SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment No. 1
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
0-24493
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Commission File No.
CAMBRIDGE ENERGY CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 59-3380009
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215. South Riverside Drive, Suite 12, Cocoa, Florida 32922
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(Address of principal executive offices)
Registrant's telephone number, including area code: (321) 636-6165
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.0001 par value
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes __x__ No _____
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $1,693,003
State The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and ask price of such common equity, as of
June 30, 2000: $8,109,062
As of March 31, 2000 there were outstanding 11,790,827 shares of Cambridge
Energy Corporation's common stock, par value $.0001 per share.
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CAMBRIDGE ENERGY CORPORATION
Form 10-KSB Report for the Fiscal Year
Ended March 31, 2000
TABLE OF CONTENTS
Page
PART I
Item 1. Business ....................................................... 2
Item 2. Properties ..................................................... 7
Item 3. Legal Proceedings .............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders ............ 10
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters .................................. 11
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 11
Item 7. Selected Financial Data ........................................ 14
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .......................... 32
PART III
Item 9. Directors and Executive Officers of the Registrant ............ 32
Item 10. Executive Compensation ........................................ 33
Item 11. Security Ownership of Certain Beneficial
Owners and Management ........................................ 34
Item 12. Certain Relationships and Related Transactions ................ 35
PART IV
Item 13. Exhibits, Financial Statement Schedules and
Reports on Form 8-K .......................................... 36
SIGNATURE .............................................................. 37
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PART I
Item 1. Business
(a) General Development of Business
CAMBRIDGE ENERGY CORPORATION, (the Company) was incorporated under the laws
of the State of Nevada on April 9, 1996. At inception the Company's Articles of
Incorporation Authorized 2,000,000 Common Shares at $.001 Par Value, and 100,000
Preferred Shares at $.001 Par Value. In June 1997, the Board of Directors
approved an amendment to the Company's Articles of Incorporation increasing the
authorized Common Shares of the Company from 2,000,000 to 50,000,000, and
increasing the number of authorized Preferred Shares from 100,000 to 25,000,000.
At that time the Board also changed the Par Value of each class of stock to from
$.001 to $.0001 per share. The amended Articles were filed with the State of
Nevada on July 7, 1997. The Company then undertook a Private Placement of
1,935,000 of its Common Shares to raise capital for the execution of its
business plan. In November 1997, the Company began trading its Common Shares on
the OTC Bulletin Board under symbol CNGG.
(b) Business of Issuer
The Company
Cambridge Energy Corporation was formed for the purpose of development and
operation of oil and gas properties with proven reserves. The Company's strategy
is to focus in domestic areas where major oil and gas producing companies have
reduced their exploration efforts to move offshore and overseas in search of the
larger reserves. Considerable oil and gas in proven fields remain to be
exploited by well-managed independent oil companies capable of extracting these
reserves at lower risk and lower cost than unproved prospects. Cambridge
Energy's initial development strategy has been to acquire such proven fields and
increase production through the application of advanced technology and the
exploration of other proven formations in the same fields.
In order to provide for rapid growth, the Company has expanded its strategy
to include the exploration of offshore reserves, both in the US and outside the
US. There is no assurance that the Company will be able to obtain the capital
required to fully exploit this opportunity for expanded growth or that such
growth will result in profits to the Company.
Cambridge Energy's primary operational strategy includes the operation of
its own projects, giving it substantial control over drilling and production
costs. The Company has associated highly experienced exploration and development
engineering and geology personnel that strive to add production at lower costs
through development drilling, workovers, behind pipe recompletions and secondary
recovery operations.
Operations
The Company expects that it will continue to engage in both development and
exploratory drilling operations. Such activities were limited in 1998 in 1999,
due to industry conditions. However, the Company intends to pursue a diversified
inventory of exploratory and development prospects. The current portfolio
includes lower-risk development and exploratory prospects, as well as higher
risk exploratory prospects with greater potential. The objective of the
Company's near-term strategy is maximization of the value of its existing
prospect inventory while reducing its cost and risk exposure. In the near term,
the Company plans to retain a 10% to 50% direct working interest in each
prospect, plus any carried or reversionary interest retained as part of sales to
industry partners. Direct participation may increase as corporate cash flows and
capital resources increase. Drilling prospects may result from the evaluation of
acquisitions. Drilling activities, whether exploratory or developmental, are
subject to many risks, including the risk that no commercially productive
reservoirs will be encountered. There can be no assurance that any new wells
drilled by the Company will recover all or any portion of the related
investment. The cost of drilling, completing and operating wells is often
uncertain and cost overruns can occur. The Company's drilling operations might
be curtailed, delayed or canceled as a result of numerous factors, many of which
are beyond the Company's control. These factors include financial resources of
the Company or its partners, commodity prices, land and title issues, mechanical
problems, weather conditions and compliance with governmental requirements.
Unsuccessful drilling activities may have a material adverse effect on the
Company.
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The company has acquired an Indonesian subsidiary, Intermega Energy Pte
Ltd. The company received from F.K. Ho, 100% of the stock of Intermega Energy
Pte Ltd. which includes three fields in eastern Indonesia and executive offices
in Jakarta for liaison with Pertamina, the government owned oil company that
controls all of Indonesian oil and gas. We are adding approximately 100
employees by this. They include:
Technical Assistance Contract/Contract Area: Salawati A, D and
Sabaku. ownership by INTERMEGA of the Technical Assistance
Contract/Contract Area: Salawati A, D and Sabaku, originally between
Perusahaan Pertambangan Dan Gas Bumi Negara (Pertamina) and PT. Siddhakarya
Pilona Sabaku dated January 9, 1995. This contract area covers 5.97 sq Km
for Salawati "A" and "D" and .50 sq Km for Sabaku.
Technical Assistance Contract/Contract Area: Salawati C, E, F and N.
ownership by INTERMEGA of the Technical Assistance Contract/Contract Area:
Salawati C, E, F and N, originally between Perusahaan Pertambangan Dan Gas
Bumi Negara (Pertamina) and PT. Siddhakarya Pilona Salawati dated January
9, 1995. This contract area covers 23.05 sq. Km.
Technical Assistance Contract/Contract Area: Linda A, C/G Sele.
ownership by INTERMEGA of the Technical Assistance Contract/Contract Area:
Linda A, C/G Sele, originally between Perusahaan Pertambangan Dan Gas Bumi
Negara (Pertamina) and Intermega Linda Sele Pte Ltd. This contract area
covers 12.35 sq. Km.
The Company's future performance depends upon its ability to acquire and
develop additional oil and gas reserves that are economically recoverable. The
Company intends to continue its acquisition, development and drilling
activities. The Company has completed its review of various prospects and
acquisitions and expects during the coming year to close additional acquisitions
and drill or participate in additional wells, however no assurances can be given
that the Company will be successful or will have sufficient cash flow or sources
of external capital to acquire, develop or discover additional reserves at an
economical cost Without successful acquisition, development and exploration
activities, the Company's reserves will decline. Competitive Business Conditions
The Company encounters strong competition from major and independent
companies in acquiring properties and leases for production operations,
exploration and development. The principal competitive factors in the
acquisition of such oil and gas properties include the staff and data necessary
to identify, investigate and purchase such leases, and the financial resources
necessary to acquire and develop such leases. Many of the Company's competitors
have financial resources, staffs and facilities substantially greater than those
of the Company.
Distribution
The Company's oil and gas production is marketed to third parties
consistent with industry practices. Typically, oil is sold at the wellhead at
field posted prices, plus or minus adjustments for quality and transportation.
Natural gas is usually sold under a contract at a negotiated price based upon
factors normally considered in the industry, such as gas quality, distance from
the well to the pipeline, estimated reserves, liquid hydrocarbon content of
natural gas and prevailing supply/demand conditions.
Joint Operations With Others; Non-Operator Status
The Company owns less than 100% of the working interest in some of its oil
and gas properties. Operations on such properties are likely to be conducted
jointly with other working interest owners. Joint operating arrangements are
customary in the oil and gas industry and are generally conducted pursuant to a
joint operating agreement, whereby a single working interest owner is designated
the operator. At present, the Company is the operator of the majority of its oil
and gas properties. The Company is also a non-operating working interest owner
in other wells. For properties where the Company owns less than 50% of the
working interest, drilling and operating decisions may not be entirely within
the
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Company's control. If the Company disagrees with the decision of a majority of
working interest owners, it may be required, among other things, to postpone the
proposed activity, relinquish or farm-out its interest or decline to
participate. If the Company declines to participate, it might be forced to
relinquish its interest or may be subject to certain non-consent penalties, as
provided in the applicable operating agreement. Such penalties typically allow
participating working interest owners to recover from the proceeds of
production, if any, an amount equal to 200%-500% of the non-participating
working interest owner's share of the cost of such operations.
Under most operating agreements, the operator is given direct and full
control over all operations on the property and is obligated to conduct
operations in a workman-like manner; however, the operator is usually not liable
to the working interest owners for losses sustained or for liabilities incurred,
except those resulting from its own gross negligence or willful misconduct. Each
working interest owner is generally liable for its share of the costs of
developing and operating jointly owned properties. The operator is required to
pay the expenses of developing and operating the property and will invoice
working interest owners for their proportionate share of such costs. In
instances where the Company is a non-operating working interest owner, it may
have a limited ability to exercise control over operations and the associated
costs of such operations. The success of the Company's investment in such
non-operated activities may, therefore, be dependent upon a number of factors
that are outside of the Company's direct control.
Under most operating agreements and the laws of certain states, operators
of oil and gas properties may be granted liens on the working interests of other
non-operating owners in the well to secure the payment of amounts due the
operator. The bankruptcy or failure of the operator or other working interest
owners to pay vendors who have supplied goods or services applicable to wells
could result in filing of mechanics' and materialmens' liens which would
encumber the well and the interests of all joint owners.
Forward-Looking Information
All statements other than statements of historical fact contained herein
are forward-looking statements. Forward looking statements are generally
accompanied by words such as "anticipate," "believe," "estimate," "project,"
"potential" or "expect" or similar statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, no assurance can be given that such expectations will prove correct.
