<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-29344
INDO-PACIFIC ENERGY LTD.
(Exact name of registrant as specified in its charter)
YUKON TERRITORY, CANADA NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 1200, 1090 West Pender Street
Vancouver, B.C. Canada V6E 2N7
(Address of principal executive offices)
Registrant's telephone number including area code: (604) 682-6496
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common shares without par value
Indicate by check mark whether the Registrant (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 [ ]
The number of common shares without par value outstanding on March 31, 2000
was 28,262,398 shares.
<PAGE> 2
PART 1 . FINANCIAL INFORMATION
INDO-PACIFIC ENERGY LTD.
Consolidated Balance Sheets
Unaudited - Prepared by Management
(Prepared in Accordance with United States Generally Accepted Accounting
Principles)
(Expressed in United States Dollars)
March 31, December 31,
2000 1999
Assets
Current
Cash and short-term deposits $ 4,036,804 $ 4,863,254
Accounts receivable 104,813 148,419
Loan receivable from related party 1,256,541 1,062,211
Marketable securities 196,468 222,319
Due from related parties 58,462 62,667
Prepaid expenses and deposits 42,571 50,110
------------ ------------
5,695,659 6,408,980
Investments 2,720,000 740,000
Property and equipment 138,492 143,961
Oil and gas properties 4,180,112 3,656,224
------------ ------------
Total Assets $ 12,734,263 $ 10,949,165
============ ============
Liabilities
Current
Accounts payable and
accrued liabilities $ 160,928 $ 277,983
------------ ------------
Total Liabilities 160,928 277,983
------------ ------------
Commitments and Contingencies
Stockholders' Equity
Common stock without par value;
100,000,000 shares authorized;
Issued and outstanding at March
31, 2000 and December 31, 1999:
28,262,398 shares 18,245,867 18,245,867
Accumulated deficit (7,722,532) (7,644,685)
Cumulative comprehensive
adjustment 2,050,000 70,000
------------ ------------
Total Stockholders' Equity 12,573,335 10,671,182
------------ ------------
Total Liabilities and
Stockholders' Equity $ 12,734,263 $ 10,949,165
============ ============
-1-
<PAGE> 3
INDO-PACIFIC ENERGY LTD.
Consolidated Statements of Operations and Comprehensive Income (Loss)
Unaudited - Prepared by Management
(Prepared in Accordance with United States Generally Accepted Accounting
Principles)
(Expressed in United States Dollars)
For the Three Month Periods
Ended March 31, 2000 1999
Revenues
Oil and gas sales $ 115,355 $ 46,062
Interest income 83,258 63,424
----------- ----------
198,613 109,486
----------- ----------
Cost of Sales
Production costs 14,099 7,590
Depletion 25,768 24,398
----------- ----------
39,867 31,988
----------- ----------
158,746 77,498
----------- ----------
Expenses
General and administrative (Schedule) 236,593 106,217
----------- ----------
Net loss for the period (77,847) (28,719)
Other Comprehensive Income (Loss)
Unrealized loss on
marketable securities - (145,541)
Unrealized gain on investments 1,980,000 800,000
----------- ----------
Comprehensive income for the period $ 1,902,153 $ 625,740
=========== ==========
Basic and diluted loss per share $ (0.00) $ (0.00)
=========== ==========
-2-
<PAGE> 4
INDO-PACIFIC ENERGY LTD.
Consolidated Statements of Changes in Stockholders' Equity
Unaudited - Prepared by Management
(Prepared in Accordance with United States Generally Accepted Accounting
Principles)
(Expressed in United States Dollars)
For the Three Month Period Ended March 31, 2000
Cumulative Compre- Total
Common Stock Accumulated hensive Stockholders'
Shares Amount Deficit Adjustment Equity
Balance at
12/31/99 28,262,398 $ 18,245,867 $ (7,644,685) $ 70,000 $ 10,671,182
Net loss during
the period - - (77,847) - (77,847)
Unrealized gain
on investments - - - 1,980,000 1,980,000
---------- ------------ ------------ ----------- ------------
Balance at
03/31/00 28,262,398 $ 18,245,867 $ (7,722,532) $ 2,050,000 $ 12,573,335
========== ============ ============ =========== ============
-3-
<PAGE>
INDO-PACIFIC ENERGY LTD.
