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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A-1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) and (g) of the Securities Exchange Act of 1934
AMG OIL LTD.
(Name of Small Business Issuer in its charter)
STATE OF NEVADA
(State or other jurisdiction of incorporation or organization)
NA
(I.R.S. Employer Identification No.)
Suite 700, 700 - 6th Avenue SW
Calgary, Alberta
Canada
T2P-0T8
(Address of Principal Executive Offices)
(403) 531-9706
Issuer's telephone number, including area code:
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of class)
(End of cover page)
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ITEM 1. DESCRIPTION OF BUSINESS
Except for the description of historical facts contained herein,
this Form 10-SB contains certain forward-looking statements within the
meaning of the "safe harbour" provisions of the Private Securities
Litigation Reform Act of 1995 concerning future activities of the
Registrant and the Registrant's future prospects that involve risks and
uncertainties, including the possibility that the Registrant will: (i)
be unable to find commercial quantities of hydrocarbons, (ii) never
achieve profitable operations, or (iii) not receive additional
financing as required to support future operations, as detailed herein
and under Item 2 - PLAN OF OPERATIONS and from time to time in the
Registrant's future filings with the Securities and Exchange Commission
and elsewhere. Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties
which could cause actual results to differ materially from those
described in the forward-looking statements.
(a) Business Development
AMG Oil Ltd. ("the Registrant") and its wholly-owned subsidiary,
AMG Oil (NZ) Limited ("the NZ Subsidiary"), is a Calgary, Alberta,
Canada based oil and gas exploration company with a 30% participating
interest in Petroleum Exploration Permit 38256 ("PEP 38256"), a
hydrocarbon property located on the South Island of New Zealand. (Refer
to Item 3 - Description of Property). The Registrant's operations are
conducted through its NZ Subsidiary and its exploration office in
Wellington, New Zealand. The Registrant intends to participate in the
exploration and, where warranted, development of its property and to
investigate and to acquire interests in other oil and gas properties in
the Austral-Pacific region.
The Registrant was incorporated on February 20, 1997 under the
name Trans New Zealand Oil Company by filing its Articles of
Incorporation with the Secretary of State (Nevada). The Registrant
changed its name to AMG Oil Ltd. on July 27, 1998. The Registrant's
fiscal year end is September 30.
The shares of the Registrant became quoted through the facilities
of the Over-the-Counter Bulletin Board ("OTCBB"), United States, on May
19, 1997 where its shares continued to be quoted through that facility
under the symbol "AMGO" until August 1, 1999. On August 1, 1999, the
Registrant's shares discontinued from trading on the OTCBB due to the
Registrant's failure to become a "Reporting Issuer" under the 1934
Exchange Act. Since August 1, 1999, the Registrant's shares continue to
be quoted on the "Pink Sheets," operated by the National Quotation
Bureau, under the symbol "AMGO."
At December 31, 1999, the authorized capital of the Registrant was
100,000,000 common shares with a par value of US$0.00001 per common
share of which 14,200,000 common shares were outstanding (undiluted).
(b) Business of the Issuer
Currently, the Registrant holds a 30% in PEP 38256, a petroleum
exploration license located on the South Island of New Zealand and
holds an option to acquire up to a further 50% interest in PEP 38256.
PEP 38256 is in the exploration stage. The assessment of the potential
of this property to contain petroleum reserves involves, among other
things, a consideration of discoveries made by third parties on
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properties adjacent to, or, depending on circumstances, in the area of
the properties of the Registrant. Geological conditions are, however,
unpredictable. The discovery of reserves on properties adjacent to, or
in the area of, properties of the Registrant is no assurance that
commercially recoverable reserves of oil and gas will be discovered on
the Registrant's properties. See Risk Factors under this item.
Hydrocarbon Tenures in New Zealand
In New Zealand, a prospecting licence was a form of tenure held
under the Petroleum Act 1937, the predecessor legislation to the Crown
Minerals Act of 1991. As the tenure of such permits granted under the
original act expired, they were replaced by exploration permits under
the 1991 legislation. In New Zealand, permits are granted to the first
applicant for specified minerals in a specific area, and generally
prescribe work to be performed over the term of the permit. In most
cases, permits contain a work program approved by the Minister of
Energy.
Prospecting permits are limited forms of tenure granted under the
1991 Act for two years under conditions the Minister of Energy
considers appropriate. The Registrant does not hold any prospecting
permits.
Under the Crown Minerals Act of 1991, the exploration permit
grants the right to explore for a specified mineral for a term of five
years and may be extended for up to a further five (5) years over half
its area on conditions the Minister of Energy considers appropriate. If
the holder of an exploration permit (the "Holder") discovers a deposit
or occurrence, and satisfies the Minister of Energy that the results of
exploration justify granting a mining permit, the Holder may, on
application before the expiry of the exploration permit, obtain a
mining permit for up to 40 years for such part of the land as the
deposit or occurrence relates to. Changes to the conditions prescribed
in a permit may be made by application to the Minister of Energy,
provided the Holder is in substantial compliance with the conditions of
the permit.
The Crown Minerals Act of 1991 also provides for the revocation of
a permit if the Minister of Energy has reason to believe that the
Holder is contravening, or not making reasonable efforts to comply
with, the Crown Minerals Act, the conditions of the permit, or a notice
to rectify the contravention or non-compliance. Any transfer or other
dealing with a permit is subject to the timely completion of an
application and becomes effective only upon the consent of the Minister
of Energy, under such conditions as deemed appropriate.
The Minister of Energy may also direct that any resultant
petroleum products be refined or processed in New Zealand. The Minister
of Energy also has the jurisdiction to unitize producing permits.
Finally, the Crown Minerals Act of 1991 provides procedures for the
resolution of conflict with other forms of land tenure.
Environmental Regulation in New Zealand
Since 1990, the government of New Zealand has developed a
comprehensive statutory regime dealing with the effect of development
on the environment. Depending on the location of the petroleum
interest, differing laws apply where petroleum exploration and
development is concerned. On land and in waters within twelve miles of
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the coast, the Resource Management Act of 1991 controls users of
natural and physical resources, with a view to managing resource usage
in ways that will not compromise future utilization. The Resource
Management Act of 1991 places the emphasis on the assessment of the
proposed activities' impact on the environment and sustainable
management of the environment.
Under the Resource Management Act of 1991, resource management is
governed by local authorities. Regional and district councils establish
their own rules and standards for environmental assessments and
required degrees of consultation. Both regional and district councils
must produce and continuously update planning schemes for their
jurisdictions. These schemes may limit industries to designated areas,
depending on the environmental or social effects. The right to take
from, and discharge into, waterways for industrial purposes requires
approval from various regional catchment authorities, which may require
maintenance of water quality standards.
Resource consents authorize the use or development of a natural or
physical resource, or permit an activity to be conducted which may
affect the environment. Under the Resource Management Act of 1991,
there are five types of resource consents: land use consent,
subdivision consent, water permits, discharge permits and coastal
permits. Certain applications require public notice and allow public
involvement in the assessment process. Adverse decisions made by a
regional or district council may be appealed to the Environmental
Court.
Petroleum exploration and development outside of the twelve-mile
coastal boundary fall under the Maritime Transport Act of 1994. The
Registrant holds no licenses or permits that fall under the
jurisdiction of this authority.
Risk Factors
The common shares of the Registrant must be considered a
speculative investment due to a number of factors. Readers should
carefully consider the risks described below before deciding whether to
invest in shares of the Registrant's common stock. If the Registrant
does not successfully address any of the risks described below, there
could be a material adverse effect on the Registrant's business,
financial condition or results of operations, and the trading price of
the Registrant's common stock may decline and investors may lose all or
part of their investment. The Registrant cannot assure any investor
that it will successfully address these risks.
The purchase of the common shares involves a number of significant
risk factors. Purchasers of common shares should consider the
following:
1. Limited History of Operations and Reliance on Expertise of
Certain Persons
The Registrant has a limited history of operations and is
dependent on management by its president and directors for the
acquisition, exploration and development of petroleum properties, and
on the advice of consulting geologists retained by the Registrant from
time to time. Certain key individuals employed by the Registrant are
experienced in the acquisition, exploration and development of
petroleum properties in New Zealand. Should these individuals leave the
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Registrant, the Registrant may have difficulty in finding a person of
comparable education and experience to manage the business of the
Registrant.
2. Limited Financial Resources
The Registrant has limited financial resources and will have to
raise additional funds to sustain, continue and expand its business.
The Registrant currently has no revenues and relies principally on the
issuance of common shares to raise funds to finance the business of the
Registrant. There is no assurance that market conditions will continue
to permit the Registrant to raise funds if required. Should the
Registrant fail to raise additional capital the Registrant will be
unable to carry out its plan of operations (See ITEM 2 - PLAN OF
OPERATIONS) and will be forced to abandon PEP 38256 which is currently
the Registrant's sole property (See Risk Factor #15).
3. Competition with Other Companies
Other companies with greater financial resources or expertise are
in competition with the Registrant. The Registrant must compete with
such companies in bidding for the acquisition of petroleum interests
from various state authorities, in purchasing or leasing equipment
necessary to explore for, develop and produce hydrocarbons and in
obtaining the services of personnel in the exploration for, and
development and production of, hydrocarbons. While the Registrant has
acquired various rights to explore, there is no assurance that
personnel and equipment will be available to carry out the programs
planned by the Registrant.
4. Failure to Locate Commercial Quantities of Hydrocarbons and
Geological Risks
There is no assurance that commercial quantities of hydrocarbons
will be discovered and prices for hydrocarbons may vary, rendering any
deposit discovered uneconomic. In addition, even if hydrocarbons are
discovered, the costs of extraction and delivering the hydrocarbons to
market may render any deposit found uneconomic. Geological conditions
are variable and unpredictable. Even if production is commenced from a
well, the production will inevitably decline and may be affected or
terminated by changes in geological conditions that cannot be foreseen
or remedied by the Registrant.
Prices for oil and gas may fluctuate widely from time to time
depending on international demand, production and other factors which
cannot be foreseen by the Registrant. A decline in price may render a
discovery uneconomic.
5. Governmental Laws and Local Conditions
Claims of aboriginal peoples in New Zealand may adversely affect
the rights or operations of the Registrant. There is no assurance that
governmental regulation will not vary, including regulations relating
to prices, royalties, allowable production, environmental matters,
import and export of hydrocarbons and protection of water resources and
agricultural lands. The Registrant is subject to numerous foreign
governmental regulations that relate directly and indirectly to its
operations including title to the petroleum interests acquired by the
Registrant, production, marketing and sale of hydrocarbons, taxation,
environmental matters, restriction on the withdrawal of capital from a
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country in which the Registrant is operating and other factors. There
is no assurance that the laws relating to the ownership of petroleum
interests and the operation of the business of the Registrant in the
jurisdictions in which it currently operates will not change in a
manner that may materially and adversely affect the business of the
Registrant. There is, however, no assurance that the laws of any
jurisdiction in which the Registrant carries on business may not change
in a manner that materially and adversely affects the business of the
Registrant.
6. Environmental Risks
The Registrant is subject to laws and regulations that control the
discharge of materials into the environment, require removal and
cleanup in certain circumstances, require the proper handling and
disposal of waste materials or otherwise relate to the protection of
the environment. In operating and owning petroleum interests, the
Registrant may be liable for damages and the costs of removing
hydrocarbon spills for which it is held responsible. Laws relating to
the protection of the environment have in many jurisdictions become
more stringent in recent years and may, in certain circumstances,
impose strict liability, rendering the Registrant liable for
environmental damage without regard to negligence or fault on the part
of the Registrant. Such laws and regulations may expose the Registrant
to liability for the conduct of, or conditions caused by, others or for
acts of the Registrant that were in compliance with all applicable laws
at the time such acts were performed. The application of these
requirements or the adoption of new requirements could have a material
adverse effect on the business of the Registrant. The Registrant
believes that it has conducted its business in substantial compliance
with all applicable environmental laws and regulations.
7. Possible Lack of or Inadequacy of Insurance
The Registrant maintains insurance against certain public
liability, operational and environmental risks, but there is no
assurance that an event causing loss will be covered by such insurance,
that such insurance will continue to be available to, or carried by,
the Registrant or, if available and carried, that such insurance will
be adequate to cover the Registrant's liability.
8. No Assurance of Earnings or Dividends and Taxation of
Dividends
The Registrant has no history of earnings and there is no
assurance that the business of the Registrant will be profitable and,
even if the business of the Registrant is profitable, there is no
assurance the board of directors will declare dividends on common
shares.
9. Marketing of Petroleum Products
The availability of products sold, or to be sold, by the
Registrant may be restricted or rendered unavailable due to factors
beyond the control of the Registrant, such as change in laws in the
jurisdictions in which the properties of the Registrant are located,
changes in the source of supply in foreign countries, prohibition on
use due to testing and licencing requirements and in certain areas of
the world civil disorder or governmental confiscation without
compensation.
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Even if the Registrant makes discoveries in commercial quantities,
development of a discovery may take a number of years and financial
conditions at that time cannot be determined. The Registrant holds its
cash reserves in US dollars but incurs the majority of its expenses in
New Zealand dollars. An increase in value of the New Zealand dollar
versus the US dollar would have a detrimental effect to the Registrant
as the Registrant's expenses incurred would, in turn, increase in US
dollars.
10. Activities of Management
The management of the Registrant and the growth of the
Registrant's business depends on certain key individuals who may not be
easily replaced if they should leave the Registrant; and persons in
management have other business interests which may result in them
devoting, from time to time, some of their time to such other
interests.
