SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
Commission file number 0-29670
DRUCKER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware N/A
(State or other jurisdiction (I.R.S.Employer
of incorporation or organization) Identification No.)
#1-1035 Richards Street, Vancouver, B.C. Canada V6B 3E4
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 681-4421
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
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 the filing
requirements for at least the past 90 days.
Yes X No
Indicate by check mark if 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.
Yes No X
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Registrants gross revenues for its most recent fiscal year were
$135,266, and operations expenses totaled $685,080 for a net loss
of $(549,814) on operations.
State the aggregate market value of the voting stock held by non-
affiliates of the Registrant: $17,054,061 as of December 31, 1997
(a $.75/share bid at December 31, 1997).
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock: 32,476,250 common shares as
of December 31, 1997.
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TABLE OF CONTENTS
PART I
Page
Item 1. Business ..................................1
Item 2. Properties ................................14
Item 3. Legal Proceedings..........................16
Item 4. Submission of Matters to a Vote of
Security Holders.............................16
PART II
Item 5. Market for Registrant's Common Stock and
Security Holder Matters.......................16
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.....................................18
Item 7. Financial Statements and Supplementary Data..24
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.....24
PART III
Item 9. Directors and Executive Officers of the
Registrant.....................................25
Item 10. Executive Compensation........................27
Item 11. Security Ownership of Certain Beneficial
Owners and Management......................29
Item 12. Certain Relationships and Related
Transactions...................................30
PART IV
Item 13. Exhibits, Financial Statement Schedule
and Reports on Form 8-K....................31
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PART I
ITEM 1. BUSINESS
(a) General Description and Development of Business.
HISTORY OF COMPANY
(Through December 31, 1997)
On February 4, 1971, the Registrant was incorporated under
the laws of the State of Idaho, under the name of Monetary Metals
Corporation.
On December 16, 1988, Drucker Sound Design Corporation was
incorporated under the laws of the State of California.
On October 18, 1989, Gul Industries Corp. was incorporated
under the laws of the State of Delaware.
On December 14, 1989, the Registrant entered into an
Agreement and Plan of Reorganization, whereby the issuer acquired
100% of the assets subject to liabilities of Drucker Sound Design
Corporation, a California corporation. The Registrant began
engaging in the manufacturing and distribution of audio,
cellular, C.B., radar, and other electronic installation systems
for automobiles. The Company decided to redomicile in Delaware
and entered into a merger agreement with Gul Industries, Inc., a
Delaware corporation. On April 16, 1990, the Registrant filed
Articles of Amendment in the State of Idaho changing its name
from Monetary Metals Corporation to Drucker Sound Design
Corporation. On June 6, 1990, Gul Industries Corp. filed a
Certificate of Amendment to the State of Delaware changing its
name to Drucker Sound Design Corporation. On June 19, 1990, a
Certificate of Merger was filed in the State of Delaware. On
August 7, 1990, a Certificate of Merger was filed in the State of
Idaho. Prior to September 1991, the Registrant discontinued
engaging in the business of manufacturing and distributing of
audio, cellular, C.B., radar, and other electronic installation
systems for automobiles. On September 4, 1991, the Registrant
filed Certificate of Amendment in the State of Delaware changing
its name to Drucker Industries, Inc.
In September 1991, the Company purchased the license to the
"N-Viro Process" in Japan from N-Viro Energy Systems, Ltd. for
$466,063. The Company made a $100,000 down payment and paid the
balance by quarterly installments. The Company was delinquent on
minimum royalty payments due June 30, 1994 and September 30,
1994, totalling $50,000, and consequently all rights and
privileges granted to the Company under the license agreement
were cancelled by the licensor. The license agreement costs, net
of accumulated amortization, were written-off during the year
ended December 31, 1994. The Company at December 31, 1995,
terminated any attempts in the N-Viro business.
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No activities were conducted in 1995 or 1996. In 1997, new
management was engaged and a business plan to engage in oil and
gas exploration was adopted.
THE COMPANY BUSINESS
1. General Operations
The Company has had very limited operations within the last
three years, and such operations have been restricted to
investigation of opportunities, evaluation and negotiations of
the joint venture agreements described hereafter, and the joint
venture participations in oil exploration projects in China in
fall 1997.
Current Business
The Company was inactive until late 1996. In early 1997,
the Company negotiated joint venture farm-in agreements with two
Vancouver based oil companies for a 50% interest in certain oil
projects in the People's Republic of China. The Company's
primary business focus is the acquisition, exploration and
development of mineral properties and oil and natural gas
properties. The Registrant has contractual interests in the
joint ventures described in (d) below.
The Company anticipates that its business will require
capital to make required financial investments under the joint
venture agreements. The Company intends to use the capital
Markets of the United States and Europe to secure the capital
funding required by the Company and its operations. It has no
commitments for funding as of the date of this registration
statement, nor anticipated sources of debt or equity funding,
except its cash on hand.
The Company's current business plan is in oil and gas
production, exploration, and joint ventures in China. The
Company has determined that it must build an asset base through
acquisition of assets; by exchange of stock for other companies,
real estate, oil and gas leases, oil and gas properties for
production or workover/if necessary, or gas pipelines if the
opportunity to exchange stock for pipeline interests as arises.
The Company believes that debt will rarely be desirable to
acquire any asset or business. The Company may acquire other
assets by exchange of stock and will consider the following
factors in approving such acquisition:
1. The affect on the financial statements of the Company.
2. The affect on the debt position of the Company.
3. The potential for appreciation on the asset, or
the profit potential, if any.
4. The market value, if determinable, of the asset.
5. The cost of increasing the asset value, or making
the asset produce income if oil and gas leases or
interests, are to be acquired; the costs of testing,
drilling, operations, workover, and the risks of loss
therefrom, to attempt to achieve oil and gas
production. (No formula is set for such determination
due to numerous unknown factors. It is solely the
discretionary decision based on subjective judgments
whether or not to drill, explore or attempt workover).
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6. The asset value per share of the asset being
acquired. No formula has been set, but the Company
would follow the general consideration that each
successive acquisition would contribute asset value or
revenue to the company.
The Company intends to pursue acquisitions which appear
to hold potential for adding equity and/or cash flow to the Company.
The Company has not established, and does not intend to
formally establish, criteria for the selection or evaluation of
oil and gas properties or participations. When a property is
located which the management, in its opinion, believes holds the
potential for profit for the Company, an attempt will be made to
secure an option, or lease, in the property. Shareholder
approval will not be sought for property acquisitions.
Therefore, shareholders will be dependent upon the judgment of
management in selecting properties (see "Management"). If such
an interest is acquired, the Company will then expend funds for
preliminary exploration and testing of the property to determine
the feasibility of production of such property. Based on the
results of such preliminary testing, the Company will decide,
without shareholder approval, whether to acquire or abandon the
property. A property may be acquired by outright purchase; by
purchasing or leasing the oil, gas or mineral rights of the
property; or by exchange of the shares for leases or interests in
properties.
The Company may expend funds to rework, explore or test any
oil and gas prospects it acquires to determine the economic
production feasibility of such properties. The Company will rely
on outside consultants (none of whom have been designated) to
provide management with competent evaluation and recommendations
concerning property or interests in properties to be considered
for acquisition. The Company has no agreement or understanding,
express or implied, with any outside professional; and there is
no assurance that it will be able to retain the services of
competent experts or as to the fees which such experts will
charge the Company. Based upon the results of such exploration
and tests, as interpreted by management, the Company will then
determine whether such properties should be acquired, explored
further, sold or leased to a third party, held for possible later
development or abandoned; or whether development to production
should be attempted by the Company either by itself or through
joint venture or other business arrangements with other companies
or entities.
The Company owns no subsidiaries.
The Company currently maintains its offices #1-1035 Richards
Street, Vancouver, B.C. Canada V6B 3E4. Its telephone number is
604-681-4421.
(b) Parents and Subsidiaries
Parent
DRUCKER INDUSTRIES, INC., a Delaware corporation
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Subsidiaries
None
(c) Oil and Gas Activities.
Registrants oil and gas exploration, development and
production activities have been limited due to lack of capital
and lack of focus in such area prior to 1997. The Company, in
1997 received stock sale proceeds to finance its oil & gas joint
ventures in China and intends to actively pursue opportunities in
oil and gas in China over the next year.
The Company's proposed principal areas of activities are
described below.
Exploration and Production Activity. The Company's strategy
with respect to its oil exploration related activities is to
identify geological areas in which the Company may invest or
participate in non-producing or producing oil and gas prospects
or joint ventures for development and where the company may lease
prospects for oil and gas exploration. In 1997, it joined joint
ventures to explore for oil and gas in China.
During the last five (5) fiscal years, the parent Company
conducted no exploration activities on oil and gas properties as
a consultant or otherwise except for joint venture participation
in China. If the Company acquires oil and gas prospects in the
future, the Company may agree to assign rights in certain
properties to be drilled to the general or managing partner of a
partnership or joint venture which thereby becomes the owner of a
working interest in the property and the Company will retain an
interest in the property. The Company actively reviews prospects
for putting together exploration or development drilling joint
ventures, but currently has no proposal being negotiated on any
specific property, lease or asset, not otherwise discussed
herein.
The Company does not own any drilling rigs, nor does it
employ drilling or operating crews. The Company will not be the
actual contract driller of wells. If and when the Company
decides to drill to explore a prospect, the Company will contract
with third-party drilling companies to drill oil and gas wells on
a fixed-cost (turnkey) basis. Once a well has reached its
desired depth, the Company, in consultations with experts, will
then determine whether to complete such wells and/or to plug and
abandon the well. All well completion activities are conducted
under supervision of the Company and its consultants, by third
party service contractors.
The Company is not carrying any reserve values of any
properties due to the lack of any production or found reserves.
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Exploration Results 1997 Prior Years
Gas Wells 0 0
Dry Holes 1 0
Oil Wells 0 0
Financing of Oil and Gas Activities. The Company's future
oil and gas financing activities will be conducted primarily
pursuant to ventures with Independent companies and through Joint
Ventures in which the Company may act as co-venturer ("Company-Joint
Ventures") or as a working interest participant. The Company has
contacted some independent companies who have indicated an interest
in participating in financing if the project interests them. The
Company hopes to put together some participations in the next year.
In 1997, the Company participated in exploration participation in
China in which it paid 100% of costs for a 50% interest in the
concession and any production found. The 1997 results were one dry hole.