Factors could cause the Company's results to differ materially from the results
discussed in such forward-looking statements. Such factors include such things
as uncertainty of costs associated with exploratory drilling, drilling results
and reserve estimates, operating hazards, need for additional capital,
competition from other exploration, development and production companies, the
fluctuations of prices received or demand for the Company's oil and gas, and the
effects of governmental and environmental regulation. All forward-looking
statements contained herein are expressly qualified in their entirety by the
cautionary statements in this paragraph.
Environmental and Government Compliance and Costs
Operations of the Company are subject to numerous Federal, state, and local
laws and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. These laws and regulations
may require the acquisition of a permit before drilling commences; restrict or
prohibit the types, quantities and concentration of substances that can be
released into the environment in connection with drilling and production
activities; prohibit or limit drilling activities on certain lands lying within
wetlands or other protected areas; and impose substantial liabilities for
pollution resulting from past or present drilling and production operations.
Moreover, changes in Federal and state environmental laws and regulations could
occur and may result in more stringent and costly requirements which could have
a significant impact on the operating costs of the Company. The state
authorities regulating oil and gas activities have primary regulatory authority
over environmental matters. In general, under various applicable environmental
programs, the Company may be subject to enforcement action in the form of
injunctions, cease and desist orders and administrative, civil and criminal
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penalties for violations of environmental laws. The Company may also be subject
to liability from third parties for civil claims by affected neighbors arising
out of a pollution event. Laws and regulations protecting the environment may,
in certain circumstances, impose strict liability rendering a person liable for
environmental damage without regard to negligence or fault on the part of such
person. Such laws and regulations may expose the Company to liability for the
conduct of or conditions caused by others, or for acts of the Company which were
in compliance with all applicable laws at the time such acts were performed.
Management believes that the Company is in substantial compliance with current
applicable environmental laws and regulations and that continued compliance with
existing requirements will not have a material adverse impact on the Company.
Insofar as such laws and regulations are expanded, amended or reinterpreted, the
Company is unable to predict the future cost or impact of compliance.
The primary environmental, statutory, regulatory and safety regulations
that affect the Company's operations include:
Oil Pollution Act and Clean Water Act. The Oil Pollution Act of 1990
("OPA") amends certain provisions of the Federal Water Pollution Control Act of
1972, commonly referred to as the Clean Water Act ("CWA"), and other statutes as
they pertain to the prevention of and response to oil spills into navigable
waters. Under OPA, a person owning a facility or equipment from which there is a
discharge or threat of a discharge of oil into or upon navigable waters and
adjoining shorelines is liable as a "responsible party" for removal costs and
damages. Federal law imposes strict, joint and several liabilities on facility
owners for containment and clean-up costs and certain other damages, including
natural resource damages, arising from a spill. Responsible parties under OPA
include owners or operators of on-shore or offshore drilling facilities. OPA
requires responsible parties to maintain proof of financial responsibility to
cover some portion of the cost of a potential spill and to prepare an oil spill
contingency plan. Failure to comply with these requirements or inadequate
cooperation in a spill event may subject a responsible party to civil or
criminal enforcement action. The CWA and similar state laws regulate the
discharge of pollutants, including dredged or fill materials, to waters of the
United States, including wetlands. A permit is required for such discharges, and
permit requirements may result either in operating limitations or treatment
requirements.
Clean Air Act. The operations of the Company may be subject to the Clean
Air Act ("CAA"), as amended, and comparable state statutes. Amendments to the
CAA contain provisions that may result in the imposition of certain requirements
for air pollution control equipment, obtaining operating permits and approvals,
and other emission-related requirements which may require capital expenditures
by the Company.
Superfund The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), commonly referred to as the "Superfund" law, imposes
strict, joint and several liability on certain classes of persons with respect
to the release or threatened release of a hazardous substance to the
environment. These persons include: (i) the owner and operator of a facility
from which hazardous substances are released; (ii) owners and operators of a
facility at the time any hazardous substances were disposed; (iii) generators of
hazardous substances that were released at such facility; and (iv) parties who
arranged for the transportation of hazardous substances to such facility. The
Company may be responsible under CERCLA for all or part of the costs to clean up
sites at which hazardous substances have been released. Some states have similar
provisions. In certain circumstances, neighbors and other third parties may file
claims based on common law tort liability theories for personal injury and
property damage allegedly caused by the release of hazardous substances at a
CERCLA site.
Resource Conservation and Recovery Act. The Company's operations may
generate and result in the transportation, treatment and disposal of both
hazardous and nonhazardous solid wastes that are subject to the requirements of
the Federal Resource Conservation and Recovery Act ("RCRA") and comparable state
and local requirements. Although many of the Company's wastes are presently
exempt from requirements applicable to hazardous wastes, legislation has been
proposed in Congress from time to time that would reclassify certain oil and gas
wastes as "hazardous wastes" under RCRA, which reclassification would make such
solid wastes subject to much more stringent handling, transportation, storage,
disposal and cleanup requirements. State initiatives to increase regulation of
oil and gas wastes could have a similar impact.
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NORM. Oil and gas exploration and production activities have been
identified as generators of naturally-occurring radioactive materials ("NORM").
Some states currently regulate the generation, handling and disposal of NORM due
to oil and gas exploration and production activities. The Company does not
believe that its compliance with such regulations will have a material effect on
its operations or financial condition, but there can be no assurance in this
regard.
Safety Regulations
OSHA. The Occupational Safety and Health Act of 1970, as amended, ("OSHA")
establishes employer responsibilities, including maintenance of a workplace free
of recognized hazards likely to cause death or serious injury, compliance with
standards promulgated by the Occupational Safety and Health
Administration, and various record keeping, disclosure and procedural
requirements. Various standards, including standards for notices of hazards,
safety in excavation and demolition work, and the handling of asbestos, may
apply to the Company's operations.
Oil and Gas Regulation
The Federal government and various state and local governments have
adopted, and the Company's operations are continuously affected by, numerous and
complex laws and regulations related to exploration and drilling for and
production, transportation and marketing of oil and natural gas. State and local
laws and regulations usually cover such matters as permitting and spacing of
wells, unitization and pooling of oil and gas properties, maximum and allowable
production rates, environmental protection, pollution control, taxation, bonding
and insurance, surface restoration, plugging and abandonment of wells, flaring
of gas, underground injection of saltwater and oilfield wastes, gathering and
transportation of oil and gas and other related matters. State laws and
regulations regarding spacing, unitization and pooling often dictate whether and
how much of the Company's leases will be entitled to participate in production
from oil and gas wells in which the Company has invested. Local governments are
becoming increasingly active in regulating oil and gas activities, especially
activities such as the location, drilling and operation of oil and gas wells and
the construction and operation of pipelines in or near populated areas.
In 1992, the Federal Energy Regulatory Commission ("FERC") issued Order No.
636, which generally required interstate pipelines to "unbundle" or separate
their previously combined services for purchasing, transporting, selling,
gathering and storing natural gas. Currently, producers sell gas at uncontrolled
market prices. The Federal government and various state governments have adopted
laws and regulations regarding the methods of calculating lease royalties, the
time by which proceeds of production attributable to the interests of others
must be paid by producers and the rights of producers to suspend payments for
the proceeds of production attributable to others. Federal, state and local
governments and their agencies are constantly revising the laws and regulations
affecting the oil and gas industry. Such continuing revisions in Federal, state
and local regulation could affect the operations of the Company.
The Company's operations are subject to all of the risks normally incident
to the production of oil and gas, including blowouts, mechanical failure, casing
collapse, oil spills and fires, each of which could result in severe damage to
or destruction of oil and gas wells, production facilities or other property, or
injury to persons. The energy business also is subject to environmental hazards,
such as oil spills, gas leaks, and ruptures and discharge of toxic substances or
gases that could expose the Company to substantial liability due to pollution
and other environmental damage. The Company maintains insurance coverage
considered to be customary in the industry, either directly or through third
party operators who are contractually obligated to provide insurance coverage.
The Company may not, however, be fully insured against certain of these risks,
either because such insurance is not available or because of high premium costs.
The occurrence of a significant event that is not fully insured against could
have a material adverse effect on the Company's financial position.
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Oil and Gas Operations (see also Management Discussion and Analysis)
The Company realized from the sale of its production for the fiscal year
ended March 31, 2000, $21.87 per barrel of oil and $2.15 per mcf of gas.
Year Ended
March 31,
2000 1999
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Gas Production (Mcf) 111,869 200,985
Oil Production (bbls) 73,131 4,163
Average Price of Gas (per mcf) $2.15 $1.86
Average Price of Oil (per bbls) $21.87 $11.93
Employees, Consultants and Contractors
The Company currently has four full-time employees mainly involved in the
management, administration and investor relations aspects of the Company's
business. Most of the engineering and geology for the Company's projects is
performed by consulting firms, and the actual drilling, rework and other field
operations performed on a project basis by contractors who bid for the work, the
most cost-effective manner of operation, as the range of expertise and services
required varies by project and time duration.
Intermega Energy Ltd. employs 12-15 people in the Jakarta office and in the
field there are approximately 60-70 people employed though a labor contract that
work in the company's Indonesian fields.
Cambridge Energy employs G & A International, Inc., a petroleum engineering
firm in Lafayette, Louisiana, to perform all of the Company's engineering
analysis and project design, drilling and rework supervision. In addition, G & A
provide office space and support for the Company's office in Lafayette. Much of
the engineering and geological analyses are reimbursed on a project basis pro
rata by the working interest partners participating in each project. The Company
also employs an oil and gas accounting firm, Investors Petroleum Consultants,
Inc. in Lafayette, Louisiana, to provide accounting and disbursement reports on
all of the lease and other royalty and working interest percentages of each of
the company's projects as well as to prepare oil and gas production revenue
disbursements.