Consolidated Statements of Cash Flows
Unaudited - Prepared by Management
(Prepared in Accordance with United States Generally Accepted Accounting
Principles)
(Expressed in United States Dollars)
For the Three Month Periods Ended March 31, 2000 1999
Operating Activities
Net loss for the year $ (77,847) $ (28,719)
Adjustments to reconcile net loss to
cash applied to operating activities:
Depletion 25,768 24,398
Depreciation 16,766 14,165
Write-down of marketable securities 25,851 -
Changes in non-cash working capital:
Accounts receivable 43,606 (3,548)
Loan receivable from related party (194,330) -
Due from related parties 4,205 (29,997)
Prepaid expenses and deposits 7,539 (3,136)
Accounts payable and accrued liabilities (117,055) (110,502)
----------- -----------
Net cash used in operating activities (265,497) (137,339)
----------- -----------
Financing Activity
Common shares issued for cash - -
----------- -----------
Net cash provided by financing activity - -
----------- -----------
Investing Activities
Purchase of investments - (400,000)
Purchase of property and equipment (11,297) (8,639)
Oil and gas properties (549,656) (130,638)
----------- -----------
Net cash used in investing activities (560,953) (539,277)
----------- -----------
Net decrease in cash during the period (826,450) (676,616)
Cash and short-term deposits -
Beginning of period 4,863,254 8,194,849
----------- -----------
Cash and short-term deposits - End of period $ 4,036,804 $ 7,518,233
=========== ===========
-4-
<PAGE> 6
INDO-PACIFIC ENERGY LTD.
Consolidated Schedules of General and Administrative Expenses
Unaudited - Prepared by Management
(Prepared in Accordance with United States Generally Accepted Accounting
Principles)
(Expressed in United States Dollars)
For the Three Month Periods Ended March 31, 2000 1999
GENERAL AND ADMINISTRATIVE EXPENSES
Accounting and audit $ 16,872 $ 8,448
Consulting fees 14,843 2,834
Corporate relations and development 35,159 4,609
Depreciation 16,766 14,165
Filing and transfer agency fees 930 149
Foreign exchange loss (gain) 26,511 (14,188)
Legal 34,933 14,046
Office and miscellaneous 35,568 36,673
Printing 9,631 13,313
Rent 10,557 16,766
Telephone 9,702 10,334
Travel and accommodation 3,097 16,698
Wages and benefits 32,065 22,353
Write-down of marketable securities 25,851 -
Recovery of general and
administrative expenses (35,892) (39,983)
(35,892) (39,983)
--------- ---------
$ 236,593 $ 106,217
========= =========
-5-
<PAGE> 7
INDO-PACIFIC ENERGY LTD.
Notes to the Consolidated Financial Statements
Unaudited - Prepared by Management
(Prepared in Accordance with United States Generally Accepted Accounting
Principles)
(Expressed in United States Dollars)
For the Three Month Period Ended March 31, 2000
NOTE 1 - NATURE OF OPERATIONS AND CONTINGENCIES
The Company was incorporated under the Company Act (British Columbia) and
continued its jurisdiction of incorporation to the Yukon Territory under
the Business Corporations Act (Yukon).
The Company is primarily engaged in the acquisition, exploration and
development of its oil and gas properties and, with the exception of PMP
38148, has yet to determine whether its properties contain oil and gas
reserves that are economically recoverable. The recoverability of the
amounts capitalized for oil and gas properties is dependent upon the
completion of exploration work, the discovery of oil and gas reserves in
commercial quantities and the subsequent development of such reserves.
The Company does not generate sufficient cash flow from operations to fund
its entire exploration and development activities and has therefore relied
principally upon the issuance of securities for financing. Additionally,
the Company has periodically reduced its exposure in oil and gas properties
by farming out to other participants. The Company intends to continue
relying on these measures to finance its exploration and development
activities to the extent such measures are available and obtainable under
terms acceptable to the Company. Accordingly, the Company's consolidated
financial statements are presented on a going concern basis.
