Form 8-K/A for MNP PETROLEUM CORP
24-Apr-2015
Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
The audited financial statements of EPA at December 31, 2013 and 2012 and for the years ended December 31, 2013 and 2012 are filed hereto as Exhibit 99.1.
The unaudited financial statements of EPA at September 30, 2014 and December 31, 2013 and for the nine month period ended September 30, 2014 and 2013 are filed as Exhibit 99.2.
(b) Pro forma financial information.
The unaudited pro forma financial statements of MNP Petroleum Corporation at September 30, 2014 and for the nine month period ended September 30, 2014 and the year ended December 31, 2013 giving effect to the acquisition of EPA are filed hereto as Exhibit 99.3.
(c) Exhibits.
No. Description
99.1 Audited financial statements of EPA at December 31, 2013 and 2012 and
for the years ended December 31, 2013 and 2012.
99.2 Unaudited financial statements of EPA at September 30, 2014 and December
31, 2013 and for the nine month period ended September 30, 2014 and
2013.
99.3 Unaudited pro forma financial statements of MNP Petroleum Corporation at
September 30, 2014 and for the nine month period ended September 30,
2014 and the year ended December 31, 2013
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Contents
Independent Auditor's Report
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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[[Image Removed]] Tel.+41 44 444 35 55 BDO AG Fax +41 44 444 35 35 Fabrikstrasse 50 www.bdo.ch CH-8031 Z?rich
Independent Auditor's Report
Board of Directors
EPA.at Beteiligungsgesellschaft mbH
We have audited the accompanying consolidated financial statements of EPA.at Beteiligungsgesellschaft mbH and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of comprehensive income, shareholders' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
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Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EPA.at Beteiligungsgesellschaft mbH and its subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
BDO AG
April 24, 2015 Zurich
/s/ Christoph Tschumi /s/ Julian Snow
Christoph Tschumi ppa. Julian Snow
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EPA.at Beteiligungsgesellschaft mbH and Subsidiary
CONSOLIDATED BALANCE SHEETS
12.31.2013 12.31.2012
USD USD
ASSETS
Cash and cash equivalents 2,922,774 818,183
Accounts receivable 229,901 845,573
Prepaid expenses and other assets 280,533 282,895
Inventories 621,545 652,085
Deferred tax asset 175,633 178,819
Total current assets 4,230,386 2,777,555
Property, plant and equipment 2,275,204 2,361,967
Oil and gas properties 5,709,394 5,700,544
Investment 100,513 100,662
Deferred tax asset 325,328 431,486
Total non-current assets 8,410,439 8,594,659
TOTAL ASSETS 12,640,825 11,372,214
LIABILITIES AND SHAREHOLDERS' EQUITY
Loan due to related party 6,045,490 6,049,564
Accounts payable 171,544 251,110
Other accrued expenses and liabilities 701,059 771,393
Total current liabilities 6,918,093 7,072,067
Asset retirement obligation 3,553,695 3,431,971
Total non-current liabilities 3,553,695 3,431,971
TOTAL LIABILITIES 10,471,788 10,504,038
Common Stock (As of December 31, 2013, USD 103,588 par
value, 1 share issued and outstanding) 103,588 103,588
Other comprehensive income 3,152,618 3,425,704
Accumulated deficit (4,594,175 ) (5,607,155 )
Total EPA shareholders' equity (1,337,969 ) (2,077,863 )
Noncontrolling interest 3,507,006 2,946,039
TOTAL SHAREHOLDERS' EQUITY 2,169,037 868,176
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 12,640,825 11,372,214
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EPA.at Beteiligungsgesellschaft mbH and Subsidiary
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
12.31.2013 12.31.2012
USD USD
OPERATING REVENUES
Revenues 5,713,769 5,373,454
Cost of sales (3,060,484 ) (4,173,149 )
Gross profit 2,653,285 1,200,305
OPERATING EXPENSES
Administrative costs (493,125 ) (151,494 )