The following table sets forth, for the years indicated, the
funds invested by the Company pursuant to contracts under
Participation Agreements and Joint Ventures. The Company may
record revenues from operations on the percentage of completion
method as the oil and gas projects are drilled or constructed,
rather than when funds are received.
Year Ended Decmeber 31,
1993 1994 1995 1996 1997
Independent Partnerships 0 0 0 0 0
Participation Payments $0 $0 $0 $50,802 $1,916,763
Under Agreements
Total $0 $0 $0 $50,802 $1,916,763
In 1997, the Company offered and sold 5,179,500 units at
$1.00 per unit pursuant to an Offering Memorandum. Each unit is
to consist of one common share and one share purchase warrant
which will entitle the holder thereof to acquire an additional
unit at $1.50 per unit. This warrant will expire in eighteen
months from the closing of the Offering Memorandum. The
additional unit is to consist of one common share and one
additional share purchase warrant to acquire one common share at
$2.00 per share. This warrant will expire in thirty months from
the date of closing of the Offering Memorandum, unless extended.
(d) Narrative Description of Business.
The primary initial focus of business operations is to make
an investment in oil and gas exploration joint ventures in China.
See also (c) "Oil and Gas Activities", "Properties" and
"Joint Ventures" hereafter for more complete discussion).
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Governmental Regulation for U.S. Operations If Ever Developed
General - The Registrant's oil and gas production
activities are subject to extensive regulation by numerous
federal, state and local governmental authorities, including
state conservation agencies, the Department of Energy (including
the Economic Regulatory Administration and the Federal Bureau of
Indian Affairs and Bureau of Land Management). Regulation of the
Registrant's production, transportation and sale of oil or gas,
and federal price and allocation controls in particular, have a
significant effect on the Registrant and its operating results.
Natural Gas Price Controls - The Federal Energy
Regulatory Commission ("FERC"), an independent commission within
the Department of Energy ("DOE"), has pricing authority over the
transmission and sale of various categories of natural gas. This
authority includes administration of the Natural Gas Act and
Natural Gas Policy Act of 1978 ("NGPA"), which establishes, among
other things, maximum lawful prices for various categories and
other price adjustments. These maximum lawful prices apply to the
sale of natural gas in both intrastate and interstate commerce
from properties in which the Registrant has an interest, NGPA
price controls as to certain classifications have been removed
and generally the sale of the Company's gas production is
currently not subject to price regulations.
State Regulation - The production operations of the
Registrant are subject to regulation by state conservation
commissions which have authority to issue permits prior to the
commencement of drilling activities, establish allowable rates of
production, control spacing of wells, prevent waste and protect
correlative rights, and aid in the conservation of natural oil
and gas. Typical state regulations require permits to drill and
produce oil or gas, protection of fresh water horizons, and
confirmation that wells have been properly plugged and abandoned.
Environmental Matters - Various federal and state
authorities have authority to regulate the production and
development of oil and gas and mineral properties with respect to
environmental matters. Such laws and regulations, presently in
effect or as hereafter promulgated, may significantly affect the
cost of the workover and development activities contemplated by
the Registrant and could result in loss or liability to the
Registrant in the event that its operations are subsequently
deemed inadequate for purposes of any such law or regulation.
New regulations, if adopted, could result in significant capital
expenditures by the Registrant, resulting in unprofitable
operations.
Uncertainties Related to the Oil and Gas Business in General
The Registrant's operations will be subject to all of
the risks normally incident to the production of oil and gas,
including blowouts, pollution and fires. Each of these incidents
could result in damage to or destruction of oil and gas wells or
formations or production facilities or damage to persons or
property. As is common in the oil and gas industry, the
Registrant is not fully insured against these risks either
because insurance is not available or because the Registrant has
elected not to insure due to prohibitive premium costs.
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The Registrant's future oil and gas activities may
involve a significant risk that commercial oil or gas production
will not be maintained. The costs of drilling, completing
reworking or operating wells is often uncertain. Further,
operations, may be curtailed or delayed as a result of many
factors, weather conditions, delivery delays, shortages of pipe
and equipment, and the availability of workover equipment.
The oil and gas business is further subject to many
other contingencies which are beyond the control of the
Registrant. Wells may have to be shut-in because they have become
uneconomical to operate due to changes in the price of oil,
depletion of reserves, or deterioration of equipment. Changes in
the price of imported oil, the discovery of new oil and gas
fields and the development of alternative energy sources have had
and will continue to have an important effect on the Registrant's
business.
China's Economy
Since the beginning of Communist rule in 1949, China
underwent close to 30 years of severe central planning and was
mostly closed to the outside world. Within that period the
country was subjected to the "Great Leap Forward" of the late
50's and the "Cultural Revolution" of the late 60's. When the
country was returned to a market economy by Deng
Xiaoping("Socialism with Chinese characteristics" by Deng's
words), 1 billion Chinese were set free to pursue economic growth
and its rewards. Today,after almost 20 years of economic reforms,
China has risen from another-developed economy with little
technical or industrial expertise to the third largest economy in
the world - after the United States and Japan.
Since the beginning of economic reforms in 1978, real growth
has averaged 9.5% a year for 19 years, 560% in total.
% Change 1993 1994 1995 1996 E
Real GDP 13.5 11.8 10.2 9.7
Inflation 13.2 21.7 14.8 6.0
Exchange Rate 5.8 8.5 8.3 8.3
(Yuan / US$)
Population 1.20 1.21 1.22 1.24
(Est. Billions)
The days of uncontrolled growth of the early 90's has
prompted the Central Government to bring in austerity measures,
and since 1994, the country saw a slower pace of growth but more
importantly, inflation has been controlled. This monetary policy
has also helped China to increase its balance of trade and build
foreign exchange reserves of over US$ 100 billion, the second
highest in the world after Japan. In 1996, foreign investment
increased by 7% to US$ 40 billion, putting China second only to
the U.S. in attracting overseas money. According to Zhao Xizheng,
Vice Minister of Power, China will need at least US$ 20 billion
in foreign investments by 2000 to meet its energy needs.
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Regions along the coast have been the major beneficiaries of
China's economic growth to-date, due to the major advantage of
closer to the outside world than the interior. The interior, with
its rich untapped natural resources, has now been opened to
foreign investments.
Demand for Oil
China's demand for petroleum has been growing by over 8% per
annum since 1990. By 1996, the country consumed 3.1 million
barrels of refined products per day. It is projected to grow at
an average 5% compound annual growth rate between 1996 and 2005
to reach about 5 MM bpd. China became a net importer of crude oil
in 1993 and has experienced a widening shortfall of imports over
exports. On a per capita basis and with a population of 1.24
billion, China consumes slightly less than 1 barrel of oil per
capita per annum. Compared to a newly industrialized country such
as South Korea, which consumes 16.9 barrels per capita, China's
demand for oil will grow as the economy grows. There is an urgent
need for the oil and gas industry to expand its reserves and
production to satisfy this impending growth in demand.
China's Oil & Gas Industry
There are some little known facts about China's Oil and Gas
industry, for example:
China is the 5th largest oil producer in the world today
with production of around 3 million barrels per day.
Oil was discovered and used in the Northern Shaanxi area
of China in the 11th century, over 900 years ago. This is
where the Company's prospects are located.
The first on-shore oil well was drilled in 1907 in the
Northern Shaanxi area.
China has 94 billion tons (approx. 650 billion barrels) of
oil reserves; according to a China Today October 1996
interview with Mr. Wang Tao, General Manager of the China
National Petroleum and Natural Gas Corporation. Two-thirds
of the total reserves are on-shore and only 18% of on-shore
reserves are proven.
There are over 20 major producing oil and gas areas in
China, e.g. Songliao Basin, Tarim Basin, Ordos Basin.
China has produced in excess of 17.5 billion barrels of
oil since 1949.
1995 production about 1 billion barrels of oil and 17
billion cubic metres of natural gas.
The Oil and Gas industry in China was insignificant until
the Communist Party came into power in 1949. The industry came
under state control and from a production of 876,000 barrels in
1949, it grew 114,000% (over 1,000 times) to 1995's production of
1 billion barrels.
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On-shore oil and gas exploration and development efforts
over the past 38 years were concentrated on the eastern seaboard,
resulting in large well-known oilfields such as Daqing, Shengli
and Liaohe. Consequently, approximately 70% of on-shore
recoverable reserves are presently located on the east coast.
These consist of Daqing Oilfield with 32% which is located in the
Songliao Basin in north-eastern China. Liaohe Oilfield with 12%
in the same basin and Shengli Oilfield with 27%, which is located
in the North China Basin in central eastern China. After years of
productions, these established oil fields have experienced
declining output for several years. This has necessitated
explorations inland towards the west, with the most significant
new find in the Tarim Basin of Xinjiang. According to Xinhua
News, China's eastern oilfields' share of on-shore production is
forecasted to fall below 80% by 2000 with the annual rate of
output declining at about 14%.
The Ordos Basin
The Ordos Basin is a major sedimentary basin located in
central northern China. It covers an area of 250,000 km2, China's
first on-shore oil well, drilled in 1907 in the Northern Shaanxi
area was in this basin. The basin is shared by the provinces of
Shaanxi, Ningxia and Gansu, and administered by the Changqing
Oilfield Administration. It is a Jurassic and Triassic play with
linked pearl-shaped stratigraphic traps ranging at depths of
1,000 to 2,000 metres. The Ordos Basin, at an early stage of
exploration, currently holds 2% of China's on-shore recoverable
oil reserves. It is estimated that it contains 18 billion barrels
of possible reserves. 1995 production for the basin was 30
million barrels and are currently producing at a rate of 100,000
barrels per day. Since 1970, a total of 220 million barrels has
been extracted from the ground. According to a China Today issue
of December 1996, "With China's key economic strategies moving
westward, Northern Shaanxi will become the country's major energy
base by the 21st century."
Registrant's Venture Interests
The Company has farmed into 1,280 km2 (316,000 acres) of
land controlled separately by Richi Petroleum Corp. and Milco
Petroleum Inc., in joint ventures.