Item 2. Description of Properties
The corporate offices of Cambridge Energy Corporation are in Cocoa,
Florida, and consist of approximately 1200 square feet of office space owned by
an officer and director of the Company. The Company has utilized this space
since its inception. It has paid no lease payments on this space to date. As
revenues increase the Company intends to either purchase or lease larger
facilities for its headquarters at another location.
The Company also maintains engineering offices in Lafayette, Louisiana, as
part of its consulting contract with G & A International, Inc. for engineering
services. The Company is obligated for a fee of $24,000 per month for the
engineering services and office space and support, a portion of which it is
reimbursed as engineering costs for each project are attributed to the working
interest partners.
The Company owns Triton Wellhead & Manufacturing, Inc., ("Triton"), a
manufacturer of wellhead and valve devises serving primarily the oil and gas
industry. Triton includes a 14,000 square foot manufacturing facility in
Broussard, Louisiana, along with machine equipment, raw stock and finished
product inventory, and engineering drawings for its product catalog. The
purchase of this property by the Company added approximately $925,000 in assets
to the Company, and $388,000 in long term debt. The Company currently maintains
this property for its own use in support of its own operations.
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Current Oil and Gas Properties
Houma Field - Calvert & Todd No. 1 Well: A 12,500' gas well that Cambridge
Energy drilled, completed and brought on line in Terrebonne Parish at Houma,
Louisiana. The Company drilled this well at the end of 1997 on an assigned
farmout from UNOCAL. The natural gas is being sold by contract to Eagle Natural
Gas Company, and the oil/condensate is being sold to UNOCAL in accordance with
their assigned farmout agreement with Cambridge Energy. The Company owns a
34.375% working interest in the well. Cambridge Energy is the operator of the
well.
During the last month of the fiscal year, Unocal undertook rework
operations on the Calvert & Todd #13 well, in which the Company has a 4.70217%
working interest. The recompletion was successful and the well has produced more
than 250,000 mcf of gas and 12000 barrels of oil condensate since the
recompletion. Unocal is the operator of this well.
Houma Field Continued Development: The Houma Field project initially
consisted of two wells, one development well to be drilled to gas and
oil/condensate that remain in reservoirs that produced in wells down dip from
the Calvert & Todd No. 1 development well location or reservoirs that were
productive by log analysis but never produced, and one well to be drilled to
test the up-thrown untested fault block on the acreage. The initial well, the
Calvert & Todd No.1, described above, was a 12,500' normal pressured Krumbhaar
Sand test drilled on the crest of a downthrown fault closure to produce bypassed
pay in the First Krumbhaar Sand as well as recoverable reserves from as many as
five partially depleted Krumbhaar gas sand reservoirs. There were also several
Tex. W. and Big (3) Sands that were logged as pay in the new well. The company
expects to continue the development and production of this well.
The Formation Test of 4,000 PSI taken in the Krumbhaar 4 Sand during the
drilling of Calvert & Todd No.1 indicates that a partial water drive has allowed
this reservoir to re-pressure since the last production and a P/Z curve allows
the determination of the remaining reserves in this sand. There was no pressure
data taken in the Krumbhaar 3 Sand that logged 10' - 14' of net gas pay, nor in
the Krumbhaar 1A Sand that logged 8' of net gas pay. The new well logged 28 feet
of net gas pay with no known water level in the Big (3) No. 3 Sand at 11,536'.
The 8950' Sand was shaled out. The Big (3) No.1 Sand that produced 15.3 billion
cubic feet (BCF) in the Calvert & Todd No. 14-1 logged as productive and
depleted with a possible low BHP. The Prentice and 1st Gaidry Sands as well as
the 9600 Foot Sand in the Tex W. interval also logged as productive. There also
appears to be production in other intervals that may add to reserves to the
above mentioned reservoirs for a second well to be drilled through the Big (3)
section at the optimum structural position on this feature. Completions in
similar pays in the Big (3) and Tex W. intervals have had excellent recoveries
in other wells in the Houma Field. The modern suite of logs that were run in the
Calvert & Todd No. 1 well for porosity and shaley sand resolution (FDC-CNL, GR,
CAL) defined additional pay zones that have not been produced. A well drilled at
the apex of this structure will penetrate several potential productive
reservoirs that appear anomalous on electric logs of existing wells in the areas
that were drilled in the 1950s and 1960s. Cambridge Energy plans at least one
additional wells for its farmout properties at Houma to access proven reserves
identified and logged during the drilling of the Calvert & Todd No. 1 well.
Big Island Field: This is a 140 acre property Cambridge Energy expects to
continue development of this property in Rapides Parish, Louisiana, which
includes an existing oil well known as the Floyd A-1 well. Geologically, the
Floyd A-1 well is situated at the net oil's edge of a Hudson Sand channel and
produces water along with the oil from this Wilcox Sand. As part of the
continued development of the Big Island Field, this well will be enhanced by
equipping it with a larger pump. The Wilcox formation throughout this region
produces water along with the oil shortly after being placed on production. The
amount of water increases in the later life of the wells. The Floyd A-1 well
should produce for another 10-20 years. The Company purchased a salt water
disposal well as part of the Big Island acreage that services the Floyd A-1 well
and will service the two additional wells that the Company is preparing to drill
on these properties.
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Big Island Field Continued Development. The Big Island and North Big Island
Oil Fields of North Central Louisiana are located in Rapides and LaSalle
Parishes, Louisiana. Production from these two fields is generated from the
Wilcox formation of Eocene Age, and to a lesser degree from the lower Tuscaloosa
formation. The Wilcox formation will be the primary target of the development
drilling program currently planned by the Company. Production in this area was
established in 1950 by Union Production Company, (now known as Pennzoil) who
along with Crow Drilling & Production Company, were instrumental in developing
these two large fields. There are 11 productive sands in each of these two
fields that have produced nearly 30 million barrels of oil to date. The post
production history, as well as the exploration techniques employed in drilling
these fields by Union Production Company, and the recent infield drilling by
other independent companies, suggest only a fraction of the oil has been
discovered in or recovered from these two fields. The concept of horizontally
infield drilling can be employed in this program as well as the targeting of
untapped reservoirs in this region of established production. These efforts will
concentrate on horizontally drilling an up dip direction to wells that have
watered out and drilling a channel-sand type reservoir between wells that have
ceased to produce because of premature water encroachment.
The first well will be a 5,800' straight hole test drilled to the Hudson
Sand reservoir, where the electric log and side wall cores will determine the
net feet of oil pay in the drainage area of one or two horizontal wells. This
evaluation well is also drilled to complete in the 5,200 Foot Sand that also
produced in offset, down dip of this field. An additional well may be necessary
during the producing life of the first straight hole to economically drain the
entire remaining reserves in this sand. The initial straight hole well will
evaluate the net oil thickness and other data for the first horizontal well
project, and the requirement for a second horizontal well later in the
productive life of the first horizontal well drilled.
During the fiscal year 1999, the Company began rework operations on the
West Lake Arthur Field. This is a 352 acre oil producing property located in
Jefferson Davis Parish, Louisiana. It includes an existing well bore that the
Company intends to recomplete in new pay zones shown on the logs, as well as one
new "sidetrack" well the Company intends to drill. The first project will be the
Edgewater (TGT) Morgan Plantation No.1 well as a re-entry and re-completion
project of a previously produced well. The well was originally drilled by
Tennessee Gas Transmission in 1957. It is still completed in the original
perforated interval and no additional work was done to alter this completion
since that date. The Company has purchased this well bore and equipment from the
land owners and owns the rights to the reservoirs to 13,500' by virtue of the
lease agreement. A re-completion in this well bore will be only one of the
revenue streams possible from the reservoirs under the lease block owned by the
Company in this field. These evaluations will be made after this first well has
been put on production. The Edgewater well bore has four zones that are
productive by either down dip production history, core analysis and/or log
analysis. The re-entry and workover will provide a five year moratorium of
severance taxes that amounts to 12.5% of gross sales.
This well was not producing as of March 31, 2000, and lease payments for
the year are due and payable.
Linda A, C/G Field: This field is located on Mainland, Irian Jaya Province,
Indonesia. The field was originally discovered and operated by PERTAMINA Unit
EP-V in 1971. In 1977, the Linda-A structure had been found and drilled and oil
was located at the LDA-2 well. Further exploration was carried out in 1979 and a
total of eleven wells have been drilled in the Linda A reef. In 1982, more
extensive exploration activity resulted in the discovery of Textularis II in the
Linda-C structure. Well LDC-2 was drilled in 1985 and oil was found in the Kais
formation. A total of five wells have been drilled. The Linda-G reef was also
discovered in 1985 and a total of 4 wells have been drilled.
9
<PAGE>
Sele Field: This field is located on Mainland, Irian Jaya Province,
Indonesia. The field was originally discovered in 1954 with the drilling of well
S-41 to a depth of 769 meters. Further development resulted in two other
successful wells, S-44 and S-48. Seismic surveys were conducted in 1973 and 1975
and SS-1 was drilled. Located to the southern part of the Sele reef, SS-1
produced oil. In 1978 a drilling program was initiated and three successful
wells were added including: SP-1, SP-3 and SP-4. Sele Field is pinnacle reef
development built-up on the Kais platform limestone. A total of 12 wells are
currently producing. The Sele reservoir of Cambridge's Sabaku Field is located
on Salawati Island, Irian Jaya Province, Indonesia. The field was originally
discovered by Phillips Petroleum Indonesia in 1974. Well TBN-1 was drilled and
tested at a rate approaching 12,186 BOPD. After an eight-day test in December
1975 the water cut increased from dry oil to 80% which could have been caused by
the high rate of production. The field has not been developed further.