Accretion of asset retirement obligation (127,037 ) (206,575 )
Total operating expenses (620,162 ) (358,069 )
Total income from operations 2,033,123 842,236
NON-OPERATING INCOME / (EXPENSE)
Other income 231,043 1,686
Other expense (70,225 ) (137,378 )
Total non-operating income/(expense) 160,818 (135,692 )
Income before taxes 2,193,941 706,544
Income taxes (403,319 ) (286,459 )
Net income 1,790,622 420,085
Net income attributable to non-controlling interest 777,642 190,722
Net income attributable to EPA 1,012,980 229,363
Other comprehensive loss (279,092 ) (138,402 )
Net comprehensive income 1,511,530 281,683
Net comprehensive income attributable to non-controlling
interest 771,636 186,117
Net comprehensive income attributable to EPA 739,894 95,566
Weighted average number of outstanding shares (basic) 1 1
Weighted average number of outstanding shares (diluted) 1 1
Basic earnings per share 1,012,980 229,363
Diluted earnings per share 1,012,980 229,363
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EPA.at Beteiligungsgesellschaft mbH and Subsidiary
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
EPA Shareholder's equity
SHAREHOLDERS' EQUITY Number of Share Accumulated Accumulated other Noncontrolling Total shareholders'
shares capital deficit comprehensive interest equity
income
Balance January 1,
2012 1 103,588 (5,836,518 ) 3,559,501 2,909,329 735,900
Currency translation - - - (133,797 ) (4,605 ) (138,402 )
Net income for the
year - - 229,363 - 190,722 420,085
Dividends paid to
noncontrolling
interest - - - - (149,407 ) (149,407 )
Balance December 31,
2012 1 103,588 (5,607,155 ) 3,425,704 2,946,039 868,176
Balance January 1,
2013 1 103,588 (5,607,155 ) 3,425,704 2,946,039 868,176
Currency translation - - - (273,086 ) (6,006 ) (279,092 )
Net income for the
year - - 1,012,980 - 777,642 1,790,622
Dividends paid to
noncontrolling
interest - - - - (210,669 ) (210,669 )
Balance December 31,
2013 1 103,588 (4,594,175 ) 3,152,618 3,507,006 2,169,037
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EPA.at Beteiligungsgesellschaft mbH and Subsidiary
CONSOLIDATED CASH FLOW STATEMENT
12.31.2013 12.31.2012
USD USD
OPERATING ACTIVITIES
Net income including noncontrolling interest 1,790,622 420,085
To reconcile net income/(loss) to net cash used in
operating activities
Depreciation and amortization 933,099 537,347
Accretion of asset retirement obligation 127,037 206,575
Deferred income taxes 109,344 104,916
Decrease / (increase) in inventories 29,633 720,114
Decrease / (increase) in accounts receivable 615,596 (419,675 )
Decrease / (increase) in prepaid expenses and other
assets 2,004 202,600
(Decrease) / increase in accounts payable (28,853 ) 27,170
(Decrease) / increase in other accrued expenses and
other liabilities (119,983 ) 223,536
Cash flow from operating activities 3,458,499 2,022,668
INVESTING ACTIVITIES
Purchase of property, plant and equipment (837,364 ) (754,717 )
Purchase of oil and gas properties (27,957 ) (174,359 )
Cash flow used in investing activities (865,321 ) (929,076 )
FINANCING ACTIVITIES
Loan due to related party (247,330 ) (380,586 )
Dividends paid (210,669 ) (149,407 )
Cash flow used in financing activities (457,999 ) (529,993 )
Net change in cash and cash equivalents 2,135,179 563,599
Cash and cash equivalents at the beginning of the period 818,183 265,311
Translation effect on cash (30,588 ) (10,727 )
Cash and cash equivalents at the end of the period 2,922,774 818,183
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Notes to Consolidated Financial Statements of EPA.at Beteiligungsgesellschaft mbH and Subsidiary
1. Nature of Business and Significant Accounting Policies
Nature of business
EPA.at Beteiligungsgesellschaft mbH ("EPA" or the "Company"), is headquartered in Vienna, Austria. The Company, through its subsidiary, Petroleum Sugd LLC ("Petroleum Sugd"), is engaged in the production of crude oil and gas in the north of Tajikistan.