Richi Petroleum Corp. has formed a joint-venture company
with Ningxia Lantian Materials Company Ltd., a subsidiary of
China Petrochemical Corp. (Sinopec), one of the largest
corporations in China. Sinopec is involved in petroleum refining,
petrochemicals, synthetic fibers, rubbers, resins, chemical
fertilizers and oil & natural gas based basic organic raw
materials. They hold a 19.5% interest in the concessions. In
1995, Sinopec processed 800 million barrels of oil and had
revenues of US$25 billion. The Richi joint-venture's concessions
are located in both Ningxia and Northern Shaanxi.
Milco Petroleum Inc.'s joint-venture partner is Zhong Yuan
Development Corp., an industrial arm of the Shaanxi Provincial
Government. Zhong Yuan has been successfully exploring and
producing oil in Northern Shaanxi for the last three years. The
Milco joint-venture's concessions are located in Northern
Shaanxi. Zhong Yuan holds a 15% interest in the joint-venture.
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The Richi and Milco concessions are located in a known
hydrocarbon bearing basin, and are near existing producing oil
fields. The typical producing wells are between 1,000 to 2,000
metres deep, with low sulphur crude of 30o API gravity.
China Oil Prices
China's current on-shore oil price is artificially set by
the government and all oil produced must be sold to government
refineries. This has resulted in a must larger profitability for
the downstream companies than the upstream companies. China
national oil company China National Petroleum Corp. (CNPC) has
appealed to the government to loosen its control on the price of
crude oil. And on Friday May 23, 1997, Reuter reports "China on
Friday said it expected to deregulate domestic oil prices to
match international market prices within two years, helping
attract foreign investment to one of the world's fastest growing
economies." This will have a very positive impact on the Company.
Foreign Oil Companies in China
Company Location
Shell Coastal Yellow Sea Area
Jiangsu Province
Exploration Co. of Bohai Gulf
Louisiana, Apache
BP, Nippon Oil, Itochu, Tarim Basin, Xinjiang
Mitsubishi, Mitsui
Exxon, Sumitomo, Inpex Tarim Basin, Xinjiang
AGIP, Elf, Texaco, Japan Tarim Basin, Xinjiang
Energy, JapEx
Future Plans for China Concessions
China has recently opened its doors to foreign involvement
in the country's oil and gas sector. Controlled by the China
National Petroleum Corporation ("CNPC"), China had always
employed a guarded stance towards freeing up concessions for
foreign participation. When the recent Asian Financial Crisis
created havoc in neighboring countries directly affecting the
flow of investments into the region, China's Central Government
decided to instruct CNPC to adopt a more open policy to attract
foreign investments. Based on this understanding, management
plans to further investigate the available options in China
before committing the company's resources.
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Products, Services, Markets, Methods of Distribution and
Revenues. Oil and natural gas are presently the principal
products sought to be produced by the company but none is
presently being produced.
Joint Ventures with Milco Petroleum, Inc. and Richi
Petroleum Corp. (See "Material Agreements" Item 3 (i))
1. Milco Joint Venture. By joint venture farm-in
agreement dated January 21, 1997, made between the Registrant and
Milco Petroleum, Inc. (the "Operator"), the Registrant plans to
spend approximately US$2,500,000 for the surveying, drilling,
completion, equipment, operating and other costs for the drilling
and operations associated with the exploration and/or development
and/or completion of oil and/or gas wells in or around the Ordos
Basin in north central China in Shaanxi/Ningxia area. The wells
are to be drilled on Peoples Republic of China Government lands,
estimated production cost, if any producible oil or gas is found,
including taxes and royalties is about US$4.50 per barrel.
Production, if any, is expected to be sold at Rmb 1,000 (PRC
currency) or US $16.60 per barrel. The price is currently
controlled but is expected to change in the future as China moves
to a market economy. Spacing units equating to 50 acres for each
oil well have been designated on the 316,000 acre concession.
2. The Registrant and Richi Petroleum Corp. ("Richi") have
entered into a Participation Agreement dated as of January 21,
1997, (the "Richi Participation Agreement").
Under terms of the Richi Participation Agreement, the
Registrant agrees to pay 100% of all of the costs of operating,
exploring and developing the Richi Concession to Richi, as
consideration for an undivided 50% interest in all of the profits
generated from the Richi Concession and paid to the joint
venture. The Registrant will also participate in all other
future concessions acquired by Richi on the same 50%
participation terms.
The Company participated in one dry hole in China in 1997 at
a cost of $147,281.
The Company has one part time employee and has opened an
office in Beijing, PRC. If the Company is successful in its plan
the number of employees would increase in the United States and
in the PRC. The Company is seeking financing for investment in
business ventures from investors in the United States, Europe and
Asia. At this time no assurance can be given that such financing
can be obtained or if such joint ventures can be organized.
Working Capital Needs. The working capital needs of the
company consist primarily of: investigation activities,
acquisition of prospect acreage and costs of participation in
joint ventures in the People's Republic of China. These
requirements may be met by private placement of stock or loans or
sale of working interests. The Company will need to develop
additional working capital for future operations.
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(3) Dependence on a Single Customer or a Few Customers.
a) Revenues - None. The Company has no customers at this time.
b) Client Services revenues - none
During the five (5) years ending December 31, 1997, no
revenues were generated from client services.
(4) Backlog of Orders. None at this time.
(5) Government Contracts. None.
(6) Competitive Conditions. The oil and gas industry is
highly competitive. The Company faces competition from large
numbers of oil and gas companies, public and private drilling
programs and major oil companies engaged in the acquisition,
exploration, development and production of hydrocarbons in all
areas in which it may attempt to operate in the future. Many of
the programs and companies so engaged possess greater financial
and personnel resources than the Company and therefore have
greater leverage to use in acquiring prospects, hiring personnel
and marketing oil and gas. Accordingly, a high degree of
competition in these areas is expected to continue. The markets
for crude oil and natural gas production have increased
substantially in recent years. Oil prices have stabilized
generally, but the world market for crude oil should be
considered unstable due to uncertainty in the Mideast. There is
considerable uncertainty as to future production levels of major
oil producing countries. Significant increases in production
could create additional downward pressure on the price of oil. A
precipitous drop in oil & natural gas prices in the future market
occurred in January 1986, but the Company does not expect to be
adversely affected further.
In the past surpluses in natural gas supplies and other
factors have combined to have a negative impact on the natural
gas business. Purchasers have canceled contracts or might
propose to cancel contracts. Other purchasers have lowered the
price they will pay for unregulated natural gas, which previously
commanded premium prices. There is no assurance that the
Company's revenues, if any ever develop, will not be adversely
affected by these factors.
The market in China is controlled by the Government, which
could impose taxes or restrictions at any time which would make
operations, if any, unprofitable and infeasible and cause a write
off of capital investment in chinese oil and gas opportunities.
The China oil exploration situation is highly competitive.
The Company faces competition from large numbers of companies in
any areas in which it may attempt to operate in the future. Many
of the companies so engaged possess much greater financial and
personnel resources than the Company and therefore have greater
leverage to use in acquiring sites, hiring personnel and
marketing. Accordingly, a high degree of competition in these
areas is expected to continue.
12
<PAGE>
A number of factors, beyond the Registrant's control and the
effect of which cannot be accurately predicted, affect the
production and marketing of oil and gas. These factors include
crude oil imports, actions of foreign oil producing nations, the
availability of adequate pipeline and other transportation
facilities, the marketing of competitive fuels and other matters
affecting the availability of a ready market, such as fluctuating
supply and demand.
(7) Registrant Sponsored Research and Development. None.
(8) Compliance with Environmental Laws and Regulations.
The operations of the Company are subject to local, provincial
and national laws and regulations in the People's Republic of
China. To date, compliance with these regulations by the Company
has had no material effect on the Company's operations, capital,
earnings, or competitive position, and the cost of such
compliance has not been material. The Company is unable to
assess or predict at this time what effect such regulations or
legislation could have on its activities in the future.
(a) Local Regulation -
The Company cannot determine to what extent future
operations and earnings of the Company may be affected by new
legislation, new regulations or changes in existing regulations.
(b) National Regulation -None.
The Company cannot determine to what extent future
operations and earnings of the Company may be affected by new
legislation, new regulations or changes in existing regulations.
The value of the Company's investments in the Milco and
Richi may be adversely affected by significant political,
economic and social uncertainties in the People's Republic of
China ("PRC"). Any changes in the policies by the Government of
the PRC could adversely affect the company in the Milco and Richi
Joint Ventures by, among other factors, changes in laws,
regulations or the interpretation thereof, confiscatory taxation,
restrictions on currency conversion, imports and sources of
supplies, the expropriation or nationalization of private
enterprises, or political relationships with other countries.
(c) Environmental Matters - None at the date of this
registration statement.
(d) Other Industry Factors - Oil and gas drilling
operations are subject to hazards such as fire, explosion,
blowouts, cratering and oil spills, each of which could result in
substantial damage to oil and gas wells, producing facilities,
other property and the environment or in personal injury.
(9) Number of Persons Employed. As of December 31, 1997,
the Company had two part time employees, A. Ken Kow, manager of
Petroleum Operations at a salary of $3,000 Canadian per month and
the President, Gerald William Runolfson at no salary.
13
<PAGE>
ITEM 2. PROPERTIES
(a) Real Estate. None
(b) Title to properties. See item (1) below.
(c) Oil and Gas Drilling Activities. None.
(d) Oil and Gas Production. None.
(e) Oil and Gas Reserves. None
(f) Present value of Estimated future Net Reserves
From Proved Developed Oil and Gas Reserves. None.
(g) Reserves Reported to Other Agencies. None.
(h) Natural Gas Gathering/Processing Facilities. None.
(i) Present Activities and Subsequent Events:
Material Agreements
(1) Richi Petroleum Corp. Agreement
By a participation agreement dated January 21, 1997, the
Company agreed to pay 100% of all the costs of exploring and
developing the Ningxia oil and gas concessions in Yanchi County,
Ningxia Province and WuQi county, Shaanxi Province, Peoples
Republic of China.
Under the Agreement the Registrant earns a 50% interest in
the profits to be received by a joint venture named Ningxia
RichiTian Oil Development Co. Ltd. ("RichiTian") established by
Richi Petroleum Corp. (a company owned by Director Ernest Cheung
and holder of 4% of Registrants common stock) and LanTian
Materials Company (a subsidiary of Ningxia Petroleum Company), a
corporation formed under the laws of the People's Republic of
China ("PRC"). The joint venture is governed by the laws of the
PRC.
