with the Business Standard Consulting Agreement, described above,
465,000 shares of common stock issued to our officers and Directors in
compensation for services rendered, and various other shares of common stock
issued to consultants for services rendered (as described below under
“Unregistered Sales of Equity Securities”); $12,385 in rent and occupancy; $82
of depreciation and amortization; $1,499 of finance charges and interest,
attributable to interest paid on the advances we received from BP and other
loans; and $174,096 of marketing and other expenses, including marketing
and
advertising in connection with road shows, various general and administration
expenses relating to the day to day operations of the Company, travel and
hotel
expenses in connection with the research on potential business acquisitions,
and
the value of shares of common stock issued for investor relations services
rendered.
The
$83,643 of salaries for the three months ended March 31, 2007, included
approximately $18,060 which was attributable to the our Chief Financial Officer,
Elena Pochapski, which has been paid in full; $45,000 attributable to the
salary
of our Chief Executive Officer, David Zaikin, which amount was accrued; and
certain other amounts which were paid to various other officers, Directors,
employees and consultants.
The
main
items leading to the increase in total expenses for the three months ended
March
31, 2007, compared to the three months ended March 31, 2006, were an increase
of
$50,332 or 151% in salaries, an increase of $46,672 or 30% in professional
and
consulting fees and a $2,648 or 27.2% increase in rent and occupancy. The
increase in salaries is mainly attributable to the salary of David Zaikin,
who
previously agreed during the 2006 fiscal year, including the three months
ended
March 31, 2006, to not accrue salary, but who since decided as of January
30,
2007, to once again accrue salary from the Company .
Certain
other expenses were less during the three months ended March 31, 2007, compared
to the three months ended March 31, 2006, including marketing and other
expenses, which decreased by $17,395 or 9.1% from the prior period and finance
charges and interest which decreased by $2,349 or 61% from the prior period.
We
had a
net loss of $309,093 for the three months ended March 31, 2007, compared
to a
net loss of $319,189 for the three months ended March 31, 2006, a decrease
in
net loss of $10,096 or 3.2% from the prior period. The decrease in net loss
was
mainly attributable to the $90,000 or 120% increase in management fees offset
by
the $79,904 or 20.3% increase in total expenses, namely the increases in
professional and consulting fees and salaries, described above, for the three
months ended March 31, 2007, compared to the three months ended March 31,
2006.
LIQUIDITY
AND CAPITAL RESOURCES
We
had
current assets of $235,201 as of March 31, 2007, which included cash of $8,920;
management fee receivable of $55,000, which represented amounts owed to us
by
ZNG, Ltd. in management fees, which amount has been paid to date; and prepaid
expenses and other of $171,281. This represented an increase in current assets
of $118,494 or 101%, from $116,707 of current assets as of December 31,
2006.
We
had
total assets of $2,937,690 as of March 31, 2007, which included current assets
of $235,201 and non-current assets of $2,702,489. Non-current assets included
$2,700,000 of oil and gas properties, unproved, representing geological studies
and data, which we received in connection with the purchase of KNG and $2,489
of
property and equipment, net.
We
had
total liabilities of $946,276 as of March 31, 2007, which were solely current
liabilities and which included $322,357 of accounts payable to related party
stockholders in connection with those shareholders paying certain of our
expenses from the period between January 1, 2003 to March 31, 2007; $214,108
of
accounts payable to Baltic in connection with the $29,000 loan advanced to
the
Company from Baltic, as described above under "Description of Business" and
certain other expenses owed to Baltic; $357,698 of accounts payable to others
for advisory and professional services rendered; and $357,698 of accrued
payroll, which included $157,500 payable to our Chief Executive Officer,
David
Zaikin which included $112,500 which was owed to Mr. Zaikin for services
rendered prior to September 2005, at which time he agreed to stop accruing
salary until January 2007, when he provided us notice of his intent to once
again begin accruing salary until such time as we have sufficient funds to
pay
such accrued salary, $90,285 payable to our Chief Financial Officer, Elena
Pochapski, and $69,242 of accrued salary payable to our former Chief Executive
Officer, Shakeel Adam.
We
had
negative working capital of $711,075 and a total pre development and development
stage accumulated deficit of $5,977,448 as of March 31, 2007.
Because
our cumulative losses associated with the operations of ZNG exceeded our
investment as of the date of the Joint Venture, ZNG is carried on our balance
sheet at $-0- as of March 31, 2007. Our investment in ZNG will exceed $-0-
at
such time as ZNG has cumulative earnings sufficient to repay all loans to
Baltic
as provided in the Joint Venture, if ever.
We
had
$9,518 of net cash flows for operating activities for the three months ended
March 31, 2007, which included $1,367,398 of common stock and warrants issued
for professional services and salaries offset by $937,854 of accounts payable
and accrued expenses, $82 of depreciation and amortization, $309,093 of net
loss
and $111,015 of prepaid expenses and other assets.