Operating environment
In recent years Tajikistan has undergone substantial political, economic and social change. As in any emerging market Tajikistan does not possess overly sophisticated and efficient business, regulatory, power and transportation infrastructure as generally exists in more developed market economies. Management cannot predict what economic, political, legal or other changes may occur in these or other emerging markets, but such changes could adversely affect the Company's ability to carry out exploration, development or production activities. Particularly the legal system of Tajikistan is less developed than those of more established jurisdictions, which may result in risks such as: the lack of effective legal redress in the courts, whether in respect to a breach of law or regulation, or, in an ownership dispute, a higher degree of discretion from the governmental authorities, delays caused by extensive bureaucracy and the lack of judicial or administrative guidance on interpreting applicable laws and regulations, inconsistencies or conflicts between various laws, regulations, decrees, order and resolutions.
2. Summary of significant accounting policies
Basis of Presentation and Preparation
The Company's Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures, if any, of contingent assets and liabilities at the date of the financial statements. Actual results could differ from these estimates.
Theses financial statements are prepared on a going concern bases and reflect the Company management's assessment of the impact of the Tajik business environment on the operations and the financial position of the company.
Scope and methods of consolidation
The accompanying consolidated financial statements include the accounts of the Company, EPA.at Beteiligungsgesellschaft mbH, and all companies which EPA directly or indirectly controls (over 50% of voting interest). The sole subsidiary included in the consolidation is Petroleum Sugd, of which the Company owns 57.42% . Intercompany accounts and transactions have been eliminated.
Investments in which the Company exercises significant influence, but not control (generally 20% to 50% ownership) are accounted for using the equity method. The Group's share of earnings or losses is included in consolidated net loss and the Group's share of the net assets is included in long-term assets. Investments where the Company holds less than 20% ownership are accounted for using the cost method.
Concentrations of risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally these deposits may be redeemed upon demand. Cash and cash equivalents are subject to currency exchange rate fluctuations.
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Cash and cash equivalents
Cash and cash equivalents are comprised of cash on hand, cash at banks and other short term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of change in value with original maturities of three months or less.
Accounts receivable and allowance for doubtful accounts
We carry accounts receivable at sales value less an allowance for doubtful accounts. We periodically evaluate accounts receivable and establish an allowance for doubtful accounts based on a combination of specific customer circumstances, credit conditions and the history of write-offs and collections. We evaluate items on an individual basis when determining accounts receivable write-offs. In general, our policy is to not charge interest on trade receivables after the invoice becomes past due. A receivable is considered past due if payment has not been received within agreed upon invoice terms.
Property, plant and equipment
Tangible fixed assets are recorded at cost and are depreciated on a straight-line basis over the following estimated useful lives:
Years
Buildings 10 - 20 years
Machinery and equipment 1 - 10 years
Vehicles 4 - 10 years
Office equipment 1 - 7 years
Materials and spare parts 2 - 3 years
Impairment of property, plant and equipment
Tangible fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The carrying value of a long-lived asset or asset group is considered to be impaired when the undiscounted expected cash flows from the asset or asset group are less than its carrying amount. In that event, an impairment loss is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined based on quoted market prices, where available, or is estimated as the present value of the expected future cash flows from the asset or asset group discounted at a rate commensurate with the risk involved.