Richi Petroleum Corp. owns an 80.5% interest in RichiTian
joint venture, which in turn holds the rights to explore, develop
and produce oil and gas from certain concessions located in
YanChi County, Ningxia Province and WuQu County, Shaanxi
Province, in the PRC (collectively, the "Richi Concession"):
14
<PAGE>
County Concession Sq.Km. Acres
YanChi HongJingZi 70 17,290
WuQi WuGuCheng 250 61,750
WuQi TieBianCheng 150 37,050
Total 470 116,090
(2) Milco Petroleum, Inc. Agreement
The Registrant and Milco Petroleum, Inc. ("Milco") have
entered into a Participation Agreement dated as of January 21,
1997 (the "Milco Participation Agreement") pursuant to which the
Registrant earns a 50% interest in the profits to be received by
a joint venture named Shaanxi ZhongDa Energy Development Co.,
Ltd. ("ZhongDa") established by Milco and ZhongYuan Enterprise
Company ("ZhongYuan"), a corporation formed under the laws of the
PRC. The joint venture is governed by the laws of the PRC.
Milco has represented that it has an 85.0% profit interest in
ZhongDa, which in turn holds the rights to explore, develop and
produce oil and gas from certain concessions located in Northern
Shaanxi Province in the PRC, as follows (collectively, the "Milco
Concession"):
County Concession Sq.Km Acres
AnSai QinBanWan 100 24,700
HaoJiaPing 20 4,940
JingBian QiaGou 80 19,760
PanGou 60 14,820
WuQi ZhouWanZhen 200 49,400
ChangGuanMiao 50 12,350
WuCangPu 200 49,400
DingBian HanQu 100 24,700
Total 810 200,700
Under terms of the Milco Participation Agreement, the
Company agrees to pay 100% of all of the costs of operating,
exploring and developing the Milco Concession to Milco, as
consideration for an undivided 50% interest in all of the profits
generated from the Milco Concession and paid to the joint
venture. The Company will also participate in all other future
concessions acquired by Milco on the same 50% participation
terms.
(3) By a participation agreement dated September 9, 1997,
the Company agreed to pay 100% of all the costs of exploring and
developing the Fuxian oil and gas property in Fuxian County,
Shaanxi Province, Peoples Republic of China as consideration for
an undivided 50% interest in all of the profits generated from
the properties.
(j) Criteria:
The Company will consider the following criteria when
evaluating whether to participate in an oil and gas prospect in
China:
15
<PAGE>
1) Geological and Seismic (when available) Data
2) Market demand for products;
3) Efficient transportation availability;
4) Location;
5) Weather;
6) Management;
7) Cost of participation;
8) Terms;
9) Risk vs. rewards;
10) Feasibility study;
11) Whether capital is available to fund participation.
ITEM 3. LEGAL PROCEEDINGS
None at date of Registration Statement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None in Fiscal Year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The Company's common stock is not now traded on the "Over-
the-Counter" market, but when traded will be quoted in the
National Quotation Bureau or the NASD Electronic Bulletin Board.
The following table sets forth high and low bid prices of the
Company's common stock for the three (3) years ended December 31,
1997, 1996, and 1995 as follows:
Bid
High Low
1997
First Quarter 2 1/8 1 1/8
Second Quarter 1 13/16 1
Third Quarter 1.09 .65
Fourth Quarter .84 .31
16
<PAGE>
Bid
High Low
1996
First Quarter 1/4 1/8
Second Quarter 15/32 1/8
Third Quarter 5/16 9/32
Fourth Quarter 2 1/16 1/8
Bid
High Low
1995
First Quarter 1/2 1/4
Second Quarter Not Traded
Third Quarter 1/4 3/16
Fourth Quarter 1/3 1/16
Such over the counter market quotations reflect interdealer
prices, without retail mark up, mark down or commission and may
not necessarily represent actual transactions.
(b) As of December 31, 1997, the Company had 163
shareholders of record of the common stock.
(c) No dividends on outstanding common stock have been paid
within the last two fiscal years, and interim periods. The
Company does not anticipate or intend upon paying dividends for
the foreseeable future.
SPACE INTENTIONALLY LEFT BLANK
17
<PAGE>
[CAPTION]
<TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information presented herein, should be read in
conjunction with the Company's consolidated financial statements
and related notes appearing elsewhere herein.
Selected Financial Information
(A DEVELOPMENT STAGE COMPANY)
Fiscal Year Ended December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues 0 0 0 0 0
Cost of
Revenues 0 0 0 0 0
Gross Profit 0 0 0 0 0
General and
Administrative
Expenses 247,566 3,118 46,004 89,541 34,865
Income <loss>
from
operations (685,080) 0 0 0 0
Other income
<expense> 135,266 0 (33,451) (64,769) (99,081)
Amortization of
License Agreement 0 0 0 (409,236) (27,415)
(write off - 1994)
Income <loss>
before income
taxes (549,814) (3,118) (79,455) (563,546) (161,361)
Provisions for
income taxes 0 0 0 0 0
Net income
<loss> per Greater
common share than (.02) (.00) (.004) (.028) (.01)
Average shares
outstanding 30,167,056 26,554,183 21,575,697 20,477,500 20,377,500
</TABLE>
18
<PAGE>
[CAPTION]
<TABLE>
FY FY FY
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current Assets 3,489,285 0 0 1,344 39,340
Total 4,764,502 50,802 0 1,344 448,576
Assets
Current 137,341 53,327 37,407 562,012 472,698
Liabilities
Long-term debt,
net of current
portion 0 0 0 0 0
Deficit Accum-
ulated during
Development
Stage (1,711,757) (1,161,943) (1,158,825) (1,079,370) (515,824)
Stockholders'
equity 4,627,16 1 (2,525) (37,407) (560,668) (24,122)
(deficiency)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
CHANGES IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company has no primary income source at this time.
Capital from private placements or borrowing against assets are
required to fund future operations. The company completed a
private offering of Units at $1.00 per share for $5,179,500, in
May 1997.
The Company had no revenues for the twelve month period
ending December 31, 1997. The Company recommenced limited
business operations in late 1996, and incurred a significant net
loss from operations in 1997 resulting from costs of
participation in its joint oil exploration ventures in Peoples
Republic of China. The Company may continue to show losses
resulting from joint venture participation for an indeterminate
time.
RESULTS OF OPERATIONS
During its operations ended December 31, 1996, the Company
incurred expenses in irregular amounts through year ended
December 31, 1996. By "irregular", the Company is referring to
the fact that due to suspended operations, fixed expenses such as
rent, general and administrative, accounting, telephone, etc.
have been variable, and sporadic. The Company has generated no
business revenue from operations in 1996, or in the first two
quarters of 1997.
19
<PAGE>
In 1997, the Company commenced regular operations and
incurred significantly greater expenses.
The Company incurred the following expenses in the past
fiscal year.
December 31, 1997 December 31, 1996
OPERATING EXPENSES
Accounting $9,539 $2,745
Consulting 32,185 -
Foreign exchange (778) (3,138)
(gain) loss
Interest and bank 406 -
charges
Investor relations 45,280 -
Legal 59,795 373
Office and general 29,776 -
Printing 10,059 -
Promotion 1,409 -
Rent 7,376 -
Telephone 6,741 -
Travel 45,778 -
Write-off of - 3,138
advances
______________________________
TOTAL OPERATING $247,566 $3,118
COSTS ==============================
It is expected that expenses will continue at a
significantly increased rate due to costs of seeking and
investigating China oil opportunities and implementing
exploration pursuant to joint ventures.
Cash Flows:
The Company has achieved no revenues from any operations
during the year, ending December 31, 1997.
The income from operations for prior years compares as
follows: Fiscal years 1994 and 1995 ($0) and ($0) to Fiscal year
ended December 31, 1996. In 1997 the Company also had no income
20
<PAGE>
from operations but had interest income of $135,266. The Company
has never had any income, revenue or profits.
At this time, the Company is dependent upon its cash
reserves, private placements, or loans for future operations and
funding. If its cash reserves are depleted it will have to
either borrow money, if possible, or raise funds through
subsequent public or private offerings to continue operations
until when, or if, it ever develops sufficient revenue from its
assets to maintain operations. If revenues are not generated,
the Company will be forced to develop another line of business,
or to finance its operations through borrowed funds, the sale of
assets it has, or enter into the sale of stock for additional
capital none of which may be feasible when needed. The Company
has no specific management ability, and no financial resources or
plans to enter any other business as of this date although the
Company will be open to suggestion and opportunity.
CHANGES IN FINANCIAL CONDITION
At year end 1997 the Company's assets increased to
$4,764,502 compared to $50,802 at end of 1996. The increase was
a result of advances for expenditures for the exploration and
development of the China joint ventures by Richco Investors,
Inc., its largest shareholder.
The liabilities, nearly all of which are current
liabilities, also increased significantly as a result of accounts
payable related to expenses for the oil exploration joint venture
in China. At year end 1997, current liabilities were $137,341,
an increase of 257% over the 1996 year end liabilities of
$53,327.
Stockholders' equity at year end 1997 was $4,627,161, an
increase over the 1996 stockholder's deficit of ($2,525). The
Company achieved this increase through the private offering of
Units resulting in net proceeds of $5,179,500 to recapitalize the
Company.
From the aspect of whether the Company can continue toward
its business goal of exploring its China oil prospects, the
Company may use all of its available capital without generating
revenues. Without revenues and without continued capital
infusions or loans or a combination thereof, it is doubtful that
the Company can carry out its business goals regarding the China
joint venture operations on the oil prospects for any extended
period beyond 1998.
Comparison of Results of Operation for the Fiscal Years Ended
December 31, 1997 and 1996
The Corporation had no operating revenues in either 1996 or
1997.
The Company incurred operating expenses, all of which are
general and administrative in nature, totaling $3,118 in 1996 as
compared to $247,566 in 1997 in general and administrative
expenses and $433,795 in joint venture expenses. As a result of
having no operating income, the Company incurred operating losses
of $(3,118) in 1996 and $(685,080) in 1997. The Company
anticipates that the trend of net losses will continue in 1998 as
21
<PAGE>
it continues to incur major expenses in attempting to start up
its China oil joint ventures.
General and Administrative costs increased in 1997 to
$247,566 from a total of $3,118 in 1996. Expenses of a General
and Administrative nature increased substantially as a result of
registering its common stock under the Securities and Exchange
Act of 1934, increased audit costs and expenses related to
private placements to fund the China oil exploration and related
administrative costs.