As
of
March 31, 2007, ZNG had received $9,289,219 pursuant to the New Loan, which
amount includes $1,110,624 assumed by ZNG in connection with a previous loan
made to ZNG. Total interest accrued as of March 31, 2007 was $962,521, including
accrued interest on the previous loan; however, we are currently in a dispute
with Baltic over whether the interest on the New Loan compounds or is only
payable upon maturity and as such, the amount of accrued interest on the
loan is
subject to change.
Additionally,
in July 2006, we entered into a Deed of Agreement, whereby Baltic agreed
(funding permitting) to loan ZNG approximately $12,000,000 to be used on
seismic
studies, drilling and a work program, which funds have not been loaned to
date.
Under
the
Joint Venture, we will receive $55,000 per month as a management fee from
ZNG,
Ltd. In addition to the monthly management fee, ZNG Ltd. agreed to lend $78,000
to us to pay for legal and consulting services in connection with establishing
the Joint Venture. We received $29,000 of this amount in November 2005; and
will
receive the additional $49,000 if all five of the new licenses are awarded
to
ZNG, of which three have been awarded to date, and ZNG submits a letter from
the
relevant license authority of the Ministry of Natural Resources of the Russian
Federation confirming such awards, of which there can be no
assurance.
Since
our
transfer of ZNG to the Joint Venture, we have no oil and gas operations separate
from the Joint Venture, which has not started production and is not currently
generating any cash from production, which makes
it
difficult for us to pay our maturing obligations. However, during the three
months ended March 31, 2007, we did purchase KNG, and hope to be awarded
oil and
gas exploration licenses in connection with KNG during 2007. Moving forward,
we
believe that in the long run a number of trends will favorably affect our
liquidity. These trends include the steady trend of economic growth in Russia
in
the recent years which is improving the liquidity of our potential customers,
and may favorably impact our debt management and the increasing overall credit
rating in Russia, which we hope will lead to increased foreign investment
in
Russian companies and which will benefit us as well.
We
are
taking steps in an attempt to raise equity capital and/or to borrow additional
funds. There can be no assurance that any new capital will be available to
us or
that adequate funds for our operations, whether from our financial markets,
or
other arrangements will be available when needed or on terms satisfactory
to us,
if at all. We have no commitments from officers, directors or affiliates
to
provide funding. Our failure to obtain adequate financing may require us
to
delay, curtail or scale back some or all of our operations. Additionally,
any
additional financing may involve dilution to our then-existing
shareholders.
RISK
FACTORS
Our
securities are highly speculative and should only be purchased by persons
who
can afford to lose their entire investment in our Company. If any of the
following risks actually occur, our business and financial results could
be
negatively affected to a significant extent. The Company's business is subject
to many risk factors, including the following:
RISK
OF CONTINUING OUR BUSINESS PLAN WITHOUT ADDITIONAL FINANCING.
We
depend
to a great degree on the ability to attract external financing in order to
conduct future exploratory and development activities. The Company believes
it
can satisfy its cash requirements during the next twelve months through funding
provided by existing stockholders and with amounts received from the Joint
Venture (described above), including $55,000 a month which the Company is
to
receive from ZNG, Ltd., pursuant to the Joint Venture. Additionally, ZNG
has
received approximately $1,110,624 from BP pursuant to a prior loan and another
$7,216,074 pursuant to the New Loan, which had a total outstanding balance,
including the assumed balance of the prior loan and accrued and unpaid interest
on the prior loan and the New Loan as of April 27, 2007, of $9,289,953, which
has been spent on various purposes, including paying consultants for services
performed in connection with surveys previously performed on the licensed
area.
As the Joint Venture is now responsible for the funding of the operations
of
ZNG, we believe our expenditures in connection with ZNG will decrease in
the
upcoming periods. If we are unable to raise the additional funds required
for
the planned activities of the Joint Venture and for additional activities,
separate from the Joint Venture, our Company may be forced to abandon its
current business plan. If you invest in our Company and we are unable to
raise
the required funds, your investment could become worthless.
WE
WILL NEED SUBSTANTIAL FINANCING AND SUBSTANTIAL TIME BEFORE
WE ANTICIPATE GENERATING REVENUES THROUGH OUR OWNERSHIP OF ZNG, LTD., IF
ANY.
The
Company does not expect to generate any revenues through the operations of
ZNG,
other than the $55,000 a month that it will receive from ZNG, Ltd., of which
there can be no assurance. Therefore, investors should keep in mind that
even if
ZNG is able to raise the substantial amounts of additional financing it requires
for its operations, it could still be years before ZNG generates any revenue,
if
ever. Even if generated such revenues will likely not be great enough to
sustain
ZNG. If no revenues are generated and hydrocarbon reserves are not located,
we
may be forced to abandon or curtail our current business plan. If ZNG, which
is
100% owned by the Company 50/50 joint venture ownership of ZNG, Ltd., were
forced to abandon its business plan, the Company could be forced to abandon
or
curtail its business plan as well, which could cause the value of the Company's
common stock to become worthless.