The unaudited consolidated financial statements of the Company reflect, in
the opinion of management, all adjustments, consisting only of normal and
recurring adjustments, necessary to present fairly the Company's
consolidated financial position at March 31, 2000 and the Company's
consolidated results of operations and cash flows for the three-month
periods ended March 31, 2000 and 1999. The consolidated financial
statements have been prepared in accordance with the instructions to Form
10-Q and therefore do not include all disclosures required for financial
statements prepared in conformity with generally accepted accounting
principles. Interim period results are not necessarily indicative of
results of operations or cash flows for a full year.
These consolidated financial statements and the notes thereto should be
read in conjunction with the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, including the financial statements and notes
thereto.
NOTE 2 - LOAN RECEIVABLE FROM RELATED PARTY
The Company is owed $1,256,541 including interest of $212,381 by Trans-
Orient Petroleum Ltd. ("Trans-Orient") for payments relating to oil and gas
exploration on behalf of Trans-Orient. This amount is unsecured with no
fixed terms for repayment and accrues interest on a monthly basis at the
average three-month bankers' acceptance rate plus 3%.
<PAGE> 8
INDO-PACIFIC ENERGY LTD.
Notes to the Consolidated Financial Statements
Unaudited - Prepared by Management
(Prepared in Accordance with United States Generally Accepted Accounting
Principles)
(Expressed in United States Dollars)
For the Three Month Period Ended March 31, 2000
NOTE 3 - MARKETABLE SECURITIES
Marketable securities comprise of 517,020 shares (December 31, 1999:
517,020 shares) of Trans-Orient Petroleum Ltd. acquired at a cost of
$383,075 and recorded at an estimated market value of $196,468 (December
31, 1999: $222,319).
NOTE 4 - INVESTMENTS
Investments comprise of 1,800,000 shares (December 31, 1999: 1,800,000
shares) of AMG Oil Ltd. acquired at a cost of $650,000 (December 31, 1999:
$650,000) and 600,000 shares (December 31, 1999: 600,000 shares) of
Gondwana Energy, Ltd. acquired at a cost of $20,000, recorded at estimated
market values of $2,700,000 (December 31, 1999: $720,000) and $20,000
(December 31, 1999: $20,000), respectively.
The Company holds an option to purchase a further 200,000 shares of AMG Oil
Ltd. at a price of $0.50 per share expiring on December 31, 2000.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
a) Work Commitments
The Company participates in oil and gas exploration and development
activities as a joint venturer with third and related parties and is
contractually committed under agreements to complete certain
exploration programs. The Company's management estimates that the
total commitments under various agreements is approximately $3,484,000
of which a related party participant has farmed into PEP 38256 to
contribute approximately $455,000.
b) Political Risks
Papua New Guinea is subject to political uncertainty and instability
and the Company faces a number of risks and uncertainties which may
adversely impact on its ability to pursue its exploration and
development activities.
c) Environmental Laws and Regulations
The Company is not aware of any events of noncompliance in its
operations with any environmental laws or regulations nor of any
potentially material contingencies related to environmental issues.
However, the Company cannot predict whether any new or amended
environmental laws or regulations introduced in the future will have
a material adverse effect on the future business of the Company.
-7-
<PAGE> 9
INDO-PACIFIC ENERGY LTD.
Notes to the Consolidated Financial Statements
Unaudited - Prepared by Management
(Prepared in Accordance with United States Generally Accepted Accounting
Principles)
(Expressed in United States Dollars)
For the Three Month Period Ended March 31, 2000
NOTE 6 - LOSS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted loss per share calculations for the three month periods
ended March 31, 2000 and 1999:
2000 1999
Numerator, net loss for the period $ (77,847) $ (28,719)
---------- ----------
Denominator:
Weighted-average number of shares 28,262,398 28,262,398
---------- ----------
Basic and diluted loss per share $ (0.00) $ (0.00)
========== ==========
Due to net losses incurred for the three month periods ended March 31, 2000
and 1999, stock options and share purchase warrants outstanding were not
included in the computation of diluted loss per share as the inclusion of
such securities would be antidilutive.