Salawati Fields A, C, E, and F: These fields are located on Salawati
Island, Irian Jaya Province, Indonesia. The field was originally discovered by
Phillips Petroleum Indonesia in 1975. The Salawati A structure was the first
commercial oil field on the island. Oil production started in November 1977 from
wells A-1, A-2, A-3 and A-4. Currently three wells A-2, A-7 and A-8 are still
producing. A major amount of the field's oil has been produced by well A-2,
which still dominates present production. This field has no initial free gas
cap. The area extent of the field is approximately 182 feet. Oil production
commenced in Salawati C Field from well C-2 in November 1977. The well is still
producing with gas lift system at a rate of approximately 225 bopd. This field
has no initial free gas cap. The field area extent is approximately 180 acres
with a range net oil column thickness of 225 feet. Salawati E Field was
discovered when drilling E-1 and has been producing since January 1972. Two of
the five wells are still producing with Reda pumps at a rate of approximately 30
to 40 BOPD and fluid production of about 800-1200 Barrels of Fluid Per Day
(BFPD) per well. The field area extent is approximately 171 acres. Salawati F
Field commenced production of well F-1 in December 1977. The well was the only
well drilled and is still producing with gas lift. The field area extent is
approximately 33 acres with a range net oil pay thickness of 177 feet.
Item 3. Legal Proceedings
The Company is not a party to any pending material legal proceeding. To the
knowledge of management, no federal, state or local governmental agency is
presently contemplating any proceeding against the Company. To the knowledge of
management, no director, executive officer or affiliate of the Company, any
owner of record or beneficially of more than 5% of the Company's common stock is
a party adverse to the Company or has a material interest adverse to the Company
in any proceeding.
Item 4. Submission of Matters to a Vote of Security Holders
None
10
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
(a) Market Information
The Company's common stock is listed on the OTC Bulletin Board of the NASD,
and began trading on November 24, 1997. The high and low bid prices at quarter
ending through March 31, 2000, are as follows:
Quarter Ending:
Bid
High Low
----- -----
March 31, 1998 1 1/8 1 1/8
June 30, 1998 1 7/8 1
September 30, 1998 1 1/2 3/4
December 31, 1998 1 1/16 .81
March 31, 1999 7/8 5/16
June 30, 1999 1/2 7/16
September 30, 1999 1/2 7/16
December 31, 1999 9/16 3/8
March 31, 2000 5/16 5/16
These bid prices were obtained from Prophet Information Services, Inc. and
do not necessarily reflect actual transactions, retail mark-ups, mark-downs or
commissions. The transactions include inter-dealer transactions.
(b) Holders
As of March 31, 2000, the number of holders of the Company's common shares
was 122.
(c) Dividends
There are presently no material restrictions that limit the ability of the
Company to pay dividends on common stock. The Company has not paid any dividends
with respect to its common stock, and does not intend to pay dividends in the
foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition
And Results of Operation
The Company is engaged in the exploration and development oil and natural
gas reserves through the acquisition and development of properties primarily
with proven reserves. The Company's ability to grow shareholder value through
growth of assets, earnings and cash flows is dependent on its ability to acquire
and develop commercial quantities of oil and natural gas that can be produced
and marketed at a profit. Product prices, primarily crude oil, dropped
significantly during the Company's fiscal year. This drop has adversely affected
the revenues and cash flow of the company as well as most companies in the
industry. An additional effect of this significant drop in prices has been the
reduction of exploration and development budgets of major oil companies and
independents, causing reduction or elimination of new ventures, work force
reductions and reorganizations. Such changes may result in a decrease in the
ability of the Company to solicit industry partners to participate in projects
undertaken by Cambridge Energy Corporation on a promoted basis. They have
resulted in some delays by partners in making partner contributions, thus
putting additional demands on the Company's cash flow.
Although product prices have started to recover, company budgets are
generally created on a fiscal year basis, so management believes that a general
industry wide recovery will take well into the first part of calendar year 2000
to achieve any meaningful levels.
11
<PAGE>
Company management has used this period to put in place the initial
elements of its growth strategies so that it can maximize the positive results
from the recovery of the industry including:
1. To actively pursue acquisition of significant producing properties
with development potential which can be exploited with lower cost and
with lower risk than unproven prospects;
2. The selection, engineering review and rework of workover prospects on
existing properties to maximize production from existing assets;
3. To continue to solicit institutional and industry partners for
promoted transactions as well as increasing equity and long financing
to support this expanded level of projects and operations;
4. To significantly add to the company's technical capabilities through
the selective addition of technical personnel and the development and
acquisition of advanced reservoir and engineering software.
Management believes that this plan will position the Company to take
advantage of opportunities that it expects to occur as the industry recovers
from the recent period of low prices. While management believes that it has
worked toward the successful completion of this plan, there can be no assurance
that the intended results will be achieved or that funds will be available to
accomplish the plan.
Results of Operations
Twelve months ended March 31,2000 compared to twelve months ended March 31,1999
The Company recorded a net loss of $533,306 for the year ended March 31,
2000 down from $1,270,322 for the year ended March 31, 1999. Revenues increased
to $1,693,003 over $562,026 the previous year due to the increase in U.S.
production, service income and international production. General and
Administrative expenses decreased to $912,510 over $1,494,120 for the previous
year.
The Company realized some added gains in oil production during the year due
to an added production period resulting in the following:
Year Ended
March 31,
2000 1999
---- ----
Gas Production (Mcf) 111,869 200,985
Oil Production (bbls) 73,131 4,163
Average Price of Gas (per mcf) $2.15 $1.86
Average Price of Oil (per bbls) $21.87 $11.93
Due to industry conditions and resulting delays in partner contributions,
the Company's drilling program proceeded at a slower pace than expected through
the engineering phase and the Company expects to have drilling operations
underway during the third quarter of the current fiscal year. The Company
expects to increase its acquisition activity during the current fiscal year.
12
<PAGE>
Liquidity
The Company expects to finance its future acquisition, development and
exploration activities through cash flow from operating activities, various
means of corporate and project finance and through the issuance of additional
securities. In addition, the Company expects to continue to subsidize drilling
activities through the sale of participation to industry partners on a promoted
basis, whereby the Company's working interests in reserves and production are
greater than its proportionate share capital costs.
During Fiscal Year 2000 the Company raised additional capital in the amount
of $528,000 through private sale of preferred shares. Based on acquisitions
currently in negotiation, the Company expects to undertake the placement of a
significant financial institution credit facility or other structured debt
facility during the coming fiscal year. This would provide additional funding
for expansion to be consistent with the Company growth strategy. Although
management believes that this will be accomplished during the current fiscal
year, there can be no assurance that such a facility will be forthcoming or that
sufficient funds will be available to meet the requirements of the Company's
growth strategy.
Material Commitments for Capital Expenditures
The Company has made no additional material commitments during the fiscal
year ended March 31, 2000. Each drilling and/or rework project is stand-alone
and although the Company is in constant discussion with prospective working
interest partners on each potential project, commitments for the actual drilling
or rework and site preparation operations are generally not made for each
project until the Company has received the funds from its working interest
partners and the funds for its portion of the working interest are in place. The
leases the Company holds are renewable annually unless "held by production". If
the leased property has a producing well that is providing royalty payments to
the leaseholders, then annual lease payments and renewals are not required.
Cambridge Energy strives to accomplish the drilling or rework planned for each
property within the year first leased. When that does not occur, management
reviews the potential of each property as its leases which have come up for
renewal and makes a decision whether or not to renew each lease in light of the
Company's business planning at that time. During fiscal year 2000, the Company
had $73,185 in lease depreciation expenditures.
The Company has committed to provide $500,000 in cash, plus $250,000 for
the repurchase of certain shares associated with the transaction, to finalize
the payment for the purchase of Indonesian production now under contract, which
was due on or before January 4, 1999. The transaction was closed with the
exchange of stock between the Company and the owners of the company that owned
the production. Although the certain monies have been paid on behalf of the
transaction, the Company is obligated to pay additional amounts to the sellers
as a part of the transaction. The Company has under negotiation several
facilities to provide these funds however, it does not have a commitment in
place and there is no assurance when a commitment will be forthcoming.
13
<PAGE>
Item 7. Selected Financial Data.
TURNER, STONE & COMPANY
12700 Park Central Drive
Suite 1610
Dallas, Texas 75251
Independent Auditor's Report
Board of Directors and Stockholders
Cambridge Energy Corporation
and subsidiaries
Cocoa, Florida
We have audited the accompanying consolidated balance sheets of Cambridge Energy
Corporation and subsidiaries as of March 31, 2000 and 1999, and the related
consolidated statements of operations and comprehensive income, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Cambridge Energy Corporation and subsidiaries at March 31, 2000 and 1999, and
the consolidated results of their operations and cash flows for the years then
ended in conformity with generally accepted accounting principles.
The Supplementary Information Regarding Oil and Gas Producing Activities on
pages 19 through 22 is not a required part of the basic consolidated financial
statements but is supplementary information required by the Financial Accounting
Standards Board. We have applied certain limited procedures, which consisted
principally of inquiries of management regarding the methods of measurement and
presentation of the supplementary information. However, we did not audit the
information and express no opinion on it.