WE
WILL NEED SUBSTANTIAL FINANCING AND SUBSTANTIAL TIME BEFORE WE ANTICIPATE
GENERATING REVENUES THROUGH KNG, IF ANY.
The
Company anticipates the need for approximately $15,000,000 prior to KNG's
expected generation of any revenues. Currently the Company has not raised
any of
this financing and the Company can make no assurances that this financing
will
ever be raised. The Company also does not expect to generate any revenues
through the operations of KNG, until such financing can be raised, of which
there can be no assurance. Therefore, investors should keep in mind that
even if
KNG is able to raise the substantial amounts of additional financing it requires
for its operations, it could still be years before KNG generates any revenue,
if
ever. If KNG does not raise the $15,000,000 which it anticipates needing
to
generate revenues, which, even if generated, will likely not be great enough
to
sustain KNG if no revenues are generated and hydrocarbon reserves are not
discovered, KNG may be forced to abandon its business plan, and the Company
could be forced to abandon or curtail its business plan as well, which could
cause the value of the Company's common stock to become worthless.
OUR
AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT AS TO WHETHER OUR
COMPANY CAN CONTINUE AS A GOING CONCERN.
Our
Company is in its early development stage, as planned principal activities
have
not begun. We have generated only minimal revenues since inception and have
incurred substantial losses including a net loss of $3,080,336 for the year
ended December 31, 2006, a net loss of $309,093 for the three months ended
March
31, 2007 and a total accumulated deficit of $5,977,448 as of March 31, 2007.
These factors among others indicate that the Company may be unable to continue
as a going concern, particularly in the event that it cannot generate sufficient
cash flow to conduct its operations and/or obtain additional sources of capital
and financing.
WE
LACK AN OPERATING HISTORY WHICH YOU CAN USE TO EVALUATE US,
MAKING ANY INVESTMENT IN OUR COMPANY RISKY.
Our
Company lacks a long standing operating history which investors can use to
evaluate our Company's previous earnings. Therefore, an investment in our
Company is risky because we have no business history and it is hard to predict
what the outcome of our business operations will be in the future.
WE
MAY CONTINUE TO BE UNPROFITABLE AND MAY NOT GENERATE PROFITS
TO CONTINUE OUR BUSINESS PLAN.
As
a
development stage company, we have no revenues or profits to date and our
net
cumulative deficit attributable to our development stage as of March 31,
2007,
was $5,527,663, and our total cumulative deficit was $5,977,448 which included
$449,785 of pre-development stage deficit. We had $357,698 in accrued and
unpaid
salaries and a working capital deficit of $711,075 as of March 31, 2007.
The
Company is currently being funded by existing shareholders and the $55,000
monthly payments, which the Company receives from the Joint Venture in
connection with management fees, but there can be no assurance this amount
will
be sufficient to continue our planned operations or that we will have enough
money to repay our outstanding debts. There is a risk that ZNG will never
begin
production and our Company will never generate any revenues through our
ownership of ZNG, Ltd. There is also a risk that KNG will not be awarded
the
licenses for which it has applied. If throughout ZNG's oil exploration (and
KNG’s assuming it is awarded the licenses for which it has applied, of which
there can be no assurance), no viable wells are found, and consequently,
we
generate only minimal revenues through ZNG, Ltd. (and/or through KNG), we
will
likely be forced to curtail or abandon our business plan. If this happens,
you
could lose your investment in our Company. If we are unable to generate profits,
we will be forced to rely on external financing, of which there is no guarantee,
to continue with our business plan.
WE
HAVE A POOR FINANCIAL POSITION AND IF WE DO NOT GENERATE REVENUES,
WE MAY BE FORCED TO ABANDON OUR BUSINESS PLAN.
Our
Company currently has a poor financial position. We have generated only minimal
revenues to date, nor have we discovered any hydrocarbon reserves or begun
production on any wells. There is a risk that we will not find enough, or
even
any, viable wells which we require to generate enough profits for your
investment in our Company to appreciate. If we never generate any revenues,
our
Company may be forced to curtail or abandon its business plan and your shares
may become worthless.
OUR
BUSINESS IS SPECULATIVE AND RISKY AND IF ZNG OR KNG DOES
NOT FIND
HYDROCARBON RESERVES, WE MAY BE FORCED TO CURTAIL OUR BUSINESS
PLAN.
There
is
a risk that ZNG and KNG, assuming it is awarded the licenses for which it
has
applied, of which there can be no assurance, will not find any hydrocarbon
reserves and the cost of exploration will become too high for ZNG, Ltd. to
continue ZNG's business plan and/or us to continue KNG’s business plan. As our
only current operations are through our 50% ownership of ZNG, Ltd. which
in turn
owns 100% of ZNG, and through KNG, if ZNG, ZNG, Ltd. or KNG were to cease
operations, your investment in our Company could become devalued or could
become
worthless.