NOTE 7 - SUBSEQUENT EVENT
Purchase of Oil and Gas Properties
By a letter of intent dated January 30, 2000 and under an effective date of
January 1, 2000 between Trans-Orient Petroleum Ltd. ("Trans-Orient") and
the Company, the Company agreed to acquire all of Trans-Orient's onshore
and offshore oil and gas interests located in New Zealand, Australia and
Papua New Guinea at a purchase price of $4,097,360, subject to certain
exchange gains or losses, representing an aggregate 20% premium of the
total book value of the interests. At the request of the boards of
directors of both Trans-Orient and the Company, an independent party
reviewed the proposed transaction and determined that the transaction was
fair to both companies. As part of the transaction, the loan receivable
from Trans-Orient to the Company will be offset against the purchase price.
The Company will issue 4,184,224 units of the Company to Trans-Orient at a
deemed value of $0.50 per unit for a total value of $2,092,112. Each unit
consists of one common share of the Company, one Series A warrant and one
Series B warrant. Each Series A warrant is exercisable to purchase one
common share at a price of $0.50 during the first year and thereafter at a
price of $0.75 during the second year. Each Series B warrant will, upon a
commercial discovery on any one of the oil and gas interests in the
transaction, replace each Series A warrant exercised and is exercisable to
purchase one common share at a price of $1.50 until expiry during the first
two years. Additionally, the Company will provide Trans-Orient with anti-
dilution protection for a period of one year from the closing date if the
aggregate amount raised is greater than $500,000 and the average price is
less than $0.50 per share or unit.
<PAGE> 10
INDO-PACIFIC ENERGY LTD.
Notes to the Consolidated Financial Statements
Unaudited - Prepared by Management
(Prepared in Accordance with United States Generally Accepted Accounting
Principles)
(Expressed in United States Dollars)
For the Three Month Period Ended March 31, 2000
NOTE 7 - SUBSEQUENT EVENT (continued)
The Company will provide Trans-Orient Petroleum Ltd. additional
consideration for the transaction, as follows:
i) 1,800,000 common shares of AMG Oil Ltd. ("AMG Oil") acquired at a cost
of $650,000 and valued at $720,000 for the transaction, including the
option to purchase a further 200,000 shares of AMG Oil at a price of
$0.50 per share expiring on December 31, 2000;
ii) 600,000 shares of Gondwana Energy, Ltd. acquired at a cost of and
valued at $20,000 for the transaction;
iii) 517,020 shares of Trans-Orient Petroleum Ltd. acquired at a cost of
$383,075 and valued at $222,319 for the transaction; and
iv) gross overriding royalties, valued at $1 for the transaction, on all
oil and gas interests purchased from Trans-Orient ranging from 1% to
5%.
At an extraordinary general meeting held on May 23, 2000, this transaction
was approved by the shareholders of Trans-Orient Petroleum Ltd. and
completed
-9-
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Registrant (OTCBB symbol: INDX) is an independent oil and gas
exploration company based in Vancouver, British Columbia, and focused
exclusively in the Austral-Pacific region. The Registrant also has a 5%
minority interest in a hydrocarbon production permit in New Zealand. Total
production revenue for the first quarter ended March 31, 2000 was $115,355
from the Registrant's share of production volume of 4,762 barrels for the
quarter. The majority of the Registrant's properties are in the exploration
stage. The Registrant currently holds varying interests in approximately
6 million acres of exploration permits in New Zealand, 1 million acres in
Australia and 3 million acres in Papua New Guinea.
On January 30, 2000 the Registrant entered into a letter of intent with
Trans-Orient Petroleum Ltd., to acquire Trans-Orient's interest in jointly
held exploration permits. The parties established a purchase price on the
basis of 1.2 times the capitalized petroleum expenditures incurred on the
exploration permits plus certain overriding production royalties, shares of
the Registrant including share purchase warrants and other consideration.
The letter of intent was formalized by an agreement of purchase and sale
with an effective date of January 1, 2000 and made subject to approval of
Trans-Orient's stockholders by the requisite extraordinary majority at a
special meeting of stockholders held on May 23, 2000. The Registrant filed
a Form 8-K on April 13, 2000 disclosing the transaction, which is
incorporated herein by reference.