11. Inadequacy of Public Market
The Registrant's common shares are quoted through the facilities
of the National Quotation Bureau. Management's strategy is to develop
a public market for its common shares by soliciting brokers to become
market makers of the Registrant's common shares. To date, however, the
Registrant has solicited only a limited number of such securities
brokers to become market makers. There can be no assurance that a
stable market for the Registrant's common shares will ever develop or,
if it should develop, be sustained. It should be assumed that the
market for the Registrant's common shares will continue to be highly
illiquid, sporadic and volatile. These securities should not be
purchased by anyone who cannot afford the loss of the entire
investment. As of August 1999, the Registrant was required to become
and maintain status as a reporting issuer under the Securities Exchange
Act of 1934 (the "34 Act"), in order to be traded by broker-dealers
regulated by the National Association of Securities Dealers. If the
Company is delayed in becoming a reporting issuer under the 34 Act, or
fails to continue to be a reporting issuer, management may encounter
difficulty in maintaining or expanding a trading market in the near
term, if at all, and shareholders may not be able to sell their shares
in the public market. While management currently intends to obtain and
maintain status as a reporting issuer under the 34 Act, there can be no
assurance that the Registrant can or will obtain or maintain such
status.
12. Dilution
The Registrant's Articles of Incorporation authorize the issuance
of 100,000,000 shares of common stock. The Registrant's Board of
Directors has the power to issue any or all of such shares that are not
yet issued without stockholder approval. The Registrant's Board of
Directors will likely issue some or all of such shares to acquire
further capital in order to carry out its intended operations or expand
its current operations, or to provide additional financing in the
future. The issuance of any such shares may result in a reduction of
the book value or market price of the outstanding shares of the
Registrant's common shares. If the Registrant does issue any such
additional shares, such issuance also will cause a reduction in the
proportionate ownership and voting power of all other shareholders.
Further, any such issuance may result in a change of control of the
Registrant.
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The Registrant has adopted a stock option plan authorizing the
purchase of up to 3,000,000 shares. The Registrant has additional
options issued and outstanding as of December 31, 1999 to purchase up
to 800,000 shares exercisable at a price of US$0.50 per share. The
existence of below market options could adversely affect the market
price of the Registrant's shares and could impair the Registrant's
ability to raise additional capital through the sale of its equity
securities or debt financing.
13. Loss of Investment
An investment in the common shares of the Registrant should only
be made by persons who can afford a complete loss of their investment
and there is no assurance that the common shares of the Registrant will
increase in value from the amount at which a member acquired common
shares of the Registrant.
14. Shares Eligible For Future Sale
Approximately 1,200,000 shares of restricted common stock will
become eligible for sale under Rule 144 on approximately March 17,
2000. Although there is no assurance or agreement that these holders
will not sell any of their shares, management believes that they intend
to retain most if not all of their holdings for the near future. If a
substantial number of these shares were to be offered for sale or sold
in the market, the market price of the Registrant's common shares
likely would be affected adversely
15. Risk Inherent in Exploration
All of the properties of the Registrant are at the exploration
stage and without known, commercial reserves of oil or gas. Oil and gas
exploration and development involves a high degree of risk and few
properties that are explored are ultimately developed into producing
and profitable properties.
16. Consequences of Failure to Satisfy Prescribed Permit or
License Terms and Conditions
In all cases, the terms and conditions of the permit or license
granting the right to the Registrant, or the party from which the
Registrant acquired, or agreed to acquire, directly or indirectly, the
right to explore for and develop hydrocarbons prescribe a work program
and the date or dates before which such work program must be done.
Varying circumstances, including the financial resources available to
the Registrant, availability of required equipment, expertise of the
management of the Registrant and other matters relating to the
Registrant, reliance on third party operators of permits and licenses
or circumstances beyond the control or influence of the Registrant may
result in the failure to satisfy the terms and conditions of a permit
or license and result in the complete loss of the interest in the
permit or license without compensation to the Registrant. Such terms
and conditions may, in certain cases, be renegotiated with applicable
regulatory authorities, but there is no assurance that if a term or
condition of a license or permit that is required to be satisfied will
not, or has not been met and may result in the loss of the interest in
such permit or license that such term or condition will be renegotiated
with the applicable authority.
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17. Dealings with Associated Companies
The Registrant shares its interest in PEP 38256 with two other
companies through their respective subsidiaries, Indo-Pacific Energy
Ltd. and Trans-Orient Petroleum Ltd., which have common or connected
management and the same principal shareholder.
The percentage participation of the Registrant and another
associated company in a property is determined by the boards of
directors of each such company in accordance with the best business
judgment of the board based on the assessment of the relative
requirements and abilities of the companies to participate and
applicable law. Persons who are not willing to rely on the exercise of
judgment by the respective boards of directors in determining the
participation in properties should not consider an investment in the
shares of the Registrant or of other associated companies.
18. Defeasance of Title
The possibility exists that title to one or more properties of the
Registrant may be lost due to an omission in the claim of title. The
Registrant does not maintain title insurance.
19. Penny Stock Regulation
The Securities and Exchange Commission (the "SEC") has adopted
rules that regulate broker-dealer practices in connection with
transactions in "penny stocks." Penny stocks generally are equity
securities with a price of less than $5.00 per share (other than
securities registered on certain national securities exchanges or
quoted on the NASDAQ National Market System, provided that current
price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock
not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the SEC that provides information about
penny stocks and the nature and level of risks in the penny stock
market. The broker-dealer also must provide the customer with bid and
offer quotations for the penny stock, the compensation of the broker-
dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the
customer's account. In addition, the penny stock rules require that
prior to a transaction in a penny stock not otherwise exempt from such
rules, the broker-dealer must make a special written determination that
a penny stock is a suitable investment for the purchaser and receive
the purchaser's written agreement to the transaction. These disclosure
requirements often have the effect of reducing the level of trading
activity in any secondary market for a stock that becomes subject to
the penny stock rules. The Registrant's common stock is currently
subject to the penny stock rules, and accordingly, investors may find
it difficult to sell their shares, if at all.
Employees and Consultants
The Registrant is in the development stage and other than its
executive officers, Mr. Cameron Fink (President) and Dr. David Bennett
(Vice-President of Exploration), the Registrant does not have any
employees, as exploration activities on PEP 38256 are conducted by the
joint venture operator, Indo-Pacific Energy Ltd. As the operator incurs
expenses on the permit the operator submits cash calls on a periodic
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basis to the Registrant. The dollar value of the cash calls submitted
by the operator to the Registrant will be based upon the Registrant's
percentage interest in PEP 38256. The Registrant also receives
corporate services from DLJ Management Corp. The services consist of
shareholder relations and communications, legal and accounting support.
DLJ Management Corp. provides their services on a part time basis
whereby they devote approximately 20% of their time to matters related
to the Registrant. DLJ Management Corp. is paid for its services on a
cost recovery basis.
In addition to the foregoing, the Registrant also receives
technical services from exploration consultants. The principal
consultants engaged by the Registrant are Dr. Bruce Morris, Mr. Roger
Brand, Mr. David Francis and Mr. Carey Mills.
Dr. Morris trained and lectured as a sedimentologist at University
of Victoria (New Zealand). Over the last nine years, he has been
involved in remote oilfield operations in Papua New Guinea, and with
exploration in the Taranaki and East Coast Basin of New Zealand. Dr.
Morris has also worked as a well site geologist for Exxon in the
Gippsland Basin, Australia.
Mr. Brand has over 20 years experience in the oil industry. After
graduating from Oxford University (United Kingdom) in 1974, he worked
for British Petroleum as a geologist in the North Sea and onshore
United Kingdom. Following a move to New Zealand in 1982, Mr. Brand
served as Chief Geologist for New Zealand Oil and Gas Ltd. for three
years. Since 1986, he has conducted a variety of exploration
assessments and prospect valuations for major and minor oil companies
based in New Zealand, Australia and Papua New Guinea. His main
interests lie in the definition of hydrocarbon plays in New Zealand's
Taranaki Basin.
Mr. Francis is a highly experienced field geologist with over 15
years specialist activity in New Zealand's East Coast Basin. He has
completed numerous scientific papers and company reports detailing East
Coast petroleum geology.
Mr. Mills provides a broad range of capabilities. Before joining
the Registrant, Mr. Mills worked as a petrophysisist for Exxon on the
West Tuna Field in the Gippsland Basin, Australia, on the Moran
discovery in Papua New Guinea and had other responsibilities.
For definitions of technical terms used in the description of
properties, see the Glossary of Industry Terms.
GLOSSARY OF INDUSTRY TERMS
Currency and Measurement
All currency amounts in this Form 10-SB are stated in United States
dollars unless otherwise indicated.
Metric and Imperial Units
Conversion from metric units into imperial equivalents is as follows:
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Metric Units Imperial Units
hectare 2.471 acres
meter (m) 3.281 feet
kilometer (km) 0.621 miles (3,281 feet)
Geologic Time
Number of Years
Name of Era Name of Period before Present
(Millions)
Quaternary Holocene 0 to 0.4
Pleistocene 0.4 to 1.8
Tertiary Pliocene 1.8 to 5.0
Miocene 5.0 to 24
Oligocene 24 to 38
Eocene 38 to 56
Paleocene 56 to 66
Mesozoic Cretaceous 66 to 140
Jurassic 140 to 200
Triassic 200 to 250
Paleozoic Permian 250 to 290
Carboniferous 290 to 365
Devonian 365 to 405
Silurian 405 to 425
Ordovician 425 to 500
Cambrian 500 to 570
Precambrian Precambrian > 570
Other Geological Expressions
Anticline is a geologic structure in which the sedimentary strata are
folded to form an arch or dome.
Appraisal Well is a well drilled after an existing discovery well to
determine the extent of the resources of the field.
Basin is a segment of the crust of the Earth in which thick layers of
sediments have accumulated over a long period of time.
Condensate refers to hydrocarbons associated with natural gas which are
liquid under surface conditions but gaseous in a reservoir before
extraction.
Depletion is the reduction in petroleum reserves due to production.
Development refers to the phase in which a proven oil or gas field is
brought into production by drilling and completing production wells and
the wells, in most cases, are connected to the petroleum gathering
system.
Discovery is the location by drilling of a well of an accumulation of
gas, condensate or oil reserves, the size of which may be estimated but
not precisely quantified and which may or may not be commercially
economic, depending on a number of factors.
Dry Hole is a well drilled without finding commercially economic
quantities of hydrocarbons.
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Exploration Well is a well drilled in a prospect without knowledge of
the underlying sedimentary rock or the contents of the underlying rock.
Farm In or Farm Out refers to a common form of agreement between or
among petroleum companies where the holder of the petroleum interest
agrees to assign all or part of an interest in the ownership to another
party that is willing to fund agreed exploration activities which may
be more or less than the proportionate interest assigned to such other
party.
Fault is a fracture in a rock or rock formation along which there has
been an observable amount of displacement.
Field is an area that is producing, or has been proven to be capable of
producing, hydrocarbons.
Formation is a reference to a group of rocks of the same age extending
over a substantial area of a basin.
Frontier Exploration is exploration in an area that has seen little
previous exploration but offers the potential for the discovery of
large reserves of hydrocarbons.
Geology is the science relating to the history and development of the
Earth.
Hydrocarbon is the general term for oil, gas, condensate and other
petroleum products.
Lead is an inferred geological feature or structural pattern which on
further investigation may be upgraded to a prospect.
Participating Interest or Working Interest is an equity interest,
compared with a royalty interest, in an oil and gas property whereby
the participating interest holder pays its proportionate or agreed
percentage share of development and operating costs and receives its
proportionate share of the proceeds of hydrocarbon sales after
deduction of royalties due on gross income.
Pay Zone is the stratum or strata of sedimentary rock in which oil or
gas is found.
Permit or License is an area that is granted for a prescribed period of
time for exploration, development or production under specific
contractual or legislative conditions.
Pipeline is a system of interconnected pipes that gather and transport
hydrocarbons from a well or field to a processing plant or to a
facility that is built to take the hydrocarbons for further transport,
such as a gas liquifaction plant.
Play is a combination of geologic features that have the potential for
the accumulation of hydrocarbons.
Prospect is a potential hydrocarbon trap which has been confirmed by
geological and geophysical studies to warrant the drilling of an
exploration well.
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Reservoir is a porous and permeable sedimentary rock formation
containing adequate pore space in the rock to provide storage space for
oil, gas or water.
Royalty is the entitlement to a stated or determinable percentage of
the proceeds received from the sale of hydrocarbons calculated as
prescribed in applicable legislation or in the agreement reserving the
royalty to the owner of the royalty.
Seal is an impervious sedimentary rock formation overlying a reservoir
that prevents the further migration of hydrocarbons.
Seep is the natural flow of oil or gas to the Earth's surface from a
formation or through cracks and faults indicating that a formation
containing hydrocarbons may be located somewhere nearby.
Seismic refers to a geophysical technique using low frequency sound
waves to determine the subsurface structure of sedimentary rocks.
Show is the detectable presence of hydrocarbons during the drilling of
a well.
Source Rock is sedimentary rock, usually fine-grained shale rich in
organic matter, the geologic conditions, including conditions of
temperature, pressure and time, and history of which is favourable for
the formation of hydrocarbons.
Top Seal is a rock formation through which hydrocarbons cannot move
which lies above a trap and below which hydrocarbons accumulate to form
a pool.
Trap is a geological structure in which hydrocarbons build up to form
an oil, condensate or gas field.
ITEM 2. PLAN OF OPERATIONS
The Registrant has been principally involved in the acquisition,
interpretation and mapping of seismic on PEP 38256 during the past two
years and hence has not yet received revenues from operations,
profitability or break-even cash flow.
