CHINA NORTH EAST PETROLEUM HOLDINGS LTD

CHINA NORTH EAST PETROLEUM HOLDINGS LTD's exchange filed to remove a class of its securities from listing.

listing compliance notice

On April 4, 2012 NYSE Amex began delisting proceedings against the company, citing alleged failures including documentation and disclosure of related-party transactions (including issues in the July 2010 John Lees & Associates report) and the late 2011 10-K. The company plans to appeal to the Listing Qualifications Panel, and there is no assurance of success. This escalates the long-running listing and related-party concerns from earlier filings, and puts the shares' listing at real risk.

listing compliance notice

On Dec 13, 2011 the company's subsidiary Songyuan Technical agreed to buy 100% of Beijing Shixin Taide Investment Consultancy, which holds exploration and drilling rights to the Qian 122 oilfield in Jilin, from China Kinwa High Technology (Shanghai-listed) for RMB 170M cash (about US$26.7M), paid in three tranches. The company expects to pay from cash on hand and close in Q1 2012; closing depends on conditions including approval by Kinwa's shareholders. This adds a second expansion alongside Durimu, and the company says it has enough cash to develop both.

material agreement

On April 21, 2011 the company completed the purchase of Shengyuan, which holds exclusive exploration and drilling rights to the Durimu oilfield in Inner Mongolia, closing the deal announced on Jan 19, 2011. The company, through its subsidiary Yu Qiao, pays the former owners RMB 70 million cash and issues 5.8 million new shares to Bellini Holdings Management (owned by the former Shengyuan shareholders), which dilutes existing holders. Shengyuan's audited 2010 accounts show crude oil sales of $485,474 and net income of $191,657 against total assets of $11.4M, of which $10.4M is owed to a shareholder; pro forma financials are still to be filed within 71 days.

asset acquisition disposition

On Jan 19, 2011 the company's subsidiary Songyuan Technical agreed to buy 100% of Sunite Right Banner Shengyuan Oil and Gas Technology Development Co., which holds exploration and drilling rights to the Durimu oilfield in Inner Mongolia. The price is about $43.4M: RMB 70M cash (about US$10.6M) plus 5,800,000 new company shares issued to Bellini Holdings Management Ltd. (the sellers' entity) under Regulation S. Closing needs government approvals and is targeted for end of Q1 2011. This is the company's first expansion beyond its Jilin oilfields; the shares would dilute current holders, and management says cash would fall about 40-50% over 12-18 months from roughly $60M expected at end of 2010 (the company's projection). The filing does not state whether the delayed filings were completed.

capital raising announcement

On Aug 26, 2010 NYSE Amex granted the company's request for more time, to Aug 31, 2010, to regain compliance (the July 14 deadline was missed; the company asked for the extension on July 13). The company expects to file the 10-Q/As for the first three quarters of 2008 and 2009, the 10-K/A for 2008 and the 2009 10-K by Aug 31, and to announce preliminary Q1 and Q2 2010 results. A second missed filing (Q1 2010 10-Q, per AMEX notice of May 25) is also cited. The delisting risk and the restatement remain unresolved.

listing compliance notice

On June 15, 2010 NYSE Amex accepted the company's compliance plan and gave it until July 14, 2010 to file the overdue 2009 10-K and Q1 2010 10-Q; failure to progress could lead to delisting. The June 15 target the company gave in April for filing the restated reports has passed without filings. Jingfu Li is now signing as Acting Chief Executive Officer (the filing does not say why Wang Hongjun is no longer in that role).

listing compliance notice

A second amendment to the February restatement notice revises the numbers again. Full-year 2008 net income is now shown as $10,520,425 (down from $19,582,038 as first reported, and different from the March 8 figure of $22.1M, which had shown an increase). Q1 2009 becomes a loss of $10,353,424 and Q2 2009 a loss of $7,300,301. Net carrying value of oil and gas properties falls from $70,193,852 to $54,326,410 at Dec 31, 2008 and from $67,671,268 to $37,500,883 at March 31, 2009, because the company found its reserve engineer used an incorrectly low future operating cost factor. Warrant values were also recalculated using the full contract term. The company will disclose a material weakness in internal controls; amended reports are still pending.

financial restatement

On April 15, 2010 NYSE Amex told the company it breached listing rules by not filing its 2009 annual report on time; it must submit a compliance plan by April 29 and regain compliance by July 14, 2010, or the stock could be removed from the exchange. The company says it will file the 10-K soon and, in an attached press release, expects the restated 2008/2009 reports and the 2009 10-K by June 15, 2010, after an Audit Committee review of newly found internal-control deficiencies (business development expenditures and accounts payable accounting). Preliminary unaudited 2009 figures: revenue $64.7M (up 10%), production 908,126 barrels, 289 producing wells, and a net loss of $22.1M driven by $49.5M of non-cash charges. This extends the restatement saga and adds a delisting risk.