OUR
INDUSTRY IS COMPETITIVE AND AS SUCH, COMPETITIVE PRESSURES COULD
PREVENT US FROM OBTAINING PROFITS.
The
main
factor determining success in the oil exploration and extraction industry
is
finding viable wells. If our Company, through ZNG, Ltd., KNG or other joint
ventures we may enter into in the future, are unable to find producing wells
and
our competition is, it is likely that our Company will be driven out of
business. Additionally, our industry is subject to significant capital
requirements and as such, larger companies such as LUKoil, BP-TNK,
Surgutneftegaz and Sibneft may have an advantage should they compete with
us for
exploration licenses, because they may have resources substantially greater
than
ours. Investors should take into account the above factors and understand
that
if we are unable to raise additional capital or generate the profits, the
Company may be forced to liquidate its assets and an investment in our Company
could become worthless.
OUR
GROWTH WILL PLACE SIGNIFICANT STRAINS ON OUR RESOURCES.
The
Company's growth is expected to place a significant strain on the Company's
managerial, operational and financial resources. Furthermore, as the Company
receives contracts, the Company will be required to manage multiple
relationships with various customers and other third parties. These requirements
will be exacerbated in the event of further growth of the Company or in the
number of its contracts. There can be no assurance that the Company's systems,
procedures or controls will be adequate to support the Company's operations
or
that the Company will be able to achieve the rapid execution necessary to
succeed and implement its business plan. The Company's future operating results
will also depend on its ability to add additional personnel commensurate
with
the growth of its business. If the Company is unable to manage growth
effectively, the Company's business, results of operations and financial
condition will be adversely affected.
WE
RELY ON KEY PERSONNEL AND IF THEY LEAVE OUR COMPANY OUR BUSINESS PLAN COULD
BE
ADVERSELY AFFECTED.
We
rely
on the Company's Chief Executive Officer and Chief Financial Officer, David
Zaikin and Elena Pochapski, for the success of our Company, both of whom
are
employed under contracts. Their experience and input create the foundation
for
our business and they are responsible for the directorship and control over
the
Company's development activities. The Company does not hold "key man" insurance
on either member of management. Moving forward, should they be lost for any
reason, the Company will incur costs associated with recruiting replacement
personnel and any potential delays in operations. If we are unable to replace
Mr. Zaikin and/or Ms. Pochapski, the Company may be forced to scale back
or
curtail its business plan. As a result of this, any securities you hold in
our
Company could become devalued.
ZNG’S
OR KNG’S PROJECTIONS, ESTIMATES AND STATISTICAL ANALYSIS MAY BE INACCURATE OR
SUBSTANTIALLY WRONG, WHICH MAY PREVENT ZNG AND/OR KNG FROM EXECUTING THEIR
BUSINESS PLANS.
Risks
from these factors are intertwined with the risky nature inherent in the
oil and
gas industry. Projections on future revenues as well as costs and required
capital expenditures are based on estimates. Business statistical analysis
is
used in projection of drilling success ratios, average production costs,
world
oil price fluctuations and their correspondence to Russian domestic market.
If
ZNG’s or KNG’s projections or estimates are wrong or our statistical analysis
faulty, ZNG's or KNG’s revenues may be adversely affected which could prevent
ZNG and/or KNG from executing their business strategy. As an investor, if
this
happens your securities in our Company could be adversely affected and you
could
lose your investment in our Company due to the fact that our only current
oil
and gas operations are through our 50% ownership of ZNG, Ltd., which in turn
owns 100% of ZNG and through KNG, which has applied for, but not been awarded
any licenses to date.
IF
WE ARE LATE IN FILING OUR QUARTERLY OR ANNUAL REPORTS WITH THE SEC, WE MAY
BE
DE-LISTED FROM THE OVER-THE-COUNTER BULLETIN BOARD.
Under
new
Over-The-Counter Bulletin Board ("OTCBB") rules relating to the timely filing
of
periodic reports with the SEC, any OTCBB issuer who fails to file a periodic
report (Form 10-QSB's or 10-KSB's) by the due date of such report (not
withstanding any extension granted to the issuer by the filing of a Form
12b-25), three (3) times during any twenty-four (24) month period are de-listed
from the OTCBB. Such removed issuer would not be re-eligible to be listed
on the
OTCBB for a period of one-year, during which time any subsequent late filing
would reset the one-year period of de-listing. Therefore, if we are late
in
filing a periodic report three times in any twenty-four (24) month period
and
are de-listed from the OTCBB, our securities may become worthless and we
may be
forced to curtail or abandon our business plan.