Exploration Costs in China
Oil & Gas Ningxia Shaanxi Fuxian 1997 1996
Project
Costs
Project $953,786 $403,008 $- $1,225,537 $50,802
Costs
Advance (131,257)
due from
project
Dry Hole 147,281
Expense
Capital 38,292 2,270 9,118 49,680 -
Assets
Exploration 286,514
Expenses
$992,078 $405,278 $(122,139) $ $50,802
The Company expects that its expenses for Joint Venture
participation in China will continue at about the same rate as in
1997 for 1998.
The per-share loss amounted to $(.02) in 1997 as compared to
$.000 in 1996.
The Company incurred no interest expenses in 1997 and no
interest expense in 1996. The Company earned interest of $135,266 on
deposits after its Unit offering in 1997.
Comparison of Results of Operations for Fiscal Years Ended
December 31, 1995 and 1994.
During the fiscal year ended December 31, 1994, the
Registrant realized a net loss on operations of $(563,546)
($.028/share) compared to $(79,455) ($.004/share) for the fiscal
year ended December 31, 1995. The large loss in 1994 was as a
result of a $409,236 write off of the N-Viro licenses and $25,000
in royalties.
Operating expenses decreased during 1995 to $79,455 compared
to 1994 at $154,310 except license write off as a result of the
decrease in royalty and fiscal agent.
Comparison of Results of Operation for the Fiscal Years Ended
December 31, 1996 and 1995
The Corporation had no operating revenues in either 1996 or
1995.
The Company incurred operating expenses, all of which are
22
<PAGE>
general and administrative in nature, totaling $3,118 in 1996 as
compared to $79,455 in 1995. As a result of having no operating
income, the Company incurred operating losses of $(3,118) in 1996
and $(79,455) in 1995.
General and Administrative costs decreased in 1996 to $3,118
from a total of $46,004 in 1995. Expenses of a General and
Administrative nature will increase substantially as a result of
registering its common stock under the Securities and Exchange
Act of 1934, increased audit costs and expenses related to
private placements to fund the China oil joint ventures and
miscellaneous operations costs.
Travel expenses in 1996 were about the same as 1995. Office
expenses, including telephone, were $0 in 1996 and $0 in 1995.
These expenses were contributed by President Gerald Runolfson.
1996 expense for accounting totaled $0, while in 1995 accounting
and other professional expenses were $0. The per-share loss
amounted to $0.00 in 1996 as compared to $.004 in 1995.
LIQUIDITY
The Company expects that its need for liquidity will
increase for the coming year due to its anticipation of expending
funds to form joint ventures in the Peoples Republic of China or
make acquisitions of interests in businesses.
Short Term.
On a short term basis, the Company does not generate any
revenue to cover operations. Based on prior experience, the
Company believes it will continue to have insufficient revenue to
satisfy current and recurring liabilities as it seeks to locate
business opportunities. For short term needs the Company will be
dependent on receipt, if any, of private placement proceeds.
The Company had current assets of $3,489,285 at December 31,
1997, and had current liabilities of $137,341. Of the current
total liabilities, $50,802 was owed to a shareholder group, who
have agreed to convert the short term liabilities to a one year
loan and $55,358 was owed to a company with a common director.
Long Term.
On a long-term basis, the Company has no fixed assets. It
does however have at year end $3,238,576 in fungible cash.
The Company has no business at this time from which it
generates income. Its operations have no net cash flow at this
time. It is reliant upon success in its China joint ventures, at
this time, for possibility of future income.
23
<PAGE>
CAPITAL RESOURCES
The primary capital resources of the Company are its stock
and cash on deposit only. Stock may be illiquid because it is
restricted in an unproved company with no income.
The Company completed a private placement of 5,179,500 Units
consisting of common shares and warrants @ $1.00 per unit for
operating capital. The Offering ceased as of May 31, 1997.
The Company intends to continue to attempt to acquire
business assets through the use of its stock, in exchange for
assets, under the circumstances discussed in Item 1 (Business).
As of the date of this report, the Company has material
commitments for capital expenditures within the next year,
pursuant to the Richco and Milco joint ventures, which amounts
may exceed its available capital of $3,000,000.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is included as a separate
Exhibit to this report. Please see pages F-1 through F-11.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
a) None
b) In connection with audits of two most recent
fiscal years and any interim period preceding resignation, no
disagreements exist with any former accountant on any matter of
accounting principles or procedure, which disagreements if not
resolved to the satisfaction of the former accountant would have
caused him to make reference in connection with his report to the
subject matter of the disagreement(s).
c) The principal accountant's report on the financial
statements for any of the past two years contained no adverse
opinion or a disclaimer of opinion nor was qualified as to
uncertainty, audit scope, or accounting principles except for the
"going concern" qualification.
d) The decision to change accountants was approved by
the Board of Directors as the registrant has no audit committee.
24
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The following table furnishes the information
concerning the directors of the Company as of December 31, 1997.
The directors of the Company are elected every year and serve
until their successors are elected and qualify.
Name Age Title Term
Gerald William Runolfson 57 President and Director Annual
Ernest Cheung 48 Secretary and Director Annual
Patrick Pak Ling Chan 44 Director and Chairman Annual
Joseph S. Tong 48 Director Annual
The term of office for each director is one (1) year, or
until his/her successor is elected at the Company's annual
meeting and qualified. The term of office for each officer of
the Company is at the pleasure of the board of directors.
The board of directors has no nominating, auditing committee
but has set up a compensation committee. Therefore, the
selection of person or election to the board of directors was
neither independently made nor negotiated at arm's length.
The term of office for each director is one (1) year, or
until his/her successor is elected at the Company's annual
meeting and qualified. The term of office for each officer of
the Company is at the pleasure of the board of directors.
(c) Identification of Certain Significant Employees.
There are no employees other than the executive officers
disclosed above who make, or are expected to make, significant
contributions to the business of the Company, the disclosure of
which would be material.
(d) Family Relationships. None.
(e) Business Experience.
The following is a brief account of the business experience
during the past five years of each director and executive officer
of the Company, including principal occupations and employment
during that period and the name and principal business of any
corporation or other organization in which such occupation and
employment were carried on.
25
<PAGE>
MANAGEMENT EXPERIENCE
Gerald William Runolfson, President and Director, age 57,
has been President and Director of the Company since 1991. He
received a Bachelor of Science in Civil Engineering in 1963 from
University of Saskatchewan Canada. He studied Business
Administration 1970 - 1971 at University of Alberta, Canada.
From 1988 to date, he has been President of International Butec
Industries Corp., Vancouver, B.C. From 1991 to 1994 he was
President of N-Viro Recovery, Inc. From 1994 to present he has
been President of Elkon Products, Inc. of Vancouver, B.C. He
has been a Director of Horseshoe Gold Mines since 1991.
Ernest Cheung, Secretary and Director, age 48, received an
MBA in Finance and Marketing from Queen's University, in
Kingston, Ontario in 1975, and obtained a Bachelors Degree in
Math in 1973 from University of Waterloo, Ontario. From 1984 to
1991 he was vice President and Director, Capital Group
Securities, Ltd. in Toronto, Canada. From 1991 to 1993 he was
Vice President of Midland Walwyn Capital, Inc. of Toronto,
Canada. From 1993 to 1994 he was Vice Chairman, Tele Pacific
International Communications Corp. of Vancouver, B.C. From 1992
- - 1995 he has served as a Director of Tele Pacific International
Communications Corp. (VSE). He has also served as a Director for
Richco Investors, Inc. (CDN) since 1995. From 1994 to 1996 he
was Vice President of Finance and Director of BIT Integration
Technology, Inc. of Toronto, Canada. Since 1996 he has been a
Director of BIT Integration Technology, Inc. (ASE) and since 1997
he has served as Director of the following companies: Agro
International Holdings, Inc. (VSE); Spur Ventures, Inc. (VSE);
Placer Technologies, Inc. (Nasdaq Bulletin Board); and Global-
Pacific Minerals, Inc. (VSE). From January 1997 to present he
has been President of Richco Investors, Inc. of Vancouver, B.C.
He has been a Director of Registrant since January 1997. He is
currently a Director of Agro International Holdings, Inc. since
January 1997, Spur Ventures, Inc. since 1997 and Placer
Technologies, Inc. since 1997. He has held a Canadian Securities
license, but which is currently inactive.
Patrick Pak Ling Chan, age 44, has been a Director of
Registrant since January 1997 and is now Chairman. He graduated
from McGill University in Montreal, Quebec with a Bachelor of
Commerce in Accounting in 1977. He is a Chartered Accountant in
British Columbia (since 1980). From 1992 to 1993 he was
executive assistance to the Chairman, Solid Pacific Enterprises,
a company engaged in manufacturing and distribution of
confectionery products in Hong Kong and China. From 1985 to 1992
he was employed at Coopers & Lybrand, Toronto, Canada, and
focused on mergers and acquisitions. From 1993 to 1995 he was a
registered Securities Representative with Bache Securities.
Joseph S. Tong, age 48, has been a director of Registrant
since January 1997. Mr. Tong matriculated from La Salle College,
Kowloon, Hong Kong in 1968. From 1986 to 1990 he was a Branch
Manager for Canadian Imperial Bank of Commerce. From 1990 to
1994 he was Regional Manager, Asian Banking, Canadian Imperial
Bank of Commerce. From 1994 to 1995 he was President of China
Growth Enterprises Corporation. From 1995 to present he has been
a Director, Corporate Finance, of Corporate Capital Group in
Ontario, Canada. He is currently a director of Agro
26
<PAGE>
International Holdings, Inc. of Vancouver, B.C. since January
1997 and Global Pacific Minerals, Inc. of Vancouver, B.C. since
January 1997.
Directors Compensation
Each member of the Board of Directors of the Company
receives $1,000.00 plus reasonable outside travel expenses for
each Board meeting he attends and for each Committee meeting he
attends during the fiscal year. Directors who are also officers
of the Company receive no compensation for services as a
director.
ITEM 10. EXECUTIVE COMPENSATION
(a) Cash Compensation.
Compensation paid by the Company for all services provided
during the fiscal year ended December 31, 1997, (1) to each of
the Company's five most highly compensated executive officers
whose cash compensation exceeded $60,000 and (2) to all officers
as a group is set forth below under directors.