The plan of operations for the next 12 months is to continue the
exploration of PEP 38256, with a view to acquiring sufficient seismic
data and interpreting such data to be able to identify at least one
drilling prospect and to then consider exercising an option to acquire
up to an 80% interest in the permit. The Registrant intends to pay for
and collect another 100 miles of seismic data to define prospects to a
level suitable for drilling before June 16, 2000. Upon exercising the
drilling option the Registrant will be required to pay the costs of
drilling up to two exploration wells to earn an additional 50% interest
in the permit, or the cost of one exploration well to earn an
additional 35% interest in the permit. Currently the terms of the
permit require the participants by August 25, 2000 to drill an
exploration well to the lesser of 1,200 metres or the economic
basement.
<PAGE> 14
The Registrant has experienced losses in each fiscal period
reported on. At the end of the Registrant's 1999 fiscal year, it had
$295,025 in working capital, consisting of $258,129 in cash, $92 in
accounts receivable and $42,876 in marketable securities minus accounts
payable of $6,072. The estimated costs to acquire the additional
seismic are approximately $300,000. The costs to drill the initial well
are approximately $1,000,000 including testing. The Registrant does not
have sufficient funds to carry out its intended plan of operations for
the next 12 months without seeking additional funds. The Registrant
relies principally on the issuance of common shares by private
placements to raise funds to finance the business of the Registrant.
There is no assurance that market conditions will continue to permit
the Registrant to raise funds when required. If possible the Registrant
will issue more common shares at prices determined by the Board of
Directors, possibly resulting in dilution of the value of common
shares, and, given there is no preemptive right to purchase common
shares, if a member does not purchase additional common shares, the
percentage share ownership of the member in the Registrant will be
reduced.
Management does not expect any significant increases in the number
of employees in the near future.
ITEM 3. DESCRIPTION OF PROPERTY
The Registrant maintains a 120 square foot head office space
located at Suite 700, 700 - 6th Avenue SW, Calgary, Alberta, Canada,
from which the President of the Registrant conducts business on behalf
of the Registrant. The Registrant also maintains a 4,000 square foot
operations office in Wellington, New Zealand from which the joint
venture operations are conducted. This office space is shared with the
operator of PEP 38256, Indo-Pacific Energy Ltd. and two other
exploration companies.
The sole interest owned by the Registrant is a 30% participating
interest in PEP 38256, an exploration permit, and an option to acquire
before June 16, 2000 up to a further 50% participating interest in PEP
38256 from Indo-Pacific Energy Ltd. ("Indo") and Trans-Orient Petroleum
Ltd. ("TOP"). Indo is the operator on PEP 38256 and is carrying out the
required exploration programs for the Registrant pursuant to an
operating agreement dated June 25, 1998 and under which the initial 30%
participating interest of the Registrant was acquired. The option
agreement was modified by three subsequent agreements dated December 3,
1998, October 26, 1999 and February 23, 2000 which extended the period
of time in which the Registrant must exercise its option to acquire a
further interest in PEP 38256 to June 16, 2000. Additionally, the
amendments provided the Registrant with a choice of committing to:
( Option A') to earn an additional 50% participating interest in PEP
38256 (25% each from Indo and TOP) by funding all expenditures
including an agreed program of seismic work leading up to and including
the drilling of two exploration wells. Alternatively, the Registrant
may, at its election, earn an additional 35% participating interest
(17.5% each from Indo and TOP) in PEP 38256 by funding all work leading
up to and including the drilling of one exploration well ( Option B').
In the event that the Registrant exercises Option B, it shall acquire
a further option ( Option C') to earn an additional 15% participating
interest in PEP 38256 by funding all further work up to and including
<PAGE> 15
a second exploration well on a separate exploration target. Option C
must be exercised within 30 days of reaching the predetermined target
depth in the exploration well drilled pursuant to the exercise of
Option B.
The Registrant is maintaining the option by funding ongoing costs
including the acquisition of additional seismic, an independent
evaluation of the permit by the Geology Department of the University of
Canterbury, and other technical studies.
On January 31, 2000, Indo and TOP issued a news release disclosing
that Indo and TOP have entered into a letter of intent under which all
of the oil and gas assets of TOP will be sold to Indo including TOP's
PEP 38256 permit interest. Should Indo and TOP conclude the agreement
to sell these assets the interest holders in PP 38256 would be the
Registrant (30%) and Indo (70%).
Petroleum Exploration Permit 38256, South Island
The Canterbury Basin is located both onshore and offshore in the
area surrounding Christchurch, on the South Island of New Zealand. The
total area of the Canterbury Basin is approximately twelve million
acres. The sediments in the Canterbury Basin range in age from Middle
Cretaceous to Miocene. PEP 38256, which contains a portion of the
Canterbury Basin, was granted on August 25, 1997 to Indo and TOP. The
permit area is situated in the onshore area surrounding Christchurch
and encompasses 2,760,120 acres (4,312.69 square miles). The permit
term is five years, but a minimum of 50% must be relinquished within
three years. Any production permits granted will be for a term of up to
40 years from the date of issue. The Crown in right of New Zealand has
reserved a royalty of the greater, in any one year, of five per cent of
net sales revenue from the sale of petroleum products or 20% of
accounting profits.
On June 25, 1998, Indo and TOP granted two options to the
Registrant. The first option was for the Registrant to acquire a 30%
participating interest upon payment of past costs and a 125-mile
seismic program designed to identify two drilling prospects. This
option was exercised on August 4, 1998. The second option entitles the
Registrant to acquire up to a further 50% participating interest on
payment of any additional required seismic and for the cost of drilling
up to two exploratory wells. Currently the participants and their
interests in PEP 38256 are the Registrant (30%), Indo (35%) and TOP
(35%).
Five exploration wells have been drilled on PEP 38256 since 1914.
Four exploration wells in the offshore part of the Canterbury Basin
have been drilled since 1970, two of which resulted in gas-condensate
discoveries. The data gathered from these past activities is relevant
in interpreting the geology of PEP 38256, but generally, the area is
lightly explored. The basement rocks are Paleozoic and Mesozoic
metasediments. Overlying these in places are Cretaceous coal measure
formations, and Paleocene and Eocene terrestrial sediments which
gradually become of marine origin towards the eastern part of the
basin. Overlying these formations are Oligocene limestone and sandstone
formations which are principally marine in origin. The early Miocene
period saw the deposition of marine sandstones and mudstones with a
gradation to nonmarine sediments in the late Miocene period. The
Pliocene and Quaternary strata are principally gravels derived from the
formation of the Southern Alps with some volcanics.
<PAGE> 16
The sandstones in the Miocene, Paleocene and late Cretaceous
formations are considered to be potential reservoirs, with lesser
emphasis placed on the Eocene and Oligocene limestones. Interbedded
mudstones would provide seals for the reservoirs. Source formations are
thought to be Late Jurassic to Upper Cretaceous coal formations, and
Late Cretaceous Whangai mudstones and Paleocene Waipawa Black Shale
formations, which are identified as source rocks in other New Zealand
basins.
Under the terms of the permit, the participants completed a work
program to locate and analyse petroleum seeps within the permit area,
model existing gravity data and acquire new gravity data, collect and
interpret a minimum of ten magnetotelluric stations, process existing
seismic data and complete surface geological work by November 25, 1998.
Additionally, the participants met the requirement to collect, process
and interpret 48 miles of new seismic data by August 25, 1999. The
participants also acquired, processed and interpreted a further 25
miles of additional seismic data, required by February 25, 2000, and
committed to drilling the first exploratory well. In addition to the
work required to be completed under the terms of the permit, the
participants intend to acquire a further 100 miles of seismic in order
to define a suitable drilling location. The participants are now
required to drill an exploratory well by August 25, 2000.
Several sizable leads and prospects, including the Ealing, Arcadia
and Chertsey South Leads, were identified by the 125 miles of seismic
data collected in 1998, and by the 165 miles of seismic data collected
in 1999. However more seismic data is required to define drilling
targets on those prospects.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Registrant's securities are recorded on the books of its
transfer agent in registered form. However, a majority of such shares
are registered in the name of intermediaries such as brokerage houses
and clearing houses on behalf of their respective clients and the
Registrant does not have knowledge of the beneficial owners thereof.
The Registrant is not directly or indirectly owned or controlled by a
corporation or foreign government.
As of February 29, 2000, the Registrant had an authorized share
capital of 100,000,000 common shares with a par value of $0.00001 per
share of which 14,200,000 shares were issued and outstanding.
The following table sets forth, as of February 29, 2000, the
beneficial shareholdings of persons or entities holding five per cent
or more of the Registrant's common stock, each director individually,
each named executive officer and all directors and officers of the
Registrant as a group. Each person has sole voting and investment power
with respect to the shares of Common Stock shown, and all ownership is
of record and beneficial.
<PAGE> 17
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Owner Ownership Position of Class
Cameron Fink Nil [1] President and 0.00%
Calgary, Alberta Director
Michael Hart Nil [1] Director 0.00%
Vancouver,
British Columbia
Alex Guidi 4,477,000 Director 31.53%
Vancouver, shares [1]
British Columbia
David Bennett 20,000 Director 0.14%
Karori, New Zealand shares [1]
Mark Katsumata 8,000 Secretary/Treasurer 0.06%
Vancouver, shares [1] and Chief Financial
British Columbia Officer
All officers 4,505,000 31.73%
and directors shares
as a group
Source Rock Holdings 1,800,000 12.68%
Ltd., a wholly-owned shares
subsidiary of Indo-
Pacific Energy Ltd.
[2][4]
Karori, New Zealand
Reservoir Rock Holdings 1,400,000 9.86%
Ltd., a wholly-owned shares
subsidiary of Trans-
Orient Petroleum Ltd.
[3][4]
Karori, New Zealand
Brad Holland 1,173,500 8.26%
Vancouver, shares
British Columbia
Ronald Bertuzzi 1,103,000 7.77%
Vancouver, shares
British Columbia
[1] The Registrant established a non-qualified stock option plan (the
"Plan") for directors, officers, employees and consultants who
provide services to the Registrant. Under the terms of the plan,
3,000,000 shares will be reserved for issuance under the plan. Any
options issued under the plan will expire on the earlier of 10
years from the establishment of the Plan or the expiry date
assigned to the individual option grant. As of the end of February
2000, the Registrant has not issued any options under the Plan.
The Registrant is in the process of determining the appropriate
number of options each director, officer, employee and consultant
of the Registrant will receive.
<PAGE> 18
[2] Source Rock Holdings Ltd., a wholly-owned subsidiary of Indo-
Pacific Energy Ltd., holds an option to acquire 200,000 shares
exercisable at a price of US$0.50 per share expiring on July 31,
2000.
[3] Reservoir Rock Holdings Ltd., a wholly-owned subsidiary of Trans-
Orient Petroleum Ltd., holds an option to acquire 600,000 shares
exercisable at a price of US$0.50 per share expiring on July 31,
2000.
[4] The parent companies of Source Rock Holding Ltd. and Reservoir
Rock Holdings Ltd., Indo-Pacific Energy Ltd. ("Indo") and Trans-
Orient Petroleum Ltd. ("TOP"), respectively, have entered into a
letter of intent under which all of the oil and gas assets of TOP
will be sold to Indo. As part of the payment for these assets,
Indo will transfer its 1,800,000 shares of the Registrant and the
remaining option to acquire 200,000 shares in the Registrant to
TOP's subsidiary, Reservoir Rock Holdings Ltd. After the
transaction is completed, TOP will own a total of 3,200,000 shares
(22.54% of the Registrant's outstanding shares) and a combined
option to acquire 800,000 shares exercisable at a price of US$0.50
per share expiring on July 31, 2000.
Mr. Alex Guidi is currently in discussions with TOP regarding the
transfer of 3,000,000 common shares of the Registrant owned by Mr.
Guidi to TOP. No agreement has been executed as the parties are still
negotiating the terms of the sale. Should the sale occur, TOP would own
43.66% of the Registrant's outstanding shares.
See Item 7 - Certain Relationships and Related Transactions
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The names, municipality of residence, age and position held of the
directors and executive officers of the Registrant are as follows:
Name and Municipality of Age Position Held
Residence
Cameron Fink 32 President & Director
Calgary, Alberta
Canada
Dr. David Bennett [1] 54 Director & Vice-President of
Karori, Wellington Exploration
New Zealand
Alex Guidi [1] 41 Director
Vancouver, British Columbia
Canada
Michael Hart [1] 52 Director
Vancouver, British Columbia
Canada
Mark Katsumata 34 Secretary, Treasurer and
Vancouver, British Columbia Chief Financial Officer
Canada
<PAGE> 19
Notes:
[1] Member of audit committee.
All directors have a term of office expiring at the next annual
general meeting of the Registrant, unless re-elected or earlier vacated
in accordance with the bylaws of the Registrant. All officers have a
term of office lasting until their removal or replacement by the board
of directors.
Mr. Cameron Fink has been a member of the board of directors since
December 1999. Mr. Fink received a B.Sc. in Geophysics at the
University of Alberta, graduating in 1993 with First Class Honours. In
June of 1995, he graduated with an M.Sc. in Geophysics with First Class
standing. In August of 1995, Mr. Fink joined Amoco Canada Petroleum
Company as an interpretation geophysicist in the exploration department
where he worked primarily in the structural trapping regime of the
Rocky Mountain foothills. Mr. Fink's position required that he be
critically involved in the design of seismic surveys, both 2-D and 3-D,
oversee the processing of the seismic data, and develop quality
drillable prospects through the interpretation of these data. In the
fall of 1997, Mr. Fink accepted an expatriate assignment in New
Orleans, Louisiana working Amoco's offshore shelf properties in the
Gulf of Mexico. In September 1999, Mr. Fink was employed as a Senior
Geophysicist by Dominion Energy Canada Limited.
Dr. David Bennett has been a member of the board of directors
since June 1998. Dr. Bennett received a Bachelor of Arts (Natural
Sciences) from Cambridge University in 1968 and a Master of Science in
Exploration Geophysics from the University of Leeds in 1969. In 1973,
Dr. Bennett received his doctorate in Geophysics from the Australian
National University and from 1973 to 1975 conducted post-doctoral
research at the University of Texas (Dallas). From 1975 to 1977, Dr.