AS
THERE IS CURRENTLY ONLY A LIMITED MARKET FOR OUR COMMON STOCK, THE MARKET
FOR
OUR COMMON STOCK PRICE MAY BE ILLIQUID, SPORADIC AND
VOLATILE.
There
is
currently only a limited market for our common stock, and as such, we anticipate
that such market will be illiquid, sporadic and subject to wide fluctuations
in
response to several factors moving forward, including, but not limited
to:
(1)
|
actual
or anticipated variations in our results of operations;
|
(2)
|
our
ability or inability to generate new revenues;
|
(3)
|
the
number of shares in our public float;
|
(4)
|
increased
competition;
|
(5)
|
the
political atmosphere in Russia; and
|
(6)
|
conditions
and trends in the oil, gas, and energy industries in
general.
|
Furthermore,
because our common stock is traded on the NASD Over The Counter Bulletin
Board,
our stock price may be impacted by factors that are unrelated or
disproportionate to our operating performance. These market fluctuations,
as
well as general economic, political and market conditions, such as recessions,
interest rates or international currency fluctuations may adversely affect
the
market price of our common stock. Additionally, at present, we have a limited
number of shares in our public float, and as a result, there could be extreme
fluctuations in the price of our common stock. Further, due to the limited
volume of our shares which trade and our limited public float, we believe
that
our stock prices (bid, ask and closing prices) are entirely arbitrary, are
not
related to the actual value of the Company, and do not reflect the actual
value
of our common stock (and in fact reflect a value that is much higher than
the
actual value of our common stock). Shareholders and potential investors in
our
common stock should exercise caution before making an investment in the Company,
and should not rely on the publicly quoted or traded stock prices in determining
our common stock value, but should instead determine value of our common
stock
based
on
the information contained in the Company's public reports, industry information,
and those business valuation methods commonly used to value private
companies.
INVESTORS
MAY FACE SIGNIFICANT RESTRICTIONS ON THE RESALE OF OUR COMMON STOCK DUE TO
FEDERAL REGULATIONS OF PENNY STOCKS.
Our
common stock will be subject to the requirements of Rule 15(g)9, promulgated
under the Securities Exchange Act as long as the price of our common stock
is
below $4.00 per share. Under such rule, broker-dealers who recommend low-priced
securities to persons other than established customers and accredited investors
must satisfy special sales practice requirements, including a requirement
that
they make an individualized written suitability determination for the purchaser
and receive the purchaser's consent prior to the transaction. The Securities
Enforcement Remedies and Penny Stock Reform Act of 1990, also requires
additional disclosure in connection with any trades involving a stock defined
as
a penny stock. Generally, the Commission defines a penny stock as any equity
security not traded on an exchange or quoted on NASDAQ that has a market
price
of less than $4.00 per share. The required penny stock disclosures include
the
delivery, prior to any transaction, of a disclosure schedule explaining the
penny stock market and the risks associated with it. Such requirements could
severely limit the market liquidity of the securities and the ability of
purchasers to sell their securities in the secondary market.
In
addition, various state securities laws impose restrictions on transferring
"penny stocks" and as a result, investors in the common stock may have their
ability to sell their shares of the common stock impaired.
ITEM
3. CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures. Our Chief Executive Officer
and Principal Financial Officer, after evaluating the effectiveness of our
"disclosure controls and procedures" (as defined in the Securities Exchange
Act
of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered
by
this Quarterly Report on Form 10-QSB (the "Evaluation Date"), have concluded
that as of the Evaluation Date, our disclosure controls and procedures are
effective to provide reasonable assurance that information we are required
to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms, and that such information
is
accumulated and communicated to our management, including our Chief Executive
Officer and Principal Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
(b)
Changes in internal control over financial reporting. There were no changes
in
our internal control over financial reporting during our most recent fiscal
quarter that materially affected, or were reasonably likely to materially
affect, our internal control over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
In
January 2007, we learned that certain of our former officers, Directors and
shareholders, had attempted to transfer shares of our common stock, which
those
individuals had agreed to cancel in connection with the purchase of a majority
of the Company’s outstanding shares from those individuals by our current
officers, Directors and majority shareholders in April 2003. In February
2007,
we filed for a Temporary Restraining Order and Motion for Preliminary Injunction
against those individuals in the District Court of Clark County,
Nevada.
On
February 20, 2007, our Temporary Restraining Order and Motion for Preliminary
Injunction was heard by the District Court of Clark County, Nevada, and we
were
granted an indefinite injunction without a hearing by the court. As such,
those
individuals who previously attempted to transfer and sell the shares which
they
held will be prevented from transferring or selling such shares until they
can
show good cause with the court why such indefinite injunction should be
lifted.