/s/ Mr. Ed Turner
----------------------------
Certified Public Accountants
August 28, 2000
14
<PAGE>
<TABLE>
<CAPTION>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
Assets
------
<S> <C> <C>
2000 1999
---- ----
Current assets:
Cash $ 123,289 $ 33,211
Accounts receivable, trade 930,677 357,622
Inventory, materials and supplies 216,617 216,617
Prepaid expenses 980,580 395,808
Marketable equity securities,
at fair value - 18,750
----------- -----------
Total current assets 2,251,163 1,022,008
----------- -----------
Property and equipment, net of $117,598 and
$43,488 of accumulated deprecation 1,059,172 1,132,885
----------- -----------
Oil and gas properties, accounted for
using the successful efforts method:
Oil and gas interests, proved properties, net
of $37,483 and $14,868 of accumulated
depletion 4,452,109 4,441,416
Support equipment, at cost, net of
$19,710 and $13,513 of accumulated
depreciation 13,545 18,453
----------- -----------
4,465,654 4,459,869
----------- -----------
$ 7,775,989 $ 6,614,762
=========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
2000 1999
Current liabilities: ---- ----
Accounts payable, trade $ 2,337,730 $ 1,934,868
Accrued expenses 346,661 214,140
Drilling advances 2,301,209 1,733,204
Royalty interests payable 98,918 136,849
Loans from stockholders 800,531 775,334
Notes payable 737,867 266,405
----------- -----------
Total current liabilities 6,622,916 5,060,800
----------- -----------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $ .0001 par value,
25,000,000 shares authorized, 159,500 and
134,000 shares issued and outstanding
of various series of convertible redeemable,
$470,461 aggregate liquidation value 16 13
Common stock, $ .0001 par value,
50,000,000 shares authorized,
11,790,827 and 11,634,827 shares
issued and outstanding, respectively 1,179 1,164
Paid in capital in excess of par 4,055,473 3,877,960
Accumulated deficit ( 2,867,762) ( 2,255,559)
Accumulated other comprehensive
income (loss) - ( 46,275)
Treasury stock, at cost, 89,582 and
58,352 shares, respectively ( 35,833) ( 23,341)
----------- -----------
1,153,073 1,553,962
----------- -----------
$ 7,775,989 $ 6,614,762
=========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999
<S> <C> <C>
2000 1999
---- ----
Revenues:
Oil and gas sales, net of royalties $ 1,614,780 $ 529,305
Lease operating and other income 78,223 32,721
----------- -----------
1,693,003 562,026
----------- -----------
Operating expenses:
Production costs 1,142,717 102,794
Exploration costs 8,459 140,771
Marketing expenses - 9,305
General and administrative 912,510 1,494,120
Depletion 22,615 11,476
Depreciation 80,307 50,079
----------- -----------
2,166,608 1,808,545
----------- -----------
Operating loss ( 473,605) (1,246,519)
Interest expense ( 59,701) 18,028
----------- -----------
Net loss ( 533,306) (1,264,547)
Other comprehensive income, net of tax:
Unrealized gain (loss) in value of
marketable securities - ( 5,775)
----------- -----------
Comprehensive loss $( 533,306) $(1,270,322)
=========== ===========
Net loss per share:
Basic $( .05) $( .13)
Diluted $( .05) $( .13)
The accompanying notes are an integral part of the financial statements.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999
Accumulated Other
Preferred Stock Common Stock Add'l Paid Accumulated Comprehensive Treasury Stock
Shares Amount Shares Amount In Capital Deficit Loss Amount Total
------- ------ ---------- ------- ---------- --------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,1997 - - 1,200,000 $ 120 $ 114,875 $( 9,529) $ - $ - $ 105,466
Issuance of common stock
to repay stockholder
advances - - 5,184,786 $ 518 $ 25,406 $ 25,924
Issuance of common stock
for cash,net of $47,858
of offering costs - - 1,941,000 $ 194 $ 728,773 $ 728,967
Issuance of common stock
for services - - 15,000 $ 2 $ 17,498 $ 17,500
Unrealized loss in
marketable securities ( 40,500) $( 40,500)
Net loss (976,031) (976,031)
-------- ------- --------- ------- ---------- ---------- ---------- ------------ -----------
Balance at March 31,1998 - $ - 8,340,746 $ 834 $ 886,552 $(985,560) $( 40,500) $ - $(138,674)
Issuance of preferred
stock for cash 134,000 $ 13 334,987 335,000
Issuance of common stock
for cash 406,223 41 314,959 315,000
Issuance of common stock
for services 252,000 25 214,525 214,550
Issuance of common stock
for purchase of
subsidiaries 2,635,768 264 2,126,937 2,127,201
Reacquired shares held
in treasury ( 23,341) ( 23,341)
Unrealized loss in
marketable securities ( 5,775) ( 5,775)
Dividends on preferred
stock ( 5,452) ( 5,452)
Net loss (1,264,547) ( 1,264,547)
-------- ------- --------- ------- ---------- ------------ ---------- ------------ -----------
Balance at March 31,1999 134,000 $ 13 11,634,827 $ 1,164 $3,877,960 $(2,255,559) $( 46,275) $( 23,341) $ 1,553,962
Issuance of preferred
stock for cash 35,500 $ 4 116,559 116,563
Repurchase of preferred
stock for cash (10,000) ( 1) (24,999) ( 25,000)
Issuance of common stock
for cash 156,000 15 85,953 85,968
Reacquired shares held
in treasury ( 12,492) ( 12,492)
Reclassification adjustment
for unrealized appreciation ( 46,275) 46,275 -
Dividends on preferred
stock ( 32,622) (32,622)
Net loss (533,306) (533,306)
-------- ------- --------- ------- ---------- ------------ ---------- ------------ -----------
Balance at March 31,2000 159,500 $ 16 11,790,827 $ 1,179 $4,055,473 $(2,867,762) $ - $( 35,833) $ 1,153,073
The accompanying notes are an integral part of the financial statements.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999
<S> <C> <C>
2000 1999
---- ----
Cash flows from operating activities:
Oil and gas sales received $ 1,118,519 $ 900,356
Interest received 1,429 2,930
Cash paid to employees ( 57,481) ( 186,640)
Cash paid to suppliers ( 1,403,713) ( 718,702)
Interest paid ( 59,701) ( 18,028)
Income taxes paid - -
-------------- --------------
Net cash used in operating activities ( 400,947) ( 20,084)
-------------- --------------
Cash flows from investing activities:
Cash paid in IEP acquisition,
less cash acquired - ( 35,585)
Purchase of property and equipment ( 34,994) ( 37,204)
Purchase of oil interests - ( 44,521)
-------------- --------------
Net cash used in investing activities ( 34,994) ( 117,310)
-------------- --------------
Cash flows from financing activities:
Advances from stockholders 43,948 85,400
Repayment of advances from stockholders - ( 80,000)
Issuance of common and preferred stock 116,563 650,002
Proceeds from notes payable 403,000 30,000
Repayments of notes payable - ( 503,595)
Repurchase of preferred stock ( 25,000) -
Treasury stock purchased ( 12,492) ( 23,341)
-------------- --------------
Net cash provided by financing activities 526,019 158,466
-------------- --------------
Net increase in cash 90,078 21,072
Cash at beginning of period 33,211 12,139
-------------- --------------
Cash at end of period $ 123,289 $ 33,211
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999
Reconciliation of Net Loss to Net Cash
Used in Operating Activities
<S> <C> <C>
2000 1999
---- ----
Net loss $( 533,306) $( 1,264,547)
-------------- --------------
Adjustment to reconcile net loss to net
cash used in operating activities
(changes in assets and liabilities,
net of effect from purchase of subsidiaries):
Depreciation and depletion 102,922 61,555
Common stock issued for services 85,967 214,550
Note payable issued for services and accrued
interest 68,462 -
(Increase) decrease in accounts receivable, trade ( 573,055) 341,260
(Increase) decrease in inventory - ( 18,935)
(Increase) decrease in prepaid expenses ( 584,772) ( 251,168)
Increase (decrease) in accounts payable, trade 402,862 ( 944,492)
Increase (decrease) in accrued expenses 99,899 214,140
Increase (decrease) in drilling advances 568,005 1,490,704
Increase (decrease) in royalty interests payable ( 37,931) 136,849
-------------- --------------
Total adjustments 132,359 1,244,463
-------------- --------------
Net cash used in operating activities $( 400,947) $( 20,084)
============== ==============
Supplemental Schedule of Non-Cash Investing
and Financing Activities
Issuance of common stock in exchange for net
assets of corporations accounted for as purchases $ - $ 2,127,201
The accompanying notes are an integral part of the financial statements.
</TABLE>
20
<PAGE>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and business
Cambridge Energy Corporation (the Company) was incorporated in the state of
Nevada on April 9, 1996. The Company is an independent oil and gas company
engaged in the exploration and development of domestic and foreign oil and gas
properties. It presently owns oil well properties located in Louisiana and oil
and gas properties in Indonesia. The Company also manufactures certain wellhead
control devices (Note 9). Oil produced is sold to various crude oil purchaser in
the Louisiana market and to the Indonesian government in the Indonesian market.
Business combinations
During the year ended March 31, 1999, the Company acquired its two
subsidiary corporations in transactions accounted for as purchases. In both
transactions, the purchase price was allocated to the fair values of the assets
acquired with no portion of the purchase price allocated to goodwill.
The Company acquired 100% of the outstanding common stock of Triton
Wellhead & Manufacturing, Inc. (TWM), a U.S. corporation, on September 30, 1998
in exchange for 762,354 common stock shares valued at $.64 per share, $5,000
cash, the issuance of a $95,000 note payable and the assumption of $366,944 of
liabilities (Note 8). TWM manufactures values and other wellhead control devices
(Note 9). The accompanying consolidated statement of operations and
comprehensive income include TWM's results of operations subsequent to September
30, 1998.
The Company acquired 100% of the outstanding common stock of Intermega
Energy Pte, Ltd. (IEP), a Singapore corporation, on January 4, 1999 in exchange
for 1,873,414 common stock shares valued at $.875 per share and $500,000 cash,
which has not yet been paid (Note 5). IEP owns oil properties in Indonesia. The
accompanying consolidated financial statement of operations and comprehensive
income include IEP's results of operations subsequent to January 4, 1999.
The following pro forma information for the year ended March 31, 1999 is
presented as if the above acquisitions had occurred as of April 1, 1997, the
beginning of the earliest period presented in the accompanying consolidated
financial statements. For the year ended March 31, 2000, there is no differences
between actual operating results and pro forma amounts shown below.
Years Ended
March 31,
------------------
2000 1999
---- ----
Revenues $ 1,693,003 $ 3,138,753
Net loss $( 533,306) $( 1,444,277)
Net loss per share $( .05) $( .015)
Principles of consolidation
The accompanying consolidated financial statements include the general
accounts of the Company and its wholly owned subsidiaries, Triton Wellhead and
Manufacturing, Inc. (TWM) and Intermega Energy PTE, Ltd. (IEP). All intercompany
transactions and accounts have been eliminated in the consolidation and each
subsidiary corporation has a fiscal year end of March 31.