Bennett was a post-doctoral fellow and lecturer at the University of
Wellington, New Zealand. From 1977 to 1982, Dr. Bennett was employed by
the Department of Scientific and Industrial Research, Government of New
Zealand and from 1982 to 1994 was employed as geophysicist, exploration
manager and finally general manager by New Zealand Oil and Gas Ltd. Dr.
Bennett was an independent consultant from 1994 to 1996 when he joined
the Registrant. Dr. Bennett has been the president, chief executive
officer and member of the board of directors of Indo-Pacific Energy
Ltd. since October 1996. Since April 1997, he has been the president of
Trans-Orient Petroleum Ltd. and a member of the board of directors and
president of Durum Cons. Energy Corp.
Mr. Alex Guidi has been a member of the board of directors since
August 1997. Mr. Guidi has been involved in public markets since 1985,
and since 1989 in the oil and gas sector. Mr. Guidi has organized and
financed several oil and gas companies. Mr. Guidi has been chairman of
the board and a member of the board of directors of the Indo-Pacific
Energy Ltd. since October 1996. From July 1988 to December 1995, Mr.
Guidi was a member of the board of directors of Trans-Orient Petroleum
Ltd. and was elected a member of the board of directors on January 28,
1998 and chairman on April 22, 1998. From December 1990 to May 1996,
Mr. Guidi was a member of the board of directors of Durum Cons. Energy
Corp. and was president from August 1992 to May 1996. See Item 7 -
Certain Relationships and Related Transactions.
<PAGE> 20
Mr. Hart has worked in the financial services sector with a number
of large financial institutions, between the years 1983-1990, where he
acted as an account executive and financial consultant. From 1990 to
1995, Mr. Hart fulfilled the responsibilities of business and sales
manager within the automotive sector. Subsequent to 1995, Mr. Hart
worked with an investment banking group which was responsible for
taking projects from their infancy to the public markets and has had
experience with public companies operating within the oil & gas
industry. Currently, Mr. Hart is the President of both Hart-Byrne
Enterprises Ltd. and On The Wing Productions Inc., private companies
that are developing specialized products for the music industry.
Mr. Mark Katsumata was a director from February 29, 1997 to August
6, 1997 and secretary from February 20, 1997 to August 6, 1997. Mr.
Katsumata was appointed secretary-treasurer on June 25, 1997. Mr.
Katsumata is a certified general accountant who was in public practice
from 1990 to 1994 in Vancouver, B.C. In 1994, Mr. Katsumata joined
associated companies of the Registrant as controller. Mr. Katsumata is
also the secretary of Trans-Orient Petroleum Ltd., Durum Cons. Energy
Corp., Indo-Pacific Energy Ltd. and secretary-treasurer of Gondwana
Energy, Ltd. and Verida Internet Corp.
None of the individuals listed above are subject to any
anticipated or threatened legal proceedings of a material nature.
ITEM 6. EXECUTIVE COMPENSATION
Annual Compensation Long-Term Compensation
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Annual Restricted Under Other
Name and Compen- Stock Options/ LTIP Compen
Principal Salary Bonus sation Awards SARS Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
[S] [C] [C] [C] [C] [C] [C] [C] [C]
David Bennett 1999 - - 4,483 - - - -
Vice-President 1998 - - 4,295 - - - -
Exploration 1997 - - - [1] - - -
& Director
Cameron Fink 1999 - - - - - - -
President 1998 - - - - - - -
& Director 1997 - - - - - - -
Ronald
Bertuzzi 1999 - - - - - - -
Former 1998 - - - - - - -
President 1997 - - - [2] - - -
& Director
Michael Hart 1999 - - - - - - -
Director 1998 - - - - - - -
1997 - - - - - - -
Alex Guidi 1999 - - - - - - -
Director 1998 - - 18,000 - - - -
1997 - - - [3] - - -
Mark Katsumata 1999 - - - - - - -
Secretary, 1998 - - - - - - -
Treasurer 1997 - - - [4] - - -
& Chief
Financial Officer
[1] On April 2, 1997, Dr. David Bennett was issued 20,000 shares at a
price of $0.10 per share under Regulation D (Rule 504), for total
proceeds paid by Dr. Bennett of $2,000. On April 2, 1997, the
Registrant's shares were not quoted on the OTCBB.
<PAGE> 21
[2] On April 2, 1997, Ronald Bertuzzi was issued 1,000,000 shares at
a price of $0.001 per share under Regulation D (Rule 504), for
total proceeds paid by Mr. Bertuzzi of $1,000. On April 2, 1997,
the Registrant's shares were not quoted on the OTCBB.
[3] On April 2, 1997, Pacific Reach Management Ltd., a private company
wholly-owned by Alex Guidi, was issued 195,000 shares at a price
of $0.10 per share under Regulation D (Rule 504), for total
proceeds paid by Pacific Reach Management Ltd. of $19,500. On
April 2, 1997, the Registrant's shares were not quoted on the
OTCBB.
On August 11, 1997, International Resource Management Corporation
(formerly 437577 B.C. Ltd.), a private company wholly-owned by
Alex Guidi, was issued 3,000,000 shares at a price of $0.01 per
share under Regulation S (901), for total proceeds paid by
International Resource Management Corporation of $30,000. On
August 8, 1997, (the closest date to the issuance on which the
Registrant's shares traded) the Registrant's share price closed at
$.50 per share.
[4] On April 2, 1997, Mark Katsumata was issued 5,000 shares at a
price of $0.10 per share under Regulation D (Rule 504), for total
proceeds paid by Mr. Katsumata of $500. On April 2, 1997, the
Registrant's shares were not quoted on the OTCBB.
On September 29, 1997, Mark Katsumata was issued 5,000 shares at
a price of $0.05 per share under Regulation D (Rule 504), for total
proceeds paid by Mr. Katsumata of $250. On September 17, 1997 (the
closest date to the issuance on which the Registrant's shares traded)
the Registrant's share price closed at $.50 per share.
The Registrant established a non-qualified stock option plan (the
"Plan") for directors, officers, employees and consultants who provide
services to the Registrant. Under the terms of the plan, 3,000,000
shares will be reserved for issuance under the plan. Any options issued
under the plan will expire on the earlier of 10 years from the
establishment of the Plan or the expiry date assigned to the individual
option grant. As at March 13, 2000, the Registrant has not issued any
options under the Plan. The Registrant is in the process of determining
the appropriate number of options each director, officer and employee
of the Registrant will receive.
The Registrant does not have any long-term incentive plans to the
Named Executive Officers during the 1999 fiscal year.
The directors of the Registrant do not receive salaries or fees
for serving as directors of the Registrant, nor do they receive any
compensation for attending meetings of the Board of Directors or
serving on committees of the Board of Directors. The Registrant may,
however, determine to compensate its directors in the future. Directors
are entitled to reimbursement of expenses incurred in attending
meetings. In addition, the directors of the Registrant are entitled to
participate in the Registrant's stock option plan. See above
description of the stock option plan in this section.
There are no compensation arrangements for employment, termination
of employment or change-in-control between the Registrant and the Named
Executive Officers.
<PAGE> 22
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Related Parties
None of the directors or officers of the Registrant nor any person
who beneficially owns, directly or indirectly, shares carrying more
than five percent of outstanding shares of the Registrant, has any
material interest, direct or indirect, in any transaction during the
last two years or in any proposed transaction which, in either case,
has or will materially affect the Registrant, or any subsidiaries,
except as follows:
(a) by an agreement dated June 25, 1998, the Registrant was
granted an option to earn a 30% participating interest (15% from each
of Indo and TOP) in Petroleum Exploration Permit 38256, Canterbury
Basin, South Island, New Zealand exercisable by paying for the costs of
a 200-kilometer seismic program and was granted the right to elect to
earn up to a further 50% participating interest (25% from each of Indo
and TOP) by paying for any additional seismic to define two drilling
prospects and the costs of drilling two exploration wells (the
"Drilling Option");
(b) by agreements dated December 3, 1998, October 26, 1999 and
February 23, 2000, the Drilling Option was extended to June 15, 2000
and the conditions of the Drilling Option have been amended
accordingly;
(c) by agreements dated June 25, 1998 and July 25, 1998, the
Registrant issued 1,000,000 shares to Source Rock Holdings Ltd.
("Source Rock"), a subsidiary of Indo, at a price of US$0.25 per share
and 1,000,000 shares to Reservoir Rock Holdings Ltd. ("Reservoir
Rock"), a subsidiary of TOP, for US$0.25 per share;
(d) by agreements dated June 25, 1998, the Registrant granted to
each of Source Rock and Reservoir Rock an option to acquire 1,000,000
shares exercisable at a price of US$0.50 per share before the earlier
of July 31, 2000 or thirty business days after the Registrant or any
subsidiary of the Registrant ceases to have a right to earn an interest
in, or to hold an interest in, PEP 38256, Canterbury Basin, South
Island, New Zealand. On March 17, 1999, Source Rock exercised part of
its option and acquired 800,000 shares of the Registrant in exchange
for the payment of $400,000. Additionally, on March 17, 1999, Reservoir
Rock exercised its part of its option and acquired 400,000 shares of
the Registrant in exchange for the payment of $200,000.
(e) by an agreement dated June 25, 1998, the Registrant assigned
to Gondwana Energy, Ltd. ("Gondwana") a 20% participating interest in
Petroleum Exploration Permit 38723, Taranaki Basin, North Island, New
Zealand for past costs and for 100,000 shares of Gondwana at a deemed
price of US$0.10 per share;
(f) by an agreement dated April 1, 1998, a subsidiary of the
Registrant assigned to a subsidiary of TOP for past costs a 20%
participating interest in Petroleum Exploration Permit 38332, East
Coast Basin, North Island, New Zealand with the consent of Indo and
Boral Energy Resources NZ Ltd.; and
<PAGE> 23
(g) subsidiaries of Indo and TOP agreed to transfer to a
subsidiary of the Registrant a 20% participation interest in PEP 38256,
Canterbury Basin, South Island, New Zealand in 1997, but this
transaction was cancelled by agreement dated December 31, 1997 because
the subsidiary did not at the time have sufficient funds to carry out
required work.
Except as otherwise disclosed in this Form 10-SB, the following is
of relevance:
Mr. Alex Guidi is a member of the board of directors, the chairman
and principal shareholder of Indo. Mr. Guidi is the chairman, a member
of the board of directors, principal shareholder and the promoter of
TOP. Mr. Guidi is a member of the board of directors, principal
shareholder and promoter of the Registrant. Mr. Guidi is the principal
shareholder and promoter of Gondwana.
Dr. David Bennett is the president, chief executive officer,
member of the boards of directors and a shareholder of the Registrant
and Indo. Dr. Bennett is a member of the board of directors and a
shareholder of TOP.
Mr. Mark Katsumata is the secretary and controller and a
shareholder of the Registrant, Indo, TOP and Gondwana.
Mr. Michael Hart is member of the board of directors of Registrant
and TOP.
Transactions with Promoter
In addition to his position in the management of the Registrant,
Mr. Alex Guidi is the promoter of the Registrant. During the previous
five-year period Mr. Guidi received directly or indirectly, from the
Registrant the following:
On April 2, 1997, Pacific Reach Management Ltd., a private company
wholly-owned by Alex Guidi, was issued 195,000 shares at a price of
$0.10 per share under Regulation D (Rule 504), for total proceeds paid
by Pacific Reach Management Ltd. of $19,500.
On August 11, 1997, International Resource Management Corporation
(formerly 437577 B.C. Ltd.), a private company wholly-owned by Alex
Guidi, was issued 3,000,000 shares at a price of $0.01 per share under
Regulation S (901), for total proceeds paid by International Resource
Management Corporation of $30,000.
ITEM 8. DESCRIPTION OF SECURITIES
The Registrant's securities consist of common stock with a par
value of $0.00001 per share. The Registrant's authorized capital is
100,000,000 common shares of which 14,200,000 common shares are issued
and outstanding as of February 29, 2000. All of the Registrant's common
stock, both issued and unissued, is of the same class and ranks equally
as to dividends, voting powers and participation in the assets of the
Registrant on a winding-up or dissolution. No common shares have been
issued subject to call or assessment. Each common share is entitled to
one vote with respect to the election of directors and other matters.
The shares of common stock do not have cumulative voting rights.
<PAGE> 24
Therefore, the holders of a majority of shares voting for the election
of directors can elect all the directors then standing for election, if
they chose to do so, and in such event the holders of the remaining
shares will not be able to elect any directors.
The common shares have no preemptive or conversion rights, and no
provisions for redemption, purchase for cancellation, surrender of
sinking fund or purchase fund. Provisions as to the creation or
modifications, amendments or variations of such rights or such
provisions are contained in the Private Corporations Act, Chapter 78,
Nevada Revised Statutes.
Neither the Articles of Incorporation nor the Bylaws of the
Registrant contain specific provisions which would delay, defer or
prevent a change in control of the Registrant. However, approximately
85.8 million common stock shares are authorized but unissued as of
February 29, 2000. All of such authorized but unissued shares will be
available for future issuance by the Board of Directors without
additional shareholder approval. These additional shares may be used
for a variety of purposes, including future offerings to raise
additional capital or to facilitate acquisitions. One of the effects of
the existence of unissued and unreserved common stock may be to enable
the Board of Directors to issue shares to persons friendly to current
management, which could render more difficult or discourage an attempt
to obtain control of the Registrant by means of a merger, tender offer,
proxy contest or otherwise, and thereby protect the continuity of
management. Such additional shares also could be used to dilute the
stock ownership of persons seeking to obtain control of the Registrant.