From
time
to time, we may become party to other litigation or other legal proceedings
that
we consider to be a part of the ordinary course of our business. We are not
currently involved in legal proceedings that could reasonably be expected
to
have a material adverse effect on our business, prospects, financial condition
or results of operations, other than the proceeding described above. We may
become involved in material legal proceedings in the future.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES
On
December 31, 2006, in connection with our agreement with AEF, we agreed to
grant
AEF a warrant to purchase 38,648 shares of our common stock at an exercise
price
of $1.44 per share, which warrants contained a cashless feature. The warrants
expire three years from the grant date. We were also obligated to pay AEF
$31,794 during the three months ended December 31, 2006 (equal to 1% of Baltic’s
approximately $3,197,400 investment in the Joint Venture in the fourth quarter
of 2006); which amount has not been paid to date. We claim an exemption from
registration afforded by Section 4(2) of the Securities Act of 1933 since
the
foregoing issuance of warrants did not involve a public offering, the recipient
took the warrants for investment and we took steps to restrict the transfer
of
the warrants. No underwriters or agents were involved in the foregoing grant
and
no underwriting discounts or commissions were paid by us.
On
January 25, 2007, our Board of Directors approved the issuance of an aggregate
of 465,000 shares of our restricted common stock to our current officers
and
Directors in consideration for services rendered to the Company during the
year
ended December 31, 2006, as follows:
o
|
350,000
shares of our restricted common stock to David Zaikin, our Chief
Executive
Officer and Director in consideration for compensation for the
year ended
December 31, 2006, which compensation was granted by our Board
of
Directors in its sole discretion, even though Mr. Zaikin had previously
agreed not to be paid or accrue any salary for fiscal
2006;
|
|
|
o
|
50,000
shares of our restricted common stock to Elena Pochapski, our Chief
Financial Officer and Director as a bonus for her services rendered
during
the year ended December 31, 2006;
|
|
|
o
|
20,000
shares of our restricted common stock to Timothy Peara, our Director,
as a
bonus for his services rendered during the year ended December
31,
2006;
|
|
|
o
|
25,000
shares of our restricted common stock to Oleg Zhuravlev, our Director,
as
a bonus for his services rendered during the year ended December
31,
2006;
|
|
|
o
|
10,000
shares of our restricted common stock to Vladimir Eret, our Director,
as a
bonus for his services rendered during the year ended December
31, 2006;
and
|
|
|
o
|
10,000
shares of our restricted common stock to Sergei Potapov, our Director,
as
a bonus for his services rendered during the year ended December
31,
2006.
|
We
claim
an exemption from registration afforded by Section 4(2) of the Securities
Act of
1933 since the foregoing issuances of shares did not involve a public offering,
the recipients took the shares for investment and we took steps to restrict
the
transfer of the shares. No underwriters or agents were involved in the foregoing
issuances and no underwriting discounts or commissions were paid by
us.
On
January 25, 2007, in connection with our ratification of the Business Standard
Consulting Agreement, we approved the issuance of an aggregate of 400,000
shares
of our restricted common stock to Business Standard in consideration for
Business Standard’s entry into the Consulting Agreement and in consideration for
Business Standard’s services rendered to us in connection with our acquisition
of Kondaneftegaz. We claim an exemption from registration afforded by Section
4(2) of the Securities Act of 1933 since the foregoing issuance of shares
did
not involve a public offering, the recipient took the shares for investment
and
we took steps to restrict the transfer of the shares. No underwriters or
agents
were involved in the foregoing issuance and no underwriting discounts or
commissions were paid by us.
Also
on
January 25, 2007, we approved the issuance of 20,000 shares of our restricted
common stock to Lyudmila Shirko, in consideration for services rendered to
us in
connection with our operations during the year ended December 31, 2006. We
claim
an exemption from registration afforded by Section 4(2) of the Securities
Act of
1933 since the foregoing issuance of shares did not involve a public offering,
the recipient took the shares for investment and we took steps to restrict
the
transfer of the shares. No underwriters or agents were involved in the foregoing
issuance and no underwriting discounts or commissions were paid by
us.
On
January 31, 2007, we issued 20,000 shares of our restricted common stock
to
Investor Relations Group Inc., in consideration for investor relations services
rendered. We claim an exemption from registration afforded by Section
4(2) of the Securities Act of 1933 since the foregoing issuance of shares
did
not involve a public offering, the recipient took the shares for investment
and
we took steps to restrict the transfer of the shares. No underwriters or
agents
were involved in the foregoing issuance and no underwriting discounts or
commissions were paid by us.
On
February 15, 2007, the Board of Directors agreed to issue 4,000 restricted
shares of the Company's common stock to Ann L. Stephenson Group, in
consideration of investor relations services rendered to the Company in January
2007, and 3,000 restricted shares of common stock to Friedland Capital, in
connection with the Company's participation at Friedland's New York investment
conference in 2007. We claim an exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 since the foregoing issuances
of
shares did not involve a public offering, the recipients took the shares
for
investment and we took steps to restrict the transfer of the shares. No
underwriters or agents were involved in the foregoing issuances and no
underwriting discounts or commissions were paid by us.