The Registrant has experienced losses in each fiscal period on which it has
reported. Its main source of capital is the issuance of equity securities.
Total losses incurred from incorporation to December 31, 1999 were
$7,644,685.
Results of Operations
The Registrant's primary focus is the acquisition and exploration of
unproven oil and gas properties. The Registrant's policy is to acquire
interests and, where possible, minimize its risk exposure by farming out or
joint venturing property interests to other industry participants.
For the first quarter ended March 31, 2000, the Registrant's loss was
$77,847 compared to $28,719 for the first quarter ended March 31, 1999. The
Registrant also recorded comprehensive income adjustments from unrealized
gains on investments of $1,980,000, resulting from the increase in market
value of investments over the reporting period compared to a net amount of
$654,459 of unrealized losses on marketable securities and unrealized gains
on investments for the first quarter ended March 31, 1999. Comprehensive
income for the three months ended March 31, 2000 was $1,902,153 compared to
$625,740 for the three months ended March 31, 1999.
Oil and gas sales for the quarter were $115,355 versus $46,062 for the
three months ended March 31, 1999. The increase is primarily due to the
increase in the crude oil average selling price of $23.40 compared to
$14.60 per barrel, offset slightly by a decrease in production of 4,762
barrels for the quarter compared to 4,843 barrels for the comparable
<PAGE> 12
quarter. Natural gas sales of $3,917 were flat compared to $3,424 for the
three months ended March 31, 1999. First quarter production costs directly
attributable to the revenues were $14,099 compared to $7,590 for the first
quarter ended March 31, 1999. For the first quarter, the Registrant also
recorded $25,768 in depletion costs versus $24,398 for the first quarter
ended March 31, 1999. The result was net production revenue of $75,488 for
the first quarter ended March 31, 2000 compared to $14,074 for the first
quarter ended March 31, 1999.
During the first quarter ended March 31, 2000 the Registrant earned $83,258
in interest income on its surplus cash balances compared to $63,424 for the
first quarter ended March 31, 1999.
The Registrant's general and administrative costs were $236,593 versus
$106,217 for the three months ended March 31, 1999. General and
administrative expenses for the quarter include $32,065 (1999 - $22,353) of
salaries and benefits for administrative personnel, $51,805 (1999 -
$22,494) for professional fees, $65,458 (1999 - $77,086) for office costs
and $54,029 (1999 - $24,290) for other general and administrative costs.
General and administrative costs also includes depreciation expense of
$16,766 (1999 - $14,165) on office and computer equipment, foreign exchange
losses of $26,511 (1999 - gain of $14,188) and a write down of marketable
securities of $25,851 (1999 - $nil).
As at March 31, 2000, the Registrant had cash and short-term deposits of
$4,036,804 compared to $4,863,254 as of March 31, 1999. Working capital as
at March 31, 2000 was $5,534,731 versus $6,130,997 for March 31, 1999.
Working capital includes $1,256,541 of loans receivable from Trans-Orient
and $196,468 of marketable securities, which form part of the consideration
to Trans-Orient for the purchase of exploration permit interests from
Trans-Orient described herein. Working capital net of sale adjustments was
$4,081,722 as at March 31, 2000. The Registrant used $265,497 in cash for
operating activities during the first quarter compared to $137,339 for the
first quarter ended March 31, 1999. $11,297 was used for purchases of
property and equipment compared to $8,639 in 1999 and $549,656 was expended
on the Registrant's exploration activities described herein versus $130,638
for the first quarter ended March 31, 1999. The Registrant also purchased
$400,000 of investments for cash in the comparable quarter. The net effect
of the above noted transactions was a use of cash of $826,450 for the first
quarter ended March 31, 2000 compared to $676,616 for the comparable
quarter.
The Registrants cash balances are not sufficient to fund all of its
obligations with respect to its ongoing work program requirements related
to the exploration permits. The Registrant is actively seeking farm-in
partners for certain of its permits and will have to seek additional equity
financing if either appropriate farm-in partners cannot be found or if it
is maintain the permits in good standing with the issuers. There can be no
assurance that the Registrant will be successful in finding farm-in
partners or that it will be successful in obtaining equity financing on
suitable terms, if at all. The inability to obtain the fore mentioned would
have an adverse material effect on the Registrant's business.