The Registrant's transfer agent is American Securities Transfer &
Trust, Inc. 938 Quail Street, Suite 101, Lakewood, Co 80215, telephone
(303) 234-5300, facsimile (303) 234-5340.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
The Registrant's shares trade on the "Pink Sheets" interdealer
quotation operated by the National Quotation Bureau under the symbol
AMGO. Prior to August 2, 1999, the Registrant's shares traded on the
Bulletin Board under the trading symbol "AMGO." Summary trading by
quarter for the 1999 and 1998 fiscal years are as follows:
Calendar Quarter High Bid[1] Low Bid[1]
1999
First Quarter 1.875 1.125
Second Quarter 2.0625 0.75
Third Quarter 0.9375 0.0625
Fourth Quarter 0.625 0.25
1998
First Quarter 1.875 1.21875
Second Quarter 1.75 0.125
Third Quarter 3.125 1.25
Fourth Quarter 3.125 1.50
<PAGE> 25
Note:
[1] These quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commission and may not represent actual
transactions.
At February 29, 2000, there were 14,200,000 common shares of the
Registrant issued and outstanding.
At February 29, 2000, there were 21 holders of record including
common shares held by brokerage clearing houses, depositories or
otherwise in unregistered form. Other than those entities described in
Item 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT, the Registrant does not know the beneficial owners of such
shares.
No cash dividends have been declared by the Registrant nor are any
intended to be declared. The Registrant is not subject to any legal
restrictions respecting the payment of dividends, except that they may
not be paid to render the Registrant insolvent. Dividend policy will
be based on the Registrant's cash resources and needs and it is
anticipated that all available cash will be needed for property
acquisition, exploration and development for the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Registrant is
subject to or which are anticipated or threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Registrant's former independent auditor, KPMG LLP, Chartered
Accountants, of Vancouver, British Columbia, Canada was dismissed by
the Registrant on January 25, 1999. The former auditor had not
expressed an opinion on any financial statements of the Registrant.
The decision to change auditors was approved by the Registrant's
board of directors. The board of directors decided to dismiss the
former auditor due to the belief that the former auditor would not be
able to consistently meet the time requirements for the preparation of
the Registrant's financial statements. There were no disagreements with
the former auditor on any audit or accounting issues.
The Registrant engaged the firm of Telford Sadovnick, PLLC,
Certified Public Accountants, as its new auditor.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant was incorporated in February 1997. In the past
three fiscal years, the Registrant has issued the following
unregistered securities at the following prices. There were no
underwriters engaged and no underwriting discounts or commissions paid.
All issues were made pursuant to exemptions from registration contained
in Regulation D, Rule 504 and Regulation S, Rules 901-905 of the 1933
Securities Act.
<PAGE> 26
Date Type of Security Number Proceeds Exemption
1997
02/04/97 Common Shares 2,000,000 $101,000 Reg. D (504)
11/08/97 Common Shares 3,000,000 $ 30,000 Reg. S (901)
29/09/97 Common Shares 4,000,000 $200,000 Reg. D (504)
31/12/97 Common Shares 2,000,000 $100,000 Reg. D (504)
1998
02/07/98 Common shares 1,500,000 $375,000 Reg. S (901)
14/08/98 Common Shares 500,000 $125,000 Reg. S (901)
1999
17/03/99 Common Shares 1,200,000 $600,000 Reg. S (901)
There are no outstanding warrants to purchase shares. The
Registrant established a stock option plan (the "Plan") for directors,
officers, employees and consultants who provide services to the
Registrant. Under the terms of the plan, 3,000,000 shares will be
reserved for issuance under the plan. Any options issued under the plan
will expire on the earlier of 10 years from the establishment of the
Plan or the expiry date assigned to the individual option grant. As of
March 15, 2000, the Registrant has not issued any options under the
Plan. The Registrant is in the process of determining the appropriate
number of options each director, officer, employee and consultants of
the Registrant will receive.
There are 800,000 shares subject to option to acquire common
shares held as follows:
Name and Address Number of Shares Expiry Date and Percent
of Beneficial Owner Under Option Exercise Price of Class
Source Rock Holdings Ltd. 200,000[1][3] July 31, 2000 25.00%
Karori, New Zealand US$0.50 per share
Reservoir Rock Holdings Ltd. 600,000[2][3] July 31, 2000 75.00%
Karori, New Zealand US$0.50 per share
[1] Source Rock Holdings Ltd. is a wholly-owned subsidiary of Indo-
Pacific Energy Ltd.
[2] Reservoir Rock Holdings Ltd. is a wholly-owned subsidiary of
Trans-Orient Petroleum Ltd.
[3] The parent companies of Source Rock Holding Ltd. and Reservoir
Rock Holdings Ltd., Indo-Pacific Energy Ltd. ("Indo") and Trans-
Orient Petroleum Ltd. ("TOP"), respectively, have entered into a
letter of intent under which all of the oil and gas assets of TOP
will be sold to Indo. As part of the payment for these assets,
Indo will transfer its 1,800,000 shares of the Registrant and the
remaining option to acquire 200,000 shares in the Registrant to
TOP's subsidiary, Reservoir Rock Holdings Ltd. After the
transaction is completed, TOP will own a total of 3,200,000 shares
(22.54% of the Registrant's outstanding shares) and a combined
option to acquire 800,000 shares exercisable at a price of US$0.50
per share expiring on July 31, 2000.
<PAGE> 27
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The constating documents of the Registrant provide that the
Registrant shall indemnify any director, officer, employee or agent of
the Registrant to the full extent permitted by the laws of the State of
Nevada. Chapter 78, rules 78.7502, 78.751 and 78.752 of the Nevada
Revised Statutes contain the provisions which, subject to certain
restrictions, in general provide for the Registrant's ability to
indemnify, and thereby limit the personal liability of, the directors
and officers of the Registrant against certain liabilities. Officers
and directors of the Registrant are indemnified generally against
expenses, actually and reasonably, incurred in connection with
proceedings, whether civil or criminal, provided that it is determined
that they acted in good faith, were not found guilty and, in any
criminal matter, had reasonable cause to believe their conduct was not
unlawful.
PART F/S
Financial Statement begin on following page.
<PAGE> 28
TELFORD SADOVNICK, P.L.L.C.
Certified Public Accountants
114 West Magnolia Street
Suite 423
Bellingham, Washington 98225
(360) 392-2886
FAX (360) 392-2887
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of AMG Oil Ltd. (formerly
Trans New Zealand Oil Company)
We have audited the accompanying consolidated balance sheets of AMG Oil
Ltd. (formerly Trans New Zealand Oil Company) (a development stage
enterprise) as of September 30, 1999, 1998 and 1997 and the related
consolidated statements of operations, changes in stockholders' equity
and cash flows for the years ended September 30, 1999, 1998, for the
period from inception on February 20, 1997 to September 30, 1997 and
for the period from inception on February 20, 1997 to September 30,
1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of AMG Oil Ltd. (formerly Trans New Zealand Oil Company) (a development
stage enterprise) as of September 30, 1999, 1998 and 1997 and the
results of its operations and its cash flows for the years ended
September 30, 1999, 1998 and for the period from inception on February
20, 1997 to September 30, 1997 and for the period from inception on
February 20, 1997 to September 30, 1999 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company is a development stage enterprise
and has yet to establish any revenues from business operations. As a
result, there is substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Telford Sadovnick, P.L.L.C
CERTIFIED PUBLIC ACCOUNTANTS
Bellingham, Washington
February 23, 2000
F-1
<PAGE> 29
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Balance Sheets
As at September 30, 1999 1998 1997
Assets
Current
Cash $ 258,129 $ 155,748 $ 310,612
Accounts receivable 92 917 -
Marketable securities (Note 3) 42,876 180,510 -
----------- ---------- ---------
301,097 337,175 310,612
Investments (Note 4) 10,000 10,000 -
Oil and gas property (Note 5) 962,554 423,307 -
----------- ---------- ---------
Total Assets $ 1,273,651 $ 770,482 $ 310,612
=========== ========== =========
Liabilities
Current
Accounts payable and
accrued liabilities $ 6,072 $ 5,738 $ 1,500
----------- ---------- ---------
Total Liabilities 6,072 5,738 1,500
----------- ---------- ---------
Commitments and Contingencies
(Notes 1 and 7)
Stockholders' Equity
Common stock, $0.00001 par
value (Note 8) 100,000,000
shares authorized
Issued and outstanding at
September 30,
1999: 14,200,000 shares
1998: 13,000,000 shares
1997: 9,000,000 shares 142 130 90
Additional paid-in capital 1,530,858 930,870 330,910
Deficit accumulated during
the development stage (263,421) (166,256) (21,888)
Total Stockholders' Equity 1,267,579 764,744 309,112
----------- ---------- ---------
Total Liabilities and
Stockholders' Equity $ 1,273,651 $ 770,482 $ 310,612
=========== ========== =========
Approved by the Board of Directors:
/s/ Cameron Fink /s/ David Bennett
Director Director
See accompanying notes to the consolidated financial statements
F-2
<PAGE>
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Statements of Operations
For the
Period from Cumulative
Inception from Inception
on February on February
Year Ended Year Ended 20,1997 to 20, 1997 to
09/30/99 09/30/98 09/30/97 09/30/99
Revenues
Interest income $ 11,467 $ 14,970 $ 2,294 $ 28,731
--------- ---------- --------- ------------
Expenses
General and administrative 43,786 21,931 24,182 89,899
Loss on sale of marketable
securities 16,135 - - 16,135
Write-down of marketable
securities 48,551 144,346 - 192,897
Write-down of oil and gas
property 160 - - 160
--------- ---------- --------- ------------
108,632 166,277 24,182 299,091
--------- ---------- --------- ------------
(97,165) (151,307) (21,888) (270,360)
Gain on sale of oil
and gas property - 6,939 - 6,939
--------- ---------- --------- ------------
Net loss for the period $ (97,165) $ (144,368) $ (21,888) $ (263,421)
========= ========== ========= ============
Basic and diluted loss per
share (Note 9) $ (0.01) $ (0.01) $ (0.01) $ (0.03)
========= ========== ========= ============
See accompanying notes to the consolidated financial statements
F-3
<PAGE> 31
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
For the
Period from Cumulative
Inception from Inception
on February on February
Year Ended Year Ended 20,1997 to 20, 1997 to
09/30/99 09/30/98 09/30/97 09/30/99
Operating Activities
Net loss for the period $ (97,165) $ (144,368) $ (21,888) $ (263,421)
Adjustments to reconcile net
loss to cash applied to
operating activities:
Loss on sale of marketable
securities 16,135 - - 16,135
Write-down of marketable
securities 48,551 144,346 - 192,897
Write-down of oil and
gas property 160 - - 160
Gain on sale of oil and
gas property - (6,939) - (6,939)
Changes in non-cash working capital:
Accounts receivable 825 (917) - (92)
Accounts payable and accrued
liabilities 334 4,238 1,500 6,072
---------- ---------- --------- -----------
Net cash used in
operating activities (31,160) (3,640) (20,388) (55,188)
---------- ---------- --------- -----------
Financing Activities
Common shares issued
for cash 600,000 600,000 331,000 1,531,000
---------- ---------- --------- -----------
Net cash provided by financing
activities 600,000 600,000 331,000 1,531,000
---------- ---------- --------- -----------
Investing Activities
Purchase of marketable
securities - (324,856) - (324,856)
Proceeds from sale of marketable
securities 72,948 - - 72,948
Oil and gas property:
Exploration (539,407) (426,368) - (965,775)
---------- ---------- --------- -----------
Net cash used in
investing activities (466,459) (751,224) - (1,217,683)
---------- ---------- --------- -----------
Net increase (decrease) in
cash during the period 102,381 (154,864) 310,612 258,129
Cash position - Beginning
of period 155,748 310,612 - -
---------- ---------- --------- -----------
Cash position-End of period $ 258,129 $ 155,748 $ 310,612 $ 258,129
========== ========== ========= ===========
Supplemental disclosure of non-cash
investing activities:
Purchase of investments $ - $ (10,000) $ - $ (10,000)
========== ========== ========= ===========
See accompanying notes to the consolidated financial statements
F-4
<PAGE> 32
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Statements of Changes in Stockholders' Equity
For the Periods Ended September 30, 1999, 1998 and 1997
Deficit
Accumulated
Additional during the Total
Common Stock Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
Balance at inception on
February 20, 1997 - $ - $ - $ - $ -
Common stock issued for
cash at $0.01, $0.05 and
$0.10 per share 9,000,000 90 330,910 331,000
Net loss during
the period (21,888) (21,888)
---------- ----- ----------- ---------- -----------
Balance at
September 30, 1997 9,000,000 90 330,910 (21,888) 309,112
Common stock issued
for cash at $0.05
per share 2,000,000 20 99,980 100,000
Common stock issued
for cash at $0.25
per share 2,000,000 20 499,980 500,000
Net loss during
the period (144,368) (144,368)
---------- ----- ----------- ---------- -----------
Balance at
September 30, 1998 13,000,000 130 930,870 (166,256) 764,744
Common stock issued
for cash at $0.50
per share 1,200,000 12 599,988 600,000
Net loss during
the period (97,165) (97,165)
---------- ----- ----------- ---------- -----------
Balance at
September 30, 1999 14,200,000 $ 142 $ 1,530,858 $ (263,421) $ 1,267,579
========== ===== =========== ========== ===========
See accompanying notes to the consolidated financial statements
F-5
<PAGE> 33
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 1 - NATURE OF OPERATIONS AND CONTINGENCIES
The Company is a development stage company incorporated under the laws of
the State of Nevada as Trans New Zealand Oil Company on February 20,
1997. The Company's name was subsequently changed to AMG Oil Ltd. on
July 27, 1998.