In
March
2007, we issued 10,000 shares of our restricted common stock to Investor
Relations Group Inc., in consideration for investor relations services rendered.
We claim an exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 since the foregoing issuance of shares did not involve
a
public offering, the recipient took the shares for investment and we took
steps
to restrict the transfer of the shares. No underwriters or agents were involved
in the foregoing issuance and no underwriting discounts or commissions were
paid
by us.
On
March
13, 2007, Mr. Peara personally, and on behalf of AEF agreed to accept 58,134
shares of our restricted common stock in consideration for the forgiveness
of
$45,626 owed personally to Mr. Peara in Directors fees and accrued expenses
and
$47,969 owed to AEF in connection with our agreement with AEF, which shares
have
been issued to date and which debt has been forgiven by Mr. Peara and AEF.
We
claim an exemption from registration afforded by Section 4(2) of the Securities
Act of 1933 since the foregoing issuance of shares did not involve a public
offering, the recipient took the shares for investment and we took steps
to
restrict the transfer of the shares. No underwriters or agents were involved
in
the foregoing issuance and no underwriting discounts or commissions were
paid by
us.
On
March
31, 2007, in connection with our agreement with AEF, we agreed to grant AEF
a
warrant to purchase 48,925 shares of our common stock at an exercise price
of
$1.10 per share, which warrants contained a cashless feature. The warrants
expire three years from the grant date. We claim an exemption from registration
afforded by Section 4(2) of the Securities Act of 1933 since the foregoing
issuance of warrants did not involve a public offering, the recipient took
the
warrants for investment and we took steps to restrict the transfer of the
warrants. No underwriters or agents were involved in the foregoing grant
and no
underwriting discounts or commissions were paid by us.
In
April
2007, we issued 35,000 restricted shares of common stock to Uptick Capital
in
connection with the agreement with Uptick Capital entered into in January
2007
(as described above) for services rendered during the months of February,
March,
April and half of May 2007. We claim an exemption from registration afforded
by
Section 4(2) of the Securities Act of 1933 since the foregoing issuance of
shares did not involve a public offering, the recipient took the shares for
investment and we took steps to restrict the transfer of the shares. No
underwriters or agents were involved in the foregoing issuance and no
underwriting discounts or commissions were paid by us.
On
May 1,
2007 at 9:00 a.m., Tim Peara, our Director, exercised 50,000 of the options
he
held to purchase shares of our common stock at an exercise price of $0.30
per
share, which options would have expired on May 1, 2007 at 5:00 p.m. if not
previously exercised by Mr. Peara. Mr. Peara used the cashless exercise
provision of the options and will receive 41,925 shares of our common stock
in
connection with the exercise of the options, based on the fair market value
of
the common stock on the date he exercised of $1.86. The 41,925 shares of
common
stock had not been issued as of May 10, 2007, and as such have not been included
in the number of issued and outstanding shares disclosed throughout this
report.
We will claim an exemption from registration afforded by Section 4(2) of
the
Securities Act of 1933 since the foregoing issuance of shares will not involve
a
public offering, the recipient will take the shares for investment and we
will
take steps to restrict the transfer of the shares. No underwriters or agents
will be involved in the foregoing issuance and no underwriting discounts
or
commissions will be paid by us.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS AND REPORTS ON FORM 8-K
a)
Exhibits
Exhibit
No.
|
Description
of Exhibit
|
|
|
10.1(1)
|
Option
Agreement with Baltic Petroleum Limited dated April 28,
2005
|
|
|
10.2(1)
|
License
Agreement between OOO Zauralneftegaz and Baltic Petroleum Limited
dated
April 28, 2005
|
|
|
10.3(1)
|
Loan
Agreement between OOO Zauralneftegaz and Baltic Petroleum Limited
dated
April 28, 2005
|
|
|
10.4(1)
|
Guarantee
by Siberian Energy Group, Inc. dated April 28, 2005
|
|
|
10.5(1)
|
Pledge
and Security Agreement between Siberian Energy Group, Inc. and
Baltic
Petroleum Limited dated April 28, 2005
|
|
|
10.6(2)
|
Option
Agreement with Baltic Petroleum Limited dated April 28,
2005
|
|
|
10.7(2)
|
License
Agreement between OOO Zauralneftegaz and Baltic Petroleum Limited
dated
April 28, 2005
|
|
|
10.8(2)
|
Loan