<PAGE> 13
First Quarter Exploration Activities
On January 5, 2000, the Registrant and other participants in New Zealand
permit PEP 38330 entered into an agreement with an unrelated party which
agreed to fund approximately 27 miles of new seismic, in order to attempt
to establish drilling targets on several exploration targets in the permit
area. The partners agreed to provide the farm-in partner a 17.5% interest
in the permit upon completion of the work program.
On January 25, 2000 the Registrant, as operator, and the other participants
in New Zealand permit PEP 38328 commenced drilling the Whakatu-1 prospect,
which was plugged and abandoned on February 7, 2000 at a depth of 4,800
feet. The participants encountered an abrupt change in geology at depth of
4,600 feet, and concluded that that deeper exploration targets were
unlikely. Trace hydrocarbons were indicated during drilling but electrical
logging indicated that there were no zones worth testing.
In January, 2000, the Registrant as operator and the other participants in
New Zealand permit PEP 38332 acquired additional seismic over the East
Coast Basin area and confirmed a closed structure for target drilling.
Fourteen miles of additional new seismic were also acquired over the
Waitaria and Kaiponi structures in New Zealand permit 38335 where the
Registrant is a participant.
During February 2000 the Registrant completed a 3-D seismic survey over the
southern part of in New Zealand permit PEP 38720 to further evaluate the
area. The Registrant had previously plugged and suspended a well testing
a shallow target in the north of the permit area in late December 1999. The
Registrant is seeking farm-in partners to assist in the funding of future
drilling in the prospect area.
Recent Exploration Activities
Subsequent to the quarter end, the Registrant, as operator, completed a
seismic program to delineate drilling locations on the Arcadia and Ealing
prospects in New Zealand permit PEP 38256. On June 27, 2000 AMG Oil Ltd.
exercised its option to acquire an additional 50% interest in the permit
from the Registrant through funding the drilling of two exploration wells,
which is anticipated to commence in the fourth quarter.
On June 30, 2000 the Registrant, as operator, commenced drilling on a
prospect in New Zealand permit PEP 38332, in the onshore East Coast Basin.
The well was plugged and suspended due to engineering and drilling
difficulties on July 19, 2000 at a depth of 2,874 feet. Minor hydrocarbon
indications were encountered during drilling. The Registrant and the
participants in PEP 38332 are presently considering methods to over come
the difficulties and may reenter and deepen the well at some late date in
the future.
On July 6, 2000, the Registrant announced that Phillips Petroleum Ltd. had
signed a letter of intent with an offshore drilling contractor to drill a
prospect in the Timor Sea exploration permit ZOCA 96-16. The drilling is
anticipated to commence in the third quarter, with the well drilled to a
target depth of 14,000 feet. Under the terms of the farm-out agreement with
Phillips, the Registrant's participating interest is reduced to 10% with
Phillips funding of all drilling and testing costs of this well.
<PAGE> 14
Trends and Prices
The Registrant's revenues, cash flows and ability to attract farm-in
partners are affected by changes in oil and gas prices. The markets for oil
and gas have historically been, and will continue to be, volatile. Prices
for oil and gas typically fluctuate in response to relatively minor changes
in supply and demand, market uncertainty, seasonal, political and other
factors beyond the control of the Registrant. The Registrant is unable to
accurately predict domestic or worldwide political events or the effects of
such other factors on the prices received by the Registrant for its oil and
gas. The Registrant historically has not entered into transactions to hedge
against changes in oil and gas prices, but may elect to enter into hedging
transactions in the future to protect against fluctuations in oil and gas
prices. Although there has been significant improvement in oil and gas
prices during the first three months of 2000, there is substantial
uncertainty regarding future oil and gas prices. There can be no assurance
that oil and gas prices will not decline in the future. If the decline in
crude oil and natural gas prices worsens or continues for a protracted
period, it would adversely affect the Registrant's revenues, income and
cash flows from operations.