The Company is primarily engaged in the acquisition, exploration and
development of its oil and gas property and has yet to determine whether
its property contains oil and gas reserves that are economically
recoverable. The recoverability of the amounts capitalized for oil and
gas property is dependent upon the completion of exploration work, the
discovery of oil and gas reserves in commercial quantities and the
subsequent development of such reserves.
The Company does not generate sufficient cash flow from operations to
fund its entire exploration and development activities and has therefore
relied principally upon the issuance of securities for financing. The
Company intends to continue relying upon the issuance of securities to
finance its operations and exploration and development activities to the
extent such measures are available and obtainable under terms acceptable
to the Company. Accordingly, the Company's consolidated financial
statements are presented on a going concern basis.
Refer to Note 7
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Consolidation
These consolidated financial statements include the accounts of AMG Oil
Ltd. and its wholly-owned subsidiaries, AMG Oil (NZ) Limited and Trans
New Zealand Oil (PNG) Limited. All significant intercompany balances and
transactions have been eliminated.
b) Accounting Principles and Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the fiscal year. Actual results may differ from those estimates.
c) Translation of Foreign Currencies
The Company's foreign operations through its subsidiaries are of an
integrated nature and accordingly, the remeasurement method of foreign
currency translation is used for conversion into United States dollars as
follows:
F-6
<PAGE> 34
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenues and expenses arising from foreign currency transactions are
translated into United States dollars at the average rate for the year.
Monetary assets and liabilities are translated into United States dollars
at the rates prevailing at the balance sheet date. Other assets and
liabilities are translated into United States dollars at the rates
prevailing on the transaction dates. Exchange gains and losses are
recorded as income or expense in the year in which they occur.
d) Financial Instruments and Financial Risk
The Company's financial instruments consist of current assets and current
liabilities. The fair values of the current assets and liabilities
approximate the carrying amounts due to the short-term nature of these
instruments.
e) Accounting Pronouncements Recently Issued
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 128: Earnings per Share ("SFAS 128"),
effective for fiscal periods ending after December 15, 1997 and requiring
restatement of all prior period earnings per share data. SFAS 128
replaces the presentation of primary earnings per share ("EPS") with a
presentation of both basic and diluted EPS for all entities with complex
capital structures.
Basic EPS excludes dilutive securities and is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if dilutive securities were converted into
common shares and is computed similarly to fully diluted EPS pursuant to
previous accounting pronouncements. SFAS 128 applies equally to loss per
share presentations.
The FASB issued Statement of Financial Accounting Standards No. 130:
Reporting Comprehensive Income ("SFAS 130"), effective for fiscal periods
beginning after December 15, 1997 and requiring restatement of all
comparative financial statements disclosed. SFAS 130 requires that all
items required to be recognized under accounting standards as components
of comprehensive income be reported as part of the basic financial
statements. The Company does not expect adoption of this new standard to
have a material effect on its financial reporting.
The FASB issued Statement of Financial Accounting Standards No. 131:
Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"), effective for fiscal periods beginning after December 15,
1997 and requiring restatement of all comparative financial statements
disclosed. SFAS 131 establishes standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports. The
Company does not expect adoption of this new standard to have a material
effect on its financial reporting.
F-7
<PAGE> 35
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The FASB issued Statement of Financial Accounting Standards No. 133:
Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"), effective for fiscal periods beginning after June 15, 1999. SFAS
133 requires that the fair-market value of derivatives be reported on the
balance sheet and any changes in the fair value of the derivative be
reported in income or other comprehensive income, as appropriate. The
Company does not expect adoption of this new standard to have a material
effect on its financial reporting.
f) Joint Operations
The Company's exploration and development activities are conducted
jointly with other companies and accordingly, these financial statements
reflect only the Company's proportionate interest in these activities.
g) Oil and Gas Property
The Company follows the full cost method of accounting for oil and gas
operations whereby all costs associated with the acquisition, exploration
and development of oil and gas properties are capitalized in cost centers
on a country-by-country basis. Such costs include property acquisition
costs, geological and geophysical studies, carrying charges on non-
producing properties, costs of drilling both productive and non-
productive wells, and overhead expenses directly related to these
activities.
Depletion is calculated for producing properties by using the unit-
of-production method based on proved reserves, before royalties, as
determined by management of the Company or independent consultants.
Sales of oil and gas properties are accounted for as adjustments of
capitalized costs, without any gain or loss recognized, unless such
adjustments significantly alter the relationship between capitalized
costs and proved reserves of oil and gas attributable to a cost center.
Costs of abandoned oil and gas properties are accounted for as
adjustments of capitalized costs and written off to expense.
A ceiling test is applied to each cost center by comparing the net
capitalized costs to the present value of the estimated future net
revenues from production of proved reserves discounted by 10%, net of the
effects of future costs to develop and produce the proved reserves, plus
the costs of unproved properties net of impairment, and less the effects
of income taxes. Any excess capitalized costs are written off to
expense. Unproved properties are assessed for impairment on an annual
basis by applying factors that rely on historical experience. In
general, the Company may write-off any unproved property under one or
more of the following conditions:
F-8
<PAGE> 36
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
i) there are no firm plans for further drilling on the unproved
property;
ii) negative results were obtained from studies of the unproved
property;
iii) negative results were obtained from studies conducted in the
vicinity of the unproved property; or
iv) the remaining term of the unproved property does not allow
sufficient time for further studies or drilling.
h) Income Taxes
The Company accounts for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax
returns. In estimating future tax consequences, all expected future
events other than enactment of changes in the tax laws or rates are
considered.
NOTE 3 - MARKETABLE SECURITIES
Marketable securities comprise of 79,400 common shares (September 30,
1998: 109,400 shares and September 30, 1997: Nil) of Trans-Orient
Petroleum Ltd. acquired at a cost of $235,773 (September 30, 1998:
$324,856 and September 30, 1997: Nil) and recorded at an estimated
market value of $42,876 (September 30, 1998: $180,510 and September 30,
1997: Nil).
Refer to Note 6
NOTE 4 - INVESTMENTS
Investments consists of 300,000 common shares (September 30, 1998:
300,000 shares and September 30, 1997: Nil) of Gondwana Energy, Ltd.
("Gondwana") acquired at a deemed cost of $10,000 and recorded at an
estimated market value of $10,000 (September 30, 1998: $10,000 and
September 30, 1997: Nil).
The Company has the right to a further 300,000 common shares of Gondwana
if a commercial discovery is located in Petroleum Exploration Permit
38723.
Refer to Note 6
F-9
<PAGE> 37
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 5 - OIL AND GAS PROPERTY
PEP 38256
The Company has a 30% participating interest in Petroleum Exploration
Permit 38256 ("PEP 38256") which was granted on August 25, 1997. The
other participants in PEP 38256 are Indo-Pacific Energy Ltd. (35%), as
the operator, and Trans-Orient Petroleum Ltd. (35%). PEP 38256 is
located in New Zealand and provides for the exclusive right to explore
for petroleum for an initial term of five years. The participants are
required to relinquish at least one-half of the original area by August
25, 2000 and a further one-half of the remaining area upon extension of
PEP 38256 for a further five years. The participants can apply for
extensions or reductions of the committed work program for PEP 38256
under certain circumstances. Any production permits granted will be for
a term of up to 40 years from the date of issue. The New Zealand
government has reserved a royalty of the greater of 5% of net sales
revenue or 20% of accounting profits from the sale of petroleum products.
By an agreement dated June 25, 1998, the Company acquired a right to earn
up to an 80% participating interest in PEP 38256 from Indo-Pacific Energy
Ltd. and Trans-Orient Petroleum Ltd. In July 1998, the Company earned a
30% participating interest in PEP 38256 by funding all of the costs of
acquiring, processing and interpreting 200 kilometers of new seismic
data. The Company has the right to earn an additional 50% participating
interest by funding all of the costs of drilling two exploration wells
including any further seismic data required prior to drilling. By
agreements dated December 3, 1998 and October 26, 1999, this right has
been extended to May 31, 2000.
The Company and the other participants have completed the work program
required for the first two and a half years. The remaining work program
requires the participants to drill one exploration well prior to August
25, 2000.
At September 30, 1999, PEP 38256 is in good standing with respect to its
work commitments. The Company's share of the committed work program for
the 2000 fiscal year requires an estimated $1,350,000 of exploration
expenditures to be incurred.
Refer to Notes 6 and 12
NOTE 6 - RELATED PARTY TRANSACTIONS
a) Marketable Securities
Marketable securities consist entirely of common shares of Trans-Orient
Petroleum Ltd., a public company with directors, officers and/or
principal shareholders in common with the Company.
Refer to Note 3
F-10
<PAGE> 38
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
b) Investments
Investments consist entirely of common shares of Gondwana Energy, Ltd.
("Gondwana"), a public company with directors, officers and/or principal
shareholders in common with the Company.
During the 1998 fiscal year, the Company sold its 20% participating
interest in Petroleum Exploration Permit 38723 ("PEP 38723") to Gondwana
in exchange for 300,000 common shares of Gondwana at a deemed value of
$0.03333 per share. If a commercial discovery is located in PEP 38723
before October 30, 2002, an additional 300,000 common shares of Gondwana
will be issued to the Company.
Refer to Note 4
c) Oil and Gas Property
Indo-Pacific Energy Ltd. ("Indo-Pacific") and Trans-Orient Petroleum Ltd.
("Trans-Orient") are public companies with directors, officers and/or
principal shareholders in common with the Company. During the 1998
fiscal year, these companies granted the Company a right to earn up to an
80% participating interest in Petroleum Exploration Permit 38256.
Refer to Note 5
d) Private Placements and Stock Options
During the 1998 fiscal year, the Company issued a total of 2,000,000
shares at a price of $0.25 per share pursuant to private placement
agreements for total proceeds of $500,000 in equal proportions to Source
Rock Holdings Limited ("Source Rock"), a wholly-owned subsidiary of Indo-
Pacific, and Reservoir Rock Holdings Limited ("Reservoir Rock"), a
wholly-owned subsidiary of Trans-Orient. Additionally, stock options to
purchase a total of 2,000,000 shares exercisable at a price of $0.50 per
share expiring on July 31, 2000 were granted in equal proportions to
Source Rock and Reservoir Rock.
During the 1999 fiscal year, the Company issued 800,000 shares at a price
of $0.50 per share to Source Rock and 400,000 shares at a price of $0.50
per share to Reservoir Rock pursuant to the exercise of stock options for
total cash proceeds of $600,000.
Refer to Note 8
e) Consulting Agreements
During the 1999 fiscal year, the Company paid $4,483 (1998 fiscal year:
$4,295 and 1997 fiscal period: Nil) in consulting fees to directors of
the Company.
F-11
<PAGE> 39
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
During the 1999 fiscal year, the Company paid $18,288 (1998 fiscal year:
Nil and 1997 fiscal period: Nil) in consulting fees to a Company having
directors, officers and/or principal shareholders in common with the
Company.
During the 1998 fiscal year, the Company paid $30,000 (1997 fiscal
period: Nil) in consulting fees to private companies wholly-owned by
various shareholders of the Company.
f) Management Agreement
During the 1998 fiscal year, the Company paid $5,921 (1997 fiscal period:
Nil) in management fees to a subsidiary of Source Rock.
g) Loan Payable
During the 1997 fiscal period, the Company repaid a $6,250 loan to a
shareholder of the Company.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company participates in oil and gas exploration and development
activities as a joint venturer with related parties and is contractually
committed under agreements to complete certain exploration programs. The
Company's management estimates that the total commitments under various
agreements are approximately $1,350,000.
The Company is not aware of any events of noncompliance in its operations
with any environmental laws or regulations nor of any potentially
material contingencies related to environmental issues. However, the
Company cannot predict whether any new or amended environmental laws or
regulations introduced in the future will have a material adverse effect
on the future business of the Company.
NOTE 8 - COMMON STOCK
a) Authorized and Issued Share Capital
The authorized share capital of the Company is 100,000,000 shares of
common stock with a par value of $0.00001 per share. At September 30,
1999, there were 14,200,000 shares (September 30, 1998: 13,000,000 shares
and September 30, 1997: 9,000,000 shares) issued and outstanding.
b) Share Issuances
During the 1999 fiscal year, the Company issued 1,200,000 shares pursuant
to the exercise of stock options for total cash proceeds of $600,000.
F-12
<PAGE> 40
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 8 - COMMON STOCK (continued)
During the 1998 fiscal year, the Company issued 4,000,000 shares pursuant
to private placements for total cash proceeds of $600,000.
During the 1997 fiscal period, the Company issued 9,000,000 shares
pursuant to private placements for total cash proceeds of $331,000.
Refer to Note 6
c) Stock Options
The Company applies Accounting Principles Board Opinion No. 25:
Accounting for Stock Issued to Employees to account for all compensatory
stock options granted. Further, Statement of Financial Accounting
Standards No. 123: Accounting for Stock-Based Compensation ("SFAS 123")
requires additional disclosure to reflect the results of the Company had
it elected to follow SFAS 123.
SFAS 123 requires a fair value based method of accounting for all
compensatory stock options using the Black-Scholes option pricing model.
However, these models were developed for use in estimating the fair value
of traded options and require the input of and are highly sensitive to
subjective assumptions including the expected stock price volatility.
The stock options granted by the Company have characteristics
significantly different from those of traded options and, in the opinion
of management, the existing model does not provide a reliable single
measure of the fair value of any compensatory stock options granted by
the Company.