21
<PAGE>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Method of accounting for oil and gas properties
The Company uses the successful efforts method of accounting for oil and
gas producing activities, as set forth in the Statement of Financial Accounting
Standards No. 19, as amended. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip development wells are capitalized. Costs to drill exploratory
wells that do not find proved reserves, geological and geophysical costs and
costs of carrying and retaining unproved properties are expensed as incurred.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing a valuation allowance. Other unproved properties
are amortized based on the Company's experience of successful drilling and
average holding period. Capitalized costs of producing oil and gas properties,
after considering estimated dismantlement and abandonment costs and estimated
salvage values, are depreciated and depleted by the unit-of-production method.
Support equipment and other property and equipment are carried at cost and
depreciated over their estimated useful lives.
On sale or retirement of a complete unit of a proved property, the cost and
related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On
retirement or sale of a partial unit of proved property, the cost is charged to
accumulated depreciation, depletion, and amortization with a resulting gain or
loss recognized in income.
On sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property has been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
Inventories
Inventories are carried at the lower of cost (specific identification) or
net realizable value and include materials and supplies related to the Company's
oil and gas support equipment.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment are being provided by accelerated methods
for financial and tax reporting purposes over estimated useful lives of five to
seven years.
Marketable equity securities
The Company owns 75,000 common stock shares of a corporation publicly
traded on NASDAQ Small Cap market (Note 5). Pursuant to Financial Accounting
Standards No. 115 these securities are classified as available-for-sale and are
recorded in the accompanying financial statements at their fair value based on
the quoted market price of the stock. At March 31, 2000 and 1999, unrealized
gains and losses on these securities totaled $ -0- and $(46,275), respectively
and have been charged to comprehensive earnings.
Management estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
22
<PAGE>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Flow
For purposes of the statement of cash flows, cash includes demand deposits
and time deposits with maturities of less than three months. None of the
Company's cash is restricted.
Net loss per share
Basic loss per share amounts are computed by dividing the net loss plus
preferred stock dividends by the weighted average number of common stock shares
outstanding. Diluted loss per share amounts reflect the maximum dilution that
would have resulted from the conversion of the preferred stock shares (Note 2).
At March 31, 2000 and 1999, diluted loss per share amounts are computed by
dividing the net loss by the weighted average number of common stock shares
outstanding plus the assumed conversion of preferred stock shares into an
equivalent of 140,203 and 50,283, respectively, common stock shares. No effect
has been given to the assumed exercise of stock options or warrants because the
effect would be antidilutive.
For the years ended March 31, 2000 and 1999, basic loss per share amounts
are based on 11,722,426 and 9,575,117 weighted average shares of common stock
outstanding, respectively. Diluted loss per share amounts are based on
11,862,629 and 9,625,400 weighted average shares of common stock outstanding,
respectively.
2. PREFERRED STOCK
For the years ended March 31, 2000 and 1999, the Company issued 20,000 and
124,000, respectively and 0 and 10,000 shares, respectively, of its Series A and
Series B, respectively, preferred stock for $2.50 cash per share. Other than in
liquidation and redemption at the holders' option, the preferences attached to
these series are identical. The shares have a par value of $.0001 and pay an
8.0% per annum non-cumulative dividend payable quarterly. The shares are
convertible into common stock at the holders options anytime within 18 months
from the date of issue at a conversion price of $1.50 per common share. The
shares are redeemable by the Company within 12 months from the date of issue at
a per share redemption price of $2.50. The holders of the Series A shares can
require redemption at the same price anytime during a period beginning 12 months
from the date of issue and ending 14 months from such date. The holders of the
Series B shares can also require redemption at the same price anytime during a
period beginning six months from the date of issue and ending 12 months from
such date.
In August 1999, the Company issued 15,000 shares of its class B convertible
preferred stock for $1.00 cash per share. The shares have a par value of $.0001
and pay an 8.0% per annum non-cumulative dividend. The shares are convertible
into common stock at the holder's option anytime prior to April 1, 2000 at a
conversion price of $2.50 per common share. The shares are redeemable by the
Company after April 1, 2000 at a per share redemption price of $2.50 plus
accrued dividends.
In November 1999, the Company issued 500 shares of its Class B Convertible
Redeemable preferred shares. The shares have a value of $.0001 and pay 10% per
annum payable semiannually. Each share is convertible into 100 common stock
shares at the holder's option anytime after the completion of the offering. The
shares are redeemable by the Company 12 months after the date of issue but only
after the common stock market price is greater than $2.00 per share for 20
consecutive days at a conversion price of 105% of the issue price.
In liquidation, the holders of the various series are entitled to receive
an amount equal to their purchase price of the shares plus declared but unpaid
dividends. Series A holders have liquidation preference over the Series B
holders, Series B holders have liquidation preference over Class A holders,
Class A holders have liquidation preference over Class B holders and the holders
of all series have liquidation preference over the common stockholders.
23
<PAGE>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At March 31, 2000 and 1999, accrued dividends payable related to these
shares totaled $38,074 and $5,452, respectively. 12
3. COMMITMENTS AND CONTINGENCIES
Leases
The Company's home office facilities are currently being provided without
charge by a corporation owned by the Company's president. The fair rental value
of this space provided is not material. The Company's Singapore offices are
currently leased on a month to month basis from a corporation owned by another
of the Company's stockholders. For the years ended March 31, 2000 and 1999, rent
expense under these rental arrangements totaled $1,620 and $21,824,
respectively.
At March 31, 2000, the Company was not obligated under any noncancelable
operating or capital lease agreements.
Litigation
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Management does not believe that the outcome of
any of those matters will have a material adverse effect on the Company's
consolidated financial position, operating results or cash flows.
Employment and related agreements
In January 1998, the Company entered into an employment agreement with an
executive officer which provides for the payment of $150,000 in annual salaries
and additional compensation based on annualized gross revenues. The agreement
expires in December 2002 and, in certain instances, can be extended through
December 2007.
In October 1998, the Company entered into a consulting and share repurchase
agreement with a former officer. The agreement provides for an initial $50,000
payment and monthly payments of $5,000 until such time as a total of $400,000
has been paid under the agreement. The former officer will return to the Company
250,000 common stock shares for each $100,000 of fees paid to him under the
agreement. At March 31, 2000 and 1999, 89,582 and 58,352 shares, respectively,
had been returned to the Company and are being held in the treasury.
4. INCOME TAXES
The Company uses the accrual method of accounting for tax reporting
purposes. At March 31, 2000, the Company had a net operating loss carryforwards
for financial and tax reporting purposes of approximately $2,840,000 which
expire through the year 2014.
Deferred income taxes are recognized for the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the tax bases of those assets and liabilities that will
result in taxable or deductible amounts in future years.
24
<PAGE>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 2000 and 1999, pursuant to Statement of
Financial Accounting Standards No. 109, the Company has recognized deferred tax
assets and liabilities which have been offset by valuation allowances in the
same amount. Significant components of the Company's deferred tax assets and
liabilities are summarized below.
2000 1999
Deferred tax assets: ---- ----
Net operating loss carryforward $ 958,263 $ 785,970
------------ ------------
Deferred tax liability:
Intangible drilling costs 47,646 32,268
Depletion ( 12,585) ( 4,896)
------------ ------------
35,061 27,372
------------ ------------
993,324 758,598
Valuation allowance ( 993,324) ( 758,598)
------------ ------------
Net deferred tax asset (liability) $ - $ -
============ ============
A reconciliation of income tax expense at the statutory federal rate of 34%
to income tax expense at the Company's effective tax rate for the years ended
March 31, 2000 and 1999 is as follows.
2000 1999
---- ----
Tax computed at statutory rate $ 181,324 $ 429,946
Benefit of operating loss carryforward ( 181,324) ( 429,946)
------------ ------------
Income tax expense $ - $ -
============ ============
5. RELATED PARTY TRANSACTIONS
Stockholders
During the years ended March 31, 2000 and 1999, the Company (and its
subsidiaries) received cash advances from several of its stockholders totaling
$43,948 and $85,400, respectively and repaid $0 and $80,000, respectively of
these advances. The Company also owes a stockholder $500,000 as partial
consideration for the acquisition of IEP (Note 1). These advances are non
interest bearing, unsecured and payable upon demand.
On April 2, 1999, the Company's marketable equity securities, with a fair
value of $18,750, were transferred to a stockholder as a reduction of these
advances.
6. FINANCIAL INSTRUMENTS
The Company's financial instruments, which potentially subject the Company
to credit risks, consist of its cash, accounts receivable and notes payable.
25
<PAGE>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash
The Company maintains its cash in bank deposit and other accounts which, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts, and does not believe it is subject to any credit risks
involving its cash.
Accounts receivable
The Company accounts receivable are unsecured and represent oil production
sales and lease operating income not collected at the end of the year.
Management believes it is not exposed to any significant credit risks affecting
accounts receivable and that these accounts receivable are fairly stated at
estimated net realizable amounts.
Notes payable
Management believes the carrying value of these notes represent the fair
value of these financial instruments because their terms are similar to those in
the lending market for comparable loans with comparable risks.
7. STOCK OPTIONS AND WARRANTS
During the years ended March 31, 2000 and 1999, the Company issued various
stock options and warrants to employees and others. The Company uses the
intrinsic value method of accounting for stock options. Compensation cost for
options granted has not been recognized in the accompanying financial statements
because the exercise prices exceeded the current market prices of the Company's
common stock on the dates of grant. The options and warrants expire between
April 1998 and June 2002 and are exercisable at prices from $.50 to $5.00 per
option or warrant.
The following is a schedule of the activity relating to the Company's stock
options and warrants. Other than the 666 warrants which expired during the year
ended March 31, 1999, all other amounts relate to stock options the Company has
issued.
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C> <C> <C>
Weighted Avg. Weighted Avg.