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Annual Compensation Awards
Name and Year Salary Bonus Other Annual Restricted Securities
Principal ($) ($) Compensation Stock Underlying
Position ($) Award(s)($) Options/SARs (#)
Gerald 1997 0 0 0 0 0
Runolfson, 1996 0 0 0 0 0
President 1995 0 0 0 0 0
and Director
Ernest 1997 0 0 0 0 0
Cheung, 1996 0 0 0 0 0
Secretary 1995 0 0 0 0 0
and Director
Patrick 1997 0 0 0 0 0
Chan, 1996 0 0 0 0 0
Director 1995 0 0 0 0 0
Joseph 1997 0 0 0 0 0
Tong, 1996 0 0 0 0 0
Director 1995 0 0 0 0 0
27
<PAGE>
(b) Compensation Pursuant to Plans. None.
(c Other Compensation. None. No stock appreciation
rights or warrants exist to management
(d) Compensation of Directors.
Compensation paid by the Company for all services provided
during the fiscal year ended December 31, 1996, (1) to each of
the Company's directors whose cash compensation exceeded $60,000
and (2) to all directors as a group is set forth below:
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
(Except for compensation of Officers who are also Directors which
Compensation is listed in Summary Compensation Table of
Executives)
Cash Compensation Security Grants
Name Annual Meeting Consulting Number Number of
Retainer Fees Fees/Other of Securities
Fees ($) ($) Fees ($) Shares Underlying
(#) Options/SARs(#)
A. Director 0 0 0 0 0
Gerald Runolfson
B. Director 0 0 0 0 0
Ernest Cheung
C. Director 0 0 0 0 0
Patrick Chan
D. Director 0 0 0 0 0
Joseph Tong
(e) Termination of Employment and Change of Control
Arrangements.
None
(f) KEY EMPLOYEES INCENTIVE STOCK OPTION PLAN: NONE
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires the Company's officers and
directors, and persons who own more than 10% of a registered
class of the Company's equity securities, to file reports of
ownership and changes in ownership of equity securities of the
Company with the Securities and Exchange Commission and NASDAQ.
Officers, directors and greater-than 10% shareholders are
required by the Securities and Exchange Commission regulation to
furnish the Company with copies of all Section 16(a) that they
file. No officers, directors or 10% shareholders have filed any
Reports pursuant to Section 16(a) at year end.
28
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Beneficial owners of five percent (5) or greater, of
the Registrant's Common Stock and Warrants: No Preferred Stock
is outstanding at the date of this offering. The following sets
forth information with respect to ownership by holders of more
than five percent (5%) of the Company's Common Stock known by the
Company based upon 32,476,250 shares outstanding at December 31,
1997.
Title Name and Amount and Percent
of Address of Nature of of
Class Beneficial Owner Beneficial Interest Class
Common Stock Richco Investors, Inc. 9,225,000(1)(2) 28.4%
789 West Pender St. #830
Vancouver, B.C. Canada V6C 1H2
b) The following sets forth information with respect to
the Company's Common Stock beneficially owned by each Officer and
Director, and by all Directors and Officers as a group.
Title Name of Amount and Percent
of Beneficial Nature of of
Class Owner Beneficial Ownership Class
Common Gerald Runolfson 512,501 (a)(b) 1.5%
President and Director
4151 Rose Crescent
West Vancouver, B.C. Canada
(a) Porta-Pave Industries, Inc. (company owned by Runolfson family) 380,002
(b) Gerald Runolfson, individually 132,499
512,501
Title Name of Amount and Percent
of Beneficial Nature of of
Class Owner Beneficial Class
Ownership
Common Ernest Cheung 9,225,000(1)(2) 28.4%
Secretary and Director
904 - 183 Keefer Place
Vancouver, B.C. Canada
V6B 6B9
29
<PAGE>
Common Patrick Chan 0 0%
Director and Chairman
#7 Conduit Road, Flat 6E
Hong Kong
Common Joseph Tong, Director 0 0%
33 Allview Crescent
North York, Ont., Canada
M2J 2R4
Officers and Directors as a Group 9,737,501 29.98%
(1) 9,225,000 shares are owned by Richco Investors, Inc. of
which Ernest Cheung is a director, officer and shareholder.
(2) Richco Investors, Inc. is beneficially owned by Raoul
Tsakok through ownership of 50%+ shares of common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions
Richco Investors, Inc. is the parent of Richi Petroleum
Corp. and is deemed beneficially owned by Ernest Cheung,
Secretary and a Director. Raoul Tsakok of Vancouver, B.C. owns
more than 50% of the outstanding equity of Richco Investors, Inc.
Richi Petroleum Corp. and Milco Petroleum, Inc. are wholly owned
subsidiaries of Richco Investors, Inc. Richco Investors, Inc.
owns 9,225,000 shares of common stock of the company (28.4% of
the outstanding stock of Registrant). The Registrant has entered
into joint ventures in China with Richi and Milco (see Page 7
"Joint Ventures with Milco Petroleum, Inc. and Richi Petroleum
Corp.), in which Registrant pays 100% of the cost of drilling for
a 50% interest in the wells. Registrant paid $147,281 in dry
hole costs in 1997 for the participation and has invested a total
of $1,275,217 for its participation. The Registrant is owed
$131,257 by Richi Petroleum for advances to the Fuxian concession
project.
During the year ended December 31, 1995, a director of the
Company charged consulting fees of $36,000.
Advances receivable of $250,709 (1996:$Nil) are due from a
30
<PAGE>
company with a common director and are unsecured, non-interest
bearing and have no specific terms for repayment.
Accounts payable and accrued expenses include $55,338
(1996:$Nil) payable to a company with a common director, Richco
Investors, Inc.
Oil and gas project costs - advances to (due from) project
are advanced to companies with a common director. These advances
are unsecured, non-interest bearing and have no specific terms
for repayment.
Oil and gas project costs - Capital assets have been
incurred with companies with a common director.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Financial Statements and Schedules. The following
financial statements and schedules for Drucker Industries, Inc.,
as of December 31, 1997, and 1996 are filed as part of this
report.
Page
(1) Financial statements of Drucker Industries, Inc:
Reports of Independent Accountants
Report of Amisano & Hanson
years ended December 31, 1997 and December 31, 1996 F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Shareholders' Equity F-4 - F-6
Statements of Cash Flow F-7
Schedule of General and Administrative expenses Schedule #1
Schedule of Dry Hole expenses Schedule #2
Schedule of Exploration expenses Schedule #3
Notes to Financial Statements F-8 - F-11
(2) Financial Statement Schedules:
(a) None
(b) Reports on Form 8-K:
(c) Exhibits
Item No.
(under 601)
4.1* Articles of Incorporation and By-Laws:
Incorporated by Reference as filed with Form 10
with the Securities and Exchange Commission
13.1* Quarterly Report of Drucker Industries, Inc. 10-
QSB for Period ended September 30, 1997.
22.1* Subsidiaries of Registrant
* Previously filed
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DRUCKER INDUSTRIES, INC.
Date: May 14, 1998 by:/s/Gerald Runolfson
Gerald Runolfson, President
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
/s/Gerald Runolfson President May 14, 1998
Gerald Runolfson and Director
/s/Ernest Cheung Secretary May 14, 1998
Ernest Cheung and Director
/s/Patrick Pak Ling Chan Director May 14, 1998
Patrick Pak Ling Chan
/s/Joseph S. Tong Director May 14, 1998
Joseph S. Tong
32
<PAGE>
DRUCKER INDUSTRIES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 1997 and 1996
(Stated in U.S. dollars)
<PAGE>
AMISANO HANSON
CHARTERED ACCOUNTS
AUDITORS' REPORT
To the Stockholders,
Drucker Industries, Inc.
We have audited the balance sheets of Drucker
Industries, Inc. as at December 31, 1997 and 1996 and
the statements of operations, stockholders' equity
and cash flows for each of the years in the three
year period ended December 31, 1997 and for the
period from inception of the development stage,
January 1, 1997 to December 31, 1997. 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 an audit to obtain
reasonable assurance 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 significant estimates made by
management, as well as evaluating the overall
financial statement presentation.
In our opinion, these financial statements present
fairly, in all material respects, the financial
position of the company as at December 31, 1997 and
1996 and the results of its operations and cash flows
for each of the years in the three year period ended
December 31, 1997 and for the period from inception
of the development stage, January 1, 1997 to December
31, 1997, in accordance with generally accepted
accounting principles in the United States.
Vancouver, Canada
"AMISANO HANSON"
March 19, 1998
Chartered Accountants
Comments by Auditors for U.S. Readers on Canada - U.S. Reporting Conflict
In the United States, reporting standards for auditors
require the addition of an explanatory paragraph
(following the opinion paragraph) when there is
substantial doubt about a company's ability to
continue as a going concern. The accompanying
financial statements have been prepared on the basis
of accounting principles applicable to a going concern
which assumes the realization of assets and discharge
of liabilities in the normal course of business. As
discussed in Note 1 to the accompanying financial
statements and in respect of the company's substantial
losses from operations, substantial doubt about the
company's ability to continue as a going concern
exists. The accompanying financial statements do not
include any adjustments that might result from the
outcome of this uncertainty.
Our report to the shareholders dated March 19, 1998
is expressed in accordance with Canadian reporting
standards which do not permit a reference to such
uncertainty in the auditors' report when the
uncertainty is adequately disclosed in the financial
statements.
Vancouver, Canada
"AMISANO HANSON"
March 19, 1998
Chartered Accountants
Suite 604 - 750 West Pender Street, Vancouver, B. C. V6C 2T7
Telephone (604) 689-0188
Facsimile (604) 689-9773
E-mail [email protected]
F1
<PAGE>
DRUCKER INDUSTRIES, INC.