In accordance with SFAS 123, the following is a summary of the changes in
the Company's stock options for the 1999, 1998 and 1997 fiscal periods:
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
Fixed Options of Shares Price of Shares Price of Shares Price
[S] [C] [C] [C] [C] [C] [C]
Balance at
beginning
of period 2,000,000 $ 0.50 - $ - - $ -
Granted - - 2,000,000 0.50 - -
Exercised (1,200,000) 0.50 - - - -
Outstanding and
exercisable at
end of period 800,000 $ 0.50 2,000,000 $ 0.50 - $ -
Weighted-average
fair value of
options granted
during the period $ - $ - $ -
F-13
<PAGE> 41
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 8 - COMMON STOCK (continued)
During the 1999 fiscal year and the 1997 fiscal period, no stock options
were granted by the Company thus no weighted-average fair value has been
assigned. During the 1998 fiscal year, the Company granted stock options
to purchase a total of 2,000,000 shares exercisable at a price of $0.50
per share until expiry on July 31, 2000. As these stock options were not
compensatory in nature, the calculation of compensation cost under APB 25
and SFAS 123 do no apply. Accordingly, the Company's net loss and basic
and diluted loss per share as reported and pro forma as if SFAS 123 had
been applied are the same for the 1999, 1998 and 1997 fiscal periods.
Refer to Note 6
NOTE 9 - LOSS PER SHARE
Statement of Financial Accounting Standards No. 128: Earnings per Share
("SFAS 128") replaces the presentation of primary earnings per share
("EPS") with a presentation of both basic and diluted EPS for all
entities with complex capital structures including a reconciliation of
each numerator and denominator. Basic EPS excludes dilutive securities
and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the year.
Diluted EPS reflects the potential dilution that could occur if dilutive
securities were converted into common stock and is computed similarly to
fully-diluted EPS pursuant to previous accounting pronouncements. SFAS
128 applies equally to loss per share presentations.
The following is a reconciliation of the numerators and denominators of
the basic and diluted loss per share calculations for the 1999, 1998 and
1997 fiscal periods:
1999 1998 1997
[S] [C] [C] [C]
Numerator, net loss
for the period $ (97,165) $ (144,368) $ (21,888)
Denominator:
Weighted-average number
of shares outstanding 13,650,959 10,941,096 2,354,260
Basic and diluted
loss per share $ (0.01) $ (0.01) $ (0.01)
Stock options outstanding were not included in the computation of diluted
loss per share as such inclusion would be antidilutive due to net losses
incurred for the 1999, 1998 and 1997 fiscal periods.
F-14
<PAGE> 42
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 10 - INCOME TAXES
There are no income taxes payable by the Company for the September 30,
1999, 1998 and 1997 fiscal periods. At September 30, 1999, the Company
has certain resource and other unused tax pools to offset future taxable
income derived in the United States and New Zealand.
The benefits of these resource and other unused tax pools have been
offset by a valuation allowance of the same amount.
NOTE 11 - NAME CHANGE
On July 27, 1998, the name of the Company was changed from Trans New
Zealand Oil Company to AMG Oil Ltd.
NOTE 12 - SUBSEQUENT EVENT
By an amendment to an agreement dated February 23, 2000 between the
Company and the other participants of PEP 38256, the Company will fund
the acquisition of additional seismic data in return for an extension of
the Company's right to earn up to an additional 50% participating
interest in PEP 38256 to June 15, 2000. Additionally, the Company's
right to increase its participating interest in PEP 38256 has been
amended as follows:
i) earn an additional 50% participating interest in PEP 38256 by
funding all of the costs of drilling two exploration wells including
any further seismic data required prior to drilling; or
ii) earn an additional 35% participating interest in PEP 38256 by
funding all of the costs of drilling one exploration well including
any further seismic data required prior to drilling and, at the
option of the Company upon completion of the first exploration well,
earn a further 15% participating interest in PEP 38256 by funding
all of the costs of drilling a second exploration well including any
further seismic data required prior to drilling.
The first exploration well must be drilled prior to August 25, 2000.
F-15
<PAGE>
REVIEW ENGAGEMENT REPORT
To the Board of Directors and Shareholders of AMG Oil Ltd. (formerly
Trans New Zealand Oil Company)
We have reviewed the accompanying consolidated interim balance sheets of
AMG Oil Ltd. (formerly Trans New Zealand Oil Company) as of March 31,
2000 and 1999 and the related consolidated interim statements of
operations, cash flows and changes in stockholders' equity for the six
month periods ended March 31, 2000 and 1999, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information
included in these financial statements is the representation of the
management of the Company.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less
in scope than an audit in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them
to be in conformity with generally accepted accounting principles.
CERTIFIED PUBLIC ACCOUNTANTS
Bellingham, Washington
May 12, 2000
-1-
<PAGE> 44
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Interim Balance Sheets
(Unaudited - See Accountants' Review Report)
As at March 31,
2000 1999
Assets
Current
Cash $ 27,599 $ 267,210
Accounts receivable 299 942
Prepaid expenses 10,457 -
Marketable securities (Note 3) 30,172 84,323
----------- -----------
68,527 352,475
Investments (Note 4) 10,000 10,000
Equipment, net of accumulated
depreciation (Note 2) 3,456 -
Oil and gas property (Note 5) 1,167,698 952,314
----------- -----------
Total Assets $ 1,249,681 $ 1,314,789
=========== ===========
Liabilities
Current
Accounts payable and accrued
liabilities $ 20,387 $ 3,500
Due to related parties 12,798 4,665
----------- -----------
Total Liabilities 33,185 8,165
----------- -----------
Commitments and Contingencies
(Notes 1 and 7)
Stockholders' Equity
Common Stock $0.00001 par value
(Note 8) 142 142
Additional paid-in capital 1,530,858 1,530,858
Deficit accumulated during the
development stage (314,504) (224,376)
----------- -----------
Total Stockholders' Equity 1,216,496 1,306,624
----------- -----------
Total Liabilities and
Stockholders' Equity $ 1,249,681 $ 1,314,789
=========== ===========
Subsequent Events (Note 12)
See accompanying notes to the consolidated interim financial statements
-2-
<PAGE> 45
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Interim Statements of Operations
(Unaudited - See Accountants' Review Report)
Cumulative
from inception
Six Months Six Months on 02/20/97
Ended Ended to
03/31/00 03/31/99 03/31/00
Revenues
Interest income $ 5,853 $ 5,727 $ 34,584
--------- --------- ----------
Expenses
General and
administrative 44,232 40,608 134,131
Loss on sale of marketable
securities - 16,135 16,135
Write-down of marketable
securities 12,704 7,104 205,601
Write-down of oil and
gas property - - 160
--------- --------- ----------
56,936 63,847 356,027
--------- --------- ----------
(51,083) (58,120) (321,443)
Gain on sale of oil
and gas property - - 6,939
--------- --------- ----------
Net loss for the period $ (51,083) $ (58,120) $ (314,504)
========= ========= ==========
Basic and diluted loss per
share (Note 9) $ (0.01) $ (0.01) $ (0.03)
========= ========= ==========
See accompanying notes to the consolidated interim financial statements
-3-
<PAGE> 46
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Interim Statements of Cash Flows
(Unaudited - See Accountants' Review Report)
Cumulative
from inception
Six Months Six Months on 02/20/97
Ended Ended to
03/31/00 03/31/99 03/31/00
OPERATING ACTIVITIES
Net loss for the period $ (51,083) $ (58,120) $ (314,504)
Adjustments to reconcile
net loss to cash applied
to operating activities:
Depreciation 70 - 70
Loss on sale of
marketable securities - 16,135 16,135
Write-down of marketable
securities 12,704 7,104 205,601
Write-down of oil and
gas property - - 160
Gain on sale of oil and
gas property - - (6,939)
Changes in non-cash working
capital:
Accounts receivable (207) (25) (299)
Prepaid expenses (10,457) - (10,457)
Accounts payable and
accrued liabilities 14,315 (2,238) 20,387
Due to related parties 12,798 4,665 12,798
---------- ---------- ------------
Net cash used in
operating activities (21,860) (32,479) (77,048)
---------- ---------- ------------
FINANCING ACTIVITIES
Common shares issued
for cash - 600,000 1,531,000
---------- ---------- ------------
Net cash provided by
financing activities - 600,000 1,531,000
---------- ---------- ------------
INVESTING ACTIVITIES
Purchase of fixed assets (3,526) - (3,526)
Purchase of marketable
securities - - (324,856)
Proceeds from sale of
marketable securities - 72,948 72,948
Exploration expenditures (205,144) (529,007) (1,170,919)
---------- ---------- ------------
Net cash used in
investing activities (208,670) (456,059) (1,426,353)
---------- ---------- ------------
Net increase (decrease) in
cash during the period (230,530) 111,462 27,599
Cash position - Beginning
of period 258,129 155,748 -
---------- ---------- ------------
Cash position - End of
period $ 27,599 $ 267,210 $ 27,599
========== ========== ============
See accompanying notes to the consolidated interim financial statements
-4-
<PAGE> 47
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Interim Statements of Changes in Stockholders' Equity
(Unaudited - See Accountants' Review Report)
For the Six Months Ended March 31, 2000 and 1999
Deficit
Accumulated
Additional during the Total
Common Stock Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
Balance at
09/30/98 13,000,000 $ 130 $ 930,870 $ (166,256) $ 764,744
Common stock issued
for cash at $0.50
per share 1,200,000 12 599,988 600,000
Net loss for
the period (58,120) (58,120)
---------- ----- ----------- ----------- -----------
Balance at
03/31/99 14,200,000 $ 142 $ 1,530,858 $ (224,376) $ 1,306,624
========== ===== =========== =========== ===========
Balance at
09/30/99 14,200,000 $ 142 $ 1,530,858 $ (263,421) $ 1,267,579
Net loss for
the period (51,083) (51,083)
---------- ----- ----------- ----------- -----------
Balance at
03/31/00 14,200,000 $ 142 $ 1,530,858 $ (314,504) $ 1,216,496
========== ===== =========== =========== ===========
See accompanying notes to the consolidated interim financial statements
-5-
<PAGE> 48
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Interim Financial Statements
(Unaudited - See Accountants' Review Report)
For the Six Months Ended March 31, 2000 and 1999
NOTE 1 - NATURE OF OPERATIONS AND CONTINGENCIES
The Company is a development stage company incorporated under the laws
of the State of Nevada as Trans New Zealand Oil Company on February 20,
1997. The Company's name was subsequently changed to AMG Oil Ltd. on
July 27, 1998.
The Company is primarily engaged in the acquisition, exploration and
development of its oil and gas property and has yet to determine
whether its property contains oil and gas reserves that are
economically recoverable. The recoverability of the amounts
capitalized for oil and gas property is dependent upon the completion
of exploration work, the discovery of oil and gas reserves in
commercial quantities and the subsequent development of such reserves.
The Company does not generate sufficient cash flow from operations to
fund its entire exploration and development activities and has
therefore relied principally upon the issuance of securities for
financing. The Company intends to continue relying upon the issuance
of securities to finance its operations and exploration and development
activities to the extent such measures are available and obtainable
under terms acceptable to the Company. Accordingly, the Company's
consolidated financial statements are presented on a going concern
basis.
Refer to Note 7
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Consolidation
These consolidated financial statements include the accounts of AMG Oil
Ltd. and its wholly-owned subsidiaries, AMG Oil (NZ) Limited and Trans
New Zealand Oil (PNG) Limited. All significant intercompany balances
and transactions have been eliminated.
b) Accounting Principles and Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the fiscal year. Actual results may differ from
those estimates.
c) Translation of Foreign Currencies
The Company's foreign operations through its subsidiaries are of an
integrated nature and accordingly, the remeasurement method of foreign
currency translation is used for conversion into United States dollars
as follows:
-6-
<PAGE> 49
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Interim Financial Statements
(Unaudited - See Accountants' Review Report)
For the Six Months Ended March 31, 2000 and 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c) Translation of Foreign Currencies (Continued)
Revenues and expenses arising from foreign currency transactions are
translated into United States dollars at the average rate for the year.
Monetary assets and liabilities are translated into United States
dollars at the rates prevailing at the balance sheet date. Other
assets and liabilities are translated into United States dollars at the
rates prevailing on the transaction dates. Exchange gains and losses
are recorded as income or expense in the year in which they occur.
d) Financial Instruments and Financial Risk
The Company's financial instruments consist of current assets and
current liabilities. The fair values of the current assets and
liabilities approximate the carrying amounts due to the short-term
nature of these instruments.
e) Accounting Pronouncements Recently Issued
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 128: Earnings per Share ("SFAS
128"), effective for fiscal periods ending after December 15, 1997 and
requiring restatement of all prior period earnings per share data.
SFAS 128 replaces the presentation of primary earnings per share
("EPS") with a presentation of both basic and diluted EPS for all
entities with complex capital structures.
Basic EPS excludes dilutive securities and is computed by dividing
income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if dilutive securities were
converted into common shares and is computed similarly to fully diluted
EPS pursuant to previous accounting pronouncements. SFAS 128 applies
equally to loss per share presentations.
The FASB issued Statement of Financial Accounting Standards No. 130:
Reporting Comprehensive Income ("SFAS 130"), effective for fiscal
periods beginning after December 15, 1997 and requiring restatement of
all comparative financial statements disclosed. SFAS 130 requires that
all items required to be recognized under accounting standards as
components of comprehensive income be reported as part of the basic
financial statements. The Company does not expect adoption of this new
standard to have a material effect on its financial reporting.
-7-
<PAGE> 50
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Interim Financial Statements
(Unaudited - See Accountants' Review Report)
For the Six Months Ended March 31, 2000 and 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e) Accounting Pronouncements Recently Issued (Continued)
The FASB issued Statement of Financial Accounting Standards No. 131:
Disclosures about Segments of an Enterprise and Related Information
('SFAS 131"), effective for fiscal periods beginning after December 15,
1997 and requiring restatement of all comparative financial statements
disclosed. SFAS 131 establishes standards for reporting information
about operating segments in annual financial statements and requires
selected information about operating segments in interim financial
reports. The Company does not expect adoption of this new standard to
have a material effect on its financial reporting.
The FASB issued Statement of Financial Accounting Standards No. 133:
Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"), effective for fiscal periods beginning after June 15, 1999.