listing compliance notice

This amendment gives the size of the restatement. Full-year 2008 net income goes from $19,582,038 to $22,113,643 (up $2.5M, mostly from warrant fair-value gains), but quarters swing widely: for example Q2 2008 becomes a loss of $9,826,156, Q1 2009 a loss of $12,129,855 and Q2 2009 a loss of $8,070,604. Q1 2009 oil and gas property carrying value falls from $67,671,268 to $56,462,878 after impairment errors. The company will disclose a material weakness in internal controls and has hired an outside accounting consultant; amended 10-K and 10-Qs are still to come.

financial restatement

On Feb 22, 2010 the company said its 2008 annual and quarterly financials and the first three 2009 quarters can no longer be relied on, after SEC comments on its 2008 10-K. The errors are non-cash: warrants that should have been counted as liabilities, interest, warrant fair-value changes, oil and gas property impairment calculations, depletion, stock compensation, and the March 2009 debenture amendment that should have been treated as an extinguishment. It says revenues, cash and liquidity are unchanged and amended reports will follow; this is a new problem and echoes the earlier 2006 restatement of reserves.

financial restatement

On Jan 12, 2010 the company repaid in full the $15M Lotusbox debenture, which would otherwise have matured Feb 28, 2012, owing $10,734,739.73 in principal and interest. It paid using December offering proceeds plus $2,038,479.30 from Lotusbox exercising Series B warrants for 867,438 shares at $2.35, with no prepayment penalty. The pledge on 66% of Song Yuan Technical, the security agreement and Lotusbox's option over up to 24% of Song Yuan Technical were all terminated, resolving the debt and listing-deadline obligations tied to that debenture.

material agreement termination

The company agreed on Dec 14, 2009 to sell 1,963,637 shares at $6.875 plus warrants for 392,728 shares at $8.10 (exercisable from six months after issue until June 17, 2011), raising about $13.5 million gross through Rodman & Renshaw (estimated fee $810,000 plus 58,910 warrants at $8.10). The press release says proceeds will be used to redeem the Lotusbox 8% debenture from Feb 2008 and for working capital. This is a second share sale after September 2009 and dilutes existing holders.

material agreement

On Sept 25, 2009 the company's 90%-owned Song Yuan Technical agreed to buy 100% of Song Yuan Tiancheng Drilling Engineering Co. for US$13,000,000, paid in two $6.5M installments. The deal completed Sept 27, 2009 when the second $6.5M was paid and 95% of the equity was transferred; the other 5% is held in trust for Song Yuan Technical (stated as required by Chinese law). Pro forma financials are to be filed later by amendment. This adds a drilling services business and is the first use of cash following the September share offering (inference: the timing suggests that link; the filing does not state it).

asset acquisition disposition

The company agreed on Sept 15, 2009 to sell 4,000,000 new shares at $4.60 each, plus warrants for 800,000 more shares at $6.00 (exercisable from six months after issue until March 15, 2011), for about $18.4 million gross. Rodman & Renshaw is placement agent (estimated fees $736,000 plus 80,000 warrants at $6.00), and Wharton Capital Partners gets about $368,000 and 80,000 warrants for advisory work. The press release says proceeds go to future business expansion and general working capital; existing shareholders are diluted by the new shares and warrants.

material agreement

the New York Stock Exchange certified CHINA NORTH EAST PETROLEUM HOLDINGS LTD's securities for listing, clearing them to begin trading.

listing compliance notice

On March 5, 2009 the company and Lotusbox changed the $15M debenture: the US listing deadline moves to August 30, 2010, and the repayment schedule is reset (with payments through February 2012), in return for new warrants for 250,000 shares at $2.00 and 250,000 at $2.35. It also settled the Utah lawsuit with Topworth Asset Limited, with both sides releasing claims and Topworth's 627,360 shares released in stages through November 30, 2009. The company says those shares are already counted as outstanding, so they add no dilution. The company reports no other pending litigation.

capital raising announcement

On February 28, 2008 the company agreed a $15 million 8% secured debenture due 2012 with Lotusbox Investments (part of Harmony Fund), plus five-year warrants for 1.2M shares at $0.01, 1.5M at $3.20 and 2.1M at $3.45. Only $1.75M was funded at first, with $13.25M held in escrow pending post-closing conditions, and about $10M is planned for drilling 100 new wells. It is secured by a pledge of 66% of the Song Yuan JV, an option for the investor on 24% of it, and Wang's pledge of 6,732,000 personal shares. The debenture requires a US exchange listing within a year or higher interest applies. This is the company's first debt facility in the record.