(A Development Stage Company)
BALANCE SHEETS
December 31, 1997 and 1996
(Stated in U.S. dollars)
ASSETS 1997 1996
Current
Cash and term deposits $3,238,576 $ -
Advances receivable - Notes 6 and 8 250,709 -
3,489,285 -
Oil and gas projects costs - Note 3 1,275,217 50,802
$4,764,502 $ 50,802
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable and accrued expenses - Note 6 $ 86,539 $ 2,525
Advance payable - Notes 6 and 8 50,802 50,802
Total current liabilities 137,341 53,327
Stockholders' Equity (Deficiency) - Note 4
Common stock $.001 par value, authorized 50,000,000
shares:
32,476,250 shares issued and outstanding 32,115 26,935
Additional paid-in capital 6,306,803 1,132,483
Deficit accumulated during the development stages (1,711,757) (1,161,943)
Total stockholders' equity 4,627,161 ( 2,525)
$4,764,502 $ 50,802
Continuance of Operations - Note 1
Commitment - Note 4
Subsequent Events - Note 8
APPROVED BY THE BOARD:
"Gerry Runolfson"
"Ernest Cheung"
SEE ACCOMPANYING NOTES
F2
<PAGE>
<CAPTION>
</TABLE>
<TABLE>
DRUCKER INDUSTRIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
for the years ended December 31, 1997, 1996 and 1995
and January 1, 1997 (Date of Inception of Development Stage)
to December 31, 1997
(Stated in U.S. dollars)
January 1, 1997
(Date of Inception of
Development Stage)
Year ended December 31 to December 31,
1997 1996 1995 1997
<S> <C> <C> <C> <C>
Interest income $(135,266) $ - $ - $(135,266)
General and administrative
expenses - Schedule 1 247,566 3,118 46,004 247,566
Interest expense - - 33,451 -
Fiscal agent fees 3,719 - - 3,719
Dry hole expenses -
Schedule 2 147,281 - - 147,281
Exploration expenses -
Schedule 3 286,514 - - 286,514
Net loss $( 549,814) $( 3,118) $( 79,455) $(549,814)
Net loss per share $( 0.02) $( 0.00) $( 0.00)
Weighted average shares
outstanding 30,167,056 26,554,183 21,575,697
</TABLE>
SEE ACCOMPANYING NOTES
F3
<PAGE>
[CAPTION]
<TABLE>
DRUCKER INDUSTRIES, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
for the years ended December 31, 1989 to December 31, 1997 and
February 4, 1971 (Date of Inception) to December 31, 1997
(Stated in U.S. dollars)
Deficit
Accumulated
Additional During
Common Stock Paid-in Development
Shares Amount Capital Stages Total
<S> <C> <C> <C> <C> <C>
Shares issued to
acquire Monetary
Metals, Inc. $ 675,000 $ 675 $ (675) $ - $ -
Shares issued
to acquire
net assets
of Drucker Sound
Design Corporation 2,700,000 2,700 65,046 - 67,746
Net loss from
inception to
December 31, 1989 - - - $ (8,115) (8,115)
Net loss for year
ended December
31, 1990 - - - (144,333) (144,333)
Five for one
forward split of
outstanding share 13,500,000 13,500 (13,500) - -
Funds contributed
by stockholder - 124,196 - 124,196
Sale of units for
cash, September
1991 1,050,000 1,050 103,950 - 105,000
Sale of units for
cash, December
1991 750,000 750 74,250 - 75,000
Shares issued to
settle debts 52,500 53 5,197 (5,250) -
Shares issued to
directors as
compensation 450,000 450 44,550 (45,000) -
Correct funds
contributed to
stockholders - - (24,990) - (24,990)
Interest on note
payable - - - (7,370) (7,370)
Net loss for year
ended December
31, 1991 - - - (38,417) (38,417)
Balance, December
31, 1991, as
previously
reported 19,177,500 19,178 378,024 (248,485) 148,717
Adjustments to
previously
reported
amounts:
Fiscal agent
fees - - (18,000) (7,300) (25,300)
Balance, December
31, 1991, as
restated 19,177,500 19,178 360,024 (255,785) 123,417
Sale of common
stock,
March 1992 700,000 700 69,300 - 70,000
Sale of common
stock,
September 1992 500,000 500 54,500 - 55,000
Net loss for
year ended
December 31,
1992 - - - (78,078) (78,078)
Balance, December
31, 1992, as
previously
reported 20,377,500 20,378 483,824 (333,863) 170,339
Adjustments to
previously
reported
amounts:
Fiscal agent
fees - - (12,500) (20,600) (33,100)
Balance, December
31, 1992, as
restated 20,377,500 20,378 471,324 (354,463) 137,239
</TABLE>
SEE ACCOMPANYING NOTES
F4
<PAGE>
[CAPTION]
<TABLE>
DRUCKER INDUSTRIES, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
for the years ended December 31, 1989 to December 31, 1997 and
February 4, 1971 (Date of Inception) to December 31, 1997
(Stated in U.S. dollars)
Deficit
Accumulated
Additional During
Common Stock Paid-in Development
Shares Amount Capital Stages Total
<S> <C> <C> <C> <C> <C>
Balance forward,
December 31,
1992, as restated 20,377,500 20,378 471,324 ( 354,463) 137,239
Net loss for the
year ended
December 31, 1993 - - - ( 134,081) (134,081)
Balance, December
31, 1993 20,377,500 20,378 471,324 ( 488,544) 3,158
Adjustment to
previously
reported amounts:
Fiscal agent fees - - - ( 27,280) ( 27,280)
Balance, December
31, 1993, as
restated 20,377,500 20,378 471,324 ( 515,824) ( 24,122)
Sale of common
stock, July, 1994 200,000 200 29,800 - 30,000
Fiscal agent fees - - ( 3,000) - ( 3,000)
Net loss for the
year ended
December 31, 1994 - - - ( 563,546) (563,546)
Balance, December
31, 1994 20,577,500 20,578 498,124 (1,079,370) (560,668)
Shares issued to
settle debts 5,976,683 5,977 596,739 - 602,716
Net loss for the
year ended
December 31, 1995 - - - ( 79,455) ( 79,455)
Balance, December
31, 1995 26,554,183 26,555 1,094,863 (1,158,825) ( 37,407)
Shares issued to
settle debts 380,002 380 37,620 - 38,000
Net loss for the
year ended
December 31, 1996 - - - ( 3,118) ( 3,118)
Balance, December
31, 1996 26,934,185 26,935 1,132,483 (1,161,943) ( 2,525)
</TABLE>
SEE ACCOMPANYING NOTES
F5
<PAGE>
[CAPTION]
<TABLE>
DRUCKER INDUSTRIES, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
for the years ended December 31, 1989 to December 31, 1997 and
February 4, 1971 (Date of Inception)
to December 31, 1997
(Stated in U.S. dollars)
Deficit
Accumulated
Additional During
Common Stock Paid-in Development
Shares Amount Capital Stages Total
(Note 7)
<S> <C> <C> <C> <C> <C>
Balance forward,
December 31,
1996 26,934,185 26,935 1,132,483 (1,161,943) ( 2,525)
Sale of common
stock, May,
1997 5,179,500 5,180 5,174,320 - 5,179,500
Shares issued
for finder's fee 362,565 - - - -
Net loss for the
year ended
December 31,
1997 - - - ( 549,814) ( 549,814)
Balance, December
31, 1997 32,476,250 $32,115 $6,306,803 $(1,711,757) $ 4,627,161
</TABLE>
SEE ACCOMPANYING NOTES
F6
<PAGE>
[CAPTION]
<TABLE>
DRUCKER INDUSTRIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOW
for the years ended December 31, 1997, 1996 and 1995
and January 1, 1997(Date of Inception of Development Stage)
to December 31, 1997
(Stated in U.S. dollars)
January 1, 1997
(Date of Inception
of Development
Year Ended December 31, Stage) to
1997 1996 1995 December 31, 1997
<S> <C> <C> <C> <C>
Cash flow from operating
activities:
Net loss $( 549,814) $( 3,118) $(79,455) $( 549,814)
Adjustments to reconcile
net loss to net cash
used in operations:
Advance receivable ( 250,709) - - ( 250,709)
Accounts payable and
accrued expenses 84,014 12,118 69,111 84,014
Net cash provided by
(used in) operating
activities ( 716,509) 9,000 ( 10,344) ( 716,509)
Cash flow used in investing
activities
Oil and gas project costs (1,224,415) (50,802) - (1,224,415)
Cash flow from financing
activities:
Proceeds from sale of common
stock 5,179,500 - - 5,179,500
Due to a related party - ( 9,000) 9,000 -
Advance payable - 50,802 - -
Net cash provided by
financing activities 5,179,500 41,802 9,000 5,179,500
Net increase (decrease) in
cash 3,238,576 - ( 1,344) 3,238,576
Cash, beginning of period - - 1,344 -
Cash and term deposits, end
of period $ 3,238,576 $ - $ - $ 3,238,576
Supplemental Disclosures of Cash Flows:
Stock issued for payment of accounts payable in 1996 $38,000 (1995: $243,716)
Stock issued for payment of Promissory note in 1995 $359,000
</TABLE>
SEE ACCOMPANYING NOTES
F7
<PAGE>
[CAPTION]
<TABLE>
DRUCKER INDUSTRIES, INC.
(A Development Stage Company)
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
for the years ended December 31, 1997, 1996 and 1995
and January 1, 1997 (Date of Inception of Development Stage)
to December 31, 1997
(Stated in US Dollars)
January 1, 1997
(Date of
Inception of
Development
Stage) to
1997 1996 1995 December 31,
Total Total Total 1997
<S> <C> <C> <C> <C>
Accounting $ 9,539 $ 2,745 $ 7,985 $ 9,539
Consulting - Note 6 32,185 - 36,000 32,185
Foreign exchange (gain) loss $( 778) $(3,138) $( 5) $( 778)
Interest and bank charges 406 - 146 406
Investor relations 45,280 - - 45,280
Legal 59,795 - 220 59,795
Office and general 29,776 373 1,362 29,776
Printing 10,059 - - 10,059
Promotion 1,409 - - 1,409
Rent 7,376 - - 7,376
Telephone 6,741 - 296 6,741
Travel 45,778 - - 45,778
Write-off of advances - 3,138 - -
$ 247,566 $ 3,118 $ 46,004 $ 247,566
</TABLE>
SEE ACCOMPANYING NOTES
SCHEDULE #1
<PAGE>
[CAPTION]
<TABLE>
DRUCKER INDUSTRIES, INC.