SFAS 133 requires that the fair-market value of derivatives be reported
on the balance sheet and any changes in the fair value of the
derivative be reported in income or other comprehensive income, as
appropriate. The Company does not expect adoption of this new standard
to have a material effect on its financial reporting.
f) Joint Operations
The Company's exploration and development activities are conducted
jointly with other companies and accordingly, these financial
statements reflect only the Company's proportionate interest in these
activities.
g) Equipment
Equipment consists solely of computer equipment recorded at cost and
depreciated on 30% declining balance basis. $70 was recorded as
depreciation expense during the six month period (1999: $nil).
h) Oil and Gas Property
The Company follows the full cost method of accounting for oil and gas
operations whereby all costs associated with the acquisition,
exploration and development of oil and gas properties are capitalized
in cost centers on a country-by-country basis. Such costs include
property acquisition costs, geological and geophysical studies,
carrying charges on non-producing properties, costs of drilling both
productive and non-productive wells, and overhead expenses directly
related to these activities.
-8-
<PAGE> 51
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Interim Financial Statements
(Unaudited - See Accountants' Review Report)
For the Six Months Ended March 31, 2000 and 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h) Oil and Gas Property (Continued)
Depletion is calculated for producing properties by using the
unit-of-production method based on proved reserves, before royalties,
as determined by management of the Company or independent consultants.
Sales of oil and gas properties are accounted for as adjustments of
capitalized costs, without any gain or loss recognized, unless such
adjustments significantly alter the relationship between capitalized
costs and proved reserves of oil and gas attributable to a cost center.
Costs of abandoned oil and gas properties are accounted for as
adjustments of capitalized costs and written off to expense.
A ceiling test is applied to each cost center by comparing the net
capitalized costs to the present value of the estimated future net
revenues from production of proved reserves discounted by 10%, net of
the effects of future costs to develop and produce the proved reserves,
plus the costs of unproved properties net of impairment, and less the
effects of income taxes. Any excess capitalized costs are written off
to expense. Unproved properties are assessed for impairment on an
annual basis by applying factors that rely on historical experience.
In general, the Company may write-off any unproved property under one
or more of the following conditions:
i) there are no firm plans for further drilling on the unproved
property;
ii) negative results were obtained from studies of the unproved
property;
iii) negative results were obtained from studies conducted in the
vicinity of the unproved property; or
iv) the remaining term of the unproved property does not allow
sufficient time for further studies or drilling.
i) Income Taxes
The Company accounts for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax
returns. In estimating future consequences, all expected future events
other than enactment of changes in the tax laws or rates are
considered.
NOTE 3 - MARKETABLE SECURITIES
Marketable securities comprise of 79,400 common shares of Trans-Orient
Petroleum Ltd. acquired at a cost of $235,773 and recorded at an
estimated market value of $30,172 (March 31,1999: $84,323).
Refer to Note 6
-9-
<PAGE> 52
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Interim Financial Statements
(Unaudited - See Accountants' Review Report)
For the Six Months Ended March 31, 2000 and 1999
NOTE 4 - INVESTMENTS
Investments consists of 300,000 common shares of Gondwana Energy, Ltd.
("Gondwana") acquired at a deemed cost of $10,000 and recorded at an
estimated market value of $10,000.
The Company has the right to an additional 300,000 common shares of
Gondwana at a nominal cost if a commercial discovery is located in
Petroleum Exploration Permit 38723 before October 30, 2002.
Refer to Note 6
NOTE 5 - OIL AND GAS PROPERTY
PEP 38256
The Company initially earned a 30% participating interest in Petroleum
Exploration Permit 38256 ("PEP 38256") originally granted on August 25,
1997. The other participants in PEP 38256 are Indo-Pacific Energy Ltd.
(35%), as the operator, and Trans-Orient Petroleum Ltd. (35%). PEP
38256 is located in New Zealand and provides for the exclusive right to
explore for petroleum for an initial term of five years. The
participants are required to relinquish at least one-half of the
original area by August 25, 2000 and a further one-half of the
remaining area upon extension of PEP 38256 for a further five years.
The participants can apply for extensions or reductions of the
committed work program for PEP 38256 under certain circumstances. As
at March 31, 2000 PEP 38256 is in good standing with respect to its
work commitments. The participants must drill one exploration well by
August 25, 2000 to fulfill the remaining requirements under the Permit.
Any production permits granted will be for a term of up to 40 years
from the date of issue. The New Zealand government has reserved a
royalty of the greater of 5% of net sales revenue or 20% of accounting
profits from the sale of petroleum products.
Indo-Pacific and Trans-Orient have jointly granted the Company an
option to earn either an additional 50% participating interest in PEP
38256, upon funding all related expenditures for the drilling of two
explorations wells or, an additional 35% by funding all related costs
for one exploration well. If the Company initially elects to fund the
drilling of one well it can exercise a further option to earn an
additional 15% upon the funding of all costs for a second exploration
well. The Company is required to notify Indo-Pacific and Trans-Orient
of its initial election by June 16, 2000. If the Company initially
elects to drill one well it has 30 days from completion of the first
well to exercise its option to drill the second well.
-10-
<PAGE> 53
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Interim Financial Statements
(Unaudited - See Accountants' Review Report)
For the Six Months Ended March 31, 2000 and 1999
NOTE 5 - OIL AND GAS PROPERTY (continued)
The full cost of drilling the first exploratory well is estimated at
$1,250,000. The full cost of drilling the second exploratory well is
estimated at $1,000,000.
Refer to Note 6
NOTE 6 - RELATED PARTY TRANSACTIONS
a) Marketable Securities
Marketable securities consist entirely of common shares of Trans-Orient
Petroleum Ltd., a public company with directors, officers and/or
principal shareholders in common with the Company.
Refer to Note 3
b) Investments
Investments consist entirely of common shares of Gondwana Energy, Ltd.,
a public company with directors, officers and/or principal shareholders
in common with the Company.
Refer to Note 4
c) Oil and Gas Property
Indo-Pacific Energy Ltd. and Trans-Orient Petroleum Ltd. are public
companies with directors, officers and/or principal shareholders in
common with the Company.
Refer to Note 5
d) Private Placements and Stock Options
During the six month period ended March 31, 1999, the Company issued
800,000 shares at a price of $0.50 per share to a wholly owned
subsidiary of Indo-Pacific Energy Ltd. and 400,000 shares at a price of
$0.50 per share to a wholly owned subsidiary of Trans-Orient Petroleum
Ltd., pursuant to the exercise of stock options for total cash proceeds
of $600,000.
Refer to Note 8
e) Consulting Agreements
The Company paid $327 (1999: $ 2,018) in consulting fees to directors
of the Company.
The Company paid $11,735 (1999: $18,288) for services to companies
having directors, officers and/or principal shareholders in common with
the Company.
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<PAGE> 54
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Interim Financial Statements
(Unaudited - See Accountants' Review Report)
For the Six Months Ended March 31, 2000 and 1999
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
f) Management Agreement
During the six month period ended March 31, 2000 the Company entered
into an agreement with DLJ Management Corp., ("DLJ"), a wholly owned
subsidiary of Trans-Orient Petroleum Ltd., to reimburse costs on a cost
recovery basis. The Company incurred costs of $20,903, including an
amount owed to DLJ at March 31, 2000 of $6,428. In addition, during the
period, the Company paid a retainer of $10,457 to DLJ.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company participates in oil and gas exploration and development
activities as a joint venture partner with related parties and is
contractually committed under agreements to complete certain
exploration programs. The Company's management estimates that the
total commitments under various agreements are approximately $1,250,000
to drill the first exploratory well and an additional $ 1,000,000 if it
elects to drill the second well.
The Company is not aware of any events of noncompliance in its
operations with any environmental laws or regulations, nor of any
potentially material contingencies related to environmental issues.
However, the Company cannot predict whether any new or amended
environmental laws or regulations introduced in the future will have a
material adverse effect on the future business of the Company.
NOTE 8 - COMMON STOCK
a) Authorized and Issued Share Capital
The authorized share capital of the Company is 100,000,000 shares of
common stock with a par value of $0.00001 per share. There are
14,200,000 shares issued and outstanding.
b) Share Issuances
During 1999, the Company issued 1,200,000 shares pursuant to the
exercise of stock options for total cash proceeds of $600,000.
Refer to Note 6
c) Stock Options
The Company applies Accounting Principles Board Opinion No. 25:
Accounting for Stock Issued to Employees to account for all
compensatory stock options granted. Further, Statement of Financial
Accounting Standards No. 123: Accounting for Stock-Based Compensation
("SFAS 123") requires additional disclosure to reflect the results of
the Company had it elected to follow SFAS 123.
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<PAGE> 55
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Interim Financial Statements
(Unaudited - See Accountants' Review Report)
For the Six Months Ended March 31, 2000 and 1999
NOTE 8 - COMMON STOCK (Continued)
c) Stock Options (Continued)
SFAS 123 requires a fair value based method of accounting for all
compensatory stock options using the Black-Scholes option pricing
model. However, these models were developed for use in estimating the
fair value of traded options and require the input of and are highly
sensitive to subjective assumptions including the expected stock price
volatility. The stock options granted by the Company have
characteristics significantly different from those of traded options
and, in the opinion of management, the existing model does not provide
a reliable single measure of the fair value of any compensatory stock
options granted by the Company.
In accordance with SFAS 123, the following is a summary of the changes
in the Company's stock options for the 2000 and 1999 periods:
2000 1999
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
Fixed Options
Balance at beginning
of period 800,000 $ 0.50 2,000,000 $ 0.50
Exercised (1,200,000) 0.50
------- ------ ---------- ------
Outstanding and
exercisable at end
of period 800,000 $ 0.50 800,000 $ 0.50
------- ------ ---------- ------
Weighted-average
fair value of
options granted
during the period $ - $ -
------ ------
The Company did not grant any stock options during the six months ended
March 31, 2000 and 1999 and no weighted-average fair value was
assigned. The existing stock options expire on July 31, 2000. As these
stock options were not compensatory in nature, the calculation of
compensation cost under APB 25 and SFAS 123 do no apply. Accordingly,
the Company's net loss and basic and diluted loss per share as reported
and pro forma as if SFAS 123 had been applied are the same for the 2000
and 1999 fiscal periods.
Refer to Note 6
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<PAGE> 56
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Interim Financial Statements
(Unaudited - See Accountants' Review Report)
For the Six Months Ended March 31, 2000 and 1999
NOTE 9 - LOSS PER SHARE
Statement of Financial Accounting Standards No. 128: Earnings per Share
("SFAS 128") replaces the presentation of primary earnings per share
("EPS") with a presentation of both basic and diluted EPS for all
entities with complex capital structures including a reconciliation of
each numerator and denominator. Basic EPS excludes dilutive securities
and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the year.
Diluted EPS reflects the potential dilution that could occur if
dilutive securities were converted into common stock and is computed
similarly to fully-diluted EPS pursuant to previous accounting
pronouncements. SFAS 128 applies equally to loss per share
presentations.
The following is a reconciliation of the numerators and denominators of
the basic and diluted loss per share calculations for the respective
2000 and 1999 six month periods:
2000 1999
Numerator, net loss for the period $ (51,083) $ (58,120)
---------- ----------
Denominator:
Weighted-average number of shares
outstanding 14,200,000 13,098,901
Basic and diluted loss per share $ (0.01) $ (0.00)
---------- ----------
Stock options outstanding were not included in the computation of
diluted loss per share. The inclusion would be anti-dilutive, due to
net losses incurred in the 2000 and 1999 periods.
NOTE 10 - INCOME TAXES
There are no income taxes payable by the Company. At March 31, 2000 the
Company has certain resource and other unused tax pools to offset
future taxable income derived in the United States and New Zealand.
The benefits of these resource and other unused tax pools have been
offset by a valuation allowance of the same amount.
-14-
<PAGE> 57
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Interim Financial Statements
(Unaudited - See Accountants' Review Report)
For the Six Months Ended March 31, 2000 and 1999
NOTE 11 - UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The year 2000 issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. Although the change in
date has occurred, it is not possible to conclude that all aspects of
the year 2000 issue that may affect the entity, including those related
to customers, suppliers, or other third parties, have been fully
resolved.
NOTE 12 - SUBSEQUENT EVENTS
The Company issued 5,000,000 units for $0.05 per unit or $250,000, to
Trans-Orient Petroleum Ltd., a related company with common directors
and a principal shareholder (See Note 6). Each unit consists of one
share of common stock of the Company and one share purchase warrant
exercisable on or before April 17, 2005 at a price of $1 per share.
-15-
<PAGE> 58
PART III
ITEM 1. INDEX TO EXHIBITS
The following exhibits required by Item 601 of Regulation S-B are filed
herewith:
Exhibit
Number Description
3.1* Initial Articles of Incorporation, as filed February 20,
1997
3.2* Bylaws
3.3* Articles of Amendment to the Articles of Incorporation, as
filed on July 27, 1998.
27.2 Financial Data Schedule
99.1* PEP 38256 Option Agreement dated June 25, 1998
99.2* Amending Agreement #1, Amendment #2 and Amendment Agreement
#3 to PEP 38256 Option Agreement dated December 3, 1998,
October 26, 1999 and February 23, 2000.
99.3* PEP 38256 Joint Operating Agreement
99.4* AMG Oil Ltd. 2000 Stock Option Plan
* Previously filed.
<PAGE> 59
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the Registrant has caused this signature page to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMG OIL LTD.
Name Title Date
/s/ Cameron Fink
Cameron Fink President and Director March 18, 2000
/s/ Alex Guidi
Alex Guidi Director March 18, 2000
/s/ Michael Hart
Michael Hart Director March 18, 2000
/s/ David Bennett
David Bennett Director March 18, 2000