Shares Exercise Shares Exercise
(x1,000) Price (x1,000) Price
-------- ------------ -------- -------------
Options and warrants
outstanding at
beginning of year 4,000 $ 1.14 6,666 $ 1.30
Granted:
Options 100 $ .56 1,000 $ 1.55
Warrants - $ - - $ -
Exercised - $ - - $ -
Expired:
Options - $ - ( 3,000) $ 1.00
Warrants - $ - ( 666) $ 4.00
------- --------
Options and warrants
outstanding and
exercisable at end
of year 4,100 $ 1.12 4,000 $ 1.14
======= ========
Weighted average fair
value of options and
warrants granted during
the year - $ .46 - $ 1.15
</TABLE>
26
<PAGE>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about the Company's stock
options and warrants outstanding at March 31, 2000, all of which are
exercisable.
Weighted Average
Range of Number Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
--------------- ----------- ---------------- ----------------
$ .50-1.50 3,700 2.3 years $ 1.00
$ 2.00-2.50 400 3.1 years $ 2.25
The following pro forma disclosures reflect the Company's net loss per
share amounts assuming the Company accounted for stock options granted using the
fair value method pursuant to Statement of Financial Accounting Standards No.
123. The fair value of each option granted was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 5.98%; no expected dividends; expected lives of 3
years; and expected volatility of 153.3%.
Year Ended Year Ended
March 31, 2000 March 31, 1999
-------------- --------------
Net loss $( 735,806) $( 1,447,880)
Net loss per share:
Basic $( .06) $( .15)
Diluted $( .06) $( .15)
During the years ended May 31, 2000 and 1999, the Company also issued
156,000 and 252,000 common stock shares in exchange for services. These services
were recorded at their fair value of $85,968 and $214,550, respectively, and
were charged to expense.
8. NOTES PAYABLE
During the years ended March 31, 2000 and 1999, the Company borrowed
$403,000 and $300,000, respectively, through the issuance of notes. The notes
are due at various dates through December 2000, bear interest at 8.5% to 10.0%
and are unsecured. Also, during the years ended March 31, 2000 and 1999, $0 and
$33,595, respectively, of principal was repaid on these notes.
9. SEGMENT INFORMATION
The Company conducts its operations through three reportable segments, each
of which is conducted through separate subsidiary corporations. Those reportable
segments are its Louisiana oil properties, its Indonesian oil and gas properties
and its wellhead control device manufacturing operations. During the year ended
March 31, 2000, the Company ceased operations of its manufacturing segment due
to lack of operating capital. A determination of whether the facility will be
reopened, abandoned, sold or otherwise disposed of has not been made at this
time.
27
<PAGE>
CAMBRIDGE ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reflects certain information about the Company's
reportable operating segments for the years ended March 31, 2000 and 1999. There
are no intercompany revenue or expense transactions.
<TABLE>
<CAPTION>
2000
----
<S> <C> <C> <C> <C>
Consolidated
Louisiana Indonesia Manufacturing Totals
--------- --------- ------------- ------------
Revenues from external customers $ 138,696 $ 1,553,342 $ 965 $ 1,693,003
Operating loss ( 690,843) 322,519 ( 105,281) ( 473,605)
Interest expense 59,701 - - 59,701
Depreciation and depletion 41,421 21,275 40,226 102,922
Consulting services, non cash 85,968 - - 85,968
Expenditures to acquire long-lived assets 34,994 - - 34,994
Total long-lived assets, net of depreciation
and depletion 991,222 4,310,488 223,116 5,524,826
1999
----
Consolidated
Louisiana Indonesia Manufacturing Totals
--------- --------- ------------- ------------
Revenues from external customers $ 288,830 $ 222,131 $ 51,065 $ 562,026
Operating loss ( 805,000) ( 286,478) ( 155,041) ( 1,246,519)
Interest expense 18,029 - - 18,029
Depreciation and depletion 41,400 4,929 15,226 61,555
Consulting services, non cash 214,550 - - 214,550
Expenditures to acquire long-lived assets 925,068 4,331,763 263,342 5,520,173
Total long-lived assets, net of depreciation
and depletion 997,649 4,331,763 263,342 5,592,754
</TABLE>
The Company's Indonesian operating segment generates 100% of its
revenues from sales to Pertamina, PTE, Inc., the Indonesian government owned oil
company although it has the right to sell to third parties. Management does not
believe that selling all or a significant portion of its products to the
Indonesian government represents a significant credit risk.
28
<PAGE>
CAMBRIDGE ENERGY CORPORATION
SUPPLEMENTARY INFORMATION REGARDING
OIL AND GAS PRODUCING ACTIVITIES
FOR THE YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999
UNAUDITED
The following supplementary oil and gas information is provided in
accordance with Statement of Financial Accounting Standards No. 69, Disclosures
about Oil and Gas Producing Activities (SFAS 69). The Company has properties in
two reportable geographic areas, oil and gas properties in southern Louisiana
and oil properties in Indonesia.
1. CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
---- ----
Proved oil and gas properties $ 4,489,592 $ 4,456,284
Unproved oil and gas properties - -
Support equipment, proved properties 33,255 31,966
------------- -------------
4,522,847 4,488,250
Accumulated depreciation and
depletion 57,193 28,381
------------- -------------
Net capitalized costs $ 4,465,654 $ 4,459,869
============= =============
2. COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES FOR ABOVE REFERENCED
PERIODS
2000 1999
---- ----
Acquisition of proven properties, including $ 28,474 $ 4,264,456
$4,213,565 for properties in Indonesia
Exploration costs $ 8,459 $ 140,771
Development costs $ - $ -
3. RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES FOR THE ABOVE
REFERENCED PERIODS
2000 1999
---- ----
Oil and gas sales $ 1,614,780 $ 529,305
Lease operating income 23,534 32,721
Production costs 1,142,717 102,794
Exploration expenses 8,459 140,771
Depreciation and depletion 102,922 19,332
Income tax expense - -
Results of operations for oil ------------- -------------
and gas producing activities
(excluding corporate overhead
and financing costs) $ 384,216 $ 299,129
============= =============
</TABLE>
4. RESERVE QUANTITY INFORMATION
The following estimates of proved developed reserve quantities are
estimates only, and do not purport to reflect realizable values or fair market
value of the Company's reserves. They are presented in accordance with the
guidelines established by the S.E.C. and disclosure requirements promulgated by
SFAS 69. The Company emphasizes the reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of currently
producing oil and gas properties. Accordingly, these estimates are expected to
change as future information becomes available. All of the following reserve
information relates to the Company's reserves located in southern Louisiana
except for the 15,790,000 barrels of Indonesian oil reserves acquired during the
year ended March 31, 1999 (Note 1).
29
<PAGE>
CAMBRIDGE ENERGY CORPORATION
SUPPLEMENTARY INFORMATION REGARDING
OIL AND GAS PRODUCING ACTIVITIES
FOR THE YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999
UNAUDITED
Proved reserves are estimated reserves of crude oil (including condensate
and natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating method. The Company's proved developed and undeveloped
reserves and changes in them during the periods are as follows.
Oil Gas
(BBLS) (MCF)
------ -----
Reserves at March 31, 1998 3,144,450 29,136,140
Purchase of minerals in place 10,215,867 -
Revision of previous estimates 765,800 47,758,910
Production ( 28,327) ( 82,300)
------------ ------------
Reserves at March 31, 1999 14,097,790 76,812,750
Revisions of previous estimates 5,046,318 1,521,611
Production ( 62,808) ( 31,231)
------------ ------------
Reserves at March 31, 2000 19,081,300 78,303,130
============ ============
5. STANDARDIZED MEASURES OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL AND GAS RESERVES AT THE ABOVE REFERENCED DATE
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas, estimated at $18.00 U.S. and $24.74
Indonesia per barrel and $2.30 U.S. only per MMBTU, respectively, (with
consideration of price changes only to the extent provided by contractual
arrangements) to the estimated future production of proved oil and gas reserves,
less estimated future expenditures (based on year-end costs) to be incurred in
developing and producing the proved reserves, less estimated future income tax
expenses (based on year-end statutory tax rates, with consideration of future
tax rates already legislated) to be incurred on pretax net cash flows less basis
of the properties and available credits, and assuming continuation of existing
economic conditions. The estimated future net cash flows are then discounted
using a rate of 10 percent a year to reflect the estimated timing of the future
cash flows.
<TABLE>
<CAPTION>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOW AT MARCH 31, 2000 AND 1999
2000 1999
---- ----
<S> <C> <C> <C> <C>
Foreign Domestic Foreign Domestic
------- -------- ------- --------
Future cash inflows $ 292,115,000 $ 240,986,249 $ 172,200,000 $ 181,311,731
Future production costs ( 76,902,400) ( 28,918,350) ( 20,664,000) ( 21,757,408)
Future development costs ( 17,326,200) ( 14,459,175) ( 10,332,000) ( 10,878,704)
Future income tax expenses ( 78,871,050) ( 65,066,287) ( 46,494,000) ( 48,954,167)
---------------- ---------------- ----------------- ----------------
Future net cash flows 119,015,350 132,542,437 94,710,000 99,721,452
10% annual discount for
estimated timing of
cash flows ( 59,614,789) ( 64,945,794) ( 46,407,900) ( 48,863,512)
---------------- ---------------- ----------------- ----------------
Standardized measure of
discounted future net cash
flows relating to proved
oil and gas reserves $ 59,400,561 $ 67,596,643 $ 48,302,100 $ 50,857,940
================ ================ ================= ================
</TABLE>
30
<PAGE>
CAMBRIDGE ENERGY CORPORATION
SUPPLEMENTARY INFORMATION REGARDING
OIL AND GAS PRODUCING ACTIVITIES
FOR THE YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999
UNAUDITED
RECONCILIATION OF CHANGES IN THE STANDARDIZED
MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
DURING THE ABOVE REFERENCED PERIOD
<TABLE>
<CAPTION>
<S> <C> <C>
Beginning of period $ 99,160,040 $ 7,161,940
Sales of oil and gas produced ( 1,614,780) ( 529,305)
Net changes in prices and production costs ( 1,142,717) ( 102,794)
Development costs incurred ( 8,489) ( 140,771)
Revisions of previous quantity estimates 30,603,150 44,468,670
Net changes from purchase of minerals
in place - 48,302,300
---------------- ------------------
End of period $ 126,997,204 $ 99,160,040
================ ==================
</TABLE>
31
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure.
