Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. Polar Petroleum Corp. (1520320) 10-Q published on Nov 12, 2013 at 2:50 pm
Reporting Period: Sep 29, 2013
Convertible debts are split into two components: a debt component and a component representing the embedded derivatives in the debt. The debt component represents the Company’s liability for future interest coupon payments and the redemption amount. The embedded derivatives represent the value of the option that debt holders have to convert into ordinary shares of the Company. If the number of shares that may be required to be issued upon conversion of the convertible debt is indeterminate, the embedded conversion option of the convertible debt is accounted for as a derivative instrument liability rather than equity in accordance with ASC 815-40.
On October 30, 2012, our wholly-owned subsidiary, the Subsidiary entered into a purchase agreement (the “Hemi/Franklin Purchase Agreement”) with Daniel K. Donkel and Samuel H. Cade (together, the “Sellers”) pursuant to which the Subsidiary acquired 100% of the record title of the Sellers to 17 onshore oil and gas leases located in in the North Slope region of the State of Alaska, which include both the Hemi Springs Project and the Franklin Bluffs Project, while reserving a royalty of 16.67% for the State of Alaska and an overriding royalty of 4% for the Sellers, in exchange for a total purchase price of $1,250,000, with $150,000 of the purchase price paid in cash at closing and the remaining $1,100,000 payable under a promissory note from the Subsidiary to the Sellers (the “Hemi/Franklin Promissory Note”). The Hemi/Franklin Promissory Note was due on October 31, 2014, and bears interest at 0.3% per annum (10% after a default). We were obligated to pay $125,000.00 (plus accrued interest) every three months for the first twelve months, $100,000 (plus accrued interest) every three months for the 13th through 21st months, and $300,000 (plus accrued interest) by the maturity date. The more detailed description of the Hemi/Franklin Purchase Agreement and related transactions set forth under the caption “Business—First Purchase of Oil & Gas Leases” in the 2013 Form 10-K is incorporated herein by reference.
On October 16, 2013, we entered into amendments to the Hemi/Franklin Purchase Agreement and the North Point Thomson Purchase Agreement and the associated promissory notes, as described above.
Effective September 6, 2013, we issued to US Energy Investments Ltd. (“US Energy”) a convertible promissory note in the principal amount of $75,000 evidencing a loan in that amount received by the Company from US Energy. The note is due on September 5, 2016, and bears interest at 10% per annum, payable on the maturity date or earlier prepayment. The Company may prepay all or any portion of the principal amount of the note without penalty. Subject to a customary 4.99% “blocker” provision, US Energy may convert all or any portion of the outstanding principal amount of the note, together with accrued and unpaid interest thereon to the date of conversion, into shares of common stock of the Company, at a conversion price per share of common stock to be mutually agreed by the Company and US Energy, which in no event shall be less than $0.20 per share. The note contains customary events of default and acceleration and customary representations by the Company.
For the period from inception of our current exploration stage until September 30, 2013 the Company incurred net losses of $958,376. Net losses for the three months ended September 30, 2013 were $212,254 as compared to $27,749 for the three months ended September 30, 2012. Net losses for the six months ended September 30, 2013 were $529,497 as compared to $49,639 for the six months ended September 30, 2012. The increase in net losses over the comparable three and six month periods can be attributed primarily to increases in general and administrative expenses and interest expense over the comparable periods. We expect to continue to operate at a loss through 2014 due to the nature of our exploration and development activities and cannot determine whether we will ever generate revenue from operations.
Our current assets are insufficient to meet our oil and gas purchase and lease payments or to conduct exploration and development activities over the next twelve months or to maintain our operations. Over the next twelve months, we will need to raise a minimum in debt and/or equity financing of $1,900,000 to fund the lease payments and debt on our current oil and gas leases and $600,000 to maintain our operations. This does not include any funds for exploration and development. At the present time, we do not have funds to make the payments due on the Hemi/Franklin Promissory Note and the North Point Thomson Promissory Note, both due on December 2, 2013, as described above; if we fail to make these payments, the Sellers will have the right to re-assign title to certain of our oil & gas leases to themselves, as described in the 2013 Form 10-K. However, we have no commitments or arrangements from any financing sources, though our shareholders are the most likely source of loans or equity investments in order for us to maintain operations. There is no assurance that we will be able to raise the amount of capital that we need to support our debt obligations or working capital requirements or for further investment in current and future operations. Our inability to obtain financing to complete our development plan for our leases will have a material adverse effect on our business operations.