capital raising announcement

On June 29, 2007 the chairman Wang Hongjun and his mother Ju Guizhi gave the company, as a capital contribution, $7,197,813 of short-term advances it owed them (as of March 31, 2007) and the 10,000,000 shares issued for Yu Qiao (valued at about $3.1M). This removes those debts and cancels the shares, and the company expects no material tax effect. It reverses the January 2007 share issue to Ju and clears much of the related-party borrowing, though the filing does not say whether the shares are retired.

material agreement

On January 26, 2007 the Song Yuan JV agreed to buy Yu Qiao, the company that holds the PetroChina contract for Qian'an 112, the oilfield the company's own subsidiary had been drilling. The company will issue 10,000,000 new shares (about US$4 million at market) to the sellers, and 70% of Yu Qiao comes from Ju Guizhi, the president's mother, so this is another insider deal. Two other sellers hold 30% in trust for the JV because of PRC foreign-ownership limits. A fairness opinion is promised within 90 days of closing, and the price can be cut but not raised. Closing was expected in about 30 days, and the filing says financial statements would follow.

material agreement

The company reports that its July 2006 joint venture, Song Yuan North East Petroleum Technical Service Co., Ltd., was completed on October 8, 2006, when it put in $490,000 (borrowed from a related party) and received 90%. The venture already owned LongDe, which holds a 20-year PetroChina contract for the Hetingbao Oilfield 301 Area (PetroChina takes 20% of output for 10 years, then 40%). The company still owes $510,000 of the $1 million, which is later than the 3-month window in the July 2006 deal. The company expected to pay by the end of Q4 2006. The chairman's mother, Ju Guizhi, now holds the other 10% after the chairman gifted her his stake in December 2006. The company says the deal is not significant enough to need financial statements.

asset acquisition disposition

On July 26, 2006 the company agreed with Ms. Ju GuiZhi and Mr. Wang Hongjun to form a Chinese joint venture, Song Yuan North East Petroleum Technical Service Co., Ltd., to acquire and operate oil and gas development assets and sell crude oil. The company commits US$1 million within 3 months for 90%; Ju and Wang commit RMB 1 million for 10%. Wang is the company's president, chairman and a significant shareholder, and Ju is an immediate family member of his, so this is a deal with insiders.

material agreement

On May 5, 2006 the Hong Xiang operating subsidiary signed a contract with Daqing City Ranghu Lu District Xu Yang Petroleum Tool Manufacturing Co. to drill 20 wells in the Qian112 oilfield by December 31, 2006 (extendable), for RMB 18.8 million in cash. RMB 300,000 is due before each well and the rest in monthly installments over a year after each well is accepted. The attached press release describes the drilling as the first stage of a plan to reach 102 wells, and names Rising Sun Oil Exploration and Production Limited as the contractor, which does not match the counterparty named in the agreement.

material agreement

On March 24, 2006 the board said its 2003 and 2004 financial statements should no longer be relied on because proved oil and gas reserves were materially overstated, using estimates that did not meet SEC Industry Guide 2. New estimates from R.A. Lenser and Associates affect depreciation and reserve figures, and an amended 2004 annual report is planned. This is a second restatement after the 2004 quarterly errors disclosed in November 2005.

financial restatement

The board determined on May 18, 2005 that the company's June 30 and September 30, 2004 quarterly financials contained material errors and should not be relied on. The errors were found during the audit by the new auditor engaged in March 2005; corrected figures are in later filings and amended quarterly reports have been filed. This follows the auditor change earlier in 2005.

financial restatement

This resolves the March talks: on April 30, 2004 the company completed a share exchange, issuing 18,700,000 shares to acquire all of Hong Xiang Petroleum Group, leaving 19,908,822 shares outstanding with former Hong Xiang holders owning about 93.93%. Existing shareholders were left with about 6% and the Jump'n Jax subsidiary was distributed to them as a dividend (record date March 8, 2004). Clissold and Moulton resigned and a new Hong Kong-based board and management took over, led by Wang Hong Jun as chairman. The business is now oil production in the Jilin Quinan field under a 20-year exclusive contract: 20 operating wells making about 900 tons a month, with about $23 million of capital needed for full development and no assurance it can be raised.

asset acquisition disposition

On March 9, 2004, a group of individual buyers paid $350,000 in cash for 744,000 shares (about 79%) of the company, then called Draco Holding Corporation, from officers Lane Clissold and Steven Moulton and five other sellers. The company said it has begun preliminary talks about a possible business combination with Hong Xiang Petroleum Group Limited, a British Virgin Islands company producing crude oil in Jilin Province, China; no agreement has been signed. Clissold and Moulton remain officers and directors for now.

business combination