None
PART III
Item 9. Directors and Executive Officers of the Registrant
(a) Identification of Directors and Executive Officers.
(1) (1) (2) (3)
Name Age Term* Served
--------------- --- ---- ------
Perry Douglas West Elected Since
Chairman and CEO 53 Annually Inception
Jonathan E. Bates 41 Elected 1997
Executive Vice President Annually
*All directors hold office until the next annual meeting of the
stockholders and the election and qualification of their successors. Officers
are elected annually by the Board of Directors and serve at the discretion of
the Board.
The following is a brief description of the business background of the
directors and executive officers of the Company:
Perry Douglas West, co-founded the Company in April 1996, and has served as
Chairman of the Board, President and Chief Executive Officer since its
inception. He was Chairman and Chief Executive Officer of Interactive
Technologies Corporation (ITC) from 1995 until January 1998. Mr. West co-founded
American Financial Network in 1985. He served as Executive Vice
President/Director and General Counsel of this publicly traded company from 1985
to 1991. He was also previously a partner in the consulting firm of Cambridge
Equity, Inc., which structured oil and gas projects in Indonesia. He was
graduated with a Bachelor of Arts degree from The Florida State University in
1968 and with a Juris Doctorate degree from The Florida State University College
of Law in 1974.
Jonathan E. Bates, has been the Company's Executive Vice President since
1997 and is responsible for corporate relations. Mr. Bates, founder and
president of HB Financial Services, Inc. since 1995. As the President of HB
Financial, Mr. Bates consulted with companies on a broad range of activities
including: financial and organizational planning, capital structures and
formations, and negotiating equity and bridge financing agreements. Mr. Bates
was a Financial Consultant with Smith Barney, Inc. from 1993-95. Before entering
the financial field, Mr. Bates consulted for Wang Laboratories, Mead Data
Central, Information Builders, Inc., and Syncsort Inc., marketing application
and system information software as well as hardware to corporations utilizing
medium to large mainframe computer systems. Mr. Bates graduated in 1984 from
Florida Atlantic University with a Bachelor of Science degree in Business
Finance and Marketing.
There are no other significant employees of the business, and there are no
family relationships among the directors, executive officers or persons
nominated or chosen by the Company to become directors or executive officers.
None of the Company's directors, executive officers or nominees for such office
have been involved in any legal proceedings related to bankruptcy of an entity
where they held such positions; nor charged or convicted in any criminal
proceedings; nor subject to any order, judgment, or decree permanently or
temporarily enjoining, barring, suspending or other wise limiting their
involvement in any type of business, securities or banking activities; nor found
in any manner whatsoever to have violated a federal or state securities or
commodities law.
32
<PAGE>
Item 10. Executive Compensation
Cash Compensation:
The following table sets forth the aggregate cash compensation paid by the
Company for services rendered during the periods indicated to its directors and
executive officers:
SUMMARY COMPENSATION TABLE
--------------------------
Name & Position Fiscal Year Salary Bonus Other Compensation
--------------- ----------- ------ ----- ------------------
Perry D. West 1997(1) -0- -0- -0-
Chairman/CEO 1998(2) $40,615 -0- $45,000
1999(3) $55,385 -0- -0-
2000(4) $ 3,692 -0- -0-
1)April 9, 1996 (Inception) - March 31, 1997
2)April 1, 1997 - March 31, 1998
3)April 1, 1998 - March 31, 1999
Mr. West has an Executive Compensation Agreement in effect with the
Company, approved by the Board of Directors. This Agreement is for a five year
term, and is incentive based over and above the basic salary of $150,000 per
annum for Mr. West. Salary increases are based on gross revenue achievements.
The first two full fiscal years' gross revenue goals for salary increases are
$4,000,000, and $8,000,000 respectively. Third, Fourth and Fifth year gross
revenue goals will be set by the Board of Directors prior to the beginning of
those years. Additional benefits include medical and dental coverage for Mr.
West and family; disability coverage; vacation; automobile or allowance for
automobile; and a death benefit. Mr. West is also entitled to participate in the
Company's Key Employee Stock Option Plan which has been authorized by the Board
of Directors but not implemented as of the fiscal year ended March 31, 1999. Mr.
West will also be entitled to participate in the Company's 401(K) retirement
plan, which the Company intends to offer to its employees. This employment
contract may be terminated for cause, and it provides for payments to the
executive in the event there is a change of control of the Company which
adversely affects their employment. Mr. West has agreed to defer all or partial
salary and other benefits from his compensation agreements during fiscal years
ended March 31, 1998 and 1999.
3)April 1, 1999 - March 31, 2000
The following table sets forth the options granted during the last three
fiscal years to each of the directors and executive officers:
Option/SAR Grants in Last Fiscal Year (Individual Grants):
Number of Percent of total
Securities Options/SARs
Underlying granted to Exercise or
Options/SARS employees in base price Expiration
Name Granted fiscal year ($/Share) date
----- ------------ ---------------- ---------- -----------
Perry D. West 1,000,000 16.7 $ .50 6/9/02
1,000,000 16.7 $1.00 6/9/02
1,000,000 16.7 $1.50 6/9/02
Jonathan Bates 1,000,000 14.28 $1.50 4/01/03
1,000,000 14.28 $1.00 4/01/03
1,000,000 14.28 $0.50 4/01/03
200,000 2.8 $0.75 4/15/03
200,000 2.8 $1.00 4/15/03
200,000 2.8 $1.50 4/15/03
200,000 2.8 $2.00 4/15/03
200,000 2.8 $2.50 4/15/03
No options granted to the directors and executive officers were exercised
during the fiscal year ended March 31, 1998, 1999 and 2000.
33
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
--------------------------------------------------------------------------------
(1) (2) (3) (4)
Title of Name and Address Amount and Nature Percent of
Class of Beneficial Owner of Beneficial Owner Class
--------------------------------------------------------------------------------
Common Lee M. Payne Former Executive Vice
1295 Rockledge Drive President/Director
Rockledge, Florida 32955 3,192,393 Shares* 27.1
(b) Security Ownership of Management
The following table sets forth the share holdings of the Company's
directors and executive officers as of March 31, 2000, with these computations
based upon 11,790,827 shares of common stock being outstanding, and no options
granted being exercised.
--------------------------------------------------------------------------------
(1) (2) (3) (4)
Title of Name and Address Amount and Nature Percent of
Class of Beneficial Owner of Beneficial Owner Class
--------------------------------------------------------------------------------
Common Perry Douglas West Chairman and CEO 27.1
P.O. Box 1656 3,192,393 Shares*
Cocoa, Florida 32923
Common Lee M. Payne
1295 Rockledge Drive
Rockledge, Florida 32955 3,192,393 Shares** 27.1
Common Officers and Directors
as a Group 6,384,786 Shares 54.2
* Mr. West has options to purchase 1,000,000 shares of the Company's Common
Stock at $.50; 1,000,000 shares at $1.00; and 1,000,000 shares at $1.50 any time
within sixty months of June 9, 1997 when the options were granted.
**After Mr. Payne, a former officer and director of the company resigned,
several agreements were entered into between the Company, Mr. Payne and Mr.
West. The Company entered into a share purchase agreement with Mr. Payne dated
October 15, 1998, for the purchase of 1,000,000 shares of common stock over a
five year period for a total purchase price of $400,000. On October 7, 1998, the
Company entered into a Consulting Agreement with Mr. Payne agreeing for the
payment of $5,000.00 per month for consulting services up to a total of
$400,000. It was agreed that all payments made to Mr. Payne under the Consulting
Agreement referenced above would be considered payment of stock under the share
purchase agreement. In addition, Mr. Payne and Mr. West entered into a share
purchase agreement dated October 15, 1998 for the purchase by Mr. West of an
additional 2,000,000 shares of Mr. Payne's stock over a period of five years
with 500,000 shares to be purchased at $0.50 per share, 500,000 shares purchased
at $0.75 per share, 500,000 shares purchased at $1.00 per share and 500,000
shares purchased at $1.25 per share.
Management has no knowledge of the existence of any arrangements or pledges
of the Company's securities which may result in a change in control of the
Company.
(c) Beneficial Ownership Reporting Compliance reported in Form 3 by Mr.
West was filed, but was filed late. There were no transactions reported by Mr.
West
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Item 12. Certain Relationship and Related Transactions
Shareholder Loans. During the fiscal year ending March 31, 2000, the
executive officer and director of the Company, Mr. West, made shareholder loans
to the Company for operating expenses totaling $25,422, for a total outstanding
shareholder loans of $118,356. These amounts were initially loaned at no
interest, and will be reimbursed at such time as cash flow permits.
Other Material Transactions. With the exception of the Executive
Compensation Agreements and the Executive Stock Option Agreements of Mr. West
and Mr. Payne, there have been no material transactions, series of similar
transactions or currently proposed transactions to which the Company or any
officer, director, their immediate families or other beneficial owner is a party
or has a material interest in which the amount exceeds $60,000.
35
<PAGE>
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
EXHIBIT INDEX
(a.) Exhibit Page
----
3.1 Articles of Incorporation, Charter and By-Laws (1)
10.1 Agreement between Cambridge Energy Corporation and
Intermega Energy PTE. and F.K. Ho (2)
------------
(1) This exhibit was previously filed as an exhibit to the Registrant's
Form 10 filed October 9, 1998 and is herein incorporated by reference.
(2) This exhibit was previously filed as an exhibit to the Registrant's
Form 10K-SB filed August 20, 1999 and is herein incorporated by reference.
(b.) Reports on Form 8-K.
None.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Cocoa, State of Florida, on August 28, 2000.
CAMBRIDGE ENERGY CORPORATION
By: /s/ Perry Douglas West
-------------------------
Perry Douglas West
Chairman and Chief Executive Officer
37
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