Oil and gas properties
Oil and gas properties consists of rigs and equipment in use to produce oil and gas as well as any asset retirement cost and is depreciated using the unit of production method. Unit of production depreciation is a critical accounting estimate that measures the depreciation of oil and gas assets. It is the ratio of actual volumes produced to total proved reserves or proved developed reserves (those proved reserves recoverable through existing wells with existing equipment and operating methods), applied to the asset cost. The volumes produced and asset cost are known and, while proved reserves have a high probability of recoverability, they are based on estimates that are subject to some variability.
Investment in OJSC Rogun Dam
For the years ended December 31, 2013 and 2012, the Company recorded its investment in OJSC Rogun Dam ("OJSC") at cost since the company holds less than 20% in voting and capital interest in OJSC.
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Current liabilities
Current liabilities include current or renewable liabilities due within a maximum period of one year. Current liabilities are carried at their nominal value, which approximates fair market value.
Fair value of financial instruments
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, investments, accounts payable and a loan from a related party. The fair value of these financial instruments approximate their carrying value due to the short maturities of these instruments, unless otherwise noted.
Non-current liabilities
Non-current liabilities include all known liabilities as per year end, which can reliably be quantified with a due date of at least one year after the date of the balance sheet.
Income taxes
Taxes on income are accrued in the same period as the revenues and expenses to which they relate.
Deferred taxes are calculated on the temporary differences that arise between the tax base of an asset or liability and its carrying value in the balance sheet of the Company prepared for consolidation purposes, with the exception of temporary differences arising on investments in foreign subsidiaries where the Company has plans to permanently reinvest profits into the foreign subsidiaries.
Deferred tax assets on tax loss carry-forwards are only recognized to the extent that it is more likely than not, that future profits will be available and the tax loss carry-forward can be utilized.
Changes to tax laws or tax rates enacted at the balance sheet date are taken into account in the determination of the applicable tax rate provided that they are likely to be applicable in the period when the deferred tax assets or tax liabilities are realized.
The Company is required to pay income taxes in Austria and the Republic of Tajikistan. Significant judgment is required in determining income tax provisions and in evaluating tax positions.
The Company recognizes the benefit of uncertain tax positions in the financial statements when it is more likely than not that the position will be sustained on examination by the tax authorities. The benefit recognized is the largest amount of tax benefit that is greater than 50 percent likely of being realized on settlement with the tax authority, assuming full knowledge of the position and all relevant facts. The Company adjusts its recognition of these uncertain tax benefits in the period in which new information is available impacting either the recognition of measurement of its uncertain tax positions. Interest and penalties related to uncertain tax positions are recognized as income tax expense.
Revenue recognition
Revenues are recognized when products are delivered or services are provided to customers, title is transferred, the sales price is fixed or determinable and collectability is reasonably assured. Revenues are recorded net of discounts granted to customers. Shipping and other transportation costs billed to customers are presented on a gross basis in revenues and cost of sales. Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, services rendered stated net of discounts, returns and value added taxes.
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Exploration and development costs
The Company uses the successful efforts method of accounting for oil and natural gas producing activities. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs, are expensed. Development costs, including the costs to drill and equip development wells and successful exploratory drilling costs to locate proved reserves, are capitalized. Upon sale or retirement of a proved property, the cost and accumulated depreciation, depletion and amortization are eliminated from property accounts and the resultant gain or loss is recognized.
Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made.
Development costs of proved oil and natural gas properties, including estimated dismantlement, restoration, abandonment costs and acquisition costs, are depreciated and depleted on a well by well basis by the units-of-production method using estimated proved developed reserves.
We perform annual assessments of unproved oil properties for impairment on a field basis, and recognize a loss at the time of impairment by recording an expense to "exploration costs". In determining whether an unproved property is impaired we consider numerous factors including, but not limited to, dry holes drilled, current exploration plans, favorable or unfavorable exploratory activity on adjacent areas and our geologists' evaluation."
Loans payable
Loans payable are recognized initially at fair value, net of transaction costs incurred. Loans payable are subsequently carried at amortized costs; any difference between the proceeds (net of transaction costs) and the redemption . . .
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