Agreement between OOO Zauralneftegaz and Baltic Petroleum Limited
dated
April 28, 2005
|
|
|
10.9
(2)
|
Guarantee
by Siberian Energy Group, Inc. dated April 28, 2005
|
|
|
10.10
(2)
|
Pledge
and Security Agreement between Siberian Energy Group, Inc. and
Baltic
Petroleum Limited dated April 28, 2005
|
|
|
10.11
(3)
|
Clarification
to the Contract of Purchase and Sale of the Share in Charter
Capital of
LLC "Zauralneftegaz" dated 15 May 2004
|
|
|
10.12
(3)
|
Agreement
with Business - Standard (translated from Russian
version)
|
|
|
10.13
(3)
|
Supplementary
Agreement to Business - Standard Agreement (translated from Russian
version)
|
|
|
10.14
(3)
|
Supplementary
Agreement No. 2 to Business - Standard Agreement (translated
from Russian
version)
|
|
|
10.15
(3)
|
Deed
of Amendment between ZNG and BP
|
|
|
10.16
(3)
|
Deed
of Amendment between the Company and BP
|
|
|
10.17
(4)
|
Joint
Venture Shareholders' Agreement with Baltic Petroleum (E&P)Limited and
Zauralneftegaz Limited dated October 14, 2005
|
|
|
10.18
(5)
|
Amendment
to the Employment Agreement Dated August 1, 2003, with Elena
Pochapski
|
|
|
10.19
(5)
|
Form
of Waiver Agreement
|
|
|
10.20(6)
|
Loan
Agreement between OOO Zauralneftegaz and Caspian Finance
Limited
|
|
|
10.21(6)
|
Deed
of Novation between Baltic Petroleum Limited, Caspian Finance
Limited and
OOO Zauralneftegaz
|
|
|
10.22(6)
|
Deed
of Release
|
|
|
10.23(6)
|
Release
of Pledge
|
|
|
10.24(6)
|
Guarantee
|
|
|
10.25(6)
|
Debenture
|
|
|
10.26(6)
|
Agreement
for the Pledge of the Participatory Interest in OOO Zauralneftegaz
(Russian translation removed)
|
|
|
10.27(6)
|
Sale
and Purchase Agreement
|
|
|
10.28(8)
|
Option
Agreement with Key Brokerage
|
|
|
10.29(8)
|
Warrant
Agreement with Key Brokerage
|
|
|
10.30(9)
|
July
26, 2006 Deed of Agreement
|
|
|
10.31(10)
|
Consulting
Agreement with Business Standard
|
|
|
10.32(11)
|
Addition
to the Loan Agreement of November 9, 2005
|
|
|
10.33(11)
|
Gross
Overriding Royalty Agreement
|
|
|
10.34*
|
Amendment
No. 2 to the Employment Agreement Dated August 1, 2003 with Elena
Pochapski
|
|
|
31.1*
|
Certificate
of the Chief Executive Officer pursuant Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
31.2*
|
Certificate
of the Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
32.1*
|
Certificate
of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
32.2*
|
Certificate
of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
99.1(7)
|
Glossary
|
*
Filed
herein.
(1)
Filed
as Exhibit 10.1, 10.2, 10.3, 10.4 and 10.5 to the Company's Form 8-K filed
with
the Commission on May 20, 2005, and incorporated herein by
reference.
(2)
Filed
as Exhibits to the Company's Form 8-K filed with the Commission on May 20,
2005,
and incorporated herein by reference.
(3)
Filed
as Exhibits to the Company's Report on Form 10-QSB, filed with the Commission
on
August 22, 2005, and incorporated herein by reference.
(4)
Filed
as Exhibits to the Company's Report on Form 8-K, filed with the Commission
on
October 28, 2005, and incorporated herein by reference.
(5)
Filed
as Exhibits to our Report on Form 10-QSB for the period ending September
31,
2005, which was filed with the Commission on November 21, 2005, and is
incorporated herein by reference.
(6)
Filed
as Exhibits to our Report on Form 8-K, filed with the Commission on December
2,
2005, and incorporated herein by reference.
(7)
Filed
as Exhibit 99.1 to our Report on Form 10-KSB for the year ended December
31,
2005, and incorporated herein by reference.
(8)
Filed
as Exhibits to our Report on Form 8-K, filed with the Commission on September
19, 2006, and incorporated herein by reference.
(9)
Filed
as an Exhibit to our Report on Form 10-QSB, filed with the Commission on
November 14, 2006, and incorporated herein by reference.
(10)
Filed as an Exhibit to our Form 8-K filed with the Commission on February
20,
2007, and incorporated herein by reference.
(11)
Filed as Exhibits to our Report on Form 10-KSB filed with the Commission
on
February 2, 2007, and incorporated herein by reference.
b)
Reports on Form 8-K:
We
filed
the following reports on Form 8-K during the period covered by this
report:
o
|
February
20, 2007 - To report that the Company’s Board of Directors agreed to seek
a listing on the Frankfurt Exchange.
|
|
|
o
|
February
20, 2007 - To report the Company’s entry into a Consulting Agreement with
Business Standard, and the issuance of various shares of restricted
common
stock to officers, directors and consultants of the
Company.
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIBERIAN
ENERGY GROUP INC.
DATED:
_______, 2007
|
By:
/s/
David Zaikin
|
|
David
Zaikin
|
|
Chief
Executive Officer
|