Forward-Looking Statements
This Form 10-Q includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements in this Form 10-Q, other than
statements of historical facts, that address activities, events or
developments that the Company expects, believes or anticipates will or may
occur in the future, including production, operating costs and product
price realization targets, future capital expenditures (including the
amount and nature thereof), the drilling of wells, reserve estimates,
future production of oil and gas, future cash flows, future reserve
activity and other such matters are forward-looking statements. Although
the Registrant believes the expectations expressed in such forward-looking
statements are based on reasonable assumptions within the bounds of its
knowledge of its business, such statements are not guarantees of future
performance and actual results or developments may differ materially from
those in the forward-looking statements.
Factors that could cause actual results to differ materially from those
in forward-looking statements include: oil and gas prices; exploitation
and exploration successes; continued availability of capital and
financing; general economic, market or business conditions; acquisition
opportunities (or lack thereof); changes in laws or regulations; risk
factors listed from time to time in the Registrant's reports filed with
the Securities and Exchange Commission; and other factors.
<PAGE> 15
PART II . OTHER INFORMATION
Item 2. Changes in Securities
There were no changes in securities during the quarter.
Subsequent to the end of the quarter, the Board of Directors of the
Registrant agreed to extend the expiry date on 950,000 warrants expiring
on May 27, 2000 to May 27, 2001 and amend the exercise price to $0.40 per
share from $0.90 per share. 1,000,000 warrants expiring July 3, 2000 were
also extended to July 3, 2001 and re-priced to $0.40 per share from $0.90
per share.
On May 23, 2000 the stockholders of Trans-Orient Petroleum Ltd. approved
the sale of its oil and gas exploration permits and assets to the
Registrant on terms disclosed in the Registrant's 8-K filed on April 13,
2000. 4,184,224 shares of the Registrant's common stock were issued to
Trans-Orient as partial consideration, which include an attached "A"
warrant and a conditional "B" warrant. Each "A" warrant entitles Trans-
Orient to purchase on additional share of common stock of the Registrant
for $0.50 per share if exercised on or before March 29, 2001 or $0.75 per
share thereafter until the expiry date on March 29, 2002. The "B"
warrants are issueable upon exercise of the "A" warrants and a commercial
hydrocarbon discovery having been obtained in any of the permits
transferred from Trans-Orient to the Registrant. The "B" warrants are
exercisable at a price of $1.50 per share within one year from the date
of issue.
On July 10, 2000, the Registrant's Board of Directors approved the
granting of stock options to employees, directors and consultants of the
Registrant to acquire up to 3,668,000 common shares at an exercise price
of $0.50 per share. The exercise price was determined by calculating a
15% discount from the 10 day trading average prior to the date of grant.
The options are subject to resale provisions and provide for a 42 month
vesting period for directors and a 48 month vesting period for employees
and consultants. The Board also approved the granting of further options
to two directors to acquire up to 2,000,000 common shares at an exercise
price of $0.60 per share. These options are not subject to any vesting
provisions.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Annual General Meeting of Stockholders was held on June 20, 2000 at
the offices of the Registrant's domestic corporate counsel in Vancouver,
British Columbia. The Notice of Meeting, Information Circular and Proxy
was mailed on May 18, 2000 to stockholders of record on May 16, 2000.
Proxies were delivered to the Registrant constituting a quorum.
25,464,495 shares were voted, representing 78.5% of the issued and
outstanding shares of the Registrant's common stock as of the Record
Date. The matters voted on, and the results of the votes for, against and
withheld with respect to each matter, consisted of the following:
<PAGE> 16
* Stockholders appointed Sadovnick Telford and Skov as auditors
for the ensuing year and authorized the directors to fix their
remuneration. Votes cast in favor were 24,874,317; 189,263
against and 200,915 were withheld from voting.
* The election of the following directors for the ensuing year
were approved by Ordinary Resolution:
Votes For Votes Against Withheld
David McDonald 24,796,289 468,206
David Bennett 24,766,390 498,105
Alex Guidi 24,750,545 498,105
Ronald Bertuzzi 24,768,540 495,955
Brad Holland 24,721,439 543,056
* Stockholders approved by Special Resolution; (a) that the
Registrant consolidate all of its common shares on a one for
five basis and that no fractional shares shall be issued in
connection with the consolidation; (b) that the maximum number
of common shares that the Registrant is authorized to issue be
increased to an unlimited number of common shares without par
value, and; (c) that the Directors of the Registrant be
authorized to revoke the special resolutions approving the
share consolidation before it is acted upon without further
stockholder approval. Votes cast in favor were 21,550,968;
3,390,580 against and 322,947 were withheld from voting.