(A Development Stage Company) SCHEDULE OF DRY HOLE EXPENSES
for the years ended December 31, 1997, 1996 and 1995
and January 1, 1997 (Date of Inception of Development Stage)
to December 31, 1997
(Stated in US Dollars)
January 1, 1997
(Date of Inception
of Development
Stage) to
December 31,
Fuxian Concession 1997 1996 1995 1997
<S> <C> <C> <C> <C>
Administration $ 3,484 $ - $ - $ 3,484
Amortization 2,827 - - 2,827
Audit 1,875 - - 1,875
Consulting 10,875 - - 10,875
Entertainment 2,347 - - 2,347
Office supplies 582 - - 582
Other 4,454 - - 4,454
Surveying 105,625 - - 105,625
Travel 14,713 - - 14,713
Wages and benefits 499 - - 499
$ 147,281 $ - $ - $ 147,281
</TABLE>
SEE ACCOMPANYING NOTES
SCHEDULE #2
<PAGE>
[CAPTION]
<TABLE>
DRUCKER INDUSTRIES, INC.
(A Development Stage Company)
SCHEDULE OF EXPLORATION EXPENSES
for the years ended December 31, 1997, 1996 and 1995
and January 1, 1997 (Date of Inception of Development Stage)
to December 31, 1997
(Stated in US Dollars)
January 1,
1997 (Date of
Inception of
Development
Stage)
Ninxia Shaanxi 1997 1996 1995 to December 31,
Concession Concession Total Total Total 1997
<S> <C> <C> <C> <C> <C> <C>
Administration $ 6,173 $ - $ 6,173 $ - $ - $ 6,173
Amortization 9,573 568 10,141 - - 10,141
Audit 1,875 1,250 3,125 - - 3,125
Entertainment 1,463 6,006 7,469 - - 7,469
Insurance 5,256 - 5,256 - - 5,256
Office Supplies 3,950 1,740 5,690 - - 5,690
Other 676 2,396 3,072 - - 3,072
Rental 918 - 918 - - 918
Repairs and maintenance 1,983 - 1,983 - - 1,983
Surveying and testing 56,250 101,107 157,357 - - 157,357
Telephone 2,242 1,133 3,375 - - 3,375
Travel 25,285 22,720 48,005 - - 48,005
Wages and benefits 27,194 6,756 33,950 - - 33,950
$142,838 $143,676 $286,514 $ - $ - $286,514
</TABLE>
SEE ACCOMPANYING NOTES
SCHEDULE #3
<PAGE>
DRUCKER INDUSTRIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOW
for the years ended December 31, 1997, 1996 and 1995
and January 1, 1997 (Date of Inception of Development Stage)
to December 31, 1997
(Stated in U.S. dollars)
Note 1 Continuance of Operations
The company is in the development stage and is in the
process of exploring its resource properties and has
not yet determined whether these properties contain
reserves that are economically recoverable. The
recoverability of amounts shown for resource
properties is dependent upon the discovery of
economically recoverable reserves and confirmation of
the company's interest in the underlying properties,
the ability of the company to obtain necessary
financing to satisfy the expenditure requirements
under resource property agreements and to complete the
development of the properties, and upon future
profitable production or from the sale thereof.
These financial statements have been prepared on a
going concern basis. The company has accumulated a
deficit of $1,711,757 since inception. Its ability to
continue as a going concern is dependent upon the
ability of the company to generate profitable
operations in the future and/or to obtain the
necessary financing to meet its obligations and repay
its liabilities arising from normal business
operations when they come due.
Note 2 Summary of Significant Accounting Policies
Organization
The company was incorporated in Idaho on February 4,
1971, as Monetary Metals, Inc. On December 14, 1989,
the company acquired all the net assets of Drucker
Sound Design, Inc. in exchange for 2,700,000 shares
(13,500,000 shares after split) of common stock. On
December 30, 1989, the company changed its name to
Drucker Sound Design, Inc., and on June 19, 1990, the
company changed its domicile to Delaware. On
September 5, 1991, the company changed its name to
Drucker Industries, Inc., and forward split the
outstanding shares of common stock on the basis of
five for one.
Line of Business
The company currently is in the business of
exploration and development of oil and gas properties
in China.
Development Stage Company
The company is a development stage company as defined
in Statement of Financial Accounting Standards No. 7.
The company is devoting substantially all of its
present efforts to the business of exploration and
development of oil and gas properties in China. For
the purposes of providing cumulative amounts for the
statements of operations and cash flow, these amounts
consider only those losses for the period from January
1, 1997 to December 31, 1997, the period in which the
company has undertaken a new development stage
activity.
Income Taxes
The company uses the liability method of accounting
for income taxes pursuant to Statement of Financial
Accounting Standards, No.
109 "Accounting for Income Taxes".
F8
<PAGE>
Note 2 Summary of Significant Accounting Policies -
(cont'd)
Net Loss Per Share
Net loss per share is based on the weighted average
number of common shares outstanding during each year.
Values
The amounts shown for oil and gas project costs
represent costs to date and do not necessarily reflect
present or future values.
Capital Assets
Capital assets are recorded at cost. Amortization is
provided on the declining balance method at the rate
of 20% per annum.
Oil and Gas Project Costs
The company follows the successful efforts method of
accounting for its oil and gas properties. Under this
method, the initial acquisition costs and the costs of
drilling and equipping development wells, are
capitalized. The costs of drilling exploratory wells
are initially capitalized and, if subsequently
determined to be unsuccessful, are charged to
operations as dry hole expenses. Costs and reserves
of properties are aggregated by country. All other
exploration expenditures, including geological and
geophysical costs and annual rentals on exploration
acreage, are charged to operations as incurred. Lease
acquisition costs, subsequently determined to be
impaired in value, are charged to operations.
No gains or losses are recognised on the sale or
disposition of oil and gas properties except when
there is a material disposition of reserves of a
country. All other proceeds are credited against the
cost of the related properties.
Depletion of the net capitalized costs of producing
wells and leases is charged to operations on the unit-
of-production method, by country, based upon estimated
proved reserves.
Note 3 Oil and Gas Project Costs - Note 6
By a participation agreement dated January 21, 1997,
the company agreed to pay 100% of all the costs of
exploring and developing the Ningxia oil and gas
concessions in Yanchi County, Ningxia Province and
WuQi county, Shaanxi Province, Peoples Republic of
China as consideration for an undivided 50% interest
in all of the profits generated from the concession.
By a participation agreement dated January 21, 1997,
the company agreed to pay 100% of all the costs of
exploring and developing the Shaanxi oil and gas
concessions in North Shaanxi Province, Peoples
Republic of China as consideration for an undivided
50% interest in all of the profits generated from the
concessions.
By a participation agreement dated September 9,1997,
the company agreed to pay 100% of all the costs of
exploring and developing the Fuxian oil and gas
property in Fuxian County, Shaanxi Province, Peoples
Republic of China as consideration for an undivided
50% interest in all of the profits generated from the
properties.
F9
<PAGE>
Note 3 Oil and Gas Project Costs - (cont'd)
The parties to the above agreements are related to the
company by virtue of common directors.
1997 1996
Oil and Gas Project Costs Ningxia Shaanxi Fuxian Total Total
Advance to (due from) project $953,786 $403,008 $(131,257) $1,225,537 $50,802
Capital assets 38,292 2,270 9,118 49,680 -
$992,078 $405,278 $(122,139) $1,275,217 $50,802
Included in advance to Ningxia project is US$743,000, held in a US currency
account.
Note 4 Common Stock
During the year ended December 31, 1997, the company
issued 5,179,500 shares of common stock at $1.00 per
share for proceeds of $5,179,500.
The company also issued 362,565 shares of common
stock as a finder's fee.
Commitment
Share Purchase Warrants
At December 31, 1997, 5,179,500 share purchase
warrants are outstanding. Each warrant entitles the holder to
purchase one additional unit of the company at $1.50
per unit until September 30, 1998. Each unit consists
of one common share of the company and one additional
warrant. Each additional warrant entitles the holder
to purchase one additional common share of the company
at $2.00 until September 30, 1999.
Note 5 Income Taxes
No provision for income taxes has been provided in
1997 and 1996 due to the net loss. The company has
net operating loss carry forwards, which expire
commencing in the year 2004 totalling approximately
$1,700,000, the benefits of which have not been
recorded.
Under the provisions of the Tax Reform Act of 1986,
when there has been a change in an entity's ownership
of fifty percent or greater, utilization of net
operating loss carry forwards may be limited. As a
result of equity transactions occurring through
December 31, 1997, the company will be subject to such
limitation. The annual limitations have not been
determined.
F10
<PAGE>
Note 6 Related Party Transactions - Notes 3 and 8
During the year ended December 31, 1995, a director of
the company charged consulting fees of $36,000.
Advances receivable of $250,709 (1996: $Nil) are due
from a company with a common director and are
unsecured, non-interest bearing and have no specific
terms for repayment.
Advance payable of $50,802 (1996: $Nil) due to a
company with a common director, are unsecured, non-
interest bearing and have no specific terms for
repayment.
Accounts payable and accrued expenses include $55,338
(1996: $Nil) payable to a company with a common director.
Oil and gas project costs - advances to (due from)
project are advanced to companies with a common
director . These advances are unsecured, non-interest
bearing and have no specific terms for repayment.
Oil and gas project costs - Capital assets have been
incurred with companies with a common director.
Note 7 Prior Period Change
The company determined that accounts payable at
December 31, 1993 was understated by $85,680 due to
accrued fiscal agent fees not recorded. Of these
fees, $27,280 related to the year ended December 31,
1993 and $58,400 related to years prior to the year
ended December 31, 1993. Consequently accounts payable
at December 31, 1993 and fiscal agent fees for the
year then ended and deficit accumulated during the
development stage December 31, 1993 and at December
31, 1992 and additional paid-in capital at December
31, 1992 were restated to reflect this adjustment.
Note 8 Subsequent Events
Subsequent to December 31, 1997:
- the company received $199,982 in respect of
advances receivable outstanding at December 31, 1997.
- the company paid $50,802 in respect of
advances payable outstanding at December 31, 1997.
- the company paid $7,500 included in accounts
payable to a company with a common director.
F11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Auditors report of Amisano Hanson dated March 19, 1998 for years ended December
31, 1997 and 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,238,576
<SECURITIES> 0
<RECEIVABLES> 250,709
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,489,285
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,764,502
<CURRENT-LIABILITIES> 137,341
<BONDS> 0
0
0
<COMMON> 32,115
<OTHER-SE> 4,595,046
<TOTAL-LIABILITY-AND-EQUITY> 4,764,502
<SALES> 0
<TOTAL-REVENUES> 135,266
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 685,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 549,814
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 549,814
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