Item 5. Other Information
On April 20, 2000 the Registrant gave notice to the SEC that it had
elected to file all future periodic reports in accordance with the filing
requirements for foreign private issuers. The election was made on the
basis that the Registrant is incorporated in Canada and meets the
definition of a foreign private issuer pursuant to SEC Rule 3b-4, as none
of the Registrant's officers or directors are citizens or residents of
the United States, none of the Registrant's assets are located in the
United States and the business of the Registrant is administered
principally from outside of the United States. The election was made to
streamline administrative operations. Filings and rules that applied
under the Registrant's previous system of filing as a US domestic issuer,
such as annual and quarterly reports under Forms 10-K and 10-Q, material
change reports under Form 8-K, proxy solicitation rules and US insider
reporting rules will no longer apply.
As a foreign private issuer, the Registrant's reporting requirements will
now generally consist of filing an annual report under Form 20-F and,
under cover of Form 6-K, information which is material with respect to
the Registrant and its subsidiaries concerning; changes in business;
changes in management or control; acquisitions or dispositions of assets;
bankruptcy or receivership; changes in registrant's certifying
accountants; the financial condition and results of operations; material
legal proceedings; changes in securities or in the security for
registered securities; defaults upon senior securities; material
increases or decreases in the amount outstanding of securities or
indebtedness; the results of the submission of matters to a vote of
security holders; transactions with directors, officers or principal
<PAGE> 17
security holders; the granting of options or payment of other
compensation to directors or officers; and any other information which
the registrant deems of material importance to security holders. The
Registrant will continue to file with the British Columbia Securities
Commission all requirements as a reporting issuer in the Province of
British Columbia, Canada, including annual and quarterly reports prepared
under Canadian generally accepted accounting principles. All Canadian
regulatory filings will be available on line over the Internet at
www.sedar.com. Directors, officers and significant shareholders of the
Registrant are also required to file insider reports with the British
Columbia Securities Commission.
On July 21, 2000, an "E" was attached to the Registrant's trading symbol,
on the NASD's OTC Electronic Bulletin Board (the "OTC Bulletin Board"),
in accordance with the requirements imposed under the NASD's eligibility
rules. The Registrant's shares will be ineligible for quotation on the
OTC Bulletin Board after August 20, 2000, unless the SEC staff has no
further comments with respect to the Registrant's Form 10 registration
statement, filed August 21, 1998. On August 2, 2000, the Registrant
responded to the SEC staff's most recent comment latter, dated October
30, 1998. The Registrant expects to be delisted from the OTC Bulletin
Board and will seek a listing for its common shares on the electronic
"pink sheet" marketplace until the SEC staff has no further comments
regarding the Registrant's Form 10 registration statement and the
Registrant's application to re-list on the OTC Bulletin Board is approved
by the NASD.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this Form 10-Q are:
27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed a Form 8-K on April 13, 2000 regarding the Agreement
of Purchase and Sale, effective January 1, 2000, between the Registrant
and Trans-Orient Petroleum Ltd., under which the Registrant purchased all
of Trans-Orient's oil and gas assets and interests in its exploration
permits in New Zealand, Australia and Papua New Guinea. The closing
occurred on March 29, 2000 and was subject to the approval of the
stockholders of Trans-Orient, which was obtained on May 23, 2000. The
Registrant included a pro forma balance sheet as of January 1, 2000
reflecting the sale adjustments, and the Agreement of Purchase and Sale
was included as an exhibit in the Form 8-K.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
27 Financial Data Schedule
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
INDO-PACIFIC ENERGY LTD.
By: /s/ David Bennett August 9, 2000
David Bennett, President
By: /s/ Mark Katsumata August 9, 2000
Mark Katsumata, Secretary
